-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F46A8o8BbWyN8fLW6A3mAq9ewGLnPcMB5ECpcwVugrQ+L7XsMwTDCyNaR+yYtdX6 ixPuFiLCDTpw7xxQSOHu8w== 0000716101-01-500029.txt : 20010822 0000716101-01-500029.hdr.sgml : 20010822 ACCESSION NUMBER: 0000716101-01-500029 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20010806 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20010821 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQUITEX INC CENTRAL INDEX KEY: 0000716101 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 840905189 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12374 FILM NUMBER: 1720561 BUSINESS ADDRESS: STREET 1: 7315 E PEAKVIEW AVE STREET 2: GREENWOOD EXECUTIVE PARK BLDG 8 CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3037968940 MAIL ADDRESS: STREET 1: 7315 EAST PEAKVIEW AVENUE CITY: ENGLEWOOD STATE: CO ZIP: 80111-6701 8-K 1 eqtxkey8k.txt CURRENT REPORT ON FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of The Securities Act of 1934 Date of Report (Date of earliest event reported): August 21, 2001 (August 6, 2001) EQUITEX, INC. ---------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 000-12374 84-0905189 - -------------------------------------------------------------------------------- (State or other (Commission File Number) (I.R.S. Employer jurisdiction of Identification No.) incorporation) 7315 EAST PEAKVIEW AVENUE, ENGLEWOOD, COLORADO 80111 ---------------- ----------------------------------------------------- (Address of principal executive offices)(Zip Code) Registrant's telephone number, including area code: (303) 796-8940 ------------------------------------------------------ (Former name or former address, if changed since last report.) Item 2. Acquisition or Disposition of Assets DISTRIBUTION OF EQUITEX, INC. ASSETS TO EQUITEX 2000, INC. On August 6, 2001, Equitex, Inc. ("Equitex") completed the distribution of all of its assets and liabilities to Equitex 2000, Inc. ("Equitex 2000"). Also on August 6, 2001, Equitex distributed all of the outstanding shares of common stock of Equitex 2000 into escrow for the stockholders of Equitex on the basis of one share of common stock of Equitex 2000 for each share of common stock of Equitex owned as of the record date for the distribution of July 20, 2001. The shares of Equitex 2000 common stock will be released from escrow upon the effectiveness of the Form 10 Registration Statement for Equitex 2000. ACQUISITIONS OF NOVA FINANCIAL SYSTEMS, INC. AND KEY FINANCIAL SYSTEMS, INC. On August 6, 2001, Equitex acquired Nova Financial Systems, Inc., a Florida corporation ("Nova") and Key Financial Systems, Inc., a Florida corporation ("Key"), both companies that were under common control with nearly an identical ownership structure, in exchange for (i) 9,084,773 shares of Equitex common stock, (ii) cash consideration of $5 million, (iii) warrants to acquire an aggregate of 990,134 shares of Equitex common stock exercisable at $0.02 per share, and (iv) warrants to acquire an aggregate of 3,933,350 shares of Equitex common stock exercisable at $5.65 per share. Henry Fong, President of Equitex, owned 1% of the outstanding common stock of Nova and 1% of the outstanding common stock of Key at the time if the acquisitions. In order to raise the cash consideration of $5 million, Equitex issued two new series of convertible preferred stock; the Series H 8% Convertible Preferred Stock (the "Series H Stock"), which raised an aggregate of $2,359,000, and the Series I 6% Convertible Preferred Stock (the "Series I Stock"), which raised an aggregate of $4,000,000. On July 19, 2001, all 2,359 shares of Series H Stock converted into 471,800 shares of Equitex common stock, $0.02 par value, and 471,800 warrants, each warrant to purchase one share of Equitex common stock. Each warrant issued in connection with the Series H Stock private placement is exercisable until July 19, 2004 at an exercise price of $5.78. The stated value of the Series I Stock is $1,000 per share and bears dividends at 6% per annum, payable quarterly commencing September 30, 2001, when, as and if declared by the Equitex board of directors. Dividends may be payable by Equitex in cash or, at Equitex's option, shares of common stock. The Series I Stock is convertible, together with any accrued but unpaid dividends, at any time and from time to time into shares of Equitex common stock at a conversion price per share equal to the lesser of $5.98 or 65% of the market price upon the occurrence of certain material events. The warrant issued in connection with the Series I Stock offering is exercisable until -2- August 2, 2004 at an exercise price equal to the average of the closing bid prices of Equitex common stock in a regular day session as reported on the Nasdaq National SmallCap Market for the five trading days immediately preceding the closing date for the sale of the Series I Stock. Item 7. Financial Statements and Exhibits (a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. Financial statements for the businesses acquired as described in Item 2 above will be filed by amendment to this Form 8-K. (b) PRO-FORMA FINANCIAL INFORMATION. Pro-Forma financial information reflecting the effect of the businesses acquired as described in Item 2, above, will be filed by amendment to this Form 8-K. (c) EXHIBITS Exhibit Number Exhibit 2.1 Distribution Agreement between Equitex, Inc. and Equitex 2000, Inc. dated August 6, 2001 (Filed herewith) 2.2 Agreement and Plan of Reorganization among Equitex, Inc., Key Financial Systems, Inc. and Key Merger Corporation dated June 27, 2000 (Filed herewith) 2.3 Agreement and Plan of Reorganization among Equitex, Inc., Nova Financial Systems, Inc. and Nova Acquisition Corporation dated June 27, 2000 (Filed herewith) 4.1 Form of Warrant Agreement for Warrants Exercisable at Weighted Average Price of $5.65 (Filed herewith) 4.2 Form of Warrant Agreement for Warrants Exercisable at Nominal Price of $0.02 (Filed herewith) 4.3 Certificate of Amendment to the Certificate of Incorporation of Equitex, Inc. - Designation of Preferences, Limitations and Relative Rights of the Series H Convertible Preferred Stock of Equitex, Inc. (Incorporated by Reference to the Registrant's Registration Statement on Form S-3 as Filed with the Commission on July 2, 2001 File No. 333-64408) -3- 4.4 Certificate of Amendment to the Certificate of Incorporation of Equitex, Inc. - Designation of Preferences, Limitations and Relative Rights of the Series H Convertible Preferred Stock of Equitex, Inc. (Incorporated by Reference to the Registrant's Registration Statement on Form S-3/A as Filed with the Commission on July 23, 2001 File No. 333-64408) 4.5 Certificate of Amendment to the Certificate of Incorporation of Equitex, Inc. - Designation of Preferences, Limitations and Relative Rights of the Series I Convertible Preferred Stock of Equitex, Inc. (Filed herewith) SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. EQUITEX, INC. Date: August 21, 2001 By:/s/Thomas B. Olson ----------------------------- Secretary -4- EX-2 3 eqtxkey8kex21.txt EXHIBIT 2.1 DISTRIBUTION AGREEMENT DISTRIBUTION AGREEMENT, made this 6th day of August, 2001 between Equitex, Inc., a Delaware corporation (the "Company") and Equitex 2000, Inc., a Delaware corporation ("E2000") WITNESSETH: WHEREAS, on June 22, 2001, a special meeting of stockholders, stockholders of the Company approved the distribution by they Company of all its assets and liabilities to E2000 and the distribution by the Company of all the outstanding shares of E2000 common stock to the stockholders of the Company on the basis of one share of common stock of E2000 for each share of common stock of the Company (the "Distribution"); WHEREAS, at the special meeting of stockholders, the Company's stockholders approved a proposal to acquire all the outstanding capital stock of Key Financial Systems and Nova Financial Systems, Inc. ("Key/Nova"); WHEREAS, E2000 a wholly-owned subsidiary of the Company. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and certain other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto covenant and agree as follows: ARTICLE 1 ACTIONS PRIOR TO DISTRIBUTION 1.1 TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES. Subject to the conditions set forth in Article 3, on or before the Distribution Date, as defined in Section 2.1, below, the Company shall take all necessary action to sell, assign, transfer and distribute to E2000 all of its assets and E2000 agrees to assume, pay, perform or discharge in due course all of the Company's liabilities as they exist immediately prior to the Distribution Date. In exchange for the assumption of certain liabilities of the Company, E2000 will receive 78,339 shares of the Company's common stock and a warrant exercisable for five years to purchase up to 78,339 shares of the Company's common stock at an exercise price of $5.76 per share. 1.2 ISSUANCE OF STOCK. Prior to the Distribution Date, the Company and E2000 shall take all steps necessary so that the number of shares of E2000 common stock, $.01 par value per share (the "E2000 Common Stock"), outstanding and held by the Company shall equal the number of shares of Equitex Common Stock, $.02 par value per share ("Equitex Common Stock"), outstanding on the Record Date, as defined in Section 2.1, below. 