SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this
“Agreement”), is entered into as of
August __, 2009 and made effective as of July 20, 2009, by and between New Media Lottery Services,
Inc., a Delaware corporation, with headquarters located at 0000
Xxxxxxxxxx Xxxxx, Xxxxxxxxxxxx, XX 00000 (the “Pledgor” and Trafalgar Capital Specialized
Investment Fund, FIS (the “Secured
Party”). Capitalized words which are otherwise undefined in
this Agreement shall have the same definition as in the Securities Purchase
Agreement dated as of the date hereof entered into by the parties hereto (the
“Securities Purchase
Agreement”).
WHEREAS, the Pledgor issued
and sold to the Secured Party, Three Hundred Thousand U.S. Dollars (US$300,000)
of secured convertible redeemable debentures and has agreed to issue and
sell up to an additional Seven Hundred Thousand U.S. Dollars (US$700,000) of
secured convertible debentures (the “Debentures”) pursuant
to the terms of the Securities Purchase Agreement; and
WHEREAS, to induce the Secured
Party to enter into the transactions contemplated by the Securities Purchase
Agreement and the Transaction Documents, the Pledgor agreed to grant to the
Secured Party a first priority security interest in and to the pledged property
identified on Exhibit
A hereto until the satisfaction of the Obligations (as defined herein
below).
NOW, THEREFORE, in
consideration of the premises and the mutual covenants herein contained, and for
other good and valuable consideration, the adequacy and receipt of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
ARTICLE 2
(a) The
Pledgor hereby pledges to the Secured Party and creates in the Secured Party for
its benefit a security interest for such time until the Obligations are paid in
full, in and to all of in the property described in Exhibit A hereto,
whether now existing or hereafter from time to time acquired (collectively,
the “Pledged
Property”).
(b) Simultaneously
with the execution and delivery of this Agreement, the Pledgor shall make,
execute, acknowledge, file, record and deliver to the Secured Party any
documents reasonably requested by the Secured Party to perfect its security
interest in the Pledged Property. Simultaneously with the execution
and delivery of this Agreement, the Pledgor shall make, execute, acknowledge and
deliver to the Secured Party such documents and instruments, including, without
limitation, financing statements, certificates, local lien documents, affidavits
and forms as may, in the Secured Party’s reasonable judgment, be necessary to
effectuate, complete or perfect, or to continue and preserve, the security
interest of the Secured Party in the Pledged Property, and the Secured Party
shall hold such documents and instruments as secured party, subject to the terms
and conditions contained herein.
(a) So
long as no Event of Default (as hereinafter defined) shall have occurred
and be continuing:
(i) the
Pledgor shall be entitled to exercise any and all rights pertaining to its
Pledged Property or any part thereof for any purpose not inconsistent with the
terms hereof; and
(ii) the
Pledgor shall be entitled to receive and retain any and all payments paid or
made in respect of its Pledged Property.
(b) Upon
the occurrence and during the continuance of an Event of Default:
(i) All
rights of the Pledgor to exercise the rights which it would otherwise be
entitled to exercise pursuant to Section 2.2(a)(i) hereof and to
receive payments which it would otherwise be authorized to receive and retain
pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such
rights shall thereupon become vested in the Secured Party who shall thereupon
have the sole right to exercise such rights and to receive and hold as Pledged
Property such payments; provided, however, that if
the Secured Party shall become entitled and shall elect to exercise its right to
realize on the Pledged Property pursuant to Article 5 hereof, then all cash
sums received by the Secured Party, or held by Pledgor for the benefit of the
Secured Party and paid over pursuant to Section 2.2(b)(ii) hereof,
shall be applied against any outstanding Obligations; and
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(ii) All
interest, dividends, income and other payments and distributions which are
received by the Pledgor contrary to the provisions of
Section 2.2(b)(i) hereof shall be received in trust for the benefit of
the Secured Party, shall be segregated from other property of the Pledgor and
shall be forthwith paid over to the Secured Party; or
(iii) The
Secured Party in its sole discretion shall be authorized to sell any or all of
the Pledged Property at a public or private sale in order to recoup all of the
outstanding Obligations.
