Document:

Unassociated Document

    

      Exhibit
        10.55

      

      

      THIS
        WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
        NOT
        BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
        AND
        THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
        OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
        REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
        SATISFACTORY TO DIAMOND ENTERTAINMENT CORPORATION THAT SUCH REGISTRATION
        IS NOT
        REQUIRED.

      

      
        	 	
                Right
                  to Purchase 33,333,334 shares of Common Stock of Diamond Entertainment
                  Corporation (subject to adjustment as provided
                  herein)

              

      

      

      COMMON
        STOCK PURCHASE WARRANT

       

      
        	No.
                2006-001	
                Issue
                  Date: November 30, 2006

              

      

       

      DIAMOND
        ENTERTAINMENT CORPORATION, a corporation organized under the laws of the
        State
        of New Jersey (the “Company”), hereby certifies that, for value received,
        LONGVIEW FUND, LP, 600 Montgomery Street, 44th Floor, San Francisco, CA 94111,
        Fax: (415) 981-5301, or its assigns
        (the “Holder”), is entitled, subject to the terms set forth below, to purchase
        from the Company at any time after the Issue Date until 5:00 p.m., E.S.T
        on the
        fifth anniversary of the Actual Effective Date (as defined in Section 11.1(iv)
        of the Subscription Agreement) (the “Expiration Date”), 33,333,334 fully paid
        and nonassessable shares of Common Stock at a per share purchase price of
        $
        0.0299 [equal
        to Twelve Million Dollar (total funding basis) pre money valuation on a fully
        diluted basis].
        The
        aforedescribed purchase price per share, as adjusted from time to time as
        herein
        provided, is referred to herein as the “Purchase Price.” The number and
        character of such shares of Common Stock and the Purchase Price are subject
        to
        adjustment as provided herein. The Company may reduce the Purchase Price
        without
        the consent of the Holder. Capitalized terms used and not otherwise defined
        herein shall have the meanings set forth in that certain Subscription Agreement
        (the “Subscription
        Agreement”),
        dated
        November 30, 2006, entered into by the Company and Holders.

      

      As
        used
        herein the following terms, unless the context otherwise requires, have the
        following respective meanings: 

       

      (a) The
        term
“Company” shall mean Diamond Entertainment Corporation and any corporation which
        shall succeed or assume the obligations of Diamond Entertainment Corporation
        hereunder. 

       

      (b) The
        term
“Common Stock” includes (a) the Company’s common stock, no par value per
        share, as authorized on the date of the Subscription Agreement, and (b) any
        Other Securities into which or for which any of the securities described
        in
        (a) may be converted or exchanged pursuant to a plan of recapitalization,
        reorganization, merger, sale of assets or otherwise.

       

      (c) The
        term
“Other Securities” refers to any stock (other than Common Stock) and other
        securities of the Company or any other person (corporate or otherwise) which
        the
        holder of the Warrant at any time shall be entitled to receive, or shall
        have
        received, on the exercise of the Warrant, in lieu of or in addition to Common
        Stock, or which at any time shall be issuable or shall have been issued in
        exchange for or in replacement of Common Stock or Other Securities pursuant
        to
        Section 5 or otherwise. 

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

      (d) The
        term
“Warrant Shares” shall mean the Common Stock issuable upon exercise of this
        Warrant.

       

      1. Exercise
        of Warrant.

       

      1.1. Number
        of Shares Issuable upon Exercise.
        From
        and after the Issue Date through and including the Expiration Date, the Holder
        hereof shall be entitled to receive, upon exercise of this Warrant in whole
        in
        accordance with the terms of subsection 1.2 or upon exercise of this
        Warrant in part in accordance with subsection 1.3, Common Stock of the
        Company, subject to adjustment pursuant to Section 4.

       

      1.2. Full
        Exercise.
        This
        Warrant may be exercised in full by the Holder hereof by delivery of an original
        or facsimile copy of the form of subscription attached as Exhibit A hereto
        (the “Subscription Form”) duly executed by such Holder and surrender of the
        original Warrant within four (4) days of exercise, to the Company at its
        principal office or at the office of its Warrant Agent (as provided
        hereinafter), accompanied by payment, in cash, wire transfer or by certified
        or
        official bank check payable to the order of the Company, in the amount obtained
        by multiplying the number of shares of Common Stock for which this Warrant
        is
        then exercisable by the Purchase Price then in effect. 

       

      1.3. Partial
        Exercise.
        This
        Warrant may be exercised in part (but not for a fractional share) by surrender
        of this Warrant in the manner and at the place provided in subsection 1.2
        except that the amount payable by the Holder on such partial exercise shall
        be
        the amount obtained by multiplying (a) the number of whole shares of Common
        Stock designated by the Holder in the Subscription Form by (b) the Purchase
        Price then in effect. On any such partial exercise, the Company, at its expense,
        will forthwith issue and deliver to or upon the order of the Holder hereof
        a new
        Warrant of like tenor, in the name of the Holder hereof or as such Holder
        (upon
        payment by such Holder of any applicable transfer taxes) may request, the
        whole
        number of shares of Common Stock for which such Warrant may still be exercised
        for the balance of.

       

      1.4. Fair
        Market Value.
        Fair
        Market Value of a share of Common Stock as of a particular date (the
“Determination Date”) shall mean: 

       

      (a) If
        the
        Company’s Common Stock is traded on an exchange or is quoted on the National
        Association of Securities Dealers, Inc. Automated Quotation (“NASDAQ”), National
        Market System, the NASDAQ Capital Market or the American Stock Exchange,
        LLC,
        then the closing or last sale price, respectively, reported for the last
        business day immediately preceding the Determination Date;

       

      (b) If
        the
        Company’s Common Stock is not traded on an exchange or on the NASDAQ National
        Market System, the NASDAQ Capital Market or the American Stock Exchange,
        Inc.,
        but is traded in the over-the-counter market, then the average of the closing
        bid and ask prices reported for the last business day immediately preceding
        the
        Determination Date;

       

      (c) Except
        as
        provided in clause (d) below, if the Company’s Common Stock is not publicly
        traded, then as the Holder and the Company agree, or in the absence of such
        an
        agreement, by arbitration in accordance with the rules then standing of the
        American Arbitration Association, before a single arbitrator to be chosen
        from a
        panel of persons qualified by education and training to pass on the matter
        to be
        decided; or

       

      (d) If
        the
        Determination Date is the date of a liquidation, dissolution or winding up,
        or
        any event deemed to be a liquidation, dissolution or winding up pursuant
        to the
        Company’s charter, then all amounts to be payable per share to holders of the
        Common Stock pursuant to the charter in the event of such liquidation,
        dissolution or winding up, plus all other amounts to be payable per share
        in
        respect of the Common Stock in liquidation under the charter, assuming for
        the
        purposes of this clause (d) that all of the shares of Common Stock then
        issuable upon exercise of all of the Warrants are outstanding at the
        Determination Date.

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      1.5. Company
        Acknowledgment.
        The
        Company will, at the time of the exercise of the Warrant, upon the request
        of
        the Holder hereof acknowledge in writing its continuing obligation to afford
        to
        such Holder any rights to which such Holder shall continue to be entitled
        after
        such exercise in accordance with the provisions of this Warrant. If the Holder
        shall fail to make any such request, such failure shall not affect the
        continuing obligation of the Company to afford to such Holder any such
        rights.

       

      1.6. Trustee
        for Warrant Holders.
        In the
        event that a qualified bank or trust company shall have been appointed as
        trustee for the Holder of the Warrants pursuant to Subsection 3.2, such
        bank or trust company shall have all the powers and duties of a warrant agent
        (as hereinafter described) and shall accept, in its own name for the account
        of
        the Company or such successor person as may be entitled thereto, all amounts
        otherwise payable to the Company or such successor, as the case may be, on
        exercise of this Warrant pursuant to this Section 1. 

