Exhibit 10.3


 


SECURITY
AGREEMENT


 


This Security
Agreement (this “Agreement”) is entered into as of October 31, 2009, by
and between, on the one hand, Silicon Valley Bank (“Bank”) and, on the other
hand Netlist Technology Texas LP, a Texas limited partnership (“Debtor”).


 


RECITALS


 


NETLIST, INC., a
Delaware corporation (“Borrower”) and Bank are parties to that certain Loan and
Security Agreement, dated as of an Effective Date on or about the date hereof
(as amended, restated supplemented, or otherwise modified from time to time,
the “Loan Agreement”), pursuant to which Bank has agreed to make certain
advances of money and to extend certain financial accommodations (collectively,
the “Loans”), subject to the terms and conditions set forth therein.  Capitalized terms used but not otherwise
defined herein shall have the meanings given them in the Loan Agreement.


 


In consideration
of the agreement of Bank to make the Loans to Borrower under and in accordance
with the terms and conditions of the Loan Agreement, Debtor has guarantied the
full payment and performance by Borrower of all of its obligations thereunder
and under the other Loan Documents, all as further set forth in that certain
Unconditional Continuing Guaranty of substantially even date in favor of Bank (as
amended, restated, supplemented, or otherwise modified from time to time, the “Guaranty”).


 


The Debtor
Obligations (as defined below) shall be secured pursuant to and in accordance
with the terms of this Agreement.


 


AGREEMENT


 


The parties agree
as follows:


 


1.             DEFINITIONS.  Unless
otherwise defined herein, capitalized terms used herein shall 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 Debtor.


 


“Bank Expenses”
means all costs and expenses (including reasonable attorneys’ fees and
expenses) incurred by Bank in preparing, negotiating, administering, amending,
defending, and enforcing this Agreement and the Debtor Obligations (including,
without limitation, those incurred during appeals and/or Insolvency
Proceedings).


 


“Code” means the
Uniform Commercial Code as the same may, from time to time, be in effect in the
State of California.


 


“Collateral” means
the property described in Exhibit A attached hereto.


 


“Debtor
Obligations” are Debtor’s obligation to pay when due any debts, Bank Expenses
and other amounts Debtor owes Bank now or later, whether under this Agreement,
the Guaranty, the other Loan Documents, or otherwise, including, without
limitation, all interest, and other amounts, accruing


 


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after Insolvency
Proceedings begin and debts, liabilities, or obligations of Debtor assigned to
Bank, and the performance of Debtor’s duties under the Loan Documents.


 


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


 


“Default” means
any event or occurrence which with the passing of time or the giving of notice
or both would become an Event of Default hereunder.


 


“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.


 


“Events of Default”
are described in Section 6.


 


“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.


 


“Insolvency
Proceeding” are proceedings by or against Borrower and/or Debtor under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with either party’s creditors, or proceedings seeking reorganization,
arrangement, or other relief.


 


“Intellectual
Property” means all present and future (a) copyrights, copyright rights,
copyright applications, copyright registrations and like protections in each
work of authorship and derivative work thereof, whether published or unpublished,
(b) trade secret rights, including all rights to unpatented inventions and
know how, and confidential information; (c) mask work or similar rights
available for the protection of semiconductor chips; (d) patents, patent
applications and like protections including without limitation improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same; (e) trademarks, servicemarks, trade
styles, and trade names, whether or not any of the foregoing are registered,
and all applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Debtor connected with
and symbolized by any such trademarks; (f) computer software and computer
software products; (g) designs and design rights; (h) technology; (i) all
claims for damages by way of past, present and future infringement of any of
the rights included above; (j) all licenses or other rights to use any
property or rights of a type described above.


 


“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,


 


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including without
limitation such inventory as is temporarily out of Debtor’s custody or
possession or in transit and including any returned goods and any documents of
title representing any of the above.


 


“Material Adverse
Change” is described in Section 6.5.


