EXHIBIT 3.1
Delaware
======================= Page 1
The First State
I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "EQUITEX, INC.", FILED IN THIS OFFICE ON THE TWENTY-SECOND DAY OF
JULY, A.D. 2005, AT 5:15 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[Seal of Secretary's Office
State of Delaware]
/s/ Harriet Smith Windsor
Harriet Smith Windsor, Secretary of State
2001415 8100 AUTHENTICATION: 4044127
050608589 DATE: 07-25-05
State of Delaware
Secretary of State
Division of Corporations
Delivered 05:15 PM 07/22/2005
FILED 05:15 PM 07/22/2005
SRV 050608589 - 2001415 FILE
CERTIFICATE OF DESIGNATIONS
OF RIGHTS AND PREFERENCES OF THE
SERIES K CONVERTIBLE PREFERRED STOCK
OF
EQUITEX, INC.
Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware
Pursuant to the authority expressly granted and vested in the Board of
Directors (the "BOARD OF Directors" or the "BOARD") of EQUITEX, INC. (the
"CORPORATION") by the Delaware General Corporation Law (the "CORPORATION LAW")
and the provisions of the Corporation's Certificate of Incorporation, as
amended, the Board of Directors adopted the following resolution setting forth
the designations, powers, preferences and rights of its Series K 6% Convertible
Preferred Stock (the "Certificate of Designations") on June 30, 2005:
RESOLVED: That the designations, powers, preferences and rights of the
Series K 6% Convertible Preferred Stock be, and they hereby are, as set forth
below:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 3,100 shares of Preferred
Stock, par value $.01 per share, is the Series K 6% Convertible Preferred Stock
(the "DESIGNATED PREFERRED STOCK").
II. CERTAIN DEFINITIONS
For purposes of this Certificate of Designations, the following terms shall
have the following meanings:.
A. "AFFILIATE" means, with respect to a specific Person referred to in the
relevant provision, another Person who or which controls or is controlled by or
is under common control with such specified Person.
B. "CONVERSION PRICE" means the lesser of (i) $2.75 per share (which amount
is subject to adjustment as provided herein) (the "CONVERSION PRICE CEILING")
and (ii) 65% of the Market Price; provided that, in the event that, during any
twenty (20) consecutive Trading Days, (i) the Closing Bid Price of the Common
Stock is equal to or greater than $5.50 per share and (ii) the average daily
volume of the Company's Common Stock traded is equal to or greater than
$100,000, the amount in clause (ii) above shall be seventy-five percent (75%)
instead of sixty-five percent (65%).
C. "CLOSING BID PRICE" means the closing bid price during regular trading
hours of the Common Stock (in U.S. Dollars) on the Principal Trading Market for
the relevant Trading Day, as reported by the Reporting Service. The manner of
determining the Closing Bid Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of which a
determination as to closing bid price must be made hereunder.
D. "CLOSING DATE" means the date the Designated Preferred Stock is first
issued to the Holder.
E. "COMMON STOCK" means the Company's common stock, par value $.01 per
share.
1
F. "CONVERSION CERTIFICATES" means certificates representing the Conversion
Share.
G. "CONVERSION DATE" has the meaning ascribed to it in Paragraph B of
Article IV hereof.
H. "CONVERSION EXPIRATION DATE" means June 30, 2009 or such later date as
may be authorized by the Board of Directors of the Corporation and a Holder.
I. "CONVERSION SHARES" means the shares of Common Stock issuable on
conversion of the Designated Preferred Stock or issued in payment of dividends
in accordance with the provisions of Article III hereof.
J. "EXCHANGE AGREEMENT" means any exchange agreement between the Company
and the holder or holders of the Series G and Series I Preferred Stock of the
Company pursuant to which such holder or holders exchanged their respective
shares of Series G and Series I Preferred Stock for shares of the Designated
Preferred Stock.
K. "HOLDER" means a person or entity holding shares of the Designated
Preferred Stock.
L. "JUNIOR SECURITIES" means (i) any class or series of capital stock of
the Company authorized prior to the filing of this Certificate of Designations
that, by its terms, ranks junior to the Designated Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary and (ii) all classes or series of
capital stock of the Company authorized after the filing of this Certificate of
Designations, unless consented to as provided herein in each instance, each of
which shall rank junior to the Designated Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary.
M. "LIQUIDATION PREFERENCE" means, with respect to a share of Designated
Preferred Stock, an amount equal to the Stated Value thereof plus the aggregate
of all accrued and unpaid dividends on the Designated Preferred Stock.
N. "MARKET PRICE" per share of Common Stock means the arithmetic mean of
the Closing Bid Prices of the Common Stock as reported on the Principal Trading
Market of the five prior Trading Days.
O. "PARI PASSU SECURITIES" means any class or series of capital stock of
the Company hereafter created specifically ranking, by its terms, on parity with
the Designated Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary.
P. "PERSON" means any living person or any entity, such as, but not
necessarily limited to, a corporation, partnership or trust.