1.3 TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION. To the extent that any transfers contemplated by this Article 1 shall not have been consummated by the Distribution Date, the Company and E2000 shall cooperate to effect such transfers as promptly following the Distribution -1- Date as practicable. Nothing herein shall be deemed to require the transfer of any assets or the assumption of any liabilities which by their terms or operation of law cannot be transferred or assumed; provided, however, that the Company and E2000 and their respective subsidiaries shall cooperate to obtain any necessary consents or approvals for the transfer of all assets and liabilities listed on Exhibit A attached hereto. ARTICLE 2 THE DISTRIBUTION 2.1 RECORD DATE AND DISTRIBUTION DATE. The date for determining stockholders of the Company who shall be entitled to receive the Distribution is July 20, 2001 (the "Record Date"). Subject to the satisfaction or waiver of all of the conditions set forth in Article 3, the date on which the Distribution shall be made (the "Distribution Date") shall be August 3, 2001. 2.2 DISTRIBUTION AGENT. Prior to the Distribution Date, E2000 shall enter into an agreement with a transfer agent registered pursuant to Section 17A(c) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), to distribute the shares of E2000 Common Stock to the Company's stockholders in accordance with this Article 2 (the "Distribution Agent"). 2.3 DELIVERY OF SHARE CERTIFICATE TO AGENT. On the Distribution Date, the Company or E2000 shall deliver to the Distribution Agent share certificates representing all of the shares of E2000 Common Stock to be distributed to the Company's stockholders in connection with the Distribution to be held by the Distribution Agent and distributed as provided in Section 2.4 below. 2.4 THE DISTRIBUTION. Subject to the terms and conditions of this Agreement, E2000 shall instruct the Distribution Agent to distribute, upon effectiveness of E2000's Registration Statement on Form 10, one share of E2000 Common Stock in respect of each share of Equitex Common Stock held by the holders of record of Equitex Common Stock on the Record Date. 2.5 PRIVATE PLACEMENT PROCEEDS. The Company agrees to act as escrow agent and to promptly transfer to E2000 all proceeds in excess of the $5,000,000 or net proceeds required to complete the Key/Nova transaction, from private placements of the Company's securities, including the placement of the Company's Series H 8% Convertible Preferred Stock and Series I 6% Convertible Preferred Stock, which are received by the Company after the date hereof, and prior to August 20, 2001. ARTICLE 3 CONDITIONS TO THE DISTRIBUTION 3.1 CONDITIONS TO OBLIGATIONS. The obligations of the Company and E2000 to consummate the transactions contemplated hereby are subject to the satisfaction or waiver of each of the following conditions: -2- (a) the transactions contemplated hereby shall have shall been approved the Company's stockholders; (b) all transactions contemplated by Article 1 hereof shall have been completed in all material respects; (c) the Agreements and Plans of Reorganization between the Company and Key/Nova shall have been approved by the respective stockholders of the Company and Key/Nova (the "Key/Nova Merger"); (d) all conditions to the Key/Nova Merger, other than the transactions contemplated by this Agreement, shall have been satisfied; (e) all third-party consents and governmental approvals required in connection with the transactions contemplated hereby shall have been received, except where the failure to obtain such consents or approvals would not have a material adverse effect on either (i) the ability of the Company and E2000 to consummate the transactions contemplated by this Agreement; or (ii) the business, assets, liabilities, financial condition or results of operations of the Company or E2000 and their respective subsidiaries, taken as a whole; and (f) the transactions contemplated hereby shall be in compliance with all applicable federal and state securities laws. ARTICLE 4 NO REPRESENTATIONS OR WARRANTIES 4.1 NO REPRESENTATIONS OR WARRANTIES. Except as expressly set forth herein or any other agreement between the parties, the Company and E2000 understand and agree that neither party is, in this Agreement or any other agreement or document effecting the Distribution, representing or warranting to the Company or E2000 in any way as to the assets or liabilities being transferred or assumed pursuant to Article 1, it being agreed and understood that E2000 shall take all of the assets "as is, where is." -3- ARTICLE 5 INDEMNIFICATION 5.1 INDEMNIFICATION. E2000 shall (i) indemnify, defend and hold the Company harmless from and against any of the liabilities assumed pursuant to Section 1.1, and (ii) prosecute or assume the defense of and indemnify and hold the Company harmless against all claims, costs, liabilities, and attorney's fees arising out of or related to the matters captioned THEOHAROUS, ET AL. V. HENRY FONG, EQUITEX, INC., CHARLES E. SANDERS AND METROMEDIA INTERNATIONAL GROUP, INC., Civil Action No. 1-98- CV-2366 (U.S. District Court for the Northern District of Georgia); LESLIE SCHUETTE, ET AL. V. HENRY FONG, EQUITEX, INC., CHARLES E. SANDERS AND METROMEDIA INTERNATIONAL GROUP, INC., Civil Action No. 1-98-CV-2366 (U.S. District Court for the Northern District of Georgia); and EQUITEX, INC. AND HENRY FONG V. BERTRAND T. UNGAR, Case No. 98 CV 2437 (District Court, Arapahoe County, Colorado). ARTICLE 6 ACCESS TO INFORMATION 6.1 ACCESS TO INFORMATION. From and after the Distribution Date, each of the Company and E2000 shall provide to the other and the other's representatives, reasonable access and duplicating rights during normal business hours to all records, books, contracts, instruments, computer data and other data and information (collectively, "Information"), within the possession or control of such party relating to the other party's pre-Distribution business, assets or liabilities or relating to or arising in connection with the relationship between the parties on or prior to the Distribution Date, insofar as such access is reasonably required for a reasonable purpose and to the extent that such information is not or may not be protected from disclosure pursuant to the attorney- client, the work product doctrine or other applicable privileges. Without limiting the foregoing, Information may be requested under this Section 6.1 for audit, accounting, claims, litigation and tax purposes, as well as for purposes of fulfilling disclosure and reporting obligations. 6.2 RETENTION OF RECORDS. Except as otherwise agreed in writing, or as otherwise provided in other agreements between the parties, each of the Company and E2000 shall retain all Information in such party's possession or under its control, relating directly and predominately to the pre-Distribution business, assets or liabilities of the other party until such Information is at least six years old or until such later date as may be required by law. ARTICLE 7 MISCELLANEOUS 7.1 TERMINATION. This Agreement and the transactions contemplated hereby shall terminate if the conditions to closing have not been satisfied on or before October 1, 2001 or by mutual consent of the Company and E2000. -4- 7.2 ENTIRE AGREEMENT. This Agreement and the exhibits hereto contain the complete agreement among the parties with respect to the transactions contemplated hereby and supersede all prior agreements and understandings among the parties with respect to such transactions. Section and other headings are for reference purposes only and shall not affect the interpretation or construction of this Agreement. The parties hereto have not made any representation or warranty except as expressly set forth in this Agreement or in any certificate or schedule delivered pursuant hereto. The obligations of any party under any agreement executed pursuant to this Agreement shall not be affected by this Section. 7.3 SURVIVAL OF AGREEMENTS. All covenants and agreements of the Company and E2000 contained in this Agreement shall survive the Distribution Date. 7.4 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute only one original. 7.5 SUCCESSORS; ASSIGNMENT. This Agreement and the rights, interests, and obligations hereunder shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, by operation of law or otherwise, by any of the parties hereto without the prior written consent of the other. 7.6 GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the internal laws of the State of Delaware. 7.7 WAIVER AND OTHER ACTION. This Agreement may be amended, modified, or supplemented only by a written instrument executed by the parties against which enforcement of the amendment, modification or supplement is sought. 7.8 SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid, or unenforceable, such provision shall be fully severable, and this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision were never a part hereof; the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance; and in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as part of this Agreement, a provision as similar in its terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable. 7.9 MUTUAL CONTRIBUTION. The parties to this Agreement and their counsel have mutually contributed to its drafting. Consequently, no provision of this Agreement shall be construed against any party on the ground that such party drafted the provision or caused it to be drafted or the provision contains a covenant of such party. [THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK] -5- SIGNATURES IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. Equitex, Inc. By:/s/ Henry Fong ------------------------- Name: Henry Fong Title: President Equitex 2000, Inc. By:/s/ Henry Fong ------------------------- Name: Henry Fong Title: President -6- EX-2 4 eqtxkey8kex22.txt EXHIBIT 2.2 AGREEMENT AND PLAN OF REORGANIZATION This Agreement and Plan of Reorganization (the "Agreement") is made as of the 29th day of June, 2000, among Equitex, Inc., a Delaware corporation ("Parent"); Key Financial Systems, Inc., a Florida corporation ("Key"); and Key Merger Corp., a Delaware corporation (the "Merger Subsidiary"), which is wholly owned by Parent. W I T N E S S E T H: WHEREAS, the respective Boards of Directors of the Merger Subsidiary and Key each have determined that it is advisable and in the best interests of their respective stockholders to effect a reorganization whereby the Merger Subsidiary will be merged by statutory merger with and into Key upon the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and certain other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto covenant and agree as follows: ARTICLE 1 BASIC PLAN OF REORGANIZATION 1.1 MERGER. In accordance with the provisions of the business corporation laws of the States of Delaware and Florida at the Effective Date (as hereinafter defined), the Merger Subsidiary shall be merged with and into Key (the "Merger"), within ten business days following the satisfaction or waiver, if permissible, of the conditions set forth in Articles 7 and 8 of this Agreement or on such other date as may be agreed to by the parties (the "Closing Date"). Following the Merger, Key shall continue as the surviving corporation (the "Surviving Corporation") and shall continue to be governed by the laws of the State of Florida. 