Samsung Electronics Co. Ltd. and its venture capital arm are investing at least $23 million in Netlist Inc., the memory technology and licensing company run by CEO C.K. Hong as part of a strategic partnership to develop a new class of non-volatile memory storage solutions (NV-P) based on Samsung’s NAND Flash and DRAM products and Netlist’s HyperVault patented architecture for memory storage.
The companies said that NV-P is an emerging industry standard for a new class of NAND-based storage which operates in the memory channel, the fastest data path in a computer. With HyperVault, Netlist created the industry's first unified memory-storage architecture where low cost, high density NAND storage can achieve the performance of high cost, high speed DRAM memory.
The patented HyperVault architecture will be combined with Samsung's DRAM and NAND, to produce NV-P solutions that deliver cost and performance benefits vastly superior to those of traditional storage solutions.
The the joint development agreement includes licensing of each company's respective patent portfolios.
Irvine, Calif.-based Netlist will receive $8 million in cash from Samsung as well as a debt investment of $15 million from Samsung Venture Investments Corp.
The companies said the agreement calls for additional exchange of consideration as progress is made toward market introduction of the product. The companies plan to sample NV-P products with select customers in 2016.
In a filing with the Securities and Exchange Commission, Netlist said that on Nov. 18 it entered into a senior secured convertible promissory note and warrant purchase agreement with SVIC No. 28 New Technology Business Investment L.L.P., a Korean limited liability partnership and an affiliate of Samsung Venture Investment Co.
The SVIC Note has an original principal amount of $15 million, accrues interest at a rate of 2% per year, is due and payable in full on December 31, 2021.
Netlist said the principal and accrued but unpaid interest of the note are convertible into shares of Netlist's common stock at a conversion price of $1.25 a share, subject to certain adjustments.
Upon a change of control of Netlist prior to the note maturity date, the SVIC note may, at Netlist's option, be assumed by the surviving entity or be redeemed upon the consummation of such change of control for the principal and accrued but unpaid interest as of the redemption date.
The SVIC warrant grants SVIC a right to purchase 2 million shares of Netlist common stock at an exercise price of 30 cents a share, subject to certain adjustments. The warrant is only exercisable in the event Netlist exercises its right to redeem the SVIC note prior to the maturity date and expires on December 31, 2025.
The investment from Samsung’s venture arm is equivalent to the $15 million in debt financing Netlist received from Fortress Investment Group in July 2013.
In February, Netlist said it reached an agreement with Fortress to amend the terms of the debt financing to accelerate the availability of financing and enhance Netlist’s economics through a cap on the financing’s total patent monetization share.
In the filing, Netlist also said that on Nov. 19, it repaid all sums due under the amended loan agreement with Fortress Credit Opportunities I LP dated July 18, 2013.
In connection with the repayment, Netlist said it made a lump sum payment of $1 million to Fortress, and agreed to amend the outstanding warrant issued in connection with the entry of the loan agreement and letter agreement to reduce the exercise price per share to 47 cents a share.
Additionally, Netlist issued to Fortress a new ten year warrant to purchase 1 million shares of its common stock with an exercise price per share of 47 cents a share.
Netlist and Samsung said they will work to create a standardized product interface to facilitate rapid market adoption and bring the compelling benefits of this new technology to a large group of customers in cloud computing, big data, and server and storage markets.
"At Samsung, we are taking the lead in defining the right standards for storage class memory with industry partners, and creating new markets for DRAM and NAND flash memory based on the new standards,” said said Dr. Jung-Bae Lee, senior vice president of memory product planning and application engineering team, Samsung Electronics, in a statement. “By using a standardized hybrid storage solution, our customers will be able to efficiently extract intelligence from large amounts of data in storage systems.”
Hong said in the statement that the partnership with Samsung would be “transformational” for Netlist and that it “validates our unique IP and provides an accelerated path for delivering NV-P to the mainstream market.”
Hong said Samsung's leadership in memory and Netlist's expertise in hybrid storage “are highly complementary, and together create a powerful platform for driving broad market adoption of this new storage class memory solution."
Jim Handy, general director of Objective Analysis, a leading independent research firm, said in the statement that computer architecture is going through important changes fueled by the advent of a new memory layer based on alternative memory types.
The partnership between Samsung and Netlist “brings to computing a much faster kind of storage that can harness the raw speed of the memory bus through the NVDIMM-P memory module format. Objective Analysis projects that the market for such modules in servers could grow to $2 billion by 2019."
Shares of Netlist gained 1.12% or 1 cent to 96 cents in trading on the Nasdaq today. They’ve traded between 28 cents and $2.09 over the past year.
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