EXHIBIT 10.2

 

THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER
AND TO THE EXTENT SET FORTH IN THAT CERTAIN SUBORDINATION AGREEMENT (THE
“SUBORDINATION AGREEMENT”) DATED AS OF AUGUST 27, 2018 BY AND BETWEEN BORROWER
(AS DEFINED BELOW) AND SILICON VALLEY BANK TO THE SENIOR DEBT (AS DEFINED IN THE
SUBORDINATION AGREEMENT); AND THE HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF,
SHALL BE BOUND BY THE PROVISIONS OF THE SVB SUBORDINATION AGREEMENT.

 

CONVERTIBLE PROMISSORY NOTE

 

Effective Date: August 27, 2018

 

U.S. $2,270,000.00

 

FOR VALUE RECEIVED, NETLIST, INC., a Delaware corporation (“Borrower”), promises
to pay to ILIAD RESEARCH AND TRADING, L.P., a Utah limited partnership, or its
successors or assigns (“Lender”), $2,270,000.00 and any interest, fees, charges,
and late fees accrued hereunder on the date that is twenty-four (24) months
after the Purchase Price Date (the “Maturity Date”) in accordance with the terms
set forth herein and to pay interest on the Outstanding Balance at the rate of
eight percent (8%) per annum from the Purchase Price Date until the same is paid
in full. This Convertible Promissory Note (this “Note”) is issued and made
effective as of August 27, 2018 (the “Effective Date”). This Note is issued
pursuant to that certain Securities Purchase Agreement dated August 27, 2018, as
the same may be amended from time to time, by and between Borrower and Lender
(the “Purchase Agreement”). Certain capitalized terms used herein are defined in
Attachment 1 attached hereto and incorporated herein by this reference.

 

This Note carries an OID of $150,000.00. In addition, Borrower agrees to pay
$20,000.00 to Lender to cover Lender’s legal fees, accounting costs, due
diligence, monitoring and other transaction costs incurred in connection with
the purchase and sale of this Note (the “Transaction Expense Amount”), all of
which amount is included in the initial principal balance of this Note. The
purchase price for this Note shall be $2,100,000.00 (the “Purchase Price”),
computed as follows: $2,270,000.00 original principal balance, less the OID,
less the Transaction Expense Amount. The Purchase Price shall be payable by
Lender by wire transfer of immediately available funds.

 

1.                                      Payment; Prepayment.

 

1.1.                            Payment. All payments owing hereunder shall be
in lawful money of the United States of America or Conversion Shares (as defined
below), as provided for herein, and delivered to Lender at the address or bank
account furnished to Borrower for that purpose. All payments shall be applied
first to (a) costs of collection, if any, then to (b) fees and charges, if any,
then to (c) accrued and unpaid interest, and thereafter, to (d) principal.

 

1.2.                            Prepayment. Notwithstanding the foregoing, so
long as Borrower has not received a Lender Conversion Notice (as defined below)
or a Redemption Notice (as defined below) from Lender where the applicable
Conversion Shares have not yet been delivered, then Borrower shall have the
right to prepay all or any portion of the Outstanding Balance. If Borrower
exercises its right to prepay this Note, Borrower shall make payment to Lender
of an amount in cash equal to 108% multiplied by the portion of Outstanding
Balance Borrower elects to prepay.

 

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2.                                      Security.  This Note is not secured.

 

3.                                      Lender Optional Conversion.

 

3.1.                            Lender Conversions. Lender has the right at any
time after the Purchase Price Date until the Outstanding Balance has been paid
in full, at its election, to convert (“Lender Conversion”) all or any part of
the Outstanding Balance into shares (each instance of conversion is referred
herein as a “Lender Conversion Shares”) of fully paid and non-assessable common
stock, $0.001 par value per share (“Common Stock”), of Borrower as per the
following conversion formula: the number of Lender Conversion Shares equals the
amount being converted (the “Conversion Amount”) divided by the Lender
Conversion Price (as defined below). Conversion notices in the form attached
hereto as Exhibit A (each, a “Lender Conversion Notice”) may be effectively
delivered to Borrower by any method of Lender’s choice (including but not
limited to facsimile, email, mail, overnight courier, or personal delivery), and
all Lender Conversions shall be cashless and not require further payment from
Lender. Borrower shall deliver the Lender Conversion Shares from any Lender
Conversion to Lender in accordance with Section 9 below.

 

3.2.                            Lender Conversion Price. Subject to adjustment
as set forth in this Note, the price at which Lender has the right to convert
all or any portion of the Outstanding Balance into Common Stock is $0.36 per
share of Common Stock (the “Lender Conversion Price”).

