Document:

exv10w14

Exhibit 10.14

AMENDMENT

TO

LOAN AND SECURITY AGREEMENT

     THIS AMENDMENT to
Loan and Security Agreement (this “Amendment”) is entered into this 11th
Day of February 2009, by and between Silicon Valley Bank
(“Bank”) and OCZ Technology Group, Inc..
a Delaware corporation (“Borrower”) whose address is 860 E.
Arques Avenue, Sunnyvale, CA 94085.

Recitals

     A. Bank and Borrower have entered into that certain Loan and Security
Agreement dated as of November 20, 2007 (as the same may from time to time be
amended, modified, supplemented or restated, the “Loan Agreement”).

     B. Bank
has extended credit to Borrower for the purposes permitted in the Loan Agreement.

     C. Borrower has requested that Bank amend the Loan Agreement, as herein
set forth, and Bank has agreed to the same, but only to the extent, in accordance with the
terms, subject to the conditions and in reliance upon the representations and warranties
set forth herein.

Agreement

     Now, Therefore, in consideration of the foregoing recitals and other good and
valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to
be legally bound, the parties hereto agree as follows:

     1. 
Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

     2. Amendments to Loan Agreement.

          2.1 Limited Waiver Regarding Quick Ratio Financial Covenant
Default. Borrower has advised Bank that Borrower has failed to comply with the Quick
Ratio Financial Covenant set forth in Section 6.9(a) of the Loan Agreement for the
compliance period ending November 30, 2008 (the “Quick Ratio Covenant Default”).
Bank and Borrower agree that the Borrower’s Quick Ratio Covenant Default is hereby
waived. It is understood by the parties hereto, however, that such waiver does not
constitute a waiver of any other provision or term of the Loan Agreement or any related
document, nor an agreement to waive in the future this covenant or any other provision or
term of the Loan Agreement or any related document.

          2.2 Limited Waiver Regarding EBITDA Financial Covenant
Default. Borrower has advised Bank that Borrower has failed to comply with the
EBITDA Financial Covenant set forth in Section 6.9(b) of the Loan Agreement for the
compliance period ending November 30, 2008 (the “EBITDA Covenant Default”). Bank

-1-

 

and Borrower agree that the Borrower’s EBITDA Covenant Default is hereby waived. It is understood
by the parties hereto, however, that such waiver does not constitute a waiver of any other
provision or term of the Loan Agreement or any related document, nor an agreement to waive in the
future this covenant or any other provision or term of the Loan Agreement or any related document.

          2.3 Modified Quick Ratio Financial Covenant. The Quick Ratio
financial covenant set forth in Section 6.9(a) of the Loan Agreement is amended in its
entirety and replaced with the following:

(a) Quick Ratio. As of the month ending December 31, 2008
and each month ending thereafter, a ratio of Quick Assets to
Current Liabilities of at least 0.65 to 1.0.

          2.4 Modified Definition of Maximum Dollar Amount. The
definition of “Maximum Dollar Amount” set forth in Section 13.1 of the Loan Agreement is hereby
amended to read as follows:

“Maximum Dollar Amount”
is $11,000,000: provided,
however, that effective February 28, 2009 and thereafter,
the Maximum Dollar Amount shall be $10,000,000.

          
2.5 Covenant Regarding Reduction of Principal Amount of
Outstanding Advances. Borrower covenants and agrees that by
February 27, 2009, the
principal amount of all outstanding Advances shall be reduced to $10,000,000 or less.
Borrower’s failure to comply with the foregoing covenant shall constitute an Event of
Default under the Loan Agreement.

       
   2.6 Modified Exhibit B. Exhibit B to the Loan Agreement is hereby replaced with Exhibit B attached hereto.

     3. Limitation of Amendments.

          
3.1 The amendments set forth in Section 2, above, are effective for the
purposes set forth herein and shall be limited precisely as written and shall not be deemed
to (a) be a consent to any amendment, waiver or modification of any other term or
condition of any Loan Document, or (b) otherwise prejudice any right or remedy which
Bank may now have or may have in the future under or in connection with any Loan
Document.

          3.2 This Amendment shall be construed in connection with and as part
of the Loan Documents and all terms, conditions, representations, warranties, covenants
and agreements set forth in the Loan Documents, except as herein amended, are hereby
ratified and confirmed and shall remain in full force and effect.

-2-

 

4. Representations and Warranties. To induce Bank to enter into this
Amendment, Borrower hereby represents and warrants to Bank as follows:

          4.1 Immediately after giving effect to this Amendment (a) the
representations and warranties contained in the Loan Documents are true, accurate and
complete in all material respects as of the date hereof (except to the extent such
representations and warranties relate to an earlier date, in which case they are true and
correct as of such date), and (b) no Event of Default has occurred and is continuing;

       
   4.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by
this Amendment;

      
    4.3 The organizational documents of Borrower delivered to Bank on
the Effective Date remain true, accurate and complete and have not been amended,
supplemented or restated and are and continue to be in full force and effect:

          4.4 The execution and delivery by Borrower of this Amendment and
the performance by Borrower of its obligations under the Loan Agreement, as amended
by this Amendment, have been duly authorized;

          4.5 The execution and delivery by Borrower of this Amendment and
the performance by Borrower of its obligations under the Loan Agreement, as amended
by this Amendment, do not and will not contravene (a) any law or regulation binding on
or affecting Borrower, (b) any contractual restriction with a
Person binding on Borrower,
(c) any order, judgment or decree of any court or other governmental or public body or
authority, or subdivision thereof, binding on Borrower, or (d) the organizational
documents of Borrower;

          4.6 The execution and delivery by Borrower of this Amendment and
the performance by Borrower of its obligations under the Loan Agreement, as amended
by this Amendment, do not require any order, consent, approval,
license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental
or public body or authority, or subdivision thereof, binding on either Borrower, except as
already has been obtained or made; and

          4.7 This Amendment has been duly executed and delivered by
Borrower and is the binding obligation of Borrower, enforceable against Borrower in
accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general
application and equitable principles relating to or affecting creditors rights.

     5. Counterparts. This Amendment may be executed in any number of
counterparts and all of such counterparts taken together shall be deemed to constitute one
and the same instrument.

-3-

 

     6. Effectiveness. This Amendment shall be deemed effective upon (a) the due execution and
delivery to Bank of this Amendment by each part)’ hereto and (b) Borrower’s payment of an
amendment fee in an amount equal to $10,000.

In Witness Whereof, the parties hereto have caused this Amendment to be duly executed and
delivered as of the date first written above.

	 	 	 	 	 	 	 	 	 	 	 
	BANK	 	BORROWER
	 
	 	 	 	 	 	 	 	 	 	 
	Silicon Valley Bank	 	OCZ Technology Group. Inc.
	 
	 	 	 	 	 	 	 	 	 	 
	By:	 	/s/ Jean Lee	 	By:	 	/s/ Arthur F. Knapp, Jr
	 	 	 	 	 	 	 
	 

	 	Name:
	 	JEAN LEE
	 	 	 	Name:
	 	ARTHUR F. KNAPP, JR
	 

	 	Title:
	 	RELATIONSHIP MANAGER
	 	 	 	Title:
	 	CFO

-4-

 

EXHIBIT B

COMPLIANCE CERTIFICATE

	 	 	 	 	 	 	 
	TO:

	 	SILICON VALLEY BANK
	 	Date:
	 	 
	 

	 	 	 	 	 	 
	FROM:

	 	OCZ Technology Group. Inc.	 	 	 	 

     The undersigned authorized officer of OCZ Technology Group. Inc. (“Borrower”)
certifies that under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the “Agreement”). (1) Borrower is in complete compliance for the period ending ____________ with all required covenants except as
noted below. (2) there are no Events of Default. (3) all representations and warranties in
the Agreement are true and correct in all material respects on this date except as noted
below; provided, however, that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or modified by materiality in the
text thereof: and provided, further that those representations and warranties expressly
referring to a specific date shall be true, accurate and complete in all material respects
as of such date. (4) Borrower, and each of its Subsidiaries, has timely filed all required
tax returns and reports, and Borrower has timely paid all foreign, federal, state and local
taxes, assessments, deposits and contributions owed by Borrower except as otherwise
permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no Liens have been
levied or claims made against Borrower or any of its Subsidiaries relating to unpaid
employee payroll or benefits of which Borrower has not previously provided written
notification to Bank. Attached are the required documents supporting the certification. The
undersigned certifies that these are prepared in accordance with GAAP consistently applied
from one period to the next except as explained in an accompanying letter or footnotes. The
undersigned acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of the terms of the Agreement,
and that compliance is determined not just at the date this certificate is delivered.
Capitalized terms used but not otherwise defined herein shall have the meanings given them
in the Agreement.

Please indicate compliance status by circling Yes/No under “Complies” column.

	 	 	 	 	 
	Reporting Covenant	 	Required	 	Complies
	 
	Monthly financial statements with Compliance Certificate

	 	Monthly within 30 days
	 	Yes    No
	Annual financial statement (CPA Audited) + CC

	 	FYE within 180 days
	 	Yes    No
	Board Projections

	 	Within 45 days after start of FY
	 	Yes    No
	10-Q, 10-K and 8-K, if applicable

	 	Within 5 days after filing with SEC
	 	Yes    No
	Six month statements to be filed by Borrower with the
UK equivalent of SEC

	 	Within 5 days after filing with UK
equivalent of SEC
	 	Yes    No
	A/R & A/P Agings and A/R Reconciliations

	 	Monthly within 15 days
	 	Yes    No
	Transaction Report (if Streamline Period Not in Effect)

	 	Weekly and with each Advance
	 	Yes    No
	Transaction Report (if Streamline Period in Effect)

	 	Monthly within 15 days and with
each Advance
	 	Yes    No
	 

	 	 	 	Yes    No

The following intellectual property was registered after the Effective Date (if no registrations,
state “None”)

 

	 	 	 	 	 	 	 
	Financial Covenant	 	Required	 	Actual	 	Complies
	 
	Maintain on a Monthly Basis:
	 	 	 	 	 	 
	Minimum Quick Ratio

	 	Month ending
12/31/08 and each
month thereafter:
	 	______ to 1.0
	 	Yes No

-5-

 

	 	 	 	 	 	 	 
	Financial Covenant	 	Required	 	Actual	 	Complies
	

Minimum EBITDA

	 	 0.65 to 1.0

Quarter ending

02/28/09: $150,000:
	 	

$ ______
	 	

Yes No
	 

	 	Quarter ending

05/31/09: $250,000:	 	 	 	 
	 

	 	Quarter ending
08/31/09: $650,000: and
Quarter ending
11/30/09: $650,000	 	 	 	 

-6-

 

     The following financial covenant analysis and information set forth in Schedule 1 attached
hereto are true and accurate as of the date of this Certificate.

     The following are the exceptions with respect to the certification above: (If no exceptions
exist, state “No exceptions to note.”)

 

 

 

 

	 	 	 	 	 	 	 	 	 	 	 
	OCZ Technology Group, Inc.	 	BANK USE ONLY
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Received by:	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	By:

	 	 	 	 	 	 	 	 	 	AUTHORIZED SIGNER
	 

	 	 
	 	 	 	 	 	 	 	 
	 

	 	Name:
	 	 	 	Date:	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 	 	 	 	 
	 	 	  	 	 	 	Verified: 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	AUTHORIZED SIGNER
	 

	 	 	 	 	 	Date:	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	Compliance Status:      Yes     No

-7-

 

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

In the event of a conflict between this Schedule and the Loan Agreement, the terms of the
Loan Agreement shall govern.

Dated: ____________

I. Quick Ratio (Section 6.9(a))

Required: 0.65:1.00

Actual:

	 	 	 	 	 
	A.

	 	Aggregate value of the unrestricted cash and cash equivalents of Borrower and its Subsidiaries
	 	$ _____
	 
	 	 	 	 
	B.

	 	Aggregate value of the net billed accounts receivable of Borrower and its Subsidiaries
	 	$ _____
	 
	 	 	 	 
	C.

	 	Aggregate value of the Investments with maturities of fewer than 12 months of Borrower and it
Subsidiaries
	 	$ _____
	 
	 	 	 	 
	D.

	 	Quick Assets (the sum of lines A through C)
	 	$ _____
	 
	 	 	 	 
	E.

	 	Aggregate value of Obligations to Bank
	 	$ _____
	 
	 	 	 	 
	F.

	 	Aggregate value of liabilities that should, under GAAP, be classified as liabilities on
Borrower’s consolidated balance sheet, including all Indebtedness, and not otherwise reflected
in line E above that matures within one (1) year
	 	$ _____
	 
	 	 	 	 
	G.

	 	Current Liabilities (the sum of lines E and F)
	 	$ _____
	 
	 	 	 	 
	H.

	 	Quick Ratio (line D divided by line G)
	 	_______

Is line
H equal to or greater than 0.65:1:00?

	 	 	 
	          _________ No. not in compliance
	 	_________ Yes. in compliance

II. EBITDA (Section 6.9(b))

Required: See chart below

	 	 	 	 	 
	Period	 	EBITDA
	Fiscal quarter ending 02/28/09

	 	$	150,000	 
	Fiscal quarter ending 05/31/09

	 	$	250,000	 
	Fiscal quarter ending 08/31/09

	 	$	650.000	 
	Fiscal quarter ending 11/30/09

	 	$	650.000	 

Actual:

-8-

 

	 	 	 	 	 	 	 
	A.	 	Net Income of Borrower	 	$ _____
	B.	 	To the extent included in the determination of Net Income	 	 
	 
	 	1.	 	The provision for income taxes	 	$ _____
	 
	 	2.	 	Depreciation expense	 	$ _____
	 
	 	3.	 	 Amortization expense 	 	$ _____
	 
	 	4.	 	Net Interest Expense	 	$ _____
	 
	 	5.	 	All other charges which are both non-cash and non-recurring	 	$ _____
	 
	 	6.	 	All non-cash income	 	$ _____
	 
	 	7.	 	The sum of lines 1 through 5 minus line 6	 	$ _____
	C.	 	EBITDA (line A plus line B.7)	 	$ _____

Is line C equal to or greater than the applicable EBITDA Amount set forth in the chart above?

	 	 	 
	_________ No. not in compliance
	 	_________ Yes. in compliance

-9-

 

LOAN AND SECURITY AGREEMENT

     THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as
of the Effective Date between SILICON VALLEY BANK, a California
corporation (“Bank”), and OCZ TECHNOLOGY GROUP, INC., a Delaware
corporation (“Borrower”), provides the terms on which Bank shall
lend to Borrower and Borrower shall repay Bank. The parties agree
as follows:

     1 ACCOUNTING AND OTHER TERMS

     Accounting terms not defined in this Agreement shall be
construed following GAAP. Calculations and determinations must be
made following GAAP. Capitalized terms not otherwise defined in
this Agreement shall have the meanings set forth in Section 13. All
other terms contained in this Agreement, unless otherwise
indicated, shall have the meaning provided by the Code to the
extent such terms are defined therein.

     2 LOAN AND TERMS OF PAYMENT

     2.1 Promise to Pay. Borrower hereby unconditionally promises
to pay Bank the outstanding principal amount of all Credit
Extensions and accrued and unpaid interest thereon as and when due
in accordance with this Agreement.

