SECURITIES PURCHASE AGREEMENT
Exhibit
4.1
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Exhibit
4.1
Securities
Purchase Agreement dated December 27, 2006 by and among the Company and the
Investors
SECURITIES
PURCHASE AGREEMENT (this “Agreement”),
dated
as of December 27, 2006, by and among Camelot Entertainment Group, Inc., a
Delaware Corporation, with headquarters located at 0000 Xxxx Xxxxxx, #000,
Xxxxxx, Xxxxxxxxxx 00000 (the “Company”),
and
each of the purchasers set forth on the signature pages hereto (the
“Buyers”).
WHEREAS:
A. The
Company and the Buyers are executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by the rules and
regulations as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933
Act”);
B. Buyers
desire to purchase and the Company desires to issue and sell, upon the terms
and
conditions set forth in this Agreement (i) 8%
secured convertible notes of the Company, in the form attached hereto as
Exhibit
“A”,
in the
aggregate principal amount of One Million Dollars ($1,000,000) (together with
any note(s) issued in replacement thereof or as a dividend thereon or otherwise
with respect thereto in accordance with the terms thereof, the “Notes”),
convertible into shares of common stock, par value $.001 per share, of the
Company (the “Common
Stock”),
upon
the terms and subject to the limitations and conditions set forth in such Notes
and (ii)
stock purchase warrants, in the form attached hereto as Exhibit
“B”,
to
purchase an aggregate of 10,000,000 shares of Common Stock (the “Warrants”).
C. Each
Buyer wishes to purchase, upon the terms and conditions stated in this
Agreement, such principal amount of Notes and number of Warrants as is set
forth
immediately below its name on the signature pages hereto; and
D. Contemporaneous
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement, in the form attached
hereto as Exhibit
“C”
(the
“Registration
Rights Agreement”),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
NOW
THEREFORE,
the
Company and each of the Buyers severally (and not jointly) hereby agree as
follows:
1. PURCHASE
AND SALE OF NOTES AND WARRANTS.
a. Purchase
of Notes and Warrants.
On the
Closing Date (as defined below), the Company shall issue and sell to each Buyer
and each Buyer severally agrees to purchase from the Company such principal
amount of Notes and number of Warrants as is set forth immediately below such
Buyer’s name on the signature pages hereto.
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b. Form
of Payment.
On the
Closing Date (as defined below), (i) each
Buyer shall pay the purchase price for the Notes and the Warrants to be issued
and sold to it at the Closing (as defined below) (the “Purchase
Price”)
by
wire transfer of immediately available funds to the Company, in accordance
with
the Company’s written wiring instructions, against delivery of the Notes in the
principal amount equal to the Purchase Price and the number of Warrants as
is
set forth immediately below such Buyer’s name on the signature pages hereto, and
(ii) the
Company shall deliver such Notes and Warrants duly executed on behalf of the
Company, to such Buyer, against delivery of such Purchase Price.
c. Closing
Date.
Subject
to the satisfaction (or written waiver) of the conditions thereto set forth
in
Section 6 and Section 7 below, the date and time of the issuance and sale of
the
Notes and the Warrants pursuant to this Agreement (the “Closing
Date”)
shall
be 12:00 noon, Eastern Standard Time on December 27, 2006, or such other
mutually agreed upon time. The closing of the transactions contemplated by
this
Agreement (the “Closing”)
shall
occur on the Closing Date at such location as may be agreed to by the
parties.
2. BUYERS’
REPRESENTATIONS AND WARRANTIES.
Each
Buyer severally (and not jointly) represents and warrants to the Company solely
as to such Buyer that:
a. Investment
Purpose.
As of
the date hereof, the Buyer is purchasing the Notes and the shares of Common
Stock issuable upon conversion of or otherwise pursuant to the Notes (including,
without limitation, such additional shares of Common Stock, if any, as are
issuable (i) on
account of interest on the Notes, (ii) as
a result of the events described in Sections 1.3 and 1.4(g) of the Notes and
Section 2(c) of the Registration Rights Agreement or (iii) in
payment of the Standard Liquidated Damages Amount (as defined in Section 2(f)
below) pursuant to this Agreement, such shares of Common Stock being
collectively referred to herein as the “Conversion
Shares”)
and
the Warrants and the shares of Common Stock issuable upon exercise thereof
(the
“Warrant
Shares”
and,
collectively with the Notes, Warrants and Conversion Shares, the “Securities”)
for
its own account and not with a present view towards the public sale or
distribution thereof, except pursuant to sales registered or exempted from
registration under the 1933 Act; provided,
however,
that by
making the representations herein, the Buyer does not agree to hold any of
the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. Accredited
Investor Status.
The
Buyer is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D (an “Accredited
Investor”).
c. Reliance
on Exemptions.
The
Buyer understands that the Securities are being offered and sold to it in
reliance upon specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying upon
the truth and accuracy of, and the Buyer’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Buyer set
forth herein in order to determine the availability of such exemptions and
the
eligibility of the Buyer to acquire the Securities.
d. Information.
The
Buyer and its advisors, if any, have been, and for so long as the Notes and
Warrants remain outstanding will continue to be, furnished with all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities which have been requested
by
the Buyer or its advisors. The Buyer and its advisors, if any, have been, and
for so long as the Notes and Warrants remain outstanding will continue to be,
afforded the opportunity to ask questions of the Company. Notwithstanding the
foregoing, the Company has not disclosed to the Buyer any material nonpublic
information and will not disclose such information unless such information
is
disclosed to the public prior to or promptly following such disclosure to the
Buyer. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify,
amend
or affect Buyer’s right to rely on the Company’s representations and warranties
contained in Section 3 below. The Buyer understands that its investment in
the
Securities involves a significant degree of risk. The Buyers are not aware
of
any facts that may constitute a breach of any of the Company's representations
and warranties made herein.
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e. Governmental
Review.
The
Buyer understands that no United States federal or state agency or any other
government or governmental agency has passed upon or made any recommendation
or
endorsement of the Securities.
f. Transfer
or Re-sale.
The
Buyer understands that (i) except
as provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the
Securities are sold pursuant to an effective registration statement under the
1933 Act, (b) the
Buyer shall have delivered to the Company, at the cost of the Company, an
opinion of counsel that shall be in form, substance and scope customary for
opinions of counsel in comparable transactions to the effect that the Securities
to be sold or transferred may be sold or transferred pursuant to an exemption
from such registration, which opinion shall be accepted by the Company,
(c) the
Securities are sold or transferred to an “affiliate” (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) (“Rule
144”))
of
the Buyer who agrees to sell or otherwise transfer the Securities only in
accordance with this Section 2(f) and who is an Accredited Investor,
(d) the
Securities are sold pursuant to Rule 144, or (e) the
Securities are sold pursuant to Regulation S under the 1933 Act (or a successor
rule) (“Regulation
S”),
and
the Buyer shall have delivered to the Company, at the cost of the Company,
an
opinion of counsel that shall be in form, substance and scope customary for
opinions of counsel in corporate transactions, which opinion shall be accepted
by the Company; (ii) any sale of such Securities made in reliance on Rule 144
may be made only in accordance with the terms of said Rule and further, if
said
Rule is not applicable, any re-sale of such Securities under circumstances
in
which the seller (or the person through whom the sale is made) may be deemed
to
be an underwriter (as that term is defined in the 0000 Xxx) may require
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act
or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement). Notwithstanding the foregoing or anything else contained
herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide
margin
account or other lending arrangement. In the event that the Company does not
accept the opinion of counsel provided by the Buyer with respect to the transfer
of Securities pursuant to an exemption from registration, such as Rule 144
or
Regulation S, within five (5) business days of delivery of the opinion to the
Company, the Company shall pay to the Buyer liquidated damages of three percent
(3%) of the outstanding amount of the Notes per month plus accrued and unpaid
interest on the Notes, prorated for partial months, in cash or shares at the
option of the Company (“Standard
Liquidated Damages Amount”).
