STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the ____ of
September, 2004, by and between Small World Kids, Inc. (the "Company"), a
corporation organized under the laws of the State of Nevada, with its principal
offices at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and Wire Mill
Partners III, LLC, a Delaware limited liability company with an address of ▇.▇.
▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Purchaser").
IN CONSIDERATION of the mutual covenants contained in this
Agreement, the Company and the Purchaser hereby agree as follows:
SECTION 1. Authorization of Sale of the Shares. Subject to the
terms and conditions of this Agreement, the Company may issue and sell to the
Purchaser and the Purchaser shall purchase from the Company up to 10,100,000
shares of the Company's common stock (the "Shares"), par value $.001 per share
(the "Common Stock"). The Company has authorized and has reserved and covenants
to continue to reserve, free of preemptive rights and other similar contractual
rights of stockholders, a sufficient number of its authorized but unissued
shares of its Common Stock to cover the Shares which may be issued pursuant to
the terms of this Agreement.
SECTION 2. Agreement to Purchase the Shares.
2.1 Schedule 2.1 attached hereto defines two (2) tranches of
Shares that the Purchaser has agreed to purchase from the Company (each, a
"Tranche") and, with respect to each Tranche, sets forth the number of Shares
constituting such Tranche (the "Tranche Shares") and the purchase price per
share for the Tranche Shares in such Tranche (the "Tranche Purchase Price").
2.2 The Company may, in its sole discretion, elect to sell the
Tranche Shares of any Tranche to the Purchaser at any time after the date on
which the Registration Statement (as defined in Section 7.1) of the Company
covering the Shares is declared effective (the "Effective Date"); provided,
however, (i) the Company must elect to sell all of the Tranche Shares included
in a Tranche if it elects to sell any of the Tranche Shares in such Tranche; and
(ii) the Company must elect to sell the Tranche Shares in the order that the
Tranches are listed on Schedule 2.1. For purposes of this Section 2.2, each
Tranche shall include each corresponding "Tranche" as defined in the Other
Purchaser Agreement (as hereinafter defined); accordingly, (A) any election or
requirement of the Company to sell any Tranche hereunder shall automatically,
and without any further action by any party, be deemed to be the requirement or
election of the Company to sell the corresponding Tranche under the Other
Purchaser Agreement, and (B) any election or requirement of the Company to sell
any Tranche under the Other Purchaser Agreement shall automatically be deemed to
be the requirement or election of the Company to sell the corresponding Tranche
under this Agreement and the Other Purchaser Agreement. Notwithstanding the
foregoing, the Company agrees to sell to the Purchaser Tranche 1 (as identified
in Schedule 2.1 hereto) following the Effective Date. To effect its election to
sell Shares, the Company must give written notice thereof (an "Election Notice")
to the Purchaser. The Election Notice shall specify the Tranche with respect to
which the election is being made and the date on which the closing of the sale
and purchase of the Tranche Shares shall occur; provided, such date shall be a
business day and shall not be earlier than ten Business Days after the date such
Election Notice is given to the Purchaser. An Election Notice shall be
irrevocable except as provided in Section 3.5. Notwithstanding any provision
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herein to the contrary, the Company may not elect to sell the Tranche Shares of
any Tranche to the Purchaser, if the aggregate number of shares of Common Stock
beneficially owned by the Purchaser and its affiliates following the purchase of
the Tranche Shares would result in beneficial ownership of more than 9.9% of the
Company's then outstanding shares of Common Stock. Beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities and Exchange Act
of 1934, as amended. For purposes hereof, "Other Purchaser Agreement" shall mean
the following agreement the Stock Purchase Agreement, dated as of the date
hereof, between the Company, Pewter Hill Partners, LLC and Infinium Investment
Partners, LLC.
SECTION 3. Closing of the Purchase of the Shares.
3.1 Subject to the satisfaction or waiver of the conditions
precedent set forth in Sections 3.2 and 3.3, the closing of a purchase of
Tranche Shares by the Purchaser pursuant to this Agreement (each, a "Closing")
shall occur at 10:00 a.m. on the date specified in the Election Notice delivered
by the Company with respect to such Tranche Shares (the time and date of the
Closing of a particular Tranche is referred to herein as the "Tranche Closing
Date"). The Closing shall occur at such place as the parties may mutually agree.
3.2 The obligation of the Purchaser to purchase Tranche Shares
at a Closing shall be subject to the satisfaction of the following conditions,
or the waiver of such conditions by the Purchaser, at or prior to the applicable
Tranche Closing Date:
(a) the representations and warranties of the Company set
forth in Section 4 of this Agreement shall be true and correct with the same
force and effect as though expressly made on and as of such Tranche Closing
Date, except for representations or warranties made as of a particular date
which representations and warranties shall be true and correct as of such date;
(b) the Company shall have complied with all the agreements
hereunder and satisfied all the conditions on its part to be performed or
satisfied hereunder at or prior to such Tranche Closing Date;
(c) the Company shall have delivered to the Purchaser a
certificate executed by the Chairman of the Board or President and the chief
financial or accounting officer of the Company, dated the applicable Tranche
Closing Date, to the effect that the conditions in clauses (a) and (b) have been
satisfied;
(d) between the Effective Date and the applicable Closing
Date, there shall not have occurred any material adverse effect on, or material
adverse change in, or a group of such effects on or changes that together are
materially adverse in, the business, operations, financial condition, results of
operations, prospects, assets or liabilities on the Company or its subsidiary;
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(e) the Registration Statement shall have been declared
effective and shall not have been withdrawn, no stop order suspending the
effectiveness of the Registration Statement shall be in effect, and no
proceedings for the suspension of the effectiveness of the Registration
Statement shall have been instituted or threatened by the Securities and
Exchange Commission (the "Commission");
(f) a Blackout Event shall not be in effect at either the date
of the relevant Election Notice or the date of the closing of such Tranche.
