SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or
15(d) of The Securities Act of 1934
Date of Report (Date of earliest event reported):
September 7, 1999 (August 23, 1999)
EQUITEX, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-12374 84-0905189
- --------------------------------------------------------------------------------
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
7315 East Peakview Avenue
Englewood, Colorado 80111
--------------------------------------------------
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (303) 796-8940
-------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On August 23, 1999, Registrant completed an acquisition of First
Bankers Mortgage Services, Inc. ("FBMS"). FBMS, a Florida corporation, is a full
service Mortgage Banking company headquartered in the Fort Lauderdale, Florida
area.
The Registrant acquired all of the outstanding common stock of FBMS
from its sole shareholder, Vincent Muratore. The total aggregate purchase price
for FBMS, subject to FBMS meeting certain performance standards, is up to 1,000
shares of the Registrant's Series E Convertible Preferred Stock ("Series E
Preferred Stock"). In addition, the purchase price is subject to post-closing
adjustments pursuant to the Agreement and Plan of Reorganization, dated June 22,
1999, among, Equitex, Inc., First Bankers Mortgage Services, Inc., Vincent
Muratore and FBMS Acquisition Corp, as amended. The purchase price was
determined through arm's length negotiations.
The stated value of the Series E Preferred Stock is $1,000 per share.
The Series E Preferred Stock does not have dividend or voting rights, nor does
the Series E Preferred Stock have liquidation preferences greater than shares of
Equitex, Inc. common stock. Upon approval by the Registrant's shareholders of an
increase in the authorized shares of common stock from 7,500,000 shares to
50,000,000 shares, each share of Series E Preferred Stock will automatically
convert into 1,000 shares of Equitex, Inc. common stock.
The Registrant will continue the mortgage banking operations of FBMS.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Financial Statements for First Bankers Mortgage Services, Inc., as
described in Item 2, above, will be filed by amendment to this Form
8-K.
(b) Pro-forma financial information.
Pro-forma financial information reflecting the effect of the merger as
described in Item 2, above, will be filed by amendment to this Form
8-K.
(c) Exhibits.
2.1 Agreement and Plan of Reorganization, dated June 22, 1999,
among, Equitex, Inc., First Bankers Mortgage Services, Inc.,
Vincent Muratore and FBMS Acquisition Corp. (FILED HEREWITH.)
-2-
<PAGE>
2.2 First Addendum to the Agreement and Plan of Reorganization,
dated August 4, 1999, among, Equitex, Inc., First Bankers
Mortgage Services, Inc., Vincent Muratore and FBMS Acquisition
Corp. (FILED HEREWITH.)
2.3 Second Addendum to the Agreement and Plan of Reorganization,
dated August 20, 1999, among, Equitex, Inc., First Bankers
Mortgage Services, Inc., Vincent Muratore and FBMS Acquisition
Corp. (FILED HEREWITH.)
4 Certificate of Designations of Equitex, Inc. Series E
Convertible Preferred Stock Pursuant to Section 151 of the
Delaware General Corporation Law (FILED HEREWITH.)
-3-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EQUITEX, INC.
By: /s/ Thomas B. Olson
--------------------------------
Date: September 7, 1999 Thomas B. Olson, Secretary
-4-
AGREEMENT
AND
PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as
of the 22d. day of June, 1999, among Equitex, Inc., a Delaware corporation
("Equitex"); First Bankers Mortgage Services, Inc., a Florida corporation
("FBMS"); Vincent L. Muratore, an individual and the sole shareholder of FBMS
(the "Shareholder"); and FBMS Acquisition Corp., a Delaware corporation (the
"Merger Subsidiary"), which is wholly owned by Equitex.
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Equitex and FBMS each
have determined that it is in the best interests of their respective
stockholders to effect a reorganization whereby the Merger Subsidiary will be
merged by statutory merger with and into FBMS upon the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and certain other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto covenant and
agree as follows:
ARTICLE 1
BASIC PLAN OF REORGANIZATION
1.1 MERGER. In accordance with the provisions of the business
corporation laws of the States of Delaware and Florida at the Effective Date (as
hereinafter defined), the Merger Subsidiary shall be merged with and into FBMS
(the "Merger"), within ten business days following the satisfaction or waiver,
if permissible, of the conditions set forth in Articles 7 and 8 of this
Agreement or on such other date as may be agreed to by the parties (the "Closing
Date"). Following the Merger, FBMS shall continue as the surviving corporation
(the "Surviving Corporation") and shall continue to be governed by the laws of
the State of Florida.
1.2 CONTINUING OF CORPORATE EXISTENCE. Except as may otherwise be set
forth herein, the corporate existence and identity of FBMS, with all its
purposes, powers, franchises, privileges, rights and immunities, shall continue
unaffected and unimpaired by the Merger, and the corporate existence and
identity of Merger Subsidiary, with all its purposes, powers, franchises,
privileges, rights and immunities, at the Effective Date shall be merged with
and into that of FBMS, and the Surviving Corporation shall be vested fully
therewith and the separate corporate existence and identity of the Merger
Subsidiary shall thereafter cease except to the extent continued by statute.
-1-
<PAGE>
1.3 EFFECTIVE DATE. The Merger shall become effective upon the filing
of the Certificate of Merger with the Secretaries of State of the States of
Delaware and Florida pursuant to the provisions of the Delaware Business
Corporation Act (the "DGCL") and the Florida Business Corporation Act (the
"FBCA"). The date and time when the Merger shall become effective is hereinafter
referred to as the "Effective Date."
1.4 CORPORATE GOVERNMENT OF THE SURVIVING CORPORATION.
(a) The Certificate of Incorporation of FBMS, as in effect on
the Effective Date, shall continue in full force and effect and shall
be the Certificate of Incorporation of the Surviving Corporation.
(b) The Bylaws of FBMS, as in effect as of the Effective Date,
shall continue in full force and effect and shall be the Bylaws of the
Surviving Corporation.
(c) The members of the Board of Directors of the Surviving
Corporation shall be the persons holding such office in FBMS as of the
Effective Date.
(d) The officers of the Surviving Corporation shall be the
persons holding such offices in FBMS as of the Effective Date.
1.5 CLOSING. Consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Friedlob Sanderson
Raskin Paulson & Tourtillott, LLC in Denver, Colorado, commencing at 10:00 a.m.,
Mountain Time, as soon as practicable after the last to be fulfilled or waived
of the conditions set forth in Articles 7 and 8 or at such other place, time and
date as shall be fixed by mutual agreement between Equitex and FBMS.
Notwithstanding the foregoing, the Closing shall occur on or before September
15, 1999, unless the date is extended by mutual agreement of Equitex and FBMS,
provided that Equitex shall have the right to extend the Closing Date by not
more that 30 days after September 15, 1999 if Equitex is: (i) waiting for
clearance from the Securities and Exchange Commission with respect to the proxy
statement for the special meeting of Equitex shareholders contemplated by
Section 6.9, below, or (ii) to comply with the notice and mailing requirements
for the aforementioned shareholder meeting. The day on which the Closing shall
occur is referred to herein as the "Closing Date." Each party will cause to be
prepared, executed and delivered the Certificate of Merger to be filed with the
Secretary of State of Delaware and the Secretary of State of Florida and all
other appropriate and customary documents as any party or its counsel may
reasonably request for the purpose of consummating the transactions contemplated
by this Agreement. All actions taken at the Closing shall be deemed to have been
taken simultaneously at the time the last of any such actions is taken or
completed.
-2-
<PAGE>
1.6 TAX CONSEQUENCES. It is intended that the Merger shall constitute a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Internal Revenue Code of 1986, as amended (the "Code"), and that this
Agreement shall constitute a "plan of reorganization" for the purposes of
Section 368 of the Code.
ARTICLE 2
CONVERSION OF SHARES
2.1 CONVERSION OF SHARES. At the Effective Date, by virtue of the
Merger and without any action on the part of the holder thereof:
(a) All shares of FBMS Common Stock, par value $.01 per share
(the "FBMS Common Stock") outstanding immediately prior to the
Effective Date will be converted into and represent the right to
receive, in the aggregate, 1,000,000 shares of Equitex common stock,
par value $.02 per share (the "Equitex Common Stock"). The shares of
Equitex Common Stock issued pursuant to this Section 2.1(a) shall be
referred to as the "Merger Consideration."
(b) Each share of common stock, $.01 par value, of the Merger
Subsidiary which shall be outstanding immediately prior to the
Effective Date shall at the Effective Date, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into
one share of newly issued FBMS Common Stock. The shares of FBMS Common
Stock issued pursuant to this Section 2.1(b) shall be validly issued,
fully paid and non-assessable.
2.2 CONVERTIBLE SECURITIES. Except as set forth on Schedule 2.2, there
are no options, warrants, preferred stock or convertible securities outstanding
entitling the holder thereof to purchase FBMS Common Stock.
2.3 EXCHANGE OF FBMS COMMON STOCK.
(a) At Closing, the Shareholder shall deliver to Equitex all
outstanding shares of FBMS Common Stock endorsed in blank or
accompanied by stock powers executed in blank, all signatures
guaranteed by a national bank and with all necessary transfer tax or
revenue stamps required at the Shareholder's expense affixed (the
"Certificates"). Equitex, in turn, will deliver certificates
representing an aggregate of 1,000,000 shares of Equitex Common Stock
to which the holders of FBMS Common Stock are entitled to pursuant to
Section 2.1, as follows: (i) certificates representing 750,000 shares
of Equitex Common Stock to the holders of the FBMS Common Stock, and
(ii) certificates representing 250,000 shares of Equitex Common Stock
to the "Escrow Agent," as defined and in accordance with the terms
-3-
<PAGE>
of the Escrow Agreement attached hereto as Exhibit A (the "Escrow
Agreement"). All Certificates so delivered shall forthwith be canceled.
(b) Equitex shall pay any transfer or other taxes required by
reason of the issuance of a certificate representing shares of Equitex
Common Stock; provided, however, that such certificate is issued in the
name of the person in whose name the Certificate surrendered in
exchange therefor is registered. If any portion of the consideration to
be received pursuant to this Article 2 upon exchange of a Certificate
is to be issued or paid to a person other than the person in whose name
the Certificate surrendered in exchange therefor is registered, it
shall be a condition of such issuance and payment that the Certificate
so surrendered shall be properly endorsed or otherwise in proper form
for transfer and that the person requesting such exchange shall pay in
advance any transfer or other taxes or transfer fee required by reason
of the issuance of a certificate representing shares of Equitex Common
Stock to such other person, or establish to the satisfaction of the
Equitex that such tax has been paid or that no such tax is applicable.
(c) In the case of any lost, mislaid, stolen or destroyed
Certificates, the holder thereof may be required, as a condition
precedent to the delivery to such holder of the consideration described
in this Article 2, to deliver to Equitex a bond, in such reasonable sum
as Equitex may direct, or other form of indemnity satisfactory to
Equitex, as indemnity against any claim that may be made against
Equitex or the Surviving Corporation with respect to the Certificate
alleged to have been lost, mislaid, stolen or destroyed.
(d) After the Effective Date, there shall be no transfers on
the stock transfer books of FBMS of the shares of FBMS Common Stock
that were outstanding immediately prior to the Effective Date. If,
after the Effective Date, Certificates are presented to FBMS for
transfer, they shall be canceled and exchanged for the consideration
described in this Article 2.
2.4 ADJUSTMENT. If, between the date of this Agreement and the Closing
Date or the Effective Date, as the case may be, the outstanding shares of FBMS
Common Stock or Equitex Common Stock shall have been changed into a different
number of shares or a different class by reason of any classification,
recapitalization, split-up, combination, exchange of shares, or readjustment or
a stock dividend thereon shall be declared with a record date within such
period, then the consideration to be received pursuant to Section 2.1 hereof by
the holders of shares of FBMS Common Stock shall be adjusted to accurately
reflect such change.
2.5 STATUS OF EQUITEX SECURITIES. The shares of Equitex Common Stock
being issued in the Merger (the "Securities") are and will be "restricted
securities" as defined in Rule 144 (the "Rule") under the Securities Act of
1933, as amended (the "Securities Act") and (unless registered for resale or
some other exemption from registration is available) the Securities must be held
for a
-4-
<PAGE>
minimum of one year following the Merger, and thereafter may be sold in only
limited amounts in a specified manner in accordance with the terms and
conditions of the Rule, if the Rule is applicable (there being no representation
by Equitex that it will be applicable). In case the Rule is not applicable, any
sales may be made only pursuant to an effective registration statement or an
available exemption from registration. Equitex will cause its stock transfer
agent to reflect such restrictions in Equitex's stock transfer books and to
place an appropriate restrictive legend or legend on any certificates evidencing
the Securities and any certificates issued in replacement or exchange therefor.
2.6 REGISTRATION OF EQUITEX COMMON STOCK. Equitex will register for
resale the shares of Equitex Common Stock issued as Merger Consideration or as
Protection Shares pursuant to Section 10.1, in accordance with the terms of the
Registration Rights Agreement attached hereto as Exhibit B.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF FBMS AND THE SHAREHOLDER
FBMS and the Shareholder represent and warrant to Equitex that the
statements contained in Article 3 are true and correct in all material respects,
except as set forth in the schedules attached hereto. As used in this Article 3
and elsewhere in this Agreement, the phrases "to FBMS' knowledge" or "to FBMS'
actual knowledge" shall mean to the knowledge of the officer of FBMS who has the
principal responsibility for the matter being stated.
3.1 ORGANIZATION AND GOOD STANDING OF FBMS. FBMS is a corporation duly
organized, validly existing and in good standing under the laws of Florida.
3.2 FOREIGN QUALIFICATION. FBMS is duly qualified or licensed to do
business and is in good standing as a foreign corporation in every jurisdiction
where the failure so to qualify would have a material adverse effect on (a) the
business, operation, assets or financial condition of FBMS or (b) the validity
or enforceability of, or the ability of FBMS to perform its obligations under,
this Agreement. A list of all jurisdictions in which FBMS conducts business is
attached hereto as Schedule 3.2.
3.3 COMPANY POWER AND AUTHORITY. FBMS has the corporate or company
power and authority to own, lease and operate its properties and assets and to
carry on its business as currently being conducted. FBMS has furnished or will
furnish Equitex with true and correct copies of its (i) Articles of
Incorporation, as amended, certified by the Florida Secretary of State as of a
current date, and (ii) by-laws, as amended, certified by the Secretary of FBMS
as being in full force and effect.
-5-
<PAGE>
3.4 FBMS SUBSIDIARIES. Schedule 3.4 sets for the complete and correct
list of all FBMS Subsidiaries as of the date hereof (individually a "FBMS
Subsidiary" and collectively the "FBMS Subsidiaries"). FBMS owns directly all
outstanding shares of capital stock of each FBMS Subsidiary. All shares of each
FBMS Subsidiary are paid and non-assessable and, except as set forth on Schedule
3.4, are all free and clear of any lien, claim, charge, option, encumbrance or
agreement with respect thereto. Each FBMS Subsidiary is a corporation, duly
organized, validly existed, duly qualified to do business and a good standing
under the laws of which jurisdiction of a corporation, and has corporate power
and authority to own or lease its properties and assets to carry on its business
as it is now being conducted. Each FBMS Subsidiary is duly qualified or licensed
to do business and is in good standing as a foreign corporation in every
jurisdiction with a failure to so qualify could have a material adverse effect
on the business, operation, assets or financial condition of the FBMS
Subsidiary. Except as set forth on Schedule 3.4, FBMS does not own beneficially,
directly or indirectly, more than 5% of any class of equity securities or
similar interests of any corporation, bank, business trust, association, limited
liability company or similar organization, and is not, directly or indirectly, a
partner in any partnership, or joint venture.
3.5 AUTHORIZATION. FBMS has the corporate power and authority to
execute and deliver this Agreement and, subject to the approval of this
Agreement and the Merger by its stockholders, to perform its obligations under
this Agreement and to consummate the Merger. The execution, delivery and
performance by FBMS of this Agreement has been duly authorized by all necessary
corporate action. Subject to such approval of stockholders and of government
agencies and other government boards having regulatory authority over FBMS as
may be required by statute or regulation, this Agreement is the legal, valid and
binding obligation of FBMS enforceable in accordance with its terms.
3.6 ABSENCE OF RESTRICTIONS AND CONFLICTS. The execution, delivery and
performance of this Agreement and the consummation of the Merger and the
fulfillment of and compliance with the terms and conditions of this Agreement do
not and will not, with the passing of time or the giving of notice or both,
violate or conflict with, constitute a breach of or default under, result in the
loss of any material benefit under, or permit the acceleration of any obligation
under, (i) any term or provision of the Certificate of Incorporation or Bylaws
of FBMS or any FBMS Subsidiary, (ii) any "Material Contract" (as defined in
Section 3.13), (iii) any judgment, decree or order of any court or governmental
authority or agency to which FBMS or any FBMS Subsidiary is a party or by which
FBMS or any FBMS Subsidiary or any of their properties is bound, or (iv) any
statute, law, regulation or rule applicable to FBMS. Except for the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
and the Secretary of State of the State of Florida, compliance with the
applicable requirements of the FBCA, Securities Act, Securities Exchange Act of
1934, as amended (the "Exchange Act"), and applicable state securities and
banking laws, no consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental agency or public or regulatory
unit, agency, body or authority with respect to FBMS
-6-
<PAGE>
or any FBMS Subsidiary is required in connection with the execution, delivery or
performance of this Agreement by FBMS or the consummation of the transactions
contemplated hereby.
3.7 CAPITALIZATION OF FBMS.
(a) The authorized capital stock of FBMS consists of (i)
10,000,000 shares of FBMS Common Stock, $.01 par value per share; (ii)
1,000,000 shares of preferred stock, par value $10.00 per share ("FBMS
Preferred Stock.") As of the date hereof, there were (i) 3,000,000
shares of FBMS Common Stock issued and outstanding and no shares of
FBMS Common Stock reserved for issuance upon the exercise of options,
warrants or convertible securities; and (ii) 286,000 shares of FBMS
Preferred Stock outstanding.
