Document:

EXHIBIT
        4.1

       

      SMALL
        WORLD KIDS, INC.

      CERTIFICATE
        OF DESIGNATION

      OF
        THE

      CLASS
        A-2
        CONVERTIBLE PREFERRED STOCK

       

      
        
          

        

      

      Pursuant
        to Section 78.195 of the General

      Corporation
        Law of the State of Nevada

      
        
 

      Small
        World Kids, Inc., a corporation organized and existing under the laws of
        the
        State of Nevada (the “Corporation”), hereby certifies that the following
        resolution was duly adopted by the Board of Directors of the Corporation
        by
        unanimous written consent effective March 1, 2007:

       

      RESOLVED,
        that, Article 3 of the Amended Articles of Incorporation, creates and
        authorizes up to 15,000,000 shares of preferred stock (the “Preferred Stock”),
        of which there are 10,429,272 shares currently issued and
        outstanding.

       

      RESOLVED
        FURTHER, the Board of Directors of the Corporation hereby establishes a series
        of Class A-2 Convertible Preferred Stock to consist of 2,500,000 shares,
        and hereby fixes the powers, designation, preferences and relative
        participating, optional and other rights of such series of Class A-2
        Convertible Preferred Stock, and the qualifications, limitations and
        restrictions thereof, as follows:

       

      1. 
          Designation.
        

       

      (a)  The
        designation of the series of Class A-2 Convertible Preferred Stock created
        by this resolution shall be “Class A-2 Convertible Preferred Stock”
(hereinafter called the “Class A-2 Preferred Stock”).

       

      (b)  All
        shares of Class A-2 Preferred Stock shall be identical with each other in
        all respects. 

       

      2. 
          Liquidation
        Rights.
        

       

      (a)  General.
        In the
        event of any liquidation, dissolution or winding up, whether voluntary or
        involuntary, holders of each share of Class A-2 Preferred Stock shall be
        entitled to be paid out of the assets or surplus funds of the Corporation
        legally available for distribution to holders of the Corporation’s capital stock
        of all classes (whether such assets are capital, surplus, or earnings) before
        any sums shall be paid or any assets or surplus funds distributed among the
        holders of Common Stock or to the holders of any series of Preferred Stock
        which
        may be junior in right of preference to Class A-2 Preferred Stock, an
        amount equal to $1.50 per share (as adjusted for any stock dividend, combination
        or splits with respect to such shares) of Class A-2 Preferred Stock plus
        any cumulative and/or accrued and unpaid dividends thereon (the “Stated Value”).
        After payment to the holders of the Class A-2 Preferred Stock of the amount
        set forth in this Section 2(a), the remaining assets and funds of the
        Corporation legally available for distribution, if any, shall be distributed
        among the holders of the Common Stock and the Class A-2 Preferred Stock in
        proportion to the shares of Common Stock then held by them and the shares
        of
        Common Stock which they would have a right to acquire upon conversion of
        the
        shares of the Class A-2 Preferred Stock held by them (but no such
        conversion shall be required in order to receive such
        distribution).

       

      (b)  Distributions
        Other than Cash.
        Whenever the distribution provided for in this Section 2 shall be paid in
        property other than cash, the value of such distribution shall be the fair
        market value of such property as determined in good faith by the Board of
        Directors of the Corporation. In each such case, the holders of the
        Class A-2 Preferred Stock shall be entitled to a proportionate share of any
        such distribution in accordance with the provisions hereof. 

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      If
        the
        assets of the Corporation shall be insufficient to permit the payment in
        full to
        holders of the Class A-2 Preferred Stock of the preferential amount set
        forth in this Section 2, then the entire assets of the Corporation
        available for such distribution shall be distributed ratably among the holders
        of the Class A-2 Preferred Stock in accordance with the aggregate
        liquidation preference of the shares of Class A-2 Preferred Stock held by
        each of them. 

       

      The
        sale,
        lease or exchange (for cash, shares of stock, securities or other consideration)
        of all or substantially all the property and assets of the Corporation, or
        the
        merger, consolidation or reorganization of the Corporation into or with any
        other corporation, or the merger or consolidation or reorganization of any
        other
        corporation into or with the Corporation or any other transaction or series
        of
        related transactions, in each case where the shareholders of the Corporation
        do
        not continue to hold the majority of the voting power after such merger,
        consolidation or reorganization, shall be deemed to be a liquidation for
        the
        purposes of this section.

       

      3. 
          Conversion.

       

      The
        holders of Class A-2 Preferred Stock shall have conversion rights as
        follows:

       

      (a)  Right
        to Convert.
        Each
        share of Class A-2 Preferred Stock shall be convertible, at the option of
        the holder thereof, at any time after the date of issuance of such share,
        at the
        office of the Corporation or any transfer agent for the Class A-2 Preferred
        Stock, into such number of fully paid and non-assessable shares of Common
        Stock
        as is determined by dividing the purchase price ($1.00) of one share of
        Class A-2 Preferred Stock by the Conversion Price (the “Conversion Price”)
        at the time in effect for a share Class A-2 Preferred Stock. The Conversion
        Price per share of Class A-2 Preferred Stock initially shall be $.25,
        subject to adjustment from time to time as provided below. 

       

      (b)  Intentionally
        Deleted.

