OMNIBUS AMENDMENT NO. 1
OMNIBUS
AMENDMENT NO. 1
This
Omnibus Amendment No. 1, dated as of January 26, 2007, by and between SMALL
WORLD KIDS, INC., a Nevada corporation (the “Parent”),
SMALL
WORLD TOYS, INC., a California corporation (the “Subsidiary”
and
together with the Parent, the “Companies”
and,
each a “Company”)
and
Laurus Master Fund, Ltd., a Cayman Islands company (“Laurus”),
amends (i) that certain Security Agreement, dated as of February 28, 2006 by
and
among the Companies and Laurus (as amended, modified or supplemented from time
to time, the “Security
Agreement”),
(ii)
that certain Overadvance Side Letter, dated as of October 10, 2006 by and among
the Companies and Laurus (as amended, modified or supplemented from time to
time, the “Overadvance
Side Letter”),
and
(iii) that certain Common Stock Purchase Warrant issued by the Parent to Laurus
on February 28, 2006 (as amended, modified or supplemented from time to time,
the “Warrant”
and,
together with the Security Agreement, the Overadvance Side Letter and the
Ancillary Agreements referred to in the Security Agreement, collectively, the
“Loan
Documents”).
Capitalized terms used but not defined herein shall have the meanings given
them
in the Security Agreement.
PREAMBLE
WHEREAS,
the
Companies and Laurus desire to amend certain of the Loan Documents.
NOW,
THEREFORE,
in
consideration of the covenants, agreements and conditions hereinafter set forth,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
1. Amendments
to Security Agreement.
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a.
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The
second paragraph of the definition of “Eligible Accounts” appearing in
Annex A to the Security Agreement is hereby amended by deleting the
percentage “15%” appearing therein and inserting the percentage “32.5%” in
lieu thereof.
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b.
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Paragraph
13(b) Covenants - Listing is deleted in its entirely and is no longer
in
full force and effect.
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c.
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Paragraph
13(d) Covenants - Reporting Requirements is deleted in its entirely
and is
no longer in full force and effect.
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d.
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Paragraph
19(q) of Events of Default is deleted in its entirely and is no longer
in
full force of effect.
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e.
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Paragraph
11 is hereby amended by adding the following new subsections (e)
and
(f):
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“(e) As
soon
as available and in any event within thirty (30) days after the end of each
calendar month (or more frequently if requested by Laurus), an
unaudited/internal balance sheet and statements of income, retained earnings
and
cash flows of each of the Parent and its Subsidiaries as at the end of and
for
such month and otherwise in form and substance satisfactory to
Laurus;”
“(f) The
Parent shall deliver, or cause the applicable Subsidiary of the Parent to
deliver, such other information as Laurus shall reasonably
request.”
2. Amendment
to Overadvance Side Letter.
The
Second paragraph of the Overadvance Side Letter is hereby amended by deleting
the first sentence of such second paragraph and inserting the following sentence
in lieu thereof:
“In
connection with making the Overadvance, for a period commencing on the date
hereof through and including February 28, 2008 (the “Period”), Laurus hereby
waives compliance with Section 3 of the Security Agreement, but solely as such
provision relates to the immediate repayment requirement for
Overadvances.”
3. Amendment
to Warrant.
Effective upon the Waiver Effective Date, Section 10 of the Warrant is hereby
deleted in its entirety and the following new Section 10 inserted in lieu
thereof:
“10. Maximum
Exercise.
Notwithstanding anything herein to the contrary, in no event shall the Holder
be
entitled to exercise any portion of this Warrant in excess of that portion
of
this Warrant upon exercise of which the sum of (1) the number of shares of
Common Stock beneficially owned by the Holder and its Affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unexercised portion of the Warrant or the unexercised or
unconverted portion of any other security of the Holder subject to a limitation
on conversion analogous to the limitations contained herein) and (2) the number
of shares of Common Stock issuable upon the exercise of the portion of this
Warrant with respect to which the determination of this proviso is being made,
would result in beneficial ownership by the Holder and its Affiliates of any
amount greater than 9.99% of the then outstanding shares of Common Stock
(whether or not, at the time of such exercise, the Holder and its Affiliates
beneficially own more than 9.99% of the then outstanding shares of Common
Stock). As used herein, the term “Affiliate”
means
any person or entity that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with
a
person or entity, as such terms are used in and construed under Rule 144 under
the Securities Act. For purposes of the second preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of
the
Securities Exchange Act of 1934, as amended, and Regulations 13D-G thereunder,
except as otherwise provided in clause (1) of such sentence. For any reason
at
any time, upon written or oral request of the Holder, the Company shall within
one (1) business day confirm orally and in writing to the Holder the number
of
shares of Common Stock outstanding as of any given date. The limitations
set forth herein (x) may be waived by the Holder upon provision of no less
than
sixty-one (61) days prior written notice to the Company and (y) shall
automatically become null and void following notice to the Company upon the
occurrence and during the continuance of an Event of Default (as defined in
the
Security Agreement dated as of the date hereof among the Holder, the Company
and
various subsidiaries of the Company).”