(c) Each
of the following events, subject to the lapse of applicable cure periods, shall
constitute a default under this Agreement (each an “Event of
Default”):
(i) any
default, whether in whole or in part, shall occur in the payment to the Secured
Party of principal, interest or other item comprising the Obligations as and
when due or with respect to any other debt or obligation of the Pledgor to a
party other than the Secured Party;
(ii) any
default, whether in whole or in part, shall occur in the due observance or
performance of any obligations or other covenants, terms or provisions to be
performed under this Agreement or any of the Transaction Documents;
(iii) Any
representation or warranty made or furnished by or on behalf of the Pledgor in
connection with this Agreement, the Securities Purchase Agreement or any
Transaction Document proves to have been incorrect or misleading in any material
respect when made or furnished; or
(iv) Secured
Party, reasonably and in good faith, deems itself to be insecure;
(v) the
Pledgor shall: (1) make a general assignment for the benefit of
its creditors; (2) apply for or consent to the appointment of a receiver,
trustee, assignee, custodian, sequestrator, liquidator or similar official for
itself or any of its assets and properties; (3) commence a voluntary case
for relief as a debtor under the United States Bankruptcy Code; (4) file
with or otherwise submit to any governmental authority any petition, answer or
other document seeking: (A) reorganization, (B) an arrangement with
creditors or (C) to take advantage of any other present or future
applicable law respecting bankruptcy, reorganization, insolvency, readjustment
of debts, relief of debtors, dissolution or liquidation; (5) file or
otherwise submit any answer or other document admitting or failing to contest
the material allegations of a petition or other document filed or otherwise
submitted against it in any of the proceedings set forth in this Section
2.2(c)(v) under any such applicable law, or (6) be adjudicated a bankrupt
or insolvent by a court of competent jurisdiction; or
(vi) any
case, proceeding or other action shall be commenced against the Pledgor for the
purpose of effecting, or an order, judgment or decree shall be entered by any
court of competent jurisdiction approving (in whole or in part) anything
specified in Section 2.2(c)(v) hereof, or any receiver, trustee,
assignee, custodian, sequestrator, liquidator or other official shall be
appointed with respect to the Pledgor, or shall be appointed to take or shall
otherwise acquire possession or control of all or a substantial part of the
assets and properties of the Pledgor, and any of the foregoing shall continue
unstayed and in effect for any period of thirty (30) calendar
days.
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ARTICLE 3
4
ARTICLE 4
ARTICLE 5
(a) If
an Event of Default described in Section 2.2(c)(i), (ii), (iii) or (iv)
hereof occurs, then in each such case the Secured Party may declare the
Obligations to be due and payable immediately, by a notice in writing to the
Pledgor, and upon any such declaration, the Obligations shall become immediately
due and payable. If an Event of Default described in
Sections 2.2(c)(v) or (vi) occurs and is continuing for the
period set forth therein, then the Obligations shall automatically become
immediately due and payable without declaration or other act on the part of the
Secured Party.
(b) Upon
the occurrence of an Event of Default, the Secured Party shall be entitled to:
(i) receive all distributions with respect to the Pledged Property,
(ii) cause the Pledged Property to be transferred into the name of the
Secured Party or its nominee, (iii) dispose of the Pledged Property, and
(iv) realize upon any and all rights in the Pledged Property then held by
the Secured Party as provided herein.
5
Upon the
occurrence of an Event of Default, in addition to any rights and remedies
available at law or in equity, the following provisions shall govern the Secured
Party’s right to realize upon the Pledged Property:
(a) Any
item of the Pledged Property may be sold for cash or other value in any number
of lots at brokers board, public auction or private sale and may be sold without
demand, advertisement or notice (except that the Secured Party shall give the
Pledgor ten (10) calendar days’ prior written notice of the time and place
or of the time after which a private sale may be made (the “Sale Notice”)), which
notice period is hereby agreed to be commercially reasonable. At any
sale or sales of the Pledged Property, the Pledgor may bid for and purchase the
whole or any part of its Pledged Property and, upon compliance with the terms of
such sale, may hold, exploit and dispose of the same without further
accountability to the Secured Party. The Pledgor will execute and
deliver, or cause to be executed and delivered, such instruments, documents,
assignments, waivers, certificates, and affidavits and supply or cause to be
supplied such further information and take such further action as the Secured
Party reasonably shall require in connection with any such sale.
(b) Any
cash being held by the Secured Party as Pledged Property and all cash proceeds
received by the Secured Party in respect of, sale of, collection from, or other
realization upon all or any part of the Pledged Property shall be applied as
follows:
(i) to
the payment of all amounts due the Secured Party for the expenses reimbursable
to it hereunder or owed to it pursuant to Section 8.3 hereof;
(ii) to
the payment of the Obligations then due and unpaid; and
(iii) the
balance, if any, to the person or persons entitled thereto, including, without
limitation, the Pledgor.
