Exhibit 10.1
November 7, 2007
John Donovan
Vice President of Finance and Administration
Emrise Corporation
945 Haven Avenue, Suite 100
Rancho Cucamonga, CA 91730
Re: Commitment Letter concerning certain loan financing in the amount of
$23,000,000 by and between GVEC Resource IV Inc. and The Borrowers
(each as described herein)
Dear John:
1. Background. Reference is made to the fact that EMRISE CORPORATION and certain
of its subsidiaries (collectively the "Borrowers") each intends to obtain a
revolving credit facility and term loans (i) to finance recapitalization of
current outstanding debt, (ii) the consumption of acquisitions, and (iii) to
provide general working capital for its business.
In connection with the above, the Borrowers intend to obtain the following:
a) a revolving credit facility not to exceed seven million dollars
($7,000,000) (the "Revolving Loan");
b) a term loan in an outstanding principal amount of six million dollars
($6,000,000) (the "Term Loan A") which will be fully funded at the
close; and
c) an acquisition facility in the amount of ten million dollars
($10,000,000) (the "Term Loan B"), and collectively with the Revolving
Loan and Term Loan A (the "Financing").
- 1 -
In connection with the foregoing, the Borrowers intend to obtain the Financing
from GVEC Resource IV Inc., a business company, organized under the laws of the
British Virgin Islands (the "Lender") (which is a company doing business with
Private Equity Management Group, Inc. ("PEM Group")). The Financing will be
secured by a first priority broad lien on a security interest in, all the assets
of the Borrowers and their subsidiaries and the Financing will be subject to the
terms and conditions as set forth in Exhibit A, attached hereto (the "Summary of
Terms").
The transactions terms, conditions, and restrictions described above are
collectively referred to herein as the "Transaction."
2. Commitment. PEM Group is pleased to confirm that, subject to the provisions,
terms, and conditions set forth herein, unless otherwise stated, PEM Group
hereby commits to the Lender to provide the Financing to the Borrowers, upon the
terms specified herein and in the attached Summary of Terms.
3. Information Provided. The Borrowers represent and warrant that: (i) no
written information that has been or is hereafter furnished by the Borrowers or
on behalf of the Borrowers in connection with the transactions contemplated
hereby; and (ii) no other information given at information meetings with the
Borrowers and supplied or approved by the Borrowers (such written information
and other information being referred to herein collectively as the
"Information") contains (or, in the case of Information furnished after the date
hereof, will contain), any untrue statement or omission of material fact
necessary to make the statements therein not misleading, in the light of the
circumstances under which they were (or hereafter are) made; provided that, with
respect to Information consisting of statements, estimates and projections
regarding the future performance of the Borrowers and/or their respective
affiliates (collectively, the "Projections"), no representation or warranty is
made other than that the Projections have been (and, in the case of Projections
furnished after the date hereof, will be) prepared in good faith based on
assumptions believed to be reasonable at the time of preparation thereof (it
being understood that the Projections are subject to significant uncertainties
and contingencies, and that no assurance can be given that such Projections will
not change from time to time in the future. The Borrowers will promptly provide
to the
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Lender any material changes to any financial information previously provided to
the Lender.
4. Conditions Precedent. The Lender's commitments and agreements hereunder are
expressly made subject to the Conditions Precedent set forth in the Summary of
Terms attached hereto.