If
the Company elects to be pay the Standard Liquidated Damages Amount in shares
of
Common Stock, such shares shall be issued at the Conversion Price (as defined
in
the Notes) at the time of payment.
g. Legends.
The
Buyer understands that the Notes and the Warrants and, until such time as the
Conversion Shares and Warrant Shares have been registered under the 1933 Act
as
contemplated by the Registration Rights Agreement or otherwise may be sold
pursuant to Rule 144 or Regulation S without any restriction as to the number
of
securities as of a particular date that can then be immediately sold, the
Conversion Shares and Warrant Shares may bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of the certificates for such Securities):
“The
securities represented by this certificate have not been registered under the
Securities Act of 1933, as amended. The securities may not be sold, transferred
or assigned in the absence of an effective registration statement for the
securities under said Act, or an opinion of counsel, in form, substance and
scope customary for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless sold pursuant to Rule
144
or Regulation S under said Act.”
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The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it
is
stamped, if, unless otherwise required by applicable state securities laws,
(a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, to the effect that a public
sale or transfer of such Security may be made without registration under the
1933 Act, which opinion shall be accepted by the Company so that the sale or
transfer is effected or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144 or Regulation
S.
The Buyer agrees to sell all Securities, including those represented by a
certificate(s) from which the legend has been removed, in compliance with
applicable prospectus delivery requirements, if any.
h. Authorization;
Enforcement.
This
Agreement and the Registration Rights Agreement have been duly and validly
authorized. This Agreement has been duly executed and delivered on behalf of
the
Buyer, and this Agreement constitutes, and upon execution and delivery by the
Buyer of the Registration Rights Agreement, such agreement will constitute,
valid and binding agreements of the Buyer enforceable in accordance with their
terms.
i. Residency.
The
Buyer is a resident of the jurisdiction set forth immediately below such Buyer’s
name on the signature pages hereto.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY.
The
Company represents and warrants to each Buyer that:
a. Organization
and Qualification.
The
Company and each of its Subsidiaries (as defined below), if any, is a
corporation duly organized, validly existing and in good standing under the
laws
of the jurisdiction in which it is incorporated, with full power and authority
(corporate and other) to own, lease, use and operate its properties and to
carry
on its business as and where now owned, leased, used, operated and conducted.
Schedule
3(a)
sets
forth a list of all of the Subsidiaries of the Company and the jurisdiction
in
which each is incorporated. The Company and each of its Subsidiaries is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which its ownership or use of property or the nature
of
the business conducted by it makes such qualification necessary except where
the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. “Material
Adverse Effect”
means
any material adverse effect on the business, operations, assets, financial
condition or prospects of the Company or its Subsidiaries, if any, taken as
a
whole, or on the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith. “Subsidiaries”
means
any corporation or other organization, whether incorporated or unincorporated,
in which the Company owns, directly or indirectly, any equity or other ownership
interest.
b. Authorization;
Enforcement.
(i) The
Company has all requisite corporate power and authority to enter into and
perform this Agreement, the Registration Rights Agreement, the Notes and the
Warrants and to consummate the transactions contemplated hereby and thereby
and
to issue the Securities, in accordance with the terms hereof and thereof, (ii)
the execution and delivery of this Agreement, the Registration Rights Agreement,
the Notes and the Warrants by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without limitation,
the
issuance of the Notes and the Warrants and the issuance and reservation for
issuance of the Conversion Shares and Warrant Shares issuable upon conversion
or
exercise thereof) have been duly authorized by the Company’s Board of Directors
and no further consent or authorization of the Company, its Board of Directors,
or its shareholders is required, (iii) this Agreement has been duly executed
and
delivered by the Company by its authorized representative, and such authorized
representative is the true and official representative with authority to sign
this Agreement and the other documents executed in connection herewith and
bind
the Company accordingly, and (iv) this Agreement constitutes, and upon execution
and delivery by the Company of the Registration Rights Agreement, the Notes
and
the Warrants, each of such instruments will constitute, a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms.
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c. Capitalization.
As of
the date hereof, the authorized capital stock of the Company consists of (i)
150,000,000 shares of Common Stock, of which 93,649,589 shares are issued and
outstanding, no shares are reserved for issuance pursuant to the Company’s stock
option plans, no shares are reserved for issuance pursuant to securities (other
than the Notes and the Warrants) exercisable for, or convertible into or
exchangeable for shares of Common Stock and 30,833,333 shares are reserved
for
issuance upon conversion of the Notes and the Additional Notes (as defined
in
Section 4(l)) and exercise of the Warrants (subject to adjustment pursuant
to
the Company’s covenant set forth in Section 4(h) below); (ii) 5,100,000 shares
of Class A Convertible Preferred Stock, of which 5,100,000 shares are issued
and
outstanding; and (iii) 5,100,000 shares of Class B Convertible Preferred Stock,
of which 5,100,000 shares are issued and outstanding. All of such outstanding
shares of capital stock are, or upon issuance will be, duly authorized, validly
issued, fully paid and nonassessable. No shares of capital stock of the Company
are subject to preemptive rights or any other similar rights of the shareholders
of the Company or any liens or encumbrances imposed through the actions or
failure to act of the Company. Except as disclosed in Schedule
3(c),
as of
the effective date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into
or
exchangeable for any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries
is
or may become bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries, (ii) there are no agreements or arrangements under
which the Company or any of its Subsidiaries is obligated to register the sale
of any of its or their securities under the 1933 Act (except the Registration
Rights Agreement) and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any agreement
providing rights to security holders) that will be triggered by the issuance
of
the Notes, the Warrants, the Conversion Shares or Warrant Shares. The Company
has furnished to the Buyer true and correct copies of the Company’s Certificate
of Incorporation as in effect on the date hereof (“Certificate
of Incorporation”),
the
Company’s By-laws, as in effect on the date hereof (the “By-laws”),
and
the terms of all securities convertible into or exercisable for Common Stock
of
the Company and the material rights of the holders thereof in respect thereto.
The Company shall provide the Buyer with a written update of this representation
signed by the Company’s Chief Executive or Chief Financial Officer on behalf of
the Company as of the Closing Date.
d. Issuance
of Shares.
The
Conversion Shares and Warrant Shares are duly authorized and reserved for
issuance and, upon conversion of the Notes and exercise of the Warrants in
accordance with their respective terms, will be validly issued, fully paid
and
non-assessable, and free from all taxes, liens, claims and encumbrances with
respect to the issue thereof and shall not be subject to preemptive rights
or
other similar rights of shareholders of the Company and will not impose personal
liability upon the holder thereof.
e. Acknowledgment
of Dilution.
The
Company understands and acknowledges the potentially dilutive effect to the
Common Stock upon the issuance of the Conversion Shares and Warrant Shares
upon
conversion of the Note or exercise of the Warrants. The Company further
acknowledges that its obligation to issue Conversion Shares and Warrant Shares
upon conversion of the Notes or exercise of the Warrants in accordance with
this
Agreement, the Notes and the Warrants is absolute and unconditional regardless
of the dilutive effect that such issuance may have on the ownership interests
of
other shareholders of the Company.
f. No
Conflicts.
