8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

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

Date of Report (Date of earliest event reported): June 6, 2012

Net Element, Inc.

(Exact name of registrant as specified in its charter)

Delaware	000-51108	20-0715816
(State or other jurisdiction of incorporation)	(Commission (File Number)	(I.R.S. Employer Identification No.)

1450 S. Miami Avenue, Miami, FL	33130
(Address of principal executive offices)	(Zip Code)

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

Not Applicable

Former name or former address, if changed since last report

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

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

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

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

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

Item 1.01 Entry into a Material Definitive Agreement.

Krutoy Subscription Agreement

As contemplated by the Joint Venture Agreement entered into on April 6, 2012 between Net Element, Inc. (the “Company”) and Igor Yakovlevich Krutoy, on June 6, 2012, the Company entered into a Subscription Agreement with Mr. Krutoy, pursuant to which Mr. Krutoy purchased 13,333,333 shares of common stock of the Company for an aggregate purchase price of $2 million, or approximately $0.15 per share.

Lappenbusch Employment Agreement

On June 6, 2012, the Company entered into a letter agreement (the “Agreement”) with its President and Chief Operating Officer, Richard Lappenbusch, which amends and restates that certain Offer Letter dated February 13, 2011 entered into between the Company and Mr. Lappenbusch. Pursuant to the Agreement, Mr. Lappenbusch’s position with the Company changed to Executive Vice President and Chief Strategy Officer. Mr. Lappenbusch’s annual base salary under the Agreement is $200,000, with a guaranteed bonus of $50,000 contingent upon him not voluntarily resigning (other than due to an involuntary termination as set forth in the Agreement), and he is eligible for a performance-based bonus at the sole discretion of the Company’s board of directors. Mr. Lappenbusch agreed to cancel all incentive stock options previously awarded to him by the Company, as well as all unvested shares of restricted stock previously awarded to him in excess of 2,067,166 shares, in each case effective immediately. Mr. Lappenbusch’s remaining 2,067,166 unvested shares of restricted stock will vest in full upon the termination of the Agreement on December 28, 2012 or his dismissal with or without cause, whichever happens first. The employment term under the Agreement expires December 28, 2012, after which Mr. Lappenbusch’s employment will be at will. If Mr. Lappenbusch is terminated prior to December 28, 2012 without cause or due to death or disability or due to an involuntary termination, then he will be entitled to his remaining base salary through December 28, 2012, his guaranteed bonus and his remaining 2,067,166 unvested shares of restricted stock will vest immediately upon termination.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

The disclosures contained under Item 1.01 under the heading “Lappenbusch Employment Agreement” are incorporated herein by this reference.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.	Description
10.1	Subscription Agreement dated June 6, 2012 between Net Element, Inc. and Igor Yakovlevich Krutoy
10.2	Letter Agreement dated June 6, 2012 between Net Element, Inc. and Richard Lappenbusch, amending and restating the Offer Letter dated February 13, 2011 between Net Element, Inc. and Richard Lappenbusch

SIGNATURES

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

	NET ELEMENT, INC.
Date: June 11, 2012	By:	/s/ Jonathan New
		Name: Jonathan New Title: Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
10.1	Subscription Agreement dated June 6, 2012 between Net Element, Inc. and Igor Yakovlevich Krutoy
10.2	Letter Agreement dated June 6, 2012 between Net Element, Inc. and Richard Lappenbusch, amending and restating the Offer Letter dated February 13, 2011 between Net Element, Inc. and Richard Lappenbusch

EX-10.1

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 6^thday 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 04^th 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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EX-10.2

June 6, 2012

Mr. Richard Lappenbusch

1463 E. Republican Street #184

Seattle, WA 98112

Subject:       Employment Agreement

Dear Richard:

This letter agreement amends and restates that certain offer letter (the “Initial Employment Letter”) entered into between you and Net Element, Inc. (the “Company”) on February 8, 2011 and terminates that offer. You began your employment with the Company on February 15, 2011 (your “Start Date”). Your continued employment by the Company shall be governed by the following terms and conditions (this “Agreement”). If a Change of Control transaction is not “closed” on November 1, 2012, your employment with the Company will be “at will” at that point, and the Company or you may elect to terminate your employment with 30 days notice with no further obligations.

1. Duties and Scope of Employment. For the term of your employment (your “Employment”), the Company agrees to employ you in the position of Executive Vice President and Chief Strategy Officer (“EVP & CSO”). You will report to the CEO of the Company and/or to a Senior Executive identified by the CEO. The Company will allow for you to work mostly from your own facilities in Seattle, Washington. As a result of working away from corporate headquarters, your role will require travel and telecommuting outside normal business hours. As part of the duties and responsibilities that you will be performing as the EVP & CSO of the Company you will work closely with key portfolio properties and projects of the company in developing strategies, path to profitability and identifying growth opportunities.

