SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Sectioin 240.14a-12
Equitex, Inc.
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(Name of Registrant as Specified in its Charter)
Paul D. Chestovich, Esq.
Maslon Edelman Borman & Brand, LLP
3300 Wells Fargo Center
90 South Seventh Street
Minneapolis, MN 55402-4140 (U.S.A)
Phone: 612.672.8305
Facsimile: 612.642.8305
------------------------------------------
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Payment of Filing Fee (Check the appropriate box):
[X] No fee required
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(1) Title of each class of securities to which transaction applies:
______________________________________________________________
(2) Aggregate number of securities to which transaction applies:
______________________________________________________________
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
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EQUITEX, INC.
7315 EAST PEAKVIEW AVENUE
ENGLEWOOD, COLORADO 80111
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Notice of Annual Meeting of Stockholders
To Be Held on December ___, 2004
- --------------------------------------------------------------------------------
November ___, 2004
To the Stockholders of Equitex, Inc.
An Annual Meeting of Stockholders of Equitex, Inc., a Delaware corporation,
will be held at the Company's offices at 500 Australian Avenue South, Suite 625,
West Palm Beach, Florida 33401, on December ___, 2004, at 10:00 a.m. Eastern
Standard Time, to consider and take action on the following matters:
1. The election of four directors to serve until the next annual meeting
of stockholders and until their successors have been elected and
qualified.
2. The ratification and confirmation of the stockholders' approval, on
December 29, 2002, to amend Paragraph Four of the company's
Certificate of Incorporation to cause a one-for-six-share reverse
stock split of the company's common stock.
3. The approval of Equitex's issuance of common stock upon conversion of
either the presently unconverted Series D 6% Convertible Preferred
Stock, Series G 6% Convertible Preferred Stock and Series I 6%
Convertible Preferred Stock, to the extent such issuance exceeds 20%
of Equitex's common stock outstanding as of the dates any such
preferred shares were issued; or upon conversion of a new series of
preferred stock to be issued in exchange for such presently
unconverted preferred shares.
4. The ratification of the appointment of Gelfond Hochstadt Pangburn,
P.C. as the company's independent registered public accounting firm
for the year ending December 31, 2004.
5. Such other business as may properly come before the meeting, or any
adjournments thereof.
Stockholders holding shares of common stock of record at the close of
business on November 23, 2004, will be entitled to receive notice of and vote at
the meeting.
Stockholders, whether or not they expect to be present at the meeting, are
requested to sign and date the enclosed proxy and return it promptly in the
envelope enclosed for that purpose. Any person giving a proxy has the power to
revoke it at any time by following the instructions provided in this proxy
statement.
By Order of the Board of Directors:
/S/ THOMAS B. OLSON
Thomas B. Olson
Secretary
YOU ARE URGED TO DATE, SIGN AND PROMPTLY RETURN YOUR PROXY SO THAT YOUR
SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES. THE GIVING OF SUCH PROXY
DOES NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE MEETING.
Your vote is important.
EQUITEX, INC.
7315 EAST PEAKVIEW AVENUE
ENGLEWOOD, COLORADO 80111
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Proxy Statement
Annual Meeting of Stockholders
December ___, 2004
- --------------------------------------------------------------------------------
To our Stockholders:
This proxy statement is furnished to stockholders of Equitex, Inc.
("Equitex" or the "Company"), a Delaware corporation, in connection with the
solicitation of proxies by and on behalf of Equitex's board of directors for use
at the Annual Meeting of Stockholders to be held on December ___, 2004, at the
Company's offices at 500 Australian Avenue South, Suite 625, West Palm Beach,
Florida 33401, at the time and for the purposes set forth in the accompanying
notice of annual meeting of stockholders. This proxy statement, the accompanying
proxy card and the notice of annual meeting, hereinafter collectively referred
to as the "proxy materials," will be first sent to our stockholders on or about
November ___, 2004.
AVAILABLE INFORMATION
Equitex is subject to the informational requirements of the Securities and
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Such reports, proxy statements and other information
filed with the SEC can be inspected and copied at the SEC's public reference
facilities maintained at Room 1024, 450 Fifth Street, N.W., Washington, DC 20549
or at the SEC's Regional Offices located at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
also be obtained from the SEC at prescribed rates. Written requests for such
material should be addressed to the Public Reference Section, SEC, 450 Fifth
Street, N.W., Washington, DC 20549. The SEC maintains a website that contains
reports, proxy statements and other information that we file electronically with
the SEC, which can be accessed over the internet at http://www.sec.gov.
GENERAL INFORMATION
As of the close of business on November 23, 2004, the record date for
entitlement to notice of a vote at the annual meeting, Equitex had outstanding
____________ shares of common stock, $.02 par value per share. In accordance
with Company's bylaws the presence, in person or by proxy, of holders of
one-third of the shares of common stock entitled to vote at the annual meeting
constitutes a quorum for the transaction of business at the annual meeting.
Each share of common stock outstanding on the record date is entitled to
one vote on each matter presented at the annual meeting. Abstentions will be
treated as shares present or represented and entitled to vote for purposes of
determining the presence of a quorum, but will not be considered as votes cast
in determining whether a matter has been approved by the stockholders. As to any
shares a broker indicates on its proxy that it does not have the authority to
vote on any particular matter because it has not received direction from the
beneficial owner thereof, said shares will not be counted as voting on a
particular matter, but will nonetheless be counted in determining the presence
of a quorum.
A stockholder who gives a proxy may revoke it at any time before it is
voted by giving notice of the revocation thereof to the secretary of Equitex, by
filing another proxy with the secretary or by attending the annual meeting and
voting in person. All properly executed and unrevoked proxies delivered pursuant
to this solicitation, if received in time, will be voted in accordance with the
instructions of the beneficial owners contained thereon.
Equitex will bear the cost of the solicitation of proxies in connection
with the annual meeting. In addition to solicitation by mail, Equitex will
request banks, brokers and other custodian nominees and fiduciaries to supply
1
proxy materials to the beneficial owners of Equitex's common stock for whom they
hold shares and will reimburse them for their reasonable expenses in so doing.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
Set forth below is certain information as of October 31, 2004, with respect
to ownership of Equitex's common stock held of record or beneficially by (i)
Equitex's executive officers, (ii) each director of Equitex, (iii) each person
who owns beneficially more than five percent of Equitex's outstanding common
stock; and (iv) all directors and executive officers as a group:
Shares of Shares of
Shares of Shares of Common Stock Common
Common Common Stock Underlying Stock Percentage
Name and Address of Beneficial Stock Underlying Preferred Underlying of Common
Owner Owned Options Stock Warrants Total Stock Owned
- -------------------------------- ------------ -------------- -------------- ------------- -------------- -------------
Henry Fong 775,627 (1) 1,254,700 (2) 0 39,337 2,068,964 5.9%
7315 E. Peakview Ave.
Englewood, CO 80111
Russell L. Casement 146,795 370,400 (3) 0 795 517,990 1.5%
1355 S. Color. Blvd Ste. 320
Denver, CO 80222
Aaron A. Grunfeld 32,700 384,000 (4) 0 0 416,700 1.2%
10390 Santa Monica Blvd
Fourth Floor
Los Angeles, CA 90025
Michael S. Casazza 5,167 125,000 (5) 0 10,000 140,167 0.4%
906 Thornblade Blvd
Greer, SC 29650
Thomas Olson 0 250,000 (6) 0 0 250,000 0.7%
7315 E. Peakview Ave
Englewood, CO 80111
Daniel Bishop (7) 4,877,608 0 1,250,000 280,000 6,407,608 (8) 17.9%
7315 E Peakview Ave
Englewood, CO 80111
All officers and directors as 960,289 2,383,400 0 50,132 3,393,821 9.3%
a group (five persons)
- ------------------------
1. Includes 476,000 shares of common stock underlying options granted under
the 1999 Stock Option Plan and 778,000 shares underlying options granted
under the 2003 Stock Option Plan.