1.2 CONTINUING CORPORATE EXISTENCE. Except as may otherwise be set forth herein, the corporate existence and identity of Key, with all its purposes, powers, franchises, privileges, rights and immunities, shall continue unaffected and unimpaired by the Merger, and the corporate existence and identity of Merger Subsidiary, with all its purposes, powers, franchises, privileges, rights and immunities, at the Effective Date shall be merged with and into that of Key, and the Surviving Corporation shall be vested fully therewith and the separate corporate existence and identity of the Merger Subsidiary shall thereafter cease except to the extent continued by statute. -1- 1.3 EFFECTIVE DATE. The Merger shall become effective upon the filing of the Certificate of Merger with the Secretary of State of the States of Delaware and the Articles of Merger with the Secretary of State of the State of Florida pursuant to the provisions of the General Corporation Law of Delaware and the Florida Business Corporation Act. The date and time when the Merger shall become effective is hereinafter referred to as the "Effective Date." 1.4 CORPORATE GOVERNMENT OF THE SURVIVING CORPORATION. (a) The Articles of Incorporation of Key, as in effect on the Effective Date, shall continue in full force and effect and shall be the Articles of Incorporation of the Surviving Corporation. (b) The Bylaws of the Key, as in effect as of the Effective Date, shall continue in full force and effect and shall be the Bylaws of the Surviving Corporation. (c) The members of the Board of Directors of the Surviving Corporation shall be the persons holding such office in Key as of the Effective Date. (d) The officers of the Surviving Corporation shall be the persons holding such offices in Key as of the Effective Date. 1.5 CLOSING. Consummation of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Friedlob Sanderson Paulson & Tourtillott, LLC in Denver, Colorado, commencing at 10:00 a.m., Mountain Time, as soon as practicable after the last to be fulfilled or waived of the conditions set forth in Articles 7 and 8 or at such other place, time and date as shall be fixed by mutual agreement between Parent and Key; PROVIDED, HOWEVER, the Closing shall occur on or before September 1, 2000, subject to an automatic 30 day extension if necessary to accommodate a special meeting of the shareholders of either party to approve certain corporate actions necessary to complete the transactions contemplated by this Agreement, unless the date is extended by mutual agreement of Parent and Key. The day on which the Closing shall occur is referred to herein as the "Closing Date." Each party will cause to be prepared, executed and delivered the Certificate of Merger to be filed with the Secretary of State of Delaware and Articles of Merger to be filed with the Secretary of State of Florida and all other appropriate and customary documents as any party or its counsel may reasonably request or as may be contemplated in Article 7 hereof for the purpose of consummating the transactions contemplated by this Agreement. All actions taken at the Closing shall be deemed to have been taken simultaneously at the time the last of any such actions is taken or completed. 1.6 TAX CONSEQUENCES. It is intended that the Merger shall constitute a reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code"), and that this Agreement shall constitute a "plan of reorganization" for the purposes of Section 368 of the Code. -2- ARTICLE 2 CONVERSION OF SHARES 2.1 CONVERSION OF SHARES. At the Effective Date, by virtue of the Merger and without any action on the part of the holder thereof: (a) All outstanding shares of Key common stock, no par value, (the "Key Common Stock") outstanding immediately prior to the Effective Date will be converted into and represent the right to receive, on a pro rata basis, the following: (i) 3,570,146 shares of Parent common stock, par value $.02 (the "Parent Common Stock"), or such greater or lesser number of shares of Parent Common Stock as shall equal twenty-five percent (25%) of the total number of shares of Parent common stock issues and outstanding as of the Closing Date, determined after giving effect to the consummation of the Merger and the related transaction described in Section 6.10 hereof, and the issuance of Parent Common Stock to raise the cash consideration payable pursuant to the Merger and the related transaction described in Section 6.10 hereof; (ii) Warrants, in a form and on terms mutually agreeable to the parties, for the purchase of Parent Common Stock in a number equal to fifty percent (50%) of any warrants, option, preferred stock, or other securities outstanding as of the Closing Date and exchangeable for or convertible into Parent Common Stock (the "Warrants"), at an exercise price, (A) with respect to Warrants other than Warrants based on the outstanding preferred stock, equal to the weighted average exercise price of such previously outstanding warrants, options, or other securities exchangeable for or convertible into Parent Common Stock, (B) with respect to Parent's outstanding preferred stock, Parent will either issue a Warrant or issue additional shares of Parent Common Stock (to be agreed by the parties) so as to minimize the creation of good will from the Merger. (iii) $2,500,000 in United States currency and in immediately available funds (the "Cash Consideration"). The consideration outlined in Section 2.1(a)(i)-(iii) above shall be referred to as the "Merger Consideration" and each share of Key Common Stock converted pursuant to this Section 2.1(a) shall be referred to as a "Converted Share." -3- (b) Each share of common stock, $.01 par value, of the Merger Subsidiary which shall be outstanding immediately prior to the Effective Date shall at the Effective Date, by virtue of the Merger and without any action on the part of the holder thereof, be converted into one share of newly issued Key Common Stock. The shares of Key Common Stock issued pursuant to this Section 2.1(b) shall be validly issued, fully paid and non-assessable. 2.2 FRACTIONAL SHARES. No scrip or fractional shares of Parent Common Stock shall be issued in the Merger. All fractional shares of Parent Common Stock to which a holder of Key Common Stock immediately prior to the Effective Date would otherwise be entitled at the Effective Date shall be aggregated. If a fractional share results from such aggregation the share shall be rounded to the nearest whole share. 2.3 CONVERTIBLE SECURITIES. Except as set forth on Schedule 2.3, there are no options, warrants, preferred stock or convertible securities outstanding entitling the holder thereof to purchase Key Common Stock. 2.4 EXCHANGE OF Key COMMON STOCK. (a) At Closing, the Key stockholders, at their expense, shall deliver to Parent all outstanding shares of Key Common Stock endorsed in blank or accompanied by stock powers executed in blank, all signatures guaranteed by a national bank and with all necessary transfer tax or revenue stamps required and affixed (the "Certificates"). Parent, in turn, will deliver to the Key stockholders, certificates representing the number of whole shares of Parent Common Stock to which the holders of Key Common Stock are entitled pursuant to Section 2.1(a)(i) (the "Parent Certificates"), and warrant agreements, in a form and on terms mutually agreeable to the parties, representing the number of Warrants to which the holders of Key Common Stock are entitled pursuant to Section 2.1(a)(ii) (the "Warrant Agreements"), and will pay to the Key stockholders collected funds representing the Cash Consideration to which the holders of Key Common Stock are entitled pursuant to Section 2.1(a)(iii). Upon delivery of the Certificates to Parent, the holder of such Certificate shall be entitled to receive in exchange therefor one or more Parent Certificates and Warrant Agreements as requested by the holder (properly issued, executed and countersigned, as appropriate) representing that number of whole shares of Parent Common Stock and that number of Warrants to which such holder of Key Common Stock shall become entitled pursuant to the provisions of Section 2.1(a), plus his or her pro rata share of the Cash Consideration, and the Certificate so surrendered shall forthwith be canceled. (b) Parent shall pay any transfer or other taxes required by reason of the issuance of the Parent Certificates and Warrant Agreements; PROVIDED, HOWEVER, that such Parent Certificates and