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JENKON INTERNATIONAL, INC.
7600 N.E. 41st Street, Suite 350
Vancouver, Washington 98662
(360) 256-4400
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 31, 2000
To the Stockholders of Jenkon International, Inc.:
You are cordially invited to attend a special meeting of
stockholders of Jenkon International, Inc., a Delaware corporation ("Jenkon"
or the "Company"), which will be held at the Embassy Suites Hotel, Eric
Hauser Room, 319 SW Pine Street, Portland, Oregon 97204, at 10:00 a.m.,
Pacific Daylight Time, on Wednesday, May 31, 2000, to consider and act upon
the following matters, all as more fully described in the accompanying Proxy
Statement which is incorporated herein by this reference:
1. To consider and vote upon a single, unified proposal described in
the accompanying Proxy Statement, which provides for:
(a) Approval of the automatic conversion of 1,208,000
outstanding shares of the Company's Series B Preferred Stock into an
aggregate of 12,080,000 shares of common stock of the Company ("Common
Stock") in accordance with the terms of the Certificate of Designation,
Preferences and Rights of Series B Preferred Stock of the Company
(the "Series B Certificate," a copy of which is attached as Appendix A
to the accompanying Proxy Statement);
(b) Approval of the automatic conversion of 1,208,000
outstanding shares of the Company's Series C Preferred Stock into an
aggregate of 12,080,000 shares of Common Stock in accordance with the
terms of the Certificate of Designation, Preferences and Rights of
Series C Preferred Stock of the Company (the "Series C Certificate," a
copy of which is attached as Appendix B to the accompanying Proxy
Statement); and
(c) Approval of (i) the automatic conversion of Convertible
Promissory Notes in an aggregate principal amount of $4.5 million (the
"Convertible Notes," the form of which is included as Appendix C to the
accompanying Proxy Statement) into an aggregate of 4,500,000 shares of
Common Stock, and (ii) the automatic conversion of all accrued but
unpaid interest on the Convertible Notes into shares of Common Stock at
a conversion rate equal to the last reported sale price of the
Company's Common Stock on the Nasdaq Small Cap Market on May 30, 2000;
2. To consider and vote upon a proposal to approve an amendment to the
Company's Certificate of Incorporation (the form of which is included as
Appendix D to the accompanying Proxy Statement), pursuant to which (i) the
authorized number of shares of Common Stock of the Company will be increased
from 20,000,000 to 50,000,000 shares, and (ii) the name of the Company will be
changed from Jenkon International, Inc. to Multimedia K.I.D., Inc.;
3. To consider and vote upon a proposal, described in the accompanying
Proxy Statement, which provides for approval of the sale of all of the
outstanding capital stock of Summit V, Inc. ("Summit V"), the Company's direct
sales software subsidiary, to JIA, Inc., a corporation affiliated with Daniel
Jensen, a founder and former director of the Company, and Robert Cavitt, a
former director of the Company and current officer of Summit V, pursuant to the
terms of a Stock Purchase Agreement, dated as of April 6, 2000 (a copy of which
is included as Appendix E to the accompanying Proxy Statement); and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record of the Company's Common Stock at the close of
business on May 5, 2000, the record date fixed by the Board of Directors, are
entitled to notice of, and to vote at, the meeting.
THOSE WHO CANNOT ATTEND ARE URGED TO SIGN, DATE, AND OTHERWISE COMPLETE
THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. ANY
STOCKHOLDER GIVING A PROXY HAS THE RIGHT TO REVOKE IT ANY TIME BEFORE IT IS
VOTED.
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BY ORDER OF THE BOARD OF DIRECTORS
Cliff DeGroot, Secretary
Vancouver, Washington
May __, 2000
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JENKON INTERNATIONAL, INC.
7600 N.E. 41st Street, Suite 350
Vancouver, Washington 98662
(360) 256-4400
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PROXY STATEMENT
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Approximate date proxy material first sent
to stockholders: [May 8, 2000]
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INTRODUCTION
This Proxy Statement (the "Proxy Statement") is being furnished to
stockholders of Jenkon International, Inc., a Delaware corporation ("Jenkon"
or the "Company"), in connection with the solicitation of proxies by the
Board of Directors of the Company (the "Board") from holders of record of the
Company's outstanding shares of Company common stock as of the close of
business on May 5, 2000 (the "Record Date") for use at the Special Meeting of
Stockholders of the Company (the "Meeting") to be held at the Embassy Suites
Hotel, Eric Hauser Room, 319 SW Pine Street, Portland, Oregon 97204, at 10:00
a.m., Pacific Daylight Time, on Wednesday, May 31, 2000, and at any
adjournment or postponement thereof. This Proxy Statement is first being
mailed to the Company's stockholders on approximately [May 8, 2000].
MATTERS FOR CONSIDERATION AT THE MEETING
At the Meeting, holders of shares of Company common stock will be asked
to consider and vote upon the following matters:
1. A single, unified proposal (the "Conversion Proposal") described in
this Proxy Statement, providing for:
(a) Approval of the automatic conversion of 1,208,000 outstanding
shares of the Company's Series B Preferred Stock into an aggregate of
12,080,000 shares of common stock of the Company ("Common Stock") in
accordance with the terms of the Certificate of Designation, Preferences
and Rights of Series B Preferred Stock of the Company (the "Series B
Certificate," a copy of which is included as Appendix A hereto);
(b) Approval of the automatic conversion of 1,208,000 outstanding
shares of the Company's Series C Preferred Stock into an aggregate of
12,080,000 shares of Common Stock in accordance with the terms of the
Certificate of Designation, Preferences and Rights of Series C Preferred
Stock of the Company (the "Series C Certificate," a copy of which is
included as Appendix B hereto); and
(c) Approval of (i) the automatic conversion of Convertible
Promissory Notes in an aggregate principal amount of $4.5 million (the
"Convertible Notes," the form of which is included as Appendix C hereto)
into an aggregate of 4,500,000 shares of Common Stock, and (ii) the
automatic conversion of all accrued but unpaid interest on the
Convertible Notes into shares of Common Stock at a conversion price
equal to the last reported sale price of the Company's Common Stock on
the Nasdaq Small Cap Market on May 30, 2000;
2. To consider and vote upon a proposal (the "Charter Amendment
Proposal") to approve an amendment to the Company's Certificate of Incorporation
(the form of which is included as Appendix D hereto), pursuant to which (i) the
authorized number of shares of Common Stock of the Company will be increased
from 20,000,000 to 50,000,000 shares, and (ii) the name of the Company will be
changed from Jenkon International, Inc. to Multimedia K.I.D., Inc.;
3. To consider and vote upon a proposal (the "Sale Proposal"), described
in this Proxy Statement, which provides for approval of the sale of all of the
outstanding capital stock of Summit V, Inc. ("Summit V"), the Company's direct
sales software subsidiary, to JIA, Inc., a corporation affiliated with Daniel
Jensen, a founder and former director of the Company, and Robert Cavitt, a
former director of the Company and current officer of Summit
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V, pursuant to the terms of a Stock Purchase Agreement (the "Purchase
Agreement"), dated as of April 6, 2000 (a copy of which is included as
Appendix E hereto); and
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE FOR EACH OF THE CONVERSION PROPOSAL, THE CHARTER AMENDMENT
PROPOSAL AND THE SALE PROPOSAL.
VOTING RIGHTS AND PROXY INFORMATION
Only holders of record of shares of Common Stock as of the close of
business on the Record Date will be entitled to notice of and to vote at the
Meeting or any adjournment or postponement thereof. Holders of shares of Common
Stock are entitled to one vote per share on any matter which may properly come
before the Meeting.
The presence, either in person or by properly executed proxy, of the
holders of a majority of the then outstanding shares of Common Stock is
necessary to constitute a quorum at the Meeting and to permit action to be taken
by the stockholders at such Meeting.
The Conversion Proposal requires the affirmative vote of a majority of
the shares of Common Stock present in person or represented by proxy at the
Meeting. Thus, stockholders who are not present, in person or by proxy, at the
Meeting will not affect the outcome of the vote on the Conversion Proposal but
will affect whether a quorum is present at the Meeting. Abstentions as to the
Conversion Proposal will have the same effect as votes against such proposal.
Each of the Charter Amendment Proposal and the Sale Proposal requires
the affirmative vote of the holders of at least a majority of the outstanding
shares of Common Stock. Thus, abstentions as to the Charter Amendment Proposal
and the Sale Proposal will have the same effect as votes against such proposal.
Shares represented by proxies that reflect abstentions or "broker
non-votes" (i.e., shares held by a broker or nominee which are represented at
the Meeting, but with respect to which such broker or nominee is not empowered
to vote on a particular proposal) will be counted as shares that are present and
entitled to vote for purposes of determining the presence of a quorum. Broker
non-votes, however, will be treated as not voted for purposes of determining
approval of the Conversion Proposal and will not be counted as votes for or
against such proposal.
Proxies duly executed and returned by stockholders and received by the
Company before the Meeting will be voted "FOR" the Reorganization Proposal and
"FOR" the Sale Proposal, unless a contrary choice is specified in the proxy.
Where a specification is indicated as provided in the proxy, the shares
represented by the proxy will be voted and cast in accordance with the
specification made. As to other matters, if any, to be voted upon, the persons
designated as proxies will take such actions as they, in their discretion, may
deem advisable. The persons named as proxies were selected by the Board and each
of them is an officer and/or director of the Company.
In the event that a quorum is not present at the time the Meeting is
convened, or if for any other reason the Company believes that additional time
should be allowed for the solicitation of proxies, the Company may adjourn the
Meeting with or without a vote of the stockholders. If the Company proposes to
adjourn the Meeting by a vote of the stockholders, the persons named in the
enclosed form of proxy will vote all shares of Common Stock for which they have
voting authority in favor of such adjournment.
Your execution of the enclosed proxy will not affect your right as a
stockholder to attend the Meeting and to vote in person. Any stockholder giving
a proxy has the right to revoke it at any time by either (a) filing with the
Secretary of the Company at or before the Meeting a written notice of revocation
bearing a later date than the proxy, (b) duly executing a subsequent proxy
relating to the same shares of the Common Stock and delivering it to the
Secretary of the Company at or before the Meeting, or (c) attending the Meeting
and voting in person (although attendance at the Meeting will not in and of
itself constitute a revocation of a proxy).
A form of proxy is being furnished herewith by the Company to each
stockholder, and, in each case, is solicited on behalf of the Board for use at
the Meeting. The Company will bear the cost of the solicitation. In addition to
solicitation by mail, the Company will request banks, brokers and other
custodian nominees and fiduciaries to supply proxy material to the beneficial
owners of the Common Stock of whom they have knowledge, and will
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reimburse them for their expenses in so doing; and certain directors, officers
and other employees of the Company, not specifically employed for the purpose,
may solicit proxies, without additional remuneration therefor, by personal
interview, mail, telephone, facsimile, or telegraph. In addition, the Company
has retained Corporate Investor Communications, Inc., 111 Commerce Road,
Carlstadt, New Jersey 07092 to assist in the solicitation for a fee of not more
than $10,000.
NO APPRAISAL RIGHTS
Stockholders of the Company will not be entitled to appraisal or
dissenter's rights under Delaware law in connection with the Conversion
Proposal, the Charter Amendment Proposal or the Sale Proposal.
ATTENDANCE OF ACCOUNTANTS
A representative of BDO Seidman LLP, the Company's principal accountants
(the "Auditor"), is expected to be present at the Meeting. The Auditor will have
the opportunity to make a statement with respect to the proposals contained in
this Proxy Statement if the Auditor desires to do so. The Auditor is expected to
be available to respond to appropriate stockholder questions, if any.
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THE CONVERSION PROPOSAL
SUMMARY OF THE CONVERSION PROPOSAL
The Conversion Proposal is a single, unified proposal consisting of (i)
approval of the conversion of the outstanding shares of Series B Preferred Stock
and Series C Preferred Stock (collectively, the "Preferred Stock") into shares
of Common Stock, and (ii) approval of the conversion of the outstanding
principal and interest on the Convertible Notes into shares of Common Stock,
each as described in more detail below. In order to effect the foregoing, the
following resolution will be offered by the Board of Directors at the Meeting:
"RESOLVED, That the holders of the Company's outstanding Common
Stock hereby authorize the conversion into Common Stock of (i)
the issued and outstanding shares of Series B Preferred Stock and
Series C Preferred Stock in accordance with the terms of the
Certificate of Designation, Preferences and Rights of Series B
Preferred Stock and Series C Preferred Stock, respectively, and
(ii) Convertible Promissory Notes in the original principal
amount of $4.5 million pursuant to the terms of such Notes, as
amended."
BACKGROUND; DESCRIPTION OF PREFERRED STOCK AND CONVERTIBLE NOTES
On December 16, 1999, the Company entered into a Stock Exchange
Agreement and Plan of Reorganization (the "Exchange Agreement") with Multimedia
K.I.D. - Intelligence in Education Ltd., ("MMKid"), an Israeli-based interactive
educational company, and the stockholders of MMKid pursuant to which the Company
acquired all of the outstanding capital stock of MMKid in exchange for the
following consideration: (i) 840,000 shares of Common Stock, (ii) 1,208,000
shares of Company Series B Preferred Stock, and (iii) 1,208,000 shares of
Company Series C Preferred Stock.
DESCRIPTION OF PREFERRED STOCK. The Company currently has 1,208,000
authorized shares of Series B Preferred Stock, all of which have been issued and
are currently outstanding, and 1,208,000 authorized shares of Series C Preferred
Stock, all of which have been issued and are currently outstanding. Except as
otherwise required by applicable law, the Preferred Stock currently has no
voting rights but shall be convertible into Common Stock as described in "The
Conversion Proposal -- Conversion of Preferred Stock" below.
Holders of the Preferred Stock are not entitled to any dividends. So
long as any shares of Preferred Stock are outstanding, the Corporation shall
not, without the written consent of a majority of the outstanding shares of
Series B Preferred Stock and Series C Preferred Stock, (i) declare or pay any
dividend on, (ii) make any distributions to the holders of, or (iii) repurchase,
redeem or make provision 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 Preferred Stock.
Holders of the Preferred Stock are entitled to a liquidation preference
equal to $10.00 per share, subject to customary adjustments. In the event that
the assets available for distribution upon a liquidation shall be insufficient
to pay the holders of the Preferred Stock the full amounts to which they are
entitled, the holders of the Preferred Shares shall share ratably in any
distribution. After payment of the liquidation preference, the holders of the
Common Stock shall be entitled to receive ratably any remaining assets or funds
of the Company remaining for distribution.
DESCRIPTION OF CONVERTIBLE NOTES. As a condition to closing the
acquisition of MMKid, the Company completed a private placement of $4.5 million
of Convertible Notes, the proceeds of which were allocated among Summit V, Inc.,
the Company's direct sales software subsidiary, and the operations of MMKid. The
Convertible Notes are not secured by any assets of the Company, bear interest at
an annual rate of 12% from and after January 1, 2000 and, unless converted into
Common Stock, were initially due and payable in full on or before April 1, 2000,
which date was later extended by all or substantially all of the holders of the
Convertible Notes to June 1, 2000. Accrued interest on the Convertible Notes was
payable in cash on February 1, 2000 and March 1, 2000, with any remaining
accrued but unpaid interest payable in additional shares of Common Stock at
maturity. See "The Conversion Proposal -- Conversion of Convertible Notes"
below.
REGISTRATION RIGHTS. Pursuant to the terms of the Exchange Agreement and
the terms by which the Convertible Notes were sold, the Company has agreed to
file (at least 15 days prior to the Meeting Date), at its own expense, a
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registration statement covering (i) all of the shares issuable upon conversion
of the Convertible Notes, and (ii) at least 8,750,000 of the shares of Common
Stock issuable upon conversion of the Preferred Stock.
In addition, the Company has granted the holders of the Preferred Stock
piggy back and demand registration rights with respect to any shares of Common
Stock not registered as described above. The demand registration rights shall be
exercisable at any time prior to June 13, 2000 (180 days following the
acquisition of MMKid). Piggy back rights will be exercisable commencing December
17, 2000. All shares registered pursuant to the exercise of these demand or
piggy back registration rights shall be subject to a one year lock-up
restriction which may be waived, in whole or in part, by a majority of
disinterested directors and which shall terminate (i) at any time after the
closing sales price of the Company's Common Stock exceeds $6.00 per share for 20
consecutive trading days, or (ii) at any time after the Company completes a
public offering of Common Stock for cash (other than upon exercise of
outstanding options or warrants). The registration rights of the Preferred
Stockholders shall terminate with respect to any shares that may be legally sold
by the holder in the public market without the volume limitations imposed by
Rule 144 of the Securities Act of 1933, as amended.
NASDAQ LISTING REQUIREMENTS. The Company currently has sufficient
authorized but unissued shares of Common Stock to effect the conversion of the
Convertible Notes and a portion of the Preferred Stock without obtaining
approval of the stockholders. However, the listing requirements of the Nasdaq
Stock Market, Inc. with respect to Nasdaq Small Cap Market companies such as the
Company require a listed company to obtain stockholder approval prior to any
issuance of its common stock which equals or exceeds 20% of its outstanding
common stock (or 20% or more of the Company's outstanding voting power). Since
the Company issued approximately 19% of its Common Stock in connection with the
acquisition of MMKid, the conversion of the Convertible Notes and/or the
Preferred Stock into Common Stock would cause the Company to exceed the 20%
threshold imposed by Nasdaq. Failure to comply with the Nasdaq listing
requirements could result in the delisting of the Company's Common Stock from
trading on the Nasdaq Small Cap Market.
CONVERSION OF PREFERRED STOCK.
Pursuant to the terms of the Series B Certificate and the Series C
Certificate, respectively, upon approval of conversion by holders of a majority
of the Common Stock represented and entitled to vote at a meeting of
stockholders, (i) the Series B Preferred Stock will automatically convert into
12,080,000 shares of Common Stock, and (ii) the Series C Preferred Stock will
have voting rights on an as-converted basis and will be convertible into an
aggregate of 12,080,000 shares of Common Stock at such time as the revenues of
MMKid (as a stand alone entity) shall exceed $1,700,000 for any 12 month period
(including months prior to December 16, 1999). The $1.7 million 12 month revenue
target has been satisfied by MMKid.
Accordingly, in the event stockholder approval of the Conversion
Proposal is obtained, all outstanding shares of the Preferred Stock will
automatically be converted into an aggregate of 24,160,000 shares of Common
Stock. The shares issued upon conversion of the Preferred Stock would represent
approximately 71% of the issued and outstanding shares of Common Stock (assuming
the simultaneous conversion of the Convertible Notes into Common Stock). See
"Conversion of Convertible Notes."
Pursuant to the terms of the Series B Certificate and the Series C
Certificate, in the event that stockholder approval of the grant of conversion
rights to the Series B and Series C Preferred Stock is not obtained on or prior
to March 31, 2000 or such later date as the holders of a majority of the
respective series shall agree (the "Stockholder Approval Date"), the shares of
Series B and Series C Preferred Stock, respectively, will be redeemable at the
option of the holders thereof at a redemption price equal to $10 per share (the
"Redemption Price"). In March 2000, the Company obtained the written consent of
a majority of the holders of the Series B Preferred Stock and Series C Preferred
Stock to an extension of the Stockholder Approval Date to May 31, 2000.
The Redemption Price increases at a rate of 15% per annum from and after
April 1, 2000. As of the date of the Meeting, the Redemption Price per share
will be $10.25 per share for an aggregate Redemption Price for all shares of
Preferred Stock of $24,764,000. In the event that the Conversion Proposal is not
approved and some or all of the holders of Preferred Stock exercise their
redemption rights, it is highly unlikely that the Company will have or be able
to raise sufficient funds to meet its redemption obligations. See "Conversion of
Convertible Notes" and "Board Recommendation."
CONVERSION OF CONVERTIBLE NOTES.
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Pursuant to the terms of the Convertible Notes, the Board of
Directors of the Corporation agreed to call a meeting in which the
stockholders would be asked to approve the issuance of shares of Common Stock
upon conversion of the Convertible Notes. Section 2 of the Convertible Notes
provides that, upon stockholder approval of the issuance of shares upon
conversion, the Convertible Notes would be automatically converted into
shares of Common Stock at a conversion price of $1.00 per share. In addition,
holders of all or substantially all of the Convertible Notes have agreed that
any accrued but unpaid interest on the Notes will convert into shares of
Common Stock at a conversion rate equal to the last reported sale price of
the Company's common stock on the Nasdaq Small Cap Market on May 30, 2000. On
the date of the Meeting, there will be approximately $138,000 of accrued but
unpaid interest on the Convertible Notes that will be converted into shares
of Common Stock.
Accordingly, in the event stockholder approval of the Conversion
Proposal is obtained, all or substantially all of the Convertible Notes will be
converted into outstanding shares of the Preferred Stock which will
automatically be converted into an aggregate of 4,500,000 shares of Common Stock
plus such additional number of shares equal to the amount of accrued and
outstanding interest (approximately $138,000) divided by the last reported sale
price of the Company's Common Stock on May 30, 2000. Upon conversion, former
holders of Convertible Notes would own approximately 13% of the issued and
outstanding shares of Common Stock (assuming the simultaneous conversion of the
Preferred Stock into Common Stock). See "Conversion of Preferred Stock."
In the event that approval of the Conversion Proposal is not obtained on
or prior to May 31, 2000, the Convertible Notes will be due and payable in full
upon written notice of default by the respective holders thereof. In the event
that the Company receives notice of default from holders of a significant
portion of the Convertible Notes, it is unlikely that the Company will have or
be able to raise sufficient funds to meet its payment obligations under the
Convertible Notes.
ADDITIONAL CONSIDERATIONS.
FUTURE SALES OF RESTRICTED SHARES COULD ADVERSELY AFFECT PRICE OF
COMMON STOCK AND LIMIT THE COMPANY'S ABILITY TO COMPLETE ADDITIONAL
FINANCING. Sales of a substantial number of shares of Common Stock into the
public market in the future could materially adversely affect the prevailing
market price for the Company's Common Stock. Upon approval of the Conversion
Proposal and the Charter Amendment Proposal, the Company will issue
approximately 29,000,000 shares of Common Stock, a portion of which will be
registered for resale and a portion of which will become eligible for resale
pursuant to Rule 144 one year following the date of issuance. Such a large
"over-hang" of stock eligible for sale in the public market may have the
effect of (i) depressing the price of the Company's Common Stock, and (ii)
making it difficult or impossible for the Company to obtain additional debt
or equity financing.
STOCKHOLDERS WILL EXPERIENCE SIGNIFICANT DILUTION UPON CONVERSION OF
PREFERRED STOCK AND CONVERTIBLE PROMISSORY NOTES. Upon approval of the
Conversion Proposal and the Charter Amendment Proposal, the Company will
issue approximately 29,000,000 additional shares of its Common Stock. The
holders of Common Stock will experience significant dilution both in terms of
ownership percentage and in terms of net tangible book value per share as a
result of such conversion.
INTERESTS OF CERTAIN PERSONS IN CONVERSION PROPOSAL; CHANGE OF CONTROL.
In connection with the acquisition of MMKid by the Company pursuant to
the terms of the Exchange Agreement, the former stockholders of MMKid acquired
an aggregate of 840,000 shares of Common Stock as well as the outstanding shares
of Preferred Stock. The Preferred Stock does not currently have any voting
rights. However, approval of the Conversion Proposal (and the Charter Amendment
Proposal) will result in the former MMKid stockholders acquiring a substantial
majority (approximately 73%) of the outstanding Common Stock of the Company. As
a result, upon approval of the Conversion Proposal (and the Charter Amendment
Proposal), the former MMKid stockholders will have sufficient voting power to
control the Board of Directors of the Company as well as any matters for which a
vote of stockholders is required under applicable law.
Pessie Goldenberg, a director of the Company and an executive officer of
MMKid, currently owns approximately 234,418 shares of Common Stock and 267,349
shares of Series B Preferred Stock and 267,349 shares of Series C Preferred
Stock. As a result, in the event the stockholders approve the Conversion
Proposal and the Charter Amendment Proposal, Mr. Goldenberg will own 5,581,398
shares of Common Stock, representing approximately 16% of the Company's issued
and outstanding Common Stock.
EFFECT OF THE CONVERSION PROPOSAL ON STOCK OPTIONS
Upon approval of the Conversion Proposal, pursuant to the terms of those
stock options granted under the Company's Stock Option Plan, each outstanding
option will become fully vested. As of April 30, 2000, there were 443,382
outstanding options having exercise prices ranging from $0.01 to $3.83 and a
weighted average exercise price of $1.91 per share. See "The Sale Proposal
Effect of the Sale Proposal on Stock Options."
VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock present
in person or represented by proxy at the Meeting is required to approve the
Conversion Proposal. However, because the Company does not currently have a
sufficient number of authorized shares of Common Stock in order to effect all of
the conversions contemplated by the Conversion Proposal, approval of the Charter
Amendment Proposal (described elsewhere in this Proxy Statement) will be
required in order to fully implement the Conversion Proposal.
In the event that approval of the Conversion Proposal is obtained but
approval of the Charter Amendment Proposal is not, the Board may elect to
convert such portion of the Preferred Stock and Convertible Notes as the
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Company has sufficient authorized shares to convert. In such event, assuming
that the holders of the Preferred Stock do not exercise their redemption
rights, the Company may attempt to obtain approval of the Charter Amendment
Proposal in a separate meeting of stockholders after giving effect to the
partial conversion.
BOARD RECOMMENDATION
The Board of Directors unanimously believes that approval of the
Conversion Proposal is in the best interests of the Company for a variety of
reasons. Such belief is based in part upon the adverse consequences to the
Company that will result from a failure to approve such conversion. In the event
that stockholder approval of the Conversion Proposal is not obtained, (i) it is
unlikely that the Company will have sufficient capital resources in order to
repay its obligations under the Convertible Notes, and (ii) it is highly
unlikely that the Company would have sufficient capital resources to redeem
shares of Preferred Stock upon any exercise of redemption rights by the holders
thereof. Accordingly, if the Conversion Proposal is not approved, the Company
will be required to immediately locate an alternate source of financing to meet
its obligations under the Convertible Notes and any redemption obligations it
may have with respect to the Preferred Stock and/or to fund its operations if
available operating funds are used to meet the Company's obligations to the
holders of the Convertible Notes or Preferred Stock. There can be no assurance
that the Company will be able to obtain such financing at all or on terms that
are favorable to the Company. The Company's failure to obtain sufficient
financing within the requisite time frame will likely result in the delisting of
the Company's securities from trading on the Nasdaq Small Cap Market and could
make it impossible for the Company to continue operations and/or force the
Company to seek protection under federal bankruptcy law.
