eightk
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date
of
Report (Date of earliest event reported): December
27, 2006
CAMELOT
ENTERTAINMENT GROUP INC.
(EXACT
NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
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Delaware
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000-3078
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52-2195605
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(State
or other jurisdiction of incorporation or organization)
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(Commission
File Number)
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(IRS
Employee Identification No.)
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2020
Main Street Suite 909 Irvine CA
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92614
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:
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(949)
777 1090
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Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
[
]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[
]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[
]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act
(17 CFR 240.14d-2(b))
[
]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act
(17 CFR 240.13e-4(c))
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ITEM
1.01
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ENTRY
INTO A MATERIAL DEFINITIVE
AGREEMENT
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On
December 27, 2006, we entered into a Securities Purchase Agreement (the
"Securities Purchase Agreement") with New Millennium Capital Partners II, LLC,
AJW Qualified Partners, LLC, AJW Offshore, Ltd. and AJW Partners, LLC
(collectively, the "Investors"). Under the terms of the Securities Purchase
Agreement, the Investors purchased an aggregate of (i) $1,000,000 in callable
convertible secured notes (the "Notes") and (ii) warrants to purchase
10,000,0000 shares of our common stock (the "Warrants"). The capital provided
by
the Notes will be delivered to the Company as follows; $600,000 upon closing
and
$400,000 upon effectiveness of the planned Registration Document.
The
Notes
carry an interest rate of 8% and a maturity date of December 27, 2009. The
notes
are convertible into our common shares at the Variable Conversion Price (as
defined hereafter). The Variable Conversion Price shall be equal to the
Applicable Percentage multiplied by the average of the lowest three (3) trading
prices for our shares of common stock during the twenty (20) trading day period
prior to conversion. The Applicable Percentage is between 50% and 60% depending
upon the status of the registration statement to be filed by the
Company.
At
our
option, we may prepay the Notes in the event that no event of default exists,
there are a sufficient number of shares available for conversion of the Notes
and the Common Stock is trading below the Initial Market Price as adjusted.
In
addition, in the event that the average daily price of the common stock, as
reported by the reporting service, for each day of the month ending on a
determination date is below the Initial Market Price as adjusted, we may prepay
a portion of the outstanding principal amount of the Notes equal to 104% of
the
principal amount hereof divided by thirty-six (36) plus one month’s interest.
Exercise of this option will stay all conversions for the following month.
The
full principal amount of the Notes is due upon default under the terms of Notes.
In addition, the Company has granted the investors a security interest in
substantially all of its assets and intellectual property, excluding Camelot
Studio Group and Camelot Film Group, as well as demand registration
rights.
We
simultaneously issued to the Investors seven year warrants to purchase
10,000,000 shares of our common stock at an exercise price of $.15.
The
Investors have contractually agreed to restrict their ability to convert the
Notes and exercise the Warrants and receive shares of the Company's common
stock
such that the number of shares of the Company's common stock held by them and
their affiliates after such conversion or exercise does not exceed 4.99% of
the
then issued and outstanding shares of the Company's common stock.
We
are
committed to registering the shares of common stock underlying the Notes. We
have agreed to file the registration statement within thirty (30) days from
the
closing date of our agreement with the Investors otherwise we may be subject
to
penalty provisions. There are penalty provisions if the Company does not use
its
best efforts and respond to comments from the SEC regarding its Registration
Statement in a timely manner, or after the Registration Statement has been
declared effective by the SEC, sales of all of the Registrable Securities cannot
be made pursuant to the Registration Statement due to the fault of the
Company.
In
addition, in accordance with the terms and conditions of the Company’s
Structuring Agreement with Lionheart Associates, LLC, Lionheart shall receive
$200,000 in warrants on
the
same terms as the Investor’s warrants and shall include registration
rights.
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ITEM
2.03
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CREATION
OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE
SHEET ARRANGEMENT OF A
REGISTRANT
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The
sale
of Notes described in Item 1.01 was completed on December 27, 2006. The Company
received $600,000 in gross proceeds from the Notes on December 29, 2006. At
the
closing, the company became obligated to the Investors for $600,000 in face
amount of the Notes. The balance of the Notes, $400,000, will be delivered
to
the Company upon the effectiveness of the planned Registration Statement. The
Notes are a debt obligation arising other than in the ordinary course of
business which constitute a direct financial obligation of us.
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ITEM
3.02
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UNREGISTERED
SALES OF EQUITY SECURITIES
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The
Notes
and Warrants referenced in Item 1.01 were offered and sold to the Investors
in a
private placement transaction in reliance upon exemptions from registration
pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D promulgated thereto. Each of the Investors is an accredited
investor as defined in Rule 501 of Regulation D under the Securities Act of
1933.
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ITEM
9.01
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FINANCIAL
STATEMENT AND EXHIBITS
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(a)
Financial
Statements of Business Acquired.
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(b)
Pro
Forma Financial Information.
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Exhibit
Number
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Description
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4.1
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Securities
Purchase Agreement dated December 27, 2006 by and among the Company
and
the Investors
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4.2
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Form
of Callable Convertible Secured Note by and among the Company and
the
Investors
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4.3
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Form
of Stock Purchase Warrant by and among the Company and the
Investors
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4.4
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Registration
Rights Agreement by and among the Company and the
Investors
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4.5
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Security
Agreement by and among the Company and the Investors
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4.6
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Intellectual
Property Security Agreement by and among the Company and the
Investors
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4.7
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Structuring
Agreement with Lionheart
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this Report to be signed on its behalf by the undersigned hereunto
duly authorized.
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CAMELOT
ENTERTAINMENT GROUP, INC.
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Dated:
January 3, 2007
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By:
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/s/
Robert P. Atwell
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Robert
P. Atwell
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Chairman
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Exhibit
4.1
Exhibit
4.1
Securities
Purchase Agreement dated December 27, 2006 by and among the Company and the
Investors
SECURITIES
PURCHASE AGREEMENT
SECURITIES
PURCHASE AGREEMENT (this “Agreement”),
dated
as of December 27, 2006, by and among Camelot Entertainment Group, Inc., a
Delaware Corporation, with headquarters located at 2020 Main Street, #990,
Irvine, California 92614 (the “Company”),
and
each of the purchasers set forth on the signature pages hereto (the
“Buyers”).
WHEREAS:
A. The
Company and the Buyers are executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by the rules and
regulations as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933
Act”);
B. Buyers
desire to purchase and the Company desires to issue and sell, upon the terms
and
conditions set forth in this Agreement (i) 8%
secured convertible notes of the Company, in the form attached hereto as
Exhibit
“A”,
in the
aggregate principal amount of One Million Dollars ($1,000,000) (together with
any note(s) issued in replacement thereof or as a dividend thereon or otherwise
with respect thereto in accordance with the terms thereof, the “Notes”),
convertible into shares of common stock, par value $.001 per share, of the
Company (the “Common
Stock”),
upon
the terms and subject to the limitations and conditions set forth in such Notes
and (ii)
stock purchase warrants, in the form attached hereto as Exhibit
“B”,
to
purchase an aggregate of 10,000,000 shares of Common Stock (the “Warrants”).
C. Each
Buyer wishes to purchase, upon the terms and conditions stated in this
Agreement, such principal amount of Notes and number of Warrants as is set
forth
immediately below its name on the signature pages hereto; and
D. Contemporaneous
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, in the form attached
hereto as Exhibit
“C”
(the
“Registration
Rights Agreement”),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
NOW
THEREFORE,
the
Company and each of the Buyers severally (and not jointly) hereby agree as
follows:
1. PURCHASE
AND SALE OF NOTES AND WARRANTS.
a. Purchase
of Notes and Warrants.
On the
Closing Date (as defined below), the Company shall issue and sell to each Buyer
and each Buyer severally agrees to purchase from the Company such principal
amount of Notes and number of Warrants as is set forth immediately below such
Buyer’s name on the signature pages hereto.
b. Form
of Payment.
On the
Closing Date (as defined below), (i) each
Buyer shall pay the purchase price for the Notes and the Warrants to be issued
and sold to it at the Closing (as defined below) (the “Purchase
Price”)
by
wire transfer of immediately available funds to the Company, in accordance
with
the Company’s written wiring instructions, against delivery of the Notes in the
principal amount equal to the Purchase Price and the number of Warrants as
is
set forth immediately below such Buyer’s name on the signature pages hereto, and
(ii) the
Company shall deliver such Notes and Warrants duly executed on behalf of the
Company, to such Buyer, against delivery of such Purchase Price.
c. Closing
Date.
Subject
to the satisfaction (or written waiver) of the conditions thereto set forth
in
Section 6 and Section 7 below, the date and time of the issuance and sale of
the
Notes and the Warrants pursuant to this Agreement (the “Closing
Date”)
shall
be 12:00 noon, Eastern Standard Time on December 27, 2006, or such other
mutually agreed upon time. The closing of the transactions contemplated by
this
Agreement (the “Closing”)
shall
occur on the Closing Date at such location as may be agreed to by the
parties.
2. BUYERS’
REPRESENTATIONS AND WARRANTIES.
Each
Buyer severally (and not jointly) represents and warrants to the Company solely
as to such Buyer that:
a. Investment
Purpose.
As of
the date hereof, the Buyer is purchasing the Notes and the shares of Common
Stock issuable upon conversion of or otherwise pursuant to the Notes (including,
without limitation, such additional shares of Common Stock, if any, as are
issuable (i) on
account of interest on the Notes, (ii) as
a result of the events described in Sections 1.3 and 1.4(g) of the Notes and
Section 2(c) of the Registration Rights Agreement or (iii) in
payment of the Standard Liquidated Damages Amount (as defined in Section 2(f)
below) pursuant to this Agreement, such shares of Common Stock being
collectively referred to herein as the “Conversion
Shares”)
and
the Warrants and the shares of Common Stock issuable upon exercise thereof
(the
“Warrant
Shares”
and,
collectively with the Notes, Warrants and Conversion Shares, the “Securities”)
for
its own account and not with a present view towards the public sale or
distribution thereof, except pursuant to sales registered or exempted from
registration under the 1933 Act; provided,
however,
that by
making the representations herein, the Buyer does not agree to hold any of
the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. Accredited
Investor Status.
The
Buyer is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D (an “Accredited
Investor”).
c. Reliance
on Exemptions.
The
Buyer understands that the Securities are being offered and sold to it in
reliance upon specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying upon
the truth and accuracy of, and the Buyer’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Buyer set
forth herein in order to determine the availability of such exemptions and
the
eligibility of the Buyer to acquire the Securities.
d. Information.
The
Buyer and its advisors, if any, have been, and for so long as the Notes and
Warrants remain outstanding will continue to be, furnished with all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities which have been requested
by
the Buyer or its advisors. The Buyer and its advisors, if any, have been, and
for so long as the Notes and Warrants remain outstanding will continue to be,
afforded the opportunity to ask questions of the Company. Notwithstanding the
foregoing, the Company has not disclosed to the Buyer any material nonpublic
information and will not disclose such information unless such information
is
disclosed to the public prior to or promptly following such disclosure to the
Buyer. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify,
amend
or affect Buyer’s right to rely on the Company’s representations and warranties
contained in Section 3 below. The Buyer understands that its investment in
the
Securities involves a significant degree of risk. The Buyers are not aware
of
any facts that may constitute a breach of any of the Company's representations
and warranties made herein.
e. Governmental
Review.
The
Buyer understands that no United States federal or state agency or any other
government or governmental agency has passed upon or made any recommendation
or
endorsement of the Securities.
f. Transfer
or Re-sale.
The
Buyer understands that (i) except
as provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the
Securities are sold pursuant to an effective registration statement under the
1933 Act, (b) the
Buyer shall have delivered to the Company, at the cost of the Company, an
opinion of counsel that shall be in form, substance and scope customary for
opinions of counsel in comparable transactions to the effect that the Securities
to be sold or transferred may be sold or transferred pursuant to an exemption
from such registration, which opinion shall be accepted by the Company,
(c) the
Securities are sold or transferred to an “affiliate” (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) (“Rule
144”))
of
the Buyer who agrees to sell or otherwise transfer the Securities only in
accordance with this Section 2(f) and who is an Accredited Investor,
(d) the
Securities are sold pursuant to Rule 144, or (e) the
Securities are sold pursuant to Regulation S under the 1933 Act (or a successor
rule) (“Regulation
S”),
and
the Buyer shall have delivered to the Company, at the cost of the Company,
an
opinion of counsel that shall be in form, substance and scope customary for
opinions of counsel in corporate transactions, which opinion shall be accepted
by the Company; (ii) any sale of such Securities made in reliance on Rule 144
may be made only in accordance with the terms of said Rule and further, if
said
Rule is not applicable, any re-sale of such Securities under circumstances
in
which the seller (or the person through whom the sale is made) may be deemed
to
be an underwriter (as that term is defined in the 1933 Act) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act
or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement). Notwithstanding the foregoing or anything else contained
herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide
margin
account or other lending arrangement. In the event that the Company does not
accept the opinion of counsel provided by the Buyer with respect to the transfer
of Securities pursuant to an exemption from registration, such as Rule 144
or
Regulation S, within five (5) business days of delivery of the opinion to the
Company, the Company shall pay to the Buyer liquidated damages of three percent
(3%) of the outstanding amount of the Notes per month plus accrued and unpaid
interest on the Notes, prorated for partial months, in cash or shares at the
option of the Company (“Standard
Liquidated Damages Amount”).
If
the Company elects to be pay the Standard Liquidated Damages Amount in shares
of
Common Stock, such shares shall be issued at the Conversion Price (as defined
in
the Notes) at the time of payment.
g. Legends.
The
Buyer understands that the Notes and the Warrants and, until such time as the
Conversion Shares and Warrant Shares have been registered under the 1933 Act
as
contemplated by the Registration Rights Agreement or otherwise may be sold
pursuant to Rule 144 or Regulation S without any restriction as to the number
of
securities as of a particular date that can then be immediately sold, the
Conversion Shares and Warrant Shares may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):
“The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended. The securities may not be sold, transferred
or assigned in the absence of an effective registration statement for the
securities under said Act, or an opinion of counsel, in form, substance and
scope customary for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless sold pursuant to Rule
144
or Regulation S under said Act.”
The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it
is
stamped, if, unless otherwise required by applicable state securities laws,
(a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, to the effect that a public
sale or transfer of such Security may be made without registration under the
1933 Act, which opinion shall be accepted by the Company so that the sale or
transfer is effected or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 or Regulation
S.
The Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
h. Authorization;
Enforcement.
This
Agreement and the Registration Rights Agreement have been duly and validly
authorized. This Agreement has been duly executed and delivered on behalf of
the
Buyer, and this Agreement constitutes, and upon execution and delivery by the
Buyer of the Registration Rights Agreement, such agreement will constitute,
valid and binding agreements of the Buyer enforceable in accordance with their
terms.
i. Residency.
The
Buyer is a resident of the jurisdiction set forth immediately below such Buyer’s
name on the signature pages hereto.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
The
Company represents and warrants to each Buyer that:
a. Organization
and Qualification.
The
Company and each of its Subsidiaries (as defined below), if any, is a
corporation duly organized, validly existing and in good standing under the
laws
of the jurisdiction in which it is incorporated, with full power and authority
(corporate and other) to own, lease, use and operate its properties and to
carry
on its business as and where now owned, leased, used, operated and conducted.
Schedule
3(a)
sets
forth a list of all of the Subsidiaries of the Company and the jurisdiction
in
which each is incorporated. The Company and each of its Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which its ownership or use of property or the nature
of
the business conducted by it makes such qualification necessary except where
the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. “Material
Adverse Effect”
means
any material adverse effect on the business, operations, assets, financial
condition or prospects of the Company or its Subsidiaries, if any, taken as
a
whole, or on the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith. “Subsidiaries”
means
any corporation or other organization, whether incorporated or unincorporated,
in which the Company owns, directly or indirectly, any equity or other ownership
interest.
b. Authorization;
Enforcement.
(i) The
Company has all requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement, the Notes and the
Warrants and to consummate the transactions contemplated hereby and thereby
and
to issue the Securities, in accordance with the terms hereof and thereof, (ii)
the execution and delivery of this Agreement, the Registration Rights Agreement,
the Notes and the Warrants by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without limitation,
the
issuance of the Notes and the Warrants and the issuance and reservation for
issuance of the Conversion Shares and Warrant Shares issuable upon conversion
or
exercise thereof) have been duly authorized by the Company’s Board of Directors
and no further consent or authorization of the Company, its Board of Directors,
or its shareholders is required, (iii) this Agreement has been duly executed
and
delivered by the Company by its authorized representative, and such authorized
representative is the true and official representative with authority to sign
this Agreement and the other documents executed in connection herewith and
bind
the Company accordingly, and (iv) this Agreement constitutes, and upon execution
and delivery by the Company of the Registration Rights Agreement, the Notes
and
the Warrants, each of such instruments will constitute, a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms.
c. Capitalization.
As of
the date hereof, the authorized capital stock of the Company consists of (i)
150,000,000 shares of Common Stock, of which 93,649,589 shares are issued and
outstanding, no shares are reserved for issuance pursuant to the Company’s stock
option plans, no shares are reserved for issuance pursuant to securities (other
than the Notes and the Warrants) exercisable for, or convertible into or
exchangeable for shares of Common Stock and 30,833,333 shares are reserved
for
issuance upon conversion of the Notes and the Additional Notes (as defined
in
Section 4(l)) and exercise of the Warrants (subject to adjustment pursuant
to
the Company’s covenant set forth in Section 4(h) below); (ii) 5,100,000 shares
of Class A Convertible Preferred Stock, of which 5,100,000 shares are issued
and
outstanding; and (iii) 5,100,000 shares of Class B Convertible Preferred Stock,
of which 5,100,000 shares are issued and outstanding. All of such outstanding
shares of capital stock are, or upon issuance will be, duly authorized, validly
issued, fully paid and nonassessable. No shares of capital stock of the Company
are subject to preemptive rights or any other similar rights of the shareholders
of the Company or any liens or encumbrances imposed through the actions or
failure to act of the Company. Except as disclosed in Schedule
3(c),
as of
the effective date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into
or
exchangeable for any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries
is
or may become bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries, (ii) there are no agreements or arrangements under
which the Company or any of its Subsidiaries is obligated to register the sale
of any of its or their securities under the 1933 Act (except the Registration
Rights Agreement) and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any agreement
providing rights to security holders) that will be triggered by the issuance
of
the Notes, the Warrants, the Conversion Shares or Warrant Shares. The Company
has furnished to the Buyer true and correct copies of the Company’s Certificate
of Incorporation as in effect on the date hereof (“Certificate
of Incorporation”),
the
Company’s By-laws, as in effect on the date hereof (the “By-laws”),
and
the terms of all securities convertible into or exercisable for Common Stock
of
the Company and the material rights of the holders thereof in respect thereto.
The Company shall provide the Buyer with a written update of this representation
signed by the Company’s Chief Executive or Chief Financial Officer on behalf of
the Company as of the Closing Date.
d. Issuance
of Shares.
The
Conversion Shares and Warrant Shares are duly authorized and reserved for
issuance and, upon conversion of the Notes and exercise of the Warrants in
accordance with their respective terms, will be validly issued, fully paid
and
non-assessable, and free from all taxes, liens, claims and encumbrances with
respect to the issue thereof and shall not be subject to preemptive rights
or
other similar rights of shareholders of the Company and will not impose personal
liability upon the holder thereof.
e. Acknowledgment
of Dilution.
The
Company understands and acknowledges the potentially dilutive effect to the
Common Stock upon the issuance of the Conversion Shares and Warrant Shares
upon
conversion of the Note or exercise of the Warrants. The Company further
acknowledges that its obligation to issue Conversion Shares and Warrant Shares
upon conversion of the Notes or exercise of the Warrants in accordance with
this
Agreement, the Notes and the Warrants is absolute and unconditional regardless
of the dilutive effect that such issuance may have on the ownership interests
of
other shareholders of the Company.
f. No
Conflicts.
The
execution, delivery and performance of this Agreement, the Registration Rights
Agreement, the Notes and the Warrants by the Company and the consummation by
the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance and reservation for issuance of the Conversion Shares
and Warrant Shares) will not (i) conflict with or result in a violation of
any
provision of the Certificate of Incorporation or By-laws or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both could become
a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture, patent, patent
license or instrument to which the Company or any of its Subsidiaries is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company or
its
securities are subject) applicable to the Company or any of its Subsidiaries
or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither
the
Company nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which
with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has
taken
any action or failed to take any action that would give to others any rights
of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is
a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities, in violation
of
any law, ordinance or regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the 1933
Act
and any applicable state securities laws, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration
with,
any court, governmental agency, regulatory agency, self regulatory organization
or stock market or any third party in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Registration Rights
Agreement, the Notes or the Warrants in accordance with the terms hereof or
thereof or to issue and sell the Notes and Warrants in accordance with the
terms
hereof and to issue the Conversion Shares upon conversion of the Notes and
the
Warrant Shares upon exercise of the Warrants. Except as disclosed in
Schedule
3(f),
all
consents, authorizations, orders, filings and registrations which the Company
is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company is not in violation of
the
listing requirements of the Over-the-Counter Bulletin Board (the “OTCBB”)
and
does not reasonably anticipate that the Common Stock will be delisted by the
OTCBB in the foreseeable future. The Company and its Subsidiaries are unaware
of
any facts or circumstances which might give rise to any of the foregoing.
g. SEC
Documents; Financial Statements.
Except
as disclosed in Schedule
3(g),
the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the
“1934
Act”)
(all
of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents (other
than
exhibits to such documents) incorporated by reference therein, being hereinafter
referred to herein as the “SEC
Documents”).
The
Company has delivered to each Buyer true and complete copies of the SEC
Documents, except for such exhibits and incorporated documents. As of their
respective dates, the SEC Documents complied in all material respects with
the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to
be
stated therein or necessary in order to make the statements therein, in light
of
the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have
been
amended or updated in subsequent filings prior the date hereof). As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with
respect thereto. Such financial statements have been prepared in accordance
with
United States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects
the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the SEC Documents, the Company
has no liabilities, contingent or otherwise, other than (i) liabilities incurred
in the ordinary course of business subsequent to December 27, 2006 and (ii)
obligations under contracts and commitments incurred in the ordinary course
of
business and not required under generally accepted accounting principles to
be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the
Company.
h. Absence
of Certain Changes.
Except
as set forth on Schedule
3(h),
since
December 27, 2006, there has been no material adverse change and no material
adverse development in the assets, liabilities, business, properties,
operations, financial condition, results of operations or prospects of the
Company or any of its Subsidiaries.
i. Absence
of Litigation.
Except
as set forth on Schedule
3(i),
there
is no action, suit, claim, proceeding, inquiry or investigation before or by
any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company or any of its Subsidiaries, or
their
officers or directors in their capacity as such, that could have a Material
Adverse Effect. Schedule
3(i)
contains
a complete list and summary description of any pending or, to the knowledge
of
the Company, threatened proceeding against or affecting the Company or any
of
its Subsidiaries, without regard to whether it would have a Material Adverse
Effect. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
j. Patents,
Copyrights, etc.
The
Company and each of its Subsidiaries owns or possesses the requisite licenses
or
rights to use all patents, patent applications, patent rights, inventions,
know-how, trade secrets, trademarks, trademark applications, service marks,
service names, trade names and copyrights (“Intellectual
Property”)
necessary to enable it to conduct its business as now operated (and, except
as
set forth in Schedule
3(j)
hereof,
to the best of the Company’s knowledge, as presently contemplated to be operated
in the future); there is no claim or action by any person pertaining to, or
proceeding pending, or to the Company’s knowledge threatened, which challenges
the right of the Company or of a Subsidiary with respect to any Intellectual
Property necessary to enable it to conduct its business as now operated (and,
except as set forth in Schedule
3(j)
hereof,
to the best of the Company’s knowledge, as presently contemplated to be operated
in the future); to the best of the Company’s knowledge, the Company’s or its
Subsidiaries’ current and intended products, services and processes do not
infringe on any Intellectual Property or other rights held by any person; and
the Company is unaware of any facts or circumstances which might give rise
to
any of the foregoing. The Company and each of its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of their Intellectual Property.
k. No
Materially Adverse Contracts, Etc.
Neither
the Company nor any of its Subsidiaries is subject to any charter, corporate
or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company’s officers has or is expected in the future
to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment
of
the Company’s officers has or is expected to have a Material Adverse
Effect.
l. Tax
Status.
Except
as set forth on Schedule
3(l),
the
Company and each of its Subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required
by
any jurisdiction to which it is subject (unless and only to the extent that
the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and
has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside
on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by
the
taxing authority of any jurisdiction, and the officers of the Company know
of no
basis for any such claim. The Company has not executed a waiver with respect
to
the statute of limitations relating to the assessment or collection of any
foreign, federal, state or local tax. Except as set forth on Schedule
3(l),
none of
the Company’s tax returns is presently being audited by any taxing
authority.
m. Certain
Transactions.
Except
as set forth on Schedule
3(m)
and
except for arm’s length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on
Schedule
3(c),
none of
the officers, directors, or employees of the Company is presently a party to
any
transaction with the Company or any of its Subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which
any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
n. Disclosure.
All
information relating to or concerning the Company or any of its Subsidiaries
set
forth in this Agreement and provided to the Buyers pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby
is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein
or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to
the
Company or any of its Subsidiaries or its or their business, properties,
prospects, operations or financial conditions, which, under applicable law,
rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed (assuming for this purpose
that the Company’s reports filed under the 1934 Act are being incorporated into
an effective registration statement filed by the Company under the 1933
Act).
o. Acknowledgment
Regarding Buyers’ Purchase of Securities.
The
Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm’s length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Buyer
is acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any statement made by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Buyers’ purchase of the Securities. The Company further represents to
each Buyer that the Company’s decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives.
p. No
Integrated Offering.
Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales in any security
or
solicited any offers to buy any security under circumstances that would require
registration under the 1933 Act of the issuance of the Securities to the Buyers.
The issuance of the Securities to the Buyers will not be integrated with any
other issuance of the Company’s securities (past, current or future) for
purposes of any shareholder approval provisions applicable to the Company or
its
securities.
q. No
Brokers.
Except
as set forth in Schedule
3(q),
the
Company has taken no action which would give rise to any claim by any person
for
brokerage commissions, transaction fees or similar payments relating to this
Agreement or the transactions contemplated hereby.
r. Permits;
Compliance.
The
Company and each of its Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the “Company
Permits”),
and
there is no action pending or, to the knowledge of the Company, threatened
regarding suspension or cancellation of any of the Company Permits. Neither
the
Company nor any of its Subsidiaries is in conflict with, or in default or
violation of, any of the Company Permits, except for any such conflicts,
defaults or violations which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect. Since December 27,
2006, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults
or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
s. Environmental
Matters.
(i) Except
as
set forth in Schedule
3(s),
there
are, to the Company’s knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or present violations
of
Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws and neither the Company nor any of its Subsidiaries has received
any notice with respect to any of the foregoing, nor is any action pending
or,
to the Company’s knowledge, threatened in connection with any of the foregoing.
The term “Environmental
Laws”
means
all federal, state, local or foreign laws relating to pollution or protection
of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants contaminants, or toxic or hazardous
substances or wastes (collectively, “Hazardous
Materials”)
into
the environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands
or
demand letters, injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated or approved
thereunder.
(ii) Other
than those that are or were stored, used or disposed of in compliance with
applicable law, no Hazardous Materials are contained on or about any real
property currently owned, leased or used by the Company or any of its
Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company’s
or any of its Subsidiaries’ business.
(iii) Except
as
set forth in Schedule
3(s),
there
are no underground storage tanks on or under any real property owned, leased
or
used by the Company or any of its Subsidiaries that are not in compliance with
applicable law.
t. Title
to Property.
The
Company and its Subsidiaries have good and marketable title in fee simple to
all
real property and good and marketable title to all personal property owned
by
them which is material to the business of the Company and its Subsidiaries,
in
each case free and clear of all liens, encumbrances and defects except such
as
are described in Schedule
3(t)
or such
as would not have a Material Adverse Effect. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as would not
have
a Material Adverse Effect.
u. Insurance.
The
Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts
as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged. Neither the Company
nor
any such Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect. The Company
has provided to Buyer true and correct copies of all policies relating to
directors’ and officers’ liability coverage, errors and omissions coverage, and
commercial general liability coverage.
v. Internal
Accounting Controls.
The
Company and each of its Subsidiaries maintain a system of internal accounting
controls sufficient, in the judgment of the Company’s board of directors, to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management’s general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
w. Foreign
Corrupt Practices.
Neither
the Company, nor any of its Subsidiaries, nor any director, officer, agent,
employee or other person acting on behalf of the Company or any Subsidiary
has,
in the course of his actions for, or on behalf of, the Company, used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; made any direct or indirect
unlawful payment to any foreign or domestic government official or employee
from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign
or
domestic government official or employee.
x. Solvency.
The
Company (after giving effect to the transactions contemplated by this Agreement)
is solvent (i.e.,
its
assets have a fair market value in excess of the amount required to pay its
probable liabilities on its existing debts as they become absolute and matured)
and currently the Company has no information that would lead it to reasonably
conclude that the Company would not, after giving effect to the transaction
contemplated by this Agreement, have the ability to, nor does it intend to
take
any action that would impair its ability to, pay its debts from time to time
incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and, after giving effect to the transactions contemplated by
this Agreement, does not anticipate or know of any basis upon which its auditors
might issue a qualified opinion in respect of its current fiscal
year.
y. No
Investment Company.
The
Company is not, and upon the issuance and sale of the Securities as contemplated
by this Agreement will not be an “investment company” required to be registered
under the Investment Company Act of 1940 (an “Investment
Company”).
The
Company is not controlled by an Investment Company.
z. Breach
of Representations and Warranties by the Company.
If the
Company breaches any of the representations or warranties set forth in this
Section 3, and in addition to any other remedies available to the Buyers
pursuant to this Agreement, the Company shall pay to the Buyer the Standard
Liquidated Damages Amount in cash or in shares of Common Stock at the option
of
the Company, until such breach is cured. If the Company elects to pay the
Standard Liquidated Damages Amounts in shares of Common Stock, such shares
shall
be issued at the Conversion Price at the time of payment.
4. COVENANTS.
a. Best
Efforts.
The
parties shall use their best efforts to satisfy timely each of the conditions
described in Section 6 and 7 of this Agreement.
b. Form
D; Blue Sky Laws.
The
Company agrees to file a Form D, if required, with respect to the Securities
as
required under Regulation D and to provide a copy thereof to each Buyer promptly
after such filing. The Company shall, on or before the Closing Date, take such
action as the Company shall reasonably determine is necessary to qualify the
Securities for sale to the Buyers at the applicable closing pursuant to this
Agreement under applicable securities or “blue sky” laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to each Buyer on or prior to the
Closing Date.
c. Reporting
Status; Eligibility to Use Form S-3, Form SB-2 or Form
S-1. The
Company’s Common Stock is registered under Section 12(g) of the 1934 Act. The
Company represents and warrants that, at the time of the filing of registration
statement on Form SB-2 covering the resale of the Conversion Shares and the
Warrant Shares, it will meet the requirements for the use of Form S-3, Form
SB-2
or Form S-1 for registration of the sale by the Buyer of the Registrable
Securities (as defined in the Registration Rights Agreement). So long as the
Buyer beneficially owns any of the Securities, the Company shall timely file
all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination. The Company further agrees to file all reports
required to be filed by the Company with the SEC in a timely manner so as to
become eligible, and thereafter to maintain its eligibility, if any, for the
use
of Form S-3. The Company shall issue a press release and file a Form 8-K
describing the material terms of the transaction contemplated hereby as soon
as
practicable following the Closing Date but in no event more than four (4)
business days of the Closing Date, which press release shall be subject to
prior
review by the Buyers. The Company agrees that such press release shall not
disclose the name of the Buyers unless expressly consented to in writing by
the
Buyers or unless required by applicable law or regulation, and then only to
the
extent of such requirement.
d. Use
of Proceeds.
The
Company shall use the proceeds from the sale of the Notes and the Warrants
in
the manner set forth in Schedule
4(d)
attached
hereto and made a part hereof and shall not, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership,
enterprise or other person (except in connection with its currently existing
direct or indirect Subsidiaries)
e. Future
Offerings.