Warrant Agreements are issued in the name of the person in whose name the Certificate surrendered in exchange therefor is registered. If any portion of the consideration to be received pursuant to this Article 2 -4- upon exchange of a Certificate is to be issued or paid to a person other than the person in whose name the Certificate surrendered in exchange therefor is registered, it shall be a condition of such issuance and payment that the Certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the person requesting such exchange shall pay in advance any transfer or other taxes or transfer fee required by reason of the issuance of a Parent Certificate and Warrant Agreement to such other person, or establish to the satisfaction of the Exchange Agent that such tax has been paid or that no such tax is applicable. (c) In the case of any lost, mislaid, stolen or destroyed Certificates, the holder thereof may be required, as a condition precedent to the delivery to such holder of the consideration described in this Article 2, to deliver to Parent a bond, in such reasonable sum as Parent may direct, or other form of indemnity satisfactory to Parent, as indemnity against any claim that may be made against the Parent or Key with respect to the Certificate alleged to have been lost, mislaid, stolen or destroyed. (d) After the Effective Date, there shall be no transfers on the stock transfer books of Key of the shares of Key Common Stock that were outstanding immediately prior to the Effective Date. If, after the Effective Date, Certificates are presented to Key for transfer, they shall be canceled and exchanged for the consideration described in this Article 2. 2.5 ADJUSTMENT. If, between the date of this Agreement and the Closing Date or the Effective Date, as the case may be, the outstanding shares of Key Common Stock or Parent Common Stock shall have been changed into a different number of shares or a different class by reason of any classification, recapitalization, split-up, combination, exchange of shares, or readjustment or a stock dividend thereon shall be declared with a record date within such period, then the consideration to be received pursuant to Section 2.1 hereof by the holders of shares of Key Common Stock shall be adjusted to accurately reflect such change. 2.6 STATUS OF PARENT SECURITIES. The shares of Parent Common Stock being issued in the Merger are and will be "restricted securities" as defined in Rule 144 (the "Rule") under the Securities Act of 1933, as amended (the "Securities Act") and (unless registered for resale or some other exemption from registration is available) the shares of Parent Common Stock must be held for a minimum of one year following the Merger, and thereafter may be sold in only limited amounts in a specified manner in accordance with the terms and conditions of the Rule, if the Rule is applicable (there being no representation by Parent that it will be applicable). If the Rule is not applicable, any sales may be made only pursuant to an effective registration statement or an available exemption fromregistration. Parent will cause its stock transfer agent to reflect such restrictions in Parent's stock transfer books and to place an appropriate restrictive legend or legend on any certificates evidencing the Parent Common Stock and any certificates issued in replacement or exchange therefor. 2.7 Registration of Parent Securities. At the Closing, the parties shall execute a Registration Rights Agreement substantially in the form of Exhibit A. -5- ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF Key Key represents and warrants to Parent that the statements contained in Article 3 are true and correct in all material respects, except as set forth in the schedules attached hereto. As used in this Article 3 and elsewhere in this Agreement, the phrases "to Key's knowledge" or "to Key's actual knowledge" shall mean to the knowledge, after reasonable investigation, of the officer of Key who has the principal responsibility for the matter being stated. 3.1 ORGANIZATION AND GOOD STANDING OF Key. Key is a corporation duly organized, validly existing and in good standing under the laws of Florida. 3.2 FOREIGN QUALIFICATION. Key is duly qualified or licensed to do business and is in good standing as a foreign corporation in every jurisdiction where the failure to so qualify would have a material adverse effect on (a) the business, operation, assets or financial condition of Key or (b) the validity or enforceability of, or the ability of Key to perform its obligations under, this Agreement (a "Key Material Adverse Effect"). 3.3 COMPANY POWER AND AUTHORITY. Key has the corporate or company power and authority to own, lease and operate its properties and assets and to carry on its business as currently being conducted. Key has furnished Parent with true and correct copies of its Articles of Incorporation and by-laws, as amended. 3.4 NO Key SUBSIDIARIES. Key does not own beneficially, directly or indirectly, more than 5% of any class of equity securities or similar interests of any corporation, bank, business trust, association, limited liability company or similar organization, and is not, directly or indirectly, a partner in any partnership, or joint venture. 3.5 AUTHORIZATION. Key has the corporate power and authority to execute and deliver this Agreement and, subject to the approval of this Agreement and the Merger by its stockholders, to perform its obligations under this Agreement and to consummate the Merger. The execution, delivery and performance by Key of this Agreement has been duly authorized by all necessary corporate action. Subject to such approval of stockholders and of government agencies and other government boards having regulatory authority over Key as may be required by statute or regulation, this Agreement is the legal, valid and binding obligation of Key enforceable in accordance with its terms. 3.6 Absence of Restrictions and Conflicts. The execution, delivery and performance of this Agreement and the consummation of the Merger and the -6- fulfillment of and compliance with the terms and conditions of this Agreement do not and will not, with the passing of time or the giving of notice or both, violate or conflict with, constitute a breach of or default under, result in the loss of any material benefit under, or permit the acceleration of any obligation under, (i) any term or provision of the Articles of Incorporation or Bylaws of Key, (ii) any "Material Contract" (as defined in Section 3.13), (iii) any judgment, decree or order of any court or governmental authority or agency to which Key is a party or by which Key or any of its properties is bound, or (iv) any statute, law, regulation or rule applicable to Key other than such violations, conflicts, breaches or defaults as would not have a Key Material Adverse Effect. Except for the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and Articles of Merger with the Secretary of State of the State of Florida, compliance with the applicable requirements of the Florida Business Corporation Act, Securities Act, Securities Exchange Act of 1934, as amended (the "Exchange Act"), and applicable state securities and banking laws, no consent, approval, order or authorization of, or registration, declaration or filing with, any governmental agency or public or regulatory unit, agency, body or authority with respect to Key is required in connection with the execution, delivery or performance of this Agreement by Key or the consummation of the transactions contemplated hereby. 3.7 CAPITALIZATION OF Key. (a) The authorized capital stock of Key consists of (i) 7,500 shares of Key Common Stock, no par value per share; and (ii) no shares of preferred stock. As of the date hereof, there were 1,000 shares of Key Common Stock issued and outstanding and no shares of Key Common Stock reserved for issuance upon the exercise of options, warrants or convertible securities. (b) All of the issued and outstanding shares of Key Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights. (c) Except as set forth on Schedule 3.7(c), there are no voting trusts, stockholder agreements or other voting arrangements between or among the stockholders of Key. (d) No equity security of Key is or may be required to be issued by reason of any option, warrant, scrip, preemptive right, right to subscribe to, call or commitment of any character whatsoever relating to, or security or right convertible into, any shares of capital stock of such subsidiary, and there are no contracts, commitments, understandings or arrangements by which Key is bound to issue additional shares of its capital stock, or any option warrant or right to purchase or acquire any additional shares of its capital stock. (e) Except as set forth on Schedule 3.7(e), since December 31, 1999, no shares of capital stock have been purchased, redeemed or otherwise reacquired, directly or indirectly, by Key and no dividends or other distributions have been declared, set aside, made or paid to the stockholders of Key. -7- 3.8 Key INFORMATION. Key has made or will make available to Parent and the Merger Subsidiary all information that Key has available (including all tax returns, financial statements given to any other person, contracts, payroll schedules, financial books and records), and all other information concerning Key, its business, its customers, its management, and its financial condition which Parent may have requested (all such information being referred to herein as the "Key Information"). As of their respective dates, the Key Information 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. 