**Exhibit 10.17**

**AMENDED AND RESTATEDLOAN AND SECURITY AGREEMENT**

**BY AND AMONG**

CATHAY BANK

**AND**

**SILICON STORAGETECHNOLOGY, INC.**aCalifornia corporation,

**SST INTERNATIONAL LTD,**acayman islands corporation,

**SST RG LLC,**adelaware limited liability company,

**AND**

**SST COMMUNICATIONS CORP.,**adelaware corporation

**DATEDAS OF AUGUST 11, 2006**

 

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**TABLE OF CONTENTS**

 
|        |                           |   | **Page**                                                          |
|--------|--------------------------------|--------|-------------------------------------------------------------------|
| 1.     | Accounting And Other Terms     |   | 1                                                                 |
| 2.     | Loan And Terms Of Payment      |   | 1                                                                 |
|   | 2.1                            |   | Promise to Pay                                                    |   | 1 |
|   | 2.2                            |   | Overadvances                                                      |   | 2 |
|   | 2.3                            |   | Interest Rate, Payments                                           |   | 2 |
|   | 2.4                            |   | Fees                                                              |   | 2 |
| 3.     | Conditions Of Loans            |   | 3                                                                 |
|   | 3.1                            |   | Conditions Precedent to Initial Credit Extension                  |   | 3 |
|   | 3.2                            |   | Conditions Precedent to all Credit Extensions                     |   | 3 |
| 4.     | Creation Of Security Interest  |   | 3                                                                 |
|   | 4.1                            |   | Grant of Security Interest                                        |   | 3 |
| 5.     | Representations And Warranties |   | 4                                                                 |
|   | 5.1                            |   | Due Organization and Authorization                                |   | 4 |
|   | 5.2                            |   | Collateral                                                        |   | 4 |
|   | 5.3                            |   | Litigation                                                        |   | 4 |
|   | 5.4                            |   | No Material Adverse Change in Financial Statements                |   | 4 |
|   | 5.5                            |   | Solvency                                                          |   | 4 |
|   | 5.6                            |   | Regulatory Compliance                                             |   | 4 |
|   | 5.7                            |   | Subsidiaries                                                      |   | 5 |
|   | 5.8                            |   | Full Disclosure                                                   |   | 5 |
| 6.     | Affirmative Covenants          |   | 5                                                                 |
|   | 6.1                            |   | Government Compliance                                             |   | 5 |
|   | 6.2                            |   | Financial Statements, Reports, Certificates, Audits               |   | 5 |
|   | 6.3                            |   | Inventory; Returns                                                |   | 6 |
|   | 6.4                            |   | Taxes                                                             |   | 6 |
|   | 6.5                            |   | Insurance                                                         |   | 6 |
|   | 6.6                            |   | Primary Accounts                                                  |   | 6 |
|   | 6.7                            |   | Financial Covenants                                               |   | 6 |
|   | 6.8                            |   | Further Assurances                                                |   | 7 |
| 7.     | Negative Covenants             |   | 7                                                                 |
|   | 7.1                            |   | Dispositions                                                      |   | 7 |
|   | 7.2                            |   | Changes in Business, Ownership, Management or  Business Locations |   | 7 |
|   | 7.3                            |   | Mergers or Acquisitions                                           |   | 7 |
|   | 7.4                            |   | Indebtedness                                                      |   | 7 |
|   | 7.5                            |   | Encumbrance                                                       |   | 7 |
|   | 7.6                            |   | Distributions; Investments                                        |   | 7 |
|   | 7.7                            |   | Transactions with Affiliates                                      |   | 7 |
|   | 7.8                            |   | Subordinated Debt                                                 |   | 8 |
|   | 7.9                            |   | Compliance                                                        |   | 8 |

 

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| 8.     | Events Of Default                           |   | 8                                        |
|--------|---------------------------------------------|--------|------------------------------------------|
|   | 8.1                                         |   | Payment Default                          |   | 8 |
|   | 8.2                                         |   | Covenant Default                         |   | 8 |
|   | 8.3                                         |   | Material Adverse Change                  |   | 8 |
|   | 8.4                                         |   | Attachment                               |   | 8 |
|   | 8.5                                         |   | Insolvency                               |   | 9 |
|   | 8.6                                         |   | Other Agreements                         |   | 9 |
|   | 8.7                                         |   | Judgments                                |   | 9 |
|   | 8.8                                         |   | Misrepresentations                       |   | 9 |
| 9.     | Bank’s Rights And Remedies             |   | 9                                        |
|   | 9.1                                         |   | Rights and Remedies                      |   | 9 |
|   | 9.2                                         |   | Power of Attorney                        |   | 10 |
|   | 9.3                                         |   | Accounts Collection                      |   | 10 |
|   | 9.4                                         |   | Bank Expenses                            |   | 10 |
|   | 9.5                                         |   | Bank’s Liability for Collateral     |   | 10 |
|   | 9.6                                         |   | Remedies Cumulative                      |   | 11 |
|   | 9.7                                         |   | Demand Waiver                            |   | 11 |
| 10.    | Notices                                     |   | 11                                       |
| 11.    | Choice Of Law , Venue And Jury Trial Waiver |   | 11                                       |
| 12.    | General Provisions                          |   | 11                                       |
|   | 12.1                                        |   | Successors and Assigns                   |   | 11 |
|   | 12.2                                        |   | Indemnification                          |   | 11 |
|   | 12.3                                        |   | Time of Essence                          |   | 12 |
|   | 12.4                                        |   | Severability of Provision                |   | 12 |
|   | 12.5                                        |   | Amendments in Writing, Integration       |   | 12 |
|   | 12.6                                        |   | Counterparts                             |   | 12 |
|   | 12.7                                        |   | Survival                                 |   | 12 |
|   | 12.8                                        |   | Confidentiality                          |   | 12 |
|   | 12.9                                        |   | Attorneys’ Fees, Costs and Expenses |   | 12 |
| 13.    | Definitions                                 |   | 12                                       |

** **

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**AMENDED AND RESTATEDLOAN AND SECURITY AGREEMENT**

This Amended and Restated Loan and Security Agreement(this “Agreement”) is made and entered into as of August 11, 2006, by andbetween CATHAY BANK (“Bank”), and SILICON STORAGE TECHNOLOGY, INC., a Californiacorporation, SST INTERNATIONAL LTD, SST RG, LLC, and SST COMMUNICATIONSCORP.  (Collectively “Borrower”).

**RECITALS**

A.            Borrowerwishes to obtain credit from Bank in the amount of up to Forty Million Dollars($40,000,000), with a sublimit of a maximum of $8,000,000 of such $40,000,000to be extended to SST China Ltd.

B.            Subjectto the representations and warranties of Borrower herein and upon the terms andconditions set forth in this Agreement, Bank is willing to extend credit toBorrower.

**AGREEMENT**

NOW THEREFORE, in consideration of the foregoingrecitals and the terms and conditions and agreements contained herein, theparties hereby agree as follows:

1.             Accounting And Other Terms.

Accounting terms not defined in this Agreement will beconstrued following GAAP. Calculations and determinations must be madefollowing GAAP.  The term “financialstatements” includes the notes and schedules. The terms “including” and “includes” always mean “including (orincludes) without limitation,” in this or any Loan Document.

2.             Loan And Terms Of Payment

2.1           Promise to Pay.  Borrower promises to pay Bank the unpaidprincipal amount of all Credit Extensions and interest on the unpaid principalamount of the Credit Extensions.

2.1.1        Revolving Advances.

(a)           Bank will make Advances not exceeding(i) the lesser of (A) the amount of the Revolving Line; (B) the Borrowing Base(however, no Borrowing Base is needed if borrowing is less than $20,000,000).Amounts borrowed under this Section may be repaid and reborrowed during the termof this Agreement.

(b)           To obtain an Advance, Borrower mustnotify Bank by facsimile or telephone by 11:00 a.m. Pacific time on theBusiness Day the Advance is to be made if the advance is to be wired out of theBank and by 3:00 p.m. Pacific time for disbursement to an account within CathayBank.  Borrower must promptly confirm thenotification by delivering to

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Bank the Payment/Advance Form attached as ExhibitB.  Bank will credit Advances to Borrower’sdeposit account.  Bank may make Advancesunder this Agreement based on instructions from a Responsible Officer or his orher designee or without instructions if the Advances are necessary to meetObligations which have become due.  Bankmay rely on any telephone notice given by a person whom Bank believes is aResponsible Officer or designee. Borrower will indemnify Bank for any loss Banksuffers due to such reliance.

(c)           The Revolving Line terminates on theRevolving Maturity Date, when all Advances and interest accrued are immediatelypayable.

(d)           Bank’s obligation to lend theundisbursed portion of the Obligations will terminate if, in Bank’s solediscretion, there has been a material adverse change in the general affairs,management, results of operation, condition (financial or otherwise) or theprospect of repayment of the Obligations, or there has been any materialadverse deviation by Borrower from the most recent business plan of Borrowerpresented to and accepted by Bank prior to the execution of this Agreement.

