Unassociated Document


    Exhibit
      10.01

     

    ELEVENTH
      AMENDMENT TO CREDIT AND SECURITY AGREEMENT

    AND
      WAIVER OF DEFAULTS

     

    This
      Amendment, dated as of April 17, 2006, is made by and among SANZ INC., formerly
      known as Storage Area Networks, Inc., a Colorado corporation (“SANZ” or a
“Borrower”), SOLUNET STORAGE, INC., a Delaware corporation (“Solunet” or a
“Borrower”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (the “Lender”), acting
      through its WELLS FARGO BUSINESS CREDIT operating division.

     

    Recitals

     

    The
      Borrowers and the Lender are parties to a Credit and Security Agreement dated
      as
      of May 31, 2001, as amended by (i) the First Amendment to Credit and Security
      Agreement and Waiver of Defaults dated as of January 17, 2002; (ii) the Second
      Amendment to Credit and Security Agreement dated as of July 1, 2002; (iii)
      the
      Third Amendment to Credit and Security Agreement dated as of August 15, 2002;
      (iv) the Fourth Amendment to Credit and Security Agreement and Waiver of
      Defaults dated as of March 31, 2003; (v) the Fifth Amendment to Credit and
      Security Agreement and Waiver of Defaults dated as of September 22, 2003; (vi)
      the Sixth Amendment to Credit and Security Agreement dated as of February 12,
      2004; (vii) the Seventh Amendment to Credit and Security Agreement and Waiver
      of
      Defaults dated as of September 3, 2004; (viii) the Eighth Amendment to Credit
      and Security Agreement and Waiver of Defaults dated as of October 29, 2004;
      (ix)
      the Ninth Amendment to Credit and Security Agreement and Waiver of Defaults
      dated as of March 29, 2005; and (x) the Tenth Amendment to Credit and Security
      Agreement and Waiver of Defaults dated as of November 11, 2005 (as so amended,
      the “Credit Agreement”). Capitalized terms used in these recitals have the
      meanings given to them in the Credit Agreement unless otherwise
      specified.

     

    The
      Borrowers have requested that certain amendments be made to the Credit
      Agreement, which the Lender is willing to make pursuant to the terms and
      conditions set forth herein.

     

    NOW,
      THEREFORE, in consideration of the premises and of the mutual covenants and
      agreements herein contained, it is agreed as follows:

     

    1.  Defined
      Terms.
      Capitalized terms used in this Amendment which are defined in the Credit
      Agreement shall have the same meanings as defined therein, unless otherwise
      defined herein. In addition, Section 1.1 of the Credit Agreement is amended
      by
      adding or amending as the case may be, the following definitions:

     

    “Book
      Net
      Worth” means the aggregate of the common and preferred stockholders’ equity in
      the Borrower, determined in accordance with GAAP, and calculated without regard
      to (i) any change in the valuation of goodwill made in accordance with FASB
      Accounting Standard 142, and (ii) any non-cash effects of accounting for stock
      based compensation in accordance with FASB pronouncement SFAS
      123(r).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    “Cash
      Flow” means for a given period, the sum of (i) Net Income and (ii) depreciation
      and amortization, each as determined for such period in accordance with
      GAAP.

     

    “Eligible
      Accounts” means all unpaid Accounts, net of any credits, except the following
      shall not in any event be deemed Eligible Accounts:

     

    (xii) Accounts
      owed by an account debtor, other than the U.S. Department of Defense (U.S.
      Department of Navy, U.S. Marine Corp., Defense Logistic Agency, etc.) and All
      Points Logistics, regardless of whether otherwise eligible, to the extent that
      the aggregate balance of such Accounts exceeds 15% of the aggregate of all
      Accounts;

     

    (xviv) Accounts
      owed by All Points Logistics, regardless of whether otherwise eligible, to
      the
      extent that the aggregate balance of such Accounts exceeds 20% of the aggregate
      amount of all Accounts.

