NOTE PURCHASE AGREEMENT

 

 

                             NOTE PURCHASE AGREEMENT

 

                                 By and Between

 

                         St. Cloud Capital Partners L.P.

 

                                       and

 

                             Small World Kids, Inc.

 

                                     Dated:

 

                             As of September 7, 2004

 

<PAGE>

 

 

                             NOTE PURCHASE AGREEMENT

 

      Note Purchase   Agreement dated as of September 7, 2004 (this   "Agreement")

by and between Small World Kids, Inc., a Nevada corporation (the "Company"), and

St. Cloud Capital Partners L.P. ("Purchaser").

 

                                    RECITALS

 

      A. Purchaser desires to purchase from the Company, and the Company desires

to sell to   Purchaser,   upon the terms and   subject   to the   conditions   of this

Agreement,   a note (the "Note") in the aggregate principal amount of two million

dollars ($2,000,000) (the "Loan Amount").

 

      B. The Company shall issue to Purchaser, without additional consideration,

an aggregate of 650,000 shares of the Company's   Common Stock (the "Shares") and

warrants (the "Warrants") in the form of Exhibit B attached   hereto,   evidencing

Purchaser's   right to acquire an   aggregate of 350,000   shares of the   Company's

Common Stock (the "Warrant Shares");

 

      C. The   Company   and the   Purchaser   are   executing   and   delivering   this

Agreement in reliance upon the exemption from securities   registration   afforded

by Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act")

and the provisions of Regulation D ("Regulation   D") as promulgated   thereunder;

and

 

      D. This   Agreement,   the Note,   the   Warrants,   the Letter   Agreement   (as

hereinafter   defined) and the Lock-Up   Agreement   (as   hereinafter   defined) are

sometimes hereinafter collectively referred to as the "Transaction Documents."

 

                                   AGREEMENTS

 

      NOW, THEREFOR, in consideration of their respective promises contained

herein and other good and valuable consideration, the receipt and sufficiency of

which are hereby acknowledged by the parties, the Company and Purchaser hereby

agree as follows:

 

      1. ISSUANCE SALE AND DELIVERY OF SECURITIES.

 

            a.   Issuance of the Note.   Subject to the terms and   conditions   set

forth in this Agreement and in reliance upon the   representations and warranties

contained   herein,   the   Company   agrees   to   issue   and sell to   Purchaser   and

Purchaser hereby agrees to purchase from the Company,   the Note. The Note or any

portion thereof shall (a) at the option of Purchaser, be convertible into shares

of the Company's   Common Stock (the "Note Shares") and (b) be   substantially   in

the form attached hereto as Exhibit A.

 

            b.   Closing.   The closing of the   purchase and sale of the Note (the

"Closing")   shall   be held at the   offices   of Loeb & Loeb   LLP in Los   Angeles,

California,   or at such other   location   as shall be agreed   upon by the parties

hereto on or before September 15, 2004 (the "Outside Date"). At the Closing, the

Company   shall   deliver the Note,   the Warrants and the Shares to Purchaser   and

Purchaser   shall pay to the   Company   the Loan   Amount,   less a   closing   fee of

$80,000   (the   "Closing   Fee"),   by   cashiers'   check,   certified   funds or wire

transfer.   Concurrently   with the receipt of the Loan Amount,   the Company shall

also pay to St. Cloud   Capital LLC a management   fee (the   "Management   Fee") of

$80,000 pursuant to the Letter Agreement attached as Exhibit C.   Notwithstanding

anything to the   contrary,   if the   conditions to Closing set forth in Article 6

have been   satisfied   by the   Company by the Outside   Date,   and (a) the Closing

occurs after the Outside Date, no Closing Fee shall be paid or deducted, and (b)

if the Closing   occurs after   September   17, 2004,   no   Management   Fee shall be

payable. The date of the Closing is referred to herein as the Closing Date.

 

<PAGE>

 

      2. PURCHASER'S REPRESENTATIONS AND WARRANTIES.

 

      Purchaser   understands,   agrees with,   and   represents and warrants to the

Company with respect to the purchase hereunder, that:

 

            a. Investment Purposes; Compliance With Securities Act. Purchaser is

acquiring the Note, the Warrants and the Shares for Purchaser's 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.

