Exhibit 10.4


 


	
  LA JOLLA

  	
   

  	
  LA JOLLA COVE INVESTORS, INC.

  1795 UNION STREET, 3rd FLOOR

  SAN FRANCISCO, CALIFORNIA 94123

  TELEPHONE:  (415) 409-8703

  FACSIMILE:    (415) 409-8704

  E-MAIL: LJCI@PACBELL.NET

  www.ljcinvestors.com

  	
   

  	
  SAN FRANCISCO

  



 


July 28, 2004


 


Andrew Benson, President


Datameg Corp.


P.O. Box 130145


Boston, MA 02113


 


Dear Andrew:


 


As you know, La Jolla Cove
Investors, Inc. (“LJCI”) owns approximately 13,725,000 shares of Datameg Corp.
(“Datameg”) restricted stock.


 


1.             Datameg Corp. agrees to include all
Datameg shares owned by LJCI in the current registration statement
(“Registration Statement”) filed by Datameg Corp. on February 27, 2004. If LJCI
is included in the Registration Statement and the Registration Statement is
declared effective by the Securities and Exchange Commission prior to January
1, 2005, LJCI shall pay Datameg the sum of $125,000 when all of the following
three conditions are met:


 


(a)           the Registration Statement is
declared effective (the “Effective Date”);


 


(b)           the Office of the Secretary of the
SEC (202-942-7070) confirms by telephone that the SEC has not issued any stop
orders with respect to the Registration Statement; and


 


(c)           Datameg furnishes to LJCI a signed
writing certifying that Datameg has not and will not direct its transfer agent
to halt trading of LJCI’s shares of Datameg common stock registered under the
Registration Statement.


 


Provided however, LJCI shall
not be obligated to pay Datameg the $125,000 amount if (1) Datameg’s common
stock closes below $0.05 at anytime before the Effective Date and (2) LJCI
notifies Datameg (with a copy to Datameg’s counsel, Duane Morris LLP,
attention: Lance A. Kawesch, fax 617-289-9201) that LJCI no longer wishes to
have Datameg register LJCI’s shares of Datameg common stock (a “Cancellation
Notice”).  LJCI may not issue a
Cancellation Notice unless, before the Effective Date, Datameg’s common stock
closes below $0.05.  Paragraphs 2 to 8
inclusive below apply only if LJCI has not issued a Cancellation Notice.


 


2.             Approximately five business days
before the estimated Effective Date, and in no event later than August 9, 2004,
LJCI shall deposit the sum of $125,000 with the law firm of Duane Morris LLP,
which shall be authorized to release the funds to Datameg upon notification by
Duane Morris LLP to LJCI that (a) the Registration Statement containing LJCI’s
Datameg shares has been declared effective prior to August 25, 2004 and (b) the
conditions listed in


 

















 


paragraph 1 above are
satisfied.  LJCI acknowledges that Duane
Morris LLP will deposit these funds in an IOLTA non-interest bearing account.


 


3.             If (a) the Registration Statement
is not declared effective by August 25, 2004 or (b) the conditions listed in
paragraph 1 above are not satisfied by August 25, 2004, Duane Morris LLP shall,
upon the request of LJCI by fax (617-289-9201) or electronic mail
(lakawesch@duanemorris.com), or at any earlier time determined by Duane Morris
LLP, immediately return the $125,000 to LJCI.


 


4.             Unless LJCI has issued a
Cancellation Notice, Datameg shall still be obligated to include all Datameg
shares owned by LJCI in the Registration Statement and, upon the Registration
Statement being declared effective by the SEC prior to January 1, 2005, LJCI
shall pay Datameg the sum of $125,000.  
However, if LJCI has issued a Cancellation Notice, LJCI will not be
obligated to pay the $125,000 to Datameg and Datameg will not be obligated to
include any shares of Datameg common stock owned by LJCI in the Registration
Statement.


 


5.             So long as LJCI owns any Datameg
stock, LJCI agrees that neither LJCI nor its affiliates shall at anytime (a)
engage in any short sales of, or sell put options or similar instruments with
respect to, Datameg’s stock or (b) sell any shares of Datameg common stock
after 3:30 pm Eastern Time on any trading day.


 


6.             In the disposition of its Datameg
stock under the Registration Statement, LJCI shall not place any order to sell,
or actually sell, more per day than the greater of: (a) 120,000 shares, or (b)
12% of the daily volume of Datameg stock on that day; but in no event more than
200,000 shares per day. The 200,000 per day maximum shall be increased to
300,000 on any day that the Datameg stock daily volume is 3,000,000 or more.


 


7.             In order to assure Datameg Corp. of
LJCI’s compliance with the volume restrictions described in the preceding
paragraph, LJCI will, beginning on the Effective Date and every business day
thereafter (until LJCI no longer owns any Datameg common stock and so notifies
Datameg Corp. of that fact in a writing signed by LJCI’s principal executive
officer), fax to Datameg Corp. at 617-720-1031 (or such other fax number as
Datameg Corp. may provide to LJCI from time to time) a true, complete and
correct copy of each trading confirmation for purchases or sales of Datameg
common stock made that trading day by LJCI and its affiliates, containing a
cover sheet, signed by Travis W. Huff or his authorized designee, stating the
total number of shares of Datameg common stock purchased that day, the total
number of shares of Datameg common stock sold that day, a certifying that the
attached trade confirmations reflect all purchases and sales of Datameg common
stock made that trading day by LJCI and its affiliates.


