EXHIBIT 10.1
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
EQUITEX, INC.,
EI ACQUISITION CORP.,
AND
HYDROGEN POWER, INC.
September 13, 2005
TABLE OF CONTENTS
Page
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ARTICLE 1 MERGER..................................................................................................1
1.1 The Merger......................................................................................1
1.2 Effects of Merger...............................................................................2
1.3 Effect on the Company's Capital Stock and Merger Sub Capital Stock..............................2
1.4 Rights of Holders of Company Capital Stock......................................................4
1.5 Procedure for Exchange of Certificates..........................................................4
1.6 No Dissenting Shares............................................................................6
1.7 Directors and Officers of Surviving Company.....................................................6
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................................................6
2.1 Organization and Qualification..................................................................6
2.2 Authority Relative to this Agreement; Non-Contravention.........................................6
2.3 Capitalization..................................................................................7
2.4 Litigation......................................................................................7
2.5 No Brokers or Finders...........................................................................7
2.6 Tax Matters.....................................................................................8
2.7 Contracts and Commitments.......................................................................9
2.8 Affiliate Transactions.........................................................................10
2.9 Compliance with Laws; Permits..................................................................10
2.10 Financial Statements...........................................................................10
2.11 Books and Records..............................................................................11
2.12 Real Property..................................................................................11
2.13 Insurance......................................................................................11
2.14 Absence of Undisclosed Liabilities.............................................................11
2.15 Environmental Matters..........................................................................11
2.16 Absence of Certain Developments................................................................12
2.17 Employee Benefit Plans.........................................................................12
2.18 Employees......................................................................................13
2.19 Intellectual Property..........................................................................14
2.20 Tax-Free Reorganization........................................................................15
2.21 Vote Required..................................................................................15
2.22 Full Disclosure................................................................................15
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF EQUITEX AND MERGER SUB...............................................15
3.1 Organization and Qualification.................................................................15
3.2 Authority Relative to this Agreement; Non-Contravention........................................16
3.3 Capitalization.................................................................................16
3.4 Exchange Act Reports...........................................................................17
3.5 Litigation.....................................................................................17
3.6 No Brokers or Finders..........................................................................17
3.7 Tax Matters....................................................................................17
3.8 Affiliate Transactions.........................................................................18
3.9 Compliance with Laws; Permits..................................................................19
3.10 Real Property..................................................................................19
3.11 Insurance......................................................................................19
3.12 Absence of Undisclosed Liabilities.............................................................19
3.13 Absence of Certain Developments................................................................19
3.14 Tax Free Reorganization........................................................................20
3.15 Validity of the Equitex Capital Stock..........................................................20
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3.16 Full Disclosure................................................................................20
ARTICLE 4 CONDUCT OF BUSINESS PENDING THE MERGER.................................................................21
4.1 Conduct of Business by Equitex.................................................................21
4.2 Conduct of Business by the Company.............................................................21
ARTICLE 5 ADDITIONAL COVENANTS AND AGREEMENTS....................................................................21
5.1 Equitex Loan...................................................................................21
5.2 Amendment to Sublicense Agreement and Consent of UBC...........................................22
5.3 Governmental Filings...........................................................................22
5.4 Expenses.......................................................................................22
5.5 Due Diligence; Access to Information; Confidentiality..........................................22
5.6 Stockholders' Meetings.........................................................................23
5.7 Tax Treatment..................................................................................24
5.8 Press Releases.................................................................................24
5.9 Private Placement..............................................................................24
5.10 No Solicitation................................................................................24
5.11 Registration Rights............................................................................25
5.12 Monetization of FastFunds Shares...............................................................25
5.13 Use of Equitex Publicly Traded Warrant Proceeds................................................25
5.14 Right to Elect Director of Equitex.............................................................26
5.15 Notification of Certain Matters................................................................26
ARTICLE 6 CONDITIONS.............................................................................................26
6.1 Conditions to Obligations of Each Party........................................................26
6.2 Additional Conditions to Obligations of Equitex and Merger Sub.................................27
6.3 Additional Conditions to Obligations of the Company............................................28
ARTICLE 7 TERMINATION............................................................................................29
7.1 Termination....................................................................................29
ARTICLE 8 INDEMNIFICATION........................................................................................29
8.1 Indemnification of the Company.................................................................29
8.2 Indemnification of Equitex.....................................................................30
8.3 Indemnification Procedure......................................................................30
ARTICLE 9 DISPUTE RESOLUTION.....................................................................................32
9.1 Arbitration; Jurisdiction and Venue............................................................32
9.2 Arbitration Protocol...........................................................................33
9.3 Exceptions and Qualifications to Binding Arbitration...........................................35
ARTICLE 10 GENERAL PROVISIONS....................................................................................35
10.1 Notices........................................................................................35
10.2 Knowledge Convention...........................................................................36
10.3 No Survival....................................................................................36
10.4 Interpretation.................................................................................36
10.5 Severability...................................................................................36
10.6 Amendment......................................................................................36
10.7 Waiver.........................................................................................37
10.8 Miscellaneous..................................................................................37
10.9 Counterparts; Delivery.........................................................................37
10.10 Third-Party Beneficiaries......................................................................37
10.11 Governing Law..................................................................................37
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AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this "Agreement") is
entered into as of September 13, 2005, by and among Hydrogen Power, Inc., a
Delaware corporation (the "Company"), Equitex, Inc., a Delaware corporation
("Equitex"), and EI Acquisition Corp., a Delaware corporation that is wholly
owned by Equitex (the "Merger Sub").
INTRODUCTION
A. The boards of directors of the Company, Equitex and Merger Sub have
determined that it is in the best interests of such corporations and their
respective stockholders to consummate a merger (the "Merger") of Merger Sub with
and into the Company, with the Company remaining as the surviving corporation
and a wholly owned subsidiary of Equitex.
B. Equitex, as the sole stockholder of Merger Sub, has approved this
Agreement, the Merger and the other transactions contemplated by this Agreement
pursuant to action taken by unanimous written consent of its board of directors
in accordance with the requirements of Delaware General Corporation Law (the
"DGCL"), and the certificate of incorporation and the bylaws of Merger Sub.
C. Pursuant to the Merger, the outstanding shares of common stock of the
Company shall be converted into the right to receive upon Closing (as defined in
Section 1.2(d)) and thereafter, the Merger Consideration (as defined in Section
1.3 below).
D. The parties to this Agreement intend to adopt this Agreement as a plan
of reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the regulations promulgated
thereunder, and intend that the Merger and the transactions contemplated by this
Agreement be undertaken pursuant to that plan. Accordingly, the parties to this
Agreement intend that the Merger qualify as a "reorganization," within the
meaning of Code Section 368(a) and a "foreign merger" within the meaning of
Section 87(8.1) of the Income Tax Act (Canada), and that, with respect to the
Merger, Equitex, Merger Sub and the Company will each be a "party to a
reorganization," within the meaning of Code Section 368(b).
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, and the
representations, warranties and covenants contained herein, the parties hereto
agree as follows:
Article 1
Merger
1.1 The Merger. Subject to the satisfaction or waiver of the conditions
set forth in Article 6, at the Effective Time (as defined in Section 1.2(d)
below), (i) Merger Sub will merge with and into the Company, and (ii) the
Company will be the surviving corporation to the Merger and will become a wholly
owned subsidiary of Equitex. The term "Surviving Company" as used herein shall
mean the Company as a wholly owned subsidiary of Equitex after giving effect to
the Merger. The Merger will be effected pursuant to the execution and filing of
a certificate of merger in accordance with the provisions of the DGCL, and in
substantially the form attached hereto as Exhibit A (the "Certificate of
Merger").
1.2 Effects of Merger.
(a) From and after the Effective Time (as defined in paragraph (d)) and
until further altered, amended or repealed in accordance with law, (i) the
Merger Sub's certificate of incorporation as in effect immediately prior to the
Effective Time shall be the Surviving Company's certificate of incorporation,
and (ii) the Merger Sub's bylaws as in effect immediately prior to the Effective
Time shall be the Surviving Company's bylaws.
(b) From and after the Effective Time, (i) all of the rights, privileges,
immunities, powers, franchises and authority (both public and private) of the
Company and Merger Sub shall vest in the Surviving Company; (ii) all of the
assets and property of the Company and Merger Sub of every kind, nature and
description (real, personal and mixed, and both tangible and intangible) and
every interest therein, wheresoever located, including without limitation all
debts or other obligations belonging or due to the Company or Merger Sub (other
than any such debts or other obligations between them), all claims and all
causes of action, shall be vested absolutely and unconditionally in the
Surviving Company; and (iii) all debts and obligations of the Company and Merger
Sub (other than any such debts or other obligations between them), all rights of
creditors of the Company or Merger Sub and all liens or security interests
encumbering any of the property of the Company or Merger Sub shall be vested in
the Surviving Company and shall remain in full force and effect without
modification or impairment and shall be enforceable against the Surviving
Company and its assets and properties with the same full force and effect as if
such debts, obligations, liens or security interests had been originally
incurred or created by the Surviving Company in its own name and for its own
behalf. Without limiting the generality of the foregoing, Surviving Company
specifically assumes all continuing obligations which the Company or Merger Sub
would otherwise have to indemnify its officers and directors, to the fullest
extent currently provided in the Surviving Company's certificate of
incorporation, bylaws and pursuant to the DGCL, with respect to any and all
claims arising out of actions taken or omitted by the Company's officers and
directors prior to the Effective Date.
(c) Each of Equitex, the Company and Merger Sub shall each use its best
efforts to take all such action as may be necessary or appropriate to effectuate
the Merger in accordance with the DGCL at the Effective Time. If at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Company with full
right, title and possession to all properties, rights, privileges, immunities,
powers and franchises of either the Company or Merger Sub, the officers of
Equitex, and the officers of Surviving Company on behalf of the Company and
Merger Sub, shall take all such lawful and necessary action.
(d) Subject to the provisions of Article 6 and Article 7, the closing of
the transactions contemplated hereby (the "Closing") shall take place by mutual
release of all Closing deliveries at a mutually agreeable date and time, but in
no event later than September 30, 2005. On the Closing date, to effect the
Merger, the parties hereto will cause the Certificate of Merger to be filed with
the Delaware Secretary of State in accordance with the DGCL. The Merger shall
become effective upon such filing of the Certificate of Merger or at such later
date or time as is specified in the Certificate of Merger (the "Effective
Time"). As used herein, the term "Effective Date" shall mean the date on which
Merger shall become effective pursuant to this Section 1.2(d).
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1.3 Effect on the Company's Capital Stock and Merger Sub Capital Stock. To
effectuate the Merger, and subject to the terms and conditions of this
Agreement, at the Effective Time:
(a) Each issued and outstanding share of Company common stock ("Company
Common Stock") immediately prior to the Effective Time, other than shares to be
extinguished pursuant to Section 1.3(c), shall be converted into and exchanged
for:
(i) that number of fully paid and non-assessable shares of Equitex
common stock ("Equitex Common Stock") equal to the quotient resulting from
dividing (A) the number of shares of Equitex Common Stock issued and
outstanding immediately prior to the Effective Time multiplied by 0.4 by
(B) the number shares of the Company's Common Stock issued and outstanding
immediately prior to the Effective Time, on a fully-diluted basis
(assuming the exercise or conversion of all Company Convertible
Securities, as defined in Section 1.3(b)) (the "Common Stock Exchange
Ratio"); and
(ii) that number of fully paid and non-assessable shares of each of
the Equitex Series L-1 Convertible Preferred Stock (the "L-1 Preferred
Stock"), Equitex Series L-2 Convertible Preferred Stock (the "L-2
Preferred Stock") and Equitex Series L-3 Convertible Preferred Stock (the
"L-3 Preferred Stock"; collectively, the X-0 Xxxxxxxxx Xxxxx, X-0
Preferred Stock and the L-3 Preferred Stock shall be referred to as the
"Series L Preferred Stock"), respectively, equal to the quotient resulting
from dividing (A) 100,000 by (B) the number of issued and outstanding
shares of the Company's Common Stock on the Closing Date, on a
fully-diluted basis (assuming the exercise or conversion of all Company
Convertible Securities, as defined in Section 1.3(b)) (the "Preferred
Stock Exchange Ratio"); the Series L Preferred Stock shall have the
rights, preferences and privileges as set forth in the Equitex Series L
Convertible Preferred Stock Certificate of Designation, in the form
attached hereto as Exhibit B (the "Certificate of Designation"), and be
convertible as set forth therein.
Equitex shall issue to each holder of Company Common Stock (other than holders
of shares extinguished pursuant to Section 1.3(c)) the number of shares of
Equitex Common Stock and Series L Preferred Stock equal to the number of shares
of Company Common Stock held by such shareholder multiplied by the Common Stock
Exchange Ratio and Preferred Stock Exchange Ratio, respectively. No fractional
shares of Equitex Common Stock or Series L Preferred Stock will be issued upon
the exchange of Company Common Stock.
(b) All outstanding securities exercisable or convertible into, or
exchangeable for, shares of Company Common Stock (including without limitation
options and warrants to purchase shares of Company Common Stock) that are
outstanding immediately prior to the Effective Time (the "Company Convertible
Securities") shall convert automatically into securities exercisable or
convertible into, or exchangeable for, that number of shares of Equitex Common
Stock and Series L Preferred Stock ("Equitex Convertible Securities") as the
holders thereof would have been entitled to receive if such Company Convertible
Securities had been converted into or exercised for shares of Company Common
Stock immediately prior to the Effective Time, based on the Common Stock
Exchange Ratio and Preferred Stock Exchange Ratio, respectively; provided,
however, that the exercise price per share of Equitex Common Stock under each
such Equitex Convertible Security received by holders of Company Convertible
Securities will be equal to the quotient obtained by dividing the purchase price
per share of Company Common Stock under each outstanding Company Convertible
Security by the Common Stock Exchange Ratio and Preferred Stock Exchange Ration,
as applicable. No fractional shares of Equitex Common Stock or Series L
Preferred Stock will be issued upon exercise or conversion of Equitex
Convertible Securities issuable hereunder. The Equitex Convertible Securities
issuable upon the Merger under this paragraph (b) and the Equitex Common Stock
and the Series L Preferred Stock issuable upon the Merger under paragraph (a)
above are collectively referred to as the "Merger Consideration."
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(c) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time and owned by Merger Sub, if any, shall be cancelled
and extinguished without any conversion thereof and no payment shall be made
with respect thereto.
(d) All issued and outstanding shares of common stock of Merger Sub held
by Equitex immediately prior to the Effective Time will be converted into and
become one validly issued, fully paid and non-assessable share of common stock
of the Surviving Company.
