Document:

exh10_9.htm

 

 

 

 

 Exhibit 10.9

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (the “Agreement”), is entered into and made effective as of March 5, 2008, by and between SpeechSwitch, Inc., a New Jersey Corporation, with its principal office at 750 Route 34, Matawan, NJ, 07747 (the “Company”), and iVoice , Inc., a New Jersey corporation, with its principal office at 750 Route 34, Matawan, NJ, 07747 (the “Secured Party”).

 

WHEREAS, the Company executed a Convertible Promissory Note dated March 5, 2008 (the “Promissory Note”);

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

ARTICLE 1.

 

DEFINITIONS AND INTERPRETATIONS

 

	
  

	
Section 1.1.

	
Recitals.

 

The above recitals are true and correct and are incorporated herein, in their entirety, by this reference.

 

	
  

	
Section 1.2.

	
Interpretations.

 

Nothing herein expressed or implied is intended or shall be construed to confer upon any person other than the Secured Party any right, remedy or claim under or by reason hereof.

 

	
  

	
Section 1.3.

	
Obligations Secured.

 

In exchange and the consideration for the Secured Party purchasing the Promissory Note dated the date hereof and thereby permitting the Secured Party to loan to the Company Fifty Thousand Six Hundred and Fifty-one Dollars and Fifty-two Cents ($50,651.52) on the date hereof in the form of a Promissory Note, the Company hereby agrees to permit the Secured Party to secure the obligations pursuant to this Security Agreement and such the Promissory Note dated the date hereof for the sum of Fifty Thousand Six Hundred and Fifty-one Dollars and Fifty-two Cents ($50,651.52) and any other amounts now or hereafter owed to the Secured Party by the Company thereunder or hereunder, (collectively, the “Obligations”).

 

 

 

  

  

  

 

 

ARTICLE 2.

 

PLEDGED PROPERTY, ADMINISTRATION OF COLLATERAL

AND TERMINATION OF SECURITY INTEREST

 

	
  

	
Section 2.1.

	
Pledged Property.

 

(a)           Company hereby pledges to the Secured Party, and creates in the Secured Party for its benefit, a security interest in and to all of the property of the Company as set forth in Exhibit A attached hereto and the products thereof and the proceeds of all such items (collectively, the “Pledged Property”) for such time until the Obligations are paid in full.

 

(b)           Simultaneously with the execution and delivery of this Agreement, the Company shall make, execute, acknowledge, file, record and deliver to the Secured Party any documents reasonably requested by the Secured Party to perfect its security interest in the Pledged Property.  Simultaneously with the execution and delivery of this Agreement, the Company shall make, execute, acknowledge and deliver to the Secured Party such documents and instruments, including, without limitation, financing statements, certificates, affidavits and forms as may, in the Secured Party’s reasonable judgment, be necessary to effectuate, complete or perfect, or to continue and preserve, the security interest of the Secured Party in the Pledged Property, and the Secured Party shall hold such documents and instruments as secured party, subject to the terms and conditions contained herein.

 

	
  

	
Section 2.2.

	
Rights; Interests; Etc.

 

(a)           So long as no Event of Default (as hereinafter defined) shall have occurred and be continuing:

 

(i)           the Company shall be entitled to exercise any and all rights pertaining to the Pledged Property or any part thereof for any purpose not inconsistent with the terms hereof; and

 

(ii)           the Company shall be entitled to receive and retain any and all payments paid or made in respect of the Pledged Property.

 

(b)           Upon the occurrence and during the continuance of an Event of Default:

 

(i)           All rights of the Company to exercise the rights which it would otherwise be entitled to exercise pursuant to Section 2.2(a)(i) hereof and to receive payments which it would otherwise be authorized to receive and retain pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights shall thereupon become vested in the Secured Party who shall thereupon have the sole right to exercise such rights and to receive and hold as Pledged Property such payments; provided, however, that if the Secured Party shall become entitled and shall elect to exercise its right to realize on the Pledged Property pursuant to Article 5 hereof, then all cash sums received by the Secured Party, or held by Company for the benefit of the Secured Party and paid over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any outstanding Obligations;

 

 

  

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(ii)           All interest, dividends, income and other payments and distributions which are received by the Company contrary to the provisions of Section 2.2(b)(i) hereof shall be received in trust for the benefit of the Secured Party, shall be segregated from other property of the Company and shall be forthwith paid over to the Secured Party; and

 

(iii)           The Secured Party in its sole discretion shall be authorized to sell any or all of the Pledged Property at public or private sale in order to recoup all of the outstanding principal plus accrued interest owed pursuant to the Debenture as described herein

 

(c)           Each of the following events shall constitute a default under this Agreement (each an “Event of Default”):

 

(i)           any default, whether in whole or in part, shall occur in the payment to the Secured Party of principal, interest or other item comprising the Obligations as and when due or with respect to any other debt or obligation of the Company to a party other than the Secured Party;

 

(ii)           any default, whether in whole or in part, shall occur in the due observance or performance of any obligations or other covenants, terms or provisions to be performed under the Transaction Documents (as defined in the Merger Agreement);

 

(iii)           the Company shall:  (1) make a general assignment for the benefit of its creditors; (2) apply for or consent to the appointment of a receiver, trustee, assignee, custodian, sequestrator, liquidator or similar official for itself or any of its assets and properties; (3) commence a voluntary case for relief as a debtor under the United States Bankruptcy Code; (4) file with or otherwise submit to any governmental authority any petition, answer or other document seeking:  (A) reorganization, (B) an arrangement with creditors or (C) to take advantage of any other present or future applicable law respecting bankruptcy, reorganization, insolvency, readjustment of debts, relief of debtors, dissolution or liquidation; (5) file or otherwise submit any answer or other document admitting or failing to contest the material allegations of a petition or other document filed or otherwise submitted against it in any proceeding under any such applicable law; or (6) be adjudicated a bankrupt or insolvent by a court of competent jurisdiction; or

 

(iv)           any case, proceeding or other action shall be commenced against the Company for the purpose of effecting, or an order, judgment or decree shall be entered by any court of competent jurisdiction approving (in whole or in part) anything specified in Section 2.2(c)(iii) hereof, or any receiver, trustee, assignee, custodian, sequestrator, liquidator or other official shall be appointed with respect to the Company, or shall be appointed to take or shall otherwise acquire possession or control of all or a substantial part of the assets and properties of the Company, and any of the foregoing shall continue unstayed and in effect for any period of thirty (30) days.

 

 

  

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ARTICLE 3.

 

ATTORNEY-IN-FACT; PERFORMANCE

 

	
  

	
Section 3.1.

	
Secured Party Appointed Attorney-In-Fact.

 

Upon the occurrence of an Event of Default, the Company hereby appoints the Secured Party as its attorney-in-fact, with full authority in the place and stead of the Company and in the name of the Company or otherwise, from time to time in the Secured Party’s discretion to take any action and to execute any instrument which the Secured Party may reasonably deem necessary to accomplish the purposes of this Agreement, including, without limitation, to receive and collect all instruments made payable to the Company representing any payments in respect of the Pledged Property or any part thereof and to give full discharge for the same.  The Secured Party may demand, collect, acknowledge, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Pledged Property as and when the Secured Party may determine.  To facilitate collection, upon the occurrence of an Event of Default, the Secured Party may notify account debtors and obligors on any Pledged Property to make payments directly to the Secured Party.

 

	
  

	
Section 3.2.

	
Secured Party May Perform.

 

If the Company fails to perform any agreement contained herein, the Secured Party, at its option, may itself perform, or cause performance of, such agreement, and the expenses of the Secured Party incurred in connection therewith shall be included in the Obligations secured hereby.