5. Fees. As consideration for the commitments and agreements of the Lender
hereunder, the Borrowers agree to cause to be paid the fees described, earned
and committed to be paid in accordance with the Summary of Terms. Without in any
manner limiting the foregoing, and to further induce the Lender to issue this
letter (together with the Summary of Terms, this "Commitment Letter") and to
proceed with the documentation of the proposed Financing, the Borrowers hereby
agree to reimburse PEM Group, the Lender and their affiliates on demand
therefore all out-of-pocket costs and expense (including, without limitation,
legal fees and expenses of counsel to PEM Group and the Lender, appraisal,
consulting and audit fees, and printing, reproduction, document delivery,
travel, communication and publicity costs) incurred in connection with the
negotiation, and finalization of the Financing, and the preparation, review,
negotiation, execution and/or delivery of the Summary of Terms, this Commitment
Letter, the Financing Documents, and the administration, amendment, modification
or waiver thereof (or any proposed amendment, modification or waiver), whether
or not the closing occurs or any financing documentation related to the
Financing is executed and delivered or any extensions of credit are made under
the Financing. The Borrowers further agree to indemnify and hold harmless PEM
Group and the Lender, and each other agent or co-agent (if any) with respect to
the Financing, and their respective affiliates and each director, officer,
employee, representative and agent thereof (each, an "indemnified person") from
and any or such indemnified person as a result of or arising out of or in any
way related to or resulting from the Summary of Terms, this Commitment Letter
and, upon demand, to pay and reimburse each indemnified person for any legal or
other out-of-pocket expense paid or incurred in connection with investigating,
defending or preparing to defend any such action, suit, proceeding (including
any inquiry or investigation) or claim (whether or not such indemnified person
is a party to any action or
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proceeding out of which any expenses arise). Neither PEM Group nor the Lender
nor any other indemnified person shall be responsible or liable to any person or
entity for (x) any determination made by it pursuant to this Commitment Letter,
(y) any damages arising from the use by others of information transmission
systems, or (z) any indirect, special, incidental, punitive or consequential
damages (including, without limitation, any loss of profits, business or
anticipated savings) which may be alleged as a result of this Commitment Letter
or the financing contemplated hereby.
6. Affiliated Parties. PEM Group and the Lender reserve the right to employ the
services of their respective affiliates in providing services contemplated by
this Commitment Letter and to allocate, in whole or in part, to their affiliates
certain fees payable hereunder in such manner as PEM Group and the Lender and
their affiliates may agree in their sole discretion. The Borrowers consent to
and agree that the PEM Group or the Lender may at any time and from time to time
assign all or any portion of its commitments hereunder to one or more of their
affiliates. The Borrowers further consent to and agree that (i) PEM Group and
the Lender may each share with any of their affiliates any information related
to the Transaction, the Borrowers (and their respective affiliates and
subsidiaries), or any of the matters contemplated hereby, and (ii) PEM Group and
the Lender or their affiliates may be providing debt financing, equity capital
or other services (including financial advisory services) to other companies in
respect of which the Borrowers (and their respective affiliates) may have
conflicting interests regarding the transactions described herein and otherwise.
7. Tax Consequences. The Borrowers hereby represent and acknowledge that none of
PEM Group, the Lender or any employees or agents of, or other persons affiliated
with PEM Group or the Lender have directly or indirectly made or provided any
statement (oral or written) to the Borrowers or to any of employees or agents of
the Borrowers, or other persons affiliated with or related to the Borrowers (or,
so far as the Borrowers are aware, to any other person), as to the potential tax
consequences of the Transaction.
8. Survival. The reimbursement, indemnification, jurisdiction and
confidentiality provisions contained herein shall survive any termination of
this Commitment Letter.
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9. Verification. In order to comply with the USA PATRIOT Act, PEM Group and the
Lender must each obtain, verify, and record information that sufficiently
identifies each entity (or individual) that enters into a business relationship
with PEM Group or the Lender. As a result, in addition to the various corporate
names and addresses of the Borrowers, PEM Group and the Lender will each be
entitled to obtain corporate tax identification numbers and certain other
information regarding the Borrowers. PEM Group and the Lender may also request
relevant corporate resolutions and other identifying documents.
10. No Assignment; Termination. This Commitment Letter (and any rights and
obligations hereunder of the Borrowers) shall not be assignable by the Borrowers
to any person or entity without the prior written consent of PEM Group and the
Lender (and any purported assignment without such consent shall be null and
void). This Commitment Letter is intended to be solely for the benefit of the
parties hereto and is not intended to confer any benefits upon, or create any
rights in favor of, any person or entity other than the parties hereto (and
indemnified persons) and may not be relied upon by any other person or entity.
This Commitment Letter is not intended to create a fiduciary relationship among
the parties hereto. Each of PEM Group's and the Lender's willingness, and
commitments, with respect to the Financing as set forth above will terminate on
December 7, 2007. (the "Commitment Termination Date") (other than with respect
to ongoing indemnities, confidentiality provisions and other provisions intended
to survive the termination hereof).