3.3 The obligation of the Company to sell Tranche Shares at a
Closing shall be subject to the satisfaction of the following conditions, or the
waiver of such conditions by the Company, at or prior to the applicable Tranche
Closing Date:
(a) the representations and warranties of the Purchaser set
forth in Section 5 of this Agreement shall be true and correct with the same
force and effect as though expressly made on and as of such Tranche Closing
Date, except for representations or warranties made as of a particular date
which representations and warranties shall be true and correct as of such date;
(b) the Purchaser shall have complied with all the agreements
hereunder and satisfied all the conditions on its part to be performed or
satisfied hereunder at or prior to such Tranche Closing Date;
(c) the Purchaser shall have delivered to the Company a
certificate executed by a duly authorized officer of the Purchaser, dated the
applicable Tranche Closing Date, to the effect that the conditions in clauses
(a) and (b) have been satisfied; and
(d) no stop order suspending the effectiveness of the
Registration Statement shall be in effect, and no proceedings for the suspension
of the effectiveness of the Registration Statement shall have been instituted or
threatened by the Commission.
3.4 At each Closing, (i) each of the Company and the Purchaser shall
deliver to the other, as applicable, any documents required to be delivered by
Sections 3.2 or 3.3 which have not been delivered prior to such Closing, (ii)
the Purchaser shall pay to the Company, by wire transfer of immediately
available funds to an account designated in writing by the Company at or prior
to the Closing, the applicable Tranche Purchase Price for the Tranche Shares
being purchased at the Closing, and (iii) the Company shall deliver to the
Purchaser a stock certificate representing the Tranche Shares being purchased or
shall cause the Tranche Shares being purchased to be electronically transferred
to the Purchaser.
3.5 If a Closing does not occur on a proposed Tranche Closing Date
because the conditions specified in Sections 3.3 and 3.4 were not satisfied at
the time of the applicable proposed Tranche Closing Date, the Election Notice
with respect to the Tranche or Tranches proposed to be sold on such proposed
Tranche Closing Date shall automatically be revoked; provided, however, such
revocation shall not impair the right of the Company to give another Election
Notice with respect to the Tranche or Tranches covered by the revoked Election
Notice or to compel the Purchaser to purchase any Tranche Shares included in
such Tranche or Tranches on a subsequent Tranche Closing Date on which the
conditions specified in Section 3.2 are satisfied.
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SECTION 4. Representations and Warranties of the Company. The
Company hereby represents and warrants to the Purchaser as follows:
4.1 Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and the Company is qualified to do business
as a foreign corporation in each jurisdiction in which qualification is
required, except where the failure to so qualify would not individually or in
the aggregate have a material adverse effect on the financial condition, results
of operations, properties or business of the Company taken as a whole.
4.2 Subsidiaries. As of the date hereof, the Company does not
have any subsidiaries other than Small World Toys, Inc., a California
corporation. As used in this Section 4 other than Section 4.10, the term "the
Company" shall include such subsidiary.
4.3 Authorized and Outstanding Capital Stock. As of the date
hereof, the Company has authorized 105,000,000 shares of capital stock,
consisting of (i) 100,000,000 shares of Common Stock, of which 52,470,750 shares
are issued and outstanding as of the date of this Agreement, and (ii) 5,000,000
shares of preferred stock, $.001 par value per share, none of which are issued
or outstanding as of the date of this Agreement. There are no authorized or
outstanding options, warrants, preemptive rights, rights of first refusal or
other rights to purchase any capital stock of the Company or any equity or debt
securities convertible into or exchangeable or exercisable for capital stock of
the Company.
4.4 Issuance, Sale and Delivery of the Shares. The Shares have
been duly authorized and, when issued, delivered and paid for in the manner set
forth in this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable. No preemptive rights or other rights to subscribe for or purchase
exist with respect to the issuance and sale of the Shares by the Company
pursuant to this Agreement. No further approval or authority of the stockholders
or the Board of Directors of the Company will be required for the issuance and
sale of the Shares to be sold by the Company as contemplated herein.
