By Christopher Zinsli
Of DOW JONES VENTUREWIRE
GlassHouse Technologies Inc. said it has secured $3 million from
its venture investors in a move to keep the data-center consultant
growing as it pursues an initial public offering to help retire its
considerable debt.
The new funding came through unsecured convertible promissory
notes with an 8% interest rate issued to Sigma Partners, GrandBanks
Capital, Greenspring Associates and Kodiak Venture Partners, all
earlier investors in the Framingham, Mass., company.
The notes, issued on June 28, are convertible to Series F
preferred stock, the company Tuesday said in an amended Securities
and Exchange Commission filing. The company also issued warrants to
purchase common stock at $3 a share in connection with the note
agreement.
The new funding won't last GlassHouse long. The company said its
existing cash and financing arrangements can fuel operations
through the end of the year, and it will need additional cash to
pay off millions in debt that will come due in 2011.
To meet those obligations, GlassHouse has been lining up various
sources of capital and renegotiating old debts. In March, it paid
off a 2007 loan with $9.8 million in credit from Wellington
Financial, and Lighthouse Capital Partners on Monday agreed to
defer payments of $1.4 million connected to a 2004 loan. The
company also received forgiveness in late June from Wellington for
breaking financial-reporting covenants connected to the March
loan.
In addition, GlassHouse said it may issue another $5 million in
notes in October, and management plans to raise additional funding
in late 2010 or early 2011.
Even the biggest funding source the company is banking on, an
IPO that it said will pay off $30.2 million of its debt, will only
finance operations through the end of next March, the company
said.
But limits on the company's ability to incur further debt under
its current loan obligations could complicate any search for
additional borrowings, it said. Further, if the company is unable
to either repay $32.5 million that is due by next March or amend
the loan's terms, its ability to continue as a going concern could
be affected, it said.
Chief among GlassHouse's creditors is Dell Inc.'s (DELL) Dell
Products LP, which holds a perpetual license for GlassHouse
intellectual property as well as the $32.5 million loan due by
March. GlassHouse said $30.2 million of that convertible debt could
be repaid through the IPO, though it is not certain that the IPO
will count as a qualified public offering under the purchase
agreement with Dell.
GlassHouse tries to expand its data-center services into new
markets primarily through acquisitions. It has acquired 11
companies in such countries as the U.K., Switzerland, Israel and
Turkey. It also is in the process of purchasing an undisclosed IT
services company in the Netherlands for about $10.2 million in cash
and 1.6 million shares of its common stock, plus potential
milestone payments of another $2 million.
All the acquisitions have required more capital than GlassHouse
has been able to generate through sales. The company has yet to
turn a profit. It posted an $8.9 million loss in the first
quarter--wider than the previous full year--on $22.9 million in
revenue. Its accumulated deficit stood at $125.1 million as of
March 31.
The company said it has been cleared to apply for a listing on
the New York Stock Exchange under the symbol GLAS. Underwriters for
the offering are Goldman Sachs & Co., Credit Suisse, Thomas
Weisel Partners LLC, William Blair & Co. and Oppenheimer &
Co.
-By Christopher Zinsli, Dow Jones VentureWire; 212-416-2034;
christopher.zinsli@dowjones.com