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Exhibit 10.1  

EXECUTION COPY  

 

  

AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT  

 AMONG  

 NETLIST, INC.  

 AND  

 NETLIST TECHNOLOGY TEXAS LP, AS BORROWERS  

 AND  

 WELLS FARGO BUSINESS CREDIT, INC.  

 AS LENDER  

 as of  

 December 27, 2003  

 

  

 
 

TABLE OF CONTENTS    
    

	 
	 
	 	 
	 	Page

	ARTICLE I    DEFINITIONS	 	1
	 	Section 1.1	 	Definitions	 	1
	 	Section 1.2	 	Other Definitional Terms; Rules of Interpretation	 	11
	ARTICLE II    AMOUNT AND TERMS OF THE CREDIT FACILITY	 	11
	 	Section 2.1	 	Revolving Advances	 	11
	 	Section 2.2	 	Procedures for Requesting Advances	 	11
	 	Section 2.3	 	Intentionally Omitted	 	12
	 	Section 2.4	 	Capital Adequacy; Funding Exceptions	 	12
	 	Section 2.5	 	Letters of Credit	 	13
	 	Section 2.6	 	Special Account	 	13
	 	Section 2.7	 	Payment of Amounts Drawn Under Letters of Credit; Obligation of Reimbursement	 	13
	 	Section 2.8	 	Obligations Absolute	 	14
	 	Section 2.9	 	Intentionally Omitted	 	14
	 	Section 2.10	 	Inventory Appraisals	 	14
	 	Section 2.11	 	Intentionally Omitted	 	15
	 	Section 2.12	 	Interest; Applicable Margin; Minimum Interest Charge; Default Interest; Participations; Clearance Days; Usury	 	15
	 	Section 2.13	 	Fees	 	16
	 	Section 2.14	 	Time for Interest Payments; Payment on Non-Banking Days; Computation of Interest and Fees	 	18
	 	Section 2.15	 	Lockbox; Collateral Account; Application of Payments	 	18
	 	Section 2.16	 	Voluntary Prepayment; Termination of the Credit Facility by the Borrowers	 	18
	 	Section 2.17	 	Mandatory Prepayment	 	19
	 	Section 2.18	 	Revolving Advances to Pay Obligations	 	19
	 	Section 2.19	 	Use of Proceeds	 	19
	 	Section 2.20	 	Liability Records	 	19
	ARTICLE III    SECURITY INTEREST; OCCUPANCY; SETOFF	 	19
	 	Section 3.1	 	Grant of Security Interest	 	19
	 	Section 3.2	 	Notification of Account Debtors and Other Obligors	 	19
	 	Section 3.3	 	Assignment of Insurance	 	19
	 	Section 3.4	 	Occupancy	 	20
	 	Section 3.5	 	License	 	20
	 	Section 3.6	 	Financing Statement	 	20
	 	Section 3.7	 	Setoff	 	21
	 	Section 3.8	 	Power of Attorney	 	21
	ARTICLE IV    CONDITIONS OF LENDING	 	22
	 	Section 4.1	 	Conditions Precedent to the Initial Advances and Letter of Credit	 	22
	 	Section 4.2	 	Conditions Precedent to All Advances and Letters of Credit	 	23
	ARTICLE V    REPRESENTATIONS AND WARRANTIES	 	23
	 	Section 5.1	 	Existence and Power; Name; Chief Executive Office; Inventory and Equipment Locations; Federal Employer Identification Number	 	23
	 	Section 5.2	 	Capitalization	 	24
	 	Section 5.3	 	Authorization of Borrowing; No Conflict as to Law or Agreements	 	24
	 	Section 5.4	 	Legal Agreements	 	24
	 	Section 5.5	 	Subsidiaries	 	24
	 	 	 	 	 	 

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	 	Section 5.6	 	Financial Condition; No Adverse Change	 	24
	 	Section 5.7	 	Litigation	 	25
	 	Section 5.8	 	Regulation U	 	25
	 	Section 5.9	 	Taxes	 	25
	 	Section 5.10	 	Titles and Liens	 	25
	 	Section 5.11	 	Intellectual Property Rights	 	25
	 	Section 5.12	 	Plans	 	26
	 	Section 5.13	 	Default	 	26
	 	Section 5.14	 	Environmental Matters	 	26
	 	Section 5.15	 	Submissions to Lender	 	27
	 	Section 5.16	 	Financing Statements	 	27
	 	Section 5.17	 	Rights to Payment	 	27
	 	Section 5.18	 	Eligible Accounts; Eligible Foreign Accounts	 	27
	 	Section 5.19	 	Eligible Inventory	 	27
	 	Section 5.20	 	Equipment	 	27
	 	Section 5.21	 	Fraudulent Transfer	 	27
	ARTICLE VI    COVENANTS	 	28
	 	Section 6.1	 	Reporting Requirements	 	28
	 	Section 6.2	 	Financial Covenants	 	31
	 	Section 6.3	 	Permitted Liens; Financing Statements	 	31
	 	Section 6.4	 	Indebtedness	 	32
	 	Section 6.5	 	Guaranties	 	32
	 	Section 6.6	 	Investments and Subsidiaries	 	32
	 	Section 6.7	 	Dividends and Distributions	 	33
	 	Section 6.8	 	Salaries	 	33
	 	Section 6.9	 	Intentionally Omitted	 	33
	 	Section 6.10	 	Books and Records; Inspection and Examination	 	33
	 	Section 6.11	 	Account Verification	 	33
	 	Section 6.12	 	Compliance with Laws	 	33
	 	Section 6.13	 	Payment of Taxes and Other Claims	 	33
	 	Section 6.14	 	Maintenance of Properties	 	34
	 	Section 6.15	 	Insurance	 	34
	 	Section 6.16	 	Preservation of Existence	 	34
	 	Section 6.17	 	Delivery of Instruments, etc	 	34
	 	Section 6.18	 	Sale or Transfer of Assets; Suspension of Business Operations	 	34
	 	Section 6.19	 	Consolidation and Merger; Asset Acquisitions	 	35
	 	Section 6.20	 	Sale and Leaseback	 	35
	 	Section 6.21	 	Restrictions on Nature of Business	 	35
	 	Section 6.22	 	Accounting	 	35
	 	Section 6.23	 	Discounts, etc	 	35
	 	Section 6.24	 	Plans	 	35
	 	Section 6.25	 	Place of Business	 	35
	 	Section 6.26	 	Change in Name, Trade Name, Trade Style or FEIN	 	35
	 	Section 6.27	 	Transactions With Affiliates	 	35
	 	Section 6.28	 	Performance by the Lender	 	35
	ARTICLE VII    EVENTS OF DEFAULT, RIGHTS AND REMEDIES	 	36
	 	Section 7.1	 	Events of Default	 	36
	 	Section 7.2	 	Rights and Remedies	 	39
	 	Section 7.3	 	Disclaimer of Warranties	 	40
	 	Section 7.4	 	Compliance With Laws	 	41
	 	 	 	 	 	 

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	 	Section 7.5	 	No Marshalling	 	41
	 	Section 7.6	 	Borrowers to Cooperate	 	41
	 	Section 7.7	 	Application of Proceeds	 	41
	 	Section 7.8	 	Remedies Cumulative	 	41
	 	Section 7.9	 	Lender Not Liable For The Collateral	 	41
	ARTICLE VIII    MISCELLANEOUS	 	41
	 	Section 8.1	 	No Waiver	 	41
	 	Section 8.2	 	Amendments, Etc	 	41
	 	Section 8.3	 	Addresses for Notices; Requests for Accounting	 	42
	 	Section 8.4	 	Intentionally Omitted	 	42
	 	Section 8.5	 	Further Documents	 	42
	 	Section 8.6	 	Costs and Expenses	 	42
	 	Section 8.7	 	Indemnity	 	42
	 	Section 8.8	 	Participants	 	43
	 	Section 8.9	 	Advertising and Promotion	 	43
	 	Section 8.10	 	Execution in Counterparts; Telefacsimile Execution	 	43
	 	Section 8.11	 	Retention of Borrowers' Records	 	43
	 	Section 8.12	 	Binding Effect; Assignment; Complete Agreement; Exchanging Information	 	43
	 	Section 8.13	 	Severability of Provisions	 	44
	 	Section 8.14	 	Revival and Reinstatement of Obligations	 	44
	 	Section 8.15	 	Headings	 	44
	 	Section 8.16	 	Governing Law; Jurisdiction, Venue; Waiver of Jury Trial	 	44
	ARTICLE IX    JOINT AND SEVERAL LIABILITY; SINGLE LOAN ACCOUNT	 	44
	 	Section 9.1	 	Joint and Several Liability	 	44
	 	Section 9.2	 	Primary Obligation; Waiver of Marshalling	 	45
	 	Section 9.3	 	Financial Condition of Borrowers	 	45
	 	Section 9.4	 	Continuing Liability	 	45
	 	Section 9.5	 	Additional Waivers	 	45
	 	Section 9.6	 	Settlement or Releases	 	47
	 	Section 9.7	 	No Election	 	48
	 	Section 9.8	 	Indefeasible Payment	 	48
	 	Section 9.9	 	Single Loan Account	 	48
	 	Section 9.10	 	Apportionment of Proceeds of Advances	 	48
	 	Section 9.11	 	Lender Held Harmless	 	49
	 	Section 9.12	 	Borrowers' Integrated Operations	 	49

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AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT    
    

Dated
as of December 27, 2003 

        NETLIST, INC.,
a Delaware corporation ("Netlist"), NETLIST TECHNOLOGY TEXAS, L.P., a Texas limited partnership ("NTTLP"), and WELLS FARGO BUSINESS CREDIT, INC., a Minnesota
corporation (the "Lender"), are entering into this Agreement with reference to the following facts: 

        WHEREAS,
Netlist and the Lender previously entered into that certain Credit and Security Agreement, dated as of July 2, 2003, as amended by that certain First Amendment to Credit
and Security Agreement, dated as of October 30, 2003, and a second amendment which is also entitled the First Amendment to Credit and Security Agreement, dated as of December 5, 2003 (as
so amended, the "Prior Agreement"). 

        WHEREAS,
Netlist has requested that its Subsidiary, NTTLP, be a co-borrower and the Lender has agreed with such request, subject to the terms and conditions of this
Agreement. 

        WHEREAS,
the parties hereto hereby agree to enter into this Agreement in order to amend and restate in its entirety, and continue the Obligations incurred under, the Prior Agreement. 

        NOW
THEREFORE, the parties hereto hereby agree as follows: 

 
 

ARTICLE I    
    
    DEFINITIONS    
    

        Section 1.1    Definitions.    For all purposes of this Agreement, except as otherwise expressly provided, the
following terms shall have the meanings assigned to them in this Section or in the Section referenced after such term: 

        "Account
Debtor" means any Person who is or who may become obligated under, with respect to, or on account of, an Account, chattel paper, or a General Intangible. 

        "Accounts"
means all of each Borrower's now owned or hereafter acquired right, title, and interest with respect to "accounts" (as that term is defined in the UCC), and any and all
supporting obligations in respect thereof. 

        "Advance"
means a Revolving Advance. 

        "Affiliate"
means, as applied to any Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with, such Person. For purposes of this
definition, "control" means the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of stock, by contract, or otherwise;  provided, however, that, in any event: (a) any Person which owns directly or indirectly 10% or
more of the securities having ordinary voting power for the election of directors or other members of the governing body of a Person or 10% or more of the partnership or other ownership interests of a
Person (other than as a limited partner of such Person) shall be deemed to control such Person, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such
Person, and (c) each partnership or joint venture in which a Person is a partner or joint venturer shall be deemed to be an Affiliate of such Person. 

        "Agreement"
means this Amended and Restated Credit and Security Agreement. 

        "Applicable
Margin" means fifty (50) basis points; provided that (1) if the condition(s) described in the table below are
fulfilled to the satisfaction of the Lender, and (2) if no Default Period is then 

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continuing,
then the Applicable Margin shall mean the margin set forth in the table below opposite the applicable condition, effective the first day of the month following the fulfillment of such
condition: 

	Condition
 
	 	Applicable Margin
 

	Receipt of Netlist's 12/31/03 audited financial statements evidencing Net Income during such fiscal year of not less than $2,500,000	 	Twenty-five (25) basis points
	Receipt of Netlist's 12/31/04 audited and consolidated financial statements evidencing Net Income during such fiscal year of not less than $2,500,000	 	Zero (0) basis points

        "Approved
Buyer" means an Account Debtor under an Eligible Foreign Account that is (i) not located in a country that is unacceptable to the Lender in its sole discretion, and
(ii) otherwise acceptable to the Lender in its sole discretion. Unacceptable countries are determined by the Lender from time to time, in its sole discretion. As of September 30, 2003,
the unacceptable countries are listed on Schedule 1 attached hereto. 

        "Availability"
means the difference of (i) the Borrowing Base and (ii) the sum of (A) the outstanding principal balance of the Revolving Note and (B) the L/C
Amount. 

        "Banking
Day" means a day on which the Federal Reserve Bank of New York is open for Business. 

        "Bankruptcy
Code" means the United States Bankruptcy Code, as in effect from time to time. 

        "Base
Rate" means the rate of interest publicly announced from time to time by Wells Fargo Bank National Association at its principal office in San Francisco as its "prime rate", with
the understanding that the "prime rate" is one of Wells Fargo's base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for
loans making reference thereto. 

        "Book
Net Worth" means the aggregate of the common and preferred stockholders' equity in the Borrowers, prepared on a consolidating and consolidated basis including any Subsidiaries,
determined in accordance with GAAP. 

        "Borrowers"
means Netlist and NTTLP (each, a "Borrower"). 

        "Borrowing
Base" means at any time the lesser of: 

        (a)   the
Maximum Line; or 

        (b)   the
sum of following: 

          (i)  85%
of Eligible Accounts less the amount, if any, of the Dilution Reserve; plus 

         (ii)  30 days
following the Lender's receipt of the FREP Activation Notice, the lesser of (A) 85% of Eligible Foreign Accounts, or (B) $1,500,000, less
the amount, if any, of the Dilution Reserve; plus 

        (iii)  the
lowest of (A) the Inventory Advance Rate times the Eligible Inventory, or (B) $5,000,000, or (C) 50% of Eligible Accounts; provided, however,
that Advances against Eligible Inventory shall not be available until completion of an appraisal of the Inventory conducted by the Lender, or the Lender's representative. The Borrower shall provide
the Lender with not less than 60 days' prior written notice of the Borrower's request to have the Inventory appraised for purposes hereof. 

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        Notwithstanding
the foregoing, the Lender may reduce the advance rates or create additional reserves against the Eligible Accounts, the Eligible Foreign Accounts and/or the Eligible
Inventory, in its sole and absolute discretion, without declaring an Event of Default if it reasonably determines that there has occurred a Material Adverse Effect. 

        "Capital
Expenditures" means for a period, any expenditure of money during such period for the purchase or construction of assets, or for improvements or additions thereto, which are
capitalized on the Borrowers' balance sheet. 

        "Change
of Control" means the occurrence of any of the following events: 

        (a)   any
Person or "group" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) is or becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a Person will be deemed to have "beneficial ownership" of all securities that such Person
has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than ten percent of the voting power of all classes of
voting stock of the Borrowers. 

        (b)   During
any consecutive two-year period, individuals who at the beginning of such period constituted the board of Directors of the Borrowers (together with
any new Directors whose election to such board of Directors, or whose nomination for election by the owners of such Borrower, was approved by a vote of 662/3% of the Directors then
still in office who were either Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the
board of Directors of the Borrowers then in office. 

        (c)   Chun
"Chuck" K. Hong shall cease to actively manage the Borrowers' day-to-day business activities 

        "Collateral"
means all of each Borrower's Accounts, chattel paper, deposit accounts, documents, Equipment, General Intangibles, goods, instruments, Inventory, Investment Property,
letter-of-credit rights, letters of credit, all sums on deposit in any Collateral Account, and any items in any Lockbox; together with (i) all substitutions and
replacements for and products of any of the foregoing; (ii) in the case of all goods, all accessions; (iii) all accessories, attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any goods; (iv) all warehouse receipts, bills of lading and other documents of title now or hereafter covering such goods; (v) all
collateral subject to the Lien of any Security Document; (vi) any money, or other assets of either Borrower that now or hereafter come into the possession, custody, or control of the Lender;
(vii) all sums on deposit in the Special Account; and (viii) proceeds of any and all of the foregoing. 

        "Collateral
Account" means the "Lender Account" as defined in the Lockbox and Collection Account Agreement. 

        "Commitment"
means the Lender's commitment to make Advances to, and to cause the Issuer to issue Letters of Credit for the account of, the Borrowers pursuant to Article II. 

        "Constituent
Documents" means with respect to any Person, as applicable, such Person's certificate of incorporation, articles of incorporation, by-laws, certificate of
formation, articles of organization, limited liability company agreement, management agreement, operating agreement, shareholder agreement, partnership agreement or similar document or agreement
governing such Person's existence, organization or management or concerning disposition of ownership interests of such Person or voting rights among such Person's owners. 

        "Credit
Facility" means the credit facility being made available to the Borrowers by the Lender under Article II. 

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        "Daily
Balance" means, with respect to each day during the term of this Agreement, the amount of an Obligation owed at the end of such day. 

        "Default"
means an event that, with giving of notice or passage of time or both, would constitute an Event of Default. 

        "Default
Period" means any period of time beginning on the day a Default or Event of Default occurs and ending on the date the Lender notifies the Borrower in writing that such Default
or Event of Default has been cured or waived. 

        "Default
Rate" means an annual interest rate equal to three percent (3%) over the initial Floating Rate, which interest rate shall change when and as the Base Rate changes. 

        "Dilution"
means, as of any date of determination, a percentage, based upon the experience of the calendar year-to-date period ending on the date of
determination, that is the result of dividing the Dollar amount of (a) bad debt write-downs, discounts, advertising allowances,
credits, or other dilutive items with respect to the Accounts during such period, by (b) Borrower's sales during such period (excluding extraordinary items) plus the Dollar amount of
clause (a). 

        "Dilution
Reserve" means, as of any date of determination, an amount sufficient to reduce the advance rate against Eligible Accounts and/or the Eligible Foreign Accounts by one
percentage point for each percentage point by which Dilution is in excess of 4%. 

        "Director"
means a director if the Borrower is a corporation, a manager if the Borrower is a limited liability company, or a general partner if the Borrower is a partnership. 

        "Dollars"
or "$" means lawful currency of the United States of America. 

        "ERISA"
means the Employee Retirement Income Security Act of 1974. 

        "ERISA
Affiliate" means any trade or business (whether or not incorporated) that is a member of a group which includes the Borrowers and which is treated as a single employer under
Section 414 of the IRC. 