2. Includes shares owned by a corporation in which Mr. Fong is an officer and
director and a partnership in which Mr. Fong is partner.
2
3. Includes 36,400 shares underlying options granted under our 1993 Stock
Option Plan for Non-Employee Directors, 84,000 shares underlying options
granted under the 1999 Stock Option Plan and 250,000 shares granted under
the 2003 Stock Option Plan.
4. Includes 50,000 shares underlying options granted under our 1993 Stock
Option Plan for Non-Employee Directors, 84,000 shares underlying options
granted under our 1999 Stock Option Plan and 250,000 shares granted under
the 2003 Stock Option Plan.
5. Includes 35,000 shares underlying options granted under our 1999 Stock
Option Plan and 215,000 shares granted under the 2003 Stock Option Plan.
6. Includes 125,000 shares underlying options granted under our 2003 Stock
Option Plan.
7. Ownership information obtained from Amendment No. 1 to Schedule 13D dated
October 17, 2003.
8. Includes 1,828,149 shares owned by various corporations of which Mr. Bishop
is an officer, sole director and sole shareholder. The Preferred Stock is
also owned by various corporations of which Mr. Bishop is an officer, sole
director and sole shareholder.
PROPOSAL 1
ELECTION OF DIRECTORS
The following four persons are to be elected as directors of Equitex
for a term of one year and until the election and qualification of their
successors: Henry Fong, Russell L. Casement, Aaron A Grunfeld and Michael S.
Casazza. These four directors will constitute the entire board of directors of
Equitex. The persons named in the proxy intend to vote for Messrs. Fong,
Casement, Casazza and Grunfeld, all of whom have been recommended for election
by the board of directors, unless a stockholder withholds authority to vote for
any or all of such nominees. If any nominee is unable to serve or, for good
cause, will not serve, the persons named in the proxy reserve the right to
substitute another person of their choice as nominee in his place. Each of the
nominees has agreed to serve, if elected.
VOTE REQUIRED
The affirmative vote of the majority of the outstanding shares present
in person or represented by proxy will be required to elect each
director-nominee to our board of directors, provided that a quorum was present
at the beginning of the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE FOUR DIRECTOR-NOMINEES.
3
INFORMATION ABOUT DIRECTORS AND OFFICERS
HENRY FONG, age 68, has been the president, treasurer and a director of
Equitex since its inception. Mr. Fong became a director of FastFunds Financial
Corporation in June 2004. Mr. Fong has been president and a director of Equitex
2000, Inc. since its inception in 2001. Mr. Fong has been President and a
Director of Torpedo Sports USA, Inc. since March 2002. Torpedo Sports USA, Inc.
is a publicly traded manufacturer and distributor of recreational equipment.
From December 2000 to January 2002, Mr. Fong was a director of Popmail.com,
Inc., a publicly traded Internet marketing company. From 1959 to 1982 Mr. Fong
served in various accounting, finance and budgeting positions with the
Department of the Air Force. During the period from 1972 to 1981 he was assigned
to senior supervisory positions at the Department of the Air Force headquarters
in the Pentagon. In 1978, he was selected to participate in the Federal
Executive Development Program, and in 1981 he was appointed to the Senior
Executive Service. In 1970 and 1971, he attended the Woodrow Wilson School,
Princeton University and was a Princeton Fellow in Public Affairs. Mr. Fong
received the Air Force Meritorious Civilian Service Award in 1982. Mr. Fong has
passed the uniform certified public accountant exam. In March 1994, Mr. Fong was
one of twelve CEOs selected as Silver Award winners in FINANCIAL WORLD
magazine's corporate American "Dream Team."
THOMAS B. OLSON, age 38, has been secretary of Equitex since January 1988,
secretary of FastFunds Financial Corporation since June 2004 and has been a
director of Chex Services, Inc. (formerly a wholly owned subsidiary of the
Company, and now a wholly owned subsidiary of FastFunds Financial Corporation)
since May 2002. Since March 2002, Mr. Olson has been the secretary of Torpedo
Sports USA, Inc., a publicly traded manufacturer and distributor of recreational
equipment. Mr. Olson has been secretary of Equitex 2000, Inc. since its
inception in 2001. From August 2002 to July 2004, Mr. Olson was the secretary of
El Capitan Precious Metals, Inc., a publicly traded company with ownership
interest in a mining property. From February 1990 to February 2000, Mr. Olson
was a director, and from May 1994 to February 2000 secretary, of Immune
Response, Inc. a publicly held investee of Equitex which merged with Opticon
Medical, Inc., in February 2000. Mr. Olson has attended Arizona State University
and the University of Colorado at Denver.
RUSSELL L. CASEMENT, age 60, has been a director of Equitex since February
1989. Dr. Casement has been a director of Equitex 2000, Inc. since its inception
in 2001. Since 1969, Dr. Casement has been the president of his own private
dental practice, Russell Casement, D.D.S., P.C., in Denver, Colorado. Dr.
Casement earned a Doctor of Dental Science degree from Northwestern University
in 1967. Dr. Casement is a member of the American Dental Association, the
Colorado Dental Association and the Metro Denver Dental Association.
AARON A. GRUNFELD, age 57, has been a director of Equitex since November
1991. Mr. Grunfeld has been a director of Equitex 2000, Inc. since its inception
in 2001. Mr. Grunfeld has been engaged in the practice of law since 1971 and has
been of counsel to the firm of Resch Polster Alpert & Berger, LLP, Los Angeles,
California since November 1995. From April 1990 to November 1995, Mr. Grunfeld
was a member of the firm of Spensley Horn Jubas & Lubitz, Los Angeles,
California. Mr. Grunfeld received an A.B. in Political Science from UCLA in 1968
and a J.D. from Columbia University in 1971. He is a member of the California
State Bar.
MICHAEL S. CASAZZA, age 54, became a director of Equitex in February 2004.
From 1998 to the present, Mr. Casazza has been chairman of the board and
president of A&M Trucking, Inc., a privately-held trucking company based in
Denver, Colorado. From 1993 to 1997, and from 1990 to 1996, Mr. Casazza was
president and chief executive officer of California Pro Sports, Inc. and
MacGregor Sports and Fitness, respectively, both publicly-held manufacturers of
sporting goods equipment. Prior to 1990, Mr. Casazza also held senior executive
level positions with Dunlop Sports Corporation and Wilson Sporting Goods. Mr.
Casazza received his Bachelors Degree in Business Administration from St.
Bonaventure University in 1972.
BOARD OF DIRECTORS AND COMMITTEES
The Company's board of directors is currently comprised of four
individuals, each of whom is identified above. The Company currently has three
"independent directors" as such term is defined in Section 4200(a)(15) of
National Association of Securities Dealers' listing standards. During the fiscal
year ended December 31, 2003, Equitex's board of directors met nine times, and
4
took unanimous formal action in writing on 17 separate occasions. Each member of
the board of directors attended at least 75 percent of the aggregate number of
meetings of the board of directors and the committees of the board on which he
served. The Company expects its directors to attend the annual meetings of
Equitex stockholders, if possible. The board of directors has an audit
committee, a compensation committee and a nominating committee.
The audit committee of the board of directors consists of three
non-employee directors: Michael S. Casazza (chair), Aaron A. Grunfeld and
Russell L. Casement. The board of directors has determined that each of the
audit committee members is able to read and understand fundamental financial
statements. Moreover, the board of directors has determined that at least one
member of the audit committee, Mr. Casazza, qualifies as an "audit committee
financial expert" as that term is defined in Item 401(h)(2) of Regulation S-K
promulgated under the Securities Exchange Act of 1934, as amended. Mr. Casazza's
relevant experience includes his service as chief executive officer with
financial oversight responsibilities of two publicly traded companies. The board
of directors has determined that all of the members of the audit committee
qualify as "independent directors," as such term is defined in Section
4200(a)(15) of National Association of Securities Dealers' listing standards.
