Document:

EXHIBIT
        4.2

      

      REGISTRATION
        RIGHTS AGREEMENT

      

      This
        Registration Rights Agreement (this “Agreement”)
        is
        made and entered into as of September 30, 2005, among Small World Kids, Inc.,
        a
        Nevada corporation (the “Company”),
        and
        the purchasers signatory hereto (each such purchaser is a “Purchaser”
        and
        collectively, the “Purchasers”).

      

      This
        Agreement is made pursuant to the Securities Purchase Agreement, dated as
        of the
        date hereof among the Company and the Purchasers (the “Purchase
        Agreement”).

      

      The
        Company and the Purchasers hereby agree as follows:

      

      1.
        Definitions

      

       Capitalized
        terms used and not otherwise defined herein that are defined in the Purchase
        Agreement shall have the meanings given such terms in the Purchase
        Agreement.
        As used
        in this Agreement, the following terms shall have the following
        meanings:

      

      “Advice”
        shall
        have the meaning set forth in Section 6(d).

      

      “Effectiveness
        Date”
        means,
        with respect to the initial Registration Statement required to be filed
        hereunder, the 150th
        calendar
        day following the date hereof and, with respect to any additional Registration
        Statements which may be required pursuant to Section 3(c), the 60th
        calendar
        day following the date on which the Company first knows, or reasonably should
        have known, that such additional Registration Statement is required hereunder;
        provided,
        however,
        in the
        event the Company is notified by the Commission that one of the above
        Registration Statements will not be reviewed or is no longer subject to further
        review and comments, the Effectiveness Date as to such Registration Statement
        shall be the fifth Trading Day following the date on which the Company is
        so
        notified if such date precedes the dates required above.

      

      “Effectiveness
        Period”
        shall
        have the meaning set forth in Section 2(a).

      

      “Event”
        shall
        have the meaning set forth in Section 2(b).

      

      “Event
        Date”
        shall
        have the meaning set forth in Section 2(b).

      

      “Filing
        Date”
        means,
        with respect to the initial Registration Statement required hereunder, the
        90th
        calendar
        day following the date hereof and, with respect to any additional Registration
        Statements which may be required pursuant to Section 3(c), the 30th
        day
        following the date on which the Company first knows, or reasonably should
        have
        known that such additional Registration Statement is required
        hereunder.

      

      
        
          
          

        

        
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      “Holder”
        or
“Holders”
        means
        the holder or holders, as the case may be, from time to time of Registrable
        Securities.

      

      “Indemnified
        Party”
        shall
        have the meaning set forth in Section 5(c).

      

      “Indemnifying
        Party”
        shall
        have the meaning set forth in Section 5(c).

      

      “Losses”
        shall
        have the meaning set forth in Section 5(a).

      

      “Plan
        of Distribution”
        shall
        have the meaning set forth in Section 2(a). 

      

      “Proceeding”
        means
        an action, claim, suit, investigation or proceeding (including, without
        limitation, an investigation or partial proceeding, such as a deposition),
        whether commenced or threatened.

      

      “Prospectus”
        means
        the prospectus included in a Registration Statement (including, without
        limitation, a prospectus that includes any information previously omitted
        from a
        prospectus filed as part of an effective registration statement in reliance
        upon
        Rule 430A promulgated under the Securities Act), as amended or supplemented
        by
        any prospectus supplement, with respect to the terms of the offering of any
        portion of the Registrable Securities covered by a Registration Statement,
        and
        all other amendments and supplements to the Prospectus, including post-effective
        amendments, and all material incorporated by reference or deemed to be
        incorporated by reference in such Prospectus.

      

      “Registrable
        Securities”
        means
        (i) all of the shares of Common Stock issuable upon conversion in full of
        the
        Debentures, (ii) all shares issuable as interest on the Debentures assuming
        all
        permissible interest payments are made in shares of Common Stock and the
        Debentures are held until maturity, (iii) all Warrant Shares, (iv) any
        securities issued or issuable upon any stock split, dividend or other
        distribution, recapitalization or similar event with respect to the foregoing
        and (v) any additional shares issuable in connection with any anti-dilution
        provisions in the Debentures or the Warrants (in each case, without giving
        effect to any limitations on conversion set forth in the Debenture or
        limitations on exercise set forth in the Warrant). 

      

      “Registration
        Statement”
        means
        the registration statements required to be filed hereunder and any additional
        registration statements contemplated by Section 3(c), including (in each
        case)
        the Prospectus, amendments and supplements to such registration statement
        or
        Prospectus, including pre- and post-effective amendments, all exhibits thereto,
        and all material incorporated by reference or deemed to be incorporated by
        reference in such registration statement.

      

      “Rule
        415”
        means
        Rule 415 promulgated by the Commission pursuant to the Securities Act, as
        such
        Rule may be amended from time to time, or any similar rule or regulation
        hereafter adopted by the Commission having substantially the same purpose
        and
        effect as such Rule.

      

      
        
          
          

        

        
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      “Rule
        424”
        means
        Rule 424 promulgated by the Commission pursuant to the Securities Act, as
        such
        Rule may be amended from time to time, or any similar rule or regulation
        hereafter adopted by the Commission having substantially the same purpose
        and
        effect as such Rule.

      

      “Selling
        Shareholder Questionnaire”
        shall
        have the meaning set forth in Section 3(a).

      

      2.
         Shelf
        Registration

      

      (a)  On
        or
        prior to each Filing Date, the Company shall prepare and file with the
        Commission a “Shelf” Registration Statement covering the resale of 130% of the
        Registrable Securities on such Filing Date for an offering to be made on
        a
        continuous basis pursuant to Rule 415. The Registration Statement shall be
        on
        Form S-3 (except if the Company is not then eligible to register for resale
        the
        Registrable Securities on Form S-3, in which case such registration shall
        be on
        another appropriate form in accordance herewith) and shall contain (unless
        otherwise directed by the Holders) substantially the “Plan
        of Distribution”
        attached hereto as Annex
        A.
        Subject
        to the terms of this Agreement, the Company shall use its best efforts to
        cause
        a Registration Statement to be declared effective under the Securities Act
        as
        promptly as possible after the filing thereof, but in any event prior to
        the
        applicable Effectiveness Date, and shall use its best efforts to keep such
        Registration Statement continuously effective under the Securities Act until
        all
        Registrable Securities covered by such Registration Statement have been sold
        or
        may be sold without volume restrictions pursuant to Rule 144(k) as determined
        by
        the counsel to the Company pursuant to a written opinion letter to such effect,
        addressed and acceptable to the Company’s transfer agent and the affected
        Holders (the “Effectiveness
        Period”).
        The
        Company shall telephonically request effectiveness of a Registration Statement
        as of 5:00 pm Eastern Time on a Trading Day. The Company shall immediately
        notify the Holders via facsimile of the effectiveness of a Registration
        Statement on the same Trading Day that the Company telephonically confirms
        effectiveness with the Commission, which shall be the date requested for
        effectiveness of a Registration Statement. The Company shall, by 9:30 am
        Eastern
        Time on the Trading Day after the Effective Date (as defined in the Purchase
        Agreement), file a Form 424(b)(5) with the Commission. Failure to so notify
        the
        Holder within 1 Trading Day of such notification shall be deemed an Event
        under
        Section 2(b).

       

      
        
          
          

        

        
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      (b)  If:
        (i) a
        Registration Statement is not filed on or prior to its Filing Date (if the
        Company files a Registration Statement without affording the Holders the
        opportunity to review and comment on the same as required by Section 3(a),
        the
        Company shall not be deemed to have satisfied this clause (i)), or (ii) the
        Company fails to file with the Commission a request for acceleration in
        accordance with Rule 461 promulgated under the Securities Act, within five
        Trading Days of the date that the Company is notified (orally or in writing,
        whichever is earlier) by the Commission that a Registration Statement will
        not
        be “reviewed,” or not subject to further review, or (iii) prior to its
        Effectiveness Date, the Company fails to file a pre-effective amendment and
        otherwise respond in writing to comments made by the Commission in respect
        of
        such Registration Statement within 10 calendar days after the receipt of
        comments by or notice from the Commission that such amendment is required
        in
        order for a Registration Statement to be declared effective, or (iv) a
        Registration Statement filed or required to be filed hereunder is not declared
        effective by the Commission by its Effectiveness Date, or (v) after the
        Effectiveness Date, a Registration Statement ceases for any reason to remain
        continuously effective as to all Registrable Securities for which it is required
        to be effective, or the Holders are not permitted to utilize the Prospectus
        therein to resell such Registrable Securities for 10 consecutive calendar
        days
        but no more than an aggregate of 15 calendar days during any 12-month period
        (which need not be consecutive Trading Days) (any such failure or breach
        being
        referred to as an “Event”,
        and
        for purposes of clause (i) or (iv) the date on which such Event occurs, or
        for
        purposes of clause (ii) the date on which such five Trading Day period is
        exceeded, or for purposes of clause (iii) the date which such 10 calendar
        day
        period is exceeded, or for purposes of clause (v) the date on which such
        10 or
        15 calendar day period, as applicable, is exceeded being referred to as
“Event
        Date”),
        then
        in addition to any other rights the Holders may have hereunder or under
        applicable law, on each such Event Date and on each monthly anniversary of
        each
        such Event Date (if the applicable Event shall not have been cured by such
        date)
        until the applicable Event is cured, the Company shall pay to each Holder
        an
        amount in cash, as partial liquidated damages and not as a penalty, equal
        to
        1.0% of the aggregate purchase price paid by such Holder pursuant to the
        Purchase Agreement for any Registrable Securities then held by such Holder
        for
        the first thirty calendar day period following such Event Date, increasing
        to 2%
        of the aggregate purchase price paid by such Holder after the first thirty
        calendar day period following the applicable Event Date. If the Company fails
        to
        pay any partial liquidated damages pursuant to this Section in full within
        seven
        days after the date payable, the Company will pay interest thereon at a rate
        of
        18% per annum (or such lesser maximum amount that is permitted to be paid
        by
        applicable law) to the Holder, accruing daily from the date such partial
        liquidated damages are due until such amounts, plus all such interest thereon,
        are paid in full. The partial liquidated damages pursuant to the terms hereof
        shall apply on a daily pro-rata basis for any portion of a month prior to
        the
        cure of an Event.

      

      3.
         Registration
        Procedures.

      

      In
        connection with the Company’s registration obligations hereunder, the Company
        shall:

      

      (a)  Not
        less
        than five Trading Days prior to the filing of each Registration Statement
        or any
        related Prospectus or any amendment or supplement thereto (including any
        document that would be incorporated or deemed to be incorporated therein
        by
        reference), the Company shall, (i) furnish to each Holder copies of all such
        documents proposed to be filed, which documents (other than those incorporated
        or deemed to be incorporated by reference) will be subject to the review
        of such
        Holders, and (ii) cause its officers and directors, counsel and independent
        certified public accountants to respond to such inquiries as shall be necessary,
        in the reasonable opinion of respective counsel to conduct a reasonable
        investigation within the meaning of the Securities Act. The Company shall
        not
        file a Registration Statement or any such Prospectus or any amendments or
        supplements thereto to which the Holders of a majority of the Registrable
        Securities shall reasonably object in good faith, provided that, the Company
        is
        notified of such objection in writing no later than 5 Trading Days after
        the
        Holders have been so furnished copies of such documents. Each Holder agrees
        to
        furnish to the Company a completed Questionnaire in the form attached to
        this
        Agreement as Annex B (a “Selling
        Shareholder Questionnaire”)
        not
        less than two Trading Days prior to the Filing Date or by the end of the
        fourth
        Trading Day following the date on which such Holder receives draft materials
        in
        accordance with this Section. 

      

      
        
          
          

        

        
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      (b)  (i)
        Prepare and file with the Commission such amendments, including post-effective
        amendments, to a Registration Statement and the Prospectus used in connection
        therewith as may be necessary to keep a Registration Statement continuously
        effective as to the applicable Registrable Securities for the Effectiveness
        Period and prepare and file with the Commission such additional Registration
        Statements in order to register for resale under the Securities Act all of
        the
        Registrable Securities; (ii) cause the related Prospectus to be amended or
        supplemented by any required Prospectus supplement (subject to the terms
        of this
        Agreement), and as so supplemented or amended to be filed pursuant to Rule
        424;
        (iii) respond as promptly as reasonably possible to any comments received
        from
        the Commission with respect to a Registration Statement or any amendment
        thereto
        and as promptly as reasonably possible provide the Holders true and complete
        copies of all correspondence from and to the Commission relating to a
        Registration Statement; and (iv) comply in all material respects with the
        provisions of the Securities Act and the Exchange Act with respect to the
        disposition of all Registrable Securities covered by a Registration Statement
        during the applicable period in accordance (subject to the terms of this
        Agreement) with the intended methods of disposition by the Holders thereof
        set
        forth in such Registration Statement as so amended or in such Prospectus
        as so
        supplemented.

      

      (c)  If
        during
        the Effectiveness Period, the number of Registrable Securities at any time
        exceeds 90% of the number of shares of Common Stock then registered in a
        Registration Statement, then the Company shall file as soon as reasonably
        practicable but in any case prior to the applicable Filing Date, an additional
        Registration Statement covering the resale by the Holders of not less than
        130%
        of the number of such Registrable Securities.

      

      (d)  Notify
        the Holders of Registrable Securities to be sold (which notice shall, pursuant
        to clauses (ii) through (vi) hereof, be accompanied by an instruction to
        suspend
        the use of the Prospectus until the requisite changes have been made) as
        promptly as reasonably possible (and, in the case of (i)(A) below, not less
        than
        five Trading Days prior to such filing) and (if requested by any such Person)
        confirm such notice in writing no later than one Trading Day following the
        day
        (i)(A) when a Prospectus or any Prospectus supplement or post-effective
        amendment to a Registration Statement is proposed to be filed; (B) when the
        Commission notifies the Company whether there will be a “review” of such
        Registration Statement and whenever the Commission comments in writing on
        such
        Registration Statement (the Company shall provide true and complete copies
        thereof and all written responses thereto to each of the Holders); and (C)
        with
        respect to a Registration Statement or any post-effective amendment, when
        the
        same has become effective; (ii) of any request by the Commission or any other
        Federal or state governmental authority for amendments or supplements to
        a
        Registration Statement or Prospectus or for additional information; (iii)
        of the
        issuance by the Commission or any other federal or state governmental authority
        of any stop order suspending the effectiveness of a Registration Statement
        covering any or all of the Registrable Securities or the initiation of any
        Proceedings for that purpose; (iv) of the receipt by the Company of any
        notification with respect to the suspension of the qualification or exemption
        from qualification of any of the Registrable Securities for sale in any
        jurisdiction, or the initiation or threatening of any Proceeding for such
        purpose; (v) of the occurrence of any event or passage of time that makes
        the
        financial statements included in a Registration Statement ineligible for
        inclusion therein or any statement made in a Registration Statement or
        Prospectus or any document incorporated or deemed to be incorporated therein
        by
        reference untrue in any material respect or that requires any revisions to
        a
        Registration Statement, Prospectus or other documents so that, in the case
        of a
        Registration Statement or the Prospectus, as the case may be, it will not
        contain any untrue statement of a material fact or omit to state any 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;
        and
        (vi) the occurrence or existence of any pending corporate development with
        respect to the Company that the Company believes may be material and that,
        in
        the determination of the Company, makes it not in the best interest of the
        Company to allow continued availability of a Registration Statement or
        Prospectus; provided that any and all of such information shall remain
        confidential to each Holder until such information otherwise becomes public,
        unless disclosure by a Holder is required by law; provided,
        further,
        notwithstanding each Holder’s agreement to keep such information confidential,
        the Holders make no acknowledgement that any such information is material,
        non-public information.

