Document:

exhibit_4-4.htm

    
      

    

    EXHIBIT
4.4

    
 

    REGISTRATION
RIGHTS AGREEMENT

     

    REGISTRATION
RIGHTS AGREEMENT (this “Agreement”), dated as of July
31, 2008, by and among Camelot Entertainment Group, Inc., a Delaware Corporation
with its headquarters located at 130 Vantis, Suite 140, Aliso Viejo, CA 92656
(the “Company”), and
each of the undersigned (together with their respective affiliates and any
assignee or transferee of all of their respective rights hereunder, the “Initial
Investors”).

     

    WHEREAS:

     

    A.           In
connection with the Securities Purchase Agreement by and among the parties
hereto of even date herewith (the “Securities Purchase
Agreement”), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investors
 secured convertible notes in the aggregate principal amount of up to One
Hundred Sixty Thousand Dollars ($160,000) (the “Notes”) that are convertible
into shares of the Company’s common stock (the “Common Stock”), upon the terms
and subject to the limitations and conditions set forth in such Notes and
 warrants (the “Warrants”) to acquire an
aggregate of 20,000,000 shares of Common Stock, upon the terms and conditions
and subject to the limitations and conditions set forth in the Warrants;
and

     

    B.           To
induce the Initial Investors to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the “1933 Act”), and applicable
state securities laws;

     

    NOW, THEREFORE, in
consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and each of the Initial Investors hereby agree
as follows:

     

    1.    DEFINITIONS.

     

    a.           As
used in this Agreement, the following terms shall have the following
meanings:

     

    (i)           “Investors” means the Initial
Investors and any transferee or assignee who agrees to become bound by the
provisions of this Agreement in accordance with Section 9 hereof.

     

    (ii)           “register,” “registered,” and “registration” refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis (“Rule 415”), and
the declaration or ordering of effectiveness of such Registration Statement by
the United States Securities and Exchange Commission (the “SEC”).

     

    (iii)           “Registrable Securities” means
the Conversion Shares issued or issuable upon conversion or otherwise pursuant
to the Notes and Additional Notes (as defined
in the Securities Purchase Agreement) pursuant to a price equal to the lesser
of: (i) the Initial Market Price (as defined in the Notes) and (ii) the average
of the lowest three (3) Trading Prices (as defined in the Notes) for the Common
Stock during the twenty (20) Trading Day period discounted by 50%.

     

     

    
      
        
        

      

      
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    (iv)           “Registration Statement” means
a registration statement of the Company under the 1933 Act.

     

    b.           Capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings set forth in the Securities Purchase Agreement or the Convertible
Note.

     

    2.    REGISTRATION.

     

    a.           Mandatory
Registration.  The Company shall use its best efforts to
prepare, and, on or prior to ten (10) days from the date of receipt of written
demand of the Investors (as defined in the Securities Purchase Agreement) (the
“Filing Date”), file
with the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then
available, on such form of Registration Statement as is then available to effect
a registration of the Registrable Securities, subject to the consent of the
Initial Investors, which consent will not be unreasonably withheld) covering the
resale of the Registrable Securities underlying the Notes issued or issuable
pursuant to the Securities Purchase Agreement, which Registration Statement, to
the extent allowable under the 1933 Act and the rules and regulations
promulgated thereunder (including Rule 416), shall state that such Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon conversion of or otherwise pursuant to the
Notes to prevent dilution resulting from stock splits, stock dividends or
similar transactions.  The number of shares of Common Stock initially
included in such Registration Statement shall be no less than an amount equal
the sum of the number of Conversion Shares that are then issuable upon
conversion of the Notes and Additional Notes (based on the Variable Conversion
Price as would then be in effect and assuming the Variable Conversion Price is
the Conversion Price at such time) without regard to any limitation on the
Investor’s ability to convert the Notes.  The Company acknowledges
that the number of shares initially included in the Registration Statement
represents a good faith estimate of the maximum number of shares issuable upon
conversion of the Notes.

     

    b.           Underwritten
Offering.  If any offering pursuant to a Registration Statement
pursuant to Section 2(a) hereof involves an underwritten offering, the Investors
who hold a majority in interest of the Registrable Securities subject to such
underwritten offering, with the consent of a majority-in-interest of the Initial
Investors, shall have the right to select one legal counsel and an investment
banker or bankers and manager or managers to administer the offering, which
investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company.

     

     

    
      
        
        

      

      
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    c.           Payments
by the Company.  The Company shall use its best efforts to
obtain effectiveness of the Registration Statement as soon as
practicable.  If  the Registration Statement(s) covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not filed by the Filing Date or the Company does not use its best
efforts and respond to comments from the SEC regarding its Registration
Statement in a
timely manner, or after the Registration Statement has been declared effective
by the SEC, sales of all of the Registrable Securities cannot be made pursuant
to the Registration Statement, or  the Common Stock is not listed or
included for quotation on the Nasdaq National Market (“Nasdaq”), the Nasdaq SmallCap
Market (“Nasdaq
SmallCap”), the New York Stock Exchange (the “NYSE”) or the American Stock
Exchange (the “AMEX”)
after being so listed or included for quotation after the date hereof, or
 the Common Stock ceases to be traded on the Over-the-Counter Bulletin
Board (the “OTCBB”) or
any equivalent replacement exchange prior to being listed or included for
quotation on one of the aforementioned markets, then the Company will make
payments to the Investors in such amounts and at such times as shall be
determined pursuant to this Section 2(c) as partial relief for the damages to
the Investors by reason of any such delay in or reduction of their ability to
sell the Registrable Securities (which remedy shall not be exclusive of any
other remedies available at law or in equity).  The Company shall pay
to each holder of the Notes or Registrable Securities an amount equal to the
then outstanding principal amount of the Notes (and, in the case of holders of
Registrable Securities, the principal amount of Notes from which such
Registrable Securities were converted) (“Outstanding Principal
Amount”), multiplied by the Applicable Percentage (as defined below)
times the sum of:  (i) the number of months (prorated for partial
months) after the Filing Date and prior to the date the Registration Statement
is declared effective by the SEC, provided, however, that there shall be
excluded from such period any delays which are solely attributable to changes
required by the Investors in the Registration Statement with respect to
information relating to the Investors, including, without limitation, changes to
the plan of distribution, or to the failure of the Investors to conduct their
review of the Registration Statement pursuant to Section 3(h) below in a
reasonably prompt manner; (ii) the number of months (prorated for partial
months) that sales of all of the Registrable Securities cannot be made pursuant
to the Registration Statement after the Registration Statement has been declared
effective (including, without limitation, when sales cannot be made by reason of
the Company’s failure to properly supplement or amend the prospectus included
therein in accordance with the terms of this Agreement, but excluding any days
during an Allowed Delay (as defined in Section 3(f)); and (iii) the number of
months (prorated for partial months) that the Common Stock is not listed or
included for quotation on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX or
that trading thereon is halted after the Registration Statement has been
declared effective.  The term “Applicable Percentage” means
two hundredths (.02).  (For example, if the Registration Statement
becomes effective one (1) month after the determination that the Company has not
used its best efforts to respond to comments from the SEC regarding its
Registration Statement in a timely manner, the Company would pay $5,000 for each
$250,000 of Outstanding Principal Amount.  If thereafter, sales could
not be made pursuant to the Registration Statement for an additional period of
one (1) month, the Company would pay an additional $5,000 for each $250,000 of
Outstanding Principal Amount.)  Such amounts shall be paid in cash or,
at the Company’s option, in shares of Common Stock priced at the Conversion
Price (as defined in the Notes) on such payment date.

     

     

    
      
        
        

      

      
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    d.           Piggy-Back
Registrations.  Subject to the last sentence of this Section
2(d), if at any time prior to the expiration of the Registration Period (as
hereinafter defined) the Company shall determine to file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-1, Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or business or equity
securities issuable in connection with stock option or other bona fide, employee
benefit plans), the Company shall send to each Investor who is entitled to
registration rights under this Section 2(d) written notice of such determination
and, if within fifteen (15) days after the effective date of such notice, such
Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)’ judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and provided, further, however, that, after
giving effect to the immediately preceding proviso, any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having the
right to include such securities in the Registration Statement other than
holders of securities entitled to inclusion of their securities in such
Registration Statement by reason of demand registration rights.  No
right to registration of Registrable Securities under this Section 2(d) shall be
construed to limit any registration required under Section 2(a)
hereof.  If an offering in connection with which an Investor is
entitled to registration under this Section 2(d) is an underwritten offering,
then each Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed by the Company, offer and
sell such Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this Agreement, on
the same terms and conditions as other shares of Common Stock included in such
underwritten offering.  Notwithstanding anything to the contrary set
forth herein, the registration rights of the Investors pursuant to this Section
2(d) shall only be available in the event the Company fails to timely file,
obtain effectiveness or maintain effectiveness of any Registration Statement to
be filed pursuant to Section 2(a) in accordance with the terms of this
Agreement.

