AGREEMENT AND PLAN OF MERGER AND REORGANIZATION BY AND AMONG EQUITEX, INC., EI ACQUISITION CORP., AND HYDROGEN POWER, INC. September 13, 2005
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 | ||
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
|
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
|
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”).
2
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).
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:
3
(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.”
4
(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).
5
(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.
6
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.
7
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.
8
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.
(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.
9
(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.
(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.
10
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.
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.
11
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.
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.
12
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.
13
(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.
(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.
14
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.
15
(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.
16
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.
17
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.
(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).
18
(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.
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.
19
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.
20
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.
21
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.
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.
22
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.
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.
23
(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.
(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.
24
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.
(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.
25
(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.
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.
26
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).
27
(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.
(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.
28
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.
29
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
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.
30
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:
(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.
31
(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.
(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.
32
(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.
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.
(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.
35
(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.
38
In
Witness Whereof,
the
parties hereto have caused this Agreement to be executed effective as of the
date first written above.
HYDROGEN
POWER, INC.:
By: /s/
Xxxxx X. Xxxxxx
Name: Xxxxx
X. Xxxxxx
Title: Executive
Chairman
|
EQUITEX,
INC.:
By: /s/
Xxxxx Xxxx
Name: Xxxxx
Xxxx
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
FIRST
AMENDMENT TO
AGREEMENT
AND PLAN OF MERGER
AND
REORGANIZATION
BY
AND AMONG
EQUITEX,
INC.,
EI
ACQUISITION CORP.,
AND
HYDROGEN
POWER, INC.
October
31, 2005
FIRST
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
AND
REORGANIZATION
This
First Amendment to Agreement and Plan of Merger and Reorganization
(this
“Agreement”)
is
entered into as of October 31, 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
Company, Equitex and Merger Sub have entered into that certain Agreement
and
Plan of Merger and Reorganization dated September 13, 2005 (the “Merger
Agreement”) whereby the Company and Merger Sub will merge with the surviving
corporation being a subsidiary of Equitex (the “Merger”).
B. Equitex
desires to acquire 850,000 shares of the common stock of the Company from
the
shareholders of the Company (the “HPI Shareholders”) in exchange for the
issuance of 700,000 shares of the common stock of Equitex to the HPI
Shareholders, on a pro rata basis (the “Share Exchange”).
C. The
Share
Exchange is to be completed in advance of the Merger on the terms and subject
to
the conditions of the share exchange agreement to be entered into between
Equitex and the HPI Shareholders in the form attached hereto as Exhibit
A (the
“Share Exchange Agreement”).
D. The
Company, Equitex and Merger Sub have agreed to amend the Merger Agreement
by
entering into this Agreement in order to consent to the Share Exchange
Agreement
and to adjust the share conversion ratios as a result of the completion
of the
Share Exchange in advance of the Merger.
E. The
Company, Equitex and Merger Sub have agreed to further amend the Merger
Agreement by entering into this Agreement in order to confirm that the
Company
Warrants (as defined herein) will be exchanged for warrants to purchase
an
equivalent number of shares of Equitex common stock at an exercise price
of
$3.00 per share.
F. The
Company, Equitex and Merger Sub have agreed to further amend the Merger
Agreement to (i) allow for the Company to merge with and into the Merger
Sub,
and the Merger Sub to be the Surviving Corporation (as defined in Section
1.1 of
the Merger Agreement) and (ii) provide voting rights to the holders of
the
Series L Preferred Stock issued pursuant to the Merger.
G. The
parties to this Agreement intend to adopt the Merger Agreement, as amended
by
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 the Merger Agreement, as amended by this Agreement,
confirm their intention 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).
1
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
Amendment
1.1 Share
Exchange
.
Each
party hereto consents to the completion of the Share Exchange on the terms
and
conditions of Share Exchange Agreement.
1.2 Amendment
to Merger Structure.
In
order to reflect a change in the structure of the Merger with respect to
the
surviving corporation in the Merger:
(a) Paragraph
A of the Introduction to the Merger Agreement is hereby deleted in its
entirety
and replaced with the following:
“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 the
Company with and into the Merger Sub, with the Merger Sub remaining as
the
surviving corporation and a wholly owned subsidiary of Equitex.”
(b) Section
1.1 of the Merger Agreement is hereby deleted in its entirety and replaced
with
the following:
“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) the Company
will
merge with and into the Merger Sub, and (ii) the Merger Sub will be the
surviving corporation to the Merger and a wholly owned subsidiary of Equitex.
