Exhibit 10.1

 

UNIT PURCHASE AGREEMENT

 

UNIT PURCHASE AGREEMENT (the “Agreement”), dated as of December 29, 2017, by and
between NET ELEMENT, INC., a Delaware corporation (the “Company”), and ESOUSA
HOLDINGS LLC, a New York limited liability company (the “Buyer”). Capitalized
terms used herein and not otherwise defined herein are defined in Section 10
hereof.

 

WHEREAS:

 

A.           The Issuer and Buyer are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Section
4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”), and/or Rule
506 of Regulation D (“Regulation D”) as promulgated by the United States
Securities and Exchange Commission (the “SEC”) under the 1933 Act.

 

B.           In reliance upon and subject to the respective representations,
warranties, covenants, terms and conditions hereinafter set forth, the Company
wishes to sell to the Buyer, and the Buyer wishes to buy from the Company, units
(the “Units”) in an amount equal to Seven Million Five Hundred Fifty Thousand
Eight Hundred Eighty-Five Dollars ($7,550,585), with each Unit consisting of one
share of the Company’s common stock (the “Common Stock”), par value $0.0001, and
three-fifth (3/5) of a warrant, where each whole warrant entitles the holder to
purchase one share of Common Stock at the Exercise Price (as defined below)
(each a “Purchase Warrant”), in the form attached hereto as Exhibit A-1.
“Purchase Shares” means all or a portion of the number of shares of Common Stock
to be sold and purchased hereunder. “Warrant Shares” means all or a portion of
the total number of shares of Common Stock issuable upon full exercise of all
Warrants (as defined below).

 

C.           The parties hereto shall execute and deliver a Registration Rights
Agreement, in the form attached hereto as Exhibit B (the “Registration Rights
Agreement”), in accordance with which the Issuer has agreed to provide certain
registration rights with respect to the Registrable Securities (as defined in
the Registration Rights Agreement), under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.

 

D.           The Units, Purchase Shares, the Warrants (as defined below) and the
Warrant Shares are collectively referred to herein as the “Securities”.

 

NOW THEREFORE, the Company and the Buyer hereby agree as follows:

 

1.           PURCHASE AND SALE OF PURCHASE SHARES AND WARRANTS.

 

Subject to the terms and conditions set forth in this Agreement, the Company has
the right to sell to the Buyer, and the Buyer has the obligation to purchase
from the Company, Purchase Shares as follows:

 

(a)          Purchase Shares and Warrant. Subject to the satisfaction (or
waiver) of the conditions set forth in this Agreement, the Company shall issue
and sell to Buyer, and Buyer shall purchase from the Company on the Closing Date
(as defined below), the number of Units as is set forth on the Buyer Schedule.

 

(b)          Closing. The date and time of the closing of the transactions
contemplated hereunder shall be 9:00 a.m., New York City time, on the same
Business Day on which the conditions to the Closing set forth in Sections 6 and
7 below are satisfied or waived (or such later date as is mutually agreed to by
the Company and the Buyer) (the “Closing Date”). As used herein “Business Day”
means any day other than a Saturday, Sunday or other day on which commercial
banks in New York, New York are authorized or required by law to remain closed.

 

 

 

 

(c)          Purchase Price. The aggregate purchase price for the Units to be
purchased by Buyer (the “Purchase Price”) shall be paid at the Closing and in
the applicable amount as set forth on the Buyer Schedule. Notwithstanding
anything to the contrary contained herein, (i) the Purchase Price for the
Purchase Shares purchased at the Closing shall be equal to the Consolidated
Closing Bid Price on the date hereof, and (ii) the Purchase Price per each
Purchase Warrant purchased at the Closing shall be equal to $0.125, and (iii)
the exercise price for each Purchase Warrant shall be equal to the Consolidated
Closing Bid Price on the date hereof.

 

(d)          Payment of Purchase Price; Delivery of Securities. On the Closing
Date, (i) Buyer shall pay the Purchase Price to the Company for the respective
Securities to be issued and sold to Buyer at the Closing, by wire transfer of
immediately available funds in accordance with the Company’s written wire
instructions and (ii) the Company shall issue to Buyer (A) the Purchase Shares
to be issued at such Closing as set forth on the Buyer Schedule and (B) the
Warrants to be issued at such closing as set forth on the Buyer Schedule
(pursuant to which Buyer shall have the right to acquire up to the aggregate
number of Warrant Shares as is set forth on the Buyer Schedule in respect of
such Warrants), in all cases, duly executed on behalf of the Company and
registered in the name of Buyer or its designee, all as set forth on the Buyer
Schedule. The Securities issued hereunder shall bear a restrictive legend until
such time as Buyer resells such Securities pursuant to the effective
Registration Statement or pursuant to Rule 144 under the 1933 Act. To the extent
that issuance of any number of shares of Common Stock will cause Buyer’s
beneficial ownership of the Common Stock to exceed the Maximum Percentage (as
defined below), the Company shall, in lieu of issuing such shares of Common
Stock that will cause Buyer’s beneficial ownership of the Common Stock to exceed
the Maximum Percentage, issue to Buyer warrants, substantially in the form
attached hereto as Exhibit A-2, to purchase, at a purchase price of $0.01 per
share, the number of shares of Common Stock that would cause Buyer’s beneficial
ownership to exceed the Maximum Percentage (the “Pre-Funded Warrants” and
together with the Purchase Warrants, the “Warrants”).

 

(e)          Taxes. The Company shall pay any and all transfer, stamp or similar
taxes that may be payable with respect to the issuance and delivery of any
shares of Common Stock to the Buyer made under this Agreement.

 

(f)          Beneficial Ownership Limitation. The Company shall not issue and
any shares of Common Stock under this Agreement if such shares proposed to be
issued and sold, when aggregated with all other shares of Common Stock then
owned beneficially (as calculated pursuant to Section 13(d) of the Exchange Act
and Rule 13d-3 promulgated thereunder) by the Buyer and its affiliates would
result in the beneficial ownership by the Buyer and its affiliates of more than
9.99% of the then issued and outstanding shares of Common Stock (the “Maximum
Percentage”).

 

2.           BUYER’S REPRESENTATIONS AND WARRANTIES.

 

The Buyer represents and warrants to the Company that as of the date hereof and
as of the Commencement Date:

 

(a)          Investment Purpose. The Buyer is entering into this Agreement and
acquiring the Securities for its own account for investment only and not with a
view towards, or for resale in connection with, the public sale or distribution
thereof; provided however, by making the representations herein, the Buyer does
not agree to hold any of the Securities for any minimum or other specific term.

 

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(b)          Accredited Investor Status. The Buyer is an institutional
“accredited investor” as that term is defined in Rule 501(a) of Regulation D of
the 1933 Act.

 

(c)          Reliance on Exemptions. The Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.

 

(d)          Information. The Buyer has been furnished with all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities that have been reasonably
requested by the Buyer, including, without limitation, the SEC Documents (as
defined in Section 3(f) hereof). The Buyer understands that its investment in
the Securities involves a high degree of risk. The Buyer (i) is able to bear the
economic risk of an investment in the Securities including a total loss, (ii)
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the proposed investment in the
Securities and (iii) has had an opportunity to ask questions of and receive
answers from the officers of the Company concerning the financial condition and
business of the Company and other matters related to an investment in the
Securities. The Buyer has sought such accounting, legal and tax advice as it has
considered necessary to make an informed investment decision with respect to its
acquisition of the Securities.

 

(e)          No Governmental Review. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

 

(f)          Transfer or Sale. The Buyer understands that except as provided in
the Registration Rights Agreement (as defined in Section 4(a) hereof): (i) the
Securities have not been and are not being registered under the 1933 Act or any
state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder or (B) an exemption
exists permitting such Securities to be sold, assigned or transferred without
such registration; (ii) any sale of the Securities made in reliance on Rule 144
may be made only in accordance with the terms of Rule 144 and further, if Rule
144 is not applicable, any resale of the Securities under circumstances in which
the seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register the Securities under the 1933 Act or any state securities
laws or to comply with the terms and conditions of any exemption thereunder.

 

(g)          Organization. The Buyer is a limited liability company duly
organized and validly existing in good standing under the laws of the State of
New York, and has the requisite organizational power and authority to own its
properties and to carry on its business as now being conducted.

 

(h)          Validity; Enforcement. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable against the Buyer in accordance with
its terms, subject as to enforceability to (i) general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors’ rights and remedies and (ii) public policy underlying any
law, rule or regulation (including any federal or state securities law, rule or
regulation) with regards to indemnification, contribution or exculpation. The
execution and delivery of the Transaction Documents by the Buyer and the
consummation by it of the transactions contemplated hereby and thereby do not
conflict with the Buyer’s certificate of organization or operating agreement or
similar documents, and do not require further consent or authorization by the
Buyer, its managers or its members.

 

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(i)          Residency. The Buyer is a resident of the State of New York.

 

(j)          No Prior Short Selling. The Buyer represents and warrants to the
Company that at no time prior to the date of this Agreement has any of the
Buyer, its agents, representatives or affiliates engaged in or effected, in any
manner whatsoever, directly or indirectly, any (i) “short sale” (as such term is
defined in Section 242.200 of Regulation SHO of the Securities Exchange Act of
1934, as amended (the “1934 Act”)) of the Common Stock or (ii) hedging
transaction, which establishes a net short position with respect to the Common
Stock or any other Company’s securities.

 

3.           REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to the Buyer that as of the date hereof and
as of the Closing Date:

 

(a)          Organization and Qualification. The Company and its “Subsidiaries”
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns more than 50% of the voting stock or capital stock
or other similar equity interests) are corporations or limited liability
companies duly organized and validly existing in good standing under the laws of
the jurisdiction in which they are incorporated or organized, and have the
requisite corporate or organizational power and authority to own their
properties and to carry on their business as now being conducted. Each of the
Company and its Subsidiaries is duly qualified as a foreign corporation or
limited liability company to do business and is in good standing in every
jurisdiction in which its ownership of property or the nature of the business
conducted by it makes such qualification necessary, except to the extent that
the failure to be so qualified or be in good standing could not reasonably be
expected to have a Material Adverse Effect. As used in this Agreement, “Material
Adverse Effect” means any material adverse effect on any of: (i) the business,
properties, assets, operations, results of operations or financial condition of
the Company and its Subsidiaries, if any, taken as a whole, or (ii) the
authority or ability of the Company to perform its obligations under the
Transaction Documents (as defined in Section 3(b) hereof).

 

(b)          Authorization; Enforcement; Validity. (i) The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement and each of
any other agreements entered into by the parties on the Commencement Date and
attached hereto as exhibits to this Agreement (collectively, the “Transaction
Documents”), and to issue the Securities in accordance with the terms hereof and
thereof, (ii) the execution and delivery of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation, the issuance of the Purchase Shares, have
been duly authorized by the Company’s Board of Directors or duly authorized
committee thereof, do not conflict with the Company’s Amended and Restated
Articles of Incorporation (as amended through the date hereof) or Bylaws (as
mended through the date hereof), and do not require further consent or
authorization by the Company, its Board of Directors or its stockholders (other
than as contemplated by Section 1(h) hereof), (iii) this Agreement has been, and
each other Transaction Document shall be on the Closing Date, duly executed and
delivered by the Company and (iv) this Agreement constitutes, and each other
Transaction Document upon its execution on behalf of the Company, shall
constitute, the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by (y) general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws relating to,
or affecting generally, the enforcement of creditors' rights and remedies and
(z) public policy underlying any law, rule or regulation (including any federal
or states securities law, rule or regulation) with regards to indemnification,
contribution or exculpation. The Board of Directors of the Company or duly
authorized committee thereof has approved the resolutions (the “Signing
Resolutions”) substantially in the form as set forth as Exhibit C attached
hereto to authorize this Agreement and the transactions contemplated hereby. The
Signing Resolutions are valid, in full force and effect and have not been
modified or supplemented in any material respect.

