Item
2.03 Creation of Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement
On
March 4, 2008, the Company finalized a Loan and Security Agreement dated February 22,
2008 (“Loan Agreement”) with Heritage Bank of Commerce (“Bank”). Under the Loan
Agreement, the Company may borrow up to $6.5 million through one or more
advances through February 21, 2009, which is the maturity date (the “Maturity
Date”). On the Maturity Date, all advances must be repaid. Carl Berg, a
director of the Company, has personally guaranteed the Loan Agreement.
Payment terms under the Loan Agreement are interest only until
maturity. Interest is payable under the Loan Agreement at prime plus 1%
(currently 7%). Obligations under the Loan Agreement are secured by the
Company’s accounts and accounts receivable. In addition, the Company is
required to issue a warrant to the Bank to purchase 75,000 shares of the
Company’s common stock at $0.80 per share.
In connection with Mr. Berg’s extension of his personal guarantee,
the Company has agreed to continue Mr. Berg’s first priority security
interest in all of the Company’s assets, which he shares on a pro-rata basis
with the Senior Secured Note Holders, except for the security interest in the
Company’s accounts and accounts receivable, which have been subordinated to the
Bank’s security interest in the accounts and accounts receivable (however the
Senior Secured Note Holders will not be bound by the intercreditor arrangement
in respect of any indebtedness of Company owing to Bank in excess of $6.5
million). The Company has also agreed to issue to Mr. Berg a warrant to
purchase 200,000 shares of common stock at an exercise price of $0.40 per share
through March 4, 2013.
The Loan Agreement provides that upon the occurrence of an event of
default, among other things, all outstanding amounts under the Loan Agreement
become immediately due and payable. Events of default under the Loan
Agreement include among other items, the Company’s failure to comply with
certain affirmative and negative covenants relating to the Company, its
securities and its financial condition.
The Loan Agreement, warrant issued to the Bank and the warrant issued
to Mr. Berg, are included herein as Exhibits 10.1, 4.1, and 4.2,
respectively, and incorporated herein by reference.
The Company’s $6.5 million credit facility with Venture Banking, a
division of Greater Bay Bank, matured on February 23, 2008 and was not
renewed.
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