The term “Surviving Company” as used herein shall mean the Merger Sub 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”).”
1.3 Amendment
to Date of Closing.
In
order to reflect a change in the date of the Closing, Section 1.2(d) of
the
Merger Agreement is hereby deleted in its entirety and replaced with the
following:
“(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 December ___, 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).”
1.4 Adjustment
to Merger Consideration
.
In
order to reflect the completion of the Share Exchange in advance of the
Merger,
Section 1.3 of the Merger Agreement is hereby deleted in its entirety and
replaced with the following:
“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(d), 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 determined
by
taking the product of (1) the number of shares of Equitex Common Stock
issued
and outstanding immediately prior to the Effective Time minus 700,000,
multiplied by (2) 0.4, and subtracting from such product 700,000 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, less 850,000, but
not
assuming the exercise of the Company Warrants (as defined in Section 1.3(c))
issued and outstanding immediately prior to the Effective Time (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
immediately prior to the Effective Time, on a fully diluted basis, less
850,000,
but not assuming the exercise of the Company Warrants (as defined in Section
1.3(d)) issued and outstanding immediately prior to the Effective Time
(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(d)) 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
options to purchase Company Common Stock, as set forth in Disclosure Schedule
2.3 to this Agreement (the “Company Options”), or other securities of the
Company exercisable or convertible into, or exchangeable for, shares of
Company
Common Stock that are outstanding immediately prior to the Effective Time,
other
than the Company Warrants (collectively, 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 Ratio, 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.
(c) All
outstanding warrants to purchase shares of the Company’s common stock, as listed
in Disclosure Schedule 2.3 to this Agreement (the “Company Warrants”), shall be
exchanged for warrants to purchase an equivalent number of shares of Equitex
Common Stock, without adjustment, at an exercise price of $3.00 per share
(“Equitex Warrants”) for the unexpired term of the original share purchase
warrants.
(d) Each
share of Company Common Stock issued and outstanding immediately prior
to the
Effective Time and owned by Equitex or Merger Sub, if any, shall be cancelled
and extinguished without any conversion thereof and no payment shall be
made
with respect thereto.
(e) 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.
(f)
The
Equitex Warrants issuable upon the Merger under paragraph 1.3(c) above,
the
Equitex Convertible Securities issuable upon the Merger under paragraph
1.3(b)
above and the Equitex Common Stock and the Series L Preferred Stock issuable
upon the Merger under paragraph 1.3(a) above are collectively referred
to as the
“Merger
Consideration.””
1.5 Registration
Rights
for
Warrant Shares
.
The
shares of Equitex common stock issuable upon exercise of the Equitex Share
Purchase Warrants will be treated as “Registrable Securities” for the purposes
of Section 5.11 of the Merger Agreement and Equitex will use its best efforts
to
prepare and file with the Securities and Exchange Commission (the “SEC”),
as
early as possible following closing of the Merger Agreement, and in no
event
later than sixty (60) days following closing, a registration statement
under the
Securities Act covering the resale of the shares of Equitex common stock
issuable upon exercise of the Equitex Share Purchase Warrants. 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 shares issued. Equitex’s
obligation to obtain and maintain such effectiveness is conditioned upon
the
cooperation of the holders of the Equitex Share Purchase Warrants 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 Equitex Share Purchase Warrants
shall be
borne by such holders.
1.6 Additional
Conditions to Obligations of Equitex and Merger Sub.
The
following shall be incorporated into the Merger Agreement as Section
6.2(i):
“(i) The
Company shall have received, on or prior to the Closing Date, from the
holders
thereof, all of the Company Warrants to be exchanged for Equitex
Warrants.”
1.7 Inclusion
of Voting Rights for Series L Preferred Stock.
In
order to allow for the provision of voting rights to the holders of the
Series L
Preferred Stock, the Certificate of Designation attached as Exhibit B to
the
Merger Agreement is hereby deleted in its entirety and replaced with the
Certificate of Designation attached hereto as Exhibit A.
Article
2
General
Provisions
2.1 Merger
Agreement in Full Force and Effect
.
The
Merger Agreement shall continue in full force and effect without amendment
except as expressly provided for in this Agreement.
2.2 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.
2.3 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.
2.4 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.
2.5 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.
2.6 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.
2.7 Governing
Law
.
This
Agreement is governed by the internal laws of the State of Delaware without
regard to its conflicts-of-law principles.
