Exhibit
10.1


 


EXECUTION COPY


 


STOCK PURCHASE AGREEMENT


 


THIS STOCK PURCHASE AGREEMENT (the “Agreement”) is made as of May 23,
2008, by and among EMRISE Electronics
Corporation, a New Jersey corporation (“Buyer”), EMRISE
Corporation, a Delaware corporation and parent of Buyer (“EMRISE”), Charles S. Brand, an individual (“Brand”), Advanced Control Components, Inc.,
a New Jersey corporation (the “Company”),
Thomas P. M. Couse, an individual (“Couse”),
Joanne Couse, an individual (“J. Couse”),
Michael Gaffney, an individual (“Gaffney”),
and Custom Components, Inc., a New Jersey corporation (“Parent”). 
Couse and Brand are collectively referred to as “Majority Owners,” and each individually as
a “Majority Owner.”  Couse, Brand, J. Couse and Gaffney are
collectively referred to as “Sellers,”
and each individually as a “Seller.”  Buyer, Sellers, the Company, and Parent are
referred to collectively as the “Parties,”
and each individually as a “Party.”


 


R  E  C  I  T
A  L  S


 


A.                                   Couse,
J. Couse, Gaffney and Parent in the aggregate own all of the Capital Equity (as
hereinafter defined) of the Company. 
Parent owns 80% of the
issued and outstanding common stock of the Company. Couse and J. Couse each own
10% of the issued and
outstanding common stock of the Company (collectively, the “Company Shares”).  Pursuant to that certain letter from the
Company to Gaffney dated July 19, 2004, Gaffney holds an option (the “Gaffney Option”) to acquire 1% of the issued and
outstanding common stock of the Company.


 


B.                                     Couse
and J. Couse desire to sell, and Buyer desires to purchase, all of the Company
Shares, for the consideration and on the terms set forth in this
Agreement.  Gaffney desires to terminate
the Gaffney Option for the consideration and on the terms set forth in this
Agreement.


 


C.                                     Brand
owns all of the issued and outstanding shares of Capital Equity of Parent (the “Parent Shares”).


 


D.                                    Brand
desires to sell, and Buyer desires to purchase, all of the Parent Shares, for
the consideration and on the terms set forth in this Agreement.


 


NOW, THEREFORE, in consideration of the premises,
representations, warranties and the mutual covenants contained in this
Agreement, and for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Parties agree as follows:


 


ARTICLE I


DEFINITIONS


 


For purposes of this Agreement, the following terms
have the meanings specified or referred to in this Article I:


 


“Acceleration Event
Amount” shall have the meaning set forth in Section 2.6(i).


 


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“Accounting Firm”
shall have the meaning set forth in Section 2.5(a).


 


“Accounts Receivable”
shall have the meaning set forth in Section 3.8(b).


 


“Acquisition
Proposal”
shall have the meaning set forth in Section 5.7.


 


“Adjusted Closing Net
Working Capital” shall equal the sum of (a) Closing Net
Working Capital plus (b) the
amount by which the actual expenses incurred by the Company in connection with
the audit of the Company’s financial statements pursuant to Section 5.7
exceed the amount accrued for such audit on the Closing Balance Sheet, if any.


 


“Advisory Services Agreement”
shall have the meaning set forth in Section 2.4(a)(v).


 


“Affiliate”
shall mean with respect to any particular Person any other Person controlling,
controlled by or under common control with such Person.  For purposes of this Agreement, Majority
Owner shall not be deemed an Affiliate of Buyer, Parent or the Company after
the Closing.


 


“Aggregate Basket”
shall have the meaning set forth in Section 10.6.


 


“Agreement”
shall have the meaning set forth in the first paragraph of this Agreement.


 


“Applicable Contract” shall mean  any
Contract (a) under which Parent or the Company has or may acquire any
rights, (b) under which Parent or the Company has or may become subject to
any obligation or liability, or (c) by which Parent or the Company or any
of the assets owned or used by it is or may become bound.


 


“Arbitrator”
shall have the meaning set forth in Section 11.1(e).


 


“Audited Company
Balance Sheet” shall have the meaning set forth in Section 3.4(a).


 


“Audited Company
Financial Statements” shall have the meaning set forth in Section 3.4(a).


 


“Best Efforts” shall mean the efforts that a
prudent Person desirous of achieving a result would use in similar circumstances
to ensure that such result is achieved as expeditiously as possible; provided,  however,
that an obligation to use Best Efforts under this Agreement does not require
the Person subject to that obligation to take actions that would result in a
materially adverse change in the benefits to such Person of this Agreement and
the Contemplated Transactions.


 


“Brand”
shall have the meaning set forth as defined in the first paragraph of this
Agreement.


 


“Brand Employment Agreement”
shall have the meaning set forth in Section 2.4(a)(iv).


 


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“Business Day” shall mean any day that is not a
Saturday, Sunday or other day on which banks in the State of New Jersey are
authorized or required to close.


 


“Buyer”
shall have the meaning set forth in the first paragraph of this Agreement.


 


“Capital Gains Increase
Payment” shall have the meaning set forth in Section 2.7.


 


“Capital Gains Tax Rate
Increase” shall have the meaning set forth in Section 2.7.


 


“Capital Equity”
shall mean any and all shares, interests, participations or other equivalents
(however designated) of equity of a corporation, and any and all ownership
interests in a Person (other than a corporation), including membership
interests, partnership interests, joint venture interests and beneficial
interests, and any and all warrants, options or other rights to purchase any of
the foregoing.


 


“Cash Consideration”
shall have the meaning set forth in Section 2.2(a).


 


“Closing”
shall have the meaning set forth in Section 2.3.


 


“Closing Balance Sheet”
shall have the meaning set forth in Section 2.5(a).


 


“Closing Date”
shall mean the date and time as of which the Closing actually takes place.


 


“Closing Net Cash” shall
equal (a) cash on hand plus (b) the
amount of the Employee Retention Bonuses paid at Closing plus
(c) up to $50,000 related to the cost of equipment purchased by the
Company since September 30, 2007 minus
(c) total debt (excluding leases entered into by the Company after September 30,
2007 with an aggregate value of up to $425,000) of the Company as of the
Closing Date determined in accordance with GAAP, applying the same accounting
principles, policies and practices that were used in preparing the Audited
Company Financial Statements.


 


“Closing Net Working
Capital” shall equal (a) accounts receivable plus (b) inventory plus (c) deferred tax asset minus (d) accounts payable minus (e) accrued expenses (excluding
any accrual related to the Employee Retention Bonuses) minus
(f) accrued corporate income tax of the Company as of the Closing Date
determined in accordance with GAAP, applying the same accounting principles,
policies and practices that were used in preparing the Audited Company
Financial Statements.


 


“Collateral Assignment”
shall mean the Collateral Assignment of Rights Under Purchase Agreement by and
among Buyer, EMRISE and EMRISE’s senior lender pursuant to which Buyer and
EMRISE are assigning all of their rights and remedies with respect to this
Agreement in the form of Exhibit 1 attached hereto.


 


“Company”
shall have the meaning set forth in the first paragraph of this Agreement.


 


“Company Leases”
shall have the meaning set forth in Section 3.6(d).


 


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“Company Leased Real
Property” shall have the meaning set forth in Section 3.6(d).


 


“Company Improvements”
shall have the meaning set forth in Section 3.6(h).


 


“Company Real Property
Permits” shall have the meaning set forth in Section 3.6(i).


 


“Company Shares”
shall have the meaning set forth in Recital A
of this Agreement.


 


 “Consent” shall mean any
approval, consent, ratification, waiver, or other authorization (including any
Governmental Authorization).


 


“Consent to Collateral Assignment”
shall have the meaning set forth in Section 2.4(a)(viii).


 


“Contemplated
Transactions” shall
mean all of the transactions contemplated by this Agreement, including:


 


(a)                                  the
sale of the Company Shares by Couse and J. Couse to Buyer;


 


(b)                                 the
termination of the Gaffney Option by Gaffney in exchange for the consideration
to be paid by Buyer hereunder;


 


(c)                                  the
sale of the Parent Shares by Brand to Buyer;


 


(d)                                 the
execution, delivery, and performance of the Noncompetition Agreements, the
Sellers’ Releases, the Brand Employment
Agreement, the Advisory Services Agreement, the Subordinated Contingent Notes, the
Security Agreement, the Guaranty, the
Intercreditor Agreement, the Subordination Agreement, the Collateral
Assignment, the Consent to Collateral Assignment and the Employee Retention
Bonus Agreements (collectively, the “Related Agreements”);


 


(e)                                  the
performance by Buyer, Sellers and the Company of their respective covenants and
obligations under this Agreement and the Related Agreements; and


 


(f)                                    Buyer’s
acquisition and ownership of the Parent Shares and Company Shares.


 


“Contingent Note
Threshold” shall have the meaning set forth in Section 2.6(d)(i).


 


“Contract” shall mean any agreement, contract,
obligation, promise, or undertaking (whether written or oral and whether
express or implied) that is legally binding.


 


“Copyrights”
shall have the meaning set forth in Section 3.22(a)(iii).


 


“Couse”
shall have the meaning set forth in
the first paragraph of this Agreement.


 


“Credit Facility”
shall mean the Company’s credit facility with Sun National Bank.


 


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“Damages”
shall have the meaning set forth in Section 10.2.


 


“Deferred Purchase
Price” shall have the meaning set forth in Section 2.6(a).


 


“Deferred Purchase
Price Payments” shall have the meaning set forth in Section 2.6(e)(ii).


 


“Disclosure Schedule” shall mean the disclosure schedule
delivered by Majority Owners to Buyer concurrently with the execution and
delivery of this Agreement, as amended pursuant to Section 5.5.


 


“Dispute Notice”
shall have the meaning set forth in Section 2.6(b).


 


“Employee Retention
Bonus Agreement” shall have the meaning set forth in Section 7.11.


 


“Employee Retention
Bonuses” shall mean the bonuses payable to key employees of
the Company in the amounts and upon the timing set forth in Section 3.20(f) of
the Disclosure Schedule.  The Company
shall pay all employer taxes related to the Employee Retention Bonuses and
retain any tax benefit related to the Employee Retention Bonuses.


 


“EMRISE” shall have the meaning set forth in
the first paragraph of this Agreement.


 


“EMRISE’s Policies and
Procedures” shall mean all policies and procedures of EMRISE
and/or Buyer, including but not limited to policies and procedures relating to
corporate governance, internal financial disclosure controls and procedures,
internal audit policies, documentation of contracts and regulatory and legal
compliance.


 


“Encumbrance” shall mean any charge, claim, community
property interest, condition, equitable interest, lien, option, pledge,
security interest, right of first refusal, or material restriction of any kind,
including any material restriction on use, voting, transfer, receipt of income,
or exercise of any other attribute of ownership.


 


“Environment” shall mean soil, land surface or subsurface
strata, surface waters (including navigable waters, ocean waters, streams,
ponds, drainage basins, and wetlands), groundwaters, drinking water supply,
stream sediments, ambient air (including indoor air), plant and animal life,
and any other environmental medium or natural resource.


 


“Environmental, Health,
and Safety Liabilities”
shall mean any cost, damages, expense, liability, obligation, or other
responsibility arising from or under Environmental Law or Occupational Safety
and Health Law and consisting of or relating to:


 


(a)                                  any
environmental, health, or safety matters or conditions (including, but not
limited to, on-site or off-site contamination, occupational safety and health,
and regulation of chemical substances or products);


 


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(b)                                 fines,
penalties, judgments, awards, settlements, legal or administrative proceedings,
damages, losses, claims, demands and response, investigative, remedial, or
inspection costs and expenses arising under Environmental Law or Occupational
Safety and Health Law;


 


(c)                                  financial
responsibility under Environmental Law or Occupational Safety and Health Law
for cleanup costs or corrective action, including any investigation, cleanup,
removal, containment, or other remediation or response actions (“Cleanup”) required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for any
natural resource damages; or


 


(d)                                 any
other compliance, corrective, investigative, or remedial measures required
under Environmental Law or Occupational Safety and Health Law.


 


The terms “removal,” “remedial,” and “response action,”
include the types of activities covered by the United States Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq., as amended (“CERCLA”).


 


“Environmental Law” shall mean any Legal Requirement that
requires or relates to:


 


(a)                                  advising
appropriate authorities, employees, Governmental Bodies, and the public of
intended or actual Release or Threat of Release of Hazardous Materials,
violations of discharge limits, or other prohibitions and of the commencements
of activities, such as resource extraction or construction, that could have
significant impact on the Environment;


 


(b)                                 preventing
or reducing to acceptable levels the Release of Hazardous Materials into the
Environment;


 


(c)                                  reducing
the quantities, preventing the Release, or minimizing the hazardous
characteristics of Hazardous Materials;


 


(d)                                 assuring
that products are designed, formulated, packaged, and used so that they do not
present unreasonable risks to human health or the Environment when used or
disposed of;


 


(e)                                  protecting
the Environment, natural resources, species, or ecological resources;


 


(f)                                    reducing
to acceptable levels the risks inherent in the transportation of Hazardous
Materials;


 


(g)                                 cleaning
up pollutants that have been Released, preventing the Threat of Release, or
paying the costs of such Cleanup or prevention; or


 


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(h)                                 making
responsible parties pay private parties, or groups of them, for damages done to
their health or the Environment, or permitting self-appointed representatives
of the public interest to recover for injuries done to public assets.


 


“ERISA” shall mean the Employee Retirement Income
Security Act of 1974 or any successor law, and regulations and rules issued
pursuant to that Act or any successor law.


 


“Facilities” shall mean any real property, leaseholds,
or other interests currently or formerly owned or operated by Parent or the
Company and any buildings, structures, or equipment (including motor vehicles)
currently or formerly owned or operated by Parent or the Company.


 


“Family” shall have the meaning set forth in the
definition of Related Person.


 


“Financial Statements”
shall mean the Unaudited Company Financial Statements, the Audited Company
Financial Statements and the Unaudited Parent Financial Statements.


 


“First Deferred
Purchase Price Payment” shall have the meaning set forth in Section 2.6(d)(ii).


 


“First Deferred
Purchase Price Payment Threshold” shall have the meaning set
forth in Section 2.6(d)(ii).


 


“First Measurement
Period” shall have the meaning set forth in Section 2.6(d)(i).


 


“First Period Note
Amount” shall have the meaning set forth in Section 2.6(d)(i).


 


“Forecasts” shall
have the meaning set forth in Section 2.6(f).


 


 “GAAP” shall mean generally accepted United States
accounting principles, applied on a basis consistent with the basis on which
the Financial Statements were prepared.


 


“Gaffney”
shall have the meaning set forth in the first paragraph of this Agreement.


 


“Gaffney Option”
shall have the meaning set forth in Recital A
of this Agreement.


 


“Guaranty”  shall have the meaning set forth in Section 2.6(i).


 


“Governmental
Authorization” shall
mean any approval, consent, license, permit, waiver, or other authorization
issued, granted, given, or otherwise made available by or under the authority
of any Governmental Body or pursuant to any Legal Requirement.


 


“Governmental Body” shall mean any:


 


(a)                                  nation,
state, county, city, town, village, district, or other jurisdiction of any
nature;


 


(b)                                 federal,
state, local, municipal, foreign, or other government;


 


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(c)                                  governmental
or quasi-governmental authority of any nature (including any governmental
agency, commission, branch, department, official, or entity and any court or
other tribunal);


 


(d)                                 multinational
organization or body; or


 


(e)                                  body
exercising, or entitled to exercise, any administrative, executive, judicial,
legislative, investigative, police, regulatory, or taxing authority or power of
any nature.


 


“Hazardous Activity” shall mean the distribution, generation,
handling, importing, management, manufacturing, processing, production,
refinement, Release, storage, transfer, transportation, treatment, disposal, or
use (including any withdrawal or other use of groundwater) of Hazardous
Materials in, on, under, about, or from the Facilities or any part thereof, and
any other act, business, operation, or thing that increases the danger, or risk
of danger, or poses an unreasonable risk of harm to persons, or property or the
Environment on or off the Facilities, or that may affect the value of the
Facilities or the Company, except as in accordance with Environmental Law or as
otherwise authorized pursuant to Federal, State or local law.


 


“Hazardous Materials” shall mean any waste or other substance
that is listed, defined, designated, or classified as, or otherwise determined
to be, harmful, hazardous, radioactive, or toxic or a pollutant or a
contaminant under or pursuant to any Environmental Law, including any admixture
or solution thereof, and specifically including petroleum and all derivatives
thereof or synthetic substitutes therefor and asbestos or asbestos-containing
materials.


 


“Indemnified Persons”
shall have the meaning set forth in Section 10.2.


 


“Intellectual Property
Assets” shall have the meaning set forth in Section 3.22(a).


 


“Intercreditor
Agreement” shall have the meaning set forth in Section 2.4(a)(vii).


 


“Interim Company
Balance Sheet” shall have the meaning set forth in Section 3.4(a).


 


“Interim Company
Financial Statements” shall have the meaning set forth in Section 3.4(a).


 


“Interim Parent Balance
Sheet” shall have the meaning set forth in Section 3.4(b).


 


“Interim Parent
Financial Statements” shall have the meaning set forth in Section 3.4(b).


 


“IRC” shall mean the Internal Revenue Code of
1986, as amended, or any successor law, and regulations issued by the IRS
pursuant to the Internal Revenue Code or any successor law.


 


“IRS” shall mean  the
United States Internal Revenue Service or any successor agency, and, to the
extent relevant, the United States Department of the Treasury.


 


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“ITAR”
shall have the meaning set forth in Section 3.29(a).


 


“J. Couse”
shall have the meaning set forth in
the first paragraph of this Agreement.


 


 “Knowledge”
shall mean an individual will be deemed to have “Knowledge” of a particular
fact or other matter if such individual is actually aware of such fact or other
matter.


 


A Person (other than an individual) will be deemed to
have “Knowledge” of a particular fact or other matter if any individual who is
serving as a director, officer, or trustee of such Person (or in any similar
capacity) has Knowledge of such fact or other matter.


 


“Legal Requirement” shall mean any federal, state, local,
municipal, foreign, international, multinational, or other administrative
order, constitution, law, ordinance, principle of common law, regulation,
statute, or treaty.


 


“Liability” shall mean any liability or obligation
(whether known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
whether incurred or consequential and whether due or to become due), including
any liability for Taxes.


 


“Gaffney” shall
have the meaning set forth in the first paragraph of this Agreement.


 


“Majority Owners” shall
have the meaning set forth in the first paragraph of this Agreement.


 


“Maximum Deferred Purchase Price Amount”
shall have the meaning set forth in Section 2.2(c).


 


“Marks” shall
have the meaning set forth in Section 3.22(a)(i).


 


“Material Interest” shall have the meaning set forth in the
definition of Related Person.


 


“Measurement Period(s)”
shall have the meaning set forth in Section 2.6(e)(i).


 


“Net Cash Threshold” shall
have the meaning set forth in Section 2.5(c).


 


“Net Working Capital Threshold”
shall have the meaning set forth in Section 2.5(b).


 


“Noncompetition
Agreements” shall have the meaning set forth in Section 2.4(a)(iii).


 


“Notice of Disagreement”
shall have the meaning set forth in Section 2.5(a).


 


“Occupational Safety
and Health Law”
shall mean any Legal Requirement designed to provide safe and healthful
working conditions and to reduce occupational safety and health hazards, and
any program, whether governmental or private (including those promulgated or
sponsored by industry associations and insurance companies), designed to
provide safe and healthful working conditions.


 


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“Operating Income”
shall mean, subject to Section 2.6(f), earnings before interest and
taxes of the Company, determined in accordance with GAAP, applying the same
accounting principles, policies and practices that were used in preparing the
Audited Company Financial Statements; provided, however, that
Operating Income shall not include any of the following:


 


i)              any
amounts related to the Employee Retention Bonuses;


 


ii)             any
amounts related to EMRISE or Buyer overhead or other corporate expenses of
Buyer or EMRISE;


 


iii)            any
actual or allocated costs incurred by the Company to comply with EMRISE’s
Policies and Procedures, including but not limited to the cost of hiring
additional employees; or


 


iv)           any
expenses incurred by the Company in connection with the Contemplated
Transactions or the amortization of goodwill.


 


“Order” shall mean any award, decision, injunction,
judgment, order, ruling, subpoena, or verdict entered, issued, made, or
rendered by any court, administrative agency, or other Governmental Body or by
any arbitrator.


 


“Ordinary Course of
Business” shall mean
an action taken by a Person will be deemed to have been taken in the “Ordinary
Course of Business” only if such action is consistent with the past customs and
practices of such Person and is taken in the ordinary course of the normal
day-to-day operations of such Person.


 


“Organizational
Documents” shall
mean (a) the articles or certificate of incorporation and the
bylaws of a corporation; (b) the partnership agreement and any statement
of partnership of a general partnership; (c) the limited partnership
agreement and the certificate of limited partnership of a limited partnership; (d) the
operating agreement and the certificate of formation of a limited liability
company; (e) any charter or similar document adopted or filed in
connection with the creation, formation, or organization of a Person; and (f) any
amendment to any of the foregoing.


 


“Owner” shall have the meaning
set forth in the definition of Subsidiary.


 


“Parent” shall
have the meaning set forth in the
first paragraph of this Agreement.


 


“Parent Balance Sheet”
shall have the meaning set forth in Section 3.4(b).


 


“Parent Shares” shall
have the meaning set forth in Recital C
of this Agreement.


 


“Parties” shall
have the meaning set forth in the
first paragraph of this Agreement.


 


“Patents” shall
have the meaning set forth in Section 3.22(a)(ii).


 


“Payment Statement” shall
have the meaning set forth in Section 2.6(b).


 


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“Person” shall mean any individual, corporation
(including any non-profit corporation), general or limited partnership, limited
liability company, joint venture, estate, trust, association, organization,
labor union, or other entity or Governmental Body.


 


“Plan” shall have the
meaning set forth in Section 3.13.


 


“Post-Execution Audited
Financial Statements” shall have the meaning set forth in Section 5.7.


 


“Pre-Closing Straddle Period Taxes”
shall have the meaning set forth in the definition of Pre-Closing Taxes.


 


“Pre-Closing
Taxes” shall mean:


 


(i)                                     with
respect to Taxes (other than those addressed in Section 11.2
(Transfer Taxes)) imposed upon Parent or the Company, or for which Parent or
the Company is liable, with respect to taxable periods ending prior to or on
the Closing Date, all Taxes due for such taxable period (regardless of whether
such Taxes are due and payable at Closing); and


 


(ii)                                  with
respect to Taxes (other than those addressed in Section 11.2
(Transfer Taxes)) imposed upon Parent or the Company, or for which Parent or
the Company is liable, with respect to taxable periods beginning before and
ending after the Closing Date (each, a “Straddle
Period”), the portion of any such Taxes that is allocable to the
portion of the Straddle Period ending on the Closing Date (such Taxes, the “Pre-Closing Straddle Period Taxes”),
determined in accordance with the following:


 


(A)                              In
the case of Taxes that are either (x) based upon or related to income,
receipts or shareholders’ equity or (y) imposed in connection with any
sale, transfer or assignment or any deemed sale, transfer or assignment of
property (real or personal, tangible or intangible) (regardless of whether such
transaction occurs before or after the Closing Date), Pre-Closing Period
Straddle Taxes shall be deemed equal to the amount that would be payable if the
Tax year ended on the Closing Date.  For
purposes of this clause (A), any exemption, deduction, credit or other item
that is calculated on an annual basis shall be allocated to the portion of the
Straddle Period ending on the Closing Date on a pro rata
basis determined by multiplying the entire amount of such item allocated to the
Straddle Period by a fraction, the numerator of which is the number of calendar
days in the portion of the Straddle Period ending on the Closing Date and the
denominator of which is the number of calendar days in the entire Straddle
Period.


 


(B)                                In
the case of Taxes (other than those described in Clause (A) above) imposed
on a periodic basis with respect to the Company or otherwise measured by the
level of any item, Pre-Closing Straddle Period Taxes shall be deemed to equal (x) the
aggregate amount of such Taxes for the entire Straddle Period (or, in the case
of Taxes determined on an arrears basis, the amount of such 


 


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Taxes for the immediately
preceding Tax period) multiplied by (y) a fraction, the numerator of which
is the number of calendar days in the portion of the Straddle Period ending on
the Closing Date and the denominator of which is the number of calendar days in
the entire Straddle Period.


 


“Proceeding” shall mean any action, arbitration, audit,
hearing, investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental Body or
arbitrator.


 


“Proprietary Rights
Agreement” shall have the meaning set forth in Section 3.20(c).