 

ARTICLE 4.

 

REPRESENTATIONS AND WARRANTIES

 

	
  

	
Section 4.1.

	
Authorization; Enforceability.

 

Each of the parties hereto represents and warrants that it has taken all action necessary to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby; and upon execution and delivery, this Agreement shall constitute a valid and binding obligation of the respective party, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights or by the principles governing the availability of equitable remedies.

 

	
  

	
Section 4.2.

	
Ownership of Pledged Property.

 

The Company warrants and represents that it is the legal and beneficial owner of the Pledged Property.

 

 

  

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ARTICLE 5.

 

DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL

 

	
  

	
Section 5.1.

	
Default and Remedies.

 

(a)           If an Event of Default described in Section 2.2(c)(i) and (ii) occurs, then in each such case the Secured Party may declare the Obligations to be due and payable immediately, by a notice in writing to the Company, and upon any such declaration, the Obligations shall become immediately due and payable.  If an Event of Default described in Sections 2.2(c)(iii) or (iv) occurs and is continuing for the period set forth therein, then the Obligations shall automatically become immediately due and payable without declaration or other act on the part of the Secured Party.

 

(b)           Upon the occurrence of an Event of Default, the Secured Party shall: (i) be entitled to receive all distributions with respect to the Pledged Property, (ii) to cause the Pledged Property to be transferred into the name of the Secured Party or its nominee, (iii) to dispose of the Pledged Property, and (iv) to realize upon any and all rights in the Pledged Property then held by the Secured Party.

 

	
  

	
Section 5.2.

	
Method of Realizing Upon the Pledged Property: Other Remedies.

 

Upon the occurrence of an Event of Default, in addition to any rights and remedies available at law or in equity, the following provisions shall govern the Secured Party’s right to realize upon the Pledged Property:

 

(a)           Any item of the Pledged Property may be sold for cash or other value in any number of lots at brokers board, public auction or private sale and may be sold without demand, advertisement or notice (except that the Secured Party shall give the Company ten (10) days’ prior written notice of the time and place or of the time after which a private sale may be made (the “Sale Notice”)), which notice period is hereby agreed to be commercially reasonable.  At any sale or sales of the Pledged Property, the Company may bid for and purchase the whole or any part of the Pledged Property and, upon compliance with the terms of such sale, may hold, exploit and dispose of the same without further accountability to the Secured Party.  The Company will execute and deliver, or cause to be executed and delivered, such instruments, documents, assignments, waivers, certificates, and affidavits and supply or cause to be supplied such further information and take such further action as the Secured Party reasonably shall require in connection with any such sale.

 

(b)           Any cash being held by the Secured Party as Pledged Property and all cash proceeds received by the Secured Party in respect of, sale of, collection from, or other realization upon all or any part of the Pledged Property shall be applied as follows:

 

(i)           first, to the payment of all amounts due the Secured Party for the expenses reimbursable to it hereunder or owed to it pursuant to Section 8.3 hereof;

 

(ii)           second, to the payment of the Obligations then due and unpaid; and

 

 

  

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(iii)           the balance, if any, to the person or persons entitled thereto, including, without limitation, the Company.

 

(c)           In addition to all of the rights and remedies which the Secured Party may have pursuant to this Agreement, the Secured Party shall have all of the rights and remedies provided by law, including, without limitation, those under the Uniform Commercial Code.

 

(i)           If the Company fails to pay such amounts due upon the occurrence of an Event of Default which is continuing, then the Secured Party may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company and collect the monies adjudged or decreed to be payable in the manner provided by law out of the property of Company, wherever situated.

 

(ii)           The Company agrees that it shall be liable for any reasonable fees, expenses and costs incurred by the Secured Party in connection with enforcement, collection and preservation of the Transaction Documents, including, without limitation, reasonable legal fees and expenses, and such amounts shall be deemed included as Obligations secured hereby and payable as set forth in Section 8.3 hereof.

 

	
  

	
Section 5.3.

	
Proofs of Claim.

 

In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relating to the Company or the property of the Company or of such other obligor or its creditors, the Secured Party (irrespective of whether the Obligations shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Secured Party shall have made any demand on the Company for the payment of the Obligations) shall be entitled and empowered, by intervention in such proceeding or otherwise:

 

(i)           to file and prove a claim for the whole amount of the Obligations and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Secured Party (including any claim for the reasonable legal fees and expenses and other expenses paid or incurred by the Secured Party permitted hereunder and of the Secured Party allowed in such judicial proceeding), and

 

(ii)           to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by the Secured Party to make such payments to the Secured Party and, in the event that the Secured Party shall consent to the making of such payments directed to the Secured Party, to pay to the Secured Party any amounts for expenses due it hereunder.

 

	
  

	
Section 5.4.

	
Duties Regarding Pledged Property.

 

The Secured Party shall have no duty as to the collection or protection of the Pledged Property or any income thereon or as to the preservation of any rights pertaining thereto, beyond the safe custody and reasonable care of any of the Pledged Property actually in the Secured Party’s possession.

 

 

  

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ARTICLE 6.

 

AFFIRMATIVE COVENANTS

 

The Company covenants and agrees that, from the date hereof and until the Obligations have been fully paid and satisfied, unless the Secured Party shall consent otherwise in writing (as provided in Section 8.4 hereof):

 

	
  

	
Section 6.1.

	
Existence, Properties, Etc.

 

(a)           The Company shall do, or cause to be done, all things, or proceed with due diligence with any actions or courses of action, that may be reasonably necessary (i) to maintain Company’s due organization, valid existence and good standing under the laws of its state of incorporation, and (ii) to preserve and keep in full force and effect all qualifications, licenses and registrations in those jurisdictions in which the failure to do so could have a Material Adverse Effect (as defined below); and (b) the Company shall not do, or cause to be done, any act impairing the Company’s corporate power or authority (i) to carry on the Company’s business as now conducted, and (ii) to execute or deliver this Agreement or any other document delivered in connection herewith, including, without limitation, any UCC-1 Financing Statements required by the Secured Party to which it is or will be a party, or perform any of its obligations hereunder or thereunder.  For purpose of this Agreement, the term “Material Adverse Effect” shall mean any material and adverse effect as determined by Secured Party in its sole good-faith discretion, whether individually or in the aggregate, upon (a) the Company’s assets, business, operations, properties or condition, financial or otherwise; (b) the Company’s ability to make payment as and when due of all or any part of the Obligations; or (c) the Pledged Property.

 

	
  

	
Section 6.2.

	
Financial Statements and Reports.

 

The Company shall furnish to the Secured Party such financial data as the Secured Party may reasonably request.  Without limiting the foregoing, the Company shall furnish to the Secured Party (or cause to be furnished to the Secured Party) the following:

 

(a)           as soon as practicable and in any event within ninety (90) days after the end of each fiscal year of the Company, the balance sheet of the Company as of the close of such fiscal year, the statement of earnings and retained earnings of the Company as of the close of such fiscal year, and statement of cash flows for the Company for such fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles consistently applied, certified by the chief executive and chief financial officers of the Company as being true and correct and accompanied by a certificate of the chief executive and chief financial officers of the Company, stating that the Company has kept, observed, performed and fulfilled each covenant, term and condition of this Agreement during such fiscal year and that no Event of Default hereunder has occurred and is continuing, or if an Event of Default has occurred and is continuing, specifying the nature of same, the period of existence of same and the action the Company proposes to take in connection therewith;

 

 

 

  

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(b)           within thirty (30) days of the end of each calendar month, a balance sheet of the Company as of the close of such month, and statement of earnings and retained earnings of the Company as of the close of such month, all in reasonable detail, and prepared substantially in accordance with generally accepted accounting principles consistently applied, certified by the chief executive and chief financial officers of the Company as being true and correct; and

 

(c)           promptly upon receipt thereof, copies of all accountants' reports and accompanying financial reports submitted to the Company by independent accountants in connection with each annual examination of the Company.

