As filed with the Securities and Exchange Commission on March 22, 1999
Registration No. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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EQUITEX, INC.
(Exact name of Registrant specified in charter)
DELAWARE 84-0905189
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7315 EAST PEAKVIEW AVENUE
ENGLEWOOD, COLORADO 80111
(303) 796-8940
(Address, including zip code, and telephone number,
including area code, Registrant's principal
executive offices)
HENRY FONG, PRESIDENT, TREASURER AND
CHIEF FINANCIAL OFFICER
7315 EAST PEAKVIEW AVENUE
ENGLEWOOD, COLORADO 80111
(303) 796-8940
(Name, address and telephone number, including area code, of agent for service)
Copies of communication, including all communication sent to the
agent for service, should be sent to:
GERALD RASKIN, ESQ.
SETH WEISS, ESQ.
FRIEDLOB SANDERSON RASKIN PAULSON & TOURTILLOTT, LLC
1400 GLENARM PLACE, SUITE 300
DENVER, COLORADO 80202
(303) 571-1400
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement as determined by
market conditions.
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If the only securities being registered on this Form are to be offered pursuant
to dividend or interest reinvestment plans, please check the following box: |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: |X|
<PAGE>
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check this following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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<PAGE>
<TABLE>
<CAPTION>
|----------------------------------------------------------------------------------------------------------------------|
| CALCULATION OF REGISTRATION FEE |
|----------------------------------------------------------------------------------------------------------------------|
|Title of each class of securities to | Amount to be | Proposed | Proposed | Amount of |
| be registered | Registered | Maximum | Maximum | Registration |
| | (1) | Offering Price | Aggregate | Fee (2) |
| | | Per Share | Offering | |
| | | | Price | |
|----------------------------------------------------------------------------------------------------------------------|
<S> <C> <C> <C> <C>
|Common Stock, $.02 par value | 449,200 | $1.16 | $579,072 | $161 |
|---------------------------------------|--------------------|---------------------|-----------------|-----------------|
|Common Stock, $.02 par value | 750,000 | $3.25 | $2,437,500 | $678 |
|---------------------------------------|--------------------|---------------------|-----------------|-----------------|
|Common Stock Underlying | | | | |
|Werbalowsky Warrant | 35,000 | $5.00 | $175,000 | $49 |
|---------------------------------------|--------------------|---------------------|-----------------|-----------------|
|Common Stock Underlying Series A | | | | |
|Convertible Preferred Stock | 216,000 | $4.16667(3) | $900,000 | $250 |
|---------------------------------------|--------------------|---------------------|-----------------|-----------------|
|Common Stock Underlying Series B | | | | |
|Convertible Preferred Stock | 120,000 | $4.16667(3) | $500,000 | $139 |
|---------------------------------------|--------------------|---------------------|-----------------|-----------------|
|Common Stock Underlying Series C | | | | |
|Convertible Preferred Stock | 144,000 | $4.16667(3) | $600,000 | $167 |
|---------------------------------------|--------------------|---------------------|-----------------|-----------------|
|Common Stock Underlying | | | | |
|Warrants Granted in Connection | | | | |
|with Series A Convertible Preferred | | | | |
|Stock Private Placement | 90,000 | $8.205(4) | $738,450 | $205 |
|---------------------------------------|--------------------|---------------------|-----------------|-----------------|
|Common Stock Underlying | | | | |
|Warrants Granted In Connection | | | | |
|with Series B Convertible Preferred | | | | |
|Stock Private Placement | 50,000 | $8.895(5) | $444,750 | $124 |
|---------------------------------------|--------------------|---------------------|-----------------|-----------------|
|Common Stock Underlying | | | | |
|Warrants Granted in Connection | | | | |
|with Series C Convertible Preferred | | | | |
|Stock Private Placement | 60,000 | $11.73(6) | $703,800 | $196 |
|---------------------------------------|--------------------|---------------------|-----------------|-----------------|
|TOTAL | 1,964,200 | ---- | $7,078,572 | $1,969 |
|----------------------------------------------------------------------------------------------------------------------|
</TABLE>
(1) Plus such indeterminable number of shares of Common Stock as may be
issuable by reason of the anti-dilution provisions of such warrants or
convertible preferred stock.
(2) The fee has been calculated in accordance with Rule 457.
(3) The per share proposed maximum offering price assumed to be $4.16667
for purposes of filing this registration statement.
(4) The per share proposed maximum offering price was calculated as
follows: $6.8375, the average closing bid price of Equitex's common
stock for the five trading days preceding January 4, 1999 (closing date
for the Series A Convertible Preferred Stock Private Placement), was
multiplied by 1.20.
(5) The per share proposed maximum offering price was calculated as
follows: $7.4125, the average market price of Equitex's common stock
for the five trading days preceding January 20, 1999 (closing date for
the Series B Convertible Preferred Stock Private Placement), was
multiplied by 1.20.
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<PAGE>
(6) The per share proposed maximum offering price was calculated as
follows: $9.775, the average closing bid price of Equitex's common
stock for the five trading days preceding February 4, 1999 (closing
date for the Series C Convertible Preferred Stock Private Placement),
was multiplied by 1.20.
--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
--------------------
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<PAGE>
Preliminary Prospectus, Subject to Completion dated March 22, 1999
Prospectus
EQUITEX, INC.
1,964,200 Shares of Common Stock to be Offered and Sold by Selling
Securityholders
This is a public offering of shares of common stock of Equitex, Inc. by
the selling securityholders identified on pages 14-17 of this prospectus. The
selling securityholders will offer the shares from time to time at prevailing
market prices. Equitex will not receive any of the proceeds from the offering,
except for any proceeds from the cash exercise of warrants owned by the Selling
Securityholders.
Equitex's common stock trades on the Nasdaq SmallCap Market under the
symbol EQTX.
- --------------------------------------------------------------------------------
| An investment in the stock of Equitex involves a high degree of risk. The |
| shares should only be purchased by persons who can afford a complete loss. |
| See "Risk Factors" beginning on page 3. |
- --------------------------------------------------------------------------------
The Securities and Exchange Commission has not approved or disapproved
these securities or determined that this prospectus is truthful or complete. A
representation to the contrary is a criminal offense.
The information in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
-----------------------------------------------------
The date of this Prospectus is March 22, 1999
<PAGE>
TABLE OF CONTENTS
Risk Factors.................................................................-3-
Where You Can Find More Information..........................................-7-
Forward-Looking Statements...................................................-8-
Information About Equitex, Inc...............................................-8-
Recent Developments.........................................................-10-
Use of Proceeds.............................................................-11-
Description of the Offering.................................................-12-
Selling Securityholders.....................................................-13-
Plan of Distribution........................................................-18-
Indemnification Provided in Connection with the Offering by the
Selling Securityholders....................................................-19-
Legal Matters...............................................................-20-
Experts.....................................................................-20-
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<PAGE>
RISK FACTORS
Prospective investors should consider carefully the following risk
factors, as well as the other information contained in this prospectus, before
making an investment in the common stock of Equitex.
RISK ASSOCIATED WITH RAPID GROWTH AND ENTRY INTO NEW BUSINESSES
Following the acquisition of First TeleServices, Equitex embarked upon
a strategic diversification of its business. Previously, Equitex had operated as
a business development company, a form of closed-end investment company.
Equitex, operating through First TeleServices, recently entered the financial
services business. The entry of Equitex into this new business has resulted in
increased demands on Equitex's personnel and systems. The development and
integration of the new businesses requires the investment of additional capital
and the continuous involvement of senior management. Equitex also must manage a
variety of businesses with differing markets, customer bases, financial
products, systems and managements. An inability to develop, integrate and manage
its businesses could have a material adverse effect on Equitex's financial
condition, results of operations and business prospects. Equitex's ability to
support and manage continued growth is dependent upon, among other things, its
ability to attract and retain senior management for each of its businesses, to
hire, train, and manage its workforce successfully in its existing and new
business lines. Equitex may not be able to successfully meet all of these
challenges.
NEED FOR ADDITIONAL FINANCING
Equitex's ability to carry out its business strategy and expand its
operations greatly depends on its ability to obtain additional indebtedness and
equity capital. Equitex has no commitments for borrowings in addition under its
current debt securities and under its credit facilities, and Equitex has no
commitments for future sales of equity capital. Equitex may not be successful in
consummating any future financing transactions on terms satisfactory to Equitex,
if at all. Factors which could affect Equitex's access to the capital markets,
or the costs of such capital, include changes in interest rates, general
economic conditions and the perception in the capital markets of Equitex's
business, results of operations, leverage, financial condition and business
prospects. Each of these factors is to a large extent subject to economic,
financial and competitive factors beyond Equitex's control. In addition,
covenants in Equitex's current and future debt securities and credit facilities
may significantly restrict Equitex's ability to incur additional indebtedness
and to issue preferred stock. Equitex's ability to repay its outstanding
indebtedness may depend on its ability to refinance that indebtedness, which may
be difficult if Equitex does not have access to the capital markets for the sale
of additional debt or equity securities through public offerings or private
placements on terms reasonably satisfactory to Equitex.
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<PAGE>
DATABASE OF POTENTIAL CLIENTS
Equitex maintains and continues to develop a database of potential
financially sub-prime clients in need of products and services offered by
Equitex or its alliance partners. Equitex expects to generate revenues through a
variety of uses of its database. Equitex also may receive certain residual fees
for as long as the client uses the products or services of an alliance partner.
Accordingly, maintenance and continuous development of the database is essential
to Equitex's financial condition, results of operations, and business prospects.
Equitex may not be able to maintain or develop the database in such a way that
its contents are desirable to third parties such that they would purchase the
information from Equitex or negotiate to become a fee paying alliance partner
with Equitex.
DATABASE INFORMATION; CREDIT IMPAIRED CLIENTS
Information contained in Equitex's database concerns financially
sub-prime individuals who may be interested in certain products or services
offered by Equitex or its alliance partners. Generally, the individuals in the
database are considered financially sub-prime because they are unable to obtain
credit from traditional financial institutions due to factors such as an
impaired or poor credit history, low income or another adverse credit event.
Companies that provide services to these individuals are subject to various
risks, including, the risk that clients will not satisfy their debt service
obligations and that the realizable value of the assets securing their loans
will not be sufficient to repay the borrowers' debt. These risks, however, will
not be borne by Equitex but rather by the alliance partner which provides the
product or service requested by the client. Accordingly, the risk to Equitex is
that it may not receive a fee (origination or residual) for products or services
provided by the alliance partner to a delinquent or defaulting client.
PROPRIETARY NATURE OF DATABASE
Equitex regards its database as proprietary and will take steps
necessary to protect the confidential nature of the information contained
therein; however, Equitex may not be able to prevent its improper or unapproved
dissemination and use.
DEPENDENCE ON ALLIANCE PARTNERSHIP RELATIONSHIPS
Equitex's products and services will be developed and serviced through
alliance partnerships with companies specializing in those particular products
and/or services. Equitex has no control over the manner in which its alliance
partners operate their businesses. If any of these alliance partners fails to
deliver quality products or services on a timely basis, and if Equitex is unable
to develop alternative sources as required, dissatisfied clients may turn to
other sources to provide the products or services they desire.
Because Equitex has no control over alliance partners, Equitex can
provide no assurance that future regulatory, judicial, legislative or political
considerations will permit these partners to offer their products and services,
that regulators or third parties will not raise material issues regarding the
compliance of these partners with applicable laws or regulations, or that these
regulatory, judicial, legislative or political decisions will not have an
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<PAGE>
adverse effect on the ability of these alliance partners to provide the products
and/or services. The inability of Equitex's alliance partners to provide the
products and/or services to Equitex because they cannot obtain or retain the
required governmental approvals or for any other reason related to regulatory
compliance, could have a material adverse effect on Equitex.
Because Equitex's business is ultimately dependent upon the quantity
and quality of alliance partnerships maintained by Equitex, Equitex must
actively seek out new partnerships while maintaining and evaluating its current
relationships. Equitex may not be able to develop new alliance partnerships or
maintain its current relationships.
ALLIANCE PARTNER RISKS
Equitex's alliance partners face risks that are particular to their
lines of business. To the extent an alliance partner faces a particular risk,
Equitex is also exposed, although indirectly, to that risk in that Equitex may
not receive fees (origination or residual) to which it is entitled because an
event has had a negative effect on an alliance partner. Consequently, Equitex's
financial condition, results of operations, and business prospects could be
materially adversely affected.
GENERAL ECONOMIC CONDITIONS
Fluctuating interest rates, uncertainty and volatility in the capital
markets, periods of economic slowdown, recession or inflation, are among the
factors that may adversely affect Equitex's business. Such events or periods
such as these may be accompanied by increased delinquencies, defaults or losses
on obligations owed to Equitex's alliance partners or decreased consumer demand
for the products and services offered by Equitex.
GOVERNMENT REGULATION
Many aspects of Equitex's business, including the direct marketing of
Equitex's products and services, are subject to regulation, examination and
licensing under various federal, state and local statutes and regulations that
impose requirements and restrictions affecting Equitex's business. Equitex
believes it is currently in compliance in all material respects with applicable
laws and regulations; however, Equitex might not be able to maintain compliance.
Failure to comply with, or changes in, these laws or regulations, or the
enforcement of more stringent regulatory requirements than those now in effect,
could have an adverse effect on Equitex by limiting the fee income Equitex may
generate in connection with database marketing and consumer finance divisions
and limiting the states in which Equitex may operate.
COMPETITION
All of the businesses in which Equitex operates are highly competitive.
Some of Equitex's principal competitors are substantially larger and better
capitalized than Equitex. Because of their resources, these companies may be
better able than Equitex to obtain new customers to pursue new business
opportunities or to survive periods of industry consolidation. Access to and the
cost of capital are critical to Equitex's ability to compete. Many of Equitex's
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<PAGE>
competitors have superior access to capital sources and can arrange or obtain
lower cost of capital, resulting in a competitive disadvantage to Equitex with
respect to such competitors.
In addition, certain of Equitex's competitors may have higher risk
tolerances or different risk assessments, which could allow these competitors to
establish lower margin requirements and pricing levels than those established by
Equitex. If a significant number of competitors establish pricing levels below
those established by Equitex, Equitex's ability to compete would be adversely
affected.
LITIGATION
Industry participants in Equitex's lines business from time to time are
named as defendants in litigation involving alleged violations of federal and
state consumer protection or other similar laws and regulations. A judgment
against Equitex in connection with any such litigation could have a material
adverse effect on Equitex's financial condition, results of operations and
business prospects.
YEAR 2000 READINESS
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process date field containing a
two-digit year is commonly referred to as the "Year 2000 Issue." As the year
2000 approaches, such systems may recognize a date using "00" as the year 1900
rather than the year 2000 and be unable to accurately process certain date-
based information. This error could potentially result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions or engage in similar normal
business activities.
Equitex has reviewed its computer system in order to evaluate necessary
modifications for the Year 2000 readiness. In addition, Equitex is in the
process of communicating with others with whom it does significant business to
determine their Year 2000 readiness status and the extent to which Equitex could
be affected by any third party Year 2000 readiness issues. Although Equitex has
not received responses from all third parties with whom it does business,
Equitex does not anticipate that it will be materially affected by any third
party Year 2000 readiness issues. However, the systems of Equitex or those of
other companies on which Equitex's systems rely may not be timely converted. A
failure to convert by another company, or a conversion that is incompatible with
Equitex's systems, could have a material adverse effect on Equitex.
The anticipated costs and timeliness of completion of Year 2000
modifications are based on management's best estimates, which were derived using
numerous assumptions relating to future events, including, without limitation,
the continued availability of certain resources and third party modification
plans. However, these estimates and assumptions may turn out to be inaccurate.
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires Equitex to file information with the
Securities and Exchange Commission concerning its business and operations.
Accordingly, Equitex files annual, quarterly, and special reports, proxy
statements and other information with the Commission. You can inspect and copy
of this information at the Public Reference Facility maintained by the
Commission at Judiciary Plaza, 450 5th Street, N.W., Room 1024, Washington, D.C.
20549. You can also do so at the following regional offices of the Commission:
* New York Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048
* Chicago Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661.
You can receive additional information about the operation of the
Commission's Public Reference Facilities by calling the Commission at 1-(800)
SEC-0330. The Commission also maintains a website at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding companies that, like Equitex, file information electronically with the
Commission.
The Commission allows Equitex to "incorporate by reference" the
information we file with them, which means we can disclose important information
to you by referring you to the other information we have filed with the
Commission. The information that we incorporate by reference is considered to be
part of this prospectus, and related information that we file with the
Commission will automatically update and supersede information we have included
in this prospectus. We also incorporate by reference any future filings we make
with the Commission under Sections 13(a), 13(c) or 15(d) of the Securities
Exchange Act of 1934, as amended, until the selling securityholders sell all of
their shares or until the registration rights of the selling securityholders
expire. This prospectus is part of a Registration Statement that we filed with
the Commission (Registration No. 333-______).
FILING PERIOD
Annual Report on Form 10-KSB.............. Year ended December 31, 1997
Quarterly Reports on Form 10-QSB.......... Quarters Ended March 31, 1998, June
30, 1998 and September 30, 1998
Current reports on Form 8-K............... Dated: January 3, 1998
Proxy Statement on Schedule 14A........... For the Annual Meeting held December
4, 1998
The Description of Equitex's Common Stock. See Equitex's Registration Statement
on Form 8-A's filed July 21, 1983
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<PAGE>
You can request a free copy of the above filings or any filings
subsequently incorporated by reference into this prospectus by writing or
calling us at the following address:
Equitex, Inc.
7315 East Peakview Avenue
Englewood, Colorado 80111
Telephone: (303) 796-8940
Facsimile: (303) 796-9762
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement or amendment to this prospectus.
We have not authorized anyone else to provide you with different information or
additional information. Selling securityholders will not make an offer of
Equitex's Common Stock in any state where the offer is not permitted. You should
not assume that the information in this prospectus, or any supplement or
amendment to this prospectus, is accurate at any date other than the date
indicated on the cover page of such documents.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this prospectus and in the documents
incorporated by reference herein, constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act, as amended, and Section 21E of
the Exchange Act, as amended. These forward-looking statements can be identified
by the use of predictive, future-tense or forward- looking terminology, such as
"believes," "anticipates," "expects," "estimates," "may," "will" or similar
terms. Forward-looking statements also include projections of financial
performance, statements regarding management's plans and objectives and
statements concerning any assumption relating to the foregoing. Certain
important factors regarding Equitex's business, operations and competitive
environment which may cause actual results to vary materially from these
forward-looking statements are discussed above under the caption "Risk Factors."
INFORMATION ABOUT EQUITEX, INC.
EQUITEX AND ITS OPERATIONS
Equitex, Inc. was organized under Delaware law in 1983 and, in 1984,
elected to become a business development company ("BDC"), which is a form of
closed-end, non-diversified investment company under the Investment Company Act
of 1940 (the "Investment Company Act"), and be subject to the applicable
provisions of the Investment Company Act. On January 4, 1999, Equitex withdrew
its election to be treated as a BDC subject to the Investment Company Act.
Equitex has elected to be treated for a maximum period of one year as a
"transient investment company" as that term is defined in Rule 3a-2 under the
Investment Company Act of 1940.