 


“Purchase Price” shall
have the meaning set forth in Section 2.2.


 


“Related Agreements” shall have
the meaning set forth in the definition of Contemplated Transactions.


 


“Related Person” shall mean with respect to a particular
individual:


 


(a)                                  each
other member of such individual’s Family;


 


(b)                                 any
Person that is directly or indirectly controlled by such individual or one or
more members of such individual’s Family;


 


(c)                                  any
Person in which such individual or members of such individual’s Family hold
(individually or in the aggregate) a Material Interest; and


 


(d)                                 any
Person with respect to which such individual or one or more members of such
individual’s Family serves as a director, officer, partner, executor, or
trustee (or in a similar capacity).


 


The term “Related Person” shall mean with respect to a specified
Person other than an individual:


 


(i)                                     any
Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person;


 


(ii)                                  any
Person that holds a Material Interest in such specified Person;


 


(iii)                               each
Person that serves as a director, officer, partner, executor, or trustee of
such specified Person (or in a similar capacity);


 


(iv)                              any
Person in which such specified Person holds a Material Interest;


 


(v)                                 any
Person with respect to which such specified Person serves as a general partner
or a trustee (or in a similar capacity); and


 


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(vi)                              any
Related Person of any individual described in clause (b) or (c).


 


For purposes of this definition, (a) the “Family” of an individual includes (i) the
individual, (ii) the individual’s spouse, former spouses and in-laws, (iii) any
other natural person who is related to the individual or the individual’s
spouse within the second degree, and (iv) any other natural person who
resides with such individual, and (b) “Material Interest” means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of voting securities or other
voting interests representing at least 10% of the outstanding voting power of a
Person or equity securities or other equity interests representing at least 10%
of the outstanding equity securities or equity interests in a Person.


 


“Release” shall mean any spilling, leaking, emitting,
discharging, depositing, escaping, leaching, disposing, dumping, or other
releasing of Hazardous Materials into the Environment, whether intentional or
unintentional, except as in accordance with Environmental Law or as otherwise
authorized pursuant to Federal, State or local law.


 


“Representative” shall mean with respect to a particular
Person, any director, officer, employee, agent, consultant, advisor, or other
representative of such Person, including legal counsel, accountants, and
financial advisors.


 


“Resolution Period” shall
have the meaning set forth in Section 2.6(b).


 


“Retention Date”
shall have the meaning set forth in Section 2.2(d)(ii).


 


“Rights in Mask Works” shall
have the meaning set forth in Section 3.22(a)(iv).


 


“Second Deferred
Purchase Price Payment” shall have the meaning set forth in Section 2.6(e)(ii).


 


“Second Deferred
Purchase Price Payment Threshold” shall have the meaning set
forth in Section 2.6(e)(ii).


 


“Second Measurement
Period” shall have the meaning set forth in Section 2.6(e)(i).


 


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


 


“Security Agreement” shall
have the meaning set forth in Section 2.6(g).


 


“Seller Fundamental
Representations” shall have the meaning set forth in the first paragraph of Article III.


 


“Sellers” shall
have the meaning set forth in the first paragraph of this Agreement.


 


“Sellers’ Releases” shall
have the meaning set forth in Section 2.4(a)(ii).


 


13

















 


“Straddle Period” shall
have the meaning set forth in the
definition of Pre-Closing Taxes.


 


“Subordinated
Contingent Notes” shall have the meaning set forth in Section 2.2(b).


 


“Subordination
Agreement” shall have the meaning set forth in Section 2.4(a)(vi).


 


“Subsidiary” shall mean with respect to any Person (the “Owner”), any corporation or other Person
of which securities or other interests having the power to elect a majority of
that corporation’s or other Person’s board of directors or similar governing
body, or otherwise having the power to direct the business and policies of that
corporation or other Person (other than securities or other interests having such
power only upon the happening of a contingency that has not occurred) are held
by the Owner or one or more of its Subsidiaries.


 


“Tax” shall mean any tax (including any income
tax, excise tax, capital gains tax, value-added tax, sales tax, property tax,
franchise tax, gross receipts tax, license tax, payroll tax, employment tax,
severance tax, stamp tax, occupation tax, premium tax, windfall profits tax,
environmental tax, capital stock tax, profits, withholding tax, social security
tax (or similar), unemployment, disability, real property, personal property,
transfer, registration, alternative, or add on minimum or estimated tax,
assessment, charge, levy, and all other taxes and similar assessments, customs
duties, charges and fees of any kind whatsoever and any related charge or
amount (including any fine, penalty, interest, or addition to tax), imposed,
assessed, or collected by or under the authority of any Governmental Body or
payable pursuant to any tax-sharing agreement or any other Contract relating to
the sharing or payment of any such tax, levy, assessment, tariff, duty,
deficiency, or fee.


 


 “Tax Return” shall mean any return (including any
information return), report, statement, schedule, notice, form, or other
document or information filed with or submitted to, or required to be filed
with or submitted to, any Governmental Body in connection with the
determination, assessment,  collection,
or payment of any Tax or in connection with the administration, implementation,
or enforcement of or compliance with any Legal Requirement relating to any Tax.


 


“Termination Date”
shall have the meaning set
forth in Section 2.6(f).


 


“Threat of Release” shall mean a substantial likelihood of a
Release that may require action in order to prevent or mitigate damage to the
Environment that may result from such Release.


 


“Threatened” shall mean a claim, Proceeding, dispute,
action, or other matter will be deemed to have been “Threatened” if any demand
or statement has been made (orally or in writing) or any notice has been given
(orally or in writing), or if any other event has occurred or any other
circumstances exist, that would lead a prudent Person to conclude that such a
claim, Proceeding, dispute, action, or other matter is likely to be asserted,
commenced, taken, or otherwise pursued in the future.


 


14

















 


“Trade Secrets” shall
have the meaning set forth in Section 3.22(a)(v).


 


“Transaction Costs” shall
have the meaning set forth in Section 3.31.


 


“Transfer Taxes” shall
have the meaning set forth in Section 11.2.


 


“Unaudited Company
Financial Statements” shall have the meaning set forth in Section 3.4(a).


 


“Unaudited Parent
Financial Statements” shall have the meaning set forth in Section 3.4(b).


 


“Unforecasted Opportunities”
shall have the meaning set forth in Section 2.6(f).


 


“WARN Act” shall
have the meaning set forth in Section 3.21(b).


 


ARTICLE II


SALE AND TRANSFER OF
SHARES; TERMINATION OF GAFFNEY OPTION;

CLOSING


 


2.1                                 Shares and Gaffney Option.


 


(a)                                  Parent Shares.  Subject to the terms and conditions of this
Agreement, at the Closing, Brand will sell and transfer the Parent Shares to
Buyer, and Buyer will purchase the Parent Shares from Brand.


 


(b)                                 Company Shares.  Subject to the terms and conditions of this
Agreement, at the Closing, Couse and J. Couse will sell and transfer the
Company Shares to Buyer, and Buyer will purchase the Company Shares from Couse
and J. Couse.


 


(c)                                  Gaffney Option.  Subject to the terms and conditions of this
Agreement, at the Closing, Gaffney hereby agrees that the Gaffney Option shall
be terminated and of no further force and effect in exchange for the
consideration set forth herein.


 


2.2                                 Purchase Price.  Subject to Sections 2.5 and 2.6, the
aggregate purchase price (the “Purchase Price”)
for the Parent Shares, the Company Shares and termination of the Gaffney Option
will be payable at or after the Closing, as the case may be, and in the manner
as further described below:


 


(a)                                  Cash at Closing.  At the Closing, Buyer will pay to Sellers in
accordance with the percentages set forth below by wire transfer in immediately
available funds the aggregate amount equal to the difference of $13,000,000 minus (i) the aggregate amount of the Employee
Retention Bonuses paid at Closing (the “Cash
Consideration”):


 


(i)                                     79.2% of the Cash Consideration to
Brand in consideration for the Parent Shares;


 


15

















 


(ii)                                  9.9% of the Cash Consideration to
Couse in consideration for Couse’s portion of the Company Shares;


 


(iii)                               9.9% of the Cash Consideration to J.
Couse in consideration for J. Couse’s portion of the Company Shares; and


 


(iv)                              1.0% of the Cash Consideration to
Gaffney in consideration for termination of the Gaffney Option.


 


(b)                                 Promissory Notes.  At the Closing, Buyer will issue secured
contingent subordinated promissory notes (each, a “Subordinated
Contingent Note” and collectively, the “Subordinated Contingent Notes”) in the aggregate principal
amount of up to $2,000,000, as determined in accordance with Section 2.6
below, to Sellers as follows:


 


(i)                                     a
Subordinated Contingent Note in the amount of up to $1,584,000 to Brand in
consideration for the Parent Shares;


 


(ii)                                  a
Subordinated Contingent Note in the amount of up to $198,000 to Couse in
consideration for Couse’s portion of the Company Shares;


 


(iii)                               a
Subordinated Contingent Note in the amount of up to $198,000 to J. Couse in
consideration for J. Couse’s portion of the Company Shares; and


 


(iv)                              a
Subordinated Contingent Note in the amount of up to $20,000 to Gaffney in
consideration for termination of the Gaffney Option.


 


(c)                                  Deferred Purchase Price.  As part of the Purchase Price (the “Deferred Purchase Price”), Buyer shall
make Deferred Purchase Price Payments, as and to the extent, if any, provided
in accordance with Sections 2.6(d) and (e), to Sellers in
accordance with the percentages set forth below in an aggregate amount not to
exceed an amount equal to the difference of $3,000,000 minus
the aggregate amount of the Employee Retention Bonuses paid pursuant to Section 2.2(d)(ii)
which are contingent upon earning the Deferred Purchase Price (the “Maximum Deferred Purchase Price Amount”):


 


(i)                                     up to 79.2% of the Maximum Deferred Purchase
Price Amount to Brand in consideration for the Parent Shares;


 


(ii)                                  up to 9.9% of the Maximum Deferred Purchase
Price Amount to Couse in consideration for Couse’s portion of the
Company Shares;


 


(iii)                               up to 9.9% of the Maximum Deferred Purchase
Price Amount to J. Couse in consideration for 

J. Couse’s portion of the Company Shares; and


 


(iv)                              up to 1.0% of the Maximum Deferred Purchase
Price Amount to Gaffney in consideration for termination of the Gaffney
Option.


 


16

















 


(d)                                 Payment of Employee Retention Bonuses.


 


(i)                                     At
the Closing, the
Company shall pay to all employees of the Company set forth in Section 3.20(f) of
the Disclosure Schedule who have executed an Employee Retention Agreement the
Employee Retention Bonuses due at the Closing pursuant to the Employee
Retention Bonus Agreements and as set forth in Section 3.20(f) of the
Disclosure Schedule.


 


(ii)                                  No later than
fifteen (15) Business Days after the earliest to occur of (A) the date the
Payment Statement for the Second Measurement Period becomes final and binding, (B) the
date the Deferred Purchase Price is due pursuant to Section 2.6(f) and
(C) the date the Deferred Purchase Price is due pursuant to Section 2.6(i) (the
“Retention Date”), the Company shall
pay to all employees of the Company set forth in Section 3.20(f) of
the Disclosure Schedule who have executed an Employee Retention Agreement the
Employee Retention Bonuses, if any, earned on the Retention Date pursuant to
the Employee Retention Bonus Agreements and as set forth in Section 3.20(f) of
the Disclosure Schedule.


 


(iii)                               The
Company shall pay all employer taxes related to the Employee Retention Bonuses
and retain any tax benefit related to the Employee Retention Bonuses.


 


2.3                                 Closing.  The purchase and sale (the “Closing”) provided for in this Agreement will take place at
the offices of Buyer’s counsel at 611 Anton Boulevard, Suite 1400, Costa
Mesa, California, at 10:00 a.m. (local time) on the date five (5) Business
Days after the date on which all conditions set forth in Articles VII and
VIII have been satisfied or waived, or at such other time and place as the
parties may agree.  At the Closing,
executed signature pages for any agreement required to be delivered by a
Party in accordance with Section 2.4 can be delivered by facsimile
or scanned image; provided, that the original signature pages are
delivered to all applicable Parties no later than two (2) Business Days
after the Closing.  Subject to the
provisions of Article IX, failure to consummate the purchase and
sale provided for in this Agreement on the date and time and at the place
determined pursuant to this Section 2.3 will not result in the
termination of this Agreement and will not relieve any party of any obligation
under this Agreement.


 


2.4                                 Closing Obligations.  At the Closing:


 


(a)                                  Sellers
will deliver, or cause to be delivered, as applicable, to Buyer:


 


(i)                                     certificates
representing the Parent Shares and Company Shares, duly endorsed (or
accompanied by duly executed stock powers), for transfer to Buyer;


 


(ii)                                  a
release in the form of Exhibit 2.4(a)(ii) executed by each Seller (“Sellers’ Releases”);


 


17

















 


(iii)                               a
noncompetition agreement in the form of Exhibit 2.4(a)(iii), executed
by each Majority Owner (collectively, the “Noncompetition
Agreements”);


 


(iv)                              an
employment agreement in the form of Exhibit 2.4(a)(iv), executed by
Brand (the “Brand  Employment Agreement”);


 


(v)                                 an
advisory services agreement in the form of Exhibit 2.4(a)(v),
executed by Couse (the “Advisory Services
Agreement”);


 


(vi)                              a
subordination agreement in the form of Exhibit 2.4(a)(vi), executed
by each Seller (the “Subordination Agreement”);


 


(vii)                           an
intercreditor agreement in the form of Exhibit 2.4(a)(vii),
executed by each Seller (the “Intercreditor
Agreement”);


 


(viii)                        the consent
of Sellers to the Collateral Assignment in the form of Exhibit 2.4(a)(viii),
executed by each Seller (the “Consent to Collateral
Assignment”);


 


(ix)                                the
resignations, dated as of the Closing Date, of each of the directors and
officers of Parent and the Company;


 


(x)                                   evidence
(in the form and substance reasonably satisfactory to Buyer) of termination of
all agreements regarding voting, transfer, restrictions or Encumbrances on each
of the Parent Shares and Company Shares, rights of repurchase or other arrangements
related to each of the Parent Shares and Company Shares or each of Parent and
the Company that are in effect prior to Closing;


 


(xi)                                evidence
(in the form and substance reasonably satisfactory to Buyer) that Parent’s and
the Company’s investment bankers, attorneys and/or other advisors and any other
similar agents and representatives have been paid in full at or prior to the
Closing, and that neither Parent nor the Company has any liability to any such
parties for any Transaction Costs;


 


(xii)                             evidence
(in the form and substance reasonably satisfactory to Buyer), including but not
limited to, pay-off letters and such other documentation as Buyer shall
reasonably require and approve, so as to allow Buyer to take all actions
necessary to fund and pay-off the Credit Facility at Closing, subject to a
maximum amount of Three Hundred
Thousand Dollars ($300,000);


 


(xiii)                          a
certificate from each Seller of non-foreign status as contemplated under Section 1.1445-2(b) of
the Treasury Regulations certifying that such Seller is not a foreign person;
and


 


18

















 


(xiv)                         a
certificate executed by each Seller representing and warranting to Buyer that
each such Seller’s representations and warranties in this Agreement was accurate
in all respects as of the date of this Agreement and is accurate in all
material respects as of the Closing Date as if made on the Closing Date and
that all covenants and agreements to be performed prior to the Closing by such
Seller have been performed.


 


(b)                                 Buyer
will deliver:


 


(i)                                     to
each Seller, the applicable portion of the total Cash Consideration payable to
each such Seller as set forth in Section 2.2(a), which amounts
shall be paid at Closing by wire transfer to each Seller to the account specified
in writing to Buyer at least three (3) Business Days prior to the Closing;


 


(ii)                                  to
each Seller, a Subordinated Contingent Note in the form of Exhibit 2.4(b)(ii) executed by
Buyer, in the principal amount set forth in Section 2.2(b);


 


(iii)                               to
Sellers, the Security Agreement, in the form of Exhibit 2.4(b)(iii), executed
by Buyer;


 


(iv)                              to
Sellers, the Guaranty, in the
form of Exhibit 2.4(b)(iv),
executed by EMRISE;


 


(v)                                 to
each Majority Owner, the Noncompetition Agreements, executed by Buyer;


 


(vi)                              to
Brand, the Brand Employment Agreement, executed by Buyer;


 


(vii)                           to
Couse, the Advisory Services Agreement, executed by Buyer;


 


(viii)                        to
Sellers, the Intercreditor Agreement, executed by Buyer; and


 


(ix)                                to
Sellers, a certificate executed by Buyer to the effect that, except as
otherwise stated in such certificate, each of Buyer’s representations and
warranties in this Agreement was accurate in all respects as of the date of
this Agreement and is accurate in all material respects as of the Closing Date
as if made on the Closing Date and that all covenants and agreements to be
performed prior to Closing by Buyer have been performed.


 


2.5                                 Purchase Price Adjustment.  The Purchase Price shall be adjusted after
the Closing as follows:


 


(a)                                  Closing Balance Sheet.  Within sixty (60) days after the Closing
Date, the Company (on behalf of Buyer) shall deliver to Sellers a statement
setting forth (i) the Adjusted Closing Net Working Capital and (ii) the
Closing Net Cash (the “Closing Balance Sheet”).  For reference and illustration purposes only,
a balance sheet of the 


 


19

















 


Company dated December 31,
2007 is attached hereto as Exhibit 2.5.  The Closing Balance Sheet shall become final
and binding upon Buyer and Sellers on the 45th day following
delivery thereof, unless Sellers give notice of disagreement with the Closing
Balance Sheet (a “Notice of Disagreement”)
to Buyer prior to such date.  Any Notice of Disagreement shall (i) specify
in reasonable detail the nature of any disagreement so asserted and (ii) only
include disagreements based on mathematical errors or based on the Closing
Balance Sheet not being calculated pursuant to this Section 2.5.  If a Notice of Disagreement is received by
Buyer in a timely manner, then the Closing Balance Sheet (as revised in
accordance with this sentence) shall become final and binding upon Buyer and
Sellers on the earlier of (A) the date Buyer and Sellers resolve in
writing any differences they have with respect to the matters specified in the
Notice of Disagreement and (B) the date any disputed matters are finally
resolved in writing by the Accounting Firm.  During the 30-day period
following the delivery of a Notice of Disagreement, Buyer and Sellers shall use
their commercially reasonable efforts and seek in good faith to resolve in
writing any differences that they may have with respect to the matters
specified in the Notice of Disagreement.  At the end of such 30-day
period, Buyer and Sellers shall submit to an independent accounting firm (the “Accounting Firm”) for arbitration, in
accordance with the standards set forth in this Section 2.5, only
matters that remain in dispute and were properly included in the Notice of
Disagreement in accordance with this Section 2.5 and any claim of
calculation-related errors.  The Accounting Firm shall be BDO Seidman, LLP (which the parties
represent has not provided services to any of them or their respective
subsidiaries during the past three years) or, if such firm is unable or
unwilling to act, such other nationally or regionally recognized independent
public accounting firm as shall be mutually agreed upon by Buyer and Sellers in
writing.  Buyer and Sellers shall use their commercially reasonable
efforts to cause the Accounting Firm to render a written decision resolving the
matters submitted to the Accounting Firm within thirty (30) days of the receipt
of such submission.  The Accounting Firm shall determine the Adjusted
Closing Net Working Capital and Closing Net Cash pursuant to this Section 2.5
in accordance with GAAP; provided, however, that no adjustment
shall be made by the Accounting Firm in favor of Sellers with respect to any
item that was not included in Majority Owners’ Notice of Disagreement.  The Accounting Firm’s decision shall be based
solely on written submissions by Buyer and Sellers and their respective
representatives and by reference to the terms of this Agreement.  Sellers
and Buyer shall furnish or cause to be furnished to the Accounting Firm such
work papers and other documents and information related to the disputed matters
as the Accounting Firm may request and are reasonably available to Sellers,
Buyer or their respective agents.  The Accounting Firm shall address only
those items in dispute and calculation-related errors.  Judgment may be entered upon the
determination of the Accounting Firm in any court having jurisdiction over the
party against which such determination is to be enforced.  The fees and
expenses of the Accounting Firm incurred pursuant to this Section 2.5
shall be borne by Buyer and Sellers equally.


 


(b)                                 Adjusted Closing Net Working Capital.  Within ten (10) days following the date
that the Closing Balance Sheet becomes final and binding upon Buyer and 


 


20

















 


Sellers, if the Adjusted
Closing Net Working Capital as set forth in the Closing Balance Sheet is less
than $1,656,000, then the aggregate principal amounts of the Subordinated
Contingent Notes shall be decreased by the difference between the Adjusted Closing
Net Working Capital and $1,756,000 (the “Net
Working Capital Threshold”). 
If the Adjusted Closing Net Working Capital as set forth on the Closing
Balance Sheet is greater than $1,856,000, then the aggregate principal amounts
of the Subordinated Contingent Notes shall be increased by the difference
between the Adjusted Closing Net Working Capital and the Net Working Capital
Threshold.  All adjustments to the
principal amounts of the Subordinated Contingent Notes shall be made by
adjusting each Subordinated Contingent Note in proportion to the original
principal amounts of the Subordinated Contingent Notes as set forth in Section 2.2(b).  All adjustments to the principal amount of
the Subordinated Contingent Notes made under this Section 2.5(b) shall
include interest, at a rate equal to the prime rate as reported in the Wall Street Journal on the Closing Date
(provided that such interest rate shall be reset as of the first day of each
calendar quarter if the prime rate has changed, until the Closing Balance Sheet
becomes final), plus one percent (1%), 
on the amount so adjusted from the Closing Date to the date of
adjustment.


 


(c)                                  Closing Net Cash.  Within ten (10) days following the date
that the Closing Balance Sheet becomes final and binding upon Buyer and
Sellers, if the Closing Net Cash as set forth in the Closing Balance Sheet is
less than $1,117,000, then Sellers shall pay to Buyer an amount equal to the
difference between the Closing Net Cash and $1,217,000 (the “Net Cash Threshold”).  If the Closing Net Cash as set forth on the
Closing Balance Sheet is greater than $1,317,000, then Buyer shall pay to
Sellers an amount equal to the difference between the Closing Net Cash and the
Net Cash Threshold.  Any payments made by
or to Sellers pursuant to this Section 2.5(c) shall be made by
or to each Seller, as applicable, in proportion to the Cash Consideration
received by such Seller at Closing as set forth in Section 2.2(a).  All payments to be made under this Section 2.5(c) shall
be made by wire transfer in immediately available funds, together with
interest, at a rate equal to the prime rate as reported in the Wall Street Journal on the Closing Date
(provided that such interest rate shall be reset as of the first day of each
calendar quarter if the prime rate has changed, until the Closing Balance Sheet
becomes final), plus one percent (1%), on the amount so paid from the Closing
Date to the date of payment.


 


(d)                                 Books and Records.  During the period of time from and after the
delivery of the Closing Balance Sheet to Sellers through the final
determination of the Closing Balance Sheet, Sellers and/or their authorized
representatives shall have the right, during normal business hours and upon
reasonable prior notice, to examine and have copies of those books and records
of the Company relevant to the preparation of the Closing Balance Sheet, and
may have reasonable access to employees of the Company directly involved in
preparing the Closing Balance Sheet for purposes of asking questions relating
thereto.  Such rights of access shall be exercised in a manner that does
not unreasonably interfere with the operations of Buyer or the Company.


 


21
















 


2.6                                 Principal Amount of
Subordinated Contingent Notes and Deferred Purchase Price.


 


(a)                                  Deferred Purchase Price
Payment.  Buyer shall make Deferred Purchase Price
Payments to Sellers in an aggregate amount not to exceed the Maximum Deferred Purchase Price Amount
as and to the extent, if any, provided in accordance with Sections 2.6(d) and
(e).  Any Deferred Purchase Price Payments due to Sellers pursuant to
this Section 2.6 shall be paid to Sellers (or their designees),
within three (3) Business Days following the date that the Payment
Statement becomes final and binding upon Buyer and Sellers, as determined in Section 2.6(b),
by wire transfer of immediately available funds to an account designated in
writing by each Seller in accordance with the terms of Section 2.6(b).  Buyer shall not be obligated to pay interest
on the Deferred Purchase Price and shall report the payment of the Deferred
Purchase Price Payments as a part of the Purchase Price for all federal, state
and local Tax purposes, and Buyer and Sellers shall file their Tax Returns
accordingly.


