Net Element, Inc. (Form: 8-K, Received: 07/21/2016 08:31:29)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported ) July 21, 2016

Net Element, Inc.

(Exact Name of Registrant as Specified in Charter)

Delaware		001-34887		90-1025599
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)

	3363 NE 163rd Street, Suite 705, North Miami Beach, FL	33160
	(Address of Principal Executive Offices)	(Zip Code)

	(305) 507-8808
	(Registrant’s telephone number, including area code)

	Not Applicable
	(Former Name or Former Address, if Changed Since Last Report)

	Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

On July 21, 2016, Net Element, Inc., a Delaware corporation (the “Company”), entered into a binding letter of intent (the “LOI”) with Paystar, Inc., a Delaware corporation, and Nexcharge, Inc., a Nevada corporation (collectively, the “Partner”). Pursuant to this LOI, the parties agreed to negotiate a definitive agreement to enter into a joint venture (the “Transaction”). It is contemplated that the joint venture entity (“Newco”) will be a newly-formed entity and will have two classes of stock: voting Class A stock that will have all the usual rights, votes and obligations associated therewith, and non-voting Class B stock that will be reserved for executives and employees of Newco. It is contemplated that the Partner or its current owners will collectively own 49% of Newco’s voting Class A stock, and the Company will own 51% of Newco’s voting Class A stock. The LOI contemplates that the Partner will contribute all of its assets to this joint venture free and clear of any liens or encumbrances as consideration for such 49% of Newco’s voting Class A stock, and the Company will contribute to Newco up to $3,390,000 (whether in cash, cash equivalents or otherwise, in a manner and time as described in the LOI attached as Exhibit 10.1 to this Current Report on Form 8-K) as consideration for such 51% of Newco’s voting Class A stock. The LOI further contemplates that the Company will have an exclusive option to purchase such 49% of Newco’s voting Class A stock, exercisable during twelve (12) months from the closing of the Transaction, at a purchase price to be agreed to by the parties at fair market value as when such option is considered. It is contemplated that, after the closing of the transaction, the executive management of Newco will be eligible for equity compensation through the Company’s 2013 Equity Incentive Plan, as amended. During the first year of operations of Newco, the parties will determine if it is in their interests to convert their respective stock in Newco to shares of the Company, in which case the parties agreed to work in good faith to seek the necessary approvals from the Company. The parties agreed that, in the event of the closing of the Transaction, the owners of the Partner will pay 50% and the Company will pay 50% of the broker’s fee up to $170,000, with the Company’s option in its sole discretion to pay its share of the broker fee in the shares of Company common stock.

The consummation of the Transaction is subject to, among other things, (i) the completion of due diligence of the Partner and its business satisfactory to the Company in its sole discretion, (ii) approval of the Transaction by the Company’s board of directors and (iii) the execution of definitive legal documents acceptable to the parties.

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

This Current Report on Form 8-K contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements related to the potential future sale of shares of the Company’s common stock and price for such sales under the Purchase Agreement. The words “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. While the Company believes its plans, intentions and expectations reflected in those forward-looking statements are reasonable, these plans, intentions or expectations may not be achieved. The Company’s actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements. For information about the factors that could cause such differences, please refer to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2015, including the information discussed under the captions “Item 1 Business,” “Item 1A. Risk Factors” and “Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as the Company’s various other filings with the SEC. Given these uncertainties, you should not place undue reliance on these forward-looking statements. The Company assumes no obligation to update any forward-looking statement.

Item 8.01 Other Events.

On July 21, 2016, the Company issued a press release announcing that it has entered into the LOI. A copy of the press release is filed herewith as Exhibit 99.1 and is incorporated by reference herein.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

Exhibit Number		Description

10.1		Binding Letter of Intent, dated as of July 21, 2016 between Net Element, Inc., Paystar, Inc. and Nexcharge, Inc.*

99.1		Press Release dated July 21, 2016.*

_________________

*Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: July 21, 2016

	NET ELEMENT, INC.


	By:	/s/ Jonathan New
	Name:	Jonathan New
	Title:	Chief Financial Officer

EXHIBIT INDEX

Exhibit Number		Description

10.1		Binding Letter of Intent, dated as of July 21, 2016 between Net Element, Inc., Paystar, Inc. and Nexcharge, Inc.*

99.1	Press Release dated July 21, 2016.*

_________________

*Filed herewith.