Q. "PRINCIPAL TRADING MARKET" means the NASDAQ/SmallCap Market or if the
Common Stock is no longer listed on that market, the principal securities
exchange or trading market on which the Common Stock is listed or traded,
including the pink sheets.
R. "REDEMPTION" means a redemption of Designated Preferred Stock as
contemplated by the provisions of Article VI hereof.
2
S. "REDEMPTION PRICE" means, for each share of Designated Preferred Stock,
the sum of (i) the Stated Value, plus (ii) the accrued but unpaid dividends
thereon through the date the Redemption Price is paid to the Holder.
T. "REPORTING SERVICE" means Bloomberg LP or if that service is not then
reporting the relevant information regarding the Common Stock, a comparable
reporting service of national reputation selected by the Holders of the
Designated Preferred Stock and reasonably acceptable to the Company.
U. "SEC" means the Securities and Exchange Commission.
V. "SECURITIES" means the shares of Designated Preferred Stock or the
Conversion Shares.
W. "SENIOR SECURITIES" means each class or series of capital stock of the
Company authorized prior to the original filing of this Certificate of
Designations that, by its terms, is senior to the Designated Preferred Stock as
to distribution of assets upon liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary if, but only if, securities from such
class or series have been issued prior to the Closing Date and such issuance was
disclosed in the filings made by the Company with the SEC and available on the
SEC's EDGAR system.
X. "STATED VALUE" for the Designated Preferred Stock shall be $1,000 per
share.
Y. "TRADING DAY" means any day during which the Principal Trading Market
shall be open for business.
III. DIVIDENDS
A. GENERALLY. The Holders of the Designated Preferred Stock shall be
entitled to receive a 6% per annum dividend payable on the date (the "DIVIDEND
PAYMENT DATE") which is the earlier of (i) the last business day of March, June,
September and December of each calendar year, (ii) with respect to a share of
Designated Preferred Stock which is converted hereunder, the Conversion Date,
(iii) with respect to a share of Designated Preferred Stock which is the subject
of a Redemption, the relevant Redemption Payment Date or Conversion Expiration
Date, as the case may be, and (iv) with respect to a Liquidation Event, the
Liquidation Preference Payment Date (as those terms are defined below). The
dividend shall accrue on a daily basis and shall be payable, at the Company's
option (subject to the other provisions of this Article III), in cash or in
Common Stock; provided, however, that in connection with a Redemption, the
Company must pay such dividends in cash. Such dividends shall be payable in
preference to dividends on any Common Stock or stock of any class ranking, as to
dividend rights, junior to the Designated Preferred Stock, and shall be junior
as to payment of dividends to the Senior Securities. Dividends shall be fully
cumulative and shall accrue (whether or not declared and whether or not there
shall be funds legally available for the payment of dividends) daily (based on a
365-day year), without interest, and shall be payable on the Dividend Payment
Date unless such payment would be in violation of the Corporation Law (except
that in such instance the provisions of Paragraph C of Article III shall be
applicable).
B. DIVIDENDS PAID IN COMMON STOCK. If paid in Common Stock, the number of
shares of Common Stock to be received shall be determined by dividing the dollar
amount of the dividend by the Market Price for the Company's Common Stock on the
Dividend Payment Date. Payment of dividends by the issuance of Common Stock is
subject to the provisions of Article IV.C of this Certificate of Designations.
Unless the Holder otherwise consents, dividends may be paid in Common Stock if,
and only if, there is a then effective registration statement covering the
resale of such shares or if the Holder may sell such shares without registration
and without volume or other restrictions. If the dividend is to be paid in
Common Stock, the Common Stock shall be delivered to the Holder, or per Holder's
3
instructions within three (3) business days of the Dividend Payment Date, which
date shall be deemed a "DELIVERY DATE" (except that in connection with a
conversion of Designated Preferred Stock, the Delivery Date for the relevant
dividends shall be deemed to be the Delivery Date for the Conversion
Certificates pursuant to Paragraph B.1 of Article IV of this Certificate of
Designations).
C. DIVIDENDS PAID IN CASH.
1. Except with respect to a Dividend Payment Date occurring because of
a conversion of Designated Preferred Stock, if the Company elects to make a
dividend payment in cash, the Company shall notify the Holder in writing of
such election at least ten (10) Trading Days before the relevant Dividend
Payment Date. If such notice is given, the Company shall make such dividend
payment on the Dividend Payment Date. If such notice is not timely given,
the dividend must be paid in Common Stock, subject to and in accordance
with the provisions of this Certificate of Designations, unless the Holder
consents otherwise in each specific instance.
2. With respect to a Dividend Payment Date occurring because of a
conversion of Designated Preferred Stock, the Company may elect to pay the
dividend in cash by making such payment no later than the Delivery Date for
such conversion. If such payment is not timely made, the dividend must be
paid in Common Stock, subject to and in accordance with the provisions of
this Certificate of Designations, unless the Holder consents otherwise in
each specific instance.