 

	
  

	
Section 6.3.

	
Accounts and Reports.

 

The Company shall maintain a standard system of accounting in accordance with generally accepted accounting principles consistently applied and provide, at its sole expense, to the Secured Party the following:

 

(a)           as soon as available, a copy of any notice or other communication alleging any nonpayment or other material breach or default, or any foreclosure or other action respecting any material portion of its assets and properties, received respecting any of the indebtedness of the Company in excess of $15,000 (other than the Obligations), or any demand or other request for payment under any guaranty, assumption, purchase agreement or similar agreement or arrangement respecting the indebtedness or obligations of others in excess of $15,000, including any received from any person acting on behalf of the Secured Party or beneficiary thereof; and

 

(b)           within fifteen (15) days after the making of each submission or filing, a copy of any report, financial statement, notice or other document, whether periodic or otherwise, submitted to the shareholders of the Company, or submitted to or filed by the Company with any governmental authority involving or affecting (i) the Company that could have a Material Adverse Effect; (ii) the Obligations; (iii) any part of the Pledged Property; or (iv) any of the transactions contemplated in this Agreement or any other Transaction Document.

 

	
  

	
Section 6.4.

	
Maintenance of Books and Records; Inspection.

 

The Company shall maintain its books, accounts and records in accordance with generally accepted accounting principles consistently applied, and permit the Secured Party, its officers and employees and any professionals designated by the Secured Party in writing, at any time to visit and inspect any of its properties (including but not limited to the collateral security described in the Transaction Documents), corporate books and financial records, and to discuss its accounts, affairs and finances with any employee, officer or director thereof.

 

	
  

	
Section 6.5.

	
Maintenance and Insurance.

 

(a)           The Company shall maintain or cause to be maintained, at its own expense, all of its assets and properties in good working order and condition, making all necessary repairs thereto and renewals and replacements thereof.

 

(b)           The Company shall maintain or cause to be maintained, at its own expense, insurance in form, substance and amounts (including deductibles), which the Company deems reasonably necessary to the Company’s business, (i) adequate to insure all assets and properties of the Company, which assets and properties are of a character usually insured by persons engaged in the same or similar business against loss or damage resulting from fire or other risks included in an extended coverage policy; (ii) against public liability and other tort claims that may be incurred by the Company; (iii) as may be required by the Transaction Documents and/or applicable law and (iv) as may be reasonably requested by Secured Party, all with adequate, financially sound and reputable insurers.

 

 

  

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Section 6.6.

	
Contracts and Other Collateral.

 

The Company shall perform all of its material obligations under or with respect to each instrument, receivable, contract and other intangible included in the Pledged Property to which the Company is now or hereafter will be party on a timely basis and in the manner therein required, including, without limitation, this Agreement.

 

	
  

	
Section 6.7.

	
Defense of Collateral, Etc.

 

The Company shall defend and enforce its right, title and interest in and to any part of:  (a) the Pledged Property; and (b) if not included within the Pledged Property, those assets and properties whose loss could have a Material Adverse Effect, the Company shall defend the Secured Party’s right, title and interest in and to each and every part of the Pledged Property, each against all manner of claims and demands on a timely basis to the full extent permitted by applicable law.

 

	
  

	
Section 6.8.

	
Payment of Debts, Taxes, Etc.

 

The Company shall pay, or cause to be paid, all of its indebtedness and other liabilities and perform, or cause to be performed, all of its obligations in accordance with the respective terms thereof, and pay and discharge, or cause to be paid or discharged, all taxes, assessments and other governmental charges and levies imposed upon it, upon any of its assets and properties on or before the last day on which the same may be paid without penalty, as well as pay all other lawful claims (whether for services, labor, materials, supplies or otherwise) as and when due

 

	
  

	
Section 6.9.

	
Taxes and Assessments; Tax Indemnity.

 

The Company shall (a) file all tax returns and appropriate schedules thereto that are required to be filed under applicable law, prior to the date of delinquency, (b) pay and discharge all taxes, assessments and governmental charges or levies imposed upon the Company, upon its income and profits or upon any properties belonging to it, prior to the date on which penalties attach thereto, and (c) pay all taxes, assessments and governmental charges or levies that, if unpaid, might become a lien or charge upon any of its properties; provided, however, that the Company in good faith may contest any such tax, assessment, governmental charge or levy described in the foregoing clauses (b) and (c) so long as appropriate reserves are maintained with respect thereto.

 

 

  

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Section 6.10.

	
Compliance with Law and Other Agreements.

 

The Company shall maintain its business operations and property owned or used in connection therewith in compliance with (a) all applicable federal, state and local laws, regulations and ordinances governing such business operations and the use and ownership of such property, and (b) all agreements, licenses, franchises, indentures and mortgages to which the Company is a party or by which the Company or any of its properties is bound.  Without limiting the foregoing, the Company shall pay all of its indebtedness promptly in accordance with the terms thereof.

 

	
  

	
Section 6.11.

	
Notice of Default.

 

The Company shall give written notice to the Secured Party of the occurrence of any default or Event of Default under this Agreement or any other Transaction Document or any other agreement of Company for the payment of money, promptly upon the occurrence thereof.

 

	
  

	
Section 6.12.

	
Notice of Litigation.

 

The Company shall give notice, in writing, to the Secured Party of (a) any actions, suits or proceedings wherein the amount at issue is in excess of $50,000, instituted by any persons against the Company, or affecting any of the assets of the Company, and (b) any dispute, not resolved within fifteen (15) days of the commencement thereof, between the Company on the one hand and any governmental or regulatory body on the other hand, which might reasonably be expected to have a Material Adverse Effect on the business operations or financial condition of the Company.

 

ARTICLE 7.

 

NEGATIVE COVENANTS

 

The Company covenants and agrees that, from the date hereof until the Obligations have been fully paid and satisfied, the Company shall not, unless the Secured Party shall consent otherwise in writing:

 

	
  

	
Section 7.1.

	
Indebtedness.

 

The Company shall not directly or indirectly permit, create, incur, assume, permit to exist, increase, renew or extend on or after the date hereof any indebtedness on its part, including commitments, contingencies and credit availabilities, or apply for or offer or agree to do any of the foregoing, except in the ordinary course of business.

 

	
  

	
Section 7.2.

	
Liens and Encumbrances.

 

Except in the ordinary course of business, the Company shall not directly or indirectly make, create, incur, assume or permit to exist any assignment, transfer, pledge, mortgage, security interest or other lien or encumbrance of any nature in, to or against any part of the Pledged Property or of the Company’s capital stock, or offer or agree to do so, or own or acquire or agree to acquire any asset or property of any character subject to any of the foregoing encumbrances (including any conditional sale contract or other title retention agreement), or assign, pledge or in any way transfer or encumber its right to receive any income or other distribution or proceeds from any part of the Pledged Property or the Company’s capital stock; or enter into any sale-leaseback financing respecting any part of the Pledged Property  as lessee, or cause or assist the inception or continuation of any of the foregoing.

 

 

  

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Section 7.3.

	
Dividends, Etc.