The audit committee met four times during the year ended December 31, 2003. The
Report of the Audit Committee is set forth below. The board of directors has
adopted a written charter for the audit committee, a copy of which was filed as
Exhibit A to the Company's proxy statement for its 2003 annual stockholder
meeting, as filed with the SEC on December 1, 2003 (File No. 000-12374). The
audit committee reviews and approves the scope of the annual audit undertaken by
Equitex's independent registered public accounting firm and meets with them as
necessary to review the progress and results of their work as well as any
recommendations they may make. The audit committee also reviews the fees of the
independent registered public accounting firm and recommends to the board of
directors the appointment of an independent registered public accounting firm.
In connection with the internal accounting controls of Equitex, the audit
committee reviews internal control and reporting systems in conjunction with
management and the independent registered public accounting firm.
The compensation committee of the board of directors consists of two
non-employee directors: Aaron A. Grunfeld (chair) and Russell L. Casement. The
compensation committee, which did not meet during the fiscal year ended December
31, 2003 but took unanimous formal action in writing once, grants stock options
and other incentive-compensation awards, reviews salary levels, bonuses and
other matters and makes recommendations to the full board of directors in
connection therewith. The report of the compensation committee appears below.
The board of directors has not adopted a written charter for the compensation
committee.
AUDIT COMMITTEE REPORT
The audit committee has discussed with the independent registered public
accounting firm the matters required to be discussed by SAS 61, as may be
modified or supplemented. We have received the written disclosures and the
letter from the independent registered public accounting firm required by the
Independence Standards Board Standard No. 1, as may be modified or supplemented,
and has discussed with the independent registered public accounting firm such
firm's independence. The audit committee has reviewed and discussed the
financial information for the quarters ended March 31, 2003, June 30, 2003 and
September 30, 2003, as well as the quarters ended March 31, 2004, June 30, 2004
and September 30, 2004 with management of Equitex. In accordance with its
charter, the audit committee reviewed and discussed the audited financial
statements for the year ended December 31, 2003 with management of the Company.
The audit committee recommended to the board of directors that the audited
financial statements be included in Equitex's annual report on Form 10-K for the
year ended December 31, 2003.
Russell L. Casement
Aaron A. Grunfeld
Michael S. Casazza
5
COMPENSATION COMMITTEE REPORT
In January 1998, the compensation committee of our board of directors
retained an independent consultant to review the President's compensation. The
compensation committee directed the consultant to review both the salary and
bonus structure. The independent consultant analyzed the compensation structure
and compared it to the compensation structures of companies similar to us. The
consultant recommended no change in the President's salary but did recommend an
annual bonus plan equaling one percent of our total assets combined with five
percent of the increase in the market value of our common stock not held by the
President. The bonus was calculated and paid quarterly from January 1 to
December 31 of any fiscal year based on a formula provided by the consultant.
The compensation committee felt this compensation arrangement, tied primarily to
the market performance of our common stock while including incentives for
increases in assets, was the most equitable method for compensating the
President. This provided a quantitative measure on which to reward the
President's performance, by directly emphasizing market performance, which
correlates directly with the expectations and goals of us and our stockholders.
This plan was in place until June 30, 2001. At that time, our President
approached the compensation committee and voluntarily proposed an end to the
bonus portion of his compensation in connection with the acquisition of Key
Financial Systems and Nova Financial Systems. The compensation committee agreed
and thereafter beginning July 1, 2001, our President received an annual salary
of $183,013 and no bonus through the year ended December 31, 2002.
During 2003, the compensation committee reviewed our President's salary,
which had not been adjusted since 1991. The Compensation Committee determined
his salary should be increased to reflect the approximate annual increase in the
consumer price index for the previous five years. This amounted to an increase
of approximately 15%, to an aggregate of $210,000. In reviewing Mr. Fong's
compensation, the compensation committee also determined it was in the best
interest of the Company to give him additional incentive to maximize the
Company's performance. The compensation committee determined the bonus plan
based solely on the increase in market value of our common stock recommended by
the independent consultant in 1998 still presented a viable way to reward our
President's performance by tying his bonus to the goals of our stockholders.
Therefore, effective June 1, 2003, the compensation committee reinstated the
previous bonus plan for our President absent payment for one percent of the
Company's total assets.
Aaron A. Grunfeld
Russell L. Casement
NOMINATION OF DIRECTORS
The nominating committee of the board of directors consists of three
non-employee directors: Russell L. Casement, Aaron A. Grunfeld and Michael S.
Casazza. The nominating committee operates under a charter for the purposes of
considering director-nominees, a copy of which is provided as Exhibit 2 to this
proxy statement. In considering director-nominees, the committee recruits and
considers candidates without regard to race, color, religion, sex, ancestry,
national origin or disability. Generally, the committee will consider each
candidate's business and industry experience, his or her ability to act on
behalf of stockholders, overall board diversity, potential concerns regarding
independence or conflicts of interest and other factors relevant in evaluating
director-nominees. Typically, the candidate will meet with one or more members
of the committee ands at least a majority of the directors serving on the board
of directors, including the Company's President. The committee will also
consider a candidate's personal attributes, including without limitation
personal integrity, loyalty to the Company and concern for its success and
welfare, willingness to apply sound and independent business judgment, awareness
of a director's vital role in the Company's good corporate citizenship and
image, time available for meetings and consultation on Company matters, and
willingness to assume broad, fiduciary responsibility.
The Company's stockholders may recommend to the nominating committee of the
board of directors candidates to be considered for election at the Company's
annual stockholder meeting. In order to make such a recommendation, a
stockholder must submit the recommendation in writing to the board of directors,
6
in care of the Company's secretary, at the Company's headquarters address, on or
prior to March 31, 2005. For more information regarding stockholder proposals
and their timeliness, see "Stockholder Proposals" on page 16. To enable the
board of directors to evaluate the candidate's qualifications, stockholder
recommendations must include the following information:
o the name and address of the nominating stockholder and the director
candidate;
o a representation that the nominating stockholder is a holder of record of
the Company's capital stock entitled to vote at the current year's annual
meeting;
o a description of any arrangements or understandings between the nominating
stockholder and the director candidate(s) being recommended, pursuant to
which the nomination(s) are to be made by the stockholder;
o a resume detailing the educational, professional and other information
necessary to determine if the nominee is qualified to serve as a Company
director;
o such other information regarding each nominee proposed by such stockholder
as would have been required to be included in a proxy statement filed
pursuant to the proxy rules of the SEC had each nominee been nominated by
the board of directors; and
o the consent of each nominee to serve as a director of the Company, if
elected.
ABILITY OF STOCKHOLDERS TO COMMUNICATE WITH THE BOARD OF DIRECTORS
The board of directors has established means for the Company's stockholders
and others to communicate with the board of directors. If a stockholder wishes
to address a matter regarding the Company's financial statements, accounting
practices or internal controls, the concern should be submitted by letter or
other writing addressed to the chair of the audit committee, in care of the
Company's secretary, at the Company's headquarters address. If the matter
relates to the Company's governance practices, business ethics or corporate
conduct, the matter should be submitted by letter or other writing to the chair
of the full board of directors, in care of the Company's secretary, at the
Company's headquarters address. If a stockholder otherwise is unsure where to
direct a communication, the stockholder may send a letter or other writing to
the chair of the board of directors, or to any one of the Company's independent
directors, in care of the Company's secretary, at the Company's headquarters
address. All stockholder communications will be forwarded by the secretary to
the addressee.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Mr. Henry Fong, our President and the only officer of Equitex whose total
compensation exceeded $100,000 for the fiscal year ended December 31, 2003,
received an annual salary of $210,000 in fiscal year 2003. Beginning July 1,
2001 and for the year ended December 31, 2002, the only compensation Mr. Fong
received from Equitex was his annual salary. Of the compensation expense to Mr.