     2.1.1 Revolving Advances.

          (a) Availability. Subject to the terms and conditions of this
Agreement and to deduction of Reserves, Bank shall make Advances
not exceeding the Availability Amount. Amounts borrowed hereunder
may be repaid and, prior to the Revolving Line Maturity Date,
reborrowed, subject to the applicable terms and conditions
precedent herein.

          (b) Streamline Period. The “Streamline Period” shall mean any
period commencing on the first day of the month immediately
following Bank’s receipt of either (i) Borrower’s monthly financial
statements showing Borrower has no outstanding Obligations or (ii)
Borrower’s Compliance Certificate showing Borrower’s Quick Ratio at
the end of the most recent month was equal to or greater than 1.35
to 1.00. The Streamline Period will continue until either Borrower
incurs a monetary Obligation (for purposes of subclause (i) above)
or if Borrower’s Quick Ratio at the end of the most recent month
was not equal to or greater than 1.35 to 1.00 (for purposes of
subclause (ii) above). If a Streamline Period ceases to be in
effect because Borrower’s Quick Ratio at the end of the most recent
month was not equal to or greater than 1.35 to 1.00, then the
Streamline Period shall not go into effect again unless thereafter
Borrower’s Quick Ratio is equal to or greater than 1.35 to 1.00 at
the end of the most recent three consecutive months.

          (c) Termination; Repayment. The Revolving Line terminates on
the Revolving Line Maturity Date, when the principal amount of all
Advances, the unpaid interest thereon, and all other Obligations
relating to the Revolving Line shall be immediately due and
payable.

     2.1.2 Letters of Credit Sublimit.

          (a) Subject to the Overall Sublimit in Section 2.1.5 below, as
part of the Revolving Line, Bank shall issue or have issued Letters
of Credit for Borrower’s account, provided that, after giving
effect to such Letters of Credit: (1) the total of the amount of
all outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit), plus an amount equal to the Letter of Credit
Reserves shall not exceed $2,000,000; and (2) the total of the
amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), plus an amount equal to the Letter
of Credit Reserves, plus the FX Reserve, plus amounts used for Cash
Management Services, and plus the outstanding principal balance of
any Advances (including any amounts used for Cash Management
Services) shall not exceed the lesser of (i) the Maximum Dollar
Amount, or (ii) the Borrowing Base. The aggregate amounts utilized
hereunder shall at all times reduce the amount otherwise available
for Advances under the Revolving Line. If, on the Revolving Line
Maturity Date, there are any outstanding Letters of Credit, then on
such date Borrower shall provide to Bank cash collateral in an
amount equal to 105% of the face amount of all such Letters of
Credit plus all interest, fees, and costs due or to become due in
connection therewith (as estimated by Bank in its good faith
business judgment), to secure all of the Obligations relating to
said Letters of Credit. All Letters of Credit shall be in form and
substance acceptable to Bank in its sole discretion and shall be
subject to the terms and conditions of Bank’s standard Application
and Letter of Credit Agreement (the “Letter of Credit

 

 

Application”). Borrower agrees to execute any further documentation
in connection with the Letters of Credit as Bank may reasonably
request. Borrower further agrees to be bound by the regulations and
interpretations of the issuer of any Letters of Credit guarantied
by Bank and opened for Borrower’s account or by Bank’s
interpretations of any Letter of Credit issued by Bank for
Borrower’s account, and Borrower understands and agrees that Bank
shall not be liable for any error, negligence, or mistake, whether
of omission or commission, in following Borrower’s instructions or
those contained in the Letters of Credit or any modifications,
amendments, or supplements thereto.

          (b) The obligation of Borrower to immediately reimburse Bank
for drawings made under Letters of Credit shall be absolute,
unconditional, and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement, such Letters of
Credit, and the Letter of Credit Application.

          (c) Borrower may request that Bank issue a Letter of Credit
payable in a Foreign Currency. If a demand for payment is made
under any such Letter of Credit, Bank shall treat such demand as an
Advance to Borrower of the equivalent of the amount thereof (plus
fees and charges in connection therewith such as wire, cable, SWIFT
or similar charges) in Dollars at the then-prevailing rate of
exchange in San Francisco, California, for sales of the Foreign
Currency for transfer to the country issuing such Foreign Currency.

          (d) To guard against fluctuations in currency exchange rates,
upon the issuance of any Letter of Credit payable in a Foreign
Currency, Bank shall create a reserve (the “Letter of Credit
Reserve”) under the Revolving Line in an amount equal to ten
percent (10%) of the face amount of such Letter of Credit. The
amount of the Letter of Credit Reserve may be adjusted by Bank from
time to time to account for fluctuations in the exchange rate. The
availability of funds under the Revolving Line shall be reduced by
the amount of such Letter of Credit Reserve for as long as such
Letter of Credit remains outstanding.

     2.1.3 Foreign Exchange Sublimit. Subject to the Overall
Sublimit in Section 2.1.5 below, as part of the Revolving Line,
Borrower may enter into foreign exchange contracts with Bank under
which Borrower commits to purchase from or sell to Bank a specific
amount of Foreign Currency (each, a “FX Forward Contract”) on a
specified date (the “Settlement Date”); provided that, after giving
effect to such FX Forward Contracts and the FX Reserve applicable
thereto, the total of the amount of all outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit), plus
an amount equal to the Letter of Credit Reserves, plus the FX
Reserve, plus amounts used for Cash Management Services, and plus
the outstanding principal balance of any Advances (including any
amounts used for Cash Management Services) shall not exceed the
lesser of (i) the Maximum Dollar Amount, or (ii) the Borrowing
Base. FX Forward Contracts shall have a Settlement Date of at least
one (1) FX Business Day after the contract date and shall be
subject to a reserve of ten percent (10%) of each outstanding FX
Forward Contract in a maximum aggregate amount equal to $2,000,000
(the “FX Reserve”). The aggregate amount of FX Forward Contracts at
any one time may not exceed ten (10) times the amount of the FX
Reserve.

     2.1.4 Cash Management Services Sublimit. Subject to the
Overall Sublimit in Section 2.1.5 below, Borrower may use up to
$2,000,000 of the Revolving Line for Bank’s cash management
services which may include merchant services, direct deposit of
payroll, business credit card, and check cashing services
identified in Bank’s various cash management services agreements
(collectively, the “Cash Management Services”), provided that,
after giving effect to such utilization, the total of the amount of
all outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit), plus an amount equal to the Letter of Credit
Reserves, plus the FX Reserve, plus amounts utilized for Cash
Management Services, and plus the outstanding principal balance of
any Advances (including any amounts used for Cash Management
Services) shall not exceed the lesser of (i) the Maximum Dollar
Amount, or (ii) the Borrowing Base. Any amounts used by Borrower
for Cash Management Services will be treated as Advances under the
Revolving Line, will accrue interest at the interest rate
applicable to Advances, and will reduce the amount otherwise
available for Credit Extensions thereunder.

     2.1.5 Overall Aggregate Sublimit. In no event shall the total
amount of (i) outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit Reserve),
and (ii) the FX Reserve, and (iii) the amount of the Revolving Line
utilized for Cash Management Services, at any time exceed
$2,000,000 in the aggregate (the “Overall Sublimit”).

     2.2 Overadvances. If at any time or for any reason the total
of all outstanding Advances and all other monetary Obligations
exceeds the Availability Amount (an “Overadvance”), Borrower shall
immediately pay the amount of the excess in cash to Bank, without
notice or demand. Without limiting Borrower’s obligation to repay
to Bank the amount of any Overadvance, Borrower agrees to pay Bank
interest on the outstanding amount of any Overadvance, on demand,
at the Default Rate.

-2-

 

     2.3 Payment of Interest on the Credit Extensions.

          (a) Interest Rate; Advances. Subject to Section 2.3(b), the
amounts outstanding under the Revolving Line shall accrue interest
at a per annum rate equal to 1.0 percentage points above the Prime
Rate, provided that the interest rate in effect on any day shall
not be less than 8.0% per annum, which interest shall be payable
monthly.

          (b) Default Rate. Immediately upon the occurrence and during
the continuance of an Event of Default, Obligations shall bear
interest at a rate per annum which is five percentage points above
the rate which is otherwise applicable to the Obligations (the
“Default Rate”). Payment or acceptance of the increased interest
rate provided in this Section 2.3(b) is not a permitted alternative
to timely payment and shall not constitute a waiver of any Event of
Default or otherwise prejudice or limit any rights or remedies of
Bank.

          (c) Adjustment to Interest Rate. Changes to the interest rate
of any Credit Extension based on changes to the Prime Rate shall be
effective on the effective date of any change to the Prime Rate and
to the extent of any such change.

          (d) 360-Day Year. Interest shall be computed on the basis of a
360-day year for the actual number of days elapsed.

          (e) Debit of Accounts. Bank may debit any of Borrower’s
deposit accounts, including the Designated Deposit Account, for
principal and interest payments or any other amounts Borrower owes
Bank when due. These debits shall not constitute a set-off.

          (f) Minimum Monthly Interest. [Omitted].

          (g) Payment; Interest Computation; Float Charge. Interest is
payable monthly on the last calendar day of each month. In
computing interest on the Obligations, all Payments received after
12:00 p.m. Pacific time on any day shall be deemed received on the
next Business Day. In addition, so long as any principal or
interest with respect to any Credit Extension remains outstanding,
Bank shall be entitled to charge Borrower a “float” charge in an
amount equal to three (3) Business Days interest, at the interest
rate applicable to the Advances, on all Payments received by Bank.
Said float charge is not included in interest for purposes of
computing Minimum Monthly Interest (if any) under this Agreement.
The float charge for each month shall be payable on the last day of
the month. Bank shall not, however, be required to credit
Borrower’s account for the amount of any item of payment which is
unsatisfactory to Bank in its good faith business judgment, and
Bank may charge Borrower’s Designated Deposit Account for the
amount of any item of payment which is returned to Bank unpaid.

     2.4 Fees. Borrower shall pay to Bank:

          (a) Commitment Fee. A fully earned, non-refundable commitment
fee of $30,000, on the Effective Date; and

          (b) Letter of Credit Fee. Bank’s customary fees and expenses
for the issuance or renewal of Letters of Credit upon the issuance
or renewal of such Letter of Credit by Bank; and

          (c) Termination Fee. Subject to the terms of Section 4.1, a termination fee; and

          (d) Unused Revolving Line Facility Fee. [Omitted]; and

          (e) Collateral Monitoring Fee. A monthly collateral monitoring
fee of $750, payable in arrears on the last day of each month
(prorated for any partial month at the beginning and upon
termination of this Agreement); and

          (f) Bank Expenses. All Bank Expenses (including reasonable
attorneys’ fees and expenses, and expenses for documentation and
negotiation of this Agreement) incurred through and after the
Effective Date, when due.

     3 CONDITIONS OF LOANS

-3-

 

     3.1 Conditions Precedent to Initial Credit Extension. Bank’s
obligation to make the initial Credit Extension is subject to the
condition precedent that Borrower shall consent to or have
delivered, in form and substance satisfactory to Bank, such
documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate, including, without
limitation:

          (a) duly executed original signatures to the Loan Documents to which it is a party;

          (b) duly executed original signatures to the Control Agreements;

          (c) its Operating Documents and a good standing certificate of
Borrower certified by the Secretary of State of the State of
Delaware as of a date no earlier than thirty (30) days prior to the
Effective Date;

          (d) duly executed original signatures to the completed Borrowing Resolutions for
Borrower;

          (e) the Subordination Agreement duly executed by PC Power &
Cooling, Inc. in favor of Bank;

          (f) a Payment Agreement from Bridge Bank;

          (g) evidence that (i) the Liens securing Indebtedness owed by
Borrower to Bridge Bank will be terminated and (ii) the documents
and/or filings evidencing the perfection of such Liens, including
without limitation any financing statements and/or control
agreements, have or will, concurrently with the initial Credit
Extension, be terminated.

          (h) certified copies, dated as of a recent date, of financing
statement searches, as Bank shall request, accompanied by written
evidence (including any UCC termination statements) that the Liens
indicated in any such financing statements either constitute
Permitted Liens or have been or, in connection with the initial
Credit Extension, will be terminated or released;

          (i) the Perfection Certificate(s) executed by Borrower;

          (j) the insurance policies and/or endorsements required pursuant to Section 6.5 hereof;
and

          (k) payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof;
and

          (l) evidence that any Liens upon the property acquired by
Borrower from PC Power & Cooling, Inc. and Silicon Data
Inc. have been terminated.

     3.2 Conditions Precedent to all Credit Extensions. Bank’s
obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:

          (a) except as otherwise provided in Section 3.4, timely
receipt of an executed Transaction Report;

          (b) the representations and warranties in Section 5 shall be
true in all material respects on the date of the Payment/Advance
Form and on the Funding Date of each Credit Extension; provided,
however, that such materiality qualifier shall not be applicable to
any representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further
that those representations and warranties expressly referring to a
specific date shall be true, accurate and complete in all material
respects as of such date, and no Default or Event of Default shall
have occurred and be continuing or result from the Credit
Extension. Each Credit Extension is Borrower’s representation and
warranty on that date that the representations and warranties in
Section 5 remain true in all material respects; provided, however,
that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further
that those representations and warranties expressly referring to a
specific date shall be true, accurate and complete in all material
respects as of such date; and

          (c) in Bank’s sole discretion, there has not been a Material Adverse Change.

     3.3 Covenant to Deliver.

-4-

 

     Borrower agrees to deliver to Bank each item required to be
delivered to Bank under this Agreement as a condition to any Credit
Extension. Borrower expressly agrees that the extension of a Credit
Extension prior to the receipt by Bank of any such item shall not
constitute a waiver by Bank of Borrower’s obligation to deliver
such item, and any such extension in the absence of a required item
shall be in Bank’s sole discretion.

     3.4 Procedures for Borrowing. Subject to the prior
satisfaction of all other applicable conditions to the making of an
Advance set forth in this Agreement, to obtain an Advance, Borrower
shall notify Bank (which notice shall be irrevocable) by electronic
mail, facsimile, or telephone by 12:00 p.m. Pacific time on the
Funding Date of the Advance. Together with such notification,
Borrower must promptly deliver to Bank by electronic mail or
facsimile a completed Transaction Report executed by a Responsible
Officer or his or her designee. Bank shall credit Advances to the
Designated Deposit Account. Bank may make Advances under this
Agreement based on instructions from a Responsible Officer or his
or her designee or without instructions if the Advances are
necessary to meet Obligations which have become due. Bank may rely
on any telephone notice given by a person whom Bank believes is a
Responsible Officer or designee.

     4 CREATION OF SECURITY INTEREST

     4.1 Grant of Security Interest. Borrower hereby grants Bank,
to secure the payment and performance in full of all of the
Obligations, a continuing security interest in, and pledges to
Bank, the Collateral, wherever located, whether now owned or
hereafter acquired or arising, and all proceeds and products
thereof. Borrower represents, warrants, and covenants that the
security interest granted herein is and shall at all times continue
to be a first priority perfected security interest in the
Collateral (subject only to Permitted Liens that may have superior
priority to Bank’s Lien under this Agreement). If Borrower shall
acquire a commercial tort claim, Borrower shall promptly notify
Bank in a writing signed by Borrower of the general details thereof
and grant to Bank in such writing a security interest therein and
in the proceeds thereof, all upon the terms of this Agreement, with
such writing to be in form and substance reasonably satisfactory to
Bank.

