OCZ Filing for Bankruptcy

Toshiba offers to buy assets.

This is a Press Release edited by StorageNewsletter.com on November 28, 2013 at 3:01 pm

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OCZ Technology Group, Inc. announced that on November 25, 2013, it received notices that Hercules Technology Growth Capital, Inc. took exclusive control of the company’s depository accounts at Silicon Valley Bank and Wells Fargo Bank, National Association.

As set forth in the company’s recent SEC filings, Hercules and the company are parties to a loan and security agreement. As previously reported, the company is not in compliance with certain of the operating ratios and covenants in the loan agreement. As a result of such action and pursuant to Hercules’ written instruction, the depository institutions disbursed the cash in the company’s respective accounts to accounts under the control of Hercules.

The company has received an offer from Toshiba Corporation to acquire substantially all of the company’s assets in a bankruptcy proceeding.

The parties have substantially completed negotiations on an asset purchase agreement and OCZ believes that all the material terms have been agreed to.

The agreement is subject to various conditions: the preservation of the value of the business, including the retention of employees, the negotiation and execution of definitive documentation, the filing of bankruptcy petitions by the company and certain of its subsidiaries, Toshiba’s offer being accepted by the bankruptcy court as the highest and best offer under the circumstances after an auction process conducted under the relevant provisions of the United States Bankruptcy Code, and other customary closing conditions. The company expects to file a petition for bankruptcy shortly after completing final documentation with Toshiba and Hercules, and to conduct the court-supervised auction process to attempt to maximize the value of the company’s assets and operations in an orderly process. More details will become available when the company files its petition for bankruptcy.

If the company is not able to agree to final documentation with Toshiba, the company expects to imminently file a petition for bankruptcy and liquidate.

Comments

Comments by Jim Handy, analyst, Objective Analysis, Semiconductor Market Research: OCZ to File for Bankruptcy Lender Assumes Control of Bank Accounts SSD maker OCZ Technology Group, Inc. announced that on Monday one of its lenders, Hercules Technology Growth Capital, Inc., took exclusive control of OCZ's depository accounts at Silicon Valley Bank and Wells Fargo. This action was in response to the company's failure to meet certain operating ratios and covenants specified in the loan agreement. Toshiba Corporation has offered to acquire OCZ's assets via a bankruptcy proceeding, and both companies have agreed to an asset purchase agreement subject to various conditions:

The value of the business must be preserved, including the retention of employees,
Definitive documentation must be executed
OCZ and certain of its subsidiaries must file bankruptcy petitions
Toshiba's offer must be accepted by the bankruptcy court as the highest and best offer
The United States Bankruptcy Code specifies that an auction process is to be used to determine if Toshiba's offer is the highest.