IV. CONVERSION
A. CONVERSION AT THE OPTION OF THE HOLDER. Subject to the limitations on
conversions contained in Paragraph C of this Article IV, each Holder of shares
of Designated Preferred Stock may, at any time after the Closing Date and from
time to time thereafter through and including the Conversion Expiration Date,
convert (an "OPTIONAL CONVERSION") each of its shares of Designated Preferred
Stock into a number of fully paid and nonassessable shares of Common Stock
determined in accordance with the following formula:
STATED VALUE OF SHARES TO BE CONVERTED
--------------------------------------
CONVERSION PRICE
B. MECHANICS OF CONVERSION. To effect a conversion of shares of the
Designated Preferred Stock, the converting Holder ("CONVERTING HOLDER") must
deliver a Notice of Conversion in the form attached hereto as Exhibit A ("NOTICE
OF CONVERSION") to the Company (to the attention of the President or such other
officer as may identified by notice given by the Company to the Holder from time
to time) as provided in this Paragraph. The Notice of Conversion shall be
executed by the Holder of one or more shares of Designated Preferred Stock and
shall evidence such Holder's intention to convert all or a portion of such
shares and the applicable Conversion Price to being used for such conversion.
The date of conversion (the "CONVERSION DATE") shall be deemed to be the
business day on which the Holder delivers a Notice of Conversion to the Company
and the original certificate or certificates representing the Designated
Preferred Stock being converted (the "CONVERTED SHARES"), however, if such
Notice of Conversion and/or Converted Shares certificate is delivered to the
Company on or after noon Mountain Time, the Conversion Date shall be deemed to
be the following business day.
1. DELIVERY OF COMMON STOCK UPON CONVERSION. The Conversion
Certificates will be delivered to the Converting Holder at the address
4
specified in the Notice of Conversion, via express courier, by electronic
transfer or otherwise, within three (3) business days (such third business
day, a "DELIVERY DATE") after the Conversion Date.
2. TAXES. The Company shall pay any and all taxes which may be imposed
upon the Company with respect to the issuance and delivery of the shares of
Common Stock upon the conversion of the Designated Preferred Stock other
than transfer taxes due upon conversion, if such Holder has transferred to
another party the Designated Preferred Stock or the right to receive Common
Stock upon the Holder's conversion thereof or any or income taxes due on
the part of the Holder. The Company shall have the right to withhold any
taxes as required by the United States federal or state tax laws.
3. NO FRACTIONAL SHARES. If any conversion of Designated Preferred
Stock would result in the issuance of a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon conversion of the Designated Preferred Stock
shall be rounded up or down to the nearest whole share, it being understood
that .5 of one share shall be rounded up to the next highest share.
4. CONVERSION DISPUTES. In the case of any dispute with respect to a
conversion, the Company shall promptly issue such number of shares of
Common Stock as are not disputed in accordance with Paragraph A of Article
IV above. If such dispute involves the calculation of the Conversion Price,
the Company shall first discuss such discrepancy with the Converting
Holder. If the Company and the Converting Holder are unable to agree upon
the Conversion Price calculation, the Company shall promptly submit the
disputed calculations to independent auditors, which shall be one of the
top three nationally recognized accounting firms selected by the Holder
(unless the Holders and the Company mutually agree to a different firm).
The auditors, at the expense of the party or parties in error (as
determined by the auditors), shall audit the calculations and notify the
Company and the Holder of the results within five (5) business days
following the date it receives the disputed calculations. The auditor's
calculation shall be deemed conclusive, absent manifest error. If
necessary, the Company shall then issue the appropriate number of shares of
Common Stock in accordance with Paragraph A of Article IV above.
5. CONVERSION OBLIGATIONS AND DEFAULT. If, at any time the Company
improperly challenges, disputes or denies the right of a Holder of
Designated Preferred Stock to effect a conversion of the Designated
Preferred Stock into Common Stock or otherwise improperly dishonors or
rejects any Notice of Conversion delivered in accordance with the terms of
this Certificate of Designations (subject to the provisions of Paragraph
B.4 of this Article IV with respect to certain disputes relating to
calculations of the number of shares to be issued and subject to the
provisions of Paragraph C of this Article IV with respect to Limitations on
Conversions), and certificates evidencing the Conversion Shares which are
subject to the Notice of Conversion are not delivered to the Holder within
twenty (20) business days of the Company's receipt of such Notice of
Conversion (such period to be tolled in the event, and to the extent, of a
Force Majeure) the Company shall pay, upon Holder's written demand, to
Holder an amount equal to the Market Price for such shares subject to the
Notice of Conversion. For purposes of this Section, "Force Majeure" shall
mean any business interruption, damage, loss or other occurrence having a
material adverse effect on the financial condition, operating results, or
business condition of the Company or the Company's transfer agent, whether
or not covered by insurance, due to circumstances reasonably beyond such
party's control, such as labor disturbances or labor disputes, accidents,
civil disorders or commotions, acts of terrorism, acts of war, acts of
aggression, acts of God, energy or other conservation measures, explosions,
failure of utilities, mechanical breakdowns, material shortages, disease,
or other such occurrences.