1.4 Rights of Holders of Company Capital Stock.
(a) On and after the Effective Date and until surrendered for exchange,
each outstanding stock certificate that immediately prior to the Effective Date
represented shares of Company Common Stock (except shares cancelled or
extinguished pursuant to Section 1.3(c)) shall be deemed, for all purposes, to
evidence ownership of and to represent the number of whole shares of Equitex
Common Stock and Series L Preferred Stock into which such shares of Company
Common Stock shall convert pursuant to Section 1.3(a) above. After the Effective
Date, the record holder of each such outstanding certificate representing shares
of Company Common Stock shall be entitled to vote the shares of Equitex Common
Stock and Series L Preferred Stock, as applicable, into which such shares of
Company Common Stock shall have been converted on any matters on which the
holders of record of Equitex capital stock having voting rights shall be
entitled to vote, as of any date after the Effective Date. In any matters
relating to certificates representing Company common stock, Equitex shall be
entitled to rely conclusively upon the record of stockholders containing the
names and addresses of the holders of record of Company Common Stock on the
Effective Date.
(b) On and after the Effective Date, Equitex shall reserve a sufficient
number of authorized but unissued shares of Equitex Common Stock and Series L
Preferred Stock, as applicable, for issuance in connection with (i) the
conversion of Company Common Stock into Equitex Common Stock and Series L
Preferred Stock, (ii) the conversion or exercise of all Equitex Convertible
Securities into which Company Convertible Securities are converted pursuant to
Section 1.3(b) and (iii) the conversion of the foregoing Series L Preferred
Stock.
1.5 Procedure for Exchange of Certificates.
(a) Equitex or its transfer agent shall act as exchange agent in the
Merger (the "Exchange Agent"). As soon as practicable following the Effective
Time, the Exchange Agent will mail or cause to be mailed to each former holder
of Company Common Stock (except shares cancelled or extinguished pursuant to
Section 1.3(c)), as recorded on the Company's books and records immediately
prior to the Merger, a letter of transmittal in customary form with instructions
for effecting the exchange of certificates representing Company Common Stock and
the Merger Consideration.
(b) Upon surrender of a certificate representing Company Common Stock to
the Exchange Agent (or its representative) for exchange, together with a duly
executed letter of transmittal and such other documents as may be reasonably
required by the Exchange Agent to effect the certificate exchange, each such
former holder of Company Common Stock shall be entitled to receive certificates
representing the number of whole shares of Equitex Common Stock and Series L
Preferred Stock into which shares of Company Common Stock theretofore
represented by the certificates so surrendered shall have been converted as
provided in Section 1.3(a).
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(c) If there is a transfer of Company Common Stock ownership which is not
registered in the Company's transfer records, a certificate representing the
proper number of shares of Equitex Common Stock and Series L Preferred Stock may
be issued to a Person other than the Person in whose name the certificate so
surrendered is registered if: (i) upon presentation to the corporate secretary
of Equitex, such certificate shall be properly endorsed or otherwise be in
proper form for transfer, (ii) the Person requesting such payment shall pay any
transfer or other taxes required by reason of the issuance of shares of Equitex
Common Stock and Series L Preferred Stock to a Person other than the registered
holder of such certificate or establish to the reasonable satisfaction of
Equitex that such tax has been paid or is not applicable, and (iii) the issuance
of such Equitex Common Stock and Series L Preferred Stock shall not, in the sole
discretion of Equitex, violate the requirements of applicable securities laws
and regulations with respect to the private placement of Equitex Common Stock
and Series L Preferred Stock that will result from the Merger. For all purposes
of this Agreement, the term "Person" means any ------ individual, corporation
(including any non-profit corporation), general or limited partnership, limited
liability company, joint venture, estate, trust, association, organization,
labor union, governmental authority or other entity.
(d) All shares of Equitex Common Stock and Series L Preferred Stock issued
upon the surrender for exchange of Company Common Stock in accordance with the
above terms and conditions shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such shares of Company Common Stock.
(e) Any shares of Equitex Common Stock and Series L Preferred Stock issued
in the Merger will not be transferable except (i) pursuant to an effective
registration statement under the Securities Act of 1933 (the "Securities Act")
or (ii) upon receipt by Equitex of a written opinion of counsel reasonably
satisfactory to Equitex to the effect that the proposed transfer is exempt from
the registration requirements of the Securities Act and relevant state
securities laws. Restrictive legends shall be placed on all certificates
representing shares of Equitex Common Stock and Series L Preferred Stock issued
in the Merger, in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER AND CERTAIN OTHER CONDITIONS.
NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND ALL
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS (SUCH FEDERAL
AND STATE LAWS, THE "SECURITIES LAWS") OR (B) THE COMPANY HAS
BEEN FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER,
WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO
THE COMPANY, TO THE EFFECT THAT SUCH TRANSFER, SALE,
ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
LAWS.
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The failure, however, of such certificates to contain such a legend
shall not affect the enforceability of restrictions set forth in this Section
1.5, except as otherwise provided by applicable law.
(f) In the event any certificate for Company Common Stock shall have
been lost, stolen or destroyed, Equitex shall issue and pay in exchange
for such lost, stolen or destroyed certificate, upon the making of an
affidavit of that fact by the holder thereof, such shares of Equitex
Common Stock and Series L Preferred Stock as may be required pursuant to
this Agreement.
1.6 No Dissenting Shares. Prior to the date hereof, the Company shall have
obtained from each of its stockholders, in a form acceptable to Equitex in its
sole discretion, a waiver of such stockholder's respective dissenters' rights
under Section 262 of the DGCL.
1.7 Directors and Officers of Surviving Company. The directors and
officers of the Company immediately prior to the Effective Time shall serve as
the initial directors and officers, respectively, of the Surviving Company on
and after the Effective Time; provided that, at the Effective Time, Equitex
shall be entitled to appoint one additional director to the board of directors
of the Surviving Company. Such directors (including any such director appointed
by Equitex) and officers of the Surviving Company shall hold office for the term
specified in, and subject to the provisions contained in, the Surviving
Company's certificate of incorporation and bylaws and applicable law.
Article 2
Representations and Warranties of the Company
The Company and Global Hydrofuel Technologies, Inc., a Canadian federal
corporation and holder of a majority of the capital stock of the Company
("GHTI"), hereby jointly and severally represent and warrant to Equitex and
Merger Sub as follows:
2.1 Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite corporate power to carry on its business as now
conducted. The Company is licensed or qualified to do business in every
jurisdiction in which the nature of its business or its ownership of property
requires it to be licensed or qualified, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on the Company or
the Surviving Company given the Company's current business operations. For all
purposes of this Agreement, the term "Material Adverse Effect" shall, with
respect to an entity, mean a material adverse effect on the business,
operations, results of operations or financial condition of such entity on a
consolidated basis.
2.2 Authority Relative to this Agreement; Non-Contravention. The Company
has the requisite corporate power and authority to enter into this Agreement and
to carry out its obligations hereunder. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by the Company's board of
directors and, except for approval of this Agreement and the Merger by the
requisite vote of the Company's shareholders (the "Required Company Stockholder
Vote"), no other corporate proceedings on the part of the Company are necessary
to authorize the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by the Company and, assuming it is a valid and binding obligation
of Equitex and Merger Sub, constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms, except as enforcement may be
limited by general principles of equity whether applied in a court of law or a
court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally. Except as set forth in Schedule 2.2,
the Company is not subject to, or obligated under, any provision of (a) its
certificate of incorporation or bylaws, (b) any agreement, arrangement or
understanding, (c) any license, franchise or permit or (d) subject to obtaining
the approvals referred to in the next sentence, any law, regulation, order,
judgment or decree, which would conflict with, be breached or violated, or in
respect of which a right of termination or acceleration or any security
interest, charge or encumbrance on any of its assets would be created, by the
execution, delivery or performance of this Agreement, or the consummation of the
transactions contemplated hereby, other than any such conflicts, breaches,
violations, rights of termination or acceleration or security interests, charges
or encumbrances which, in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect on the Company or the Surviving Company.
Except for (i) approvals under applicable blue sky laws, (ii) the filing of the
Certificate of Merger with the Secretary of State of Delaware, and (iii) such
filings, authorizations or approvals as may be set forth in Schedule 2.2, no
authorization, consent or approval of, or filing with, any public body, court or
authority is necessary on the part of the Company for the consummation by the
Company of the transactions contemplated by this Agreement, except for such
authorizations, consents, approvals and filings as to which the failure to
obtain or make the same would not, in the aggregate, reasonably be expected to
have a Material Adverse Effect on the Company or the Surviving Company or
adversely affect the consummation of the transactions contemplated hereby.
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2.3 Capitalization.
(a) The authorized, issued and outstanding shares of capital stock
of the Company, and Company Convertible Securities, as of the date hereof
are correctly set forth on Schedule 2.3(a). The issued and outstanding
shares of capital stock of the Company are duly authorized, validly
issued, fully paid and non-assessable and have not been issued in
violation of any preemptive rights and are free from any restrictions on
transfer (other than restrictions under the Securities Act or state
securities laws) or any option, lien, pledge, security interest,
encumbrance or charge of any kind. Other than as described on Schedule
2.3(a), the Company has no other equity securities or securities
containing any equity features (including Company Convertible Securities)
authorized, issued or outstanding. Other than as described on Schedule
2.3(a), there are no agreements or other rights or arrangements existing
which provide for the sale or issuance of capital stock by the Company and
there are no rights, subscriptions, warrants, options, conversion rights
or agreements of any kind outstanding to purchase or otherwise acquire
from the Company any shares of capital stock or other securities of the
Company of any kind. Except as set forth on Schedule 2.3(a), there are no
agreements or other obligations (contingent or otherwise) which may
require the Company to repurchase or otherwise acquire any shares of its
capital stock.
(b) The Company does not own, and is not party to any contract to
acquire, any equity securities or other securities of any entity or any
direct or indirect equity or ownership interest in any other entity. To
the Company's Knowledge, there exist no voting trusts, proxies, or other
contracts with respect to the voting of shares of capital stock of the
Company.
2.4 Litigation. Except as set forth on Schedule 2.4, there are no actions,
suits, proceedings, orders or investigations pending or, to the Company's
Knowledge, threatened against the Company, at law or in equity, or before or by
any federal, state or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign.
2.5 No Brokers or Finders. Except as disclosed on Schedule 2.5, there are
no claims for brokerage commissions, finders' fees, investment advisory fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement, understanding, commitment or agreement made
by or on behalf of the Company.
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2.6 Tax Matters.
(a) (i) The Company has timely filed (or has had timely filed on its
behalf) all returns, declarations, reports, estimates, information returns, and
statements, including any schedules and amendments to such documents ("Company
Returns"), required to be filed or sent by it in respect of any Taxes or
required to be filed or sent by it by any taxing authority having jurisdiction;
(ii) all such Company Returns are complete and accurate in all material
respects; (iii) the Company has timely and properly paid (or has had paid on its
behalf) all Taxes required to be paid by it; (iv) the Company has established on
the Company Latest Balance Sheet (as defined in Section 2.14 below), in
accordance with United States generally accepted accounting principles as in
effect from time to time ("GAAP"), reserves that are adequate for the payment of
any Taxes not yet due and payable; (v) the Company has complied with all
applicable laws, rules, and regulations relating to the collection or
withholding of Taxes from third parties, including without limitation employees,
and the payment thereof (including without limitation withholding of Taxes under
Code Sections 1441 and 1442, or similar provisions under any foreign laws).
(b) For all purposes of this Agreement, the terms "Tax" and "Taxes" shall
mean any federal, state, local or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, property or
windfall profits taxes, environmental taxes, customs duties, capital stock,
franchise, employees' income withholding, foreign or domestic withholding,
social security, unemployment, disability, workers' compensation,
employment-related insurance, real property, personal property, sales, use,
transfer, value added, alternative or add-on minimum or other governmental tax,
fee, assessment or charge of any kind whatsoever including any interest,
penalties or additions to any Tax or additional amounts in respect of the
foregoing.
(c) There are no liens for Taxes upon any assets of the Company, except
liens for Taxes not yet due.
(d) No deficiency for any Taxes has been proposed, asserted or assessed
against the Company that has not been resolved and paid in full or is not being
contested in good faith. Except as disclosed in Schedule 2.6, no waiver,
extension or comparable consent given by the Company regarding the application
of the statute of limitations with respect to any Taxes or Returns is
outstanding, nor is any request for any such waiver or consent pending. Except
as disclosed in Schedule 2.6, there has been no Tax audit or other
administrative proceeding or court proceeding with regard to any Taxes or
Company Returns, nor is any such Tax audit or other proceeding pending, nor has
there been any notice to the Company by any Taxing authority regarding any such
Tax audit or other proceeding, or, to the Company's Knowledge, is any such Tax
audit or other proceeding threatened with regard to any Taxes or Company
Returns. The Company does not expect the assessment of any additional Taxes of
the Company for any period prior to the date hereof and has no Knowledge of any
unresolved questions, claims or disputes concerning the liability for Taxes of
the Company which would exceed the estimated reserves established on its books
and records.
8
(e) Except as set forth on Schedule 2.6, the Company is not a party to any
agreement, contract or arrangement that would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code and the consummation of the transactions
contemplated by this Agreement will not be a factor causing payments to be made
by the Company not to be deductible (in whole or in part) under Section 280G of
the Code. The Company is not liable for any Taxes of any other Person, and is
not currently under any contractual obligation to indemnify any Person with
respect to Taxes, or a party to any tax sharing agreement or any other agreement
providing for payments by the Company with respect to Taxes. The Company is not
party to any joint venture, partnership or other arrangement or contract which
could be treated as a partnership for federal income tax purposes. The Company
has not agreed and is not required, as a result of a change in method of
accounting or otherwise, to include any adjustment under Section 481 of the Code
(or any corresponding provision of state, local or foreign law) in taxable
income. The Company is not liable with respect to any indebtedness the interest
of which is not deductible for applicable federal, foreign, state or local
income tax purposes. The Company has not filed or been included in a combined,
consolidated or unitary Tax return (or the substantial equivalent thereof) of
any person.
(f) The Company has been neither a "distributing corporation" nor a
"controlled corporation" (within the meaning of Section 355 of the Code) in a
distribution of stock qualifying for tax-free treatment under Section 355 of the
Code.
(g) Except as set forth on Schedule 2.6, the Company has not requested any
extension of time within which to file any Company Return, which return has not
since been filed.