 

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(c)          Capitalization. As of the date hereof, the authorized capital stock
of the Company consists of (i) 100,000,000 shares of Common Stock, par value
$0.0001, of which as of the date hereof, 3,509,048 shares are issued and
outstanding, and (ii) 1,000,000 shares of preferred stock, of which as of the
date hereof no shares are issued and outstanding. All of such outstanding shares
have been, or upon issuance will be, validly issued and are fully paid and
non-assessable. Except as disclosed in SEC Documents (as defined below), no
shares of the Company’s capital stock are subject to preemptive rights or any
other similar rights or any liens or encumbrances suffered or permitted by the
Company, (ii) there are no outstanding debt securities of the Company or any of
its Subsidiaries, (iii) there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, (iv) there are no material agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement), (v) there are no outstanding securities or
instruments of the Company or any of its Subsidiaries which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to redeem a security of the Company or any of its
Subsidiaries, (vi) there are no securities or instruments containing
anti-dilution or similar provisions that will be triggered by the issuance of
the Securities as described in this Agreement and (vii) the Company does not
have any stock appreciation rights or “phantom stock” plans or agreements or any
similar plan or agreement. The Company will furnish to the Buyer upon Buyer’s
written request copies of the Company’s Amended and Restated Certificate of
Incorporation, as amended and as in effect on the date hereof (the “Certificate
of Incorporation”), and the Company’s Bylaws, as amended and as in effect on the
date hereof (the “Bylaws”).

 

(d)          Issuance of Securities. Upon issuance and payment therefore in
accordance with the terms and conditions of this Agreement, the Purchase Shares
shall be validly issued, fully paid and non-assessable and free from all taxes,
liens and charges with respect to the issue thereof, with the holders being
entitled to all rights accorded to a holder of Common Stock. As of the Closing,
the Company shall have reserved from its duly authorized capital stock not less
than the sum of 200% of the maximum number of Warrant Shares issuable upon
exercise of the Warrants (without taking into account any limitations on the
exercise of the Warrants set forth therein). The issuance of the Warrant Shares
is duly authorized, and upon exercise in accordance with the Warrants, the
Warrant Shares, when issued, will be validly issued, fully paid and
non-assessable and free from all preemptive or similar rights, taxes, liens,
charges and other encumbrances with respect to the issue thereof, with the
holders being entitled to all rights accorded to a holder of Common Stock.
Subject to the accuracy of the representations and warranties of the Buyer in
this Agreement, the offer and issuance by the Company of the Securities are
exempt from registration under the 1933 Act. Buyer will have good and marketable
title to the Securities.

 

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(e)          No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Purchase Shares and Warrants and the reservation for issuance
and issuance of the Warrant Shares) will not (i) result in a violation of the
Certificate of Incorporation, including any Certificate of Designations,
Preferences and Rights of any outstanding series of preferred stock of the
Company, or the Bylaws or (ii) constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or result, to the Company’s knowledge, in a violation
of any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
Principal Market applicable to the Company or any of its Subsidiaries) or by
which any property or asset of the Company or any of its Subsidiaries is bound
or affected, except in the case of defaults, terminations, amendments,
accelerations, cancellations and violations under clause (ii), which could not
reasonably be expected to result in a Material Adverse Effect. Except as
disclosed in Schedule 3(e), neither the Company nor its Subsidiaries is in
violation of any term of or in default under its Certificate of Incorporation,
including any Certificate of Designation, Preferences and Rights of any
outstanding series of preferred stock of the Company, or Bylaws or their
organizational charter or bylaws, respectively. Except as disclosed in Schedule
3(e), neither the Company nor any of its Subsidiaries is in violation of any
term of or is in default under any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its Subsidiaries, except for
possible violations, defaults, terminations or amendments that could not
reasonably be expected to have a Material Adverse Effect. The business of the
Company and its Subsidiaries is not being conducted, and shall not be conducted,
in violation of any law, ordinance, or regulation of any governmental entity,
except for possible violations, the sanctions for which either individually or
in the aggregate could not reasonably be expected to have a Material Adverse
Effect. Except as specifically contemplated by this Agreement, reporting
obligations under the 1934 Act or as required under the 1933 Act or applicable
state securities laws or the filing of a Listing of Additional Shares
Notification Form with the Principal Market, the Company is not required to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or
self-regulatory agency in order for it to execute, deliver or perform any of its
obligations under or contemplated by the Transaction Documents in accordance
with the terms hereof or thereof. Except for reporting obligations under the
1934 Act, all consents, authorizations, orders, filings and registrations which
the Company is required to obtain pursuant to the preceding sentence shall be
obtained or effected on or prior to the Commencement Date. The Company is not
subject to any notices or actions from or to the Principal Market, except as
disclosed in the Current Report on Form 8-K filed by the Company with the SEC on
December 30, 2016, July 3, 2017, August 21, 2017 and October 20, 2017 and other
than routine matters incident to listing on the Principal Market and not
involving a violation of the rules of the Principal Market. To the Company’s
knowledge, except as disclosed in the Current Report on Form 8-K filed by the
Company with the SEC on December 30, 2016, July 3, 2017, August 21, 2017 and
October 20, 2017, the Principal Market has not commenced any delisting
proceedings against the Company.

 

(f)          SEC Documents; Financial Statements. The Company filed current Form
10 information with the SEC over 12 months ago. The Company has filed all
reports and other materials required to be filed by Section 13 or 15(d) of the
1934 Act, as applicable, during the preceding 12 months (other than certain Form
8-K reports) (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements, notes and schedules thereto
and documents incorporated by reference therein being hereinafter referred to as
the “SEC Documents”).

 

(g)          Absence of Certain Changes. Since December 31, 2016, there has been
no material adverse change in the business, properties, operations, financial
condition or results of operations of the Company or its Subsidiaries taken as a
whole.

 

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(h)          Acknowledgment Regarding Buyer’s Status. The Company acknowledges
and agrees that the Buyer is acting solely in the capacity of arm’s length
purchaser with respect to the Transaction Documents and the transactions
contemplated hereby and thereby and that Buyer is not (i) an officer or director
of the Company or any of its subsidiaries, (ii) an “Affiliate” (as defined in
Rule 405 of the 1933 Act and calculated based on the assumption that only
officers, directors and holders of at least 10% of the Company’s issued and
outstanding Common Stock are Affiliates without conceding that any such Persons
are “affiliates” for purposes of federal securities laws) or (iii) to its actual
knowledge, a “beneficial owner” of more than 10% of the shares of Common Stock
(as defined for purposes of Rule 13d-3 of the 1934 Act). The Company further
acknowledges that the Buyer is not acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated hereby and thereby and any advice
given by the Buyer or any of its representatives or agents in connection with
the Transaction Documents and the transactions contemplated hereby and thereby
is merely incidental to the Buyer’s purchase of the Securities. The Company
further represents to the Buyer that the Company’s decision to enter into the
Transaction Documents has been based solely on the independent evaluation by the
Company and its representatives and advisors.

 

(i)          Intellectual Property Rights. To the Company’s knowledge, the
Company and its Subsidiaries own or possess adequate rights or licenses to use
all material trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, governmental authorizations, trade secrets and other intellectual
property rights (collectively, “Intellectual Property”) necessary to conduct
their respective businesses as now conducted, or to the extent that the failure
to own, possess, license or otherwise hold adequate rights to use Intellectual
Property would not, individually or in the aggregate, have a Material Adverse
Effect. To the Company’s knowledge, none of the Company’s active and registered
Intellectual Property will expire or terminate by the terms and conditions
thereof within two years from the date of this Agreement which could reasonably
be expected to have a Material Adverse Effect. The Company and its Subsidiaries
do not have any knowledge of any infringement by the Company or its Subsidiaries
of any Intellectual Property of others and there is no claim, action or
proceeding being made or brought against, or to the Company’s knowledge, being
threatened against, the Company or its Subsidiaries regarding Intellectual
Property, which could reasonably be expected to have a Material Adverse Effect.

 

(j)          Environmental Laws. To the Company’s knowledge, the Company and its
Subsidiaries (i) are in material compliance with any and all applicable foreign,
federal, state and local laws and regulations relating to the protection of the
environment or human health and safety and with respect to hazardous or toxic
substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii)
have received all material permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective businesses and
(iii) are in material compliance with all terms and conditions of any such
permit, license or approval, except where, in each of the three foregoing
clauses, the failure to so comply or receive such approvals could not reasonably
be expected to have, individually or in the aggregate, a Material Adverse
Effect.

 

(k)          Title. The Company has good and marketable title to all personal
property owned by them that is material to the business of the Company free and
clear of all liens, encumbrances and defects except such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company or could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
Any real property and facilities held under lease by the Company, to the
Company’s knowledge, are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company.

 

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(l)          Application of Takeover Protections. The Company and its board of
directors have taken or will take prior to the Commencement Date all necessary
action, if any, in order to render inapplicable any control share acquisition,
business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Certificate of
Incorporation or the laws of the state of its incorporation which is or could
become applicable to the Buyer as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company’s issuance of the
Securities and the Buyer’s ownership of the Securities.

 

(m)         No Disqualification Event. None of the Company, any of its
predecessors, any affiliated issuer, any director, executive officer, other
officer of the Company participating in the offering contemplated hereby, any
beneficial owner of 20% or more of the Company’s outstanding voting equity
securities, calculated on the basis of voting power, nor any promoter (as that
term is defined in Rule 405 under the 1933 Act) connected with the Company in
any capacity at the time of sale (each, an “Issuer Covered Person”) is subject
to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to
(viii) under the 1933 Act (a “Disqualification Event”), except for a
Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has
exercised reasonable care to determine whether any Issuer Covered Person is
subject to a Disqualification Event.

 

4.           COVENANTS.

 

(a)          Filing of Form 8-K and Registration Statement. The Company agrees
that it shall, within the time required under the 1934 Act, file a Current
Report on Form 8-K disclosing this Agreement and the transaction contemplated
hereby. The Company shall use reasonable commercial efforts to file with the SEC
within twenty-one (21) calendar days from the date hereof a new registration
statement covering the sale of the Securities by the Buyer, as set forth further
on the Buyer Schedule, in accordance with the terms of the Registration Rights
Agreement between the Company and the Buyer, dated as of the date hereof.

 

(b)          Blue Sky. The Company shall take such action, if any, as is
reasonably necessary in order to obtain an exemption for or to qualify (i) the
initial issuance of the Securities to the Buyer under this Agreement and (ii)
any subsequent sale of the Securities by the Buyer, in each case, under
applicable securities or “Blue Sky” laws of the states of the United States in
such states as is reasonably requested by the Buyer from time to time, and shall
provide evidence of any such action so taken to the Buyer at its written
request.

 

(c)          Listing. The Company shall promptly secure the listing of all of
the Securities upon each national securities exchange and automated quotation
system that requires an application by the Company for listing, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) or traded (including, if at any time applicable, the OTC Bulletin
Board, or the OTCQB or OTCQX market places of the OTC Markets) and shall
maintain such listing, so long as any other shares of Common Stock shall be so
listed. The Company shall use its reasonable commercial efforts to maintain the
Common Stock’s listing on the Principal Market in accordance with the
requirements of the Registration Rights Agreement. Neither the Company nor any
of its Subsidiaries shall take any action that would be reasonably expected to
result in the delisting or suspension of the Common Stock on the Principal
Market, unless the Common Stock is immediately thereafter traded on the New York
Stock Exchange, the NYSE MKT, the Nasdaq Global Select Market, the Nasdaq Global
Market, the OTC Bulletin Board, or the OTCQB or OTCQX market places of the OTC
Markets. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section.

 

(d)          Limitation on Short Sales and Hedging Transactions. The Buyer
agrees that beginning on the date of this Agreement and ending on the date of
termination of this Agreement as provided in Section 10(k), the Buyer and its
agents, representatives and affiliates shall not in any manner whatsoever enter
into or effect, directly or indirectly, any (i) “short sale” (as such term is
defined in Section 242.200 of Regulation SHO of the 1934 Act) of the Common
Stock or (ii) hedging transaction, which establishes a net short position with
respect to the Common Stock or any other Company’s securities.