 


(b)                                 Payment Statement. 
Within five (5) Business Days after the originally scheduled filing
date for EMRISE’s Form 10-Q with the Securities and Exchange Commission
covering the quarterly period during which the applicable Measurement Period
ends, the Company (on behalf of the Buyer) shall deliver to Sellers a written
statement (the “Payment Statement”),
including supporting documentation, setting forth for such Measurement Period (i) Operating
Income, (ii) the aggregate principal amount of the Subordinated Contingent
Notes, if any, and (iii) the amount of Deferred Purchase Price, if
any.  The amount of the Deferred Purchase
Price Payment, if any, set forth in such Payment Statement shall be paid in the
manner described in Section 2.6(a). 
The applicable Payment Statement shall become final and binding upon
Buyer and Sellers on the 30th day following delivery thereof, unless Sellers
give notice of disagreement with such Payment Statement (a “Dispute Notice”) to Buyer prior to such
date.  Any Dispute Notice shall specify
in reasonable detail the nature of any disagreement so asserted.  If a
Dispute Notice is received by Buyer in a timely manner, then the amount of the
applicable Deferred Purchase Price Payment shall become final and binding upon
Buyer and Sellers on the earlier of (i) the date Buyer and Sellers resolve
in writing any differences they have with respect to the matters specified in
the Dispute Notice and (ii) the date any disputed matters are finally resolved
in writing by the Accounting Firm.  During the 30-day period (the “Resolution Period”) following the delivery
of a Dispute Notice, Buyer and Sellers shall use their commercially reasonable
efforts and seek in good faith to resolve in writing any differences that they
may have with respect to the matters specified in the Dispute Notice.  At the end of the Resolution Period, Buyer
and Sellers shall submit to the Accounting Firm for arbitration, in accordance
with the standards set forth in this Section 2.6, only matters that
remain in dispute and were properly included in the Dispute Notice in
accordance with this Section 2.6.  Buyer and Sellers shall use
their commercially reasonable efforts to cause the Accounting Firm to render a
written decision resolving the matters submitted to the Accounting Firm within
thirty (30) days of their delivery of such submission.  The Accounting
Firm shall determine Operating Income for the applicable Measurement Period
pursuant to this


 


22





















 


Section 2.6 in accordance with GAAP; provided, however, that no
adjustment shall be made by the Accounting Firm in favor of Sellers with
respect to any item that was not included in Majority Owners’ Dispute
Notice.  The Accounting Firm’s decision
shall be based solely on written submissions by Buyer and Sellers and their
respective representatives and by reference to the terms of this
Agreement.  Sellers and Buyer shall
furnish or cause to be furnished to the Accounting Firm such work papers and
other documents and information related to the disputed matters as the
Accounting Firm may request and are reasonably available to Sellers, Buyer or
their respective agents.  The Accounting
Firm shall address only those items in dispute and calculation-related
errors.  Judgment may be entered upon the
determination of the Accounting Firm in any court having jurisdiction over the
party against which such determination is to be enforced.  To the extent it is determined in accordance
with this Section 2.6(b) that the aggregate principal balance
of the Subordinated Contingent Notes or the applicable amount of Deferred
Purchase Price Payment as set forth on the Payment Statement was not accurately
determined or made, the aggregate principal balance of the Subordinated
Contingent Notes shall be adjusted accordingly and any additional amount of the
applicable Deferred Purchase Price Payment shall be paid to Sellers in
accordance with Section 2.6(a). within three (3) Business Days
of the Accounting Firm rendering its written decision.  Any such additional amount of a Deferred
Purchase Price Payment shall include interest at a rate equal to the prime rate
as reported in the Wall Street Journal
on the Closing Date (provided that such interest rate shall be reset as of the
first day of each calendar quarter if the prime rate has changed, until the
Payment Statement becomes final), plus one percent (1%).  The fees and expenses of the Accounting Firm
incurred pursuant to this Section 2.6 shall be borne by Buyer and
Sellers equally.


 


(c)                                  Books and Records. 
Sellers and/or their authorized representatives shall have the right
upon and after receipt of a Payment Statement and through the end of the
applicable Resolution Period, during normal business hours and upon reasonable
prior notice, to examine (and, at Sellers’ expense, have copies made of) those
books and records of the Company pertaining to transactions arising out of or
relating to the calculation of the principal amount of the Subordinated
Contingent Notes and the applicable Deferred Purchase Price Payment, and may
have reasonable access to employees of the Company directly involved in
calculating the principal amount of the Subordinated Contingent Notes and the
Deferred Purchase Price Payments for purposes of asking questions relating to
such calculations.  Such rights of access shall be exercised in a manner
that does not unreasonably interfere with the operations of Buyer or the
Company.


 


(d)                                 First Measurement Period.


 


(i)                                     Principal
Balance of Subordinated Contingent Notes.  If Operating
Income (as set forth in the Payment Statement) during the first twelve (12)
months after the Closing (the “First
Measurement Period”) exceeds $1,000,000 (the “Contingent Note Threshold”), the aggregate
principal amount of the Subordinated Contingent Notes shall be equal to the
amount (the “First Period Note Amount”)
of such excess, up to a maximum of $2,000,000. 
The


 


23





















 


principal amount of each
Subordinated Contingent Note shall be in proportion to the Cash Consideration
received by each Seller at Closing as set forth in Section 2.2(a).


 


(ii)                                  First
Deferred Purchase Price Payment.  If Operating
Income (as set forth in the Payment Statement) during the First Measurement Period
exceeds $3,000,000 (the “First Deferred
Purchase Price Payment Threshold”), Buyer shall pay to Sellers, in
accordance with this Section 2.6 in proportion to the percentage
for each Seller set forth in Section 2.2(c), an aggregate amount
(the “First Deferred Purchase Price Payment”)
equal to one hundred percent (100%) of every dollar of Operating Income (as set
forth in the Payment Statement) in excess of the First Deferred Purchase Price
Payment Threshold during the First Measurement Period, up to a maximum of
$1,500,000.


 


(e)                                  Second Measurement
Period.


 


(i)                                     Principal
Balance of Subordinated Contingent Notes.  If Operating
Income (as set forth in the Payment Statement) during the second twelve (12)
month period after the Closing (the “Second
Measurement Period” and collectively with the First Measurement
Period, the “Measurement Periods” and
each a “Measurement Period”)
exceeds the Contingent Note Threshold, the aggregate principal amount of the
Subordinated Contingent Notes shall be increased by the amount of such excess,
up to a maximum amount equal to the difference of (A) $2,000,000 minus (B) the First Period Note
Amount.  The principal amount of each
Subordinated Contingent Note shall be in proportion to the Cash Consideration
received by each Seller at Closing as set forth in Section 2.2(a).


 


(ii)                                  Second
Deferred Purchase Price Payment.  If Operating
Income (as set forth in the Payment Statement) during the Second Measurement
Period exceeds the difference of (A) $3,000,000 minus (B) the First Period Note Amount (the “Second Deferred Purchase Price Payment Threshold”),
Buyer shall pay to Sellers, in accordance with this Section 2.6 in
proportion to the percentage for each Seller set forth in Section 2.2(c),
an aggregate amount (the “Second Deferred
Purchase Price Payment” and collectively with the First Deferred
Purchase Price Payment, the “Deferred
Purchase Price Payments”) equal to one hundred percent (100%) of
every dollar of Operating Income (as set forth in the Payment Statement) in
excess of the Second Deferred Purchase Price Payment Threshold during the
Second Measurement Period, up to a maximum amount equal to the difference of
$3,000,000 minus the First
Deferred Purchase Price Payment, if any (for the avoidance of doubt, the entire
Maximum Deferred Purchase Price Amount may be earned during the Second
Measurement Period); provided, however, that if Operating
Income (as set forth in the Payment Statement) during the First Measurement
Period exceeds the First Deferred Purchase Price Payment  Threshold by more than $1,500,000, the
amount of such excess shall be credited to the Second Deferred Purchase Price
Payment;


 


24





















 


provided, further, that if (x) the
sum of the Operating Income (as set forth in the Payment Statement) during the
First Measurement Period plus the
Operating Income (as set forth in the Payment Statement) during the Second
Measurement Period is equal to or greater than $6,500,000 or (y) Operating
Income for either the First Measurement Period or Second Measurement period is
equal to or greater than $4,750,000, the Deferred Purchase Price Payments shall
equal the Maximum Deferred Purchase Price Amount; and, provided, further,
that the aggregate amount of the Deferred Purchase Price Payments shall not
exceed the Maximum Deferred Purchase Price Amount.


 


(f)                                    Operation of the Company. 
In order to enable Sellers to maximize the Deferred Purchase Price,
after Closing until the earlier of (A) the end of the Measurement Periods
or (B) the date upon which the Sellers are entitled to receive the Maximum
Deferred Purchase Price Amount (the “Termination Date”),
Buyer agrees to perform the obligations and/or refrain from taking the actions,
as the case may be, as more fully set forth below:


 


(i)                                     The Company shall be maintained and
operated as a separate subsidiary of Buyer.


 


(ii)                                  The Company shall continue to operate
consistent with the Company’s past business practices and operating procedures
applicable on the Closing Date.


 


(iii)                               Brand shall be the President of the
Company and shall have the authority to run the day-to-day operations of the
Company in accordance with the terms and conditions contained in the Brand
Employment Agreement.


 


(iv)                              Buyer shall not (i) combine the
business operations of the Company with any EMRISE division, subsidiary or
affiliate or (ii) change the location of any of the Company’s Facilities.


 


(v)                                 Buyer shall ensure that working capital,
including cash, of the Company is sufficient to meet the requirements of the
forecasts for the Measurement Periods set forth in Exhibit 2.6(f) attached
hereto (the “Forecasts”); provided, however,
that Buyer shall also ensure that working capital is sufficient to meet the
requirements of additional bona fide opportunities (“Unforecasted
Opportunities”) not previously identified in the Forecasts which
require (i) working capital in excess of the working capital requirements
set forth in the Forecasts in an aggregate amount not to exceed $1,000,000 and (ii) capital
expenditures (which shall include but not be limited to expenditures for any
required leasehold improvements and/or capital leases) in excess of the capital
expenditure requirements set forth in the Forecasts in an aggregate amount not
exceed $500,000.  To be eligible for
funding by Buyer, (A) Unforecasted Opportunities (including estimated
working capital and capital expenditure requirements) shall be identified by
Brand when they initially arise and the


 


25





















 


portfolio of Unforecasted
Opportunities shall be updated at least monthly, and (B) Brand shall
provide notice to Buyer at least forty-five (45) days before any additional
working capital or capital expenditure related to an Unforecasted Opportunity
is required.  With respect to any equipment
required for Unforecasted Opportunities which is acquired by the Company
pursuant to this Section 2.5(f)(v), Buyer shall have the sole right
to determine whether the Company purchases or leases such equipment (but not
whether such equipment is acquired).


 


(vi)                              Any inter-company transactions by and
among the Company, EMRISE and its subsidiaries and affiliates, including the
inter-relationship between the radio frequency device business of Pascall
Electronics Limited (a subsidiary of EMRISE) and the Company, will be accounted
for at inter-company transfer rates mutually agreed to by Buyer and Sellers.


 


(vii)                           The Company’s employee benefits plans and
programs existing as of the Closing Date shall not be changed or replaced
unless plans and programs containing comparable benefits are offered to the
Company’s employees.


 


Buyer and Sellers agree that if Buyer breaches any
obligation and/or refrains from taking the actions, as the case may be, set
forth in this Section 2.6(f), Sellers’ sole remedy shall be (i) that
the Maximum Deferred Purchase Amount shall be deemed earned and (ii) subject
to any adjustment to the principal balance of the Subordinated Contingent Notes
pursuant to Section 2.5(b), the principal balance of the
Subordinated Contingent Notes in the aggregate shall be set to $2,000,000 (with
the principal amount of each Subordinated Contingent Note in proportion to the
Cash Consideration received by each Seller at Closing as set forth in Section 2.2(a));
provided, however, that if Buyer breaches the obligation set
forth in Sections 2.6(f)(ii) or (vi) and the effect of
such breach on Operating Income can be calculated, Seller’s sole remedy shall
be an adjustment to the calculation of Operating Income for the applicable
Measurement Period to reflect such effect. 
For the avoidance of doubt, if the Deferred Purchase Price Payments are
deemed earned in the Maximum Deferred Purchase Amount pursuant to this Section 2.6(f),
the Deferred Purchase Price Payments shall be paid within five (5) Business
Days after the originally scheduled filing date for EMRISE’s Form 10-Q
with the Securities and Exchange Commission covering the quarterly period
during which the applicable Measurement Period ends.


 


(g)                                 Security for Deferred
Purchase Price.  The Deferred Purchase Price and the
Subordinated Contingent Notes shall be secured by the assets of the Company
pursuant to the Security Agreement in the form of Exhibit 2.4(b)(iii) (the “Security Agreement”).


 


(h)                                 Guaranty. 
EMRISE shall deliver a guaranty in the
form of Exhibit 2.4(b)(iv) (the “Guaranty”),
which Guaranty shall guaranty all of Buyer’s
obligations under this Agreement and all Related Agreements, including, without


 


26





















 


limitation, payment by Buyer of the Deferred Purchase
Price, if any, and payment by Buyer of the Subordinated Contingent Notes.


 


(i)                                     Acceleration. 
If Brand’s employment is terminated without Cause (as defined in the
Brand Employment Agreement) or Brand terminates his employment for Good Reason
(as defined in the Brand Employment Agreement) prior to the Termination Date, (A) Buyer
shall pay to Sellers in proportion to the percentage for each Seller set forth
in Section 2.2(c) an amount equal to the difference of (i) the
Maximum Deferred Purchase Price Amount minus
(ii) any previously paid Deferred Purchase Payments (the “Acceleration Event Amount”), and (B) subject
to any adjustment to the principal balance of the Subordinated Contingent Notes
pursuant to Section 2.5(b), the principal balance of the Subordinated
Contingent Notes in the aggregate shall be set to $2,000,000 (with the
principal amount of each Subordinated Contingent Note in proportion to the Cash
Consideration received by each Seller at Closing as set forth in Section 2.2(a)).  Payment of the Acceleration Event Amount
shall be made by Buyer as soon as practicable but not more than ten (10) Business
Days after termination of Brand’s employment.  Sellers agree that payment
by Buyer of the Acceleration Event Amount shall be deemed to constitute performance
in full and discharge by Buyer of its obligation under this Agreement to make
the Deferred Purchase Price Payments.  The payment shall be made by wire
transfer of immediately available funds to such accounts as Sellers shall
designate in writing to Buyer.  For the
sake of clarity, a termination for Cause or Brand’s resignation without Good
Reason, will not trigger the payment in the first sentence of this Section 2.6(i);
provided, that Sellers shall still be entitled to the Deferred Purchase
Price Payments, if any.


 


(j)                                     Senior Indebtedness. 
EMRISE and Buyer covenant and agree as follows:


 


(i)                                     Between the Closing Date and payment of
the First Deferred Purchase Price Payment (the “Restricted
Period”), the Senior Indebtedness (as defined in the Subordinated
Contingent Notes) shall not exceed Thirty Million Dollars ($30,000,000).


 


(ii)                                  No later than five (5) Business Days
after the originally scheduled filing date for EMRISE’s Form 10-Q with the
Securities and Exchange Commission covering the quarterly period during which
the First Measurement Period ends (the “Pay
Down Date”), EMRISE shall reduce the Senior Indebtedness by at least
Three Million Dollars ($3,000,000) below the maximum Senior Indebtedness during
the Restricted Period.  For example, if the maximum Senior Indebtedness
during the Restricted Period is $28,000,000, EMRISE will pay down the Senior
Indebtedness such that on the Pay Down Date the Senior Indebtedness is no more
than $25,000,000.


 


(iii)                               During the Restricted Period, EMRISE will
use commercially reasonable efforts to further reduce the Senior Indebtedness.


 


27





















 


(iv)                              EMRISE, Buyer and Sellers agree that if
either Buyer or EMRISE breaches any of its respective obligations under this Section 2.6(j),
Seller’s sole remedy shall be that $750,000 of the Second Deferred Purchase
Price Payment shall be deemed earned.  For the avoidance of doubt, if
$750,000 of the Second Deferred Purchase Price Payment is deemed earned
pursuant to this Section 2.6(j), (A) the Second Deferred
Purchase Price Payment, including the $750,000 deemed earned, shall still be
paid on the date no later than five (5) Business Days after the originally
scheduled filing date for EMRISE’s Form 10-Q with the Securities and
Exchange Commission covering the quarterly period during which the applicable
Measurement Period ends, and (B) the remaining portion of the Second
Deferred Purchase Price Payment will only be earned by Sellers if more than
$750,000 is payable to Sellers pursuant to Section 2.6(e)(ii) (i.e.,
the thresholds for earning the Second Deferred Purchase Price Payment are not
changed).


 


2.7                                 Payments in the Event of
an Increase in Long-Term Federal Capital Gains Tax Rate.  In the event of an
increase in the Federal long-term capital gains tax rate from the current rate
of 15% (the “Capital Gains Tax Rate Increase”)
after the Closing Date and, as a result of such Capital Gains Tax Rate
Increase, a Seller is required to pay more Federal long-term capital gains
taxes on gains relating to (a)  principal payments on the Subordinated
Contingent Notes and/or (b) Deferred Purchase Price Payments that such
Seller would have had to pay based on the Federal long-term capital gains tax
rate of 15%, Buyer shall pay to such Seller an amount (the “Capital Gains Increase Payment”) equal to
such additional Federal capital gains taxes actually paid by such Seller
attributable to the Capital Gains Tax Rate Increase up to and including a rate
of 25%.  The amount of any such Capital
Gains Increase Payment shall be (x) calculated based on Federal tax
returns actually filed by such Seller (copies of which shall be provided to
Buyer), (y) paid within thirty (30) days after receipt of copies of such
tax returns, and (z) grossed up to take into account Federal taxes payable
on such Capital Gains Increase Payment so that such Seller will be in the same
position as if such Seller did not have to pay Federal Taxes on such Capital
Gains Increase Payment.


 


ARTICLE III


REPRESENTATIONS AND WARRANTIES OF
MAJORITY OWNERS AND SELLERS


 


Majority Owners,
jointly and severally, represent and warrant to Buyer with respect to the
Company, and Brand solely represents and warrants to Buyer with respect to
Parent, as follows in Sections 3.1 through 3.31 (collectively, “Majority Owners’ Representations”) and
each Seller, severally, represents and warrants to Buyer with respect to
himself or herself only as follows in Section 3.32 (collectively,
the “Seller Fundamental Representations”):


 


3.1                                 Organization and Good
Standing.


 


(a)                                  Section 3.1 of the Disclosure
Schedule contains a complete and accurate list for each of Parent and the
Company:  its name, its jurisdiction of
incorporation, other jurisdictions in which it is authorized to do business,
and its capitalization (including the identity of each stockholder and the
number of shares held by each).  Each of
Parent and the Company is a corporation duly incorporated, validly existing,
and in good standing


 


28





















 


under the laws of its
jurisdiction of incorporation, with full corporate power and authority to
conduct its business as it is now being conducted, to own or use the properties
and assets that it purports to own or use, and to perform all its obligations
under Applicable Contracts.  Each of
Parent and the Company is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
qualification, except where the lack of such qualification would not have a
material adverse effect on Parent or the Company.


 


(b)                                 Each of Parent and the Company has
delivered to Buyer copies of its Organizational Documents, as currently in
effect.


 


3.2                                 Authority; No Conflict.


 


(a)                                  This Agreement constitutes the legal,
valid, and binding obligation of each of Majority Owners, Parent and the
Company, enforceable against each of them in accordance with its terms, except
to the extent that enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, receivership, moratorium and other
similar laws relating to or affecting the rights and remedies of creditors
generally and (ii) general principles of equity.  Each of Majority Owners, Parent and the
Company has the absolute and unrestricted right, power, authority, and capacity
to execute and deliver this Agreement and to perform his or its obligations
under this Agreement.


 


(b)                                 Except as set forth in Section 3.2(b) of
the Disclosure Schedule, neither the execution and delivery of this Agreement
nor the consummation or performance of any of the Contemplated Transactions
will, directly or indirectly (with or without notice or lapse of time):


 


(i)                                     contravene, conflict with, or result in a
violation of (A) any provision of the Organizational Documents of Parent
or the Company, or (B) any resolution adopted by the board of directors or
the stockholders of Parent or the Company;


 


(ii)                                  contravene, conflict with, or result in a
violation of, or give any Governmental Body or other Person the right to,
challenge any of the Contemplated Transactions or to exercise any remedy or
obtain any relief under, any Legal Requirement or any Order to which Parent,
the Company or Majority Owners, or any of the assets owned or used by Parent or
the Company, may be subject;


 


(iii)                               contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any Governmental Body
the right to revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by Parent or the Company or that
otherwise relates to the business of, or any of the assets owned or used by,
Parent or the Company;


 


29





















 


(iv)                              cause Buyer, Parent or the Company to
become subject to, or to become liable for the payment of, any Tax;


 


(v)                                 cause any of the assets owned by Parent
or the Company to be reassessed or revalued by any taxing authority or other
Governmental Body;


 


(vi)                              contravene, conflict with, or result in a
violation or breach of any provision of, or give any Person the right to
declare a default or exercise any remedy under, or to accelerate the maturity
or performance of, or to cancel, terminate, or modify, any Applicable Contract;
or


 


(vii)                           result in the imposition or creation of
any Encumbrance upon or with respect to any of the assets owned or used by
Parent or the Company.


 


(c)                                  Except as set forth in Section 3.2
of the Disclosure Schedule, neither Majority Owners, Parent nor the Company is
or will be required to give any notice to or obtain any Consent from any Person
in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated Transactions.


 


3.3                                 Capitalization.  Section 3.3 of the Disclosure
Schedule sets forth the authorized and issued outstanding Capital Equity of
each of Parent and the Company and the name of the record holders of any
outstanding Capital Equity of each of Parent and the Company.  Each Person
listed on Section 3.3 of the Disclosure Schedule is the record owner of
the Capital Equity of each of Parent and the Company set forth opposite such
Person’s name.  Neither Parent nor the
Company has outstanding any shares of Capital Equity, securities containing any
profit participation features, any stock appreciation rights or phantom stock
plan.  Neither Parent nor the Company is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any of
its Capital Equity.  All of each of Parent’s and the Company’s outstanding
Shares have been duly authorized and are validly issued, fully paid and
nonassessable.  There are no agreements between each of Parent’s and the
Company’s stockholders with respect to the voting or transfer of each of Parent’s
and the Company’s Capital Equity or with respect to any other aspect of Parent’s
or the Company’s affairs.  Except for the Gaffney Option, there are no
outstanding options, warrants, calls, agreements, subscriptions,
understandings, conversion or other rights (including preemptive rights, rights
of first refusal and phantom stock rights), proxy, voting, transfer restriction
or stockholder agreements or agreements of any kind for the purchase or
acquisition from Parent or the Company for any shares of Capital Equity or
obligating Parent or the Company to issue any additional shares of its Capital
Equity or any other securities convertible into, exchangeable for or evidencing
the right to subscribe for any shares of Capital Equity of Parent or the
Company.  None of the outstanding equity securities or other securities of
Parent or the Company was issued in violation of the Securities Act or any
other Legal Requirement.  Neither Parent
nor the Company owns, or has any Contract to acquire, any equity securities or
other securities of any other Person or any direct or indirect equity or
ownership interest in any other business.


 


30
















 


3.4                                 Financial Statements.


 


(a)                                  The Company has delivered to Buyer: (a) an unaudited
balance sheet of the Company as at June 30, 2006, and the related
unaudited statements of income, changes in stockholders’ equity, and cash flow
for the fiscal year then ended (collectively, the “Unaudited Company Financial Statements”), (b) an audited
balance sheet of the Company as at June 30, 2007 (including the notes
thereto, the “Audited Company Balance Sheet”)
and the related audited statements of income, changes in stockholders’ equity,
and cash flow for the fiscal year then ended, together with the report thereon
of Amper, Politziner & Mattia,
independent certified public accountants for the Company (collectively, the “Audited Company Financial Statements”),
and (c) an unaudited balance sheet of the Company as of March 31,
2008 (the “Interim Company Balance Sheet”)
and the related unaudited statements of income, changes in stockholders’
equity, and cash flow for the six months then ended (collectively the “Interim Company Financial Statements”).  Such financial statements and notes fairly
present the financial condition and the results of operations, changes in
stockholders’ equity, and cash flow of the Company as of the respective dates
of and for the periods referred to in such financial statements, all in
accordance with GAAP, subject, in the case of the Interim Company Financial
Statements, to normal recurring year-end adjustments (the effect of which will
not, individually or in the aggregate, be materially adverse) and the absence
of notes (that, if presented, would not differ materially from those included
in the Audited Company Balance Sheet). The financial statements referred to in
this Section 3.4(a) reflect the consistent application of such
accounting principles throughout the periods involved.  No financial statements of any Person other
than the Company are required by GAAP to be included in the financial
statements of the Company.