(c) In
addition to all of the rights and remedies which the Secured Party may have
pursuant to this Agreement, the Secured Party shall have all of the rights and
remedies provided by law, including, without limitation, those under the Uniform
Commercial Code.
(d) If
the Pledgor fails to pay such amounts due upon the occurrence of an Event of
Default which is continuing, then the Secured Party may institute a judicial
proceeding for the collection of the sums so due and unpaid, may prosecute such
proceeding to judgment or final decree and may enforce the same against the
Pledgor and collect the monies adjudged or decreed to be payable in the manner
provided by law out of the property of Pledgor, wherever situated.
(e) The
Pledgor agrees that it shall be liable for any reasonable fees, expenses and
costs incurred by the Secured Party in connection with enforcement, collection
and preservation of the Transaction Documents, including, without limitation,
reasonable legal fees and expenses, and such amounts shall be deemed included as
Obligations secured hereby and payable as set forth in Section 8.3
hereof.
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(a) to
file and prove a claim for the whole amount of the Obligations and to file such
other papers or documents as may be necessary or advisable in order to have the
claims of the Secured Party (including any claim for the reasonable legal fees
and expenses and other expenses paid or incurred by the Secured Party permitted
hereunder and of the Secured Party allowed in such judicial proceeding),
and
(b) to
collect and receive any monies or other property payable or deliverable on any
such claims and to distribute the same; and any custodian, receiver, assignee,
trustee, liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by the Secured Party to make such payments to
the Secured Party and, in the event that the Secured Party shall consent to the
making of such payments directed to the Secured Party, to pay to the Secured
Party any amounts for expenses due it hereunder.
ARTICLE 6
The
Pledgor covenants and agrees that, from the date hereof and until the
Obligations have been fully paid and satisfied, unless the Secured Party shall
consent otherwise in writing (as provided in Section 8.4
hereof):
7
(a) as
soon as available, a copy of any notice or other communication alleging any
nonpayment or other material breach or default, or any foreclosure or other
action respecting any material portion of its assets and properties, received
respecting any of the indebtedness of the Pledgor in excess of US$25,000 (other
than the Obligations), or any demand or other request for payment under any
guaranty, assumption, purchase agreement or similar agreement or arrangement
respecting the indebtedness or obligations of others in excess of US$25,000,
including any received from any person acting on behalf of the Secured Party or
beneficiary thereof, except for supplier requests in the normal course of
business for payment of past due accounts payable invoices so long as such past
due amounts do not exceed in the aggregate US$50,000 at any time;
and
(b) within
fifteen (15) calendar days after the making of each submission or filing, a
copy of any report, financial statement, notice or other document, whether
periodic or otherwise, submitted to the shareholders of the Pledgor, or
submitted to or filed by the Pledgor with any governmental authority involving
or affecting (i) the Pledgor that could have a Material Adverse Effect;
(ii) the Obligations; or (iii) any part of the Pledged
Property.
(a) The
Pledgor shall maintain or cause to be maintained, at its own expense, all of its
assets and properties in good working order and condition, making all necessary
repairs thereto and renewals and replacements thereof.
(b) The
Pledgor shall maintain or cause to be maintained, at its own expense, insurance
in form, substance and amounts (including deductibles), which the Pledgor deems
reasonably necessary to the Pledgor’s business, (i) adequate to insure all
assets and properties of the Pledgor, which assets and properties are of a
character usually insured by persons engaged in the same or similar business
against loss or damage resulting from fire or other risks included in an
extended coverage policy; (ii) against public liability and other tort
claims that may be incurred by the Pledgor; (iii) as may be required by the
Transaction Documents and/or applicable law and (iv) as may be reasonably
requested by Secured Party, all with adequate, financially sound and reputable
insurers.
8
9
Section
6.11
Notice of
Litigation. The Pledgor shall give notice, in writing, to the
Secured Party of (a) any actions, suits or proceedings wherein the amount
at issue is in excess of US$50,000, instituted by any persons against the
Pledgor, or affecting any of the assets of the Pledgor, and (b) any
dispute, not resolved within fifteen (15) calendar days of the commencement
thereof, between the Pledgor on the one hand and any governmental or regulatory
body on the other hand, which might reasonably be expected to have a Material
Adverse Effect on the business operations or financial condition of the
Pledgor.
ARTICLE 7
The
Pledgor covenants and agrees that, from the date hereof and until the
Obligations have been fully paid and satisfied, the Pledgor shall not, unless
the Secured Party shall consent otherwise in writing:
Section
7.3 Certificate of
Incorporation, Bylaws, Mergers, Consolidations, Acquisitions and Sales, Sales of
Capital Stock, Incurrence of Debt.
