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QUOTA HOLDERS AGREEMENT

Joint Venture JV Agreement

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New Media Lottery Service | CYBERCYTE SISTEMAS E SERVIÇOS LTDA

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Title: QUOTA HOLDERS AGREEMENT
Date: 7/29/2005

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QUOTAHOLDERS’ AGREEMENT

 

 

This Agreement is made and entered into this 22 day of June, 2005, by and between:

 

 

I-   NEW MEDIA LOTTERY SERVICES INC. , a company organized and existing in accordance with the laws of Delaware, with head offices at 370 Neff Avenue, Suite L, Harrisonburg, Virginia 22801, United States of America, herein represented by its attorney-in-fact, Mr. Richard Harrod Pedicini, United States citizen, married, businessman, bearer of Identity Card RNE Y264111-J and of the Individual Taxpayer’s Registration (“CPF/MF”) no. 230.797.248-01, resident and domiciled in the City of São Paulo, State of São Paulo, at Rua Salvador Correia n°. 218   (hereinafter “NMLS”); and

 

II - CYBERCYTE SISTEMAS E SERVIÇOS LTDA. , a company organized and existing in accordance with the laws of the Brazil, registered with the General Taxpayers’ Registry under no. 03.913.309/0001-60,   with head offices in the City of São Paulo, State of São Paulo, at Rua Barão do Triunfo no. 550, 9° andar, conj. 92, herein represented by its Director, Mr. José Ari Rodrigues Célia, Brazilian citizen, married, business administrator, bearer of Identity Card (“R.G.”) no. 12.444.756 and of CPF/MF no. 059.295.728-44, resident and domiciled in the City of São Paulo, State of São Paulo, at Rua Barão do Triunfo no. 550, 9°. andar, conj. 95 (hereinafter “CYBERCYTE”),


RECITALS

 

WHEREAS ,   the parties are the sole quotaholders of “ New Media Serviços de Internet Ltda. ”, a company organized and existing in accordance with the laws of the Federative Republic of Brazil, pending registration with the General Taxpayers’ Registry under no. 07.411.570/0001-13, with head offices in the City of Santana do Parnaíba, State of São Paulo, at Rua Pedro Procópio no. 88, conj. 217 (hereinafter “COMPANY”);

 

WHEREAS , NMLS possesses extensive experience in the establishment, operation and management of lotteries and has developed and operated a number of Internet lottery programs; and

 

WHEREAS , CYBERCYTE and its associated companies possess extensive expertise in the Brazilian lottery marketplace, operate a number of lottery/gaming websites, hold two state lottery licenses awarded by the Brazilian States of Pará and Santa Catarina and are actively involved in bingo hall ownership and operation,

 

THE PARTIES hereby decide to enter into this Quotaholders’ Agreement (“Agreement”) which shall be governed by the following clauses and conditions:

 

Section 1 - Definitions

 

1.1

Quotas - means all of the quotas of the COMPANY’s capital.

 

1.2

Quotaholders - means the parties to this Agreement, as qualified in the preamble of this Agreement.

 

 

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Section 2 - COMPANY

 

 

2.1

The COMPANY has a capital of R$ 1.000,00 (one thousand reais), represented by 1.000 (one thousand) quotas (“Quotas”) with a nominal value of R$ 1,00 (one real) each. The COMPANY’s capital is divided among the Quotaholders as follows:

 

 

(i)

NMLS owns 50% (fifty percent) of the Quotas of the COMPANY’s capital; and

 

 

(ii)

CYBERCYTE owns 50% (fifty percent) of the Quotas of the COMPANY’s capital.

 

Section 3 - Binding Effect on Quotas

 

3.1

The provisions set forth in this Agreement shall be binding upon all of the COMPANY’s Quotas currently owned by the parties hereto and any and all Quotas of the COMPANY that such parties may hereinafter own.

 

3.2

This Agreement shall be complied with by the COMPANY, the Quotaholders, as well as the Quotaholders’ respective heirs and assigns. This Agreement shall be filed in the COMPANY’s head office and the rights and obligations set forth herein shall be binding on its signatories and third parties.