 

4.                                      Defaults and Remedies.

 

4.1.                            Defaults. The following are events of default
under this Note (each, an “Event of Default”): (a) Borrower fails to pay any
principal, interest, fees, charges, or any other amount when due and payable
hereunder; (b) Borrower fails to deliver any Lender Conversion Shares in
accordance with the terms hereof; (c) Borrower fails to deliver any Redemption
Conversion Shares (as defined below) in accordance with the terms hereof; (d) a
receiver, trustee or other similar official shall be appointed over Borrower or
a material part of its assets and such appointment shall remain uncontested for
twenty (20) days or shall not be dismissed or discharged within sixty (60) days;
(e) Borrower becomes insolvent or generally fails to pay, or admits in writing
its inability to pay, its debts as they become due, subject to applicable grace
periods, if any; (f) Borrower makes a general assignment for the benefit of
creditors; (g) Borrower files a petition for relief under any bankruptcy,
insolvency or similar law (domestic or foreign); (h) an involuntary bankruptcy
proceeding is commenced or filed against Borrower; (i) Borrower or any pledgor,
trustor, or guarantor of this Note defaults or otherwise fails to observe or
perform any covenant, obligation, condition or agreement of Borrower or such
pledgor, trustor, or guarantor contained herein or in any other Transaction
Document (as defined in the Purchase Agreement); (j) any representation,
warranty or other statement made or furnished by or on behalf of Borrower or any
pledgor, trustor, or guarantor of this Note to Lender herein, in any Transaction
Document, or otherwise in connection with the issuance of this Note is false,
incorrect, incomplete or misleading in any material respect when made or
furnished; (k) the occurrence of a Fundamental Transaction without Lender’s
prior written consent; (l) Borrower fails to maintain the Share Reserve (as
defined in the Purchase Agreement) as required under the Purchase Agreement; 
(m) any money judgment, writ or similar process is entered or filed against
Borrower or any subsidiary of Borrower or any of its property or other assets
for more than $1,000,000.00, and shall remain unvacated, unbonded or unstayed
for a period of twenty (20) calendar days unless otherwise consented to by
Lender; (n) Borrower fails to be DWAC Eligible; (o) Borrower, any affiliate of
Borrower, or any pledgor, trustor, or guarantor of this Note breaches any
covenant or other term or condition contained in any Other Agreements; (p) the
Common Stock fails to be listed or quoted for trading on any of (i) NYSE,
(ii) NASDAQ, (iii) OTCQX, or (iv) OTCQB; or (q) trading in Company’s Common
Stock is suspended, halted, chilled, frozen, reaches zero bid or otherwise
ceases on Company’s principal trading market.

 

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4.2.                            Remedies. At any time and from time to time
after Lender becomes aware of the occurrence of any Event of Default, Lender may
accelerate this Note by written notice to Borrower, with the Outstanding Balance
becoming immediately due and payable in cash at the Mandatory Default Amount.
Notwithstanding the foregoing, at any time following the occurrence of any Event
of Default, Lender may, at its option, elect to increase the Outstanding Balance
by applying the Default Effect (subject to the limitation set forth below) via
written notice to Borrower without accelerating the Outstanding Balance, in
which event the Outstanding Balance shall be increased as of the date of the
occurrence of the applicable Event of Default pursuant to the Default Effect,
but the Outstanding Balance shall not be immediately due and payable unless so
declared by Lender (for the avoidance of doubt, if Lender elects to apply the
Default Effect pursuant to this sentence, it shall reserve the right to declare
the Outstanding Balance immediately due and payable at any time and no such
election by Lender shall be deemed to be a waiver of its right to declare the
Outstanding Balance immediately due and payable as set forth herein unless
otherwise agreed to by Lender in writing). Notwithstanding the foregoing, upon
the occurrence of any Event of Default described in clauses (d), (e), (f),
(g) or (h) of Section 4.1, the Outstanding Balance as of the date of
acceleration shall become immediately and automatically due and payable in cash
at the Mandatory Default Amount, without any written notice required by Lender.
At any time following the occurrence of any Event of Default, upon written
notice given by Lender to Borrower, interest shall accrue on the Outstanding
Balance beginning on the date the applicable Event of Default occurred at an
interest rate equal to the lesser of 22% per annum or the maximum rate permitted
under applicable law (“Default Interest”). For the avoidance of doubt, Lender
may continue making Lender Conversions and Redemption Conversions (as defined
below) at any time following an Event of Default until such time as the
Outstanding Balance is paid in full. In connection with acceleration described
herein, Lender need not provide, and Borrower hereby waives, any presentment,
demand, protest or other notice of any kind, and Lender may immediately and
without expiration of any grace period enforce any and all of its rights and
remedies hereunder and all other remedies available to it under applicable law.
Such acceleration may be rescinded and annulled by Lender at any time prior to
payment hereunder and Lender shall have all rights as a holder of the Note until
such time, if any, until Lender receives full payment pursuant to this
Section 4.2. No such rescission or annulment shall affect any subsequent Event
of Default or impair any right consequent thereon. Nothing herein shall limit
Lender’s right to pursue any other remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to Borrower’s failure to timely deliver
Conversion Shares upon Conversion of the Note as required pursuant to the terms
hereof.

