EXHIBIT 10.1

 

TENTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
AND WAIVER OF DEFAULTS

 

This Amendment, dated as of October 30, 2008, is made by and between NETLIST,
INC., a Delaware corporation, and NETLIST TECHNOLOGY TEXAS, L.P., a Texas
limited partnership (each a “Borrower” and collectively, the “Borrowers”), on
the one hand, and WELLS FARGO BANK, NATIONAL ASSOCIATION (the “Lender”), acting
through its WELLS FARGO BUSINESS CREDIT operating division, on the other hand.

 

RECITALS

 

The Borrowers and Wells Fargo Business Credit, Inc., a Minnesota corporation
(“WFBCI”), are parties to an Amended and Restated Credit and Security Agreement,
dated as of December 27, 2003, as amended by a First Amendment to Amended and
Restated Credit and Security Agreement, dated as of June 30, 2004, a Second
Amendment to Credit and Security Agreement and Waiver of Defaults, dated as of
December 20, 2005, a Third Amendment to Credit and Security Agreement, dated as
of February 14, 2006, a Fourth Amendment to Credit and Security Agreement and
Waiver of Defaults, dated as of April 18, 2006, a Fifth Amendment to Credit and
Security Agreement, dated as of July 28, 2006, a Sixth Amendment to Credit and
Security Agreement and Waiver of Defaults, dated as of December 29, 2006, a
Seventh Amendment to Credit and Security Agreement, dated as of March 21, 2007,
an Eighth Amendment to Amended and Restated Credit and Security Agreement, dated
as of June 30, 2007, and a Ninth Amendment to Amended and Restated Credit and
Security Agreement, dated as of May 2, 2008 (as so amended, the “Credit
Agreement”). Capitalized terms used in these recitals have the meanings given to
them in the Credit Agreement unless otherwise specified.

 

WFBCI has merged with and into Lender and Lender is the surviving corporation.

 

The Borrowers are in default of the following provision of the Credit Agreement
(the “Existing Default”) (numbers appearing between “< >“ are negative):

 

 

 

Required Performance

 

Actual Performance

 

Section/Covenant

 

3 Months
Ended

 

Maximum Net
Loss

 

3 Months
Ended

 

Net Loss

 

Section 6.2(b) – Minimum Net Income (Maximum Net Loss)

 

9/30/08

 

<$3,200,000>

 

9/30/08

 

<$7,421,435>

 

 

The Borrowers have requested that the Lender waive the Existing Default and make
certain amendments to the Credit Agreement, which the Lender is willing to do
pursuant to the terms and conditions set forth herein

 

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

 

1

--------------------------------------------------------------------------------

 

1.             Defined Terms.

 

(a)           Capitalized terms used in this Amendment which are defined in the
Credit Agreement shall have the same meanings as defined therein, unless
otherwise defined herein.

 

(b)           The definition of “Letter of Credit Sublimit” set forth in
Section 1.1 of the Credit Agreement is hereby deleted.

 

(c)           The following definitions set forth in Section 1.1 of the Credit
Agreement are hereby amended in their entirety as follows:

 

“Default Rate” means an annual interest rate equal to one and one-half percent
(1.5%) over the Floating Rate, which interest rate shall change when and as the
Prime Rate changes.

 

“Floating Rate” means an annual interest rate equal to the greater of (i) the
sum of the Prime Rate plus the applicable Margin, which interest rate shall, in
each case, change when and as the Prime Rate changes, or (ii) five percent
(5.0%).

 

“Security Documents” means this Agreement, the Lockbox and Collection Account
Agreement, the Security Agreements, the Securities Account Control Agreement,
and any other document delivered to the Lender from time to time to secure the
Obligations.

 

(d)           The following new definitions are hereby added to Section 1.1 of
the Credit Agreement in appropriate alphabetical order:

 

“BA” means a banker’s acceptance issued by the Lender pursuant to Section 2.5A.

 

“BA Amount” means the aggregate face amount of any issued and outstanding BAs.

 

“L/C and BA Sublimit” means Nine Million Dollars ($9,000,000).