 

Section 4 - Purpose of the COMPANY

 

4.1

The purpose of the COMPANY is to launch Internet lottery programs in Brazil under the existing lottery licenses issued by the Brazilian State of Santa Catarina to CYBERCYTE and the Brazilian State of Pará to WJM Entretenimentos e Participações Ltda. (“WJM”). CYBERCYTE, in its capacity of holder of 50% (fifty percent) of WJM’s quotas, confirms that WJM agrees to the use of its license in accordance with the terms and conditions of this Agreement. Moreover, CYBERCYTE represents and warrants that WJM and CYBERCYTE will enter into agreements with the COMPANY regarding the use of such licenses. The Parties agree that the COMPANY will apply for state and federal Internet lottery licenses.

 

Section 5 - Management

 

5.1

The COMPANY shall be managed by 01 (one) Director to be appointed by the Quotaholders by mutual and common agreement. The Quotaholders agree that such a Director shall be Mr. José Ari Rodrigues Célia, qualified above.

 

 

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Section 6 - Revenue

 

6.1

It is contemplated that COMPANY’s revenue will derive from the sale of lottery games via the Internet in accordance with the assumptions and projections to be set out by the Quotaholders.

 

6.2

The parties agree that only 80% (eighty percent) of the profits of the COMPANY will be distributed monthly to the Quotaholders during the first year of operation of the COMPANY.

 

6.3

The Quotaholders will jointly determine the best tax scenario in order to maximize the COMPANY’s after tax profits.

 

Section 7 - Term and Termination

 

7.1

This Agreement shall commence on the day and year first written above, shall have a term of 10 (ten) years from the date of its signature (the “Initial Term”). This Agreement shall be automatically renewed for an additional 10 (ten) year period unless either Party informs the other Party in writing at least 90 (ninety) days prior to the end of each term that it does not intend to renew this Agreement.

 

7.2

This Agreement may be terminated by either party upon the default in the performance by the other Party of its obligations arising under the terms of this Agreement. In such event, the Party desiring to terminate this Agreement will provide written notice to the other party of its intent to terminate and will set forth the reasons for termination. If the reasons for termination are not resolved to the satisfaction of the notifying Party within 90 (ninety) days of the date of such notice, this Agreement will terminate effective as of the end of such 90 (ninety) days period, provided that if the Party notified of the others intent to terminate does not concur that it has defaulted in its obligations under this Agreement or that it has failed to cure any actual default in its obligations under this Agreement or that it has failed to cure any actual default on its part, then the matter will be submitted to binding arbitration in accordance with the rules of the American Arbitration Association and the Agreement will not terminate, pending the resolution of the matter in arbitration. Upon termination of this Agreement, both parties shall be released of all obligations under this Agreement save and except for obligations incurred prior to termination.

 

7.3

The parties agree to jointly share in any costs associated with the termination of the COMPANY. The parties will prepare and evaluate the costs associated with the dissolution of business and will fund these costs on a timely basis. Upon the effective date of any termination of this Agreement for any reason whatsoever (a) the license to use the equipment, goods or other property provided for shall be terminated; (b) both Parties shall be entitled to repossess forthwith and shall deliver to both Parties forthwith, all equipment, goods and other property supplied by the Parties pursuant to this Agreement; (c) the license to use the NMLS Software shall be terminated; (d) the COMPANY shall immediately cease using the NMLS Software; and (e) the COMPANY shall immediately cease using the WJM and CYBERCYTE gaming licenses.

 

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7.4

Upon termination of this Agreement, the parties will have the right to terminate without any liability any licenses that such parties may have granted to the COMPANY.

 

Section 8 - Obligations

 

8.1

Obligations of NMLS to COMPANY.

 

 

8.1.1

NMLS shall, among other obligations and without the COMPANY incurring any cost or expense:

 

 

(i)

design the lottery games, design the web interface API that allows COMPANY to operate these games from a website and assist in the integration of the COMPANY’s website and the lottery games;

 

 

 

 

 

 

(ii)

provide to the COMPANY free of charge limited rights to its Internet lottery/gaming systems;

 

 

 

 

 

 

(iii)  

ensure that any third party licenses required to operate its Internet lottery/gaming systems are maintained operational and in good order and permit the COMPANY to use such licenses;

 

 

 

 

 

 

(iv)

provide to the COMPANY free of charge the management of its Internet lottery/gaming systems;

 

 

 

 

 

 

(v)  

provide to the COMPANY a royalty-free license to use the NMLS software described in Schedule 1 to this Agreement;

 

 

 

 

 

 

(vi)

provide free of charge to the COMPANY lottery expertise and general operational management services; and

 

 

 

 

 

 

(vii)

provide free of charge to the COMPANY personnel of sufficient caliber and experience to deliver the obligations set out above.