       

        1.7. Delivery
        of Stock Certificates, etc. on Exercise.
        The
        Company agrees that the shares of Common Stock purchased upon exercise of
        this
        Warrant shall be deemed to be issued to the Holder hereof as the record owner
        of
        such shares as of the close of business on the date on which this Warrant
        shall
        have been surrendered and payment made for such shares as aforesaid. As soon
        as
        practicable after the exercise of this Warrant in full or in part, and in
        any
        event within four (4) business
        days
        thereafter (“Warrant Share Delivery Date”), the Company at its expense
        (including the payment by it of any applicable issue taxes) will cause to
        be
        issued in the name of and delivered to the Holder hereof, or as such Holder
        (upon payment by such Holder of any applicable transfer taxes) may direct
        in
        compliance with applicable securities laws, a certificate or certificates
        for
        the number of duly and validly issued, fully paid and nonassessable shares
        of
        Common Stock (or Other Securities) to which such Holder shall be entitled
        on
        such exercise, plus, in lieu of any fractional share to which such Holder
        would
        otherwise be entitled, cash equal to such fraction multiplied by the then
        Fair
        Market Value of one full share of Common Stock, together with any other stock
        or
        other securities and property (including cash, where applicable) to which
        such
        Holder is entitled upon such exercise pursuant to Section 1 or otherwise.
        The Company understands that a delay in the delivery of the Warrant Shares
        after
        the Warrant Share Delivery Date could result in economic loss to the Holder.
        As
        compensation to the Holder for such loss, the Company agrees to pay (as
        liquidated damages and not as a penalty) to the Holder for late issuance
        of
        Warrant Shares upon exercise of this Warrant the amount of $100 per business
        day
        after the Warrant Share Delivery Date for each $10,000 of Purchase Price
        of
        Warrant Shares for which this Warrant is exercised which are not timely
        delivered. The Company shall pay any payments incurred under this Section
        in
        immediately available funds upon demand. Furthermore, in addition to any
        other
        remedies which may be available to the Holder, in the event that the Company
        fails for any reason to effect delivery of the Warrant Shares by the Warrant
        Share Delivery Date, the Holder may revoke all or part of the relevant Warrant
        exercise by delivery of a notice to such effect to the Company whereupon
        the
        Company and the Holder shall each be restored to their respective positions
        immediately prior to the exercise of the relevant portion of this Warrant,
        except that the liquidated damages described above shall be payable through
        the
        date notice of revocation or rescission is given to the Company. 

       

      2. Cashless
        Exercise.

       

      (a) Except
        as
        described below, if a Registration Statement (as defined in the Subscription
        Agreement) (“Registration Statement”) is effective and the Holder may sell its
        shares of Common Stock upon exercise hereof pursuant to the Registration
        Statement, this Warrant may be exercisable in whole or in part for cash only
        as
        set forth in Section 1 above. Payment upon exercise may be made at the option
        of
        the Holder either in (i) cash, wire transfer or by certified or official
        bank check payable to the order of the Company equal to the applicable aggregate
        Purchase Price, (ii) by cashless exercise in accordance with
        Section (b) below or (iii) by a combination of any of the
        foregoing methods, for the number of shares of Common Stock specified in
        such
        form (as such exercise number shall be adjusted to reflect any adjustment
        in the
        total number of shares of Common Stock issuable to the Holder per the terms
        of
        this Warrant) and the Holder shall thereupon be entitled to receive the number
        of duly authorized, validly issued, fully-paid and non-assessable shares
        of
        Common Stock (or Other Securities) determined as provided
        herein.

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      (b) If
        the
        Fair Market Value of one share of Common Stock is greater than the Purchase
        Price (at the date of calculation as set forth below), in lieu of exercising
        this Warrant for cash, the Holder may elect to receive shares equal to the
        value
        (as determined below) of this Warrant (or the portion thereof being cancelled)
        by surrender of this Warrant at the principal office of the Company together
        with the properly endorsed Subscription Form in which event the Company shall
        issue to the Holder a number of shares of Common Stock computed using the
        following formula:

      
         

        
          	 	
                   

                	
                  X=Y
                    (A-B)

                	 	 
	 	 	
                  A

                	 	 

        

        

        
          	 	
                  Where

                	
                  X 
                    =

                	
                  the
                    number of shares of Common Stock to be issued to the
                    holder

                
	 	 	
                  Y 
                    =

                   

                	
                  the
                    number of shares of Common Stock purchasable under the Warrant
                    or, if only
                    a portion of the Warrant is being exercised, the portion of the
                    Warrant
                    being exercised (at the date of such calculation)

                   

                
	 	 	
                  A 
                    =

                   

                	
                  the
                    average of the closing sale prices of the Common Stock for the
                    five (5)
                    Trading Days immediately prior to (but not including) the Exercise
                    Date

                   

                
	 	 	
                  B 
                    =

                	
                  Purchase
                    Price (as adjusted to the date of such
                    calculation)

                

        

         

      

      For
        purposes of Rule 144 promulgated under the 1933 Act, it is intended, understood
        and acknowledged that the Warrant Shares issued in a cashless exercise
        transaction shall be deemed to have been acquired by the Holder, and the
        holding
        period for the Warrant Shares shall be deemed to have commenced, on the date
        this Warrant was originally issued pursuant to the Subscription
        Agreement.

       

      3. Adjustment
        for Reorganization, Consolidation, Merger, etc.

       

      3.1. Reorganization,
        Consolidation, Merger, etc.
        In case
        at any time or from time to time, the Company shall (a) effect a
        reorganization, (b) consolidate with or merge into any other person or
        (c) transfer all or substantially all of its properties or assets to any
        other person under any plan or arrangement contemplating the dissolution
        of the
        Company, then, in each such case, as a condition to the consummation of such
        a
        transaction, proper and adequate provision shall be made by the Company whereby
        the Holder of this Warrant, on the exercise hereof as provided in
        Section 1, at any time after the consummation of such reorganization,
        consolidation or merger or the effective date of such dissolution, as the
        case
        may be, shall receive, in lieu of the Common Stock (or Other Securities)
        issuable on such exercise prior to such consummation or such effective date,
        the
        stock and other securities and property (including cash) to which such Holder
        would have been entitled upon such consummation or in connection with such
        dissolution, as the case may be, if such Holder had so exercised this Warrant,
        immediately prior thereto, all subject to further adjustment thereafter as
        provided in Section 4.

       

      3.2. Dissolution.
        In the
        event of any dissolution of the Company following the transfer of all or
        substantially all of its properties or assets, the Company, prior to such
        dissolution, shall at its expense deliver or cause to be delivered the stock
        and
        other securities and property (including cash, where applicable) receivable
        in
        accordance with Section 3.1 by the Holder upon their exercise after the
        effective date of such dissolution pursuant to this Section 3 to a bank or
        trust company (a “Trustee”) having its principal office in New York, NY, as
        trustee for the Holder. 

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      3.3. Continuation
        of Terms.
        Upon
        any reorganization, consolidation, merger or transfer (and any dissolution
        following any transfer) referred to in this Section 3, this Warrant shall
        continue in full force and effect and the terms hereof shall be applicable
        to
        the Other Securities and property receivable on the exercise of this Warrant
        after the consummation of such reorganization, consolidation or merger or
        the
        effective date of dissolution following any such transfer, as the case may
        be,
        and shall be binding upon the issuer of any Other Securities, including,
        in the
        case of any such transfer, the person acquiring all or substantially all
        of the
        properties or assets of the Company, whether or not such person shall have
        expressly assumed the terms of this Warrant as provided in Section 4. In
        the event this Warrant does not continue in full force and effect after the
        consummation of the transaction described in this Section 3, then only in
        such event will the Company’s securities and property (including cash, where
        applicable) receivable by the Holder of the Warrants be delivered to the
        Trustee
        as contemplated by Section 3.2.

       

      3.4 Share
        Issuance.
        Until
        the Expiration Date, if the Company shall issue any Common Stock except for
        the
        Excepted Issuances (as defined in the Subscription Agreement), prior to the
        complete exercise of this Warrant for a consideration less than the Purchase
        Price that would be in effect at the time of such issue, then, and thereafter
        successively upon each such issue, the Purchase Price shall be reduced to
        such
        other lower purchase price. For purposes of this adjustment, the issuance
        of any
        security or debt instrument of the Company carrying the right to convert
        such
        security or debt instrument into Common Stock or of any warrant, right or
        option
        to purchase Common Stock shall result in an adjustment to the Purchase Price
        upon the issuance of the above-described security, debt instrument, warrant,
        right, or option if such issuance is at a price lower than the Purchase Price
        in
        effect upon such issuance. The reduction of the Purchase Price described
        in this
        Section 3.4 is subject to the provisions of, and in addition to the other
        rights
        of the Holder described in, the Subscription Agreement.

