SECURITY AGREEMENT
SECURITY AGREEMENT (this "Agreement"),
dated as of August 31, 2009, by and among Camelot
Entertainment Group, Inc., a Delaware corporation ("Parent"), and
its Subsidiaries as listed on Schedules A (collectively the
"Subsidiary") (hereinafter the Parent and the
Subsidiary shall collectively be referred to as the
"Company") and the secured parties signatory hereto
and their respective endorsees, transferees and assigns
(collectively, the "Secured Party").
WITNESSETH:
WHEREAS, pursuant to a Securities Purchase
Agreement, dated the date hereof, between Parent and the Secured
Party (the "Purchase Agreement"). Parent has agreed to issue
to the Secured Party and the Secured Party has agreed to purchase
from Parent certain of Parent's 1 0% Callable Secured Convertible
Notes, clue three years from the date of issue (the
"Notes"), which arc convertible into shares of Company's
Common Stock, par value $.0001 per share (the "Common
Stock"); and
WHEREAS, the Parent and the Subsidiary have
been, and are now, engaged in the development, production,
marketing and distribution of entertainment media, including, but
not limited to, film, television and digital media and the
providing of certain services to the entertainment industry,
including, but not limited to, entertainment financial, studio,
technology, consulting, post production, event management,
education, sales and marketing, merchandising and web services. In
the past, as now, the Parent has provided financing for the
Subsidiary, and the Subsidiary has relied upon the Parent to
provide such financing. In addition, it is anticipated that, ii'
the Subsidiary executes and delivers this Agreement. the Parent
will continue to provide such financing to the Subsidiary, and that
the proceeds of the Purchase Agreement and Notes will be used, in
part, for the general working capital purposes of the Subsidiary;
and
WHEREAS, the Subsidiary constitutes all of the
subsidiaries of the Parent and it is in the best interest of the
Subsidiary as subsidiaries of the Parent and the indirect
beneficiaries of the Purchase Agreement and Notes, that the Secured
Party enter into the Purchase Agreement and purchase the Notes to
the Company -
, and
WHEREAS, in order to induce the Secured Party to
purchase the Notes, Company has agreed to execute and deliver to
the Secured Party this Agreement for the benefit of the Secured
Party and to grant to it a first priority security interest in
certain property of Company to secure the prompt payment,
performance and discharge in full of all of Company's obligations
under the Notes; and
WHEREAS, in light of the foregoing, the Company
expects to derive substantial benefit from the Purchase Agreement
and sale of the Notes and the transactions contemplated thereby
and, in furtherance thereof, has agreed to execute and deliver
this.
NOW, THEREFORE, in consideration of the
agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as
follows:
1.
Certain Definitions. As used in this Agreement, the
following terms shall have the meanings set forth in this Section
1. Terms used but not otherwise defined in this Agreement that are
defined in Article 9 of the UCC (such as "general
intangibles" and "proceeds") shall have the respective
meanings given such terms in Article 9 of the UCC.
(a)
"Collateral" means the collateral in which the Secured Party
is granted a security interest by this Agreement and which shall
include the following, whether presently owned or existing or
hereafter acquired or coming into existence, and all additions and
accessions thereto and all substitutions and replacements thereof,
and all proceeds, products and accounts thereof, including, without
limitation, all proceeds from the sale or transfer of the
Collateral and of insurance covering the same and of any tort
claims in connection therewith:
(i) All
Goods of the Company, including, without limitations, all
machinery, equipment, computers, motor vehicles, trucks, tanks,
boats, ships, appliances, furniture, special and general tools,
fixtures, test and quality control devices and other equipment of
every kind and nature and wherever situated, together with all
documents of title and documents representing the same, all
additions and accessions thereto, replacements therefor, all parts
therefor, and all substitutes for any of the foregoing and all
other items used and useful in connection with the Company's
businesses and all improvements thereto (collectively, the
"Equipment"); and
(ii) All
Inventory of the Company; and
(iii) All
of the Company's contract rights and general intangibles,
including, without limitation, all partnership interests, stock or
other securities, licenses, distribution and other agreements,
computer software development rights, leases, franchises, customer
lists, quality control procedures, grants and rights, goodwill,
trademarks, service marks, trade styles, trade names, patents,
patent applications, copyrights, deposit accounts, and income tax
refunds (collectively, the "General Intangibles");
and
(iv) All
Receivables of the Company including all insurance proceeds. and
rights to refunds or indemnification whatsoever owing, together
with all instruments, all documents of title representing any of
the foregoing, all rights in any merchandising, goods, equipment,
motor vehicles and trucks which any of the same may represent, and
all right, title, security and guaranties with respect to each
Receivable, including any right of stoppage in transit;
and
(v) All
of the Company's documents, instruments and chattel paper. files,
records, books of account, business papers, computer programs and
the products and proceeds of all of the foregoing Collateral set
forth in clauses (i)-(iv) above.