11. Miscellaneous. The following provisions shall be applicable to this
Commitment Letter:
(a) Reliance on Information. In undertaking this commitment,
PEM Group and the Lender are relying and will continue to rely, without
independent verification, thereof, on the accuracy of the information furnished
to it by the Borrowers, and the representations and warranties referenced
herein. PEM Group and the Lender may also rely on any publicly available
information issued or authorized to be issued by the Borrowers or any of its
subsidiaries or affiliates. PEM Group and the Lender have no obligation to
investigate, and have not undertaken any independent investigation of, any
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information or materials, public or otherwise, made available by the Borrowers
or any of their respective affiliates.
(b) Complete Agreement; Waivers and Other Changes to be in
Writing. This Commitment Letter supersedes all previous negotiations, agreements
and other understandings relating to the Financing. Please note, however, that
the terms and conditions to be set forth in the loan documents that will
evidence and govern the Financing are not limited to those set forth herein.
Those matters that are not covered or made clear herein are subject to the final
approval of PEM Group and the Lender. No alteration, waiver, amendment or
supplement of or to this Commitment Letter shall be binding or effective unless
the same is set forth in writing signed by a duly authorized representative of
each party hereto or thereto.
(c) Power, Authority and Binding Effect. Each of the parties
hereto represents and warrants to the other parties hereto that (i) it has all
requisite power and authority to enter into this Commitment Letter, and (ii)
this Commitment Letter has been duly and validly authorized by all necessary
corporate action on the part of such party, has been duly executed and delivered
by such party and constitutes a legally valid and binding agreement of such
party, enforceable against it in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights of
creditors generally.
(d) Time. Time shall be of the essence whenever and wherever a
date or period of time is prescribed or referred to in this Commitment Letter.
(e) Governing Law; Consent to Jurisdiction; Waiver of Jury
Trial. This Commitment Letter shall be governed by and construed in accordance
with the laws of the State of California.
THE BORROWER IRREVOCABLY WAIVE ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY
CLAIM, ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS COMMITMENT OR THE
TRANSACTIONS OR THE MATTERS CONTEMPLATED BY THIS COMMITMENT. EACH PARTY HEREBY
SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND CALIFORNIA
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COURTS LOCATED IN THE CITY OF LOS ANGELES IN CONNECTION WITH ANY DISPUTE RELATED
TO THIS COMMITMENT, THE TRANSACTIONS CONTEMPLATED BY THIS COMMITMENT OR ANY
MATTERS RELATED TO THIS COMMITMENT. IN THE EVENT OF LITIGATION, THIS LETTER MAY
BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
(f) No Rights or Liability. This Commitment Letter shall not
create, nor shall it be construed as creating, any rights enforceable by a
person or entity not a party hereto, except as provided in the indemnification
provisions.
(g) No Liability for Special or Punitive Damages. To the
fullest extent that a claim for punitive damages may lawfully be waived, no
party hereto shall ever be liable for any punitive damages on any claim (whether
founded in contract, tort, legal duty or any other theory of liability) arising
from or related in any manner to this Commitment Letter or the negotiation,
execution, administration, performance, breach, or enforcement of this
Commitment Letter or the instruments and agreements evidencing, governing or
relating to the Financing contemplated hereby or any amendment thereto or the
consummation of, or any failure to consummate, the Financing or any act,
omission, breach or wrongful conduct in any manner related thereto.
(h) Counterparts. This Commitment Letter may be executed in
one or more counterparts, each of which shall constitute an original, and all of
which together shall constitute one and the same agreement. Delivery of an
executed counterpart of this Commitment Letter by facsimile shall be effective
as delivery of a manually executed counterpart of this commitment Letter.
Please evidence your acceptance of the provisions of this Commitment Letter,
including, without limitation, the attached Summary of Terms, by (i) signing the
enclosed copy of this Commitment Letter; and (ii) returning the signed
Commitment Letter to the undersigned on or before 5:00 P.M. (Eastern Standard
Time) five (5) calendar days after the date of execution of this Commitment
Letter by the Lender, the time at which this Commitment Letter (if not so
accepted prior thereto) will expire.
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Very truly yours,
PRIVATE EQUITY MANAGEMENT
GROUP, INC.