2.2           Overadvances.  If Borrower’s Obligations under Section2.1.1, exceed the lesser of either (i) the Revolving Line or (ii) the BorrowingBase, Borrower must immediately pay Bank the excess.

2.3           Interest Rate, Payments.

(a)           Interest Rate.  Advances accrue interest on the outstandingprincipal balance at a per annum rate of 1 percentage point below the PrimeRate as published in the Wall Street Journal’s West Coast Edition (and if theWall Street Journal is not published, as published in any other reputablefinancial publication), floating daily. After an Event of Default, as defined in Section 8, Obligations accrueinterest at 5 percent above the Prime Rate effective immediately before theEvent of Default. The interest rate increases or decreases when the Prime Ratechanges.  Interest is computed on a 360day year for the actual number of days elapsed.

(b)           Payments.  Interest due on the Revolving Line is payableon the 25th of each month.  Bank maydebit any of Borrower’s deposit accounts including Account Number 12016209 forprincipal and interest payments owing or any amounts Borrower owes Bank.  Bank will promptly notify Borrower when itdebits Borrower’s accounts.  These debitsare not a set-off.  Payments receivedafter 11:00 a.m. Pacific time are considered received at the opening of businesson the next Business Day.  When a paymentis due on a day that is not a Business Day, the payment is due the nextBusiness Day and additional fees or interest accrue.

2.4           Fees.

Borrowerwill pay:

(a)           Loan Fee.  A loan fee of $40,000.

(b)           Maintenance Fee.  A maintenance fee of $20,000 to be paid atthe end of each calendar quarter during the term of this Agreement, suchmaintenance fee to be waived if Borrower meets any one of the followingconditions:

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(i)            Borrower’s average borrowing duringthe quarter equals or exceeds twenty percent (20%) of the total commitment of$40,000,000 during the relevant calendar quarter, of which including Letter ofCredit outstanding.

(ii)           Borrower’s deposits at Bank exceed$40,000,000 [on average during the relevant calendar quarter], or

(iii)          Or Borrower’s total deposits at Bankexceed $20,000,000 [on average during the relevant calendar quarter] and feeincome generated by Bank from offering foreign exchange services andinternational letter of credit services to Borrower exceed $10,000 during therelevant calendar quarter.

(iv)          Total maintenance fee will be waivedwhen total Fee income generated by Bank from offering international letter ofcredit services to Borrower equal or exceed $72,000 a year.

(c)           Bank Expenses.  All Bank Expenses (including reasonableattorneys’ fees and reasonable expenses) incurred through and after the date ofthis Agreement, are payable when due.

(d)           Late Fee.  A late fee of five percent (5%) of anyObligation due if such Obligation is not paid within the time frame set forthin Section 8.1 hereof.

3.             Conditions Of Loans.

3.1           Conditions Precedent to InitialCredit Extension.  Bank’s obligationto make the initial Credit Extension is subject to the condition precedent thatit receive the agreements, documents and fees it requires.

3.2           Conditions Precedent to all CreditExtensions.  Bank’s obligations tomake each Credit Extension, including the initial Credit Extension, is subjectto the following:

(a)           timely receipt of any Payment/AdvanceForm; and

(b)           the representations and warranties inSection 5 must be materially true on the date of the Payment/Advance Form andon the effective date of each Credit Extension and no Event of Default may haveoccurred and be continuing, or result from the Credit Extension. Each CreditExtension is Borrower’s representation and warranty on that date that therepresentations and warranties of Section 5 remain true.

4.             Creation Of Security Interest.

4.1           Grant of Security Interest.  Borrower and each Borrower Subsidiary grantsBank a continuing security interest in all presently existing and lateracquired Collateral to secure all Obligations and performance of each ofBorrower’s duties under the Loan Documents and each of them hereby authorizesBank to execute and file any and all documents necessary to perfect suchsecurity interest granted hereunder. Except for Permitted Liens, any security interest will be a firstpriority security interest in the Collateral. Bank may place a “hold” on any

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deposit account pledged as Collateral. If thisAgreement is terminated, Bank’s lien and security interest in the Collateralwill continue until Borrower fully satisfies its Obligations.

5.             Representations And Warranties.  Borrower represents and warrants as follows:

5.1           Due Organization and Authorization.  Borrower is duly existing and in goodstanding in its state of formation and qualified and licensed to do businessin, and in good standing in, any state in which the conduct of its business orits ownership of property requires that it be qualified, except where thefailure to do so could not reasonably be expected to cause a Material AdverseChange.

The execution, delivery and performance of the LoanDocuments have been duly authorized, and do not conflict with Borrower’s formationdocuments, nor constitute an event of default under any material agreement bywhich Borrower is bound.  Borrower is notin default under any agreement to which or by which it is bound in which thedefault could reasonably be expected to cause a Material Adverse Change.

5.2           Collateral.  Borrower has good title to the Collateral,free of Liens except Permitted Liens. The Accounts are bona fide, existing obligations, and the service orproperty has been performed or delivered to the account debtor or its agent forimmediate shipment to and unconditional acceptance by the account debtor.  Borrower has no notice of any actual orimminent Insolvency Proceeding of any account debtor whose accounts are anEligible Account in any Borrowing Base Certificate.  All Inventory is in all material respects ofgood and marketable quality, free from material defects.

5.3           Litigation.  Except as shown in the Schedule, there are noactions or proceedings pending or, to the knowledge of Borrower’s ResponsibleOfficers, threatened by or against Borrower or any Subsidiary  in which a likely adverse decision couldreasonably be expected to cause a Material Adverse Change.

5.4           No Material Adverse Change inFinancial Statements.  Allconsolidated financial statements for Borrower, and any Subsidiary, deliveredto Bank fairly present in all material respects Borrower’s consolidatedfinancial condition and Borrower’s consolidated results of operations.  There has not been any material deteriorationin Borrower’s consolidated financial condition since the date of the mostrecent financial statements submitted to Bank.

5.5           Solvency.  The fair salable value of Borrower’s assets(including goodwill minus disposition costs) exceeds the fair value of itsliabilities and Borrower is able to pay its debts (including trade debts) asthey mature.

5.6           Regulatory Compliance.  Borrower is not an “investment company” or acompany “controlled” by an “investment company” under the Investment CompanyAct.  Borrower is not engaged as one ofits important activities in extending credit for margin stock (underRegulations T and U of the Federal Reserve Board of Governors).  Borrower has complied in all materialrespects with the Federal Fair Labor Standards Act.  Borrower has not violated any laws, ordinancesor rules, the violation of which could reasonably be expected to cause aMaterial Adverse Change.  None ofBorrower’s or any Subsidiary’s properties or assets has been used by Borroweror any Subsidiary or, to the best of Borrower’s knowledge, by

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previous Persons, in disposing, producing, storing,treating, or transporting any hazardous substance other than legally.  Borrower and each Subsidiary has timely filedall required tax returns and paid, or made adequate provision to pay, allmaterial taxes, except those being contested in good faith with adequatereserves under GAAP.  Borrower and eachSubsidiary has obtained all consents, approvals and authorizations of, made alldeclarations or filings with, and given all notices to, all government authoritiesthat are necessary to continue its business as currently conducted, exceptwhere the failure to do so could not reasonably be expected to cause a MaterialAdverse Change.

5.7           Subsidiaries.  Borrower does not own any stock, partnershipinterest or other equity securities except for Permitted Investments.

5.8           Full Disclosure.  No written representation, warranty or otherstatement of Borrower in any certificate or written statement given to Bank(taken together with all such written certificates and written statements toBank) contains any untrue statement of a material fact or omits to state amaterial fact necessary to make the statements contained in the certificates orstatements not misleading.  It being recognizedby Bank that the projections and forecasts provided by Borrower in good faithand based upon reasonable assumptions are not viewed as facts and that actualresults during the period or periods covered by such projections and forecastsmay differ from the projected and forecasted results.

6.             Affirmative Covenants.  Borrower will do all of the following for solong as Bank has an obligation to lend, or there are outstanding Obligations:

6.1           Government Compliance.  Borrower will maintain its and allSubsidiaries’ legal existence and good standing in its jurisdiction offormation and maintain qualification in each jurisdiction in which the failureto so qualify would reasonably be expected to cause a material adverse effecton Borrower’s business or operations. Borrower will comply, and have each Subsidiary comply, with all laws,ordinances and regulations to which it is subject, noncompliance with whichcould have a material adverse effect on Borrower’s business or operations orwould reasonably be expected to cause a Material Adverse Change.

6.2           Financial Statements, Reports,Certificates, Audits.

(a)           Borrower will deliver to Bank:  (i) as soon as filed with the Securitiesand Exchange Commission, but no later than 5 days after the date on which theyare due to be filed with the Securities and Exchange Commission, any and allquarterly and annual reports filed on Forms 10Q and 10K; (ii) a prompt reportof any legal actions pending or threatened against Borrower or any Subsidiarythat could result in damages or costs to Borrower or any Subsidiary of $100,000or more; and (iii) budgets, sales projections, operating plans or otherfinancial information Bank reasonably requests.