 

 -8- 

 

 

(e)          Due Diligence. The Buyer shall have the right, from time to time as
the Buyer may reasonably deem appropriate, to perform reasonable due diligence
on the Company during normal business hours and subject to reasonable prior
notice to the Company. The Company and its officers and employees shall provide
information and reasonably cooperate with the Buyer in connection with any
reasonable request by the Buyer related to the Buyer’s due diligence of the
Company, including, but not limited to, any such request made by the Buyer in
connection with the filing of the registration statement described in Section
4(a) hereof; provided, however, that at no time is the Company required or
permitted to disclose material nonpublic information to the Buyer or breach any
obligation of confidentiality or non-disclosure to a third party or make any
disclosure that could cause a waiver of attorney-client privilege. Except as may
be required by law, court order or governmental authority, each party hereto
agrees not to disclose any Confidential Information of the other party to any
third party and shall not use the Confidential Information of such other party
for any purpose other than in connection with, or in furtherance of, the
transactions contemplated hereby. Each party hereto acknowledges that the
Confidential Information shall remain the property of the disclosing party and
agrees that it shall take all reasonable measures to protect the secrecy of any
Confidential Information disclosed by the other party.

 

(f)          Disposition of Securities. The Buyer shall not sell any Securities
except as provided in this Agreement, the Registration Rights Agreement and the
“Plan of Distribution” section of the prospectus included in the Registration
Statement. The Buyer shall not transfer any Securities except pursuant to sales
described in the “Plan of Distribution” section of the prospectus included in
the Registration Statement or pursuant to Rule 144 under the 1933 Act. In the
event of any sales of Securities pursuant to the Registration Statement, the
Buyer will (i) effect such sales pursuant to the “Plan of Distribution” section
of the prospectus included in the Registration Statement, and (ii) will comply
with all applicable prospectus delivery requirements.

 

(g)          Issuance of Additional Securities. The Company agrees that for the
period commencing on the date hereof and ending on the date immediately
following the 30th day after the satisfaction of the Registration Statement
condition set forth on the Buyer Schedule (the “Restricted Period”), the Company
shall not directly or indirectly issue, offer, sell, grant any option or right
to purchase, or otherwise dispose of (or announce any issuance, offer, sale,
grant of any option or right to purchase or other disposition of) any equity
security or any equity-linked or related security (including, without
limitation, any “equity security” (as that term is defined under Rule 405
promulgated under the 1933 Act), any securities that are convertible into Common
Stock (the “Convertible Securities”), any preferred stock or any purchase rights
for equity securities of the Company. Notwithstanding the foregoing, the Company
may issue during the Restricted Period the following: (i) issuances pursuant to
acquisitions, joint ventures, license arrangements, leasing arrangements and
similar transaction arrangements; (ii) equity awards or other compensatory
issuances of the Company’s equity securities to the Company’s and its
subsidiaries’ employees, independent contractors, consultants, officers and/or
directors; or (iii) the exercise of preexisting rights under financing
agreements, including issuances pursuant to prior equity lines and warrants or
preferred shares currently outstanding, provided, however, that the Company
shall not have modified the terms of any financing agreements or warrants to
increase the number of securities that are existing or reduce the conversion or
exercise price, as applicable, except as provided in such financing agreements
or warrants. The Company further agrees that, without prior consent of the
Buyer, until the earlier of (A) six (6) months after the date on which the
Registration Statement is declare effective or (B) the date on which Buyer has
sold or disposed of all Securities, the Company will not issue any floating
conversion rate or variable priced securities convertible into Common Stock.

 

5.           TRANSFER AGENT INSTRUCTIONS.

 

So long as the Buyer complies with its obligations in Section 4(f) and subject
to the provisions set forth in Section 1(d), all of the Securities to be issued
under this Agreement shall be issued without any restrictive legend unless the
Buyer expressly consents otherwise. The Company shall issue irrevocable
instructions to the Transfer Agent, and any subsequent transfer agent, to issue
Common Stock in the name of the Buyer for the Purchase Shares (the “Irrevocable
Transfer Agent Instructions”).

 

 -9- 

 

 

6.           CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL.

 

The obligation of the Company hereunder to issue and sell the Units at the
Closing is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion by providing Buyer with prior written notice thereof:

 

(a)          Buyer shall have executed each of the other Transaction Documents
to which it is a party and delivered the same to the Company.

 

(b)          Buyer and each other Buyer shall have delivered to the Company the
Purchase Price for the Purchase Shares and Warrants being purchased by Buyer at
the Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.

 

(c)          The representations and warranties of Buyer set forth in Section 2
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though originally made at that time (except for
representations and warranties that speak as of a specific date, which shall be
true and correct as of such date), and Buyer shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by Buyer
at or prior to the Closing Date.

 

(d)          Buyer shall have executed and delivered, to the reasonable
satisfaction of the Company, such questionnaires and documents in support
thereof that the Company and its agents deem reasonably necessary (or prudent)
to comply with the requirements of Regulation D with respect to the transactions
contemplated by this Agreement.

 

7.           CONDITIONS TO THE BUYER’S OBLIGATION TO PURCHASE.

 

The obligation of Buyer hereunder to purchase the Units at the Closing is
subject to the satisfaction, at or before each applicable Closing Date, of each
of the following conditions, provided that these conditions are for Buyer’s sole
benefit and may be waived by Buyer at any time in its sole discretion by
providing the Company with prior written notice thereof:

 

(e)          The Company and each subsidiary (as the case may be) shall have
duly executed and delivered to Buyer each of the Transaction Documents to which
it is a party and the Company shall have duly executed and delivered to Buyer
the Purchase Shares and the Warrants as is set forth on the Buyer Schedule and
the Company shall have complied in all respects with all obligations under this
Agreement and the other Transaction Documents, including, without limitation,
the Warrants and the Registration Rights Agreement. The Company shall have
delivered to Buyer a certificate, in the form previously provided to the Company
by Buyer, executed by the Secretary of the Company and dated as of the Closing
Date, as to (i) the Signing Resolutions consistent with Section 3(b) as adopted
by the Company’s board of directors in a form reasonably acceptable to Buyer,
(ii) the Certificate of Incorporation of the Company and (iii) the Bylaws of the
Company as in effect at the Closing.

 

 -10- 

 

 

(f)          Each and every representation and warranty of the Company shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though originally made at that time (except for representations
and warranties that speak as of a specific date, which shall be true and correct
in all material respects as of such date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required to be performed, satisfied or complied with by the
Company at or prior to the Closing Date, including, without limitation the
issuance of all Securities prior to the Closing Date as required by the
Transaction Documents and the Company has a sufficient number of duly authorized
shares of Common Stock reserved for issuance as may be required to fulfill its
obligations pursuant to the Transaction Documents. Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated as of
the Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by Buyer in the form reasonably acceptable to Buyer.

 

(g)         The Company shall have obtained all governmental, regulatory or
third party consents and approvals, if any, necessary for the sale of the
Securities.

 

(h)          No statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction that prohibits the
consummation of any of the transactions contemplated by the Transaction
Documents, and no actions, suits or proceedings shall be in progress or pending
by any Person that seeks to enjoin, prohibit or otherwise adversely affect any
of the transactions contemplated by the Transaction Documents.

 

(i)          No event of default exists or has occurred for which the Company
has received a notice from a lender, under any outstanding loan or credit
facility to which the Company or any of its subsidiaries is a party, in
connection with a breach of a financial covenant set forth in the governing
agreement of such loan or credit facility;

 

(j)          The Company shall have delivered to Buyer such other documents,
instruments or certificates relating to the transactions contemplated by this
Agreement reasonably required to consummate the transactions contemplated
hereby.

 

(k)          Such other conditions which are set forth on the Buyer Schedule.

 

(l)           No Event of Default has occurred and is continuing, or any event
which, after notice and/or lapse of time, would become an Event of Default has
occurred; and

 

(m)         On or prior to the Closing, the Company shall take all necessary
action, if any, and such actions as reasonably requested by the Buyer, in order
to render inapplicable any control share acquisition, business combination,
stockholder rights plan or poison pill (including any distribution under a
rights agreement) or other similar anti-takeover provision under the Certificate
of Incorporation or the laws of the state of its incorporation, that is or could
become applicable to the Buyer as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and the Buyer's ownership of the Securities.

 

8.           EVENTS OF DEFAULT.

 

An “Event of Default” shall be deemed to have occurred at any time as the
following events occurs:

 

(a)          while any registration statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of such registration statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the Buyer
for the sale of all of the Registrable Securities (as defined in the
Registration Rights Agreement), and such lapse or unavailability continues for a
period of thirty ten (10) consecutive Business Days or for more than an
aggregate of thirty (30) Business Days in any 365-day period, which is not in
connection with a post-effective amendment to any such registration statement or
the filing of a new registration statement; provided, however, that in
connection with any post-effective amendment to such registration statement or
filing of a new registration statement that is required to be declared effective
by the SEC, such lapse or unavailability may continue for a period of no more
than sixty (60) consecutive Business Days, which such period shall be extended
for up to an additional thirty (30) Business Days if the Company receives a
comment letter from the SEC in connection therewith;

 

 -11- 

 

 

(b)          the suspension of the Common Stock from trading for a period of
three (3) consecutive trading days;

 

(c)          the delisting of the Common Stock from the Principal Market, and
the Common Stock is not promptly thereafter trading on the New York Stock
Exchange, the NYSE MKT, the Nasdaq Global Select Market, the Nasdaq Global
Market, the OTC Bulletin Board or either of the OTCQB marketplace or the OTCQX
marketplace of the OTC Markets Group;

 

(d)          the Company’s breach of any representation or warranty (as of the
dates made), covenant or other term or condition under any Transaction Document
if such breach could reasonably be expected to have a Material Adverse Effect
and except only if such breach continues uncured for a period of at least twenty
(20) Business Days;

 

(e)          if the Company pursuant to or within the meaning of any Bankruptcy
Law; (A) commences a voluntary case, (B) consents to the entry of an order for
relief against it in an involuntary case, (C) consents to the appointment of a
Custodian of it or for all or substantially all of its and its Subsidiaries’
property, or (D) makes a general assignment for the benefit of its creditors;

 

(f)          unless dismissed within 90 days from each of the following events,
a court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that (A) is for relief against the Company in an involuntary case, (B)
appoints a Custodian of the Company or for all or substantially all of its and
its Subsidiaries’ property, or (C) orders the liquidation of the Company; or

 

(g)          the Company ceases for more than three (3) consecutive Business Day
to be eligible, through its Transfer Agent, to issue and transfer shares of
Common Stock electronically to third parties via the DTC FAST Program of the
DWAC system of the Depository Trust Company.

 

9.           CERTAIN DEFINED TERMS.

 

For purposes of this Agreement, the following terms shall have the following
meanings:

 

(a)          “1933 Act” means the Securities Act of 1933, as amended.

 

(b)          “Bankruptcy Law” means Title 11, U.S. Code, or any similar federal
or state law for the relief of debtors.

 

(c)          “Business Day” means any day on which the Principal Market is open
for trading during normal trading hours (i.e., 9:30 a.m. to 4:00 p.m. Eastern
Time), including any day on which the Principal Market is open for trading for a
period of time less than the customary time.

 

(d)          “Consolidated Closing Bid Price” means the consolidated closing bid
price for the Common Stock on the Principal Market as reported by the Principal
Market.