 

The Company shall not declare or pay any dividend of any kind, in cash or in property, on any class of its capital stock, nor purchase, redeem, retire or otherwise acquire for value any shares of such stock, nor make any distribution of any kind in respect thereof, nor make any return of capital to shareholders, nor make any payments in respect of any pension, profit sharing, retirement, stock option, stock bonus, incentive compensation or similar plan (except as required or permitted hereunder), without the prior written consent of the Secured Party.

 

	
  

	
Section 7.4.

	
Guaranties; Loans.

 

The Company shall not guarantee nor be liable in any manner, whether directly or indirectly, or become contingently liable after the date of this Agreement in connection with the obligations or indebtedness of any person or persons, except for (i) the indebtedness currently secured by the liens identified on the Pledged Property identified on Exhibit A hereto and (ii) the endorsement of negotiable instruments payable to the Company for deposit or collection in the ordinary course of business.  The Company shall not make any loan, advance or extension of credit to any person other than in the normal course of its business.

 

	
  

	
Section 7.5.

	
Debt.

 

The Company shall not create, incur, assume or suffer to exist any additional indebtedness of any description whatsoever in an aggregate amount in excess of $25,000 (excluding any indebtedness of the Company to the Secured Party, trade accounts payable and accrued expenses incurred in the ordinary course of business and the endorsement of negotiable instruments payable to the Company, respectively for deposit or collection in the ordinary course of business).

 

	
  

	
Section 7.6.

	
Conduct of Business.

 

The Company will continue to engage, in an efficient and economical manner, in a business of the same general type as conducted by it on the date of this Agreement.

 

	
  

	
Section 7.7.

	
Places of Business.

 

The location of the Company’s chief place of business is 750 Highway 34, Matawan, NJ 07747.  The Company shall not change the location of its chief place of business, chief executive office or any place of business disclosed to the Secured Party or move any of the Pledged Property from its current location without thirty (30) days' prior written notice to the Secured Party in each instance.

 

 

  

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ARTICLE 8.

 

MISCELLANEOUS

 

	
  

	
Section 8.1.

	
Notices.

 

All notices or other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be considered as duly given on:  (a) the date of delivery, if delivered in person against written receipt therefor, or by nationally recognized overnight delivery service or (b) five (5) days after mailing if mailed from within the continental United States by postage pre-paid certified mail, return receipt requested to the party entitled to receive the same:

 

	  	
If to the Secured Party:

	
iVoice , Inc.

	  	  	
750 Highway 34

Matawan, NJ 07747

	  	  	
Attention:  Jerome Mahoney

	  	  	
Telephone:  (732) 441-7700

	  	  	
Facsimile:  (732) 441-9895

	  	  	  
	  	
With a copy to:

	
Meritz & Muenz LLP

	  	  	
2021 O Street, NW

	  	  	
Washington, DC 20036

	  	  	
Attention : Lawrence A. Muenz, Esquire

	  	  	
Telephone: (202) 728-2909

	  	  	
Facsimile:  (202) 728-2910

	  	  	  
	  	
And if to the Company:

	
SpeechSwitch, Inc.

	  	  	  
	  	  	  
	  	  	  
	  	  	  
	  	  	  

Any party may change its address by giving notice to the other party stating its new address.  Commencing on the tenth (10th) day after the giving of such notice, such newly designated address shall be such party’s address for the purpose of all notices or other communications required or permitted to be given pursuant to this Agreement.

 

	
  

	
Section 8.2.

	
Severability.

 

If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein.

 

 

  

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Section 8.3.

	
Expenses.

 

In the event of an Event of Default, the Company will pay to the Secured Party the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel, which the Secured Party may incur in connection with:  (i) the custody or preservation of, or the sale, collection from, or other realization upon, any of the Pledged Property; (ii) the exercise or enforcement of any of the rights of the Secured Party hereunder or (iii) the failure by the Company to perform or observe any of the provisions hereof.

 

	
  

	
Section 8.4.

	
Waivers, Amendments, Etc.

 

The Secured Party’s delay or failure at any time or times hereafter to require strict performance by Company of any undertakings, agreements or covenants shall not waiver, affect, or diminish any right of the Secured Party under this Agreement to demand strict compliance and performance herewith.  Any waiver by the Secured Party of any Event of Default shall not waive or affect any other Event of Default, whether such Event of Default is prior or subsequent thereto and whether of the same or a different type.  None of the undertakings, agreements and covenants of the Company contained in this Agreement, and no Event of Default, shall be deemed to have been waived by the Secured Party, nor may this Agreement be amended, changed or modified, unless such waiver, amendment, change or modification is evidenced by an instrument in writing specifying such waiver, amendment, change or modification and signed by the Secured Party.

 

	
  

	
Section 8.5.

	
Continuing Security Interest.

 

This Agreement shall create a continuing security interest in the Pledged Property and shall: (i) remain in full force and effect until payment in full of the Obligations; and (ii) be binding upon the Company and its successors and heirs and (iii) inure to the benefit of the Secured Party and its successors and assigns.  Upon the payment or satisfaction in full of the Obligations, the Company shall be entitled to the return, at its expense, of such of the Pledged Property as shall not have been sold in accordance with Section 5.2 hereof or otherwise applied pursuant to the terms hereof and the Secured Party shall release the Pledged Property and execute such documents as the Company may, in its sole reasonable discretion, request to evidence such release and/ or termination of the Security Interests.

 

	
  

	
Section 8.6.

	
Independent Representation.

 

Each party hereto acknowledges and agrees that it has received or has had the opportunity to receive independent legal counsel of its own choice and that it has been sufficiently apprised of its rights and responsibilities with regard to the substance of this Agreement.

 

	
  

	
Section 8.7.

	
Applicable Law:  Jurisdiction.

 

This Agreement shall be governed by and interpreted in accordance with the laws of the State of New Jersey without regard to the principles of conflict of laws.  The parties further agree that any action between them shall be heard in Hudson County, New Jersey, and expressly consent to the jurisdiction and venue of the Superior Court of New Jersey, sitting in Hudson County and the United States District Court for the District of New Jersey sitting in Newark, New Jersey for the adjudication of any civil action asserted pursuant to this Paragraph.

 

 

  

13

  

 

	
  

	
Section 8.8.

	
Waiver of Jury Trial.

 

AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.

 

	
  

	
Section 8.9

	
[Intentionally omitted]

 

	
  

	
Section 8.10

	
Entire Agreement.

 

This Agreement constitutes the entire agreement among the parties and supersedes any prior agreement or understanding among them with respect to the subject matter hereof.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

14

  

 

 

 

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

 

	  	
COMPANY:

 

	  	
SPEECHSWITCH, INC.

	  	  
	  	
By:           /s/ Bruce Knef

	  	
Name:      Bruce Knef

	  	
Title:        President and Chief Executive Officer

	  	  
	  	  
	  	
SECURED PARTY:

	  	  
	  	
IVOICE , INC.