OCZ expects to file a petition for bankruptcy shortly after completing final documentation with Toshiba and Hercules, and to conduct the court-supervised auction process to attempt to maximize the value of the company. Should the Toshiba deal fall through, OCZ plans to liquidate. How Did This Happen? In September 2012 there was a management turnover at OCZ. The company's founder and president Ryan Peterson left and one month later was replaced by board member Ralph Schmitt. On the same day that Schmitt took over as president OCZ explained that it would need to re-state several quarters' financials and would not issue any new statements until the old statements and the company's internal ledgers were brought to accounting standards. This was completed almost a year later on October 7, 2013. During that year creditors backed off from helping the company with much-needed cash, and OCZ had to borrow from Hercules at a high interest rate with certain difficult terms which are now being executed. In the mean time, OCZ had a recent stock slide, slipping from a relatively constant price of around $1.50 for the past year to around $0.60. This basically eliminated the option that the company could use a stock offering to extract itself from debt. What Does This Mean to Stockholders? Since both of the alternatives presented by OCZ involve bankruptcy then either would cause shareholders to lose all of their equity in the firm. The only way that this could be avoided is if the bankruptcy court were to determine that OCZ did not require bankruptcy protection but simply needed to manage its finances differently. Given that the company just went through a yearlong exercise of cleaning up its finances, and given that any errors in this process would most probably have resulted in a shareholder lawsuit, it is extraordinarily unlikely that the court could find any financial option that had not already been exhaustively examined by the auditors. What Does This Mean to OCZ Customers? The announcement spells out two ways that the deal could fall: Either Toshiba purchases OCZ, in which case it is likely that the company's products and support would continue in their current state, or OCZ would liquidate, leaving recent customers unable to get support or warranty service. What Does This Mean to the Competition? Over the past two years stiff competition has grown in the client SSD market partly from large firms like Samsung and other flash makers. Smaller SSD makers have been feeling significant pressure as these larger players use high quality, their strong names, and low prices to acquire market share. This is especially true in the client SSD market, which has moved from being exclusively a channel sale into installed PCs, to a market in which OEMs play an important role, largely due to the adoption of paired storage in Ultrabook PCs and Apple's headlong thrust into SSD-only notebooks. Most SSD makers are under such intense competitive pressure from these large firms that they are unlikely to notice the loss of OCZ if it should liquidate. Their woes will not let up simply because this company has exited the market. If the Toshiba acquisition proceeds the story will be different. Toshiba has not had as strong of a presence in the SSD market as the company would like, and OCZ would give it strong technology and a respected name in the retail market. Meanwhile, Toshiba would give OCZ something that the fledgling firm has so far been unable to attain: a steady source of NAND supply at competitive prices. OCZ has had a difficult history of having to pay price premiums during NAND shortages owing the company's consistently-poor credit ratings. For both OCZ and Toshiba the synergies of a takeover are good. If the deal falls together Toshiba may become a real powerhouse in the SSD business. Objective Analysis certainly hopes that the company can achieve the takeover for the sake of its employees and existing customers. Facts and figures (compiled by StoragenewsLetter.com)

Born in 2002
Designs and manufactures SSDs in a variety of form factors and interfaces
including SATA, SAS, PCIe, as well as offers flash caching and virtualization software to provide a solution for enterprises, also offer high-performance power management products.
$15.4 million in financial funding in 2010
On Nasdaq since 2010
Micron, Toshiba and Intel supply substantially all of the NAND flash used in SSDs
On October 11, 2012, a purported securities class action lawsuit was filed in the United States District Court for the Northern District of
California against the company, former CEO and CFO. Between
October 12, 2012 and November 6, 2012, a number of similar putative class action lawsuits were filed in the United States District Court for the Northern District of California against the same defendants.
Between October 29, 2012 and December 14, 2012, three purported shareholder derivative lawsuits were filed in the United States District Court for the Northern District of California against certain current and former officers and directors.
On November 13, 2012, a purported shareholder derivative lawsuit, captioned Briggs v. Petersen, et al., Case No. 1:12-cv-235866, was filed in Santa Clara County Superior Court against certain of current and former officers and directors.
On November 15, 2012, the SEC conducted an investigation of the company.
On March 11, 2013, the company entered into a $30 million loan and security agreement with Hercules Technology Growth Capital,
As of August 31, 2013, cash and cash equivalents were $10.6 million.

Acquisitions

Year	Company acquired	Price*	Activity of acquired firm
2010	Solid Data (IP)	1	Fabless USB 3.0 IC
2011	Indilinx	32	SSD controllers and software
2011	PLX (assets)	NA	UK R&D team for SoC aimed at SSDs
2012	Sanrad	17	Flash caching and virtualization software and hardware

* US$ million

Financial Results (Fiscal year ended in February, in US$ million)

Period	Revenue	Growth from previous period	Net income(loss)
2008	118.1	NA	1.4
2009	155.4	*32%*	(11.7)
2010	137.8	*-11%*	(16.3)
2011	180.7	*31%*	(33.2)
2012	310.2	*72%*	(123.5)
2013	334.0	8%	(125.8)
6 mo. 13	165.1	NA	(57.7)
6 mo.14	88.8	*-46%*	(39.3)