     

    e.           Demand
Registrations.  The Company shall use it best efforts to
prepare, and, on or prior to ten (10) days from the date of receipt of written
demand (the “Investor
Demand”) of the Investors (the “Filing Date”), to file with
the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then
available, on such form of Registration Statement as is then available to effect
a registration of any shares issued or issuable in respect of interest on the
Notes in accordance with the terms thereof, which Registration Statement, to the
extent allowable under the 1933 Act and the rules and regulations promulgated
thereunder (including Rule 416), shall state that such Registration Statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of or otherwise pursuant to the Notes to
prevent dilution resulting from stock splits, stock dividends or similar
transactions.  The number of shares of Common Stock initially included
in such Registration Statement shall be no less than an amount equal to the sum
of the number of Conversion
Shares that are then issuable upon conversion of the interest on the Notes
(based on the Variable Conversion Price as would then be in effect and assuming
the Variable Conversion Price is the Conversion Price at such time), without
regard to any limitation on the Investor’s ability to convert the interest on
the Notes.  The Company acknowledges that the number of shares
initially included in the Registration Statement represents a good faith
estimate of the maximum number of shares issuable upon conversion of the
interest on the Notes.

     

     

    
      
        
        

      

      
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    f.           Eligibility
for Form S-3 or S-1; Conversion to Form S-3.  The Company
represents and warrants that it meets the requirements for the use of Form S-3
or S-1 for registration of the sale by the Initial Investors and any other
Investors of the Registrable Securities.   The Company agrees to
file all reports required to be filed by the Company with the SEC in a timely
manner so as to remain eligible or become eligible, as the case may be, and
thereafter to maintain its eligibility, for the use of Form S-3.  If
the Company is not currently eligible to use Form S-3, not later than five (5)
business days after the Company first meets the registration eligibility and
transaction requirements for the use of Form S-3 (or any successor form) for
registration of the offer and sale by the Initial Investors and any other
Investors of Registrable Securities, the Company shall file a Registration
Statement on Form S-3 (or such successor form) with respect to the Registrable
Securities covered by the Registration Statement on Form S-1, filed pursuant to
Section 2(a) (and include in such Registration Statement on Form S-3 the
information required by Rule 429 under the 1933 Act) or convert the Registration
Statement on Form S-1, filed pursuant to Section 2(a) to a Form S-3 pursuant to
Rule 429 under the 1933 Act and use its best efforts to cause such Registration
Statement (or such amendment) to be declared effective no later than thirty (30)
days after filing.  In the event of a breach by the Company of the
provisions of this Section 2(f), the Company will be required to make payments
pursuant to Section 2(c) hereof.

     

    3.    OBLIGATIONS OF THE
COMPANY.

     

    In
connection with the registration of the Registrable Securities, the Company
shall have the following obligations:

     

    a.           Upon
demand as provided for in Section 2(a), the Company shall prepare promptly, and
file with the SEC not later than the Filing Date, a Registration Statement with
respect to the number of Registrable Securities provided in Section 2(a), and
thereafter use its best efforts to cause such Registration Statement relating to
Registrable Securities to become effective as soon as possible after such filing
(within ninety (90)days from the date of Investor Demand), and keep the
Registration Statement effective pursuant to Rule 415 at all times until such
date as is the earlier of (i) the date on which all of the Registrable
Securities have been sold and (ii) the date on which the Registrable Securities
(in the opinion of counsel to the Initial Investors) may be immediately sold to
the public without registration or restriction (including, without limitation,
as to volume by each holder thereof) under the 1933 Act (the “Registration Period”), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading.

     

    

    
      
        
           

        

        
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    b.           The
Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statements and
the prospectus used in connection with the Registration Statements as may be
necessary to keep the Registration Statements effective at all times during the
Registration Period, and, during such period, comply with the provisions of the
1933 Act with respect to the disposition of all Registrable Securities of the
Company covered by the Registration Statements until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statements.  In the event the number of shares available
under a Registration Statement filed pursuant to this Agreement is insufficient
to cover all of the Registrable Securities issued or issuable upon conversion of
the Notes, the Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable), or
both, so as to cover all of the Registrable Securities, in each case, as soon as
practicable, but in any event within fifteen (15) days after the necessity
therefor arises (based on the market price of the Common Stock and other
relevant factors on which the Company reasonably elects to rely).  The
Company shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof, but in any event within thirty (30) days after the date on which
the Company reasonably first determines (or reasonably should have determined)
the need therefor.  The provisions of Section 2(c) above shall be
applicable with respect to such obligation, with the ninety (90) days running
from the day the Company reasonably first determines (or reasonably should have
determined) the need therefor.

     

    c.           The
Company shall furnish to each Investor whose Registrable Securities are included
in a Registration Statement and its legal counsel  promptly (but in no
event more than two (2) business days) after the same is prepared and publicly
distributed, filed with the SEC, or received by the Company, one copy of each
Registration Statement and any amendment thereto, each preliminary prospectus
and prospectus and each amendment or supplement thereto, and, in the case of the
Registration Statement referred to in Section 2(a), each letter written by or on
behalf of the Company to the SEC or the staff of the SEC, and each item of
correspondence from the SEC or the staff of the SEC, in each case relating to
such Registration Statement (other than any portion of any thereof which
contains information for which the Company has sought confidential treatment),
and  promptly (but in no event more than two (2) business days) after the
Registration Statement is declared effective by the SEC, such number of copies
of a prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor.  The Company will immediately notify each
Investor by facsimile of the effectiveness of each Registration Statement or any
post-effective amendment.  The Company will promptly respond to any
and all comments received from the SEC (which comments shall promptly be made
available to the Investors upon request), with a view towards causing each
Registration Statement or any amendment thereto to be declared effective by the
SEC as soon as practicable, shall promptly file an acceleration request as soon
as practicable (but in no event more than two (2) business days) following the
resolution or clearance of all SEC comments or, if applicable, following
notification by the SEC that any such Registration Statement or any amendment
thereto will not be subject to review and shall, if required by SEC Rules,
promptly file with the SEC a final prospectus as soon as practicable (but in no
event more than two (2) business days) following receipt by the Company from the
SEC of an order declaring the Registration Statement effective.

     

    

    
      
        
           

        

        
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    In the
event of a breach by the Company of the provisions of this Section 3(c), the
Company will be required to make payments pursuant to Section 2(c)
hereof.

     

    d.           The
Company shall use reasonable efforts to  register and qualify the
Registrable Securities covered by the Registration Statements under such other
securities or “blue sky” laws of such jurisdictions in the United States as the
Investors who hold a majority in interest of the Registrable Securities being
offered reasonably request,  prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period,  take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and  take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the
Company shall not be required in connection therewith or as a condition thereto
to  qualify to do business in any jurisdiction where it would not otherwise
be required to qualify but for this Section 3(d),  subject itself to
general taxation in any such jurisdiction,  file a general consent to
service of process in any such jurisdiction,  provide any undertakings that
cause the Company undue expense or burden, or  make any change in its
charter or bylaws, which in each case the Board of Directors of the Company
determines to be contrary to the best interests of the Company and its
shareholders.

     

    e.           In
the event Investors who hold a majority-in-interest of the Registrable
Securities being offered in the offering (with the approval of a
majority-in-interest of the Initial Investors) select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.

     

    f.           As
promptly as practicable after becoming aware of such event, the Company shall
notify each Investor of the happening of any event, of which the Company has
knowledge, as a result of which the prospectus included in any Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and use its best efforts promptly to
prepare a supplement or amendment to any Registration Statement to correct such
untrue statement or omission, and deliver such number of copies of such
supplement or amendment to each Investor as such Investor may reasonably
request; provided that, for not more than ten (10) consecutive trading days (or
a total of not more than twenty (20) trading days in any twelve (12) month
period), the Company may delay the disclosure of material non-public information
concerning the Company (as well as prospectus or Registration Statement
updating) the disclosure of which at the time is not, in the good faith opinion
of the Company, in the best interests of the Company (an “Allowed Delay”); provided,
further, that the Company shall promptly  notify the Investors in writing
of the existence of (but in no event, without the prior written consent of an
Investor, shall the Company disclose to such investor any of the facts or
circumstances regarding) material non-public information giving rise to an
Allowed Delay and  advise the Investors in writing to cease all sales under
such Registration Statement until the end of the Allowed Delay. Upon expiration
of the Allowed Delay, the Company shall again be bound by the first sentence of
this Section 3(f) with respect to the information giving rise
thereto.