In addition, the Board believes that the cancellation of the Convertible
Notes and conversion of the Convertible Notes and Preferred Stock into Common
Stock that will result from approval of the Conversion Proposal (and the Charter
Amendment Proposal) is in the best interests of the Company since the
elimination of indebtedness and the potential Preferred Stock redemption
obligations increases the likelihood that the Company will be able to attract
additional equity or debt financing should additional capital be required in the
future. However, even if the Conversion Proposal (and the Charter Amendment
Proposal) is approved, there can be no assurance that additional sources of
capital will be available to the Company on favorable terms, or at all, if and
when needed.
FOR THE REASONS DESCRIBED ABOVE AND ELSEWHERE IN THIS PROXY STATEMENT,
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE CONVERSION PROPOSAL.
SHARES REPRESENTED BY THE PROXIES WILL BE VOTED FOR THE PROPOSAL UNLESS A VOTE
AGAINST THE PROPOSAL OR AN ABSTENTION IS SPECIFICALLY INDICATED ON THE PROXY
CARD.
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THE CHARTER AMENDMENT PROPOSAL
SUMMARY
The Board of Directors of the Company has unanimously adopted, and
believes that it would be in the best interest of the Company and its
stockholders if the stockholders approve the Charter Amendment Proposal, which
would (i) amend the Certificate of Incorporation of the Company to increase the
number of authorized shares of Common Stock of the Company from 20,000,000
shares to 50,000,000 shares, and (ii) change the Company's name to Multimedia
K.I.D., Inc. The full text of the proposed amendment to the Company's
Certificate of Incorporation is set forth in Appendix D attached to this Proxy
Statement.
BACKGROUND
Pursuant to the terms of the Exchange Agreement, the Company has agreed
to amend its Certificate of Incorporation to increase the number of authorized
shares of Common Stock in order to facilitate the conversion of the Convertible
Notes and Preferred Stock into Common Stock as described above under "The
Conversion Proposal."
As noted in "The Conversion Proposal" above, the Company does not
currently have a sufficient number of authorized shares to permit the conversion
of all outstanding Series B and Series C Preferred Stock and the Convertible
Notes into Common Stock in accordance with their respective terms. The Amended
Certificate will allow for the issuance of Common Stock in connection with the
conversion of outstanding Series B and Series C Preferred Stock and Convertible
Notes to Common Stock.
Additionally, because the Company (i) has elected to sell its direct
sales software operations that have operated under or been associated with the
name Jenkon International, Inc. (see "The Sale Proposal" below), and (ii) the
Company intends to focus its future resources and energies into developing and
expanding the operations of MMKid, the Board of Directors has proposed to amend
the Company's Certificate of Incorporation to change the name of the Company
from "Jenkon International, Inc." to "Multimedia K.I.D., Inc."
If the Charter Amendment Proposal is approved, the increased number of
authorized shares of Common Stock resulting from the adoption of the amendment
to the Certificate of Incorporation of the Company will be available for
issuance of shares upon conversion of the Preferred Stock and Convertible Notes,
exercise of outstanding options and warrants, and for issuances from time to
time for such purposes and consideration as the Board may approve, and no
further vote of the stockholders of the Company will be required for such
issuances, except as provided under Delaware law, the rules of any national
securities exchange on which the Common Stock is listed at such time or the
rules of the Nasdaq Stock Market, Inc., if applicable.
INTERESTS OF CERTAIN PERSONS IN THE CHARTER AMENDMENT PROPOSAL
See "The Conversion Proposal -- Interests of Certain Persons in the
Conversion Proposal" above for a discussion of the interest of the former
stockholders of MMKid, including Pessie Goldenberg, a director of the Company
and executive officer of MMKid, in the Conversion Proposal. The identified
interest of such persons in the Conversion Proposal are identical to their
respective interest in the Charter Amendment Proposal.
VOTE REQUIRED
The Charter Amendment Proposal requires the affirmative vote of the
holders of at least a majority of the outstanding shares of Common Stock.
Stockholder approval of the Charter Amendment Proposal is also a necessary
condition to implementation of the Conversion Proposal. Because the Company does
not currently have a sufficient number of authorized shares of Common Stock in
order to effect the conversions contemplated by the Conversion Proposal,
approval of the Charter Amendment Proposal will be required in order to fully
implement the Conversion Proposal. However, in the event that approval of the
Conversion Proposal is obtained but approval of the Charter Amendment Proposal
is not, the Board may elect to convert such portion of the Preferred Stock and
Convertible Notes as the Company has sufficient authorized shares to convert. In
such event, assuming that the holders of the Preferred Stock do not exercise
their redemption rights, the Company may attempt to obtain approval of the
Charter Amendment Proposal in a separate meeting of stockholders after giving
effect to the partial conversion.
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BOARD RECOMMENDATION
The Board of Directors unanimously believes that approval of the Charter
Amendment Proposal is in the best interests of the Company. Because of the need
for approval of the Charter Amendment Proposal in order to completely effect the
conversions contemplated by the Conversion Proposal, the reasons for the Board's
recommendation with respect to the Charter Amendment Proposal are substantially
the same as those set forth above under "The Conversion Proposal -- Board
Recommendation." In addition, the Board believes that the availability of
additional shares of Common Stock for issuance without the delay and expense of
obtaining the approval of stockholders at a special meeting will afford the
Company greater flexibility in acting upon proposed transactions or financings
involving the issuance or sale of Common Stock or securities convertible into
Common Stock in the future. Finally, the Company believes that the proposed name
change contemplated by the Charter Amendment Proposal is in the best interests
of the Company since it is more descriptive of the Company's business and
strategy to focus on the development of MMKid's business and its decision to
discontinue (whether through the sale of Summit V or otherwise) its direct sales
software business.
FOR THE REASONS DESCRIBED ABOVE AND ELSEWHERE IN THIS PROXY STATEMENT,
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE CHARTER AMENDMENT
PROPOSAL. SHARES REPRESENTED BY THE PROXIES WILL BE VOTED FOR THE PROPOSAL
UNLESS A VOTE AGAINST THE PROPOSAL OR AN ABSTENTION IS SPECIFICALLY INDICATED ON
THE PROXY CARD.
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THE SALE PROPOSAL
SUMMARY
The Board has unanimously adopted, and believes that it would be in the
best interest of the Company and its stockholders if the stockholders approve,
the Sale Proposal, which would authorize the Company to sell its direct sales
software operations through the sale of its subsidiary Summit V to JIA, Inc., a
corporation affiliated with Daniel Jensen, a founder and former director of the
Company, and Robert Cavitt, a former director of the Company and current officer
of Summit V, pursuant to the terms of the Purchase Agreement.
In order to effect the Sale Proposal, the following resolution will be
offered by the Board at the Meeting:
"RESOLVED, that the holders of the Company's outstanding Common
Stock hereby ratify and approve the sale of the Company's Summit
V, Inc. subsidiary to JIA, Inc., an affiliate of Dan Jensen and
Robert Cavitt, in accordance with the terms of the Stock Purchase
Agreement, dated as of April 6, 2000, by and among JIA, Inc., the
Company, Summit V, Inc., and Jenkon International, Inc., a
Washington corporation and wholly-owned subsidiary of the
Company."
The complete terms of the proposed sale of Summit V are contained in the
Stock Purchase Agreement (the "Purchase Agreement") attached to this Proxy
Statement as Exhibit E. The summary of the Sale Proposal is qualified in its
entirety by the terms of the Purchase Agreement.
BACKGROUND
On December 16, 1999, the Company acquired all of the outstanding
capital stock of MMKid. See "The Conversion Proposal -- Background; Description
of Preferred Stock and Convertible Notes." MMKid is an Israeli corporation
engaged in the design, manufacture and sale of numerous innovative software and
activity systems that together create virtual interactive learning centers for
children and adults. MMKid has over 100 software titles covering content as
diverse as science, nature, math, music, language, art, technology,
transportation, as well as every day environments such as the home and
workplace. The educational systems are designed to promote creativity,
imagination, listening, reading, writing, cognitive and motor skills through a
full range of media which touches on different senses and emotions. In 1998,
MMKid was awarded the Computer Software Award from the Office of the Prime
Minister of Israel for the category of "Special Innovation and Invention in
Education."
Prior to the acquisition of MMKid, the Company was engaged in the
development, marketing and sale of software solutions for the direct sales
industry. The Company's direct sales operations were handled through Summit V, a
wholly-owned operating subsidiary of the Company. In February 2000, in light of
Summit V's continuing losses and ongoing development costs, the Company's
limited capital resources, and the Board's belief that the Company and its
stockholders would be better served by focusing on the development of the
business of MMKid, the Company decided to discontinue its direct sales software
operations. The Board determined that the original intention to have two
separate operating companies, Summit V and MMKid, was not ultimately in the best
interests of the Company's shareholders due to the confusing picture presented
by the two companies' respective business models and the difficulty of
integrating management of the two separate businesses. At such time, the Board
also decided that the discontinuation or sale of Summit V's business would free
the remaining business from the significant product development expenses of the
Summit V operations, thereby enabling the management of MMKid to focus its
limited capital resources on the development and marketing of its educational
products through MMKid.
In response to the Board's decision to discontinue Summit V's direct
sales software operations, a management group led by Dan Jensen, a founder of
the Company, and Robert Cavitt entered discussions with the Board regarding
the possible purchase of Summit V. At the time, Mr. Cavitt was the President
and a director of the Company and Mr. Jensen was a director and significant
stockholder.
On March 15, 2000, the Company entered into a preliminary Stock Purchase
Agreement to sell Summit V to JIA, Inc., a Washington corporation ("JIA"), a
corporation affiliated with and controlled by Robert Cavitt and Daniel Jensen.
At such time, the parties also entered into a Management Agreement whereby the
Company and Summit V appointed JIA to supervise and direct the day-to-day
operations of Summit V in the period between execution of the
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purchase agreement and the closing of the transactions contemplated thereby.
See "Terms of Agreements -- Management Agreement." At such time, Robert
Cavitt and Daniel Jensen resigned from their respective positions as officers
and/or directors of the Company, with Cavitt remaining as President of Summit
V during the transition period between execution of the Purchase Agreement
and the Closing.
Immediately following the execution of the March 15, 2000 draft of the
Stock Purchase Agreement, it became clear that certain material terms of the
proposed transaction had not been adequately addressed. Accordingly, the March
15, 2000 Stock Purchase Agreement was canceled and the parties entered into
additional discussions regarding the terms of the proposed sale. On April 6,
2000, the parties entered into a new definitive Stock Purchase Agreement (the
"Purchase Agreement"), a copy of which is attached to this Proxy Statement as
Appendix E.
The sale of Summit V is subject to many contingencies, including
stockholder approval and other events that are outside the Company's control.
There can be no assurance that the sale of Summit V will be consummated. In the
event that the Sale Proposal is not approved and the sale of Summit V is not
completed, the Company's financial condition would be materially and adversely
affected.
TERMS OF AGREEMENTS
The following summarizes the material terms of the proposed sale of
Summit V. The following discussion is qualified in its entirety by the copies of
the Purchase Agreement and Management Agreement filed as appendices to this
Proxy Statement.
STOCK PURCHASE AGREEMENT. The Company has entered into a Stock Purchase
Agreement dated April 6, 2000 (the "Purchase Agreement"), by and among JIA,
Summit V, the Company and Jenkon International, Inc., a Washington corporation
and wholly-owned subsidiary of the Company.
Pursuant to the terms of the Purchase Agreement, JIA agreed to purchase
100% of the outstanding shares of Summit V (the "Shares"), for an aggregate
purchase price of $1,175,000 (the "Purchase Price"). The Purchase Price is
payable as follows: (i) $500,000 in cash upon the closing of the sale of Summit
V stock (the "Closing"), and (ii) $675,000 by delivery of a Promissory Note of
JIA bearing interest at the rate of 10% per annum payable quarterly in arrears
(the "Note"), with all principal and interest due and payable one year from the
date of Closing (the "Closing Date"), which Note shall be secured by a pledge of
75,000 shares of Company common stock held by stockholders or affiliates of JIA.
The Closing shall occur two days following stockholder approval of the
sale, or such other time following Company stockholder approval as the parties
shall agree. The Purchase Agreement contains limited but customary
representations, warranties and covenants of each of the parties, as well as
customary conditions precedent to Closing. As such, any party's failure to
comply with a condition precedent to Closing may jeopardize or prevent the
Closing's occurrence, even if stockholder approval of the Sale Proposal has been
obtained.
For example, the Closing may not be consummated if any of the
representations and warranties made by any party in the Purchase Agreement are
inaccurate as of the date of the Purchase Agreement and as of the Closing Date
or if a party fails to perform all of its obligations as set forth in the
Purchase Agreement. The Purchase Agreement requires deliveries of numerous
customary documents, including legal opinions, required third party consents,
approvals and certificates. Additional conditions to closing include: (i) the
execution of a two-year noncompetition agreement by David Edwards stating that
he will not compete with Summit V or JIA; (ii) the execution of releases by
certain current and former officers and/or directors releasing JIA, Summit V,
the Company and their respective affiliates from and against any liability for
loans, compensation and other claims relating to or arising prior to the Closing
Date, other than claims arising out of the Purchase Agreement; (iii)
consummation of the transactions contemplated by the Purchase Agreement not
violating any law or regulation to which any party is subject; (iv) no material
adverse change in the business, operations or prospects of Summit V occurring
between the date of the Purchase Agreement and the Closing Date; and (v) there
being no legal proceedings, pending or threatened, that would prevent the
Closing. The failure of any of these required deliveries to be made could
jeopardize the ability of the Company to complete the sale of Summit V.
Pursuant to Article 9 of the Purchase Agreement, the Purchase Agreement
may be terminated by mutual written consent of the parties, or by any party upon
breach of another party's representations, warranties or agreements. The
Purchase Agreement also permits a party to terminate the Purchase Agreement if
any law or
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regulation will make consummation of the transactions illegal or otherwise
prohibited. In addition, JIA may terminate the Purchase Agreement if the
Company's Board withdraws or modifies its approval or recommendation of the
Sale Proposal or the Purchase Agreement. Furthermore, either the Company or
JIA may terminate the Purchase Agreement for either a failure to obtain
stockholder approval, a failure to close by June 30, 2000, or a determination
by the Board that a failure to withdraw from or modify the Purchase Agreement
would create a substantial risk of liability for breach of its fiduciary
duties to the Company's stockholders under Delaware law.
If the Purchase Agreement is terminated the Company may, in certain
circumstances, be required to pay a termination fee of $200,000 plus all
expenses of JIA incurred in connection with the Purchase Agreement. Such fee
will be payable if the Purchase Agreement is terminated: (i) by any party for
failure to obtain stockholder approval at the Company's stockholders meeting and
at or prior to such meeting a "Takeover Proposal" (as defined below) shall have
been publicly announced; (ii) by JIA upon a determination by the Company's Board
that a failure to withdraw from or modify the Purchase Agreement would create a
substantial risk of liability for breach of its fiduciary duties to the
Company's stockholders under Delaware law; (iii) by JIA upon the Company's
Board's (A) withdrawal or modification of its approval or recommendation of the
Sale Proposal or the Purchase Agreement, (B) failure to reconfirm its
recommendation after a written request to do so or its approval or
recommendation of any Takeover Proposal, or (C) resolution to take any of the
foregoing actions; or (iv) by JIA in the event of a willful and material breach
of a covenant or agreement by the Company.
A "Takeover Proposal" means any proposal or offer from any person
relating to any direct or indirect acquisition or purchase of a substantial
amount of assets of the Company or at least 20% interest in the total voting
securities of the Company or any tender offer or exchange offer that if
consummated would result in any person beneficially owning 20% or more of any
class of equity securities of the Company or any merger, consolidation, business
combination, sale of substantially all assets, recapitalization, liquidation,
dissolution or similar transaction involving the Company, other than the
transactions contemplated by the Purchase Agreement.
In addition, if the Purchase Agreement is terminated and, within 12
months following such termination, the Company enters into a "Company
Acquisition," the Company will be required to pay the $200,000 termination fee
and costs described above.
A "Company Acquisition" includes any transaction or series of related
transactions involving (i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company pursuant to which the stockholders of the Company immediately preceding
such transaction or series of related transactions hold less than 60% of the
equity interests in the surviving or resulting entity of such transaction or
transactions (other than the transactions contemplated by this Agreement); (ii)
a sale by the Company of assets (excluding inventory and used equipment sold in
the ordinary course of business) representing in excess of 40% of the fair
market value of the Company's business immediately prior to such sale; or (iii)
the acquisition by any person or group (including without limitation by way of a
tender offer or an exchange offer or issuance by the Company), directly or
indirectly, of beneficial ownership or a right to acquire beneficial ownership
of 40% or more of the then outstanding shares of capital stock of the Company.
Furthermore, in addition to any termination fee payable as described
above, the Company will be required to pay JIA an additional termination fee
equal to $100,000 if the Purchase Agreement is terminated by JIA based upon
either (i) failure by the Company to obtain Company stockholder approval of the
Sale Proposal, (ii) a determination by the Company's Board that a failure to
withdraw from or modify the Purchase Agreement would create a substantial risk
of liability for breach of its fiduciary duties to the Company's stockholders
under Delaware law, or (iii) the Company's Board's withdrawal or modification of
its approval or recommendation of the proposed sale to JIA.
The Company may not have sufficient capital resources to pay any
termination fees or costs in the event that such payments are due.
MANAGEMENT AGREEMENT. In connection with the Purchase Agreement, in
March 2000 the Company entered into a Management Agreement (the "Management
Agreement"), by and among the Company, Jenkon International, Inc., a Washington
corporation, Summit V and JIA, which provides for management and operations of
Summit V's business by JIA during the period from March 15, 2000 to the closing
of the sale of Summit V or termination of the Purchase Agreement (the "Interim
Period"). The Management Agreement is attached to this Proxy Statement as
Appendix F.
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Pursuant to the terms of the Management Agreement, JIA has been
appointed to supervise, direct and control the day-to-day operation and
management of Summit V's business during the Interim Period. The Management
Agreement establishes standards of operation as well as a list of JIA's powers
and authorities. In addition, the Management Agreement sets forth numerous
specific covenants and limitations regarding JIA's operation of Summit V during
the Interim Period. Such covenants include restrictions on sale of assets,
capital and other expenditures outside of the ordinary course of business, the
incurrence of debt, and the hiring and firing of employees.
Upon execution of the Management Agreement, Jenkon and JIA established a
joint bank account and agreed to cause all receipts from Summit V accounts
receivable to be deposited in such account and to cause all payments with
respect to liabilities of Summit V to be paid from the such account. During the
Interim Period, JIA agreed to advance to Summit V through deposits in the
above-referenced account, such amounts as are necessary to fund the continuing
operations of Summit V's business (including, without limitation, the prompt
payment of employee salaries, employment and other taxes, lease payments and
other operating expenses of Summit V). In the event that the sale of Summit V is
not completed for any reason, JIA agreed to return all of the business and
assets to Summit V in good order and repair. During the Interim Period, JIA
shall have full authority to collect all cash receipts of Summit V and make all
required disbursements of cash out of the joint account. JIA is not entitled to
compensation for its services in managing the operations of Summit V's business
under the Management Agreement.
Either JIA or the Company may terminate such Management Agreement in the
event of a termination of the Purchase Agreement or upon a material breach of
the Management Agreement by the other party. Further, either the Company or
Summit V may terminate the Management Agreement if JIA commences any cause,
proceeding or other action relating to bankruptcy, insolvency, reorganization or
relief of debtors. Moreover, following notice to JIA and an opportunity to cure,
the Company may terminate the Management Agreement upon a determination by its
Board that JIA has mismanaged the operations of Summit V's business.
If the Management Agreement is terminated prior to the Closing for any
reason other than JIA's breach of the Management Agreement or the Purchase
Agreement, JIA will have the right to receive all of the funding payments made
by JIA with respect to the funding of the operations of Summit V during the
Interim Period. Further, in the event that a Closing does not occur for any
reason other than JIA's breach of the Management Agreement or the Purchase
Agreement, the Company will be obligated to reimburse JIA for its costs incurred
in connection with the operation of Summit V's business. The Company may not
have sufficient capital resources to reimburse JIA for any such costs incurred
in connection with the operation of Summit V's business in the event that such
payments are due.
OTHER AGREEMENTS. In connection with the Purchase Agreement, the
Company, JIA and David Edwards entered into a Voting Agreement dated as of March
30, 2000 (the "Voting Agreement") pursuant to which Mr. Edwards agreed to vote
the number of shares of Company Common Stock owned by him as of the close of
business on May 5, 2000 in favor of the Sale Proposal. In connection with the
Voting Agreement, Mr. Edwards also agreed to deliver to JIA an irrevocable proxy
to vote his shares in favor of the Share Proposal and against any competing
proposal.
FEDERAL TAX CONSEQUENCES OF THE SALE PROPOSAL
The Company does not believe that the sale of Summit V will have any
material federal income tax consequences to the Company or its stockholders.
INTERESTS OF CERTAIN PERSONS IN THE SALE PROPOSAL
In order to facilitate the Closing of the sale of Summit V, David
Edwards, the Company's Chief Executive Officer and a director, executed a
promissory note in the principal sum of $100,000 payable to JIA 11 months after
the Closing. Mr. Edwards received no consideration from the Company or any other
party in exchange for this agreement.
Dan Jensen and Robert Cavitt, each an officer and director of JIA,
are former officers and directors of the Company. Mr. Jensen remains a
significant stockholder of the Company and Mr. Cavitt remains an officer of
Summit V pending completion of the sale to JIA. In addition, Mr. Cavitt holds
currently exercisable options to purchase 234,680 shares of Company Common
Stock. See "Voting Securities and Principal Stockholders."
EFFECT OF THE SALE PROPOSAL ON STOCK OPTIONS
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Upon the sale of Summit V, it is anticipated that all employees employed
by the Company in the operations of Summit V will no longer be employed by the
Company. As a result, their options will terminate unless exercised within 90
days of the Closing. See "The Conversion Proposal -- Effect of the Conversion
Proposal on Stock Options."
VOTE REQUIRED
Although the Company does not believe that stockholder approval of the
sale contemplated by the Purchase Agreement is required under applicable law,
the Board is requesting stockholder approval of the Sale Proposal because such
approval is a condition to closing under the terms of the Purchase Agreement.
The Sale Proposal requires the affirmative vote of the holders of at least a
majority of the outstanding shares of Common Stock.
In the event that the stockholders do not approve the Sale Proposal at
the Meeting, the Company may elect to proceed with the transactions contemplated
by the Purchase Agreement in the event that JIA is willing to waive such
approval as a condition to closing. The Board has retained discretion, even if
stockholder approval of the Sale Proposal is obtained, to abandon, defer or
modify the terms of the Sale Proposal, provided that following stockholder
approval, the Board will not make any changes in the terms of the Sale Proposal
unless the Board determines that such changes would not be materially adverse to
the Company's stockholders. If stockholder approval of the Sale Proposal is
obtained and the transactions contemplated by the Purchase Agreement are
completed, in the event of a legal challenge to the Distribution, the Board of
Directors of the Company intends to assert stockholder approval of the Sale
Proposal as an affirmative defense against such challenge. Even if stockholder
approval of the Sale Proposal is obtained, there can be no assurance that the
sale contemplated by the Sale Proposal will occur.
BOARD RECOMMENDATION
The Board of Directors unanimously believes that approval of the Sale
Proposal is in the best interests of the Company for a variety of reasons. As
noted elsewhere in this Proxy Statement, in February 2000, in light of Summit
V's continuing losses and ongoing development costs, the Company's limited
capital resources, and the Board's belief that the Company and its stockholders
would be better served by focusing on the development of the business of MMKid,
the Company decided to discontinue its direct sale software operations. The
Board also determined that the original intention to have two separate operating
companies, Summit V and MMKid, was not ultimately in the best interests of the
Company's shareholders due to the confusing picture presented by the two
companies' respective business models and the difficulty of integrating
management of the two separate businesses. At such time, the Board also decided
that the discontinuation or sale of Summit V's business would free the remaining
business from the significant product development expenses of the Summit V
operations, thereby enabling the management of MMKid to focus its limited
capital resources on the development and marketing of its educational products
through MMKid.
In light of the Board's determination to discontinue the Company's
direct sales operations, the Board believes that a sale of Summit V to JIA is
the only viable alternative by which the Company will be able to receive any
value for the discontinued business. In order to sell the discontinued
operations to a party other than JIA, the Company believes it would be required
to continue to fund the operations of Summit V until a suitable buyer could be
identified and a transaction closed. Given the Company's limited financial
resources and the relatively low value of the Summit V operations, absent a sale
to JIA, the Board does not believe that it would be in the Company's best
interest, nor would the Company have sufficient capital resources, to continue
the operations of Summit V. Moreover, because of JIA's familiarity with the
operations of Summit V, the Board believes that it is the only potential buyer
in a position to act quickly enough to meet the Company's needs. Accordingly,
the Board believes that the Sale Proposal is the only viable alternative
available to the Company with respect to the disposition of Summit V's
operations.
The Board's recommendation is also based in part upon the adverse
consequences to the Company that will result from a failure to approve the Sale
Proposal. In particular, failure to approve the Sale Proposal will result in the
Company having to reimburse JIA for the amounts advanced for Summit V's
operations under the Management Agreement plus the $100,000 termination fee
required under the terms of the Purchase Agreement. In addition, if the Sale
Proposal is not approved and the Company subsequently sells Summit V to a third
party or enters into another transaction that results in the sale of significant
assets or a change in control of the Company, the Company might be required to
pay an additional termination fee of $200,000. See "Terms of Agreements" above.
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In the event that the Sale Proposal is not approved and the Company and
JIA do not elect to proceed with the closing, the Company may not have
sufficient capital resources to pay the termination fee(s) described above and
the amounts owed to JIA for funds advanced under the Management Agreement.
Accordingly, if the Sale Proposal is not approved, it is likely that the Company
will be required to immediately locate an alternate source of financing to meet
its obligations. There can be no assurance that the Company will be able to
obtain such financing at all or on terms that are favorable to the Company. The
Company's failure to obtain sufficient financing within the requisite time frame
will likely result in the delisting of the Company's securities from trading on
the Nasdaq Small Cap Market and could make it impossible for the Company to
continue operations and/or force the Company to seek protection under federal
bankruptcy law.
