Exhibit 10.1


 


Execution Copy


 


MASTER
AGREEMENT


 


THIS
MASTER AGREEMENT (the “Master Agreement”),
dated as of June 7, 2010, is made by and among EMRISE Corporation, a Delaware corporation (“Parent”), EMRISE
Electronics Corporation, a New Jersey corporation and a subsidiary of
Emrise (“EEC”), CXR Larus
Corporation, a Delaware corporation, Pascall Electronics Limited, a United
Kingdom company, XCEL Power Systems, Ltd., a United Kingdom company, CXR
Anderson Jacobson SAS, a company organized under French law (each of CXR Larus
Corporation, Pascall Electronics Limited, XCEL Power Systems, Ltd., and CXR
Anderson Jacobson SAS is a direct or indirect subsidiary of Parent, is referred
to herein as “Subsidiary”, and are collectively
referred to herein as the “Subsidiaries”),
Charles S. Brand, an individual (“Brand”),
Thomas P. M. Couse, an individual (“Couse”),
Joanne Couse, an individual (“J. Couse” and, together with Brand and Couse, the “Noteholders”), and Michael
Gaffney, an individual (“Gaffney”).


 


R
E C I T A L S


 


A.            Parent, EEC, each of the Noteholders
and Gaffney are each a party to that certain Stock Purchase Agreement, dated as
of May 23, 2008, as amended by Amendment No. 1 to Stock Purchase
Agreement dated as of August 20, 2008, and by Amendment No. 2 to
Stock Purchase Agreement dated as of November 20, 2009, by and among EEC,
each of the Noteholders and Gaffney (the “2008 Purchase Agreement”).


 


B.            In connection with the 2008 Purchase
Agreement, EEC issued a Subordinated Contingent Secured Promissory Note (each a
“Note” and collectively the “Notes”) to each of the Noteholders and Gaffney on August 20,
2008 and such Notes were amended by Amendment No. 1 to the Notes as of November 20,
2009.


 


C.            The Notes were secured by the assets
(the “2008 Collateral”) of Advanced Control
Components, Inc. (“ACC”) pursuant
to a Security Agreement dated as of August 20, 2008 (the “2008 Security Agreement”), by and among EEC, ACC, Brand as
the Collateral Agent, each of the Noteholders and Gaffney.


 


D.            In connection with the 2008 Purchase
Agreement and the Notes, Parent provided a Continuing Guaranty, dated August 20,
2008 (the “Parent Guaranty”), to the
Noteholders and Gaffney.


 


E.             Pursuant to Sections 2.2(c) and
2.2(d)(ii) of the 2008 Purchase Agreement, certain amounts are to be paid
to a scheduled list of employees out of the Deferred Purchase Price (the “Retention Payments”) as a bonus and retention mechanism for
such individuals.


 


F.             Shortly after execution of this
Master Agreement, EEC anticipates entering into a Stock Purchase Agreement (the
“2010 Purchase Agreement”) with Aeroflex
Incorporated for the sale of the stock of ACC. 
Subject to all of the conditions and consideration set forth in this
Master Agreement and a Security Agreement, including the substitution of the
2010 Collateral as set forth herein, the Noteholders and Gaffney are willing to
approve the sale of the stock of ACC under the 2010 Purchase Agreement and
release the 2008 Collateral.


 

















 


G.            Based on the Parent Guaranty, each
of the Subsidiaries will benefit from the extension of the maturity of the
Notes.  Because Parent will be using a
portion of the proceeds of the sale of ACC to substantially pay down the senior
credit facility, to which each of Parent and the Subsidiaries are borrowers,
and the Noteholders will approve of the sale of ACC as contemplated by the 2010
Purchase Agreement and are willing to release their lien on the assets of ACC
to facilitate such sale because the assets of the Subsidiaries will be pledged
as substitute collateral, each of the Subsidiaries will benefit from the
transactions contemplated by this Master Agreement.


 


H.            EEC and each of the Noteholders
desire to amend the Notes to provide that (i) the Note held by Gaffney may
be paid in full in cash on the date of closing the transaction contemplated by
the 2010 Purchase Agreement (the “Closing Date”),
notwithstanding the Notes of the Noteholders will not be paid in full in cash
at the same time, (ii) the Maturity Date will be extended to June 30,
2013 (or such later date in 2013 that is three years from the Closing Date),
and (iii) certain other changes as set forth in the form of Amendment No. 2
to the Notes substantially in the form attached to this Master Agreement.