The
Company will not negotiate or contract with any party to obtain additional
equity financing (including debt financing with an equity component) that
involves (A) the issuance of Common Stock at a discount to the market price
of
the Common Stock on the date of issuance (taking into account the value of
any
warrants or options to acquire Common Stock issued in connection therewith)
or
(B) the issuance of convertible securities that are convertible into an
indeterminate number of shares of Common Stock or (C) the issuance of warrants
during the period (the “Lock-up
Period”)
beginning on the Closing Date and ending on the date the Registration Statement
(as defined in the Registration Rights Agreement) is declared effective. In
addition, subject to the exceptions described below, the Company will not
conduct any equity financing (including debt with an equity component)
(“Future
Offerings”)
during
the period beginning on the Closing Date and ending eighteen (18) months after
the end of the Lock-up Period unless it shall have first delivered to each
Buyer, at least twenty (20) business days prior to the closing of such Future
Offering, written notice describing the proposed Future Offering, including
the
terms and conditions thereof and proposed definitive documentation to be entered
into in connection therewith, and providing each Buyer an option during the
fifteen (15) day period following delivery of such notice to purchase its pro
rata share (based on the ratio that the aggregate principal amount of Notes
purchased by it hereunder bears to the aggregate principal amount of Notes
purchased hereunder) of the securities being offered in the Future Offering
on
the same terms as contemplated by such Future Offering (the limitations referred
to in this section, including but not limited to Future Offering and the Lock-up
Period, collectively as referred to as the “Capital
Raising Limitations”). For
purposes of this Agreement, discussions relating to financing of the
construction of studio facilities with investment banks, commercial banks,
investment groups, development partners or individual investors shall not be
considered engaging in equity financing. Notwithstanding the above, Camelot
Film
Group, Inc. and Camelot Studio Group, Inc., two of the Company’s wholly owned
subsidiaries, shall not be subject to the these Capital Raising Limitations
as
set forth herein.
Further,
the Company may engage in Future Offering activities or support such activities
of Camelot Film Group, Inc. and Camelot Studio Group, Inc. upon written notice
to the Lenders if such Future Offering is specifically for the purposes of
construction of studio facilities and or film production. Such financing shall
not be subject to any right of first refusal if the Future Offering is in excess
of $10,000,000 regardless of whether such offering is an underwritten public
offering or private equity transaction. Similarly, efforts made by the Company’s
development, production and or studio partners to obtain financing for the
construction of studio facilities shall not be considered a breach of this
provision. In the event the terms and conditions of a proposed Future Offering
are amended in any respect after delivery of the notice to the Buyers concerning
the proposed Future Offering, the Company shall deliver a new notice to each
Buyer describing the amended terms and conditions of the proposed Future
Offering and each Buyer thereafter shall have an option during the fifteen
(15)
day period following delivery of such new notice to purchase its pro rata share
of the securities being offered on the same terms as contemplated by such
proposed Future Offering, as amended. The foregoing sentence shall apply to
successive amendments to the terms and conditions of any proposed Future
Offering. The Capital Raising Limitations shall not apply to any transaction
involving (i) issuances of securities in a firm commitment underwritten public
offering (excluding a continuous offering pursuant to Rule 415 under the 1933
Act) or (ii) issuances of securities as consideration for a merger,
consolidation or purchase of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company (iii) any transaction involving
Camelot Film Group, Inc and Camelot Studio Group, Inc. The Capital Raising
Limitations also shall not apply to the issuance of securities upon exercise
or
conversion of the Company’s options, warrants or other convertible securities
outstanding as of the date hereof or to the grant of additional options or
warrants, or the issuance of additional securities, under any employment
agreement, contracts; or to the issuance of securities through a Company stock
option or restricted stock plan approved by the shareholders of the Company.
f. Expenses.
At the
Closing, the Company shall reimburse Buyers for expenses incurred by them in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the other agreements to be executed in
connection herewith (“Documents”),
including, without limitation, reasonable attorneys’ and consultants’ fees and
expenses, transfer agent fees, fees for stock quotation services, fees relating
to any amendments or modifications of the Documents or any consents or waivers
of provisions in the Documents, fees for the preparation of opinions of counsel,
escrow fees, and costs of restructuring the transactions contemplated by the
Documents. When possible, the Company must pay these fees directly, otherwise
the Company must make immediate payment for reimbursement to the Buyers for
all
fees and expenses immediately upon written notice by the Buyer or the submission
of an invoice by the Buyer. Notwithstanding anything herein to the contrary,
the
Company’s obligation to reimburse Buyers’ expenses shall not exceed $10,000 in
the aggregate.
g. Financial
Information.
The
Company agrees to send or make available the following reports to each Buyer
until such Buyer transfers, assigns, or sells all of the Securities:
(i) within
ten (10) days after the filing with the SEC, a copy of its Annual Report on
Form
10-KSB its Quarterly Reports on Form 10-QSB and any Current Reports on Form
8-K;
(ii) within
one (1) day after release, copies of all press releases issued by the Company
or
any of its Subsidiaries; and (iii) contemporaneously
with the making available or giving to the shareholders of the Company, copies
of any notices or other information the Company makes available or gives to
such
shareholders.
h. Authorization
and Reservation of Shares.
The
Company shall at all times have authorized, and reserved for the purpose of
issuance, a sufficient number of shares of Common Stock to provide for the
full
conversion or exercise of the outstanding Notes and Warrants and issuance of
the
Conversion Shares and Warrant Shares in connection therewith (based on the
Conversion Price of the Notes or Exercise Price of the Warrants in effect from
time to time) and as otherwise required by the Notes. The Company shall not
reduce the number of shares of Common Stock reserved for issuance upon
conversion of Notes and exercise of the Warrants without the consent of each
Buyer. The Company shall at all times maintain the number of shares of Common
Stock so reserved for issuance at an amount (“Reserved
Amount”)
equal
to the number that is then actually issuable upon full conversion of the Notes
and Additional Notes and upon exercise of the Warrants and the Additional
Warrants (based on the Conversion Price of the Notes or the Exercise Price
of
the Warrants in effect from time to time). If at any time the number of shares
of Common Stock authorized and reserved for issuance (“Authorized
and Reserved Shares”)
is
below the Reserved Amount, the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares, including,
without limitation, calling a special meeting of shareholders to authorize
additional shares to meet the Company’s obligations under this Section 4(h), in
the case of an insufficient number of authorized shares, obtain shareholder
approval of an increase in such authorized number of shares, and voting the
management shares of the Company in favor of an increase in the authorized
shares of the Company to ensure that the number of authorized shares is
sufficient to meet the Reserved Amount. If the Company fails to obtain such
shareholder approval within forty-five (45) days following the date on which
the
number of Reserved Amount exceeds the Authorized and Reserved Shares, the
Company shall pay to the Borrower the Standard Liquidated Damages Amount (as
defined in Section 2(f) above), in cash or in shares of Common Stock at the
option of the Buyer. If the Buyer elects to be paid the Standard Liquidated
Damages Amount in shares of Common Stock, such shares shall be issued at the
Conversion Price at the time of payment. In order to ensure that the Company
has
authorized a sufficient amount of shares to meet the Reserved Amount at all
times, the Company must deliver to the Buyer at the end of every quarter a
list
detailing (1) the current amount of shares authorized by the Company and
reserved for the Buyer; and (2) amount of shares issuable upon conversion of
the
Notes and upon exercise of the Warrants and as payment of interest accrued
on
the Notes for one year. If the Company fails to provide such list within
forty-five (45) business days of the end of each quarter, the Company shall
pay
the Standard Liquidated Damages Amount, in cash or in shares of Common Stock
at
the option of the Buyer, until the list is delivered. If the Buyer elects to
be
paid the Standard Liquidated Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of
payment.
i. Listing.
The
Company shall promptly secure the listing of the Conversion Shares and Shares
underlying the Warrants upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and, so long as any Buyer owns any
of
the Securities, shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all Conversion Shares and Warrant Shares
from time to time issuable upon conversion of the Notes or exercise of the
Warrants. The Company will obtain and, so long as any Buyer owns any of the
Securities, maintain the listing and trading of its Common Stock on the OTCBB
or
any equivalent replacement exchange, the Nasdaq National Market (“Nasdaq”),
the
Nasdaq SmallCap Market (“Nasdaq
SmallCap”),
the
New York Stock Exchange (“NYSE”),
or
the American Stock Exchange (“AMEX”)
and
will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers (“NASD”)
and
such exchanges, as applicable. The Company shall promptly provide to each Buyer
copies of any notices it receives from the OTCBB and any other exchanges or
quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges and
quotation systems.
j. Corporate
Existence.
So long
as a Buyer beneficially owns any Notes or Warrants, the Company shall maintain
its corporate existence and shall not sell all or substantially all of the
Company’s assets, except in the event of a merger or consolidation or sale of
all or substantially all of the Company’s assets, where the surviving or
successor entity in such transaction (i) assumes the Company’s obligations
hereunder and under the agreements and instruments entered into in connection
herewith and (ii) is a publicly traded corporation whose Common Stock is listed
for trading on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
k. No
Integration.
The
Company shall not make any offers or sales of any security (other than the
Securities) under circumstances that would require registration of the
Securities being offered or sold hereunder under the 1933 Act or cause the
offering of the Securities to be integrated with any other offering of
securities by the Company for the purpose of any stockholder approval provision
applicable to the Company or its securities.
l. Subsequent
Investment.
The
Buyer will initially purchase notes in the aggregate principal amount of Six
Hundred Thousand ($600,000) with the closing to occur upon execution of this
Agreement. The Company and the Buyers agree that, upon the declaration of
effectiveness of the Registration Statement to be filed pursuant to the
Registration Rights Agreement (the “Effective
Date”),
the
Buyers shall purchase additional notes (the “Additional
Notes”)
in the
aggregate principal amount of Four Hundred Thousand Dollars ($400,000), for
an
aggregate purchase price of Four Hundred Thousand Dollars ($400,000), with
the
closing of such purchase to occur within five (5) days of the Effective Date;
provided,
however,
that
the obligation of each Buyer to purchase the Additional Notes is subject to
the
satisfaction, at or before the closing of such purchase and sale, of the
conditions set forth in Section 7; and, provided,
further,
that
there shall not have been a Material Adverse Effect as of such effective date.
The terms of the Additional Notes shall be identical to the terms of the Notes
to be issued on the Closing Date. The Common Stock underlying the Additional
Notes shall be Registrable Securities (as defined in the Registration Rights
Agreement) and shall be included in the Registration Statement to be filed
pursuant to the Registration Rights Agreement.
m. Key
Man Insurance.
The
Company shall use its best efforts to obtain, on or before thirty (30) business
days from the date hereof, key man life insurance on all of the Company’s
officers and division heads.
n. Breach
of Covenants.
If the
Company breaches any of the covenants set forth in this Section 4, and in
addition to any other remedies available to the Buyers pursuant to this
Agreement, the Company shall pay to the Buyers the Standard Liquidated Damages
Amount, in cash or in shares of Common Stock at the option of the Company,
until
such breach is cured. If the Company elects to pay the Standard Liquidated
Damages Amount in shares, such shares shall be issued at the Conversion Price
at
the time of payment.
o. Trading
Activities.
Neither
the Buyers nor their affiliates has an open short position in the common stock
of the Company and the Buyers agree that they have not and shall not, and that
they will cause their affiliates not to, engage in any short sales, including,
but not limited to naked short sales, of or hedging transactions with respect
to
the common stock of the Company nor will they request or cause their brokerage
firms to engage in any such activities.
5. TRANSFER
AGENT INSTRUCTIONS.
The
Company shall issue irrevocable instructions to its transfer agent to issue
certificates, registered in the name of each Buyer or its nominee, for the
Conversion Shares and Warrant Shares in such amounts as specified from time
to
time by each Buyer to the Company upon conversion of the Notes or exercise
of
the Warrants in accordance with the terms thereof (the “Irrevocable
Transfer Agent Instructions”).
Prior
to registration of the Conversion Shares and Warrant Shares under the 1933
Act
or the date on which the Conversion Shares and Warrant Shares may be sold
pursuant to Rule 144 without any restriction as to the number of Securities
as
of a particular date that can then be immediately sold, all such certificates
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer instructions
to give effect to Section 2(f) hereof (in the case of the Conversion Shares
and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as
and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer’s obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon re-sale of the Securities. If
a
Buyer provides the Company, at the cost of the Company, with (i) an opinion
of
counsel in form, substance and scope customary for opinions in comparable
transactions, to the effect that a public sale or transfer of such Securities
may be made without registration under the 1933 Act and such sale or transfer
is
effected or (ii) the Buyer provides reasonable assurances that the Securities
can be sold pursuant to Rule 144, the Company shall permit the transfer, and,
in
the case of the Conversion Shares and Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates, free from restrictive legend,
in such name and in such denominations as specified by such Buyer. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers, by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly, the Company acknowledges that
the
remedy at law for a breach of its obligations under this Section 5 may be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, that the Buyers shall be entitled,
in
addition to all other available remedies, to an injunction restraining any
breach and requiring immediate transfer, without the necessity of showing
economic loss and without any bond or other security being
required.
6. CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL.
The
obligation of the Company hereunder to issue and sell the Notes and Warrants
to
a Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date of each of the following conditions thereto, provided that these conditions
are for the Company’s sole benefit and may be waived by the Company at any time
in its sole discretion:
a. The
applicable Buyer shall have executed this Agreement and the Registration Rights
Agreement, and delivered the same to the Company.
b. The
applicable Buyer shall have delivered the Purchase Price in accordance with
Section 1(b) above.
c. The
representations and warranties of the applicable Buyer shall be true and correct
in all material respects as of the date when made and as of the Closing Date
as
though made at that time (except for representations and warranties that speak
as of a specific date), and the applicable Buyer shall have performed, satisfied
and complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the applicable Buyer at or prior to the Closing Date.
d. No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or
in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
7. CONDITIONS
TO EACH BUYER’S OBLIGATION TO PURCHASE.
The
obligation of each Buyer hereunder to purchase the Notes and Warrants at the
Closing is subject to the satisfaction, at or before the Closing Date of each
of
the following conditions, provided that these conditions are for such Buyer’s
sole benefit and may be waived by such Buyer at any time in its sole
discretion:
a. The
Company shall have executed this Agreement and the Registration Rights
Agreement, and delivered the same to the Buyer.
b. The
Company shall have delivered to such Buyer duly executed Notes (in such
denominations as the Buyer shall request) and Warrants in accordance with
Section 1(b) above.
c. The
Irrevocable Transfer Agent Instructions, in form and substance satisfactory
to a
majority-in-interest of the Buyers, shall have been delivered to and
acknowledged in writing by the Company’s Transfer Agent.
d. The
representations and warranties of the Company shall be true and correct in
all
material respects as of the date when made and as of the Closing Date as though
made at such time (except for representations and warranties that speak as
of a
specific date) and the Company shall have performed, satisfied and complied
in
all material respects with the covenants, agreements and conditions required
by
this Agreement to be performed, satisfied or complied with by the Company at
or
prior to the Closing Date. The Buyer shall have received a certificate or
certificates, executed by the chief executive officer of the Company, dated
as
of the Closing Date, to the foregoing effect and as to such other matters as
may
be reasonably requested by such Buyer including, but not limited to certificates
with respect to the Company’s Certificate of Incorporation, By-laws and Board of
Directors’ resolutions relating to the transactions contemplated
hereby.
e. No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or
in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
f. No
event
shall have occurred which could reasonably be expected to have a Material
Adverse Effect on the Company.
g. The
Conversion Shares and Shares underlying the Warrants shall have been authorized
for quotation on the OTCBB and trading in the Common Stock on the OTCBB shall
not have been suspended by the SEC or the OTCBB.
h. The
Buyer
shall have received an opinion of the Company’s counsel, dated as of the Closing
Date, in form, scope and substance reasonably satisfactory to the Buyer and
in
substantially the same form as Exhibit
“D”
attached
hereto.
i. The
Buyer
shall have received an officer’s certificate described in Section 3(c) above,
dated as of the Closing Date.
8. GOVERNING
LAW; MISCELLANEOUS.
a. Governing
Law.
THIS
AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF
LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE
UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO
ANY
DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION
HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES
IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS
UPON
A PARTY MAILED BY FIRST CLASS MAIL CERTIFIED RETURN RECEIPT REQUESTED SHALL
BE
DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY
SUCH
SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE
AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.
b. Counterparts;
Signatures by Facsimile.
This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed an original but all of which shall constitute one and the same agreement
and shall become effective when counterparts have been signed by each party
and
delivered to the other party. This Agreement, once executed by a party, may
be
delivered to the other party hereto by facsimile transmission of a copy of
this
Agreement bearing the signature of the party so delivering this
Agreement.
c. Headings.
The
headings of this Agreement are for convenience of reference only and shall
not
form part of, or affect the interpretation of, this Agreement.
d. Severability.
In the
event that any provision of this Agreement is invalid or unenforceable under
any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof
which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof.
e. Entire
Agreement; Amendments.
This
Agreement and the instruments referenced herein contain the entire understanding
of the parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the Company nor
the
Buyer makes any representation, warranty, covenant or undertaking with respect
to such matters. No provision of this Agreement may be waived or amended other
than by an instrument in writing signed by the majority in interest of the
Buyers.
f. Notices.
Any
notices required or permitted to be given under the terms of this Agreement
shall be sent by certified or registered mail (return receipt requested) or
delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed
in
the mail, if mailed by regular United States mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service)
or
by facsimile, in each case addressed to a party. The addresses for such
communications shall be:
If
to the
Company:
Camelot
Entertainment Group, Inc.
2020
Main
Street, #990
Irvine,
California 92614
Attention:
Chief Executive Officer
Telephone:
(949) 777-1090
Facsimile:
(949) 777-1091
With
a
copy to:
Anslow
& Jaclin, LLP
195
Route
9, Suite 204
Manalapan,
NJ 07726
Attention:
Richard I. Anslow, Esq.
Telephone:
(732) 409-1212
Facsimile:
(732) 577-1188
If
to a
Buyer: To the address set forth immediately below such Buyer’s name on the
signature pages hereto.
With
copy
to:
Ballard
Spahr Andrews & Ingersoll, LLP
1735
Market Street
51st
Floor
Philadelphia,
Pennsylvania 19103
Attention:
Gerald J. Guarcini, Esq.
Telephone:
215-864-8625
Facsimile:
215-864-8999
Each
party shall provide notice to the other party of any change in
address.
g. Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns. Neither the Company nor any Buyer shall assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the other. Notwithstanding the foregoing, subject to
Section 2(f), any Buyer may assign its rights hereunder to any person that
purchases Securities in a private transaction from a Buyer or to any of its
“affiliates,” as that term is defined under the 1934 Act, without the consent of
the Company.
h. Third
Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
i. Survival.
The
representations and warranties of the Company and the agreements and covenants
set forth in Sections 3, 4, 5 and 8 shall survive the closing hereunder
notwithstanding any due diligence investigation conducted by or on behalf of
the
Buyers. Both parties agree to indemnify and hold harmless the other party and
all their officers, directors, employees and agents for loss or damage arising
as a result of or related to any breach or alleged breach by either party of
any
of its representations, warranties and covenants set forth in Sections 3 and
4
hereof or any of its covenants and obligations under this Agreement or the
Registration Rights Agreement, including advancement of expenses as they are
incurred.
j. Publicity.
The
Company, and each of the Buyers shall have the right to review a reasonable
period of time before issuance of any press releases, SEC, OTCBB or NASD
filings, or any other public statements with respect to the transactions
contemplated hereby; provided,
however,
that
the Company shall be entitled, without the prior approval of each of the Buyers,
to make any press release or SEC, OTCBB (or other applicable trading market)
or
NASD filings with respect to such transactions as is required by applicable
law
and regulations (although each of the Buyers shall be consulted by the Company
in connection with any such press release prior to its release and shall be
provided with a copy thereof and be given an opportunity to comment
thereon).
k. Further
Assurances.
Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
l. No
Strict Construction.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties to express their mutual intent, and no rules of strict construction
will
be applied against any party.
m. Remedies.
Both
parties acknowledges that a breach by it of its obligations hereunder will
cause
irreparable harm to the other party by vitiating the intent and purpose of
the
transaction contemplated hereby. Accordingly, the parties acknowledges that
the
remedy at law for a breach of its obligations under this Agreement will be
inadequate and agrees, in the event of a breach or threatened breach by the
party of the provisions of this Agreement, that the Buyers shall be entitled,
in
addition to all other available remedies at law or in equity, and in addition
to
the penalties assessable herein, to an injunction or injunctions restraining,
preventing or curing any breach of this Agreement and to enforce specifically
the terms and provisions hereof, without the necessity of showing economic
loss
and without any bond or other security being required.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF,
the
undersigned Buyers and the Company have caused this Agreement to be duly
executed as of the date first above written.
CAMELOT
ENTERTAINMENT GROUP, INC.
_____________________________________
Robert
P.
Atwell
Chief
Executive Officer
AJW
PARTNERS, LLC
By:
SMS
Group, LLC
______________________________________
Corey
S.
Ribotsky
Manager
RESIDENCE: Delaware
ADDRESS: 1044
Northern Boulevard
Suite
302
Roslyn,
New York 11576
Facsimile:
(516) 739-7115
Telephone:
(516) 739-7110
AGGREGATE
SUBSCRIPTION AMOUNT:
Aggregate
Principal Amount of Notes:
Number
of
Warrants:
Aggregate
Purchase Price:
AJW
OFFSHORE, LTD.
By:
First
Street Manager II, LLC
______________________________________
Corey
S.
Ribotsky
Manager
RESIDENCE: Cayman
Islands
ADDRESS: AJW
Offshore, Ltd.
P.O.
Box
32021 SMB
Grand
Cayman, Cayman Island, B.W.I.
AGGREGATE
SUBSCRIPTION AMOUNT:
Aggregate
Principal Amount of Notes:
Number
of
Warrants:
Aggregate
Purchase Price:
AJW
QUALIFIED PARTNERS, LLC
By:
AJW
Manager, LLC
____________________________________
Corey
S.
Ribotsky
Manager
RESIDENCE: New
York
ADDRESS: 1044
Northern Boulevard
Suite
302
Roslyn,
New York 11576
Facsimile: (516)
739-7115
Telephone: (516)
739-7110
AGGREGATE
SUBSCRIPTION AMOUNT:
Aggregate
Principal Amount of Notes:
Number
of
Warrants:
Aggregate
Purchase Price:
NEW
MILLENNIUM CAPITAL PARTNERS II, LLC
By:
First
Street Manager II, LLP
____________________________________
Corey
S.
Ribotsky
Manager
RESIDENCE:
New
York
ADDRESS: 1044
Northern Boulevard
Suite
302
Roslyn,
New York 11576
Facsimile: (516)
739-7115
Telephone: (516)
739-7110
AGGREGATE
SUBSCRIPTION AMOUNT:
Aggregate
Principal Amount of Notes:
Number
of
Warrants:
Aggregate
Purchase Price:
SCHEDULE
3(A)
SUBSIDIARIES
OF THE COMPANY
Camelot
Development, LLC. (1) NV
Camelot
Distribution Group, Inc.
(2)
NV
Camelot
Features, Inc.
(3)
NV
Camelot
Films, Inc.
(4)
CA,
DE,
NV
Camelot
Production Services Group,
Inc.
NV
Camelot
Technologies,
Inc.
NV
Capital
Arts Enterprises, Inc.
(5) CA
Capital
Arts International, Inc.
(6)
CA
Dstage.com,
Inc.
DE
Ferris
Wheel Films, Inc.
(7)
CA,
NV
Latin
Ladies,
LLC.
NV
Pioneer
Entertainment,
LLC.
NV
Notes:
| (1) |
A
subsidiary of Camelot Studio Group
|
| (2) |
A
subsidiary of Camelot Film Group
|
| (3) |
A
subsidiary of Camelot Film Group
|
| (4) |
A
subsidiary of Camelot Film Group
|
| (5) |
A
subsidiary of Camelot Film Group
|
| (6) |
A
subsidiary of Camelot Film Group
|
| (7) |
A
subsidiary of Camelot Film Group
|
SCHEDULE
3(C)
OUTSTANDING
OPTIONS, WARRANTS, SCRIP, RIGHTS TO SUBSCRIBE FOR, PUTS, CALLS, RIGHTS OF FIRST
REFUSAL, AGREEMENTS, UNDERSTANDINGS, CLAIMS OR OTHER COMMITMENTS OR
RIGHTS
The
following agreements include provisions for stock, options, warrants,
etc.:
Consulting
agreement with The Corporate Solution, Inc. (Wholly owned by Camelot Chairman
Robert P. Atwell).
Consulting
agreement with Eagle Consulting Group, Inc. (Wholly owned by Camelot Chairman
Robert P. Atwell).
Consulting
agreement with The Atwell Group, Inc. (Wholly owned by Camelot Chairman Robert
P. Atwell).
Employment
Agreements with Robert P. Atwell CEO and Michael Ellis COO.
Scorpion
Bay, LLC., a California Limited Liability Company, 500,000 options on same
terms
and conditions as Management.
Bastien
and Associates (Studio Architects), Stock and Option Agreement (exact amount
TBD)
Studio
Project Stock and Option Agreements (exact amount TBD).
Capital
Arts Entertainment Pending Acquisition (exact amount TBD).
Legal
fees and expenses including stock and option agreements (exact amount
TBD).
Employee
Stock Option Program, Management and employee options scheduled to be issued
during fourth quarter (exact amount TBD).
SCHEDULE
3(F)
CONSENTS,
AUTHORIZATIONS, ORDERS, FILINGS AND REGISTRATIONS
All
filings current with SEC.
No
additional registration statements filed.
SCHEDULE
3(G)
SEC
FILINGS NOT FILED
None,
all
filings up to date.
SCHEDULE
3(I)
PROCEEDINGS
HAVING A MATERIAL ADVERSE EFFECT
None
SCHEDULE
3(J)
SUITS
AGAINST INTELLECTUAL PROPERTY
None
SCHEDULE
3(L)
TAXES
NOT FILED/BEING AUDITED
None
SCHEDULE
3(M)
TRANSACTIONS
IN WHICH AN OFFICER OR DIRECTOR IS A PARTY
Mr.
Robert P. Atwell, Chairman and CEO of Camelot owns Eagle Consulting Group,
Inc.,
The Corporate Solution, Inc., The Atwell Group, Inc., all of which have provided
funding and / or consulting services to Camelot and its subsidiaries. Mr. Atwell
and/or the above entities provided collateral and guarantees in connection
with
the Scorpion Bay LLC transaction.
SCHEDULE
3(Q)
ACTIONS
GIVING RISE TO BROKERAGE FEES/COMMISSIONS
None
SCHEDULE
3(S)
PAST/PRESENT
VIOLATIONS OF ENVIRONMENTAL LAWS
None
SCHEDULE
3(T)
ENCUMBERANCES
TO REAL PROPERTY
Camelot
Trademark (Robert P. Atwell)
Certain
scripts and film properties have shared rights (various)
SCHEDULE
4(D)
USE
OF PROCEEDS
Initial
funding: $1,000,000
Financing
Fees: $120,000
Document
Fees and Expenses: $50,000
Legal
Fees and
Expenses:
$65,000
Engineering
Fees and
Expenses:
$25,000
Architectural
Fees and Expenses:
$50,000
Public
Relations Fees and Expenses: $60,000
Investor
Relations Fees and Expenses: $25,000
Office
Rent and Related Expenses:
$84,000
Administrative
Costs and Expenses: $250,000
Studio
Legal
Fees: $100,000
Political
Consultant
Fees:
$30,000
Marketing
Fees and
Materials:
$45,000
Trade
Shows:
$65,000
Production
Development Costs: $31,000
$1,000,000
Use
of Proceeds includes on going costs and expenses currently being funded either
directly or indirectly by Mr. Atwell, Camelot Chairman and CEO. Scorpion Bay
LLC
Note included in administrative Costs and Expenses
Exhibit
4.2
Exhibit
4.2
Form
of
Callable Convertible Secured Note by and among the Company and the Investors
THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD PURSUANT TO RULE
144
OR REGULATION S UNDER SAID ACT.
CALLABLE
SECURED CONVERTIBLE NOTE
Weston,
Florida
December
27, 2006$181,800
FOR
VALUE RECEIVED,
CAMELOT ENTERTAINMENT GROUP, INC.,
a
Delaware Corporation (hereinafter called the “Borrower”),
hereby promises to pay to the order of AJW Qualified Partners, LLC or registered
assigns (the “Holder”)
the
sum of $181,800, on December 27, 2009 (the “Maturity
Date”),
and
to pay interest on the unpaid principal balance hereof at the rate of eight
percent (8%) (the “Interest
Rate”)
per
annum from December 27, 2006 (the “Issue
Date”)
until
the same becomes due and payable, whether at maturity or upon acceleration
or by
prepayment or otherwise. Any amount of principal or interest on this Note which
is not paid when due shall bear interest at the rate of fifteen percent (15%)
per annum from the due date thereof until the same is paid (“Default
Interest”).
Notwithstanding the above, there shall be no default in the event that the
Company is either making cash payments or permitting monthly conversions as
set
forth herein. Interest shall commence accruing on the Issue Date, shall be
computed on the basis of a 365-day year and the actual number of days elapsed
and shall be payable quarterly provided that no interest shall be due and
payable for any month in which the Trading Price (as such term is defined below)
is greater than the Initial Market Price as defined in Section 5.2 for each
Trading Day (as such term is defined below) of the month. All payments due
hereunder (to the extent not converted into common stock, $.001 par value per
share (the “Common
Stock”)
in
accordance with the terms hereof) shall be made in lawful money of the United
States of America. All payments shall be made at such address as the Holder
shall hereafter give to the Borrower by written notice made in accordance with
the provisions of this Note. Whenever any amount expressed to be due by the
terms of this Note is due on any day which is not a business day, the same
shall
instead be due on the next succeeding day which is a business day and, in the
case of any interest payment date which is not the date on which this Note
is
paid in full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of interest due on such date.
As
used in this Note, the term “business day” shall mean any day other than a
Saturday, Sunday or a day on which commercial banks in the city of New York,
New
York are authorized or required by law or executive order to remain closed.
Each
capitalized term used herein, and not otherwise defined, shall have the meaning
ascribed thereto in that certain Securities Purchase Agreement dated December
27, 2006, pursuant to which this Note was originally issued (the “Purchase
Agreement”).
This
Note
is free from all taxes, liens, claims and encumbrances with respect to the
issue
thereof and shall not be subject to preemptive rights or other similar rights
of
shareholders of the Borrower and will not impose personal liability upon the
holder thereof. The obligations of the Borrower under this Note shall be secured
by that certain Security Agreement and Intellectual Property Security Agreement,
each dated December 27, 2006 by and between the Borrower and the
Holder.
The
following terms shall apply to this Note:
A. Conversion
Right.
1. The
Holder shall have the right from time to time, and at any time on or prior
to
the earlier of (i) the Maturity Date and (ii) the date of payment of the Default
Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III,
the Optional Prepayment Amount (as defined in Section 5.1 or any payments
pursuant to Section 1.7, each in respect of the remaining outstanding principal
amount of this Note to convert all or any part of the outstanding and unpaid
principal amount of this Note into fully paid and non-assessable shares of
Common Stock, as such Common Stock exists on the Issue Date, or any shares
of
capital stock or other securities of the Borrower into which such Common Stock
shall hereafter be changed or reclassified at the conversion price (the
“Conversion
Price”)
determined as provided herein (a “Conversion”);
provided,
however,
that in
no event shall the Holder be entitled to convert any portion of this Note in
excess of that portion of this Note upon conversion of which the sum of (1)
the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unconverted portion of the Notes or the
unexercised or unconverted portion of any other security of the Borrower
(including, without limitation, the warrants issued by the Borrower pursuant
to
the Purchase Agreement) subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (2) the number of shares
of
Common Stock issuable upon the conversion of the portion of this Note with
respect to which the determination of this proviso is being made, would result
in beneficial ownership by the Holder and its affiliates of more than 4.99%
of
the outstanding shares of Common Stock and provided further
that the
Holder shall not be entitled to convert any portion of this Note during any
month immediately succeeding a Determination Date on which the Borrower
exercises its prepayment option pursuant to Section 5.2 of this Note. For
purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except
as
otherwise provided in clause (1) of such proviso. The number of shares of Common
Stock to be issued upon each conversion of this Note shall be determined by
dividing the Conversion Amount (as defined below) by the applicable Conversion
Price then in effect on the date specified in the notice of conversion, in
the
form attached hereto as Exhibit A (the “Notice
of Conversion”),
delivered to the Borrower by the Holder in accordance with Section 1.4 below;
provided that the Notice of Conversion is submitted by facsimile (or by other
means resulting in, or reasonably expected to result in, notice) to the Borrower
before 6:00 p.m., New York, New York time on such conversion date (the
“Conversion
Date”).
