NOTE PURCHASE AGREEMENT
EXHIBIT
10.1
THIS
NOTE
PURCHASE AGREEMENT (“Agreement”) is made and entered into as of _____________,
2007 by and among Small World Kids, Inc., a Nevada corporation (the “Parent”),
SMALL WORLD TOYS, a California corporation (“Subsidiary”) (the Parent and the
Subsidiary, each a “Company” and collectively the “Companies”), the investors
listed on Exhibit A
attached
hereto (each a “Purchaser” and collectively the “Purchasers”).
RECITALS
A. The
Companies are willing to sell to the Purchasers secured subordinated convertible
notes (the “Notes”) in the face amount of not less than $833,332 (the “Face
Amount”) with an investment amount of not less than $750,000 (the “Investment
Amount”), upon the terms and subject to the conditions set forth in this
Agreement.
B. Purchasers
desire to purchase the Notes from the Companies upon the terms and subject
to
the conditions set forth in this Agreement.
C. The
capitalized terms used in this Agreement shall have the meanings assigned to
them in Annex A.
TERMS
AND CONDITIONS
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 Companies and Purchasers hereby agree
as
follows:
1. Issuance
of the Notes and Warrants.
1.1 Note
Terms.
Subject
to the terms and conditions set forth in this Agreement, and in reliance upon
the representations and warranties contained herein, the Companies, in
consideration for the receipt of the Investment Amount, agree to issue to
Purchasers, and each Purchaser, severally and not jointly, agrees to purchase
and accept from the Companies a Note in the amount of its Face Amount. Interest
on the Face Amount shall accrue and be payable monthly in arrears until March
31, 2008, at which time all accrued and unpaid interest, and the unpaid Face
Amount, shall become immediately due and payable. The Notes will be convertible
into shares of Class A-2 Convertible Preferred Stock of the Parent (the “Class
A-2 Preferred Stock”) at a conversion price of $1.00 per share. The Notes shall
be substantially in the form of Exhibit B.
(a) Stock
Purchase Warrants.
Concurrently with the issuance of the Notes, the Companies hereby agree to
issue
to each Purchaser a Class A-2 Preferred Stock Purchase Warrants (each a
“Warrant” and collectively, the “Warrants”) providing fifty percent (50%)
warrant coverage with respect to the Face Amount of such Purchaser’s Note and
having an Exercise Price of $1.00 per share of Class A-2 Preferred Stock. The
Warrants shall be substantially in the form of Exhibit C.
1.2 Closing.
(a) The
initial closing of the issuance of the Notes and the Warrants (the “Closing”)
shall take place remotely via exchange of the documents and signatures by 5:00
p.m. P.D.T. on April 20, 2007, at such other time and place as the Companies
and
Purchasers mutually agree upon, orally or in writing (which time and place
and
designated as the “Initial Closing”). In the event there is more than one
closing, the term “Closing” shall apply to each such closing unless otherwise
specified.
(b) At
each
Closing, the Companies shall deliver the Notes and the Warrants to Purchasers,
and Purchasers shall pay to the Companies their respective Investment
Amounts.
(c) The
date
of the Closing is referred to herein as the Closing Date.
2. Security
Interest.
2.1 Grant
of Security Interest.
To
secure prompt payment to Purchasers of the Obligations, each Company hereby
assigns, pledges and grants to Purchasers, to the extent of their respective
interests, a continuing security interest in and Lien upon all of the
Collateral. The security interest granted to Purchasers hereunder shall be
of
even priority and in pari passu with the security interest granted to Purchasers
pursuant to that certain Note Purchase Agreement, dated as of October 6, 2006,
as amended.
2.2 Perfection
of Security Interest.
Each
Company hereby authorizes Purchasers, to the extent of their respective
interests, to file any financing statements, continuation statements or
amendments thereto that (a) indicate the Collateral (i) as all assets and
personal property of such Company or words of similar effect, regardless of
whether any particular asset comprised in the Collateral falls within the scope
of Article 9 of the UCC of such jurisdiction, or (ii) as being of an equal
or
lesser scope or with greater detail, and (b) contain any other information
required by Part 5 of Article 9 of the UCC for the sufficiency or filing office
acceptance of any financing statement, continuation statement or
amendment.
2.3 Non-Exclusive
License.
Each
Company hereby grants to Purchasers, to the extent of their respective
interests, an irrevocable, non-exclusive license (exercisable upon the
termination of this Agreement due to an occurrence and during the continuance
of
an Event of Default without payment of royalty or other compensation to such
Company) to use, transfer, license or sublicense any Intellectual Property
now
owned, licensed to, or hereafter acquired by such Company, and wherever the
same
may be located, and including in such license access to all media in which
any
of the licensed items may be recorded.
3. Purchaser’s
Representations and Warranties.
Each
Purchaser, severally but not jointly, hereby represents and warrants to the
Companies as follows:
3.1 Investment
Purposes; Compliance With Securities Act.
Purchaser is acquiring its Note, and upon conversion thereof, the shares of
Class A-2 Preferred Stock issuable upon such conversion (the “Note Shares”), and
the Warrants, and upon exercise thereof, the shares of Class A-2 Preferred
Stock
issuable upon such exercise (the “Warrant Shares”) (collectively, the
“Securities”) for its own account, for investment only and not with a view
towards, or in connection with, the public sale or distribution thereof, except
pursuant to sales registered under or exempt from the Securities Act of 1933,
as
amended (the “Securities Act”).
3.2 Accredited
Purchaser Status.
Purchaser is an “accredited investor” as that term is defined in Rule 501(a) of
Regulation D. Purchaser is a sophisticated purchaser and has such knowledge
and
experience in financial and business matters that Purchaser is capable of
evaluating the merits and risks of an investment made pursuant to this
Agreement.
3.3 Reliance
on Exemptions.
Purchaser understands the Securities are being offered and sold to in reliance
on specific exemptions from the registration requirements of the applicable
United States federal and state securities laws and that the Companies are
relying upon the truth and accuracy of, and each Purchaser’s compliance with,
the representations, warranties, acknowledgments, understandings, agreements
and
covenants of Purchasers set forth herein in order to determine the availability
of such exemptions and the eligibility of Purchasers to acquire the
Securities.
3.4 Information.
Purchaser and the advisors of the Purchaser, if any, have been furnished with
all material information relating to the business, finances and operations
of
the Company and material information relating to the offer and sale of the
Securities that have been requested by the Purchaser. Purchaser and Purchaser’s
advisors, if any, have been afforded the opportunity to ask all questions of
the
Companies as they have in their discretion deemed advisable.
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3.5 Transfer
or Resale.
Purchaser understands that: (i) none of the Securities has been registered
under
the Securities Act or any state securities laws, and may not be offered for
sale, sold, assigned or transferred unless either (a) subsequently registered
thereunder or (b) Purchaser shall have delivered to the Parent an opinion by
counsel reasonably satisfactory to the Parent, in form, scope and substance
reasonably satisfactory to the Parent, to the effect that the Note, the Note
Shares, the Warrant or the Warrants Shares, as the case may be, to be sold,
assigned or transferred may be sold, assigned or transferred pursuant to an
exemption from such registration, and (ii) except as expressly provided herein,
neither the Companies nor any other person is under any obligation to register
the Securities under the Securities Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.
3.6 Authority,
Validity and Enforceability.
This
Agreement has been duly and validly authorized, executed and delivered by
Purchaser and is the valid and binding agreement of Purchaser enforceable in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium, liquidation, or similar laws relating to,
or
affecting, generally the enforcement of creditors’ rights and remedies or by
other equitable principles of general application.
4. Representations
and Warranties of the Company.
Each
Company, jointly and severally, hereby represents and warrants to Purchasers
as
follows:
4.1 Organization
and Qualification.
It is a
corporation, duly organized, validly existing and in good standing under the
laws of its jurisdictions or organization. It has the corporate power and
authority to own and operate its properties and assets and, insofar as it is
or
shall be a party thereto, (i) to execute and deliver this Agreement and the
Ancillary Agreements, (ii) to issue and sell the Notes and the Notes Shares
upon
conversion of the Notes, (iii) to issue and sell the Warrants and the Warrant
Shares upon exercise of the Warrants, and (iv) to carry out the provisions
of
this Agreement and the Ancillary Agreements and to carry on its business as
presently conducted. It is duly qualified and is authorized to do business
and
is in good standing as a foreign corporation in all jurisdictions in which
the
nature or location of its activities and of its properties (both owned and
leased) makes such qualification necessary, except for those jurisdictions
in
which failure to do so has not had, or could not reasonably be expected to
have,
individually or in the aggregate, a Material Adverse Effect.
4.2 Capitalization.
(a) The
authorized capital stock of the Parent, as of the date hereof, consists of
the
following: 115,000,000 shares, of which 100,000,000 are shares of Common Stock,
par value $0.001 per share, 5,410,575 shares of which are issued and
outstanding, and [15,000,000] are shares of Convertible Preferred Stock, no
par
value, of which 12,000,000 shares of 6% Class A-1 Convertible Preferred Stock
are authorized and 10,312,703 shares are issued and outstanding, 5,000,000
shares of 10% Class A Convertible Preferred Stock are authorized and 2,500,000
shares are issued and outstanding, and 2,500,000 shares of Class A-2 Convertible
Preferred Stock are authorized and no shares are issued and
outstanding.