(b) All of the issued and outstanding shares of FBMS Common
Stock and FBMS Preferred Stock have been duly authorized and validly
issued, and are fully paid, nonassessable and free of preemptive
rights. FBMS has taken all necessary corporate action and made all
filings with with the Florida Secretary of State as required under the
FBCA with respect to the outstanding shares of FBMS Preferred Stock.
(c) There are no voting trusts, stockholder agreements or
other voting arrangements between or among the stockholders of FBMS.
(d) Except as set forth in Schedule 2.2, no equity security of
FBMS or any FBMS Subsidiary is or may be required to be issued by
reason of any option, warrant, scrip, preemptive right, right to
subscribe to, call or commitment of any character whatsoever relating
to, or security or right convertible into, any shares of capital stock
of such subsidiary, and there are no contracts, commitments,
understandings or arrangements by which FBMS or any FBMS Subsidiary is
bound to issue additional shares of its capital stock, or any option
warrant or right to purchase or acquire any additional shares of its
capital stock.
(e) Since December 31, 1998, no shares of capital stock have
been purchased, redeemed or otherwise required, directly or indirectly,
by FBMS or any FBMS Subsidiary and no dividends or other distributions
have been declared, set aside, made or paid to the shareholders of
FBMS.
3.8 FBMS INFORMATION. FBMS has made or will make available to Equitex
and the Merger Subsidiary all information that FBMS has available (including all
tax returns, financial statements given to any other person, contracts, payroll
schedules, financial books and records), and all other information concerning
FBMS or any FBMS Subsidiary its business, its customers, its management, and its
financial condition which Equitex may have requested (all such information being
referred to herein as the "FBMS Information"). As of their respective dates, the
FBMS Information did not contain any untrue statement of a material fact or omit
to state a material fact
-7-
<PAGE>
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
3.9 FINANCIAL STATEMENTS AND RECORDS OF FBMS. FBMS has made available
and will provide to Equitex and the Merger Subsidiary true, correct and complete
copies of the following financial statements (the "FBMS Financial Statements")
(i) audited consolidated balance sheets of FBMS as of December 31, 1998 and 1997
and related audited consolidated statements of income, shareholders' equity and
cash flows for the two years ended December 31, 1998, together with the notes
thereto (the "FBMS Year-End Statements"); (ii) unaudited consolidated balance
sheets of FBMS and related consolidated statements of income, shareholders'
equity and cash flows as of and for the quarter ended March 31, 1999 and as soon
as they are available, for each quarter ended prior to Closing (the "FBMS
Quarterly Statements"). The FBMS Year-End Statements and FBMS Quarterly
Statements have been and will be prepared from, and are in accordance with, the
books and records of FBMS and present or will present fairly, in all material
respects, the financial position of FBMS as of the dates thereof and the results
of operations and cash flows thereof for the periods then ended, in each case in
conformity generally accepted accounting principals ("GAAP"), consistently
applied, except as noted therein. Since January 1, 1999, there has been no
change in accounting principles applied to, or methods of accounting utilized
by, FBMS, except as noted in the FBMS Financial Statements. The books and
records of FBMS have been and are being maintained in accordance with good
business practice, reflect only valid transactions, are complete and correct in
all material respects and present fairly in all material respects the basis for
the financial position and results of operations of FBMS as set forth on the
FBMS Year Statement and FBMS Quarterly Statements.
3.10 REPORTS. Since December 31, 1994, FBMS and each FBMS Subsidiary
has filed all reports, registrations and statements, together with any required
amendments thereto, that it was required to file with (i) the United States
Department of Housing and Urban Development ("HUD"), (ii) the Federal Home Loan
Mortgage Corporation ("FHLMC"), (iii) the Government National Mortgage
Association ("GNMA"), (iv) the Federal National Mortgage Association ("FNMA"),
(v) the Veterans' Administration ("VA"), (vi) the Federal Reserve Board, and
(vii) any applicable state securities or banking authorities. All such reports
and statements filed with any such regulatory body or authority are collectively
referred to herein as the "FBMS Reports." As of their respective dates, the FBMS
Reports complied in all material respects with the rules and regulations
promulgated by the SEC, HUD, FHLMC, GNMA, FNMA, VA, the Federal Reserve Board,
and applicable state securities or banking authorities, as the case may be, and
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. True, correct and complete copies of all the FBMS Reports have
been made available to Equitex by FBMS.
-8-
<PAGE>
3.11 ABSENCE OF CERTAIN CHANGES. Since January 1, 1999, neither FBMS
nor any FBMS Subsidiary has, except as otherwise set forth in the FBMS
Information or the FBMS Financial Statements:
(a) suffered any adverse change in its business, operation,
assets, or financial condition, except for such changes that would not
result in a material adverse effect on the business, operation, assets,
or financial condition;
(b) suffered any material damage, destruction, loss or
forfeiture of its assets, whether or not covered by insurance, which
property or assets are material to its operations or business;
(c) settled, forgiven, compromised, canceled, released, waived
or permitted to lapse any material rights or claims other than in the
ordinary course of business;
(d) entered into or terminated any Material Contract or agreed
or made any changes in any Material Contract, other than renewals or
extensions thereof and leases, agreements, transactions and commitments
entered into or terminated in the ordinary course of business;
(e) entered into any transaction, other than at arms-length in
the ordinary course of business, between FBMS and any shareholder,
director, officer or affiliated of FBMS or any affiliate of any such
officer, director or shareholder;
(f) made any material change in the accounting policy,
procedure or practice employed with respect to FBMS;
(g) sold any of the assets of FBMS, other than sales of loans
in the ordinary course of business;
(h) paid or incurred any capital expenditures, other than
capital expenditures incurred in the ordinary course of business which
does not exceed $10,000 (any single item or group of related items);
(i) written up, written down or written off the book value of
any material amount of assets other than in the ordinary course of
business;
(j) declared, paid or set aside for payment any dividend or
distribution with respect to its capital stock;
-9-
<PAGE>
(k) other than as described in Schedule 3.11(k), redeemed,
purchased or otherwise acquired, or sold, granted or otherwise disposed
of, directly or indirectly, any of its capital stock or securities or
any rights to acquire such capital stock or securities, or agreed to
changes in the terms and conditions of any such rights outstanding as
of the date of this Agreement;
(l) increased the compensation of or paid any bonuses to any
employees or contributed to any employee benefit plan, other than in
accordance with established policies, practices or requirements and as
provided in Section 6.1 hereof;
(m) other than as described in Schedule 3.20, entered into any
employment, consulting or compensation agreement with any person or
group;
(n) entered into any collective bargaining agreement with any
person or group;
(o) entered into, adopted or amended any employee benefit
plan; or
(p) entered into any agreement to do any of the foregoing.
3.12 NO MATERIAL UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of FBMS or any FBMS Subsidiary of any nature, whether absolute,
accrued, contingent, or otherwise, other than:
(a) the liabilities and obligations that are reflected,
accrued or reserved against on the FBMS Financial Statements, or
referred to in the footnotes thereto, or incurred in the ordinary
course of business and consistent with past practices since December
31, 1998; or
(b) liabilities and obligations which in the aggregate would
not have a material adverse effect on the business, operation, assets
or financial condition of FBMS or any FBMS Subsidiary (a "FBMS Material
Adverse Effect").
3.13 TAX RETURNS; TAXES. FBMS and each FBMS Subsidiary has filed all
federal, state, county, local, and foreign tax returns, including information
returns, required to be filed by it, and paid all taxes owed by it, including
those with respect to income, withholding, social security, unemployment,
workers' compensation, franchise, ad valorem, premium, excise and sales taxes,
and no taxes shown on such returns to be owed by it or assessments received by
it are delinquent. Federal income tax returns of FBMS and each FBMS Subsidiary
for the fiscal year ended December 31, 1995, and for all fiscal years prior
thereto, are for the purposes of routine audit by the Internal Revenue Service
closed because of the statute of limitations, and no claims for additional taxes
for such fiscal years are pending. Neither FBMS nor any FBMS Subsidiary is not a
party to any pending action or proceeding, nor, to FBMS' or the Shareholder's
knowledge, is any such action or
-10-
<PAGE>
proceeding threatened by any governmental authority, for the assessment or
collection of taxes, interest, penalties, assessments or deficiencies and no
issue has been raised by any federal, state, local or foreign taxing authority
in connection with any audit or examination of the tax returns, business or
properties of FBMS or any FBMS Subsidiary which has not been settled, resolved
and fully satisfied. Except for amounts not yet due and payable, FBMS and each
FBMS Subsidiary has paid all taxes owed or which it is required to withhold from
amounts owing to employees, creditors or other third parties. The balance sheet
as of December 31, 1998, referred to in Section 3.9, includes adequate provision
for all accrued but unpaid federal, state, county, local and foreign taxes,
interests, penalties, assessments or deficiencies of FBMS with respect to all
periods through the date thereof.
3.14 MATERIAL CONTRACTS. FBMS has furnished or made available to
Equitex accurate and complete copies of the Material Contracts (as defined
herein) applicable to FBMS and each FBMS Subsidiary . Except as set forth on
Schedule 3.14, there is not under any of the Material Contracts any existing
breach, default or event of default by FBMS or any FBMS Subsidiary nor any event
that with notice or lapse of time or both would constitute a breach, default or
event of default by FBMS or any FBMS Subsidiary other than breaches, defaults or
events of default which would not have nor does FBMS know of, and FBMS has not
received notice of, or made a claim with respect to, any breach or default by
any other party thereto which would, severally or in the aggregate, have a FBMS
Material Adverse Effect. As used herein, the term "Material Contracts" shall
mean (i) all strategic alliance contracts and agreements; (ii) all agreements to
pay percentages or profits, revenue or volume of loans originated, brokered or
assigned; and (iii) all other contracts and agreements providing for
expenditures or commitments by FBMS or any FBMS Subsidiary in excess of $10,000
over more than a 12-month period all as set forth on Schedule 3.14 (which
Schedule contains true and accurate information regarding the nature and status
of such contracts and agreements).
3.15 LITIGATION AND GOVERNMENT CLAIMS. Except as set forth on Schedule
3.15, there is no pending suit, claim, action or litigation, or administrative,
arbitration or other proceeding or governmental investigation or inquiry against
FBMS or any FBMS Subsidiary to which its business or assets are subject which
would, severally or in the aggregate, reasonably be expected to result in a FBMS
Material Adverse Effect nor have any such proceedings been threatened or
contemplated. Neither FBMS nor any FBMS Subsidiary is subject to any judgment,
decree, injunction, rule or order of any court, or, to the knowledge of FBMS or
the Shareholder, any governmental restriction applicable to FBMS or any FBMS
Subsidiary which is reasonably likely (i) to have a FBMS Material Adverse Effect
or (ii) to cause a material limitation on Equitex's ability to operate the
business of FBMS or any FBMS Subsidiary (as it is currently operated) after the
Closing.
3.16 COMPLIANCE WITH LAWS. FBMS and each FBMS Subsidiary has complied
with all applicable laws, rules, regulations, ordinances and codes, whether
federal, state, local or foreign and, including, without limitation, all laws
and regulations relating to occupational health and safety, equal employment
opportunities, fair employment practices, and sex, race, religious, age, and
other
-11-
<PAGE>
prohibited discrimination, all other labor laws, including, without limitation,
the Family and Medical Leave Act, and all licensure, disclosure, usury and other
consumer credit laws and regulations governing residential mortgage, lending and
brokering, including, but not limited, all applicable rules, regulations,
standards and guidelines promulgated by HUD, FHLMC, GNMA, FNMA, VA, and the
Board of Governors of the Federal Reserve System, the state agencies and all
applicable provisions of the Real Estate Settlement Procedures Act of 1974, the
Flood Protection Insurance Act, the Consumer Protection Act, the Truth and
Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act,
all as amended from time to time, and all regulations promulgated thereunder
(the foregoing statutes and laws called "Consumer Credit Law") and, except for
correspondence received in connection with any regulatory approvals required for
the transactions contemplated hereby, copies of which have been delivered to
Equitex, no notice or correspondence (whether regarding litigation, regulatory
action or otherwise) has been received by FBMS or any FBMS Subsidiary from or on
behalf of consumers which is likely to have a FBMS Material Adverse Effect or
notice from any regulatory agency in which such regulatory agency has alleged
noncompliance with any Consumer Credit Law or other applicable law. FBMS and
each FBMS Subsidiary has complied with all applicable appraisal and accounting
standards.
3.17 POLICIES AND PROCEDURES. FBMS has provided Equitex with all of its
standard consumer forms, including all form disclosures and notices, brokers
agreements, notes, mortgages, notes and instruments agreements used in the
operation of its business (the "Consumer Forms"). FBMS has provided Equitex with
a copy of its internal practices and procedures and FBMS and its employees have
complied and are in compliance with such practices and procedures in all
material respects. All such practices and procedures and all Consumer Forms
comply in all material respects with (i) Consumer Credit Law, as required in the
states in which FBMS or any FBMS Subsidiary is conducting its business, and (ii)
any standards imposed by HUD, FHLMC, GNMA, FNMA and VA, to the extent
applicable, and any other applicable law or regulation.
3.18 LICENSES AND PERMITS. FBMS and each FBMS Subsidiary has obtained
all licenses, permits, qualifications, franchises and other governmental
authorizations and approvals, including, without limitation, all state mortgage
brokers and mortgage bankers licenses and, as applicable, approvals by HUD,
FHLMC, GNMA, FNMA and VA, required in order for it to conduct its business as
presently conducted, all of which are listed on Schedule 3.18 hereto. All of
such licenses, permits, qualifications, franchises and other authorizations are
in full force and effect and will remain in full force and effect immediately
after the Closing and shall not be violated by or effected, impaired or acquire
any further action to remain effective as a result of the Closing. No violation
exists in respect of any such license, permit, qualification, franchise,
authorization or approval. No proceeding is pending, or to the knowledge of FBMS
or the Shareholder, threatened to revoke or limit any such license, permit,
qualification, franchise, authorization or approval.
-12-
<PAGE>
3.19 EMPLOYEE BENEFIT PLANS.
(a) Schedule 3.19 contains an accurate and complete list of
all Employee Benefit Plans, contributed to, maintained or sponsored by
FBMS or any FBMS Subsidiary, to which FBMS or any FBMS Subsidiary is
obligated to contribute or with respect to which FBMS or any FBMS
Subsidiary has any liability or potential liability, whether direct or
indirect (collectively the "Plans" or individually a "Plan").
(b) Except as disclosed in Schedule 3.19, Neither FBMS nor any
FBMS Subsidiary contributes to, have an obligation to contribute to or
otherwise have any liability or potential liability with respect to (a)
any Multiemployer Plan (as such term is defined in Section 3(37) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
(b) any plan of the type described in Sections 4063 and 4064 of ERISA
or in Section 413 of the Internal Revenue Code of 1986, as amended (the
"IRC) (and regulations promulgated thereunder), or (c) any plan which
provides heath, life insurance, accident or other welfare-type benefits
to current or future retirees or current former employees, their
spouses or dependents, other than in accordance with Section 4980B of
the IRC or applicable state continuation coverage law.
(c) Except as disclosed in Schedule 3.19, none of the Plans
obligates FBMS or any FBMS Subsidiary to pay separation, severance,
termination or similar-type benefits solely as a result of any
transaction contemplated by this Agreement or solely as a result of a
change in control, as such term is used in Section 280G of the IRC (and
regulations promulgated thereunder).
(d) Each Plan and all related trusts, insurance contracts, and
funds have been maintained, funded and administered in compliance in
all respects with all applicable laws and regulations, including but
not limited to ERISA and the IRC. None of FBMS, any trustee or
administrator of any Plan, or any other Person has engaged in any
transaction with respect to any Plan which could subject FBMS or any
FBMS Subsidiary, or any trustee or administrator of any Plan, or any
party dealing with any Plan, or Equitex to any tax or penalty imposed
by ERISA or the IRC. No actions, suits, claims, complaints, charges,
proceedings, hearings, investigations, or demands with respect to the
Plans (other than routine claims for benefits) are pending or, to the
knowledge of FBMS or the Shareholder, threatened, and neither FBMS nor
the Shareholder has any knowledge of any facts which could reasonably
be expected to give rise to any actions, suits, claims, complaints,
charges, proceedings, hearings, investigations, or demands. No Plan
that is subject to the funding requirements of Section 412 of the IRC
or Section 302 of ERISA has incurred any accumulated funding deficiency
as such term is defined in such Sections of ERISA and the IRC, whether
or not waived. No liability to the Pension Benefit Guaranty Corporation
(the "PBGC") (except for routine payment of premiums) has been or is
expected to be incurred with respect to any Plan
-13-
<PAGE>
that is subject to Title IV of ERISA, no reportable event (as such term
is defined in Section 4043 of ERISA) has occurred with respect to any
such Plan, and the PBGC has not commenced or, to FBMS' or the
Shareholder's knowledge, threatened the termination of any Plan. None
of the assets of FBMS or any FBMS Subsidiary is the subject to any lien
arising under Section 302(f) of ERISA or Section 412(n) of the IRC,
neither FBMS nor any FBMS Subsidiary has been required to post any
security pursuant to Section 307 of ERISA or Section 401(a)(29) of the
IRC, and neither FBMS, any officers or directors of FBMS, nor the
Shareholder, has knowledge of any facts which could reasonably be
expected to give rise to such lien or such posting of security.
(e) Each Plan that is intended to be qualified under Section
401(a) of the IRC, and each trust (if any) forming a part thereof, has
received a favorable determination letter from the Internal Revenue
Service as to the qualifications under the IRC of such Plan and the tax
exempt status of such related trust, and nothing has occurred since the
date of such determination letter that could adversely affect the
qualification of such Plan or the tax exempt status of such related
trust.