By: By:
---------------------------- ----------------------------------
Robert J. Anderson Peter Paul Mendel
Chief Operating Officer Secretary and General Counsel
[ THE BORROWER' EXECUTED COUNTERPART ON FOLLOWING PAGE ]
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AGREED TO AND ACCEPTED ON BEHALF OF THE BORROWERS as of this _____ day of
November, 2007:
EMRISE CORPORATION
A Delaware Corporation
By:
---------------------------
Name:
-------------------------
Title:
-----------------------
One Park Plaza, Suite 550, Irvine, California 92614 Phone 949.757.0977
Fax 949.757.0978
www.pemgroup.com
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EXHIBIT A
SUMMARY OF TERMS
This Summary of Terms is part of the Commitment Letter, dated November 7, 2007
addressed to Emrise Corporation ("Emrise") that Private Equity Management Group,
Inc. ("PEM Group") will arrange to establish through an entity that will lend
(hereinafter referred to as the "Lender") a Financing Facility of $23,000,000
(the "Facility"). The Facility will provide capital for (i) the payment of
certain specified obligations, (ii) the making of certain specified
acquisitions, and (iii) general working capital requirements.
BORROWER: Emrise Corporation (the "Parent") and
- -------- certain of its domestic subsidiaries as
required by the Lender (collectively the
"Borrower").
GUARANTORS: Certain foreign subsidiaries of the Parent
- ---------- (the Borrower and the Guarantors
each a "Loan Party" and collectively the
"Loan Parties").
LENDER: GVEC Resource IV Inc.
- ------
FACILITY: A facility totaling not more than $23
- -------- million outstanding, consisting of a
revolving loan limited to $7 million (the
"Revolving Loan"). A Term Loan A for $6
million and a Term Loan B for $10 million.
Term Loan A shall be fully funded on the
Closing Date (as defined herein).
CLOSING DATE AND FUNDING: The first date on which definitive loan
- ----------------------- documentation satisfactory to the Lender is
executed by the Loan Parties and the
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Lender but no later than December 7, 2007.
The Revolving Loan will be limited to $7
million. The advance rate to the Borrower
shall not exceed eighty-five percent (85%)
of the Borrower's eligible accounts
receivable, up to fifty percent (50%) of the
finished goods inventory and up to ten
percent (10%) of the raw material inventory
as defined by the Lender. All accounts
receivable proceeds whether eligible
accounts receivable or not will float
through lock boxes established at commercial
banks of mutual agreement by the Lender and
the Borrower with regard to foreign accounts
and U.S. receivables.
Term Loan A shall be fully funded and paid
into an account specified by the Borrower on
the Closing Date subject to payment of the
commitment fee as provided below. Term Loan
B will be available for funding for up to
eighteen (18) months ("Availability Period")
after the Closing Date.
TERM: The Revolving Loan will have a term of a one
- ---- (1) year, Term Loan A will have a term of
three (3) years, and any portion of Term
Loan B that has been used prior to the
expiration of the Availability Period will
have a term of three (3) years following the
Closing Date (the "Maturity Dates"). The
Borrower may elect to require the Lender to
renew the Revolving Loan two (2) times, each
for a period of one (1) year, subject to
such specific conditions as outlined by the
Lender.
INTEREST: The Revolving Loan shall bear interest at
- -------- the rate per annum equal to one and one
quarter percent (1.25%) above the Reference
Rate adjusted on the 1st day of every month
following any change to the Reference Rate.
Term Loan A and Term Loan
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B shall bear interest at the rate per annum
equal to four and one quarter percent
(4.25%) above the Reference Rate from time
to time in effect, adjusted on the 1st day
of the month following any change to the
Reference Rate.
At no time shall the Reference Rate referred
to above be less than eight and one quarter
percent (8.25%). As used herein, "Reference
Rate" means at any time, the rate of
interest most recently published in the
"Money Rates" column of the Wall Street
Journal as the "Prime Rate." All interest
and fees shall be computed on the basis of a
year of 360 days for the actual days
elapsed. If any event of default shall occur
and be continuing, interest shall accrue at
a rate per annum equal to four percent (4%)
in excess of the rate of interest otherwise
in effect until such time as the default has
been cured.