2. Cash and Incentive Compensation.

(a) Salary. The Company shall pay you as compensation for your services a base salary at a gross annual rate of $200,000. Such salary shall be payable bi-monthly in arrears and subject to deductions for taxes and other withholdings as required by law.

(b) Regular Bonuses. You are eligible to receive a guaranteed bonus of $50,000, contingent only upon you not have voluntarily resigned your Employment (other than for Involuntary Termination) before December 28, 2012. In addition, you will be eligible for a performance-based bonus at the sole discretion of the Company’s board of directors.

Mr. Richard Lappenbusch

June 6, 2012

Page 2 of 8

(c) Restricted Stock, Incentive Stock Options, and Other Equity Awards.  Currently you own 1,332,834 unrestricted shares in the Company. In addition, the Company has granted you certain restricted stock awards and incentive stock options, pursuant to the second paragraph of your Initial Employment Letter. Effective immediately all incentive stock options will be cancelled and no longer available to you and all unvested restricted shares that exceed 2,067,166 will be cancelled and no longer available to you. Thereafter unvested restricted shares shall vest in full upon the termination of this contract on December 28, 2012 or your dismissal with or without cause, which ever happens first.

3. Vacation/PTO, Employee Benefits and other Incentive Compensation. 

(a) Vacation and PTO.  During your Employment you shall be eligible to accrue paid vacation/paid time off at 6.67 hours per pay period, which is equivalent to four weeks on an annual basis. Personal emergency days are generally accrued per company policy. At least five (5) paid working days per year are reserved but not required to complete professional training to maintain professional accreditations. Current vacation balance is retained with no expiration date.

(b) Employee Benefits. You will have access to the standard Company sponsored benefits plan as made available to other officers and executive plans.

4. Business Expenses. The Company will reimburse you for travel and for your necessary and pre-approved business expenses incurred in connection with your duties hereunder, in accordance with the Company’s generally applicable policies. Without limiting the generality of the foregoing, it is expressly acknowledged and agreed that, given that you are based in Seattle, Washington, reasonable business expenses shall include, but not be limited to, computing and access costs and fees for all phone, PC, webcam, microphone, fax, scanner, tablet, printer and various forms of internet access to effectively and generally perform the duties as EVP & CSO. In addition, dues, travel, conference fees and other reasonable costs and expenses to attend or complete professional training to maintain professional accreditations shall also be reimbursed by the Company with prior approval.

5. Employment Term; Continued Employment “At Will”. You and the Company agree that you will remain employed with the Company through December 28, 2012. Thereafter, your Employment shall be “at will,” meaning that either you or the Company shall be entitled to terminate your Employment at any time and for any reason, with or without Cause (as defined below).

6. Severance. If you are terminated by the Company involuntarily without Cause or any termination due to death or Disability or if you experience Involuntary Termination, then you shall be entitled to receive: your equivalent base salary through December 28, 2012, the guaranteed bonus and the unvested restricted shares which shall vest immediately upon termination.

7. Certain Defined Terms.

(a) Definition of “Cause”. For all purposes under this Agreement, “Cause” shall mean: (i) you engaging in knowing and intentional illegal conduct that was or is materially injurious to the Company or its affiliates; (ii) you violating a federal or state law or regulation applicable to the Company’s business which violation was or is reasonably likely to be injurious to the Company; (iii) you materially breaching the terms of any confidentiality agreement or invention assignment agreement between you and the Company; or (iv) you being convicted of, or entering a plea of nolo contendere to, a felony or committing any act of moral turpitude, dishonesty or fraud against, or the misappropriation of material property belonging to, the Company or its affiliates.

Mr. Richard Lappenbusch

June 6, 2012

Page 3 of 8

The cessation of your Employment shall not be deemed to be for Cause unless and until you are sent a written notice of the ground for the termination for “Cause” by the Company finding that, in the good faith opinion of the Company, you are guilty of the conduct described above, and specifying the particulars thereof in detail. If the Company does not deliver to you a notice of termination within ninety (90) days after the later of the date the Company has knowledge that an event constituting Cause has occurred and, where applicable, the date the Company has knowledge of the materiality of the injury to the Company, the event will no longer constitute Cause. You will have fifteen (15) days to cure from the date the notice is received by you.

