Item 1.01 Entry into a Material Definitive Agreement.
On March 27, 2020, Net Element, Inc., a Delaware corporation (the “Company”), entered into a Master Exchange Agreement, (the “Agreement”) with ESOUSA Holdings, LLC, a New York limited liability company (“ESOUSA”). Prior to entering into the Agreement, ESOUSA agreed to acquire an existing promissory note that had been previously issued by the Company, of up to $2,000,000 in principal amount outstanding plus interest due to RBL Capital Group, LLC. Pursuant to the Agreement, the Company has the right, at any time prior to March 27, 2021, to request ESOUSA, and ESOUSA agreed upon each such request, to exchange this promissory note in tranches on the dates when the Company instructs ESOUSA, for such number of shares of the Company’s common stock (“Common Stock”) as determined under the Agreement based upon the number of shares of Common Stock (already in ESOUSA’s possession) that ESOUSA sold in order to finance its purchase of such tranche of the promissory note (subject to the next sentence in this paragraph) from RBL Capital Group, LLC. ESOUSA will purchase each tranche of the promissory note equal to 88% of the gross proceeds from the shares of Common Stock sold by ESOUSA to finance the purchase of such Exchange Amount from RBL Capital Group, LLC. Each such tranche to be $148,000 unless otherwise agreed to by the Company and ESOUSA.
Such shares of restricted common stock of the Company are issuable to ESOUSA under an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon Section 3(a)(9) of the Securities Act.
The Agreement provides that the Company will not effect any exchange or otherwise issue any shares of Common Stock under the Agreement if, after giving effect to such exchange or other share issuance under the Agreement, ESOUSA and its affiliates would beneficially own in excess of 9.99% of the outstanding Common Stock. The Agreement further provides that, under no circumstances may the aggregate number shares of Common Stock issued to ESOUSA under the Agreement at any time exceed 19.99% of the total number of shares of Common Stock outstanding or of the voting power unless the Company has obtained either (i) its stockholders' approval of the issuance of more than such number of shares of Common Stock pursuant to NASDAQ Marketplace Rule 5635(d) or (ii) a waiver from The NASDAQ Stock Market of the Company’s compliance with Rule 5635(d).
The Agreement provides that, to the extent that issuance of any number of shares of Common Stock will cause the ESOUSA’s beneficial ownership of the Common Stock to exceed 9.99% of the outstanding Common Stock, ESOUSA will have the option to request the Company, in lieu of issuing such shares of Common Stock that would cause ESOUSA’s beneficial ownership of the Common Stock to exceed 9.99% of the outstanding Common Stock, issue to ESOUSA warrants, substantially in the form attached to the Agreement as Exhibit II, to purchase, at a purchase price of $0.01 per share, the number of shares of Common Stock that would cause ESOUSA’s beneficial ownership to exceed 9.99% of the outstanding Common Stock.
The above description of the Agreement is intended as a summary only and is qualified in its entirety by the terms and conditions set forth therein. A copy of the Agreement is attached hereto as Exhibit 10.1 and is incorporated herein by this reference.