5
6. CONVERSION IN BANKRUPTCY. The Holder of any Designated Preferred
Stock shall be entitled to exercise its conversion privilege with respect
to the Designated Preferred Stock notwithstanding the commencement of any
case under 11 U.S.C. ss.101 et seq. (the "BANKRUPTCY CODE"). In the event
the Company is a debtor under the Bankruptcy Code, the Company hereby
waives, to the fullest extent permitted, any rights to relief it may have
under 11 U.S.C. ss.362 in respect of such Holder's right to convert the
Designated Preferred Stock. The Company agrees, without cost or expense to
such Holder, to take or to consent to any and all action necessary to
effectuate relief under 11 U.S.C. ss.362.
C. LIMITATIONS ON CONVERSIONS.
1. GENERALLY. The conversion of shares of Designated Preferred Stock shall
be subject to the following limitations:
a. Notwithstanding any other provision hereof, or any of the other
agreements in effect between the Company and the Holder, in no event
(except as specifically provided in this Certificate of Designations as an
exception to this provision while there is outstanding a tender offer for
any or all of the shares of the Company's Common Stock) shall the Holder be
entitled to convert any share of Designated Preferred Stock, or shall the
Company have the obligation to convert such share (and the Company shall
not have the right to pay dividends on such Converted Shares by issuance of
Common Stock) (i) to the extent that, after such conversion, the sum of (a)
the number of shares of Common Stock beneficially owned by the Holder and
its Affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted shares of
Designated Preferred Stock or other convertible securities or of the
unexercised portion of warrants or other rights to purchase Common Stock
held by the Holder subject to a similar limitation), and (b) the number of
shares of Common Stock issuable upon the conversion of the shares of
Designated Preferred Stock with respect to which the determination of this
proviso is being made, would result in beneficial ownership by the Holder
and its Affiliates of more than 4.99% of the outstanding shares of Common
Stock (after taking into account the shares to be issued to the Holder upon
such conversion). For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act"). Nothing herein shall preclude the Holder from disposing of a
sufficient number of other shares of Common Stock beneficially owned by the
Holder so as to thereafter permit the continued conversion of the shares of
Designated Preferred Stock.
b. Notwithstanding anything herein to the contrary, if and to the
extent that, on any date (the "SECTION 16 DETERMINATION DATE"), the holding
by the Holder of shares of the Designated Preferred Stock would result in
the Holder's becoming subject to the provisions of Section 16(b) of the
1934 Act in virtue of being deemed the "beneficial owner" of more than 10%
of the then outstanding shares of Common Stock, then the Holder shall not
have the right, and the Corporation shall not have the obligation, to
convert so many of such Holder's shares of Designated Preferred Stock (the
"SECTION 16 REDEMPTION SHARES") as shall cause such Holder to be deemed the
beneficial owner of more than 10% of the then Outstanding shares of Common
Stock during the period ending 60 days after the Section 16 Determination
Date. If any court of competent jurisdiction shall determine that the
foregoing limitation is ineffective to prevent a Holder from being deemed
the beneficial owner of more than 9.99% of the then outstanding shares of
Common Stock for the purposes of such Section 16(b), then the Corporation
shall redeem the Section 16 Redemption Shares. Upon such determination by a
court of competent jurisdiction, the Section 16 Redemption Shares shall
6
immediately and without further action be deemed returned to the status of
authorized but unissued shares of Designated Preferred Stock, and the
Holder shall have no interest in or rights under such Section 16 Redemption
Shares. Any and all dividends paid on or prior to the date of such
determination shall be deemed dividends paid on the remaining shares of
Designated Preferred Stock held by the Holder. Such redemption shall be for
cash at a redemption price equal to the sum of (i) 135% of the Stated Value
of the Section 16 Redemption Shares and (ii) any declared and unpaid
dividends to the date of such redemption. All amounts payable to Holder
pursuant to this provision shall be paid immediately and in no event later
than twenty (20) business days after the determination that redemption is
required pursuant to this provision.