     

    

    
      
        
           

        

        
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    g.           The
Company shall use its best efforts to prevent the issuance of any stop order or
other suspension of effectiveness of any Registration Statement, and, if such an
order is issued, to obtain the withdrawal of such order at the earliest possible
moment and to notify each Investor who holds Registrable Securities being sold
(or, in the event of an underwritten offering, the managing underwriters) of the
issuance of such order and the resolution thereof.

     

    h.           The
Company shall permit a single firm of counsel designated by the Initial
Investors to review such Registration Statement and all amendments and
supplements thereto (as well as all requests for acceleration or effectiveness
thereof) a reasonable period of time prior to their filing with the SEC, and not
file any document in a form to which such counsel reasonably objects and will
not request acceleration of such Registration Statement without prior notice to
such counsel.  The sections of such Registration Statement covering
information with respect to the Investors, the Investor’s beneficial ownership
of securities of the Company or the Investors intended method of disposition of
Registrable Securities shall conform to the information provided to the Company
by each of the Investors.

     

    i.           Upon
request, the Company shall make generally available to its security holders as
soon as practicable, but not later than ninety (90) days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company’s fiscal quarter next
following the effective date of the Registration Statement.

     

    j.           At
the request of any Investor, the Company shall furnish, on the date that
Registrable Securities are delivered to an underwriter, if any, for sale in
connection with any Registration Statement or, if such securities are not being
sold by an underwriter, on the date of effectiveness thereof  an opinion,
dated as of such date, from counsel representing the Company for purposes of
such Registration Statement, in form, scope and substance as is customarily
given in an underwritten public offering, addressed to the underwriters, if any,
and the Investors and  a letter, dated such date, from the Company’s
independent certified public accountants in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering, addressed to the underwriters, if any, and the
Investors.

     

    k.           The
Company shall make available for inspection by  any Investor,  any
underwriter participating in any disposition pursuant to a Registration
Statement,  one firm of attorneys and one firm of accountants or other
agents retained by the Initial Investors,  one firm of attorneys and one
firm of accountants or other agents retained by all other Investors, and
 one firm of attorneys retained by all such underwriters (collectively, the
“Inspectors”) all
pertinent financial and other records, and pertinent corporate documents and
properties of the Company, including without limitation, records of conversions
by other holders of convertible securities issued by the Company and the
issuance of stock to such holders pursuant to the conversions (collectively, the
“Records”), as shall be
reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company’s officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that each
Inspector shall hold in confidence and shall not make any disclosure (except to
an Investor) of any Record or other information which the Company determines in
good faith to be confidential, and of which
determination the Inspectors are so notified, unless  the disclosure of
such Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement,  the release of such Records is ordered pursuant to
a subpoena or other order from a court or government body of competent
jurisdiction, or  the information in such Records has been made generally
available to the public other than by disclosure in violation of this or any
other agreement.  The Company shall not be required to disclose any
confidential information in such Records to any Inspector until and unless such
Inspector shall have entered into confidentiality agreements (in form and
substance satisfactory to the Company) with the Company with respect thereto,
substantially in the form of this Section 3(k).  Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential.  Nothing herein (or in any
other confidentiality agreement between the Company and any Investor) shall be
deemed to limit the Investor’s ability to sell Registrable Securities in a
manner which is otherwise consistent with applicable laws and
regulations.

     

     

    
      
        
        

      

      
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    l.           The
Company shall hold in confidence and not make any disclosure of information
concerning an Investor provided to the Company unless  disclosure of such
information is necessary to comply with federal or state securities laws,
 the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement,  the release of
such information is ordered pursuant to a subpoena or other order from a court
or governmental body of competent jurisdiction, or  such information has
been made generally available to the public other than by disclosure in
violation of this or any other agreement.  The Company agrees that it
shall, upon learning that disclosure of such information concerning an Investor
is sought in or by a court or governmental body of competent jurisdiction or
through other means, give prompt notice to such Investor prior to making such
disclosure, and allow the Investor, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for, such
information.

     

    m.           The
Company shall  cause all the Registrable Securities covered by the
Registration Statement to be listed on each national securities exchange on
which securities of the same class or series issued by the Company are then
listed, if any, if the listing of such Registrable Securities is then permitted
under the rules of such exchange, or  to the extent the securities of the
same class or series are not then listed on a national securities exchange,
secure the designation and quotation, of all the Registrable Securities covered
by the Registration Statement on Nasdaq or, if not eligible for Nasdaq, on
Nasdaq SmallCap or, if not eligible for Nasdaq or Nasdaq SmallCap, on the OTCBB
and, without limiting the generality of the foregoing, to arrange for at least
two market makers to register with the Financial Industry Regulatory Authority
(“FINRA”) as such with
respect to such Registrable Securities.

     

    n.           The
Company shall provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement.

     

    o.           The
Company shall cooperate with the Investors who hold Registrable Securities being
offered and the managing underwriter or underwriters, if any, to facilitate the
timely preparation and delivery of certificates (not bearing any restrictive
legends) representing
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the managing underwriter or underwriters, if any, or the Investors may
reasonably request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as Exhibit
1 and an opinion of such counsel in the form attached hereto as Exhibit 2.

     

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    p.           At
the request of the holders of a majority-in-interest of the Registrable
Securities, the Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and any prospectus used in connection with the Registration Statement
as may be necessary in order to change the plan of distribution set forth in
such Registration Statement.

     

    q.           From
and after the date of this Agreement, the Company shall not, and shall not agree
to, allow the holders of any securities of the Company to include any of their
securities, in excess of 250,000 shares of Common Stock, in any Registration
Statement under Section 2(a) hereof or any amendment or supplement thereto under
Section 3(b) hereof without the consent of the holders of a majority-in-interest
of the Registrable Securities.

     

    r.           The
Company shall take all other reasonable actions necessary to expedite and
facilitate disposition by the Investors of Registrable Securities pursuant to a
Registration Statement.

     

    4.    OBLIGATIONS OF THE
INVESTORS.

     

    In
connection with the registration of the Registrable Securities, the Investors
shall have the following obligations:

     

    a.           It
shall be a condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company such information regarding itself, the Registrable Securities held by it
and the intended method of disposition of the Registrable Securities held by it
as shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such registration
as the Company may reasonably request.  At least three (3) business
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor.

     

    b.           Each
Investor, by such Investor’s acceptance of the Registrable Securities, agrees to
cooperate with the Company as reasonably requested by the Company in connection
with the preparation and filing of the Registration Statements hereunder, unless
such Investor has notified the Company in writing of such Investor’s election to
exclude all of such Investor’s Registrable Securities from the Registration
Statements.

     

    

    
      
        
           

        

        
          10

          
            

          

        

        
           

        

      

    

    

    c.           In
the event Investors holding a majority-in-interest of the Registrable Securities
being registered (with the approval of the Initial Investors) determine to
engage the services of an underwriter, each Investor agrees to enter into and
perform such Investor’s obligations under an underwriting agreement, in usual
and customary form, including, without limitation, customary indemnification and
contribution obligations, with the managing underwriter of such offering and
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of the Registrable Securities, unless such Investor
has notified the Company in writing of such Investor’s election to exclude all
of such Investor’s Registrable Securities from such Registration
Statement.

     

    d.           Each
Investor agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(f) or 3(g), such
Investor will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor’s receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(f) or 3(g) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor’s possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such
notice.

     

    e.           No
Investor may participate in any underwritten registration hereunder unless such
Investor  agrees to sell such Investor’s Registrable Securities on the
basis provided in any underwriting arrangements in usual and customary form
entered into by the Company,  completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements, and
 agrees to pay its pro rata share of all underwriting discounts and
commissions and any expenses in excess of those payable by the Company pursuant
to Section 5 below.

     

    5.    EXPENSES OF
REGISTRATION.

     

    All
reasonable expenses, other than underwriting discounts and commissions, incurred
in connection with registrations, filings or qualifications pursuant to Sections
2 and 3, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel selected by the Initial Investors pursuant to Sections 2(b) and 3(h)
hereof shall be borne by the Company and shall be included in the fees paid to
counsel under the Securities Purchase Agreement for purposes of counsel selected
by the Initial Investors.