      

      
        
          
          

        

        
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      (e)  Use
        its
        best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
        of
        (i) any order suspending the effectiveness of a Registration Statement, or
        (ii)
        any suspension of the qualification (or exemption from qualification) of
        any of
        the Registrable Securities for sale in any jurisdiction, at the earliest
        practicable moment.

      

      (f)  Furnish
        to each Holder, without charge, at least one conformed copy of each such
        Registration Statement and each amendment thereto, including financial
        statements and schedules, all documents incorporated or deemed to be
        incorporated therein by reference to the extent requested by such Person,
        and
        all exhibits to the extent requested by such Person (including those previously
        furnished or incorporated by reference) promptly after the filing of such
        documents with the Commission.

      

      (g)  Promptly
        deliver to each Holder, without charge, as many copies of the Prospectus
        or
        Prospectuses (including each form of prospectus) and each amendment or
        supplement thereto as such Persons may reasonably request in connection with
        resales by the Holder of Registrable Securities. Subject to the terms of
        this
        Agreement, the Company hereby consents to the use of such Prospectus and
        each
        amendment or supplement thereto by each of the selling Holders in connection
        with the offering and sale of the Registrable Securities covered by such
        Prospectus and any amendment or supplement thereto, except after the giving
        on
        any notice pursuant to Section 3(d).

      

      (h)  If
        NASDR
        Rule 2710 requires any broker-dealer to make a filing prior to executing
        a sale
        by a Holder, the Company shall (i) make an Issuer Filing with the NASDR,
        Inc.
        Corporate Financing Department pursuant to NASDR Rule 2710(b)(10)(A)(i),
        (ii)
        respond within five Trading Days to any comments received from NASDR in
        connection therewith, (iii) and pay the filing fee required in connection
        therewith.

      

      
        
          
          

        

        
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      (i)  Prior
        to
        any resale of Registrable Securities by a Holder, use its commercially
        reasonable efforts to register or qualify or cooperate with the selling Holders
        in connection with the registration or qualification (or exemption from the
        Registration or qualification) of such Registrable Securities for the resale
        by
        the Holder under the securities or Blue Sky laws of such jurisdictions within
        the United States as any Holder reasonably requests in writing, to keep each
        registration or qualification (or exemption therefrom) effective during the
        Effectiveness Period and to do any and all other acts or things reasonably
        necessary to enable the disposition in such jurisdictions of the Registrable
        Securities covered by each Registration Statement; provided, that the Company
        shall not be required to qualify generally to do business in any jurisdiction
        where it is not then so qualified, subject the Company to any material tax
        in
        any such jurisdiction where it is not then so subject or file a general consent
        to service of process in any such jurisdiction.

      

      (j)  If
        requested by the Holders, cooperate with the Holders to facilitate the timely
        preparation and delivery of certificates representing Registrable Securities
        to
        be delivered to a transferee pursuant to a Registration Statement, which
        certificates shall be free, to the extent permitted by the Purchase Agreement,
        of all restrictive legends, and to enable such Registrable Securities to
        be in
        such denominations and registered in such names as any such Holders may
        request.

      

      (k)  Upon
        the
        occurrence of any event contemplated by this Section 3, as promptly as
        reasonably possible under the circumstances taking into account the Company’s
        good faith assessment of any adverse consequences to the Company and its
        stockholders of the premature disclosure of such event, prepare a supplement
        or
        amendment, including a post-effective amendment, to a Registration Statement
        or
        a supplement to the related Prospectus or any document incorporated or deemed
        to
        be incorporated therein by reference, and file any other required document
        so
        that, as thereafter delivered, neither a Registration Statement nor such
        Prospectus will contain an untrue statement of a material fact or omit 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. If
        the
        Company notifies the Holders in accordance with clauses (ii) through (vi)
        of
        Section 3(d) above to suspend the use of any Prospectus until the requisite
        changes to such Prospectus have been made, then the Holders shall suspend
        use of
        such Prospectus. The Company will use its best efforts to ensure that the
        use of
        the Prospectus may be resumed as promptly as is practicable. The Company
        shall
        be entitled to exercise its right under this Section 3(k) to suspend the
        availability of a Registration Statement and Prospectus, subject to the payment
        of partial liquidated damages pursuant to Section 2(b), for a period not
        to
        exceed 60 days (which need not be consecutive days) in any 12 month
        period.

      

      
        
          
          

        

        
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      (l)  Comply
        with all applicable rules and regulations of the Commission.

      

      (m)  The
        Company may require each selling Holder to furnish to the Company a certified
        statement as to the number of shares of Common Stock beneficially owned by
        such
        Holder and, if required by the Commission, the person thereof that has voting
        and dispositive control over the Shares. During any periods that the Company
        is
        unable to meet its obligations hereunder with respect to the registration
        of the
        Registrable Securities solely because any Holder fails to furnish such
        information within three Trading Days of the Company’s request, any liquidated
        damages that are accruing at such time as to such Holder only shall be tolled
        and any Event that may otherwise occur solely because of such delay shall
        be
        suspended as to such Holder only, until such information is delivered to
        the
        Company.

      

      4.
         Registration
        Expenses.
        All
        fees and expenses incident to the performance of or compliance with this
        Agreement by the Company shall be borne by the Company whether or not any
        Registrable Securities are sold pursuant to a Registration Statement. The
        fees
        and expenses referred to in the foregoing sentence shall include, without
        limitation, (i) all registration and filing fees (including, without limitation,
        fees and expenses (A) with respect to filings required to be made with the
        Trading Market on which the Common Stock is then listed for trading, (B)
        in
        compliance with applicable state securities or Blue Sky laws reasonably agreed
        to by the Company in writing (including, without limitation, fees and
        disbursements of counsel for the Company in connection with Blue Sky
        qualifications or exemptions of the Registrable Securities and determination
        of
        the eligibility of the Registrable Securities for investment under the laws
        of
        such jurisdictions as requested by the Holders) and (C) if not previously
        paid
        by the Company in connection with an Issuer Filing, with respect to any filing
        that may be required to be made by any broker through which a Holder intends
        to
        make sales of Registrable Securities with NASD Regulation, Inc. pursuant
        to the
        NASD Rule 2710, so long as the broker is receiving no more than a customary
        brokerage commission in connection with such sale, (ii) printing expenses
        (including, without limitation, expenses of printing certificates for
        Registrable Securities and of printing prospectuses if the printing of
        prospectuses is reasonably requested by the holders of a majority of the
        Registrable Securities included in a Registration Statement), (iii) messenger,
        telephone and delivery expenses, (iv) fees and disbursements of counsel for
        the
        Company, (v) Securities Act liability insurance, if the Company so desires
        such
        insurance, and (vi) fees and expenses of all other Persons retained by the
        Company in connection with the consummation of the transactions contemplated
        by
        this Agreement. In addition, the Company shall be responsible for all of
        its
        internal expenses incurred in connection with the consummation of the
        transactions contemplated by this Agreement (including, without limitation,
        all
        salaries and expenses of its officers and employees performing legal or
        accounting duties), the expense of any annual audit and the fees and expenses
        incurred in connection with the listing of the Registrable Securities on
        any
        securities exchange as required hereunder. In no event shall the Company
        be
        responsible for any broker or similar commissions or, except to the extent
        provided for in the Transaction Documents, any legal fees or other costs
        of the
        Holders.

      

      
        
          
          

        

        
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      5.
        Indemnification

      

      (a)  Indemnification
        by the Company.
        The
        Company shall, notwithstanding any termination of this Agreement, indemnify
        and
        hold harmless each Holder, the officers, directors, agents, brokers (including
        brokers who offer and sell Registrable Securities as principal as a result
        of a
        pledge or any failure to perform under a margin call of Common Stock),
        investment advisors and employees of each of them, each Person who controls
        any
        such Holder (within the meaning of Section 15 of the Securities Act or Section
        20 of the Exchange Act) and the officers, directors, agents and employees
        of
        each such controlling Person, to the fullest extent permitted by applicable
        law,
        from and against any and all losses, claims, damages, liabilities, costs
        (including, without limitation, reasonable attorneys’ fees) and expenses
        (collectively, “Losses”),
        as
        incurred, arising out of or relating to any untrue or alleged untrue statement
        of a material fact contained in a Registration Statement, any Prospectus
        or any
        form of prospectus or in any amendment or supplement thereto or in any
        preliminary prospectus, or arising out of or relating to any omission or
        alleged
        omission of a material fact required to be stated therein or necessary to
        make
        the statements therein (in the case of any Prospectus or form of prospectus
        or
        supplement thereto, in light of the circumstances under which they were made)
        not misleading, except to the extent, but only to the extent, that (i) such
        untrue statements or omissions are based solely upon information regarding
        such
        Holder furnished in writing to the Company by such Holder expressly for use
        therein, or to the extent that such information relates to such Holder or
        such
        Holder’s proposed method of distribution of Registrable Securities and was
        reviewed and expressly approved in writing by such Holder expressly for use
        in a
        Registration Statement, such Prospectus or such form of Prospectus or in
        any
        amendment or supplement thereto (it being understood that the Holder has
        approved Annex A hereto for this purpose) or (ii) in the case of an occurrence
        of an event of the type specified in Section 3(d)(ii)-(vi), the use by such
        Holder of an outdated or defective Prospectus after the Company has notified
        such Holder in writing that the Prospectus is outdated or defective and prior
        to
        the receipt by such Holder of the Advice contemplated in Section 6(d). The
        Company shall notify the Holders promptly of the institution, threat or
        assertion of any Proceeding arising from or in connection with the transactions
        contemplated by this Agreement of which the Company is aware.

      

      (b)  Indemnification
        by Holders.
        Each
        Holder shall, severally and not jointly, indemnify and hold harmless the
        Company, its directors, officers, agents and employees, each Person who controls
        the Company (within the meaning of Section 15 of the Securities Act and Section
        20 of the Exchange Act), and the directors, officers, agents or employees
        of
        such controlling Persons, to the fullest extent permitted by applicable law,
        from and against all Losses, as incurred, to the extent arising out of or
        based
        solely upon: (x) such Holder’s failure to comply with the prospectus delivery
        requirements of the Securities Act or (y) any untrue or alleged untrue statement
        of a material fact contained in any Registration Statement, any Prospectus,
        or
        any form of prospectus, or in any amendment or supplement thereto or in any
        preliminary prospectus, or arising out of or relating to any omission or
        alleged
        omission of a material fact required to be stated therein or necessary to
        make
        the statements therein not misleading (i) to the extent, but only to the
        extent,
        that such untrue statement or omission is contained in any information so
        furnished in writing by such Holder to the Company specifically for inclusion
        in
        such Registration Statement or such Prospectus or (ii) to the extent that
        (1)
        such untrue statements or omissions are based solely upon information regarding
        such Holder furnished in writing to the Company by such Holder expressly
        for use
        therein, or to the extent that such information relates to such Holder or
        such
        Holder’s proposed method of distribution of Registrable Securities and was
        reviewed and expressly approved in writing by such Holder expressly for use
        in a
        Registration Statement (it being understood that the Holder has approved
        Annex A
        hereto for this purpose), such Prospectus or such form of Prospectus or in
        any
        amendment or supplement thereto or (2) in the case of an occurrence of an
        event
        of the type specified in Section 3(d)(ii)-(vi), the use by such Holder of
        an
        outdated or defective Prospectus after the Company has notified such Holder
        in
        writing that the Prospectus is outdated or defective and prior to the receipt
        by
        such Holder of the Advice contemplated in Section 6(d). In no event shall
        the
        liability of any selling Holder hereunder be greater in amount than the dollar
        amount of the net proceeds received by such Holder upon the sale of the
        Registrable Securities giving rise to such indemnification
        obligation.

      

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

      (c)  Conduct
        of Indemnification Proceedings.
        If any
        Proceeding shall be brought or asserted against any Person entitled to indemnity
        hereunder (an “Indemnified
        Party”),
        such
        Indemnified Party shall promptly notify the Person from whom indemnity is
        sought
        (the “Indemnifying
        Party”)
        in
        writing, and the Indemnifying Party shall have the right to assume the defense
        thereof, including the employment of counsel reasonably satisfactory to the
        Indemnified Party and the payment of all fees and expenses incurred in
        connection with defense thereof; provided, that the failure of any Indemnified
        Party to give such notice shall not relieve the Indemnifying Party of its
        obligations or liabilities pursuant to this Agreement, except (and only)
        to the
        extent that it shall be finally determined by a court of competent jurisdiction
        (which determination is not subject to appeal or further review) that such
        failure shall have prejudiced the Indemnifying Party.

      

      An
        Indemnified Party shall have the right to employ separate counsel in any
        such
        Proceeding and to participate in the defense thereof, but the fees and expenses
        of such counsel shall be at the expense of such Indemnified Party or Parties
        unless: (1) the Indemnifying Party has agreed in writing to pay such fees
        and
        expenses; (2) the Indemnifying Party shall have failed promptly to assume
        the
        defense of such Proceeding and to employ counsel reasonably satisfactory
        to such
        Indemnified Party in any such Proceeding; or (3) the named parties to any
        such
        Proceeding (including any impleaded parties) include both such Indemnified
        Party
        and the Indemnifying Party, and such Indemnified Party shall reasonably believe
        that a material conflict of interest is likely to exist if the same counsel
        were
        to represent such Indemnified Party and the Indemnifying Party (in which
        case,
        if such Indemnified Party notifies the Indemnifying Party in writing that
        it
        elects to employ separate counsel at the expense of the Indemnifying Party,
        the
        Indemnifying Party shall not have the right to assume the defense thereof
        and
        the reasonable fees and expenses of one separate counsel shall be at the
        expense
        of the Indemnifying Party). The Indemnifying Party shall not be liable for
        any
        settlement of any such Proceeding effected without its written consent, which
        consent shall not be unreasonably withheld. No Indemnifying Party shall,
        without
        the prior written consent of the Indemnified Party, effect any settlement
        of any
        pending Proceeding in respect of which any Indemnified Party is a party,
        unless
        such settlement includes an unconditional release of such Indemnified Party
        from
        all liability on claims that are the subject matter of such
        Proceeding.