       

      4. Extraordinary
        Events Regarding Common Stock.
        In the
        event that the Company shall (a) issue additional shares of the Common
        Stock as a dividend or other distribution on outstanding Common Stock,
        (b) subdivide its outstanding shares of Common Stock, or (c) combine
        its outstanding shares of the Common Stock into a smaller number of shares
        of
        the Common Stock, then, in each such event, the Purchase Price shall,
        simultaneously with the happening of such event, be adjusted by multiplying
        the
        then Purchase Price by a fraction, the numerator of which shall be the number
        of
        shares of Common Stock outstanding immediately prior to such event and the
        denominator of which shall be the number of shares of Common Stock outstanding
        immediately after such event, and the product so obtained shall thereafter
        be
        the Purchase Price then in effect. The Purchase Price, as so adjusted, shall
        be
        readjusted in the same manner upon the happening of any successive event
        or
        events described herein in this Section 4. The number of shares of Common
        Stock that the Holder of this Warrant shall thereafter, on the exercise hereof
        as provided in Section 1, be entitled to receive shall be adjusted to a
        number determined by multiplying the number of shares of Common Stock that
        would
        otherwise (but for the provisions of this Section 4) be issuable on such
        exercise by a fraction of which (a) the numerator is the Purchase Price
        that would otherwise (but for the provisions of this Section 4) be in
        effect, and (b) the denominator is the Purchase Price in effect on the date
        of such exercise.

       

      5. Certificate
        as to Adjustments.
        In each
        case of any adjustment or readjustment in the shares of Common Stock issuable
        on
        the exercise of the Warrants, the Company at its expense will promptly cause
        its
        Chief Financial Officer or other appropriate designee to compute such adjustment
        or readjustment in accordance with the terms of the Warrant and prepare a
        certificate setting forth such adjustment or readjustment and showing in
        detail
        the facts upon which such adjustment or readjustment is based, including
        a
        statement of (a) the consideration received or receivable by the Company
        for any additional shares of Common Stock issued or sold or deemed to have
        been
        issued or sold, (b) the number of shares of Common Stock outstanding or
        deemed to be outstanding, and (c) the Purchase Price and the number of
        shares of Common Stock to be received upon exercise of this Warrant, in effect
        immediately prior to such adjustment or readjustment and as adjusted or
        readjusted as provided in this Warrant. The Company will forthwith mail a
        copy
        of each such certificate to the Holder of the Warrant and any Warrant Agent
        of
        the Company (appointed pursuant to Section 11 hereof).

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      6. Reservation
        of Stock, etc. Issuable on Exercise of Warrant; Financial
        Statements.
        The
        Company will at all times reserve and keep available, solely for issuance
        and
        delivery on the exercise of the Warrants, all shares of Common Stock from
        time
        to time issuable on the exercise of the Warrant. This Warrant entitles the
        Holder hereof to receive copies of all financial and other information
        distributed or required to be distributed to the holders of the Company’s Common
        Stock. 

       

      7. Assignment;
        Exchange of Warrant.
        Subject
        to compliance with applicable securities laws, this Warrant, and the rights
        evidenced hereby, may be transferred by any registered holder hereof (a
“Transferor”). On the surrender for exchange of this Warrant, with the
        Transferor’s endorsement in the form of Exhibit B attached hereto (the
“Transferor Endorsement Form”) and together with an opinion of counsel
        reasonably satisfactory to the Company that the transfer of this Warrant
        will be
        in compliance with applicable securities laws, the Company at its expense,
        twice, only, but with payment by the Transferor of any applicable transfer
        taxes, will issue and deliver to or on the order of the Transferor thereof
        a new
        Warrant or Warrants of like tenor, in the name of the Transferor and/or the
        transferee(s) specified in such Transferor Endorsement Form (each a
“Transferee”), calling in the aggregate on the face or faces thereof for the
        number of shares of Common Stock called for on the face or faces of the Warrant
        so surrendered by the Transferor. No such transfers shall result in a public
        distribution of the Warrant.

       

      8. Replacement
        of Warrant.
        On
        receipt of evidence reasonably satisfactory to the Company of the loss, theft,
        destruction or mutilation of this Warrant and, in the case of any such loss,
        theft or destruction of this Warrant, on delivery of an indemnity agreement
        or
        security reasonably satisfactory in form and amount to the Company or, in
        the
        case of any such mutilation, on surrender and cancellation of this Warrant,
        the
        Company at its expense, twice only, will execute and deliver, in lieu thereof,
        a
        new Warrant of like tenor.

       

      9. Registration
        Rights.
        The
        Holder of this Warrant has been granted certain registration rights by the
        Company. These registration rights are set forth in the Subscription Agreement.
        The terms of the Subscription Agreement are incorporated herein by this
        reference.

       

      10. Maximum
        Exercise.
        The
        Holder shall not be entitled to exercise this Warrant on an exercise
        date, in
        connection with that number of shares of Common Stock which would be in excess
        of the sum of (i) the number of shares of Common Stock beneficially owned
        by the Holder and its affiliates on an exercise date, and (ii) the number
        of shares of Common Stock issuable upon the exercise of this Warrant with
        respect to which the determination of this limitation is being made on an
        exercise date, which would result in beneficial ownership by the Holder and
        its
        affiliates of more than 4.99% of the outstanding shares of Common Stock on
        such
        date. For the purposes of the immediately preceding sentence, beneficial
        ownership shall be determined in accordance with Section 13(d) of the
        Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
        Subject to the foregoing, the Holder shall not be limited to aggregate exercises
        which would result in the issuance of more than 4.99%. The
        Holder may decide whether to convert a Convertible Note or exercise this
        Warrant
        to achieve an actual 4.99% ownership position.

       

      11. Warrant
        Agent.
        The
        Company may, by written notice to the Holder of the Warrant, appoint an agent
        (a
“Warrant Agent”) for the purpose of issuing Common Stock on the exercise of this
        Warrant pursuant to Section 1, exchanging this Warrant pursuant to
        Section 7, and replacing this Warrant pursuant to Section 8, or any of
        the foregoing, and thereafter any such issuance, exchange or replacement,
        as the
        case may be, shall be made at such office by such Warrant Agent. 

       

      12. Transfer
        on the Company’s Books.
        Until
        this Warrant is transferred on the books of the Company, the Company may
        treat
        the registered holder hereof as the absolute owner hereof for all purposes,
        notwithstanding any notice to the contrary. 

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      13. Notices.
        All
        notices, demands, requests, consents, approvals, and other communications
        required or permitted hereunder shall be in writing and, unless otherwise
        specified herein, shall be (i) personally served, (ii) deposited in the mail,
        registered or certified, return receipt requested, postage prepaid, (iii)
        delivered by reputable air courier service with charges prepaid, or (iv)
        transmitted by hand delivery, telegram, or facsimile, addressed as set forth
        below or to such other address as such party shall have specified most recently
        by written notice. Any notice or other communication required or permitted
        to be
        given hereunder shall be deemed effective (a) upon hand delivery or delivery
        by
        facsimile, with accurate confirmation generated by the transmitting facsimile
        machine, at the address or number designated below (if delivered on a business
        day during normal business hours where such notice is to be received), or
        the
        first business day following such delivery (if delivered other than on a
        business day during normal business hours where such notice is to be received)
        or (b) on the second business day following the date of mailing by express
        courier service, fully prepaid, addressed to such address, or upon actual
        receipt of such mailing, whichever shall first occur or
        (c)
        three business days after deposited in the mail if delivered pursuant to
        subsection (ii) above.
        The
        addresses for such communications shall be: (i) if to the Company to:
Diamond
        Entertainment Corporation,
        800
        Tucker Lane, Walnut, California 91789, Attn: James
        Lu,
        CEO,
        telecopier: (909) 869-1990, with a copy by telecopier only to: Owen M.
        Naccarato, Esq., Naccarato & Associates, 18301 Von Karman Avenue, Suite 430,
        Irvine, CA 92612, telecopier: (949) 851-9262, and (ii) if to the Holder,
        to the
        addresses and telecopier number set forth in the first paragraph of this
        Warrant, with an additional copy by telecopier only to: Grushko & Mittman,
        P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier:
        (212)
        697-3575.

      

      14. Miscellaneous.
        This
        Warrant and any term hereof may be changed, waived, discharged or terminated
        only by an instrument in writing signed by the party against which enforcement
        of such change, waiver, discharge or termination is sought. This Warrant
        shall
        be construed and enforced in accordance with and governed by the laws of
        New
        York. Any dispute relating to this Warrant shall be adjudicated in New York
        County in the State of New York. The headings in this Warrant are for purposes
        of reference only, and shall not limit or otherwise affect any of the terms
        hereof. The invalidity or unenforceability of any provision hereof shall
        in no
        way affect the validity or enforceability of any other provision. 

      

      IN
        WITNESS WHEREOF, the Company has executed this Warrant as of the date first
        written above. 