     

    6.    INDEMNIFICATION.

     

    In the
event any Registrable Securities are included in a Registration Statement under
this Agreement:

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    a.           To
the extent permitted by law, the Company will indemnify, hold harmless and
defend  each Investor who holds such Registrable Securities,  the
directors, officers, partners, employees, agents and each person who controls
any Investor within the meaning of the 1933 Act or the Securities Exchange Act
of 1934, as amended (the “1934
Act”), if any,
 any underwriter (as defined in the 1933 Act) for the Investors, and
 the directors, officers, partners, employees and each person who controls
any such underwriter within the meaning of the 1933 Act or the 1934 Act, if any
(each, an “Indemnified
Person”), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, “Claims”) to which any of them
may become subject insofar as such Claims arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or the omission or alleged omission to state therein a
material fact required to be stated or necessary to make the statements therein
not misleading; (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities (the matters in the foregoing clauses (i)
through (iii) being, collectively, “Violations”).  Subject
to the restrictions set forth in Section 6(c) with respect to the number of
legal counsel, the Company shall reimburse the Indemnified Person, promptly as
such expenses are incurred and are due and payable, for any reasonable legal
fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim.  Notwithstanding anything
to the contrary contained herein, the indemnification agreement contained in
this Section 6(a): (i) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by any Indemnified Person or underwriter for
such Indemnified Person expressly for use in connection with the preparation of
such Registration Statement or any such amendment thereof or supplement thereto,
if such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (ii) shall not apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld; and (iii) with respect to any
preliminary prospectus, shall not inure to the benefit of any Indemnified Person
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, such corrected prospectus was timely made
available by the Company pursuant to Section 3(c) hereof, and the Indemnified
Person was promptly advised in writing not to use the incorrect prospectus prior
to the use giving rise to a Violation and such Indemnified Person,
notwithstanding such advice, used it.  Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.

     

     

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    b.           In
connection with any Registration Statement in which an Investor is
participating, each such Investor agrees severally and not jointly to indemnify,
hold harmless and defend, to the same extent and in the same manner set forth in
Section 6(a), the Company, each of its directors, each of its officers who signs
the Registration Statement, each person, if any, who controls the Company within
the meaning of the 1933 Act or the 1934 Act, any underwriter and any other
shareholder selling securities pursuant to the Registration Statement
or any of its directors or officers or any person who controls such shareholder
or underwriter within the meaning of the 1933 Act or the 1934 Act (collectively
and together with an Indemnified Person, an “Indemnified Party”), against
any Claim to which any of them may become subject, under the 1933 Act, the 1934
Act or otherwise, insofar as such Claim arises out of or is based upon any
Violation by such Investor, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and subject to Section 6(c) such
Investor will reimburse any legal or other expenses (promptly as such expenses
are incurred and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the
Investor shall be liable under this Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement.  Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Indemnified
Party and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6(b)
with respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.

     

    c.           Promptly
after receipt by an Indemnified Person or Indemnified Party under this Section 6
of notice of the commencement of any action (including any governmental action),
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding.  The
indemnifying party shall pay for only one separate legal counsel
for  the Indemnified Persons or the Indemnified Parties, as
applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the  Registrable Securities included in the
Registration Statement to which the Claim relates (with the approval of a
majority-in-interest of the Initial Investors), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable.  The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the
indemnifying party is actually prejudiced in its ability to defend such
action.  The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.

     

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    7.    CONTRIBUTION.

     

    To the
extent any indemnification by an indemnifying party is prohibited or limited by
law, the indemnifying party agrees to make the maximum contribution with respect
to any amounts for which it would otherwise be liable under Section 6 to the
fullest extent permitted by law; provided, however, that
 no contribution shall be made under circumstances where the maker would
not have been liable for indemnification under the fault standards set forth in
Section 6,  no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and contribution (together with any
indemnification or other obligations under this Agreement) by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable
Securities.

     

    8.    REPORTS UNDER THE 1934
ACT.

     

    With a
view to making available to the Investors the benefits of Rule 144 promulgated
under the 1933 Act or any other similar rule or regulation of the SEC that may
at any time permit the investors to sell securities of the Company to the public
without registration (“Rule
144”), the Company agrees to:

     

    a.           make
and keep public information available, as those terms are understood and defined
in Rule 144;

     

    b.           file
with the SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act so long as the Company remains
subject to such requirements (it being understood that nothing herein shall
limit the Company’s obligations under Section 4(c) of the Securities Purchase
Agreement) and the filing of such reports and other documents is required for
the applicable provisions of Rule 144; and

     

    c.           furnish
to each Investor so long as such Investor owns Registrable Securities, promptly
upon request,  a written statement by the Company that it has complied with
the reporting requirements of Rule 144, the 1933 Act and the 1934 Act,  a
copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and  such other information
as may be reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.

     

    9.    ASSIGNMENT OF REGISTRATION
RIGHTS.

     

    The
rights under this Agreement shall be automatically assignable by the Investors
to any transferee of all or any portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the
Company
within a reasonable time after such assignment, (ii) the Company is, within
a reasonable time after such transfer or assignment, furnished with written
notice of  the name and address of such transferee or assignee, and
 the securities with respect to which such registration rights are being
transferred or assigned, (iii) following such transfer or assignment, the
further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws, (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence, the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein, (v) such transfer
shall have been made in accordance with the applicable requirements of the
Securities Purchase Agreement, and (vi) such transferee shall be an “accredited investor” as that
term defined in Rule 501 of Regulation D promulgated under the 1933
Act.

     

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    10.    AMENDMENT OF REGISTRATION
RIGHTS.

     

    Provisions
of this Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with written consent of the Company, each of the Initial
Investors (to the extent such Initial Investor still owns Registrable
Securities) and Investors who hold a majority interest of the Registrable
Securities.  Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.

     

    11.    MISCELLANEOUS.

     

    a.           A
person or entity is deemed to be a holder of Registrable Securities whenever
such person or entity owns of record such Registrable Securities.  If
the Company receives conflicting instructions, notices or elections from two or
more persons or entities with respect to the same Registrable Securities, the
Company shall act upon the basis of instructions, notice or election received
from the registered owner of such Registrable Securities.

     

    b.           Any
notices required or permitted to be given under the terms hereof shall be sent
by certified or registered mail (return receipt requested) or delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile and shall be effective five days after being placed in the mail, if
mailed by regular United States mail, or upon receipt, if delivered personally
or by courier (including a recognized overnight delivery service) or by
facsimile, in each case addressed to a party.  The addresses for such
communications shall be:

     

    If to the
Company:

     

    Camelot
Entertainment Group, Inc.

    130
Vantis, Suite 140,

    Aliso
Viejo, CA 92656

    Attention:
Robert P. Atwell

    Telephone:
(949) 334-2950

    Facsimile:  (949)
334-2951

    

    
      
        
           

        

        
          15

          
            

          

        

        
           

        

      

    

    

    

    With a
copy to:

     

    Astor
Weiss Kaplan & Mandel, LLP

    The
Bellevue, 6th Floor

    200 South
Broad Street

    Philadelphia,
PA  19102

    Attention:
Christopher P. Flannery

    Telephone:
(215) 893-4594

    Facsimile:  (215)
400-2222

    

     

    If to an
Investor: to the address set forth immediately below such Investor’s name on the
signature pages to the Securities Purchase Agreement.

     

    With a
copy to:

     

    Ballard
Spahr Andrews & Ingersoll, LLP

    1735
Market Street

    51st
Floor

    Philadelphia,
Pennsylvania  19103

    Attention:  Gerald
J. Guarcini, Esq.

    Telephone:  215-865-8625

    Facsimile:   215-864-8999

    

     

    c.           Failure
of any party to exercise any right or remedy under this Agreement or otherwise,
or delay by a party in exercising such right or remedy, shall not operate as a
waiver thereof.

     

    d.           
THIS AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF
CONFLICT OF LAWS.  THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED NEW YORK, NEW YORK WITH
RESPECT TO ANY DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO
IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH
PARTIES IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF SUCH SUIT OR PROCEEDING.  BOTH PARTIES FURTHER AGREE
THAT SERVICE OF PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL 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.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    e.           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.

     

    f.           This
Agreement, the Notes and the Securities Purchase Agreement (including all
schedules and exhibits thereto) constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and
thereof.  There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and
therein.  This Agreement and the Securities Purchase Agreement
supersede all prior agreements and understandings among the parties hereto with
respect to the specific financing subject matter hereof and
thereof.

     

    g.           Subject
to the requirements of Section 9 hereof, this Agreement shall be binding upon
and inure to the benefit of the parties and their successors and
assigns.

     

    h.           The
headings in this Agreement are for convenience of reference only and shall not
form part of, or affect the interpretation of, this Agreement.

     

    i.           This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party.  This Agreement, once executed by a
party, may be delivered to the other party hereto by facsimile transmission of a
copy of this Agreement bearing the signature of the party so delivering this
Agreement.

     

    j.           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.

     

    k.           Except
as otherwise provided herein, all consents and other determinations to be made
by the Investors pursuant to this Agreement shall be made by Investors holding a
majority of the Registrable Securities, determined as if the all of the Notes
then outstanding have been converted into for Registrable
Securities.

