**EXHIBIT 10.1**

 

**NINTHAMENDMENT TOAMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT**

** **

This Amendment, dated as of May 2, 2008, is madeby and between NETLIST, INC., a Delaware corporation, and NETLIST TECHNOLOGYTEXAS, 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 itsWELLS 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 RestatedCredit and Security Agreement, dated as of December 27, 2003, as amendedby a First Amendment to Amended and Restated Credit and Security Agreement,dated as of June 30, 2004, a Second Amendment to Credit and SecurityAgreement and Waiver of Defaults, dated as of December 20, 2005, a ThirdAmendment 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 SecurityAgreement, dated as of July 28, 2006, a Sixth Amendment to Credit andSecurity Agreement and Waiver of Defaults, dated as of December 29, 2006, aSeventh Amendment to Credit and Security Agreement, dated as of March 21,2007, and an Eighth Amendment to Amended and Restated Credit and SecurityAgreement, dated as of June 30, 2007 (as so amended**,**the“Credit Agreement”). Capitalized terms used in these recitals have the meaningsgiven to them in the Credit Agreement unless otherwise specified.

 

WFBCI has merged with and into Lender and Lender isthe surviving corporation.

 

The Borrowers have requested that the Lender make certainadditional amendments to the Credit Agreement, which the Lender is willing tomake pursuant to the terms and conditions set forth herein.

 

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

 

1.             **Defined Terms**.

 

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

 

(b)           The followingdefinitions set forth in Section 1.1 of the Credit Agreement are herebyamended in their entirety as follows:

 

“Equipment Advance(s)” has the meaning given to suchterm in Section 2.11(a).

 

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“Foreign Accounts Eligibility Period” means until January 31,2009.

 

“Inventory Sublimit” means $1,000,000.

 

(c)           Clause (x) of the definitionof “Eligible Accounts” set forth in Section 1.1 of the Credit Agreement ishereby amended in its entirety as follows:

 

(x)            Accountsowed by an Account Debtor (or an Affiliate of such Account Debtor), regardlessof whether otherwise eligible, to the extent that the balance of such Accountsexceeds the percentage of the aggregate amount of all Accounts indicated in thetable below opposite the applicable Account Debtor; and Accounts owned by anytwo Account Debtors (or Affiliates of such Account Debtors), regardless ofwhether otherwise eligible, to the extent that the combined balance of suchAccounts exceeds 80% of the aggregate amount of all Accounts:

 
| **Account Debtor or Affiliate of Such  Account Debtor** | ** ** | **Concentration Limit** | ** ** |
|---------------------------------------------------------|------------|-------------------------|------------|
| Dell Computer Corporation                               |       | 50                      | %          |
| IBM                                                     |       | 40                      | %          |
| Hon Hai Precision  Industry Co.                         |       | 40                      | %          |
| Hewlett Packard                                         |       | 40                      | %          |
| All others                                              |       | 15                      | %          |

 

(d)           The following new definitionsare hereby added to Section 1.1 of the Credit Agreement as follows:

 

“Equipment Advance(s) Tranche II” has the meaninggiven to such term in Section 2.11(c). For purposes of this Agreement and the Equipment Note, all EquipmentAdvances Tranche II are Equipment Advances.

 

“Equipment Advances Tranche II Commitment” has themeaning given to such term in Section 2.11(c), and is a sublimit withinthe Equipment Advance Commitment.

 

“Equipment Advance Tranche II Conversion Date” means December 31,2008.

 

“Ninth Amendment” means that certain Ninth Amendmentto Amended and Restated Credit and Security Agreement, dated as of May 2, 2008,among the Borrowers and the Lender, amending this Agreement.

 

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2.             **Amendment to Section 2.11**.  Section 2.11 of the Credit Agreement ishereby amended in its entirety as follows:

 

Section 2.11           Equipment Advances.