(b)           Whenever the balance of the RevolvingLine exceeds $20,000,000 or the Borrower’s liquidity ratio falls below 1.0:1.0,within 20 days after the last day of each month thereafter, Borrower willdeliver to Bank a Borrowing Base Certificate signed by a Responsible Officer inthe form of Exhibit C, with aged listings of accounts receivable and accountspayable.

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(c)           Within 45 days after the last day ofeach quarter, Borrower will deliver to Bank a Compliance Certificate signed bya Responsible Officer in the form of Exhibit D.

(d)           Borrower will allow Bank’s internalauditor to audit Borrower’s Collateral and Borrower’s books and records atBorrower’s expense (not to exceed $2,000) within 60 days of the ClosingDate.  Such audit will be conducted nomore often than once every 12 months unless an Event of Default has occurredand is continuing.

6.3           Inventory; Returns.  Borrower will keep all Inventory in good andmarketable condition, free from material defects.  Returns and allowances between Borrower andits account debtors will follow Borrower’s customary practices as they exist atexecution of this Agreement.  Borrowermust promptly notify Bank of all credit only returns, recoveries, disputes andclaims, that involve more than $1,000,000.

6.4           Taxes.  Borrower will make, and cause each Subsidiaryto make, timely payment of all material federal, state, and local taxes orassessments (other than taxes and assessments which Borrower is contesting ingood faith, with adequate reserves maintained in accordance with GAAP) and willdeliver to Bank, on demand, appropriate certificates attesting to the payment.

6.5           Insurance.  Borrower will keep its business and theCollateral insured for risks and in amounts standard for Borrower’s industry,and as Bank may reasonably request. Insurance policies will be in a form, with companies, and in amountsthat are satisfactory to Bank in Bank’s reasonable discretion.  All property policies will have a lender’sloss payable endorsement showing Bank as an additional loss payee and allliability policies will show the Bank as an additional insured and provide thatthe insurer must give Bank at least 20 days notice before canceling itspolicy.  At Bank’s request, Borrower willdeliver certified copies of policies and evidence of all premium payments.Proceeds payable under any policy will, at Bank’s option, be payable to Bank onaccount of the Obligations.

6.6           Primary Accounts.  Borrower and SST International, Ltd. willmaintain their primary depository and operating accounts, other than theirprimary accounts receivable account, with Bank with the understanding that theywill maintain such arrangement with Bank.

6.7           Financial Covenants.  Borrower will maintain as of the last day ofeach month:

(a)           Current Ratio.  A ratio of Current Assets to CurrentLiabilities of at least 1.75 to 1.00.

(b)           Maximum Leverage Ratio.  A ratio of Total Liabilities excludingdeferred revenues divided by Tangible Net Worth of no more than 1.50:1.0.

(c)           Minimum Liquidity Ratio.  A ratio of 100% of unrestricted cash (andequivalents) plus 95% of any government securities held by Borrower and 85% ofinvestment grade corporate bonds held by Borrower all divided by Indebtednessof not less than 1.00 to 1.00.

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6.8           Further Assurances.  Borrower will execute any further instrumentsand take further action as Bank reasonably requests to perfect or continue Bank’ssecurity interest in the Collateral or to effect the purposes of thisAgreement.

7.             Negative Covenants.  Borrower will not do any of the followingwithout Bank’s prior written consent, which will not be unreasonably withheld,for so long as Bank has an obligation to lend or there are any outstandingObligations:

7.1           Dispositions.  Convey, sell, lease, transfer or otherwisedispose of (collectively “Transfer”), or permit any of its Subsidiaries toTransfer, all or any part of its business or property if the value of transferexceeds $1,000,000, except for Transfers (i) of Inventory in the ordinarycourse of business; (ii) of non-exclusive licenses and similar arrangements forthe use of the property of Borrower or its Subsidiaries in the ordinary courseof business; (iii) of worn out or obsolete Equipment.

7.2           Changes in Business, Ownership,Management or Business Locations. Engage in or permit any of its Subsidiaries to engage in any businessother than the businesses currently engaged in by Borrower or reasonablyrelated thereto or have a material change in its ownership or management ofgreater than 25% (other than by the sale of Borrower’s equity securities in apublic offering or to venture capital investors so long as Borrower identifiesthe venture capital investors prior to the closing of the investment).  Borrower will not, without at least 30 daysprior written notice, relocate its chief executive office.

7.3           Mergers or Acquisitions.  Merge or consolidate, or permit any of itsSubsidiaries to merge or consolidate, with any other Person, or acquire, orpermit any of its Subsidiaries to acquire, all or substantially all of thecapital stock or property of another Person, except where (i) no Event ofDefault has occurred and is continuing or would result from such action duringthe term of this Agreement and (ii) such transaction would not result in adecrease of more than 25% of Tangible Net Worth. A Subsidiary may merge orconsolidate into another Subsidiary or into Borrower.

7.4           Indebtedness.       Create,incur, assume, or be liable for any Indebtedness, or permit any Subsidiary todo so, other than Permitted Indebtedness.

7.5           Encumbrance.  Create, incur, or allow any Lien on any ofits Intellectual Property or the Intellectual Property of any BorrowerSubsidiary, except for Permitted Liens, or permit any Collateral not to besubject to the first priority security interest granted here, subject toPermitted Liens.

7.6           Distributions; Investments.  Directly or indirectly acquire or own anyPerson, or make any Investment in any Person, other than Permitted Investments,or permit any of its Subsidiaries to do so for amount exceed $5,000,000.  Pay any dividends or make any distribution orpayment or redeem, retire or purchase any capital stock for aggregate amountexceed $5,000,000.

7.7           Transactions with Affiliates.  Directly or indirectly enter into or permitto exist any material transaction with any Affiliate of Borrower except fortransactions that are in the ordinary course of Borrower’s business, upon fairand reasonable terms that are no less

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favorable to Borrower than would be obtained in an arm’slength transaction with a nonaffiliated Person.

7.8           Subordinated Debt.  Make or permit any payment on anySubordinated Debt, without Bank’s prior written consent.

7.9           Compliance.  Become an “investment company” or a companycontrolled by an “investment company,” under the Investment Company Act of 1940or undertake as one of its important activities extending credit to purchase orcarry margin stock, or use the proceeds of any Credit Extension for thatpurpose; fail to meet the minimum funding requirements of ERISA, permit aReportable Event or Prohibited Transaction, as defined in ERISA, to occur; failto comply with the Federal Fair Labor Standards Act or violate any other law orregulation, if the violation could reasonably be expected to have a materialadverse effect on Borrower’s business or operations or would reasonably beexpected to cause a Material Adverse Change, or permit any of its Subsidiariesto do so.

8.             Events Of Default.  Any one of the following is an Event ofDefault:

8.1           Payment Default.  If Borrower fails to pay any of theObligations within 3 days after their due date (10 days in the case of paymentof interest). Borrower has an additional period of 27 days (an additional 20days in the case of payment of interest) to attempt to cure the default.  During the additional period the failure tocure the default is not an Event of Default (but no Credit Extension will bemade during the cure period);

8.2           Covenant Default.  If Borrower does not perform any obligationin Section 6 or violates any covenant in Section 7; or

If Borrower does notperform or observe any other material term, condition or covenant in thisAgreement, any Loan Documents, or in any agreement between Borrower and Bankand as to any default under a term, condition or covenant that can be cured,has not cured the default within 10 days after it occurs, or if the defaultcannot be cured within 10 days or cannot be cured after Borrower’s attemptswithin 10 day period, and the default may be cured within a reasonable time,then Borrower has an additional period (of not more than 30 days) to attempt tocure the default.  During the additionaltime, the failure to cure the default is not an Event of Default (but no CreditExtensions will be made during the cure period);

8.3           Material Adverse Change.  If there (i) occurs a material adverse changein the business, operations, or condition (financial or otherwise) of theBorrower, or (ii) is a material impairment of the prospect of repayment of anyportion of the Obligations or (iii) is a material impairment of the value orpriority of Bank’s security interests in the Collateral.