        "Eligible
Accounts" means those Accounts created by either Borrower in the ordinary course of its business, that arise out of such Borrower's sale of goods or rendition of services, that
comply with each of the representations and warranties respecting Eligible Accounts made by the Borrowers in the Loan Documents, and that are not excluded as ineligible by virtue of one or more of the
criteria set forth below; provided, however, that such criteria may be fixed and revised from time to
time by the Lender in the Lender's sole and absolute discretion to address the results of any audit performed by the Lender from time to time after the Closing Date. In determining the amount to be
included, Eligible Accounts shall be calculated net of customer deposits and unapplied cash remitted to the Borrower. Eligible Accounts shall not include the following: 

        (i)    That
portion of Accounts unpaid 90 days or more after the invoice date; 

        (ii)   That
portion of Accounts that is disputed or subject to a claim of offset or a contra account; 

        (iii)  That
portion of Accounts not yet earned by the final delivery of goods or rendition of services, as applicable, by the Borrower to the customer, including progress
billings; 

        (iv)  Accounts
constituting proceeds of copyrightable material unless such copyrightable material shall have been registered with the United States Copyright Office and shall
be covered by a duly executed copyright security agreement, in form and substance satisfactory to the Lender, and filed in the United States Copyright Office; 

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        (v)   Accounts
owed by an Account Debtor that is not Solvent, the subject of an Insolvency Proceeding or has gone out of business; 

        (vi)  Accounts
owed by an Owner, Subsidiary, Affiliate, Officer or employee of the Borrower; 

        (vii) Accounts
not subject to a duly perfected security interest in the Lender's favor or which are subject to any Lien other than a Permitted Lien; 

        (viii) That
portion of Accounts that has been restructured, extended, amended or modified; 

        (ix)  That
portion of Accounts that constitutes advertising, finance charges, service charges or sales or excise taxes; 

        (x)   Accounts
owed by an Account Debtor (or an Affiliate of such Account Debtor), regardless of whether otherwise eligible, to the extent that the balance of such Accounts
exceeds 15% of the aggregate amount of all Accounts (except in the case of Dell Computer Corporation (excluding Dell Computer-Ireland), in which case such percentage shall be 65% through
June 30, 2004, and 50% thereafter); 

        (xi)  Accounts
owed by an Account Debtor (or an Affiliate of such Account Debtor), regardless of whether otherwise eligible, if 15% or more of the total amount due under
Accounts from such Account Debtor is ineligible under clauses (i), (ii)or (x) above; 

        (xii) Accounts
arising in a transaction wherein goods are placed on consignment or are sold pursuant to a guaranteed sale, a sale or return, a sale on approval, a bill and
hold, or any other terms by reason of which the payment by the Account Debtor may be conditional; 

        (xiii) Accounts
that are not payable in Dollars; 

        (xiv) Accounts
with respect to which the Account Debtor either (i) does not maintain its chief executive office in the United States, or (ii) is not organized
under the laws of the United States or any state thereof, or (iii) is the government of any foreign country or sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof, unless (y) the Account is supported by an irrevocable letter of credit satisfactory to
the Lender (as to form, substance, and issuer or domestic confirming bank) that has been delivered to Lender and is directly drawable by the Lender, or (z) the Account is covered by credit
insurance in form, substance, and amount, and by an insurer, satisfactory to the Lender; 

        (xv) Accounts
with respect to which the Account Debtor is either (i) the United States or any department, agency, or instrumentality of the United States (exclusive,
however, of Accounts with respect to which the Borrower has complied, to the reasonable satisfaction of the Lender, with the Assignment of Claims Act, 31 USC § 3727), or (ii) any
state of the United States (exclusive, however, of (y) Accounts owed by any state that does not have a statutory counterpart to the Assignment of Claims Act, or (z) Accounts owed by any
state that does have a statutory counterpart to the Assignment of Claims Act as to which the Borrower has complied to the Lender's satisfaction); 

        (xvi) Accounts
with respect to which the Account Debtor is located in the states of New Jersey, Minnesota, or West Virginia (or any other state that requires a creditor to
file a business activity report or similar document in order to bring suit or otherwise enforce its remedies against such Account Debtor in the courts or through any judicial process of such
state), unless the applicable Borrower has qualified to do business in New Jersey, Minnesota, West Virginia, or such other states, or has filed a business activities report with the applicable
division of taxation, the department of revenue, or with such other state offices, as appropriate, for the then-current year, or is exempt from such filing requirement; and 

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        (xvii) Accounts,
or portions thereof, of poor quality credit or otherwise deemed ineligible by the Lender in its sole discretion. 

        "Eligible
Foreign Account" means an Account that would be an Eligible Account except that the Account Debtor either (i) does not maintain its chief executive office in the United
States, or (ii) is not organized under the laws of the United States or any state thereof, or (iii) is the government of any foreign country or sovereign state, or of any state,
province, municipality, or other political subdivision thereof, or of any department, agency, public corporation, or other instrumentality thereof, but excluding any Accounts having the following
characteristics: 

        (i)    Eligible
Accounts more than 180 days past shipment date as shown on a bill of lading or airbill; 

        (ii)   That
portion of Eligible Accounts owed by any one Account Debtor that would permit Revolving Advances supported by such Account Debtor's Eligibility Accounts to exceed
the following at any one time: 

        (a)   $500,000
for Approved Buyers that are rated BBB-minus or better by Standard and Poors, 

        (b)   $500,000
for Approved Buyers that are controlled by entities rated BBB-minus or better by Standard and Poors, and 

        (c)   $300,000
for all other Approved Buyers, 

        (iii)  Eligible
Accounts denominated in any currency other than United States dollars, Canadian dollars, Swiss francs, Japanese yen, United Kingdom pounds sterling or
European Euros; 

        (iv)  Eligible
Accounts with respect to which the Borrower has not instructed the Account Debtor to pay the Account to the Collateral Account or lockbox; 

        (v)   Eligible
Accounts that are not covered by the Lender's credit insurance policy; and 

        (vi)  Eligible
Accounts otherwise deemed unacceptable to the Lender in its sole discretion. 

        "Eligible
Inventory" means Inventory consisting of raw chips and first quality finished goods consisting of custom memory products held for sale in the ordinary course of either
Borrower's business, that complies with each of the representations and warranties respecting Eligible Inventory made by the Borrowers in this Agreement and the Loan Documents, and that is not
excluded as ineligible by virtue of the one or more of the criteria set forth below; provided, however,
that such criteria may be fixed and revised from time to time by the Lender in the Lender's sole and absolute discretion to address the results of any audit or appraisal performed by the Lender from
time to time after the Closing Date. In determining the amount to be so included, Inventory shall be valued at the lower of cost or market on a basis consistent with the Borrowers' historical
accounting practices. The following shall not be included in Eligible Inventory: 

        (i)    Inventory
that is: in-transit; located at any warehouse, job site or other premises not approved by the Lender in writing; located outside of the states, or
localities, as applicable, in which the Lender has filed financing statements to perfect a first priority security interest in such Inventory; covered by any negotiable or non-negotiable
warehouse receipt, bill of lading or other document of title; on consignment from any Person; on consignment to any Person or subject to any bailment unless such consignee or bailee has executed an
agreement with the Lender; 

        (ii)   Supplies,
packaging, maintenance parts or sample Inventory; 

        (iii)  Work-in-process
Inventory; 

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        (iv)  Inventory
that is damaged, obsolete, slow moving or not currently saleable in the normal course of the Borrowers' operations; 

        (v)   Inventory
that the applicable Borrower has returned, has attempted to return, is in the process of returning or intends to return to the vendor thereof; 

        (vi)  Inventory
that is perishable or live; 

        (vii) Inventory
manufactured by either Borrower pursuant to a license unless the applicable licensor has agreed in writing to permit the Lender to exercise its rights and
remedies against such Inventory; 

        (viii) Inventory
that is not subject to a valid and perfected first priority Lien in favor of the Lender or is subject to any Lien other than a Permitted Lien; 

        (ix)  Inventory
the applicable Borrower does not have good, valid, and marketable title thereto; and 

        (x)   Inventory
otherwise deemed ineligible by the Lender in its sole discretion. 

        "Environmental
Law" means any federal, state, local or other governmental statute, regulation, law or ordinance dealing with the protection of human health and the environment. 

        "Equipment"
means all of each Borrower's equipment, as such term is defined in the UCC, whether now owned or hereafter acquired, including but not limited to all present and future
machinery, vehicles, furniture, fixtures, manufacturing equipment, shop equipment, office and recordkeeping equipment, parts, tools, supplies, and including specifically the goods described in any
equipment schedule or list herewith or hereafter furnished to the Lender by either Borrower. 

        "Event
of Default" has the meaning specified in Section 7.1. 

        "FEIN"
means Federal Employer Identification Number. 

        "Financial
Covenants" means the covenants set forth in Section 6.2. 

        "Floating
Rate" means an annual interest rate equal to the sum of the Base Rate plus the Applicable Margin, which interest rate shall, in each case, change when and as the Base Rate
changes. 

        "FREP
Activation Notice" means a written notice from the Borrowers to the Lender of the Borrowers' request to obtain Advances against Eligible Foreign Accounts pursuant to the terms and
conditions of this Agreement. 

        "Funding
Date" has the meaning given in Section 2.1. 

        "GAAP"
means generally accepted accounting principles, applied on a basis consistent with the accounting practices applied in the financial statements described in Section 5.6. 

        "General
Intangibles" means all of each Borrower's general intangibles, as such term is defined in the UCC, whether now owned or hereafter acquired, including all present and future
Intellectual Property Rights, customer or supplier lists and contracts, manuals, operating instructions, permits, franchises, the right to use such Borrower's name, and the goodwill of such Borrower's
business. 

        "General
Partner" means Netlist Holdings GP, Inc., a Texas corporation. 

        "Governmental
Authority" means any federal, state, local, or other governmental or administrative body, instrumentality, department, or agency or any court, tribunal, administrative
hearing body, arbitration panel, commission, or other similar dispute-resolving panel or body. 

        "Guarantor(s)"
means Chun K. Hong, Christopher Lopes, Jayesh Bhakta, the General Partner and the Limited Partner and any other Person now or hereafter guarantying the Obligations. 

        "Guaranty"
means each certain Continuing Guaranty by a Guarantor in favor of the Lender. 

7

   
        "Hazardous Substances" means pollutants, contaminants, hazardous substances, hazardous wastes, petroleum and fractions thereof, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law. 

        "Indebtedness"
means of a Person as of a given date, all items of indebtedness or liability which in accordance with GAAP would be included in determining total liabilities as shown on
the liabilities side of a balance sheet for such Person and shall also include the aggregate payments required to be made by such Person at any time under any lease that is considered a capitalized
lease under GAAP. 

        "IRC"
means the Internal Revenue Code of 1986. 

        "Infringe"
means when used with respect to Intellectual Property Rights means any infringement or other violation of Intellectual Property Rights. 

        "Insolvency
Proceeding" means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency
law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar
relief. 

        "Intellectual
Property Rights" means all actual or prospective rights arising in connection with any intellectual property or other proprietary rights, including all rights arising in
connection with copyrights, patents, service marks, trade dress, trade secrets, trademarks, trade names or mask works. 

        "Inventory"
means all of each Borrower's inventory, as such term is defined in the UCC, whether now owned or hereafter acquired, whether consisting of whole goods, spare parts or
components, supplies or materials, whether acquired, held or furnished for sale, for lease or under service contracts or for manufacture or processing, and wherever located. 

        "Inventory
Advance Rate" means the lesser of (i) seventy percent (70%) of the appraised orderly liquidation recovery rate for Inventory or (ii) forty percent (40%). 

        "Investment
Property" means all of each Borrower's investment property, as such term is defined in the UCC, whether now owned or hereafter acquired, including but not limited to all
securities, security entitlements, securities accounts, commodity contracts, commodity accounts, stocks, bonds, mutual fund shares, money market shares and U.S. Government securities. 

        "Issuer"
means the issuer of any Letter of Credit. 

        "L/C
Amount" means the sum of (i) the aggregate face amount of any issued and outstanding Letters of Credit and (ii) the unpaid amount of the Obligation of Reimbursement. 

        "L/C
Application" means an application and agreement for letters of credit in a form acceptable to the Issuer and the Lender. 

        "Letter
of Credit" has the meaning specified in Section 2.5. 

        "Licensed
Intellectual Property" has the meaning given in Section 5.11(c). 

        "Lien"
means any security interest, mortgage, deed of trust, pledge, lien, charge, encumbrance, title retention agreement or analogous instrument or device, including the interest of
each lessor under any capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or hereafter
acquired and whether arising by agreement or operation of law. 

        "Limited
Partner" means Netlist Holdings LP, Inc., a Delaware corporation. 

        "Loan
Account" has the meaning given in Section 9.9. 

8

 

        "Loan
Documents" means this Agreement, the Note, each Guaranty, the Security Documents, the Subordination Agreements and any L/C Application. 

        "Lockbox"
means as defined in the Lockbox and Collection Account Agreement. 

        "Lockbox
and Collection Account Agreement" means each Lockbox and Collection Account Agreement by and among Borrowers, Wells Fargo Bank, N.A., and the Lender. 

        "Material
Adverse Effect" means any of the following: 

          (i)  a
material adverse effect on the business, operations, results of operations, prospects, assets, liabilities or financial condition of either Borrower or any Guarantor; 

         (ii)  a
material adverse effect on the ability of either Borrower or any Guarantor to perform its obligations under the Loan Documents; 

        (iii)  a
material adverse effect on the ability of the Lender to enforce the Obligations or to realize the intended benefits of the Security Documents, including a material
adverse effect on the validity or enforceability of any Loan Document or of any rights against any Guarantor, or on the status, existence, perfection, priority (subject to Permitted Liens) or
enforceability of any Lien securing payment or performance of the Obligations; or 

        (iv)  any
claim against either Borrower or any Guarantor or threat of litigation which if determined adversely to such Borrower or such Guarantor would cause such Borrower or
such Guarantor to be liable to pay an amount exceeding $100,000 or would be an event described in clauses (i), (ii) and (iii) above. 

        "Maturity
Date" means July 2, 2006. 

        "Maximum
Line" means $15,000,000, unless reduced pursuant to Section 2.16, in which case it means such lesser amount. 

        "Minimum
Interest Charge" has the meaning given in Section 2.12(c). 

        "Multiemployer
Plan" means a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to which the Borrower or any ERISA Affiliate contributes or is obligated to contribute. 

        "Net
Income" and "Net Loss" mean fiscal year-to-date after-tax net income, or loss, as applicable, prepared on a consolidating and consolidated basis
to include any Subsidiaries, from continuing operations as determined in accordance with GAAP. 

        "Note"
means the Revolving Note. 

        "Obligation
of Reimbursement" has the meaning given in Section 2.7(a). 

        "Obligations"
means the Note, the Obligation of Reimbursement and each and every other debt, liability and obligation of every type and description which either Borrower may now or at
any time hereafter owe to the Lender, whether such debt, liability or obligation now exists or is hereafter created or incurred, whether it arises in a transaction involving the Lender alone or in a
transaction involving other creditors of the Borrower, and whether it is direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or sole,
joint, several or joint and several, and including all indebtedness of either Borrower arising under any Credit Document or guaranty between either Borrower and the Lender, whether now in effect or
hereafter entered into. 

        "Officer"
means with respect to either Borrower, an officer if such Borrower is a corporation, or a partner if such Borrower is a partnership. 

        "Owned
Intellectual Property" has the meaning given in Section 5.11(a). 

9

 

        "Owner"
means with respect to each Borrower, each Person having legal or beneficial title to an ownership interest in such Borrower or a right to acquire such an interest. 

        "Pension
Plan" means a pension plan (as defined in Section 3(2) of ERISA) maintained for employees of the Borrower or any ERISA Affiliate and covered by Title IV of ERISA. 

        "Permitted
Lien" has the meaning given in Section 6.3(a). 

        "Person"
means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or
any agency or political subdivision thereof. 

        "Plan"
means an employee benefit plan (as defined in Section 3(3) of ERISA) maintained for employees of the Borrower or any ERISA Affiliate. 

        "Premises"
means all premises where the Borrower conducts its business and has any rights of possession, including the premises legally described in Exhibit D attached hereto. 

        "Reportable
Event" means a reportable event (as defined in Section 4043 of ERISA), other than an event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the Pension Benefit Guaranty Corporation. 

        "Revolving
Advance" has the meaning given in Section 2.1. 

        "Revolving
Note" means the Borrowers' second replacement revolving promissory note, payable to the order of the Lender in substantially the form of Exhibit A hereto. 

        "Security
Agreements" means (i) the Security Agreement, dated as of the date hereof, executed by the General Partner in the Lender's favor, (ii) the Security Agreement,
dated as of the date hereof, executed by the Limited Partner in the Lender's favor, and (iii) any other security agreement accepted by the Lender from time to time. 

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

        "Security
Interest" has the meaning given in Section 3.1. 

        "Solvent"
means, with respect to any Person on a particular date, that such Person is not insolvent (as such term is defined in the Uniform Fraudulent Transfer Act). 

        "Special
Account" means a specified cash collateral account maintained by a financial institution acceptable to the Lender in connection with Letters of Credit, as contemplated by
Section 2.6. 

        "Subordinated
Indebtedness" has the meaning given to such term in either Subordination Agreement. 

        "Subordination
Agreements" means (i) the Subordination Agreement, dated as of July 2, 2003, executed by Serim Paper Manufacturing Co., Ltd. in the Lender's favor and
acknowledged by Netlist, (ii) the Subordination Agreement, dated as of July 2, 2003, executed by HeungHwa Industry Co. Ltd. in the Lender's favor and acknowledged by Netlist, and
(iii) any other subordination agreement accepted by the Lender from time to time. 

        "Subsidiary"
means any corporation of which more than 50% of the outstanding shares of capital stock having general voting power under ordinary circumstances to elect a majority of the
board of Directors of such corporation, irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any
contingency, is at the time directly or indirectly owned by the Borrower, by the Borrower and one or more other Subsidiaries, or by one or more other Subsidiaries. 

10

 

        "Termination
Date" means the earliest of (i) the Maturity Date, (ii) the date the Borrowers terminate the Credit Facility, or (iii) the date the Lender demands
payment of the Obligations after an Event of Default pursuant to Section 7.2. 

        "UCC"
means the Uniform Commercial Code as in effect in the state designated in Section 8.15 as the state whose laws shall govern this Agreement, or in any other state whose laws
are held to govern this Agreement or any portion hereof. 

        Section 1.2    Other Definitional Terms; Rules of Interpretation.    The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All accounting terms not otherwise
defined herein have the meanings assigned to them in accordance with GAAP. All terms defined in the UCC and not otherwise defined herein have the meanings assigned to them in the UCC. References to
Articles, Sections, subsections, Exhibits, Schedules and the like, are to Articles, Sections and subsections of, or Exhibits or Schedules attached to, this Agreement unless otherwise expressly
provided. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". Unless the context in which used herein otherwise clearly requires, "or"
has the inclusive meaning represented by the phrase "and/or". Defined terms include in the singular number the plural and in the plural number the singular. Reference to any agreement (including the
Loan Documents), document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof (and, if applicable, in
accordance with the terms hereof and the other Loan Documents), except where otherwise explicitly provided, and reference to any promissory note includes any promissory note which is an extension or
renewal thereof or a substitute or replacement therefor. Reference to any law, rule, regulation, order, decree, requirement, policy, guideline, directive or interpretation means as amended, modified,
codified, replaced or reenacted, in whole or in part, and in effect on the determination date, including rules and regulations promulgated thereunder. 

ARTICLE II  

 AMOUNT AND TERMS OF THE CREDIT FACILITY  

        Section 2.1    Revolving Advances.    The Lender agrees, on the terms and subject to the conditions herein set
forth, to make advances to the Borrowers from time to time from the date all of the conditions set forth in Section 4.1 are satisfied (the "Funding Date") to the Termination Date (the
"Revolving Advances"). The Lender shall have no obligation to make a Revolving Advance to the extent the amount of the requested Revolving Advance exceeds Availability. The Borrowers' obligation to
pay the Revolving Advances shall be evidenced by the Revolving Note and shall be secured by the Collateral. Within the limits set forth in this Section 2.1, the Borrowers may borrow, prepay
pursuant to Section 2.16 and reborrow. 

        Section 2.2    Procedures for Requesting Advances.    The Borrowers shall comply with the following procedures
in requesting Revolving Advances: 

        (a)    Time for Requests.    The Borrowers shall request each Advance not later than
10:00 a.m., Pacific time on the Banking Day which is the date the Advance is to be made. Each such request shall be effective upon receipt by the Lender, shall be in writing or by telephone,
telecopy transmission or email, to be confirmed in writing by the Borrowers if so requested by the Lender, shall be by (i) an Officer of the Borrowers; or (ii) a person designated as the
Borrowers' agent by an Officer of the Borrowers in a writing delivered to the Lender; or (iii) a person whom the Lender reasonably believes to be an Officer of the Borrowers or such a
designated agent. The Borrowers shall repay all Advances even if the Lender does not receive such confirmation and even if the person requesting an Advance was not in fact authorized to do so. Any
request for an 

11

 

Advance,
whether written or telephonic, shall be deemed to be a representation by the Borrowers that the conditions set forth in Section 4.2 have been satisfied as of the time of the request. 

        (b)    Disbursement.    Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall disburse the proceeds of the requested Advance by crediting the same to the Borrowers' demand deposit account maintained with Wells Fargo Bank, N.A., unless the
Lender and the Borrowers shall agree in writing to another manner of disbursement. 

        Section 2.3    Intentionally Omitted.    

        Section 2.4    Capital Adequacy; Funding Exceptions.    

        (a)   If
the Lender determines at any time that its Return has been reduced as a result of any Rule Change, such Lender may so notify the Borrowers and require the Borrowers,
beginning fifteen (15) days after such notice, to pay it the amount necessary to restore its Return to what it would have been had there been no Rule Change. For purposes of this
Section 2.4: 

          (i)  "Capital
Adequacy Rule" means any law, rule, regulation, guideline, directive, requirement or request regarding capital adequacy, or the interpretation or
administration thereof by any governmental or regulatory authority, central bank or comparable agency, whether or not having the force of law, that applies to any Related Lender, including rules
requiring financial institutions to maintain total capital in amounts based upon percentages of outstanding loans, binding loan commitments and letters of credit. 

         (ii)  "L/C
Rule" means any law, rule, regulation, guideline, directive, requirement or request regarding letters of credit, or the interpretation or administration thereof by
any governmental or regulatory authority, central bank or comparable agency, whether or not having the force of law, that applies to any Related Lender, including those that impose taxes, duties or
other similar charges, or mandate reserves, special deposits or similar requirements against assets of, deposits with or for the account of, or credit extended by any Related Lender, on letters of
credit. 