       

      (c)  Mechanics
        of Conversion.
        No
        fractional shares of Common Stock shall be issued upon conversion of the
        Class A-2 Preferred Stock. In lieu of any fractional shares to which the
        holder would otherwise be entitled, the Corporation shall pay cash equal
        to such
        fraction multiplied by the then applicable Conversion Price of the
        Class A-2 Preferred Stock. Before any holder of Class A-2 Preferred
        Stock shall be entitled to convert the same into shares of Common Stock pursuant
        to Section 3(a), such holder shall surrender the certificate or
        certificates therefor, duly endorsed, at the office of the Corporation or
        of any
        transfer agent for the Class A-2 Preferred Stock, and shall give written
        notice by mail, postage prepaid, to the Corporation at its principal corporate
        office, of the election to convert the same, and such conversion shall be
        deemed
        to have been made immediately prior to the close of business on the date
        of such
        surrender of the shares of Class A-2 Preferred Stock to be converted. The
        Corporation shall, as soon as practicable thereafter, issue and deliver to
        such
        address as the holder may direct, a certificate or certificates for the number
        of shares of Common Stock to which such holder shall be entitled. The
        Corporation shall pay all documentary, stamp, transfer or other transactional
        taxes attributable to the issuance or delivery of shares of Common Stock
        upon
        conversion of any shares of Class A-2 Preferred Stock; provided
        that the
        Corporation shall not be required to pay any taxes which may be payable in
        respect of any transfer involved in the issuance or delivery of any certificate
        for such shares in a name other than that of the holder of the shares of
        Preferred Stock in respect of which such shares are being issued.

       

      (d)  Status
        of Converted Stock.
        In the
        event any shares of Class A-2 Preferred Stock shall be converted pursuant
        to this Section 3, the shares so converted shall be canceled and shall not
        be reissued as Class A-2 Preferred Stock by the Corporation. All such
        shares shall upon their cancellation become authorized but unissued shares
        of
        Preferred Stock and may be reissued as part of a new series of Preferred
        Stock
        to be created by resolution or resolutions of the board of directors, subject
        to
        the conditions and restrictions on issuance set forth herein. 

       

      
        
          
          

        

        
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      (e)  Certain
        Adjustments and Distributions.

       

      (i)  Adjustments
        for Subdivisions or Combinations of Common Stock.
        In the
        event the outstanding shares of Common Stock shall be subdivided by stock
        split,
        stock dividend or otherwise, into a greater number of shares of Common Stock,
        the Conversion Price of each share of Class A-2 Preferred Stock then in
        effect shall, concurrently with the effectiveness of such subdivision, be
        proportionately decreased. In the event the outstanding shares of Common
        Stock
        shall be combined or consolidated into a lesser number of shares of Common
        Stock, the Conversion Price of each share of Class A-2 Preferred Stock then
        in effect shall, concurrently with the effectiveness of such combination
        or
        consolidation, be proportionately increased.

       

      (ii)  Stock
        Dividends and Other Distributions.
        In the
        event the Corporation makes, or fixes a record date for the determination
        of
        holders of Common Stock entitled to receive, any distribution (excluding
        repurchases of securities by the Corporation not made on a pro rata basis)
        payable in property or in securities of the Corporation other than shares
        of
        Common Stock, and other than as otherwise adjusted for in this Section 3 or
        as provided for in Section 1 in connection with a dividend, then and in
        each such event the holders of Class A-2 Preferred Stock shall receive, at
        the time of such distribution, the amount of property or the number of
        securities of the Corporation that they would have received had their
        Class A-2 Preferred Stock been converted into Common Stock on the date of
        such event.

       

      (iii)  Reorganizations,
        Recapitalizations, Reclassifications or Similar Events.
        If the
        Common Stock shall be changed into the same or a different number of shares
        of
        any other class or classes of stock or other securities or property, whether
        by
        capital reorganization, recapitalization, reclassification or otherwise,
        then
        each share of Class A-2 Preferred Stock shall thereafter be convertible
        into the number of shares of stock or other securities or property to which
        a
        holder of the number of shares of Common Stock of the Corporation deliverable
        upon conversion of such shares of Class A-2 Preferred Stock shall have been
        entitled upon such reorganization, recapitalization, reclassification, merger,
        consolidation or other event.

       

      (iv)  Adjustments
        for Diluting Issues.
        In
        addition to the adjustment of the Conversion Prices provided above, the
        Conversion Price of the Class A-2 Preferred Stock shall be subject to
        further adjustment from time to time as follows:

       

      (A)  Special
        Definitions.

       

      (1)  “Options”
        shall mean rights, options or warrants to subscribe for, purchase or otherwise
        acquire either Common Stock or Convertible Securities.

       

      (2)  “Original
        Issue Date” shall mean the date on which the first share of Class A-2
        Preferred Stock was first issued.

       

      (3)  “Convertible
        Securities” shall mean securities convertible into or exchangeable for Common
        Stock, either directly or indirectly, including the Class A-2 Preferred
        Stock.

       

      (4)  “Additional
        Shares of Common Stock” shall mean all shares of Common Stock issued (or,
        pursuant to Section 3(e)(iv)(C) deemed to be issued) by the Corporation
        after the Original Issue Date.

       

      (B)  No
        Adjustment of Conversion Price.
        No
        adjustment in the Conversion Price shall be made pursuant to
        Section 3(e)(iv)(D) unless the consideration per share for an Additional
        Share of Common Stock issued (or, pursuant to Section 3(e)(iv)(C), deemed
        to be issued) by the Corporation is less than the Conversion Price in effect
        on
        the date of, and immediately prior to, such issue, and provided that any
        such
        adjustment shall not have the effect of increasing the Conversion Price to
        an
        amount which exceeds the Conversion Price existing immediately prior to such
        adjustment.