(f) No underfunded defined benefit plan (as such term is
defined in Section 3(35) of ERISA) has been, during the five years
preceding the Closing Date, transferred out of the controlled group of
companies (within the meaning of Sections 414(b), (c), (m) and (o) of
the IRC) of which FBMS or any FBMS Subsidiary is a member or was a
member during such five-year period.
(g) As of the Closing Date, the fair market value of the
assets of each Plan that is a defined benefit pension plan equals or
exceeds the present value of all vested and non-vested liabilities
thereunder determined in accordance with applicable PBGC methods,
factors and assumptions applicable to a defined benefit pension plan
terminating on such date. With respect to each Plan that is subject to
the funding requirements of Section 412 of the IRC and Section 302 of
ERISA, all required or recommended contributions for all periods ending
prior to or as of the Closing Date (including periods from the first
day of the then-current plan year to the Closing Date and including all
quarterly contributions required in accordance with Section 412(m) of
the IRC) shall have been made. With respect to each other Plan, all
required or recommended payments, premiums, contributions,
reimbursements or accruals for all periods ending prior to or as of the
Closing Date shall have been made.
No Plan has any unfunded liabilities.
(h) The Board of Directors of FBMS and each FBMS Subsidiary
(or committees or officers authorized by such Board) has authority to
amend or terminate the Plans at any time without limitation (subject to
the requirements of ERISA), and neither the consideration or
implementation of the transactions contemplated under this Agreement
nor the amendment or termination of any or all of the Plans on or after
the date of this Agreement
-14-
<PAGE>
will increase (a) the obligation of FBMS or any FBMS Subsidiary to make
contributions or any other payments to fund benefits accrued under any
Employee Benefit Plans as of the date of this Agreement or (b) the
benefits accrued or payable with respect to any participant under any
Employee Benefit Plans.
(i) With respect to each Plan, FBMS has provided Equitex with
true, complete and correct copies, to the extent applicable, of (a) all
documents pursuant to which the Plans are maintained, funded and
administered, (b) the two most recent annual reports (Form 5500 Series)
filed with the Internal Revenue Service (with attachments), (c) the two
most recent actuarial reports, (d) the two most recent financial
statements, and (e) all governmental rulings, determinations, and
opinions (and pending requests for governmental rulings,
determinations, and opinions).
(j) Except as provided on Schedule 3.19(j), neither FBMS nor
any FBMS Subsidiary provides any post-retirement or post-employment
health, life insurance, accident or other welfare-type benefits.
Schedule 3.19(j) includes the most recent valuation (but in any case at
least one that has been completed within the last calendar year) of the
present and future obligations with respect to Employee Benefit Plans
and benefits listed thereon, if any.
3.20 EMPLOYMENT AGREEMENTS; LABOR RELATIONS.
(a) Schedule 3.20 sets forth a complete and accurate list of
all material employee benefit or compensation plans, agreements and
arrangements to which FBMS or any FBMS Subsidiary is a party and which
are not disclosed in the FBMS Information, including without limitation
(i) all severance, employment, consulting or similar contracts, (ii)
all material agreements and contracts with "change of control"
provisions or similar provisions and (iii) all indemnification
agreements or arrangements with directors or officers.
(b) FBMS and each FBMS Subsidiary is in compliance in all
material respects with all laws (including Federal and state laws)
respecting employment and employment practices, terms and conditions of
employment, wages and hours, and is not engaged in any unfair labor or
unlawful employment practice.
(c) No work stoppage involving FBMS is pending or, to FBMS' or
the Shareholder's knowledge, threatened. Neither FBMS nor any FBMS
Subsidiary is involved in, affected by or, to FBMS' or the
Shareholder's knowledge, threatened with, any labor dispute,
arbitration, lawsuit or administrative proceeding which could have a
FBMS Material Adverse Effect. No employees of FBMS or any FBMS
Subsidiary are represented by any labor union or any collective
bargaining agreement otherwise in effect with respect to such
employees.
-15-
<PAGE>
3.21 INTELLECTUAL PROPERTY. FBMS and each FBMS Subsidiary owns or has
valid, binding and enforceable rights to use all material patents, trademarks,
trade names, service marks, service names, copyrights, applications therefor and
licenses or other rights in respect thereof ("Intellectual Property") used or
held for use in connection with the business of FBMS and each FBMS Subsidiary,
without any known conflict with the rights of others, except for such conflicts
as do not have a FBMS Material Adverse Effect. Neither FBMS nor any FBMS
Subsidiary has received any notice from any other person pertaining to or
challenging the right of FBMS to use any Intellectual Property or any trade
secrets, proprietary information, inventions, know-how, processes and procedures
owned or used or licensed to FBMS or any FBMS Subsidiary, except with respect to
rights the loss of which, individually or in the aggregate, would not have a
FBMS Material Adverse Effect.
3.22 SOFTWARE. All of the computer software used by or for FBMS or any
FBMS Subsidiary in the conduct of its business (the "Software") is either (i)
owned by FBMS or the FBMS Subsidiary free and clear of any and all liens,
claims, equities, security interests, and encumbrances whatsoever, or (ii) used
by FBMS or the FBMS Subsidiary pursuant to a fully-paid license granted to FBMS
or the FBMS Subsidiary for the third party pursuant to the terms of such
license. No such computer software license shall terminate or become terminable
as a result of the transactions contemplated hereby. There are no infringement
suits pending or, to FBMS' or the Shareholder's knowledge, threatened against
FBMS or the FBMS Subsidiary with respect to any of the Software, and, to the
knowledge of FBMS and the Shareholder, no fact or condition exists which could
give rise to any such infringement suit.
3.23 PROPERTIES AND RELATED MATTERS. Except as may be reflected in the
FBMS Financial Statements and except for any lien for current taxes not yet
delinquent, FBMS and each FBMS Subsidiary have good title free and clear of any
material liens, claims, charges, options, encumbrances, or similar restrictions
to all the real and personal property reflected in FBMS' balance sheet as of
December 31, 1998, and all real and personal property acquired since that date,
except such real and personal property as has been disposed of in the ordinary
course of business. All leases of real property and all other leases material to
FBMS or any FBMS Subsidiary pursuant to which FBMS or such FBMS Subsidiary, as
lessee, leases real or personal property, which leases are described on Schedule
3.23, are valid and effective in accordance with their respective terms, and
there is not, under any such lease, any material existing default by FBMS or any
FBMS Subsidiary or any event which, with notice or lapse of time or both,
constitute such a material default. Substantially all FBMS' and each FBMS'
Subsidiary's buildings and equipment regular use have been well maintained and
are in good and serviceable condition, reasonable wear and tear accepted.
3.24 INSURANCE. FBMS maintains and has maintained insurance, for
reasonable amounts with financially sound and reputable insurance companies
against such risks as companies engaged in a similar business would, in
accordance with good business practice, customarily be insured and has
maintained all insurance acquired by applicable law and regulation.
-16-
<PAGE>
3.25 SCHEDULE OF LOANS. Schedule 3.25, prepared as of the date of this
Agreement, contains a detailed description of the loan portfolio currently held
by FBMS and all loans currently outstanding on FBMS' warehouse line, includes a
detailed schedule of all delinquencies and payment histories, the discount or
actual prices at which loans were sold to government agencies or third parties,
accurately described all loans subject to repurchase obligations of FBMS and a
list of all uninsured FHA and VA loans of FBMS. Except as set forth in Schedule
3.25, all mortgage insurance premiums and all VA funding fees are to the
knowledge of FBMS current with respect to each loan for which such insurance is
required. Schedule 3.25 also sets forth a list of all loan locks taken by FBMS
and all losses caused by such loan locks or losses caused by loans that did not
close in accordance with the loan lock agreement which locks or losses have
occurred within 180 days of the date of this Agreement which are still
outstanding.
3.26 MATERIAL INTERESTS OF CERTAIN PERSONS. Except as set forth on
Schedule 3.26, to FBMS' knowledge no officer or director of FBMS, or any
"associate" (as such term is defined in Rule 14a-1 under the Exchange Act) of
any such officer or director, has any interest in any material contract or
property (real or personal), tangible or intangible, used in or pertaining to
the business of FBMS. Schedule 3.26 sets forth a correct and complete list of
any loan from FBMS to any present officer, director, employee or associate or
related interest of any such person which was required under Regulation O of the
Federal Reserve Board to be approved by or reported to FBMS' Board of Directors.
3.27 REGISTRATION OBLIGATIONS. Neither FBMS nor any FBMS Subsidiary is
under any obligation, contingent or otherwise, which will survive the Merger by
reason of any agreement to register any of its securities under the Securities
Act.
3.28 ENVIRONMENTAL MATTERS. To the knowledge of FBMS:
(a) No Hazardous Material (as defined below) has been disposed
of on, released to or from, threatened to be released to or from or is
presently at, on, beneath, in or upon any partial of real property
owned or leased by FBMS or any FBMS Subsidiary or upon any adjacent
parcels of real estate in amounts or concentration which constitute or
constituted a violation of, or which could reasonably be expected to
give rise to liability under, any Environmental Law (as defined below).
(b) There has been no generation, production, refining,
processing, manufacturing, use, storage, disposal, treatment, shipment
or receipt of a Hazardous Material at or from any parcel of real
property owned or leased by FBMS or any FBMS Subsidiary relating to the
operations of FBMS or any FBMS Subsidiary in violation of or in a
manner that could give rise to liability under Environmental Laws.
-17-
<PAGE>
(c) The operations of FBMS and each FBMS Subsidiary are in
compliance and have been in compliance with all applicable
Environmental Laws, and there is no violation of any Environmental Law
with respect to any parcels of real property owned or leased by FBMS or
any FBMS Subsidiary which could interfere with the continued operation
of the business of FBMS or any FBMS Subsidiary or impair its fair
salable value.
(d) Neither FBMS nor any FBMS Subsidiary have received any
notice of violation, alleged violation, non-compliance, liability or
potential liability regarding environmental matters or compliance with
environmental laws with regard to any parcels of real property owned or
leased by FBMS or any FBMS Subsidiary from any person, nor does FBMS,
the Shareholder or any FBMS Subsidiary have knowledge or reason to
believe that any such notice will be received from or is being
threatened by any person.
(e) No judicial proceedings, governmental administrative
actions, investigations or internal or non-public agency proceedings
are pending or threatened, under any environmental law, to which FBMS
or any FBMS Subsidiary is or will be named as a party, nor are the any
consent decrees, or other decrees, consent orders, agreements,
administrative orders, other orders, judicial or administrative
requirements outstanding under any environmental law with respect to
FBMS or any FBMS Subsidiary.
(f) "HAZARDOUS MATERIALS" means any substance (a) the presence
of which at, on, over, beneath, in or upon any real or personal
property, building, structure, container of any nature or description,
subsurface strata, ambient air or ambient water (including surface and
groundwater) requires investigation, removal or remediation under any
Environmental Law or common law, (b) which is or becomes defined as a
"hazardous substance," "hazardous material," "hazardous waste,"
"pollutant" or "contaminant" under any Environmental Law, and/or (c)
which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or
becomes regulated by any governmental authority under any Environmental
Law, (d) the presence of which causes or threatens to cause a nuisance
or trespass upon real property or to adjacent properties or poses or
threatens to pose a hazard to the environment, and/or to the health or
safety of persons on or about any real property, and/or (e) which
contains urea-formaldehyde, polychlorinated biphenyls, asbestos or
asbestos containing materials, radon, petroleum or petroleum products.
(g) "ENVIRONMENTAL LAW OR LAWS" means any and all federal,
state, local or municipal laws, rules, orders, regulations, statutes,
treaties, ordinances, codes, decrees, or requirements of any
governmental authority regulating, relating to or imposing liability or
standards of conduct concerning environmental protection, health or
safety matters, including all requirements pertaining to reporting,
licensing, permitting, investigation, removal or remediation of
emissions, discharges, releases, or threatened releases of Hazardous
Materials, chemical substances, pollutants or contaminants or relating
to the manufacture, generation,
-18-
<PAGE>
processing, distribution, use, treatment, storage, disposal, transport,
or handling of Hazardous Materials, chemical substances, pollutants or
contaminants, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), the Toxic Substance Control Act ("TSCA"), the Resource
Conservation and Recovery Act ("RCRA"), the Clean Air Act ("CAA"), the
Clean Water Act ("CWA") and the Occupational Safety and Health Act of
1970 ("OSHA"), all as may have been amended.
3.29 REFERRAL SOURCES; INVESTORS. Neither FBMS, the Shareholder nor any
FBMS Subsidiary has been advised that any of its loan officers, referral sources
or investors intend to cease doing business with FBMS or any FBMS Subsidiary
which cessation in the aggregate or otherwise could have a FBMS Material Adverse
Effect.
3.30 COMPLIANCE WITH YEAR 2000 REQUIREMENTS. All of its Information
Systems and Equipment (as defined below) is either Year 2000 Compliant (as
defined below), or any reprogramming, remediation, or other corrective action,
including the internal testing of all such Information Systems and Equipment,
will be completed by December 31, 1999, except for any failure to be Year 2000
Compliant that cannot reasonably be expected to have a FBMS Material Adverse
Effect. "Year 2000 Compliant" means that all Information Systems and Equipment
accurately process date data (including, but not limited to, calculating,
comparing, and sequencing), before, during and after the year 2000, as well as
same and multi-century dates, or between the years 1999 and 2000, taking into
account all leap years, including the fact that the year 2000 is a leap year and
shall in all material respects continue to function in the same manner as it
performs today and shall not otherwise impair in any material respect the
accuracy or functionality of Information Systems and Equipment. "Information
Systems and Equipment" means all computer hardware, firmware and software, as
well as other information processing systems, other than any equipment
containing imbedded microchips, whether directly owned, licensed, leased,
operated or otherwise controlled by FBMS or any FBMS Subsidiary, in which, in
whole or in part, are used, operated, relied upon, or integral to, the conduct
of the business of FBMS or any FBMS Subsidiary; provided that Information
Systems and Equipment does not include any of the foregoing of any third-party
customer or vendor which is not owned, licensed, leased, operated or otherwise
controlled by FBMS or any FBMS Subsidiary.
3.31 BROKERS AND FINDERS. Neither FBMS nor the Shareholder, nor to
FBMS' knowledge, any of its officers, directors, employees, or shareholders has
employed any broker, finder or investment bank or incurred any liability for any
investment banking fees, financial advisory fees, brokerage fees or finders'
fees in connection with the transactions contemplated hereby. Except as
described on Schedule 3.31, neither FBMS nor the Shareholder are aware of one
claim for payment of any finder's fees, brokerage or agent's commissions or
other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby.
-19-
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER
The Shareholder represents and warrants to Equitex and the Merger
Subsidiary that the statements contained in Article 4 are true and correct in
all material respects.
4.1 AUTHORIZATION OF TRANSACTION. The Shareholder has full power and
authority to execute and deliver this Agreement and to perform his obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of the Shareholder, enforceable in accordance with its terms and conditions. The
Shareholder does not need to give any notice to, make any filing with, or obtain
any authorization, consent or approval of any government or governmental agency
in order to consummate the transactions contemplated by this Agreement.
4.2 ABSENCE OF RESTRICTIONS AND CONFLICTS. Neither the execution and
delivery of this Agreement, nor consummation of the transactions contemplated
hereby, will: (i) violate any statute, regulation, rule, judgment, order,
decree, stipulation, injunction, charge or other restriction of any government,
governmental agency or court to which the Shareholder subject; or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any person the right to accelerate, terminate, modify
or cancel, or require any notice under any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, security interest or other arrangement to
which the Shareholder is a party or by which he is bound or to which any of his
assets is subject.
4.3 TRANSFER OF FBMS COMMON STOCK. The Shareholder is the lawful owner
of all outstanding shares of FBMS Common Stock to be exchanged pursuant to
Article 2 hereof, free and clear of any restrictions on transfer (other than any
restrictions under the Securities Act or applicable state securities laws),
taxes, security interests, options, warrants, purchase rights, contracts,
commitments, equities, claims and demands. The shares of FBMS Common Stock to be
exchanged pursuant to Article 2 hereof represent all of the issued and
outstanding capital stock of FBMS.
4.4 GUARANTEES. Schedule 4.4, described all guarantees of Shareholder
of any obligations of FBMS or any FBMS Subsidiary.
4.5 BROKERS' FEES. The Shareholder has not employed any broker, finder
or investment bank or incurred any liability for any investment banking fees,
financial advisory fees, brokerage fees or finders' fees in connection with the
transactions contemplated hereby. Except as described on Schedule 3.31, the
Shareholder is not aware of any claim for payment of any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby.
-20-
<PAGE>
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF EQUITEX
AND THE MERGER SUBSIDIARY
Equitex and the Merger Subsidiary represent and warrant to FBMS and the
Shareholder that the statements contained in Article 5 are true and correct in
all material respects. As used in this Article 5 and elsewhere in this
Agreement, the phrase "to Equitex's or the Merger Subsidiary's knowledge" or "to
Equitex's or the Merger Subsidiary's actual knowledge" shall mean to the
knowledge of the officer of Equitex or the Merger Subsidiary who has the
principal responsibility for the matter being stated.
5.1 ORGANIZATION AND GOOD STANDING. Each of Equitex and the Merger
Subsidiary is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or organization.
5.2 FOREIGN QUALIFICATION. Equitex and the Merger Subsidiary are duly
qualified or licensed to do business and are in good standing as a foreign
corporation in every jurisdiction where the failure so to qualify would have a
material adverse effect (a "Equitex Material Adverse Effect") on (a) the
business, operation, assets or financial condition of Equitex and the Merger
Subsidiary taken as a whole or (b) the validity or enforceability of, or the
ability of Equitex to perform its obligations under, this Agreement.
5.3 CORPORATE POWER AND AUTHORITY. Equitex and the Merger Subsidiary
have the corporate power and authority and all material licenses and permits to
own, lease and operate their respective properties and assets and to carry on
their respective businesses as currently being conducted.