FOR THE REASONS DESCRIBED ABOVE AND ELSEWHERE IN THIS PROXY STATEMENT,
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE SALE PROPOSAL. SHARES
REPRESENTED BY THE PROXIES WILL BE VOTED FOR THE PROPOSAL UNLESS A VOTE AGAINST
THE PROPOSAL OR AN ABSTENTION IS SPECIFICALLY INDICATED ON THE PROXY CARD.
FAIRNESS OPINION
In connection with the Sale Proposal, Jenkon engaged Capitalink, L.C.
("Capitalink") to render an opinion as to the fairness, from a financial point
of view, to the Jenkon shareholders, of the consideration to be received. On
March 22, 2000, Capitalink delivered its written opinion to the Board that,
based upon and subject to the assumptions made, matters considered, and
limitations on its review as set forth in the opinion, from a financial point of
view, the consideration to be received in the Sale Proposal is fair to the
Jenkon shareholders.
THE FULL TEXT OF THE WRITTEN OPINION OF CAPITALINK DATED AS OF MARCH 22,
2000 IS ATTACHED AS APPENDIX G AND IS INCORPORATED HEREIN BY THIS REFERENCE (THE
"CAPITALINK OPINION"). JENKON STOCKHOLDERS ARE URGED TO READ THE CAPITALINK
OPINION CAREFULLY AND IN ITS ENTIRETY FOR A DESCRIPTION OF THE ASSUMPTIONS MADE,
MATTERS CONSIDERED, PROCEDURES FOLLOWED AND LIMITATIONS ON THE REVIEW UNDERTAKEN
BY CAPITALINK IN RENDERING ITS OPINION. THE SUMMARY OF THE CAPITALINK OPINION
SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION.
The Capitalink Opinion was rendered based upon the original terms of the
Stock Purchase Agreement and was rendered prior the execution of the definitive
Purchase Agreement, which definitive agreement includes a higher purchase price
for the purchase of Summit V. As the definitive Purchase Agreement reflects a
higher purchase price and does not contain any material changes that are adverse
to the Company, the Company does not believe that the changes would materially
alter Capitalink's analysis and conclusions reached in its opinion or adversely
impact the fairness of the Sale Proposal to the Jenkon stockholders.
Accordingly, the Company has not asked Capitalink to prepare a revised opinion
to reflect the terms of the definitive Purchase Agreement.
No limitations were imposed by Jenkon on the scope of Capitalink's
investigation or the procedures to be followed by Capitalink in rendering its
opinion. Capitalink was not requested to and did not make any recommendation to
the Board as to the form or amount of consideration received in the Sale
Proposal, which, Capitalink assumed, was determined through arms length
negotiations between parties. The Capitalink Opinion is for the use and benefit
of the Board in connection with its consideration of the Sale Proposal and is
not intended to be and does not constitute a recommendation to any shareholder
of Jenkon as to how such shareholder should vote with respect to the Sale
Proposal. Capitalink was not requested to opine as to, and its opinion does not
address, Jenkon's underlying business decision to proceed with or effect the
Sale Proposal.
Capitalink took into account its assessment of general economic, market
and financial conditions as well as its experience in connection with similar
transactions and securities valuations generally. Capitalink was not asked to
consider, and its opinion does not address, the relative merits of the Sale
Proposal as compared to any alternative business strategy that might exist for
Jenkon.
In arriving at its opinion, Capitalink, among other things: (i) reviewed
the Purchase Agreement; (ii) reviewed publicly available financial information
and other data with respect to Jenkon, including the Annual Report for the
fiscal year ended June 30, 1999, the Quarterly Reports on Form 10-QSB for the
periods ended September 30, 1999, and December 31, 1999, and, the Current
Reports on Form 8-K, dated December 30, 1999 and (on Form 8-K/A) dated February
28, 2000; (iii) reviewed the Jenkon Private Placement Memorandum dated September
10, 1999; (iv)
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reviewed certain other relevant financial and operating data relating to
Jenkon and Summit V made available from published sources and from the
internal records of Jenkon; (v) considered the historical financial results
and present financial condition of Summit V with those of other companies
that we deemed relevant; (vi) reviewed and analyzed the financial terms of
certain transactions that we deemed comparable to the Sale Proposal; (vii)
reviewed certain publicly available information concerning the trading of,
and the trading market for, the common stock of Jenkon; (viii) reviewed and
analyzed certain publicly available information concerning the trading of,
and the trading market for, companies that we believed to be comparable to
Summit V; (ix) reviewed and discussed with representatives of the management
of Jenkon and Summit V certain financial and operating information furnished
to us and presented in the public filings; (x) inquired about and discussed
the Sale Proposal with Jenkon and Summit V management; and (xi) performed
such other analyses and examinations as Capitalink deemed appropriate.
In arriving at its opinion, Capitalink relied upon and assumed the
accuracy and completeness of all of the financial and other information that
was used without assuming any responsibility for any independent verification
of any such information and further relied upon the assurances of Jenkon's
and Summit V's management that they were not aware of any facts or
circumstances that would make any such information inaccurate or misleading.
In arriving at its opinion, Capitalink did not make a physical inspection of
the properties and facilities of either Jenkon or Summit V, and has not made
or obtained any evaluations or appraisals of the assets and liabilities
(contingent or otherwise) of either Jenkon or Summit V. Capitalink assumed
that the Sale Proposal will be consummated in a manner that complies in all
respects with the applicable provisions of the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, and all other
applicable federal and state statutes, rules and regulations. In addition,
upon the advice of the management of Jenkon and its legal advisors,
Capitalink assumed that the Sale Proposal would not cause any adverse tax
affect to Jenkon based on the use of existing net operating loss
carryforwards available. Capitalink's opinion was necessarily based upon
market, economic and other conditions as they existed on, and could be
evaluated as of, March 22, 2000. Accordingly, although subsequent
developments may affect its opinion, Capitalink did not assume any obligation
to update, review or reaffirm its opinion.
Each of the analyses conducted by Capitalink was carried out in order to
provide a different perspective on the Sale Proposal, and to enhance the total
mix of information available. Capitalink did not form a conclusion as to whether
any individual analysis, considered in isolation, supported or failed to support
an opinion as to the fairness, from a financial point of view, of the Sale
Proposal to the Jenkon shareholders. Capitalink did not place any particular
reliance or weight on any individual analysis, but instead concluded that its
analyses, taken as a whole, supported its determination. Accordingly, Capitalink
believes that its analyses must be considered as a whole and that selecting
portions of its analyses or the factors it considered, without considering all
analyses and factors collectively, could create an incomplete view of the
process underlying the analyses performed by Capitalink in connection with the
preparation of its opinion.
Capitalink analyzed the fairness of the Sale Proposal using the
following methodologies:
DISCOUNTED CASH FLOW. Capitalink performed a discounted cash flow
("DCF") analysis, aggregating (x) the present value of Summit V's projected
unlevered free cash flows over the three year forecast period with (y) the
present value of a range of terminal values. Free cash flow represents the
amount of cash generated and available for principal, interest and dividend
payments after providing for ongoing business operations; these free cash flow
figures were based upon operating and financial forecasts provided to Capitalink
by the management of Jenkon. The range of terminal values represents the
residual value of Summit V at the end of the forecast period; this range of
terminal values was calculated by applying a range of implied multiples to
Summit V's earnings before interest, taxes, depreciation and amortization
("EBITDA") in the final year of the forecast period. Capitalink analyzed two
cases. In the first case (the "Management Case") Capitalink utilized the
projections as provided by Jenkon management. In the second case (the "Revised
Case"), Capitalink modified the Management Case by assuming certain reductions
in revenue and operating performance.
As part of the DCF analysis, Capitalink utilized (i) discount rates of
20% to 45%, which were chosen based upon several assumptions including interest
rates, the inherent business risk of Summit V and Summit V's estimated cost of
capital; and (ii) a range of terminal multiples. The resulting range of
enterprise values were then adjusted to account for Net Debt, yielding a range
of equity values for Summit V.
Utilizing the Management Case projections and based upon a range of
terminal multiples of EBITDA for fiscal year 2002 of 1.5x to 6.5x, the implied
enterprise value of Summit V ranged from approximately $3.6 million to
approximately $34.8 million; after subtracting net debt, the implied equity
value of Summit V ranged from
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approximately $3.6 million to approximately $34.8 million. Utilizing the
Revised Case and based upon a range of terminal multiples of EBITDA for
fiscal year 2002 of 1.5x to 6.5x, the implied enterprise value of Summit V
ranged from approximately $(2.5) million to approximately $(1.1) million;
after subtracting net debt, the implied equity value of Summit V ranged from
approximately $(2.4) million to approximately $(1.0) million.
ASSET ACCUMULATION ANALYSIS. The Asset Accumulation Method is a balance
sheet oriented valuation method whereby a company's balance sheet is restated to
fair market value. This involves the revaluation of the assets and liabilities
recorded on the balance sheet, and the identification and valuation of otherwise
unrecorded tangible and intangible assets and liabilities.
For the purpose of using the Asset Accumulation Method, Capitalink
utilized the Summit V balance sheet as of December 31, 1999, the latest
available financial data prior to the date of its opinion. The balance sheet
items have been analyzed to determine whether any adjustments are necessary to
the carrying values in order for the fair market values to be accurately
reflected.
In order to determine the extent of the adjustments, if any, to the
balance sheet items, there are four alternative premises of value: (i) value in
continued use, as part of a going concern; (ii) value in place, as part of a
mass assemblage of assets; (iii) value in exchange, in an orderly disposition;
and, (iv) value in exchange, in a forced liquidation.
Based on discussions with Jenkon management, the value in exchange,
in an orderly liquidation has been utilized in determining adjustments to the
balance sheet items. This methodology assumes that the assets are sold
piecemeal, not as part of a mass assemblage. It is further assumed that the
assets have been given adequate exposure in their normal secondary market.
After applying this methodology, Capitalink estimated the value of Summit V
to be $160,000.
SELECTED COMPARABLE COMPANY ANALYSIS. The selected comparable publicly
traded company analysis involves the separate review of companies deemed
comparable to Summit V. Capitalink reviewed certain financial information
relating to Summit V in the context of the corresponding financial information,
ratios and public market multiples for the publicly traded companies that it
deemed comparable. No company used in Capitalink's analysis was deemed to be
identical to Summit V; accordingly, Capitalink considered the multiples for such
comparable companies to be more relevant than the multiples of any single
company.
The companies used for purposes of the analysis were Information
Management Associates, ASD Systems, Inc., Spanlink Communications, Inc.,
Timberline Software Corp., Timeline, Inc., and Smith-Gardner Associates (the
"Publicly-Traded Comparables").
Based on publicly available information, Capitalink reviewed various
financial information of the Publicly-Traded Comparables, including, among other
things, market value, revenue, earnings per share, assets, and earnings before
interest and taxes ("EBIT"). Subsequent to such review and based on the
respective market values and enterprise values (defined as market value plus Net
Debt, which is equal to the aggregate book value of all debt, preferred stock
and minority interest, minus the aggregate cash and cash equivalents),
Capitalink calculated ranges of various multiples for the Publicly-Traded
Comparables.
This analysis indicated that the approximate enterprise value multiple
of last twelve months ("LTM") revenue ranged from 1.1x to 7.0x, with a mean of
3.5x, and a median of 3.4x and the approximate LTM EBIT ranged from 2.8x to
19.0x, with a mean of 10.7x, and a median of 10.3x. The analysis also indicated
that the approximate LTM earnings per share ranged from 5.3x to 35.8x, with a
mean of 18.4, and a median of 14.0x, the approximate equity value multiple of
common equity ranged from 2.0x to 25.0x, with a mean of 10.4x, and a median of
6.4x; and the approximate equity value multiple of total assets ranged from 1.7x
to 7.9x, with a mean of 3.9x, and a median of 3.6x.
None of the Publicly-Traded Comparables utilized as a comparison is
identical to Summit V. Accordingly, an analysis of publicly-traded comparable
companies is not mathematical, rather it involves complex consideration and
judgments concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the public trading
of the comparable companies or company to which they are being compared.
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SELECTED COMPARABLE TRANSACTION ANALYSIS: The selected comparable
transaction analysis involves a review of merger, acquisition and asset purchase
transactions involving companies deemed comparable to Summit V. Information is
typically not disclosed for transactions involving a private seller, even when
the buyer is a public company, unless the acquisition is deemed to be "material"
for the acquiror. As a result, the selected comparable transaction analysis is
limited to transactions involving the acquisition of a public company, or
substantially all of its assets, or the acquisition of a large private company,
or substantially all of its assets, by a public company.
Capitalink began its analysis by searching for transactions entered into
recently which were deemed comparable to the Sale Proposal. Capitalink located
seven transactions where financial data of the acquired company and the terms of
the transaction were disclosed. The resulting transactions are as follows: (i)
the acquisition of FDP Corp (develops and markets software for use by life
insurance agents) by SunGard Data Systems Inc.; (ii) the acquisition of
Ultradata Corporation (an information management software and solutions
provider) by CFI ProServices Inc.; (iii) the acquisition of MECA Software, LLC
(a developer of personal financial management software) by CFI ProServices Inc.;
(iv) the acquisition of Metrowerks Inc. (develops, markets and supports
ColdWarrior software development tools) by Motorola Inc.; (v) the acquisition of
Prism Solutions Inc. (develops and markets data warehouse software) by Ardent
Software Inc.; (vi) the acquisition of Modern Computer Systems Inc. (provides
data processing and related services to financial institutions) by CFI
ProServices Inc.; and (vii) the acquisition of Red Brick Systems Inc. (provides
relational database products and services for data warehouse applications) by
Informix Corp. (collectively, the "Comparable Transactions").
Based on the information disclosed in the Comparable Transactions,
Capitalink calculated a range of transaction value multiples based on (i)
trailing twelve months ("TTM") revenue, and (ii) total assets for such
transactions by dividing the respective transaction values (including cash paid,
shares issued, assumption of debt and/or other consideration to the seller) by
items (i) and (ii) above for each of the Comparable Transactions.
This analysis indicated that the approximate transaction value multiple
of TTM revenue ranged from 0.3x to 3.7x, with a mean of 1.7x, and a median of
1.7x; and the approximate transaction value multiple of total assets ranged from
1.2x to 5.5x, with a mean of 3.0x, and a median of 2.3x.
None of the Comparable Transactions, or other business combinations
utilized as a comparison, is identical to the Sale Proposal. Accordingly, an
analysis of comparable business combinations is not mathematical, rather it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the Comparable Transactions and other
factors that could affect the acquisition value of the comparable companies or
company to which they are being compared.
HISTORICAL STOCK PRICE ANALYSIS. Capitalink reviewed the daily closing
market price and trading volume of Jenkon Common Stock over the twelve-month
period March 8, 1999 through March 8, 2000. Capitalink calculated total trading
volumes at various closing trade ranges. In addition, Capitalink calculated (i)
closing price ranges as a percentage of total trading days in the twelve-month
period, (ii) trading volume per price range as a percentage of total volume in
the twelve-month period, and (iii) trading volume ranges as a percentage of
total volume.
Capitalink also prepared and compared the following indices for the
twelve-month period March 8, 1999 through March 8, 2000; (i) Jenkon Common Stock
price; (ii) the respective market capitalization-weighted stock prices of the
Publicly-Traded Comparables; and (iii) the Russell 3000 Index.
HISTORICAL FINANCIAL DATA ANALYSIS: Capitalink reviewed and analyzed
certain financial information for Summit V, including Jenkon Annual Reports on
Form 10-KSB, Quarterly Reports on Form 10-QSB and financial statements and
schedules provided by Jenkon management.
In connection with its services in connection with the Sale Proposal,
Capitalink received $45,000. In addition, Jenkon has agreed to indemnify
Capitalink for certain liabilities that may arise out of rendering this opinion.
Capitalink is an investment banking firm which, as part of its
investment banking business, regularly is engaged in the evaluation of
businesses and their securities in connection with mergers, acquisitions, and
private placements.
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BUSINESS OF THE COMPANY
The following presents certain information regarding the current
business of the Company. As the Company has determined to discontinue the
operations of Summit V regardless of whether the Sale Proposal is approved, the
following information is presented only with respect to the operations of MMKid
and excludes a discussion of the operations of Summit V. See "Sale Proposal."
GENERAL
Founded and incorporated in January 1996, MMKid develops educational
systems for kindergartens, schools, special education, management training
and enrichment centers. The Company's systems combine interactive software,
playful didactic aides and unique electronic interfaces. Such products have
been marketed and installed in over 30 countries around the world. MMKid's
products provide educational, three dimensional computerized environments
that combine physical components such as wooden blocks, task cards,
worksheets and books with the latest computer based technologies.
Pursuant to an agreement dated January 21, 1996, the Company was
granted a right of first refusal to purchase all the rights to an interactive
learning system named "Multimedia K.I.D." and a cognitive application named
"Action K.I.D." from P.M.D. Technological and Educational Systems Ltd.
("PMD"). At the time the agreement was consummated, PMD was owned and
operated by an executive officer and founder of MMKid. Some of PMD's
employees were transferred to the Company during 1996. The majority of PMD's
employees were transferred in January 1998.
In 1997, MMKid was granted a Computer Software Award from the office
of the Prime Minister of Israel in the category of "Special Innovation and
Invention in Education."
BUSINESS STRATEGY
Although there can be no assurance that the Company will be able to
achieve its goals, the Company's business objective is to expand market
penetration and to become a leader in the development of educational systems and
related products. In order to achieve this objective, the Company's strategy
includes the following elements:
EXPAND GEOGRAPHIC MARKET PENETRATION. The Company believes that
international markets provide significant opportunity for the Company to
increase sales of its products. Given the increasing acknowledgment of the need
for change in educational systems in many countries throughout the world and
especially in the United States, Germany, France, the United Kingdom,
Scandinavia, Italy and Spain, the Company intends to expand its geographic
presence by expanding the focus of its sales and marketing efforts to these
international markets as well as the Israeli market.
INCREASE MARKET PENETRATION OF CORE PRODUCTS. The Company believes that
its current base of clients represents only a small portion of the total number
of education institutions and learning centers that are potential users of the
Company's core products. The Company will attempt to increase the market
penetration through more aggressive marketing and promotional effort and by
continuing to forge partnerships with corporate market leaders and industry
spokespeople.
LEVERAGE CURRENT AND FUTURE CUSTOMER BASE. The Company believes that as
its customer base expands, the use of the Company's educational systems will
encourage other educators to utilize the system and thus open new opportunities
to provide training and additional services. Additionally, the pedagogical
methodology inherent in their products promotes substantial change in the
educational structure of the institution thereby providing further opportunities
to sell additional products.
The success of the Company's business strategy will depend in part upon
the Company's access to capital resources to fund any expansion as well as other
factors such as market demand for its products, many of which are outside of the
Company's control. See "Additional Considerations and Risk Factors" below.
CORE PRODUCTS.
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All the products developed by the Company are designed to provide a
comprehensive educational environment that promotes the learning development
process. Although all the products have been developed in English, the various
systems have been localized into more than twenty different languages.
ACTION K.I.D. Action K.I.D. is an interactive multi-dimensional,
multi-activity education center. The computerized center integrates an auditory
communications system, a video photography station, and vibrant visual
instructional material into a programmed wooden playground-like structure,
complete with a labyrinth, balance beam, bridge, ramps and ladders to create an
interactive learning wonderland for children. Built into the structure is a
touch system comprised of step-on keypads, a variety of hand buttons, touch
screens, and other elements that receive, convey and record real-time
information relevant to the task at hand.
MY K.I.D. The My K.I.D. software system interfaces with an interactive
activity unit, playful didactic items and colorful activity mats. The system
incorporates multimedia software and is designed for individual or group work,
depending on pedagogical needs. My K.I.D. focuses on developing language arts,
and does so by integrating vocabulary from various fields and emphasizing the
different aspects of language including grammar, expressive writing, reading
comprehension and listening skills.
K.I.DUCATION. The K.I.Ducation system is a comprehensive
computer-assisted learning system. The system, with its built-in electronic
panel, features soft-touch keys and icons, and the ability to function as a
keyboard and mouse. The subjects addressed by the K.I.Ducation system are
derived from a broad range of fields including nature, hygiene, electricity,
arithmetic, biology and other fields commonly covered in educational settings.
The system comes with a learning kit that includes hundreds of colorful
manipulatives including template mats, task cards, picture cards, wood blocks,
soft sponge numbers, dice and the all-inclusive Creative Workshop.
EDULINE. The EDULine family of systems combine an activity table,
interactive software, 3D objects, didactic tools and electronic interfaces. The
systems are designed to provide flexibility to enable adaptation to all learning
populations. In the EDULine family, such items as a Tactile Table and
Illuminated Keyboard address the special needs framework.
The Company has also developed a new series of Home Products, in
addition to the Company's current series. These products, called Spunky's Fun
Keys, contain unique three-dimensional aides that are to be used in conjunction
with the software.
TECHNOLOGY
Similar to many other software packages, MMKid's products utilize
various technologies including operating systems provided by various suppliers.
All the Company's products currently operate on the DOS operating system and
Microsoft Windows 95-98 and NT.
The programs developed by the Company which work on the DOS operating
system use PASCAL. The programs that work on Windows operating systems use Lingo
(Director) and Visual C++. The programs developed by the Company require a PC
with a 486 or faster processor and a sound card.
CUSTOMERS
The Company's products (including products sold or licensed by PMD),
have been installed in over 30 countries around the world. The Company's
strategy is to locate companies in various countries which will serve to market
the Company's products. Typical customers include schools, learning centers,
government offices and management training centers. The Company's sales have
been primarily generated from Israel, the United States and Eastern Europe.
The Company's sales have historically been dependent upon a few major
customers with over 95% of the Company's sales being derived from the Company's
top three customers in fiscal 1999.
SALES AND MARKETING
The Company sells its products to customers through its direct sales
force inside Israel. The Company has agreements with several companies to market
and sell certain products in countries outside Israel. In addition,
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Company employees attend several technological education shows and
participate in seminars organized by academic bodies.
Substantially all of the Company's sales to date have been generated
from sales of its Action K.I.D. Systems.
The Company is currently upgrading its Web site. The site, among other
things, will be used to increase the Company's exposure to the education
industry. It will also be used to transfer didactic materials to the teachers
utilizing the Company's products.
The Company markets its products to four broad-based categories in the
education industry:
EDUCATIONAL INSTITUTIONS. These institutions are often
directed by government initiatives. They provide a forum for children and adults
alike to learn through new and innovative technology incorporating cooperative
group activities often not available in the home and other areas. These products
are often customized according to the concepts being taught.
HOME PRODUCTS. This category is geared to learning in the home
where competition is high. Products are not customized, but are differentiated
from other off-the-shelf home learning systems by the tangible accessory items
that are incorporated into the products.
LEARNING AND ENRICHMENT CENTERS. These centers are generally
intended to cater to different sectors of the population that provide more
specialized instruction.
COMMERCIAL PRODUCTS. The Company develops compact disc games
for promotional use that are commissioned by external companies.
COMPETITION
The market for educational products is highly competitive and is
characterized by rapidly changing customer preferences and little or no barriers
of entry. There are numerous businesses, many of which are better capitalized
than the Company, currently offering software and other products directed at the
same customer base. The Company believes that the primary competitive factors
for the provision of its systems are performance specifications, sales price,
customer service, brand name and service record. The Company's success will
depend heavily upon its ability to provide high quality systems that meet
customer specifications and are competitively priced. Other factors that will
affect the Company's success in this market include the Company's ability to
attract additional experienced marketing, sales, and management talent and the
expansion of worldwide training capabilities.
The Company's current and prospective competitors vary greatly from
small private multimedia publishers with 10-20 employees to large international
corporations with revenues in excess of $300 million in annual sales. The
Company believes that their products are differentiated from nearly all their
competitors by the uniqueness of the combination of technology, software and
didactic aides that are incorporated into the products. Some or all of the
Company's actual and potential competitors have greater market presence,
engineering, marketing, sales and distribution capabilities, and financial,
technological and personnel resources than those available to the Company. As a
result, they may be able to adapt more swiftly to new or emerging technologies
and changes in customer specifications, take advantage of acquisition and other
opportunities more readily, and devote greater resources to the marketing and
sale of their products than can the Company.
Because price is a major competitive factor in the market for the
Company's products, if any of the Company's present or future competitors elect
to initiate and support prolonged price competition to gain market share, the
Company likely would be forced to lower its prices, possibly for a protracted
period, which would have a material adverse effect on its financial condition
and results of operations and could threaten its economic viability.
The Company believes that several factors will enable it to effectively
compete, including a longer product shelf life for the Company's products than
the shelf lives of regular multimedia educational products, ease of product
adaptation, and a relatively short development cycle due to significant
development experience. Other means that the Company believes it is able to
differentiate itself from its competitors lie in the nature of the products
themselves which are developed and tailored for school use, thereby making it
easier for teachers to integrate the Company's products into the classroom.
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EMPLOYEES
As of March 31, 2000, the Company had approximately 94 employees, all
of which were full-time employees. Of these, 67 employees were engaged in the
operation of Summit V and will no longer be employees of the Company following
any sale of Summit V to JIA. None of the employees are represented by a labor
union, and the Company considers its relations with employees to be good.
RESEARCH AND DEVELOPMENT
MMKid is currently developing a new line of products based on
the technology contained in the Action K.I.D. system. One new application
currently under development targets adults in management-level positions and
is intended to impart management strategies and to enhance sales. The Company
is also planning the development of a virtual helmet that will allow users to
the systems to receive instructions and other applications.
Since the beginning of the calendar year ended December 31, 1999, the
Company's research and development activities have primarily been directed
towards the development of the My K.I.D and Action K.I.D. systems. Research and
development expenses were $319,467 for the six months ended June 30, 1999 and
$697,611 and $223,486 for the years ended December 31, 1998 and 1997,
respectively.
INTELLECTUAL PROPERTY
The Company relies on a combination of trade secret laws and
contractual restrictions to establish and protect its technology. The Company is
in the process of registering certain trademarks. There can be no assurance that
the steps taken by the Company will be adequate to prevent misappropriation of
its technology or that the Company's competitors will not independently develop
technologies and products that are substantially equivalent or superior to the
Company's technology and products. In addition, there can be no assurance that
licenses for any intellectual property that may be required for the Company to
provide services or develop products would be available on reasonable terms, if
at all.
The Company has not historically required trade secrecy and
confidentiality agreements to be executed by its employees or independent
software developers in order to protect its rights in its proprietary
technology. The Company is in the process of requiring employees, contractors
and distributors to execute such agreements. No assurance can be given that such
measures will be effective in protecting the Company's rights in its present or
future technology.