The
execution, delivery and performance of this Agreement, the Registration Rights
Agreement, the Notes and the Warrants by the Company and the consummation by
the
Company of the transactions contemplated hereby and thereby (including, without
limitation, the issuance and reservation for issuance of the Conversion Shares
and Warrant Shares) will not (i) conflict with or result in a violation of
any
provision of the Certificate of Incorporation or By-laws or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both could become
a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture, patent, patent
license or instrument to which the Company or any of its Subsidiaries is a
party, or (iii) result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations
and regulations of any self-regulatory organizations to which the Company or
its
securities are subject) applicable to the Company or any of its Subsidiaries
or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither
the
Company nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the Company
nor any of its Subsidiaries is in default (and no event has occurred which
with
notice or lapse of time or both could put the Company or any of its Subsidiaries
in default) under, and neither the Company nor any of its Subsidiaries has
taken
any action or failed to take any action that would give to others any rights
of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is
a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company and its Subsidiaries, if any, are not being conducted, and shall
not be conducted so long as a Buyer owns any of the Securities, in violation
of
any law, ordinance or regulation of any governmental entity. Except as
specifically contemplated by this Agreement and as required under the 1933
Act
and any applicable state securities laws, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration
with,
any court, governmental agency, regulatory agency, self regulatory organization
or stock market or any third party in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Registration Rights
Agreement, the Notes or the Warrants in accordance with the terms hereof or
thereof or to issue and sell the Notes and Warrants in accordance with the
terms
hereof and to issue the Conversion Shares upon conversion of the Notes and
the
Warrant Shares upon exercise of the Warrants. Except as disclosed in
Schedule
3(f),
all
consents, authorizations, orders, filings and registrations which the Company
is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company is not in violation of
the
listing requirements of the Over-the-Counter Bulletin Board (the “OTCBB”)
and
does not reasonably anticipate that the Common Stock will be delisted by the
OTCBB in the foreseeable future. The Company and its Subsidiaries are unaware
of
any facts or circumstances which might give rise to any of the foregoing.
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g. SEC
Documents; Financial Statements.
Except
as disclosed in Schedule
3(g),
the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the
“1934
Act”)
(all
of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents (other
than
exhibits to such documents) incorporated by reference therein, being hereinafter
referred to herein as the “SEC
Documents”).
The
Company has delivered to each Buyer true and complete copies of the SEC
Documents, except for such exhibits and incorporated documents. As of their
respective dates, the SEC Documents complied in all material respects with
the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to
be
stated therein or necessary in order to make the statements therein, in light
of
the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have
been
amended or updated in subsequent filings prior the date hereof). As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with
respect thereto. Such financial statements have been prepared in accordance
with
United States generally accepted accounting principles, consistently applied,
during the periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects
the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the SEC Documents, the Company
has no liabilities, contingent or otherwise, other than (i) liabilities incurred
in the ordinary course of business subsequent to December 27, 2006 and (ii)
obligations under contracts and commitments incurred in the ordinary course
of
business and not required under generally accepted accounting principles to
be
reflected in such financial statements, which, individually or in the aggregate,
are not material to the financial condition or operating results of the
Company.
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h. Absence
of Certain Changes.
Except
as set forth on Schedule
3(h),
since
December 27, 2006, there has been no material adverse change and no material
adverse development in the assets, liabilities, business, properties,
operations, financial condition, results of operations or prospects of the
Company or any of its Subsidiaries.
i. Absence
of Litigation.
Except
as set forth on Schedule
3(i),
there
is no action, suit, claim, proceeding, inquiry or investigation before or by
any
court, public board, government agency, self-regulatory organization or body
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened against or affecting the Company or any of its Subsidiaries, or
their
officers or directors in their capacity as such, that could have a Material
Adverse Effect. Schedule
3(i)
contains
a complete list and summary description of any pending or, to the knowledge
of
the Company, threatened proceeding against or affecting the Company or any
of
its Subsidiaries, without regard to whether it would have a Material Adverse
Effect. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
j. Patents,
Copyrights, etc.
The
Company and each of its Subsidiaries owns or possesses the requisite licenses
or
rights to use all patents, patent applications, patent rights, inventions,
know-how, trade secrets, trademarks, trademark applications, service marks,
service names, trade names and copyrights (“Intellectual
Property”)
necessary to enable it to conduct its business as now operated (and, except
as
set forth in Schedule
3(j)
hereof,
to the best of the Company’s knowledge, as presently contemplated to be operated
in the future); there is no claim or action by any person pertaining to, or
proceeding pending, or to the Company’s knowledge threatened, which challenges
the right of the Company or of a Subsidiary with respect to any Intellectual
Property necessary to enable it to conduct its business as now operated (and,
except as set forth in Schedule
3(j)
hereof,
to the best of the Company’s knowledge, as presently contemplated to be operated
in the future); to the best of the Company’s knowledge, the Company’s or its
Subsidiaries’ current and intended products, services and processes do not
infringe on any Intellectual Property or other rights held by any person; and
the Company is unaware of any facts or circumstances which might give rise
to
any of the foregoing. The Company and each of its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of their Intellectual Property.
k. No
Materially Adverse Contracts, Etc.
Neither
the Company nor any of its Subsidiaries is subject to any charter, corporate
or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the judgment of the Company’s officers has or is expected in the future
to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party to any contract or agreement which in the judgment
of
the Company’s officers has or is expected to have a Material Adverse
Effect.
l. Tax
Status.
Except
as set forth on Schedule
3(l),
the
Company and each of its Subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required
by
any jurisdiction to which it is subject (unless and only to the extent that
the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and
has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside
on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by
the
taxing authority of any jurisdiction, and the officers of the Company know
of no
basis for any such claim. The Company has not executed a waiver with respect
to
the statute of limitations relating to the assessment or collection of any
foreign, federal, state or local tax. Except as set forth on Schedule
3(l),
none of
the Company’s tax returns is presently being audited by any taxing
authority.
Page
- 8
m. Certain
Transactions.
Except
as set forth on Schedule
3(m)
and
except for arm’s length transactions pursuant to which the Company or any of its
Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on
Schedule
3(c),
none of
the officers, directors, or employees of the Company is presently a party to
any
transaction with the Company or any of its Subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which
any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
n. Disclosure.
All
information relating to or concerning the Company or any of its Subsidiaries
set
forth in this Agreement and provided to the Buyers pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby
is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein
or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to
the
Company or any of its Subsidiaries or its or their business, properties,
prospects, operations or financial conditions, which, under applicable law,
rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed (assuming for this purpose
that the Company’s reports filed under the 1934 Act are being incorporated into
an effective registration statement filed by the Company under the 1933
Act).
o. Acknowledgment
Regarding Buyers’ Purchase of Securities.
The
Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm’s length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no
Buyer
is acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any statement made by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Buyers’ purchase of the Securities. The Company further represents to
each Buyer that the Company’s decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives.
p. No
Integrated Offering.
Neither
the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales in any security
or
solicited any offers to buy any security under circumstances that would require
registration under the 1933 Act of the issuance of the Securities to the Buyers.
The issuance of the Securities to the Buyers will not be integrated with any
other issuance of the Company’s securities (past, current or future) for
purposes of any shareholder approval provisions applicable to the Company or
its
securities.
q. No
Brokers.