(vi) Notwithstanding
the above, the Company is not granting a security interest in its
two wholly owned subsidiaries, Camelot Film Group. Inc. and Camelot
Studio Group, Inc., nor is it granting a security interest in any
third party acquisitions made by the Company subsequent to the date
of this Agreement, which shall not be considered Collateral under
this Agreement.
(b)
"Company" shall mean, collectively, Company and all of the
subsidiaries of Company, a list of which is contained in
Schedule A, attached hereto.
(c)
"Obligations" means all of the Company's obligations under
this Agreement and the Notes, in each case, whether now or
hereafter existing, voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not
jointly owed with others, and whether or not from time to time
decreased or extinguished and later decreased, created or incurred.
and all or any portion of such obligations or liabilities that are
paid, to the extent all or any part of such payment is avoided or
recovered directly or indirectly from the Secured Party as a
preference, fraudulent transfer or otherwise as such obligations
may be amended, supplemented, converted, extended or modified from
time to time.
(d)
"UCC" means the Uniform Commercial Code, as currently in
effect in the State of New York.
2.
Grant of Security Interest. As an inducement for the Secured
Party to purchase the Notes and to secure the complete and timely
payment, performance and discharge in full, as the case may be, of
all of the Obligations, the Company hereby, unconditionally and
irrevocably, pledges, grams and hypothecates to the Secured Party,
a continuing security interest in, a continuing first lien upon, an
unqualified right to possession and disposition of and a right of
setoff against, in each case to the fullest extent permitted
by law, all of the Company's right, title and interest of
whatsoever kind and nature in and to the Collateral (the
"Security Interest").
3.
Representations. Warranties. Covenants and Agreements of the
Company. The Company represents and warrants to, and covenants
and agrees with, the Secured Party as follows:
(a) The
Company has the requisite corporate power and authority to enter
into this Agreement and otherwise to carry out its obligations
thereunder. The execution, delivery and performance by the Company
of this Agreement and the filings contemplated therein have been
duly authorized by all necessary action on the part of the Company
and no further action is required by the Company. This Agreement
constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditor's
rights generally.
(b) The
Company represents and warrants that it has no place of business or
offices where its respective books of account and records are kept
(other than temporarily at the offices of its attorneys or
accountants) or places where Collateral is stored or located,
except as set forth on Schedule A attached
hereto;
(c) The
Company is the sole owner of the Collateral (except for exclusive
and non-exclusive licenses granted by the Company in the ordinary
course of business), free and clear of any liens, security
interests, encumbrances, rights or claims, and is fully authorized
to grant the Security Interest in and to pledge the Collateral,
except as set forth on Schedule C.
There is not on file in any governmental or
regulatory authority, agency or recording office an effective
financing statement, security agreement, license or transfer or any
notice of any of the foregoing (other than those that have been
filed in favor of the Secured Party pursuant to this Agreement)
covering or affecting any of the Collateral, except as set forth on
Schedule C. So long as this Agreement shall be in effect, the
Company shall not execute and shall not knowingly permit to be on
file in any such office or agency any such financing statement or
other document or instrument (except to the extent filed or
recorded in favor of the Secured Party pursuant to the terms of
this Agreement), except as set forth on Schedule C.
(d) No
part of the Collateral has been judged invalid or unenforceable. No
written claim has been received that any Collateral or the
Company's use of any Collateral violates the rights of any third
party. There has been no adverse decision to the Company's claim of
ownership rights in or exclusive rights to use the Collateral in
any jurisdiction or to the Company's right to keep and
maintain such Collateral in full force and effect, and there is no
proceeding involving said rights pending or, to the best knowledge
of the Company, threatened before any court, judicial body,
administrative or regulatory agency, arbitrator or other
governmental authority.
