EXHIBIT 4.2





 

DEAN HELLER 

Secretary of State 

204 North Carson Street, Suite 1 

Carson City, Nevada 89701-4299 

(775) 684 5708 

Website: secretaryofstate.biz 

	
		Certificate of Designation

		   (PURSUANT TO NRS
		78.1955)


	Important:
		Read attached instructions before completing form.	ABOVE
		SPACE IS FOR OFFICE USE ONLY
	 	 
	    Certificate
		of Designation

		For Nevada Profit Corporations

		(Pursuant to NRS 78.1955)


	1.	
		Name of corporation:
	 
	                   
		Sunset Brands, Inc.
	 
	2.	By resolution of
		the board of directors pursuant to a provision in the articles of
		incorporation, this certificate establishes the following regarding the
		voting powers, designations, preferences, limitations, restrictions and
		relative rights of the following class or series of stock:
	                         
		800,000 Shares of Series B Convertible Preferred
		Stock, par value $.001 per share,
	                         
		with rights and preferences as attached on Exhibit A.


 

	3.	Effective date of filing
		(optional):    November 10,
		2005
	 	 	                                            
		(must not be later than 90 days after the certificate is filed)
	 	 
	4.	Officer Signature: 
		/s/ Todd Sanders, President and CEO                                                  
		
	 	 	Todd Sanders, President and CEO


 

	 	 	 
	Filing Fee: $175.00	 
	 	 	 
	IMPORTANT:
		Failure to include any of the above information and
		submit the proper fees may
	cause
		this filing to be rejected.	 
	 	 	 
	SUBMIT IN DUPLICATE	 
	 	 
	This form must be
		accompanied by appropriate fees.	Nevada
		Secretary of State AM 78.1955 Designation 2003
	 	 	
		Revised on: 09/28/05




CERTIFICATE OF DESIGNATION

OF THE

SERIES B CONVERTIBLE PREFERRED STOCK

(Par Value $.001 Per Share)

OF

SUNSET BRANDS, INC.


        The
undersigned, a duly authorized officer of Sunset Brands, Inc., a Nevada
corporation (the "Company" or "Corporation"), pursuant to and in
accordance with Nevada law, DOES HEREBY CERTIFY that the following
resolution was duly adopted by the Board of Directors by unanimous written
consent:


RESOLVED, that the Board of Directors (the "Board")
has determined that it is in the best interest of the Company to provide for the
designation of 800,000 shares of certain Series B
Convertible Preferred Stock, par value $.001 per share (the "Series B
Preferred Stock") and hereby fixes the powers, designations, preferences,
and relative, participating, optional and other special rights of the shares of
such Series B Preferred Stock, as follows:

1.     Designation and Amount. Eight Hundred Thousand
(800,000) shares of preferred stock are hereby designated as Series B
Convertible Preferred Stock. 

2.     Rank. With respect to the payment of dividends
and other distributions on the capital stock of the Company, including
distribution of the assets of the Company upon liquidation, the Series B
Preferred Stock shall be senior to the Company's common stock, $.001 par value
per share ("Common Stock"), and any other capital stock of the
Corporation whenever issued (all capital stock other than the Series B Preferred
Stock being referred to hereinafter collectively as "Junior Stock"). 

3.     Dividends. 

(a)     Dividends on the shares of Series B Preferred Stock
shall accrue and compound semi-annually at an annual rate of eight percent (8%).
Dividends shall be paid in cash or in shares of Common Stock (the "Dividend
Stock") at the option of the Company (i) on the applicable Series B Dividend
Payment Date and (ii) upon a Liquidation. 

(b)     Dividends on shares of Series B Preferred Stock shall
be payable in arrears in equal semi-annual payments (other than the first
semi-annual dividend which shall accrue from the date hereof) on each March 31
and September 30 (each of such dates referred to herein as a "Series B
Dividend Payment Date"), commencing on March 31, 2006. If any Series B
Dividend Payment Date is not a Business Day, the dividends shall be paid on the
next business day. Accrued dividends for each semi-annual dividend period shall
accumulate and compound, to the extent not paid, from the next day following a
Series B Dividend Payment Date up through the next Series B Dividend Payment
Date. Dividends on shares of Series B Preferred Stock shall accrue and compound
whether or not the Corporation shall have earnings, whether or not there shall
be funds legally available for the payment of such dividends and whether or not
such dividends are declared. All accumulated but unpaid dividends on Series B
Preferred Stock shall 



 

be payable in preference to and in priority over any dividends or
distributions on the Junior Stock.

(c)     In no event, so long as any shares of Series B
Preferred Stock shall remain outstanding, shall any dividend whatsoever be
declared or paid upon, nor shall any distribution be made upon, any shares of
the Corporation's Junior Stock. Issuance of the Dividend Stock shall constitute
"payment" of the related dividend. 