(a) Except
as may be required to comply with the terms of the Transaction Documents and
currently outstanding convertible securities (as described in Schedule 4(c) of the Purchase
Agreement), Pledgor shall not:
(i) Amend
its Certificate of Incorporation or Bylaws;
(ii) Issue
or sell its Common Stock, as defined in the Securities Purchase
Agreement;
(iii) Issue
or sell shares of the Pledgor’s capital stock;
(iv) Issue
or sell any warrant, option, right, contract, call, or other security instrument
granting the holder thereof, the right to acquire Common Stock;
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(v) Incur
any additional debt or permit any subsidiary of the Pledgor to incur any
additional debt;
(vi) Be
a party to any merger, consolidation or corporate reorganization;
or.
(vii) Purchase
or otherwise acquire all or substantially all of the assets or stock of, or any
partnership or joint venture interest in, any other person, firm or entity,
(viii) sell, transfer, convey, grant a security interest in (except for
Permitted Liens) or lease all or any substantial part of its assets, or
(ix) create any new subsidiaries nor convey any of its assets to any
subsidiary.
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ARTICLE 8
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If
to the Pledgor, to:
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New
Media Lottery Services, Inc.
0000
Xxxxxxxxxx Xxxxx
Xxxxxxxxxxxx,
XX 00000
Attention: Mr.
Xxxx Xxxxxx, President & CEO
Facsimile: (000)
000-0000
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With
a copy to:
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000
Xxxx 00xx
Xxxxxx
Xxx
Xxxx, XX 00000
Attention: Xxxxxxx
X. Xxxxx, Esq.
Telephone: (000)
000-0000
Facsimile:
0-000-XXX-XXXX
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If
to the Secured Party, to:
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Trafalgar
Capital Specialized Investment Fund
0
Xxx Xxxxxxx, Xxxx Xxxxxx
00
Xxxxxxxxxxx Xxxxxx
Xxxxxx
XX0X 0XX
Attention:
Xxxxxx Xxxxx, Chairman of the Board of Trafalgar Capital Sarl, General
Partner
Facsimile: 011-44-207-405-0161
and
001-786-323-1651
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With
Copy to:
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K&L
Gates LLP
000
Xxxxx Xxxxxxxx Xxxx., Xxxxx 0000
Xxxxx,
Xxxxxxx 00000
Attention:
Xxxxxxx X. Xxxxxx, Esq.
Telephone:
(000) 000-0000
Facsimile: (000)
000-0000
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Any party
may change its address by giving notice to the other party stating its new
address. Commencing on the tenth (10th) calendar
day after the giving of such notice, such newly designated address shall be such
party’s address for the purpose of all notices or other communications required
or permitted to be given pursuant to this Agreement.
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Section
8.7 Applicable
Law: Jurisdiction. This Agreement shall be deemed
to be made under and shall be construed in accordance with the laws of the State
of Florida without giving effect to the principals of conflict of laws
thereof. Each of the parties consents to the jurisdiction of the
U.S. District Court sitting in the Southern District of the State of
Florida or the state courts of the State of Florida sitting in Miami-Dade
County, Florida in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens to the
bringing of any such proceeding in such jurisdictions.
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Section
8.8
Waiver of Jury
Trial. AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER
INTO THIS AGREEMENT AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE PLEDGOR, THE
PLEDGOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED
IN ANY WAY TO THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS
TRANSACTION.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the
parties hereto have executed this Security Agreement as of the date first above
written.
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THE
PLEDGOR:
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NEW
MEDIA LOTTERY SERVICES, INC.