The
term “Conversion
Amount”
means,
with respect to any conversion of this Note, the sum of (1) the principal amount
of this Note to be converted in such conversion plus
(2) at
the Borrower’s option, accrued and unpaid interest, if any, on such principal
amount at the interest rates provided in this Note to the Conversion Date,
provided, however, that the Company shall have the right to pay any or all
interest in cash plus
(3) at
the Borrower’s option, Default Interest, if any, on the amounts referred to in
the immediately preceding clauses (1) and/or (2) plus
(4) at
the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and
1.4(g) hereof or pursuant to Section 2(c) of that certain Registration Rights
Agreement, dated as of December 27, 2006, executed in connection with the
initial issuance of this Note and the other Notes issued on the Issue Date
(the
“Registration
Rights Agreement”).
The
term “Determination
Date” means
the
last business day of each month after the Issue Date.
2. Notwithstanding
anything contained in Section 1.1(a) to the contrary, the Holder shall not
be
permitted to convert all or any part of the outstanding and unpaid principal
amount of this Note into fully paid and non-assessable shares of Common Stock
and shall not submit a conversion notice to the Borrower during any thirty
(30)
day period (the “Stay Period”) in which: (i) the trailing volume weighted
average price of the Common Stock for the thirty (30) Trading Days prior to
the
Stay Period is below the Initial Market Price as adjusted, (ii) there is no
Event of Default which has not been cured prior to the Stay Period and (iii)
the
Borrower has paid the Investors under the Notes issued pursuant to the Purchase
Agreement an aggregate of $75,000 for all of the Holders which may be paid
either in cash and or stock in connection with such Stay Period. During the
Stay
Period, the Borrower shall have the right not to honor any conversion notices
received from the Holder.
B. Conversion
Price.
1. Calculation
of Conversion Price.
The
Conversion Price shall be the lesser of (i) the Variable Conversion Price (as
defined herein) and (ii) the Fixed Conversion Price (as defined herein)
(subject, in each case, to equitable adjustments for stock splits, stock
dividends or rights offerings by the Borrower relating to the Borrower’s
securities or the securities of any subsidiary of the Borrower, combinations,
recapitalization, reclassifications, extraordinary distributions and similar
events). The “Variable
Conversion Price”
shall
mean the Applicable Percentage (as defined herein) multiplied by the Market
Price (as defined herein). “Market
Price”
means
the average of the lowest three (3) Trading Prices (as defined below) for the
Common Stock during the twenty (20) Trading Day period ending one Trading Day
prior to the date the Conversion Notice is sent by the Holder to the Borrower
via facsimile (the “Conversion
Date”).
“Trading
Price”
means,
for any security as of any date, the intraday trading price on the
Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”)
as
reported by a reliable reporting service (“Reporting
Service”)
mutually acceptable to Borrower and Holder and hereafter designated by Holders
of a majority in interest of the Notes and the Borrower or, if the OTCBB is
not
the principal trading market for such security, the intraday trading price
of
such security on the principal securities exchange or trading market where
such
security is listed or traded or, if no intraday trading price of such security
is available in any of the foregoing manners, the average of the intraday
trading prices of any market makers for such security that are listed in the
“pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot
be calculated for such security on such date in the manner provided above,
the
Trading Price shall be the fair market value as mutually determined by the
Borrower and the holders of a majority in interest of the Notes being converted
for which the calculation of the Trading Price is required in order to determine
the Conversion Price of such Notes. “Trading
Day”
shall
mean any day on which the Common Stock is traded for any period on the OTCBB,
or
on the principal securities exchange or other securities market on which the
Common Stock is then being traded. “Applicable
Percentage”
shall
mean 50%; provided, however, that the Applicable Percentage shall be increased
to (i) 55% in the event that the Registration Statement (as defined in the
Registration Rights Agreement) is filed on or before the Filing Date (as defined
in the in the Registration Rights Agreement) and (ii) 60% in the event that
the
Registration Statement (as defined in the Registration Rights Agreement) becomes
effective on or before the Effectiveness Deadline (as defined in the
Registration Rights Agreement). In addition, the Holder agrees that it will
limit all of its conversions to no more than the greater of (1) $75,000 per
calendar month; or (2) the average daily dollar volume calculated during the
ten
(10) business days prior to a conversion, per conversion.
2. Conversion
Price During Major Announcements.
Notwithstanding
anything contained in Section 1.2(a) to the contrary, in the event the Borrower
(i) makes a public announcement that it intends to consolidate or merge with
any
other corporation (other than a merger in which the Borrower is the surviving
or
continuing corporation and its capital stock is unchanged) or sell or transfer
all or substantially all of the assets of the Borrower or (ii) any person,
group
or entity (including the Borrower) publicly announces a tender offer to purchase
50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the
date of the announcement referred to in clause (i) or (ii) is hereinafter
referred to as the “Announcement
Date”),
then
the Conversion Price shall, effective upon the Announcement Date and continuing
through the Adjusted Conversion Price Termination Date (as defined below),
be
equal to the lower of (x) the Conversion Price which would have been applicable
for a Conversion occurring on the Announcement Date and (y) the Conversion
Price
that would otherwise be in effect. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in
this
Section 1.2(a). For purposes hereof, “Adjusted
Conversion Price Termination Date”
shall
mean, with respect to any proposed transaction or tender offer (or takeover
scheme) for which a public announcement as contemplated by this Section 1.2(b)
has been made, the date upon which the Borrower (in the case of clause (i)
above) or the person, group or entity (in the case of clause (ii) above)
consummates or publicly announces the termination or abandonment of the proposed
transaction or tender offer (or takeover scheme) which caused this Section
1.2(b) to become operative.
C. Authorized
Shares.
The
Borrower covenants that during the period the conversion right exists, the
Borrower will reserve from its authorized and unissued Common Stock a sufficient
number of shares, free from preemptive rights, to provide for the issuance
of
Common Stock upon the full conversion of this Note and the other Notes issued
pursuant to the Purchase Agreement. The Borrower is required at all times to
have authorized and reserved two times the number of shares that is actually
issuable upon full conversion of the Notes (based on the Conversion Price of
the
Notes or the Exercise Price of the Warrants in effect from time to time) (the
“Reserved
Amount”).
The
Reserved Amount shall be increased from time to time in accordance with the
Borrower’s obligations pursuant to Section 4(h) of the Purchase Agreement. The
Borrower represents that upon issuance, such shares will be duly and validly
issued, fully paid and non-assessable. In addition, if the Borrower shall issue
any securities or make any change to its capital structure which would change
the number of shares of Common Stock into which the Notes shall be convertible
at the then current Conversion Price, the Borrower shall at the same time make
proper provision so that thereafter there shall be a sufficient number of shares
of Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Notes. The Borrower (i) acknowledges that it
has
irrevocably instructed its transfer agent to issue certificates for the Common
Stock issuable upon conversion of this Note, and (ii) agrees that its
issuance of this Note shall constitute full authority to its officers and agents
who are charged with the duty of executing stock certificates to execute and
issue the necessary certificates for shares of Common Stock in accordance with
the terms and conditions of this Note.
If,
at
any time a Holder of this Note submits a Notice of Conversion, and the Borrower
does not have sufficient authorized but unissued shares of Common Stock
available to effect such conversion in accordance with the provisions of this
Article I (a “Conversion
Default”),
subject to Section 4.8, the Borrower shall issue to the Holder all of the shares
of Common Stock which are then available to effect such conversion. The portion
of this Note which the Holder included in its Conversion Notice and which
exceeds the amount which is then convertible into available shares of Common
Stock (the “Excess
Amount”)
shall,
notwithstanding anything to the contrary contained herein, not be convertible
into Common Stock in accordance with the terms hereof until (and at the Holder’s
option at any time after) the date additional shares of Common Stock are
authorized by the Borrower to permit such conversion, at which time the
Conversion Price in respect thereof shall be the lesser of (i) the Conversion
Price on the Conversion Default Date (as defined below) and (ii) the Conversion
Price on the Conversion Date thereafter elected by the Holder in respect
thereof. In addition, the Borrower shall pay to the Holder payments
(“Conversion
Default Payments”)
for a
Conversion Default in the amount of (x) the sum
of
(1) the
then outstanding principal amount of this Note plus
(2)
accrued and unpaid interest on the unpaid principal amount of this Note through
the Authorization Date (as defined below) plus
(3)
Default Interest, if any, on the amounts referred to in clauses (1) and/or
(2),
multiplied
by
(y) .24,
multiplied
by
(z)
(N/365), where N = the number of days from the day the holder submits a Notice
of Conversion giving rise to a Conversion Default (the “Conversion
Default Date”)
to the
date (the “Authorization
Date”)
that
the Borrower authorizes a sufficient number of shares of Common Stock to effect
conversion of the full outstanding principal balance of this Note. The Borrower
shall use its best efforts to authorize a sufficient number of shares of Common
Stock as soon as practicable following the earlier of (i) such time that the
Holder notifies the Borrower or that the Borrower otherwise becomes aware that
there are or likely will be insufficient authorized and unissued shares to
allow
full conversion thereof and (ii) a Conversion Default. The Borrower shall send
notice to the Holder of the authorization of additional shares of Common Stock,
the Authorization Date and the amount of Holder’s accrued Conversion Default
Payments. The accrued Conversion Default Payments for each calendar month shall
be paid in cash or shall be convertible into Common Stock (at such time as
there
are sufficient authorized shares of Common Stock) at the applicable Conversion
Price, at the Borrower’s option, as follows:
1. In
the
event Holder elects to take such payment in cash, cash payment shall be made
to
Holder by the fifth (5th)
day of
the month following the month in which it has accrued; and
2. In
the
event Holder elects to take such payment in Common Stock, the Holder may convert
such payment amount into Common Stock at the Conversion Price (as in effect
at
the time of conversion) at any time after the fifth day of the month following
the month in which it has accrued in accordance with the terms of this Article
I
(so long as there is then a sufficient number of authorized shares of Common
Stock).
The
Holder’s election shall be made in writing to the Borrower at any time prior to
6:00 p.m., New York, New York time, on the third day of the month following
the
month in which Conversion Default payments have accrued. If no election is
made,
the Holder shall be deemed to have elected to receive cash. Nothing herein
shall
limit the Holder’s right to pursue actual damages (to the extent in excess of
the Conversion Default Payments) for the Borrower’s failure to maintain a
sufficient number of authorized shares of Common Stock, and each holder shall
have the right to pursue all remedies available at law or in equity (including
degree of specific performance and/or injunctive relief).
D. Method
of Conversion.
1. Mechanics
of Conversion.
Subject
to Section 1.1, this Note may be converted by the Holder in whole or in part
at
any time from time to time after the Issue Date, by (A) submitting to the
Borrower a Notice of Conversion (by facsimile or other reasonable means of
communication dispatched on the Conversion Date prior to 6:00 p.m., New York,
New York time) and (B) subject to Section 1.4(b), surrendering this Note at
the principal office of the Borrower.
2. Surrender
of Note Upon Conversion.
Notwithstanding
anything to the contrary set forth herein, upon conversion of this Note in
accordance with the terms hereof, the Holder shall not be required to physically
surrender this Note to the Borrower unless the entire unpaid principal amount
of
this Note is so converted. The Holder and the Borrower shall maintain records
showing the principal amount so converted and the dates of such conversions
or
shall use such other method, reasonably satisfactory to the Holder and the
Borrower, so as not to require physical surrender of this Note upon each such
conversion. In the event of any dispute or discrepancy, such records of the
Borrower shall be controlling and determinative in the absence of manifest
error. Notwithstanding the foregoing, if any portion of this Note is converted
as aforesaid, the Holder may not transfer this Note unless the Holder first
physically surrenders this Note to the Borrower, whereupon the Borrower will
forthwith issue and deliver upon the order of the Holder a new Note of like
tenor, registered as the Holder (upon payment by the Holder of any applicable
transfer taxes) may request, representing in the aggregate the remaining unpaid
principal amount of this Note. The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Note, the unpaid and
unconverted principal amount of this Note represented by this Note may be less
than the amount stated on the face hereof.
3. Payment
of Taxes.
The
Borrower shall not be required to pay any tax which may be payable in respect
of
any transfer involved in the issue and delivery of shares of Common Stock or
other securities or property on conversion of this Note in a name other than
that of the Holder (or in street name), and the Borrower shall not be required
to issue or deliver any such shares or other securities or property unless
and
until the person or persons (other than the Holder or the custodian in whose
street name such shares are to be held for the Holder’s account) requesting the
issuance thereof shall have paid to the Borrower the amount of any such tax
or
shall have established to the satisfaction of the Borrower that such tax has
been paid.
4. Delivery
of Common Stock Upon Conversion.
Upon
receipt by the Borrower from the Holder of a facsimile transmission (or other
reasonable means of communication) of a Notice of Conversion meeting the
requirements for conversion as provided in this Section 1.4, the Borrower shall
issue and deliver or cause to be issued and delivered to or upon the order
of
the Holder certificates for the Common Stock issuable upon such conversion
within three (3) business days after such receipt (and, solely in the case
of
conversion of the entire unpaid principal amount hereof, surrender of this
Note)
(such second business day being hereinafter referred to as the “Deadline”)
in
accordance with the terms hereof and the Purchase Agreement (including, without
limitation, in accordance with the requirements of Section 2(g) of the Purchase
Agreement that certificates for shares of Common Stock issued on or after the
effective date of the Registration Statement upon conversion of this Note shall
not bear any restrictive legend).
5. Obligation
of Borrower to Deliver Common Stock.
Upon
receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed
to
be the holder of record of the Common Stock issuable upon such conversion,
the
outstanding principal amount and the amount of accrued and unpaid interest
on
this Note shall be reduced to reflect such conversion, and, unless the Borrower
defaults on its obligations under this Article I, all rights with respect to
the
portion of this Note being so converted shall forthwith terminate except the
right to receive the Common Stock or other securities, cash or other assets,
as
herein provided, on such conversion. If the Holder shall have given a Notice
of
Conversion as provided herein, the Borrower’s obligation to issue and deliver
the certificates for Common Stock shall be absolute and unconditional,
irrespective of the absence of any action by the Holder to enforce the same,
any
waiver or consent with respect to any provision thereof, the recovery of any
judgment against any person or any action to enforce the same, any failure
or
delay in the enforcement of any other obligation of the Borrower to the holder
of record, or any setoff, counterclaim, recoupment, limitation or termination,
or any breach or alleged breach by the Holder of any obligation to the Borrower,
and irrespective of any other circumstance which might otherwise limit such
obligation of the Borrower to the Holder in connection with such conversion.
The
Conversion Date specified in the Notice of Conversion shall be the Conversion
Date so long as the Notice of Conversion is received by the Borrower before
6:00
p.m., New York, New York time, on such date.
6. Delivery
of Common Stock by Electronic Transfer.
In
lieu
of delivering physical certificates representing the Common Stock issuable
upon
conversion, provided the Borrower’s transfer agent is participating in the
Depository Trust Company (“DTC”)
Fast
Automated Securities Transfer (“FAST”)
program, upon request of the Holder and its compliance with the provisions
contained in Section 1.1 and in this Section 1.4, the Borrower shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Holder by crediting the account of
Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission
(“DWAC”)
system.
7. Failure
to Deliver Common Stock Prior to Deadline.
Without
in any way limiting the Holder’s right to pursue other remedies, including
actual damages and/or equitable relief, the parties agree that if delivery
of
the Common Stock issuable upon conversion of this Note is more than five (5)
business days after the Deadline as the result of actions or inactions by the
Company (other than a failure due to the circumstances described in Section
1.3
above, which failure shall be governed by such Section) the Borrower shall
pay
to the Holder $2,000 per day in cash, for each day beyond the Deadline that
the
Borrower fails to deliver such Common Stock. Such cash amount shall be paid
to
Holder by the fifth day of the month following the month in which it has accrued
or, at the option of the Holder (by written notice to the Borrower by the first
day of the month following the month in which it has accrued), shall be added
to
the principal amount of this Note, in which event interest shall accrue thereon
in accordance with the terms of this Note and such additional principal amount
shall be convertible into Common Stock in accordance with the terms of this
Note.
E. Concerning
the Shares.
The
shares of Common Stock issuable upon conversion of this Note may not be sold
or
transferred unless (i) such shares are sold pursuant to an effective
registration statement under the Act or (ii) the Borrower or its transfer agent
shall have been furnished with an opinion of counsel (which opinion shall be
in
form, substance and scope customary for opinions of counsel in comparable
transactions) to the effect that the shares to be sold or transferred may be
sold or transferred pursuant to an exemption from such registration or
(iii) such shares are sold or transferred pursuant to Rule 144 under the
Act (or a successor rule) (“Rule
144”)
or
(iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of
the Borrower who agrees to sell or otherwise transfer the shares only in
accordance with this Section 1.5 and who is an Accredited Investor (as defined
in the Purchase Agreement). Except as otherwise provided in the Purchase
Agreement (and subject to the removal provisions set forth below), until such
time as the shares of Common Stock issuable upon conversion of this Note have
been registered under the Act as contemplated by the Registration Rights
Agreement or otherwise may be sold pursuant to Rule 144 without any restriction
as to the number of securities as of a particular date that can then be
immediately sold, each certificate for shares of Common Stock issuable upon
conversion of this Note that has not been so included in an effective
registration statement or that has not been sold pursuant to an effective
registration statement or an exemption that permits removal of the legend,
shall
bear a legend substantially in the following form, as appropriate:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND
SCOPE
CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION
S
UNDER SAID ACT.”
The
legend set forth above shall be removed and the Borrower shall issue to the
Holder a new certificate therefor free of any transfer legend if (i) the
Borrower or its transfer agent shall have received an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Common Stock
may be made without registration under the Act and the shares are so sold or
transferred, (ii) such Holder provides the Borrower or its transfer agent with
reasonable assurances that the Common Stock issuable upon conversion of this
Note (to the extent such securities are deemed to have been acquired on the
same
date) can be sold pursuant to Rule 144 or (iii) in the case of the Common Stock
issuable upon conversion of this Note, such security is registered for sale
by
the Holder under an effective registration statement filed under the Act or
otherwise may be sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be immediately sold.
Nothing in this Note shall (i) limit the Borrower’s obligation under the
Registration Rights Agreement or (ii) affect in any way the Holder’s obligations
to comply with applicable prospectus delivery requirements upon the resale
of
the securities referred to herein.
F. Effect
of Certain Events.
1. Effect
of Merger, Consolidation, Etc.
At the
option of the Holder, the sale, conveyance or disposition of all or
substantially all of the assets of the Borrower, the effectuation by the
Borrower of a transaction or series of related transactions in which more than
50% of the voting power of the Borrower is disposed of, or the consolidation,
merger or other business combination of the Borrower with or into any other
Person (as defined below) or Persons when the Borrower is not the survivor
shall
either: (i) be deemed to be an Event of Default (as defined in Article III)
pursuant to which the Borrower shall be required to pay to the Holder upon
the
consummation of and as a condition to such transaction an amount equal to the
Default Amount (as defined in Article III) or (ii) be treated pursuant to
Section 1.6(b) hereof. “Person”
shall
mean any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.
2. Adjustment
Due to Merger, Consolidation, Etc.
If,
at
any time when this Note is issued and outstanding and prior to conversion of
all
of the Notes, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result of which
shares of Common Stock of the Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities
of
the Borrower or another entity, or in case of any sale or conveyance of all
or
substantially all of the assets of the Borrower other than in connection with
a
plan of complete liquidation of the Borrower, then the Holder of this Note
shall
thereafter have the right to receive upon conversion of this Note, upon the
basis and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore issuable upon conversion, such
stock, securities or assets which the Holder would have been entitled to receive
in such transaction had this Note been converted in full immediately prior
to
such transaction (without regard to any limitations on conversion set forth
herein), and in any such case appropriate provisions shall be made with respect
to the rights and interests of the Holder of this Note to the end that the
provisions hereof (including, without limitation, provisions for adjustment
of
the Conversion Price and of the number of shares issuable upon conversion of
the
Note) shall thereafter be applicable, as nearly as may be practicable in
relation to any securities or assets thereafter deliverable upon the conversion
hereof. The Borrower shall not effect any transaction described in this Section
1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days
prior written notice (but in any event at least fifteen (15) days prior written
notice) of the record date of the special meeting of shareholders to approve,
or
if there is no such record date, the consummation of, such merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event or sale of assets (during which time the Holder shall be entitled
to convert this Note) and (b) the resulting successor or acquiring entity (if
not the Borrower) assumes by written instrument the obligations of this Section
1.6(b). The above provisions shall similarly apply to successive consolidations,
mergers, sales, transfers or share exchanges.
3. Adjustment
Due to Distribution.
If
the
Borrower shall declare or make any distribution of its assets (or rights to
acquire its assets) to holders of Common Stock as a dividend, stock repurchase,
by way of return of capital or otherwise (including any dividend or distribution
to the Borrower’s shareholders in cash or shares (or rights to acquire shares)
of capital stock of a subsidiary (i.e., a spin-off) (a “Distribution”),
then
the Holder of this Note shall be entitled, upon any conversion of this Note
after the date of record for determining shareholders entitled to such
Distribution, to receive the amount of such assets which would have been payable
to the Holder with respect to the shares of Common Stock issuable upon such
conversion had such Holder been the holder of such shares of Common Stock on
the
record date for the determination of shareholders entitled to such
Distribution.
4. Adjustment
Due to Dilutive Issuance.
If, at
any time when any Notes are issued and outstanding, the Borrower issues or
sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued
or sold, any shares of Common Stock for no consideration or for a consideration
per share (before deduction of reasonable expenses or commissions or
underwriting discounts or allowances in connection therewith) less than the
Fixed Conversion Price in effect on the date of such issuance (or deemed
issuance) of such shares of Common Stock (a “Dilutive
Issuance”),
then
immediately upon the Dilutive Issuance, the Fixed Conversion Price will be
reduced to the amount of the consideration per share received by the Borrower
in
such Dilutive Issuance; provided
that
only one adjustment will be made for each Dilutive Issuance.
The
Borrower shall be deemed to have issued or sold shares of Common Stock if the
Borrower in any manner issues or grants any warrants, rights or options (not
including employee stock option plans or stock issued in connection with
employment agreements or stock issued pursuant to existing contractual
obligations), whether or not immediately exercisable, to subscribe for or to
purchase Common Stock or other securities convertible into or exchangeable
for
Common Stock (“Convertible
Securities”)
(such
warrants, rights and options to purchase Common Stock or Convertible Securities
are hereinafter referred to as “Options”)
and
the price per share for which Common Stock is issuable upon the exercise of
such
Options is less than the Fixed Conversion Price then in effect, then the Fixed
Conversion Price shall be equal to such price per share. For purposes of the
preceding sentence, the “price per share for which Common Stock is issuable upon
the exercise of such Options” is determined by dividing (i) the total amount, if
any, received or receivable by the Borrower as consideration for the issuance
or
granting of all such Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Borrower upon the exercise of all such
Options, plus, in the case of Convertible Securities issuable upon the exercise
of such Options, the minimum aggregate amount of additional consideration
payable upon the conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Options
(assuming full conversion of Convertible Securities, if applicable). No further
adjustment to the Conversion Price will be made upon the actual issuance of
such
Common Stock upon the exercise of such Options or upon the conversion or
exchange of Convertible Securities issuable upon exercise of such
Options.
Additionally,
the Borrower shall be deemed to have issued or sold shares of Common Stock
if
the Borrower in any manner issues or sells any Convertible Securities, whether
or not immediately convertible (other than where the same are issuable upon
the
exercise of Options), and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the Fixed Conversion Price then
in
effect, then the Fixed Conversion Price shall be equal to such price per share.
For the purposes of the preceding sentence, the “price per share for which
Common Stock is issuable upon such conversion or exchange” is determined by
dividing (i) the total amount, if any, received or receivable by the Borrower
as
consideration for the issuance or sale of all such Convertible Securities,
plus
the minimum aggregate amount of additional consideration, if any, payable to
the
Borrower upon the conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the conversion or exchange of
all
such Convertible Securities. No further adjustment to the Fixed Conversion
Price
will be made upon the actual issuance of such Common Stock upon conversion
or
exchange of such Convertible Securities.
5. Purchase
Rights.
If,
at
any time when any Notes are issued and outstanding, the Borrower issues any
convertible securities or rights to purchase stock, warrants, securities or
other property (the “Purchase
Rights”)
pro
rata to the record holders of any class of Common Stock, then the Holder of
this
Note will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such Holder could have acquired
if
such Holder had held the number of shares of Common Stock acquirable upon
complete conversion of this Note (without regard to any limitations on
conversion contained herein) immediately before the date on which a record
is
taken for the grant, issuance or sale of such Purchase Rights or, if no such
record is taken, the date as of which the record holders of Common Stock are
to
be determined for the grant, issue or sale of such Purchase Rights.
6. Notice
of Adjustments.
Upon
the
occurrence of each adjustment or readjustment of the Conversion Price as a
result of the events described in this Section 1.6, the Borrower, at its
expense, shall promptly compute such adjustment or readjustment and prepare
and
furnish to the Holder of a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Borrower shall, upon the written request at any
time
of the Holder, furnish to such Holder a like certificate setting forth (i)
such
adjustment or readjustment, (ii) the Conversion Price at the time in effect
and
(iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion
of
the Note.
G. Trading
Market Limitations.
Unless
permitted by the applicable rules and regulations of the principal securities
market on which the Common Stock is then listed or traded, in no event shall
the
Borrower issue upon conversion of or otherwise pursuant to this Note and the
other Notes issued pursuant to the Purchase Agreement more than the maximum
number of shares of Common Stock that the Borrower can issue pursuant to any
rule of the principal United States securities market on which the Common Stock
is then traded (the “Maximum
Share Amount”),
which
shall be 4.99% of the total shares outstanding on the Closing Date (as defined
in the Purchase Agreement), subject to equitable adjustment from time to time
for stock splits, stock dividends, combinations, capital reorganizations and
similar events relating to the Common Stock occurring after the date hereof.
Once the Maximum Share Amount has been issued (the date of which is hereinafter
referred to as the “Maximum
Conversion Date”),
if
the Borrower fails to eliminate any prohibitions under applicable law or the
rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Borrower or any
of
its securities on the Borrower’s ability to issue shares of Common Stock in
excess of the Maximum Share Amount (a “Trading
Market Prepayment Event”),
in
lieu of any further right to convert this Note, and in full satisfaction of
the
Borrower’s obligations under this Note, the Borrower shall pay to the Holder,
within fifteen (15) business days of the Maximum Conversion Date (the
“Trading
Market Prepayment Date”),
an
amount equal to 130% times
the
sum
of (a)
the then outstanding principal amount of this Note immediately following the
Maximum Conversion Date, plus
(b)
accrued and unpaid interest on the unpaid principal amount of this Note to
the
Trading Market Prepayment Date, plus
(c)
Default Interest, if any, on the amounts referred to in clause (a) and/or (b)
above, plus
(d) any
optional amounts that may be added thereto at the Maximum Conversion Date by
the
Holder in accordance with the terms hereof (the then outstanding principal
amount of this Note immediately following the Maximum Conversion Date,
plus
the
amounts referred to in clauses (b), (c) and (d) above shall collectively be
referred to as the “Remaining
Convertible Amount”).
With
respect to each Holder of Notes, the Maximum Share Amount shall refer to such
Holder’s pro rata
share
thereof determined in accordance with Section 4.8 below. In the event that
the
sum of (x) the aggregate number of shares of Common Stock issued upon conversion
of this Note and the other Notes issued pursuant to the Purchase Agreement
plus
(y) the
aggregate number of shares of Common Stock that remain issuable upon conversion
of this Note and the other Notes issued pursuant to the Purchase Agreement,
represents at least one hundred percent (100%) of the Maximum Share Amount
(the
“Triggering
Event”),
the
Borrower will use its best efforts to seek and obtain Shareholder Approval
(or
obtain such other relief as will allow conversions hereunder in excess of the
Maximum Share Amount) as soon as practicable following the Triggering Event
and
before the Maximum Conversion Date. As used herein, “Shareholder
Approval”
means
approval by the shareholders of the Borrower to authorize the issuance of the
full number of shares of Common Stock which would be issuable upon full
conversion of the then outstanding Notes but for the Maximum Share
Amount.
H. Status
as Shareholder.
Upon
submission of a Notice of Conversion by a Holder, (i) the shares covered thereby
(other than the shares, if any, which cannot be issued because their issuance
would exceed such Holder’s allocated portion of the Reserved Amount or Maximum
Share Amount) shall be deemed converted into shares of Common Stock and (ii)
the
Holder’s rights as a Holder of such converted portion of this Note shall cease
and terminate, excepting only the right to receive certificates for such shares
of Common Stock and to any remedies provided herein or otherwise available
at
law or in equity to such Holder because of a failure by the Borrower to comply
with the terms of this Note. Notwithstanding the foregoing, if a Holder has
not
received certificates for all shares of Common Stock prior to the tenth (10th)
business day after the expiration of the Deadline with respect to a conversion
of any portion of this Note for any reason, then (unless the Holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Borrower) the Holder shall regain the rights of a Holder of this Note with
respect to such unconverted portions of this Note and the Borrower shall, as
soon as practicable, return such unconverted Note to the Holder or, if the
Note
has not been surrendered, adjust its records to reflect that such portion of
this Note has not been converted. In all cases, the Holder shall retain all
of
its rights and remedies (including, without limitation, (i) the right to receive
Conversion Default Payments pursuant to Section 1.3 to the extent required
thereby for such Conversion Default and any subsequent Conversion Default and
(ii) the right to have the Conversion Price with respect to subsequent
conversions determined in accordance with Section 1.3) for the Borrower’s
failure to convert this Note.
A. Distributions
on Capital Stock.
So long
as the Borrower shall have any obligation under this Note, the Borrower shall
not without the Holder’s written consent (a) pay, declare or set apart for such
payment, any dividend or other distribution (whether in cash, property or other
securities) on shares of capital stock other than dividends on shares of Common
Stock solely in the form of additional shares of Common Stock or (b) directly
or
indirectly or through any subsidiary make any other payment or distribution
in
respect of its capital stock except for distributions pursuant to any
shareholders’ rights plan which is approved by a majority of the Borrower’s
disinterested directors.
B. Restriction
on Stock Repurchases.
So long
as the Borrower shall have any obligation under this Note, the Borrower shall
not without the Holder’s written consent redeem, repurchase or otherwise acquire
(whether for cash or in exchange for property or other securities or otherwise)
in any one transaction or series of related transactions any shares of capital
stock of the Borrower or any warrants, rights or options to purchase or acquire
any such shares.
C. Borrowings.
So long
as the Borrower shall have any obligation under this Note, the Borrower shall
not, without the Holder’s written consent, create, incur, assume or suffer to
exist any liability for borrowed money, except (a) borrowings in existence
or
committed on the date hereof and of which the Borrower has informed Holder
in
writing prior to the date hereof, (b) indebtedness to trade creditors or
financial institutions incurred in the ordinary course of business or (c)
borrowings, the proceeds of which shall be used to repay this Note.
D. Sale
of Assets.
So long
as the Borrower shall have any obligation under this Note, the Borrower shall
not, without the Holder’s written consent, sell, lease or otherwise dispose of
any significant portion of its assets outside the ordinary course of business.
Any consent to the disposition of any assets may be conditioned on a specified
use of the proceeds of disposition.
E. Advances
and Loans.
So long
as the Borrower shall have any obligation under this Note, the Borrower shall
not, without the Holder’s written consent, lend money, give credit or make
advances to any person, firm, joint venture or corporation, including, without
limitation, officers, directors, employees, subsidiaries and affiliates of
the
Borrower, except loans, credits or advances (a) in existence or committed on
the
date hereof and which the Borrower has informed Holder in writing prior to
the
date hereof, (b) made in the ordinary course of business or (c) not in excess
of
$500,000.
F. Contingent
Liabilities.