4.5 Due Execution, Delivery and Performance of the Agreements.
The Company has full legal right, corporate power and authority to enter into
this Agreement and to perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company. The
execution, delivery and performance of this Agreement by the Company and the
consummation of the transactions herein contemplated will not violate any
provision of the organizational documents of the Company and will not result in
the creation of any lien, charge, security interest or encumbrance upon any
assets or property of the Company pursuant to the terms or provisions of, or
will not conflict with, result in the breach or violation of, or constitute,
either by itself or upon notice or the passage of time or both, a default under
any agreement, mortgage, deed of trust, lease, franchise, license, indenture,
permit or other instrument to which the Company is a party or by which the
Company or any of its assets or properties may be bound or affected or any
statute or any authorization, judgment, decree, order, rule or regulation of any
court or any regulatory body, administrative agency or other governmental body
applicable to the Company or any of its properties. No consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body is required for the execution, delivery and
performance of this Agreement or the consummation by the Company of the
transactions contemplated hereby, except for compliance with the Blue Sky laws
and federal securities laws applicable to the offering of the Shares. Assuming
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the valid execution hereof by the Purchaser, this Agreement will constitute the
legal, valid and binding obligation of the Company, enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and except as enforceability may be subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and except as the
indemnification agreements of the Company in Section 7.3 hereof may be legally
unenforceable.
4.6 No Actions. Except as disclosed to the Purchaser, there
are no legal or governmental actions, suits or proceedings pending or, to the
Company's knowledge, threatened to which the Company is or may be a party which
seeks to prevent or restrain the transactions contemplated by this Agreement or
to recover damages as a result of the consummation of such transactions.
4.7 Investment Company. The Company is not an "investment
company" or an "affiliated person" of, or "promoter" or "principal underwriter"
for an investment company, within the meaning of the Investment Company Act of
1940, as amended.
4.8 Conflicting Registration Rights. No stockholder of the
Company has any right (which has not been waived or has not expired by reason of
lapse of time following notification of the Company's intent to file the
Registration Statement) to request or require the Company to register the sale
of any shares owned by such stockholder under the Securities Act of 1933, as
amended (the "Securities Act"), on the Registration Statement, except for
holders of shares of Common Stock entitled to be included in the Registration
Statement pursuant to Section 7.1(a).
4.9 Brokers. Except for a five percent (5%) placement fee
payable to First Securities USA, Inc., there is no broker, finder or other party
that is entitled to receive from the Company any brokerage or finder's fee or
other fee or commission as a result of any transactions contemplated by this
Agreement.
4.10 Books and Records. The books, records and accounts of
Small World Toys, Inc. and, since May 20, 2004, the books, records and accounts
of the Company, accurately and fairly reflect, in reasonable detail, the
transactions in, and dispositions of, the assets of, and the results of
operations of, Small World Toys, Inc. and the Company, all to the extent
required by generally accepted accounting principles. The Company maintains a
system of internal accounting controls sufficient to provide reasonable
assurances 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 accordance 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.
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4.11 Legal Compliance.
(a) The Company is in compliance with, and is not in violation of,
applicable federal, state, local or foreign statutes, laws and regulations
(including without limitation, any applicable building, zoning or other law,
ordinance or regulation) affecting its properties or the operation of its
business. The Company is not subject to any order, decree, judgment or other
sanction of any court, administrative agency or other tribunal.
(b) Each of the Company, its directors and its senior financial
officers has consulted with the Company's independent auditors and with the
Company's outside counsel with respect to, and (to the extent applicable to the
Company) is familiar in all material respects with all of the requirements of,
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 and the rules and regulations adopted pursuant
thereto (collectively, "SOX"). The Company is in compliance with the provisions
of such act applicable to it as of the date hereof and has implemented such
programs and has taken reasonable steps, upon the advice of the Company's
independent auditors and outside counsel, respectively, to ensure the Company's
future compliance (not later than the relevant statutory and regulatory
deadlines therefore) with all provisions of such act which shall become
applicable thereto after the date hereof.
4.12 Limitations. The Company acknowledges and agrees that the
obligations of the Purchaser under this Agreement are solely the obligations of
the Purchaser and are not the obligations of any member, director, manager,
officer, employee or agent of the Purchaser or any person or entity directly or
indirectly controlling the Purchaser. The Company, on its own behalf and on
behalf of any of its successors and assigns, hereby (i) waives any claim, suit,
action or proceeding against any member, director, manager, officer, employee or
agent of the Purchaser, or any person or entity directly or indirectly
controlling the Purchaser ("Debtor Related Parties"), arising under or in
connection with this Agreement, or the obligations of Purchaser under this
Agreement, and (ii) agrees to refrain from bringing any claim, suit, action or
proceeding against any Debtor Related Parties arising under or in connection
with this Agreement, or the obligations of the Purchaser under this Agreement.
Notwithstanding any other provision of this Agreement, the Company waives any
claim against the Purchaser arising from a default or reach of this Agreement
for any monetary damages in excess of the amounts the Purchaser is entitled to
pursuant to Section 2 hereof.
4.13 Sole Representations and Warranties. Except for the
representations and warranties contained in this Section 4, the Company makes no
representation or warranty to the Purchaser, express or implied, in connection
with the transactions contemplated by this Agreement.
SECTION 5. Representations and Warranties of the Purchaser.