 

“Tenth Amendment” means that certain Tenth Amendment to Amended and Restated
Credit and Security Agreement, dated as of October 30, 2008, between the
Borrowers and the Lender, amending this Agreement.

 

“Securities Account Control Agreement” means that certain Securities Account
Control Agreement, dated as of June 25, 2008, by and among Netlist, Inc., Wells
Fargo Bank, National Association, acting through its Investment Group, and Wells
Fargo.

 

“Securities Collateral” has the meaning of “Collateral” as defined in the
Securities Account Control Agreement.

 

2.             Amendment to Section 2.4(b).  Section 2.4(b) of the Credit
Agreement is hereby amended in its entirety as follows:

 

(b)           The initial notice sent by the Lender shall be sent as promptly as
practicable after such Lender learns that its Return has been reduced, shall
include

 

2

--------------------------------------------------------------------------------

 

a demand for payment of the amount necessary to restore such Lender’s Return for
the quarter in which the notice is sent, and shall state in reasonable detail
the cause for the reduction in its Return and its calculation of the amount of
such reduction. Thereafter, such Lender may send a new notice during each
calendar quarter setting forth the calculation of the reduced Return for that
quarter and including a demand for payment of the amount necessary to restore
its Return for that quarter. The Lender’s calculation in any such notice shall
be conclusive and binding absent demonstrable error.

 

3.             Amendment to Section 2.5(a)(i).  Clause (i) of Section 2.5(a) of
the Credit Agreement is hereby amended in its entirety as follows:

 

(i)            The L/C and BA Sublimit less the sum of (x) the L/C Amount, and
(y) the BA Amount, or

 

4.             New Section 2.5A.  A new Section 2.5A is hereby added to the
Credit Agreement immediately following Section 2.5 thereof as follows:

 

Section 2.5A         Banker’s Acceptances.  The Lender agrees, subject to the
terms and conditions of this Agreement, to issue, at any time after the
effectiveness of the Tenth Amendment and prior to the Termination Date, one or
more BAs for the Borrowers’ account.  The Lender shall have no obligation to
issue any BA during any Default Period or if the face amount of the BA to be
issued would exceed the lesser of:

 

(i)            The L/C and BA Sublimit less the sum of (x) the L/C Amount, and
(y) the BA Amount, or

 

(ii)           Availability.

 

Each BA may be used for financing acceptance transactions for a maximum tenor of
ninety (90) days but not to extend beyond the Termination Date.  In calculating
the principal amount outstanding hereunder, the calculation shall include the
face amount of any BA outstanding. The Borrowers agree:

 

(a)           Each BA shall be in an amount not less than Twenty-Five Thousand
Dollars ($25,000).

 

(b)           Any sum owed to the Lender under a BA may, at the option of the
Lender, be added to the principal amount outstanding under the Revolving Note
and Section 2.1.  The amount will bear interest and be due as described
elsewhere in this Agreement.

 

(c)           Upon the occurrence of an Event of Default, to immediately prepay
and make the Lender whole for any and all outstanding BAs.

 

(d)           The issuance of any BA is subject to the Lender’s express approval
and must be in form and content satisfactory to the Lender.

 

3

--------------------------------------------------------------------------------

 

(e)           To sign the Lender’s standard form agreement for BAs, and to pay
any issuance and/or other fees that the Lender notifies the Borrowers will be
charged for issuing and processing BAs for the Borrowers.

 

(f)            To allow the Lender to automatically charge its checking account
for applicable fees, discounts, and other charges.