 


“Permitted Liens” with
respect to Debtor are:


 


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


 


(b)           inchoate
Liens for taxes, fees, assessments or other government charges or levies,
either not delinquent or being contested in good faith and for which Debtor
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;


 


(c)           purchase
money Liens (including the interests of lessors under capitalized leases): (i) on
Equipment acquired or held by Debtor 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; in each case,
only if such Lien is confined to such Equipment and related improvements and
the proceeds thereof;


 


(d)           inchoate
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);


 


(e)           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;


 


(f)            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 Intellectual Property) granted in the ordinary course of Debtor’s
business, if the leases, subleases, licenses and sublicenses do not prohibit
granting Bank a security interest;


 


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


 


(h)           Liens
arising from attachments or judgments, orders, or decrees in circumstances not
constituting an Event of Default under Sections 6.2 and 6.7;


 


(i)            Liens
in favor of other financial institutions (not securing indebtedness for borrowed
money owing to such financial institutions) arising in connection with Debtor’s
deposit and/or securities accounts permitted hereunder held at such
institutions, provided that Bank has a perfected security interest in the
amounts held in such deposit and/or securities accounts.


 


“Responsible Officer”
with respect to Debtor is any of Debtor’s Chief Executive Officer, President,
Chief Financial Officer and Controller.


 


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2.             CREATION OF SECURITY INTEREST


 


2.1           Grant of Security Interest. Debtor hereby grants Bank, to secure
the payment and performance in full of all of the Debtor 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. Debtor represents, warrants, and covenants that the
security interests granted herein are and shall at all times continue to be
first priority perfected security interests in the Collateral (subject in lien
priority only to those Permitted Liens that are expressly entitled to such
priority over the security interests of Bank by operation of law or by written
subordination agreement duly executed and delivered by Bank in favor of the
holders of such Permitted Liens). If Debtor shall acquire a commercial tort
claim, Borrower shall promptly notify Bank in a writing signed by Debtor 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.  Upon the occurrence and during the
continuation of an Event of Default, Bank may liquidate Debtor’s Collateral and
apply such funds toward repayment of the Debtor Obligations.  Such liquidation shall not be deemed a
set-off.


 


2.2           Delivery of Additional Documentation Required. 
Debtor will from time to time execute and deliver to Bank, at the
request of Bank, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue the
perfection of Bank’s security interests in the Collateral.  Debtor
authorizes Bank to file financing statements without notice to Debtor, in all appropriate
jurisdictions, as Bank deems appropriate, to perfect or protect Bank’s interest
in the Collateral of Debtor.


 


3.             REPRESENTATIONS AND WARRANTIES


 


Debtor represents
and warrants as follows:


 


3.1           Due Organization and Qualification. 
Debtor is duly existing and in good standing under the laws of its
jurisdiction of formation and is qualified and licensed to do business in, and
is in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be so qualified, except where the
failure to do so could not reasonably be expected to cause a Material Adverse
Change.


 


3.2           Due Authorization; No Conflict. 
The execution, delivery, and performance of this Agreement are within
Debtor’s powers, have been duly authorized, and neither conflict with nor
constitute a breach of any provision contained in Debtor’s formation documents
or bylaws, nor will they constitute an event of default under any material
agreement to which Debtor is a party or by which Debtor is bound.


 


3.3           No Prior Encumbrances. Debtor has good title to the Collateral, free and
clear of any liens, security interests, or other encumbrances, except Permitted
Liens.


 


3.4           Litigation. Except as disclosed to Bank in writing, there are no
actions or proceedings pending or, to the knowledge of the Responsible
Officers, threatened in writing by or against Debtor involving more than
$100,000 or more in the aggregate.


 


3.5           Solvency.  The
incurrence of Debtor’s obligations under this Agreement will not cause Debtor
to (a) become insolvent; (b) be left with unreasonably small capital
for any business or transaction in which Debtor is presently engaged or plans
to be engaged; or (c) be unable to pay its debts as such debts mature.


 


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3.6           Perfection Certificate.  All
information set forth on the Perfection Certificate with respect to Debtor is
accurate and complete with respect to Debtor.


 


4.             AFFIRMATIVE COVENANTS


 


Debtor covenants
and agrees that, until the Debtor Obligations (other than inchoate
indemnification obligations) are fully and finally paid and performed, Debtor
shall do all of the following:


 


4.1           Good Standing. Maintain its legal existence and good standing in
its jurisdiction 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.


