[TRAFALGAR
LETTERHEAD]
July 20, 2009
New Media
Lottery Services, Inc.
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Commitment
Amount in connection with USD$1,000,000 Convertible Working Capital
Line of Credit
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Reference is
made to that the USD$1,000,000 Convertible Working Capital Line of
Credit Term Sheet, dated as of July 2009 a copy of which is
attached hereto as Exhibit A (the “ Term Sheet
”), whereby Trafalgar Capital Specialized Investment Fund,
FIS (the “ Investor ”) agreed to purchase
$1,000,000 of convertible debentures from New Media Lottery
Services, Inc. (the “ Company ”) subject to the
execution of definitive agreements. The Investor and the
Company shall each be individually referred to as a “
Party ” and collectively as, the “
Parties ”. Capitalized terms used but not
defined herein shall have the meaning ascribed to them in the Term
Sheet.
This letter agreement (the “
Letter Agreement ”) shall be subject to and
interpreted in accordance with the laws of the State of
Delaware.
In
consideration of the mutual promises and covenants set forth
herein, and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Company and the
Investor, intending to be legally bound, do hereby agree as
follows:
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Initial
Disbursement; Equity Fee. In connection with the transactions contemplated
by the Term Sheet, the Company and the Investor have agreed that
the Investor will disburse the Commitment Amount on or prior to
July 20, 2009 (“ Initial Disbursement Date ”);
provided the Company agrees to pay the Equity Fee as set forth
herein. As a material inducement for the Investor to
enter into this Letter Agreement, the Company shall, within thirty
(30) days from the date set forth above, issue Two Million
(2,000,000) shares (the “ Trafalgar Shares ”)of
the Company’s preferred stock (the “ Preferred
Stock ”) with a par value of $1.00. The
Company acknowledges and agrees that the Trafalgar Shares shall
entitle holders to the following rights:
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Ranking . The Trafalgar Shares shall, with
respect to rights upon liquidation, winding up and dissolution,
rank senior to all classes of the Company’s common stock (the
“ Common Stock ”) and to each other series of
Preferred Stock or class of capital stock of the
Company.
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Conversion
Rights. All or any part
of the Trafalgar Shares shall be convertible, at any time and from
time to time, at the option of the holder thereof into shares (the
“ Conversion Shares ”) of the Company’s
Common Stock at the price per share (the “ Conversion
Price ”) equal to the lower of (a) $0.05 (the “
Fixed Conversion Price ”), and (b) a fifteen percent
(15%) discount to the lowest daily closing Volume Weighted Average
Price of the Common Stock as reported by Bloomberg, LP during the
five (5) trading days after the Conversion Date (as defined
below). No fraction of shares or scrip representing
fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded to the nearest whole
share. To convert the Trafalgar Shares, the holder of
such Trafalgar Shares shall deliver written notice thereof,
substantially in the form of Exhibit B to this Letter
Agreement, with appropriate insertions (the “ Conversion
Notice ”), to the Company at its address as set forth
above. The date upon which the conversion shall be
effective (the “ Conversion Date ”) shall be
deemed to be the date set forth in the Conversion
Notice.
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Voting
Rights . The
holders of Trafalgar Shares shall have the right to receive notice
of any meeting of holders of Common Stock or Preferred Stock and to
vote upon any matter submitted to a vote of the holders of Common
Stock or holders of Preferred Stock. The holders of the
Trafalgar Shares shall vote on each matter submitted to them with
the holders of all other classes and series of capital stock of the
Company entitled to vote on such matter, taken together as a single
class. In any case in which the holders of the Trafalgar
Shares shall be entitled to vote pursuant to this Letter Agreement
or pursuant to Colorado law, each holder of Trafalgar Shares
entitled to vote with respect to such matter shall be entitled to
vote, with respect to each Trafalgar Share, the number of votes
that equals the number of shares of Common Stock into which such
Trafalgar Share is then convertible if converted at the Fixed
Conversion Price.
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Dividends . Holders of Trafalgar Shares will be
entitled to receive dividends in an amount equal to the amount of
dividends such holders would have received if each Trafalgar Share
had been converted into the Company’s Common Stock at the
Fixed Conversion Price.
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Representations and Warranties of
the Company . In order to induce the Investor to enter into this
Letter Agreement, the Company represents and warrants to the
Investor as of the Effective Date (defined below) that:
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Organization
, Authority, Good
Standing . The
Company is a corporation, duly incorporated and in good standing
under the laws of the State of Delaware. The execution,
delivery and performance of this Letter Agreement have been duly
authorized by all necessary action on the part of the
Company;
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No
Conflict . The
execution, delivery and performance by the Company of this Letter
Agreement and the consummation of the transactions contemplated
hereby do not and will not (i) violate any provision of the
organizational documents of the Company or any order, judgment or
decree of any court or other government authority binding on the
Company, (ii) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default
under any contractual obligation of the Company;
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Capitalization . The authorized capital stock of the
Company consists solely of 150,000,000 shares of its Common
Sto
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