       

      
        
          
          

        

        
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      (C)  Deemed
        Issuance of Additional Shares of Common Stock.
        Except
        as otherwise provided in Section 3(e)(iv)(A) or 3(e)(iv)(B), in the event
        the Corporation at any time or from time to time after the Original Issue
        Date
        shall issue any Options or Convertible Securities or shall fix a record date
        for
        the determination of any holders of any class of securities entitled to receive
        any such Options or Convertible Securities, then the maximum number of shares
        (as set forth in the instrument relating thereto without regard to any
        provisions contained therein for a subsequent adjustment of such number)
        of
        Common Stock issuable upon the exercise of such Options or, in the case of
        Convertible Securities and Options therefor, the conversion or exchange of
        such
        Convertible Securities, shall be deemed to be Additional Shares of Common
        Stock
        issued as of the time of such issue or, in case such a record date shall
        have
        been fixed, as of the close of business on such record date, provided that
        in
        any such case in which additional shares of Common Stock are deemed to be
        issued:

       

      (1)  no
        further adjustment in the Conversion Price shall be made upon the subsequent
        issue of Convertible Securities or shares of Common Stock upon the exercise
        of
        such Options or conversion or exchange of such Convertible
        Securities;

       

      (2)  if
        such
        Options or Convertible Securities by their terms provide, with the passage
        of
        time or otherwise, for any increase or decrease in the consideration payable
        to
        the Corporation, or increase or decrease in the number of shares of Common
        Stock
        issuable, upon the exercise, conversion or exchange thereof, the Conversion
        Price computed upon the original issue thereof or upon the occurrence of
        a
        record date with respect thereto, and any subsequent adjustments based thereon,
        shall, upon any such increase or decrease becoming effective, be recomputed
        to
        reflect such increase or decrease;

       

      (3)  upon
        the
        expiration of any such Options or any rights of conversion or exchange under
        such Convertible Securities which shall not have been exercised, the Conversion
        Price computed upon the original issue thereof or upon the occurrence of
        a
        record date with respect thereto, and any subsequent adjustments based thereon,
        shall, upon such expiration, be recomputed as if:

       

      (i)  in
        the
        case of Convertible Securities or Options for Common Stock, the only Additional
        Shares of Common Stock issued were shares of Common Stock, if any, actually
        issued upon the exercise of such Options or the conversion or exchange of
        such
        Convertible Securities, and the consideration received therefor was the
        consideration actually received by the Corporation for the issue of all such
        Options, whether or not exercised, plus the consideration actually received
        by
        the Corporation upon such exercise, or for the issue of all such Convertible
        Securities, whether or not converted or exchanged, plus the additional
        consideration, if any, actually received by the Corporation upon such conversion
        or exchange; and

       

      (ii)  in
        the
        case of Options for Convertible Securities, only the Convertible Securities,
        if
        any, actually issued upon the exercise thereof were issued at the time of
        issue
        of such Options and the consideration received by the Corporation for the
        Additional Shares of Common Stock deemed to have been then issued was the
        consideration actually received by the Corporation for the issue of all such
        Options, whether or not exercised, plus the consideration deemed to have
        been
        received by the Corporation upon the issue of the Convertible Securities
        with
        respect to which such Options were actually exercised;

       

      (4)  no
        readjustment pursuant to Section 3(e)(iv)(C)(2) or (3) above shall have the
        effect of increasing the Conversion Price to an amount which exceeds the
        Conversion Price existing immediately prior to the original adjustment with
        respect to the issuance of such Options or Convertible Securities, as adjusted
        for any Additional Shares of Common Stock issued (or, pursuant to
        Section 3(e)(iv)(C), deemed to be issued) between such original adjustment
        date and such readjustment date; and

       

      
        
          
          

        

        
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      (5)  in
        the
        case of any Option or Convertible Security with respect to which the maximum
        number of shares of Common Stock issuable upon exercise or conversion or
        exchange thereof is not determinable, the adjustment to the Conversion Price,
        if
        any, shall be initially made based on the minimum number of such shares with
        a
        subsequent adjustment once the maximum number of such shares becomes
        determinable.

       

      (D)  Adjustment
        of Conversion Price Upon Issuance of Additional Shares of Common
        Stock.
        Subject
        to the limitation set forth in Section 3(e)(iv)(B), above, except for
        Options issued pursuant to the Company’s stock option or compensation plans and
        Additional Shares of Common Stock issued pursuant to the conversion or exercise
        of Convertible Securities outstanding as of the date hereof, if Additional
        Shares of Common Stock are issued (or, pursuant to Section 3(e)(iv)(C),
        deemed to be issued) for a consideration per share (computed on an as-converted
        to Common Stock basis) less than the Conversion Price in effect on the date
        of,
        and immediately prior to, such issue, then and in such event, such Conversion
        Price shall be reduced, concurrently with such issue, to a price (rounded
        to the
        nearest cent) determined by multiplying such Conversion Price by a fraction,
        (x) the numerator of which shall be the number of shares of Common Stock
        outstanding immediately prior to such issue plus the number of shares of
        Common
        Stock which the aggregate consideration received by the Corporation for the
        total number of Additional Shares of Common Stock so issued would purchase
        at
        such Conversion Price, and (y) the denominator of which shall be the number
        of shares of Common Stock outstanding immediately prior to such issue plus
        the
        number of such Additional Shares of Common Stock so issued. For the purposes
        of
        this Section 3(e)(iv)(D), all shares of Common Stock issuable upon exercise
        of outstanding Options, upon conversion of outstanding Convertible Securities
        and upon conversion of Convertible Securities following exercise of outstanding
        Options therefor, shall be deemed to be outstanding, and immediately after
        any
        Additional Shares of Common Stock are deemed issued pursuant to
        Section 3(e)(iv)(C), such Additional Shares of Common Stock shall be deemed
        to be outstanding.

       

      (E)  Determination
        of Consideration.
        For
        purposes of this Section 3(e)(iv), the consideration received by the
        Corporation for any Additional Shares of Common Stock issued (or, pursuant
        to
        Section 3(e)(iv)(C), deemed to be issued) shall be computed as
        follows:

       

      (1)  Cash
        and Property.
        Such
        consideration shall:

       

      (i)  insofar
        as it consists of cash, be computed at the aggregate amount of cash received
        by
        the Corporation after deducting any commissions paid by the Corporation with
        respect to such issuance, but without deduction of any expenses payable by
        the
        Corporation;

       

      (ii)  insofar
        as it consists of property other than cash, be computed at the fair market
        value
        thereof at the time of such issuance, as determined in good faith by the
        Board
        of Directors of the Corporation; and

       

      (iii)  if
        Additional Shares of Common Stock are issued (or, pursuant to
        Section 3(e)(iv)(C), deemed to be issued) together with other shares or
        securities or other assets of the Corporation for consideration which covers
        both, be the proportion of such consideration so received, computed as provided
        in clauses (i) and (ii) above, as determined in good faith by the Board of
        Directors of the Corporation.

