SUBSCRIPTION AGREEMENT

 

BETWEEN

 

NET ELEMENT, INC.

 

AND

 

FELIX VULIS

 

February 2, 2012

 

 

 

 

SUBSCRIPTION AGREEMENT

 

THIS SUBSCRIPTION AGREEMENT (the “Agreement”) is made and entered into as of
this __ day of December 2011 (the “Effective Date”), by and between NET ELEMENT,
INC., a corporation organized and existing under the laws of the State of
Delaware (the “Company”), and FELIX VULIS, an individual residing in the United
Kingdom (the “Investor” each, a “Party” and together, the “Parties”).

 

Recitals

 

A.           The Company desires to issue, and the Investor desires to acquire
666,667 shares of the Common Stock of the Company (the “Stock”) at a purchase
price of $0.15 per share and three year warrants to purchase (i) an additional
666,667 shares of the Common Stock of the Company at a purchase price of $0.25
per share; (ii) an additional 666,667 shares of the Common Stock of the Company
at a purchase price of $0.50 per share; and (iii) an additional 666,667 shares
of the Common Stock of the Company at a purchase price of $1.00 per share
(collectively, the “Warrants”) as consideration for the Investor’s investment of
$100,000 in the Company.

 

B.           The Company and the Investor believe that it is in their respective
best interests to have the Company issue the Stock and have Investor acquire the
issued Stock and Warrants in accordance with the terms of this Agreement.

 

C.           Capitalized terms used but not otherwise defined herein shall have
the meanings set forth in Schedule I to this Agreement.

 

Agreement

 

NOW, THEREFORE, in consideration of the premises and mutual covenants set forth
in this Agreement, and such other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the Company and the Investor
hereby agree as follows:

 

1.            Authorization and Subscription for Units.

 

1.1           Authorization. The Company has duly authorized the sale and
issuance of the Stock and the Warrants, pursuant to the terms and conditions
contained in this Agreement.

 

1.2           Issuance of Stock; Consideration. Subject to the terms and
conditions of this Agreement, upon the execution of this Agreement and receipt
of a wire transfer in the amount of $100,000 (the “Purchase Price”) and other
good and valuable consideration to the Company by Investor, the Company will
transfer and issue to the Investor and the Investor shall acquire the Stock. In
addition, upon receipt of the Purchase Price, the Company will issue the
Warrants in the name of the Investor.

 

1.3           Use of Proceeds. The Company shall use the proceeds received from
the issuance of the Stock and the Warrants, if exercised, as operating funds for
the Company’s business.

 

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2.           The Closing.

 

The closing (the “Closing”) of the sale and purchase of the Stock under this
Agreement shall take place as of the Effective Date (the “Closing Date”). At the
Closing:

 

(a)           Execution of Agreements. The Company and the Investor shall
execute and deliver this Agreement.

 

(b)           Conditions to Closing by the Company. The obligations of the
Company under this Agreement are subject to satisfaction of the following
conditions at or prior to each Closing Date, any of which may be waived by the
Company in writing:

 

(i)           All documents reasonably requested from the Investor by the
Company pursuant to this Agreement shall have been previously delivered to the
Company by the Investor.

 

(ii)           All the representations and warranties of the Investor contained
in this Agreement shall be true and complete in all material respects and the
Investor shall have performed all obligations and complied in all material
respects with all agreements, undertakings, covenants and conditions required by
it to be performed at or prior to each Closing.

 

(c)           Conditions to Closing by the Investor. The obligations of the
Investor under this Agreement are subject to satisfaction of the following
conditions at or prior to each Closing Date, any of which may be waived by the
Investor in writing:

 

(i)           All documents reasonably requested from the Company by the
Investor pursuant to this Agreement shall have been previously delivered to the
Investor by the Company.

 

(ii)           The Investor shall have received a resolution of the Board of
Directors of the Company authorizing the execution of this Agreement and
issuance of the Stock and the Warrant.

 

(iii)           All the representations and warranties of the Company contained
in this Agreement shall be true and complete in all material respects and the
Company shall have performed all obligations and complied in all material
respects with all agreements, undertakings, covenants and conditions required by
it to be performed at or prior to each Closing.

 

3.           Representations and Warranties of the Company. The Company hereby
represents and warrants as follows:

 

(a)         Authorization of Transaction. The Company has full power and
authority to execute, deliver and perform this Agreement to which it is, or is
specified to be, a party. The Board of Directors of the Company have duly
authorized and approved this Agreement and the transactions contemplated hereby.
This Agreement has been, or when executed, will be, duly executed and delivered
by the Company and constitutes legal, valid and binding obligations of the
Company enforceable in accordance with their respective terms.