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

      Subject
        to the terms of this Agreement, all reasonable fees and expenses of the
        Indemnified Party (including reasonable fees and expenses to the extent incurred
        in connection with investigating or preparing to defend such Proceeding in
        a
        manner not inconsistent with this Section) shall be paid to the Indemnified
        Party, as incurred, within ten Trading Days of written notice thereof to
        the
        Indemnifying Party; provided, that the Indemnified Party shall promptly
        reimburse the Indemnifying Party for that portion of such fees and expenses
        applicable to such actions for which such Indemnified Party is not entitled
        to
        indemnification hereunder, determined based upon the relative faults of the
        parties.

       

      (d)  Contribution.
        If the
        indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified
        Party or insufficient to hold an Indemnified Party harmless for any Losses,
        then
        each Indemnifying Party shall contribute to the amount paid or payable by
        such
        Indemnified Party, in such proportion as is appropriate to reflect the relative
        fault of the Indemnifying Party and Indemnified Party in connection with
        the
        actions, statements or omissions that resulted in such Losses as well as
        any
        other relevant equitable considerations. The relative fault of such Indemnifying
        Party and Indemnified Party shall be determined by reference to, among other
        things, whether any action in question, including any untrue or alleged untrue
        statement of a material fact or omission or alleged omission of a material
        fact,
        has been taken or made by, or relates to information supplied by, such
        Indemnifying Party or Indemnified Party, and the parties’ relative intent,
        knowledge, access to information and opportunity to correct or prevent such
        action, statement or omission. The amount paid or payable by a party as a
        result
        of any Losses shall be deemed to include, subject to the limitations set
        forth
        in this Agreement, any reasonable attorneys’ or other reasonable fees or
        expenses incurred by such party in connection with any Proceeding to the
        extent
        such party would have been indemnified for such fees or expenses if the
        indemnification provided for in this Section was available to such party
        in
        accordance with its terms.

       

      The
        parties hereto agree that it would not be just and equitable if contribution
        pursuant to this Section 5(d) were determined by pro rata allocation or by
        any
        other method of allocation that does not take into account the equitable
        considerations referred to in the immediately preceding paragraph.
        Notwithstanding the provisions of this Section 5(d), no Holder shall be required
        to contribute, in the aggregate, any amount in excess of the amount by which
        the
        proceeds actually received by such Holder from the sale of the Registrable
        Securities subject to the Proceeding exceeds the amount of any damages that
        such
        Holder has otherwise been required to pay by reason of such untrue or alleged
        untrue statement or omission or alleged omission, except in the case of fraud
        by
        such Holder.

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

      The
        indemnity and contribution agreements contained in this Section are in addition
        to any liability that the Indemnifying Parties may have to the Indemnified
        Parties.

      

      6.
        Miscellaneous

       

      
        (a)  Remedies.
          In the
          event of a breach by the Company or by a Holder, of any of their obligations
          under this Agreement, each Holder or the Company, as the case may be, in
          addition to being entitled to exercise all rights granted by law and under
          this
          Agreement, including recovery of damages, will be entitled to specific
          performance of its rights under this Agreement. The Company and each Holder
          agree that monetary damages would not provide adequate compensation for
          any
          losses incurred by reason of a breach by it of any of the provisions of
          this
          Agreement and hereby further agrees that, in the event of any action for
          specific performance in respect of such breach, it shall waive the defense
          that
          a remedy at law would be adequate.

         

        (b)  No
          Piggyback on Registrations.
          Except
          as set forth on Schedule
          6(b)
          attached
          hereto, neither the Company nor any of its security holders (other than
          the
          Holders in such capacity pursuant hereto) may include securities of the
          Company
          in the initial Registration Statement other than the Registrable Securities.
          No
          Person has any right to cause the Company to effect the registration under
          the
          Securities Act of any securities of the Company. The Company shall not
          file any
          other registration statements until the initial Registration Statement
          required
          hereunder is declared effective by the Commission, provided that this Section
          6(b) shall not prohibit the Company from filing amendments to registration
          statements already filed.

         

        (c)  Compliance.
          Each
          Holder covenants and agrees that it will comply with the prospectus delivery
          requirements of the Securities Act as applicable to it in connection with
          sales
          of Registrable Securities pursuant to a Registration Statement.

         

        (d)  Discontinued
          Disposition.
          Each
          Holder agrees by its acquisition of such Registrable Securities that, upon
          receipt of a notice from the Company of the occurrence of any event of
          the kind
          described in Section 3(d), such Holder will forthwith discontinue disposition
          of
          such Registrable Securities under a Registration Statement until such Holder’s
          receipt of the copies of the supplemented Prospectus and/or amended Registration
          Statement, or until it is advised in writing (the “Advice”)
          by the
          Company that the use of the applicable Prospectus may be resumed, and,
          in either
          case, has received copies of any additional or supplemental filings that
          are
          incorporated or deemed to be incorporated by reference in such Prospectus
          or
          Registration Statement. The Company will use its best efforts to ensure
          that the
          use of the Prospectus may be resumed as promptly as it practicable. The
          Company
          agrees and acknowledges that any periods during which the Holder is required
          to
          discontinue the disposition of the Registrable Securities hereunder shall
          be
          subject to the provisions of Section 2(b).

         

        
          
            
            

          

          
            12

            
              

            

          

          
            
            

          

        

        (e)  Piggy-Back
          Registrations.
          If at
          any time during the Effectiveness Period there is not an effective Registration
          Statement covering all of the Registrable Securities and the Company shall
          determine to prepare and file with the Commission a registration statement
          relating to an offering for its own account or the account of others under
          the
          Securities Act of any of its equity securities, other than on Form S-4
          or Form
          S-8 (each as promulgated under the Securities Act) or their then equivalents
          relating to equity securities to be issued solely in connection with any
          acquisition of any entity or business or equity securities issuable in
          connection with the stock option or other employee benefit plans, then
          the
          Company shall send to each Holder a written notice of such determination
          and, if
          within fifteen days after the date of such notice, any such Holder shall
          so
          request in writing, the Company shall include in such registration statement
          all
          or any part of such Registrable Securities such Holder requests to be
          registered; provided,
          however,
          that,
          the Company shall not be required to register any Registrable Securities
          pursuant to this Section 6(e) that are eligible for resale pursuant to
          Rule
          144(k) promulgated under the Securities Act or that are the subject of
          a then
          effective Registration Statement.

         

        (f)  Amendments
          and Waivers.
          The
          provisions of this Agreement, including the provisions of this sentence,
          may not
          be amended, modified or supplemented, and waivers or consents to departures
          from
          the provisions hereof may not be given, unless the same shall be in writing
          and
          signed by the Company and each Holder of the then outstanding Registrable
          Securities. Notwithstanding the foregoing, a waiver or consent to depart
          from
          the provisions hereof with respect to a matter that relates exclusively
          to the
          rights of Holders and that does not directly or indirectly affect the rights
          of
          other Holders may be given by Holders of all of the Registrable Securities
          to
          which such waiver or consent relates; provided,
          however,
          that
          the provisions of this sentence may not be amended, modified, or supplemented
          except in accordance with the provisions of the immediately preceding
          sentence.

         

        (g)  Notices.
          Any and
          all notices or other communications or deliveries required or permitted
          to be
          provided hereunder shall be delivered as set forth in the Purchase Agreement.
          

         

        (h)  Successors
          and Assigns.
          This
          Agreement shall inure to the benefit of and be binding upon the successors
          and
          permitted assigns of each of the parties and shall inure to the benefit
          of each
          Holder. The Company may not assign its rights or obligations hereunder
          without
          the prior written consent of all of the Holders of the then-outstanding
          Registrable Securities. Each Holder may assign their respective rights
          hereunder
          in the manner and to the Persons as permitted under the Purchase
          Agreement.

         

        (i)  No
          Inconsistent Agreements.
          Neither
          the Company nor any of its subsidiaries has entered, as of the date hereof,
          nor
          shall the Company or any of its subsidiaries, on or after the date of this
          Agreement, enter into any agreement with respect to its securities, that
          would
          have the effect of impairing the rights granted to the Holders in this
          Agreement
          or otherwise conflicts with the provisions hereof. Except as set forth
          on
Schedule
          6(i),
          neither
          the Company nor any of its subsidiaries has previously entered into any
          agreement granting any registration rights with respect to any of its securities
          to any Person that have not been satisfied in full.

         

        
          
            
            

          

          
            13

            
              

            

          

          
            
            

          

        

        (j)  Execution
          and Counterparts.
          This
          Agreement may be executed in any number of counterparts, each of which
          when so
          executed shall be deemed to be an original and, all of which taken together
          shall constitute one and the same Agreement. In the event that any signature
          is
          delivered by facsimile transmission, such signature shall create a valid
          binding
          obligation of the party executing (or on whose behalf such signature is
          executed) the same with the same force and effect as if such facsimile
          signature
          were the original thereof.

         

        (k)  Governing
          Law.
          All
          questions concerning the construction, validity, enforcement and interpretation
          of this Agreement shall be determined with the provisions of the Purchase
          Agreement.

         

        (l)  Cumulative
          Remedies.
          The
          remedies provided herein are cumulative and not exclusive of any remedies
          provided by law.

         

        (m)  Severability.
          If any
          term, provision, covenant or restriction of this Agreement is held by a
          court of
          competent jurisdiction to be invalid, illegal, void or unenforceable, the
          remainder of the terms, provisions, covenants and restrictions set forth
          herein
          shall remain in full force and effect and shall in no way be affected,
          impaired
          or invalidated, and the parties hereto shall use their commercially reasonable
          efforts to find and employ an alternative means to achieve the same or
          substantially the same result as that contemplated by such term, provision,
          covenant or restriction. It is hereby stipulated and declared to be the
          intention of the parties that they would have executed the remaining terms,
          provisions, covenants and restrictions without including any of such that
          may be
          hereafter declared invalid, illegal, void or unenforceable.

         

        (n)  Headings.
          The
          headings in this Agreement are for convenience of reference only and shall
          not
          limit or otherwise affect the meaning hereof.

         

        (o)  Independent
          Nature of Holders’ Obligations and Rights.
          The
          obligations of each Holder hereunder are several and not joint with the
          obligations of any other Holder hereunder, and no Holder shall be responsible
          in
          any way for the performance of the obligations of any other Holder hereunder.
          Nothing contained herein or in any other agreement or document delivered
          at any
          closing, and no action taken by any Holder pursuant hereto or thereto,
          shall be
          deemed to constitute the Holders as a partnership, an association, a joint
          venture or any other kind of entity, or create a presumption that the Holders
          are in any way acting in concert with respect to such obligations or the
          transactions contemplated by this Agreement. Each Holder shall be entitled
          to
          protect and enforce its rights, including without limitation the rights
          arising
          out of this Agreement, and it shall not be necessary for any other Holder
          to be
          joined as an additional party in any proceeding for such
          purpose.

      

      

      ********************

      
         

        
          
            
            

          

          
            14

            
              

            

          

          
            
            

          

        

        IN
          WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
          as
          of the date first written above.

         

      

      
        	 	 SMALL
                WORLD KIDS, INC. 
	 	 
	 
 	 
By:	 
 
	 	 	 
	 	Name: 
                Title:

              	
              
	 	
                 

                 

              

      

      [SIGNATURE
        PAGE OF HOLDERS FOLLOWS]

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

      [SIGNATURE
        PAGE OF HOLDERS TO SWKD RRA]

       

      Name
        of
        Holder: __________________________

      Signature
        of Authorized Signatory of Holder:
        __________________________

      Name
        of
        Authorized Signatory: _________________________

      Title
        of
        Authorized Signatory: __________________________

      

      

      [SIGNATURE
        PAGES CONTINUE]

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

      Plan
        of Distribution

      

      Each
        Selling Stockholder (the “Selling
        Stockholders”)
        of the
        common stock (“Common
        Stock”)
        of
        Small World Kids, Inc., a Nevada corporation (the “Company”)
        and
        any of their pledgees, assignees and successors-in-interest may, from time
        to
        time, sell any or all of their shares of Common Stock on the Trading Market
        or
        any other stock exchange, market or trading facility on which the shares
        are
        traded or in private transactions. These sales may be at fixed or negotiated
        prices. A Selling Stockholder may use any one or more of the following methods
        when selling shares:

       

      
        	·  	
                ordinary
                  brokerage transactions and transactions in which the broker-dealer
                  solicits purchasers;

              

      

       

      
        	·  	
                block
                  trades in which the broker-dealer will attempt to sell the shares
                  as agent
                  but may position and resell a portion of the block as principal
                  to
                  facilitate the transaction;

              

      

       

      
        	·  	
                purchases
                  by a broker-dealer as principal and resale by the broker-dealer
                  for its
                  account;

              

      

       

      
        	·  	
                an
                  exchange distribution in accordance with the rules of the applicable
                  exchange;

              

      

       

      
        	·  	
                privately
                  negotiated transactions;

              

      

       

      
        	·  	
                settlement
                  of short sales entered into after the effective date of the registration
                  statement of which this prospectus is a part;

              

      

       

      
        	·  	
                broker-dealers
                  may agree with the Selling Stockholders to sell a specified number
                  of such
                  shares at a stipulated price per
                  share;

              

      

       

      
        	·  	
                a
                  combination of any such methods of
                  sale;

              

      

       

      
        	·  	
                through
                  the writing or settlement of options or other hedging transactions,
                  whether through an options exchange or otherwise;
                  or

              

      

       

      
        	·  	
                any
                  other method permitted pursuant to applicable
                  law.

              

      

       

      The
        Selling Stockholders may also sell shares under Rule 144 under the Securities
        Act of 1933, as amended (the “Securities
        Act”),
        if
        available, rather than under this prospectus.

       

      Broker-dealers
        engaged by the Selling Stockholders may arrange for other brokers-dealers
        to
        participate in sales. Broker-dealers may receive commissions or discounts
        from
        the Selling Stockholders (or, if any broker-dealer acts as agent for the
        purchaser of shares, from the purchaser) in amounts to be negotiated, but,
        except as set forth in a supplement to this Prospectus, in the case of an
        agency
        transaction not in excess of a customary brokerage commission in compliance
        with
        NASDR Rule 2440; and in the case of a principal transaction a markup or markdown
        in compliance with NASDR IM-2440. 

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

      In
        connection with the sale of the Common Stock or interests therein, the Selling
        Stockholders may enter into hedging transactions with broker-dealers or other
        financial institutions, which may in turn engage in short sales of the Common
        Stock in the course of hedging the positions they assume. The Selling
        Stockholders may also sell shares of the Common Stock short and deliver these
        securities to close out their short positions, or loan or pledge the Common
        Stock to broker-dealers that in turn may sell these securities. The Selling
        Stockholders may also enter into option or other transactions with
        broker-dealers or other financial institutions or the creation of one or
        more
        derivative securities which require the delivery to such broker-dealer or
        other
        financial institution of shares offered by this prospectus, which shares
        such
        broker-dealer or other financial institution may resell pursuant to this
        prospectus (as supplemented or amended to reflect such
        transaction).