The Purchaser represents and warrants to the Company as follows:
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5.1 Organization and Qualification. The Purchaser is a limited
liability company duly organized, validly existing and in good standing under
the laws of its jurisdiction of formation.
5.2 Due Execution, Delivery and Performance of the Agreements.
The Purchaser has full legal right, power and authority to enter into this
Agreement and to perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Purchaser. The
execution, delivery and performance of this Agreement by the Purchaser and the
consummation of the transactions herein contemplated will not violate any
provision of the organizational documents of the Purchaser and will not result
in the creation of any lien, charge, security interest or encumbrance upon any
assets or property of the Purchaser pursuant to the terms or provisions of, or
will not conflict with, result in the breach or violation of, or constitute,
either by itself or upon notice or the passage of time or both, a default under
any agreement, mortgage, deed of trust, lease, franchise, license, indenture,
permit or other instrument to which the Purchaser is a party or by which the
Purchaser or any of its assets or properties may be bound or affected or any
statute or any authorization, judgment, decree, order, rule or regulation of any
court or any regulatory body, administrative agency or other governmental body
applicable to the Purchaser or any of its properties. No consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body is required for the execution, delivery and
performance of this Agreement or the consummation by the Purchaser of the
transactions contemplated hereby. Assuming the valid execution hereof by the
Company, this Agreement will constitute the legal, valid and binding obligation
of the Purchaser, enforceable in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) and except as the indemnification agreements of the Purchaser
in Section 7.3 hereof may be legally unenforceable.
5.3 No Actions. There are no legal or governmental actions,
suits or proceedings pending or, to the Purchaser's knowledge, threatened to
which the Purchaser is or may be a party which seeks to prevent or restrain the
transactions contemplated by this Agreement or to recover damages as a result of
the consummation of such transactions. The Purchaser has not been and is not
currently the subject of an investigation or inquiry by the Securities and
Exchange Commission, the NASD, or any state securities commission.
5.4 Nature of Purchaser. The Purchaser is knowledgeable,
sophisticated and experienced in making, and is qualified to make, decisions
with respect to investments in shares representing an investment decision like
that involved in the purchase of the Shares, including investments in securities
issued by the Company. The Purchaser is an "accredited investor" within the
meaning of Rule 501(a) of Regulation D promulgated under the Securities Act, and
each equity investor in the Purchaser is an accredited investor as so defined.
The Purchaser is not a "dealer" within the meaning of the Securities Act or a
"broker" or "dealer" within the meaning of the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
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5.5 Access to Information. The Purchaser has requested,
received, reviewed and considered all information it deems relevant in making an
informed decision to purchase the Shares.
5.5 Investment Intent. The Purchaser is acquiring the Shares
in the ordinary course of its business and for its own account for investment
only and with no present intention of distributing any of such Shares or
entering into any arrangement or understanding with any other person regarding
the distribution of such Shares (it being understood that the foregoing does not
limit the Purchaser's right to sell Shares pursuant to the Registration
Statement).
5.6 Sole Representations and Warranties. Except for the
representations and warranties contained in this Section 5, the Purchaser makes
no representation or warranty to the Company, express or implied, in connection
with the transactions contemplated by this Agreement.
SECTION 6. Survival of Representations, Warranties and
Agreements. Notwithstanding any investigation made by any party to this
Agreement, all covenants, agreements, representations and warranties made by the
Company and the Purchaser herein and in the certificates delivered pursuant
hereto shall survive the execution of this Agreement, the delivery to the
Purchaser of the Shares being purchased and the payment therefor.
SECTION 7. Covenants.
7.1 Registration Procedures and Expenses.
(a) As soon as practicable, but in any event no later than
forty-five (45) days following the date of this Agreement, the Company shall
prepare and file with the Commission a registration statement on Form SB-2 or
other applicable form as determined by the Company (the "Registration
Statement") for the purpose of registering the sale of the Shares by the
Purchaser from time to time on the facilities of any securities exchange or
trading system on which the Common Stock is then traded or in
privately-negotiated transactions, which Registration Statement shall contain
all material non-public information disclosed to the Purchaser by the Company in
connection with the issuance and sale of the Shares. For purposes of this
Section 7.1, the term "Shares" shall include any other securities of the Company
issued in exchange for the Shares, as a dividend on the Shares or in connection
with a stock split or other reorganization transaction affecting the Shares. The
Company shall use its commercially reasonable efforts to cause the Registration
Statement to become effective as soon as practicable, and in any event by the
date 150 days following the date of the filing thereof with the Commission. The
Company may include in the Registration Statement (i) shares of Common Stock
held by Pewter Hill Partners, LLC; (ii) shares of Common Stock held by Infinium
Investment Partners, LLC; and (iii) the shares of Common Stock held by other
holders of Common Stock as set forth on Schedule 7.1(a), in each case such
shares subject to a lock-up agreement with the Company.