8.4           Attachment.  If any material portion of Borrower’s assetsis attached, seized, levied on, or comes into possession of a trustee orreceiver and the attachment, seizure or levy is not removed in 10 days, or ifBorrower is enjoined, restrained, or prevented by court order from conducting amaterial part of its business or if a judgment or other claim becomes a Lien ona material portion of Borrower’s assets, or if a notice of lien, levy, orassessment is filed against any of Borrower’s assets by any government agencyand not paid within 10 days after Borrower

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receives notice. These are not Events of Default if stayed or if a bond is posted pendingcontest by Borrower (but no Credit Extensions will be made during the cureperiod);

8.5           Insolvency.  If Borrower becomes insolvent or if Borrowerbegins an Insolvency Proceeding or an Insolvency Proceeding is begun againstBorrower and not dismissed or stayed within 30 days (but no Credit Extensionswill be made before any Insolvency Proceeding is dismissed);

8.6           Other Agreements.  If there is a default in any agreementbetween Borrower and a third party that gives the third party the right toaccelerate any Indebtedness exceeding $100,000 or that could cause a MaterialAdverse Change;

8.7           Judgments.  Except in connection with litigationidentified on the Litigation Schedule, if a money judgement(s) in the aggregateof at least $500,000 is rendered against Borrower and is unsatisfied andunstayed for 10 days (but no Credit Extensions will be made before the judgmentis stayed or satisfied);

8.8           Misrepresentations.  If Borrower or any Person acting for Borrowermakes any material misrepresentation or material misstatement now or later inany warranty or representation in this Agreement or in any writing delivered toBank or to induce Bank to enter this Agreement or any Loan Document; or

9.             Bank’s Rights And Remedies.

9.1           Rights and Remedies.  When an Event of Default occurs and continuesBank may, without notice or demand, do any or all of the following:

(a)           Declare all Obligations immediatelydue and payable (but if an Event of Default described in Section 8.5 occurs allObligations are immediately due and payable without any action by Bank);

(b)           Stop advancing money or extendingcredit for Borrower’s benefit under this Agreement or under any other agreementbetween Borrower and Bank;

(c)           Settle or adjust disputes and claimsdirectly with account debtors for amounts, on terms and in any order that Bankconsiders advisable;

(d)           Make any payments and do any acts itconsiders necessary or reasonable to protect its security interest in theCollateral.  Borrower will assemble theCollateral if Bank requires and make it available as Bank designates.  Bank may enter premises where the Collateralis located, take and maintain possession of any part of the Collateral, and pay,purchase, contest, or compromise any Lien which appears to be prior or superiorto its security interest and pay all expenses incurred. Borrower grants Bank alicense to enter and occupy any of its premises, without charge, to exerciseany of Bank’s rights or remedies;

(e)           Apply to the Obligations any (i)balances and deposits of Borrower it holds, or (ii) any amount held by Bankowing to or for the credit or the account of Borrower;

 

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(f)            Ship, reclaim, recover, store,finish, maintain, repair, prepare for sale, advertise for sale, and sell theCollateral.  Bank is granted anon-exclusive, royalty-free license or other right to use, without charge, Borrower’slabels, Patents, Copyrights, Mask Works, rights of use of any name, tradesecrets, trade names, Trademarks, service marks, and advertising matter, or anysimilar property as it pertains to the Collateral, in completing production of,advertising for sale, and selling any Collateral and, in connection with Bank’sexercise of its rights under this Section, Borrower’s rights under all licensesand all franchise agreements inure to Bank’s benefit; and

(g)           Dispose of the Collateral accordingto the Code and, as to any Cayman Islands Borrower Subsidiary, any otherapplicable Cayman Islands laws.

9.2           Power of Attorney.  Effective only when an Event of Defaultoccurs and continues, Borrower and each Borrower Subsidiary irrevocablyappoints Bank as its lawful attorney to: (i) endorse Borrower’s or any Borrower Subsidiary’s name on any checksor other forms of payment or security; (ii) sign Borrower’s or any Subsidiary’sname on any invoice or bill of lading for any Account or drafts against accountdebtors, (iii) make, settle, and adjust all claims under Borrower’s or anyBorrower Subsidiary’s insurance policies; (iv) settle and adjust disputes andclaims about the Accounts directly with account debtors, for amounts and onterms Bank determines reasonable; and (v) transfer the Collateral into the nameof Bank or a third party as the Code or, as to any Cayman Islands BorrowerSubsidiary, any applicable Cayman Islands laws permit.  Bank may exercise the power of attorney tosign Borrower’s or any Borrower Subsidiary’s name on any documents necessary toperfect or continue the perfection of any security interest regardless ofwhether an Event of Default has occurred. Bank’s appointment as Borrower’s and each Borrower Subsidiary’s attorneyin fact, and all of Bank’s rights and powers, coupled with an interest, areirrevocable until all Obligations have been fully repaid and performed and Bank’sobligation to provide Credit Extensions terminates.

9.3           Accounts Collection.  When an Event of Default occurs andcontinues, Bank may notify any Person owing Borrower or any Borrower Subsidiarymoney of Bank’s security interest in the funds and verify the amount of theAccount.  Borrower and each BorrowerSubsidiary must collect all payments in trust for Bank and, if requested byBank, immediately deliver the payments to Bank in the form received from theaccount debtor, with proper endorsements for deposit.

9.4           Bank Expenses.  If Borrower fails to pay any amount orfurnish any required proof of payment to third persons, Bank may make all orpart of the payment or obtain insurance policies required in Section 6.5, andtake any action under the policies Bank deems prudent.  Any amounts paid by Bank are Bank Expensesand immediately due and payable, bearing interest at the then applicable rateand secured by the Collateral.  Nopayments by Bank are deemed an agreement to make similar payments in the futureor Bank’s waiver of any Event of Default.

9.5           Bank’s Liability for Collateral.  If Bank complies with reasonable bankingpractices and the Code, it is not liable for: (a) the safekeeping of theCollateral; (b) any loss or damage to the Collateral; (c) any diminution in thevalue of the Collateral; or (d) any act or

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default of anycarrier, warehouseman, bailee, or other person. Borrower and the Borrower Subsidiaries bear all risk of loss, damage ordestruction of the Collateral.

9.6           Remedies Cumulative.  Bank’s rights and remedies under thisAgreement, the Loan Documents, and all other agreements are cumulative.  Bank has all rights and remedies providedunder the Code, and, as to any Cayman Islands Borrower Subsidiary, by anyapplicable Cayman Islands law, by any other law, or in equity. Bank’s exerciseof one right or remedy is not an election, and Bank’s waiver of any Event ofDefault is not a continuing waiver. Bank’s delay is not a waiver, election, oracquiescence. No waiver is effective unless signed by Bank and then is onlyeffective for the specific instance and purpose for which it was given.

9.7           Demand Waiver.  Borrower and each Borrower Subsidiary waives demand,notice of default or dishonor, notice of payment and nonpayment, notice of anydefault, nonpayment at maturity, release, compromise, settlement, extension, orrenewal of accounts, documents, instruments, chattel paper, and guarantees heldby Bank on which Borrower or any Borrower Subsidiary is liable.

10.           Notices.  All notices or demands by any party aboutthis Agreement or any other related agreement must be in writing and bepersonally delivered or sent by an overnight delivery service, by certifiedmail, postage prepaid, return receipt requested, or by telefacsimile to theaddresses set forth at the beginning of this Agreement.  A party may change its notice address bygiving the other party written notice.

11.           Choice Of Law , Venue And JuryTrial Waiver.  California law governsthe Loan Documents without regard to principles of conflicts of law.  Borrower, Bank and each Borrower Subsidiaryeach submit to the exclusive jurisdiction of the State and Federal courts inSanta Clara County, California.

TO THE EXTENT PERMITTED BY LAW, BORROWER, BANK ANDEACH BORROWER SUBSIDIARY EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM ORCAUSE OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATEDTRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS.THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THISAGREEMENT.  EACH PARTY HAS REVIEWED THISWAIVER WITH ITS COUNSEL.

12.           General Provisions.

12.1         Successors and Assigns.  This Agreement binds and is for the benefitof the successors and permitted assigns of each party.  Borrower and each Subsidiary may not assignthis Agreement or any rights under it without Bank’s prior written consentwhich may be granted or withheld in Bank’s discretion.  Bank has the right, without the consent of ornotice to Borrower, to sell, transfer, negotiate, or grant participation in allor any part of, or any interest in, Bank’s obligations, rights and benefitsunder this Agreement.

12.2         Indemnification.  Borrower will indemnify, defend and holdharmless Bank and its officers, employees, and agents against:  (a) all obligations, demands, claims, andliabilities asserted by any other party in connection with the transactionscontemplated by the

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Loan Documents;and (b) all losses or Bank Expenses incurred, or paid by Bank from, following,or consequential to transactions between Bank and Borrower (includingreasonable attorneys fees and expenses), except for losses caused by Bank’sgross negligence or willful misconduct.

12.3         Time of Essence.  Time is of the essence for the performance ofall obligations in this Agreement.

12.4         Severability of Provision.  Each provision of this Agreement is severablefrom every other provision in determining the enforceability of any provision.

12.5         Amendments in Writing, Integration.  All amendments to this Agreement must be inwriting and signed by Borrower, each Borrower Subsidiary and Bank.  This Agreement represents the entireagreement about this subject matter, and supersedes prior negotiations oragreements.  All prior agreements,understandings, representations, warranties, and negotiations between theparties about the subject matter of this Agreement merge into this Agreementand the Loan Documents.

12.6         Counterparts.  This Agreement may be executed in any numberof counterparts and by different parties on separate counterparts, each ofwhich, when executed and delivered, are an original, and all taken together,constitute one Agreement.

12.7         Survival.  All covenants, representations and warrantiesmade in this Agreement continue in full force while any Obligations remainoutstanding.  The obligations of Borrowerin Section 12.2 to indemnify Bank will survive until all statutes oflimitations for actions that may be brought against Bank have run.