The Company has filed applications with the Israeli Registry of
Trademarks for My K.I.D. and five of the animated figures incorporated into the
product. Additionally, the Company intends to file for U.S. trademarks for the
same. There can be no assurance that tradename protection can be obtained for
these names. Although the Company does not believe that its products or
tradenames infringe upon the proprietary rights of any third parties and no
third parties have asserted trademark, patent, or copyright infringement or
other similar claims against the Company, there can be no assurance that third
parties will not assert such claims against the Company in the future or that
such claims will not be successful. The Company could incur substantial costs
and diversion of management resources with respect to the defense of any claims
relating to proprietary rights which could have a material adverse effect on the
Company's business, financial condition and results of operations. Furthermore,
parties making such claims could secure a judgment awarding substantial damages,
as well as injunctive or other equitable relief which could effectively block
the Company's ability to sell product in the United States or abroad. Such a
judgement could have a material adverse effect on the Company's business,
financial condition or results of operations.
The laws of certain foreign countries where the Company distributes or
intends to distribute its products do not effectively protect technology,
trademarks or tradenames that the Company uses in its business and considers
proprietary. The Company has not undertaken to investigate such laws or to
assure that available protection is obtained.
PROPERTY
The Company leases approximately 300 square meters of office and 180
square meters of factory space in Petach-Tikva, Israel. The Company also leases
approximately 160 square meters of factory and warehouse space in
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Rosh Haain, Israel. The Company believes its facilities are adequate for its
present needs and that suitable space would be available to accommodate its
future needs.
LEGAL PROCEEDINGS
The Company acquired from Redwood Technology a license to utilize
certain Ardent Software, Inc. products incorporated into the Summit V
software in connection with sales in certain portions of Asia, including
China. The grant of the license by Unidata, Inc., a predecessor of Ardent
Software, Inc., to Redwood Technology and the sublicense by Redwood
Technology to Avon Products or its affiliates, have been challenged in a
lawsuit (the "U.S. Claim") filed in the United States District Court for the
Western District of Washington at Tacoma (Case No. C96-5459FDB) by Pacific
Unidata, Ltd., the Asia licensee of Unidata, Inc., as violating the terms of
such licensee's agreement with Unidata. In addition, Pacific Unidata, Ltd.
brought an action (the "China Claim") against Guangzhou Avon Co., Ltd., a
Chinese subsidiary of Avon Products ("Avon China"), in the Guangdong Province
Supreme People's Court (the "Chinese Court") seeking damages against Avon
China for infringement of Pacific Unidata, Ltd.'s copyright and exclusive
rights to certain Unidata software in China. In June 1998, the Chinese Court
awarded damages in favor of Pacific Unidata, Ltd. in an amount of
approximately US$12 million plus costs. Avon China has informed the Company
that it intends to appeal the ruling and has indicated an intention to seek
indemnification against Redwood Technology and the Company in the event it is
unsuccessful in its appeal. Although the Company is not a party to the China
Claim or the U.S. Claim, if Unidata, Inc. does not indemnify Redwood
Technology and the Company from damages resulting from the China Claim and
the U.S. Claim and the Company is required to (i) devote significant
resources to protect its interests and the interests of its sublicensees in
Asia or (ii) if any sublicensee successfully seeks indemnification against
Redwood Technology or the Company for damages suffered as a result of claims
made by Pacific Unidata, Ltd. and the Company is required to pay such
indemnification directly or as a successor to Redwood Technology, the
Company's financial condition and results of operations could be materially
adversely affected.
In July 1995, Summit V purchased and/or licensed substantially all of
the assets and assumed certain liabilities of Redwood Technology, the
developer of certain of the Company's software technology. Because Redwood
Technology may be deemed to have been rendered insolvent by the sale and
license of certain of its assets to Summit V and because of the commonality
of ownership and management of Redwood Technology and Summit V, the Company
is or may be subject to claims by unsatisfied creditors of Redwood Technology
challenging the Company's rights to the acquired assets or alleging successor
liability or other similar claims. Whether or not litigation ensues, such
claims could result in a disruption of the Company's business which would
have a material adverse effect on the Company and its financial performance.
The Company may elect or be required to settle obligations of Redwood
Technology. In the event that the Company was required to pay all or a
significant portion of the claims of creditors of Redwood Technology, the
Company's business and financial conditions and its ability to achieve its
business plan could be materially and adversely affected.
In November 1999, AmeriPlan Corporation ("AmeriPlan"), a Texas
corporation, filed a demand for arbitration seeking a refund of approximately
$100,000 in payments owing for software and services provided by Jenkon.
AmeriPlan also is seeking an undetermined amount of consequential damages.
Jenkon has denied that it owes AmeriPlan any of these amounts and has also
filed a counterclaim for approximately $250,000 that is still owing under the
parties' agreements. The arbitration hearing is scheduled for July 2000.
Jenkon intends to vigorously pursue this litigation.
In the ordinary course of business, the Company is subject to various
legal proceedings and claims. In the opinion of management, the amount of
ultimate liability with respect to these proceedings will not materially
affect the financial position, results of operations or cash flow of the
Company.
ADDITIONAL CONSIDERATIONS AND RISK FACTORS RELATING TO MULTIMEDIA'S BUSINESS
MULTIMEDIA HAS A HISTORY OF LOSSES AND HAS LIMITED REVENUES AND CAPITAL
RESOURCES. Multimedia has not operated profitably and has experienced net
losses of approximately $111,000 for the six months ended June 30, 1999 and
approximately $50,000 and $428,000 for the fiscal years ended December 31,
1997 and 1998, respectively. Moreover, the Company's revenues from sales of
products, services and marketing rights were approximately $748,000, $714,000
and $1,499,000 over the same periods. There can be no assurance that the
Company will ever be able to generate significant revenues or profits from
operations.
NEED FOR ADDITIONAL CAPITAL. The Company's business involves the
continued investment of funds towards the development of new products and
modifications of existing products as well as sales and marketing efforts
related thereto. To the extent that the Company is unsuccessful in generating
significant cash flow from operations in order to fund such investments in
product development, sales and marketing, the Company will need to rely on
outside financing sources for working capital. The Company currently has no
significant bank line of credit and there can be no assurance that the
Company will be able to obtain sources of outside financing on favorable
terms, if at all, in the event that such financing is required in the future.
To the extent that the Company's operation do not generate positive working
capital or enable it to secure adequate outside financing, the Company's
business would be materially and adversely affected.
THE COMPANY MAY NOT BE ABLE TO MAINTAIN ITS NASDAQ LISTING; RISK OF LOW-PRICED
SECURITIES. The Company's Common Stock is currently listed for trading on the
Nasdaq SmallCap Market. To maintain inclusion on the Nasdaq SmallCap Market, the
Company's Common Stock must continue to be registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Company must continue to have net tangible assets of at least $2,000,000, a
public float of at least 500,000 shares with a market value of at least
$1,000,000, at least 300 stockholders, a minimum bid price of $1.00 per share
and at least two market makers. As previously reported, the Company has received
a letter from the Nasdaq Listing Qualifications Division stating that the
Company's net tangible assets as of June 30, 1999 did not meet the minimum
amount of $2,000,000 and the Company's eligibility for continued listing on The
Nasdaq Stock Market is under review. The Company believes that, upon stockholder
approval of the Conversion Proposal and the Charter Amendment Proposal, the
Company's net tangible assets will be in excess of the minimum requirement.
However, there can be no assurance that the Company will be able to maintain the
standards for Nasdaq SmallCap Market inclusion with respect to its Common Stock.
In addition, as a result of the acquisition of MMKid and the
discontinuation of Jenkon's historical direct sales software operations,
Nasdaq may elect to review the Company's listing as if it were a new
applicant. As the standards for new listing are more stringent than the
standards for continued listing on Nasdaq, the Company might not qualify for
continued listing on the Nasdaq SmallCap Market in the event of such review.
If the Company fails to maintain Nasdaq SmallCap Market listing or is deemed
not to qualify for continued listing upon Nasdaq review, the market value of
the Common Stock likely would decline and stockholders likely would find it
more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Common Stock. If the Common Stock ceases to be included
on the Nasdaq SmallCap Market, the Common Stock could become subject to Rule
15a-9 under the Exchange Act, which imposes additional sales practice
requirements on broker-dealers which sell such securities. If the Common
Stock becomes subject to the penny stock rules, the ability of broker-dealers
to make a market in or sell the Company's securities may be adversely
affected and the market liquidity for the Company's securities could be
severely adversely affected.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE. The markets for the Company's
products are characterized by technological change, evolving industry standards
and frequent new product introductions and enhancements. The introduction of
products embodying new technologies and the emergence of new industry standards
could render the Company's existing products and products currently under
development obsolete and unmarketable. The Company's future success will depend
upon its ability to enhance its current products and develop and successfully
introduce and sell new products that keep pace with market developments and
respond to evolving end-user specifications. Any failure by the Company to
anticipate or respond adequately to technological developments or end-user
specifications, or any significant delays in product development or
introduction, could damage the Company's competitive position in the marketplace
and reduce revenues. The Company may need to increase the size of its product
development staff in the near term to meet these challenges. There can be no
assurance that the Company will be successful in hiring and training adequate
product development personnel to meet its needs. There can be no assurance that
the Company will be successful in developing and marketing new products or
product enhancements on a timely basis or that the Company will not experience
significant delays in the future. Any failure to successfully develop and market
new products and product enhancements would have a material adverse effect on
the Company's results of operations.
RISKS OF PRODUCT DEVELOPMENT IN GENERAL. The success of the Company is
dependent upon its ability to deliver reliable, easy-to-use and technologically
up-to-date educational products. Any failure of the Company's existing or new
products to meet client specifications or expectations will have a material
adverse effect on the Company's reputation and the demand for the Company's
products. There can be no assurance that the Company's products will meet such
specifications or expectations. In addition, continued demand for the Company's
products will depend on its ability to successfully anticipate customer demand
and to integrate new and emerging technologies, features and standards into its
products on a timely basis. Any failure by the Company to anticipate customer
demand and to successfully integrate new features and standards into its
products on a timely basis could adversely affect the Company's reputation,
demand for its products and, as a result, its financial condition and results of
operations.
COMPETITION. The market for educational products is highly competitive
and is characterized by technological change, rapidly changing customer
preferences and little or no barriers to entry. There are many businesses, many
of which are better capitalized than the Company, currently offering products
similar in type or scope to the Company's products. The Company's success will
depend heavily upon its ability to provide high quality products that meet the
demand of educators and consumers. Other factors that will affect the Company's
success in this market include the Company's ability to attract additional
experienced marketing, sales, and management talent, and the expansion of
worldwide support, training, and service capabilities. The Company's current and
prospective competitors vary greatly from small private multimedia publishers
with 10-20 employees to large international corporations with revenues in excess
of $300 million in annual sales. Some or all of the Company's actual and
potential competitors may have greater market presence, engineering, customer
support and marketing capabilities, and financial, technological and personnel
resources than those available to the Company. As a result, they may be able to
adapt more swiftly to new or emerging technologies and changes in customer
requirements, take advantage
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<PAGE>
of acquisition and other opportunities more readily, and devote greater
resources to the marketing and sale of their products than can the Company.
Because price is a major competitive factor in the market for the
Company's products, if any of the Company's present or future competitors elect
to initiate and support prolonged price competition to gain market share, the
Company likely would be forced to lower its prices, possibly for a protracted
period, which would have a material adverse effect on its financial condition
and results of operations and could threaten its economic viability.
SIGNIFICANT FLUCTUATIONS IN QUARTERLY RESULTS. The Company has
experienced and expects to continue to experience significant fluctuations in
its quarterly results. Such fluctuations may be caused by many factors,
including, but not limited to: the size and timing of individual orders;
seasonality of revenues; lengthy sales cycle; delays in introduction of
products or product enhancements by the Company or other providers of
components for the Company's systems; competition and pricing in the
educational products industry; market acceptance of new products; reduction
in demand for existing products and shortening of product life cycles as a
result of new product introductions by competitors; foreign currency exchange
rates; mix of products sold; conditions or events in the education industry;
and general economic conditions. The Company does not typically maintain a
significant backlog and therefore the revenue results for each quarter depend
substantially on orders received and delivered in that quarter. As a result
of the relatively high revenue amount for certain products and relatively low
unit volume of those systems, any lost or delayed sales will have a
disproportionately greater effect on the Company's revenues and quarterly
results relative to companies that have higher unit sales volumes and less
revenue associated a particular product. The Company's sales cycle varies
greatly with the different products. For the higher priced systems, the
typical sales cycle is three to six months from the time initial sales
contact is made with a qualified prospect, making the timing of the Company's
revenues difficult to predict and the Company's quarterly results difficult
to forecast. The Company's sales cycle relating to the lower costing products
is anywhere from two weeks to two months. The Company's expense levels are
based in part on its forecasts of future revenues. Accordingly, since a large
portion of the Company's expenses are fixed in nature, the Company would not
be able to quickly curtail expenses in response to a decline in revenues, and
operating results for a given quarter would be adversely affected. As a
result, revenues for any quarter are subject to significant variation and the
Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance. To the extent that the Company's Common
Stock is publicly traded, fluctuations in operating results may also result
in volatility in the market price of the Company's Common Stock.
MANAGEMENT OF GROWTH. To manage its growth effectively, the Company
will be required to continue to implement and improve its operating and
financial systems and to expand, train and manage its employee base. There can
be no assurance that the management skills and systems currently in place will
be adequate if the Company continues to grow. In addition, although no
acquisitions of companies or products, other than the reverse acquisition of
Jenkon, are currently being negotiated, the Company may make acquisitions in the
future. The Company's management has only limited experience with acquisitions,
which involve numerous risks, including difficulties in the assimilation of
acquired operations and products, the diversion of management's attention from
other business concerns and the potential loss of key employees of the acquired
companies.
NEW BUSINESS; ABILITY TO INTEGRATE AND MANAGE. The acquisition of MMKid has
resulted in the Company operating a new business with respect to which it has
little or no experience in a country (Israel) in which a majority of the
Company's current Board of Directors has little experience. The business of
MMKid, although software-related, is separate, distinct and not complementary to
the Company's historical business. The Company's lack of experience and track
record in the educational software and systems business, and the Company's
inexperience with Israeli laws and business practices may result in the
inability of the Company to effectively compete which may lead to operating
losses and loss of standing in the industries in which the Company operates, any
of which would have an adverse effect on the Company, its operations and
financial condition.
DEPENDENCE ON SALES OF EXISTING PRODUCTS. Substantially all of MMKid's
revenues have been derived from sales of its Action K.I.D. systems. Accordingly,
any event that adversely affects fees derived from the sale of such system, such
as competition from other products, significant flaws in the Company's products
or incompatibility of software products with third party hardware or software
products, negative publicity or evaluation, or obsolescence of the hardware
platforms or software environments in which the systems run, would have a
material adverse effect on the Company's results of operations. The Company's
future financial performance will depend, in substantial part, on its ability to
expand sales of its existing products while developing and successfully
marketing new and enhanced products.
DEPENDENCE ON THIRD PARTY SOFTWARE AND HARDWARE. The Company's products
incorporate and use software products and computer hardware and equipment
developed by other entities. The operating systems on which the Company's
products can function (Windows 95-98 and NT) have been developed or are owned by
Microsoft Corporation. The computer hardware and equipment sold as part of the
Company's turnkey system are manufactured by the Pentium Company (an Israeli
company), and others. There can be no assurance that all of these entities will
remain in business, that their product lines will remain viable or that these
products will otherwise continue to be available to the Company. If any of these
entities ceases to do business, or abandons or fails to enhance a particular
product line, the Company may need to seek other suppliers. This could have a
material adverse effect on the Company's results of operations. In addition,
there also can be no assurance that the Company's current suppliers will not
significantly alter their pricing in a manner adverse to the Company.
OPERATIONS IN ISRAEL. Multimedia's operations are based in Israel and,
as a result, the Company's financial results and prospects are directly affected
by economic, political and military conditions in Israel. Moreover, some of the
Company's employees may be obligated to perform annual reserve duty in the
Israeli Defense Forces and are subject to being called for active duty at any
time upon the outbreak of hostilities. Any adverse economic, political or
military developments in Israel could have a material adverse effect on the
Company and its ability to operate.
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<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company is traded on the Nasdaq SmallCap Market
under the symbol JNKN. The Company is in the process of changing its ticker
symbol to MKID to more accurately reflect the focus of its business on the
development of MMKid.
The following table sets forth for the indicated periods, the range
of high and low per share closing prices for our Common Stock as reported on
the Nasdaq SmallCap Market for each quarter since the quarter commencing
July 1, 1998:
<TABLE>
<CAPTION>
Price Range of
Common Stock
-------------------------
High Low
------ ------
<S> <C> <C>
Year Ended June 30, 1999:
First Quarter (from August 14, 1998).............................................. $6 1/4 $4 1/4
Second Quarter.................................................................... $5 $3 3/8
Third Quarter..................................................................... $4 $1.188
Fourth Quarter.................................................................... $3 1/4 $1.188
Interim Period Ended March 31, 2000:
First Quarter..................................................................... $2 1/4 $1 3/8
Second Quarter.................................................................... $4 3/4 $1 1/4
Third Quarter..................................................................... $6 3/8 $3.938
</TABLE>
As of the Record Date there were approximately [5,501,617] holders of
record of our Common Stock.
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<PAGE>
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
The Company has outstanding voting securities consisting of only
Common Stock, of which [5,501,617] shares were outstanding as of the close of
business on the Record Date. Only stockholders of record on the books of the
Company at the close of business on the Record Date will be entitled to vote at
the Meeting. Each share of Common Stock is entitled to one vote. Representation
at the Meeting by the holders of a majority of the outstanding Common Stock,
either by personal attendance or by proxy, will constitute a quorum.
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of the Record Date as to (a) each
director of the Company, (b) each executive officer of the Company, (c) all
executive officers and current directors of the Company as a group, and (d) each
person known to the Company to beneficially own five percent or more of the
outstanding shares of Common Stock. The Company believes that the persons named
in the table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them, subject to community property
laws, where applicable.
<TABLE>
<CAPTION>
Shares Beneficially Owned (1)
-----------------------------
Name and Address (2) Number of Shares of Percent Owned Number of Shares
- -------------------- Voting Stock Before Prior to of Voting Stock Percent Owned
Conversions (1) Conversions(3) After Conversions After Conversions (3)
------------------- -------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
David Edwards 846,296(4) 15.2% 846,296(4) 2.5%
Pessie Goldenberg 234,418 4.2% 5,581,398(5) 16.3%
Joseph Albanese 0 0 0 0
Phillip Luizzo 25,000 0.5% 25,000 0.1%
Robert Cavitt 234,680(6) 4.1% 234,680(6) 0.7%
All directors and executive officers
as a group (6 persons) 1,343,394(7) 23.2% 6,740,374(7) 19.6%
Dan Jensen 759,294 13.8% 759,294 2.2%
Zehava Rubner 286,381 5.2% 6,818,701(8) 20.0%
Adv. Bachar
17 Marmorek
Tel-Aviv, Israel
Naomi Bodner 143,199 2.6% 3,409,249(9) 10.0%
16 Grosser Lane
Monsey, NY 10952
Laura Huberfeld 143,199 2.6% 3,409,249(10) 10.0%
250 Longwood Crossing
Lawrence, NY 11559
</TABLE>
- --------------------
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<PAGE>
(1) Shares of Common Stock which the person has the right to acquire within
60 days of May 5, 2000 are deemed outstanding in calculating the
percentage of ownership of the persons, but not deemed outstanding as to
any other person.
(2) The business address of each of the persons listed unless stated
otherwise is c/o the Company at 7600 N.E. 41st Street, Suite 350,
Vancouver, Washington 98662.
(3) Percentages based on [5,501,617] shares of Common Stock outstanding as
of the Record Date and [34,161,617] shares assumed to be outstanding
following approval of the Conversion Proposal and Charter Amendment
Proposal. Note that the figure [34,161,617] excludes that additional
number of shares issuable upon conversion of the Convertible Notes,
which number is equal to the amount of accrued and outstanding interest
(approximately $138,000 on the date of the meeting) divided by the last
reported sale price of the Company's Common Stock on May 30, 2000.
(4) Includes 50,000 shares of Common Stock issuable upon exercise of a
currently exercisable option.
(5) Includes 5,346,980 shares of Common Stock issuable upon conversion of
267,349 shares of Series B Preferred Stock and 267,349 shares of Series
C Preferred Stock (subject to stockholder approval hereby).
(6) Consists of shares issuable upon currently exercisable options to
purchase an aggregate of 234,680 shares of Common Stock. Such options
terminate will terminate 90 days following completion of the sale of
Summit V in accordance with the Sale Proposal.
(7) Includes currently exercisable options to acquire an aggregate of
287,680 shares of Common Stock which are exercisable within 60 days
following the Record Date.
(8) Includes 6,532,320 shares of Common Stock issuable upon conversion of
326,616 shares of Series B Preferred Stock and 326,616 shares of Series
C Preferred Stock (subject to stockholder approval hereby).
(9) Includes 3,266,050 shares of Common Stock issuable upon conversion of
163,303 shares of Series B Preferred Stock and 163,302 shares of Series
C Preferred Stock (subject to stockholder approval hereby).
(10) Includes 3,266,050 shares of Common Stock issuable upon conversion of
163,302 shares of Series B Preferred Stock and 163,303 shares of Series
C Preferred Stock (subject to stockholder approval hereby).
Assuming approval of the Conversion Proposal and the Charter Amendment
Proposal, the former stockholders of MMKid as a group would hold approximately
73% of fully-diluted Common Stock.
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<PAGE>
STOCKHOLDER PROPOSALS
Stockholders who wish to present proposals for action at the Meeting are
required to submit their proposals in writing to the Secretary of the Company at
the address of the Company set forth on the first page of this Proxy Statement
on or prior to April 26, 2000. Matters relating to such proposals, including the
number and length thereof, eligibility of persons entitled to have such
proposals included and other aspects are regulated by the Securities Exchange
Act of 1934, as amended, Rules and Regulations of the Securities and Exchange
Commission and other laws and regulations to which interested persons should
refer.
OTHER MATTERS
The management of the Company does not know of any other matters
which are to be presented for action at the Meeting. Should any other matters
come before the Meeting or any adjournment thereof, the persons named in the
enclosed proxy will have the discretionary authority to vote all proxies
received with respect to such matters in accordance with their collective
judgment.
ANNUAL REPORT AND QUARTERLY REPORTS
A copy of the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1999 and a copy of any Quarterly Reports on Form
10-QSB for any quarterly periods for which such forms have been filed subsequent
to the end of fiscal 1999, each as filed with the Securities and Exchange
Commission (exclusive of Exhibits), will be furnished without charge to any
person from whom the accompanying proxy is solicited upon written request to
Jenkon International, Inc., 7600 N.E. 41st Street, Suite 350, Vancouver,
Washington 98662, Attention: Secretary. If Appendix copies are requested, a
copying charge of $.20 per page will be made.
BY ORDER OF THE BOARD OF DIRECTORS
Cliff DeGroot,
Secretary
Vancouver, Washington
May __, 2000
STOCKHOLDERS ARE URGED TO SPECIFY THEIR CHOICES AND TO DATE, SIGN, AND RETURN
THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. PROMPT RESPONSE IS HELPFUL AND YOUR
COOPERATION WILL BE APPRECIATED.
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<PAGE>
APPENDIX A
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES B PREFERRED STOCK
A-1
<PAGE>
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.
<PAGE>
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 Corporation,
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<PAGE>
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
-3-
<PAGE>
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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<PAGE>
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 reclassifi
cation 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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<PAGE>
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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<PAGE>
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:
- ---------------------------------
______________, Acting Secretary
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<PAGE>
APPENDIX B
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES C PREFERRED STOCK
B-1
<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF
SERIES C 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 C 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 C 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 C 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 C 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 C Preferred Stock
to a number less than the number of shares of Series C Preferred Stock
then outstanding or reserved for issuance.
2. RANKING. The Series C Preferred Stock shall rank (i) senior to
the Common Stock, and (ii) equal to the Series B Preferred Stock of the
Corporation with respect to the payment of dividends, the distribution
of assets and upon liquidation or winding up of the
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Corporation.
3. DIVIDENDS. So long as any shares of Series C Preferred Stock
are outstanding, the Corporation shall not, without the written consent
of the holders of a majority of the outstanding shares of Series C
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 C Preferred Stock (other than the payment
of dividends payable in securities of the Corporation which shall be
governed by the provisions of Section 4(f)(i) of this Certificate of
Designation).
4. CONVERSION RIGHTS AND LIMITATIONS. The holders of the Series C
Preferred Stock shall have the following conversion rights and
limitations:
(a) SUBJECT TO STOCKHOLDER APPROVAL. No shares of Series C
Preferred Stock shall be convertible into Common Stock of the
Corporation unless and 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 C
Preferred Stock to so convert ("Stockholder Approval").
(b) SUBJECT TO POST-MERGER REVENUES OF THE CORPORATION.
Additionally, no shares of Series C Preferred Stock shall be convertible
into Common Stock of the Corporation unless and until the first calendar
year (or part thereof) in which revenues of Multimedia K.I.D. -
Intelligence in Education, Ltd., an Israeli corporation that will become
a wholly-owned subsidiary of the Corporation simultaneously with the
initial issuance of the shares of Series C Preferred Stock, as a
stand-alone entity, shall exceed US$1,700,000.00, exclusive of revenues
generated by the portion of the Corporation that constituted the
Corporation prior to the contemplated merger (the "Annual Revenue
Target").
(c) AUTOMATIC CONVERSION. Upon both Stockholder Approval and
the achievement of the Annual Revenue Target, the shares of Series C
Preferred Stock shall automatically convert into fully-paid and
nonassessable shares of Common Stock, with identical designations,
preferences and rights thereof.
(d) CONVERSION RATE. Each share of Series C Preferred Stock
shall be converted into ten (10) shares of Common Stock, subject to
adjustment in accordance with Section 4(f) below.
(e) MECHANICS OF CONVERSION. Upon Stockholder Approval and
the achievement of the Annual Revenue Target, each holder of Series C
Preferred Stock shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the
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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").
(f) 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 Corporation, then and in each
such event provision shall be made so that the holders of the Series C
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 C 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 C
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 C 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 C Preferred Stock would have been converted
(taking into account all accrued and unpaid dividends and interest with
respect to such Series C 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
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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 C 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 C 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
provisions of this Section 4 with respect to the rights of the holders
of the Series C 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 C 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 C Preferred Stock
may be converted shall be adjusted so that the holders of the Series C
Preferred Stock shall have the right to convert each share of Series C
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 C Preferred Stock may be converted, the
Corporation will furnish each holder of Series C Preferred Stock with a
certificate, executed by the President and
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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 C 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.