 

            b.   Accredited    Purchaser   Status.    Purchaser   is   an   "accredited

Purchaser" 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 the   Purchaser is capable of   evaluating   the merits and

risks of an investment made pursuant to this Agreement.

 

            c.   Reliance on   Exemptions.   Purchaser   understands   the Note,   the

Warrants   and the Shares 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 Company is relying upon the truth

and   accuracy   of,   and   Purchaser's    compliance   with,   the    representations,

warranties,   acknowledgments,   understandings,   agreements   and covenants of the

Purchaser   set   forth   herein in order to   determine   the   availability   of such

exemptions   and the   eligibility   of Purchaser to acquire the Note, the Warrants

and the Shares.

 

            d. 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 Note, the Warrants and the Shares that have been requested

by the Purchaser. Purchaser and Purchaser's advisors, if any, have been afforded

the   opportunity   to ask all such questions of the Company as they have in their

discretion deemed advisable.   Purchaser understands that Purchaser's   investment

in the   Note,   the   Warrants   and the   Shares   involves   a high   degree of risk.

Purchaser has sought such accounting,   legal and tax advice as it has considered

necessary to an informed investment decision with respect to the investment made

pursuant to this Agreement.

 

            e. Transfer or Resale. Purchaser understands that: (i) the Note, the

Warrants,   the   Warrant   Shares,   the Note   Shares and the Shares   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 for sale, sold, assigned or

transferred   unless   either   (a)   subsequently    registered   thereunder   or   (b)

Purchaser   shall have delivered to the Company an opinion by counsel   reasonably

satisfactory   to   the   Company,    in   form,    scope   and   substance    reasonably

satisfactory to the Company,   to the effect that the Note, the Note Shares,   the

Shares   and/or   the   Warrants,   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

Company nor any other person is under any   obligation to register such Note, the

Note   Shares,   the Shares,   the Warrant   Shares   and/or the   Warrants   under the

Securities   Act or any state   securities   laws or to   comply   with the terms and

conditions of any exemption thereunder.

 

 

                                       2

<PAGE>

 

            f. Legends. The Note, the Warrants,   the Shares, the Note Shares and

the Warrant Shares shall bear the following legend:

 

"THIS   SECURITY HAS NOT BEEN   REGISTERED   UNDER THE   SECURITIES   ACT OF 1933, AS

AMENDED,   OR, IF APPLICABLE,   STATE   SECURITIES   LAWS.   THIS SECURITY MAY NOT BE

SOLD,   OFFERED FOR SALE,   PLEDGED OR HYPOTHECATED IN THE ABSENSE OF AN EFFECTIVE

REGISTRATION STATEMENT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO SMALL

WORLD KIDS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

 

            g. Authorization; Enforcement. The Transaction Documents as to which

Purchaser   is a party   have   been   duly and   validly   authorized,   executed   and

delivered   by   Purchaser   and   are   each   and   collectively   valid   and   binding

agreements of Purchaser   enforceable in accordance   with their 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.

 

      3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

      The Company   understands,   agrees   with,   and   represents   and warrants to

Purchaser that:

 

            a. Organization and Qualification.   The Company and its subsidiaries

are   duly   organized   and   existing   in   good   standing   under   the   laws of the

respective   jurisdictions   in which they are incorporated and have the requisite

corporate   power to own their   properties   and to carry on their business as now

being conducted. Each of the Company and its subsidiaries is duly qualified as a

foreign corporation to do business and is in good standing in every jurisdiction

in which the nature of the   business   conducted   by it makes such   qualification

necessary   and where the   failure   so to qualify   would have a Material   Adverse

Effect.   "Material   Adverse   Effect" as used herein means any   material   adverse

effect on the operations,   properties or financial   condition of the Company and

its subsidiaries taken as a whole.