2
In
Witness Whereof,
the
parties hereto have caused this Agreement to be executed effective as of
the
date first written above.
HYDROGEN
POWER, INC.:
By:
Name:
Title:
|
EQUITEX,
INC.:
By:
Name: Xxxxx
Xxxx
Title: President
|
EI
ACQUISITION CORP.:
By:
Name: Xxxxx
Xxxx
Title: President
|
3
EQUITEX,
INC.
CERTIFICATE
OF DESIGNATION OF
SERIES
L PREFERRED STOCK
The
Undersigned,
on
behalf of Equitex, Inc. a Delaware corporation (the “Corporation”), hereby
certifies that the following resolutions were adopted by the Corporation’s board
of directors (the “Board”), effective as of ___________, 2005, pursuant to
the authority conferred upon the Board by the Corporation’s certificate of
incorporation, as amended, and in accordance with the Delaware General
Corporation Law (the “DGCL”):
RESOLVED:
that
pursuant to the authority granted to and vested in the Board in accordance
with
the provisions of the Corporation’s certificate of incorporation, as amended, a
series of preferred stock of the Corporation is hereby created and designated
with the following relative rights, preferences, privileges, qualifications,
limitations and restrictions:
1. Amount;
Designation; Sub-Series.
The
designation of this series, the authorized amount of which consists of 300,000
shares of preferred stock, is Series L Preferred Stock with a par value of
$0.01
per share (the “Series L Preferred Stock”). The Series L Preferred Stock
shall be divided into and issuable in three separate sub-series denominated
“Series L-1 Preferred Stock,”“Series L-2 Preferred Stock,” and “Series L-3
Preferred Stock.” Each sub-series of Series L Preferred Stock shall have an
authorized amount equal to one-third of the total amount of shares authorized
for issuance as Series L Preferred Stock.
2. Rank.
In the
event of the Corporation’s liquidation, the Series L Preferred Stock shall rank
senior to any class or series of the Corporation’s capital stock hereafter
created that ranks junior to the Series L Preferred Stock; pari
passu
with any
class or series of the Corporation’s capital stock hereafter created that ranks
on parity with the Series L Preferred Stock; and junior to any class or series
of the Corporation’s capital stock hereafter created that ranks senior to the
Series L Preferred Stock. The Series L Preferred Stock shall be junior to all
classes of the Corporation’s preferred stock authorized as of the date hereof;
shall be senior to the Corporation’s common stock; and each sub-series of Series
L Preferred Stock shall be pari
passu
with
each other sub-series.
3.
Voting Rights.
The
holders of Series L Preferred Stock shall be entitled to one vote on
all
matters respecting the affairs of the Corporation submitted to the holders
of
the Corporation’s voting capital stock, for each share of Series L
Preferred Stock hold.
4. No
Dividends.
No
dividends shall accrue on the Series L Preferred Stock.
5. No
Preemptive Rights.
Holders
of Series L Preferred Stock shall not be entitled, as a matter of right, to
subscribe for, purchase or receive any part of any stock of the Corporation
of
any class whatsoever, or of securities convertible into or exchangeable for
any
stock of any class whatsoever, whether now or hereafter authorized and whether
issued for cash or other consideration or by way of dividend by virtue of the
Series L Preferred Stock.
6. Liquidation
Rights.
In the
event of a liquidation of the Corporation, the holders of Series L Preferred
Stock then outstanding shall be entitled to receive a liquidation preference,
before any distribution is made to the holders of the Corporation’s common
stock, in an aggregate amount equal to the par value of their shares of Series
L
Preferred Stock.
1
7. Conversion
Rights.
(a) The
Series L Preferred Stock shall convert into such number of fully paid and
non-assessable shares of Corporation’s common stock in the manner set forth in
paragraph (b) below.
(b) Subject
to the conditions set forth in paragraph (c) below, the adjustments set forth
in
paragraph (d) below, and Section 11:
(i) If
one of
the conditions set forth in paragraph (c) below is satisfied on or prior to
the
180th day after the Effective Date, then on such 180th
day all
outstanding shares of Series L-1 Preferred Stock shall together convert into
40%
of the then-outstanding number of shares of the Corporation’s common stock (on a
pre-conversion basis).