So long
as the Borrower shall have any obligation under this Note, the Borrower shall
not, without the Holder’s written consent, which shall not be unreasonably
withheld, assume, guarantee, endorse, contingently agree to purchase or
otherwise become liable upon the obligation of any person, firm, partnership,
joint venture or corporation, except by the endorsement of negotiable
instruments for deposit or collection and except assumptions, guarantees,
endorsements and contingencies (a) in existence or committed on the date hereof
and which the Borrower has informed Holder in writing prior to the date hereof,
and (b) similar transactions in the ordinary course of business.
2.7
Exceptions Notwithstanding
the above, the above covenants shall not apply to two of the Company’s two
wholly owned subsidiaries, Camelot Film Group, Inc. and Camelot Studio Group,
Inc. and any activities conducted by the Company on behalf of these
subsidiaries.
If
any of
the following events of default (each, an “Event
of Default”)
shall
occur:
A. Failure
to Pay Principal or Interest.
The
Borrower fails to pay the principal hereof or interest thereon when due on
this
Note, whether at maturity, upon a Trading Market Prepayment Event pursuant
to
Section 1.7, upon acceleration or otherwise;
B. Conversion
and the Shares.
The
Borrower fails to issue shares of Common Stock to the Holder (or announces
or
threatens that it will not honor its obligation to do so) upon exercise by
the
Holder of the conversion rights of the Holder in accordance with the terms
of
this Note (for a period of at least sixty (60) days, if such failure is solely
as a result of the circumstances governed by Section 1.3 and the Borrower is
using its best efforts to authorize a sufficient number of shares of Common
Stock as soon as practicable), fails to transfer or cause its transfer agent
to
transfer (electronically or in certificated form) any certificate for shares
of
Common Stock issued to the Holder upon conversion of or otherwise pursuant
to
this Note as and when required by this Note or the Registration Rights
Agreement, or fails to remove any restrictive legend (or to withdraw any stop
transfer instructions in respect thereof) on any certificate for any shares
of
Common Stock issued to the Holder upon conversion of or otherwise pursuant
to
this Note as and when required by this Note or the Registration Rights Agreement
(or makes any announcement, statement or threat that it does not intend to
honor
the obligations described in this paragraph) and any such failure shall continue
uncured (or any announcement, statement or threat not to honor its obligations
shall not be rescinded in writing) for three (3) days after the Borrower shall
have been notified thereof in writing by the
Holder;
C. Failure
to Timely File Registration or Effect Registration.
The
Borrower fails to file the Registration Statement within thirty (30) days
following the Closing Date (as defined in the Purchase Agreement) the
Company does not use its best efforts and respond to comments from the SEC
regarding its Registration Statement in a timely manner)
or such
Registration Statement lapses in effect (or sales cannot otherwise be made
thereunder effective, whether by reason of the Borrower’s failure to amend or
supplement the prospectus included therein
in
accordance with the Registration Rights Agreement or otherwise) for more than
ten (10) consecutive days or twenty (20) days in any twelve month period after
the Registration Statement becomes effective;
D. Breach
of Covenants.
The
Borrower breaches any material covenant or other material term or condition
contained in Sections 1.3, 1.6 or 1.7 of this Note, or Sections 4(c), 4(e),
4(h), 4(i), 4(j) or 5 of the Purchase Agreement and such breach continues for
a
period of ten (10) days after written notice thereof to the Borrower from the
Holder;
E. Breach
of Representations and Warranties.
Any
representation or warranty of the Borrower made herein or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith (including, without limitation, the Purchase Agreement and the
Registration Rights Agreement), shall be false or misleading in any material
respect when made and the breach of which has (or with the passage of time
will
have) a material adverse effect on the rights of the Holder with respect to
this
Note, the Purchase Agreement or the Registration Rights Agreement;
F. Receiver
or Trustee.
The
Borrower or any subsidiary of the Borrower, except for Camelot Film Group,
Inc.
and Camelot Studio Group, Inc., shall make an assignment for the benefit of
creditors, or apply for or consent to the appointment of a receiver or trustee
for it or for a substantial part of its property or business, or such a receiver
or trustee shall otherwise be appointed;
G. Judgments.
Any
money judgment, writ or similar process shall be entered or filed against the
Borrower or any subsidiary of the Borrower , except for Camelot Film Group,
Inc.
and Camelot Studio Group, Inc., or any of its property or other assets for
more
than $250,000, and shall remain unvacated, unbonded or unstayed for a period
of
twenty (20) days unless otherwise consented to by the Holder, which consent
will
not be unreasonably withheld;
H. Bankruptcy.
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief of
debtors shall be instituted by or against the Borrower or any subsidiary of
the
Borrower, except for Camelot Film Group, Inc. and Camelot Studio Group,
Inc.;
I. Delisting
of Common Stock.
The
Borrower shall fail to maintain the listing of the Common Stock on at least
one
of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market,
the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock
Exchange; or
J. Default
Under Other Notes.
An Event
of Default has occurred and has not been cured in a timely manner and is
continuing under any of the other Notes issued pursuant to the Purchase
Agreement, then, upon the occurrence and during the continuation of any Event
of
Default specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.9, or 3.10, at
the
option of the Holders of a majority of the aggregate principal amount of the
outstanding Notes issued pursuant to the Purchase Agreement exercisable through
the delivery of written notice to the Borrower by such Holders (the
“Default
Notice”),
and
upon the occurrence of an Event of Default specified in Section 3.6 or 3.8,
the
Notes shall become immediately due and payable and the Borrower shall pay to
the
Holder, in full satisfaction of its obligations hereunder, an amount equal
to
the greater of (i) 140% times
the
sum
of (w)
the then outstanding principal amount of this Note plus
(x)
accrued and unpaid interest on the unpaid principal amount of this Note to
the
date of payment (the “Mandatory
Prepayment Date”)
plus
(y)
Default Interest, if any, on the amounts referred to in clauses (w) and/or
(x)
plus
(z) any
amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
pursuant to Section 2(c) of the Registration Rights Agreement (the then
outstanding principal amount of this Note to the date of payment plus
the
amounts referred to in clauses (x), (y) and (z) shall collectively be known
as
the “Default
Sum”)
or
(ii) the “parity value” of the Default Sum to be prepaid, where parity value
means (a) the highest number of shares of Common Stock issuable upon conversion
of or otherwise pursuant to such Default Sum in accordance with Article I,
treating the Trading Day immediately preceding the Mandatory Prepayment Date
as
the “Conversion Date” for purposes of determining the lowest applicable
Conversion Price, unless the Default Event arises as a result of a breach in
respect of a specific Conversion Date in which case such Conversion Date shall
be the Conversion Date), multiplied
by
(b) the
highest Closing Price for the Common Stock during the period beginning on the
date of first occurrence of the Event of Default and ending one day prior to
the
Mandatory Prepayment Date (the “Default
Amount”)
and
all other amounts payable hereunder shall immediately become due and payable,
all without demand, presentment or notice, all of which hereby are expressly
waived, together with all costs, including, without limitation, legal fees
and
expenses, of collection, and the Holder shall be entitled to exercise all other
rights and remedies available at law or in equity. If the Borrower fails to
pay
the Default Amount within five (5) business days of written notice that such
amount is due and payable, then the Holder shall have the right at any time,
so
long as the Borrower remains in default (and so long and to the extent that
there are sufficient authorized shares), to require the Borrower, upon written
notice, to immediately issue, in lieu of the Default Amount, the number of
shares of Common Stock of the Borrower equal to the Default Amount divided
by
the Conversion Price then in effect.
A. Failure
or Indulgence Not Waiver.
No
failure or delay on the part of the Holder in the exercise of any power, right
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privileges. All rights
and remedies existing hereunder are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
B. Notices.
Any
notice herein required or permitted to be given shall be in writing and may
be
personally served or delivered by courier or sent by United States mail and
shall be deemed to have been given upon receipt if personally served (which
shall include telephone line facsimile transmission) or sent by courier or
three
(3) days after being deposited in the United States mail, certified, with
postage pre-paid and properly addressed, if sent by mail. For the purposes
hereof, the address of the Holder shall be as shown on the records of the
Borrower; and the address of the Borrower shall be 2020 Main Street, #990,
Irvine, California 92614, facsimile number: (949)
777-1091. Both the Holder and the Borrower may change the address for service
by
service of written notice to the other as herein provided.
C. Amendments.
This
Note and any provision hereof may only be amended by an instrument in writing
signed by the Borrower and the Holder. The term “Note” and all reference
thereto, as used throughout this instrument, shall mean this instrument (and
the
other Notes issued pursuant to the Purchase Agreement) as originally executed,
or if later amended or supplemented, then as so amended or
supplemented.
D. Assignability.
This
Note shall be binding upon the Borrower and its successors and assigns, and
shall inure to be the benefit of the Holder and its successors and assigns.
Each
transferee of this Note must be an “accredited investor” (as defined in Rule
501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary,
this Note may be pledged as collateral in connection with a bona fide
margin
account or other lending arrangement.
E. Cost
of Collection.
If
default is made in the payment of this Note, the Borrower shall pay the Holder
hereof costs of collection, including reasonable attorneys’ fees.
F. Governing
Law.
THIS
NOTE SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS. THE
BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE AND UNITED
STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO ANY DISPUTE
ARISING UNDER THIS NOTE, THE AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH
OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY
MAILED BY FIRST CLASS MAIL CERTIFIED MAIL RETURN RECEIPT REQUEST SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT
OR
PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE
AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING ATTORNEYS’
FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.
G. Certain
Amounts.
Whenever
pursuant to this Note the Borrower is required to pay an amount in excess of
the
outstanding principal amount (or the portion thereof required to be paid at
that
time) plus accrued and unpaid interest plus Default Interest on such interest,
the Borrower and the Holder agree that the actual damages to the Holder from
the
receipt of cash payment on this Note may be difficult to determine and the
amount to be so paid by the Borrower represents stipulated damages and not
a
penalty and is intended to compensate the Holder in part for loss of the
opportunity to convert this Note and to earn a return from the sale of shares
of
Common Stock acquired upon conversion of this Note at a price in excess of
the
price paid for such shares pursuant to this Note. The Borrower and the Holder
hereby agree that such amount of stipulated damages is not plainly
disproportionate to the possible loss to the Holder from the receipt of a cash
payment without the opportunity to convert this Note into shares of Common
Stock.
H. Allocations
of Maximum Share Amount and Reserved Amount.
The
Maximum Share Amount and Reserved Amount shall be allocated pro rata among
the
Holders of Notes based on the principal amount of such Notes issued to each
Holder. Each increase to the Maximum Share Amount and Reserved Amount shall
be
allocated pro rata among the Holders of Notes based on the principal amount
of
such Notes held by each Holder at the time of the increase in the Maximum Share
Amount or Reserved Amount. In the event a Holder shall sell or otherwise
transfer any of such Holder’s Notes, each transferee shall be allocated a pro
rata portion of such transferor’s Maximum Share Amount and Reserved Amount. Any
portion of the Maximum Share Amount or Reserved Amount which remains allocated
to any person or entity which does not hold any Notes shall be allocated to
the
remaining Holders of Notes, pro rata based on the principal amount of such
Notes
then held by such Holders.
I. Damages
Shares.
The
shares of Common Stock that may be issuable to the Holder pursuant to Sections
1.3 and 1.4(g) hereof and pursuant to Section 2(c) of the Registration Rights
Agreement (“Damages
Shares”)
shall
be treated as Common Stock issuable upon conversion of this Note for all
purposes hereof and shall be subject to all of the limitations and afforded
all
of the rights of the other shares of Common Stock issuable hereunder, including
without limitation, the right to be included in the Registration Statement
filed
pursuant to the Registration Rights Agreement. For purposes of calculating
interest payable on the outstanding principal amount hereof, except as otherwise
provided herein, amounts convertible into Damages Shares (“Damages
Amounts”)
shall
not bear interest but must be converted prior to the conversion of any
outstanding principal amount hereof, until the outstanding Damages Amounts
is
zero.
J. Denominations.
At the
request of the Holder, upon surrender of this Note, the Borrower shall promptly
issue new Notes in the aggregate outstanding principal amount hereof, in the
form hereof, in such denominations of at least $50,000 as the Holder shall
request.
K. Purchase
Agreement.
By its
acceptance of this Note, each Holder agrees to be bound by the applicable terms
of the Purchase Agreement.
L. Notice
of Corporate Events.
Except
as otherwise provided below, the Holder of this Note shall have no rights as
a
Holder of Common Stock unless and only to the extent that it converts this
Note
into Common Stock. The Borrower shall provide the Holder with prior notification
of any meeting of the Borrower’s shareholders (and copies of proxy materials and
other information sent to shareholders). In the event of any taking by the
Borrower of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend or other
distribution, any right to subscribe for, purchase or otherwise acquire
(including by way of merger, consolidation, reclassification or
recapitalization) any share of any class or any other securities or property,
or
to receive any other right, or for the purpose of determining shareholders
who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Borrower or any proposed
liquidation, dissolution or winding up of the Borrower, the Borrower shall
mail
a notice to the Holder, at least twenty (20) days prior to the record date
specified therein (or thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right
or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
The Borrower shall make a public announcement of any event requiring
notification to the Holder hereunder substantially simultaneously with the
notification to the Holder in accordance with the terms of this Section
4.12.
M. Remedies.
The
Borrower acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Holder, by vitiating the intent and purpose of
the
transaction contemplated hereby. Accordingly, the Borrower acknowledges that
the
remedy at law for a breach of its obligations under this Note will be inadequate
and agrees, in the event of a breach or threatened breach by the Borrower of
the
provisions of this Note, that the Holder shall be entitled, in addition to
all
other available remedies at law or in equity, and in addition to the penalties
assessable herein, to an injunction or injunctions restraining, preventing
or
curing any breach of this Note and to enforce specifically the terms and
provisions thereof, without the necessity of showing economic loss and without
any bond or other security being required.
A. Call
Option.
Notwithstanding anything to the contrary contained in this Article V, so long
as
(i) no
Event of Default or Trading Market Prepayment Event shall have occurred and
be
continuing, (ii) the
Borrower has a sufficient number of authorized shares of Common Stock reserved
for issuance upon full conversion of the Notes, then at any time after the
Issue
Date, and (iii) the
Common Stock is trading at the Initial Market Price as adjusted, the Borrower
shall have the right, exercisable on not less than three (3) Trading Days prior
written notice to the Holders of the Notes (which notice may not be sent to
the
Holders of the Notes until the Borrower is permitted to prepay the Notes
pursuant to this Section 5.1), to prepay all of the outstanding Notes in
accordance with this Section 5.1. Any notice of prepayment hereunder (an
“Optional
Prepayment”)
shall
be delivered to the Holders of the Notes at their registered addresses appearing
on the books and records of the Borrower and shall state (1) that the Borrower
is exercising its right to prepay all of the Notes issued on the Issue Date
and
(2) the date of prepayment (the “Optional
Prepayment Notice”).
On
the date fixed for prepayment (the “Optional
Prepayment Date”),
the
Borrower shall make payment of the Optional Prepayment Amount (as defined below)
to or upon the order of the Holders as specified by the Holders in writing
to
the Borrower at least one (1) business day prior to the Optional Prepayment
Date. If the Borrower exercises its right to prepay the Notes, the Borrower
shall make payment to the holders of an amount in cash (the “Optional
Prepayment Amount”)
equal
to either (i) 120% (for prepayments occurring within thirty (30) days of
the Issue Date), (ii) 130% for prepayments occurring between thirty-one
(31) and sixty (60) days of the Issue Date, or (iii) 140% (for prepayments
occurring after the sixtieth (60th)
day
following the Issue Date), multiplied by the sum of (w) the then outstanding
principal amount of this Note plus
(x) accrued and unpaid interest on the unpaid principal amount of this Note
to the Optional Prepayment Date plus
(y)
Default Interest, if any, on the amounts referred to in clauses (w) and (x)
plus
(z) any
amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or
pursuant to Section 2(c) of the Registration Rights Agreement (the then
outstanding principal amount of this Note to the date of payment plus
the
amounts referred to in clauses (x), (y) and (z) shall collectively be known
as
the “Optional
Prepayment Sum”).
Notwithstanding notice of an Optional Prepayment, the Holders shall at all
times
prior to the Optional Prepayment Date maintain the right to convert all or
any
portion of the Notes in accordance with Article I and any portion of Notes
so
converted after receipt of an Optional Prepayment Notice and prior to the
Optional Prepayment Date set forth in such notice and payment of the aggregate
Optional Prepayment Amount shall be deducted from the principal amount of Notes
which are otherwise subject to prepayment pursuant to such notice. If the
Borrower delivers an Optional Prepayment Notice and fails to pay the Optional
Prepayment Amount due to the Holders of the Notes within two (2) business days
following the Optional Prepayment Date, the Borrower shall forever forfeit
its
right to redeem the Notes pursuant to this Section 5.1.
B. Partial
Call Option.
Notwithstanding anything to the contrary contained in this Article V, in the
event that the Average Daily Price of the Common Stock, as reported by the
Reporting Service, for each day of the month ending on any Determination Date
is
below the Initial Market Price, the Borrower may, at its option, prepay a
portion of the outstanding principal amount of the Notes equal to 104% of the
principal amount hereof divided by thirty-six (36) plus one month’s interest.
The term “Initial
Market Price”
means
shall mean 100% of the volume weighted average price (VWAP) of the company’s
Common stock for the five days immediately prior to closing and readjusted
on a
quarterly basis during the term. Notwithstanding the foregoing, in no event
shall the Initial Market Price be less than the original Initial Market Price
established.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF,
Borrower has caused this Note to be signed in its name by its duly authorized
officer this 27th
Day of
December, 2006.
CAMELOT
ENTERTAINMENT GROUP, INC.
By:
_______________________________
Robert
P.
Atwell
Chief
Executive Officer
EXHIBIT
A
NOTICE
OF CONVERSION
(To
be
Executed by the Registered Holder
in
order
to Convert the Notes)
The
undersigned hereby irrevocably elects to convert $__________ principal amount
of
the Note (defined below) into shares of common stock, par value $.001 per share
(“Common
Stock”),
of
Camelot Entertainment Group, Inc, a Delaware Corporation (the “Borrower”)
according to the conditions of the convertible Notes of the Borrower dated
as of
December 27, 2006 (the “Notes”),
as of
the date written below. If securities are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates. No fee will
be charged to the Holder for any conversion, except for transfer taxes, if
any.
A copy of each Note is attached hereto (or evidence of loss, theft or
destruction thereof).
The
Borrower shall electronically transmit the Common Stock issuable pursuant to
this Notice of Conversion to the account of the undersigned or its nominee
with
DTC through its Deposit Withdrawal Agent Commission system (“DWAC
Transfer”).
Name
of
DTC Prime Broker:
Account
Number:
In
lieu
of receiving shares of Common Stock issuable pursuant to this Notice of
Conversion by way of a DWAC Transfer, the undersigned hereby requests that
the
Borrower issue a certificate or certificates for the number of shares of Common
Stock set forth below (which numbers are based on the Holder’s calculation
attached hereto) in the name(s) specified immediately below or, if additional
space is necessary, on an attachment hereto:
Name:
Address:
The
undersigned represents and warrants that all offers and sales by the undersigned
of the securities issuable to the undersigned upon conversion of the Notes
shall
be made pursuant to registration of the securities under the Securities Act
of
1933, as amended (the “Act”),
or
pursuant to an exemption from registration under the Act.
Date
of
Conversion: ___________________________
Applicable
Conversion Price: ____________________
Number
of
Shares of Common Stock to be Issued Pursuant to
Conversion
of the Notes: ______________
Signature:
___________________________________
Name:
______________________________________
Address:
____________________________________
The
Borrower shall issue and deliver shares of Common Stock to an overnight courier
not later than five business days following receipt of the original Note(s)
to
be converted, and shall make payments pursuant to the Notes for the number
of
business days such issuance and delivery is late.
Exhibit
4.3
Exhibit
4.3
Form
of
Stock Purchase Warrant by and among the Company and the Investors
THIS
WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN
REGIS-TERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT AS OTHERWISE
SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT DATED AS OF DECEMBER
27,
2006, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, TRANSFERRED
OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRA-TION STATEMENT FOR SUCH
SECURITIES UNDER SAID ACT OR, AN OPINION OF COUNSEL, IN FORM, SUBSTANCE AND
SCOPE, CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE TRANSACTIONS, THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE
144
OR REGULATION S UNDER SUCH ACT.
Right
to
Purchase 3,030,000 Shares of Common Stock, par value $.001 per
share
STOCK
PURCHASE WARRANT
THIS
CERTIFIES THAT,
for
value received, AJW Qualified Partners, LLC or its registered assigns, is
entitled to purchase from Camelot
Entertainment Group Inc.,
a
Delaware Corporation (the “Company”), at any time or from time to time during
the period specified in Paragraph 2 hereof, 3,030,000 fully paid and
nonassessable shares of the Company’s Common Stock, par value $.001 per share
(the “Common Stock”), at an exercise price per share equal to $.15 (the
“Exercise Price”). The term “Warrant Shares,” as used herein, refers to the
shares of Common Stock purchasable hereunder. The Warrant Shares and the
Exercise Price are subject to adjustment as provided in Paragraph 4 hereof.
The
term “Warrants” means this Warrant and the other warrants issued pursuant to
that certain Securities Purchase Agreement, dated December 27, 2006, by and
among the Company and the Buyers listed on the execution page thereof (the
“Securities Purchase Agreement”).
This
Warrant is subject to the following terms, provisions, and conditions:
| 7. |
Manner
of Exercise; Issuance of Certificates; Payment for Shares.
|
Subject
to the provisions hereof, this Warrant may be exercised by the holder hereof,
in
whole or in part, by the surrender of this Warrant, together with a completed
exercise agreement in the form attached hereto (the “Exercise Agreement”), to
the Company during normal business hours on any business day at the Company’s
principal executive offices (or such other office or agency of the Company
as it
may designate by notice to the holder hereof), and upon (i) payment to the
Company in cash, by certified or offi-cial bank check or by wire transfer for
the account of the Company of the Exercise Price for the Warrant Shares
specified in the Exercise Agreement or (ii) delivery to the Company of a written
notice of an election to effect a “Cashless Exercise” (as defined in Section
10(c) below) for the Warrant Shares specified in the Exercise Agreement. The
Warrant Shares so purchased shall be deemed to be issued to the holder hereof
or
such holder’s designee, as the record owner of such shares, as of the close of
business on the date on which this Warrant shall have been surrendered, the
completed Exercise Agreement shall have been deliv-ered, and payment shall
have
been made for such shares as set forth above. Certifi-cates for the Warrant
Shares so purchased, representing the aggregate number of shares specified
in
the Exercise Agreement, shall be delivered to the holder hereof within a
reasonable time, not exceeding five (5) business days, after this Warrant shall
have been so exercised. The certificates so delivered shall be in such
denominations as may be requested by the holder hereof and shall be registered
in the name of such holder or such other name as shall be designated by such
holder. If this Warrant shall have been exercised only in part, then, unless
this Warrant has expired, the Company shall, at its expense, at the time of
delivery of such certificates, deliver to the holder a new Warrant representing
the number of shares with respect to which this Warrant shall not then have
been
exercised. In addition to all other available remedies at law or in equity,
if
the Company fails to deliver certificates for the Warrant Shares within five
(5)
business days after this Warrant is exercised, then the Company shall pay to
the
holder in cash a penalty (the “Penalty”) equal to 2% of the number of Warrant
Shares that the holder is entitled to multiplied by the Market Price (as
hereinafter defined) for each day that the Company fails to deliver certificates
for the Warrant Shares. For example, if the holder is entitled to 100,000
Warrant Shares and the Market Price is $2.00, then the Company shall pay to
the
holder $4,000 for each day that the Company fails to deliver certificates for
the Warrant Shares. The Penalty shall be paid to the holder by the fifth day
of
the month following the month in which it has accrued.
Notwithstanding
anything in this Warrant to the contrary, in no event shall the holder of this
Warrant be entitled to exercise a number of Warrants (or portions thereof)
in
excess of the number of Warrants (or portions thereof) upon exercise of which
the sum of (i) the number of shares of Common Stock beneficially owned by the
holder and its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unexercised Warrants and the
unexercised or unconverted portion of any other securities of the Company
(including the Notes (as defined in the Securities Purchase Agreement)) subject
to a limitation on conversion or exercise analogous to the limitation contained
herein) and (ii) the number of shares of Common Stock issuable upon exercise
of
the Warrants (or portions thereof) with respect to which the determination
described herein is being made, would result in beneficial ownership by the
holder and its affiliates of more than 4.9% of the outstanding shares of Common
Stock. For purposes of the immediately preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934, as amended, and Regulation 13D-G thereunder, except as otherwise
provided in clause (i) of the preceding sentence. Notwithstanding anything
to
the contrary contained herein, the limitation on exercise of this Warrant set
forth herein may not be amended without (i) the written consent of the holder
hereof and the Company and (ii) the approval of a majority of shareholders
of
the Company.
This
Warrant is exercisable at any time or from time to time on or after the date
on
which this Warrant is issued and delivered pursuant to the terms of the
Securities Purchase Agreement and before 6:00 p.m., New York, New York time
on
the seventh (7th)
anniversary of the date of issuance (the “Exercise Period”).
| 9. |
Certain
Agreements of the Company.
|
The
Company hereby covenants and agrees as follows:
A. Shares
to be Fully Paid.
All
Warrant Shares will, upon issuance in accordance with the terms of this Warrant,
be validly issued, fully paid, and nonassessable and free from all taxes, liens,
and charges with respect to the issue thereof.
B. Reservation
of Shares.
During
the Exercise Period, the Company shall at all times have authorized, and
reserved for the purpose of issuance upon exercise of this Warrant, a
suf-ficient number of shares of Common Stock to provide for the exercise of
this
Warrant.
C. Listing.
The
Company shall promptly secure the listing of the shares of Common Stock issuable
upon exercise of the Warrant upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance upon exercise of this Warrant) and
shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant; and the Company shall so list on each national
securities exchange or automated quotation system, as the case may be, and
shall
maintain such listing of, any other shares of capital stock of the Company
issuable upon the exercise of this Warrant if and so long as any shares of
the
same class shall be listed on such national securities exchange or automated
quotation system.
D. Certain
Actions Prohibited.
The
Company will not, by amendment of its charter or through any re-organi-zation,
transfer of assets, consolidation, mer-ger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed by it hereunder,
but will at all times in good faith assist in the carrying out of all the
provisions of this Warrant and in the taking of all such action as may
reasonably be requested by the holder of this Warrant in order to protect the
exercise privilege of the holder of this Warrant against dilu-tion or other
impairment, consistent with the tenor and purpose of this Warrant. Without
limiting the general-ity of the foregoing, the Company (i) will not increase
the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon
the
exercise of this Warrant.
E. Successors
and Assigns.
This
Warrant will be binding upon any entity succeeding to the Company by merger,
consolidation, or acquisition of all or sub-stantially all the Company’s
assets.
| 10. |
Antidilution
Provisions.
|
During
the Exercise Period, the Exercise Price and the number of Warrant Shares shall
be subject to adjustment from time to time as provided in this Paragraph
4.
In
the
event that any adjustment of the Exercise Price as required herein results
in a
fraction of a cent, such Exercise Price shall be rounded up to the nearest
cent.
A. Adjustment
of Exercise Price and Number of Shares upon Issuance of Common
Stock.
Except
as otherwise provided in Paragraphs 4(c) and 4(e) hereof, if and whenever on
or
after the date of issuance of this Warrant, the Company issues or sells, or
in
accordance with Paragraph 4(b) hereof is deemed to have issued or sold, any
shares of Common Stock for no consideration or for a consideration per share
(before deduction of reasonable expenses or commissions or underwriting
discounts or allowances in connection therewith) less than the Market Price
on
the date of issuance (a “Dilutive Issuance”), then immediately upon the Dilutive
Issuance, the Exercise Price will be reduced to a price determined by
multiplying the Exercise Price in effect immediately prior to the Dilutive
Issuance by a fraction, (i) the numerator of which is an amount equal to the
sum
of (x) the number of shares of Common Stock actually outstanding immediately
prior to the Dilutive Issuance, plus (y) the quotient of the aggregate
consideration, calculated as set forth in Paragraph 4(b) hereof, received by
the
Company upon such Dilutive Issuance divided by the Market Price in effect
immediately prior to the Dilutive Issuance, and (ii) the denominator of which
is
the total number of shares of Common Stock Deemed Outstanding (as defined below)
immediately after the Dilutive Issuance.
B. Effect
on Exercise Price of Certain Events.
For
purposes of determining the adjusted Exercise Price under Paragraph 4(a) hereof,
the following will be applicable:
1. Issuance
of Rights or Options.
If the
Company in any manner issues or grants any warrants, rights or options, whether
or not immediately exercisable, to subscribe for or to purchase Common Stock
or
other securities convertible into or exchangeable for Common Stock (“Convertible
Securities”) (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as “Options”) and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance or grant of such Options,
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance or grant
of
such Options, be deemed to be outstanding and to have been issued and sold
by
the Company for such price per share. For purposes of the preceding sentence,
the “price per share for which Common Stock is issuable upon the exercise of
such Options” is determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the issuance or granting
of
all such Options, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise of all such Options, plus,
in
the case of Convertible Securities issuable upon the exercise of such Options,
the minimum aggregate amount of additional consideration payable upon the
conversion or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total number of shares
of Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment
to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
2. Issuance
of Convertible Securities.
If the
Company in any manner issues or sells any Convertible Securities, whether or
not
immediately convertible (other than where the same are issuable upon the
exercise of Options) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the Market Price on the date
of
issuance, then the maximum total number of shares of Common Stock issuable
upon
the conversion or exchange of all such Convertible Securities will, as of the
date of the issuance of such Convertible Securities, be deemed to be outstanding
and to have been issued and sold by the Company for such price per share. For
the purposes of the preceding sentence, the “price per share for which Common
Stock is issuable upon such conversion or exchange” is determined by dividing
(i) the total amount, if any, received or receivable by the Company as
consideration for the issuance or sale of all such Convertible Securities,
plus
the minimum aggregate amount of additional consideration, if any, payable to
the
Company upon the conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the conversion or exchange of
all
such Convertible Securities. No further adjustment to the Exercise Price will
be
made upon the actual issuance of such Common Stock upon conversion or exchange
of such Convertible Securities.
3. Change
in Option Price or Conversion Rate.
If there
is a change at any time in (i) the amount of additional consideration payable
to
the Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
of
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options
or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
4. Treatment
of Expired Options and Unexercised Convertible
Securities.
If, in
any case, the total number of shares of Common Stock issuable upon exercise
of
any Option or upon conversion or exchange of any Convertible Securities is
not,
in fact, issued and the rights to exercise such Option or to convert or exchange
such Convertible Securities shall have expired or terminated, the Exercise
Price
then in effect will be readjusted to the Exercise Price which would have been
in
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination (other than in respect of the actual number of shares
of Common Stock issued upon exercise or conversion thereof), never been
issued.
5. Calculation
of Consideration Received.
If any
Common Stock, Options or Convertible Securities are issued, granted or sold
for
cash, the consideration received therefor for purposes of this Warrant will
be
the amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or
sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount
of
the consideration other than cash received by the Company will be the fair
value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation,
the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as
is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the
Company.
6. Exceptions
to Adjustment of Exercise Price.
No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities granted, issued and outstanding
on
the date of issuance of this Warrant; (ii) upon the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
benefit plan, stock option plan or restricted stock plan of the Company now
existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the independent members of the
Board of Directors of the Company or a majority of the members of a committee
of
independent directors established for such purpose; or (iii) upon the exercise
of the Warrants.
C. Subdivision
or Combination of Common Stock.
If the
Company at any time subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) the shares
of
Common Stock acquirable hereunder into a greater number of shares, then, after
the date of record for effecting such subdivision, the Exercise Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company at any time combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a smaller number of shares, then, after the date
of
record for effecting such combination, the Exercise Price in effect immediately
prior to such combination will be proportionately increased.
D. Adjustment
in Number of Shares.
Upon
each adjustment of the Exercise Price pursuant to the provisions of this
Paragraph 4, the number of shares of Common Stock issuable upon exercise of
this
Warrant shall be adjusted by multiplying a number equal to the Exercise Price
in
effect immediately prior to such adjustment by the number of shares of Common
Stock issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise
Price.
E. Consolidation,
Merger or Sale.