TRANSACTION Borrower shall pay PEMG an advisory fee
- ----------- equal to three and three-quarters percent
ADVISORY FEE: (3.75%) of the Maximum Credit amount
- ------------ available under the Facility. The entire
advisory fee will be deemed earned upon
issuance and execution of the commitment
letter and payable at the earlier of the
close or expiration of said commitment.
UNUSED Borrower shall pay an unused line fee of one
- ----- half percent (0.5%) per annum, payable
LINE FEES: monthly, on the unused portion of the
- --------- Revolving Loan commitment and an unused
facility fee equal to one half of one
percent (0.5%) per annum, payable monthly,
on the unused portion of the Term Loan B
commitment.
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WARRANTS: Lender or an entity of Lender's choice shall
receive Warrants, to purchase the Borrower's
common stock, with a value equal to twenty
percent (20%) of the committed amounts of
Term Loan A and B. The Warrants shall be for
a term of seven (7) years and at a strike
price equal to $1.10 per share. By way of
example, assuming the total amount of the
Term Loan A and Term Loan B is equal to
$16,000,000, Borrower will issue a Warrants
to purchase 2,909,090 shares of Borrower's
common stock calculated as follows:
[($16,000,000 total term debt x 20%
coverage) / $1.10 strike price]. Lender
shall receive registration rights with
respect to the shares of common stock
underlying the Warrants and standard
minority investor rights, including but not
limited to anti-dilution rights and
piggy-back rights. The Warrants shall be
exercisable in cash. However, if after one
year from the date of closing there is no
effective registration statement registering
or no current prospectus available for, the
resale of the shares of common stock
underlying the Warrants by the Lender, then
the Warrants may also be exercised at such
time and thereafter by means of a "cashless
exercise."
USE OF PROCEEDS: The Loans under the Facility will be used
- --------------- for (i) the payment of certain specified
obligations consistent with the schedule of
the sources and uses of funds attached
hereto as Annex A, (ii) the making of
certain specified acquisitions, and (iii)
general working capital requirements
necessary to operate the business. The use
of proceeds for the Term Loan B shall be
approved by Lender, which approval shall not
be unreasonably withheld.
REPRESENTATIONS Usual representations and warranties,
- --------------- including, but not limited to, corporate
AND WARRANTIES: existence and good standing, authority to
- -------------- enter into
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loan documentation, governmental approvals,
non-violation of other agreements, financial
statements, litigation, compliance with
environmental, pension and other laws,
taxes, insurance, absence of material
adverse change.
COVENANTS: Usual covenants, including, but not limited
- --------- to, provision of financial statements,
notices of litigation, compliance with
pension, environmental and other laws,
inspection of properties, books and records,
maintenance of insurance, limitations with
respect to liens and encumbrances, dividends
and retirement of capital stock, guarantees,
sale and lease back transactions,
consolidations and mergers, investments,
capital expenditures, loans and advances,
indebtedness, operating leases, transactions
with affiliates, prepayment of other
indebtedness and amendments to material
agreements.
Financial covenants including maximum
leverage ratio, debt service coverage ratio,
minimum EBITDA and maximum capital
expenditures, which shall be reasonably
determined by the Lender and mutually agreed
to by Borrower.
Financial reporting to include: (i) annual
financial statements, (ii) quarterly,
internally prepared, financial statements,
and (v) other reporting as required by the
Lender.
EVENTS OF DEFAULT: Usual events of default with mutually
- ----------------- acceptable cure periods, including, but not
limited to, payment, cross-default,
violation of covenants, breach of
representations or warranties, bankruptcy or
insolvency, judgment, ERISA, environmental
and change of control.
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SYNDICATION RIGHTS: The Lender reserves the right to assign any
- ------------------ portion of the Facility to one or more of
its affiliated lenders or funds at any time.
The Lender reserves the right to syndicate,
sell or participate out any portion of the
Facility to a commercial bank, financial
institution or any other person provided
that the Lender's obligations under the loan
documents remain unchanged.