 

5.                                      Unconditional Obligation; No Offset.
Borrower acknowledges that this Note is an unconditional, valid, binding and
enforceable obligation of Borrower not subject to offset, deduction or
counterclaim of any kind. Borrower hereby waives any rights of offset it now has
or may have hereafter against Lender, its successors and assigns, and agrees to
make the payments or Conversions called for herein in accordance with the terms
of this Note.

 

6.                                      Waiver. No waiver of any provision of
this Note shall be effective unless it is in the form of a writing signed by the
party granting the waiver. No waiver of any provision or consent to any
prohibited action shall constitute a waiver of any other provision or consent to
any other prohibited action, whether or not similar. No waiver or consent shall
constitute a continuing waiver or consent or commit a party to provide a waiver
or consent in the future except to the extent specifically set forth in writing.

 

7.                                      Adjustment of Lender Conversion Price
upon Subdivision or Combination of Common Stock. Without limiting any provision
hereof, if Borrower at any time on or after the Effective Date subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Lender Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. Without limiting any provision
hereof, if Borrower at any time on or after the Effective Date combines (by
combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of

 

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shares, the Lender Conversion Price in effect immediately prior to such
combination will be proportionately increased. Any adjustment pursuant to this
Section 7 shall become effective immediately after the effective date of such
subdivision or combination. If any event requiring an adjustment under this
Section 7 occurs during the period that a Lender Conversion Price is calculated
hereunder, then the calculation of such Lender Conversion Price shall be
adjusted appropriately to reflect such event.

 

8.                                      Borrower Redemptions.

 

8.1.                            Redemption Conversion Price. Subject to the
adjustments set forth herein, the conversion price for each Redemption
Conversion (the “Redemption Conversion Price”) shall be the lesser of (a) the
Lender Conversion Price, and (b) the Market Price.

 

8.2.                            Redemption Conversions. Beginning on April 1,
2019, Lender shall have the right, exercisable at any time in its sole and
absolute discretion, to redeem all or any portion of the Note (such amount, the
“Redemption Amount”) up to the Maximum Monthly Redemption Amount by providing
Borrower with a notice substantially in the form attached hereto as Exhibit B
(each, a “Redemption Notice”, and each date on which Lender delivers a
Redemption Notice, a “Redemption Date”). For the avoidance of doubt, Lender may
submit to Borrower one (1) or more Redemption Notices in any given calendar
month so long as the aggregate Redemption Amounts for each calendar month do not
exceed the Maximum Monthly Redemption Amount. Payments of each Redemption Amount
may be made (a) in cash, or (b) by converting such Redemption Amount into shares
of Common Stock (“Redemption Conversion Shares”, and together with the Lender
Conversion Shares, the “Conversion Shares”) in accordance with this Section 8.2
(each, a “Redemption Conversion”) per the following formula: the number of
Redemption Conversion Shares equals the portion of the applicable Redemption
Amount being converted divided by the Redemption Conversion Price, or (c) by any
combination of the foregoing, so long as the cash is delivered to Lender on the
fifth (5th) Trading Day immediately following the applicable Redemption Date and
the Redemption Conversion Shares are delivered to Lender on or before the
applicable Delivery Date (as defined below). Notwithstanding the foregoing,
Borrower will not be entitled to elect a Redemption Conversion with respect to
any portion of any applicable Redemption Amount and shall be required to pay the
entire amount of such Redemption Amount in cash, if on the applicable Redemption
Date there is an Equity Conditions Failure, and such failure is not waived in
writing by Lender. Notwithstanding that failure to repay this Note in full by
the Maturity Date is an Event of Default, the Redemption Dates shall continue
after the Maturity Date pursuant to this Section 8.2 until the Outstanding
Balance is repaid in full, provided that the aggregate Redemption Amounts in any
given calendar month following an Event of Default may exceed the Maximum
Monthly Redemption Amount. Notwithstanding the foregoing, in the event any
applicable Redemption Conversion Price is below the Redemption Price Floor then
either: (i) the Company shall honor the Redemption Conversion at the then
effective Redemption Conversion Price for a Redemption Amount not to exceed
$150,000.00 if the Redemption Conversion Price is equal to or greater than $0.06
or (ii) Borrower must pay the applicable Redemption Amount up to $150,000.00 in
cash and not in Redemption Conversion Shares. In the event Borrower is obligated
to pay any Redemption Amount in cash pursuant to this Section 8.2, Borrower
covenants and agrees that it will obtain any consent required under the
Subordination Agreement to make such payment in cash. Borrower’s failure for any
reason to timely pay any Redemption Amount that must be paid in cash, including
as a result of its failure to obtain the requisite consents under the
Subordination Agreement, shall be considered an Event of Default hereunder.