        (iii)  "Related
Lender" includes (but is not limited to) the Lender, any parent of the Lender, any assignee of any interest of the Lender hereunder and any participant in the
Credit Facility. 

        (iv)  "Return",
for any period, means the percentage determined by dividing (i) the sum of interest and ongoing fees earned by the Lender under this Agreement during
such period, by (ii) the average capital such Lender is required to maintain during such period as a result of its being a party to this Agreement, as determined by such Lender based upon its
total capital requirements and a reasonable attribution formula that takes account of the Capital Adequacy Rules and L/C Rules then in effect, costs of issuing or maintaining any Advance or Letter of
Credit and amounts received or receivable under this Agreement or the Notes with respect to any Advance or Letter of Credit. Return may be
calculated for each calendar quarter and for the shorter period between the end of a calendar quarter and the date of termination in whole of this Agreement. 

         (v)  "Rule
Change" means any change in any Capital Adequacy Rule or L/C Rule occurring after the date of this Agreement, or any change in the interpretation or administration
thereof by any governmental or regulatory authority, but the term does not include any changes that at the Funding Date are scheduled to take place under the existing Capital Adequacy Rules or L/C
Rules or any increases in the capital that the Lender is required to maintain to the extent that the increases are required due to a regulatory authority's assessment of that Lender's financial
condition. 

12

 

        (b)   The
initial notice sent by the Lender shall be sent as promptly as practicable after such Lender learns that its Return has been reduced, shall include a demand for
payment of the amount necessary to restore such Lender's Return for the quarter in which the notice is sent, and shall state in reasonable detail the cause for the reduction in its Return and its
calculation of the amount of such reduction. Thereafter, such Lender may send a new notice during each calendar quarter setting forth the calculation of the reduced Return for that quarter and
including a demand for payment of the amount necessary to restore its Return for that quarter. The Lender's calculation in any such notice shall be conclusive and binding absent demonstrable error. 

        Section 2.5    Letters of Credit.    

        (a)   The
Lender agrees, on the terms and subject to the conditions herein set forth, to cause an Issuer to issue, from the Funding Date to the Termination Date, one or more
irrevocable standby or documentary letters of credit (each, a "Letter of Credit") for either Borrower's account by guaranteeing payment of such Borrower's obligations or being a
co-applicant. The Lender shall have no obligation to cause an Issuer to issue any Letter of Credit if the face amount of the Letter of Credit to be issued would exceed the lesser of: 

          (i)  $500,000
less the L/C Amount, or 

         (ii)  Availability.

Each
Letter of Credit, if any, shall be issued pursuant to a separate L/C Application entered into between the Borrower and the Lender for the benefit of the Issuer, completed in a manner satisfactory
to the Lender and the Issuer. The terms and conditions set forth in each such L/C Application shall
supplement the terms and conditions hereof, but if the terms of any such L/C Application and the terms of this Agreement are inconsistent, the terms hereof shall control. 

        (b)   No
Letter of Credit shall be issued with an expiry date later than the Termination Date in effect as of the date of issuance. 

        (c)   Any
request to cause an Issuer to issue a Letter of Credit shall be deemed to be a representation by the Borrowers that the conditions set forth in Section 4.2
have been satisfied as of the date of the request. 

        Section 2.6    Special Account.    If the Credit Facility is terminated for any reason while any Letter of
Credit is outstanding, the Borrowers shall thereupon pay the Lender in immediately available funds for deposit in the Special Account an amount equal to the L/C Amount. The Special Account shall be an
interest bearing account maintained for the Lender by any financial institution acceptable to the Lender. Any interest earned on amounts deposited in the Special Account shall be credited to the
Special Account. The Lender may apply amounts on deposit in the Special Account at any time or from time to time to the Obligations in the Lender's sole discretion. The Borrowers may not withdraw any
amounts on deposit in the Special Account as long as the Lender maintains a security interest therein. The Lender agrees to transfer any balance in the Special Account to the Borrowers when the Lender
is required to release its security interest in the Special Account under applicable law. 

        Section 2.7    Payment of Amounts Drawn Under Letters of Credit; Obligation of Reimbursement.    Each Borrower
acknowledges that the Lender, as co-applicant, will be liable to the Issuer for reimbursement of any and all draws under Letters of Credit and for all other amounts required to be paid
under the applicable L/C Application. Accordingly, the Borrowers shall pay to the Lender any and all amounts required to be paid under the applicable L/C Application, when and as required to be paid
thereby, and the amounts designated below, when and as designated: 

        (a)   The
Borrowers shall pay to the Lender on the day a draft is honored under any Letter of Credit a sum equal to all amounts drawn under such Letter of Credit plus any and
all reasonable charges and expenses that the Issuer or the Lender may pay or incur relative to such draw and the 

13

 

applicable
L/C Application, plus interest on all such amounts, charges and expenses as set forth below (the Borrowers' obligation to pay all such amounts is herein referred to as the "Obligation of
Reimbursement"). 

        (b)   Whenever
a draft is submitted under a Letter of Credit, each Borrower authorizes the Lender to make a Revolving Advance in the amount of the Obligation of Reimbursement
and to apply the
proceeds of such Revolving Advance thereto. Such Revolving Advance shall be repayable in accordance with and be treated in all other respects as a Revolving Advance hereunder. 

        (c)   If
a draft is submitted under a Letter of Credit when the Borrowers are unable, because a Default Period exists or for any other reason, to obtain a Revolving Advance to
pay the Obligation of Reimbursement, the Borrowers shall pay to the Lender on demand and in immediately available funds, the amount of the Obligation of Reimbursement together with interest, accrued
from the date of the draft until payment in full at the Default Rate. Notwithstanding the Borrowers' inability to obtain a Revolving Advance for any reason, the Lender is irrevocably authorized, in
its sole discretion, to make a Revolving Advance in an amount sufficient to discharge the Obligation of Reimbursement and all accrued but unpaid interest thereon. 

        (d)   The
Borrowers' obligation to pay any Revolving Advance made under this Section 2.7, shall be evidenced by the Revolving Note and shall bear interest as provided
in Section 2.12. 

        Section 2.8    Obligations Absolute.    The Borrowers' obligations arising under Section 2.7 shall be
absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of Section 2.7, under all circumstances whatsoever, including (without limitation) the following
circumstances: 

        (a)   any
lack of validity or enforceability of any Letter of Credit or any other agreement or instrument relating to any Letter of Credit (collectively the "Related
Documents"); 

        (b)   any
amendment or waiver of or any consent to departure from all or any of the Related Documents; 

        (c)   the
existence of any claim, setoff, defense or other right which the Borrowers may have at any time, against any beneficiary or any transferee of any Letter of Credit
(or any persons or entities for whom any such beneficiary or any such transferee may be acting), or other person or entity, whether in connection with this Agreement, the transactions contemplated
herein or in the Related Documents or any unrelated transactions; 

        (d)   any
statement or any other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect whatsoever; 

        (e)   payment
by or on behalf of the Issuer under any Letter of Credit against presentation of a draft or certificate which does not strictly comply with the terms of such
Letter of Credit; or 

        (f)    any
other circumstance or happening whatsoever, whether or not similar to any of the foregoing. 

        Section 2.9    Intentionally Omitted.    

        Section 2.10    Inventory Appraisals.    The Lender may from time to time (and will, no less than four times
each year) obtain at the Borrowers' expense an appraisal of Inventory by an appraiser acceptable to the Lender in its sole discretion. 

14

 

        Section 2.11    Intentionally Omitted.    

        Section 2.12    Interest; Applicable Margin; Minimum Interest Charge; Default Interest; Participations; Clearance Days;
Usury.    

        (a)    Notes.    Except as set forth in Subsections (d) and (g), the outstanding
principal balance of the Note shall bear interest at the Floating Rate. 

        (b)    Applicable Margin.    Reductions and increases in the Applicable Margin will be made
within five calendar days following receipt of the Netlist's consolidated financial statements and compliance certificates required under Section 6.1. Notwithstanding the foregoing,
(i) if the Borrowers fail to deliver any financial statements or compliance certificates when required under Section 6.1, the Lender may, by notice to the Borrowers, increase the
Applicable Margin to fifty (50) basis points until such time as the Lender has received all such financial statements and compliance certificates, and (ii) no reduction in the Applicable
Margin will be made if a Default Period exists at the time that such reduction would otherwise be made. 

        (c)    Minimum Interest Charge.    Notwithstanding the interest payable pursuant to Subsection
(a), the Borrowers shall pay to the Lender interest of not less than $30,000 per calendar quarter beginning October 1, 2003, and increasing to $37,500 per calendar quarter beginning
January 1, 2004 (the "Minimum Interest Charge") during the term of this Agreement, and the Borrowers shall pay any deficiency between the Minimum Interest Charge and the amount of interest
otherwise calculated under Subsection (a) on the first day of each month and on the Termination Date. 

        (d)    Default Interest Rate.    Upon notice to the Borrowers from the Lender from time to
time, the principal of the Advances outstanding from time to time shall bear interest at the Default Rate, effective as of the first day of the month during which any Default Period begins through the
last day of such Default Period. The Lender's election to charge the Default Rate shall be in its sole discretion and shall not be a waiver of any of its other rights and remedies. The Lender's
election to charge interest at the Default Rate for less than the entire period during which the Default Rate may be charged shall not be a waiver of its right to later charge the Default Rate for the
entire such period. 

        (e)    Clearance Days.    Notwithstanding Section 2.15(b)(ii), interest at the interest
rate applicable under this Section 2.12 shall accrue on the amount of all payments (even if in the form of immediately available federal funds) for one (1) day for clearance. 

        (f)    Participations.    If any Person shall acquire a participation in the Advances or the
Obligation of Reimbursement, the Borrowers shall be obligated to the Lender to pay the full amount of all interest calculated under this Section 2.12, along with all other fees, charges and
other amounts due under this Agreement, regardless if such Person elects to accept interest with respect to its participation at a lower rate than that calculated under this Section 2.12, or
otherwise elects to accept less than its prorata share of such fees, charges and other amounts due under this Agreement. 

        (g)    Usury.    In any event no rate change shall be put into effect which would result in a
rate greater than the highest rate permitted by law. Notwithstanding anything to the contrary contained in any Loan Document, all agreements which either now are or which shall become agreements
between the Borrowers and the Lender are hereby limited so that in no contingency or event whatsoever shall the total liability for payments in the nature of interest, additional interest and other
charges exceed the applicable limits imposed by any applicable usury laws. If any payments in the nature of interest, additional interest and other charges made under any Loan Document are held to be
in excess of the limits imposed by any applicable usury laws, it is agreed that any such amount held to be in excess shall be considered payment of principal hereunder, and the 

15

 

indebtedness
evidenced hereby shall be reduced by such amount so that the total liability for payments in the nature of interest, additional interest and other charges shall not exceed the applicable
limits imposed by any applicable usury laws, in compliance with the desires of the Borrowers and the Lender. This provision shall never be superseded or waived and shall control every other provision
of the Loan Documents and all agreements between the Borrowers and the Lender, or their successors and assigns. 

        Section 2.13    Fees.    

        (a)    Origination Fee.    The Borrowers have paid the Lender a fully earned and
non-refundable origination fee of $25,000 upon the execution of the Prior Agreement. 

        (b)    Audit Fees.    The Borrowers shall pay the Lender, on demand, audit fees in connection
with any audits or inspections conducted by or on behalf of the Lender of any Collateral or the Borrowers' operations or business at the rates established from time to time by the Lender as its audit
fees (which fees are currently $90 per hour per auditor), together with all actual out-of-pocket costs and expenses incurred in conducting any such audit or inspection. 

        (c)    Letter of Credit Fees.    The Borrowers shall pay to the Lender a fee with respect to
each Letter of Credit, if any, accruing on a daily basis and computed at the annual rate of one percent (1.0%), of the aggregate amount that may then be drawn under it assuming compliance with all
conditions for drawing (the "Aggregate Face Amount"), from and including the date of issuance of such Letter of Credit until such date as such Letter of Credit shall terminate by its terms or be
returned to the Lender, due and payable monthly in arrears on the first day of each month and on the Termination Date; provided,  howeverthat during Default
Periods, in the Lender's sole discretion and without waiving any of its other rights and remedies, such fee shall increase to
four percent (4.0%) of the Aggregate Face Amount. The foregoing fee shall be in addition to any and all fees, commissions and charges of the Issuer with respect to or in connection with such Letter of
Credit. 

        (d)    Letter of Credit Administrative Fees.    The Borrowers shall pay to the Lender, on
written demand, the administrative fees charged by the Issuer in connection with the honoring of drafts under any Letter of Credit, amendments thereto, transfers thereof and all other activity with
respect to the Letters of Credit at the then-current rates published by the Issuer for such services rendered on behalf of customers of the Issuer generally. 

        (e)    Termination Fees.    If the Credit Facility is terminated (i) by the Lender
during a Default Period that begins before a Maturity Date, or (ii) by the Borrowers (A) as of a date other than a Maturity Date or (B) as of a Maturity Date but without the
Lender having received written notice of such termination at least 90 days before such Maturity Date, the Borrowers shall pay to the Lender a fee in an amount equal to a percentage of the
Maximum Line (or the reduction of the Maximum Line, as the case may be) as follows: (A) three percent (3.0%) if the termination or reduction occurs on or before the first anniversary of the
Funding Date; (B) two percent (2.0%) if the termination or reduction occurs after the first anniversary of the Funding Date but on or before the second anniversary of the Funding Date; and
(C) one percent (1.0%) if the termination or reduction occurs after the second anniversary of the Funding Date. 

        (f)    Intentionally
Omitted. 

        (g)   Waiver
of Termination Fee. 

          (i)  The
Borrowers will not be required to pay the termination fee otherwise due under subsection (e) if such termination or prepayment is made because of refinancing
by an affiliate of the Lender. 

         (ii)  If
at any time after the first anniversary of the Funding Date the Borrowers shall receive a written, bona fide letter of intent, commitment letter or similar offer
("Commitment 

16

 

Letter")
to provide financing to refinance the Obligations, the Borrowers shall immediately provide the Lender with a copy of such Commitment Letter and such other information with respect to the
offeror (including name, address and contact person) as the Lender may reasonably request. Upon the date of receipt by the Lender of a Commitment Letter, the Lender shall have the exclusive right to
provide to the Borrowers the financing arrangements at the terms described in such Commitment Letter for a period of 45 days following the date of such receipt by the Lender. If the Lender does
not deliver to the Borrowers a written offer to provide the financing arrangements at the terms described in a Commitment Letter within such 45 day period, then, provided that no Event of
Default is then continuing, the Borrowers may obtain the financing arrangements from the offeror thereof only at the terms described in such Commitment Letter for a period of 30 days following
the expiration of such 45 day period without being required to pay the termination fees otherwise due under subsection (e). 

        (h)    Unused Line Fee.    On the first day of each calendar quarter during the term of this
Agreement, an unused line fee in an amount equal to 0.25% per annum times the result of (a) the Maximum Line, less (b) the sum of (i) the average Daily Balance of Advances that
were outstanding during the immediately preceding calendar quarter, plus (ii) the average Daily Balance of the L/C Amount during the immediately preceding calendar quarter. 

        (i)    Other Fees.    The Lender may from time to time, upon five (5) days prior notice
to the Borrowers during a Default Period, charge additional fees for Revolving Advances made and Letters of Credit issued in excess of Availability, for late delivery of reports, in lieu of imposing
interest at the Default Rate, and for other reasons. The Borrowers' request for a Revolving Advance or the issuance of a Letter of Credit at any time after such notice is given and such five
(5) day period has elapsed shall constitute the Borrowers' agreement to pay the fees described in such notice. 

        (j)    Foreign Receivable Subline Fee.    The Borrowers will pay a monthly fee, in advance, in
the amount of $2,187.50, which monthly fee shall be due on the first day of each month, commencing on the first such day following receipt by the Lender of the FREP Activation Notice and continuing on
the first day of each succeeding month for so long as the Lender is obligated to make Advances against Eligible Foreign Accounts hereunder. The Foreign Receivable Subline Fee shall be fully earned
when paid and non-refundable. 

17

   
        Section 2.14    Time for Interest Payments; Payment on Non-Banking Days; Computation of Interest and
Fees.    

        (a)    Time For Interest Payments.    Interest shall be due and payable in arrears on the last
day of each month and on the Termination Date. 

        (b)    Payment on Non-Banking Days.    Whenever any payment to be made hereunder
shall be stated to be due on a day which is not a Banking Day, such payment may be made on the next succeeding Banking Day, and such extension of time shall in such case be included in the computation
of interest on the Advances or the fees hereunder, as the case may be. 

        (c)    Computation of Interest and Fees.    Interest accruing on the outstanding principal
balance of the Advances and fees hereunder outstanding from time to time shall be computed on the basis of actual number of days elapsed in a year of 360 days. 

        Section 2.15    Lockbox; Collateral Account; Application of Payments.    

        (a)   Lockbox
and Collateral Account. 

          (i)  The
Borrowers shall instruct all Account Debtors to pay all Accounts directly to the Lockbox. If, notwithstanding such instructions, either Borrower receives any
payments on Accounts, such Borrower shall deposit such payments into the Collateral Account. The Borrowers shall also deposit all other cash proceeds of Collateral directly to the Collateral Account.
Until so deposited, the Borrowers shall hold all such payments and cash proceeds in trust for and as the property of the Lender and shall not commingle such property with any of its other funds or
property. All deposits in the Collateral Account shall constitute proceeds of Collateral and shall not constitute payment of the Obligations. 

         (ii)  All
items deposited in the Collateral Account shall be subject to final payment. If any such item is returned uncollected, the Borrowers will immediately pay the
Lender, or, for items deposited in the Collateral Account, the bank maintaining such account, the amount of that item, or such bank at its discretion may charge any uncollected item to the Borrowers'
commercial account or other account.
The Borrowers shall be liable as an endorser on all items deposited in the Collateral Account, whether or not in fact endorsed by the Borrowers. 

        (b)   Application
of Payments. 

          (i)  The
Borrowers may, from time to time, in accordance with the Lockbox and Collection Account Agreement, cause funds in the Collateral Account to be transferred to the
Lender's general account for payment of the Obligations. Except as provided in the preceding sentence, amounts deposited in the Collateral Account shall not be subject to withdrawal by the Borrowers,
except after full payment and discharge of all Obligations. 

         (ii)  All
payments to the Lender shall be made in immediately available funds and shall be applied to the Obligations upon receipt by the Lender. Funds received from the
Collateral Account shall be deemed to be immediately available. The Lender may hold all payments not constituting immediately available funds for three (3) additional days before applying them
to the Obligations. Subject to Section 7.7 of this Agreement, all payments with respect to the Obligations may be applied, and in the Lender's sole discretion reversed and
re-applied, to the Obligations, in such order and manner as the Lender shall determine in its sole discretion. 

        Section 2.16    Voluntary Prepayment; Termination of the Credit Facility by the Borrowers.    Except as
otherwise provided herein, the Borrowers may prepay the Advances in whole at any time or from time to time in part. The Borrowers may terminate the Credit Facility at any time if it (i) gives
the Lender at least 30 days' prior written notice and (ii) pays the Lender termination and prepayment fees in accordance with Section 2.13(e). Subject to termination of the Credit
Facility and payment and 

18

 

performance
of all Obligations, the Lender shall, at the Borrowers' expense, release or terminate the Security Interest and the Security Documents to which the Borrowers are entitled by law. 

        Section 2.17    Mandatory Prepayment.    Without notice or demand, if the sum of the outstanding principal
balance of the Revolving Advances plus the L/C Amount shall at any time exceed the Borrowing Base, the Borrowers shall (i) first, immediately prepay the Revolving Advances to the extent
necessary to eliminate such excess; and (ii) if prepayment in full of the Revolving Advances is insufficient to eliminate such excess, pay to the Lender in immediately available funds for
deposit in the Special Account an amount equal to the remaining excess. Any payment received by the Lender under this Section 2.17 or under Section 2.16 may be applied to the
Obligations, in such order and in such amounts as the Lender, in its discretion, may from time to time determine. 

        Section 2.18    Revolving Advances to Pay Obligations.    Notwithstanding anything in Section 2.1, the
Lender may, in its discretion at any time or from time to time, without the Borrowers' request and even if the conditions set forth in Section 4.2 would not be satisfied, make a Revolving
Advance in an amount equal to the portion of the Obligations from time to time due and payable. 

        Section 2.19    Use of Proceeds.    The Borrowers shall use the proceeds of Advances and each Letter of Credit
for ordinary working capital purposes. 

        Section 2.20    Liability Records.    The Lender may maintain from time to time, at its discretion, records as
to the Obligations. All entries made on any such record shall be presumed correct until the Borrowers establish the contrary. Upon the Lender's demand, the Borrowers will admit and certify in writing
the exact principal balance of the Obligations that the Borrowers then assert to be outstanding. Any billing statement or accounting rendered by the Lender shall be conclusive and fully binding on the
Borrowers unless the Borrowers give the Lender specific written notice of exception within 30 days after receipt. 

