SEVENTHAMENDMENT TO AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT

EXHIBIT 10.2

SEVENTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT

This Amendment, dated as of March 21, 2007, is made by and between NETLIST, INC., a Delaware corporation, and NETLIST TECHNOLOGY TEXAS, L.P., a Texas limited partnership (each a “Borrower” and collectively, the “Borrowers”), on the one hand, and WELLS FARGO BANK, NATIONAL ASSOCIATION (the “Lender”), acting through its WELLS FARGO BUSINESS CREDIT operating division, on the other hand.

RECITALS

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

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

The Borrowers have requested that the Lender make certain additional amendments 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.

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

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

“Advance” means a Revolving Advance, the Term Advance, an Equipment Advance, and an Equipment Advance A.

“Borrowing Base” means at any time the lesser of:

(a)           The Maximum Line then in effect; or

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(b)           Subject to change from time to time in the Lender’s sole discretion, the sum of:

(i)            The product of the Accounts Advance Rate times Eligible Accounts (provided that Advances against Accounts described in clause (xiv) of the definition of Eligible Accounts set forth in Section 1.1 shall not exceed 75% of the Maximum Line then in effect), plus

(ii)           During the Foreign Accounts Eligibility Period, the lesser of (A) the product of the Accounts Advance Rate times Eligible Foreign Accounts or (B) $2,000,000, plus

(iii)          The lowest of (A) the product of the Inventory Advance Rate times Eligible Inventory or (B) eighty percent (80%) of the Net Orderly Liquidation Value of Eligible Inventory, or (C) the Inventory Sublimit; less

(iv)          The Borrowing Base Reserve, less

(v)           Indebtedness that the Borrowers owe to the Lender that has not yet been advanced on the Revolving Note, and the dollar amount that the Lender in its reasonable discretion then determines to be a reasonable determination of the Borrowers’ credit exposure with respect to any swap, derivative, foreign exchange, hedge, deposit, treasury management or other similar transaction or arrangement offered to Borrowers by Lender that is not described in Article II of this Agreement and any indebtedness owed by Borrowers to Wells Fargo Merchant Services, LLC.

“Equipment Advance” is defined in Section 2.11(a).

“Letter of Credit Sublimit” means $5,000,000.

“Maturity Date” means July 31, 2009.

“Maximum Line” means $25,000,000 unless this amount is increased pursuant to Section 2.21, in which event it means such increased amount.

“Net Income” means fiscal year-to-date after-tax net income (excluding extraordinary income), prepared on a consolidating and consolidated basis to include any domestic Subsidiaries, from continuing operations as determined in accordance with GAAP.

“Revolving Note” means the Borrowers’ Replacement Revolving Note, payable to the order of the Lender in substantially the form of Exhibit A attached to the Seventh Amendment, as same may be renewed and amended from time to time, and all replacements thereto.

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

“Equipment Advance(s) A” is defined in Section 2.11A(a).

“Equipment Advance A Commitment” means $2,927,550.

“Equipment Advance A Conversion Date” means the last day of each June and December, commencing June 30, 2007.

“Equipment Advance A Interest Only Period” means, (i) with respect to the first Equipment Advance A Conversion Date, the period commencing on the effective date of the Seventh Amendment and ending on such Equipment Advance A Conversion Date, and (ii) with respect to all other Equipment Advance A Conversion Dates, the period commencing on the first day following the prior Equipment Advance A Conversion Date, and ending on such Equipment Advance A Conversion Date.

“Equipment Term Loan A” is defined in Section 2.11A(b).

“Equipment Note A” means the Borrowers’ promissory note, payable to the order of the Lender in substantially the form of Exhibit B attached to the Seventh Amendment, as same may be renewed and amended from time to time, and all replacements thereto.