2.7 Contracts and Commitments.
(a) Schedule 2.7 hereto lists the following agreements, whether oral or
written, to which the Company is a party, which are currently in effect, and
which relate to the operation of the Company's business: (i) collective
bargaining agreement or contract with any labor union; (ii) bonus, pension,
profit sharing, retirement or other form of deferred compensation plan; (iii)
hospitalization insurance or other welfare benefit plan or practice, whether
formal or informal; (iv) stock purchase or stock option plan; (v) contract for
the employment of any officer, individual employee or other person on a
full-time or consulting basis or relating to severance pay for any such person;
(vi) confidentiality agreement; (vii) contract, agreement or understanding
relating to the voting of the Company's capital stock or the election of
directors; (viii) agreement or indenture relating to the borrowing of money or
to mortgaging, pledging or otherwise placing a lien on any of the assets of the
Company; (ix) guaranty of any obligation for borrowed money or otherwise; (x)
lease or agreement under which the Company is lessee of, or holds or operates
any property, real or personal, owned by any other party, for which the annual
rental exceeds $10,000; (xi) lease or agreement under which the Company is
lessor of, or permits any third party to hold or operate, any property, real or
personal, for which the annual rental exceeds $10,000; (xii) contract which
prohibits the Company from freely engaging in business anywhere in the world;
(xiii) license agreement or agreement providing for the payment or receipt of
royalties or other compensation by the Company in connection with the
intellectual property rights listed in Schedule 2.19(b) hereto; (xiv) contract
or commitment for capital expenditures in excess of $10,000; (xv) agreement for
the sale of any capital asset; (xvi) contracts, understandings, arrangements or
commitments with respect to the acquisition and/or use by the Company of
Intellectual Property of others or by others of Company Intellectual Property
(as defined in Section 2.19 hereof); or (xvii) other agreement which is either
material to the Company's business or was not entered into in the ordinary
course of business.
9
(b) The Company has performed all obligations required to be performed by
them in connection with the contracts or commitments required to be disclosed in
Schedule 2.7 and is not in receipt of any claim of default under any contract or
commitment required to be disclosed under such caption; the Company has no
present expectation or intention of not fully performing any material obligation
pursuant to any contract or commitment required to be disclosed under such
caption; and the Company has no Knowledge of any breach or anticipated breach by
any other party to any contract or commitment required to be disclosed under
such caption.
2.8 Affiliate Transactions. Except as set forth in Schedule 2.8, and other
than pursuant to this Agreement, no officer, director or employee of the
Company, any Company subsidiary or any member of the immediate family of any
such officer, director or employee, or any entity in which any of such persons
owns any beneficial interest (other than any publicly held corporation whose
stock is traded on a national securities exchange or in the over-the-counter
market and less than one percent of the stock of which is beneficially owned by
any of such persons) (collectively "Company Insiders"), has any agreement with
the Company (other than normal employment arrangements) or any interest in any
property, real, personal or mixed, tangible or intangible, used in or pertaining
to the business of the Company (other than ownership of capital stock of the
Company). The Company is not indebted to any Company Insider (except for amounts
due as normal salaries and bonuses and in reimbursement of ordinary business
expenses) and no Company Insider is indebted to the Company except for cash
advances for ordinary business expenses). None of the Company Insiders has any
direct or indirect interest in any competitor, supplier or customer of the
Company or in any person, firm or entity from whom or to whom the Company leases
any property, or in any other person, firm or entity with whom the Company
transacts business of any nature. For purposes of this Section 2.8 the members
of the immediate family of an officer, director or employee shall consist of the
spouse, parents and children of such officer, director or employee.
2.9 Compliance with Laws; Permits.
(a) Except for any noncompliance that would not reasonably be
expected to have a Material Adverse Effect on the Company or the Surviving
Company, the Company and its officers, directors, agents and employees
have complied with all applicable laws, regulations and other
requirements, including but not limited to federal, state, local and
foreign laws, ordinances, rules, regulations and other requirements
pertaining to equal employment opportunity, employee retirement,
affirmative action and other hiring practices, occupational safety and
health, workers' compensation, unemployment and building and zoning codes,
and no claims have been filed against the Company, and the Company has not
received any notice, alleging a violation of any such laws, regulations or
other requirements. The Company is not relying on any exemption from or
deferral of any such applicable law, regulation or other requirement that
would not be available to Equitex after it acquires the Company's
properties, assets and business.
(b) The Company has, in full force and effect, all licenses, permits
and certificates, from federal, state, local and foreign authorities
(including without limitation federal and state agencies regulating
occupational health and safety) necessary to conduct its business and
operate its properties (collectively, the "Company Permits"). A true,
correct and complete list of all the Company Permits is set forth in
Schedule 2.9 hereto. The Company has conducted its business in compliance
with all material terms and conditions of the Company Permits, except for
any noncompliance that would not reasonably be expected to have a Material
Adverse Effect on the Company or the Surviving Company.
10
2.10 Financial Statements. The Company has provided Equitex unaudited
balance sheets of the Company as of June 30, 2005, along with the related
unaudited statements of income, changes in stockholders' equity, and cash flows
of the Company for the period then ended (the "Company Financial Statements").
The Company Financial Statements have been prepared in accordance with GAAP
consistently applied with past practice and on that basis present fairly, in all
material respects, the financial position and the results of operations, changes
in stockholders' equity, and cash flows of the Company as of the date of and for
the period referred to in the Company Financial Statements. Within three (3)
weeks from the date hereof, the Company will provide audited balance sheets as
of June 30, 2005 and related audited statements of income, changes in
stockholders' equity, and cash flows of the Company for the period then ended,
such financial statements to be audited by a reasonable firm licensed to
practice before the Securities and Exchange Commission.
2.11 Books and Records. The books of account, minute books, stock record
books, and other records of the Company, have been made available to Equitex,
have been properly kept and contain no inaccuracies except for inaccuracies that
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the Company or the Surviving Company. At the Closing,
all of the Company's records will be in the possession of the Company.
2.12 Real Property. The Company does not own any real property. Schedule
2.12 contains an accurate list of all leaseholds and other interests of the
Company in any real property. The Company has good and valid title to those
leaseholds and other interests free and clear of all liens and encumbrances, and
the real property to which those leasehold and other interests pertain
constitutes the only real property used in the Company's business.
2.13 Insurance. The insurance policies owned and maintained by the Company
that are material to the Company are in full force and effect, all premiums due
and payable thereon have been paid (other than retroactive or retrospective
premium adjustments that the Company is not currently required, but may in the
future be required, to pay with respect to any period ending prior to the date
of this Agreement), and the Company has received no notice of cancellation or
termination with respect to any such policy that has not been replaced on
substantially similar terms prior to the date of such cancellation.
2.14 Absence of Undisclosed Liabilities. Except as reflected in the
unaudited balance sheet of the Company at June 30, 2005 included among the
Company Financial Statements, the Company has no liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise) except (i) liabilities which
have arisen after June 30, 2005 in the ordinary course of business, none of
which is a material uninsured liability for breach of contract, breach of
warranty, tort, infringement, claim or lawsuit, or (ii) as otherwise set forth
in Schedule 2.14. As of the date hereof, the Company has less than $850,000 in
aggregate liabilities.
11
2.15 Environmental Matters. The Company is, and at all times has been, in
full compliance with, and has not been in violation of or liable under, any
Environmental Law (as defined below) such that non-compliance or violation would
reasonably be expected to have a materially adverse effect on the Company or the
Surviving Company. The Company has no basis to expect, nor have it received, any
actual or threatened order, notice or other communication from any governmental
agency, office or body, or any private citizen, acting in the public interest,
or the current or prior owner or operator of any building in which the Company
transacts business, of any actual or potential violations or failure to comply
with any Environmental Law. For purposes of this Agreement, the term
"Environmental Law" shall mean any legal requirement that requires or relates
to: (a) advising appropriate authorities, employees and/or the public of
intended or actual releases of pollutants or hazardous substances or materials,
violations of discharge limits or other prohibitions, and the commencement of
activities, such as resource extraction or construction, that could have a
significant impact on the environment; (b) preventing or reducing to acceptable
levels the release or existence of pollutants or hazardous materials or
substances in the environment; (c) reducing the quantities, preventing the
release or minimizing the hazardous characteristics of wastes that are
generated; (d) assuring that products are designed, formulated, packaged and
used so that they do not present unreasonable risks to human health or the
environment when used or disposed of; (e) protecting resources, species or
ecological amenities; (f) reducing to acceptable levels the risks inherent in
the transportation of hazardous substances, pollutants or other potentially
harmful substances; (g) cleaning up pollutants that have been released,
preventing the threat of release, or paying the costs of such clean up or
prevention; or (h) making responsible parties pay private parties or groups of
private parties for damages done to their health or the environment, or
permitting self-appointed representatives of the public interest to recover for
injuries done to public property or assets. None of the operations of the
Company involves the generation, transportation, treatment, storage or disposal
of hazardous waste, as defined under 40 C.F.R. Parts 260-270 or any state, local
or foreign equivalent.
2.16 Absence of Certain Developments. Except as set forth in Schedule 2.16
or as disclosed in the Company Financial Statements or as otherwise contemplated
by this Agreement, since June 30, 2005, the Company has conducted its business
only in the ordinary course consistent with past practice and there has not
occurred (a) any event having a Material Adverse Effect on the Company or likely
to have a Material Adverse Effect on the Surviving Company, (b) any event that
would reasonably be expected to prevent or materially delay the performance of
the Company's obligations pursuant to this Agreement, (c) any material change by
the Company in its accounting methods, principles or practices, (d) any
declaration, setting aside or payment of any dividend or distribution in respect
of the shares of capital stock of the Company or any redemption, purchase or
other acquisition of any of the Company's securities, (e) any increase in the
compensation or benefits or establishment of any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including without limitation the granting of stock options, stock appreciation
rights, performance awards or restricted stock awards), stock purchase or other
employee benefit plan of the Company, or any other increase in the compensation
payable or to become payable to any employees, officers, consultants or
directors of the Company, (f) other than issuances of options pursuant to duly
adopted option plans, any issuance, grants or sale of any stock, options,
warrants, notes, bonds or other securities, or entry into any agreement with
respect thereto by the Company, (g) any amendment to the Company's certificate
of incorporation or bylaws, (h) other than in the ordinary course of business
consistent with past practice, any (i) capital expenditures by the Company, (ii)
purchase, sale, assignment or transfer of any material assets by the Company,
(iii) mortgage, pledge or existence of any lien, encumbrance or charge on any
material assets or properties, tangible or intangible, of the Company, except
for liens for taxes not yet due and such other liens, encumbrances or charges
which do not, individually or in the aggregate, have a Material Adverse Effect
on the Company or the Surviving Company, or (iv) cancellation, compromise,
release or waiver by the Company of any rights of material value or any material
debts or claims, (i) any incurrence by the Company of any material liability
(absolute or contingent), except for current liabilities and obligations
incurred in the ordinary course of business consistent with past practice, (j)
damage, destruction or similar loss, whether or not covered by insurance,
materially affecting the business or properties of the Company, (k) entry into
any agreement, contract, lease or license other than in the ordinary course of
business consistent with past practice, (l) any acceleration, termination,
modification or cancellation of any agreement, contract, lease or license to
which the Company is a party or by which it is bound, (m) entry by the Company
into any loan or other transaction with any officers, directors or employees of
the Company, (n) any charitable or other capital contribution by the Company or
pledge therefore, (o) entry by the Company into any transaction of a material
nature other than in the ordinary course of business consistent with past
practice, or (p) any negotiation or agreement by the Company to do any of the
things described in the preceding clauses (a) through (p).
2.17 Employee Benefit Plans.
(a) Schedule 2.17(a) lists all material (i) "employee benefit plans,"
within the meaning of Section 3(3) of Employee Retirement Income Security Act of
1974 or any successor law and the regulations thereunder ("ERISA"), of the
Company, (ii) bonus, stock option, stock purchase, stock appreciation right,
incentive, deferred compensation, supplemental retirement, severance, and fringe
benefit plans, programs, policies or arrangements, and (iii) employment or
consulting agreements, for the benefit of, or relating to, any current or former
employee (or any beneficiary thereof) of the Company, in the case of a plan
described in (i) or (ii) above, that is currently maintained by the Company or
with respect to which the Company has an obligation to contribute, and in the
case of an agreement described in (iii) above, that is currently in effect (the
"Company Plans"). The Company has heretofore delivered to Equitex true and
complete copies of the Company Plans and any amendments thereto, any related
trust, insurance contract, summary plan description, and, to the extent required
under ERISA or the Code, the most recent annual report on Form 5500 and
summaries of material modifications.
12
(b) No Company Plan is (i) a "multiemployer plan" within the meaning of
ERISA Sections 3(37) or 4001(a)(3), (ii) a "multiple employer plan" within the
meaning of ERISA Section 3(40) or Code Section 413(c), or (iii) is subject to
ERISA Title IV or Code Section 412.
(c) Except as set forth in Schedule 2.17(c), there is no proceeding
pending or, to the Company's Knowledge, threatened against the assets of any
Company Plan or, with respect to any Company Plan, against the Company other
than proceedings that would not reasonably be expected to result in a material
liability, and there is no proceeding pending or, to the Company's knowledge,
threatened in writing against any fiduciary of any Company Plan other than
proceedings that would not reasonably be expected to result in a material
liability.
(d) Each of the Company Plans has been operated and administered in all
material respects in accordance with its terms and applicable law, including but
not limited to ERISA and the Code.
(e) Each of the Company Plans that is intended to be "qualified" within
the meaning of Code Section 401(a) of the Code has received a favorable
determination, notification, or opinion letter from the Internal Revenue
Service.
t 6 0 (f) Except as set forth in Schedule 2.17(f), no director, officer,
or employee of the Company will become entitled to retirement, severance or
similar benefits or to enhanced or accelerated benefits (including any
acceleration of vesting or lapsing of restrictions with respect to equity-based
awards) under any Company Plan solely as a result of consummation of the
transactions contemplated by this Agreement.
2.18 Employees.
(a) Schedule 2.18 lists the following information for each employee and
each director of the Company as of the date of this Agreement, including each
employee on leave of absence or layoff status: (i) name; (ii) job title; (iii)
current annual base salary or annualized wages; and (iv) cash bonus compensation
earned during 2004.
(b) Except as otherwise set forth in Schedule 2.18, or as contemplated by
this Agreement, to the Company's Knowledge, (i) neither any executive employee
of the Company nor any group of the Company's employees has any plans to
terminate his, her or its employment; (ii) the Company has no material labor
relations problem pending and its labor relations are satisfactory; (iii) there
are no workers' compensation claims pending against the Company nor is the
Company aware of any facts that would give rise to such a claim; (iv) to the
Company's Knowledge, no employee of the Company is subject to any secrecy or
noncompetition agreement or any other agreement or restriction of any kind that
would impede in any way the ability of such employee to carry out fully all
activities of such employee in furtherance of the business of the Company; and
(v) no employee or former employee of the Company has any claim with respect to
any intellectual property rights of the Company set forth in Schedule 2.18
hereto.