Fong during 2001, $76,255 was expensed during the period from August 6, 2001 to
December 31, 2001, following our merger with Key Financial Systems and Nova
Financial Systems, with the balance paid by Equitex 2000 Inc..
In January 1998, the compensation committee of our board of directors
retained an independent consultant to review the President's compensation. As a
result of that review, a new compensation arrangement was instituted based on
recommendations made by the independent consultant. In addition to Mr. Fong's
annual salary, beginning January 1, 1998 and ended June 30, 2001, Mr. Fong
received an annual bonus equaling one percent of our total assets combined with
five percent of the increase in the market value of our common stock, excluding
shares owned by him, calculated quarterly from January 1 to December 31 of any
fiscal year. If there was a negative computation in any given quarter, no bonus
was accrued and that negative amount was carried forward to offset the
subsequent quarter's bonus during the fiscal year. Negative amounts were not
accumulated nor carried into subsequent fiscal years. Following our acquisition
of Nova Financial Systems and Key Financial Systems in August 2001, Mr. Fong, in
consultation with the compensation committee, agreed to end the bonus plan
beginning July 1, 2001 through December 31, 2002. All accrued bonuses due under
the plan became the responsibility of Equitex 2000 Inc. following the spin-off
in August 2001. In June 2003, the compensation committee reviewed Mr. Fong's
compensation arrangement and reinstituted the bonus plan effective June 1, 2003,
for a bonus to be calculated quarterly based on five percent of the increase in
the market value of our common stock as described above.
7
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding compensation paid
to the officers of Equitex during the years ended December 31, 2003, 2002 and
2001:
Long-Term
Compensation
Annual Compensation Awards
------------------------------------
Name & Other Annual All Other
Principal Salary Bonus Compensation Options Compensation
Position Year ($) ($) ($) & SARs(#) ($)
- -------- ---- --- --- --- --------- ---
Henry Fong 2003 210,000 1,489,566 -0- 328,000 -0-
President,
Treasurer 2002 183,013 -0- -0- -0- -0-
Principal
Executive 2001 76,255 -0- -0- -0- -0-
Officer and (1)
Accounting
Officer
- ---------
(1) Includes salary paid and accrued during the period from August 6, 2001 to
December 31, 2001.
OPTION/SAR GRANTS IN 2003
GRANT DATE
INDIVIDUAL GRANTS VALUE
Number of
Securities Percent of total
Underlying options/ SARs Exercise Grant
Options/ granted to of Base Date
SARs employees in Price Expiration Present
Name Granted (#) Fiscal Year ($/Sh) Date Value($)
- ---- ----------- ----------- ------ ---- --------
Henry Fong 328,000 22% $1.03 6/20/2008 337,840(1)
AGGREGATED OPTION/SAR EXERCISES IN 2003 AND FY-END OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at FY-End (#) at FY-End (#)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
---- ------------ ------------ ------------- -------------
Henry Fong -0- -0- 945,700/-0- $-0-/-0-
8
PERFORMANCE GRAPH
12/31/1998 12/31/1999 12/31/2000 12/31/2001 12/31/2002 12/31/2003
- ----------------------------------------------------------------------------------------
Nasdaq US 100.00 185.43 111.83 88.76 61.37 91.75
Nasdaq Financial 100.00 99.34 107.40 117.96 121.48 164.30
Equitex 100.00 116.36 70.01 52.65 5.96 23.27
COMPENSATION OF DIRECTORS
Each independent member of our board of directors receives $10,000 per year
payable monthly and $500 for each board of director's meeting attended either in
person or by telephone. Directors are entitled to reimbursement for
out-of-pocket expenses in connection with attendance at board and committee
meetings. In addition to cash compensation, our directors participate in various
stock option plans for officers, directors, employees and consultants to the
company including the 1993 Stock Option Plan for Non-Employee Directors, the
1999 Stock Option Plan, and the 2003 Stock Option Plan.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
There is no compensation plan or arrangement with respect to any executive
officer which plan or arrangement results or will result from the resignation,
retirement or any other termination of such individual's employment with
Equitex. There is no plan or arrangement with respect to any such persons, which
will result from a change in control of Equitex or a change in the individual's
responsibilities following a change in control.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our officers,
directors and persons who own more than ten percent of our voting securities to
file reports of their ownership and changes in such ownership with the SEC. The
SEC's regulations also require that such persons provide Equitex with copies of
all Section 16 reports they file. Based solely upon our review of such reports
received by us, or written representations from certain persons that they were
not required to file any reports under Section 16, we believe that, during 2003,
our officers and directors have complied with all Section 16 filing
requirements.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
We currently lease approximately 1,800 square feet of office space in
Greenwood Executive Park, 6400 South Quebec, Englewood, Colorado from an entity
in respect of which our President is the sole owner, on terms comparable to the
existing market for similar facilities.
During 2002, our President, Mr. Fong, and a company in which he is the sole
officer and director, loaned us a total of $25,000, which remained unpaid at
December 31, 2002. From time to time during 2003, Mr. Fong and these same
9
company loaned us an aggregate of $64,459. Of these amounts, $89,038 was repaid
during 2003, leaving $421 unpaid as of December 31, 2003. These loans were due
on demand and carried an interest rate of 8%.
PROPOSAL 2
TO RATIFY AND CONFIRM OUR STOCKHOLDERS' APPROVAL OF AN AMENDMENT TO PARAGRAPH
FOUR OF OUR CERTIFICATE OF INCORPORATION EFFECTING A
ONE-FOR-SIX-SHARE REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK
Our board of directors recommends an amendment to Equitex's Certificate of
Incorporation to cause an exchange of each outstanding six shares of common
stock for one share of common stock. Because of a recent decline in our share
price and for the reasons discussed below in the section entitled "Description
of and Reasons for the Proposed Reverse Stock Split," our board of directors
recommends this one-for-six reverse stock split. Adoption of the proposed
amendment to Paragraph Four of Equitex's Certificate of Incorporation will
effect a one-for-six reverse stock split whereby every six shares of our
outstanding common stock will be exchanged for one share of common stock. To the
extent affected by the proposed reverse stock split, the number of shares of our
common stock into which the authorized and outstanding shares of our Series D
preferred stock, Series G preferred stock and, Series I preferred stock are
convertible shall be adjusted in accordance with the anti-dilution provisions
contained in their respective Certificates of Amendment to the Certificate of
Incorporation designating their rights, preferences and privileges.
Currently, Equitex has an authorized capital of 50,000,000 shares of common
stock. The authorized number of Equitex common stock will not be reduced or
otherwise affected by the reverse split. The number of issued and outstanding
shares of our common stock on November 23, 2004, the record date for entitlement
to notice of a vote at the annual meeting, was _________. Based upon our best
estimate, the aggregate number of shares of common stock that will be issued and
outstanding on December ___, 2004, after giving effect to the reverse split, is
___________ and the number of shares of treasury stock will be __________. A
copy of Paragraph Four of the Certificate of Incorporation as it would read
following adoption of this proposal is included herewith as Exhibit 1.
At the Company's 2002 annual meeting of stockholders, held on December 27,
2002, the stockholders approved a one-for-six-share reverse stock split. For
various reasons, including the trading price of the Company's common stock on
the Nasdaq SmallCap Market, the board of directors did not effect the reverse
stock split approved by the stockholders. For the reasons discussed below,
however, the board of directors believes it is now in the best interests of the
Company and the stockholders to effect the reverse stock split. Accordingly,
this Proposal Two seeks to ratify and confirm the stockholder approval obtained
at the 2002 annual meeting; it does not seek to authorize a second reverse stock
split.