(ii) If
either
(z) two of the conditions set forth in paragraph (c) below are satisfied on
or
prior to the 270th day after the Effective Date, or (y) one of the conditions
set forth in paragraph (c) below is satisfied on or prior to the 270th day
after
the Effective Date, but none of the conditions was satisfied on or prior to
the
180th day after the Effective Date, then on such 270th
day all
outstanding shares of Series L-2 Preferred Stock shall together convert into
40%
of the then-outstanding number of shares of the Corporation’s common stock (on a
pre-conversion basis).
(iii) If
either
(z) each of the conditions set forth in paragraph (c) below are satisfied on
or
prior to the 360th day after the Effective Date, (y) two of the conditions
set
forth in paragraph (c) below are satisfied on or prior to the 360th day after
the Effective Date, but only one of the conditions was satisfied prior to the
270th day after the Effective Date, or (x) one of the conditions set forth
in
paragraph (c) below is satisfied on or prior to the 360th day after the
Effective Date, but none of the conditions was satisfied on or prior to the
270th day after the Effective Date, then on such 360th
day all
outstanding shares of Series L-3 Preferred Stock shall together convert into
40%
of the then-outstanding number of shares of the Corporation’s common stock (on a
pre-conversion basis).
(iv) Upon
any
conversion of Series L Preferred Stock hereunder, each holder of the particular
sub-series of Series L Preferred Stock being converted shall be entitled to
receive that proportion of shares of common stock issued upon such conversion
that the total number of such sub-series of preferred shares held by such holder
(immediately prior to such conversion) bears to the total number of such
sub-series of preferred shares outstanding (immediately prior to such
conversion).
(v) For
purposes of this Certificate of Designation, the following terms shall have
the
meanings set forth below:
(A) “Effective
Date” shall have the meaning set forth in the Merger Agreement; and
(B) “Merger
Agreement” shall mean that certain Agreement and Plan of Merger and
Reorganization by and among the Corporation, HPI and EI Acquisition Co., dated
as of September 9, 2005.
(c) The
conversion of the Series L Preferred Stock as set forth in paragraph (b) above
is subject to the prior satisfaction, as determined in the sole discretion
of
the Board, of the following conditions:
(i) Since
the
date of the Merger Agreement, Equitex and its subsidiaries shall have raised
at
least $3,000,000 in additional financing, including, without limitation, any
proceeds received by Equitex upon the exercise of the Corporation’s warrants;
provided
that,
the Loan
Amount of $3,000,000 (as contemplated in Section 5.1 of the Merger Agreement),
and any financing secured by Equitex to raise such $3,000,000 for the Loan
Amount, will not be included in such financing;
2
(ii) HPI
shall
have engineered a prototype generator, of marketable value, which produces
hydrogen from the aluminum-assisted water splitting process for various micro
and portable power applications, such as, for purposes of illustration only,
cell phone power charging applications or military soldier power applications;
and
(iii) HPI
shall
have engineered a prototype generator, of marketable value, which produces
hydrogen from the aluminum-assisted water splitting process for macro power
applications such as fuel cells and internal combustion engines.
(d) In
case
the Corporation (i) reclassifies its capital stock, consolidates or merges
with
or into another entity (where the Corporation is not the survivor or where
there
is a change in, or distribution with respect to, the Corporation’s common
stock), sells, conveys, transfers or otherwise disposes of all of its property,
assets or business to another person or entity, or effectuates a transaction
or
series of related transactions in which more than 50% of the voting power of
the
Corporation is disposed of (other than upon any conversions of Series L
Preferred Stock hereunder) (each a “Fundamental Corporate Change”) and, (ii)
pursuant to the terms of such Fundamental Corporate Change, shares of common
stock of the successor or acquiring corporation, or any cash or securities
or
property of any nature whatsoever (including warrants or other subscription
or
purchase rights) in addition to or in lieu of common stock of the successor
or
acquiring corporation (collectively, “Other Property”), are to be received by or
distributed to the holders of Corporation’s common stock; then, upon conversion
of the Series L Preferred Stock hereunder in accordance with the terms hereof,
each holder of shares of Series L Preferred Stock shall have the right to
receive the number of shares of common stock of the successor or acquiring
corporation or of the Corporation and Other Property as is receivable upon
or as
a result of such Fundamental Corporate Change by a holder of the number of
shares of common stock into which such Series L Preferred Stock may be converted
immediately prior to such Fundamental Corporate Change.
(e) Shares
of
common stock to be issued upon any conversion of Series L Preferred Stock shall
be rounded to the nearest full share; no fractional shares of common stock
shall
be issued upon any such conversion.