(g) 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 C 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 C 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.
(h) 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 C 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.
(i) RESERVATION OF COMMON STOCK. The Corporation shall at all
times from and after the date of Stockholder Approval 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 C 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 C 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 C 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. CANCELLATION. In the event that the Annual Revenue Target is
not achieved by December 31, 2001, the shares of Series C Preferred
Stock shall automatically be canceled without any further action on the
part of the holders thereof or of the Corporation, and the holders of
Series C Preferred Stock shall not be entitled to any rights of any
sort, including, but not limited to, any rights of conversion,
redemption or distribution.
6. REDEMPTION.
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(a) REDEMPTION RIGHTS. Upon the occurrence of a "Redemption
Event" (as defined below), the shares of Series C Preferred Stock shall
be redeemable at the option of the holders thereof. The redemption price
of each share of Series C 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 C 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 C 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 obtained on or
prior to March 31, 2000, or such later date as the holders of a majority
of the Series C Preferred Stock shall agree; provided, however, that if
Stockholder Approval occurs after March 31, 2000, a Redemption Event
shall be deemed to occur only with respect to shares of Series C
Preferred Stock with respect to which written demand for redemption
shall have been made and received by the Corporation prior to the date
of Stockholder Approval;
(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;
(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 consent to the appointment of a receiver,
trustee or liquidator of the Corporation, or of all or any substantial
part of its properties.
7. LIQUIDATION, DISSOLUTION OR WINDING UP.
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(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 C 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 C Preferred Stock, an amount or
value (such amount or value as described immediately below is
hereinafter called the "Series C Preference Price") equal to $10.00 per
share of Series C Preferred Stock (subject to adjustment if the Series C
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 C 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 C Preferred Stock apportioned among the number of shares into
which such shares of Series C Preferred Stock are changed) plus in each
case, any and all declared but unpaid dividends on such shares. In the
event that a Liquidation occurs subsequent to the date of Stockholder
Approval but prior to the date on which the Annual Revenue Target has
been achieved, holders of Series C Preferred Stock will be entitled to a
Series C Preference Price of $.01 per share of Series C Preferred Stock
and, after payment thereof, shall participate ratably with the Common
Stock in any distribution of Available Funds on an "as converted" bases.
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 C 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 C 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 C 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 C 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.
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
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<PAGE>
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 7; 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 C Preferred Stock
shall not be entitled to receive any payment of the full balance owed
for such shares under this Section 7 until such holder shall cause to be
delivered to the Corporation (i) the certificate(s) representing such
shares of Series C 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 C 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 C Preference Price shall have been paid
in full to the holders of the Series C 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 C 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 C Preferred Stock, and the
holders of shares of the Series C 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.
8. VOTING RIGHTS. Except as otherwise required by applicable law,
the
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<PAGE>
Series C Preferred Stock shall have no voting rights prior to
Stockholder Approval. If there has been Stockholder Approval but the
Annual Revenue Target has not been satisfied, each share of the Series C
Preferred Stock shall, except to the extent that requirements of law
supersede the limitations on voting rights in the Certificate of
Incorporation or these resolutions and as otherwise set forth herein, be
entitled to vote, together with holders of the Common Stock of the
Corporation as a single class, with respect to any questions upon which
holders of Common Stock have the right to vote. Each holder of Series C
Preferred Stock shall be entitled to that number of votes equal to the
number of shares of Common Stock into which such holder's shares of
Series C Preferred Stock could be converted pursuant to the provisions
of Section 4 hereof, at the record date for the determination of
stockholders entitled to vote on such matter or, if no such record date
is established, at the date such vote is taken or any written consent of
stockholders is solicited. Each holder of Series C Preferred Stock shall
be entitled, notwithstanding any provision hereof, to notice of any
stockholders' meeting in accordance with the bylaws of this Corporation.
9. 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 reclassifi
cation 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 C 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.
10. NO REISSUANCE OF THE SERIES C PREFERRED STOCK. No share or
shares of the Series C 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 C Preferred Stock accordingly.
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11. NO SENIOR OR EQUAL SHARES. With the exception of the Series B
Preferred Stock, the Board of Directors of the Corporation shall not,
without the consent of the holders of a majority of the outstanding
Series C Preferred Stock, create any class or series of equity security
which is either senior or equal to the Series C Preferred Stock with
respect to rights upon Liquidation.
12. 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.
13. 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."
IN WITNESS WHEREOF, the undersigned has caused this Certificate of
Designation, Preferences and Rights of Series C Preferred Stock to be duly
executed by its President and Chief Executive Officer and attested to by its
Secretary on this ___ day of December, 1999.
JENKON INTERNATIONAL, INC.
By:
---------------------------------
Robert Cavitt, President
Attest:
- ---------------------------------
Cliff DeGroot, Assistant Secretary
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APPENDIX C
FORM OF CONVERTIBLE PROMISSORY NOTE
C-1
<PAGE>
THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED, DISPOSED OF OR OFFERED FOR SALE, IN
WHOLE OR IN PART, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THAT ACT COVERING THIS NOTE AND/OR THE COMMON STOCK ISSUABLE UPON CONVERSION
THEREOF, OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO JENKON
INTERNATIONAL, INC. THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
CONVERTIBLE PROMISSORY NOTE
(the "Note")
JENKON INTERNATIONAL, INC.
Principal Sum: $_______________
Holder: _______________________
JENKON INTERNATIONAL, INC., a Delaware corporation (hereinafter called the
"Corporation"), hereby promises to pay the Principal Sum set forth above (the
"Principal Sum") to the order of the above-referenced holder (the "Holder") on
or before April 1, 2000. This Note shall accrue interest at the rate of twelve
percent (12%) per annum from and after January 1, 2000. Accrued interest shall
be payable on February 1, 2000 and at maturity or on conversion (each, an
"interest payment date"). Interest shall be computed on the basis of a 360-day
year.
1. ISSUANCE. This Note is being issued pursuant to the terms of a Note
Purchase Agreement between the Corporation and the Holder (the "Subscription
Agreement") which contains, among other things, certain representations by
the Holder as to Holder's sophistication as an investor. In addition, the
Subscription Agreement contains certain covenants of the Corporation relating
to the registration of the Common Stock into which this Note may be converted
under the Securities Act of 1933, as amended (the "Act").
2. CONVERSION.
(a) On the Shareholder Approval Date (as hereinafter defined), the
outstanding principal balance of this Note shall automatically be converted
into shares of common stock, $0.001 par value, of the Corporation ("Common
Stock") at a conversion price of $1.00 per share.
(b) Simultaneously with the issuance of this Note, the Corporation shall
reserve for issuance on conversion of this Note the total number shares of
Common Stock issuable upon conversion of this Note (as such number may be
adjusted from time to time in accordance with
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<PAGE>
(c) below, the "Conversion Shares"). The Corporation shall use its best
reasonable efforts promptly to list on the Nasdaq SmallCap Market, all of the
Conversion Shares.
(c) If any capital reorganization or reclassification of the Common
Stock, stock split, reverse stock split, stock combination, or consolidation
or merger of the Corporation with or into another corporation, or
distribution of the proceeds of any sale or conveyance of all or
substantially all of its assets to another corporation (a "Capital Event")
shall be effected, then, as a condition precedent of such Capital Event, the
following provision shall be made: The Holder of the Note shall, from and
after the date of such Capital Event sale have the right to receive upon
conversion (in lieu of the shares of Common Stock of the Corporation
immediately theretofore issuable upon the exercise of conversion rights),
such shares of stock, securities or assets as would have been issued or
payable with respect to or in exchange for the number of shares of Common
Stock immediately theretofore issuable upon conversion of the Note
(regardless of whether the Note was actually convertible at such time). In
any such case, appropriate provision shall be made with respect to the rights
and interests of the Holders to the end that such conversion rights
(including, without limitation, provisions for appropriate adjustments) shall
thereafter be applicable, as nearly as may be practicable in relation to any
shares of stock, securities or assets thereafter deliverable upon the
conversion of the Note.
(d) The Corporation covenants to call a meeting of stockholders to be
held on or before March 31, 2000 to, among other things, approve the issuance
of the Conversion Shares and such other shares of Common Stock as may be
issuable upon conversion of certain other notes of the same tenor
(collectively, the "JNKN Notes"). The Board of Directors of the Corporation
will recommend that the stockholders of the Corporation vote in favor of such
approval. The date on which such approval is obtained is referred to herein
as the "Stockholder Approval Date."
3. ISSUANCE OF CONVERSION SHARES. The Corporation covenants and agrees that
all Conversion Shares will, upon conversion of the JNKN Notes and issuance in
accordance with the terms hereof, be duly and validly issued, fully paid and
non-assessable.
4. EVENTS OF DEFAULT AND ACCELERATION OF THE NOTE.
(a) An "event of default" with respect to this Note shall exist if any
of the following shall occur:
(i) The Corporation shall breach or fail to comply with any
provision of this Note and such breach or failure shall continue for fifteen
(15) days after written notice thereof to the Corporation by any Holder of
JNKN Notes.
(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; or the
Corporation shall be adjudicated bankrupt or insolvent; or a substantial part
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
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<PAGE>
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.
(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.
(iv) The Corporation shall make an assignment for the benefit of
its creditors, or consent to the appointment of a receiver, trustee or
liquidator of the Corporation, or of all or any substantial part of its
properties.
(b) If an event of default referred to in clause (i) shall occur, the
Holder may, in addition to such Holder's other remedies, by written notice to
the Corporation, declare the principal amount of this Note, together with all
interest accrued thereon, to be due and payable immediately. Upon any such
declaration, such amount shall become immediately due and payable and the
Holder shall have all such rights and remedies provided for under the terms
of this Note and the Subscription Agreement. If an event of default referred
to in clauses (ii), (iii) or (iv) shall occur, the principal amount of this
Note, together with all interest accrued thereon, shall become immediately
due and payable and the Holder shall have all such rights and remedies, if
any, provided for under the terms of this Note and the Subscription Agreement.
5. INTEREST RATE LIMITATION. It is the intent of Holder and the Corporation
in this execution of this Note, that the loan evidenced hereby be exempt from
the restrictions of applicable state usury laws. In the event that for any
reason, it should be determined that any such usury law is applicable to this
Note, Holder and the Corporation stipulate and agree that none of the terms
and provisions contained herein shall ever be construed to create a contract
for the use, forbearance or detention of money requiring payment of interest
at a rate in excess of the maximum interest rate permitted to be charged by
the laws of such state. In such event, if the Corporation shall collect
monies which are deemed to constitute interest which would otherwise increase
the effective interest rate on this Note to a rate in excess of the maximum
rate permitted to be charged by applicable state law, all such sums shall, at
the option of Holder, be credited to the payment of the sums due hereunder or
returned to the Corporation.
6. MISCELLANEOUS.
(a) All notices and other communications required or permitted to be
given hereunder shall be in writing and shall be given (and shall be deemed
to have been duly given upon receipt) by delivery in person, by telegram, by
facsimile, recognized overnight mail carrier, telex or other standard form of
telecommunications, or by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows: (a) if to the Holder, to such
address as such Holder shall furnish to the Corporation in accordance with
this Section, or (b) if to the Corporation, to it at its headquarters office,
or to such other address as the Corporation shall furnish to the Holder in
accordance with this Section.
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<PAGE>
(b) This Note shall be governed and construed in accordance with the
laws of the State of New York applicable to agreements made and to be
performed entirely within such state.
(c) The Corporation waives protest, notice of protest, presentment,
dishonor, notice of dishonor and demand.
(d) If any provision of this Note shall for any reason be held to be
invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision hereof, but this Note shall be construed as if
such invalid or unenforceable provision had never been contained herein.
(e) The waiver of any event of default or the failure of the Holder to
exercise any right or remedy to which it may be entitled shall not be deemed
a waiver of any subsequent event of default or of the Holder's right to
exercise that or any other right or remedy to which the Holder is entitled.
(f) Upon the occurrence of an uncured event of default, the Holder of
this Note shall be entitled to recover its legal and other costs of
collecting on this Note, and such costs shall be deemed added to the
principal amount of this Note.
(g) In addition to all other remedies to which the Holder may be
entitled hereunder, Holder shall also be entitled to decrees of specific
performance without posting bond or other security.
IN WITNESS WHEREOF, the Corporation has caused this Note to be duly
executed on the date set forth below
Dated: December 16, 1999
JENKON INTERNATIONAL, INC.
By:
----------------------------------------------
David Edwards, Chief Executive Officer
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<PAGE>
APPENDIX D
FORM OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF JENKON INTERNATIONAL, INC.
D-1
<PAGE>
AMENDED ARTICLE I AND ARTICLE IV, SECTION 1
OF
CERTIFICATE OF INCORPORATION
OF
JENKON INTERNATIONAL, INC.
ARTICLE I
The name of this corporation (herein called the "Corporation")
is as follows:
Multimedia K.I.D., Inc.
ARTICLE IV
SECTION 1. AUTHORIZED SHARES. The total number of all classes
of capital stock which the corporation is authorized to issue is
55,000,000 shares which shall be divided into two classes as
follows: 50,000,000 Common shares, with a par value of $.001 per
share; and 5,000,000 Preferred shares, with a par value of $.001
per share.
The full voting power of the Corporation shall be exercised by
the Common Stock and all other future series of Common shares with
full voting rights and any series of Preferred shares with
equivalent voting rights, all voting together as one class, and
none of such series of Common shares or Preferred shares shall have
any other or special voting rights except as otherwise required by
the laws as then applicable, the Corporation's Certificate of
Incorporation as then amended, or any resolution of the Board of
Directors originally designating such series.
Preferred shares of the Corporation's capital stock may be
issued in one or more series at such time or times, and for such
consideration or considerations as the Board of Directors may
determine from time to time. The Board of Directors is expressly
authorized as to any wholly unissued series of Preferred shares, to
determine the number of shares thereof and the dividend rights,
dividend rates, conversion rights (if any), redemption prices,
liquidation preferences, voting rights (if any), the rights and
terms of redemption (including sinking fund provisions) and all
other rights, preferences and privileges thereof. The Board of
Directors may increase or decrease the number of shares of any
series subsequent to the issue of shares of that series, but not
below the number of shares of that series then outstanding. In case
the number of shares of any series shall be so decreased, the
shares constituting that decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing
the number of shares of that series.
<PAGE>
APPENDIX E
STOCK PURCHASE AGREEMENT.
E-1
<PAGE>
STOCK PURCHASE AGREEMENT
AMONG
JIA, INC.
SUMMIT V, INC
AND
JENKON INTERNATIONAL, INC., A DELAWARE CORPORATION
AND
JENKON INTERNATIONAL, INC., A WASHINGTON CORPORATION
DATED AS OF APRIL 6, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - DEFINITIONS...............................................................................1
ARTICLE II - PURCHASE AND SALE OF SHARES..............................................................3
2.1 Purchase and Sale of Shares.........................................................3
2.2 Consideration for Shares............................................................3
2.2.1 Closing Payment..........................................................3
2.2.2 Note.....................................................................3
2.2.3 Escrow...................................................................3
2.3 Closing.............................................................................4
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS......................4
3.1 Shareholder Matters.................................................................4
3.1.1 Good Title...............................................................4
3.1.2 Authority................................................................5
3.1.3 Enforceability...........................................................5
3.1.4 No Approvals or Notices Required; No Conflicts...........................5
3.2 Company Organization; Good Standing; Corporate Authority; Enforceability............5
3.3 Capitalization......................................................................6
3.4 Subsidiaries and Affiliates.........................................................7
3.5 No Approvals or Notices Required; No Conflicts......................................7
3.6 Financial Statements; Obligations...................................................7
3.7 Action by David Edwards.............................................................8
3.8 Accuracy of SEC Filings.............................................................8
3.9 Corporate Books and Records.........................................................8
3.10 Brokers or Finders..................................................................9
3.11 Bank Accounts.......................................................................9
3.12 Accuracy of Representations and Warranties..........................................9
3.13 Tax Consequences....................................................................9
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BUYER..................................................9
4.1 Organization.......................................................................10
4.2 Enforceability.....................................................................10
4.3 No Approvals or Notices Required; No Conflicts With Instruments....................10
4.4 Claims and Legal Proceedings.......................................................10
</TABLE>
STOCK PURCHASE AGREEMENT PAGE i
<PAGE>
<TABLE>
<S> <C>
4.5 Tax Consequences...................................................................11
4.6 Accuracy of SEC Filings............................................................11
4.7 Accuracy of Representations and Warranties.........................................11
ARTICLE V - COVENANTS................................................................................11
5.1 Conduct of Business by the Company Pending the Closing.............................11
5.2 Access to Information; Confidentiality.............................................14
5.3 No Solicitation....................................................................14
5.4 Notification of Certain Matters....................................................17
5.5 Further Action.....................................................................17
5.6 Publicity..........................................................................18
ARTICLE VI - ADDITIONAL AGREEMENTS...................................................................18
6.1 Preparation of the Proxy Statement; Stockholders Meeting...........................18
6.2 Certain Expenses...................................................................18
6.3 Assignment of Intellectual Property............................
ARTICLE VII -CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER............................................19
7.1 Accuracy of Representations and Warranties.........................................19
7.2 Performance of Agreements..........................................................19
7.3 Opinion of Counsel for the Company and the Shareholders............................19
7.4 Consents to Sale of Shares.........................................................19
7.5 Officers' Certificate..............................................................20
7.6 Shareholder's Certificate..........................................................20
7.7 Material Adverse Change............................................................20
7.8 Approvals and Consents.............................................................20
7.9 Proceedings and Documents; Secretary's Certificate.................................20
7.10 Compliance With Laws...............................................................20
7.11 Legal Proceedings..................................................................20
7.12 Delivery of Certificates...........................................................21
7.14 Noncompetition Agreements..........................................................21
7.15 Waiver by Insiders.................................................................21
ARTICLE VIII - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY AND THE SHAREHOLDERS...............21
8.1 Accuracy of Representations and Warranties.........................................21
8.2 Performance of Agreements..........................................................22
8.3 Opinion of Counsel for Buyer.......................................................22
8.4 Officers' Certificate..............................................................22
8.5 Material Adverse Change............................................................22
</TABLE>
STOCK PURCHASE AGREEMENT PAGE ii
<PAGE>
<TABLE>
<S> <C>
8.6 Approvals and Consents.............................................................22
8.7 Proceedings and Documents; Secretary's Certificate.................................22
8.8 Compliance With Laws...............................................................23
8.9 Legal Proceedings..................................................................23
8.10 Fairness Opinion...................................................................23
8.11 Waiver by Insiders.................................................................24
ARTICLE IX - TERMINATION, AMENDMENT AND WAIVER.......................................................24
9.1 Termination........................................................................24
9.2 Effect of Termination..............................................................25
9.3 Amendment..........................................................................25
9.4 Waiver.............................................................................25
ARTICLE X - SURVIVAL AND INDEMNIFICATION.............................................................26
10.1 Survival...........................................................................26
10.2 Indemnification....................................................................26
10.2.1 Indemnification by the Shareholders.....................................26
10.2.2 Indemnification by Buyer................................................27
10.3 Limitations........................................................................27
10.4 Procedure for Indemnification......................................................28
10.4.1 Claim Notice............................................................28
10.4.2 Dispute Notice..........................................................28
10.4.3 Third-Party Claims......................................................28
10.5 Investigations; Waivers............................................................28
ARTICLE XI - GENERAL.................................................................................29
11.1 Expenses...........................................................................29
11.2 Specific Enforcement...............................................................30
11.3 Consequential Damages..............................................................30
11.4 Assignment.........................................................................30
11.5 Notices............................................................................31
11.6 Governing Law; Jurisdiction; Venue.................................................32
11.7 Successors and Assigns.............................................................32
11.8 Severability.......................................................................32
11.9 Entire Agreement; Counterparts.....................................................33
</TABLE>
STOCK PURCHASE AGREEMENT PAGE iii
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "AGREEMENT") is entered into as of
April 6, 2000 among JIA, Inc., a WASHINGTON, corporation ("BUYER"), Jenkon
International, Inc., a WASHINGTON corporation ("the SHAREHOLDER"), Jenkon
International, Inc., a DELAWARE corporation (the "PARENT"), and Summit V, Inc.,
a Washington corporation (the "COMPANY"). The Shareholder and Parent are
collectively referred to as the "SHAREHOLDERS." Shareholder is a wholly owned
subsidiary of Parent.
RECITALS
A. The Shareholder owns the Shares and desires and intends to sell
the Shares to Buyer at the price and on the terms and subject to the conditions
set forth below.
B. Buyer desires and intends to purchase the Shares from the
Shareholder at the price and on the terms and subject to the conditions set
forth below.
AGREEMENT
In consideration of the terms hereof and for good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:
ARTICLE I - DEFINITIONS
1.1. "BALANCE SHEET": The balance sheet of the Company as of December
31, 1999.
1.2. "BUYER INDEMNIFIED PARTIES": As defined in Section 10.2.1.
1.3. "CLAIM": As defined in Section 10.2.1.
1.4. "CLAIM NOTICE": As defined in Section 10.4.2.
1.5. "CLOSING": As defined in Section 2.3.
1.6. "CLOSING AMOUNT": As defined in Section 2.2.1.
1.7. "CLOSING DATE": The date, time and place of Closing as specified
in Section 2.3.
1.8. "COMMON STOCK": As defined in Section 3.3(a).
STOCK PURCHASE AGREEMENT
<PAGE>
1.9. "DISCLOSURE SCHEDULES": The Disclosure Schedules attached and
made a part hereof and which constitute in their entirety a representation and
warranty under Article III.
1.10. "ESCROW AGENT": As defined in Section 2.2.3.
1.11. "ESCROW AGREEMENT": As defined in Section 2.2.3.
1.12. "ESCROW AMOUNT": As defined in Section 2.2.3.
1.13. "FINANCIAL STATEMENTS": As defined in Section 3.6.
1.14. "GAAP": Generally accepted accounting principles in the United
States.
1.15. "INDEMNIFIED PARTIES": As defined in Section 10.2.2.
1.16. "KNOWLEDGE": Representations and warranties to a party's
knowledge mean that in acquiring such knowledge, the party representing and
warranting such knowledge need not make any inquiry or investigation.
1.17. "LOSSES": As defined in Section 10.2.1.
1.18. "MATERIAL": Material individually or in the aggregate.
1.19. "NOTE": As defined in Section 2.2.2.
1.20. "PARENT": As defined in the first paragraph.
1.21. "PERSON": Any person, corporation, partnership, joint venture,
association, organization, other entity or governmental or regulatory authority.
1.22. "PURCHASE PRICE": The aggregate purchase price for the Shares,
as defined in Section 2.2.
1.23. "SHAREHOLDER": As defined in the first paragraph.
1.24. "SHAREHOLDERS": As defined in the first paragraph.
1.25. "SHAREHOLDER INDEMNIFIED PARTIES": As defined in Section 10.2.2.
1.26. "SHARES": The 5,000 shares of common stock of the Company to
be purchased by Buyer, representing 100% of the outstanding shares of the
Company.
STOCK PURCHASE AGREEMENT
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1.27. "SUBSIDIARY": When used in reference to any Person, shall mean
any corporation of which outstanding securities having ordinary voting power to
elect a majority of the Board of Directors of such corporation are owned
directly or indirectly by such Person.
1.28. "TRANSACTION DOCUMENTS": This Agreement and each of the
agreements, certificates, instruments and documents executed or delivered
pursuant to the terms of this Agreement.
ARTICLE II - PURCHASE AND SALE OF SHARES
2.1 PURCHASE AND SALE OF SHARES
On the terms and subject to the conditions of this Agreement, Buyer
agrees to purchase the Shares from the Shareholder, and the Shareholder agrees
to sell the Shares to Buyer.
2.2 CONSIDERATION FOR SHARES
The aggregate purchase price for the Shares is $1,175,000 (the "PURCHASE
PRICE"), payable as set forth in this Section 2.2.
2.2.1 CLOSING PAYMENT
The sum of $500,000 (the "CLOSING AMOUNT") shall be paid by Buyer to the
Shareholder (a) through the release to the Shareholder of the $200,000 Escrow
Amount, as defined in section 2.2.3 below, and (b) by bank wire transfer of
$300,000, in each case at the Closing.
2.2.2 NOTE
At the Closing, the Buyer will deliver to the Shareholder a Note in the
principal amount of $675,000. The Note will be in form mutually acceptable to
Buyer and Shareholder, will bear interest at the rate of 10% per annum payable
quarterly in arrears, and all principal and interest will be due and payable one
year from the Closing Date. The Note will be secured by a pledge in form
reasonably satisfactory to Shareholders of 75,000 shares of the common stock of
Parent.
2.2.3 ESCROW
Within three business days of the date of this Agreement, Buyer will
deposit the sum of $200,000 (the "ESCROW AMOUNT") with a mutually satisfactory
escrow agent (the "ESCROW AGENT") to be held in escrow as evidence of financial
capacity and
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in accordance with a mutually satisfactory Escrow Agreement (the "ESCROW
AGREEMENT") to be entered into by Buyer, the Shareholder and the Escrow Agent.
2.3 CLOSING
The closing of the transactions contemplated herein (the "CLOSING")
shall be TWO days following stockholder approval by the stockholders of Parent
and shall be held at the office of Perkins Coie, 1211 SW Fifth Avenue, Portland,
Oregon 97204, at 9:00 A.M. local time, or such other time and date as Buyer and
the Shareholder shall agree (the "CLOSING DATE"). At the Closing, each of Buyer,
and the Shareholder shall take all such action and deliver all such funds,
documents, instruments, certificates and other items as may be required, under
this Agreement or otherwise, in order to perform or fulfill all covenants,
conditions and agreements on its part to be performed or fulfilled at or before
the Closing Date and to cause all conditions precedent to the other parties'
obligations under this Agreement to be satisfied in full.
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE SHAREHOLDERS
To induce Buyer to enter into and perform this Agreement, and except as
is otherwise set forth in the Disclosure Schedules, which exceptions shall
specifically identify the paragraph or paragraphs of this Article III to which
such exceptions relate, and which shall constitute in its entirety a
representation and warranty under this Article III, the Company, the Shareholder
and the Parent jointly and severally represent and warrant to Buyer as of the
date of this Agreement and as of the Closing as follows in this Article III
(which representations and warranties shall survive the Closing as provided in
Article X).
