Exhibit 4.1


 


THIS NOTE
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS.  THIS NOTE MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO SMALL WORLD
KIDS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.


 


SECURED NON-CONVERTIBLE REVOLVING NOTE


 


FOR VALUE RECEIVED, each
of SMALL WORLD KIDS, INC., a Nevada corporation (the “Parent”),
and the other companies listed on Exhibit A attached hereto (such other
companies together with the Parent, each a “Company”
and collectively, the “Companies”),
jointly and severally, promises to pay to LAURUS
MASTER FUND, LTD., c/o M&C Corporate Services
Limited, P.O. Box 309 GT, Ugland
House, South Church Street, George Town, Grand Cayman, Cayman Islands, Fax:
345-949-8080 (the “Holder”) or its
registered assigns or successors in interest, the sum of Sixteen Million Five
Hundred Thousand Dollars ($16,500,000), or, if different, the aggregate
principal amount of all Loans (as defined in the Security Agreement referred to
below), together with any accrued and unpaid interest hereon, on February 28
2008 (the “Maturity Date”) if not sooner  indefeasibly paid in full.


 


Capitalized terms used
herein without definition shall have the meanings ascribed to such terms in the
Security Agreement among the Companies and the Holder dated as of the date
hereof (as amended, modified and/or supplemented from time to time, the “Security Agreement”).


 


The
following terms shall apply to this Secured Non-Convertible Revolving Note
(this “Note”):


 


ARTICLE I

CONTRACT RATE


 


1.1           Contract Rate.  Subject to Sections 3.2 and 4.10, interest
payable on the outstanding principal amount of this Note (the “Principal Amount”) shall accrue at a rate per annum equal to
the “prime rate” published in The Wall Street Journal from time to time
(the “Prime Rate”), plus two percent (2.0%) (the “Contract Rate”).  The Contract Rate shall be increased or
decreased as the case may be for each increase or decrease in the Prime Rate in
an amount equal to such increase or decrease in the Prime Rate; each change to
be effective as of the day of the change in the Prime Rate.  The Contract Rate shall not at any time be
less than eight percent (8.0%).  Interest
shall be (i) calculated on the basis of a 360 day
year, and (ii) payable monthly, in arrears, commencing on March 1, 2006 on the
first business day of each consecutive calendar month thereafter through and
including the Maturity Date, and on the Maturity Date, whether by acceleration
or otherwise.


 


1.2           Contract Rate
Payments.  The Contract Rate shall be
calculated on the last business day of each calendar month hereafter (other
than for increases or decreases in the Prime


 





















 


Rate
which shall be calculated and become effective in accordance with the terms of
Section 1.1) until the Maturity Date (each a “Determination
Date”).


 


ARTICLE II

[INTENTIONALLY OMITTED]


 


ARTICLE
III

EVENTS OF DEFAULT AND DEFAULT RELATED PROVISIONS


 


3.1           Events of Default.  The occurrence of an Event of Default under
the Security Agreement shall constitute an event of default (“Event of Default”) hereunder.


 


3.2           Default Interest.  Following the occurrence and during the
continuance of an Event of Default, the Companies shall, jointly and severally,
pay additional interest on the outstanding principal balance of this Note in an
amount equal to two percent (2%) per month, and all outstanding Obligations,
including unpaid interest, shall continue to accrue interest at such  additional
interest rate from the date of such Event of Default until the date such Event
of Default is cured or waived.


 


3.3           Default Payment.  Following the occurrence and during the
continuance of an Event of Default, the Holder, at its option, may elect, in
addition to all rights and remedies of the Holder under the Security Agreement
and the other Ancillary Agreements and all obligations and liabilities of each
Company under the Security Agreement and the other Ancillary Agreements, to
require the Companies, jointly and severally, to make a Default Payment (“Default Payment”). 
The Default Payment shall be one hundred ten percent (110%) of the
outstanding principal amount of the Note, plus accrued but unpaid interest, all
other fees then remaining unpaid, and all other amounts payable hereunder.  The Default Payment shall be applied first to
any fees due and payable to the Holder pursuant to the Notes, the Security
Agreement and/or the Ancillary Agreements, then to accrued and unpaid interest
due on the Notes and then to the outstanding principal balance of the
Notes.  The Default Payment shall be due
and payable immediately on the date that the Holder has exercised its rights
pursuant to this Section 3.3.


 


ARTICLE IV

MISCELLANEOUS


4.1           Cumulative
Remedies.  The remedies under this
Note shall be cumulative.


 


4.2           Failure or
Indulgence Not Waiver.  No failure or
delay on the part of the Holder hereof in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege.  All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.


 


4.3           Notices.  Any notice herein required or permitted to be
given shall be in writing and shall be deemed effective given (a) upon personal
delivery to the party notified, (b)


 


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when sent by
confirmed telex or facsimile if sent during normal business hours of the
recipient, if not, then on the next business day, (c) five days after having
been sent by registered or certified mail, return receipt requested, postage
prepaid, or (d) one day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of
receipt.  All communications shall be
sent to the respective Company at the address provided for such Company in the
Security Agreement executed in connection herewith, and to the Holder at the
address provided in the Security Agreement for the Holder, with a copy to John
E. Tucker, Esq., 825 Third Avenue, 14th Floor, New York, New York
10022, facsimile number (212) 541-4434, or at such other address as the
respective Company or the Holder may designate by ten days advance written
notice to the other parties hereto.  A
Notice of Conversion shall be deemed given when made to the Parent pursuant to
the Purchase Agreement.