     

    “Interest
      Rate Margin” means, effective as of January 1, 2006, five percent (5.0%),
      provided, however, that, if no Event of Default then exists:

     

    (i) if
      the
      Borrower’s Cash Flow for the three months ending March 31, 2006 is equal to or
      greater than $0, then the Interest Rate Margin shall equal four percent
      (4.0%);

     

    (ii) if
      the
      Borrower’s Cash Flow for the six months ending June 30, 2006 is equal to or
      greater than $0, then the Interest Rate Margin shall equal four percent
      (4.0%);

     

    (iii) if
      the
      Borrower’s Cash Flow for the nine months ending September 30, 2006 is (a) equal
      to or greater than $1,467,830, then the Interest Rate Margin shall equal three
      percent (3.0%) and (b) equal to or greater than $0 but less than $1,467,830,
      then the Interest Rate Margin shall equal four percent (4.0%); and

     

    (iv) if
      the
      Borrower’s Cash Flow for the twelve months ending December 31, 2006 is (a) equal
      to or greater than $2,794,162, then the Interest Rate Margin shall equal one
      and
      one half percent (1.5%), (b) equal to or greater than $2,394,162 but less than
      $2,794,162, then the Interest Rate Margin shall equal two percent (2.0%), (c)
      equal to or greater than $1,467,830 but less than $2,394,162, then the Interest
      Rate Margin shall equal three percent (3.0%), and (d) equal to or greater than
      $0 but less than $1,467,830, then the Interest Rate Margin shall equal four
      percent (4.0%).

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    


    Any
      increase in the Interest Rate Margin shall be effective on the first day of
      the
      month in which the Lender receives the Borrower’s monthly financial statements.
      Any decrease in the Interest Rate Margin shall be effective on the first day
      of
      the month following the month in which the Lender receives the Borrower’s
      monthly financial statements. If the Lender does not receive the Borrower’s
      monthly financial statements on the date that they are due, then the Interest
      Rate Margin shall equal five percent (5.0%), and shall be effective on the
      first
      day of that month.

     

    If
      at any
      time the Interest Rate Margin has been decreased and any of the Borrower’s
      financial statements show that the Borrower was not entitled to such decrease,
      then the Interest Rate Margin shall be increased to the Interest Rate Margin
      to
      which the Borrower is entitled, such increase to be effective retroactively
      to
      the date of such decrease. If at any time the Interest Rate Margin has been
      decreased and an Event of Default occurs, then the Interest Rate Margin shall
      equal five percent (5.0%), and shall be effective on the first day of the month
      in which the Event of Default occurs.

     

    “Net
      Income” means fiscal year-to-date before-tax net income from continuing
      operations, as determined in accordance with GAAP, but excluding (i) any
      extraordinary gains as determined in accordance with GAAP, (ii) any change
      in
      the valuation of goodwill made in accordance with FASB Accounting Standard
      142,
      and (iii) any non-cash effects of accounting for stock based compensation in
      accordance with FASB pronouncement SFAS 123(r).

     

    2.  Section
      6.12.
      Section
      6.12 of the Credit Agreement is amended and restated in its entirety to read
      as
      follows:

     

    “Section
      6.12 Minimum
      Net Income.
      The
      Borrower will maintain, during each period described below, its Net Income,
      determined as at the end of each quarter, at an amount not less than the amount
      set forth opposite such period (numbers appearing between “( )” are
      negative):

     

    
      	
              Period

            	 	
              Minimum
                Net Income

            
	
              Three
                months ending March 31, 2006

            	 	
              ($600,000)

            
	
              Six
                months ending June 30, 2006

            	 	
              ($935,759)

            
	
              Nine
                months ending September 30, 2006

            	 	
              $350,000

            
	
              Twelve
                months ending December 31, 2006

            	 	
              $1,000,000

            


    

     

    If
      quarterly Net Income, determined as at the end of each quarter is negative,
      then
      the Borrower shall provide the Lender evidence, in form and substance acceptable
      to the Lender in its sole discretion, that it has received a cash infusion
      (in
      the form of equity or Subordinated Debt) in an amount equal to or greater than
      the absolute value of the negative quarterly Net Income, such cash infusion
      to
      be made no later than 30 days after the monthly financial statements for such
      quarter are due to the Lender, provided, however, that:

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

     

    (a)  if
      year-to-date Net Income, determined as at the end of such quarter, is positive,
      no such cash infusion shall be required, and

     

    (b)  if
      quarterly Net Income and year-to-date Net Income, determined as at the end
      of
      such quarter, are both negative, then the Borrower shall provide the Lender
      evidence, in form and substance acceptable to the Lender in its sole discretion,
      that it has received a cash infusion (in the form of equity or Subordinated
      Debt) in an amount equal to or greater than the lesser of:

     

    (i)      
       the
      absolute value of the negative quarterly Net Income, and

     

    (ii)     
       the
      absolute value of the negative year-to-date Net Income

     

    such
      cash
      infusion to be made no later than 30 days after the monthly financial statements
      for such quarter are due to the Lender, provided, further, however, that if
      the
      Borrower shall provide the Lender evidence, in form and substance acceptable
      to
      the Lender in its sole discretion, that it has received prior cash infusions
      (in
      the form of equity or Subordinated Debt) for such fiscal year in an amount
      equal
      to or greater than the absolute value of the negative year-to-date Net Income,
      no additional cash infusion shall be required.

     

    If
      the
      Borrower shall provide the Lender evidence, in form and substance acceptable
      to
      the Lender in its sole discretion, that it has received the cash infusion (in
      the form of equity or Subordinated Debt) in the amounts and in the time periods
      required pursuant to this Section 6.12, then (i) any default under this Section
      6.12 for such quarter shall be deemed to have been automatically waived by
      the
      Lender and (ii) any default under Section 6.13 due solely to such negative
      quarterly Net Income for such quarter shall be deemed to have been automatically
      waived by the Lender.”

     

    3.  Section
      6.13.
      Section
      6.13 of the Credit Agreement is amended and restated in its entirety to read
      as
      follows:

     

    “Section
      6.13 Minimum
      Book Net Worth Plus Subordinated Debt.
      The
      Borrower will maintain, during each period described below, its Book Net Worth
      plus Subordinated Debt, determined as at the end of each month, at an amount
      not
      less than the amount set forth opposite such period:

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

     

    
      	
              Period

            	 	
              Minimum
                Book Net Worth Plus Subordinated Debt

            
	
              March
                31, 2006

            	 	
              $19,497,403

            
	
              April
                30, 2006

            	 	
              $19,354,065

            
	
              May
                31, 2006

            	 	
              $19,051,863

            
	
              June
                30, 2006

            	 	
              $19,704,162

            
	
              July
                31, 2006

            	 	
              $19,992,421

            
	
              August
                31, 2006

            	 	
              $20,000,157

            
	
              September
                30, 2006

            	 	
              $21,229,921

            
	
              October
                31, 2006

            	 	
              $21,457,194

            
	
              November
                30, 2006

            	 	
              $21,459,894

            
	
              December
                31, 2006 and each month thereafter

            	 	
              $22,119,921”

            


    

     

    4.  Section
      6.14.
      Section
      6.14 of the Credit Agreement is amended and restated in its entirety to read
      as
      follows:

     

    “Section
      6.14 Minimum
      Average Availability.
      The
      Borrower will maintain during each month, determined as at the end of each
      month, average Availability (which calculation will be based on a trailing
      three-month average) during the month of not less than $500,000, which amount
      may be adjusted at the sole discretion of the Lender.”

     

    5.  Section
      6.15.
      Section
      6.15 of the Credit Agreement is amended and restated in its entirety to read
      as
      follows:

     

    “Section
      6.15 New
      Covenants.
      On or
      before November 30, 2006, the Borrower and the Lender shall agree on new
      covenant levels for Sections 6.12, 6.13, 6.14, 7.4(c) and 7.10 for periods
      after
      such date. The new covenant levels will be based on the Borrower’s projections
      for such periods and shall be no less stringent than the present levels, but
      if
      the Borrower and the Lender do not agree, the Lender may designate the required
      amounts in its sole discretion and the failure by the Borrower to maintain
      the
      designated amounts shall constitute an Event of Default.”

     

    6.  Section
      7.4(c).
      Section
      7.4(c) of the Credit Agreement is amended and restated in its entirety to read
      as follows:

     

    “(c) SANZ
      will
      not make any payments to Solunet other than payments reimbursing Solunet for
      corporate operating expenses in the ordinary course of business, such as
      payroll, lease and rent expenses, utilities, etc., which payments shall not
      exceed $9,000,000 in the aggregate during SANZ’s fiscal year ending December 31,
      2006, and shall be zero during any fiscal year thereafter. Before SANZ makes
      any
      payment to Solunet otherwise permitted under this Section 7.4(c), and
      immediately after making any such payment, SANZ Availability shall not be less
      than $250,000 and SANZ shall have positive Book Net Worth plus Subordinated
      Debt.”