ARTICLE III  

 SECURITY INTEREST; OCCUPANCY; SETOFF  

        Section 3.1    Grant of Security Interest.    Each Borrower hereby pledges, assigns and grants to the Lender a
lien and security interest (collectively referred to as the "Security Interest") in the Collateral, as security for the payment and performance of the Obligations. Upon request by the Lender, each
Borrower will grant the Lender a security interest in all commercial tort claims it may have against any Person. 

        Section 3.2    Notification of Account Debtors and Other Obligors.    The Lender may at any time (whether or
not a Default Period then exists) notify any Account Debtor or other person obligated to pay the amount due that such right to payment has been assigned or transferred to the Lender for security and
shall be paid directly to the Lender. The Borrowers will join in giving such notice if the Lender so requests. At any time after the Borrowers or the Lender gives such notice to an Account Debtor or
other obligor, the Lender may, but need not, in the Lender's name or in the Borrowers' name, demand, sue for, collect or receive any money or property at any time payable or receivable on account of,
or securing, any such right to payment, or grant any extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including collateral
obligations) of any such Account Debtor or other obligor. 

        Section 3.3    Assignment of Insurance.    As additional security for the payment and performance of the
Obligations, each Borrower hereby assigns to the Lender any and all monies (including proceeds of insurance and refunds of unearned premiums) due or to become due under, and all other rights of such
Borrower with respect to, any and all policies of insurance now or at any time hereafter covering the Collateral or any evidence thereof or any business records or valuable papers pertaining thereto, 

19

 

and
each Borrower hereby directs the issuer of any such policy to pay all such monies directly to the Lender. At any time, whether or not a Default Period then exists, the Lender may (but need not),
in the Lender's name or in the Borrowers' name, execute and deliver proof of claim, receive all such monies, endorse checks and other instruments representing payment of such monies, and adjust,
litigate, compromise or release any claim against the issuer of any such policy. 

        Section 3.4    Occupancy.    

        (a)   Each
Borrower hereby irrevocably grants to the Lender the right to take exclusive possession of the Premises at any time during a Default Period. 

        (b)   The
Lender may use the Premises only to hold, process, manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of goods that are Collateral and for
other purposes that the Lender may in good faith deem to be related or incidental purposes. 

        (c)   The
Lender's right to hold the Premises shall cease and terminate upon the earlier of (i) payment in full and discharge of all Obligations and termination of the
Credit Facility, and (ii) final sale or disposition of all goods constituting Collateral and delivery of all such goods to purchasers. 

        (d)   The
Lender shall not be obligated to pay or account for any rent or other compensation for the possession, occupancy or use of any of the Premises;  provided, however, that if the Lender does pay or account for any rent or other compensation for the
possession, occupancy or use of any of the Premises, the Borrowers shall reimburse the Lender promptly for the full amount thereof. In addition, the Borrowers will pay, or reimburse the Lender for,
all taxes, fees, duties, imposts, charges and expenses at any time incurred by or imposed upon the Lender by reason of the execution, delivery, existence, recordation, performance or enforcement of
this Agreement or the provisions of this Section 3.4. 

        Section 3.5    License.    Without limiting the generality of any other Security Document, each Borrower hereby
grants to the Lender a non-exclusive, worldwide and royalty-free license to use or otherwise exploit all Intellectual Property Rights of such Borrower for the purpose of:
(a) completing the manufacture of any in-process materials during any Default Period so
that such materials become saleable Inventory, all in accordance with the same quality standards previously adopted by such Borrower for its own manufacturing and subject to such Borrower's reasonable
exercise of quality control; and (b) selling, leasing or otherwise disposing of any or all Collateral during any Default Period. 

        Section 3.6    Financing Statement.    Each Borrower authorizes the Lender to file from time to time where
permitted by law, such financing statements against collateral described as "all personal property" or describing specific items of collateral including commercial tort claims as the Lender deems
necessary or useful to perfect the Security Interest. A carbon, photographic or other reproduction of this Agreement or of any financing statements signed by either Borrower is sufficient 

20

 

as
a financing statement and may be filed as a financing statement in any state to perfect the security interests granted hereby. For this purpose, the following information is set forth: 

Name
and address of Debtors: 

Netlist, Inc.

3 Goddard

Irvine, CA 92618

FEIN 95-4812784

Organizational Identification No. 3242099 

Netlist
Technology Texas, L.P.

9430 Research Blvd. Echelon IV, Suite 400

Austin, TX 78759

FEIN 54-2133194

Organizational Identification No. 

Name
and address of Secured Party: 

Wells
Fargo Business Credit, Inc.

245 S. Los Robles Avenue, Suite 700

Pasadena, CA 91101

FEIN 41-1237652 

        Section 3.7    Setoff.    The Lender may at any time or from time to time, at its sole discretion and without
demand and without notice to anyone, setoff any liability owed to the Borrowers by the Lender, whether or not due, against any Obligation, whether or not due. In addition, each other Person holding a
participating interest in any Obligations shall have the right to appropriate or setoff any deposit or other liability then owed by such Person to the Borrowers, whether or not due, and apply the same
to the payment of said participating interest, as fully as if such Person had lent directly to the Borrowers the amount of such participating interest. 

        Section 3.8    Power of Attorney.    Each Borrower hereby irrevocably makes, constitutes, and appoints the
Lender (and any of the Lender's officers, employees, or agents designated by the Lender) as such Borrower's true and lawful attorney, with power to (a) if the Borrower refuses to, or fails
timely to execute and deliver any of the documents required to be described in Section 8.5, sign the name of the Borrower on any of the documents described in Section 8.5, (b) at
any time that an Event of Default has occurred and is continuing, sign the Borrower's name on any invoice or bill of lading relating to the Collateral, drafts against Account Debtors, or notices to
Account Debtors, (c) send requests for verification of Accounts, (d) endorse the Borrower's name on any collection item that may come into the Lender's possession, (e) at any time
that an Event of Default has occurred and is continuing, make, settle, and adjust all claims under Borrower's policies of insurance and make all determinations and decisions with respect to such
policies of insurance, (f) at any time that an Event of Default has occurred and is continuing, settle and adjust disputes and claims respecting the Accounts, chattel paper, or General
Intangibles directly with Account Debtors, for amounts and upon terms that the Lender determines to be reasonable, and the Lender may cause to be executed and delivered any documents and releases that
the Lender determines to be necessary, and (g) notify the United States Postal Service to change the address for delivery of the Borrower's mail to any address designated by the Lender,
otherwise intercept the Borrower's mail, and receive, open and dispose of the Borrower's mail, applying all Collateral as permitted under this Agreement and holding all other mail for the Borrower's
account or forwarding such mail to the Borrower's last known address. The appointment of the Lender as each Borrower's attorney, and each and every one of its rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been fully and finally repaid and performed and the Lender's obligations to extend credit hereunder are terminated. 

21

 

ARTICLE IV  

 CONDITIONS OF LENDING  

        Section 4.1    Conditions Precedent to the Initial Advances and Letter of Credit.    The Lender's obligation to
make the initial Advances or to cause any Letters of Credit to be issued shall be subject to the
condition precedent that the Lender shall have received all of the following, each in form and substance satisfactory to the Lender: 

        (a)   This
Agreement, duly executed by the Borrowers. 

        (b)   The
Note, duly executed by the Borrowers. 

        (c)   A
true and correct copy of any and all agreements pursuant to which the Borrowers' property is in the possession of any Person other than the Borrowers, together with,
in the case of any goods held by such Person for resale, (i) a consignee's acknowledgment and waiver of Liens, (ii) UCC financing statements sufficient to protect the Borrowers and the
Lender's interests in such goods, and (iii) UCC searches showing that no other secured party has filed a financing statement against such Person and covering property similar to the Borrowers
other than the Borrowers, or if there exists any such secured party, evidence that each such secured party has received notice from the Borrowers and the Lender sufficient to protect the Borrowers'
and the Lender's interests in the Borrowers' goods from any claim by such secured party. 

        (d)   An
acknowledgment and waiver of Liens from each warehouse in which the Borrowers are storing Inventory. 

        (e)   A
true and correct copy of any and all agreements pursuant to which the Borrowers' property is in the possession of any Person other than the Borrowers, together with,
(i) an acknowledgment and waiver of Liens from each subcontractor who has possession of the Borrowers' goods from time to time, (ii) UCC financing statements sufficient to protect the
Borrowers' and the Lender's interests in such goods, and (iii) UCC searches showing that no other secured party has filed a financing statement covering such Person's property other than the
Borrowers, or if there exists any such secured party, evidence that each such secured party has received notice from the Borrowers and the Lender sufficient to protect the Borrowers' and the Lender's
interests in the Borrowers' goods from any claim by such secured party. 

        (f)    The
Lockbox and Collection Account Agreement, duly executed by NTTLP. 

        (g)   Control
agreements in form and substance satisfactory to the Lender, each duly executed by NTTLP, the General Partner and the Limited Partner and each bank at which each
of NTTLP, the General Partner and the Limited Partner maintains deposit accounts. 

        (h)   The
Guaranties, duly executed by the General Partner and the Limited Partner. 

        (i)    The
Security Agreements duly executed by the General Partner and the Limited Partner. 

        (j)    The
acknowledgements, in form and substance satisfactory to the Lender, dated as of the date hereof duly executed by Serim Paper Manufacturing Co., Ltd, HeungHwa
Industry Co. Ltd, Chun K. Hong, Christopher Lopes and Jayesh Bhakta. 

        (k)   Current
searches of appropriate filing offices showing that (i) no Liens have been filed and remain in effect against the Borrowers except Permitted Liens or
Liens held by Persons who have agreed in writing that upon receipt of proceeds of the initial Advances, they will satisfy, release or terminate such Liens in a manner satisfactory to the Lender, and
(ii) the Lender has duly filed all financing statements necessary to perfect the Security Interest, to the extent the Security Interest is capable of being perfected by filing. 

22

 

        (l)    A
certificate of the NTTLP's Secretary or Assistant Secretary certifying that attached to such certificate are (i) the resolutions of the General Partner's
Directors and, if required, Owners, authorizing the execution, delivery and performance of the Loan Documents, (ii) true, correct and complete copies of the General Partners' and NTTLP's
Constituent Documents, and (iii) examples of the signatures of the General Partner's Officers or agents authorized to execute and deliver the Loan Documents and other instruments, agreements
and certificates, including Advance requests, on NTTLP's behalf. 

        (m)  A
current certificate issued by the Secretary of State of Texas, certifying that NTTLP is in compliance with all applicable organizational requirements of the State of
Texas. 

        (n)   Evidence
that NTTLP is duly licensed or qualified to transact business in the State of California and all other jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such licensing or qualification necessary. 

        (o)   A
certificate of an Officer of NTTLP confirming, in his personal capacity, the representations and warranties set forth in Article V. 

        (p)   Certificates
of the insurance required hereunder, with all hazard insurance containing a lender's loss payable endorsement in the Lender's favor and with all liability
insurance naming the Lender as an additional insured. 

        (q)   Payment
of the fees and commissions due under Section 2.13 through the date of the initial Advance or Letter of Credit and expenses incurred by the Lender through
such date and required to be paid by the Borrowers under Section 8.6, including all legal expenses incurred through the date of this Agreement. 

        (r)   Such
other documents as the Lender in its sole discretion may require. 

        Section 4.2    Conditions Precedent to All Advances and Letters of Credit.    The Lender's obligation to make
each Advance and to cause each Letter of Credit to be issued shall be subject to the further conditions precedent that: 

        (a)   the representations and warranties contained in Article V are correct on and as of the date of such Advance or issuance of a Letter of
Credit as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date;

        (b)   no event has occurred and is continuing, or would result from such Advance or issuance of a Letter of Credit which constitutes a Default or an
Event of Default; and

        (c)   no injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extending of such credit shall have
been issued and remain in force by any Governmental Authority against the Borrowers, the Lender, or any of their Affiliates.

ARTICLE V  

 REPRESENTATIONS AND WARRANTIES  

        Each Borrower represents and warrants to the Lender as follows: 

        Section 5.1    Existence and Power; Name; Chief Executive Office; Inventory and Equipment Locations; Federal Employer Identification
Number.    

        (a)   Netlist
is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary. Netlist has all
requisite power and authority to conduct its business, to own its properties and to execute and deliver, and to perform 

23

 

all
of its obligations under, the Loan Documents. During its existence, Netlist has done business solely under the names set forth in Schedule 5.1 and all of Netlist's records relating to its
business or the Collateral are kept at that location. Netlist's chief executive office and principal place of business is located at the address set forth in Schedule 5.1. All Inventory and
Equipment is located at that location or at one of the other locations listed in Schedule 5.1. Netlist's federal employer identification number is correctly set forth in Section 3.6. 

        (b)   NTTLP
is a limited partnership, duly organized, validly existing and in good standing under the laws of the State of Texas and is duly licensed or qualified to transact
business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary. NTTLP has all
requisite power and authority to conduct its business, to own its properties and to execute and deliver, and to perform all of its obligations under, the Loan Documents. During its existence, NTTLP
has done business solely under the names set forth in Schedule 5.1 and all of NTTLP's records relating to its business or the Collateral are kept at that location. NTTLP's chief executive
office and principal place of business is located at the address set forth in Schedule 5.1. All Inventory and Equipment is located at that location or at one of the other locations listed in
Schedule 5.1. NTTLP's federal employer identification number is correctly set forth in Section 3.6. 

        Section 5.2    Capitalization.    Schedule 5.2 constitutes a correct and complete list of all ownership
interests of the Borrower and rights to acquire ownership interests including the record holder, number of interests and percentage interests on a fully diluted basis, and an organizational chart
showing the ownership structure of all Subsidiaries of the Borrower. 

        Section 5.3    Authorization of Borrowing; No Conflict as to Law or Agreements.    The execution, delivery and
performance by the Borrower of the Loan Documents and the borrowings from time to time hereunder have been duly authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's Owners; (ii) require any authorization, consent or approval by, or registration, declaration or filing with, or notice to, any Governmental Authority,
or any third Person, except such authorization, consent, approval, registration, declaration, filing or notice as has been obtained, accomplished or given prior to the date hereof;
(iii) violate any provision of any law, rule or regulation (including Regulation X of the Board of Governors of the Federal Reserve System) or of any order, writ, injunction or decree
presently in effect having applicability to the Borrower or of the Borrower's Constituent Documents; (iv) result in a breach of or constitute a default under any indenture or loan or credit
agreement or any other material agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected; or (v) result in, or require, the
creation or imposition of any Lien (other than the Security Interest) upon or with respect to any of the properties now owned or hereafter acquired by the Borrower. 

        Section 5.4    Legal Agreements.    This Agreement constitutes and, upon due execution by the Borrower, the
other Loan Documents will constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, except as enforcement may be
limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally. 

        Section 5.5    Subsidiaries.    Except as set forth in Schedule 5.5 hereto, the Borrower has no
Subsidiaries. 

        Section 5.6    Financial Condition; No Adverse Change.    Netlist has furnished to the Lender its audited
financial statements for its fiscal year ended December 31, 2001 and unaudited financial statements for the fiscal-year-to-date period ended May 31,
2003, and those statements fairly present Netlist's financial condition on the dates thereof and the results of its operations and cash flows for the periods then ended and were prepared in accordance
with generally accepted accounting principles. Since the date of the most recent financial statements, there has been no material adverse change in 

24

 

Netlist's
business, properties or condition (financial or otherwise) which has had a Material Adverse Effect. 

        Section 5.7    Litigation.    There are no actions, suits or proceedings pending or, to the Borrower's
knowledge, threatened against or affecting the Borrower or any of its Affiliates or the properties of the Borrower or any of its Affiliates before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to the Borrower or any of its Affiliates, would have a Material Adverse Effect. 

        Section 5.8    Regulation U.    The Borrower is not engaged in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Advance will be
used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. 

        Section 5.9    Taxes.    The Borrower and its Affiliates have paid or caused to be paid to the proper
authorities when due all federal, state and local taxes required to be withheld by each of them. The Borrower and its Affiliates have filed all federal, state and local tax returns which to the
knowledge of the Officers of the Borrower or any Affiliate, as the case may be, are required to be filed, and the Borrower and its Affiliates have paid or caused to be paid to the respective taxing
authorities all taxes as shown on said returns or on any assessment received by any of them to the extent such taxes have become due. 

        Section 5.10    Titles and Liens.    The Borrower has good and absolute title to all Collateral free and clear
of all Liens other than Permitted Liens. No financing statement naming the Borrower as debtor is on file in any office except to perfect only Permitted Liens. 

        Section 5.11    Intellectual Property Rights.    

        (a)    Owned Intellectual Property.    Schedule 5.11 is a complete list of all patents,
applications for patents, trademarks, applications for trademarks, service marks, applications for service marks, mask works, trade dress and copyrights for which the Borrower is the registered owner
(the "Owned Intellectual Property"). Except as disclosed on Schedule 5.11, (i) the Borrower owns the Owned Intellectual Property free and clear of all restrictions (including covenants
not to sue a third party), court orders, injunctions, decrees, writs or Liens, whether by written agreement or otherwise, (ii) no Person other than the Borrower owns or has been granted any
right in the Owned Intellectual Property, (iii) all Owned Intellectual Property is valid, subsisting and enforceable and (iv) the Borrower has taken all commercially reasonable action
necessary to maintain and protect the Owned Intellectual Property. 

        (b)    Agreements with Employees and Contractors.    The Borrower has entered into a legally
enforceable agreement with each of its employees and subcontractors obligating each such Person to assign to the Borrower, without any additional compensation, any Intellectual Property Rights
created, discovered or invented by such Person in the course of such Person's employment or engagement with the Borrower (except to the extent prohibited by law), and further requiring such Person to
cooperate with the Borrower, without any additional compensation, in connection with securing and enforcing any Intellectual Property Rights therein; provided, however, that the foregoing shall not
apply with respect to employees and subcontractors whose job descriptions are of the type such that no such assignments are reasonably foreseeable. 

        (c)    Intellectual Property Rights Licensed from Others.    Schedule 5.11 is a
complete list of all agreements under which the Borrower has licensed Intellectual Property Rights from another Person ("Licensed Intellectual Property") other than readily available,
non-negotiated licenses of computer software and other intellectual property used solely for performing accounting, word processing and similar administrative tasks
("Off-the-shelf Software") and a summary of any 

25

 

ongoing
payments the Borrower is obligated to make with respect thereto. Except as disclosed on Schedule 5.11 and in written agreements copies of which have been given to the Lender, the
Borrower's licenses to use the Licensed Intellectual Property are free and clear of all restrictions, Liens, court orders, injunctions, decrees, or writs, whether by written agreement or otherwise.
Except as disclosed on Schedule 5.11, the Borrower is not obligated or under any liability whatsoever to make any payments of a material nature by way of royalties, fees or otherwise to any
owner of, licensor of, or other claimant to, any Intellectual Property Rights. 

        (d)    Other Intellectual Property Needed for Business.    Except for
Off-the-shelf Software and as disclosed on Schedule 5.11, the Owned Intellectual Property and the Licensed Intellectual Property constitute all Intellectual Property
Rights used or necessary to conduct the Borrower's business as it is presently conducted or as the Borrower reasonably foresees conducting it. 

        (e)    Infringement.    Except as disclosed on Schedule 5.11, the Borrower has no
knowledge of, and has not received any written claim or notice alleging, any Infringement of another Person's Intellectual Property Rights (including any written claim that the Borrower must license
or refrain from using the Intellectual Property Rights of any third party) nor, to the Borrower's knowledge, is there any threatened claim or any reasonable basis for any such claim. 

        Section 5.12    Plans.    Except as disclosed to the Lender in writing prior to the date hereof, neither the
Borrower nor any ERISA Affiliate (i) maintains or has maintained any Pension Plan, (ii) contributes or has contributed to any Multiemployer Plan or (iii) provides or has provided
post-retirement medical or insurance benefits with respect to employees or former employees (other than benefits required under Section 601 of ERISA, Section 4980B of the IRC
or applicable state law). Neither the Borrower nor any ERISA Affiliate has received any notice or has any knowledge to the effect that it is not in full compliance with any of the requirements of
ERISA, the IRC or applicable state law with respect to any Plan. No Reportable Event exists in connection with any Pension Plan. Each Plan which is intended to qualify under the IRC is so qualified,
and no fact or circumstance exists which may have an adverse effect on the Plan's tax-qualified status. Neither the Borrower nor any ERISA Affiliate has (i) any accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of the IRC) under any Plan, whether or not waived, (ii) any liability under Section 4201 or 4243 of ERISA for
any withdrawal, partial withdrawal, reorganization or other event under any Multiemployer Plan or (iii) any liability or knowledge of any facts or circumstances which could result in any
liability to the Pension Benefit Guaranty Corporation, the Internal Revenue Service, the Department of Labor or any participant in connection with any Plan (other than routine claims for benefits
under the Plan). 