 


(b)                                 Parent has delivered to Buyer: (a) an unaudited balance
sheet of Parent as at June 30, 2006, and the related unaudited statements
of income, changes in stockholders’ equity, and cash flow for the fiscal year
then ended (collectively, the “Unaudited
Parent Financial Statements”), (b) an audited balance sheet of
Parent as of June 30, 2007 (the “Parent Balance Sheet”)
and the related audited statements of income, changes in stockholders’ equity
and cash flow for the fiscal year then ended, together with the report thereon
of Amper, Politziner & Mattia, independent certified public
accountants for the Parent, and (c) an unaudited balance sheet of Parent
as of December 31, 2007 (the “Interim
Parent Balance Sheet”) and the related unaudited statements of
income, changes in stockholders’ equity, and cash flow for the six months then
ended (collectively, the “Interim Parent
Financial Statements”).  Such
financial statements and notes fairly present the financial condition and the
results of operations, changes in stockholders’ equity, and cash flow of Parent
as of the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP, subject, in the case of the Interim
Parent Financial Statements, to normal recurring year-end adjustments (the
effect of which will not, individually or in the aggregate, be materially
adverse) and the absence of notes (that, if presented, would not differ
materially from those included in the Parent Balance Sheet). The financial
statements referred to in this Section 3.4(b) reflect the
consistent application of such accounting


 


31





















 


principles throughout the periods
involved.  No financial statements of any
Person other than Parent and the Company are required by GAAP to be included in
the financial statements of Parent.


 


3.5                                 Books and Records.  The books of
account, minute books, stock record books, and other records of each of Parent
and the Company, all of which have been made available to Buyer, are complete
and correct in all material respects. 
The minute books of each of Parent and the Company, respectively,
contain accurate and complete records of all meetings held of, and corporate
action taken by, the stockholders, the Boards of Directors, and committees of
the Boards of Directors of each of Parent and the Company, and no meeting of
any such stockholders, Board of Directors, or committee has been held for which
minutes have not been prepared and are not contained in such minute books.  At the Closing, all of those books and
records will be in the possession of each of Parent and the Company and
delivered to Buyer.


 


3.6                                 Title to Assets;
Encumbrances; Leases.


 


(a)                                  Parent does not own and has never owned
any leaseholds or real property.  Except
for Capital Equity of the Company, Parent does not own any assets.  Parent owns its Capital Equity of the Company
free and clear of all Encumbrances.


 


(b)                                 Section 3.6(b) of the
Disclosure Schedule contains a complete and accurate list of all leaseholds or
other interests therein owned by the Company. 
The Company does not own any real property.  The Company owns all the assets that it
purports to own located in the facilities operated by the Company or reflected
as owned in the books and records of the Company including all of the assets
reflected in the Audited Company Balance Sheet and the Interim Company Balance
Sheet (except for assets held under capitalized leases disclosed or not
required to be disclosed in Section 3.6(c) of the Disclosure Schedule
and personal property sold since the date of the Audited Company Balance Sheet
and the Interim Company Balance Sheet, as the case may be, in the Ordinary
Course of Business), and all of the assets purchased or otherwise acquired by
the Company since the date of the Audited Company Balance Sheet (except for
personal property acquired and sold since the date of the Audited Company
Balance Sheet in the Ordinary Course of Business and consistent with past
practice).


 


(c)                                  Except as set forth in Section 3.6(c) of
the Disclosure Schedule, all material assets reflected in the Audited Company
Balance Sheet and the Interim Company Balance Sheet are free and clear of all
Encumbrances, except for (a) security interests shown on the Audited
Company Balance Sheet or the Interim Company Balance Sheet as securing
specified liabilities or obligations, with respect to which no default (or
event that, with notice or lapse of time or both, would constitute a default)
exists, (b) security interests incurred in connection with the purchase of
assets after the date of the Interim Company Balance Sheet (such security
interests being limited to the assets so acquired), with respect to which no
default (or event that, with notice or lapse of time or both, would constitute
a default) exists, and (c) liens for current taxes not yet due.


 


32





















 


(d)                                 Section 3.6(d) of the
Disclosure Schedule sets forth a list, which is correct and complete in all
material respects, of all of the leases and subleases (the “Company Leases”) and each leased and
subleased parcel of real property in which the Company is a tenant, subtenant,
landlord or sublandlord as of the date of this Agreement (collectively, the “Company Leased Real Property”), and for
each Company Lease indicates: (i) whether or not the consent of and/or
notice to the landlord thereunder will be required in connection with the
transactions contemplated by this Agreement; (ii) its term and any options
to extend the term; and (iii) the current rent payable (including all
occupancy costs other than utilities). The Company holds a valid and existing
leasehold or subleasehold interest or landlord or sublandlord interest (as
applicable) in the Company Leased Real Property under each of the Company
Leases listed in Section 3.6(b) of the Disclosure Schedule. Majority
Owners have made available to Buyer true, correct and complete copies of each
of the Company Leases, including, without limitation, all amendments,
modifications, side agreements, consents, subordination agreements and
guarantees executed or otherwise in force with respect to any Company Lease.
Except as set forth in Section 3.6(d) of the Disclosure Schedule,
with respect to each Company Lease: (i) to the Knowledge of Majority
Owners and the Company, the Company Lease is legal, valid, binding, enforceable
and in full force and effect; (ii) neither the Company, nor, to the
Knowledge of Majority Owners and the Company, any other party to the Company
Lease, is in any material respect in breach or default under the Company Lease,
and no event has occurred that, with notice or lapse of time, would constitute
a breach or default in any material respect by the Company or permit
termination, modification or acceleration under the Company Lease by any other
party thereto; (iii) other than the execution of this Agreement by Majority
Owners, no event has occurred that would constitute or permit termination,
modification or acceleration of the Company Lease or trigger liquidated
damages; (iv) the Company has performed and will continue to perform all
of its obligations in all material respects under the Company Lease; (v) the
Company has not, and, to the Knowledge of Majority Owners and the Company, no
third party has, repudiated any material provision of the Company Lease; (vi) there
are no disputes, oral agreements or forbearance programs in effect as to the
Company Lease that would be material to the Company; (vii) the Company
Lease has not been modified in any respect, except to the extent that such
modifications are set forth in the documents previously made available to Buyer
and set forth on Section 3.6(b) of the Disclosure Schedule; and (viii) the
Company has not assigned, transferred, conveyed, mortgaged, deeded in trust or
encumbered any interest in the Company Lease.


 


(e)                                  To the Knowledge of Majority Owners and
the Company, each parcel of Company Leased Real Property is in material
compliance with all existing Laws, including, without limitation, (a) the
Americans with Disabilities Act, 42 U.S.C. Section 12102 et seq., together
with all rules, regulations and official interpretations promulgated pursuant
thereto, and (b) all laws with respect to zoning, building, fire, safety,
health codes and sanitation, except where such noncompliance would not
reasonably be expected to have a material effect on the Company. Neither
Majority Owners nor the Company has received notice of, and nor have Knowledge
of, any condition currently or previously existing on the Company Leased Real
Property or any


 


33





















 


portion thereof that may
give rise to any violation of, or require any remediation under, any existing
Legal Requirement applicable to the Company Leased Real Property if it were
disclosed to the authorities having jurisdiction over such Company Leased Real
Property other than those (i) arising in the Ordinary Course of Business
or (ii) that would not reasonably be expected to have a material adverse
effect on the Company.


 


(f)                                    Neither Majority Owners nor the Company
has received written notice of any proceedings in eminent domain, condemnation or
other similar proceedings that are pending, and, to the Knowledge of Majority
Owners and the Company, there are no such proceedings threatened, affecting any
portion of the Company Leased Real Property. Neither Majority Owners nor the
Company has received written notice of the existence of any outstanding writ,
injunction, decree, order or judgment or of any pending proceeding, and, to the
Knowledge of Majority Owners and the Company, there is no such writ,
injunction, decree, order, judgment or proceeding threatened, relating to the
ownership, lease, use, occupancy or operation by any person of the Company
Leased Real Property.


 


(g)                                 To the Knowledge of Majority Owners and
the Company, the current use of the Company Leased Real Property does not
violate in any material respect any instrument of record or agreement affecting
such Company Leased Real Property, and there are no violations of any
covenants, conditions, restrictions, easements, agreements or orders of any
Government Body having jurisdiction over any of the Company Leased Real
Property or the use or occupancy thereof. No material damage or destruction has
occurred with respect to any of the Company Leased Real Property.


 


(h)                                 All buildings and other improvements
included within the Company Leased Real Property (the “Company Improvements”) are, in all
material respects, adequate to operate such facilities as currently used, and,
to the Knowledge of Majority Owners, there are no facts or conditions affecting
any of the Company Improvements that would, individually or in the aggregate,
interfere in any significant respect with the current use, occupancy or
operation thereof. With respect to the Company Improvements, the Company has
all rights of access that are reasonably necessary for the operation of its
business.


 


(i)                                     All required or appropriate certificates
of occupancy, permits, licenses, franchises, approvals and authorizations
(collectively, the “Company Real Property
Permits”) of all Government Bodies having jurisdiction over the
Company Leased Real Property, the absence of which would be reasonably likely
to cause a material adverse effect to the Company, have been lawfully issued to
the Company to enable the Company Leased Real Property to be lawfully occupied
and used for all of the purposes for which it is currently occupied and used
and are, as of the date hereof, in full force and effect. Neither Majority
Owners nor the Company has received, or been informed by a third party of the
receipt by it of, any notice that would be reasonably likely to cause a
material adverse effect to the Company from any Government Body having
jurisdiction over the Company Leased Real Property threatening a suspension,
revocation, modification or cancellation of any Company Leased Real Property
Permit or requiring any remediation in connection with maintaining any Company
Leased Real Property Permit.


 


34





















 


(j)                                     The Company does not have any liability
of any kind (except for liabilities that may arise as a result of indemnification
obligations or in respect of environmental matters) related to the closing of
any real property with respect to which the Company terminated its leasehold or
subleasehold interest.


 


(k)                                  The Company is not obligated under any
option, right of first refusal or other contractual right to purchase, acquire,
sell or dispose of the Company Leased Real Property or any portion thereof or
interest therein.


 


3.7                                 Condition and
Sufficiency of Facilities.  The Facilities currently used or operated by
the Company are, to the Knowledge of Majority Owners, structurally sound, are
in good operating condition and repair, and are adequate for the uses to which
they are being put, and none of such Facilities are in need of maintenance or
repairs except for ordinary, routine maintenance and repairs that are not
material in nature or cost.  The
Facilities of the Company currently used or operated by the Company are
sufficient for the continued conduct of the Company’s business after the
Closing in substantially the same manner as conducted prior to the
Closing.  Section 3.7 of the
Disclosure Schedule contains a listing of all equipment currently owned or
operated by the Company and Parent and the location of such equipment.


 


3.8                                 Accounts Receivable.


 


(a)                                  Parent has no accounts receivable.


 


(b)                                 All accounts receivable of the Company that are reflected on
the Audited Company Balance Sheet or the Interim Company Balance Sheet or on
the accounting records of the Company as of the Closing Date (collectively, the
“Accounts Receivable”) represent
or will represent valid obligations arising from sales actually made or
services actually performed in the Ordinary Course of Business.  Unless paid prior to the Closing Date, the
Accounts Receivable are or will be as of the Closing Date current and
collectible, net of the respective reserves shown on the Audited Company
Balance Sheet or the Interim Company Balance Sheet or on the accounting records
of the Company as of the Closing Date (which reserves are adequate and
calculated consistent with past practice and, in the case of the reserve as of
the Closing Date, will not represent a greater percentage of the Accounts
Receivable as of the Closing Date than the reserve which is reflected in the
Interim Company Balance Sheet with respect to the Accounts Receivable reflected
therein and will not represent a material adverse change in the composition of
such Accounts Receivable in terms of aging). 
Subject to such reserves, each of the Accounts Receivable either has
been or will be collected in full, without any setoff, within one hundred
eighty (180) days after the day on which it first becomes due and payable.  There is no contest, claim or right of
setoff, other than returns in the Ordinary Course of Business, under any
Contract with any obligor of an Accounts Receivable relating to the amount or
validity of such Accounts Receivable and in no event shall the returns with
respect to such Accounts Receivable exceed $50,000 in the aggregate; provided;
however, that if Sellers pay to Buyer any amount related to an
indemnification claim by Buyer pursuant to Section 10.2 with
respect to the representations regarding the Accounts Receivable set forth in
this Section 3.8(b) and on


 


35





















 


or prior to the first anniversary of
the Closing the Company collects such Accounts Receivable, within ten (10) Business
Days after the first anniversary of the Closing Buyer shall reimburse Sellers
all such amounts collected, if any.  Section 3.8(b) of
the Disclosure Schedule contains a complete and accurate list of all Accounts
Receivable as of the date of the Interim Company Balance Sheet, which list sets
forth the aging of such Accounts Receivable.


 


3.9                                 Inventory.


 


(a)                                  Parent has no inventory.


 


(b)                                 All inventory of the Company, whether or not reflected in the
Audited
Company Balance
Sheet or the Interim Company Balance Sheet, consists of a quality and quantity
usable and salable in the Ordinary Course of Business, except for obsolete
items and items of below-standard quality, all of which have been written off
or written down to net realizable value in the Audited
Company Balance
Sheet or the Interim Company Balance Sheet or on the accounting records of the
Company as of the Closing Date, as the case may be.  All inventories not written off have been
priced at the lower of cost or market on a retail method basis.  The quantities of each item of inventory
(whether raw materials, work-in-process, or finished goods) are not excessive,
but are reasonable in the present circumstances of the Company, all consistent
with past practices (i.e., there has not been any abnormal increase or decrease
in inventory levels).  Section 3.9(b) of
the Disclosure Schedule contains a list of all inventory of the Company and the
location of all such inventory.  Except
as set forth on Section 3.9(b) of the Disclosure Schedule, all such
inventory is owned free and clear of any Encumbrances.


 


(c)                                  None of the inventory reflected in the Financial Statements
has been sold for an amount less than the value placed on such inventory as
reflected in the Audited Company Balance Sheet or the Interim Company Balance
Sheet, as applicable.  The Company has
not offered price reductions, discounts or allowances on sales of inventory, or
sold inventory at less than cost.  The
Company has no agreements relating to the sale of inventory at less than the
Company’s normal gross margin.


 


3.10                           No Undisclosed
Liabilities.  Each of Parent and the Company has no
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Audited Company Balance Sheet
or Parent Balance Sheet, as applicable, or the Interim Company Balance Sheet or
Interim Parent Balance Sheet, as applicable, and current liabilities incurred
in the Ordinary Course of Business since the respective dates thereof.


 


3.11                           Taxes.


 


(a)                                  Each of Parent and the Company has filed
or caused to be filed on a timely basis (including permitted extensions of time
to file) all Tax Returns that are or were required to be filed by or with
respect to it, either separately or as a member of a group of corporations,
pursuant to applicable Legal Requirements. 
Each of Parent and the


 


36





















 


Company has delivered to
Buyer copies of, and Section 3.11(a) of the Disclosure Schedule
contains a complete and accurate list of, all such Tax Returns filed since June 30,
2000.  Each of Parent and the Company has
paid, all Taxes that have or may have become due pursuant to those Tax Returns
or otherwise, or pursuant to any assessment received by the Company, except
such Taxes, if any, as are listed in Section 3.11(a) of the
Disclosure Schedule and are being contested in good faith and as to which
adequate reserves (determined in accordance with GAAP) have been provided in
the Audited Company Balance Sheet or Parent Balance Sheet, as applicable, and
the Interim Company Balance Sheet or Interim Parent Balance Sheet, as applicable.


 


(b)                                 The United States federal and state
income Tax Returns of each of Parent and the Company subject to such Taxes have
been audited by the IRS or relevant state tax authorities or are closed by the
applicable statute of limitations for all taxable years through June 30,
2000.  Section 3.11(b) of the
Disclosure Schedule contains a complete and accurate list of all audits of all
such Tax Returns, including a reasonably detailed description of the nature and
outcome of each audit.  All deficiencies
proposed as a result of such audits have been paid, reserved against, or
settled.  There have been no adjustments
to the United States federal income Tax Returns filed by Parent, the Company or
any group of corporations, including Parent or the Company for all taxable
years since June 30, 2000, and the resulting deficiencies proposed by the
IRS.  There is no investigation by any
tax agency or authority presently pending or, to the Knowledge of Majority
Owners, threatened with respect to the Company, and neither Parent nor the
Company is a party to any action or proceeding by any governmental authority
for the assessment or collection of taxes, nor has any such event been asserted
or, to the Knowledge of Majority Owners, Threatened.  Neither Parent nor the Company is currently
pursuing an appeal of any tax imposed against it. There are no liens for Taxes
(other than Taxes not yet due and payable) upon any of the assets of each of
Parent and the Company. No claim has been received from an authority in a
jurisdiction where Parent or the Company does not file Tax returns that Parent
or the Company, as applicable, is or may be subject to taxation by that
jurisdiction.  Neither Parent nor the
Company has given or been requested to give waivers or extensions (or is or
would be subject to a waiver or extension given by any other Person) of any
statute of limitations relating to the payment of Taxes of Parent or the
Company or for which Parent or the Company may be liable.


 


(c)                                  The charges, accruals, and reserves with
respect to Taxes on the books of each of Parent and the Company are adequate
(determined in accordance with GAAP) and are at least equal to its liability
for Taxes.  There exists no proposed tax
assessment against the Company except as disclosed in the Audited Company
Balance Sheet or Parent Balance Sheet, as applicable.  No consent to the application of Section 341(f)(2) of
the IRC has been filed with respect to any property or assets held, acquired,
or to be acquired by Parent or the Company. 
All Taxes that each of Parent and the Company is or was required by
Legal Requirements to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the proper Governmental Body or
other Person.


 


37





















 


(d)                                 All Tax Returns filed by each of Parent
and the Company are true, correct, and complete.  There is no tax sharing agreement that will
require any payment by Parent or the Company after the date of this Agreement.  Neither Parent nor the Company is, nor within
the five-year period preceding the Closing Date has been, an “S” corporation.


 


(e)                                  Neither Parent nor the Company has made a
change in method of accounting for a taxable year beginning on or before the
Closing Date, which would require it to include any adjustment under Section 481(a) of
the Code or otherwise in taxable income for any taxable year beginning on or
after the Closing Date.


 


(f)                                    Neither Parent nor the Company has ever
been a member of an affiliated group of corporations (within the meaning of Section 1504
of the Code), other than the group of which Parent is the common parent.


 


(g)                                 Neither Parent nor the Company is a party
to, is bound by, or has any obligation under any tax sharing, tax indemnity or
similar agreements.


 


(h)                                 Each of Parent and the Company has
disclosed on its income Tax Returns all positions taken therein that could give
rise to a substantial understatement of federal income Tax within the meaning
of Code Section 6662.


 


(i)                                     Neither Parent nor the Company has made
nor is obligated to make a payment that would not be deductible by Parent or
the Company by reason of Sections 162 and 280G of the Code.


 


(j)                                     Neither Parent nor the Company has
constituted either a “distributing corporation” or a “controlled corporation”
in a distribution of stock qualifying for tax-free treatment under Section 355
of the Code in the past two (2) years.


 


3.12                           No Material Adverse
Change. 
Since the date of the Interim Parent Balance Sheet and the Interim Company Balance Sheet,
there has not been any material adverse change in the business, operations,
properties, prospects, assets, or condition of Parent or the Company,
respectively, and, to the Knowledge of Majority Owners, no event has occurred
or circumstance exists that may result in such a material adverse change.


 


3.13                           Employee Benefits.


 


(a)                                  As used in this Section 3.13,
the following terms have the meanings set forth below.


 


“Company
Other Benefit Obligation” means an Other Benefit Obligation owed, adopted, followed by or
enforceable against the Company or an ERISA Affiliate of the Company.


 


“Company
Plan” means all
Plans of which the Company or an ERISA Affiliate of the Company is or was a
Plan Sponsor, or to which the Company or an ERISA Affiliate of the Company
otherwise contributes or has contributed, or in which the


 


38





















 


Company or an
ERISA Affiliate of the Company otherwise participates or has participated.  All references to Plans are to Company Plans
unless the context requires otherwise.


 


“Company
VEBA” means a
VEBA whose members include employees of the Company or any ERISA Affiliate of
the Company.


 


“ERISA
Affiliate” means,
with respect to the Company, any other person that, together with the Company,
would be treated as a single employer under IRC § 414.


 


“Multi-Employer
Plan” has the
meaning given in ERISA § 3(37)(A).


 


“Other
Benefit Obligations”
means all obligations, arrangements, contracts, employment agreements, change
of control agreement, or customary practices, whether or not legally
enforceable, to provide benefits, other than salary, as compensation for
services rendered, to present or former directors, employees, or agents, other
than obligations, arrangements, and practices that are Plans.  Other Benefit Obligations include consulting
agreements provided to current or former employees or those under which the
compensation paid does not depend upon the amount of service rendered,
sabbatical policies, severance payment policies, and fringe benefits within the
meaning of IRC § 132.


 


“PBGC” means the Pension Benefit Guaranty
Corporation, or any successor thereto.


 


“Pension
Plan” has the
meaning given in ERISA § 3(2)(A).


 


“Plan” has the meaning given in ERISA
§ 3(3).


 


“Plan
Sponsor” has the
meaning given in ERISA § 3(16)(B).


 


“Qualified
Plan” means any
Plan that meets or purports to meet the requirements of IRC § 401(a).


 


“Title IV
Plans” means all
Pension Plans that are subject to Title IV of ERISA, 29 U.S.C. § 1301 et
seq., other than Multi-Employer Plans.


 


“VEBA” means a voluntary employees’ beneficiary
association under IRC § 501(c)(9).


 


“Welfare
Plan” has the
meaning given in ERISA § 3(1).


 


(b)                                 (i)                                     Section 3.13(b)(i) of the Disclosure
Schedule contains a complete and accurate list of all Company Plans and Company
Other Benefit Obligations and identifies as such all Company Plans that are (A) defined
benefit Pension Plans, (B) Qualified Plans, or (C) Title IV Plans.


 


39





















 


(ii)                                  The Company has no ERISA Affiliates.


 


(iii)                               The Company has no Multi- Employer Plans
or VEBAs.


 


(iv)                              The Company has no liability for
post-retirement benefits other than pensions, made in accordance with Financial
Accounting Statement 106 of the Financial Accounting Standards Board, regardless
of whether the Company is required by this Statement to disclose such
information.


 


(v)                                 The Company has no obligations under any
Company Plan or Company Other Benefit Obligation that is not subject to the
disclosure and reporting requirements of ERISA.


 


(c)                                  The Company has delivered to Buyer:


 


(i)                                     all documents that set forth the terms of
Company Plan or Company Other Benefit Obligation and of any related trust,
including (A) all plan descriptions and summary plan descriptions of
Company Plans for which Majority Owners or the Company is required to prepare,
file, and distribute plan descriptions and summary plan descriptions, and (B) all
summaries and descriptions furnished to participants and beneficiaries
regarding Company Plans and Company Other Benefit Obligations, for which a plan
description or summary plan description is not required;


 


(ii)                                  all personnel, payroll, and employment
manuals and policies;


 


(iii)                               a written description of any Company Plan
or Company Other Benefit Obligation that is not otherwise in writing;


 


(iv)                              all registration statements filed with
respect to any Company Plan;


 


(v)                                 all insurance policies purchased by or to
provide benefits under any Company Plan;


 


(vi)                              all contracts with third-party
administrators, actuaries, investment managers, consultants, and other
independent contractors that relate to any Company Plan or Company Other
Benefit Obligation;


 


(vii)                           all reports submitted within the four
years preceding the date of this Agreement by third-party administrators,
actuaries, investment managers, consultants, or other independent contractors
with respect to any Company Plan or Company Other Benefit Obligation;


 


(viii)                        all notifications to employees of their
rights under ERISA § 601 et seq.
and IRC § 4980B issued since January 1, 2005;


 


40





















 


(ix)                                the Form 5500 filed in each of the
most recent three plan years with respect to Company Plan, including all
schedules thereto and the opinions of independent accountants;


 


(x)                                   all notices that were given by the
Company or any Company Plan to the IRS, the PBGC, or any participant or
beneficiary, pursuant to statute, within the four years preceding the date of
this Agreement, including notices that are expressly mentioned elsewhere in
this Section 3.13;


 


(xi)                                all notices that were given by the IRS,
the PBGC, or the Department of Labor to the Company, or any Company Plan within
the four years preceding the date of this Agreement;


 


(xii)                             with respect to Qualified Plans, the most
recent determination letter for each Plan of the Company that is a Qualified
Plan; and


 


(xiii)                          with respect to Title IV Plans, the Form PBGC-1
filed for each of the three most recent plan years.