 


8.             Within one business day after the
Effective Date, LJCI shall dismiss, without prejudice, its Complaint in the
matter of La Jolla Cove Investors, Inc. vs. Andrew Benson and Datameg Corp.,
San Diego Superior Court Case No. GIC829668 (the “Complaint”).  At the


 


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earlier of (a) one business day
after LJCI no longer owns any shares of Datameg common stock registered in the
Registration Statement and (b) six months after the Effective Date, LJCI shall
dismiss, with prejudice, the Complaint.


 


9.             LJCI shall loan Datameg a total of
$250,000 in the form of a convertible debenture with an interest rate of 6.75%,
with $83,300 funded on the Effective Date, $83,300 funded on the date Datameg
files a Form SB-2 with the SEC to register all shares issuable upon conversion
of the debenture (the “New SB-2”) and $93,400 funded on the date the SEC
declares the New SB-2 effective.  The
debenture will be convertible into shares of Datameg common stock.  Of the $93,400 funded by LJCI on the date
the SEC declares the New SB-2 effective, $10,000 shall be wired to Duane Morris
LLP and Duane Morris LLP shall apply such $10,000 as a credit for the benefit
of Datameg Corp. to cover a portion of Datameg’s legal expenses associated with
this transaction.


 


10.           The conversion price per share under
the debenture (the “Conversion Price”) will be 75% of the volume weighted
average prices of Datameg common stock in the prior 10 trading days prior to
the conversion.  However, if for each
trading day in any five trading day period, the Conversion Price exceeds the
volume weighted average prices of Datameg common stock in the prior two trading
days, then the Conversion Price for a conversion on the next trading day after
that two trading day period will be 80% of the volume weighted average prices
of Datameg common stock in the prior two trading days prior to the conversion.


 


11.           The debenture will contain a price
floor, pursuant to which LJCI will not be able to convert the debenture if
Datameg’s volume weighted average price in the prior 10 trading days is below
$0.10 per share.  Similarly, in order to
comply with federal securities laws, the convertible debenture will not be
convertible until six months after the Effective Date.  Unless prohibited due to the price floor,
LJCI will convert all of the convertible debenture within two years of the
Effective Date.


 


12.           In addition, LJCI will purchase
$2,500,000  of Datameg’s stock. 
This will be accomplished by LJCI purchasing shares of Datameg’s common
stock in a dollar amount equal to 10 times the dollar amount of each conversion
of the debenture, pursuant to a warrant agreement. The purchase price for such
shares under the warrant agreement shall be the same as the debenture
conversion price. The warrant shall be mandatorily exercised as, if, when and
to the extent (applying the ten times multiplier) of the conversion of the
convertible debenture.


 


13.           This paragraph 13 sets out an example
that assumes that the situation described in the second sentence of paragraph
10 above does not apply.  As an example,
and for illustration purposes only, if the Effective Date is August 10, 2004,
then the convertible debenture would be first convertible on February 10,
2005.  If on that date the volume
weighted average prices of Datameg common stock in the prior 10 trading days is
$0.20 per share, and LJCI opts to convert $30,000 of its convertible debenture
into Datameg common stock, then (1) Datameg Corp. will issue to LJCI 200,000
shares of Datameg common stock due to the conversion of the debenture


 


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(priced at $0.15 per share to
reflect the 75% purchase price adjustment), (2) Datameg Corp. will issue to
LJCI 2,000,000 shares of Datameg common stock due to the mandatory warrant
exercise (also priced at $0.15 per share to reflect the 75% purchase price
adjustment), and (3) LJCI will pay to Datameg Corp. $300,000 as the mandatory
warrant exercise price.


 


14.           This proposal to provide a
convertible debenture is subject to the following: (a) mutual agreement and
execution of all definitive documentation and (b) no material adverse change in
the circumstances of Datameg prior to closing. 
The closing will occur on or before the Effective Date and will be
effective at the same time as the Registration Statement is declared effective
by the Securities and Exchange Commission. 
In addition, the proposal to provide convertible debenture financing by
LJCI to Datameg is an indication of interest only, not an offer to sell or buy
securities, and is non-binding on either party pending execution of a definitive
agreement.


 


15.           Except for the terms in paragraphs 9
through 14 inclusive, all other terms of this letter agreement are legally
binding on LJCI and Datameg so long as LJCI and Datameg enter into definitive
documentation relating to the convertible debenture and warrant before the
Effective Date.


 


If the foregoing terms are
acceptable to Datameg Corp., please sign and return one copy of this letter
agreement to me.


 


	
  Sincerely,

  
	
   

  
	
   

  
	
  /s/ Travis
  W. Huff

  	
   

  
	
  Travis W.
  Huff

  
	
  Portfolio
  Manager

  
	
   

  
	
   

  
	
  Acknowledged
  and agreed to:

  
	
   

  
	
  Datameg
  Corp.

  
	
   

  
	
   

  
	
  By:

  	
   

  	
  /s/ Andrew
  Benson

  	
   

  
	
   

  	
  Andrew
  Benson

  
	
   

  	
  President

  
					



 


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