3.9 FINANCIAL STATEMENTS AND RECORDS OF Key. Key has made available and will provide to Parent and the Merger Subsidiary true, correct and complete copies of the following financial statements (the "Key Financial Statements"): (i) audited consolidated balance sheets of Key as of December 31, 1999 and 1998 and related audited consolidated statements of income, stockholder's equity and cash flows for the two years ended December 31, 1999, together with the notes thereto (the "Key Year-End Statements"); and (ii) unaudited consolidated balance sheets of Key and related consolidated statements of income, stockholder's equity and cash flows as of and for the quarter ended March 31, 2000 and as soon as they are available, for each quarter ended prior to Closing (the "Key Quarterly Statements"). The Key Year-End Statements and Key Quarterly Statements present or will present fairly, in all material respects, the financial position of Key as of the dates thereof and the results of operations and cash flows thereof for the periods then ended, in each case in conformity with generally accepted accounting principles, consistently applied, except as noted therein. Since January 1, 1999, there has been no change in accounting principles applied to, or methods of accounting utilized by, Key, except as noted in the Key Financial Statements or as otherwise described on Schedule 3.9. The books and records of Key have been and are being maintained in accordance with good business practice, reflect only valid transactions, are complete and correct in all material respects and present fairly in all material respects the basis for the financial position and results of operations of Key as set forth on the Key Year-End Statement and Key Quarterly Statements. 3.10 REPORTS. Since December 31, 1994, Key has not been required to file any reports, registrations and statements with (i) the Federal Reserve Board ("FRB"), (ii) the Securities and Exchange Commission ("SEC") or (iii) any applicable state securities, banking or financial authorities. 3.11 ABSENCE OF CERTAIN CHANGES. Since December 31, 1999, Key has not, except as otherwise set forth in the Key Information or the Key Financial Statements or as otherwise set forth on Schedule 3.11: -8- (a) suffered any adverse change in its business, operation, assets, or financial condition, except for such changes that would not have a Key Material Adverse Effect; (b) suffered any material damage, destruction, loss or forfeiture of its assets, whether or not covered by insurance, which property or assets are material to its operations or business, taken as a whole; (c) settled, forgiven, compromised, canceled, released, waived or permitted to lapse any material rights or claims other than in the ordinary course of business consistent with past practice and business custom ("Ordinary Course of Business"); (d) entered into or terminated any Material Contract or agreed or made any changes in any Material Contract, other than renewals or extensions thereof and leases, agreements, transactions and commitments entered into or terminated in the Ordinary Course of Business; (e) entered into any transaction, other than at arms-length in the Ordinary Course of Business, between Key and any stockholder, director, officer, or any affiliate of any such officer, director or stockholder; (f) made any material change in the accounting policy, procedure or practice employed with respect to Key; (g) sold any of the assets of Key (tangible or intangible), other than in the Ordinary Course of Business; (h) paid or incurred any capital expenditures, other than capital expenditures incurred in the Ordinary Course of Business which do not exceed $10,000 (any single item or group of related items); (i) written up, written down or written off the book value of any material amount of assets other than in the Ordinary Course of Business; (j) declared, paid or set aside for payment any dividend or distribution with respect to its capital stock; (k) redeemed, purchased or otherwise acquired, or sold, granted or otherwise disposed of, directly or indirectly, any of its capital stock or securities or any rights to acquire such capital stock or securities, or agreed to changes in the terms and conditions of any such rights outstanding as of the date of this Agreement; (l) increased the compensation of or paid any bonuses to any employees or contributed to any employee benefit plan, other than in accordance with established policies, practices or requirements or as provided in Section 5.1 hereof; -9- (m) entered into any employment, consulting or compensation agreement with any person or group, except as set forth on Schedule 3.11(m); (n) entered into any collective bargaining agreement with any person or group; (o) entered into, adopted or amended any employee benefit plan; or (p) entered into any agreement to do any of the foregoing. 3.12 NO MATERIAL UNDISCLOSED LIABILITIES. There are no liabilities or obligations of Key of any nature, whether absolute, accrued, contingent, or otherwise, other than: (a) the liabilities and obligations that are reflected, accrued or reserved against on the Key Financial Statements, or referred to in the footnotes thereto, or incurred in the Ordinary Course of Business and consistent with past practices since December 31, 1999; or (b) liabilities and obligations which in the aggregate would not have a Key Material Adverse Effect. 3.13 TAX RETURNS; TAXES. Key has filed all federal, state, county, local, and foreign tax returns, including information returns, required to be filed by it, and has paid all taxes owed by it, including those with respect to income, withholding, social security, unemployment, workers' compensation, franchise, ad valorem, premium, excise and sales taxes, and no taxes shown on such returns to be owed by it or assessments received by it are delinquent. Federal income tax returns of Key for the fiscal year ended December 31, 1995, and for all fiscal years prior thereto, are for the purposes of routine audit by the Internal Revenue Service closed because of the statute of limitations, and no claims for additional taxes for such fiscal years are pending. Except as set forth on Schedule 3.13, no tax return of Key is being audited. Key is not a party to any pending action or proceeding, nor, to Key's knowledge, is any such action or proceeding threatened by anygovernmental authority for the assessment or collection of taxes, interest, penalties, assessments or deficiencies and no issue has been raised by any federal, state, local or foreign taxing authority in connection with any audit or examination of the tax returns, business or properties of Key which has not been settled, resolved and fully satisfied. Except for amounts not yet due and payable, Key has paid all taxes owed or which it is required to withhold from amounts owing to employees, creditors or other third parties. The balance sheet as of December 31, 1999, referred to in Section 3.9, includes adequate provision for all accrued but unpaid federal, state, county, local and foreign taxes, interests, penalties, assessments or deficiencies of Key with respect to all periods through the date thereof. 3.14 MATERIAL CONTRACTS. Key has furnished or made available to Parent accurate and complete copies of the Material Contracts (as defined herein) applicable to Key. Except as set forth on Schedule 3.14, there is not under any of the Material Contracts any existing breach, default or event of default by Key nor any event that with notice or lapse of time or both would constitute a -10- breach, default or event of default by Key other than breaches, defaults or events of default which would not have nor does Key know of, and Key has not received notice of, or made a claim with respect to, any breach or default by any other party thereto which would, severally or in the aggregate, have an Key Material Adverse Effect. As used herein, the term "Material Contracts" shall mean (i) all strategic alliance contracts and agreements; (ii) all agreements to pay percentages or profits, revenue, or fees; and (iii) all other contracts and agreements providing for expenditures or commitments by Key in excess of $15,000 over more than a 12-month period all as set forth on Schedule 3.14 (which Schedule contains true and accurate information regarding the nature and status of such contracts and agreements). 3.15 LITIGATION AND GOVERNMENT CLAIMS. Except as set forth on Schedule 3.15, there is no pending suit, claim, action or litigation, or administrative, arbitration or other proceeding or governmental investigation or inquiry against Key to which its business or assets are subject which would, severally or in the aggregate, reasonably be expected to result in an Key Material Adverse Effect nor have any such proceedings been threatened or contemplated. Key is not subject to any judgment, decree, injunction, rule or order of any court, or, to the knowledge of Key, any governmental restriction applicable to Key which is reasonably likely (i) to have a Key Material Adverse Effect or (ii) to cause a material limitation on Parent's ability to operate the business of Key (as it is currently operated) after the Closing. 3.16 COMPLIANCE WITH LAWS. Key has all authorizations, approvals, licenses and orders to carry on its business as it is now being conducted, to own or hold under lease the properties or assets it owns or holds under lease and to perform all of its obligations under the agreements to which they are a party, except for instances which would not have a Key Material Adverse Effect. Except for instances which would not have a Key Material Adverse Effect, to Key's knowledge, Key has been and is in compliance with all applicable laws, including but not limited to, banking, financial and Securities laws, regulations and administrative orders of any country, state or municipality or subdivision thereof. 