 

8.3.                            Allocation of Redemption Amounts. Following its
receipt of a Redemption Notice, Borrower may either ratify Lender’s proposed
allocation in the applicable Redemption Notice or elect to change the allocation
by written notice to Lender by email or fax within twenty-four (24) hours of its
receipt of such Redemption Notice, so long as the sum of the cash payments and
the amount of Redemption Conversions equal the applicable Redemption Amount. If
Borrower fails to notify Lender of its election to

 

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change the allocation prior to the deadline set forth in the previous sentence,
it shall be deemed to have ratified and accepted the allocation set forth in the
applicable Redemption Notice prepared by Lender. Borrower acknowledges and
agrees that the amounts and calculations set forth thereon are subject to
correction or adjustment because of error, mistake, or any adjustment resulting
from an Event of Default or other adjustment permitted under the Transaction
Documents (an “Adjustment”). Furthermore, no error or mistake in the preparation
of such notices, or failure to apply any Adjustment that could have been applied
prior to the preparation of a Redemption Notice may be deemed a waiver of
Lender’s right to enforce the terms of any Note, even if such error, mistake, or
failure to include an Adjustment arises from Lender’s own calculation. Borrower
shall deliver the Redemption Conversion Shares from any Redemption Conversion to
Lender in accordance with Section 9 below on or before each applicable Delivery
Date.

 

9.                                      Method of Conversion Share Delivery. On
or before the close of business on the fifth (5th) Trading Day following each
Redemption Date or the fifth (5th) Trading Day following the date of delivery of
a Lender Conversion Notice, as applicable (the “Delivery Date”), Borrower shall,
provided it is DWAC Eligible at such time, deliver or cause its transfer agent
to deliver the applicable Conversion Shares electronically via DWAC to the
account designated by Lender in the applicable Lender Conversion Notice or
Redemption Notice. If Borrower is not DWAC Eligible, it shall deliver to Lender
or its broker (as designated in the Lender Conversion Notice or Redemption
Notice, as applicable), via reputable overnight courier, a certificate
representing the number of shares of Common Stock equal to the number of
Conversion Shares to which Lender shall be entitled, registered in the name of
Lender or its designee. For the avoidance of doubt, Borrower has not met its
obligation to deliver Conversion Shares by the Delivery Date unless Lender or
its broker, as applicable, has actually received the certificate representing
the applicable Conversion Shares no later than the close of business on the
relevant Delivery Date pursuant to the terms set forth above. Moreover, and
notwithstanding anything to the contrary herein or in any other Transaction
Document, in the event Borrower or its transfer agent refuses to deliver any
Conversion Shares to Lender on grounds that such issuance is in violation of
Rule 144 under the Securities Act of 1933, as amended (“Rule 144”), Borrower
shall deliver or cause its transfer agent to deliver the applicable Conversion
Shares to Lender with a restricted securities legend, but otherwise in
accordance with the provisions of this Section 9. In conjunction therewith,
Borrower will also deliver to Lender a written explanation from its counsel or
its transfer agent’s counsel opining as to why the issuance of the applicable
Conversion Shares violates Rule 144.

 

10.                               Conversion Delays. If Borrower fails to
deliver Conversion Shares in accordance with the timeframe stated in Section 9,
Lender may at any time prior to receiving the applicable Conversion Shares
rescind in whole or in part such Conversion, with a corresponding increase to
the Outstanding Balance (any returned amount will tack back to the Purchase
Price Date for purposes of determining the holding period under Rule 144).

 

11.                               Ownership Limitation. Notwithstanding anything
to the contrary contained in this Note or the other Transaction Documents, if at
any time Lender shall or would be issued shares of Common Stock under any of the
Transaction Documents, but such issuance would cause Lender (together with its
affiliates) to beneficially own a number of shares exceeding 4.99% of the number
of shares of Common Stock outstanding on such date (including for such purpose
the shares of Common Stock issuable upon such issuance) (the “Maximum
Percentage”), then Borrower must not issue to Lender shares of Common Stock
which would exceed the Maximum Percentage. For purposes of this section,
beneficial ownership of Common Stock will be determined pursuant to
Section 13(d) of the 1934 Act. Notwithstanding the forgoing, the term “4.99%”
above shall be replaced with “9.99%” at such time as the Market Capitalization
is less than $10,000,000.00. Notwithstanding any other provision contained
herein, if the term “4.99%” is replaced with “9.99%” pursuant to the preceding
sentence, such increase to “9.99%” shall remain at 9.99% until increased,
decreased or waived by Lender as set forth below. By written notice to Borrower,
Lender may increase, decrease or waive the Maximum Percentage as to itself but
any such waiver will not be effective

 

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until the 61st day after delivery thereof. The foregoing 61-day notice
requirement is enforceable, unconditional and non-waivable and shall apply to
all affiliates and assigns of Lender.

