SECOND AMENDMENT TO PROMISSORY NOTE
SECOND
AMENDMENT TO PROMISSORY NOTE
THIS
SECOND AMENDMENT (the “Second Amendment”) is made and entered into as of
November 6, 2006 by and among Xxxx Xxxxxxxxxx (“Xxxxxxxxxx”) and Small World
Kids, Inc., a Nevada corporation (the “Company”) a successor of Savon Team
Sports, Inc. with reference to the following:
RECITALS
A. Pursuant
to that Promissory Note dated as of May 20, 2004 (the “Promissory Note”), among
Savon Team Sports, Inc., a predecessor of Small World Kids, Inc. (“Savon”), and
Xxxxxxxxxx, the Company agreed to make certain principal adjustments and
payments to Xxxxxxxxxx.
X. Xxxxxxxxxx
and Savon also executed a consulting agreement, dated as of May 20, 2004, which
consulting agreement was subsequently amended pursuant to a First Amendment
Regarding Consulting Agreement - Xxxx Xxxxxxxxxx (the consulting agreement,
as
so amended, is herein referred to as the “Consulting Agreement”).
X. Xxxxxxxxxx
and ST.
CLOUD CAPITAL PARTNERS L.P. (“St. Cloud”) executed an Intercreditor Agreement
dated September 15, 2004.
D. Paragraph
1.a.i. of the Promissory Note provided for an increase in principal at the
end
of calendar year 2005 and that increase has been determined to be $325,119
(“CY
2005 Increase”).
E. The
Company and Xxxxxxxxxx entered into a Waiver and Amendment dated February 28,
2006 whereas:
The
CY
2005 Increase shall bear an annual simple interest rate of ten percent (10%)
and
the schedule of the payment of the CY 2005 Increase shall be modified as
follows:
1.1 If
the
Company consummates a capital raise of $2,000,000 or more prior to April 13,
2006, the payments shall be:
1.1.1 April
14,
2006- $120,000
1.1.2 April
28,
2006- $30,000
1.1.3 May
12,
2006- $30,000
1.1.4 May
26,
2006- $30,000
1.1.5 June
9,
2006- $30,000
1.1.6 June
23,
2006- $30,000
-1-
1.1.7 July
7,
2006- $30,000
1.1.8 July
21,
2006- BALANCE OF PRINCIPAL AND INTEREST
1.2 If
the
Company does not consummate a capital raise of $2,000,000 or more prior to
April
13, 2006, the payments shall be:
1.2.1 April
14,
2006- $30,000
1.2.2 April
28,
2006- $30,000
1.2.3 May
12,
2006- $30,000
1.2.4 May
26,
2006- $30,000
1.2.5 June
9,
2006- $30,000
1.2.6 June
23,
2006- $30,000
1.2.7 July
7,
2006- $30,000
1.2.8 July
21,
2006- $30,000
1.2.9 August
4,
2006- $30,000
1.2.10 August
18, 2006- $30,000
1.2.11 September
1, 2006- $30,000
1.2.12 September
15, 2006- BALANCE OF PRINCIPAL AND INTEREST.
F. As
of the
date of this Second Amendment, the Company had paid $210,000 in principal
payments on the CY 2005 Increase principal leaving $115,119 owed on the CY
2005
Increase
G. The
Company has paid $87,500 in 2006 in quarterly installments per paragraph 1.c.ii.
of the Promissory Note with $262,500 in quarterly installments remaining and
due
in 2006 per paragraph 1.c.ii of the Promissory Note.
H. The
Company also owes Xxxxxxxxxx an additional 2% of the net sales attained by
the
Company in calendar 2006 up to $800,000 less the $350,000 in quarterly
installments on the principal per paragraph 1.c.ii of the Promissory Note.
The
Company projects that the net sales for 2006 will be $32,000,000 and that the
Company will owe an additional $290,000 principal increase per paragraph 1.c.ii
of the Promissory Note.
X. Xxxxxxxxxx
executed a Subordination Agreement with Laurus Master Funds, Ltd. (“Laurus”) on
February 28, 2006 that no regularly scheduled payments of principal can be
made
if an “Overadvance” is outstanding. On July 26, 2006, Laurus authorized an
$750,000 Overadvance and
the
Company drew down the full $750,000 Overadvance on July 31, 2006 and which
is
still outstanding.