(b) Except
as
disclosed on Schedule 4.2,
other
than: (i) the shares reserved for issuance upon the Parent’s stock option plans;
and (ii) shares which may be issued pursuant to this Agreement and the Ancillary
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Companies of any of its securities. Except
as
disclosed on Schedule 4.2,
neither
the offer, issuance or sale of any of the Notes or Warrants or the issuance
of
any of the Note Shares or Warrant Shares, nor the consummation of any
transaction contemplated hereby will result in a change in the price or number
of any securities of the Companies outstanding, under anti-dilution or other
similar provisions contained in or affecting any such securities.
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(c) All
issued and outstanding shares of the Companies’ Common Stock and Preferred
Stock: (i) have been duly authorized and validly issued and are fully paid
and
non-assessable; and (ii) were issued in compliance with all applicable state
and
federal laws concerning the issuance of securities.
(d) The
rights, preferences, privileges and restrictions of the shares of Common Stock
and Preferred Stock are as stated in the Certificate of Incorporation, as
amended by Certificate(s) of Designation (collectively, the “Charter”) of the
Companies. The Note Shares and the Warrant Shares have been duly and validly
reserved for issuance. When issued in compliance with the provisions of this
Agreement and the Parent’s Charter, the Note Shares and the Warrant Shares will
be validly issued, fully paid and non-assessable and will be free of any liens
or encumbrances; provided, however, that such Note Shares and Warrant Shares
may
be subject to restrictions on transfer under state and/or federal securities
laws as set forth herein or as otherwise required by such laws at the time
a
transfer is proposed.
4.3 Authorization;
Binding Obligations.
All
corporate action on its part (including its officers and directors) necessary
for the authorization of this Agreement and the Ancillary Agreements, the
performance of all of its obligations hereunder and under the Ancillary
Agreement on the Closing Date and, the authorization, issuance and delivery
of
the Notes and the Warrants have been taken or will be taken prior to the Closing
Date. This Agreement and the Ancillary Agreements, when executed and delivered
and to the extent it is a party there, will be its valid and binding obligations
enforceable against it in accordance with its terms, except (i) as limited
by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of
general application affecting the enforcement of creditors’ rights; and (ii)
general principals of equity that restrict the availability of equitable or
legal remedies. The issuance of the Notes and the subsequent conversion of
the
Notes for the Note Shares is not and will not be subject to any preemptive
rights or rights of first refusal that have not been properly waived or complied
with. The issuance of the Warrants and the subsequent exercise of the Warrants
for the Warrant Shares is not and will not be subject to any preemptive rights
or rights of first refusal that have not been properly waived or complied
with.
4.4 Liabilities.
Neither
it nor any of its Subsidiaries has any liability, except current liabilities
incurred in the ordinary course of business and liabilities disclosed in any
Exchange Act Filings.
4.5 Agreements.
Except
as set forth on Schedule 4.5
or as
disclosed in any Exchange Act Filings:
(a) There
are
no agreements, understandings, instruments, contracts, proposed transactions,
judgments, orders, writs or decrees to which it or any of its Subsidiaries
is a
party or to its knowledge by which it is bound which may involve: (i)
obligations (contingent or otherwise) of, or payments to, it or any of its
Subsidiaries in excess of $50,000 (other than obligations of, or payments to,
it
or any of its Subsidiaries arising from purchase or sale agreements entered
into
in the ordinary course of business); or (ii) the transfer or license of any
patent, copyright, trade secret or other proprietary right to or from it (other
than licenses arising from the purchase of “off the shelf” or other standard
products); or (iii) provisions restricting the development, manufacture or
distribution or its or any of its Subsidiaries’ products or services; or (iv)
indemnification by it or any of its Subsidiaries with respect to infringements
of proprietary rights.
(b) Since
December 31, 2006 (the “Balance Sheet Date”) neither it nor any of its
Subsidiaries has: (i) declared or paid any dividend or authorized or made any
distribution upon or with respect to any class or series of its capital stock;
(ii) incurred any indebtedness for money borrowed or other liabilities (other
than ordinary course obligations) individually in excess of $50,000 or, in
the
case of indebtedness and/or liabilities individually less than $50,000, in
excess of $100,000 in the aggregate, except for draw downs under the existing
credit facilities provided by Laurus Master Fund, Ltd. (“Laurus”) and Horizon
Financial Services Group USA (“Horizon”); (iii) made any loans or advances to
any Person not in excess, individually or in the aggregate, of $100,000, other
than ordinary course advances for travel expenses; or (iv) sold, exchanged
or
otherwise disposed or any of its assets or rights, other than the sale of its
inventory in the ordinary course of business.
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4.6 Title
to Properties and Assets; Liens, Etc.
Except
as set forth on Schedule 4.6,
it and
each of its Subsidiaries has good and marketable title to its and their
respective properties and assets, and good title to its and their leasehold
interests, in each case subject to no Liens. All facilities, Equipment,
Fixtures, vehicles and other properties owned, leased or used by it or any
of
its Subsidiaries are in good operating condition and repair and are reasonably
fit and usable for the purposes for which they are being used. Except as set
forth on Schedule 4.6,
it and
each of its Subsidiaries is in compliance with al material terms of each lease
to which it is a party or otherwise bound.
4.7 Intellectual
Property.
(a) It
and
each of its Subsidiaries owns or possesses sufficient legal rights to all
Intellectual Property necessary for their respective businesses as now conducted
and, to its knowledge as presently proposed to be conducted, without any known
infringement of the right of others. There are no outstanding options, licenses
or agreements of any kind relating to its or any of its Subsidiaries’
Intellectual Property, nor is it or any of its Subsidiaries bound by or a party
to any options, licenses or agreements of any kind with respect to the
Intellectual Property of any other Person other than such licenses or agreements
arising from the purchase of “of the shelf” or standard products.
(b) Neither
it nor any of its Subsidiaries has received any communication alleging that
it
or any of its Subsidiaries has violated the Intellectual Property or other
proprietary rights or any other Person, nor is it or any of its Subsidiaries
aware of any basis therefore.
(c) Neither
it nor any of its Subsidiaries believes it is or will be necessary to utilize
any inventions, trade secrets or proprietary information of any of its employees
made prior to their employment by it or any of its Subsidiaries, except for
inventions, trade secrets or proprietary information that have been rightfully
assigned to it or any of its Subsidiaries.
4.8 Compliance
with Other Instruments.
Neither
it nor any of its Subsidiaries is in violation or default of (i) any term of
its
Charter or Bylaws, or (ii) any provisions of any indebtedness, mortgage,
indenture, contract, agreement, or instrument to which it is a party or by
which
it is bound or any judgment, decree, order or writ, which violation or default,
in the cause of this clause (ii) has had, or could reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect. The
execution, delivery and performance of and compliance with this Agreement and
the Ancillary Agreements to which it is a party, and the issuance of the Notes
and the Warrants and the other Securities each pursuant hereto and thereto,
will
not, with or without the passage of time or giving of notice, result in any
such
material violation, or be in conflict with or constitute a default under any
such term or provision, or result in the creation of any Lien upon any of its
or
any of its Subsidiary’s properties or assets or the suspension, revocation,
impairment, forfeiture or non-renewal of any permit, license, authorization
or
approval applicable to it or any of its Subsidiaries, their businesses or
operations or any of their assets or properties.
4.9 Compliance
with Laws; Permits.
Neither
it nor any of its Subsidiaries is in violation of the Xxxxxxxx-Xxxxx Act of
2002
or any regulation or rule promulgated thereunder or any rule or regulation
related thereto adopted at any time by the Securities and Exchange Commission
(the “SEC”) or any other applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of
its
properties which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No governmental
orders, permissions, consents, approvals or authorizations are required to
be
obtained and no registration or declarations are required to be filed in
connection with the execution and delivery of this Agreement and any Ancillary
Agreement and with the issuance of any of the Securities, except as such as
have
been duly and validly obtained or file, or with respect to any filings that
must
be made after the Closing Date, as will be filed in a timely manner. It and
each
of its Subsidiaries has all material franchises, permits, licenses and any
similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse
Effect.
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4.10 SEC
Reports.
Except
as set forth on Schedule 4.10,
the
Companies have filed all proxy statements, reports and other documents required
to be filed by it under the Securities Exchange Act of 1934 as amended (the
“Exchange Act”). The Companies have furnished, or when they are filed will
furnish, Purchasers with copies of: (i) its Annual Report on Form 10-K for
the
fiscal year ended December 31, 2006, and (ii) its Quarterly Report on Form
10-Q
for the fiscal quarter ended March 31, 2007, (collectively, the “SEC Reports”).
Except as set forth on Schedule 4.10,
each
SEC Report was, at the time of its filing, in substantial compliance with the
requirements of its respective form and none of the SEC Reports, nor the
financial statements (and the notes thereto) included in the SEC Reports, as
of
their respective filing dates, contained any untrue statement of a material
fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. Such financial statements have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed) and fairly present in all
material respects the financial condition, the results of operations and cash
flows of the Companies and Subsidiaries, or a consolidated basis, as of, and
for, the periods presented in each such SEC Report.
4.11 Absence
of Certain Changes.
