October __, 2006
|
October
__, 2006
|
Small
World Kids, Inc.
Small
World Toys, Inc.
0000
Xxxxxxxxxx Xxxxxxx
Xxxxxx
Xxxx, XX 00000
Reference
is made to (a) the Security Agreement, dated as of February 28, 2006 by and
between Small
World Kids, Inc., a Nevada corporation (the “Parent”),
Small
World Toys, Inc., a California corporation (“SMT”
and
together with the Parent, the “Companies”
and,
each a “Company”)
and
Laurus Master Fund, Ltd. (“Laurus”)
(as
amended, supplemented, restated or modified from time to time, the “Security
Agreement”),
and
the Ancillary Agreements referred to in the Security Agreement, and (b) all
documents, instruments and agreements executed in connection with the agreements
referenced in the foregoing clause (a) (all documents referred to in the
foregoing clauses (a) and (b), collectively, the “Documents”).
Capitalized terms used but not defined herein shall have the meanings ascribed
them in the Security Agreement. Laurus is hereby notifying the Companies of
its
decision to exercise the discretion granted to it pursuant to Section 2(a)(ii)
of the Security Agreement to make Loans to the Companies during the Period
(as
defined below) in excess of the Formula Amount (the “Overadvance”).
The
aggregate principal amount of the Overadvance as of the date hereof shall be
$1,500,000, of which amount $750,000 is already currently outstanding and
$750,000 will be funded to the Companies upon the effectiveness of this
Agreement. Notwithstanding the foregoing, the Overadvance shall at no time
exceed the lesser of (x) $1,500,000 and (y) the sum of the Capital Availability
Amount less the then applicable Formula Amount (the “Maximum
Overadvance Amount”).
In
connection with making the Overadvance, for a period of one (1) year from the
date hereof (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. Laurus further agrees that solely for such Period (but not
thereafter), (i) the incurrence and existence of the Overadvance shall not
trigger an Event of Default under Section 19(a) of the Security
Agreement
and (ii)
notwithstanding anything to the contrary set forth in Section 5(b)(ii) of the
Security Agreement, during the Period, the rate of interest applicable to such
Overadvance shall be the “prime rate” published in The
Wall Street Journal
from
time to time (the “Prime
Rate”),
plus
two percent (2%) (the “Overadvance
Rate”).
Interest shall be (i) calculated on the basis of a 360 day year, and (ii)
payable monthly, in arrears, commencing on November 1, 2006 on the first
business day of each consecutive calendar month thereafter through and including
the expiration of the Period, whether by acceleration or otherwise. All other
terms and provisions of the Security Agreement and the Ancillary Agreements
shall remain in full force and effect. The Overadvance Rate shall not at any
time be less than eight percent (8.0%). For the avoidance of doubt, all
proceeds
applied by any Company in repayment of its obligations to Laurus hereunder
and
under the Security Agreement and the Ancillary Agreements shall be first applied
as a repayment of the Overadvance unless otherwise agreed by Laurus. Once
repaid, at the sole discretion of Laurus, the Overadvance may be reborrowed
during the Period provided that the aggregate amount of all Overadvances
outstanding at any time shall not exceed the Maximum Overadvance Amount.
The
Companies hereby acknowledge that all
amounts outstanding under the Overadvance (together
with accrued interest and fees which remain unpaid in respect thereof) on the
date of expiration of the Period shall, jointly and severally, be repaid in
full
by the Companies on such date of expiration.
The
failure to make any required repayment of an Overadvance shall give rise to
an
immediate Event of Default.
The
Parent understands that it has an affirmative obligation to make prompt public
disclosure of material agreements and material amendments to such agreements.
It
is the Parent’s determination that neither this letter nor the terms and
provisions of this letter, (collectively, the “Information”)
are
material. The Parent has had an opportunity to consult with counsel concerning
this determination. The Parent hereby agrees that Laurus shall not be in
violation of any duty to any Company or its shareholders, nor shall Laurus
be
deemed to be misappropriating any information of any Company, if Laurus sells
shares of common stock of the Parent, or otherwise engages in transactions
with
respect to securities of the Parent, while in possession of the
Information.
This
letter may not be amended or waived except by an instrument in writing signed
by
each of the Companies and Laurus. This letter may be executed in any number
of
counterparts, each of which shall be an original and all of which, when taken
together, shall constitute one agreement. Delivery of an executed signature
page
of this letter by facsimile transmission shall be effective as delivery of
a
manually executed counterpart hereof or thereof, as the case may be. THIS LETTER
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE
OF
NEW YORK. This letter sets forth the entire agreement between the parties hereto
as to the matters set forth herein and supersede all prior communications,
written or oral, with respect to the matters herein.
This
Overadvance Side Letter shall for all purposes be deemed to be an Ancillary
Agreement.
If
the
foregoing meets with the Companies’ approval please signify the Companies’
acceptance of the terms hereof by signing below.
| LAURUS MASTER FUND, LTD. | ||
| |
|
|
| By: | ||
|
Name:
Title:
|
||
2
AGREED
AND ACCEPTED ON THE DATE HEREOF:
SMALL
WORLD KIDS, INC.,
a Nevada corporation
| By: | |||
| Name: | |||
| Title: |
SMALL
WORLD TOYS, INC., a California corporation
| By: | |||
| Name: | |||
| Title: |
3