 

 -12- 

 

 

(e)          “Confidential Information” means any information disclosed by
either party to the other party, either directly or indirectly, in writing,
orally or by inspection of tangible objects (including, without limitation,
documents, prototypes, samples, plant and equipment), which is designated as
"Confidential," "Proprietary" or some similar designation. Confidential
Information may also include information disclosed to a disclosing party by
third parties. Confidential Information shall not, however, include any
information which (i) was publicly known and made generally available in the
public domain prior to the time of disclosure by the disclosing party; (ii)
becomes publicly known and made generally available after disclosure by the
disclosing party to the receiving party through no action or inaction of the
receiving party; (iii) is already in the possession of the receiving party at
the time of disclosure by the disclosing party as shown by the receiving party’s
files and records immediately prior to the time of disclosure; (iv) is obtained
by the receiving party from a third party without a breach of such third party’s
obligations of confidentiality; (v) is independently developed by the receiving
party without use of or reference to the disclosing party’s Confidential
Information, as shown by documents and other competent evidence in the receiving
party’s possession; or (vi) is required by law to be disclosed by the receiving
party, provided that the receiving party gives the disclosing party prompt
written notice of such requirement prior to such disclosure and assistance in
obtaining an order protecting the information from public disclosure.

 

(f)          “Custodian” means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.

 

(g)          “Person” means an individual or entity including any limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.

 

(h)          “Principal Market” means the Nasdaq Capital Market; provided
however, that in the event the Company’s Common Stock is ever listed or traded
on the New York Stock Exchange, the NYSE MKT, the Nasdaq Global Select Market,
the Nasdaq Global Market, the OTC Bulletin Board or either of the OTCQB
marketplace or the OTCQX marketplace of the OTC Markets Group, then the
“Principal Market” shall mean such other market or exchange on which the
Company’s Common Stock is then listed or traded.

 

(i)          “Transfer Agent” means the transfer agent of the Company as set
forth in Section 10(f) hereof or such other person who is then serving as the
transfer agent for the Company in respect of the Common Stock.

 

10.         MISCELLANEOUS.

 

(a)          Governing Law; Jurisdiction; Jury Trial. The corporate laws of the
State of Delaware shall govern all issues concerning the relative rights of the
Company and its stockholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement and the other
Transaction Documents shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision or
rule (whether of the State of New York or any other jurisdictions) that would
cause the application of the laws of any jurisdictions other than the State of
New York. Each party hereby irrevocably submits to the exclusive jurisdiction of
the state and federal courts sitting in the County of New York, New York, for
the adjudication of any dispute hereunder or under the other Transaction
Documents or in connection herewith or therewith, or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

 -13- 

 

 

(b)          Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile or pdf (or
other electronic reproduction) signature shall be considered due execution and
shall be binding upon the signatory thereto with the same force and effect as if
the signature were an original, not a facsimile or PDF (or other electronic
reproduction) signature.

 

(c)          Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

 

(d)          Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

 

(e)          Entire Agreement. This Agreement and the Registration Rights
Agreement supersede all other prior oral or written agreements between the
Buyer, the Company, their affiliates and persons acting on their behalf with
respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor the Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. The Company acknowledges and agrees
that is has not relied on, in any manner whatsoever, any representations or
statements, written or oral, other than as expressly set forth in this
Agreement.

 

(f)          Notices. Any notices, consents or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered: (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party); (iii) upon receipt, when sent by electronic message (provided
the recipient responds to the message and confirmation of both electronic
messages are kept on file by the sending party); or (iv) one (1) Business Day
after timely deposit with a nationally recognized overnight delivery service, in
each case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:

 

If to the Company:

 

  Net Element, Inc.   3363 NE 163rd Street, Suite 705   North Miami Beach, FL
33160   Telephone: (786) 923-0515   Facsimile: (786) 272-0696   E-mail:
swolberg@netelement.com   Attention: Chief Legal Officer

 

 -14- 

 

 

If to the Buyer:

 

Esousa Holdings LLC

211 East 43rd Street

Suite 402

New York, NY 10017

Telephone: (646) 278-6785

Facsimile: (212) 732-1131

Email: rachel@esousallc.com

Attention: Rachel Glicksman

 

If to the Transfer Agent:

 

Continental Stock Transfer & Trust Company

17 Battery Place, 8th Floor

New York, NY 10004
Telephone: (212) 845-3217

E-mail: mmullings@continentalstock.com

Attention: Michael G. Mullings

 

or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party one (1) Business Day prior to the effectiveness of such change.
Written confirmation of receipt (A) given by the recipient of such notice,
consent or other communication, (B) mechanically or electronically generated by
the sender’s facsimile machine containing the time, date, and recipient
facsimile number, (C) electronically generated by the sender’s electronic mail
containing the time, date and recipient email address or (D) provided by a
nationally recognized overnight delivery service, shall be rebuttable evidence
of receipt in accordance with clause (i), (ii), (iii) or (iv) above,
respectively.

 

(g)          Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Buyer, including by merger or
consolidation. The Buyer may not assign its rights or obligations under this
Agreement.

 

(h)          No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

 

(i)          Public Disclosure. The Company shall be entitled, without the prior
approval of the Buyer, to make any press release or other public disclosure
(including any filings with the SEC) with respect to the transactions
contemplated hereby as is required by applicable law and regulations.

 

(j)          Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

 

(k)          No Financial Advisor, Placement Agent, Broker or Finder. The
Company represents and warrants to the Buyer that it has not engaged any
financial advisor, placement agent, broker or finder in connection with the
transactions contemplated hereby. The Buyer represents and warrants to the
Company that it has not engaged any financial advisor, placement agent, broker
or finder in connection with the transactions contemplated hereby. Each party
shall be responsible for the payment of any fees or commissions, if any, of any
financial advisor, placement agent, broker or finder engaged by such party
relating to or arising out of the transactions contemplated hereby. Each party
shall pay, and hold the other party harmless against, any liability, loss or
expense (including, without limitation, attorneys' fees and out of pocket
expenses) arising in connection with any such claim.

 

 -15- 

 

 

(l)          No Strict Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

 

(m)        Failure or Indulgence Not Waiver. No failure or delay in the exercise
of any power, right or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege.

 

[Signatures are on next page.]

 

 -16- 

 

 

IN WITNESS WHEREOF, the Buyer and the Company have caused this Unit Purchase
Agreement to be duly executed as of the date first written above.

 

  THE COMPANY:       NET ELEMENT, INC.

 

  By: /s/ Oleg Firer   Name: Oleg Firer   Title: Chief Executive Officer

 

  BUYER:       ESOUSA HOLDINGS LLC

 

  By: /s/ Rachel Glicksman   Name: Rachel Glicksman   Title: Managing Member

 

 

 

 

BUYER SCHEDULE

 

Name of Buyer: Esousa Holdings LLC

 

Units to be issued and sold to Buyer at the Closing: 674,460 Units, at the
Purchase Price of $7,500,000 plus $0.125 per each Purchase Warrant in the
aggregate.

 

Common Stock included in each Unit: One (1) share of Common Stock of the
Company, at a purchase price per share of $11.12.

 

Purchase Warrant included in each Unit: Three-fifths (3/5) of a five-year
warrant to acquire one (1) share of Common Stock at a purchase price of $0.125.
The exercise price of each Purchase Warrant shall be $11.12.

 

Effectiveness of Registration Statement Condition

 

Buyer’s release from the restrictive covenant set forth in Section 4(g) of this
Agreement is subject to the fulfillment of the following condition:

 

1.The Registration Statement (as defined in the Registration Rights Agreement),
which must be filed on Form S-1 or Form S-3, has been declared effective by the
SEC and covers the sale by Buyer (in accordance with the plan of distribution
called for by the Registration Rights Agreement) of the Common Stock
contemplated by, and in the amount of, the Required Registration Amount (as
defined in the Registration Rights Agreement. If the Registration Statement is
not declared effective within 90 days of the Closing Date, the Company shall
incur penalties of 1% of the aggregate purchase price of the Securities per
month for each month, or partial month, that the SEC fails to declare such
Initial Registration Statement Effective. Such penalties shall be payable in
cash or in Common Stock and shall lapse upon the six-month anniversary of the
Closing Date so long as the Buyer’s Common Stock are eligible for sale, without
restriction, under Rule 144.

 

 

 

 

EXHIBIT A-1

FORM OF PURCHASE WARRANT

 

NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING
THIS WARRANT MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE SECURITIES ACT.

 

NET ELEMENT, INC.

 

WARRANT TO PURCHASE COMMON STOCK

 

Warrant No. 2017-[    ]   Original Issue Date: December 29, 2017

 

Net Element, Inc., a Delaware corporation (the “Company”), hereby certifies
that, for value received, Esousa Holdings LLC, a New York limited liability
company, or its permitted registered assigns (the “Holder”), is entitled to
purchase from the Company up to a total of [____] shares of common stock,
$0.0001 par value (the “Common Stock”), of the Company (each such share, a
“Warrant Share” and all such shares, the “Warrant Shares”) at an exercise price
per share equal to $[______] (as adjusted from time to time as provided in
Section 9 herein, the “Exercise Price”), at any time and from time to time from
on or after the Original Issue Date set forth above (the “Trigger Date”) and
through and including 5:30 P.M., prevailing New York time, on December 29, 2022
(the “Expiration Date”), and subject to the following terms and conditions:

 

This Warrant (this “Warrant”) is one warrant, or one of a series of similar
warrants, issued pursuant to that certain Unit Purchase Agreement, dated
December 29, 2017, by and among the Company and the Purchaser(s) identified
therein (the “Purchase Agreement”). All such warrants are referred to herein,
collectively, as the “Warrants.”

 

1.          Definitions. In addition to the terms defined elsewhere in this
Warrant, capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Purchase Agreement.

 

2.          Registration of Warrants. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the “Warrant
Register”), in the name of the record Holder (which shall include the initial
Holder or, as the case may be, any registered assignee to which this Warrant is
permissibly assigned hereunder) from time to time. The Company may deem and
treat the registered Holder of this Warrant as the absolute owner hereof for the
purpose of any exercise hereof or any distribution to the Holder, and for all
other purposes, absent actual notice to the contrary.

 

 

 

 

3.          Registration of Transfers. Subject to the restrictions on transfer
set forth in Sections 2(f) and 4(f) of the Purchase Agreement and compliance
with all applicable securities laws, the Company shall register the transfer of
all or any portion of this Warrant in the Warrant Register, upon (i) surrender
of this Warrant, with the Form of Assignment attached as Schedule 2 hereto duly
completed and signed, to the Company’s transfer agent or to the Company at its
address specified herein and (ii) if the Registration Statement is not
effective, (x) delivery, at the request of the Company, of documentation
reasonably satisfactory to the Company to the effect that the transfer of such
portion of this Warrant may be made pursuant to an available exemption from the
registration requirements of the Securities Act and all applicable state
securities or blue sky laws and (y) delivery by the transferee of a written
statement to the Company certifying that the transferee is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and making the
representations and certifications set forth in Section 2(b), (c), (d) and (f)
of the Purchase Agreement, to the Company at its address specified in the
Purchase Agreement. Upon any such registration or transfer, a new warrant to
purchase Common Stock in substantially the form of this Warrant (any such new
warrant, a “New Warrant”) evidencing the portion of this Warrant so transferred
shall be issued to the transferee, and a New Warrant evidencing the remaining
portion of this Warrant not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Warrant by the transferee thereof
shall be deemed the acceptance by such transferee of all of the rights and
obligations of a Holder of a Warrant.