     

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    l.           The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to each Investor by vitiating the intent and purpose of the
transactions contemplated hereby.  Accordingly, the Company
acknowledges that the remedy at law for breach of its obligations under this
Agreement will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of any of the provisions under this Agreement,
that each
Investor shall be entitled, in addition to all other available remedies in law
or in equity, and in addition to the penalties assessable herein,  to
an injunction or injunctions restraining, preventing or curing any breach of
this Agreement and to enforce specifically the terms and provisions hereof,
without the necessity of showing economic loss and without any bond or other
security being required.

     

    m.           The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict construction will
be applied against any party.

     

    

     

    

     

    

     

    

     

    

     

    

     

    

     

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

     

    

    
      
        
           

        

        
          18

          
            

          

        

        
           

        

      

    

    

    IN WITNESS WHEREOF, the
Company and the undersigned Initial Investors have caused this Agreement to be
duly executed as of the date first above written.

     

     

    CAMELOT
ENTERTAINMENT GROUP, INC.

     

    
      
        	 	 	 	 	 
	
                /s/ 
      Robert P. Atwell

              	 	 	
                 

              	 
	
                Robert
      P. Atwell

              	 	 	
                 

              	 
	
                Chief
      Executive Officer

              	 	 	
                 

              	 

      

    

     

     

     

    NEW
MILLENNIUM CAPITAL PARTNERS II, LLC

    By:  First
Street Manager II, LLC

     

    
      
        	 	 	 	 	 
	
                /s/ 
      Corey S. Ribotsky

              	 	 	
                 

              	 
	
                Corey
      S. Ribotsky

              	 	 	
                 

              	 
	
                Manager

              	 	 	
                 

              	 

      

    

     

     

     

     

    
      19exhibit_4-5.htm

    
      

    
EXHIBIT
4.5

     

    SECURITY
AGREEMENT

     

    SECURITY
AGREEMENT (this “Agreement”), dated as
of July 31, 2008, by and among Camelot Entertainment Group, Inc., a Delaware
corporation (“Parent”), and its
Subsidiaries as listed on Schedules A (collectively the “Subsidiary”)
(hereinafter the Parent and the Subsidiary shall collectively be referred to as
the “Company”)
and the secured parties signatory hereto and their respective endorsees,
transferees and assigns (collectively, the “Secured
Party”).

     

    W I T N E
S S E T H:

     

    WHEREAS,
pursuant to a Securities Purchase Agreement, dated the date hereof, between
Parent and the Secured Party (the “Purchase Agreement”),
Parent has agreed to issue to the Secured Party and the Secured Party has agreed
to purchase from Parent certain of Parent’s 10% Callable Secured Convertible
Notes, due three years from the date of issue (the “Notes”), which are
convertible into shares of Company’s Common Stock, par value $.001 per share
(the “Common
Stock”).  In connection therewith, Parent shall issue the
Secured Party certain Common Stock purchase warrants (the “Warrants”);
and

     

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

     

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

     

    WHEREAS,
in order to induce the Secured Party to purchase the Notes, Company has agreed
to execute and deliver to the Secured Party this Agreement for the benefit of
the Secured Party and to grant to it a first priority security interest in
certain property of Company to secure the prompt payment, performance and
discharge in full of all of Company’s obligations under the Notes and exercise
and discharge in full of Company’s obligations under the Warrants;
and

     

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

     

    NOW,
THEREFORE, in consideration of the agreements herein contained and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    1.            
Certain
Definitions.  As used in this Agreement, the following terms
shall have the meanings set forth in this Section 1.  Terms used but
not otherwise defined in this Agreement that are defined in Article 9 of the UCC
(such as “general
intangibles” and “proceeds”) shall have
the respective meanings given such terms in Article 9 of the UCC.

     

    (a)           “Collateral” means the
collateral in which the Secured Party is granted a security interest by this
Agreement and which shall include the following, whether presently owned or
existing or hereafter acquired or coming into existence, and all additions and
accessions thereto and all substitutions and replacements thereof, and all
proceeds, products and accounts thereof, including, without limitation, all
proceeds from the sale or transfer of the Collateral and of insurance covering
the same and of any tort claims in connection therewith:

     

    (i)           All
Goods of the Company, including, without limitations, all machinery, equipment,
computers, motor vehicles, trucks, tanks, boats, ships, appliances, furniture,
special and general tools, fixtures, test and quality control devices and other
equipment of every kind and nature and wherever situated, together with all
documents of title and documents representing the same, all additions and
accessions thereto, replacements therefor, all parts therefor, and all
substitutes for any of the foregoing and all other items used and useful in
connection with the Company’s businesses and all improvements thereto
(collectively, the “Equipment”);
and

     

    (ii)          All
Inventory of the Company; and

     

    (iii)         All
of the Company’s contract rights and general intangibles, including, without
limitation, all partnership interests, stock or other securities, licenses,
distribution and other agreements, computer software development rights, leases,
franchises, customer lists, quality control procedures, grants and rights,
goodwill, trademarks, service marks, trade styles, trade names, patents, patent
applications, copyrights, deposit accounts, and income tax refunds
(collectively, the “General
Intangibles”); and

     

    (iv)        All
Receivables of the Company including all insurance proceeds, and rights to
refunds or indemnification whatsoever owing, together with all instruments, all
documents of title representing any of the foregoing, all rights in any
merchandising, goods, equipment, motor vehicles and trucks which any of the same
may represent, and all right, title, security and guaranties with respect to
each Receivable, including any right of stoppage in transit; and

     

    (v)          All
of the Company’s documents, instruments and chattel paper, files, records, books
of account, business papers, computer programs and the products and proceeds of
all of the foregoing Collateral set forth in clauses (i)-(iv)
above.

     

    (vi)         Notwithstanding
the above, the Company is not granting a security interest in its two wholly
owned subsidiaries, Camelot Film Group, Inc. and Camelot Studio Group, Inc.,
which shall not be considered Collateral under this Agreement.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    (b)           “Company” shall mean,
collectively, Company and all of the subsidiaries of Company, a list of which is
contained in Schedule
A, attached hereto.

     

    (c)           “Obligations” means
all of the Company’s obligations under this Agreement and the Notes, in each
case, whether now or hereafter existing, voluntary or involuntary, direct or
indirect, absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time decreased or
extinguished and later decreased, created or incurred, and all or any portion of
such obligations or liabilities that are paid, to the extent all or any part of
such payment is avoided or recovered directly or indirectly from the Secured
Party as a preference, fraudulent transfer or otherwise as such obligations may
be amended, supplemented, converted, extended or modified from time to
time.

     

    (d)           “UCC” means the
Uniform Commercial Code, as currently in effect in the State of New
York.

     

    2.            
Grant of Security
Interest.  As an inducement for the Secured Party to purchase
the Notes and to secure the complete and timely payment, performance and
discharge in full, as the case may be, of all of the Obligations, the Company
hereby, unconditionally and irrevocably, pledges, grants and hypothecates to the
Secured Party, a continuing security interest in, a continuing first lien upon,
an unqualified right to possession and disposition of and a right of set-off
against, in each case to the fullest extent permitted by law, all of the
Company’s right, title and interest of whatsoever kind and nature in and to the
Collateral (the “Security
Interest”).

     

    3.            
Representations,
Warranties, Covenants and Agreements of the Company.  The
Company represents and warrants to, and covenants and agrees with, the Secured
Party as follows:

     

    (a)           The
Company has the requisite corporate power and authority to enter into this
Agreement and otherwise to carry out its obligations thereunder.  The
execution, delivery and performance by the Company of this Agreement and the
filings contemplated therein have been duly authorized by all necessary action
on the part of the Company and no further action is required by the
Company.  This Agreement constitutes a legal, valid and binding
obligation of the Company enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditor’s rights
generally.

     

    (b)           The
Company represents and warrants that it has no place of business or offices
where its respective books of account and records are kept (other than
temporarily at the offices of its attorneys or accountants) or places where
Collateral is stored or located, except as set forth on Schedule A attached
hereto;

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (c)           The
Company is the sole owner of the Collateral (except for non-exclusive licenses
granted by the Company in the ordinary course of business), free and clear of
any liens, security interests, encumbrances, rights or claims, and is fully
authorized to grant the Security Interest in and to pledge the Collateral,
except as set forth on Schedule C.  There is not on file in
any
governmental or regulatory authority, agency or recording office an effective
financing statement, security agreement, license or transfer or any notice of
any of the foregoing (other than those that have been filed in favor of the
Secured Party pursuant to this Agreement) covering or affecting any of the
Collateral, except as set forth on Schedule C.  So long as this
Agreement shall be in effect, the Company shall not execute and shall not
knowingly permit to be on file in any such office or agency any such financing
statement or other document or instrument (except to the extent filed or
recorded in favor of the Secured Party pursuant to the terms of this Agreement),
except as set forth on Schedule C.