(b) Definition of “Involuntary Termination”.  For purposes of this Agreement, “Involuntary Termination” shall mean the termination of your Employment with the Company by reason of: (i) your involuntary dismissal or discharge by the Company, or by any acquiring or successor entity (or parent or any subsidiary thereof employing you) for reasons other than Cause, or (ii) your voluntary resignation after the occurrence of one of the following conditions without your prior written consent: (A) a material diminution in your base salary; (B) a material change in geographic location at which you must perform services (a change in location of your office will be considered material only if it increases your current one-way commute by more than fifty (50) miles); (C) any material failure of the successors to the Company after a Change of Control to perform or cause the Company to perform the obligations of the Company under this Agreement; (D) any action or inaction of the Company that constitutes a material breach of the terms of this Agreement; or (E) any other material adverse change in your duties, authorities or responsibilities as specified or cross-referenced in Section l(a), above, in each case, only if you provide notice to the Company of the existence of the applicable condition within 90 days of the initial existence of the condition, the Company fails to remedy the condition within 30 days thereafter, and within the 30 day period immediately following such failure to remedy, you elect to terminate your Employment. The parties intend that this trigger qualify as an involuntary separation from service trigger under Treasury Regulation Section 1.409A-l(n)(2).

(c) Definition of “Disability”.  For all purposes under this Agreement, “Disability” shall mean your inability to perform the essential functions of your position with or without reasonable accommodation for a period of 30 consecutive days because of your physical or mental impairment.

(d) Definition of “Change of Control”.  For all purposes under this Agreement, “Change of Control” shall mean (i) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any merger, consolidation or other form of reorganization in which outstanding shares of the Company are exchanged for securities or other consideration issued, or caused to be issued, by the acquiring entity or its subsidiary) (each a “Merger Transaction”), unless the Company’s stockholders of record as constituted immediately prior to such Merger Transaction will, immediately after such Merger Transaction, hold at least a majority of the voting power of the surviving or acquiring entity (50.1%) in the same proportions, (ii) a sale of all or substantially all of the assets of the Company or the exclusive license of all or substantially all of the Company’s intellectual property by means of any transaction or series of related transactions, or (iii) a liquidation, dissolution or winding up of the Company.

Mr. Richard Lappenbusch

June 6, 2012

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8. Successors.

(a) Company’s Successors.  This Agreement shall be binding upon any successor (whether direct or indirect and whether by purchase, lease, merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets. Any such successor will within a reasonable period of becoming the successor assume in writing and be bound by all of the Company’s obligations under this Agreement. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business or assets that become bound by this Agreement.

(b) Your Successors.  This Agreement and all of your rights hereunder shall inure to the benefit of, and be enforceable by, your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

9. Miscellaneous Provisions.

(a) Indemnification.  The Company agrees that if you are made a party or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action brought against you by the Company) by reason of the fact that you are or were an employee of the Company or are or were serving at the request of the Company, as a director, officer, member, employee or agent of another corporation or a partnership, joint venture, trust or other enterprise, you shall be indemnified by the Company to the fullest extent permitted by applicable law and the Company’s certificate of incorporation and by-laws, as the same exists or may hereafter be amended, against all reasonably and actually incurred legal expenses and related costs incurred or suffered by you in connection therewith provided that you cooperate with the Company in connection with such actual or threatened action, suit, proceeding or investigation, and such indemnification shall continue even if you have ceased to be an officer or are no longer employed by the Company and shall inure to the benefit of your heirs, executors and administrators. The Company shall provide you with directors’ and officers’ liability insurance at least as favorable as the insurance coverage provided to other senior executive officers and directors of the Company respecting liabilities, and reasonable legal fees and costs, charges and expenses incurred or sustained by you (or your legal representative or other successors) in connection with any such proceeding. Unless otherwise provided in an indemnification agreement with the Company, no indemnity shall be paid by the Company (i) if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; (ii) if it is finally determined that, in connection with the above action, suit or proceeding, that your conduct was finally adjudged to have been knowingly fraudulent, deliberately dishonest or willful; or (iii) if a final decision by a Court having jurisdiction in the matter shall determine that such indemnification is not lawful. Unless otherwise provided in an indemnification agreement with the Company, you agree to reimburse the Company for all reasonable expenses paid by the Company in defending any civil or criminal action suit or proceeding against you in the event and only to the extent that it shall be ultimately determined that you are not entitled to be indemnified by the Company for such expenses under the provisions of applicable law, the Company’s bylaws, this Agreement or otherwise.