“Inventory Sublimit” means $7,000,000; provided that if the Borrowers’ maintain their cash on hand in any month at all times in an amount equal to or greater than $3,000,000 (as verified by the Lender from time to time in its sole discretion), then the Inventory Sublimit shall be automatically increased to $10,000,000, effective upon such verification; provided further that if the Borrowers’ thereafter fail to maintain their cash on hand in any month at all times in an amount equal to or greater than $3,000,000 (as verified by the Lender from time to time in its sole discretion), then the Inventory Sublimit shall automatically revert to $7,000,000, effective upon such verification; provided further that no increase in the Inventory Sublimit shall be made if a Default or an Event of Default has occurred and is then continuing.

“Maximum Line Increase Request” means a written request by the Borrowers to increase the Maximum Line Amount in the form of Exhibit D attached to the Seventh Amendment.

“Seventh Amendment” means that certain Seventh Amendment to Credit and Security Agreement, dated as of March 21, 2007, between the Borrowers and the Lender, amending the Agreement.

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

(b)           The Letter of Credit Sublimit less the L/C Amount, or

3.             Amendment to Section 2.11(c).  Section 2.11(c) is hereby amended in it entirety as follows:

(c)           [Intentionally Deleted].

4.             Equipment Advances A.  A new Section 2.11(A) is hereby added to the Credit Agreement immediately following Section 2.11 thereof as follows:

Section 2.11A       Equipment Advances A.

(a)           Subject to the terms and conditions hereof, from the first Business Day following the effective date of the Seventh Amendment up to but not including the last Equipment Advance A Conversion Date prior to the Maturity Date, the Lender agrees to make one or more advances (each, an “Equipment Advance A” and collectively the “Equipment Advances A”) to or for the benefit of the Borrowers, in minimum amounts of $100,000 up to an aggregate amount not to exceed the Equipment Advance A Commitment. The Borrowers’ obligation to pay the Equipment Advances A shall be evidenced by the Equipment Note A and shall be secured by the Collateral as provided in Article III.  Equipment Advances A may not be re-borrowed after repayment is made by the Borrowers.  Each Equipment Advance A shall be advanced directly to the applicable vendor or the Borrowers, as the Borrowers may request.  The foregoing to the contrary notwithstanding, (i) each Equipment Advance A shall be in an amount, as determined by the Lender, not to exceed 80% of the Borrowers’ invoice cost (net of shipping, taxes, freight, installation, and other so-called “soft costs”) of new or used Equipment that is to be purchased by the Borrowers with the proceeds of such Advance, or new or used Equipment that has been purchased by the Borrowers within 30 days prior to the date of such Advance, (ii) the Equipment that is to be acquired or that has been purchased by the Borrowers must be acceptable to the Lender in all respects, not be a fixture, and not be intended to be affixed to real property or to become installed in or affixed to other goods, and must be located at one of the Borrowers’ facilities located in the United States, (iii) the Lender shall have no obligation to make any Equipment Advance A hereunder to the extent that the making thereof would cause the then outstanding amount of all Equipment Advances A to exceed the Equipment Advance A Commitment, (iv) prior to each such Equipment Advance A, the Lender shall have received an invoice for the Equipment to be purchased in form and substance satisfactory to the Lender, together with evidence satisfactory to the Lender that the delivery of such Equipment has been made and unconditionally accepted by the Borrowers, (v) the Lender may review the value of any Equipment purchased with any Equipment Advance A, with the results of such review to be satisfactory to the Lender in its sole discretion, (vi) the aggregate

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amount of all Equipment Advances A outstanding at any time (including giving effect to any requested Equipment Advance A) shall not exceed the lesser of cost or fair market value, of all of the Equipment acquired or financed with the proceeds of such Equipment Advances A, and (vii) on the last Equipment Advance A Conversion Date prior to the Maturity Date, the Equipment Advance A Commitment and the Lender’s obligation to make Equipment Advances A shall terminate.

(b)           With respect to each Equipment Advance A Interest Only Period, no principal payments shall be due on any outstanding Equipment Advances A that were advanced during such Equipment Advance A Interest Only Period; provided that the Borrowers shall make interest payments thereon during such period in accordance with Section 2.12.  On each Equipment Advance A Conversion Date, all Equipment Advances A that were advanced during the applicable Equipment Advance A Interest Only Period shall be converted into a single term loan (each, an “Equipment Term Loan A”).  The Borrowers shall repay each Equipment Term Loan A in equal monthly installments of principal, each in the amount equal to 1/42 of the original amount of such Equipment Term Loan A, and such installments shall be due and payable on the first day of each month, commencing on the first day of the first month following the applicable Equipment Advance A Conversion Date, and continuing on the first day of each succeeding month.

