Item 1.01
Entry into a Material Definitive Agreement.
Securities Purchase Agreement and Convertible Promissory Note
On August 27, 2018 (the “Closing Date”), Netlist, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Iliad Research and Trading, L.P. (the “Lender”), pursuant to which the Company issued a Convertible Promissory Note (the “Convertible Note”) to the Lender dated as of the Closing Date. The Convertible Note has an original principal amount of $2,270,000, bears interest at a rate of 8% per annum, and will mature on August 27, 2020, unless earlier repurchased, redeemed or converted in accordance with its terms.
The Convertible Note provides the Lender with the right to convert, at any time, all or any part of the outstanding principal and accrued but unpaid interest into shares of the Company’s common stock (the “Common Stock”) at a conversion price of $0.36 per share (“Lender Conversion Price”). Further, beginning on April 1, 2019, the Convertible Note also provides the Lender with the right to redeem all or any portion of the Convertible Note (“Redemption Amount”) up to the maximum monthly amount of $350,000. The payments of each Redemption Amount may either be made in cash, by converting such Redemption Amount into shares of Common Stock (“Redemption Conversion Shares”), or a combination thereof, at the Company’s election. The number of Redemption Conversion Shares equals the portion of the applicable Redemption Amount being converted divided by the lesser of the Lender Conversion Price or the Market Price, that is 85% of the Company’s lowest Closing Bid Price during the 20 Trading Days immediately preceding the applicable redemption date, provided that the Market Price shall not be less than $0.11 per share (the “Redemption Price Floor”). In the event any applicable redemption conversion price is below the Redemption Price Floor then either: (i) the Company will honor the redemption conversion at the then effective redemption conversion price for a Redemption Amount not to exceed $150,000 if the redemption conversion price is equal to or greater than $0.06 or (ii) the Company will pay the applicable Redemption Amount up to $150,000 in cash and not in Redemption Conversion Shares. The Purchase Agreement requires the Company to reserve 25,000,000 shares of Common Stock from its authorized and unissued Common Stock to provide for all issuances of Common Stock under the Convertible Note. However, the Convertible Note provides that the aggregate number shares of Common Stock issued to the Lender under the Convertible Note and Purchase Agreement shall not exceed 19.99% of the total number of shares of Common Stock outstanding unless the Company has obtained stockholder approval of the issuance pursuant to Nasdaq Listing Rule 5635(d).
The Convertible Note is not secured. The Company makes certain customary representations and warranties and have agreed to customary covenants and obligations. The Purchase Agreement and Convertible Note contain customary events of default upon the occurrence and during the continuance of which all obligations under the Purchase Agreement and Convertible Note may be declared immediately due and payable.
The Company has filed herewith as Exhibits 10.1 and 10.2 the Purchase Agreement and Convertible Note, which are incorporated herein by reference, and the foregoing descriptions of the Purchase Agreement and Convertible Note are qualified in their entirety by reference thereto.