 

            b.   Authorization;   Enforcement.   (i) The Company has the   requisite

corporate   power   and   authority   to enter   into   and   perform   the   Transaction

Documents,   to issue and sell the Note in accordance with the terms hereof,   and

to perform its obligations under the Note in accordance with the requirements of

the same,   (ii) the   execution,   delivery   and   performance   of the   Transaction

Documents   by   the   Company   and   the   consummation   by it of   the   transactions

contemplated hereby and thereby have been duly authorized by the Company's Board

of Directors and no further consent or authorization   of the Company,   its Board

of Directors,   or its shareholders is required,   (iii) the Transaction Documents

have been duly and validly   authorized,   executed and   delivered by the Company,

and (iv) the Transaction   Documents constitute the valid and binding obligations

of the   Company   enforceable   against   the   Company   in   accordance   with   their

respective   terms,   except as such   enforceability   may be limited by applicable

bankruptcy, insolvency, reorganization,   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.

 

 

                                       3

<PAGE>

 

            c. No Conflicts.   The   execution,   delivery and   performance of this

Agreement by the Company and the consummation by the Company of the transactions

contemplated   hereby   will not (i)   result in a   violation   of the   Articles   of

Incorporation   or Bylaws of the Company or (ii)   conflict   with, or constitute a

default (or an event   which with notice or lapse of time or both would   become a

default)   under,   or   give to   others   any   rights   of   termination,   amendment,

acceleration or cancellation of, any agreement, indenture or instrument to which

the Company or any of its   subsidiaries   is a party, or result in a violation of

any law, rule,   regulation,   order,   judgment or decree   (including   federal and

state securities laws and   regulations)   applicable to the Company or any of its

subsidiaries   or by which any   property   or asset of the   Company   or any of its

subsidiaries   is   bound   or   affected   (except   for   such   conflicts,   defaults,

terminations,   amendments, accelerations,   cancellations and violations as would

not, individually or in the aggregate, have a material adverse effect).

 

            d.   Consents.   Except   for the   filing   of a Form D with the   United

States Securities and Exchange Commission, the Company is not required to obtain

any consent, authorization or order of, or make any filing or registration with,

any court or governmental agency in order for it to execute,   deliver or perform

any of its obligations under the Transaction Documents.

 

            e. SEC Reports. The Company has 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 Company has furnished   Purchaser

with copies of (i) its Annual Report on Form 10-K for the fiscal year ended June

30,   2003,   Form 8-K filed June 4, 2004,   as amended on June 16, 2004 and August

31, 2004, and its Quarterly Report on Form 10-QSB for the quarter ended June 30,

2004, as amended on August 31, 2004 (collectively,   the "SEC Reports").   The SEC

Reports were in substantial   compliance with the   requirements of its respective

form and neither the SEC Reports,   nor the financial   statements   (and the notes

thereto)   included   in the SEC   Reports,   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.

 

            f. Absence of Certain   Changes.   Since June 30, 2004, there has been

no material adverse change and no material adverse   development in the business,

properties,   operation,   financial condition, results of operations or prospects

of the Company.

 

            g.   Absence of   Litigation.   Except as set forth on   Schedule   3(g),

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

<PAGE>

 

            h. Title to Assets and Liens.   Except as set forth on Schedule 3(h),

the   Company   has good and   marketable   title to the Assets   owned by it and the

valid and   enforceable   right to receive   and/or use each of the Assets in which

the Company has any other interest,   free and clear of all Liens. As used herein

(i)   "Liens"   shall   mean any   lien,   encumbrance,   pledge,   mortgage,   security

interest,   lease,   charge,   conditional   sales   contract,   option,   restriction,

reversionary   interest,   right   of   first   refusal,   voting   trust   arrangement,

preemptive   right,   claim under   bailment or storage   contract,   easement or any

other adverse claim or right whatsoever; and (ii) "Assets" shall mean all of the

goodwill,   assets,   properties and rights of every nature, kind and description,

whether tangible or intangible,   real,   personal or mixed,   wherever located and

whether or not carried or   reflected   on the books and   records of the   Company,

which   are   owned   by the   Company   or in which   the   Company   has any   interest

(including the right to use).

 

            i.   Capitalization.   Attached as Schedule 3(i) is a true and correct

description of the capitalization of the Company. Additionally, the Company owns

10,000   shares of Small   World   Toys,   Inc.   representing   all of the issued and

outstanding capital stock of Small World Toys.

 

            j.   Minute   Books.   The   minute   books of the   Company   provided   to

Purchaser    contain   a   complete   summary   of   all   meetings   of   directors   and

shareholders   since   the time of   incorporation   and   reflect   all   transactions

referred to in such minutes accurately in all material respects.