Exhibit 10.1

PRIVATE & CONFIDENTIAL

July 21, 2016

Paystar, Inc. a Delaware Corp

and its wholly-owned subsidiary

Nexcharge, Inc. a Nevada Corp

Attn: Christopher Berlandier, CEO

Delivered via email: chris.berlandier@paystar.net

BINDING LETTER OF INTENT

Dear Mr. Berlandier:

Net Element, Inc., either directly or through any of its assignees and/or other affiliates (“ NETE ”) is pleased to provide this binding letter of intent (“ LOI ”) to establish a joint venture (“ JV ”) with Paystar, Inc. (“ Paystar ”) and Nexcharge, Inc. (“ Nexcharge ”). Paystar and Nexcharge are collectively hereafter referred to as the “ Company ” and NETE and the Company are collectively referred to as the “ Parties ”. The Parties will establish a new entity (“ Newco ”) for the operation of JV. The Company will contribute its assets into Newco in return for consideration from NETE of up to $3,390,000 as more fully detailed below . The creation of the JV; establishment of Newco; contribution by the Company of its assets to Newco; and the consideration payable by NETE on the terms and conditions referenced below are hereafter collectively referred to as the “ Transaction ”.

The consummation of the Transaction is subject to, among other things (i) the completion of due diligence of the Company and its business interests satisfactory to NETE in their sole discretion, (ii) approval by the Board of NETE, and (iii) the execution of definitive legal documentation acceptable to NETE and the Company (“ Transaction Documents ”).

SUMMARY OF TERMS

This LOI supersedes all prior verbal and written discussions, proposals and term sheets. This LOI is an expression of NETE’s interest in pursuing a transaction on the terms described herein.

NETE:	Net Element, Inc., a Delaware corporation or any of its affiliates or assignees.

Owner(s):	The owner(s) of the ownership interests of Paystar and Nexcharge.

Net Element, Inc. 1

Contibution:	The Company will contribute all of its assets to Newco. All assets contributed shall be free of liens or other encumbrances and at the closing date, Newco shall be free of all liabilities, whether short term or long term, except for those agreed to by the Parties after Due Diligence by NETE referred to below.

Consideration:	The total consideration payable by NETE for the Contribution shall be as follows:

Nexcharge Division:

NETE will provide the Nexcharge division of Newco funding mechanisms, whether in cash, cash equivalents or otherwise up to the below mentioned amounts, for the specific purposes outlined below:

Setup Expenses:

Between $100,000 and $250,000 for Bank reserves for the setup of a payment processing platform;

Up to $25,000 – for American Express reserves.

Capital Expenditure:

Up to $100,000 for approved equipment purchases;

$20,000 for compliance related matters;

$20,000 for Visa / MasterCard MIP / DEX fees;

Between $100,000 and $150,000 for development costs to finish current and outstanding development sprints

G&A Budget:

Up to $50,000 per month for the next 12 months for approved budget line items per an approved pro-forma plan.

Paystar Division:

NETE will provide the Paystar division of Newco as follows:

G&A Budget for approved budget line items per an approved pro-forma plan as follows:

Up to $75,000 for the first month;

Up to $50,000 per month for the next 10 months;

Up to $25,000 for the 12th month.

Net Element, Inc. 2

EBITDA Compensation:

Upon achievement of an agreed EBTIDA milestone for Newco for the first year post Closing, Owners shall receive compensation of $250,000 (“ Milestone 1 ”);

Upon achievement of an agreed EBITDA milestone for Newco for the second year post Closing, Owners shall receive additional compensation of $500,000 (“ Milestone 2 ”);

Upon achievement of an agreed EBITDA milestone for Newco for the third year post Closing, Owners shall receive additional compensation of $750,000 (“ Milestone 3 ”).

Christopher Berlandier:

Upon Closing of the Transaction, Christopher Berlandier shall receive 15,000 shares of NETE stock issued pursuant to Rule 144 of the Securities Regulations. In addition, Mr. Berlandier shall be eligible for $100,000 worth of NETE stock as an incentive for non-EBITDA related milestones in Newco, to be identified before Closing;

Upon a “ Liquidation Event ” of Newco (as defined in the definitive Transaction documents), in the event of the “ Liquidation Milestones ” as defined in the Transaction documents being satisfied, Christopher Berlandier shall be entitled to a preferred payout of $750,000.

