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June 25, 2009 EMRISE CORPORATIONPOLICY STATEMENT ONCORPORATE COMMUNICATIONS AND DISCLOSUREOverviewEMRISE Corporation (“EMRISE”) has publicly traded securities and, therefore, must comply with certain legal and regulatory requirements regarding the public disclosure of Material Information (as defined below). As a result, EMRISE’s Board of Directors (the “Board”) has adopted this Policy Statement on Corporate Communications and Disclosure (“Policy Statement”). The objectives of this Policy Statement are as follows: • to ensure that EMRISE has consistent standards and procedures for all of its Corporate Communications of both material and non-material information; and • to ensure that Corporate Communications of Material Information to the investing public about EMRISE, whether positive or negative, are: o full, fair, accurate, timely and understandable; o in compliance with applicable governmental laws, rules and regulations; and o broadly disseminated in a non-selective manner in accordance with all applicable legal and regulatory requirements. The provisions of this Policy Statement relating to public disclosure by EMRISE (“Corporate Communications”) cover, among other things: • documents filed with securities regulators; • written statements made in EMRISE’s annual and quarterly reports, news releases, letters to stockholders and any other public disclosure documents; • presentations by senior management of EMRISE; • information contained on EMRISE’s Web site and other electronic communications; • oral statements made in meetings and telephone conversations and other communications with analysts and investors; and • interviews with the media, speeches, press conferences and conference calls. Application of Policy Statement This Policy Statement applies to all directors, officers and employees of EMRISE and all of its subsidiaries and affiliates, and any other individual authorized to speak on EMRISE’s behalf. Directors, officers and employees must become familiar with this Policy Statement and its guidelines. If any director, officer or employee has any questions about how this Policy Statement should be followed in any particular case, they should contact EMRISE’s Chairman of the Audit Committee of the Board. Consequences of Non-Compliance with this Policy Statement Failure to comply with this Policy Statement may result in severe consequences, which could include civil and criminal penalties and internal disciplinary action or termination of employment. The violation of this Policy Statement may also violate legal or regulatory requirements. If this appears to have occurred, EMRISE may refer the matter to the appropriate authorities, which could lead to penalties, fines or imprisonment. Establishment of Corporate Communications and Disclosure Group In connection with the adoption of this Policy Statement, EMRISE has established a Corporate Communications and Disclosure Group (the “Disclosure Group”), which is responsible for overseeing EMRISE’s disclosure practices and procedures. The members of the Disclosure Group are: • the President and Chief Executive Officer; • the Principal Financial Officer; • the Chief Operating Officer; and • the Chairman of the Audit Committee. The responsibilities of the Disclosure Group are to: • promote awareness of this Policy Statement within EMRISE; • oversee, review and update this Policy Statement, as required, to ensure continuing compliance with changing legal and regulatory compliance; • review and authorize disclosure (whether electronic, written or oral) of Material Information in advance of its public release; • meet or communicate with other members of the Disclosure Group as required in order to meet the objectives of this Policy Statement; and • report to the Board annually. The Disclosure Group will make decisions on the disclosure of Material Information pursuant to legal and regulatory requirements, and will advise the Audit Committee of the Board with respect to disclosure issues relating to financial information that is within the mandate of the Audit Committee. If the Disclosure Group determines than any Material Information should remain confidential, the Disclosure Group will determine how the confidentiality of that Material Information will be maintained. EMRISE business units must keep the Disclosure Group fully apprised of all potential material developments by contacting the Principal Financial Officer who will make a preliminary assessment of whether the development is material. The Principal Financial Officer will then update the Disclosure Group as necessary. The Disclosure Group members will involve other group members and, if necessary, legal counsel, as required to permit the group to evaluate and discuss those developments and determine the materiality of those developments and the appropriateness and timing of any public release of information relating to those developments. Principles of Public Disclosure of Material Information All Material Information will be publicly disclosed by EMRISE, except in the limited circumstances permitted by this Policy Statement. EMRISE will not selectively disclose any Material Information, including any report that operating or earnings results will be materially below or above publicly held expectations, unless the information has been publicly disclosed by news release or other appropriate means, except in the limited