Since
December 31, 2006, there has been no material adverse change in the business,
properties, operation, financial condition, results of operations or
prospects of the Companies.
4.12 Absence
of Litigation.
Except
as set forth on Schedule 4.12,
there
is no action, suit, proceeding, inquiry or investigation before or by any court,
public board or body pending or, to the knowledge of the Company, threatened
against or affecting the Company, wherein an unfavorable decision, ruling or
finding would have a Material Adverse Effect or which would adversely affect
the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of the documents
contemplated herein.
4.13 Registration
Rights.
Except
as set forth on Schedule 4.13,
and
except as disclosed in Exchange Act Filings, neither it nor any of its
Subsidiaries is presently under any obligation, and neither it nor any of its
Subsidiaries has granted any rights, to register any of its or any of its
Subsidiaries’ presently outstanding securities or any of its securities that may
hereafter be issued.
4.14 Valid
Offering.
Assuming the accuracy of the representations and warranties of Purchasers
contained in this Agreement, the offer and issuance of the Notes and the
Warrants, the offer and issuance of the Note Shares upon the conversion of
the
Notes, and the offer issuance of the Warrant Shares upon exercise of the
Warrants, will be exempt for the registration requirements of the Securities
Act, and will have been registered or qualified (or exempt from registration
and
qualification) under the registration, permit or qualification requirement
of
all applicable state securities laws.
4.15 No
Integrated Offering.
Neither
it nor any of its subsidiaries or Affiliates, nor any Person acting on its
or
their behalf, has directly or indirectly made ay offers or sales of any security
or solicited any offers to buy any security under circumstances that would
cause
the offering of the Securities pursuant to this Agreement or any Ancillary
Agreement to be integrated with prior offerings by it for purposes of the
Securities Act which would prevent it from issuing such Securities, or any
of
them, pursuant to Rule 506 under the Securities Act, or any applicable
exchange-related stockholder approval provisions, nor will it or any of its
Affiliates or Subsidiaries take any action or steps that would cause the
offering of the Securities to be integrated with other offerings.
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4.16 Stop
Transfer.
The
Securities are restricted securities as of the date of this Agreement. Neither
Company will issue any stop transfer order or other order impeding the sale
and
delivery of any of the Securities at such time as the Securities are registered
for public sale or an exemption form registration is available, except as
required by state and federal securities laws.
4.17 Dilution.
It
specifically acknowledges that the Parent’s obligation to issue the Note Shares
upon conversion of the Notes and the Warrant Shares upon exercise of the
Warrants is binding upon the Parent and enforceable regardless of the dilution
such issuances may have on the ownership interests of other shareholders of
the
Parent.
4.18 Patriot
Act.
It
certifies that, to the best of its knowledge, neither it nor any of its
Subsidiaries, has been designated, nor is or shall be owned or controlled,
by a
“suspected terrorist” as defined in Executive Order 13224. It hereby
acknowledges that Purchasers seek to comply with all applicable laws concerning
money laundering and related activities. In furtherance of those efforts, it
hereby represents and warrants and covenants that: (i) none of the cash or
property that it or any of its Subsidiaries will pay or will contribute to
Purchasers has been or shall be derived from, or related to, any activity that
is deemed criminal under United States law; and (ii) no contribution or payment
by it or any of its Subsidiaries to Purchasers, to the extent that they are
within its or any such Subsidiary’s control shall cause Purchasers to be in
violation of the United States Bank Secrecy Act, the United States International
Money Laundering Control Act of 1986 or the United States International Money
Laundering Abatement and Anti-Terrorist Financing Act of 2001. It shall promptly
notify Purchasers if any of these representations, warranties and covenants
cease to be true and accurate regarding it or any of its Subsidiaries. It shall
provide Purchasers with any additional information regarding it and each
Subsidiary thereof that Purchasers deem necessary or convenient to ensure
compliance with all applicable laws concerning money laundering and similar
activities. It understands and agrees that if at any time it is discovered
that
any of the foregoing representations, warranties and covenants are incorrect,
or
if otherwise required by applicable law or regulation related to money
laundering or similar activities, Purchasers may undertake appropriate action
to
ensure compliance with applicable law and regulation, including, but not limited
to, segregation and/or redemption of Purchasers’ investment in it. It further
understands that Purchasers may release confidential information about it and
its Subsidiaries and, if applicable, any underlying beneficial owners, to proper
authorities if Purchasers, in their sole discretion, determine that it is in
their best interests in light of relevant rules and regulations under the laws
set for in subsection (ii) above.
4.19 Company
Name; Location of Offices.
Schedule 4.19
sets
forth each Company’s name as its appears in official filings in the state of its
organization, the type of entity of each Company, the organizational
identification number issued by each Company’s state of organization or a
statement that no such number has been issued, each Company’s state of
organization, and the location of each Company’s chief executive office,
corporate offices, warehouses, other locations of Collateral and locations
where
records with respect to Collateral are kept (including in each case the county
of such locations) and, except as set forth on Schedule 4.19,
such
locations have not changed during the preceding twelve months. As of the Closing
Date, during the prior five years, except as set forth on Schedule 4.19,
no
company has been known as or conducted business in any other name (including
trade names). Each Company has only one state of organization.
4.20 Full
Disclosure.
Neither
this Agreement or the Ancillary Agreements nor the exhibits or schedules hereto
or thereto nor any other document delivered by it to Purchasers or their
attorneys or agents in connection herewith or therewith or with the transactions
contemplated hereby or thereby, contain any untrue statement of a material
fact
not omit to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances in which they are
made, not misleading.
5. Negative
Covenants.
So long
as any Obligations are owed under the Notes, without the prior written consent
of Purchasers holding at least a majority in Face Amount of the Notes issued
hereunder (the “Majority Purchasers”), neither of the Companies
shall:
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5.1 Incur
Indebtedness.
Incur
any debt for borrowed money except for indebtedness owing to Laurus, Horizon
and
St. Cloud Capital Partners, L.P. (“St. Cloud”) as such facilities may exist from
time to time, including any extensions or modifications thereto, and existing
obligations owed to Xxxx Xxxxxxxxxx;
5.2 Distributions.
Make
any cash payments in respect of its capital stock whether by dividends,
redemption or otherwise;
5.3 Sell
or Encumber Assets.
Sell,
transfer, mortgage, assign, pledge, lease, exchange, grant a security interest
in, or encumber any such Company’s assets, except to Purchasers, Laurus, St.
Cloud or otherwise in the ordinary course of business;
5.4 Change
of Business.
Engage
in any business activities substantially different than those in which such
Company is presently engaged, or cease operations, liquidate, merge, transfer,
acquire, or consolidate with any other entity or dissolve;
5.5 Change
Name or Location.
Change
its legal name or trade name or any location of it chief executive offices,
corporate offices, warehouses or other locations of Collateral.
6. Conditions
to Issuance and Acceptance of the Notes and the Warrants.
6.1 Conditions
to Companies’ Obligations to Issue the Notes and the Warrants.
The
obligations of the Companies hereunder are subject to the satisfaction, on
or
before the Closing, unless otherwise specified, of each of the following
conditions, provided that these conditions are for the Companies’ sole benefit
and may be waived by the Companies at any time in its sole
discretion:
(a) Each
Company and Purchaser shall have executed this Agreement and all of the
Ancillary Agreements as to which it is a party.
(b) The
representations and warranties of Purchasers shall be true and correct in all
material respects as of the Closing as though made at that time (except for
representations and warranties that speak as of a specific date). Purchasers
shall have performed, satisfied and complied in all material respects with
the
covenants, agreements and conditions required by this Agreement and the
Ancillary Agreements to be performed, satisfied or complied with by Purchasers
at or prior to the Closing.
(c) No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction or any self regulatory organization having
authority over the matters contemplated hereby which restricts or prohibits
the
consummation of any of the transactions contemplated herein.
(d) All
consents, approval, authorizations and orders required to be obtained and all
registrations, filings and notices required to be made with or given to any
regulatory authority or person as provided herein shall have been
made.
(e) Purchasers
shall execute such reasonable subordination agreements with Laurus, St. Cloud
and the Goldwassers necessary to affirm that the Obligations of the Company
under the Notes are and will continue to be subordinated to existing
indebtedness owed to Laurus, St. Cloud and the Goldwassers.
(f) The
Companies shall have received the requisite consent and approval from the
holders of the Class A-1 Convertible Preferred Stock to the creation of the
Class A-2 Preferred Stock.
8
6.2 Conditions
to Purchasers’ Obligation to Accept the Notes and the Warrants.
The
obligations of Purchasers are subject to the satisfaction, on or before the
Closing, unless otherwise specified, of each of the following conditions,
provided that these conditions are for the sole benefit of Purchasers and may
be
waived by Purchasers at any time in their sole discretion:
(a) Each
Company and Purchaser shall have executed this Agreement and all Ancillary
Agreements as to which it is a party.
(b) The
representations and warranties of the Companies shall be true and correct in
all
material respects as of the Closing (except for representations and warranties
that speak as of a specific date). The Companies shall have performed, satisfied
and complied in all material respects with the covenants, agreements and
conditions required by this Agreement and the Ancillary Agreements to be
performed, satisfied or complied with by the Companies at or prior to the
Closing. The Purchaser may require a certificate, executed by the Chief
Executive Officer of each of the Companies, dated as of the Closing, to the
foregoing effect and as to such other matters as may be reasonably requested
by
Purchasers.