 

4.          Exercise and Duration of Warrants.

 

(a)          Subject to Section 11 hereof, all or any part of this Warrant shall
be exercisable by the registered Holder at any time and from time to time on or
after the Trigger Date and through and including 5:30 P.M. prevailing Ney York
time on the Expiration Date. At 5:30 P.M., prevailing New York time, on the
Expiration Date, the portion of this Warrant not exercised prior thereto shall
be and become void and of no value and this Warrant shall be terminated and no
longer outstanding;

 

(b)          The Holder may exercise this Warrant by delivering to the Company
(i) an exercise notice, in the form attached as Schedule 1 hereto (the “Exercise
Notice”), appropriately completed and duly signed, (ii) payment of the Exercise
Price in immediately available funds for the number of Warrant Shares as to
which this Warrant is being exercised (which may take the form of a “cashless
exercise” if so indicated in the Exercise Notice and if a “cashless exercise”
may occur at such time pursuant to Section 10 below), and the date such items
are delivered to the Company (as determined in accordance with the notice
provisions hereof) is an “Exercise Date.” The delivery by (or on behalf of) the
Holder of the Exercise Notice and the applicable Exercise Price as provided
above shall constitute the Holder’s certification to the Company that its
representations contained in Section 2(b), (c), (d) and (f) of the Purchase
Agreement are true and correct as of the Exercise Date as if remade in their
entirety (or, in the case of any transferee Holder that is not a party to the
Purchase Agreement, such transferee Holder’s certification to the Company that
such representations are true and correct as to such assignee Holder as of the
Exercise Date). The Holder shall not be required to deliver the original Warrant
in order to effect an exercise hereunder. Execution and delivery of the Exercise
Notice shall have the same effect as cancellation of the original Warrant and
issuance of a New Warrant evidencing the right to purchase the remaining number
(if any) of Warrant Shares.

 

 2 

 

 

5.          Delivery of Warrant Shares. Upon exercise of this Warrant, the
Company shall promptly (but in no event later than two Trading Days after the
Exercise Date) issue or cause to be issued and cause to be delivered to or upon
the written order of the Holder and in such name or names as the Holder may
designate (provided that, if the Registration Statement is not effective and the
Holder directs the Company to deliver a certificate for the Warrant Shares in a
name other than that of the Holder or an Affiliate of the Holder, it shall
deliver to the Company on the Exercise Date an opinion of counsel reasonably
satisfactory to the Company to the effect that the issuance of such Warrant
Shares in such other name may be made pursuant to an available exemption from
the registration requirements of the Securities Act and all applicable state
securities or blue sky laws), a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends, unless a registration statement
covering the resale of the Warrant Shares and naming the Holder as a selling
stockholder thereunder is not then effective or the Warrant Shares are not
freely transferable pursuant to Rule 144 under the Securities Act pursuant to
transactions in which paragraph (c)(1) of such rule do not apply. The Holder, or
any Person permissibly so designated by the Holder to receive Warrant Shares,
shall be deemed to have become the holder of record of such Warrant Shares as of
the Exercise Date. If the Warrant Shares are to be issued free of all
restrictive legends, the Company shall, upon the written request of the Holder,
use its best efforts to deliver, or cause to be delivered, Warrant Shares
hereunder electronically through The Depository Trust Company or another
established clearing corporation performing similar functions, if available;
provided, that, the Company may, but will not be required to, change its
transfer agent if its current transfer agent cannot deliver Warrant Shares
electronically through such a clearing corporation.

 

6.          Charges, Taxes and Expenses. Issuance and delivery of certificates
for shares of Common Stock upon exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax, transfer agent fee or other
incidental tax or expense in respect of the issuance of such certificates, all
of which taxes and expenses shall be paid by the Company; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the Holder or an
Affiliate thereof. The Holder shall be responsible for all other tax liability
that may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.

 

7.          Replacement of Warrant. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction (in such case)
and, in each case, a customary and reasonable indemnity (which shall not include
a surety bond), if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe. If a New Warrant is requested as a result of a mutilation of this
Warrant, then the Holder shall deliver such mutilated Warrant to the Company as
a condition precedent to the Company’s obligation to issue the New Warrant.

 

 3 

 

 

8.          Reservation of Warrant Shares. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and nonassessable. The
Company will take all such action as may be necessary to assure that such shares
of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any securities exchange
or automated quotation system upon which the Common Shares may be listed.

 

9.          Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9.

 

(a)          Stock Dividends and Splits. If the Company, at any time while this
Warrant is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides its outstanding shares of Common Stock
into a larger number of shares, (iii) combines its outstanding shares of Common
Stock into a smaller number of shares, or (iv) otherwise conducts a corporate
action or transaction to change the number of outstanding shares of Common
Stock, including any reorganization, recapitalization, or other transaction
similar to (i) through (iii), then in each such case the Exercise Price shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately before such event and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after such event. Any adjustment made pursuant to this paragraph shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution or the effective
date of such subdivision or combination, as applicable.

 

(b)          Fundamental Transactions. If, at any time while this Warrant is
outstanding (i) the Company effects any merger or consolidation of the Company
with or into another Person, in which the shareholders of the Company as of
immediately prior to the transaction own less than a majority of the outstanding
stock of the surviving entity, (ii) the Company effects any sale of all or
substantially all of its assets or a majority of its Common Stock is acquired by
a third party, in each case, in one or a series of related transactions, (iii)
any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which all or substantially all of the holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property and would result in the shareholders of the Company immediately
prior to such tender offer or exchange offer owning less than a majority of the
outstanding stock after such tender offer or exchange offer, or (iv) the Company
effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (other than as a result of a
subdivision or combination of shares of Common Stock covered by Section 9(a)
above) (in any such case, a “Fundamental Transaction”), then the Holder shall
have the right thereafter to receive, upon exercise of this Warrant, the same
amount and kind of securities, cash or property as it would have been entitled
to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of the number of
Warrant Shares then issuable upon exercise in full of this Warrant without
regard to any limitations on exercise contained herein (the “Alternate
Consideration”). The Company shall not effect any such Fundamental Transaction
unless prior to or simultaneously with the consummation thereof, any successor
to the Company, surviving entity or the corporation purchasing or otherwise
acquiring such assets or other appropriate corporation or entity shall assume
the obligation to deliver to the Holder, such Alternate Consideration as, in
accordance with the foregoing provisions, the Holder may be entitled to purchase
and/or receive (as the case may be), and the other obligations under this
Warrant. The provisions of this paragraph (b) shall similarly apply to
subsequent transactions analogous to a Fundamental Transaction.

 

 4 

 

 

(c)          Number of Warrant Shares. Simultaneously with any adjustment to the
Exercise Price pursuant to paragraph (a) of this Section, the number of Warrant
Shares that may be purchased upon exercise of this Warrant shall be increased or
decreased proportionately, so that after such adjustment the aggregate Exercise
Price payable hereunder for the increased or decreased number of Warrant Shares
shall be the same as the aggregate Exercise Price in effect immediately prior to
such adjustment.

 

(d)          Calculations. All calculations under this Section 9 shall be made
to the nearest cent or the nearest 1/100th of a share, as applicable. The number
of shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the sale or issuance of
any such shares shall be considered an issue or sale of Common Stock.

 

10.         Payment of Exercise Price. The Holder shall pay the Exercise Price
in immediately available funds; provided, however, that if, on any Exercise Date
a registration statement registering the issuance or resale of the Warrant
Shares under the Securities Act of 1933, as amended (the “Securities Act”) is
not effective, the Holder may, in its sole discretion, satisfy its obligation to
pay the Exercise Price through a “cashless exercise”, in which event the Company
shall issue to the Holder the number of Warrant Shares determined as follows:

 

X = Y [(A-B)/A]

 

where:

 

X = the number of Warrant Shares to be issued to the Holder.

 

Y = the total number of Warrant Shares with respect to which this Warrant is
being exercised.

 

A = the average of the Closing Sale Prices of the shares of Common Stock (as
reported by Bloomberg Financial Markets) for the five Trading Days ending on the
date immediately preceding the Exercise Date.

 

B = the Exercise Price then in effect for the applicable Warrant Shares at the
time of such exercise.

 

 5 

 

 

For purposes of this Warrant, “Closing Sale Price” means, for any security as of
any date, the last trade price for such security on the principal securities
exchange or trading market for such security, as reported by Bloomberg Financial
Markets, or, if such exchange or trading market begins to operate on an extended
hours basis and does not designate the last trade price, then the last trade
price of such security prior to 4:00 p.m., New York Time, as reported by
Bloomberg Financial Markets, or if the foregoing do not apply, the last trade
price of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg Financial Markets, or, if no
last trade price is reported for such security by Bloomberg Financial Markets,
the average of the bid prices, or the ask prices, respectively, of any market
makers for such security as reported in the "pink sheets" by Pink Sheets LLC. If
the Closing Sale Price cannot be calculated for a security on a particular date
on any of the foregoing bases, the Closing Sale Price of such security on such
date shall be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon the fair
market value of such security, then the Company shall, within two business days
submit via facsimile (a) the disputed determination of the Warrant Exercise
Price to an independent, reputable investment bank selected by the Company and
approved by the Holder or (b) the disputed arithmetic calculation of the Warrant
Shares to the Company's independent, outside accountant. The Company shall cause
at its expense the investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the Company and the Holder
of the results no later than ten business days from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error. All such determinations shall be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during the applicable calculation period.

 

For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced, on
the date this Warrant was originally issued pursuant to the Purchase Agreement
(provided that the Commission continues to take the position that such treatment
is proper at the time of such exercise).

 

11.         Limitations on Exercise. Notwithstanding anything to the contrary
contained herein, the number of Warrant Shares that may be acquired by the
Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall
be limited to the extent necessary to ensure that, following such exercise (or
other issuance), the total number of shares of Common Stock then beneficially
owned by such Holder and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with the Holder’s for purposes of
Section 13(d) of the Exchange Act, does not exceed 9.99% of the total number of
issued and outstanding shares of Common Stock (including for such purpose the
shares of Common Stock issuable upon such exercise). For such purposes,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. Each delivery
of an Exercise Notice hereunder will constitute a representation by the Holder
that it has evaluated the limitation set forth in this Section and determined
that issuance of the full number of Warrant Shares requested in such Exercise
Notice is permitted under this Section. The Company’s obligation to issue shares
of Common Stock in excess of the limitation referred to in this Section shall be
suspended (and, except as provided below, shall not terminate or expire
notwithstanding any contrary provisions hereof) until such time, if any, as such
shares of Common Stock may be issued in compliance with such limitation;
provided, that, if, as of 4:30 p.m., prevailing New York time, on the Expiration
Date, the Company has not received written notice that the shares of Common
Stock may be issued in compliance with such limitation, the Company’s obligation
to issue such shares shall terminate. This provision shall not restrict the
number of shares of Common Stock which a Holder may receive or beneficially own
in order to determine the amount of securities or other consideration that such
Holder may receive in the event of a Fundamental Transaction as contemplated in
Section 9 of this Warrant.

 

12.         No Fractional Shares. No fractional Warrant Shares will be issued in
connection with any exercise of this Warrant. In lieu of any fractional shares
which would otherwise be issuable, subject to Section 11, the number of Warrant
Shares to be issued shall be rounded up to the next whole number.

 

 6 

 

 

13.         Notices. Any and all notices or other communications or deliveries
hereunder (including, without limitation, any Exercise Notice) shall be in
writing and shall be mailed (registered or certified mail, return receipt
requested), or personally delivered and shall be deemed given when so delivered
or if mailed, two (2) days after such mailing, in each case to the address
specified in the Purchase Agreement.

 

14.         Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days’ notice to the Holder, the Company may appoint a
new warrant agent. Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last
address as shown on the Warrant Register.

 

15.         Miscellaneous.

 

(a)          The Holder, solely in such Person's capacity as a holder of this
Warrant, shall not be entitled to vote or receive dividends or be deemed the
holder of share capital of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the Holder, solely in such
Person's capacity as the Holder of this Warrant, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, amalgamation, conveyance or otherwise), receive
notice of meetings, receive dividends or subscription rights, or otherwise,
prior to the issuance to the Holder of the Warrant Shares which such Person is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on the Holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this
Section 15(a), the Company shall provide the Holder with copies of the same
notices and other information given to the shareholders of the Company,
contemporaneously with the giving thereof to the shareholders.