12.8         Confidentiality.  In handling any confidential information,Bank will exercise the same degree of care that it exercises for its ownproprietary information, but disclosure of information may be made (i) to Bank’ssubsidiaries or affiliates in connection with their business with Borrower,(ii) to prospective transferees or purchasers of any interest in the loans(provided, however, Bank shall use commercially reasonable efforts in obtainingsuch prospective transferee or purchasers agreement of the terms of thisprovision), (iii) as required by law, regulation, subpoena, or other order,(iv) as required in connection with Bank’s examination or audit and (v) as Bankconsiders appropriate exercising remedies under this Agreement.  Confidential information does not includeinformation that either: (a) is in the public domain or in Bank’s possessionwhen disclosed to Bank, or becomes part of the public domain after disclosureto Bank; or (b) is disclosed to Bank by a third party, if Bank does not knowthat the third party is prohibited from disclosing the information.

12.9         Attorneys’ Fees, Costs and Expenses.  In any action or proceeding between Borrowerand Bank arising out of the Loan Documents, the prevailing party will beentitled to recover its reasonable attorneys’ fees and other reasonable costsand expenses incurred, in addition to any other relief to which it may beentitled.

13.           Definitions.  In this Agreement:

“Accounts” are allexisting and later arising accounts, contract rights, and other obligationsowed Borrower in connection with its sale or lease of goods (includinglicensing

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software and othertechnology) or provision of services, all credit insurance, guaranties, othersecurity and  all merchandise returned orreclaimed by Borrower and Borrower’s Books relating to any of the foregoing.

“Advance” or “Advances”is a loan advance (or advances) under the Committed Revolving Line.

“Affiliate” of a Personis a Person that owns or controls directly or indirectly the Person, any Personthat controls or is controlled by or is under common control with the Person,and each of that Person’s senior executive officers, directors, partners and,for any Person that is a limited liability company, that Person’s managers andmembers.

“Bank Expenses” are allUCC search and filing expenses, audit and maintenance fees and expenses andreasonable costs and expenses (including reasonable attorneys’ fees andexpenses) for preparing, negotiating, administering, defending and enforcingthe Loan Documents (including appeals or Insolvency Proceedings).

“Borrower’s Books” areall Borrower’s books and records including ledgers, records regarding Borrower’sassets or liabilities, the Collateral, business operations or financialcondition and all computer programs or discs or any equipment containing theinformation.

“Borrowing Base” is 80%of Eligible Accounts as determined by Bank from Borrower’s most recentBorrowing Base Certificate plus 25% of Inventory (finished goods only and up to$10,000,000 of inventory financing); provided, however, that Bankmay lower the percentage of the Borrowing Base after performing an audit ofBorrower’s Collateral.

“Borrower Subsidiary”shall mean SST International Ltd, SST RG LLC, SST Communications Corp. and SSTChina Ltd.

“Business Day” is any daythat is not a Saturday, Sunday or a day on which the Bank is closed.

“Closing Date” is thedate of this Agreement.

“Code” is the UniformCommercial Code, as applicable.

“Collateral” is theproperty described on Exhibit A.

“Contingent Obligation”is, for any Person, any direct or indirect liability, contingent or not, ofthat Person for (i) any indebtedness, lease, dividend, letter of credit orother obligation of another such as an obligation directly or indirectlyguaranteed, endorsed, co made, discounted or sold with recourse by that Person,or for which that Person is directly or indirectly liable; (ii) any obligationsfor undrawn letters of credit for the account of that Person; and (iii) allobligations from any interest rate, currency or commodity swap agreement,interest rate cap or collar agreement, or other agreement or arrangementdesignated to protect a Person against fluctuation in interest rates, currencyexchange rates or commodity prices;  but “ContingentObligation” does not include endorsements in the ordinary course ofbusiness.  The amount of a ContingentObligation is the stated or determined amount of the primary obligation forwhich the

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Contingent Obligation ismade or, if not determinable, the maximum reasonably anticipated liability forit determined by the Person in good faith; but the amount may not exceed themaximum of the obligations under the guarantee or other support arrangement.

“Copyrights” are allcopyright rights, applications or registrations and like protections in eachwork or authorship or derivative work, whether published or not (whether or notit is a trade secret) now or later existing, created, acquired or held.

“Credit Extension” iseach Advance or any other extension of credit by Bank for Borrower’s benefit.

“Current Assets” areamounts that under GAAP should be included on that date as current assets onBorrower’s consolidated balance sheet.

“Current Liabilities” arethe aggregate amount of Borrower’s Total Liabilities which mature within one(1) year.

“Eligible Accounts” areAccounts in the ordinary course of Borrower’s business that meet all Borrower’srepresentations and warranties in Section 5; but Bank may changeeligibility standards by giving Borrower notice.  Unless Bank agrees otherwise in writing,Eligible Accounts will not include:

(a)           Accountsthat the account debtor has not paid within 61 days of invoice date;

(b)           Accountsfor an account debtor, 50% or more of whose Accounts have not been paid within61 days of invoice date;

(c)           Creditmemos over 61 days from invoice date;

(d)           Accountsfor an account debtor, including Affiliates, whose total obligations toBorrower exceed 15% of all Accounts (net of inter company, Affiliates accounts,and returned bad debt reserves and adjustments), for the amounts that exceedthat percentage, unless the Bank approves in writing except for those certainAccounts from Silicon Professional Technology, for which the percentage may beup to 50% ;

(e)           Accountsfor which the account debtor is a federal, state or local government entity orany department, agency, or instrumentality;

(f)            Accountsfor which Borrower owes the account debtor, but only up to the amount owed(sometimes called “contra” accounts, accounts payable, customer deposits orcredit accounts);

(g)           Accountsfor demonstration or promotional equipment, or in which goods are consigned,sales guaranteed, sale or return, sale on approval, bill and hold, or otherterms if account debtor’s payment may be conditional;

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(h)           Accountsfor which the account debtor is Borrower’s Affiliate, officer, employee, oragent;

(i)            Accountsin which the account debtor disputes liability or makes any claim and Bankbelieves there may be a basis for dispute (but only up to the disputed orclaimed amount), or if the Account Debtor is subject to an InsolvencyProceeding, or becomes insolvent, or goes out of business;

(j)            Intercompanyaccounts; and

(k)           Accountsfor which Bank reasonably determines collection to be doubtful.

“Equipment” is allpresent and future machinery, equipment, tenant improvements, furniture,fixtures, vehicles, tools, parts and attachments in which Borrower has anyinterest.

“ERISA” is the EmploymentRetirement Income Security Act of 1974, and its regulations.

“GAAP” is generallyaccepted accounting principles.

“Indebtedness” is(a) indebtedness for borrowed money or the deferred price of property orservices, such as reimbursement and other obligations for surety bonds andletters of credit, (b) obligations evidenced by notes, bonds, debentures orsimilar instruments, (c) capital lease obligations and (d) ContingentObligations.

“Insolvency Proceeding”are proceedings by or against any Person under the United States BankruptcyCode, or any other bankruptcy or insolvency law, including assignments for thebenefit of creditors, compositions, extensions generally with its creditors, orproceedings seeking reorganization, arrangement, or other relief.

“IntellectualProperty” is:

(a)           Copyrights,Trademarks, Patents, and Mask Works including amendments, renewals, extensions,and all licenses or other rights to use and all license fees and royalties fromthe use;

(b)           Anytrade secrets and any intellectual property rights in computer software andcomputer software products now or later existing, created, acquired or held;

(c)           Alldesign rights which may be available to Borrower now or later created, acquiredor held;

(d)           Anyclaims for damages (past, present or future) for infringement of any of therights above, with the right, but not the obligation, to sue and collect damagesfor use or infringement of the intellectual property rights above;

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All proceeds and products of the foregoing, includingall insurance, indemnity or warranty payments.

“Inventory” is present and future inventory in whichBorrower has any interest, including merchandise, raw materials, parts,supplies, packing and shipping materials, work in process and finished productsintended for sale or lease or to be furnished under a contract of service, ofevery kind and description now or later owned by or in the custody orpossession, actual or constructive, of Borrower, including inventorytemporarily out of its custody or possession or in transit and includingreturns on any accounts or other proceeds (including insurance proceeds) fromthe sale or disposition of any of the foregoing and any documents of title.

“Investment” is any beneficial ownership of (includingstock, partnership interest or other securities) any Person, or any loan,advance or capital contribution to any Person.

“Lien” is a mortgage, lien, deed of trust, charge,pledge, security interest or other encumbrance.

“Loan Documents” are, collectively, this Agreement,any note, or notes or guaranties executed by Borrower or Guarantor, and anyother present or future agreement between Borrower and/or for the benefit ofBank in connection with this Agreement, all as amended, extended or restated.

“Mask Works” are all mask works or similar rightsavailable for the protection of semiconductor chips, now owned or lateracquired.

“Material Adverse Change” is described in Section 8.3.

“Obligations” are debts, principal, interest, BankExpenses and other amounts Borrower owes Bank now or later, including cashmanagement services, letters of credit and foreign exchange contracts, if anyand including interest accruing after Insolvency Proceedings begin and debts,liabilities, or obligations of Borrower assigned to Bank.

“Patents” are patents, patent applications and likeprotections, including improvements, divisions, continuations, renewals,reissues, extensions and continuations in part of the same.