        Section 5.13    Default.    The Borrower is in compliance with all provisions of all agreements, instruments,
decrees and orders to which it is a party or by which it or its property is bound or affected, the breach or default of which could have a Material Adverse Effect. 

        Section 5.14    Environmental Matters.    

        (a)   To
the Borrower's best knowledge, there are not present in, on or under the Premises any Hazardous Substances in such form or quantity as to create any material
liability or obligation for either the Borrower or the Lender under common law of any jurisdiction or under any Environmental Law, and no Hazardous Substances have ever been stored, buried, spilled,
leaked, discharged, emitted or released in, on or under the Premises in such a way as to create any such material liability. 

        (b)   To
the Borrower's best knowledge, the Borrower has not disposed of Hazardous Substances in such a manner as to create any material liability under any Environmental Law. 

26

  

        (c)   There
are not and there never have been any requests, claims, notices, investigations, demands, administrative proceedings, hearings or litigation, relating in any way
to the Premises or the Borrower, alleging material liability under, violation of, or noncompliance with any Environmental Law or any license, permit or other authorization issued pursuant thereto. To
the Borrower's best knowledge, no such matter is threatened or impending. 

        (d)   To
the Borrower's best knowledge, the Borrower's businesses are and have in the past always been conducted in accordance with all Environmental Laws and all licenses,
permits and other authorizations required pursuant to any Environmental Law and necessary for the lawful and efficient operation of such businesses are in the Borrower's possession and are in full
force and effect. No permit required under any Environmental Law is scheduled to expire within 12 months and there is no threat that any such permit will be withdrawn, terminated, limited or
materially changed. 

        (e)   To
the Borrower's best knowledge, the Premises are not and never have been listed on the National Priorities List, the Comprehensive Environmental Response, Compensation
and Liability Information System or any similar federal, state or local list, schedule, log, inventory or database. 

        (f)    The
Borrower has delivered to Lender all environmental assessments, audits, reports, permits, licenses and other documents describing or relating in any way to the
Premises or Borrower's businesses. 

        Section 5.15    Submissions to Lender.    All financial and other information provided to the Lender by or on
behalf of the Borrower in connection with the Borrower's request for the credit facilities contemplated hereby is (i) true and correct in all material respects, (ii) does not omit any
material fact necessary to make such information not misleading and, (iii) as to projections, valuations or proforma financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results. 

        Section 5.16    Financing Statements.    The Borrower has authorized the filing of financing statements
sufficient when filed to perfect the Security Interest and the other security interests created by the Security Documents. When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral which is capable of being perfected by filing financing statements. None of the Collateral is or will become a fixture on
real estate, unless a sufficient fixture filing is in effect with respect thereto. 

        Section 5.17    Rights to Payment.    Each right to payment and each instrument, document, chattel paper and
other agreement constituting or evidencing Collateral is (or, in the case of all future Collateral, will be when arising or issued) the valid, genuine and legally enforceable obligation, subject to no
defense, setoff or counterclaim, of the Account Debtor or other obligor named therein or in the Borrower's records pertaining thereto as being obligated to pay such obligation. 

        Section 5.18    Eligible Accounts; Eligible Foreign Accounts.    Each Account included in the Borrowing Base is
an "Eligible Account" or an "Eligible Foreign Account" as defined herein, and conforms to the definitions thereof. 

        Section 5.19    Eligible Inventory.    All Inventory included in the Borrowing Base is "Eligible Inventory," as
defined herein, and conforms to the definition thereof. 

        Section 5.20    Equipment.    All of the Equipment is used or held for use in the Borrower's business and is
fit for such purposes. 

        Section 5.21    Fraudulent Transfer.    The Borrower is Solvent. No transfer of property is being made by the
Borrower and no obligation is being incurred by the Borrower in connection with the 

27

 

transactions
contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of the Borrower. 

ARTICLE VI  

 COVENANTS  

        So long as the Obligations shall remain unpaid, or the Credit Facility shall remain outstanding, each Borrower will comply with the following requirements, unless
the Lender shall otherwise consent in writing: 

        Section 6.1    Reporting Requirements.    The Borrower will deliver, or cause to be delivered, to the Lender
each of the following, which shall be in form and detail acceptable to the Lender: 

        (a)    Annual Financial Statements.    As soon as available, and in any event within
90 days after the end of each fiscal year of the Borrowers, the Borrowers will deliver, or cause to be delivered, to the Lender, Netlist's audited and consolidated financial statements with the
unqualified opinion of independent certified public accountants selected by the Borrowers and acceptable to the Lender, which annual financial statements shall include Netlist's balance sheet as at
the end of such fiscal year and the related statements of Netlist's income, retained earnings and cash flows for the fiscal year then ended, prepared on a consolidating and consolidated basis to
include any Subsidiaries, and prepared, if the Lender so requests, on a consolidating and consolidated basis to include any Affiliates, all in reasonable detail and prepared in accordance with GAAP,
together with (i) copies of all management letters prepared by such accountants; (ii) a report signed by such accountants stating that in making the investigations necessary for said
opinion they obtained no knowledge, except as specifically stated, of any Default or Event of Default and all relevant facts in reasonable detail to evidence, and the computations as to, whether or
not the Borrowers are in compliance with the Financial Covenants; and (iii) a certificate of Netlist's chief financial officer stating that such financial statements have been prepared in
accordance with GAAP, fairly represent Netlist's financial position and the results of its operations, and whether or not such officer has knowledge of the occurrence of any Default or Event of
Default and, if so, stating in reasonable detail the facts with respect thereto. 

        (b)    Monthly Financial Statements.    As soon as available and in any event within
20 days after the end of each month, the Borrowers will deliver to the Lender an unaudited/internal balance sheet and statements of income and retained earnings of Netlist as at the end of and
for such month and for the year to date period then ended, prepared, on a consolidating and consolidated basis to include any Subsidiaries, in reasonable detail and stating in comparative form the
figures for the corresponding date and periods in the previous year, all prepared in accordance with GAAP, subject to year-end audit adjustments and fairly represent the Borrower's
financial position and the results of its operations; and accompanied by a certificate of the Borrower's chief financial Officer, substantially in the form of Exhibit C hereto stating
(i) that such financial statements have been prepared in accordance with GAAP, subject to year-end audit adjustments, (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default not theretofore reported and remedied and, if so, stating in reasonable detail the facts with respect thereto, and (iii) all relevant facts in
reasonable detail to evidence, and the computations as to, whether or not the Borrower is in compliance with the Financial Covenants. 

        (c)    Collateral Reports.    The Borrower will deliver to the Lender the following documents
at the following times in form satisfactory to Lender: 

	 	 	 

28

 

	

Daily	
 	

(a)    a report of cash collections, sales assignments, credit memos/adjustments and deposits, copies of all invoices over $100,000, and a calculation of the Borrowing Base as of such date, and
	

 	
 	

(b)    notice of all returns, disputes, or claims.
	

Weekly	
 	

(c)    A copy of Dell Computers rolling 16 week forecast needs.
	

Monthly (not later than the 15th day of each month)	
 	

(d)    a detailed calculation of the Borrowing Base (including detail regarding those Accounts that are not Eligible Accounts or Eligible Foreign Accounts, and Inventory that is not Eligible Inventory),
	

 	
 	

(e)    a certified detailed listing and aging, by total, of the Accounts, together with a reconciliation to the detailed calculation of the Borrowing Base previously provided to Lender,
	

 	
 	

(f)    a summary aging, by vendor, of Borrower's accounts payable and any book overdraft, together with a reconciliation to the Borrower's general ledger and monthly financial statements delivered pursuant to Section 6.1(b),

	

 	
 	

(g)    an Inventory stock status report, by type and by location,
	

 	
 	

(h)    an Inventory slow moving report, and
	

 	
 	

(i)    an Inventory certification and perpetual report by location, including Inventory turnover by item number, together with a reconciliation to the Borrower's general ledger and monthly financial statements delivered pursuant
to Section 6.1(b).
	

Semi-Annually	
 	

(j)    a detailed list of Borrower's customers
	

Upon request by Lender	
 	

(k)    copies of invoices in connection with the Accounts, credit memos, remittance advices, deposit slips, shipping and delivery documents in connection with the Accounts and, for Inventory and Equipment acquired by Borrower,
purchase orders and invoices, and
	

 	
 	

(l)    such other reports as to the Collateral, or the financial condition of Borrower, as Lender may request.

        (d)    Projections.    At least 30 days before the beginning of each fiscal year of the
Borrowers, the Borrower will deliver to the Lender the projected consolidated balance sheets and income statements for each month of such year, each in reasonable detail, representing Netlist's good
faith projections and certified by Netlist's chief financial Officer as being the most accurate projections available and identical to the projections used by the Borrowers for internal planning
purposes, together with a statement of underlying assumptions and such supporting schedules and information as the Lender may in its discretion require. 

        (e)    Litigation.    Immediately after the commencement thereof, the Borrower will deliver to
the Lender notice in writing of all litigation and of all proceedings before any governmental or regulatory agency affecting the Borrower (i) of the type described in Section 5.14(c) or
(ii) which seek a monetary recovery against the Borrower in excess of $100,000. 

        (f)    Defaults.    As promptly as practicable (but in any event not later than five business
days) after an Officer of the Borrower obtains knowledge of the occurrence of any Default or Event of Default, the Borrower will deliver to the Lender notice of such occurrence, together with a
detailed statement by a responsible Officer of the Borrower of the steps being taken by the Borrower to cure the effect thereof. 

29

 

        (g)    Plans.    As soon as possible, and in any event within 30 days after the
Borrower knows or has reason to know that any Reportable Event with respect to any Pension Plan has occurred, the Borrower will deliver to the Lender a statement of the Borrower's chief financial
Officer setting forth details as to such Reportable Event and the action which the Borrower proposes to take with respect thereto, together with a copy of the notice of such Reportable Event to the
Pension Benefit Guaranty Corporation. As soon as possible, and in any event within 10 days after the Borrower fails to make any quarterly contribution required with respect to any Pension Plan
under Section 412(m) of the IRC, the Borrower will deliver to the Lender a statement of the Borrower's chief financial Officer setting forth details as to such failure and the action which the
Borrower proposes to take with respect thereto, together with a copy of any notice of such failure required to be provided to the Pension Benefit Guaranty Corporation. As soon as possible, and in any
event with 10 days after the Borrower knows or has reason to know that it has or is reasonably expected to have any liability under Section 4201 or 4243 of ERISA for any withdrawal,
partial withdrawal, reorganization or other event under any Multiemployer Plan, the Borrower will deliver to the Lender a statement of the Borrower's chief financial Officer setting forth details as
to such liability and the action which Borrower proposes to take
with respect thereto. 

        (h)    Disputes.    Promptly upon knowledge thereof, the Borrower will deliver to the Lender
notice of (i) any disputes or claims by the Borrower's customers exceeding $100,000 individually or $1,000,000 in the aggregate with the other Borrower during any fiscal year;
(ii) credit memos; (iii) any goods returned to or recovered by the Borrower. 

        (i)    Officers and Directors.    Promptly upon knowledge thereof, the Borrower will deliver
to the Lender notice of any change in the persons constituting the Borrower's Officers and Directors. 

        (j)    Collateral.    Promptly upon knowledge thereof, the Borrower will deliver to the Lender
notice of any loss of or material damage to any Collateral or of any substantial adverse change in any Collateral or the prospect of payment thereof. 

        (k)    Commercial Tort Claims.    Promptly upon knowledge thereof, the Borrower will deliver
to the Lender notice of any commercial tort claims it may bring against any person, including the name and address of each defendant, a summary of the facts, an estimate of the Borrower's damages,
copies of any complaint or demand letter submitted by the Borrower, and such other information as the Lender may request. 

        (l)    Intellectual Property.    

          (i)  The
Borrower will give the Lender 30 days prior written notice of its intent to acquire material Intellectual Property Rights; except for transfers permitted
under Section 6.18, the Borrower will give the Lender 30 days prior written notice of its intent to dispose of material Intellectual Property Rights; and upon request, shall provide the
Lender with copies of all applicable documents and agreements. 

         (ii)  Promptly
upon knowledge thereof, the Borrower will deliver to the Lender notice of (A) any Infringement of its Intellectual Property Rights by others,
(B) claims that the Borrower is Infringing another Person's Intellectual Property Rights and (C) any threatened cancellation, termination or material limitation of its Intellectual
Property Rights. 

        (iii)  Promptly
upon receipt, the Borrower will give the Lender copies of all registrations and filings with respect to its Intellectual Property Rights. 

        (m)    Reports to Owners.    Promptly upon their distribution, the Borrower will deliver to
the Lender copies
of all financial statements, reports and proxy statements which the Borrower shall have sent to its Owners. 

30

 

        (n)    SEC Filings.    Promptly after the sending or filing thereof, the Borrower will deliver
to the Lender copies of all regular and periodic reports which the Borrower shall file with the Securities and Exchange Commission or any national securities exchange. 

        (o)    Tax Returns.    Within 30 days of the date of filing, and in any event by not
later November 30 of each year, copies of the Borrower's state and federal tax returns and all schedules thereto; and as soon as possible, and in any event by not later than April 20 of
each year, copies of the state and federal tax returns and all schedules thereto and an updated personal financial statement of each owner of the Borrower and each Guarantor. 

        (p)    Violations of Law.    Promptly upon knowledge thereof, the Borrower will deliver to the
Lender notice of the Borrower's violation of any law, rule or regulation, the non-compliance with which could materially and adversely affect the Borrower's business or its financial
condition. 

        (q)    Other Reports.    From time to time, with reasonable promptness, the Borrower will
deliver to the Lender any and all receivables schedules, collection reports, deposit records, equipment schedules, copies of invoices to Account Debtors, shipment documents and delivery receipts for
goods sold, and such other material, reports, records or information as the Lender may request. 

        Section 6.2    Financial Covenants.    

        (a)    Minimum Book Net Worth.    Borrowers will maintain at all times the sum of Netlist's
Book Net Worth plus Subordinated Indebtedness, determined as at the end of each month, at an amount not less than the amount set forth in the table below opposite the applicable test date: 

	Test Date
 
	 	Minimum Book Net Worth Plus

Subordinated Indebtedness

	12/31/03 and each month end thereafter	 	$	5,583,000

        (b)    Minimum Net Income.    Netlist will achieve during each period described below minimum
year to date Net Income of not less than the amount set forth opposite in the table below opposite such period: 

	Year to Date Period Ending
 
	 	Minimum Year to Date

Consolidated Net Income

	12/31/03	 	$	3,833,000

        (c)    Capital Expenditures.    The Borrower will not incur or contract to incur Capital
Expenditures of more than $1,300,000 in the aggregate during the fiscal year ending December 27, 2003. 

        (d)    Minimum Monthly Net Income.    Netlist will achieve minimum Net Income of not less than
zero ($0) as at the end of each month. 

        Section 6.3    Permitted Liens; Financing Statements.    

        (a)   The
Borrower will not create, incur or suffer to exist any Lien upon or of any of its assets, now owned or hereafter acquired, to secure any indebtedness; excluding,
however, from the operation of the foregoing, the following (collectively, "Permitted Liens"): 

          (i)  in
the case of any of the Borrower's property which is not Collateral, covenants, restrictions, rights, easements and minor irregularities in title which do not
materially interfere with the Borrower's business or operations as presently conducted; 

         (ii)  Liens
in existence on the date hereof and listed in Schedule 6.3 hereto, securing indebtedness for borrowed money permitted under Section 6.4; 

        (iii)  the
Security Interest and Liens created by the Security Documents; and 

31

 

        (iv)  purchase
money Liens relating to the acquisition of machinery and equipment of the Borrower not exceeding the lesser of cost or fair market value thereof, not exceeding
$150,000 for any one purchase or $1,300,000 in the aggregate during any fiscal year, and so long as no Default Period is then in existence and none would exist immediately after such acquisition. 

        (b)   The
Borrower will not amend any financing statements in favor of the Lender except as permitted by law. Any authorization by the Lender to any Person to amend financing
statements in favor of the Lender shall be in writing. 

        Section 6.4    Indebtedness.    The Borrower will not incur, create, assume or permit to exist any Indebtedness
or liability on account of deposits or advances or any Indebtedness for borrowed money or letters of credit issued on the Borrower's behalf, or any other Indebtedness or liability evidenced by notes,
bonds, debentures or similar obligations, except: 

        (a)   Indebtedness
arising hereunder; 

        (b)   Indebtedness
of the Borrower in existence on the date hereof and listed in Schedule 6.4 hereto; 

        (c)   Indebtedness
relating to Permitted Liens; and 

        (d)   Indebtedness
consisting of intercompany transactions in the ordinary course of business between the Borrowers. 

        Section 6.5    Guaranties.    The Borrower will not assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any other Person, except: 

        (a)   the
endorsement of negotiable instruments by the Borrower for deposit or collection or similar transactions in the ordinary course of business; and 

        (b)   guaranties,
endorsements and other direct or contingent liabilities in connection with the obligations of other Persons, in existence on the date hereof and listed in
Schedule 6.4 hereto. 

        Section 6.6    Investments and Subsidiaries.    The Borrower will not purchase or hold beneficially any stock
or other securities or evidences of indebtedness of, make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever in, any other Person, including any
partnership or joint venture, except: 

        (a)   investments
in direct obligations of the United States of America or any agency or instrumentality thereof whose obligations constitute full faith and credit obligations
of the United States of America having a maturity of one year or less, commercial paper issued by U.S. corporations rated "A-1" or "A-2" by Standard & Poors Corporation
or "P-1" or "P-2" by Moody's Investors Service or certificates of deposit or bankers' acceptances having a maturity of one year or less issued by members of the Federal Reserve
System having deposits in excess of $100,000,000 (which certificates of deposit or bankers' acceptances are fully insured by the Federal Deposit Insurance Corporation); 

        (b)   travel
advances or loans to the Borrower's Officers and employees not exceeding at any one time an aggregate of $2,500; 

        (c)   advances
in the form of progress payments, prepaid rent not exceeding three months or security deposits; 

        (d)   current
investments in the Subsidiaries in existence on the date hereof and listed in Schedule 5.5 hereto; and 

        (e)   Indebtedness
consisting of intercompany transactions in the ordinary course of business between the Borrowers. 

32

 

        Section 6.7    Dividends and Distributions.    The Borrower will not declare or pay any dividends (other than
dividends payable solely in stock of the Borrower) or distributions on any class of its stock or partnership interests, as the case may be, or make any payment on account of the purchase, redemption
or other retirement of any shares of such stock or such partnership interests or make any distribution in respect thereof, either directly or indirectly. 

        Section 6.8    Salaries.    The Borrower will not pay excessive or unreasonable salaries, bonuses, commissions,
consultant fees or other compensation; or increase the salary, bonus, commissions, consultant fees or other compensation of any Director, Officer or consultant, or any member of their families. 

        Section 6.9    Intentionally Omitted.    

        Section 6.10    Books and Records; Inspection and Examination.    The Borrower will keep accurate books of
record and account for itself pertaining to the Collateral and pertaining to the Borrower's business and financial condition and such other matters as the Lender may from time to time request in which
true and complete entries will be made in accordance with GAAP and, upon the Lender's request, will permit any officer, employee, attorney or accountant for the Lender to audit, review, make extracts
from or copy any and all company and financial books and records of the Borrower at all times during ordinary business hours, to send and discuss with Account Debtors and other obligors requests for
verification of amounts owed to the Borrower, and to discuss the Borrower's affairs with any of its Directors, Officers, employees or agents. The Borrower hereby irrevocably authorizes all accountants
and third parties to disclose and deliver to Lender, at the Borrower's expense, all financial information, books and records, work papers, management reports and other information in their possession
regarding the Borrower. The Borrower will permit the Lender, or its employees, accountants, attorneys or agents, to examine and inspect any Collateral or any other property of the Borrower at any time
during ordinary business hours. 

        Section 6.11    Account Verification.    The Lender may at any time and from time to time send or require the
Borrower to send requests for verification of accounts or notices of assignment to Account Debtors and
other obligors. The Lender may also at any time and from time to time telephone Account Debtors and other obligors to verify accounts. 

        Section 6.12    Compliance with Laws.    

        (a)   The
Borrower will (i) comply with the requirements of applicable laws and regulations, the non-compliance with which would materially and adversely
affect its business or its financial condition and (ii) use and keep the Collateral, and require that others use and keep the Collateral, only for lawful purposes, without violation of any
federal, state or local law, statute or ordinance. 

