June 26, 2009

Lateral Media, Inc.
2121 Avenue of the Stars
Suite 2550
Los Angeles, CA 90067
Attention: President

Re:           Conversion of Outstanding Indebtedness
 
Ladies and Gentlemen:
 
The undersigned (the “Lender”) has made advances to Lateral Media, Inc. (the
“Company”), pursuant to that certain letter agreement, dated as of July 11,
2007, as subsequently amended on November 15, 2007, April 18, 2008, August 1,
2008, April 30, 2009 and June 11, 2009 (the “Loan Agreement”), pursuant to which
the Lender agreed to provide a loan to the Company in the principal amount of up
to $1,250,000, plus any accrued interest thereon (the “Loan”).  As of the date
hereof, the principal balance of the Loan is $1,200,000, and the accrued and
unpaid interest outstanding under the Loan is $ $30,507, for an aggregate
balance of $1,230,507 (the “Current Outstanding Debt”).  The Lender and the
Company now wish to satisfy $350,000 of the Current Outstanding Debt by means of
delivery to the Lender of a 7% Convertible Promissory Note in the aggregate
amount of $350,000 (the “Note”) and a Warrant to purchase 350,000 shares of the
Company’s common stock, par value $0.001 per share (“Common Stock”) at an
exercise price of $0.01 per share (the “Warrant”) and to provide that the Lender
may elect to satisfy any and all amounts outstanding under the Loan Agreement at
any time, and from time to time with prior written notice to the Company, by
delivery by the Company of a 7% convertible promissory note and a warrant to
purchase shares of Common Stock in satisfaction of such amounts to be so
converted, on the terms and conditions set forth below.
 
1.           Conversion.  The parties hereby acknowledge and agree that,
notwithstanding the terms of the Loan Agreement, $350,000 of the Current
Outstanding Debt is hereby satisfied in full by delivery to Lender of the Note
and the Warrant.  The parties further acknowledge and agree that, upon prior
written notice to the Company, the Lender may elect at any time, and from time
to time until the consummation of a Qualified Financing (as defined in the
Note), to convert any and all amounts outstanding under the Loan Agreement into
a 7% convertible promissory note and a warrant to purchase that number of shares
of Common Stock equal to one share of Common Stock for every $1.00 that is being
so converted, on the same terms and conditions as the Note and
Warrant.   Notwithstanding the foregoing, the Lender may still loan the Company
up to a principal amount of $1,250,000 at any time and from time to time prior
to the Company’s consummation of a Next Financing (as defined in the Loan
Agreement), in accordance with the Loan Agreement.  As soon as practicable
hereafter, the Company agrees to execute and deliver to the Lender a Note in the
aggregate principal amount of and Warrant (the “Securities”).
 
 
 

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2.           Investment Intent. The Lender represents and warrants to the
Company that such Lender (i) is acquiring the Securities for such Lender’s own
account for the purpose of investment, and (ii) is not acquiring the Securities
with a view to, or for resale in connection with, a distribution, nor with any
present intention of distributing or selling the Securities and understands that
the Securities have not been registered under the Securities Act of 1933, as
amended (the “Securities Act”), or the securities laws of any state.  The Lender
understands that until the Securities have been registered under the Securities
Act and applicable state securities laws, each instrument or certificate
representing the Securities and the shares of Common Stock issuable upon
conversion of the Note and exercise of the Warrant, shall bear a legend
substantially similar to the following:
 
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND THEY MAY
NOT BE SOLD OR OTHERWISE TRANSFERRED BY ANY PERSON, INCLUDING A PLEDGEE, UNLESS
EITHER A REGISTRATION STATEMENT WITH RESPECT TO SUCH SHARES SHALL BE EFFECTIVE
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE COMPANY SHALL HAVE RECEIVED
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT THE TRANSACTION IS EXEMPT
FROM REGISTRATION UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
 
3.           Accredited Investor.  The Lender represents and warrants to the
Company that such Lender is an “accredited investor” as such term is defined in
Regulation D under the Securities Act.
 
4.           Power of Lender.  The Lender represents and warrants to the Company
that it has the right and power to execute, deliver and perform its obligations
hereunder.
 
5.           Power of Company.  The Company represents and warrants to the
Lender that (i) it has the right and power under its charter and bylaws to
execute, deliver and perform its obligations hereunder; (ii) this letter
agreement has been duly authorized by all necessary corporate action, and (iii)
the officer executing and delivering this letter agreement has the requisite
right, power, capacity and authority to do so on behalf of the Company.
 
7.           Governing Law.  This letter agreement shall be governed by and
construed in accordance with the laws of the State of Delaware governing
contracts to be made and performed therein without giving effect to principles
of conflicts of law.
 
8.           Counterparts.  This letter agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
 
9.           Further Assurances.  The Lender will execute and deliver to the
Company any writings and do all things necessary or reasonably requested by the
Company to carry into effect the provisions and intent of this letter agreement.
 

 
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IN WITNESS WHEREOF, the undersigned have executed this letter agreement as of
the date set forth above.

 
LENDER:
           
Trinad Capital Master Fund, Ltd.
           
By:
/s/ Jay Wolf
   
Name:
Jay Wolf
   
Title:
Managing Director of Trinad Management, LLC, the Manager of Trinad Capital
Master Fund Ltd.
 

 
Accepted and Agreed:

 
THE COMPANY
           
Lateral Media, Inc.
                           
By:
/s/ Charles Bentz
   
Name:
Charles Bentz
   
Title:
Chief Financial Officer
 

 
 
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