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<PAGE>
Notwithstanding Equitex's withdrawal to be treated as a BDC, Equitex
did retain its investment interests in IntraNet Solutions, Inc. (f/k/a MacGregor
Sports & Fitness, Inc.), VP Sports, Inc. and Triumph Sports, Inc. which together
constitute a significant portion of Equitex's investment portfolio.
On August 13, 1998, Equitex acquired all of the outstanding stock of
First TeleServices Corp. in exchange for 625,000 shares of Equitex's common
stock. As a result of the transaction, First TeleServices became a wholly-owned
subsidiary of Equitex.
First TeleServices is a fee-based financial services organization
consisting of a database marketing division, consumer finance division, an
inbound/outbound calling center, and an operations center. First TeleServices
has developed strategic alliances with a number of nationwide organizations to
outsource the products and services it offers.
First TeleServices only recently began operations and has not yet
generated income. As a marketing arm for financial institutions, First
TeleServices will perform as a consumer finance company, offering a broad array
of financial products and services to the sub-prime market. These products will
be developed and serviced through correspondent relationships with companies
specializing in those particular products which include:
* debt transfer servicing
* balance transfer servicing
* secured credit cards
* sub-prime mortgage loans
* sub-prime auto loans
* prepaid calling cards
* prepaid residential long distance service
* prepaid cellular service
* insurance products
* other selected products and services
The calling center is the engine that drives the product delivery
system, eventually handling tens of thousands of inbound and outbound calls
monthly. The inbound calls will be the result of various targeted media programs
and the by-product of first TeleServices' customer base which will eventually
grow to hundreds of thousands of consumers. The outbound calls will be the
result of cross selling large data bases of customers a variety of products and
services offered on a brokered basis through Equitex's strategic alliances.
Through interactive voice response technology, the latest call center software
and hardware, and a well-trained staff of customer service representatives,
telemarketers and telebankers, First TeleServices will be able to turn these
calls into revenue while operating at the highest level of efficiency. The call
center functions have been outsourced to The Scribers, Inc. in Lansing,
Michigan, an experienced call center services company.
Initially, First TeleServices will offer secured credit cards to large
data bases of customers through its debt transfer servicing program. "Debt
transfer servicing" is a term used in the collection industry which means using
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a new loan account number to service and collect debt purchased in the secondary
market. As customers continue to make payments on their new accounts, thereby
rehabilitating their credit, Equitex will begin cross selling other financial
and telecommunications products on a fee basis without the risk of extending
credit. A debt transfer servicing agreement has already been signed with a
midwest financial services firm that has a large network of collection agencies.
First TeleServices believes that it differs from other financial
services organizations in that it understands and will specialize in handling
the sub-prime consumer and offer that consumer only those products and services
they need. Equitex will target those financial institutions which recognize the
potential in the sub-prime market and have relationships with strategic
alliances already working with this market.
On January 25, 1999, Equitex acquired a 9.9% interest in First TeleBanc
Corp. ("First TeleBanc"), a closely-held Florida corporation. First TeleBanc was
incorporated in March, 1997, for the purpose of becoming a one-bank holding
company and to acquire 100% of the outstanding stock of Boca Raton First
National Bank. The acquisition by First TeleBanc of all of the outstanding stock
of Boca Raton First National Bank was completed on December 30, 1998. As a
one-bank holding company, First TeleBanc may engage in any activity which the
Board of Governors of the Federal Reserve System has previously approved or
approves subsequent to an application.
ADDRESS AND TELEPHONE NUMBER
Equitex's executive offices are located at 7315 East Peakview Avenue,
Englewood, Colorado 80111, and its telephone number is 303-796-8940.
RECENT DEVELOPMENTS
On January 4, 1999, Equitex withdrew its election to be treated as a
BDC subject to the Investment Company Act.
On August 13, 1998, Equitex acquired all of the outstanding stock of
First TeleServices in exchange for 625,000 shares of Equitex's common stock. As
a result of the transaction, First TeleServices became a wholly-owned subsidiary
of Equitex.
On January 25, 1999, Equitex acquired a 9.9% interest in First
TeleBanc, a closely-held Florida corporation.
On March 1, 1999, First TeleServices signed a joint venture agreement
with RLG Holding, LLC ("RLG") to service and collect portfolios of consumer
debt. The initial portfolio contains over 13,000 accounts representing
receivables in excess of $100 million. The joint venture entity will be named
FirstNet Capital. The agreement calls for a fifty-fifty division of profits
after expenses and advances. In addition, RLG has an option to convert its share
of the profits into Equitex common stock based on an average market price
formula.
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USE OF PROCEEDS
If the warrants are exercised at their current exercise prices, which is
unlikely at this time, Equitex will receive net proceeds from such exercise of
approximately $2,109,550. The proceeds will be used for working capital
purposes.
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DESCRIPTION OF THE OFFERING
The selling securityholders are offering an aggregate of 1,964,200
shares of Equitex's common stock. Of these shares, 1,249,200 are currently
outstanding and 715,000 will be issued to the selling securityholders upon the
exercise of warrants or the conversion of outstanding convertible securities
summarized in the following table:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
| | | Conversion/ | | | Common Stock |
| | Expiration | Exercise | Originally | | Issuable Upon|
|Title or Series | Date | Price | Issued | Outstanding | Exercise |
|----------------------------------------------------------------------------------------------|
| WARRANTS | | | | | |
|----------------|-------------|---------------|--------------|---------------|----------------|
<S> <C> <C> <C> <C> <C>
| Werbalowsky | 1/05/2009 | $5.00 | 35,000 | 35,000 | 35,000 |
|----------------|-------------|---------------|--------------|---------------|----------------|
| Series A | 1/04/2002 | $8.205(3) | 90,000 | 90,000 | 90,000(1) |
|----------------|-------------|---------------|--------------|---------------|----------------|
| Series B | 1/20/2002 | $8.895(4) | 50,000 | 50,000 | 50,000(1) |
|----------------|-------------|---------------|--------------|---------------|----------------|
| Series C | 2/04/2002 | $11.73(5) | 60,000 | 60,000 | 60,000(1) |
|----------------|-------------|---------------|--------------|---------------|----------------|
| TOTAL | | | 235,000 | 235,000 | 235,000 |
| WARRANTS | | | ======= | ======= | ======= |
|----------------|-------------|---------------|--------------|---------------|----------------|
| | | | | | |
|----------------|-------------|---------------|--------------|---------------|----------------|
| PREFERRED | | | | | |
| STOCK | | | | | |
|----------------|-------------|---------------|--------------|---------------|----------------|
| Series A | ------- | $4.16667(2) | 900 | 900 | 216,000(1) |
|----------------|-------------|---------------|--------------|---------------|----------------|
| Series B | ------- | $4.16667(2) | 500 | 500 | 120,000(1) |
|----------------|-------------|---------------|--------------|---------------|----------------|
| Series C | ------- | $4.16667(2) | 600 | 600 | 144,000(1) |
|----------------|-------------|---------------|--------------|---------------|----------------|
| TOTAL | | | | | |
| PREFERRED | | | 2,000 | 2,000 | 480,000 |
| STOCK | | | ===== | ===== | ======= |
|----------------|-------------|---------------|--------------|---------------|----------------|
| | | | | | |
|----------------|-------------|---------------|--------------|---------------|----------------|
| | | | | | 715,000 |
| TOTAL | | | | | ======= |
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) For purposes of this table, common stock issuable upon exercise or
conversion was calculated using the formula in the respective
certificates of designation or warrants.
(2) The per share conversion price was assumed to be $4.16667.
(3) The per share exercise price was calculated as follows: $6.8375, the
average closing bid price of Equitex's common stock for the five
trading days preceding January 4, 1999 (closing date for the Series A
Convertible Preferred Stock Private Placement), was multiplied by 1.20.
-12-
<PAGE>
(4) The per share exercise price was calculated as follows: $7.4125, the
average closing bid price of Equitex's common stock for the five
trading days preceding January 20, 1999 (closing date for the Series B
Convertible Preferred Stock Private Placement), was multiplied by 1.20.
(5) The per share exercise price was calculated as follows: $9.775, the
average closing bid price of Equitex's common stock for the five
trading days preceding February 4, 1999 (closing date for the Series C
Convertible Preferred Stock Private Placement), was multiplied by 1.20.
SELLING SECURITYHOLDERS
The following tables list the total number of shares of common stock of
Equitex and the total number of shares of common stock assuming the conversion
or exercise of all convertible preferred stock and warrants owned by each of the
selling securityholders and registered hereunder. Except as indicated, the
selling securityholders are offering all of the shares of common stock owned by
them or received by them upon the exercise or conversion of the warrants or
convertible preferred stock. Except as indicated in the tables, none of the
selling securityholders is the beneficial owner of one percent or more of the
outstanding shares of common stock (including the shares of common stock offered
by this prospectus).
Because the selling securityholders may offer all or part of the shares
of common stock currently owned or the shares of common stock received upon
conversion or exercise of the convertible preferred stock and/or warrants, which
they own pursuant to the offering contemplated by this prospectus, and because
their offering is not being underwritten on a firm commitment basis, no estimate
can be given as to the amount of convertible preferred stock and/or warrants
that will be held upon termination of this offering. The shares of common stock
currently owned and the shares of common stock received upon conversion or
exercise of the convertible preferred stock and/or warrants offered by this
prospectus may be offered from time to time by the selling securityholders named
below.
-13-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
| TABLE I - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND |
| WARRANTS TO BE REGISTERED AND OFFERED BY THE SELLING SECURITYHOLDERS |
|---------------------------------------------------------------------------------------------------------------------|
| | | | Series | Series | Series | |
| Selling | Shares | Werbalowsky | A | B | C | Table I Totals|
|Securityholder | | Warrants | Warrants | Warrants | Warrants | |
|---------------------------------------------------------------------------------------------------------------------|
<S> <C> <C> <C> <C> <C> <C>
|David Allen | 21,000 | 0 | 0 | 0 | 0 | 21,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Gary Altman | 45,000 | 0 | 0 | 0 | 0 | 45,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Craig C. Avery(1) | 100,000 | 0 | 0 | 0 | 0 | 100,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Carylyn Bell | 10,000 | 0 | 0 | 0 | 0 | 10,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Mickey L. Borders | 5,000 | 0 | 0 | 0 | 0 | 5,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Russell L. Casement | 100,000 | 0 | 0 | 0 | 0 | 100,000 |
|DDS, PC, Employee | | | | | | |
|Profit Sharing Plan | | | | | | |
|(1) | | | | | | |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Regis D. Dahl | 10,000 | 0 | 0 | 0 | 0 | 10,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Guy H. Eagen | 10,000 | 0 | 0 | 0 | 0 | 10,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Ronald | 100,000 | 0 | 0 | 0 | 0 | 100,000 |
|Eibensteiner(1) | | | | | | |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|James T. Emerson | 30,000 | 0 | 0 | 0 | 0 | 30,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|William G. Field, MD| 10,000 | 0 | 0 | 0 | 0 | 10,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|GBI, Inc. | 15,000 | 0 | 0 | 0 | 0 | 15,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Darryl L. & Sharon | 25,000 | 0 | 0 | 0 | 0 | 25,000 |
|Getman Living Trust | | | | | | |
|dated 9/20/1993 | | | | | | |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Ralph H. Grills, Jr.| 200,000 | 0 | 0 | 0 | 0 | 200,000 |
|(1) | | | | | | |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Aaron A. Grunfeld | 39,200 | 0 | 0 | 0 | 0 | 39,200 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Barry S. Hollander | 12,000 | 0 | 0 | 0 | 0 | 12,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Joseph Hovorka | 3,000 | 0 | 0 | 0 | 0 | 3,000 |
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
| TABLE I - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK AND |
| WARRANTS TO BE REGISTERED AND OFFERED BY THE SELLING SECURITYHOLDERS |
|---------------------------------------------------------------------------------------------------------------------|
| | | | Series | Series | Series | |
| Selling | Shares | Werbalowsky | A | B | C | Table I Totals|
|Securityholder | | Warrants | Warrants | Warrants | Warrants | |
|---------------------------------------------------------------------------------------------------------------------|
<S> <C> <C> <C> <C> <C> <C>
|John E. Joseph | 2,000 | 0 | 0 | 0 | 0 | 2,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Thomas A. Joseph | 2,000 | 0 | 0 | 0 | 0 | 2,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Richard C. | 50,000 | 0 | 0 | 0 | 0 | 50,000 |
|Lockwood | | | | | | |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Wayne C. Mills(1) | 100,000 | 0 | 0 | 0 | 0 | 100,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Renato Minacci | 10,000 | 0 | 0 | 0 | 0 | 10,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Allen Mitchek | 1,000 | 0 | 0 | 0 | 0 | 1,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Thomas B. Olson | 10,000 | 0 | 0 | 0 | 0 | 10,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Marc Saunders | 312 | 0 | 0 | 0 | 0 | 312 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Robert P. Schalk | 50,000 | 0 | 0 | 0 | 0 | 50,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Barbara M. | 60,000 | 0 | 0 | 0 | 0 | 60,000 |
|Schaper(1) | | | | | | |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Willard B. Soper II | 10,000 | 0 | 0 | 0 | 0 | 10,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|John F. Stapleton(1)| 100,000 | 0 | 0 | 0 | 0 | 100,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Gary Tice | 15,000 | 0 | 0 | 0 | 0 | 15,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Lawrence | 20,000 | 0 | 0 | 0 | 0 | 20,000 |
|Underwood | | | | | | |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Peter Weiss | 10,000 | 0 | 0 | 0 | 0 | 10,000 |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|Jeffrey I. | 48,688 | 35,000 | 0 | 0 | 0 | 83,688 |
|Werbalowsky(1) | | | | | | |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|The Augustine | 0 | 0 | 0 | 0 | 0 | 0 |
|Fund(1) | | | | | | |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|The Shaar Fund, | 0 | 0 | 90,000 | 0 | 60,000 | 150,000 |
|Ltd.(1) | | | | | | |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|World Capital | 0 | 0 | 0 | 50,000 | 0 | 50,000 |
|Financing, LLC | | | | | | |
|--------------------|--------------|----------------|----------------|---------------|---------------|---------------|
|TOTALS | 1,249,000 | 35,000 | 90,000 | 50,000 | 60,000 | 1,484,200 |
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The selling securityholder owns one percent or more of the outstanding
common stock of Equitex.
-15-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
| TABLE II - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK |
| AND WARRANTS TO BE REGISTERED AND OFFERED BY THE SELLING SECURITYHOLDERS |
|--------------------------------------------------------------------------------------------------------------------------|
| | | Series A | Series B | Series C | | Shares |
| Selling | Total from | Preferred | Preferred | Preferred | Total | Owned |
|Securityholder | Table I | Stock | Stock | Stock | Shares | after |
| | | | | | | Completion |
| | | | | | | of the Offer|
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
<S> <C> <C> <C> <C> <C> <C>
|David Allen | 21,000 | 0 | 0 | 0 | 21,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Gary Altman | 45,000 | 0 | 0 | 0 | 45,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Craig C. Avery(1) | 100,000 | 0 | 0 | 0 | 100,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Carylyn Bell | 10,000 | 0 | 0 | 0 | 10,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Mickey L. Borders | 15,000 | 0 | 0 | 0 | 15,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Russell L. Casement, DDS | 100,000 | 0 | 0 | 0 | 100,000 | 0 |
|PC, Employee Profit | | | | | | |
|Sharing Plan(1) | | | | | | |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Regis D. Dahl | 10,000 | 0 | 0 | 0 | 10,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Guy H. Eagen | 10,000 | 0 | 0 | 0 | 10,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Ronald Eibensteiner(1) | 100,000 | 0 | 0 | 0 | 100,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|James T. Emerson | 30,000 | 0 | 0 | 0 | 30,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|William G. Field, MD | 10,000 | 0 | 0 | 0 | 10,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|GBI, Inc. | 15,000 | 0 | 0 | 0 | 15,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Darryl L. & Sharon Getman | 25,000 | 0 | 0 | 0 | 25,000 | 0 |
|Living Trust dated | | | | | | |
|9/20/1993 | | | | | | |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Ralph H. Grills, Jr.(1) | 200,000 | 0 | 0 | 0 | 200,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Aaron A. Grunfeld | 39,200 | 0 | 0 | 0 | 39,200 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Barry S. Hollander | 12,000 | 0 | 0 | 0 | 12,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Joseph Hovorka | 3,000 | 0 | 0 | 0 | 3,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
| TABLE II - SHARES AND SHARES UNDERLYING CONVERTIBLE PREFERRED STOCK |
| AND WARRANTS TO BE REGISTERED AND OFFERED BY THE SELLING SECURITYHOLDERS |
|--------------------------------------------------------------------------------------------------------------------------|
| | | Series A | Series B | Series C | | Shares |
| Selling | Total from | Preferred | Preferred | Preferred | Total | Owned |
|Securityholder | Table I | Stock | Stock | Stock | Shares | after |
| | | | | | | Completion |
| | | | | | | of the Offer|
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
<S> <C> <C> <C> <C> <C> <C>
|John E. Joseph | 2,000 | 0 | 0 | 0 | 2,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Thomas A. Joseph | 2,000 | 0 | 0 | 0 | 2,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Richard C. Lockwood | 50,000 | 0 | 0 | 0 | 50,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Wayne W. Mills(1) | 100,000 | 0 | 0 | 0 | 100,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Renato Minacci | 10,000 | 0 | 0 | 0 | 10,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Allen Mitchek | 1,000 | 0 | 0 | 0 | 1,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Thomas B. Olson | 10,000 | 0 | 0 | 0 | 10,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Marc Saunders | 312 | 0 | 0 | 0 | 312 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Robert P. Schalk | 50,000 | 0 | 0 | 0 | 50,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Barbara M. Schaper(1) | 60,000 | 0 | 0 | 0 | 60,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Willard B. Soper II | 10,000 | 0 | 0 | 0 | 10,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|John F. Stapleton(1) | 100,000 | 0 | 0 | 0 | 100,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Gary Tice | 15,000 | 0 | 0 | 0 | 15,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Lawrence Underwood | 20,000 | 0 | 0 | 0 | 20,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Peter Weiss | 10,000 | 0 | 0 | 0 | 10,000 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|Jeffrey I. Werbalowsky(1) | 83,688 | 0 | 0 | 0 | 83,688 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|The Augustine Fund(1) | 0 | 0 | 120,000 | 0 | 68,297 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|The Shaar Fund, Ltd.(1) | 150,000 | 216,000 | 0 | 144,000 | 354,890 | 0 |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|World Capital Financing, | 50,000 | 0 | 0 | 0 | 50,000 | 0 |
|LLC | | | | | | |
|--------------------------|----------------|----------------|---------------|---------------|-------------|---------------|
|TOTALS | 1,484,200 | 216,000 | 120,000 | 144,000 | 1,964,200 | 0 |
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The selling securityholder owns one percent or more of the outstanding
common stock of Equitex.
-17-
<PAGE>
PLAN OF DISTRIBUTION
Equitex is registering the shares of common stock on behalf of the
selling securityholders. As used in this prospectus, "selling securityholders"
includes donees and pledgees selling shares received from a named selling
securityholder after the date of this prospectus. All costs, expenses and fees
in connection with the registration of the shares of common stock offered will
be borne by Equitex. Brokerage commission and similar selling expenses, if any,
attributable to the sale of shares of common stock will be borne by the selling
securityholders. Sales of shares of common stock may be effected by selling
securityholders from time to time in one or more types of transactions (which
may include block transactions), in the over-the-counter market, in negotiated
transactions, through put or call options transactions relating to the shares of
common stock, through short sales of shares of common stock, or a combination of
these methods of sale, at market prices prevailing at the time of sale, or at
negotiated prices. Any of these transactions may or may not involve brokers or
dealers. The selling securityholders have advised Equitex that they have not
entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities, nor is
there any underwriter or coordinating broker acting in connection with the
proposed sale of shares of common stock by the selling securityholders.
