EXHIBIT 10.1
CITY NATIONAL BANK
October 05, 2006
Mr. Carmine Oliva, President and CEO
EMRISE Corporation
9485 Haven Avenue Suite 100
Rancho Cucamonga, CA 91730
Dear Carmine:
We are pleased to advise you that City National Bank ("CNB") has approved the
following credit accommodations ("Facilities") on a conditional basis as
described below. This commitment letter is neither meant to be, nor shall it be
construed as, an attempt to define all of the terms and conditions involved in
this financing. Rather, it is intended only to outline certain of the basic
points of our understanding around which the final terms and documentation are
to be structured. CNB has not determined the entire range of provisions that
may be required in the final loan documentation, and therefore, further
negotiations adding to or modifying the general scope of these basic terms shall
not be precluded by the issuance of this commitment letter and its acceptance by
Borrower. Please also be advised that the borrower/guarantor structure is
subject to change pending CNB's Legal review of the corporate hierarchy. CNB's
commitment to make the credit facilities available is subject to the execution
of a definitive loan agreement and other documentation acceptable to CNB and its
counsel.
The general terms and conditions of this commitment letter and around which the
Facilities shall be structured are as set forth below.
FACILITY 1 WORKING CAPITAL LINE OF CREDIT
- ---------- ------------------------------
Borrower: EMRISE Corporation (and its U. S. Subsidiaries)
Amount: $5,000,000
Purpose: 2 year revolving asset based line of credit for
working capital purposes.
Pricing: Floating rate option at CNB Prime + 0%; or Fixed
Rate Option of LIBOR + 2.50%, with terms of 1, 2, or
3 months and minimum increments of $500,000.
Indicative rates as of 10/05/06 are as follows:
CNB Prime: 8.25%
One month LIBOR (rounded to the next 1/16th):
5.375% + 2.50% = 7.875% all-in rate (also)
3 month LIBOR (rounded to the next 1/16th):
5.3750% + 2:50% = 7.875% all-in rate
EMRISE Corporation.
ABL Commitment Letter
October 5, 2006
Page 2
Maturity: June 6, 2008
Borrowing Base: Up to 85% of Eligible Account Receivables. For
dilution greater than 1%, advance rate shall be
adjusted down by 1% for every 1% or fraction thereof
of dilution. Dilution to be calculated monthly based
on a three month rolling average. Borrowing formula
will also include up to 30% of Eligible Raw Materials
and Finished Goods Inventory. Inventory not to
exceed 50% of outstanding principal loan balance.
Accounts Receivable concentrations of up to 25% may
be approved subject to results of ABL collateral
examination. Advance rates and eligibility subject to
be determined by City National Bank based on
satisfactory results from a collateral examination
performed on the books and records of the Borrower.
Special Features: $5MM Asset Based Revolver will convert to a $5MM
"Springing" Asset Based Credit facility with advances
up to $2,000,000 to be available without a borrowing
base certificate, upon the company meeting each of
the following specific terms and benchmarks:
o CPA Audited re-stated year end
financial statements for the fiscal
years ending 12/31/04 and 12/31/05
o CPA Audited statements for the
fiscal years ending 12/31/06
reflecting a loss of no greater
than $100,000.
o Compliance with required CNB
financial loan covenants as of FYE
12/31/06 and thereafter
Payment Terms: Interest payable monthly; Principal due at maturity.
Collateral: A security interest of first priority on all U. S.
domestic corporate assets.
Guarantor: TBD
Subordination
Of Debt: All obligations of Borrower to overseas affiliates
shall be subordinated in right of repayment to all
obligations of Borrower to CNB, as evidenced by and
subject to the terms of subordination agreements in
form and substance satisfactory to CNB.
Cross Default: The $5,000,000 working capital line of credit, the
CNB $62,000 equipment leasing facility, and any other
indebtedness to be cross-defaulted.
EMRISE Corporation.
ABL Commitment Letter
October 5, 2006
Page 3
General Loan Conditions:
- ------------------------
o Following the activation of the springing ABL feature of the
line of credit, an advance request which results in line of
credit outstandings which exceed the $2MM formula threshold
must be proceeded by the submission of a borrowing base
certificate to CNB no less than two days prior to the
requested advance. Such certificate must be compared to the
availability calculation which is prepared by CNB as of the
end of each month.
o Subject to an ABL collateral examination (and satisfactory
review by CNB) of the books and records of the Borrower. Cost
of the collateral examination to be paid by Borrower.
o Deposit of $5,000.00 to be applied to cost of ABL examination.
o CNB must approve all acquisitions.
o Existing $62M lease facility to be reserved against line of
credit commitment.
o Standard loan documentation to include representations and
warranties, events of default and miscellaneous provisions
such as are customary in CNB's documentation of facilities and
financings of this type.