-2-
J. On
October 19, 2006, the Company executed an agreement with Laurus to increase
the
Overadvance to $1,500,000. Therefore, the Company has requested and Xxxxxxxxxx
has agreed to a second amendment to extend the principal payments by replacing
the amended Promissory Note with a Replacement Note in the form attached hereto
as Exhibit A (the “Replacement Note”).
AGREEMENT
NOW,
THEREFORE, in consideration of their respective promises contained herein and
other good and valuable consideration, the receipt and sufficiency of which
are
hereby acknowledged by the parties, the Company and Xxxxxxxxxx hereby agree
as
follows:
1. ISSUANCE
OF REPLACEMENT NOTE.
(a) Subject
to the terms and conditions set forth in this Second Amendment, at the Closing,
the Company agrees to issue to Xxxxxxxxxx, and Xxxxxxxxxx agrees to accept,
the
Replacement Note (Appendix A) pursuant to which:
1.1 The
principal amount is fixed at $667,619.00 with no adjustments based on the net
sales attained in 2006.
1.2 The
Replacement Note shall bear an annual simple interest rate of ten percent (10%)
per annum. During the occurrence and continuation of any payment of interest
and/or principal that is due but not paid on the scheduled date (“Default
Amount”) and not cured within 5 days, the interest rate on the Default Amount
and only on the Default Amount shall be increased to an aggregate of fifteen
percent (15%) from the scheduled date that the Default Amount was otherwise
due
until (and including) the date that the Default Amount and all interest thereon
is paid in full.
1.3 The
Replacement Note will be for thirty-six (36) months with monthly amortization
payments of $21,542.19.
1.4 Payments
under the Replacement Note shall begin on October 15, 2006 and be due on the
15th
of each
month thereafter until the Replacement Note is paid in full.
1.5 Concurrent
with the execution of the Second Amendment, Xxxxxxxxxx will executed an Amended
and Restated Subordination Agreement by and among Xxxx Xxxxxxxxxx, and Laurus
Master Fund, Ltd. (Appendix B)
1.6 The
amount of the Replacement Note does not include or otherwise affect in any
way
the monthly consulting fees of $4,166.67 that are due on the first of the month
until the consulting agreement ends on May 20, 2007 and no amendment to the
Consulting Agreement between the Company and Xxxxxxxxxx is being, or is intended
to be, effected hereby.
-3-
1.7 Closing.
The
closing of the issuance of the Replacement Note (the “Closing”) shall be held at
the offices of Xxxx & Xxxxx in Los Angeles, California, or at such other
location as shall be agreed upon by the parties hereto on or before November
6,
2006. At the Closing, (a) the Company shall deliver to Xxxxxxxxxx the
Replacement Note and Xxxxxxxxxx shall return to the Company the Amended
Promissory Note.
2. RATIFICATION
OF SUBORDINATION AGREEMENT
Except
as
expressly set forth herein, all of the terms and conditions of the Subordination
Agreement entered into on February 28, 2006 by and among Xxxxxxxxxx and Laurus
are hereby ratified and confirmed and continue unchanged and in full force
and
effect. Except as expressly set forth herein, all of the terms and conditions
of
the Consulting Agreement are hereby ratified and confirmed and continue
unchanged and in full force and effect.
3. DUE
AUTHORIZATION AND VALID ISSUANCE
(a) The
Company has all requisite power and authority to execute, deliver and perform
its obligations under this Second Amendment and under each of the Subordination
Agreement, the Security Agreement, the Replacement Note. The Second Amendment
has been duly authorized and validly executed and delivered by the Company
and
constitutes the legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws affecting
creditors’ and contracting parties’ 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).
(b) The
execution, delivery and performance of this Second Amendment by the Company
and
the consummation by the Company of the transactions contemplated hereby and
thereby will not (i) result in a violation of the Articles of Incorporation
or Bylaws of the Company or (ii) conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or 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 result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) 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).
4. MISCELLANEOUS
(a) This
Second Amendment may be executed in two or more identical counterparts, all
of
which shall be considered one and the same agreement and shall become effective
when counterparts have been signed by each party and signature pages from such
counterparts have been delivered.