        (b)   Without
limiting the foregoing undertakings, the Borrower specifically agrees that it will comply with all applicable Environmental Laws and obtain and comply with all
permits, licenses and similar approvals required by any Environmental Laws, and will not generate, use, transport, treat, store or dispose of any Hazardous Substances in such a manner as to create any
material liability or obligation under the common law of any jurisdiction or any Environmental Law. 

        Section 6.13    Payment of Taxes and Other Claims.    The Borrower will pay or discharge, when due,
(a) all taxes, assessments and governmental charges levied or imposed upon it or upon its income or profits, upon any properties belonging to it (including the Collateral) or upon or against
the creation, perfection or continuance of the Security Interest, prior to the date on which penalties attach thereto, (b) all federal, state and local taxes required to be withheld by it, and
(c) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon any properties of the Borrower; provided, that the Borrower shall not be required to
pay any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which proper reserves have been made. 

33

 

        Section 6.14    Maintenance of Properties.    

        (a)   The
Borrower will keep and maintain the Collateral and all of its other properties necessary or useful in its business in good condition, repair and working order
(normal wear and tear excepted) and will from time to time replace or repair any worn, defective or broken parts; provided, however, that nothing in this Section 6.14 shall prevent the Borrower
from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the Borrower's judgment, desirable in the conduct of the Borrower's business and not
disadvantageous in any material respect to the Lender. The Borrower will take all commercially reasonable steps necessary to protect and maintain its Intellectual Property Rights. 

        (b)   The
Borrower will defend the Collateral against all Liens, claims or demands of all Persons (other than the Lender) claiming the Collateral or any interest therein. The
Borrower will keep all Collateral free and clear of all Liens except Permitted Liens. The Borrower will take all commercially reasonable steps necessary to prosecute any Person Infringing its
Intellectual Property Rights and to defend itself against any Person accusing it of Infringing any Person's Intellectual Property Rights. 

        Section 6.15    Insurance.    The Borrower will obtain and at all times maintain insurance with insurers
believed by the Borrower to be responsible and reputable, in such amounts and against such risks as may from time to time be required by the Lender, but in all events in such amounts and against such
risks as is usually carried by companies engaged in similar business and owning similar properties in the same general areas in which the Borrower operates. Without limiting the generality of the
foregoing, the Borrower will at all times keep all tangible Collateral insured against risks of fire (including so-called extended coverage), theft, collision (for Collateral consisting of
motor vehicles) and such other risks and in such amounts as the Lender may reasonably request, with any loss payable to the Lender to the extent of its interest, and all policies of such insurance
shall contain a lender's loss payable endorsement for the Lender's benefit. All policies of liability insurance required hereunder shall name the Lender as an additional insured. 

        Section 6.16    Preservation of Existence.    The Borrower will preserve and maintain its existence and all of
its rights, privileges and franchises necessary or desirable in the normal conduct of its business and shall conduct its business in an orderly, efficient and regular manner. 

        Section 6.17    Delivery of Instruments, etc.    Upon request by the Lender, the Borrower will promptly deliver
to the Lender in pledge all instruments, documents and chattel paper constituting Collateral, duly endorsed or assigned by the Borrower. 

        Section 6.18    Sale or Transfer of Assets; Suspension of Business Operations.    The Borrower will not sell,
lease, assign, transfer or otherwise dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of its assets, or (iii) any Collateral or any interest therein
(whether in one transaction or in a series of transactions) to any Person other than (x) another Borrower, (y) the sale of Inventory in the ordinary course of business, and
(z) dispositions of obsolete, worn or nonfunctional equipment. The Borrower will not liquidate, dissolve or suspend business operations. The Borrower will not transfer any part of its ownership
interest in any Intellectual Property Rights and will not permit any agreement under which it has licensed Licensed Intellectual Property to lapse, except that the Borrower may transfer such rights or
permit such agreements to lapse if it shall have reasonably determined that the applicable Intellectual Property Rights are no longer useful in its business. If the Borrower transfers any Intellectual
Property Rights for value, the Borrower will pay over the proceeds to the Lender for application to the Obligations. The Borrower will not license any other Person to use any of the Borrower's
Intellectual Property Rights, except that the Borrower may grant licenses in the ordinary course of its business in connection with sales of Inventory or provision of services to its customers. 

34

 

        Section 6.19    Consolidation and Merger; Asset Acquisitions.    The Borrower will not consolidate with or
merge into any Person, or permit any other Person to merge into it, or acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all the assets of any
other Person. 

        Section 6.20    Sale and Leaseback.    The Borrower will not enter into any arrangement, directly or
indirectly, with any other Person whereby the Borrower shall sell or transfer any real or personal property, whether now owned or hereafter acquired, and then or thereafter rent or lease as lessee
such property or any part thereof or any other property which the Borrower intends to use for substantially the same purpose or purposes as the property being sold or transferred. 

        Section 6.21    Restrictions on Nature of Business.    The Borrower will not engage in any line of business
materially different from that presently engaged in by the Borrower and will not purchase, lease or otherwise acquire assets not related to its business. 

        Section 6.22    Accounting.    The Borrower will not adopt any material change in accounting principles other
than as required by GAAP. The Borrower will not adopt, permit or consent to any change in its fiscal year. 

        Section 6.23    Discounts, etc.    After notice from the Lender, the Borrower will not grant any discount,
credit or allowance to any customer of the Borrower or accept any return of goods sold. The Borrower will not at any time modify, amend, subordinate, cancel or terminate the obligation of any Account
Debtor or other obligor of the Borrower. 

        Section 6.24    Plans.    Unless disclosed to the Lender pursuant to Section 5.12, neither the Borrower
nor any ERISA Affiliate will (i) adopt, create, assume or become a party to any Pension Plan, (ii) incur any obligation to contribute to any Multiemployer Plan, (iii) incur any
obligation to provide post-retirement medical or insurance benefits with respect to employees or former employees (other than benefits required by law) or (iv) amend any Plan in a
manner that would materially increase its funding obligations. 

        Section 6.25    Place of Business.    The Borrower will not transfer its chief executive office or principal
place of business, or move, relocate, close or sell any business location. The Borrower will not permit any tangible Collateral or any records pertaining to the Collateral to be located in any state
or area in which, in the event of such location, a financing statement covering such Collateral would be required to be, but has not in fact been, filed in order to perfect the Security Interest. The
Borrower will not change its jurisdiction of organization. 

        Section 6.26    Change in Name, Trade Name, Trade Style or FEIN.    Borrower shall not change its legal name,
trade names, trade styles or FEIN, or add any new trade names or trade styles from those listed on Schedule 5.1; provided, however, that Borrower
may amend Schedule 5.1 so long as (i) such amendment occurs by written notice to Secured Party not less than 30 days prior to the date on which such new name, trade name, trade
style or FEIN becomes effective, and (ii) at the time of such written notification, Borrower executes and delivers any financing statement amendments or fixture filing amendments necessary to
continue perfected Lender security interest in the Collateral. 

        Section 6.27    Transactions With Affiliates.    The Borrower will not directly or indirectly enter into or
permit to exist any transaction with any Affiliate of the Borrower except for transactions that are in the ordinary course of the Borrower's business, upon fair and reasonable terms, that are fully
disclosed to the Lender, and that are no less favorable to the Borrower than would be obtained in an arm's length transaction with a non-Affiliate. 

        Section 6.28    Performance by the Lender.    If the Borrower at any time fails to perform or observe any of
the foregoing covenants contained in this Article VI or elsewhere herein, and if such failure shall continue for a period of ten calendar days after the Lender gives the Borrower written notice 

35

 

thereof
(or in the case of the agreements contained in Sections 6.13 and 6.15, immediately upon the occurrence of such failure, without notice or lapse of time), the Lender may, but need not, perform
or observe such covenant on behalf and in the name, place and stead of the Borrower (or, at the Lender's option, in the Lender's name) and may, but need not, take any and all other actions which the
Lender may reasonably deem necessary to cure or correct such failure (including the payment of taxes, the satisfaction of Liens, the performance of obligations owed to Account Debtors or other
obligors, the procurement and maintenance of insurance, the execution of assignments, security agreements and financing statements, and the endorsement of instruments); and the Borrower shall
thereupon pay to the Lender on demand the amount of all monies expended and all costs and expenses (including reasonable attorneys' fees and legal expenses) incurred by the Lender in connection with
or as a result of the performance or observance of such agreements or the taking of such action by the Lender, together with interest thereon from the date expended or incurred at the Default Rate. To
facilitate the Lender's performance or observance of such covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender, or the Lender's delegate, acting alone, as the Borrower's
attorney in fact (which appointment is coupled with an interest) with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file in the name and on
behalf of the Borrower any and all instruments, documents, assignments, security agreements, financing statements, applications for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower under this Section 6.28. 

ARTICLE VII  

 EVENTS OF DEFAULT, RIGHTS AND REMEDIES  

        Section 7.1    Events of Default.    "Event of Default", wherever used herein, means any one of the following
events: 

        (a)   Default
in the payment of any Obligations when they become due and payable; 

        (b)   Default
in the performance, or breach, of any covenant or agreement of either Borrower contained in this Agreement; 

        (c)   A
Change of Control shall occur; 

        (d)   Any
Financial Covenant shall become inapplicable due to the lapse of time and the failure to amend any such covenant to cover future periods; 

        (e)   An
Insolvency Proceeding is commenced by either Borrower or any Guarantor; 

        (f)    An
Insolvency Proceeding is commenced against either Borrower, or any Guarantor, and any of the following events occur: (a) such Borrower or such Guarantor
consents to the institution of such Insolvency Proceeding against it, (b) the petition commencing the Insolvency Proceeding is not timely controverted, (c) the petition commencing the
Insolvency Proceeding is not dismissed within 60 calendar days of the date of the filing thereof; provided, however, that, during the pendency of such period, the Lender shall be relieved of its
obligations to extend credit hereunder, (d) an interim trustee is appointed to take possession of all or any substantial portion of the properties or assets of, or to operate all or any
substantial portion of the business of, such Borrower or any such Guarantor, or (e) an order for relief shall have been entered therein; 

        (g)   Any
material portion of either Borrower's or any Guarantor's assets is attached, seized, subjected to a writ or distress warrant, levied upon, or comes into the
possession of any third Person; 

        (h)   Either
Borrower or any Guarantor is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business
affairs; 

36

 

        (i)    A
notice of Lien, levy, or assessment is filed of record with respect to any of Borrowers' or any Guarantor's assets by the United States, or any department, agency, or
instrumentality thereof, or by any state, county, municipal, or governmental agency, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a Lien, whether
choate or otherwise, upon any of the Borrowers' or any Guarantor's assets and the same is not paid before such payment is delinquent; 

        (j)    This
Agreement or any other Loan Document that purports to create a Lien, shall, for any reason, fail or cease to create a valid and perfected and, except to the extent
permitted by the terms hereof or thereof, first priority Lien on or security interest in the Collateral covered hereby or thereby; 

        (k)   Any
provision of any Loan Document shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by
either Borrower, or a proceeding shall be commenced by either Borrower, or by any Governmental Authority having jurisdiction over either Borrower, seeking to establish the invalidity or
unenforceability thereof, or either Borrower shall deny that such Borrower has any liability or obligation purported to be created under any Loan Document. 

        (l)    Any
representation or warranty made by each Borrower in this Agreement, by any Guarantor in any guaranty delivered to the Lender, or by each Borrower (or any of its
Officers) or any Guarantor in any agreement, certificate, instrument or financial statement or other statement contemplated by or made or delivered pursuant to or in connection with this Agreement or
any such guaranty shall prove to have been incorrect in any material respect when deemed to be effective; 

        (m)  The
rendering against either Borrower of an arbitration award, final judgment, decree or order for the payment of money not covered by insurance, and the continuance of
such arbitration award, judgment, decree or order unsatisfied and in effect for any period of 30 consecutive days without a stay of execution; 

        (n)   A
default under any bond, debenture, note or other evidence of material Indebtedness of either Borrower owed to any Person other than the Lender, or under any indenture
or other instrument under which any such evidence of Indebtedness has been issued or by which it is governed, or under any material lease or other contract, and the expiration of the applicable period
of grace, if any, specified in such evidence of Indebtedness, indenture, other instrument, lease or contract; 

        (o)   Any
Reportable Event, which the Lender determines in good faith might constitute grounds for the termination of any Pension Plan or for the appointment by the
appropriate United States District Court of a trustee to administer any Pension Plan, shall have occurred and be continuing 30 days after written notice to such effect shall have been given to
either Borrower by the Lender; or a trustee shall have been appointed by an appropriate United States District Court to administer any Pension Plan; or the Pension Benefit Guaranty Corporation shall
have instituted proceedings to terminate any Pension Plan or to appoint a trustee to administer any Pension Plan; or either Borrower or any ERISA Affiliate shall have filed for a distress termination
of any Pension Plan under Title IV of ERISA; or either Borrower or any ERISA Affiliate shall have failed to make any quarterly contribution required with respect to any Pension Plan under
Section 412(m) of the IRC, which the Lender determines in good faith may by itself, or in combination with any such failures that the Lender may determine are likely to occur in the future,
result in the imposition of a Lien on either Borrower's assets in favor of the Pension Plan; or any withdrawal, partial withdrawal, reorganization or other event occurs with respect to a Multiemployer
Plan which results or could reasonably be expected to result in a material liability of either Borrower to the Multiemployer Plan under Title IV of ERISA. 

37

 

        (p)   An
event of default shall occur under any Security Document; 

        (q)   Either
Borrower shall liquidate, dissolve, terminate or suspend its business operations or otherwise fail to operate its business in the ordinary course, or sell or
attempt to sell all or substantially all of its assets; 

        (r)   Default
in the payment of any amount owed by the Borrowers to the Lender other than any Indebtedness arising hereunder; 

        (s)   Any
Guarantor or person signing a support agreement in favor of the Lender shall repudiate, purport to revoke or fail to perform his obligations under his guaranty or
support agreement in favor of the Lender, any individual Guarantor shall die or any other Guarantor shall cease to exist; 

        (t)    The
Borrowers shall take or participate in any action which would be prohibited under the provisions of any Subordination Agreement or make any payment on the
Subordinated Indebtedness that any Person was not entitled to receive under the provisions of the Subordination Agreements; 

        (u)   Any
event or circumstance with respect to either Borrower shall occur such that the Lender shall believe in good faith that the prospect of payment of all or any part of
the Obligations or the performance by the Borrowers under the Loan Documents is impaired or any material adverse change in the business or financial condition of either Borrower shall occur; 

        (v)   Any
breach, default or event of default by or attributable to any Affiliate under any agreement between such Affiliate and the Lender shall occur; or 

38

  

        (w)  Any
other Material Adverse Effect shall occur. 

        Section 7.2    Rights and Remedies.    During any Default Period, the Lender may exercise any or all of the
following rights and remedies, all of which each Borrower acknowledges and agrees are commercially reasonable: 

        (a)   the
Lender may, by notice to the Borrowers, declare the Commitment to be terminated, whereupon the same shall forthwith terminate; 

        (b)   the
Lender may, by notice to the Borrowers, declare the Obligations to be forthwith due and payable, whereupon all Obligations shall become and be forthwith due and
payable, without presentment, notice of dishonor, protest or further notice of any kind, all of which each Borrower hereby expressly waives; 

        (c)   the
Lender may, without notice to the Borrowers and without further action, apply any and all money owing by the Lender to the Borrowers to the payment of the
Obligations; 

        (d)   the
Lender may settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which the Lender considers advisable, and in such cases, the
Lender will credit the Obligations with only the net amounts received by the Lender in payment of such disputed Accounts after deducting all expenses incurred or expended by the Lender in connection
therewith; 

        (e)   the
Lender may cause the Borrowers to hold all returned Inventory in trust for the Lender, segregate all returned Inventory from all other assets of the Borrowers or in
the Borrowers' possession and conspicuously label said returned Inventory as the property of the Lender; 

        (f)    without
notice to or demand upon the Borrowers or any Guarantor, the Lender may make such payments and do such acts as the Lender considers necessary or reasonable to
protect its security interests in the Collateral. Each Borrower agrees to assemble the Collateral if the Lender so requires, and to make the Collateral available to the Lender at a place that the
Lender may designate which is reasonably convenient to both parties. Each Borrower authorizes Lender to enter the premises where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to
pay, purchase, contest, or compromise any Lien that in the Lender's determination appears to conflict with the Lender's Liens and to pay all expenses incurred in connection therewith and to charge the
Obligations therefor. With respect to any of either Borrower's owned or leased premises, such Borrower hereby grants the Lender a license to enter into possession of such premises and to occupy the
same, without charge, in order to exercise any of the Lender's rights or remedies provided herein, at law, in equity, or otherwise; 

        (g)   without
notice to Borrowers (such notice being expressly waived), and without constituting a retention of any collateral in satisfaction of an obligation (within the
meaning of the UCC), the Lender may set off and apply to the Obligations any and all (i) balances and deposits of the Borrowers held by the Lender (including any amounts received in the
Lockbox), or (ii) Indebtedness at any time owing to or for the credit or the account of the Borrowers held by Lender; 

        (h)   the
Lender may hold, as cash collateral, any and all balances and deposits of the Borrowers held by the Lender, and any amounts received in the Lockbox, to secure the
full and final repayment of all of the Obligations; 

        (i)    the
Lender may ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the
Collateral; 

39

 

        (j)    the
Lender may sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and
at such places (including each Borrower's premises) as the Lender determines is commercially reasonable. It is not necessary that the Collateral be present at any such sale; 

        (k)   the
Lender shall give notice of the disposition of the Collateral as follows: 

        (l)    The
Lender shall give the Borrowers a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a
public sale is to be made of the Collateral, the time on or after which the private sale or other disposition is to be made; and 

          (i)  The
notice shall be personally delivered or mailed, postage prepaid, to the Borrowers as provided in Section 8.3,
at least 10 days before the earliest time of disposition set forth in the notice; no notice needs to be given prior to the disposition of any portion of the Collateral that is perishable or
threatens to decline speedily in value or that is of a type customarily sold on a recognized market; 

         (ii)  the
Lender may credit bid and purchase at any public sale; 

        (m)  the
Lender may seek the appointment of a receiver or keeper to take possession of all or any portion of the Collateral or to operate same and, to the maximum extent
permitted by law, may seek the appointment of such a receiver without the requirement of prior notice or a hearing; 

        (n)   If
the Lender sells any of the Collateral on credit, the Obligations will be reduced only to the extent of payments actually received. If the purchaser fails to pay for
the Collateral, the Lender may resell the Collateral and shall apply any proceeds actually received to the Obligations; 

        (o)   the
Lender shall have no obligation to attempt to satisfy the Obligations by collecting them from any third Person which may be liable for them or any portion thereof,
and the Lender may release, modify or waive any collateral provided by any other Person as security for the Obligations or any portion thereof, all without affecting the Lender's rights against the
Borrowers. Each Borrower waives any right it may have to require the Lender to pursue any third Person for any of the Obligations; 

        (p)   the
Lender may make demand upon the Borrowers and, forthwith upon such demand, the Borrowers will pay to the Lender in immediately available funds for deposit in the
Special Account pursuant to Section 2.17 an amount equal to the aggregate maximum amount available to be drawn under all Letters of Credit then outstanding, assuming compliance with all
conditions for drawing thereunder; 

        (q)   the
Lender may exercise and enforce its rights and remedies under the Loan Documents; and 

        (r)   the
Lender may exercise any other rights and remedies available to it by law or agreement. 

Notwithstanding
the foregoing, upon the occurrence of an Event of Default described in subsections (e) or (f) of Section 7.1, the Obligations shall be immediately due and payable
automatically without presentment, demand, protest or notice of any kind. 

        Section 7.3    Disclaimer of Warranties.    The Lender may sell the Collateral without giving any warranties as
to the Collateral. The Lender may specifically disclaim any warranties of title or the like. This procedure will not be considered to adversely affect the commercial reasonableness of any sale of the
Collateral. 

40

 

        Section 7.4    Compliance With Laws.    The Lender may comply with any applicable state or federal law
requirements in connection with a disposition of the Collateral, and the Lender's compliance therewith will not be considered to adversely affect the commercial reasonableness of any sale of the
Collateral. 

        Section 7.5    No Marshalling.    The Lender shall be under no obligation to marshal any assets in favor of the
Borrowers, or against or in payment of the Obligations or any other obligation owned to the Lender by the Borrowers or any other Person. 

        Section 7.6    Borrowers to Cooperate.    Upon the exercise by the Lender of any power, right, privilege, or
remedy pursuant to this Agreement which requires any consent, approval, registration, qualification, or authorization of any Governmental Authority, each Borrower agrees to execute and deliver, or
will cause the execution and delivery of, all applications, certificates, instruments, assignments, and other documents and papers that the Lender or any purchaser of the Collateral may be required to
obtain for such governmental consent, approval, registration, qualification, or authorization. 