    

    
       

      
        
          
            

            
              	
                       

                    	
                      DIAMOND
                        ENTERTAINMENT CORPORATION

                    

            

            

            
              	 	 	 
	 	 	 
	 	
                      By:
                        

                    	
                      /s/
                        James
                        Lu                                                                  
                        

                    
	 	 	
                      Name:
                        James LU

                    
	 	 	
                      Title:
                        President

                    

            

            

            WITNESS:

            

            

            /s/
              Fred U.
              Odaka                                                       

          

        

        

        
          
            
              
              

            

            
              7

              
                

              

            

            
              
              

            

          

        

        

        Exhibit A

        FORM
          OF
          SUBSCRIPTION

        (to
          be
          signed only on exercise of Warrant)

         

        TO:
          Diamond Entertainment Corporation 

         

        The
          undersigned, pursuant to the provisions set forth in the attached Warrant
          (No.____), hereby irrevocably elects to purchase (check applicable
          box):

        

        ___ ________
          shares of the Common Stock covered by such Warrant; or

         

        ___ the
          maximum number of shares of Common Stock covered by such Warrant pursuant
          to the
          cashless exercise procedure set forth in Section 2.

        

        The
          undersigned herewith makes payment of the full purchase price for such
          shares at
          the price per share provided for in such Warrant, which is $___________.
          Such
          payment takes the form of (check applicable box or boxes):

         

        ___ $__________
          in lawful money of the United States; and/or

         

        ___ the
          cancellation of the Warrant to the extent necessary, in accordance with
          the
          formula set forth in Section 2, to exercise this Warrant with respect to
          the maximum number of shares of Common Stock purchasable pursuant to the
          cashless exercise procedure set forth in Section 2.

        

        The
          undersigned requests that the certificates for such shares be issued in
          the name
          of, and delivered to ____________________________ whose address is
          ______________________________________________________________________________________________

        Number
          of
          Shares of Common Stock Beneficially Owned on the date of exercise: Less
          than
          five percent (5%) of the outstanding Common Stock of Diamond Entertainment
          Corporation.

         

        The
          undersigned represents and warrants that the representations and warranties
          in
          Section 4 of the Subscription Agreement (as defined in this Warrant) are
          true
          and accurate with respect to the undersigned on the date hereof.

        

        The
          undersigned represents and warrants that all offers and sales by the undersigned
          of the securities issuable upon exercise of the within Warrant shall be
          made
          pursuant to registration of the Common Stock under the Securities Act of
          1933,
          as amended (the “Securities Act”), or pursuant to an exemption from registration
          under the Securities Act.

         

        
          	
                  Dated:___________________

                	
                  _________________________________________________

                  (Signature
                    must conform to name of holder as specified 
on the face of the
                    Warrant)

                   

                  _________________________________________________

                  _________________________________________________

                  (Address)

                

        

         

        
          
            
              
              

            

            
              8

              
                

              

            

            
              
              

            

          

        

         

        Exhibit B

        

        FORM
          OF
          TRANSFEROR ENDORSEMENT

        (To
          be
          signed only on transfer of Warrant)

         

        For
          value
          received, the undersigned hereby sells, assigns, and transfers unto the
          person(s) named below under the heading “Transferees” the right represented by
          the within Warrant to purchase the percentage and number of shares of Common
          Stock of Diamond Entertainment Corporation to which the within Warrant
          relates
          specified under the headings “Percentage Transferred” and “Number Transferred,”
respectively, opposite the name(s) of such person(s) and appoints each
          such
          person Attorney to transfer its respective right on the books of Diamond
          Entertainment Corporation with full power of substitution in the
          premises.

         

        
          	
                  Transferees

                	
                  Percentage
                    Transferred

                	
                  Number
                    Transferred

                
	 	 	 
	 	 	 
	 	 	 

        

        

        

        
          	
                  Dated:
                    ______________, ___________

                   

                   

                   

                  Signed
                    in the presence of:

                   

                  _________________________________________________

                                        
                    (Name)

                   

                   

                  ACCEPTED
                    AND AGREED:

                  [TRANSFEREE]

                   

                   

                  _________________________________________________

                                       
                    (Name)

                	
                  _________________________________________________

                  (Signature
                    must conform to name of holder as specified on the face of the
                    warrant)

                   

                   

                   

                  _________________________________________________

                  _________________________________________________

                                           (address)

                   

                   

                  _________________________________________________

                  _________________________________________________

                                          
                    (address)

                

        

        

         

        9Unassociated Document

    

    Exhibit
      10.56

    

    

    SECURITY
      AGREEMENT

     

    
      	1.	
              Identification.

            

    

    

    This
      Security Agreement (the "Agreement"), dated as of November 30, 2006, is entered
      into by and between Diamond Entertainment Corporation, a New Jersey corporation
      ("Parent"), DMEC Acquisition Inc., a New Jersey corporation, Jewel Products
      International, Inc., a California corporation, ______________________ (each
      a
      "Guarantor" and together with Parent, each a “Debtor” and collectively the
      "Debtors"), and S. Michael Rudolph, as collateral agent acting in the manner
      and
      to the extent described in the Collateral Agent Agreement defined below (the
      "Collateral Agent"), for the benefit of the parties identified on Schedule
      A
      hereto (collectively, the "Lenders").

    

    
      	2.	
              Recitals.

            

    

    

    2.1 The
      Lenders have made, are making and will be making loans to Parent (the "Loans").
      It is beneficial to each Debtor that the Loans were made and are being
      made.

    

    2.2 The
      Loans
      are and will be evidenced by certain promissory notes (each a “Note”) issued by
      Parent on or about the date of and after the date of this Agreement pursuant
      to
      subscription agreements (each a “Subscription Agreement”) to which Parent and
      Lenders are parties. The Notes are further identified on Schedule A hereto
      and
      were and will be executed by Parent as “Borrower” or “Debtor” for the benefit of
      each Lender as the “Holder” or “Lender” thereof.

    

    2.3 In
      consideration of the Loans made and to be made by Lenders to Parent and for
      other good and valuable consideration, and as security for the performance
      by
      Parent of its obligations under the Notes and as security for the repayment
      of
      the Loans and all other sums due from Debtors to Lenders arising under the
      Transaction Documents (as defined in the Subscription Agreement), and any other
      agreement between or among them (collectively, the "Obligations"), each Debtor,
      for good and valuable consideration, receipt of which is acknowledged, has
      agreed to grant to the Collateral Agent, for the benefit of the Lenders, a
      security interest in the Collateral (as such term is hereinafter defined),
      on
      the terms and conditions hereinafter set forth. Obligations include all future
      advances by Lenders to Debtor made pursuant to the Subscription
      Agreement.

    

    2.4 The
      Lenders have appointed S. Michael Rudolph as Collateral Agent pursuant to that
      certain Collateral Agent Agreement dated at or about the date of this Agreement
      (“Collateral Agent Agreement”), among the Lenders and Collateral
      Agent.

    

    2.5 The
      following defined terms which are defined in the Uniform Commercial Code in
      effect in the State of New York on the date hereof are used herein as so
      defined: Accounts, Chattel Paper, Documents, Equipment, General Intangibles,
      Instruments, Inventory and Proceeds. Other capitalized terms employed herein
      shall have the meanings attributed to them in the Subscription
      Agreement.

    

    
      	3.	
              Grant
                of General Security Interest in Collateral.

            

    

    

    3.1 As
      security for the Obligations of Debtors, each Debtor hereby grants the
      Collateral Agent, for the benefit of the Lenders, a security interest in the
      Collateral.

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    3.2 “Collateral”
      shall mean all of the following property of Debtors:

    

    (A) All
      now
      owned and hereafter acquired right, title and interest of Debtors in, to and
      in
      respect of all Accounts, Goods, real or personal property, all present and
      future books and records relating to the foregoing and all products and Proceeds
      of the foregoing, and as set forth below:

    

    (i) All
      now
      owned and hereafter acquired right, title and interest of Debtors in, to and
      in
      respect of all: Accounts, interests in goods represented by Accounts, returned,
      reclaimed or repossessed goods with respect thereto and rights as an unpaid
      vendor; contract rights; Chattel Paper; investment property; General Intangibles
      (including but not limited to, tax and duty claims and refunds, registered
      and
      unregistered patents, trademarks, service marks, certificates, copyrights trade
      names, applications for the foregoing, trade secrets, goodwill, processes,
      drawings, blueprints, customer lists, licenses, whether as licensor or licensee,
      chooses in action and other claims, and existing and future leasehold interests
      in equipment, real estate and fixtures); Documents; Instruments; letters of
      credit, bankers’ acceptances or guaranties; cash moneys, deposits; securities,
      bank accounts, deposit accounts, credits and other property now or hereafter
      owned or held in any capacity by Debtors, as well as agreements or property
      securing or relating to any of the items referred to above;

    

    (ii) Goods:
      All now
      owned and hereafter acquired right, title and interest of Debtors in, to and
      in
      respect of goods, including, but not limited to:

    