In case
of any consolidation of the Company with, or merger of the Company into any
other corporation, or in case of any sale or conveyance of all or substantially
all of the assets of the Company other than in connection with a plan of
complete liquidation of the Company, then as a condition of such consolidation,
merger or sale or conveyance, adequate provision will be made whereby the holder
of this Warrant will have the right to acquire and receive upon exercise of
this
Warrant in lieu of the shares of Common Stock immediately theretofore acquirable
upon the exercise of this Warrant, such shares of stock, securities or assets
as
may be issued or payable with respect to or in exchange for the number of shares
of Common Stock immediately theretofore acquirable and receivable upon exercise
of this Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to insure
that the provisions of this Paragraph 4 hereof will thereafter be applicable
as
nearly as may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not effect
any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Paragraph 4 and the obligations
to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the holder may be entitled
to
acquire.
F. Distribution
of Assets.
In case
the Company shall declare or make any distribution of its assets (including
cash) to holders of Common Stock as a partial liquidating dividend, by way
of
return of capital or otherwise, then, after the date of record for determining
shareholders entitled to such distribution, but prior to the date of
distribution, the holder of this Warrant shall be entitled upon exercise of
this
Warrant for the purchase of any or all of the shares of Common Stock subject
hereto, to receive the amount of such assets which would have been payable
to
the holder had such holder been the holder of such shares of Common Stock on
the
record date for the determination of shareholders entitled to such
distribution.
G. Notice
of Adjustment.
Upon the
occurrence of any event which requires any adjustment of the Exercise Price,
then, and in each such case, the Company shall give notice thereof to the holder
of this Warrant, which notice shall state the Exercise Price resulting from
such
adjustment and the increase or decrease in the number of Warrant Shares
purchasable at such price upon exercise, setting forth in reasonable detail
the
method of calculation and the facts upon which such calculation is based. Such
calculation shall be certified by the Chief Financial Officer of the
Company.
H. Minimum
Adjustment of Exercise Price.
No
adjustment of the Exercise Price shall be made in an amount of less than 1%
of
the Exercise Price in effect at the time such adjustment is otherwise required
to be made, but any such lesser adjustment shall be carried forward and shall
be
made at the time and together with the next subsequent adjustment which,
together with any adjustments so carried forward, shall amount to not less
than
1% of such Exercise Price.
I. No
Fractional Shares.
No
fractional shares of Common Stock are to be issued upon the exercise of this
Warrant, but the Company shall pay a cash adjustment in respect of any
fractional share which would otherwise be issuable in an amount equal to the
same fraction of the Market Price of a share of Common Stock on the date of
such
exercise.
J. Other
Notices.
In case
at any time:
1. the
Company shall declare any dividend upon the Common Stock payable in shares
of
stock of any class or make any other distribution (including dividends or
distributions payable in cash out of retained earnings) to the holders of the
Common Stock;
2. the
Company shall offer for subscription pro rata to the holders of the Common
Stock
any additional shares of stock of any class or other rights;
3. there
shall be any capital reorganiza-tion of the Company, or reclassification of
the
Common Stock, or consolidation or merger of the Company with or into, or sale
of
all or substan-tially all its assets to, another corporation or entity;
or
4. there
shall be a voluntary or involun-tary dissolution, liquidation or winding up
of
the Company; then, in each such case, the Company shall give to the holder
of
this Warrant (a) notice of the date on which the books of the Company shall
close or a record shall be taken for determining the holders of Common Stock
entitled to receive any such divi-dend, distribution, or subscription rights
or
for determining the holders of Common Stock entitled to vote in respect of
any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up and (b) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, notice of the date (or, if not then known, a reasonable
approximation thereof by the Company) when the same shall take place. Such
notice shall also specify the date on which the holders of Common Stock shall
be
entitled to receive such dividend, distribution, or subscription rights or
to
exchange their Common Stock for stock or other securities or property
deliverable upon such reorganization, re-classification, consolidation, merger,
sale, dissolution, liquidation, or winding-up, as the case may be. Such notice
shall be given at least 30 days prior to the record date or the date on which
the Company’s books are closed in respect thereto. Failure to give any such
notice or any defect therein shall not affect the validity of the proceedings
referred to in clauses (i), (ii), (iii) and (iv) above.
K. Certain
Events.
If any
event occurs of the type contemplated by the adjustment provisions of this
Paragraph 4 but not expressly provided for by such provisions, the Company
will
give notice of such event as provided in Paragraph 4(g) hereof, and the
Company’s Board of Directors will make an appropriate adjustment in the Exercise
Price and the number of shares of Common Stock acquirable upon exercise of
this
Warrant so that the rights of the holder shall be neither enhanced nor
diminished by such event.
L. Certain
Definitions.
1. “Common
Stock Deemed Outstanding”
shall
mean the number of shares of Common Stock actually outstanding (not including
shares of Common Stock held in the treasury of the Company), plus (x) pursuant
to Paragraph 4(b)(i) hereof, the maximum total number of shares of Common Stock
issuable upon the exercise of Options, as of the date of such issuance or grant
of such Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the
maximum total number of shares of Common Stock issuable upon conversion or
exchange of Convertible Securities, as of the date of issuance of such
Convertible Securities, if any.
2. “Market
Price,”
as of
any date, (i) means the average of the last reported sale prices for the shares
of Common Stock on the OTCBB for the five (5) Trading Days immediately preceding
such date as reported by Bloomberg, or (ii) if the OTCBB is not the principal
trading market for the shares of Common Stock, the average of the last reported
sale prices on the principal trading market for the Common Stock during the
same
period as reported by Bloomberg, or (iii) if market value cannot be calculated
as of such date on any of the foregoing bases, the Market Price shall be the
fair market value as reasonably determined in good faith by (a) the Board of
Directors of the Company or, at the option of a majority-in-interest of the
holders of the outstanding Warrants by (b) an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the corporation. The manner of determining the Market Price of
the
Common Stock set forth in the foregoing definition shall apply with respect
to
any other security in respect of which a determination as to market value must
be made hereunder.
3. “Common
Stock,”
for
purposes of this Paragraph 4, includes the Common Stock, par value $.001 per
share, and any additional class of stock of the Company having no preference
as
to dividends or distributions on liquidation, provided that the shares
purchasable pursuant to this Warrant shall include only shares of Common Stock,
par value $.001 per share, in respect of which this Warrant is exercisable,
or
shares resulting from any subdivision or combination of such Common Stock,
or in
the case of any reorganization, reclassification, consolidation, merger, or
sale
of the character referred to in Paragraph 4(e) hereof, the stock or other
securities or property provided for in such Paragraph.
The
issuance of certificates for Warrant Shares upon the exercise of this Warrant
shall be made without charge to the holder of this Warrant or such shares for
any issuance tax or other costs in respect thereof, provided that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than the holder of this Warrant.
| 12. |
No
Rights or Liabilities as a
Shareholder.
|
This
Warrant shall not entitle the holder hereof to any voting rights or other rights
as a shareholder of the Company. No provision of this Warrant, in the absence
of
affirmative action by the holder hereof to purchase Warrant Shares, and no
mere
enumeration herein of the rights or privileges of the holder hereof, shall
give
rise to any liability of such holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
| 13. |
Transfer,
Exchange, and Replacement of
Warrant.
|
A. Restriction
on Transfer.
This
Warrant and the rights granted to the holder hereof are transferable, in whole
or in part, upon surrender of this Warrant, together with a properly executed
assignment in the form attached hereto, at the office or agency of the Company
referred to in Paragraph 7(e) below, pro-vided, however, that any transfer
or assignment shall be subject to the conditions set forth in Paragraph 7(f)
hereof and to the applicable provisions of the Securities Purchase Agreement.
Until due presentment for registration of transfer on the books of the Company,
the Company may treat the registered holder hereof as the owner and holder
hereof for all purposes, and the Company shall not be affected by any notice
to
the con-trary.
B. Warrant
Exchangeable for Different Denomina-tions.
This
Warrant is exchange-able, upon the surrender hereof by the holder hereof at
the
office or agency of the Company referred to in Paragraph 7(e) below, for new
Warrants of like tenor representing in the aggregate the right to purchase
the
number of shares of Common Stock which may be purchased hereunder, each of
such
new Warrants to represent the right to purchase such number of shares as shall
be designated by the holder hereof at the time of such surrender.
C. Replacement
of Warrant.
Upon
receipt of evi-dence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any such loss,
theft, or destruc-tion, upon delivery of an indemnity agreement reason-ably
satisfactory in form and amount to the Company, or, in the case of any such
mutilation, upon surrender and cancellation of this Warrant, the Company, at
its
expense, will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
D. Cancellation;
Payment of Expenses.
Upon the
surrender of this Warrant in connection with any trans-fer, exchange, or
replacement as provided in this Paragraph 7, this Warrant shall be promptly
canceled by the Company. The Company shall pay all taxes (other than securities
transfer taxes) and all other expenses (other than legal expenses, if any,
incurred by the holder or transferees) and charges payable in connection with
the preparation, execution, and delivery of Warrants pursuant to this Paragraph
7.
E. Register.
The
Company shall maintain, at its principal executive offices (or such other office
or agency of the Company as it may designate by notice to the holder hereof),
a
register for this Warrant, in which the Company shall record the name and
address of the person in whose name this Warrant has been issued, as well as
the
name and address of each transferee and each prior owner of this
Warrant.
F. Exercise
or Transfer Without Registration.
If, at
the time of the surrender of this Warrant in connection with any exercise,
transfer, or exchange of this Warrant, this Warrant (or, in the case of any
exercise, the Warrant Shares issuable hereunder), shall not be registered under
the Securities Act of 1933, as amended (the “Securities Act”) and under
applicable state securities or blue sky laws, the Company may require, as a
condition of allowing such exercise, transfer, or exchange, (i) that the holder
or transferee of this Warrant, as the case may be, furnish to the Company a
written opinion of counsel, which opinion and counsel are acceptable to the
Company, to the effect that such exercise, transfer, or exchange may be made
without registration under said Securities Act and under applicable state
securities or blue sky laws, (ii) that the holder or transferee execute and
deliver to the Company an investment letter in form and substance acceptable
to
the Company and (iii) that the transferee be an “accredited investor” as defined
in Rule 501(a) promulgated under the Securities Act; provided that no such
opinion, letter or status as an “accredited investor” shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act. The
first holder of this Warrant, by taking and holding the same, represents to
the
Company that such holder is acquiring this Warrant for investment and not with
a
view to the distribution thereof.
All
notices, requests, and other communications required or permitted to be given
or
delivered hereunder to the holder of this Warrant shall be in writing, and
shall
be personally delivered, or shall be sent by certified or registered mail or
by
recognized overnight mail courier, postage prepaid and addressed, to such holder
at the address shown for such holder on the books of the Company, or at such
other address as shall have been furnished to the Company by notice from such
holder. All notices, requests, and other communications required or permitted
to
be given or delivered hereunder to the Company shall be in writing, and shall
be
personally delivered, or shall be sent by certified or registered mail or by
recognized overnight mail courier, postage prepaid and addressed, to the office
of the Company at 1282 Camellia Circle, Weston, Florida 33326, Attention: Chief
Executive Officer, or at such other address as shall have been furnished to
the
holder of this Warrant by notice from the Company. Any such notice, request,
or
other communication may be sent by facsimile, but shall in such case be
subsequently confirmed by a writing personally delivered or sent by certified
or
registered mail or by recognized overnight mail courier as provided above.
All
notices, requests, and other communications shall be deemed to have been given
either at the time of the receipt thereof by the person entitled to re-ceive
such notice at the address of such person for purposes of this Paragraph 9,
or,
if mailed by registered or certified mail or with a recognized overnight mail
courier upon deposit with the United States Post Office or such overnight mail
courier, if postage is prepaid and the mailing is properly addressed, as the
case may be.
THIS
WARRANT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS
OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF
LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE
UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO
ANY
DISPUTE ARISING UNDER THIS WARRANT, THE AGREEMENTS ENTERED INTO IN CONNECTION
HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES
IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS
UPON
A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE
SERVICE OF PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN
SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH
SUIT
OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS
BY
SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT
PREVAIL IN ANY DISPUTE ARISING UNDER THIS WARRANT SHALL BE RESPONSIBLE FOR
ALL
FEES AND EXPENSES, INCLUDING ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY
IN CONNECTION WITH SUCH DISPUTE.
A. Amendments.
This
Warrant and any provision hereof may only be amended by an instrument in writing
signed by the Company and the holder hereof.
B. Descriptive
Headings.
The
descriptive headings of the several paragraphs of this Warrant are in-serted
for
purposes of reference only, and shall not affect the meaning or construction
of
any of the provisions hereof.
C. Cashless
Exercise.
Notwithstanding anything to the contrary contained in this Warrant, this Warrant
may be exercised by presentation and surrender of this Warrant to the Company
at
its principal executive offices with a written notice of the holder’s intention
to effect a cashless exercise, including a calculation of the number of shares
of Common Stock to be issued upon such exercise in accordance with the terms
hereof (a “Cashless Exercise”). In the event of a Cashless Exercise, in lieu of
paying the Exercise Price in cash, the holder shall surrender this Warrant
for
that number of shares of Common Stock determined by multiplying the number
of
Warrant Shares to which it would otherwise be entitled by a fraction, the
numerator of which shall be the difference between the then current Market
Price
per share of the Common Stock and the Exercise Price, and the denominator of
which shall be the then current Market Price per share of Common Stock. For
example, if the holder is exercising 100,000 Warrants with a per Warrant
exercise price of $0.75 per share through a cashless exercise when the Common
Stock’s current Market Price per share is $2.00 per share, then upon such
Cashless Exercise the holder will receive 62,500 shares of Common
Stock.
D. Remedies.
The
Company acknowledges that a breach by it of its obligations hereunder will
cause
irreparable harm to the holder, by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that
the
remedy at law for a breach of its obligations under this Warrant will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Warrant, that the holder shall be entitled,
in
addition to all other available remedies at law or in equity, and in addition
to
the penalties assessable herein, to an injunction or injunctions restraining,
preventing or curing any breach of this Warrant and to enforce specifically
the
terms and provisions thereof, without the necessity of showing economic loss
and
without any bond or other security being required.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF,
the
Company has caused this Warrant to be signed by its duly authorized
officer.
Camelot
Entertainment Group Inc.
By:
_______________________________
Robert
P.
Atwell
Chief
Executive Officer and President
Dated
as
of December 27, 2006
FORM
OF EXERCISE AGREEMENT
Dated:
________ __, 200_
To: ______________________
The
undersigned, pursuant to the provisions set forth in the within Warrant, hereby
agrees to purchase ________ shares of Common Stock covered by such Warrant,
and
makes pay-ment herewith in full therefor at the price per share provided by
such
Warrant in cash or by certified or official bank check in the amount of, or
by
surrender of securities issued by the Company (including a portion of the
Warrant) having a market value (in the case of a portion of this Warrant,
determined in accordance with Section 10(c) of the Warrant) equal to $_________.
Please issue a certificate or certifi-cates for such shares of Common Stock
in
the name of and pay any cash for any fractional share to:
Name:
______________________________
Signature:
Address:____________________________
_____________________________
Note: The
above
signature should correspond exactly with the name on the face of the within
Warrant, if applicable.
and,
if
said number of shares of Common Stock shall not be all the shares purchasable
under the within Warrant, a new Warrant is to be issued in the name of said
undersigned covering the balance of the shares purchasable thereunder less
any
frac-tion of a share paid in cash.
FORM
OF ASSIGNMENT
FOR
VALUE RECEIVED,
the
undersigned hereby sells, assigns, and transfers all the rights of the
undersigned under the within Warrant, with respect to the number of shares
of
Common Stock covered thereby set forth hereinbelow, to:
Name
of Assignee Address No
of
Shares
,
and
hereby irrevocably constitutes and appoints ___________________________________
as agent and attorney-in-fact to trans-fer said Warrant on the books of the
within-named corporation, with full power of substitution in the
premises.
Dated: ________
__, 200_
In
the
presence of: ______________________________
Name:______________________________
Signature:_________________________
Title
of
Signing Officer or Agent (if any):
______________________________
Address: ______________________________
______________________________
| |
Note:
|
The
above signature should correspond exactly with the name on the face
of the
within Warrant, if applicable.
|
Exhibit
4.4
Exhibit
4.4
Registration
Rights Agreement by and among the Company and the Investors
REGISTRATION
RIGHTS AGREEMENT
REGISTRATION
RIGHTS AGREEMENT (this “Agreement”),
dated
as of December 27, 2006, by and among Camelot Entertainment Group, Inc., a
Delaware Corporation with its headquarters located at 2020 Main Street, #990,
Irvine, California 92614 (the “Company”),
and
each of the undersigned (together with their respective affiliates and any
assignee or transferee of all of their respective rights hereunder, the
“Initial
Investors”).
WHEREAS:
| 17. |
In
connection with the Securities Purchase Agreement by and among the
parties
hereto of even date herewith (the “Securities Purchase Agreement”), the
Company has agreed, upon the terms and subject to the conditions
contained
therein, to issue and sell to the Initial Investors (i) secured
convertible notes in the aggregate principal amount of up to One
Million
Dollars ($1,000,000) (the “Notes”) that are convertible into shares of the
Company’s common stock (the “Common Stock”), upon the terms and subject to
the limitations and conditions set forth in such Notes and (ii) warrants
(the “Warrants”) to acquire an aggregate of 10,000,000 shares of Common
Stock, upon the terms and conditions and subject to the limitations
and
conditions set forth in the Warrants;
and
|
| 18. |
To
induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules
and
regulations thereunder, or any similar successor statute (collectively,
the “1933
Act”),
and applicable state securities
laws;
|
NOW,
THEREFORE,
in
consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which
are
hereby acknowledged, the Company and each of the Initial Investors hereby agree
as follows:
A. DEFINITIONS.
1. As
used
in this Agreement, the following terms shall have the following
meanings:
a. “Investors”
means
the Initial Investors and any transferee or assignee who agrees to become bound
by the provisions of this Agreement in accordance with Section 9
hereof.
b. “register,”
“registered,”
and
“registration”
refer
to a registration effected by preparing and filing a Registration Statement
or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis (“Rule
415”),
and
the declaration or ordering of effectiveness of such Registration Statement
by
the United States Securities and Exchange Commission (the “SEC”).
c. “Registrable
Securities”
means
the Conversion Shares issued or issuable upon conversion or otherwise pursuant
to the Notes and Additional Notes (as defined in the Securities Purchase
Agreement) pursuant to a price equal to the lesser of: (i) the Initial Market
Price (as defined in the Notes) and (ii) the average of the lowest three (3)
Trading Prices (as defined in the Notes) for the Common Stock during the twenty
(20) Trading Day period discounted by 40%.
d. “Registration
Statement”
means
a
registration statement of the Company under the 1933 Act.
2. Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Securities Purchase Agreement or the Convertible
Note.
B. REGISTRATION.
1. Mandatory
Registration.
The
Company shall prepare, and, on or prior to thirty (30) days from the date of
Closing (as defined in the Securities Purchase Agreement) (the “Filing
Date”),
file
with the SEC a Registration Statement on Form S-3 or Form SB-2(or, if Form
S-3
or Form SB-2 is not then available, on such form of Registration Statement
as is
then available to effect a registration of the Registrable Securities, subject
to the consent of the Initial Investors, which consent will not be unreasonably
withheld) covering the resale of the Registrable Securities underlying the
Notes
issued or issuable pursuant to the Securities Purchase Agreement, which
Registration Statement, to the extent allowable under the 1933 Act and the
rules
and regulations promulgated thereunder (including Rule 416), shall state that
such Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of or otherwise
pursuant to the Notes to prevent dilution resulting from stock splits, stock
dividends or similar transactions. The number of shares of Common Stock
initially included in such Registration Statement shall be no less than an
amount equal the sum of the number of Conversion Shares that are then issuable
upon conversion of the Notes and Additional Notes (based on the Variable
Conversion Price as would then be in effect and assuming the Variable Conversion
Price is the Conversion Price at such time) without regard to any limitation
on
the Investor’s ability to convert the Notes. The Company acknowledges that the
number of shares initially included in the Registration Statement represents
a
good faith estimate of the maximum number of shares issuable upon conversion
of
the Notes.
2. Underwritten
Offering.
If any
offering pursuant to a Registration Statement pursuant to Section 2(a) hereof
involves an underwritten offering, the Investors who hold a majority in interest
of the Registrable Securities subject to such underwritten offering, with the
consent of a majority-in-interest of the Initial Investors, shall have the
right
to select one legal counsel and an investment banker or bankers and manager
or
managers to administer the offering, which investment banker or bankers or
manager or managers shall be reasonably satisfactory to the
Company.
3. Payments
by the Company.
The
Company shall use its best efforts to obtain effectiveness of the Registration
Statement as soon as practicable. If (i) the
Registration Statement(s) covering the Registrable Securities required to be
filed by the Company pursuant to Section 2(a) hereof is not filed by the Filing
Date or the Company does not use its best efforts and respond to comments from
the SEC regarding its Registration Statement in a timely manner, or (ii) after
the Registration Statement has been declared effective by the SEC, sales of
all
of the Registrable Securities cannot be made pursuant to the Registration
Statement due to the fault of the Company, or (iii) the
Common Stock is not listed or included for quotation on the Nasdaq National
Market (“Nasdaq”),
the
Nasdaq SmallCap Market (“Nasdaq
SmallCap”),
the
New York Stock Exchange (the “NYSE”)
or the
American Stock Exchange (the “AMEX”)
after
being so listed or included for quotation after the date hereof, or (iv) the
Common Stock ceases to be traded on the Over-the-Counter Bulletin Board (the
“OTCBB”)
or any
equivalent replacement exchange prior to being listed or included for quotation
on one of the aforementioned markets, then the Company will make payments to
the
Investors in such amounts and at such times as shall be determined pursuant
to
this Section 2(c) as partial relief for the damages to the Investors by reason
of any such delay in or reduction of their ability to sell the Registrable
Securities (which remedy shall not be exclusive of any other remedies available
at law or in equity). The Company shall pay to each holder of the Notes or
Registrable Securities an amount equal to the then outstanding principal amount
of the Notes (and, in the case of holders of Registrable Securities, the
principal amount of Notes from which such Registrable Securities were converted)
(“Outstanding
Principal Amount”),
multiplied by the Applicable Percentage (as defined below) times the sum of:
(i)
the number of months (prorated for partial months) after the Filing Date and
prior to the date the Registration Statement is declared effective by the SEC,
provided, however, that there shall be excluded from such period any delays
which are solely attributable to changes required by the Investors in the
Registration Statement with respect to information relating to the Investors,
including, without limitation, changes to the plan of distribution, or to the
failure of the Investors to conduct their review of the Registration Statement
pursuant to Section 3(h) below in a reasonably prompt manner; (ii) the number
of
months (prorated for partial months) that sales of all of the Registrable
Securities cannot be made pursuant to the Registration Statement after the
Registration Statement has been declared effective (including, without
limitation, when sales cannot be made by reason of the Company’s failure to
properly supplement or amend the prospectus included therein in accordance
with
the terms of this Agreement, but excluding any days during an Allowed Delay
(as
defined in Section 3(f)); and (iii) the number of months (prorated for partial
months) that the Common Stock is not listed or included for quotation on the
OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX or that trading thereon is halted
after the Registration Statement has been declared effective. The term
“Applicable
Percentage”
means
two hundredths (.02). (For example, if the Registration Statement is filed
one
(1) month after thirty (30) day period, the Company would pay $5,000 for each
$250,000 of Outstanding Principal Amount. If thereafter, sales could not be
made
pursuant to the Registration Statement for an additional period of one (1)
month, the Company would pay an additional $5,000 for each $250,000 of
Outstanding Principal Amount.) Such amounts shall be paid in cash or, at the
Company’s option, in shares of Common Stock priced at the Conversion Price (as
defined in the Notes) on such payment date.
4. Piggy-Back
Registrations.
Subject
to the last sentence of this Section 2(d), if at any time prior to the
expiration of the Registration Period (as hereinafter defined) the Company
shall
determine to file with the SEC a Registration Statement relating to an offering
for its own account or the account of others under the 1933 Act of any of its
equity securities (other than on Form S-4 or Form S-8 or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other bona fide,
employee benefit plans), the Company shall send to each Investor who is entitled
to registration rights under this Section 2(d) written notice of such
determination and, if within fifteen (15) days after the effective date of
such
notice, such Investor shall so request in writing, the Company shall include
in
such Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)’ judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion
of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; provided,
however,
that
the Company shall not exclude any Registrable Securities unless the Company
has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and provided,
further,
however,
that,
after giving effect to the immediately preceding proviso, any exclusion of
Registrable Securities shall be made pro rata with holders of other securities
having the right to include such securities in the Registration Statement other
than holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights. No right to
registration of Registrable Securities under this Section 2(d) shall be
construed to limit any registration required under Section 2(a) hereof. If
an
offering in connection with which an Investor is entitled to registration under
this Section 2(d) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities
in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering. Notwithstanding
anything to the contrary set forth herein, the registration rights of the
Investors pursuant to this Section 2(d) shall only be available in the event
the
Company fails to timely file, obtain effectiveness or maintain effectiveness
of
any Registration Statement to be filed pursuant to Section 2(a) in accordance
with the terms of this Agreement.
5. Demand
Registrations.
The
Company shall prepare, and, on or prior to thirty (30) days from the date of
receipt of written demand (the “Investor
Demand”)
of the
Investors (the “Filing
Date”),
to
file with the SEC a Registration Statement on Form S-3 or Form SB-2 (or, if
Form
S-3 or Form SB-2 is not then available, on such form of Registration Statement
as is then available to effect a registration of any shares issued or issuable
in respect of interest on the Notes in accordance with the terms thereof, which
Registration Statement, to the extent allowable under the 1933 Act and the
rules
and regulations promulgated thereunder (including Rule 416), shall state that
such Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of or otherwise
pursuant to the Notes to prevent dilution resulting from stock splits, stock
dividends or similar transactions. The number of shares of Common Stock
initially included in such Registration Statement shall be no less than an
amount equal to the sum of the number of Conversion Shares that are then
issuable upon conversion of the interest on the Notes (based on the Variable
Conversion Price as would then be in effect and assuming the Variable Conversion
Price is the Conversion Price at such time), without regard to any limitation
on
the Investor’s ability to convert the interest on the Notes. The Company
acknowledges that the number of shares initially included in the Registration
Statement represents a good faith estimate of the maximum number of shares
issuable upon conversion of the interest on the Notes.
6. Eligibility
for Form S-3, SB-2 or S-1; Conversion to Form S-3.
The
Company represents and warrants that it meets the requirements for the use
of
Form S-3, SB-2 or S-1 for registration of the sale by the Initial Investors
and
any other Investors of the Registrable Securities. The Company agrees to file
all reports required to be filed by the Company with the SEC in a timely manner
so as to remain eligible or become eligible, as the case may be, and thereafter
to maintain its eligibility, for the use of Form S-3. If the Company is not
currently eligible to use Form S-3, not later than five (5) business days after
the Company first meets the registration eligibility and transaction
requirements for the use of Form S-3 (or any successor form) for registration
of
the offer and sale by the Initial Investors and any other Investors of
Registrable Securities, the Company shall file a Registration Statement on
Form
S-3 (or such successor form) with respect to the Registrable Securities covered
by the Registration Statement on Form SB-2 or Form S-1, whichever is applicable,
filed pursuant to Section 2(a) (and include in such Registration Statement
on
Form S-3 the information required by Rule 429 under the 1933 Act) or convert
the
Registration Statement on Form SB-2 or Form S-1, whichever is applicable, filed
pursuant to Section 2(a) to a Form S-3 pursuant to Rule 429 under the 1933
Act
and cause such Registration Statement (or such amendment) to be declared
effective no later than thirty (30) days after filing. In the event of a breach
by the Company of the provisions of this Section 2(f), the Company will be
required to make payments pursuant to Section 2(c) hereof.
C. OBLIGATIONS
OF THE COMPANY.
In
connection with the registration of the Registrable Securities, the Company
shall have the following obligations:
1. The
Company shall prepare promptly, and file with the SEC not later than the Filing
Date, a Registration Statement with respect to the number of Registrable
Securities provided in Section 2(a), and thereafter use its best efforts to
cause such Registration Statement relating to Registrable Securities to become
effective as soon as possible after such filing, and keep the Registration
Statement effective pursuant to Rule 415 at all times until such date as is
the
earlier of (i) the date on which all of the Registrable Securities have been
sold and (ii) the date on which the Registrable Securities (in the opinion
of
counsel to the Initial Investors) may be immediately sold to the public without
registration or restriction (including, without limitation, as to volume by
each
holder thereof) under the 1933 Act (the “Registration
Period”),
which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein,
or
necessary to make the statements therein not misleading.
2. The
Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statements and
the prospectus used in connection with the Registration Statements as may be
necessary to keep the Registration Statements effective at all times during
the
Registration Period, and, during such period, comply with the provisions of
the
1933 Act with respect to the disposition of all Registrable Securities of the
Company covered by the Registration Statements until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statements. In the event the number of shares available under
a
Registration Statement filed pursuant to this Agreement is insufficient to
cover
all of the Registrable Securities issued or issuable upon conversion of the
Notes, the Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable),
or
both, so as to cover all of the Registrable Securities, in each case, as soon
as
practicable, but in any event within fifteen (15) days after the necessity
therefor arises (based on the market price of the Common Stock and other
relevant factors on which the Company reasonably elects to rely). The Company
shall use its best efforts to cause such amendment and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof, but in any event within thirty (30) days after the date on which the
Company reasonably first determines (or reasonably should have determined)
the
need therefor. The provisions of Section 2(c) above shall be applicable with
respect to such obligation, with the ninety (90) days running from the day
the
Company reasonably first determines (or reasonably should have determined)
the
need therefor.
3. The
Company shall furnish to each Investor whose Registrable Securities are included
in a Registration Statement and its legal counsel (i) promptly
(but in no event more than five (5) business days) after the same is prepared
and publicly distributed, filed with the SEC, or received by the Company, one
copy of each Registration Statement and any amendment thereto, each preliminary
prospectus and prospectus and each amendment or supplement thereto, and, in
the
case of the Registration Statement referred to in Section 2(a), each letter
written by or on behalf of the Company to the SEC or the staff of the SEC,
and
each item of correspondence from the SEC or the staff of the SEC, in each case
relating to such Registration Statement (other than any portion of any thereof
which contains information for which the Company has sought confidential
treatment), and (ii) promptly
(but in no event more than five (5) business days) after the Registration
Statement is declared effective by the SEC, such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor. The Company will immediately notify each Investor by
facsimile of the effectiveness of each Registration Statement or any
post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC (which comments shall promptly be made available
to the Investors upon request), with a view towards causing each Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable, shall promptly file an acceleration request as soon as
practicable (but in no event more than five (5) business days) following the
resolution or clearance of all SEC comments or, if applicable, following
notification by the SEC that any such Registration Statement or any amendment
thereto will not be subject to review and shall, if required by SEC Rules,
promptly file with the SEC a final prospectus as soon as practicable (but in
no
event more than five (5) business days) following receipt by the Company from
the SEC of an order declaring the Registration Statement effective. In the
event
of a breach by the Company of the provisions of this Section 3(c), the Company
will be required to make payments pursuant to Section 2(c) hereof.
4. The
Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statements
under such other securities or “blue sky” laws of such jurisdictions in the
United States as the Investors who hold a majority in interest of the
Registrable Securities being offered reasonably request, (ii) prepare
and file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may
be
necessary to maintain the effectiveness thereof during the Registration Period,
(iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and
(iv) take
all other actions reasonably necessary or advisable to qualify the Registrable
Securities for sale in such jurisdictions; provided,
however,
that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify
to do business in any jurisdiction where it would not otherwise be required
to
qualify but for this Section 3(d), (b) subject
itself to general taxation in any such jurisdiction, (c) file
a general consent to service of process in any such jurisdiction, (d) provide
any undertakings that cause the Company undue expense or burden, or (e) make
any change in its charter or bylaws, which in each case the Board of Directors
of the Company determines to be contrary to the best interests of the Company
and its shareholders.
5. In
the
event Investors who hold a majority-in-interest of the Registrable Securities
being offered in the offering (with the approval of a majority-in-interest
of
the Initial Investors) select underwriters for the offering, the Company shall
enter into and perform its obligations under an underwriting agreement, in
usual
and customary form, including, without limitation and customary indemnification,
with the underwriters of such offering.
