[TRAFALGAR
LETTERHEAD]

     

    


     

    July 20,
2009

     

    Mr. John
Carson

    President
& CEO

    New Media
Lottery Services, Inc.

    1400
Technology Drive

    Harrisburg,
VA 22802

    


    
      	
               
      

            	
              Re:

            	
              Commitment
      Amount in connection with USD$1,000,000 Convertible Working Capital Line
      of Credit

            


    

     

    Dear Mr.
Carson:

     

    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:

     

    
      	
               
      

            	
              1.

            	
              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:

            


    

     

    
      	
               
      

            	
              a.

            	
              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.

            


    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              b.

            	
              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.

            


    

     

    
      	
               
      

            	
              c.

            	
              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.

            


    

     

    
      	
               
      

            	
              d.

            	
              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.

            


    

     

    
      	
               
      

            	
              2.

            	
              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:

            


    

     

    
      	
               
      

            	
              a.

            	
              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;

            


    

    


    
      	
               
      

            	
              b.

            	
              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;

            


    

     

    
      
         

      

      
        - 2
-

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              c.

            	
              Capitalization.  The
      authorized capital stock of the Company consists solely of 150,000,000
      shares of its Common Stock, par value $0.001 per share, of which
      22,242,143 shares are issued
      and outstanding, and 5,000,000 shares of its preferred stock (the “Preferred
      Stock”), of which no shares are issued and
      outstanding.  The Company has duly reserved for issuance a
      sufficient number of shares of Common Stock for issuance upon conversion
      of the Trafalgar Shares at the Fixed Conversion Price.  Upon
      conversion of the Trafalgar Shares, the Conversion Shares shall have been
      duly authorized, validly issued, fully paid and nonassessable and will be
      free of preemptive rights; and

            


    

    


    
      	
               
      

            	
              d.

            	
              No Broker or Finder
      Fees.  No broker’s or finder’s fee or commission or any
      other fees will be payable by the Company with respect to this Letter
      Agreement, and the Company hereby indemnifies the Investor against, and
      agrees that it will hold the Investor harmless from, any claim, demand or
      liability for any such broker’s or finder’s fees alleged to have been
      incurred in connection herewith or therewith and any expenses (including
      reasonable fees, expenses and disbursements of counsel) arising in
      connection with any such claim, demand or
  liability.

            


    

    


    
      	
               
      

            	
              3.

            	
              Representations
      and Warranties of the Investor.  In order to
      induce the Company to enter into this Agreement, the Investor represents
      and warrants to the Company as of the Effective Date (defined below)
      that:

            


    

    


    
      	
               
      

            	
              a.

            	
              Good Standing,
      Authorization.  The Investor is a corporation in good
      standing under the laws of the State of Colorado.  The
      execution, delivery and performance of this Letter Agreement has been duly
      authorized by all necessary action on the part of the
      Investor;

            


    

    


    
      	
               
      

            	
              b.

            	
              No
      Conflict.  The execution, delivery and performance by the
      Investor of this Letter Agreement and the consummation of the transactions
      contemplated by this Letter Agreement do not and will not (i) violate
      any provision of the organizational documents of the Investor or any
      order, judgment or decree of any court or other government authority
      binding on the Investor, or (ii) conflict with, result in a breach of
      or constitute (with due notice or lapse of time or both) a default under
      any agreement by which the Investor is bound;
  and

            


    

     

    
      	
               
      

            	
              c.

            	
              No Broker or Finder
      Fees.  No broker’s or finder’s fee or commission or any
      other fees will be payable by the Investor with respect to this Letter
      Agreement, and the Investor hereby indemnifies the Company against, and
      agrees that it will hold the Company harmless from, any claim, demand or
      liability for any such broker’s or finder’s fees alleged to have been
      incurred in connection herewith or therewith and any expenses (including
      reasonable fees, expenses and disbursements of counsel) arising in
      connection with any such claim, demand or
  liability.

            


    

     

    
      
         

      

      
        - 3
-

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              4.