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

     

    7.  Section
      7.10.
      Section
      7.10 of the Credit Agreement is amended and restated in its entirety to read
      as
      follows:

     

    “Section
      7.10 Capital
      Expenditures.
      The
      Borrower will not incur or contract to incur Capital Expenditures of more than
      $1,600,000 in the aggregate during any fiscal year.”

     

    8.  Exhibit
      B.
      Exhibit
      B of the Credit Agreement is amended and restated in its entirety and replaced
      with Exhibit B attached hereto.

     

    9.  No
      Other Changes.
      Except
      as explicitly amended by this Amendment, all of the terms and conditions of
      the
      Credit Agreement shall remain in full force and effect and shall apply to any
      advance thereunder.

     

    10.  Waiver
      of Defaults.
      The
      Borrowers are in default under Section 7.17 Salaries
      as a
      result of bonuses paid to the Chief Executive Officer and the Chief Financial
      Officer in March of 2006 (the “Existing Defaults”). Upon the terms and subject
      to the conditions set forth in this Amendment, the Lender hereby waives the
      Existing Defaults. This waiver shall be effective only in this specific instance
      and for the specific purpose for which it is given, and this waiver shall not
      entitle the Borrower to any other or further waiver in any similar or other
      circumstances.

     

    11.  Conditions
      Precedent.
      This
      Amendment, and the waiver set forth in Paragraph 10 hereof, shall be effective
      when the Lender shall have received an executed original hereof, together with
      each of the following, each in substance and form acceptable to the Lender
      in
      its sole discretion:

     

    (a)  The
      Acknowledgment and Agreement of Guarantor and the Acknowledgment and Agreement
      of Subordinated Creditor set forth at the end of this Amendment, duly executed
      by the Guarantor and the Subordinated Creditor.

     

    (b)  Such
      other matters as the Lender may require.

     

    12.  Representations
      and Warranties.
      Each
      Borrower hereby represents and warrants to the Lender as follows:

     

    (a)  Each
      Borrower has all requisite power and authority to execute this Amendment and
      to
      perform all of its obligations hereunder, and this Amendment has been duly
      executed and delivered by each Borrower and constitutes the legal, valid and
      binding obligation of each Borrower, enforceable in accordance with its
      terms.

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

     

    (b)  The
      execution, delivery and performance by each Borrower of this Amendment has
      been
      duly authorized by all necessary corporate action and does not (i) require
      any authorization, consent or approval by any governmental department,
      commission, board, bureau, agency or instrumentality, domestic or foreign,
      (ii) violate any provision of any law, rule or regulation or of any order,
      writ, injunction or decree presently in effect, having applicability to either
      Borrower, or the articles of incorporation or by-laws of either Borrower, or
      (iii) result in a breach of or constitute a default under any indenture or
      loan or credit agreement or any other agreement, lease or instrument to which
      either Borrower is a party or by which either Borrower or its properties may
      be
      bound or affected.

     

    (c)  All
      of
      the representations and warranties contained in Article V of the Credit
      Agreement are correct on and as of the date hereof as though made on and as
      of
      such date, except to the extent that such representations and warranties relate
      solely to an earlier date.

     

    13.  References.
      All
      references in the Credit Agreement to “this Agreement” shall be deemed to refer
      to the Credit Agreement as amended hereby; and any and all references in the
      Security Documents to the Credit Agreement shall be deemed to refer to the
      Credit Agreement as amended hereby.

     

    14.  No
      Other Waiver.
      Except
      as set forth in Paragraph 10 hereof, the execution of this Amendment and
      acceptance of any documents related hereto shall not be deemed to be a waiver
      of
      any Default or Event of Default under the Credit Agreement or breach, default
      or
      event of default under any Security Document or other document held by the
      Lender, whether or not known to the Lender and whether or not existing on the
      date of this Amendment.