circumstances permitted by this Policy Statement. Definition of “Material Information” “Material Information” is defined as a “material fact” or a “material change.” For the purposes of this Policy Statement: • a “material fact” is defined as a fact that significantly affects or would reasonably be expected to have a significant effect on the market price or value of EMRISE’s common stock; and • a “material change” is a change in the business, operations or capital of EMRISE that would reasonably be expected to have a significant effect on the market price or value of EMRISE’s common stock. Information about EMRISE is not likely to be material, however, if the public dissemination of that information would not have a significant impact on the market price or value of EMRISE’s common stock. As an example, information regarding product releases and orders would, in most instances, not likely be considered Material Information. Unless, after consultation with a member of the Disclosure Group, there is reason to believe otherwise, directors, officers and employees of EMRISE should assume that information regarding the following topics is “Material Information”: • financial results or projections; • sales figures or projections; • earnings figures or projections; • significant merger, acquisition, take-over bid, joint venture or change in assets; • borrowing or lending of a significant amount of funds or any significant mortgaging or encumbering of EMRISE’s assets; • significant change in capital investment plans or corporate objectives; • change in control of EMRISE; • significant development regarding a customer or a supplier (e.g., winning or losing a large contract); • change in senior management; • change in auditor or notification by the auditor that EMRISE may no longer rely on an auditor’s audit report; • significant lawsuit against EMRISE; and • events regarding EMRISE’s securities (e.g., decision by EMRISE to buy back its own securities, default on a security, call of securities for redemption, stock split, dividend decision, change in the terms of a security, public or private sale of additional securities). In determining whether certain information is material, a number of factors should be taken into account, including: • the nature of the information; • the volatility of EMRISE’s securities; and • the prevailing market conditions. Directors, officers and employees should not rely on their own individual judgment as to whether particular information is material. Whether particular information is material is a question of judgment. If a director, officer or employee of EMRISE needs to know whether particular information would be considered “Material Information,” the Principal Financial Officer should be consulted. Definition of “Non-Public” Material Information is “non-public” if it has not been disseminated in a manner making it available to investors generally. Directors, officers and employees of EMRISE should assume that any Material Information that has not been publicly disclosed pursuant to this Policy Statement for at least one full day of trading of EMRISE’s securities is still “non-public.” Any person who is uncertain as to whether particular information is “non-public” should contact a member of the Disclosure Group. Disclosure Principles Once the Disclosure Group has determined that a development constitutes Material Information, EMRISE will comply with the following principles of disclosure: • Material Information will be publicly disclosed promptly by news release to prevent selective, unauthorized disclosures prior to broad disclosure, except as set forth below. • If the Disclosure Group determines that public disclosure of Material Information would be premature (for example, if release of the information would prejudice negotiations in a major corporate transaction), the information will be kept confidential to the extent permitted by law, until the Disclosure Group determines that public disclosure is necessary or appropriate. In those circumstances, the Disclosure Group will cause, if necessary, a confidential material change report to be filed with the applicable securities regulators, and will periodically review its decision to keep the information confidential. During the period before such Material Information is publicly disclosed, market activities in EMRISE’s common stock should be monitored. • Disclosure must be complete, without any omissions that might make the rest of the disclosure misleading, and unfavorable Material Information will be disclosed as promptly and completely as favorable Material Information. • EMRISE will not make selective disclosures of Material Information. Previously undisclosed Material Information will not be disclosed to selected individuals (for example, as a result of telephone calls or inquiries from an analyst or a stockholder) unless the recipient agrees in writing to maintain the confidentiality of such Material Information. If previously undisclosed Material Information is inadvertently disclosed to an analyst or any other person not bound by an express confidentiality obligation follow the procedures set out below under the heading “Inadvertent Disclosure.” • Disclosure should be corrected as soon as reasonably practicable if EMRISE subsequently learns that an earlier disclosure contained a material error at the time it was given. • The Principal Financial Officer will monitor the media following