Executive Management:

Post Closing of the Transaction, the executive management team of Newco shall be eligible for equity participation incentives in Newco as well as stock options and/or stock grant awards through participation in NETE’s stock incentive plan. Details of such participation shall be outlined in the definitive Transaction Documents. NETE agrees to work in good faith with the Owners to determine the parties eligible for equity participation and the incentive amounts to be made available.

	NETE acknowledges that to the extent necessary to meet its financial commitments outlined above, it will utilize available funding from its credit facility with RBL Capital Group, LLC.

Newco Structure:	It is contemplated that Newco will have 2 classes of shares:

(a)

Class A Shares, which will have all the usual rights, votes and obligations associated therewith; and

(b)

Class B Shares, which shall be non-voting shares reserved for executives and employees.

Net Element, Inc. 3

Class A Shares in Newco shall be owned as follows:

NETE – 51%; and

Owners – 49%

Class B Shares in Newco shall be reserved for executive and employee compensation.

The Parties agree that each will apply good faith and use their best efforts to formulate a structure for the Transaction that is acceptable to each of the parties and which is designed to:

Comply with all necessary legal and regulatory requirements;

Minimize or eliminate any adverse tax consequences to the Parties; and

Be as cost effective as possible.

Notwithstanding the ultimate deal structure, the underlying deal terms for the Transaction set forth herein shall apply.

During the first year of operations, the Parties will determine if its in their interests to convert their stock in Newco to stock of Net Element, Inc. and if so, the Parties will work in good faith to seek the necessary approvals from Net Element, Inc.

Option to Purchase:	NETE shall have the irrevocable sole and exclusive option to purchase (“ Option ”) from the Owners, their 49% Class A Shares ownership interests in Newco (“ Remainder Interests ”). The Option shall be for 12 months from the closing of the Transaction and the purchase price payable for the Remainder Interests shall be agreed to by the parties at fair market value when Option is considered.

Broker Fee:	The Parties agree that in the event of the Closing of the Transaction, the Owners and NETE will pay in equal 50-50 proportions, a broker’s fee to Ed Slominski in the sum of up to $170,000 of consideration. NETE may at its sole and exclusive option pay its share of the brokers fee by issuance to the Slominski of NETE stock.

Due Diligence:	We consider Due Diligence as an important process of obtaining the information required to verify information previously provided by the Company and for preparation of the Transaction Documents. Prior to signing definitive Transaction documents, we will require the opportunity to perform detailed due diligence investigation of the Company and its affiliates. Such due diligence shall include, but shall not be limited to:

Net Element, Inc. 4

a detailed financial and accounting review, including a quality of earnings analysis;

a detailed review of all operating information, sales processes and pipeline;

reference discussions with key suppliers and customers;

personal and professional background checks on the Owners and all key members of management;

an assessment of the Company’s information and technology infrastructure, including a PCI compliance and data security audit;

a review of human resources matters, employee benefits, insurance, legal, intellectual property, corporate administration, tax and environmental information.

In addition, we anticipate a detailed due diligence review by our legal, tax, financial, technology and business advisors that would be completed contemporaneously as part of our overall due diligence process. It is assumed that the information to be provided by the Company will be accurate in all respects and will represent the true current state of the Company.

Costs and Expenses:	Each Party shall be liable for all of its own costs and expenses in relation to this binding letter of intent, the Transaction Documents and all other matters pertaining to the Transaction.

Applicable Law and Jurisdiction:	This binding letter of intent and all disputes or claims arising out of or in connection with the Transactions contemplated hereunder or their subject matter will be governed by the laws of the State of Florida without giving effect to any choice or conflict of law provision or rule (whether of the State of Florida or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than those of the State of Florida. The parties irrevocably agree that they will use good faith and best efforts to resolve any dispute or claim that arises out of or in connection with this Letter of Intent or its subject matter in amicable way and via good will negotiations; provided, however, that, if the parties cannot so settle, then the United States District Court for the Southern District of Florida shall have exclusive jurisdiction to settle any such dispute of claim.

Approvals:	This binding letter of intent as well as any other documents or agreements to be signed by the Parties shall be subject to the Approval of NETE Board of Directors.