     

    15.  Release.
      Each
      Borrower, and the Guarantor by signing the Acknowledgment and Agreement of
      Guarantor set forth below, and the Subordinated Creditor by signing the
      Acknowledgment and Agreement of Subordinated Creditor set forth below, each
      hereby absolutely and unconditionally releases and forever discharges the
      Lender, and any and all participants, parent corporations, subsidiary
      corporations, affiliated corporations, insurers, indemnitors, successors and
      assigns thereof, together with all of the present and former directors,
      officers, agents and employees of any of the foregoing, from any and all claims,
      demands or causes of action of any kind, nature or description, whether arising
      in law or equity or upon contract or tort or under any state or federal law
      or
      otherwise, which such Borrower or such Guarantor or such Subordinated Creditor
      has had, now has or has made claim to have against any such person for or by
      reason of any act, omission, matter, cause or thing whatsoever arising from
      the
      beginning of time to and including the date of this Amendment, whether such
      claims, demands and causes of action are matured or unmatured or known or
      unknown.

     

    16.  Costs
      and Expenses.
      Each
      Borrower hereby reaffirms its agreement under the Credit Agreement to pay or
      reimburse the Lender on demand for all costs and expenses incurred by the Lender
      in connection with the Loan Documents, including without limitation all
      reasonable fees and disbursements of legal counsel. Without limiting the
      generality of the foregoing, each Borrower specifically agrees to pay all fees
      and disbursements of counsel to the Lender for the services performed by such
      counsel in connection with the preparation of this Amendment and the documents
      and instruments incidental hereto. Each Borrower hereby agrees that the Lender
      may, at any time or from time to time in its sole discretion and without further
      authorization by such Borrower, make a loan to such Borrower under the Credit
      Agreement, or apply the proceeds of any loan, for the purpose of paying any
      such
      fees, disbursements, costs and expenses.

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

     

    17.  Joint
      and Several Liability.
      All
      obligations of SANZ and Solunet under this Amendment shall be joint and several.
      All references to the term “Borrower” herein shall refer to each of them
      separately and to both or all of them jointly and each such Person shall be
      bound both severally and jointly with the other. Each of SANZ and Solunet is
      responsible for all of the Borrower obligations under this Amendment. Notices
      from the Lender to either Borrower shall constitute notice to both. Directions,
      instructions, representations, warranties or covenants made by either Borrower
      to the Lender shall be binding on both.

     

    18.  Miscellaneous.
      This
      Amendment and the Acknowledgment and Agreement of Guarantor and the
      Acknowledgment and Agreement of Subordinated Creditor may be executed in any
      number of counterparts, each of which when so executed and delivered shall
      be
      deemed an original and all of which counterparts, taken together, shall
      constitute one and the same instrument.

     

    [The
      remainder of this page intentionally left blank.]

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    


    IN
      WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
      executed as of the date first written above.

     

    
      	
              WELLS
                FARGO BANK, NATIONAL ASSOCIATION,
                acting through its WELLS FARGO BUSINESS CREDIT operating
                division

            	 	 SANZ
              INC.
	 	 	 	 	 
	 	 	 	By:	/s/
              John
              Jenkins 
	 	 	 	Name:	
              
John
              Jenkins
	
              By:

            	
              /s/
                Aida M. Sunglao-Canlas

            	 	Its: 	
              President

            
	Name:	
              
Aida
              M. Sunglao-Canlas	 	 	 
	Its: 	Vice
              President	 	 	 


    

     

    
      	
               

            	 	SOLUNET
              STORAGE,
              INC.
	 	 	 	 	 
	 	 	 	By:	/s/
              Robert C.
              Ogden  
	 	 	 	Name:	
              
Robert
              C. Ogden
	
               

            	
               

            	 	Its: 	
              Chief
                Financial Officer

            
	 	
            	 	 	 


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    ACKNOWLEDGMENT
      AND AGREEMENT OF GUARANTOR

     

    The
      undersigned, a guarantor of the indebtedness of SANZ Inc., formerly known as
      Storage Area Networks, Inc., (“SANZ”) to Wells Fargo Bank, National Association
      (the “Lender”), acting through its Wells Fargo Business Credit operating
      division, pursuant to a separate Guaranty dated as of May 31, 2001 (the
“Guaranty”), hereby (i) acknowledges receipt of the foregoing Amendment; (ii)
      agrees and acknowledges that the Guaranty extends to the obligations of Solunet
      to the Lender to the same extent, in the same manner and on the same terms
      as to
      SANZ; (iii) consents to the terms (including without limitation the release
      set
      forth in Paragraph 15 of the Amendment) and execution thereof;
      (iv) reaffirms its obligations to the Lender pursuant to the terms of its
      Guaranty; and (v) acknowledges that the Lender may amend, restate, extend,
      renew or otherwise modify the Credit Agreement and any indebtedness or agreement
      of the Borrower, or enter into any agreement or extend additional or other
      credit accommodations, without notifying or obtaining the consent of the
      undersigned and without impairing the liability of the undersigned under its
      Guaranty for all of the Borrower’s present and future indebtedness to the
      Lender.