       

      The
        Selling Stockholders and any broker

       

      The
        Company is required to pay certain fees and expenses incurred by the Company
        incident to the registration of the shares. The Company has agreed to indemnify
        the Selling Stockholders against certain losses, claims, damages and
        liabilities, including liabilities under the Securities Act. 

       

      Because
        Selling Stockholders may be deemed to be “underwriters” within the meaning of
        the Securities Act, they will be subject to the prospectus delivery requirements
        of the Securities Act. In addition, any securities covered by this prospectus
        which qualify for sale pursuant to Rule 144 under the Securities Act may
        be sold
        under Rule 144 rather than under this prospectus. Each Selling Stockholder
        has
        advised us that they have not entered into any written or oral agreements,
        understandings or arrangements with any underwriter or broker-dealer regarding
        the sale of the resale shares. There is no underwriter or coordinating broker
        acting in connection with the proposed sale of the resale shares by the Selling
        Stockholders.

       

      We
        agreed
        to keep this prospectus effective until the earlier of (i) the date on which
        the
        shares may be resold by the Selling Stockholders without registration and
        without regard to any volume limitations by reason of Rule 144(e) under the
        Securities Act or any other rule of similar effect or (ii) all of the shares
        have been sold pursuant to the prospectus or Rule 144 under the Securities
        Act
        or any other rule of similar effect. The resale shares will be sold only
        through
        registered or licensed brokers or dealers if required under applicable state
        securities laws. In addition, in certain states, the resale shares may not
        be
        sold unless they have been registered or qualified for sale in the applicable
        state or an exemption from the registration or qualification requirement
        is
        available and is complied with.

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

      Under
        applicable rules and regulations under the Exchange Act, any person engaged
        in
        the distribution of the resale shares may not simultaneously engage in market
        making activities with respect to the Common Stock for the applicable restricted
        period, as defined in Regulation M, prior to the commencement of the
        distribution. In addition, the Selling Stockholders will be subject to
        applicable provisions of the Exchange Act and the rules and regulations
        thereunder, including Regulation M, which may limit the timing of purchases
        and
        sales of shares of the Common Stock by the Selling Stockholders or any other
        person. We will make copies of this prospectus available to the Selling
        Stockholders and have informed them of the need to deliver a copy of this
        prospectus to each purchaser at or prior to the time of the sale.

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

      SMALL
        WORLD KIDS, INC.

       

      Selling
        Securityholder Notice and Questionnaire

       

      The
        undersigned beneficial owner of common stock, par value $.001 per share (the
        “Common
        Stock”),
        of
        Small World Kids, Inc., a Nevada corporation (the “Company”),
        (the
“Registrable
        Securities”)
        understands that the Company has filed or intends to file with the Securities
        and Exchange Commission (the “Commission”)
        a
        registration statement on Form S-3 (the “Registration
        Statement”)
        for
        the registration and resale under Rule 415 of the Securities Act of 1933,
        as
        amended (the “Securities
        Act”),
        of
        the Registrable Securities, in accordance with the terms of the Registration
        Rights Agreement, dated as of September [____, 2005 (the “Registration
        Rights Agreement”),
        among
        the Company and the Purchasers named therein. A copy of the Registration
        Rights
        Agreement is available from the Company upon request at the address set forth
        below. All capitalized terms not otherwise defined herein shall have the
        meanings ascribed thereto in the Registration Rights Agreement.

       

      Certain
        legal consequences arise from being named as a selling securityholder in
        the
        Registration Statement and the related prospectus. Accordingly, holders and
        beneficial owners of Registrable Securities are advised to consult their
        own
        securities law counsel regarding the consequences of being named or not being
        named as a selling securityholder in the Registration Statement and the related
        prospectus.

       

      NOTICE

       

      The
        undersigned beneficial owner (the “Selling
        Securityholder”)
        of
        Registrable Securities hereby elects to include the Registrable Securities
        owned
        by it and listed below in Item 3 (unless otherwise specified under such Item
        3)
        in the Registration Statement.

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

      The
        undersigned hereby provides the following information to the Company and
        represents and warrants that such information is accurate:

       

      QUESTIONNAIRE

       

      1. Name.

       

      
        	 	
                (a)

              	
                Full
                  Legal Name of Selling
                  Securityholder

              

      

      
         

      

      
        
          	 
	 

        

         

      

      
        	 	
                (b)

              	
                Full
                  Legal Name of Registered Holder (if not the same as (a) above)
                  through
                  which Registrable Securities Listed in Item 3 below are
                  held:

              

      

      
         

        
          	 
	 

        

         

      

      
        	 	
                (c)

              	
                Full
                  Legal Name of Natural Control Person (which means a natural person
                  who
                  directly or indirectly alone or with others has power to vote or
                  dispose
                  of the securities covered by the
                  questionnaire):

              

      

      
         

        
          	 
	 

        

        
2.
          Address for Notices to Selling Securityholder:

      

       

      
        	 
	 
	 

      

      Telephone:

      
        
          	 
	 

        

      

    

    
      Fax:

      
        
          	 
	 

        

      

    

    
      
        Contact
          Person:

        
          	 
	 

        

         

      3.
        Beneficial Ownership of Registrable Securities:

       

      
        	 	
                (a)

              	
                Type
                  and Principal Amount of Registrable Securities beneficially
                  owned:

              

      

       

      
        	 
	 
	 
	 

      

      

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

      4.
        Broker-Dealer Status:

       

      
        	 	
                (a)

              	
                Are
                  you a broker-dealer?

              

      

       

      Yes
o 
No
o

       

      
        	 	
                (b)

              	
                If
                  “yes” to Section 4(a), did you receive your Registrable Securities as
                  compensation for investment banking services to the
                  Company.

              

      

       

      Yes
o 
No
o

       

      
        	 	
                Note:

              	
                If
                  no, the Commission’s staff has indicated that you should be identified as
                  an underwriter in the Registration
                  Statement.

              

      

       

      
        	 	
                (c)

              	
                Are
                  you an affiliate of a
                  broker-dealer?

              

      

       

      Yes
o 
No
o

       

      
        	 	
                (d)

              	
                If
                  you are an affiliate of a broker-dealer, do you certify that you
                  bought
                  the Registrable Securities in the ordinary course of business,
                  and at the
                  time of the purchase of the Registrable Securities to be resold,
                  you had
                  no agreements or understandings, directly or indirectly, with any
                  person
                  to distribute the Registrable
                  Securities?

              

      

       

      Yes
o 
No
o

       

      
        	 	
                Note:

              	
                If
                  no, the Commission’s staff has indicated that you should be identified as
                  an underwriter in the Registration
                  Statement.

              

      

       

      5.
        Beneficial Ownership of Other Securities of the Company Owned by the Selling
        Securityholder.

       

      Except
        as set forth below in this Item 5, the undersigned is not the beneficial
        or
        registered owner of any securities of the Company other than the Registrable
        Securities listed above in Item 3.

       

      
        	 	
                (a)

              	
                Type
                  and Amount of Other Securities beneficially owned by the Selling
                  Securityholder:

              

      

      
        
           

          
            	 
	 

          

        

      

      
        
          
            	 
	 

          

        

      

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

      6.
        Relationships with the Company:

       

      Except
        as set forth below, neither the undersigned nor any of its affiliates, officers,
        directors or principal equity holders (owners of 5% of more of the equity
        securities of the undersigned) has held any position or office or has had
        any
        other material relationship with the Company (or its predecessors or affiliates)
        during the past three years.

       

      State
        any
        exceptions here:

      
        
           

          
            	 
	 

          

          
            
              
                	 
	 

              

            

          

        

      

       

      The
        undersigned agrees to promptly notify the Company of any inaccuracies or
        changes
        in the information provided herein that may occur subsequent to the date
        hereof
        at any time while the Registration Statement remains effective.

       

      By
        signing below, the undersigned consents to the disclosure of the information
        contained herein in its answers to Items 1 through 6 and the inclusion of
        such
        information in the Registration Statement and the related prospectus
and
        any
        amendments or supplements thereto.
        The
        undersigned understands that such information will be relied upon by the
        Company
        in connection with the preparation or amendment of the Registration Statement
        and the related prospectus.

       

      IN
        WITNESS WHEREOF the undersigned, by authority duly given, has caused this
        Notice
        and Questionnaire to be executed and delivered either in person or by its
        duly
        authorized agent.

       

      
        	 	 	 
	Dated: 
                ____________________________	Beneficial
                Owner: ____________________________
	 	 	 
	 	By:  	 
	 	
                

              
	 	
                Name:

                Title:

              

      

      
         

      

      PLEASE
        FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN
        THE ORIGINAL BY OVERNIGHT MAIL, TO:

       

      
        
          
          

        

        
          23EXHIBIT
        4.3

      

      NEITHER
        THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
        HAVE
        BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
        COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
        THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
        MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
        STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
        FROM,
        OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
        SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
        EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT,
        THE
        SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY
        AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED
        IN
        CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH
        SECURITIES.

      

      Original
        Issue Date: September 30, 2005

      Original
        Conversion Price (subject to adjustment herein): $.40

      

      $[______________.00

      

      

      10%
        CONVERTIBLE DEBENTURE

      DUE
        SEPTEMBER 30, 2008

      

      THIS
        10%
        CONVERTIBLE DEBENTURE is one of a series of duly authorized and issued 10%
        Convertible Debentures of Small World Kids, Inc., a Nevada corporation, having
        a
        principal place of business at 5711 Buckingham Parkway, Culver City, CA 90230
        (the “Company”),
        designated as its 10% Convertible Debenture, due September 30, 2008 (this
        debenture, the “Debenture”
        and
        collectively with the other such series of debentures, the “Debentures”).

      

      FOR
        VALUE
        RECEIVED, the Company promises to pay to [______________
        or its
        registered assigns (the “Holder”),
        or
        shall have paid pursuant to the terms hereunder, the principal sum of
        $[______________.00 by September 30, 2008, or such earlier date as this
        Debenture is required or permitted to be repaid as provided hereunder (the
        “Maturity
        Date”),
        and
        to pay interest to the Holder on the aggregate unconverted and then outstanding
        principal amount of this Debenture in accordance with the provisions hereof.
        This Debenture is subject to the following additional provisions:

      

      Section
        1. Definitions.
        For the
        purposes hereof, in addition to the terms defined elsewhere in this Debenture:
        (a) capitalized terms not otherwise defined herein have the meanings given
        to
        such terms in the Purchase Agreement, and (b) the following terms shall have
        the
        following meanings:

      

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      “Alternate
        Consideration”
        shall
        have the meaning set forth in Section 5(d).

      

      “Base
        Conversion Price”
        shall
        have the meaning set forth in Section 5(b).

      

      “Business
        Day”
        means
        any day except Saturday, Sunday and any day which shall be a federal legal
        holiday in the United States or a day on which banking institutions in the
        State
        of New York are authorized or required by law or other government action
        to
        close.

      

      “Buy-In”
        shall
        have the meaning set forth in Section 4(d)(v).

      

      “Change
        of Control Transaction”
        means
        the occurrence after the date hereof of any of (i) an acquisition after the
        date
        hereof by an individual or legal entity or “group” (as described in Rule
        13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether
        through legal or beneficial ownership of capital stock of the Company, by
        contract or otherwise) of in excess of 55% of the voting securities of the
        Company, or (ii) the Company merges into or consolidates with any other Person,
        or any Person merges into or consolidates with the Company and, after giving
        effect to such transaction, the stockholders of the Company immediately prior
        to
        such transaction own less than 66% of the aggregate voting power of the Company
        or the successor entity of such transaction, or (iii) the Company sells or
        transfers its assets, as an entirety or substantially as an entirety, to
        another
        Person and the stockholders of the Company immediately prior to such transaction
        own less than 66% of the aggregate voting power of the acquiring entity
        immediately after the transaction, or (iv) a replacement at one time or within
        a
        three year period of more than one-half of the members of the Company’s board of
        directors which is not approved by a majority of those individuals who are
        members of the board of directors on the date hereof (or by those individuals
        who are serving as members of the board of directors on any date whose
        nomination to the board of directors was approved by a majority of the members
        of the board of directors who are members on the date hereof), or (v) the
        execution by the Company of an agreement to which the Company is a party
        or by
        which it is bound, providing for any of the events set forth above in (i)
        or
        (iv).

      

      “Closing
        Price”
        means
        on any particular date (a) the last reported closing bid price per
        share of
        Common Stock on such date on the Trading Market (as reported by Bloomberg
        L.P.
        at 4:15 PM (New York time), or (b) if there is no such price on such date,
        then
        the closing bid price on the Trading Market on the date nearest preceding
        such
        date (as reported by Bloomberg L.P. at 4:15 PM (New York time) for the closing
        bid price for regular session trading on such day), or (c) if the
        Common
        Stock is not then listed or quoted on the Trading Market and if prices for
        the
        Common Stock are then reported in the “pink sheets” published by the Pink
        Sheets, LLC (or a similar organization or agency succeeding to its functions
        of
        reporting prices), the most recent bid price per share of the Common Stock
        so
        reported, or (d) if the shares of Common Stock are not then publicly
        traded
        the fair market value of a share of Common Stock as determined by a qualified
        independent appraiser selected in good faith by the Purchasers of a majority
        in
        interest of the outstanding principal amount of Debentures.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      “Common
        Stock”
        means
        the common stock, par value $.001 per share, of the Company and stock of
        any
        other class of securities into which such securities may hereafter have been
        reclassified or changed into.

      

      “Conversion
        Date”
        shall
        have the meaning set forth in Section 4(a).

      

      “Conversion
        Price”
        shall
        have the meaning set forth in Section 4(b).

      

      “Conversion
        Shares”
        means
        the shares of Common Stock issuable upon conversion of this Debenture or
        as
        payment of interest in accordance with the terms.

      

      “Debenture
        Register”
        shall
        have the meaning set forth in Section 2(c).

      

      “Dilutive
        Issuance”
        shall
        have the meaning set forth in Section 5(b).

      

      “Dilutive
        Issuance Notice”
        shall
        have the meaning set forth in Section 5(b).

      

      “Effectiveness
        Period”
        shall
        have the meaning given to such term in the Registration Rights Agreement.
        