In conjunction with the reverse stock split, our board of directors has
authorized a dividend to be declared and paid to stockholders of record at a
date to be determined, but only after the proposed reverse stock split is
ratified and confirmed at the 2004 annual meeting. If enacted, the dividend
would be payable through the issuance of warrants to purchase shares of our
common stock on a post-reverse-split basis. The current resolution approved by
the board calls for stockholders to receive a one A warrant and one B warrant
for every two shares of Equitex stock owned on the record date. The A warrant
would be exercisable at $0.51 per pre-split share (or $3.06 per post-split
share) for a period of five years from issuance and be callable by the Company
at a nominal price should the stock price close above $1.17 per pre-split share
(or $7.02 per post-split share) for 15 consecutive trading days. The B warrant
would be exercisable at $1.02 per pre-split share (or $6.12 per post-split
share) for the five-year period and callable at a nominal price should the stock
trade at $1.50 per pre-split share (or $9.00 per post-split share) for 15
consecutive trading days. The warrants would not be exercisable until a
registration statement registering the underlying common stock shall have been
filed and declared effective.
DESCRIPTION OF AND REASONS FOR THE PROPOSED REVERSE STOCK SPLIT
The continued listing requirements of the Nasdaq SmallCap Market for our
common stock require, among other things, a company to maintain a minimum bid
price per share of $1.00. As of the date of this proxy statement, we are not in
compliance with this requirement and have received a delinquency letter from
10
Nasdaq requiring us to be in compliance with the minimum-bid-price requirement
on or before January 24, 2005. Our board of directors believes that a reverse
stock split may have the effect of increasing the market price per share of our
common stock and allowing the common stock to continue to be included on the
Nasdaq system, although there can be no assurance that the market price of our
common stock will rise in proportion to the reduction in the number of
outstanding shares resulting from the reverse stock split or that the market
price after the reverse stock split can be maintained.
Our board of directors has determined that continued listing of our common
stock on the Nasdaq system is in the best interest of the stockholders. If our
stock were removed from the Nasdaq system, trading, if any, would thereafter be
conducted in the over-the-counter market on an electronic bulletin board
established for securities that do not meet the Nasdaq inclusion requirements.
As a result, an investor would find it more difficult to dispose of, or to
obtain accurate quotations as to the price of, our common stock. In addition, if
our common stock were removed from the Nasdaq system, it would be subject to
so-called "penny stock" rules that impose additional sales practice requirements
on broker-dealers who sell such securities. Consequently, removal from the
Nasdaq system, if it were to occur, could affect the ability or willingness of
broker-dealers to sell our common stock and the ability of purchasers to sell
our common stock in the secondary market. Delisting by Nasdaq also could
adversely affect our performance under certain agreements with some investors
relating to maintenance of the Nasdaq listing and to registration of certain
shares for sale.
We also believe that low trading prices of our common stock may have an
adverse impact upon the efficient operation of the trading market in the
securities. In particular, brokerage firms often charge a greater percentage
commission on low-priced shares than that which would be charged on a
transaction in the same dollar amount of securities with a higher per share
price. A number of brokerage firms will not recommend purchases of low-priced
stock to their clients or make a market in such shares, which tendencies may
adversely affect us. Stockholders should note that the effect of the reverse
split upon the market prices for our common stock cannot be accurately
predicted. In particular, there is no assurance that prices for shares of our
new common stock after the reverse stock split will be six times the prices for
shares of our old common stock immediately prior to the reverse stock split.
Holders of our old common stock will not be required to recognize any gain
or loss as the result of any exchange of securities which occurs upon approval
of the reverse stock split. The tax basis of the aggregate shares of common
stock received by present stockholders will be equal to the basis of the
aggregate shares of common stock exchanged therefor. The holding period for
shares of our post-reverse-split common stock will include the holding period of
our pre-split common stock when calculated for purposes of taxation or sales
under Rule 144 under the Securities Act of 1933, as amended.
We believe stockholders who receive the above-described warrant dividend
also will not be required to recognize any gain or loss as a result of receiving
the warrant dividend. If and when any such warrants are exercised, the exercise
price paid for common shares will become the cost basis for the common stock
received.
EXCHANGE OF STOCK CERTIFICATES AND DETERMINATION OF NUMBER OF SHARES ISSUABLE
UPON SUCH EXCHANGE
If this Proposal Two is adopted by the stockholders, certificates
representing our pre-reverse-split common stock will be exchanged for new
certificates representing our post-reverse-split common stock. The exchange will
be handled by our corporate transfer agent, Corporate Stock Transfer, 3200
Cherry Creek Drive South, Suite 430, Denver, Colorado 80209.
WE HAVE ESTABLISHED JUNE 30, 2005 AS THE DEADLINE FOR THE EXCHANGE OF
CERTIFICATES AT NO EXPENSE TO OUR CURRENT STOCKHOLDERS. THEREAFTER, CERTIFICATES
OF OUR PRE-REVERSE-SPLIT COMMON STOCK WILL BE EXCHANGEABLE FOR SHARES OF OUR
POST-REVERSE-SPLIT COMMON STOCK FOR A FEE TO BE PAID BY THE STOCKHOLDER TO OUR
TRANSFER AGENT, WHICH FEE IS PRESENTLY $30.00 PER CERTIFICATE.
To determine the number of shares of our post-reverse-split common stock
issuable to any record holder, the total number of shares represented by current
certificates issued in the name of that record holder (as set forth on the
records of our transfer agent on the date upon which the reverse split becomes
effective) will be divided by six; provided, however, no fractional shares of
our new common stock will be issued as a result of the reverse split. In lieu
thereof, each stockholder whose shares of our pre-reverse-split common stock are
11
not evenly divisible by six will receive one additional full share of our
post-reverse-split common stock. The holder will, upon surrender of the share
certificate(s) representing shares of our pre-reverse-split common stock,
receive a share certificate representing the appropriate number of shares of our
post-reverse-split common stock. We will not require any stockholder to exchange
his, her or its certificate(s) representing our pre-reverse-split common stock
for certificates representing our post-reverse-split common stock.
The reverse stock split would become effective upon the filing of a
Certificate of Amendment to the Certificate of Incorporation related thereto
with the Delaware Secretary of State. If the reverse stock split is ratified and
confirmed by the stockholders, our board of directors intends to cause the
Certificate of Amendment to be filed as soon as practicable thereafter.
EFFECTS OF APPROVAL OF PROPOSAL TWO
Theoretically, the market price of our common stock should increase
approximately six-fold immediately following the proposed reverse stock split.
It is hoped that this will cause the Company's common stock to comply with
Nasdaq's minimum-bid-price requirement and result in a price level which will
overcome the reluctance, policies and practices of broker-dealers referred to
above and increase investor interest in our securities. Nevertheless, there can
be no assurance that the foregoing will occur or that the per-share price level
of our post-reverse-split common stock immediately after the proposed reverse
stock split actually will increase six-fold or remain at that level for any
period of time. A further effect of the reverse stock split will be a
proportionate adjustment to the exercise price and/or conversion rate of our
outstanding warrants and options to purchase common stock.
VOTE REQUIRED
The affirmative vote of the majority of the outstanding shares present in
person or represented by proxy will be required to ratify and confirm the
proposed (and previously approved) amendment to Paragraph Four of the
Certificate of Incorporation, provided that a quorum was present at the
beginning of the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND
CONFIRMATION OF THE ONE-FOR-SIX-SHARE REVERSE STOCK SPLIT PREVIOUSLY APPROVED BY
THE COMPANY'S STOCKHOLDERS.