 


(d)


 


(i)                                     The Company has performed all of its
respective obligations under all Company Plans and Company Other Benefit
Obligations.  The Company has made
appropriate entries in its financial records and statements in accordance with
GAAP for all obligations and liabilities under such Plans, and Obligations that
have accrued but are not due.  All
Company Plans and Company Other Benefit Obligations have been administered in
accordance with its terms and applicable law.


 


(ii)                                  No statement, either written or oral, has
been made by the Company to any Person with regard to any Plan or Other Benefit
Obligation that was not in accordance with the Plan or Other Benefit Obligation
and that could have an adverse economic consequence to the Company or to Buyer.


 


(iii)                               The Company, with respect to all Company
Plans and Company Other Benefits Obligations is in full compliance with ERISA,
the IRC, and other applicable Laws, including the provisions of such Laws
expressly mentioned in this Section 3.13.


 


(A)                              No transaction prohibited by ERISA
§ 406 and no “prohibited transaction” under IRC § 4975(c) has
occurred with respect to any Company Plan.


 


(B)                                Neither the Company nor, to the Knowledge
of the Company, any Majority Owner has any liability to the IRS with respect to
any Plan, including any liability imposed by Chapter 43 of the IRC.


 


41





















 


(C)                                Neither the Company nor, to the Knowledge
of the Company, any Majority Owner has any liability to the PBGC with respect
to any Plan or has any liability under ERISA § 502 or § 4071.


 


(D)                               All filings required by ERISA and the IRC
as to each Plan have been timely filed (including permitted extensions of time
to file), and all notices and disclosures to participants required by either
ERISA or the IRC have been timely provided.


 


(E)                                 All contributions and payments made or
accrued with respect to all Company Plans and Company Other Benefit Obligations
are deductible under IRC § 162 or § 404.  No amount, or any asset of any Company Plan,
is subject to tax as unrelated business taxable income.


 


(iv)                              All Company Plans can be terminated
within thirty days, without payment of any additional contribution or amount
and without the vesting or acceleration of any benefits promised by such Plan.


 


(v)                                 Since January 1, 2005, there has
been no establishment or amendment of any Company Plan or Company Other Benefit
Obligation.


 


(vi)                              No event has occurred or circumstance
exists that could result in a material increase in premium costs of Company
Plans and Company Other Benefit Obligations that are insured, or a material
increase in benefit costs of such Plans and Obligations that are self-insured.


 


(vii)                           Other than claims for benefits submitted
by participants or beneficiaries, no claim against, or legal proceeding
involving, any Company Plan or Company Other Benefit Obligation is pending or,
to the Company’s Knowledge, is Threatened.


 


(viii)                        No Company Plan is a stock bonus or
pension plan within the meaning of IRC § 401(a).


 


(ix)                                Each Qualified Plan of the Company is
qualified in form and operation under IRC § 401(a); each trust for each such
Plan is exempt from federal income tax under IRC § 501(a).  No event has occurred or circumstance exists
that will or could give rise to disqualification or loss of tax-exempt status
of any such Plan or trust.


 


(x)                                   The Company has met the minimum funding
standard, and has made all contributions required, under ERISA § 302 and
IRC § 402.


 


(xi)                                No Company Plan is subject to Title IV of
ERISA.


 


42





















 


(xii)                             No amendment has been made, or is
reasonably expected to be made, to any Plan that has required or could require
the provision of security under ERISA § 307 or IRC § 401(a)(29).


 


(xiii)                          No accumulated funding deficiency,
whether or not waived, exists with respect to any Company Plan; no event has
occurred or circumstance exists that may result in an accumulated funding
deficiency as of the last day of the current plan year of any such Plan.


 


(xiv)                         The Company has never established,
maintained, or contributed to or otherwise participated in, or had an
obligation to maintain, contribute to, or otherwise participate in, any
Multi-Employer Plan.


 


(xv)                            The Company has not received notice from
any Multi-Employer Plan that it is in reorganization or is insolvent, that
increased contributions may be required to avoid a reduction in plan benefits
or the imposition of any excise tax, or that such Plan intends to terminate or
has terminated.


 


(xvi)                         Except to the extent required under ERISA
§ 601 et seq. and IRC § 4980B, the
Company does not provide health or welfare benefits for any retired or former
employee or is obligated to provide health or welfare benefits to any active
employee following such employee’s retirement or other termination of service.


 


(xvii)                      The Company has the right to modify and
terminate benefits to retirees (other than pensions) with respect to both
retired and active employees.


 


(xviii)                   Majority Owners and the Company have complied with the
provisions of ERISA § 601 et seq. and IRC
§ 4980B.


 


(xix)                           No payment that is owed or may become due
to any director, officer, employee, or agent of the Company will be
nondeductible to the Company or subject to tax under IRC § 280G or
§ 4999; nor will the Company be required to “gross up” or otherwise
compensate any such person because of the imposition of any excise tax on a
payment to such person.


 


(xx)                              No payment that is owed or may become due
to any director, officer, employee, or agent of the Company is or will be
subject to tax under IRC § 409A. 
Any and all Plans and Company Other Benefit Obligations are currently in
compliance in all material respects with Code § 409A.


 


(xxi)                           The consummation of the Contemplated
Transactions will not result in the payment, vesting, or acceleration of any
benefit under any Company Plan.


 


(e)                                  Parent has no, and has not had any in the
10-year period preceding the date of this Agreement, Plans or Other Benefit
Obligations.


 


43




















 


3.14                           Compliance with Legal
Requirements; Governmental Authorizations.


 


(a)                                  Except as set forth in Section 3.14(a) of
the Disclosure Schedule:


 


(i)                                     each of Parent and the Company is, and at
all times since January 1, 2005 has been, in compliance in all material
respects with each Legal Requirement that is or was applicable to it or to the
conduct or operation of its business or the ownership or use of any of its
assets;


 


(ii)                                  to the Knowledge of Majority Owners, no
event has occurred or circumstance exists that (with or without notice or lapse
of time) (A) may constitute or result in a violation by Parent or the
Company of, or a failure on the part of Parent or the Company to comply with,
any Legal Requirement, or (B) may give rise to any obligation on the part
of Parent or the Company to undertake, or to bear all or any portion of the
cost of, any remedial action of any nature; and


 


(iii)                               neither Parent nor the Company has
received, at any time since January 1, 2005, any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential material
violation of, or failure to comply in any material respect with, any Legal
Requirement, or (B) any actual, alleged, possible, or potential material
obligation on the part of it to undertake, or to bear all or any portion of the
cost of, any remedial action of any nature.


 


(b)                                 Section 3.14(b) of the
Disclosure Schedule contains a complete and accurate list of each Governmental Authorization
that is held by each of Parent and the Company or that otherwise relates to the
business of, or to any of the assets owned or used by, the Company.  Each Governmental Authorization listed or
required to be listed in Section 3.14(b) of the Disclosure Schedule
is valid and in full force and effect. 
Except as set forth in Section 3.14(b) of the Disclosure
Schedule:


 


(i)                                     each of Parent and the Company is, and at
all times since January 1, 2005 has been, in compliance in all material
respects with all of the terms and requirements of each Governmental
Authorization identified or required to be identified in Section 3.14(b) of
the Disclosure Schedule;


 


(ii)                                  to the Knowledge of Majority Owners, no
event has occurred or circumstance exists that may (with or without notice or
lapse of time) (A) constitute or result directly or indirectly in a
violation of or a failure to comply with any term or requirement of any
Governmental Authorization listed or required to be listed in Section 3.14(b) of
the Disclosure Schedule, or (B) result directly or indirectly in the
revocation, withdrawal, suspension, cancellation, or termination of, or any
modification to, any Governmental Authorization listed or required to be listed
in Section 3.14(b) of the Disclosure Schedule;


 


44





















 


(iii)                               neither Parent nor the Company has
received, at any time since January 1, 2005, any notice or other
communication (whether oral or written) from any Governmental Body or any other
Person regarding (A) any actual, alleged, possible, or potential violation
of or failure to comply with any material term or requirement of any
Governmental Authorization, or (B) any actual, proposed, possible, or
potential revocation, withdrawal, suspension, cancellation, termination of, or
material modification to any Governmental Authorization; and


 


(iv)                              all applications required to have been
filed for the renewal of the Governmental Authorizations listed or required to
be listed in Section 3.14(b) of the Disclosure Schedule have been
duly filed on a timely basis with the appropriate Governmental Bodies, and all
other filings required to have been made with respect to such Governmental
Authorizations have been duly made on a timely basis with the appropriate Governmental
Bodies.


 


The Governmental
Authorizations listed in Section 3.14(b) of the Disclosure Schedule
collectively constitute all of the Governmental Authorizations necessary to
permit the Company and Parent to lawfully conduct and operate its business in
the manner they currently conduct and operate such business and to permit the
Company to own and use its assets in the manner in which it currently owns and
uses such assets.


 


(c)                                  To the Knowledge of Majority Owners, no
current or proposed Legal Requirement will have a material adverse effect on
the Company.


 


3.15                           Legal Proceedings;
Orders.


 


(a)                                  There is no pending Proceeding:


 


(i)                                     by or against Parent or the Company or,
to the Knowledge of Majority Owners, that otherwise relates to or may affect
the business of, or any of the assets owned or used by, Parent or the Company;
or


 


(ii)                                  that challenges, or that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with,
any of the Contemplated Transactions.


 


To the Knowledge of Majority Owners, Parent and the Company, no such
Proceeding has been Threatened, and no event has occurred or circumstance
exists that may give rise to or serve as a basis for the commencement of any
such Proceeding.


 


(b)                                 There is no Order to which Parent, the
Company, or any of the assets owned or used by Parent or the Company, is
subject.


 


(c)                                  Majority Owners are not subject to any
Order that relates to the business of, or any of the assets owned or used by,
Parent or the Company.


 


45





















 


(d)                                 No officer, director, agent, or employee
of Parent or the Company is subject to any Order that prohibits such officer,
director, agent, or employee from engaging in or continuing any conduct,
activity, or practice relating to the business of Parent or the Company.


 


(e)                                  Each of Parent and the Company is, and at
all times since January 1, 2005 has been, in full compliance with all of
the terms and requirements of each Order to which it, or any of the assets
owned or used by it, is or has been subject.


 


(f)                                    No event has occurred or circumstance
exists that may constitute or result in (with or without notice or lapse of
time) a violation of or failure to comply with any term or requirement of any
Order to which Parent or the Company, or any of the assets owned or used by
Parent or the Company, is subject.


 


(g)                                 Except as set forth in Section 3.15(g) of the
Disclosure Schedule, neither Parent nor the Company has received, at any time since January 1,
2005, any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding any actual, alleged, possible,
or potential violation of, or failure to comply with, any term or requirement
of any Order to which Parent, the Company, or any of the assets owned or used
by Parent or the Company, is or has been subject.


 


3.16                           Absence of Certain
Changes and Events.  Except as set forth in Section 3.16 of
the Disclosure Schedule, since the date of the Interim Parent Balance Sheet and
the Interim Company  Balance
Sheet, each of Parent and the Company, respectively, has conducted its business
only in the Ordinary Course of Business and there has not been any:


 


(a)                                  change in its authorized or issued
capital stock; grant of any stock option or right to purchase shares of its
capital stock; issuance of any security convertible into such capital stock;
grant of any registration rights; purchase, redemption, retirement, or other
acquisition by it of any shares of any such capital stock; or declaration or
payment of any dividend or other distribution or payment in respect of shares
of capital stock;


 


(b)                                 amendment to its Organizational
Documents;


 


(c)                                  adoption of any stockholder resolution;


 


(d)                                 borrowing of any sum other than amounts
borrowed in the Ordinary Course of Business and available to it at the date of
the Agreement;


 


(e)                                  creation of any lien over any of its
assets;


 


(f)                                    payment or increase, decrease, or
cessation by it of any bonuses, salaries, or other compensation to any
stockholder, director, officer, or (except in the Ordinary Course of Business)
employee or entry into any employment, severance, consulting, independent
contractor, or similar Contract with any director, officer, or employee;


 


46





















 


(g)                                 adoption of, or increase, decrease, or
cessation in the payments to or benefits under, any profit-sharing, bonus,
deferred compensation, savings, insurance, pension, retirement, or other
employee benefit plan for or with any of its employees;


 


(h)                                 damage to or destruction or loss of any
of its asset or property, whether or not covered by insurance, materially and
adversely affecting its properties, assets, business, financial condition, or
prospects, taken as a whole;


 


(i)                                     entry into, termination of, or receipt of
notice of termination of (i) any license, distributorship, dealer, sales
representative, joint venture, credit, or similar agreement, or (ii) any
Contract or transaction involving a total remaining commitment by or to it of
at least $25,000;


 


(j)                                     sale (other than sales of inventory in
the Ordinary Course of Business), lease, or other disposition of any of its
asset or property or mortgage, pledge, or imposition of any lien or other
encumbrance on any of its material assets or property, including the sale,
lease, or other disposition of any of the material Intellectual Property
Assets;


 


(k)                                  cancellation or waiver of any claims or
rights with a value to it in excess of $15,000;


 


(l)                                     material change in its accounting methods
used; or


 


(m)                               agreement, whether oral or written, by it
to do any of the foregoing.


 


3.17                           Contracts; No Defaults.


 


(a)                                  Parent has no Applicable Contracts.


 


(b)                                 Section 3.17(b) of the
Disclosure Schedule contains a complete and accurate list, and the Company has
delivered to Buyer true and complete copies, of:


 


(i)                                     each Applicable Contract that involves
performance of services or delivery of goods or materials to it of an amount or
value in excess of $25,000;


 


(ii)                                  each Applicable Contract that was not
entered into in the Ordinary Course of Business and that involves expenditures
or receipts by it in excess of $25,000;


 


(iii)                               each lease, rental or occupancy
agreement, license, installment and conditional sale agreement, and other
Applicable Contract affecting the ownership of, leasing of, title to, use of,
or any leasehold or other interest in, any real or personal property (except
personal property leases and installment and conditional sales agreements
having a value per item or aggregate payments of less than $25,000 and with
terms of less than one year);


 


47





















 


(iv)                              each licensing agreement or other
Applicable Contract with respect to patents, trademarks, copyrights, or other
intellectual property, including agreements with current or former employees,
consultants, or contractors regarding the appropriation or the nondisclosure of
any of the Intellectual Property Assets;


 


(v)                                 each collective bargaining agreement and
other Applicable Contract to or with any labor union or other employee
representative of a group of employees;


 


(vi)                              each joint venture, partnership, and
other Applicable Contract (however named) involving a sharing of profits,
losses, costs, or liabilities by the Company with any other Person;


 


(vii)                           each Applicable Contract containing
covenants that in any way purport to restrict its (or any of its Affiliates’)
business activity or limit its (or any of its Affiliates’) freedom to engage in
any line of business or to compete with any Person;


 


(viii)                        each Applicable Contract providing for
payments to or by any Person based on sales, purchases, or profits, other than
direct payments for goods;


 


(ix)                                each power of attorney that is currently
effective and outstanding;


 


(x)                                   each Applicable Contract entered into
other than in the Ordinary Course of Business that contains or provides for an
express undertaking by the Company to be responsible for consequential damages;


 


(xi)                                each Applicable Contract for capital
expenditures in excess of $25,000;


 


(xii)                             each written warranty, guaranty, and or other
similar undertaking with respect to contractual performance extended by the
Company other than in the Ordinary Course of Business; and


 


(xiii)                          each amendment, supplement, and
modification (whether oral or written) in respect of any of the foregoing.


 


(c)                                  Neither Majority Owner (nor any Related
Person of Majority Owners) has or may acquire any rights under, and Majority
Owners are not subject to any obligation or liability under, any Contract that
relates to the business of, or any of the assets owned or used by, the Company.


 


(d)                                 No officer, director, agent, employee,
consultant, or contractor of the Company is bound by any Contract that purports
to limit the ability of such officer, director, agent, employee, consultant, or
contractor to (A) engage in or continue any


 


48





















 


conduct, activity, or
practice relating to the business of the Company, or (B) assign to the
Company or to any other Person any rights to any invention, improvement, or
discovery.


 


(e)                                  Each Contract identified or required to
be identified in Section 3.17(b) of the Disclosure Schedule is in
full force and effect and is valid and enforceable in accordance with its
terms.


 


(f)                                    Except as set forth in Section 3.17(f) of
the Disclosure Schedule:


 


(i)                                     the Company is, and at all times since January 1,
2005 has been, in compliance in all material respects with all applicable terms
and requirements of each Contract under which it has or had any obligation or
liability or by which it or any of the assets owned or used by it is or was
bound;


 


(ii)                                  to the Knowledge of Majority Owners,
Parent and the Company, each other Person that has or had any obligation or
liability under any Contract under which and the Company has or had any rights
is, and at all times since January 1, 2005 has been, in full compliance
with all applicable terms and requirements of such Contract;


 


(iii)                               no event has occurred or circumstance
exists that (with or without notice or lapse of time) may contravene, conflict
with, or result in a violation or breach of, or give the Company or, to the
Knowledge of Majority Owners, Parent and the Company, other Person, the right
to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any Applicable
Contract; and


 


(iv)                              the Company has not given to or received
from any other Person, at any time since January 1, 2005, any notice or
other communication (whether oral or written) regarding any actual, alleged,
possible, or potential violation or breach of, or default under, any Contract.


 


(g)                                 There are no renegotiations of, attempts
to renegotiate, or outstanding rights to renegotiate any material amounts paid
or payable to the Company under current or completed Contracts with any Person
and, to the Knowledge of Majority Owners, Parent and the Company, no such
Person has made written demand for such renegotiation.


 


3.18                           Insurance.


 


(a)                                  Each of Parent and the Company has
delivered to Buyer:


 


(i)                                     true and complete copies of all policies
of insurance to which it is a party or under which it, or any of its directors,
is or has been covered at any time within the one (1) year preceding the
date of this Agreement;


 


49





















 


(ii)                                  true and complete copies of all pending
applications for policies of insurance; and


 


(iii)                               any statement by the auditor of its
financial statements with regard to the adequacy of such entity’s coverage or
of the reserves for claims.


 


(b)                                 Section 3.18(b) of the Disclosure
Schedule describes:


 


(i)                                     any self-insurance arrangement by or
affecting each of Parent and the Company, including any reserves established
thereunder;


 


(ii)                                  any contract or arrangement, other than a
policy of insurance, for the transfer or sharing of any risk by each of Parent
and the Company; and


 


(iii)                               all obligations of each of Parent and the
Company to third parties with respect to insurance (including such obligations
under leases and service agreements) and identifies the policy under which such
coverage is provided.


 


(c)                                  Section 3.18(c) of the
Disclosure Schedule sets forth, by year, for the current policy year and each
of the three (3) preceding policy years:


 


(i)                                     a summary of the loss experience under
each policy;


 


(ii)                                  a statement describing each claim under
an insurance policy for an amount in excess of $25,000, which sets forth:


 


(A)                              the name of the claimant;


 


(B)                                a description of the policy by insurer,
type of insurance, and period of coverage; and


 


(C)                                the amount and a brief description of the
claim; and


 


(iii)                               a statement describing the loss
experience for all claims that were self-insured, including the number and
aggregate cost of such claims.


 


(d)                                 all policies to which each of Parent and
the Company is a party or that provide coverage to Majority Owners, Parent, the
Company, or any director or officer of each of Parent and the Company:


 


(i)                                     are valid, outstanding, and enforceable;


 


(ii)                                  are issued by an insurer that is
financially sound and reputable;


 


(iii)                               taken together, provide adequate
insurance coverage for the assets and the operations of each of Parent and the
Company for all risks normally insured against by a Person carrying on the same
business or businesses as each of Parent and the Company;


 


50





















 


(iv)                              are sufficient for compliance with all
Legal Requirements and Contracts to which the Company is a party or by which it
is bound;


 


(v)                                 will continue in full force and effect
following the consummation of the Contemplated Transactions; and


 


(vi)                              do not provide for any retrospective
premium adjustment or other experienced-based liability on the part of Parent
or the Company.


 


(e)                                  Since January 1, 2006, neither
Parent nor the Company has received (A) any refusal of coverage or any
notice that a defense will be afforded with reservation of rights, or (B) any
notice of cancellation or any other indication that any insurance policy is no
longer in full force or effect or will not be renewed or that the issuer of any
policy is not willing or able to perform its obligations thereunder.


 


(f)                                    Each of Parent and the Company has paid
all premiums due, and has otherwise performed in all material respects all of
its respective obligations, under each policy to which it is a party or that
provides coverage to it or a director thereof.


 


(g)                                 Each of Parent and the Company has given
notice to the insurer of all claims of which Parent or the Company has
Knowledge that may be insured thereby.


 


3.19                           Environmental Matters.  Except as set forth
in Section 3.19 of the Disclosure Schedule:


 


(a)                                  Each of Parent and the Company is, and at
all times has been, in full compliance with, and has not been and is not in
violation of or liable under, any Environmental Law.  Neither Majority Owners nor the Company has any
basis to expect, nor has any of them or any other Person for whose conduct they
are or may be held to be responsible received, any actual or Threatened order,
notice, or other communication from (i) any Governmental Body or private
citizen acting in the public interest, or (ii) the current or prior owner
or operator of any Facilities, of any actual or potential violation or failure
to comply with any Environmental Law, or of any actual or Threatened obligation
to undertake or bear the cost of any Environmental, Health, and Safety
Liabilities with respect to any of the Facilities or any other properties or
assets (whether real, personal, or mixed) in which Majority Owners, Parent or
the Company has or had an interest, or with respect to any property or Facility
at or to which Hazardous Materials were generated, manufactured, refined,
transferred, imported, used, Released, or processed by Majority Owners, Parent,
the Company, or any other Person for whose conduct they are or may be held
responsible, or from which Hazardous Materials have been transported, treated,
stored, handled, transferred, disposed, recycled, received or Released.


 


(b)                                 There are no pending or, to the Knowledge
of Majority Owners, Threatened claims, Encumbrances, or other restrictions of
any nature, resulting from any Environmental, Health, and Safety Liabilities or
arising under or pursuant to any Environmental Law, with respect to or
affecting any of the Facilities or any other


 


51





















 


properties and assets
(whether real, personal, or mixed) in which Majority Owners or the Company has
or had an interest.


 


(c)                                  Neither Majority Owners nor the Company
has Knowledge of any basis to expect, nor has any of them or any other Person
for whose conduct they, Parent or the Company are or may be held responsible,
received any citation, directive, inquiry, notice, Order, summons, warning, or
other communication that relates to Hazardous Activity, Hazardous Materials, or
any alleged, actual, or potential violation or failure to comply with any
Environmental Law, or of any alleged, actual, or potential obligation to
undertake or bear the cost of any Environmental, Health, and Safety Liabilities
with respect to any of the Facilities or any other properties or assets (whether
real, personal, or mixed) in which Majority Owners, Parent or the Company had
an interest, or with respect to any property or facility to which Hazardous
Materials generated, manufactured, refined, transferred, imported, used, or
processed by Majority Owners, Parent, the Company, or any other Person for
whose conduct they are or may be held responsible, have been transported,
treated, stored, handled, transferred, disposed, recycled, received or
Released.


 


(d)                                 None of Majority Owners, Parent or the Company,
or any other Person for whose conduct they are or may be held responsible, has
any Environmental, Health, and Safety Liabilities with respect to the
Facilities or, to the Knowledge of Majority Owners and the Company, with
respect to (i) any other properties and assets (whether real, personal, or
mixed) in which Majority Owners, Parent or the Company (or any predecessor),
has or had an interest, or (ii) any property geologically or
hydrologically adjoining the Facilities or any such other property or assets.