       

      (2)  Options
        and Convertible Securities.
        The
        consideration received by the Corporation for Additional Shares of Common
        Stock
        deemed to have been issued pursuant to Section 3(e)(iv)(C), relating to
        Options and Convertible Securities, shall be the sum of (x) the total
        amount, if any, received or receivable by the Corporation as consideration
        for
        the issue of such Options or Convertible Securities, plus (y) the minimum
        aggregate amount of additional consideration (as set forth in the instruments
        relating thereto, without regard to any provision contained therein for a
        subsequent adjustment of such consideration) payable to the Corporation upon
        the
        exercise of such Options or the conversion or exchange of such Convertible
        Securities, or in the case of Options for Convertible Securities, the exercise
        of such Options for Convertible Securities and the conversion or exchange
        of
        such Convertible Securities.

       

      
        
          
          

        

        
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      (f)
          Certificate
        as to Adjustments.
        Upon
        the occurrence of each adjustment or readjustment of the Conversion Price
        pursuant to this Section 3, the Corporation at its expense shall promptly
        compute such adjustment or readjustment in accordance with the terms hereof
        and
        furnish to each holder of Class A-2 Preferred Stock to which such
        adjustment pertains a certificate setting forth such adjustment or readjustment
        and showing in detail the facts upon which such adjustment or readjustment
        is
        based. The Corporation shall, upon the written request at any time of any
        holder
        of Class A-2 Preferred Stock, furnish or cause to be furnished to such
        holder a like certificate setting forth (i) such adjustments and
        readjustments, (ii) the Conversion Prices at the time in effect, and
        (iii) the number of shares of Common Stock and the amount, if any, of other
        property which at the time would be received upon the conversion of such
        holder’s Class A-2 Preferred Stock.

       

      (g)  No
        Impairment.
        The
        Corporation will not, through any reorganization, recapitalization, transfer
        of
        assets, consolidation, merger, dissolution, issue or sale of securities or
        any
        other voluntary action, avoid or seek to avoid the observance or performance
        of
        any of the terms to be observed or performed hereunder by the Corporation,
        but
        will at all times in good faith assist in the carrying out of all the provisions
        of this Section 3 and in the taking of all such action as may be necessary
        or appropriate in order to protect the conversion rights of the holders of
        Class A-2 Preferred Stock against impairment. This provision shall not
        restrict the Corporation’s right to amend its Amended Articles of Incorporation
        with the requisite shareholder consent.

       

      (h)  Notices
        of Record Date.
        In the
        event of any taking by the Corporation of a record of the holders of any
        class
        of securities for the purpose of determining the holders thereof who are
        entitled to receive any dividend or other distribution, any right to subscribe
        for, purchase or otherwise acquire any shares of stock of any class or any
        other
        securities or property or to receive any other right, the Corporation shall
        mail
        to each holder of Class A-2 Preferred Stock at least twenty (20) days prior
        to such record date, a notice specifying the date on which any such record
        is to
        be taken for the purpose of such dividend or distribution or right, and the
        amount and character of such dividend, distribution or right.

       

      (i)
          Reservation
        of Stock Issuable Upon Conversion.
        The
        Corporation shall at all times reserve and keep available out of its authorized
        but unissued shares of Common Stock solely for the purpose of effecting the
        conversion of the shares of Class A-2 Preferred Stock such number of its
        shares of Common Stock as shall from time to time be sufficient to effect
        the
        conversion of all outstanding shares of Class A-2 Preferred Stock and if at
        any time the number of authorized but unissued shares of Common Stock shall
        not
        be sufficient to effect the conversion of all then outstanding shares of
        Class A-2 Preferred Stock, the Corporation will take such corporate action
        as may be necessary to increase its authorized but unissued shares of Common
        Stock to such number of shares as shall be sufficient for such
        purpose.

       

      (j)
          Notices.
        Any
        notice required by the provisions of this Section 3 to be given to any
        holder of Class A-2 Preferred Stock shall be deemed given if deposited in
        the United States mail, postage prepaid, and addressed to each holder of
        record
        at such holder’s address appearing on the Corporation’s books.

       

      4. 
          Covenants.
        The
        Corporation is prohibited from taking any actions to amend or repeal any
        provision of, or add any provision to, the Corporation’s Amended Articles of
        Incorporation, Bylaws or this Certificate of Designation, if such action
        would
        change adversely the preferences, rights, privileges or powers of, or
        restrictions provided for the benefit of, the Class A-2 Preferred
        Stock.

       

      
        
          
          

        

        
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      5. 
          Dividends.

       