(c) No
statute, rule, regulation, executive order, decree, ruling or injunction shall
have been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction or any self regulatory organization having
authority over the matters contemplated hereby which restricts or prohibits
the
consummation of any of the transactions contemplated herein.
(d) All
consents, approval, authorizations and orders required to be obtained and all
registrations, filings and notices required to be made with or given to any
regulatory authority or person as provided herein shall have been
made.
(e) The
Company shall have executed and delivered to the Purchasers a First Amended
and
Restated Registration Rights Agreement substantially in the form of Exhibit D.
(f) The
Companies shall have received the requisite consent and approval from the
holders of the Class A-1 Convertible Preferred Stock to the creation of the
Class A-2 Preferred Stock.
(g) With
respect to the initial Closing, the Company shall have received Investment
Amounts aggregating at least $750,000.
7. Expenses.
The
Companies shall jointly and severally pay all of Purchasers’ out-of-pocket costs
and expenses, including reasonable fees and disbursements of in-house or outside
counsel and appraisers, in connection with (i) the preparation, execution and
delivery of this Agreement and the Ancillary Agreements; (ii) any amendments
hereto or thereto or consents proposed or executed in connection with the
transactions contemplated by this Agreement or the Ancillary Agreements; (iii)
the prosecution or defense of any action, contest, dispute, suit or proceeding
concerning any matters in nay way arising out of, related to or connected with
this Agreement or any Ancillary Agreement; and (iv) any attempts to inspect,
verify, protect, collect, sell, liquidate or otherwise dispose of any
Collateral.
8. Event
of Default.
Any one
or more of the following events shall constitute an “Event of Default” by the
Companies under this Agreement:
8.1 Payment
Default.
If the
Companies fails to pay, within three days after the date such payment is due,
any of the Obligations;
8.2 Covenant
Default.
(a) If
either
of the Companies fails to perform any obligation (other than payment
obligations) under this Agreement or any of the Ancillary Agreements within
thirty days after the Companies have been given notice thereof, provided,
however, that if the default cannot by its nature be cured within such thirty
period or cannot after diligent attempts by the Companies be cured within such
thirty day period, and such default is likely to be cured within a reasonable
time, then the Companies shall have an additional reasonable period (which
shall
not in any case exceed an additional thirty days so that the total duration
of
the cure period will not exceed sixty days) to attempt to cure such default,
and
within such reasonable time period the failure to have cured such default shall
not be deemed an Event of Default; or
9
(b) If
there
occurs any circumstance or circumstances that would reasonably be expected
to
have a Material Adverse Effect;
(c) If
any
portion of either of the Companies’ assets is attached, seized, subjected to a
writ or distress warrant, or is levied upon, or comes into the possession of
any
trustee, receiver or person acting in a similar capacity and such attachment,
seizure, writ or distress warrant or levy has not been removed, discharged
or
rescinded within thirty days, or if either of the Companies is enjoined,
restrained, or in any way prevented by court order from continuing to conduct
all or any material part of its business affairs, or if a judgment or other
claim becomes a lien or encumbrance upon any material portion of either of
the
Companies’ assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of either Company’s assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, and the same is not paid
within thirty days after notice thereof; provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or
an
adequate bond has been posted pending a good faith contest by the
Companies;
(d) If
either
Company becomes Insolvent, or if an Insolvency Proceeding is commenced by
Borrower, or if an Insolvency Proceeding is commenced against Borrower and
is
not dismissed or stayed within thirty days;
(e) If
there
is any Event of Default under any agreement with or obligation owed by either
Company to Laurus, Horizon, St. Cloud or Xxxxxxxxxx and such Event of Default
has not been cured or waived; or
(f) If
any
material misrepresentation or material misstatement exists now or hereafter
in
any warranty or representation set forth herein or in any Ancillary Agreement
or
in any exhibit hereto or thereto or any certificate delivered to Purchasers
pursuant to this Agreement or any Ancillary Agreements.
8.3 Change
of Control.
If
there is a Change of Control which has not been approved by the Majority
Purchasers.
9. Purchasers’
Rights and Remedies.
9.1 Rights
and Remedies.
Upon
the occurrence of an Event of Default and the giving of any notice required
pursuant to Section 8, the Majority Purchasers may without further notice of
their election and without demand, do any one or more of the following, all
of
which are authorized by the Companies:
(a) Declare
all Obligations, whether evidenced by this Agreement or any of the Ancillary
Agreements, or otherwise, immediately due and payable;
(b) Settle
or
adjust disputes and claims directly with account debtors for amounts, upon
terms
and in whatever order that the Majority Purchasers reasonably consider
advisable;
(c) Make
such
payments and do such acts as the Majority Purchasers considers necessary or
reasonable to protect its security interest in the Collateral. The Companies
agree to assemble the Collateral if the Majority Purchasers so require, and
to
make the Collateral available to the Majority Purchasers as the Majority
Purchasers may designate. The Companies authorize any representative of the
Majority Purchasers to enter the premises where the Collateral is located,
to
take and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any encumbrance, charge, or lien which in
the
Majority Purchasers’ determination appears to be prior or superior to its
security interest and to pay all expenses incurred in connection therewith.
With
respect to any of the Companies’ owned premises, the Companies hereby grant any
authorized representative of the Majority Purchasers a license to enter into
possession of such premises and to occupy the same, without charge, in order
to
exercise any of the Majority Purchasers’ rights or remedies provided herein, at
law, in equity, or otherwise;
10
(d) Ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell (in the manner provided for herein) the Collateral. The
Majority Purchasers are hereby granted a license or other right to use, without
charge, the Companies’ labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising matter,
or any property of a similar nature, as it pertains to the Collateral, in
completing production of, advertising for sale, and selling any Collateral
and,
in connection with the Majority Purchasers’ exercise of its rights hereunder,
the Companies’ rights under all licenses and all franchise agreements shall
inure to the benefit of the Majority Purchasers;
(e) Dispose
of the Collateral by way of one or more contracts or transactions, for cash
or
on terms, in such manner and at such places (including the Companies’ premises)
as the Majority Purchasers determine is commercially reasonable, and apply
any
proceeds to the Obligations in whatever manner or order the Majority Purchasers
deem appropriate;
(f) Any
Purchaser may credit bid and purchase at any public sale; and
(g) Any
deficiency that exists after disposition of the Collateral as provided above
will be paid immediately by the Companies.
9.2 Power
of Attorney.
Effective only upon the occurrence and during the continuance of an Event of
Default, the Companies hereby irrevocably appoints the Majority Purchasers,
or
their authorized representative, as the Companies’ true and lawful attorney to:
(i) send requests for verification of Accounts or notify account debtors of
the
Purchasers’ security interest in the Accounts; (ii) endorse the Companies’ names
on any checks or other forms of payment or security that may come into the
Majority Purchasers’ possession; (iii) sign Companies’ names on any invoice or
xxxx of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices
to
account debtors; (iv) dispose of any Collateral; (v) make, settle, and adjust
all claims under and decisions with respect to the Companies’ policies of
insurance; (vi) settle and adjust disputes and claims respecting the Accounts
directly with account debtors, for amounts and upon terms which the Majority
Purchasers determine to be reasonable; (vii) to file, in its sole discretion,
one or more financing or continuation statements and amendments thereto,
relative to any of the Collateral; and (viii) to transfer the Intellectual
Property Collateral into the name of the Majority Purchasers or their authorized
representative or a third party to the extent permitted under the UCC. The
appointment of the Majority Purchasers or their authorized representative as
the
Companies’ attorney in fact, and each and every one of their rights and powers,
being coupled with an interest, is irrevocable until all of the Obligations
have
been fully repaid and performed.
9.3 Accounts
Collection.
At any
time upon the occurrence and during the continuance of an Event of Default,
the
Majority Purchasers or their authorized representative may notify any Person
owing funds to any of the Companies of Purchasers’ security interest in such
funds and verify the amount of such Account. The Companies shall collect all
amounts owing to the Companies for the Purchasers, receive in trust all payments
as the Purchasers’ trustee, and immediately deliver such payments to the
Majority Purchasers of their authorized representative in their original form
as
received from the account debtor, with proper endorsements for
deposit.
11
9.4 Purchasers’
Expenses.
If the
Companies fail to pay any amounts or furnish any required proof of payment
due
to third persons or entities, as required under the terms of this Agreement
or
any Ancillary Agreements, then the Majority Purchasers or their authorized
representative may do any or all of the following after reasonable notice to
the
Companies: (i) make payment of the same or any part thereof; or (ii) obtain
and
maintain insurance policies of the type typically carried by the Companies,
and
take any action with respect to such policies as the Majority Purchasers deem
prudent. Any amounts so paid or deposited by any Purchasers shall be immediately
due and payable, and shall bear interest at the then applicable default rate
under the Notes, and shall be secured by the Collateral. Any payments made
by or
on behalf of any Purchasers shall not constitute an agreement by Purchasers,
or
any of them, to make similar payments in the future or a waiver by Purchasers
of
any Event of Default under this Agreement or any Ancillary
Agreements.