    (a) All
      Inventory, wherever located, whether now owned or hereafter acquired, of
      whatever kind, nature or description, including all raw materials,
      work-in-process, finished goods, and materials to be used or consumed in
      Debtors’ business; finished goods, timber cut or to be cut, oil, gas,
      hydrocarbons, and minerals extracted or to be extracted, and all names or marks
      affixed to or to be affixed thereto for purposes of selling same by the seller,
      manufacturer, lessor or licensor thereof and all Inventory which may be returned
      to any Debtor by its customers or repossessed by any Debtor and all of Debtors’
right, title and interest in and to the foregoing (including all of a Debtor’s
      rights as a seller of goods);

    

    (b) All
      Equipment and fixtures, wherever located, whether now owned or hereafter
      acquired, including, without limitation, all machinery, furniture and fixtures,
      and any and all additions, substitutions, replacements (including spare parts),
      and accessions thereof and thereto (including, but not limited to Debtors’
rights to acquire any of the foregoing, whether by exercise of a purchase option
      or otherwise);

    

    (iii) Property:
      All now
      owned and hereafter acquired right, title and interests of Debtors in, to and
      in
      respect of any other personal property in or upon which a Debtor has or may
      hereafter have a security interest, lien or right of setoff; 

    

    (iv) Books
      and Records:
      All
      present and future books and records relating to any of the above including,
      without limitation, all computer programs, printed output and computer readable
      data in the possession or control of the Debtors, any computer service bureau
      or
      other third party; and

    

    (v) Products
      and Proceeds:
      All
      products and Proceeds of the foregoing in whatever form and wherever located,
      including, without limitation, all insurance proceeds and all claims against
      third parties for loss or destruction of or damage to any of the
      foregoing.

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    (B) All
      now
      owned and hereafter acquired right, title and interest of Debtors in, to and
      in
      respect of the following:

    

    (i) the
      shares of stock, partnership interests, member interests or other equity
      interests at any time and from time to time acquired by Debtors of any and
      all
      entities now or hereafter existing, (such entities, being hereinafter referred
      to collectively as the "Pledged Issuers" and individually as a "Pledged
      Issuer"), including but not limited to 100% of the equity ownership of
      Guarantor, the certificates representing such shares, partnership interests,
      member interests or other interests all options and other rights, contractual
      or
      otherwise, in respect thereof and all dividends, distributions, cash,
      instruments, investment property and other property from time to time received,
      receivable or otherwise distributed in respect of or in exchange for any or
      all
      of such shares, partnership interests, member interests or other
      interests;

     

    (ii) all
      additional shares of stock, partnership interests, member interests or other
      equity interests from time to time acquired by Debtors, of any Pledged Issuer,
      the certificates representing such additional shares, all options and other
      rights, contractual or otherwise, in respect thereof and all dividends,
      distributions, cash, instruments, investment property and other property from
      time to time received, receivable or otherwise distributed in respect of or
      in
      exchange for any or all of such additional shares, interests or equity; and
      

    

    (iii) all
      security entitlements of Debtors in, and all Proceeds of any and all of the
      foregoing in each case, whether now owned or hereafter acquired by a Debtor
      and
      howsoever its interest therein may arise or appear (whether by ownership,
      security interest, lien, claim or otherwise).

    

    3.3 The
      Collateral Agent is hereby specifically authorized, after the Maturity Date
      (defined in the Notes) accelerated or otherwise, or after an Event of Default
      (as defined herein) and the expiration of any applicable cure period, to
      transfer any Collateral into the name of the Collateral Agent and to take any
      and all action deemed advisable to the Collateral Agent to remove any transfer
      restrictions affecting the Collateral.

    

    
      	4.	
              Perfection
                of Security Interest.

            

    

    

    4.1 Each
      Debtor shall prepare, execute and deliver to the Collateral Agent UCC-1
      Financing Statements. The Collateral Agent is instructed to prepare and file
      at
      each Debtor’s cost and expense, financing statements in such jurisdictions
      deemed advisable to the Collateral Agent, including but not limited to the
      State
      of New Jersey. The Financing Statements are deemed to have been filed for the
      benefit of the Collateral Agent and Lenders identified on Schedule A
      hereto.

    

    4.2 Upon
      Collateral Agent’s demand after the occurrence of an Event of Default, Parent
      shall deliver to Collateral Agent stock certificates representing all of the
      shares of outstanding capital stock of the Guarantor (the "Securities"). All
      such certificates shall be held by or on behalf of Collateral Agent pursuant
      hereto and shall be delivered in suitable form for transfer by delivery, or
      shall be accompanied by duly executed instruments of transfer or assignment
      or
      undated stock powers executed in blank, all in form and substance satisfactory
      to Collateral Agent. 

     

    4.3 
      All
      other certificates and instruments constituting Collateral from time to time
      required to be pledged to Collateral Agent pursuant to the terms hereof (the
      "Additional Collateral") shall be delivered to Collateral Agent promptly upon
      receipt thereof by or on behalf of Debtors. All such certificates and
      instruments shall be held by or on behalf of Collateral Agent pursuant hereto
      and shall be delivered in suitable form for transfer by delivery, or shall
      be
      accompanied by duly executed instruments of transfer or assignment or undated
      stock powers executed in blank, all in form and substance satisfactory to
      Collateral Agent. If any Collateral consists of uncertificated securities,
      unless the immediately following sentence is applicable thereto, Debtors shall
      cause Collateral Agent (or its custodian, nominee or other designee) to become
      the registered holder thereof, or cause each issuer of such securities to agree
      that it will comply with instructions originated by Collateral Agent with
      respect to such securities without further consent by Debtors. If any Collateral
      consists of security entitlements, Debtors shall transfer such security
      entitlements to Collateral Agent (or its custodian, nominee or other designee)
      or cause the applicable securities intermediary to agree that it will comply
      with entitlement orders by Collateral Agent without further consent by Debtors.
      

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    4.4 Within
      five (5) days after the receipt by a Debtor of any Additional Collateral, a
      Pledge Amendment, duly executed by such Debtor, in substantially the form of
      Annex I hereto (a "Pledge Amendment"), shall be delivered to Collateral Agent
      in
      respect of the Additional Collateral to be pledged pursuant to this Agreement.
      Each Debtor hereby authorizes Collateral Agent to attach each Pledge Amendment
      to this Agreement and agrees that all certificates or instruments listed on
      any
      Pledge Amendment delivered to Collateral Agent shall for all purposes hereunder
      constitute Collateral.

     

    4.5 If
      Debtor
      shall receive, by virtue of Debtor being or having been an owner of any
      Collateral, any (i) stock certificate (including, without limitation, any
      certificate representing a stock dividend or distribution in connection with
      any
      increase or reduction of capital, reclassification, merger, consolidation,
      sale
      of assets, combination of shares, stock split, spin-off or split-off),
      promissory note or other instrument, (ii) option or right, whether as an
      addition to, substitution for, or in exchange for, any Collateral, or otherwise,
      (iii) dividends payable in cash (except such dividends permitted to be retained
      by Debtor pursuant to Section 5.2 hereof) or in securities or other property
      or
      (iv) dividends or other distributions in connection with a partial or total
      liquidation or dissolution or in connection with a reduction of capital, capital
      surplus or paid-in surplus, Debtor shall receive such stock certificate,
      promissory note, instrument, option, right, payment or distribution in trust
      for
      the benefit of Collateral Agent, shall segregate it from Debtor's other property
      and shall deliver it forthwith to Collateral Agent, in the exact form received,
      with any necessary endorsement and/or appropriate stock powers duly executed
      in
      blank, to be held by Collateral Agent as Collateral and as further collateral
      security for the Obligations.

    

    5. Distribution.

    

    5.1 So
      long
      as an Event of Default does not exist, Debtors shall be entitled to exercise
      all
      voting power pertaining to any of the Collateral, provided such exercise is
      not
      contrary to the interests of the Lenders and does not impair the
      Collateral.

    

    5.2. At
      any
      time an Event of Default exists or has occurred, all rights of Debtors, upon
      notice given by Collateral Agent, to exercise the voting power and receive
      payments, which it would otherwise be entitled to pursuant to Section 5.1,
      shall
      cease and all such rights shall thereupon become vested in Collateral Agent,
      which shall thereupon have the sole right to exercise such voting power and
      receive such payments.

    

    5.3 All
      dividends, distributions, interest and other payments which are received by
      Debtors contrary to the provisions of Section 5.2 shall be received in trust
      for
      the benefit of Collateral Agent as security and Collateral for payment of the
      Obligations shall be segregated from other funds of Debtors, and shall be
      forthwith paid over to Collateral Agent as Collateral in the exact form received
      with any necessary endorsement and/or appropriate stock powers duly executed
      in
      blank, to be held by Collateral Agent as Collateral and as further collateral
      security for the Obligations.