 

(b)          Subject to the restrictions on transfer set forth on the first page
hereof, and compliance with applicable securities laws, this Warrant may be
assigned by the Holder. This Warrant may not be assigned by the Company except
to a successor in the event of a Fundamental Transaction. This Warrant shall be
binding on and inure to the benefit of the parties hereto and their respective
successors and assigns. Subject to the preceding sentence, nothing in this
Warrant shall be construed to give to any Person other than the Company and the
Holder any legal or equitable right, remedy or cause of action under this
Warrant. This Warrant may be amended only in writing signed by the Company and
the Holder, or their successors and assigns.

 

 7 

 

 

(c)          GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS
CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS
WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF
LAW THEREOF. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION
OF THE STATE AND FEDERAL COURTS SITTING IN THE STATE OF NEW YORK, FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY
TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO
THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY
WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT
SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY
WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR
CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY
AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL
RIGHTS TO A TRIAL BY JURY. 

 

(d)          The headings herein are for convenience only, do not constitute a
part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.

 

(e)          In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby, and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.

 

(f)          Except as otherwise set forth herein, prior to exercise of this
Warrant, the Holder hereof shall not, by reason of by being a Holder, be
entitled to any rights of a stockholder with respect to the Warrant Shares.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

 8 

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its authorized officer as of the date first indicated above.

 

  NET ELEMENT, INC         By:     Name:     Title:  

 

 9 

 

 

SCHEDULE 1

 

FORM OF EXERCISE NOTICE

 

(To be executed by the Holder to exercise the right to purchase shares

of Common Stock under the foregoing Warrant)

 

To:         Net Element, Inc.

 

(1)         The undersigned is the Holder of Warrant No. __________ (the
“Warrant”) issued by Net Element, Inc. a Delaware corporation (the “Company”).
Capitalized terms used herein and not otherwise defined herein have the
respective meanings set forth in the Warrant.

 

(2)         The undersigned hereby exercises its right to purchase __________
Warrant Shares pursuant to the Warrant.

  

(3)         The Holder intends that payment of the Exercise Price shall be made
as (check one):

 

¨       Cash Exercise

 

¨       “Cashless Exercise” under Section 10

 

(4)         If the Holder has elected a Cash Exercise, the Holder shall pay the
sum of $_______ in immediately available funds to the Company in accordance with
the terms of the Warrant.

 

(5)         Pursuant to this Exercise Notice, the Company shall deliver to the
Holder _____________ Warrant Shares in accordance with the terms of the Warrant.

 

(6)         By its delivery of this Exercise Notice, the undersigned represents
and warrants to the Company that in giving effect to the exercise evidenced
hereby, the Holder will not beneficially own in excess of the number of shares
of Common Stock (as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934) permitted to be owned under Section 11 of the
Warrant to which this notice relates.

 

Dated:_______________, _____

 

Name of Holder:    

 

By:     Name:     Title:     (Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)  

 

 

 

 

SCHEDULE 2

 

NET ELEMENT, INC.

 

FORM OF ASSIGNMENT

 

[To be completed and signed only upon transfer of Warrant]

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
                             (the “Transferee” the right represented by the
within Warrant to purchase                  shares of Common Stock of Net
Element, Inc. (the “Company”) to which the within Warrant relates and appoints
                             attorney to transfer said right on the books of the
Company with full power of substitution in the premises. In connection
therewith, the undersigned represents, warrants, covenants and agrees to and
with the Company that:

 

(a)the offer and sale of the Warrant contemplated hereby is being made in
compliance with Section 4(1) of the United States Securities Act of 1933, as
amended (the “Securities Act”) or another valid exemption from the registration
requirements of Section 5 of the Securities Act and in compliance with all
applicable securities laws of the states of the United States;

 

(b)the undersigned has not offered to sell the Warrant by any form of general
solicitation or general advertising, including, but not limited to, any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, and
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising;

 

(c)the undersigned has read the Transferee’s investment letter included
herewith, and to its actual knowledge, the statements made therein are true and
correct; and

 

(d)the undersigned understands that the Company may condition the transfer of
the Warrant contemplated hereby upon the delivery to the Company by the
undersigned or the Transferee, as the case may be, of a written opinion of
counsel (which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that such transfer
may be made without registration under the Securities Act and under applicable
securities laws of the states of the United States.

 

Dated:             ,                    (Signature must conform in all respects
to name of holder as specified on the face of the Warrant)                
Address of Transferee                        

 

In the presence of:          

 

 

 

 

EXHIBIT A-2

FORM OF PRE-FUNDED WARRANT

 

NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THESE
SECURITIES HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING
THIS WARRANT MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE SECURITIES ACT.

 

NET ELEMENT, INC.

 

PRE-FUNDED WARRANT TO PURCHASE COMMON STOCK

 

Warrant No. 2017-[    ]   Original Issue Date: December 29, 2017

 

Net Element, Inc., a Delaware corporation (the “Company”), hereby certifies
that, for value received, Esousa Holdings LLC, a New York limited liability
company, or its permitted registered assigns (the “Holder”), is entitled to
purchase from the Company up to a total of [____]1 shares of common stock,
$0.0001 par value (the “Common Stock”), of the Company (each such share, a
“Warrant Share” and all such shares, the “Warrant Shares”) at an exercise price
per share equal to $0.01 (as adjusted from time to time as provided in Section 9
herein, the “Exercise Price”), at any time and from time to time from on or
after the Original Issue Date set forth above (the “Trigger Date”) and through
and including 5:30 P.M., prevailing New York time, on December 29, 2022 (the
“Expiration Date”), and subject to the following terms and conditions:

 

This Pre-Funded Warrant (this “Warrant”) is one warrant, or one of a series of
similar warrants, issued to Holder in lieu of shares of Common Stock purchased
and issuable to Holder that would cause Buyer’s beneficial ownership of the
Common Stock of the Company to exceed the Maximum Percentage, as defined in that
certain Unit Purchase Agreement, dated December 29, 2017, by and among the
Company and the Purchaser(s) identified therein (the “Purchase Agreement”), as
further set forth in Section 1(f) of the Purchase Agreement. All such warrants
are referred to herein, collectively, as the “Warrants.”

 

1.          Definitions. In addition to the terms defined elsewhere in this
Warrant, capitalized terms that are not otherwise defined herein have the
meanings given to such terms in the Purchase Agreement.

 

 

1 Note to Draft: Number of shares issuable upon exercise of Pre-Funded Warrant
shall be equal to the number of shares of Common Stock that would cause Holder’s
beneficial ownership of Common Stock in the Company to exceed 9.99%.

 

 

 

  

2.          Registration of Warrants. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the “Warrant
Register”), in the name of the record Holder (which shall include the initial
Holder or, as the case may be, any registered assignee to which this Warrant is
permissibly assigned hereunder) from time to time. The Company may deem and
treat the registered Holder of this Warrant as the absolute owner hereof for the
purpose of any exercise hereof or any distribution to the Holder, and for all
other purposes, absent actual notice to the contrary.

 

3.          Registration of Transfers. Subject to the restrictions on transfer
set forth in Sections 2(f) and 4(f) of the Purchase Agreement and compliance
with all applicable securities laws, the Company shall register the transfer of
all or any portion of this Warrant in the Warrant Register, upon (i) surrender
of this Warrant, with the Form of Assignment attached as Schedule 2 hereto duly
completed and signed, to the Company’s transfer agent or to the Company at its
address specified herein and (ii) if the Registration Statement is not
effective, (x) delivery, at the request of the Company, of documentation
reasonably satisfactory to the Company to the effect that the transfer of such
portion of this Warrant may be made pursuant to an available exemption from the
registration requirements of the Securities Act and all applicable state
securities or blue sky laws and (y) delivery by the transferee of a written
statement to the Company certifying that the transferee is an “accredited
investor” as defined in Rule 501(a) under the Securities Act and making the
representations and certifications set forth in Section 2(b), (c), (d) and (f)
of the Purchase Agreement, to the Company at its address specified in the
Purchase Agreement. Upon any such registration or transfer, a new warrant to
purchase Common Stock in substantially the form of this Warrant (any such new
warrant, a “New Warrant”) evidencing the portion of this Warrant so transferred
shall be issued to the transferee, and a New Warrant evidencing the remaining
portion of this Warrant not so transferred, if any, shall be issued to the
transferring Holder. The acceptance of the New Warrant by the transferee thereof
shall be deemed the acceptance by such transferee of all of the rights and
obligations of a Holder of a Warrant.

 

4.          Exercise and Duration of Warrants.

 

(a)          Subject to Section 11 hereof, all or any part of this Warrant shall
be exercisable by the registered Holder at any time and from time to time on or
after the Trigger Date and through and including 5:30 P.M. prevailing New York
time on the Expiration Date. At 5:30 P.M., prevailing New York time, on the
Expiration Date, the portion of this Warrant not exercised prior thereto shall
be and become void and of no value and this Warrant shall be terminated and no
longer outstanding;

 

(b)          The Holder may exercise this Warrant by delivering to the Company
(i) an exercise notice, in the form attached as Schedule 1 hereto (the “Exercise
Notice”), appropriately completed and duly signed, (ii) payment of the Exercise
Price in immediately available funds for the number of Warrant Shares as to
which this Warrant is being exercised (which may take the form of a “cashless
exercise” if so indicated in the Exercise Notice and if a “cashless exercise”
may occur at such time pursuant to Section 10 below), and the date such items
are delivered to the Company (as determined in accordance with the notice
provisions hereof) is an “Exercise Date.” The delivery by (or on behalf of) the
Holder of the Exercise Notice and the applicable Exercise Price as provided
above shall constitute the Holder’s certification to the Company that its
representations contained in Section 2(b), (c), (d) and (f) of the Purchase
Agreement are true and correct as of the Exercise Date as if remade in their
entirety (or, in the case of any transferee Holder that is not a party to the
Purchase Agreement, such transferee Holder’s certification to the Company that
such representations are true and correct as to such assignee Holder as of the
Exercise Date). The Holder shall not be required to deliver the original Warrant
in order to effect an exercise hereunder. Execution and delivery of the Exercise
Notice shall have the same effect as cancellation of the original Warrant and
issuance of a New Warrant evidencing the right to purchase the remaining number
(if any) of Warrant Shares.

 

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5.          Delivery of Warrant Shares. Upon exercise of this Warrant, the
Company shall promptly (but in no event later than two Trading Days after the
Exercise Date) issue or cause to be issued and cause to be delivered to or upon
the written order of the Holder and in such name or names as the Holder may
designate (provided that, if the Registration Statement is not effective and the
Holder directs the Company to deliver a certificate for the Warrant Shares in a
name other than that of the Holder or an Affiliate of the Holder, it shall
deliver to the Company on the Exercise Date an opinion of counsel reasonably
satisfactory to the Company to the effect that the issuance of such Warrant
Shares in such other name may be made pursuant to an available exemption from
the registration requirements of the Securities Act and all applicable state
securities or blue sky laws), a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends, unless a registration statement
covering the resale of the Warrant Shares and naming the Holder as a selling
stockholder thereunder is not then effective or the Warrant Shares are not
freely transferable pursuant to Rule 144 under the Securities Act pursuant to
transactions in which paragraph (c)(1) of such rule do not apply. The Holder, or
any Person permissibly so designated by the Holder to receive Warrant Shares,
shall be deemed to have become the holder of record of such Warrant Shares as of
the Exercise Date. If the Warrant Shares are to be issued free of all
restrictive legends, the Company shall, upon the written request of the Holder,
use its best efforts to deliver, or cause to be delivered, Warrant Shares
hereunder electronically through The Depository Trust Company or another
established clearing corporation performing similar functions, if available;
provided, that, the Company may, but will not be required to, change its
transfer agent if its current transfer agent cannot deliver Warrant Shares
electronically through such a clearing corporation.