     If this Agreement is terminated, Bank’s Lien in the Collateral
shall continue until the Obligations (other than inchoate indemnity
obligations) are repaid in full in cash. Upon payment in full in
cash of the Obligations and at such time as Bank’s obligation to
make Credit Extensions has terminated, Bank shall, at Borrower’s
sole cost and expense, release its Liens in the Collateral and all
rights therein shall revert to Borrower.

     4.2 Authorization to File Financing Statements. Borrower
hereby authorizes Bank to file financing statements, without notice
to Borrower, with all appropriate jurisdictions to perfect or
protect Bank’s interest or rights hereunder, including a notice
that any disposition of the Collateral, by either Borrower or any
other Person, shall be deemed to violate the rights of Bank under
the Code.

     5 REPRESENTATIONS AND WARRANTIES

          Borrower represents and warrants as follows:

     5.1 Due Organization and Authorization. Borrower is duly
existing and in good standing in their respective jurisdictions of
formation and are qualified and licensed to do business and are in
good standing in any jurisdiction in which the conduct of their
business or their ownership of property requires that they be
qualified except where the failure to do so could not reasonably be
expected to have a Material Adverse Change. In connection with this
Agreement, Borrower has delivered to Bank a completed certificate
signed by Borrower and Guarantor, respectively, entitled
“Perfection Certificate”. Borrower represents and warrants to Bank
that (a) Borrower’s exact legal name is that indicated on the
Perfection Certificate and on the signature page hereof; (b)
Borrower is an organization of the type and is organized in the
jurisdiction set forth in the Perfection Certificate; (c) the
Perfection Certificate accurately sets forth Borrower’s
organizational identification number or accurately states that
Borrower has none; (d) the Perfection Certificate accurately sets
forth Borrower’s place of business, or, if more than one, its chief
executive office as well as Borrower’s mailing address (if
different than its chief executive office); (e) Borrower (and each
of its predecessors) has not, in the past five (5) years, changed
its jurisdiction of formation, organizational structure or type, or
any organizational number assigned by its jurisdiction; and (f) all
other information set forth on the Perfection Certificate
pertaining to Borrower and each of its Subsidiaries is accurate and
complete (it being understood and agreed that Borrower may from
time to time update certain information in the Perfection
Certificate after the Effective Date to the extent permitted by one
or more specific provisions in this Agreement). If Borrower is not
now a Registered Organization but later becomes one, Borrower

-5-

 

shall promptly notify Bank of such occurrence and provide Bank with
Borrower’s organizational identification number.

     The execution, delivery and performance by Borrower of the
Loan Documents to which it is a party have been duly authorized,
and do not (i) conflict with any of Borrower’s organizational
documents, (ii) contravene, conflict with, constitute a default
under or violate any material Requirement of Law, (iii) contravene,
conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental
Authority by which Borrower or any of its Subsidiaries or any of
their property or assets may be bound or affected, (iv) require any
action by, filing, registration, or qualification with, or
Governmental Approval from, any Governmental Authority (except such
Governmental Approvals which have already been obtained and are in
full force and effect or (v) constitute an event of default under
any material agreement by which Borrower is bound. Borrower is not
in default under any agreement to which it is a party or by which
it is bound in which the default 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. Borrower has no deposit
account other than the deposit accounts with Bank and deposit
accounts described in the Perfection Certificate delivered to Bank
in connection herewith or of which Borrower has given Bank notice
and taken such actions as are necessary to give Bank a perfected
security interest therein, pursuant to documentation reasonably
acceptable to Bank.

     The Collateral is not in the possession of any third party
bailee (such as a warehouse). Except as hereafter disclosed to Bank
in writing by Borrower, none of the components of the Collateral
shall be maintained at locations other than as provided in the
Perfection Certificate. In the event that Borrower, after the date
hereof, intends to store or otherwise deliver any portion of the
Collateral to a bailee, then Borrower will first receive the
written consent of Bank and such bailee must acknowledge in writing
that the bailee is holding such Collateral for the benefit of Bank.
Within 30 days of the Effective Date, Borrower shall cause the
lessors of Borrower’s facilities in Taiwan and the Netherlands to
execute a landlord agreement, in form and substance satisfactory to
Bank, and shall deliver such executed landlord agreements to Bank.

     All Inventory is in all material respects of good and marketable quality, free from material
defects.

     5.3 Accounts Receivable.

          (a) For each Account with respect to which Advances are
requested, on the date each Advance is requested and made, such
Account shall be an Eligible Account, set forth in Section 13
below.

          (b) All statements made and all unpaid balances appearing in
all invoices, instruments and other documents evidencing the
Accounts are and shall be true and correct and all such invoices,
instruments and other documents, and all of Borrower’s Books are
genuine and in all respects what they purport to be. All sales and
other transactions underlying or giving rise to each Account shall
comply in all material respects with all applicable laws and
governmental rules and regulations. Borrower has and will have no
knowledge of any actual or imminent Insolvency Proceeding of any
Account Debtor whose accounts are shown as Eligible Accounts in any
Transaction Report. To the best of Borrower’s knowledge, all
signatures and endorsements on all documents, instruments, and
agreements relating to all Accounts are and will be genuine, and
all such documents, instruments and agreements are and will be
legally enforceable in accordance with their terms.

     5.4 Litigation. There are no actions or proceedings pending
or, to the knowledge of the Responsible Officers, threatened in
writing by or against Borrower or any of its Subsidiaries involving
more than $100,000.

     5.5 No Material Deviation in Financial Statements. All
consolidated financial statements for Borrower and any of its
Subsidiaries delivered to Bank fairly present in all material
respects Borrower’s consolidated financial condition and Borrower’s
consolidated results of operations. There has not been any material
deterioration in Borrower’s consolidated financial condition since
the date of the most recent financial statements submitted to Bank.

     5.6 Solvency. Borrower is able to pay its debts (including trade debts) as they mature.

     5.7 Regulatory Compliance. Borrower is not an “investment
company” or a company “controlled” by an “investment company” under
the Investment Company Act. Borrower is not engaged as one of its
important activities in extending credit for margin stock (under
Regulations T and U of the Federal Reserve Board of

-6-

 

Governors). Borrower has complied in all material respects with the
Federal Fair Labor Standards Act. Neither Borrower nor any of its
Subsidiaries is a “holding company” or an “affiliate” of a “holding
company” or a “subsidiary company” of a “holding company” as each
term is defined and used in the Public Utility Holding Company Act
of 2005. Borrower has not violated any laws, ordinances or rules,
the violation of which could reasonably be expected to cause a
Material Adverse Change. None of Borrower’s or any of its
Subsidiaries’ properties or assets has been used by Borrower or any
Subsidiary or, to the best of Borrower’s knowledge, by previous
Persons, in disposing, producing, storing, treating, or
transporting any hazardous substance other than legally. Borrower
and each of its Subsidiaries have obtained all consents, approvals
and authorizations of, made all declarations or filings with, and
given all notices to, all Government Authorities that are necessary
to continue their respective businesses as currently conducted.

     5.8 Subsidiaries; Investments. Borrower does not have any
Subsidiaries, other than OCZ Canada and other Subsidiaries
organized with the prior written consent of Bank, and does not own
any stock, partnership interest or other equity securities in any
other Person, except for Permitted Investments.

     5.9 Tax Returns and Payments; Pension Contributions. Borrower
has timely filed all required tax returns and reports, and Borrower
has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower. Borrower
may defer payment of any contested taxes, provided that Borrower
(a) in good faith contests its obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and
conducted, (b) notifies Bank in writing of the commencement of, and
any material development in, the proceedings, (c) posts bonds or
takes any other steps required to prevent the governmental
authority levying such contested taxes from obtaining a Lien upon
any of the Collateral that is other than a “Permitted Lien”.
Borrower is unaware of any claims or adjustments proposed for any
of Borrower’s prior tax years which could result in additional
taxes becoming due and payable by Borrower. Borrower has paid all
amounts necessary to fund all present pension, profit sharing and
deferred compensation plans in accordance with their terms, and
Borrower has not withdrawn from participation in, and has not
permitted partial or complete termination of, or permitted the
occurrence of any other event with respect to, any such plan which
could reasonably be expected to result in any liability of
Borrower, including any liability to the Pension Benefit Guaranty
Corporation or its successors or any other governmental agency.

     5.10 Use of Proceeds. Borrower shall use the proceeds of the
Credit Extensions solely as working capital, and to fund its
general business requirements and not for personal, family,
household or agricultural purposes.

     5.11 Full Disclosure. No written representation, warranty or
other statement of Borrower in any certificate or written statement
given to Bank, as of the date such representation, warranty, or
other statement was made, taken together with all such written
certificates and written statements given to Bank, contains any
untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained in the certificates
or statements not misleading (it being recognized by Bank that the
projections and forecasts provided by Borrower in good faith and
based upon reasonable assumptions are not viewed as facts and that
actual results during the period or periods covered by such
projections and forecasts may differ from the projected or
forecasted results).

     6 AFFIRMATIVE COVENANTS

     Borrower shall do all of the following:

     6.1 Government Compliance. Maintain its and all its
Subsidiaries’ legal existence and good standing in their respective
jurisdictions of formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be
expected to cause a Material Adverse Change. Borrower shall comply,
and have each Subsidiary comply, with all laws, ordinances and
regulations to which it is subject, noncompliance with which could
reasonably be expected to cause a Material Adverse Change.

     6.2 Financial Statements, Reports, Certificates.

          (a) Borrower shall provide Bank with the following:

	 	(i)	 	a Transaction Report (and any schedules related thereto) as follows:

	 	(A)	 	if a Streamline Period is not in effect,
weekly and at the time of each request for an
Advance;

-7-

 

	 	(B)	 	if a Streamline Period is in effect, within
fifteen (15) days after the end of each month
and at the time of each request for an Advance;

	 	(ii)	 	within fifteen (15) days after the end of each month,

	 	(A)	 	monthly accounts receivable agings, aged by invoice date,
	 
	 	(B)	 	monthly accounts payable agings, aged by
invoice date, and outstanding or held check
registers, if any,
	 
	 	(C)	 	monthly reconciliations of accounts
receivable agings (aged by invoice date),
transaction reports, and general ledger,
	 
	 	(D)	 	[omitted];

	 	(iii)	 	as soon as available, and in any event within
thirty (30) days after the end of each month,
monthly unaudited financial statements;
	 
	 	(iv)	 	within thirty (30) days after the end of each
month a monthly Compliance Certificate signed by a
Responsible Officer, certifying that as of the end
of such month, Borrower was in full compliance with
all of the terms and conditions of this Agreement,
and setting forth calculations showing compliance
with the financial covenants set forth in this
Agreement and such other information as Bank shall
reasonably request, including, without limitation, a
statement that at the end of such month there were
no held checks;
	 
	 	(v)	 	[Omitted];
	 
	 	(vi)	 	within forty-five (45) days after the beginning
of each fiscal year of Borrower, (A) annual
operating budgets (including income statements,
balance sheets and cash flow statements, by month)
for such fiscal year of Borrower, and (B) annual
financial projections for the following fiscal year
(on a quarterly basis) as approved by Borrower’s
board of directors, together with any related
business forecasts used in the preparation of such
annual financial projections; and
	 
	 	(vii)	 	as soon as available, and in any event within
180 days following the end of Borrower’s fiscal
year, annual financial statements certified by, and
with an unqualified opinion of, independent
certified public accountants acceptable to Bank; and
	 
	 	(viii)	 	within 15 days following the end of each
fiscal quarter, Borrower shall cause such other
Account Debtors as Bank shall from time to time
request, to provide Bank with reports in form
satisfactory to Bank, addressed to Bank, and signed
by an authorized signatory on behalf of such Account
Debtor, indicating the amount of inventory purchased
by such Account Debtor from Borrower which such
Account Debtor has not re-sold, or otherwise holds,
as of the end of such month.

          (b) At all times that Borrower is subject to the reporting
requirements under the Securities Exchange Act of 1934, as amended,
within five (5) days after filing, all reports on Form 10-K, 10-Q
and 8-K filed with the Securities and Exchange Commission or a link
thereto on Borrower’s or another website on the Internet.

          (c) Prompt written notice of (i) any material change in the
composition of the intellectual property, (ii) the registration of
any copyright, including any subsequent ownership right of Borrower
in or to any copyright, patent or trademark not previously
disclosed to Bank in writing, or (iii) Borrower’s knowledge of an
event that materially adversely affects the value of the
intellectual property.

     6.3 Accounts Receivable.

          (a) Schedules and Documents Relating to Accounts. Borrower
shall deliver to Bank transaction reports and schedules of
collections, as provided in Section 6.2, on Bank’s standard forms;
provided, however, that Borrower’s failure to execute and deliver
the same shall not affect or limit Bank’s Lien and other rights in
all of Borrower’s Accounts, nor shall Bank’s failure to advance or
lend against a specific Account affect or

-8-

 

limit Bank’s Lien and other rights therein. If requested by Bank,
Borrower shall furnish Bank with copies (or, at Bank’s request,
originals) of all contracts, orders, invoices, and other similar
documents, and all shipping instructions, delivery receipts, bills
of lading, and other evidence of delivery, for any goods the sale
or disposition of which gave rise to such Accounts. In addition,
Borrower shall deliver to Bank, on its request, the originals of
all instruments, chattel paper, security agreements, guarantees and
other documents and property evidencing or securing any Accounts,
in the same form as received, with all necessary endorsements, and
copies of all credit memos.

          (b) Disputes. Borrower shall promptly notify Bank of all
disputes or claims relating to Accounts. Borrower may forgive
(completely or partially), compromise, or settle any Account for
less than payment in full, or agree to do any of the foregoing so
long as (i) Borrower does so in good faith, in a commercially
reasonable manner, in the ordinary course of business, in
arm’s-length transactions, and reports the same to Bank in the
regular reports provided to Bank; and (ii) no Default or Event of
Default has occurred and is continuing; and (iii) after taking into
account all such discounts, settlements and forgiveness, the total
outstanding Advances will not exceed the lesser of the Revolving
Line or the Borrowing Base.

          (c) Collection of Accounts. Borrower shall have the right to
collect all Accounts, unless and until a Default or an Event of
Default has occurred and is continuing. Whether or not an Event of
Default has occurred and is continuing, Borrower shall hold all
payments on, and proceeds of, Accounts in trust for Bank, and
Borrower shall immediately deliver all such payments and proceeds
to Bank in their original form, duly endorsed, to be applied to the
Obligations pursuant to the terms of Section 9.4 hereof. Bank may,
in its good faith business judgment, require that all proceeds of
Accounts be deposited by Borrower into a lockbox account, or such
other “blocked account” as Bank may specify, pursuant to a blocked
account agreement in such form as Bank may specify in its good
faith business judgment.