3.17 POLICIES AND PROCEDURES. Key has provided Parent with all of its standard consumer forms, including all form disclosures and notices, warranty, shipment, and order forms, and all instruments and agreements used in the operation of its business (the "Consumer Forms"). Key has provided Parent with a copy of its internal practices and procedures and Key and its employees have complied and are in compliance with such practices and procedures in all material respects. To the knowledge of Key, all such practices and procedures and all Consumer Forms comply in all material respects with (i) Federal and state law, as required in the states in which Key is conducting its business. 3.18 LICENSES AND PERMITS. Key is not and has not ever been required to obtain any licenses, permits, qualifications, franchises or other governmental authorizations or approvals, in order for it to conduct its past or current business, and if it is determined that any licenses, permits, qualifications, franchises or other governmental authorizations or approvals -11- were necessary prior to the Closing Date, the failure to obtain such licenses, permits, qualifications, franchises or other governmental authorizations or approvals will not have a Key Material Adverse Effect. 3.19 EMPLOYEE BENEFIT PLANS. (a) Schedule 3.19 contains an accurate and complete list of all Employee Benefit Plans, contributed to, maintained or sponsored by Key, to which Key is obligated to contribute or with respect to which Key has any liability or potential liability, whether direct or indirect (collectively the "Plans" or individually a "Plan"). None of the Plans are pension plans for purposes of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). (b) Key does not contribute to, have an obligation to contribute to or otherwise have any liability or potential liability with respect to (a) any Multiemployer Plan (as such term is defined in Section 3(37) of ERISA, (b) any plan of the type described in Sections 4063 and 4064 of ERISA or in Section 413 of the Code (and regulations promulgated thereunder), or (c) any plan which provides heath, life insurance, accident or other welfare-type benefits to current, future, or former employees, their spouses or dependents, other than in accordance with Section 4980B of the Code or applicable state continuation coverage law. 3.20 EMPLOYMENT AGREEMENTS; LABOR RELATIONS. (a) Schedule 3.20 sets forth a complete and accurate list of all material employee benefit or compensation plans, agreements and arrangements to which Key is a party and which are not disclosed in the Key Information, including without limitation (i) severance, employment, consulting or similar contracts, (ii) material agreements and contracts with "change of control" provisions or similar provisions and (iii) indemnification agreements or arrangements with directors or officers. (b) Key is in compliance in all material respects with all laws (including Federal and state laws) respecting employment and employment practices, terms and conditions of employment, wages and hours, and is not engaged in any unfair labor or unlawful employment practice. (c) No work stoppage involving Key is pending or, to Key's knowledge, threatened. Key is not involved in, affected by or, to Key's knowledge, threatened with, any labor dispute, arbitration, lawsuit or administrative proceeding which could have a Key Material Adverse Effect. No employees of Key or any Key Subsidiary are represented by any labor union or any collective bargaining agreement otherwise in effect with respect to such employees. -12- 3.21 INTELLECTUAL PROPERTY. (a) Key owns or has valid, binding and enforceable rights to use all material patents, trademarks, trade names, service marks, service names, copyrights, applications therefor and licenses or other rights in respect thereof ("Intellectual Property") used or held for use in connection with the business of Key, without any known conflict with the rights of others, except for such conflicts as do not have a Key Material Adverse Effect. Each item of Intellectual Property owned or used by Key or any Key Subsidiary immediately prior to the Closing will be owned or available for use by Parent on no less favorable terms and conditions immediately subsequent to the Closing except to the extent Parent has agreed to modify such terms and conditions. Key has taken all necessary action to maintain and protect each item of Intellectual Property that it owns or uses. (b) To the knowledge of Key, Key has not interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of third parties. None of the directors and officers of Key (including employees with responsibility for Intellectual Property matters) has ever received any charge, complaint, claim, demand or notice alleging any such interference, infringement, misappropriation or violation (including any claim that Key must license or refrain from using any Intellectual property rights of any third party). To the Knowledge of Key and its employees with responsibility for Intellectual Property matters, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of Key. (c) No patent or registration has been issued to or applied for by Key, with respect to any of its Intellectual Property. Key does not use any trade name or unregistered trademark in connection with its business. (d) Key does not use any Intellectual Property not owned by Key which is material to the Business of Key as currently conducted (excluding packaged commercially available software available to the public through retail dealers which have been licensed to Key pursuant to end-user licenses). (e) To the knowledge of Key, and any employees with responsibility for Intellectual Property matters, the business of Key will not interfere with, infringe upon, misappropriate, or otherwise come into conflict with, any Intellectual Property rights of third parties as a result of the continued operation of its business as presently conducted and as presently proposed to be conducted. 3.22 SOFTWARE. All of the computer software used by or for Key in the conduct of its business (the "Software") is either (i) owned by Key free and clear of any and all liens, claims, equities, security interests, and encumbrances whatsoever, or (ii) used by Key pursuant to a fully- paid license granted to Key for the third party pursuant to the terms of such license, -13- except for any noncompliance the effect of which would not have a Key Material Adverse Effect. No such computer software license shall terminate or become terminable as a result of the transactions contemplated hereby. There are no infringement suits pending or, to Key's knowledge, threatened against Key with respect to any of the Software, and, to the knowledge of Key, no fact or condition exists which could give rise to any such infringement suit. 3.23 PROPERTIES AND RELATED MATTERS. Except as may be reflected in the Key Financial Statements and except for any lien for current taxes not yet delinquent, Key has good title free and clear of any material liens, claims, charges, options, encumbrances, or similar restrictions to all the real and personal property reflected in Key's balance sheet as of December 31, 1999, and all real and personal property acquired since that date, except such real and personal property as has been disposed of in the Ordinary Course of Business. All leases of real property and all other leases material to Key pursuant to which Key, as lessee, leases real or personal property, which leases are described on Schedule 3.23, are valid and effective in accordance with their respective terms, and there is not, under any such lease, any material existing default by Key or any event which, with notice or lapse of time or both, constitute such a material default. Substantially all of Key's buildings and equipment have been well maintained and are in good and serviceable condition, reasonable wear and tear accepted. 3.24 INSURANCE. Key maintains and has maintained insurance, for reasonable amounts with financially sound and reputable insurance companies against such risks as companies engaged in a similar business would, in accordance with good business practice, customarily be insured and has maintained all insurance acquired by applicable law and regulation. 3.25 MATERIAL INTERESTS OF CERTAIN PERSONS. Except as set forth on Schedule 3.25, to Key's knowledge, no officer or director of Key, or any "associate" (as such term is defined in Rule 14a-1 under the Exchange Act) of any such officer or director, has any interest in any material contract or property (real or personal), tangible or intangible, used in or pertaining to the business of Key. Schedule 3.25 sets forth a correct and complete list of any loan from Key to any present stockholder, officer, director, employee or associate or related interest of any such person. 