 

      4. COVENANTS.

 

            a. Best   Efforts.   Each party shall use its best   efforts   timely to

satisfy each of the   conditions   to be satisfied by it as provided in Sections 5

and 6 of this Agreement.

 

            b.   Securities   Laws.   The Company agrees to timely file all reports

and other documents   required to be filed with the SEC,   specifically,   a Form D

(or equivalent   form required by applicable   state law) with respect to the Note

Shares and Warrants if and as required under   Regulation D and applicable   state

securities   laws and to provide a copy thereof to Purchaser   promptly after such

filing.

 

            c.   Expenses.    Each   party   shall   pay   such   party's   expenses   in

connection with the   transactions   contemplated by the Agreement except that the

Company   concurrently with the execution of this Agreement will pay to Purchaser

up to $5,000 to cover in full   Purchaser's   legal costs in connection   with this

Agreement.

 

            d. Use of Proceeds.   The Company shall use the net proceeds from the

sale of the Note for working capital and general corporate purposes.

 

 

                                       5

<PAGE>

 

            e. Board Seat. During the period that the Note is outstanding,   Cary

Fitchey will be appointed to the   Company's   board of directors for such period,

provided that the Company   shall have no obligation to provide Mr.   Fitchey with

any compensation   otherwise made available to its other outside directors except

that Mr.   Fitchey shall be entitled to be reimbursed   for his   reasonable out of

pocket expenses upon providing   documentation   therefor. In addition, as long as

Purchaser owns in excess of 500,000 shares of the Company (subject to adjustment

for stock splits,   recapitalizations,   etc.), a designee of Purchaser reasonably

acceptable   to the Company shall be entitled to an observer seat on the board of

directors.   On or before the Closing, Mr. Fitchey shall submit to the Company an

undated   letter   of   resignation   in   connection   with his   board of   directors'

appointment.

 

            f. Security Interest. Purchaser has been advised by the Company that

(a) the   Company's   credit   agreement   with   Manufacturers'   Bank   prohibits the

placing of liens on the property of Small World Toys without the consent of such

bank, and (b) the Company is currently   engaged in discussions   with one or more

financial   institutions   for   a   replacement   credit   facility.   It   shall   be a

condition to the Company entering into any such replacement credit facility that

the lender permit the Company to grant a security interest in favor of Purchaser

in the assets of Small World Toys which security interest will be subordinate to

the lien of such lender   pursuant   to an   intercreditor's   agreement   reasonably

acceptable to Purchaser.   Notwithstanding the foregoing,   if for whatever reason

the Company has not   granted to   Purchaser a security   interest in the assets of

Small World Toys, Inc. which security interest shall have the priority described

in   the   Note   (or   such   other   credit   enhancement   reasonably   acceptable   to

Purchaser)   by   November   30,   2004,   then the   number of Warrant   Shares   shall

increase by 100,000   without   any further   action on the part of the parties and

Purchaser shall issue a new Warrant for such increased   number of Warrant Shares

on the same terms as Exhibit B.

 

      5. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

 

      The obligations of the Company   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 Company's sole benefit

and may be waived by the Company at any time in its sole discretion:

 

             a.   Each of the   Company   and   Purchaser   shall   have   executed   the

Transaction Documents as to which it is a party.

 

            b. The representations and warranties of Purchaser 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).

Purchaser shall have performed,   satisfied and complied in all material respects

with the covenants,   agreements and conditions   required by this Agreement to be

performed, satisfied or complied with by Purchaser 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.

 

 

                                       6

<PAGE>

 

            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. Purchaser shall have entered into the Lock Up Agreement   attached

hereto as Exhibit D with respect to the Shares,   the Warrant Shares and the Note

Shares.

 

            f. Purchaser shall execute such   documentation   as may be reasonably

requested by the Company to subordinate the obligations of the Company under the

Note to the Senior   Indebtedness   of the Company (as such term is defined in the

Note) from time to time outstanding.

 

      6. CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE.

 

      The obligations of Purchaser 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 Purchaser and may be

waived by Purchaser at any time in its sole discretion:

 

            a. The Company shall have executed the Transaction Documents.