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4. The
Parent and Laurus agree that, upon execution of this Amendment by the Parent
and
Laurus, the Parent will be deemed to have received notice from Laurus of Laurus’
waiver of the 4.99% conversion limitation set forth in Section 10 of the
Warrant, which waiver shall become effective on the 61st
day
following the date hereof (the “Waiver
Effective Date”).
5. The
Parent will, on the date hereof, issue to Laurus a warrant (the “Additional Warrant”)
to
purchase 685,185 shares of the Common Stock of the Parent with an exercise
price
of $0.01 per share, such Additional Warrant to be in the form attached hereto
as
Exhibit A. The Parent further agrees that if at any time after the date hereof
there is not an effective Registration Statement covering all of the shares
of
Common Stock issuable upon exercise of the Additional Warrant (the “Additional
Warrant Shares”)
and
the Company shall determine to prepare and file with the Securities and Exchange
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to
be
issued solely in connection with any acquisition of any entity or business
or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each Holder of the Additional
Warrant written notice of such determination and, if within fifteen (15) days
after receipt of such notice, any such Holder shall so request in writing,
the
Company shall include in such registration statement all or any part of such
Additional Warrant Shares such Holder requests to be registered to the extent
the Company may do so without violating registration rights of others which
exist as of the date of this Agreement, subject to customary underwriter
cutbacks applicable to all holders of registration rights and subject to
obtaining any required consent of any selling stockholder(s) to such inclusion
under such registration statement.
6. The
amendments set forth above shall be effective as of the date first above written
(the “Amendment
Effective Date”)
on the
date when each Company and Laurus shall have executed (and witnessed where
applicable) and each Company shall have delivered to Laurus its respective
counterpart to this Amendment and, in the case of the Parent only, the
Additional Warrant.
7. Except
as
specifically set forth in this Amendment, there are no other amendments,
modifications or waivers to the Loan Documents, and all of the other forms,
terms and provisions of the Loan Documents remain in full force and
effect.
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8. Each
Company hereby represents and warrants to Laurus that (i) no Event of Default
exists on the date hereof, (ii) on the date hereof, all representations,
warranties and covenants made by such Company in connection with the Loan
Documents are true, correct and complete and (iii) on the date hereof, all
of
such Company’s and its Subsidiaries’ covenant requirements set forth in the Loan
Documents have been met.
9. From
and
after the Amendment Effective Date, all references in the Loan Documents shall
be deemed to be references to the Loan Documents, as the case may be, as
modified hereby.
10. The
Parent understands that the Parent has an affirmative obligation to make prompt
public disclosure of material agreements and material amendments to such
agreements. The Parent will file an 8K disclosing the terms of this amendment
along with this Amendment within three business days following the execution
of
this Amendment.
11. This
Amendment shall be binding upon the parties hereto and their respective
successors and permitted assigns and shall inure to the benefit of and be
enforceable by each of the parties hereto and their respective successors and
permitted assigns. THIS
AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY
THE
LAW OF THE STATE OF NEW YORK.
This
Amendment may be executed in any number of counterparts, each of which shall
be
an original, but all of which shall constitute one instrument.
[signature
page follows]
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IN
WITNESS WHEREOF,
each of
the parties hereto has executed this Amendment or has caused this Amendment
to
be executed on its behalf by a representative duly authorized, all as of the
date first above set forth.
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PARENT:
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LAURUS:
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SMALL
WORLD KIDS, INC.
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LAURUS
MASTER FUND, LTD.
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By:
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By:
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Name:
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Name:
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Title:
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Title:
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SUBSIDIARY:
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SMALL
WORLD TOYS, INC.
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By:
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Name:
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Title:
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EXHIBIT
A
Additional
Warrant
6