(b) The Company shall prepare and file with the Commission
such amendments and supplements to the Registration Statement and the prospectus
forming a part thereof as may be necessary to keep the Registration Statement
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effective until the earliest date, after the date on which all of the Shares
have been purchased pursuant to this Agreement or the obligation of the
Purchaser to purchase the Shares pursuant to this Agreement has been terminated,
on which (i) all the Shares have been disposed of pursuant to the Registration
Statement, (ii) all of the Shares then held by the Purchaser may be sold under
the provisions of Rule 144 without limitation as to volume, whether pursuant to
Rule 144(k) or otherwise, or (iii) the Company has determined that all Shares
then held by the Purchaser may be sold without restriction under the Securities
Act and has removed any stop transfer instructions relating to such Shares and
offered to cause to be removed any restrictive legends on the certificates, if
any representing such Shares (the period between the Effective Date and the
earliest of such dates is referred to herein as the "Registration Period"). At
any time after the end of the Registration Period, the Company may withdraw the
Registration Statement and its obligations under this Section 7 (other than its
obligations under Section 7.3) shall automatically terminate.
(c) The Purchaser agrees to comply with all federal and state
securities laws (including SOX) and the rules and regulations promulgated
thereunder in connection with any sale by it of the Shares, whether or not such
sale is pursuant to the Registration Statement. In connection with the sale of
any Shares pursuant to the Registration Statement, but without limiting the
generality of the foregoing sentence, the Purchaser shall (i) comply with the
provisions of Regulation M promulgated under the Exchange Act, and (ii) deliver
to the purchaser of Shares the prospectus forming a part of the Registration
Statement and all relevant supplements thereto which have been provided by the
Company to the Purchaser on or prior to the applicable delivery date.
(d) The Company shall not be obligated to prepare and file a
post-effective amendment or supplement to the Registration Statement or the
prospectus constituting a part thereof during the continuance of a Blackout
Event. A "Blackout Event" means any of the following: (a) the possession by the
Company of material information that is not ripe for disclosure in a
registration statement or prospectus, as determined in good faith by the Chief
Executive Officer or the Board of Directors of the Company or that disclosure of
such information in the Registration Statement or the prospectus constituting a
part thereof would be detrimental to the business and affairs of the Company; or
(b) any material engagement or activity by the Company which would, in the good
faith determination of the Chief Executive Officer or the Board of Directors of
the Company, be adversely affected by disclosure in a registration statement or
prospectus at such time.
(e) At least ten (10) days prior to the filing with the
Commission of the Registration Statement (or any amendment thereto) or the
prospectus forming a part thereof (or any supplement thereto), the Company shall
provide draft copies thereof to the Purchaser and shall consider incorporating
into such documents such comments as the Purchaser (and its counsel) may propose
to be incorporated therein. Notwithstanding the foregoing, no prospectus
supplement, the form of which has previously been provided to the Purchaser,
need be delivered in draft form to the Purchaser.
(f) The Company shall promptly notify the Purchaser upon the
occurrence of any of the following events in respect of the Registration
Statement or the prospectus forming a part thereof: (i) receipt of any request
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for additional information from the Commission or any other federal or state
governmental authority during the Registration Period, the response to which
would require any amendments or supplements to the Registration Statement or
related prospectus; (ii) the issuance by the Commission or any other federal or
state governmental authority of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any proceedings for that
purpose; or (iii) receipt of any notification with respect to the suspension of
the qualification or exemption from qualification of any of the Shares for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose.
(g) The Company shall furnish to the Purchaser with respect to
the Shares registered under the Registration Statement (and to each underwriter,
if any, of such Shares) such number of copies of prospectuses and such other
documents as the Purchaser may reasonably request, in order to facilitate the
public sale or other disposition of all or any of the Shares by the Purchaser
pursuant to the Registration Statement.
(h) The Company shall file or cause to be filed such documents
as are required to be filed by the Company for normal blue sky clearance in
states specified in writing by the Purchaser; provided, however, that the
Company shall not be required to qualify to do business or consent to service of
process in any jurisdiction in which it is not now so qualified or has not so
consented.
(i) With a view to making available to the Purchaser the
benefits of Rule 144, the Company agrees, throughout the Registration Period and
so long as the Purchaser owns Shares purchased pursuant to this Agreement, to:
(i) comply with the provisions of paragraph (c)(1) of
Rule 144; and
(ii) file with the Commission in a timely manner all
reports and other documents required to be filed by the Company pursuant to
Section 13 or 15(d) under the Exchange Act; and, if at any time it is not
required to file such reports but in the past had been required to or did file
such reports, it will, upon the request of the Purchaser, make available other
information as required by, and so long as necessary to permit sales of its
Shares pursuant to, Rule 144.
(j) The Company shall bear all expenses incurred by it in
connection with the procedures in paragraphs (a) through (i) of this Section 7.1
and the registration of the Shares pursuant to the Registration Statement. The
Company shall not be responsible for any expenses incurred by the Purchaser in
connection with its sale of the Shares or its participation in the procedures in
paragraphs (a) through (i) of this Section 7.1 including, without limitation,
any fees and expenses of counsel or other advisers to the Purchaser and any
underwriting discounts, brokerage fees and commissions incurred by the
Purchaser.
(k) Throughout the Registration Period, the Company agrees to
retain the services of an investor relations firm with sufficient skill and
experience necessary to assist the Company in effectively communicating to the
financial markets.