-21-
<PAGE>
5.4 AUTHORIZATION. Equitex and the Merger Subsidiary have the corporate
power and authority to execute and deliver this Agreement and, subject to the
approval of this Agreement and the Merger by their stockholders, to perform
their obligations under this Agreement and to consummate the Merger. The
execution, delivery and performance by Equitex and the Merger Subsidiary of this
Agreement has been duly authorized by all necessary corporate action. Subject to
such approval of stockholders and of government agencies and other government
boards having regulatory authority over Equitex and the Merger Subsidiary as may
be required by statute or regulation, this Agreement is the legal, valid and
binding obligation of Equitex and the Merger Subsidiary enforceable in
accordance with its terms.
5.5 ABSENCE OF RESTRICTIONS AND CONFLICTS. The execution, delivery and
performance of this Agreement and the consummation of the Merger and the
fulfillment of and compliance with the terms and conditions of this Agreement do
not and will not, with the passing of time or the giving of notice or both,
violate or conflict with, constitute a breach of or default under, result in the
loss of any material benefit under, or permit the acceleration of any obligation
under, (i) any term or provision of the Certificate of Incorporation or Bylaws
of Equitex or the Merger Subsidiary, (ii) any "Equitex Material Contract" (as
defined in Section 5.12), (iii) any judgment, decree or order of any court or
governmental authority or agency to which Equitex or any of the Merger
Subsidiary is a party or by which Equitex or any of the Merger Subsidiary or any
of their respective properties is bound, or (iv) any statute, law, regulation or
rule applicable to Equitex or the Merger Subsidiary other than such violations,
conflicts, breaches or defaults as would not have a Equitex Material Adverse
Effect. Except for the filing of the Certificate of Merger with the Secretary of
State of Delaware and the Secretary of State of Florida, compliance with the
applicable requirements of the Bank Holding Company Act of 1956, as amended (the
"BHC Act"), Securities Act, the Exchange Act and applicable state securities and
banking laws, no consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental agency or public or regulatory
unit, agency, body or authority with respect to Equitex or the Merger Subsidiary
is required in connection with the execution, delivery or performance of this
Agreement by Equitex or the consummation of the transactions contemplated
hereby.
5.6 CAPITALIZATION OF EQUITEX.
(a) The authorized capital stock of Equitex consists of
7,500,000 shares of Equitex Common Stock $.01 par value, and 2,000,000
shares of preferred stock, $0.02 par value. Schedule 5.6 lists, as of
the date hereof, the number of shares of Equitex Common Stock
outstanding, shares of preferred stock outstanding, and shares of
Equitex Common Stock reserved for issuance upon the exercise of
outstanding options under Equitex's Stock Option Plans (the "Equitex
Options" and "Equitex Option Plans," respectively).
(b) All of the issued and outstanding shares of Equitex Common
have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights.
-22-
<PAGE>
(c) The shares of Equitex Common Stock to be issued in the
Merger will be duly authorized and validly issued and will be fully
paid, nonassessable shares of Equitex Common Stock free of preemptive
rights.
(d) To Equitex's knowledge, there are no voting trusts,
stockholder agreements or other voting arrangements between or among
the stockholders of Equitex.
(e) Except as set forth in subsection (a) above, there is no
outstanding subscription, contract, convertible or exchangeable
security, option, warrant, call or other right obligating Equitex or
its subsidiaries to issue, sell, exchange, or otherwise dispose of, or
to purchase, redeem or otherwise acquire, shares of, or securities
convertible into or exchangeable for, capital stock of Equitex.
5.7 EQUITEX SEC REPORTS. Equitex has made available to FBMS (i)
Equitex's Annual Reports on Form 10-KSB, including all exhibits filed thereto
and items incorporated therein by reference, (ii) Equitex's Quarterly Reports on
Form 10-QSB, including all exhibits thereto and items incorporated therein by
reference, (iii) proxy statements relating to Equitex's meetings of stockholders
and (iv) all other reports or registration statements (as amended or
supplemented prior to the date hereof), filed by Equitex with the Securities and
Exchange Commission ("SEC") since January 1, 1996, including all exhibits
thereto and items incorporated therein by reference (items (i) through (iv)
being referred to as the "Equitex SEC Reports"). As of their respective dates,
Equitex SEC Reports did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Since January 1, 1996, Equitex has filed all material
forms (and necessary amendments), reports and documents with the SEC required to
be filed by it pursuant to the federal securities laws and the SEC rules and
regulations thereunder, each of which complied as to form, at the time such
form, report or document was filed, in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the applicable rules
and regulations thereunder.
5.8 FINANCIAL STATEMENTS AND RECORDS OF EQUITEX. Equitex has made or
will make available to FBMS true, correct and complete copies of the following
financial statements (the "Equitex Financial Statements"):
(a) the consolidated balance sheets of Equitex and its
consolidated subsidiaries as of December 31, 1997 and 1998, and the
consolidated statements of income, stockholders' equity and cash flows
for the fiscal years then ended, including the notes thereto, in each
case examined by and accompanied by the report of Davis & Co.; and
-23-
<PAGE>
(b) the unaudited consolidated balance sheet of Equitex as of
March 31, 1999 (the "Equitex Balance Sheet"), with any notes thereto,
and the related unaudited statement of income for the fiscal quarter
then ended (collectively, the "Equitex Quarterly Statements").
The Equitex Financial Statements present fairly, in all material
respects, the financial position of Equitex as of the dates thereof and
the results of operations and changes in financial position thereof for
the periods then ended, in each case in conformity with generally
accepted accounting principles, consistently applied, except as noted
therein. Since March 31, 1999, there has been no change in accounting
principles applicable to, or methods of accounting utilized by,
Equitex, except as noted in the Equitex Financial Statements. The books
and records of Equitex have been and are being maintained in accordance
with good business practice, reflect only valid transactions, are
complete and correct in all material respects, and present fairly in
all material respects the basis for the financial position and results
of operations of Equitex set forth in the Equitex Financial Statements.
5.9 ABSENCE OF CERTAIN CHANGES. Since March 31, 1999, Equitex has not,
except as otherwise set forth in the Equitex SEC Reports or on Schedule 5.9:
(a) suffered any adverse change in the business, operation,
assets, or financial condition except for such changes that would not
have a Equitex Material Adverse Effect;
(b) suffered any material damage or destruction to or loss of
the assets of Equitex or any of the Merger Subsidiary, whether or not
covered by insurance, which property or assets are material to the
operations or business of Equitex and its subsidiaries taken as a
whole;
(c) settled, forgiven, compromised, canceled, released, waived
or permitted to lapse any material rights or claims other than in the
ordinary course of business;
(d) entered into or terminated any Material Contract or agreed
or made any changes in any Material Contract, other than renewals or
extensions thereof and leases, agreements, transactions and commitments
entered into or terminated in the ordinary course of business;
(e) written up, written down or written off the book value of
any material amount of assets other than in the ordinary course of
business;
(f) declared, paid or set aside for payment any dividend or
distribution with respect to Equitex's capital stock;
-24-
<PAGE>
(g) redeemed, purchased or otherwise acquired, or sold,
granted or otherwise disposed of, directly or indirectly, any of
Equitex's capital stock or securities (other than shares issued upon
exercise of the Equitex Options) or any rights to acquire such capital
stock or securities, or agreed to changes in the terms and conditions
of any such rights outstanding as of the date of this Agreement;
(h) increased the compensation of or paid any bonuses to any
employees or contributed to any employee benefit plan, other than in
accordance with established policies, practices or requirements and as
provided in Section 6.2 hereof;
(i) entered into any employment, consulting or compensation
agreement with any person or group, except for agreements which would
not have a Equitex Material Adverse Effect;
(j) entered into any collective bargaining agreement with any
person or group;
(k) entered into, adopted or amended any employee benefit
plan; or
(l) entered into any agreement to do any of the foregoing.
5.10 NO MATERIAL UNDISCLOSED LIABILITIES. There are no liabilities or
obligations of Equitex and its consolidated subsidiaries of any nature, whether
absolute, accrued, contingent, or otherwise, other than:
(a) liabilities and obligations that are reflected, accrued or
reserved against on the Equitex Balance Sheet or referred to in the
footnotes to the Equitex Balance Sheet, or incurred in the ordinary
course of business and consistent with past practices since March 31,
1999; or
(b) liabilities and obligations which in the aggregate would
not result in a Equitex Material Adverse Effect.
5.11 TAX RETURNS; TAXES. Each of Equitex and the Merger Subsidiary has
filed all federal, state, county, local, and foreign tax returns, including
information returns, required to be filed by it, and paid all taxes owed by it,
including those with respect to income, withholding, social security,
unemployment, workers' compensation, franchise, ad valorem, premium, excise and
sales taxes, and no taxes shown on such returns to be owed by it or assessments
received by it are delinquent. Federal income tax returns of Equitex and the
Merger Subsidiary for the fiscal year ended December 31, 1995, and for all
fiscal years prior thereto, are for the purposes of routine audit by the
Internal Revenue Service closed because of the statute of limitations, and no
claims for additional taxes for such fiscal years are pending. Neither Equitex
nor the Merger Subsidiary is a party to any pending
-25-
<PAGE>
action or proceeding, nor, to Equitex's knowledge, is any such action or
proceeding threatened by any governmental authority, for the assessment or
collection of taxes, interest, penalties, assessments or deficiencies and no
issue has been raised by any federal, state, local or foreign taxing authority
in connection with any audit or examination of the tax returns, business or
properties of Equitex and the Merger Subsidiary which has not been settled,
resolved and fully satisfied. Except for amounts not yet due and payable, each
of Equitex and the Merger Subsidiary has paid all taxes owed or which it is
required to withhold from amounts owing to employees, creditors or other third
parties. The balance sheet as of December 31, 1998, referred to in Section 5.8,
includes adequate provision for all accrued but unpaid federal, state, county,
local and foreign taxes, interests, penalties, assessments or deficiencies of
Equitex and the Merger Subsidiary with respect to all periods through the date
thereof.
5.12 MATERIAL CONTRACTS. Equitex has furnished or made available to
FBMS accurate and complete copies of the Equitex Material Contracts (as defined
herein) applicable to Equitex or the Merger Subsidiary. There is not under the
Equitex Material Contracts any existing breach, default or event of default by
Equitex or the Merger Subsidiary nor event that with notice or lapse of time or
both would constitute a breach, default or event of default by Equitex or the
Merger Subsidiary other than breaches, defaults or events of default which would
not have a Equitex Material Adverse Effect nor does Equitex know of, and Equitex
has not received notice of, or made a claim with respect to, any breach or
default by any other party thereto which would, severally or in the aggregate,
have a Equitex Material Adverse Effect. As used herein, the term "Equitex
Material Contracts" shall mean all contracts and agreements filed, or required
to be filed, as exhibits to Equitex's Annual Report on Form 10-KSB for the year
ended or incorporated by reference therein as an exhibit to Equitex's Annual
Report on Form 10-KSB for the year ending December 31, 1998.
5.13 LITIGATION AND GOVERNMENT CLAIMS. Except as disclosed in the
Equitex SEC Reports, there is no pending suit, claim, action or litigation, or
administrative, arbitration or other proceeding or governmental investigation or
inquiry against Equitex or the Merger Subsidiary to which their businesses or
assets are subject which would, severally or in the aggregate, reasonably be
expected to result in a Equitex Material Adverse Effect nor have any such
proceedings been threatened or contemplated. Neither Equitex nor the Equitex
Subsidiary is subject to any judgment, decree, injunction, rule or order of any
court, or, to the knowledge of Equitex, any governmental restriction applicable
to Equitex or the Equitex Subsidiary which is reasonably likely to have a
Equitex Material Adverse Effect.
5.14 COMPLIANCE WITH LAWS. Equitex and the Merger Subsidiary each have
all material authorizations, approvals, licenses and orders to carry on their
respective businesses as they are now being conducted, to own or hold under
lease the properties or assets they own or hold under lease and to perform all
of their obligations under the agreements to which they are a party, except for
instances which would not have a Equitex Material Adverse Effect. Equitex and
the Merger Subsidiary have been and are, to the knowledge of Equitex, in
compliance with all applicable laws
-26-
<PAGE>
(including those referenced in the Equitex SEC Reports), regulations and
administrative orders of any country, state or municipality or any subdivision
of any thereof to which their respective businesses and their employment of
labor or their use or occupancy of properties or any part hereof are subject,
the violation of which would have a Equitex Material Adverse Effect.
5.15 EMPLOYMENT AGREEMENTS; LABOR RELATIONS.
(a) Schedule 5.15 sets forth a complete and accurate list of
all material employee benefit or compensation plans, agreements and
arrangements to which Equitex is a party and which are not disclosed in
the Equitex Information, including without limitation (i) all
severance, employment, consulting or similar contracts, (ii) all
material agreements and contracts with "change of control" provisions
or similar provisions and (iii) all indemnification agreements or
arrangements with directors or officers.
(b) Equitex is in compliance in all material respects with all
laws (including Federal and state laws) respecting employment and
employment practices, terms and conditions of employment, wages and
hours, and is not engaged in any unfair labor or unlawful employment
practice.
5.16 EQUITEX EMPLOYEE BENEFIT PLANS. Equitex has no employee benefit
plans subject to ERISA.
5.17 INTELLECTUAL PROPERTY. Equitex and the Merger Subsidiary own or
have valid, binding and enforceable rights to use all material patents,
trademarks, trade names, service marks, service names, copyrights, applications
therefor and licenses or other rights in respect thereof ("Equitex Intellectual
Property") used or held for use in connection with the business of Equitex or
the Merger Subsidiary, without any known conflict with the rights of others,
except for such conflicts as do not have a Equitex Material Adverse Effect.
Neither Equitex nor the Merger Subsidiary has received any notice from any other
person pertaining to or challenging the right of Equitex or the Merger
Subsidiary to use any Equitex Intellectual Property or any trade secrets,
proprietary information, inventions, know-how, processes and procedures owned or
used or licensed to Equitex or the Merger Subsidiary, except with respect to
rights the loss of which, individually or in the aggregate, would not have a
Equitex Material Adverse Effect.
5.18 PROPERTIES AND RELATED MATTERS. Neither Equitex nor the Merger
Subsidiary owns any real property.
5.19 EQUITEX SERIES D PREFERRED STOCK. Equitex has no knowledge of any
conditions that would prohibit the release from escrow of the proceeds from the
private placement of the Equitex Series D Convertible Preferred Stock, other
than shareholder approval of the increase in Equitex capitalization as
contemplated by Section 6.9.
-27-
<PAGE>
5.20 BROKERS AND FINDERS. Neither Equitex, nor to Equitex's knowledge,
any of its officers, directors and employees has employed any broker, finder or
investment bank or incurred any liability for any investment banking fees,
financial advisory fees, brokerage fees or finders' fees in connection with the
transactions contemplated hereby. Equitex is not aware of any claim for payment
of any finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
5.21 YEAR 2000 COMPLIANCE. To Equitex's knowledge, all of its
Information Systems and Equipment (as defined below) is either Year 2000
Compliant (as defined below), or any reprogramming, remediation, or other
corrective action, including the internal testing of all such Information
Systems and Equipment, will be completed by December 31, 1999, except for any
failure to be Year 2000 Compliant that cannot reasonably be expected to have an
Equitex material adverse effect. "Year 2000 Compliant" means that all
Information Systems and Equipment accurately process date data (including, but
not limited to, calculating, comparing, and sequencing), before, during and
after the year 2000, as well as same and multi-century dates, or between the
years 1999 and 2000, taking into account all leap years, including the fact that
the year 2000 is a leap year and shall in all material respects continue to
function in the same manner as it performs today and shall not otherwise impair
in any material respect the accuracy or functionality of Information Systems and
Equipment. "Information Systems and Equipment" means all computer hardware,
firmware and software, as well as other information processing systems, other
than any equipment containing imbedded microchips, whether directly owned,
licensed, leased, operated or otherwise controlled by Equitex, in which, in
whole or in part, are used, operated, relied upon, or integral to, the conduct
of the business of Equitex; provided that Information Systems and Equipment does
not include any of the foregoing of any third-party customer or vendor which is
not owned, licensed, leased, operated or otherwise controlled by Equitex.
ARTICLE 6
CERTAIN COVENANTS AND AGREEMENTS
6.1 CONDUCT OF BUSINESS BY FBMS. From the date hereof to the Effective
Date, FBMS and each FBMS Subsidiary will, except as required in connection with
the Merger and the other transactions contemplated by this Agreement and except
as otherwise disclosed in the FBMS Information or consented to in writing by
Equitex:
(a) not engage in any new line of business or enter into any
Material Contract, transaction or activity or make any material
commitment except those in the ordinary and regular course of business
and not otherwise prohibited under this Section 6.1;
-28-
<PAGE>
(b) maintain its corporate existence in good standing and
neither change nor amend its Certificate of Incorporation or Bylaws;
(c) maintain proper business and accounting records in
accordance with generally accepted principles;
(d) maintain its property in good repair and condition,
ordinary wear and tear accepted;
(e) maintain in all material respects presently existing
insurance coverage;
(f) use its best efforts to preserve its business organization
in tact, to keep the services of its present principal employees and to
preserve its good will and the good will of its suppliers, customers
and others having business relationships with it;
(g) use its best efforts to obtain any approvals or consents
required to maintain existing leases and other contracts in effect
following the Merger;
(h) comply in all material respects with all laws,
regulations, ordinances, codes, orders, licenses and permits applicable
to the properties and the operations of FBMS and correct or remedy any
material violation of any law, regulation upon identification thereof
at Equitex's request;
(i) create, incur, assume or guarantee any indebtedness for
borrowed money other than indebtedness incurred in the ordinary course
of business including, without limitation, under any warehouse line of
credit;
(j) make any loan to or investment in, or acquire any
securities or assets of any other person or entity, except for mortgage
loans made in the ordinary course of business and made under the same
standards and guidelines that such loans were made prior to December
31, 1998;
(k) sell any of its assets, other than sales of loans in the
ordinary course of business where applicable pursuant to appropriate
guidelines of the governing federal agency;
(l) increase the compensation of any officers, directors or
executive employees, except pursuant to existing compensation plans or
practices;
(m) not issue or sell shares of capital stock of FBMS or
issue, sell or grant options, warrants or rights to purchase or
subscribe to, or enter into any arrangement or contract with
-29-
<PAGE>
respect to the issuance or sale of any of the capital stock of FBMS or
rights or obligations convertible into or exchangeable for any shares
of the capital stock of FBMS and not make any changes (by split-up,
combination, reorganization or otherwise) in the capital structure of
FBMS;
(n) not declare, pay or set aside for payment any dividend or
other distribution in respect of the capital stock or other equity
securities of FBMS and not redeem, purchase or otherwise acquire any
shares of the capital stock or other securities of FBMS or rights or
obligations convertible into or exchangeable for any shares of the
capital stock or other securities of FBMS or obligations convertible
into such, or any options, warrants or other rights to purchase or
subscribe to any of the foregoing;
(o) not acquire or enter into any agreement to acquire, by
merger, consolidation or purchase of stock or assets, any business or
entity;
(p) perform all of its obligations under all Material
Contracts (except those being contested in good faith) and not enter
into, assume or amend any contract or commitment that would be a
Material Contract; and
(q) prepare and file all federal, state, local and foreign
returns for taxes and other tax reports, filings and amendments thereto
required to be filed by it, and allow Equitex, at its request, to
review all such returns, reports, filings and amendments at FBMS's
offices prior to the filing thereof, which review shall not interfere
with the timely filing of such returns.