 


4.2           Government Compliance. 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.


 


4.3           Insurance.  With respect
to Debtor’s Collateral, comply with the requirements of Section 6.7 of the
Loan Agreement (which Section by this reference is incorporated herein, mutatis mutandis).


 


4.4           Taxes.  Make timely
payment of all foreign, federal, state, and local taxes or assessments (other
than taxes and assessments which Debtor in good faith contests its obligations
by appropriate proceedings promptly and diligently instituted and conducted),
and shall deliver to Bank, upon demand, appropriate certificates attesting to
such payments.


 


4.5           Audit of Collateral. Allow Bank to audit Debtor’s Collateral at Borrower’s
or Debtor’s expense, in accordance with Section 6.6 of the Loan Agreement.


 


4.6           Protection and Registration of Intellectual Property
Rights. Debtor
shall:  (a) protect, defend and
maintain the validity and enforceability of its Intellectual Property; (b) promptly
advise Bank in writing of known material infringements of its Intellectual
Property; and (c) not allow any Intellectual Property to be abandoned,
forfeited or dedicated to the public without Bank’s written consent. Debtor
hereby represents and warrants that, as of the Effective Date, Debtor does not
own any maskworks, computer software, or other copyrights of Debtor that are
registered (or the subject of an application for registration) with the United
States Copyright Office (collectively, the “Registered Copyrights”).  Debtor will NOT register with the United
States Copyright Office (or apply for such registration of) any of Debtor’s
maskworks, computer software, or other copyrights, unless Debtor: (x) provides
Bank with at least fifteen (15) days prior written notice of its intent to
register such copyrights or mask works together with a copy of the application
it intends to file with the United States Copyright Office (excluding exhibits
thereto); (y) executes and delivers a security agreement or such other
documents as Bank may reasonably request to maintain the perfection and
priority of Bank’s security interest in the copyrights or mask works intended
to be registered with the United States Copyright Office; and (z) records
such security agreement with the United States Copyright Office
contemporaneously with filing the copyright or mask work application(s) with
the United States Copyright Office. 
Debtor shall promptly provide to Bank a copy of the application(s) actually
filed with the United States Copyright Office together with evidence of the
recording of the security agreement necessary for Bank to maintain the
perfection and priority of its security interest in the copyrights or mask
works intended to be registered with the United States Copyright Office. Debtor
hereby represents and warrants that, as of the Effective Date, Debtor does not
own any patents and trademarks of Debtor that are registered (or the subject of
an application for registration) with the United States Patent and Trademark
Office. From and after the Effective Date, Debtor shall provide written notice
to Bank of any application filed by Debtor in the United States Patent


 


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and Trademark
Office for a patent or to register a trademark or service mark within 30 days
after any such filing, and, upon the request of Bank, Debtor shall promptly
execute and deliver a security agreement or such other documents as Bank may
reasonably request with respect to such additional patents and/or trademarks of
Debtor that are registered (or the subject of an application for registration)
with the United States Patent and Trademark Office. The foregoing
notwithstanding, Bank shall not acquire any interest in any intent to use a
federal trademark application for a trademark, servicemark, or other mark filed
on Debtor’s behalf prior to the filing under applicable law of a verified
statement of use (or equivalent) for such mark that is the subject of such
application.


 


5.             NEGATIVE COVENANTS


 


Debtor covenants
and agrees that, until the Debtor Obligations (other than inchoate
indemnification obligations) are fully and finally paid and performed, Debtor
shall not do any of the following:


 


5.1           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 Debtor in the ordinary course of business.


 


5.2           Encumbrances. Create, incur, allow, or suffer any Lien on any of
the Collateral, or assign or convey any right to receive income, including the
sale of any Accounts, 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 from assigning, mortgaging, pledging,
granting a security interest in or upon, or encumbering any of Debtor’s
Intellectual Property.


 


5.3           Change in Jurisdiction of Formation, Organizational
Structure, Type.  Without at least thirty (30) days prior
written notice to Bank: (1) change its jurisdiction of organization; (2) change
its organizational structure or type; (3) change its legal name set forth
in its articles/certificate of incorporation/formation; or (4) change its
organizational number (if any) assigned by its jurisdiction of organization.