The selling securityholders may effect transactions by selling shares
of common stock directly to purchasers or to or through broker-dealers, which
may act as agents or principals. Broker-dealers may receive compensation in the
form of discounts, concessions, or commissions from the selling securityholders
and/or the purchasers of shares of common stock for whom those broker-dealers
may act as agents or to whom they sell as principal, or both (which compensation
as to a particular broker-dealer might be in excess of customary commissions).
The selling securityholders and any broker-dealers that act in
connection with the sale of shares of common stock might be deemed to be
underwriters within the meaning of Section 2(a)(11) of the Securities Act, and
any commissions received by those broker-dealers and any profit on the resale of
the shares of common stock sold by them while acting as principals might be
deemed to be underwriting discounts or commissions under the Securities Act.
Equitex has agreed to indemnify each selling securityholder against certain
liabilities, including liabilities arising under the Securities Act. The selling
securityholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares of common stock
against certain liabilities, including liabilities arising under the Securities
Act.
Because selling securityholders may be deemed to be underwriters within
the meaning of Section 2(a)(11) of the Securities Act, the selling
securityholders will be subject to the prospectus delivery requirements of the
Securities Act. Equitex has informed the selling securityholders that the
anti-manipulative provisions of Regulation M issued under the Exchange Act may
apply to their sales in the market.
Selling securityholders also may resell all or a portion of the shares
of common stock in open market transactions in reliance upon Rule 144 under the
Securities Act, provided they meet the criteria and conform to the requirements
of that Rule.
-18-
<PAGE>
Upon Equitex being notified by a selling securityholder that any
material arrangement has been entered into with a broker-dealer for the sale of
shares of common stock through a block trade, special offering, exchange
distribution or secondary distribution or a purchase by a broker or dealer, a
supplement to this prospectus will be filed, if required, under Rule 424(b) to
the Securities Act, disclosing (a) the name of each such selling securityholder
and of the participating broker-dealer(s), (b) the number of shares of common
stock involved, (c) the price at which those shares of common stock were sold,
(d) the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable, (e) that such broker-dealer(s) did not
conduct any investigation to verify the information contained or incorporated by
reference in this prospectus and (f) other facts material to the transaction. In
addition, upon Equitex being notified by the selling securityholder that a donee
or pledgee intends to sell more than 500 shares of common stock, a supplement to
this prospectus will be filed.
Equitex is offering the shares of common stock issuable upon exercise
of warrants and upon conversion of the convertible preferred stock to the
holders of the warrants and the convertible preferred stock and will amend or
supplement this Prospectus, from time to time, to reflect the exercise of
warrants and the conversion of the convertible preferred stock by the holders
thereof and to permit the public sale of the shares of common stock.
Equitex is unable to predict the effect which sales of the shares of
common stock offered by this prospectus might have upon Equitex's ability to
raise further capital.
In order to comply with certain states' securities laws, if applicable,
the shares of common stock will be sold in those jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states, the
shares of common stock may not be sold unless they have been registered or
qualified for sale in those states or an exemption from registration or
qualification is available and complied with.
INDEMNIFICATION PROVIDED IN CONNECTION WITH THE OFFERING BY THE
SELLING SECURITYHOLDERS
With respect to a registration statement relating to the shares of
common stock, the selling securityholders have agreed to indemnify, to the
extent permitted by law, Equitex, its directors, certain of its officers and
each person who controls Equitex (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses resulting from any
untrue or alleged untrue statement of material fact or any omission or alleged
omission of a material fact required to be stated in a registration statement or
prospectus, or any amendment thereof or supplement thereto or necessary to make
the statements therein (in the case of a prospectus, in the light of the
circumstances under which they were made) not misleading, in each case to the
extent, but only to the extent, that any such loss, liability, claim, damage or
expense arises out of or is based upon any such untrue statement or alleged
untrue statement or omission or alleged omission made therein in reliance upon
and in conformity with written information or affidavits relating to the selling
securityholders furnished by the selling securityholders to Equitex for use
therein.
-19-
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, or persons controlling Equitex
pursuant to the foregoing provisions Equitex has been informed that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
LEGAL MATTERS
The legality of the shares of common stock being offered will be passed
on for Equitex by Friedlob Sanderson Raskin Paulson & Tourtillott, LLC, Denver,
Colorado.
EXPERTS
The consolidated balance sheets of Equitex, Inc. as of December
31, 1997 and 1996 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended December 31, 1997, which appear in Equitex's Form 10-KSB for the
fiscal year ended December 31, 1997 have been incorporated by reference
herein in reliance upon the report dated March 27, 1998 of Davis & Co.,
CPAs, P.C., Englewood, Colorado, independent certified public accountants,
and upon the authority of said firm as experts in accounting and auditing.
-20-
<PAGE>
EQUITEX, INC.
1,964,200 SHARES OF COMMON STOCK
March 22, 1999
------------------------------------
PROSPECTUS
------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
| No dealer, salesman or other person has been authorized to give |
| any information or to make any representations other than those |
| contained in this prospectus. Any information or representations not |
| herein contained, if given or made, must not be relied upon as having |
| been authorized by Equitex. This prospectus does not constitute an offer |
| or solicitation in respect to these securities in any jurisdiction in |
| which such offer or solicitation would be unlawful. The delivery of this |
| prospectus shall not, under any circumstances, create any implication |
| that there has been no change in the affairs of Equitex or that the |
| information contained herein is correct as of any time subsequent to the |
| date of this prospectus. However, in the event of a material change, |
| this prospectus will be amended or supplemented accordingly. |
- --------------------------------------------------------------------------------
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14 - OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection
with the issuance and distribution of the securities being offered. All
expenses are estimated except the registration fee.
Registration and filing fee ............................ $ 1,969
NASD filing fee ........................................ 19,694
Printing and engraving ................................. 1,500
Accounting fees and expenses ........................... 3,000
Legal fees and expenses ................................ 10,000
Blue sky fees and expenses ............................. 1,000
Transfer and Warrant Agent ............................. 2,000
Other .................................................. 2,837
-------
Total $42,000
=======
ITEM 15 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for,
under certain circumstances, the indemnification of Equitex's officers,
directors, employees and agents against liabilities which they may incur in
such capacities. A summarization of the circumstances in which such
indemnifications provided for is contained herein, but that description is
qualified in its entirety by reference to the relevant Section of the
Delaware General Corporation Law.
In general, the statute provides that any director, officer,
employee or agent of a corporation may be indemnified against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement, actually and reasonably incurred in a proceeding (including any
civil, criminal, administrative or investigative proceeding) to which the
individual was a party by reason of such status. Such indemnity may be
provided if the indemnified person's actions resulting in the liabilities:
(i) were taken in good faith; (ii) were reasonably believed to have been in
or not opposed to Equitex's best interest; and (iii) with respect to any
criminal action, such person had no reasonable cause to believe the actions
were unlawful. Unless ordered by a court, indemnification generally may be
awarded only after a determination of independent members of the Board of
Directors or a committee thereof, by independent legal counsel or by vote
of the stockholders that the applicable standard of conduct was met by the
individual to be indemnified.
The statutory provisions further provide that to the extent a
director, officer, employee or agent is wholly successful on the merits or
otherwise in defense of any proceeding to which he was a party, he is
entitled to receive indemnification against expenses, including attorneys'
fees, actually and reasonably incurred in connection with the proceeding.
II-1
<PAGE>
Indemnification in connection with a proceeding by or in the right
of Equitex in which the director, officer, employee or agent is successful
is permitted only with respect to expenses, including attorneys' fees
actually and reasonably incurred in connection with the defense. In such
actions, the person to be indemnified must have acted in good faith, in a
manner believed to have been in Equitex's best interest and must not have
been adjudged liable to Equitex unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
liability, in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expense which the
Court of Chancery or such other court shall deem proper. Indemnification is
otherwise prohibited in connection with a proceeding brought on behalf of
Equitex in which a director is adjudged liable to Equitex, or in connection
with any proceeding charging improper personal benefit to the director in
which the director is adjudged liable for receipt of an improper personal
benefit.
Delaware law authorizes Equitex to reimburse or pay reasonable
expenses incurred by a director, officer, employee or agent in connection
with a proceeding in advance of a final disposition of the matter. Such
advances of expenses are permitted if the person furnishes to Equitex a
written agreement to repay such advances if it is determined that he is not
entitled to be indemnified by Equitex.
The statutory section cited above further specifies that any
provisions for indemnification of or advances for expenses does not exclude
other rights under Equitex's Certificate of Incorporation, Bylaws,
resolutions of its stockholders or disinterested directors, or otherwise.
These indemnification provisions continue for a person who has ceased to be
a director, officer, employee or agent of the corporation and inure to the
benefit of the heirs, executors and administrators of such persons.
The statutory provision cited above also grants the power to
Equitex to purchase and maintain insurance policies which protect any
director, officer, employee or agent against any liability asserted against
or incurred by him in such capacity arising out of his status as such. Such
policies may provide for indemnification whether or not the corporation
would otherwise have the power to provide for it. No such policies
providing protection against liabilities imposed under the securities laws
have been obtained by Equitex.
Article VII Section 9 of Equitex's Bylaws provides that Equitex
shall indemnify its directors, officers, employees and agents to the
fullest extent permitted by the Delaware General Corporation Law. In
addition, Equitex has entered into agreements with its directors
indemnifying them to the fullest extent permitted by the Delaware General
Corporation Law.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling Equitex pursuant to the foregoing provisions, Equitex has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
II-2
<PAGE>
ITEM 16 - EXHIBITS
- ------------------------------------------------------------------------------
The following is a complete list of exhibits filed as part of this
Registration Statement:
EXHIBIT
NUMBER DESCRIPTION
- ------------------------------------------------------------------------------
3(i).1 Certificate of Amendment to the Certificate of Incorporation of
Equitex, Inc. - Designation of Preferences, Limitations and
Relative Rights of the Series A Convertible Preferred Stock of
Equitex, Inc.*
3(i).2 Certificate of Amendment to the Certificate of Incorporation of
Equitex, Inc. - Designation of Preferences, Limitations and
Relative Rights of the Series B Convertible Preferred Stock of
Equitex, Inc.*
3(i).3 Certificate of Amendment to the Certificate of Incorporation of
Equitex, Inc. - Designation of Preferences, Limitations and
Relative Rights of the Series C Convertible Preferred Stock of
Equitex, Inc.*
5.1 Opinion of Friedlob Sanderson Raskin Paulson & Tourtillott,
LLC.*
23.1 Consent of Friedlob Sanderson Raskin Paulson & Tourtillott, LLC
- see Exhibit 5.1
23.2 Consent of Davis & Co., CPAs, P.C.*
24. Power of Attorney - See Signature Page of Registration
Statement
- ----------------------------
*Filed herewith
ITEM 17 - UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement.
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<PAGE>
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
4. That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Englewood, State of Colorado, on
March 22, 1999.
EQUITEX, INC.
By /s/ Henry Fong
------------------------------------
Henry Fong, President, Treasurer and
Chief Financial Officer
KNOW ALL MEN BY THESE PRESENCE, THAT THE UNDERSIGNED OFFICERS
AND/OR DIRECTORS OF EQUITEX, INC., BY VIRTUE OF THEIR SIGNATURES APPEARING
BELOW, HEREBY CONSTITUTE AND APPOINT HENRY FONG, WITH FULL POWER OF
SUBSTITUTION, AS ATTORNEY-IN-FACT IN THEIR NAMES, PLACES AND STEED'S TO
EXECUTE ANY AND ALL AMENDMENTS TO THIS REGISTRATION STATEMENT ON FORM S-3
IN THE CAPACITIES SET FORTH OPPOSITE THEIR NAMES BELOW AND HEREBY RATIFY
ALL THAT SAID ATTORNEY-IN-FACT MAY DO BY VIRTUE HEREOF.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
- ---------- ----- ----
/s/ Henry Fong Principal Financial and March 22, 1999
- ----------------------- Director and Accounting
Henry Fong Officer
/s/ Russell L. Casement Director March 22, 1999
- -----------------------
Russell L. Casement
/s/ Aaron A. Grunfeld Director March 22, 1999
- -----------------------
Aaron A. Grunfeld
II-5
CERTIFICATE OF DESIGNATIONS
OF
EQUITEX, INC.
--------------------
DESIGNATION OF PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS
OF THE
SERIES A 6% CONVERTIBLE PREFERRED STOCK
PURSUANT TO SECTION 151
OF THE
DELAWARE GENERAL CORPORATION LAW
--------------------
Equitex, Inc., a corporation organized and existing under the laws
of the State of Delaware (the "Company"), DOES HEREBY CERTIFY that the
following resolution was duly adopted by the Board of Directors of the
Company on December 24, 1998:
RESOLVED, that the Board of Directors, pursuant to the authority
vested in it by the provisions of the Company's Certificate of
Incorporation, hereby establishes a series of convertible
preferred stock, consisting of 900 shares, which shall be
designated as the "Series A 6% Convertible Preferred Stock," and
shall have the powers, preferences, rights, qualifications,
limitations and restrictions as set forth in Attachment A attached
hereto.
IN WITNESS WHEREOF, the undersigned hereby acknowledges under
penalty of perjury that the execution of this instrument is the Company's
act and deed.
EQUITEX, INC.
December 29, 1998 By /S/ THOMAS B. OLSON
------------------------------------
Thomas B. Olson, Secretary
<PAGE>
ATTACHMENT A
DESIGNATION OF PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS
OF THE
SERIES A 6% CONVERTIBLE PREFERRED STOCK
OF
EQUITEX, INC.
-----------------------
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS. The terms defined in this Article whenever
used in this Certificate of Designations have the following respective meanings:
(a) "ADDITIONAL CAPITAL SHARES" has the meaning set forth in
Section 6.1(c).
(b) "AFFILIATE" has the meaning ascribed to such term in Rule
12b-2 under the Securities Exchange Act of 1934, as amended.
(c) "BUSINESS DAY" means a day other than Saturday, Sunday or
any day on which banks located in the State of New York are authorized or
obligated to close.
(d) "CAPITAL SHARES" means the Common Shares and any other
shares of any other class or series of common stock, whether now or hereafter
authorized and however designated, which have the right to participate in the
distribution of earnings and assets (upon dissolution, liquidation or
winding-up) of the Corporation.
(e) "CLOSING DATE" means January 4, 1998.
(f) "COMMON SHARES" or "COMMON STOCK" means shares of common
stock, $.02 par value, of the Corporation.
(g) "COMMON STOCK ISSUED AT CONVERSION" when used with
reference to the securities issuable upon conversion of the Series A Preferred
Stock, means all Common Shares now or hereafter Outstanding and securities of
any other class or series into which the Series A Preferred Stock hereafter
shall have been changed or substituted, whether now or hereafter created and
however designated.
(h) "CONVERSION DATE" means any day on which all or any
portion of shares of the Series A Preferred Stock is converted in accordance
with the provisions hereof.
(i) "CONVERSION NOTICE" has the meaning set forth in Section
6.2.
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<PAGE>
(j) "CONVERSION PRICE" means on any date of determination the
applicable price for the conversion of shares of Series A Preferred Stock into
Common Shares on such day as set forth in Section 6.1.
(k) "CONVERSION RATIO" on any date means of determination the
applicable percentage of the Market Price for conversion of shares of Series A
Preferred Stock into Common Shares on such day as set forth in Section 6.1.
(l) "CORPORATION" means Equitex, Inc., a Delaware corporation,
and any successor or resulting corporation by way of merger, consolidation, sale
or exchange of all or substantially all of the Corporation's assets, or
otherwise.
(m) "CURRENT MARKET PRICE" on any date of determination means
the closing bid price of a Common Share on such day as reported on the Nasdaq -
Small Cap Market ("NASDAQ").
(n) "DEFAULT DIVIDEND RATE" shall be equal to the Preferred
Stock Dividend Rate plus an additional 4% per annum.
(o) "HOLDER" means The Shaar Fund Ltd., any successor thereto,
or any Person to whom the Series A Preferred Stock is subsequently transferred
in accordance with the provisions hereof.
(p) "MARKET DISRUPTION EVENT" means any event that results in
a material suspension or limitation of trading of Common Shares on the NASDAQ.
(q) "Market Price" per Common Share means the average of the
closing bid prices of the Common Shares as reported on the NASDAQ for the five
(5) Trading Days in any Valuation Period.
(r) "MAXIMUM RATE" has the meaning set forth in Section
7.3(b).
(s) "OUTSTANDING" when used with reference to Common Shares or
Capital Shares (collectively, "Shares"), means, on any date of determination,
all issued and outstanding Shares, and includes all such Shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in such Shares; PROVIDED, HOWEVER, that any such Shares directly or
indirectly owned or held by or for the account of the Corporation or any
Subsidiary of the Corporation shall not be deemed "Outstanding" for purposes
hereof.
(t) "PERSON" means an individual, a corporation, a
partnership, an association, a limited liability company, a unincorporated
business organization, a trust or other entity or organization, and any
government or political subdivision or any agency or instrumentality thereof.
(u)"REGISTRATION RIGHTS AGREEMENT" means that certain
Registration Rights Agreement dated as of January 4, 1999 between the
Corporation and The Shaar Fund Ltd.
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<PAGE>
(v) "SEC" means the United States Securities and Exchange
Commission.
(w) "SECURITIES ACT" means the Securities Act of 1933, as
amended, and the rules and regulations of the SEC thereunder, all as in effect
at the time.
(x) "SECURITIES PURCHASE AGREEMENT" means that certain
Securities Purchase Agreement dated as of January 4, 1999 between the
Corporation and The Shaar Fund Ltd.
(y) "SERIES A PREFERRED STOCK" means the Series A 6%
Convertible Preferred Stock of the Corporation or such other convertible
Preferred Stock exchanged therefor as provided in Section 2.1.
(aa) "STATED VALUE" has the meaning set forth in Article 2.
(bb) "SUBSIDIARY" means any entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are owned
directly or indirectly by the Corporation.
(cc) "TRADING DAY" means any day on which purchases and sales
of securities authorized for quotation on the NASDAQ are reported thereon and on
which no Market Disruption Event has occurred.
(dd) "VALUATION EVENT" has the meaning set forth in Section
6.1.
(ee) "VALUATION PERIOD" means the five (5) Trading Day period
immediately preceding the Conversion Date.
All references to "cash" or "$" herein means currency of the
United States of America.
ARTICLE 2
DESIGNATION AND AMOUNT
SECTION 2.1
The designation of this series, which consists of 900 shares
of Preferred Stock, is Series A 6% Convertible Preferred Stock (the "Series A
Preferred Stock") and the stated value shall be One Thousand Dollars ($1,000)
per share (the "Stated Value").