In connection with the continued operation of the business of FBMS
between the date of this Agreement and the Effective Date, FBMS shall confer in
good faith and on a regular and frequent basis with one or more representatives
of Equitex designated in writing to report operational matters of materiality
and the general status of ongoing operations. FBMS acknowledges that Equitex
does not and will not waive any rights it may have under this Agreement as a
result of such consultations nor shall Equitex be responsible for any decisions
made by FBMS's officers and directors with respect to matters which are the
subject of such consultation.
6.2 CONDUCT OF BUSINESS BY EQUITEX. From the date hereof to the
Effective Date, Equitex will, and will cause the Merger Subsidiary to, except as
required in connection with the Merger and the other transactions contemplated
by this Agreement and except as otherwise disclosed in the Equitex Information
hereto or consented to in writing by FBMS:
(a) not engage in any new line of business or enter into any
Material Contract, transaction or activity or make any material
commitment except those in the ordinary and regular course of business
and not otherwise prohibited under this Section 6.2;
-30-
<PAGE>
(b) maintain its corporate existence in good standing and
neither change nor amend its Certificate of Incorporation or Bylaws;
(c) maintain proper business and accounting records in
accordance with generally accepted principles;
(d) maintain its property in good repair and condition,
ordinary wear and tear accepted;
(e) maintain in all material respects presently existing
insurance coverage;
(f) use its best efforts to preserve its business organization
in tact, to keep the services of its present principal employees and to
preserve its good will and the good will of its suppliers, customers
and others having business relationships with it;
(g) use its best efforts to obtain any approvals or consents
required to maintain existing leases and other contracts in effect
following the Merger;
(h) comply in all material respects with all laws,
regulations, ordinances, codes, orders, licenses and permits applicable
to the properties and the operations of Equitex and each Merger
Subsidiary and correct remedy any material violation of any law,
regulation upon identification thereof at FBMS' request;
(i) authorize or incur any long-term debt (other than deposit
liabilities);
(j) increase the compensation of any officers, directors or
executive employees, except pursuant to existing compensation plans or
practices;
(k) not make any changes (by split-up, combination,
reorganization or otherwise) in the capital structure of Equitex, or
the Merger Subsidiary;
(l) except as set forth on Schedule 6.2(l), not issue or sell
shares of capital stock of Equitex (other than upon the exercise of
Options) or issue, sell or grant options, warrants or rights to
purchase or subscribe to, or enter into any arrangement or contract
with respect to the issuance or sale of any of the capital stock of
Equitex or rights or obligations convertible into or exchangeable for
any shares of the capital stock of FBMS and not alter the terms of any
outstanding options or the Option Plans;
(m) not declare, pay or set aside for payment any dividend or
other distribution in respect of the capital stock or other equity
securities of Equitex and not redeem, purchase or otherwise acquire any
shares of the capital stock or other securities of Equitex or any of
-31-
<PAGE>
the Merger Subsidiary, or rights or obligations convertible into or
exchangeable for any shares of the capital stock or other securities of
Equitex, the Merger Subsidiary or any of the Merger Subsidiary or
obligations convertible into such, or any options, warrants or other
rights to purchase or subscribe to any of the foregoing;
(n) not acquire or enter into any agreement to acquire, by
merger, consolidation or purchase of stock or assets, any business or
entity;
(o) Use its reasonable efforts to preserve intact the
corporate existence of Equitex and the Merger Subsidiary;
(p) not make or incur (other than in the ordinary course of
business) any capital expenditures;
(q) perform all of its obligations under all Material
Contracts (except those being contested in good faith) and not enter
into, assume or amend any contract or commitment that would be a
Material Contract; and
(r) prepare and file all federal, state, local and foreign
returns for taxes and other tax reports, filings and amendments thereto
required to be filed by it, and allow FBMS, at its request, to review
all such returns, reports, filings and amendments at Equitex's office
prior to the filing thereof, which review shall not interfere with the
timely filing of such returns.
6.3 INSPECTION AND ACCESS TO INFORMATION.
(a) Between the date of this Agreement and the Effective Date,
FBMS will provide to the Merger Subsidiary and Equitex and their
accountants, counsel and other authorized representatives reasonable
access, during normal business hours to its premises, and will cause
its officers to furnish to Equitex and the Merger Subsidiary and their
authorized representatives such financial, technical and operating data
and other information pertaining to its business, as the Merger
Subsidiary and Equitex shall from time to time reasonably request. No
such examination by Equitex or its representatives either before or
after the date of this Agreement shall in any way effect, diminish or
terminate any of the representations, warranties or covenants of FBMS
herein expressed.
(b) Between the date of this Agreement and the Effective Date,
Equitex will, and will cause each of the Merger Subsidiary to, provide
to FBMS and its accountants, counsel and other authorized
representatives reasonable access, during normal business hours to its
premises, and will cause its officers to furnish to FBMS and its
authorized representatives such financial, technical and operating data
and other information pertaining to its business, as FBMS shall from
time to time reasonably request. No such examination by FBMS or its
-32-
<PAGE>
representatives either before or after the date of this Agreement shall
in any way effect, diminish or terminate any of the representations,
warranties or covenants of Equitex herein expressed.
(c) Each of the parties hereto and their respective
representatives shall maintain the confidentiality of all information
(other than information which is generally available to the public)
concerning the other parties hereto acquired pursuant to the
transactions contemplated hereby in the event that the Merger is not
consummated. Each of the parties hereto and their representatives shall
not use such information so obtained to the detriment or competitive
disadvantage of the other party hereto. All files, records, documents,
information, data and similar items relating to the confidential
information of FBMS, whether prepared by Equitex or otherwise coming
into Equitex's possession, shall remain the exclusive property of FBMS
and shall be promptly delivered to FBMS upon termination of this
Agreement. All files, records, documents, information, data and similar
items relating to the confidential information of Equitex, whether
prepared by FBMS or otherwise coming into FBMS's possession, shall
remain the exclusive property of Equitex and shall be promptly
delivered to Equitex upon termination of this Agreement.
6.4 EQUITEX EXCHANGE ACT REPORTS. FBMS acknowledges that Equitex will
be required to report its acquisition of FBMS promptly following the Effective
Date and include information regarding FBMS in the Proxy Statement for Equitex's
upcoming special meeting of shareholders. FBMS agrees to provide as promptly as
practicable to Equitex such information concerning its business and financial
statements and affairs as, in the reasonable judgment of Equitex, may be
required or appropriate for inclusion in the required report, or in any
amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with Equitex's counsel and auditors in the preparation of such report.
FBMS and the Shareholder represent and warrant to Equitex that the foregoing
information will (i) not contain any untrue statement of immaterial fact, or
omit to state any material fact required to be stated therein as necessary, in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading and (ii) comply in all material respects with the
provisions of the Securities Act and Exchange Act, as applicable, and the rules
and regulations thereunder.
6.5 WAREHOUSE FACILITY. Prior to the Effective Date, FBMS shall have
sold or otherwise removed from its warehouse lending facilities, all "unsaleable
loans" as listed on Schedule 6.5. To the extent that any unsaleable loans remain
as of the Effective Date, they will be offset against the reserve established in
accordance with Section 9.2, below.
6.6 WORKING CAPITAL LOAN. FBMS and the Shareholder acknowledge that,
prior to the execution of this Agreement, Equitex has loaned to FBMS $500,000 on
an unsecured basis and up to an additional $2,000,000 pursuant to the terms of
that certain Loan and Security Agreement between Equitex and FBMS dated May 13,
1999 (the "Loan Agreement"), as secured by that certain
-33-
<PAGE>
Security and Pledge Agreement between Equitex and the Shareholder dated May 13,
1999 (the "Pledge Agreement"). Within five business days of the execution of
this Agreement, Equitex, FBMS and the Shareholder will amend the Loan Agreement
and Pledge Agreement, in accordance with their respective terms, to provide for
aggregate loans of up to $5,000,000, including the $500,000 unsecured loan which
will be converted into a secured loan under the Loan and Pledge Agreements. The
advancement of the additional funds by Equitex shall be subject to the
reasonable discretion of Equitex. Immediately following the Closing, Equitex
shall have the right to convert any or all amounts advanced to FBMS into a
series of FBMS Preferred Stock, the terms, dividends, relative rights and
preferences of which shall be determined by Equitex in its reasonable
discretion.
6.7 REASONABLE EFFORTS; Further Assurances; Cooperation. Subject to the
other provisions of this Agreement, the parties hereby shall each use their
reasonable efforts to perform their obligations herein and to take, or cause to
be taken or do, or cause to be done, all things reasonably necessary, proper or
advisable under applicable law to obtain all regulatory approvals and satisfy
all conditions to the obligations of the parties under this Agreement and to
cause the Merger and the other transactions contemplated herein to be carried
out promptly in accordance with the terms hereof. The parties agree to use their
reasonable best efforts to consummate the transactions contemplated hereby by
September 15, 1999. The parties shall cooperate fully with each other and their
respective officers, directors, employees, agents, counsel, accountants and
other designees in connection with any steps required to be taken as a part of
their respective obligations under this Agreement, including without limitation:
(a) If any claim, action, suit, investigation or other
proceeding by any governmental body or other person is commenced which
questions the validity or legality of the Merger or any of the other
transactions contemplated hereby or seeks damages in connection
therewith, the parties agree to cooperate and use all reasonable
efforts to defend against such claim, action, suit, investigation or
other proceeding and, if an injunction or other order is issued in any
such action, suit or other proceeding, to use all reasonable efforts to
have such injunction or other order lifted, and to cooperate reasonably
regarding any other impediment to the consummation of the transactions
contemplated by this Agreement.
(b) Each party shall give prompt written notice to the other
of (i) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or
warranty of FBMS or Equitex, as the case may be, contained in this
Agreement to be untrue or inaccurate in any material respect at any
time from the date hereof to the Effective Date or that will or may
result in the failure to satisfy the conditions specified in Article 7
or 8 or would constitute either an FBMS material adverse effect on the
business, operation, assets or financial condition of FBMS or Equitex
Material Adverse Effect, and (ii) any failure of FBMS or Equitex, as
the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder.
-34-
<PAGE>
6.8 PUBLIC ANNOUNCEMENTS. The timing and content of all announcements
regarding any aspect of this Agreement or the Merger to the financial community,
government agencies, employees or the general public shall be mutually agreed
upon in advance (unless Equitex or FBMS is advised by counsel that any such
announcement or other disclosure not mutually agreed upon in advance is required
to be made by law or applicable NSM rule and then only after making a reasonable
attempt to comply with the provisions of this Section).
6.9 EQUITEX CAPITALIZATION. Prior to the Effective Date, Equitex will
hold a special meeting of its stockholders and take all other action necessary
to increase the number of authorized shares of Equitex Common Stock from
7,500,000 to 50,000,000.
6.10 NO SOLICITATIONS. (a) From the date hereof until the Effective
Date or until this Agreement is terminated or abandoned as provided in this
Agreement, FBMS shall not directly or indirectly (i) solicit or initiate
discussion with or (ii) enter into negotiations or agreements with, or furnish
any information to, any corporation, partnership, person or other entity or
group (other than an affiliate of Equitex or its authorized representatives
pursuant to this Agreement) concerning any proposal for a merger, sale of
substantial assets, sale of shares of stock or securities or other takeover or
business combination transaction (the "Acquisition Proposal") involving FBMS,
and FBMS will instruct its officers, directors, advisors and its financial and
legal representatives and consultants not to take any action contrary to the
foregoing provisions of this sentence; provided, however, that FBMS, its
officers, directors, advisors and its financial and legal representatives and
consultants will not be prohibited from taking any action described in (ii)
above to the extent such action is taken by, or upon the authority of, the Board
of Directors of FBMS in the exercise of good faith judgment as to its fiduciary
duties to the shareholders of FBMS, which judgment is based upon the advice of
independent, outside legal counsel that a failure of the Board of Directors of
FBMS to take such action would be likely to constitute a breach of its fiduciary
duties to such shareholders. FBMS will notify Equitex promptly if FBMS becomes
aware that any inquiries or proposals are received by, any information is
requested from or any negotiations or discussions are sought to be initiated
with, FBMS with respect to an Acquisition Proposal, and FBMS shall promptly
deliver to Equitex any written inquiries or proposals received by FBMS relating
to an Acquisition Proposal.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF FBMS AND THE SHAREHOLDER
Except as may be waived by FBMS and the Shareholder, the obligations of
FBMS and the Shareholder to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction on or before the Closing Date of
each of the following conditions:
-35-
<PAGE>
7.1 COMPLIANCE. Equitex shall have, or shall have caused to be,
satisfied or complied with and performed in all material respects all terms,
covenants and conditions of this Agreement to be complied with or performed by
Equitex on or before the Closing Date.
7.2 REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by Equitex in this Agreement shall be true and correct in all
material respects at and as of the Closing Date with the same force and effect
as if such representations and warranties had been made at and as of the Closing
Date, except for changes permitted or contemplated by this Agreement.
7.3 MATERIAL ADVERSE CHANGES. Subsequent to March 31, 1999, there shall
have occurred no Equitex Material Adverse Effect other than any such change that
affects both Equitex and FBMS in a substantially similar manner.
7.4 CERTIFICATES. FBMS and the Shareholder shall have received a
certificate or certificates, executed on behalf of Equitex by an executive
officer of Equitex, to the effect that the conditions contained in Sections 7.1,
7.2 and 7.3 hereof have been satisfied.
7.5 CONSENTS; LITIGATION. Other than the filing of the Certificates of
Merger as described in Article 1, all authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations or terminations of
waiting periods imposed by any governmental entities, and all required
third-party consents, the failure to obtain which would have a FBMS Material
Adverse Effect or an Equitex Material Adverse Effect, shall have been obtained.
In addition, no preliminary or permanent injunction or other order shall have
been issued by any court or by any governmental or regulatory agency, body or
authority which prohibits the consummation of the Merger and the transactions
contemplated by this Agreement and which is in effect at the Effective Date.
7.6 DUE DILIGENCE. FBMS shall have completed to its satisfaction a due
diligence investigation, including, but not limited to, a review of the Equitex
Financial Statements.
7.7 ACCOUNTING TREATMENT. The transactions contemplated by this
Agreement shall qualify for purchase accounting treatment under generally
accepted accounting principles, and each shall take all necessary action to
ensure such treatment.
7.8 TAX-FREE REORGANIZATION. The shares of Equitex Common Stock to be
received by the FBMS stockholders shall be received in connection with a
tax-free reorganization under the Code, and each party shall take all necessary
action to ensure such treatment.
7.9 LEGAL OPINION. FBMS and the Shareholder shall have received a legal
opinion from counsel to Equitex substantially in the form attached as Exhibit C.
-36-
<PAGE>
7.10 OTHER AGREEMENTS. The Escrow Agreement and the Registration Rights
Agreement shall have been executed and delivered.
7.11 INCREASE IN AUTHORIZED CAPITALIZATION. The Equitex stockholders
shall have approved an increase in the authorized Equitex Common Stock from
7,500,000 to 50,000,000 as contemplated by Section 6.9, above.
7.12 NASDAQ SMALLCAP LISTING. As of and from March 31, 1999 and through
the Effective Date, Equitex shall be listed and in good standing on the Nasdaq
SmallCap Market.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF EQUITEX
AND THE MERGER SUBSIDIARY
Except as may be waived by Equitex and the Merger Subsidiary, the
obligations of Equitex and the Merger Subsidiary to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction, on or
before the Closing Date, of each of the following conditions:
8.1 COMPLIANCE. FBMS and the Shareholder shall have, or shall have
caused to be, satisfied or complied with and performed in all material respects
all terms, covenants, and conditions of this Agreement to be complied with or
performed by it on or before the Closing Date.
8.2 REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by FBMS and the Shareholder in this Agreement shall be true and
correct in all material respects at and as of the Closing Date with the same
force and effect as if such representations and warranties had been made at and
as of the Closing Date, except for changes permitted or contemplated by this
Agreement.
8.3 MATERIAL ADVERSE CHANGE. Since March 31, 1999, except as set forth
in this Agreement or on the schedules hereto, there shall have occurred no FBMS
Material Adverse Effect other than any such change that affects both Equitex and
FBMS in a substantially similar manner.
8.4 CERTIFICATES. Equitex shall have received a certificate or
certificates, executed by the Shareholder and on behalf of FBMS by an executive
officer of FBMS, to the effect that the conditions in Sections 8.1, 8.2 and 8.3
hereof have been satisfied.