 


I.              Parent is willing to issue, and
Brand desires to accept, shares of Common Stock of Parent as partial payment of
the Note held by Brand.


 


A G R E E M E N T


 


NOW,
THEREFORE, in consideration of the facts recited above, and the terms,
conditions and covenants contained in this Master Agreement, EEC, Parent, the
Subsidiaries, Brand, Couse, J. Couse and Gaffney agree as follows:


 


1.             Approval of Sale of ACC.  Each Noteholder and Gaffney hereby approve of
the transaction contemplated by the 2010 Purchase Agreement.


 


2.             Payment of Portion of
Notes and Use of Cash.  On
the Closing Date, the outstanding amount of the Notes held by the Noteholders
will be reduced, in the aggregate, by $3,295,759.15 (the “Closing
Payment Amount”).  The actual
cash payment to the Noteholders will be equal to the Closing Payment Amount
minus (a) $63,515.18, or such higher amount that represents additional
interest in the event that the Closing Date is after June 30, 2010 (the “Gaffney Payoff Amount”) to be paid to Gaffney as payment in
full of the Note held by Gaffney, and (b) $240,000, the aggregate amount
of the Retention Payments to be made by Parent to the individuals  designated in the 2008
Purchase Agreement pursuant to Sections 2.2(c) and 2.2(d)(ii) of the
2008 Purchase Agreement (the “Retention Bonus Recipients”), provided that each
recipient executes and delivers a Release as required by the Confidential
Employee Retention Bonus Agreements signed by each recipient in August 2008.  Parent will pay or will cause to be promptly
paid to the Retention Bonus Recipients the Retention Payments upon receipt of
the properly executed release.


 


3.             Gaffney Paid in Full.  On the Closing Date, Gaffney will be paid the Gaffney
Payoff Amount and Gaffney
will provide to EEC and Parent written confirmation that the Note held by
Gaffney is paid in full and will return the original Note to EEC for
cancellation.


 

















 


4.             Amendments to the Notes.  On the Closing Date, EEC and the Noteholders
will amend the Notes by executing and delivering an Amendment No. 2 to
Subordinated Contingent Secured Promissory Note (“Amendment No. 2”)
substantially in the form attached hereto as Exhibit A
as it
may be modified prior to the Closing Date by mutual agreement of the parties
thereto.


 


5.             Substitution of Collateral.  On the Closing Date, the Noteholders and
Gaffney will release 2008 Collateral and the 2008 Security Agreement will
terminate, and will execute and deliver whatever documents or instruments are
reasonably required by EEC and Parent in connection with the release of the
2008 Collateral.  On the Closing Date,
each of the Subsidiaries will grant a subordinated security interest to the
Noteholders in the assets of the Subsidiaries as substitute collateral (the “2010 Collateral”) as set forth in an Amended and Restated
Security Agreement (the “2010 Security Agreement”)
substantially in the form attached hereto as Exhibit B
as it may be modified prior to the Closing Date by mutual agreement of the
parties thereto.


 


6.             Sale of Parent, EEC or
Subsidiaries.  (a) 
In the event that Parent, EEC or any of the Subsidiaries or any of the assets
of the Subsidiaries (other than assets of the Subsidiaries sold in the ordinary
course of business) is proposed to be sold, including by way of stock sale,
merger or otherwise, the Parent shall provide notice to each of the Noteholders
of such proposed sale promptly and to the extent possible at least thirty (30)
days prior to the consummation thereof and in no event less than fourteen (14)
days prior to such consummation.


 


(b)           In
the event that Parent directly or through a Subsidiary raises substantial
capital through a merger with an entity having cash on hand or an equity raise,
then Parent shall use a percentage of the net proceeds of such capital raise to
pay down the Notes, such percentage to be mutually agreed upon by the parties.


