SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) NOVEMBER 24, 2006
EMRISE CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 77-0226211
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(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
001-10346
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(Commission File Number)
9485 HAVEN AVENUE, SUITE 100
RANCHO CUCAMONGA, CALIFORNIA 91730
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (909( 987-9220
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (SEE General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
CREDIT AND SECURITY AGREEMENT
On December 1, 2006, EMRISE Corporation (the "Company") and its
subsidiaries, EMRISE Electronics Corporation, CXR Larus Corporation, RO
Associates Incorporated (collectively, the "Borrowers"), entered into a Credit
and Security Agreement with Wells Fargo Bank, N.A. acting through its Wells
Fargo Business Credit operating division ("WFBC") providing for a revolving line
of credit and term loan.
The credit facility with WFBC provides for a $5.0 million revolving
line of credit that expires on December 1, 2009. If WFBC terminates the credit
facility during a default period, or if the Company terminates or reduces the
credit facility prior to the maturity date, or if the Company prepays the term
loan portion of the facility, the Company will be subject to penalties as
follows: if the termination or prepayment occurs during the one year period
after the initial funding date, the penalty is equal to 3% of the maximum line
amount and/or prepayment amount; if the termination or prepayment occurs during
second year after the initial funding date, the penalty is equal to 2% of the
maximum line amount and/or prepayment amount; and if the termination or
prepayment occurs at any time after the second anniversary of the initial
funding date and prior to the maturity date, the penalty is equal to 1% of the
maximum line amount and/or prepayment amount . The credit facility is subject to
an unused line fee equal to 0.25% per annum, payable monthly based on the
average daily unused amount of the line of credit described in the following
paragraph. The credit facility is also subject to a minimum monthly interest
charge of $8,500 with respect to the revolving line of credit.
The WFBC credit facility provides a $5,000,000 revolving line of credit
secured by accounts receivable, other rights to payment and general intangibles,
inventories and equipment. The line of credit is formula-based which generally
provides that the outstanding borrowings under the line of credit may not exceed
an aggregate of 85% of eligible accounts receivable plus 10% of the value of
eligible finished goods inventory. Interest is payable monthly. The interest
rate is variable and is adjusted monthly based on the prime rate plus 1%.
The credit facility is subject to various financial covenants on a
consolidated basis as follows. The minimum debt service coverage ratio must be
greater than 1.20:1.00 on a trailing quarterly basis. "Debt service coverage
ratio" is defined as net income after taxes, plus depreciation, plus
amortization, plus or minus changes in deferred taxes, minus capital
expenditures and minus any dividends or distributions, divided by the current
maturities of long-term debt paid or scheduled to be paid plus any payments on
subordinated debt. The credit facility also requires that the Company maintain a
minimum book net worth, determined at the end of each calendar month, in an
amount not less than $26,900,000 for the months ended December 31, 2006, January
31, 2007 and February 28, 2007 and of not less than that amount plus 80% of the
Company's net income for each calendar quarter ending on or after March 31, 2007
for each calendar month ending March 31, 2007, and each calendar month
thereafter. The Company must not incur a net loss of greater than $1,150,000 for
2006 and for each quarterly period occurring after December 31,2006, the
Company's net income must not be less than $0 for two consecutive quarters.
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In the event of a default and continuation of a default, Wells Fargo
may accelerate the payment of the principal balance requiring the Company to pay
the entire indebtedness outstanding on that date. From and after the maturity
date of the credit facility, or any earlier date that all principal owing under
the credit facility becomes due and payable by acceleration or otherwise, the
outstanding principal balance will bear interest until paid in full at an
increased rate per annum equal to 3% above the rate of interest in effect from
time to time under the credit facility.
The credit facility also provides for a term loan of $200,000 secured
by accounts receivable, other rights to payment and general intangibles,
inventories and equipment, amortizable over 36 months at a variable rate equal
to the prime rate plus 1%.