 


(e)                                  There are no Hazardous Materials present
on or in the Environment at the Facilities or, to the Knowledge of Majority
Owners, at any geologically or hydrologically adjoining property, including any
Hazardous Materials contained in barrels, above or underground storage tanks,
landfills, land deposits, dumps, equipment (whether moveable or fixed) or other
containers, either temporary or permanent, or deposited or located in land,
water, sumps, or any other part of the Facilities or such adjoining property,
or incorporated into any structure therein or thereon.  None of Majority Owners, Parent or the
Company, or any other Person for whose conduct they are or may be held
responsible, or to the Knowledge of Majority Owners and the Company, any other
Person, has permitted or conducted, or is aware of, any Hazardous Activity
conducted with respect to the Facilities or any other properties or assets
(whether real, personal, or mixed) in which Majority Owners, Parent or the
Company has or had an interest except in full compliance with all applicable
Environmental Laws.


 


(f)                                    There has been no Release or Threat of
Release, of any Hazardous Materials at or from the Facilities or at any other
locations where any Hazardous Materials were generated, manufactured, refined,
transferred, treated, produced, imported, used, disposed, or processed from or
by the Facilities, or from or by any other properties and assets (whether real,
personal, or mixed) in which Majority Owners, Parent or the Company has or had
an interest, or to the Knowledge of Majority Owners and the


 


52





















 


Company, any geologically
or hydrologically adjoining property, whether by Majority Owners, Parent, the
Company, or any other Person.


 


(g)                                 The Company has delivered or, if not yet
received by the Company, will deliver promptly upon receipt, to Buyer true and
complete copies and results of any reports, communications, notices, orders,
studies, analyses, tests, or monitoring possessed or initiated by Majority
Owners, Parent or the Company pertaining to Hazardous Materials or Hazardous
Activities in, on, or under the Facilities, or concerning compliance by
Majority Owners, Parent, the Company, or any other Person for whose conduct
they are or may be held responsible, with Environmental Laws.


 


3.20                           Employees.


 


(a)                                  Parent (i) conducts no operations
and (ii) does not have and has not had any employees during the ten-year
period preceding the date of this Agreement.


 


(b)                                 Section 3.20(b) of the
Disclosure Schedule contains a complete and accurate list of the following
information for each employee or director of the Company, including each
employee on authorized or unauthorized leave of absence or layoff status:  name; job title; current compensation paid or
payable and any change in compensation since January 1, 2005; accrued paid
leave (including vacation); and service credited for purposes of vesting and
eligibility to participate under the Company Plans, Welfare Plans and Pension
Plans.


 


(c)                                  No employee or director of the Company is
a party to, or is otherwise bound by, any agreement or arrangement, including
any confidentiality, noncompetition, or proprietary rights agreement, between
such employee or director and any other Person (“Proprietary Rights Agreement”) that in any way adversely
affects or will affect (i) the performance of his duties as an employee or
director of the Company, or (ii) the ability of the Company to conduct its
business, including any Proprietary Rights Agreement with Majority Owners or the
Company by any such employee or director. 
To the Knowledge of Majority Owners, no director, officer, or other key
employee of the Company intends to terminate his or her employment with the
Company.


 


(d)                                 No retired employee or director of the
Company, nor their dependents, receives benefits or is scheduled to receive
benefits in the future from the Company.


 


(e)                                  No offer of employment has been made by
the Company to any individual that has not yet been accepted or which has been
accepted but the individual’s employment has not started.


 


(f)                                    Section 3.20(f) of the
Disclosure Schedule sets forth a complete and accurate list of all Employee
Retention Bonuses, specifying, in each case, the amount, timing and recipient
thereof.


 


53




















 


3.21                           Labor Relations; Compliance.


 


(a)                                  Since
January 1, 2005, the Company has not been and is not a party to any
collective bargaining agreement or other labor Contract, and no labor union or
employee organization has been certified or recognized as the collective
bargaining representative of any Employee.


 


(b)                                 Since
the enactment of the Worker Adjustment and Retraining Notification Act (the “WARN Act”) the Company has not effectuated
(A) a “plant closing” (as defined in the WARN Act) affecting any site of
employment or one or more facilities or operating units within any site of
employment or facility of the Company; or, (B) a “mass layoff” (as defined
in the WARN Act) affecting any site of employment or facility of the Company;
nor has the Company been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state or local law.


 


(c)                                  Since
January 1, 2005, there has not been, there is not presently pending or
existing, and to the Knowledge of Majority Owners and the Company there is not
Threatened, any of the following with respect to the Company:


 


(i)                                     any
formal union organizing campaigns or representation proceedings;


 


(ii)                                  any
application for certification of a collective bargaining agent;


 


(iii)                               any
strike, slowdown, picketing, work stoppage, or employee grievance process; or


 


(iv)                              any
Proceeding involving an alleged violation of any Legal Requirement pertaining
to labor relations or employment matters, or other labor or employment dispute
or claim against or affecting the Company or its premises, including any charge
or complaint filed by an employee or union with the National Labor Relations
Board, the Equal Employment Opportunity Commission, the Department of Labor,
the Department of Justice, a state or federal court, or any Governmental Body.


 


(d)                                 To
the Knowledge of Majority Owners, no event has occurred or circumstance exists
that could provide the basis for any work stoppage or other labor
dispute.  There is no lockout of any
employees by the Company, and no such action is contemplated by the Company.


 


(e)                                  The
Company has complied in all respects with all Legal Requirements relating to
employment, equal employment opportunity, fair employment practices,
nondiscrimination, immigration, wages, hours, benefits, workers’ compensation,
unemployment compensation, collective bargaining, the payment and withholding
of social security and similar taxes, occupational safety and health, and plant
closing or mass layoff notices.  The Company
is not liable for the payment of any compensation,


 


54





















 


damages, taxes, fines,
penalties, interest, or other amounts, however designated, for failure to
comply with any of the foregoing Legal Requirements.


 


(f)                                    The
Company has not failed to pay when due any wages, bonuses, commissions,
benefits, penalties or assessments or other monies that are material in amount,
owed to, or arising out of the employment of or any relationship or arrangement
with, any officer, director, employee, sales representative, contractor,
consultant or other agent, except where such failure to pay is the result of a
bona fide good faith dispute by it regarding the existence of or amount of such
payment obligation.


 


(g)                                 Within
the three (3) years prior to the Closing Date, there have been no filed
or, to the Knowledge of Majority Owners, Threatened, citations, investigations,
audits, administrative proceedings, charges, or complaints of violations of any
federal, state or local employment laws with respect to the Company.  This includes, without limitation, any audits
or investigations conducted by the Department of Labor, the Equal Employment
Opportunity Commission, the Department of Justice or any other Governmental
Body, regarding compliance with any of the following:


 


(i)                                     the
Fair Labor Standards Act or any other wage and hour laws;


 


(ii)                                  Title
VII, the Age Discrimination in Employment Act, the Americans with Disabilities
Act, the Family and Medical Leave Act, or any other laws prohibiting employment
discrimination; and


 


(iii)                               the
Fair Employment & Housing Act or any other applicable state or local
laws governing employment.


 


(h)                                 In
addition, Majority Owners do not have any Knowledge of any basis on which any
current employee, and any employee whose employment with the Company terminated
for any reason during the three years prior to the Closing Date, could
claim failure to pay the minimum wage, or failure to pay overtime wages
where applicable, or failure to pay all wages when due.


 


3.22                           Intellectual Property.


 


(a)                                  The
term “Intellectual Property Assets”
includes:


 


(i)                                     the
names “Advanced Control Components” and “Custom Components,” all fictional
business names, trading names, registered and unregistered trademarks, service
marks, and applications (collectively, “Marks”);


 


(ii)                                  all
patents, patent applications, and inventions and discoveries that may be
patentable (collectively, “Patents”);


 


(iii)                               all
copyrights in both published works and unpublished works (collectively, “Copyrights”);


 


55





















 


(iv)                              all
rights in mask works (collectively, “Rights
in Mask Works”); and


 


(v)                                 all
know-how, trade secrets, confidential information, customer lists, software,
technical information, data, process technology, plans, drawings, and
blueprints (collectively, “Trade Secrets”)
owned, used, or licensed by the Company as licensee or licensor.


 


(b)                                 Section 3.22(b) of
the Disclosure Schedule contains a complete and accurate list and summary
description, including any royalties paid or received by the Company, of all
Contracts relating to the Intellectual Property Assets to which the Company is
a party or by which the Company is bound, except for any license implied by the
sale of a product and perpetual, paid-up licenses for commonly available
software programs with a value of less than $5,000 under which the Company is
the licensee.  There are no outstanding
and, to the Knowledge of Majority Owners and the Company, no Threatened
disputes or disagreements with respect to any such agreement.


 


(c)                                  Except
as set forth in Section 3.22(c) of the Disclosure Schedule, all
current employees and all former employees of the Company terminated since January 1,
2006 have executed the Company’s standard form of Non-Disclosure
Agreement.  No employee of the Company
has entered into any Contract that restricts or limits in any way the scope or
type of work in which the employee may be engaged or requires the employee to
transfer, assign, or disclose information concerning his work to anyone other
than the Company.


 


(d)                                 Neither
Parent nor the Company has any Patents or pending Patent applications.


 


(e)                                  (i)                                     Section 3.22(e) of
Disclosure Schedule contains a complete and accurate list and summary
description of all Marks.  Except as set
forth on Section 3.22(e) of the Disclosure Schedule, the Company is
the owner of all right, title, and interest in and to each of the Marks, free
and clear of all liens, security interests, charges, encumbrances, equities,
and other adverse claims.


 


(ii)                                  All
Marks that have been registered with the United States Patent and Trademark
Office are currently in compliance with all formal legal requirements
(including the timely post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and enforceable, and are
not subject to any maintenance fees or taxes or actions falling due within
ninety days after the Closing Date.


 


(iii)                               No
Mark has been or is now involved in any opposition, invalidation, or
cancellation and, to the Knowledge of Majority Owners, no such action is
Threatened with the respect to any of the Marks.


 


56





















 


(iv)                              To
the Knowledge of Majority Owners and the Company, there is no potentially
interfering trademark or trademark application of any third party.


 


(v)                                 No
Mark is infringed or, to the Knowledge of Majority Owners and the Company, has
been challenged or threatened in any way. 
None of the Marks used by the Company infringes or is alleged to infringe
any trade name, trademark, or service mark of any third party.


 


(vi)                              All
products and materials containing a Mark bear the proper federal registration
notice where permitted by law.


 


(f)                                    Neither
Parent nor the Company has any Copyrights.


 


(g)                                 (i)                                     With
respect to each Trade Secret, the documentation relating to such Trade Secret
is current, accurate, and sufficient in detail and content to identify and
explain it and to allow its full and proper use without reliance on the
knowledge or memory of any individual.


 


(ii)                                  Majority
Owners and the Company have taken all commercially reasonable precautions to
protect the secrecy, confidentiality, and value of their Trade Secrets.


 


(iii)                               The
Company has good title and an absolute (but not necessarily exclusive) right to
use the Trade Secrets.  The Trade Secrets
are not part of the public knowledge or literature, and, to the Knowledge of
Majority Owners and the Company, have not been used, divulged, or appropriated
either for the benefit of any Person (other than the Company) or to the
detriment of the Company.  No Trade
Secret is subject to any adverse claim or has been challenged or threatened in
any way.


 


(h)                                 No
infringement, misappropriation or other violation of any intellectual property
right of any third party has occurred or resulted in any way from the conduct
of the business of Parent or the Company. 
No proceedings have been instituted against or notices received by
Parent, the Company or Majority Owners alleging that Parent’s or the Company’s
use of any Intellectual Property Assets infringes upon or otherwise violates
any rights of a third party in or to such Intellectual Property Assets.


 


3.23                           Information Technology.


 


(a)                                  The
Company has taken commercially reasonable steps consistent with industry
practice to maintain the material Company IT Systems (as defined below) in good
working condition so as to perform information technology operations necessary
for the conduct of the business of the Company as conducted on the date hereof,
including as necessary for the conduct of such business as a whole, causing the
material Company IT Systems to be generally available for use during normal
working hours and performing reasonable back-up procedures in respect of the
data critical to the conduct of its business (including such data and
information that is stored on magnetic or optical media in the


 


57





















 


Ordinary Course of
Business, consistent with past practice) as conducted on the date hereof.


 


(b)                                 For
purposes of this Agreement, “Company IT
Systems” shall mean any information technology and computer systems
(including computers, software, programs, databases, middleware, servers,
workstations, routers, hubs, switches, data communications lines, and hardware)
used in the transmission, storage, organization, presentation, generation,
processing or analysis of data in electronic format, which technology and
systems are necessary to the conduct of the business of the Company as
conducted on the date hereof.


 


3.24                           Off Balance Sheet Liabilities.  Those transactions, arrangements and other
relationships specifically identified in the Financial Statements or in the
Disclosure Schedule, as of the date hereof, represent all transactions,
arrangements and other relationships between and/or among Parent, the Company,
any of their Affiliates and any special purpose or limited purpose entity
beneficially owned by or formed at the direction of Parent, the Company or any
of their Affiliates.


 


3.25                           Certain Payments. 
Since January 1, 2005, neither Parent, the Company nor any
director, officer, agent, or employee of Parent or the Company, or to the
Knowledge of Majority Owners, Parent and the Company, any other Person
associated with or acting for or on behalf of the Company, has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services, (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable
treatment for business secured, (iii) to obtain special concessions, or
for special concessions already obtained, for or in respect of Parent or the
Company or any Affiliate of Parent or the Company, or (iv) in violation of
any Legal Requirement; or (b) established or maintained any fund or asset
that has not been recorded in the books and records of Parent or the Company,
as applicable.


 


3.26                           Customer Relations.  To the Knowledge of Majority Owners and the Company,
there exists no condition or state of facts or circumstances involving the
Company’s customers, suppliers, distributors or sales representatives that the
Company or Majority Owners can reasonably foresee could have a material adverse
effect on the Company after the Closing Date. 
Except as set forth in Section 3.26 of the Disclosure Schedule, the
Company has complied with all terms and conditions of the sale of products to
its customers including, without limitation, the delivery of finished goods
from inventory, which finished goods, at the time of delivery to the customer,
have not been classified as inventory on the Company’s Financial Statements for
a time period in excess of the time period, if any, prescribed by the
applicable customer of the Company.  To
the Knowledge of Majority Owners, no customer or distributor has during the
past year informed the Company of an intention to cease doing business with the
Company, refused to honor a purchase commitment or advised the Company that it
may cease doing business with the Company, or that it may reduce the volume of
business or level of services that it does with the Company if it is acquired
by Buyer or any of its Affiliates.


 


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3.27                           Product Warranty.  Each product manufactured, sold, leased, or
delivered by the Company has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Company has no
Liability (and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) for replacement or repair thereof or
other damages in connection therewith, subject only to the reserve for product
warranty claims set forth on the face of the Interim Company Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of the Company
and in accordance with GAAP.


 


3.28                           Product Liability.  The Company has no Liability (and there is no
basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) arising out of any injury to individuals or property as
a result of the ownership, possession, or use of any product manufactured,
sold, leased, or delivered by the Company.


 


3.29                           Export Regulation.


 


(a)                                  Except
as set forth in Section 3.29(a) of the Disclosure Schedule, the Company
is registered with the U.S. Department of State Office of Defense Trade
Controls pursuant to the International Traffic in Arms Regulations, title 22,
parts 120 through 130 of the Code of Federal Regulations (“ITAR”) and is, and at all times has been,
in compliance with such registration and the ITAR.


 


(b)                                 Section 3.29(b) of
the Disclosure Schedule contains a list of all of the licenses granted to or
for the benefit of the Company by the U.S. Department of Commerce or any other
agency of the U.S. government or of any foreign governmental authority to
authorize the export or re-export of products, technology, software, services
or other information from the United States or any other jurisdiction.  Other than the licenses listed on Section 3.29(b) of
the Disclosure Schedule, the business, products or activities of the Company do
not require any other such license, and neither Buyer nor the Company will be
required to obtain any other such license or the transfer of such a license or
any related consent or approval or be required to provide any related notice as
a result of the completion of the transactions contemplated by this Agreement,
the continued performance of Contracts or the continued conduct of the business
or other activities of the Company after the Closing Date.


 


3.30                           Disclosure.


 


(a)                                  No
representation or warranty of Majority Owners in this Agreement and no
statement in the Disclosure Schedule omits to state a material fact necessary
to make the statements herein or therein, in light of the circumstances in
which they were made, not misleading.


 


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(b)                                 No
notice given pursuant to Section 5.5 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they were
made, not misleading.


 


(c)                                  There
is no fact known to Majority Owners, Parent or the Company that has specific
application to Parent or the Company (other than general economic or industry
conditions) and that materially adversely affects or, materially threatens, the
assets, business, prospects, financial condition, or results of operations of
the Company that has not been set forth in this Agreement or the Disclosure
Schedule.


 


3.31                           Brokers or Finders.  Neither Majority Owners, Parent, the Company
nor their agents have incurred any obligation or liability, contingent or
otherwise, for brokerage or finders’ fees or agents’ commissions or other
similar payment in connection with this Agreement.  At the Closing, neither Parent nor the
Company shall have any Liability for any costs, fees or expenses incurred by
Parent or the Company or to which either Parent or the Company is obligated to
pay in connection with the negotiation, execution, delivery of and performance
under this Agreement, including but not limited to, fees and costs of
professionals such as attorneys, bankers, consultants, accountants and
financial advisors (the “Transaction Costs”).


 


3.32                           Seller Representations.


 


(a)                                  Such
Seller owns beneficially and of record all of its Capital Equity of Parent or
the Company, as applicable.  Each Seller
has the full and unrestricted power to sell, assign, transfer and deliver its
Capital Equity of Parent or the Company, as applicable, in accordance with the
terms of this Agreement, free and clear of all Encumbrances and there are no
claims or actions pending with respect to the title of such Seller’s Capital
Equity of Parent or the Company, as applicable, except for those arising under
this Agreement in favor of Buyer and applicable securities law
restrictions.  Except as set forth in Section 3.3
of the Disclosure Schedule, such Seller is not a party to any voting trust,
proxy or other agreement or understanding with respect to the voting of any
Capital Equity of Parent or the Company, and all such agreements will be
terminated upon the Closing.


 


(b)                                 The
execution, delivery and performance by such Seller of this Agreement and all
related documents to which he or it is a party and the consummation of the
transactions contemplated by this Agreement and such documents do not and will
not to such Seller’s Knowledge violate any statute, rule, regulation,
order or decree of any Governmental Body by which such Seller or any of its
properties or assets is bound.  There is
no decree, judgment, order investigation or litigation at law or in equity, no
arbitration proceeding, and no proceeding before or by any Governmental Body,
pending or to such Seller’s Knowledge, Threatened, to which such Seller is a party
relating to the Contemplated Transactions.


 


(c)                                  This
Agreement has been duly executed and delivered by such Seller.  This Agreement constitutes the valid and
binding obligation of such Seller enforceable against such Seller in accordance
with its terms, except to the extent that enforceability


 


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may be limited by (i) applicable
bankruptcy, insolvency, reorganization, receivership, moratorium and other
similar laws relating to or affecting the rights and remedies of creditors
generally and (ii) general principles of equity.


 


ARTICLE IV


REPRESENTATIONS AND
WARRANTIES OF BUYER AND EMRISE


 


Buyer represents
and warrants to Sellers as follows:


 


4.1                                 Organization and Good Standing.  Buyer is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of New Jersey.


 


4.2                                 Authority; No Conflict.


 


(a)                                  This
Agreement constitutes the legal, valid, and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms.  Buyer has the absolute and unrestricted
right, power, and authority to execute and deliver this Agreement.


 


(b)                                 Neither
the execution and delivery of this Agreement by Buyer nor the consummation or
performance of any of the Contemplated Transactions by Buyer will give any
Person the right to prevent, delay, or otherwise interfere with any of the
Contemplated Transactions pursuant to:


 


(i)                                     any
provision of Buyer’s Organizational Documents;


 


(ii)                                  any
resolution adopted by the board of directors or the stockholders of Buyer;


 


(iii)                               any
Legal Requirement or Order to which Buyer may be subject; or


 


(iv)                              any
Contract to which Buyer is a party or by which Buyer may be bound.


 


Except as set
forth in Schedule 4.2, Buyer is not and will not be required to
obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Contemplated Transactions.


 


4.3                                 Investment Intent.  Buyer is acquiring the Company Shares and
Parent Shares for its own account and not with a view to their distribution
within the meaning of Section 2(11) of the Securities Act.


 


4.4                                 Certain Proceedings.  There is no pending Proceeding that has been
commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.  To Buyer’s
Knowledge, no such Proceeding has been Threatened.


 


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4.5                                 Brokers or Finders.  Except as set forth
in Schedule 4.5, neither Buyer nor any of its Affiliates nor any of
their respective officers and agents have incurred any obligation or liability,
contingent or otherwise, for brokerage or finders’ fees or agents’ commissions
or other similar payment in connection with this Agreement and will indemnify
and hold Sellers harmless from any such payment alleged to be due by or through
Buyer as a result of the action of Buyer or its officers or agents.


 


EMRISE
represents and warrants to Sellers as follows:


 


4.6                                 Organization and Good
Standing. 
EMRISE
is a corporation duly incorporated, validly existing, and in good standing
under the laws of the State of Delaware.


 


4.7                                 Authority; No Conflict.


 


(a)                                  The Guaranty shall constitute the legal,
valid, and binding obligation of EMRISE, enforceable against EMRISE in
accordance with its terms.  EMRISE has
the absolute and unrestricted right, power, and authority to execute and
deliver the Guaranty.


 


(b)                                 Except as set forth in Schedule 4.7,
neither the execution and delivery of this Agreement by Buyer nor the
consummation or performance of any of the Contemplated Transactions by Buyer
nor the execution and delivery of the Guaranty by EMRISE will give any Person
the right to prevent, delay, or otherwise interfere with any of the
Contemplated Transactions pursuant to:


 


(i)                                     any provision of EMRISE’S Organizational
Documents;


 


(ii)                                  any resolution adopted by the board of
directors or the stockholders of EMRISE;


 


(iii)                               any Legal Requirement or Order to which
EMRISE may be subject; or


 


(iv)                              any Contract to which EMRISE is a party
or by which EMRISE may be bound.


 


Except as set forth in Schedule 4.7,
EMRISE is not and will not be required to obtain any Consent from any Person in
connection with the Buyer’s execution and delivery of this Agreement or the
consummation or performance of any of the Contemplated Transactions or the
execution and delivery of the Guaranty by EMRISE.


 


4.8                                 Certain Proceedings.  There is no pending
Proceeding that has been commenced against EMRISE and that challenges, or may
have the effect of preventing, delaying, making illegal, or otherwise
interfering with, any of the Contemplated Transactions.  To the Knowledge of EMRISE, no such
Proceeding has been Threatened.


 


4.9                                 SEC Documents; Financial Statements.  Except as set forth
in Schedule 4.9, each statement, report, registration statement,
definitive proxy statement, and other filing filed


 


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with the U.S. Securities and Exchange
Commission (“SEC”) by EMRISE since
January 1, 2003 (collectively the “EMRISE SEC Documents”)
complies in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)
and the Securities Act of 1933, as amended (the “Securities
Act”), and none of the EMRISE SEC Documents contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of
the circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed EMRISE SEC Document.  The financial statements of EMRISE, including
the notes thereto, included in the EMRISE SEC Documents (the “EMRISE Financial Statements”) are complete and correct in
all material respects as of their respective dates, comply as to form in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto as of
their respective dates, and have been prepared in accordance with United States
generally accepted accounting principles applied on a basis consistent
throughout the periods indicated and consistent with each other (except as may
be indicated in the notes thereto, or in the case of unaudited statements
included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q
of the SEC).  The EMRISE Financial
Statements fairly present the consolidated financial condition and operating
results of EMRISE at the dates and during the periods indicated therein
(subject, in the case of unaudited statements, to normal, recurring year-end
adjustments).


 


4.10                           Absence of Undisclosed Liabilities.  EMRISE has no
material obligations or liabilities of any nature (matured or unmatured, fixed
or contingent) other than (i) those set forth or adequately provided for
in the Balance Sheet included in EMRISE’s Annual Report on Form 10-K for
the fiscal year ended December 31, 2007 (the “EMRISE
Balance Sheet”), (ii) those incurred in the ordinary course of
business and not required to be set forth in the EMRISE Balance Sheet under
United States generally accepted accounting principles, and (iii) those
incurred in the ordinary course of business since the date of the EMRISE
Balance Sheet and consistent with past practice.


 


4.11                           Approval of Senior Lender.  The Contemplated
Transactions have been approved by EMRISE’s senior lender subject to
satisfaction of (i) the conditions precedent set forth in Articles VII
and (ii) conditions precedent to extension of credit to EMRISE set forth
in the credit agreement with the senior lender.