 


7.             Acknowledgments Related to
the Notes.  Each of EEC
and each Noteholder acknowledges and agrees that


 


(a)           that the Second
Deferred Purchase Price Payment is in the amount of $1,724,833.95 and that (i) said
amount is and shall be deemed earned by the Noteholders and Gaffney, (ii) the
aggregate principal amount of the Notes shall be increased to include the
amount of the Second Deferred Purchase Price Payment ($1,724,833.95); and (iii) by
the execution and delivery of this Master Agreement by the parties hereto, the
2008 Purchase Agreement shall be deemed amended as provided in this Section 7(a);


 


(b)           upon
payment of the Closing Payment Amount, the interest rate payable on the Notes
will be the prime rate as reported in The Wall Street Journal
plus 1%, and will no longer be doubled, as set forth in Section 1 of the
Note (as amended);


 


(c)           Gaffney
will be paid in full on the Closing Date, as set forth in Section 3 above,
notwithstanding the fact that the Notes held by the Noteholders will not be
paid in the same proportional amount; and


 


(d)           assuming
the Closing Date occurs on June 30, 2010, the Closing Payment Amount will
be applied as follows: $2,393,795.18 shall be paid to Brand, $299,224.40 


 

















 


shall be paid to Couse, $299,224.39 shall be paid to J. Couse and
$63,515.18 shall be paid to Gaffney. 
Brand’s Note will also be reduced by $450,000 in connection with receipt
of the Shares (as provided in Section 8). 
Such payments will be applied first to all accrued and unpaid interest
and the balance of such payments will be applied to outstanding principal; and
the remaining outstanding principal balance under the Notes will be
$2,186,607.32 on the Note held by Brand and $329,575.92 on the Note held by
Couse and $329,575.91 on the Note held by J. Couse.


 


8.             Issuance of Stock as Partial Payment of Note held
by Brand.  On the Closing
Date, Parent shall issue to Charles Brand that number of shares of its Common
Stock (the “Shares”) that equal the
quotient of $450,000 divided by 115% of the volume weighted average per share
price for such Common Stock for the three days consisting of the date of public
announcement of the 2010 Purchase Agreement and the two trading days
immediately thereafter, pursuant to the terms and conditions of the Stock
Issuance Agreement substantially in the form attached hereto as Exhibit C as it may be modified
prior to the Closing Date by mutual agreement of the parties thereto.


 


9.             Increase in Long-Term Federal Capital Gains Tax
Rate.  Section 2.7 of
the 2008 Purchase Agreement provides, in summary, that if there is an increase
in the Federal long-term capital gains tax rate from the then current rate of
15% after August 20, 2008, and, as a result of such increase, a Noteholder
is required to pay more Federal long-term capital gains taxes on gains relating
to payments on the Notes, EEC shall pay to such Noteholder an amount equal to
such additional Federal capital gains taxes actually paid by such Noteholder
attributable to the capital gains tax rate increase up to and including a rate
of 25%.  EEC hereby confirms that EEC is
obligated under each and every provision of Section 2.7 of the 2008
Purchase Agreement until all Notes are paid in full, including, without
limitation, with respect to the payment of taxes on the Capital Gains Increase
Payment (as that term is defined in the 2008 Purchase Agreement).


 


10.           Parent Guaranty.  Parent hereby confirms that it has provided
the Parent Guaranty and is and will continue to be obligated under the Parent
Guaranty until all Notes are paid in full.


 


11.           Tax.  EEC shall obtain from Ballard Spahr, LLP on
or before the Closing Date, an opinion that more likely than not the
modifications contemplated by the Amendment No. 2 as same is contemplated
as of June 7, 2010  (i) will
not be treated as dispositions of the Notes by the holders thereof within the
meaning of Section 453B of the Internal Revenue Code of 1986, (ii) will
not treated as payments received by the holders of the Notes of any portion of
the contract price for purposes of determining the recognition of gain from the
sale of their stock to EEC in 2008 under the installment method, and (iii) will
not prohibit the holders from eligibility for reporting gain from the sale of
their stock to EEC in 2008 using the installment method.  The opinion from Ballard Spahr, LLP will not
express an opinion as to any other federal income tax consequence of Amendment No. 2,
including the effect (if any) of the Amendment No. 2 on the computation,
recognition or deduction of any amount deemed paid or accrued as interest with
respect to the Notes.  The opinion of
Ballard Spahr also will not express an opinion as to the federal income tax
consequences of any other transaction or matter contemplated by this Agreement
or any other agreement relating to this transaction.


 

















 


12.           Legal Costs.  Each of EEC and the Noteholders will be
responsible for the payment of all of their own legal fees and costs associated
with this Master Agreement, Amendment No. 2, the Security Agreement and
the transactions contemplated by the 2010 Purchase Agreement; provided,
however, that on the Closing Date EEC shall pay the legal costs of the
Noteholders up to a maximum fifteen thousand ($15,000); and provided further
that if the legal fees associated with the issuance by Ballard Spahr of a tax
opinion to EEC exceeds seven thousand, five hundred dollars ($7,500), then
Noteholders will pay the excess amount on the Closing Date.