-3-
<PAGE>
ARTICLE 3
RANK
SECTION 3.1
The Series A Preferred Stock shall rank (i) prior to the
Common Stock; (ii) prior to any class or series of capital stock of the
Corporation hereafter created other than "Pari Passu Securities" (collectively,
with the Common Stock, "Junior Securities"); and (iii) pari passu with any class
or series of capital stock of the Corporation hereafter created specifically
ranking on parity with the Series A Preferred Stock ("Pari Passu Securities").
ARTICLE 4
DIVIDENDS
SECTION 4.1
(a) (i) The Holder shall be entitled to receive, when, as and
if declared by the Board of Directors, out of funds legally available for the
payment of dividends, dividends (subject to Sections 4(a)(ii) hereof) at the
rate of 6% per annum (computed on the basis of a 360-day year) (the "Dividend
Rate") on the Liquidation Value (as defined below) of each share of Series A
Preferred Stock on and as of the most recent Dividend Payment Due Date (as
defined below) with respect to each Dividend Period (as defined below).
Dividends on the Series A Preferred Stock shall be cumulative from the date of
issue, whether or not declared for any reason, including if such declaration is
prohibited under any outstanding indebtedness or borrowings of the Corporation
or any of its Subsidiaries, or any other contractual provision binding on the
Corporation or any of its Subsidiaries, and whether or not there shall be funds
legally available for the payment thereof.
(ii) Each dividend shall be payable in equal quarterly
amounts on each March 31, June 30, September 30 and December 31 of each year
(each, a "Dividend Payment Due Date"), commencing March 31, 1999, to the holders
of record of shares of the Series A Preferred Stock, as they appear on the stock
records of the Corporation at the close of business on any record date, not more
than sixty (60) days or less than ten (10) days preceding the payment dates
thereof, as shall be fixed by the Board of Directors. For the purposes hereof,
"Dividend Period" means the quarterly period commending on and including the day
after the immediately preceding Dividend Payment Date and ending on and
including the immediately subsequent Dividend Payment Date. Accrued and unpaid
dividends for any past Dividend Period may be declared and paid at any time,
without reference to any Dividend Payment Due Date, to holders of record on such
date, not more than fifteen (15) days preceding the payment date thereof, as may
be fixed by the Board of Directors.
(iii) At the option of the Corporation, the dividend shall
be paid in cash or through the issuance of duly and validly authorized and
issued, fully paid and non-assessable, freely tradeable shares of the Common
Stock valued at the Market Price. The Common Stock to be issued in lieu of cash
payments shall be registered for resale in the Registration Statement to be
filed by the Corporation to register the Common Stock issuable upon conversion
of the shares of Series
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<PAGE>
A Preferred Stock and exercise of the Warrants as set forth in the Registration
Rights Agreement. Notwithstanding the foregoing, until such Registration
Statement has been declared effective under the Securities Act by the SEC,
payment of dividends on the Series A Preferred Stock shall be in cash.
(b) The Holder shall not be entitled to any dividends in
excess of the cumulative dividends, as herein provided, on the Series A
Preferred Stock. Except as provided in this Article 4, no interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on the Series A Preferred Stock that may be in arrears.
(c) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on Pari Passu Securities for
any period unless full cumulative dividends required to be paid in cash have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series A Preferred
Stock for all Dividend Periods terminating on or prior to the date of payment of
the dividend on such class or series of Pari Passu Securities. When dividends
are not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Series A Preferred Stock
and all dividends declared upon any other class or series of Pari Passu
Securities shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series A Preferred Stock and accumulated
and unpaid on such Pari Passu Securities.
(d) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends shall be declared or paid or set apart for payment or
other distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any subsidiary, (all such dividends, distributions,
redemptions or purchases being hereinafter referred to as a "Junior Securities
Distribution") for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such stock) by the
Corporation, directly or indirectly, unless in each case (i) the full cumulative
dividends required to be paid in cash on all outstanding shares of the Series A
Preferred Stock and any other Pari Passu Securities shall have been paid or set
apart for payment for all past Dividend Periods with respect to the Series A
Preferred Stock and all past dividend periods with respect to such Pari Passu
Securities, and (ii) sufficient funds shall have been paid or set apart for the
payment of the dividend for the current Dividend Period with respect to the
Series A Preferred Stock and the current dividend period with respect to such
Pari Passu Securities.
ARTICLE 5
LIQUIDATION PREFERENCE
SECTION 5.1
(a) If the Corporation shall commence a voluntary case under
the Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or
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<PAGE>
consent to the entry of an order for relief in an involuntary case under any law
or to the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or 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 if a decree or order for relief in respect of the Corporation
shall be entered by a court having jurisdiction in the premises in an
involuntary case under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation upon liquidation, dissolution or winding up
unless prior thereto, the holders of shares of Series A Preferred Stock, subject
to Article 5, shall have received the Liquidation Preference (as defined in
Article 5(c)) with respect to each share. If upon the occurrence of a
Liquidation Event, the assets and funds available for distribution among the
holders of the Series A Preferred Stock and holders of Pari Passu Securities
shall be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the Corporation
legally available for distribution to the Series A Preferred Stock and the Pari
Passu Securities shall be distributed ratably among such shares in proportion to
the ratio that the Liquidation Preference payable on each such share bears to
the aggregate liquidation Preference payable on all such shares.
(b) At the option of each Holder, the sale, conveyance of
disposition of all or substantially all of the assets of the Corporation, the
effectuation by the Corporation of a transaction or series of related
transactions in which more than 50% of the voting power of the Corporation is
disposed of, or the consolidation, merger or other business combination of the
Corporation with or into any other Person (as defined below) or Persons when the
Corporation is not the survivor shall either: (i) be deemed to be a liquidation,
dissolution or winding up of the Corporation pursuant to which the Corporation
shall be required to distribute, upon consummation of and as a condition to,
such transaction an amount equal to 120% of the Liquidation Preference with
respect to each outstanding sharer of Series A Preferred Stock in accordance
with and subject to the terms of this Article 5 or (ii) be treated pursuant to
Article 5(c)(iii) hereof; PROVIDED, that all holders of Series A Preferred Stock
shall be deemed to elect the option set forth in cause (i) hereof if at least a
majority in interest of such holders elect such option. "Person" shall mean any
individual, corporation, limited liability company, partnership, association,
trust or other entity or organization.
(c) For purposes hereof, the "Liquidation Preference" with
respect to a share of the Series A Preferred Stock shall mean an amount equal to
the sum of (i) the Stated Value thereof, plus (ii) an amount equal to thirty
percent (30%) of such Stated Value, plus (iii) the aggregate of all accrued and
unpaid dividends on such share of Series A Preferred Stock until the most recent
Dividend Payment Date; PROVIDED that, in the event of an actual liquidation,
dissolution or winding up of the Corporation, the amount referred to in clause
(iii) above shall be calculated by including
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<PAGE>
accrued and unpaid dividends to the actual date of such liquidation, dissolution
or winding up, rather than the Dividend Payment Due Date referred to above.
ARTICLE 6
CONVERSION OF PREFERRED STOCK
SECTION 6.1 CONVERSION; CONVERSION PRICE. At the option of the Holder,
the shares of Series A Preferred Stock may be converted, either in whole or in
part, into Common Shares (calculated as to each such conversion to the nearest
1/100th of a share), at any time, and from time to time following the date of
issuance of the Series A Preferred Stock (the "Issue Date") at a Conversion
Price equal to the Stated Value of the shares being converted multiplied by
65.0% of the Market Price; provided, however, that the Holder shall not have the
right to convert any portion of the Series A Preferred Stock to the extent that
the issuance to the Holder of Common Shares upon such conversion would result in
the Holder being deemed the "beneficial owner" of 5% or more of the then
outstanding Common Shares within the meaning of Rule 13d-3 of the Securities
Exchange Act of 1934, as amended. At the Corporation's option, the amount of
accrued and unpaid dividends as of the Conversion Date shall not be subject to
conversion but instead may be paid in cash as of the Conversion Date; if the
Corporation elects to convert the amount of accrued and unpaid dividends at the
Conversion Date into Common Stock, the Common Stock issued to the Holder shall
be valued at the Conversion Price. Notwithstanding the previous sentence, in no
event shall the Holder have the right to convert that portion of the Series A
Preferred Stock to the extent that the issuance of Common Shares upon the
conversion of such Series A Preferred Stock, when combined with shares of Common
Stock received upon other conversions of Series A Preferred Stock by such Holder
and any other holders of Series A Preferred Stock, would exceed 19.99% of the
Common Stock outstanding on the Closing Date. Within ten (10) Business Days
after the receipt of the Conversion Notice which upon conversion would, when
combined with shares of Common Stock received upon other conversions of Series A
Preferred Stock by such Holder and any other holders of Series A Preferred Stock
and Warrants, exceed 19.99% of the Common Stock outstanding on the Closing Date,
the Corporation shall redeem all remaining outstanding shares of Series A
Preferred Stock at one hundred twenty-five percent (125%) of the Stated Value
thereof, together with all accrued and unpaid dividends thereon, in cash, to the
date of redemption.
The number of shares of Common Stock due upon conversion of
Series A Preferred Stock shall be (i) the number of shares of Series A Preferred
Stock to be converted, multiplied by (ii) the Stated Value and divided by (iii)
the applicable Conversion Price.
Within two (2) Business Days of the occurrence of a Valuation
Event, the Corporation shall send notice (the "Valuation Event Notice") of such
occurrence to the Holder. Notwithstanding anything to the contrary contained
herein, if a Valuation Event occurs during any Valuation Period, a new Valuation
Period shall begin on the Trading Day immediately following the occurrence of
such Valuation Event and end on the Conversion Date; PROVIDED that, if a
Valuation Event occurs on the fifth (5th) day of any Valuation Period, then the
Conversion Price shall be the Current Market Price of the Common Shares on such
day; and PROVIDED, FURTHER, that the Holder may, in its discretion, postpone
such Conversion Date to a Trading Day which is no more than five (5) Trading
Days after the occurrence of the latest Valuation Event by delivering a
notification to
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<PAGE>
the Corporation within two (2) Business Days of the receipt of the Valuation
Event Notice. In the event that the Holder deems the Valuation Period to be
other than the five (5) Trading Days immediately prior to the Conversion Date,
the Holder shall give written notice of such fact to the Corporation in the
related Conversion Notice at the time of conversion.
For purposes of this Section 6.1, a "VALUATION EVENT" shall mean an event in
which the Corporation at any time during a Valuation Period takes any of the
following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution of its Capital Shares;
(c) issues any additional Capital Shares (the "Additional
Capital Shares"), otherwise than as provided in the foregoing Sections 6.1(a)
and 6.1(b) above, at a price per share less, or for other consideration lower,
than the Current Market Price in effect immediately prior to such issuances, or
without consideration, except for issuances under employee benefit plans
consistent with those presently in effect and issuances under presently
outstanding warrants, options or convertible securities;
(d) issues any warrants, options or other rights to subscribe
for or purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable or
exercisable for Capital Shares and the consideration per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to the
terms of such convertible, exchangeable or exercisable securities shall be less
than the Current Market Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a dividend in liquidation
or by way of return of capital or other than as a dividend payable out of
earnings or surplus legally available for the payment of dividends under
applicable law or any distribution to such holders made in respect of the sale
of all or substantially all of the Corporation's assets (other than under the
circumstances provided for in the foregoing Sections 6.1(a) through 6.1(e)); or
(g) takes any action affecting the number of Outstanding
Capital Shares, other than an action described in any of the foregoing Sections
6.1(a) through 6.1(f) hereof, inclusive, which in the opinion of the
Corporation's Board of Directors, determined in good faith, would have a
material adverse effect upon the rights of the Holder at the time of a
conversion of the Preferred Stock.
SECTION 6.2 EXERCISE OF CONVERSION PRIVILEGE. (a) Conversion of the
Series A Preferred Stock may be exercised, in whole or in part, by the Holder by
telecopying an executed and completed notice of conversion in the form annexed
hereto as ANNEX I (the "Conversion
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<PAGE>
Notice") to the Corporation. Each date on which a Conversion Notice is
telecopied to and received by the Corporation in accordance with the provisions
of this Section 6.2 shall constitute a Conversion Date. The Corporation shall
convert the Preferred Stock and issue the Common Stock Issued at Conversion
effective as of the Conversion Date. The Conversion Notice also shall state the
name or names (with addresses) of the persons who are to become the holders of
the Common Stock Issued at Conversion in connection with such conversion. The
Holder shall deliver the shares of Series A Preferred Stock to the Corporation
by express courier within thirty (30) days following the date on which the
telecopied Conversion Notice has been transmitted to the Corporation. Upon
surrender for conversion, the Preferred Stock shall be accompanied by a proper
assignment hereof to the Corporation or be endorsed in blank. As promptly as
practicable after the receipt of the Conversion Notice as aforesaid, but in any
event not more than five (5) Business Days after the Corporation's receipt of
such Conversion Notice, the Corporation shall (i) issue the Common Stock issued
at Conversion in accordance with the provisions of this Article 6, and (ii)
cause to be mailed for delivery by overnight courier to the Holder (X) a
certificate or certificate(s) representing the number of Common Shares to which
the Holder is entitled by virtue of such conversion, (Y) cash, as provided in
Section 6.3, in respect of any fraction of a Share issuable upon such conversion
and (Z) cash in the amount of accrued and unpaid dividends as of the Conversion
Date. Such conversion shall be deemed to have been effected at the time at which
the Conversion Notice indicates so long as the Preferred Stock shall have been
surrendered as aforesaid at such time, and at such time the rights of the Holder
of the Preferred Stock, as such, shall cease and the Person and Persons in whose
name or names the Common Stock Issued at Conversion shall be issuable shall be
deemed to have become the holder or holders of record of the Common Shares
represented thereby. The Conversion Notice shall constitute a contract between
the Holder and the Corporation, whereby the Holder shall be deemed to subscribe
for the number of Common Shares which it will be entitled to receive upon such
conversion and, in payment and satisfaction of such subscription (and for any
cash adjustment to which it is entitled pursuant to Section 6.4), to surrender
the Preferred Stock and to release the Corporation from all liability thereon.
No cash payment aggregating less than $1.50 shall be required to be given unless
specifically requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes
or denies the right of the Holder hereof to effect the conversion of the
Preferred Stock into Common Shares or otherwise dishonors or rejects any
Conversion Notice delivered in accordance with this Section 6.2 or (ii) any
third party who is not and has never been an Affiliate of the Holder commences
any lawsuit or proceeding or otherwise asserts any claim before any court or
public or governmental authority which seeks to challenge, deny, enjoin, limit,
modify, delay or dispute the right of the Holder hereof to effect the conversion
of the Preferred Stock into Common Shares, then the Holder shall have the right,
by written notice to the Corporation, to require the Corporation to promptly
redeem the Series A Preferred Stock for cash at a redemption price equal to one
hundred and thirty-five percent (135%) of the Stated Value thereof together with
all accrued and unpaid dividends thereon (the "Mandatory Purchase Amount").
Under any of the circumstances set forth above, the Corporation shall be
responsible for the payment of all costs and expenses of the Holder, including
reasonable legal fees and expenses, as and when incurred in disputing any such
action or pursuing its rights hereunder (in addition to any other rights of the
Holder).
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(c) The Holder shall be entitled to exercise its conversion
privilege notwithstanding the commencement of any case under 11 U.S.C. ss. 101
et seq. (the "Bankruptcy Code"). In the event the Corporation is a debtor under
the Bankruptcy Code, the Corporation hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. ss. 362 in respect of
the holder's conversion privilege. The Corporation hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. ss. 362 in
respect of the conversion of the Series A Preferred Stock. The Corporation
agrees, without cost or expense the Holder, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362.
SECTION 6.3 FRACTIONAL SHARES. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of the
Series A Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable upon conversion of the Series A Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction. No cash payment of less than $1.50 shall be required
to be given unless specifically requested by the Holder.
SECTION 6.4 RECLASSIFICATION, CONSOLIDATION, MERGER OR MANDATORY SHARE
EXCHANGE. At any time while the Series A Preferred Stock remains outstanding and
any shares thereof has not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of the Series A
Preferred Stock (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series A Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
value to no par value per share, or from no par value per share to par value, or
as a result of a subdivision or combination of Outstanding Common Shares upon
conversion of the Series A Preferred Stock), or in the case of any sale or
transfer to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the Corporation, or such successor,
resulting or purchasing corporation, as the case may be, shall, without payment
of any additional consideration therefor, execute a new Series A Preferred Stock
providing that the Holder shall have the right to convert such new Series A
Preferred Stock (upon terms and conditions not less favorable to the Holder than
those in effect pursuant to the Series A Preferred Stock) and to receive upon
such exercise, in lieu of each Common Share theretofore issuable upon conversion
of the Series A Preferred Stock, the kind and amount of shares of stock, other
securities, money or property receivable upon such reclassification, change,
consolidation, merger, mandatory share exchange, sale or transfer by the holder
of one Common Share issuable upon conversion of the Series A Preferred Stock had
the Series A Preferred Stock been converted immediately prior to such
reclassification, change, consolidation, merger, mandatory share exchange or
sale or transfer. The provisions of this Section 6.4 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, mandatory share
exchanges and sales and transfers.
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SECTION 6.5 ADJUSTMENTS TO CONVERSION RATIO. For so long as any shares
of the Series A Preferred Stock are outstanding, if the Corporation (i) issues
and sells pursuant to an exemption from registration under the Securities Act
(A) Common Shares at a purchase price on the date of issuance thereof that is
lower than the Conversion Price, (B) warrants or options with an exercise price
representing a percentage of the Current Market Price with an exercise price on
the date of issuance of the warrants or options that is lower than the agreed
upon exercise price for the Holder, except for employee stock option agreements
or stock incentive agreements of the Corporation, or (C) convertible,
exchangeable or exercisable securities with a right to exchange at lower than
the Current Market Price on the date of issuance or conversion, as applicable,
of such convertible, exchangeable or exercisable securities, except for stock
option agreements or stock incentive agreements; and (ii) grants the right to
the purchaser(s) thereof to demand that the Corporation register under the
Securities Act such Common Shares issued or the Common Shares for which such
warrants or options may be exercised or such convertible, exchangeable or
exercisable securities may be converted, exercised or exchanged, then the
Conversion Ratio shall be reduced to equal the lowest of any such lower rates.
SECTION 6.6 OPTIONAL REDEMPTION UNDER CERTAIN CIRCUMSTANCES. At anytime
after the date of issuance of the Series A Preferred Stock until the Mandatory
Conversion Date (as defined below), the Corporation, upon notice delivered to
the Holder as provided in Section 6.7, may redeem the Series A Preferred Stock
(but only with respect to such shares as to which the Holder has not theretofore
furnished a Conversion Notice in compliance with Section 6.2), at one hundred
and thirty-five percent (135%) of the Stated Value thereof (or if prior to the
date six months after the date of issuance of the Series A Preferred Stock at
one hundred and twenty percent (120%) of the Stated Value thereof) (the
"Optional Redemption Price"), together with all accrued and unpaid dividends
thereon to the date of redemption (the "Redemption Date"); provided, however,
that the Corporation may only redeem the Series A Preferred Stock under this
Section 6.6 if the Current Market Price is less than the Current Market Price on
the Closing Date. Except as set forth in this Section 6.6, the Corporation shall
not have the right to prepay or redeem the Series A Preferred Stock.