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By:
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Name:
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Title:
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THE SECURED
PARTY:
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TRAFALGAR
CAPITAL SPECIALIZED
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INVESTMENT
FUND, FIS
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By:
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Trafalgar
Capital Sarl
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Its:
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General
Partner
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By:
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Name:
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Title:
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EXHIBIT
A
For the
purpose of securing prompt and complete payment and performance by the Pledgor
of all of the Obligations, the Pledgor unconditionally and irrevocably hereby
grants to the Secured Party a continuing security interest in and to, and lien
upon, all of Pledgor’s and its current or future acquired subsidiaries’ assets,
including specifically the following Pledged Property of the
Pledgor:
a. All
of the Pledgor’s cash, including cash on deposit and cash on hand;
b. All
goods of the Pledgor, including, without limitation, machinery, equipment,
furniture, furnishings, fixtures, signs, lights, tools, parts, supplies and
motor vehicles of every kind and description, now or hereafter owned by the
Pledgor wherever located or in which the Pledgor may have or may hereafter
acquire any interest, and all replacements, additions, accessions, substitutions
and proceeds thereof, arising from the sale or disposition thereof, and where
applicable, the proceeds of insurance and of any tort claims involving any of
the foregoing;
c. All
now owned or hereafter acquired inventory of the Pledgor, including, but not
limited to, all goods, wares, merchandise, parts, supplies, finished products,
other tangible personal property, including such inventory as is temporarily out
of the Pledgor’s custody or possession and including any returns upon any
accounts or other proceeds, including insurance proceeds, resulting from the
sale or disposition of any of the foregoing;
d. All
contract rights and general intangibles of the Pledgor, including, without
limitation, goodwill, trademarks, trade styles, trade names, leasehold
interests, partnership or joint venture interests, patents and patent
applications, copyrights, deposit accounts whether now owned or hereafter
created;
e. All
documents, warehouse receipts, instruments and chattel paper of the Pledgor
whether now owned or hereafter created;
f. All
accounts and other receivables, instruments or other forms of obligations and
rights to payment of the Pledgor, (collectively, the “Accounts”) together
with the proceeds thereof, all goods represented by such Accounts and all such
goods that may be returned by the Pledgor’s customers, and all proceeds of any
insurance thereon, and all guarantees, securities and liens which the Pledgor
may hold for the payment of any such accounts including, without limitation, all
rights of stoppage in transit, replevin and reclamation and as an unpaid vendor
and/or lienor, all of which the Pledgor represents and warrants will be bona
fide and existing obligations of its respective customers, arising out of the
sale of goods by the Pledgor in the ordinary course of business;
g. To
the extent assignable, all of the Pledgor’s rights under all present and future
authorizations, permits, licenses and franchises issued or granted in connection
with the operations of any of its facilities;
h. All
equity interests, securities or other instruments in other companies, including,
without limitation, any subsidiaries, investments or other entities (whether or
not controlled);
i. All
real estate property owned by the Pledgor and the interest of the Pledgor in
fixtures related to such real property;
j. All
of the Pledgor’s ledger sheets, ledger cards, files, correspondence, records,
books of account, computers, computer software, computer programs, data
processing records, correspondence, tapes, disks and documents (including,
without limitation, electronic documents) relating to the above-described
Pledged Property; and
k. All
products and proceeds (including, without limitation, insurance proceeds) from
the above-described Pledged Property.
A-1
SCHEDULE
7.7
EXISTING
INDEBTEDNESS
Xxxxxx
Xxxxxx
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As
of April 30, 2009, New Media Lottery Services, Inc. was indebted to Xxxxxx
Xxxxxx, a former officer and director of the company and current major
shareholder, in the amount of $183,177, plus $60,698 in accrued interest,
which is repayable on terms to be
determined.
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Legal Fee
Dispute
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The
Company is engaged in a fee dispute with one of its former law
firms. The Company has accrued $202,465 in legal fees billed by
a law firm named Xxxxxx & Xxxxx, PLLC (ME) where one of the law firm
partners is a major shareholder and former director of the
Company. In addition to the $202,465, ME has billed an
additional $43,808 during fiscal year 2005. The Company
believes that these additional xxxxxxxx were incorrect. Due to
uncertainties in the settlement process with ME, no provision has been
made in the financial statements to reflect the additional $43,808 in 2005
fees.
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Deferred Salary for Xxxx X.
Xxxxxx
Ireland:
€49,852
US:
$109,000 (as of July 31, 2009)
A-2
SCHEDULE
7.9
LOCATION(S)
OF ASSETS
- The
Company leases an office at 0000 Xxxxxxxxxx Xxxxx, Xxxxxxxxxxxx,
Xxxxxxxx.
- The
Company leases office space at Xxxxx 000X, 0000 Xxxxxx Xxxx XX, Xxxxxxx,
Xxxxxxx, Xxxxxx.
- New
Media Lottery Services, PLC, leases an office at 00/00 Xxxxx Xxxxxxxx Xxxxxx,
Xxxxx 000, Xxxxxx 0, Xxxxxxx,
Additionally,
the Company leases rack space for the hosting of servers at:
TelecityGroup UK Limited 00xx
Xxxxx, 0&0 Xxxxxxx Xxxxxxxx Xxxxxx, Xxxxxx, X00 0XX, Xxxxxx
Xxxxxxx
A-3