     

    (d)           No
part of the Collateral has been judged invalid or unenforceable.  No
written claim has been received that any Collateral or the Company’s use of any
Collateral violates the rights of any third party. There has been no adverse
decision to the Company’s claim of ownership rights in or exclusive rights to
use the Collateral in any jurisdiction or to the Company’s right to keep and
maintain such Collateral in full force and effect, and there is no proceeding
involving said rights pending or, to the best knowledge of the Company,
threatened before any court, judicial body, administrative or regulatory agency,
arbitrator or other governmental authority.

     

    (e)           The
Company shall at all times maintain its books of account and records relating to
the Collateral at its principal place of business and its Collateral at the
locations set forth on Schedule A attached
hereto and may not relocate such books of account and records or tangible
Collateral unless it delivers to the Secured Party at least 30 days prior to
such relocation (i) written notice of such relocation and the new location
thereof (which must be within the United States) and (ii) evidence that
appropriate financing statements and other necessary documents have been filed
and recorded and other steps have been taken to perfect the Security Interest to
create in favor of the Secured Party valid, perfected and continuing first
priority liens in the Collateral.

     

    (f)   
        This Agreement creates in favor
of the Secured Party a valid security interest in the Collateral securing the
payment and performance of the Obligations and, upon making the filings
described in the immediately following sentence, a perfected first priority
security interest in such Collateral.  Except for the filing of
financing statements on Form-1 under the UCC with the jurisdictions indicated on
Schedule B,
attached hereto, no authorization or approval of or filing with or notice to any
governmental authority or regulatory body is required either  for the grant
by the Company of, or the effectiveness of, the Security Interest granted hereby
or for the execution, delivery and performance of this Agreement by the Company
or  for the perfection of or exercise by the Secured Party of its rights
and remedies hereunder.

     

    (g)           On
the date of execution of this Agreement, the Company will deliver to the Secured
Party one or more executed UCC financing statements on Form-1 with respect to
the Security Interest for filing with  the jurisdictions indicated on
Schedule B,
attached hereto and in such other jurisdictions as may be requested by the
Secured Party.

     

    (h)           Except
as set forth on Schedule C, the execution, delivery and performance of this
Agreement does not conflict with or cause a breach or default, or an event that
with or without the passage of time or notice, shall constitute a breach or
default, under any agreement
to which the Company is a party or by which the Company is bound.  No
consent (including, without limitation, from stock holders or creditors of the
Company) is required for the Company to enter into and perform its obligations
hereunder.

     

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (i)   
        The Company shall at all times
maintain the liens and Security Interest provided for hereunder as valid and
perfected first priority liens and security interests in the Collateral in favor
of the Secured Party until this Agreement and the Security Interest hereunder
shall terminate pursuant to Section 11.  The Company hereby agrees to
defend the same against any and all persons.  The Company shall
safeguard and protect all Collateral for the account of the Secured
Party.  At the request of the Secured Party, the Company will sign and
deliver to the Secured Party at any time or from time to time one or more
financing statements pursuant to the UCC (or any other applicable statute) in
form reasonably satisfactory to the Secured Party and will pay the cost of
filing the same in all public offices wherever filing is, or is deemed by the
Secured Party to be, necessary or desirable to effect the rights and obligations
provided for herein. Without limiting the generality of the foregoing, the
Company shall pay all fees, taxes and other amounts necessary to maintain the
Collateral and the Security Interest hereunder, and the Company shall obtain and
furnish to the Secured Party from time to time, upon demand, such releases
and/or subordinations of claims and liens which may be required to maintain the
priority of the Security Interest hereunder.

     

    (j)     
      The Company will not transfer, pledge,
hypothecate, encumber, license (except for non-exclusive licenses granted by the
Company in the ordinary course of business), sell or otherwise dispose of any of
the Collateral without the prior written consent of the Secured
Party.

     

    (k)           The
Company shall keep and preserve its Equipment, Inventory and other tangible
Collateral in good condition, repair and order and shall not operate or locate
any such Collateral (or cause to be operated or located) in any area excluded
from insurance coverage.

     

    (l)       
    The Company shall, within ten (10) days of obtaining
knowledge thereof, advise the Secured Party promptly, in sufficient detail, of
any substantial change in the Collateral, and of the occurrence of any event
which would have a material adverse effect on the value of the Collateral or on
the Secured Party’s security interest therein.

     

    (m)           The
Company shall promptly execute and deliver to the Secured Party such further
deeds, mortgages, assignments, security agreements, financing statements or
other instruments, documents, certificates and assurances and take such further
action as the Secured Party may from time to time request and may in its sole
discretion deem necessary to perfect, protect or enforce its security interest
in the Collateral including, without limitation, the execution and delivery of a
separate security agreement with respect to the Company’s intellectual property
(“Intellectual
Property Security Agreement”) in which the Secured Party has been granted
a security interest hereunder, substantially in a form acceptable to the Secured
Party, which Intellectual Property Security Agreement, other than as stated
therein, shall be subject to all of the terms and conditions
hereof.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    (n)           The
Company shall permit the Secured Party and its representatives and agents to
inspect the Collateral at any time, and to make copies of records pertaining to
the Collateral as may be requested by the Secured Party from time to
time.

     

    (o)           The
Company will take all steps reasonably necessary to diligently pursue and seek
to preserve, enforce and collect any rights, claims, causes of action and
accounts receivable in respect of the Collateral.

     

    (p)           The
Company shall promptly notify the Secured Party in sufficient detail upon
becoming aware of any attachment, garnishment, execution or other legal process
levied against any Collateral and of any other information received by the
Company that may materially affect the value of the Collateral, the Security
Interest or the rights and remedies of the Secured Party hereunder.

     

    (q)           All
information heretofore, herein or hereafter supplied to the Secured Party by or
on behalf of the Company with respect to the Collateral is accurate and complete
in all material respects as of the date furnished.

     

    (r)           Schedule A attached
hereto contains a list of all of the subsidiaries of Company.

     

    4.            
Defaults.  The
following events shall be “Events of
Default”:

     

    (a)           The
occurrence of an Event of Default (as defined in the Notes) under the
Notes;

     

    (b)           Any
representation or warranty of the Company in this Agreement or in the
Intellectual Property Security Agreement shall prove to have been incorrect in
any material respect when made;

     

    (c)           The
failure by the Company to observe or perform any of its obligations hereunder or
in the Intellectual Property Security Agreement for ten (10) days after receipt
by the Company of notice of such failure from the Secured Party;
and

     

    (d)           Any
breach of, or default under, the Warrants.

     

    5.            
Duty To Hold In
Trust.  Upon the occurrence of any Event of Default that has
not been cured as provided for herein and in other agreements related to this
transaction and at any time thereafter, the Company shall, upon receipt by it of
any revenue, income or other sums subject to the Security Interest, whether
payable pursuant to the Notes or otherwise, or of any check, draft, note, trade
acceptance or other instrument evidencing an obligation to pay any such sum,
hold the same in trust for the Secured Party and shall forthwith endorse and
transfer any such sums or instruments, or both, to the Secured Party for
application to the satisfaction of the Obligations.

     

    6.            
Rights and Remedies
Upon Default.  Upon occurrence of any Event of Default that has
not been cured as provided for herein and in other agreements related to this
transaction and at any time thereafter, the Secured Party shall have the right
to exercise all of the remedies conferred
hereunder and under the Notes, and the Secured Party shall have all the rights
and remedies of a secured party under the UCC and/or any other applicable law
(including the Uniform Commercial Code of any jurisdiction in which any
Collateral is then located).  Without limitation, the Secured Party
shall have the following rights and powers:

     

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (a)           The
Secured Party shall have the right to take possession of the Collateral and, for
that purpose, enter, with the aid and assistance of any person, any premises
where the Collateral, or any part thereof, is or may be placed and remove the
same, and the Company shall assemble the Collateral and make it available to the
Secured Party at places which the Secured Party shall reasonably select, whether
at the Company’s premises or elsewhere, and make available to the Secured Party,
without rent, all of the Company’s respective premises and facilities for the
purpose of the Secured Party taking possession of, removing or putting the
Collateral in saleable or disposable form.