      (a)  The
        holders of the outstanding Class A-2 Preferred Stock shall be entitled to
        receive, out of funds legally available therefore, cumulative dividends at
        the
        annual rate of 6% per annum of the per share purchase price ($1.00) of the
        Class A-2 Preferred Stock. Such dividends shall be payable in shares of the
        Company’s Class A-2 Preferred Stock quarterly, on the fifteenth day of October,
        January, April and July (each of such dates being a “Dividend Payment Date”)
        commencing on the date of issuance, and shall be pro-rated for the first
        such
        quarterly period if the same is less than 91 (ninety-one) days. All shares
        of
        common stock shall be valued at the Fair Market Value thereof. As used herein
        Fair Market Value shall mean in the case of stock on a given date, the average
        of the closing bid prices for the Company’s common stock for the ten trading
        days immediately preceding the Dividend Payment Date. Such dividends shall
        accrue on each such share commencing on the date of issue, and shall accrue
        from
        day to day, whether or not earned or declared. Such dividends shall be
        cumulative so that if such dividends in respect of any previous quarterly
        dividend period shall not have been paid on, the deficiency shall be fully
        paid
        on or declared and set apart for such shares before the Corporation makes
        any
        distribution (as hereinafter defined) to the holders of Common Stock. Accrued
        but unpaid dividends shall not bear interest. “Distribution” in this
        Section 5 means the transfer of cash or property without consideration,
        whether by way of dividend or otherwise (except a dividend in shares of the
        Corporation) or the purchase or redemption of shares of the Corporation for
        cash
        or property (except for an exchange of shares of the Corporation or shares
        acquired by the Corporation from employees pursuant to the terms of any employee
        incentive plan, agreement or arrangement) including any such transfer, purchase
        or redemption by a subsidiary of the Corporation. The time of any distribution
        by way of dividend shall be the date of declaration thereof and the time
        of any
        distribution by purchase or redemption of shares shall be the day cash or
        property is transferred by the Corporation, whether or not pursuant to a
        contract of an earlier date; provided that where a negotiable debt security
        is
        issued in exchange for shares the time of the distribution is the date when
        the
        Corporation acquires the shares in such exchange. The Board of Directors
        may fix
        a record date for the determination of holders of Class A-2 Preferred Stock
        entitled to receive payment of a dividend declared thereon, which record
        date
        shall be no more than sixty (60) days.

       

      (b)  In
        addition to the dividends specified in subparagraph (a) above, if dividends
        are
        declared or paid on the Common Stock, then such dividends shall be declared
        and
        paid pro
        rata
        on the
        Common Stock and the Class A-2 Preferred Stock, treating each share of
        Class A-2 Preferred Stock as the greatest whole number of shares of Common
        Stock then issuable upon conversion thereof pursuant to Section 3
        above.

       

      (c)  If
        full
        cash dividends are not paid or made available to the holders of all outstanding
        shares of Class A-2 Preferred Stock as provided in subparagraph (b), and
        funds available shall be insufficient to permit payment in full in cash to
        all
        such holders of the preferential amounts to which they are then entitled,
        the
        entire amount available for payment of cash dividends shall be distributed
        among
        the holders of the Class A-2 Preferred Stock ratably in proportion to the
        full amount to which they would otherwise be respectively entitled, and any
        remainder not paid in cash to the holders of the Class A-2 Preferred Stock
        shall cumulate as provided in subparagraph 5(d) below.

       

      (d)  Dividends
        shall be paid to the holders of record of the Class A-2Preferred Stock as
        their
        names appear on the share register of the Corporation upon a liquidation
        format,
        dissolution or winding up pursuant to Section 2 above. If, on any Dividend
        Payment Date, the holders of the Class A-2 Preferred Stock shall not have
        received the full dividend provided for in the other provisions of this
        Section 5, then such dividends shall cumulate, whether or not earned or
        declared, with additional dividends thereon for each succeeding full dividend
        period during which such dividends shall remain unpaid. Unpaid dividends
        for any
        period less than a full dividend period shall cumulate on a day-to-day basis
        and
        shall be computed on the basis of a 360-day year.

       

      
        
          
          

        

        
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      6. 
          Voting
        Rights.

       

      (a)  General.
        Each
        holder of shares of Class A-2 Preferred Stock shall be entitled to the
        number of votes equal to the number of shares of Common Stock into which
        the
        Class A-2 Preferred Stock could be converted and shall have voting rights
        and powers equal to the voting rights and powers of the Common
        Stock.

       

      (b)  Approval
        by Holders of Class A-2 Preferred Stock.
        The
        Corporation shall not, without first obtaining the approval of the holders
        of a
        majority of the then outstanding shares of Class A-2 Preferred
        Stock:

       

      (i)  Amend,
        waive or repeal any provision of, or add any provision to, the Corporation’s
        Amended Articles of Incorporation or Bylaws if such action would adversely
        alter
        or change in any way the rights, preferences, privileges, or restrictions
        of the
        Class A-2 Preferred Stock. 

       

      
        
          
          

        

        
          8EXHIBIT
        4.2

       

      THIS
        NOTE, AND THE SHARES OF PREFERRED STOCK ISSUABLE UPON CONVERSION OF THIS
        NOTE,
        AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE PREFERRED
        STOCK
        (COLLECTIVELY, THE “SECURITIES”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
        ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS.
        THE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED,
        PLEDGED
        OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
        RESPECT TO THE SECURITIES UNDER SUCH ACT AND APPLICABLE LAWS OR SOME OTHER
        EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS
        OR
        AN OPINION OF COUNSEL SATISFACTORY TO PARENT THAT SUCH REGISTRATION IS NOT
        REQUIRED.

       

      SECURED
        SUBORDINATED CONVERTIBLE NOTE

       

      FOR
        VALUE
        RECEIVED, Small World Kids, Inc. a Nevada corporation (“Parent”), and Small
        World Toys, a California corporation (“Subsidiary”) (Parent and Subsidiary, each
        a “Borrower” and collectively the “Borrowers”), with principal offices located
        at 5711 Buckingham Parkway, Culver City, California 90230, hereby jointly
        and
        severally promise to pay to «M_1», at «M_2» (the “Holder”) or order, without
        demand, the sum of «M_3» Dollars ($«M_4») (the “Face Amount”) with interest on
        the Face Amount at the rate of 10% per annum. The Face Amount of the Note
        shall
        be due and payable on the Maturity Date (as hereinafter defined). 