9.5 Liability
for Collateral.
So long
as Purchasers are not grossly negligent and do not engage in willful misconduct,
Purchasers shall not in any way or manner be liable or responsible for: (i)
the
safekeeping of the Collateral; (ii) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (iii) any diminution in the
value thereof; or (iv) any act or default of any carrier, warehouseman, bailee,
forwarding agency, or other person whomsoever. All risk of loss, damage or
destruction of the Collateral shall be borne by the Companies.
9.6 Remedies
Cumulative.
Purchasers’ rights and remedies under this Agreement and any Ancillary
Agreements shall be cumulative. Purchasers shall have all other rights and
remedies not inconsistent herewith as provided under the UCC, by law, or in
equity. No exercise by Purchasers, or any of them, of one right or remedy shall
be deemed an election, and no waiver by Purchasers, or any of them. of any
Event
of Default on the Companies’ part shall be deemed a continuing waiver. No delay
by Purchasers, or any of them, shall constitute a waiver, election, or
acquiescence by it. No waiver by Purchasers, or any of them, shall be effective
unless made in a written document signed by the Majority Purchasers on behalf
of
Purchasers and then shall be effective only in the specific instance and for
the
specific purpose for which it was given.
9.7 Demand;
Protest.
Each
Company hereby waives demand, protest, notice of protest, notice of default
or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment
at
maturity, release, compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees at any time held by
Purchasers on which such Company may in any way be liable.
10.
Legends.
The
Securities, when issued, shall bear the following legend, or a substantially
similar legend:
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS AND MAY
NOT BE OFFERED, SOLD ,PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED UNLESS (1)
A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE HOLDER OF THE SECURITIES, WHICH COUNSEL AND OPINION
ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED,
SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED IN THE MANNER CONTEMPLATED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
APPLICABLE STATE SECURITIES LAWS.
11.
Waiver
of Jury Trial; Alternative Proceedings.
11.1 Waiver
of Jury Trial.
TO THE
FULLEST EXTENT PERMITTED BY LAW, THE COMPANIES AND PURCHASERS EACH HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF ANY OF THIS AGREEMENT AND THE ANCILLARY AGREEMENTS OR
ANY
OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN, INCLUDING CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY
CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES
A
MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS
AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT
IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12
11.2
Judicial
Reference.
If and
only if the jury trial waiver set forth in Section 11.1 of this Agreement is
invalidated for any reason by a court of law, statute or otherwise, the
reference provisions set forth below shall be substituted in place of the jury
trial waiver. So long as the jury trial waiver remains valid, the reference
provisions set forth in this Section shall be inapplicable.
(a) Each
controversy, dispute or claim (each, a “Claim”) between the parties arising out
of or relating to this Agreement or any Ancillary Agreement, other than (i)
all
matters in connection with nonjudicial foreclosure of security interests in
real
or personal property; or (ii) the appointment of a receiver or the exercise
of
other provisional remedies (any of which may be initiated pursuant to applicable
law) that are not settled in writing within fifteen days after the date on
which
a party to this Agreement or any of the Ancillary Agreements gives written
notice to all other parties that a Claim exists (the “Claim Date”) shall be
resolved by a reference proceeding in California in accordance with the
provisions of Section 638 et seq. of the California Code of Civil Procedure,
or
their successor sections (“CCP”), which shall constitute the exclusive remedy
for the resolution of any Claim concerning this Agreement or any of the
Ancillary Agreements, including whether such Claim is subject to the reference
proceeding. Except as set forth in this section, the parties waive the right
to
initiate legal proceedings against each other concerning each such Claim. Venue
for these proceedings shall be in the Superior Court in Los Angeles County
(the
“Court”). By mutual agreement, the parties shall select a retired Judge of the
Court to serve as referee, and if they cannot so agree within fifteen days
after
the Claim Date, the parties shall request that the Presiding Judge of the Court
(or his or her representative) promptly select the referee. A request for
appointment of a referee may be heard on an ex parte or expedited basis. The
referee shall be appointed to sit as a temporary judge, with all the powers
for
a temporary judge, as authorized by law, and upon selection should take and
subscribe to the oath of office as provided for in Rule 244 of the California
Rules of Court (or any subsequently enacted Rule). Purchasers (acting together))
and the Companies (acting together) shall each have one peremptory challenge
pursuant to CCP § 170.6. Upon being selected, the referee shall (a) be requested
to set the matter for a status and trial-setting conference within fifteen
days
after the date of selection and (b) if practicable, try any and all issues
of
law or fact and report a statement of decision upon them within ninety days
of
the date of selection. The referee will have power to expand or limit the amount
of discovery the parties may employ. Any decision rendered by the referee will
be final, binding and conclusive, and judgment shall be entered pursuant to
CCP
§ 644 in any court in the State of California having jurisdiction. The parties
shall complete all discovery no later than fifteen days before the first trial
date established by the referee. The referee may extend such period in the
event
of a party’s refusal to provide requested discovery for any reason whatsoever,
including, without limitation, legal objections raised to such discovery or
unavailability of a witness due to absence or illness. No party shall be
entitled to “priority” in conducting discovery. The parties may take depositions
upon seven days written notice, and shall respond to requests for production
or
inspection of documents within ten days after service. All disputes relating
to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall be final and binding upon the parties. Pending
appointment of the referee as provided herein, the Court is empowered to issue
temporary and/or provisional remedies, as appropriate.
(b) Except
as
expressly set forth herein, the referee shall determine the manner in which
the
reference proceeding is conducted including the time and place of all hearings,
the order of presentation of evidence, and all other questions that arise with
respect to the course of the reference proceeding. Except for trial, all
proceedings and hearings conducted before the referee shall be conducted without
a court reporter unless a party requests a court reporter. The party making
such
a request shall have the obligation to arrange for and pay for the court
reporter. Subject to the referee’s power to award costs to the prevailing party,
the parties shall equally bear the costs of the court reporter at the trial
and
the referee’s expenses.
13
(c) The
referee shall determine all issues in accordance with existing California case
and statutory law. California rules of evidence applicable to proceedings at
law
will apply to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, to provide all temporary and/or provisional
remedies and to enter equitable orders that shall be binding upon the parties.
At the close of the reference proceeding, the referee shall issue a single
judgment at disposing of all the claims of the parties that are the subject
of
the reference. The parties reserve the right (i) to contest or appeal from
the
final judgment or any appealable order or appealable judgment entered by the
referee and (ii) to obtain findings of fact, conclusions of laws, a written
statement of decision, and (iii) to move for a new trial or a different
judgment, which new trial, if granted, shall be a reference proceeding under
this provision.
(d) If
the
enabling legislation which provides for appointment of a referee is repealed
(and no successor statute is enacted), any dispute between the parties that
would otherwise be determined by the reference procedure herein described will
be resolved and determined by arbitration conducted by a retired judge of the
Court, in accordance with the California Arbitration Act §§ 1280 through 1294.2
of the CCP as amended from time to time. The limitations with respect to
discovery as set forth in this Section shall apply to any such arbitration
proceeding.
12.
Further
Assurance.
Each
party shall do and perform, or cause to be done and performed, all such further
acts and things, and shall execute and deliver all such other agreements,
certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
13.
Governing
Law and Venue.
This
Agreement 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
Agreement, 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 (including also all
Exhibits or Schedules hereto) 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.
14.
Notices.
Any
notices required or permitted to be given under the terms of this Amendment
shall be sent by U.S. Mail or delivered personally or by courier or via
facsimile (if via facsimile, to be followed within three business days by an
original of the notice document via U.S. Mail or courier) and shall be effective
five days after being placed in the mail, if mailed, certified or registered,
return receipt requested, or upon receipt, if delivered personally or by courier
or by facsimile, in each case properly addressed to the party to receive the
same. The addresses for such communications shall be:
14
|
If
to any Company:
|
Small
World Kids, Inc.
0000
Xxxxxxxxxx Xxxxxxx
Xxxxxx
Xxxx, Xxxxxxxxxx 00000
Attention:
Xxxxx Xxxx
Fax
Number: 000-000-0000
|
|
With
a copy to:
|
Xxxx
& Xxxxx
0000
Xxxxxxx Xxxx Xxxx, 00xx Xxxxx
Xxx
Xxxxxxx, Xxxxxxxxxx 00000
Attention:
Xxxxx X. Xxxxxxxx, Esq.
Fax
Number: 000-000-0000
|
|
If
to Purchasers:
|
at
their respective addresses indicated on the signature page or on
Exhibit A
|
|
With
a copy to:
|
Xxxxx
Xxxxxxx Xxxx Xxxxxx Xxxxxxx & Xxxxxx, LLP
0000
Xxxx Xxxxxx, 0xx Xxxxx
Xxxxxx,
Xxxxxxxxxx 00000
Attention:
Xxxxx X. XxXxxxxxx III, Esq.
Fax
Number: 000-000-0000
|
Each
party shall provide written notice to the other party of any change in
address.
15.
Headings;
Gender, Etc.