            	
              Binding
      Term Sheet.  Notwithstanding any
      non-binding reference in the Term Sheet, the Company and the Investor
      acknowledge and agree that, except as expressly set forth herein and
      except with respect to the condition on page 4 of the Term Sheet relating
      to the amendment of all original loan notes, within [ten 10] days of the
      Effective Date, the Parties shall execute definitive agreements reflecting
      the terms set forth in the Term Sheet (the “Definitive
      Agreements”).  The Definitive
      Agreements shall set forth the Parties’ respective rights and be in a form
      appropriate and customary for the transactions described in the Term Sheet
      and in this Letter Agreement between sophisticated parties with customary
      representations, warranties and
  indemnifications.

            


    

    


    
      	
               
      

            	
              5.

            	
              Release.  In
      consideration of the mutual promises and covenants made herein, and other
      good and valuable consideration, the receipt and sufficiency of which is
      hereby acknowledged, and intending to be legally bound hereby, the Company
      hereby agrees to fully, finally and forever mutually release and forever
      discharge and covenant not to sue the Investor, and/or and its parent
      companies, subsidiaries, affiliates, divisions, and their respective
      attorneys, officers, directors, agents, shareholders, members, employees,
      predecessors, successors, assigns, personal representatives, partners,
      heirs and executors from any and all debts, fees, attorneys’ fees, liens,
      costs, expenses, damages, sums of money, accounts, bonds, bills,
      covenants, promises, judgments, charges, demands, claims, causes of
      action, suits, liabilities, expenses, obligations or contracts of any kind
      whatsoever, whether in law or in equity, whether asserted or unasserted,
      whether known or unknown, fixed or contingent, under statute or otherwise,
      from the beginning of time through the Effective Date, including,
      without  limiting the generality of the foregoing, any and all claims
      relating to or arising out of any financing transactions, credit
      facilities, debentures, security agreements, and other agreements entered
      into by  the Company with the Investor and any and all claims that
      the Company  does not know or suspect to exist, whether through
      ignorance, oversight, error, negligence, or otherwise, and which, if
      known, would materially affect their decision to enter into this Letter
      Agreement or the related Definitive
Agreements.

            


    

     

    
      	
               
      

            	
              6.

            	
              Venue.  Venue for any suit
      arising out of or in any way related to this Letter Agreement shall lie in
      the state or federal courts situated in Miami-Dade County,
      Florida.

            


    

    


    
      	
               
      

            	
              7.

            	
              Counterparts
      and Facsimile Signatures.  This Letter Agreement
      may be executed in counterparts, each of which shall be considered an
      original, but all of which together shall constitute the same instrument.
      A confirmed facsimile transmission of an executed signature page shall be
      effective as an original.

            


    

    


    
      	
               
      

            	
              8.

            	
              Waiver.   The waiver by
      either Party of any instance of the other Party’s non-compliance with any
      obligation and/or responsibility herein shall not be deemed a waiver of
      the waiving Party’s remedies for such non-compliance in the future or for
      other obligations or responsibilities under this Letter
      Agreement.

            


    

    


    
      
        	
                 
      

              	
                9.

              	
                Attorneys’
      Fees.  In
      the event of a dispute between the Parties arising out of or in connection
      with this Letter Agreement, the prevailing Party shall be entitled to
      recover all reasonable attorneys’ fees, costs and expenses (including
      appellate fees, costs and expenses) from the non-prevailing
      Party.

              


         

        
          
             

          

          
            - 4
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                10.

              	      
                Independent
      Advice from Counsel.   Each of the
      Parties has received independent legal advice from legal counsel of its
      choice with respect to the advisability of entering into this Letter
      Agreement and its terms or has knowingly and voluntarily waived its right
      to do so.  The terms of this Letter Agreement are the result of
      mutual negotiations between the Parties, and the provisions of this Letter
      Agreement shall be interpreted and construed in accordance with their fair
      meanings, and not strictly for or against either Party, regardless of
      which Party may have drafted this Letter Agreement or any specific
      provision.

              
	 	 	 
	      
                 

              	      
                11.

              	      
                Assignment
      and Modification.  This Letter Agreement
      is not assignable.  Any attempted assignment will be null and
      void and of no effect.  This Letter Agreement cannot be modified
      except by an instrument in writing signed by both of the
      Parties.

              
	 	 	 
	 	      
                12.

