exhibit_4-5.htm


    
      

    
EXHIBIT
4.5

     

    SECURITY
AGREEMENT

     

    SECURITY
AGREEMENT (this “Agreement”), dated as
of July 31, 2008, by and among Camelot Entertainment Group, Inc., a Delaware
corporation (“Parent”), and its
Subsidiaries as listed on Schedules A (collectively the “Subsidiary”)
(hereinafter the Parent and the Subsidiary shall collectively be referred to as
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
Parent and the Secured Party (the “Purchase Agreement”),
Parent has agreed to issue to the Secured Party and the Secured Party has agreed
to purchase from Parent certain of Parent’s 10% 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, Parent shall issue the
Secured Party certain Common Stock purchase warrants (the “Warrants”);
and

     

    WHEREAS,
the Parent and the Subsidiary have been, and are now, engaged in the
development, production, marketing and distribution of entertainment media,
including, but not limited to, film, television and digital media and the
providing of certain services to the entertainment industry, including, but not
limited to, entertainment financial, studio, technology, consulting, post
production, event management, education, sales and marketing, merchandising and
web services.  In the past, as now, the Parent has provided financing
for the Subsidiary, and the Subsidiary has relied upon the Parent to provide
such financing.  In addition, it is anticipated that, if the
Subsidiary executes and delivers this Agreement, the Parent will continue to
provide such financing to the Subsidiary, and that the proceeds of the Purchase
Agreement and Notes will be used, in part,
for the general working capital purposes of the Subsidiary]; and

     

    WHEREAS,
the Subsidiary constitutes all of the subsidiaries of the Parent and it is in
the best interest of the Subsidiary as subsidiaries of the Parent and the
indirect beneficiaries of the Purchase Agreement and Notes, that the Secured
Party enter into the Purchase Agreement and purchase the Notes to the Company;
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;
and

     

    WHEREAS,
in light of the foregoing, the Company expects to derive substantial benefit
from the Purchase Agreement and sale of the Notes and the transactions
contemplated thereby and, in furtherance thereof, has agreed to execute and
deliver this.

     

    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:

     


    
      
         


      

      
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    1.            
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:

     

    (i)           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

     

    (ii)          All
Inventory of the Company; and

     

    (iii)         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

     

    (iv)        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

     

    (v)          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.

     

    (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.

     


    
      
         


      

      
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    (b)           “Company” shall mean,
collectively, Company and all of the subsidiaries of Company, 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.

     

    2.            
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”).

     

    3.            
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;

     

     

    
      
        
        

      

      
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    (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  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  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.

     

     

    
      
        
        

      

      
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    (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 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.

     


    
      
         


      

      
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    (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.

     

    4.            
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.

     

    5.            
Duty To Hold In
Trust.  Upon the occurrence of any Event of Default that has
not been cured as provided for herein and in other agreements related to this
transaction 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.

     

    6.            
Rights and Remedies
Upon Default.  Upon occurrence of any Event of Default that has
not been cured as provided for herein and in other agreements related to this
transaction 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:

     

     

    
      
        
        

      

      
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    (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.

     

    7.            
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.

     

    8.            
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
 the enforcement of this Agreement,  the custody or preservation of,
or the sale of, collection from, or other realization upon, any of the
Collateral, or  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.

     

    
      
        
        

      

      
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    9.            
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.

     

    10.          
Security Interest
Absolute.  All rights of the Secured Party and all Obligations
of the Company hereunder, shall be absolute and unconditional, irrespective of:
 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;  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;   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;  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  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.

     

    11.           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 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.

     

     

    
      
        
        

      

      
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    12.           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 as
provided for herein and in other agreements related to this transaction,
 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;  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;  to pay or
discharge taxes, liens, security interests or other encumbrances at any time
levied or placed on or threatened against the Collateral;  to demand,
collect, receipt for, compromise, settle and sue for monies due in respect of
the Collateral; and  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)           After
the occurrence and during the continuance of an Event of Default that has not
been cured as provided for herein and in other agreements related to this
transaction, 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.

     


    
      
         


      

      
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    13.           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  if delivered by hand, upon receipt,  if
sent by facsimile, upon receipt of proof of sending thereof,  if sent by
nationally recognized overnight delivery service (receipt requested), the next
business day or  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:      

              (Including the
      Subsidiaries)     

            	
              Camelot
      Entertainment Group, Inc.