        Section 7.7    Application of Proceeds.    All proceeds realized as the result of any sale of the Collateral
shall be applied by the Lender: 

        FIRST
to the costs, expenses, liabilities, obligations and attorneys' fees incurred by the Lender in the exercise of its rights under this Agreement; 

        SECOND
to the interest and fees due upon any of the Obligations; and 

        THIRD
to the principal of the Obligations, in such order as the Lender shall determine in its sole discretion. Any surplus shall be paid to the Borrowers or other Persons legally
entitled thereto; the Borrowers shall remain liable to the Lender for any deficiency. 

        Section 7.8    Remedies Cumulative.    The rights and remedies of the Lender under this Agreement, the other
Loan Documents, and all other agreements contemplated hereby and thereby shall be cumulative. The Lender shall have all other rights and remedies not inconsistent herewith as provided under the UCC,
by law, or in equity. No exercise by the Lender of any one right or remedy shall be deemed an election of remedies, and no waiver by the Lender of any default on the Borrowers' part shall be deemed a
continuing waiver of any further defaults. 

        Section 7.9    Lender Not Liable For The Collateral.    So long as the Lender complies with the obligations, if
any, imposed by the UCC, the Lender shall not otherwise be liable or responsible in any way or manner for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring
or arising in any manner or fashion or from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or
other person whomsoever. The Borrowers bear the risk of loss or damage of the Collateral. 

ARTICLE VIII  

 MISCELLANEOUS  

        Section 8.1    No Waiver.    No failure or delay by the Lender in exercising any right, power or remedy under
the Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy under the Loan Documents. 

        Section 8.2    Amendments, Etc.    No amendment, modification, termination or waiver of any provision of any
Loan Document or consent to any departure by the Borrowers therefrom or any release of a Security Interest shall be effective unless the same shall be in writing and signed by the Lender, and then
such waiver or consent shall be effective only in the specific instance and for the 

41

 

specific
purpose for which given. No notice to or demand on the Borrowers in any case shall entitle the Borrowers to any other or further notice or demand in similar or other circumstances. 

        Section 8.3    Addresses for Notices; Requests for Accounting.    Except as otherwise expressly provided
herein, all notices, requests, demands and other communications provided for under the Loan Documents shall be in writing and shall be (a) personally delivered, (b) sent by first class
United States mail, (c) sent by overnight courier of national reputation, or (d) transmitted by telecopy, in each case addressed or
telecopied to the party to whom notice is being given at its address or telecopier number as set forth below next to its signature or, as to each party, at such other address or telecopier number as
may hereafter be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section. All such notices, requests, demands and other communications
shall be deemed to have been given on (a) the date received if personally delivered, (b) when deposited in the mail if delivered by mail, (c) the date sent if sent by overnight
courier, or (d) the date of transmission if delivered by telecopy, except that notices or requests to the Lender pursuant to any of the provisions of Article II shall not be effective
until received by the Lender. All requests under Section 9210 of the UCC (i) shall be made in a writing signed by a person authorized under Section 2.2(b), (ii) shall be
personally delivered, sent by registered or certified mail, return receipt requested, or by overnight courier of national reputation (iii) shall be deemed to be sent when received by the Lender
and (iv) shall otherwise comply with the requirements of Section 9210. Each Borrower requests that the Lender respond to all such requests which on their face appear to come from an
authorized individual and releases the Lender from any liability for so responding. The Borrowers shall pay Lender the maximum amount allowed by law for responding to such requests. 

        Section 8.4    Intentionally Omitted.    

        Section 8.5    Further Documents.    The Borrowers will from time to time execute and deliver or endorse any
and all instruments, documents, conveyances, assignments, security agreements, financing statements, control agreements and other agreements and writings that the Lender may reasonably request in
order to secure, protect, perfect or enforce the Security Interest or the Lender's rights under the Loan Documents (but any failure to request or assure that the Borrowers execute, deliver or endorse
any such item shall not affect or impair the validity, sufficiency or enforceability of the Loan Documents and the Security Interest, regardless of whether any such item was or was not executed,
delivered or endorsed in a similar context or on a prior occasion). 

        Section 8.6    Costs and Expenses.    The Borrowers shall pay on demand all costs and expenses, including
reasonable attorneys' fees, incurred by the Lender in connection with the Obligations, this Agreement, the Loan Documents, any Letter of Credit and any other document or agreement related hereto or
thereto, and the transactions contemplated hereby, including all such costs, expenses and fees incurred in connection with the negotiation, preparation, execution, amendment, administration,
performance, collection and enforcement of the Obligations and all such documents and agreements and the creation, perfection, protection, satisfaction, foreclosure or enforcement of the Security
Interest. 

        Section 8.7    Indemnity.    In addition to the payment of expenses pursuant to Section 8.6, each
Borrower shall indemnify, defend and hold harmless the Lender, and any of its participants, parent corporations, subsidiary corporations, affiliated corporations, successor corporations, and all
present and future officers, directors, employees, attorneys and agents of the foregoing (the "Indemnitees") from and against any of the following (collectively, "Indemnified Liabilities"): 

          (i)  any
and all transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of the Loan Documents
or the making of the Advances; 

42

 

         (ii)  any
claims, loss or damage to which any Indemnitee may be subjected if any representation or warranty contained in Section 5.14 proves to be incorrect in any
respect or as a result of any violation of the covenant contained in Section 6.12(b); and 

        (iii)  any
and all other liabilities, losses, damages, penalties, judgments, suits, claims, costs and expenses of any kind or nature whatsoever (including the reasonable fees
and disbursements of counsel) in connection with the foregoing and any other investigative, administrative or judicial proceedings, whether or not such Indemnitee shall be designated a party thereto,
which may be imposed on, incurred by or asserted against any such Indemnitee, in any manner related to or arising out of or in connection with the making of the Advances and the Loan Documents or the
use or intended use of the proceeds of the Advances. 

        If
any investigative, judicial or administrative proceeding arising from any of the foregoing is brought against any Indemnitee, upon such Indemnitee's request, the Borrowers, or counsel
designated by the Borrowers and satisfactory to the Indemnitee, will resist and defend such action, suit or proceeding to the extent and in the manner directed by the Indemnitee, at the Borrowers'
sole costs and expense. Each Indemnitee will use its best efforts to cooperate in the defense of any such action, suit or proceeding. If the foregoing undertaking to indemnify, defend and hold
harmless may be held to be unenforceable because it violates any law or public policy, the Borrowers shall nevertheless make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law. The Borrowers' obligation under this Section 8.7 shall survive the termination of this Agreement and the discharge of the
Borrowers' other obligations hereunder. 

        Section 8.8    Participants.    Each Borrower hereby authorizes the Lender to disclose to any assignee or any
participant (either, a "Transferee") and any prospective Transferee any and all financial information in the Lender's possession concerning such Borrower which has been delivered to the Lender by the
Borrower pursuant to this Agreement or which has been delivered to the Lender by the Borrower in connection with the Lender's credit evaluation prior to entering into this Agreement. The Lender and
its participants, if any, are not partners or joint venturers, and the Lender shall not have any liability or responsibility for any obligation, act or omission of any of its participants. All rights
and powers specifically conferred upon the Lender may be transferred or delegated to any of the Lender's participants, successors or assigns. 

        Section 8.9    Advertising and Promotion.    Each Borrower agrees that the Lender may use such Borrower's
name(s) in advertising and promotional materials, and in conjunction therewith, the Lender may disclose the amount of the Commitment and the purpose thereof. 

        Section 8.10    Execution in Counterparts; Telefacsimile Execution.    This Agreement and other Loan Documents
may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one
and the same instrument. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any
party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. 

        Section 8.11    Retention of Borrowers' Records.    The Lender shall have no obligation to maintain any
electronic records or any documents, schedules, invoices, agings, or other papers delivered to the Lender by the Borrowers or in connection with the Loan Documents for more than four months after
receipt by the Lender. 

        Section 8.12    Binding Effect; Assignment; Complete Agreement; Exchanging Information.    The Loan Documents
shall be binding upon and inure to the benefit of the Borrowers and the Lender and their respective successors and assigns, except that the Borrowers shall not have the right to assign their 

43

 

rights
thereunder or any interest therein without the Lender's prior written consent. To the extent permitted by law, each Borrower waives and will not assert against any assignee any claims, defenses
or set-offs which such Borrower could assert against the Lender. This Agreement shall also bind all Persons who become a party to this Agreement as a borrower. This Agreement, together
with the Loan Documents, comprises the complete and integrated agreement of the parties on the subject matter hereof and supersedes all prior agreements, written or oral, on the subject matter hereof.
Without limiting the Lender's right to share information regarding the Borrowers and their Affiliates with the Lender's participants, accountants, lawyers and other advisors, the Lender, Wells
Fargo & Company, and all direct and indirect subsidiaries of Wells Fargo & Company, may exchange any and all information they may have in their possession regarding the Borrowers and
their Affiliates, and each Borrower waives any right of confidentiality it may have with respect to such exchange of such information. 

        Section 8.13    Severability of Provisions.    Any provision of this Agreement which is prohibited or
unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. 

        Section 8.14    Revival and Reinstatement of Obligations.    If the incurrence or payment of the Obligations by
either Borrower or any Guarantor or the transfer to the Lender of any property should for any reason subsequently be declared to be void or voidable under any state or federal law relating to
creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, or other voidable or recoverable payments of money or transfers of property
(collectively, a "Voidable Transfer"), and if the Lender is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel,
then, as to any such Voidable Transfer, or the amount thereof that the Lender is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of the Lender
related thereto, the liability of such Borrower or any Guarantor automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made. 

        Section 8.15    Headings.    Article, Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 

        Section 8.16    Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.    The Loan Documents shall be
governed by and construed in accordance with the substantive laws (other than conflict laws) of the State of California. The parties hereto hereby (i) consent to the personal jurisdiction of
the state and federal courts located in the State of California in connection with any controversy related to this Agreement; (ii) waive any argument that venue in any such forum is not
convenient, (iii) agree that any litigation initiated by the Lender or the Borrowers in connection with this Agreement or the other Loan Documents may be venued in either the State or Federal
courts located in Los Angeles County, State of California; and (iv) agree that a final judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law. 

THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.

ARTICLE IX  

 JOINT AND SEVERAL LIABILITY; SINGLE LOAN ACCOUNT  

        Section 9.1    Joint and Several Liability.    Each Borrower agrees that it is jointly and severally, directly
and primarily liable to Lender for payment, performance and satisfaction in full of the Obligations and that such liability is independent of the duties, obligations, and liabilities of the other 

44

 

Borrower.
Lender may bring a separate action or actions on each, any, or all of the Obligations against any Borrower, whether action is brought against the other Borrower or whether the other Borrower
is joined in such action. In the event that any Borrower fails to make any payment of any obligation on or before the due date thereof, the other Borrower immediately shall cause such payment to be
made or each of such obligations to be made or each of such Obligations to be performed, kept, observed, or fulfilled. 

        Section 9.2    Primary Obligation; Waiver of Marshalling.    This Agreement and the Loan Documents to which
Borrowers are a party are a primary and original obligation of each Borrower, are not the creation of a surety relationship, and are an absolute, unconditional, and continuing promise of payment and
performance which shall remain in full force and effect without respect to future changes in conditions, including any change of law or any invalidity or irregularity with respect to this Agreement or
the Loan Documents to which Borrowers are a party. Each Borrower agrees that its liability under this Agreement and the Loan Documents which Borrowers are a party shall be immediate and shall not be
contingent upon the exercise or enforcement by Lender of whatever remedies they may have against the other Borrower, or the enforcement of any lien or realization upon any security Lender may at any
time possess. Each Borrower consents and agrees that Lender shall be under no obligation to marshal any assets of any Borrower against or in payment of any or all of the Obligations. 

        Section 9.3    Financial Condition of Borrowers.    Each Borrower acknowledges that it is presently informed as
to the financial condition of the other Borrower and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Obligations. Each Borrower
hereby covenants that it will continue to keep informed as to the financial condition of the other Borrower, the status of the other Borrower and of all circumstances which bear upon the risk of
nonpayment. Absent a written request from any Borrower to Lender for information, each Borrower hereby waives any and all rights it may have to require Lender to disclose to such Borrower any
information which Lender may now or hereafter acquire concerning the condition or circumstances of the other Borrower. 

        Section 9.4    Continuing Liability.    The liability of each Borrower under this Agreement and the Loan
Documents to which Borrowers are a party includes Obligations arising under successive transactions continuing, compromising, extending, increasing, modifying, releasing, or renewing the Obligations,
changing the interest rate, payment terms, or other terms and conditions thereof, or creating new or additional Obligations after prior Obligations have been satisfied in whole or in part. To the
maximum extent permitted by law, each Borrower hereby waives any right to revoke its liability under this Agreement and Loan Documents as to future indebtedness, and in connection therewith, each
Borrower hereby waives any rights it may have under Section 2815 of the California Civil Code. 

        Section 9.5    Additional Waivers.    Each Borrower absolutely, unconditionally, knowingly, and expressly
waives: 

        (a)   (1)
notice of acceptance hereof; (2) notice of any Advances or other financial accommodations made or extended under this Agreement and the Loan Documents to
which Borrowers are a party or the creation or existence of any Obligations; (3) notice of the amount of the Obligations, subject, however, to each Borrower's right to make inquiry of Lender to
ascertain the amount of the Obligations at any reasonable time; (4) notice of any adverse change in the financial condition of the other Borrower or of any other fact that might increase such
Borrower's risk hereunder; (5) notice of presentment for payment, demand, protest, and notice thereof as to any instruments among the Loan Documents to which Borrowers are a party;
(6) notice of any Default or Event of Default; and (7) all other notices (except if such notice is specifically required to be given to Borrowers hereunder or under the Loan Documents to
which Borrowers are a party) and demands to which such Borrower might otherwise be entitled. 

45

 

        (b)   its
right, under Sections 2845 or 2850 of the California Civil Code, or otherwise, to require Lender to institute suit against, or to exhaust any rights and remedies
which Lender has or may have against, the other Borrower or any third party, or against any collateral for the Obligations provided by the other Borrower, or any third party. Each Borrower further
waives any defense arising by reason of any disability or other defense (other than the defense that the Obligations shall have been fully and finally performed and indefeasibly paid) of the other
Borrower or by reason of the cessation from any cause whatsoever of the liability of the other Borrower in respect thereof. 

        (c)   (1)
any rights to assert against Lender any defense (legal and equitable), set-off, counterclaim, or claim which such Borrower may now or at any time
hereafter have against the other Borrower or any other party liable to Lender; (2) any defense, set-off, counterclaim, or claim, of any kind or nature, arising directly or
indirectly from the present or future lack of perfection, sufficiency, validity, or enforceability of the Obligations or any security therefor; (3) any defense such Borrower has to performance
hereunder, and any right such Borrower has to be exonerate, provided by Sections 2819, 2822, or 2825 of the California Civil Code, or otherwise, arising by reason of: the impairment or suspension of
Lender's rights or remedies against the other Borrower; the alteration by Lender of the Obligations; any discharge of the other Borrower's obligations to Lender by operation of law as a result of
Lender's intervention or omission; or the acceptance by Lender of anything in partial satisfaction of the Obligations; and (4) the benefit of any statute of limitations affecting such
Borrower's liability hereunder or the enforcement thereof, and any act which shall defer or delay the operation of any statute of limitations applicable to the Obligations shall similarly operate to
defer or delay the operation of such statute of limitations applicable to such Borrower's liability hereunder. 

        (d)   Each
Borrower absolutely, unconditionally, knowingly, and expressly waives any defense arising by reason of or deriving from (i) any claim or defense based upon
an election of remedies by Lender including any defense based upon an election of remedies by Lender under the provisions of Sections
580a, 580b, 580d, and 726 of the California Code of Civil Procedure or any similar law of California or any other jurisdiction; or (ii) any election by Lender under Section 1111(b) of
the Bankruptcy Code to limit the amount of, or any collateral securing, its claim against the Borrowers. Pursuant to California Civil Code Section 2856(b): 

        Each
Borrower waives all rights and defenses arising out of an election of remedies by the creditor, even though that election of remedies, such as a nonjudicial foreclosure with respect
to security for a guaranteed obligation, has destroyed such Borrower's rights of subrogation and reimbursement against the other Borrower by the operation of Section 580(d) of the California
Code of Civil Procedure or otherwise. 

        Each
Borrower waives all rights and defenses that such Borrower may have because the Obligations are secured by real property. This means, among other things: (1) Lender may
collect from such Borrower without first foreclosing on any real or personal property collateral pledged by the other Borrower; and (2) if Lender forecloses on any real property collateral
pledged by the other Borrower: (A) the amount of the Obligations may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more
than the sale price; and (B) Lender may collect from such Borrower even if Lender, by foreclosing on the real property collateral, has destroyed any right such Borrower may have to collect from
the other Borrower. This is an unconditional and irrevocable waiver of any rights and defenses each Borrower may have because the Obligations are secured by real property. These rights and defenses
include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure. 

46

 

        (e)   If
any of the Obligations at any time are secured by a mortgage or deed of trust upon real property, Lender may elect, in its sole discretion, upon a default with
respect to the Obligations, to foreclose such mortgage or deed of trust judicially or nonjudicially in any manner permitted by law, before or after enforcing this Agreement and the Loan Documents,
without diminishing or affecting the liability of any Borrower hereunder except to the extent the Obligations are repaid with the proceeds of such foreclosure. Each Borrower understands that
(a) by virtue of the operation of California's antideficiency law applicable to nonjudicial foreclosures, an election by Lender nonjudicially to foreclose such a mortgage or deed of trust
probably would have the effect of impairing or destroying rights of subrogation, reimbursement, contribution, or indemnity of such Borrower against the other Borrower or other guarantors or sureties,
and (b) absent the waiver given by such Borrower, such an election would prevent Lender from enforcing this Agreement and the Loan Documents to which Borrowers are a party against such
Borrower. Understanding the foregoing, and understanding that such Borrower is hereby relinquishing a defense to the enforceability of this Agreement and the Loan Documents to which Borrowers are a
party, such Borrower hereby waives any right to assert against Lender any defense to the enforcement of this Agreement and the Loan Documents to which Borrowers are a party, whether denominated
"estoppel" or otherwise, based on or arising from an election by Lender nonjudicially to foreclose any such mortgage or deed of trust. Each Borrower understands that the effect of the foregoing waiver
may be that each Borrower may have liability hereunder for amounts with respect to which such Borrower may be left without rights of subrogation, reimbursement, contribution, or indemnity against the
other Borrower or other guarantors or sureties. Each Borrower
also agrees that the "fair market value" provisions of Section 580a of the California Code of Civil Procedure shall have no applicability with respect to the determination of such Borrower's
liability under this Agreement and the Loan Documents to which Borrowers are a party. 

        (f)    Each
Borrower hereby absolutely, unconditionally, knowingly, and expressly waives: (i) any right of subrogation such Borrower has or may have as against the other
Borrower with respect to the Obligations; (ii) any right to proceed against the other Borrower or any other Person, now or hereafter, for contribution, indemnity, reimbursement, or any other
suretyship rights and claims, whether direct or indirect, liquidated or contingent, whether arising under express or implied contract or by operation of law, which such Borrower may now have or
hereafter have as against the other Borrower with respect to the Obligations; and (iii) any right to proceed or seek recourse against or with respect to any property or asset of the other
Borrower. 

        (g)   WITHOUT
LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN THIS AGREEMENT, EACH BORROWER HEREBY ABSOLUTELY, KNOWINGLY, UNCONDITIONALLY, AND
EXPRESSLY WAIVES AND AGREES NOT TO ASSERT ANY AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE SECTIONS 2799, 2808, 2809, 2810, 2815, 2819,
2820, 2821, 2822, 2825, 2839, 2845, 2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 580a, 580b, 580c, 580d, AND 726, CALIFORNIA UNIFORM COMMERCIAL CODE SECTIONS 3116, 3118, 3119,
3419, AND 3605, AND CHAPTER 2 OF TITLE 14 OF PART 4 OF DIVISION 3 OF THE CALIFORNIA CIVIL CODE. 

        Section 9.6    Settlement or Releases.    Each Borrower consents and agrees that without notice to or by such
Borrower, and without affecting or impairing the liability of such Borrower hereunder, Lender may, by action or inaction: 

        (a)   compromise,
settle, extend the duration or the time for the payment of, or discharge the performance of, or may refuse to or otherwise not enforce this Agreement and the
Loan Documents, or any part thereof, with respect to the other Borrower or any Guarantor; 

47

 

        (b)   release
the other Borrower or any Guarantor or grant other indulgences to the other Borrower or any Guarantor in respect thereof; 

        (c)   amend
or modify in any manner and at any time (or from time to time) this Agreement or any of the Loan Documents; or 

        (d)   release
or substitute any Guarantor, if any, of the Obligations, or enforce, exchange, release, or waive any security for the Obligations or any other guaranty of the
Obligations, or any portion thereof. 