 

 

8.1.2

NMLS shall also make available to the COMPANY by means of loans the funds necessary for the COMPANY to carry out its business. Such funds will be made available at the interest rate of 01% (one percent) per month calculated over the principal amount and a 01 (one) one time premium of 10% (ten percent) calculated over the principal amount of the loan will also be due. Such loans are to be accounted for half in dollars, half in reais. The exchange rate to be used is the average of the PTAX 800 buy and sell rates at the close of the previous day. Reais are to be adjusted for inflation according to the variation of the INPC between the date when the funds are made available and the date when the payments are made. Interest will be calculated over the amount of the principal and the 01 (one) time premium. CYBERCYTE must approve any such loans in writing (which approval shall not be unjustifiably withheld or delayed). Such approval shall be granted or not by means of a written notice sent to NMLS within 10 (ten) days counted as of the date that CYBERCYTE receives a written notice sent by NMLS. In the event that CYBERCYTE does not send a written notice to NMLS, the approval shall be deemed to have been granted. Any loans made without such approval being granted shall not be binding on the COMPANY. In no event shall CYBERCYTE have an obligation to pay to NMLS any amounts made available to the COMPANY in accordance with the provisions set forth in this Section’s text.

 

-4-


 

8.2

Obligations of CYBERCYTE to COMPANY.

 

 

8.2.1

CYBERCYTE shall, among other obligations and without the COMPANY incurring any cost or expense:

 

 

(i)

using NMLS templates, assist NMLS in the design of the lottery games and the website intended for Brazil and provide free of charge to the COMPANY all requisite local language translation services;

 

 

 

 

 

 

(ii)

provide to the COMPANY free of charge the right to use its registration and financial transaction systems;

 

 

 

 

 

 

(iii)

use best efforts to ensure that any third party licenses required to operate its registration and financial transaction systems are maintained operational and in good order and permit the COMPANY to use such licenses;

 

 

 

 

 

 

(iv)

use its best efforts to ensure that the lottery licenses issued by the Brazilian State of Pará to WJM and the Brazilian State of Santa Catarina to CYBERCYTE are maintained operational and in good order;

 

 

 

 

 

 

(v)

enter into the License Agreement attached hereto and made a part hereof as Schedule 3 and maintain such an agreement valid during the term of this Agreement;

 

 

(vi)

use best efforts to cause WJM to enter into an equivalent Portuguese version of the License Agreement attached hereto and made a part hereof as Schedule 2 and use best efforts to cause WJM to maintain such an agreement valid during the term of this Agreement;

 

 

 

 

 

 

(vii)

provide to the COMPANY free of charge the management of its registration and financial transaction systems;

 

 

 

 

 

 

(viii)

provide free of charge to the COMPANY advice and guidance on Brazilian business procedures, funds repatriation and taxation issues;

 

 

 

 

 

 

(ix)

provide free of charge to the COMPANY local lottery expertise;

 

 

 

 

 

-5-


 

 

(x)

provide access to its database of non-current Internet users for the purpose of marketing the lottery games and the website intended for Brazil. For such purpose, non-current Internet users are defined as users which have not visited the websites of CYBERCYTE and its associated companies during 2 (two) months. The terms and conditions of such an access are set forth in Schedule 4 to this Agreement; and

 

 

 

 

 

 

(xi)

provide free of charge to the COMPANY personnel of sufficient caliber and experience to deliver the obligations set out above.