12
PROPOSAL 3
THE APPROVAL OF EQUITEX'S ISSUANCE OF COMMON STOCK UPON CONVERSION OF PRESENTLY
UNCONVERTED SERIES D 6% CONVERTIBLE PREFERRED STOCK, SERIES G 6% CONVERTIBLE
PREFERRED STOCK AND SERIES I 6% CONVERTIBLE PREFERRED STOCK, TO THE EXTENT
SUCH ISSUANCE EXCEEDS 20% OF EQUITEX'S COMMON STOCK OUTSTANDING AS OF THE
DATES ANY SUCH PREFERRED SHARES WERE ISSUED, OR UPON CONVERSION OF A NEW
SERIES OF PREFERRED STOCK TO BE ISSUED IN EXCHANGE FOR SUCH PRESENTLY
UNCONVERTED PREFERRED SHARES
OVERVIEW AND PURPOSE OF THIS PROPOSAL
We currently have shares of the following previously issued convertible
preferred stock outstanding: Series D 6% Convertible Preferred Stock (the
"Series D Preferred Stock"), Series G 6% Convertible Preferred Stock (the
"Series G Preferred Stock") and Series I 6% Convertible Preferred Stock (the
"Series I Preferred Stock").
Pursuant to Rule 4350(i)(1)(D) of The Nasdaq Stock Market (the "Nasdaq 20%
Rule"), we cannot issue, without stockholder approval, securities convertible
into our common stock if such securities are convertible at below-market prices
into 20% or more of the outstanding shares of our common stock on the date such
convertible securities were issued.
Pursuant to the Certificates of Amendment to our Certificate of
Incorporation filed for our Series D, G and I Preferred Stock and the Nasdaq 20%
Rule, we cannot issue, without stockholder approval, shares of common stock upon
conversion of such preferred stock in excess of the following amounts: 1,421,387
shares upon conversion of the Series D Preferred Stock; 1,421,387 shares upon
conversion of the Series G Preferred Stock; and 1,638,503 upon conversion of the
Series I Preferred Stock (collectively, the "Conversion Limitations"). To date,
we have not obtained stockholder approval to issue common shares exceeding the
Conversion Limitations. Furthermore, we have already issued the maximum amount
of common shares that may be issued under such limitations for each series of
outstanding preferred stock. Under the terms of each of the outstanding series
of preferred stock, if the Company is unable to convert additional shares of
such preferred stock into common stock due to a potential violation of the
Conversion Limitations, the Company must either obtain stockholder approval or
redeem the unconverted preferred shares at 135% of the stated value of Series D
Preferred Stock ($1,350 per share) and 125% of the stated value of Series G and
Series I Preferred Stock ($1,250 per share). In this regard, we have already
redeemed a total of 1,130 shares of Series I Preferred Stock. Nevertheless,
there are still outstanding, as of the date of this proxy statement, 1,600
shares of Series I Preferred Stock, 408 shares of Series D Preferred Stock, and
370 shares of Series G Preferred Stock. In addition, under the Certificates of
Amendment to our Certificate of Incorporation filed for our Series D, G and I
Preferred Stock, we are required to convert or redeem such preferred shares
within three years of their date of issuance. In this regard, all three series
of preferred stock were issued over three years ago. Accordingly, we will be
required, at the demand of the holders of preferred shares, to redeem all of the
outstanding preferred shares of Series D, Series G and Series I Preferred Stock.
In the case of the Series D Preferred Stock, any required redemptions would
force us to pay the Series D stockholders an aggregate of $550,800, plus accrued
dividends. In the case of the Series G and Series I Preferred Stock, any
required redemptions would force us to pay an aggregate of $2,462,500, plus
accrued and unpaid dividends. Accordingly, the Company could at any time be
required to redeem the outstanding preferred stock for an aggregate of
$3,013,300, plus accrued and unpaid dividends, at the demand of holders of such
preferred shares. Moreover, because the three-year anniversary dates for all of
the outstanding preferred stock have passed, holders of preferred stock may make
other demands on the Company in connection with the satisfaction of its
obligations. Given our limited cash flow, we likely could not afford to redeem
all of the outstanding preferred shares at their respective redemption prices.
In such a case, we could be forced to liquidate our assets. Accordingly, we
propose to increase the Conversion Limitations to accommodate additional
conversions of our outstanding preferred shares.
In this proposal, we are also asking our stockholders to approve the
issuance of common stock upon conversion of a new series of preferred stock that
may be issued in exchange for presently unconverted preferred stock, to the
extent such issuance would exceed 20% of our common stock outstanding at the
13
time of issuance of each series of presently outstanding preferred stock. For
clarity, this proposal will not allow the Company to issue shares of common
stock exceeding the Nasdaq 20% Rule applicable to newly created preferred stock.
Rather, stockholder approval of this Proposal Three is sought only with respect
to the Conversion Limitations applicable to presently outstanding Series D,
Series G and Series I Preferred Stock. The Company would create, designate and
issue such a new series of preferred stock in exchange for shares of presently
outstanding Series D, Series G and Series I Preferred Stock. The Company seeks
this approval solely as a means for providing flexibility in dealing with
holders of presently unconverted preferred stock, and hopes to be able to
negotiate terms and conditions more advantageous to the Company than terms
currently existing with respect to the Series D, Series G and Series I Preferred
Stock. Nevertheless, there is no certainty that the Company will be able to
negotiate better, or successfully negotiate with holders of preferred
shareholders at all. Because the Company may not engage in the potential share
exchange described in this paragraph, any stockholder approval of this proposal
obtained at the annual meeting will not apply to any newly created series of
preferred stock used for purposes other than the share exchange described
herein.
DESCRIPTION OF OUTSTANDING PREFERRED STOCK
Currently, we have the following series of preferred stock outstanding. The
board of directors has no present commitment, arrangement or plan that would
require the issuance of additional shares of preferred stock (of any class or
series) in connection with an equity offering, merger, acquisition or otherwise:
o SERIES D PREFERRED STOCK. The Series D Preferred Stock has a stated value
of $1,000 per share. The Series D Preferred Stock ranks prior to our common
stock, pari passu with other series of preferred stock issued prior to the
Series D Preferred Stock, and senior to any series of preferred stock
issued after the Series D Preferred Stock. The Series D Preferred Stock
entitles its holder to 6% annual dividends, payable quarterly. The Series D
Preferred Stock liquidation preference is equal to 130% of the stated value
of each share plus the aggregate of all accrued and unpaid dividends on
each preferred share until the most recent dividend payment date or date of
our liquidation, dissolution or winding up. Shares of Series D Preferred
Stock are redeemable at a redemption price equal to $1,350 per share plus
any accrued but unpaid dividends. Lastly, the Series D Preferred Stock is
convertible at any time, in whole or in part, at a conversion price of 65%
of the market price of our common stock on the date of conversion. The
number of shares of common stock due upon conversion of each share of
Series D Preferred Stock is (i) the number of preferred shares to be
converted, multiplied by (ii) the stated value of such preferred stock,
which sum is divided by (iii) the applicable conversion price. As of
October 27, 2004, 408 shares of Series D Preferred Stock were outstanding,
which are potentially convertible into an aggregate of 1,364,548 shares of
common stock as of such date.
o SERIES G PREFERRED STOCK. The Series G Preferred Stock has a stated value
of $1,000 per share and bears dividends at 6% per annum (with a 4% per
annum dividend default rate), payable quarterly commencing September 30,
2000, when, as and if declared by our board of directors. Dividends may be
payable by us in cash or, at our option, shares of common stock. The Series
G Preferred Stock liquidation preference is equal to 130% of the stated
value of each share plus the aggregate of all accrued and unpaid dividends
on each share of Series G Preferred Stock until the most recent dividend
payment date or date of our liquidation, dissolution or winding up. The
Series G Preferred Stock is convertible, together with any accrued by
unpaid dividends, at any time, in whole or in part, into shares of common
stock at a conversion price per share equal to the lesser of $6.50 or 65%
of the market price of our common stock upon the occurrence of certain
material events. As indicated above, shares of Series G Preferred Stock are
redeemable at a redemption price equal to $1,250 per share plus any accrued
but unpaid dividends. As of October 27, 2004, 370 shares of Series G
Preferred Stock were outstanding, which are potentially convertible into an
aggregate of 1,237,458 shares of common stock as of such date.