          (d) Returns. Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to
Borrower, Borrower shall promptly (i) determine the reason for such
return, (ii) issue a credit memorandum to the Account Debtor in the
appropriate amount, and (iii) provide a copy of such credit
memorandum to Bank, upon request from Bank. In the event any
attempted return occurs after the occurrence and during the
continuance of any Event of Default, Borrower shall hold the
returned Inventory in trust for Bank, and immediately notify Bank
of the return of the Inventory.

          (e) Verification. Bank may, from time to time, verify directly
with the respective Account Debtors the validity, amount and other
matters relating to the Accounts, either in the name of Borrower or
Bank or such other name as Bank may choose.

          (f) No Liability. Bank shall not be responsible or liable for
any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to
an Account, or for any error, act, omission, or delay of any kind
occurring in the settlement, failure to settle, collection or
failure to collect any Account, or for settling any Account in good
faith for less than the full amount thereof, nor shall Bank be
deemed to be responsible for any of Borrower’s obligations under
any contract or agreement giving rise to an Account. Nothing herein
shall, however, relieve Bank from liability for its own gross
negligence or willful misconduct.

     6.4 Remittance of Proceeds. Except as otherwise provided in
Section 6.3(c), deliver, in kind, all proceeds arising from the
disposition of any Collateral to Bank in the original form in which
received by Borrower not later than the following Business Day
after receipt by Borrower, to be applied to the Obligations
pursuant to the terms of Section 9.4 hereof; provided that, if no
Default or Event of Default has occurred and is continuing,
Borrower shall not be obligated to remit to Bank the proceeds of
the sale of worn out or obsolete Equipment disposed of by Borrower
in good faith in an arm’s length transaction for an aggregate
purchase price of $25,000 or less (for all such transactions in any
fiscal year). Borrower agrees that it will not commingle proceeds
of Collateral with any of Borrower’s other funds or property, but
will hold such proceeds separate and apart from such other funds
and property and in an express trust for Bank. Nothing in this
Section limits the restrictions on disposition of Collateral set
forth elsewhere in this Agreement.

     6.5 Taxes; Pensions. Timely file all required tax returns and
reports and timely pay all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower except for
deferred payment of any taxes contested pursuant to the terms of
Section 5.9 hereof, and pay all amounts necessary to fund all
present pension, profit sharing and deferred compensation plans in
accordance with their terms.

-9-

 

     6.6 Access to Collateral; Books and Records. At reasonable
times, on one (1) Business Day’s notice (provided no notice is
required if an Event of Default has occurred and is continuing),
Bank, or its agents, shall have the right to inspect the Collateral
and the right to audit and copy Borrower’s Books. The parties
contemplate that such audits will be performed no more frequently
than three times per year, but nothing herein restricts Bank’s
right to conduct such audits more frequently if (i) Bank believes
that it is advisable to do so in Bank’s good faith business
judgment, or (ii) Bank believes in good faith that a Default or
Event of Default has occurred. The foregoing inspections and audits
shall be at Borrower’s expense, and the charge therefor shall be
$750 per person per day (or such higher amount as shall represent
Bank’s then-current standard charge for the same), plus reasonable
out-of-pocket expenses. In the event Borrower and Bank schedule an
audit more than ten (10) days in advance, and Borrower cancels or
seeks to reschedules the audit with less than ten (10) days written
notice to Bank, then (without limiting any of Bank’s rights or
remedies), Borrower shall pay Bank a fee of $1,000 plus any
out-of-pocket expenses incurred by Bank to compensate Bank for the
anticipated costs and expenses of the cancellation or rescheduling.

     6.7 Insurance. Keep its business and the Collateral insured
for risks and in amounts standard for companies in Borrower’s
industry and location and as Bank may reasonably request. Insurance
policies shall be in a form, with companies, and in amounts that
are satisfactory to Bank. All property policies shall have a
lender’s loss payable endorsement showing Bank as an additional
lender loss payee and waive subrogation against Bank, and all
liability policies shall show, or have endorsements showing, Bank
as an additional insured. All policies (or the loss payable and
additional insured endorsements) shall provide that the insurer
must give Bank at least twenty (20) days notice before canceling,
amending, or declining to renew its policy. At Bank’s request,
Borrower shall deliver certified copies of policies and evidence of
all premium payments. Proceeds payable under any policy shall, at
Bank’s option, be payable to Bank on account of the Obligations.
Notwithstanding the foregoing, (a) so long as no Event of Default
has occurred and is continuing, Borrower shall have the option of
applying the proceeds of any casualty policy up to $50,000, in the
aggregate, toward the replacement or repair of destroyed or damaged
property; provided that any such replaced or repaired property (i)
shall be of equal or like value as the replaced or repaired
Collateral and (ii) shall be deemed Collateral in which Bank has
been granted a first priority security interest, and (b) after the
occurrence and during the continuance of an Event of Default, all
proceeds payable under such casualty policy shall, at the option of
Bank, be payable to Bank on account of the Obligations. If Borrower
fails to obtain insurance as required under this Section 6.7 or to
pay any amount or furnish any required proof of payment to third
persons and Bank, Bank may make all or part of such payment or
obtain such insurance policies required in this Section 6.7, and
take any action under the policies Bank deems prudent.

     6.8 Operating Accounts.

          (a) Within sixty (60) days of the Effective Date and all times
thereafter, maintain all of its and its Subsidiaries’ primary
depository and operating accounts and securities accounts with Bank
and Bank’s affiliates.

          (b) Provide Bank five (5) days prior written notice before
establishing any Collateral Account at or with any bank or
financial institution other than Bank or Bank’s Affiliates. In
addition, for each Collateral Account that Borrower at any time
maintains, Borrower shall cause the applicable bank or financial
institution (other than Bank) at or with which any Collateral
Account is maintained to execute and deliver a Control Agreement or
other appropriate instrument with respect to such Collateral
Account to perfect Bank’s Lien in such Collateral Account in
accordance with the terms hereunder. The provisions of the previous
sentence shall not apply to deposit accounts exclusively used for
payroll, payroll taxes and other employee wage and benefit payments
to or for the benefit of Borrower’s employees and identified to
Bank by Borrower as such.

     6.9 Financial Covenants.

          Borrower shall maintain at all times, to be tested as of the
last day of each month, unless otherwise noted, on a consolidated
basis:

          (a) Tangible Net Worth. A Tangible Net Worth of at least
$18,500,000 (“Minimum Tangible Net Worth”) plus (i) 50% of all
consideration received after the date hereof for equity securities
and subordinated debt of the Borrower, plus (ii) 50% of the
Borrower’s net income in each fiscal quarter ending after the date
hereof. Increases in the Minimum Tangible Net Worth based on
consideration received for equity securities and subordinated debt
of the Borrower shall be effective as of the end of the month in
which such consideration is received, and shall continue effective
thereafter. Increases in the Minimum Tangible Net Worth based on
net income

-10-

 

shall be effective on the last day of the fiscal quarter in which
said net income is realized, and shall continue effective
thereafter. In no event shall the Minimum Tangible Net Worth be
decreased.

     6.10 Intellectual Property Rights. Borrower shall: (a)
protect, defend and maintain the validity and enforceability of its
intellectual property; (b) promptly advise Bank in writing of
material infringements of its intellectual property; and (c) not
allow any intellectual property material to Borrower’s business to
be abandoned, forfeited or dedicated to the public without Bank’s
written consent.

     6.11 Litigation Cooperation. From the date hereof and
continuing through the termination of this Agreement, make
available to Bank, without expense to Bank, Borrower and its
officers, employees and agents and Borrower’s books and records, to
the extent that Bank may deem them reasonably necessary to
prosecute or defend any third-party suit or proceeding instituted
by or against Bank with respect to any Collateral or relating to
Borrower.

     6.12 Right to Invest. [Omitted]

     6.13 Further Assurances. Borrower shall execute any further
instruments and take further action as Bank reasonably requests to
perfect or continue Bank’s Lien in the Collateral or to effect the
purposes of this Agreement.

     7 NEGATIVE COVENANTS

     Borrower shall not do any of the following without Bank’s prior written consent:

     7.1 Dispositions. Convey, sell, lease, transfer or otherwise
dispose of (collectively, “Transfer”), or permit any of its
Subsidiaries to Transfer, all or any part of its business or
property, except for (a) Transfers of Inventory in the ordinary
course of business; (b) Transfers of worn-out or obsolete
Equipment; and (c) Transfers consisting of Permitted Liens and
Permitted Investments and (d) transfers of non-exclusive licenses
for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business.

     7.2 Changes in Business, Management, Ownership, or Business Locations.

          (a) Engage in or permit any of its Subsidiaries to engage in
any business other than the businesses currently engaged in by
Borrower and such Subsidiary, as applicable, or reasonably related
thereto;

          (b) liquidate or dissolve; or

          (c) permit a change in the record or beneficial ownership of
an aggregate of more than 20% of the outstanding shares of stock of
Borrower, in one or more transactions, compared to the ownership of
outstanding shares of stock of Borrower in effect on the date
hereof (other than by the sale of Borrower’s equity securities in a
public offering or to venture capital investors so long as Borrower
identifies to Bank the venture capital investors prior to the
closing of the transaction); or

          (d) without at least thirty (30) days prior written notice to
Bank: (1) add any new offices or business locations, including
warehouses (unless such new offices or business locations contain
assets and property of Borrower with an aggregate value of less
than $10,000), (2) change its jurisdiction of organization, (3)
change its organizational structure or type, (4) change its legal
name, or (5) change its organizational number (if any) assigned by
its jurisdiction of organization.

     7.3 Mergers or Acquisitions. Merge or consolidate, or permit
any of its Subsidiaries to merge or consolidate, with any other
Person, or acquire, or permit any of its Subsidiaries to acquire,
all or substantially all of the capital stock or property of
another Person, except that a Subsidiary of Borrower may merge or
consolidate into another Subsidiary of Borrower or into Borrower.

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

     7.5 Encumbrance. Create, incur, allow, or suffer any Lien on
any of its property or assets, or assign or convey any right to
receive income, including the sale of any Accounts, or permit any
of its Subsidiaries to do so,

-11-

 

except for Permitted Liens, or permit any Collateral not to be
subject to the first priority security interest granted herein, or
enter into any agreement, document, instrument or other arrangement
(except with or in favor of Bank) with any Person which directly or
indirectly prohibits or has the effect of prohibiting Borrower or
any Subsidiary from assigning, mortgaging, pledging, granting a
security interest in or upon, or encumbering any of Borrower’s or
any Subsidiary’s intellectual property, except as is otherwise
permitted in Section 7.1 hereof and the definition of “Permitted
Lien” herein.

     7.6 Maintenance of Collateral Accounts. Maintain any
Collateral Account except pursuant to the terms of Section 6.8.(b)
hereof.

     7.7 Investments; Distributions. (a) Directly or indirectly
make any Investment other than Permitted Investments, or permit any
of its Subsidiaries to do so; or (b) pay any dividends or make any
distribution or payment or redeem, retire or purchase any capital
stock, provided that (i) Borrower may convert any of its
convertible securities into other securities pursuant to the terms
of such convertible securities or otherwise in exchange thereof,
(ii) Borrower may pay dividends solely in common stock; and (iii)
Borrower may repurchase the stock of former employees or
consultants pursuant to stock repurchase agreements so long as no
Default or Event of Default has occurred at the time of such
repurchase and would not exist after giving effect to such
repurchase, provided such repurchase does not exceed in the
aggregate of $50,000 per fiscal year.

     7.8 Transactions with Affiliates. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate
of Borrower, except for transactions that are in the ordinary
course of Borrower’s business, upon fair and reasonable terms that
are no less favorable to Borrower than would be obtained in an
arm’s length transaction with a non-affiliated Person.

     7.9 Subordinated Debt. (a) Make or permit any payment on any
Subordinated Debt, except under the terms of the subordination,
intercreditor, or other similar agreement to which such
Subordinated Debt is subject, or (b) amend any provision in any
document relating to the Subordinated Debt which would increase the
amount thereof or the amount of any permitted payments thereunder
or adversely affect the subordination thereof to Obligations owed
to Bank.

     7.10 Compliance. Become an “investment company” or a company
controlled by an “investment company”, under the Investment Company
Act of 1940 or undertake as one of its important activities
extending credit to purchase or carry margin stock (as defined in
Regulation U of the Board of Governors of the Federal Reserve
System), or use the proceeds of any Credit Extension for that
purpose; fail to meet the minimum funding requirements of ERISA,
permit a Reportable Event or Prohibited Transaction, as defined in
ERISA, to occur; fail to comply with the Federal Fair Labor
Standards Act or violate any other law or regulation, if the
violation could reasonably be expected to cause a Material Adverse
Change, or permit any of its Subsidiaries to do so; withdraw or
permit any Subsidiary to withdraw from participation in, permit
partial or complete termination of, or permit the occurrence of any
other event with respect to, any present pension, profit sharing
and deferred compensation plan which could reasonably be expected
to result in any liability of Borrower, including any liability to
the Pension Benefit Guaranty Corporation or its successors or any
other governmental agency.

     7.11 Negative Pledge Re Intellectual Property. Borrower agrees as follows (the “Negative
Pledge”):

          1. Except for non-exclusive licenses granted by Borrower in
the ordinary course of business, Borrower shall not sell, transfer,
assign, mortgage, pledge, lease, grant a security interest in, or
encumber any of Borrower’s Intellectual Property, including,
without limitation, the following:

               a. Any and all copyright rights, copyright applications,
copyright registrations and like protections in each work of
authorship and derivative work thereof, whether published or
unpublished and whether or not the same also constitutes a trade
secret, now or hereafter existing, created, acquired or held
(“Copyrights”);

               b. Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products
now or hereafter existing, created, acquired or held;

               c. Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or held;

               d. All patents, patent applications and like protections
including, without limitation, improvements, divisions,
continuations, renewals, reissues, extensions and
continuations-in-part of the

-12-

 

same, including without limitation the patents and patent
applications now or hereafter existing, created, acquired or held
(“Patents”);

               e. Any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrower
connected with and symbolized by such trademarks now or hereafter
existing, created, acquired or held (“Trademarks”);

               f. Any mask works or similar rights available for the protection of
semiconductor chips, now or hereafter existing, created, acquired
or held;

               g. Any and all claims for damages by way of past, present and
future infringements of any of the rights included above, with the
right, but not the obligation, to sue for and collect such damages
for said use or infringement of the intellectual property rights
identified above;

               h. All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising
from such use to the extent permitted by such license or rights;
and

               i. All amendments, extensions, renewals and extensions of any of
the Copyrights, Trademarks or Patents; and

               j. All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing;

          2. It shall be an event of default under the Loan Documents
between Borrower and Bank if there is a breach of any term of this
Negative Pledge.