 

 

8.2.2

CYBERCYTE shall also make available to the COMPANY by means of loans the funds necessary for the COMPANY to carry out its business. Such funds will be made available at the interest rate of 01% (one percent) per month calculated over the principal amount and a 01 (one) one time premium of 10% (ten percent) calculated over the principal amount of the loan will also be due. Such loans are to be accounted for half in dollars, half in reais. The exchange rate to be used is the average of the PTAX 800 buy and sell rates at the close of the previous day. Reais are to be adjusted for inflation according to the variation of the INPCbetween the date when the funds are made available and the date when the payment is made. Interest will be calculated over the amount of the principal and the 01 (one) time premium. NMLS must approve any such loans in writing (which approval shall not be unjustifiably withheld or delayed). Such approval shall be granted or not by means of a written notice sent to CYBERCYTE within 10 (ten) days counted as of the date that NMLS receives a written notice sent by CYBERCYTE. In the event that NMLS does not send a written notice to CYBERCYTE, the approval shall be deemed to have been granted. Any loans made without such approval being granted shall not be binding on the COMPANY. In no event shall NMLS have an obligation to pay to CYBERCYTE any amounts made available to the COMPANY in accordance with the provisions set forth in this Section’s text.

 

Section 9 - Representations and Warranties

 

9.1

Each of the parties represents and warrants that:

 

 

(i)

it has full power and authority to enter into, exercise its rights and perform and comply with this Agreement and with all other related documents to which it is a party; and

 

 

(ii)

all actions, conditions and things required to be taken, fulfilled and done (including the obtaining of necessary consents, approvals, authorizations, exemptions, filings, licenses, orders, permissions, recordings or registrations) have been taken, fulfilled and done:

 

 

(a)

to enable it to lawfully enter into, exercise its rights and perform and comply with this Agreement and with all other related documents to which it is a party; and

 

-6-


 

 

(b)

to ensure that its obligations under such documents are valid, legally binding and enforceable; and

 

 

(iii)

it will use best efforts to permit the COMPANY to carry out its business as set forth in the COMPANY’s Corporate Charter and in this Agreement.

 

9.2

NMLS and CYBERCYTE each acknowledge and agree that all data relating to a customer of the COMPANY’s Internet lotteries, including names, addresses and any other personal information (“Lottery Customer Data”) is the property of the COMPANY.

 

9.3

NMLS and CYBERCYTE each represent and warrant that:

 

 

(i)

it has the right and corporate authority to enter into this Agreement and has all the necessary rights to perform its obligations under this Agreement;

 

 

(ii)

it has sufficient rights to the technology and the systems covered by this Agreement and the right to transfer such rights for transactions as contemplated under this Agreement;

 

 

(iii)

it will use and process Lottery Customer Data only in accordance with this Agreement; and

 

 

(iv)

its entry into this Agreement does not breach any other agreement to which it is a party.

 

9.4

CYBERCYTE represents and warrants that:

 

 

(i)

State lottery licenses have been awarded to CYBERCYTE by the Brazilian State of Santa Catarina and to WJM by the Brazilian State of Pará and that such companies are the registered owners of and operators of the Internet games made available by means of such licenses;

 

 

(ii)

CYBERCYTE and WJM are in good standing before the Brazilian States of Santa Catarina and Pará and the licenses granted to CYBERCYTE and WJM are valid in all of the Federative Republic of Brazil;

 

 

(iii)

it legally and validly manages and maintains one bingo hall in Rio de Janeiro through its associated company, Hunter Representação e Locação de Equipamentos Ltda.; and

 

 

(iv)

WJM legally and validly manages and maintains the following lottery/gaming websites within Brazil: www.lotogames.com.br , www.lotobanana.com.br , www.lotobacaninha.com.br , www.lotodiitroya.com.br , www.z10.com.br , www.biglotobrasil.com.br and www.caraoucoroa.com.br .

 

-7-


 

9.5

The execution and delivery of, and the performance by it of its obligations under this Agreement and related documents, do not and will not result in a breach of:

 

 

(i)

any provision of its Corporate Charter, memorandum or articles of association, where applicable; or

 

 

(ii)

any law, contract, agreement, license, permit, order, judgment or decree of any court or governmental agency to which it is a party or by which it is bound.

 

9.6

This Section 9 shall survive the expiry or earlier termination of this Agreement.

 

Section 10 - Non-Competition

 

10.1

Except if otherwise provided for in this Agreement, NM


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