o SERIES I PREFERRED STOCK. The stated value of the Series I Preferred Stock
is $1,000 per share and bears dividends at 6% per annum (with a 4% per
annum dividend default rate), payable quarterly commencing September 30,
2001, when, as and if declared by our board of directors. Dividends may be
14
payable by us in cash or, at our option, shares of common stock. The Series
I Preferred Stock liquidation preference equals 125% of the stated value of
each share plus the aggregate of all accrued and unpaid dividends on each
share of Series I Preferred Stock until the most recent dividend payment
date or date of our liquidation, dissolution or winding up. The Series I
Preferred Stock is convertible, together with any accrued but unpaid
dividends, at any time, in whole or in part, into shares of our common
stock at a conversion price per share equal to the lesser of $6.50 or 65%
of the market price upon the occurrence of certain material events. Shares
of Series I Preferred Stock are redeemable at a redemption price of $1,250
per share plus any accrued but unpaid dividends. As of October 27, 2004,
1,600 shares of Series I Preferred Stock were outstanding, which are
potentially convertible into an aggregate of 5,351,170 shares of common
stock as of such date.
EFFECT OF THIS PROPOSAL
If our stockholders approve this proposal, we may issue shares of common
stock exceeding the Conversion Limitations specified above without violating the
Nasdaq 20% Rule for those issuances, but not more than 20% of our common shares
outstanding at the time of issuance of a new series of preferred. If the
proposal is approved, and the holders of all preferred shares exercise their
rights to convert their preferred shares into our common stock, the number of
shares of common stock to be issued could not exceed 6,735,600 shares, based on
the number of shares of our common stock outstanding on October 27, 2004.
If this proposal is not approved, it could adversely effect our financial
position if we are required to redeem any or all such unconverted shares of
outstanding preferred stock for cash.
VOTE REQUIRED
The affirmative vote of the majority of the outstanding shares present in
person or represented by proxy will be required to ratify and approve the
Company's issuance of a new series of preferred stock in exchange for shares of
its currently outstanding Series D Preferred Stock, Series G Preferred Stock and
Series I Preferred Stock, and the potential issuance of common stock upon
conversion of such preferred stock, to the extent such issuance exceeds 20% of
the Company's common stock outstanding as of the dates such preferred shares
were issued, but less than 20% of the Company's common stock outstanding as of
the date the new preferred shares are issued, provided that a quorum was present
at the beginning of the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL THREE.
15
PROPOSAL 4
APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The board of directors and executive management of the Company are
committed to the quality, integrity and transparency of the Company's financial
reports. The audit committee of the Company's board of directors has appointed
Gelfond Hochstadt Pangburn, P.C. as the Company's independent registered public
accounting firm for fiscal year 2004. A representative of Gelfond Hochstadt
Pangburn, P.C. is not expected to attend this year's annual meeting and be
available to respond to appropriate questions from stockholders, and will have
the opportunity to make a statement if he or she desires to do so.
If the stockholders do not ratify the appointment of Gelfond Hochstadt
Pangburn, P.C., the audit committee may reconsider its selection, but is not
required to do so. Notwithstanding the proposed ratification of the appointment
of Gelfond Hochstadt Pangburn, P.C. by the stockholders, the audit committee may
in its discretion direct the appointment of a new independent registered public
accounting firm at any time during the year without notice to, or the consent
of, the stockholders, if the audit committee determines that such a change would
be in the best interests of the Company and its stockholders.
The audit committee of the board of directors has reviewed the services
provided by Gelfond Hochstadt Pangburn, P.C. during fiscal year 2003 and the
fees billed therefor, and after consideration has determined that the receipt of
these fees by Gelfond Hochstadt Pangburn, P.C. is compatible with the provision
of independent audit services. The audit committee discussed these services and
fees with Gelfond Hochstadt Pangburn, P.C. and Company management to determine
that they are permitted under the rules and regulations concerning auditor
independence promulgated by the American Institute of Certified Public
Accountants and by the SEC to implement the Sarbanes-Oxley Act of 2002.
PREAPPROVAL POLICY
The policy of the Company's audit committee is to review and preapprove
both audit and non-audit services to be provided by the independent registered
public accounting firm (other than with certain de minimis exceptions permitted
by the Sarbanes-Oxley Act of 2002). This duty may be delegated to one or more
designated members of the audit committee with any such approval reported to the
committee at its next regularly scheduled meeting. Approval of non-audit
services shall be disclosed to investors in periodic reports required by Section
13(a) of the Securities Exchange Act of 1934, as amended. All of the fees paid
to Gelfond Hochstadt Pangburn, P.C. during fiscal year 2003 were preapproved by
the Company's audit committee.
AUDIT AND NON-AUDIT SERVICES
The following table summarizes the aggregate fees billed by Gelfond
Hochstadt Pangburn, P.C. to the Company for the years ended December 31, 2003
and 2002:
Year Ended December 31
2003 2002
---- ----
Audit Fees (1) $ 209,000 $ 149,000
Audit-Related Fees (2) $ 15,000 $ 19,000
Tax Fees (3) $ 17,000 $ 21,000
-------- --------
Total $ 241,000 $ 189,000
========= =========
- ----------
(1) Fees for audit services billed in fiscal years 2003 and 2002 consisted of
(i) audit of the Company's annual financial statements; (ii) reviews of the
Company's quarterly financial statements; (iii) comfort letters, statutory
audits, consents and other services related to SEC matters; and (iv)
consultations on financial accounting and reporting matters arising during
the course of the audit and reviews.
(2) Fees for audit-related services billed in fiscal years 2003 and 2002
consisted of services rendered in connection with due diligence and
consultation on acquisitions or other business transactions.
16
(3) Fees for tax services billed in fiscal years 2003 and 2002 consisted of tax
compliance and tax planning and advice. Tax compliance services totaled
$17,000 and $21,000 in fiscal years 2003 and 2002, respectively, and
consisted of (i) tax return assistance; (ii) assistance with tax return
filings in certain foreign jurisdictions; and (iii) assistance with tax
audits and appeals. Tax planning and advice services totaled $0 and $0 in
fiscal years 2003 and 2002, respectively.
VOTES REQUIRED
The affirmative vote of the majority of the outstanding shares present in
person or represented by proxy will be required to ratify the appointment of the
independent registered public accounting firm, provided that a quorum was
present at the beginning of the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND
APPOINTMENT OF GELFOND HOCHSTADT PANGBURN, P.C. AS THE COMPANY'S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM.
17
FINANCIAL INFORMATION
A copy of Equitex's annual report on Form 10-K for the year ended December
31, 2003, is being sent to stockholders with this proxy statement.
OTHER MATTERS
Management of Equitex knows of no other matter which may come before the
annual meeting. Nevertheless, if any additional matters are properly presented
at the annual meeting, it is intended that the person named in the enclosed
proxy statement, or his substitute, will vote such proxy in accordance with his
judgment on such matters.
STOCKHOLDER PROPOSALS
General
Any stockholder desiring to submit a proposal for action by the
stockholders at the next annual meeting, tentatively scheduled for June 30,
2005, must submit such proposal in writing to the Company, in care of the
secretary, at 7315 East Peakview Avenue, Englewood, Colorado 80111, on or prior
to March 31, 2005 (i.e., 90 days prior to the anticipated 2005 annual meeting
date); provided, however, that if the 2005 annual meeting is actually held later
than June 30, 2005, stockholders will have more time to submit proposals. Due to
the complexity of the respective rights of stockholders and the Company in this
area, any stockholder desiring to propose such an action is advised to consult
with his or her legal counsel with respect to such rights. The Company
recommends that any such proposal be submitted by certified mail, return-receipt
requested.