    

    
      	6.	
              Further
                Action By Debtors; Covenants and Warranties.

            

    

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    6.1 Collateral
      Agent at all times shall have a perfected security interest in the Collateral.
      Each Debtor represents that it has and will continue to have full title to
      the
      Collateral free from any liens, leases, encumbrances, judgments or other claims.
      Collateral Agent's security interest in the Collateral constitutes and will
      continue to constitute a first, prior and indefeasible security interest in
      favor of Collateral Agent. Each Debtor will do all acts and things, and will
      execute and file all instruments (including, but not limited to, security
      agreements, financing statements, continuation statements, etc.) reasonably
      requested by Collateral Agent to establish, maintain and continue the perfected
      security interest of Collateral Agent in the Perfected Collateral, and will
      promptly on demand, pay all costs and expenses of filing and recording,
      including the costs of any searches reasonably deemed necessary by Collateral
      Agent from time to time to establish and determine the validity and the
      continuing priority of the security interest of Collateral Agent, and also
      pay
      all other claims and charges that, in the opinion of Collateral Agent, exercised
      in good faith, are reasonably likely to materially prejudice, imperil or
      otherwise affect the Collateral or Collateral Agent’s or Lenders’ security
      interests therein.

    

    6.2 Other
      than in the ordinary course of business, for fair value and in cash, and except
      for Collateral which is substituted by assets of identical or greater value
      (with the consent of the Collateral Agent) or which is inconsequential in value,
      each Debtor will not sell, transfer, assign or pledge those items of Collateral
      (or allow any such items to be sold, transferred, assigned or pledged), without
      the prior written consent of Collateral Agent other than a transfer of the
      Collateral to a wholly-owned United States formed and located wholly-owned
      subsidiary or to another Debtor on prior notice to Collateral Agent, and
      provided the Collateral remains subject to the security interest herein
      described. Although Proceeds of Collateral are covered by this Agreement, this
      shall not be construed to mean that Collateral Agent consents to any sale of
      the
      Collateral, except as provided herein. Sales of Collateral in the ordinary
      course of business shall be free of the security interest of Lenders and
      Collateral Agent and Lenders and Collateral Agent shall promptly execute such
      documents (including without limitation releases and termination statements)
      as
      may be required by Debtors to evidence or effectuate the same. This
      subsection does not preclude the sale of the assets and the rights of the DVD
      and Video business.

    

    6.3 Each
      Debtor will, at all reasonable times during regular business hours and upon
      reasonable notice, allow Collateral Agent or its representatives free and
      complete access to the Collateral and all of such Debtor's records which in
      any
      way relate to the Collateral, for such inspection and examination as Collateral
      Agent reasonably deems necessary.

    

    6.4 Each
      Debtor, at its sole cost and expense, will protect and defend this Security
      Agreement, all of the rights of Collateral Agent and Lenders hereunder, and
      the
      Collateral against the claims and demands of all other persons.

    

    6.5 Debtors
      will promptly notify Collateral Agent of any levy, distraint or other seizure
      by
      legal process or otherwise of any part of the Collateral, and of any threatened
      or filed claims or proceedings that are reasonably likely to affect or impair
      any of the rights of Collateral Agent under this Security Agreement in any
      material respect.

    

    6.6 Each
      Debtor, at its own expense, will obtain and maintain in force insurance policies
      covering losses or damage to those items of Collateral which constitute physical
      personal property, which insurance shall be of the types customarily insured
      against by companies in the same or similar business, similarly situated, in
      such amounts (with such deductible amounts) as is customary for such companies
      under the same or similar circumstances, similarly situated. Debtors shall
      make
      the Collateral Agent a loss payee thereon to the extent of its interest in
      the
      Collateral. Collateral Agent is hereby irrevocably (until the Obligations are
      paid in full) appointed each Debtor’s attorney-in-fact to endorse any check or
      draft that may be payable to such Debtor so that Collateral Agent may collect
      the proceeds payable for any loss under such insurance. The proceeds of such
      insurance, less any costs and expenses incurred or paid by Collateral Agent
      in
      the collection thereof, shall be applied either toward the cost of the repair
      or
      replacement of the items damaged or destroyed, or on account of any sums secured
      hereby, whether or not then due or payable.

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    6.7 Collateral
      Agent may, at its option, and without any obligation to do so, pay, perform
      and
      discharge any and all amounts, costs, expenses and liabilities herein agreed
      to
      be paid or performed by Debtor.  Upon
      Debtor’s
      failure
      to do
      so,
      all
      amounts expended by Collateral Agent in so doing shall become part of the
      Obligations secured hereby, and shall be immediately due and payable by Debtor
      to Collateral Agent upon demand
      and
      shall
      bear interest at the lesser of 15% per annum or the highest legal amount from
      the dates of such expenditures until paid.

    

    6.8 Upon
      the
      request of Collateral Agent, Debtors will furnish to Collateral Agent within
      five (5) business days thereafter, or to any proposed assignee of this Security
      Agreement, a written statement in form reasonably satisfactory to Collateral
      Agent, duly acknowledged, certifying the amount of the principal and interest
      and any other sum then owing under the Obligations, whether to its knowledge
      any
      claims, offsets or defenses exist against the Obligations or against this
      Security Agreement, or any of the terms and provisions of any other agreement
      of
      Debtors securing the Obligations. In connection with any assignment by
      Collateral Agent of this Security Agreement, each Debtor hereby agrees to cause
      the insurance policies required hereby to be carried by such Debtor, if any,
      to
      be endorsed in form satisfactory to Collateral Agent or to such assignee, with
      loss payable clauses in favor of such assignee, and to cause such endorsements
      to be delivered to Collateral Agent within ten (10) calendar days after request
      therefore by Collateral Agent.

    

    6.9 Each
      Debtor will, at its own expense, make, execute, endorse, acknowledge, file
      and/or deliver to the Collateral Agent from time to time such vouchers,
      invoices, schedules, confirmatory assignments, conveyances, financing
      statements, transfer endorsements, powers of attorney, certificates, reports
      and
      other reasonable assurances or instruments and take further steps relating
      to
      the Collateral and other property or rights covered by the security interest
      hereby granted, as the Collateral Agent may reasonably require to perfect its
      security interest hereunder.

    

    6.10 Debtors
      represent and warrant that they are the true and lawful exclusive owners of
      the
      Collateral, free and clear of any liens and encumbrances.

    

    6.11 Each
      Debtor hereby agrees not to divest itself of any right under the Collateral
      except as permitted herein absent prior written approval of the Collateral
      Agent, except to a subsidiary organized and located in the United States on
      prior notice to Collateral Agent provided the Collateral remains subject to
      the
      security interest herein described.

     

    6.12 Each
      Debtor shall cause each Subsidiary of such Debtor in existence on the date
      hereof and each Subsidiary not in existence on the date hereof to execute and
      deliver to Collateral Agent promptly and in any event within 10 days after
      the
      formation, acquisition or change in status thereof (A) a guaranty guaranteeing
      the Obligations and (B) if requested by Collateral Agent, a security and pledge
      agreement substantially in the form of this Agreement together with (x)
      certificates evidencing all of the capital stock of each Subsidiary of and
      any
      entity owned by such Subsidiary, (y) undated stock powers executed in blank
      with
      signatures guaranteed, and (z) such opinion of counsel and such approving
      certificate of such Subsidiary as Collateral Agent may reasonably request in
      respect of complying with any legend on any such certificate or any other matter
      relating to such shares and (C) such other agreements, instruments, approvals,
      legal opinions or other documents reasonably requested by Collateral Agent
      in
      order to create, perfect, establish the first priority of or otherwise protect
      any lien purported to be covered by any such pledge and security agreement
      or
      otherwise to effect the intent that all property and assets of such Subsidiary
      shall become Collateral for the Obligations. For purposes of this Agreement,
      “Subsidiary”
means,
      with respect to any entity at any date, any corporation, limited or general
      partnership, limited liability company, trust, estate, association, joint
      venture or other business entity) of which more than 50% of (A) the
      outstanding capital stock having (in the absence of contingencies) ordinary
      voting power to elect a majority of the board of directors or other managing
      body of such entity, (B) in the case of a partnership or limited liability
      company, the interest in the capital or profits of such partnership or limited
      liability company or (C) in the case of a trust, estate, association, joint
      venture or other entity, the beneficial interest in such trust, estate,
      association or other entity business is, at the time of determination, owned
      or
      controlled directly or indirectly through one or more intermediaries, by such
      entity. Annex
      I annexed hereto contains a list of all Subsidiaries of the Debtors as of the
      date of this Agreement.

