CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF
SERIES B PREFERRED STOCK
OF
JENKON INTERNATIONAL, INC.,
A DELAWARE CORPORATION
(Pursuant to Section 151 of the General Corporation Law of the
State of Delaware)
Jenkon International, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies that, pursuant to the authority contained in Article 4, Section 2 of
its Certificate of Incorporation, and in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware, its Board
of Directors has adopted the following resolution creating a series of its
Preferred Stock designated as Series B Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred Stock of
the Corporation be, and hereby is, created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating, optional
and other special rights of the shares of such series, and the qualifications,
limitations or restrictions thereof, are as follows:
BE IT RESOLVED, that pursuant to the authority vested in the
Board of Directors of the Corporation by the Certificate of
Incorporation, the Board of Directors does hereby provide for the issue
of a series of Preferred Stock, $.001 par value per share, of the
Corporation, to be designated "Series B Preferred Stock", consisting of
1,208,000 shares, and to the extent that the voting powers,
designations, preferences, limitations, restrictions and relative
rights of the Series B Preferred Stock are not stated and expressed in
the Certificate of Incorporation, does hereby fix and herein state and
express such voting powers, designations, preferences, limitations,
restrictions and relative rights as follows (all terms used herein
which are defined in the Certificate of Incorporation shall be deemed
to have the meanings provided therein):
1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series B Preferred Stock" and the number of shares
constituting such series shall be 1,208,000. Such number of shares may
be decreased by resolution of the Board of Directors; provided, that no
decrease shall reduce the number of shares of Series B Preferred Stock
to a number less than the number of shares of Series B Preferred Stock
then outstanding or reserved for issuance.
2. RANKING. The Series B Preferred Stock shall rank (i)
senior to the Common Stock, (ii) junior to the Series A Preferred
Stock, and (ii) equal to the Series C Preferred Stock of the
Corporation with respect to the payment of dividends, the
distribution of assets and upon liquidation or winding up of the
Corporation.
3. DIVIDENDS. So long as any shares of Series B Preferred
Stock are outstanding, the Corporation shall not, without the written
consent of the holders of a majority of the outstanding shares of
Series B Preferred Stock, (i) declare or pay a dividend on, (ii) make
any distribution to the holders of, or (iii) repurchase, redeem or make
provisions for the purchase or redemption (whether directly or through
a subsidiary) of any class or series of stock of the Corporation
ranking junior or equal to the Series B Preferred Stock (other than the
payment of dividends payable in securities of the Corporation which
shall be governed by the provisions of Section 4(e)(i) of this
Certificate of Designation).
4. CONVERSION RIGHTS AND LIMITATIONS. The holders of the
Series B Preferred Stock shall have the following conversion rights and
limitations:
(a) SUBJECT TO STOCKHOLDER APPROVAL. No shares of Series
B Preferred Stock shall be convertible into Common Stock of the
Corporation until the holders of a majority of the Common Stock
represented and entitled to vote at a meeting of stockholders at which
a quorum is present shall approve the right of the Series B Preferred
Stock to so convert ("Stockholder Approval").
(b) AUTOMATIC CONVERSION. Upon Stockholder Approval, the
shares of Series B Preferred Stock shall automatically convert into
fully-paid and nonassessable shares of Common Stock, with identical
designations, preferences and rights thereof.
(c) CONVERSION RATE. Each share of Series B Preferred
Stock shall be converted into ten (10) shares of Common Stock.
(d) MECHANICS OF CONVERSION. Upon Stockholder Approval,
each holder of Series B Preferred Stock shall surrender the
certificate or certificates therefor, duly endorsed, at the office of
the Corporation or of any transfer agent for the Common Stock.
Thereupon the Corporation shall promptly issue and deliver at such
office to such holder a certificate or certificates for the number of
shares of Common Stock to which such holder is entitled. Such
conversion shall be deemed to have been made immediately prior to the
close of business on the date of such surrender of the certificate
representing the shares to be converted, and the person entitled to
receive the shares of Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder of such shares of
Common Stock on such date (the "Conversion Date").
(e) ADJUSTMENTS IN CERTAIN CUSTOMARY EVENTS.
(i) STOCK DIVIDENDS. In the event the Corporation
shall make or issue, or fix a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other
distribution payable in securities of the
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Corporation, then and in each such event provision shall be made so
that the holders of the Series B Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the number of securities of the Corporation which
they would have received had their Series B Preferred Stock been
converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities receivable by
them as aforesaid during such period, giving application to all
adjustments called for during such period under this Section 4 with
respect to the rights of the holders of the Series B Preferred Stock.