8.5 CONSENTS; LITIGATION. Other than the filing of the Certificates of
Merger as described in Article 1, all authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations or terminations of
waiting periods imposed by the Federal Reserve Board, and any other governmental
entities, and all required third-party consents, the failure to obtain which
would have
-37-
<PAGE>
a FBMS Material Adverse Effect or an Equitex Material Adverse Effect, shall have
been obtained. In addition, no preliminary or permanent injunction or other
order shall have been issued by any court or by any governmental or regulatory
agency, body or authority which prohibits the consummation of the Merger and the
transactions contemplated by this Agreement and which is in effect at the
Effective Date.
8.6 DELIVERY OF SCHEDULES. FBMS shall have completed and delivered to
Equitex all Schedules to this Agreement.
8.7 ARTICLES AND BYLAWS. FBMS shall have delivered to Equitex certified
copies of its Articles of Incorporation and Bylaws as required by Section 3.3.
8.8 INCREASE IN AUTHORIZED CAPITALIZATION. The Equitex stockholders
shall have approved an increase in the authorized Equitex Common Stock from
7,500,000 to 50,000,000 as contemplated by Section 6.9, above.
8.9 EQUITEX SERIES D PREFERRED STOCK. All conditions to the release
from escrow of the proceeds from the private placement of the Equitex Series D
Convertible Preferred Stock shall have been satisfied.
8.10 DUE DILIGENCE. Equitex shall have completed to its satisfaction a
due diligence investigation, including, but not limited to, a review of the FBMS
Financial Statements.
8.11 ACCOUNTING TREATMENT. The transactions contemplated by this
Agreement shall qualify for purchase accounting treatment under generally
accepted accounting principles, and each shall take all necessary action to
ensure such treatment.
8.12 OTHER AGREEMENTS. The Escrow Agreement and the Registration Rights
Agreement shall have been executed and delivered.
8.13 LEGAL OPINION. Equitex shall have received a legal opinion from
counsel to FBMS substantially in the form attached as Exhibit D.
8.14 TAX-FREE REORGANIZATION. The shares of Equitex Common Stock to be
delivered to the FBMS stockholders shall be delivered in connection with a
tax-free reorganization under the Code, and each party shall take all necessary
action to ensure such treatment.
-38-
<PAGE>
ARTICLE 9
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; RESERVE AND INDEMNIFICATION
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except for the
following, the representations and warranties of the parties contained in this
Agreement shall survive the Closing and continue for a period of 12 months
thereafter:
(a) the provisions of this Article 9 shall survive until
termination of the Escrow Agreement; and
(b) the provisions of Article 11 shall survive for a period of
20 months following the Effective Date.
9.2 RESERVE. The 250,000 shares of the Merger Consideration delivered
to the Escrow Agent (the "Reserve") shall be reserved and reduced by: (i) the
amount of any unsaleable loans not sold or otherwise removed from FBMS's
warehouse lending facilities on or before the Effective Date as required by
Section 6.5; (ii) the amount of any liabilities of the Shareholder under Section
9.3; and (iii) the amount of any net income shortfall determined in accordance
with Section 9.4, below. The Reserve shall be increased by 25% of the amount of
any Protection Shares issued pursuant to Article 10. Reduction in the Reserve
shall be made first to the extent of any cash proceeds from the sale of the
shares comprising the Reserve, and, second by shares having a "Market Value," as
defined in the Escrow Agreement, equal to the amount of the reduction.
9.3 INDEMNITY AGREEMENTS OF SHAREHOLDER.
(a) The Shareholder shall indemnify, defend, reimburse and
hold harmless Equitex and FBMS from and against any and all claims, demands,
penalties, fines, liabilities, obligations, losses, settlements, damages, costs
and expenses resulting from:
(i) any inaccuracy in, or breach of, any representation
or warranty or nonfulfillment of any covenant on the part of FBMS or
the Shareholder contained in this Agreement;
(ii) any liabilities, including liabilities under federal
and state securities laws and regulations, arising out of or related to
the conversion of the FBMS Preferred Stock pursuant to Article 11;
(iii) any misrepresentation in or omission from or
nonfulfillment of any covenant on the part of the Shareholder contained
in any other agreement, certificate or other instrument furnished or to
be furnished to Equitex pursuant to this Agreement;
-39-
<PAGE>
(iv) the payment of any claim for fees described on
Schedule 3.31;
(v) reasonable fees and disbursements of counsel incident
to any of the foregoing.
(b) Notwithstanding the foregoing, the aggregate liability of
the Shareholder for all such claims shall not exceed the amount of the Reserve.
9.4 PERFORMANCE OBJECTIVE. If, for the 12 month period commencing
August 1, 1999 and ending July 31, 2000, the pre-tax net income of FBMS
determined in accordance with GAAP as applied to the mortgage banking industry,
after deduction for any dividends paid or accrued on any shares of FBMS
Preferred Stock, other than shares of FBMS Preferred Stock issued to Equitex, is
less than $2,500,000, the Reserve shall be reduced by the difference between
$2,500,000 and the actual net income of FBMS for such period as determined in
accordance with this Section 9.4.
ARTICLE 10
SHARE PRICE PROTECTION
10.1 SHARE PRICE PROTECTION. If, as of the "Determination Date,"
defined below, the "Market Price," defined below, of the Equitex Common Stock is
less than $20 per share (or such other price after taking into consideration any
classification, recapitalization, split-up, combination, exchange of shares, or
readjustment or a stock dividend affecting the Equitex Common Stock after the
Closing and prior to the Determination Date), Equitex will issue, within ten
business days of the Determination Date, sufficient additional shares of Equitex
Common Stock so that the aggregate Market Price of all shares of Equitex Common
Stock issued as Merger Consideration and pursuant to this Article 10 is equal to
not less than $20,000,000, less any reductions to the Reserve pursuant to
Section 9.2. Any shares issued pursuant to this Section 10.1 are referred to as
the "Protection Shares."
10.2 DEFINITIONS. For purposes of this Article 10, the followings terms
have the meaning ascribed to them in this Section 10.2:
(a) "DETERMINATION DATE" means 20 Trading Days after Equitex
closes or terminates its merger with First TeleBanc Corp..
(b) "MARKET PRICE" means the average closing price of the
Equitex Common Stock for the 20 Trading Days immediately preceding the
Determination Date if the Equitex Common Stock is listed on a national
securities exchange or quoted on the Nasdaq National Market or the
average of the last reported bid and asked price for the Equitex Common
Stock
-40-
<PAGE>
as reported on the Nasdaq SmallCap Market or on the Electronic Bulletin
Board or, if none, the national Quotation Bureau, Inc.'s "Pink Sheets."
(c) "TRADING DAY" means any day on which the New York Stock
Exchange is open for business.
10.3 EQUITEX MAKE-WHOLE OPTION. If the Market Price of the Equitex
Common Stock on the Determination Date is less than $5.00 per share, Equitex
shall have the option to pay any or all of the difference between $20,000,000
and the aggregate Market Price of the Merger Consideration in cash or in any
combination of cash and Protection Shares.
ARTICLE 11
CONVERSION OR REDEMPTION OF FBMS PREFERRED STOCK
11.1 CONVERSION OR REDEMPTION OF FBMS PREFERRED STOCK. On or before the
date that is 18 months following the Effective Date (the "Conversion Date"), the
Shareholder shall take all action necessary to convert or redeem all shares of
FBMS Preferred Stock outstanding on the Effective Date, other than shares of
FBMS Preferred Stock issued to Equitex, into, if converted, shares of the Merger
Consideration, which may include shares of the Merger Consideration held in the
Reserve established pursuant to Section 9.2. The Merger Consideration shall not
be increased to effect the foregoing conversion. No funds of FBMS or funds
provided by Equitex pursuant to Section 6.6 shall be used to redeem the FBMS
Preferred Stock.
11.2 PROCEDURE FOR CONVERSION OR REDEMPTION. The conversion or
redemption of the FBMS Preferred Stock shall be in accordance with all
applicable federal and state securities laws and any written materials or
agreements to effect the conversion or redemption shall be subject to review by
Equitex and its counsel.
11.3 EFFECT OF NON-CONVERSION. Any shares of FBMS Preferred Stock
outstanding on the Effective Date, other than shares of FBMS Preferred Stock
issued to Equitex, and not converted or before the Conversion Date, shall result
in a reduction of the Merger Consideration held in the Reserve by that number of
shares of Equitex Common Stock having an aggregate Market Price on the
Determination Date equal to 105% of the stated value of the shares of FBMS
Preferred Stock not converted.
-41-
<PAGE>
ARTICLE 12
MISCELLANEOUS
12.1 TERMINATION. In addition to the provisions regarding termination
set forth elsewhere herein, this Agreement and the transactions contemplated
hereby may be terminated at any time on or before the Closing Date:
(a) by mutual consent of FBMS and Equitex;
(b) by either Equitex or FBMS if the transactions contemplated
by this Agreement have not been consummated by October 15, 1999, unless
such failure of consummation is due to the failure of the terminating
party to perform or observe the covenants, agreements, and conditions
hereof to be performed or observed by it at or before the Closing Date;
or
(c) by either FBMS or Equitex if the transactions contemplated
hereby violate any nonappealable final order, decree, or judgment of
any court or governmental body or agency having competent jurisdiction.
12.2 EXPENSES. If the transactions contemplated by this Agreement are
not consummated, each party hereto shall pay its own expenses incurred in
connection with this Agreement and the transactions contemplated hereby.
12.3 ENTIRE AGREEMENT. This Agreement and the exhibits hereto contain
the complete agreement among the parties with respect to the transactions
contemplated hereby and supersede all prior agreements and understandings among
the parties with respect to such transactions. Section and other headings are
for reference purposes only and shall not affect the interpretation or
construction of this Agreement. The parties hereto have not made any
representation or warranty except as expressly set forth in this Agreement or in
any certificate or schedule delivered pursuant hereto. The obligations of any
party under any agreement executed pursuant to this Agreement shall not be
affected by this section.
12.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute only one original.
12.5 NOTICES. All notices, demands, requests, or other communications
that may be or are required to be given, served, or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be sent by
facsimile transmission, next-day courier or mailed by first-class,
-42-
<PAGE>
registered or certified mail, return receipt requested, postage prepaid, or
transmitted by hand delivery, addressed as follows:
(a) If to FBMS or the Shareholder:
Vincent L. Muratore, President and
Chief Executive Officer
First Bankers Mortgage Services, Inc.
1700 N.W. 64th Street, Suite 100
Fort Lauderdale, Florida 33309
Telephone: 954-493-9400
Facsimile: 954-493-9403
with a copy (which shall not constitute notice) to:
R. Bowen Gillespie, III, Esq.
Gillespie & Allison, P.A.
1515 South Federal Highway, Suite 300
Boca Raton, Florida 33432
Telephone: 561-368-5758
Facsimile: 561-395-0917
(b) If to Equitex or the Merger Subsidiary:
Thomas Olson, Secretary
Equitex, Inc.
7315 East Peakview Ave.
Englewood, Colorado 80111
Telephone: 303-796-8940
Facsimile: 303-796-9762
with a copy (which shall not constitute notice) to:
Gerald Raskin, Esq.
Friedlob Sanderson Raskin Paulson & Tourtillott, LLC
1400 Glenarm Place, Suite 300
Denver, Colorado 80202
Telephone: 303-571-1400
Facsimile: 303-595-3970
Each party may designate by notice in writing a new address to which
any notice, demand, request, or communication may thereafter be so
given, served, or sent. Each notice, demand,
-43-
<PAGE>
request, or communication that is mailed, delivered, or transmitted in
the manner described above shall be deemed sufficiently given, served,
sent, and received for all purposes at such time as it is delivered to
the addressee (with the return receipt, the delivery receipt or the
affidavit of messenger being deemed conclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
12.6 SUCCESSORS; ASSIGNMENTS. This Agreement and the rights, interests,
and obligations hereunder shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned, by operation of law or otherwise, by any of the parties hereto without
the prior written consent of the other.
12.7 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the internal laws of the State of Delaware.
12.8 WAIVER AND OTHER ACTION. This Agreement may be amended, modified,
or supplemented only by a written instrument executed by the parties against
which enforcement of the amendment, modification or supplement is sought.
12.9 SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully severable, and
this Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision were never a part hereof; the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance; and in lieu of
such illegal, invalid, or unenforceable provision, there shall be added
automatically as part of this Agreement, a provision as similar in its terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid, and enforceable.
12.10 MUTUAL CONTRIBUTION. The parties to this Agreement and their
counsel have mutually contributed to its drafting. Consequently, no provision of
this Agreement shall be construed against any party on the ground that such
party drafted the provision or caused it to be drafted or the provision contains
a covenant of such party.
[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
-44-
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
First Bankers Mortgage Services, Inc.
By:/S/ VINCENT L. MURATORE
--------------------------------------
Name: Vincent L. Muratore
Title: President and
Chief Executive Officer
Shareholder
By:/S/ VINCENT L. MURATORE
--------------------------------------
Name: Vincent L. Muratore
Equitex, Inc.
By:/S/ HENRY FONG
--------------------------------------
Name: Henry Fong
Title: President
FBMS Acquisition Corp.
By:/S/ HENRY FONG
--------------------------------------
Name: Henry Fong
Title: President
-45-
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Escrow Agreement
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Legal Opinion from Counsel to Equitex
Exhibit D Form of Legal Opinion from Counsel to FBMS
-46-
<PAGE>
LIST OF SCHEDULES
Schedule 2.2 FBMS Convertible Securities
Schedule 3.2 Foreign Jurisdictions
Schedule 3.4 FBMS Subsidiaries
Schedule 3.11(k) Redemption of FBMS Securities
Schedule 3.14 Material Contracts
Schedule 3.15 FBMS Litigation
Schedule 3.18 FBMS Licenses and Permits
Schedule 3.19 FBMS Employee Benefit Plans
Schedule 3.19(j) FBMS Post-Retirement Benefits
Schedule 3.20 FBMS Employment Agreements
Schedule 3.23 FBMS Leases
Schedule 3.25 FBMS Loan Schedule
Schedule 3.26 FBMS Material Interests
Schedule 3.31 Broker Fees
Schedule 4.4 Shareholder Guarantees
Schedule 5.6 Equitex Outstanding Shares
Schedule 5.9 Equitex Changes
Schedule 5.15 Equitex Employment Agreements
Schedule 6.5 Unsaleable Loans
-47-
<PAGE>
Schedule 6.2(l) Equitex Transactions
-48-
<PAGE>
Table of Contents
ARTICLE 1
Basic Plan of Reorganization........................................-1-
1.1 Merger.....................................................-1-
1.2 Continuing of Corporate Existence..........................-1-
1.3 Effective Date.............................................-2-
1.4 Corporate Government of the Surviving Corporation..........-2-
1.5 Closing....................................................-2-
1.6 Tax Consequences...........................................-3-
ARTICLE 2
Conversion of Shares................................................-3-
2.1 Conversion of Shares.......................................-3-
2.2 Convertible Securities.....................................-3-
2.3 Exchange of FBMS Common Stock..............................-3-
2.4 Adjustment.................................................-4-
2.5 Status of Equitex Securities...............................-4-
2.6 Registration of Equitex Common Stock.......................-5-
ARTICLE 3
Representations and Warranties of FBMS and the Shareholder..........-5-
3.1 Organization and Good Standing of FBMS.....................-5-
3.2 Foreign Qualification......................................-5-
3.3 Company Power and Authority................................-5-
3.4 FBMS Subsidiaries..........................................-5-
3.5 Authorization..............................................-6-
3.6 Absence of Restrictions and Conflicts......................-6-
3.7 Capitalization of FBMS.....................................-6-
3.8 FBMS Information...........................................-7-
3.9 Financial Statements and Records of FBMS...................-7-
3.10 Reports....................................................-8-
3.11 Absence of Certain Changes.................................-8-
3.12 No Material Undisclosed Liabilities.......................-10-
3.13 Tax Returns; Taxes........................................-10-
3.14 Material Contracts........................................-10-
-i-
<PAGE>
3.15 Litigation and Government Claims..........................-11-
3.16 Compliance With Laws......................................-11-
3.17 Policies and Procedures...................................-12-
3.19 Employee Benefit Plans....................................-12-
3.20 Employment Agreements; Labor Relations....................-15-
3.21 Intellectual Property.....................................-15-
3.22 Software..................................................-15-
3.23 Properties and Related Matters............................-16-
3.24 Insurance.................................................-16-
3.26 Material Interests of Certain Persons.....................-16-
3.27 Registration Obligations..................................-17-
3.28 Environmental Matters.....................................-17-
3.29 Referral Sources; Investors...............................-18-
3.30 Compliance with Year 2000 Requirements....................-18-
3.31 Brokers and Finders.......................................-19-
ARTICLE 4
Representations And Warranties of Shareholder......................-19-
4.1 Authorization of Transaction..............................-19-
4.2 Absence of Restrictions and Conflicts.....................-19-
4.3 Transfer of FBMS Common Stock.............................-20-
4.4 Guarantees................................................-20-
4.5 Brokers' Fees.............................................-20-
ARTICLE 5
Representations and Warranties of Equitex
and the Merger Subsidiary..........................................-20-
5.1 Organization and Good Standing............................-20-
5.2 Foreign Qualification.....................................-20-
5.3 Corporate Power and Authority.............................-20-
5.4 Authorization.............................................-21-
5.5 Absence of Restrictions and Conflicts.....................-21-
5.6 Capitalization of Equitex.................................-21-
5.7 Equitex SEC Reports.......................................-22-
5.8 Financial Statements and Records of Equitex...............-22-
5.9 Absence of Certain Changes................................-23-
5.10 No Material Undisclosed Liabilities.......................-24-
5.11 Tax Returns; Taxes........................................-24-
5.12 Material Contracts........................................-25-
-ii-
<PAGE>
5.13 Litigation and Government Claims..........................-25-
5.14 Compliance with Laws......................................-25-
5.15 Employment Agreements; Labor Relations....................-26-
5.16 Equitex Employee Benefit Plans............................-26-
5.17 Intellectual Property.....................................-26-
5.18 Properties and Related Matters............................-26-
5.19 Equitex Series D Preferred Stock..........................-26-
5.20 Brokers and Finders.......................................-26-
5.21 Year 2000 Compliance......................................-27-
ARTICLE 6
Certain Covenants and Agreements...................................-27-
6.1 Conduct of Business by FBMS...............................-27-
6.2 Conduct of Business by Equitex............................-29-
6.3 Inspection and Access to Information......................-31-
6.4 Equitex Exchange Act Reports..............................-32-
6.7 Reasonable Efforts; Further Assurances; Cooperation.......-32-
6.8 Public Announcements......................................-33-
6.9 Equitex Capitalization....................................-33-
6.10 No Solicitations..........................................-33-
ARTICLE 7
Conditions Precedent to Obligations of FBMS and the Shareholder....-34-
7.1 Compliance................................................-34-
7.2 Representations and Warranties............................-34-
7.3 Material Adverse Changes..................................-34-
7.4 Certificates..............................................-34-
7.5 Consents; Litigation......................................-35-
7.6 Due Diligence.............................................-35-
7.7 Accounting Treatment......................................-35-
7.8 Tax-free Reorganization...................................-35-
7.9 Legal Opinion.............................................-35-
7.10 Other Agreements..........................................-35-
7.11 Increase in Authorized Capitalization.....................-35-
7.12 Nasdaq SmallCap Listing...................................-35-
ARTICLE 8
-iii-
<PAGE>
Conditions Precedent to Obligations of Equitex
and the Merger Subsidiary..........................................-35-
8.1 Compliance................................................-36-
8.2 Representations and Warranties............................-36-
8.3 Material Adverse Change...................................-36-
8.4 Certificates..............................................-36-
8.5 Consents; Litigation......................................-36-
8.6 Delivery of Schedules.....................................-36-
8.7 Articles and Bylaws.......................................-36-
8.8 Increase in Authorized Capitalization.....................-36-
8.9 Equitex Series D Preferred Stock..........................-36-
8.10 Due Diligence.............................................-37-
8.11 Accounting Treatment......................................-37-
8.12 Other Agreements..........................................-37-
8.13 Legal Opinion.............................................-37-
8.14 Tax-free Reorganization...................................-37-
ARTICLE 9
Survival of Representations and Warranties;
Reserve and Indemnification........................................-37-
9.1 Survival of Representations and Warranties................-37-
9.2 Reserve...................................................-37-
9.3 Indemnity Agreements of Shareholder.......................-38-
9.4 Performance Objective.....................................-38-
ARTICLE 10
Share Price Protection.............................................-38-
10.1 Share Price Protection....................................-38-
10.2 Definitions...............................................-39-
10.3 Equitex Make-Whole Option.................................-39-
ARTICLE 11
Conversion or Redemption of FBMS Preferred Stock...................-39-
ARTICLE 12
Miscellaneous......................................................-40-
12.1 Termination...............................................-40-
12.2 Expenses..................................................-40-
-iv-
<PAGE>
12.3 Entire Agreement..........................................-40-
12.4 Counterparts..............................................-41-
12.5 Notices...................................................-41-
12.6 Successors; Assignments...................................-42-
12.7 Governing Law.............................................-42-
12.8 Waiver and Other Action...................................-42-
12.9 Severability..............................................-42-
12.10 Mutual Contribution.......................................-43-
List of Exhibits............................................................-45-
List of Schedules...........................................................-46-
-v-
<PAGE>
Agreement and Plan of Reorganization
AMONG
Equitex, Inc.