c. Unless the Corporation shall have obtained the approval of its
voting stockholders to such issuance in accordance with the rules of Nasdaq
or any other stock market rules to with which the Corporation shall be
required to comply, but only to the extent required thereby, the
Corporation shall not issue shares of Common Stock (i) upon conversion of
any shares of the Designated Preferred Stock or (ii) as a dividend on the
Designated Preferred Stock, if such issuance of Common Stock, when added to
the number of shares of Common Stock previously issued by the Corporation
(x) 203,529 shares of Common Stock previously issued upon conversion of the
Company's outstanding Series D 6% Convertible Preferred Stock on June 30,
2005 (the "Series D Common Stock"), (y) upon the prior conversion of shares
of the Designated Preferred Stock, and (z) in prior payment of dividends on
the Designated Preferred Stock would equal or exceed 20% of the number of
shares of the Corporation's Common Stock which were issued and outstanding
on the date of issuance of the Designated Preferred Stock less the Series D
Common Stock (the "MAXIMUM ISSUANCE AMOUNT"). In the even that a properly
executed Notice of Conversion is received by the Corporation which would
require the Corporation to issue shares of Common Stock equal to or in
excess of the Maximum Issuance Amount, the Corporation shall honor such
conversion request by (a) converting the number of shares of the Designated
Preferred Stock stated in the Notice of Conversion which is not in excess
of the Maximum Issuance Amount and (b) redeeming the remaining number of
shares of the Designated Preferred Stock stated in the Notice of Conversion
in cash at a price equal to 135% of the Stated Value thereof, together with
all accrued and unpaid dividends relating to such shares on the date of the
Notice of Conversion. In the event the Corporation shall elect to pay a
dividend in shares of Common Stock equal to or in excess of the Maximum
Issuance Amount, the Corporation shall pay (1) a dividend in a number of
shares of Common Stock equal to one less than the Maximum Issuance Amount
and (2) the balance of the dividend in cash.
2. EFFECT OF TRANSFER OR ASSIGNMENT TO LIMITATIONS. If the Holder transfers
or assigns any shares of the Designated Preferred Stock to a party who or which
would not be considered such an Affiliate, such assignment shall be made subject
to the transferee's or assignee's specific agreement to be bound by the
provisions of this Agreement as if such transferee or assignee were an Affiliate
of the original Holder hereof.
V. RESERVATION OF SHARES OF COMMON STOCK
RESERVED AMOUNT. Upon the initial issuance of the shares of Designated
Preferred Stock and from time to time thereafter until the Conversion Expiration
Date, the Company shall reserve, out of the authorized but unissued shares of
Common Stock, a sufficient number of shares of Common Stock to enable the
7
Company to issue the Conversion Shares, including a sufficient number for the
conversion of all of the Designated Preferred Stock and all payments of
dividends thereon (the "RESERVED AMOUNT"). The Reserved Amount shall be adjusted
as and when the Conversion Price is adjusted pursuant to Article VIII hereof.
The Reserved Amount shall be allocated to the holders of Designated Preferred
Stock as provided in Article X Paragraph D.
VI. REDEMPTION
A. REDEMPTION BY HOLDER. If the Company is unable, due to any statute, rule
or regulation of an governmental agency or self-regulatory organization, to
deliver Conversion Certificates under Paragraph B of Article IV hereof, it shall
be deemed a "REDEMPTION EVENT." Upon the occurrence of a Redemption Event, each
Holder of shares of Designated Preferred Stock shall thereafter have the option,
exercisable in whole or in part at any time and from time to time by delivery of
a notice requesting the redemption of all or part of such Holder's shares of
Designated Preferred Stock (a "HOLDER REDEMPTION NOTICE") to the Company while
such Redemption Event continues, to require the Company to purchase for cash any
or all of the then outstanding shares of Designated Preferred Stock held by such
Holder for an amount per share equal to the Holder Redemption Amount in effect
at the time of the redemption hereunder.
B. DEFINITION OF HOLDER REDEMPTION AMOUNT. The "HOLDER REDEMPTION AMOUNT"
with respect to a share of Preferred Stock being redeemed (each, a "REDEEMED
SHARE") means an amount payable in cash, equal to the Optional Redemption Price
as herein defined. If the Company is obligated to pay the Redemption Price
pursuant to a Holder Redemption Notice, the Company shall give the Holder at
least three (3) business days' notice of the Redemption Payment Date (provided
that such date shall be no earlier than the tenth Trading Day after the date the
Company receives such Holder Redemption Notice).
C. REDEMPTION DEFAULTS. If the Company fails to pay any Holder the Holder
Redemption Price with respect to any share of Designated Preferred Stock within
ten (10) business days after its receipt of a Holder Redemption Notice and the
original certificate representing the Redeemed Shares (the "HOLDER REDEMPTION
DATE"), then the Holder of Designated Preferred Stock delivering such Holder
Redemption Notice shall be entitled to interest on the Holder Redemption Amount
at a per annum rate equal to the lower of 18% and the highest interest rate
permitted by applicable law from the Holder Redemption Date until the date of
payment of the Redemption Price hereunder. If the Company is not able to redeem
all of the shares of Designated Preferred Stock subject to Holder Redemption
Notices delivered prior to the date upon which such redemption is to be
effected, the Company shall redeem shares of Designated Preferred Stock from
each Holder pro rata, based on the total number of shares of Designated
Preferred Stock outstanding at the time of redemption included by such Holder in
all Holder Redemption Notices delivered prior to the date upon which such
redemption is to be effected relative to the total number of shares of
Designated Preferred Stock outstanding at the time of redemption included in all
of the Holder Redemption Notices delivered prior to the date upon which such
redemption is to be effected.
