SUBSCRIPTION
AGREEMENT


 


BETWEEN


 


NET
ELEMENT, INC.


 


AND


 


IGOR
YAKOVLEVICH KRUTOY


 


June
6, 2012


 



    	 



    	 



    

 


SUBSCRIPTION AGREEMENT


 


THIS SUBSCRIPTION AGREEMENT
(the “Agreement”) is made and entered into as of this 6thday of June, 2012 (the “Effective
Date”), by and between NET ELEMENT, INC., a corporation organized and existing under the laws of the State of Delaware
with its principal place of business at 1450 South Miami Avenue, Miami, FL 33130 (the “Company”),
and IGOR YAKOVLEVICH KRUTOY, (passport of the Russian citizen No 45 04 783332 issued on the 04th
of December 2002 by Otdel Vnutrennyh Del “Gagarinskiy”, subdivision code 772-068, registered at Russia, Moscow, Kosygina
street, 10, apt 9) an individual residing in the Russian Federation (the “Investor” each, a “Party”
and together, the “Parties”).


 


Recitals


 


A.           The
Company desires to issue, and the Investor desires to acquire 13,333,333 shares of the Common Stock of the Company (the “Shares”)
that compounds 1.8% of all the issued shares of the Company at a purchase price of $0.15 per share as consideration for the Investor’s
investment of $2,000,000 (Two million US dollars) in the Company (the “Investment”).


 


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


 


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


 


Agreement


 


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


 


1.           Authorization
and Subscription for Shares.


 


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


 


1.2           Issuance
of Shares; Consideration. Subject to the terms and conditions of this Agreement, upon the execution of this Agreement and receipt
of a wire transfer in the amount of $2,000,000 (Two million) US Dollars further in the text referred to as the “Purchase
Price”) and other good and valuable consideration to the Company by Investor, the Company will transfer and issue to
the Investor and the Investor shall acquire the Shares.


 


1.3           Payment
of Purchase Price. The Investor shall pay the Purchase Price to the Company by wire transfer of immediately available funds
to the following account:


 



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	 	Account Title:	Net Element, Inc.
	 	Account Number: 	9118581115
	 	Bank Address:	Citibank, N.A.	 
	 	 	Aventura Financial Center #37
	 	 	2750 Aventura Blvd.
	 	 	Aventura, FL 33180
	 	Bank ABA:	266086554
	 	Swift Code:	CITIUS 33     For International wires


 


1.4           Use
of Proceeds. The Company shall use the proceeds received from the issuance of the Shares, if exercised, as operating funds
for the Company’s business.


 


2.            The Closing.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 



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


 


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


 


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


 


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


 


The Shares.
The Shares will be legally issued, fully paid, and non-assessable and Investor will receive good and marketable title to the Shares
free and clear of all Encumbrances, except as prohibited by the securities’ laws of the United States.


 


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


 


Books and Records.
The minute books of the Company, as made available to the Investor and its representatives on April 6, 2012, contain in all material
respects accurate records of all meetings of and all corporate actions or written consents by the Board of Directors of the Company
as of such date.


 



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


 


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


 


The
Company has no any outstanding indebtedness, except as disclosed in Schedule II that is an integral part of this Agreement.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 



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


 


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


 


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


 


6.           Amendment
and Modification. No amendment or modification of this agreement shall be effective unless made in writing and signed by or
on behalf of the Parties.


 


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


 


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


 


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


 


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


 


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


 


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


 



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


 



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Schedule I


Definitions


 


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


 


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


 


“Company” means
the Company and its Subsidiaries.


 


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


 


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


 


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


 


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


 


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


 


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


 



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


 


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


 


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


 


“SEC” means the
Securities and Exchange Commission.


 


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


 



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Schedule II


Outstanding liabilities


 


The Company hereby acknowledges and confirms
that as per the date of execution of the Subscription agreement the Company has the following outstanding liabilities, all officially
reported to the Securities and Exchange Commission (www.sec.gov):


 


Notes Receivable





		1.	On April 4, 2012, the Company (Lender) entered into a $75,000 principal amount Promissory Note
and Loan Agreement with NET ELEMENT RUSSIA LLC (Borrower), maturing on the third anniversary of the Funding Date, i.e. the date
on which the whole Loan amount had been fully transferred to the Borrower. The interest rate is 5 % per annum. The Loan amount
and any interest accrued may be pre-paid at any time without penalty.



 


Notes Payable





		1.	On December 14, 2010, the Company assumed a $1,667,020 loan to Openfilm from Enerfund, LLC when
the Company purchased Openfilm on that date. The loan agreement is dated December 10, 2010 and matures two years from that date.
The annual interest rate is 5% payable annually on December 31.



 


		2.	On May 16, 2011, the Company entered into a three-year, unsecured convertible promissory note and
loan agreement with Enerfund, LLC in the principal amount of $2,000,000, which is the balance outstanding at March 31, 2012. The
annual interest rate is 5.0% and principal and interest is due on or before April 27, 2014.  The loan may be pre-paid at any
time without penalty.  Outstanding principal may be converted by Enerfund at any time into shares of common stock of the Company
at a conversion price of $0.11per share.



 


		3.	On October 24, 2011, the Company entered into a three-year, unsecured convertible promissory note
and loan agreement with Enerfund, LLC in the principal amount of $1,600,000, which is the outstanding balance. The annual interest
rate under the note is 5% and principal and interest is due on or before October 24, 2014.  The note may be pre-paid at any
time without penalty.  Outstanding principal under the note may be converted by Enerfund, LLC at any time into shares of common
stock of the Company at a conversion price of $0.11 per share.  Upon conversion of the note, the Company is required to issue
to Enerfund, LLC a five-year warrant to purchase a number of shares of common stock of the Company equal to the number of shares
issued upon such conversion with an exercise price of $0.11per share.



 



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		4.	On December 31, 2011, Enerfund had made advances to the Company for $100,785, which were recorded
as due to related parties (current portion). Subsequent to December, Enerfund advanced additional monies to the Company. The Company
repaid all advances to Enerfund ($905,317) on March 6, 2012 that were made between December 31, 2011 and March 6, 2012.



 


		5.	On May 14, 2012, the Company entered into a $500,000 principal amount Promissory Note and Loan
Agreement with Enerfund maturing November 1, 2012. The interest rate is 5% per annum.



 



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IN WITNESS WHEREOF,
the undersigned has executed this Agreement together with Schedule I and Schedule II as of the Effective Date.


 


	NET ELEMENT, INC.	 
	 	 
	By:	/s/ Mike Zoi	 
	Name:  Mike Zoi	 
	Title:  Chief Executive Officer	 
	 	 	 
	INVESTOR	 
	 	 	 
	/s/ Igor Krutoy	 
	Name:  Igor Krutoy	 


 



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