13
2.19 Intellectual Property.
(a) Except as set forth in Schedule 2.19(a), the Company owns or has valid
and enforceable licenses to use all of the following used in or necessary to
conduct its business as currently conducted (collectively, the "Company
Intellectual Property"):
(i) patents, including any registrations, continuations,
continuations in part, renewals, and any applications for any of the
foregoing (collectively, "Patents");
(ii) registered and unregistered copyrights and copyright
applications (collectively, "Copyrights");
(iii) registered and unregistered trademarks, service marks, trade
names, slogans, logos, designs and general intangibles of the like nature,
together with all registrations and applications therefor (collectively,
"Trademarks");
(iv) trade secrets, confidential or proprietary technical
information, know-how, designs, processes, research in progress,
inventions and invention disclosures (whether patentable or unpatentable)
(collectively, "Know-How"); and
(v) software (together with Patents, Copyrights, Trademarks, and
Know-How, "Intellectual Property").
(b) Set forth on Schedule 2.19(b) is a complete and accurate list of all
Patents, Trademarks, registered or material Copyrights and software owned by or
licensed by or to, the Company, together with a complete and accurate list of
all Persons from which or to which the Company licenses any material
Intellectual Property. The Company has attached to Schedule 2.19(b) true and
correct copies of the Company's current license agreements (the Hydrogen Power
License Agreements"). The Company, and to the Company's Knowledge, each of the
other parties to such Agreements, is not in breach of any term or provision of
the Hydrogen Power License Agreements, and such Agreements are valid and
enforceable.
(c) Except as set forth on Schedule 2.19(c), and to the Company's
Knowledge, the Company has exclusive rights to the Company Intellectual Property
(with the exception of any such rights retained by governmental organizations
and licensors), free and clear of all liens and encumbrances and free of all
licenses. No Copyright registration, Trademark registration, or Patent set forth
in Schedule 2.19(b) has lapsed, expired or been abandoned or cancelled, or is
subject to any pending or, to the Company's Knowledge, threatened opposition or
cancellation proceeding in any country.
(d) Except as set forth in Schedule 2.19(d), and to the Company's
Knowledge, neither the conduct of the Company's business nor the manufacture,
marketing, licensing, sale, distribution or use of its products or services
infringes upon the proprietary rights of any Person, and there are no
infringements of the Company Intellectual Property by any Person. Except as set
forth in Schedule 2.19(a) and Schedule 2.19(c), there are no claims pending or,
to the Company's Knowledge, threatened (i) alleging that the Company's business
as currently conducted infringes upon or constitutes an unauthorized use or
violation of the proprietary rights of any Person, or (ii) alleging that the
Company's Intellectual Property is being infringed by any Person, or (iii)
challenging the ownership, validity or enforceability of the Company
Intellectual Property.
14
(e) The Company has not entered into any consent agreement,
indemnification agreement, forbearance to xxx, settlement agreement or
cross-licensing arrangement with any Person relating to the Company Intellectual
Property other than as part of the license agreements listed in Schedule 2.19(b)
or set forth in Schedule 2.19(c).
(f) Except as set forth in Schedule 2.19(f), the Company is not, nor will
it be as a result of the execution and delivery of this Agreement or the
performance of its obligations under this Agreement, in breach of any license,
sublicense or other contract relating to the Company Intellectual Property that
could reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect on the Surviving Company.
2.20 Tax-Free Reorganization. Neither the Company nor, to the Company's
Knowledge, any of its Affiliates has through the date of this Agreement taken or
agreed to take any action that would prevent the Merger from qualifying as a
reorganization under Code Section 368(a). For all purposes of this Agreement,
the term "Affiliate" shall have the meaning as defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as such regulation is in effect on the date
hereof.
2.21 Vote Required. The affirmative vote of a majority of the votes of
holders of the outstanding shares of Company Common Stock are entitled to cast
is the only vote of the holders of any class or series of Company capital stock
necessary to approve the Merger.
2.22 Full Disclosure. The representations and warranties of the Company
contained in this Agreement (and in any schedule, exhibit, certificate or other
instrument to be delivered under this Agreement) are true and correct in all
material respects, and such representations and warranties do not omit any
material fact necessary to make the statements contained therein, in light of
the circumstances under which they were made, not misleading. There is no fact
of which the Company has Knowledge that has not been disclosed to Equitex
pursuant to this Agreement, including the schedules hereto, all taken together
as a whole, which has had or could reasonably be expected to have a Material
Adverse Effect on the Company or the Surviving Company or materially adversely
affect the ability of the Company to consummate in a timely manner the
transactions contemplated hereby.
Article 3
Representations and Warranties of Equitex and Merger Sub
Equitex and Merger Sub hereby jointly and severally represent and warrant
to the Company as follows:
3.1 Organization and Qualification. Equitex and Merger Sub are each
corporations duly organized, validly existing and in good standing under the
laws of the State of Delaware; and each has the requisite corporate power to
carry on their respective businesses as now conducted. The copies of the
certificate of incorporation and bylaws of Equitex and Merger Sub which have
been made available to the Company on or prior to the date of this Agreement are
correct and complete copies of such documents as in effect as of the date of
this Agreement. Equitex is licensed or qualified to do business in every
jurisdiction which the nature of its business or its ownership of property
requires it to be licensed or qualified, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on Equitex.
15
3.2 Authority Relative to this Agreement; Non-Contravention. Each of
Equitex and Merger Sub has the requisite corporate power and authority to enter
into this Agreement, and to carry out its obligations hereunder. The execution
and delivery of this Agreement by Equitex and Merger Sub, and the consummation
by Equitex and Merger Sub of the transactions contemplated hereby have been duly
authorized by the boards of directors of Equitex and Merger Sub. Except for
approval of the Merger by Equitex (as the sole stockholder of Merger Sub) in
accordance with the DGCL and the certificate of incorporation and bylaws of
Merger Sub, no other corporate proceedings on the part of Equitex or Merger Sub
are necessary to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Equitex and Merger Sub and, assuming it is a
valid and binding obligation of the Company, constitutes a valid and binding
obligation of Equitex and Merger Sub enforceable in accordance with its terms,
except as enforcement may be limited by general principles of equity whether
applied in a court of law or a court of equity and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally. Except as set
forth in Schedule 3.2, Equitex is not subject to, nor obligated under, any
provision of (a) its articles or certificate of incorporation or bylaws, (b) any
agreement, arrangement or understanding, (c) any license, franchise or permit,
nor (d) subject to obtaining the approvals referred to in the next sentence, any
law, regulation, order, judgment or decree, which would conflict with, be
breached or violated, or in respect of which a right of termination or
acceleration or any security interest, charge or encumbrance on any of its
assets would be created, by the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby, other
than any such conflicts, breaches, violations, rights of termination or
acceleration or security interests, charges or encumbrances which, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect on
Equitex. Except for (i) approvals under applicable blue sky laws, (ii) the
filing of the Certificate of Merger with the Delaware Secretary of State, and
(iii) such filings, authorizations or approvals as may be set forth in Schedule
3.2, no authorization, consent or approval of, or filing with, any public body,
court or authority is necessary on the part of Equitex for the consummation by
Equitex or Merger Sub of the transactions contemplated by this Agreement, except
for such authorizations, consents, approvals and filings as to which the failure
to obtain or make the same would not, in the aggregate, reasonably be expected
to have a Material Adverse Effect on Equitex or Merger Sub.
3.3 Capitalization.
(a) The authorized, issued and outstanding shares of capital stock
of Equitex, and all securities convertible into or exchangeable for
capital stock of Equitex, as of the date hereof are correctly set forth on
Schedule 3.3(a). The issued and outstanding shares of capital stock of
Equitex are duly authorized, validly issued, fully paid and non-assessable
and have not been issued in violation of any preemptive rights. Other than
as described on Schedule 3.3(a), Equitex has no other equity securities or
securities containing any equity features authorized, issued or
outstanding. Except as set forth in Schedule 3.3(a), there are no
agreements or other rights or arrangements existing which provide for the
sale or issuance of capital stock by Equitex and there are no rights,
subscriptions, warrants, options, conversion rights or agreements of any
kind outstanding to purchase or otherwise acquire from Equitex any shares
of capital stock or other securities of Equitex of any kind. Except as set
forth on Schedule 3.3(a), there are no agreements or other obligations
(contingent or otherwise) which may require Equitex to repurchase or
otherwise acquire any shares of its capital stock.
(b) The authorized capital of Merger Sub consists of 1,000 shares of
common stock, par value $.001 per share, one share of which is issued and
outstanding. As of the date hereof, all such issued and outstanding shares
of Merger Sub common stock are held of record by Equitex. The issued and
outstanding shares of capital stock of Merger Sub are duly authorized,
validly issued, fully paid and non-assessable and have not been issued in
violation of any preemptive rights. There are no options, warrants,
conversion privileges or other rights, agreements, arrangements or
commitments obligating Merger Sub to issue, sell, purchase or redeem any
shares of its capital stock or securities or obligations of any kind
convertible into or exchangeable for any shares of its capital stock.
16
3.4 Exchange Act Reports. Prior to the date of this Agreement, Equitex has
delivered or made available to the Company complete and accurate copies of (a)
Equitex's Annual Reports on Form 10-KSB for the years ended December 31, 2004
(the "Equitex 10-K Reports") as filed with the United States Securities and
Exchange Commission (the "SEC"), (b) all Equitex proxy statements and annual
reports to stockholders used in connection with meetings of Equitex stockholders
held since Equitex's incorporation ("Equitex Proxies"); (c) Equitex's Quarterly
Reports on Form 10-QSB for the quarters ended September 30, 2003 through June
30, 2005 (the "Equitex 10-Q Reports"), as filed with the SEC; (d) all current
reports on Form 8-K filed with the SEC after September 30, 2003 (the "Equitex
8-K Reports"); (e) all registration statements (as amended) under the Securities
Act and Securities Exchange Act of 1934 filed by Equitex with the SEC (the
"Equitex Registration Statements," and together with the Equitex 10-K Reports,
Equitex Proxies and Equitex 10-Q Reports, referred to as the "Equitex SEC
Filings"). As of their respective dates, or as subsequently amended prior to the
date hereof, to Equitex's Knowledge, each of the Equitex SEC Filings (i) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and (ii)
complied as to form in all material respects with the applicable rules and
regulations of the SEC. The financial statements (including footnotes thereto)
included in or incorporated by reference into the Equitex 10-K Reports, Equitex
10-Q Reports and the Equitex Registration Statements filed under the Securities
Act (the "Equitex Financial Statements") were prepared in accordance with GAAP
applied on a consistent basis during the periods involved (except as otherwise
noted therein) and fairly present, in all material respects, the financial
condition of Equitex as of the dates thereof and results of operations for the
periods referred to therein. Equitex has not received any advice or notification
from its independent certified public accountants that Acquisition has used any
improper accounting practice or failed to maintain proper internal controls that
would have the effect of not reflecting or incorrectly reflecting in the Equitex
Financial Statements or the books and records of Equitex, any properties,
assets, liabilities, revenues, or expenses. The books, records, and accounts of
Equitex accurately and fairly reflect, in reasonable detail, the transactions,
assets, and liabilities of Equitex. Equitex has not engaged in any transaction,
maintained any bank account, or used any funds of Equitex, except for
transactions, bank accounts, and funds which have been and are reflected in the
normally maintained books and records of Equitex.
3.5 Litigation. As of the date hereof, there are no actions, suits,
proceedings, orders or investigations pending or, to Equitex's Knowledge,
threatened against Equitex, at law or in equity, or before or by any federal,
state or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
3.6 No Brokers or Finders. Except as disclosed on Schedule 3.6, there are
no claims for brokerage commissions, finders' fees, investment advisory fees or
similar compensation in connection with this Agreement based on any arrangement,
understanding, commitment or agreement made by or on behalf of Equitex.
3.7 Tax Matters.
17
(a) (i) Equitex has timely filed (or has had timely filed on its
behalf) all returns, declarations, reports, estimates, information
returns, and statements, including any schedules and amendments to such
documents (the "Equitex Returns"), required to be filed or sent by it in
respect of any Taxes or required to be filed or sent by it by any taxing
authority having jurisdiction; (ii) all such Equitex Returns are complete
and accurate in all material respects; (iii) Equitex has timely and
properly paid (or has had paid on its behalf) all Taxes required to be
paid by it; (iv) Equitex has established on the Equitex Latest Balance
Sheet (as defined in Section 3.12 below), in accordance with GAAP,
reserves that are adequate for the payment of any Taxes not yet due and
payable; (v) Equitex has complied with all applicable laws, rules, and
regulations relating to the collection or withholding of Taxes from third
parties, including without limitation employees, and the payment thereof
(including, without limitation, withholding of Taxes under Code Sections
1441 and 1442, or similar provisions under any foreign laws).
(b) There are no liens for Taxes upon any assets of Equitex, except
liens for Taxes not yet due.
(c) No deficiency for any Taxes has been proposed, asserted or
assessed against Equitex that has not been resolved and paid in full or is
not being contested in good faith. No waiver, extension or comparable
consent given by Equitex regarding the application of the statute of
limitations with respect to any Taxes or Returns is outstanding, nor is
any request for any such waiver or consent pending. Except as set forth on
Schedule 3.7, there has been no Tax audit or other administrative
proceeding or court proceeding with regard to any Taxes or Equitex
Returns, nor is any such Tax audit or other proceeding pending, nor has
there been any notice to Equitex by any Taxing authority regarding any
such Tax audit or other proceeding, or, to Equitex's Knowledge, is any
such Tax audit or other proceeding threatened with regard to any Taxes or
Equitex Returns. Equitex does not expect the assessment of any additional
Taxes of Equitex for any period prior to the date hereof and has no
Knowledge of any unresolved questions, claims or disputes concerning the
liability for Taxes of Equitex which would exceed the estimated reserves
established on its books and records.
(d) Except as set forth on Schedule3.7, Equitex has not requested
any extension of time within which to file any Equitex Return, which
return has not since been filed.