(ii) RECAPITALIZATION OR RECLASSIFICATION. If the
Common Stock of the Corporation shall be changed into the same or
different number of shares of any class or classes of stock of the
Corporation, whether by recapitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend
provided for elsewhere in the Certificate of Incorporation or these
resolutions, or a reorganization, merger, consolidation or sale of
assets provided for elsewhere in the Certificate of Incorporation or
these resolutions), then and in each such event the holder of shares of
Series B Preferred Stock shall have the right thereafter to convert
such shares into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization,
reclassification or other change by holders of the number of shares of
Common Stock into which such shares of Series B Preferred Stock would
have been converted (taking into account all accrued and unpaid
dividends and interest with respect to such Series B Preferred Stock)
immediately prior to such reorganization, reclassification or change,
all subject to further adjustment as provided herein.
(iii) MERGER OR SALE OF ASSETS. If at any time or
from time to time there shall be a merger or consolidation of the
Corporation with or into another corporation (other than a merger which
does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares or Common Stock of the Corporation),
or the sale of all or substantially all of the Corporation's properties
and assets to any other person followed by a liquidation of the
Corporation, then, as a part of such transaction, provision shall be
made so that each holder of a share of Series B Preferred Stock then
outstanding shall have the right thereafter to convert such share only
into the kind and amount of securities, cash and other property of the
Corporation, or of the successor corporation resulting from such merger
or consolidation, receivable upon such consolidation, merger, sale or
transfer by a holder of the number of shares of Common Stock of the
Corporation into which such share of Series B Preferred Stock might
have been converted immediately prior to such consolidation, merger,
sale or transfer, assuming such holder of Common Stock of the
Corporation is not an entity with which the Corporation consolidated or
into which the Corporation merged or which merged into the Corporation
or to which such sale or transfer was made, as the case may be (a
"constituent entity"), or an affiliate of a constituent entity. If
necessary in any such case, appropriate adjustment shall be made in the
application of the
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provisions of this Section 4 with respect to the rights of the holders
of the Series B Preferred Stock after such transaction to the end that
the provisions of this Section 4 (including adjustment of the
Conversion Price then in effect and the number of shares issuable upon
conversion of the Series B Preferred Stock) shall be applicable after
that event in a manner corresponding as nearly as may be practicable in
relation to any shares of stock or other securities or property
thereafter deliverable on the conversion of the shares. The above
provisions shall similarly apply to successive consolidations, mergers,
sales or transfers.
(iv) SUBDIVISION AND COMBINATION. In the event that
the outstanding Common Stock shall be subdivided (by stock split or
otherwise), or combined or consolidated, by reclassification or
otherwise, into a different number of shares of Common Stock, the
number of shares of Common Stock into which a share of Series B
Preferred Stock may be converted shall be adjusted so that the holders
of the Series B Preferred Stock shall have the right to convert each
share of Series B Preferred Stock into the number of shares of Common
Stock which such holders would have received upon such subdivision or
combination if such holders had converted such shares into Common Stock
immediately prior to such subdivision or combination. Any such
adjustments shall become effective at the close of business on the
effective date of the subdivision or combination.
(v) CERTIFICATE AS TO ADJUSTMENTS. In each case of
an adjustment or readjustment of the number of shares of Common Stock
into which a share of Series B Preferred Stock may be converted, the
Corporation will furnish each holder of Series B Preferred Stock with
a certificate, executed by the President and Chief Financial Officer
of the Corporation showing such adjustment or readjustment, and
stating in detail the facts upon which such adjustment or readjustment
is based. The Corporation in any such instance may, and in every
instance upon the request of the holders of a majority of the Series B
Preferred Stock the Corporation will, cause its independent public
accountants to confirm the accuracy of such adjustment or readjustment.
Any adjustment so confirmed shall be for all purposes hereof
conclusively be deemed to be an appropriate adjustment.
(f) TRANSFER TAXES. The Corporation will pay any and all
documentary stamp or similar issue or transfer taxes payable in respect
of the issue or delivery of shares of Common Stock on conversions of
shares of Series B Preferred Stock pursuant hereto; provided, however,
that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issue or delivery of
shares of Common Stock in a name other than that of the holder of the
shares of Series B Preferred Stock to be converted and no such issue or
delivery shall be made unless and until the person requesting such
issue or delivery has paid to the Corporation the amount of any such
tax or has established, to the satisfaction of the Corporation, that
such tax has been paid.
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(g) SHARES TO BE VALIDLY ISSUED, ETC.. The Corporation
covenants that all shares of Common Stock which may be issued upon
conversions of shares of Series B Preferred Stock will upon issue be
duly and validly issued, fully paid and non-assessable, free of all
liens and charges and not subject to any preemptive rights.