(e) The
Company shall at all times maintain its books of account and
records relating to the Collateral at its principal place of
business and its Collateral at the locations set forth on
Schedule A attached hereto and may not relocate such books
of account and records or tangible Collateral unless it delivers to
the Secured Party at least 30 days prior to such relocation (i)
Written notice of such relocation and the new location thereof
(which must be within the United States) and (ii) evidence that
appropriate financing statements and other necessary documents have
been filed and recorded and other steps have been taken to perfect
the Security Interest to create in favor of the Secured Party
valid, perfected and continuing first priority liens in the
Collateral.
(f) This
Agreement creates in favor of the Secured Party a valid security
interest in the Collateral securing the payment and performance of
the Obligations and, upon making the filings described in the
immediately following sentence, a perfected first priority security
interest in such Collateral. Except for the filing of financing
statements on Form-I under the UCC with the jurisdictions indicated
on Schedule B, attached hereto, no authorization or approval
of or filing with or notice to any governmental authority or
regulatory body is required either for the grant by the Company of,
or the effectiveness of, the Security Interest granted hereby or
for the execution, delivery and performance of this Agreement by
the Company or for the perfection of or exercise by the Secured
Party of its rights and remedies hereunder.
(g)
On the date of execution of this Agreement, the Company will
deliver to the Secured Party one or more executed UCC financing
statements on Form-1 with respect to the Security Interest for
filing with the jurisdictions indicated on Schedule
B, attached hereto and in such other, jurisdictions as may be
requested by the Secured Party.
(h)
Except as set forth on Schedule C, the execution, delivery and
performance of this Agreement does not conflict with or cause a
breach or default, or an event that with or without the passage of
time or notice, shall constitute a breach or default, under any
agreement to which the Company is a party or by which the Company
is hound. No consent (including, without limitation, from stock
holders or creditors of the Company) is required for the Company to
enter into and perform its obligations hereunder.
(i)
The Company shall at all times maintain the liens and Security
Interest provided for hereunder as valid and perfected first
priority liens and security interests in the Collateral in favor of
the Secured Party until this Agreement and the Security Interest
hereunder shall terminate pursuant to Section 11. The Company
hereby agrees to defend the same against any and all persons. The
Company shall safeguard and protect all Collateral for the account
of the Secured Party. At the request of the Secured Party, the
Company will sign and deliver to the Secured Party at any time or
from time to time one or more financing statements pursuant to the
UCC (or any other applicable statute) in form reasonably
satisfactory to the Secured Party and will pay the cost of filing
the same in all public offices wherever filing is, or is deemed by
the Secured Party to be, necessary or desirable to effect the
rights and obligations provided for herein. Without limiting the
generality of the foregoing, the Company shall pay all fees, taxes
and other amounts necessary to maintain the Collateral and the
Security Interest hereunder, and the Company shall obtain and
furnish to the Secured Party from time to time, upon demand, such
releases and/or subordinations of claims and liens which may be
required to maintain the priority of the Security Interest
hereunder.
(j) The
Company will not transfer, pledge, hypothecate, encumber, license
(except for non-exclusive licenses granted by the Company in the
ordinary course of business), sell or otherwise dispose of any of
the Collateral without the prior written consent of the Secured
Party.
(k) The
Company shall keep and preserve its Equipment, Inventory and other
tangible Collateral in good condition, repair and order and
shall not operate or locate any such Collateral (or cause to be
operated or located) in any area excluded from insurance
coverage.
(l)
The Company shall, within ten (10) days of obtaining knowledge
thereof, advise the Secured Party promptly, in sufficient detail,
of any substantial change in the Collateral, and of the occurrence
of any event which would have a material adverse effect on the
value of the Collateral or on the Secured Party's security interest
therein.
(m) The
Company shall promptly execute and deliver to the Secured Party
such further deeds, mortgages, assignments, security agreements,
financing statements or other instruments, documents, certificates
and assurances and take such further action as the Secured Party
may from time to time request and may in its sole discretion deem
necessary to perfect, protect or enforce its security interest in
the Collateral including, without limitation, the execution and
delivery of a separate security agreement with respect to the
Company's intellectual property ("Intellectual Property Security
Agreement") in which the Secured Party
