NOTE PURCHASE AGREEMENT

 

                             NOTE PURCHASE AGREEMENT

 

                                 By and Between

 

                              STROME HEDGECAP LTD.

 

                                       and

 

                             SMALL WORLD KIDS, INC.

 

                                      Dated:

 

                            As of September 16, 2004

 

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                             NOTE PURCHASE AGREEMENT

 

      Note Purchase   Agreement dated as of September 16, 2004 (this "Agreement")

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

Strome Hedgecap Ltd, a corporation   organized under the laws of the Grand Cayman

Islands ("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"),   substantially   in the form attached   hereto as

Exhibit A, in the aggregate principal amount of one million two hundred thousand

($1,200,000) (the "Loan Amount").

 

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

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

hereto,   evidencing Purchaser's right to acquire up to one million three hundred

forty-four   thousand   (1,344,000)   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,   and the Lock-Up Agreement (as

hereinafter defined) are sometimes   hereinafter   collectively referred to as the

"Transaction Documents."

 

                                   AGREEMENTS

 

      NOW,   THEREFORE,   in consideration of their respective   promises contained

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

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

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

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

the Company's Common Stock (the "Note Shares").

 

            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 24, 2004 (the "Closing Date"). At the Closing, the

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

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

thousand   dollars   ($96,000),   by   cashiers'   check,   certified   funds   or   wire

transfer.

 

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2. PURCHASER'S REPRESENTATIONS AND WARRANTIES.

 

      The 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.   The

Purchaser   is   acquiring   the   Note and the   Warrants   for the   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.   The Purchaser is an   "accredited

Investor" as that term is defined in Rule 501 (a) of Regulation D. The 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.   The Purchaser   understands   the Note and

the   Warrants 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 the Purchaser to acquire the Note, and the Warrants.

 

            d. Information.   The 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,   and the   Warrants   that have been   requested by the

Purchaser.   The 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   the   Purchaser's

investment   in the Note   and,   the   Warrants   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, and the Note 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) the 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 Warrants and/or the

Warrant 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 Company nor any other

person is under any   obligation   to register such Note,   the Notes   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 Note Shares, the Warrants, 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 ABSENCE 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

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

delivered   by the   Purchaser   and are each and   collectively   valid and   binding

agreements of the 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 the

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

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            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. The Company has obtained

the of from Manufacturers Bank for the transactions contemplated hereby.

 

            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.

 

            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).

 

 

                                       4

<PAGE>

 

            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.   Financial    Statements.    The   audited   consolidated    financial

statements of the Company as of and for each of the fiscal years ended   December

31, 2001 and 2002, and the unaudited financial   statements for fiscal year ended

December   31,   2003,   and for the six (6)   month   period   ended   June   30,   2004

(collectively,   the   "Financial   Statements"),   including in each case a balance

sheet,   a statement   of income and   retained   earnings,   and a statement of cash

flows are complete and correct, in all material respects, are in accordance with

the books and records of the Company   (which are also   complete   and accurate in

all respects),   accurately state the assets, liabilities, cash flows, results of

operations   and the   financial   condition of the Company as of the dates and for

the periods   indicated,   and have been   prepared in   accordance   with GAAP.   The

Company does not have any debt,   liability or obligation of any nature,   whether

accrued,   absolute,   contingent   or   otherwise,   whether   due or to become   due,

including without limitation liability for charges,   long-term leases or forward

or long-term   commitments,   that are not   reflected   or reserved   against in the

Financial   Statements,   except   for   those (i) that   have   been   incurred   after

December   31,   2003 in the   ordinary   course of business   consistent   with prior

practices and which are usual and normal in nature and amount, both individually

and in the aggregate,   and are individually and in the aggregate not material to

the   unaudited   Financial   Statements   as of   December   31,   2003,   or (ii ) the

Promissory   Note to St. Cloud   Capital   Partners LP in the   aggregate   amount of

$2,000,000   (iii) which are not required to be reflected in, reserved against or

otherwise   described on a balance sheet or the notes thereto in accordance   with

GAAP.

 

             k. Intellectual Property. The Company possesses all patents,   patent

licenses, copyrights,   know-how, formulae and other proprietary and trade rights

necessary for the conduct of it business as now conducted. To the Company's best

knowledge none, its products patents, licenses,   copyrights,   know-how, formulae

and other proprietary and trade rights violate or conflict with the intellectual

property   rights of any other   person.   The Company has not infringed and is not

now infringing any proprietary right belonging to any other Person.

 

      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.

 

 

                                        5

<PAGE>

 

            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 Notes

or the   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.

 

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

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

 

            e. 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   permits   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 sixty thousand (60,000) 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. The   Company   will take all

action necessary to perfect any such security interest.

 

      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. The   Purchaser   shall have   entered   into the   Lock-Up   Agreement

attached   hereto as   Exhibit C with   respect   the   Warrant   Shares   and the Note

Shares.

 

            f.   The   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

<PAGE>

 

      7. REGISTRATION

 

      The Company   shall   include   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   ___, 2004 (the   "Purchase

Agreements)   between the Company and each of Pewter Hill Partners,   LLC and Wire

Mill Partners III, LLC (the "Put Purchasers").

 

      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.

 

 

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<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 Buckingham Parkway

                                    Culver City, California 90230

                                    Attention:   Debra Fine

 

                                    Facsimile:   310-258-1194

 

With a copy to:                      Loeb & Loeb LLP

 

                                    10100 Santa Monica Boulevard, Suite 2200

                                    Los Angeles, California 90067

                                    Attention:   David L. Ficksman

 

                                    Facsimile:   310-282-2200

 

If to Purchaser:                     Strome Investment Management

 

                                    100 Wilshire Blvd. Suite 1500

                                    Santa Monica, CA 90401

                                    Attention:

                                    Facsimile:

 

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 the 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

the 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, the 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

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            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