 

	  	
By:          /s/ Jerome Mahoney

	  	
Name:     Jerome Mahoney

	  	
Title:       President and Chief Executive Officer

	  	  

  

15

  

 

EXHIBIT A

 

 

DEFINITION OF PLEDGED PROPERTY

 

 

For the purpose of securing prompt and complete payment and performance by the Company of all of the Obligations, the Company unconditionally and irrevocably hereby grants to the Secured Party a continuing security interest in and to, and lien upon, the following Pledged Property of the Company:

 

(a)           all goods of the Company, including, without limitation, machinery, equipment, furniture, furnishings, fixtures, signs, lights, tools, parts, supplies and motor vehicles of every kind and description, now or hereafter owned by the Company or in which the Company may have or may hereafter acquire any interest, and all replacements, additions, accessions, substitutions and proceeds thereof, arising from the sale or disposition thereof, and where applicable, the proceeds of insurance and of any tort claims involving any of the foregoing;

 

(b)           all inventory of the Company, including, but not limited to, all goods, wares, merchandise, parts, supplies, finished products, other tangible personal property, including such inventory as is temporarily out of Company’s custody or possession and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing;

 

(c)           all contract rights and general intangibles of the Company, including, without limitation, goodwill, trademarks, trade styles, trade names, leasehold interests, partnership or joint venture interests, patents and patent applications, copyrights, deposit accounts whether now owned or hereafter created;

 

(d)           all documents, warehouse receipts, instruments and chattel paper of the Company whether now owned or hereafter created;

 

(e)           all accounts and other receivables, instruments or other forms of obligations and rights to payment of the Company (herein collectively referred to as “Accounts”), together with the proceeds thereof, all goods represented by such Accounts and all such goods that may be returned by the Company’s customers, and all proceeds of any insurance thereon, and all guarantees, securities and liens which the Company may hold for the payment of any such Accounts including, without limitation, all rights of stoppage in transit, replevin and reclamation and as an unpaid vendor and/or lienor, all of which the Company represents and warrants will be bona fide and existing obligations of its respective customers, arising out of the sale of goods by the Company in the ordinary course of business;

 

(f)           to the extent assignable, all of the Company’s rights under all present and future authorizations, permits, licenses and franchises issued or granted in connection with the operations of any of its facilities; and

 

(g)           all products and proceeds (including, without limitation, insurance proceeds) from the above-described Pledged Property.

 

(h)           all cash, cash equivalents, certificate of deposits, depository accounts, marketable securities.

 

 

 

A-1Exhibit
10.1

 

AMENDMENT TO LOAN DOCUMENTS

 

THIS AMENDMENT TO LOAN DOCUMENTS (this  “Amendment”)
is entered into as of September 30, 2010, by and between SILICON VALLEY
BANK (“Bank” or “Silicon”) and NETLIST, INC., a Delaware corporation (“Borrower”).  Borrower’s chief executive office is located
at 51 Discovery, Suite 150, Irvine, CA 92618.

 

RECITALS

 

A.            Bank and
Borrower are parties to that certain Loan and Security Agreement with an
Effective Date of October 31, 2009 (as amended, modified, supplemented or
restated, the “Loan Agreement”) in effect between Bank and Borrower.

 

B.            Bank has
extended credit to Borrower for the purposes permitted in the Loan Agreement.

 

C.            Borrower has
requested that Bank amend the Loan Agreement to modify the Profitability Financial
Covenant as more fully set forth herein.

 

D.            Bank has agreed
to so amend the Loan Agreement, but only to the extent, in accordance with the
terms, subject to the conditions and in reliance upon the representations and
warranties set forth below.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing recitals
and other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, and intending to be legally bound, the parties hereto
agree as follows:

 

1.             Definitions.  Capitalized terms used but not defined in this
Amendment shall have the meanings given to them in the Loan Agreement.

 

2.             Amendments
to Loan Documents.

 

2.1          Modified
LC Sublimit.  The LC
Sublimit, as defined in Section 2.1.2(a) of the Loan Agreement is hereby
amended from “$2,500,000” to “$10,000,000.”

 

2.2          Modified
FX Sublimit.  The FX
Sublimit, as defined in Section 2.1.3 of the Loan Agreement is hereby
amended from “$2,500,000” to “$10,000,000.”

 

2.3          Modified
Cash Management Services Sublimit.  The CMS Sublimit,
as defined in Section 2.1.4 of the Loan Agreement is hereby amended from “$2,500,000”
to “$10,000,000.”

 

2.4          Modified
Overall Sublimit.  The Overall
Sublimit, as set forth in Section 2.1.5 of the Loan Agreement is hereby
amended from “$2,500,000” to “$10,000,000.”

 

1

 

2.5          Addition
of Term Loan.  The following
language is hereby added to the Loan Agreement as Section 2.1.6 and shall
read as follows:

 

2.1.6       Term Loan.

 

(a)           Availability.  Bank shall make one (1) term loan
available to Borrower in an amount up to the Term Loan Amount on or before September 30,
2010, subject to the satisfaction of the terms and conditions of this
Agreement.

 

(b)           Repayment.  Borrower shall repay the Term Loan in (i) thirty-six
(36) equal installments of principal, plus (ii) monthly payments of
accrued interest (the “Term Loan Payment”). 
Beginning on the first day of the month following the month in which the
Funding Date occurs, each Term Loan Payment shall be payable on the first day
of each month.  Borrower’s final Term
Loan Payment, due on the Term Loan Maturity Date, shall include all outstanding
principal and accrued and unpaid interest under the Term Loan.

 

2.6          Modified
Interest Rate.  Section 2.3(a) of
the Loan Agreement is hereby amended in its entirety to read as follows:

 

(a)           Interest Rate.

 

(i)            Advances.  Subject to Section 2.3(b), the principal
amount outstanding under the Revolving Line shall accrue interest at a per
annum rate equal to the following: (i) at all times that a Streamline
Period is in effect, one and one-quarter of one percentage points (1.25%) above
the Prime Rate; and (ii) at all times that a Streamline Period is not in
effect, two and one-quarter of one percentage points (2.25%) above the Prime Rate;
which interest shall be payable monthly in accordance with Section 2.3(f) below.

 

(ii)           Term Loan.  Subject to Section 2.3(b), the principal
amount outstanding under the Term Loan shall accrue interest at a per annum
rate equal to one and three-quarters of one percentage point (1.75%) above the
Prime Rate, which interest shall be payable monthly in accordance with Section 2.3(f) below.

 

2

 

2.7          Modified
Minimum Monthly Interest.  Section 2.3(e) of
the Loan Agreement is hereby amended in its entirety to read as follows:

 

(e)           Minimum Monthly Interest.  [Omitted]

 

2.8          Modified
Fees.  Subclauses (c) and (d) of
Section 2.4 of the Loan Agreement are hereby amended in their entirety to
read as follows:

 

(c)           Termination Fee.  Subject to the terms of Section 12.1, a
termination fee; and

 

(d)           Unused Revolving Line
Facility Fee.  A fee (the “Unused Revolving Line Facility Fee”), payable quarterly, in
arrears, on a calendar year basis, in an amount equal to 0.50% per annum of the
average unused portion of the Revolving Line. 
The unused portion of the Revolving Line, for purposes of this
calculation, shall equal the difference between (x) the Maximum Revolver
Amount (as it may be modified from time to time) and (y) the average for
the period of the daily closing balance of the Revolving Line outstanding plus
the sum of the aggregate amount of outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve).  Borrower shall not be entitled to any credit,
rebate or repayment of any Unused Revolving Line Facility Fee previously earned
by Bank pursuant to this Section notwithstanding any termination of the
Agreement, or suspension or termination of Bank’s obligation to make loans and
advances hereunder, including during any Streamline Period; and

 

2.9          New
Anniversary Fee.  The following
language is hereby added to the Loan Agreement as Section 2.4(g) and
shall read as follows

 

(g)           Anniversary Fee.  A fully earned, non-refundable fee equal to
0.50% of the Maximum Revolver Amount, on the first anniversary of the September 2010
Amendment Effective Date; and if this Agreement is terminated prior to the
first anniversary of the September 2010 Amendment Effective Date, either
by Borrower or Bank, Borrower shall pay such Anniversary Fee to Bank in
addition to any Termination Fee.