 

12.                               Issuance Cap. Notwithstanding anything to the
contrary contained in this Note or the other Transaction Documents, Borrower and
Lender agree that the total cumulative number of shares of Common Stock issued
to Lender hereunder together with all other Transaction Documents may not exceed
the requirements of Nasdaq Listing Rule 5635(d) (“Nasdaq 19.99% Cap”), except
that such limitation will not apply following Approval (defined below). If the
number of shares of Common Stock issued to Investor reaches the Nasdaq 19.99%
Cap, so as not to violate the 20% limit established in Listing Rule 5635(d),
Borrower will use reasonable commercial efforts to obtain stockholder approval
of the Note and the issuance of additional Conversion Shares, if necessary, in
accordance with the requirements of Nasdaq Listing Rule 5635(d). Borrower will
also use reasonable commercial efforts to obtain stockholder approval of the
Note and the issuance of additional Conversion Shares, if necessary, in
accordance with the requirements of Nasdaq Listing Rule 5635(b) (such
stockholder approvals, the “Approvals”). Until Borrower is able to obtain such
Approvals, as applicable, any subsequent Redemptions of this Note must be repaid
in cash.

 

13.                               Opinion of Counsel. In the event that an
opinion of counsel is needed for any matter related to this Note, Lender has the
right to have any such opinion provided by its counsel.

 

14.                               Governing Law; Venue. This Note shall be
construed and enforced in accordance with, and all questions concerning the
construction, validity, interpretation and performance of this Note shall be
governed by, the internal laws of the State of Utah, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Utah or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of Utah. The provisions set forth in the
Purchase Agreement to determine the proper venue for any disputes are
incorporated herein by this reference.

 

15.                               Arbitration of Disputes. By its issuance or
acceptance of this Note, each party agrees to be bound by the Arbitration
Provisions (as defined in the Purchase Agreement) set forth as an exhibit to the
Purchase Agreement.

 

16.                               Cancellation. After repayment or conversion of
the entire Outstanding Balance, this Note shall be deemed paid in full, shall
automatically be deemed canceled, and shall not be reissued.

 

17.                               Amendments. The prior written consent of both
parties hereto shall be required for any change or amendment to this Note.

 

18.                               Assignments. Borrower may not assign this Note
without the prior written consent of Lender. This Note and any shares of Common
Stock issued upon conversion of this Note may be offered, sold, assigned or
transferred by Lender without the consent of Borrower, provided, however, that
any transfer of this Note may be effected only pursuant to the Purchase
Agreement and by surrender of this Note to the Company and reissuance of a new
note to the transferee.

 

19.                               Notices. Whenever notice is required to be
given under this Note, unless otherwise provided herein, such notice shall be
given in accordance with the subsection of the Purchase Agreement titled
“Notices.”

 

20.                               Liquidated Damages. Lender and Borrower agree
that in the event Borrower fails to comply with any of the terms or provisions
of this Note, Lender’s damages would be uncertain and difficult (if not
impossible) to accurately estimate because of the parties’ inability to predict
future interest rates, future share prices, future trading volumes and other
relevant factors. Accordingly, Lender and Borrower

 

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agree that any fees, balance adjustments, Default Interest or other charges
assessed under this Note are not penalties but instead are intended by the
parties to be, and shall be deemed, liquidated damages (under Lender’s and
Borrower’s expectations that any such liquidated damages will tack back to the
Purchase Price Date for purposes of determining the holding period under
Rule 144).

 

21.                               Severability. If any part of this Note is
construed to be in violation of any law, such part shall be modified to achieve
the objective of Borrower and Lender to the fullest extent permitted by law and
the balance of this Note shall remain in full force and effect.

 

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

 

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IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the
Effective Date.

 

 

BORROWER:

 

 

 

NETLIST, INC.

 

 

 

 

 

 

By:

/s/ Gail Sasaki

 

 

Gail Sasaki, Chief Financial Officer

 

 

ACKNOWLEDGED, ACCEPTED AND AGREED:

 

 

 

LENDER:

 

 

 

ILIAD RESEARCH AND TRADING, L.P.

 

 

 

 

By:

Iliad Management, LLC, its General Partner

 

 

 

 

 

 

By:

Fife Trading, Inc., its Manager

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ John M. Fife

 

 

 

 

John M. Fife, President

 

 

[Signature Page to Convertible Promissory Note]

 

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ATTACHMENT 1

DEFINITIONS

 

For purposes of this Note, the following terms shall have the following
meanings:

 

A1.                             “Bloomberg” means Bloomberg L.P. (or if that
service is not then reporting the relevant information regarding the Common
Stock, a comparable reporting service of national reputation selected by Lender
and reasonably satisfactory to Borrower).

 

A2.                             “Closing Bid Price” and “Closing Trade Price”
means the last closing bid price and last closing trade price, respectively, for
the Common Stock on its principal market, as reported by Bloomberg, or, if its
principal market begins to operate on an extended hours basis and does not
designate the closing bid price or the closing trade price (as the case may be)
then the last bid price or last trade price, respectively, of the Common Stock
prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if its
principal market is not the principal securities exchange or trading market for
the Common Stock, the last closing bid price or last trade price, respectively,
of the Common Stock on the principal securities exchange or trading market where
the Common Stock is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing bid price or last trade price,
respectively, of the Common Stock in the over-the-counter market on the
electronic bulletin board for the Common Stock as reported by Bloomberg, or, if
no closing bid price or last trade price, respectively, is reported for the
Common Stock by Bloomberg, the average of the bid prices, or the ask prices,
respectively, of any market makers for the Common Stock as reported by OTC
Markets Group, Inc., and any successor thereto. If the Closing Bid Price or the
Closing Trade Price cannot be calculated for the Common Stock on a particular
date on any of the foregoing bases, the Closing Bid Price or the Closing Trade
Price (as the case may be) of the Common Stock on such date shall be the fair
market value as mutually determined by Lender and Borrower. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during such period.

