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Item 1.01.
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Entry into a Material Definitive Agreement.
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Convertible Notes
On June 8, 2020, Pareteum Corporation (the
“Company”) closed the issuance of $17.5 million aggregate principal amount of its Senior Secured Convertible
Notes due 2025 (the “Notes”). The Notes are being sold under the Securities Purchase Agreement, dated as of
June 8, 2020, entered into by and between the Company and an institutional investor (the “Purchaser”).
The aggregate purchase price of $14 million for the Notes and Warrant (as defined below) will be maintained in one or more blocked
accounts and will be released to the Company in three tranches, of which $4 million was released upon closing, $3 million will
be released upon the Company’s raising an additional $4,000,000 in capital from other investors and $7 million will be released
upon the Company achieving and maintaining certain milestones, including holding a meeting to obtain stockholder approval of the
issuance of shares of the Company’s common stock upon conversion of the Notes and Warrant (the “Conversion Shares”).
The Notes are senior, secured obligations
of the Company, and interest is payable monthly beginning August 1, 2020 at a rate of 8% per annum. The Notes are secured by a
first lien on substantially all assets of the Company and substantially all assets of its material U.S.-organized subsidiaries
and the assets of Pareteum Europe BV, a subsidiary organized in the Netherlands. Interest may be paid, at the election of the Company,
in cash or in shares of common stock of the Company, provided that the Company may only pay in shares of its common stock upon
the satisfaction of certain conditions. The number of shares issuable if the Company elects to pay interest in shares is determined
by the application of a formula in which the amount of the interest due is divided by the greater of (i) 85% of the lowest volume-weighted
average price of the Company’s common stock on the NASDAQ (or other market) over the 10 days preceding the date of such payment
or (ii) $0.10 per share.
Beginning on the earlier of October 1, 2020
or the date that certain conditions are satisfied, and on the first day of each calendar month thereafter, at the election of the
Purchaser or other holder of the Notes (the “Holder”), the Company can be required to redeem a portion of the
Notes. The amount of each redemption payment will be up to $3,500,000, provided, that in any case the amount of any redemption
payment will not exceed the principal amount then outstanding under the Notes. The Holder or the Company may also elect for the
Company to redeem the Notes at a 20% premium if the Company undergoes a fundamental change.
The Notes will be convertible into
Conversion Shares, in part or in whole, from time to time, at the election of the Holder. The initial conversion rate is
1666.6667 shares of Company common stock for each $1,000 of principal amount of Notes, which represents a conversion premium
of 4% over the last reported sale price of the Company’s common stock on June 5, 2020, the last trading date before
the date of the securities purchase agreement under which the Notes were sold. The conversion rate is subject to
anti-dilution adjustments.
The Notes impose certain customary affirmative
and negative covenants upon the Company, as well as covenants requiring that (i) payments under the Notes rank senior to all
unsecured indebtedness of the Company, (ii) restrict the Company and its subsidiaries from incurring any additional indebtedness
or suffering any liens, subject to specified exceptions, (iii) restrict the declaration of any dividends or other distributions
and (iv) require the Company and its subsidiaries to maintain certain minimum revenues and certain minimum amounts of cash on hand.
The Notes contain customary events of default,
as well as events of default if the Company fails to use reasonable efforts to obtain the approval of its stockholders of the issuance
of the Conversion Shares by October 31, 2020, the Company’s shares cease to be traded on the NASDAQ Stock Market, or the
Company fails to restate its financial statements for the year ended December 31, 2018 and the quarters ended March 31, 2019 and
June 30, 2019, in each case, prior to October 31, 2020.
The Company intends to use the net proceeds
from the offering of the Notes for general corporate purposes.
The foregoing description is qualified in
its entirety by the terms of the Note, which is incorporated herein by reference and attached hereto as Exhibit 10.1.
Securities Purchase Agreement
On June 8, 2020, the Company entered into
a Securities Purchase Agreement (the “SPA”) with the Purchaser that provided for the purchase by the Purchaser
of the Notes and a Warrant to Purchase Common Stock issued by the Company (the “Warrant”). The SPA contains
customary representations and warranties, including representations from the Purchaser regarding its status as an “accredited
investor” and its investment purpose, and representations from the Company regarding its organization, authorization to enter
into the transaction, ability to conduct its business, capitalization, absence of conflicts, compliance with law and financial
statements, among other things. The SPA provides that the Company shall indemnify the Purchaser for all losses or damages arising
out of any breach of any representation, warranty or covenant of the SPA by the Company and any third party suits brought against
the Purchaser arising out of the SPA and related transactions.
The SPA includes a number of customary covenants
with which the Company must, as well as covenants that require the Company to, among other things:
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from October 31, 2020, timely file all reports required to be filed
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”);
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to list the Conversion Shares and shares of Company common stock issued
upon exercise of the Warrant (the “Warrant Shares”) on the NASDAQ Stock Market;
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not issue certain other securities or variable-rate convertible securities;
and
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obtain stockholder approval of the issuance of the Conversion Shares
and Warrant Shares by no later than October 31, 2020.
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The SPA also grants to the Purchaser the
right to purchase up to 50% of the number of any securities that the Company intends to offer to any third-party investor in any
private or public offering or placement of the Company’s securities, subject to certain exceptions, at the price the Company
intended to offer such securities to the third-party investor or investors. This participation right expires after the one-year
anniversary date of the Company having filed all reports required to be filed by it under the Exchange Act.
There is no material relationship between
the Company or its affiliates and the Purchaser other than in respect of the SPA, the Note and the Warrant. The foregoing description
is qualified in its entirety by the terms of the SPA, which is incorporated herein by reference and attached hereto as Exhibit
10.2.
Warrant
In connection with the entry into the SPA
and the issuance of the Note, the Company issued a warrant to purchase 15,000,000 shares of its common stock to the Purchaser.
The Warrant entitles the Purchaser to purchase 15,000,000 shares of the Company’s common stock at an exercise price of $0.58,
which is $0.01 above the closing sale price of the Company’s common stock on the trading day immediately prior to the issuance
date of the Warrant. The Warrant is immediately exercisable by the holder, in whole or in part, at any time, and from time to time,
until the fifth anniversary of the issue date. The terms of the Warrant provide that the exercise price of the Warrant, and the
number of shares of common stock for which the Warrant may be exercised, are subject to adjustment to account for increases or
decreases in the number of outstanding shares of common stock resulting from stock splits, reverse stock splits, consolidations,
combinations, reclassifications and other issuances of securities by the Company.
The foregoing description is qualified in
its entirety by the terms of the Warrant, which is incorporated herein by reference and attached hereto as Exhibit 10.3.