3.1 SHAREHOLDER MATTERS
3.1.1 GOOD TITLE
The Shareholder is the beneficial and record owner of the Shares which
represent all of the issued and outstanding capital stock of the Company. Such
Shares are owned free and clear of any lien, encumbrance, restriction on sale,
transfer or voting (other than restrictions imposed by applicable securities
laws), preemptive right, option or other right to purchase and upon the
consummation of the sale of such Shares as contemplated hereby, Buyer will
acquire good title to such Shares, free and clear of any lien, encumbrance,
restriction on sale, transfer or voting (other than restrictions imposed by
applicable securities laws or those created by Buyer), preemptive right, option
or other right.
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3.1.2 AUTHORITY
Each of the Shareholders and the Parent has all requisite corporate
power, right and authority to enter into this Agreement and the other
Transaction Documents to which it is a party, to consummate the transactions
contemplated hereby and thereby, and the Shareholder has the power sell and
transfer such Shares without the consent or approval of any other Person.
3.1.3 ENFORCEABILITY
This Agreement has been, and the other Transaction Documents to which
any of the Shareholders is a party on the Closing will be, duly executed and
delivered by the Shareholders, and this Agreement is, and each of the other
Transaction Documents to which it is a party on the Closing will be, the legal,
valid and binding obligation of the Shareholders, enforceable against the
Shareholders in accordance with its terms.
3.1.4 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS
The execution, delivery and performance of this Agreement and the other
Transaction Documents by the Shareholders, and the consummation of the
transactions contemplated hereby and thereby, will not (a) constitute a
violation (with or without the giving of notice or lapse of time, or both) of
any provision of any law or any judgment, decree, order, regulation or rule of
any court, agency or other governmental authority applicable to the
Shareholders, (b) require any consent, approval or authorization of, or
declaration, filing or registration with, any Person other than (i) consent of
the stockholders of Parent (including, to the extent required, the filing and
approval of a proxy statement with the Securities and Exchange Commission), and
(ii) notification of the Nasdaq Stock Market, Inc. to the extent required under
its rules, (c) result in a default (with or without the giving of notice or
lapse of time, or both) under, acceleration or termination of, or the creation
in any party of the right to accelerate, terminate, modify or cancel, any
agreement, lease, note or other restriction, encumbrance, obligation or
liability to which the Company is a party or by which it is bound or to which
any assets of the Company are subject, or (d) result in the creation of any lien
or encumbrance upon the assets of the Shareholders, or upon any Shares or other
securities of the Company.
3.2 COMPANY ORGANIZATION; GOOD STANDING; CORPORATE AUTHORITY; ENFORCEABILITY
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the state of Washington. The Company is duly
qualified to
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do business, and is in good standing in the states required due to (a) the
ownership or lease of real or personal property for use in the operation of the
Company's business or (b) the nature of the business conducted by the Company
except where the failure to be so qualified or in good standing would not have a
material adverse effect on the Company. The Company has all requisite power,
right and authority to own, operate and lease its properties and assets, to
carry on its business as now conducted and as proposed to Buyer by the Company
to be conducted, to execute, deliver and perform its obligations under this
Agreement and the other Transaction Documents to which it is a party, and to
carry out the transactions contemplated hereby and thereby.
All actions on the part of the Company and its officers and directors
necessary for the authorization, execution, delivery and performance of this
Agreement and the other Transaction Documents, the consummation of the
transactions contemplated hereby and thereby, and the performance of all of the
Company's obligations under this Agreement and the other Transaction Documents
have been taken or will be taken prior to the Closing. This Agreement has been,
and the other Transaction Documents to which the Company is a party on the
Closing will be, duly executed and delivered by the Company, and this Agreement
is, and each of the other Transaction Documents to which it is a party on the
Closing will be, a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
3.3 CAPITALIZATION
(a) The authorized capital stock of the Company consists of 50,000
shares of common stock, one dollar par value (the "COMMON STOCK").
(b) The issued and outstanding capital stock of the Company consists
and as of the Closing will consist solely of the Shares, which are and as of the
Closing will be held of record by the Shareholder. All shares of Common Stock
that are issued and outstanding are, and as of the Closing Date will be, duly
authorized and validly issued, fully paid and nonassessable, and issued in
compliance with all applicable federal, state and foreign securities laws.
Except for the Shareholder, no Person holds any interest in any of the Shares.
(c) There are no outstanding rights of first refusal, preemptive
rights, options, warrants, conversion rights or other agreements, either
directly or indirectly, for the purchase or acquisition from the Company of any
of the Shares or other securities of the Company.
(d) The Company is not a party or subject to any agreement or
understanding, and there is no agreement or understanding between any Persons,
that
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affects or relates to the voting or giving of written consents with respect
to any securities of the Company or the voting by any director of the Company.
3.4 SUBSIDIARIES AND AFFILIATES
The Company does not have, and has never had, any Subsidiaries. The
Company does not own, directly or indirectly, any ownership, equity, profits or
voting interest in, or otherwise control, any corporation, partnership, joint
venture or other entity, and has no agreement or commitment to purchase any such
interest.
3.5 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS
The execution, delivery and performance of this Agreement and the other
Transaction Documents by the Company, and the consummation of the transactions
contemplated hereby and thereby, will not (a) constitute a violation (with or
without the giving of notice or lapse of time, or both) of any provision of any
law or any judgment, decree, order, regulation or rule of any court, agency or
other governmental authority applicable to the Company, (b) require any consent,
approval or authorization of, or declaration, filing or registration with, any
Person other than (i) consent of the stockholders of Parent (including, to the
extent required, the filing and approval of a proxy statement with the
Securities and Exchange Commission), (ii) notification of the Nasdaq Stock
Market, Inc. to the extent required under its rules, and (iii) consent of the
landlord of the premises occupied by Summit V, (c) result in a default (with or
without the giving of notice or lapse of time, or both) under, acceleration or
termination of, or the creation in any party of the right to accelerate,
terminate, modify or cancel, any agreement, lease, note or other restriction,
encumbrance, obligation or liability to which the Company is a party or by which
it is bound or to which any assets of the Company are subject, (d) result in the
creation of any lien or encumbrance upon the assets of the Company, or upon any
Shares or other securities of the Company, (e) conflict with or result in a
breach of or constitute a default under any provision of the Articles or Bylaws
of the Company, or (f) invalidate or adversely affect any material permit,
license, authorization or status used in the conduct of the business of the
Company.
3.6 FINANCIAL STATEMENTS; OBLIGATIONS
The Company has delivered to Buyer (a) balance sheets and statements of
operations, shareholders' equity and cash flows of the Parent at and for the
fiscal years ended June 30, 1998, 1999, and accompanying notes, audited by BDO
Seidman, independent auditors and certified public accountants, and (b)
unaudited balance sheets and unaudited statements of operations and cash flows
of the Parent at and for
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the six month period ended December 31, 1999. All the foregoing financial
statements (including the notes thereto) are referred to as the "FINANCIAL
STATEMENTS". The Financial Statements have been prepared in conformity with GAAP
consistently applied throughout the periods covered, except as may be indicated
in the notes thereto, and present fairly the financial position, results of
operations and changes in financial position of the Parent at the dates and for
the periods indicated, subject, in the case of the unaudited financial
statements, to normal recurring period-end adjustments.
To the knowledge of David Edwards, the Company has no liabilities or
obligations of any nature (absolute, accrued or contingent) that are not fully
reflected or reserved against in the Balance Sheet, as prescribed by GAAP and
the Financial Accounting Standards Board, except liabilities or obligations
incurred since the date of the Balance Sheet in the ordinary course of business
and consistent with past practice. The Company maintains and will continue to
maintain standard systems of accounting established and administered in
accordance with GAAP. The Company is not a guarantor, indemnitor, surety or
other obligor of any indebtedness of any other Person.
3.7 ACTION BY DAVID EDWARDS
Since June 30, 1999 David Edwards has not entered into any contracts on
behalf of the Company or Jenkon International (UK) nor entered into any
employment agreement or arrangement on behalf of those entities except a bonus
arrangement with Cliff De Groot.
3.8 ACCURACY OF SEC FILINGS
To the knowledge of David Edwards, the filings made with the Securities
and Exchange Commission by the Parent (the "SEC Documents") do not contain a
misstatement of material fact concerning the Company, its operations and
financial condition or omit to state a fact necessary to make such statements
contained therein not misleading.
3.9 CORPORATE BOOKS AND RECORDS
The Company has furnished to Buyer true and complete copies of (a) the
Articles of Incorporation and Bylaws of the Company as currently in effect,
including all amendments thereto, (b) the minute books of the Company, and (c)
the stock transfer books of the Company. Such minutes reflect all meetings of
the Company's shareholders, Board of Directors and any committees thereof since
the Company's
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inception, and such minutes accurately reflect the events of and actions taken
at such meetings. Such stock transfer books accurately reflect all issuances and
transfers of shares of capital stock of the Company since its inception.
3.10 BROKERS OR FINDERS
The Company has not incurred, and will not incur, directly or
indirectly, as a result of any action taken by or on behalf of the Company, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated hereby
other than such arranged or committed to by Buyer.
3.11 BANK ACCOUNTS
Disclosure Schedule 3.11 sets forth the names and locations of all
banks, trust companies, savings and loan associations and other financial
institutions at which the Company maintains safe deposit boxes or accounts of
any nature and the names of all Persons authorized to draw thereon, make
withdrawals therefrom or have access thereto.
3.12 ACCURACY OF REPRESENTATIONS AND WARRANTIES
To the knowledge of David Edwards, none of the representations and
warranties of Buyer contained in this agreement is inaccurate, contains a
misstatement of material fact, or omits to state a fact necessary to make such
statements contained therein not misleading.
3.13 TAX CONSEQUENCES
Neither Parent nor Shareholder makes any representation or warranty with
respect to, and each expressly disclaims any responsibility for, any Tax
consequences to the Buyer arising out of the structure or terms of this
Agreement, or the negotiation or consummation hereof. The Buyer shall be solely
responsible for any such Tax consequences.
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
OF BUYER
To induce the Company and the Shareholders to enter into and perform
this Agreement, Buyer represents and warrants to the Company and the
Shareholders as of the date of this Agreement and as of the Closing as follows
in this Article IV:
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4.1 ORGANIZATION
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the state of Washington. Buyer has all requisite
corporate power and authority to own, operate and lease its properties and
assets, to carry on its business as now conducted and as proposed to be
conducted, to execute, deliver and perform its obligations under this Agreement
and the other Transaction Documents to which it is a party, and to carry out the
transactions contemplated hereby and thereby.
4.2 ENFORCEABILITY
All corporate action on the part of Buyer and its officers, directors
and shareholders necessary for the authorization, execution, delivery and
performance of this Agreement and the other Transaction Documents to which it is
a party, the consummation of the transactions contemplated hereby and thereby,
and the performance of all of Buyer's obligations under this Agreement and the
other Transaction Documents to which it is a party has been taken or will be
taken prior to the Closing. This Agreement has been, and the other Transaction
Documents to which Buyer is a party on the Closing will be duly executed and
delivered by Buyer, and this Agreement is, and each of the other Transaction
Documents to which Buyer is a party on the Closing will be, a legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms.
4.3 NO APPROVALS OR NOTICES REQUIRED; NO CONFLICTS WITH INSTRUMENTS
The execution, delivery and performance by Buyer of this Agreement and
the other Transaction Documents to which it is a party, and the consummation of
the transactions contemplated hereby and thereby, will not (a) constitute a
violation (with or without the giving of notice or lapse of time, or both) of
any provision of any law or any judgment, decree, order, regulation or rule of
any court, agency or other governmental authority applicable to Buyer, (b)
require Buyer to obtain any consent, approval or authorization of, or
declaration, filing or registration with, any Person, or (c) constitute a
violation of any provisions of Buyer's Articles of Incorporation or Bylaws.
4.4 CLAIMS AND LEGAL PROCEEDINGS
There is no claim, action, suit, arbitration, criminal or civil
investigation or proceeding pending or involving or, to Buyer's knowledge,
threatened against Buyer before or by any court or governmental or
nongovernmental department, commission, board, bureau, agency or
instrumentality, or any other Person, that questions the
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validity of this Agreement or any action taken or to be taken by Buyer pursuant
to this Agreement or in connection with the transactions contemplated hereby.
4.5 TAX CONSEQUENCES
Buyer does not make any representation or warranty with respect to, and
expressly disclaims any responsibility for, any Tax consequences to the
Shareholder arising out of the structure or terms of this Agreement, or the
negotiation or consummation hereof. The Shareholder shall be solely responsible
for any such Tax consequences.
4.6 ACCURACY OF SEC FILINGS
To the knowledge of Daniel Jensen and Robert Cavitt, the filings made
with the Securities and Exchange Commission by the Shareholder (the "SEC
Documents") do not contain a misstatement of material fact concerning the
Company, its operations and financial condition or omit to state a fact
necessary to make such statements contained therein not misleading.
4.7 ACCURACY OF REPRESENTATIONS AND WARRANTIES
To the knowledge of Daniel Jensen and Robert Cavitt, none of the
representations and warranties of Shareholders and the Company contained in this
Agreement are inaccurate, contain a misstatement of material fact, or omit to
state a fact necessary to make such statements contained therein not misleading.
ARTICLE V - COVENANTS
Between the date of this Agreement and the time of Closing, the parties
covenant and agree as set forth in this Article V.
5.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE CLOSING
Unless Buyer shall otherwise agree in writing, the business of the
Company shall be conducted only in, and the Company shall not take any action
except in, and the directors and officers of the Company and the Shareholders
shall cause the Company to be conducted in, the ordinary course of business and
in a manner consistent with past practice and in accordance with applicable law;
and the Company shall use its reasonable best efforts to preserve substantially
intact the business organization of the Company, to keep available the services
of the current directors, officers, employees and consultants of the Company and
to preserve the current relationships of the Company with customers, suppliers
and other persons with which
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the Company has significant business relations. By way of amplification and not
limitation, except as otherwise contemplated by this Agreement, the Company
shall not, between the date of this Agreement and the time of Closing, directly
or indirectly do, or propose to do, any of the following without giving Buyer
prior written notice of and receiving Buyer's prior written consent:
(a) amend or otherwise change its Charter or Bylaws;
(b) except as disclosed on Disclosure Schedule 5.1(b), issue, sell,
pledge, dispose of, grant, encumber or authorize the issuance, sale, pledge,
disposition, grant or encumbrance of (i) any shares of capital stock of any
class of the Company, or any options, warrants, convertible securities or other
rights of any kind to acquire any shares of such capital stock, or any other
ownership interest (including, without limitation, any phantom interest), of the
Company or (ii) any assets of the Company;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock property or otherwise, with respect to any
of its capital stock;
(d) reclassify, combine, split, subdivide, redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) or form any corporation,
partnership, other business organization or division thereof, or acquire
directly or indirectly any material amount of assets; (ii) except as
contemplated by this Agreement incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any Person, or make any
loans or advances, except in the ordinary course of business and consistent with
past practice which loans shall be on terms and conditions satisfactory to
Buyer; (iii) enter into any contract or agreement other than in the ordinary
course of business, consistent with past practice; (iv) authorize any single
capital expenditure that is in excess of $5,000 or capital expenditures that
are, in the aggregate, in excess of $25,000; or (v) enter into or amend any
contract, agreement, commitment or arrangement with respect to any matter set
forth in this subsection (e);
(f) enter into any employment, consulting or agency agreement, or
increase the compensation payable or to become payable to its officers,
employees or consultants, except for increases in accordance with existing
agreements or past practices for employees of the Company who are not officers
of the Company, or grant any severance or termination pay to, or enter into any
employment or severance
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agreement with, any director, officer or employee of the Company, or establish,
adopt, enter into or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any director,
officer or employee;
(g) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect to
accounting policies or procedures (including, without limitation, procedures
with respect to the payment of accounts payable and collection of accounts
receivable);
(h) make any tax election inconsistent with past practices or settle
or compromise any material federal, state, local or foreign income tax
liability;
(i) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction, in the ordinary course of business and
consistent with past practice, of liabilities reflected or reserved against in
the Balance Sheet or subsequently incurred in the ordinary course of business
and consistent with past practice;
(j) enter into any equipment lease; or
(k) take or agree to take any action specified in Section 3.7, or
enter into any other material transaction other than those specified above; or
(l) agree to do any of the foregoing.
Notwithstanding anything to the contrary contained in this Agreement, neither
the Company nor the Shareholder shall have been deemed to have breached or
violated the provisions of this Section 5.1 with respect to any action taken by
the Company that is authorized, approved, effected or implemented by the Buyer,
Daniel Jensen or Robert Cavitt following the date of this Agreement, whether
pursuant to the terms of any Management Agreement between the Company,
Shareholders and Buyer (the "Management Agreement"), or otherwise.
Notwithstanding anything to the contrary contained in this Agreement, the
Management Agreement or any other agreements contemplated hereby or thereby,
Buyer agrees that it shall not cause or permit any action described in Section
5.1 to be taken without the express written consent of Shareholder, which
consent may only be signed by David Edwards, or an independent member of the
Board of Directors of Shareholder; provided the Company is expressly
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authorized to borrow operating funds from Buyer or any other person to the
Company introduced by Buyer.
Notwithstanding anything to the contrary contained elsewhere in this Agreement,
the parties hereto acknowledge and agree that prior to Closing, Shareholder
shall cause all of the issued and outstanding shares of Jenkon International
Limited, a United Kingdom corporation (Jenkon U.K.) to be contributed to the
Company, so that at Closing, Jenkon U.K. shall be a wholly-owned subsidiary of
the Company. In this regard, Parent represents and warrants that other than
liabilities reflected on the financial statements of Parent filed with the
Securities and Exchange Commission, there are no liabilities or other
outstanding obligations of Jenkon U.K.
5.2 ACCESS TO INFORMATION; CONFIDENTIALITY
From the date hereof to the time of Closing, the Company and the
Shareholders shall, and shall cause their representatives to, afford Buyer and
its representatives complete access at all reasonable times to the officers,
employees, agents, properties, offices and other facilities, books and records
of the Company and shall furnish Buyer with all financial, operating and other
data and information as Buyer may reasonably request and as such access is
necessary to the consummation of the transactions contemplated hereby.
5.3 NO SOLICITATION
(a) The Company and Shareholders shall not, nor shall they authorize
or permit any of their officers, directors or employees or any investment
banker, attorney or other advisor or representative retained by it to, directly
or indirectly, (i) solicit, initiate or encourage the submission of any Takeover
Proposal (as hereinafter defined) or (ii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Takeover Proposal; provided, however, that if, at any time prior to the Closing
Date either of the Boards of Directors of the Shareholders determines in good
faith that (i) after consultation with outside counsel that failure to do so
would create a substantial risk of liability for breach of its fiduciary duties
to its stockholders under applicable law and (ii) that such Takeover Proposal
constitutes a Superior Proposal (as hereinafter defined), the Company and
Shareholders may, in response to a written Takeover Proposal that was
unsolicited or that did not otherwise result from a breach of this Section
5.3(a), and subject to compliance with Section 5.3(c), (x) furnish information
with respect to the Company to any person pursuant to a customary and reasonable
confidentiality agreement no less favorable to the Company, and no less
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onerous to such person, than the confidentiality obligation contained herein and
(y) participate in negotiations regarding such Takeover Proposal. Without
limiting the foregoing, it is understood that any violation of the restrictions
set forth in the preceding sentence by any officer, director or employee of the
Company or Shareholders, or any investment banker, attorney or other advisor or
representative of the Company or Shareholders, acting on behalf of the Company
or Shareholders, shall be deemed to be a breach of this Section 5.3(a) by the
Company and Shareholders. The Company and Shareholders will immediately cease
and cause to be terminated any existing activities, discussions or negotiations
with any parties conducted prior to the date of this Agreement with respect to
any Takeover Proposal and request the return of all information provided to
third parties pursuant to one or more confidentiality agreements. For purposes
of this Agreement, "Takeover Proposal" means any proposal or offer from any
person relating to any direct or indirect acquisition or purchase of a
substantial amount of assets of the Company (other than products of the Company)
or at least 20% interest in the total voting securities of the Company or any
tender offer or exchange offer that if consummated would result in any person
beneficially owning 20% or more of any class of equity securities of the Company
or any merger, consolidation, business combination, sale of substantially all
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company, other than the transactions contemplated by this
Agreement.
(b) Except as expressly permitted by this Section 5.3, neither the
Boards of Directors of the Shareholders nor any committee thereof shall (i)
withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Buyer, the approval or recommendation by such Boards of Directors or any such
committee of this Agreement, (ii) approve or recommend, or propose to approve or
recommend, any Takeover Proposal or (iii) cause the Company or Shareholders to
enter into any letter of intent, agreement in principle, acquisition agreement
or other similar agreement (an "Acquisition Agreement") with respect to any
Takeover Proposal. Notwithstanding the foregoing, prior to the Closing Date,
either of the Boards of Directors of Shareholders, to the extent either
determines in good faith after consultation with outside legal counsel that
failure to do so would create a substantial risk of liability for breach of its
fiduciary duties to the Parent's stockholders under applicable law, may withdraw
or modify its approval or recommendation of this Agreement or the Merger or
recommend any Superior Proposal (as hereinafter defined), in each case at any
time after the third business day following Buyer's receipt of written notice (a
"Notice of Superior Proposal") advising Buyer that the Board of Directors of one
of the Shareholders has received a Superior Proposal, specifying the identity of
the person making the Takeover Proposal and the material terms and conditions of
the Superior Proposal (it being understood that any amendment to the price or
material terms of a
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Superior Proposal shall require an additional Notice of Superior Proposal and an
additional three business day period thereafter to the extent permitted under
applicable law). In addition, prior to the Closing Date, either of the Boards of
Directors of Shareholders, to the extent it determines in good faith, after
consultation with outside legal counsel, that failure to do so would result in a
substantial risk of liability for breach of its fiduciary duties to its
stockholders under applicable law, may cause the Shareholders to terminate this
Agreement (and concurrently with or after such termination, if it so chooses,
cause the Company to enter into an Acquisition Agreement with respect to a
Superior Proposal). For purposes of this Agreement, a "Superior Proposal" means
any bona fide written proposal made by a third party to acquire, directly or
indirectly, for consideration consisting of cash and/or equities, more than 50%
of the voting power of the Company Common Stock or all or substantially all the
assets of the Company and otherwise on terms which the Boards of Directors of
the Shareholders determine in good faith judgment (after consultation with a
financial advisor of nationally recognized reputation) to be more favorable to
the Company's stockholders than the transactions contemplated by this Agreement.
(c) In addition to the obligations of the Shareholders set forth in
paragraphs (a) and (b) of this Section 5.3, the Company promptly shall within 24
hours after receipt advise Buyer orally and in writing of any request for
nonpublic information which either of the Shareholders reasonably believes could
lead to a Takeover Proposal or of any Takeover Proposal, or any inquiry with
respect to or which either of the Shareholders reasonably believes could lead to
any Takeover Proposal, the identity of the person making such Takeover Proposal
and the material terms and conditions of such request, Takeover Proposal or
inquiry. The Shareholders will keep Buyer promptly informed in all material
respects of the status and details (including amendments or proposed amendments)
of any such Takeover Proposal or inquiry.
(d) Nothing contained in this Section 5.3 or elsewhere in this
Agreement shall prohibit the Parent from (i) taking and disclosing to its
stockholders a position contemplated by Rules 14d-9 and 14e-2(a) promulgated
under the Exchange Act or (ii) making any disclosure to the stockholders of
Parent required by applicable laws; provided that the Shareholders shall not,
except in accordance with the provisions of Section 5.3(b), withdraw or modify,
or propose to withdraw or modify, its recommendation of the Merger or approve or
recommend, or propose to approve or recommend, a Takeover Proposal.
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5.4 NOTIFICATION OF CERTAIN MATTERS
The Company and/or the Shareholders shall give prompt written notice to
Buyer, and Buyer shall give prompt written notice to the Company and/or the
Shareholders, of (a) the occurrence or nonoccurrence of any event which would be
likely to (i) cause any representation or warranty of the Company and/or the
Shareholders or Buyer, respectively, contained in this Agreement to be
materially untrue or inaccurate or (ii) result in the material failure to
satisfy a closing condition in Article VII or VIII; (b) any material failure of
the Company and/or the Shareholders or Buyer, respectively, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it or them; and (c) any written communication from any Person alleging that the
consent of such Person may be required in connection with the transactions
contemplated by this Agreement; provided, however, that the delivery of any
notice pursuant to this Section 5.4 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
5.5 FURTHER ACTION
Upon the terms and subject to the conditions hereof, each of the parties
shall (a) make promptly its respective filings, and thereafter make any other
required submissions, under applicable laws with respect to the transactions
contemplated hereby and shall cooperate with the other parties with respect to
such filings and submissions and (b) use its reasonable best efforts to take, or
cause to be taken, all appropriate action, and to do, or cause to be done, all
things reasonably necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated
hereby, including, without limitation, using its reasonable best efforts to
obtain all shareholder consents as well as waivers, licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
and parties to contracts as are necessary for the consummation of the
transactions contemplated hereby and to fulfill the conditions to the closing of
the sale of the Shares to Buyer. In case at any time after the Closing Date any
further action is necessary or desirable to carry out the purposes of this
Agreement, each party to this Agreement shall use its reasonable best efforts to
take all such action. None of Buyer, the Company or the Shareholders will
undertake any course of action inconsistent with this Agreement or that would
make any representations, warranties or agreements made by such party in this
Agreement untrue or any conditions precedent to this Agreement unable to be
satisfied at or prior to the Closing.
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5.6 PUBLICITY
None of the parties shall disclose, make or issue, or cause to be
disclosed, made or issued, any statement or announcement concerning this
Agreement or the transactions contemplated hereby to any third parties (other
than its officers, directors, employees, authorized representatives, legal
advisors and financial advisors who need to know such information in connection
with carrying out or facilitating the transactions contemplated hereby) without
the prior written consent of the other parties, except as required by law or any
listing or other agreement with any public securities trading exchange or market
to which Buyer is a party and after providing written notice to the other
parties of such required disclosure.
ARTICLE VI - ADDITIONAL AGREEMENTS
6.1 PREPARATION OF THE PROXY STATEMENT; STOCKHOLDERS MEETING
As soon as practicable following the date of this Agreement, the Parent
shall prepare and file with the SEC a Proxy Statement relating to the
Transaction and seeking approval of the Transaction by stockholders of Parent.