        Section 9.7    No Election.    Lender shall have the right to seek recourse against each Borrower to the
fullest extent provided for herein, and no election by Lender to proceed in one form of action or proceeding, or against any party, or on any obligation, shall constitute a waiver of Lender's right to
proceed in any other form of action or proceeding or against other parties unless Lender has expressly waived such right in writing. Specifically, but without limiting the generality of the foregoing,
no action or proceeding by Lender under this Agreement and the Loan Documents shall serve to diminish the liability of any Borrower under this Agreement and the Loan Documents to which Borrowers are a
party except to the extent that Lender finally and unconditionally shall have realized indefeasible payment by such action or proceeding. 

        Section 9.8    Indefeasible Payment.    The Obligations shall not be considered indefeasibly paid unless and
until all payments to Lender are no longer subject to any right on the part of any Person, including any Borrower, any Borrower as a debtor in possession, or any trustee (whether appointed pursuant to
the Bankruptcy Code, or otherwise) of any of Borrower's assets to invalidate or set aside such payments or to seek to recoup the amount of such payments or any portion thereof, or to declare same to
be fraudulent or preferential. Upon such full and final performance and indefeasible payment of the Obligations, Lender shall have no obligation whatsoever to transfer or assign its interest in this
Agreement and the Loan Documents to any Borrower. In the event that, for any reason, any portion of such payments to Lender is set aside or restored, whether voluntarily or involuntarily, after the
making thereof, then the obligation intended to be satisfied thereby shall be revived and continued in full force and effect as if said payment or payments had not been made, and any Borrower shall be
liable for the full amount Lender is required to repay plus any and all costs and expenses (including attorneys' fees and attorneys' fees incurred in proceedings brought under the Bankruptcy Code)
paid by Lender in connection therewith. 

        Section 9.9    Single Loan Account.    At the request of Borrowers to facilitate and expedite the
administration and accounting processes and procedures of the Credit Facility, Lender has agreed, in lieu of maintaining separate loan accounts on Lender's books in the name of each of the Borrowers,
that Lender may maintain a single loan account under the name of both Borrowers (the "Loan Account"). All Advances or any other borrowings under the Credit Facility shall be made jointly and severally
to Borrowers and shall be charged to the Loan Account, together with all interest and other charges as permitted under and pursuant to this Agreement. The Loan Account shall be credited with all
repayments of Obligations received by Lender, on behalf of Borrowers, from either Borrower pursuant to the terms of this Agreement. 

        Section 9.10    Apportionment of Proceeds of Advances.    Each Borrower expressly agrees and acknowledges that
Lender shall have no responsibility to inquire into the correctness of the apportionment or allocation of or any disposition by any of Borrowers of (a) the Advances or any borrowings under the
Credit Facility, or (b) any of the expenses and other items charged to the Loan Account pursuant to this Agreement. The Advances and all such borrowings and such expenses and other item shall
be made for the collective, joint, and several account of Borrowers and shall be charged to the Loan Account. 

48

 

        Section 9.11    Lender Held Harmless.    Each Borrower agrees and acknowledges that the administration of this
Agreement on a combined basis, as set forth herein, is being done as an accommodation to Borrowers and at their request, and that Lender shall incur no liability to Borrowers as a result thereof. To
induce Lender to do so, and in consideration thereof, each Borrower hereby agrees to indemnify and hold Lender harmless from and against any and all liability, expense, loss, damage, claim of damage,
or injury, made against Lender by Borrowers or by any other person or entity, arising from or incurred by reason of such administration of the Agreement. 

        Section 9.12    Borrowers' Integrated Operations.    Each Borrower represents and warrants to Lender that the
collective administration of the Credit Facility is being undertaken by Lender pursuant to this Agreement because Borrowers are integrated in their operation and administration and require financing
on a basis permitting the availability of credit from time to time to Borrowers. Each Borrower will derive benefit, directly and indirectly, from such collective administration and credit availability
because the successful operation of each Borrower is enhanced by the continued successful performance of the integrated group. 

*
* * 

[remainder
of this page intentionally left blank]

* * * 

49

   
        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. 

	Netlist, Inc.	 	NETLIST, INC.
	

3 Goddard	
 	

 	

 
	Irvine, California 92618	 	By:	 
	Telecopier: (949) 435-0031	 	 	

	Attention: Dan Skaggs

e-mail: dskaggs@netlistinc.com	 	 	Name: Chun K. Hong

Its: President
	

Netlist Technology Texas, L.P.

9430 Research Blvd. Echelon IV, Suite 400	
 	

NETLIST TECHNOLOGY TEXAS L.P.

By: Netlist Holdings GP, Inc., its general partner
	Austin, Texas 78759

Attention: Dan Skaggs	 	 	 
	e-mail: dskaggs@netlistinc.com	 	By:	 
	 	 	 	
 Name: Chun K. Hong

Its: President
	

Wells Fargo Business Credit, Inc.	
 	

WELLS FARGO BUSINESS CREDIT, INC.
	245 S. Los Robles Avenue, Suite 700

Pasadena, California 91101	 	 	 
	Telecopier: (626) 844-9063	 	By:	 
	Attention: Hank Kaminski	 	 	

	e-mail: kaminhm@wellsfargo.com	 	 	Name: Hank Kaminski

Its: Vice President

S-1

 
 

Table of Exhibits and Schedules    
    

	Exhibit A	 	Form of Replacement Revolving Note
	

Exhibit C	
 	

Compliance Certificate
	

Exhibit D	
 	

Premises
	

Schedule 1	
 	

Unacceptable Countries
	

Schedule 5.1	
 	

Trade Names, Chief Executive Office, Principal Place of Business, and Locations of Collateral
	

Schedule 5.2	
 	

Capitalization and Organizational Chart
	

Schedule 5.5	
 	

Subsidiaries
	

Schedule 5.11	
 	

Intellectual Property Disclosures
	

Schedule 6.3	
 	

Permitted Liens
	

Schedule 6.4	
 	

Permitted Indebtedness and Guaranties
	

Schedule E	
 	

Eligible Equipment

 
 

Exhibit A to Credit and Security Agreement    
    
    SECOND REPLACEMENT REVOLVING NOTE    
    

	$15,000,000	 	Irvine, California
	

December 27, 2003	
 	

 

        For
value received, the undersigned, NETLIST, INC., a Delaware corporation ("Netlist") and NETLIST TECHNOLOGY TEXAS, L.P., a Texas limited partnership ("NTTLP" and Netlist
referred to herein collectively as the "Borrowers" and individually as the "Borrower"), hereby jointly and severally promises to pay on the Termination Date under the Credit Agreement (defined below),
to the order of WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at its main office in Minneapolis, Minnesota, or at any other place designated at any time by the
holder hereof, in lawful money of the United States of America and in immediately available funds, the principal sum of Fifteen Million Dollars ($15,000,000) or, if less, the aggregate unpaid
principal amount of all Revolving Advances made by the Lender to the Borrowers under the Credit Agreement (defined below) together with interest on the principal amount hereunder remaining unpaid from
time to time, computed on the basis of the actual number of days elapsed and a 360-day year, from the date hereof until this Note is fully paid at the rate from time to time in effect
under the Amended and Restated Credit and Security Agreement of even date herewith (the "Credit Agreement") by and between the Lender and the Borrowers. The principal hereof and interest accruing
thereon shall be due and payable as provided in the Credit Agreement. This Note may be prepaid only in accordance with the Credit Agreement. 

        This
Note is issued pursuant, and is subject, to the Credit Agreement, which provides, among other things, for acceleration hereof. This Note is the Revolving Note referred to in the
Credit Agreement. This Note is secured, among other things, pursuant to the Credit Agreement and the Security Documents as therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments or agreements. 

        The
Borrowers shall pay all costs of collection, including reasonable attorneys' fees and legal expenses if this Note is not paid when due, whether or not legal proceedings are
commenced. 

        Presentment
or other demand for payment, notice of dishonor and protest are expressly waived. 

	 	 	NETLIST, INC.
	

 	
 	

By	

 
	 	 	 	
 Its President
	

 	
 	

NETLIST TECHNOLOGY TEXAS L.P.
	

 	
 	

By:	

Netlist Holdings GP, Inc., its general partner
	

 	
 	

By	

 
	 	 	 	
 Its President

  

 
 

Exhibit C to Credit and Security Agreement    
    
    Compliance Certificate    
    

	To:
	Hank
Kaminski

Wells Fargo Business Credit, Inc. 

Date:                        ,
200    

Subject:    Netlist, Inc.
and Netlist Technology Texas LP 

 Financial Statements  

        In accordance with our Amended and Restated Credit and Security Agreement dated as of December 27, 2003 ("Credit Agreement"), attached are the consolidated
financial statements of Netlist, Inc. ("Netlist") and Netlist Technology Texas LP (collectively with Netlist, the "Borrowers" and, individually, the "Borrower") as of and
for                        ,
20    (the "Reporting Date") and the year-to-date period then ended (the "Current Financials"). All terms used in this certificate have the meanings given in the
Credit Agreement. 

        The
undersigned certifies that the Current Financials have been prepared in accordance with GAAP, subject to year-end audit adjustments, and fairly present Netlist's
financial condition as of the date thereof. 

Events of Default.    (Check one): 

The
undersigned does not have knowledge of the occurrence of a Default or Event of Default under the Credit Agreement except as previously reported in writing to the Lender. 

The
undersigned has knowledge of the occurrence of a Default or Event of Default under the Credit Agreement not previously reported in writing to the Lender and attached hereto is a statement of the
facts with respect to thereto. Each of the Borrowers acknowledges that pursuant to Section 2.12(d) of the Credit Agreement, the Lender may impose the Default Rate at any time during the
resulting Default Period. 

Financial Covenants.    Each of the undersigned further hereby certify as follows: 

        1.    Minimum Book Net Worth Plus Subordinated Indebtedness.    Pursuant to
Section 6.2(a) of the Credit Agreement, as of the Reporting Date, the sum of the Book Net Worth plus Subordinated Indebtedness was
$                        which o satisfies o does not
satisfy the requirement that such amount be not less than
$                        on the Reporting Date as set forth in table below: 

	Test Date
 
	 	Minimum Book Net Worth Plus Subordinated Indebtedness

	12/27/03 and each month end thereafter	 	$	5,583,000

        2.    Minimum Net Income.    Pursuant to Section 6.2(b) of the Credit Agreement,
Netlist's year to date minimum Net Income for the            period ending on the Reporting Date, was
$                        , which o satisfies
o does not satisfy the requirement that such amount be not less than
$                        during such period as set forth in table below: 

	Year to Date Period Ending
 
	 	Minimum Year to Date Net Income

	12/27/03	 	$	3,833,000

Exhibit C

1

 

        3.    Capital Expenditures.    Pursuant to Section 6.2(c) of the Credit Agreement, for
the year-to-date period ending on the Reporting Date, the Borrowers have expended or contracted to expend during
the                        year
ended                        ,
200    , for Capital Expenditures, $                        in the aggregate, which o satisfies o does not
satisfy the requirement that such expenditures not exceed $1,300,000. 

        4.    Minimum Monthly Net Income.    Pursuant to Section 6.2(d)
of the Credit Agreement, for the monthly period ending on the Reporting Date, the Netlist's Net Income is
$                        , which o satisfies
o does not satisfy the requirement that Netlist will achieve minimum Net Income of not less than zero ($0) as at the end of each month. 

        5.    Salaries.    As of the Reporting Date, salaries for all
Directors, Officers, consultants, and any member of their families, is set forth on Schedule 1 attached hereto. 

        Attached
hereto are all relevant facts in reasonable detail to evidence, and the computations of the financial covenants referred to above. These computations were made in accordance
with GAAP. 

	 	 	NETLIST, INC.
	

 	
 	

By	

 
	 	 	 	
 Its Chief Financial Officer
	

 	
 	

NETLIST TECHNOLOGY TEXAS LP
	

 	
 	

By:	

Netlist Holdings GP, Inc.,

its general partner
	

 	
 	

By	

 
	 	 	 	
 Its Chief Financial Officer

Exhibit C

2

  

 
 

Exhibit D to Credit and Security Agreement    
    
    Premises    
    

        The Premises referred to in the Credit and Security Agreement are legally described as follows: 

Irvine, CA Location  

PARCEL
7 OF PARCEL MAP NO 99-125, IN THE CITY OF IRVINE, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP FILED IN BOOK 312, PAGES 33 THROUGH 37 OF PARCEL MAPS, IN THE OFFICE OF THE
COUNTY RECORDER OF SAID COUNTY. 

PROPERTY
ADDRESS Known as: 3 Goddard, Building 7, Irvine, CA 

And, 

PM
302-38, PAR 6 AND IRVINE SU/B BLK 171 LOT 311 POR OF LOT AND BLK 171 POR OF B, IN THE CITY OF IRVINE, COUNTY OF ORANGE, STATE OF CALIFORNIA

PROPERTY ADDRESS Known as: 475 Goddard, Suite 100, Irvine, CA 

Texas Location  

9430
Research Boulevard Echelon IV

Suite 400

Austin, Texas 78759 

Exhibit D

1

  

 
 

Schedule 1 to Credit and Security Agreement
  Unacceptable Countries    
    

	Afghanistan	 	Haiti	 	Romania
	Albania	 	Iran	 	Russia
	Algeria	 	Iraq	 	Serbia
	Argentina	 	Kampuchea	 	 
	Armenia	 	Kazakhstan	 	Slovenia
	Azerbaijan	 	Kyrgystan	 	Sudan
	Belarus	 	Laos	 	Syria
	Bosnia-Herzeqovina	 	Latvia	 	Turkmenistan
	Bulgaria	 	Lebanon	 	Tadjikistan
	Chad	 	Liberia	 	Ukraine
	Croatia	 	Libya	 	United States
	Cuba	 	Lithuania	 	Uzbekistan
	Estonia	 	Myanma	 	Venezuela
	Georgia	 	North Korea	 	 

Schedule 1

 
 

Schedule E to Credit and Security Agreement
  Eligible Equipment    
    

None 

Schedule
E 

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TABLE OF CONTENTS

AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT

ARTICLE I DEFINITIONS

Table of Exhibits and Schedules

Exhibit A to Credit and Security Agreement SECOND REPLACEMENT REVOLVING NOTE

Exhibit C to Credit and Security Agreement Compliance Certificate

Exhibit D to Credit and Security Agreement Premises

Schedule 1 to Credit and Security Agreement Unacceptable Countries

Schedule E to Credit and Security Agreement Eligible EquipmentQuickLinks
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EXHIBIT 10.2  

 
 

FIRST AMENDMENT TO AMENDED AND RESTATED
  CREDIT AND SECURITY AGREEMENT    
    

        This First Amendment to Amended and Restated Credit Agreement (this "Amendment"), dated as of June    , 2004, is made by and between
NETLIST, INC., a Delaware corporation, and NETLIST TECHNOLOGY TEXAS, L.P., a Texas limited partnership (each a "Borrower" and collectively, the "Borrowers"), on the one hand, and WELLS FARGO
BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), on the other hand. 

Recitals  

        The Borrowers and the Lender are parties to that certain Amended and Restated Credit and Security Agreement dated as of December 27, 2003 (as amended from
time to time, the "Credit Agreement"). Capitalized terms used in these recitals have the meanings given to them in the Credit Agreement unless otherwise specified. 

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

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

        1.    Defined Terms.    Capitalized terms used in this Amendment which are defined in the Credit Agreement shall have
the same meanings as defined therein, unless otherwise defined herein. 

        2.    Amendment.    Subsection (x) of the definition of Eligible Accounts set forth in Section 1.1 of
the Credit Agreement is amended in its entirety to read as follows: 

        "(x) Accounts
owed by an Account Debtor (or an affiliate of such Account Debtor), regardless of whether otherwise eligible, to the extent that the balance of such Accounts
exceeds 15% of the aggregate amount of all Accounts (except in the case of Dell Computer Corporation (excluding Dell Computer-Ireland), in which case such percentage shall be 65% through
June 30, 2004, with such percentage thereafter reducing by 2.5% each month commencing July 1, 2004 and continuing on the first day of each month thereafter until such percentage is
reduced to 50%);" 

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

        4.    Conditions Precedent.    This Amendment shall be effective when the Lender shall have received: (a) an
executed original hereof, together with the Acknowledgment and Agreement of Guarantors and the Acknowledgment and Agreement of Subordinated Creditors set forth at the end of this Amendment, duly
executed by each Guarantor and Subordinated Creditor, each in substance and form acceptable to the Lender in its sole discretion; and (b) an accommodation fee of $2,500. 

        5.    Representations and Warranties.    The Borrowers hereby represent and warrant to the Lender as follows: 

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

1

 

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

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

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

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

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

2

 

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

	 	 	WELLS FARGO BUSINESS CREDIT, INC.
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name: Hank Kaminski

Its: Vice President
	

 	
 	

NETLIST, INC.
	

 	
 	

By:	
 	

 
	 	 	 	 	

	 	 	 	 	Name:	 
	 	 	 	 	 	

	 	 	 	 	Its: President
	

 	
 	

NETLIST TECHNOLOGY TEXAS, L.P.
	

 	
 	

By:	
 	

 
	 	 	 	 	

	 	 	 	 	Name:	 
	 	 	 	 	 	

	 	 	 	 	Its: President

3

 
 
 

ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS    
    

        The undersigned, each a guarantor of the indebtedness of Netlist, Inc. and Netlist Technology Texas L.P. (collectively, the "Borrowers") to Wells Fargo
Business Credit, Inc. (the "Lender") pursuant to a separate guaranty (each, a "Guaranty"), hereby (i) acknowledges receipt of the foregoing Amendment; (ii) consents to the terms
and execution thereof; (iii) reaffirms his obligations to the Lender pursuant to the terms of his/its Guaranty; and (iv) acknowledges that the Lender may amend, restate, extend, renew or
otherwise modify the Credit Agreement and any indebtedness or agreement of the Borrowers, or enter into any agreement or extend additional or other credit accommodations, without notifying or
obtaining the consent of the undersigned and without impairing the liability of the undersigned under his/its Guaranty for all of the Borrowers' present and future indebtedness to the Lender. 

	 	 	
 CHUN K. HONG, an individual
	

 	
 	

 CHRISTOPHER LOPES, an individual
	

 	
 	

 JAYESH BHAKTA, an individual
	

 	
 	

NETLIST HOLDINGS GP, INC.
	

 	
 	

By:	
 	

 	

 
	 	 	 	 	

	 	 	 	 	Name:	 
	 	 	 	 	 	

	 	 	 	 	Its:	 
	 	 	 	 	 	

	

 	
 	

NETLIST HOLDINGS LP, INC.
	

 	
 	

By:	
 	

 	

 
	 	 	 	 	

	 	 	 	 	Name:	 
	 	 	 	 	 	

	 	 	 	 	Its:	 
	 	 	 	 	 	

4

 
 
 

ACKNOWLEDGMENT AND AGREEMENT OF SUBORDINATED CREDITORS    
    

        The undersigned, each a subordinated creditor of Netlist, Inc. and Netlist Technology Texas L.P. (collectively the "Borrowers") to Wells Fargo Business
Credit, Inc. (the "Lender") pursuant to a separate Subordination Agreement each dated as of July 2, 2003 (each, a "Subordination Agreement"), hereby (i) acknowledges receipt of
the foregoing Amendment; (ii) consents to the terms and execution thereof; (iii) reaffirms its obligations to the Lender pursuant to the terms of its Subordination Agreement; and
(iv) acknowledges that the Lender may amend, restate, extend, renew or otherwise modify the Loan Documents and any indebtedness or agreement of the Borrowers, or enter into any agreement or
extend additional or other credit accommodations, without notifying or obtaining the consent of the undersigned and without impairing the obligations of the undersigned under its Subordination
Agreement. 

	 	 	HEUNGHWA INDUSTRY CO., LTD
	

 	
 	

By:	
 	

 	

 
	 	 	 	 	

	 	 	 	 	Name:	 
	 	 	 	 	 	

	 	 	 	 	Its:	 
	 	 	 	 	 	

	

 	
 	

SERIM PAPER MANUFACTURING CO., LTD
	

 	
 	

By:	
 	

 	

 
	 	 	 	 	

	 	 	 	 	Name:	 
	 	 	 	 	 	

	 	 	 	 	Its:	 
	 	 	 	 	 	

5

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FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT

ACKNOWLEDGMENT AND AGREEMENT OF GUARANTORS

ACKNOWLEDGMENT AND AGREEMENT OF SUBORDINATED CREDITORS

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