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EXHIBIT 10.32
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into as
of March 28, 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, Bank and Borrower have agreed to certain changes in the terms and
conditions set forth in the Credit Agreement and have agreed to amend the Credit
Agreement to reflect said changes;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. The first sentence of Section 1.1(a) is hereby amended by adding at
the end thereof, before the period, the following phrase: "and the working
capital requirements of two of Borrower's subsidiaries, RO Associates,
Incorporated and CXR Larus Corporation".
2. Section 1.1(b) is hereby amended and restated in its entirety to
read as follows:
"(b) INITIAL LIMITATION ON BORROWINGS: CONVERSION TO FORMULA LINE
OF CREDIT. If at any time aggregate outstanding borrowings under the Line
of Credit exceed Three Million Dollars ($3,000,000.00) (a "Conversion
Event"), the Line of Credit shall be immediately converted to a
formula-based Line of Credit as set forth herein. Immediately upon the
occurrence of a Conversion Event and continuing up to and including such
time as a Reconversion Event (as such term is defined in Section 1.1(c)
below), if any, occurs hereunder, outstanding borrowings under the Line of
Credit, to a maximum of the principal amount set 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") plus thirty
percent (30%) of the value of the Borrowing Base Parties' finished goods
inventory (exclusive of work in process and inventory which is obsolete,
unsaleable, damaged, consigned or offsite items), with value defined as
the lower of cost or market value. 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.
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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 sixty-one (61) days past due;
(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;
(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 (1) 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."
3. Section 1.1(c) is hereby amended and restated in its entirety to
read as follows:
"(c) RECONVERSION TO NON-FORMULA LINE OF CREDIT. If, following a
Conversion Event, aggregate outstanding borrowings under the Line of
Credit at any time are equal to or less than Three Million Dollars
($3,000,000.00) (a "Reconversion Event"), the Line of Credit shall be
reconverted immediately to a non-formula based Line of Credit until such
time as a Conversion Event, if any, shall occur hereunder."
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4. Section 1.4 is hereby amended by adding after the first paragraph
thereof the following new second paragraph:
"As security for all indebtedness of Borrower to Bank subject
hereto, Borrower shall cause each of RO Associates, Incorporated and CXR
Larus Corporation to grant to Bank security interests of first priority in
all of each of their accounts receivable and other rights to payment,
general intangibles, inventory and equipment."
5. Section 1.5. is hereby amended and restated in its entirety to read
as follows:
"SECTION 1.5. GUARANTIES. All indebtedness of Borrower to Bank shall
be guaranteed jointly and severally by CXR Larus Corporation (formerly
known as CXR Telcom Corporation) and EMRISE Electronics Corporation in the
principal amount of Nine Million Dollars ($9,000,000.00) each, as
evidenced by and subject to the terms of guaranties in form and substance
satisfactory to Bank."
6. Section 4.3.(a) is hereby amended and restated in its entirety to
read as follows:
"(a) not later than 120 days after and as of the end of each fiscal
year, a consolidated and consolidating audited copy of Borrower's 10K
report filed with the Securities Exchange Commission and financial
statements of Borrower, CXR Larus Corporation and EMRISE Electronics
Corporation, prepared by a certified public accountant acceptable to Bank,
to include a balance sheet, statements of income, retained earnings and
cash flow, together with all supporting schedules and footnotes;"
7. Section 4.9 is hereby amended by adding after the word "condition"
the phrase "on a consolidated basis".
8. Section 5.3 is hereby amended and restated in its entirety to read
as follows:
"SECTION 5.3. ACQUISITIONS. Acquire, or permit any of its
subsidiaries to acquire, all or substantially all of the assets, business,
stock, partnership interests or membership interests of any person or
entity, or acquire, or permit any of its subsidiaries to acquire, any
corporation, partnership, limited liability company or other entity
through a merger or consolidation in which the surviving entity is
Borrower or any such subsidiary, except for Permitted Acquisitions. As
used herein, a "Permitted Acquisition" means any such acquisition, merger
or consolidation which satisfies all of the following conditions, as
determined by Bank In its sole discretion:
(a) the purpose of such acquisition, merger or consolidation shall
be to acquire a business in a similar or related line of business to that
of Borrower or one of Borrower's subsidiaries;
(b) Bank shall have received from Borrower or such subsidiary of
Borrower such information regarding the terms and conditions of such
acquisition, merger or consolidation as it shall reasonably require;
(c) at the time of such acquisition, merger or consolidation, the
entity whose stock, assets or business shall be acquired by, merged into
or with, or consolidated with Borrower or such subsidiary of Borrower
shall be profitable and accretive to Borrower's or such subsidiary's
earnings;
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(d) Borrower shall provide to Bank a certification from one of
Borrower's senior financial officers, in form and substance satisfactory
to Bank, certifying that after giving effect to such acquisition, merger
or consolidation, no covenant of this Agreement shall be violated; and
(e) such acquisition, merger or consolidation shall comply with
all applicable laws."
9. 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.
10. 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.
EMRISE CORPORATION WELLS FARGO BANK
NATIONAL ASSOCIATION
By: /s/ Randolph D. Foote By: /s/ Matthew S. Thomson
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Randolph D. Foote, Matthew S. Thomson
Vice President Relationship Manager