Net Element, Inc. 5

Confidentiality:	The parties shall observe Confidentiality to the terms of the proposed Transaction and all further negotiations relating hereto. The binding letter of intent is strictly confidential and cannot be disclosed by the Parties to any other third parties without NETE’s written permission. The Parties may disclose the contents of this Proposal to its directors or consultants (including, without limitation, attorneys, accountants, financial advisers and members of its Supervisory Board), who need to acknowledge this information for the purposes of the Transaction, assuming that all parties to whom such disclosure is made will maintain the confidentiality of these terms. Additionally, the Parties will treat all information received from each other in connection with the Transaction as confidential.

Exclusivity:	Immediately upon signing of this binding letter of intent, the Owners and the Company shall terminate or procure termination of any third party negotiations relating to the sale of any interest in the Company or any subject matter referenced in this Letter of Intent.

General:	This binding letter of intent remains valid for your review and consideration for seven (7) days from the date of its signing by NETE. Upon signature by you, the Letter of Intent shall constitute a legally binding document between the Parties subject to the terms referenced herein. These basic terms and conditions are not comprehensive and we expect that additional terms including warranties and representations in line with accepted market practices and satisfactory to the NETE, will be incorporated into a formal Acquisition Agreement and certain other agreements to be negotiated between the Parties hereto. The binding letter of intent supersedes all previous agreements, arrangements and communication relating to the Transaction. None of the terms hereof may be modified or amended except by a written agreement signed by all parties hereto.

[Signatures provided on the next page]

Net Element, Inc. 6

Letter of Intent Signature Page

If the foregoing accurately sets forth our agreement with respect to the transactions contemplated, please execute and return one copy of this letter to the undersigned prior to the close of business on July 21, 2016 at which time, if not sooner accepted, this LOI will expire and thereafter be of no further force or effect.

NET ELEMENT, INC.		PAYSTAR, INC.

/s/ Oleg Firer		/s/ Christopher Berlandier
By its Chief Executive Officer		By its duly authorized representative
Oleg Firer		Christopher Berlandier
July 21, 2016		July 21, 2016


Christopher Berlandier		NEXCHARGE, INC.

/s/ Christopher Berlandier		/s/ Christopher Berlandier
July 21, 2016		By its duly authorized representative
		Christopher Berlandier
		July 21, 2016

Net Element, Inc. 7

Exhibit 99.1

Net Element to Acquire PayStar and Nexcharge

Proprietary integrated payment and remittance platforms will strengthen Net Element’s global offering

MIAMI, FL – July 21, 2016 - Net Element, Inc. (NASDAQ: NETE) (“Net Element” or the “Company”), a provider of global mobile payment technology solutions and value-added transactional services, announced today the entry into a binding letter of intent to acquire a majority interest in PayStar, Inc. (“PayStar”), a comprehensive remittance and e-wallet platform for emerging markets and Nexcharge, Inc. (“Nexcharge”), a proprietary payment processing, fraud management and merchant management platform.

It is contemplated that Net Element together with PayStar and Nexcharge will create one or more entities into which PayStar and Nexcharge will contribute all their assets, with Net Element owning a 51% interest in the newly created entities. Pursuant to the terms of the agreement, Net Element will have the irrevocable sole and exclusive option to acquire the remaining 49% interest in the newly created entities during the 12 months from the closing of the transaction.

PayStar delivers a Software as a Service (“SaaS”) solution to financial institutions for their payroll and merchant management services. PayStar introduced its mobile remittance system in the Gulf Cooperation Council (“GCC”) region, targeting a booming migrant worker population. PayStar aims to expand its mobile payroll and remittance services throughout the Middle East, starting with Qatar, United Arab Emirates (“UAE”), Oman and Saudi Arabia (“KSA”). In these markets PayStar has contracted with Commercial Bank of Qatar United Limited and National Bank of Oman, which positions PayStar to market its services to more than 15 million migrant workers. In addition, PayStar has contracts with Habitat Bank in Tunisia, Morocco and Algeria as well as Philippines National Bank in Philippines, Indusind Bank in India and ThamelRemit in Nepal. PayStar’s mobile payments capabilities are available in KSA, through contracts with Mobility, a leading mobile network operator with an installed migrant customer base of 7+ million subscribers.

Nexcharge transaction processing platform was developed to make it easy for acquiring banks and Payment Service Providers (“PSPs”) to connect with merchants in a secure, stable processing environment. It also allows merchants the ability to connect to numerous acquiring banks and PSPs in a convenient fashion without additional application requirements. Once Nexcharge has approved a merchant, that merchant is automatically approved within the network of integrated providers. In most cases the merchant will be unaware of the identity of the acquiring bank assisting with the transactions. The Nexcharge platform has adopted the Payment Card Industry Data Security Standard Level 1 (PCI DSS) with increased controls around cardholder data to reduce credit card fraud via its exposure.