 

3

 

2.10        Modified
Financial Covenants.  Section 6.9(b) of
the Loan Agreement is hereby amended in its entirety to read as follows:

 

(b)           Tangible Net Worth.  A Tangible Net Worth of at least $17,500,000 (“Minimum Tangible Net Worth”) plus (i) 50%
of all consideration received after the date hereof for equity securities and
subordinated debt of the Borrower, plus (ii) 50% of the Borrower’s net
income in each fiscal quarter ending after the date hereof.  Increases in the Minimum Tangible Net Worth
based on consideration received for equity securities and subordinated debt of
the Borrower shall be effective as of the end of the month in which such
consideration is received, and shall continue effective thereafter. Increases
in the Minimum Tangible Net Worth based on net income shall be effective on the
last day of the fiscal quarter in which said net income is realized, and shall
continue effective thereafter. In no event shall the Minimum Tangible Net Worth
be decreased.

 

2.11        Modified
Termination Fee. Section 12.1 of the Loan Agreement is hereby
amended in its entirety to read as follows:

 

12.1        Termination
Prior to Revolving Line Maturity Date. On the Revolving Line
Maturity Date or on any earlier effective date of termination, Borrower shall
pay and perform in full all Obligations, whether evidenced by installment notes
or otherwise, and whether or not all or any part of such Obligations are
otherwise then due and payable.  This
Agreement may be terminated prior to the Revolving Line Maturity Date by
Borrower, effective three (3) Business Days after written notice of
termination is given to Bank. 
Notwithstanding any such termination, Bank’s lien and security interest
in the Collateral and all of Bank’s rights and remedies under this Agreement
shall continue until Borrower fully satisfies its Obligations. If such
termination is at Borrower’s election, or at Bank’s election due to the
occurrence and continuance of an Event of Default, Borrower shall pay to Bank,
in addition to the payment of any other expenses or fees then-owing, a
termination fee in an amount equal to 2.0% of the Maximum Revolver Amount if
termination occurs on or before the first anniversary of the September 2010
Amendment Effective Date, and 1.0% of the Maximum Revolver Amount if
termination occurs after the first anniversary of the September 2010
Amendment Effective Date; provided that no termination fee shall be charged if
the credit facility hereunder is replaced with a new facility from another
division of Silicon Valley Bank

 

4

 

2.12        Modified
Definitions.  In Section 13.1
of the Loan Agreement, the following definitions are, as applicable, either
hereby (i) amended in their entirety to read as follows or (ii) added
to read as follows:

 

“Credit Extension” is any Advance, Term Loan, Letter of
Credit, FX Forward Contract, amount utilized for Cash Management Services, or
any other extension of credit by Bank for Borrower’s benefit.

 

“Liquidity Condition” is the condition that the
sum of (1) the aggregate amount of Borrower’s unencumbered (except for
Bank’s security interest), unrestricted cash on deposit at Bank, plus (2) the
Availability Amount, is at least $10,000,000.

 

“Maximum Revolver Amount” is $10,000,000; provided,
however, at Borrower’s option and upon at least five (5) days prior
written notice to Bank by Borrower, the Maximum Revolver Amount shall be increased
to $15,000,000 provided that at the time of such increase, no Default or Event
of Default has occurred and is continuing (including, without limitation, with
respect to Borrower’s reporting requirements set forth in Section 6.2
hereof and Borrower’s financial covenants set forth in Section 6.9
hereof).

 

“Revolving Line Maturity Date” September       ,
2012 [the date that is two years from the date of this Amendment].

 

“September 2010 Amendment Effective Date” is as defined
in that certain Amendment to Loan Documents between Borrower and Bank and dated
approximately September         ,
2010.

 

“Tangible Net Worth” is, on any date, the consolidated total
assets of Borrower and its Subsidiaries minus (a) any amounts
attributable to (i) goodwill, (ii) intangible items including
unamortized debt discount and expense, patents, trade and service marks and
names, copyrights and research and development expenses except prepaid
expenses, (iii) notes, accounts receivable and other obligations owing to
Borrower from its officers or other Affiliates, and (iv) reserves not
already deducted from assets, minus (b) Total Liabilities, plus
(c) Subordinated Debt.

 

5

 

“Term Loan” is a loan made by Bank pursuant to the terms of Section 2.1.6
hereof.

 

“Term Loan Amount” is an amount equal to One
Million Five Hundred Thousand Dollars ($1,500,000).

 

“Term Loan Maturity Date” is the earlier of the following
dates: (i) September 1, 2013, (ii) the Revolving Line Maturity
Date or (iii) the date this Agreement terminates by its terms or is
terminated by either party in accordance with its terms.

 

“Term Loan Payment” is defined in Section 2.1.6(b).

 

“Unused Revolving Line Facility Fee” is defined in Section 2.4(d).

 

2.13        Additional
Commitment Fee.  In the event
the Maximum Revolver Amount is increased from $10,000,000 to $15,000,000, at
the time of such increase, Borrower shall pay to Bank an additional fully
earned, non-refundable commitment fee of $25,000.

 

2.14        Modified
Exhibit B.  Exhibit B
to the Loan Agreement is hereby amended in its entirety to read as set forth in
Exhibit B attached hereto.

 

2.15        Netlist
Technology Texas LP.  Reference is
hereby made to the following documents:  (i) that
certain Unconditional Continuing Guaranty executed by Netlist Technology Texas
LP (“Netlist Texas”) in favor of Bank and dated October 31, 2009 (the “Netlist
Texas Guaranty”), (ii) that certain Security Agreement executed by and
between Netlist Texas and Bank and October 31, 2009 (the “Netlist Texas
Security Agreement”) and (iii) that certain Intercompany Subordination
Agreement executed by Borrower and Netlist Texas in favor of Bank and dated October 31,
2009 (the “Netlist Texas Subordination Agreement”).  The Netlist Texas Guaranty, Netlist Texas
Security Agreement and Netlist Texas Subordination Agreement are, collectively,
referred to herein as the “Netlist Texas Documents.”  Borrower has advised Bank that Netlist Texas
shall be dissolved on or about October 1, 2010.  Based upon such representation by Borrower,
Bank hereby agrees that upon Bank receiving written evidences, satisfactory to
Bank in its good faith business judgment, of the dissolution of Netlist Texas,
the Netlist Texas Documents will terminate and Netlist Texas will be released and
discharged from it liabilities and obligations thereunder subject to any terms
or provisions that by their terms survive the release, revocation or
termination of the Netlist Texas Documents. 
Notwithstanding the foregoing, the termination of the Netlist Texas
Guaranty does not affect the provisions of Section 5 of the Netlist Texas
Guaranty or the of Section 12 of the Netlist Guaranty to the extent that
it pertains to reasonable costs and expenses of enforcing the Netlist Texas
Guaranty.

 

6

 

3.             Limitation
of Amendments.

 

3.1          The amendments
set forth in Section 2, above, are
effective for the purposes set forth herein and shall be limited precisely as
written and shall not be deemed to (a) be a consent to any amendment,
waiver or modification of any other term or condition of any Loan Document, or
(b) otherwise prejudice any right or remedy which Bank may now have or may
have in the future under or in connection with any Loan Document.

 

3.2          This Amendment
shall be construed in connection with and as part of the Loan Documents and all
terms, conditions, representations, warranties, covenants and agreements set
forth in the Loan Documents (as amended by this Amendment, as applicable) are
hereby ratified and confirmed and shall remain in full force and effect.