     

    
      	
               

            	 	SAN
              HOLDINGS,
              INC.
	 	 	 	 	 
	 	 	 	By:	/s/
              John
              Jenkins  
	 	 	 	Name:	
              
John
              Jenkins
	
               

            	
               

            	 	Its: 	
              President

            
	 	
            	 	 	 


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    ACKNOWLEDGMENT
      AND AGREEMENT OF SUBORDINATED CREDITOR

     

    The
      undersigned, a subordinated creditor of SANZ Inc., formerly known as Storage
      Area Networks, Inc., (the “Borrower”) to Wells Fargo Bank, National Association
      (the “Lender”), acting through its Wells Fargo Business Credit operating
      division, pursuant to a Subordination Agreement dated as of January 17, 2002
      (the “Subordination Agreement”), hereby (i) acknowledges receipt of the
      foregoing Amendment; (ii) consents to the terms (including without
      limitation the release set forth in Paragraph 15 of the Amendment) and execution
      thereof; (iii) reaffirms its obligations to the Lender pursuant to the
      terms of its Subordination Agreement; and (iv) acknowledges that the Lender
      may amend, restate, extend, renew or otherwise modify the Loan Documents and
      any
      indebtedness or agreement of the Borrower, or enter into any agreement or extend
      additional or other credit accommodations, without notifying or obtaining the
      consent of the undersigned and without impairing the obligations of the
      undersigned under its Subordination Agreement.

     

    
      	
               

            	 	SAN
              HOLDINGS,
              INC.
	 	 	 	 	 
	 	 	 	By:	/s/
              John
              Jenkins  
	 	 	 	Name:	
              
John
              Jenkins
	
               

            	
               

            	 	Its: 	
              President

            
	 	
            	 	 	 


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Exhibit
      B
      to Credit and Security Agreement

     

    COMPLIANCE
      CERTIFICATE

     

    To:  Aida
      Sunglao-Canlas

    Wells
      Fargo Business Credit

    


    Date:  __________________,
      200__

    


    Subject: SANZ
      Inc.
      and Solunet Storage, Inc.

    Financial
      Statements

    


    In
      accordance with our Credit and Security Agreement dated as of May 31, 2001
      (as
      amended, the “Credit Agreement”), attached are the financial statements of SANZ
      Inc. and Solunet Storage, Inc. (together, the “Borrower”) as of and for
      ________________, 200__ (the “Reporting Date”) and the year-to-date period then
      ended (the “Current Financials”). All terms used in this certificate have the
      meanings given in the Credit Agreement.

     

    I
      certify
      that the Current Financials have been prepared in accordance with GAAP, subject
      to year-end audit adjustments, and fairly present the Borrower’s financial
      condition and the results of its operations as of the date thereof.

     

    Events
      of
      Default. (Check one):

     

    o
      The undersigned does
      not have knowledge of the occurrence of a Default or Event of Default under
      the
      Credit Agreement.

     

    o
      The undersigned has knowledge of the
      occurrence of a Default or Event of Default under the Credit Agreement and
      attached hereto is a statement of the facts with respect to
      thereto.

     

    I
      hereby
      certify to the Lender as follows:

     

    o
      The Reporting Date does not mark the end
      of one of the Borrower’s fiscal quarters, hence I am completing only paragraph
      __ below.

     

    o
      The Reporting Date marks the end of one
      of the Borrower’s fiscal quarters, hence I am completing all paragraphs below
      except paragraph ___.

     

    o
      The Reporting Date marks the end of the
      Borrower’s fiscal year, hence I am completing all paragraphs below.