 

(a)           Subjectto the terms and conditions hereof, from the first Business Day following theeffective date of the Fifth Amendment up to but not including the EquipmentAdvance Conversion Date, the Lender agrees to make one or more advances (each,an “Equipment Advance” and collectively the “Equipment Advances”) to or for thebenefit of the Borrowers, in minimum amounts of $100,000 up to an aggregateamount not to exceed the Equipment Advance Commitment. The Borrowers’obligation to pay the Equipment Advances shall be evidenced by the EquipmentNote and shall be secured by the Collateral as provided in Article III.  Equipment Advances may not be re-borrowedafter repayment is made by the Borrowers. Each Equipment Advance shall be advanced directly to the applicablevendor or the Borrowers, as the Borrowers may request.  The foregoing to the contrarynotwithstanding, (i) each Equipment Advance shall be in an amount, asdetermined by the Lender, not to exceed 80% of the Borrowers’ invoice cost (netof shipping, taxes, freight, installation, and other so-called “soft costs”) ofnew or used Equipment that is to be purchased by the Borrowers with theproceeds of such Advance, or new or used Equipment that has been purchased bythe Borrowers within 30 days prior to the date of such Advance, (ii) theEquipment that is to be acquired or that has been purchased by the Borrowersmust be acceptable to the Lender in all respects, not be a fixture, and not beintended to be affixed to real property or to become installed in or affixed toother goods, and must be located at one of the Borrowers’ facilities located inthe United States, (iii) the Lender shall have no obligation to make anyEquipment Advance hereunder to the extent that the making thereof would causethe then outstanding amount of all Equipment Advances to exceed the EquipmentAdvance Commitment, (iv) prior to each such Equipment Advance, the Lendershall have received an invoice for the Equipment to be purchased in form andsubstance satisfactory to the Lender, together with evidence satisfactory tothe Lender that the delivery of suchEquipment has been made and unconditionally accepted by the Borrowers, (v) theLender may review the value of any Equipment purchased with any EquipmentAdvance, with the results of such review to be satisfactory to the Lender inits sole discretion, (vi) the aggregate amount of all Equipment Advancesoutstanding at any time (including giving effect to any requested EquipmentAdvance) shall not exceed the lesser of cost or fair market value, of all ofthe Equipment acquired or financed with the proceeds of such EquipmentAdvances, and (vii) except as otherwise provided in Section 2.11(c), onthe Equipment Advance Conversion Date the Equipment Advance Commitment and the Lender’sobligation to make Equipment Advances shall terminate.

 

(b)           Untilthe Equipment Advance Conversion Date, no principal payments shall be due onthe outstanding Equipment Advances; provided that the Borrowers shallmake interest payments thereon during such 

 

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period in accordance withSection 2.12.  Except as otherwiseprovide in Section 2.11(c), the Borrowers shall repay the EquipmentAdvances in equal monthly installments of principal, each in the amount equalto 1/42 of the aggregate amount of all Equipment Advances outstanding on theEquipment Advance Conversion Date and such installments to be due and payableon the first day of each month commencing February 1, 2007 and continuingon the first day of each succeeding month.

 