 

6.          Charges, Taxes and Expenses. Issuance and delivery of certificates
for shares of Common Stock upon exercise of this Warrant shall be made without
charge to the Holder for any issue or transfer tax, transfer agent fee or other
incidental tax or expense in respect of the issuance of such certificates, all
of which taxes and expenses shall be paid by the Company; provided, however,
that the Company shall not be required to pay any tax which may be payable in
respect of any transfer involved in the registration of any certificates for
Warrant Shares or Warrants in a name other than that of the Holder or an
Affiliate thereof. The Holder shall be responsible for all other tax liability
that may arise as a result of holding or transferring this Warrant or receiving
Warrant Shares upon exercise hereof.

 

7.          Replacement of Warrant. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction (in such case)
and, in each case, a customary and reasonable indemnity (which shall not include
a surety bond), if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable third-party costs as the Company may
prescribe. If a New Warrant is requested as a result of a mutilation of this
Warrant, then the Holder shall deliver such mutilated Warrant to the Company as
a condition precedent to the Company’s obligation to issue the New Warrant.

 

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8.          Reservation of Warrant Shares. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued and otherwise unreserved Common Stock, solely for the purpose of
enabling it to issue Warrant Shares upon exercise of this Warrant as herein
provided, the number of Warrant Shares which are then issuable and deliverable
upon the exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons other than the Holder (taking into
account the adjustments and restrictions of Section 9). The Company covenants
that all Warrant Shares so issuable and deliverable shall, upon issuance and the
payment of the applicable Exercise Price in accordance with the terms hereof, be
duly and validly authorized, issued and fully paid and nonassessable. The
Company will take all such action as may be necessary to assure that such shares
of Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any securities exchange
or automated quotation system upon which the Common Shares may be listed.

 

9.          Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9.

 

(a)          Stock Dividends and Splits. If the Company, at any time while this
Warrant is outstanding, (i) pays a stock dividend on its Common Stock or
otherwise makes a distribution on any class of capital stock that is payable in
shares of Common Stock, (ii) subdivides its outstanding shares of Common Stock
into a larger number of shares, (iii) combines its outstanding shares of Common
Stock into a smaller number of shares, or (iv) otherwise conducts a corporate
action or transaction to change the number of outstanding shares of Common
Stock, including any reorganization, recapitalization, or other transaction
similar to (i) through (iii), then in each such case the Exercise Price shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock outstanding immediately before such event and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after such event. Any adjustment made pursuant to this paragraph shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution or the effective
date of such subdivision or combination, as applicable.

 

(b)          Fundamental Transactions. If, at any time while this Warrant is
outstanding (i) the Company effects any merger or consolidation of the Company
with or into another Person, in which the shareholders of the Company as of
immediately prior to the transaction own less than a majority of the outstanding
stock of the surviving entity, (ii) the Company effects any sale of all or
substantially all of its assets or a majority of its Common Stock is acquired by
a third party, in each case, in one or a series of related transactions, (iii)
any tender offer or exchange offer (whether by the Company or another Person) is
completed pursuant to which all or substantially all of the holders of Common
Stock are permitted to tender or exchange their shares for other securities,
cash or property and would result in the shareholders of the Company immediately
prior to such tender offer or exchange offer owning less than a majority of the
outstanding stock after such tender offer or exchange offer, or (iv) the Company
effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (other than as a result of a
subdivision or combination of shares of Common Stock covered by Section 9(a)
above) (in any such case, a “Fundamental Transaction”), then the Holder shall
have the right thereafter to receive, upon exercise of this Warrant, the same
amount and kind of securities, cash or property as it would have been entitled
to receive upon the occurrence of such Fundamental Transaction if it had been,
immediately prior to such Fundamental Transaction, the holder of the number of
Warrant Shares then issuable upon exercise in full of this Warrant without
regard to any limitations on exercise contained herein (the “Alternate
Consideration”). The Company shall not effect any such Fundamental Transaction
unless prior to or simultaneously with the consummation thereof, any successor
to the Company, surviving entity or the corporation purchasing or otherwise
acquiring such assets or other appropriate corporation or entity shall assume
the obligation to deliver to the Holder, such Alternate Consideration as, in
accordance with the foregoing provisions, the Holder may be entitled to purchase
and/or receive (as the case may be), and the other obligations under this
Warrant. The provisions of this paragraph (b) shall similarly apply to
subsequent transactions analogous to a Fundamental Transaction.

 

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(c)          Number of Warrant Shares. Simultaneously with any adjustment to the
Exercise Price pursuant to paragraph (a) of this Section, the number of Warrant
Shares that may be purchased upon exercise of this Warrant shall be increased or
decreased proportionately, so that after such adjustment the aggregate Exercise
Price payable hereunder for the increased or decreased number of Warrant Shares
shall be the same as the aggregate Exercise Price in effect immediately prior to
such adjustment.

 

(d)          Calculations. All calculations under this Section 9 shall be made
to the nearest cent or the nearest 1/100th of a share, as applicable. The number
of shares of Common Stock outstanding at any given time shall not include shares
owned or held by or for the account of the Company, and the sale or issuance of
any such shares shall be considered an issue or sale of Common Stock.

 

10.         Payment of Exercise Price. The Holder shall pay the Exercise Price
in immediately available funds; provided, however, that if, on any Exercise Date
a registration statement registering the issuance or resale of the Warrant
Shares under the Securities Act of 1933, as amended (the “Securities Act”) is
not effective, the Holder may, in its sole discretion, satisfy its obligation to
pay the Exercise Price through a “cashless exercise”, in which event the Company
shall issue to the Holder the number of Warrant Shares determined as follows:

 

X = Y [(A-B)/A]

 

where:

 

X = the number of Warrant Shares to be issued to the Holder.

 

Y = the total number of Warrant Shares with respect to which this Warrant is
being exercised.

 

A = the average of the Closing Sale Prices of the shares of Common Stock (as
reported by Bloomberg Financial Markets) for the five Trading Days ending on the
date immediately preceding the Exercise Date.

 

B = the Exercise Price then in effect for the applicable Warrant Shares at the
time of such exercise.

 

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For purposes of this Warrant, “Closing Sale Price” means, for any security as of
any date, the last trade price for such security on the principal securities
exchange or trading market for such security, as reported by Bloomberg Financial
Markets, or, if such exchange or trading market begins to operate on an extended
hours basis and does not designate the last trade price, then the last trade
price of such security prior to 4:00 p.m., New York Time, as reported by
Bloomberg Financial Markets, or if the foregoing do not apply, the last trade
price of such security in the over-the-counter market on the electronic bulletin
board for such security as reported by Bloomberg Financial Markets, or, if no
last trade price is reported for such security by Bloomberg Financial Markets,
the average of the bid prices, or the ask prices, respectively, of any market
makers for such security as reported in the "pink sheets" by Pink Sheets LLC. If
the Closing Sale Price cannot be calculated for a security on a particular date
on any of the foregoing bases, the Closing Sale Price of such security on such
date shall be the fair market value as mutually determined by the Company and
the Holder. If the Company and the Holder are unable to agree upon the fair
market value of such security, then the Company shall, within two business days
submit via facsimile (a) the disputed determination of the Warrant Exercise
Price to an independent, reputable investment bank selected by the Company and
approved by the Holder or (b) the disputed arithmetic calculation of the Warrant
Shares to the Company's independent, outside accountant. The Company shall cause
at its expense the investment bank or the accountant, as the case may be, to
perform the determinations or calculations and notify the Company and the Holder
of the results no later than ten business days from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error. All such determinations shall be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during the applicable calculation period.

 

For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have commenced, on
the date this Warrant was originally issued pursuant to the Purchase Agreement
(provided that the Commission continues to take the position that such treatment
is proper at the time of such exercise).

 

11.         Limitations on Exercise. Notwithstanding anything to the contrary
contained herein, the number of Warrant Shares that may be acquired by the
Holder upon any exercise of this Warrant (or otherwise in respect hereof) shall
be limited to the extent necessary to ensure that, following such exercise (or
other issuance), the total number of shares of Common Stock then beneficially
owned by such Holder and its Affiliates and any other Persons whose beneficial
ownership of Common Stock would be aggregated with the Holder’s for purposes of
Section 13(d) of the Exchange Act, does not exceed 9.99% of the total number of
issued and outstanding shares of Common Stock (including for such purpose the
shares of Common Stock issuable upon such exercise). For such purposes,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. Each delivery
of an Exercise Notice hereunder will constitute a representation by the Holder
that it has evaluated the limitation set forth in this Section and determined
that issuance of the full number of Warrant Shares requested in such Exercise
Notice is permitted under this Section. The Company’s obligation to issue shares
of Common Stock in excess of the limitation referred to in this Section shall be
suspended (and, except as provided below, shall not terminate or expire
notwithstanding any contrary provisions hereof) until such time, if any, as such
shares of Common Stock may be issued in compliance with such limitation;
provided, that, if, as of 4:30 p.m., prevailing New York time, on the Expiration
Date, the Company has not received written notice that the shares of Common
Stock may be issued in compliance with such limitation, the Company’s obligation
to issue such shares shall terminate. This provision shall not restrict the
number of shares of Common Stock which a Holder may receive or beneficially own
in order to determine the amount of securities or other consideration that such
Holder may receive in the event of a Fundamental Transaction as contemplated in
Section 9 of this Warrant.

 

12.         No Fractional Shares. No fractional Warrant Shares will be issued in
connection with any exercise of this Warrant. In lieu of any fractional shares
which would otherwise be issuable, subject to Section 11, the number of Warrant
Shares to be issued shall be rounded up to the next whole number.

 

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13.         Notices. Any and all notices or other communications or deliveries
hereunder (including, without limitation, any Exercise Notice) shall be in
writing and shall be mailed (registered or certified mail, return receipt
requested), or personally delivered and shall be deemed given when so delivered
or if mailed, two (2) days after such mailing, in each case to the address
specified in the Purchase Agreement.

 

14.         Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days’ notice to the Holder, the Company may appoint a
new warrant agent. Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last
address as shown on the Warrant Register.

 

15.         Miscellaneous.

 

(a)          The Holder, solely in such Person's capacity as a holder of this
Warrant, shall not be entitled to vote or receive dividends or be deemed the
holder of share capital of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the Holder, solely in such
Person's capacity as the Holder of this Warrant, any of the rights of a
stockholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, amalgamation, conveyance or otherwise), receive
notice of meetings, receive dividends or subscription rights, or otherwise,
prior to the issuance to the Holder of the Warrant Shares which such Person is
then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on the Holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this
Section 15(a), the Company shall provide the Holder with copies of the same
notices and other information given to the shareholders of the Company,
contemporaneously with the giving thereof to the shareholders.

 

(b)          Subject to the restrictions on transfer set forth on the first page
hereof, and compliance with applicable securities laws, this Warrant may be
assigned by the Holder. This Warrant may not be assigned by the Company except
to a successor in the event of a Fundamental Transaction. This Warrant shall be
binding on and inure to the benefit of the parties hereto and their respective
successors and assigns. Subject to the preceding sentence, nothing in this
Warrant shall be construed to give to any Person other than the Company and the
Holder any legal or equitable right, remedy or cause of action under this
Warrant. This Warrant may be amended only in writing signed by the Company and
the Holder, or their successors and assigns.

 

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(c)          GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. ALL QUESTIONS
CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS
WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF
LAW THEREOF. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION
OF THE STATE AND FEDERAL COURTS SITTING IN THE STATE OF NEW YORK, FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY
TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO
THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY
WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING, ANY CLAIM
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT
SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY
WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY
SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR
CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY
AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT
SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE
THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY HEREBY WAIVES ALL
RIGHTS TO A TRIAL BY JURY. 

 

(d)          The headings herein are for convenience only, do not constitute a
part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.

 

(e)          In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby, and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.

 

(f)          Except as otherwise set forth herein, prior to exercise of this
Warrant, the Holder hereof shall not, by reason of by being a Holder, be
entitled to any rights of a stockholder with respect to the Warrant Shares.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by
its authorized officer as of the date first indicated above.