 


ARTICLE V


COVENANTS OF SELLERS AND THE
COMPANY PRIOR TO CLOSING


 


5.1                                 Access and Investigation.  Between the date of
this Agreement and the Closing, Sellers and the Company will, and will cause
their Representatives to, upon reasonable notice, provide Buyer and its
Representatives full access during normal business hours to each of Parent’s
and the Company’s premises and facilities and all books, records, contracts,
financial statements and other data (financial or otherwise) regarding their
respective operations, and furnish copies of all materials relating to the
business, affairs, operations, properties, assets or liabilities of each of
Parent and the Company; provided, however,
that Buyer shall not have access to or discussion with any of the Company’s
customers until immediately prior to the Closing.  Upon reasonable notice
to the Company and with the Company’s prior consent and


 


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after
consultation with the Company, Buyer and its Representatives shall be entitled
to contact and communicate with such of the Company’s employees, officers,
directors, affiliates, representatives, creditors, customers (immediately prior
to the Closing), contractors and others having business relationships with the
Company as Buyer shall reasonably deem necessary in connection with Buyer’s due
diligence investigation, and the Company will fully cooperate with Buyer and
its Representatives in such endeavors. 
All such acts, investigations and contacts shall be conducted in a
manner which shall not interfere unduly with the normal conduct of the business
of the Company.


 


5.2                                 Operation of the
Businesses of the Company.  Between the date of this Agreement and the
Closing Date, Majority Owners and the Company will:


 


(a)                                  conduct the business of the Company only
in the Ordinary Course of Business;


 


(b)                                 use commercially reasonable efforts to
preserve intact the current business organization of the Company, keep
available the services of the current officers, key employees, and agents of
the Company, and maintain the relations and good will with suppliers,
customers, landlords, creditors, employees, agents, and others having business
relationships with the Company;


 


(c)                                  confer with Buyer concerning operational
matters of a material nature; and


 


(d)                                 otherwise report periodically to Buyer
concerning the status of the business, operations, and finances of the Company.


 


5.3                                 Negative Covenant.  Except as otherwise
expressly permitted by this Agreement, between the date of this Agreement and
the Closing Date, Majority Owners and the Company will not, without the prior
consent of Buyer, take any affirmative action, or fail to take any reasonable
action within their or its control, as a result of which any of the changes or
events listed in Section 3.16 or Section 3.21 is likely
to occur.


 


5.4                                 Required Approvals.  As promptly as
practicable after the date of this Agreement, Majority Owners, Parent and the
Company will make all filings required by Legal Requirements to be made by them
in order to consummate the Contemplated Transactions.  Between the date of this Agreement and the
Closing Date, Majority Owners, Parent and the Company will, (a) cooperate
with Buyer with respect to all filings that Buyer elects to make or is required
by Legal Requirements to make in connection with the Contemplated Transactions,
(b) cooperate with Buyer in obtaining all consents identified in Schedule 4.2
and (c) cooperate with Buyer with respect to any amendments or other
documentation required to be entered into pursuant to Buyer’s currently
existing credit facility.


 


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5.5                                 Disclosure Schedule.


 


(a)                                  Revised Disclosure Schedule.


 


(i)                                     Buyer and Sellers (A) acknowledge that the Disclosure
Schedule is not accurate as of the date of this Agreement and (B) agree
that any inaccuracies in the Disclosure Schedule as of the date of this
Agreement shall not cause or constitute a breach of the Majority Owners’
Representations.


 


(ii)                                  As soon as possible after the date of this Agreement, Sellers
shall deliver to Buyer a revised Disclosure Schedule which is accurate as of
the date of delivery.


 


(iii)                               No later than five (5) Business Days after Buyer
receives the revised Disclosure Schedule, Buyer shall provide written notice to
Sellers indicating whether Buyer accepts such revised Disclosure Schedule.  Buyer shall not be obligated to accept such revised
Disclosure Schedule; provided, however, that if the revised
Disclosure Schedule is not acceptable, Buyer’s sole remedy shall be to
terminate this Agreement without any liability to Majority Owners, Sellers or
the Company.  If Buyer does not accept
the revised Disclosure Schedule, such notice shall indicate Buyer’s objections
to the revised Disclosure Schedule. 
Buyer and Sellers shall then use their commercially reasonable efforts
to resolve Buyer’s objections.  If Buyer’s
objections are not resolved within five (5) Business Days, Buyer shall
provide written notice which shall indicate whether Buyer elects to (A) terminate
this Agreement without any liability to Majority Owners, Sellers or the Company
or (B) proceed to Closing.  For the
avoidance of doubt, if Buyer does not accept the revised Disclosure Schedule
and the Closing occurs, any inaccuracies in the Disclosure Schedule related to
the particular facts disclosed in the revised Disclosure Schedules shall not
cause or constitute a breach of the Majority Owners’ Representations and Buyer
shall not have any right or claim against Majority Owners or Sellers for
Damages under Sections 10.2 or 10.3 on account of the particular
facts disclosed in the revised Disclosure Schedule with respect to any
representation or warranty affected by the revised Disclosure Schedule.


 


(b)                                 Notification.  Between the date of
this Agreement and the Closing Date, Majority Owners, Parent and the Company
will promptly notify Buyer in writing if (i) Majority Owners, Parent or
the Company becomes aware of any fact or condition that causes or constitutes a
breach of any of the Majority Owners’ Representations as of the date of this
Agreement, or (ii) any Majority Owner becomes aware of any fact or
condition that causes or constitutes a breach of any of the Seller Fundamental
Representations as of the date of this Agreement, or if Majority Owners or the
Company becomes aware of the occurrence after the date of this Agreement of any
fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. 
During the same period, Majority Owners will promptly notify Buyer of
the occurrence of any breach of any covenant in this Article V or
of the occurrence of any event that may make the satisfaction of the conditions
in Article VII impossible or unlikely.  No such notification or disclosure by the
Majority Owners or by a Seller to the Buyer shall in any manner be


 


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deemed to be a waiver by the Buyer of
the condition of the Majority Owners or a Seller to satisfy the applicable
representation or warranty as originally made in this Agreement at the Closing.


 


(c)                                  Effect of Notice.


 


(i)                                     For purposes of determining the accuracy of the
representations and warranties of Majority Owners and Sellers contained in Article III
and the Disclosure Schedule and the fulfillment of the condition precedent set
forth in Section 7.1, the Disclosure Schedule delivered with
respect to such representations and warranties shall be deemed to include only
that information contained therein on the date of delivery of the revised
Disclosure Schedule pursuant to Section 5.5(a) and as the same
may be amended or supplemented by the Majority Owners or Sellers with Buyer’s
written consent prior to the Closing Date. 
If Buyer consents in writing to any amendment or supplement to the
Disclosure Schedule delivered by Majority Owners or Sellers with respect to the
representations and warranties contained in Article III and the
Disclosure Schedule and the Closing occurs, then Buyer shall not have any right
or claim against Majority Owners or Sellers for Damages under Sections 10.2
or 10.3 on account of the particular facts disclosed in such amendment or
supplement with respect to the representation or warranty as to which such
amendment or supplement is applicable.


 


(ii)                                  If (w) Majority Owners or Sellers provide Buyer with any
written notification under this Section 5.5 of any fact, event,
circumstance or condition that causes any representation or warranty made by
Majority Owners or a Seller to Buyer in this Agreement or the Disclosure
Schedule to become untrue or inaccurate at any time after the date of this
Agreement, (x) the applicable representation and warranty was true and
correct as of the date of delivery of the revised Disclosure Schedule pursuant
to Section 5.5(a), (y) the applicable fact, event,
circumstance or condition is not the result of Majority Owners’ or a Seller’s
breach of any of its covenants or agreements contained in this Agreement, and (z) Buyer
does not consent to the amendment of the Disclosure Schedule as provided for in
Section 5.5(c)(i) to include the disclosure of such fact,
event, circumstance or condition, then Buyer’s sole remedy shall be to
terminate this Agreement without any liability to Majority Owners, Sellers or
the Company.


 


(d)                                 Notwithstanding the foregoing provisions of this Section 5.5,
Sellers shall have the right to amend Section 3.20(f) of the
Disclosure Schedule without the consent of Buyer (which shall not constitute a
breach of any provision of this Agreement); provided, that the aggregate
amount of the Employee Retention Bonuses is not greater than $400,000 and the
Employee Retention Bonus for any single employee is not greater than one year’s
annual salary for such employee.


 


5.6                                 Payment of Indebtedness.  Except as expressly
provided in this Agreement, Majority Owners will cause all indebtedness owed to
Parent or the Company by any Majority


 


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Owner or any Related Person of any
Majority Owner to be paid in full prior to Closing.  Prior to Closing, the Company shall have
repaid the amount of the Company’s debt to its officers, which amount equals
approximately $238,000.


 


5.7                                 Audited Financial
Statements.  On or prior to the later of (i) the
Closing Date and (ii) the date ninety (90) days after the date of this
Agreement, Majority Owners shall deliver to Buyer, (a) consolidated
audited financial statements of Parent and (b) audited financial
statements of the Company, each of which shall cover the nine month period
ended March 31, 2008 (collectively the “Post-Execution
Audited Financial Statements”). All expenses of any and all audits
of Parent’s and the Company’s financial statements as described above shall be
borne by the Company.  Majority Owners shall seek and obtain
the consent of the Company’s auditors to the inclusion of all consolidated
audited financial statements of Parent, together with the auditors’ reports
thereon, in any and all reports filed by EMRISE with the Securities and
Exchange Commission.


 


5.8                                 No Negotiation.  Neither Sellers,
Parent, the Company nor any of their respective Affiliates, Representatives,
officers, employees, directors or agents shall, directly or indirectly, (i) solicit,
initiate or encourage the submission of any proposal or offer (an “Acquisition Proposal”) from any Person
(including any of their officers, directors, employees, agents and other
representatives) relating to any liquidation, dissolution, recapitalization of,
or acquisition or purchase of, all or substantially all of the assets of, or
any amount of Capital Equity of, Parent or the Company or relating to any other
similar transaction or combination involving Parent or the Company, (b) participate
in any discussions or negotiations regarding, or furnish to any other Person
any information with respect to, any of the foregoing, or (c) otherwise enter
into an agreement with any other Person to do or seek to do any of the
foregoing.  In furtherance of the
forgoing, Sellers, Parent the Company and their respective Affiliates,
Representatives, officers, employees, directors or agents shall immediately
cease, and cause their directors and officers to cease, and cause to be
terminated, any and all discussions and negotiations with third parties (other
than Buyer and its representatives) regarding any Acquisition Proposal other
than the transaction proposed in this Agreement or any similar transaction with
Buyer.  Majority Owners will notify the
Buyer immediately if any Person makes any proposal, offer, inquiry, or contact
with respect to any of the foregoing.


 


5.9                                 Commercially Reasonable
Efforts. 
Between the date of this Agreement and the Closing Date, Majority
Owners, Parent and the Company will use commercially reasonable efforts to
cause the conditions in Articles VII and VIII to be satisfied.


 


ARTICLE VI


COVENANTS OF BUYER PRIOR TO
CLOSING DATE


 


6.1                                 Required Approvals.  As promptly as
practicable after the date of this Agreement, Buyer will, and will cause each
of its Related Persons to, make all filings required by Legal Requirements to
be made by them to consummate the Contemplated Transactions.  Between the date of this Agreement and the
Closing Date, Buyer will, and will cause each Related Person to, (i) cooperate
with Sellers with respect to all filings that Sellers are required by Legal
Requirements to make in connection with the Contemplated Transactions, and


 


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(ii) cooperate with Majority
Owners and the Company in obtaining all consents identified in Section 3.2
of the Disclosure Schedule; provided,
however, that this Agreement will not require Buyer to dispose of or
make any change in any portion of its business. 
As promptly as practicable after the date of this Agreement, Buyer will,
and will cause its Affiliates to, use their commercially reasonable efforts to
obtain all consents identified in Schedule 4.2 and to amend EMRISE’s
existing credit facility to the extent necessary in order to consummate the
Contemplated Transactions.


 


6.2                                 Commercially Reasonable
Efforts. 
Except as set forth in the proviso to Section 6.1, between
the date of this Agreement and the Closing Date, Buyer will use commercially
reasonable efforts to cause the conditions in Articles VII and VIII
to be satisfied.


 


ARTICLE VII


CONDITIONS PRECEDENT TO BUYER’S
OBLIGATION TO CLOSE


 


Buyer’s obligation to purchase the Parent Shares and
Company Shares and to take the other actions required to be taken by Buyer at
the Closing is subject to the satisfaction, at or prior to the Closing, of each
of the following conditions (any of which may be waived in writing by Buyer, in
whole or in part):


 


7.1                                 Accuracy of
Representations.  Subject to Section 5.5, all of the
Sellers’ representations and warranties in this Agreement (considered
collectively) and each of these representations and warranties (considered
individually) must have been accurate in all respects as of the date of this
Agreement, and must be accurate in all material respects as of the Closing Date
as if made on the Closing Date.


 


7.2                                 Sellers’, Parent’s and
the Company’s Performance.


 


(a)                                  All of the covenants and obligations that
the Sellers, Parent or the Company are required to perform or to comply with
pursuant to this Agreement at or prior to the Closing (considered collectively)
and each of these covenants and obligations (considered individually) must have
been duly performed and complied with in all material respects.


 


(b)                                 Each document required to be delivered
pursuant to Section 2.4(a) must have been delivered, and each
of the other covenants and obligations in Article V  must have been performed and complied with in all respects.


 


7.3                                 Customer Interviews.  Subject to Section 5.1,
Buyer shall have obtained reasonable comfort from a limited number of the
Company’s major customers who are anticipated by the Company to be purchasers
of the Company’s products during the two (2) year period after the
Closing, that such customers intend to purchase such products approximately in
amounts anticipated by the Company during such period.


 


7.4                                 Approvals.  The Contemplated
Transactions shall have been approved by EMRISE’s senior lender.


 


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7.5                                 Consents.  Each of the Consents
identified in Section 3.2(c) of the Disclosure Schedule and each
Consent identified in Schedule 4.2 must have been obtained and must
be in full force and effect.


 


7.6                                 Environmental Matters.  The Company shall
comply with the Industrial Site Recovery Act, NJSA 13:1K-1 et. seq., in
connection with sale of the Company Shares pursuant to this Agreement.


 


7.7                                 Additional Documents.  Each of the
following documents must have been delivered to Buyer:


 


(a)                                  an opinion of Giordano Halleran &
Ciesla, P.C., dated as of the Closing Date, in the form set forth on Exhibit 7.7(a);
and


 


(b)                                 such other documents as Buyer may
reasonably request for the purpose of (i) evidencing the accuracy of any
of the Sellers’ representations and warranties, (ii) evidencing the
performance by the Sellers, Parent and the Company of, or the compliance by the
Sellers, Parent and the Company with, any covenant or obligation required to be
performed or complied with by the Sellers and the Company, as applicable, (iv) evidencing
the satisfaction of any condition referred to in this Article VII,
or (v) otherwise facilitating the consummation or performance of any of
the Contemplated Transactions.


 


7.8                                 No Proceedings.  Since the date of
this Agreement, there must not have been commenced or Threatened against Buyer,
or against any Person affiliated with Buyer, any Proceeding (a) involving
any challenge to, or seeking damages or other relief in connection with, any of
the Contemplated Transactions, or (b) that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with any of the
Contemplated Transactions.


 


7.9                                 No Claim Regarding Stock
Ownership or Sale Proceeds.  There must not have been made or Threatened
by any Person any claim asserting that such Person (a) is the holder or
the beneficial owner of, or has the right to acquire or to obtain beneficial
ownership of, any stock of, or any other voting, equity, or ownership interest
in, Parent or the Company, or (b) is entitled to all or any portion of the
Purchase Price payable for the Parent Shares or Company Shares.


 


7.10                           Forecasts.  Buyer and Sellers
shall have mutually agreed upon forecasts of working capital, capital
expenditures and leased versus purchased assets which are consistent with the
Forecasts.


 


7.11                           Employee Retention Bonus
Agreements.  Buyer shall have received a confidential
employee retention bonus agreement in the form of Exhibit 7.11 (a “Confidential Employee
Retention Bonus Agreement”), executed by each employee who has agreed to receive an
Employee Retention Bonus (but only those employees who have agreed to receive
an Employee Retention Bonus). For the avoidance of doubt, the Company shall
only be obligated to pay Employee Retention Bonuses to employees of the Company
who have executed an Employee Retention Bonus Agreement.


 


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7.12                           No Prohibition.  Neither the
consummation nor the performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time), materially
contravene, or conflict with, or result in a material violation of, or cause
Buyer or any Person affiliated with Buyer to suffer any material adverse
consequence under (a) any applicable Legal Requirement or Order, or (b) any
Legal Requirement or Order that has been published, introduced, or otherwise
formally proposed by or before any Governmental Body.


 


ARTICLE VIII


CONDITIONS PRECEDENT TO SELLERS’
OBLIGATION TO CLOSE


 


Sellers’ obligation to sell the Parent Shares and
Company Shares, as applicable, and to take the other actions required to be
taken by Sellers at the Closing is subject to the satisfaction, at or prior to
the Closing, of each of the following conditions (any of which may be waived
only by Majority Owners in whole or in part):


 


8.1                                 Accuracy of
Representations.  All of Buyer’s representations and warranties
in this Agreement (considered collectively) and each of these representations
and warranties (considered individually) must have been accurate in all
respects as of the date of this Agreement and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date.


 


8.2                                 Buyer’s Performance.


 


(a)                                  All of the covenants and obligations that
Buyer is required to perform or to comply with pursuant to this Agreement at or
prior to the Closing (considered collectively) and each of these covenants and
obligations (considered individually) must have been performed and complied
with in all material respects.


 


(b)                                 Buyer must have delivered each of the
documents required to be delivered by, and must have made the cash payments
require to be made, pursuant to Section 2.4(b).


 


8.3                                 Approval.  The Contemplated
Transactions shall have been approved by EMRISE’s senior lender.


 


8.4                                 Consents.  Each of the Consents
identified in of Section 3.2(c) of the Disclosure Schedule and Schedule
4.2 must have been obtained and must be in full force and effect.


 


8.5                                 Environmental Matters.  The Company shall comply
with the Industrial Site Recovery Act, NJSA 13:1K-1 et. seq., in connection
with sale of the Company Shares pursuant to this Agreement.


 


8.6                                 No Injunction.  There must not be in
effect any Legal Requirement or any injunction or other Order that (a) prohibits
the sale of the Parent Shares or Company Shares by Sellers to Buyer, and (b) has
been adopted or issued, or has otherwise become effective, since the date of
this Agreement.


 


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8.7                                 No Proceedings.  Since the date of
this Agreement, there must not have been commenced or Threatened against any of
the Sellers, or against any Person affiliated with a Seller, any Proceeding (a) involving
any challenge to, or seeking damages or other relief in connection with, any of
the Contemplated Transactions, or (b) that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with any of the
Contemplated Transactions.


 


8.8                                 Additional Documents.  Each of the
following documents must have been delivered to Sellers:


 


(a)                                  an opinion of Rutan & Tucker,
LLP, dated as of the Closing Date, in the form set forth on Exhibit 8.8(a);
and


 


(b)                                 such other documents as Sellers may
reasonably request for the purpose of (i) evidencing the accuracy of any of
Buyer’s representations and warranties, (ii) evidencing the performance by
Buyer of, or the compliance by Buyer, with any covenant or obligation required
to be performed or complied with by Buyer, as applicable, (iv) evidencing
the satisfaction of any condition referred to in this Article VIII,
or (v) otherwise facilitating the consummation or performance of any of
the Contemplated Transactions.


 


8.9                                 Forecasts.  Buyer and Sellers
shall have mutually agreed upon forecasts of working capital, capital expenditures
and leased versus purchased assets which are consistent with the
Forecasts.  Sellers make no
representations or warranties of any nature whatsoever regarding the Forecasts
and shall not be liable to Buyers for any variance from the Forecasts.


 


8.10                           Employee Retention Bonus
Agreements.  Sellers shall have received an Employee
Retention Bonus Agreement, executed by each employee who has agreed to receive an
Employee Retention Bonus (but only those employees who have agreed to receive
an Employee Retention Bonus).


 


8.11                           No Material Adverse Change.  Since the date of
this Agreement, there must not been any material adverse change in the
business, operations, properties, prospects, assets, or condition of EMRISE.


 


ARTICLE IX


TERMINATION


 


9.1                                 Termination Events.  This Agreement may
be terminated at any time prior to the Closing only as follows:


 


(a)                                  by the mutual written consent of Buyer
and Majority Owners;


 


(b)                                 by Buyer if there has been a
misrepresentation or a breach of warranty or a breach of a covenant in any case
by the Sellers or the Company in the representations and warranties or
covenants of any of them set forth in this Agreement, which in the case of


 


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any breach of covenant
has not been cured, if curable, within fifteen (15) business days after written
notification of such breach by Buyer to Sellers;


 


(c)                                  by Sellers  if
there has been a misrepresentation or a breach of warranty or a breach of a
covenant by Buyer in the representations and warranties or covenants of Buyer
set forth in this Agreement, which in the case of any breach of covenant has
not been cured, if curable, within fifteen (15) business days after written
notification of such breach by Sellers  to Buyer; or


 


(d)                                 by either Buyer or Sellers if the
transactions contemplated by this Agreement have not been consummated by August 15,
2008;


 


provided, however, that the party electing
termination pursuant to this Section 9.1 is not in breach of any of
its representations, warranties, covenants or agreements contained in this
Agreement.  In the event of the
termination of this Agreement pursuant to this Section 9.1, written
notice of such termination (describing in reasonable detail the basis for such
termination) shall immediately be delivered to the other Parties.


 


9.2                                 Effect of Termination.  Each of Buyer’s and
Sellers’  right of termination under Section 9.1
is in addition to any other rights any Party may have under this Agreement or
otherwise, and the exercise of a right of termination will not be an election
of remedies.  If this Agreement is
terminated pursuant to Section 9.1, all further obligations of the
parties under this Agreement will terminate, except that the obligations in Sections 13.1
and 13.3 will survive; provided,
however, that if this
Agreement is terminated by a Party because of the breach of the Agreement by
the other Party or because one or more of the conditions to the terminating
Party’s obligations under this Agreement is not satisfied as a result of the
other Party’s failure to comply with its obligations under this Agreement, the
terminating party’s right to pursue all legal remedies will survive such
termination unimpaired.


 


ARTICLE X


INDEMNIFICATION; REMEDIES


 


10.1                           Survival; Right to
Indemnification Not Affected by Knowledge.  All representations, warranties,
covenants, and obligations in this Agreement, the Disclosure Schedule, and any
other certificate or document delivered pursuant to this Agreement shall
survive the Closing.  The right to
indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants, and obligations shall not be affected
by any investigation conducted with respect to the accuracy or inaccuracy of or
compliance with, any such representation, warranty, covenant, or obligation; provided,
that no Indemnified Person or Seller shall have any right to indemnification,
payment of Damages or other remedy based on such representations, warranties,
covenants and liabilities if Buyer or Seller (i) has Knowledge of any such
breach as of the date of this Agreement or (ii) obtains Knowledge of any
such breach during the period between the date of this Agreement and the
Closing Date and the Closing occurs.


 


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10.2                           Indemnification and
Payment of Damages by Majority Owners.  Majority Owners
shall jointly and severally indemnify and hold harmless Buyer, Parent, the
Company, and their respective Representatives, stockholders, controlling
persons, and affiliates (collectively, the “Indemnified
Persons”) for, and shall pay to the Indemnified Persons the amount
of, any loss, liability, claim, damage (including incidental and consequential
damages), expense (including costs of investigation and defense and reasonable
attorneys’ fees) or diminution of value, whether or not involving a third-party
claim (collectively, “Damages”),
arising, directly or indirectly, from or in connection with:


 


(a)                                  subject to Section 5.5, any breach
of any of the Majority Owners’ Representations made in this Agreement, the
Disclosure Schedule or any other certificate or document delivered by Majority
Owners pursuant to this Agreement; provided, however, that
Majority Owners’ indemnification obligation pursuant to this Section 10.2
with respect to Section 3.22(h) shall be limited to one-half (1/2) of any
Damages of the Indemnified Persons;


 


(b)                                 any breach of any of the Majority Owners’
Representations made by Majority Owners in this Agreement as if such Majority
Owners’ Representations were made on and as of the Closing Date;


 


(c)                                  any breach by Majority Owners of any
covenant or obligation of Majority Owners in this Agreement;


 


(d)                                 any Liability related to the Employee
Retention Bonuses (except for payment of the Employment Retention Bonuses
pursuant to the terms of the Employee Retention Bonus Agreements); and


 


(e)                                  any Liability related to compliance with
the required follow up actions set forth in that certain letter from the Office
of Defense Trade Controls Compliance dated March 29, 2007.