 

A3.                             “Conversion” means a Lender Conversion under
Section 3 or a Redemption Conversion under Section 8.

 

A4.                             “Conversion Factor” means 85%.

 

A5.                             “Conversion Share Value” means the product of
the number of Conversion Shares deliverable pursuant to any Conversion Notice
multiplied by the Closing Trade Price of the Common Stock on the Delivery Date
for such Conversion.

 

A6.                             “Default Effect” means multiplying the
Outstanding Balance as of the date the applicable Event of Default occurred by
10% and then adding the resulting product to the Outstanding Balance as of the
date the applicable Event of Default occurred, with the sum of the foregoing
then becoming the Outstanding Balance under this Note as of the date the
applicable Event of Default occurred.

 

A7.                             “DTC” means the Depository Trust Company or any
successor thereto.

 

A8.                             “DTC Eligible” means, with respect to the Common
Stock, that such Common Stock is eligible to be deposited in certificate form at
the DTC, cleared and converted into electronic shares by the DTC and held in the
name of the clearing firm servicing Lender’s brokerage firm for the benefit of
Lender.

 

A9.                             “DTC/FAST Program” means the DTC’s Fast
Automated Securities Transfer program.

 

A10.                      “DWAC” means the DTC’s Deposit/Withdrawal at Custodian
system.

 

A11.                      “DWAC Eligible” means that (a) Borrower’s Common Stock
is eligible at DTC for full services pursuant to DTC’s operational arrangements,
including without limitation transfer through DTC’s DWAC system; (b) Borrower
has been approved (without revocation) by DTC’s underwriting department;
(c) Borrower’s transfer agent is approved as an agent in the DTC/FAST Program;
(d) the Conversion Shares

 

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are otherwise eligible for delivery via DWAC; (e) Borrower has previously
delivered all Conversion Shares to Lender via DWAC; and (f) Borrower’s transfer
agent does not have a policy prohibiting or limiting delivery of the Conversion
Shares via DWAC.

 

A12.                      “Equity Conditions Failure” means that any of the
following conditions has not been satisfied during any applicable Equity
Conditions Measuring Period (as defined below) and on each Redemption Date:
(a) with respect to the applicable date of determination all of the Conversion
Shares would be freely tradable under Rule 144 or without the need for
registration under any applicable federal or state securities laws (in each
case, disregarding any limitation on conversion of this Note); (b) on each day
during the period beginning one month prior to the applicable date of
determination and ending on and including the applicable date of determination
(the “Equity Conditions Measuring Period”), the Common Stock is listed or
designated for quotation (as applicable) on any of NYSE, NASDAQ, OTCQX,  or
OTCQB (each, an “Eligible Market”) and shall not have been suspended from
trading on any such Eligible Market (other than suspensions of not more than two
(2) Trading Days and occurring prior to the applicable date of determination due
to business announcements by Borrower); (c) on each day during the Equity
Conditions Measuring Period, Borrower shall have delivered all shares of Common
Stock issuable upon conversion of this Note on a timely basis as set forth in
Section 8.1 hereof and all other shares of capital stock required to be
delivered by Borrower on a timely basis as set forth in the other Transaction
Documents; (d) any shares of Common Stock to be issued in connection with the
event requiring determination may be issued in full without violating Section 11
hereof (Lender acknowledges that Borrower shall be entitled to assume that this
condition has been met for all purposes hereunder absent written notice from
Lender); (e) any shares of Common Stock to be issued in connection with the
event requiring determination may be issued in full without violating the
rules or regulations of the Eligible Market on which the Common Stock is then
listed or designated for quotation (as applicable); (f) on each day during the
Equity Conditions Measuring Period, no public announcement of a pending,
proposed or intended Fundamental Transaction shall have occurred which has not
been abandoned, terminated or consummated; (g) Borrower shall have no knowledge
of any fact that would reasonably be expected to cause any of the Conversion
Shares to not be freely tradable without the need for registration under any
applicable state securities laws (in each case, disregarding any limitation on
conversion of this Note); (h) on each day during the Equity Conditions Measuring
Period, Borrower otherwise shall have been in material compliance with each, and
shall not have breached any, term, provision, covenant, representation or
warranty of any Transaction Document; (i) on each day during the Equity
Conditions Measuring Period, there shall not have occurred an Event of Default
or an event that with the passage of time or giving of notice would constitute
an Event of Default; (j) the average and median daily dollar volume of the
Common Stock on its principal market for the previous twenty (20) and two
hundred (200) Trading Days shall be greater than $200,000.00; (k) the Market
Capitalization shall be greater than or equal to $12,000,000.00 and (l) the
Common Stock shall be DWAC Eligible as of each applicable Redemption Date or
other date of determination.