“Permitted Indebtedness” is:

(e)           Borrower’sindebtedness to Bank under this Agreement or any other Loan Document;

(f)            Indebtednessexisting on the Closing Date and shown on the Schedule;

(g)           SubordinatedDebt;

(h)           Indebtednessto trade creditors incurred in the ordinary course of business; and

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(i)            Indebtednesssecured by Permitted Liens.

(j)            Other Indebtedness,excluding listed above, not exceeding an aggregate of US$1,000,000

“Permitted Investments” are:

(k)            Investments shown on the InvestmentSchedule and existing on the Closing Date; and

(l)             marketabledirect obligations issued or unconditionally guaranteed by the United States orits agency or any State maturing within 1 year from its acquisition, (ii) commercialpaper maturing no more than 1 year after its creation and having the highestrating from either Standard & Poor’s Corporation or Moody’s InvestorsService, Inc., and (iii) Bank’s certificates of deposit issued maturing no morethan 1 year after issue.

“Permitted Liens” are:

(j)            Liensexisting on the Closing Date and shown on the Schedule or arising under thisAgreement or other Loan Documents;

(k)           Liensfor taxes, fees, assessments or other government charges or levies, either notdelinquent or being contested in good faith and for which Borrower maintainsadequate reserves on its Books, if they have no priority over any of Bank’ssecurity interests;

(l)            Purchasemoney Liens (i) on Equipment acquired or held by Borrower or its Subsidiariesincurred for financing the acquisition of the Equipment, or (ii) existing onequipment when acquired, if the Lien is confined to the property andimprovements and the proceeds of the equipment;

(m)          Licensesor sublicenses granted in the ordinary course of Borrower’s business and anyinterest or title of a licensor or under any license or sublicense, if thelicenses and sublicenses permit granting Bank a security interest;

(n)           Leasesor subleases granted in the ordinary course of Borrower’s business, includingin connection with Borrower’s leased premises or leased property;

(o)           Liensincurred in the extension, renewal or refinancing of the indebtedness securedby Liens described in (a) through (c), but any extension, renewal orreplacement Lien must be limited to the property encumbered by the existingLien and the principal amount of the indebtedness may not increase.

“Person” is any individual, sole proprietorship,partnership, limited liability company, joint venture, company association,trust, unincorporated organization, association, corporation, institution,public benefit corporation, firm, joint stock company, estate, entity orgovernment agency.

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“Prime Rate” is the variable rate of interest, perannum, that is reported by the Wall Street Journal, Western Edition, from timeto time as the “Prime Rate.”

“Responsible Officer” is each of the Chief ExecutiveOfficer, the President, and the Chief Financial Officer of Borrower.

“Revolving Line” is a Credit Extension of up to$40,000,000 (subject to an $8,000,000 sublimit maximum for SST China Ltd.)subject to participation of $20,000,000.

“Revolving Maturity Date” is August 11, 2007.

“Schedule” is any attached schedule of exceptions.

“Subordinated Debt” is debt incurred by Borrowersubordinated to Borrower’s indebtedness owed to Bank and which is reflected ina written agreement in a manner and form acceptable to Bank and approved byBank in writing.

“Subsidiary” is for any Person, or any other businessentity of which more than 50% of the voting stock or other equity interests isowned or controlled, directly or indirectly, by the Person or one or moreAffiliates of the Person.

“Tangible Net Worth” is, on any date, the consolidatedtotal assets of Borrower and its Subsidiaries minus, (i) any amountsattributable to (a) goodwill, (b) intangible items such as unamortized debtdiscount and expense, Patents, trade and service marks and names, Copyrightsand research and development expenses except prepaid expenses, and (c) reservesnot already deducted from assets, and (ii) Total Liabilities.

“Total Liabilities” is on any day, obligations thatshould, under GAAP, be classified as liabilities on Borrower’s consolidatedbalance sheet, including all Indebtedness.

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“Trademarks” are trademark and servicemark rights,registered or not, applications to register and registrations and likeprotections, and the entire goodwill of the business of Assignor connected withthe trademarks.
|        | BORROWER:                        |
|--------|----------------------------------|
|   |                             |   |
|   | SILICON STORAGE TECHNOLOGY, INC. |
|   |                             |   |
|   | By:                              | /s/ Art Whipple |
|   |                             | Art Whipple |
|   | Title:                           | Vice President Finance & CFO |
|   |                             |   |
|   | SST INTERNATIONAL LTD            |
|   |                             |   |
|   | By:                              | /s/ Art Whipple |
|   |                             | Art Whipple |
|   | Title:                           | Secretary |
|   |                             |   |
|   | SST RG, LLC                      |
|   |                             |   |
|   | By:                              | /s/ Art Whipple |
|   |                             | Art Whipple |
|   | Title:                           | CFO & Secretary |
|   |                             |   |
|   | SST COMMUNICATIONS CORP.         |
|   |                             |   |
|   | By:                              | /s/ Art Whipple |
|   |                             | Art Whipple |
|   | Title:                           | CFO & Secretary |
|   |                             |   |
|   |                             |   |
|   |                             |   |
|   | BANK:                            |
|   |                             |   |
|   | CATHAY BANK                      |
|   |                             |   |
|   | By:                              |   |
|   | Title:                           |   |

 

 

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**EXHIBIT A**

The Collateral consistsof all of the right, title and interest of Borrower and each BorrowerSubsidiary in and to the following:

All goods and equipmentnow owned or hereafter acquired, including, without limitation, all machinery,fixtures, vehicles (including motor vehicles and trailers), and any interest inany of the foregoing, and all attachments, accessories, accessions,replacements, substitutions, additions, and improvements to any of theforegoing, wherever located;

All inventory, now ownedor hereafter acquired, including, without limitation, all merchandise, rawmaterials, parts, supplies, packing and shipping materials, work in process andfinished products including such inventory as is temporarily out of Borrower’scustody or possession or in transit and including any returns upon any accountsor other proceeds, including insurance proceeds, resulting from the sale ordisposition of any of the foregoing and any documents of title representing anyof the above;

All contract rights and generalintangibles now owned or hereafter acquired, including, without limitation,goodwill, trademarks, servicemarks, trade styles, trade names, patents, patentapplications, leases, license agreements, franchise agreements, blueprints,drawings, purchase orders, customer lists, route lists, infringements, claims,computer programs, computer discs, computer tapes, literature, reports,catalogs, design rights, income tax refunds, payments of insurance and rightsto payment of any kind;

All now existing andhereafter arising accounts, contract rights, royalties, license rights and allother forms of obligations owing to Borrower or any Borrower Subsidiary,arising out of the sale or lease of goods, the licensing of technology or therendering of services by Borrower  or anyBorrower Subsidiary, whether or not earned by performance, and any and allcredit insurance, guaranties, and other security therefor, as well as allmerchandise returned to or reclaimed by Borrower or by any Borrower Subsidiary;

All documents, cash,deposit accounts, securities, securities entitlements, securities accounts,investment property, financial assets, letters of credit, certificates ofdeposit, instruments and chattel paper now owned or hereafter acquired andBorrower’s or any Borrower Subsidiary’s Books relating to the foregoing;

All Borrower’s or anyBorrower Subsidiary’s Books relating to the foregoing and any and all claims,rights and interests in any of the above and all substitutions for, additionsand accessions to and proceeds thereof.

Notwithstanding theforegoing, the Collateral shall not be deemed to include any copyrights,copyright applications, copyright registration and like protection in each workof authorship and derivative work thereof, whether published or unpublished,now owned or hereafter acquired; any patents, patent applications and likeprotections including without limitation improvements, divisions,continuations, renewals, reissues, extensions and continuations-in-part of thesame, trademarks, servicemarks and applications therefor, whether registered ornot, and the goodwill of the business of Borrower or of any BorrowerSubsidiary,

1

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connected with andsymbolized by such trademarks, any trade secret rights, including any rights tounpatented inventions, know-how, operating manuals, license rights andagreements and confidential information, now owned or hereafter acquired; orany claims for damage by way of any past, present and future infringement ofany of the foregoing (collectively, the “Intellectual Property”), except thatthe Collateral shall include the proceeds of all the Intellectual Property thatare accounts, (i.e. accounts receivable) of Borrower or of any BorrowerSubsidiary or general intangibles consisting of rights to payment, if a judicialauthority (including a U.S. Bankruptcy Court) holds that a security interest inthe underlying Intellectual Property is necessary to have a security interestin such accounts and general intangibles of Borrower or of any BorrowerSubsidiary that are proceeds of the Intellectual Property, then the Collateralshall automatically, and effective as of the Closing Date, include theIntellectual Property to the extent necessary to permit perfection of Bank’ssecurity interest in such accounts and general intangibles of Borrower or ofany Borrower Subsidiary that are proceeds of the Intellectual Property.