Except
as set forth in Schedule
3(q),
the
Company has taken no action which would give rise to any claim by any person
for
brokerage commissions, transaction fees or similar payments relating to this
Agreement or the transactions contemplated hereby.
r. Permits;
Compliance.
The
Company and each of its Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the “Company
Permits”),
and
there is no action pending or, to the knowledge of the Company, threatened
regarding suspension or cancellation of any of the Company Permits. Neither
the
Company nor any of its Subsidiaries is in conflict with, or in default or
violation of, any of the Company Permits, except for any such conflicts,
defaults or violations which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect. Since December 27,
2006, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults
or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
Page
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s. Environmental
Matters.
(i) Except
as
set forth in Schedule
3(s),
there
are, to the Company’s knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or present violations
of
Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws and neither the Company nor any of its Subsidiaries has received
any notice with respect to any of the foregoing, nor is any action pending
or,
to the Company’s knowledge, threatened in connection with any of the foregoing.
The term “Environmental
Laws”
means
all federal, state, local or foreign laws relating to pollution or protection
of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants contaminants, or toxic or hazardous
substances or wastes (collectively, “Hazardous
Materials”)
into
the environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands
or
demand letters, injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated or approved
thereunder.
(ii) Other
than those that are or were stored, used or disposed of in compliance with
applicable law, no Hazardous Materials are contained on or about any real
property currently owned, leased or used by the Company or any of its
Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company’s
or any of its Subsidiaries’ business.
(iii) Except
as
set forth in Schedule
3(s),
there
are no underground storage tanks on or under any real property owned, leased
or
used by the Company or any of its Subsidiaries that are not in compliance with
applicable law.
t. Title
to Property.
The
Company and its Subsidiaries have good and marketable title in fee simple to
all
real property and good and marketable title to all personal property owned
by
them which is material to the business of the Company and its Subsidiaries,
in
each case free and clear of all liens, encumbrances and defects except such
as
are described in Schedule
3(t)
or such
as would not have a Material Adverse Effect. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as would not
have
a Material Adverse Effect.
u. Insurance.
The
Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts
as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged. Neither the Company
nor
any such Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect. The Company
has provided to Buyer true and correct copies of all policies relating to
directors’ and officers’ liability coverage, errors and omissions coverage, and
commercial general liability coverage.
Page
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v. Internal
Accounting Controls.
The
Company and each of its Subsidiaries maintain a system of internal accounting
controls sufficient, in the judgment of the Company’s board of directors, to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management’s general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
w. Foreign
Corrupt Practices.
Neither
the Company, nor any of its Subsidiaries, nor any director, officer, agent,
employee or other person acting on behalf of the Company or any Subsidiary
has,
in the course of his actions for, or on behalf of, the Company, used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; made any direct or indirect
unlawful payment to any foreign or domestic government official or employee
from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign
or
domestic government official or employee.
x. Solvency.
The
Company (after giving effect to the transactions contemplated by this Agreement)
is solvent (i.e.,
its
assets have a fair market value in excess of the amount required to pay its
probable liabilities on its existing debts as they become absolute and matured)
and currently the Company has no information that would lead it to reasonably
conclude that the Company would not, after giving effect to the transaction
contemplated by this Agreement, have the ability to, nor does it intend to
take
any action that would impair its ability to, pay its debts from time to time
incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and, after giving effect to the transactions contemplated by
this Agreement, does not anticipate or know of any basis upon which its auditors
might issue a qualified opinion in respect of its current fiscal
year.
y. No
Investment Company.
The
Company is not, and upon the issuance and sale of the Securities as contemplated
by this Agreement will not be an “investment company” required to be registered
under the Investment Company Act of 1940 (an “Investment
Company”).
The
Company is not controlled by an Investment Company.
z. Breach
of Representations and Warranties by the Company.
If the
Company breaches any of the representations or warranties set forth in this
Section 3, and in addition to any other remedies available to the Buyers
pursuant to this Agreement, the Company shall pay to the Buyer the Standard
Liquidated Damages Amount in cash or in shares of Common Stock at the option
of
the Company, until such breach is cured. If the Company elects to pay the
Standard Liquidated Damages Amounts in shares of Common Stock, such shares
shall
be issued at the Conversion Price at the time of payment.
4. COVENANTS.
a. Best
Efforts.
The
parties shall use their best efforts to satisfy timely each of the conditions
described in Section 6 and 7 of this Agreement.
b. Form
D; Blue Sky Laws.
The
Company agrees to file a Form D, if required, with respect to the Securities
as
required under Regulation D and to provide a copy thereof to each Buyer promptly
after such filing. The Company shall, on or before the Closing Date, take such
action as the Company shall reasonably determine is necessary to qualify the
Securities for sale to the Buyers at the applicable closing pursuant to this
Agreement under applicable securities or “blue sky” laws of the states of the
United States (or to obtain an exemption from such qualification), and shall
provide evidence of any such action so taken to each Buyer on or prior to the
Closing Date.
Page
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c. Reporting
Status; Eligibility to Use Form S-3, Form SB-2 or Form
S-1. The
Company’s Common Stock is registered under Section 12(g) of the 1934 Act. The
Company represents and warrants that, at the time of the filing of registration
statement on Form SB-2 covering the resale of the Conversion Shares and the
Warrant Shares, it will meet the requirements for the use of Form S-3, Form
SB-2
or Form S-1 for registration of the sale by the Buyer of the Registrable
Securities (as defined in the Registration Rights Agreement). So long as the
Buyer beneficially owns any of the Securities, the Company shall timely file
all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination. The Company further agrees to file all reports
required to be filed by the Company with the SEC in a timely manner so as to
become eligible, and thereafter to maintain its eligibility, if any, for the
use
of Form S-3. The Company shall issue a press release and file a Form 8-K
describing the material terms of the transaction contemplated hereby as soon
as
practicable following the Closing Date but in no event more than four (4)
business days of the Closing Date, which press release shall be subject to
prior
review by the Buyers. The Company agrees that such press release shall not
disclose the name of the Buyers unless expressly consented to in writing by
the
Buyers or unless required by applicable law or regulation, and then only to
the
extent of such requirement.
d. Use
of Proceeds.
The
Company shall use the proceeds from the sale of the Notes and the Warrants
in
the manner set forth in Schedule
4(d)
attached
hereto and made a part hereof and shall not, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership,
enterprise or other person (except in connection with its currently existing
direct or indirect Subsidiaries)
e. Future
Offerings.