D. REQUIRED REDEMPTION BY THE COMPANY.
1. Notwithstanding any other provision hereof to the contrary, on the
Conversion Expiration Date, the Company shall redeem all or the then
outstanding shares of the Designated Preferred Stock then held by the
Holder (a "COMPANY REDEMPTION") in cash for an amount (the "COMPANY
REDEMPTION AMOUNT") equal to the Redemption Price.
2. Anything in the foregoing provisions of this Paragraph D to the
contrary, if the Company has received a Notice of Conversion prior to the
Conversion Expiration Date, but such conversion has not yet been effected
8
by the Company's issuance of Conversion Certificates, the Company will
honor any such Notice of Conversion in accordance with the terms hereof
notwithstanding the subsequent occurrence of the Conversion Expiration
Date, unless and to the extent the Notice of Conversion is rescinded in
writing by the Holder prior to the payment of the Company Redemption Amount
(and any Notice of Conversion so rescinded shall, to the extent rescinded,
be deemed null and void ab initio). Unless so rescinded, such Notice of
Conversion shall take precedence over the Company Redemption.
3. If the Company is required to make a Company Redemption and fails
to deliver to Holder the Company Redemption Amount on or before the first
business day following the Conversion Expiration Date and the Company has
not received a Notice of Conversion, then the Holder's right to an Optional
Conversion shall be reinstated, the Company's right to make a Company
Redemption shall be terminated and the Company's right to make an optional
redemption pursuant to Section VI.E hereof shall be reinstated.
E. OPTIONAL REDEMPTION BY THE COMPANY. If at anytime after the date of
issuance of the Designated Preferred Stock until the required Redemption
pursuant to Section VI.D, the Closing Bid Price for ten (10) consecutive
Trading Days exceeds 200% of the Conversion Price Ceiling, the Company,
upon notice delivered to the Holder as provided in Section VI.F, may
redeem, in cash, the Designated Preferred Stock (but only with respect to
such shares as to which the Holder has not theretofore furnished a Notice
of Conversion in compliance with Section IV.B), at 135% of the Stated Value
thereof (the "OPTIONAL REDEMPTION PRICE"), together with all accrued and
unpaid dividends thereon to the date of redemption (the "REDEMPTION DATE").
Except as set forth in this Section VI.E, the Company shall not have the
right to prepay or redeem the Designated Preferred Stock. The Holder shall
have ten business days after receiving notice from the Company of an
optional redemption of Designated Preferred Stock, as provided above, to
furnish the Company with a Notice of Conversion and convert the Designated
Preferred Stock being redeemed by the Company.
F. NOTICE OF REDEMPTION. Notice of redemption pursuant to Section VI.E
shall be provided by the Company to the Holder in writing (by registered mail or
overnight courier at the Holder's last address appearing in the Company's
security registry) not less than 10 nor more than 15 business days prior to the
Redemption Date, which notice shall specify the Redemption Date and refer to
Section VI.E and this Section VI.F.
VII. LIQUIDATION PREFERENCE
A. LIQUIDATION EVENT. If the Company shall commence a voluntary case under
the U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Company or
of any substantial part of its property, or make an assignment for the benefit
of its creditors, or admit in writing its inability to pay its debts generally
as they become due, or if a decree or order for relief in respect of the Company
shall be entered by a court having jurisdiction in the premises in an
involuntary case under the U.S. Federal bankruptcy laws or any other applicable
bankruptcy, insolvency or similar law resulting in the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Company or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of 60 consecutive days and,
on account of any such event, the Company shall liquidate, dissolve or wind up,
or if the Company shall otherwise liquidate, dissolve or wind up, including, but
not limited to, the sale or transfer of all or substantially all of the
Company's assets in one transaction or in a series of related transactions
9
(except for a transaction consummated under Section VIII.B) (a "LIQUIDATION
EVENT"), no distribution shall be made to the holders of any shares of capital
stock of the Company (other than Senior Securities and Pari Passu Securities)
upon liquidation, dissolution or winding up unless prior thereto the holders of
shares of Designated Preferred Stock shall have received the Liquidation
Preference with respect to each share. If, upon the occurrence of a Liquidation
Event, the assets and funds available for distribution among the holders of the
Designated Preferred Stock and holders of Pari Passu Securities shall be
insufficient to permit the payment to such holders of the preferential amounts
payable thereon, then the entire assets and funds of the Company legally
available for distribution to the Designated Preferred Stock and the Pari Passu
Securities shall be distributed ratably among such shares in proportion to the
ratio that the Liquidation Preference payable on each such share bears to the
aggregate Liquidation Preference payable on all such shares.
B. EXCLUSIONS. The purchase or redemption by the Company of stock of any
class, in any manner permitted by law, shall not, for the purposes hereof, be
regarded as a liquidation, dissolution or winding up of the Company. The
consolidation or merger of the Company with or into any other entity, the sale
or transfer by the Company of less than substantially all of its assets shall
not, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Company.