SECTION 6.7 NOTICE OF REDEMPTION. Notice of redemption pursuant to
Section 6.6 shall be provided by the Corporation to the Holder in writing (by
registered mail or overnight courier at the Holder's last address appearing in
the Corporation's security registry) not less than ten (10) nor more than
fifteen (15) days prior to the Redemption Date, which notice shall specify the
Redemption Date and refer to Section 6.6 (including, a statement of the Market
Price per Common Share) and this Section 6.7.
SECTION 6.8 SURRENDER OF PREFERRED STOCK. Upon any redemption of the
Series A Preferred Stock pursuant to Sections 6.6 or 6.9, the Holder shall
either deliver the Series A Preferred Stock by hand to the Corporation at its
principal executive offices or surrender the same to the Corporation at such
address by express courier. Payment of the Optional Redemption Price specified
in Section 6.6 shall be made by the Corporation to the Holder against receipt of
the Series A Preferred Stock (as provided in this Section 6.8) by wire transfer
of immediately available funds to such account(s) as the Holder shall specify to
the Corporation. If payment of such redemption price is not made in full by the
Mandatory Redemption Date or the Redemption Date, as the case
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may be, the Holder shall again have the right to convert the Series A Preferred
Stock as provided in Article 6 hereof.
SECTION 6.9 MANDATORY CONVERSION. On the third anniversary of the date
of the Securities Purchase Agreement (the "Mandatory Conversion Date"), the
Corporation shall convert all Series A Preferred Stock outstanding at the
Conversion Price. Notwithstanding the previous sentence, in no event shall the
Corporation convert that portion of the Series A Preferred Stock to the extent
that the issuance of Common Shares upon the conversion of such Series A
Preferred Stock, when combined with shares of Common Stock received upon other
conversions of Series A Preferred Stock by such Holder and any other holders of
Series A Preferred Stock and Warrants, would exceed 19.99% of the Common Stock
outstanding on the Closing Date. Within ten (10) Business Days after the
Mandatory Conversion Date, the Corporation shall redeem all remaining
outstanding Series A Preferred Stock at one hundred and thirty-five percent
(135%) of the Stated Value thereof, together with all accrued and unpaid
dividends thereon, in cash, to the date of redemption.
ARTICLE 7
VOTING RIGHTS
The holders of the Series A Preferred Stock have no voting
power, except as otherwise provided by the General Corporation Law of the State
of Delaware ("DGCL"), in this Article 7, and in Article 8 below.
Notwithstanding the above, the Corporation shall provide each
holder of Series A Preferred Stock with prior notification of any meeting of the
stockholders (and copies of proxy materials and other information sent to
stockholders). In the event of any taking by the Corporation of a record of its
stockholders for the purpose of determining stockholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least thirty (30) days prior to the consummation of the transaction
or event, whichever is earlier), of the date on which any such action is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the holders of
the Series A Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the shares
of the Series A Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series A
Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. Holders of the Series A
Preferred Stock shall be entitled to notice of all stockholder meetings or
written consents (and copies of proxy materials and other information sent to
stockholders) with respect to which
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they would be entitled to vote, which notice would be provided pursuant to the
Corporation's bylaws and the DGCL.
ARTICLE 8
PROTECTIVE PROVISIONS
So long as shares of Series A Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by the DGCL) of the holders of at least a majority
of the then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges
of the Series A Preferred Stock;
(b) create any new class or series of capital stock having
a preference over the Series A Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation ("Senior Securities")
or alter or change the rights, preferences or privileges of any Senior
Securities so as to affect adversely the Series A Preferred Stock;
(c) increase the authorized number of shares of Series A
Preferred Stock; or
(d) do any act or thing not authorized or contemplated by
this Certificate of Designation which would result in taxation of the holders of
shares of the Series A Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event holders of at least a majority of the then
outstanding shares of Series A Preferred Stock agree to allow the Corporation to
alter or change the rights, preferences or privileges of the shares of Series A
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series A
Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series A Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and Dissenting Holders shall
have the right for a period of thirty (30) days to convert pursuant to the terms
of this Certificate of Designation as they exist prior to such alteration or
change or continue to hold their shares of Series A Preferred Stock.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 LOSS, THEFT, DESTRUCTION OF PREFERRED STOCK. Upon receipt
of evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of shares of Series A Preferred Stock and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Corporation, or, in the case of any such mutilation, upon
surrender and cancellation of the Series A Preferred Stock, the Corporation
shall make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated shares of Series A Preferred Stock, new shares of Series A Preferred
Stock of like tenor. The Series A Preferred
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Stock shall be held and owned upon the express condition that the provisions of
this Section 10.1 are exclusive with respect to the replacement of mutilated,
destroyed, lost or stolen shares of Series A Preferred Stock and shall preclude
any and all other rights and remedies notwithstanding any law or statute
existing or hereafter enacted to the contrary with respect to the replacement of
negotiable instruments or other securities without the surrender thereof.
SECTION 9.2 WHO DEEMED ABSOLUTE OWNER. The Corporation may deem the
Person in whose name the Series A Preferred Stock shall be registered upon the
registry books of the Corporation to be, and may treat it as, the absolute owner
of the Series A Preferred Stock for the purpose of receiving payment of
dividends on the Series A Preferred Stock, for the conversion of the Series A
Preferred Stock and for all other purposes, and the Corporation shall not be
affected by any notice to the contrary. All such payments and such conversion
shall be valid and effectual to satisfy and discharge the liability upon the
Series A Preferred Stock to the extent of the sum or sums so paid or the
conversion so made.
SECTION 9.3 NOTICE OF CERTAIN EVENTS. In the case of the occurrence of
any event described in Sections 6.1, 6.6 or 6.7 of this Certificate of
Designations, the Corporation shall cause to be mailed to the Holder of the
Series A Preferred Stock at its last address as it appears in the Corporation's
security registry, at least twenty (20) days prior to the applicable record,
effective or expiration date hereinafter specified (or, if such twenty (20) days
notice is not possible, at the earliest possible date prior to any such record,
effective or expiration date), a notice stating (x) the date on which a record
is to be taken for the purpose of such dividend, distribution, issuance or
granting of rights, options or warrants, or if a record is not to be taken, the
date as of which the holders of record of Series A Preferred Stock to be
entitled to such dividend, distribution, issuance or granting of rights, options
or warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is
expected to become effective, and the date as of which it is expected that
holders of record of Series A Preferred Stock will be entitled to exchange their
shares for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale transfer, dissolution, liquidation
or winding-up.
SECTION 9.4 REGISTER. The Corporation shall keep at its principal
office a register in which the Corporation shall provide for the registration of
the Series A Preferred Stock. Upon any transfer of the Series A Preferred Stock
in accordance with the provisions hereof, the Corporation shall register such
transfer on the Series A Preferred Stock register.
The Corporation may deem the person in whose name the Series A
Preferred Stock shall be registered upon the registry books of the Corporation
to be, and may treat it as, the absolute owner of the Series A Preferred Stock
for the purpose of receiving payment of dividends on the Series A Preferred
Stock, for the conversion of the Series A Preferred Stock and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary. All such payments and such conversions shall be valid and effective to
satisfy and discharge the liability upon the Series A Preferred Stock to the
extent of the sum or sums so paid or the conversion or conversions so made.
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SECTION 9.5 WITHHOLDING. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
A Preferred Stock.
SECTION 9.6 HEADINGS. The headings of the Articles and Sections of this
Certificate of Designations are inserted for convenience only and do not
constitute a part of this Certificate of Designations.
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ANNEX I
[FORM OF CONVERSION NOTICE]
TO:__________________
__________________
__________________
The undersigned owner of this Series A 6% Convertible
Preferred Stock (the "Series A Preferred Stock") issued by Equitex, Inc. (the
"Corporation") hereby irrevocably exercises its option to convert __________
shares of the Series A Preferred Stock into shares of the common stock, $.02 par
value, of the Corporation ("Common Stock"), in accordance with the terms of the
Certificate of Designations. The undersigned hereby instructs the Corporation to
convert the number of shares of the Series A Preferred Stock specified above
into Shares of Common Stock Issued at Conversion in accordance with the
provisions of Article 6 of the Certificate of Designations. The undersigned
directs that the Common Stock issuable and certificates therefor deliverable
upon conversion, the Series A Preferred Stock recertificated, if any, not being
surrendered for conversion hereby, together with any check in payment for
fractional Common Stock, be issued in the name of and delivered to the
undersigned unless a different name has been indicated below. All capitalized
terms used and not defined herein have the respective meanings assigned to them
in the Certificate of Designations.
Dated:______________________
___________________________________________
Signature
Fill in for registration of Series A Preferred Stock:
Please print name and address
(including zip code number) :
________________________________________________________________________________
________________________________________________________________________________
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CERTIFICATE OF DESIGNATIONS
OF
EQUITEX, INC.
--------------------
DESIGNATION OF PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS
OF THE
SERIES B 6% CONVERTIBLE PREFERRED STOCK
PURSUANT TO SECTION 151
OF THE
DELAWARE GENERAL CORPORATION LAW
--------------------
Equitex, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Company"), DOES HEREBY CERTIFY that the following
resolution was duly adopted by the Board of Directors of the Company on January
12, 1999:
RESOLVED, that the Board of Directors, pursuant to the authority vested
in it by the provisions of the Company's Certificate of Incorporation,
hereby establishes a series of convertible preferred stock, consisting
of 900 shares, which shall be designated as the "Series B 6%
Convertible Preferred Stock," and shall have the powers, preferences,
rights, qualifications, limitations and restrictions as set forth in
Attachment A attached hereto.
IN WITNESS WHEREOF, the undersigned hereby acknowledges under penalty
of perjury that the execution of this instrument is the Company's act and deed.
EQUITEX, INC.
January 14, 1999 By/S/ THOMAS B. OLSON
-------------------------------
Thomas B. Olson, Secretary
<PAGE>
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS. The terms defined in this Article whenever
used in this Certificate of Designations have the following respective meanings;
(a) "ADDITIONAL CAPITAL SHARES" has the meaning set forth in Section
6.1(c).
(b) "AFFILIATE" has the meaning ascribed to such term in Rule 12b-2
under the Securities Exchange Act of 1934, as amended.
(c) "BUSINESS DAY" means a day other than Saturday, Sunday or any day
on which banks located in the State of New York are authorized or obligated to
close.
(d) "CAPITAL SHARES" means the Common Shares and any other shares of
any other class or series of common stock, whether now or hereafter authorized
and however designated, which have the right to participate in the distribution
of earnings and assets (upon dissolution, liquidation or winding-up) of the
Corporation.
(e) "CLOSING DATE" means January 12, 1999.
(f) "COMMON SHARES" or "COMMON STOCK" means shares of common stock,
$.02 par value, of the Corporation.
(g) "COMMON STOCK ISSUED AT CONVERSION" when used with reference to the
securities issuable upon conversion of the Series B Preferred Stock, means all
Common Shares now or hereafter Outstanding and securities of any other class or
series into which the Series B Preferred Stock hereafter shall have been changed
or substituted, whether now or hereafter created and however designated.
(h) "CONVERSION DATE" means any day on which all or any portion of
shares of the Series B Preferred Stock is converted in accordance with the
provisions hereof.
(i) "CONVERSION NOTICE" has the meaning set forth in Section 6.2.
(j) "CONVERSION PRICE" means on any date of determination the
applicable price for the conversion of shares of Series B Preferred Stock into
Common Shares on such day as set forth in Section 6.1.
(k) "CONVERSION RATIO" on any date means of determination the
applicable percentage of the Market Price for conversion of shares of Series B
Preferred Stock into Common Shares on such day as set forth in Section 6.1.
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(l) "CORPORATION", means Equitex, Inc., a Delaware corporation, and any
successor or resulting corporation by way of merger, consolidation, sale or
exchange of all or substantially all of the Corporation's assets, or otherwise.
(m) "CURRENT MARKET PRICE" on any date of determination means the
closing bid price of a Common Share on such day as reported on the Nasdaq -
Small Cap Market ("NASDAQ").
(n) "DEFAULT DIVIDEND RATE" shall be equal to the Preferred Stock
Dividend Rate plus an additional 4% per annum.
(o) "HOLDER" means the persons to whom the Series B Preferred Stock is
issued, any successor thereto, or any Person to whom the Series B Preferred
Stock is subsequently transferred in accordance with the provisions hereof.
(p) "MARKET DISRUPTION EVENT" means any event that results in a
material suspension or limitation of trading of Common Shares on the NASDAQ.
(q) "MARKET PRICE" per Common Share means the average of the closing
prices of the Common Shares as reported on the NASDAQ for the five Trading Days
in any valuation Period.
(r) "MAXIMUM RATE" has the meaning set forth in Section 7.3(b).
(s) "OUTSTANDING" when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), means, on any date of determination, all issued
and outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; PROVIDED, HOWEVER, that any such Shares directly or indirectly owned or
held by or for the account of the Corporation or any Subsidiary or the
Corporation shall not be deemed "Outstanding" for purposes hereof.
(t) "PERSON" means an individual, a corporation, a partnership, an
association, a limited liability company, a unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(u) "REGISTRATION RIGHTS AGREEMENT" means that Section 10 of the
Subscription Agreement.
(v) "SEC" means the United States Securities and Exchange Commission.
(w) "SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as in effect at the time.
(x) "SUBSCRIPTION AGREEMENT" means that certain Subscription Agreement
between the Corporation and Holder.
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(y) "SERIES B PREFERRED STOCK" means the Series B Convertible Preferred
Stock of the Corporation or such other convertible Preferred Stock exchanged
therefor as provided in Section 2.1.
(aa) "STATED VALUE" has the meaning set forth in Article 2.
(bb) "SUBSIDIARY" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Corporation.
(cc) "TRADING DAY" means any day on which purchases and sales of
securities authorized for quotation on the NASDAQ are reported thereon and on
which no Market Disruption Event has occurred.
(dd) "VALUATION EVENT" has the meaning set forth in Section 6.1.
(ee) "VALUATION PERIOD" means the five Trading Day period immediately
preceding the Conversion Date.
All references to "cash" or "$" herein means currency of the United
States of America.
ARTICLE 2
DESIGNATION AND AMOUNT
SECTION 2.1
The designation of this series, which consists of 500 shares of
Preferred Stock, is Series B Convertible Preferred Stock (the "Series B
Preferred Stock") and the stated value shall be One Thousand Dollars ($1,000)
per share (the "Stated Value").
ARTICLE 3
RANK
SECTION 3.1
The Series B Preferred Stock shall rank (i) prior to the Common
Stock; (ii) prior to any class of series of capital stock of the Corporation
hereafter created other than "Pari Passu Securities" (collectively, with the
Common Stock, "Junior Securities"); and (iii) pari passu with the Series A 6%
Convertible Preferred Stock or any class or series of capital stock of the
Corporation hereafter created specifically ranking on parity with the Series B
Preferred Stock ("Pari Passu Securities").
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ARTICLE 4
DIVIDENDS
SECTION 4.1
(a) (i) The Holder shall be entitled to receive, when, as and if
declared by the Board of Directors, out of funds legally available for the
payment of dividends, dividends (subject to Sections 4(a)(ii) hereof) at the
rate of 6% per annum (computed on the basis of a 360-day year) (the "Dividend
Rate") on the Liquidation Value (as defined below) of each share of Series B
Preferred Stock on and as of the most recent Dividend Payment Due Date (as
defined below) with respect to each Dividend Period (as defined below).
Dividends on the Series B Preferred Stock shall be cumulative from the date of
issue, whether or not declared for any reason, including if such declaration is
prohibited under any outstanding indebtedness or borrowings of the Corporation
or any of its Subsidiaries, or any other contractual provision binding on the
Corporation or any of its Subsidiaries, and whether or not there shall be funds
legally available for the payment thereof.
(ii) Each dividend shall be payable in equal quarterly amounts
on each March 31, June 30, September 30 and December 31 of each year (each, a
"Dividend Payment Due Date"), commencing March 31, 1999, to the holders of
record of shares of the Series B Preferred Stock, as they appear on the stock
records of the Corporation at the close of business on any record date, not more
than 60 days or less than 10 days preceding the payment dates thereof, as shall
be fixed by the Board of Directors. For the purposes hereof, "Dividend Period"
means the quarterly period preceding Dividend Payment Date and ending on and
including the immediately subsequent Dividend Payment Date. Accrued and unpaid
dividends for any past Dividend Period may be declared and paid at any time,
without reference to any Dividend Payment Due Date, to holders of record on such
date, not more than 15 days preceding the payment date thereof, as may be fixed
by the Board of Directors.
(iii) At the option of the Corporation, the dividend shall be
paid in cash or through the issuance of duly and validly authorized and issued,
fully paid and non-assessable, freely tradeable shares of Common Stock valued at
the Market Price. The Common Stock to be issued in lieu of cash payments shall
be registered for resale in the Registration Statement to be filed by the
Corporation to register the Common Stock issuable upon conversion of the shares
of Series B Preferred Stock and exercise of the Warrants as set forth in the
Registration Rights Agreement. Notwithstanding the foregoing, until such
Registration Statement has been declared effective under the Securities Act by
the SEC, payment of dividends on the Series B Preferred Stock shall be in cash.
(b) The Holder shall not be entitled to any dividends in excess of
the cumulative dividends, as herein provided, on the Series B Preferred Stock.
Except as provided in this Article 4, no interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Series B Preferred Stock that may be in arrears.
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(c) So long as any shares of the Series B Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on Pari Passu Securities for
any period unless full cumulative dividends required to be paid in cash have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series B Preferred
Stock for all Dividend Periods terminating on or prior to the date of payment of
the dividend on such class or series of Pari Passu Securities. When dividends
are not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Series B Preferred Stock
and all dividends declared upon any other class or series of Pari Passu
Securities shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series B Preferred Stock and accumulated
and unpaid on such Pari Passu Securities.
(d) So long as any shares of the Series B Preferred stock are
outstanding, no dividends shall be declared or paid or set apart for payment or
other distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any subsidiary, (all such dividends, distributions,
redemptions or purchases being hereinafter referred to as a "Junior Securities
Distribution") for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such stock) by the
Corporation, directly or indirectly, unless in each case (i) the full cumulative
dividends required to be paid in cash on all outstanding shares of the Series B
Preferred Stock and any other Pari Passu Securities shall have been paid or set
apart for payment for all past Dividend Periods with respect to the Series B
Preferred Stock and all past dividend periods with respect to such Pari Passu
Securities, and (ii) sufficient funds shall have been paid or set apart for the
payment of the dividend for the current Dividend Period with respect to the
Series B Preferred Stock and the current dividend period with respect to such
Pari Passu Securities.
ARTICLE 5
LIQUIDATION PREFERENCE
SECTION 5.1
(a) If the Corporation shall commence a voluntary case under the
Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or 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 if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee,
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custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and any such decree or order shall be unstayed and
in effect for a period of thirty (30) consecutive days and, on account of any
such event, the Corporation shall liquidate, dissolve or wind up (each such
event being considered a "Liquidation Event"), no distribution shall be made to
the holders of any shares of capital stock of the Corporation upon liquidation,
dissolution or winding up unless prior thereto, the holders of shares of Series
B Preferred Stock, subject to Article 5, shall have received the liquidation
Preference (as defined in Article 5(c)) with respect to each share. If upon the
occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series B Preferred Stock and holders of
Pari Passu Securities shall be insufficient to permit the payment to such
holders of the preferential amounts payable thereon, then the entire assets and
funds of the Corporation legally available for distribution to the Series B
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation preference payable
on each such share bears to the aggregate liquidation Preference payable on all
such shares.