-4-
(b) This
Second Amendment shall be governed by and interpreted in accordance with the
laws of the State of California without regard to the principles of conflict
of
laws. In the event of any litigation regarding the interpretation or application
of this Second Amendment, the parties irrevocably consent to jurisdiction in
any
of the state or federal courts located in the City of Los Angeles, State of
California and waive their rights to object to venue in any such court,
regardless of the convenience or inconvenience thereof to any party. Service
of
process in any civil action relating to or arising out of this Second Amendment
(including also all Exhibits or Schedules hereto) contemplated herein may be
accomplished in any manner provided by law. The parties hereto 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.
(c) This
Second Amendment 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 Xxxxxxxxxx makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of
this Second Amendment may be waived or amended other than by an instrument
in
writing signed by the party to be charged with enforcement.
(d) This
Second Amendment shall be binding upon and inure to the benefit of the parties
thereto and their respective successors and assigns. Neither the Company nor
Xxxxxxxxxx shall assign this Second Amendment or any rights or obligations
hereunder or thereunder without the prior written consent of the other party
or
parties thereto (which consent shall not be unreasonably withheld).
Notwithstanding anything herein to the contrary, Xxxxxxxxxx may pledge the
Replacement Note as collateral for a bona fide loan with a third party lender,
and such pledge shall not be considered an assignment in violation of this
Second Amendment so long as it is made in compliance with all applicable
law.
(e) The
representations, warranties and covenants of the Company contained in Section
3
above shall survive the Closing of the issuance of the Replacement Note as
contemplated hereby.
(f) 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
Second Amendment,.
(g) If
any
action or proceeding is brought to enforce any of the terms or provisions of
this Second Amendment, the prevailing party in such action shall be entitled
to
attorneys’ fees and expenses.
IN
WITNESS WHEREOF, Xxxxxxxxxx and the Company have caused this Second Amendment
to
Amended Promissory Note to be duly executed as of the date first written
above.
-5-
|
THE
COMPANY:
SMALL
WORLD KIDS, INC.
By:
|
|
|
Name: Xxxxx
Xxxx
Title: Chief
Executive Officer
|
|
|
XXXXXXXXXX:
XXXX
XXXXXXXXXX
|
-6-
APPENDIX
A
REPLACEMENT
PROMISSORY NOTE
PROMISSORY
NOTE
|
$667,619.00
|
November
6,
2006
|
FOR
VALUE
RECEIVED, Small World Kids, Inc. a Nevada corporation (the “Borrower”), with
principal offices located at 0000 Xxxxxxxxxx Xxxxxxx, Xxxxxx Xxxx, Xxxxxxxxxx
00000, hereby promises to pay to Xxxx Xxxxxxxxxx (“Xxxxxxxxxx”) or order (the
holder of this Note is herein referred to as the “Holder”), without demand, the
sum of Six Hundred Sixty-Seven Thousand Six Hundred and Nineteen Dollars
($667,619.00) together with interest thereon from the date hereof until this
Note has been paid in full at the rate of 10% per annum, with principal and
interest amortized over the thirty-six (36) month term hereof and payable in
thirty-six (36) equal monthly installments of Twenty-One Thousand Five Hundred
and Forty-Two Dollars and Nineteen Cents ($21,542.19) each, such installments
of
principal and interest to be due and payable on the fifteenth day of each
calendar month commencing with October 15, 2006 and continuing through, until
and including September 15, 2009 upon which date all then unpaid principal
and
accrued but unpaid interest shall be due and payable in full. Capitalized term
used herein but not otherwise defined shall have the meaning assigned to those
terms in that certain Second Amendment to Promissory Note dated as of November
6, 2006, between the Borrower and Xxxxxxxxxx (the “Amendment”).
The
following terms shall apply to this Note:
1.1 Default
Rate of Interest.
During
the occurrence and continuation of any payment that is due but not paid on
the
scheduled date (“Default Amount”) and not cured within five (5) days from the
due date thereof, the interest rate on the Default Amount and only on the
Default Amount shall be increased to an aggregate of fifteen percent (15%)
per
annum until the Default Amount is paid.
1.2 Prepayment;
Currency.
The
Note may be prepaid in whole or in part. If paid in part, such prepayment shall
be applied first against accrued but unpaid interest and then against any unpaid
principal. All payments of principal and interest under this Note shall be
made
in lawful currency of the United States of America.
