<PAGE>
Exhibit 10.1
FORBEARANCE AGREEMENT AND SECOND AMENDMENT
TO CREDIT AND SECURITY AGREEMENT
THIS FORBEARANCE AGREEMENT AND SECOND AMENDMENT TO CREDIT AND
SECURITY
AGREEMENT (the "AMENDMENT"), dated October 5, 2007, is entered into
by and among
Emrise Corporation, a Delaware corporation, Emrise Electronics
Corporation, a
New Jersey corporation, RO Associates Incorporated, a California
corporation,
CXR Larus Corporation, a Delaware corporation (each individually, a
"BORROWER,"
and collectively, the "BORROWERS"), and WELLS FARGO BANK, NATIONAL
ASSOCIATION
(the "LENDER"), acting through its Wells Fargo Business Credit
operating
division.
RECITALS
A. The Borrowers and the Lender are parties to a Credit and
Security
Agreement dated as of December 1, 2006 (as amended by that certain
First
Amendment to Credit and Security Agreement and Waiver of Defaults,
dated August
13, 2007, and as further amended from time to time, the "CREDIT
AGREEMENT").
Capitalized terms used in these recitals have the meanings given to
them in the
Credit Agreement unless otherwise specified.
B. As of the date hereof, the following Events of Default have
occurred
and are continuing under the Credit Agreement (the "DESIGNATED
EVENTS OF
DEFAULT"): (i) the Borrowers failed to satisfy the minimum Book Net
Worth
requirement set forth in Section 6.2(a) of the Credit Agreement as
of July 31,
2007, as the Borrowers' actual Book Net Worth was $22,811,000
versus the minimum
requirement of $23,000,000; and (ii) the Borrowers failed to
satisfy the minimum
Net Income requirement set forth in Section 6.2(b) of the Credit
Agreement for
the January 1, 2007 through July 31, 2007 period, as the Borrowers'
actual Net
Income for such period was [$1,778,000]; versus the minimum
requirement of
[$1,430,000];. As a result of the Designated Events of Default, the
Lender
is entitled to exercise the Lender's rights and remedies under the
Loan
Documents and otherwise.
C. The Borrowers have requested that the Lender (i) forbear
from
exercising any rights or remedies based on the Designated Events of
Default for
the period of time set forth in this Amendment, and (ii) amend
certain
provisions of the Loan Documents as set forth in this Amendment.
The Lender has
agreed to forbear for the period hereinafter specified in this
Amendment and
amend the Loan Documents, subject in each case to the terms and
conditions of
this Amendment.
NOW, THEREFORE, in consideration of the premises and of the
mutual
covenants and agreements herein contained, it is agreed as
follows:
1
<PAGE>
1. TEMPORARY FORBEARANCE. Subject to the satisfaction of the terms
and
conditions set forth herein, until that date (the "FORBEARANCE
TERMINATION
DATE") which is the earliest to occur of (a) 5:00 p.m. on December
31, 2007, (b)
the date of the occurrence of any Event of Default (other than (i)
the
Designated Events of Default, or (ii) any breaches of Sections
6.2(a), 6.2(b),
or 6.2(c) of the Credit Agreement that occur on or after August 31,
2007, and
before December 31, 2007 (the "FORBEARANCE PERIOD FINANCIAL
COVENANT
DEFAULTS")), or (c) the date of the occurrence of any breach of any
term or
provisions of this Amendment, the Lender will not exercise or
enforce its rights
or remedies against the Borrowers which the Lender would be
entitled to exercise
or enforce under the terms of the Loan Documents by reason of the
occurrence of
the Designated Events of Default; PROVIDED that such forbearance
shall not act
as a waiver of the Lender's right to enforce (x) any other claims,
rights or
remedies at any time, and (y) all claims, rights, and remedies from
time to time
on or after the Forbearance Termination Date. Furthermore, nothing
contained
herein shall be construed as requiring the Lender to extend the
Forbearance
Termination Date. The Borrowers acknowledge and agree that the
Lender has not
waived, and by entering into this Amendment the Lender is not
waiving, the
Designated Events of Default or any Forbearance Period Financial
Covenant
Defaults that may occur on or prior to December 31, 2007.