3.26 REGISTRATION OBLIGATIONS. Key is under no obligation, contingent or otherwise, which will survive the Merger by reason of any agreement to register any of its securities under the Securities Act. 3.27 ENVIRONMENTAL MATTERS. To the knowledge of Key: (a) No Hazardous Material (as defined below) has been disposed of on, released to or from, threatened to be released to or from or is presently at, on, beneath, in or upon any parcel of real property owned or leased by Key or upon any adjacent parcels of real estate in amounts or concentration which constitute or constituted a violation -14- of, or which could reasonably be expected to give rise to liability under, any Environmental Law (as defined below). (b) There has been no generation, production, refining, processing, manufacturing, use, storage, disposal, treatment, shipment or receipt of a Hazardous Material at or from any parcel of real property owned or leased by Key relating to the operations of Key in violation of or in a manner that could give rise to liability under Environmental Laws. (c) The operations of Key are in compliance and have been in compliance with all applicable Environmental Laws, and there is no violation of any Environmental Law with respect to any parcels of real property owned or leased by Key which could interfere with the continued operation of the business of Key or impair its fair salable value. (d) Key has not received any notice of violation, alleged violation, non- compliance, liability or potential liability regarding environmental matters or compliance with environmental laws with regard to any parcels of real property owned or leased by Key from any person, nor does Key have knowledge or reason to believe that any such notice will be received from or is being threatened by any person. (e) No judicial proceedings, governmental administrative actions, investigations or internal or non-public agency proceedings are pending or threatened, under any environmental law, to which Key is or will be named as a party, nor are the any consent decrees, or other decrees, consent orders, agreements, administrative orders, other orders, judicial or administrative requirements outstanding under any environmental law with respect to Key. (f) "HAZARDOUS MATERIALS" means any substance (a) the presence of which at, on, over, beneath, in or upon any real or personal property, building, structure, container of any nature or description, subsurface strata, ambient air or ambient water (including surface and groundwater) requires investigation, removal or remediation under any Environmental Law or common law, (b) which is or becomes defined as a "hazardous substance," "hazardous material," "hazardous waste," "pollutant" or "contaminant" under any Environmental Law, and/or (c) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or becomes regulated by any governmental authority under any Environmental Law, (d) the presence of which causes or threatens to cause a nuisance or trespass upon real property or to adjacent properties or poses or threatens to pose a hazard to the environment, and/or to the health or safety of persons on or about any real property, and/or (e) which contains urea-formaldehyde, polychlorinated biphenyls, asbestos or asbestos containing materials, radon, petroleum or petroleum products. (g) "ENVIRONMENTAL LAW OR LAWS" means any and all federal, state, local or municipal laws, rules, orders, regulations, statutes, treaties, ordinances, codes, decrees, or requirements of any -15- governmental authority regulating, relating to or imposing liability or standards of conduct concerning environmental protection, health or safety matters, including all requirements pertaining to reporting, licensing, permitting, investigation, removal or remediation of emissions, discharges, releases, or threatened releases of Hazardous Materials, chemical substances, pollutants or contaminants or relating to the manufacture, generation, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials, chemical substances, pollutants or contaminants, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Toxic Substance Control Act ("TSCA"), the Resource Conservation and Recovery Act ("RCRA"), the Clean Air Act ("CAA"), the Clean Water Act ("CWA") and the Occupational Safety and Health Act of 1970 ("OSHA"), all as may have been amended. 3.28 REFERRAL SOURCES; INVESTORS. Key has not been advised that any of its officers, referral sources or investors intend to cease doing business with Key which cessation in the aggregate or otherwise could have a Key Material Adverse Effect. 3.29 BROKERS AND FINDERS. Neither Key, nor to Key's knowledge any of its officers, directors, employees, or stockholders has employed any broker, finder or investment bank or incurred any liability for any investment banking fees, financial advisory fees, brokerage fees or finders' fees in connection with the transactions contemplated hereby. Key is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. 3.30 PROXY STATEMENT. None of the information regarding Key supplied by Key for inclusion in any (i) proxy statement to be mailed to its shareholders or Parent's stockholders and (ii) any other documents to be filed with the SEC or any regulatory authority in connection with the transactions contemplated hereby will, at the respective times that such documents are filed with the SEC or any regulatory authority and, with respect to the proxy statement, when mailed, be false or misleading with respect to any material facts, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the proxy statement or any amendment thereof or supplement thereto, at the time of the meeting of shareholders, be false or misleading with respect to any material fact, or omit to state a material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for such meeting. 3.31 INVENTORY. The Inventory of Key consists of supplies, all of which are merchantable and fit for the purpose for which it was procured or manufactured, subject to only the reserve for inventory write-down set forth in the Key Financial Statements, as adjusted for the passage of time through the Closing Date in accordance with past custom and practice of Key. 3.32 ACCOUNTS RECEIVABLE. Schedule 3.32 lists all accounts receivable of Key as of the most recent fiscal month end. Said accounts receivable have arisen in the Ordinary Course of Business and represent valid obligations due to Key. Such accounts receivable (net of any reserve for doubtful accounts as -16- reflected in Schedule 3.32) are collectible in accordance with their terms, in the Ordinary Course of Business and in the aggregate recorded amounts thereof. Such accounts receivable are not subject to any material set-offs or material counterclaims. At the Closing, Key shall amend Schedule 3.32 to reflect all accounts receivable of Key as of the Closing Date. 3.33 NOTES RECEIVABLE. Schedule 3.33 summarizes the outstanding terms, payment history and balance of the notes receivable of Key as of the most recent fiscal month end, which shall be amended to reflect the notes receivable of Key as of the Closing Date. Said notes receivable have arisen (and will arise) in the Ordinary Course of Business and represent (and as of the Closing will represent) valid obligations due to Key. Such notes receivable (net of any reserve for doubtful accounts as reflected in Schedule 3.33) are current in accordance with their terms, all in the Ordinary Course of Business and in the aggregate recorded amounts thereof. Such notes receivable are not subject to any material set-offs or material counterclaims. 3.34 POWERS OF ATTORNEY. There are no outstanding powers of attorney executed on behalf of Key. 3.35 GUARANTIES. Key is not a guarantor or otherwise liable for any liability or obligation (including indebtedness) of any other Person. 3.36 RIGHTS TO ALL TELEMARKETING OR MAILING LISTS. Key represents and warrants to the Parent that Key's right, licence, consent, permission, contract or any other form of grant to use all telemarketing, mailing or similar lists, databases or compilations of any sort currently used in the operation of Key's business ("Data Base Information") are currently valid, lawfully acquired or rightfully obtained in accordance with all applicable federal and/or state telemarketing laws and Key further represents and warrants that such rights will be unaffected by the closing of this transaction. No person who supplies Data Base Information to Key has identified in writing or orally to Key or any officer or director of Key that it will stop supplying Data Base Information to Key. Schedule 3.36 identifies all of Key's current rights, licences, consents, permission, contracts, or any other form of grant to all Data Base Information. 3.37 DISCLOSURE. The representations and warranties contained in this Article 3 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Article 3 not misleading. -17- ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND THE MERGER SUBSIDIARY Parent and the Merger Subsidiary represent and warrant to Key that the statements contained in Article 4 are true and correct in all material respects. As used in this Article 4 and elsewhere in this Agreement, the phrase "to Parent's or the Merger Subsidiary's knowledge" or "to Parent's or the Merger Subsidiary's actual knowledge" shall mean to the knowledge of the officer of Parent or the Merger Subsidiary who has the principal responsibility for the matter being stated. 4.1 ORGANIZATION AND GOOD STANDING. Each of Parent and the Merger Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization. 4.2 FOREIGN QUALIFICATION. Parent and the Merger Subsidiary are duly qualified or licensed to do business and are in good standing as a foreign corporation in every jurisdiction where the failure so to qualify would have a material adverse effect (a "Parent Material Adverse Effect") on (a) the business, operation, assets or financial condition of Parent or the Merger Subsidiary taken as a whole or (b) the validity of enforceability of, or the ability of Parent or the Merger Subsidiary, to perform their respective obligations under, this Agreement. 4.3 CORPORATE POWER AND AUTHORITY. Parent and the Merger Subsidiary have the corporate power and authority and all material licenses and permits to own, lease and operate their respective properties and assets and to carry on their respective businesses as currently being conducted. 