The Parent will use its reasonable efforts to cause the Proxy Statement to be
mailed to its stockholders as promptly as practicable. Buyer shall furnish all
information concerning itself to Parent as may be reasonably requested in
connection with any such action and the preparation, filing and distribution of
the Proxy Statement.
6.2 CERTAIN EXPENSES
Shareholder will promptly, upon receipt of billing therefor from Buyer,
reimburse Buyer for expenses, including transportation, lodging and meals
incurred by Clifford DeGroot in providing assistance to Shareholder and its
shareholders in Israel in connection with Shareholder's proxy statement.
6.3 ASSIGNMENT OF DOMAIN NAMES AND MARKS
For good and valuable consideration, receipt of which is hereby
acknowledged, Shareholders hereby assign to Company all rights, title and
interest in and to the domain names and marks, registered or unregistered,
identified in Exhibit A attached hereto, together with the good will associated
thereto, including, the right to recover for damages and profits for past
infringements thereof. Shareholders agree to execute and deliver at the request
of Company, all papers, instruments, and assignments, and to perform any and all
other reasonable acts Company may require, including recordation of the
assignment, in order to vest all Shareholders' rights, title, and interest in
and to the said domain names and marks in Company and/or to provide
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evidence to support any of the foregoing in the event such evidence is deemed
necessary by Company, to the extent such evidence is in the possession or
control of Shareholders.
ARTICLE VII - CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer to perform and observe the covenants,
agreements and conditions to be performed and observed by it at or before the
Closing shall be subject to the satisfaction of the following conditions, which
may be expressly waived only in writing signed by Buyer:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
Each of the representations and warranties of the Company and the
Shareholders contained in this Agreement and the other Transaction Documents to
which each is a party (including applicable Exhibits or Disclosure Schedules)
shall be true and correct as of the date hereof and at and as of the Closing
Date as though made on that date; except to the extent such representations and
warranties are made as of a specified date, in which case such representations
and warranties shall be true and correct as of the specified date.
7.2 PERFORMANCE OF AGREEMENTS
The Company and the Shareholders shall have performed all obligations
and agreements and complied with all covenants and conditions contained in this
Agreement or any other Transaction Document to be performed and complied with by
them at or prior to the Closing.
7.3 OPINION OF COUNSEL FOR THE COMPANY AND THE SHAREHOLDERS
Buyer shall have received the opinion of Jeffer, Mangels Butler &
Marmaro LLP, counsel for the Company and the Shareholders, dated the Closing
Date, in form and substance reasonably acceptable to Buyer.
7.4 CONSENTS TO SALE OF SHARES
The Company shall have received and shall have delivered to Buyer
written consents to the sale of the Shares from each of the parties (other than
the Company) to those agreements, leases, notes or other documents set forth as
requiring such consent
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on the Disclosure Schedules, which consents shall be satisfactory in all
respects to Buyer in its sole and absolute discretion.
7.5 OFFICERS' CERTIFICATE
Buyer shall have received a certificate of the Chief Executive and the
chief financial officer of the Company, dated the Closing Date, certifying that
the conditions set forth in Sections 7.1, 7.2, 7.4, 7.7 and 7.9 have been
fulfilled.
7.6 SHAREHOLDER'S CERTIFICATE
Buyer shall have received a certificate of each the Shareholders,
executed on behalf of such Shareholder by its Chief Executive Officer and chief
financial officer, dated the Closing Date, certifying that the conditions set
forth in Sections 7.1, 7.2, 7.4, 7.7 and 7.9 have been fulfilled.
7.7 MATERIAL ADVERSE CHANGE
Since the date hereof and through the Closing, there shall not have
occurred (or be threatened) any material adverse change (a) in the business,
operations, assets, liabilities, earnings, condition (financial or other), or
prospects of the Company or (b) with respect to the Shareholders and the Shares,
and no material adverse change shall have occurred (or be threatened) in any
domestic or foreign laws or regulations affecting the Company or in any third
party contractual or other business relationships of the Company.
7.8 APPROVALS AND CONSENTS
All transfers of permits or licenses and all approvals, applications or
notices to public agencies, federal, state, local or foreign, the granting or
delivery of which is necessary for the consummation of the transactions
contemplated hereby or for the continued operation of the Company as set forth
in the Disclosure Schedules, shall have been obtained, and all waiting periods
specified by law shall have passed. All other consents, approvals and notices
material to the consummation of the transactions contemplated by this Agreement
and referred to in the Disclosure Schedules shall have been obtained or
delivered. All such transfers, approvals, and consents shall be satisfactory in
all respects to Buyer in its sole and absolute discretion.
7.9 PROCEEDINGS AND DOCUMENTS; SECRETARY'S CERTIFICATE
All corporate and other proceedings in connection with the transactions
contemplated hereby and all documents and instruments incident to such
transactions
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shall have been approved by counsel to Buyer, and Buyer shall have received a
certificate of the Secretary of the Company and each of the Shareholders, as to
the authenticity and effectiveness of the actions of the Board of Directors of
the Company and each of the Shareholders authorizing the sale of the Shares and
the other transactions contemplated by this Agreement and the other Transaction
Documents to which the Company or any of the Shareholders is a party, and such
other documents as are reasonably specified by counsel to Buyer.
7.10 COMPLIANCE WITH LAWS
The consummation of the transactions contemplated by this Agreement
shall be legally permitted by all laws and regulations to which Buyer is
subject.
7.11 LEGAL PROCEEDINGS
No order of any court or administrative agency shall be in effect that
enjoins, restrains, conditions or prohibits consummation of this Agreement, and
no litigation, investigation or administrative proceeding shall be pending or
threatened that would enjoin, restrain, condition or prevent consummation of
this Agreement or the transactions contemplated hereby.
7.12 DELIVERY OF CERTIFICATES
The Shareholder shall deliver to Buyer at Closing certificates
representing the Shares, duly endorsed for transfer on the Company's books.
7.14 NONCOMPETITION AGREEMENTS
David Edwards shall have entered into a two-year noncompetition
agreement reasonably acceptable to Buyer to the effect he will not compete with
the Company or Buyer as their businesses are now conducted.
7.15 WAIVER BY INSIDERS
Each of Robert Cavitt, Daniel Jensen and David Edwards shall execute a
release, in a form and substance reasonably satisfactory to Buyer and the
Company, pursuant to which each of them releases Buyer, the Company and their
respective affiliates from and against any liability for loans, compensation and
other claims relating to or arising prior to the Closing Date (other than claims
arising under this Agreement or the Transaction Documents).
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ARTICLE VIII - CONDITIONS PRECEDENT TO
OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS
The obligations of the Company and the Shareholders to perform and
observe the covenants, agreements and conditions to be performed and observed by
each of them at or before the Closing shall be subject to the satisfaction of
the following conditions, which may be expressly waived only in writing signed
by the Company and the Shareholders.
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES
Each of the representations and warranties of Buyer contained in this
Agreement and the other Transaction Documents to which it is a party shall be
true and correct as of the date hereof and at and as of the Closing Date as
though made on that date, except to the extent such representations and
warranties are made as of a specified date, in which case such representations
and warranties shall be true and correct as of the specified date.
8.2 PERFORMANCE OF AGREEMENTS
Buyer shall have performed all obligations and agreements and complied
with all covenants and conditions contained in this Agreement or any other
Transaction Document to be performed and complied with by it at or prior to the
Closing.
8.3 OPINION OF COUNSEL FOR BUYER
The Company and the Shareholders shall have received the opinion of
Perkins Coie LLP, counsel for Buyer, dated the Closing Date, in form and
substance reasonably acceptable to Company and the Shareholder.
8.4 OFFICERS' CERTIFICATE
The Shareholders shall have received a certificate of a Vice President
and another officer of Buyer, dated the Closing Date, certifying that the
conditions in Sections 8.1, 8.2, 8.5 and 8.6 have been fulfilled.
8.5 MATERIAL ADVERSE CHANGE
Since the date hereof and through the Closing, there shall not have
occurred any material adverse change in the business, operations, assets,
liabilities, earnings,
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condition (financial or other) of Buyer that would render Buyer unable to
perform its obligations under the Transaction Documents.
8.6 APPROVALS AND CONSENTS
All transfers of permits or licenses and all approvals, applications or
notices to public agencies, federal, state, local or foreign, required to be
obtained by Buyer for the consummation of the transactions contemplated hereby
shall have been obtained, and all waiting periods specified by law shall have
passed.
8.7 PROCEEDINGS AND DOCUMENTS; SECRETARY'S CERTIFICATE
All corporate and other proceedings in connection with the transactions
contemplated hereby and all documents and instruments incident to such
transactions shall have been approved by counsel to the Company and the
Shareholders and the Company and the Shareholders shall have received a
certificate of the Secretary of Buyer, as to the authenticity and effectiveness
of the actions of the Board of Directors of Buyer authorizing the purchase of
the Shares and the other transactions contemplated by this Agreement and the
other Transaction Documents to which Buyer is a party, and such other documents
as are reasonably specified by counsel to the Company and the Shareholders.
8.8 COMPLIANCE WITH LAWS
The consummation of the transactions contemplated by this Agreement
shall be legally permitted by all laws and regulations to which the Company and
the Shareholders are subject.
8.9 LEGAL PROCEEDINGS
No order of any court or administrative agency shall be in effect that
enjoins, restrains, conditions or prohibits consummation of this Agreement, and
no litigation, investigation or administrative proceeding shall be pending or
threatened that would enjoin, restrain, condition or prevent consummation of
this Agreement or the transactions contemplated hereby.
8.10 FAIRNESS OPINION
The Parent shall have received an opinion of a financial advisor
acceptable to it, substantially to the effect that the consideration to be
received by the Shareholder for the sale of the Shares pursuant to this
Agreement is fair, from a financial point of view, to the Shareholder.
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8.11 WAIVER BY INSIDERS
Each of Robert Cavitt, Daniel Jensen and David Edwards shall execute a
release, in a form and substance reasonably satisfactory to Shareholders,
pursuant to which each of them releases Shareholders, the Company and their
affiliates from and against any liability for loans, compensation and other
claims relating to or arising prior to the Closing Date (other than claims
arising under this Agreement or the Transaction Documents).
ARTICLE IX - TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION
This Agreement may be terminated at any time prior to the Closing:
(a) by mutual written consent of the Shareholders, Company
and Buyer;
(b) by the Company or either of the Shareholders, if Buyer
shall have breached any of its representations, warranties or agreements;
(c) by Buyer, if the Company and/or either of the
Shareholders shall have breached any of its or their representations, warranties
or agreements;
(d) by either the Shareholder or Buyer:
(i) if the Closing has not occurred by June 30,
2000; provided, however, that the right to terminate this Agreement
under this subsection (d) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Closing to occur on or
before such date;
(ii) if stockholder approval shall not have been
obtained at the stockholders meeting of Parent duly convened therefor or
at any adjournment or postponement thereof;
(iii) if prior to the Closing Date, the Board of
Directors of either of the Shareholders has made the determination
referred to in the penultimate sentence of Section 5.3(b); provided,
however, that neither the Company nor the Shareholders may terminate
this Agreement pursuant to this Section 9.1(d)(iii) unless and until
three business days have elapsed following
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delivery to Buyer of a Notice of Superior Proposal with respect to a
Superior Proposal by the Board of Directors of Parent.
(e) by either the Company or Buyer if there shall be any law
or regulation that makes consummation of the sale of the Shares by the
Shareholder to Buyer illegal or otherwise prohibited or if any judgment,
injunction, order or decree enjoining Buyer or the Company from consummating the
sale of the Shares by the Shareholder to Buyer is entered and such judgment,
injunction, order or decree shall become final and nonappealable.
(f) by Buyer if (i) the Board of Directors of Parent or any
committee thereof shall have withdrawn or modified in a manner adverse to Buyer
its approval or recommendation of the sale or this Agreement or failed to
reconfirm its recommendation within 15 business days after a written request to
do so, or approved or recommended any Takeover Proposal or approved or
recommended any Takeover Proposal or (ii) the Board of Directors of Parent shall
have resolved to take any of the foregoing actions.
9.2 EFFECT OF TERMINATION
In the event of the termination of this Agreement, the confidentiality
obligations under Section 5.2, and Sections 9.2, 11.1, 11.2, 11.3 and 11.6 shall
survive any such termination and nothing shall relieve any party from liability
for any breach. In addition, the following shall apply:
(a) In the event of the termination of this Agreement
pursuant to Section 9.1(a), or by the Company or one of the Shareholders
pursuant to Section 9.1(d), there shall be no further obligation on the part of
any party.
(b) In the event of the termination of this Agreement
pursuant to Section 9.1(e) or by the Buyer pursuant to Section 9.1(c), (d) or
(f), Company and the Shareholders shall promptly repay any amounts advanced by
Buyer to the Company.
9.3 AMENDMENT
Buyer, the Company and the Shareholders may amend, modify or supplement
this Agreement at any time, but only in writing duly executed on behalf of each
of the parties to be bound thereby.
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9.4 WAIVER
At any time prior to the Closing, any party may (a) extend the time for
the performance of any obligation or other act of any other party, (b) waive any
inaccuracy in the representations and warranties contained in any Transaction
Document, or (c) waive compliance with any agreement or condition in any
Transaction Document. Any such extension or waiver shall be valid only if set
forth in an instrument in writing signed by the party or parties to be bound.
The failure of any party at any time or times to require performance of any
provisions shall in no manner affect its right at a later time to enforce the
same. No waiver by any party of any condition or of any breach of any terms,
covenants, representations, warranties or agreements contained in this Agreement
shall be deemed to be a further or continuing waiver of any such condition or
breach in other instances or a waiver of any other condition or any breach of
any other terms, covenants, representations, warranties or agreements.
ARTICLE X - SURVIVAL AND INDEMNIFICATION
10.1 SURVIVAL
All representations and warranties contained in this Agreement or the
other Transaction Documents shall survive for a period of two years following
the Closing, except that the representations and warranties of the Company shall
terminate immediately after Closing. The covenants and agreements contained in
this Agreement that contemplate performance after the Closing shall survive the
Closing and shall continue until all obligations with respect thereto shall have
been performed or satisfied or shall have been terminated in accordance with
their terms.
10.2 INDEMNIFICATION
10.2.1 INDEMNIFICATION BY THE SHAREHOLDERS
The Shareholders shall jointly and severally indemnify and hold Buyer
and its affiliates (the "BUYER INDEMNIFIED PARTIES") harmless from and against,
and shall reimburse Buyer Indemnified Parties for, any and all losses, damages,
debts, liabilities, obligations, judgments, orders, awards, writs, injunctions,
decrees, fines, penalties, taxes, costs or expenses (including but not limited
to any legal and accounting fees and expenses) ("LOSSES") arising out of or in
connection with:
(a) any material inaccuracy in or other breach of any
representation or warranty made by the Company or either of the Shareholders in
this Agreement or in any other Transaction Document;
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(b) any material failure by the Company or the Shareholders
to perform or comply, in whole or in part, with any covenant or agreement in
this Agreement or any other Transaction Document to which it is a party; or
(c) any claim, demand, cause of action, suit, proceeding,
hearing or investigation ("CLAIM") by any person or entity for brokerage or
finder's fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by such person or entity directly or
indirectly with the Company, any of its officers, directors or employees, (other
than Robert Cavitt or Daniel Jensen) or the Shareholders, in connection with any
of the transactions contemplated by this Agreement or any other Transaction
Document, and all taxes relating to periods on or prior to the Closing Date.
10.2.2 INDEMNIFICATION BY BUYER
Buyer shall indemnify and hold the Shareholders (the "SHAREHOLDER
INDEMNIFIED PARTIES"; together with Buyer Indemnified Parties, the "INDEMNIFIED
PARTIES") harmless from and against, and shall reimburse the Shareholder
Indemnified Parties for, any and all Losses arising out of or in connection
with:
(a) any material inaccuracy in or other breach of any
representation or warranty made by Buyer in this Agreement or in any other
Transaction Document;
(b) any material failure by Buyer to perform or comply, in
whole or in part, with any covenant or agreement in this Agreement or any other
Transaction Document to which it is a party;
(c) any Claim by any person or entity for brokerage or
finder's fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by such person or entity directly or
indirectly with Buyer or any of its officers, directors or employees in
connection with any of the transactions contemplated by this Agreement or any
other Transaction Document, or
(d) any Claim by any person or entity relating to operation
of the Company's business from and after the Closing Date.
10.3 LIMITATIONS
Any claim for indemnification must be asserted as provided in Section
10.4 within two years from the Closing Date; otherwise, this Article X shall be
null, void and without effect.
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10.4 PROCEDURE FOR INDEMNIFICATION
10.4.1 CLAIM NOTICE
In the event that any Indemnified Party sustains or incurs any Losses in
respect of which indemnification may be sought pursuant to this Article X, such
Indemnified Party may assert a claim for indemnification by giving written
notice (the "CLAIM NOTICE") to the indemnifying party, which will describe in
reasonable detail the facts and circumstances on which the asserted claim for
indemnification is based. The Claim Notice will also specify how the Indemnified
Party intends to recover such funds pursuant to this Agreement. Unless the claim
described in the Claim Notice is contested by the indemnifying party by written
notice to the Indemnified Party of the amount of the claim that is contested,
given within 30 days of the receipt of the Claim Notice, the Indemnified Party
may recover such undisputed amount of the claim described in the Claim Notice.
10.4.2 DISPUTE NOTICE
If, within thirty (30) days of the receipt by the indemnifying party of
the Claim Notice, the indemnifying party contests in writing to the Indemnified
Party and the Escrow Agent (if such claim is against the Shareholder) that such
Loss constitutes an indemnifiable claim (the "DISPUTE NOTICE"), then the
Indemnified Party and the indemnifying party, acting in good faith, shall
attempt to reach agreement with respect to such claim.
10.4.3 THIRD-PARTY CLAIMS
With respect to claims for indemnification resulting from or in
connection with any legal proceeding commenced by a third party, the Indemnified
Party will give the Claim Notice to the indemnifying party no later than 20 days
prior to the time any initial answer or response to the asserted claim is
legally required under any applicable court or procedural rule. The indemnifying
party will, subject to the limitations set forth in Section 10.3, promptly
indemnify the Indemnified Party in accordance with the provisions of this
Article X and the Escrow Agreement.
10.5 INVESTIGATIONS; WAIVERS
An Indemnified Party's right to indemnification provided for in this
Article X will remain in effect notwithstanding any investigation at any time by
or on behalf of any party or any waiver by any party of any condition to such
party's obligations to consummate the transactions contemplated hereby.
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ARTICLE XI - GENERAL
11.1 EXPENSES
11.1.1 Whether or not the transactions contemplated by this Agreement
are consummated, each party shall each pay its own fees and expenses for the
negotiation, preparation and carrying out of this Agreement and the other
Transaction Documents (including legal and accounting fees and expenses);
provided, however, that, should any action be brought hereunder, the attorneys'
fees and expenses of the prevailing party shall be paid by the other party to
such action. The Shareholder shall pay any transfer or similar taxes that may be
payable in connection with the transactions contemplated by this Agreement.
11.1.2 In the event that this Agreement is terminated (i) by any party
hereto (A) pursuant to Section 9.1(d)(ii) and at or prior to the time of the
Stockholders Meeting a Takeover Proposal shall have been publicly announced or
(B) pursuant to Section 9.1(d)(iii), (ii) by Buyer pursuant to Section 9.1(f) or
(iii) by Buyer pursuant to Section 9.1(c) in respect of a willful and material
breach of a covenant or agreement by the Company or Shareholders, then in such
case Shareholders shall, promptly, but in no event later than two days after the
date of such termination, pay Buyer a fee equal to $200,000 plus all expenses of
Buyer incurred in connection with this Agreement in immediately available funds
by wire transfer (the "Termination Fee"). If this Agreement is terminated by any
party hereto pursuant to Section 9.1(d) (to the extent the Parent has
theretofore failed to hold the Stockholders Meeting in breach of its obligations
under Section 6.1, and prior to the date 12 months following the date of the
termination of this Agreement, the Company shall either (x) consummate a Company
Acquisition (as hereinafter defined) or (y) enter into a written Acquisition
Agreement providing for a Company Acquisition, then the Shareholders shall pay
the Termination Fee in the case of clause (x) concurrently with the consummation
of such Company Acquisition or in the case of clause (y) concurrently with the
consummation of the transaction subject to such Acquisition Agreement (whether
or not such transaction is consummated prior to the date 12 months following the
date of the termination of this Agreement, but only in the event that such
transaction subject to such Acquisition Agreement is in fact consummated).
Shareholders acknowledge that the agreements contained in this Section 11.1.2
are an integral part of the transactions contemplated by this Agreement, and
that, without these agreements, Buyer would not enter into this Agreement;
accordingly, if Shareholders fail promptly to pay the amounts due pursuant to
this Section 11.1.2, and, in order to obtain such payment, Buyer commences a
suit which results in a judgment against the Shareholders for the amounts set
forth in this Section 11.1.2, Shareholders shall pay to Buyer its reasonable
costs and expenses (including attorneys' fees and expenses) in connection with
such
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suit, together with interest on the amounts set forth in this Section 11.1.2 at
the prime rate of Bank of America N.T. & S.A. in effect on the date such payment
was required to be made. "Company Acquisition" shall mean any transaction or
series of related transactions involving (i) a merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving the Company or Shareholders pursuant to which the stockholders of the
Company immediately preceding such transaction or series of related transactions
hold less than 60% of the equity interests in the surviving or resulting entity
of such transaction or transactions (other than the transactions contemplated by
this Agreement); (ii) a sale by the Company of assets (excluding inventory and
used equipment sold in the ordinary course of business) representing in excess
of 40% of the fair market value of the Company's business immediately prior to
such sale; or (iii) the acquisition by any person or group (including without
limitation by way of a tender offer or an exchange offer or issuance by the
Company), directly or indirectly, of beneficial ownership or a right to acquire
beneficial ownership of 40% or more of the then outstanding shares of capital
stock of the Company.
11.1.3 If the Agreement is terminated by Buyer pursuant to Section
9.1(d)(ii)or (iii) or Section 9.1 (f) then, in addition to any fee payable
pursuant to Section 11.1.3, the Shareholders shall, promptly, but in no event
later than two business days after the date of such termination, pay Buyer a fee
equal to $100,000.
11.2 SPECIFIC ENFORCEMENT
The parties expressly agree that they will be irreparably damaged if
this Agreement is not specifically enforced. Upon a breach or threatened breach
of the terms, covenants and/or conditions of this Agreement by any party, Buyer,
the Company and the Shareholders shall, in addition to all other remedies, be
entitled to a temporary or permanent injunction, without showing any actual
damage, and/or a decree for specific performance, in accordance with the
provisions of this Agreement.
11.3 CONSEQUENTIAL DAMAGES
No party shall be liable to the other parties for any special, indirect,
incidental or consequential damages resulting from any breach of this Agreement.
11.4 ASSIGNMENT
This Agreement shall not be assigned by operation of law or otherwise,
except that Buyer may assign all or any of its rights and obligations to any of
its affiliates. In
STOCK PURCHASE AGREEMENT
-30-
<PAGE>
the event of any such permitted assignment, Buyer shall guarantee the
performance of such obligations by such assignee.
11.5 NOTICES
Unless otherwise provided, any notice under this Agreement shall be
given in writing and shall be deemed effectively given (a) upon personal
delivery to the party to be notified, (b) upon confirmation of receipt by fax by
the party to be notified, (c) one business day after deposit with a reputable
overnight courier, prepaid for overnight delivery and addressed as set forth in
(d), or (d) three days after deposit with the U.S. Post Office, postage prepaid,
registered or certified with return receipt requested and addressed to the party
to be notified at the address indicated for such party below, or at such other
address as such party may designate by 10 days' advance written notice to the
other parties given in the foregoing manner.
TO BUYER:
JIA, INC.
7600 NE 41st St., Suite 300
Vancouver, WA 98662
Facsimile: 360-256-9623
Attention: Robert Cavitt
with a copy to:
PERKINS COIE LLP
1211 SW Fifth, Suite 1500
Portland, OR 97204
Facsimile: (503) 727-2000
Attention: Patrick J. Simpson
TO THE COMPANY:
SUMMIT V, INC.
7600 NE 41st St., Suite 300
Vancouver, WA 98662
Facsimile: 360-256-9623
Attention: David Edwards
with a copy to:
STOCK PURCHASE AGREEMENT
-31-
<PAGE>
JEFFER MANGELS BUTLER & MARMARO
2121 Avenue of the Stars
Los Angeles, CA 90067
Facsimile: 310-203-90067
Attention: Robert Steinberg
TO THE SHAREHOLDERS:
JENKON INTERNATIONAL,
7600 NE 41st St., Suite 300
Vancouver, WA 98662
Facsimile: 360-256-9623
Attention: David Edwards
with a copy to:
JEFFER MANGELS BUTLER & MARMARO
2121 Avenue of the Stars
Los Angeles, CA 90067
Facsimile: 310-203-90067
Attention: Robert Steinberg
11.6 GOVERNING LAW; JURISDICTION; VENUE
This Agreement shall be governed by and construed under the laws of the
state of Washington without regard to principles of conflict of laws. Any
dispute among the parties relating to or arising out of this Agreement shall be
settled by binding arbitration pursuant to the rules of the American Arbitration
Association. Such arbitration shall take place in Vancouver, Washington and the
parties irrevocably consent to the jurisdiction and venue of the state and
federal courts located in Clark County, Washington in connection with any action
relating to the enforcement of any arbitral award.
11.7 SUCCESSORS AND ASSIGNS
The terms and conditions of this Agreement shall inure to the benefit of
and be binding on the respective successors and assigns of the parties.
11.8 SEVERABILITY
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement, and
the balance
STOCK PURCHASE AGREEMENT
-32-
<PAGE>
of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
11.9 ENTIRE AGREEMENT; COUNTERPARTS
This Agreement constitutes the entire agreement among the parties with
respect to this subject matter and supersedes all prior agreements and
undertakings, both written and oral, among the parties with respect to this
subject matter including the Stock Purchase Agreement dated March 15, 2000 among
the same parties. This Agreement may be executed in two or more counterparts,
which together shall constitute one instrument.
[SIGNATURE PAGE FOLLOWS]
STOCK PURCHASE AGREEMENT
-33-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement as of the date and year first above written.
JIA, INC.
By
----------------------------
Its
---------------------------
SUMMIT V, INC.
By
----------------------------
Its
---------------------------
JENKON INTERNATIONAL, INC. (DELAWARE)
By
----------------------------
By
----------------------------
Its
---------------------------
JENKON INTERNATIONAL, INC. (WASHINGTON)
By
----------------------------
By
----------------------------
Its
---------------------------
STOCK PURCHASE AGREEMENT
-34-
<PAGE>
EXHIBIT A
TRADEMARKS:
Direct Selling Today
Jenkon
Now!