DISCRETIONARY PROXY VOTING AUTHORITY / UNTIMELY STOCKHOLDER PROPOSALS
Rule 14a-4(c) promulgated under the Securities and Exchange Act of 1934, as
amended, governs the Company's use of its discretionary proxy voting authority
with respect to a stockholder proposal that the stockholder has not sought to
include in the Company's proxy statement. The rule provides that if a proponent
of a proposal fails to notify the Company of the proposal at least 45 days
before the date of mailing of the prior year's proxy statement, then the
management proxies will be allowed to use their discretionary voting authority
when the proposal is raised at the meeting, without any discussion of the matter
required in the proxy statement. With respect to the Company's 2005 annual
meeting of stockholders, if the Company is not provided notice of a stockholder
proposal which the stockholder has not previously sought to include in the
Company's proxy statement within a reasonable time prior to the anticipated 2005
annual meeting date (June 30, 2005), management proxies will be allowed to use
their discretionary authority as indicated above.
EQUITEX, INC.
By Order of the Board of Directors:
/s/ Thomas B. Olson
Thomas B. Olson
Secretary
Date: November ___, 2004
18
EXHIBIT 1
4. After the stock combination described in the following paragraph, the
total number of shares of capital stock which the corporation shall have
authority to issue is fifty-two million (52,000,000), of which fifty million
(50,000,000) shares shall be common stock having a par value of $.01 per share,
and two million (2,000,000) shares shall be preferred stock having a par value
of $.01 per share (the "Preferred Stock").
The corporation's common stock will be combined on a one-for-six basis so
that each share of common stock, $.02 par value, issued and outstanding
immediately prior to the effective date hereof shall automatically be converted
into and reconstituted as one-sixth of a share of common stock, $.01 par value.
No fractional shares will be issued by the corporation as a result of the stock
combination. In lieu thereof, each stockholder whose shares of common stock are
not evenly divisible by six will receive one additional share of common stock
for the fractional share that such stockholder would otherwise be entitled to as
a result of the stock combination.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof are as follows:
(I) The Board of Directors is expressly authorized at any time, and from
time to time, to provide for the issuance of shares of Preferred Stock
in one or more series, with such voting powers, full or limited, or
without voting powers and with such designations, preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions providing for
the issue thereof adopted by the Board of Directors, and as are not
stated and expressed in this Certificate of Incorporation, or any
amendment thereto, including (without limiting the generality of the
foregoing) the following:
(a) The designation of the number of shares of such series.
(b) The dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any
other class or classes or of any other series of capital stock,
whether such dividends may be paid in cash, shares of common
stock or Preferred Stock or in assets of the corporation, and
whether such dividends shall be cumulative or noncumulative.
(c) Whether the shares of such series shall be subject to redemption
by the corporation and, if made subject to such redemption, the
times, prices and other terms and conditions of such redemption.
(d) The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series.
(e) Whether or not the shares of such series shall be convertible
into or exchangeable for any other class or classes or for any
other series of any class or classes or capital stock of the
Corporation and, if provision be made for conversion or exchange,
the times, prices, rates, adjustments and other terms and
conditions of such conversion or exchange.
(f) To the extent, if any, to which the holders of the shares of such
series shall be entitled to vote as a class or otherwise with
respect to the election of directors or otherwise.
(g) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock.
(h) The rights of the holders of the shares of such series upon the
dissolution or winding up of, or upon the distribution of assets
of, the corporation.
(II) Except as otherwise required by law and except for such voting powers
with respect to the election of directors or other matters as may be
stated in the resolutions of the Board of Directors creating any
series of Preferred Stock, the holders of any such series shall have
no voting power whatsoever.
EXHIBIT 2
EQUITEX, INC.
NOMINATING COMMITTEE CHARTER
PURPOSE
The nominating committee ("Nominating Committee") is appointed by the Board of
Directors of Equitex, Inc. ("Board") to:
Assist the Board by identifying individuals qualified to become Board
members.
Recommend to the Board the candidates for directorships to be filled by the
Board and the director nominees to be proposed for election at the annual
meeting of shareholders.
COMPOSITION
The Nominating Committee will be comprised of at least two directors as
determined by the Board, each of whom will be independent under the rules of the
Nasdaq Stock Market, Inc.
The members of the Nominating Committee will be elected by the Board at the
annual organization meeting of the Board and will serve until the next annual
organization meeting or until their successors are duly elected and qualified.
MEETINGS
The Nominating Committee will meet at least once per year or as often as
appropriate to fulfill its duties and responsibilities.
DUTIES AND RESPONSIBILITIES
To fulfill its duties and responsibilities, the Nominating Committee will:
Set general criteria and guidelines for nomination to the Board;
Identify individuals qualified to become Board members and recommend to the
Board prospective candidates for Board membership. In identifying candidates for
membership on the Board, the Nominating Committee will take into account all
factors it considers appropriate, which may include experience, accomplishments,
education, skills, business acumen and the highest personal and professional
integrity;
Review and recommend to the Board the slate of nominees for election to the
Board at the annual meeting of shareholders and candidates to fill vacancies on
the Board that occur between annual meetings of the shareholders;
Review the adequacy of this Charter at least annually and recommend to the Board
any modifications or changes for approval by the Board.
RESOURCES AND AUTHORITY OF THE NOMINATING COMMITTEE
The Nominating Committee has the authority to retain outside counsel and other
advisors, as it deems appropriate in the conduct of its duties and
responsibilities under this Charter.
PROXY
EQUITEX, INC.
7315 East Peakview Avenue
Greenwood Executive Park, Building 8
Englewood, Colorado 80111
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER ___, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Equitex, Inc. appoints Henry Fong and
Thomas B. Olson, or either of them, as attorneys and proxies to attend and vot
all of the shares of the common stock of Equitex standing in the name of the
undersigned at the 2004 Annual Meeting of Stockholders on December ___, 2004, at
10:00 a.m. Eastern Standard Time, and at any postponements or adjournments that
may take place:
1. To elect the following four directors to serve until the next annual
meeting of stockholders and until their successors have been elected
and qualified: Henry Fong, Russell L. Casement, Aaron A. Grunfeld and
Michael S. Casazza.
For all nominees: _____
Withhold authority to vote for all nominee(s): _____
Withhold authority to vote for the following nominee(s):
____________________________________________________
2. To ratify and confirm the stockholders' prior approval of an amendment
to Paragraph Four of the Company's Certificate of Incorporation to
effect a one-for-six-share reverse stock split of Equitex's common
stock.
For ______ Against ______ Abstain ______
3. The approval of Equitex's issuance of common stock upon conversion of
presently unconverted Series D 6% Convertible Preferred Stock, Series
G 6% Convertible Preferred Stock and Series I 6% Convertible Preferred
Stock, to the extent such issuance exceeds 20% of Equitex's common
stock outstanding as of the dates any such preferred shares were
issued, or upon conversion of a new series of preferred stock to be
issued in exchange for such preferred shares.
For ______ Against ______ Abstain ______
4. To ratify the appointment of Gelfond Hochstadt Pangburn, P.C. as the
independent registered public accounting firm of the Company for the
year ending December 31, 2003.
For ______ Against ______ Abstain ______
5. To transact such other business as may properly come before the
meeting.
The shares represented by this proxy card will be voted as specified by
you. This proxy will be voted in accordance with the discretion of the proxies
on any other business.
Please mark, date and sign your name exactly as it appears on the label,
and return it in the enclosed envelope as promptly as possible. It is important
to return this proxy properly signed to exercise your right to vote if you
choose not to attend the meeting and vote in person. When signing as agent,
partner, attorney, administrator, guardian, trustee or in any other fiduciary or
official capacity, please indicate your title. If stock is held jointly, each
joint owner must sign.
Date:________________ Signature(s):_____________________
Address, if different from that on label: ______________________________
Street Address
______________________________
City, State and Zip Code
______________________________
Number of shares
Please check if you intend to be present at the meeting: ______