(b) At the option of each Holder, the sale, conveyance of
disposition of all or substantially all of the assets of the Corporation, the
effectuation by the Corporation of a transaction or series of related
transactions in which more than 50% of the voting power of the Corporation is
not the survivor shall either: (i) be deemed to be a liquidation, dissolution or
winding up of the Corporation pursuant to which the Corporation shall be
required to distribute, upon consummation of and as a condition to, such
transaction an amount equal to 120% of the Liquidation Preference with respect
to each outstanding sharer of Series B Preferred Stock in accordance with and
subject to the terms of this Article 5 or (ii) be treated pursuant to Article
5(c) (iii) hereof; provided, that all holders of Series B Preferred Stock shall
be deemed to elect the option set forth in cause (i) hereof if at least a
majority in interest of such holders elect such option. "Person" shall mean any
individual, corporation, limited liability company, partnership, association,
trust or other entity or organization.
(c) For purposes hereof, the "Liquidation Preference" with respect
to a share of the Series B Preferred Stock shall mean an amount equal to the sum
of (i) the Stated Value thereof, plus (ii) an amount equal to thirty percent
(30%) of such Stated Value, plus (iii) the aggregate of all accrued and unpaid
dividends on such share of Series B Preferred Stock until the most recent
Dividend Payment Date; provided that, in the event of an actual liquidation,
dissolution or winding up of the Corporation, the amount referred to in clause
(iii) above shall be calculated by including accrued and unpaid dividends to the
actual date of such liquidation, dissolution or winding up, rather than the
Dividend Payment Due Date referred to above.
ARTICLE 6
CONVERSION OF PREFERRED STOCK
SECTION 6.1 CONVERSION; CONVERSION PRICE. At the option of the Holder,
the shares of Preferred Stock may be converted, either in whole or in part, into
Common Shares (calculated as to each such conversion to the nearest 1/100th of a
share), at any time, and from time to time following
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the date of issuance of the Series B Preferred Stock (the "Issue Date") at a
conversion Price equal to the Stated Value of the shares being converted
multiplied by 65% of the Market Price; provided, however, that the Holder shall
not have the right to convert any portion of the Series B Preferred Stock to the
extent that the issuance to the Holder of Common Shares upon such conversion
would result in the Holder being deemed the "beneficial owner" of 5% or more of
the then outstanding Common Shares within meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended. At the Corporation's option, the
amount of accrued and unpaid dividends as of the conversion Date shall not be
subject to conversion but instead may be paid in cash as of the Conversion Date;
if the Corporation elects to convert the amount of accrued and unpaid dividends
at the Conversion Date into Common Stock, the Common Stock issued to the Holder
shall be valued at the Conversion Price. Notwithstanding the previous sentence,
in no event shall the Holder have the right to convert that portion of the
Series B Preferred Stock to the extent that the issuance of Common Shares upon
the conversion of such Series B Preferred Stock, when combined with shares of
Common Stock received upon other conversions of Series B Preferred Stock by such
Holder and any other holders of Series B Preferred Stock, would exceed 19.99% of
the Common Stock outstanding on the Closing Date. Within ten (10) Business Days
after the receipt of the Conversion Notice which upon conversion would, when
combined with shares of Common Stock received upon other conversions of Series B
Preferred Stock by such Holder and any other holders of Series B Preferred Stock
and Warrants, exceed 19.99% of the Common Stock outstanding on the Closing Date,
the Corporation shall redeem all remaining outstanding shares of Series B
Preferred Stock at on hundred twenty-five percent (125%) of the Stated Value
thereof, together with all accrued and unpaid dividends thereon, in cash, to the
date of redemption.
The number of shares of Common Stock due upon conversion of Series B
Preferred Stock shall be (i) the number of shares of Series B Preferred Stock to
be converted, multiplied by (ii) the Stated Value and dividend by (iii) the
applicable Conversion Price.
Within two (2) Business Days of the occurrence of a Valuation Event,
the Corporation shall send notice (the "Valuation Event Notice") of such
occurrence to the Holder. Notwithstanding anything to the contrary contained
herein, if a Valuation Event occurs during any Valuation Period, a new Valuation
Period shall begin on the Trading Day immediately following the occurrence of
such Valuation Event and end on the Conversion Date; provided that, if a
Valuation Event occurs on the fifth day of any Valuation Period, then the
Conversion Price shall be the Current Market Price of the Common Shares on such
day; and provided, further, that the Holder may, in its discretion, postpone
such Conversion Date to a Trading Day which is no more than five (5) Trading
Days after the occurrence of the latest Valuation Event by delivering a
notification to the Corporation with two (2) Business Days of the receipt of the
Valuation Period to be other than the five (5) Trading Days immediately Prior to
the Conversion Date, the Holder shall give written notice of such fact to the
Corporation in the related Conversion Notice at the time of conversion.
For purposes of this Section 6.1, a "Valuation Event" shall mean an
event in which the Corporation at any time during a Valuation Period takes any
of the following actions:
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(a) subdivides or combines its Capital Shares;
(b) makes any distribution of its Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital
Shares"), otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b)
above, at a price per share less, or for other consideration lower, than the
Current Market Price in effect immediately prior to such issuances, or without
consideration, except for issuances under employee benefit plans consistent with
those presently in effect and issuances under presently outstanding warrants,
options or convertible securities;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable or
exercisable for Capital Shares and the consideration per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to the
terms of such convertible, exchangeable or exercisable securities shall be less
than the Current Market Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness
to the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Corporation's assets (other than under the circumstances provided for
in the foregoing Sections 6.1(a) through 6.1(e)); or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Sections 6.1(a)
through 6.1(f) hereof, inclusive, which in the opinion of the Corporation's
Board of Directors, determined in good faith, would have a material adverse
effect upon the rights of the Holder at the time of a conversion of the
Preferred Stock.
SECTION 6.2 EXERCISE OF CONVERSION PRIVILEGE. (a) Conversion of the
Series B Preferred Stock may be exercised, in whole or in part, by the Holder by
telecopying an executed and completed notice of conversion in the form annexed
hereto as Exhibit A (the "Conversion Notice") to the Corporation. Each date on
which a Conversion Notice is telecopied to and received by the Corporation in
accordance with the provisions of this Section 6.2 shall constitute a Conversion
Date. The Corporation shall convert the Preferred Stock and issue the Common
Stock Issued at Conversion effective as of the Conversion Date. The Conversion
Notice also shall state the name or names (with addresses) of the persons who
are to become the holders of the Common Stock Issued at Conversion in connection
with such conversion. The Holder shall deliver the shares of Series B Preferred
Stock to the Corporation by express courier within 30 days following the date on
which the telecopied
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Conversion Notice has been transmitted to the Corporation. Upon surrender for
conversion, the Preferred Stock shall be accompanied by a proper assignment
hereof to the Corporation or be endorsed in blank. As promptly as practicable
after the receipt of the Conversion Notice as aforesaid, but in any event not
more than five Business Days after the Corporation's receipt of such Conversion
Notice, the Corporation shall (i) issue the Common Stock issued at Conversion in
accordance with the provisions of this Article 6, and (ii) cause to be mailed
for delivery by overnight courier to the Holder (X) a certificate or
certificate(s) representing the number of Common Shares to which the Holder is
entitled by virtue of such conversion, (Y) cash, as provided in Section 6.3, in
respect of any fraction of a Share issuable upon such conversion and (Z) cash in
the amount of accrued and unpaid dividends as of the Conversion Date. Such
conversion shall be deemed to have been effected at the time at which the
Conversion Notice indicates so long as the Preferred Stock shall have been
surrendered as aforesaid at such time, and at such time the rights of the Holder
of the Preferred Stock, as such, shall cease and the Person and Persons in whose
name or names the Common Stock Issued at Conversion shall be issuable shall be
deemed to have become the holder or holders of record of the Common Shares
represented thereby. The Conversion Notice shall constitute a contract between
the Holder and the Corporation, whereby the Holder shall be deemed to subscribe
for the number of Common Shares which it will be entitled to receive upon such
conversion and, in payment and satisfaction of such subscription (and for any
cash adjustment to which it is entitled pursuant to Section 6.4), to surrender
the Preferred Stock and to release the Corporation from all liability thereon.
No cash payment aggregating less than $1.50 shall be required to be given unless
specifically requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes or
denies the right of the Holder hereof to effect the conversion of the Preferred
Stock into Common Shares or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with this Section 6.2 or (ii) any third party who is not
and has never been an Affiliate of the Holder commences any lawsuit or
proceeding or otherwise asserts any claim before any court or public or
governmental authority which seeks to challenge, deny enjoin, limit, modify,
delay or dispute the right of the Holder hereof to effect the conversion of the
Preferred Stock into Common Shares, then the Holder shall have the right, by
written notice to the Corporation, to require the Corporation to promptly redeem
the Series B Preferred Stock for cash at a redemption price equal to one hundred
thirty-five percent (135%) of the Stated Value thereof together with all accrued
and unpaid dividends thereon (the "Mandatory Purchase Amount"). Under any of the
circumstances set forth above, the Corporation shall be responsible for the
payment of all costs and expenses of the Holder, including reasonable legal fees
and expenses, as and when incurred in disputing any such action or pursuing its
rights hereunder (in addition to any other rights of the Holder).
SECTION 6.3 FRACTIONAL SHARES. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of the
Series B Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable upon conversion of the Series B Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction. No cash payment of less than $1.50 shall be required
to be given unless specifically requested by the Holder.
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SECTION 6.4 RECLASSIFICATION, CONSOLIDATION, MERGER OR MANDATORY SHARE
EXCHANGE. At any time while the Series B Preferred Stock remains outstanding and
any shares thereof has not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of the Series B
Preferred Stock (other than a change in par value, or from par value to no par
value per share, of from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series B Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
value to not par value per share, or from no par value per share to par value,
or as a result of a subdivision of combination of Outstanding Common Shares upon
conversion of the Series B Preferred Stock), or in the case of any sale or
transfer to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the Corporation, as the case may be,
shall, without payment of any additional consideration therefor, execute a new
Series B Preferred Stock providing that the Holder shall have the right to
convert such new Series B Preferred Stock (upon terms and conditions not less
favorable to the Holder than those in effect pursuant to the Series B Preferred
Stock) and to receive upon such exercise, in lieu of each Common Share
theretofore issuable upon conversion of the Series B Preferred Stock, the kind
and amount of shares of stock, other securities, money or property receivable
upon such reclassification, change, consolidation, merger, mandatory share
exchange, sale or transfer by the holder of one Common Share issuable upon
conversion of the Series B Preferred Stock had the Series B Preferred Stock been
converted immediately prior to such reclassification, change, consolidation,
merger, mandatory share exchange or sale or transfer. The provisions of this
Section 6.4 shall similarly apply to successive reclassifications, changes,
consolidations, mergers, mandatory share exchanges and sales and transfers.
SECTION 6.5 ADJUSTMENTS TO CONVERSION RATIO. For so long as any shares
of the Series B Preferred Stock are outstanding, if the Corporation (i) issues
and sells pursuant to an exemption from registration under the Securities Act
(A) Common Shares at a purchase price on the date of issuance thereof that is
lower than the Conversion Price, (B) warrants or options with an exercise price
representing a percentage of the Current Market Price with an exercise price on
the date of issuance of the warrants or options that is lower than the agreed
upon exercise price for the Holder, except for employee stock option agreements
or stock incentive agreements of the Corporation, or (C) convertible,
exchangeable or exercisable securities with a right to exchange at lower than
the Current Market Price on the date of issuance or conversion, as applicable,
of such convertible, exchangeable or exercisable securities, except for stock
option agreements or stock incentive agreements; and (ii) grants the right to
the purchaser(s) thereof to demand that the Corporation register under the
Securities Act such Common Shares issued or the Common Shares for which such
warrants or options may be exercised or such convertible, exchangeable or
exercisable securities may be converted, exercised or exchanged, then the
Conversion Ratio shall be reduced to equal the lowest of any such lower rates.
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SECTION 6.6 OPTIONAL REDEMPTION UNDER CERTAIN CIRCUMSTANCES. At anytime
after the date of issuance of the Series B Preferred Stock until the Mandatory
Conversion Date (as defined below), the Corporation, upon notice delivered to
the Holder as provided in Section 6.7, may redeem the Series B Preferred Stock
(but only with respect to such shares as to which the Holder has not theretofore
furnished a Conversion Notice in compliance with Section 6.2), at one hundred
twenty percent (120%) of the Stated Value thereof (the "Optional Redemption
Price"), together with all accrued and unpaid dividends thereon to the date of
redemption (the "Redemption Date"); PROVIDED, HOWEVER, that the Corporation may
only redeem the Series B Preferred Stock under this Section 6.6 if the Current
Market Price is less than the Current Market Price on the Closing Date. Except
as set forth in this Section 6.6, the Corporation shall not have the right to
prepay or redeem the Series B Preferred Stock.
SECTION 6.7 NOTICE OF REDEMPTION. Notice of redemption pursuant to
Section 6.6 shall be provided by the Corporation to the Holder in writing (by
registered mail or overnight courier at the Holder's last address appearing in
the Corporation's security registry) not less than ten (10) nor more than
fifteen (15) days prior to the Redemption Date, which notice shall specify the
Redemption Date and refer to Section 6.6 (including, a statement of the Market
Price per Common Share) and this Section 6.7.
SECTION 6.8 SURRENDER OF PREFERRED STOCK. Upon any redemption of the
Series B Preferred Stock pursuant to Sections 6.6 or 6.9, the Holder shall
either deliver the Series B Preferred Stock by hand to the Corporation at its
principal executive offices or surrender the same to the Corporation at such
address by express courier. Payment of the Optional Redemption Price specified
in Section 6.6 shall be made by the Corporation to the Holder against receipt of
the Series B Preferred Stock (as provided in this Section 6.8) by wire transfer
of immediately available funds to such account(s) as the Holder shall specify to
the Corporation. If payment of such redemption price is not made in full by the
Mandatory Redemption Date or the Redemption Date, as the case may be, the Holder
shall again have the right to convert the Series B Preferred Stock as provided
in Article 6 hereof.
SECTION 6.9 MANDATORY CONVERSION. On the third anniversary of the date
of Subscription Agreement (the "Mandatory Conversion Date"), the Corporation
shall convert all Series B Preferred Stock outstanding at the Conversion Price.
Notwithstanding the previous sentence, in no event shall the Corporation convert
that portion of the Series B Preferred Stock to the extent that the issuance of
Common Shares upon the conversion of such Series B Preferred Stock, when
combined with shares of Common Stock by such Holder and any other holders of
Series B Preferred Stock and Warrants, would exceed 19.99% of the Common Stock
outstanding on the Closing Date. Within ten (10) Business Days after the
Mandatory Conversion Date, the Corporation shall redeem all remaining
outstanding Series B Preferred Stock at one hundred and thirty-five percent
(135%) of the Stated Value thereof, together with all accrued and unpaid
dividends thereon, in cash, to the date of redemption.
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ARTICLE 7
VOTING RIGHTS
The holders of the Series B Preferred Stock have no voting power,
except as otherwise provided by the General Corporation Law of the State of
Delaware ("DGCL"), in this Article 7, and in Article 8 below.
Notwithstanding the above, the Corporation shall provide each holder of
Series B Preferred Stock with prior notification of any meeting of the
stockholders (and copies of proxy materials and other information sent to
stockholders). In the event of any taking by the Corporation of a record of its
stockholders for the purpose of determining stockholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining stockholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least thirty (30) days prior to the consummation of the transaction
or event, whichever is earlier), of the date on which any such action is to be
taken for the purpose of such dividend, distribution, right or other event to
the extent known at such time.
To the extent that under the DGCL the vote of the holders of the Series
B Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the holders of at least a majority of the shares of the Series B
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series B Preferred Stock
(except as otherwise may be required under the DGCL) shall constitute the
approval of such action by the class. Holders of the Series B Preferred Stock
shall be entitled to notice of all stockholder meetings or written consents (and
copies of proxy materials and other information sent to stockholders) with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation's bylaws and the DGCL.
ARTICLE 8
PROTECTIVE PROVISIONS
So long as shares of Series B Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the holders of at least a majority of the
then outstanding shares of Series B Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
Series B Preferred Stock;
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(b) create any new class or series of capital stock having a
preference over the Series B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation ("Senior Securities")
or alter or change the rights, preferences or privileges of any Senior
Securities so as to affect adversely the Series B Preferred Stock;
(c) increase the authorized number of shares of Series B Preferred
Stock; or
(d) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series B Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event holders of at least a majority of the then outstanding
shares of Series B Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series B Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series B Preferred
Stock, then the Corporation will deliver notice of such approved change to the
holders of Series B Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) days to convert pursuant to the terms of this
Certificate of Designation as they exist prior to such alteration or change or
continue to hold their shares of Series B Preferred Stock.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 LOSS, THEFT, DESTRUCTION OF PREFERRED STOCK. Upon receipt
of evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of shares of Series B Preferred Stock and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Corporation, or, in the case of any such mutilation, upon
surrender and cancellation of the Series B Preferred Stock, the Corporation
shall make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated shares of Series B Preferred Stock, new shares of Series B Preferred
Stock, new shares of Series B Preferred Stock of like tenor. The Series B
Preferred Stock shall be held and owned upon the express condition that the
provisions of this Section 10.1 are exclusive with respect to the replacement of
mutilated, destroyed, lost or stolen shares of Series B Preferred Stock and
shall preclude any and all other rights and remedies notwithstanding any law or
statute existing or hereafter enacted to the contrary with respect to the
replacement of negotiable instruments or other securities without the surrender
thereof.
SECTION 9.2 WHO DEEMED ABSOLUTE OWNER. The Corporation may deem the
Person in whose name the Series B Preferred Stock shall be registered upon the
registry books of the Corporation to be, and may treat it as, the absolute owner
of the Series B Preferred Stock for the purpose of receiving payment of
dividends on the Series B Preferred Stock, for the conversion of the Series B
Preferred Stock and for all other purposes, and the Corporation shall not be
affected by any
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notice to the contrary. All such payments and such conversion shall be valid and
effectual to satisfy and discharge the liability upon the Series B Preferred
Stock to the extent of the sum or sums so paid or the conversion so made.
SECTION 9.3 NOTICE OF CERTAIN EVENTS. In the case of the occurrence of
any event described in Sections 6.1, 6.6 or 6.9 of this Certificate of
Designations, the Corporation shall cause to be mailed to the Holder of the
Series B Preferred Stock at its last address as it appears in the Corporation's
security registry, at least twenty (20) days notice is not possible, at the
earliest possible date prior to any such record, effective or expiration date),
a notice stating (x) the date on which a record is to be taken for the purpose
of such dividend, distribution, issuance or granting rights, options or
warrants, or if a record is not to be taken, the date as of which the holders of
record of Series B Preferred Stock to be entitled to such dividend,
distribution, issuance or granting of rights, options or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of Series B Preferred Stock will be entitled to exchange their shares for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale transfer, dissolution, liquidation or winding-up.
SECTION 9.4 REGISTER. The Corporation shall keep at its principal
office a register in which the Corporation shall provide for the registration of
the Series B Preferred Stock. Upon any transfer of the Series B Preferred Stock
in accordance with the provisions hereof, the Corporation shall register such
transfer on the Series B Preferred Stock register.