       

      This
        Note
        is one of a series of Notes (the “Notes”) being issued concurrently by Borrowers
        pursuant to the terms of (i) that certain Note Purchase Agreement, dated
        as of
        April 23, 2007, between the Borrowers, the Holder and others, and (ii) that
        certain Note Purchase Agreement, dated as of October 6, 2007, as amended
        (collectively, the “Purchase Agreements”). The “Issue Date” shall be the date
        that this Note is issued by the Borrowers to the initial Holder described
        herein
        as evidenced by the date indicated immediately above the signature block
        for the
        Borrowers. Capitalized terms used herein but not otherwise defined shall
        have
        the meaning assigned to those terms in the Purchase Agreements.

       

      The
        following terms shall apply to this Note:

       

      1. 
          Payment.
        

       

      1.1  Interest.
        Interest hereunder shall accrue from the Issue Date and is payable monthly
        in
        arrears on the last day of each month until the Maturity Date. During the
        occurrence and continuation of an Event of Default the interest rate shall
        be
        increased by two percent (2%) per annum commencing on the date when the Event
        of
        Default was declared by Holder, and the applicable payments shall be increased
        accordingly.

       

      1.2  Maturity
        Date.
        On the
        Maturity Date, the entire Face Amount and any accrued and unpaid interest
        shall
        be paid to the Holder without offset or deduction of any kind. The term
“Maturity Date” shall mean March 31, 2008.

       

      1.3  Prepayment.
        The
        Note may be prepaid at any time in whole or in part; provided, the Holder
        is
        given at least ten (10) days prior written notice thereof and an opportunity
        to
        convert all or any portion of the Face Amount hereof. If paid in part, such
        prepayment shall be applied first against the accrued but unpaid interest
        with
        the balance applied to the unpaid Face Amount.

       

      1.4  Miscellaneous
        Payment Terms.
        All
        payments of principal and interest in respect of this Note shall be made
        in
        lawful money of the United States of America in same day funds at the address
        of
        the Holder as provided in the Purchase Agreements, or to such other place
        as the
        Holder may direct. Whenever any payment on this Note shall be stated to be
        due
        on a day that is not a Business Day, such payment shall instead be made on
        the
        next succeeding Business Day, and such extension of time shall be included
        in
        the computation of interest payable on this Note. Each payment hereunder
        shall
        be credited first to interest then due and the remainder of such payment
        shall
        be credited to principal in inverse order of maturity.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      2. 
          Conversion
        Rights.
        

       

      2.1  Conversion
        into Parent’s Preferred Stock.
        The
        Holder shall have the right from and after the issuance of this Note and
        thereafter at any time until this Note is fully paid, to convert the Face
        Amount
        of this Note into fully paid and non-assessable shares of Class A-2 Convertible
        Preferred Stock of Parent (the “Class A-2 Preferred Stock”). as such stock
        exists on the date of issuance of this Note, or any shares of capital stock
        or
        other securities of Parent into which such stock shall hereafter be changed
        or
        reclassified, at the Conversion Price. Upon delivery to Parent of a Notice
        of
        Conversion, in the form of Exhibit A attached hereto (the date of giving
        of such
        notice of conversion being a “Conversion Date”), Borrowers shall issue and
        deliver to the Holder within three (3) business days from the Conversion
        Date
        that number of shares of Class A-2 Preferred Stock for the Face Amount of
        the
        Note converted in accordance with the foregoing together with all accrued
        and
        unpaid interest. Except as otherwise provided herein, the number of shares
        of
        Class A-2 Preferred Stock to be issued upon such conversion of this Note
        shall
        be determined by dividing that portion of the Face Amount of the Note to
        be
        converted, by the Conversion Price. Upon partial conversion of this Note,
        a new
        Note containing the same date and provisions of this Note shall, at the request
        of the Holder, be issued by the Borrowers to the Holder for the unpaid Face
        Amount of this Note which shall not have been converted or paid.

       

      2.2  Conversion
        Price.
        Subject
        to adjustment as provided elsewhere in this Section 2, the initial Conversion
        Price per share of Preferred Stock shall be $1.00.

       

      3. 
          Reservation
        of Stock Issuable Upon Conversion.
        Parent
        shall at all times reserve and keep available out of its authorized but unissued
        shares of Class A-2 Preferred Stock and Common Stock, as the case may be,
        solely
        for the purpose of effecting the conversion of the Notes such number of its
        shares of Class A-2 Preferred Stock and Common Stock as shall from time to
        time
        be sufficient to effect the conversion of the Notes and the conversion of
        the
        Class A-2 Preferred Stock; as the case may be, and if at any time the number
        of
        authorized but unissued shares of Class A-2 Preferred Stock or Common Stock
        shall not be sufficient to effect the conversion of the Notes, in addition
        to
        such other remedies as shall be available to the Holder of this Note, Parent
        will use its best efforts to take such corporate action as may, in the opinion
        of its counsel, be necessary to increase its authorized but unissued shares
        of
        Class A-2 Preferred Stock or Common Stock, as the case may be, to such number
        of
        shares as shall be sufficient for such purposes.

       

      4. 
          No
        Impairment.
        Parent
        will not, by amendment of its Articles of Incorporation or through any
        reorganization, transfer of assets, consolidation, merger, dissolution, issue
        or
        sale of securities or any other voluntary action, avoid or seek to avoid
        the
        observance or performance of any of the terms to be observed or performed
        hereunder by Parent, but will at all times in good faith assist in the carrying
        out of all the provisions of this Note and in the taking of all such action
        as
        may be necessary or appropriate in order to protect the conversion rights
        of the
        Holder against impairment.

       

      5. 
          Registration
        Rights.
        The
        Holder has been granted certain registration rights by Parent pursuant to
        the
        terms of that certain First Amended and Restated Registration Rights Agreement
        entered into by Parent, Holder and others dated as of the date hereof, as
        the
        same may be amended, modified and/or supplemented from time to
        time.

       

      6. 
          Security.
        This
        Note, and the other Notes issued pursuant to the Purchase Agreements, are
        secured pursuant to the terms of the Purchase Agreements.