 

            b. The   representations   and warranties of the Company 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 Company

shall have performed,   satisfied and complied in all material   respects with the

covenants, agreements and conditions required by this Agreement to be performed,

satisfied   or   complied   with by the   Company   at or prior to the   Closing.   The

Purchaser may require a certificate,   executed by the Chief Executive Officer of

the Company,   dated as of the Closing,   to the   foregoing   effect and as to such

other matters as may be reasonably requested by Purchaser.

 

            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. Purchaser shall receive   evidence   reasonably   satisfactory to it

that the holder of the Term Note (as such term is defined in the Note) agrees to

defer payment of principal under the Term Note until the Note is paid in full.

 

      7. REGISTRATION

 

      The Company   shall   include   the   Shares,   the Note Shares and the Warrant

Shares in a registration statement to be filed by the Company in connection with

the   resale   of shares   of the   Company's   Common   Stock   (the "Put   Financing")

issuable   pursuant to Stock   Purchase   Agreements   dated as of September 3, 2004

(the "Purchase Agreements) between the Company and each of Pewter Hill Partners,

LLC, Infinium Investment Partners, LLC and Wire Mill Partners III, LLC (the "Put

Purchasers").

 

 

                                        7

<PAGE>

 

      8. GOVERNING LAW; MISCELLANEOUS.

 

            a. 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.

 

            b.   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.

 

            c.   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.

 

            d. 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.

 

            e. Entire Agreement;   Amendments. This Agreement and the instruments

referenced   herein contain the entire   understanding of the parties with respect

to the matters covered herein and therein and, except as specifically   set forth

herein or therein,   neither the Company nor Purchaser makes any   representation,

warranty,   covenant or undertaking with respect to such matters. No provision of

this   Agreement   may be waived or amended other than by an instrument in writing

signed by the party to be charged with enforcement.

 

 

                                        8

<PAGE>

 

            f. Notices.   Any notices required or permitted to be given under the

terms of this Agreement shall be sent by U.S. Mail or delivered personally or by

courier or via   facsimile   (if via   facsimile,   to be followed   within three (3)

business   days by an original of the notice   document via U.S.   Mail or courier)

and shall be effective   five (5) 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:

 

If to the Company:                   Small World Kids, Inc.

                                     5711 Bunkingham Parkway

                                    Culver City, California 90230

                                    Attention:   Debra Fine

                                    Fax Number:   310-258-1194

 

With a copy to:                       Loeb & Loeb LLP

                                    10100 Santa Monica Boulevard, Suite 2200

                                    Los Angeles, California 90067

                                    Attention:   David L. Ficksman

                                     Fax Number:   310-282-2200

 

If to Purchaser:                     St. Cloud Capital Partners L.P.

                                    10866 Wilshire Boulevard, Suite 1450

                                    Los Angeles, California 90024

                                     Attention: Cary S. Fitchey

                                    Fax Number:   310-553-0257

 

With a copy to:                      Latham and Watkins, LLP

                                    633 West Fifth Street, Suite 4000

                                     Los Angeles, California 90071

                                    Attention: Alex Voxman

                                    Fax Number:   213-891-8763

 

If to the   Purchaser,   at the address on the signature of this   Agreement.   Each

party shall provide written notice to the other party of any change in address.

 

            g. 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 Company nor Purchaser   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

Purchaser   shall be an accredited   investor (as defined in Regulation D), in the

written opinion of counsel who is reasonably   satisfactory to Company,   and such

assignment shall be in form, substance and scope reasonably   satisfactory to the

Company.   Notwithstanding anything herein to the contrary,   Purchaser may pledge

the Note as collateral for a bona fide loan with a third party lender,   and such

pledge shall not be considered   an assignment in violation of this   Agreement so

long as it is made in compliance with all applicable law.

 

 

                                       9

<PAGE>

 

            h. 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.

 

            i. Survival.   The   representations and warranties of the Company and

Purchaser   contained in Sections 2 and 3 and the   agreements   and   covenants set

forth in Section 4 shall   survive the final   Closing of the purchase and sale of

the Note purchased and sold hereby.

 

            j. 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.

 

            k.   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