The
Company will not negotiate or contract with any party to obtain additional
equity financing (including debt financing with an equity component) that
involves (A) the issuance of Common Stock at a discount to the market price
of
the Common Stock on the date of issuance (taking into account the value of
any
warrants or options to acquire Common Stock issued in connection therewith)
or
(B) the issuance of convertible securities that are convertible into an
indeterminate number of shares of Common Stock or (C) the issuance of warrants
during the period (the “Lock-up
Period”)
beginning on the Closing Date and ending on the date the Registration Statement
(as defined in the Registration Rights Agreement) is declared effective. In
addition, subject to the exceptions described below, the Company will not
conduct any equity financing (including debt with an equity component)
(“Future
Offerings”)
during
the period beginning on the Closing Date and ending eighteen (18) months after
the end of the Lock-up Period unless it shall have first delivered to each
Buyer, at least twenty (20) business days prior to the closing of such Future
Offering, written notice describing the proposed Future Offering, including
the
terms and conditions thereof and proposed definitive documentation to be entered
into in connection therewith, and providing each Buyer an option during the
fifteen (15) day period following delivery of such notice to purchase its pro
rata share (based on the ratio that the aggregate principal amount of Notes
purchased by it hereunder bears to the aggregate principal amount of Notes
purchased hereunder) of the securities being offered in the Future Offering
on
the same terms as contemplated by such Future Offering (the limitations referred
to in this section, including but not limited to Future Offering and the Lock-up
Period, collectively as referred to as the “Capital
Raising Limitations”). For
purposes of this Agreement, discussions relating to financing of the
construction of studio facilities with investment banks, commercial banks,
investment groups, development partners or individual investors shall not be
considered engaging in equity financing. Notwithstanding the above, Camelot
Film
Group, Inc. and Camelot Studio Group, Inc., two of the Company’s wholly owned
subsidiaries, shall not be subject to the these Capital Raising Limitations
as
set forth herein.
Further,
the Company may engage in Future Offering activities or support such activities
of Camelot Film Group, Inc. and Camelot Studio Group, Inc. upon written notice
to the Lenders if such Future Offering is specifically for the purposes of
construction of studio facilities and or film production. Such financing shall
not be subject to any right of first refusal if the Future Offering is in excess
of $10,000,000 regardless of whether such offering is an underwritten public
offering or private equity transaction. Similarly, efforts made by the Company’s
development, production and or studio partners to obtain financing for the
construction of studio facilities shall not be considered a breach of this
provision. In the event the terms and conditions of a proposed Future Offering
are amended in any respect after delivery of the notice to the Buyers concerning
the proposed Future Offering, the Company shall deliver a new notice to each
Buyer describing the amended terms and conditions of the proposed Future
Offering and each Buyer thereafter shall have an option during the fifteen
(15)
day period following delivery of such new notice to purchase its pro rata share
of the securities being offered on the same terms as contemplated by such
proposed Future Offering, as amended. The foregoing sentence shall apply to
successive amendments to the terms and conditions of any proposed Future
Offering. The Capital Raising Limitations shall not apply to any transaction
involving (i) issuances of securities in a firm commitment underwritten public
offering (excluding a continuous offering pursuant to Rule 415 under the 0000
Xxx) or (ii) issuances of securities as consideration for a merger,
consolidation or purchase of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company (iii) any transaction involving
Camelot Film Group, Inc and Camelot Studio Group, Inc. The Capital Raising
Limitations also shall not apply to the issuance of securities upon exercise
or
conversion of the Company’s options, warrants or other convertible securities
outstanding as of the date hereof or to the grant of additional options or
warrants, or the issuance of additional securities, under any employment
agreement, contracts; or to the issuance of securities through a Company stock
option or restricted stock plan approved by the shareholders of the Company.
Page
- 12
f. Expenses.
At the
Closing, the Company shall reimburse Buyers for expenses incurred by them in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the other agreements to be executed in
connection herewith (“Documents”),
including, without limitation, reasonable attorneys’ and consultants’ fees and
expenses, transfer agent fees, fees for stock quotation services, fees relating
to any amendments or modifications of the Documents or any consents or waivers
of provisions in the Documents, fees for the preparation of opinions of counsel,
escrow fees, and costs of restructuring the transactions contemplated by the
Documents. When possible, the Company must pay these fees directly, otherwise
the Company must make immediate payment for reimbursement to the Buyers for
all
fees and expenses immediately upon written notice by the Buyer or the submission
of an invoice by the Buyer. Notwithstanding anything herein to the contrary,
the
Company’s obligation to reimburse Buyers’ expenses shall not exceed $10,000 in
the aggregate.
g. Financial
Information.
The
Company agrees to send or make available the following reports to each Buyer
until such Buyer transfers, assigns, or sells all of the Securities:
(i) within
ten (10) days after the filing with the SEC, a copy of its Annual Report on
Form
10-KSB its Quarterly Reports on Form 10-QSB and any Current Reports on Form
8-K;
(ii) within
one (1) day after release, copies of all press releases issued by the Company
or
any of its Subsidiaries; and (iii) contemporaneously
with the making available or giving to the shareholders of the Company, copies
of any notices or other information the Company makes available or gives to
such
shareholders.
h. Authorization
and Reservation of Shares.
The
Company shall at all times have authorized, and reserved for the purpose of
issuance, a sufficient number of shares of Common Stock to provide for the
full
conversion or exercise of the outstanding Notes and Warrants and issuance of
the
Conversion Shares and Warrant Shares in connection therewith (based on the
Conversion Price of the Notes or Exercise Price of the Warrants in effect from
time to time) and as otherwise required by the Notes. The Company shall not
reduce the number of shares of Common Stock reserved for issuance upon
conversion of Notes and exercise of the Warrants without the consent of each
Buyer. The Company shall at all times maintain the number of shares of Common
Stock so reserved for issuance at an amount (“Reserved
Amount”)
equal
to the number that is then actually issuable upon full conversion of the Notes
and Additional Notes and upon exercise of the Warrants and the Additional
Warrants (based on the Conversion Price of the Notes or the Exercise Price
of
the Warrants in effect from time to time). If at any time the number of shares
of Common Stock authorized and reserved for issuance (“Authorized
and Reserved Shares”)
is
below the Reserved Amount, the Company will promptly take all corporate action
necessary to authorize and reserve a sufficient number of shares, including,
without limitation, calling a special meeting of shareholders to authorize
additional shares to meet the Company’s obligations under this Section 4(h), in
the case of an insufficient number of authorized shares, obtain shareholder
approval of an increase in such authorized number of shares, and voting the
management shares of the Company in favor of an increase in the authorized
shares of the Company to ensure that the number of authorized shares is
sufficient to meet the Reserved Amount. If the Company fails to obtain such
shareholder approval within forty-five (45) days following the date on which
the
number of Reserved Amount exceeds the Authorized and Reserved Shares, the
Company shall pay to the Borrower the Standard Liquidated Damages Amount (as
defined in Section 2(f) above), in cash or in shares of Common Stock at the
option of the Buyer. If the Buyer elects to be paid the Standard Liquidated
Damages Amount in shares of Common Stock, such shares shall be issued at the
Conversion Price at the time of payment. In order to ensure that the Company
has
authorized a sufficient amount of shares to meet the Reserved Amount at all
times, the Company must deliver to the Buyer at the end of every quarter a
list
detailing (1) the current amount of shares authorized by the Company and
reserved for the Buyer; and (2) amount of shares issuable upon conversion of
the
Notes and upon exercise of the Warrants and as payment of interest accrued
on
the Notes for one year. If the Company fails to provide such list within
forty-five (45) business days of the end of each quarter, the Company shall
pay
the Standard Liquidated Damages Amount, in cash or in shares of Common Stock
at
the option of the Buyer, until the list is delivered. If the Buyer elects to
be
paid the Standard Liquidated Damages Amount in shares of Common Stock, such
shares shall be issued at the Conversion Price at the time of
payment.
Page
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i. Listing.