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7.2 Covenants of the Purchaser.
(a) The Purchaser acknowledges and understands that the Shares
are "restricted securities" as defined in Rule 144. The Purchaser hereby agrees
not to offer or sell (as such terms are defined in the Securities Act and the
rules and regulations promulgated thereunder) any Shares unless such offer or
sale is made (a) pursuant to an effective registration of the Shares under the
Securities Act, or (b) pursuant to an available exemption from the registration
requirements of the Securities Act. The Purchaser agrees that it will not engage
in hedging transactions with regard to the Shares other than in compliance with
the Securities Act. A proposed transfer shall be deemed to comply with this
Section 7.2(a) if the Purchaser delivers to the Company a legal opinion in form
and substance satisfactory to the Purchaser from counsel satisfactory to the
Purchaser to the effect that such transfer complies with this Section 7.2(a).
(b) If at any time or from time to time after the Effective
Date, the Company notifies the Purchaser in writing that the Registration
Statement or the prospectus forming a part thereof (taking into account any
prior amendments or supplements thereto) contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading, the Purchaser shall not offer or sell any Shares or engage in any
other transaction involving or relating to the Shares (other than purchases of
Shares pursuant to this Agreement), from the time of the giving of notice with
respect to such untrue statement or omission until the Purchaser receives
written notice from the Company that such untrue statement or omission no longer
exists or has been corrected or disclosed in an effective post-effective
amendment to the Registration Statement or a valid prospectus supplement to the
prospectus forming a part thereof.
(c) In connection with the sale of any Shares pursuant to the
Registration Statement, the Purchaser shall deliver to the purchaser thereof the
prospectus forming a part of the Registration Statement and all relevant
supplements thereto which have been provided by the Company to the Purchaser on
or prior to the applicable delivery date, all in accordance with the
requirements of the Securities Act and the rules and regulations promulgated
thereunder and any applicable blue sky laws.
(d) The Company may refuse to register (or permit its transfer
agent to register) any transfer of any Shares not made in accordance with this
Section 7.2 and for such purpose may place stop order instructions with its
transfer agent with respect to the Shares.
(e) The Purchaser will cooperate with the Company in all
respects in connection with the performance by the Company of its obligations
under Section 7.1, including timely supplying all information reasonably
requested by the Company (which shall include all information regarding the
Purchaser, and any person who beneficially owns Shares held by the Purchaser
within the meaning of Rule 13d-3 promulgated under the Exchange Act, and the
proposed manner of sale of the Shares required to be disclosed in the
Registration Statement) and executing and returning all documents reasonably
requested in connection with the registration and sale of the Shares. The
Purchaser hereby consents to be named as an underwriter in the Registration
Statement, if applicable, in accordance with current Commission policy and, if
necessary, to join in the request of the Company for the acceleration of the
effectiveness of the Registration Statement.
11
7.3 Indemnification. For the purpose of this Section 7.3:
(i) the term "Purchaser Affiliate" shall mean any person
who controls the Purchaser within the meaning of
Section 15 of the Securities Act or Section 20 of the
Exchange Act; and
(ii) the term "Registration Statement" shall include any
final prospectus, exhibit, supplement or amendment
included in or relating to the Registration Statement
referred to in Section 7.1.
(a) The Company agrees to indemnify and hold harmless the
Purchaser and each Purchaser Affiliate, against any losses, claims, damages,
liabilities or expenses, joint or several, to which such Purchaser or such
Purchaser Affiliate may become subject, under the Securities Act, the Exchange
Act, or any other federal or state statutory law or regulation, or at common law
or otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company), insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, as amended as of the Effective Date, including any information deemed
to be a part thereof as of the time of effectiveness pursuant to paragraph (b)
of Rule 430A, or pursuant to Rule 434 promulgated under the Securities Act, or
the prospectus, in the form first filed with the Commission pursuant to Rule
424(b) of the Regulations, or filed as part of the Registration Statement at the
time of effectiveness if no Rule 424(b) filing is required (the "Prospectus"),
or any amendment or supplement thereto, (ii) the omission or alleged omission to
state in the Registration Statement as of the Effective Date a material fact
required to be stated therein or necessary to make the statements in the
Registration Statement or any post-effective amendment or supplement thereto, or
in the Prospectus or any amendment or supplement thereto, not misleading, in
each case in the light of the circumstances under which the statements contained
therein were made, or (iii) any inaccuracy in the representations and warranties
of the Company contained in this Agreement, or any failure of the Company to
perform its obligations hereunder, and will reimburse the Purchaser and each
such Purchaser Affiliate for any legal and other expenses as such expenses which
are reasonably incurred by the Purchaser or such Purchaser Affiliate in
connection with investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability, expense or action; provided, however, that
the Company will not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense arises out of or is based upon (i) an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, the Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with written information
furnished to the Company by the Purchaser expressly for use therein, or (ii) the
failure of the Purchaser to comply with the covenants and agreements contained
in Section 7.2 hereof respecting the sale of the Shares, or (iii) the inaccuracy
of any representations made by the Purchaser herein or (iv) any statement or
omission in any Prospectus that is corrected or disclosed in any subsequent
Prospectus that was delivered to the Purchaser prior to the pertinent sale or
sales by the Purchaser.