6. As
promptly as practicable after becoming aware of such event, the Company shall
notify each Investor of the happening of any event, of which the Company has
knowledge, as a result of which the prospectus included in any Registration
Statement, as then in effect, includes an untrue statement of a material fact
or
omission to state a material fact required to be stated therein or necessary
to
make the statements therein not misleading, and use its best efforts promptly
to
prepare a supplement or amendment to any Registration Statement to correct
such
untrue statement or omission, and deliver such number of copies of such
supplement or amendment to each Investor as such Investor may reasonably
request; provided that, for not more than ten (10) consecutive trading days
(or
a total of not more than twenty (20) trading days in any twelve (12) month
period), the Company may delay the disclosure of material non-public information
concerning the Company (as well as prospectus or Registration Statement
updating) the disclosure of which at the time is not, in the good faith opinion
of the Company, in the best interests of the Company (an “Allowed
Delay”);
provided, further, that the Company shall promptly (i) notify
the Investors in writing of the existence of (but in no event, without the
prior
written consent of an Investor, shall the Company disclose to such investor
any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise
the Investors in writing to cease all sales under such Registration Statement
until the end of the Allowed Delay. Upon expiration of the Allowed Delay, the
Company shall again be bound by the first sentence of this Section 3(f) with
respect to the information giving rise thereto.
7. The
Company shall use its best efforts to prevent the issuance of any stop order
or
other suspension of effectiveness of any Registration Statement, and, if such
an
order is issued, to obtain the withdrawal of such order at the earliest possible
moment and to notify each Investor who holds Registrable Securities being sold
(or, in the event of an underwritten offering, the managing underwriters) of
the
issuance of such order and the resolution thereof.
8. The
Company shall permit a single firm of counsel designated by the Initial
Investors to review such Registration Statement and all amendments and
supplements thereto (as well as all requests for acceleration or effectiveness
thereof) a reasonable period of time prior to their filing with the SEC, and
not
file any document in a form to which such counsel reasonably objects and will
not request acceleration of such Registration Statement without prior notice
to
such counsel. The sections of such Registration Statement covering information
with respect to the Investors, the Investor’s beneficial ownership of securities
of the Company or the Investors intended method of disposition of Registrable
Securities shall conform to the information provided to the Company by each
of
the Investors.
9. The
Company shall make generally available to its security holders as soon as
practicable, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions
of
Rule 158 under the 1933 Act) covering a twelve-month period beginning not later
than the first day of the Company’s fiscal quarter next following the effective
date of the Registration Statement.
10. At
the
request of any Investor, the Company shall furnish, on the date that Registrable
Securities are delivered to an underwriter, if any, for sale in connection
with
any Registration Statement or, if such securities are not being sold by an
underwriter, on the date of effectiveness thereof (i) an
opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters, if any, and the Investors and (ii) a
letter, dated such date, from the Company’s independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and the Investors.
11. The
Company shall make available for inspection by (i) any
Investor, (ii) any
underwriter participating in any disposition pursuant to a Registration
Statement, (iii) one
firm of attorneys and one firm of accountants or other agents retained by the
Initial Investors, (iv) one
firm of attorneys and one firm of accountants or other agents retained by all
other Investors, and (v) one
firm of attorneys retained by all such underwriters (collectively, the
“Inspectors”)
all
pertinent financial and other records, and pertinent corporate documents and
properties of the Company, including without limitation, records of conversions
by other holders of convertible securities issued by the Company and the
issuance of stock to such holders pursuant to the conversions (collectively,
the
“Records”),
as
shall be reasonably deemed necessary by each Inspector to enable each Inspector
to exercise its due diligence responsibility, and cause the Company’s officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided,
however,
that
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the
disclosure of such Records is necessary to avoid or correct a misstatement
or
omission in any Registration Statement, (b) the
release of such Records is ordered pursuant to a subpoena or other order from
a
court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered
into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of
such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and
allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investor’s ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
12. The
Company shall hold in confidence and not make any disclosure of information
concerning an Investor provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the
disclosure of such information is necessary to avoid or correct a misstatement
or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees
that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
13. The
Company shall (i) cause
all the Registrable Securities covered by the Registration Statement to be
listed on each national securities exchange on which securities of the same
class or series issued by the Company are then listed, if any, if the listing
of
such Registrable Securities is then permitted under the rules of such exchange,
or (ii) to
the extent the securities of the same class or series are not then listed on
a
national securities exchange, secure the designation and quotation, of all
the
Registrable Securities covered by the Registration Statement on Nasdaq or,
if
not eligible for Nasdaq, on Nasdaq SmallCap or, if not eligible for Nasdaq
or
Nasdaq SmallCap, on the OTCBB and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. (“NASD”)
as
such with respect to such Registrable Securities.
14. The
Company shall provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of
the
Registration Statement.
15. The
Company shall cooperate with the Investors who hold Registrable Securities
being
offered and the managing underwriter or underwriters, if any, to facilitate
the
timely preparation and delivery of certificates (not bearing any restrictive
legends) representing Registrable Securities to be offered pursuant to a
Registration Statement and enable such certificates to be in such denominations
or amounts, as the case may be, as the managing underwriter or underwriters,
if
any, or the Investors may reasonably request and registered in such names as
the
managing underwriter or underwriters, if any, or the Investors may request,
and,
within three (3) business days after a Registration Statement which includes
Registrable Securities is ordered effective by the SEC, the Company shall
deliver, and shall cause legal counsel selected by the Company to deliver,
to
the transfer agent for the Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such Registration Statement) an
instruction in the form attached hereto as Exhibit
1
and an
opinion of such counsel in the form attached hereto as Exhibit 2.
16. At
the
request of the holders of a majority-in-interest of the Registrable Securities,
the Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to a Registration Statement and
any
prospectus used in connection with the Registration Statement as may be
necessary in order to change the plan of distribution set forth in such
Registration Statement.
17. From
and
after the date of this Agreement, the Company shall not, and shall not agree
to,
allow the holders of any securities of the Company to include any of their
securities, in excess of 250,000 shares of Common Stock, in any Registration
Statement under Section 2(a) hereof or any amendment or supplement thereto
under
Section 3(b) hereof without the consent of the holders of a majority-in-interest
of the Registrable Securities.
18. The
Company shall take all other reasonable actions necessary to expedite and
facilitate disposition by the Investors of Registrable Securities pursuant
to a
Registration Statement.
D. OBLIGATIONS
OF THE INVESTORS.
In
connection with the registration of the Registrable Securities, the Investors
shall have the following obligations:
1. It
shall
be a condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held
by it
and the intended method of disposition of the Registrable Securities held by
it
as shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request. At least three (3) business days prior
to
the first anticipated filing date of the Registration Statement, the Company
shall notify each Investor of the information the Company requires from each
such Investor.
2. Each
Investor, by such Investor’s acceptance of the Registrable Securities, agrees to
cooperate with the Company as reasonably requested by the Company in connection
with the preparation and filing of the Registration Statements hereunder, unless
such Investor has notified the Company in writing of such Investor’s election to
exclude all of such Investor’s Registrable Securities from the Registration
Statements.
3. In
the
event Investors holding a majority-in-interest of the Registrable Securities
being registered (with the approval of the Initial Investors) determine to
engage the services of an underwriter, each Investor agrees to enter into and
perform such Investor’s obligations under an underwriting agreement, in usual
and customary form, including, without limitation, customary indemnification
and
contribution obligations, with the managing underwriter of such offering and
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of the Registrable Securities, unless such Investor
has notified the Company in writing of such Investor’s election to exclude all
of such Investor’s Registrable Securities from such Registration
Statement.
4. Each
Investor agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(f) or 3(g), such
Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor’s receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(f) or 3(g) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor’s possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such
notice.
5. No
Investor may participate in any underwritten registration hereunder unless
such
Investor (i) agrees
to sell such Investor’s Registrable Securities on the basis provided in any
underwriting arrangements in usual and customary form entered into by the
Company, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees
to pay its pro rata share of all underwriting discounts and commissions and
any
expenses in excess of those payable by the Company pursuant to Section 5
below.
E. EXPENSES
OF REGISTRATION.
All
reasonable expenses, other than underwriting discounts and commissions, incurred
in connection with registrations, filings or qualifications pursuant to Sections
2 and 3, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the fees and disbursements
of
counsel for the Company, and the reasonable fees and disbursements of one
counsel selected by the Initial Investors pursuant to Sections 2(b) and 3(h)
hereof shall be borne by the Company and shall be included in the fees paid
to
counsel under the Securities Purchase Agreement for purposes of counsel selected
by the Initial Investors.
F. INDEMNIFICATION.
In
the
event any Registrable Securities are included in a Registration Statement under
this Agreement:
1. To
the
extent permitted by law, each Party will indemnify, hold harmless and defend
(i) the
other party, (ii) the
directors, officers, partners, employees, agents and each person who controls
any Investor within the meaning of the 1933 Act or the Securities Exchange
Act
of 1934, as amended (the “1934
Act”),
if
any, (iii) any
underwriter (as defined in the 1933 Act) for the Investors, and (iv) the
directors, officers, partners, employees and each person who controls any such
underwriter within the meaning of the 1933 Act or the 1934 Act, if any (each,
an
“Indemnified
Person”),
against any joint or several losses, claims, damages, liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any regulatory
or self-regulatory organization, whether commenced or threatened, in respect
thereof, “Claims”)
to
which any of them may become subject insofar as such Claims arise out of or
are
based upon: (i) any untrue statement or alleged untrue statement of a material
fact in a Registration Statement or the omission or alleged omission to state
therein a material fact required to be stated or necessary to make the
statements therein not misleading; (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in
the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation,
any
state securities law, or any rule or regulation thereunder relating to the
offer
or sale of the Registrable Securities (the matters in the foregoing clauses
(i)
through (iii) being, collectively, “Violations”).
Subject to the restrictions set forth in Section 6(c) with respect to the number
of legal counsel, the Company shall reimburse the Indemnified Person, promptly
as such expenses are incurred and are due and payable, for any reasonable legal
fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a): (i) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by any Indemnified Person or underwriter
for
such Indemnified Person expressly for use in connection with the preparation
of
such Registration Statement or any such amendment thereof or supplement thereto,
if such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (ii) shall not apply to amounts paid in settlement of any Claim
if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld; and (iii) with respect to
any
preliminary prospectus, shall not inure to the benefit of any Indemnified Person
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, such corrected prospectus was timely made
available by the Company pursuant to Section 3(c) hereof, and the Indemnified
Person was promptly advised in writing not to use the incorrect prospectus
prior
to the use giving rise to a Violation and such Indemnified Person,
notwithstanding such advice, used it. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9.
2. In
connection with any Registration Statement in which an Investor is
participating, each such Investor agrees severally and not jointly to indemnify,
hold harmless and defend, to the same extent and in the same manner set forth
in
Section 6(a), the Company, each of its directors, each of its officers who
signs
the Registration Statement, each person, if any, who controls the Company within
the meaning of the 1933 Act or the 1934 Act, any underwriter and any other
shareholder selling securities pursuant to the Registration Statement or any
of
its directors or officers or any person who controls such shareholder or
underwriter within the meaning of the 1933 Act or the 1934 Act (collectively
and
together with an Indemnified Person, an “Indemnified
Party”),
against any Claim to which any of them may become subject, under the 1933 Act,
the 1934 Act or otherwise, insofar as such Claim arises out of or is based
upon
any Violation by such Investor, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished to the Company by such Investor expressly for
use
in connection with such Registration Statement; and subject to Section 6(c)
such
Investor will reimburse any legal or other expenses (promptly as such expenses
are incurred and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim; provided,
however,
that
the indemnity agreement contained in this Section 6(b) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided,
further,
however,
that
the Investor shall be liable under this Agreement (including this Section 6(b)
and Section 7) for only that amount as does not exceed the net proceeds to
such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
3. Promptly
after receipt by an Indemnified Person or Indemnified Party under this Section
6
of notice of the commencement of any action (including any governmental action),
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to
the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person
or
the Indemnified Party, as the case may be; provided,
however,
that an
Indemnified Person or Indemnified Party shall have the right to retain its
own
counsel with the fees and expenses to be paid by the indemnifying party, if,
in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and
any
other party represented by such counsel in such proceeding. The indemnifying
party shall pay for only one separate legal counsel for the Indemnified Persons
or the Indemnified Parties, as applicable, and such legal counsel shall be
selected by Investors holding a majority-in-interest of the Registrable
Securities included in the Registration Statement to which the Claim relates
(with the approval of a majority-in-interest of the Initial Investors), if
the
Investors are entitled to indemnification hereunder, or the Company, if the
Company is entitled to indemnification hereunder, as applicable. The failure
to
deliver written notice to the indemnifying party within a reasonable time of
the
commencement of any such action shall not relieve such indemnifying party of
any
liability to the Indemnified Person or Indemnified Party under this Section
6,
except to the extent that the indemnifying party is actually prejudiced in
its
ability to defend such action. The indemnification required by this Section
6
shall be made by periodic payments of the amount thereof during the course
of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
G. CONTRIBUTION.
To
the
extent any indemnification by an indemnifying party is prohibited or limited
by
law, the indemnifying party agrees to make the maximum contribution with respect
to any amounts for which it would otherwise be liable under Section 6 to the
fullest extent permitted by law; provided,
however,
that
(i) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section
6, (ii) no
seller of Registrable Securities guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation, and (iii)contribution
(together with any indemnification or other obligations under this Agreement)
by
any seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such Registrable
Securities.
H. REPORTS
UNDER THE 1934 ACT.
With
a
view to making available to the Investors the benefits of Rule 144 promulgated
under the 1933 Act or any other similar rule or regulation of the SEC that
may
at any time permit the investors to sell securities of the Company to the public
without registration (“Rule
144”),
the
Company agrees to:
1. make
and
keep public information available, as those terms are understood and defined
in
Rule 144;
2. file
with
the SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act so long as the Company remains
subject to such requirements (it being understood that nothing herein shall
limit the Company’s obligations under Section 4(c) of the Securities Purchase
Agreement) and the filing of such reports and other documents is required for
the applicable provisions of Rule 144; and
3. furnish
to each Investor so long as such Investor owns Registrable Securities, promptly
upon request, (i) a
written statement by the Company that it has complied with the reporting
requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a
copy of the most recent annual or quarterly report of the Company and such
other
reports and documents so filed by the Company, and (iii) such
other information as may be reasonably requested to permit the Investors to
sell
such securities pursuant to Rule 144 without registration.
I. ASSIGNMENT
OF REGISTRATION RIGHTS.
The
rights under this Agreement shall be automatically assignable by the Investors
to any transferee of all or any portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the Company
within a reasonable time after such assignment, (ii) the Company is, within
a reasonable time after such transfer or assignment, furnished with written
notice of (a) the
name and address of such transferee or assignee, and (b) the
securities with respect to which such registration rights are being transferred
or assigned, (iii) following such transfer or assignment, the further
disposition of such securities by the transferee or assignee is restricted
under
the 1933 Act and applicable state securities laws, (iv) at or before the time
the Company receives the written notice contemplated by clause (ii) of this
sentence, the transferee or assignee agrees in writing with the Company to
be
bound by all of the provisions contained herein, (v) such transfer shall have
been made in accordance with the applicable requirements of the Securities
Purchase Agreement, and (vi) such transferee shall be an “accredited
investor”
as
that
term defined in Rule 501 of Regulation D promulgated under the 1933
Act.
J. AMENDMENT
OF REGISTRATION RIGHTS.
Provisions
of this Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with written consent of the Company, each of the Initial
Investors (to the extent such Initial Investor still owns Registrable
Securities) and Investors who hold a majority interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section
10
shall be binding upon each Investor and the Company.
K. MISCELLANEOUS.
1. A
person
or entity is deemed to be a holder of Registrable Securities whenever such
person or entity owns of record such Registrable Securities. If the Company
receives conflicting instructions, notices or elections from two or more persons
or entities with respect to the same Registrable Securities, the Company shall
act upon the basis of instructions, notice or election received from the
registered owner of such Registrable Securities.
2. Any
notices required or permitted to be given under the terms hereof shall be sent
by certified or registered mail (return receipt requested) or delivered
personally or by courier (including a recognized overnight delivery service)
or
by facsimile and shall be effective five days after being placed in the mail,
if
mailed by regular United States mail, or upon receipt, if delivered personally
or by courier (including a recognized overnight delivery service) or by
facsimile, in each case addressed to a party. The addresses for such
communications shall be:
If
to the
Company:
Camelot
Entertainment Group, Inc.
2020
Main
Street, #990
Irvine,
California 92614
Attention:
Chief Executive Officer
Telephone:
(949) 777-1090
Facsimile:
(949) 777-1091
With
a
copy to:
Anslow
& Jaclin, LLP
195
Route
9, Suite 204
Manalapan,
NJ 07726
Attention:
Richard I. Anslow, Esq.
Telephone:
(732) 409-1212
Facsimile:
(732) 577-1188
If
to an
Investor: to the address set forth immediately below such Investor’s name on the
signature pages to the Securities Purchase Agreement.
With
a
copy to:
Ballard
Spahr Andrews & Ingersoll, LLP
1735
Market Street
51st
Floor
Philadelphia,
Pennsylvania 19103
Attention:
Gerald J. Guarcini, Esq.
Telephone:
215-865-8625
Facsimile:
215-864-8999
3. Failure
of any party to exercise any right or remedy under this Agreement or otherwise,
or delay by a party in exercising such right or remedy, shall not operate as
a
waiver thereof.
4.
THIS
AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF
LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE
UNITED STATES FEDERAL COURTS LOCATED NEW YORK, NEW YORK WITH RESPECT TO ANY
DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION
HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES
IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS
UPON
A PARTY MAILED BY FIRST CLASS MAIL CERTIFIED RETURN RECEIPT REQUESTED SHALL
BE
DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY
SUCH
SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE
AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.
5. In
the
event that any provision of this Agreement is invalid or unenforceable under
any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof
which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof.
6. This
Agreement, the Notes and the Securities Purchase Agreement (including all
schedules and exhibits thereto) constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There
are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement and the Securities
Purchase Agreement supersede all prior agreements and understandings among
the
parties hereto with respect to the subject matter hereof and
thereof.
7. Subject
to the requirements of Section 9 hereof, this Agreement shall be binding upon
and inure to the benefit of the parties and their successors and
assigns.
8. The
headings in this Agreement are for convenience of reference only and shall
not
form part of, or affect the interpretation of, this Agreement.
9. This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original but all of which shall constitute one and the same agreement
and shall become effective when counterparts have been signed by each party
and
delivered to the other party. This Agreement, once executed by a party, may
be
delivered to the other party hereto by facsimile transmission of a copy of
this
Agreement bearing the signature of the party so delivering this
Agreement.
10. Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
11. Except
as
otherwise provided herein, all consents and other determinations to be made
by
the Investors pursuant to this Agreement shall be made by Investors holding
a
majority of the Registrable Securities, determined as if the all of the Notes
then outstanding have been converted into for Registrable
Securities.
12. The
Company acknowledges that a breach by it of its obligations hereunder will
cause
irreparable harm to each Investor by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly, the Company acknowledges that
the
remedy at law for breach of its obligations under this Agreement will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of any of the provisions under this Agreement, that each Investor shall
be entitled, in addition to all other available remedies in law or in equity,
and in addition to the penalties assessable herein, to an injunction or
injunctions restraining, preventing or curing any breach of this Agreement
and
to enforce specifically the terms and provisions hereof, without the necessity
of showing economic loss and without any bond or other security being
required.
13. The
language used in this Agreement will be deemed to be the language chosen by
the
parties to express their mutual intent, and no rules of strict construction
will
be applied against any party.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF,
the
Company and the undersigned Initial Investors have caused this Agreement to
be
duly executed as of the date first above written.
CAMELOT
ENTERTAINMENT GROUP, INC.
______________________________________
Robert
P.
Atwell
Chief
Executive Officer
AJW
PARTNERS, LLC
By:
SMS
Group, LLC
______________________________________
Corey
S.
Ribotsky
Manager
AJW
OFFSHORE, LTD.
By:
First
Street Manager II, LLC
______________________________________
Corey
S.
Ribotsky
Manager
AJW
QUALIFIED PARTNERS, LLC
By:
AJW
Manager, LLC
____________________________________
Corey
S.
Ribotsky
Manager
NEW
MILLENNIUM CAPITAL PARTNERS, II, LLC
By:
First
Street Manager II, LLC
______________________________________
Corey
S.
Ribotsky
Manager
Exhibit
4.5
Exhibit
4.5
Security
Agreement by and among the Company and the Investors
SECURITY
AGREEMENT
SECURITY
AGREEMENT (this “Agreement”),
dated
as of December 27, 2006, by and among Camelot Entertainment Group, Inc., a
Delaware Corporation (“Company”),
and
the secured parties signatory hereto and their respective endorsees, transferees
and assigns (collectively, the “Secured
Party”).
W
I T N E
S S E T H:
WHEREAS,
pursuant to a Securities Purchase Agreement, dated the date hereof, between
Company and the Secured Party (the “Purchase
Agreement”),
Company has agreed to issue to the Secured Party and the Secured Party has
agreed to purchase from Company certain of Company’s 8% Callable Secured
Convertible Notes, due three years from the date of issue (the “Notes”),
which
are convertible into shares of Company’s Common Stock, par value $.001 per share
(the “Common
Stock”).
In
connection therewith, Company shall issue the Secured Party certain Common
Stock
purchase warrants (the “Warrants”);
and
WHEREAS,
in order to induce the Secured Party to purchase the Notes, Company has agreed
to execute and deliver to the Secured Party this Agreement for the benefit
of
the Secured Party and to grant to it a first priority security interest in
certain property of Company to secure the prompt payment, performance and
discharge in full of all of Company’s obligations under the Notes and exercise
and discharge in full of Company’s obligations under the Warrants.
NOW,
THEREFORE, in consideration of the agreements herein contained and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
| 19. |
Certain
Definitions.
As used in this Agreement, the following terms shall have the meanings
set
forth in this Section 1. Terms used but not otherwise defined in
this
Agreement that are defined in Article 9 of the UCC (such as “general
intangibles”
and “proceeds”)
shall have the respective meanings given such terms in Article 9
of the
UCC.
|
A. “Collateral”
means
the collateral in which the Secured Party is granted a security interest by
this
Agreement and which shall include the following, whether presently owned or
existing or hereafter acquired or coming into existence, and all additions
and
accessions thereto and all substitutions and replacements thereof, and all
proceeds, products and accounts thereof, including, without limitation, all
proceeds from the sale or transfer of the Collateral and of insurance covering
the same and of any tort claims in connection therewith:
1. All
Goods
of the Company, including, without limitations, all machinery, equipment,
computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture,
special and general tools, fixtures, test and quality control devices and other
equipment of every kind and nature and wherever situated, together with all
documents of title and documents representing the same, all additions and
accessions thereto, replacements therefor, all parts therefor, and all
substitutes for any of the foregoing and all other items used and useful in
connection with the Company’s businesses and all improvements thereto
(collectively, the “Equipment”);
and
2. All
Inventory of the Company; and
3. All
of
the Company’s contract rights and general intangibles, including, without
limitation, all partnership interests, stock or other securities, licenses,
distribution and other agreements, computer software development rights, leases,
franchises, customer lists, quality control procedures, grants and rights,
goodwill, trademarks, service marks, trade styles, trade names, patents, patent
applications, copyrights, deposit accounts, and income tax refunds
(collectively, the “General
Intangibles”);
and
4. All
Receivables of the Company including all insurance proceeds, and rights to
refunds or indemnification whatsoever owing, together with all instruments,
all
documents of title representing any of the foregoing, all rights in any
merchandising, goods, equipment, motor vehicles and trucks which any of the
same
may represent, and all right, title, security and guaranties with respect to
each Receivable, including any right of stoppage in transit; and
5. All
of
the Company’s documents, instruments and chattel paper, files, records, books of
account, business papers, computer programs and the products and proceeds of
all
of the foregoing Collateral set forth in clauses (i)-(iv) above;
and
(vi) Notwithstanding
the above, the Company is not granting a security interest in its two wholly
owned subsidiaries, Camelot Film Group, Inc. and Camelot Studio Group, Inc.
which shall not be considered Collateral under this Agreement.
B. “Company”
shall
mean, collectively, Company and all of the subsidiaries of Company excluding
Camelot Film Group, Inc. and Camelot Studio Group, Inc., a list of which is
contained in Schedule
A,
attached hereto.
C. “Obligations”
means
all of the Company’s obligations under this Agreement and the Notes, in each
case, whether now or hereafter existing, voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later decreased, created or incurred, and all or any portion
of
such obligations or liabilities that are paid, to the extent all or any part
of
such payment is avoided or recovered directly or indirectly from the Secured
Party as a preference, fraudulent transfer or otherwise as such obligations
may
be amended, supplemented, converted, extended or modified from time to
time.
D. “UCC”
means
the Uniform Commercial Code, as currently in effect in the State of New
York.
| 20. |
Grant
of Security Interest.
As an inducement for the Secured Party to purchase the Notes and
to secure
the complete and timely payment, performance and discharge in full,
as the
case may be, of all of the Obligations, the Company hereby,
unconditionally and irrevocably, pledges, grants and hypothecates
to the
Secured Party, a continuing security interest in, a continuing first
lien
upon, an unqualified right to possession and disposition of and a
right of
set-off against, in each case to the fullest extent permitted by
law, all
of the Company’s right, title and interest of whatsoever kind and nature
in and to the Collateral (the “Security
Interest”).
|
| 21. |
Representations,
Warranties, Covenants and Agreements of the Company.
The Company represents and warrants to, and covenants and agrees
with, the
Secured Party as follows:
|
A. The
Company has the requisite corporate power and authority to enter into this
Agreement and otherwise to carry out its obligations thereunder. The execution,
delivery and performance by the Company of this Agreement and the filings
contemplated therein have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company. This
Agreement constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditor’s rights generally.
B. The
Company represents and warrants that it has no place of business or offices
where its respective books of account and records are kept (other than
temporarily at the offices of its attorneys or accountants) or places where
Collateral is stored or located, except as set forth on Schedule
A
attached
hereto;
C. The
Company is the sole owner of the Collateral (except for non-exclusive licenses
granted by the Company in the ordinary course of business), free and clear
of
any liens, security interests, encumbrances, rights or claims, and is fully
authorized to grant the Security Interest in and to pledge the Collateral,
except as set forth on Schedule
C.
There
is not on file in any governmental or regulatory authority, agency or recording
office an effective financing statement, security agreement, license or transfer
or any notice of any of the foregoing (other than those that have been filed
in
favor of the Secured Party pursuant to this Agreement) covering or affecting
any
of the Collateral, except as set forth on Schedule
C.
So long
as this Agreement shall be in effect, the Company shall not execute and shall
not knowingly permit to be on file in any such office or agency any such
financing statement or other document or instrument (except to the extent filed
or recorded in favor of the Secured Party pursuant to the terms of this
Agreement), except as set forth on Schedule
C.
D. No
part
of the Collateral has been judged invalid or unenforceable. No written claim
has
been received that any Collateral or the Company’s use of any Collateral
violates the rights of any third party. There has been no adverse decision
to
the Company’s claim of ownership rights in or exclusive rights to use the
Collateral in any jurisdiction or to the Company’s right to keep and maintain
such Collateral in full force and effect, and there is no proceeding involving
said rights pending or, to the best knowledge of the Company, threatened before
any court, judicial body, administrative or regulatory agency, arbitrator or
other governmental authority.
E. The
Company shall at all times maintain its books of account and records relating
to
the Collateral at its principal place of business and its Collateral at the
locations set forth on Schedule
A
attached
hereto and may not relocate such books of account and records or tangible
Collateral unless it delivers to the Secured Party at least 30 days prior to
such relocation (i) written notice of such relocation and the new location
thereof (which must be within the United States) and (ii) evidence that
appropriate financing statements and other necessary documents have been filed
and recorded and other steps have been taken to perfect the Security Interest
to
create in favor of the Secured Party valid, perfected and continuing first
priority liens in the Collateral.
F. This
Agreement creates in favor of the Secured Party a valid security interest in
the
Collateral securing the payment and performance of the Obligations and, upon
making the filings described in the immediately following sentence, a perfected
first priority security interest in such Collateral. Except for the filing
of
financing statements on Form-1 under the UCC with the jurisdictions indicated
on
Schedule
B,
attached hereto, no authorization or approval of or filing with or notice to
any
governmental authority or regulatory body is required either (i) for
the grant by the Company of, or the effectiveness of, the Security Interest
granted hereby or for the execution, delivery and performance of this Agreement
by the Company or (ii) for
the perfection of or exercise by the Secured Party of its rights and remedies
hereunder.
G. On
the
date of execution of this Agreement, the Company will deliver to the Secured
Party one or more executed UCC financing statements on Form-1 with respect
to
the Security Interest for filing with the jurisdictions indicated on
Schedule
B,
attached hereto and in such other jurisdictions as may be requested by the
Secured Party.
H. Except
as
set forth on Schedule
C,
the
execution, delivery and performance of this Agreement does not conflict with
or
cause a breach or default, or an event that with or without the passage of
time
or notice, shall constitute a breach or default, under any agreement to which
the Company is a party or by which the Company is bound. No consent (including,
without limitation, from stock holders or creditors of the Company) is required
for the Company to enter into and perform its obligations
hereunder.
I. The
Company shall at all times maintain the liens and Security Interest provided
for
hereunder as valid and perfected first priority liens and security interests
in
the Collateral in favor of the Secured Party until this Agreement and the
Security Interest hereunder shall terminate pursuant to Section 11. The Company
hereby agrees to defend the same against any and all persons. The Company shall
safeguard and protect all Collateral for the account of the Secured Party.
At
the request of the Secured Party, the Company will sign and deliver to the
Secured Party at any time or from time to time one or more financing statements
pursuant to the UCC (or any other applicable statute) in form reasonably
satisfactory to the Secured Party and will pay the cost of filing the same
in
all public offices wherever filing is, or is deemed by the Secured Party to
be,
necessary or desirable to effect the rights and obligations provided for herein.
Without limiting the generality of the foregoing, the Company shall pay all
fees, taxes and other amounts necessary to maintain the Collateral and the
Security Interest hereunder, and the Company shall obtain and furnish to the
Secured Party from time to time, upon demand, such releases and/or
subordinations of claims and liens which may be required to maintain the
priority of the Security Interest hereunder.
J. The
Company will not transfer, pledge, hypothecate, encumber, license (except for
non-exclusive licenses granted and sales made by the Company in the ordinary
course of business), sell or otherwise dispose of any of the Collateral without
the prior written consent of the Secured Party.
K. The
Company shall keep and preserve its Equipment, Inventory and other tangible
Collateral in good condition, repair and order and shall not operate or locate
any such Collateral (or cause to be operated or located) in any area excluded
from insurance coverage.
L. The
Company shall, within ten (10) days of obtaining knowledge thereof, advise
the
Secured Party promptly, in sufficient detail, of any substantial change in
the
Collateral, and of the occurrence of any event which would have a material
adverse effect on the value of the Collateral or on the Secured Party’s security
interest therein.
M. The
Company shall promptly execute and deliver to the Secured Party such further
deeds, mortgages, assignments, security agreements, financing statements or
other instruments, documents, certificates and assurances and take such further
action as the Secured Party may from time to time request and may in its sole
discretion deem necessary to perfect, protect or enforce its security interest
in the Collateral including, without limitation, the execution and delivery
of a
separate security agreement with respect to the Company’s intellectual property
(“Intellectual
Property Security Agreement”)
in
which the Secured Party has been granted a security interest hereunder,
substantially in a form acceptable to the Secured Party, which Intellectual
Property Security Agreement, other than as stated therein, shall be subject
to
all of the terms and conditions hereof.
N. The
Company shall permit the Secured Party and its representatives and agents to
inspect the Collateral at any time, and to make copies of records pertaining
to
the Collateral as may be requested by the Secured Party from time to
time.
O. The
Company will take all steps reasonably necessary to diligently pursue and seek
to preserve, enforce and collect any rights, claims, causes of action and
accounts receivable in respect of the Collateral.
P. The
Company shall promptly notify the Secured Party in sufficient detail upon
becoming aware of any attachment, garnishment, execution or other legal process
levied against any Collateral and of any other information received by the
Company that may materially affect the value of the Collateral, the Security
Interest or the rights and remedies of the Secured Party hereunder.