the release of Material Information and, in the event of perceived inaccuracies in reporting, will consult with the Disclosure Group to determine if and what corrective steps will be taken. Definition of “Forward-Looking Information” “Forward-Looking Information” is information about prospective results of operations, financial position or changes in financial position, based on assumptions about future conditions and courses of action. If EMRISE elects to disclose Forwarding-Looking Information in continuous disclosure documents, speeches, conference calls, or otherwise, it will observe the following guidelines: • The Forward-Looking Information, if determined to be material, will be broadly disseminated by news release or other appropriate means, in accordance with this Policy Statement. • The information will be clearly identified as forward-looking. • EMRISE will identify material factors and assumptions used in the preparation of the Forward-Looking Information. • The Forward-Looking Information will be accompanied by a statement that identifies, in specific terms, risks and uncertainties that may cause the actual results to differ materially from those set out in the Forward-Looking Information. • The Forward-Looking Information will be accompanied by a statement that disclaims any intention or obligation of EMRISE to update or revise the Forward-Looking Information, whether as a result of new information, future events or otherwise. Notwithstanding this disclaimer, should subsequent events prove past statements about current events to be materially off target or to have materially changed, the Disclosure Group will consider whether this constitutes Material Information requiring public disclosure. Even if public disclosure is not required, EMRISE may still choose to issue a news release explaining the reasons for the difference and updating its guidance on the anticipated impact on revenue and earnings (or other key metrics). Managing Expectations EMRISE will try to ensure, through its regular public dissemination of quantitative and qualitative information, that analysts’ estimates are in line with EMRISE’s expectations. However, EMRISE will not confirm, or attempt to influence, an analyst’s opinions or conclusions and will not express comfort with analysts’ models and earning estimates. Insider Trading Restrictions No director, officer or employee of EMRISE may purchase or sell, exercise options to purchase or sell or tip someone else to purchase or sell or not to purchase or sell, securities of EMRISE with knowledge of Material Information relating to EMRISE that has not been publicly disclosed. EMRISE has established a “Policy on Insider Trading.” Directors, officers and employees of EMRISE must become familiar with and adhere to the restrictions contained in the Policy on Insider Trading. Maintaining Confidentiality All directors, officers and employees of EMRISE who know Material Information relating to EMRISE that has not been communicated to the public are prohibited from communicating (“tipping”) that information internally or externally to anyone else, unless it is necessary in the course of business. Communicating information when it is necessary in the course of business is the communication on a “need-to-know” basis of only that information which is necessary for the person communicating the information or the recipient to be able to perform his or her responsibilities at EMRISE. Communicating information on a “need-to-know” basis would generally cover communications with: • Vendors, suppliers or strategic partners on issues such as research and development, sales and marketing and supply contracts. • Directors, officers and employees of EMRISE. • Lenders, legal counsel, auditors, financial advisors and underwriters. • Parties to negotiations. • Industry associations. • Government agencies and non-governmental regulators. • Credit rating agencies (provided that the information is disclosed for the purpose of assisting the agency to formulate a credit rating and the credit rating is or will be publicly available). Communicating Material Information outside of these guidelines to family members, friends or other third parties constitutes “tipping” and can result in serious consequences for EMRISE as well as the persons communicating or receiving the information if the persons receiving the information subsequently trade in securities of EMRISE. Caution should be used when transmitting information by e-mail. Individuals using e-mail should be aware that communications by e-mail leave an electronic track of its passage that may be subject to later decryption attempts by third parties. If the information being transmitted is critically sensitive or confidential, consideration should be given to using a non-electronic means for the transmission. Outside parties privy to undisclosed Material Information relating to EMRISE must be advised that they must not divulge the information to anyone else, except on a need-to-know basis, and that they may not trade in securities of EMRISE until the information is publicly disclosed. An outside party may be required to enter into a written confidentiality agreement. A written confidentiality agreement will not normally be required from an outside party who owes a duty of trust or confidence to EMRISE because of a special relationship with EMRISE (such as a banker or attorney). In order to prevent the misuse or inadvertent