(e) Except as set forth on Schedule 3.7, Equitex is not a party to
any agreement, contract or arrangement that would result, separately or in
the aggregate, in the payment of any "excess parachute payments" within
the meaning of Section 280G of the Code and the consummation of the
transactions contemplated by this Agreement will not be a factor causing
payments to be made by Equitex not to be deductible (in whole or in part)
under Section 280G of the Code. Equitex is not liable for any Taxes of any
other Person, and is not currently under any contractual obligation to
indemnify any Person with respect to Taxes, or a party to any tax sharing
agreement or any other agreement providing for payments by Equitex with
respect to Taxes. Equitex is not party to any joint venture, partnership
or other arrangement or contract which could be treated as a partnership
for federal income tax purposes. Equitex has not agreed and is not
required, as a result of a change in method of accounting or otherwise, to
include any adjustment under Section 481 of the Code (or any corresponding
provision of state, local or foreign law) in taxable income. Equitex is
not liable with respect to any indebtedness the interest of which is not
deductible for applicable federal, foreign, state or local income tax
purposes.
18
3.8 Affiliate Transactions. Except as reported in Equitex SEC Filings or
as set forth on Schedule 3.8, and other than pursuant to this Agreement, no
officer, director or employee of Equitex or any member of the immediate family
of any such officer, director or employee, or any entity in which any of such
persons owns any beneficial interest (other than any publicly held corporation
whose stock is traded on a national securities exchange or in the
over-the-counter market and less than one percent of the stock of which is
beneficially owned by any of such persons) (collectively "Equitex Insiders"),
has any agreement with Equitex (other than normal employment arrangements) or
any interest in any property, real, personal or mixed, tangible or intangible,
used in or pertaining to the business of Equitex (other than ownership of
capital stock of Equitex). Equitex is not indebted to any Equitex Insider
(except for amounts due as normal salaries and bonuses and in reimbursement of
ordinary business expenses) and no Equitex Insider is indebted to Equitex)
except for cash advances for ordinary business expenses). None of the Equitex
Insiders has any direct or indirect interest in any competitor, supplier or
customer of Equitex or in any person, firm or entity from whom or to whom
Equitex leases any property, or in any other person, firm or entity with whom
Equitex transacts business of any nature. For purposes of this Section 3.8, the
members of the immediate family of an officer, director or employee shall
consist of the spouse, parents and children of such officer, director or
employee.
3.9 Compliance with Laws; Permits.
(a) Except for any noncompliance that would not reasonably be
expected to have a Material Adverse Effect on Equitex, Equitex and its
officers, directors, agents and employees have complied with all
applicable laws, regulations and other requirements, including but not
limited to federal, state, local and foreign laws, ordinances, rules,
regulations and other requirements pertaining to equal employment
opportunity, employee retirement, affirmative action and other hiring
practices, occupational safety and health, workers' compensation,
unemployment and building and zoning codes, and no claims have been filed
against Equitex, and Equitex has not received any notice, alleging a
violation of any such laws, regulations or other requirements.
(b) Equitex has no licenses, permits and certificates from federal,
state, local and foreign authorities (including without limitation federal
and state agencies regulating occupational health and safety) and none are
necessary to permit it to conduct its business and own and operate its
properties
3.10 Real Property. Equitex does not own any real property. All leaseholds
and other interests of Equitex in any real property are identified in the
Equitex SEC Filings. Equitex has good and valid title to such leaseholds and
other interests free and clear of all liens and encumbrances, and the real
property to which those leasehold and other interests pertain constitutes the
only real property used in Equitex's business.
3.11 Insurance. The insurance policies owned and maintained by Equitex
that are material to Equitex are in full force and effect, all premiums due and
payable thereon have been paid (other than retroactive or retrospective premium
adjustments that Equitex is not currently required, but may in the future be
required, to pay with respect to any period ending prior to the date of this
Agreement), and Equitex has received no notice of cancellation or termination
with respect to any such policy that has not been replaced on substantially
similar terms prior to the date of such cancellation.
3.12 Absence of Undisclosed Liabilities. Except as reflected in the
unaudited balance sheet of Equitex at June 30, 2005 included in Equitex's
Quarterly Report on Form 10-QSB for such period (the "Equitex Latest Balance
Sheet"), Equitex has no liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) except (i) liabilities which have arisen after the
date of the Equitex Latest Balance Sheet in the ordinary course of business,
none of which is a material uninsured liability for breach of contract, breach
of warranty, tort, infringement, claim or lawsuit, or (ii) as otherwise set
forth in Schedule 3.12 attached hereto.
19
3.13 Absence of Certain Developments. Except as set forth in Schedule 3.13
or as disclosed in the Equitex SEC Filings or as otherwise referenced in or
contemplated by this Agreement, since Equitex's Latest Balance Sheet, Equitex
has conducted its business only in the ordinary course consistent with past
practice and there has not occurred (a) any event having a Material Adverse
Effect on Equitex, (b) any event that would reasonably be expected to prevent or
materially delay the performance of Equitex's obligations pursuant to this
Agreement, (c) any material change by Equitex in its accounting methods,
principles or practices, (d) any declaration, setting aside or payment of any
dividend or distribution in respect of the shares of capital stock of Equitex or
any redemption, purchase or other acquisition of any of Equitex's securities,
(e) any increase in the compensation or benefits or establishment of any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including without limitation the granting of stock
options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan of Equitex, or any other
increase in the compensation payable or to become payable to any employees,
officers, consultants or directors of Equitex, (f) any issuance, grants or sale
of any stock, options, warrants, notes, bonds or other securities, or entry into
any agreement with respect thereto by Equitex, (g) any amendment to the
certificate of incorporation or bylaws of Equitex, (h) other than in the
ordinary course of business consistent with past practice, any (i) capital
expenditures by Equitex, (ii) purchase, sale, assignment or transfer of any
material assets by Equitex, (iii) mortgage, pledge or existence of any lien,
encumbrance or charge on any material assets or properties, tangible or
intangible, of Equitex, except for liens for taxes not yet due and such other
liens, encumbrances or charges which do not, individually or in the aggregate,
have a Material Adverse Effect on Equitex, or (iv) cancellation, compromise,
release or waiver by Equitex of any rights of material value or any material
debts or claims, (i) any incurrence by Equitex of any material liability
(absolute or contingent), except for current liabilities and obligations
incurred in the ordinary course of business consistent with past practice, (j)
damage, destruction or similar loss, whether or not covered by insurance,
materially affecting the business or properties of Equitex, (k) entry by Equitex
into any agreement, contract, lease or license other than in the ordinary course
of business consistent with past practice, (l) any acceleration, termination,
modification or cancellation of any agreement, contract, lease or license to
which Equitex is a party or by which any of them is bound, (m) entry by Equitex
into any loan or other transaction with any officers, directors or employees of
Equitex or any subsidiary or affiliate of Equitex, (n) any charitable or other
capital contribution by Equitex or pledge therefore, (o) entry by Equitex into
any transaction of a material nature other than in the ordinary course of
business consistent with past practice, or (p) any negotiation or agreement by
the Equitex to do any of the things described in the preceding clauses (a)
through (p).
3.14 Tax Free Reorganization. Neither Equitex nor, to Equitex's Knowledge,
any of its Affiliates has through the date of this Agreement taken or agreed to
take any action that would prevent the Merger from qualifying as a
reorganization under Code Section 368(a).
3.15 Validity of the Equitex Capital Stock. The shares of Equitex Common
Stock and Series L Preferred Stock to be issued to holders of Company Common
Stock pursuant to this Agreement will be, when issued, duly authorized, validly
issued, fully paid and non-assessable. Similarly, the shares of Equitex Common
Stock to be issued upon conversion of Series L Preferred Stock and upon exercise
of the Equitex Convertible Securities, each issued as Merger Consideration under
this Agreement will be, when issued, duly authorized, validly issued, fully paid
and non-assessable.
3.16 Full Disclosure. The representations and warranties of Equitex and
Merger Sub contained in this Agreement (and in any schedule, exhibit,
certificate or other instrument to be delivered under this Agreement) are true
and correct in all material respects, and such representations and warranties do
not omit any material fact necessary to make the statements contained therein,
in light of the circumstances under which they were made, not misleading. There
is no fact of which Equitex or Merger Sub has Knowledge that has not been
disclosed to the Company pursuant to this Agreement, including the schedules
hereto, all taken together as a whole, which has had or could reasonably be
expected to have a Material Adverse Effect on Equitex or Merger Sub, or
materially adversely affect the ability of Equitex or Merger Sub to consummate
in a timely manner the transactions contemplated hereby.
20
Article 4
Conduct of Business Pending the Merger
4.1 Conduct of Business by Equitex. From the date of this Agreement until
the Effective Date, except as set forth on Schedule 4.1 or as otherwise agreed
to in writing by the Company or expressly contemplated or permitted by other
provisions of this Agreement, including but not limited to this Section 4.1,
Equitex shall not, directly or indirectly, (a) amend its certificate of
incorporation or bylaws, (b) split, combine or reclassify any outstanding shares
of capital stock of Equitex, (c) declare, set aside, make or pay any dividend or
distribution in cash, stock, property or otherwise with respect to the capital
stock of Equitex, (d) incur any indebtedness for borrowed money or guarantee
such indebtedness of another person, issue or sell any debt securities, (e)
default in its obligations under any material debt, contract or commitment which
default results in the acceleration of obligations due thereunder, except for
such defaults arising out of Equitex's entry into this Agreement for which
consents, waivers or modifications are required to be obtained as set forth on
Schedule 3.2, (f) conduct its business other than in the ordinary course on an
arms-length basis and in accordance in all material respects with all applicable
laws, rules and regulations and Equitex's past custom and practice, except as
set forth on Schedule 4.1, (g) acquire (by merger, exchange, consolidation,
acquisition of stock or assets or otherwise) any corporation, partnership, joint
venture or other business organization or division or material assets thereof or
(h) make or change any material tax elections, settle or compromise any material
tax liability or file any amended tax return.
4.2 Conduct of Business by the Company. From the date of this Agreement
until the Effective Date, or in the event of termination of this Agreement by
Equitex pursuant to Section 7.1(b) or 7.1(c), until the earlier of (A) the
thirtieth (30th) day following such termination or (B) the issuance of the Loan
Conversion Shares (as defined in Section 5.1), unless Equitex shall otherwise
agree in writing or as otherwise expressly contemplated or permitted by other
provisions of this Agreement, including but not limited to this Section 4.2, the
Company shall not, directly or indirectly, (a) amend its certificate of
incorporation or bylaws, (b) split, combine or reclassify any outstanding shares
of capital stock of the Company, (c) declare, set aside, make or pay any
dividend or distribution in cash, stock, property or otherwise with respect to
the capital stock of the Company, (d) incur any indebtedness for borrowed money
or guarantee such indebtedness of another person, issue or sell any debt
securities, (e) default in its obligations under any material debt, contract or
commitment which default results in the acceleration of obligations due
thereunder, except for such defaults arising out of the Company's entry into
this Agreement for which consents, waivers or modifications are required to be
obtained as set forth on Schedule 2.2, (f) conduct its business other than in
the ordinary course on an arms-length basis and in accordance in all material
respects with all applicable laws, rules and regulations and the Company's past
custom and practice, (g) issue or sell any capital stock or options, warrants,
conversions, privileges or rights of any kind to acquire any shares of, any of
its capital stock, except in connection with exercise or conversion of the
Company securities outstanding on the date of this Agreement, (h) acquire (by
merger, exchange, consolidation, acquisition of stock or assets or otherwise)
any corporation, partnership, joint venture or other business organization or
division or material assets thereof or (i) make or change any material tax
elections, settle or compromise any material tax liability or file any amended
tax return.
21
Article 5
Additional Covenants and Agreements
5.1 Equitex Loan. On or within four (4) business days of the date hereof,
Equitex shall loan the Company, in cash, Three Million and No/100 Dollars
($3,000,000) (the "Loan Amount"), pursuant to the terms and conditions of a
promissory note in the principal amount of $3,000,000 and payable on the third
anniversary of the date such Loan Amount is delivered to the Company, with
interest accruing at a rate equal to the Prime Rate for U.S. banks as published
in Money Rates Column of the Money and Investing Section of The Wall Street
Journal from time to time, in the form attached hereto as Exhibit C (the
"Promissory Note"). The Company's payment and performance obligations under the
Promissory Note shall be secured pursuant to a security agreement in the form
attached hereto as Exhibit D (the "Security Agreement"). The Company hereby
acknowledges receipt of $1,000,000 of the Loan Amount from Equitex on July 6,
2005. Subject to the provisions of this Section, in the event of termination of
this Agreement, the Loan Amount paid by Equitex to the Company through the date
of termination shall automatically and without any further action by the parties
convert into shares of capital stock of the Company of the same class and series
of the most senior class and series of Company capital stock outstanding as of
the date hereof at a conversion rate of $3.00 per share (the "Loan Conversion
Shares"); provided that, the Company shall have the right, for a period of 120
days after the resulting conversion, to redeem all of the Loan Conversion Shares
at a price equal to 120% of the cash consideration paid therefor..
Notwithstanding the foregoing, in the event such termination is by Equitex
pursuant to Section 7.1(b) or 7.1(c), the conversion of the Loan Amount shall be
at the option of Equitex, in its sole discretion. The Company hereby covenants
that it will reserve for issuance a sufficient number of shares of its senior
class and series of capital stock to satisfy its obligation to issue such Loan
Conversion Shares.
5.2 Amendment to Sublicense Agreement and Consent of UBC. On or prior to
the Closing Date, the Company, GHTI and the University of British Columbia, a
corporation continued under the University Act of British Columbia ("UBC") shall
enter into the First Amendment to the Sublicense Agreement and Consent,
substantially in the form attached hereto as Exhibit E (the "Amended Sublicense
Agreement").
5.3 Governmental Filings. Each party will use all reasonable efforts and
will cooperate with the other party in the preparation and filing, as soon as
practicable, of all filings, applications or other documents required under
applicable laws, including but not limited to the Exchange Act and the listing
requirements of Nasdaq, to consummate the transactions contemplated by this
Agreement. Prior to submitting each filing, application, registration statement
or other document with the applicable regulatory authority, each party will, to
the extent practicable, provide the other party with a meaningful opportunity to
review and comment on each such application, registration statement or other
document to the extent permitted by applicable law. Each party will use all
reasonable efforts and will cooperate with the other party in taking any other
actions necessary to obtain such regulatory or other approvals and consents at
the earliest practicable time, including participating in any required hearings
or proceedings. Subject to the terms and conditions herein provided, each party
will use all reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
5.4 Expenses. Except as otherwise provided in this Agreement, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby by each party shall be borne solely by such party.