Q. All
information heretofore, herein or hereafter supplied to the Secured Party by
or
on behalf of the Company with respect to the Collateral is accurate and complete
in all material respects as of the date furnished.
R. Schedule
A
attached
hereto contains a list of all of the subsidiaries of Company.
| 22. |
Defaults.
The following events shall be “Events
of Default”:
|
A. The
occurrence of an Event of Default (as defined in the Notes) under the
Notes;
B. Any
representation or warranty of the Company in this Agreement or in the
Intellectual Property Security Agreement shall prove to have been incorrect
in
any material respect when made;
C. The
failure by the Company to observe or perform any of its obligations hereunder
or
in the Intellectual Property Security Agreement for ten (10) days after receipt
by the Company of notice of such failure from the Secured Party;
and
D. Any
breach of, or default under, the Warrants.
| 23. |
Duty
To Hold In Trust.
Upon the occurrence of any Event of Default and a failure to cure
such
default in a timely manner at any time thereafter, the Company shall,
upon
receipt by it of any revenue, income or other sums subject to the
Security
Interest, whether payable pursuant to the Notes or otherwise, or
of any
check, draft, note, trade acceptance or other instrument evidencing
an
obligation to pay any such sum, hold the same in trust for the Secured
Party and shall forthwith endorse and transfer any such sums or
instruments, or both, to the Secured Party for application to the
satisfaction of the Obligations.
|
| 24. |
Rights
and Remedies Upon Default.
Upon occurrence of any Event of Default and a failure to cure such
default
in a timely manner and at any time thereafter, the Secured Party
shall
have the right to exercise all of the remedies conferred hereunder
and
under the Notes, and the Secured Party shall have all the rights
and
remedies of a secured party under the UCC and/or any other applicable
law
(including the Uniform Commercial Code of any jurisdiction in which
any
Collateral is then located). Without limitation, the Secured Party
shall
have the following rights and
powers:
|
A. The
Secured Party shall have the right to take possession of the Collateral and,
for
that purpose, enter, with the aid and assistance of any person, any premises
where the Collateral, or any part thereof, is or may be placed and remove the
same, and the Company shall assemble the Collateral and make it available to
the
Secured Party at places which the Secured Party shall reasonably select, whether
at the Company’s premises or elsewhere, and make available to the Secured Party,
without rent, all of the Company’s respective premises and facilities for the
purpose of the Secured Party taking possession of, removing or putting the
Collateral in saleable or disposable form.
B. The
Secured Party shall have the right to operate the business of the Company using
the Collateral and shall have the right to assign, sell, lease or otherwise
dispose of and deliver all or any part of the Collateral, at public or private
sale or otherwise, either with or without special conditions or stipulations,
for cash or on credit or for future delivery, in such parcel or parcels and
at
such time or times and at such place or places, and upon such terms and
conditions as the Secured Party may deem commercially reasonable, all without
(except as shall be required by applicable statute and cannot be waived)
advertisement or demand upon or notice to the Company or right of redemption
of
the Company, which are hereby expressly waived. Upon each such sale, lease,
assignment or other transfer of Collateral, the Secured Party may, unless
prohibited by applicable law which cannot be waived, purchase all or any part
of
the Collateral being sold, free from and discharged of all trusts, claims,
right
of redemption and equities of the Company, which are hereby waived and
released.
| 25. |
Applications
of Proceeds.
The proceeds of any such sale, lease or other disposition of the
Collateral hereunder shall be applied first, to the expenses of retaking,
holding, storing, processing and preparing for sale, selling, and
the like
(including, without limitation, any taxes, fees and other costs incurred
in connection therewith) of the Collateral, to the reasonable attorneys’
fees and expenses incurred by the Secured Party in enforcing its
rights
hereunder and in connection with collecting, storing and disposing
of the
Collateral, and then to satisfaction of the Obligations, and to the
payment of any other amounts required by applicable law, after which
the
Secured Party shall pay to the Company any surplus proceeds. If,
upon the
sale, license or other disposition of the Collateral, the proceeds
thereof
are insufficient to pay all amounts to which the Secured Party is
legally
entitled, the Company will be liable for the deficiency, together
with
interest thereon, at the rate of 15% per annum (the “Default
Rate”),
and the reasonable fees of any attorneys employed by the Secured
Party to
collect such deficiency. To the extent permitted by applicable law,
the
Company waives all claims, damages and demands against the Secured
Party
arising out of the repossession, removal, retention or sale of the
Collateral, unless due to the gross negligence or willful misconduct
of
the Secured Party.
|
| 26. |
Costs
and Expenses.The
Company agrees to pay all out-of-pocket fees, costs and expenses
incurred
in connection with any filing required hereunder, including without
limitation, any financing statements, continuation statements, partial
releases and/or termination statements related thereto or any expenses
of
any searches reasonably required by the Secured Party. The Company
shall
also pay all other claims and charges which in the reasonable opinion
of
the Secured Party might prejudice, imperil or otherwise affect the
Collateral or the Security Interest therein. The Company will also,
upon
demand, pay to the Secured Party the amount of any and all reasonable
expenses, including the reasonable fees and expenses of its counsel
and of
any experts and agents, which the Secured Party may incur in connection
with (i) the
enforcement of this Agreement, (ii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Collateral, or (iii) the
exercise or enforcement of any of the rights of the Secured Party
under
the Notes. Until so paid, any fees payable hereunder shall be added
to the
principal amount of the Notes and shall bear interest at the Default
Rate.
|
| 27. |
Responsibility
for Collateral.
The Company assumes all liabilities and responsibility in connection
with
all Collateral, and the obligations of the Company hereunder or under
the
Notes and the Warrants shall in no way be affected or diminished
by reason
of the loss, destruction, damage or theft of any of the Collateral
or its
unavailability for any reason.
|
| 28. |
Security
Interest Absolute.
All rights of the Secured Party and all Obligations of the Company
hereunder, shall be absolute and unconditional, irrespective of:
(a) any
lack of validity or enforceability of this Agreement, the Notes,
the
Warrants or any agreement entered into in connection with the foregoing,
or any portion hereof or thereof; (b) any
change in the time, manner or place of payment or performance of,
or in
any other term of, all or any of the Obligations, or any other amendment
or waiver of or any consent to any departure from the Notes, the
Warrants
or any other agreement entered into in connection with the foregoing;
(c)
any exchange, release or nonperfection of any of the Collateral,
or any
release or amendment or waiver of or consent to departure from any
other
collateral for, or any guaranty, or any other security, for all or
any of
the Obligations; (d) any
action by the Secured Party to obtain, adjust, settle and cancel
in its
sole discretion any insurance claims or matters made or arising in
connection with the Collateral; or (e) any
other circumstance which might otherwise constitute any legal or
equitable
defense available to the Company, or a discharge of all or any part
of the
Security Interest granted hereby. Until the Obligations shall have
been
paid and performed in full, the rights of the Secured Party shall
continue
even if the Obligations are barred for any reason, including, without
limitation, the running of the statute of limitations or bankruptcy.
The
Company expressly waives presentment, protest, notice of protest,
demand,
notice of nonpayment and demand for performance. In the event that
at any
time any transfer of any Collateral or any payment received by the
Secured
Party hereunder shall be deemed by final order of a court of competent
jurisdiction to have been a voidable preference or fraudulent conveyance
under the bankruptcy or insolvency laws of the United States, or
shall be
deemed to be otherwise due to any party other than the Secured Party,
then, in any such event, the Company’s obligations hereunder shall survive
cancellation of this Agreement, and shall not be discharged or satisfied
by any prior payment thereof and/or cancellation of this Agreement,
but
shall remain a valid and binding obligation enforceable in accordance
with
the terms and provisions hereof. The Company waives all right to
require
the Secured Party to proceed against any other person or to apply
any
Collateral which the Secured Party may hold at any time, or to marshal
assets, or to pursue any other remedy. The Company waives any defense
arising by reason of the application of the statute of limitations
to any
obligation secured hereby.
|
| 29. |
Term
of Agreement.
This Agreement and the Security Interest shall terminate on the date
on
which all payments under the Notes have been made in full or at such
time
as the Secured Party fully converts the Notes and all other Obligations
have been paid or discharged. Upon such termination, the Secured
Party, at
the request and at the expense of the Company, will join in executing
any
termination statement with respect to any financing statement executed
and
filed pursuant to this Agreement.
|
| 30. |
Power
of Attorney; Further Assurances.
|
A. The
Company authorizes the Secured Party, and does hereby make, constitute and
appoint it, and its respective officers, agents, successors or assigns with
full
power of substitution, as the Company’s true and lawful attorney-in-fact, with
power, in its own name or in the name of the Company, to, after the occurrence
and during the continuance of an Event of Default that is has not been cured in
a timely manner, (i) endorse
any notes, checks, drafts, money orders, or other instruments of payment
(including payments payable under or in respect of any policy of insurance)
in
respect of the Collateral that may come into possession of the Secured Party;
(ii) to
sign and endorse any UCC financing statement or any invoice, freight or express
bill, bill of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with accounts, and other
documents relating to the Collateral; (iii) to
pay or discharge taxes, liens, security interests or other encumbrances at
any
time levied or placed on or threatened against the Collateral; (iv) to
demand, collect, receipt for, compromise, settle and sue for monies due in
respect of the Collateral; and (v) generally,
to do, at the option of the Secured Party, and at the Company’s expense, at any
time, or from time to time, all acts and things which the Secured Party deems
necessary to protect, preserve and realize upon the Collateral and the Security
Interest granted therein in order to effect the intent of this Agreement, the
Notes and the Warrants, all as fully and effectually as the Company might or
could do; and the Company hereby ratifies all that said attorney shall lawfully
do or cause to be done by virtue hereof. This power of attorney is coupled
with
an interest and shall be irrevocable for the term of this Agreement and
thereafter as long as any of the Obligations shall be outstanding.
B. On
a
continuing basis, the Company will make, execute, acknowledge, deliver, file
and
record, as the case may be, in the proper filing and recording places in any
jurisdiction, including, without limitation, the jurisdictions indicated on
Schedule
B,
attached hereto, all such instruments, and take all such action as may
reasonably be deemed necessary or advisable, or as reasonably requested by
the
Secured Party, to perfect the Security Interest granted hereunder and otherwise
to carry out the intent and purposes of this Agreement, or for assuring and
confirming to the Secured Party the grant or perfection of a security interest
in all the Collateral.
C. Following
an Event of Default that has not been cured in a timely manner, the Company
hereby irrevocably appoints the Secured Party as the Company’s attorney-in-fact,
with full authority in the place and stead of the Company and in the name of
the
Company, from time to time in the Secured Party’s discretion, to take any action
and to execute any instrument which the Secured Party may deem necessary or
advisable to accomplish the purposes of this Agreement, including the filing,
in
its sole discretion, of one or more financing or continuation statements and
amendments thereto, relative to any of the Collateral without the signature
of
the Company where permitted by law.
| 31. |
Notices.
All notices, requests, demands and other communications hereunder
shall be
in writing, with copies to all the other parties hereto, and shall
be
deemed to have been duly given when (i) if
delivered by hand, upon receipt, (ii) if
sent by facsimile, upon receipt of proof of sending thereof, (iii) if
sent by nationally recognized overnight delivery service (receipt
requested), the next business day or (iv) if
mailed by first-class registered or certified mail, return receipt
requested, postage prepaid, four days after posting in the U.S. mails,
in
each case if delivered to the following
addresses:
|
If
to the
Company:
Camelot
Entertainment Group, Inc.
2020
Main
Street, #990
Irvine,
California 92614
Attention:
Chief Executive Officer
Telephone:
(949) 777-1090
Facsimile:
(949) 777-1091
With
a
copy
to:
Anslow
& Jaclin, LLP
195
Route
9, Suite 204
Manalapan,
NJ 07726
Attention:
Richard I. Anslow, Esq.
Telephone:
(732) 409-1212
Facsimile:
(732) 577-1188
| |
If
to the Secured Party:
|
AJW
Partners, LLC
|
AJW
Offshore, Ltd.
AJW
Qualified Partners, LLC
New
Millennium Capital Partners II, LLC
1044
Northern Boulevard
Suite
302
Roslyn,
New York 11576
Attention:
Corey Ribotsky
Facsimile:
516-739-7115
| |
With
a copy to:
|
Ballard
Spahr Andrews & Ingersoll, LLP
|
1735
Market Street, 51st
Floor
Philadelphia,
Pennsylvania 19103
Attention:
Gerald J. Guarcini, Esq.
Facsimile:
215-864-8999
| 32. |
Other
Security.
To the extent that the Obligations are now or hereafter secured by
property other than the Collateral or by the guarantee, endorsement
or
property of any other person, firm, corporation or other entity,
then the
Secured Party shall have the right, in its sole discretion, to pursue,
relinquish, subordinate, modify or take any other action with respect
thereto, without in any way modifying or affecting any of the Secured
Party’s rights and remedies
hereunder.
|
A. No
course
of dealing between the Company and the Secured Party, nor any failure to
exercise, nor any delay in exercising, on the part of the Secured Party, any
right, power or privilege hereunder or under the Notes shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.
B. All
of
the rights and remedies of the Secured Party with respect to the Collateral,
whether established hereby or by the Notes or by any other agreements,
instruments or documents or by law shall be cumulative and may be exercised
singly or concurrently.
C. This
Agreement constitutes the entire agreement of the parties with respect to the
subject matter hereof and is intended to supersede all prior negotiations,
understandings and agreements with respect thereto. Except as specifically
set
forth in this Agreement, no provision of this Agreement may be modified or
amended except by a written agreement specifically referring to this Agreement
and signed by the parties hereto.
D. In
the
event that any provision of this Agreement is held to be invalid, prohibited
or
unenforceable in any jurisdiction for any reason, unless such provision is
narrowed by judicial construction, this Agreement shall, as to such
jurisdiction, be construed as if such invalid, prohibited or unenforceable
provision had been more narrowly drawn so as not to be invalid, prohibited
or
unenforceable. If, notwithstanding the foregoing, any provision of this
Agreement is held to be invalid, prohibited or unenforceable in any
jurisdiction, such provision, as to such jurisdiction, shall be ineffective
to
the extent of such invalidity, prohibition or unenforceability without
invalidating the remaining portion of such provision or the other provisions
of
this Agreement and without affecting the validity or enforceability of such
provision or the other provisions of this Agreement in any other
jurisdiction.
E. No
waiver
of any breach or default or any right under this Agreement shall be considered
valid unless in writing and signed by the party giving such waiver, and no
such
waiver shall be deemed a waiver of any subsequent breach or default or right,
whether of the same or similar nature or otherwise.
F. This
Agreement shall be binding upon and inure to the benefit of each party hereto
and its successors and assigns.
G. Each
party shall take such further action and execute and deliver such further
documents as may be necessary or appropriate in order to carry out the
provisions and purposes of this Agreement.
H. This
Agreement shall be construed in accordance with the laws of the State of New
York, except to the extent the validity, perfection or enforcement of a security
interest hereunder in respect of any particular Collateral which are governed
by
a jurisdiction other than the State of New York in which case such law shall
govern. Each of the parties hereto irrevocably submit to the exclusive
jurisdiction of any New York State or United States Federal court sitting in
Manhattan county over any action or proceeding arising out of or relating to
this Agreement, and the parties hereto hereby irrevocably agree that all claims
in respect of such action or proceeding may be heard and determined in such
New
York State or Federal court. The parties hereto agree that a final judgment
in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
The parties hereto further waive any objection to venue in the State of New
York
and any objection to an action or proceeding in the State of New York on the
basis of forum non conveniens.
I. EACH
PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. THE SCOPE
OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY DISPUTES THAT MAY
BE
FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATER OF THIS AGREEMENT,
INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS
AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES
THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH PARTY TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH PARTY HAS ALREADY RELIED ON THIS WAIVER IN
ENTERING INTO THIS AGREEMENT AND THAT EACH PARTY WILL CONTINUE TO RELY ON THIS
WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT
SUCH PARTY HAS KNOWINGLY AND VOLUNTARILY WAIVES ITS RIGHTS TO A JURY TRIAL
FOLLOWING SUCH CONSULTATION. THIS WAIVER IS IRREVOCABLE, MEANING THAT,
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS AND SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF
A
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY
THE
COURT.
J. This
Agreement may be executed in any number of counterparts, each of which when
so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement. In the event that any signature
is
delivered by facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
were the original thereof.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the parties hereto have caused this Security Agreement to
be
duly executed on the day and year first above written.
CAMELOT
ENTERTAINMENT GROUP, INC.
By:
_____________________________________
Robert
P.
Atwell
Chief
Executive Officer
AJW
PARTNERS, LLC
By:
SMS
Group, LLC
By:
_____________________________________
Corey
S.
Ribotsky
Manager
AJW
OFFSHORE, LTD.
By:
First
Street Manager II, LLC
By:
_____________________________________
Corey
S.
Ribotsky
Manager
AJW
QUALIFIED PARTNERS, LLC
By:
AJW
Manager, LLC
By:
_____________________________________
Corey
S.
Ribotsky
Manager
NEW
MILLENNIUM CAPITAL PARTNERS II, LLC
By:
First
Street Manager II, LLC
By:
_____________________________________
Corey
S.
Ribotsky
Manager
Exhibit
4.6
Exhibit
4.6
Intellectual
Property Security Agreement by and among the Company and the
Investors
INTELLECTUAL
PROPERTY SECURITY AGREEMENT
INTELLECTUAL
PROPERTY SECURITY AGREEMENT (this
“Agreement”
dated as
of December 27, 2006, by and among Camelot Entertainment Group, Inc., a Delaware
Corporation (the “Company”),
and
the secured parties signatory hereto and their respective endorsees, transferees
and assigns (collectively, the “Secured
Party”).
W
I T N E
S S E T H:
WHEREAS,
pursuant to a Securities Purchase Agreement, dated the date hereof, between
Company and the Secured Party (the “Purchase
Agreement”),
Company has agreed to issue to the Secured Party and the Secured Party has
agreed to purchase from Company certain of Company’s 8% Callable Secured
Convertible Notes, due three years from the date of issue (the “Notes”),
which
are convertible into shares of Company’s Common Stock, par value $.001 per share
(the “Common
Stock”).
In
connection therewith, Company shall issue the Secured Party certain Common Stock
purchase warrants (the “Warrants”);
and
WHEREAS,
in order to induce the Secured Party to purchase the Notes, Company has agreed
to execute and deliver to the Secured Party this Agreement for the benefit
of
the Secured Party and to grant to it a first priority security interest in
certain Intellectual Property (defined below) of Company to secure the prompt
payment, performance and discharge in full of all of Company’s obligations under
the Notes and exercise and discharge in full of Company’s obligations under the
Warrants; and
NOW,
THEREFORE, in consideration of the agreements herein contained and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
34. Defined
Terms.
Unless
otherwise defined herein, terms which are defined in the Purchase Agreement
and
used herein are so used as so defined; and the following terms shall have the
following meanings:
“Software
Intellectual Property”
shall
mean:
A. all
software programs (including all source code, object code and all related
applications and data files), whether now owned, upgraded, enhanced, licensed
or
leased or hereafter acquired by the Company, above;
B. all
computers and electronic data processing hardware and firmware associated
therewith;
C. all
documentation (including flow charts, logic diagrams, manuals, guides and
specifications) with respect to such software, hardware and firmware described
in the preceding clauses (a) and (b); and
D. all
rights with respect to all of the foregoing, including, without limitation,
any
and all upgrades, modifications, copyrights, licenses, options, warranties,
service contracts, program services, test rights, maintenance rights, support
rights, improvement rights, renewal rights and indemnifications and
substitutions, replacements, additions, or model conversions of any of the
foregoing.
“Copyrights”
shall
mean (a) all copyrights, registrations and applications for registration,
issued
or
filed, including any reissues, extensions or renewals thereof, by or with the
United States Copyright Office or any similar office or agency of the United
States, any state thereof, or any other country or political subdivision
thereof, or otherwise, including, all rights in and to the material constituting
the subject matter thereof, including, without limitation, any referred to
in
Schedule
B
hereto,
and (b) any rights in any material which is copyrightable or which is protected
by common law, United States copyright laws or similar laws or any law of any
State, including, without limitation, any thereof referred to in Schedule
B
hereto.
“Copyright
License”
shall
mean any agreement, written or oral, providing for a grant by the Company of
any
right in any Copyright, including, without limitation, any thereof referred
to
in Schedule
B
hereto.
“Intellectual
Property”
shall
means, collectively, the Software Intellectual Property, Copyrights, Copyright
Licenses, Patents, Patent Licenses, Trademarks, Trademark Licenses and Trade
Secrets.
“Obligations”
means
all of the Company’s obligations under this Agreement and the Notes, in each
case, whether now or hereafter existing, voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later decreased, created or incurred, and all or any portion
of
such obligations or liabilities that are paid, to the extent all or any part
of
such payment is avoided or recovered directly or indirectly from the Secured
Party as a preference, fraudulent transfer or otherwise as such obligations
may
be amended, supplemented, converted, extended or modified from time to
time.
“Patents”
shall
mean (a) all letters patent of the United States or any other country or any
political subdivision thereof, and all reissues and extensions thereof,
including, without limitation, any thereof referred to in Schedule
B
hereto,
and (b) all applications for letters patent of the United States and all
divisions, continuations and continuations-in-part thereof or any other country
or any political subdivision, including, without limitation, any thereof
referred to in Schedule
B
hereto.
“Patent
License”
shall
mean all agreements, whether written or oral, providing for the grant by the
Company of any right to manufacture, use or sell any invention covered by a
Patent, including, without limitation, any thereof referred to in Schedule
B
hereto.
“Security
Agreement”
shall
mean a Security Agreement, dated the date hereof between Company and the Secured
Party.
“Trademarks”
shall
mean (a) all trademarks, trade names, corporate names, company names, business
names, fictitious business names, trade styles, service marks, logos and other
source or business identifiers, and the goodwill associated therewith, now
existing or hereafter adopted or acquired, all registrations and recordings
thereof, and all applications in connection therewith, whether in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any state thereof or any other country or any political
subdivision thereof, or otherwise, including, without limitation, any thereof
referred to in Schedule
B
hereto,
and (b) all reissues, extensions or renewals thereof.
“Trademark
License”
shall
mean any agreement, written or oral, providing for the grant by the Company
of
any right to use any Trademark, including, without limitation, any thereof
referred to in Schedule
B
hereto.
“Trade
Secrets”
shall
mean common law and statutory trade secrets and all other confidential or
proprietary or useful information and all know-how obtained by or used in or
contemplated at any time for use in the business of the Company (all of the
foregoing being collectively called a “Trade
Secret”),
whether or not such Trade Secret has been reduced to a writing or other tangible
form, including all documents and things embodying, incorporating or referring
in any way to such Trade Secret, all Trade Secret licenses, including each
Trade
Secret license referred to in Schedule
B
hereto,
and including the right to sue for and to enjoin and to collect damages for
the
actual or threatened misappropriation of any Trade Secret and for the breach
or
enforcement of any such Trade Secret license.
35. Grant
of Security Interest.
In
accordance with Section 3(m) of the Security Agreement, to secure the complete
and timely payment, performance and discharge in full, as the case may be,
of
all of the Obligations, the Company hereby, unconditionally and irrevocably,
pledges, grants and hypothecates to the Secured Party, a continuing security
interest in, a continuing first lien upon, an unqualified right to possession
and disposition of and a right of set-off against, in each case to the fullest
extent permitted by law, all of the Company’s right, title and interest of
whatsoever kind and nature in and to the Intellectual Property (the
“Security
Interest”).
Notwithstanding the above, the Company is not granting a security interest
in
its wholly owned subsidiaries, Camelot Film Group, Inc. and Camelot Studio
Group, Inc. which shall not be considered Collateral under this
Agreement.
36. Representations
and Warranties.
The
Company hereby represents and warrants, and covenants and agrees with, the
Secured Party as follows:
A. The
Company has the requisite corporate power and authority to enter into this
Agreement and otherwise to carry out its obligations thereunder. The execution,
delivery and performance by the Company of this Agreement and the filings
contemplated therein have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company. This
Agreement constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditor’s rights generally.
B. The
Company represents and warrants that it has no place of business or offices
where its respective books of account and records are kept (other than
temporarily at the offices of its attorneys or accountants) or places where
the
Intellectual Property is stored or located, except as set forth on Schedule
A
attached
hereto;
C. The
Company is the sole owner of the Intellectual Property (except for non-exclusive
licenses granted by the Company in the ordinary course of business), free and
clear of any liens, security interests, encumbrances, rights or claims, and
is
fully authorized to grant the Security Interest in and to pledge the
Intellectual Property, except as set forth on Schedule
D.
There
is not on file in any governmental or regulatory authority, agency or recording
office an effective financing statement, security agreement, license or transfer
or any notice of any of the foregoing (other than those that have been filed
in
favor of the Secured Party pursuant to this Agreement) covering or affecting
any
of the Intellectual Property, except as set forth on Schedule
D.
So long
as this Agreement shall be in effect, the Company shall not execute and shall
not knowingly permit to be on file in any such office or agency any such
financing statement or other document or instrument (except to the extent filed
or recorded in favor of the Secured Party pursuant to the terms of this
Agreement), except as set forth on Schedule
D or
for a
financing statement covering assets acquired by the Company after the date
hereof, provided that the value of the Intellectual Property covered by this
Agreement along with the Collateral (as defined in the Security Agreement)
is
equal to at least 150% of the Obligations.
D. The
Company shall at all times maintain its books of account and records relating
to
the Intellectual Property at its principal place of business and its
Intellectual Property at the locations set forth on Schedule
A
attached
hereto and may not relocate such books of account and records unless it delivers
to the Secured Party at least 30 days prior to such relocation (i) written
notice of such relocation and the new location thereof (which must be within
the
United States) and (ii) evidence that the necessary documents have been
filed and recorded and other steps have been taken to perfect the Security
Interest to create in favor of the Secured Party valid, perfected and continuing
first priority liens in the Intellectual Property to the extent they can be
perfected through such filings.
E. This
Agreement creates in favor of the Secured Party a valid security interest in
the
Intellectual Property securing the payment and performance of the Obligations
and, upon making the filings required hereunder, a perfected first priority
security interest in such Intellectual Property to the extent that it can be
perfected through such filings.
F.
Upon
request of the Secured Party, the Company shall execute and deliver any and
all
agreements, instruments, documents, and papers as the Secured Party may request
to evidence the Secured Party’s security interest in the Intellectual Property
and the goodwill and general intangibles of the Company relating thereto or
represented thereby, and the Company hereby appoints the Secured Party its
attorney-in-fact to execute and file all such writings for the foregoing
purposes, all acts of such attorney being hereby ratified and confirmed; such
power being coupled with an interest is irrevocable until the Obligations have
been fully satisfied and are paid in full.
G. Except
as
set forth on Schedule
D,
the
execution, delivery and performance of this Agreement does not conflict with
or
cause a breach or default, or an event that with or without the passage of
time
or notice, shall constitute a breach or default, under any agreement to which
the Company is a party or by which the Company is bound. No consent (including,
without limitation, from stock holders or creditors of the Company) is required
for the Company to enter into and perform its obligations
hereunder.
H. The
Company shall at all times maintain the liens and Security Interest provided
for
hereunder as valid and perfected first priority liens and security interests
in
the Intellectual Property to the extent they can be perfected by filing in
favor
of the Secured Party until this Agreement and the Security Interest hereunder
shall terminate pursuant to Section 11. The Company hereby agrees to defend
the
same against any and all persons. The Company shall safeguard and protect all
Intellectual Property for the account of the Secured Party. Without limiting
the
generality of the foregoing, the Company shall pay all fees, taxes and other
amounts necessary to maintain the Intellectual Property and the Security
Interest hereunder, and the Company shall obtain and furnish to the Secured
Party from time to time, upon demand, such releases and/or subordinations of
claims and liens which may be required to maintain the priority of the Security
Interest hereunder.
I. The
Company will not transfer, pledge, hypothecate, encumber, license (except for
non-exclusive licenses granted by the Company in the ordinary course of
business), sell or otherwise dispose of any of the Intellectual Property without
the prior written consent of the Secured Party, which consent will not be
unreasonably withheld.
J. The
Company shall, within ten (10) days of obtaining knowledge thereof, advise
the
Secured Party promptly, in sufficient detail, of any substantial change in
the
Intellectual Property, and of the occurrence of any event which would have
a
material adverse effect on the value of the Intellectual Property or on the
Secured Party’s security interest therein.
K. The
Company shall permit the Secured Party and its representatives and agents to
inspect the Intellectual Property at any time, and to make copies of records
pertaining to the Intellectual Property as may be requested by the Secured
Party
from time to time.
L. The
Company will take all steps reasonably necessary to diligently pursue and seek
to preserve, enforce and collect any rights, claims, causes of action and
accounts receivable in respect of the Intellectual Property.
M. The
Company shall promptly notify the Secured Party in sufficient detail upon
becoming aware of any attachment, garnishment, execution or other legal process
levied against any Intellectual Property and of any other information received
by the Company that may materially affect the value of the Intellectual
Property, the Security Interest or the rights and remedies of the Secured Party
hereunder.
N. All
information heretofore, herein or hereafter supplied to the Secured Party by
or
on behalf of the Company with respect to the Intellectual Property is accurate
and complete in all material respects as of the date furnished.
O. Schedule
A
attached
hereto contains a list of all of the subsidiaries of Company.
P. Schedule
B
attached
hereto includes all Licenses, and all Patents and Patent Licenses, if any,
owned
by the Company in its own name as of the date hereof. Schedule
B
hereto
includes all Trademarks and Trademark Licenses, if any, owned by the Company
in
its own name as of the date hereof. Schedule
B
hereto
includes all Copyrights and Copyright Licenses, if any, owned by the Company
in
its own name as of the date hereof. Schedule
B
hereto
includes all Trade Secrets and Trade Secret Licenses, if any, owned by the
Company as of the date hereof. To the best of the Company’s knowledge, each
License, Patent, Trademark, Copyright and Trade Secret is valid, subsisting,
unexpired, enforceable and has not been abandoned. Except as set forth in
Schedule
B,
none of
such Licenses, Patents, Trademarks, Copyrights and Trade Secrets is the subject
of any licensing or franchise agreement. To the best of the Company’s knowledge,
no holding, decision or judgment has been rendered by any Governmental Body
which would limit, cancel or question the validity of any License, Patent,
Trademark, Copyright and Trade Secrets. Except as set forth in Schedule
B,
no
action or proceeding is pending (i) seeking to limit, cancel or question the
validity of any License, Patent, Trademark, Copyright or Trade Secret, or (ii)
which, if adversely determined, would have a material adverse effect on the
value of any License, Patent, Trademark, Copyright or Trade Secret. The Company
has used and will continue to use for the duration of this Agreement, proper
statutory notice in connection with its use of the Patents, Trademarks and
Copyrights and consistent standards of quality in products leased or sold under
the Patents, Trademarks and Copyrights.
Q. With
respect to any Intellectual Property:
| 1. |
such
Intellectual Property is subsisting and has not been adjudged invalid
or
unenforceable, in whole or in part;
|
| 2. |
such
Intellectual Property is valid and
enforceable;
|
| 3. |
the
Company has made all necessary filings and recordations to protect
its
interest in such Intellectual Property, including, without limitation,
recordations of all of its interests in the Patents, Patent Licenses,
Trademarks and Trademark Licenses in the United States Patent and
Trademark Office and in corresponding offices throughout the world
and its
claims to the Copyrights and Copyright Licenses in the United States
Copyright Office and in corresponding offices throughout the
world;
|
| 4. |
other
than as set forth in Schedule
B,
the Company is the exclusive owner of the entire and unencumbered
right,
title and interest in and to such Intellectual Property and no claim
has
been made that the use of such Intellectual Property infringes on
the
asserted rights of any third party;
and
|
| 5. |
the
Company has performed and will continue to perform all acts and has
paid
all required fees and taxes to maintain each and every item of
Intellectual Property in full force and effect throughout the world,
as
applicable.
|
R. Except
with respect to any Trademark or Copyright that the Company shall reasonably
determine is of negligible economic value to the Company, the Company
shall:
1. maintain
each Trademark and Copyright in full force free from any claim of abandonment
for non-use, maintain as in the past the quality of products and services
offered under such Trademark or Copyright; employ such Trademark or Copyright
with the appropriate notice of registration; not adopt or use any mark which
is
confusingly similar or a colorable imitation of such Trademark or Copyright
unless the Secured Party shall obtain a perfected security interest in such
mark
pursuant to this Agreement; and not (and not permit any licensee or sublicensee
thereof to) do any act or knowingly omit to do any act whereby any Trademark
or
Copyright may become invalidated;
2. not,
except with respect to any Patent that it shall reasonably determine is of
negligible economic value to it, do any act, or omit to do any act, whereby
any
Patent may become abandoned or dedicated; and
3. notify
the Secured Party immediately if it knows, or has reason to know, that any
application or registration relating to any Patent, Trademark or Copyright
may
become abandoned or dedicated, or of any adverse determination or development
(including, without limitation, the institution of, or any such determination
or
development in, any proceeding in the United States Patent and Trademark Office,
United States Copyright Office or any court or tribunal in any country)
regarding its ownership of any Patent, Trademark or Copyright or its right
to
register the same or to keep and maintain the same.