disclosure of Material Information, the following procedures should be observed at all times: • Documents and files containing confidential information should be kept in a safe place to which access is restricted to individuals on a need-to-know basis. • Code names should be used, where appropriate. • Confidential matters should not be discussed in places where the discussion may be overheard, such as elevators, hallways, restaurants, airplanes or taxis. • Confidential documents should not be read or displayed in public places and should not be discarded where others can retrieve them. • Employees must ensure that they maintain the confidentiality of information in their possession outside of the office as well as inside the office. • Transmission of confidential documents by fax should be made only where it is reasonable to believe that the transmission can be made and received under secure conditions. • Unnecessary copying of confidential documents should be avoided and documents containing Confidential Information should be promptly removed from conference rooms and work areas after meetings have concluded. Extra copies of confidential documents should be shredded or otherwise destroyed. • Access to confidential electronic data should be restricted through the use of passwords, when appropriate. Corporation Communications and Authorized Spokespersons The following are the spokespersons (each, an “Authorized Spokesperson”) authorized to communicate on behalf of EMRISE with the investment community, investors, regulators and the media: • the Chairman of the Board; • the President and Chief Executive Officer; • the Principal Financial Officer; and • the Chief Operating Officer. No other persons, other than general managers of EMRISE who are authorized by EMRISE to speak at industry conferences regarding EMRISE’s product offerings, are authorized to communicate on behalf of EMRISE, unless specifically authorized in this Policy Statement or by the President and Chief Executive Officer. Corporate Disclosure of Material Information In order to ensure compliance with legal and regulatory requirements, the Disclosure Group and its members have the sole authority in respect of the Corporate Communication of Material Information that has not been publicly disclosed. Corporate Communication of Non-material Information Unless otherwise permitted in this Policy Statement, the Corporate Communication of non-material information can only be made by an Authorized Spokesperson. In this Policy Statement, “Corporate Communications” include any communication by or on behalf of EMRISE which is outside of the course of routine private business in a situation where the communication is intended to or has the potential to be disseminated to a wider audience. Corporate Communications covered by this Policy Statement may or may not constitute Material Information, but Corporate Communications are those communications that have the potential to cause controversy or significant publicity that may affect EMRISE’s corporate identity. Corporate Communications include documents filed with securities regulators, written statements made in EMRISE’s annual and quarterly reports, news releases, communications with and to stockholders, presentations by senior management, information contained on EMRISE’s Web site and other electronic communications, oral statements made in meetings and telephone conversations with analysts and stockholders, Forward-Looking Information, interviews with the media, speeches, press conferences, conference calls, appointment notices for EMRISE or its affiliates and advertisements. Corporate Communications should only provide information concerning EMRISE and its business and will not normally include information about specific stockholders of EMRISE . Stockholders, the Investment Community and the Media Directors, officers or employees who are not Authorized Spokespersons must not respond to inquiries from the investment community, the media or others, unless specifically asked to do so by an Authorized Spokesperson. These inquiries must be referred to the Chief Financial Officer. However, EMRISE’s general managers are authorized to speak at industry conferences regarding EMRISE’s product offerings. The Principal Financial Officer will coordinate all meetings and interviews with and presentations to (including electronic or telephonic ones) shareholders, the investment community, and the media. The Disclosure Group will approve the messages and materials for these events. If Material Information is to be disclosed, it will be released in accordance with this Policy Statement immediately before the meeting. Speaking Engagements in General Except with respect to presentations made by EMRISE’s general managers at industry conferences with respect to EMRISE’s product offerings, speaking engagements and presentations by employees of EMRISE on any matter which pertains to EMRISE and which may affect EMRISE’s corporate identity or its relations with the public, industry or government must be approved in advance. This approval is to be granted by either the President and Chief Executive Officer or the Chairman of the Board and, in each case, after approval has been given, the President and Chief Executive Officer or the Chairman of the Board, as the case may be, will advise all other members of the Disclosure Group of the taking of such action. Public Disclosure The principal method of