Summit V
PENDING TRADEMARKS:
JOL (stands for Jenkon On-Line)
DOMAIN NAMES:
jenkon.com
jencon.com
nownetwork.com
jenkon-dev.com
STOCK PURCHASE AGREEMENT
<PAGE>
APPENDIX F
MANAGEMENT AGREEMENT
F-1
<PAGE>
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT is made and entered into as of March __, 2000,
among Jenkon International, Inc., a Delaware corporation ("Jenkon"), Jenkon
International, Inc., a Washington corporation ("Jenkon Washington"), Summit V,
Inc., a Washington corporation ("Summit V"), and JIA, Inc., a Washington
corporation ("JIA"), with respect to the following facts:
A. JIA, Summit V, Jenkon Washington, and Jenkon have entered into a
Stock Purchase Agreement, of even date herewith (the "Stock Purchase
Agreement"), pursuant to which JIA has agreed to acquire, among other things,
all of the outstanding stock of Summit V.
B. Summit V's business consists of the design, development, marketing
and sale of software solutions for the direct sales industry and related
operations (the "Business").
C. This Agreement is entered into by Summit V, JIA, Jenkon Washington,
and Jenkon pursuant to the terms of the Stock Purchase Agreement and provides
for management of the operations of the Business by JIA during the term of this
Agreement on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements herein, and intending to be legally bound hereby, the parties agree
as follows:
1. DEFINITIONS: The following terms have the meanings given to them
below:
(a) "COMMENCEMENT DATE" means the date of this Agreement.
(b) "INTERIM PERIOD" means the period commencing on the Commencement
Date and ending on the Termination Date.
(c) "CASH RECEIPTS" means all money received by JIA (directly or
through its role as manager of the Summit V) relating to the operation of the
Business during the Interim Period, including money received from collection of
accounts receivable arising prior to or during the Interim Period.
(d) "CASH DISBURSEMENTS" means all expenses incurred and money spent
by Summit V (whether financed through Cash Receipts or other capital resources
of Summit V or through advances from JIA) relating to the liabilities or
obligations of Summit V or the operation of the Business during the Interim
Period.
2. TERM OF AGREEMENT; TERMINATION.
<PAGE>
(a) The term of this Agreement shall commence on the date of this
Agreement and shall continue until terminated (the "Termination Date") as set
forth below. This Agreement shall terminate on the earliest to occur of the
following:
(i) the closing of the sale of Summit V stock contemplated by
the Stock Purchase Agreement (the "Closing") or the termination of the Stock
Purchase Agreement prior to Closing, or
(ii) the mutual written consent of the parties hereto to
termination of this Agreement, or
(iii) by Jenkon or JIA, as the case may be, in the event that
the other party materially breaches the terms of this Agreement, or
(iv) by Jenkon in the event that the disinterested members of
the Board of Directors of Jenkon makes a good faith determination that JIA has
mismanaged the operation of Summit V's business in a manner that has or is
reasonably likely to have a material adverse effect on Jenkon and (1) Jenkon has
given notice of the nature of such mismanagement to JIA and (2) such
mismanagement, to the extent curable, has been cured by JIA within five (5)
business days of receipt of notice; provided, however, Jenkon may not terminate
this Agreement pursuant to this clause (iv) in the event that Jenkon, within
five (5) business days of the notice of mismanagement, receives reasonable
assurances from JIA that JIA is prepared and able to close. Such assurances from
JIA are to take the form of a written representations from JIA and its officers
as to JIA's willingness and ability to close within such time frame and which
assurances shall be supported by such objective proof of JIA's ability to close
as Jenkon may reasonably require.
(v) by Jenkon or Summit V if JIA shall commence any cause,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to them, or seeking to adjudicate them a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to their debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for JIA or for all or any substantial part of the assets of JIA; if JIA shall
make a general assignment for the benefit of creditors; if there shall be
commenced against JIA any case, proceeding or other action of a nature referred
to in clause (i) above with (A) results in the entry of an order for relief or
any such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of sixty (60) days; or if there shall be commenced against
JIA any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of its assets, which results in the entry of an order for any
such relief which shall not have been vacated, discharged, or stayed or bonded
pending appeal within thirty (30) days from the entry thereof.
<PAGE>
3. MANAGEMENT OF BUSINESS.
(a) APPOINTMENT OF JIA AS MANAGER. Summit V and Jenkon hereby
appoint and retain JIA to supervise, direct and control the day-to-day operation
and management of the Business during the Interim Period upon the terms and
conditions set forth herein. The services to be provided by JIA pursuant to this
Agreement shall include, but shall not be limited to, the management,
administrative and support services set forth on EXHIBIT A of this Agreement.
(b) STANDARD OF OPERATION. JIA shall manage and operate the Business
in a commercially reasonable manner and shall be subject to and agrees to
operate under the same standard of care, duties and legal obligations as are
applicable to officers and directors of corporations under Delaware law. JIA
agrees to comply with all applicable laws, rules and regulations in connection
with the operation of the business (except where non-compliance could not have a
material adverse effect on the Business or the financial condition of Summit V
or Jenkon. Subject to the foregoing standard and the limitations on the powers
of JIA described in this Agreement, JIA's powers and authority shall include,
but shall not be limited to:
(i) the collection of accounts receivable (including any
reasonable discounting of the same consistent with past practices);
(ii) the compromise or settlement of accounts payable
(consistent with past practices);
(iii) the hiring, supervising, directing the work of, promoting,
discharging and determining the compensation and other benefits of all personnel
working in the Business; and
(iv) the ability to enter into such service, supply, development
and other contracts or agreements as are in JIA's reasonable judgment necessary
for the operation of the Business; provided, however, that the terms of such
contracts and agreements (including the terms of any warranty or service
obligations by Summit V) shall be consistent with the terms of Summit V's
historical contracts and agreements of similar size and type and, in all cases
other than customer support and service agreements, shall be terminable by
Summit V, without liability, on not more than 30 days notice.
(c) COVENANTS OF JIA REGARDING OPERATIONS. JIA covenants and agrees
that during the Interim Period,
(i) it shall maintain the assets of the Business in good
condition and repair consistent with past practices, including, without
limitation, all necessary repairs and replacements of hardware and other
equipment used in connection with the Business;
<PAGE>
(ii) its shall cause Summit V to keep in existence all policies
of insurance insuring the Business and the assets and the operation thereof
against liability and property damage, fire and other casualty during the
Interim Period, consistent with the policies currently maintained by Summit V
and/or Jenkon;
(iii) to the extent that JIA elects to terminate any employees
of Summit V, such termination(s) shall be made in accordance with applicable law
after consultation with the acting head of human resources of Summit V
(currently Pat O'Hara) and only after David Edwards or any other representative
of Jenkon designated by David Edwards shall have approved such termination. Such
termination shall be made by JIA in accordance with applicable federal or state
employment law; and
(iv) JIA agrees that Jenkon or its designated representatives
shall be provided full and complete access, during normal business hours upon
reasonable notice (which shall, in no case, be required to be more than 24 hours
in advance), to all information, documentation and physical premises maintained
by JIA in connection with the Business or the management thereof;
(v) it shall assemble and maintain all financial accounting
records, controls and systems of Summit V in the manner currently assembled and
maintained and agrees to fully cooperate (without charge to Jenkon or Summit V)
with the preparation of any audit, review or other financial information or
statements reasonably required by Jenkon, it being understood that any failure
to do so would cause Jenkon irreparable harm. In this regard, JIA agrees to
maintain Summit V's financial records during the Interim Period in a manner
consistent with the requirements of a publicly-traded company that is required
to file periodic reports with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(vi) JIA understands that Jenkon is a reporting company under
the Exchange Act and, as such, has certain obligations under the Exchange Act
and under the rules and regulations of the Nasdaq Stock Market that are
applicable to the operation of the Business during the Interim Period. JIA
agrees to take all steps reasonably necessary in order to enable Jenkon to
comply with such obligations.
(d) ADDITIONAL COVENANTS OF JIA REGARDING BUSINESS. During the
Interim Period, unless Jenkon shall otherwise agree in writing (as evidenced by
the written consent of David Edwards or any independent member of the Board of
Directors of Jenkon), which shall not be unreasonably withheld, JIA shall:
(i) conduct the Business in the ordinary and usual course of
business and consistent with past practice;
(ii) not purport to issue, sell, pledge or dispose of, or agree
to issue,
<PAGE>
sell, pledge or dispose of, any shares of, or any options, warrants or rights of
any kind to acquire any shares of the capital stock of Summit V or any class or
any debt or equity securities convertible into or exchangeable for such capital
stock, it being expressly agreed that JIA shall have no power to authorize the
issuance of any securities on behalf of Summit V;
(iii) not cause Summit V to (1) incur or become contingently
liable with respect to any indebtedness for borrowed money other than trade
payables incurred in the ordinary course of business, (2) redeem, purchase,
acquire or offer to purchase or acquire any shares of capital stock of Summit V,
Jenkon or any other company, or any options, warrants or rights to acquire any
such shares, (3) make any acquisition of any assets or businesses other than
expenditures for current assets in the ordinary course of business and
expenditures for fixed or capital assets in the ordinary course of business, (4)
sell, pledge, dispose of or encumber any material assets or businesses other
than sales of businesses or assets in the ordinary course of business, or (5)
renew, extend, modify or enter into any real property (or office) lease on
behalf of Summit V (it being understood that JIA intends to negotiate and enter
into its own lease with the current landlord for the corporate headquarters of
Summit V);
(iv) confer with David Edwards or any person designated by David
Edwards to report operational matters of materiality and the general status of
ongoing operations;
(v) not (1) cause Summit V to acquire (including, without
limitation, by merger, consolidation, or acquisition of stock or assets) or form
any corporation, partnership, other business organization or division thereof,
or acquire directly or indirectly any material amount of assets; (2) except as
specifically contemplated by this Agreement, cause Summit V to incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become responsible for,
the obligations of any person or entity, or make any loans or advances, except
in the ordinary course of business and consistent with past practice which loans
shall be on terms and conditions satisfactory to Jenkon; (3) cause Summit V to
enter into any contract or agreement other than in the ordinary course of
business, consistent with past practice; (4) except for the capital expenditures
and purchase orders specifically described (by type and maximum expenditure) on
Schedule 1 to this Agreement, authorize any single capital expenditure by or on
behalf of Summit V that is in excess of $10,000 or capital expenditures that
are, in the aggregate, in excess of $50,000; or (5) enter into or amend or cause
Summit V to enter into or amend any contract, agreement, commitment or
arrangement with respect to any matter set forth in this subsection;
(vi) not (1) cause Summit V to enter into any employment,
consulting or agency agreement (whether written or oral), or increase the
compensation payable or to become payable to its officers, employees or
consultants, except for increases in accordance with existing agreements or past
practices for employees of Summit V who are not officers, directors or
shareholders of Summit V or JIA, (2) cause Summit V to grant any severance or
<PAGE>
termination pay to, or enter into any employment or severance agreement with,
any director, officer employee of Summit V or JIA, (3) cause Summit V to
establish, adopt, enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee of Summit V or JIA, or (4) cause Summit V to make
any distribution of cash or other assets to JIA or any shareholder, director,
officer or affiliate thereto other than pursuant to the terms of employment or
consulting arrangements in effect on the date of this Agreement (which shall in
all cases, be consistent with past practice);
(vii) not make, change or revoke any material tax election on
behalf of Summit V or make any material agreement or settlement regarding taxes
owed by Summit V with any taxing authority;
(viii) not take any action, other than reasonable and usual
actions in the ordinary course of Business and consistent with Summit V's past
practice, with respect to accounting policies or procedures (including, without
limitation, procedures with respect to the payment of accounts payable and
collection of accounts receivable), other than as required by GAAP or as
reasonably required by Jenkon;
(ix) not make or issue any press release on behalf of Summit V
or JIA relating to the Business or the terms of this Agreement;
(x) cause Summit V to pay and make any required deposits of
payroll and employment taxes on a timely basis and in accordance with applicable
law; and
(xi) cause Summit V's obligations and accounts payable to be
paid when due, consistent with past practices.
4. CASH RECEIPTS AND CASH DISBURSEMENTS.
(a) BANK ACCOUNT. Promptly following the execution of this
Agreement, JIA and Summit V shall jointly establish and maintain one or more
bank accounts (collectively, the "Interim Account") and shall cause all receipts
from accounts receivable of Summit V to be deposited into the Interim Account,
and shall cause all payments with respect to liabilities of Summit V to be paid
from the Interim Account. JIA shall make deposits to the Interim Account
("Funding Deposits") as required to fund Summit V's operation as provided in
Section 4(b) below. The Interim Account shall be registered in the name of
Summit V and shall provide for signatories designated by JIA (who shall, in all
cases, be officers of JIA); provided, however, that Jenkon shall have the power
(and the Interim Account shall specifically provide Jenkon the power) to change
or modify the signatories upon any breach of this Agreement by JIA, the
termination of this Agreement, or to the extent the Board of Directors makes a
reasonable good faith determination that such changes are necessary in
<PAGE>
accordance with the fiduciary duties of the Board of Directors to the
stockholders of Jenkon. Neither Jenkon nor Summit V shall make withdrawals from
the Interim Account other than in the ordinary course of Summit V's Business.
JIA shall not make withdrawals from the Interim Account except (i) to pay Summit
V liabilities and fund Summit V operating expenses during the Interim Period, or
(ii) upon termination of this Agreement or Closing, to receive any unused
Funding Deposits. Jenkon shall be entitled to receive and review all account
statements and, upon request, JIA shall provide Jenkon with account balance
information relating to the Interim Account. If this Agreement is terminated
prior to Closing (other than as a result of a breach of or failure to perform
its obligations under this Agreement or the Stock Purchase Agreement by JIA),
JIA shall have the right to withdraw from the Interim Account the aggregate
amount of all Funding Deposits.
(b) ADVANCES AND RETURN OF PROPERTY BY JIA. During the Interim
Period, JIA agrees to advance to Summit V (through Funding Deposits as described
in (a) above), such amounts as are necessary to fund the continuing operations
of Summit V's business (including, without limitation, the prompt payment of
employee salaries, employment and other taxes, lease payments and other
operating expenses of Summit V). In the event that a Closing does not occur
(other than by reason of a breach of this Agreement or the Stock Purchase
Agreement by JIA, Jenkon shall reimburse JIA for all Funding Deposits used in
connection with the operation of the Business. In the event that the Closing
does not occur (for any reason), JIA shall return all of the business and assets
to Summit V in good order and repair, normal wear excepted.
(c) CASH RECEIPTS. JIA shall have full authority to collect all Cash
Receipts and deposit them in the Interim Account.
(d) CASH DISBURSEMENTS. Subject to any limitations set forth
elsewhere in this Agreement, JIA shall have full authority to make Cash
Disbursements out of Cash Receipts and Funding Deposits in connection with the
operation of the Business.
(e) NO COMPENSATION TO JIA. JIA shall not be entitled to
compensation for its services in managing the operations of the Business
hereunder.
5. [Reserved]
6. INDEMNIFICATION.
(a) INDEMNIFICATION OF JIA. Jenkon and Summit V hereby jointly and
severally agree to indemnify, defend and hold JIA and each of its officers,
directors and agents harmless from and against any and all liabilities, claims,
demands, rights and causes of action of whatever kind or nature arising out of
or resulting from (i) the a breach of this Agreement by Jenkon, and (ii) if the
Closing does not occur for reasons other than a breach or failure to perform by
JIA, the operation of the Business prior to the date of this Agreement.
<PAGE>
(b) INDEMNIFICATION OF JENKON AND SUMMIT V. JIA (and, if a Closing
occurs, Summit V) hereby jointly and severally agree to indemnify, defend and
hold Jenkon (and, if a Closing does not occur, Summit V) and each of their
respective officers, directors and agents harmless from and against any and all
liabilities, claims, demands, rights and causes of action of whatever kind or
nature arising out of or resulting from (i) the a breach of this Agreement by
JIA, (ii) if the Closing occurs, the operation of the Business or any other
business by Summit V or JIA subsequent to the date of this Agreement, and (iii)
any offering or sale of securities by JIA.
7. FORCE MAJEURE. Neither JIA, Summit V nor Jenkon shall be liable for
any delay in the performance of their respective obligations hereunder due to
any cause beyond its reasonable control, including, but not limited to, fires,
floods, strikes, or other labor disputes, accidents to machinery, delay in
performing the Services because of the installation or removal of data
processing equipment, production shutdowns, shortages of fuel, acts of sabotage,
riots, precedence or priorities granted at the request or for the benefit,
directly or indirectly, of the federal or any state government or any
subdivision or agency thereof, delay in transportation or lack of transportation
facilities, or restrictions imposed by federal, state or other governmental
legislation or rules or regulations thereof.
8. NATURE OF RELATIONSHIP. JIA, Summit V and Jenkon acknowledge and
agree that JIA is acting as an independent contractor, and, except as otherwise
provided in this Agreement or the Stock Purchase Agreement, this Agreement is
not intended to create any other relationship between the parties, including,
without limitation, a partnership or joint venture. Jenkon, Summit V and Jenkon
Washington hereby acknowlegde and agree that during the Interim Period, Robert
Cavitt shall remain as an officer of Summit V but, subject to the duties,
standards of conduct and restrictions imposed by the terms of this Agreement
with respect to JIA's management of the Business, each of Jenkon, Summit V and
Jenkon Washington hereby waive any conflict of interest arising out of Robert
Cavitt's role as an officer of Summit V and an officer and director of JIA.
9. AUTHORITY; AUTHORIZATIONS. Jenkon and Summit V represent and warrant
to JIA that they have the power and authority to enter into this Agreement and
to perform their obligations hereunder, and that they have taken all necessary
corporate action required to be taken to authorize the execution, delivery and
performance of this Agreement. JIA represents and warrants that it has the power
and authority to enter into this Agreement and to perform its obligations
hereunder and that it has taken all necessary corporate action required to be
taken in order to authorize the execution, delivery and performance of this
Agreement.
10. ASSIGNMENT. No party shall assign its rights under this Agreement or
its interest herein without the other parties' prior written consent.
11. NON-WAIVER. Failure of any party hereto to enforce any of the terms
and provisions herein or to exercise any right accruing through the default of
the other parties shall
<PAGE>
not constitute a waiver of other or future defaults of the defaulting party.
12. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington, without regard to
principles of conflicts of law thereof.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties relative to the subject matter of this Agreement. This
Agreement expressly supersedes all prior negotiations, representations, offers,
letters, contracts, writings or other agreements or understandings with respect
hereto. No change, amendment or modification hereof shall be valid unless it is
made in writing and signed by all parties.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
Attest: JIA, Inc., a Washington corporation
___________________________ By:________________________________
Title: ____________________________
Attest: Summit V, Inc., a Washington
corporation
___________________________ By:________________________________
Title: ____________________________
Attest: Jenkon International, Inc., a Delaware
corporation
__________________________ By:________________________________
Title: ____________________________
Attest: Jenkon International, Inc., a Washington
corporation
__________________________ By:________________________________
Title: ____________________________
<PAGE>
MANAGEMENT SERVICES AGREEMENT
EXHIBIT A
I. ACCOUNTING SERVICES
-------------------
Cash Management
Financial Statement Preparation
Tax Return Preparation Supervision
Credit & Collections Supervision
Accounts Payable, Cash Disbursements Supervision
Bank Account Reconciliations Supervision
Cost Accounting Assistance
II. MANAGEMENT INFORMATION SERVICES
-------------------------------
Data Processing Services Supervision for
Order Entry and Billing
Sales and Accounts Receivable
Accounts Payable and Cash Disbursement
Payroll
General Software Support
Productivity Planning
III. EMPLOYEE BENEFITS
-----------------
Administration of Employee Benefit Plans
IV. PERSONNEL MANAGEMENT
--------------------
V. COMPANY MANAGEMENT AND PLANNING
-------------------------------
VI. SALES ACTIVITY SUPERVISION
--------------------------
VII. PURCHASING SUPERVISION
----------------------
<PAGE>
APPENDIX G
FAIRNESS OPINION OF CAPITALINK, L.C.
G-1
<PAGE>
As of March 22, 2000
Board of Directors
Jenkon International, Inc.
7600 NE 41st Street
Suite 350
Vancouver, WA 98662
Members of the Board:
We understand that there is a Stock Purchase Agreement, dated as of March 15,
1999 (the "Stock Purchase Agreement"), among JIA, Inc. ("JIA"), Jenkon, Jenkon
International, Inc, a wholly-owned subsidiary of Jenkon, and Summit, whereby JIA
shall purchase 100% of the outstanding shares of Summit in exchange for the
following (hereafter, the "Purchase Consideration"):
Consideration of $850,000, of which $500,000 shall be paid at the
closing of the transaction, and $350,000 of which shall be in the form
of a promissory note with an interest rate of 12% per annum, due one
year from the closing of the transaction.
The transaction described in the preceding two paragraphs is referred to as the
"Proposed Transaction."
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of Jenkon of the Purchase Consideration. We have not
been requested to opine as to, and our opinion does not in any manner address,
the underlying business decision of Jenkon to proceed with or effect the
Proposed Transaction. In addition, we have not been requested to explore any
alternatives to the Proposed Transaction.
In arriving at our opinion, we, among other things: (i) reviewed the Stock
Purchase Agreement; (ii) reviewed publicly available financial information and
other data with respect to Jenkon, including the Annual Report for the fiscal
year ended June 30, 1999, the Quarterly Reports on Form 10-QSB for the periods
ended September 30, 1999, and December 31, 1999, and, the Current Reports on
Form 8-K, dated December 30, 1999 and (on Form 8-K/A) dated February 28, 2000;
(iii) reviewed the Jenkon Private Placement Memorandum dated September 10, 1999;
(iv) reviewed certain other relevant financial and operating data relating to
Jenkon and Summit made available from published sources and from the internal
records of Jenkon; (v) considered the historical financial results and present
financial condition of Summit with those of other companies that we deemed
relevant; (vi) reviewed and analyzed the financial terms of certain transactions
that we deemed comparable to the Proposed Transaction; (vii) reviewed certain
publicly available information concerning the trading of, and the trading market
for, the common
Page 1 of 3
<PAGE>
stock of Jenkon; (viii) reviewed and analyzed certain publicly available
information concerning the trading of, and the trading market for, companies
that we believed to be comparable to Summit; (ix) reviewed and discussed with
representatives of the management of Jenkon and Summit certain financial and
operating information furnished to us and presented in the public filings;
(x) inquired about and discussed the Proposed Transaction with Jenkon and
Summit management; and (xi) performed such other analyses and examinations as
we deemed appropriate.
In arriving at our opinion, we relied upon and assumed the accuracy and
completeness of all of the financial and other information that was used without
assuming any responsibility for any independent verification of any such
information and further relied upon the assurances of Jenkon's management that
they were not aware of any facts or circumstances that would make any such
information inaccurate or misleading. In arriving at our opinion, we did not
make a physical inspection of the properties and facilities of Jenkon (or
Summit), and has not made or obtained any evaluations or appraisals of the
assets and liabilities (contingent or otherwise) of Summit. We assumed that the
Proposed Transaction will be consummated in a manner that complies in all
respects with the applicable provisions of the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, and all other
applicable federal and state statutes, rules and regulations. In addition, upon
the advice of the management of Jenkon and its legal advisors, we assumed that
the Proposed Transaction would not cause any adverse tax affect to Jenkon based
on use of existing net operating loss carryforwards available. Our opinion was
necessarily based upon market, economic and other conditions as they existed on,
and could be evaluated as of, March 22, 2000. Accordingly, although subsequent
developments may affect our opinion, we did not assume any obligation to update,
review or reaffirm our opinion.
We have also assumed, with your consent, that the Proposed Transaction will be
consummated in accordance with the terms described in the Stock Purchase
Agreement, without any further amendments thereto, and without waiver by Jenkon
of any of the conditions to any obligations thereunder.
In connection with our services, we have previously received a retainer and will
receive the balance of our fee for rendering this opinion. In addition, Jenkon
has agreed to indemnify us for certain liabilities that may arise out of the
rendering this opinion. This opinion is not intended to be and does not
constitute a recommendation to any shareholder of Jenkon as to how such
shareholder should vote, if required to, with respect to the Proposed
Transaction.
Our opinion is for the use and benefit of the Board of Directors of Jenkon and
is rendered to the Board of Directors in connection with its consideration of
the Proposed Transaction and may not be used by Jenkon for any other purpose or
reproduced, disseminated, quoted or referred to by Jenkon at any time, in any
manner or for any purpose, without the prior written consent of Capitalink,
except that this opinion, may be reproduced in full in, and references to the
opinion and to Capitalink and its relationship with Jenkon may be included in
any proxy statement relating to the Proposed Transaction that Jenkon files with
the U.S. Securities and Exchange Commission and distributes to holders of
Jenkon's common stock in connection with the Proposed Transaction.
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<PAGE>
Based upon and subject to the foregoing, it is our opinion that, as of the date
of this letter, the Purchase Consideration is fair, from a financial point of
view, to the shareholders of Jenkon.
Very truly yours,
CAPITALINK, L.C.
Page 3 of 3
<PAGE>
(FRONT)
PROXY
JENKON INTERNATIONAL, INC.
7600 N.E. 41st Street, Suite 350
Vancouver, Washington 98662
(360) 256-4400
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints David Edwards and Cliff DeGroot as Proxies,
each with the power to appoint his substitute, and hereby authorizes them or
either of them to represent and to vote as designated below, all the shares of
common stock of Jenkon International, Inc. held of record by the undersigned on
May 5, 2000, at the Special Meeting of Shareholders to be held on May 31, 2000,
or any adjournment thereof.
1. APPROVAL OF THE CONVERSION PROPOSAL (as described in the Proxy Statement)
____ FOR ____ AGAINST ____ ABSTAIN
2. APPROVAL OF THE CHARTER AMENDMENT PROPOSAL (as described in the Proxy
Statement)
____ FOR ____ AGAINST ____ ABSTAIN
3. APPROVAL OF THE SALE PROPOSAL (as described in the Proxy Statement)
____ FOR ____ AGAINST ____ ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
<PAGE>
(BACK)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1, 2 AND 3.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When
signing as attorney, as executor,
administrator, trustee, or
guardian, please give full title as
such. If a corporation, please
sign in full corporate name by
President or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person.
Dated: , 2000
------------------------ ----------------------------------------
Signature
- -----------------------------------------------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