(h) RESERVATION OF COMMON STOCK. 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 the Series B 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 the
Series B 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 the Series B Preferred
Stock, the Corporation shall 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.
5. REDEMPTION.
(a) REDEMPTION RIGHTS. Upon the occurrence of a
"Redemption Event" (as defined below), the shares of Series B Preferred
Stock shall be redeemable at the option of the holders thereof. The
redemption price of each share of Series B Preferred Stock shall be ten
dollars ($10) per share (the "Redemption Price"). The Redemption Price
shall increase at a rate of fifteen percent (15%) per year from and
after April 1, 2000. A holder of Series B Preferred Stock desiring to
redeem its shares shall provide written notice to the Corporation at
its principal office of setting forth the number of shares it wishes to
redeem. The Corporation shall pay the Redemption Price to a holder of
Series B Preferred Stock within five (5) business days after it
receives such written demand.
(b) REDEMPTION EVENT. For purposes hereof, a "Redemption
Event" shall be deemed to have occurred if:
(i) Stockholder Approval has not been granted on or
prior to March 31, 2000, or such later date as the holders of a
majority of the Series B Preferred Stock shall agree;
(ii) A receiver, liquidator or trustee of
the Corporation or of a substantial part of its properties shall be
appointed by court order and such order shall remain in effect for more
than fifteen (15) days, the Corporation shall be adjudicated bankrupt
or insolvent, a substantial party of the property of the Corporation
shall be sequestered by court order and such order shall remain in
effect for more than fifteen (15) days, or a petition to reorganize the
Corporation under any bankruptcy, reorganization or insolvency law
shall be filed against the Corporation and shall not be dismissed
within forty-five (45) days after such filing;
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(iii) The Corporation shall file a petition in
voluntary bankruptcy or request reorganization under any provision of
any bankruptcy, reorganization or insolvency law, or shall consent to
the filing of any petition against it under any such law; or
(iv) The Corporation shall make an assignment for
the benefit of its creditors, or admit in writing its inability to pay
its debts generally as they become due, or consent to the appointment
of a receiver, trustee or liquidator of the Corporation, or of all or
any substantial part of its properties.
6. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) LIQUIDATION PREFERENCE. In the event of any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary ("Liquidation"), occurring before the date of
Stockholder Approval, the holders of each share of Series B Preferred
Stock shall be entitled to receive out of the "Available Funds" (as
defined below), before any sums shall be paid or any assets distributed
among the holders of shares of Common Stock and any other class of
stock of the Corporation ranking junior to the Series B Preferred
Stock, an amount or value (such amount or value as described
immediately below is hereinafter called the "Series B Preference
Price") equal to $10.00 per share of Series B Preferred Stock (subject
to adjustment if the Series B Preferred Stock of the Corporation shall
be changed into a different number of shares, whether by
recapitalization, reclassification or otherwise, and then and in each
such event the holder of shares of Series B Preferred Stock shall have
the right thereafter to receive upon redemption such same amount
aggregately receivable immediately prior to reorganization,
reclassification or other change of the number of shares of Series B
Preferred Stock apportioned among the number of shares into which such
shares of Series B Preferred Stock are changed) plus in each case, any
and all declared but unpaid dividends on such shares. As used herein,
"Available Funds" shall mean the assets of the Corporation legally
available for distribution to holders of the Corporation's capital
stock, whether such assets are capital, surplus, or earnings. If the
Available Funds shall be insufficient to permit the payment in full to
all holders of the Series B Preferred Stock the full amounts (including
all dividends accrued and unpaid) to which they shall be entitled by
reason of such Liquidation of the Corporation, then there shall be paid
to the holders of the Series B Preferred Stock in connection with such
Liquidation of the Corporation, an amount equal to product derived by
multiplying the amount of Available Funds times a fraction, the
numerator of which shall be the full amount to which the holders of the
Series B Preferred Stock shall be entitled by reason of such
Liquidation of the Corporation and the denominator of which shall be
the total amount which would have been distributed by reason of such
Liquidation of the Corporation with respect to the Series B Preferred
Stock then outstanding had the Corporation possessed sufficient assets
to pay the maximum amount which the holders of all such stock would be
entitled to receive in connection with such Liquidation of the
Corporation.