 


13.           Effectiveness, Consummation and Termination.  The effectiveness of this Master Agreement
(except for Section 1 of this Master Agreement which will be effective as
of the date hereof) shall occur on the Closing Date, and all transactions
contemplated hereby shall be consummated, the delivery of all documents and the
payment of all sums will be completed, on the Closing Date (except for the
Retention Payments which will occur as soon as practicable after the Closing
Date based on normal payroll practices and upon receipt of the required
releases).  In the event that the 2010
Purchase Agreement is terminated without consummation, then this Master
Agreement shall also terminate and be of no further force or effect.


 


14.           Mutual Release.  In consideration of the terms, conditions,
and covenants in this Master Agreement, as well as the indemnity letters
provided by Brand to Parent and EEC, the parties have agreed that, on the
Closing Date, the parties will mutually release each other from certain
liabilities and obligations, as set forth in the Mutual Release substantially in the form attached hereto
as Exhibit D as it may be modified
prior to the Closing Date by mutual agreement of the parties thereto.  There will be no offset or claim made by
Parent or EEC related to the inventory-related tax liability and any such claim
is hereby released.  There will be no
offset or claim against any of Thomas Couse, Joann Couse or Michael Gaffney
related to the Bossard Losses (as defined in that certain indemnity letter of
even date herewith relating thereto) and any such claim against such
individuals is hereby released.  There
will be no offset or claim against Michael Gaffney related to the IC Losses (as
defined in that certain indemnity letter of even date herewith relating
thereto) and any such claim against such individual is hereby released.


 


15.           No Further Changes.  Except as expressly set forth in this Master
Agreement or the Amendment No. 2, no further changes shall be made to the
Notes, which shall remain in full force and effect.


 


16.           Counterparts. 
This Master Agreement may be executed in any number of counterparts,
each of which shall be enforceable, and all of which together shall constitute
one instrument.


 


[signature page follows]


 

















 


IN WITNESS
WHEREOF, the undersigned have executed this Master Agreement effective as of
the date first set forth above.


 


 


	
  EEC:

  	
  EMRISE ELECTRONICS
  CORPORATION, a New Jersey corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
   

  	
   

  	
  Carmine T. Oliva,

  
	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  COUSE:

  	
  /s/ Thomas P.M.
  Couse

  
	
   

  	
  THOMAS P. M. COUSE

  
	
   

  	
   

  
	
   

  	
   

  
	
  J. COUSE:

  	
  /s/ Joanne Couse

  
	
   

  	
  JOANNE COUSE

  
	
   

  	
   

  
	
   

  	
   

  
	
  GAFFNEY:

  	
  /s/ Michael Gaffney

  
	
   

  	
  MICHAEL GAFFNEY

  
	
   

  	
   

  
	
   

  	
   

  
	
  BRAND:

  	
  /s/ Charles S. Brand

  
	
   

  	
  CHARLES S. BRAND

  
	
   

  	
   

  
	
  PARENT:

  	
  EMRISE CORPORATION, a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
   

  	
   

  	
  Carmine T. Oliva,

  
	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
  SUBSIDIARIES

  	
  CXR LARUS CORPORATION,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
   

  	
  Name:

  	
  Carmine T. Oliva

  
	
   

  	
  Its:

  	
  Chief Executive Officer

  
					



 

















 


	
   

  	
  PASCALL ELECTRONICS
  LIMITED,

  
	
   

  	
  a United Kingdom
  company

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
   

  	
  Name:

  	
  Carmine T. Oliva

  
	
   

  	
  Its:

  	
  Director

  
	
   

  	
   

  
	
   

  	
  XCEL POWER SYSTEMS,
  LTD.,

  
	
   

  	
  a United Kingdom
  company

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
   

  	
  Name:

  	
  Carmine T. Oliva

  
	
   

  	
  Its:

  	
  Director

  
	
   

  	
   

  
	
   

  	
  CXR ANDERSON JACOBSON
  SAS,

  
	
   

  	
  a company formed under
  the laws of France

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carmine T. Oliva

  
	
   

  	
  Name:

  	
  Carmine T. Oliva

  
	
   

  	
  Its:

  	
  President