o All costs associated with perfecting the lien on and security
interest in the collateral (i.e., UCC filing) to be paid by
Borrower.
o Loan documentation to be satisfactory to CNB and its legal
counsel and to contain mutually agreeable covenants and
conditions.
o CNB ABL collateral examinations required semi-annually and
will include at least one comprehensive examination per year.
o A package of terms and conditions to be determined and
mutually agreed to between Borrower and CNB, including but not
limited to, the following financial covenants:
a) MINIMUM FIXED CHARGE COVERAGE RATIO
-----------------------------------
of 1.25:1 calculated on a rolling four quarter basis
beginning 4Qtr07 as follows: ([Net Profit after tax
plus Depreciation and Amortization and Interest
Expense) minus (non-financed Capital Expenditures
plus Dividends)] divided by [Current Portion of Long
Term Debt plus Interest Expense]) of (Requirement
TBD) at all times. This covenant shall be tested on a
Consolidated Basis; Covenant shall also be tested on
a Combined Basis limited to U. S. domestic
subsidiaries. For purposes of testing covenant
compliance 4Qtr06 through 3Qtr07, Company shall
adjust calculation(s) for non recurring legal and
accounting fees incurred in connection with forensic
audit and restatement and
b) MAXIMUM BALANCE SHEET LEVERAGE RATIO
------------------------------------
(Total Liabilities divided by Tangible Net Worth) of
2.00:1.00 at all times. This covenant shall be tested
on a Consolidated Basis; and
c) MINIMUM TANGIBLE NET WORTH
--------------------------
of ($11,125,000). This covenant shall be tested on a
Consolidated Basis; and
d) MINIMUM CURRENT RATIO
---------------------
of 1.50:1.00. This covenant shall be tested on a
Consolidated Basis; and
e) PROFITABILITY COVENANT:
-----------------------
No two consecutive quarterly losses; This covenant
shall be tested on a consolidated basis and tested on
the combined performance of U. S. Subsidiaries.
EMRISE Corporation.
ABL Commitment Letter
October 5, 2006
Page 4
Financial Reporting Requirements:
o MONTHLY: within 15 days from the end of each month, Borrower
-------- shall submit:
i. Monthly Borrowing Base Certification within 15 days
of month end for U. S. Subsidiaries except that
company shall not be required to submit a 'monthly
borrowing base certificate to support advances made
consistent with the conditions and under the
provisions of the non formula $2MM component of the
line of credit.
ii. Monthly electronic submission of accounts receivable
and payable agings, and inventory status reports for
U. S. Subsidiaries.
o QUARTERLY: within 45 days from the end of each quarter,
---------- Borrower shall submit:
i. Company prepared financial statements on Consolidated
and Consolidating basis.
o ANNUALLY: within 120 days from each fiscal year-end, Borrower
--------- shall submit:
i. CPA Audited financial statements
FEES AND EXPENSES: Whether or not loan documentation is agreed to and
- ------------------ whether or not any loan hereunder or thereunder is
made, Borrower will pay all of CNB's expenses
incurred in connection with the negotiation and
documentation of these Facilities and the
preparation, administration and enforcement of this
Commitment Letter, the loan documents and these
Facilities (including all fees, expenses and
allocated expenses of CNB's in-house or outside
counsel).
FURTHER ASSURANCES: Immediately following any request by CNB, Borrower
- ------------------- shall provide to CNB such further documents,
instruments, opinions and assurances as may be
requested from time to time by CNB in connection with
the Facility.
CNB reserves the right in its sole discretion to cancel its commitment to make
these Facilities available and to terminate its obligations hereunder (a) upon
the occurrence of any material adverse change in the financial condition of
Borrower or any guarantor, including, without limitation, Borrower's default on
any other obligation Borrower may have to CNB unrelated to this Commitment
Letter; or (b) in the event that loan documentation for the Facilities is not
executed by Borrower and CNB within a reasonable period of time.
This Commitment Letter is provided to you solely for the purpose described
herein and may not be disclosed to or relied upon by any other party without
EMRISE Corporation.
ABL Commitment Letter
October 5, 2006
Page 5
CNB's prior written consent. Kindly indicate your acceptance of this commitment
by signing the enclosed copy of this letter and returning it to us prior to
3:00 p.m. on October 16, 2006. Unless prior to such time we have received such
copy executed by Borrower, this commitment shall expire without further notice.
Sincerely,
City National Bank, a National
Banking Association
By: /S/ BILL NIETACHMANN
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Bill Nietachmann, Senior Vice President
Accepted and agreed this 11th day of October 2006.
EMRISE Corporation
BY: /S/ CARMINE T. OLIVIA
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TITLE: Chairman, President & CEO
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