     

    Financial
      Covenants.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    I
      further
      hereby certify as follows:

     

    1. Minimum
      Net Income.
      Pursuant to Section 6.12 of the Credit Agreement, as of the Reporting Date
      the Borrower’s Net Income was $____________ which o satisfies
      o does
      not satisfy the requirement that such amount be not less than
      $_____________ on the Reporting Date as set forth in table below:

     

    
      	
              Period

            	 	
              Minimum
                Net Income

            
	
              Three
                months ending March 31, 2006

            	 	
              ($600,000)

            
	
              Six
                months ending June 30, 2006

            	 	
              ($935,759)

            
	
              Nine
                months ending September 30, 2006

            	 	
              $350,000

            
	
              Twelve
                months ending December 31, 2006

            	 	
              $1,000,000

            


    

     

    2. Minimum
      Cash Infusion.
      Pursuant to Section 6.12 of the Credit Agreement, as of the Reporting Date
      the
      Borrower has received a cash infusion in the amount of $____________
      which o satisfies
      o does
      not
      satisfy the requirement that such amount be not less than $_____________ on
      the
      Reporting Date as calculated pursuant to that Section.

     

    3. Minimum
      Book Net Worth Plus Subordinated Debt.
      Pursuant to Section 6.13 of the Credit Agreement, as of the Reporting Date,
      the Borrower’s Book Net Worth plus Subordinated Debt was $____________ which
o satisfies
      o does
      not
      satisfy the requirement that such amount be not less than $_____________ on
      the
      Reporting Date as set forth in table below:

     

    
      	
              Period

            	 	
              Minimum
                Book Net Worth Plus Subordinated Debt

            
	
              March
                31, 2006

            	 	
              $19,497,403

            
	
              April
                30, 2006

            	 	
              $19,354,065

            
	
              May
                31, 2006

            	 	
              $19,051,863

            
	
              June
                30, 2006

            	 	
              $19,704,162

            
	
              July
                31, 2006

            	 	
              $19,992,421

            
	
              August
                31, 2006

            	 	
              $20,000,157

            
	
              September
                30, 2006

            	 	
              $21,229,921

            
	
              October
                31, 2006

            	 	
              $21,457,194

            
	
              November
                30, 2006

            	 	
              $21,459,894

            
	
              December
                31, 2006 and each month thereafter

            	 	
              $22,119,921

            


    

     

    4. Minimum
      Average Availability.
      Pursuant to Section 6.14 of the Credit Agreement, the Borrower’s average
      Availability (which calculation will be based on a trailing three-month average)
      for the month ending on the Reporting Date was $____________, which o satisfies
      o does
      not satisfy the requirement that such amount be not less than $500,000 during
      such period, which amount may be adjusted at the sole discretion of the
      Lender.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    5. Payments
      from SANZ Inc. to Solunet Storage, Inc.
      Pursuant to Section 7.4(c) of the Credit Agreement, SANZ Inc. has made the
      following payments to Solunet Storage, Inc. since the last Reporting Date,
      and
      as of the Reporting Date, the Borrower o is
      o is
      not in compliance with Section 7.4(c) of the Credit Agreement concerning
      payments from SANZ Inc. to Solunet Storage, Inc.

     

    [Borrower
      to list each payment, the SANZ Availability and SANZ’s Book Net Worth after each
      payment]

     

    6. Capital
      Expenditures.
      Pursuant to Section 7.10 of the Credit Agreement, for the year-to-date
      period ending on the Reporting Date, the Borrower has expended or contracted
      to
      expend during the _____________ year ended ______________, 20___, for Capital
      Expenditures, $__________________ in the aggregate, which osatisfies
      o does
      not satisfy the requirement that such expenditures not exceed $1,600,000 in
      the
      aggregate during such year.

     

    7. Salaries.
      As of
      the Reporting Date, the Borrower o is
      o is
      not in compliance with Section 7.17 of the Credit Agreement concerning
      salaries.

     

    Attached
      hereto are all relevant facts in reasonable detail to evidence, and the
      computations of the financial covenants referred to above. These computations
      were made in accordance with GAAP.

     

    
      	
               

            	 	
              SANZ
                INC.

              SOLUNET STORAGE, INC.

            
	 	 	 	 	 
	 	 	 	By:	  
	 	 	 	Its: 	
              
Chief
              Financial Officer