 

5.             Amendment to Section 2.12(b).  Section 2.12(b) of the Credit
Agreement is hereby amended in its entirety as follows:

 

(b)           Margins.  The Margins for all Floating Rate Advances and all LIBOR
Advances shall be the Margins set forth in the table below opposite the
applicable balance of the Borrowers’ combined account balance maintained at WF
Institutional Brokerage Services:

 

Borrowers’ Combined 
Account Balance 
Maintained at WF 
Institutional Brokerage
Services

 

Margin for Floating 
Rate Advances

 

Margin for LIBOR 
Advances

 

$ 12,000,000 or greater

 

2.50 percentage points
(250 basis points)

 

5.00 percentage points
(500 basis points)

 

Less than $12,000,000

 

3.00 percentage points
(300 basis points)

 

6.00 percentage points
(600 basis points)

 

 

Account balances will be tested as of the end of each month based on the
statements delivered pursuant to Section 6.1(r).  Any reductions or increases in
the Margins will be effective as of the first day of the month following the
applicable test date.  In the event that the Borrowers fail to timely deliver
the statements required pursuant to Section 6.1(r), in addition to and not in
substitution for any of the Lender’s other rights and remedies available upon an
Event of Default, all Margins shall be presumed to be based on an account
balance of less than $12,000,000 until such statements are delivered to the
Lender. Notwithstanding the foregoing, no reduction in any Margin will be made
if a Default Period exists at the time that such reduction would otherwise be
made.

 

6.             Amendment to Section 2.13(f).  Section 2.13(f) of the Credit
Agreement is hereby amended in its entirety as follows:

 

(f)            BA Fees.  The Borrowers shall pay to the Lender a fee with
respect to each BA, in an amount equal to one percent (1.0%) per annum of the
face amount of such BA (but in not event less than $125), pro rated for the
tenor of the BA based on a year of 360 days, payable upon issuance; provided,
however, if the Lender, in the Lender’s sole discretion and without waiving any
of its other rights and remedies, agrees to issue any BA during a Default
Period, such fee shall increase to four percent (4.0%) per annum of the face
amount of such BA (but in no event less

 

4

--------------------------------------------------------------------------------

 

than $500), pro rated for the tenor of the BA based on a year of 360 days,
payable upon issuance. The foregoing fee shall be in addition to any and all
fees, commissions and charges of Wells Fargo Bank with respect to or in
connection with such BA.

 

7.             Amendment to Section 3.1.  Section 3.1 of the Credit Agreement is
hereby amended by adding the following at the end thereof:

 

Notwithstanding the foregoing, the Securities Collateral shall secure only the
Obligation of Reimbursement and any Indebtedness owed to the Lender with respect
to all BAs.

 

8.             Financial Covenants.  Section 6.2 of the Credit Agreement is
hereby amended in its entirety as follows:

 

Section 6.2             Financial Covenants.

 

(a)           Intentionally Deleted.

 

(b)           Minimum Net Income (Maximum Net Loss).  The Borrowers will
achieve, for each rolling three month period described below, Net Income (or Net
Loss) of not less than (or more than, as applicable) the amount set forth for
each such period (numbers appearing between “< >“ are negative):

 

Three Months Ending:

 

Minimum Net Income / Maximum Net Loss

 

October 31, 2008

 

<$10,000,000>

 

November 30, 2008

 

<$11,200,000>

 

December 31, 2008

 

<$5,000,000>

 

 

(c)           Capital Expenditures.  The Borrowers will not incur or contract to
incur Capital Expenditures of more than $1,300,000 in the aggregate during the
fiscal year ending December 31, 2008.

 

(d)           Intentionally Deleted.

 

(e)           Intentionally Deleted.

 

(f)            Minimum Liquidity.  The Borrowers will maintain at all times,
determined as of the end of each month, the sum of their cash and cash
equivalents (including any cash maintained at WF Institutional Brokerage
Services that is pledged to the Lender as Collateral for the Indebtedness) at an
amount not less than $20,000,000.

 

9.             Amendment to Section 6.10(a).  Section 6.10(a) of the Credit
Agreement is hereby amended in its entirety as follows:

 

(a)           The Borrowers will keep accurate books of record and account for
themselves pertaining to the Collateral and pertaining to each Borrower’s

 

5

--------------------------------------------------------------------------------

 

business and financial condition and such other matters as the Lender may from
time to time request in which true and complete entries will be made in
accordance with GAAP and, upon the Lender’s request, will permit any officer,
employee, attorney, accountant or other agent of the Lender to audit, review,
make extracts from or copy any and all company and financial books and records
of the Borrowers at all times during ordinary business hours, to send and
discuss with account debtors and other obligors requests for verification of
amounts owed to either Borrower, and to discuss each Borrower’s affairs with any
of its Directors, Officers, employees or agents.  Notwithstanding the foregoing,
the Lender shall not conduct such audits more than four times per calendar year
unless an Event of Default has occurred and is continuing.

