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) DECEMBER 12, 2007
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I/OMAGIC CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 000-27267 33-0773180
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
4 MARCONI, IRVINE, CALIFORNIA 92618
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (949) 707-4800
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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
I/OMagic Corporation (the "Company") previously reported that on
November 7, 2007, it received notice from Silicon Valley Bank (the "Bank") under
a Loan and Security Agreement (the "Agreement") dated February 2, 2007 between
the Company, IOM Holdings, Inc. (the "Subsidiary") and the Bank that the Company
was in default of its minimum tangible net worth financial covenant. A brief
description of the Agreement is set forth below. On December 12, 2007, the
Company, the Subsidiary and the Bank entered into an Amendment to Loan and
Security Agreement containing a waiver of the Company's default of its tangible
net worth financial covenant and certain amendments to the Agreement, as
described below.
AMENDMENT TO LOAN AND SECURITY AGREEMENT WITH SILICON VALLEY BANK
The Company, the Subsidiary and the Bank entered into an Amendment to
Loan and Security Agreement (the "Amendment") dated December 12, 2007 that
amends the Agreement. The Amendment includes a waiver by the Bank of the
Company's failure to comply with the minimum tangible net worth financial
covenant set forth in the Agreement. The Amendment provides for modified
interest rates under the revolving line of credit, specifically, amounts
outstanding thereunder are to accrue interest at a per annum rate equal to the
Prime Rate plus 2.50%; provided, that if the Company is able to enter into a
strategic alliance share purchase agreement ("SASPA") acceptable to the Bank,
then such rate shall be reduced to the Prime Rate plus 2.00%; and provided,
further, that upon the Company's receipt of initial funds under the SASPA, then
such rate shall be reduced to the Prime Rate plus 1.00%. The Company cannot
provide any assurance that it will be able to enter into the SASPA or, even if
it enters into the SASPA, that it will ultimately receive any funds thereunder.
In addition, the Amendment provides for a new tangible net worth
financial covenant, specifically, the Company must have minimum tangible net
worth for the month ended February 28, 2007 and each month ending thereafter of
$3,500,000, plus (i) 50% of all consideration received after the date of the
Agreement for equity securities and subordinated debt, plus (ii) 50% of the
Company's net income in each fiscal quarter ending after the date of the
Agreement. Finally, the Amendment provides that the Company may borrow up to a
maximum amount under the line of credit equal to the lesser of (a) $7.0 million,
or (b) an amount equal to 60% of eligible accounts plus the lesser of (1) 20% of
the value of eligible inventory, (2) $750,000 (provided that on and after March
30, 2008, such amount will be $0.00), and (3) 33% of eligible accounts. The
Company was required to pay a fee of $20,000 to the Bank to cause the Amendment
to become effective. The Amendment also contains other customary
representations, warranties and covenants.
A copy of the Amendment is included as Exhibit 10.2 to this Report. The
foregoing description of the Amendment is qualified in its entirety by reference
to the full text of the Amendment.
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LOAN AND SECURITY AGREEMENT WITH SILICON VALLEY BANK
On February 2, 2007, the Company and the Subsidiary entered into the
Agreement with the Bank, which provides for a revolving line of credit. The line
of credit previously allowed the Company to borrow up to a maximum amount equal
to the lesser of (i) $10.0 million, or (ii) an amount equal to 60% of eligible
accounts plus the lesser of (a) 25% of the value of eligible inventory, (b) $3
million, and (c) 33% of eligible accounts. The line of credit allows for a
sublimit of $2.5 million for all (x) outstanding letters of credit, (y) foreign
exchange contracts to purchase from or sell to the Bank a specific amount of
foreign currency and (z) the amount of the revolving line used for cash
management services, including merchant services, direct deposit of payroll,
business credit card and check cashing services. The line of credit expires on
January 29, 2009. Advances on the line of credit previously bore interest at a
floating rate equal to the Prime Rate plus 1.00%.
The obligations of the Company under the Agreement are secured by
substantially all of the Company's assets and guaranteed by the Subsidiary
pursuant to a Cross-Corporate Continuing Guaranty by the Company and the
Subsidiary. The obligations of the Company and the guarantee obligations of the
Subsidiary are secured pursuant to an Intellectual Property Security Agreement
executed by the Company and an Intellectual Property Security Agreement executed
by the Subsidiary.
If the Company terminates the Agreement prior to the maturity date, the
Company will be subject to a termination fee as follows: (i) if the termination
occurs on or before the first anniversary of the effective date, the termination
fee is equal to 1.50% of the maximum line amount; and (ii) if the termination
occurs after the first anniversary of the effective date and on or before the
second anniversary of the effective date, the termination fee is equal to 0.50%
of the maximum line 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, as determined by the Bank. The credit facility is
also subject to a commitment fee of $50,000, a monthly collateral monitoring fee
of $1,250 and an anniversary fee of $50,000. In addition, the Company must pay
to the Bank customary fees and expenses for the issuance or renewal of letters
of credit and all expenses incurred by the Bank related to the Agreement.
The credit facility is subject to a financial covenant on a
consolidated basis for the tangible net worth of the Company for the month ended
February 28, 2007 and each month ending thereafter, which previously was
required to be at least $4,750,000, plus (i) 50% of all consideration received
for equity securities and subordinated debt, plus (ii) 50% of the net income for
each fiscal quarter. "Tangible net worth" is defined as the consolidated total
assets of the Company and its subsidiaries minus (a) any amounts attributable to
(1) goodwill, (2) intangible items, and (3) notes, accounts receivable and other
obligations owing to the Company from its officers and affiliates, and reserves
not already deducted from assets, minus (b) total liabilities, plus (c)
subordinated debt.
In the event of a default and continuation of a default, the Bank may
accelerate the payment of the principal balance requiring the Company to pay the
entire indebtedness outstanding on that date. From and after an event of
default, the outstanding principal balance will bear interest until paid in full
at an increased rate per annum equal to 5.00% above the rate of interest in
effect from time to time under the credit facility.
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The Agreement also contains other customary representations, warranties
and covenants.
A copy of the Agreement is included as Exhibit 10.1 to this Report.
The foregoing description of the Agreement is qualified in its entirety by
reference to the full text of the Agreement.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
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Not applicable.
(b) Pro forma financial information.
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Not applicable.
(c) Shell company transactions.
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Not Applicable.
(d) Exhibits.
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Number Description
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10.1 Loan and Security Agreement dated February 2, 2007
between I/OMagic Corporation, IOM Holdings, Inc. and
Silicon Valley Bank (**)
10.2 Amendment to Loan and Security Agreement dated
December 12, 2007 between I/OMagic Corporation, IOM
Holdings, Inc. and Silicon Valley Bank (*)
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(*) Filed herewith.
(**) Filed as an exhibit to the Registrant's current
report on Form 8-K for February 2, 2007 filed with
the Securities and Exchange Commission on February 8,
2007.
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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 14, 2007 I/OMAGIC CORPORATION
By: /S/ THOMAS L. GRUBER
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Thomas L. Gruber,
Chief Financial Officer
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EXHIBITS FILED WITH THIS REPORT
Number Description
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10.2 Amendment to Loan and Security Agreement dated December 12, 2007
between I/OMagic Corporation, IOM Holdings, Inc. and Silicon Valley
Bank