      

      “Equity
        Conditions”
        shall
        mean, during the period in question, (i)
        the
        Company shall have duly honored all conversions and redemptions scheduled
        to
        occur or occurring by virtue of one or more Notice of Conversions of the
        Holder,
        if any, (ii) all liquidated damages and other amounts owing to the Holder
        in
        respect of this Debenture shall have been paid, (iii)
        there is an effective Registration Statement pursuant to which the Holder
        is
        permitted to utilize the prospectus thereunder to resell all of the shares
        issuable pursuant to the Transaction Documents (and the Company believes,
        in
        good faith, that such effectiveness will continue uninterrupted for the
        foreseeable future), (iv) the Common Stock is trading on the Trading Market
        and
        all of the shares issuable pursuant to the Transaction Documents are listed
        for
        trading on a Trading Market (and the Company believes, in good faith, that
        trading of the Common Stock on a Trading Market will continue uninterrupted
        for
        the foreseeable future), (v) there is a sufficient number of authorized but
        unissued and otherwise unreserved shares of Common Stock for the issuance
        of all
        of the shares issuable pursuant to the Transaction Documents, (vi) there
        is then
        existing no Event of Default or event which, with the passage of time or
        the
        giving of notice, would constitute an Event of Default, (vii) the issuance
        of
        the shares in question to
        the
        Holder would not violate the limitations set forth in Section 4(c)(i) and
        (viii)
        no
        public announcement of a pending or proposed Fundamental Transaction, Change
        of
        Control Transaction or acquisition transaction has occurred that has not
        been
        consummated.

      

      “Event
        of Default”
        shall
        have the meaning set forth in Section 8.

      

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

      “Exchange
        Act”
        means
        the Securities Exchange Act of 1934, as amended, and the rules and regulations
        promulgated thereunder.

      

      “Fundamental
        Transaction”
        shall
        have the meaning set forth in Section 5(d).

       

      “Interest
        Conversion Rate”
        means
the
        lesser of (a) the Conversion Price and (b) the
        90%
        of the lesser of (i) the average of the 20 VWAPs immediately prior to the
        applicable Interest Payment Date or (ii) the average of the 20 VWAPs immediately
        prior to the date the applicable interest payment shares are issued and
        delivered if after the Interest Payment Date.

       

      “Interest
        Conversion Shares”
        shall
        have the meaning set forth in Section 2(a).

      

      “Interest
        Notice Period”
        shall
        have the meaning set forth in Section 2(a).

       

      “Interest
        Payment Date”
        shall
        have the meaning set forth in Section 2(a).

      

      “Interest
        Share Amount”
        shall
        have the meaning set forth in Section 2(a).

      

      “Late
        Fees”
        shall
        have the meaning set forth in Section 2(d).

      

      “Mandatory
        Default Amount”
        shall
        equal the sum of (i) the greater of: (A) 130% of the principal amount of
        this
        Debenture to be prepaid, plus all accrued and unpaid interest thereon, or
        (B)
        the principal amount of this Debenture to be prepaid, plus all other accrued
        and
        unpaid interest hereon, divided by the Conversion Price on (x) the date the
        Mandatory Default Amount is demanded or otherwise due or (y) the date the
        Mandatory Default Amount is paid in full, whichever is less, multiplied by
        the
        VWAP on (x) the date the Mandatory Default Amount is demanded or otherwise
        due
        or (y) the date the Mandatory Default Amount is paid in full, whichever is
        greater, and (ii) all other amounts, costs, expenses and liquidated damages
        due
        in respect of this Debenture.

      

      “New
        York Courts”
        shall
        have the meaning set forth in Section 9(d).

      

      “Notice
        of Conversion”
        shall
        have the meaning set forth in Section 4(a).

      

      “Original
        Issue Date”
        shall
        mean the date of the first issuance of the Debentures regardless of the number
        of transfers of any Debenture and regardless of the number of instruments
        which
        may be issued to evidence such Debenture.

      

      “Permitted
        Indebtedness”shall
        mean (a) the
        Indebtedness existing on the Original Issue Date and set forth on Schedule
        3.1(gg)
        attached
        to the Purchase Agreement and (b) Indebtedness of up to $25,000,000 under
        the
        Company’s credit facility with PNC Bank.

      

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      “Permitted
        Lien”
        shall
        mean the individual and collective reference to the following: (a) Liens
        for
        taxes, assessments and other governmental charges or levies not yet due or
        Liens
        for taxes, assessments and other governmental charges or levies being contested
        in good faith and by appropriate proceedings for which adequate reserves
        (in the
        good faith judgment of the management of the Company) have been established
        in
        accordance with GAAP, (b) Liens imposed by law which were incurred in the
        ordinary course of business, such as carriers’, warehousemen’s and mechanics’
        Liens, statutory landlords’ Liens, and other similar Liens arising in the
        ordinary course of business, and (x) which do not individually or in the
        aggregate materially detract from the value of such property or assets or
        materially impair the use thereof in the operation of the business of the
        Company and its consolidated Subsidiaries or (y) which are being contested
        in
        good faith by appropriate proceedings, which proceedings have the effect
        of
        preventing the forfeiture or sale of the property or asset subject to such
        Lien,
        (c) Liens set forth on Schedule 3.1(n) and (d) Liens incurred in connection
        with
        Permitted Indebtedness under clause (b) thereunder.

      

      “Person”
        means a
        corporation, an association, a partnership, organization, a business, an
        individual, a government or political subdivision thereof or a governmental
        agency.

      

      “Purchase
        Agreement”
        means
        the Securities Purchase Agreement, dated as of September 30, 2005, to which
        the
        Company and the original Holder are parties, as amended, modified or
        supplemented from time to time in accordance with its terms.

      

      “Registration
        Rights Agreement”
        means
        the Registration Rights Agreement, dated as of the date of the Purchase
        Agreement, to which the Company and the original Holder are parties, as amended,
        modified or supplemented from time to time in accordance with its
        terms.

      

      “Registration
        Statement”
        means a
        registration statement meeting the requirements set forth in the Registration
        Rights Agreement, covering among other things the resale of the Conversion
        Shares and naming the Holder as a “selling stockholder” thereunder.

      

      “Securities
        Act”
        means
        the Securities Act of 1933, as amended, and the rules and regulations
        promulgated thereunder.

      

      “Subsidiary”
        shall
        have the meaning given to such term in the Purchase Agreement.

      

      “Trading
        Day”
        means a
        day on which the Common Stock is traded on a Trading Market.

      

      “Trading
        Market”
        means
        the following markets or exchanges on which the Common Stock is listed or
        quoted
        for trading on the date in question: the Nasdaq SmallCap Market, the American
        Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or
        the
        OTC Bulletin Board.

      

      “Transaction
        Documents”
        shall
        have the meaning set forth in the Purchase Agreement.

      

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      “VWAP”
        means,
        for any date, the price determined by the first of the following clauses
        that
        applies: (a) if the Common Stock is then listed or quoted on a Trading Market,
        the daily volume weighted average price of the Common Stock for such date
        (or
        the nearest preceding date) on the Trading Market on which the Common Stock
        is
        then listed or quoted as reported by Bloomberg Financial L.P. (based on a
        Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time); (b) 
        if
        the Common Stock is not then listed or quoted on a Trading Market and if
        prices
        for the Common Stock are then quoted on the OTC Bulletin Board, the volume
        weighted average price of the Common Stock for such date (or the nearest
        preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not
        then
        listed or quoted on the OTC Bulletin Board and if prices for the Common Stock
        are then reported in the “Pink Sheets” published by the Pink Sheets, LLC (or a
        similar organization or agency succeeding to its functions of reporting prices),
        the most recent bid price per share of the Common Stock so reported; or
        (c) in all other cases, the fair market value of a share of Common
        Stock as
        determined by an independent appraiser selected in good faith by the Holder
        and
        reasonably acceptable to the Company.

      

      Section
        2. Interest.

      a)  Payment
        of Interest in Cash or Kind.
        The
        Company shall pay interest to the Holder on the aggregate unconverted and
        then
        outstanding principal amount of this Debenture at the rate of 10% per annum,
        payable quarterly on January 1, April 1, July 1 and October 1, beginning
        on the
        first such date after the Original Issue Date, on each Conversion Date (as
        to
        that principal amount then being converted) and on the Maturity Date (except
        that, if any such date is not a Business Day, then such payment shall be
        due on
        the next succeeding Business Day) (each such date, an “Interest
        Payment Date”),
        in
        cash or shares of Common Stock at the Interest Conversion Rate, or a combination
        thereof (the amount to be paid in shares, the “Interest
        Share Amount”);
        provided,
        however,
        (i)
        payment in shares of Common Stock may only occur if during the 20 Trading
        Days
        immediately prior to the applicable Interest Payment Date (the “Interest
        Notice Period”)
        and
        through and including the date such shares of Common Stock are issued to
        the
        Holder all of the Equity Conditions, unless waived by the Holder in writing,
        have been met and the Company shall have given the Holder notice in accordance
        with the notice requirements set forth below and (ii) as to such Interest
        Payment Date, prior to the such Interest Notice Period (but not more than
        5
        Trading Days prior to the commencement of the Interest Notice Period), the
        Company shall have delivered to the Holder’s account with The Depository Trust
        Company a number of shares of Common Stock to be applied against such Interest
        Share Amount equal to the quotient of (x) the applicable Interest Share Amount
        divided by (y) the then Conversion Price (the “Interest
        Conversion Shares”).
        

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      b)  Company’s
        Election to Pay Interest in Kind.
        Subject
        to the terms and conditions herein, the decision whether to pay interest
        hereunder in shares of Common Stock or cash shall be at the discretion of
        the
        Company. Prior to the commencement of an Interest Notice Period, the Company
        shall provide the Holder with written notice of its election to pay interest
        hereunder on the applicable Interest Payment Date either in cash, shares
        of
        Common Stock or a combination thereof (the Company may indicate in such notice
        that the election contained in such notice shall continue for later periods
        until revised) and the Interest Share Amount as to the applicable Interest
        Payment Date. During any Interest Notice Period, the Company’s election (whether
        specific to an Interest Payment Date or continuous) shall be irrevocable
        as to
        such Interest Payment Date. Subject to the aforementioned conditions, failure
        to
        timely provide such written notice shall be deemed an election by the Company
        to
        pay the interest on such Interest Payment Date in cash. At any time the Company
        delivers a notice to the Holder of its election to pay the interest in shares
        of
        Common Stock, the Company shall file a prospectus supplement pursuant to
        Rule
        424 disclosing such election. The aggregate number of shares of Common Stock
        otherwise issuable to the Holder on an Interest Payment Date shall be reduced
        by
        the number of Interest Conversion Shares previously issued to the Holder
        in
        connection with such Interest Payment Date.

      

      c)  Interest
        Calculations.
        Interest shall be calculated on the basis of a 360-day year and shall accrue
        daily commencing on the Original Issue Date until payment in full of the
        principal sum, together with all accrued and unpaid interest and other amounts
        which may become due hereunder, has been made. Payment of interest in shares
        of
        Common Stock (other than the Interest Conversion Shares issued prior to an
        Interest Notice Period) shall otherwise occur pursuant to Section 4(d)(ii)
        and
        only for purposes of the payment of interest in shares, the Interest Payment
        Date shall be deemed the Conversion Date. Interest shall cease to accrue
        with
        respect to any principal amount converted, provided that the Company in fact
        delivers the Conversion Shares within the time period required by Section
        4(d)(ii). Interest hereunder will be paid to the Person in whose name this
        Debenture is registered on the records of the Company regarding registration
        and
        transfers of this Debenture (the “Debenture
        Register”).
        Except as otherwise provided herein, if at any time the Company pays interest
        partially in cash and partially in shares of Common Stock to the holders
        of the
        Debentures, then such payment shall be distributed ratably among the holders
        of
        the Debentures based on their (or their predecessor’s) initial purchases of
        Debentures pursuant to the Purchase Agreement.

      

      d)  Late
        Fee.
        All
        overdue accrued and unpaid interest to be paid hereunder shall entail a late
        fee
        at the rate of 18% per annum (or such lower maximum amount of interest permitted
        to be charged under applicable law) (“Late
        Fees”)
        which
        will accrue daily, from the date such interest is due hereunder through and
        including the date of payment. Notwithstanding anything to the contrary
        contained herein, if on any Interest Payment Date the Company has elected
        to pay
        interest in Common Stock and is not able to pay accrued interest in the form
        of
        Common Stock because it does not then satisfy the conditions for payment
        in the
        form of Common Stock set forth above, then, at
        the
        option of the Holder, the
        Company, in lieu of delivering either
        shares
        of
        Common Stock pursuant to this Section 2 or
        paying
        the regularly scheduled cash interest payment, shall deliver, within three
        Trading Days of each applicable Interest Payment Date, an amount in cash
        equal
        to the product of the number of shares of Common Stock otherwise deliverable
        to
        the Holder in connection with the payment of interest due on such Interest
        Payment Date and the highest VWAP during the period commencing on the Interest
        Payment Date and ending on the Trading Day prior to the date such payment
        is
        made. If any Interest Conversion Shares are issued to the Holder in connection
        with an Interest Payment Date and are not applied against an Interest Share
        Amount, then the Holder shall promptly return such excess shares to the
        Company.

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      e)  Prepayment.
        Except
        as otherwise set forth in this Debenture, the Company may not prepay any
        portion
        of the principal amount of this Debenture without the prior written consent
        of
        the Holder. 

      

      Section
        3.  Registration
        of Transfers and Exchanges.
        

       

      a)  Different
        Denominations.
        This
        Debenture is exchangeable for an equal aggregate principal amount of Debentures
        of different authorized denominations, as requested by the Holder surrendering
        the same. No service charge will be made for such registration of transfer
        or
        exchange.

       

      b)  Investment
        Representations.
        This
        Debenture has been issued subject to certain investment representations of
        the
        original Holder set forth in the Purchase Agreement and may be transferred
        or
        exchanged only in compliance with the Purchase Agreement and applicable federal
        and state securities laws and regulations. 

      

      c)  Reliance
        on Debenture Register.
        Prior
        to due presentment to the Company for transfer of this Debenture, the Company
        and any agent of the Company may treat the Person in whose name this Debenture
        is duly registered on the Debenture Register as the owner hereof for the
        purpose
        of receiving payment as herein provided and for all other purposes, whether
        or
        not this Debenture is overdue, and neither the Company nor any such agent
        shall
        be affected by notice to the contrary.

      

      Section
        4.  Conversion.