(c)           Priorto the effectiveness of the Ninth Amendment, there existed $903,600 of undrawnavailability under the Equipment Advance Commitment which the Lender has agreedto make available to the Borrowers pursuant to the terms of this Agreement (the“Equipment Advance Tranche II Commitment). Subject to the terms and conditions hereof, from the first Business Dayfollowing the effective date of the Ninth Amendment up to but not including theEquipment Advance Tranche II Conversion Date, the Lender agrees to make one ormore additional Equipment Advances to or for the benefit of the Borrowers(each, an “Equipment Advance Tranche II” and collectively the “EquipmentAdvances Tranche II”), in minimum amounts of $100,000 up to an aggregate amountnot to exceed the Equipment Advance Tranche II Commitment. The Borrowers’obligation to pay all Equipment Advances Tranche II shall be evidenced by theEquipment Note and shall be secured by the Collateral as provided in Article III.  Equipment Advances Tranche II may not bere-borrowed after repayment is made by the Borrowers.  Each such Equipment Advance Tranche II shallbe advanced directly to the applicable vendor or the Borrowers, as theBorrowers may request.  The foregoing tothe contrary notwithstanding, (i) each Equipment Advance Tranche II shallbe in an amount, as determined by the Lender, not to exceed 80% of theBorrowers’ invoice cost (net of shipping, taxes, freight, installation, andother so-called “soft costs”) of new or used Equipment that is to be purchasedby the Borrowers with the proceeds of such Advance, or new or used Equipmentthat has been purchased by the Borrowers within 60 days prior to the date ofsuch Advance, (ii) the Equipment that is to be acquired or that has beenpurchased by the Borrowers must be acceptable to the Lender in all respects,not be a fixture, and not be intended to be affixed to real property or tobecome installed in or affixed to other goods, and must be located at one ofthe Borrowers’ facilities located in the United States, (iii) the Lendershall have no obligation to make any Equipment Advance Tranche II hereunder tothe extent that the making thereof would cause the then outstanding amount ofall Equipment Advances Tranche II to exceed the Equipment Advance Tranche IICommitment, (iv) prior to each Equipment Advance Tranche II, the Lendershall have received an invoice for the Equipment to be purchased in form andsubstance satisfactory to the Lender, together with evidence satisfactory to theLender that the delivery of such Equipment has been made and unconditionallyaccepted by the Borrowers, (v) the Lender may review the value of anyEquipment purchased with Equipment Advance Tranche II, with the results of suchreview to be satisfactory to the Lender in its sole discretion, (vi) theaggregate amount of all Equipment Advances (including all Equipment AdvancesTranche II) outstanding at any time (including giving effect to any requested 

 

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Equipment Advance TrancheII) shall not exceed the lesser of cost or fair market value, of all of theEquipment acquired or financed with the proceeds of Equipment Advances(including Equipment Advances Tranche II), and (vii) on the EquipmentAdvance Tranche II Conversion Date the Equipment Advance Tranche II Commitment andthe Lender’s obligation to make Equipment Advances Tranche II shall terminate.

 

(d)           Untilthe Equipment Advance Tranche II Conversion Date, no principal payments shallbe due on the outstanding Equipment Advances Tranche II; provided thatthe Borrowers shall make interest payments thereon during such period inaccordance with Section 2.12.  TheBorrowers shall repay the Equipment Advances Tranche II in equal monthlyinstallments of principal, each in the amount equal to 1/42 of the aggregateamount of all Equipment Advances Tranche II outstanding on the EquipmentAdvance Tranche II Conversion Date and such installments to be due and payableon the first day of each month commencing January 1, 2009 and continuingon the first day of each succeeding month.

 

(e)           Ifthe Lender at any time obtains an appraisal of the Equipment as permitted underSection 6.10(e) herein, and the appraisal shows the aggregateoutstanding principal balance of the Equipment Note to exceed eighty percent(80%) of the Net Orderly LiquidationValue of the Equipment financed with the Equipment Advances (includingEquipment Advances Tranche II), then the Borrowers, upon demand by theLender, shall immediately prepay the Equipment Note in the amount of suchexcess.  All prepayments of principalwith respect to the Equipment Note shall be applied to the most remoteprincipal installment or installments then unpaid.

 

(f)            Notwithstanding the foregoing, on theTermination Date, the entire unpaid principal balance of the Equipment Note, and all unpaid interest accruedthereon, shall in any event be due and payable.

 

3.             **Amendmentto Section 2.12(b)**.  Section 2.12(b) ofthe Credit Agreement shall be deleted in its entirety and restated as follows:

 

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

 

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| **Borrowers’  Combined  Account Balance  Maintained at WF  Institutional Brokerage  Services** | ** ** | **Margin for Floating  Rate Advances**             | ** ** | **Margin for LIBOR  Advances**            |
|-----------------------------------------------------------------------------------------------------|------------|----------------------------------------------------|------------|-------------------------------------------|
| $12,000,000 or greater                                                                              |       | Zero percentage points (0 basis points)            |       | 2.50 percentage points (250 basis points) |
| Less than $12,000,000                                                                               |       | One half of one percentage point (50 basis points) |       | 3.50 percentage points (350 basis points) |

 

Account balances will be tested as of the end of eachmonth based on the statements delivered pursuant to Section 6.1(r).  Any reductions or increases in the Marginswill be effective as of the first day of the month following the applicabletest date.  In the event that theBorrowers 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 andremedies available upon an Event of Default, all Margins shall be presumed tobe based on an account balance of less than $12,000,000 until such statementsare delivered to the Lender. Notwithstanding the foregoing, no reduction in anyMargin will be made if a Default Period exists at the time that such reductionwould otherwise be made.