The
Company shall promptly secure the listing of the Conversion Shares and Shares
underlying the Warrants upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and, so long as any Buyer owns any
of
the Securities, shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all Conversion Shares and Warrant Shares
from time to time issuable upon conversion of the Notes or exercise of the
Warrants. The Company will obtain and, so long as any Buyer owns any of the
Securities, maintain the listing and trading of its Common Stock on the OTCBB
or
any equivalent replacement exchange, the Nasdaq National Market (“Nasdaq”),
the
Nasdaq SmallCap Market (“Nasdaq
SmallCap”),
the
New York Stock Exchange (“NYSE”),
or
the American Stock Exchange (“AMEX”)
and
will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers (“NASD”)
and
such exchanges, as applicable. The Company shall promptly provide to each Buyer
copies of any notices it receives from the OTCBB and any other exchanges or
quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges and
quotation systems.
j. Corporate
Existence.
So long
as a Buyer beneficially owns any Notes or Warrants, the Company shall maintain
its corporate existence and shall not sell all or substantially all of the
Company’s assets, except in the event of a merger or consolidation or sale of
all or substantially all of the Company’s assets, where the surviving or
successor entity in such transaction (i) assumes the Company’s obligations
hereunder and under the agreements and instruments entered into in connection
herewith and (ii) is a publicly traded corporation whose Common Stock is listed
for trading on the OTCBB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
k. No
Integration.
The
Company shall not make any offers or sales of any security (other than the
Securities) under circumstances that would require registration of the
Securities being offered or sold hereunder under the 1933 Act or cause the
offering of the Securities to be integrated with any other offering of
securities by the Company for the purpose of any stockholder approval provision
applicable to the Company or its securities.
l. Subsequent
Investment.
The
Buyer will initially purchase notes in the aggregate principal amount of Six
Hundred Thousand ($600,000) with the closing to occur upon execution of this
Agreement. The Company and the Buyers agree that, upon the declaration of
effectiveness of the Registration Statement to be filed pursuant to the
Registration Rights Agreement (the “Effective
Date”),
the
Buyers shall purchase additional notes (the “Additional
Notes”)
in the
aggregate principal amount of Four Hundred Thousand Dollars ($400,000), for
an
aggregate purchase price of Four Hundred Thousand Dollars ($400,000), with
the
closing of such purchase to occur within five (5) days of the Effective Date;
provided,
however,
that
the obligation of each Buyer to purchase the Additional Notes is subject to
the
satisfaction, at or before the closing of such purchase and sale, of the
conditions set forth in Section 7; and, provided,
further,
that
there shall not have been a Material Adverse Effect as of such effective date.
The terms of the Additional Notes shall be identical to the terms of the Notes
to be issued on the Closing Date. The Common Stock underlying the Additional
Notes shall be Registrable Securities (as defined in the Registration Rights
Agreement) and shall be included in the Registration Statement to be filed
pursuant to the Registration Rights Agreement.
Page
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m. Key
Man Insurance.
The
Company shall use its best efforts to obtain, on or before thirty (30) business
days from the date hereof, key man life insurance on all of the Company’s
officers and division heads.
n. Breach
of Covenants.
If the
Company breaches any of the covenants set forth in this Section 4, and in
addition to any other remedies available to the Buyers pursuant to this
Agreement, the Company shall pay to the Buyers the Standard Liquidated Damages
Amount, in cash or in shares of Common Stock at the option of the Company,
until
such breach is cured. If the Company elects to pay the Standard Liquidated
Damages Amount in shares, such shares shall be issued at the Conversion Price
at
the time of payment.
o. Trading
Activities.
Neither
the Buyers nor their affiliates has an open short position in the common stock
of the Company and the Buyers agree that they have not and shall not, and that
they will cause their affiliates not to, engage in any short sales, including,
but not limited to naked short sales, of or hedging transactions with respect
to
the common stock of the Company nor will they request or cause their brokerage
firms to engage in any such activities.
5. TRANSFER
AGENT INSTRUCTIONS.
The
Company shall issue irrevocable instructions to its transfer agent to issue
certificates, registered in the name of each Buyer or its nominee, for the
Conversion Shares and Warrant Shares in such amounts as specified from time
to
time by each Buyer to the Company upon conversion of the Notes or exercise
of
the Warrants in accordance with the terms thereof (the “Irrevocable
Transfer Agent Instructions”).
Prior
to registration of the Conversion Shares and Warrant Shares under the 1933
Act
or the date on which the Conversion Shares and Warrant Shares may be sold
pursuant to Rule 144 without any restriction as to the number of Securities
as
of a particular date that can then be immediately sold, all such certificates
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer instructions
to give effect to Section 2(f) hereof (in the case of the Conversion Shares
and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares and Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of Securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as
and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section shall affect in any way the Buyer’s obligations and
agreement set forth in Section 2(g) hereof to comply with all applicable
prospectus delivery requirements, if any, upon re-sale of the Securities. If
a
Buyer provides the Company, at the cost of the Company, with (i) an opinion
of
counsel in form, substance and scope customary for opinions in comparable
transactions, to the effect that a public sale or transfer of such Securities
may be made without registration under the 1933 Act and such sale or transfer
is
effected or (ii) the Buyer provides reasonable assurances that the Securities
can be sold pursuant to Rule 144, the Company shall permit the transfer, and,
in
the case of the Conversion Shares and Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates, free from restrictive legend,
in such name and in such denominations as specified by such Buyer. The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Buyers, by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly, the Company acknowledges that
the
remedy at law for a breach of its obligations under this Section 5 may be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, that the Buyers shall be entitled,
in
addition to all other available remedies, to an injunction restraining any
breach and requiring immediate transfer, without the necessity of showing
economic loss and without any bond or other security being
required.
Page
- 15
6. CONDITIONS
TO THE COMPANY’S OBLIGATION TO SELL.
The
obligation of the Company hereunder to issue and sell the Notes and Warrants
to
a Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date of each of the following conditions thereto, provided that these conditions
are for the Company’s sole benefit and may be waived by the Company at any time
in its sole discretion:
a. The
applicable Buyer shall have executed this Agreement and the Registration Rights
Agreement, and delivered the same to the Company.
b. The
applicable Buyer shall have delivered the Purchase Price in accordance with
Section 1(b) above.
c. The
representations and warranties of the applicable Buyer shall be true and correct
in all material respects as of the date when made and as of the Closing Date
as
though made at that time (except for representations and warranties that speak
as of a specific date), and the applicable Buyer shall have performed, satisfied
and complied in all material respects with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the applicable Buyer at or prior to the Closing Date.
d. No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or
in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
7. CONDITIONS
TO EACH BUYER’S OBLIGATION TO PURCHASE.
The
obligation of each Buyer hereunder to purchase the Notes and Warrants at the
Closing is subject to the satisfaction, at or before the Closing Date of each
of
the following conditions, provided that these conditions are for such Buyer’s
sole benefit and may be waived by such Buyer at any time in its sole
discretion:
a. The
Company shall have executed this Agreement and the Registration Rights
Agreement, and delivered the same to the Buyer.
b. The
Company shall have delivered to such Buyer duly executed Notes (in such
denominations as the Buyer shall request) and Warrants in accordance with
Section 1(b) above.
c. The
Irrevocable Transfer Agent Instructions, in form and substance satisfactory
to a
majority-in-interest of the Buyers, shall have been delivered to and
acknowledged in writing by the Company’s Transfer Agent.
d. The
representations and warranties of the Company shall be true and correct in
all
material respects as of the date when made and as of the Closing Date as though
made at such time (except for representations and warranties that speak as
of a
specific date) and the Company shall have performed, satisfied and complied
in
all material respects with the covenants, agreements and conditions required
by
this Agreement to be performed, satisfied or complied with by the Company at
or
prior to the Closing Date. The Buyer shall have received a certificate or
certificates, executed by the chief executive officer of the Company, dated
as
of the Closing Date, to the foregoing effect and as to such other matters as
may
be reasonably requested by such Buyer including, but not limited to certificates
with respect to the Company’s Certificate of Incorporation, By-laws and Board of
Directors’ resolutions relating to the transactions contemplated
hereby.
e. No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or
in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
Page
- 16
f. No
event
shall have occurred which could reasonably be expected to have a Material
Adverse Effect on the Company.
g. The
Conversion Shares and Shares underlying the Warrants shall have been authorized
for quotation on the OTCBB and trading in the Common Stock on the OTCBB shall
not have been suspended by the SEC or the OTCBB.
h. The
Buyer
shall have received an opinion of the Company’s counsel, dated as of the Closing
Date, in form, scope and substance reasonably satisfactory to the Buyer and
in
substantially the same form as Exhibit
“D”
attached
hereto.
i. The
Buyer
shall have received an officer’s certificate described in Section 3(c) above,
dated as of the Closing Date.