 


5.4           Indebtedness.  Create,
incur, assume, or be liable for any Indebtedness, except if and to the extent
that a Subsidiary of Borrower is permitted to do so under Section 7.4 of
the Loan Agreement.


 


6.             EVENTS OF DEFAULT


 


Any one or more of
the following events shall constitute an Event of Default under this Agreement:


 


6.1           Payment Default; Covenant Default.


 


(a)           If Debtor
fails to pay any Debtor Obligations within three (3) Business Days after
such Debtor Obligations are due and payable; or


 


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(b)           If Debtor
fails or neglects to perform, keep, or observe any term, provision, condition,
covenant, or agreement in the Guaranty or in Section 5 of this Agreement;
or


 


(c)           If
Debtor fails or neglects to perform, keep, or observe any other material term,
provision, condition, covenant or agreement contained in this Agreement, and as
to any default (other than those specified in this Section 6) 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 Debtor
be cured within such ten (10) day period, and such default is likely to be
cured within a reasonable time, then Debtor 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. 
Grace periods provided under this section shall not apply with respect
to subsection (b) above.


 


6.2           Attachment; Levy; Restraint on Business.


 


(a) (i) The
service of process seeking to attach, by trustee or similar process, any funds
of Debtor or of any entity under the control of Debtor (including a Subsidiary)
on deposit or otherwise maintained with Bank or any Bank Affiliate, or (ii) a
notice of lien or levy is filed against any of Debtor’s assets by any
government agency, and the same under subclauses (i) and (ii) hereof
are not, within ten (10) days 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; or


 


(b) (i) any
material portion of Debtor’s assets is attached, seized, levied on, or comes
into possession of a trustee or receiver, or (ii) any court order enjoins,
restrains, or prevents Debtor from conducting any material part of its
business.


 


6.3           Misrepresentations.  If any
material misrepresentation or material misstatement exists now or hereafter in
any warranty or representation set forth herein or in any certificate delivered
to Bank by Debtor pursuant to this Agreement or the Guaranty or to induce Bank
to enter into this Agreement or the Guaranty.


 


6.4           Insolvency. (a) Debtor is unable to pay
its debts (including trade debts) as they become due or otherwise becomes
insolvent; (b) Debtor begins an Insolvency Proceeding; or (c) an
Insolvency Proceeding is begun against Debtor 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).


 


6.5           Material Adverse Change.  If there is
any of the following (each, a “Material
Adverse Change”): (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 Debtor taken as a whole; or (c) a material impairment of the
prospect of repayment of any portion of the Debtor Obligations.


 


6.6           Other Agreements. If there is, under any agreement to which Borrower
or Debtor is a party with a third party or parties, (a) any default
resulting in a right by such third party or parties, whether or not exercised,
to accelerate the maturity of any Indebtedness in an amount individually or in
the aggregate in excess of Fifty Thousand Dollars ($50,000); or (b) any
default by Borrower or Debtor, the result of which could have a material
adverse effect on Borrower’s or Debtor’s business.


 


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6.7           Judgments. One or more judgments, orders, or decrees for the
payment of money in an amount, individually or in the aggregate, of $50,000 or
more (not covered by independent third-party insurance as to which liability
has been accepted by such insurance carrier) shall be rendered against Debtor
and shall remain unsatisfied, unvacated, or unstayed for a period of ten (10) days
after the entry thereof.


 


6.8           Event of Default Under Loan Agreement. An “Event of Default” under the Loan
Agreement has occurred and is continuing, and all applicable cure periods (if
any, and without duplication) have lapsed.


 


7.             BANK’S RIGHTS AND REMEDIES


 


7.1           Rights and Remedies.  Upon the
occurrence and during the continuance of an Event of Default, Bank may, at its
election, without notice of its election and without demand, do any one or more
of the following, all of which are authorized by Debtor:


 


(a)           Exercise all
rights available to it under the Code and applicable law;


 


(b)           Set off and apply to the obligations any and all (i) balances
and deposits of Debtor held by Bank or in which Bank acts as custodian, or (ii) indebtedness
at any time owing to or for the credit or the account of Debtor held by Bank;
and


 


(c)           Sell all or any part of the Collateral at either a
public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places
(including Debtor’s premises) as Bank determines is commercially reasonable in
accordance with the Code.