Mr. Richard Lappenbusch

June 6, 2012

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(b) Parachute Payments.  If any payment or benefit you would receive pursuant to a Change of Control from the Company or otherwise (“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be reduced to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in your receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount and none of the parachute payments are non-qualified deferred compensation subject to Section 409A of the Code, then the reduction shall occur in the manner you elect in writing prior to the date of payment. If any parachute payment constitutes non-qualified deferred compensation subject to Section 409A or you fail to elect an order, then the reduction shall occur in the following order: first a pro rata reduction of (i) cash payments subject to Section 409A of the Code as non-qualified deferred compensation and (ii) cash payments not subject to Section 409A of the Code, and second a pro rata cancellation of accelerated vesting of (i) equity-based compensation subject to Section 409A of the Code as non-qualified deferred compensation and (ii) equity-based compensation not subject to Section 409A of the Code with, in each case, the cancellation of accelerated vesting being applied first to vesting that is not subject to Treasury Regulation section 1.280G-1 Q/A 24(c) and subsequently to vesting that is subject to such section. Reduction in either cash payments or equity compensation benefits shall be made pro rata between and among benefits which are subject to Section 409A of the Code and benefits which are exempt from Section 409A of the Code. The accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Change of Control shall perform the foregoing calculations. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder. Any good faith determination of the accounting firm made hereunder shall be final, binding and conclusive upon the Company and you.

(c) Notice.  Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid or electronic mail to the email address listed below. In your case, mailed notices shall be addressed to you at the home address that you most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary. Notice delivered to the following shall constitute proper notice pursuant to this section:

Mr. Richard Lappenbusch

June 6, 2012

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If to the Company, to:

Net Element, Inc.

1450 South Miami Avenue

Miami, FL 33130

Attn: Mike Zoi, CEO

Email: mzoi@netelement.com

With a copy to:

Bilzin Sumberg Baena Price & Axelrod, LLP

1450 Brickell Avenue, Suite 2300

Miami, FL 33130

Attn: Serge Pavluk

Email: spavluk@bilzin.com

If to You, to:

Richard Lappenbusch

1463 E. Republican Street #184

Seattle, WA 98112

Email: Richlappenbusch@gmail.com

(d) Modifications and Waivers.  No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by you and by an authorized officer of the Company (other than you). No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

(e) Whole Agreement.  No other agreements, representations or understandings (whether oral or written and whether express or implied) which are not expressly set forth in this Agreement have been made or entered into by either party with respect to the subject matter hereof. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof.

(f) Choice of Law and Severability.  This Agreement shall be interpreted in accordance with the laws of the State of Florida without giving effect to provisions governing the choice of law. If any provision of this Agreement becomes or is deemed invalid, illegal or unenforceable in any applicable jurisdiction by reason of the scope, extent or duration of its coverage, then such provision shall be deemed amended to the minimum extent necessary to conform to applicable law so as to be valid and enforceable or, if such provision cannot be so amended without materially altering the intention of the parties, then such provision shall be stricken and the remainder of this Agreement shall continue in full force and effect. If any provision of this Agreement is rendered illegal by any present or future statute, law, ordinance or regulation (collectively, the “Law”) then that provision shall be curtailed or limited only to the minimum extent necessary to bring the provision into compliance with the Law. All the other terms and provisions of this Agreement shall continue in full force and effect without impairment or limitation.

Mr. Richard Lappenbusch

June 6, 2012

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(g)  Authority.  The Company represents and warrants that (i) the execution of this Agreement has been duly authorized by the Company, including action of the Board, (ii) the execution, delivery and performance of this Agreement by the Company does not and will not violate any law, regulation, order, judgment or decree or any agreement, plan or corporate governance document of the Company and (iii) upon the execution and delivery of this Agreement, this Agreement shall be the valid and binding obligation of the Company, enforceable in accordance with its terms, except to the extent enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law).

(h) Arbitration. The Parties hereby submit to the exclusive jurisdiction of the American Arbitration Association (AAA). Any and all disputes and controversies arising under, relating to or in connection with this Note shall be settled exclusively by arbitration by a panel of one (1) arbitrator under the Commercial Rules of the AAA and the appointing authority shall be the AAA. The English language shall be used as the written and spoken language for the arbitration and all matters connected with all references to arbitration. Each Party hereby irrevocably waives any right it may have to object to an action being brought in the AAA, to claim that the claim has been brought in an inconvenient forum or to claim that the AAA does not have exclusive jurisdiction, provided that proceedings may be brought in another jurisdiction in order to enforce a judgment of the courts of the AAA.

(i) Attorneys Fees. In the event of a dispute between the parties, the prevailing party shall be entitled to all reasonable attorneys’ fees and costs incurred in connection with any trial, arbitration, or other proceeding as well as all other relief granted in any suit or other proceeding.

(j)  Counterparts.  This Agreement may be executed in two or more counterparts; each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(k) Representation by Counsel. By countersigning below, You hereby represent and acknowledge that you have reviewed this letter agreement in its entirety, have had an opportunity to obtain the advice of counsel prior to executing this letter agreement and fully understand all provisions of this letter agreement.

Sincerely,

Net Element, Inc.

    /s/  Jonathan New           .       

By Jonathan New, CFO

06/06/2012

Mr. Richard Lappenbusch

June 6, 2012

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ACCEPTED AND AGREED:

    /s/ Richard Lappenbusch     .

Richard Lappenbusch

06/06/2012