    

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    
      	7.	
              Power
                of Attorney.

            

    

    

    At
      any
      time an Event of Default exists or has occurred, each Debtor hereby irrevocably
      constitutes and appoints the Collateral Agent as the true and lawful attorney
      of
      such Debtor, with full power of substitution, in the place and stead of such
      Debtor and in the name of such Debtor or otherwise, at any time or times, in
      the
      discretion of the Collateral Agent, to take any action and to execute any
      instrument or document which the Collateral Agent may deem necessary or
      advisable to accomplish the purposes of this Agreement. This power of attorney
      is coupled with an interest and is irrevocable until the Obligations are
      satisfied.

    

    
      	8.	
              Performance
                By The Collateral Agent.

            

    

    

    If
      a
      Debtor fails to perform any material covenant, agreement, duty or obligation
      of
      such Debtor under this Agreement, the Collateral Agent may, after any applicable
      cure period, at any time or times in its discretion, take action to effect
      performance of such obligation. All reasonable expenses of the Collateral Agent
      incurred in connection with the foregoing authorization shall be payable by
      Debtors as provided in Paragraph 12.1 hereof. No discretionary right, remedy
      or
      power granted to the Collateral Agent under any part of this Agreement shall
      be
      deemed to impose any obligation whatsoever on the Collateral Agent with respect
      thereto, such rights, remedies and powers being solely for the protection of
      the
      Collateral Agent.

    

    
      	9.	
              Event
                of Default.

            

    

    

    An
      event
      of default ("Event of Default") shall be deemed to have occurred hereunder
      upon
      the occurrence of any event of default as defined and described in this
      Agreement, in the Notes, the Subscription Agreement, and any other agreement
      to
      which Debtor and a Lender are parties. Upon and after any Event of Default,
      after the applicable cure period, if any, any or all of the Obligations shall
      become immediately due and payable at the option of the Collateral Agent, for
      the benefit of the Lenders, and the Collateral Agent may dispose of Collateral
      as provided below. A default by Debtor of any of its material obligations
      pursuant to this Agreement and any of the Transaction Documents (as defined
      in
      the Subscription Agreement) shall be an Event of Default hereunder and an “Event
      of Default” as defined in the Notes, and Subscription Agreement.

    

    
      	10.	
              Disposition
                of Collateral.

            

    

    

    Upon
      and
      after any Event of Default which is then continuing,

    

    10.1 The
      Collateral Agent may exercise its rights with respect to each and every
      component of the Collateral, without regard to the existence of any other
      security or source of payment for the Obligations. In addition to other rights
      and remedies provided for herein or otherwise available to it, the Collateral
      Agent shall have all of the rights and remedies of a lender on default under
      the
      Uniform Commercial Code then in effect in the State of New York.

    

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    10.2 If
      any
      notice to Debtors of the sale or other disposition of Collateral is required
      by
      then applicable law, five business (5) days prior written notice (which Debtors
      agree is reasonable notice within the meaning of Section 9.612(a) of the Uniform
      Commercial Code) shall be given to Debtors of the time and place of any sale
      of
      Collateral which Debtors hereby agree may be by private sale. The rights granted
      in this Section are in addition to any and all rights available to Collateral
      Agent under the Uniform Commercial Code.

    

    10.3 The
      Collateral Agent is authorized, at any such sale, if the Collateral Agent deems
      it advisable to do so, in order to comply with any applicable securities laws,
      to restrict the prospective bidders or purchasers to persons who will represent
      and agree, among other things, that they are purchasing the Collateral for
      their
      own account for investment, and not with a view to the distribution or resale
      thereof, or otherwise to restrict such sale in such other manner as the
      Collateral Agent deems advisable to ensure such compliance. Sales made subject
      to such restrictions shall be deemed to have been made in a commercially
      reasonable manner.

    

    10.4 All
      proceeds received by the Collateral Agent for the benefit of the Lenders in
      respect of any sale, collection or other enforcement or disposition of
      Collateral, shall be applied (after deduction of any amounts payable to the
      Collateral Agent pursuant to Paragraph 12.1 hereof) against the Obligations
      pro
      rata among the Lenders in proportion to their interests in the Obligations.
      Upon
      payment in full of all Obligations, Debtors shall be entitled to the return
      of
      all Collateral, including cash, which has not been used or applied toward the
      payment of Obligations or used or applied to any and all costs or expenses
      of
      the Collateral Agent incurred in connection with the liquidation of the
      Collateral (unless another person is legally entitled thereto). Any assignment
      of Collateral by the Collateral Agent to Debtors shall be without representation
      or warranty of any nature whatsoever and wholly without recourse. To the extent
      allowed by law, each Lender may purchase the Collateral and pay for such
      purchase by offsetting up to such Lender’s pro rata portion of the purchase
      price with sums owed to such Lender by Debtors arising under the Obligations
      or
      any other source.

    

    11. Waiver
      of Automatic Stay.
      Debtor
      acknowledges and agrees that should a proceeding under any bankruptcy or
      insolvency law be commenced by or against Debtor, or if any of the Collateral
      should become the subject of any bankruptcy or insolvency proceeding, then
      the
      Collateral Agent should be entitled to, among other relief to which the
      Collateral Agent or Lenders may be entitled under the Note, Subscription
      Agreement and any other agreement to which the Debtor, Lenders or Collateral
      Agent are parties, (collectively "Loan Documents") and/or applicable law, an
      order from the court granting immediate relief from the automatic stay pursuant
      to 11 U.S.C. Section 362 to permit the Collateral Agent to exercise all of
      its
      rights and remedies pursuant to the Loan Documents and/or applicable law. Debtor
      EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION
      362. FURTHERMORE, Debtor EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11
      U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE
      OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY,
      INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE COLLATERAL
      AGENT TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR
      APPLICABLE LAW. Debtor hereby consents to any motion for relief from stay which
      may be filed by the Collateral Agent in any bankruptcy or insolvency proceeding
      initiated by or against Debtor, and further agrees not to file any opposition
      to
      any motion for relief from stay filed by the Collateral Agent. Debtor
      represents, acknowledges and agrees that this provision is a specific and
      material aspect of this Agreement, and that the Collateral Agent would not
      agree
      to the terms of this Agreement if this waiver were not a part of this Agreement.
      Debtor further represents, acknowledges and agrees that this waiver is
      knowingly, intelligently and voluntarily made, that neither the Collateral
      Agent
      nor any person acting on behalf of the Collateral Agent has made any
      representations to induce this waiver, that Debtor has been represented (or
      has
      had the opportunity to be represented) in the signing of this Agreement and
      in
      the making of this waiver by independent legal counsel selected by Debtor and
      that Debtor has had the opportunity to discuss this waiver with counsel. Debtor
      further agrees that any bankruptcy or insolvency proceeding initiated by Debtor
      will only be brought in the Federal Court within the Southern District of New
      York.

    

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    
      	
              12.

            	
              Miscellaneous.

            

    

    

    12.1 Expenses.
      Debtors
      shall pay to the Collateral Agent, on demand, the amount of any and all
      reasonable expenses, including, without limitation, attorneys' fees, legal
      expenses and brokers' fees, which the Collateral Agent may incur in connection
      with (a) sale, collection or other enforcement or disposition of Collateral;
      (b)
      exercise or enforcement of any the rights, remedies or powers of the Collateral
      Agent hereunder or with respect to any or all of the Obligations upon breach
      or
      threatened breach; or (c) failure by Debtors to perform and observe any
      agreements of Debtors contained herein which are performed by the Collateral
      Agent.

    

    12.2 Waivers,
      Amendment and Remedies.
      No
      course of dealing by the Collateral Agent and no failure by the Collateral
      Agent
      to exercise, or delay by the Collateral Agent in exercising, any right, remedy
      or power hereunder shall operate as a waiver thereof, and no single or partial
      exercise thereof shall preclude any other or further exercise thereof or the
      exercise of any other right, remedy or power of the Collateral Agent. No
      amendment, modification or waiver of any provision of this Agreement and no
      consent to any departure by Debtors therefrom, shall, in any event, be effective
      unless contained in a writing signed by the Collateral Agent, and then such
      waiver or consent shall be effective only in the specific instance and for
      the
      specific purpose for which given. The rights, remedies and powers of the
      Collateral Agent, not only hereunder, but also under any instruments and
      agreements evidencing or securing the Obligations and under applicable law
      are
      cumulative, and may be exercised by the Collateral Agent from time to time
      in
      such order as the Collateral Agent may elect.