 

A13.                      “Fundamental Transaction” means that (a) (i) Borrower
or any of its subsidiaries shall, directly or indirectly, in one or more related
transactions, consolidate or merge with or into (whether or not Borrower or any
of its subsidiaries is the surviving corporation) any other person or entity, or
(ii) Borrower or any of its subsidiaries shall, directly or indirectly, in one
or more related transactions, sell, lease, license, assign, transfer, convey or
otherwise dispose of all or substantially all of its respective properties or
assets to any other person or entity, or (iii) Borrower or any of its
subsidiaries shall, directly or indirectly, in one or more related transactions,
allow any other person or entity to make a purchase, tender or exchange offer
that is accepted by the holders of more than 50% of the outstanding shares of
voting stock of Borrower (not including any shares of voting stock of Borrower
held by the person or persons making or party to, or associated or affiliated
with the persons or entities making or party to, such purchase, tender or
exchange offer), or (iv) Borrower or any of its subsidiaries shall, directly or
indirectly, in one or more related transactions, consummate a stock or share
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with any
other

 

2

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person or entity whereby such other person or entity acquires more than 50% of
the outstanding shares of voting stock of Borrower (not including any shares of
voting stock of Borrower held by the other persons or entities making or party
to, or associated or affiliated with the other persons or entities making or
party to, such stock or share purchase agreement or other business combination),
or (v) Borrower or any of its subsidiaries shall, directly or indirectly, in one
or more related transactions, reorganize, recapitalize or reclassify the Common
Stock, other than an increase in the number of authorized shares of Borrower’s
Common Stock, or (b) any “person” or “group” (as these terms are used for
purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and
regulations promulgated thereunder) is or shall become the “beneficial owner”
(as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of
the aggregate ordinary voting power represented by issued and outstanding voting
stock of Borrower.

 

A14.                      “Mandatory Default Amount” means the Outstanding
Balance following the application of the Default Effect.

 

A15.                      “Market Capitalization” means a number equal to
(a) the average VWAP of the Common Stock for the immediately preceding fifteen
(15) Trading Days, multiplied by (b) the aggregate number of outstanding shares
of Common Stock as reported on Borrower’s most recently filed Form 10-Q or
Form 10-K.

 

A16.                      “Market Price” means the Conversion Factor multiplied
by the lowest Closing Bid Price during the twenty (20) Trading Days immediately
preceding the applicable Redemption Date.

 

A17.                      “Maximum Monthly Redemption Amount” means $350,000.00.

 

A18.                      “OID” means an original issue discount.

 

A19.                      “Other Agreements” means, collectively, (a) all
existing and future agreements and instruments between, among or by Borrower (or
an affiliate), on the one hand, and Lender (or an affiliate), on the other hand,
and (b) any financing agreement or a material agreement that affects Borrower’s
ongoing business operations.

 

A20.                      “Outstanding Balance” means as of any date of
determination, the Purchase Price, as reduced or increased, as the case may be,
pursuant to the terms hereof for payment, Conversion, offset, or otherwise, plus
the OID, the Transaction Expense Amount, accrued but unpaid interest, collection
and enforcements costs (including attorneys’ fees) incurred by Lender, transfer,
stamp, issuance and similar taxes and fees related to Conversions, and any other
fees or charges  incurred under this Note.

 

A21.                      “Purchase Price Date” means the date the Purchase
Price is delivered by Lender to Borrower.

 

A22.                      “Redemption Price Floor” means $0.11 per share of
Common Stock, which shall be appropriately adjusted for any reorganization,
recapitalization, non-cash dividend, stock split or other similar transaction
and, effective upon the consummation of any such reorganization,
recapitalization, non-cash dividend, stock split or other similar transaction.
For the avoidance of doubt, the Redemption Price Floor shall be the lower of
(i) the adjusted price and (ii) $0.11.

 

A23.                      “Trading Day” means any day on which the New York
Stock Exchange is open for trading.

 

A24.                      “VWAP” means the volume weighted average price of the
Common stock on the principal market for a particular Trading Day or set of
Trading Days, as the case may be, as reported by Bloomberg.

 

[Remainder of page intentionally left blank]

 

3

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EXHIBIT A

 

Iliad Research and Trading, L.P.

303 East Wacker Drive, Suite 1040

Chicago, Illinois 60601

 

Netlist, Inc.