REVOLVING NOTE
In connection with entering into the Credit and Security Agreement with
WFBC, the Borrowers executed a Revolving Note dated December 1, 2006 (the
"Revolving Note") in the principal amount of $5,000,000. The Revolving Note is
governed by the terms of the Credit and Security Agreement.
TERM NOTE
In connection with entering into the Credit and Security Agreement with
WFBC, the Borrowers executed a Term Note dated December 1, 2006 (the "Term
Note") in the principal amount of $200,000. The Term Note is governed by the
terms of the Credit and Security Agreement.
PATENT AND TRADEMARK SECURITY AGREEMENT - EMRISE CORPORATION
In connection with entering into the Credit and Security Agreement with
WFBC, the Company entered into a Patent and Trademark Security Agreement dated
December 1, 2006 (the "EMRISE Security Agreement") with WFBC. Under the EMRISE
Security Agreement, the Company irrevocably pledged and assigned to, and granted
WFBC a security interest in, the Company's patents and trademarks to secure
payment of the indebtedness of Borrowers under the credit facility. Under the
terms of the EMRISE Security Agreement, if (i) an event of default, as defined
in the Credit and Security Agreement, occurs; or (ii) the Company fails promptly
to observe or perform any covenant or agreement contained in the EMRISE Security
Agreement; or (iii) any of the representations or warranties made by the Company
in the EMRISE Security Agreement proves to have been incorrect in any material
respect when made, WFBC may, at its option, take any or all of the following
actions: (a) it may exercise any or all remedies available under the Credit and
Security Agreement, (b) it may sell, assign, transfer, pledge, encumber or
otherwise dispose of the Company's patents and trademarks, and (c) it may
enforce the Company's patents and trademarks and any licenses thereunder.
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PATENT AND TRADEMARK SECURITY AGREEMENT - RO ASSOCIATES INCORPORATED
In connection with entering into the Credit and Security Agreement with
WFBC, RO Associates Incorporated ("RO") entered into a Patent and Trademark
Security Agreement dated December 1, 2006 (the "RO Security Agreement") with
WFBC. Under the RO Security Agreement, RO irrevocably pledged and assigned to,
and granted WFBC a security interest in, RO's patents and trademarks to secure
payment of the indebtedness of Borrowers under the credit facility. Under the
terms of the RO Security Agreement, if (i) an event of default, as defined in
the Credit and Security Agreement, occurs; or (ii) RO fails promptly to observe
or perform any covenant or agreement contained in the RO Security Agreement; or
(iii) any of the representations or warranties made by RO in the RO Security
Agreement proves to have been incorrect in any material respect when made, WFBC
may, at its option, take any or all of the following actions: (a) it may
exercise any or all remedies available under the Credit and Security Agreement,
(b) it may sell, assign, transfer, pledge, encumber or otherwise dispose of RO's
patents and trademarks, and (c) it may enforce RO's patents and trademarks and
any licenses thereunder.
FORBEARANCE AGREEMENT
On November 24, 2006, the Company and Wells Fargo Bank, N.A. ("Wells
Fargo Bank") entered into a Forbearance Agreement (the "Forbearance Agreement")
dated as of November 20, 2006, whereby Wells Fargo Bank agreed not to exercise
its rights under a Notice of Default and Demand for Payoff (the "Notice")
through December 1, 2006.
On November 13, 2006, the Company received the Notice from Wells Fargo
Bank relating to the Company's $1.5 million credit facility. CXR Larus
Corporation and Emrise Electronics Corporation, each of which is a subsidiary of
the Company and a guarantor of the Company's obligations under the credit
facility, also received a Notice of Default and Demand for Payoff from Wells
Fargo Bank relating to the credit facility. The Notice stated that the Company
is in default of its obligations under its credit facility due to, among other
unspecified things, (i) the Company's failure to deliver to Wells Fargo Bank not
later than 10 days after and as of the months ended September 30, 2006 and
October 31, 2006, a borrowing base certificate, an aged listing of accounts
receivable and accounts payable, and a reconciliation of accounts, and (ii) the
Company's failure to deliver to Wells Fargo Bank not later than 30 days after
and as of the month ended September 30, 2006, a financial statement of the
Company, prepared by the Company, to include a balance sheet, an income
statement, and all supporting schedules and footnotes. Wells Fargo Bank declared
immediately due and payable all amounts outstanding under the credit facility,
which as of November 13, 2006, were stated by Wells Fargo Bank as totaling
$1,503,275.30.