       

      a)  Voluntary
        Conversion.
        At any
        time after the Original Issue Date until this Debenture is no longer
        outstanding, this Debenture shall be convertible into shares of Common Stock
        at
        the option of the Holder, in whole or in part at any time and from time to
        time
        (subject to the limitations on conversion set forth in Section 4(c)
        hereof). The Holder shall effect conversions by delivering to the Company
        the
        form of Notice of Conversion attached hereto as Annex
        A
        (a
“Notice
        of Conversion”),
        specifying therein the principal amount of this Debenture to be converted
        and
        the date on which such conversion is to be effected (a “Conversion
        Date”).
        If no
        Conversion Date is specified in a Notice of Conversion, the Conversion Date
        shall be the date that such Notice of Conversion is provided hereunder. To
        effect conversions hereunder, the Holder shall not be required to physically
        surrender this Debenture to the Company unless the entire principal amount
        of
        this Debenture plus all accrued and unpaid interest thereon has been so
        converted. Conversions hereunder shall have the effect of lowering the
        outstanding principal amount of this Debenture in an amount equal to the
        applicable conversion. The Holder and the Company shall maintain records
        showing
        the principal amount converted and the date of such conversions. The Company
        shall deliver any objection to any Notice of Conversion within 1 Business
        Day of
        receipt of such notice. In the event of any dispute or discrepancy, the records
        of the Holder shall be controlling and determinative in the absence of manifest
        error. The Holder and any assignee, by acceptance of this Debenture, acknowledge
        and agree that, by reason of the provisions of this paragraph, following
        conversion of a portion of this Debenture, the unpaid and unconverted principal
        amount of this Debenture may be less than the amount stated on the face
        hereof.

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      b)  Conversion
        Price.
        The
        conversion price in effect on any Conversion Date shall be equal to $.40
        (subject
        to adjustment herein) (the “Conversion
        Price”).

      

      c)  Conversion
        Limitations.
        

       

      i.  Holder’s
        Restriction on Conversion.
        The
        Company shall not effect any conversion of this Debenture, and the Holder
        shall
        not have the right to convert any portion of this Debenture, pursuant to
        Section
        4(a) or otherwise, to the extent that after giving effect to such conversion,
        the Holder (together with the Holder’s affiliates), as set forth on the
        applicable Notice of Conversion, would beneficially own in excess of 4.99%
        of
        the number of shares of the Common Stock outstanding immediately after giving
        effect to such conversion.  For purposes of the foregoing sentence,
        the
        number of shares of Common Stock beneficially owned by the Holder and its
        affiliates shall include the number of shares of Common Stock issuable upon
        conversion of this Debenture with respect to which the determination of such
        sentence is being made, but shall exclude the number of shares of Common
        Stock
        which would be issuable upon (A) conversion of the remaining, nonconverted
        portion of this Debenture beneficially owned by the Holder or any of its
        affiliates and (B) exercise or conversion of the unexercised or nonconverted
        portion of any other securities of the Company (including, without limitation,
        any other Debentures or the Warrants) subject to a limitation on conversion
        or
        exercise analogous to the limitation contained herein beneficially owned
        by the
        Holder or any of its affiliates.  Except as set forth in the preceding
        sentence, for purposes of this Section 4(c)(i), beneficial ownership shall
        be
        calculated in accordance with Section 13(d) of the Exchange Act and the rules
        and regulations promulgated thereunder. To the extent that the limitation
        contained in this section applies, the determination of whether this Debenture
        is convertible (in relation to other securities owned by the Holder) and
        of
        which a portion of this Debenture is convertible shall be in the sole discretion
        of such Holder. To ensure compliance with this restriction, the Holder will
        be
        deemed to represent to the Company each time it delivers a Notice of Conversion
        that such Notice of Conversion has not violated the restrictions set forth
        in
        this paragraph and the Company shall have no obligation to verify or confirm
        the
        accuracy of such determination. In
        addition, a determination as to any group status as contemplated above shall
        be
        determined in accordance with Section 13(d) of the Exchange Act and the rules
        and regulations promulgated thereunder. For
        purposes of this Section 4(c)(i), in determining the number of outstanding
        shares of Common Stock, the Holder may rely on the number of outstanding
        shares
        of Common Stock as reflected in (x) the Company’s most recent Form 10-Q or Form
        10-K, as the case may be, (y) a more recent public announcement by the Company
        or (z) any other notice by the Company or the Company’s Transfer Agent setting
        forth the number of shares of Common Stock outstanding.  Upon the
        written
        or oral request of the Holder, the Company shall within two Trading Days
        confirm
        orally and in writing to the Holder the number of shares of Common Stock
        then
        outstanding.  In any case, the number of outstanding shares of Common
        Stock
        shall be determined after giving effect to the conversion or exercise of
        securities of the Company, including this Debenture, by the Holder or its
        affiliates since the date as of which such number of outstanding shares of
        Common Stock was reported.
        The
        provisions of this Section 4(c) may be waived by the Holder, at the election
        of
        the Holder, upon not less than 61 days’ prior notice to the Company, and the
        provisions of this Section 4(c) shall continue to apply until such 61st day
        (or
        such later date, as determined by the Holder, as may be specified in such
        notice
        of waiver). The
        provisions of this paragraph shall be implemented in a manner otherwise than
        in
        strict conformity with the terms of this Section 4(c) to correct this paragraph
        (or any portion hereof) which may be defective or inconsistent with the intended
        4.99% beneficial ownership limitation herein contained or to make changes
        or
        supplements necessary or desirable to properly give effect to such 4.99%
        limitation. The limitations contained in this paragraph shall apply to a
        successor holder of this Debenture. The holders of Common Stock of the Company
        shall be third party beneficiaries of this Section 4(c) and the Company may
        not
        waive this Section 4(c) without the consent of holders of a majority of its
        Common Stock.

       

      
        
          
          

        

        
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        d)    
          Mechanics
          of Conversion

      

       

      i.  Conversion
        Shares Issuable Upon Conversion of Principal Amount.
        The
        number of shares of Common Stock issuable upon a conversion hereunder shall
        be
        determined by the quotient obtained by dividing (x) the outstanding principal
        amount of this Debenture to be converted by (y) the Conversion
        Price.

       

      ii.  Delivery
        of Certificate Upon Conversion.
        Not
        later than three Trading Days after any Conversion Date, the Company will
        deliver or cause to be delivered to the Holder (A) a certificate or certificates
        representing the Conversion Shares which shall be free of restrictive legends
        and trading restrictions (other than those required by the Purchase Agreement)
        representing the number of shares of Common Stock being acquired upon the
        conversion of this Debenture (including, if the Company has given continuous
        notice pursuant to Section 2(b) for payment of interest in shares of Common
        Stock at least 20 Trading Days prior to the date on which the Conversion
        Notice
        is delivered to the Company, shares of Common Stock representing the payment
        of
        accrued interest otherwise determined pursuant to Section 2(a) but assuming
        that
        the Interest Payment Period is the 20 Trading Days period immediately prior
        to
        the date on which the Conversion Notice is delivered to the Company and
        excluding for such issuance the condition that the Company deliver Interest
        Conversion Shares as to such interest payment) and (B) a bank check in the
        amount of accrued and unpaid interest (if the Company is required to pay
        accrued
        interest in cash). The Company shall, if available and if allowed under
        applicable securities laws, use its best efforts to deliver any certificate
        or
        certificates required to be delivered by the Company under this Section
        electronically through the Depository Trust Company or another established
        clearing corporation performing similar functions. 

       

      
        
          
          

        

        
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      iii.  Failure
        to Deliver Certificates.
        If in
        the case of any Notice of Conversion such certificate or certificates are
        not
        delivered to or as directed by the applicable Holder by the third Trading
        Day
        after a Conversion Date, the Holder shall be entitled by written notice to
        the
        Company at any time on or before its receipt of such certificate or certificates
        thereafter, to rescind such conversion, in which event the Company shall
        immediately return the certificates representing the principal amount of
        this
        Debenture tendered for conversion. 

       

      iv.  Obligation
        Absolute; Partial Liquidated Damages.
        If the
        Company fails for any reason to deliver to the Holder such certificate or
        certificates pursuant to Section 4(d)(ii) by the third Trading Day after
        the
        Conversion Date, the Company shall pay to such Holder, in cash, as liquidated
        damages and not as a penalty, for each $1000 of principal amount being
        converted, $10 per Trading Day (increasing to $20 per Trading Day after 5
        Trading Days after such damages begin to accrue) for each Trading Day after
        such
        third Trading Day until such certificates are delivered. The Company’s
        obligations to issue and deliver the Conversion Shares upon conversion of
        this
        Debenture in accordance with the terms hereof are absolute and unconditional,
        irrespective of any action or inaction by the Holder to enforce the same,
        any
        waiver or consent with respect to any provision hereof, the recovery of any
        judgment against any Person or any action to enforce the same, or any setoff,
        counterclaim, recoupment, limitation or termination, or any breach or alleged
        breach by the Holder or any other Person of any obligation to the Company
        or any
        violation or alleged violation of law by the Holder or any other person,
        and
        irrespective of any other circumstance which might otherwise limit such
        obligation of the Company to the Holder in connection with the issuance of
        such
        Conversion Shares; provided,
        however,
        such
        delivery shall not operate as a waiver by the Company of any such action
        the
        Company may have against the Holder. In the event the Holder of this Debenture
        shall elect to convert any or all of the outstanding principal amount hereof,
        the Company may not refuse conversion based on any claim that the Holder
        or any
        one associated or affiliated with the Holder has been engaged in any violation
        of law, agreement or for any other reason, unless, an injunction from a court,
        on notice, restraining and or enjoining conversion of all or part of this
        Debenture shall have been sought and obtained and the Company posts a surety
        bond for the benefit of the Holder in the amount of 150% of the principal
        amount
        of this Debenture outstanding, which is subject to the injunction, which
        bond
        shall remain in effect until the completion of arbitration/litigation of
        the
        dispute and the proceeds of which shall be payable to such Holder to the
        extent
        it obtains judgment. In the absence of an injunction precluding the same,
        the
        Company shall issue Conversion Shares or, if applicable, cash, upon a properly
        noticed conversion. Nothing herein shall limit a Holder’s right to pursue actual
        damages or declare an Event of Default pursuant to Section 8 herein for the
        Company’s failure to deliver Conversion Shares within the period specified
        herein and such Holder shall have the right to pursue all remedies available
        to
        it at law or in equity including, without limitation, a decree of specific
        performance and/or injunctive relief. The exercise of any such rights shall
        not
        prohibit the Holder from seeking to enforce damages pursuant to any other
        Section hereof or under applicable law.

       

      
        
          
          

        

        
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      v.  Compensation
        for Buy-In on Failure to Timely Deliver Certificates Upon
        Conversion.
        In
        addition to any other rights available to the Holder, if the Company fails
        for
        any reason to deliver to the Holder such certificate or certificates pursuant
        to
        Section 4(d)(ii) by the third Trading Day after the Conversion Date, and
        if
        after such third Trading Day the Holder is required by its brokerage firm
        to
        purchase (in an open market transaction or otherwise) Common Stock to deliver
        in
        satisfaction of a sale by such Holder of the Conversion Shares which the
        Holder
        anticipated receiving upon such conversion (a “Buy-In”),
        then
        the Company shall (A) pay in cash to the Holder (in addition to any remedies
        available to or elected by the Holder) the amount by which (x) the Holder’s
        total purchase price (including brokerage commissions, if any) for the Common
        Stock so purchased exceeds (y) the product of (1) the aggregate number of
        shares
        of Common Stock that such Holder anticipated receiving from the conversion
        at
        issue multiplied by (2) the actual sale price of the Common Stock at the
        time of
        the sale (including brokerage commissions, if any) giving rise to such purchase
        obligation and (B) at the option of the Holder, either reissue (if surrendered)
        this Debenture in a principal amount equal to the principal amount of the
        attempted conversion or deliver to the Holder the number of shares of Common
        Stock that would have been issued had the Company timely complied with its
        delivery requirements under Section 4(d)(ii). For example, if the Holder
        purchases Common Stock having a total purchase price of $11,000 to cover
        a
        Buy-In with respect to an attempted conversion of this Debenture with respect
        to
        which the actual sale price of the Conversion Shares at the time of the sale
        (including brokerage commissions, if any) giving rise to such purchase
        obligation was a total of $10,000 under clause (A) of the immediately preceding
        sentence, the Company shall be required to pay the Holder $1,000. The Holder
        shall provide the Company written notice indicating the amounts payable to
        the
        Holder in respect of the Buy-In. Notwithstanding anything contained herein
        to
        the contrary, if a Holder requires the Company to make payment in respect
        of a
        Buy-In for the failure to timely deliver certificates hereunder and the Company
        timely pays in full such payment, the Company shall not be required to pay
        such
        Holder liquidated damages under Section 4(d)(iv) in respect of the certificates
        resulting in such Buy-In.

       

      
        
          
          

        

        
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      vi.  Reservation
        of Shares Issuable Upon Conversion.
        The
        Company covenants that it will at all times reserve and keep available out
        of
        its authorized and unissued shares of Common Stock solely for the purpose
        of
        issuance upon conversion of this Debenture and payment of interest on this
        Debenture, each as herein provided, free from preemptive rights or any other
        actual contingent purchase rights of persons other than the Holder (and the
        other holders of the Debentures), not less than such number of shares of
        the
        Common Stock as shall (subject to the terms and conditions set forth in the
        Purchase Agreement) be issuable (taking into account the adjustments and
        restrictions of Section 5) upon the conversion of the outstanding principal
        amount of this Debenture and payment of interest hereunder. The Company
        covenants that all shares of Common Stock that shall be so issuable shall,
        upon
        issue, be duly and validly authorized, issued and fully paid, nonassessable
        and,
        if the Registration Statement is then effective under the Securities Act,
        registered for public sale in accordance with such Registration
        Statement.

      

      vii.  Fractional
        Shares.
        Upon a
        conversion hereunder the Company shall not be required to issue stock
        certificates representing fractions of shares of the Common Stock, but may
        if
        otherwise permitted, make a cash payment in respect of any final fraction
        of a
        share based on the VWAP at such time. If the Company elects not, or is unable,
        to make such a cash payment, the Holder shall be entitled to receive, in
        lieu of
        the final fraction of a share, one whole share of Common Stock.

      

      viii.  Transfer
        Taxes.
        The
        issuance of certificates for shares of the Common Stock on conversion of
        this
        Debenture shall be made without charge to the Holder hereof for any documentary
        stamp or similar taxes that may be payable in respect of the issue or delivery
        of such certificate, provided that the Company shall not be required to pay
        any
        tax that may be payable in respect of any transfer involved in the issuance
        and
        delivery of any such certificate upon conversion in a name other than that
        of
        the Holder of this Debenture so converted and the Company shall not be required
        to issue or deliver such certificates unless or until the person or persons
        requesting the issuance thereof shall have paid to the Company the amount
        of
        such tax or shall have established to the satisfaction of the Company that
        such
        tax has been paid.

      

      Section
        5. Certain
        Adjustments.