 

10.           Waiver of Existing Default.  Upon the terms and subject to the
conditions set forth in this Amendment, the Lender hereby waives the Existing
Default.  This waiver of the Existing Default shall be effective only in this
specific instance and for the specific purpose for which it is given, and shall
not entitle the Borrowers to any other or further waiver in any similar or other
circumstances.

 

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

 

12.           Amendment Fee. The Borrowers shall pay Lender as of the date
hereof a fully earned, non-refundable fee in the amount of $50,000 in
consideration of Lender’s execution and delivery of this Amendment (the
“Amendment Fee”).

 

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

 

(a)           Payment in full of the Amendment Fee.

 

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

 

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

 

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

 

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

 

6

--------------------------------------------------------------------------------

 

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

 

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

 

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

 

17.           Release.

 

(a)           Each Borrower hereby absolutely and unconditionally releases and
forever discharges the Lender, and any and all participants, parent
corporations, subsidiary corporations, affiliated corporations, insurers,
indemnitors, successors and assigns thereof, together with all of the present
and former directors, officers, agents and employees of any of the foregoing,
from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under
any state or federal law or otherwise, which such Borrower has had, now has or
has made claim to have against any such person for or by reason of any act,
omission, matter, cause or thing whatsoever arising from the beginning of time
to and including the date of this Amendment, whether such claims, demands and
causes of action are matured or unmatured or known or unknown.  Each Borrower
certifies that it has read the following provisions of California Civil Code
Section 1542:

 

A general release does not extend to claims which the creditor does not know or
suspect to exist in his or her favor at the time of executing the release, which
if known by him or her must have materially affected his or her settlement with
the debtor.

 

(b)           Each Borrower understands and acknowledges that the significance
and consequence of this waiver of California Civil Code Section 1542 is that
even if it should eventually suffer additional damages arising out of the facts
referred to above, they will not be able to make any claim for those damages.
Furthermore, each Borrower acknowledges that it intends these consequences even
as to claims for damages that may exist as of the date of this release but which
it does not know exist, and which, if known, would materially affect its
decision to execute this Agreement, regardless of whether its lack of knowledge
is the result of ignorance, oversight, error, negligence, or any other cause.

 

18.           Costs and Expenses. The Borrowers hereby reaffirm their agreement
under the Credit Agreement to pay or reimburse the Lender on demand for all
costs and expenses incurred by the Lender in connection with the Loan Documents,
including without limitation all reasonable fees and disbursements of legal
counsel. Without limiting the generality of the foregoing, the Borrowers
specifically agree to pay all fees and disbursements of counsel to the Lender
for the services performed by such counsel in connection with the preparation of
this Amendment and the documents and instruments incidental hereto. The
Borrowers hereby agree that the Lender may, at any time or from time to time in
its sole discretion and without further authorization by the Borrowers, make a

 

7

--------------------------------------------------------------------------------

 

loan to the Borrowers under the Credit Agreement, or apply the proceeds of any
loan, for the purpose of paying any such fees, disbursements, costs and
expenses, and the Amendment Fee.

 

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

 

[remainder of this page intentionally left blank]

 

8

--------------------------------------------------------------------------------

 

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

 

WELLS FARGO BANK, NATIONAL
ASSOCIATION, acting through its Wells Fargo
Business Credit operating division

NETLIST, INC.

 

By:

/s/ Chun K. Hong 

 

Name: Chun K. Hong

By:

/s/ John Curry

 

Its: President

Name: John Curry

 

 

Its  Vice President

 

 

 

 

 

 

NETLIST TECHNOLOGY TEXAS L.P.
By: Netlist Holdings GP, Inc., its general partner

 

 

 

 

 

By:

/s/ Chun K. Hong

 

 

Name: Chun K. Hong

 

 

Its: President

 

9

--------------------------------------------------------------------------------