S. Whenever
the Company, either by itself or through any agent, employee, licensee or
designee, shall file an application for the registration of any Patent,
Trademark or Copyright with the United States Patent and Trademark Office,
United States Copyright Office or any similar office or agency in any other
country or any political subdivision thereof or acquire rights to any new
Patent, Trademark or Copyright whether or not registered, report such filing
to
the Secured Party within five business days after the last day of the fiscal
quarter in which such filing occurs.
T. The
Company shall take all reasonable and necessary steps, including, without
limitation, in any proceeding before the United States Patent and Trademark
Office, United States Copyright Office or any similar office or agency in any
other country or any political subdivision thereof, to maintain and pursue
each
application (and to obtain the relevant registration) and to maintain each
registration of the Patents, Trademarks and Copyrights, including, without
limitation, filing of applications for renewal, affidavits of use and affidavits
of incontestability.
U. In
the
event that any Patent, Trademark or Copyright included in the Intellectual
Property is infringed, misappropriated or diluted by a third party, promptly
notify the Secured Party after it learns thereof and shall, unless it shall
reasonably determine that such Patent, Trademark or Copyright is of negligible
economic value to it, which determination it shall promptly report to the
Secured Party, promptly sue for infringement, misappropriation or dilution,
to
seek injunctive relief where appropriate and to recover any and all damages
for
such infringement, misappropriation or dilution, or take such other actions
as
it shall reasonably deem appropriate under the circumstances to protect such
Patent, Trademark or Copyright. If the Company lacks the financial resources
to
comply with this Section 3(t), the Company shall so notify the Secured Party
and
shall cooperate fully with any enforcement action undertaken by the Secured
Party on behalf of the Company.
37. Defaults.
The
following events shall be “Events
of Default”:
A. The
occurrence of an Event of Default (as defined in the Notes) under the Notes
that
has not been cured in a timely manner;
B. Any
representation or warranty of the Company in this Agreement or in the Security
Agreement shall prove to have been incorrect in any material respect when made;
C. The
failure by the Company to observe or perform any of its obligations hereunder
or
in the Security Agreement for ten (10) days after receipt by the Company of
notice of such failure from the Secured Party; and
D. Any
breach of, or default under, the Warrants.
38. Duty
To Hold In Trust.
Upon
the occurrence of any Event of Default and a failure to cure such default in
a
timely manner and at any time thereafter, the Company shall, upon receipt by
it
of any revenue, income or other sums subject to the Security Interest, whether
payable pursuant to the Notes or otherwise, or of any check, draft, note, trade
acceptance or other instrument evidencing an obligation to pay any such sum,
hold the same in trust for the Secured Party and shall forthwith endorse and
transfer any such sums or instruments, or both, to the Secured Party for
application to the satisfaction of the Obligations.
39. Rights
and Remedies Upon Default.
Upon
occurrence of any Event of Default that has not been cured in a timely manner
and at any time thereafter, the Secured Party shall have the right to exercise
all of the remedies conferred hereunder and under the Notes, and the Secured
Party shall have all the rights and remedies of a secured party under the UCC
and/or any other applicable law (including the Uniform Commercial Code of any
jurisdiction in which any Intellectual Property is then located). Without
limitation, the Secured Party shall have the following rights and
powers:
A. The
Secured Party shall have the right to take possession of the Intellectual
Property and, for that purpose, enter, with the aid and assistance of any
person, any premises where the Intellectual Property, or any part thereof,
is or
may be placed and remove the same, and the Company shall assemble the
Intellectual Property and make it available to the Secured Party at places
which
the Secured Party shall reasonably select, whether at the Company’s premises or
elsewhere, and make available to the Secured Party, without rent, all of the
Company’s respective premises and facilities for the purpose of the Secured
Party taking possession of, removing or putting the Intellectual Property in
saleable or disposable form.
B. The
Secured Party shall have the right to operate the business of the Company using
the Intellectual Property and shall have the right to assign, sell, lease or
otherwise dispose of and deliver all or any part of the Intellectual Property,
at public or private sale or otherwise, either with or without special
conditions or stipulations, for cash or on credit or for future delivery, in
such parcel or parcels and at such time or times and at such place or places,
and upon such terms and conditions as the Secured Party may deem commercially
reasonable, all without (except as shall be required by applicable statute
and
cannot be waived) advertisement or demand upon or notice to the Company or
right
of redemption of the Company, which are hereby expressly waived. Upon each
such
sale, lease, assignment or other transfer of Intellectual Property, the Secured
Party may, unless prohibited by applicable law which cannot be waived, purchase
all or any part of the Intellectual Property being sold, free from and
discharged of all trusts, claims, right of redemption and equities of the
Company, which are hereby waived and released.
40. Applications
of Proceeds.
The
proceeds of any such sale, lease or other disposition of the Intellectual
Property hereunder shall be applied first, to the expenses of retaking, holding,
storing, processing and preparing for sale, selling, and the like (including,
without limitation, any taxes, fees and other costs incurred in connection
therewith) of the Intellectual Property, to the reasonable attorneys’ fees and
expenses incurred by the Secured Party in enforcing its rights hereunder and
in
connection with collecting, storing and disposing of the Intellectual Property,
and then to satisfaction of the Obligations, and to the payment of any other
amounts required by applicable law, after which the Secured Party shall pay
to
the Company any surplus proceeds. If, upon the sale, license or other
disposition of the Intellectual Property, the proceeds thereof are insufficient
to pay all amounts to which the Secured Party is legally entitled, the Company
will be liable for the deficiency, together with interest thereon, at the rate
of 15% per annum (the “Default
Rate”),
and
the reasonable fees of any attorneys employed by the Secured Party to collect
such deficiency. To the extent permitted by applicable law, the Company waives
all claims, damages and demands against the Secured Party arising out of the
repossession, removal, retention or sale of the Intellectual Property, unless
due to the gross negligence or willful misconduct of the Secured
Party.
41. Costs
and Expenses.The
Company agrees to pay all out-of-pocket fees, costs and expenses incurred in
connection with any filing required hereunder, including without limitation,
any
financing statements, continuation statements, partial releases and/or
termination statements related thereto or any expenses of any searches
reasonably required by the Secured Party. The Company shall also pay all other
claims and charges which in the reasonable opinion of the Secured Party might
prejudice, imperil or otherwise affect the Intellectual Property or the Security
Interest therein. The Company will also, upon demand, pay to the Secured Party
the amount of any and all reasonable expenses, including the reasonable fees
and
expenses of its counsel and of any experts and agents, which the Secured Party
may incur in connection with (i) the enforcement of this Agreement, (ii) the
custody or preservation of, or the sale of, collection from, or other
realization upon, any of the Intellectual Property, or (iii) the exercise or
enforcement of any of the rights of the Secured Party under the Notes. Until
so
paid, any fees payable hereunder shall be added to the principal amount of
the
Notes and shall bear interest at the Default Rate.
42. Responsibility
for Intellectual Property.
The
Company assumes all liabilities and responsibility in connection with all
Intellectual Property, and the obligations of the Company hereunder or under
the
Notes and the Warrants shall in no way be affected or diminished by reason
of
the loss, destruction, damage or theft of any of the Intellectual Property
or
its unavailability for any reason.
43. Security
Interest Absolute.
All
rights of the Secured Party and all Obligations of the Company hereunder, shall
be absolute and unconditional, irrespective of: (a) any lack of validity or
enforceability of this Agreement, the Notes, the Warrants or any agreement
entered into in connection with the foregoing, or any portion hereof or thereof;
(b) any change in the time, manner or place of payment or performance of, or
in
any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Notes, the Warrants or any
other agreement entered into in connection with the foregoing; (c) any exchange,
release or nonperfection of any of the Intellectual Property, or any release
or
amendment or waiver of or consent to departure from any other Intellectual
Property for, or any guaranty, or any other security, for all or any of the
Obligations; (d) any action by the Secured Party to obtain, adjust, settle
and
cancel in its sole discretion any insurance claims or matters made or arising
in
connection with the Intellectual Property; or (e) any other circumstance which
might otherwise constitute any legal or equitable defense available to the
Company, or a discharge of all or any part of the Security Interest granted
hereby. Until the Obligations shall have been paid and performed in full, the
rights of the Secured Party shall continue even if the Obligations are barred
for any reason, including, without limitation, the running of the statute of
limitations or bankruptcy. The Company expressly waives presentment, protest,
notice of protest, demand, notice of nonpayment and demand for performance.
In
the event that at any time any transfer of any Intellectual Property or any
payment received by the Secured Party hereunder shall be deemed by final order
of a court of competent jurisdiction to have been a voidable preference or
fraudulent conveyance under the bankruptcy or insolvency laws of the United
States, or shall be deemed to be otherwise due to any party other than the
Secured Party, then, in any such event, the Company’s obligations hereunder
shall survive cancellation of this Agreement, and shall not be discharged or
satisfied by any prior payment thereof and/or cancellation of this Agreement,
but shall remain a valid and binding obligation enforceable in accordance with
the terms and provisions hereof. The Company waives all right to require the
Secured Party to proceed against any other person or to apply any Intellectual
Property which the Secured Party may hold at any time, or to marshal assets,
or
to pursue any other remedy. The Company waives any defense arising by reason
of
the application of the statute of limitations to any obligation secured
hereby.
44. Term
of Agreement.
This
Agreement and the Security Interest shall terminate on the date on which all
payments under the Notes have been made in full or at such time as the Secured
Party fully converts the Notes and all other Obligations have been paid or
discharged. Upon such termination, the Secured Party, at the request and at
the
expense of the Company, will join in executing any termination statement with
respect to any financing statement executed and filed pursuant to this
Agreement.
45. Power
of Attorney; Further Assurances.
A. The
Company authorizes the Secured Party, and does hereby make, constitute and
appoint it, and its respective officers, agents, successors or assigns with
full
power of substitution, as the Company’s true and lawful attorney-in-fact, with
power, in its own name or in the name of the Company, to, after the occurrence
and during the continuance of an Event of Default that has not been cured in
a
timely manner, (i) endorse any notes, checks, drafts, money orders, or other
instruments of payment (including payments payable under or in respect of any
policy of insurance) in respect of the Intellectual Property that may come
into
possession of the Secured Party; (ii) to sign and endorse any UCC financing
statement or any invoice, freight or express bill, bill of lading, storage
or
warehouse receipts, drafts against debtors, assignments, verifications and
notices in connection with accounts, and other documents relating to the
Intellectual Property; (iii) to pay or discharge taxes, liens, security
interests or other encumbrances at any time levied or placed on or threatened
against the Intellectual Property; (iv) to demand, collect, receipt for,
compromise, settle and sue for monies due in respect of the Intellectual
Property; and (v) generally, to do, at the option of the Secured Party, and
at
the Company’s expense, at any time, or from time to time, all acts and things
which the Secured Party deems necessary to protect, preserve and realize upon
the Intellectual Property and the Security Interest granted therein in order
to
effect the intent of this Agreement, the Notes and the Warrants, all as fully
and effectually as the Company might or could do; and the Company hereby
ratifies all that said attorney shall lawfully do or cause to be done by virtue
hereof. This power of attorney is coupled with an interest and shall be
irrevocable for the term of this Agreement and thereafter as long as any of
the
Obligations shall be outstanding.
B. On
a
continuing basis, the Company will make, execute, acknowledge, deliver, file
and
record, as the case may be, in the proper filing and recording places in any
jurisdiction, including, without limitation, the jurisdictions indicated on
Schedule
C,
attached hereto, all such instruments, and take all such action as may
reasonably be deemed necessary or advisable, or as reasonably requested by
the
Secured Party, to perfect the Security Interest granted hereunder and otherwise
to carry out the intent and purposes of this Agreement, or for assuring and
confirming to the Secured Party the grant or perfection of a security interest
in all the Intellectual Property.
C. Following
an Event of Default that has not been cured in a timely manner, the Company
hereby irrevocably appoints the Secured Party as the Company’s attorney-in-fact,
with full authority in the place and stead of the Company and in the name of
the
Company, from time to time in the Secured Party’s discretion, to take any action
and to execute any instrument which the Secured Party may deem necessary or
advisable to accomplish the purposes of this Agreement, including the filing,
in
its sole discretion, of one or more financing or continuation statements and
amendments thereto, relative to any of the Intellectual Property without the
signature of the Company where permitted by law.
46. Notices.
All
notices, requests, demands and other communications hereunder shall be in
writing, with copies to all the other parties hereto, and shall be deemed to
have been duly given when (i) if delivered by hand, upon receipt, (ii) if sent
by facsimile, upon receipt of proof of sending thereof, (iii) if sent by
nationally recognized overnight delivery service (receipt requested), the next
business day or (iv) if mailed by first-class registered or certified mail,
return receipt requested, postage prepaid, four days after posting in the U.S.
mails, in each case if delivered to the following addresses:
If
to the
Company:
Camelot
Entertainment Group, Inc.
2020
Main
Street, #990
Irvine,
California 92614
Attention:
Chief Executive Officer
Telephone:
(949) 777-1090
Facsimile:
(949) 777-1091
With
a
copy
to:
Anslow
& Jaclin, LLP
195
Route
9, Suite 204
Manalapan,
NJ 07725
Attention:
Richard I. Anslow, Esq.
Telephone:
(732) 409-1212
Facsimile:
(732) 577-1188
If
to the
Secured
Party:
AJW
Partners, LLC
AJW
Offshore, Ltd.
AJW
Qualified Partners, LLC
New
Millennium Capital Partners, II, LLC
1044
Northern Boulevard
Suite
302
Roslyn,
New York 11576
Attention:
Corey Ribotsky
Facsimile:
516-739-7115
With
copies
to:
Ballard
Spahr Andrews & Ingersoll, LLP
1735
Market Street, 51st
Floor
Philadelphia,
Pennsylvania 19103
Attention:
Gerald J. Guarcini, Esquire
Facsimile:
215-864-8999
47. Other
Security.
To the
extent that the Obligations are now or hereafter secured by property other
than
the Intellectual Property or by the guarantee, endorsement or property of any
other person, firm, corporation or other entity, then the Secured Party shall
have the right, in its sole discretion, to pursue, relinquish, subordinate,
modify or take any other action with respect thereto, without in any way
modifying or affecting any of the Secured Party’s rights and remedies
hereunder.
48. Miscellaneous.
A. No
course
of dealing between the Company and the Secured Party, nor any failure to
exercise, nor any delay in exercising, on the part of the Secured Party, any
right, power or privilege hereunder or under the Notes shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege.
B. All
of
the rights and remedies of the Secured Party with respect to the Intellectual
Property, whether established hereby or by the Notes or by any other agreements,
instruments or documents or by law shall be cumulative and may be exercised
singly or concurrently.
C. This
Agreement and the Security Agreement constitute the entire agreement of the
parties with respect to the subject matter hereof and is intended to supersede
all prior negotiations, understandings and agreements with respect thereto.
Except as specifically set forth in this Agreement, no provision of this
Agreement may be modified or amended except by a written agreement specifically
referring to this Agreement and signed by the parties hereto.
D. In
the
event that any provision of this Agreement is held to be invalid, prohibited
or
unenforceable in any jurisdiction for any reason, unless such provision is
narrowed by judicial construction, this Agreement shall, as to such
jurisdiction, be construed as if such invalid, prohibited or unenforceable
provision had been more narrowly drawn so as not to be invalid, prohibited
or
unenforceable. If, notwithstanding the foregoing, any provision of this
Agreement is held to be invalid, prohibited or unenforceable in any
jurisdiction, such provision, as to such jurisdiction, shall be ineffective
to
the extent of such invalidity, prohibition or unenforceability without
invalidating the remaining portion of such provision or the other provisions
of
this Agreement and without affecting the validity or enforceability of such
provision or the other provisions of this Agreement in any other
jurisdiction.
E. No
waiver
of any breach or default or any right under this Agreement shall be considered
valid unless in writing and signed by the party giving such waiver, and no
such
waiver shall be deemed a waiver of any subsequent breach or default or right,
whether of the same or similar nature or otherwise.
F. This
Agreement shall be binding upon and inure to the benefit of each party hereto
and its successors and assigns.
G. Each
party shall take such further action and execute and deliver such further
documents as may be necessary or appropriate in order to carry out the
provisions and purposes of this Agreement.
H. This
Agreement shall be construed in accordance with the laws of the State of New
York, except to the extent the validity, perfection or enforcement of a security
interest hereunder in respect of any particular Intellectual Property which
are
governed by a jurisdiction other than the State of New York in which case such
law shall govern. Each of the parties hereto irrevocably submit to the exclusive
jurisdiction of any New York State or United States Federal court sitting in
Manhattan county over any action or proceeding arising out of or relating to
this Agreement, and the parties hereto hereby irrevocably agree that all claims
in respect of such action or proceeding may be heard and determined in such
New
York State or Federal court. The parties hereto agree that a final judgment
in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
The parties hereto further waive any objection to venue in the State of New
York
and any objection to an action or proceeding in the State of New York on the
basis of forum non conveniens.
I. EACH
PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. THE SCOPE
OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY DISPUTES THAT MAY
BE
FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATER OF THIS AGREEMENT,
INCLUDING WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS
AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES
THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR EACH PARTY TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH PARTY HAS ALREADY RELIED ON THIS WAIVER IN
ENTERING INTO THIS AGREEMENT AND THAT EACH PARTY WILL CONTINUE TO RELY ON THIS
WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT
SUCH PARTY HAS KNOWINGLY AND VOLUNTARILY WAIVES ITS RIGHTS TO A JURY TRIAL
FOLLOWING SUCH CONSULTATION. THIS WAIVER IS IRREVOCABLE, MEANING THAT,
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS AND SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF
A
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY
THE
COURT.
J. This
Agreement may be executed in any number of counterparts, each of which when
so
executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same Agreement. In the event that any signature
is
delivered by facsimile transmission, such signature shall create a valid binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
were the original thereof.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on the day and year first above written.
CAMELOT
ENTERTAINMENT GROUP, INC.
By:
_____________________________________
Robert
P.
Atwell
Chief
Executive Officer
AJW
PARTNERS, LLC
By:
SMS
Group, LLC
By:
_____________________________________
Corey
S.
Ribotsky
Manager
AJW
OFFSHORE, LTD.
By:
First
Street Manager II, LLC
By:
_____________________________________
Corey
S.
Ribotsky
Manager
AJW
QUALIFIED PARTNERS, LLC
By:
AJW
Manager, LLC
By:
_____________________________________
Corey
S.
Ribotsky
Manager
NEW
MILLENNIUM CAPITAL PARTNERS II, LLC
By:
First
Street Manager II, LLC
By:
_____________________________________
Corey
S.
Ribotsky
Manager
SCHEDULE
A
Principal
Place of Business of the Company:
2020
Main Street
Suite
990
Irvine,
CA 92614
Locations
Where Intellectual Property is Located or Stored:
Principal
Place of Business
List
of Subsidiaries of the Company:
Camelot
Development, LLC. (1)
NV
Camelot
Distribution Group, Inc. (2) NV
Camelot
Features, Inc.
(3)
NV
Camelot
Films, Inc. (4)
CA,
DE,
NV
Camelot
Production Services Group, Inc. NV
Camelot
Technologies, Inc.
NV
Capital
Arts Enterprises, Inc.
(5)
CA
Capital
Arts International, Inc.
(6)
CA
Dstage.com,
Inc.
DE
Ferris
Wheel Films, Inc.
(7) CA,
NV
Latin
Ladies,
LLC. NV
Pioneer
Entertainment,
LLC. NV
Notes:
| (8) |
A
subsidiary of Camelot Studio Group
|
| (9) |
A
subsidiary of Camelot Film Group
|
| (10) |
A
subsidiary of Camelot Film Group
|
| (11) |
A
subsidiary of Camelot Film Group
|
| (12) |
A
subsidiary of Camelot Film Group
|
| (13) |
A
subsidiary of Camelot Film Group
|
| (14) |
A
subsidiary of Camelot Film Group
|
SCHEDULE
B
A. Licenses,
Patents and Patent Licenses
Registration
or
Patent Application
or Registration No. Country Filing
Date
B. Trademarks
and Trademark Licenses
Registration
or
Trademark Application
or Registration No. Country Filing
Date
Camelot
Films Pending US 2004
C. Copyrights
and Copyright Licenses
Registration
or
Name Application
or Registration No. Country Filing
Date
D. Trade
Secrets and Trade Secret Licenses
Registration
or
Name Application
or Registration No. Country Filing
Date
SCHEDULE
C
Jurisdictions:
Delaware
Exhibit
4.7
Exhibit
4.7
Structuring
Agreement with Lionheart
THIS
AGREEMENT
is made
this 26th
day of
October, 2006 by and between Lionheart Associates, LLC doing business as
Fairhills Capital, a Delaware Corporation, (hereinafter referred to as
"Lionheart") and Camelot
Entertainment Group, Inc. (CMEG.OB) (hereinafter referred to as
"Company").
Recitals
Whereas,
Company
is seeking financing and strategic relationships for financing and desires
that
Lionheart provide such services to Company with respect to the same;
and
Whereas,
Company
and Lionheart desire to enter into an agreement for such services on the terms
and conditions described herein.
NOW
THEREFORE,
for
valuable consideration, receipt of which is hereby acknowledged, Company and
Lionheart agree as follows:
ARTICLE
I
Definitions
Article
1.1. “Strategic
Relationships” shall mean those persons and entities that provide financing.
Article
1.2 “Tagged
Party” means those parties with no previous relationship with Company,
introduced directly by Lionheart to Company and to whom a term sheet pertaining
to financing is presented are, including Strategic Relationships, identified
on
Exhibit “1” hereto, as may be amended from time to time with the express written
approval of CMEG, which said approval shall not be unreasonably withheld, by
Lionheart via amendment to Exhibit 1 which may occur providing notice from
Lionheart to Company of a Tagged Party.
Article
1.3 “Transaction
Value” shall mean the greater of either (a) the value of the transaction as
agreed by and between Company and the Tagged Party, or (b) the value of the
total consideration given in respect of the said transaction, financing,
including equity, debt or other financing, or other business combination,
including, but not limited to, the issuance of securities at issue value, any
assumption of liabilities, cash, equipment, services, strategic alliance
agreements, and shall be calculated separately and additively for each such
transaction.
Article
1.4 "Fee"
is
the amount paid to Lionheart as set forth in Article III herein.
ARTICLE
II
Services
of Lionheart
Article
2.1. Services
by Lionheart. Company hereby retains Lionheart. The function of the relationship
will be to (a) Structure a financing for the company with a Strategic Party
in
the amount of up to Three ($3,000,000) Million US Dollars. (b) Identifying,
screening and qualifying Strategic Relationships, (b) arranging introductions
and attending meetings between Strategic Relationships and Company, (c)
facilitating the terms of the Strategic Relationship transactions as engaged
by
Company, and (d) in the assembly of information, which may be required for
presentation to the prospective Strategic Relationships, (e) assist in any
other
way to complete the transaction and ensure transfer of funds to the
company.
Article
2.2 Exclusivity.
Although the relationship between the parties is non-exclusive,
once a
Strategic Relationship becomes a Tagged Party, the relationship of the Tagged
Party and Lionheart shall be exclusive to Company. Company, nor its executives,
officers, representatives shall not contact or solicit said Tagged party without
the prior written approval of Lionheart, which approval shall not be
unreasonably withheld. After receiving prior approval from Lionheart, Company
may enter into agreements with Tagged Parties introduced by Lionheart. In the
event the Company enters into a binding agreement with a Tagged Party, Lionheart
shall be entitled to a Fee as set forth in Article III herein. Lionheart will
manage its relationships with its Tagged Parties.
Article
2.3 No
circumvention. Company, and its subsidiaries, affiliates, officers, employees,
agents and/or representatives shall not circumvent, solicit or contact any
persons or entities introduced by Lionheart to Company, with whom Company had
no
prior direct relationship prior to said introduction by Lionheart, without
prior
written consent of Lionheart.
ARTICLE
III
Structuring
Fees Payable to Lionheart
Article
3.1 Fees. In
consideration for the structuring services rendered by Lionheart, Company agrees
to pay Lionheart the following Fee resulting from the close of any transaction
involving a Tagged Party:
| A. |
Structuring
fee of up to Three Hundred and Sixty Thousand ($360,000) US Dollars
paid
on a pro rata basis to the amount of the actual gross total financing
as
determined by the executed term sheet. The
Fee shall be paid in total to Lionheart in the form of cash upon
the day
of the close of the transaction from the escrow/trust account of
the
company counsel.
|
| B. |
Warrants
in the Company up to Two Hundred Thousand ($200,000) US Dollars issued
on
a pro rata basis to the amount of the actual gross total financing
as
determined by the executed term sheet. The Fee shall be paid to Lionheart
the day of the close of the transaction and shall be on the same
terms as
the investor’s warrants and shall include registration
rights.
|
ARTICLE
IV
Term
and
Termination
Article
4.1 Term.
This Agreement is for a minimum period of 180 days commencing on the date this
Agreement is executed by the Company (“Initial Period”) and thereafter, this
Agreement shall continue month-to-month in accordance with the terms set forth
herein until terminated. After expiration of the Initial Period, this Agreement
may be terminated at any time by either party with or without cause upon thirty
(30) days’ notice of termination. In the event of a material breach by Lionheart
or Company, or for Cause, as described in Article 4.2.d hereof, either party
may
terminate this Agreement by first providing a ten (10) day notice to cure and
if
the defaulting party has not cured within said period, then the non-defaulting
party may terminate this Agreement.
Article
4.2 Termination.
In the event this Agreement is terminated by Company and no subsequent similar
agreement is entered into by the parties, Lionheart shall be entitled to its
Fee
from Company in connection with transactions between Company and Tagged Parties
for a period of 12 months following termination.
ARTICLE
V
Documents,
Information and Referrals
Article
5.1. Company
agrees to provide Lionheart with all documents and information, including but
not limited to financial information, summary and full business plans, whether
confidential or not, reasonably necessary or required by Lionheart. Lionheart
agrees to maintain the confidentiality of such information, and to require
any
Tagged Party to whom confidential information is disclosed to execute an
appropriate nondisclosure agreement. Lionheart shall notify Company of its
intention to disclose confidential information to a Tagged Party for prior
approval by Company, which may be withheld for any reason by Company. Company
agrees to use reasonable efforts to make directors and officers available for
meetings upon reasonable notice by Lionheart in connection with the preparation
of any presentation of documents connected with the activities of Lionheart.
Article
5.2. Company
shall cooperate with Lionheart and provide such non-confidential information
as
Lionheart reasonably requests in order to aid Lionheart in its efforts with
Tagged Parties concerning potential Investment and Revenue transactions with
the
Company.
Article
5.3
Both
parties will keep confidential and not disclose to any third party any
confidential information of either party made available to other pursuant to
this Agreement and will use the confidential information only in connection
with
the execution of the obligations and duties contemplated by this Agreement.
“Confidential Information” shall include all information concerning either party
that is deemed confidential through marking, in writing or memorandum, or that
by its nature, should be considered confidential, excluding any information
that
is generally available to the public, or any information which becomes available
to either party on a non-confidential basis from a third party who is not known
by either party to be bound by a confidentiality obligation of this Agreement;
provided, however, that such confidential information may be disclosed (i)
to
either party's officers, directors, employees, counsel and accountants in
connection with its engagement hereunder, who shall be informed of the
confidential nature of the information and that such information is subject
to a
confidentiality agreement; (ii) to any person with the written consent of the
disclosing party, subject to execution of an appropriate nondisclosure
agreement; or (iii) if, upon the advice of counsel, either party is compelled
to
disclose such information (in which case the party compelled to disclose shall,
to the extent permitted by applicable law, rule or regulation, and practicable
under the circumstances, advise the other party in writing prior to such
disclosure and shall consult with the other party with respect to the form
and
timing of disclosure).
ARTICLE
VI
General
Provisions
Article
6.1 The
validity, performance, construction and effect of this Agreement shall be
governed by the laws of the State of New York, without regard to conflicts
of
law rules. Any disputes arising under this Agreement shall be submitted to
arbitration before a single arbitrator in accordance with such rules as the
parties jointly agree, to be conducted in New York, County, NY. If the parties
are unable to agree on arbitration procedures, arbitration shall be conducted
in
accordance with the then applicable Commercial Arbitration Rules of the American
Arbitration Association. Judgment upon the award rendered by the Arbitrator
may
be entered in any Court having jurisdiction. The prevailing party shall be
entitled to reasonable attorney's Fees.
Article
6.2 All
notices, requests, demands, and other communications required or that may be
given hereunder shall be in writing and shall be deemed to have been duly given
when received, if delivered in person, or sent by certified mail, postage
prepaid, return receipt requested or sent by nationally recognized overnight
courier service, and addressed to the last known address of the parties
hereto.
Article
6.3 This
Agreement may be executed in one or more counterparts, which taken together
shall constitute one instrument. Each party has cooperated in the drafting
and
preparation of this Agreement. In any construction to be made of this Agreement,
the same shall not be construed against any party on the basis that the party
was the drafter.
Article
6.4 Nothing
contained herein shall be construed to create an employer-employee, partnership
or joint venture relationship between the parties, it being understood that
Lionheart, while acting under the terms of this Agreement, is an independent
contractor.
Article
6.5 The
parties understand that Lionheart does not guarantee that any Transaction will
occur or any terms that may be offered by other parties to a transaction but
agrees that time is of the essence in obtaining financing.
Article
6.6 Lionheart
and Company agree that: (i) Lionheart is not a “broker” or a “dealer” as
defined under any applicable federal and/or state securities laws;
(ii) Lionheart shall not engage in any acts for which he is required to be
a broker/dealer; (iii) Lionheart shall solely act to introduce Tagged
Parties to the Company; and shall not engage in any sales efforts in connection
with any Investment by any person or entity in Company;
(iv) Lionheart shall not give any advice to anyone regarding the valuation
of, potential return on, or the terms of any Investment in, any securities
of
Company, except as authorized by the Company. Lionheart makes no
representations, warranties or guaranties of any specific results or
success.
Article
6.7 Company
agrees to defend, indemnify and hold Lionheart harmless from any and all claims,
liabilities, debts, actions, judgments and/or settlements, including
reasonable attorneys’ Fees, which
may
arise as a result of Company's business, securities offerings and
dealings,
or from
a breach of its obligations, representations and warranties as set forth in
this
Agreement. Lionheart agrees to defend, indemnify and hold Company harmless
from
any and all claims, liabilities, debts, actions, judgments and/or settlements,
including reasonable attorneys’ Fees, which may result from its breach of
obligations, representations and warranties under this Agreement.
Article
6.8 During
the term of this Agreement and any extended Fee payment periods stated herein,
Company shall maintain its books and records in accordance with generally
accepted accounting principles and Lionheart shall have the right at its own
expense, through such representatives as it deems appropriate, to inspect and
audit the books and records of Company during the Company’s normal business
hours and upon five days’ advanced notice, no more frequently than every six
months.
Article
6.9 This
Agreement, including any Exhibits and documents referred to in this Agreement
or
attached hereto, constitutes the entire understanding of parties with respect
to
its subject matter and there are no oral or written representations,
understandings or agreements relating to the subject matter of this Agreement
which are not fully expressed herein. This Agreement may only be amended by
a
writing signed by authorized representatives of both parties.
IN
WITNESS WHEREOF, the parties have executed this instrument as of the dates
set
forth below:
Lionheart
Associates, LLC Camelot
Entertainment Group, Inc.
_________________________________ ________________________________
Edward
Bronson, Managing Director Robert
P. Atwell, Chairman