     

    (b)           The
Secured Party shall have the right to operate the business of the Company using
the Collateral and shall have the right to assign, sell, lease or otherwise
dispose of and deliver all or any part of the Collateral, at public or private
sale or otherwise, either with or without special conditions or stipulations,
for cash or on credit or for future delivery, in such parcel or parcels and at
such time or times and at such place or places, and upon such terms and
conditions as the Secured Party may deem commercially reasonable, all without
(except as shall be required by applicable statute and cannot be waived)
advertisement or demand upon or notice to the Company or right of redemption of
the Company, which are hereby expressly waived.  Upon each such sale,
lease, assignment or other transfer of Collateral, the Secured Party may, unless
prohibited by applicable law which cannot be waived, purchase all or any part of
the Collateral being sold, free from and discharged of all trusts, claims, right
of redemption and equities of the Company, which are hereby waived and
released.

     

    7.            
Applications of
Proceeds.  The proceeds of any such sale, lease or other
disposition of the Collateral hereunder shall be applied first, to the expenses
of retaking, holding, storing, processing and preparing for sale, selling, and
the like (including, without limitation, any taxes, fees and other costs
incurred in connection therewith) of the Collateral, to the reasonable
attorneys’ fees and expenses incurred by the Secured Party in enforcing its
rights hereunder and in connection with collecting, storing and disposing of the
Collateral, and then to satisfaction of the Obligations, and to the payment of
any other amounts required by applicable law, after which the Secured Party
shall pay to the Company any surplus proceeds.  If, upon the sale,
license or other disposition of the Collateral, the proceeds thereof are
insufficient to pay all amounts to which the Secured Party is legally entitled,
the Company will be liable for the deficiency, together with interest thereon,
at the rate of 15% per annum (the “Default Rate”), and
the reasonable fees of any attorneys employed by the Secured Party to collect
such deficiency.  To the extent permitted by applicable law, the
Company waives all claims, damages and demands against the Secured Party arising
out of the repossession, removal, retention or sale of the Collateral, unless
due to the gross negligence or willful misconduct of the Secured
Party.

     

    8.            
Costs and
Expenses.  The Company agrees to pay all out-of-pocket fees, costs
and expenses incurred in connection with any filing required hereunder,
including without limitation, any financing statements, continuation statements,
partial releases and/or termination statements related thereto or any expenses
of any searches reasonably required by the Secured Party.  The
Company shall also pay all other claims and charges which in the reasonable
opinion of the Secured Party might prejudice, imperil or otherwise affect the
Collateral or the Security Interest therein.  The Company will also,
upon demand, pay to the Secured Party the amount of any and all reasonable
expenses, including the reasonable fees and expenses of its counsel and of any
experts and agents, which the Secured Party may incur in connection with
 the enforcement of this Agreement,  the custody or preservation of,
or the sale of, collection from, or other realization upon, any of the
Collateral, or  the exercise or enforcement of any of the rights of the
Secured Party under the Notes.  Until so paid, any fees payable
hereunder shall be added to the principal amount of the Notes and shall bear
interest at the Default Rate.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    9.            
Responsibility for
Collateral.  The Company assumes all liabilities and
responsibility in connection with all Collateral, and the obligations of the
Company hereunder or under the Notes and the Warrants shall in no way be
affected or diminished by reason of the loss, destruction, damage or theft of
any of the Collateral or its unavailability for any reason.

     

    10.          
Security Interest
Absolute.  All rights of the Secured Party and all Obligations
of the Company hereunder, shall be absolute and unconditional, irrespective of:
 any lack of validity or enforceability of this Agreement, the Notes, the
Warrants or any agreement entered into in connection with the foregoing, or any
portion hereof or thereof;  any change in the time, manner or place of
payment or performance of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any departure
from the Notes, the Warrants or any other agreement entered into in connection
with the foregoing;   any exchange, release or nonperfection of any of the
Collateral, or any release or amendment or waiver of or consent to departure
from any other collateral for, or any guaranty, or any other security, for all
or any of the Obligations;  any action by the Secured Party to obtain,
adjust, settle and cancel in its sole discretion any insurance claims or matters
made or arising in connection with the Collateral; or  any other
circumstance which might otherwise constitute any legal or equitable defense
available to the Company, or a discharge of all or any part of the Security
Interest granted hereby.  Until the Obligations shall have been paid
and performed in full, the rights of the Secured Party shall continue even if
the Obligations are barred for any reason, including, without limitation, the
running of the statute of limitations or bankruptcy.  The Company
expressly waives presentment, protest, notice of protest, demand, notice of
nonpayment and demand for performance.  In the event that at any time
any transfer of any Collateral or any payment received by the Secured Party
hereunder shall be deemed by final order of a court of competent jurisdiction to
have been a voidable preference or fraudulent conveyance under the bankruptcy or
insolvency laws of the United States, or shall be deemed to be otherwise due to
any party other than the Secured Party, then, in any such event, the Company’s
obligations hereunder shall survive cancellation of this Agreement, and shall
not be discharged or satisfied by any prior payment thereof and/or cancellation
of this Agreement, but shall remain a valid and binding obligation enforceable
in accordance with the terms and provisions hereof.  The Company
waives all right to require the Secured Party to proceed against any other
person or to apply any Collateral which the Secured Party may hold at any time,
or to marshal assets, or to pursue any other remedy.  The Company
waives any defense arising by reason of the application of the statute of
limitations to any obligation secured hereby.

     

    11.           Term of
Agreement.  This Agreement and the Security Interest shall
terminate on the date on which all payments under the Notes have been made in
full and all other Obligations have been
paid or discharged.  Upon such termination, the Secured Party, at the
request and at the expense of the Company, will join in executing any
termination statement with respect to any financing statement executed and filed
pursuant to this Agreement.

     

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    12.           Power of Attorney; Further
Assurances.

     

    (a)           The
Company authorizes the Secured Party, and does hereby make, constitute and
appoint it, and its respective officers, agents, successors or assigns with full
power of substitution, as the Company’s true and lawful attorney-in-fact, with
power, in its own name or in the name of the Company, to, after the occurrence
and during the continuance of an Event of Default that has not been cured as
provided for herein and in other agreements related to this transaction,
 endorse any notes, checks, drafts, money orders, or other instruments of
payment (including payments payable under or in respect of any policy of
insurance) in respect of the Collateral that may come into possession of the
Secured Party;  to sign and endorse any UCC financing statement or any
invoice, freight or express bill, bill of lading, storage or warehouse receipts,
drafts against debtors, assignments, verifications and notices in connection
with accounts, and other documents relating to the Collateral;  to pay or
discharge taxes, liens, security interests or other encumbrances at any time
levied or placed on or threatened against the Collateral;  to demand,
collect, receipt for, compromise, settle and sue for monies due in respect of
the Collateral; and  generally, to do, at the option of the Secured Party,
and at the Company’s expense, at any time, or from time to time, all acts and
things which the Secured Party deems necessary to protect, preserve and realize
upon the Collateral and the Security Interest granted therein in order to effect
the intent of this Agreement, the Notes and the Warrants, all as fully and
effectually as the Company might or could do; and the Company hereby ratifies
all that said attorney shall lawfully do or cause to be done by virtue
hereof.  This power of attorney is coupled with an interest and shall
be irrevocable for the term of this Agreement and thereafter as long as any of
the Obligations shall be outstanding.

     

    (b)           On
a continuing basis, the Company will make, execute, acknowledge, deliver, file
and record, as the case may be, in the proper filing and recording places in any
jurisdiction, including, without limitation, the jurisdictions indicated on
Schedule B,
attached hereto, all such instruments, and take all such action as may
reasonably be deemed necessary or advisable, or as reasonably requested by the
Secured Party, to perfect the Security Interest granted hereunder and otherwise
to carry out the intent and purposes of this Agreement, or for assuring and
confirming to the Secured Party the grant or perfection of a security interest
in all the Collateral.

     

    (c)           After
the occurrence and during the continuance of an Event of Default that has not
been cured as provided for herein and in other agreements related to this
transaction, the Company hereby irrevocably appoints the Secured Party as the
Company’s attorney-in-fact, with full authority in the place and stead of the
Company and in the name of the Company, from time to time in the Secured Party’s
discretion, to take any action and to execute any instrument which the Secured
Party may deem necessary or advisable to accomplish the purposes of this
Agreement, including the filing, in its sole discretion, of one or more
financing or continuation statements and amendments thereto, relative to any of
the Collateral without the signature of the Company where permitted by
law.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    13.           Notices.  All
notices, requests, demands and other communications hereunder shall be in
writing, with copies to all the other parties hereto, and shall be deemed to
have been duly given when  if delivered by hand, upon receipt,  if
sent by facsimile, upon receipt of proof of sending thereof,  if sent by
nationally recognized overnight delivery service (receipt requested), the next
business day or  if mailed by first-class registered or certified mail,
return receipt requested, postage prepaid, four days after posting in the U.S.
mails, in each case if delivered to the following addresses:

     

    
      	
              If
      to the Company:      

              (Including the
      Subsidiaries)     

            	
              Camelot
      Entertainment Group, Inc.