The Forbearance Agreement provides that notwithstanding the defaults
under the credit facility, Wells Fargo Bank agrees to forbear through December
1, 2006 from (i) accelerating the maturity of the under the credit facility, and
(ii) enforcing any other remedies under the credit facility. The Company paid
Wells Fargo Bank a Forbearance Fee equal to $1,600 in connection with this
forbearance. The Forbearance Agreement also provides that the continuing
effectiveness of the forbearance is conditioned upon the following: (a) that no
additional event of default occur under the terms of the credit facility, (ii)
that the Company continues to operate its business as a going concern, (iii)
that the Company continues to make the regularly scheduled payments of principal
and interest under the credit facility, and (iv) that the Company payoff the
credit facility in full by no later than December 1, 2006.
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ITEM 8.01 OTHER EVENTS.
On December 5, 2006, the Company paid off in full its prior credit
facility with Wells Fargo Bank.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
None.
(b) Pro Forma Financial Information.
None.
(c) Exhibits.
Number Description
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10.1 Forbearance Agreement dated as of November 20,
2006 between the Company and Wells Fargo Bank,
N.A.
10.2 Credit and Security Agreement dated December 1,
2006 between the Company, EMRISE Electronics
Corporation, CXR Larus Corporation, RO Associates
Incorporated and Wells Fargo Bank, N.A. through
its Wells Fargo Business Credit operating division
10.3 Revolving Note dated December 1, 2006 executed by
the Company, EMRISE Electronics Corporation, CXR
Larus Corporation and RO Associates Incorporated
in favor of Wells Fargo Bank, N.A. through its
Wells Fargo Business Credit operating division
10.4 Term Note dated December 1, 2006 executed by the
Company, EMRISE Electronics Corporation, CXR Larus
Corporation and RO Associates Incorporated in
favor of Wells Fargo Bank, N.A. through its Wells
Fargo Business Credit operating division
10.5 Patent and Trademark Security Agreement dated
December 1, 2006 between the Company and Wells
Fargo Bank, N.A. through its Wells Fargo Business
Credit operating division
10.6 Patent and Trademark Security Agreement dated
December 1, 2006 between RO Associates
Incorporated and Wells Fargo Bank, N.A. through
its Wells Fargo Business Credit operating division
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 6, 2006 EMRISE CORPORATION
By: /S/ CARMINE T. OLIVA
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Carmine T. Oliva
Chief Executive Officer
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EXHIBITS FILED WITH THE REPORT
Number Description
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10.1 Forbearance Agreement dated as of November 20, 2006 between the
Company and Wells Fargo Bank, N.A.
10.2 Credit and Security Agreement dated December 1, 2006 between the
Company, EMRISE Electronics Corporation, CXR Larus Corporation,
RO Associates Incorporated and Wells Fargo Bank, N.A. through its
Wells Fargo Business Credit operating division
10.3 Revolving Note dated December 1, 2006 executed by the Company,
EMRISE Electronics Corporation, CXR Larus Corporation and RO
Associates Incorporated in favor of Wells Fargo Bank, N.A.
through its Wells Fargo Business Credit operating division
10.4 Term Note dated December 1, 2006 executed by the Company, EMRISE
Electronics Corporation, CXR Larus Corporation and RO Associates
Incorporated in favor of Wells Fargo Bank, N.A. through its Wells
Fargo Business Credit operating division
10.5 Patent and Trademark Security Agreement dated December 1, 2006
between the Company and Wells Fargo Bank, N.A. through its Wells
Fargo Business Credit operating division
10.6 Patent and Trademark Security Agreement dated December 1, 2006
between RO Associates Incorporated and Wells Fargo Bank, N.A.
through its Wells Fargo Business Credit operating division