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

      7. 
          Subordination.
        The
        indebtedness evidenced by this Note and the other Notes is hereby expressly
        subordinated, to the extent and in the manner hereinafter set forth, in right
        of
        payment to the prior payment in full of the Borrowers’ Senior Indebtedness, as
        hereinafter defined.

       

      7.1  Senior
        Indebtedness.
        As used
        in this Note, the term “Senior Indebtedness” shall mean and is solely limited
        to, the amount owed or owing by the Borrowers, or either of them, to (a)
        Laurus
        Master Funds, Ltd. to the extent provided in that certain Subordination
        Agreement, as amended, (b) St. Cloud Capital Partners L.P. pursuant to that
        certain Intercreditor and Subordination Agreement, as amended, and (c) Eddy
        Goldwasser to the extent provided in that certain Subordination Agreement,
        as
        amended.

       

      7.2  Effect
        of Subordination.
        The
        extent and effect of the subordination is set forth in the respective
        Subordination Agreements described in Section 5.1 above, which are incorporated
        herein by this reference.

       

      7.3  Undertaking.
        By its
        acceptance of this Note, the Holder agrees to execute and deliver such documents
        as may be reasonably requested from time to time by Parent or any lender
        of the
        Senior Indebtedness in order to implement the foregoing provisions of Section
        5.1 hereof.

       

      8. 
          Event
        of Default.

       

      8.1  Events
        of Default.
        The
        occurrence of any of the following events (“Event of Default”) shall, at the
        option of the Holders of Notes representing a majority of the unpaid Face
        Amounts thereof (collectively, the “Majority Holders”), cause the then unpaid
        Face Amount hereon and the Face Amount of all of the other Notes, and all
        other
        amounts payable hereunder or thereunder, immediately due and
        payable:

       

      (a)  The
        Borrowers fail to pay any installment of principal or interest under this
        Note
        or any of the Notes when due and such failure continues for a period of three
        (3) days after the due date.

       

      (b)  The
        occurrence of any “Event of Default” under the Purchase Agreements or any
        Ancillary Agreement.

       

      (c)  If
        the
        Borrowers or either of them shall file a petition in bankruptcy or for
        reorganization or for an arrangement or any composition, readjustment,
        liquidation, dissolution or similar relief pursuant to title 11 of the United
        States Code or under any similar present or future federal law or the law
        of any
        other jurisdiction or shall be adjudicated a bankrupt or become insolvent,
        or
        consent to the appointment of or taking possession by a receiver, liquidator,
        assignee, trustee, custodian, sequestrator (or other similar official) of
        the
        Borrowers or either of them or for all or any substantial part of the property
        of the Borrowers or either of them, or shall make an assignment for the benefit
        of its creditors, or shall admit in writing its inability to pay its debts
        generally as they become due, or shall take any corporate action, in furtherance
        of any of the foregoing; or

       

      (d)  If
        a
        petition or answer shall be filed proposing the adjudication of the Borrowers
        or
        either of them as a bankruptcy or its reorganization or arrangement or any
        composition, readjustment, liquidation, dissolution or similar relief with
        respect to it pursuant to title 11 of the United States Code or under any
        similar present or future federal law or the law of any other jurisdiction
        applicable to the Borrowers or either of them, and the Borrowers or either
        of
        them shall consent to or acquiesce in the filing thereof, or such petition
        or
        answer shall not be discharged or denied within 60 days after the filing
        thereof; or

       

      (e)  If
        a
        decree or order is rendered by a court having jurisdiction (i) for the
        appointment or a receiver or custodian or liquidator or trustee or sequestrator
        assignee (or similar official) in bankruptcy or insolvency of the Borrowers
        or
        either of them or of all or a substantial part of the their or its property,
        or
        for the winding up or liquidation of its affairs, and such decree or order
        shall
        have remained in force undischarged and unstayed for a period of sixty (60)
        days, or (ii) for the sequestration or attachment of any property of the
        Borrowers or either of them without its return to the possession of the
        Borrowers or either of them or its release from such sequestration or attachment
        within sixty (60) days thereafter; 

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

       

      (f)  Any
        Event
        of Default under any Senior Indebtedness, or other similar event thereunder
        which constitutes a breach or default that has not been cured, or requires
        any
        waiver, consent or approval that has not been obtained.

       

      8.2  Enforcement.
        Upon
        the occurrence of any Event of Default, the Majority Holders may thereupon
        proceed to protect and enforce the rights of the Holders either by suit in
        equity and/or by action at law or by other appropriate proceedings whether
        for
        the specific performance (to the extent permitted by law) of any covenant
        or
        agreement contained in this Note or in aid of the exercise of any power granted
        in this Note, and proceed to enforce the payment of the Notes and to enforce
        any
        other legal or equitable right of the Holders. In addition to any other remedies
        available to the Holders, if any Event of Default shall have occurred and
        be
        continuing:

       

      (a)  the
        Majority Holders may, by notice to Parent, declare the entire outstanding
        principal of the Notes, and all accrued and unpaid interest thereon, to be
        due
        and payable immediately, and upon any such declaration the entire outstanding
        principal of the Notes, and said accrued and unpaid interest shall become
        and be
        immediately due and payable, without presentment, demand, protest or other
        notice whatsoever, all of which are hereby expressly waived; and/or

       

      (b)  the
        Majority Holders may enforce their rights in aid of the exercise of any power
        granted in this Note or the Purchase Agreements.

       

      8.3  Conduct
        No Waiver; Collection Expenses.
        No
        course of dealing on the part of any Holder, nor any delay or failure on
        the
        part of any Holder to exercise any of its rights, shall operate as a waiver
        of
        such right or otherwise prejudice such Holder’s rights, powers and
        remedies.

       

      8.4  Remedies
        Cumulative.
        No
        right or remedy conferred upon or reserved to the Holder under this Note
        or the
        Purchase Agreements is intended to be exclusive or any other right or remedy,
        and every right and remedy shall be cumulative and in addition to every other
        right or remedy given hereunder or not or hereafter existing under any
        applicable law. Every right and remedy given by this Note or the Purchase
        Agreements or by applicable law to the Holder may be exercised from time
        to time
        and as often as may be deemed expedient by the Holder.