(a Delaware Corporation)
-----------------------------------
First Bankers Mortgage Services, Inc.
(a Florida Corporation)
-----------------------------------
Vincent L. Muratore
(an Individual)
AND
FBMS Acquisition Corp.
(a Delaware Corporation)
JUNE 22, 1999
FIRST ADDENDUM
TO THE
AGREEMENT
AND
PLAN OF REORGANIZATION
This First Addendum (the "First Addendum") is made as of the fourth day
of August, 1999, among Equitex, Inc., a Delaware corporation ("Equitex"); First
Bankers Mortgage Services, Inc., a Florida corporation ("FBMS"); Vincent L.
Muratore, an individual and the sole shareholder of FBMS (the "Shareholder");
and FBMS Acquisition Corp., a Delaware corporation (the "Merger Subsidiary"),
which is wholly owned by Equitex.
W I T N E S S E T H:
WHEREAS, the parties entered into an Agreement and Plan of
Reorganization dated June 22, 1999 (the "Agreement");
WHEREAS, the parties have agreed to amend the Agreement in accordance
with Section 12.8 thereof to reflect certain revised terms that have been
mutually agreed upon.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and certain other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto covenant and
agree as follows:
ARTICLE 1
AMENDMENTS TO ARTICLE 1 OF THE AGREEMENT
The following sections of Article 1 of the Agreement are hereby amended
in their entirety and replaced with the provisions set forth below.
1.4 CORPORATE GOVERNMENT OF THE SURVIVING CORPORATION.
(a) The Certificate of Incorporation of FBMS, as in effect on
the Effective Date, shall continue in full force and effect and shall
be the Certificate of Incorporation of the Surviving Corporation.
(b) The Bylaws of FBMS, as in effect as of the Effective Date,
shall continue in full force and effect and shall be the Bylaws of the
Surviving Corporation.
-1-
<PAGE>
(c) On the Effective Date, the members of the Board of
Directors of the Surviving Corporation shall resign and their vacancies
filled by persons nominated by Equitex.
(d) On the Effective Date, the officers of the Surviving
Corporation shall resign and their vacancies filled by the Board of
Directors of the Surviving Corporation nominated in accordance with the
foregoing paragraph.
1.5 CLOSING. Consummation of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Friedlob Sanderson
Raskin Paulson & Tourtillott, LLC in Denver, Colorado, commencing at 10:00 a.m.,
Mountain Time, as soon as practicable after the last to be fulfilled or waived
of the conditions set forth in Articles 7 and 8 of the Agreement or at such
other place, time and date as shall be fixed by mutual agreement between Equitex
and FBMS. Notwithstanding the foregoing, the Closing shall occur on or before
October 15, 1999, unless the date is extended by mutual agreement of Equitex and
FBMS, provided that Equitex shall have the right to extend the Closing Date by
not more that 30 days after October 15, 1999 if Equitex is: (i) waiting for
clearance from the Securities and Exchange Commission with respect to the proxy
statement for the special meeting of Equitex shareholders contemplated by
Section 6.9 of the Agreement or (ii) to comply with the notice and mailing
requirements for the aforementioned shareholder meeting. The day on which the
Closing shall occur is referred to herein as the "Closing Date." Each party will
cause to be prepared, executed and delivered the Certificate of Merger to be
filed with the Secretary of State of Delaware and the Secretary of State of
Florida and all other appropriate and customary documents as any party or its
counsel may reasonably request for the purpose of consummating the transactions
contemplated by this First Addendum and the Agreement. All actions taken at the
Closing shall be deemed to have been taken simultaneously at the time the last
of any such actions is taken or completed.
ARTICLE 2
AMENDMENTS TO ARTICLE 2 OF THE AGREEMENT
The following sections of Article 2 of the Agreement are hereby amended
in their entirety and replaced with the provisions set forth below.
2.1 CONVERSION OF SHARES. At the Effective Date, by virtue of the
Merger and without any action on the part of the holder thereof:
(a) All shares of FBMS Common Stock, par value $.01 per share
(the "FBMS Common Stock") outstanding immediately prior to the
Effective Date will be converted into and represent the right to
receive, in the aggregate, 250,000 shares of Equitex common stock, par
value $.02 per share (the "Equitex Common Stock"). The shares of
Equitex Common
-2-
<PAGE>
Stock issued pursuant to this Section 2.1(a) shall be referred to as
the "Merger Consideration."
(b) Each share of common stock, $.01 par value, of the Merger
Subsidiary which shall be outstanding immediately prior to the
Effective Date shall at the Effective Date, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into
one share of newly issued FBMS Common Stock. The shares of FBMS Common
Stock issued pursuant to this Section 2.1(b) shall be validly issued,
fully paid and non-assessable.
2.3 EXCHANGE OF FBMS COMMON STOCK.
(a) At Closing, the Shareholder shall deliver to Equitex all
outstanding shares of FBMS Common Stock endorsed in blank or
accompanied by stock powers executed in blank, all signatures
guaranteed by a national bank and with all necessary transfer tax or
revenue stamps required at the Shareholder's expense affixed (the
"Certificates"). Equitex, in turn, will deliver certificates
representing an aggregate of 250,000 shares of Equitex Common Stock to
which the holders of FBMS Common Stock are entitled to pursuant to
Section 2.1. All Certificates so delivered shall forthwith be canceled.
(b) Equitex shall pay any transfer or other taxes required by
reason of the issuance of a certificate representing shares of Equitex
Common Stock; provided, however, that such certificate is issued in the
name of the person in whose name the Certificate surrendered in
exchange therefor is registered. If any portion of the consideration to
be received pursuant to this Article 2 upon exchange of a Certificate
is to be issued or paid to a person other than the person in whose name
the Certificate surrendered in exchange therefor is registered, it
shall be a condition of such issuance and payment that the Certificate
so surrendered shall be properly endorsed or otherwise in proper form
for transfer and that the person requesting such exchange shall pay in
advance any transfer or other taxes or transfer fee required by reason
of the issuance of a certificate representing shares of Equitex Common
Stock to such other person, or establish to the satisfaction of the
Equitex that such tax has been paid or that no such tax is applicable.
(c) In the case of any lost, mislaid, stolen or destroyed
Certificates, the holder thereof may be required, as a condition
precedent to the delivery to such holder of the consideration described
in this Article 2, to deliver to Equitex a bond, in such reasonable sum
as Equitex may direct, or other form of indemnity satisfactory to
Equitex, as indemnity against any claim that may be made against
Equitex or the Surviving Corporation with respect to the Certificate
alleged to have been lost, mislaid, stolen or destroyed.
(d) After the Effective Date, there shall be no transfers on
the stock transfer books of FBMS of the shares of FBMS Common Stock
that were outstanding immediately prior to the Effective Date. If,
after the Effective Date, Certificates are presented to FBMS for
-3-
<PAGE>
transfer, they shall be canceled and exchanged for the consideration
described in this Article 2.
ARTICLE 3
AMENDMENTS TO ARTICLE 6 OF THE AGREEMENT
The following sections of Article 6 of the Agreement are hereby amended
in their entirety and replaced with the provisions set forth below.
6.5 WAREHOUSE FACILITY. Prior to March 31, 2000, FBMS shall have sold
or otherwise removed from its warehouse lending facilities, all "unsaleable
loans" as listed on Schedule 6.5. To the extent that any unsaleable loans remain
as of March 31, 2000, they will be offset against the Performance Shares and
Bonus Shares issuable to the Shareholder in accordance with Article 7 of this
First Addendum.
ARTICLE 4
AMENDMENTS TO ARTICLE 9 OF THE AGREEMENT
The following sections of Article 9 of the Agreement are hereby amended
in their entirety and replaced with the provisions set forth below.
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except for the
following, the representations and warranties of the parties contained in this
Agreement shall survive the Closing and continue for a period of 18 months
thereafter:
(a) the provisions of this Article 9 shall survive until
termination of the Escrow Agreement; and
(b) the provisions of Article 11 shall survive for a period of
20 months following the Effective Date.
9.2 RESERVE. This Section of the Agreement is deleted in its entirety.
9.3 INDEMNITY AGREEMENTS OF SHAREHOLDER. The Shareholder shall
indemnify, defend, reimburse and hold harmless Equitex and FBMS from and against
any and all claims, demands, penalties, fines, liabilities, obligations, losses,
settlements, damages, costs and expenses resulting from:
-4-
<PAGE>
(i) any inaccuracy in, or breach of, any representation
or warranty or nonfulfillment of any covenant on the part of FBMS or
the Shareholder contained in this Agreement;
(ii) any liabilities, including liabilities under federal
and state securities laws and regulations, arising out of or related to
the conversion of the FBMS Preferred Stock pursuant to Article 11;
(iii) the stated value of any shares of FBMS Preferred
Stock not converted in accordance with Article 11 in excess of the
value of the Performance Shares and Bonus Shares on the Conversion
Date.
(iv) any misrepresentation in or omission from or
nonfulfillment of any covenant on the part of the Shareholder contained
in any other agreement, certificate or other instrument furnished or to
be furnished to Equitex pursuant to this Agreement;
(v) the payment of any claim for fees described on
Schedule 3.31;
(vi) reasonable fees and disbursements of counsel
incident to any of the foregoing.
9.4 PERFORMANCE OBJECTIVE. This Section of the Agreement is deleted in
its entirety.
ARTICLE 5
DELETION OF ARTICLE 10 OF THE AGREEMENT
Article 10 of the Agreement is hereby deleted in its entirety.
ARTICLE 6
AMENDMENTS TO ARTICLE 11 OF THE AGREEMENT
The following sections of Article 11 of the Agreement are hereby
amended in their entirety and replaced with the provisions set forth below.
11.1 CONVERSION OR REDEMPTION OF FBMS PREFERRED STOCK. On or before the
date that is 18 months following the Effective Date (the "Conversion Date"), the
Shareholder shall take all
-5-
<PAGE>
action necessary to convert or redeem all shares of FBMS Preferred Stock
outstanding on the Effective Date, other than shares of FBMS Preferred Stock
issued to Equitex, into, if converted, shares of the Merger Consideration. The
Merger Consideration shall not be increased to effect the foregoing conversion.
No funds of FBMS or funds provided by Equitex pursuant to Section 6.6 shall be
used to redeem the FBMS Preferred Stock.
11.3 EFFECT OF NON-CONVERSION. Any shares of FBMS Preferred Stock
outstanding on the Effective Date, other than shares of FBMS Preferred Stock
issued to Equitex, and not converted on or before the Conversion Date, shall
result in a reduction of the number of Performance Shares and Bonus Shares (each
as defined in Article 7 of this First Addendum) by that number of shares having
an aggregate Market Price (as defined in Article 7 of this First Addendum) on
the Conversion Date equal to 105% of the stated value of the shares of FBMS
Preferred Stock not converted.
ARTICLE 7
EARN-IN OF ADDITIONAL SHARES
7.1 ESTABLISHMENT OF ESCROW. At Closing, Equitex will deliver 750,000
shares of Equitex Common Stock (the "Escrow Shares") to the "Escrow Agent," as
defined and in accordance with the terms of the Escrow Agreement in the form
attached as Exhibit A to this First Addendum (the "Escrow Agreement"). The
Escrow Shares shall be issuable to the Shareholder upon meeting the objectives
stated in this Article 7. All shares issued pursuant to this Article 7 shall be
considered additional Merger Consideration.
7.2 OPERATIONAL OBJECTIVES. Upon meeting or completing each of the
following items, the Shareholder shall be issued 41,666 Escrow Shares for each
item met or completed up to an aggregate of 250,000 Escrow Shares:
Item(a) Reducing FBMS's overall operating expenses on an annualized
basis as a percentage of revenue by not less than five percent
for the three months ended December 31, 1999 as compared to
the six months ended June 30, 1999.
Item(b) Reducing FBMS's selling, general and administrative expense on
an annualized basis as a percentage of revenue by not less
than 10 percent for the three months ended December 31, 1999
as compared to the six months ended June 30, 1999.
Item(c) Having the FBMS interactive mortgage loan application internet
web page operational on an ongoing and not test basis on or
before September 30, 1999.
-6-
<PAGE>
Item(d) Having positive net income, on an audited basis calculated in
accordance with GAAP, for the year ended December 31, 1999.
Item(e) Liquidating the existing "sub-prime" portfolio of
approximately $1,500,000 on or before December31, 1999.
Item(f) Using best efforts to restructure the outstanding notes
payable of FBMS, other than the FBMS warehouse facilities, to
interest rates and payment terms which are commercially
reasonable.
7.3 PERFORMANCE OBJECTIVE. The Shareholder shall be entitled to 500,000
Escrow Shares (the "Performance Shares"), subject to adjustment, if FBMS has
audited pre-tax net income, calculated in accordance with GAAP as applied to the
mortgage banking industry, after deduction for any dividends paid on FBMS
Preferred Stock, other than FBMS Preferred Stock issued to Equitex, of not less
than $3,000,000 for the year ended December 31, 2000. The Performance Shares
shall be issued to the Shareholder upon termination of the Escrow Agreement.
7.4 BONUS SHARES. If the audited pre-tax net income of FBMS, calculated
in accordance with Section 7.3 of this First Addendum, exceeds $3,000,000,
Equitex agrees to issue to the Shareholder, that number of shares of Equitex
Common Stock having a "Market Price," as defined below, determined as of
December31, 2000 equal to 20% of the excess of such income over $3,000,000 (the
"Bonus Shares"). The Bonus Shares shall be issued to the Shareholder upon
termination of the Escrow Agreement.
7.5 ADJUSTMENT OF PERFORMANCE SHARES AND BONUS SHARES. The number of
Performance Shares and Bonus Shares to be issued to the Shareholder shall be
reduced for the following:
(a) In accordance with Section 11.3 of the Agreement, as
amended in accordance with Article 6 of this First
Addendum.
(b) For the amount of any unsaleable loans that have not
been sold or otherwise removed from the FBMS
warehouse facilities in accordance with Section 6.5as
amended by this First Addendum. For purposes of this
adjustment, the Performance Shares and Bonus Shares
shall be reduced based upon the Market Price of the
Equitex Common Stock on March 31, 2000.