(c)           If the Borrowers breach a Financial Covenant, and the Lender obtains an appraisal of the Equipment as permitted under Section 6.10(e) herein, and the appraisal shows the sum of the outstanding principal balances of the Equipment Note and the Equipment Note A to exceed eighty percent (80%) of the Net Orderly Liquidation Value of the Equipment financed with the Equipment Advances and the Equipment Advances A, then the Borrowers, upon demand by the Lender, shall immediately prepay the Equipment Note and the Equipment Note A ratably in the amount of such excess.  All prepayments of principal with respect to the Equipment Note and the Equipment Note A shall be applied ratably to the most remote principal installment or installments then unpaid.

(d)           Notwithstanding the foregoing, on the Termination Date, the entire unpaid principal balance of the Equipment Note A, and all unpaid interest accrued thereon, shall in any event be due and payable.

5.             Amendment to Section 2.12(b).  Section 2.12(b) of the Credit Agreement shall be deleted in its entirety and restated as follows:

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(b)           Margins.  The Margins through and including any reduction occurring as specified below shall be zero percent (0%) for all Floating Rate Advances, and two and one half of one percent (2.5%) for all LIBOR Advances.  The Margins shall be reduced in accordance with the table below provided that the Borrowers meet the two conditions set forth in the following table:

Any reductions in the Margins will be made upon the Lender’s verification that the Borrowers have met both of the conditions set forth above, effective the first day of the month following such verification.  Notwithstanding the foregoing, no reduction in any Margin will be made if a Default Period exists at the time that such reduction would otherwise be made.

If the Margins are reduced as a result of the Borrower’s achieving Net Income of at least $7,500,000 for their fiscal year ending December 31, 2007, and if amended or restated financial statements disclose Net Income for such fiscal year less than that amount, the Lender may increase the Margins to their prior level from the date of receipt of such amended or restated financial statements, to the beginning of the appropriate month to which the restated statements relate or to the beginning of the month in which any Event of Default has occurred, as the Lender in its sole discretion deems appropriate.

6.             Amendment to Section 2.13(g).  Clause (i) of Section 2.13(g) of the Credit Agreement shall be deleted in its entirety and restated as follows:

(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 any Regional Commercial Banking Office of the Lender.

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7.             Increase in Maximum Line.  A new Section 2.21 is hereby added to the Credit Agreement immediately following Section 2.20 thereof as follows:

2.21         Increase in Maximum Line.  The Borrowers shall have the option to increase the Maximum Line in increments of $2,500,000 up to a maximum Maximum Line of $40,000,000, subject to the terms and conditions of this Section 2.21.  Provided that no Default or Event of Default has occurred and is continuing, the Maximum Line shall be automatically increased upon receipt by the Lender of each of the following, each in substance and form acceptable to the Lender in its sole discretion:

(a)           a Maximum Line Increase Request consistent with this Section 2.21, duly executed by the Borrowers;

(b)           payment of a fee in an amount equal to $6,250 for each $2,500,000 incremental increase of the Maximum Line Amount; and

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

On the date of fulfillment of the terms and conditions of this Section 2.21 to the satisfaction of the Lender, in its sole discretion, (i) the new Maximum Line shall be effective, and (ii) the Dollars indicated in the definition of “Maximum Line Amount” set forth in Section 1.1 shall be automatically amended to indicate the new Maximum Line.

8.             Projections.  Section 6.1(d) of the Credit Agreement is hereby amended in its entirety as follows:

(d)           Projections.  At least 60 days prior to each fiscal year end of the Borrowers, the Borrowers will deliver to the Lender the projected consolidated balance sheets and income statements for each month of next fiscal year, each in reasonable detail, representing the Borrowers’ good faith projections and certified by each Borrower’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.