       

      a)  Stock
        Dividends and Stock Splits.
        If the
        Company, at any time while this Debenture is outstanding: (A) pays a stock
        dividend or otherwise makes a distribution or distributions on shares of
        its
        Common Stock or any other equity or equity equivalent securities payable
        in
        shares of Common Stock (which, for avoidance of doubt, shall not include
        any
        shares of Common Stock issued by the Company pursuant to this Debenture,
        including as interest thereon), (B) subdivides outstanding shares of Common
        Stock into a larger number of shares, (C) combines (including by way of reverse
        stock split) outstanding shares of Common Stock into a smaller number of
        shares,
        or (D) issues by reclassification of shares of the Common Stock any shares
        of
        capital stock of the Company, then the Conversion Price shall be multiplied
        by a
        fraction of which the numerator shall be the number of shares of Common Stock
        (excluding treasury shares, if any) outstanding immediately before such event
        and of which the denominator shall be the number of shares of Common Stock
        outstanding immediately after such event. Any adjustment made pursuant to
        this
        Section shall become effective immediately after the record date for the
        determination of stockholders entitled to receive such dividend or distribution
        and shall become effective immediately after the effective date in the case
        of a
        subdivision, combination or re-classification.

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

      b)  Subsequent
        Equity Sales.
        If the
        Company or any Subsidiary thereof, as applicable, at any time while this
        Debenture is outstanding, shall offer, sell, grant any option to purchase
        or
        offer, sell or grant any right to reprice its securities, or otherwise dispose
        of or issue (or announce any offer, sale, grant or any option to purchase
        or
        other disposition) any Common Stock or Common Stock Equivalents entitling
        any
        Person to acquire shares of Common Stock, at an effective price per share
        less
        than the then Conversion Price (such lower price, the “Base
        Conversion Price”
        and
        such issuances collectively, a “Dilutive
        Issuance”),
        as
        adjusted hereunder (if the holder of the Common Stock or Common Stock
        Equivalents so issued shall at any time, whether by operation of purchase
        price
        adjustments, reset provisions, floating conversion, exercise or exchange
        prices
        or otherwise, or due to warrants, options or rights per share which is issued
        in
        connection with such issuance, be entitled to receive shares of Common Stock
        at
        an effective price per share which is less than the Conversion Price, such
        issuance shall be deemed to have occurred for less than the Conversion Price
        on
        such date of the Dilutive Issuance), then the Conversion Price shall be reduced
        to equal the Base Conversion Price. Such adjustment shall be made whenever
        such
        Common Stock or Common Stock Equivalents are issued. Notwithstanding
        the foregoing, no adjustment will be made under this Section 5(b) in respect
        of
        an Exempt Issuance.
        The
        Company shall notify the Holder in writing, no later than the Business Day
        following the issuance of any Common Stock or Common Stock Equivalents subject
        to this section, indicating therein the applicable issuance price, or of
        applicable reset price, exchange price, conversion price and other pricing
        terms
        (such notice the “Dilutive
        Issuance Notice”).
        For
        purposes of clarification, whether or not the Company provides a Dilutive
        Issuance Notice pursuant to this Section 5(b), upon the occurrence of any
        Dilutive Issuance, after the date of such Dilutive Issuance the Holder is
        entitled to receive a number of Conversion Shares based upon the Base Conversion
        Price regardless of whether the Holder accurately refers to the Base Conversion
        Price in the Notice of Conversion. 

       

      c)  Pro
        Rata Distributions.
        If the
        Company, at any time while this Debenture is outstanding, shall distribute
        to
        all holders of Common Stock (and not to the holders of the Debenture) evidences
        of its indebtedness or assets (including cash and cash dividends) or rights
        or
        warrants to subscribe for or purchase any security, then in each such case
        the
        Conversion Price shall be adjusted by multiplying such Conversion Price in
        effect immediately prior to the record date fixed for determination of
        stockholders entitled to receive such distribution by a fraction of which
        the
        denominator shall be the VWAP determined as of the record date mentioned
        above,
        and of which the numerator shall be such VWAP on such record date less the
        then
        fair market value at such record date of the portion of such assets or evidence
        of indebtedness so distributed applicable to one outstanding share of the
        Common
        Stock as determined by the Board of Directors in good faith. In either case
        the
        adjustments shall be described in a statement provided to the Holder of the
        portion of assets or evidences of indebtedness so distributed or such
        subscription rights applicable to one share of Common Stock. Such adjustment
        shall be made whenever any such distribution is made and shall become effective
        immediately after the record date mentioned above.

       

      
        
          
          

        

        
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      d)  Fundamental
        Transaction.
        If, at
        any time while this Debenture is outstanding, (A) the Company effects any
        merger
        or consolidation of the Company with or into another Person, (B) the Company
        effects any sale of all or substantially all of its assets in one or a series
        of
        related transactions, (C) any tender offer or exchange offer (whether by
        the
        Company or another Person) is completed pursuant to which holders of Common
        Stock are permitted to tender or exchange their shares for other securities,
        cash or property, or (D) the Company effects any reclassification of the
        Common
        Stock or any compulsory share exchange pursuant to which the Common Stock
        is
        effectively converted into or exchanged for other securities, cash or property
        (in any such case, a “Fundamental
        Transaction”),
        then
        upon any subsequent conversion of this Debenture, the Holder shall have the
        right to receive, for each Conversion Share that would have been issuable
        upon
        such conversion immediately prior to the occurrence of such Fundamental
        Transaction, the same kind and amount of securities, cash or property as
        it
        would have been entitled to receive upon the occurrence of such Fundamental
        Transaction if it had been, immediately prior to such Fundamental Transaction,
        the holder of one share of Common Stock (the “Alternate
        Consideration”).
        For
        purposes of any such conversion, the determination of the Conversion Price
        shall
        be appropriately adjusted to apply to such Alternate Consideration based
        on the
        amount of Alternate Consideration issuable in respect of one share of Common
        Stock in such Fundamental Transaction, and the Company shall apportion the
        Conversion Price among the Alternate Consideration in a reasonable manner
        reflecting the relative value of any different components of the Alternate
        Consideration. If holders of Common Stock are given any choice as to the
        securities, cash or property to be received in a Fundamental Transaction,
        then
        the Holder shall be given the same choice as to the Alternate Consideration
        it
        receives upon any conversion of this Debenture following such Fundamental
        Transaction. To the extent necessary to effectuate the foregoing provisions,
        any
        successor to the Company or surviving entity in such Fundamental Transaction
        shall issue to the Holder a new debenture consistent with the foregoing
        provisions and evidencing the Holder’s right to convert such debenture into
        Alternate Consideration. The terms of any agreement pursuant to which a
        Fundamental Transaction is effected shall include terms requiring any such
        successor or surviving entity to comply with the provisions of this paragraph
        (d) and insuring that this Debenture (or any such replacement security) will
        be
        similarly adjusted upon any subsequent transaction analogous to a Fundamental
        Transaction.

       

      
        e)  Calculations.
          All
          calculations under this Section 5 shall be made to the nearest cent or
          the
          nearest 1/100th of a share, as the case may be. For purposes of this Section
          5,
          the number of shares of Common Stock deemed to be issued and outstanding
          as of a
          given date shall be the sum of the number of shares of Common Stock (excluding
          treasury shares, if any) issued and outstanding.

         

      

      
        
          
          

        

        
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      f)  Notice
        to the Holder.

      

      i.  Adjustment
        to Conversion Price.
        Whenever the Conversion Price is adjusted pursuant to any of this Section
        5, the
        Company shall promptly mail to each Holder a notice setting forth the Conversion
        Price after such adjustment and setting forth a brief statement of the facts
        requiring such adjustment. If the Company issues a variable rate security,
        despite the prohibition thereon in the Purchase Agreement, the Company shall
        be
        deemed to have issued Common Stock or Common Stock Equivalents at the lowest
        possible conversion or exercise price at which such securities may be converted
        or exercised in the case of a Variable Rate Transaction (as defined in the
        Purchase Agreement).

       

      ii.  Notice
        to Allow Conversion by Holder.
        If (A)
        the Company shall declare a dividend (or any other distribution) on the Common
        Stock; (B) the Company shall declare a special nonrecurring cash dividend
        on or
        a redemption of the Common Stock; (C) the Company shall authorize the granting
        to all holders of the Common Stock rights or warrants to subscribe for or
        purchase any shares of capital stock of any class or of any rights; (D) the
        approval of any stockholders of the Company shall be required in connection
        with
        any reclassification of the Common Stock, any consolidation or merger to
        which
        the Company is a party, any sale or transfer of all or substantially all
        of the
        assets of the Company, of any compulsory share exchange whereby the Common
        Stock
        is converted into other securities, cash or property; (E) the
        Company shall authorize the voluntary or involuntary dissolution, liquidation
        or
        winding up of the affairs of the Company; then, in each case, the Company
        shall
        cause to be filed at each office or agency maintained for the purpose of
        conversion of this Debenture, and shall cause to be mailed
        to
        the Holder at its last addresses as it shall appear upon the stock
        books of
        the
        Company, at least 20 calendar days prior to the applicable record or effective
        date hereinafter specified, a notice stating (x)
        the
        date on which a record is to be taken for the purpose of such dividend,
        distribution, redemption, rights or warrants, or if a record is not to be
        taken,
        the date as of which the holders of the Common Stock of record to be entitled
        to
        such dividend, distributions, redemption, rights or warrants are to be
        determined or (y) the date on which such reclassification, consolidation,
        merger, sale, transfer or share exchange is expected to become effective
        or
        close, and the date as of which it is expected that holders of the Common
        Stock
        of record shall be entitled to exchange their shares of the Common Stock
        for
        securities, cash or other property deliverable upon such reclassification,
        consolidation, merger, sale, transfer or share exchange; provided,
        that
        the failure to mail such notice or any defect therein or in the mailing thereof
        shall not affect the validity of the corporate action required to be specified
        in such notice. The Holder is entitled to convert this Debenture during the
        20-day period commencing the date of such notice to the effective date of
        the
        event triggering such notice. 

       

      
        
          
          

        

        
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      Section
        6. [INTENTIONALLY
        OMITTED]

      

      Section
        7. Negative
        Covenants.
        So long
        as any portion of this Debenture is outstanding, the Company will not and
        will
        not permit any of its Subsidiaries to directly or indirectly:

       

      a)  except
        for Permitted Indebtedness, enter
        into, create, incur, assume, guarantee or suffer to exist any indebtedness
        for
        borrowed money of any kind, including but not limited to, a guarantee, on
        or
        with respect to any of its property or assets now owned or hereafter acquired
        or
        any interest therein or any income or profits therefrom;

       

      b)  except
        for Permitted Liens, enter into, create, incur, assume or suffer to exist
        any
        liens of any kind, on or with respect to any of its property or assets now
        owned
        or hereafter acquired or any interest therein or any income or profits
        therefrom;

      

      c)  amend
        its
        certificate of incorporation, bylaws or other charter documents so as to
        materially and adversely affect any rights of the Holder;

      

      d)  repay,
        repurchase or offer to repay, repurchase or otherwise acquire more than a
        de
        minimis
        number
        of shares of its Common Stock or Common Stock Equivalents other than as to
        the
        Conversion Shares to the extent permitted or required under the Transaction
        Documents or as otherwise permitted by the Transaction Documents; 

      

      e)  enter
        into any agreement with respect to any of the foregoing;
        or

      

      f)  pay
        cash
        dividends or distributions on any equity securities of the Company other
        than
        dividends required to be paid under the Company’s Class A Preferred Stock owned
        by SWT,
        LLC
        (provided that following the date hereof the terms of such stock shall not
        be
        amended to increase the number of shares of such series of preferred stock
        or
        the dividends payable thereon).

       

      Section
        8. Events
        of Default.
        

      

      a)  “Event
        of Default”,
        wherever used herein, means any one of the following events (whatever the
        reason
        and whether it shall be voluntary or involuntary or effected by operation
        of law
        or pursuant to any judgment, decree or order of any court, or any order,
        rule or
        regulation of any administrative or governmental body):

      

      i.  any
        default in the payment of (A) the principal amount of any Debenture, or (B)
        interest (including Late Fees) on, or liquidated damages in respect of, any
        Debenture, as and when the same shall become due and payable (whether on
        a
        Conversion Date or the Maturity Date or by acceleration or otherwise) which
        default, solely in the case of an interest payment or other default under
        clause
        (B) above, is not cured, within 3 Trading Days;

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

      ii.  the
        Company shall fail to observe or perform any other covenant or agreement
        contained in this Debenture or any other Debenture (other than a breach by
        the
        Company of its obligations to deliver shares of Common Stock to the Holder
        upon
        conversion which breach is addressed in clause (xi) below) which failure
        is not
        cured, if possible to cure, within the earlier to occur
        of
(A)
        5
Trading
        Days after notice of such default sent by the Holder or by any other
        Holder
        and
        (B)10 Trading Days after the Company shall become or should have become aware
        of
        such failure;

      

      iii.  a
        default
        or event of default shall occur under (A) any of the Transaction Documents
        (which failure is not cured, if possible to cure, within
        10
        Trading Days after notice of such default sent by the Holder) or by any other
        Holder
        or (B)
        any other material agreement, lease, document or instrument to which the
        Company
        or any Subsidiary is bound (subject to any grace or cure period provided
        for in
        the applicable agreement, document or instrument);

      

      iv.  any
        representation or warranty made herein,
        in any
        other Transaction Documents, in any written statement pursuant hereto or
        thereto, or in any other report, financial statement or certificate made
        or
        delivered to the Holder or any other holder of Debentures shall
        be
        untrue or incorrect in any material respect as of the date when made or deemed
        made;

      

      v.  (i)
        the
        Company or any of its Subsidiaries shall commence a case, as debtor, under
        any
        applicable bankruptcy or insolvency laws as now or hereafter in effect or
        any
        successor thereto, or the Company or any Subsidiary commences any other
        proceeding under any reorganization, arrangement, adjustment of debt, relief
        of
        debtors, dissolution, insolvency or liquidation or similar law of any
        jurisdiction whether now or hereafter in effect relating to the Company or
        any
        Subsidiary thereof; or (ii) there is commenced a case against the Company
        or any
        Subsidiary thereof, under any applicable bankruptcy or insolvency laws, as
        now
        or hereafter in effect or any successor thereto which remains undismissed
        for a
        period of 60 days; or (iii) the Company or any Subsidiary thereof is adjudicated
        by a court of competent jurisdiction insolvent or bankrupt or any order of
        relief or other order approving any such case or proceeding is entered; or
        (iv)
        the Company or any Subsidiary thereof suffers any appointment of any custodian
        or the like for it or any substantial part of its property which continues
        undischarged or unstayed for a period of 60 days; or (v) the Company or any
        Subsidiary thereof makes a general assignment for the benefit of creditors;
        or
        (vi) the Company shall fail to pay, or shall state that it is unable to pay,
        or
        shall be unable to pay, its debts generally as they become due; or (vii)
        the
        Company or any Subsidiary thereof shall call a meeting of its creditors with
        a
        view to arranging a composition, adjustment or restructuring of its debts;
        or
        (viii) the Company or any Subsidiary thereof shall by any act or failure
        to act
        expressly indicate its consent to, approval of or acquiescence in any of
        the
        foregoing; or (ix) any corporate or other action is taken by the Company
        or any
        Subsidiary thereof for the purpose of effecting any of the
        foregoing;