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LoanPayment/Advance Request Form

DEADLINE FOR SAME DAY PROCESSING IS 11:00 A.M.P.S.T.
| **FAX TO:** | ** ** | **DATE:** | ** ** |   |
|-------------|------------|-----------|------------|--------|

 

**○** Loan Payment:

 

Sample documents  Silicon Storage Technology, Inc. (Borrower)

 
| From Account # |                 |   | To Account # |            |
|----------------|----------------------|--------|--------------|-----------------|
|           | (Deposit Account  #) |   |         | Loan Account #) |

 

Principal$                                and/or Interest$                                

 

All Borrower’srepresentation and warranties in the Loan and Security Agreement are true,correct and complete in all material respects to on the date of the telephonetransfer request for and advance, but those representations and warrantiesexpressly referring to another date shall be true, correct and complete in allmaterial respects as of the date:

 
| **Authorized Signature:** | ** ** |   | Phone Number: |   |
|---------------------------|------------|--------|---------------|--------|

 

 

**○****LOAN ADVANCE:**

 

**Complete *Outgoing Wire Request*section below if all or a portion of the funds from this loan advance are foran outgoing wire.**

 
| From Account # |                 |   | To Account # |             |
|----------------|----------------------|--------|--------------|------------------|
|           | (Deposit Account  #) |   |         | (Loan Account #) |

 

Principal$                                and/or Interest$                                

 

All Borrower’srepresentation and warranties in the Loan and Security Agreement are true,correct and complete in all material respects to on the date of the telephonetransfer request for and advance, but those representations and warrantiesexpressly referring to another date shall be true, correct and complete in allmaterial respects as of the date:

 
| **Authorized Signature:** | ** ** |   | Phone Number: |   |
|---------------------------|------------|--------|---------------|--------|

 

 

**OUTGOING WIRE REQUEST**

 

**Complete only if all or a portionof funds from the *loan advance* above are to bewired.**

** **

Deadline for same day processing is 11:00 am, P.S.T.

** **
| Beneficiary Name: |   |   | Amount of Wire: | $      |   |
|-------------------|--------|--------|-----------------|--------|--------|
| Beneficiary Bank: |   |   | Account Number: |   |   |
| City and Sate:    |   |   |            |   |   |

** **
| Beneficiary Bank Transit (ABA) #: |   |   |   | Beneficiary Bank Code (Swift, Sort, Chip, etc.): |   |
|-----------------------------------|--------|--------|--------|--------------------------------------------------|--------|

** **

**(ForInternational Wire Only)**

** **
| Intermediary  Bank: |   |   | Transit (ABA) #: |   |
|---------------------|--------|--------|------------------|--------|

** **
| For Further Credit to: |   |
|------------------------|--------|
| Special Instruction:   |   |

** **

*By signing below, I (we) acknowledge and agree thatmy (our) funds transfer request shall be processed in accordance with and subjectto the terms and conditions set forth in the agreements(s) covering fundstransfer service(s), which agreements(s) were previously received and executedby me (us).*

** **
| Authorized Signature: |   |   | 2nd Signature (If  Required): |   |
|-----------------------|--------|--------|------------------------------------|--------|
| Print Name/Title:     |   |   | Print Name/Title:                  |   |
| Telephone #           |   |   | Telephone #                        |   |

 

----

| Telephone # |   |   | Facsimile # |   |
|-------------|--------|--------|-------------|--------|

 

**EXHIBIT CBORROWING BASE CERTIFICATE**
|                                                                                                               |
|---------------------------------------------------------------------------------------------------------------|
|                                                                                                          |
| Borrower: Silicon Storage Technology, Inc.                                                                    |   | Bank: |   | Cathay Bank  20195 Stevens Creek Boulevard  Suite 100  Cupertino, California 95014 |
| Commitment Amount:       $40,000,000  (Subject to reduction and sublimits) |   |   |   |   |
|                                                                                                          |

 
| ACCOUNTS RECEIVABLE                                   |   |                                                                                              |   |   |                                                                                                         |
|-------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------------------------------------------|
| 1.                                                    |   | Accounts Receivable  Book Value as of           |   | $      |                    |   |   |   |
| 2.                                                    |   | Additions (please  explain on reverse)                                                            |   | $      |                    |   |   |   |
| 3.                                                    |   | TOTAL ACCOUNTS  RECEIVABLE                                                                        |   |   |                                                                                                         | $ |                    |   |
|                                                  |   |                                                                                              |   |   |                                                                                                         |   |   |
| ACCOUNTS RECEIVABLE  DEDUCTIONS (without duplication) |   |                                                                                              |   |   |                                                                                                         |
| 4.                                                    |   | Amounts over 61 days  due                                                                         |   | $      |                    |   |   |   |
| 5.                                                    |   | Balance of 50% over 61  day accounts                                                              |   | $      |                    |   |   |   |
| 6.                                                    |   | Credit balances over 61  days                                                                     |   | $      |                    |   |   |   |
| 7.                                                    |   | Concentration Limits*                                                                             |   | $      |                    |   |   |   |
| 8.                                                    |   | Contra Accounts                                                                                   |   | $      |                    |   |   |   |
| 9.                                                    |   | Promotion or Demo  Accounts                                                                       |   | $      |                    |   |   |   |
| 10.                                                   |   | Intercompany/Employee  Accounts                                                                   |   | $      |                    |   |   |   |
| 11.                                                   |   | Consignment Accounts                                                                              |   | $      |                    |   |   |   |
| 12.                                                   |   | Government Accounts                                                                               |   | $      |                    |   |   |   |
| 13.                                                   |   | Other (please explain  on reverse)                                                                |   | $      |                    |   |   |   |
| 14.                                                   |   | TOTAL ACCOUNTS  RECEIVABLE DEDUCTIONS                                                             |   |   |                                                                                                         | $ |                    |   |
| 15.                                                   |   | Total Eligible Accounts  Receivable (Line 3 minus Line 14)                                        |   |   |                                                                                                         | $ |                    |   |
|                                                  |   |                                                                                              |   |   |                                                                                                         |   |   |
| INVENTORY                                             |   |                                                                                              |   |   |                                                                                                         |
| 16.                                                   |   | Total Inventory as of:                          |   | $      |                    |   |   |   |
| 17.                                                   |   | Ineligible Inventory                                                                              |   | $      |                    |   |   |   |
| 18.                                                   |   | Total Eligible  Inventory (Line 16 minus Line 17)                                                 |   |   |                                                                                                         | $ |                    |   |
|                                                  |   |                                                                                              |   |   |                                                                                                         |   |   |
| BALANCES                                              |   |                                                                                              |   |   |                                                                                                         |
| 19.                                                   |   | Account Receivable  Availability at 80% of Line 15                                                |   | $      |                    |   |   |   |
| 20.                                                   |   | Inventory Availability  at 25% of Line 18 and up to $10,000,000                                   |   | $      |                    |   |   |   |
| 21.                                                   |   | Maximum Loan Amount                                                                               |   | $      |                    |   |   |   |
| 22.                                                   |   | Total Funds Available  (Lesser of Line 19 + Line 20 or Line 21)                                   |   |   |                                                                                                         | $ |                    |   |
| 23.                                                   |   | Present balance owing  on Line of Credit                                                          |   | $      |                    |   |   |   |
| 24.                                                   |   | Outstanding under  Sublimits (LC or FX)                                                           |   | $      |                    |   |   |   |
| 25.                                                   |   | RESERVE POSITION (Line 22 minus Line 230 and Line 0)                                         |   |   |                                                                                                         | $ |                    |   |

 

*Theundersigned represents and warrants that this is true, complete and correct,and that the information in this Borrowing Base Certificate complies with therepresentations and warranties in the Loan and Security Agreement between theundersigned and Cathay Bank.*
|        | **BANK  USE ONLY** |
|--------|--------------------|
|   |               |   |
|   | Rec'd By:          |   |
|   |               | Auth. Signer |
|   | Date:              |   |
|   | Verified:          |   |
|   |               | Auth. Signer |
|   | Date:              | * * |

 

----

COMMENTS:

 

Silicon Storage Technology, Inc.

 
| By:    |               |   |
|--------|--------------------|--------|
|   | Authorized  Signer |   |

 

**The amounts of accounts of any customer in excessof 15% of net accounts receivable (net of inter-company, affiliates’ accounts,return of bad debt reserve and adjustments), with an exception allowed up to50% for Silicon Professional Technology.*

 

2

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**EXHIBIT D****COMPLIANCE CERTIFICATE**
| TO:    |   | Cathay Bank                              |
|--------|--------|------------------------------------------|
|   |   | 20195 Stevens Creek Boulevard, Suite 100 |
|   |   | Cupertino, California 95014              |
| FROM:  |   | Silicon Storage Technology, Inc.         |

 

The undersignedauthorized officer of Silicon Storage Technology, Inc. (“Borrower”) certifiesthat under the terms and conditions of the Loan and Security Agreement betweenBorrower and Bank (the “Agreement”), (i) Borrower is in completecompliance for the period ending                                 with all required covenants except as noted below and (ii) allrepresentations and warranties in the Agreement are true and correct in allmaterial respects on this date.  Attachedare the required documents supporting the certification.  The Officer certifies that these are preparedin accordance with Generally Accepted Accounting Principles (GAAP) consistentlyapplied from one period to the next except as explained in an accompanyingletter or footnotes.  The Officeracknowledges that no borrowings may be requested at any time or date ofdetermination that Borrower is not in compliance with any of the terms of theAgreement, and that compliance is determined not just at the date thiscertificate is delivered.