       

      9. 
          No
        Stockholder Rights.
        Nothing
        contained in this Note shall be construed as conferring upon the Holder or
        any
        other person the right to vote or to consent or to receive notice as a
        stockholder in respect of meetings of stockholders for the election of directors
        of Parent or any other matters or any rights whatsoever as a stockholder
        of
        Parent, except as provided in Section 11, until, and only to the extent that,
        this Note shall have been converted.

       

      10.  Assignment.
        Subject
        to the restrictions on transfer described elsewhere in this Note, the rights
        and
        obligations of the Borrowers and the Holder of this Note shall be binding
        upon
        and benefit their successors, assigns and transferees. With respect to any
        offer, sale or other disposition of this Note or securities into which such
        Note
        may be converted, the Holder will give written notice to the Borrowers prior
        thereto, describing briefly the manner thereof, together with a written opinion
        of such Holder’s counsel, to the effect that such offer, sale or other
        distribution may be effected without registration or qualification (under
        any
        federal or state law then in effect). Promptly upon receiving such written
        notice and reasonably satisfactory opinion, if so requested, the Borrowers,
        as
        promptly as practicable, shall notify such Holder that such Holder may sell
        or
        otherwise dispose of this Note or such securities, all in accordance with
        the
        terms of the notice delivered to Parent. If a determination has been made
        pursuant to this Section that the opinion of counsel for the Holder is not
        reasonably satisfactory to the Borrowers, the Borrowers shall so notify Holder
        promptly after such determination has been made. Each Note thus transferred
        and
        each certificate representing the securities thus transferred shall bear
        a
        legend as to the applicable restrictions on transferability in order to ensure
        compliance with the Act, unless in the opinion of counsel for the Borrowers
        such
        legend is not required in order to ensure compliance with the Securities
        Act of
        1933, as amended. The Borrowers may issue stop transfer instructions to its
        transfer agent in connection with such restrictions.

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

       

      11.  Waiver
        and Amendment.
        Any
        provision of this Note may be amended, waived or modified upon the written
        consent of the Borrowers and the Majority Holders, and such amendment, waiver
        or
        modification shall be binding on the Holder. Any amendment to the Certificate
        of
        Designation creating the Class A-2 Preferred Stock or waiver of any rights
        with
        respect to the Class A-2 Preferred Stock shall be approved by Parent and
        the
        Majority Holders.

       

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

       

      13.  Notices.
        Any
        notice herein required or permitted to be given shall be in writing and may
        be
        personally served or sent by fax transmission (with copy sent by certified
        or
        registered mail or by overnight courier). For the purposes hereof, the address
        and fax number of the Borrowers is 5711 Buckingham Parkway, Culver City,
        California 90230, facsimile (310) 258-1194. The Borrowers may change their
        address and fax number as provided in the Purchase Agreements.

       

      14.  Cost
        of Collection.
        If
        default is made in the payment of this Note, Borrowers, jointly and severally,
        shall pay the Holder hereof all reasonable costs of collection, including
        reasonable attorneys’ fees and costs.

       

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

       

      16.  Governing
        Law and Venue.
        This
        Note shall be governed by and interpreted in accordance with the laws of
        the
        State of California without regard to the principles of conflict of laws.
        In the
        event of any litigation regarding the interpretation or application of this
        Note, the parties irrevocably consent to jurisdiction in any of the state
        or
        federal courts located in the City of Los Angeles, State of California and
        waive
        their rights to object to venue in any such court, regardless of the convenience
        or inconvenience thereof to any party. Service of process in any civil action
        relating to or arising out of this Note may be accomplished in any manner
        provided by law. The Borrowers and Holder each agrees that a final,
        non-appealable judgment in any such suit or proceeding shall be conclusive
        and
        may be enforced in other jurisdictions by suit on such judgment or in any
        other
        lawful manner.

       

      IN
        WITNESS WHEREOF, the Borrowers have caused this Note to be signed in its
        respective names on this ____ day of April 2007.

       

       

      
        	 	 	 
	 	SMALL
                WORLD KIDS,
                INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
                

                Name:
                  Debra Fine

                Title:
                  Chief Executive Officer

              
	 	 

      

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      
         

        
          	 	 	 
	 	SMALL
                  WORLD KIDS,
                  INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
                  

                  Name:
                    Debra Fine

                  Title:
                    Chief Executive Officer

                
	 	 

        

         

        
          
             

          

          
            6

            
              

            

          

          
             

          

        

      

       

      NOTICE
        OF CONVERSION

       

      (To
        Be
        Signed Only Upon Conversion of Note)

       

      TO
        SMALL
        WORLD KIDS, INC.

       

      The
        undersigned, the holder of the foregoing Note, hereby surrenders such Note
        for
        conversion into ____________ shares of Class A-2 Preferred Stock of SMALL
        WORLD
        KIDS, INC., a Nevada corporation (the “Parent”), to the extent of $
        ____________________ unpaid Face Amount of such Note and $__________________
        unpaid interest on such unpaid Face Amount, and requests that the certificates
        for such securities be issued in the name of, and delivered to:
        __________________________________________, whose address is
        _____________________________________________________________________.

       

      The
        undersigned hereby confirms to Parent that the representations and warranties
        set forth in Section 3 of the Purchase Agreement are true, correct and accurate
        on and as of the date hereof and hereby makes and reaffirms that such
        representations and warranties to Parent on and as of the date
        hereof.

       

      Dated:                                                     

       

      
        	 	 
	 	(Signature must conform in all respects
                to
                name of holder as specified on the face of the Note)
	 	 
	 	 
	 	
                (Address)

              

      

       

      
        
           

        

        
          7

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