 


7.2           Remedies Cumulative.  Bank’s rights
and remedies under the Loan Agreement and any documents related thereto, the
Guaranty, and this Agreement shall be cumulative.  Bank shall have all other rights and remedies
not inconsistent herewith as provided under the Code, by law, or in
equity.  No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Debtor’s part shall be deemed a continuing waiver.  No delay by Bank shall constitute a waiver,
election, or acquiescence by it.


 


7.3           Demand; Protest.  Except to the
extent expressly provided for in this Agreement or the Guaranty, Debtor waives
demand, protest, notice of protest, 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 at any time held by Bank on which
Debtor may in any way be liable.


 


7.4           Power of Attorney.  Debtor 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 Debtor’s name on any checks
or other forms of payment or security; (b) sign Debtor’s name on any
invoice or bill of lading for any Account or drafts against Account Debtors; (c) make,
settle, and adjust all claims under Debtor’s insurance policies; (d) 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 (e) transfer the
Collateral into the name of Bank or a third party as the Code permits.  Debtor hereby appoints Bank as its lawful
attorney-in-fact to sign Debtor’s name on any documents necessary to perfect or
continue the perfection of Bank’s security


 


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interest in the
Collateral regardless of whether an Event of Default has occurred until all
Debtor Obligations have been fully and finally paid and performed.  Bank’s foregoing appointment as Debtor’s
attorney in fact, and all of Bank’s rights and powers, coupled with an
interest, are irrevocable until all Debtor Obligations have been fully and
finally paid and performed.


 


7.5           Bank Expenses.  If Debtor
fails to pay any amount due hereunder or furnish any required proof of payment
to third persons in connection with the Collateral, Bank may make all or part
of the payment and take any action Bank deems prudent.  Any amounts paid by Bank are Bank Expenses
and immediately due and payable, bearing interest at the then applicable rate
and secured by the Collateral.  No
payments by Bank are deemed an agreement to make similar payments in the future
or Bank’s waiver of any Event of Default. 
After the sale of any of the Collateral, Bank may deduct all reasonable
legal and other expenses and attorneys’ fees for preserving, collecting,
selling and delivering the Collateral and for enforcing its rights with respect
to the Debtor Obligations, and shall apply the remainder of the proceeds to the
Debtor Obligations in such manner as Bank in its reasonable discretion shall
determine, and shall pay the balance, if any, to Debtor.


 


7.6           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.  Debtor bears
all risk of loss, damage or destruction of the Collateral.


 


8.             NOTICES


 


Unless otherwise
provided in this Agreement, all notices or demands by any party relating to
this Agreement shall be in writing and shall be given in accordance with the
notice provision set forth in the Guaranty.


 


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


 


California law
governs this Agreement without regard to principles of conflicts of law.  Debtor and Bank submits 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 any collateral or any other security for the
Obligations, or to enforce a judgment or other court order in favor of Bank.  Debtor expressly submits and consents in
advance to such jurisdiction in any action or suit commenced in any such court,
and Debtor 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.  Debtor 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 Debtor
at the address for notice set forth in the Guaranty and that service so made
shall be deemed completed upon the earlier to occur of Debtor’s actual receipt
thereof or three (3) days after deposit in the U.S. mails, proper postage
prepaid.


 


TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, DEBTOR AND BANK WAIVES THEIR RIGHT TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
AGREEMENT, THE GUARANTY, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION,
INCLUDING CONTRACT, TORT, BREACH OF DUTY


 


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AND ALL OTHER
CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR THE 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 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


 


10.           GENERAL PROVISIONS


 


10.1         Successors and Assigns.  This
Agreement binds and is for the benefit of the successors and permitted assigns
of each party. Debtor may not assign this Agreement or any rights under it
without Bank’s prior written consent which may be granted or withheld in Bank’s
reasonable discretion.  Bank has the
right, without the consent of or notice to Debtor, 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.