     8 EVENTS OF DEFAULT

     Any one of the following shall constitute an event of default
(an “Event of Default”) under this Agreement:

     8.1 Payment Default. Borrower fails to (a) make any payment of
principal or interest on any Credit Extension on its due date, or
(b) pay any other Obligations within three (3) Business Days after
such Obligations are due and payable. During the cure period, the
failure to cure the payment default is not an Event of Default (but
no Credit Extension will be made during the cure period);

     8.2 Covenant Default.

          (a) Borrower fails or neglects to perform any obligation in
Sections 6.2, 6.3, 6.4, 6.6, 6.8, or 6.9, or violates any covenant
in Section 7; or

          (b) Borrower fails or neglects to perform, keep, or observe
any other term, provision, condition, covenant or agreement
contained in this Agreement or any Loan Documents, and as to any
default (other than those specified in this Section 8) under such
other term, provision, condition, covenant or agreement that can be
cured, has failed to cure the default within ten (10) days after
the occurrence thereof; provided, however, that if the default
cannot by its nature be cured within the ten (10) day period or
cannot after diligent attempts by Borrower be cured within such ten
(10) day period, and such default is likely to be cured within a
reasonable time, then Borrower shall have an additional period
(which shall not in any case exceed thirty (30) days) to attempt to
cure such default, and within such reasonable time period the
failure to cure the default shall not be deemed an Event of Default
(but no Credit Extensions shall be made during such cure period).
Grace periods provided under this section shall not apply, among
other things, to financial covenants or any other covenants set
forth in subsection (a) above;

     8.3 Material Adverse Change. A Material Adverse Change occurs;

     8.4 Attachment. Attachment. (a) Any material portion of
Borrower’s assets is attached, seized, levied on, or comes into
possession of a trustee or receiver; (b) the service of process
seeking to attach, by trustee or similar process, any funds of
Borrower or of any entity under control of Borrower (including a
Subsidiary) on deposit with Bank or any Bank Affiliate; (c)
Borrower is enjoined, restrained, or prevented by court order from
conducting any part of its business; or (d) a notice of lien, levy,
or assessment is filed against any of Borrower’s assets by any
government agency, and the same under clauses (a) through (d)
hereof are not, within ten (10) days

-13-

 

after the occurrence thereof, discharged or stayed (whether through
the posting of a bond or otherwise); provided, however, no Credit
Extensions shall be made during any ten (10) day cure period;

     8.5 Insolvency. (a) Borrower is unable to pay its debts
(including trade debts) as they become due or otherwise becomes
insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an
Insolvency Proceeding is begun against Borrower and not dismissed
or stayed within thirty (30) days (but no Credit Extensions shall
be made while of any of the conditions described in clause (a)
exist and/or until any Insolvency Proceeding is dismissed);

     8.6 Other Agreements. There is a default in any agreement to
which Borrower or any Guarantor is a party with a third party or
parties resulting in a right by such third party or parties,
whether or not exercised, to accelerate the maturity of any
Indebtedness in an amount in excess of $50,000 or that could result
in a Material Adverse Change with respect to Borrower’s or any
Guarantor; provided, however, that the Event of Default under this
Section 8.6 caused by the occurrence of a default under such other
agreement shall be cured or waived for purposes of this Agreement
upon Bank receiving written notice from the party asserting such
default of such cure or waiver of the default under such other
agreement, if at the time of such cure or waiver under such other
agreement (a) Bank has not declared an Event of Default under this
Agreement and/or exercised any rights with respect thereto; (b) any
such cure or waiver does not result in an Event of Default under
any other provision of this Agreement or any Loan Document; and (c)
in connection with any such cure or waiver under such other
agreement, the terms of any agreement with such third party are not
modified or amended in any manner which could in the good faith
judgment of Bank be materially less advantageous to Borrower or any
Guarantor;

     8.7 Judgments. One or more judgments, orders, or decrees for
the payment of money in an amount, individually or in the
aggregate, of $99,000 or more (not covered by independent
third-party insurance as to which liability has been accepted by
such insurance carrier) shall be rendered against Borrower and
shall remain unsatisfied, unvacated, or unstayed for a period of
ten (10) days after the entry thereof (provided that no Credit
Extensions will be made prior to the satisfaction, vacation, or
stay of such judgment, order, or decree);

     8.8 Misrepresentations. Borrower or any Person acting for
Borrower makes any representation, warranty, or other statement now
or later in this Agreement, any Loan Document or in any writing
delivered to Bank or to induce Bank to enter this Agreement or any
Loan Document, and such representation, warranty, or other
statement is incorrect in any material respect when made;

     8.9 Subordinated Debt. A default or breach occurs under any
agreement between Borrower and any creditor of Borrower that signed
a subordination, intercreditor, or other similar agreement with
Bank, or any creditor that has signed such an agreement with Bank
breaches any terms of such agreement; or

     8.10 Guaranty. (a) Any guaranty of any Obligations terminates
or ceases for any reason to be in full force and effect; (b) any
Guarantor does not perform any obligation or covenant under any
guaranty of the Obligations; (c) any circumstance described in
Sections 8.3, 8.4, 8.5, 8.7, or 8.8. occurs with respect to any
Guarantor, or (d) the death, liquidation, winding up, or
termination of existence of any Guarantor; or (e) (i) a material
impairment in the perfection or priority of Bank’s Lien in the
collateral provided by Guarantor or in the value of such collateral
or (ii) a material adverse change in the general affairs,
management, results of operation, condition (financial or
otherwise) or the prospect of repayment of the Obligations occurs
with respect to any Guarantor.

     9 BANK’S RIGHTS AND REMEDIES

     9.1 Rights and Remedies. If an Event of Default has occurred
and is continuing, Bank may, without notice or demand, do any or
all of the following:

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

          (b) stop advancing money or extending credit for Borrower’s
benefit under this Agreement or under any other agreement between
Borrower and Bank;

          (c) demand that Borrower (i) deposit cash with Bank in an
amount equal to the aggregate amount of any Letters of Credit
remaining undrawn, as collateral security for the repayment of any
future drawings

-14-

 

under such Letters of Credit, and Borrower shall forthwith deposit
and pay such amounts, and (ii) pay in advance all Letter of Credit
fees scheduled to be paid or payable over the remaining term of any
Letters of Credit;

          (d) terminate any FX Forward Contracts;

          (e) demand payment of, and collect any Accounts and General
Intangibles comprising Collateral, settle or adjust disputes and
claims directly with Account Debtors for amounts, on terms, and in
any order that Bank considers advisable, notify any Account Debtor
or other Person owing Borrower money of Bank’s security interest in
such funds, verify the amount of the same and collect the same;

          (f) make any payments and do any acts it considers necessary
or reasonable to protect the Collateral and/or its security
interest in the Collateral. Borrower shall assemble the Collateral
if Bank requests and make it available as Bank designates. Bank may
enter premises where the Collateral is 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
superior to its security interest and pay all expenses incurred.
Borrower grants Bank a license to enter and occupy any of its
premises, without charge, to exercise any of Bank’s rights or
remedies;

          (g) apply to the Obligations any (i) balances and deposits of
Borrower it holds, or (ii) any amount held by Bank owing to or for
the credit or the account of Borrower;

          (h) ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell the Collateral. Bank
is hereby granted a non-exclusive, royalty-free license or other
right to use, without charge, Borrower’s labels, patents,
copyrights, mask works, rights of use of any name, trade secrets,
trade names, trademarks, service marks, and advertising matter, or
any similar property as it pertains to the Collateral, in
completing production of, advertising for sale, and selling any
Collateral and, in connection with Bank’s exercise of its rights
under this Section, Borrower’s rights under all licenses and all
franchise agreements inure to Bank’s benefit;

          (i) place a “hold” on any account maintained with Bank and/or
deliver a notice of exclusive control, any entitlement order, or
other directions or instructions pursuant to any Control Agreement
or similar agreements providing control of any Collateral;

          (j) demand and receive possession of Borrower’s Books; and

          (k) exercise all rights and remedies available to Bank under
the Loan Documents or at law or equity, including all remedies
provided under the Code (including disposal of the Collateral
pursuant to the terms thereof).

     9.2 Power of Attorney. Borrower hereby irrevocably appoints
Bank as its lawful attorney-in-fact, exercisable upon the
occurrence and during the continuance of an Event of Default, to:
(a) endorse Borrower’s name on any checks or other forms of payment
or security; (b) sign Borrower’s name on any invoice or bill of
lading for any Account or drafts against Account Debtors; (c)
settle and adjust disputes and claims about the Accounts directly
with Account Debtors, for amounts and on terms Bank determines
reasonable; (d) make, settle, and adjust all claims under
Borrower’s insurance policies; (e) pay, contest or settle any Lien,
charge, encumbrance, security interest, and adverse claim in or to
the Collateral, or any judgment based thereon, or otherwise take
any action to terminate or discharge the same; and (f) transfer the
Collateral into the name of Bank or a third party as the Code
permits. Borrower hereby appoints Bank as its lawful
attorney-in-fact to sign Borrower’s name on any documents necessary
to perfect or continue the perfection of Bank’s security interest
in the Collateral regardless of whether an Event of Default has
occurred until all Obligations have been satisfied in full and Bank
is under no further obligation to make Credit Extensions hereunder.
Bank’s foregoing appointment as Borrower’s attorney in fact, and
all of Bank’s rights and powers, coupled with an interest, are
irrevocable until all Obligations have been fully repaid and
performed and Bank’s obligation to provide Credit Extensions
terminates.

     9.3 Protective Payments. If Borrower fails to obtain the
insurance called for by Section 6.7 or fails to pay any premium
thereon or fails to pay any other amount which Borrower is
obligated to pay under this Agreement or any other Loan Document,
Bank may obtain such insurance or make such payment, and all
amounts so paid by Bank are Bank Expenses and immediately due and
payable, bearing interest at the then highest applicable rate, and
secured by the Collateral. Bank will make reasonable efforts to
provide Borrower with notice of Bank

-15-

 

obtaining such insurance at the time it is obtained or within a
reasonable time thereafter. No payments by Bank are deemed an
agreement to make similar payments in the future or Bank’s waiver
of any Event of Default.

     9.4 Application of Payments and Proceeds. Borrower shall have
no right to specify the order or the accounts to which Bank shall
allocate or apply any payments required to be made by Borrower to
Bank or otherwise received by Bank under this Agreement when any
such allocation or application is not specified elsewhere in this
Agreement. If an Event of Default has occurred and is continuing,
Bank may apply any funds in its possession, whether from Borrower
account balances, payments, proceeds realized as the result of any
collection of Accounts or other disposition of the Collateral, or
otherwise, to the Obligations in such order as Bank shall determine
in its sole discretion. Any surplus shall be paid to Borrower by
credit to the Designated Deposit Account or to other Persons
legally entitled thereto; Borrower shall remain liable to Bank for
any deficiency. If Bank, in its good faith business judgment,
directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral,
Bank shall have the option, exercisable at any time, of either
reducing the Obligations by the principal amount of the purchase
price or deferring the reduction of the Obligations until the
actual receipt by Bank of cash therefor..

     9.5 Bank’s Liability for Collateral. So long as Bank complies
with reasonable banking practices regarding the safekeeping of the
Collateral in the possession or under the control of Bank, Bank
shall not be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage to the Collateral; (c) any
diminution in the value of the Collateral; or (d) any act or
default of any carrier, warehouseman, bailee, or other Person.
Borrower bears all risk of loss, damage or destruction of the
Collateral.

     9.6 No Waiver; Remedies Cumulative. Bank’s failure, at any
time or times, to require strict performance by Borrower of any
provision of this Agreement or any other Loan Document shall not
waive, affect, or diminish any right of Bank thereafter to demand
strict performance and compliance herewith or therewith. No waiver
hereunder shall be effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it is
given. Bank’s rights and remedies under this Agreement and the
other Loan Documents are cumulative. Bank has all rights and
remedies provided under the Code, by law, or in equity. Bank’s
exercise of one right or remedy is not an election, and Bank’s
waiver of any Event of Default is not a continuing waiver. Bank’s
delay in exercising any remedy is not a waiver, election, or
acquiescence.

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

     10 NOTICES

     All notices, consents, requests, approvals, demands, or other communication (collectively,
“Communication”), other than Advance requests made pursuant to
Section 3.4, by any party to this Agreement or any other Loan
Document must be in writing and be delivered or sent by facsimile
at the addresses or facsimile numbers listed below. Bank or
Borrower may change its notice address by giving the other party
written notice thereof. Each such Communication shall be deemed to
have been validly served, given, or delivered: (a) upon the earlier
of actual receipt and three (3) Business Days after deposit in the
U.S. mail, registered or certified mail, return receipt requested,
with proper postage prepaid; (b) upon transmission, when sent by
facsimile transmission (with such facsimile promptly confirmed by
delivery of a copy by personal delivery or United States mail as
otherwise provided in this Section 10); (c) one (1) Business Day
after deposit with a reputable overnight courier with all charges
prepaid; or (d) when delivered, if hand-delivered by messenger, all
of which shall be addressed to the party to be notified and sent to
the address or facsimile number indicated below. Advance requests
made pursuant to Section 3.4 must be in writing and may be in the
form of electronic mail, delivered to Bank by Borrower at the
e-mail address of Bank provided below and shall be deemed to have
been validly served, given, or delivered when sent (with such
electronic mail promptly confirmed by delivery of a copy by
personal delivery or United States mail as otherwise provided in
this Section 10). Bank or Borrower may change its address,
facsimile number, or electronic mail address by giving the other
party written notice thereof in accordance with the terms of this
Section 10.

-16-

 

	 	 	 	 	 	 	 
	 

	 	If to Borrower:
	 	OCZ Technology Group, Inc.
	 	 
	 

	 	 	 	860 E. Arques Avenue	 	 
	 

	 	 	 	Sunnyvale, CA 94085	 	 
	 

	 	 	 	Attn:                                           	 	 
	 

	 	 	 	Fax:                                             	 	 
	 

	 	 	 	Email:                                          	 	 
	 
	 	 	 	 	 	 
	 

	 	If to Bank:
	 	Silicon Valley Bank	 	 
	 

	 	 	 	3979 Freedom Circle, Suite 600	 	 
	 

	 	 	 	Santa Clara, CA 95054	 	 
	 

	 	 	 	Attn: Ms. Jean Lee	 	 
	 

	 	 	 	Fax: 408-654-5517	 	 
	 

	 	 	 	Email: jlee@svb.com	 	 

     11 CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE.

     California law governs the Loan Documents without regard to
principles of conflicts of law. Borrower and Bank each submit to
the exclusive jurisdiction of the State and Federal courts in Santa
Clara County, California; provided, however, that nothing in this
Agreement shall be deemed to operate to preclude Bank from bringing
suit or taking other legal action in any other jurisdiction to
realize on the Collateral or any other security for the
Obligations, or to enforce a judgment or other court order in favor
of Bank. Borrower expressly submits and consents in advance to such
jurisdiction in any action or suit commenced in any such court, and
Borrower hereby waives any objection that it may have based upon
lack of personal jurisdiction, improper venue, or forum non
conveniens and hereby consents to the granting of such legal or
equitable relief as is deemed appropriate by such court. Borrower
hereby waives personal service of the summons, complaints, and
other process issued in such action or suit and agrees that service
of such summons, complaints, and other process may be made by
registered or certified mail addressed to Borrower at the address
set forth in Section 10 of this Agreement and that service so made
shall be deemed completed upon the earlier to occur of Borrower’s
actual receipt thereof or three (3) days after deposit in the U.S.
mails, proper postage prepaid.

TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH
WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR
ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF
DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR
BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED
THIS WAIVER WITH ITS COUNSEL.