The
headings of this Agreement are for convenience of reference and shall not form
a
part of, or affect the interpretation of this Agreement. As used herein, the
masculine shall refer to the feminine and neuter, the feminine to the masculine
and neuter, and the neuter to the masculine and feminine, as the context may
require. As used herein, unless the context clearly requires otherwise, the
words “herein,” “hereunder” and “hereby,” shall refer to this entire Agreement
and not only to the Section or paragraph in which such word appears. If any
date
specified herein falls upon a Saturday, Sunday or public or legal holidays,
the
date shall be construed to mean the next business day following such Saturday,
Sunday or public or legal holiday. For purposes of this Agreement, a “business
day” is any day other than a Saturday, Sunday or public or legal
holiday.
16.
Severability.
If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or
the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
17.
Survival.
The
representations and warranties of the Companies and Purchasers contained in
Sections 3 and 4 and the agreements and covenants set forth in herein and in
the
Ancillary Agreements- shall survive the Closing of the purchase and sale of
the
Notes and the Warrants.
18.
Remedies.
No
provision of this Agreement providing for any specific remedy to a party shall
be construed to limit such party to the specific remedy described, and any
other
remedy that would otherwise be available to such party at law or in equity
shall
be so available. Nothing in this Agreement shall limit any rights a party may
have with any applicable federal or state securities laws with respect to the
transactions contemplated hereby.
19.
Successors
and Assigns.
This
Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and assigns. Neither the Companies nor Purchasers
shall assign this Agreement or any rights or obligations hereunder without
the
prior written consent of the other (which consent shall not be unreasonably
withheld), and in any event any assignee of Purchasers shall be an “accredited
investor” (as defined in Regulation D), in the written opinion of counsel who is
reasonably satisfactory to the Parent, and such assignment shall be in form,
substance and scope reasonably satisfactory to the Parent. Notwithstanding
anything herein to the contrary, Purchasers may pledge their Notes 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 Agreement so long as it is made
in
compliance with all applicable law.
15
20.
No
Third Party Beneficiaries.
This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
21.
Counterparts.
This
Agreement 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.
22.
Entire
Agreement; Amendments.
This
Agreement, the Ancillary Agreements, and any exhibits hereto or thereto and
any
certificates required to be delivered by this Agreement or the Ancillary
Agreements, 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 Companies nor Purchasers makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision
of
this Agreement or the Ancillary Agreements may be waived or amended other than
by an instrument in writing signed by the Companies and the Majority Purchasers,
which amendment or waiver shall be binding on all Purchasers.
IN
WITNESS WHEREOF, the Companies and the Administrative Agent have caused this
Agreement to be duly executed as of the date first written above.
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THE
COMPANIES:
SMALL WORLD KIDS, INC.
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| By: | ||
|
Name: Xxxxx
Xxxx
Title: Chief
Executive Officer
|
||
| |
SMALL WORLD KIDS, INC.
|
|
| Date: | By: | |
|
Name: Xxxxx Xxxx |
||
| Title: Chief Executive Officer | ||
16
IN
WITNESS WHEREOF, the undersigned Purchaser has caused this Note Purchase
Agreement to be duly executed as of the date first written above.
|
PURCHASER:
By:
Name:
Title:
Address:
Attention:
Fax
Number:
(____)
Face
Amount of Note:
$
Investment
Amount of Note:
$
|
17
ANNEX A
DEFINITIONS
“Accounts”
means all “accounts”, as such term is defined in the UCC, now owned or hereafter
acquired by any Person.
“Affiliate”
means, with respect to any Person, (a) any other Person (other than one of
the
Subsidiaries) which, directly or indirectly, is in control of, is controlled
by,
or is under common control with such Person or (b) any Person who is a director
or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii)
of
any Person described in clause (a) above. For the purposes of this definition,
control of a Person shall mean the power (direct or indirect) to direct or
cause
the direction of the management and policies of such Person whether by contract
or otherwise.
“Agreement”
has the meaning given such term in the Preamble.
“Ancillary
Agreements” means, the Notes, the Warrants, the First Amended and Restated
Registration Rights Agreement, the Subordination Agreements required to be
executed and delivered pursuant to the Agreement, the Notes, the Note Purchase
Agreement, dated as of October 6, 2006, as amended, or the Notes issued pursuant
thereto, and all other agreements, instruments, documents, mortgages, pledges,
powers of attorney, consents, assignments, contracts, notices, security
agreements, trust agreements and guarantees whether heretofore, concurrently,
or
hereafter executed by or on behalf of any Company, any of its Subsidiaries
or
any other Person or delivered to either Purchaser, relating to this Agreement
or
to the transaction contemplated by this Agreement or otherwise relating to
the
relationship between or among any Company and the Purchasers, as the same may
be
amended, supplemented, rested or otherwise modified from time to
time.
“Assets”
has the meaning given such term in Section 4.13.
“Balance
Sheet Date” has the meaning given such term in Section 4.5(b).
“Books
and Records” means all books, records, board minutes, contracts, licenses,
insurance policies, environmental audits, business plans, files, computer files,
computer discs and other data and software storage and media devices, accounting
books and records, financial statements (actual and pro forma), filings with
Governmental Authorities and any and all records and instruments relating to
the
Collateral or otherwise necessary or helpful in the collection thereof or the
realization thereupon.
“CCP”
has
the meaning given such term in Section 12.2(a).
“Change
of Control” means a change in ownership or control of either of the Companies
effected through any of the following transactions: (i) a stockholder-approved
merger, consolidation or other reorganization in which securities representing
more than 50% of the total combined voting power of the Parent’s outstanding
securities become beneficially owned, directly or indirectly, by a person or
related group of persons (other than a person or related group of persons that,
immediately prior to such transaction, directly or indirectly controlled, was
controlled by, or was under common control with, the Parent; (ii) a
stockholder-approved sale, transfer or other disposition of all or substantially
all of either or both of the Companies’ assets to any person or related group of
persons (other than a person or related group of persons that, immediately
prior
to such transaction, directly or indirectly controlled, was controlled by,
or
was under common control with, the Parent); or (iii) the acquisition, directly
or indirectly, by any person or related group of persons (other than either
Company or a person that directly or indirectly controls, is controlled by,
or
is under common control with, the Parent), of beneficial ownership (within
the
meaning of Rule 13-d3 of the Exchange Act) of securities possessing more than
50% of the total combined voting power of the Parent’s outstanding securities
from a person or persons other than the Parent.
ANNEX
A
-
1 -
“Charter”
has the meaning given such term in Section 4.2(e).
“Claim”
has the meaning given such term in Section 12.2(a).
“Claim
Date” has the meaning given such terms defined in Section 12.2(a).
“Closing”
has the meaning given such terms defined in Section 1.3.
“Closing
Date” has the meaning given such terms defined in Section 1.3.
“Collateral”
means all of each Company’s property and assets, whether real or personal,
tangible or intangible, and whether now owned or hereafter acquired, or in
which
it now has or at any time in the future may acquire any right, title or
interests including all of the following property in which it now has or at
any
time in the future may acquire any right, title or interest: (a) all Inventory;
(b) all Equipment; (c) all Fixtures; (d) all Goods; (e) all General Intangibles;
(f) all Accounts; (g) all Deposit Accounts, other bank accounts and all funds
on
deposit therein; (h) all Investment Property; (i) all Stock; (j) all Chattel
Paper; (k) all Letter-of-Credit Rights; (l) all Instruments; (m) all commercial
tort claims; (n) all Books and Records; (o) all Intellectual Property
(including, without limitation, all Patents and Trademarks); (p) all Supporting
Obligations, including letters of credit and guarantees issued in support of
Accounts, Chattel Paper, General Intangibles and Investment Property; (q) (i)
all money, cash and cash equivalents and (ii) all cash held as cash collateral
to the extent not otherwise constituting Collateral, all other cash or property
at any time on deposit with or held by Purchasers for the account of any Company
(whether for safekeeping, custody, pledge, transmission or otherwise); and
® all
products and Proceeds of all or any of the foregoing, tort claims and all claims
and other rights to payment (i) including insurance claims against third parties
for loss of, damage to, or destruction or, the foregoing Collateral and (ii)
payments due or to become due under leases, rentals and hires of any or all
of
the foregoing and Proceeds payable thereunder, or unearned premiums with respect
to policies of insurance in whatever form.
“Common
Stock” means the shares of stock representing the Parent’s common equity
interests.
“Company”
and “Companies” have the meanings given such terms in the Preamble.
“Equipment”
means all “equipment” as such term is defined in the UCC, now owned or hereafter
acquired by any Person, wherever located, including any and all machinery,
apparatus, equipment, fittings, furniture, Fixtures, motor vehicles and other
tangible personal property (other than Inventory) of every kind and description
that may be now or hereafter used in such Person’s operations or that are owned
by such Person or in which such Person may have an inters, and all parts,
accessories and accessions thereto and substitutions and replacements
therefor.
“Event
of
Default” means the occurrence of any of the events set forth in Section
8.
“Exchange
Act” has the meaning given such term in Section 4.10.
“Exchange
Act Filings” means the Parent’s filings under the Exchange Act made prior to the
date of this Agreement.
“Face
Amount” has the meaning given such term in Recital A.
“Fixtures”
means all fixtures” as such term is defined in the UCC, now owned or hereafter
acquired by any Person.
“GAAP”
means generally accepted accounting principles, practices and procedures in
effect from time to time in the United States of America.