 


4.4           Amendment
Provision.  The term “Note” and all
references thereto, as used throughout this instrument, shall mean this
instrument as originally executed, or if later amended or supplemented, then as
so amended or supplemented, and any successor instrument as such successor
instrument may be amended or supplemented.


 


4.5           Assignability.  This Note shall be binding upon each Company
and its successors and assigns, and shall inure to the benefit of the Holder
and its successors and assigns, and may be assigned by the Holder in accordance
with the requirements of the Security Agreement.  No Company may not assign
any of its obligations under this Note without the prior written consent of the
Holder, any such purported assignment without such consent being null and void.


 


4.6           Cost of
Collection.  In case of any Event of
Default under this Note, the Companies shall, jointly and severally, pay the
Holder the Holder’s reasonable costs of collection, including reasonable
attorneys’ fees.


 


4.7           Governing Law,
Jurisdiction and Waiver of Jury Trial.


 


(a)           THIS NOTE SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.


 


(b)           EACH COMPANY HEREBY CONSENTS AND
AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK,
STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN ANY COMPANY, ON THE ONE HAND, AND THE HOLDER, ON THE
OTHER HAND, PERTAINING TO THIS NOTE, THE SECURITY AGREEMENT OR ANY OF THE OTHER
ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE,
THE SECURITY AGREEMENT OR ANY OF THE OTHER ANCILLARY AGREEMENTS PROVIDED,
THAT EACH COMPANY ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO
BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW
YORK; AND FURTHER  PROVIDED, THAT NOTHING IN THIS NOTE SHALL BE
DEEMED OR OPERATE TO PRECLUDE THE HOLDER FROM BRINGING SUIT OR TAKING OTHER
LEGAL ACTION IN ANY OTHER JURISDICTION


 


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TO COLLECT THE
OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
HOLDER.  EACH COMPANY EXPRESSLY SUBMITS
AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN
ANY SUCH COURT, AND EACH COMPANY HEREBY WAIVES ANY OBJECTION THAT IT MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS.  EACH
COMPANY HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER
PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO THE COMPANY AT THE ADDRESS SET FORTH IN THE SECURITY
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER
OF THE COMPANY’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE
U.S. MAILS, PROPER POSTAGE PREPAID


 


(c)           EACH COMPANY DESIRES THAT ITS
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.  THEREFORE, TO ACHIEVE THE BEST COMBINATION OF
THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, EACH COMPANY HERETO
WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT
TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN
THE HOLDER, AND/OR ANY COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS
NOTE, THE SECURITY AGREEMENT, ANY OTHER ANCILLARY AGREEMENT OR THE TRANSACTIONS
RELATED HERETO OR THERETO.


 


4.8           Severability.  In the event that any provision of this Note
is invalid or unenforceable under any applicable statute or rule of law, then
such provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with
such statute or rule of law.  Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of this Note.


 


4.9           Maximum Payments.  Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law.  In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum rate
permitted by such law, any payments in excess of such maximum rate shall be
credited against amounts owed by the Companies to the Holder and thus refunded
to the Companies.


 


4.10         Security Interest.  The Holder has been granted a security
interest (i) in certain assets of the Companies as
more fully described in the Security Agreement and (ii) pursuant to the Stock
Pledge Agreement dated as of the date hereof.


 


4.11         Construction.  Each party acknowledges that its legal
counsel participated in the preparation of this Note and, therefore, stipulates
that the rule of construction that


 


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ambiguities
are to be resolved against the drafting party shall not be applied in the
interpretation of this Note to favor any party against the other.


 


4.12         Registered
Obligation.  This Note is intended to
be a registered obligation within the meaning of Treasury Regulation Section
1.871-14(c)(1)(i) and the
Companies (or their agent) shall register the Note (and thereafter shall
maintain such registration) as to both principal and any stated interest.  Notwithstanding any document, instrument or
agreement relating to this Note to the contrary, transfer of this Note (or the
right to any payments of principal or stated interest thereunder)
may only be effected by (i) surrender of this Note
and either the reissuance by the Company of this Note
to the new holder or the issuance by the Company of a new instrument to the new
holder, or (ii) transfer through a book entry system maintained by the Company
(or its agent), within the meaning of Treasury Regulation Section
1.871-14(c)(1)(i)(B).


 


[Balance of page
intentionally left blank; signature page follows]


 


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IN
WITNESS WHEREOF, each Company has caused this Secured
Non-Convertible Revolving Note to be signed in its name effective as of this 28
day of February 2006.


 


	
  WITNESS:

  	
  SMALL WORLD KIDS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
  WITNESS:

  	
  SMALL WORLD TOYS

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


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EXHIBIT A


 


OTHER COMPANIES


 


Small World Toys,
a California corporation