 

  NET ELEMENT, INC         By:     Name:     Title:  

 

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SCHEDULE 1

 

FORM OF EXERCISE NOTICE

 

(To be executed by the Holder to exercise the right to purchase shares

of Common Stock under the foregoing Warrant)

 

To:         Net Element, Inc.

 

(1)         The undersigned is the Holder of Warrant No. __________ (the
“Warrant”) issued by Net Element, Inc. a Delaware corporation (the “Company”).
Capitalized terms used herein and not otherwise defined herein have the
respective meanings set forth in the Warrant.

 

(2)         The undersigned hereby exercises its right to purchase __________
Warrant Shares pursuant to the Warrant.

  

(3)         The Holder intends that payment of the Exercise Price shall be made
as (check one):

 

¨       Cash Exercise

 

¨       “Cashless Exercise” under Section 10

 

(4)         If the Holder has elected a Cash Exercise, the Holder shall pay the
sum of $_______ in immediately available funds to the Company in accordance with
the terms of the Warrant.

 

(5)         Pursuant to this Exercise Notice, the Company shall deliver to the
Holder _____________ Warrant Shares in accordance with the terms of the Warrant.

 

(6)         By its delivery of this Exercise Notice, the undersigned represents
and warrants to the Company that in giving effect to the exercise evidenced
hereby, the Holder will not beneficially own in excess of the number of shares
of Common Stock (as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934) permitted to be owned under Section 11 of the
Warrant to which this notice relates.

 

Dated:_______________, _____

 

Name of Holder:    

 

By:     Name:     Title:     (Signature must conform in all respects to name of
Holder as specified on the face of the Warrant)  

 

 

 

 

SCHEDULE 2

 

NET ELEMENT, INC.

 

FORM OF ASSIGNMENT

 

[To be completed and signed only upon transfer of Warrant]

 

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
                             (the “Transferee” the right represented by the
within Warrant to purchase                  shares of Common Stock of Net
Element, Inc. (the “Company”) to which the within Warrant relates and appoints
                             attorney to transfer said right on the books of the
Company with full power of substitution in the premises. In connection
therewith, the undersigned represents, warrants, covenants and agrees to and
with the Company that:

 

(a)the offer and sale of the Warrant contemplated hereby is being made in
compliance with Section 4(1) of the United States Securities Act of 1933, as
amended (the “Securities Act”) or another valid exemption from the registration
requirements of Section 5 of the Securities Act and in compliance with all
applicable securities laws of the states of the United States;

 

(b)the undersigned has not offered to sell the Warrant by any form of general
solicitation or general advertising, including, but not limited to, any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, and
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising;

 

(c)the undersigned has read the Transferee’s investment letter included
herewith, and to its actual knowledge, the statements made therein are true and
correct; and

 

(d)the undersigned understands that the Company may condition the transfer of
the Warrant contemplated hereby upon the delivery to the Company by the
undersigned or the Transferee, as the case may be, of a written opinion of
counsel (which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that such transfer
may be made without registration under the Securities Act and under applicable
securities laws of the states of the United States.

 

Dated:             ,                    (Signature must conform in all respects
to name of holder as specified on the face of the Warrant)                
Address of Transferee                        

 

In the presence of:          

 

 

 

 

EXHIBIT B

FORM OF REGISTRATION RIGHTS AGREEMENT

[attached hereto]

 

 

 

 

EXHIBIT C

 

FORM OF COMPANY RESOLUTIONS

FOR SIGNING PURCHASE AGREEMENT

AND APPROVING REGISTRATION STATEMENT

 

WHEREAS, management has reviewed with the Board of Directors the background,
terms and conditions of the transactions subject to the Securities Purchase
Agreement (the “Purchase Agreement”) by and between the Company and Esousa
Holdings LLC (“Esousa”), including all materials terms and conditions of the
transactions subject thereto, providing for the purchase by Esousa of Seven
Million Five Hundred Fifty Thousand Eight Hundred Eighty-Five Dollars
($7,550,585) of the Company’s units (the “Units”), with each unit consisting of
a share of common stock, par value $0.0001 per share (the “Common Stock” and
shares of such Common stock to be purchased by Esousa, the “Purchase Shares”),
and a warrant to purchase three-fifths (3/5) of a share of Common Stock (the
“Warrants”); and

 

WHEREAS, after careful consideration of the Purchase Agreement, the documents
incident thereto and other factors deemed relevant by the Board of Directors,
the Board of Directors has determined that it is advisable and in the best
interests of the Company to engage in the transactions contemplated by the
Purchase Agreement.

 

WHEREAS, in connection with the transactions contemplated pursuant to the
Purchase Agreement, the Company has agreed to file a registration statement with
the Securities and Exchange Commission (the “Commission”) registering the
Purchase Shares and to list the Purchase Shares on the Nasdaq Capital Market;
WHEREAS, the management of the Company is preparing an initial draft of a
Registration Statement on Form S-3 or Form S-1 (the “Registration Statement”) in
order to register the sale of the Purchase Shares and shares of Common Stock
issuable upon the exchange of the Warrants (the “Warrant Shares” collectively
with the Purchase Shares and the Warrants, the “Securities”) by Esousa; and

 

WHEREAS, the Board of Directors has determined to approve the Registration
Statement and to authorize the appropriate officers of the Company to take all
such actions as they may deem appropriate to effect the offering.

 

Transaction Documents

 

NOW, THEREFORE, BE IT RESOLVED, that the transactions described in the Purchase
Agreement are hereby approved and the Chief Executive Officer, Chief Legal
Officer and Chief Financial Officer (the “Authorized Officers”) are severally
authorized to execute and deliver the Purchase Agreement, and any other
agreements or documents contemplated thereby including, without limitation, a
registration rights agreement (the “Registration Rights Agreement”) providing
for the registration of the shares of the Company’s Common Stock issuable in
respect of the Purchase Agreement on behalf of Esousa, with such amendments,
changes, additions and deletions as the Authorized Officers may deem to be
appropriate and approve on behalf of, the Company, such approval to be
conclusively evidenced by the signature of an Authorized Officer thereon; and

 

FURTHER RESOLVED, that the terms and provisions of the Registration Rights
Agreement by and among the Company and Esousa are hereby approved and the
Authorized Officers are authorized to execute and deliver the Registration
Rights Agreement (pursuant to the terms of the Purchase Agreement), with such
amendments, changes, additions and deletions as the Authorized Officer may deem
appropriate and approve on behalf of, the Company, such approval to be
conclusively evidenced by the signature of an Authorized Officer thereon; and

 

 

 

 

FURTHER RESOLVED, that the Authorized Officers are authorized to execute and
deliver the transfer agent instructions pursuant to the terms of the Purchase
Agreement, with such amendments, changes, additions and deletions as the
Authorized Officers may deem appropriate and approve on behalf of, the Company,
such approval to be conclusively evidenced by the signature of an Authorized
Officer thereon; and

 

Execution of Purchase Agreement

 

FURTHER RESOLVED, that the Company be and it hereby is authorized to execute the
Purchase Agreement providing for the purchase of the Units having an aggregate
value of up to $7,500,000 plus $0.125 per each Warrant; and

 

Issuance of Common Stock and Warrants

 

FURTHER RESOLVED, that the Company is hereby authorized to issue shares of
Common Stock upon the purchase of Purchase Shares and exchange of Warrants up to
the available amount under the Purchase Agreement in accordance with the terms
of the Purchase Agreement and that, upon issuance of the Purchase Shares or
Warrant Shares pursuant to the Purchase Agreement, such Purchase Shares or
Warrant Shares, as applicable, will be duly authorized, validly issued, fully
paid and non-assessable; and

 

FURTHER RESOLVED, that the Corporation shall initially reserve 1,500,000 shares
of Common Stock for issuance as Warrant Shares under the Purchase Agreement; and

 

Listing of Shares on the Nasdaq Capital Market

 

FURTHER RESOLVED, that the officers of the Company be, and each of them hereby
is, authorized and directed to take all necessary steps and do all other things
necessary and appropriate to effect the listing of the Purchase Shares and the
Warrant Shares on the Nasdaq Capital Market; and

 

Approval of Registration Statement

 

RESOLVED, that the officers and directors of the Company be, and each of them
hereby is, authorized and directed to prepare, execute and file with the
Commission the Registration Statement, which Registration Statement shall be
filed substantially in the form presented to the Board of Directors, with such
changes therein as the Chief Executive Officer, Chief Legal Officer or Chief
Financial Officer of the Company shall deem desirable and in the best interest
of the Company and its stockholders (such officer’s execution thereof including
such changes shall be deemed to evidence conclusively such determination); and

 

FURTHER RESOLVED, that the officers of the Company be, and each of them hereby
is, authorized and directed to prepare, execute and file with the Commission all
amendments, including post-effective amendments, and supplements to the
Registration Statement, and all certificates, exhibits, schedules, documents and
other instruments relating to the Registration Statement, as such officers shall
deem necessary or appropriate (such officer’s execution and filing thereof shall
be deemed to evidence conclusively such determination); and

 

FURTHER RESOLVED, that the execution of the Registration Statement and of any
amendments and supplements thereto by the officers of the Company be, and the
same hereby is, specifically authorized either personally or by the Authorized
Officers as such officer’s true and lawful attorneys-in-fact and agents; and

 

 

 

 

FURTHER RESOLVED, that the officers of the Company be, and each of them hereby
is, authorized and directed to cause the Company to pay all fees, costs and
expenses that may be incurred by the Company in connection with the Registration
Statement; and

 

FURTHER RESOLVED, that it is desirable and in the best interest of the Company
that the Securities be qualified or registered for sale in various states; that
the officers of the Company be, and each of them hereby is, authorized to
determine the states in which appropriate action shall be taken to qualify or
register for sale all or such part of the Securities as they may deem advisable;
that said officers be, and each of them hereby is, authorized to perform on
behalf of the Company any and all such acts as they may deem necessary or
advisable in order to comply with the applicable laws of any such states, and in
connection therewith to execute and file all requisite papers and documents,
including, but not limited to, applications, reports, surety bonds, irrevocable
consents, appointments of attorneys for service of process and resolutions; and
the execution by such officers of any such paper or document or the doing by
them of any act in connection with the foregoing matters shall conclusively
establish their authority therefor from the Company and the approval and
ratification by the Company of the papers and documents so executed and the
actions so taken; and

 

FURTHER RESOLVED, that if, in any state where the securities to be registered or
qualified for sale to the public, or where the Company is to be registered in
connection with the public offering of the Securities, a prescribed form of
resolution or resolutions is required to be adopted by the Board of Directors,
each such resolution shall be deemed to have been and hereby is adopted, and the
Secretary is hereby authorized to certify the adoption of all such resolutions
as though such resolutions were now presented to and adopted by the Board of
Directors; and

 

Approval of Actions

 

FURTHER RESOLVED, that, without limiting the foregoing, the Authorized Officers
are, and each of them hereby is, authorized and directed to proceed on behalf of
the Company and to take all such steps as deemed necessary or appropriate to
cause the Company to consummate the agreements referred to herein and to perform
its obligations under such agreements;

 

FURTHER RESOLVED, that the Authorized Officers be, and each of them hereby is,
authorized, empowered and directed on behalf of and in the name of the Company,
to take or cause to be taken all such further actions and to execute and deliver
or cause to be executed and delivered all such further agreements, amendments,
documents, certificates, reports, schedules, applications, notices, letters and
undertakings and to incur and pay all such fees and expenses as in their
judgment shall be necessary, proper or desirable to carry into effect the
purpose and intent of any and all of the foregoing resolutions, and that all
actions heretofore taken by any officer or director of the Company in connection
with the transactions contemplated by the agreements described herein are hereby
approved, ratified and confirmed in all respects; and

 

FURTHER RESOLVED, that any and all actions heretofore or hereinafter taken on
behalf of the Company by any of said persons or entities within the terms of the
foregoing resolutions are hereby approved, ratified and confirmed in all
respects as the acts and deeds of the Company.