DEFINITIONS
-
2 -
“General
Intangibles” means all “general intangibles” as such term is defined in the UCC,
now owned or hereafter acquired by any Person, including all right, title and
interest that such Person may now or hereafter have in or under any contract,
all Payment Intangibles, customer lists, Licenses, Intellectual Property,
interests in partnerships, joint ventures and other business associations,
permits, proprietary or confidential information, inventions (whether or not
patented or patentable), technical information, procedures, designs, knowledge,
know-how, Software, data bases, data, skill, expertise, experience, processes,
models, drawings, materials, Books and Records, Goodwill (including the Goodwill
associated with any Intellectual Property), all rights and claims in or under
insurance polices (including insurance for fire, damage, loss, and casualty,
whether covering personal property, real property, tangible rights or intangible
rights, all liability, life, key-person, and business interruption insurance,
and all unearned premiums), uncertificated securities, choses in action, deposit
accounts, rights to receive tax refunds and other payments, rights to receive
dividends, distributions, cash, instruments and other property in respect of
or
in exchange for pledged Stock and Investment Property, and rights of
indemnification.
“Xxxxxxxxxx”
means Xxxx Xxxxxxxxxx and Xxxx X. Xxxxxxxxxx, Trustee of the Xxxx X. Xxxxxxxxxx
and Xxxx Xxxxxxxxx Family Trust.
“Goodwill”
means all goodwill, trade secrets, proprietary or confidential information,
technical information, procedures, formulae, quality control standards, designs,
operating and training manuals, customer lists, and distribution agreements
now
owned or hereafter acquired by any Person.
“Horizon”
has the meaning given such term in Section 4.5(b).
“Instruments”
means all “instruments”, a such term is defined in the UCC, now or hereafter
acquired by any Person, wherever located, including all certificated securities
and all promissory notes and other evidences of indebtedness, other than
instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.
“Intellectual
Property” means any and all patents, trademarks, service marks, trade names,
copyrights, trade secrets, Licenses, information and other proprietary rights
and processes.
“Inventory”
means all “inventory” as such term is defined in the UCC, now owned or hereafter
acquired by any Person, wherever located, including all inventory, merchandise,
goods and other personal property that are held by or on behalf of such Person
for sale or lease or are furnished or at to be finished under a contract of
service or that constitute raw materials, work in process, finished goods,
returned goods, or materials or supplies of any kind, nature or description
used
or consumed or to be used or consumed in such Person’s business or in the
processing, production, packaging, promotion, delivery or shipping of the same,
including all supplies and embedded software.
“Investment
Amount” has the meaning given such term in Recital C.
“Laurus”
has the meaning given such term in Section 4.5(b).
“License”
means any rights under any written agreement now or hereafter acquired by any
Person to xxx any trademark, trademark registration, copyright, copyright
registration or invention for which a patent is in existence or other license
of
rights or interests now held or hereafter acquired by any Person.
“Liens”
means any mortgage, deed of trust, pledge, security interest, assignment, charge
or encumbrance, lien, or other type of preferential arrangement.
“Material
Adverse Effect” means a material adverse effect on (a) the business, assets,
liabilities, condition (financial or otherwise), properties, operations or
prospects of any Company or any of its Subsidiaries (taken individually or
as a
whole), (b) any Company’s or any of its Subsidiary’s inability to pay or perform
Obligations in accordance with there terms of the Agreement or any Ancillary
Agreement, (c) the value of the Collateral, the Liens on the Collateral or
the
priority of any such Lien, or (d) the practical realization of the benefits
of
Purchasers’ rights and remedies under this Agreement and the Ancillary
Agreements.
DEFINITIONS
-
3 -
“Notes”
has the meaning given such term in Recital A.
“Note
Shares” has the meaning given such term in Section 3.1.
“Obligations”
means all loans, liabilities, obligations, covenants and duties owning by each
Company and each of its Subsidiaries to the Purchasers (including the Purchasers
pursuant to that certain Note Purchase Agreement, dated as of October 6, 2006,
as amended) of every kind and description (whether or nor evidenced by the
Notes
or other instrument and whether or not for the payment of money or the
performance or non-performance of any act), direct or indirect, absolute or
contingent, due or to become due, contractual or tortuous, liquidated or
unliquidated, whether existing by operation of law or otherwise now existing
or
hereafter arising including any debt, liability or obligation owing from any
Company and/or each of its Subsidiaries to other which Purchasers have obtained
by assignment or otherwise and further including all interest (including
interest accruing at the then applicable rate provided in the Notes after the
filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, whether or not a claim for post-filing or
post-petition interest is allowed or allowable in such proceeding), charges
or
other payments each Company and each of its Subsidiaries is required to make
by
law or otherwise arising under or as a result of this Agreement, the Ancillary
Agreements or otherwise, together with all reasonable expenses and reasonable
attorneys’ fees chargeable to the Companies” or any of their Subsidiaries’
accounts or incurred by the Purchasers in connection therewith.
“Patents”
means all registered and pending applications and those patents which are
hereafter adopted or acquired by a Company or any of its Subsidiaries, and
all
right, title and interest therein and thereto, and all
registrations.
“Parent”
has the meaning given such term in the Preamble.
“Person”
means any individual, sole proprietorship, partnership, limited liability
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, public benefic corporation,
entity or government (whether federal, state, county, city, municipal or other
wide, including any instrumentality, division, agency, body or department
thereof) and shall include such Person’s successors and assigns.
“Purchaser”
and “Purchasers” have the meanings given such terms in the
Preamble.
“SEC”
has
the meaning given such term in Section 4.9.
“SEC
Reports” has the meaning given such term in Section 4.10.
“Securities”
has the meaning given such term in Section 3.1.
“Securities
Act” has the meaning given such term in Section 3.1.
“Software”
means all “software” as such term is defined in the UCC, now owned or hereafter
acquired by an Person, including all computer programs and all supporting
information provided in connection with a transaction related to any
program.
“St.
Cloud” has the meaning given such term in Section 5.1.
“Subsidiary”
has the meaning given such term in the Preamble and also includes, with respect
to any Person, (i) any other Person whose shares of stock or other ownership
interests having ordinary voting power (other than stock or other ownership
interests having such power only by reason of the happening of a contingency)
to
elect a majority of the directors or other governing body of such other Person,
are owned, directly or indirectly, by such Person or (ii) any other Person
in
which such Person owns, directly or indirectly, more than 50% of the equity
interests at such time.
DEFINITIONS
-
4 -
“Subsidiaries”
is the plural of Subsidiary.
“Trademarks”
mean the registered trademarks and pending applications of a Company or any
of
its Subsidiaries (whether on an intent to use basis or otherwise) and those
trademarks which are hereafter adopted or acquired by a Company or any of its
Subsidiaries, and all right, title and interest therein and thereto, and all
registrations, applications, and recordings thereof, including, without
limitation, applications, registrations and recordings in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof, or any foreign country, all whether now owned or
hereafter acquired by a Company or its Subsidiaries.
“UCC”
means the Uniform Commercial Code as the same may, from time to time be in
effect in the State of California; provided, that in the event that, buy reason
of mandatory provisions of law, any or all of the attachment, perfection or
priority of, or remedies with respect to, the Purchasers Lien on any Collateral
is governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of California, the term “UCC” shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
of
this Agreement relating to such attachment, perfection, priority or remedies
and
for purposes of definitions related o such provisions; provided, further, that
to the extent that UCC is used to define any term herein or in any Ancillary
Agreement and such term is defined differently in different Articles or
Divisions of the UCC, the definition of such term contained in Article or
Divisions 9 shall govern.
“Warrant”
and “Warrants” have the meanings given such terms in Section 1.2.
“Warrant
Shares” has the meaning given such term in Section 3.1.
Any
accounting terms used in this Agreement that are not specifically defined shall
have the meanings customarily given to them in accordance with GAAP and all
financial computations shall be computed, unless specifically provided herein,
in accordance with GAAP consistently applied. All other terms used in this
Agreement and defined in the UCC shall have the meaning given therein unless
otherwise defined herein.
DEFINITIONS
-
5 -
SCHEDULE 4.2
Capitalization
Table and Beneficial Ownership
|
Small
World Kids, Inc. Capitalization
Current
|
Total
|
%
|
Common
Stock
|
Warrants
|
Class
A-1 Convertible Preferred Shares
|
Convertible
Debentures
|
Options
|
|||||||||||||||
|
Gamma
Opportunity Capital Partners LP Class A
|
765,485
|
3.5
|
%
|
415,485
|
350,000
|
|||||||||||||||||
|
Gamma
Opportunity Capital Partners LP Class C
|
765,485
|
3.5
|
%
|
415,485
|
350,000
|
|||||||||||||||||
|
Bushido
Capital Master Fund LP
|
1,758,243
|
8.1
|
%
|
830,970
|
927,273
|
|||||||||||||||||
|
SWT
Investments, LLC
|
1,297,673
|
6.0
|
%
|
1,297,673
|
-
|
|||||||||||||||||
|
SBI
Advisors
|
331,178
|
1.5
|
%
|
93,678
|
237,500
|
-
|
||||||||||||||||
|
Xxxxxxx
and Xxxxx Xxxx as Co-Trustees of the Fine Family Trust
|
2,201,879
|
10.1
|
%
|
1,721,543
|
3,063
|
477,273
|
||||||||||||||||
|
SWT,
LLC
|
5,112,241
|
23.6
|
%
|
204,082
|
4,908,159
|
|||||||||||||||||
|
Xxxxxx
Offshore Ltd.
|
134,400
|
0.6
|
%
|
134,400
|
||||||||||||||||||
|
Phoenix
Capital Opportunity Fund, LP
|
70,000
|
0.3
|
%
|
70,000
|
||||||||||||||||||
|
St.