12
(b) The Purchaser will indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of the Securities Act and the Exchange Act, against any losses, claims, damages,
liabilities or expenses to which the Company, each of its directors, each of its
officers who signed the Registration Statement or controlling person may become
subject, under the Securities Act, the Exchange Act, or any other federal or
state statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of such Purchaser) insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof as contemplated below) arise out of
or are based upon (i) any failure to comply with the covenants and agreements
contained in Section 7.2 hereof respecting the sale of the Shares, (ii) the
inaccuracy of any representation made by the Purchaser herein, or (iii) any (x)
untrue or alleged untrue statement of any material fact contained in the
Registration Statement, the Prospectus, or any amendment or supplement thereto,
or (y) omission or alleged omission to state in the Registration Statement, the
Prospectus or any amendment or supplement thereto a material fact required to be
stated therein or necessary to make the statements in the Registration Statement
or any amendment or supplement thereto, or in the Prospectus or any amendment or
supplement thereto, not misleading, in each case in the light of the
circumstances under which they were made; provided, that the Purchaser's
indemnification obligation under this clause (iii) shall apply to the extent,
and only to the extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was made in the Registration Statement, the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by the Purchaser
expressly for use therein, and will reimburse the Company, each of its
directors, each of its officers who signed the Registration Statement or
controlling person for any legal and other expense reasonably incurred by the
Company, each of its directors, each of its officers who signed the Registration
Statement or controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage, liability,
expense or action.
(c) Promptly after receipt by an indemnified party under this
Section 7.3 of notice of the threat or commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section 7.3, promptly notify the indemnifying
party in writing thereof; provided, the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party for contribution (except as provided in paragraph (d)) or
otherwise than under the indemnity agreement contained in this Section 7.3 or to
the extent it is not prejudiced as a result of such failure. In case any such
action is brought against any indemnified party and such indemnified party seeks
or intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it may wish, jointly
with all other indemnifying parties similarly notified, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party. Upon
13
receipt of notice from the indemnifying party to such indemnified party of its
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 7.3 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof unless
the indemnified party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of action, in which case the reasonable fees
and expenses of counsel shall be at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 7.3 is
required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under paragraphs
(a) or (b) of this Section 7.3 in respect to any losses, claims, damages,
liabilities or expenses referred to herein (subject to the limitation of
paragraph (c) of this Section 7.3), then each applicable indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of any losses, claims, damages, liabilities or expenses referred to
herein (i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Purchaser from the placement of the Common Stock
contemplated by this Agreement or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
the relative fault of the Company and the Purchaser in connection with the
statements or omissions or inaccuracies in the representations and warranties in
this Agreement that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Purchaser on the other
shall be deemed to be in the same proportion as the amount paid by the Purchaser
to the Company pursuant to this Agreement for the Shares purchased by the
Purchaser that were sold pursuant to the Registration Statement bears to the
difference (the "Difference") between the amount such Purchaser paid for the
Shares that were sold pursuant to the Registration Statement and the amount
received by such Purchaser from such sale. The relative fault of the Company on
the one hand and the Purchaser on the other shall be determined by reference to,
among other things, whether the untrue or alleged statement of a material fact
or the omission or alleged omission to state a material fact or the inaccurate
or the alleged inaccurate representation and/or warranty relates to information
supplied by the Company or by the Purchaser and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement, omission or inaccuracy. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
paragraph (c) of this Section 7.3, any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim. The provisions set forth in paragraph (c) of this Section
7.3 with respect to the notice of the threat or commencement of any threat or
action shall apply if a claim for contribution is to be made under this
paragraph (d); provided, however, that no additional notice shall be required
with respect to any threat or action for which notice has been given under
paragraph (c) for purposes of indemnification. The Company and each Purchaser
agree that it would not be just and equitable if contribution pursuant to this
Section 7.3 were determined solely by pro rata allocation or by any other method
of allocation which does not take account of the equitable considerations
referred to in this paragraph. Notwithstanding the provisions of this Section
7.3, the Purchaser shall not be required to contribute any amount in excess of
the amount by which the Difference exceeds the amount of any damages that such
Purchaser has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
14
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
7.4 Information Available. So long as the Registration
Statement is effective covering the resale of Shares then still owned by the
Purchaser, the Company will furnish to the Purchaser:
(a) as soon as practicable after available, one copy of (i)
its Annual Report to Stockholders (which Annual Report shall contain financial
statements audited in accordance with generally accepted accounting principles
by a firm of certified public accountants), (ii) upon written request, its
Annual Report on Form 10-KSB, (iii) upon written request, its Quarterly Reports
on Form 10-QSB, (iv) upon written request, its Current Reports on Form 8-K, and
(v) a full copy of the Registration Statement (the foregoing, in each case,
excluding exhibits); and
(b) upon the written request of the Purchaser, all exhibits
excluded by the parenthetical to subparagraph (a)(v) of this Section 7.4.