 

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(b)           No Contravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby or
thereby, shall (with or without notice or lapse of time or both) (i) violate any
Law or Order to which the Company or its assets are subject, (ii) violate or
conflict with the provisions of the charter or bylaws of the Company, (iii)
conflict with, result in a breach of, constitute a default under, result in the
acceleration or material modification of, create for any party the right to
accelerate, terminate, materially modify or cancel, or require any notice under
any material Contract or material License to which the Company is a party or by
which the Company is bound or to which its assets are subject, or (iv) result in
the imposition of any material Lien, other than a Permitted Lien, upon any of
the material properties or assets of the Company. No material consent, approval
or authorization of, or registration or filing with, any Governmental or
Regulatory Body or other Person is required in connection with the execution or
delivery by the Company of this Agreement.

 

(c)           Organization. The Company is duly organized, validly existing and
in good standing under the Laws of the State of Delaware. The Company has all
requisite corporate power and authority to own, operate or lease its assets and
to conduct its business as presently conducted and, as applicable, to enter into
this Agreement and to consummate the transactions contemplated herein and
therein. The Company is duly authorized to conduct business and is in good
standing in each jurisdiction where such authorization is required to conduct
its business as currently conducted by it. The Company has previously made
available to Investor copies of the organizational documents of the Company, as
currently in effect, and the Company is not in default in the performance,
observation or fulfillment of its obligations under such organizational
documents.

 

(d)           The Stock and the Warrants. The Stock will be legally issued,
fully paid, and non-assessable and Investor will receive good and marketable
title to the Stock free and clear of all Liens, except as prohibited by the
securites’ laws of the United States. The Warrants will constitute legal, valid
and binding obligations of the Company enforceable in accordance with their
respective terms.

 

(e)            Litigation. The Company knows of no outstanding Order applicable
to the Company or its assets; (ii) is not a party to any Action or Proceeding;
or (iii) has been threatened in writing to be made a party to any Action or
Proceeding with respect to any threat by a Person.

 

(f)             Books and Records. The minute books of the Company, as
previously made available to the Investor and its representatives, contain in
all material respects accurate records of all meetings of and all corporate
actions or written consents by the Board of Directors of the Company.

 

(g)            Disclosure. No representation or warranty contained in this
Section 3 contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements herein or therein, in
the light of the circumstances under which they were made, not misleading.

 

4

 

 

(h)           Brokers’ Fees. The Company has no Liability to pay any fees or
commissions to any broker, investment banker, finder or agent with respect to
the transactions contemplated by this Agreement for which Investor could become
liable or obligated.

 

4.             Representations and Warranties of the Investor. The Investor
hereby represents, warrants and agrees as follows:

 

(a)           Due Execution. This Agreement has been duly executed and delivered
by the Investor and constitutes valid and binding obligations of the Investor
which shall be enforceable in accordance with its terms, subject as to
enforceability to any applicable bankruptcy, insolvency, debtors’ relief,
receivership, reorganization, or other similar statutes and equitable principles
that may govern the enforcement of creditors’ rights generally.

 

(b)           Authorization of Transaction. The Investor has full legal right
and power and all authority and approval required (i) to execute and deliver, or
authorize execution and delivery of, this Agreement and all other instruments
executed and delivered by the Investor in connection with the purchase of the
Stock and Warrants, and (ii) to purchase and hold such Stock and Warrants.

 

(c)            No Contravention. The execution of and performance of the
transactions contemplated by this Agreement and compliance with their respective
provisions by the Investor will not (i) require on the part of the Investor any
filing with, or any permit, authorization, consent or approval of, governmental
entity, or (ii) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Investor or any of its properties or assets.

 

(d)            Restrictions on Transfer. The Investor is aware that it cannot
sell or otherwise transfer the Stock in the United States without registration
under applicable federal or state securities laws or without an exemption
therefrom, and is aware that the Investor will be required to bear the financial
risks of the Investor’s purchase for an indefinite period of time because, among
other reasons, the Stock have not been and are not anticipated to be registered
with the SEC or any regulatory authority of any state and, therefore, cannot be
transferred or resold unless they are subsequently registered under applicable
federal and state securities laws or an exemption from such registration is
available.

 

(e)            Accredited Investor. The Investor is an “Accredited Investor”
within the meaning of the definition set forth in Regulation D of the Securities
Act.

 

(f)           Disclosure. No representation or warranty contained in this
Section 4 contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements herein or therein, in
the light of the circumstances under which they were made, not misleading.

 

(g)           Brokers’ Fees. The Investor has no Liability to pay any fees or
commissions to any broker, investment banker, finder or agent with respect to
the transactions contemplated by this Agreement for which Company could become
liable or obligated.

 

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(h)         Risk. The purchase of the Stock and the Warrants involves a high
degree of risk and the Investor acknowledges that the Investor can bear the
complete economic risk of the purchase of the Stock and the Warrants, including
the total loss of the investment represented hereby. The Investor represents and
warrants that the Investor is able to bear the economic risk of losing all or a
portion of the Investor’s investment in the Company, which is not
disproportionate to the Investor’s net worth, and that the Investor has adequate
means of providing for the Investor’s current needs and contingencies without
regard to the investment in the Company.