CONDITIONS The obligation of the Lender to make any
- ---------- Loans under the Facility will be subject to
PRECEDENT: customary conditions precedent including,
- --------- without limitation, the following initial
conditions precedent:
a) Execution and delivery of
appropriate legal documentation in
form and substance satisfactory to
and required by the Lender and its
counsel (including, without
limitation, the financing
agreement, the security and pledge
agreements, the mortgages and title
insurance policies, the guaranties
and the control agreements,
completion of background checks on
key managers and principals and
entities (the results of which are
satisfactory to the Lender) and the
satisfaction of the conditions
precedent by the Lender.
b) There shall have occurred no event
or condition which has had, or is
reasonably likely to have, a
material adverse change.
c) The Lender's completion of its
legal due diligence, including,
without limitation, all ERISA,
environmental, tax, accounting
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and labor matters, with results
satisfactory to the Lender; all
necessary governmental and third
party consents and approvals
necessary in connection with the
Facility and the transactions
contemplated thereby shall have
been obtained (without the
imposition of any conditions that
are not reasonably acceptable to
the Lender) and shall remain in
effect; and no law or regulation
shall be applicable in the
reasonable judgment of the Lender
that restrains, prevents or imposes
materially adverse conditions upon
the Facility or the transactions
contemplated thereby.
d) The Lender shall have been granted
a perfected, first priority lien on
all collateral, and shall have
received UCC, tax and judgment lien
searches and other appropriate
evidence (including title reports
and surveys relating to all owned
real property comprising
collateral), evidencing the absence
of any other liens on the
collateral, except existing liens
acceptable to the Lender. All of
the outstanding stock of the
Borrower's subsidiaries as well as
the proceeds and products of the
foregoing shall be pledged as part
of the collateral.
e) Opinions from the Loan Parties'
counsel as to such matters as the
Lender and counsel to the Lender
may reasonably request.
f) The Lender's loan origination costs
including, without limitation,
audit fees, attorneys' fees, search
fees, title fees, documentation and
filing fees, shall have been paid
by the Borrower. The Lender shall
have received such financial and
other information regarding the
Loan Parties as the Lender may
reasonably request.
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g) Subordination of the Yost and
McDermott notes.
h) The existing senior debt
obligations of the Borrower shall
be repaid at closing.
i) Such other conditions precedent as
set forth in the October 12, 2007
draft Credit Agreement circulated
among the Lender and the Borrower.
CONDITIONS Within thirty (30) days of the Closing Date,
- ---------- the Borrowers shall deliver to the Lender
SUBSEQUENT executed landlord waivers (for warehouses of
- ---------- the Borrowers), in form and substance
satisfactory to the Lender and its counsel.
PREPAYMENT PENALTIES: Prepayment penalties for the Facility is as
- ------------------- follows:
3% Year 1
2% Year 2
EXCLUSIVITY: None of the Loan Parties, its subsidiaries,
- ----------- the Borrower or their representatives shall
enter into discussions with any other person
regarding a competing debt transaction until
expiration of the commitment letter. If any
entity or person makes any inquiry,
proposal, offer, or contact with respect to
any transaction described above, the
Borrower will immediately notify Lender in
writing of such incident and all related
details.
GOVERNING LAW: All documentation in connection with the
- -------------- Facility shall be governed by the laws of
the State of California or as determined by
the Lender at their sole discretion.
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LENDERS LOAN DOCUMENTATION: Lender's loan documentation shall be
- -------------------------- consistent with the terms stated in this
Summary of Terms.
OUT-OF-POCKET All fees, including reasonable legal fees,
- ------------- costs and expenses of counsel to the Lender,
EXPENSES AND DEPOSIT: and all out-of-pocket expenses associated
- -------------------- with the transaction, are to be paid by the
Loan Parties whether or not the transaction
is consummated. Lender reserves the right to
request additional deposits from the
Borrower to cover the expenses detailed
above regardless of whether a transaction is
consummated or not.
ADVERTISEMENT OF Lender shall have the right to publish
- ---------------- tombstone advertisements containing
PARTICIPATION IN Borrower's logo and announcing its
- ---------------- participation in the financing of Borrower.
TRANSACTION Borrower has the right to approve the
- ----------- contents of any advertisements prior to
publication by Lender, which consent will
not be unreasonably withheld. In addition,
Borrower will include reference to Lender's
participation in any tombstones issued by
Borrower regarding the financing
transaction.
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