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

      vi.  the
        Company or any Subsidiary shall default in any of its obligations under any
        mortgage, credit agreement or other facility, indenture agreement, factoring
        agreement or other instrument under which there may be issued, or by which
        there
        may be secured or evidenced any indebtedness for borrowed money or money
        due
        under any long term leasing or factoring arrangement of the Company in an
        amount
        exceeding $150,000, whether such indebtedness now exists or shall hereafter
        be
        created and such default shall result in such indebtedness becoming or being
        declared due and payable prior to the date on which it would otherwise become
        due and payable; 

      

      vii.  the
        Common Stock shall not be eligible for quotation on or quoted for trading
        on a
        Trading Market and shall not again be eligible for and quoted or listed for
        trading thereon within 5 Trading Days;

      

      viii.  the
        Company shall be a party to any Change of Control Transaction or Fundamental
        Transaction, shall agree to sell or dispose of all or in excess of 33% of
        its
        assets in one or more transactions (whether or not such sale would constitute
        a
        Change of Control Transaction) or shall redeem or repurchase more than a
        de
        minimis number of its outstanding shares of Common Stock or other equity
        securities of the Company (other than redemptions of Conversion Shares and
        repurchases of shares of Common Stock or other equity securities of departing
        officers and directors of the Company; provided such repurchases shall not
        exceed $100,000, in the aggregate, for all officers and directors during
        the
        term of this Debenture);

      

      ix.  a
        Registration Statement shall not have been declared effective by the Commission
        on or prior to the 200th calendar
        day after the Closing Date; 

      

      x.  if,
        during the Effectiveness Period (as defined in the Registration Rights
        Agreement), the effectiveness of the Registration Statement lapses for any
        reason or the Holder shall not be permitted to resell Registrable Securities
        (as
        defined in the Registration Rights Agreement) under the Registration Statement,
        in either case, for more than 20 consecutive Trading Days or 30 non-consecutive
        Trading Days during any 12 month period; provided,
        however,
        that in
        the event that the Company
        is negotiating a merger, consolidation, acquisition or sale of all or
        substantially all of its assets or a similar transaction and in the written
        opinion of counsel to the Company, the Registration Statement would be required
        to be amended to include information concerning such transactions or the
        parties
        thereto that is not available or may not be publicly disclosed at the time,
        the
        Company shall be permitted an additional 10 consecutive Trading Days during
        any
        12 month period relating to such an event; or

      

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

      xi.  the
        Company shall fail for any reason to deliver certificates to a Holder prior
        to
        the third Trading Day after a Conversion Date pursuant to and in accordance
        with
        Section 4(d) or the Company shall provide notice to the Holder, including
        by way
        of public announcement, at any time, of its intention not to comply with
        requests for conversions of any Debentures in accordance with the terms
        hereof;

      

      b)  Remedies
        Upon Event of Default.
        If any
        Event of Default occurs, the full principal amount of this Debenture, together
        with interest and other amounts owing in respect thereof, to the date of
        acceleration shall become, at the Holder’s election, immediately due and payable
        in cash. The aggregate amount payable upon an Event of Default shall be equal
        to
        the Mandatory Default Amount. Commencing 5 days after the occurrence of any
        Event of Default that results in the eventual acceleration of this Debenture,
        the interest rate on this Debenture shall accrue at the rate of 18% per annum,
        or such lower maximum amount of interest permitted to be charged under
        applicable law. Upon the payment in full of the Mandatory Default Amount
        on this
        entire Debenture the Holder shall promptly surrender this Debenture to or
        as
        directed by the Company. The Holder need not provide and the Company hereby
        waives any presentment, demand, protest or other notice of any kind, and
        the
        Holder may immediately and without expiration of any grace period enforce
        any
        and all of its rights and remedies hereunder and all other remedies available
        to
        it under applicable law. Such declaration may be rescinded and annulled by
        Holder at any time prior to payment hereunder and the Holder shall have all
        rights as a Debenture holder until such time, if any, as the full payment
        under
        this Section shall have been received by it. No such rescission or annulment
        shall affect any subsequent Event of Default or impair any right consequent
        thereon.

       

      Section
        9. Miscellaneous.
        

      
         

      

      a)  Notices.
        Any and
        all notices or other communications or deliveries to be provided by the Holder
        hereunder, including, without limitation, any Notice of Conversion, shall
        be in
        writing and delivered personally, by facsimile, sent by a nationally recognized
        overnight courier service, addressed to the Company, at the address set forth
        above, facsimile number 310.410.9606,
        Attn: Debra Fine, or
        such
        other address or facsimile number as the Company may specify for such purposes
        by notice to the Holder delivered in accordance with this Section. Any and
        all
        notices or other communications or deliveries to be provided by the Company
        hereunder shall be in writing and delivered personally, by facsimile, sent
        by a
        nationally recognized overnight courier service addressed to each Holder
        at the
        facsimile telephone number or address of such Holder appearing on the books
        of
        the Company, or if no such facsimile telephone number or address appears,
        at the
        principal place of business of the Holder. Any notice or other communication
        or
        deliveries hereunder shall be deemed given and effective on the earliest
        of (i)
        the date of transmission, if such notice or communication is delivered via
        facsimile at the facsimile telephone number specified in this Section prior
        to
        5:30 p.m. (New York City time), (ii) the date after the date of transmission,
        if
        such notice or communication is delivered via facsimile at the facsimile
        telephone number specified in this Section later than 5:30 p.m. (New York
        City
        time) on any date and earlier than 11:59 p.m. (New York City time) on such
        date,
        (iii) the second Business Day following the date of mailing, if sent by
        nationally recognized overnight courier service, or (iv) upon actual receipt
        by
        the party to whom such notice is required to be given.

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

      b)  Absolute
        Obligation.
        Except
        as expressly provided herein, no provision of this Debenture shall alter
        or
        impair the obligation of the Company, which is absolute and unconditional,
        to
        pay the principal of, interest and liquidated damages (if any) on, this
        Debenture at the time, place, and rate, and in the coin or currency, herein
        prescribed. This Debenture is a direct debt obligation of the Company. This
        Debenture ranks pari passu
        with all
        other Debentures now or hereafter issued under the terms set forth
        herein. 

       

      c)  Lost
        or Mutilated Debenture.
        If this
        Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
        execute and deliver, in exchange and substitution for and upon cancellation
        of a
        mutilated Debenture, or in lieu of or in substitution for a lost, stolen
        or
        destroyed Debenture, a new Debenture for the principal amount of this Debenture
        so mutilated, lost, stolen or destroyed but only upon receipt of evidence
        of
        such loss, theft or destruction of such Debenture, and of the ownership hereof,
        and indemnity, if requested, all reasonably satisfactory to the
        Company.

      

      d)  Governing
        Law.
        All
        questions concerning the construction, validity, enforcement and interpretation
        of this Debenture shall be governed by and construed and enforced in accordance
        with the internal laws of the State of New York, without regard to the
        principles of conflicts of law thereof. Each party agrees that all legal
        proceedings concerning the interpretations, enforcement and defense of the
        transactions contemplated by any of the Transaction Documents (whether brought
        against a party hereto or its respective affiliates, directors, officers,
        shareholders, employees or agents) shall be commenced in the state and federal
        courts sitting in the City of New York, Borough of Manhattan (the “New
        York Courts”).
        Each
        party hereto hereby irrevocably submits to the exclusive jurisdiction of
        the New
        York Courts for the adjudication of any dispute hereunder or in connection
        herewith or with any transaction contemplated hereby or discussed herein
        (including with respect to the enforcement of any of the Transaction Documents),
        and hereby irrevocably waives, and agrees not to assert in any suit, action
        or
        proceeding, any claim that it is not personally subject to the jurisdiction
        of
        any such court, or such New York Courts are improper or inconvenient venue
        for
        such proceeding. Each party hereby irrevocably waives personal service of
        process and consents to process being served in any such suit, action or
        proceeding by mailing a copy thereof via registered or certified mail or
        overnight delivery (with evidence of delivery) to such party at the address
        in
        effect for notices to it under this Debenture and agrees that such service
        shall
        constitute good and sufficient service of process and notice thereof. Nothing
        contained herein shall be deemed to limit in any way any right to serve process
        in any manner permitted by law. Each party hereto hereby irrevocably waives,
        to
        the fullest extent permitted by applicable law, any and all right to trial
        by
        jury in any legal proceeding arising out of or relating to this Debenture
        or the
        transactions contemplated hereby. If either party shall commence an action
        or
        proceeding to enforce any provisions of this Debenture, then the prevailing
        party in such action or proceeding shall be reimbursed by the other party
        for
        its attorneys fees and other costs and expenses incurred with the investigation,
        preparation and prosecution of such action or proceeding.

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

      e)  Waiver.
        Any
        waiver by the Company or the Holder of a breach of any provision of this
        Debenture shall not operate as or be construed to be a waiver of any other
        breach of such provision or of any breach of any other provision of this
        Debenture. The failure of the Company or the Holder to insist upon strict
        adherence to any term of this Debenture on one or more occasions shall not
        be
        considered a waiver or deprive that party of the right thereafter to insist
        upon
        strict adherence to that term or any other term of this Debenture. Any waiver
        must be in writing.

       

      f)  Severability.
        If any
        provision of this Debenture is invalid, illegal or unenforceable, the balance
        of
        this Debenture shall remain in effect, and if any provision is inapplicable
        to
        any person or circumstance, it shall nevertheless remain applicable to all
        other
        persons and circumstances. If it shall be found that any interest or other
        amount deemed interest due hereunder violates applicable laws governing usury,
        the applicable rate of interest due hereunder shall automatically be lowered
        to
        equal the maximum permitted rate of interest. The Company covenants (to the
        extent that it may lawfully do so) that it shall not at any time insist upon,
        plead, or in any manner whatsoever claim or take the benefit or advantage
        of,
        any stay, extension or usury law or other law which would prohibit or forgive
        the Company from paying all or any portion of the principal of or interest
        on
        this Debenture as contemplated herein, wherever enacted, now or at any time
        hereafter in force, or which may affect the covenants or the performance
        of this
        indenture, and the Company (to the extent it may lawfully do so) hereby
        expressly waives all benefits or advantage of any such law, and covenants
        that
        it will not, by resort to any such law, hinder, delay or impeded the execution
        of any power herein granted to the Holder, but will suffer and permit the
        execution of every such as though no such law has been enacted.

       

      g)  Next
        Business Day.
        Whenever any payment or other obligation hereunder shall be due on a day
        other
        than a Business Day, such payment shall be made on the next succeeding Business
        Day.

      

      h)  Headings.
        The
        headings contained herein are for convenience only, do not constitute a part
        of
        this Debenture and shall not be deemed to limit or affect any of the provisions
        hereof.

      
         

        
          
            
            

          

          
            22

            
              

            

          

          
            
            

          

        

      

      i)  Assumption. 
        Any successor to the Company or surviving entity in a Fundamental Transaction
        shall (i) assume in writing all of the obligations of the Company under this
        Debenture and the other Transaction Documents pursuant to written agreements
        in
        form and substance satisfactory to the Holder (such approval not to be
        unreasonably withheld or delayed) prior to such Fundamental Transaction and
        (ii)
        to issue to the Holder a new debenture of such successor entity evidenced
        by a
        written instrument substantially similar in form and substance to this
        Debenture, including, without limitation, having a principal amount and interest
        rate equal to the principal amounts and the interest rates of the Debentures
        held by the Holder and having similar ranking to this Debenture, and
        satisfactory to the Holder (any such approval not to be unreasonably withheld
        or
        delayed).  The provisions of this Section 9(i) shall apply similarly
        and
        equally to successive Fundamental Transactions and shall be applied without
        regard to any limitations of this Debenture.

      

      *********************

       

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

      IN
        WITNESS WHEREOF, the Company has caused this
        Debenture to be duly executed by a duly authorized officer as of the date
        first
        above indicated.

       

      
        	 	 	 
	 	SMALL
                WORLD KIDS, INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
                

              
	 	
                Name:

                Title:

              

      

       

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

      ANNEX
        A

      NOTICE
        OF CONVERSION

      

      The
        undersigned hereby elects to convert principal under the 10% Convertible
        Debenture of Small World Kids, Inc., a Nevada corporation (the “Company”),
        due
        on September __, 2008 , into shares of common stock, par value $.001 per
        share
        (the “Common
        Stock”),
        of
        the Company according to the conditions hereof, as of the date written below.
        If
        shares are to be issued in the name of a person other than the undersigned,
        the
        undersigned will pay all transfer taxes payable with respect thereto and
        is
        delivering herewith such certificates and opinions as reasonably requested
        by
        the Company in accordance therewith. No fee will be charged to the holder
        for
        any conversion, except for such transfer taxes, if any.

      

      By
        the
        delivery of this Notice of Conversion the undersigned represents and warrants
        to
        the Company that its ownership of the Common Stock does not exceed the amounts
        determined in accordance with Section 13(d) of the Exchange Act, specified
        under
        Section 4 of this Debenture.

      

      The
        undersigned agrees to comply with the prospectus delivery requirements under
        the
        applicable securities laws in connection with any transfer of the aforesaid
        shares of Common Stock. 

      

      Conversion
        calculations:   

      Date
        to
        Effect Conversion:

      

      Principal
        Amount of Debenture to be Converted:

      

      Payment
        of Interest in Common Stock __ yes __ no

      If
        yes,
        $_____ of Interest Accrued on Account of Conversion at Issue.

       

      Number
        of
        shares of Common Stock to be issued:

       

      Signature:

       

      Name:

       

      Address:

       

      
        
          
          

        

        
          25

          
            

          

        

        
          
          

        

      

      CONVERSION
        SCHEDULE

      

      The
        10%
        Convertible Debentures due on September __, 2008, in the aggregate principal
        amount of $____________ issued by Small World Kids, Inc.. This Conversion
        Schedule reflects conversions made under Section 4 of the above referenced
        Debenture.

      

      Dated:
        

      
 

      
        	 	 	 	 
	
                 

                Date
                  of Conversion

                (or
                  for first entry, Original Issue Date)

              	
                 

                Amount
                  of

                Conversion

              	
                 

                Aggregate
                  Principal

                Amount
                  Remaining

                Subsequent
                  to Conversion

                (or
                  original Principal Amount)

              	
                 

                Company
                  Attest

              
	
                 

                 

              	 	 	 
	
                 

                 

              	 	 	 
	
                 

                 

              	 	 	 
	
                 

                 

              	 	 	 
	
                 

                 

              	 	 	 
	
                 

                 

              	 	 	 
	
                 

                 

              	 	 	 
	
                 

                 

              	 	 	 
	
                 

                 

              	 	 	 

      

       

      
        
          
          

        

        
          26

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