Cloud Capital Partners, LP
|
762,500
|
3.5
|
%
|
81,250
|
118,750
|
562,500
|
||||||||||||||||
|
Xxxxx
Xxxxxxxx, Inc.
|
1,146,718
|
5.3
|
%
|
1,146,718
|
-
|
|||||||||||||||||
|
Xxx
Xxxxxxxx Enterprises
|
391,818
|
1.8
|
%
|
206,500
|
3,500
|
181,818
|
||||||||||||||||
|
Xxxxx
X. Xxxxxxxx and Xxxxxx X. Xxxxxxxx, as trustees of the Ficksman Family
Trust
|
37,726
|
0.2
|
%
|
37,726
|
||||||||||||||||||
|
Cambria
Capital
|
128,977
|
0.6
|
%
|
128,977
|
||||||||||||||||||
|
Xxx
Xxxxxxx
|
50,000
|
0.2
|
%
|
50,000
|
||||||||||||||||||
|
Curried
Clover LLC
|
249,809
|
1.2
|
%
|
249,809
|
||||||||||||||||||
|
Frontera
Group, LLC
|
564,952
|
2.6
|
%
|
64,077
|
875
|
500,000
|
||||||||||||||||
|
Xxxxxx
Xxxxxx
|
15,613
|
0.1
|
%
|
15,613
|
||||||||||||||||||
|
Jark
Holdings, LLC
|
39,591
|
0.2
|
%
|
16,426
|
438
|
22,727
|
||||||||||||||||
|
Xxxxxxxx
X. Xxxx
|
15,613
|
0.1
|
%
|
15,613
|
||||||||||||||||||
|
Xxxxxx
X. Xxxx
|
15,613
|
0.1
|
%
|
15,613
|
||||||||||||||||||
|
Xxxxxx
Xxxxxxxx
|
31,226
|
0.1
|
%
|
31,226
|
||||||||||||||||||
|
Xxxxxxxx
and Xxxxx Xxxxx Revocable Trust
|
62,452
|
0.3
|
%
|
62,452
|
||||||||||||||||||
|
Juliette
Trattne
|
54,333
|
0.3
|
%
|
54,333
|
||||||||||||||||||
|
The
Pindus Family Trust
|
47,955
|
0.2
|
%
|
1,625
|
875
|
45,455
|
||||||||||||||||
|
Laurus
Master Funds, LTD
|
1,721,185
|
7.9
|
%
|
1,721,185
|
||||||||||||||||||
|
Xxxxxx
Xxxxxxxxx
|
227,273
|
1.0
|
%
|
227,273
|
||||||||||||||||||
|
Xxxxxxx
Xxxxxxxxx
|
227,273
|
1.0
|
%
|
227,273
|
||||||||||||||||||
|
X.X.
Xxxxxxxxx, Towbin Capital Partners 1, L.P.
|
554,545
|
2.6
|
%
|
100,000
|
454,545
|
|||||||||||||||||
|
The
Shebson Trust
|
90,909
|
0.4
|
%
|
90,909
|
||||||||||||||||||
|
Xxxx
Xxxxxxxx
|
31,818
|
0.1
|
%
|
31,818
|
||||||||||||||||||
|
Xxxx
Xxxxxx
|
31,818
|
0.1
|
%
|
31,818
|
||||||||||||||||||
|
The
UCLA Foundation (Gifted by Xxxx Xxxxxx)
|
31,818
|
0.1
|
%
|
31,818
|
||||||||||||||||||
|
Xxxxxx
Capital Master Fund
|
454,545
|
2.1
|
%
|
454,545
|
||||||||||||||||||
|
HIT
Credit Union
|
290,909
|
1.3
|
%
|
290,909
|
||||||||||||||||||
|
Hong
Kong League Central Credit Union
|
788,636
|
3.6
|
%
|
513,636
|
275,000
|
|||||||||||||||||
|
PCCW
Credit Union
|
104,545
|
0.5
|
%
|
104,545
|
||||||||||||||||||
|
Vintage
Filings LLC
|
90,909
|
0.4
|
%
|
90,909
|
||||||||||||||||||
|
Xxxxxxx
Xxxxx & Company
|
37,500
|
0.2
|
%
|
12,500
|
25,000
|
|||||||||||||||||
|
Xxxxx
Xxxxx
|
67,614
|
0.3
|
%
|
67,614
|
||||||||||||||||||
|
Public
Float
|
178,700
|
0.8
|
%
|
178,700
|
||||||||||||||||||
|
Options
- Directors and Employees
|
722,000
|
3.3
|
%
|
722,000
|
||||||||||||||||||
|
|
- | |||||||||||||||||||||
|
Total
|
21,703,477
|
100.0
|
%
|
5,410,575
|
4,395,699
|
10,312,703
|
862,500
|
722,000
|
||||||||||||||
SCHEDULE
4.2
Page
1
SCHEDULE
4.5
List
of Agreements
All
material agreements have been disclosed and attached as exhibits to Parent’s
Form 10-Ks, Form 10-Qs and Form 8-Ks.
SCHEDULE
4.5
Page
1
SCHEDULE
4.6
Pledged
Assets
| · |
Credit
Facility between Small World Toys, as Borrower and Laurus Master
Fund,
Ltd. as Lender is secured by all of the assets of Small World Kids,
Inc.
and its Subsidiaries.
|
| · |
Note
Purchase Agreement, as amended, with St. Cloud Capital Partners,
L.P. as
Purchaser is secured by all of the assets of Small World
Toys.
|
| · |
1,667
shares of Small World Toys have been pledged to Xxxx Xxxxxxxxxx to
secure
one promissory note dated May 20, 2004 to Xx.
Xxxxxxxxxx.
|
| · |
Purchase
Order Revolving Credit Line from Horizon Financial Services Group
USA that
is collateralized by a security interest, junior in position to that
of
senior lender, Laurus Master Fund, Ltd., to the assets related to
the PO
Credit Line transactions.
|
| · |
$330,000
Notes issued to Hong Kong League Central Credit Union and Xxxxxxx
Xxxxxx
& Company pursuant to the Note Purchase Agreement, dated as of October
6, 2006, is secured by all of the assets of the
Companies.
|
SCHEDULE
4.6
Page
1
SCHEDULE
4.7
Intellectual
Property
The
Companies have received notice that the collapsible soccer net it had been
selling may infringe the patent rights of a third-party. The Companies intend
to
discontinue the sale of this item.
SCHEDULE
4.7
Page
1
SCHEDULE
4.10
SEC
Reports Exceptions
None.
SCHEDULE
4.10
Page
1
SCHEDULE
4.11
Litigation
| · |
Xxxx
Yanigihara, the Parent’s former controller, has filed a complaint with the
US Department of Labor alleging violation of Section 806 of the
Xxxxxxxx-Xxxxx Act protecting
whistle-blowers.
|
| · |
See
also disclosure on Schedule 4.7.
|
SCHEDULE
4.11
Page
1
SCHEDULE
4.13
Outstanding
List Of Registration Rights
| · |
The
Company filed a Registration Statement on Form S-1 on June 15, 2006
and
Amendment Number 1 on October 4, 2006 with the SEC complying with
all
registration rights obligations through the date of
filing.
|
| · |
Subsequent
to June 15, 2006, the Company sold $50,000 of Class A-1 Preferred
Stock
that has piggy-back registration
rights.
|
| · |
The
Company is a party to a Registration Rights Agreement, dated as of
October
6, 2006, with Hong Kong Central League Credit Union, Xxxxxxx Xxxxxx
&
Company and SBI Advisors, LLC, which agreement has been or will be
amended
and wholly restated as part of the First Amended and Restated Registration
Rights Agreement with Hong Kong Central League Credit Union, Xxxxxxx
Xxxxxx & Company and SBI Advisors, LLC and the
Purchasers
|
SCHEDULE
4.13
Page
1
SCHEDULE
4.19
List
of Names and Locations
Small
World Kinds, Inc.,
a
Nevada corporation, EIN 00-0000000
Corporate
location: 0000
Xxxxxxxxxx Xxxxxxx, Xxxxxx Xxxx, XX 00000
Small
World Toys,
a
California corporation
Office
headquarters: 0000
Xxxxxxxxxx Xxxxxxx, Xxxxxx Xxxx, XX 00000
Warehouse
location: 00000
X.
Xxxx Xxxxxx, Xxxxxx, XX 00000
Third
party warehouse (Target) location: 00000
Xxxxxxxxxxxx Xxxxxx, Xxxxxxx, XX 00000
Fine
Ventures, LLC,
a
Delaware LLC—no locations nor operating assets
Fashion
Angels Enterprises, Inc.,
a
Wisconsin corporation—no locations nor operating assets
SCHEDULE
4.19
Page
1