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The voluntary sale, conveyance, lease, exchange or
transfer of all or substantially all the property or assets of the
Corporation, or the merger or consolidation of the Corporation into or
with any other corporation, or the merger of any other corporation into
the Corporation, or any purchase of all or substantially all of the
shares of any class or series of stock of the Corporation, shall not be
deemed to be a Liquidation of the Corporation for the purposes of this
Section 6, [so long as such transaction does not result in the issuance
or creation of any shares of Preferred Stock of the Corporation, or of
any successor, except any shares of Preferred Stock that rank junior
(as defined elsewhere in these resolutions) to the shares of Series B
Preferred Stock as to dividends and as to the distribution of assets
upon dissolution, liquidation or winding up; provided, however, if more
than 50% (by value as determined in good faith by the Board of
Directors) of the consideration received in a transaction by holders of
the Corporation's Common Stock in such transaction consists of cash,
notes payable in cash or Marketable Stock (as defined below), the
transaction will be deemed to be a Liquidation for purposes of this
Section. The phrase "all or substantially all" as used in this
definition in reference to a class of the Corporation's capital stock
means 66% or more of the aggregate outstanding amount. The phrase "all
or substantially all" as used in this definition in reference to the
property, business or assets of the Corporation shall mean assets of a
corporation as are quantitatively vital to the operations of the
Corporation and substantially affects the existence and purpose of the
Corporation. As used herein, the term "Marketable Stock" means the
Corporation's Common Stock or common stock of any corporation that is
the successor to all or substantially all of the business or assets of
the Corporation or of the ultimate parent of such successor, which is
(or will, upon distribution thereof, be) listed or quoted on the New
York Stock Exchange, the American Stock Exchange, or the Nasdaq
National Market or the Nasdaq Small Cap Market.]
The holder of any shares of Series B Preferred Stock
shall not be entitled to receive any payment of the full balance owed
for such shares under this Section 6 until such holder shall cause to
be delivered to the Corporation (i) the certificate(s) representing
such shares of Series B Preferred Stock (or an affidavit of lost
certificate and such other documentation or assurances as are required
by applicable law, in a form reasonably acceptable to the Corporation)
and (ii) transfer instrument(s) satisfactory to the Corporation and
sufficient to transfer such shares of Series B Preferred Stock to the
Corporation free of any adverse interest. No interest shall accrue on
any payment upon Liquidation after the due date thereof.
After the Series B Preference Price shall have been
paid in full to the holders of the Series B Preferred Stock, or funds
necessary for such payment shall have been set aside by the
Corporation in trust for the account of holders of the Series B
Preferred Stock and available for such payment, the remaining assets of
the Corporation available for distribution to stockholders shall be
distributed among the holders of Common Stock and any other class of
stock of the Corporation ranking junior to the Series B Preferred
Stock, and the holders of shares of the Series B
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Preferred Stock will not be entitled to any further participation in
any distribution of assets by the Corporation.
(b) PROPERTY. Whenever the distribution provided for
herein 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.
7. VOTING RIGHTS. Except as otherwise required by applicable
law, the Series B Preferred Stock shall have no voting rights.
8. NOTICES OF RECORD DATES. 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, or to
receive any other right, or any capital reorganization of the
Corporation, any reclassification or recapitalization of the
capital stock of the Corporation, any merger or consolidation of the
Corporation, or any transfer of all or substantially all of the
assets of the Corporation to any other corporation, or any other
entity or person, or any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, then and in each such
event the Corporation shall mail or cause to be mailed to each
holder of Series B Preferred Stock a notice specifying (i) the date
on which any such record is to be taken for the purpose of such
dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is
expected to become effective, (iii) the time, if any, that is to be
fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common
Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding up. Such notice shall be mailed at least 30
days prior to the date specified in such notice on which such action
is to be taken.
9. NO REISSUANCE OF THE SERIES B PREFERRED STOCK. No share or
shares of the Series B Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be
reissued. The Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of
shares of the Series B Preferred Stock accordingly.
10. NO SENIOR OR EQUAL SHARES. With the exception of the
Series C Preferred Stock, the Board of Directors of the Corporation
shall not, without the consent of the holders of a majority of the
outstanding Series B Preferred Stock, create any class or series of
equity security which is either senior or equal to the Series B
Preferred Stock with respect to rights upon Liquidation.
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11. AMENDMENT. If any shares of Series C Preferred Stock have
been issued and are outstanding, the rights, preferences and privileges
of the Series C Preferred Stock may not be changed, altered or amended
without the prior consent of the holders of (i) a majority of the
outstanding Series C Preferred Stock, and (ii) at least eight-five
percent (85%) of the outstanding Common Stock.
12. COMMON STOCK. All rights accruing to the outstanding
shares of the Corporation not expressly provided for to the contrary
herein shalt be vested in the Common Stock.
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IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Designation, Preferences and Rights of Series B Preferred Stock to be duly
executed by its President and Chief Executive Officer and attested to by its
Secretary on this ____ day of ____________, 1999.
JENKON INTERNATIONAL, INC.
By:________________________________
David Edwards, President and
Chief Executive Officer
Attest:
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______________, Acting Secretary
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