OCZ Technology files bankruptcy, looks to sell assets to Toshiba

By Caroline Salls

Pittsburgh, Dec. 5 - OCZ Technology Group, Inc. filed Chapter 11 bankruptcy on Dec. 2 in the U.S. Bankruptcy Court for the District of Delaware after reaching a deal to sell substantially all of its assets to Toshiba Corp.

As previously reported, OCZ received notices on Nov. 5 that Hercules Technology Growth Capital, Inc. took exclusive control of its depository accounts at Silicon Valley Bank and Wells Fargo Bank, NA.

Hercules and the company are parties to a loan and security agreement. OCZ said it is not in compliance with some of the operating ratios and covenants in the loan agreement.

The sale agreement is also subject to Toshiba's offer being accepted by the bankruptcy court as the highest and best offer after an auction process and other customary closing conditions.

Competing bids are due by 5 p.m. ET on Jan. 9. If more than one qualified bid is received, an auction will be held on Jan. 13. The minimum bid increment at auction will be $250,000.

Bidders will be required to commit to repay any amounts advanced by Toshiba and its affiliates beginning Nov. 27, including debtor-in-possession financing, and to pay $1 million to Hercules on account of the unpaid principal balance on pre-bankruptcy loans.

Under the stalking horse bid, Toshiba has agreed to pay $35 million for the assets, minus the buyer advance amount.

If OCZ moves forward with an alternate transaction, it will pay Toshiba a $1.05 million termination fee and reimburse up to $750,000 of its sale-related expenses.

The bid procedures hearing is scheduled for Dec. 19.

DIP financing

In connection with the bankruptcy filing, the company obtained a commitment for $23.5 million of DIP financing from Toshiba. The financing can be increased by $1.5 million if the maturity date is extended and the lender elects to provide the extra financing.

The loan will mature on the earlier of 45 days after the bankruptcy filing date, subject to a 15-day extension, and the closing of the asset sale.

Interest will be 9%.

OCZ has been granted interim access to $21 million of the DIP financing. The final hearing is also scheduled for Dec. 19.

Debt details

According to court documents, OCZ had $34.1 million of total assets and $65.5 million of total debt as of Oct. 31.

The company's largest unsecured creditor is Sirfa International Ltd. of Hong Kong, with a $3.08 million trade claim. OCZ did not list any other unsecured creditors with claims of $1 million or more.

The company is represented by Young Conaway Stargatt & Taylor, LLP and Mayer Brown LLP.

OCZ is a Sunnyvale, Calif.-based producer of computer memory and components. The Chapter 11 case number is 13-13126.

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