publicly disclosing Material Information by EMRISE will be by news release. No news release disclosing Material Information may be issued by EMRISE unless it has been approved in advance by the Disclosure Committee and after consultation with EMRISE’s legal counsel. At the discretion of the Disclosure Committee, conference calls will be held to report on quarterly earnings and major corporate developments so that the information will be accessible simultaneously to all interested parties, some as participants by telephone and others in a listen-only mode by telephone or by a Web cast over the Internet. Conference calls will be preceded by a news release containing all Material Information. News Releases If NYSE Arca is open for trading at the time of the issuance of a news release announcing Material Information, prior notice of the news release must be provided to NYSE Arca to enable a trading halt, if deemed necessary by NYSE Arca. If a news release announcing Material Information is issued outside of trading hours, NYSE Arca must be notified before the market reopens. Annual and interim financial results will be publicly disclosed by news release as soon as possible following approval of the financial statements by EMRISE’s Board in the case of annual financial results and the Audit Committee of the Board in the case of quarterly financial results. Material Information will be publicly disclosed immediately by news release through a major news wire service, on EMRISE’s Web site and by mail, fax or e-mail to lists of interested parties which have requested such information. Conference Calls EMRISE will grant public access to conference calls, teleconference calls and simultaneous webcasts it organizes for analysts and security holders. The news release announcing an upcoming conference call will include: • the date and time of the conference call; • a general description of what is to be discussed; • the means of accessing the conference call; and • how long a replay of the conference call will be available on EMRISE’s Web site. Conference calls will normally be preceded by a meeting of EMRISE participants to review responses to anticipated questions and to identify information that may require public disclosure prior to the conference call. At the beginning of the call, a EMRISE spokesperson will provide appropriate cautionary language with respect to any Forward-Looking Information and direct participants to publicly available documents containing the assumptions and sensitivities and a discussion of the risks and uncertainties. A tape recording of the conference call or an archived audio Web cast on the Internet will be made following the call and maintained on the Web site for a minimum of 30 days, for anyone interested in listening to a replay. Any non-material supplemental information provided to participants will also be posted to EMRISE’s Web site for others to view. Senior management will hold a debriefing immediately after the conference call and, if the debriefing uncovers selective disclosure of previously undisclosed Material Information, the Disclosure Group will be notified and EMRISE will immediately disclose that Material Information in accordance with this Policy Statement. Industry Conferences This Policy Statement applies to any form of communication, such as a speech, roundtable discussion or an informal conversation, by any director, officer or employee of EMRISE made at any industry conference or similar event. In that regard, no such person can disclose Material Information unless such person has obtained the prior consent of the Disclosure Committee. To the extent any such person makes any disclosure of Material Information without the prior approval of the Disclosure Committee, such person shall advise the Disclosure Committee immediately of the dissemination of such Material Information. Communications with Analysts EMRISE recognizes that meetings with analysts and institutional investors are an important element of EMRISE’s investor relations program. EMRISE will meet with analysts and investors on an individual or small group basis, as needed, and will initiate contact with, or respond to, analysts and investors in a timely, consistent and accurate fashion in accordance with this Policy Statement. EMRISE will provide only factual non-material information at individual and group meetings, in addition to publicly disclosed information, recognizing that an analyst or institutional investor may construct this information into a mosaic that could result in Material Information. EMRISE will not alter the materiality of information by breaking down the information into smaller, non-material components. EMRISE spokespersons will endeavor to keep notes of meetings with analysts and investors where forward-looking information is discussed. Inadvertent Disclosure Detailed records or transcripts should be made of any conference call, investor conference presentation or meeting with an analyst. These should be reviewed after the event to determine whether any inadvertent selective disclosure has occurred. If a director, officer or employee of EMRISE becomes aware that there may have been an inadvertent disclosure of non-public Material Information relating to EMRISE, that person should immediately contact a member of the Disclosure Group. The Disclosure Group shall endeavour to obtain from the recipient(s) of the information an express written or oral