VIII. ADJUSTMENTS TO PRICES
A. SALE. The Conversion Price shall be subject to adjustment from time to
time as follows: If, for as long as any shares of Designated Preferred Stock
remain outstanding, the Company enters into a merger (other than where the
Company is the surviving entity) or consolidation with another corporation or
other entity or a sale or transfer of all or substantially all of the assets of
the Company to another person (except for a transaction consummated under
Section VIII.B)(collectively, a "SALE"), the Company will require, in the
agreements reflecting such transaction, that the surviving entity expressly
assume the obligations of the Company hereunder. Notwithstanding the foregoing,
if the Company enters into a Sale and the holders of the Common Stock are
entitled to receive stock, securities or property in respect of or in exchange
for Common Stock, then as a condition of such Sale, the Company and any such
successor, purchaser or transferee will agree that the Designated Preferred
Stock may thereafter be converted on the terms and subject to the conditions set
forth above into the kind and amount of stock, securities or property receivable
upon such merger, consolidation, sale or transfer by a Holder of the number of
shares of Common Stock into which then outstanding shares of Designated
Preferred Stock might have been converted immediately before such merger,
consolidation, sale or transfer, subject to adjustments which shall be as nearly
equivalent as may be practicable. In the event of any such proposed Sale, the
Holder hereof shall, at its option, have the right to either (i) convert all of
any of the outstanding Designated Preferred Stock (without regard to the limits
contemplated by Paragraph C of Article IV hereof) by delivering a Notice of
Conversion to the Company within 15 days of receipt of notice of such Sale from
the Company or (ii) if the surviving entity in the transaction is not a publicly
traded entity listed on a Principal Trading Market, demand a redemption of all
or any of the outstanding Designated Preferred Stock for the Holder Redemption
Amount by delivering a notice to such effect to the Company within fifteen (15)
days of receipt of notice of such Sale from the Company.
B. SPIN OFF. If, at any time prior to the Conversion Date or the date of
payment of the Holder Redemption Amount hereunder, the Company consummates a
spin off or otherwise divests itself of a part of its business or operations or
disposes all or of a part of its assets in a transaction (the "SPIN OFF") in
which the Company does not receive cash payment for such business, operations or
assets, but causes securities of another entity (the "SPIN OFF SECURITIES") to
be issued to security holders of the Company, then the Company shall cause (i)
to be reserved Spin Off Securities equal to the number thereof which would have
been issued to the Holder had all of the holder's shares of Designated Preferred
Stock outstanding on the record date (the "RECORD DATE") for determining the
10
amount and number of Spin Off Securities to be issued to security holders of the
Company (the "OUTSTANDING DESIGNATED PREFERRED STOCK") been converted as of the
close of business on the Trading Day immediately before the Record Date (the
"RESERVED SPIN OFF SHARES"), and (ii) to be issued to the Holder of all or any
of the Outstanding Designated Preferred Stock simultaneous with any distribution
to other holders of Common Stock, such amount of the Reserved Spin Off Shares.
C. STOCK SPLITS, ETC. If, at any time while any shares of Designated
Preferred Stock remain outstanding, the Company effectuates a stock split or
reverse stock split of its Common Stock or issues a dividend on its Common Stock
consisting of shares of Common Stock, the Conversion Price shall be equitably
adjusted to reflect such action. By way of illustration, and not in limitation,
of the foregoing (i) if the Company effectuates a 2:1 split of its Common Stock,
the Conversion Price shall be deemed to be one-half of what it had been
calculated to be immediately prior to such split; (ii) if the Company
effectuates a 1:10 reverse split of its Common Stock, thereafter, with respect
to any conversion for which the Company issues the shares after the record date
of such reverse split, the Conversion Price shall be deemed to be ten times what
it had been calculated to be immediately prior to such split; and (iii) if the
Company declares a stock dividend of one share of Common Stock for every 10
shares outstanding, thereafter the Conversion Price shall be deemed to be the
amount it had been calculated to be immediately prior to such dividend
multiplied by a fraction, of which (x) the numerator is the number of shares (10
in the example) for which a dividend share will be issued and (y) the
denominator is such number of shares plus the dividend share(s) issuable or
issued thereon (11 in the example).
D. NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article VIII, the Company,
at its expense, shall promptly compute such adjustment or readjustment and
prepare and furnish to each Holder of Designated Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Company shall, upon the
written request at any time of any Holder of Designated Preferred Stock, furnish
to such Holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a share of
Designated Preferred Stock.
IX. VOTING RIGHTS
A. GENERALLY. The holders of the Designated Preferred Stock have no voting
power whatsoever, except as otherwise provided by the Corporation Law or
otherwise contemplated by this Certificate of Designations.