22
5.5 Due Diligence; Access to Information; Confidentiality.
(a) Between the date hereof and the Effective Date, the Company and
Equitex shall afford to the other party and their authorized
representatives the opportunity to conduct and complete a due diligence
investigation of the other party as described herein. In light of the
foregoing, each party shall permit the other party full access on
reasonable notice and at reasonable hours to its properties and shall
disclose and make available (together with the right to copy) to the other
party and its officers, employees, attorneys, accountants and other
representatives, all books, papers and records relating to the assets,
stock, properties, operations, obligations and liabilities of such party
and its subsidiaries, including without limitation all books of account
(including, without limitation, the general ledger), tax records, minute
books of directors' and stockholders' meetings, organizational documents,
bylaws, contracts and agreements, filings with any regulatory authority,
accountants' work papers, litigation files (including, without limitation,
legal research memoranda), attorney's audit response letters, documents
relating to assets and title thereto (including without limitation
abstracts, title insurance policies, surveys, environmental reports,
opinions of title and other information relating to the real and personal
property), plans affecting employees, securities transfer records and
stockholder lists, and any books, papers and records relating to other
assets or business activities in which such party may have a reasonable
interest, and otherwise provide such assistance as is reasonably requested
in order that each party may have a full opportunity to make such
investigation and evaluation as it shall reasonably desire to make of the
business and affairs of the other party; provided, however, that the
foregoing rights granted to each party shall, whether or not and
regardless of the extent to which the same are exercised, in no way affect
the nature or scope of the representations, warranties and covenants of
the respective party set forth herein. In addition, each party and its
officers and directors shall cooperate fully (including providing
introductions, where necessary) with such other party to enable the party
to contact third parties, including customers, prospective customers,
specified agencies or others as the party deems reasonably necessary to
complete its due diligence; provided further, that such party agrees not
to initiate such contacts without the prior approval of the other party,
which approval will not be unreasonably withheld.
(b) Prior to Closing and if, for any reason, the transactions
contemplated by this Agreement are not consummated, neither Equitex nor
the Company nor any of their respective officers, employees, attorneys,
accountants and other representatives shall disclose to third parties or
otherwise use any confidential information received from the other party
in the course of investigating, negotiating, and performing the
transactions contemplated by this Agreement; provided, however, that
nothing shall be deemed to be confidential information which:
(i) is known to the party receiving the information at the
time of disclosure, unless any individual who knows the information
is under an obligation to keep that information confidential;
(ii) becomes publicly known or available without the
disclosure thereof by the party receiving the information in
violation of this Agreement; or
(iii) is received by the party receiving the information from
a third party not under an obligation to keep that information
confidential.
This provision shall not prohibit the disclosure of information required
to be made under federal or state securities laws, rules and regulations
or by order of any federal, state or local regulatory agency or as
otherwise required to be disclosed under applicable law. If any disclosure
is so required, the party making such disclosure shall consult with the
other party prior to making such disclosure, and the parties shall use all
reasonable efforts, acting in good faith, to agree upon a text for such
disclosure which is satisfactory to both parties.
5.6 Stockholders' Meetings.
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(a) As promptly as practicable after the date hereof, each of
the Company and Merger Sub shall, in accordance with the applicable
provisions of the DGCL and their respective certificates of
incorporation and bylaws, duly call, give notice of, convene and
hold a special meeting of their respective stockholders for the
purpose of considering and taking action upon this Agreement and the
Merger, or, obtain written consents in lieu thereof in accordance
with the DGCL from stockholders of the Company or Merger Sub, as
applicable, that hold not less than the minimum number of votes that
would be necessary to take action and authorize this Agreement and
the Merger (in any case and regardless of whether pursued through a
meeting or written consent in lieu thereof; and
(b) As promptly as practicable after the date hereof, Equitex
shall, in accordance with its certificates of incorporation and
bylaws and applicable law, duly call, give notice of, convene and
hold a special meeting of its stockholders for the purpose of
considering and taking action satisfying the requirements of Nasdaq
and other applicable securities laws and regulations, or obtain
written consents in lieu thereof in accordance with the DGCL from
stockholders of Equitex that hold not less than the minimum number
of votes that would be necessary to take action and authorize this
Agreement and the Merger.
5.7 Tax Treatment. None of Equitex, Merger Sub or the Company, or the
Surviving Company after the Effective Date, shall knowingly take any action
which could reasonably be expected to disqualify the Merger as a
"reorganization" within the meaning of Code Section 368(a).
5.8 Press Releases. The Company and Equitex shall agree with each other as
to the form and substance of any press release or public announcement related to
this Agreement or the transactions contemplated hereby; provided, however, that
nothing contained herein shall prohibit either party, following notification to
the other party, from making any disclosure which is required by law or
regulation. If any such press release or public announcement is so required, the
party making such disclosure shall consult with the other party prior to making
such disclosure, and the parties shall use all reasonable efforts, acting in
good faith, to agree upon a text for such disclosure which is satisfactory to
both parties.
5.9 Private Placement. Each of the Company and Equitex shall take all
necessary action on its part such that the issuance of the Merger Consideration
to the Company's stockholders (and holders of Company Convertible Securities)
constitutes a valid "private placement" under the Securities Act or is otherwise
not subject to the registration requirements of the Securities Act. Without
limiting the generality of the foregoing, (a) Equitex and the Company shall
provide each Company stockholder with a stockholder qualification questionnaire
in the form attached hereto as Exhibit F (the "Stockholder Questionnaire") or
Exhibit G (the "Non-U.S. Stockholder Questionnaire") and (b) the Company shall
use its best efforts to cause each Company stockholder to attest that (i) such
stockholder is acquiring the Merger Consideration for his, her or its sole
account, for investment and not with a view to the resale or distribution
thereof and (ii) that such stockholder either (A) is an "accredited investor" as
defined in Regulation D of the Securities Act, (B) has such knowledge and
experience in financial and business matters that the stockholder is capable of
evaluating the merits and risks of receiving the Merger Consideration, or (C) is
not a "U.S. Person "within the meaning of Regulation S of the Securities Act and
has not been offered the merger Consideration in the United State, or (D) has
appointed an appropriate person reasonably acceptable to both Equitex and the
Company to act as the stockholder's purchaser representative in connection with
evaluating the merits and risks of receiving the Merger Consideration.
5.10 No Solicitation.
24
(a) Unless and until this Agreement shall have been terminated
pursuant to Section 7.1, neither Equitex nor its officers, directors
or agents shall, directly or indirectly, encourage, solicit or
initiate discussions or negotiations with, or engage in negotiations
or discussions with, or provide non-public information to, any
corporation, partnership, person or other entity or groups
concerning any merger, sale of capital stock, sale of substantial
assets or other business combination; provided, however, that
Equitex may engage in such discussion in response to an unsolicited
proposal from an unrelated and non-Affiliated party if Equitex's
board of directors determines, in good faith, after consultation
with counsel, that the failure to engage in such discussions may
constitute a breach of the fiduciary or legal obligations of
Equitex's board of directors. Equitex will promptly advise the
Company if it receives a proposal or inquiry with respect to the
matters described above.
(b) Unless and until this Agreement shall have been terminated
pursuant to Section 7.1, neither the Company nor its officers,
directors or agents shall, directly or indirectly, encourage,
solicit or initiate discussions or negotiations with, or engage in
negotiations or discussions with, or provide non-public information
to, any corporation, partnership, person or other entity or groups
concerning any merger, sale of capital stock, sale of substantial
assets or other business combination; provided, however, that the
Company may engage in such discussion in response to any unsolicited
proposal from an unrelated and non-Affiliated party if the Company's
board of directors determines, in good faith, after consultation
with counsel, that the failure to engage in such discussions may
constitute a breach of the fiduciary or legal obligations of the
Company's board of directors. The Company will promptly advise
Equitex if it receives a proposal or inquiry with respect to the
matters described above.
5.11 Registration Rights. Equitex agrees to use its best efforts to
prepare and file with the Securities and Exchange Commission (the "SEC"), as
early s possible following Closing, and in no event later than sixty (60) days
following closing, a registration statement under the Securities Act covering
the resale of (i) the Equitex Common Stock issued at the Effective Time pursuant
to the Merger and (ii) the Equitex Common Stock issuable upon conversion of the
Series L Preferred Stock issued pursuant to the Merger (collectively, the
"Registrable Securities"). Equitex will use its best efforts to obtain the
effectiveness of such registration statement(s) as soon as practicable, and once
effective, to maintain such effectiveness for a period of at least two years
from the date such Registrable Securities were issued. Equitex's obligation to
obtain and maintain such effectiveness is conditioned upon the cooperation of
the holders of the Registrable Securities in furnishing information to Equitex
relating to such holders' method of distribution and other information requested
by Equitex. Any and all expenses incurred in connection with such registration
shall be borne by Equitex. Any and all selling expenses incurred by the holders
of the Registrable Securities shall be borne by such holders.
5.12 Monetization of FastFunds Shares. On or after date hereof, Equitex
shall commence to monetize its holdings of the capital stock of FastFunds
Financial Corporation, a Nevada corporation, in accordance with applicable law.
Equitex agrees that it shall use the first $10,000,000 of the net proceeds from
such monetization toward the exploitation and commercialization of the Company
Intellectual Property, $5,000,000 of which shall be provided to the Company
within 120 days of the Closing. Any funds in excess of $10,000,000 received by
Equitex from such monetization may be used by Equitex in its sole discretion.
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5.13 Use of Equitex Publicly Traded Warrant Proceeds. Equitex hereby
agrees to use at least 95% of the net proceeds from the exercise of all publicly
traded Equitex Class A and Class B redeemable warrants (or any warrants issued
and exchanged thereof) for the exploitation and commercialization of the Company
Intellectual Property. Any amounts payable under this Section 5.13 shall be made
available to the Company within fifteen (15) days of receipt of such proceeds by
Equitex.
5.14 Right to Elect Director of Equitex. At the Effective Time, the
Company shall be entitled to appoint one director to Equitex's board of
directors to hold office for the term specified in, and subject to the
provisions contained in, Equitex's Certificate of Incorporation, Bylaws and
applicable law.
5.15 Notification of Certain Matters. On or prior to the Effective Date,
each party shall give prompt notice to the other party of (i) the occurrence or
failure to occur of any event or the discovery of any information, which
occurrence, failure or discovery would be likely to cause any representation or
warranty on its part contained in this Agreement to be untrue, inaccurate or
incomplete after the date hereof in any material respect or, in the case of any
representation or warranty given as of a specific date, would be likely to cause
any such representation or warranty on its part contained in this Agreement to
be untrue, inaccurate or incomplete in any material respect as of such specific
date, (ii) any material failure of such party to comply with or satisfy any
covenant or agreement to be complied with or satisfied by it hereunder or (iii)
if such party determines that a condition to its respective obligations to
consummate the transactions contemplated hereby cannot be fulfilled on or prior
to the termination of this Agreement.
Article 6
Conditions
6.1 Conditions to Obligations of Each Party. The respective obligations of
each party to effect the transactions contemplated hereby are subject to the
fulfillment or waiver at or prior to the Effective Date of the following
conditions:
(a) There shall have been no law, statute, rule or regulation,
domestic or foreign, enacted or promulgated which would prohibit or
make illegal the consummation of the transactions contemplated
hereby.
(b) This Agreement and all of the transactions contemplated
hereby shall have been duly authorized by the boards of directors of
the Company, Equitex and Merger Sub. The Merger and this Agreement
shall have been approved by the Required Company Stockholder Vote,
by the stockholders of Equitex and by Equitex as the sole
stockholder of Merger Sub.
(c) There shall not be threatened, instituted or pending any
action or proceeding before any court or governmental authority or
agency (i) challenging or seeking to make illegal, or to delay or
otherwise directly or indirectly restrain or prohibit, the
consummation of the transactions contemplated hereby or seeking to
obtain material damages in connection with such transactions, (ii)
seeking to prohibit direct or indirect ownership or operation by
Equitex or Merger Sub of all or a material portion of the business
or assets of the Company, or to compel Equitex or Merger Sub or any
of their respective subsidiaries or the Company to dispose of or to
hold separately all or a material portion of the business or assets
of Equitex or of the Company, as a result of the transactions
contemplated hereby; (iii) seeking to invalidate or render
unenforceable any material provision of this Agreement or any of the
other agreements attached as exhibits hereto or contemplated hereby,
or (iv) otherwise relating to and materially adversely affecting the
transactions contemplated hereby.
(d) There shall not be any action taken, or any statute, rule,
regulation, judgment, order or injunction proposed, enacted,
entered, enforced, promulgated, issued or deemed applicable to the
transactions contemplated hereby, by any federal, state or other
court, government or governmental authority or agency, that would
reasonably be expected to result, directly or indirectly, in any of
the consequences referred to in Section 6.1(c).
26
(e) There shall be available exemptions from the registration
requirements of the Securities Act and all applicable blue sky laws
for the offer and issuance of the Equitex Common Stock and Series L
Preferred Stock pursuant to the Merger.
6.2 Additional Conditions to Obligations of Equitex and Merger Sub. The
obligations of Equitex and Merger Sub to effect the transactions contemplated
hereby in accordance with the terms of this Agreement are also subject to the
fulfillment or waiver of the following conditions:
(a) The Company shall have delivered to Equitex financial
statements for any interim quarterly periods subsequent to the
Company Financial Statements evidencing the financial and
operational performance of the Company.
(b) Since the date of this Agreement, the Company shall have
continued to conduct its operations in accordance with the
provisions of Section 4.2.
(c) The Company shall have delivered to Equitex the Amended
Sublicense Agreement executed by the Company, GHTI and UBC, in the
form attached as Exhibit E hereto and as more fully discussed in
Section 5.2.
(d) The representations of the Company contained in this
Agreement shall be accurate as of the date of this Agreement and as
of the Effective Time, in all respects (in the case of any
representation containing any materiality qualification) or in all
material respects (in the case of any representation without any
materiality qualification). The Company shall in all material
respects have performed each obligation and agreement and complied
with each covenant to be performed and complied with by it hereunder
at or prior to the Effective Date. (e) The Company shall have
obtained all consents and approvals necessary to consummate the
transactions contemplated by this Agreement, including without
limitation those set forth on Schedule 2.2, in order that the
transactions contemplated herein not constitute a breach or
violation of, or result in a right of termination or acceleration
of, or creation of any encumbrance on any of the Company's assets
pursuant to the provisions of, any agreement, arrangement or
undertaking of or affecting the Company or any license, franchise or
permit of or affecting the Company.
(f) The Company shall have received from each of its
stockholders, in a form acceptable to Equitex in its sole
discretion, a waiver of their respective dissenters' rights under
Section 262 of the DGCL. A copy of such waivers shall be provided to
Equitex prior to the Effective Date hereof.