7.6 DEFINITIONS. For purposes of this First Addendum, the followings
terms have the meaning ascribed to them in this Section 7.6:
-7-
<PAGE>
(a) "MARKET PRICE" means the average closing price of the
Equitex Common Stock for the preceding 20 Trading Days if the Equitex
Common Stock is listed on a national securities exchange or quoted on
the Nasdaq National Market or the average of the last reported bid and
asked price for the Equitex Common Stock as reported on the Nasdaq
SmallCap Market or on the Electronic Bulletin Board or, if none, the
national Quotation Bureau, Inc.'s "Pink Sheets."
(b) "TRADING DAY" means any day on which the New York Stock
Exchange is open for business.
ARTICLE 8
AMENDMENTS TO ARTICLE 12 OF THE AGREEMENT
The following sections of Article 12 of the Agreement are hereby
amended in their entirety and replaced with the provisions set forth below.
12.1 TERMINATION. In addition to the provisions regarding termination
set forth elsewhere herein, this Agreement and the First Addendum and the
transactions contemplated hereby may be terminated at any time on or before the
Closing Date:
(a) by mutual consent of FBMS and Equitex;
(b) by either Equitex or FBMS if the transactions contemplated
by this Agreement have not been consummated by November 15, 1999,
unless such failure of consummation is due to the failure of the
terminating party to perform or observe the covenants, agreements, and
conditions hereof to be performed or observed by it at or before the
Closing Date; or
(c) by either FBMS or Equitex if the transactions contemplated
hereby violate any nonappealable final order, decree, or judgment of
any court or governmental body or agency having competent jurisdiction.
ARTICLE 9
CERTAIN ADDITIONAL AGREEMENTS
9.1 ENTIRE AGREEMENT. This First Addendum, the Agreement and the
exhibits thereto contain the complete agreement among the parties with respect
to the transactions contemplated hereby and supersede all prior agreements and
understandings among the parties with respect to such
-8-
<PAGE>
transactions. Except as expressly modified by this First Addendum, the Agreement
remains in full force and effect. Article and other headings are for reference
purposes only and shall not affect the interpretation or construction of this
First Addendum. The parties hereto have not made any representation or warranty
except as expressly set forth in this First Addendum or the Agreement or in any
certificate or schedule delivered pursuant hereto. The obligations of any party
under any agreement executed pursuant to this First Addendum or the Agreement
shall not be affected by this section.
9.2 REPLACEMENT OF EXHIBIT A TO AGREEMENT. Exhibit A to the Agreement
is hereby deleted in its entirety and replaced by Exhibit A to this First
Addendum. Any reference in the Agreement to the "Escrow Agreement" shall mean
and refer to Exhibit A to this First Addendum.
9.3 ISSUANCE OF PREFERRED SHARES. If, prior to the Effective Date, the
Equitex Capitalization shall not have been increased as contemplated by Section
6.9 of the Agreement, Equitex shall have the right to proceed with the Closing
and issue to the holders of FBMS Common Stock a series of Equitex preferred
stock, which shall automatically convert into shares of Equitex Common Stock
upon the approval by the Equitex shareholders of the increased number of
authorized shares of Equitex Common Stock as contemplated by Section 6.9 of the
Agreement. The shares of Equitex preferred stock issued in accordance with this
Section 9.3 shall not be entitled to dividends except as declared and paid on
shares of Equitex Common Stock or have a liquidation preference senior to that
of the Equitex Common Stock.
9.4 COUNTERPARTS. This First Addendum may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute only one original.
9.5 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the internal laws of the State of Delaware.
9.6 WAIVER AND OTHER ACTION. This First Addendum may be amended,
modified, or supplemented only by a written instrument executed by the parties
against which enforcement of the amendment, modification or supplement is
sought.
9.7 SEVERABILITY. If any provision of this First Addendum is held to be
illegal, invalid, or unenforceable, such provision shall be fully severable, and
this First Addendum shall be construed and enforced as if such illegal, invalid,
or unenforceable provision were never a part hereof; the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance; and in lieu of
such illegal, invalid, or unenforceable provision, there shall be added
automatically as part of this First Addendum, a provision as similar in its
terms to such illegal, invalid, or unenforceable provision as may be possible
and be legal, valid, and enforceable.
-9-
<PAGE>
9.8 MUTUAL CONTRIBUTION. The parties to this First Addendum and their
counsel have mutually contributed to its drafting. Consequently, no provision of
this Agreement shall be construed against any party on the ground that such
party drafted the provision or caused it to be drafted or the provision contains
a covenant of such party.
[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
-10-
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this First
Addendum as of the day and year first above written.
First Bankers Mortgage Services, Inc.
By:/S/ VINCENT L. MURATORE
--------------------------------------
Name: Vincent L. Muratore
Title: President and
Chief Executive Officer
Shareholder
By:/S/ VINCENT L. MURATORE
--------------------------------------
Name: Vincent L. Muratore
Equitex, Inc.
By:/S/ HENRY FONG
--------------------------------------
Name: Henry Fong
Title: President
FBMS Acquisition Corp.
By:/S/ HENRY FONG
--------------------------------------
Name: Henry Fong
Title: President
-11-
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Escrow Agreement
-12-
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
Amendments to Article 1 of the Agreement............................-1-
1.4 Corporate Government of the Surviving Corporation..........-1-
1.5 Closing....................................................-2-
ARTICLE 2
Amendments to Article 2 of the Agreement............................-2-
2.1 Conversion of Shares.......................................-2-
2.3 Exchange of FBMS Common Stock..............................-3-
ARTICLE 3
Amendments to Article 6 of the Agreement............................-4-
6.5 Warehouse Facility.........................................-4-
ARTICLE 4
Amendments to Article 9 of the Agreement............................-4-
9.1 Survival of Representations and Warranties.................-4-
9.3 Indemnity Agreements of Shareholder........................-4-
9.4 Performance Objective......................................-5-
ARTICLE 5
Deletion of Article 10 of the Agreement.............................-5-
ARTICLE 6
Amendments to Article 11 of the Agreement...........................-5-
11.1 Conversion or Redemption of FBMS Preferred Stock...........-5-
11.3 Effect of Non-Conversion...................................-6-
ARTICLE 7
Earn-In of Additional Shares........................................-6-
-i-
<PAGE>
7.1 Establishment of Escrow....................................-6-
7.2 Operational Objectives.....................................-6-
7.3 Performance Objective......................................-7-
7.4 Bonus Shares...............................................-7-
7.5 Adjustment of Performance Shares and Bonus Shares..........-7-
7.6 Definitions................................................-7-
ARTICLE 8
Amendments to Article 12 of the Agreement...........................-8-
12.1 Termination................................................-8-
ARTICLE 9
Certain Additional Agreements.......................................-8-
9.1 Entire Agreement...........................................-8-
9.2 Replacement of Exhibit A to Agreement......................-9-
9.3 Issuance of Preferred Shares...............................-9-
9.4 Counterparts...............................................-9-
9.5 Governing Law..............................................-9-
9.6 Waiver and Other Action....................................-9-
9.7 Severability...............................................-9-
9.8 Mutual Contribution........................................-9-
List of Exhibits............................................................-11-
-ii-
<PAGE>
First Addendum
to the
Agreement and Plan of Reorganization
AMONG
Equitex, Inc.
(a Delaware Corporation)
-----------------------------------
First Bankers Mortgage Services, Inc.
(a Florida Corporation)
-----------------------------------
Vincent L. Muratore
(an Individual)
AND
FBMS Acquisition Corp.
(a Delaware Corporation)
AUGUST 4, 1999
SECOND ADDENDUM
TO THE
AGREEMENT
AND
PLAN OF REORGANIZATION
This Second Addendum (the "Second Addendum") is made as of the 20th day
of August, 1999, among Equitex, Inc., a Delaware corporation ("Equitex"); First
Bankers Mortgage Services, Inc., a Florida corporation ("FBMS"); Vincent L.
Muratore, an individual and the sole shareholder of the common stock of FBMS
(the "Shareholder"); and FBMS Acquisition Corp., a Delaware corporation (the
"Merger Subsidiary"), which is wholly owned by Equitex.
W I T N E S S E T H:
WHEREAS, the parties entered into an Agreement and Plan of
Reorganization dated June 22, 1999 (the "Agreement"), as amended by the First
Addendum to the Agreement dated August 4, 1999 (the "First Addendum");
WHEREAS, Sections 7.11 and 8.8 of the Agreement require as a condition
to the Closing of the transactions contemplated by the Agreement, that the
Equitex stockholders shall have approved an increase in the authorized Equitex
Common Stock from 7,500,000 to 50,000,000 shares (the "Capitalization
Increase");
WHEREAS, the parties have agreed to amend the Agreement in accordance
with Section 12.8 to reflect that the Closing will occur prior to the
Capitalization Increase, and to effect the Closing upon the issuance of a series
of Equitex Preferred Stock pursuant to Section 9.3 of the First Addendum;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and certain other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto covenant and
agree as follows:
ARTICLE 1
CHANGE OF CONSIDERATION
1.1 DELIVERY OF PREFERRED STOCK. The Merger Consideration to be
delivered at Closing by Equitex shall be 1,000 shares of Equitex Series E
Convertible Preferred Stock (the "Series E Preferred Stock"). Until the shares
of Series E Stock are converted into shares of Equitex Common Stock, all
references in the Agreement to the Merger Consideration or to the Equitex Common
Stock shall mean and refer to the Series E Preferred Stock, in all circumstances
where appropriate. All denominations of Equitex Common Stock stated in the
Agreement shall be divided by 1,000 when
-1-
<PAGE>
referring to denomination of Series E Preferred Stock to be delivered in
accordance with this Second Addendum.
1.2 STATE FILINGS. The parties acknowledge that the Certificate of
Designations, Rights and Preferences for the Series E Preferred Stock, in the
form attached hereto as Exhibit A (the "Designation"), has not been filed with
the Delaware Secretary of State. Equitex shall file the Designation promptly
after the Closing and deliver the certificates representing the Series E
Preferred Stock upon acceptance of the Designation by the Delaware Secretary of
State. All representation and warranties of Equitex regarding the Series E
Preferred Stock shall only be effective from and after the filing and acceptance
of the Designation with and by the Delaware Secretary of State.
ARTICLE 2
WAIVERS OF CLOSING CONDITIONS
2.1 WAIVERS BY FBMS AND SHAREHOLDER. FBMS and the Shareholder hereby
waive the following conditions to Closing:
a. Section 7.1 of the Agreement, with respect to any matters concerning
the Capitalization Increase.
b. Section 7.2 of the Agreement with respect to any matters concerning
the Capitalization Increase and the status of the Series E Preferred Stock prior
to the filing of the Designation with the Delaware Secretary of State.
c. Section 7.11 of the Agreement.
2.1 WAIVERS BY EQUITEX AND THE MERGER SUBSIDIARY. Equitex and the
Merger Subsidiary hereby waive the following conditions to Closing:
a. Section 8.8 of the Agreement
b. Section 8.9 of the Agreement
-2-
<PAGE>
ARTICLE 3
CERTAIN ADDITIONAL AGREEMENTS
3.1 ENTIRE AGREEMENT. This Second Addendum, the First Addendum and the
Agreement and the exhibits thereto contain the complete agreement among the
parties with respect to the transactions contemplated hereby and supersede all
prior agreements and understandings among the parties with respect to such
transactions. Except as expressly modified by this Second Addendum, the First
Addendum and the Agreement remain in full force and effect. Article and other
headings are for reference purposes only and shall not affect the interpretation
or construction of this Second Addendum. The parties hereto have not made any
representation or warranty except as expressly set forth in this Second
Addendum, the First Addendum or the Agreement or in any certificate or schedule
delivered pursuant hereto. The obligations of any party under any agreement
executed pursuant to this Second Addendum, the First Addendum or the Agreement
shall not be affected by this section.
3.2 COUNTERPARTS. This Second Addendum may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute only one original.
3.3 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the internal laws of the State of Delaware.
3.4 WAIVER AND OTHER ACTION. This Second Addendum may be amended,
modified, or supplemented only by a written instrument executed by the parties
against which enforcement of the amendment, modification or supplement is
sought.
3.5 SEVERABILITY. If any provision of this Second Addendum is held to
be illegal, invalid, or unenforceable, such provision shall be fully severable,
and this Second Addendum shall be construed and enforced as if such illegal,
invalid, or unenforceable provision were never a part hereof; the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its
severance; and in lieu of such illegal, invalid, or unenforceable provision,
there shall be added automatically as part of this Second Addendum, a provision
as similar in its terms to such illegal, invalid, or unenforceable provision as
may be possible and be legal, valid, and enforceable.
3.6 MUTUAL CONTRIBUTION. The parties to this Second Addendum and their
counsel have mutually contributed to its drafting. Consequently, no provision of
this Agreement shall be construed against any party on the ground that such
party drafted the provision or caused it to be drafted or the provision contains
a covenant of such party.
-3-
<PAGE>
[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
-4-
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Second
Addendum as of the day and year Second above written.
First Bankers Mortgage Services, Inc.
By: /s/ Vincent L.Muratore
--------------------------------
Name: Vincent L. Muratore
Title: President and Chief Executive Officer
Shareholder
By: /s/ Vincent L.Muratore
--------------------------------
Name: Vincent L. Muratore
Equitex, Inc.
By: /s/ Henry Fong
--------------------------------
Name: Henry Fong
Title: President
FBMS Acquisition Corp.
By: /s/ Henry Fong
--------------------------------
Name: Henry Fong
Title: President
-5-
<PAGE>
LIST OF EXHIBITS
Exhibit A Certificate of Designations, Rights and Preferences of the
Series E Preferred Stock of Equitex, Inc.
-6-
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
Change of Consideration.............................................-1-
1.1 Delivery of Preferred Stock.......................-1-
1.2 State Filings.....................................-2-
ARTICLE 2
Waivers of Closing Conditions.......................................-2-
2.1 Waivers by FBMS and Shareholder............................-2-
2.1 Waivers by Equitex and the Merger Subsidiary...............-2-
ARTICLE 3
Certain Additional Agreements.......................................-2-
3.1 Entire Agreement...........................................-2-
3.2 Counterparts...............................................-3-
3.3 Governing Law..............................................-3-
3.4 Waiver and Other Action....................................-3-
3.5 Severability...............................................-3-
Mutual Contribution........................................-3-
List of Exhibits.............................................................-5-
-i-
<PAGE>
Second Addendum
to the
Agreement and Plan of Reorganization
AMONG
Equitex, Inc.
(a Delaware Corporation)
-----------------------------------
First Bankers Mortgage Services, Inc.
(a Florida Corporation)
-----------------------------------
Vincent L. Muratore
(an Individual)
AND
FBMS Acquisition Corp.
(a Delaware Corporation)
AUGUST 20, 1999
CERTIFICATE OF DESIGNATIONS
OF
EQUITEX, INC.
--------------------
DESIGNATION OF PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS
OF THE
SERIES E 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 August
23, 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 1,093 shares, which shall be designated as the "Series E 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.
August 26, 1999 By: /S/ HENRY FONG
-----------------------------
Henry Fong, President
<PAGE>
ATTACHMENT A
TO THE
DESIGNATION OF PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS
OF THE
SERIES E CONVERTIBLE PREFERRED STOCK
OF
EQUITEX, INC.
1. DESIGNATION AND AMOUNT. The distinctive designation of such series
is "Series E Convertible Preferred Stock, $.01 par value" (the "Series E
Preferred Stock") of Equitex, Inc., a Delaware corporation (the "Company"), the
number of shares constituting this series shall be 1,000, and the aggregate
stated value of such shares shall be $1,000 per share or $10,000,000.
2. DIVIDEND RIGHTS. The holders of the Series E Preferred Stock shall
not be entitled to dividends.
3. LIQUIDATION PREFERENCE. The Series E Preferred Stock shall have no
liquidation preferences with respect to any other class or series of the
Company's common stock, $.02 par value per share (the "Common Stock") or
preferred stock.
4. VOTING RIGHTS. The holders of outstanding shares of Series E
Preferred Stock shall not be entitled to vote on any matters submitted to the
stockholders of the Company except as otherwise required by law, in which case
every holder of Series E Preferred Stock shall be entitled to one vote for each
such share.
5. AUTOMATIC CONVERSION OF THE SERIES E PREFERRED STOCK. Upon approval
by the Company's shareholders of an increase in the authorized number of shares
of Common Stock from 7,500,000 shares to 50,000,000 shares, each outstanding
share of Series E Preferred Stock shall automatically and without any further
action on the part of the owner and holder thereof, convert, at the office of
the Company or any transfer agent for the Series E Preferred Stock, into 1,000
shares of Common Stock.
6. MECHANICS OF CONVERSION. Upon surrender of the certificates
representing the Series E Preferred Stock being converted, the Company shall
within three business days of receipt of the original certificates or
certificates representing the shares of Series E Preferred Stock to be
converted, issue and deliver or cause to be issued and delivered to such holder
of Series E Preferred Stock, or to its nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled.
7. AUTOMATIC CONVERSION UPON MERGER/CONSOLIDATION/SALE OF ASSETS.
Not-withstanding any other provisions found in this designation, if a
consolidation or merger of the Company with or into another company or entity
occurs and the Company is not the surviving entity, or if the Company sells
substantially all of its assets not in the ordinary course of business, on the
day immediately preceding such consolidation, merger or sale, each share of
Series E Preferred Stock will immediately and automatically convert into 1,000
shares of Common Stock.
<PAGE>
8. FRACTIONAL SHARES. Any fractional shares resulting from a conversion
shall be rounded to the next highest whole share of Common Stock.
9. NOTICES. Any notice required by the provisions of this Certificate
to be given to the holder of shares of the Series E Preferred Stock shall be
deemed given when personally delivered to such holder or five business days
after the same has been deposited in the United States mail, certified or
registered mail, return receipt requested, postage prepaid, and addressed to
each holder of record at such holder's address appearing on the books of the
Company. All notices shall state the date of conversion or redemption, as the
case may be.
10. PAYMENT OF TAXES. The holder of the Series E Preferred Stock will
pay all taxes and other governmental charges that may be imposed in respect of
the issue or delivery of shares of Common Stock upon conversion of shares of
Series E Preferred Stock.