1.3 Senior
Status.
Other
than (a) the principal amount of indebtedness of Borrower to Laurus and St.
Cloud outstanding as of the date hereof; (b) the principal amount of any
additional amounts that may be borrowed by Borrower from Laurus or St. Cloud
under the currently existing agreements between Borrower and Laurus and Borrower
and St. Cloud (the “Existing Agreement”); (c) any refinancing, modification,
extension or replacement of the foregoing (the indebtedness referred to clauses
(a) through (c) of this sentence are herein referred to as “Existing Debt”); and
(d) any debt incurred in connection with the acquisition of property and/or
equipment and any refinancing or modifications thereof, Borrower hereby agrees
that, until this Note is paid in full, Borrower shall not incur after the date
hereof any indebtedness for money borrowed that is senior to or pari passu
with
the indebtedness represented by this Note without the prior written consent
of
the Holder.
-7-
1.4 Events
of Default.
Any one
or more of the following shall constitute an event of default under this
Note:
(a) Borrower
fails to pay in full when due any payment of principal or interest under this
Note and such failure to pay continues for a period of five (5) days thereafter
(as provided above) or otherwise fails to timely perform or breaches the terms
of this Note;
(b) Borrower
defaults under or otherwise breaches any of the terms or provisions of the
Consulting Agreement between Borrower and Xxxxxxxxxx or such Consulting
Agreement is terminated other than by expiration pursuant to the terms thereof
or by Xxxxxxxxxx;
(c) Borrower
(or any parent or subsidiary thereof) shall (1) admit in writing its inability
to pay its debts as they become due; (2) file or consent by answer or otherwise
to the filing against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy or insolvency law of any jurisdiction; (3) make
an
assignment for the benefit of its creditors; (4) consent to the appointment
of a
custodian, receiver, trustee or other officer with similar powers of itself
or
of any substantial part of its property; (5) be adjudicated insolvent; (6)
be
liquidated, transfer all or substantially all of its assets to any person or
entity or be merged (or consolidated) with or into one or more business entities
in which the stockholders of Borrower (or its parent) receive cash for their
shares or in which the stockholders of Borrower (or its parent) no longer
control, immediately following such merger or consolidation, at least a majority
of the voting power of the resulting entity.or (7) take corporate action for
the
purpose of any of the foregoing;
(d) a
court
or governmental authority of competent jurisdiction shall enter an order
appointing, without consent by Borrower, a custodian, receiver, trustee or
other
officer with similar powers with respect to Borrower or with respect to any
substantial part of its property, or if an order for relief shall be entered
in
any case or proceeding for liquidation or reorganization or otherwise to take
advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering
the dissolution, winding-up or liquidation of Borrower, or if any petition
for
such relief shall be filed against Borrower and such petition shall not be
dismissed within 45 days; and
Upon
the
occurrence of an event of default as provided above, and subject to the
provisions of any agreements to which the Holder may then be a party, if any,
with respect to the Existing Debt, the Holder hereof shall have the right to
declare (by written notice thereof) the entire unpaid principal and all accrued
but unpaid interest hereunder immediately due and payable. Failure to exercise
the foregoing option on the occurrence of one or more events of default shall
not constitute a waiver of the right to exercise such option at any subsequent
time in respect of the same event of default or any other event of
default.
-8-
1.5 Governing
Law and Venue.
This
Note shall be governed by and interpreted in accordance with the laws of the
State of California without regard to the principles of conflict of laws. In
the
event of any litigation regarding the interpretation or application of this
Note, the parties irrevocably consent to jurisdiction in any of the state or
federal courts located in the City of Los Angeles, State of California and
waive
their rights to object to venue in any such court, regardless of the convenience
or inconvenience thereof to any party. Service of process in any civil action
relating to or arising out of this Agreement or the transaction(s) contemplated
herein may be accomplished in any manner provided by law. The parties hereto
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.
1.6 Replacement.
This
Note dated the date hereof in the principal amount of $667,619.00 replaces
that
certain Promissory Note to Xxxxxxxxxx dated May 20, 2004 in the principal amount
of $700,000 (subject to adjustments) and Waived and Amended on February 28,
2006.