    

    12.3 Notices.
      All
      notices or other communications given or made hereunder shall be in writing
      and
      shall be personally delivered or deemed delivered the first business day after
      being faxed (provided that a copy is delivered by first class mail) to the
      party
      to receive the same at its address set forth below or to such other address
      as
      either party shall hereafter give to the other by notice duly made under this
      Section:

     

    
      	
            	To
              Debtors:	
              Diamond
                Entertainment Corporation

            

    

    800
      Tucker Lane

    Walnut,
      CA 91789

    Fax:
      (909) 869-1990

    

    With
      a
      copy by telecopier only to:

    

    Owen
      M.
      Naccarato, Esq.

    Naccarato
      & Associates

    18301
      Von
      Karman Avenue, Suite 430

    Irvine,
      CA 92612

    Fax:
      (949) 851-9262

    

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    
      	
            	To
              Lenders:	
              To
                the addresses and telecopier numbers set
                forth

            

    

    On
      Schedule A

    

    
      	
            	To
              the Collateral Agent:	
              S.
                Michael Rudolph

            

    

    600
      Montgomery Street, 44th Floor

    San
      Francisco, CA 94111

    Fax:
      (415) 981-5301

    

    If
      to
      Debtor or Lender,

    with
      a
      copy by telecopier only to:

    Grushko
      & Mittman, P.C.

    551
      Fifth
      Avenue, Suite 1601

    New
      York,
      New York 10176

    Fax:
      (212) 697-3575

    

    Any
      party
      may change its address by written notice in accordance with this
      paragraph.

    

    12.4 Term;
      Binding Effect.
      This
      Agreement shall (a) remain in full force and effect until payment and
      satisfaction in full of all of the Obligations; (b) be binding upon each Debtor,
      and its successors and permitted assigns; and (c) inure to the benefit of the
      Lender and its respective successors and assigns. All the rights and benefits
      granted by Debtor to the Collateral Agent and Lenders in the Loan Documents
      and
      other agreements and documents delivered in connection therewith are deemed
      granted to both the Collateral Agent and Lenders.

    

    12.5 Captions.
      The
      captions of Paragraphs, Articles and Sections in this Agreement have been
      included for convenience of reference only, and shall not define or limit the
      provisions hereof and have no legal or other significance
      whatsoever.

    

    12.6 Governing
      Law; Venue; Severability.
      This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of New York without
      regard to conflicts
      of laws principles
      that
      would result in the application of the substantive laws of another
      jurisdiction,
      except
      to the extent that the perfection of the security interest granted hereby in
      respect of any item of Collateral may be governed by the law of another
      jurisdiction. Any legal action or proceeding against a Debtor with respect
      to
      this Agreement may be brought in the courts in the State of New York or of
      the
      United
      States for the Southern District of New York, and, by execution and delivery
      of
      this Agreement, each Debtor hereby irrevocably accepts for itself and in respect
      of its property, generally and unconditionally, the jurisdiction of the
      aforesaid courts. Each Debtor hereby irrevocably waives any objection which
      they
      may now or hereafter have to the laying of venue of any of the aforesaid actions
      or proceedings arising out of or in connection with this Agreement brought
      in
      the aforesaid courts and hereby further irrevocably waives and agrees not to
      plead or claim in any such court that any such action or proceeding brought
      in
      any such court has been brought in an inconvenient forum. If any provision
      of
      this Agreement, or the application thereof to any person or circumstance, is
      held invalid, such invalidity shall not affect any other provisions which can
      be
      given effect without the invalid provision or application, and to this end
      the
      provisions hereof shall be severable and the remaining, valid provisions shall
      remain of full force and effect.

    

    12.7 Entire
      Agreement.
      This
      Agreement contains the entire agreement of the parties and supersedes all other
      agreements and understandings, oral or written, with respect to the matters
      contained herein.

    

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    12.8 Counterparts/Execution.
      This
      Agreement may be executed in any number of counterparts and by the different
      signatories hereto on separate counterparts, each of which, when so executed,
      shall be deemed an original, but all such counterparts shall constitute but
      one
      and the same instrument. This Agreement may be executed by facsimile signature
      and delivered by facsimile transmission.

    

    13. Termination;
      Release.
      When
      the Obligations have been indefeasibly paid and performed in full or
      all
      outstanding Convertible Notes have been converted to common stock pursuant
      to
      the terms of the Convertible Notes and the Subscription Agreements,
      this
      Agreement shall terminated, and the Lender, at the request and sole expense
      of
      the Debtors, will execute and deliver to the Debtors the proper instruments
      (including UCC termination statements) acknowledging the termination of the
      Security Agreement, and duly assign, transfer and deliver to the Debtors,
      without recourse, representation or warranty of any kind whatsoever, such of
      the
      Collateral, including, without limitation, Securities and any Additional
      Collateral, as may be in the possession of the Lender.

    

    14. Reasonable
      Care.
      The
      Lender is required to exercise reasonable care in the custody and preservation
      of any Collateral in its possession; provided, however, that the Lender shall
      be
      deemed to have exercised reasonable care in the custody and preservation of
      any
      of the Collateral if it takes such action for that purposes as any owner thereof
      reasonably requests in writing at times other than upon the occurrence and
      during the continuance of any Event of Default, but failure of the Lender,
      to
      comply with any such request at any time shall not in itself be deemed a failure
      to exercise reasonable care.

    

    

    [THIS
      SPACE INTENTIONALLY LEFT BLANK]

     

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    
 

    IN
      WITNESS WHEREOF, the
      undersigned have executed and delivered this Security Agreement, as of the
      date
      first written above.

     

    
      	
              "DEBTOR"

              DIAMOND
                ENTERTAINMENT CORPORATION

              a
                New Jersey corporation

              

              By:
                /s/ James Lu

              

              Its:
                 President

              

              

              "SUBSIDIARY"

              DMEC
                ACQUISITION INC.

              a
                New Jersey corporation

              

              By:
                /s/ James K. T. Lu

               

              Its:
                President

              

              

              "SUBSIDIARY"

              

              a
                __________ corporation

              

              

              By:__________________________

              

              Its:__________________________

            	
              "THE
                COLLATERAL AGENT"

              S.
                MICHAEL RUDOLPH

              

              

              _____________________________

              

              

              

              "SUBSIDIARY"

              JEWEL
                PRODUCTS INTERNATIONAL, INC.

              a
                California corporation

              

              By:
                /s/ James K. T. Lu

               

              Its:
                President

            

    

    
APPROVED
      BY “LENDERS”:

     

     

    
      	_____________________________________________	_____________________________________________
	LONGVIEW FUND, L.P.	ALPHA CAPITAL
              ANSTALT

    

     

     

    This
      Security Agreement may be signed by facsimile signature
      and

    delivered
      by confirmed facsimile transmission.

     

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    SCHEDULE
      A TO SECURITY AGREEMENT

    

    
      	
              LENDER

            	
              INITIAL
                CLOSING PURCHASE PRICE

            	
              SECOND
                CLOSING PURCHASE PRICE

            
	
              LONGVIEW
                FUND, LP

              600
                Montgomery Street, 44th Floor

              San
                Francisco, CA 94111

              Fax:
                (415) 981-5301

            	
              $1,000,000.00

            	
              $1,000,000.00

            
	
              ALPHA
                CAPITAL ANSTALT

              Pradafant
                7

              9490
                Furstentums

              Vaduz,
                Lichtenstein

              Fax:
                011-42-32323196

            	
              $150,000.00

            	
              $150,000.00

            
	
              TOTALS

            	
              $1,150,000.00

            	
              $1,150,000.00

            

    

    

    

    

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    ANNEX
      I

     

    TO

     

    SECURITY
      AGREEMENT

     

    PLEDGE
      AMENDMENT

     

    This
      Pledge Amendment, dated _________ __ 200_, is delivered pursuant to Section
      4.3
      of the Security Agreement referred to below. The undersigned hereby agrees
      that
      this Pledge Amendment may be attached to the Security Agreement, dated November
      ___, 2006, as it may heretofore have been or hereafter may be amended, restated,
      supplemented or otherwise modified from time to time and that the shares listed
      on this Pledge Amendment shall be hereby pledged and assigned to Lender and
      become part of the Collateral referred to in such Security Agreement and shall
      secure all of the Obligations referred to in such Security
      Agreement.

    

    

    
      	
              Name
                of Issuer

            	
               

              Number

              of
                Shares

            	
               

              Class

            	
              Certificate

              Number(s)

            
	
              DMEC
                Acquisition Inc.

               

            	 	 	 
	
              Jewel
                Products International, Inc.

               

            	 	 	 
	
               

               

            	 	 	 
	
               

               

            	 	 	 

    

    

    

    DIAMOND
      ENTERTAINMENT CORPORATION

    

    

    

    By: _____________________________________

     

     

     

    14

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