B. CLASS VOTING. To the extent that under the Corporation Law the vote of
the holders of the Designated Preferred Stock, voting separately as a class or
series, as applicable, is required to authorize a given action of the Company,
the affirmative vote or consent of the holders of at least eighty-five percent
(85%) of the then outstanding shares of the Designated Preferred Stock
represented at a duly held meeting at which a quorum is present or by written
consent of the holders of at least a majority of the then outstanding shares of
Preferred Stock (except as otherwise may be required under the Corporation Law,
a "REQUIRED INTEREST") shall constitute the approval of such action by the
class. In furtherance of the foregoing and not in limitation thereof, to the
extent that under the Corporation Law or pursuant to the Corporation Law, as
then in effect, holders of the Designated Preferred Stock are entitled to vote
on a matter with holders of Common Stock, voting together as one class, then, in
each such event, each share of Designated Preferred Stock shall be entitled to a
number of votes equal to the number of shares of Common Stock into which it
would then be convertible (taking into account the limits contemplated by
Paragraph C of Article IV hereof) at a conversion price equal to the fair market
value of the Common Stock on the date of issuance of the Designated Preferred
Stock.
11
X. MISCELLANEOUS
A. RANK. The Designated Preferred Stock shall rank (i) prior to the
Company's Common Stock; (ii) prior to any Junior Securities; (iii) junior to any
Senior Securities, and (iv) pari passu with any Pari Passu Securities; provided,
however, that no additional Senior Securities or Pari Passu Securities shall be
created without the written consent of a Required Interest.
B. CANCELLATION OF DESIGNATED PREFERRED STOCK. If any shares of Designated
Preferred Stock are converted or redeemed pursuant to this Certificate of
Designations, the shares so converted shall be canceled, shall return to the
status of authorized, but unissued preferred stock of no designated series, and
shall not be issuable by the Company as Designated Preferred Stock.
C. LOST OR STOLEN CERTIFICATES. Upon receipt by the Company of (i) evidence
of the loss, theft, destruction or mutilation of any Designated Preferred Stock
certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Company, or (z) in the case of
mutilation, upon surrender and cancellation of the Designated Preferred Stock
certificate(s), the Company shall execute and deliver new Designated Preferred
Stock certificate(s) of like tenor and date. However, the Company shall not be
obligated to reissue such lost or stolen Designated Preferred Stock
certificate(s) if the Holder contemporaneously requests the Company to convert
such Designated Preferred Stock.
D. ALLOCATION OF RESERVED AMOUNT. The Reserved Amount shall be allocated
pro rata among the holders of Designated Preferred Stock based on the number of
shares of Designated Preferred Stock issued to each Holder. Each increase to the
Reserved Amount shall be allocated pro rata among the holders of Designated
Preferred Stock based on the number of shares of Designated Preferred Stock held
by each Holder at the time of the increase in the Reserved Amount. In the event
a Holder shall sell or otherwise transfer any of such holder's shares of
Designated Preferred Stock, each transferee shall be allocated a pro rata
portion of such transferor's Reserved Amount. Any portion of the Reserved Amount
which remains allocated to any person or entity which does not hold any
Designated Preferred Stock shall be allocated to the remaining holders of shares
of Designated Preferred Stock, pro rata based on the number of shares of
Designated Preferred Stock then held by such holders.
E. PAYMENT OF CASH; DEFAULTS. Whenever the Company is required to make any
cash payment to a Holder under this Certificate of Designations (upon redemption
or otherwise), such cash payment shall be made to the Holder in good funds of
the United States on the date specified herein or, if not so specified, within
five (5) business days after delivery by such Holder of a notice specifying that
the Holder elects to receive such payment in cash and the method (e.g., by
check, wire transfer) in which such payment should be made. If such payment is
not delivered within the relevant time period, such Holder shall thereafter be
entitled to interest on the unpaid amount at a per annum rate equal to the lower
of 18% per annum and the highest interest rate permitted by applicable law until
such amount is paid in full to the Holder.
F. STATUS AS STOCKHOLDER. Upon submission of a Notice of Conversion by a
Holder of Designated Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their listing or issuance
would exceed such Holder's allocated portion of the Reserved Amount) shall be
deemed converted into shares of Common Stock and (ii) the holder's rights as a
Holder of such converted shares of Designated Preferred Stock shall cease and
terminate, excepting only the right to receive certificates for such shares of
Common Stock and to any remedies provided herein or otherwise available at law
or in equity to such Holder because of a failure by the Company to comply with
the terms of this Certificate of Designations.
12
G. JURY TRIAL WAIVER. The Company and, by its acceptance of the shares of
the Designated Preferred Stock, the Holder hereby waive a trial by jury in any
action, proceeding or counterclaim brought by either of the Parties hereto
against the other in respect of any matter arising out or in connection with
this Certificate of Designations.
H. AMENDMENTS. This Certificate of Designations may only be amended by the
Company with the written consent of the Required Interest and the vote or action
of any other party or class entitled to vote or act thereon.
* * * *
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be
signed by its duly authorized officer on this 19th day of July, 2005.
EQUITEX, INC.
By: /S/ THOMAS B. OLSON
-----------------------------------
Name: Thomas B. Olson
Title: Secretary