              130 Vantis, Suite 140

              Aliso Viejo, CA 92656

              Attention:
      Robert P. Atwell

              Telephone:
      (949) 334-2950

              Facsimile:  (949)
      334-2951

            


    

     

     

    
      	
              With
      copies to:

            	
              Astor
      Weiss Kaplan & Mandel, LLP

              The
      Bellevue, 6th Floor

              200
      South Broad Street

              Philadelphia,
      PA  19102

              Attention:
      Christopher P. Flannery

              Telephone:
      (215) 893-4594

              Facsimile:  (215)
      400-2222

            


    

    
    

     

    
      	
              If
      to the Secured Party:

            	
              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

            


    

     

    14.           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.

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    15.           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 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.

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (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]


    
      
         


      

      
        12

        
          

        

      

      
         


      

    


    IN
WITNESS WHEREOF, the parties hereto have caused this to be duly executed on the
day and year first above written.

     

    
      
        	 	COMPANY	 
	 	 	 
	 	CAMELOT ENTERTAINMENT GROUP,
      INC.	 
	 	On Behalf of the
      Subsidiaries	 
	 	 	 
	 	 	 	 
	
                 

              	
                By:
      

              	/s/ 
      Robert P. Atwell	 
	 	 	Robert
      P. Atwell	 
	 	 	Chief
      Executive Officer	 
	 	 	 	 


      

    

     

     

    
      	 	
              SECURED
      PARTY:

            	 
	 	 	 
	 	
              NEW
      MILLENNIUM CAPITAL PARTNERS II, LLC

            	 
	 	
              By:  First
      Street Manager II, LLC

            	 
	 	 	 
	 	 	 	 
	
               

            	
              By:
      

            	/s/ 
      Corey S. Ribotsky	 
	 	 	Corey
      S. Ribotsky	 
	 	 	Manager	 
	 	 	 	 


    

    


     


    
      
         


      

      
        13

        
          

        

      

      
         


      

    


    SCHEDULE
A

     

    Principal Place of Business
of the Company:

     

    130
Vantis

     

    Suite
140

     

    Aliso
Viejo, CA 92656

     

    Locations Where Intellectual
Property is Located or Stored:

     

    Principal Place of
Business

     

    List of Subsidiaries of the
Company:

     

    
      
        	
                 Camelot
      Film Group, Inc.  

              	
                (1)

              	
                 NV

              
	
                 Camelot
      Studio Group, Inc.      

              	
                (2)

              	
                 NV

              
	
                 Camelot
      Production Services Group,
    Inc.     

              	 
      	
                 NV

              
	
                 Camelot
      Development Group, LLC.  

              	
                (3)

              	
                 NV

              
	
                 Camelot
      Distribution Group, Inc.     

              	
                (4)

              	
                 NV

              
	
                 Camelot
      Features, Inc.   

              	
                (5)

              	
                 NV

              
	
                 Camelot
      Films, Inc.  

              	
                (6)

              	
                 CA,
      DE, NV

              
	
                 Camelot
      Technologies, Inc.      

              	 
      	
                 NV

              
	
                 Capital
      Arts Enterprises, Inc.    

              	
                (7)

              	
                 CA

              
	
                 Capital
      Arts International, Inc.   

              	
                (8)

              	
                 CA

              
	
                 Dstage.com,
      Inc.       

              	 
      	
                 DE

              
	
                 Ferris
      Wheel Films, Inc.      

              	
                (9)

              	
                 CA,
      NV

              
	
                 Latin
      Ladies, LLC.     

              	
                (10)

              	
                 NV

              
	
                 Pioneer
      Entertainment, LLC.     

              	
                (11)

              	
                 NV

              
	
                 Camelot
      Urban Entertainment, Inc. 

              	
                (12)

              	
                 NV

              


      

       

      


      Notes:

      


      (1)           Exempt
from this Agreement

      (2)           Exempt
from this Agreement

      (3)           A
subsidiary of Camelot Studio 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

      (8)           A
subsidiary of Camelot Film 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

       

      


      
        
          
          

        

        
          S-1

          
            

          

        

        
          
          

        

      

    


    SCHEDULE
B

    


    


    Jurisdictions:

     

    Delaware

    


    California

    


    Nevada

     

     

    
 

    
      
         


      

      
        S-2

        
          

        

      

      
         


      

    


    SCHEDULE
C

     

    Camelot
Film Group, Inc. and Camelot Studio Group, Inc., wholly owned subsidiaries of
the Company, are not subject to this Agreement.

     

     

     

     

     

     

     

     

     

     

    S-3