 


10.3                           Indemnification and
Payment of Damages by Sellers.  Sellers shall severally indemnify and hold
harmless the Indemnified Persons for, and shall pay to the Indemnified Persons
the amount of, any Damages, arising, directly or indirectly, from or in
connection with any breach of any Seller Fundamental Representation made by
such Seller in this Agreement; provided, however, that the time
limitations set forth in Section 10.5 and the amount limitations
set forth in Section 10.6 do not apply to this Section 10.3,
except with respect to Section 3.32(b).


 


10.4                           Indemnification and
Payment of Damages by Buyer.  Buyer will indemnify and hold harmless
Sellers, and shall pay to Sellers the amount of any Damages arising, directly
or indirectly, from or in connection with (a) any breach of any
representation or warranty made by Buyer in this Agreement or in any
certificate delivered by Buyer pursuant to this Agreement, (b) any breach
by Buyer of any covenant or obligation of Buyer in this Agreement, or (c) any
claim by any Person for brokerage or finder’s fees or commissions or similar
payments based upon any agreement or understanding alleged to have been made by
such Person with Buyer (or any Person acting on its behalf) in connection with
any of the Contemplated Transactions.


 


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10.5                           Time Limitations.  Majority Owners
shall have no liability (for indemnification or otherwise) with respect to any
claim for indemnification pursuant to Section 10.2(a), (b) or (c),
unless on or before the second anniversary of the Closing Date, Buyer notifies
Majority Owners of a claim specifying the factual basis of that claim in
reasonable detail to the extent then known by Buyer; provided, however,
that any claim with respect to Section 3.3 (Capitalization), 3.6(a),
(b) and (c) (Title to Assets), Section 3.11 (Taxes), Section 3.13
(Employee Benefits), Section 3.19 (Environmental) or Section 3.29
(Export Regulation), any Seller Fundamental Representation (excluding Section 3.32(b)),
or any claim of fraud or intentional misrepresentation, may be made at any time
up to the expiration of all applicable statutes of limitation.  Buyer shall have no liability (for
indemnification or otherwise) with respect to any claim for indemnification
pursuant to Section 10.4, unless on or before second anniversary of
the Closing Date Majority Owners notify Buyer of a claim specifying the factual
basis of that claim in reasonable detail to the extent then known by Majority
Owners.


 


10.6                           Limitations on Amount.  Notwithstanding
anything in this Agreement to the contrary, Majority Owners and Sellers with
respect to Section 3.32(b) shall have no liability for
indemnification under Section 10.2 until all claims for
indemnification against Majority Owners and Sellers with respect to Section 3.32(b) exceed
One Hundred Thousand Dollars ($100,000)  (the “Aggregate Basket”).  Once the aggregate claims for indemnification
against Majority Owners and Sellers with respect to Section 3.32(b) exceed
the Aggregate Basket, then Buyer shall be entitled to recover the amount of
such Aggregate Claims under Section 10.2 (subject to the
limitations contained in Section 10.5) in excess of the Aggregate
Basket; provided, however, that except as provided
in the following sentence, the aggregate liability for indemnity claims under Section 10.2
shall not exceed Five Million Dollars ($5,000,000)  (the
“Liability Cap”).  Notwithstanding the foregoing, any claims for
indemnity by Buyer under this Agreement relating to fraud or the Company’s
federal and state tax deduction relating to the Company’s 2007 inventory
reserve deduction shall not be subject to the Aggregate Basket, but shall be
paid in full immediately and shall not be subject to the Liability Cap.


 


10.7                           Limitations on
Amount—Buyer.  Buyer shall have no liability for
indemnification with respect to the matters described in clause (a) or (b) of
Section 10.4 until all claims for indemnification against the Buyer
exceed the Aggregate Basket.  Once the
aggregate claims for indemnification against the Buyer exceed the Aggregate
Basket, then Sellers shall be entitled to recover the entire amount of such
Aggregate Claims under the applicable provision of Section 10.4; provided, however, that except as provided
in the following sentence, the aggregate liability for indemnity claims under Section 10.4
shall not exceed the Liability Cap.  The
amount limitations with respect to the Aggregate Basket and Liability Cap shall
not apply to any Damages relating to (i) a breach by Buyer of any covenant
or obligation in connection with the determination and calculation of and
payment of the Purchase Price, including, without limitation, with respect to
the Subordinated Contingent Notes, the Deferred Purchase Price, and the
operation of the Company in accordance with the standards set forth in Exhibit 2.6(f) attached
hereto, (ii) any claims for indemnity by Sellers under this Agreement
relating to fraud, and (iii) any Taxes incurred and payable by the Company
or the Parent from and after the Closing.


 


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10.8                           Right of Set-off.  Upon notice to
Sellers specifying in reasonable detail the basis for such set-off, Buyer may
set-off any amount to which it may be entitled under this Article X
against amounts otherwise payable to Sellers under this Agreement, including
but not limited to, the Deferred Purchase Price and the Subordinated Contingent
Notes; provided, however, that Buyer shall not
exercise such right of set-off until there shall have been a final and binding
determination by a court of competent jurisdiction which is not subject to
appeal as to the validity of any claim of set-off before Buyer exercises its
right of set-off.  Neither the exercise
of nor the failure to exercise such right of set-off shall constitute an
election of remedies or limit Buyer in any manner in the enforcement of any
other remedies that may be available to it. 
Notwithstanding anything herein to the contrary, Buyer’s right to
indemnification under this Article X shall not be limited to the
funds utilized pursuant to and in accordance with this Section 10.8.  If any portion of this Section 10.8
is held to be invalid or unenforceable by any court of competent jurisdiction,
then the Parties hereto agree to take all reasonable steps so as to cause this Section 10.8
to be held as a valid and enforceable provision.


 


10.9                           Procedure For
Indemnification—Third-Party Claims.


 


(a)                                  Promptly after receipt by an indemnified
party under Article X of notice of the commencement of any
Proceeding against it, such indemnified party shall, if a claim is to be made against
an indemnifying party under such Section, give notice to the indemnifying party
of the commencement of such claim, but the failure to notify the indemnifying
party shall not relieve the indemnifying party of any liability that it may
have to any indemnified party, except to the extent that the indemnifying party
demonstrates that the defense of such action is prejudiced by the indemnifying
party’s failure to give such notice.


 


(b)                                 If any Proceeding referred to in Section 10.9(a) is
brought against an indemnified party and it gives notice to the indemnifying
party of the commencement of such Proceeding, the indemnifying party shall,
unless the claim involves Taxes, be entitled to participate in such Proceeding
and, to the extent that it wishes (unless (i) the indemnifying party is
also a party to such Proceeding and the indemnified party determines in good
faith that joint representation would be inappropriate, or (ii) the
indemnifying party fails to provide reasonable assurance to the indemnified
party of its financial capacity to defend such Proceeding and provide
indemnification with respect to such Proceeding), to assume the defense of such
Proceeding with counsel satisfactory to the indemnified party and, after notice
from the indemnifying party to the indemnified party of its election to assume
the defense of such Proceeding, the indemnifying party will not, as long as it
diligently conducts such defense, be liable to the indemnified party under this
Article X for any fees of other counsel or any other expenses with
respect to the defense of such Proceeding, in each case subsequently incurred
by the indemnified party in connection with the defense of such Proceeding,
other than reasonable costs of investigation. 
If the indemnifying party assumes the defense of a Proceeding, (i) it shall be conclusively established
for purposes of this Agreement that the claims made in that Proceeding are
within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party’s consent unless (A) there is no
finding or admission of any violation 


 


75





















 


of Legal Requirements or any violation of the rights
of any Person and no effect on any other claims that may be made against the
indemnified party, and (B) the sole relief provided is monetary damages
that are paid in full by the indemnifying party; and (iii) the indemnified
party shall have no liability with respect to any compromise or settlement of
such claims effected without its consent. 
If notice is given to an indemnifying party of the commencement of any
Proceeding and the indemnifying party does not, within ten Business Days after
the indemnified party’s notice is given, give notice to the indemnified party
of its election to assume the defense of such Proceeding, the indemnifying
party shall be bound by any determination made in such Proceeding or any
compromise or settlement effected by the indemnified party.


 


(c)                                  Notwithstanding the foregoing, if an
indemnified party determines in good faith that there is a reasonable
probability that a Proceeding may adversely affect it or its affiliates other
than as a result of monetary damages for which it would be entitled to indemnification
under this Agreement, the indemnified party may, by notice to the indemnifying
party, assume the exclusive right to defend, compromise, or settle such
Proceeding, but the indemnifying party shall not be bound by any determination
of a Proceeding so defended or any compromise or settlement effected without
its consent (which may not be unreasonably withheld).


 


10.10                     Procedure For
Indemnification—Other Claims.  A claim for indemnification for any matter
not involving a third-party claim may be asserted by notice to the party from
whom indemnification is sought.


 


10.11                     Sole Remedy.  From and after the
Closing, the remedies provided in this Article X  shall be the sole remedy of the Indemnified Persons and
Sellers for any claim arising out of this Agreement and the transactions
contemplated hereby or any law or legal theory applicable thereto, including
the breach of any representation, warranty or covenant contained in this
Agreement and Schedules to this Agreement; provided, that nothing contained in
this Agreement shall limit or impair any right that any Indemnified Person or
Seller may have to sue and obtain equitable relief, including specific
performance and other injunctive relief or any right or remedy that any
Indemnified Person or Seller may have against Majority Owners, Sellers or Buyer
on account of fraud.


 


10.12                     Insurance and Third Party
Recoveries.  Any Damages for which indemnification is
provided to any Indemnified Person or Seller under this Article X
shall be net of any amounts actually recovered by an Indemnified Person or
Seller from third parties (including amounts actually recovered under insurance
policies) with respect to such Damages after having subtracted from the amounts
so recovered the costs incurred by an Indemnified Person or Seller in pursuing
such recovery.


 


10.13                     Tax Benefit.  The Parties agree to
treat any payment made pursuant to this Article X as an adjustment
to the Purchase Price for Federal, State and local income tax purposes.  In the event that an Indemnified Person or
Seller receives a Tax benefit in respect to any Damages for which an
indemnification payment would be made hereunder, such


 


76

















 


indemnification payment shall be calculated net of any such
Tax benefit (after considering any Tax detriment from receipt of such
indemnification payment.


 


10.14                     Continuation of Director
and Officer Indemnity.


 


(a)                                  From and after the Closing and until the
sixth (6th) anniversary of the Closing, the Company and Parent shall
maintain all rights of indemnification (including rights to advancement of
expenses and exculpation from liability) existing in favor of the present and
former directors, officers, employees and agents of the Company and Parent on
terms no less favorable than those provided in the certificate of incorporation
or by-laws of the Company as in effect on the date of this Agreement with
respect to matters occurring prior to the Closing.


 


(b)                                 In the event that the Company, Parent,
Buyer or EMRISE or any of their successors or assigns consolidates with or
merges into any other person and shall not be the continuing or surviving
corporation or entity in such consolidation or merger, proper provision shall
be made so that any such successor and assign honors the indemnification and
insurance obligations set forth in this Section 10.14.


 


ARTICLE XI


TAX MATTERS


 


11.1                           Tax Returns.


 


(a)                                  Buyer shall cause Parent and the Company
to prepare and file or cause to be prepared and filed all Tax Returns for each
of Parent and the Company for all periods ending on or prior to the Closing
Date which are filed after the Closing Date. 
Buyer shall permit Majority Owners to review and approve each such Tax
Return described in the preceding sentence a reasonable period of time prior to
filing, which approval shall not be unreasonably withheld.


 


(b)                                 Buyer shall cause Parent and the Company
to prepare and file or cause to be prepared and filed all Tax Returns of each
of Parent and the Company for Straddle Periods. 
Buyer shall permit Majority Owners to review and approve each such Tax
Return described in the preceding sentence a reasonable period of time prior to
filing, which approval shall not be unreasonably withheld.


 


(c)                                  Buyer and Majority Owners shall cooperate
with each other in connection with the filing of any Tax Returns and any audit,
litigation or other proceeding with respect to Taxes.  Buyer and Majority Owners agree (i) to
retain all books and records with respect to Tax matters pertinent to each of
Parent and the Company relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (and, to the
extent notified by Parent, the Company, Buyer or Majority Owners, any
extensions of the statute of limitations) of the respective taxable periods,
and to abide by all record retention agreements entered into with any taxing
authority, and (ii) to give the other Parties reasonable written notice
prior to transferring, destroying or


 


77

















 


discarding any such books and records and, if any of
the other Parties so requests, Buyer or Majority Owners, as the case may be,
shall allow the other party to take possession of such books and records.


 


(d)                                 Buyer and Majority Owners shall, upon
request, provide the other Party with all information that either Party may be
required to report pursuant to § 6043 of the Code and all Treasury
Regulations promulgated thereunder.


 


(e)                                  To the extent Buyer does not approve a
Tax Return pursuant to Section 11.1(a) or 11.1(b) and
Majority Owners do not agree to the changes suggested by Buyer, the dispute
shall be submitted to BDO Seidman, LLP
(the “Arbitrator”), within five (5) Business
Days of the date on which Majority Owners do not agree to make such
changes.  The Arbitrator shall resolve
any disputed items within fifteen (15) Business Days of having the item
referred to it (and in any case at least three Business Days prior to the time
in which such Tax Return must be filed (taking into accounts all extensions
that are available without incurring penalties or additional Taxes)) pursuant
to such procedures as it may require. 
The Parties shall promptly act to implement the decision of the
Arbitrator.  The costs, fees and expenses
of the Arbitrator shall be borne equally by Majority Owners and Buyer unless
the Arbitrator determines that a Party’s position was unreasonable or not in
good faith.


 


11.2                           Transfer Taxes.  All excise, sales,
use, value added, transfer (including real property transfer), stamp,
documentary, filing, recordation, registration and other similar taxes,
together with any interest, additions, fines, costs or penalties thereon and
any interest in respect of any additions, fines, costs or penalties, resulting
directly from the Acquisition or imposed in connection with this Agreement and
the transaction contemplated hereby (the “Transfer
Taxes”) shall be paid by Majority Owners.


 


11.3                           Tax-Sharing Agreements.  All Tax-sharing
agreements or similar agreements with respect to or involving the Company shall
be terminated as of the Closing Date and, after the Closing Date, the Company
shall not be bound thereby or have any liability thereunder.


 


ARTICLE XII


GENERAL PROVISIONS


 


12.1                           Expenses.  Buyer and the
Company (for itself and Sellers) shall bear and pay all costs and expenses
(including legal and accountants’ fees and expenses and broker fees) incurred
by such Party in connection with this Agreement and the Contemplated
Transactions.  In the event of
termination of this Agreement, the obligation of each Party to pay its own
expenses will be subject to any rights of such Party arising from a breach of
this Agreement by another Party.


 


12.2                           Public Announcements.  Neither Buyer,
Parent nor the Company nor any of their respective subsidiaries, affiliates,
officers, directors, employees, agents or shareholders shall, without the prior
written consent of the other, make any public statement or announcement or any
release to trade publications or through the press or otherwise, or (except as
contemplated by Section 5.1) make any statement to any third party
with respect to the Contemplated Transactions


 


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(including, without limitation, with respect to the entering
into of this Agreement and the terms hereof) except as may be necessary to
comply with the requirements of any law, governmental order or regulation,
stock exchange rule or regulation or legal proceeding, and then only after
notice to the other party.


 


12.3                           Confidentiality.  Between the date of
this Agreement and the Closing Date, Buyer and Majority Owners will maintain in
confidence, and will cause the directors, officers, employees, agents, and
advisors of Buyer, Majority Owners and the Company to maintain in confidence,
any written, oral, or other information furnished by another party, in
connection with this Agreement or the Contemplated Transactions.  If the Contemplated Transactions are not
consummated, each Party will return or destroy as much of such written information
as the other Party may reasonably request. 
Further, between the date of this Agreement and Closing, each Majority
Owner agrees that he shall not, and shall use his Best Efforts to ensure that
any Majority Owner Related Person does not, purchase, sell or otherwise trade
in Buyer’s stock, which is publicly traded on NYSE Arca.


 


12.4                           Notices.  All notices,
consents, waivers, and other communications under this Agreement must be in
writing and will be deemed to have been duly given when (a) delivered by
hand (with written confirmation of receipt), (b) sent by telecopier (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if
sent by a nationally recognized overnight delivery service (receipt requested),
in each case to the appropriate addresses and telecopier numbers set forth
below (or to such other addresses and telecopier numbers as a party may
designate by notice to the other parties):


 


	
  Couse or J. Couse:

  	
   

  	
  Thomas
  P. M. Couse or Joanne Couse

  1 Waltham Way

  Jackson, NJ 08527

  Telephone: (732) 928-0654

  Facsimile: (732) 928-0654

  
	
   

  	
   

  	
   

  
	
  with a copy to (which
  does not constitute notice):

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Giordano Halleran &
  Ciesla, P.C.

  125 Half Mile Road

  P.O. Box 190

  Middletown, NJ  07748

  Attention: John A. Aiello, Esq.

  Telephone:  (732) 741-3900

  Telecopy: (732) 224-6599

  
	
   

  	
   

  	
   

  
	
  Brand:

  	
   

  	
  Charles S. Brand 

  175 Boundary Road

  Colts Neck, NJ  07722

  Telephone:  (732) 431-4175

  



 


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  Gaffney:

  	
   

  	
  Michael Gaffney 

  20 Cedarview Avenue

  Jackson, NJ  08527

  Telephone:  (732) 833-7887

  
	
   

  	
   

  	
   

  
	
  The Company (prior to
  Closing):

  	
   

  	
  Advanced Control
  Components, Inc.

  611 Industrial Way

  Eatontown, NJ  07724

  Attention:  Charles S. Brand

  Telephone:  (732) 460-0212

  Facsimile:  (732) 460-0214

  
	
   

  	
   

  	
   

  
	
  Parent (prior to
  Closing):

  	
   

  	
  Custom Components, Inc.

  611 Industrial Way

  Eatontown, NJ  07724

  Attention:  Charles S. Brand

  Telephone:  (732) 460-0212

  Facsimile:  (732) 460-0214

  
	
   

  	
   

  	
   

  
	
  Buyer:

  	
   

  	
  EMRISE Electronics Corporation

  9485 Haven Avenue, Suite 100

  Rancho Cucamonga, CA  91730

  Attention:  Carmine T. Oliva

  Telephone:  (909) 987-9220

  Facsimile:  (909) 354-3568

  
	
   

  	
   

  	
   

  
	
  with a copy to (which
  does not constitute notice):

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Rutan &
  Tucker, LLP

  611 Anton Boulevard, Suite 1400

  Costa Mesa, CA 926126

  Attention: Larry A. Cerutti, Esq.

  Telephone:  (714) 641-3450

  Telecopy: (714) 556-9035

  



 


12.5                           Jurisdiction; Service of
Process. 
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against any of the
Parties in the Delaware Court of Chancery located in New Castle County, or, if
it has or can acquire jurisdiction, in the United States District Court for the
District of Delaware, and each of the parties consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein.  Process in any action or proceeding referred
to in the preceding sentence may be served on any Party anywhere in the world.


 


12.6                           Further Assurances.  The Parties agree (a) to
furnish upon request to each other such further information, (b) to
execute and deliver to each other such other documents, and


 


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(c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.


 


12.7                           Waiver.  The rights and
remedies of the Parties are cumulative and not alternative.  Neither the failure nor any delay by any
Party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or
privilege.  To the maximum extent permitted
by applicable law, (a) no claim or right arising out of this Agreement or
the documents referred to in this Agreement can be discharged by one Party, in
whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other Party; (b) no waiver that may be given by a
Party will be applicable except in the specific instance for which it is given;
and (c) no notice to or demand on one Party will be deemed to be a waiver
of any obligation of such Party or of the right of the Party giving such notice
or demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.


 


12.8                           Entire Agreement and
Modification.  This Agreement supersedes all prior
agreements between the Parties with respect to its subject matter (including
the Nonbinding Agreement in Principle among Buyer, Parent, the Company, and
Majority Owners dated February 8, 2008) and constitutes (along with the
documents referred to in this Agreement) a complete and exclusive statement of the
terms of the agreement between the parties with respect to its subject
matter.  This Agreement may not be
amended except by a written agreement executed by the Party to be charged with
the amendment.


 


12.9                           Disclosure Schedule.


 


(a)                                  The disclosures in the Disclosure
Schedule, and those in any supplement thereto, must relate only to the
representations and warranties in the Section of the Agreement to which
they expressly relate and not to any other representation or warranty in this
Agreement.


 


(b)                                 In the event of any inconsistency between
the statements in the body of this Agreement and those in the Disclosure
Schedule (other than an exception expressly set forth as such in the Disclosure
Schedule with respect to a specifically identified representation or warranty),
the statements in the body of this Agreement will control.


 


12.10                     Assignments, Successors,
and No Third-Party Rights.  Neither Party may assign any of its rights
under this Agreement without the prior consent of the other Parties, which will
not be unreasonably withheld, except that Buyer may assign any of its rights
under this Agreement to any Subsidiary of Buyer.  Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon, and inure to the
benefit of the successors and permitted assigns of the Parties.  Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement.  This


 


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Agreement and all of its provisions and conditions are for
the sole and exclusive benefit of the parties to this Agreement and their
successors and assigns.


 


12.11                     Severability.  If any provision of
this Agreement is held invalid or unenforceable by any court of competent
jurisdiction, the other provisions of this Agreement will remain in full force
and effect.  Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.


 


12.12                     Section Headings,
Construction.  The headings of Articles and Sections in this
Agreement are provided for convenience only and will not affect its
construction or interpretation.  All
references to “Article” or “Articles” and “Section” or “Sections” refer to the
corresponding Article or Articles and Section or Sections of this
Agreement.  All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require.  Unless otherwise expressly
provided, the word “including” does not limit the preceding words or terms.


 


12.13                     Time of Essence.  With regard to all
dates and time periods set forth or referred to in this Agreement, time is of
the essence.


 


12.14                     Governing Law.  This Agreement will
be governed by the laws of the State of Delaware without regard to conflict of
laws principles.


 


12.15                     Specific Performance.  All of the Parties
acknowledge and agree that the other Party would be damaged irreparably in the
event any of the provisions of this Agreement are not performed in accordance
with their specific terms or otherwise are breached.  Accordingly, all of the Parties agree that
the other Party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter in addition to any other remedy.


 


12.16                     Waiver of Jury Trial.  TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH
CANNOT BE WAIVED, MAJORITY OWNERS HEREBY WAIVE, AND COVENANT THAT THEY WILL NOT
ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY
JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION ARISING OUT OF OR PASSED UPON THIS AGREEMENT OR THE SUBJECT MATTER
HEREOF, WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER SOUNDING IN TORT
OR CONTRACT OR OTHERWISE.


 


12.17                     Counterparts.  This Agreement may
be executed in one or more counterparts, each of which will be deemed to be an
original copy of this Agreement and all of which, when taken together, will be
deemed to constitute one and the same agreement.


 


[Signature page follows.]


 


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IN WITNESS
WHEREOF, the parties have executed and delivered this Agreement as of the date
first written above.


 


	
  BUYER:

  	
  EMRISE ELECTRONICS

  
	
   

  	
  CORPORATION, a New Jersey corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Carmine T. Oliva,

  
	
   

  	
   

  	
  President and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EMRISE:

  	
  EMRISE CORPORATION, a Delaware

  corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Carmine T. Oliva,

  
	
   

  	
   

  	
  President and Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  COUSE:

  	
   

  
	
   

  	
  THOMAS P. M. COUSE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  J. COUSE:

  	
   

  
	
   

  	
  JOANNE COUSE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  GAFFNEY:

  	
   

  
	
   

  	
  MICHAEL GAFFNEY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  THE COMPANY:

  	
  ADVANCED CONTROL COMPONENTS,

  
	
   

  	
  INC.,  a New Jersey
  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Charles S. Brand,

  
	
   

  	
   

  	
  Chief Executive Officer

  



 


[Signatures continued on the following page.]


 


83

















 


	
  BRAND:

  	
   

  
	
   

  	
  CHARLES S. BRAND

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PARENT:

  	
  CUSTOM COMPONENTS, INC.,

  
	
   

  	
  a New Jersey corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Charles S. Brand, President

  



 


84