1.7 Miscellaneous.
Borrower hereby waives presentment, demand, protest or notice of any kind in
connection with this Note. If this Note is not paid when due or if any event
of
default occurs hereunder, Borrower promises to pay, in addition to all other
sums due hereunder, all costs of enforcement and collection, including but
not
limited to reasonable attorneys’ fees, whether or not such enforcement and
collection includes the filing of an arbitration or lawsuit. No electronic
record or electronic signature (other than telephonic facsimile) shall be deemed
to be a writing so as to satisfy any requirement under this Note that any
modification, amendment, waiver, notice, communication or other instrument
under
or pursuant hereto be in writing.
IN
WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by
its
Chief Executive Officer on this 6 day of November 2006.
| SMALL WORLD KIDS, INC. | |
|
By:
|
|
|
Name:
Xxxxx
Xxxx
Title:
Chief
Executive Officer
|
-9-
APPENDIX
B
AMENDED
AND RESTATED SUBORDINATION AGREEMENT
This
Amended and Restated Subordination Agreement (this “Agreement”) is entered into
as of the 6 day of November 2006, by and among Xxxx Xxxxxxxxxx, (a “Subordinated
Lender”), and Laurus Master Fund, Ltd. (the “Senior Lender”). Unless otherwise
defined herein, capitalized terms used herein shall have the meaning provided
such terms in the Security Agreement referred to below.
BACKGROUND
WHEREAS,
the Senior Lender made an investment in Small World Kids, Inc., a Nevada
corporation (the “Company”) and certain of the Company’s Subsidiaries pursuant
to, and in accordance with, (i) that certain Security Agreement dated as of
February 28, 2006 by and between the Company and Laurus (as amended, modified
or
supplemented from time to time, the "Security Agreement") and (ii) the Ancillary
Agreements referred to in the Security Agreement (the “Ancillary Agreements”
and, together with the Security Agreement, the “Documents”).
WHEREAS,
at the time that the Documents were executed, the Company (and certain of its
affiliates and/or subsidiaries) was (and is) indebted to the Subordinated
Lender. The Company therefore asked Subordinated Lender to subordinate the
Junior Liabilities (as defined below) to the Senior Liabilities (as defined
below) and the Subordinated Lender agreed to do so pursuant to the terms and
conditions of a “Subordination Agreement” (the “Original
Subordination Agreement”)
which
was executed as of February 28, 2006 by and between the Subordinated Lender
and
Senior Lender.
5. WHEREAS,
the Company has requested that Senior Lender modify the Original Subordination
Agreement to permit certain payments to be made by the Company to the
Subordinated Lender which otherwise would be prohibited pursuant to the terms
of
the Original Subordination Agreement. Senior Lender is willing to modify the
Original Subordination Agreement subject to the terms and conditions of this
Agreement which shall amend and restate the Original Subordination
Agreement.
NOW,
THEREFORE, each Subordinated Lender and the Senior Lender agree as
follows:
TERMS
1. All
obligations of each the Company and/or any of its Subsidiaries to the Senior
Lender, howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent or now or hereafter existing, or due or to become due
are
referred to as “Senior Liabilities”. Any and all loans made by the Subordinated
Lenders to the Company and/or any of its Subsidiaries, together with all other
obligations of the Company and/or any of its Subsidiaries to any Subordinated
Lender (in each case, including any interest, fees or penalties related
thereto), howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent or now or hereafter existing, or due or to become due
are
referred to as “Junior Liabilities”. It is expressly understood and agreed that
the term “Senior Liabilities”, as used in this Agreement, shall include, without
limitation, any and all interest, fees and penalties accruing on any of the
Senior Liabilities after the commencement of any proceedings referred to in
paragraph 4 of this Agreement, notwithstanding any provision or rule of law
which might restrict the rights of the Senior Lender, as against the Company,
its Subsidiaries or anyone else, to collect such interest, fees or penalties,
as
the case may be.