8. GOVERNING
LAW; MISCELLANEOUS.
a. Governing
Law.
THIS
AGREEMENT SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF
LAWS. THE PARTIES HERETO HEREBY SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE
UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH RESPECT TO
ANY
DISPUTE ARISING UNDER THIS AGREEMENT, THE AGREEMENTS ENTERED INTO IN CONNECTION
HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES
IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
SUCH SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS
UPON
A PARTY MAILED BY FIRST CLASS MAIL CERTIFIED RETURN RECEIPT REQUESTED SHALL
BE
DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN ANY
SUCH
SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER PARTY’S RIGHT TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. BOTH PARTIES AGREE THAT A FINAL
NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE
AND
MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER
LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY DISPUTE ARISING UNDER
THIS AGREEMENT SHALL BE RESPONSIBLE FOR ALL FEES AND EXPENSES, INCLUDING
ATTORNEYS’ FEES, INCURRED BY THE PREVAILING PARTY IN CONNECTION WITH SUCH
DISPUTE.
b. Counterparts;
Signatures by Facsimile.
This
Agreement may be executed in one or more counterparts, each of which shall
be
deemed an original but all of which shall constitute one and the same agreement
and shall become effective when counterparts have been signed by each party
and
delivered to the other party. This Agreement, once executed by a party, may
be
delivered to the other party hereto by facsimile transmission of a copy of
this
Agreement bearing the signature of the party so delivering this
Agreement.
c. Headings.
The
headings of this Agreement are for convenience of reference only and shall
not
form part of, or affect the interpretation of, this Agreement.
d. Severability.
In the
event that any provision of this Agreement is invalid or unenforceable under
any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof
which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision hereof.
Page
- 17
e. Entire
Agreement; Amendments.
This
Agreement and the instruments referenced herein contain the entire understanding
of the parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the Company nor
the
Buyer makes any representation, warranty, covenant or undertaking with respect
to such matters. No provision of this Agreement may be waived or amended other
than by an instrument in writing signed by the majority in interest of the
Buyers.
f. Notices.
Any
notices required or permitted to be given under the terms of this Agreement
shall be sent by certified or registered mail (return receipt requested) or
delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed
in
the mail, if mailed by regular United States mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service)
or
by facsimile, in each case addressed to a party. The addresses for such
communications shall be:
If
to the
Company:
0000
Xxxx
Xxxxxx, #000
Xxxxxx,
Xxxxxxxxxx 00000
Attention:
Chief Executive Officer
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
With
a
copy to:
Xxxxxx
& Xxxxxx, LLP
000
Xxxxx
0, Xxxxx 000
Xxxxxxxxx,
XX 00000
Attention:
Xxxxxxx X. Xxxxxx, Esq.
Telephone:
(000) 000-0000
Facsimile:
(000) 000-0000
If
to a
Buyer: To the address set forth immediately below such Buyer’s name on the
signature pages hereto.
With
copy
to:
Xxxxxxx
Xxxxx Xxxxxxx & Xxxxxxxxx, LLP
0000
Xxxxxx Xxxxxx
00xx
Xxxxx
Xxxxxxxxxxxx,
Xxxxxxxxxxxx 00000
Attention:
Xxxxxx X. Xxxxxxxx, Esq.
Telephone:
000-000-0000
Facsimile:
000-000-0000
Each
party shall provide notice to the other party of any change in
address.
g. Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and assigns. Neither the Company nor any Buyer shall assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the other. Notwithstanding the foregoing, subject to
Section 2(f), any Buyer may assign its rights hereunder to any person that
purchases Securities in a private transaction from a Buyer or to any of its
“affiliates,” as that term is defined under the 1934 Act, without the consent of
the Company.
Page
- 18
h. Third
Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
i. Survival.
The
representations and warranties of the Company and the agreements and covenants
set forth in Sections 3, 4, 5 and 8 shall survive the closing hereunder
notwithstanding any due diligence investigation conducted by or on behalf of
the
Buyers. Both parties agree to indemnify and hold harmless the other party and
all their officers, directors, employees and agents for loss or damage arising
as a result of or related to any breach or alleged breach by either party of
any
of its representations, warranties and covenants set forth in Sections 3 and
4
hereof or any of its covenants and obligations under this Agreement or the
Registration Rights Agreement, including advancement of expenses as they are
incurred.
j. Publicity.
The
Company, and each of the Buyers shall have the right to review a reasonable
period of time before issuance of any press releases, SEC, OTCBB or NASD
filings, or any other public statements with respect to the transactions
contemplated hereby; provided,
however,
that
the Company shall be entitled, without the prior approval of each of the Buyers,
to make any press release or SEC, OTCBB (or other applicable trading market)
or
NASD filings with respect to such transactions as is required by applicable
law
and regulations (although each of the Buyers shall be consulted by the Company
in connection with any such press release prior to its release and shall be
provided with a copy thereof and be given an opportunity to comment
thereon).
k. Further
Assurances.
Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
l. No
Strict Construction.
The
language used in this Agreement will be deemed to be the language chosen by
the
parties to express their mutual intent, and no rules of strict construction
will
be applied against any party.
m. Remedies.
Both
parties acknowledges that a breach by it of its obligations hereunder will
cause
irreparable harm to the other party by vitiating the intent and purpose of
the
transaction contemplated hereby. Accordingly, the parties acknowledges that
the
remedy at law for a breach of its obligations under this Agreement will be
inadequate and agrees, in the event of a breach or threatened breach by the
party of the provisions of this Agreement, that the Buyers shall be entitled,
in
addition to all other available remedies at law or in equity, and in addition
to
the penalties assessable herein, to an injunction or injunctions restraining,
preventing or curing any breach of this Agreement and to enforce specifically
the terms and provisions hereof, without the necessity of showing economic
loss
and without any bond or other security being required.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
Page
- 19
IN
WITNESS WHEREOF,
the
undersigned Buyers and the Company have caused this Agreement to be duly
executed as of the date first above written.
_____________________________________
Xxxxxx
X.
Xxxxxx
Chief
Executive Officer
AJW
PARTNERS, LLC
By:
SMS
Group, LLC
______________________________________
Xxxxx
X.
Xxxxxxxx
Manager
RESIDENCE: Delaware
ADDRESS: 0000
Xxxxxxxx Xxxxxxxxx
Xxxxx
000
Xxxxxx,
Xxx Xxxx 00000
Facsimile:
(000) 000-0000
Telephone:
(000) 000-0000
AGGREGATE
SUBSCRIPTION AMOUNT:
Aggregate
Principal Amount of Notes:
Number
of
Warrants:
Aggregate
Purchase Price:
Page
- 20
AJW
OFFSHORE, LTD.