 

4.             **FinancialCovenants**.  Section 6.2of the Credit Agreement is hereby amended in its entirety as follows:

 

Section 6.2             FinancialCovenants.

 

(a)           ***Intentionally Deleted.***

 

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

 

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| **Three Months Ending:** | ** ** | **Minimum Net Income / Maximum  Net Loss** |
|--------------------------|------------|--------------------------------------------|
| January 31, 2008    |       | <$2,350,000>                         |
| February 29, 2008   |       | <$1,850,000>                         |
| March 31, 2008      |       | <$4,400,000>                         |
| April 30, 2008      |       | <$3,950,000>                         |
| May 31, 2008        |       | <$3,850,000>                         |
| June 30, 2008       |       | <$2,950,000>                         |
| July 31, 2008       |       | <$3,200,000>                         |
| August 31, 2008     |       | <$3,200,000>                         |
| September 30, 2008  |       | <$2,300,000>                         |
| October 31, 2008    |       | <$1,900,000>                         |
| November 30, 2008   |       | <$1,700,000>                         |
| December 31, 2008   |       | <$850,000>                           |

 

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

 

(d)           ***Intentionally Deleted***.

 

(e)           ***Intentionally Deleted***.

 

(f)            ***Minimum Liquidity***.  The Borrowers will maintain at all times, determinedas of the end of each month, the sum of their cash and cash equivalents at anamount not less than $20,000,000.

 

5.             **Amendment to Section 6.10(a)**.  Section 6.10(a) of the CreditAgreement is hereby amended in its entirety as follows:

 

(a)           TheBorrowers will keep accurate books of record and account for themselvespertaining to the Collateral and pertaining to each Borrower’s business andfinancial condition and such other matters as the Lender may from time to timerequest in which true and complete entries will be made in accordance with GAAPand, upon the Lender’s request, will permit any officer, employee, attorney,accountant or other agent of the Lender to audit, review, 

 

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make extracts from orcopy any and all company and financial books and records of the Borrowers at alltimes during ordinary business hours, to send and discuss with account debtorsand other obligors requests for verification of amounts owed to eitherBorrower, 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 auditsmore than three times per calendar year unless an Event of Default has occurredand is continuing.

 

6.             **Amendment to Section 6.10(d)**.  Section 6.10(d) of the CreditAgreement is hereby amended in its entirety as follows:

 

(d)           TheLender may also, from time to time (but no more frequently than one time percalendar year unless an Event of Default has occurred and is continuing),obtain at the Borrowers’ expense an appraisal of the Inventory by an appraiseracceptable to the Lender in its sole discretion.

 

7.             **Replacement Exhibit C**.  Exhibit C attached to the CreditAgreement is hereby replaced with Exhibit C attached to this Amendment.

 

8.             **No Other Changes**. Except asexplicitly amended by this Amendment, all of the terms and conditions of theCredit Agreement shall remain in full force and effect and shall apply to anyadvance or letter of credit thereunder.

 

9.             **Amendment Fee****.**The Borrowers shall pay the Lender a fullyearned, non-refundable fee in the amount of $10,000 (“Amendment Fee”) inconsideration of the Lender’s execution and delivery of this Amendment.  The Amendment Fee shall be due and payableupon execution of this Amendment.

 

10.           **Conditions Precedent**. ThisAmendment shall be effective when the Lender shall have received an executedoriginal hereof, together with each of the following, each in substance andform acceptable to the Lender in its sole discretion:

 

(a)           TheAmendment Fee; and

 

(b)           Suchother matters as the Lender may require.