 

4.             Representations
and Warranties.  To induce
Bank to enter into this Amendment, Borrower hereby represents and warrants to
Bank as follows:

 

4.1          Immediately
after giving effect to this Amendment, (a) the representations and
warranties contained in the Loan Documents are true, accurate and complete in
all material respects as of the date hereof (except to the extent such
representations and warranties relate to an earlier date, in which case they
are true and correct as of such date, or except as otherwise previously
disclosed in writing by Borrower to Bank), and (b) no Event of Default has
occurred and is continuing;

 

4.2          Borrower has
the power and authority to execute and deliver this Amendment and to perform
its obligations under the Loan Documents, as amended by this Amendment;

 

4.3          The
organizational documents of Borrower delivered to Bank on the Effective Date
remain true, accurate and complete and have not been otherwise amended,
supplemented or restated and are and continue to be in full force and effect;

 

4.4          The execution
and delivery by Borrower of this Amendment and the performance by Borrower of
its obligations under the Loan Documents, as amended by this Amendment, have
been duly authorized;

 

4.5          The execution
and delivery by Borrower of this Amendment and the performance by Borrower of
its obligations under the Loan Documents, as amended by this Amendment, do not
and will not contravene (a) any law or regulation binding on or affecting
Borrower, (b) any contractual restriction with a Person binding on
Borrower, (c) any order, judgment or decree of any court or other
governmental or public body or authority, or subdivision thereof, binding on
Borrower, or (d) the organizational documents of Borrower;

 

4.6          The execution
and delivery by Borrower of this Amendment and the performance by Borrower of
its obligations under the Loan Documents, as amended by this Amendment, do not
require any order, consent, approval, license, authorization or validation of,
or filing, recording or registration with, or exemption by any governmental or
public body or authority, or subdivision thereof, binding on either Borrower,
except as already has been obtained or made; and

 

7

 

4.7           This Amendment has been duly
executed and delivered by Borrower and is the binding obligation of Borrower,
enforceable against Borrower in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
liquidation, moratorium or other similar laws of general application and
equitable principles relating to or affecting creditors’ rights.

 

5.             Release
by Borrower and Guarantor.  Each
of Borrower and Guarantor (individually and collectively, “Obligor”) hereby
agree as follows:

 

5.1          FOR
GOOD AND VALUABLE CONSIDERATION, Obligor hereby forever
relieves, releases, and discharges Bank and its present or former employees,
officers, directors, agents, representatives, attorneys, and each of them, from
any and all claims, debts, liabilities, demands, obligations, promises, acts,
agreements, costs and expenses, actions and causes of action, of every type,
kind, nature, description or character whatsoever, whether known or unknown,
suspected or unsuspected, absolute or contingent, arising out of or in any
manner whatsoever connected with or related to facts, circumstances, issues,
controversies or claims existing or arising from the beginning of time through
and including the date of execution of this Amendment (collectively “Released Claims”). 
Without limiting the foregoing, the Released Claims shall include any
and all liabilities or claims arising out of or in any manner whatsoever
connected with or related to the Loan Documents, the Recitals hereto, any
instruments, agreements or documents executed in connection with any of the
foregoing or the origination, negotiation, administration, servicing and/or
enforcement of any of the foregoing.

 

5.2          In furtherance
of this release, Obligor expressly acknowledges and waives any and all rights
under Section 1542 of the California Civil Code, which provides as
follows:

 

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR EXPECT 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.” (Emphasis added.)

 

5.3          By entering
into this release, Obligor recognizes that no facts or representations are ever
absolutely certain and it may hereafter discover facts in addition to or
different from those which it presently knows or believes to be true, but that
it is the intention of Obligor hereby to fully, finally and forever settle and
release all matters, disputes and differences, known or unknown, suspected or
unsuspected; accordingly, if 

 

8

 

Obligor
should subsequently discover that any fact that it relied upon in entering into
this release was untrue, or that any understanding of the facts was incorrect,
Obligor shall not be entitled to set aside this release by reason thereof,
regardless of any claim of mistake of fact or law or any other circumstances
whatsoever.  Obligor acknowledges that it
is not relying upon and has not relied upon any representation or statement
made by Bank with respect to the facts underlying this release or with regard
to any of such party’s rights or asserted rights.

 

5.4          This release
may be pleaded as a full and complete defense and/or as a cross-complaint or
counterclaim against any action, suit, or other proceeding that may be
instituted, prosecuted or attempted in breach of this release.  Obligor acknowledges that the release
contained herein constitutes a material inducement to Bank to enter into this
Amendment, and that Bank would not have done so but for Bank’s expectation that
such release is valid and enforceable in all events.

 

5.5          Obligor hereby
represents and warrants to Bank, and Bank is relying thereon, as follows:

 

(a)           Except as
expressly stated in this Amendment, neither Bank nor any agent, employee or
representative of Bank has made any statement or representation to Obligor
regarding any fact relied upon by Obligor in entering into this Amendment.

 

(b)           Obligor has
made such investigation of the facts pertaining to this Amendment and all of
the matters appertaining thereto, as it deems necessary.

 

(c)           The terms of
this Amendment are contractual and not a mere recital.

 

(d)           This Amendment
has been carefully read by Obligor, the contents hereof are known and understood
by Obligor, and this Amendment is signed freely, and without duress, by
Obligor.

 

(e)           Obligor
represents and warrants that it is the sole and lawful owner of all right,
title and interest in and to every claim and every other matter which it
releases herein, and that it has not heretofore assigned or transferred, or
purported to assign or transfer, to any person, firm or entity any claims or
other matters herein released.  Obligor
shall indemnify Bank, defend and hold it harmless from and against all claims
based upon or arising in connection with prior assignments or purported
assignments or transfers of any claims or matters released herein.

 

6.             Bank
Expenses.  Borrower shall
pay to Bank, when due, all Bank Expenses (including reasonable attorneys’ fees
and expenses), when due, incurred in connection with or pursuant to this
Amendment.

 

7.             Counterparts.  This Amendment may be executed in any number
of counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.

 

9

 

8.             Effectiveness.  This Amendment shall be deemed effective upon
(a) the due execution and delivery to Bank of this Amendment by each party
hereto, (b) Borrower’s payment of an amendment fee in an amount equal to
$57,500 ($50,000 with respect to the Revolving Line and $7,500 with respect to
the Term Loan) and (c) Bank’s receipt of the Consent attached hereto, duly
executed and delivered by Guarantor (unless Bank, in its sole discretion at any
time waives in writing the receipt of any such Consent).  The above-mentioned fees shall be fully
earned and payable concurrently with the execution and delivery of this
Amendment and shall be non-refundable and in addition to all interest and other
fees payable to Bank under the Loan Documents. 
Bank is authorized to charge such fees to Borrower’s loan account.  The date that this Amendment is deemed
effective is referred to herein as the “September 2010 Amendment Effective
Date.”

 

[Remainder of page intentionally left blank; signature page immediately
follows.]

 

10

 

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

 

	
  BANK

  	
  BORROWER

  
	
   

  	
   

  
	
  Silicon
  Valley Bank 

  	
  NETLIST, INC.
  

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/
  Brian Lowry

  	
   

  	
  By:

  	
  /s/
  Gail Sasaki

  
	
  Name:

  	
  Brian
  Lowry

  	
   

  	
  Name:

  	
  Gail
  Sasaki

  
	
  Title:

  	
  Relationship
  Manager

  	
   

  	
  Title:

  	
  Vice
  President and Chief Financial Officer

  

 

CONSENT

 

The
undersigned hereby expressly agrees to Section 5 of the foregoing
Amendment and acknowledges that its consent to the rest of the foregoing
Amendment is not required, but the undersigned nevertheless does hereby agree
and consent to the entire foregoing Amendment and to the documents and
agreements referred to therein and to all future modifications and amendments
thereto, and any termination thereof, and to any and all other present and
future documents and agreements between or among the foregoing parties.  Nothing herein shall in any way limit any of
the terms or provisions of the Guaranty, the Guarantor Security Agreement, or
any other Loan Documents, executed by the undersigned, all of which are hereby
ratified and affirmed.