The Corporation may deem the person in whose name the Series B
Preferred Stock shall be registered upon the registry books of the Corporation
to be, and may treat it as, the absolute owner of the Series B Preferred Stock
for the purpose of receiving payment of dividends on the Series B Preferred
Stock and for all other purposes, and the Corporation shall not be affected by
any notice to the contrary. All such payments and such conversions shall be
valid and effective to satisfy and discharge the liability upon the Series B
Preferred Stock to the extent of the sum or sums so paid or the conversion or
conversions so made.
SECTION 9.5 WITHHOLDING. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
B Preferred Stock.
SECTION 9.6 HEADINGS. The headings of the Articles and Section s of
this Certificate of Designations are inserted for convenience only and do not
constitute a part of this Certificate of Designations.
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[FORM OF CONVERSION NOTICE]
TO:_____________________________________________________________________________
The undersigned owner of this Series B Convertible Preferred Stock (the
"Series B Preferred Stock") issued by Equitex, Inc. (the "Corporation") hereby
irrevocably exercises its option to convert ________ shares of the Series B
Preferred Stock into shares of the common stock, $.02 par value, of the
Corporation ("Common Stock"), in accordance with the terms of the Certificate of
Designations. The undersigned hereby instructs the Corporation to convert the
number of shares of the Series B Preferred Stock specified above into Shares of
Common Stock Issued at Conversion in accordance with the provisions of Article 6
of the Certificate of Designations. The undersigned directs that the Common
Stock issuable and certificates therefor deliverable upon conversion, the Series
B Preferred Stock recertificated, if any, not being surrendered for conversion
hereby, together with any check in payment for fractional Common Stock, be
issued in the name of and delivered to the undersigned unless a different name
has been indicated below. All capitalized terms used and not defined herein have
the respective meanings assigned to them in the Certificate of Designations.
Dated:________________________________
______________________________________
Signature
Fill in for registration of Series B Preferred Stock:
Please print name and address
(including zip code number):____________________________________________________
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CERTIFICATE OF DESIGNATIONS
OF
EQUITEX, INC.
--------------------
DESIGNATION OF PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS
OF THE
SERIES C 6% CONVERTIBLE PREFERRED STOCK
PURSUANT TO SECTION 151
OF THE
DELAWARE GENERAL CORPORATION LAW
--------------------
Equitex, Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Company"), DOES HEREBY CERTIFY that the following
resolution was duly adopted by the Board of Directors of the Company on January
29, 1999:
RESOLVED, that the Board of Directors, pursuant to the authority vested
in it by the provisions of the Company's Certificate of Incorporation,
hereby establishes a series of convertible preferred stock, consisting
of 600 shares, which shall be designated as the "Series C 6%
Convertible Preferred Stock," and shall have the powers, preferences,
rights, qualifications, limitations and restrictions as set forth in
Attachment A attached hereto.
IN WITNESS WHEREOF, the undersigned hereby acknowledges under penalty
of perjury that the execution of this instrument is the Company's act and deed.
EQUITEX, INC.
February 8, 1999 By:/S/ THOMAS B. OLSON
-----------------------------------
Thomas B. Olson, Secretary
<PAGE>
ATTACHMENT A
ARTICLE
DEFINITIONS
SECTION 1.1 DEFINITIONS. The terms defined in this Article whenever
used in this Certificate of Designations have the following respective meanings:
(a) "ADDITIONAL CAPITAL SHARES" has the meaning set forth in Section
6.1(c).
(b) "AFFILIATE" has the meaning ascribed to such term in Rule 12b-2
under the Securities Exchange Act of 1934, as amended.
(c) "BUSINESS DAY" means a day other than Saturday, Sunday or any day
on which banks located in the State of New York are authorized or obligated to
close.
(d) "CAPITAL SHARES" means the Common Shares and any other shares of
any other class or series of common stock, whether now or hereafter authorized
and however designated, which have the right to participate in the distribution
of earnings and assets (upon dissolution, liquidation or winding-up) of the
Corporation.
(e) "CLOSING DATE" means February 4, 1999.
(f) "COMMON SHARES" or "COMMON STOCK" means shares of common stock,
$.02 par value, of the Corporation.
(g) "COMMON STOCK ISSUED AT CONVERSION" when used with reference to the
securities issuable upon conversion of the Series C Preferred Stock, means all
Common Shares now or hereafter Outstanding and securities of any other class or
series into which the Series C Preferred Stock hereafter shall have been changed
or substituted, whether now or hereafter created and however designated.
(h) "CONVERSION DATE" means any day on which all or any portion of
shares of the Series C Preferred Stock is converted in accordance with the
provisions hereof.
(i) "CONVERSION NOTICE" has the meaning set forth in Section 6.2.
(j) "CONVERSION PRICE" means on any date of determination the
applicable price for the conversion of shares of Series C Preferred Stock into
Common Shares on such day as set forth in Section 6.1.
(k) "CONVERSION RATIO" on any date means of determination the
applicable percentage of the Market Price for conversion of shares of Series C
Preferred Stock into Common Shares on such day as set forth in Section 6.1.
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(l) "CORPORATION", means Equitex, Inc., a Delaware corporation, and any
successor or resulting corporation by way of merger, consolidation, sale or
exchange of all or substantially all of the Corporation's assets, or otherwise.
(m) "CURRENT MARKET PRICE" on any date of determination means the
closing bid price of a Common Share on such day as reported on the Nasdaq -
Small Cap Market ("NASDAQ").
(n) "DEFAULT DIVIDEND RATE" shall be equal to the Preferred Stock
Dividend Rate plus an additional 4% per annum.
(o) "HOLDER" means The Shaar Fund Ltd., any successor thereto, or any
Person to whom the Series C Preferred Stock is subsequently transferred in
accordance with the provisions hereof.
(p) "MARKET DISRUPTION EVENT" means any event that results in a
material suspension or limitation of trading of Common Shares on the NASDAQ.
(q) "MARKET PRICE" per Common Share means the average of the closing
prices of the Common Shares as reported on the NASDAQ for the five Trading Days
in any valuation Period.
(r) "MAXIMUM RATE" has the meaning set forth in Section 7.3(b).
(s) "OUTSTANDING" when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), means, on any date of determination, all issued
and outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; PROVIDED, HOWEVER, that any such Shares directly or indirectly owned or
held by or for the account of the Corporation or any Subsidiary or the
Corporation shall not be deemed "Outstanding" for purposes hereof.
(t) "PERSON" means an individual, a corporation, a partnership, an
association, a limited liability company, a unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(u) "REGISTRATION RIGHTS AGREEMENT" means that certain Registration
Rights Agreement dated as of February 4, 1999 between the Corporation and The
Shaar Fund Ltd.
(v) "SEC" means the United States Securities and Exchange Commission.
(w) "SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations of the SEC thereunder, all as in effect at the time.
(x) "SECURITIES PURCHASE AGREEMENT" means that certain Securities
Purchase Agreement dated as of February 4, 1999 between the Corporation and The
Shaar Fund.
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<PAGE>
(y) "SERIES C PREFERRED STOCK" means the Series C Convertible Preferred
Stock of the Corporation or such other convertible Preferred Stock exchanged
therefor as provided in Section 2.1.
(aa) "STATED VALUE" has the meaning set forth in Article 2.
(bb) "SUBSIDIARY" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Corporation.
(cc) "TRADING DAY" means any day on which purchases and sales of
securities authorized for quotation on the NASDAQ are reported thereon and on
which no Market Disruption Event has occurred.
(dd) "VALUATION EVENT" has the meaning set forth in Section 6.1.
(ee) "VALUATION PERIOD" means the five (5) Trading Day period
immediately preceding the Conversion Date.
All references to "cash" or "$" herein means currency of the United
States of America.
ARTICLE
DESIGNATION AND AMOUNT
SECTION 2.1
The designation of this series, which consists of 600 shares of
Preferred Stock, is Series C 6% Convertible Preferred Stock (the "Series C
Preferred Stock") and the stated value shall be One Thousand Dollars ($1,000)
per share (the "Stated Value").
ARTICLE
RANK
SECTION 3.1
The Series C Preferred Stock shall rank (i) prior to the Common
Stock; (ii) prior to any class or series of capital stock of the Corporation
hereafter created other than "Pari Passu Securities" (collectively, with the
Common Stock, "Junior Securities"); (iii) pari passu with the Company's Series A
Preferred Stock and (iv) pari passu with any class or series of capital stock of
the Corporation hereafter created specifically ranking on parity with the Series
C Preferred Stock ("Pari Passu Securities").
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<PAGE>
ARTICLE
DIVIDENDS
SECTION 4.1
(a)(i) The Holder shall be entitled to receive, when, as and if
declared by the Board of Directors, out of funds legally available for the
payment of dividends, dividends (subject to Sections 4(a)(ii) hereof) at the
rate of 6% per annum (computed on the basis of a 360-day year) (the "Dividend
Rate") on the Liquidation Value (as defined below) of each share of Series C
Preferred Stock on and as of the most recent Dividend Payment Due Date (as
defined below) with respect to each Dividend Period (as defined below).
Dividends on the Series C Preferred Stock shall be cumulative from the date of
issue, whether or not declared for any reason, including if such declaration is
prohibited under any outstanding indebtedness or borrowings of the Corporation
or any of its Subsidiaries, or any other contractual provision binding on the
Corporation or any of its Subsidiaries, and whether or not there shall be funds
legally available for the payment thereof.
(ii) Each dividend shall be payable in equal quarterly amounts
on each March 31, June 30, September 30 and December 31 of each year (each, a
"Dividend Payment Due Date"), commencing March 31, 1999, to the holders of
record of shares of the Series C Preferred Stock, as they appear on the stock
records of the Corporation at the close of business on any record date, not more
than sixty (60) days or less than ten (10) days preceding the payment dates
thereof, as shall be fixed by the Board of Directors. For the purposes hereof,
"Dividend Period" means the quarterly period commending on and including the day
after the immediately preceding Dividend Payment Date and ending on and
including the immediately subsequent Dividend Payment Date. Accrued and unpaid
dividends for any past Dividend Period may be declared and paid at any time,
without reference to any Dividend Payment Due Date, to holders of record on such
date, not more than fifteen (15) days preceding the payment date thereof, as may
be fixed by the Board of Directors.
(iii) At the option of the Corporation, the dividend shall be
paid in cash or through the issuance of duly and validly authorized and issued,
fully paid and non-assessable, freely tradeable shares of the Common Stock
valued at the Market Price. The Common Stock to be issued in lieu of cash
payments shall be registered for resale in the Registration Statement to be
filed by the Corporation to register the Common Stock issuable upon conversion
of the shares of Series C Preferred Stock and exercise of the Warrants as set
forth in the Registration Rights Agreement. Notwithstanding the foregoing, until
such Registration Statement has been declared effective under the Securities Act
by the SEC, payment of dividends on the Series C Preferred Stock shall be in
cash.
(b) The Holder shall not be entitled to any dividends in excess of
the cumulative dividends, as herein provided, on the Series C Preferred Stock.
Except as provided in this Article 4, no interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Series C Preferred Stock that may be in arrears.
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<PAGE>
(c) So long as any shares of the Series C Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on Pari Passu Securities for
any period unless full cumulative dividends required to be paid in cash have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series C Preferred
Stock for all Dividend Periods terminating on or prior to the date of payment of
the dividend on such class or series of Pari Passu Securities. When dividends
are not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Series C Preferred Stock
and all dividends declared upon any other class or series of Pari Passu
Securities shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series C Preferred Stock and accumulated
and unpaid on such Pari Passu Securities.
(d) So long as any shares of the Series C Preferred Stock are
outstanding, no dividends shall be declared or paid or set apart for payment or
other distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any subsidiary, (all such dividends, distributions,
redemptions or purchases being hereinafter referred to as a "Junior Securities
Distribution") for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such stock) by the
Corporation, directly or indirectly, unless in each case (i) the full cumulative
dividends required to be paid in cash on all outstanding shares of the Series C
Preferred Stock and any other Pari Passu Securities shall have been paid or set
apart for payment for all past Dividend Periods with respect to the Series C
Preferred Stock and all past dividend periods with respect to such Pari Passu
Securities, and (ii) sufficient funds shall have been paid or set apart for the
payment of the dividend for the current Dividend Period with respect to the
Series C Preferred Stock and the current dividend period with respect to such
Pari Passu Securities.
ARTICLE
LIQUIDATION PREFERENCE
SECTION 5.1
(a) If the Corporation shall commence a voluntary case under the
Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or 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 if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or
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<PAGE>
wind up, or if the Corporation shall otherwise liquidate, dissolve or wind up
(each such event being considered a "Liquidation Event"), no distribution shall
be made to the holders of any shares of capital stock of the Corporation upon
liquidation, dissolution or winding up unless prior thereto, the holders of
shares of Series C Preferred Stock, subject to Article 5, shall have received
the Liquidation Preference (as defined in Article 5(c)) with respect to each
share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the holders of the Series C Preferred Stock and
holders of Pari Passu Securities shall be insufficient to permit the payment to
such holders of the preferential amounts payable thereon, then the entire assets
and funds of the Corporation legally available for distribution to the Series C
Preferred Stock and the Pari Passu Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate liquidation Preference payable on all
such shares.
(b) At the option of each Holder, the sale, conveyance of disposition
of all or substantially all of the assets of the Corporation, the effectuation
by the Corporation of a transaction or series of related transactions in which
more than 50% of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other Person (as defined below) or Persons when the Corporation is not
the survivor shall either: (i) be deemed to be a liquidation, dissolution or
winding up of the Corporation pursuant to which the Corporation shall be
required to distribute, upon consummation of and as a condition to, such
transaction an amount equal to 120% of the Liquidation Preference with respect
to each outstanding sharer of Series C Preferred Stock in accordance with and
subject to the terms of this Article 5 or (ii) be treated pursuant to Article
5(c)(iii) hereof; provided, that all holders of Series C Preferred Stock shall
be deemed to elect the option set forth in cause (i) hereof if at least a
majority in interest of such holders elect such option. "Person" shall mean any
individual, corporation, limited liability company, partnership, association,
trust or other entity or organization.
(c) For purposes hereof, the "Liquidation Preference" with respect to a
share of the Series C Preferred Stock shall mean an amount equal to the sum of
(i) the Stated Value thereof, plus (ii) an amount equal to thirty percent (30%)
of such Stated Value, plus (iii) the aggregate of all accrued and unpaid
dividends on such share of Series C Preferred Stock until the most recent
Dividend Payment Date; provided that, in the event of an actual liquidation,
dissolution or winding up of the Corporation, the amount referred to in clause
(iii) above shall be calculated by including accrued and unpaid dividends to the
actual date of such liquidation, dissolution or winding up, rather than the
Dividend Payment Due Date referred to above.
ARTICLE
CONVERSION OF PREFERRED STOCK
SECTION 6.1 CONVERSION; CONVERSION PRICE. At the option of the Holder,
the shares of Series C Preferred Stock may be converted, either in whole or in
part, into Common Shares (calculated as to each such conversion to the nearest
1/100th of a share), at any time, and from time to time following the date of
issuance of the Series C Preferred Stock (the "Issue Date") at a Conversion
Price equal to the Stated Value of the shares being converted multiplied by
65.0% of the Market Price; provided, however, that the Holder shall not have the
right to convert any portion
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of the Series C Preferred Stock to the extent that the issuance to the Holder of
Common Shares upon such conversion would result in the Holder being deemed the
"beneficial owner" of 5% or more of the then outstanding Common Shares within
the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended. At
the Corporation's option, the amount of accrued and unpaid dividends as of the
Conversion Date shall not be subject to conversion but instead may be paid in
cash as of the Conversion Date; if the Corporation elects to convert the amount
of accrued and unpaid dividends at the Conversion Date into Common Stock, the
Common Stock issued to the Holder shall be valued at the Conversion Price.
Notwithstanding the previous sentence, in no event shall the Holder have the
right to convert that portion of the Series C Preferred Stock to the extent that
the issuance of Common Shares upon the conversion of such Series C Preferred
Stock, when combined with shares of Common Stock received upon other conversions
of Series C Preferred Stock by such Holder and any other holders of Series C
Preferred Stock, would exceed 19.99% of the Common Stock outstanding on the
Closing Date. Within ten (10) Business Days after the receipt of the Conversion
Notice which upon conversion would, when combined with shares of Common Stock
received upon other conversions of Series C Preferred Stock by such Holder and
any other holders of Series C Preferred Stock and Warrants, exceed 19.99% of the
Common Stock outstanding on the Closing Date, the Corporation shall redeem all
remaining outstanding shares of Series C Preferred Stock at one hundred
twenty-five percent (125%) of the Stated Value thereof, together with all
accrued and unpaid dividends thereon, in cash, to the date of redemption.
The number of shares of Common Stock due upon conversion of Series C
Preferred Stock shall be (i) the number of shares of Series C Preferred Stock to
be converted, multiplied by (ii) the Stated Value and divided by (iii) the
applicable Conversion Price.
Within two (2) Business Days of the occurrence of a Valuation Event,
the Corporation shall send notice (the "Valuation Event Notice") of such
occurrence to the Holder. Notwithstanding anything to the contrary contained
herein, if a Valuation Event occurs during any Valuation Period, a new Valuation
Period shall begin on the Trading Day immediately following the occurrence of
such Valuation Event and end on the Conversion Date; provided that, if a
Valuation Event occurs on the fifth (5th) day of any Valuation Period, then the
Conversion Price shall be the Current Market Price of the Common Shares on such
day; and provided, further, that the Holder may, in its discretion, postpone
such Conversion Date to a Trading Day which is no more than five (5) Trading
Days after the occurrence of the latest Valuation Event by delivering a
notification to the Corporation within two (2) Business Days of the receipt of
the Valuation Event Notice. In the event that the Holder deems the Valuation
Period to be other than the five (5) Trading Days immediately prior to the
Conversion Date, the Holder shall give written notice of such fact to the
Corporation in the related Conversion Notice at the time of conversion.
For purposes of this Section 6.1, a "Valuation Event" shall mean an
event in which the Corporation at any time during a Valuation Period takes any
of the following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution of its Capital Shares;
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(c) issues any additional Capital Shares (the "Additional Capital
Shares"), otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b)
above, at a price per share less, or for other consideration lower, than the
Current Market Price in effect immediately prior to such issuances, or without
consideration, except for issuances under employee benefit plans consistent with
those presently in effect and issuances under presently outstanding warrants,
options or convertible securities;
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable or
exercisable for Capital Shares and the consideration per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to the
terms of such convertible, exchangeable or exercisable securities shall be less
than the Current Market Price in effect immediately prior to such issuance;
(f) makes a distribution of its assets or evidences of indebtedness to
the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Corporation's assets (other than under the circumstances provided for
in the foregoing Sections 6.1(a) through 6.1(e)); or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Sections 6.1(a)
through 6.1(f) hereof, inclusive, which in the opinion of the Corporation's
Board of Directors, determined in good faith, would have a material adverse
effect upon the rights of the Holder at the time of a conversion of the
Preferred Stock.