 

11.           **Representations and Warranties**. EachBorrower hereby represents and warrants to the Lender as follows:

 

(a)           SuchBorrower has all requisite power and authority to execute this Amendment, toperform all of its obligations hereunder, and this Amendment has been dulyexecuted and delivered by such Borrower and constitute the legal, valid andbinding obligation of such Borrower, enforceable in accordance with their terms.

 

(b)           Theexecution, delivery and performance by each Borrower of this Amendment has beenduly authorized by all necessary corporate action and do not (i) requireany authorization, consent or approval by any governmental department,commission, board, bureau, agency or instrumentality, domestic or foreign, (ii) violateany provision of any law, rule or 

 

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regulation or of anyorder, writ, injunction or decree presently in effect, having applicability to suchBorrower, or the articles of incorporation or by-laws of such Borrower, or (iii) resultin a breach of or constitute a default under any indenture or loan or creditagreement or any other agreement, lease or instrument to which such Borrower isa party or by which it or its properties may be bound or affected.

 

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

 

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

 

13.           **No Waiver**.  Theexecution of this Amendment and acceptance of any documents related heretoshall not be deemed to be a waiver of any Default or Event of Default under theCredit Agreement or breach, default or event of default under any SecurityDocument or other document held by the Lender, whether or not known to theLender and whether or not existing on the date of this Amendment.

 

14.           **Release**.

 

(a)           Each Borrower****hereby absolutely and unconditionally releases and foreverdischarges 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 formerdirectors, officers, agents and employees of any of the foregoing, from any andall 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 orfederal law or otherwise, which such Borrower has had, now has or has madeclaim 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 andincluding the date of this Amendment, whether such claims, demands and causes ofaction are matured or unmatured or known or unknown.  Each Borrower certifies that it has read thefollowing provisions of California Civil Code Section 1542:

 

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

 

(b)           Each Borrowerunderstands and acknowledges that the significance and consequence of this waiverof California Civil Code Section 1542 is that even if it should eventuallysuffer additional damages arising out of the facts referred to above, they willnot be able to make any claim for those damages. Furthermore, each Borroweracknowledges that it intends these consequences even as to claims for damagesthat may exist as of the date of this release but which it does not know exist,and which, if known, would materially affect its 

 

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decision to execute thisAgreement, regardless of whether its lack of knowledge is the result ofignorance, oversight, error, negligence, or any other cause.

 

15.           **Costs andExpenses**. The Borrowers hereby reaffirm their agreement underthe Credit Agreement to pay or reimburse the Lender on demand for all costs andexpenses incurred by the Lender in connection with the Loan Documents,including without limitation all reasonable fees and disbursements of legalcounsel. Without limiting the generality of the foregoing, the Borrowersspecifically agree to pay all fees and disbursements of counsel to the Lenderfor the services performed by such counsel in connection with the preparationof this Amendment and the documents and instruments incidental hereto. TheBorrowers hereby agree that the Lender may, at any time or from time to time inits sole discretion and without further authorization by the Borrowers, make aloan to the Borrowers under the Credit Agreement, or apply the proceeds of anyloan, for the purpose of paying any such fees, disbursements, costs andexpenses, and the Amendment Fee.

 

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

 

*[remainder of this page intentionally left blank]*

 

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

 
| **WELLS FARGO BANK, NATIONAL  ASSOCIATION**                 | ** **          | **NETLIST, INC**.                                        |
|-------------------------------------------------------------|---------------------|----------------------------------------------------------|
| Through its Wells Fargo Business Credit  operating division |                | By:                                                      | /s/ Chun K. Hong |
| ** **                                                  | ** **          | Name: Chun K. Hong                                       |
|                                                        |                |                                                     | Its: President |
| By                                                          | /s/ Jeffrey Cristol |                                                     |   |
| Name: Jeffrey Cristol                                       |                |                                                     |
| 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                                           |
|                                                             |                     |                                                          |  |  |  |  |

 

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