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO
WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above
waiver of the right to a trial by jury is not enforceable, the
parties hereto agree that any and all disputes or controversies of
any nature between them arising at any time shall be decided by a
reference to a private judge, mutually selected by the parties (or,
if they cannot agree, by the Presiding Judge of the Santa Clara
County, California Superior Court) appointed in accordance with
California Code of Civil Procedure Section 638 (or pursuant to
comparable provisions of federal law if the dispute falls within
the exclusive jurisdiction of the federal courts), sitting without
a jury, in Santa Clara County, California; and the parties hereby
submit to the jurisdiction of such court. The reference proceedings
shall be conducted pursuant to and in accordance with the
provisions of California Code of Civil Procedure §§ 638 through
645.1, inclusive. The private judge shall have the power, among
others, to grant provisional relief, including without limitation,
entering temporary restraining orders, issuing preliminary and
permanent injunctions and appointing receivers. All such
proceedings shall be closed to the public and confidential and all
records relating thereto shall be permanently sealed. If during the
course of any dispute, a party desires to seek provisional relief,
but a judge has not been appointed at that point pursuant to the
judicial reference procedures, then such party may apply to the
Santa Clara County, California Superior Court for such relief. The
proceeding before the private judge shall be conducted in the same
manner as it would be before a court under the rules of evidence
applicable to judicial proceedings. The parties shall be entitled
to discovery which shall be conducted in the same manner as it
would be before a court under the rules of discovery applicable to
judicial proceedings. The private judge shall oversee discovery and
may enforce all discovery rules and order applicable to judicial
proceedings in the same manner as a trial court judge. The parties
agree that the selected or appointed private judge shall have the
power to decide all issues in the action or proceeding, whether of
fact or of law, and shall report a statement

-17-

 

of decision thereon pursuant to the California Code of Civil
Procedure § 644(a). Nothing in this paragraph shall limit the right
of any party at any time to exercise self-help remedies, foreclose
against collateral, or obtain provisional remedies. The private
judge shall also determine all issues relating to the
applicability, interpretation, and enforceability of this
paragraph.

     12 GENERAL PROVISIONS

     12.1 Termination Prior to Revolving Line Maturity Date. This
Agreement may be terminated prior to the Revolving Line Maturity
Date by Borrower, effective three (3) Business Days after written
notice of termination is given to Bank. Notwithstanding any such
termination, Bank’s lien and security interest in the Collateral
and all of Bank’s rights and remedies under this Agreement shall
continue until Borrower fully satisfies its Obligations. If such
termination is at Borrower’s election or at Bank’s election due to
the occurrence and continuance of an Event of Default, Borrower
shall pay to Bank, in addition to the payment of any other expenses
or fees then-owing, a termination fee in an amount equal to 1.0% of
the Maximum Dollar Amount if termination occurs on or before the
Revolving Line Maturity Date; provided that no termination fee
shall be charged if the credit facility hereunder is replaced with
a new facility from another division of Silicon Valley Bank

     12.2 Successors and Assigns. This Agreement binds and is for
the benefit of the successors and permitted assigns of each party.
Borrower may not assign this Agreement or any rights or obligations
under it without Bank’s prior written consent (which may be granted
or withheld in Bank’s discretion). Bank has the right, without the
consent of or notice to Borrower, to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in,
Bank’s obligations, rights, and benefits under this Agreement and
the other Loan Documents.

     12.3 Indemnification. Borrower agrees to indemnify, defend and
hold Bank and its directors, officers, employees, agents,
attorneys, or any other Person affiliated with or representing Bank
harmless against: (a) all obligations, demands, claims, and
liabilities (collectively, “Claims”) asserted by any other party in
connection with the transactions contemplated by the Loan
Documents; and (b) all losses or Bank Expenses incurred, or paid by
Bank from, following, or arising from transactions between Bank and
Borrower (including reasonable attorneys’ fees and expenses),
except for Claims and/or losses directly caused by Bank’s gross
negligence or willful misconduct.

     12.4 Time of Essence. Time is of the essence for the
performance of all Obligations in this Agreement.

     12.5 Severability of Provisions. Each provision of this
Agreement is severable from every other provision in determining
the enforceability of any provision.

     12.6 Amendments in Writing; Integration. All amendments to
this Agreement must be in writing and signed by both Bank and
Borrower. This Agreement and the Loan Documents represent the
entire agreement about this subject matter and supersede prior
negotiations or agreements. All prior agreements, understandings,
representations, warranties, and negotiations between the parties
about the subject matter of this Agreement and the Loan Documents
merge into this Agreement and the Loan Documents.

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

     12.8 Survival. All covenants, representations and warranties
made in this Agreement continue in full force until this Agreement
has terminated pursuant to its terms and all Obligations (other
than inchoate indemnity obligations and any other obligations
which, by their terms, are to survive the termination of this
Agreement) have been satisfied. The obligation of Borrower in
Section 12.2 to indemnify Bank shall survive until the statute of
limitations with respect to all claims and causes of action with
respect to which indemnity is given to Bank shall have run.

     12.9 Confidentiality. In handling any confidential
information, Bank shall exercise the same degree of care that it
exercises for its own proprietary information, but disclosure of
information may be made: (a) to Bank’s Subsidiaries or Affiliates;
(b) to prospective transferees or purchasers of any interest in the
Credit Extensions (provided, however, Bank shall use commercially
reasonable efforts to obtain such prospective transferee’s or

-18-

 

purchaser’s agreement to the terms of this provision); (c) as
required by law, regulation, subpoena, or other order; (d) to
Bank’s regulators or as otherwise required in connection with
Bank’s examination or audit; and (e) as Bank considers appropriate
in exercising remedies under this Agreement. Confidential
information does not include information that either: (i) is in the
public domain or in Bank’s possession when disclosed to Bank, or
becomes part of the public domain after disclosure to Bank; or (ii)
is disclosed to Bank by a third party, if Bank does not know that
the third party is prohibited from disclosing the information.

     12.10 Attorneys’ Fees, Costs and Expenses. In any action or
proceeding between Borrower and Bank arising out of or relating to
the Loan Documents, the prevailing party shall be entitled to
recover its reasonable attorneys’ fees and other costs and expenses
incurred, in addition to any other relief to which it may be
entitled.

     13 DEFINITIONS

     13.1 Definitions. As used in this Agreement, the following terms have the following meanings:

     “Account” is any “account” as defined in the Code with such
additions to such term as may hereafter be made, and includes,
without limitation, all accounts receivable and other sums owing to
Borrower.

     “Account Debtor” is any “account debtor” as defined in the
Code with such additions to such term as may hereafter be made.

     “Advance” or “Advances” means an advance (or advances) under the Revolving Line.

     “Affiliate” of any Person is a Person that owns or controls
directly or indirectly the Person, any Person that 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 and members.

     “Agreement” is defined in the preamble hereof.

     “Availability Amount” is (a) the Revolving Line minus (b) the
amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit) and minus an amount equal to the
Letter of Credit Reserve, minus (c) the FX Reserve, minus (d) any
amounts used for Cash Management Services, and minus (e) the
outstanding principal balance of any Advances.

     “Bank” is defined in the preamble hereof.

     “Bank Expenses” are all audit fees and expenses, costs, and
expenses (including reasonable attorneys’ fees and expenses) for
preparing, negotiating, amending, administering, defending and
enforcing the Loan Documents (including, without limitation, those
incurred in connection with appeals or Insolvency Proceedings) or
otherwise incurred with respect to Borrower.

     “Borrower” is defined in the preamble hereof.

     “Borrower’s Books” are all Borrower’s books and records
including ledgers, federal and state tax returns, records regarding
Borrower’s assets or liabilities, the Collateral, business
operations or financial condition, and all computer programs or
storage or any equipment containing such information.

     “Borrowing Base” means 80% of Eligible Accounts, as determined
by Bank from Borrower’s most recent Transaction Report; provided,
however, that Bank may decrease the foregoing percentage in its
good faith business judgment based on events, conditions,
contingencies, or risks which, as determined by Bank, may adversely
affect Collateral.

     “Borrowing Resolutions” are, with respect to any Person, those
resolutions adopted by such Person’s Board of Directors and
delivered by such Person to Bank approving the Loan Documents to
which such Person is a party and the transactions contemplated
thereby, together with a certificate executed by its secretary on
behalf of such Person certifying that (a) such Person has the
authority to execute, deliver, and perform its obligations under
each of the Loan Documents to which it is a party, (b) sets forth
the resolutions then in full force and effect authorizing and
ratifying the execution, delivery, and performance by such Person
of the Loan Documents to which

-19-

 

it is a party, (c) the names of the Persons authorized to execute
the Loan Documents on behalf of such Person, together with a sample
of the true signatures of such Persons, and (d) that Bank may
conclusively rely on such certificate unless and until such Person
shall have delivered to Bank a further certificate canceling or
amending such prior certificate.

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

     “Cash Equivalents” means (a) marketable direct obligations
issued or unconditionally guaranteed by the United States or any
agency or any State thereof having maturities of not more than one
(1) year from the date of acquisition; (b) commercial paper
maturing no more than one (1) year after its creation and having
the highest rating from either Standard & Poor’s Ratings Group or
Moody’s Investors Service, Inc., (c) Bank’s certificates of deposit
issued maturing no more than one (1) year after issue; and (d)
money market funds at least ninety-five percent (95%) of the assets
of which constitute Cash Equivalents of the kinds described in
clauses (a) through (c) of this definition.

     “Cash Management Services” is defined in Section 2.1.4.

     “Code” is the Uniform Commercial Code, as the same may, from
time to time, be enacted and in effect in the State of California;
provided, that, to the extent that the Code is used to define any
term herein or in any Loan Document and such term is defined
differently in different Articles or Divisions of the Code, the
definition of such term contained in Article or Division 9 shall
govern; provided further, that in the event that, by reason of
mandatory provisions of law, any or all of the attachment,
perfection, or priority of, or remedies with respect to, Bank’s
Lien on any Collateral is governed by the Uniform Commercial Code
in effect in a jurisdiction other than the State of California, the
term “Code” shall mean the Uniform Commercial Code as enacted and
in effect in such other jurisdiction solely for purposes on the
provisions thereof relating to such attachment, perfection,
priority, or remedies and for purposes of definitions relating to
such provisions.

     “Collateral” is any and all properties, rights and assets of Borrower described on Exhibit A.

     “Collateral Account” is any Deposit Account, Securities Account, or Commodity Account.

     “Commodity Account” is any “commodity account” as defined in
the Code with such additions to such term as may hereafter be made.

     “Communication” is defined in Section 10.

     “Compliance Certificate” is that certain certificate in the form attached hereto as Exhibit E.

     “Contingent Obligation” is, for any Person, any direct or
indirect liability, contingent or not, of that Person for (a) any
indebtedness, lease, dividend, letter of credit or other obligation
of another such as an obligation directly or indirectly guaranteed,
endorsed, co-made, discounted or sold with recourse by that Person,
or for which that Person is directly or indirectly liable; (b) any
obligations for undrawn letters of credit for the account of that
Person; and (c) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or
other agreement or arrangement designated to protect a Person
against fluctuation in interest rates, currency exchange rates or
commodity prices; but “Contingent Obligation” does not include
endorsements in the ordinary course of business. The amount of a
Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or,
if not determinable, the maximum reasonably anticipated liability
for it determined by the Person in good faith; but the amount may
not exceed the maximum of the obligations under any guarantee or
other support arrangement.

     “Control Agreement” is any control agreement entered into
among the depository institution at which Borrower maintains a
Deposit Account or the securities intermediary or commodity
intermediary at which Borrower maintains a Securities Account or a
Commodity account, Borrower, and Bank pursuant to which Bank
obtains control (within the meaning of the Code) over such Deposit
Account, Securities Account, or Commodity Account.

     “Credit Extension” is any Advance, Letter of Credit, FX
Forward Contract, amount utilized for Cash Management Services, or
any other extension of credit by Bank for Borrower’s benefit.

     “Default” means any event which with notice or passage of time
or both, would constitute an Event of Default.

-20-

 

     “Default Rate” is defined in Section 2.3(b).

     “Deferred Revenue” is all amounts received or invoiced in
advance of performance under contracts and not yet recognized as
revenue.

     “Deposit Account” is any “deposit account” as defined in the
Code with such additions to such term as may hereafter be made.

     “Designated Deposit Account” is Borrower’s deposit account,
account number                     , maintained with Bank.

     “Dollars,” “dollars” and “$” each mean lawful money of the United States.

	 	 	“Effective Date” is the date Bank executes this Agreement and as indicated on the signature
page hereof.

     “Eligible Accounts” means Accounts which arise in the ordinary
course of Borrower’s business that meet all Borrower’s
representations and warranties in Section 5.3. Bank reserves the
right at any time and from time to time after the Effective Date,
to adjust any of the criteria set forth below and to establish new
criteria in its good faith business judgment. Unless Bank agrees
otherwise in writing, Eligible Accounts shall not include:

     (a) Accounts for which the Account Debtor has not been invoiced;

     (b) Accounts that the Account Debtor has not paid within ninety (90) days of invoice date;

     (c) Accounts owing from an Account Debtor, fifty percent (50%)
or more of whose Accounts have not been paid within ninety (90)
days of invoice date;

     (d) Credit balances over ninety (90) days from invoice date;

     (e) Accounts owing from an Account Debtor, including
Affiliates, whose total obligations to Borrower exceed twenty-five
(25%) of all Accounts, for the amounts that exceed that percentage,
unless Bank approves in writing;

     (f) Accounts owing from an Account Debtor which does not have
its principal place of business in the United States except for
Eligible Foreign Accounts;

     (g) Accounts owing from an Account Debtor which is a federal,
state or local government entity or any department, agency, or
instrumentality thereof except for Accounts of the United States if
Borrower has assigned its payment rights to Bank and the assignment
has been acknowledged under the Federal Assignment of Claims Act of
1940, as amended;

     (h) Accounts owing from an Account Debtor to the extent that
Borrower is indebted or obligated in any manner to the Account
Debtor (as creditor, lessor, supplier or otherwise — sometimes
called “contra” accounts, accounts payable, customer deposits or
credit accounts), with the exception of customary credits,
adjustments and/or discounts given to an Account Debtor by Borrower
in the ordinary course of its business;

     (i) Accounts for demonstration or promotional equipment, or in
which goods are consigned, or sold on a “sale guaranteed”, “sale or
return”, “sale on approval”, “bill and hold”, or other terms if
Account Debtor’s payment may be conditional;

     (j) Accounts for which the Account Debtor is Borrower’s Affiliate, officer, employee, or
agent;

     (k) Accounts in which the Account Debtor disputes liability or
makes any claim (but only up to the disputed or claimed amount), or
if the Account Debtor is subject to an Insolvency Proceeding, or
becomes insolvent, or goes out of business;

     (l) Accounts owing from an Account Debtor with respect to
which Borrower has received Deferred Revenue (but only to the
extent of such Deferred Revenue);

-21-

 

     (m) Accounts for which Bank in its good faith business
judgment determines collection to be doubtful; and

     (n) other Accounts Bank deems ineligible in the exercise of its good faith business judgment.