The successful closing of these acquisitions will allow Net Element to cross-sell its products and services while deploying PayStar and Nexcharge technologies and services in selected emerging markets.

“These acquisitions will allow Net Element to present transactions for processing directly to Visa, MasterCard, American Express and other networks, as well as expand our presence in GCC region and other selected markets,” commented Oleg Firer, CEO of Net Element. “These acquisitions will add to the growth of our business and increase market share internationally.”

“We are extremely excited about this opportunity. Positioning our companies on Net Element’s worldwide platform utilizing our in-demand technologies allows Nexcharge and Paystar the opportunity to extend and grow into those market verticals that Net Element has already penetrated.” states Christopher Berlandier, Founder.

Terms of the proposed acquisitions are disclosed in Net Element’s Form 8-K, which was filed with the Securities and Exchange Commission (SEC) on July 21, 2016, and may be obtained from the SEC's Internet website at http://www.sec.gov .

Closing of the acquisitions is subject to Net Element’s satisfactory completion of due diligence, definitive documentation and other customary closing conditions.

About Net Element

Net Element, Inc. (NASDAQ: NETE) operates a payments-as-a-service transactional and value-added services platform for small to medium enterprise (“SME”) in the US and selected emerging markets. In the US it aims to grow transactional revenue by innovating SME productivity services such as its cloud based, restaurant point-of-sale solution Aptito. Internationally, Net Element’s strategy is to leverage its omni-channel platform to deliver flexible offerings to emerging markets with diverse banking, regulatory and demographic conditions such as UAE, Kazakhstan, Kyrgyzstan and Azerbaijan where initiatives have been recently launched. Further information is available at www.netelement.com .

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Any statements contained in this press release that are not statements of historical fact may be deemed forward-looking statements. Words such as "continue," "will," "may," "could," "should," "expect," "expected," "plans," "intend," "anticipate," "believe," "estimate," "predict," "potential," and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include, without limitation, whether the transactions contemplated by the Letter of Intent will ultimately close, if the closing takes place, whether the transaction will result in the cross-selling and monetizing opportunities contemplated; whether the closing of the transaction will have a positive impact on the Company, whether Net Element can secure any additional financing and if such additional financing will be adequate to meet the Company's objectives and whether the transaction will add to the growth of the Company’s business and increase the Company’s market share internationally. All forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, many of which are generally outside the control of Net Element and are difficult to predict. Examples of such risks and uncertainties include, but are not limited to: (i) Net Element's ability (or inability) to obtain additional financing in sufficient amounts or on acceptable terms when needed; (ii) Net Element's ability to maintain existing, and secure additional, contracts with users of its payment processing services; (iii) Net Element's ability to successfully expand in existing markets and enter new markets; (iv) Net Element's ability to successfully manage and integrate any acquisitions of businesses, solutions or technologies; (v) unanticipated operating costs, transaction costs and actual or contingent liabilities; (vi) the ability to attract and retain qualified employees and key personnel; (vii) adverse effects of increased competition on Net Element's business; (viii) changes in government licensing and regulation that may adversely affect Net Element's business; (ix) the risk that changes in consumer behavior could adversely affect Net Element's business; (x) Net Element's ability to protect its intellectual property; (xi) local, industry and general business and economic conditions; (xii) the Company’s issuances of the Company’s common stock from time to time in exchange for retiring the Company’s debt may cause substantial dilution to our existing stockholders and the sale of the shares of our common stock acquired by Crede in exchange for our debt could cause the price of our common stock to decline; (xiii) adverse effects of potentially deteriorating U.S.-Russia relations, including, without limitation, over a conflict related to Ukraine, including a risk of further U.S. government sanctions or other legal restrictions on U.S. businesses doing business in Russia. Additional factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements can be found in the most recent annual report on Form 10-K and the subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K filed by Net Element with the Securities and Exchange Commission. Net Element anticipates that subsequent events and developments may cause its plans, intentions and expectations to change. Net Element assumes no obligation, and it specifically disclaims any intention or obligation, to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by law.

Contact:

Net Element, Inc.

media@netelement.com

+1 (786) 923-0502