-10-
2. Except
as
expressly otherwise provided in this Agreement or as the Senior Lender may
otherwise expressly consent in writing, the payment of the Junior Liabilities
shall be postponed and subordinated in right of payment and priority to the
payment in full of all Senior Liabilities. Furthermore, whether directly or
indirectly, no payments or other distributions whatsoever in respect of any
Junior Liabilities shall be made (whether at stated maturity, by acceleration
or
otherwise), nor shall any property or assets of the Company or any of its
Subsidiaries be applied to the purchase or other acquisition or retirement
of
any Junior Liability. Notwithstanding anything to the contrary contained in
this
paragraph 2 or elsewhere in this Agreement, the Company and its Subsidiaries
may
make, and the Subordinated Lenders shall be entitled to receive, each of the
following payments provided that no Event of Default has occurred and is
continuing at the time of any such payment and immediately after giving effect
to such payment:
(a) The
regularly scheduled payments of interest (at the non-default rate), in the
amounts and when due in the ordinary course of business under the terms of
the
documentation evidencing the Junior Liabilities (as in effect on the date
hereof), provided that, at the time of such payments, the remainder of (I)
the
Formula Amount (as defined in the Security Agreement) less
(II) the
aggregate amount of all outstanding Revolving Loans (together with all
outstanding interest and fees in connection therewith), is no less than $500,000
after giving effect to such payment; and
(b) The
regularly scheduled payments of principal, in the amounts and when due in the
ordinary course of business, under the terms of the documentation evidencing
the
Junior Liabilities (as in effect on the date hereof), provided that at the
time
of such payments, the remainder of (I) the Formula Amount (as defined in the
Security Agreement) less
(II) the
aggregate amount of all outstanding Revolving Loans (together with all
outstanding interest and fees in connection therewith), is no less than
$1,000,000 after giving effect to such payment;
Except
for payments expressly allowed pursuant to this Section, if any, no payments
of
principal on the Subordinated Debt, or interest, or costs and expenses, or
other
payments, shall be permitted or made. The Company and the Subordinated Lender
are hereby prohibited from amending the rate of interest applicable to the
Junior Liabilities and/or the scheduled principal payments in respect of the
Junior Liabilities from that in effect on the date hereof without the prior
written consent of the Senior Lender.
3. Each
Subordinated Lender hereby subordinates all claims and security interests it
may
have against, or with respect to, any of the assets of the Company and/or any
of
its Subsidiaries, to the security interests granted by the Company and/or any
of
its Subsidiaries to the Senior Lender in respect of the Senior Liabilities.
-11-
4. In
the
event of any dissolution, winding up, liquidation, readjustment, reorganization
or other similar proceedings relating to the Company and/or any of its
Subsidiaries or to its creditors, as such, or to its property (whether voluntary
or involuntary, partial or complete, and whether in bankruptcy, insolvency
or
receivership, or upon an assignment for the benefit of creditors, or any other
marshalling of the assets and liabilities of the Company and/or any of its
Subsidiaries, or any sale of all or substantially all of the assets of the
Company and/or any of its Subsidiaries, or otherwise), the Senior Liabilities
shall first be paid in full before any Subordinated Lender shall be entitled
to
receive and to retain any payment or distribution in respect of any Junior
Liability.
5. Each
Subordinated Lender will xxxx his books and records so as to clearly indicate
that their respective Junior Liabilities are subordinated in accordance with
the
terms of this Agreement. Each Subordinated Lender will execute such further
documents or instruments and take such further action as the Senior Lender
may
reasonably request from time to time request to carry out the intent of this
Agreement.
6. Each
Subordinated Lender hereby waives all diligence in collection or protection
of
or realization upon the Senior Liabilities or any security for the Senior
Liabilities.
7. No
Subordinated Lender will without the prior written consent of the Senior Lender:
(a) attempt to enforce or collect any Junior Liability or any rights in respect
of any Junior Liability; or (b) commence, or join with any other creditor
in commencing, any bankruptcy, reorganization or insolvency proceedings with
respect to the Company and/or any of its Subsidiaries.
8. The
Senior Lender may, from time to time, at its sole discretion and without notice
to any Subordinated Lender, take any or all of the following actions: (a) retain
or obtain a security interest in any property to secure any of the Senior
Liabilities; (b) retain or obtain the primary or secondary obligation of any
other obligor or obligors with respect to any of the Senior Liabilities; (c)
extend or renew for one or more periods (whether or not longer than the original
period), alter, increase or exchange any of the Senior Liabilities, or release
or compromise any obligation of any nature of any obligor with respect to any
of
the Senior Liabilities; and (d) release their security interest in, or
surrender, release or permit any substitution or exchange for, all or any part
of any property securing any of the Senior Liabilities, or extend or renew
for
one or more periods (whether or not longer than the original period) or release,
compromise, alter or exchange any obligations of any nature of any obligor
with
respect to any such property.
