Net Element (NETE) Enters Settlement Agreement with Maglenta, Champfremont Over Acquisition Agreement

October 31, 2016 5:08 PM EDT
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Net Element (NASDAQ: NETE) disclosed the following on Monday:

Item 1.01 Entry into a Material Definitive Agreement.

On October 25, 2016 (but made effective as of October 21, 2016), Net Element, Inc., a Delaware corporation (the “Company”), TOT Group Europe, Ltd. and ?OT Group Russia LLC, each a subsidiary of the Company (TOT Group Europe, Ltd. and ?OT Group Russia LLC are referred herein collectively, the “Purchasers”), entered into the Settlement Agreement (the “Settlement Agreement”) with Maglenta Enterprises Inc. (“Maglenta”) and Champfremont Holding Ltd. (“Champfremont” together with Maglenta are collectively, the “Sellers”) related to the Acquisition Agreement dated as of May 20, 2015 among the Sellers, the Purchasers and certain Target Companies parties to thereto (the “Acquisition Agreement”). The settlement resolved a dispute among the Company and the Purchasers, on the one hand, and the Sellers, on the other hand, with respect to the provision of the Acquisition Agreement pursuant to which, at the end of the 12-month period following the issuance of restricted shares of the Company's common stock to the Sellers, the Purchasers guaranteed that the value of such stock then not sold by the Sellers would not be less than the value of such at the date of the issuance of such stock. Pursuant to the Settlement Agreement, the Company agreed to pay to the Sellers an aggregate of $2,288,667 plus 10% per annum interest accrued from May 20, 2016 in installments pursuant to the payment schedule set forth in the Settlement Agreement. To the extent any such amounts are unpaid, such amount to be convertible by the Sellers at any time into the Company restricted common shares at consolidated closing bid price per share for the Company common shares as reported by the NASDAQ on the day immediately preceding the day of such conversion. Any such shares (if any are issued should the Purchaser opt to so convert) would be issuable subject to applicable exemption from registration under the federal and state securities laws and subject to piggy-back registration rights if the Company files after the date of the Settlement Agreement any registration statements on Form S-1 or Form S-3, in each case subject to applicable limitations in such forms. Such issuance of shares of common stock upon any such conversion is capped to 19.99% of the Company’s outstanding shares of common stock as of the date hereof, unless stockholder approval is obtained to issue more than such 19.99%. Pursuant to the Settlement Agreement, the Company will not be required or permitted to issue any shares of the Company common stock if such issuance would violate the rules or regulations of the NASDAQ.

On October 25, 2016 (but made effective as of October 21, 2016), the Company and the Purchasers entered into the Amendment to the Acquisition Agreement with the Sellers and the Target Companies parties to thereto (the “Amendment”). Pursuant to the Amendment, the Purchasers agreed to not terminate, other than for “cause” (as defined in the Amendment), employment of certain employees listed on Exhibit A to the Amendment until $2,288,667 is paid in full pursuant to the Settlement Agreement. Further, pursuant to the Amendment, the Purchasers agreed to return the funds in the aggregate amount up to the amount set forth in Exhibit B to the Amendment (the “Maximum Amount”) for merchant services requested by merchants within timeframes mutually agreed to between the Purchasers and such merchants. The Purchasers agreed to the Sellers against any claims made by such merchants with respect to the payment of the Maximum Amount. Further, pursuant to the Amendment, within 5 business days of the execution of the Amendment, AnastasiaDate Ltd. or its designee shall make all outstanding payments due to Brosword Holding Limited, an indirect subsidiary of the Company.

The foregoing is a summary description of certain terms of the Settlement Agreement and the Amendment and, by its nature, is incomplete. Copies of the Settlement Agreement and the Amendment are filed herewith as Exhibits 10.1 and 10.2 respectively to this Current Report on Form 8-K and are incorporated herein by reference. All readers are encouraged to read the entire text of the Settlement Agreement and the Amendment.

Item 1.02 Termination of a Material Definitive Agreement.

On October 31, 2016, the Company, Paystar, Inc., a Delaware corporation, and Nexcharge, Inc., a Nevada corporation, terminated the binding letter of intent dated July 21, 2016 (the “Letter of Intent”). While the Company is not proceeding with the transactions contemplated in the Letter of Intent, the Company, Paystar, Inc. and Nexcharge, Inc. contemplate pursuing strategic opportunities.

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