SECTION 6.2 EXERCISE OF CONVERSION PRIVILEGE. (a) Conversion of the
Series C Preferred Stock may be exercised, in whole or in part, by the Holder by
telecopying an executed and completed notice of conversion in the form annexed
hereto as ANNEX I (the "Conversion Notice") to the Corporation. Each date on
which a Conversion Notice is telecopied to and received by the Corporation in
accordance with the provisions of this Section 6.2 shall constitute a Conversion
Date. The Corporation shall convert the Preferred Stock and issue the Common
Stock Issued at Conversion effective as of the Conversion Date. The Conversion
Notice also shall state the name or names (with addresses) of the persons who
are to become the holders of the Common Stock Issued at Conversion in connection
with such conversion. The Holder shall deliver the shares of Series C Preferred
Stock to the Corporation by express courier within thirty (30) days following
the date on which the telecopied Conversion Notice has been transmitted to the
Corporation. Upon surrender for conversion, the Preferred Stock shall be
accompanied by a proper assignment hereof to the Corporation or be endorsed in
blank. As promptly as practicable after the receipt of the Conversion Notice as
aforesaid, but in any event not more than five (5) Business Days after the
Corporation's receipt of such Conversion Notice, the Corporation shall (i) issue
the Common Stock issued at Conversion in accordance with the provisions of this
Article 6, and (ii) cause to be mailed for delivery by overnight courier to the
Holder (X) a certificate or certificate(s) representing the
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number of Common Shares to which the Holder is entitled by virtue of such
conversion, (Y) cash, as provided in Section 6.3, in respect of any fraction of
a Share issuable upon such conversion and (Z) cash in the amount of accrued and
unpaid dividends as of the Conversion Date. Such conversion shall be deemed to
have been effected at the time at which the Conversion Notice indicates so long
as the Preferred Stock shall have been surrendered as aforesaid at such time,
and at such time the rights of the Holder of the Preferred Stock, as such, shall
cease and the Person and Persons in whose name or names the Common Stock Issued
at Conversion shall be issuable shall be deemed to have become the holder or
holders of record of the Common Shares represented thereby. The Conversion
Notice shall constitute a contract between the Holder and the Corporation,
whereby the Holder shall be deemed to subscribe for the number of Common Shares
which it will be entitled to receive upon such conversion and, in payment and
satisfaction of such subscription (and for any cash adjustment to which it is
entitled pursuant to Section 6.4), to surrender the Preferred Stock and to
release the Corporation from all liability thereon. No cash payment aggregating
less than $1.50 shall be required to be given unless specifically requested by
the Holder.
(b) If, at any time (i) the Corporation challenges, disputes or denies
the right of the Holder hereof to effect the conversion of the Preferred Stock
into Common Shares or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with this Section 6.2 or (ii) any third party who is not
and has never been an Affiliate of the Holder commences any lawsuit or
proceeding or otherwise asserts any claim before any court or public or
governmental authority which seeks to challenge, deny, enjoin, limit, modify,
delay or dispute the right of the Holder hereof to effect the conversion of the
Preferred Stock into Common Shares, then the Holder shall have the right, by
written notice to the Corporation, to require the Corporation to promptly redeem
the Series C Preferred Stock for cash at a redemption price equal to one hundred
and thirty-five percent (135%) of the Stated Value thereof together with all
accrued and unpaid dividends thereon (the "Mandatory Purchase Amount"). Under
any of the circumstances set forth above, the Corporation shall be responsible
for the payment of all costs and expenses of the Holder, including reasonable
legal fees and expenses, as and when incurred in disputing any such action or
pursuing its rights hereunder (in addition to any other rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. ss. 101 et seq.
(the "Bankruptcy Code"). In the event the Corporation is a debtor under the
Bankruptcy Code, the Corporation hereby waives to the fullest extent permitted
any rights to relief it may have under 11 U.S.C. ss. 362 in respect of the
holder's conversion privilege. The Corporation hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. ss. 362 in
respect of the conversion of the Series C Preferred Stock. The Corporation
agrees, without cost or expense the Holder, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362.
SECTION 6.3 FRACTIONAL SHARES. No fractional Common Shares or scrip
representing fractional Common Shares shall be issued upon conversion of the
Series C Preferred Stock. Instead of any fractional Common Shares which
otherwise would be issuable upon conversion of the Series C Preferred Stock, the
Corporation shall pay a cash adjustment in respect of such fraction in an amount
equal to the same fraction. No cash payment of less than $1.50 shall be required
to be given unless specifically requested by the Holder.
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SECTION 6.4 RECLASSIFICATION, CONSOLIDATION, MERGER OR MANDATORY SHARE
EXCHANGE. At any time while the Series C Preferred Stock remains outstanding and
any shares thereof has not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of the Series C
Preferred Stock (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series C Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
value to no par value per share, or from no par value per share to par value, or
as a result of a subdivision or combination of Outstanding Common Shares upon
conversion of the Series C Preferred Stock), or in the case of any sale or
transfer to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the Corporation, or such successor,
resulting or purchasing corporation, as the case may be, shall, without payment
of any additional consideration therefor, execute a new Series C Preferred Stock
providing that the Holder shall have the right to convert such new Series C
Preferred Stock (upon terms and conditions not less favorable to the Holder than
those in effect pursuant to the Series C Preferred Stock) and to receive upon
such exercise, in lieu of each Common Share theretofore issuable upon conversion
of the Series C Preferred Stock, the kind and amount of shares of stock, other
securities, money or property receivable upon such reclassification, change,
consolidation, merger, mandatory share exchange, sale or transfer by the holder
of one Common Share issuable upon conversion of the Series C Preferred Stock had
the Series C Preferred Stock been converted immediately prior to such
reclassification, change, consolidation, merger, mandatory share exchange or
sale or transfer. The provisions of this Section 6.4 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, mandatory share
exchanges and sales and transfers.
SECTION 6.5 ADJUSTMENTS TO CONVERSION RATIO. For so long as any shares
of the Series C Preferred Stock are outstanding, if the Corporation (i) issues
and sells pursuant to an exemption from registration under the Securities Act
(A) Common Shares at a purchase price on the date of issuance thereof that is
lower than the Conversion Price, (B) warrants or options with an exercise price
representing a percentage of the Current Market Price with an exercise price on
the date of issuance of the warrants or options that is lower than the agreed
upon exercise price for the Holder, except for employee stock option agreements
or stock incentive agreements of the Corporation, or (C) convertible,
exchangeable or exercisable securities with a right to exchange at lower than
the Current Market Price on the date of issuance or conversion, as applicable,
of such convertible, exchangeable or exercisable securities, except for stock
option agreements or stock incentive agreements; and (ii) grants the right to
the purchaser(s) thereof to demand that the Corporation register under the
Securities Act such Common Shares issued or the Common Shares for which such
warrants or options may be exercised or such convertible, exchangeable or
exercisable securities may be converted, exercised or exchanged, then the
Conversion Ratio shall be reduced to equal the lowest of any such lower rates.
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SECTION 6.6 OPTIONAL REDEMPTION UNDER CERTAIN CIRCUMSTANCES. At anytime
after the date of issuance of the Series C Preferred Stock until the Mandatory
Conversion Date (as defined below), the Corporation, upon notice delivered to
the Holder as provided in Section 6.7, may redeem the Series C Preferred Stock
(but only with respect to such shares as to which the Holder has not theretofore
furnished a Conversion Notice in compliance with Section 6.2), at one hundred
and thirty-five percent (135%) of the Stated Value thereof (or if prior to the
date six months after the date of issuance of the Series C Preferred Stock at
one hundred and twenty percent (120%) of the Stated Value thereof) (the
"Optional Redemption Price"), together with all accrued and unpaid dividends
thereon to the date of redemption (the "Redemption Date"); provided, however,
that the Corporation may only redeem the Series C Preferred Stock under this
Section 6.6 if the Current Market Price is less than the Current Market Price on
the Closing Date. Except as set forth in this Section 6.6, the Corporation shall
not have the right to prepay or redeem the Series C Preferred Stock.
SECTION 6.7 NOTICE OF REDEMPTION. Notice of redemption pursuant to
Section 6.6 shall be provided by the Corporation to the Holder in writing (by
registered mail or overnight courier at the Holder's last address appearing in
the Corporation's security registry) not less than ten (10) nor more than
fifteen (15) days prior to the Redemption Date, which notice shall specify the
Redemption Date and refer to Section 6.6 (including, a statement of the Market
Price per Common Share) and this Section 6.7.
SECTION 6.8 SURRENDER OF PREFERRED STOCK. Upon any redemption of the
Series C Preferred Stock pursuant to Sections 6.6 or 6.9, the Holder shall
either deliver the Series C Preferred Stock by hand to the Corporation at its
principal executive offices or surrender the same to the Corporation at such
address by express courier. Payment of the Optional Redemption Price specified
in Section 6.6 shall be made by the Corporation to the Holder against receipt of
the Series C Preferred Stock (as provided in this Section 6.8) by wire transfer
of immediately available funds to such account(s) as the Holder shall specify to
the Corporation. If payment of such redemption price is not made in full by the
Mandatory Redemption Date or the Redemption Date, as the case may be, the Holder
shall again have the right to convert the Series C Preferred Stock as provided
in Article 6 hereof.
SECTION 6.9 MANDATORY CONVERSION. On the third anniversary of the date
of the Securities Purchase Agreement (the "Mandatory Conversion Date"), the
Corporation shall convert all Series C Preferred Stock outstanding at the
Conversion Price. Notwithstanding the previous sentence, in no event shall the
Corporation convert that portion of the Series C Preferred Stock to the extent
that the issuance of Common Shares upon the conversion of such Series C
Preferred Stock, when combined with shares of Common Stock received upon other
conversions of Series C Preferred Stock by such Holder and any other holders of
Series C Preferred Stock and Warrants, would exceed 19.99% of the Common Stock
outstanding on the Closing Date. Within ten (10) Business Days after the
Mandatory Conversion Date, the Corporation shall redeem all remaining
outstanding Series C Preferred Stock at one hundred and thirty-five percent
(135%) of the Stated Value thereof, together with all accrued and unpaid
dividends thereon, in cash, to the date of redemption.
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ARTICLE
VOTING RIGHTS
The holders of the Series C Preferred Stock have no voting power,
except as otherwise provided by the General Corporation Law of the State of
Delaware ("DGCL"), in this Article 7, and in Article 8 below.
Notwithstanding the above, the Corporation shall provide each holder
of Series C Preferred Stock with prior notification of any meeting of the
stockholders (and copies of proxy materials and other information sent to
stockholders). In the event of any taking by the Corporation of a record of its
stockholders for the purpose of determining stockholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least thirty (30) days prior to the consummation of the transaction
or event, whichever is earlier), of the date on which any such actin is to be
taken for the purpose of such dividend, distribution, right or other event, and
a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the holders of the
Series C Preferred Stock, voting separately as a class or series as applicable,
is required to authorize a given action of the Corporation, the affirmative vote
or consent of the holders of at least a majority of the shares of the Series C
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series C Preferred Stock
(except as otherwise may be required under the DGCL) shall constitute the
approval of such action by the class. Holders of the Series C Preferred Stock
shall be entitled to notice of all stockholder meetings or written consents (and
copies of proxy materials and other infirmation sent to stockholders) with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation's bylaws and the DGCL.
ARTICLE
PROTECTIVE PROVISIONS
So long as shares of Series C Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the holders of at least a majority of the
then outstanding shares of Series C Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series
C Preferred Stock;
(b) create any new class or series of capital stock having a preference
over the Series C Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation ("Senior Securities") or alter or
change the rights, preferences or privileges of any Senior Securities so as to
affect adversely the Series C Preferred Stock;
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<PAGE>
(c) increase the authorized number of shares of Series C Preferred
Stock; or
(d) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series C Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event holders of at least a majority of the then outstanding
shares of Series C Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series C Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series C Preferred
Stock, then the Corporation will deliver notice of such approved change to the
holders of the Series C Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) days to convert pursuant to the terms of this
Certificate of Designation as they exist prior to such alteration or change or
continue to hold their shares of Series C Preferred Stock.
ARTICLE
MISCELLANEOUS
SECTION 9.1 LOSS, THEFT, DESTRUCTION OF PREFERRED STOCK. Upon receipt
of evidence satisfactory to the Corporation of the loss, theft, destruction or
mutilation of shares of Series C Preferred Stock and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Corporation, or, in the case of any such mutilation, upon
surrender and cancellation of the Series C Preferred Stock, the Corporation
shall make, issue and deliver, in lieu of such lost, stolen, destroyed or
mutilated shares of Series C Preferred Stock, new shares of Series C Preferred
Stock of like tenor. The Series C Preferred Stock shall be held and owned upon
the express condition that the provisions of this Section 10.1 are exclusive
with respect to the replacement of mutilated, destroyed, lost or stolen shares
of Series C Preferred Stock and shall preclude any and all other rights and
remedies notwithstanding any law or statute existing or hereafter enacted to the
contrary with respect to the replacement of negotiable instruments or other
securities without the surrender thereof.
SECTION 9.2 WHO DEEMED ABSOLUTE OWNER. The Corporation may deem the
Person in whose name the Series C Preferred Stock shall be registered upon the
registry books of the Corporation to be, and may treat it as, the absolute owner
of the Series C Preferred Stock for the purpose of receiving payment of
dividends on the Series C Preferred Stock, for the conversion of the Series C
Preferred Stock and for all other purposes, and the Corporation shall not be
affected by any notice to the contrary. All such payments and such conversion
shall be valid and effectual to satisfy and discharge the liability upon the
Series C Preferred Stock to the extent of the sum or sums so paid or the
conversion so made.
SECTION 9.3 NOTICE OF CERTAIN EVENTS. In the case of the occurrence of
any event described in Sections 6.1, 6.6 or 6.9 of this Certificate of
Designations, the Corporation shall cause to be mailed to the Holder of the
Series C Preferred Stock at its last address as it appears in the Corporation's
security registry, at least twenty (20) days prior to the applicable record,
effective or expiration date hereinafter specified (or, if such twenty (20) days
notice is not possible, at the
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earliest possible date prior to any such record, effective or expiration date),
a notice stating (x) the date on which a record is to be taken for the purpose
of such dividend, distribution, issuance or granting of rights, options or
warrants, or if a record is not to be taken, the date as of which the holders of
record of Series C Preferred Stock to be entitled to such dividend,
distribution, issuance or granting of rights, options or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding-up is expected to
become effective, and the date as of which it is expected that holders of record
of Series C Preferred Stock will be entitled to exchange their shares for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale transfer, dissolution, liquidation or winding-up.
SECTION 9.4 REGISTER. The Corporation shall keep at its principal
office a register in which the Corporation shall provide for the registration of
the Series C Preferred Stock. Upon any transfer of the Series C Preferred Stock
in accordance with the provisions hereof, the Corporation shall register such
transfer on the Series C Preferred Stock register.
The Corporation may deem the person in whose name the Series C
Preferred Stock shall be registered upon the registry books of the Corporation
to be, and may treat it as, the absolute owner of the Series C Preferred Stock
for the purpose of receiving payment of dividends on the Series C Preferred
Stock, for the conversion of the Series C Preferred Stock and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary. All such payments and such conversions shall be valid and effective to
satisfy and discharge the liability upon the Series C Preferred Stock to the
extent of the sum or sums so paid or the conversion or conversions so made.
SECTION 9.5 WITHHOLDING. To the extent required by applicable law, the
Corporation may withhold amounts for or on account of any taxes imposed or
levied by or on behalf of any taxing authority in the United States having
jurisdiction over the Corporation from any payments made pursuant to the Series
C Preferred Stock.
SECTION 9.6 HEADINGS. The headings of the Articles and Sections of this
Certificate of Designations are inserted for convenience only and do not
constitute a part of this Certificate of Designations.
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[FORM OF CONVERSION NOTICE]
TO:_______________
_______________
_______________
The undersigned owner of this Series C 6% Convertible Preferred
Stock (the "Series C Preferred Stock") issued by Equitex, Inc. (the
"Corporation") hereby irrevocably exercises its option to convert __________
shares of the Series C Preferred Stock into shares of the common stock, $.02 par
value, of the Corporation ("Common Stock"), in accordance with the terms of the
Certificate of Designations. The undersigned hereby instructs the Corporation to
convert the number of shares of the Series C Preferred Stock specified above
into Shares of Common Stock Issued at Conversion in accordance with the
provisions of Article 6 of the Certificate of Designations. The undersigned
directs that the Common Stock issuable and certificates therefor deliverable
upon conversion, the Series C Preferred Stock recertificated, if any, not being
surrendered for conversion hereby, together with any check in payment for
fractional Common Stock, be issued in the name of and delivered to the
undersigned unless a different name has been indicated below. All capitalized
terms used and not defined herein have the respective meanings assigned to them
in the Certificate of Designations.
Dated:___________________
___________________________________________
Signature
Fill in for registration of Series C Preferred Stock:
Please print name and address
(including zip code number) :
________________________________________________________________________________
________________________________________________________________________________
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Exhibit 5.1
FRIEDLOB SANDERSON RASKIN
PAULSON & TOURTILLOTT, LLC
-------------------------
1400 Glenarm Place Denver, Colorado 80202-5099
(303) 571-1400 FAX (303) 595-3970
March 22, 1999
Equitex, Inc.
7315 East Peakview Avenue
Englewood, Colorado 80111
Re: Registration Statement on Form S-3
Opinion of Counsel
Gentlemen:
As counsel for Equitex, Inc., a Delaware corporation (the
"Corporation"), we have examined the Certificate of Incorporation, as amended,
the Bylaws and minutes of the Corporation and such other corporate records,
documents, certificates and other instruments as, in our judgment, we deemed
relevant for the purposes of this opinion. We have also, as such counsel,
examined the Registration Statement on Form S-3, Securities and Exchange
Commission File No. 333-_____, as amended to date (the "Registration
Statement"), covering the resale by certain selling securityholders named in the
Registration Statement (the "selling securityholders") of shares of the
Corporation's Common Stock, par value $.02 per share (the "Common Stock")
included in the Registration Statement and shares of Common Stock which may be
issued to the selling securityholders upon the exercise of outstanding warrants
or the conversion of outstanding convertible preferred stock (the "Underlying
Shares").
Based upon the foregoing, we are of the opinion that (i) the Common
Stock to be sold by the selling securityholders constitutes legally issued,
fully paid and nonassessable shares of Common Stock, (ii) the Underlying Shares,
upon exercise or conversion according to the terms of the respective warrant
agreement or certificate of designations, rights and preferences for the
convertible preferred stock, and payment of the applicable exercise price in the
case of warrants, will be legally issued, fully paid and nonassessable shares of
Common Stock.
We know that we are referred to under the caption "Legal Matters"
included in the Prospectus forming a part of the Registration Statement. We
hereby consent to such use of our name in the Registration Statement and to the
filing of this opinion as Exhibit 5.1 thereto. In giving this consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the Rules
and Regulations of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
/s/ Friedlob Sanderson Raskin
Paulson & Tourtillott
Exhibit 23.2
CONSENT OF DAVIS & CO., CPAs, P.C.
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Equitex, Inc.
Englewood, Colorado
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement, of our report dated March
27, 1998, relating to the consolidated financial statements of Equitex, Inc. and
its subsidiaries appearing in Equitex's Annual Report on Form 10-KSB for its
fiscal year ended December 31, 1997 and to the reference to our Firm under the
heading "Experts" in the Prospectus.
DAVIS & CO., CPAs, P.C.
/s/ Davis & Co., CPAs, P.C.
Englewood, Colorado
March 22, 1999