(d)     The dividends on the Series B Preferred Stock shall be
calculated as follows:

(i)      if paid in cash, dividends on the Series B
Preferred Stock outstanding as of the applicable Series B Dividend Payment Date
shall equal 8% of the Series B Preference Price multiplied by the number of
shares of Series B Preferred Stock outstanding, in each case determined as of
the applicable Series B Dividend Payment Date (such aggregate cash dividend
amount, the "Cash Dividend Amount"); and

(ii)      if paid in shares of Common Stock, dividends on the
Series B Preferred Stock shall equal the number of shares of Common Stock
calculated by dividing the Cash Dividend Amount by the Average Trading Price (as
defined below) for the ten (10)
trading days prior to the applicable Series B Dividend Payment Date. "Average
Trading Price" as of any date, (i) means the average of the 
bid and ask prices for the shares of Common Stock on
the Over-the-Counter Bulletin Board (the "OTC BB") for the ten (10)
Trading Days immediately preceding such date as reported by Bloomberg, or (ii)
if the OTC BB is not the principal trading market for the shares of Common
Stock, the average of the last reported sale prices on the principal trading
market for the Common Stock during the same period as reported by Bloomberg, or
(iii) if market value cannot be calculated as of such date on any of the
foregoing bases, the Average Trading Price shall be the fair market value as
reasonably determined in good faith by an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the Company. The manner of determining the Average Trading Price of
the Common Stock set forth in the foregoing definition shall apply with respect
to any other security in respect of which a determination as to market value
must be made hereunder. "Trading Day" means a day on which the OTC BB is
open for the transaction of business.

(e)     Dividend on the Series B Preferred Stock will be
computed on the basis of a 365 day year and the number of days actually elapsed
and will be deemed to accrue on a daily basis.

4.     Liquidation, Dissolution or Winding Up.

(a)     Liquidation Preference. In the event of a
Liquidation (as defined below), the holders of each share of Series B Preferred
Stock shall be entitled to receive out of any available funds, before any sums
shall be paid or any assets distributed among the holders of the Junior Stock,
an amount or value (such amount or value as described immediately below is
hereinafter called the "Series B Preference Price") equal to five dollars
and sixty cents ($5.60) 


 

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 accrued but unpaid
dividends on such shares (the "Series B Preference"). 

(b)     If upon such Liquidation, the assets and surplus
funds of the Corporation are insufficient to pay the full amounts (including all
dividends accrued and unpaid) to which the holders of the Series B Preferred
Stock shall be entitled by reason of such Liquidation, then the assets and
surplus funds of the Corporation will be distributed among the holders of the
Series B Preferred Stock on a pro rata basis. The Corporation will
mail written notice of such Liquidation, not less than ten days prior to the
payment date stated therein, to each record holder of shares of Series B
Preferred Stock. 

(c)     "Liquidation" shall mean (i) any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary or (ii) the 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.

(d)     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 4 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)
reasonably satisfactory to the Corporation and sufficient to transfer such
shares of Series B Preferred Stock to the Corporation free of any adverse
interest, other than adverse interest created as a matter of law. No interest
shall accrue on any payment upon Liquidation after the due date thereof.

(e)     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 made available for such
payment, the remaining assets of the Corporation available for distribution to
shareholders may be distributed among the holders of Junior Stock, and the
holders of shares of the Series B Preferred Stock will not be entitled to any
further participation in any distribution of assets by the Corporation.

(f)     All payments of the Series B Preference shall be
made in cash unless otherwise agreed to in writing by the holder of Series B
Preferred Stock. 


 

5.      Series B Preferred Stock Voting Rights.
Except as required by applicable law the Series B Preferred Stock shall not have
any voting rights. 

6.     Conversion Rights. The holders of the Series
B Preferred Stock shall have the following conversion rights:

(a)     Right to Convert. Subject to and in
compliance with the provisions of this Section 6, any shares of the Series B
Preferred Stock may, at the option of the holder, be converted at any time or
from time to time into fully-paid and nonassessable shares (calculated as to
each conversion to the largest whole share) of Common Stock. The number of
shares of Common Stock to which a holder of Series B Preferred Stock shall be
entitled upon conversion, subject to the payment of cash in lieu of fractional
shares as provided in Section 6(f), shall be the product obtained by multiplying
the applicable Conversion Rate (determined as provided in Section 6(c)) by the
number of shares of Series B Preferred Stock being converted. In accordance with
Section 6(d) below, at the time of a holder's conversion of any shares of Series
B Preferred Stock, any accrued but unpaid dividends on the shares being
converted may be converted into Common Stock at the Conversion Rate then in
effect. Any shares of Common Stock received upon conversion of Series B
Preferred Stock as provided in this Section 6(a) shall be subject to any lock-up
provisions or other restrictions on their resale to the same extent as were the
shares of Series B Preferred Stock so converted.