Date:

 

Attn: Chun K. Hong, CEO

175 Technology Drive, Suite 150

Irvine, California 92618

 

LENDER CONVERSION NOTICE

 

The above-captioned Lender hereby gives notice to Netlist, Inc., a Delaware
corporation (the “Borrower”), pursuant to that certain Convertible Promissory
Note made by Borrower in favor of Lender on August 27, 2018 (the “Note”), that
Lender elects to convert the portion of the Note balance set forth below into
fully paid and non-assessable shares of Common Stock of Borrower as of the date
of conversion specified below. Said conversion shall be based on the Lender
Conversion Price set forth below. In the event of a conflict between this Lender
Conversion Notice and the Note, the Note shall govern, or, in the alternative,
at the election of Lender in its sole discretion, Lender may provide a new form
of Lender Conversion Notice to conform to the Note. Capitalized terms used in
this notice without definition shall have the meanings given to them in the
Note.

 

A.                  Date of Conversion:

B.                  Lender Conversion #:

C.                  Conversion Amount:

D.                  Lender Conversion Price:

E.                   Lender Conversion Shares:                          (C
divided by D)

F.                    Remaining Outstanding Balance of Note:                   *

 

--------------------------------------------------------------------------------

* Subject to adjustments for corrections, defaults, interest and other
adjustments permitted by the Transaction Documents (as defined in the Purchase
Agreement), the terms of which shall control in the event of any dispute between
the terms of this Lender Conversion Notice and such Transaction Documents.

 

Please transfer the Lender Conversion Shares electronically (via DWAC) to the
following account:

 

Broker:

Address:

DTC#:

 

Account #:

 

Account Name:

 

 

To the extent the Lender Conversion Shares are not able to be delivered to
Lender electronically via the DWAC system, deliver all such certificated shares
to Lender via reputable overnight courier after receipt of this Lender
Conversion Notice (by facsimile transmission or otherwise) to:

 

 

[Signature Page Follows]

 

1

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Sincerely,

 

 

 

Lender:

 

 

 

ILIAD RESEARCH AND TRADING, L.P.

 

 

 

 

By:

Iliad Management, LLC, its General Partner

 

 

 

 

 

 

By:

Fife Trading, Inc., its Manager

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

John M. Fife, President

 

 

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EXHIBIT B

 

Iliad Research and Trading, L.P.

303 East Wacker Drive, Suite 1040

Chicago, Illinois 60601

 

Netlist, Inc.

Date:

 

Attn: Chun K. Hong, CEO

175 Technology Drive, Suite 150

Irvine, California 92618

 

REDEMPTION NOTICE

 

The above-captioned Lender hereby gives notice to Netlist, Inc., a Delaware
corporation (the “Borrower”), pursuant to that certain Convertible Promissory
Note made by Borrower in favor of Lender on August 27, 2018 (the “Note”), that
Lender elects to redeem a portion of the Note in Redemption Conversion Shares or
in cash as set forth below. In the event of a conflict between this Redemption
Notice and the Note, the Note shall govern, or, in the alternative, at the
election of Lender in its sole discretion, Lender may provide a new form of
Redemption Notice to conform to the Note. Capitalized terms used in this notice
without definition shall have the meanings given to them in the Note.

 

REDEMPTION INFORMATION

 

A.                  Redemption Date:                 , 201

B.                  Redemption Amount:

C.                  Portion of Redemption Amount to be Paid in Cash:

D.                  Portion of Redemption Amount to be Converted into Common
Stock:                  (B minus C)

E.                   Redemption Conversion Price:                      (lower of
(i) Lender Conversion Price in effect and (ii) Market Price as of Redemption
Date)

F.                    Redemption Conversion Shares:                       (D
divided by E)

G.                  Remaining Outstanding Balance of Note:                   *

 

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* Subject to adjustments for corrections, defaults, interest and other
adjustments permitted by the Transaction Documents (as defined in the Purchase
Agreement), the terms of which shall control in the event of any dispute between
the terms of this Redemption Notice and such Transaction Documents.

 

2.                                      EQUITY CONDITIONS CERTIFICATION
(Section to be completed by Borrower)

 

A.             Market Capitalization:

 

(Check One)

 

B.             o  Borrower herby certifies that no Equity Conditions Failure
exists as of the applicable Redemption Date.

 

C.             o  Borrower hereby gives notice that an Equity Conditions Failure
has occurred and requests a waiver from Lender with respect thereto. The Equity
Conditions Failure is as follows:

 

 

1

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Please transfer the Redemption Conversion Shares, if applicable, electronically
(via DWAC) to the following account:

 

Broker:

Address:

DTC#:

 

Account #:

 

Account Name:

 

 

To the extent the Redemption Conversion Shares are not able to be delivered to
Lender electronically via the DWAC system, deliver all such certificated shares
to Lender via reputable overnight courier after receipt of this Redemption
Notice (by facsimile transmission or otherwise) to:

 

 

Sincerely,

 

 

 

Lender:

 

 

 

ILIAD RESEARCH AND TRADING, L.P.

 

 

 

 

By:

Iliad Management, LLC, its General Partner

 

 

 

 

 

 

By:

Fife Trading, Inc., its Manager

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

John M. Fife, President

 

 

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