**Please indicate compliance status by circlingYes/No under “Complies” column.**

| Financial Covenant                  | ** ** | **Required**             | ** ** | **Complies**                        |
|-------------------------------------|------------|--------------------------|------------|-------------------------------------|
|                                |       |                     |       |                                |
| Quarterly financial statements + CC |       | Quarterly within 45 days |       | Yes     No |
| 10-K (Audited)                      |       | FYE within 120 days      |       | Yes     No |
| A/R & A/P  Agings               |       | Monthly within 20 days*  |       | Yes     No |
| A/R Audit                           |       | Annual                   |       | Yes     No |
| Borrowing Base Certificate          |       | Monthly within 20 days*  |       | Yes     No |

 

| Financial Covenant           | ** ** | **Required** | ** ** | **Actual**                                                        | ** ** | **Complies**                        |
|------------------------------|------------|--------------|------------|-------------------------------------------------------------------|------------|-------------------------------------|
|                         |       |         |       |                                                              |       |                                |
| Maintain on a Monthly Basis: |       |         |       |                                                              |       |                                |
| Minimum Current  Ratio       |       | 1.75:1.00    |       |           :1.00 |       | Yes     No |
| Minimum  Liquidity Ratio     |       | 1.00:1.00    |       |           :1.00 |       | Yes     No |
| Maximum Leverage  Ratio      |       | 1.50:1.00    |       |           :1.00 |       | Yes     No |

 
| Have there been updates to  Borrower’s intellectual property, if appropriate? |   | Yes  /  No |   |
|------------------------------------------------------------------------------------|--------|--------------------------------|--------|

 

----

 
|                                                        |   | **BANK  USE ONLY** |
|--------------------------------------------------------|--------|--------------------|
| **Comments Regarding Exceptions:**  See Attached. |   | ** **         |
|                                                   |   | Received by:       | ** ** |
|                                                   |   | ** **         | AUTHORIZED SIGNER |
| Sincerely,                                             |   | ** **         |
|                                                   |   | Date:              | ** ** |
|                                                   |   |               | ** ** |
| Silicon Storage Technology, Inc.                       |   | Verified:          | ** ** |
|                                                   |   | ** **         | AUTHORIZED SIGNER |
| BY:                                                    |   |               | ** ** |
| SIGNATURE                                              |   | Date:              | ** ** |
|                                                   |   |               | ** ** |
|                                                   |   |               | Compliance Status: | Yes    No |
| TITLE                                                  |   | ** **         |
|                                                   |   | ** **         |
|                                                   |   | ** **         |
|                                                   |   |               | ** ** |
| DATE                                                   |   | ** **         |
|                                                   |   | ** **         |
|                                                   |   | ** **         |
|                                                   |   | ** **         |
|                                                        |        |                    |  |  |  |  |  |

 

----

Litigation Schedule

InJanuary and February 2005, multiple putative shareholder class actioncomplaints were filed against SST and certain directors and officers, in theUnited States District Court for the Northern District of California, followingour announcement of anticipated financial results for the fourth quarter of2004.  On March 24, 2005, the putativeclass actions were consolidated under the caption In re Silicon StorageTechnology, Inc., Securities Litigation, Case No. C 05 00295 PJH (N.D. Cal.).  On May 3, 2005, the Honorable Phyllis J.Hamilton appointed the “Louisiana Funds Group,” consisting of the LouisianaSchool Employees’ Retirement System and the Louisiana District Attorneys’Retirement System, to serve as lead plaintiff and the law firms of PomeranzHaudek Block Grossman & Gross LLP and Berman DeValerio Pease Tabacco Burt& Pucillo to serve as lead counsel and liason counsel, respectively, forthe class.  The lead plaintiff filed aConsolidated Amended Class Action Complaint on July 15, 2005.  The complaint seeks unspecified damages onalleged violations of federal securities laws during the period from April 21,2004 to December 20, 2004.  Responses tothe Consolidated Amended Class Action Complaint are presently scheduled to bedue on September 16, 2005.  We intend totake all appropriate action in response to these lawsuits.  The impact related to the outcome of thesematters is undeterminable at this time.

InJanuary and February 2005, following the filing of the putative class actions,multiple shareholder derivative complaints were filed in California SuperiorCourt for the County of Santa Clara, purportedly on behalf of SST againstcertain directors and officers.  Thefactual allegations of these complaints are substantially identical to thosecontained in the putative shareholder class actions filed in federalcourt.  The derivative complaints assertclaims for, among other things, breach of fiduciary duty and violations of theCalifornia Corporations Code.  Thesederivative actions have been consolidated under the caption In Re SiliconStorage Technology, Inc. Derivative Litigation, Lead Case No. 1:05CV034387(Cal. Super. Ct., Santa Clara Co.).  Weintend to take all appropriate action in response to these lawsuits.  The impact related to the outcome of thesematters is undeterminable at this time.

On July13, 2006, a shareholder derivative complaint was filed in the United Statesdistrict Court for the Northern district of California by Mike Brien under thecaption Brien v. Yeh, et al., Case No. C06-04310 JF (N.D. Cal.).  On July 18, 2006, a shareholder derivativecomplaint was filed in the United States District court for the northernDistrict of California by Behrad Bazargani under the caption Bazargani v. Yeh,et al., Case No. C06-04388 HRL (N.D. Cal.). Both complaints were brought purportedly on behalf of us against certainof our current and former officers and directors and allege among other things,that the named officers and directors: (a) breached their fiduciary duties as theycolluded with each other to backdate stock options, (b) violated Rule 10b-5 ofthe Securities Exchange Act of 1934 through their alleged actions, and (c) wereunjustly enriched by their receipt and retention of such stock options.  We intend to take all appropriate action inresponding to the complaints.

----

Investment Schedule

**SiliconStorage Technology, Inc.**

**Investmentat June 30, 2006**
| ** **                                               | ** ** | **# shares**  | ** ** | **Carried**         | ** ** | **Carried**                         | ** ** | **Closing Price** | ** ** |
|----------------------------------------------------------|------------|--------------------|------------|---------------------|------------|-------------------------------------|------------|------------------------|------------|
| ** **                                               | ** ** | **SST owned** | ** ** | **Investment**      | ** ** | **Investment**                      | ** ** | **in NT$ @** | ** ** |
| ** **                                               | ** ** | **Total**          | ** ** | **in Total $** | ** ** | **Per Share in US$** | ** ** | **6/30/2006**          | ** ** |
| **Common Shares**                                        |       |               |       |                |       |                                |       |                   |       |
| KYE (King Yuan  Electronics Corp.)                       |       | 3,937,828          |       | $                   | 1,299,460  |                                | $          | 0.3300                 |       | NTD 27.20 |   |
| PTI (Powertech  Technology, Inc.)                        |       | 5,482,580          |       | $                   | 1,759,986  |                                | $          | 0.3210                 |       | NTD 96.10 |   |
| PCT Limited  (Professional Computer Technology, Limited) |       | 7,346,226          |       | $                   | 2,330,262  |                                | $          | 0.3172                 |       | NTD 33.80 |   |
| Insyde Software Corp.                                    |       | 1,533,401          |       | $                   | 455,513    |                                | $          | 0.2971                 |       | NTD 31.20 |   |
| Silicon Technology Co.,  Ltd.                            |       | 250,000            |       | $                   | 938,967    |                                | $          | 3.7559                 |       |   |   |
| APACER (Apacer  Technology Inc.)                         |       | 9,927,280          |       | $                   | 4,357,240  |                                | $          | 0.4389                 |       |   |   |
| GSMC (Grace  Semiconductor Manufacturing Corporation)    |       | 113,000,000        |       | $                   | 83,150,000 |                                | $          | 0.7358                 |       |   |   |
| Acorn Campus Asia Fund  I, L.P.                          |       | 666,666            |       | $                   | 866,872    |                                | $          | 1.3003                 |       |   |   |
| ACET (Advanced Chip  Engineering Technology, Inc.)       |       | 6,056,391          |       | $                   | 1,772,036  |                                | $          | 0.2926                 |       |   |   |
| EoNex (EoNex  Technologies, Inc.)                        |       | 19,950             |       | $                   | 3,000,000  |                                | $          | 150.3759               |       |   |   |
|                                                     |       |               |       |                |       |                                |       |                   |       |
|                                                     |       |               |       |                |       |                                |       |                   |       |
| **Convertible Bonds**                                    |       |               |       |                |       |                                |       |                   |       |
| PCT Limited  (Professional Computer Technology, Limited) |       | 1,485,493          |       | $                   | 1,721,376  |                                | $          | 1.16                   |       | NTD 33.80 |   |
| Insyde Software Corp.                                    |       |               |       | $                   | 132,705    |                                |       |                   | NTD 31.20  |   |
|                                                     |       |               |       |                |       |                                |       |                   |       |
|                                                     |       |               |       |                |       |                                |       |                   |       |
| ** **                                               |       |               |       |                |       |                                |       |                   |       |

 

**Note:SST has a pending investment project of NT $520M for ACET in Q3, 2006**

----