(g) The Company shall have furnished to Equitex a certificate
of the Chief Executive Officer and the Chief Financial Officer of
the Company, dated as of the Effective Date, in which such officers
shall certify that, to their best Knowledge, the conditions set
forth in Sections 6.2(a), (b), (d) (e) and (f) have been fulfilled.
27
(h) The Company shall have furnished to Equitex (i) copies of
the text of the resolutions by which the corporate action on the
part of the Company necessary to approve this Agreement, the
Certificate of Merger and the transactions contemplated hereby and
thereby were taken, (ii) a copy of the Company's certificate of
incorporation, certified by the Secretary of State of Delaware and
one or more certificates from the Secretary of State of Delaware and
any other jurisdictions evidencing the good standing of the Company
in such jurisdictions in which it transacts business, and (iii) a
certificate dated as of the Effective Date executed on behalf of the
Company by its corporate secretary or one of its assistant corporate
secretaries certifying to Equitex that such copies are true, correct
and complete copies of such resolutions and that such resolutions
were duly adopted and have not been amended or rescinded, and
certifying that the certified copy of the Company's certificate of
incorporation is true, correct and complete as received from such
governmental office.
6.3 Additional Conditions to Obligations of the Company. The obligations
of the Company to effect the transactions contemplated hereby in accordance with
the terms of this Agreement are also subject to the fulfillment or waiver of the
following conditions:
(a) Since the date of this Agreement, Equitex shall have
continued to conduct its operations in accordance with the
provisions of Section 4.1 and the Certificate of Designation shall
have been adopted and approved by Equitex's board of directors and
filed with appropriate authorities in the State of Delaware.
(b) The representations of Equitex and Merger Sub contained in
this Agreement shall be accurate as of the date of this Agreement
and as of the Effective Time, in all respects (in the case of any
representation containing any materiality qualification) or in all
material respects (in the case of any representation without any
materiality qualification). Equitex and Merger Sub, respectively,
shall in all material respects have performed each obligation and
agreement and complied with each covenant to be performed and
complied with by them hereunder at or prior to the Effective Date.
(c) Equitex and Merger Sub shall have obtained all consents
and approvals necessary to consummate the transactions contemplated
by this Agreement, including without limitation those set forth on
Schedule 3.2, in order that the transactions contemplated herein not
constitute a breach or violation of, or result in a right of
termination or acceleration of, or creation of any encumbrance on
any of Equitex's or Merger Sub's assets pursuant to the provisions
of, any agreement, arrangement or undertaking of or affecting
Equitex or any license, franchise or permit of or affecting Equitex.
(d) Merger Sub shall have executed the Certificate of Merger.
(e) Equitex shall have furnished to the Company a certificate
of the Chief Executive Officer and the Chief Financial Officer of
Equitex, dated as of the Effective Date, in which such officers
shall certify that, to their best Knowledge, the conditions set
forth in Sections 6.3(a), (b) and (c) have been fulfilled.
(f) Equitex shall have furnished to the Company (i) copies of
the text of the resolutions by which the corporate action on the
part of Equitex necessary to approve this Agreement and the
Certificate of Merger and the transactions contemplated hereby and
thereby were taken, (ii) a copy of the certificate of incorporation
of Equitex, certified by the Secretary of State of Delaware, and one
or more certificates from the Secretary of State of Delaware and any
other jurisdictions evidencing the good standing of Equitex in such
jurisdictions in which it transacts business, and (iii) a
certificate of the corporate secretary of Equitex dated as of the
Effective Date certifying to the Company that copies of the
resolution referred to in clause (i) above are true, correct and
complete copies of such resolutions and that such resolutions were
duly adopted and have not been amended or rescinded, and certifying
that the certificates furnished pursuant to clause (ii) above are
true, correct and complete as received from such governmental
offices.
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Article 7
Termination
7.1 Termination. This Agreement may be terminated prior to the Effective
Date:
(a) by mutual consent of the Company and Equitex, if the
boards of directors of each so determines by vote of a majority of
the members of its entire board;
(b) by Equitex, if the Company shall have breached any of its
representations, or failed to perform any of its covenants, in
either case as contained in this Agreement, which breach or failure
to perform (i) causes the condition set forth in Section 6.2(d) not
to be satisfied, and (ii) is incapable of being cured or has not
been cured within 20 business days after the giving of written
notice of such breach or failure to perform; provided, however, that
Equitex may only terminate this Agreement pursuant this Section
7.1(b) if the subject breach or failure to perform would be
reasonably likely to have a Material Adverse Effect on Equitex and
the Surviving Company taken as a whole;
(c) by Equitex if there has been a Material Adverse Effect on
the Company reflected in the interim financial statements delivered
by the Company under Section 6.2(a), judged with respect to
Company's the interim financial statements for the corresponding
interim period of the Company's prior fiscal year;
(d) by the Company, if Equitex or Merger Sub shall have
breached any of their representations, or failed to perform any of
their covenants, in either case as contained in this Agreement,
which breach or failure to perform (i) causes the condition set
forth in Sections 6.1(b) and 6.3(b) not to be satisfied, and (ii) is
incapable of being cured or has not been cured within 20 business
days after the giving of written notice of such breach or failure to
perform; provided, however, that the Company may only terminate this
Agreement pursuant this Section 7.1(d) if the subject breach or
failure to perform would be reasonably likely to have a Material
Adverse Effect on the Surviving Company; or
(e) by either the Company or Equitex if the Effective Date is
not on or before December 31, 2005, or such later date as the
Company and Equitex may mutually agree (unless the failure to
consummate the Merger by such date shall be due to the action or
failure to act of the party seeking to terminate this Agreement in
breach of such party's obligations under this Agreement).
Any party desiring to terminate this Agreement shall give prior written
notice of such termination and the reasons therefor to the other parties.
Article 8
Indemnification
29
8.1 Indemnification of the Company. Equitex shall defend, indemnify and
hold the Company, its Affiliates, and their respective directors, officers,
employees and agents harmless from and against all liability, demands, damages,
including expenses or losses including death, personal injury, illness or
property damage (collectively, "Losses") arising directly or indirectly out of
any: (a) breach of this Agreement by Equitex, its Affiliates, or permitted
assigns or transferees; (b) actual or asserted violations of applicable law by
Equitex, its Affiliates, or permitted assignees or transferees; (c) use by
Equitex, its Affiliates, or permitted assignees or transferees of the Company
Intellectual Property; except, in any case, for those Losses for which the
Company has an obligation to indemnify Equitex and its Affiliates pursuant to
Section 8.2, as to which Losses each party shall indemnify the other to the
extent of their respective liability for the Losses, other than liability
resulting from the Company's gross negligence, recklessness or willful
misconduct (which liability shall be the Company's for all purposes). For
purposes of this Agreement, "Affiliate" shall mean, with respect to any Person,
any other Person that directly or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with such Person. For this
purpose only, "control" and, with correlative meanings, the terms "controlled
by" and "under common control with" shall mean (a) the possession, directly or
indirectly, of the power to direct the management or policies of a Person,
whether through the ownership of voting securities, by contract or otherwise, or
(b) the ownership, directly or indirectly, of at least 50% of the voting
securities or other ownership interest of a Person.
8.2 Indemnification of Equitex. GHTI and the Company, jointly and
severally from the date hereof until the Effective Date, and GHTI, individually
from and after the Effective Date, shall defend, indemnify and hold Equitex, its
Affiliates and their respective directors, officers, employees and agents
harmless from and against all Losses arising directly or indirectly out of any:
(a) breach of this Agreement by the Company, its Affiliates, or permitted
assigns or transferees; (b) actual or asserted violations of applicable law by
the Company, its Affiliates, or permitted assigns or transferees; or (c) any
improper use by the Company, its Affiliates, or permitted assignees or
transferees of the Company Intellectual Property; except, in any case, for those
Losses for which Equitex has an obligation to indemnify the Company and its
Affiliates pursuant to Section 8.1, as to which Losses each party shall
indemnify the other to the extent of their respective liability for the Losses;
provided that, the obligations of GHTI under this Article 8 shall be limited to
an amount equal to the amount of Merger Consideration, together with any
proceeds therefrom, received by GHTI.
8.3 Indemnification Procedure.
(a) The indemnified party shall give the indemnifying party
prompt written notice of any Losses or discovery of fact upon which
such indemnified party intends to base a request for indemnification
under Section 8.1 or Section 8.2, but in no event shall the
indemnifying party be liable for any Losses that result from any
delay in providing such notice. Each claim notice must contain a
description of the claim and the nature and amount of such Loss (to
the extent that the nature and amount of such Loss is known at such
time). The indemnified party shall furnish promptly to the
indemnifying party copies of all papers and official documents
received in respect of any Losses. All indemnification claims in
respect of a party, its Affiliates or their respective directors,
officers, employees and agents shall be made solely by such party to
this Agreement.
(b) The obligations of an indemnifying party under this
Article 8 with respect to Losses arising from claims of any third
party that are subject to indemnification as provided for in
Sections 8.1 or 8.2 (a "Third-Party Claim") shall be governed by and
be contingent upon the following additional terms and conditions:
30
(i) At its option, the indemnifying party may assume the
defense of any Third-Party Claim by giving written notice to
the indemnified party within 30 days after the indemnifying
party's receipt of a claim notice as described in paragraph
(a) above. The assumption of the defense of a Third-Party
Claim by the indemnifying party shall not be construed as an
acknowledgment that the indemnifying party is liable to
indemnify any indemnified party in respect of the Third-Party
Claim, nor shall it constitute a waiver by the indemnifying
party of any defenses it may assert against any indemnified
party's claim for indemnification. Upon assuming the defense
of a Third-Party Claim, the indemnifying party may appoint as
lead counsel in the defense of the Third-Party Claim any legal
counsel selected by the indemnifying party. In the event the
indemnifying party assumes the defense of a Third-Party Claim,
the indemnified party shall immediately deliver to the
indemnifying party all original notices and documents
(including court papers) received by any indemnified party in
connection with the Third-Party Claim. Should the indemnifying
party assume the defense of a Third-Party Claim, the
indemnifying party shall not be liable to the indemnified
party or any other indemnified party for any legal expenses
subsequently incurred by such indemnified party in connection
with the analysis, defense or settlement of the Third-Party
Claim. In the event that it is ultimately determined that the
indemnifying party is not obligated to indemnify, defend or
hold harmless an indemnified party from and against the
Third-Party Claim, the indemnified party shall reimburse the
indemnifying party for any and all costs and expenses
(including attorneys' fees and costs of suit) and any Losses
incurred by the indemnifying party in its defense of the
Third-Party Claim with respect to such indemnified party.
(ii) Without limiting Section 8.3(b)(i), an indemnified
party shall be entitled to participate in, but not control,
the defense of such Third-Party Claim and to employ counsel of
its choice for such purpose; provided, however, that such
employment shall be at the indemnified party's own expense
unless (i) the employment thereof has been specifically
authorized by the indemnifying party in writing or (ii) the
indemnifying party has failed to assume the defense and employ
counsel in accordance with Section 8.3(b)(i) (in which case
the indemnified party shall control the defense).
(iii) With respect to any Losses relating solely to the
payment of money damages in connection with a Third-Party
Claim and that will not result in the indemnified party's
becoming subject to injunctive or other relief or otherwise
adversely affect the business of the indemnified party in any
manner, and as to which the indemnifying party shall have
acknowledged in writing the obligation to indemnify the
indemnified party hereunder, the indemnifying party shall have
the sole right to consent to the entry of any judgment, enter
into any settlement or otherwise dispose of such Loss, on such
terms as the indemnifying party, in its sole discretion, shall
deem appropriate. With respect to all other Losses in
connection with Third-Party Claims, where the indemnifying
party has assumed the defense of the Third-Party Claim in
accordance with Section 8.3(b)(i), the indemnifying party
shall have authority to consent to the entry of any judgment,
enter into any settlement or otherwise dispose of such Loss
provided it obtains the prior written consent of the
indemnified party (which consent shall not be unreasonably
withheld or delayed). The indemnifying party shall not be
liable for any settlement or other disposition of a Loss by an
indemnified party that is reached without the written consent
of the indemnifying party. Regardless of whether the
indemnifying party chooses to defend or prosecute any
Third-Party Claim, no indemnified party shall admit any
liability with respect to, or settle, compromise or discharge,
any Third-Party Claim without the prior written consent of the
indemnifying party.
31
(iv) Regardless of whether the indemnifying party
chooses to defend or prosecute any Third-Party Claim, the
indemnified party shall, and shall cause each other
indemnified party to, cooperate in the defense or prosecution
thereof and shall furnish such records, information and
testimony, provide such witnesses and attend such conferences,
discovery proceedings, hearings, trials and appeals as may be
reasonably requested in connection therewith. Such cooperation
shall include access during normal business hours afforded to
indemnifying party to, and reasonable retention by the
indemnified party of, records and information that are
reasonably relevant to such Third-Party Claim, and making
indemnified parties and other employees and agents available
on a mutually convenient basis to provide additional
information and explanation of any material provided
hereunder, and the indemnifying party shall reimburse the
indemnified party for all its reasonable out-of-pocket
expenses in connection therewith.
(v) Except as provided above, the costs and expenses,
including fees and disbursements of counsel, incurred by the
indemnified party in connection with any claim shall be
reimbursed on a calendar quarter basis by the indemnifying
party, without prejudice to the indemnifying party's right to
contest the indemnified party's right to indemnification and
subject to refund in the event the indemnifying party is
ultimately held not to be obligated to indemnify the
indemnified party.
(vi) From the date hereof until one year after the
Effective Date, if GHTI is required to provide indemnification
to Equitex hereunder, Equitex shall be entitled to offset that
portion of the value of any Equitex Common Stock issued upon
GHTI's conversion of Series L Preferred Stock (such value to
be determined as of the date of such conversion), as
applicable, which is still due and owing at the time the
indemnification obligation arises, and may continue to so
offset future payments and issuances until such time as the
indemnification obligations of GHTI shall have been satisfied
in full.
32
Article 9
Dispute Resolution
9.1 Arbitration; Jurisdiction and Venue.
(a) Except as described in Section 9.2(m), any dispute arising out
of or related to this Agreement or any breach or alleged breach hereof
(collectively referred to herein as a "dispute") shall be exclusively
decided by binding arbitration before a single arbitrator in the State of
Delaware, pursuant to and in accordance with the terms and provisions of
the Arbitration Protocol (as defined below). The Company, GHTI, Equitex
and Merger Sub hereby irrevocably waive their respective right, if any, to
have any disputes between them arising out of or related to this Agreement
decided in any jurisdiction or venue other than by binding arbitration
pursuant to the Arbitration Protocol. Each party understands that its
agreement to submit to binding arbitration pursuant to the Arbitration
Protocol, and its other covenants under this Article 9 is material
consideration and inducement for the other to enter into this Agreement.