     “Eligible Foreign Accounts” means Accounts arising in the
ordinary course of Borrower’s business from an Account Debtor that
does not have its principal place of business in the United States
but are otherwise Eligible Accounts that Bank approves in writing;
provided, however, that Advances, if any, based upon Eligible
Foreign Accounts shall not exceed $2,500,000 in the aggregate.
Furthermore, no Accounts arising in the ordinary course of OCZ
Canada’s business shall be considered Eligible Foreign Accounts or
Eligible Accounts until such time, if ever, as OCZ Canada becomes a
co-Borrower under this Agreement, OCZ Canada and Borrower each
executes such documentation as Bank shall require with respect
thereto, Bank shall have a first-priority perfected security
interest in the assets of OCZ Canada and OCZ Canada and Borrower
shall have each satisfied such other requirements as Bank shall
deem necessary in its good faith business judgment.

     “Equipment” is all “equipment” as defined in the Code with
such additions to such term as may hereafter be made, and includes
without limitation all machinery, fixtures, goods, vehicles
(including motor vehicles and trailers), and any interest in any of
the foregoing.

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

     “Event of Default” is defined in Section 8.

     “Foreign Currency” means lawful money of a
country other than the United States.

     “Funding Date” is any date on which a Credit Extension is made
to or on account of Borrower which shall be a Business Day.

     “FX Business Day” is any day when (a) Bank’s Foreign Exchange
Department is conducting its normal business and (b) the Foreign
Currency being purchased or sold by Borrower is available to Bank
from the entity from which Bank shall buy or sell such Foreign
Currency.

     “FX Forward Contract” is defined in Section 2.1.3.

     “FX Reserve” is defined in Section 2.1.3.

     “GAAP” is generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board or in such other statements by such other Person as may be
approved by a significant segment of the accounting profession,
which are applicable to the circumstances as of the date of
determination.

     “General Intangibles” is all “general intangibles” as defined
in the Code in effect on the date hereof with such additions to
such term as may hereafter be made, and includes without
limitation, all copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and
derivative work, whether published or unpublished, any patents,
trademarks, service marks and, to the extent permitted under
applicable law, any applications therefor, whether registered or
not, any trade secret rights, including any rights to unpatented
inventions, payment intangibles, royalties, contract rights,
goodwill, franchise agreements, purchase orders, customer lists,
route lists, telephone numbers, domain names, claims, income and
other tax refunds, security and other deposits, options to purchase
or sell real or personal property, rights in all litigation
presently or hereafter pending (whether in contract, tort or
otherwise), insurance policies (including without limitation key
man, property damage, and business interruption insurance),
payments of insurance and rights to payment of any kind.

     “Governmental Approval” is any consent, authorization,
approval, order, license, franchise, permit, certificate,
accreditation, registration, filing or notice, of, issued by, from
or to, or other act by or in respect of, any Governmental
Authority.

     “Governmental Authority” is any nation or government, any
state or other political subdivision thereof, any agency,
authority, instrumentality, regulatory body, court, central bank or
other entity exercising executive,

-22-

 

legislative, judicial, taxing, regulatory or administrative
functions of or pertaining to government, any securities exchange
and any self-regulatory organization.

     “Guarantor” is any present or future guarantor of any of the Obligations.

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

     “Insolvency Proceeding” is any proceeding by or against any
Person under the United States Bankruptcy Code, or any other
bankruptcy or insolvency law, including assignments for the benefit
of creditors, compositions, extensions generally with its
creditors, or proceedings seeking reorganization, arrangement, or
other relief.

     “Inventory” is all “inventory” as defined in the Code in
effect on the date hereof with such additions to such term as may
hereafter be made, and includes without limitation all merchandise,
raw materials, parts, supplies, packing and shipping materials,
work in process and finished products, including without limitation
such inventory as is temporarily out of Borrower’s custody or
possession or in transit and including any returned goods and any
documents of title representing any of the above.

     “Investment” is any beneficial ownership interest in any
Person (including stock, partnership interest or other securities),
and any loan, advance or capital contribution to any Person.

     “Letter of Credit” means a standby letter of credit issued by
Bank or another institution based upon an application, guarantee,
indemnity or similar agreement on the part of Bank as set forth in
Section 2.1.2.

     “Letter of Credit Application” is defined in Section 2.1.2(a).

     “Letter of Credit Reserve” has the meaning set forth in Section 2.1.2(d).

     “Lien” is a claim, mortgage, deed of trust, levy, charge,
pledge, security interest or other encumbrance of any kind, whether
voluntarily incurred or arising by operation of law or otherwise
against any property.

     “Loan Documents” are, collectively, this Agreement, the
Warrant (if applicable), the Perfection Certificate, the
Subordination Agreement, any note, or notes or guaranties executed
by Borrower or any Guarantor, and any other present or future
agreement between Borrower or any Guarantor and/or for the benefit
of Bank in connection with this Agreement, all as amended,
restated, or otherwise modified.

     “Material Adverse Change” is (a) a material impairment in the
perfection or priority of Bank’s Lien in the Collateral or in the
value of such Collateral; (b) a material adverse change in the
business, operations, or condition (financial or otherwise) of
Borrower; or (c) a material impairment of the prospect of repayment
of any portion of the Obligations or (d) Bank determines, based
upon information available to it and in its reasonable judgment,
that there is a reasonable likelihood that Borrower shall fail to
comply with one or more of the financial covenants in Section 6
during the next succeeding financial reporting period.

     “Maximum Dollar Amount” is $10,000,000.

     “Obligations” are Borrower’s obligation to pay when due any
debts, principal, interest, Bank Expenses and other amounts
Borrower owes Bank now or later, whether under this Agreement, the
Loan Documents, or otherwise, including, without limitation, all
obligations relating to letters of credit (including reimbursement
obligations for drawn and undrawn letters of credit), cash
management services, and foreign exchange contracts, if any, and
including interest accruing after Insolvency Proceedings begin and
debts, liabilities, or obligations of Borrower assigned to Bank,
and the performance of Borrower’s duties under the Loan Documents.

     “Operating Documents” are, for any Person, such Person’s
formation documents, as certified with the Secretary of State of
such Person’s state of formation on a date that is no earlier than
30 days prior to the Effective Date, and, (a) if such Person is a
corporation, its bylaws in current form, (b) if such Person is a
limited liability company, its limited liability company agreement
(or similar agreement), and (c) if such Person is a partnership,
its partnership agreement (or similar agreement), each of the
foregoing with all current amendments or modifications thereto.

-23-

 

     “Perfection Certificate” is defined in Section 5.1.

     “Permitted Indebtedness” is:

     (a) Borrower’s Indebtedness to Bank under this
Agreement and the other Loan Documents;

     (b) Indebtedness existing on the Effective Date and shown
on the Perfection Certificate;

     (c) Subordinated Debt;

     (d) unsecured Indebtedness to trade creditors incurred
in the ordinary course of business;

     (e) Indebtedness incurred as a result of endorsing negotiable
instruments received in the ordinary course of business;

     (f) Indebtedness secured by Permitted Liens;

     (g) extensions, refinancings, modifications, amendments and
restatements of any items of Permitted Indebtedness (a) through (g)
above, provided that the principal amount thereof is not increased
or the terms thereof are not modified to impose more burdensome
terms upon Borrower or its Subsidiary, as the case may be.

     “Permitted Investments” are:

     (a) Investments shown on the Perfection Certificate and existing on the Effective Date;

     (b) Cash Equivalents;

     (c) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transactions in
the ordinary course of Borrower;

     (d) Investments consisting of deposit accounts in which Bank has a perfected security
interest;

     (e) Investments accepted in connection with Transfers permitted by Section 7.1;

     (f) Investments of Subsidiaries in or to other Subsidiaries or
Borrower and Investments by Borrower in Subsidiaries not to exceed
$100,000 in the aggregate in any fiscal year;

     (g) Investments consisting of (i) travel advances and employee
relocation loans and other employee loans and advances in the
ordinary course of business, and (ii) loans to employees, officers
or directors relating to the purchase of equity securities of
Borrower or its Subsidiaries pursuant to employee stock purchase
plans or agreements approved by Borrower’s Board of Directors;

     (h) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or
suppliers and in settlement of delinquent obligations of, and other
disputes with, customers or suppliers arising in the ordinary
course of business; and

     (i) Investments consisting of notes receivable of, or prepaid
royalties and other credit extensions, to customers and suppliers
who are not Affiliates, in the ordinary course of business;
provided that this paragraph shall not apply to Investments of
Borrower in any Subsidiary.

     “Permitted Liens” are:

     (a) Liens existing on the Effective Date and shown on the
Perfection Certificate or arising under this Agreement and the
other Loan Documents;

     (b) Liens for taxes, fees, assessments or other government
charges or levies, either not delinquent or being contested in good
faith and for which Borrower maintains adequate reserves on its
Books, provided that no notice of any such Lien has been filed or
recorded under the Internal Revenue Code of 1986, as amended, and
the Treasury Regulations adopted thereunder;

-24-

 

     (c) purchase money Liens (i) on Equipment acquired or held by
Borrower incurred for financing the acquisition of the Equipment
securing no more than $100,000 in the aggregate amount outstanding,
or (ii) existing on Equipment when acquired, if the Lien is
confined to the property and improvements and the proceeds of the
Equipment;

     (d) Liens of carriers, warehousemen, suppliers, or other
Persons that are possessory in nature arising in the ordinary
course of business so long as such Liens attach only to Inventory,
and which have no priority over Bank’s security interest, are not
delinquent or remain payable without penalty or which are being
contested in good faith and by appropriate proceedings which
proceedings have the effect of preventing the forfeiture or sale of
the property subject thereto;

     (e) Liens to secure payment of workers’ compensation,
employment insurance, old-age pensions, social security and other
like obligations incurred in the ordinary course of business (other
than Liens imposed by ERISA), provided, they have no priority over
any of Bank’s Liens;

     (f) 
Liens incurred in the extension, renewal or refinancing of
the indebtedness secured by Liens described in (a) through (c), but
any extension, renewal or replacement Lien must be limited to the
property encumbered by the existing Lien and the principal amount
of the indebtedness may not increase;

     (g) leases or subleases of real property granted in the
ordinary course of business, and leases, subleases, non-exclusive
licenses or sublicenses of property (other than real property or
intellectual property) granted in the ordinary course of Borrower’s
business, if the leases, subleases, licenses and sublicenses do not
prohibit granting Bank a security interest;

     (h) non-exclusive license of intellectual property granted to
third parties in the ordinary course of business;

     (i) Liens arising from attachments or judgments, orders, or
decrees in circumstances not constituting an Event of Default under
Sections 8.4 and 8.7;

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

	 	 	“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest
rate.

     “Registered Organization” is any “registered organization” as
defined in the Code with such additions to such term as may
hereafter be made.

     “Requirement of Law” is as to any Person, the organizational
or governing documents of such Person, and any law (statutory or
common), treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or
to which such Person or any of its property is subject.

     “Reserves” means, as of any date of determination, such
amounts as Bank may from time to time establish and revise in its
good faith business judgment, reducing the amount of Advances and
other financial accommodations which would otherwise be available
to Borrower (a) to reflect events, conditions, contingencies or
risks which, as determined by Bank in its good faith business
judgment, do or may adversely affect (i) the Collateral or any
other property which is security for the Obligations or its value
(including without limitation any increase in delinquencies of
Accounts), (ii) the assets, business or prospects of Borrower or
any Guarantor, or (iii) the security interests and other rights of
Bank in the Collateral (including the enforceability, perfection
and priority thereof); or (b) to reflect Bank’s good faith belief
that any collateral report or financial information furnished by or
on behalf of Borrower or any Guarantor to Bank is or may have been
incomplete, inaccurate or misleading in any material respect; or
(c) in respect of any state of facts which Bank determines in good
faith constitutes an Event of Default or may, with notice or
passage of time or both, constitute an Event of Default.

     “Responsible Officer” is any of the Chief Executive Officer,
President, Chief Financial Officer and Controller of Borrower.

-25-

 

     “Revolving Line” is an Advance or Advances in an aggregate
amount of up to the Maximum Dollar Amount outstanding at any time.

     “Revolving Line Maturity Date” is 364 days from the Effective Date.

     “Securities Account” is any “securities account” as defined in
the Code with such additions to such term as may hereafter be made.

     “Settlement Date” is defined in Section 2.1.3.

     “Subordinated Debt” is indebtedness incurred by Borrower
subordinated to all of Borrower’s now or hereafter indebtedness to
Bank (pursuant to a subordination, intercreditor, or other similar
agreement in form and substance satisfactory to Bank entered into
between Bank and the other creditor), on terms acceptable to Bank.

     “Subsidiary” means, with respect to any Person, any Person of
which more than 50.0% of the voting stock or other equity interests
(in the case of Persons other than corporations) is owned or
controlled directly or indirectly by such Person or one or more of
Affiliates of such Person.

     “Tangible Net Worth” is, on any date, the consolidated total
assets of Borrower and its Subsidiaries minus (a) any amounts
attributable to (i) goodwill, (ii) intangible items including
unamortized debt discount and expense, patents, trade and service
marks and names, copyrights and research and development expenses
except prepaid expenses, (iii) notes, accounts receivable and other
obligations owing to Borrower from its officers or other
Affiliates, and (iv) reserves not already deducted from assets,
minus (b) Total Liabilities, plus (c) Subordinated Debt.

     “Total Liabilities” is on any day, obligations that should,
under GAAP, be classified as liabilities on Borrower’s consolidated
balance sheet, including all Indebtedness, and current portion of
Subordinated Debt permitted by Bank to be paid by Borrower, but
excluding all other Subordinated Debt.

     “Transaction Report” is that certain report of transactions
and schedule of collections in the form attached hereto as Exhibit
D.

     “Transfer” is defined in Section 7.1.

[Signature page follows.]

-26-

 

     IN WITNESS
WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Effective Date.

	 	 	 	 	 
	BORROWER:

OCZ TECHNOLOGY GROUP, INC.

 	 	 
	By  	/s/ Arthur F. Knapp, Jr
 	 	 
	 	Name:  	ARTHUR F. KNAPP, JR     	 	 
	 	Title:  	CFO 	 	 

BANK:

SILICON VALLEY BANK

	 	 	 	 	 
	By  	                /s/ Jean Lee
 	 	 
	 	Name:  	JEAN LEE 	 	 
	 	Title:  	RELATIONSHIP MANAGER 	 	 

	 	 	 	 	 
	 	Effective Date:  	Nov. 20, 2007 	 	 

	 	 	 
	Exhibits	 	 
	A

	 	“Collateral”
	B

	 	Borrowing Base Certificate
	C

	 	[intentionally omitted]
	D

	 	Transaction Report

[Signature page to Loan and Security Agreement]

 

 

EXHIBIT A

The Collateral consists of all of Borrower’s right, title and interest in and to the following
personal property:

     All goods, Accounts (including health-care receivables),
Equipment, Inventory, contract rights or rights to payment of
money, leases, license agreements, franchise agreements, General
Intangibles (except as provided below), commercial tort claims,
documents, instruments (including any promissory notes), chattel
paper (whether tangible or electronic), cash, deposit accounts,
fixtures, letters of credit rights (whether or not the letter of
credit is evidenced by a writing), securities, and all other
investment property, supporting obligations, and financial assets,
whether now owned or hereafter acquired, wherever located; and all
Borrower’s Books relating to the foregoing, and any and all claims,
rights and interests in any of the above and all substitutions for,
additions, attachments, accessories, accessions and improvements to
and replacements, products, proceeds and insurance proceeds of any
or all of the foregoing.

