Exhibit 10.1
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as
of September 1, 2006, by and between EMRISE CORPORATION, a Delaware corporation
("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and
conditions of that certain Credit Agreement between Borrower and Bank dated as
of September 1, 2005, as amended from time to time ("Credit Agreement");
WHEREAS, as evidenced by Borrower's financial statements for the quarter
ending June 30, 2006, Borrower has violated Section 4.9(d) and Section 4.9(e)
of the Credit Agreement (the "Existing Violations");
WHEREAS, the Line of Credit matures September 1, 2006;
WHEREAS, Borrower has requested a short-term extension of the maturity
date of the Line of Credit during which time Borrower intends to seek
alternative financing;
WHEREAS, Borrower has requested that Bank waive the Existing Violations;
WHEREAS, Bank is willing to waive the Existing Violations and grant
Borrower a short-term extension of the Line of Credit, subject to the terms and
conditions set forth herein;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree that the Credit
Agreement shall be amended as follows:
1. Section 1.1. is hereby amended and restated in its entirety, to read
as follows:
"SECTION 1.1. LINE OF CREDIT.
(a) LINE OF CREDIT. Subject to the terms and conditions of
this Agreement, Bank hereby agrees to make advances to Borrower from
time to time up to and including October 1, 2006, not to exceed at
any time the aggregate principal amount of One Million Five Hundred
Thousand Dollars ($1,500,000.00) ("Line of Credit"), the proceeds of
which shall be used to finance Borrower's working capital
requirements and the working capital requirements of two of
Borrower's subsidiaries, RO Associates, Incorporated and CXR Larus
Corporation. Borrower's obligation to repay advances under the Line
of Credit shall be evidenced by a promissory note dated as of
September 1, 2006 ("Line of Credit Note"), all terms of which are
incorporated herein by this reference.
(b) LIMITATION ON BORROWINGS. Outstanding borrowings under
the Line of Credit, to a maximum of the principal amount set
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forth above, shall not at any time exceed an aggregate of eighty
percent (80%) of the eligible accounts receivable of Borrower, RO
Associates, Incorporated and CXR Larus Corporation (collectively,
the "Borrowing Base Parties"). All of the foregoing shall be
determined by Bank upon receipt and review of all collateral reports
required hereunder and such other documents and collateral
information as Bank may from time to time require. Borrower
acknowledges that said borrowing base was established by Bank with
the understanding that, among other items, the aggregate of all
returns, rebates, discounts, credits and allowances for the
immediately preceding three (3) months at all times shall be less
than five percent (5%) of the Borrowing Base Parties' gross sales
for said period. If such dilution of the Borrowing Base
Parties' accounts for the immediately preceding three (3) months at
any time exceeds five percent (5%) of the Borrowing Base Parties'
gross sales for said period, or if there at any time exists any
other matters, events, conditions or contingencies which Bank
reasonably believes may affect payment of any portion of any of the
Borrowing Base Parties' accounts, Bank, in its sole discretion, may
reduce the foregoing advance rate against eligible accounts
receivable to a percentage appropriate to reflect such additional
dilution and/or establish additional reserves against the Borrowing
Base Parties' eligible accounts receivable.
As used herein, "eligible accounts receivable" shall consist
solely of trade accounts created in the ordinary course of a
Borrowing Base Party's business, upon which such Borrowing Base
Party's right to receive payment is absolute and not contingent upon
the fulfillment of any condition whatsoever, and in which Bank has a
perfected security interest of first priority, and shall not
include:
(i) any account which is more than ninety-one (91) days past the
date of invoice;
(ii) that portion of any account for which there exists any right
of setoff, defense or discount (except regular discounts allowed in
the ordinary course of business to promote prompt payment) or for
which any defense or counterclaim has been asserted;
(iii) any account which represents an obligation of any state or
municipal government or of the United States government or any
political subdivision thereof (except accounts which represent
obligations of the United States government and for which the
assignment provisions of the Federal Assignment of Claims Act, as
amended or recodified from time to time, have been complied with to
Bank's satisfaction);
(iv) any account which represents an obligation of an account
debtor located in a foreign country;
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(v) any account which arises from the sale or lease to or
performance of services for, or represents an obligation of, an
employee, affiliate, partner, member, parent or subsidiary of a
Borrowing Base Party;
(vi) that portion of any account, which represents interim or
progress billings or retention rights on the part of the account
debtor:
(vii) any account which represents an obligation of any account
debtor when twenty percent (20%) or more of a Borrowing Base Party's
accounts from such account debtor are not eligible pursuant to (i)
above;
(viii) that portion of any account from an account debtor which
represents the amount by which a Borrowing Base Party's total
accounts from said account debtor exceeds twenty-five percent (25%)
of such Borrowing Base Party's total accounts;
(ix) any account deemed ineligible by Bank when Bank, in its
sole discretion, deems the creditworthiness or financial condition
of the account debtor, or the industry in which the account debtor
is engaged, to be unsatisfactory.
(c) BORROWING AND REPAYMENT. Borrower may from time to time
during the term of the Line of Credit borrow, partially or wholly
repay its outstanding borrowings, and reborrow, subject to all of
the limitations, terms and conditions contained herein or in the
Line of Credit Note; provided however, that the total outstanding
borrowings under the Line of Credit shall not at any time exceed the
maximum principal amount available thereunder, as set forth above."
2. Section 1.5, is hereby deleted in its entirety, and the following
substituted therefor:
"SECTION 1.5. GUARANTIES. The payment and performance of
all indebtedness and other obligations of Borrower to Bank shall be
guaranteed jointly and severally by CXR Larus Corporation and Emrise
Electronics Corporation in the principal amount of One Million Five
Hundred Thousand Dollars ($1,500,000.00) each, as evidenced by and
subject to the terms of guaranties in form and substance
satisfactory to Bank."
3. Section 4.3(d) is hereby amended and restated in its entirety, to
read as follows:
"(d) not later than 10 days after and as of the end of each
month, a borrowing base certificate, an aged listing of accounts
receivable and accounts payable, and a reconciliation of accounts,
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and not later than 10 days after Bank's written request, a list of
the names and addresses of all Borrower's account debtors;"
4. Bank hereby waives the Existing Violations. Such waiver by Bank
shall not be deemed an agreement by Bank to waive any other violation which may
occur under the Credit Agreement or the other Loan Documents, including without
limitation a subsequent violation of the provisions which are the subject of the
Existing Violations.
5. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
6. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein. Borrower
further certifies that as of the date of this Amendment there exists no Event of
Default as defined in the Credit Agreement, nor any condition, act or event
which with the giving of notice or the passage of time or both would constitute
any such Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
WELLS FARGO BANK,
EMRISE CORPORATION NATIONAL ASSOCIATION
By: /s/ Carmine T. Oliva By: /s/ Matthew S. Thomson
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Carmine T. Oliva Matthew S. Thomson
CFO and Secretary Vice President
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