agreement to keep this information confidential. Failing this, to the extent requested by the Disclosure Group, the director, officer or employee should assist in the development and implementation of a plan to make immediate public disclosure of the Material Information on a timely basis by news release or other appropriate means including the filing of a Form 8 K with the Securities and Exchange Commission in accordance with Regulation FD. This plan may also include contacting NYSE Arca and requesting that trading be halted pending public disclosure of the Material Information. Rumors EMRISE will not normally comment, affirmatively or negatively, on rumors. This Policy Statement also applies to rumors on the Internet. EMRISE’s Authorized Spokespersons will respond consistently to rumors, by stating, “It is our policy not to comment on market rumors or speculation.” Should NYSE Arca request that EMRISE make a definitive statement in response to a market rumor relating to EMRISE, an Authorized Spokesperson will respond to NYSE Arca. Analyst Research Reports At the time EMRISE becomes aware of a research report prepared by analysts, EMRISE will review such reports for internal use only and will not normally comment on those reports to any persons outside of EMRISE, except for the purpose of pointing out factual errors based on already publicly disclosed information. EMRISE will not post research reports by analysts on its Web site or include links to any investment firm’s or analyst’s Web sites or publications. EMRISE will not confirm, or attempt to influence, an analyst’s opinions or conclusions and will not express comfort with the analyst’s model or earnings estimates. In order to avoid appearing to endorse an analyst’s research report or model, EMRISE will provide its comments orally or will attach a disclaimer to written comments to indicate that the analyst’s report or model was reviewed only for factual accuracy based on publicly disclosed information. EMRISE may post on its Web site a complete list, regardless of the recommendation, of all of the investment firms and analysts who are known to EMRISE to provide research coverage on EMRISE. If provided, the list will not include links to the investment firm’s or analyst’s Web sites or publications. Disclosure Record EMRISE will maintain on its Web site certain public information about EMRISE. The documents to be maintained will include the following: • Annual Reports for the preceding five fiscal years. • Quarterly reports for the current and the immediately preceding fiscal year. • Form 8 Ks for the current and the immediately preceding fiscal year. • News releases for the current and the immediately preceding fiscal year. • Link to EMRISE’s Forms 3, 4 and 5 filings with the Securities and Exchange Commission. • EMRISE’s Code of Ethics and Corporate Conduct and any waivers of the Code of Ethics and Corporate Conduct. EMRISE Web Site The Chief Financial Officer is responsible for approving and monitoring all information placed on the Investor Information section of the Web site to ensure that it is accurate, complete, up-to-date and in compliance with legal and regulatory requirements. The Chief Operating Officer is responsible for updating the Investor Information section of EMRISE’s Web site. Any link from the EMRISE Web site to a third party Web site (other than a Web site maintained by a subsidiary of EMRISE) must be approved in advance by the Disclosure Group. Any link must include a notice that advises the reader that he or she is leaving EMRISE’s Web site and that EMRISE is not responsible for the contents of the third party Web site. Investor Information material will be contained within a separate section of EMRISE’s Web site and shall include a notice that advises the reader that the information posted was accurate at the time of posting, but may be superceded by subsequent disclosures. Disclosure on EMRISE’s Web site alone does not constitute adequate dissemination of non-public Material Information. Any disclosure of non-public Material Information on EMRISE’s Web site will be preceded by the issuance of a news release or dissemination by other appropriate means. Only public information or information which could otherwise be disclosed in accordance with this Policy Statement shall be utilized in responding to electronic inquiries. In order to ensure that no non-public Material Information is inadvertently disclosed, directors, officers and employees of EMRISE are prohibited from participating in Internet chat rooms or newsgroup discussions on matters pertaining to EMRISE’s activities or its securities. Any director, officer or employee of EMRISE who becomes aware of a discussion pertaining to EMRISE on the Internet should advise a member of the Disclosure Group as soon as possible. Non-Compliance Reporting Any violation of this Policy Statement should be promptly reported to any member of the Disclosure Group, or in extreme exceptional cases regarding financial disclosure, to the Chair of the Audit Committee. Assistance Any person who has any questions about this policy statement or about specific transactions may contact the Principal Financial Officer. Remember, however, that the ultimate responsibility for adhering to the policy statement and avoiding improper transactions rests with you. In this regard, it is imperative that you use your best judgment.
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