2. REVOLVING FACILITY PRIOR TO FORBEARANCE TERMINATION DATE. Prior
to the
Forbearance Termination Date (and provided that there exists no
Default or Event
of Default under the Loan Documents other than the Designated
Events of Default
or the Forbearance Period Financial Covenant Defaults), the Lender
shall
continue to administer the revolving credit facility described in
Section 2.1 of
the Credit Agreement (the "REVOLVING FACILITY") and permit
Revolving Advances
and repayments thereunder in the same manner and in accordance with
the same
terms as those governing the Loan Documents applicable thereto
(including, but
not limited to, satisfaction of all conditions precedent in Article
IV of the
Credit Agreement). It is expressly acknowledged and agreed by the
Borrowers that
any election by the Lender to continue administering the Revolving
Facility as
provided for hereby from the date of this Amendment and ending on
the
Forbearance Termination Date shall not in any manner be deemed to
prejudice the
Lender or act as a waiver of its otherwise applicable rights and
remedies,
including, without limitation, to collect and enforce the full
amount of the
Indebtedness from and after the Forbearance Termination Date.
3. FINANCIAL COVENANTS DURING THE FORBEARANCE PERIOD. Commencing
August 31,
2007, and continuing through (and including) December 31, 2007, the
Borrowers
shall comply with the following financial covenants (collectively,
the
"FINANCIAL TESTS"):
3.1 MINIMUM BOOK NET WORTH. The Borrowers, on a consolidated
basis,
shall maintain, during each month, their Book Net Worth, determined
as of the
end of each calendar month, commencing August 31, 2007 and
continuing each
calendar month thereafter, in an amount not less than $22,500,000.
The
Borrowers' Book Net Worth calculation shall be adjusted by the
Lender to
eliminate any foreign currency translation adjustments; and
2
<PAGE>
3.2 MINIMUM NET INCOME. The Borrowers shall achieve, for the
quarter
ending December 31, 2007, Net Income of not less than $125,000. The
Borrowers'
Net Income calculation shall be adjusted by the Lender to eliminate
any foreign
currency translation adjustments.
With respect to each of the foregoing Financial Tests, the
Borrowers
shall provide the Lender, no later than thirty (30) days after the
end of each
calendar month (or no later than October 15, 2007 with respect to
the month
ending August 31, 2007), with a compliance certificate, prepared
and signed by
the Borrowers' chief financial officer (or such other Person
satisfactory to the
Lender) and in form and substance acceptable to the Lender, setting
forth the
calculations for each of the foregoing Financial Tests. Failure to
timely
deliver a duly completed and signed compliance certificate in
accordance with
the foregoing shall constitute an Event of Default under the Loan
Documents.
4. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby
amended as
follows, and such amendments shall continue in effect beyond the
Forbearance
Termination Date:
4.1 DEFINITION OF "BORROWING BASE". The definition of "Borrowing
Base"
that appears in Section 1.1 of the Credit Agreement is amended to
read in its
entirety as follows:
"Borrowing Base" means at any time the lesser of:
(a) The Maximum Line Amount; or
(b) Subject to change from time to time in the Lender's sole
discretion, the sum of (without duplication):
(i) The product of the Accounts Advance Rate times Eligible
Accounts, plus
(ii) Without duplication of the immediately preceding clause
(i), during the Foreign Accounts Eligibility Period, the least of
(A)
the product of the Accounts Advance Rate times Eligible Foreign
Accounts, (B) the FREP Subline Amount, or (C) an amount equal to
ten
percent (10%) of the aggregate of all Eligible Accounts plus
all
Eligible Foreign Accounts, plus
(iii) The lesser of: (A) the product of the Inventory Advance
Rate times Eligible Inventory, or (B) $1,000,000, plus
(iv) The
lesser of: (A) the product of the Insured Inventory
Advance Rate times Eligible Insured Inventory, or (B) $300,000,
less
3
<PAGE>
(v) The Borrowing Base Reserve, less
(vi) Indebtedness that the Borrowers owe to the Lender that
has not yet been advanced on the Revolving Note and the dollar
amount
that the Lender in its reasonable discretion then determines to be
a
reasonable determination of the Borrowers' credit exposure with
respect
to any swap, derivative, foreign exchange, hedge, deposit,
treasury
management or other similar transaction or arrangement offered
to
Borrowers by Lender that is not described in Article II of this
Agreement, less
(vii) The outstanding principal balance of the Term Note.
Inventory that is eligible for inclusion under clause (iv) above
shall
not be also included in clause (iii) above for purposes of
calculating
the Borrowing Base."
4.2 DEFINITION OF "ELIGIBLE INSURED INVENTORY". The following
new
definition of "Eligible Insured Inventory" shall be added to
Section 1.1 of the
Credit Agreement in the appropriate alphabetical order:
"Eligible Insured Inventory" means Inventory of the Borrowers
consisting of either work-in-process or finished goods