 

5.           Binding Agreement. This Agreement and the representations and
warranties contained herein shall be binding upon and inure to the benefit of
any heirs, executors, administrators, successors and assigns of each party
hereto, and shall survive the purchase and issuance of the Stock.

 

6.           Amendment and Modification. Neither this Agreement nor any
provisions hereof shall be modified, discharged or terminated except by an
instrument in writing executed by the parties hereto.

 

7.           Counterparts. This Agreement may be executed through the use of
separate signature pages or in any number of counterparts, and each of such
counterparts shall, for all purposes, constitute one agreement binding on all
the parties, notwithstanding that all parties are not signatories to the same
counterpart.

 

8.           Entire Agreement. This Agreement contains the entire agreement of
the parties, and there are no representations, covenants or other agreements
except as stated or referred to herein.

 

9.          Assignment. This Agreement is not transferable or assignable by
either party without the express written consent of the other party.

 

10.        Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Florida.

 

11.        Section Headings. The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.

 

12.        Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing and shall be deemed effectively
given upon personal delivery to the party to be notified by hand or professional
courier service or two (2) business days after deposit with the United States
Post office, by registered or certified mail, postage prepaid and addressed to
the party to be notified at the address indicated for such party on the
signature page hereof, or at such other address as such party may designate by
ten (10) calendar days’ advance written notice to the other parties.

 

13.        Survival of Representations. All of the representations and
warranties of the parties contained in this Agreement shall survive the Closing
and continue in full force and effect until the expiration of any applicable
statutes of limitations.

 

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IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
Effective Date.

 

NET ELEMENT, INC.   By: /s/ Jonathan New   Name:  Jonathan New Title:    CFO

 

INVESTOR    /s/ Felix Vulis   Name:  Felix Vulis

  

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Schedule I

Definitions

 

“Action” or “Proceeding” means any action, hearing, proceeding (public or
private), arbitration or suit (whether civil, criminal, administrative or
investigative) commenced, brought or conducted by any Person, or any
investigation or audit by any Governmental or Regulatory Body.

 

“Agreement” has the meaning set forth in the preface, and shall include all
Disclosure Schedules and Exhibits which are incorporated in this Agreement by
this reference.

 

“Company” means the Company and its Subsidiaries.

 

“Contract” means any contract, agreement, subcontract, indenture, note, bonds
(including surety bond), loan, instrument, lease, mortgage, franchise, license,
assignment, purchase order, sale order, proposal, bid, understanding,
commitment, whether written or oral, that is legally binding.

 

“Governmental Authorization” or “License” means any consent, license,
registration, authorization or permit issued, granted, given or otherwise made
available by or under the authority of any Governmental or Regulatory Body or
pursuant to any Law.

 

“Governmental or Regulatory Body” means, collectively, any (i) nation, state,
county, city, town, village, district or other jurisdiction of any nature,
(ii) federal, state, local, municipal or other governmental organization or
body, (iii) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official or entity and
any court or other tribunal), or (iv) body exercising, or entitled to exercise,
any administrative, executive, judicial, legislative, regulatory or Taxing
Authority of any nature.

 

“Knowledge” means, with respect to the Company, the actual knowledge of an
executive officer of the Company, and in each such case, the knowledge that a
reasonably prudent person would be expected to have acting in such person’s
capacity in the conduct of the Business.

 

“Law” means any law, statute, rule, regulation, ordinance and other
pronouncement having the effect of law of the United States of America, the
State of Florida, any foreign country or any domestic or foreign state, county,
city or other political subdivision of any Governmental or Regulatory Body.

 

“Liability” means any direct or indirect liability, indebtedness, claim, loss,
damage, deficiency, obligation, penalty, responsibility, cost or expense, fixed
or unfixed, choate or inchoate, liquidated or unliquidated, secured or
unsecured, accrued, absolute, known or unknown, contingent or otherwise.

 

“Lien” means any mortgage, lien, pledge, charge, security interest, claim,
contractual restriction, easement, right-of-way, option, conditional sale or
installment contract or encumbrance of any kind.

 

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“Order” means any decision, award, writ, judgment, decree, ruling, verdict,
injunction, assessment, penalty, or similar order made, issued or entered by, or
settlement with, any Governmental or Regulatory Body or arbitrator.

 

“Party” and “Parties” have the meanings set forth in the preface.

 

“Person” means an individual, a partnership, a corporation, an association, a
joint stock company, a trust, a joint venture, an unincorporated organization or
a governmental entity (or any department, agency or political subdivision
thereof).

 

“SEC” means the Securities and Exchange Commission.

 

“Securities Act” means the Securities Act of 1933, as amended, and all rules and
regulations issued pursuant thereto.

 

“Subsidiary” means, with respect to any Person, any corporation, association or
other Person of which securities or other interests having the power to elect a
majority of that corporation’s or other Person’s board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred), are held by such Person or one or more of its Subsidiaries.

 

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