9. The
Senior Lender may, from time to time, whether before or after any discontinuance
of this Agreement, without notice to any Subordinated Lender, assign or transfer
any or all of the Senior Liabilities or any interest in the Senior Liabilities;
and, notwithstanding any such assignment or transfer or any subsequent
assignment or transfer of the Senior Liabilities, such Senior Liabilities shall
be and remain Senior Liabilities for the purposes of this Agreement, and every
immediate and successive assignee or transferee of any of the Senior Liabilities
or of any interest in the Senior Liabilities shall, to the extent of the
interest of such assignee or transferee in the Senior Liabilities, be entitled
to the benefits of this Agreement to the same extent as if such assignee or
transferee were the Senior Lender, as applicable; provided, however, that,
unless the Senior Lender shall otherwise consent in writing, the Senior Lender
shall have an unimpaired right, prior and superior to that of any such assignee
or transferee, to enforce this Agreement, for the benefit of the Senior Lender,
as to those of the Senior Liabilities which the Senior Lender has not assigned
or transferred.
-12-
10. The
Senior Lender shall not be prejudiced in its rights under this Agreement by
any
act or failure to act of any Subordinated Lender, or any noncompliance of any
Subordinated Lender with any agreement or obligation, regardless of any
knowledge thereof which the Senior Lender may have or with which the Senior
Lender may be charged; and no action of the Senior Lender permitted under this
Agreement shall in any way affect or impair the rights of the Senior Lender
and
the obligations of any Subordinated Lender under this Agreement.
11. No
delay
on the part of the Senior Lender in the exercise of any right or remedy shall
operate as a waiver of such right or remedy, and no single or partial exercise
by the Senior Lender of any right or remedy shall preclude other or further
exercise of such right or remedy or the exercise of any other right or remedy;
nor shall any modification or waiver of any of the provisions of this Agreement
be binding upon the Senior Lender except as expressly set forth in a writing
duly signed and delivered on behalf of the Senior Lender. For the purposes
of
this Agreement, Senior Liabilities shall have the meaning set forth in Section
1
above, notwithstanding any right or power of any Subordinated Lender or anyone
else to assert any claim or defense as to the invalidity or unenforceability
of
any such obligation, and no such claim or defense shall affect or impair the
agreements and obligations of any Subordinated Lender under this
Agreement.
12. This
Agreement shall be binding upon each Subordinated Lender and upon the heirs,
legal representatives, successors and assigns of each Subordinated Lender and
the successors and assigns of any Subordinated Lender.
13. This
Agreement shall be construed in accordance with and governed by the laws of
New
York without regard to conflict of laws provisions. Wherever possible each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this
Agreement.
14. The
Subordinated Lenders hereby consent to the execution and delivery by the Company
and its Subsidiaries of the Security Agreement and the Ancillary Agreements
related thereto, as well as to consummation of the transactions contemplated
therein, including, without limitation, the incurrence of additional
indebtedness and the granting of additional Liens by the Company and its
Subsidiaries for the benefit of the Senior Lender and its permitted
assigns.
15. The
Subordinated Lenders hereby represent and warrant to the Senior Lender and
the
Company and its Subsidiaries that to their best knowledge, no default or event
of default (or similar term) has occurred and is continuing under the
documentation evidencing or otherwise relating to the Junior Liabilities. The
Company and its Subsidiaries hereby represent and warrant to the Subordinated
Lenders and the Senior Lender that no default or event of default (or similar
term) has occurred and is continuing under the documentation evidencing or
otherwise relating to the Junior Liabilities.
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[signature
page follows]
-14-
IN
WITNESS WHEREOF, this Agreement has been made and delivered this 6 day of
November 2006.
XXXX
XXXXXXXXXX, individually
By:________________________
Name:
Title:
LAURUS
MASTER FUND, LTD.
By:________________________
Name:
Title:
Acknowledged
and Agreed to by:
SMALL
WORLD KIDS, INC.
By:________________________
Name:
Title:
SMALL
WORLD TOYS, INC.
By:________________________
Name:
Title:
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