Exhibit 4.1


     

    Exhibit
      4.1

     

    
 

    
      
        
        

      

      
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    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.

     

     

    
      
        
        

      

      
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    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.

     

    
      
        
        

      

      
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    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.”

     

    
      
        
        

      

      
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    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.

     

    
      
        
        

      

      
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    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.


     

     

    
      
        
        

      

      
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    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.

     

    
      
        
        

      

      
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    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.

     

    
      
        
        

      

      
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    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.

     

    
      
        
        

      

      
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    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.

     

    
      
        
        

      

      
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          - 10

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
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          - 11

        
          

        

      

      
        
        

      

    

     

    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.
      

     

    
      
        
        

      

      
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    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.

     

    
      
        
        

      

      
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    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.

     

    
      
        
        

      

      
        Page
          - 14

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        Page
          - 15

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        Page
          - 16

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        Page
          - 17

        
          

        

      

      
        
        

      

    

     

    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.

     

    
      
        
        

      

      
        Page
          - 18

        
          

        

      

      
        
        

      

    

     

    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]

     


    
      
        
        

      

      
        Page
          - 19

        
          

        

      

      
        
        

      

    


    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:  


    
      
        
        

      

      
        Page
          - 20

        
          

        

      

      
        
        

      

    


    


    


    


    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:  


    
      
        
        

      

      
        Page
          - 21

        
          

        

      

      
        
        

      

    


    


    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:  


    
      
        
        

      

      
        Page
          - 22

        
          

        

      

      
        
        

      

    


    


    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:  


    
      
        
        

      

      
        Page
          - 23

        
          

        

      

      
        
        

      

    


    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

            


    

    


    



    
      
        
        

      

      
        Page
          - 24

        
          

        

      

      
        
        

      

    


    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).

    


    



    
      
        
        

      

      
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          - 25

        
          

        

      

      
        
        

      

    


    SCHEDULE
      3(F)

    


    CONSENTS,
      AUTHORIZATIONS, ORDERS, FILINGS AND REGISTRATIONS

    


    All
      filings current with SEC.

    


    No
      additional registration statements filed.


    
      
        
        

      

      
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          - 26

        
          

        

      

      
        
        

      

    


    SCHEDULE
      3(G)

    


    SEC
      FILINGS NOT FILED

    


    


    None,
      all
      filings up to date.


    SCHEDULE
      3(I) 

    


    PROCEEDINGS
      HAVING A MATERIAL ADVERSE EFFECT

    


    


    None


    
      
        
        

      

      
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          - 27

        
          

        

      

      
        
        

      

    

     

    
 

    SCHEDULE
      3(J)

    


    SUITS
      AGAINST INTELLECTUAL PROPERTY

    


    


    None


    
      
        
        

      

      
        Page
          - 28

        
          

        

      

      
        
        

      

    


    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.

    


    


    



    
      
        
        

      

      
        Page
          - 29

        
          

        

      

      
        
        

      

    


    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)


    
      
        
        

      

      
        Page
          - 30

        
          

        

      

      
        
        

      

    


    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

    


     

    



    
      
        
        

      

      
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          - 31