     Notwithstanding the foregoing, the Collateral does not include
any of the following, whether now owned or hereafter acquired: any
copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative
work, whether published or unpublished, any patents, patent
applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, service marks and,
to the extent permitted under applicable law, any applications
therefor, whether registered or not, and the goodwill of the
business of Borrower connected with and symbolized thereby,
know-how, operating manuals, trade secret rights, rights to
unpatented inventions, and any claims for damage by way of any
past, present, or future infringement of any of the foregoing;
provided, however, the Collateral shall include all Accounts,
license and royalty fees and other revenues, proceeds, or income
arising out of or relating to any of the foregoing.

Pursuant to the terms of a certain negative pledge arrangement with
Bank, Borrower has agreed not to encumber any of its copyright
rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether
published or unpublished, any patents, patent applications and like
protections, including improvements, divisions, continuations,
renewals, reissues, extensions, and continuations-in-part of the
same, trademarks, service marks and, to the extent permitted under
applicable law, any applications therefor, whether registered or
not, and the goodwill of the business of Borrower connected with
and symbolized thereby, know-how, operating manuals, trade secret
rights, rights to unpatented inventions, and any claims for damage
by way of any past, present, or future infringement of any of the
foregoing, without Bank’s prior written consent.

1

 

EXHIBIT B

COMPLIANCE CERTIFICATE

	 	 	 	 	 
	TO:

	 	SILICON VALLEY BANK
	 	Date:                                         
	FROM:

	 	OCZ Technology Group, Inc.	 	 

     The undersigned authorized officer of OCZ Technology Group, Inc.
(“Borrower”) certifies that under the terms and conditions of the Loan
and Security Agreement between Borrower and Bank (the “Agreement”), (1)
Borrower is in complete compliance for the period ending                                         
with all required covenants except as noted below, (2) there are no
Events of Default, (3) all representations and warranties in the
Agreement are true and correct in all material respects on this date
except as noted below; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties
that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and
complete in all material respects as of such date, (4) Borrower, and
each of its Subsidiaries, has timely filed all required tax returns and
reports, and Borrower has timely paid all foreign, federal, state and
local taxes, assessments, deposits and contributions owed by Borrower
except as otherwise permitted pursuant to the terms of Section 5.9 of
the Agreement, and (5) no Liens have been levied or claims made against
Borrower or any of its Subsidiaries relating to unpaid employee payroll
or benefits of which Borrower has not previously provided written
notification to Bank. Attached are the required documents supporting the
certification. The undersigned certifies that these are prepared in
accordance with GAAP consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The
undersigned acknowledges that no borrowings may be requested at any time
or date of determination that Borrower is not in compliance with any of
the terms of the Agreement, and that compliance is determined not just
at the date this certificate is delivered. Capitalized terms used but
not otherwise defined herein shall have the meanings given them in the
Agreement.

Please indicate compliance status by circling Yes/No under “Complies” column.

	 	 	 	 	 
	Reporting Covenant	 	Required	 	Complies
	Monthly financial statements with
Compliance Certificate

	 	Monthly within 30 days
	 	Yes    No
	Annual financial statement (CPA Audited) + CC 
	 	FYE within 180 days 	 	Yes    No
	Board Projections

	 	Within 45 days after start of FY
	 	Yes    No
	10-Q, 10-K and 8-K, if applicable

	 	Within 5 days after filing with SEC
	 	Yes    No
	Six month statements to be filed by Borrower with the UK
equivalent of SEC

	 	Within 5 days after filing with UK
equivalent of SEC
	 	Yes    No
	A/R & A/P Agings and A/R Reconciliations

	 	Monthly within 15 days
	 	Yes    No
	Transaction Report (if Streamline Period Not in Effect)

	 	Weekly and with each Advance
	 	Yes    No
	Transaction Report (if Streamline Period in Effect)

	 	Monthly within 15 days and with each
Advance
	 	Yes    No
	Distributor Sell Through Report

	 	Quarterly within 15 days
	 	Yes    No

The following intellectual property was registered after the Effective Date (if no registrations,
state “None”)

 

	 	 	 	 	 	 	 
	Financial Covenant	 	Required	 	Actual	 	Complies
	Maintain on a Monthly Basis:
	 	 	 	 	 	 
	Minimum Tangible Net Worth
	 	$18,500,000	 	$                	 	Yes    No
	 
	 	plus 50% new	 	 	 	 
	 
	 	equity/sub debt	 	 	 	 
	 
	 	plus 50%	 	 	 	 
	 
	 	quarterly net	 	 	 	 
	 
	 	income	 	 	 	 

1 

 

     The following financial covenant analysis and information
set forth in Schedule 1 attached hereto are true and accurate as
of the date of this Certificate.

     The following are the exceptions with respect to the
certification above: (If no exceptions exist, state “No
exceptions to note.”)

 

 

 

	 	 	 	 	 	 	 	 	 	 	 
	OCZ Technology Group, Inc.	 	 	 	BANK USE ONLY	 	 
	 
	 

	 	 	 	 	 	Received by:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 	 
	By:  
	 	 	 	 	 	 	 	AUTHORIZED SIGNER	 	 
	 

	 
	 	 	 	 	 	 	 	 
	

	Name: 	 	 	 	 	Date:	 	 	 	 
	 

	 	 

	 	 	 	 	 	 
	 	 
	
	Title: 	 	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Verified:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 	 
	 

	 	 	 	 	 	 	 	AUTHORIZED SIGNER	 	 
	 

	 	 	 	 	 	Date:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	Compliance Status:        Yes       No	 	 

2 

 

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

In the event of a conflict between this Schedule and the Loan
Agreement, the terms of the Loan Agreement shall govern.

Dated:                                         

Tangible Net Worth (Section 6.9(a))

	 	 	 	 	 
	Required:

	 	$18,500,000 plus 50% new equity/Subordinated Debt plus 50% quarterly net income	 	 
	Actual:
	 	 	 	 
	A.

	 	Aggregate value of total assets of Borrower and its Subsidiaries
	 	$                     
	B.

	 	Aggregate value of goodwill of Borrower and its Subsidiaries
	 	$                     
	C.

	 	Aggregate value of intangible assets of Borrower and its Subsidiaries
	 	$                     
	D.

	 	Aggregate value of investments of Borrower and its Subsidiaries consisting of minority
investments in companies which investments are not publicly-traded
	 	$                     
	E.

	 	Aggregate value of any reserves not already deducted from assets
	 	$                     
	F.

	 	Aggregate value of liabilities of Borrower and its Subsidiaries (including all Indebtedness)
and current portion of Subordinated Debt permitted by Bank to be paid by Borrower (but no
other Subordinated Debt)
	 	$                     
	G.

	 	Aggregate value of Indebtedness of Borrower subordinated to Borrower’s Indebtedness to Bank
	 	$                     
	H.

	 	Tangible Net Worth (line A minus line B minus line C minus line D minus line E minus line F

plus line G)
	 	$                     
	Is line H equal to or greater than $                    ?	 	 

	 	 	 
	                     No, not in compliance

	 	                     Yes, in compliance

3

 

Exhibit D

Transaction Report

[EXCEL spreadsheet to be provided separately]

1exv10w1

Exhibit 10.1

April 21, 2009

Mr. James A. Milton

2508 Beacon Crest Drive

Plano, Texas 75093

Re: Employment Offer Letter

Dear Jim:

SoundBite Communications, Inc. (“SoundBite”) is pleased to offer you employment on the following
terms.

You will be employed, effective May 1, 2009 (the “Effective Date”), to serve in the position of
Chief Executive Officer and President, reporting to the Board of Directors (the “Board”). You will
be responsible for the general and active management of the business of SoundBite and for such
other duties as may from time to time be assigned to you by SoundBite. You agree to devote your
full business time, best efforts, skill, knowledge, attention, and energies to the advancement of
SoundBite’s business and interests and to the performance of your duties and responsibilities as an
employee of SoundBite. You will be based at our offices located in 22 Crosby Drive, Bedford,
Massachusetts. Of course, SoundBite may change your position, duties and work location from time
to time in its discretion.

Your base salary will be at the rate of $325,000 annually, less all applicable federal, state and
local taxes and withholdings, to be paid in installments in accordance with SoundBite’s standard
payroll practices. You will be eligible for a bonus with respect to the period from the Effective
Date through December 31, 2009, which will be determined in accordance with SoundBite’s 2009
Management Cash Compensation Plan, a copy of which has been previously provided to you. The 2009
Management Cash Compensation Plan contemplates a target bonus for you of $116,667, of which $83,333
will be guaranteed. For subsequent years, you will be eligible for an annual bonus determined in
the sole discretion of SoundBite based upon an evaluation of both your performance and SoundBite’s
performance, provided that, in any event, you shall be guaranteed a bonus of $41,667 with respect
to the period from January 1, 2010 through April 30, 2010. To be eligible for any such bonus with
respect to 2009 or any subsequent period, you must remain employed through the time when the bonus
is paid. SoundBite may change your compensation from time to time in its discretion, except that
it may not, without your consent, reduce either the rate of your base salary in effect prior to
April 30, 2010 or the amount of your guaranteed bonus for 2009 or the first four months of 2010.

SoundBite will grant you, as of the Effective Date, options to purchase 700,000 shares of
SoundBite’s common stock pursuant to SoundBite’s 2007 Stock Incentive Plan. The option shares will
have an exercise price per share equal to the Fair Market Value (as defined in such Plan) as of the
Effective Date and will vest over 4 years, with 25% vesting as of the first anniversary of the
Effective Date and the balance vesting in 36 equal monthly installments thereafter. Your options
will be evidenced by an Incentive Stock Option Agreement covering the maximum portion of the option
shares permissible under the regulations of the Internal Revenue Service; the balance of the option
shares will be evidenced by a Nonqualified Stock Option Agreement.

 

SoundBite Communications, Inc., 22 Crosby Drive, Bedford, MA 01730, Phone 781-897-2500, Fax 781-897-2721, www.SoundBite.com

 

 

Mr. James A. Milton

April 21, 2009

Page 2

SoundBite will, at your election, enter into with you an Indemnification Agreement, an Executive
Retention Agreement and/or a Change in Control Agreement, each dated as of the Effective Date and
otherwise in the form previously provided to you.

SoundBite will pay, or reimburse you for, up to $3,000 per month for documented rental expenses you
incur for lodging in the Bedford area.

You will be eligible to participate in any and all benefit programs that SoundBite establishes and
makes available to its employees from time to time, provided that you are eligible under (and
subject to all provisions of) the plan documents governing those programs. Those benefits may
include participation in group medical and dental insurance programs and in SoundBite’s 401(k)
plan. Details about current benefit plans are available for your review. The benefits made
available by SoundBite, and the rules, terms, and conditions for participation in such benefit
plans may be changed by SoundBite at any time and from time to time without advance notice.

You will be eligible for a maximum of 15 days of vacation per calendar year, subject to proration
to the Effective Date and to be taken at such times as may be approved in the sole discretion of
SoundBite. The number of vacation days for which you are eligible will accrue monthly in
accordance with SoundBite’s standard practices.

As a condition of your employment, you will be required to comply with all SoundBite policies and
procedures. Violations of SoundBite policies and procedures may lead to immediate termination of
your employment. Further, SoundBite’s premises (including all workspaces, furniture, documents and
other tangible materials) and information technology resources (including computers, data and other
electronic files, and email) are subject to oversight and inspection by SoundBite at any time.
SoundBite employees should have no expectation of privacy with regard to any SoundBite premises,
materials, resources or information.

As a condition of your employment, you also will be required to read, sign and comply with
SoundBite’s Assignment of Inventions, Non-Disclosure, Non-Solicitation and Non-Competition
Agreement with SoundBite (your “Invention Agreement”) in the form previously provided to you.

In your work for SoundBite, you will be expected not to make unauthorized use or disclosure of any
confidential information or materials, including trade secrets, of any former employer or other
third party to whom you have an obligation of confidentiality. Rather, you will be expected to use
only that information generally known and used by persons with training and experience comparable
to your own, which is common knowledge in the industry or otherwise legally in the public domain,
or which is otherwise provided or developed by SoundBite. By accepting employment with SoundBite,
you are representing to us that you will be able to perform your duties within the guidelines
described in this paragraph. You represent further that you have disclosed to SoundBite any
contract you have signed that may restrict your activities on behalf of SoundBite in any manner.

Your employment relationship is “at will.” Accordingly, you may terminate your employment with
SoundBite at any time and for any reason whatsoever simply by notifying SoundBite. Likewise,
SoundBite may terminate your employment at any time, with or without cause or advance notice.

For purposes of federal immigration law, you will be required to provide SoundBite with documentary
evidence of your identity and eligibility for employment in the United States. Such documentation
must be provided to SoundBite within three business days of the Effective Date, or our employment
relationship with you may be terminated.

 

 

Mr. James A. Milton

April 21, 2009

Page 3

This letter, together with your Invention Agreement, forms the complete and exclusive statement of
your agreement with SoundBite concerning your employment by SoundBite. The terms in this letter
supersede any other representations or agreements made to you by any party, whether oral or
written. The terms of this letter cannot be changed (except with respect to those changes
expressly reserved to SoundBite’s discretion in this letter) without a written agreement signed by
you and a duly authorized officer of SoundBite. This agreement is to be governed by the laws of
the Commonwealth of Massachusetts without reference to conflicts of law principles. In case any
provision contained in this agreement shall, for any reason, be held invalid or unenforceable in
any respect, such invalidity or unenforceability shall not affect the other provisions of this
agreement, and such provision will be construed and enforced so as to render it valid and
enforceable consistent with the general intent of the parties insofar as possible under applicable
law. With respect to the enforcement of this agreement, no waiver of any right hereunder shall be
effective unless it is in writing. For purposes of construction of this letter, no ambiguity shall
be construed against either party as the drafter. This letter may be executed in counterparts, and
signatures transmitted via facsimile shall be deemed equivalent to originals.

Finally, we confirm that, subject to your commencement of employment at SoundBite, the Board has
nominated you for election as a director of SoundBite and will propose and recommend your election
as a Class II director at SoundBite’s 2009 Annual Meeting of Stockholders, which currently is
expected to be held in June 2009.

If you wish to accept employment at SoundBite under the terms described above, please sign, date
and return to me an executed copy of this letter and your Invention Agreement.

Sincerely,

SoundBite Communications, Inc.

	 	 	 	 	 
	 	 	 
	By:  	                     /s/ Robert C. Leahy
 	 	 
	 	Chief Operating Officer 	 	 
	 	and Chief Financial Officer 	 	 
	 
	Understood and Accepted:

James A. Milton

 	 	 
	/s/ James A. Milton 	 	Dated:  April 21, 2009

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00157-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00157-of-00352.parquet"}]]