SECTION 8. Termination.
8.1. Termination by Purchaser. The Purchaser may terminate its
obligation under Section 2 and 3 of this Agreement upon ten (10) days written
notice to the Company at any time after the earlier of (i) twelve months after
the Effective Date; (ii) two (2) years after the date of this Agreement; or
(iii) following the occurrence of one or more of the following:
(a) the Company shall default in any material respect in the
performance of any covenant or agreement under this Agreement, which default
shall continue for more than fifteen business days following written notice
thereof from the Purchaser;
(b) the representations and warranties of the Company set
forth in Section 4 of this Agreement not being true and correct in all material
respects as of the date of this Agreement, except for the representations and
warranties made as of a particular date which representations and warranties
need be true and correct only as of such date;
(c) the Company merging or consolidating with another entity
where the stockholders of the Company do not immediately after such transaction
own a majority of the outstanding common stock of the surviving corporation,
selling all or substantially all of its assets, or entering into any agreement
to effect any of the foregoing without the consent of the Purchaser;
(d) except pursuant to this Agreement and other agreements of
like tenor to this Agreement entered into concurrently herewith, the Company
issues, or agrees to issue: (i) shares of Common Stock at a purchase price less
than highest Tranche Purchase Price or (ii) options, warrants or convertible
securities with an exercise or conversion price less than highest Tranche
Purchase Price, except for options granted to employees, consultants, officers
or directors of the Company; or
15
(e) the Company declares or pays any dividend or distribution
to its shareholders, or purchases or redeems any capital stock.
8.2. Termination by Company. The Company may terminate this
Agreement at any time by providing ten days written notice to the Purchaser.
SECTION 9. Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first-class
registered or certified airmail, confirmed facsimile or nationally recognized
overnight express courier postage prepaid, and shall be deemed given when so
mailed and shall be delivered as addressed as follows:
(a) if to the Company, to:
with a copy to:
Loeb & Loeb LLP
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Phone: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile: 310.282.2200
Attn.: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
or to such other person at such other place as the
Company shall designate to the Purchaser in writing; and
(b) if to the Purchaser, to:
Wire Mill Partners III, LLC
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile: 212.209.3050
Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Manager
16
With a copy to:
▇▇▇▇▇ Peabody LLP
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Phone: ▇▇▇.▇▇▇.▇▇▇▇
Facsimile: 585.263.1600
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
or to such other person at such other place as the
Purchaser shall designate to the Company in writing.
SECTION 10. Assignment. Neither party hereto may assign or
delegate any of such party's rights or obligations under or in connection with
this Agreement, and any attempted assignment or delegation of such rights or
obligations shall be void. Except as expressly provided in Section 7.3 with
respect to Purchaser Affiliates, directors and controlling persons of the
Company and officers of the Company who signed the Registration Statement, no
person, including without limitation any person who purchases or otherwise
acquires or receives any Shares from the Purchaser, is an intended third party
beneficiary of this Agreement, and no party to this Agreement shall have any
obligation arising under this Agreement to any person other than the other party
hereto and, to the extent expressly provided in Section 7.3, Purchaser
Affiliates, directors and controlling persons of the Company and officers of the
Company who signed the Registration Statement. Notwithstanding any provision
herein to the contrary, the Company shall not be prohibited from assigning its
rights and obligations herein in connection with a planned merger by the Company
into a Nevada corporation for the purpose of changing the Company's domicile.
SECTION 11. Changes. This Agreement may not be modified or
amended except pursuant to an instrument in writing signed by the Company and
the Purchaser.
SECTION 12. Headings. The headings of the various sections of
this Agreement have been inserted for convenience of reference only and shall
not be deemed to be part of this Agreement.
SECTION 13. Severability. In case any provision contained in
this Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
SECTION 14. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of California without
regard to its conflicts of law principles and the federal law of the United
States of America.
17
SECTION 15. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall constitute an original, but all of
which, when taken together, shall constitute but one instrument, and shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other parties.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized representatives as of the
day and year first above written.
Small World Kids, Inc.
By:
---------------------------------------------------
Name:
Title:
Wire Mill Partners III, LLC
By:
-------------------------------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Manager
18
SCHEDULE 2.1
TRANCHES
Number of Tranche Shares Tranche Purchase Price per
Tranche No. Included in Tranche Tranche Share (U.S. Dollars)
----------- ------------------- ----------------------------
1 5,100,000 $0.50
2 5,000,000 $0.75
19
SCHEDULE 7.1(A)
ADDITIONAL SELLING STOCKHOLDERS
Seller's and Designee's Name Percentage Ownership Number of Shares
----------------------- ------------------------- ------------------
▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇ as Co-Trustees 29.41% 13,509,843
of the Fine Family Trust
SWT Investments, LLC 33.75% 15,130,261
Phoenix Capital Opportunity Fund, LP 15.00% 6,724,560
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Inc. 21.08% 9,612,858
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, .75% 336,228
Co-Trustees of the Ficksman Family Trust
Shares, warrant shares, and note conversion
shares issued pursuant to any bridge financing
20
