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): AUGUST 25, 2005
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EMRISE CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 1-10346 77-0226211
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(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
9485 HAVEN AVENUE, SUITE 100, RANCHO CUCAMONGA, CA 91730
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(Address of Principal Executive Officers) (Zip Code)
Registrant's telephone number, including area code: (909) 987-9220
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NOT APPLICABLE
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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.
The disclosure contained in Item 2.03 of this Form 8-K is incorporated
herein by reference.
ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER
AN OFF-BALANCE SHEET ARRANGEMENT OF A REGISTRANT.
On August 25, 2005, Emrise Corporation (the "Company"), together with
two subsidiaries, CXR Telcom Corporation and Emrise Electronics Corporation,
acting as guarantors, obtained a credit facility from Wells Fargo Bank, N.A. for
the Company's domestic operations. As guarantors, each of CXR Telcom Corporation
and Emrise Electronics Corporation is jointly and severally liable with the
Company for up to $9,000,000. This facility is to be effective through September
1, 2006 and replaced the previous credit facility the Company had with Wells
Fargo Bank, N.A. The previous facility was to expire July 1, 2005, but was
informally extended for two months. The new credit facility is subject to an
unused commitment fee equal to 0.25% per annum, payable quarterly based on the
average daily unused amount of the line of credit described in the following
paragraph.
The credit facility provides a $9,000,000 revolving line of credit
secured by accounts receivable, other rights to payment and general intangibles,
inventories and equipment. However, borrowings may not exceed $2,000,000 until
the bank has completed a collateral examination. Borrowings do not need to be
supported by specific receivables or inventory balances unless aggregate
borrowings under the line of credit exceed $2,000,000 at any time (a "conversion
event"). If a conversion event occurs, the line of credit will convert into a
formula-based line of credit until the borrowings are equal to or less than
$2,000,000. The formula generally provides that outstanding borrowings under the
line of credit may not exceed an aggregate of 80% of eligible accounts
receivable, plus 30% of the value of eligible finished goods inventory. The
interest rate is variable and is adjusted monthly based on the prime rate. The
prime rate at August 29, 2005 was 6.50%. Interest is payable monthly commencing
October 1, 2005. The outstanding principal balance will be due September 1,
2006.
The credit facility is subject to various financial covenants. The
minimum debt service coverage ratio of the Company must be not less than
1.25:1.00 on a rolling four-quarter basis. "Debt service coverage ratio" is
defined as net profit after taxes plus depreciation, plus or minus net
distributions divided by the sum of the current portion of long term debt plus
capitalized lease payments. The current ratio of the Company must be not less
than 1.50:1.00, determined as of each fiscal quarter end. "Current ratio" is
defined as total current assets divided by total current liabilities. Net profit
after taxes of the Company must be not less than $500,000, determined as of each
fiscal quarter end on a rolling four quarter basis; provided that the Company
may not sustain net loss after tax in any two consecutive fiscal quarters. Total
liabilities divided by tangible net worth of the Company must not at any time be
greater than 1.25:1.00, determined as of each fiscal quarter end. Tangible net
worth of the Company must not at any time be less than $14,250,000 measured at
the end of each quarter. "Total liabilities" is defined as current liabilities
plus non-current liabilities, minus subordinated debt. "Tangible net worth" is
defined as stockholders' equity plus subordinated debt, minus intangible assets.
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 note, or any earlier date that all principal owing under the note
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 4% above the rate of interest in effect from time to time under the
note. Events of default that would give rise to automatic acceleration of
payment of the principal balance and an increase in annual interest rate on
unpaid principal balance include:
o A failure to pay principal, interest or fees;
o Any financial statement or certificate furnished to Wells
Fargo is incorrect, false or misleading;
o Inaccuracy of representations and warranties;
o Breach of covenant (other than those described in the
preceding bullet points, and subject to a 20-day cure period
if curable)
o Default under any other contract or instrument by which the
Company or a guarantor have incurred any debt or other
liability to any person or entity, including Wells Fargo;
o The filing of a notice of judgment lien against the Company or
any guarantor; or the recording of any abstract of judgment
against the Company or any guarantor in any county in which
the Company or any guarantor has an interest in real property;
or the service of notice of levy and/or write of attachment or
execution against the assets of the Company or any guarantor;
or the entry of a judgment against the Company or any
guarantor;
o The Company or a guarantor shall become insolvent, have a
receiver appointed, or generally fail to pay its debts as they
become due, or make a general assignment for the benefit of
its creditors;
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o Filing of a voluntary petition in bankruptcy, or filing an
answer in in involuntary petition in bankruptcy admitting the
jurisdiction of the court, or being adjudicated bankrupt;
o Wells Fargo in good faith believes a condition or event
impairs, or is substantially likely to impair performance or
payment by the Company;
o Death, incapacity, dissolution or liquidation of borrower
or any guarantor; and
o Any change in ownership of an aggregate of 25% or more of the
common stock of the Company.
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.
Dated: August 31, 2005
EMRISE CORPORATION
By: /s/ CARMINE T. OLIVA
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Carmine T. Oliva, Chief Executive Officer
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