(f) The
Corporation shall reserve and keep available out of its authorized but unissued
common stock such number of shares of common stock as shall from time to time
be
sufficient to effect the conversion of the Series L Preferred Stock then
outstanding pursuant to the terms of this Certificate of
Designation.
(g) As
a
condition to the Corporation’s obligation to issue and deliver certificates
representing the shares of common stock into which the Series L Preferred Stock
is convertible under this Section 7, holders of converted shares of Series
L
Preferred Stock shall return their certificates representing such preferred
stock for cancellation on the Corporation’s books.
8. Loss,
Theft, Destruction of Certificates.
Upon
the Corporation’s receipt of evidence of the loss, theft, destruction or
mutilation of a certificate representing shares of Series L Preferred Stock
(in
form reasonable satisfactory to the Corporation) and, in the case of any such
loss, theft or destruction, upon receipt of indemnity or security reasonably
satisfactory to the Corporation, or, in the case of mutilation, upon surrender
and cancellation of the mutilated certificate, the Corporation shall make,
issue
and deliver, in lieu of such lost, stolen, destroyed or mutilated certificate
representing shares of Series L Preferred Stock, a new certificate representing
shares of Series L Preferred Stock of like tenor.
3
9. Who
Deemed Absolute Owner.
The
Corporation may deem the holder, whether an individual or an entity, in whose
name shares of Series L Preferred Stock is registered upon the Corporation’s
books to be, and may treat it as, the absolute owner of such shares of Series
L
Preferred Stock for all purposes, and the Corporation shall not be affected
or
bound by any notice to the contrary.
10. Transfer
Restrictions; Legend.
Until
the lapse of the 181st, 271st and 361st days after the Effective Date, no shares
of Series L-1 Preferred Stock, Series L-2 Preferred Stock and Series L-3
Preferred Stock, respectively, shall be transferable on the Corporation’s books,
except with the consent of the Board. Certificates representing all shares
of
Series L Preferred Stock, and all shares of the Corporation’s common stock
issued upon conversion thereof, shall contain a legend substantially in the
form
set forth in Section 1.5 of the Merger Agreement.
11. Offset
and Forfeiture.
The
Corporation’s obligation to issue shares of its common stock upon conversion of
Series L Preferred Stock issued to GHTI (as defined in the Merger Agreement)
pursuant to Section 7 hereof is subject to the right of offset contained in
Article 8 of the Merger Agreement. In the event that the Corporation exercises
its right to offset its applicable damages against the shares of common stock
issuable under this Certificate of Designation, then the Corporation shall
be
obligated only to issue that number of shares of its common stock not subject
to
offset, and HPI shall thereupon automatically forfeit its right to such offset
shares with any further action required by the Corporation.
12. Stock-Transfer
Register.
The
Corporation shall keep at its principal office an original or copy of a register
in which it shall provide for the registration of the Series L Preferred Stock.
Upon any transfer of Series L Preferred Stock in accordance with the provisions
hereof, the Corporation shall register such transfer on its stock-transfer
register.
13. Amendments.
The
Corporation may amend this Certificate of Designation only with the approving
vote of holders of a majority of the then-outstanding shares of Series L
Preferred Stock.
14. Headings.
The
headings of the sections, subsections and paragraphs of this Certificate of
Designation are inserted for the convenience of the reader only and shall not
affect the interpretation of the terms and provisions of this Certificate of
Designation.
15. Severability.
If any
provision of this Certificate of Designation, or the application thereof to
any
person or any circumstance, is invalid or unenforceable, (i) a suitable and
equitable provision shall be substituted therefore in order to carry out, so
far
as may be valid and enforceable, the intent and purpose of such invalid or
unenforceable provision, and (ii) the remainder of this Certificate of
Designation and the application of such provision to other persons, entities
or
circumstances shall not be affected by such invalidity or unenforceability,
nor
shall such invalidity or unenforceability affect the validity or enforceability
of such provision, or the application thereof, in any other
jurisdiction.
16. Governing
Law.
The
terms of this Certificate of Designation shall be governed by the laws of the
State of Delaware, without regard to its conflicts-of-law
principles.
4
In
Witness Whereof,
Equitex, Inc. has caused this Certificate of Designation to be duly executed
in
its corporate name on this ____ day of _________, 2005.
EQUITEX, INC.: | ||
By: /s/ | ||
Xxxxx
Xxxx
|
||
Chief
Executive Officer, President and
|
||
Chief
Financial Officer
|
5