              130 Vantis, Suite 140

              Aliso Viejo, CA 92656

              Attention:
      Robert P. Atwell

              Telephone:
      (949) 334-2950

              Facsimile:  (949)
      334-2951

            

    

     

     

    
      	
              With
      copies to:

            	
              Astor
      Weiss Kaplan & Mandel, LLP

              The
      Bellevue, 6th Floor

              200
      South Broad Street

              Philadelphia,
      PA  19102

              Attention:
      Christopher P. Flannery

              Telephone:
      (215) 893-4594

              Facsimile:  (215)
      400-2222

            

    

    
    

     

    
      	
              If
      to the Secured Party:

            	
              New
      Millennium Capital Partners II, LLC

              
                1044
      Northern Boulevard

                
                  Suite
      302

                  
                    Roslyn,
      New York 11576

                    
                      Attention:  Corey
      Ribotsky

                      
                        Facsimile:  516-739-7115

                      

                    

                  

                

              

            

    

     

     

    
      	
              With
      copies to:  

            	
              Ballard
      Spahr Andrews & Ingersoll, LLP

              1735
      Market Street, 51st
      Floor

              Philadelphia,
      Pennsylvania  19103

              Attention:  Gerald
      J. Guarcini, Esquire

              Facsimile:  215-864-8999

            

    

     

    14.           Other
Security.  To the extent that the Obligations are now or
hereafter secured by property other than the Collateral or by the guarantee,
endorsement or property of any other person, firm, corporation or other entity,
then the Secured Party shall have the right, in its sole discretion, to pursue,
relinquish, subordinate, modify or take any other action with respect
thereto,
without in any way modifying or affecting any of the Secured Party’s rights and
remedies hereunder.

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    15.           Miscellaneous.

     

    (a)        
   No course of dealing between the Company and the Secured
Party, nor any failure to exercise, nor any delay in exercising, on the part of
the Secured Party, any right, power or privilege hereunder or under the Notes
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or thereunder preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege.

     

    (b)       
    All of the rights and remedies of the Secured Party with
respect to the Collateral, whether established hereby or by the Notes or by any
other agreements, instruments or documents or by law shall be cumulative and may
be exercised singly or concurrently.

     

    (c)        
   This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and is intended to supersede all prior
negotiations, understandings and agreements with respect
thereto.  Except as specifically set forth in this Agreement, no
provision of this Agreement may be modified or amended except by a written
agreement specifically referring to this Agreement and signed by the parties
hereto.

     

    (d)       
    In the event that any provision of this Agreement is
held to be invalid, prohibited or unenforceable in any jurisdiction for any
reason, unless such provision is narrowed by judicial construction, this
Agreement shall, as to such jurisdiction, be construed as if such invalid,
prohibited or unenforceable provision had been more narrowly drawn so as not to
be invalid, prohibited or unenforceable.  If, notwithstanding the
foregoing, any provision of this Agreement is held to be invalid, prohibited or
unenforceable in any jurisdiction, such provision, as to such jurisdiction,
shall be ineffective to the extent of such invalidity, prohibition or
unenforceability without invalidating the remaining portion of such provision or
the other provisions of this Agreement and without affecting the validity or
enforceability of such provision or the other provisions of this Agreement in
any other jurisdiction.

     

    (e)       
    No waiver of any breach or default or any right under
this Agreement shall be considered valid unless in writing and signed by the
party giving such waiver, and no such waiver shall be deemed a waiver of any
subsequent breach or default or right, whether of the same or similar nature or
otherwise.

     

    (f)       
     This Agreement shall be binding upon and inure to the
benefit of each party hereto and its successors and assigns.

     

    (g)    
       Each party shall take such further
action and execute and deliver such further documents as may be necessary or
appropriate in order to carry out the provisions and purposes of this
Agreement.

     

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (h)     
      This Agreement shall be construed in
accordance with the laws of the State of New York, except to the extent the
validity, perfection or enforcement of a security interest hereunder in respect
of any particular Collateral which are governed by a jurisdiction other than the
State of New York in which case such law shall govern.  Each of the
parties hereto irrevocably
submit to the exclusive jurisdiction of any New York State or United States
Federal court sitting in Manhattan county over any action or proceeding arising
out of or relating to this Agreement, and the parties hereto hereby irrevocably
agree that all claims in respect of such action or proceeding may be heard and
determined in such New York State or Federal court.  The parties
hereto agree that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.  The parties hereto further waive
any objection to venue in the State of New York and any objection to an action
or proceeding in the State of New York on the basis of forum non
conveniens.

     

    (i)           
EACH PARTY HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO
THE SUBJECT MATER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND
STATUTORY CLAIMS.  EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS
A MATERIAL INDUCEMENT FOR EACH PARTY TO ENTER INTO A BUSINESS RELATIONSHIP, THAT
EACH PARTY HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND
THAT EACH PARTY WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE
DEALINGS. EACH PARTY FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS
WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY HAS KNOWINGLY AND VOLUNTARILY
WAIVES ITS RIGHTS TO A JURY TRIAL FOLLOWING SUCH CONSULTATION.  THIS
WAIVER IS IRREVOCABLE, MEANING THAT, NOTWITHSTANDING ANYTHING HEREIN TO THE
CONTRARY, IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS AND SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT.  IN THE EVENT OF A LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.

     

    (j)        
   This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and, all of
which taken together shall constitute one and the same Agreement.  In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.

     

    

     

    [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

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

     

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

              	
                By:
      

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

      

    

     

     

    
      	 	
              SECURED
      PARTY:

            	 
	 	 	 
	 	
              NEW
      MILLENNIUM CAPITAL PARTNERS II, LLC

            	 
	 	
              By:  First
      Street Manager II, LLC

            	 
	 	 	 
	 	 	 	 
	
               

            	
              By:
      

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

    

    

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    SCHEDULE
A

     

    Principal Place of Business
of the Company:

     

    130
Vantis

     

    Suite
140

     

    Aliso
Viejo, CA 92656

     

    Locations Where Intellectual
Property is Located or Stored:

     

    Principal Place of
Business

     

    List of Subsidiaries of the
Company:

     

    
      
        	
                 Camelot
      Film Group, Inc.  

              	
                (1)

              	
                 NV

              
	
                 Camelot
      Studio Group, Inc.      

              	
                (2)

              	
                 NV

              
	
                 Camelot
      Production Services Group,
    Inc.     

              	 
      	
                 NV

              
	
                 Camelot
      Development Group, LLC.  

              	
                (3)

              	
                 NV

              
	
                 Camelot
      Distribution Group, Inc.     

              	
                (4)

              	
                 NV

              
	
                 Camelot
      Features, Inc.   

              	
                (5)

              	
                 NV

              
	
                 Camelot
      Films, Inc.  

              	
                (6)

              	
                 CA,
      DE, NV

              
	
                 Camelot
      Technologies, Inc.      

              	 
      	
                 NV

              
	
                 Capital
      Arts Enterprises, Inc.    

              	
                (7)

              	
                 CA

              
	
                 Capital
      Arts International, Inc.   

              	
                (8)

              	
                 CA

              
	
                 Dstage.com,
      Inc.       

              	 
      	
                 DE

              
	
                 Ferris
      Wheel Films, Inc.      

              	
                (9)

              	
                 CA,
      NV

              
	
                 Latin
      Ladies, LLC.     

              	
                (10)

              	
                 NV

              
	
                 Pioneer
      Entertainment, LLC.     

              	
                (11)

              	
                 NV

              
	
                 Camelot
      Urban Entertainment, Inc. 

              	
                (12)

              	
                 NV

              

      

       

      

      Notes:

      

      (1)           Exempt
from this Agreement

      (2)           Exempt
from this Agreement

      (3)           A
subsidiary of Camelot Studio Group

      (4)           A
subsidiary of Camelot Film Group

      (5)           A
subsidiary of Camelot Film Group

      (6)           A
subsidiary of Camelot Film Group

      (7)           A
subsidiary of Camelot Film Group

      (8)           A
subsidiary of Camelot Film Group

      (9)           A
subsidiary of Camelot Film Group

      (10)         A
subsidiary of Camelot Film Group

      (11)         A
subsidiary of Camelot Film Group

      (12)         A
subsidiary of Camelot Film Group

       

      

      
        
          
          

        

        
          S-1

          
            

          

        

        
          
          

        

      

    

    SCHEDULE
B

    

    

    Jurisdictions:

     

    Delaware

    

    California

    

    Nevada

     

     

    
 

    
      
         

      

      
        S-2

        
          

        

      

      
         

      

    

    SCHEDULE
C

     

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

     

     

     

     

     

     

     

     

     

     

    S-3

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