 


10.2         Indemnification.
Debtor 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 Debtor
(including reasonable attorneys’ fees and expenses), except for Claims and/or
losses directly caused by Bank’s gross negligence or willful misconduct. This Section 10.2
shall survive any termination of this Agreement or any other Loan Document.


 


10

















 


10.3         Time of Essence.  Time is of
the essence for the performance of all obligations set forth in this Agreement.


 


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


 


10.5         Amendments in Writing, Integration. 
All amendments to this Agreement must be in writing and executed by the
parties hereto.  This Agreement and the
Guaranty 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 merge into this
Agreement and the Guaranty.


 


10.6         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, are one Agreement.


 


10.7         Survival.  All
covenants, representations and warranties made in this Agreement continue in
full force while any obligations remain outstanding.  The obligations of Debtor in Section 10.2
to indemnify Bank will survive until all statutes of limitations for actions
that may be brought against Bank have run.


 


10.8         Attorneys’ Fees, Costs and Expenses. 
In any action or proceeding between Debtor and Bank arising out of the
Guaranty or this Agreement, the prevailing party will 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, whether or not a lawsuit is
filed.


 


10.9         Disclosure of Information; Borrower Collateral. 
Debtor acknowledges that it has, independently of and without reliance
on Bank, made its own credit analysis of Borrower and the assets pledged by
Borrower to Bank under the Loan Agreement, if any (the “Borrower Collateral”),
performed its own legal review of this Agreement, the Guaranty, the Loan
Agreement and all related documents and filings, and is not relying on Bank
with respect to any of the aforesaid items. 
Debtor has established adequate means of obtaining from Borrower, on a
continuing basis, financial and other information pertaining to Borrower’s
financial condition and the value of the Borrower Collateral and status of Bank’s
lien on and in the Borrower Collateral. 
Debtor agrees to keep adequately informed from such means of any facts,
events or circumstances which might in any way affect Debtor’s risks hereunder
or under the Guaranty, and Debtor further agrees that Bank shall have no
obligation to disclose to Debtor information or material with respect to
Borrower or the Borrower Collateral acquired in the course of Bank’s relationship
with Borrower.  Bank makes no
representation, express or implied, with respect to the Borrower Collateral or
its interest in, or the priority or perfection of its lien on and in the
Borrower Collateral.  Debtor acknowledges
that its obligation hereunder will not be affected by (a) Bank’s failure
properly to create a lien on or in the Borrower Collateral, (b) Bank’s
failure to create or maintain a priority with respect to the lien purported to
be created in the Borrower Collateral, or (c) any act or omission of Bank
(whether negligent or otherwise) which adversely affects the value of the
Borrower Collateral or Bank’s lien thereon or the priority of such lien.


 


10.10       Joint and Several.  If two or
more Debtors are liable under the terms hereof for the same obligation, then
such liability shall be joint and several.


 


10.11       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


 


11

















 


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
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; (e) as
Bank considers appropriate in exercising remedies under the Loan Documents; and
(f) to third-party service providers of Bank so long as such service
providers have executed a confidentiality agreement with Bank with terms no
less restrictive than those contained herein. 
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.


 


Bank may use
confidential information for any purpose, including, without limitation, for
the development of client databases, reporting purposes, and market analysis,
so long as Bank does not disclose Debtor’s identity or the identity of any
person associated with Debtor unless otherwise expressly permitted by this
Agreement.  The provisions of this Section 10.11
shall survive the termination of this Agreement.


 


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left blank; signature page immediately follows]


 


12

















 


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


 


	
  BANK:

  	
   

  
	
   

  	
   

  
	
  SILICON VALLEY BANK

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
  DEBTOR:

  	
   

  
	
   

  	
   

  
	
  Netlist Technology Texas LP, a
  Texas limited partnership

  	
   

  
	
   

  	
   

  
	
  By: NETLIST, INC., its general
  partner

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  



 


13

















 


EXHIBIT A


 


The
Collateral consists of all of Debtor’s right, title and interest in and to all
personal property, including without limitation the following:


 


All
goods, Accounts (including health-care receivables), Equipment, Inventory,
contract rights or rights to payment of money, leases, license agreements,
franchise agreements, General Intangibles, 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
Debtor’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.


 


 


[end
of Exhibit A]