              	      
                WAIVER
      OF JURY TRIAL.  EACH OF THE PARTIES
      HERETO KNOWINGLY, IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY
      RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION,
      PROCEEDING OR COUNTERCLAIM BASED ON THIS LETTER AGREEMENT, OR ARISING OUT
      OF, UNDER OR IN CONNECTION WITH THIS LETTER AGREEMENT OR ANY DOCUMENT
      EXECUTED IN CONNECTION HEREWITH OR RELATED HERETO, OR ANY COURSE OF
      CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
      ACTIONS OF ANY PARTY HERETO.  THIS PROVISION IS A MATERIAL
      INDUCEMENT FOR PARTIES TO ENTER INTO THE SUBJECT
      TRANSACTION.

              


      

    

    


    


    {Signature Page to
Follow}

     

    
      
         

      

      
        - 5
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    The foregoing understanding and this
Letter Agreement is hereby accepted and agreed by the undersigned duly
authorized representatives of the Parties hereto as of July 20, 2009 (the
“Effective
Date”).

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          	 	TRAFALGAR
      CAPITAL SPECIALIZED
INVESTMENT FUND, FIS	 
	 	 	 	 
	 	By:	Trafalgar
      Capital Sarl	 
	 	Its:  	General
      Partner	 
	 	 	 	 
	 	 	 	 
	
                                                   

                                                	
                                                  By:

                                                	 	 
	 	Name:	 	 
	 	Title:
      	 	 
	 	 	 	 
	 	 	 	 
	 	NEW
      MEDIA LOTTERY SERVICES, INC.	 
	 	 	 	 
	 	By:	 	 
	 	Name:	 	 
	 	Title:
      	 	 


                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
         

      

      
        - 6
-

        
          

        

      

      
         

      

    

     

    EXHIBIT
A

     

     

    TERM
SHEET

     

     

    [TO
BE INSERTED]

     

     

    
      
         

      

      
        - 7
-

        
          

        

      

      
         

      

    

     

    EXHBIIT
B

     

     

    NOTICE OF
CONVERSION

     

     

    (To
be executed by the holder in order to convert the Trafalgar Shares)

     

    


    
      	
              TO:

            	 
      


    

    


    The
undersigned hereby irrevocably elects to convert of the Trafalgar Shares into
shares of Common Stock of New Media Lottery Services Inc., as of the Conversion
Date written below.

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      
                                                        
                                                          
                                                            
                                                              
                                                                
                                                                  
                                                                    
                                                                      
                                                                        
                                                                          
                                                                            	
                                                                                    Conversion
      Date:

                                                                                  	 	 
      
	 	 	 
	
                                                                                    Applicable
      Conversion Price:

                                                                                  	 	 
      
	 	 	 
	
                                                                                    Signature:

                                                                                  	 	 
      
	 	 	 
	
                                                                                    Name:

                                                                                  	 	 
      
	 	 	 
	
                                                                                    Address:

                                                                                  	 	 
      
	 	 	 
	
                                                                                    Amount
      to be converted:

                                                                                  	 	 
      
	 	 	 
	
                                                                                    Amount
      of Trafalgar Shares unconverted:

                                                                                  	 	 
      
	 	 	 
	
                                                                                    Conversion
      Price per share:

                                                                                  	 	 
      
	 	 	 
	
                                                                                    Number
      of shares of Common Stock to be issued:

                                                                                  	 	 
      
	 	 	 
	
                                                                                    Please
      issue the shares of Common Stock in the following name and to the
      following address:

                                                                                  	 	 
      
	 	 	 
	
                                                                                    Issue
      to:

                                                                                  	 	 
      
	 	 	 
	
                                                                                    Authorized
      Signature:

                                                                                  	 	 
      
	 	 	 
	
                                                                                    Name:

                                                                                  	 	 
      
	 	 	 
	
                                                                                    Title:

                                                                                  	 	 
      
	 	 	 
	
                                                                                    Phone
      Number:

                                                                                  	 	 
      
	 	 	 
	
                                                                                    Broker
      DTC Participant Code:

                                                                                  	 	 
      
	 	 	 
	
                                                                                    Account
      Number:

                                                                                  	 	 
      


                                                                          

                                                                        

                                                                      

                                                                    

                                                                  

                                                                

                                                              

                                                            

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    


    


    
      
         

      

      
        - 8
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