 

 

	
  GUARANTOR:

  	
   

  
	
   

  	
   

  
	
  NETLIST
  TECHNOLOGY TEXAS LP, a Texas limited partnership

  	
   

  
	
   

  	
   

  
	
  By:

  	
  NETLIST, INC.,
  its general partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Gail Sasaki

  	
   

  
	
   

  	
  Name:

  	
  Gail
  Sasaki

  	
   

  
	
   

  	
  Title:

  	
  Vice
  President and Chief Financial Officer

  	
   

  

 

 

EXHIBIT B

 

COMPLIANCE CERTIFICATE

 

	
  TO:

  	
  SILICON
  VALLEY BANK

  	
   

  	
  Date:

  
	
  FROM:

  	
  NETLIST, INC.

  	
   

  	
   

  

 

The
undersigned authorized officer of NETLIST, INC. (“Borrower”) certifies
that under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the “Agreement”), (1) Borrower is in complete
compliance for the period ending
                              
with all required covenants except as noted below, (2) there are no Events
of Default, (3) all representations and warranties in the Agreement are
true and correct in all material respects on this date except as noted below;
provided, however, that such materiality qualifier shall not be applicable to
any representations and warranties that already are qualified or modified by
materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date, (4) Borrower,
and each of its Subsidiaries, has timely filed all required tax returns and
reports, and Borrower has timely paid all foreign, federal, state and local
taxes, assessments, deposits and contributions owed by Borrower except as
otherwise permitted pursuant to the terms of Section 5.9 of the Agreement,
and (5) no Liens have been levied or claims made against Borrower or any
of its Subsidiaries relating to unpaid employee payroll or benefits of which
Borrower has not previously provided written notification to Bank.  Attached are the required documents
supporting the certification.  The
undersigned certifies that these are prepared in accordance with GAAP
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.  The
undersigned acknowledges that no borrowings may be requested at any time or
date of determination that Borrower is not in compliance with any of the terms
of the Agreement, and that compliance is determined not just at the date this
certificate is delivered.  Capitalized
terms used but not otherwise defined herein shall have the meanings given them
in the Agreement.

 

Please
indicate compliance status by circling Yes/No under “Complies” column.

 

	
  Reporting Covenant

  	
   

  	
  Required

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Monthly
  financial statements with Compliance Certificate

  	
   

  	
  Monthly
  within 30 days

  	
   

  	
  Yes No

  
	
  Annual
  financial statement (CPA Audited)

  	
   

  	
  Concurrently
  with Form 10-K

  	
   

  	
  Yes No

  
	
  10-Q,
  10-K and 8-K

  	
   

  	
  Within
  5 days after filing with SEC

  	
   

  	
  Yes No

  
	
  A/R &
  A/P Agings; Deferred Revenue Report

  	
   

  	
  Monthly
  within 20 days

  	
   

  	
  Yes No

  
	
  Transaction
  Reports

  	
   

  	
  (i) if
  Streamline Period is in effect, monthly (within twenty (20) days after the
  end of each month) and at the time of each request for an Advance; and
  (ii) if Streamline Period is not in effect, weekly and at the time of
  each request for an Advance

  	
   

  	
  Yes No

  

 

The
following intellectual property was registered after the Effective Date (if no
registrations, state “None”)

 

	
  Financial Covenant

  	
   

  	
  Required

  	
   

  	
  Actual

  	
   

  	
  Complies

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Maintain
  on a Monthly Basis:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minimum
  Adjusted Quick Ratio

  	
   

  	
  1.25
  : 1.00

  	
   

  	
        :
  1.00

  	
   

  	
  Yes No

  
	
  Minimum
  Tangible Net Worth

  	
   

  	
  $17,500,000
  plus (i) 50% of new equity and sub debt plus (ii) 50% of quarterly
  net income

  	
   

  	
  $            

  	
   

  	
  Yes No

  

 

 

The
following financial covenant analysis and information set forth in Schedule 1
attached hereto are true and accurate as of the date of this Certificate.

 

The
following are the exceptions with respect to the certification above:  (If no exceptions exist, state “No exceptions
to note.”)

 

 

 

 

	
  NETLIST, INC.

  	
   

  	
  BANK
  USE ONLY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Received
  by:

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
  AUTHORIZED SIGNER

  
	
  Name:

  	
   

  	
   

  	
  Date:

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Verified:

  	
   

  
	
   

  	
   

  	
   

  	
  AUTHORIZED SIGNER

  
	
   

  	
   

  	
  Date:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Compliance
  Status:              Yes    No

  

 

 

Schedule 1 to Compliance Certificate

 

Financial Covenants of Borrower

 

In
the event of a conflict between this Schedule and the Loan Agreement, the terms
of the Loan Agreement shall govern.

 

Dated:

 

	
  I.

  	
  Adjusted
  Quick Ratio (Section 6.9(a))

  	
   

  	
   

  	
   

  

 

Required:               1.25 : 1.00

 

Actual:

 

	
  A.

  	
  Borrower’s cash and Cash Equivalents that are unencumbered (except for Bank’s security interest) and unrestricted

  	
   

  	
  $

  	
   

  	
   

  
	
  B.

  	
  Aggregate
  net amount of Borrower’s Eligible Accounts

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  C.

  	
  Sum
  of line A plus line B

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  D.

  	
  Current
  Liabilities

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  E.

  	
  Adjusted
  Quick Ratio (line C divided by line D)

  	
   

  	
      : 1.00

  	
   

  

 

Is
line F equal to or greater than 1.25 : 1.00 ?

 

	
   

  	
  o No, not
  in compliance

  	
  o Yes, in
  compliance

  	
   

  	
   

  	
   

  

 

[continued
on next page]

 

 

	
  II.

  	
  Minimum
  Tangible Net Worth (Section 6.9(b))

  	
   

  	
   

  	
   

  

 

	
  Required
  Amount:

  	
   

  	
  $17,500,000
  plus (i) 50% of consideration for equity securities and subordinated
  debt plus (ii) 50% of Borrower’s quarterly net income

  

 

Actual:

 

	
  A.

  	
  Aggregate
  value of total assets of Borrower and its Subsidiaries

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  B.

  	
  Aggregate
  value of goodwill of Borrower and its Subsidiaries

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  C.

  	
  Aggregate
  value of intangible assets of Borrower and its Subsidiaries

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  D.

  	
  Aggregate
  value of investments of Borrower and its Subsidiaries consisting of minority
  investments in companies which investments are not publicly-traded

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  E.

  	
  Aggregate
  value of any reserves not already deducted from assets

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  F.

  	
  Aggregate
  value of liabilities of Borrower and its Subsidiaries (including all
  Indebtedness) and current portion of Subordinated Debt permitted by Bank to
  be paid by Borrower (but no other Subordinated Debt)

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  G.

  	
  Aggregate
  value of Indebtedness of Borrower subordinated to Borrower’s Indebtedness to
  Bank

  	
   

  	
  $

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  H.

  	
  Tangible
  Net Worth (line A minus line B minus line C minus line D minus line E minus
  line F plus line G)

  	
   

  	
  $

  	
   

  	
   

  

 

Is
line H equal to or greater than Required Amount?

 

	
   

  	
  o No, not
  in compliance

  	
  o Yes, in
  compliance

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