(b)    
Certain Conversion
Restrictions. No holder of the Series B Preferred Stock may convert or
receive shares of Common Stock as payment of dividends hereunder to the extent
such conversion or receipt of such dividend payment would result in the holders,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Securities Exchange Act, as amended, and
the rules promulgated thereunder) in excess of 4.9% of the then issued and
outstanding shares of Common Stock, including shares issuable upon conversion
of, and payment of dividends on, the Series B Preferred Stock held by such
holders after application of this Section 6. 

(c)     Conversion Rate. The conversion rate per
share of Series B Preferred Stock in effect at any time (the "Conversion Rate")
shall be the quotient obtained by dividing five dollars and sixty cents ($5.60)
by the conversion price, calculated as provided in Section 6(d) (the "Conversion
Price").

(d)     Conversion Price. The Conversion Price shall
be initially fifty-six cents ($0.56), subject to customary adjustment
from time to time as provided in Section 6(g). 

(e)     Mechanics of Conversion. Each holder of
Series B Preferred Stock who desires to convert the same into shares of Common
Stock, subject to the provisions of this Section 6(e), shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Common Stock, and shall give
written notice to the Corporation at its principal office that such holder
elects to convert the same and shall state therein (i) the number of shares of
Series B Preferred Stock being converted, and (ii) the amount, if any, of
accrued but unpaid dividends that such holder elects to convert into shares of
Common Stock at the Conversion Price then in effect. 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 and shall promptly (A) pay in cash any accrued but unpaid dividends on
the shares of Series B Preferred Stock being converted (but only to the extent
that such holder does not elect to convert such accrued but unpaid dividends
into Common Stock as provided above), or (B) if the Corporation is legally or
financially unable to pay such dividends in cash, pay in Common Stock (valued at
the Conversion Price then in effect) all declared but unpaid dividends on the
shares being converted. 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"). The Series B Preferred Stock may be
converted in any whole number multiple of one (1) share.

(f)     Cash in Lieu of Fractional Shares. No
fractional shares of Common Stock or scrip representing fractional shares shall
be issued upon the conversion of shares of Series B Preferred Stock. Instead of
any fractional shares of Common Stock which would otherwise be issuable upon
conversion of the Series B Preferred Stock, the Corporation shall pay to the
holder of the shares of Series B Preferred Stock which were converted a cash
adjustment in respect and in lieu of such fractional shares in an amount equal
to the same fraction of the fair market value per share of the Common Stock (as
determined in good faith by the Board) at the close of business on the
Conversion Date. 

(g)     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 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 (as that
term is defined in Section 6(e)), retained such securities receivable by them as
aforesaid during such period, giving application to all adjustments called for
during such period under this Section 6 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, 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 and a holder of Series B Preferred Stock elects
to not receive the Series B Preference, then, as a part of such transaction,
provision shall be made so that such holder of a share of Series B Preferred
Stock shall have the right thereafter to convert such shares 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 provisions of
this Section 6 with respect to the rights of the holders of the Series B
Preferred Stock after such transaction such that the provisions of this Section
6 (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 Conversion Price then in
effect and 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 Conversion Price or Conversion Rate, 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 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.

(h)     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.

(i)     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.

(j)     Partial Conversion. In the event some but
not all of the shares of Series B Preferred Stock represented by a certificate
or certificates surrendered by a holder are converted, the Corporation shall
execute and deliver to or on the order of the holder, at the expense of the
Corporation, a new certificate representing the number of shares of Series B
Preferred Stock which were not converted.

(k)     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.

(l)     No Impairment. The Corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, deliberately avoid or seek
to avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 6 and in the
taking of all such action as may be reasonably necessary or appropriate in order
to protect the conversion rights of the holders of the Series B Preferred Stock
against impairment.

7.     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.



 

8.     Reservation of Series B Preferred Stock. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Series B Preferred Stock, solely for the purpose of
paying dividend to the holders of the Series B Preferred Stock in shares of
Series B Preferred Stock pursuant to Section 3(a) hereof, such number of shares
of Series B Preferred Stock as shall from time to time be sufficient to pay such
dividends, and if at any time the number of authorized but unissued shares of
Series B Preferred Stock shall not be sufficient to pay such dividends, the
Corporation shall take such corporate action as may be necessary to increase its
authorized but unissued shares of Series B Preferred Stock to such number of
shares as shall be sufficient for such purpose.

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 a
redemption of their Series B Preferred Stock, to receive any dividend or other
distribution, or to receive any other right, or any capital reorganization of
the Corporation, any reclassification or recapitalization of the capital stock
of the Corporation, any merger or consolidation of the Corporation, or any
transfer of all or substantially all of the assets of the Corporation to any
other corporation, or any other entity or person, or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, then and
in each such event the Corporation shall mail or cause to be mailed to each
holder of Series B Preferred Stock a notice specifying (i) the date on which any
such record is to be taken for the purpose of such redemption, 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.

 

[Signature page
follows]




IN WITNESS WHEREOF, the Company has caused this
Certificate of Designation to be signed by Todd Sanders, its President.

Dated: _____________, 2005                         

SUNSET BRANDS, INC. 

 

___________________________________

Todd Sanders

President & CEO