As a consequence of this paragraph, each party shall have the right, in
its sole discretion, to: (i) arbitrate any dispute it may have with such
other party; or (ii) remove any complaint previously served and filed with
a court by such other party to be resolved the underlying dispute by
arbitration hereunder. In any arbitration hereunder, the arbitrator shall
have the power and authority to issue temporary and permanent awards of
injunctive and equitable relief. In any arbitration hereunder, a party
may, pending the appointment of an arbitrator, seek temporary injunctive
and equitable relief from a State court in Delaware.
(b) Delaware state court shall have exclusive jurisdiction and venue
over any disputes between the parties which require a judicial decision or
judicial enforcement. In this regard, each party hereby irrevocably
consents to the exclusive personal jurisdiction of the state courts in
Delaware for the purposes of any action arising out of or related to this
Agreement, specifically including but without limitation actions for
temporary equitable relief, actions to compel arbitration, actions to
enforce temporary and permanent arbitration awards, and any other
proceedings pursuant to the Federal Arbitration Act (except proceedings in
other jurisdictions to enforce judgments entered by the Delaware state
court pursuant hereto).
33
(c) Each party irrevocably covenants not to xxx the other party in
any jurisdiction or venue other than the Delaware state court for the
purposes of any action arising out of or related to this Agreement or the
Arbitration Protocol. Each party further agrees not to assist, aid, abet,
encourage, be a party to, or participate in the commencement or
prosecution of any lawsuit or action by any third party arising out of or
related to this Agreement in any jurisdiction or venue other than a state
court in Delaware.
9.2 Arbitration Protocol. This Arbitration Protocol (the "Arbitration
Protocol") shall govern all arbitrations commenced pursuant to this Agreement:
(a) This is the complete agreement between the parties on the
subject of arbitration of disputes. The claims that are subject to binding
arbitration hereunder include all of each party's claims of any kind to
any relief of any kind.
(b) The parties agree that the arbitration of any dispute under this
Arbitration Protocol shall be a confidential proceeding between only the
parties hereto, and that no joinder of other parties shall be permitted by
the Arbitrator, as defined below, and no class action shall be allowed by
the arbitrator.
(c) The American Arbitration Association shall administer the
arbitration. The Commercial Rules of the American Arbitration Association
("Rules") shall govern the arbitration except as those Rules may be
modified in or by this Arbitration Protocol.
(d) All arbitrations under this Arbitration Protocol shall be
conducted before a single neutral arbitrator (the "Arbitrator") mutually
selected by the parties. If the parties cannot agree upon an Arbitrator,
the Arbitrator shall be chosen in conformity with the Rules. In cases
where temporary and/or permanent equitable relief is sought at the time of
commencement of the arbitration, a party shall immediately and without
delay select and appoint an Arbitrator to hear and determine the
application for such relief subject only to the right of the other party
to challenge the arbitrator for cause pursuant to the Rules and this
Arbitration Protocol.
(e) The Arbitrator shall be a former state or federal judge, or a
person who has been licensed lawyer practicing in the State of Delaware
for at least 15 years. The arbitrator cannot actively have any direct or
indirect interest in favoring either party when deciding the case. The
Arbitrator shall disclose in advance of the initial hearing any potential
or actual conflict of interest, and shall thereafter disclose any newly
arising potential or actual conflict of interest immediately upon learning
of same.
(f) The Arbitrator may award any and all interim and permanent
damages, remedies and relief as would be available in a court in the State
of Delaware except punitive or exemplary damages. Notwithstanding the
foregoing, the Arbitrator may award any amounts allowed to a prevailing
party pursuant to any statutory claim. The Arbitrator shall have the
explicit authority to grant temporary and/or permanent equitable relief,
including injunctions, to the full extent such authority is available to
courts under Delaware law. The Arbitrator shall have the authority to
entertain a motion to dismiss and/or a motion for summary judgment by any
party and shall apply the standards governing such motions under the
Federal Rules of Civil Procedure.
(g) Each party has the right to be represented by an attorney of
their own choice. Each party will be responsible for payment of their own
attorneys' fees, court reporter fees, and other such costs and expenses
for representation. Nevertheless, if any party prevails on a statutory
claim that affords the prevailing party attorneys' fees and/or recovery of
costs, the Arbitrator may award reasonable fees and costs to the
prevailing party.
34
(h) Discovery in each proceeding under this Arbitration Protocol
shall be limited to (i) not more than three depositions per side, each
deposition being limited to a maximum of seven hours in length, and (ii)
no more than ten written interrogatories per party (including discrete
subparts). The Arbitrator may, in his or her discretion, allow additional
discovery only upon a showing of exigent circumstances that demonstrate
good cause. Written requests for production of documents shall not be
expressly limited in number, but must be reasonable in number and scope
and reasonably calculated to lead to the discovery of admissible evidence.
All discovery shall be accomplished on an expedited basis, with written
responses and/or production of documents due within 20 business days of
service, absent an extension of time agreed upon by the parties or granted
by the Arbitrator upon a showing of good cause. All testimony and evidence
produced during discovery shall be deemed confidential whether physically
so designated or not, and may not be disclosed to any person other than
the parties and their respective counsel, and may not be used for any
purpose other than the arbitration proceeding. Either party may, in its
discretion, designate testimony or evidence as "highly confidential for
attorneys' eyes only." The parties may enter into a reasonable protective
order containing such other terms and provisions as may be deemed
necessary and expedient or, if the parties are unable to agree on the
terms of a protective order, seek to have a protective order entered by
the Arbitrator. To the extent discovery rules are not otherwise provided
in this Arbitration Protocol, discovery shall be governed by the Federal
Rules of Civil Procedure.
(i) The arbitration shall be conducted within 60 days of service of
an arbitration claim or, in the case of a removal of litigation for
resolution pursuant to binding arbitration, arbitration demand made by a
party hereunder. Any such claim or demand shall be made by written notice
submitted in accordance with Section 10.1. The Arbitrator shall preside
over the Arbitration hearing. Evidence may be introduced at the
Arbitration hearing by live witnesses or by submission of affidavits,
provided that the non-presenting party shall have been afforded an
opportunity to cross-examine the witness either before or during the
arbitration hearing. The location of the arbitration shall be in a
convenient location in the State of Delaware, unless the parties agree to
a different location or means of arbitration (including an arbitration by
telephone or video conference).
(j) The Arbitrator's decision must be based on established
principles of state law as to any state law claim and established
principles of federal law as to any federal law claim. The decision of the
arbitrator will be in writing, final and binding on the parties, subject
to the rights of both parties to judicial review pursuant to the
provisions of the Federal Arbitration Act. The arbitrator will deliver the
decision and provide the written reasons for the award within ten calendar
days of the conclusion of the Arbitration hearing (and any period
thereafter allowed for written submissions). The Arbitrator's award will
have no binding affect on any other party or claim outside of the
arbitration between the parties.
(k) Each party shall have the right to bring an action in the state
court to compel arbitration of any claim covered by the Agreement or this
Arbitration Protocol.
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(l) All aspects of this Arbitration Protocol and the proceedings
pursuant hereto shall be governed by and interpreted in accordance with
the provisions of the Federal Arbitration Act. The arbitration award may
be entered or challenged solely in accordance with, and upon the grounds
specified in, the Federal Arbitration Act. Venue of any proceedings
commenced pursuant to the Federal Arbitration Act shall be in Delaware
state court.
(m) The parties will share the costs and expenses of any advance
filing fees and arbitrator compensation charges imposed by the
administrator of the arbitration and the Arbitrator for the arbitration
proceeding, and shall equally bear corresponding post-filing costs unless
the Arbitrator determines that the equities require they be assessed
differently.
9.3 Exceptions and Qualifications to Binding Arbitration. Notwithstanding
anything to the contrary contained in this Article 9:
(a) Any claim, dispute, or controversy concerning the validity,
enforceability, or infringement of any Patent licensed hereunder shall be
resolved in any court having jurisdiction thereof. In the event that, in
any arbitration proceeding, any issue shall arise concerning the validity,
enforceability, or infringement of any such Patent, the arbitrators shall,
to the extent possible, resolve all issues other than validity,
enforceability and infringement; and, in any event, the arbitrators shall
not delay the arbitration proceeding for the purpose of obtaining or
permitting either party to obtain judicial resolution of such issues,
unless an order staying the arbitration proceeding shall be entered by a
court of competent jurisdiction. Neither party shall raise any issue
concerning the validity, enforceability, or infringement of any Patent
licensed hereunder, in any proceeding to enforce any arbitration award
hereunder, or in any proceeding otherwise arising out of any such
arbitration award.
(b) A party may bring one or more claims for injunctive relief in a
state or federal court in Delaware. In this regard, each party
acknowledges and agrees that the restrictions set forth in 5.5 and 5.10
are reasonable and necessary to protect the legitimate interests of the
other party and that such other party would not have entered into this
Agreement in the absence of such restrictions, and that any violation or
threatened violation of any provision of 5.5 or 5.10 may result in
irreparable injury to such other party. Each Party also acknowledges and
agrees that in the event of a violation or threatened violation of any
provision of 5.5 or 5.10, the other party shall be entitled to seek
preliminary and permanent injunctive relief without the necessity of
having to post a bond. The rights provided in the immediately preceding
sentence shall be cumulative and in addition to any other rights or
remedies that may be available to such other party. Nothing in this
paragraph (or any other provision of this Agreement) is intended, or
should be construed, to limit a party's right to preliminary and permanent
injunctive relief or any other equitable remedy for breach of any other
provision of this Agreement.
Article 10
General Provisions
10.1 Notices. All notices and other communications hereunder shall be in
writing and shall be sufficiently given if made by hand delivery, by fax, by
telecopier, by overnight delivery service, or by registered or certified mail
(postage prepaid and return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by it by
like notice):
If to the Company: Hydrogen Power, Inc.
0000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attn: Xxxxx Xxxxxx, Chairman
With copies to: Lang Xxxxxxxx LLP
0000 Xxxxx Xxxxxx, X.X. Xxx 00000
0000 Xxxx Xxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxx Xxxxxxxx
X0X 0X0
Facsimile: (000) 000-0000
Attn: Xxxxxxx Xxxxxx
36
If to Equitex or Merger Sub: Equitex, Inc.
0000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Facsimile: (000) 000-0000
Attn: Xxxxx Xxxx, President
With copies to: Xxxxxx Xxxxxxx Xxxxxx & Brand, LLP
00 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attn: Xxxxxxx X. Xxxxx
All such notices and other communications shall be deemed to have been
duly given as follows: when delivered by hand, if personally delivered, when
received, if delivered by registered or certified mail (postage prepaid and
return receipt requested), when receipt acknowledged; if faxed or telecopied, on
the day of transmission or, if that day is not a business day, on the next
business day; and the next day delivery after being timely delivered to a
recognized overnight delivery service.
10.2 Knowledge Convention. For all purposes of this Agreement, the term
"Knowledge" means, with respect to an individual, that such individual is
actually aware of a particular fact or other matter, with no obligation to
conduct any inquiry or other investigation to determine the accuracy of such
fact or other matter. A Person other than an individual shall be deemed to have
Knowledge of a particular fact or other matter if the officers, directors or
other management personnel of such Person had Knowledge of such fact or other
matter.
10.3 No Survival. The representations and warranties and obligations
contained in this Agreement shall survive the execution and deliver of this
Agreement and the consummation of the transactions contemplated hereby for a
period of one year following the Effective Date or earlier termination of this
Agreement in accordance with Section 7.1; provided that, the obligations
contained in Article 1 and any other obligation contained in this Agreement,
including without limitation the terms in Sections 5.1 and 5.5(b) and Article 8,
Article 9 and this Article 10, explicitly requiring performance or compliance
after the one-year period following the Effective Date will survive
indefinitely.
10.4 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. References to Sections and Articles refer to
Sections and Articles of this Agreement unless otherwise stated.
10.5 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, and the parties shall negotiate
in good faith to modify this Agreement and to preserve each party's anticipated
benefits under this Agreement.
10.6 Amendment. This Agreement may not be amended or modified except by an
instrument in writing approved by the parties to this Agreement and signed on
behalf of each of the parties hereto.
37
10.7 Waiver. At any time prior to the Effective Date, any party hereto may
(a) extend the time for the performance of any of the obligations or other acts
of the other party hereto or (b) waive compliance with any of the agreements of
the other party or with any conditions to its own obligations, in each case only
to the extent such obligations, agreements and conditions are intended for its
benefit. Any such extension or waiver shall only be effective if made in writing
and duly executed by the party giving such extension or waiver.
10.8 Miscellaneous. This Agreement (together with all other documents and
instruments referred to herein): (a) constitutes the entire agreement, and
supersedes all other prior agreements and undertakings, both written and oral,
among the parties, with respect to the subject matter hereof; and (b) shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, but shall not be assignable by either party hereto
without the prior written consent of the other party hereto.
10.9 Counterparts; Delivery. This Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement. In addition, executed counterparts may be delivered by means of
facsimile or other electronic transmission; and signatures so delivered shall be
fully and validly binding to the same extent as the delivery of original
signatures.
10.10 Third-Party Beneficiaries. Except as provided in the next following
sentence, each party hereto intends that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any person other than the
parties hereto; provided, however, that in the event that the Merger is
consummated, the Company stockholders shall be third-party beneficiaries under
the provisions of this Agreement giving them the right to the Merger
Consideration.
10.11 Governing Law. This Agreement is governed by the internal laws of
the State of Delaware without regard to its conflicts-of-law principles.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed effective as of the date first written above.
HYDROGEN POWER, INC.: EQUITEX, INC.:
By: /s/ Xxxxx X. Xxxxxx By: /s/ Xxxxx Xxxx
---------------------------------- ------------------------------
Name: Xxxxx X. Xxxxxx Name: Xxxxx Xxxx
-------------------------
Title: Executive Chairman Title: President
-------------------------
EI ACQUISITION CORP.:
By: /s/ Xxxxx Xxxx
------------------------------
Name: Xxxxx Xxxx
Title: President
ACKNOWLEDGED AND AGREED AS TO
ARTICLE 2, ARTICLE 8 AND ARTICLE 9
OF THIS AGREEMENT:
GLOBAL HYDROFUEL TECHNOLOGIES, INC.
By: /s/ Xxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxx X. Xxxxxx
--------------------------
Title: Executive Chairman
-----------------------
39