By:
First
Street Manager II, LLC
______________________________________
Xxxxx
X.
Xxxxxxxx
Manager
RESIDENCE: Cayman
Islands
ADDRESS: AJW
Offshore, Ltd.
X.X.
Xxx
00000 XXX
Xxxxx
Xxxxxx, Xxxxxx Xxxxxx, B.W.I.
AGGREGATE
SUBSCRIPTION AMOUNT:
Aggregate
Principal Amount of Notes:
Number
of
Warrants:
Aggregate
Purchase Price:
Page
- 21
AJW
QUALIFIED PARTNERS, LLC
By:
AJW
Manager, LLC
____________________________________
Xxxxx
X.
Xxxxxxxx
Manager
RESIDENCE: New
York
ADDRESS: 0000
Xxxxxxxx Xxxxxxxxx
Xxxxx
000
Xxxxxx,
Xxx Xxxx 00000
Facsimile: (000)
000-0000
Telephone: (000)
000-0000
AGGREGATE
SUBSCRIPTION AMOUNT:
Aggregate
Principal Amount of Notes:
Number
of
Warrants:
Aggregate
Purchase Price:
Page
- 22
NEW
MILLENNIUM CAPITAL PARTNERS II, LLC
By:
First
Street Manager II, LLP
____________________________________
Xxxxx
X.
Xxxxxxxx
Manager
RESIDENCE:
New
York
ADDRESS: 0000
Xxxxxxxx Xxxxxxxxx
Xxxxx
000
Xxxxxx,
Xxx Xxxx 00000
Facsimile: (000)
000-0000
Telephone: (000)
000-0000
AGGREGATE
SUBSCRIPTION AMOUNT:
Aggregate
Principal Amount of Notes:
Number
of
Warrants:
Aggregate
Purchase Price:
Page
- 23
SCHEDULE
3(A)
SUBSIDIARIES
OF THE COMPANY
Camelot
Development, LLC. (1) NV
Camelot
Distribution Group, Inc.
(2)
NV
Camelot
Features, Inc.
(3)
NV
Camelot
Films, Inc.
(4)
CA,
DE,
NV
Camelot
Production Services Group,
Inc.
NV
Camelot
Technologies,
Inc.
NV
Capital
Arts Enterprises, Inc.
(5) CA
Capital
Arts International, Inc.
(6)
CA
Xxxxxx.xxx,
Inc.
XX
Xxxxxx
Wheel Films, Inc.
(7)
CA,
NV
Latin
Ladies,
LLC.
NV
Pioneer
Entertainment,
LLC.
NV
Notes:
| (1) |
A
subsidiary of Camelot Studio Group
|
| (2) |
A
subsidiary of Camelot Film Group
|
| (3) |
A
subsidiary of Camelot Film Group
|
| (4) |
A
subsidiary of Camelot Film Group
|
| (5) |
A
subsidiary of Camelot Film Group
|
| (6) |
A
subsidiary of Camelot Film Group
|
| (7) |
A
subsidiary of Camelot Film Group
|
Page
- 24
SCHEDULE
3(C)
OUTSTANDING
OPTIONS, WARRANTS, SCRIP, RIGHTS TO SUBSCRIBE FOR, PUTS, CALLS, RIGHTS OF FIRST
REFUSAL, AGREEMENTS, UNDERSTANDINGS, CLAIMS OR OTHER COMMITMENTS OR
RIGHTS
The
following agreements include provisions for stock, options, warrants,
etc.:
Consulting
agreement with The Corporate Solution, Inc. (Wholly owned by Camelot Chairman
Xxxxxx X. Xxxxxx).
Consulting
agreement with Eagle Consulting Group, Inc. (Wholly owned by Camelot Chairman
Xxxxxx X. Xxxxxx).
Consulting
agreement with The Xxxxxx Group, Inc. (Wholly owned by Camelot Chairman Xxxxxx
X. Xxxxxx).
Employment
Agreements with Xxxxxx X. Xxxxxx CEO and Xxxxxxx Xxxxx COO.
Scorpion
Bay, LLC., a California Limited Liability Company, 500,000 options on same
terms
and conditions as Management.
Xxxxxxx
and Associates (Studio Architects), Stock and Option Agreement (exact amount
TBD)
Studio
Project Stock and Option Agreements (exact amount TBD).
Capital
Arts Entertainment Pending Acquisition (exact amount TBD).
Legal
fees and expenses including stock and option agreements (exact amount
TBD).
Employee
Stock Option Program, Management and employee options scheduled to be issued
during fourth quarter (exact amount TBD).
Page
- 25
SCHEDULE
3(F)
CONSENTS,
AUTHORIZATIONS, ORDERS, FILINGS AND REGISTRATIONS
All
filings current with SEC.
No
additional registration statements filed.
Page
- 26
SCHEDULE
3(G)
SEC
FILINGS NOT FILED
None,
all
filings up to date.
SCHEDULE
3(I)
PROCEEDINGS
HAVING A MATERIAL ADVERSE EFFECT
None
Page
- 27
SCHEDULE
3(J)
SUITS
AGAINST INTELLECTUAL PROPERTY
None
Page
- 28
SCHEDULE
3(L)
TAXES
NOT FILED/BEING AUDITED
None
SCHEDULE
3(M)
TRANSACTIONS
IN WHICH AN OFFICER OR DIRECTOR IS A PARTY
Xx.
Xxxxxx X. Xxxxxx, Chairman and CEO of Camelot owns Eagle Consulting Group,
Inc.,
The Corporate Solution, Inc., The Xxxxxx Group, Inc., all of which have provided
funding and / or consulting services to Camelot and its subsidiaries. Xx. Xxxxxx
and/or the above entities provided collateral and guarantees in connection
with
the Scorpion Bay LLC transaction.
Page
- 29
SCHEDULE
3(Q)
ACTIONS
GIVING RISE TO BROKERAGE FEES/COMMISSIONS
None
SCHEDULE
3(S)
PAST/PRESENT
VIOLATIONS OF ENVIRONMENTAL LAWS
None
SCHEDULE
3(T)
ENCUMBERANCES
TO REAL PROPERTY
Camelot
Trademark (Xxxxxx X. Xxxxxx)
Certain
scripts and film properties have shared rights (various)
Page
- 30
SCHEDULE
4(D)
USE
OF PROCEEDS
Initial
funding: $1,000,000
Financing
Fees: $120,000
Document
Fees and Expenses: $50,000
Legal
Fees and
Expenses:
$65,000
Engineering
Fees and
Expenses:
$25,000
Architectural
Fees and Expenses:
$50,000
Public
Relations Fees and Expenses: $60,000
Investor
Relations Fees and Expenses: $25,000
Office
Rent and Related Expenses:
$84,000
Administrative
Costs and Expenses: $250,000
Studio
Legal
Fees: $100,000
Political
Consultant
Fees:
$30,000
Marketing
Fees and
Materials:
$45,000
Trade
Shows:
$65,000
Production
Development Costs: $31,000
$1,000,000
Use
of Proceeds includes on going costs and expenses currently being funded either
directly or indirectly by Xx. Xxxxxx, Camelot Chairman and CEO. Scorpion Bay
LLC
Note included in administrative Costs and Expenses
Page
- 31