4.4 PARENT SUBSIDIARIES. Schedule 4.4 sets forth the complete and correct list, after giving effect to the pending spin-off of Equitex 2000, Inc., of all Parent Subsidiaries as of the date hereof (individually a "Parent Subsidiary" and collectively the "Parent Subsidiaries"). Except as set forth on Schedule 4.4, Parent does not own beneficially, directly or indirectly, more than 5% of any class of equity securities or similar interests of any corporation, bank, business trust, association, limited liability company or similar organization, and is not, directly or indirectly, a partner in any partnership, or joint venture, after giving effect to the pending spin-off of Equitex 2000, Inc. -18- 4.5 AUTHORIZATION. Parent and the Merger Subsidiary have the corporate power and authority to execute and deliver this Agreement and, subject to the approval of this Agreement and the Merger by the sole stockholder of Merger Subsidiary, to perform their obligations under this Agreement and to consummate the Merger. The execution, delivery and performance by Parent and the Merger Subsidiary of this Agreement has been duly authorized by all necessary corporate action. Subject to such approval of stockholders and of government agencies and other government boards having regulatory authority over Parent and the Merger Subsidiary as may be required by statute or regulation, this Agreement is the legal, valid and binding obligation of Parent and the Merger Subsidiary enforceable in accordance with its terms. 4.6 ABSENCE OF RESTRICTIONS AND CONFLICTS. The execution, delivery and performance of this Agreement and the consummation of the Merger and the fulfillment of and compliance with the terms and conditions of this Agreement do not and will not, with the passing of time or the giving of notice or both, violate or conflict with, constitute a breach of or default under, result in the loss of any material benefit under, or permit the acceleration of any obligation under, (i) any term or provision of the Certificate of Incorporation or Bylaws of Parent or the Merger Subsidiary, (ii) any "Parent Material Contract" (as defined in Section 4.14), (iii) any judgment, decree or order of any court or governmental authority or agency to which Parent or the Merger Subsidiary is a party or by which Parent or any of the Merger Subsidiary or any of their respective properties is bound, or (iv) any statute, law, regulation or rule applicable to Parent or the Merger Subsidiary other than such violations, conflicts, breaches or defaults as would not have a Parent Material Adverse Effect. Except for the filing of the Certificate of Merger with the Secretary of State of Delaware and Articles of Merger with the Secretary of State of Florida, compliance with the Bank Holding Company Act of 1954, the Securities Act, the Exchange Act and applicable state securities laws, no consent, approval, order or authorization of, or registration, declaration or filing with, any governmental agency or public or regulatory unit, agency, body or authority with respect to Parent or the Merger Subsidiary is required in connection with the execution, delivery or performance of this Agreement by Parent or the Merger Subsidiary or the consummation of the transactions contemplated hereby. 4.7 CAPITALIZATION OF PARENT. (a) The authorized capital stock of Parent consists of 7,500,000 shares of Parent Common Stock, $.02 par value, and 2,000,000 shares of preferred stock, $0.01 par value. Parent currently plans to call a special meeting of the stockholders to, among other things, authorize an increase of capital stock to allow for 50,000,000 shares of authorized Parent Common Stock. Schedule 4.7 lists, as of the date hereof: (i) the number of shares of Parent Common Stock outstanding, (ii) the number of shares of preferred stock outstanding, -19- (iii) the number of shares of Parent Common Stock reserved for issuance upon the conversion of outstanding preferred stock and the exercise of outstanding options and outstanding warrants (including, without limitation, any preferred stock, options and warrants that Parent has agreed to issue subject to amending its Certificate of Incorporation to increase the amount of authorized capital stock), (iv) the additional number of shares of Parent Common Stock exchangeable for stock options that are authorized, but unissued, under any stock option plans of the Parent, and (v) the number of shares of Parent Common Stock proposed to be issued to raise the capital required to pay the aggregate Cash Consideration payable pursuant to the Merger and the related transaction described in Section 6.10 hereof. With respect to any outstanding options and warrants to acquire Parent Common Stock or other securities of Parent convertible into or exchangeable for Parent Common Stock, Schedule 4.7 accurately sets forth the holder, the number of shares covered, the exercise price, and the expiration date. With respect to any outstanding preferred stock of Parent, Schedule 4.7 accurately sets forth the holder, the number of shares owned by each holder, the basis upon which such shares may be converted into Parent Common Stock and the material terms of any put, call or similar rights with respect thereto. (b) All of the issued and outstanding shares of Parent Common Stock and other securities convertible into or exchangeable for Parent Common Stock or other capital stock of Parent have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights. (c) The shares of Parent Common Stock to be issued in the Merger will be duly authorized and validly issued and will be fully paid, nonassessable shares of Parent Common Stock free of preemptive rights. (d) To Parent's knowledge, there are no voting trusts, stockholder agreements or other voting arrangements between or among the stockholders of Parent. (e) Except as set forth in subsection (a) above or Schedule 4.7(e), no equity security of Parent is or may be required to be issued by reason of any option, warrant, scrip, preemptive right, right to subscribe to, call or commitment of any character whatsoever relating to, or security or right convertible into, any shares of capital stock of Parent, and there are no contracts, commitments, understandings or -20- arrangements by which Parent is bound to issue additional shares of its capital stock, or any option, warrant or right to purchase or acquire any additional shares of its capital stock (f) Except as reported in the Parent SEC Reports or in connection with the spin- off of Equitex 2000, Inc., since December 31, 1999, no shares of capital stock have been purchased, redeemed or otherwise reacquired, directly or indirectly, by Parent or the Merger Subsidiary and no dividends or other distributions have been declared, set aside, made or paid to the stockholders of Parent. 4.8 CAPITALIZATION OF MERGER SUBSIDIARY. (a) The authorized capital stock of Merger Subsidiary consists of 1,000 shares of Merger Subsidiary Common Stock $.01 par value, all of which are issued and outstanding. (b) The shares of Merger Subsidiary Common Stock to be issued in the Merger will be duly authorized and validly issued and will be fully paid, nonassessable shares of Merger Subsidiary Common Stock free of preemptive rights. (c) Except as set forth in this Agreement and subsection (a) above, there is no outstanding subscription, contract, convertible or exchangeable security, option, warrant, call or other right obligating Merger Subsidiary to issue, sell, exchange, or otherwise dispose of, or to purchase, redeem or otherwise acquire, shares of, or securities convertible into or exchangeable for, capital stock of Merger Subsidiary. 4.9 PARENT SEC REPORTS. Parent has made available to Key (i) Parent's Annual Reports on Form 10-KSB, including all exhibits filed thereto and items incorporated therein by reference, (ii) Parent's Quarterly Reports on Form 10-QSB, including all exhibits thereto and items incorporated therein by reference, (iii) proxy statements relating to Parent's meetings of stockholders and (iv) all other reports or registration statements (as amended or supplemented prior to the date hereof), filed by Parent with the Securities and Exchange Commission ("SEC") since January 1, 1996, including all exhibits thereto and items incorporated therein by reference (items (i) through (iv) being referred to as the "Parent SEC Reports"). As of their respective dates, Parent SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Since January 1, 1997, Parent has filed, on or before the respective due date therefor as such may have been extended by the SEC, all material forms (and necessary amendments), reports and documents with the SEC required to be filed by it pursuant to the federal securities laws and the SEC rules and regulations thereunder, each of which complied as to form, at the time such form, report or document was filed, in all material respects with the applicable requirements of the Securities Act and the Exchange Act and the applicable rules and regulations thereunder. -21- 4.10 FINANCIAL STATEMENTS AND RECORDS OF PARENT. Parent has made or will make available to Key true, correct and complete copies of the following financial statements (the "Parent Financial Statements"): (a) the balance sheets of Parent as of December 31, 1999 and 1998, and the statements of income, stockholders' equity and cash flows for the fiscal years then ended, including the notes thereto, in each case examined by and accompanied by the report of Gelfond Hochstadt Pangburn, P.C.; and (b) the unaudited consolidated balance sheet of Parent as of March 31, 2000 (the "Parent Balance Sheet"), with any notes thereto, and the related unaudited statement of income for March 31, 2000, and, as soon as they are available, for each quarter ended prior to Closing (collectively, the "Parent Quarterly Statements"). The Parent Financial Statements present or will present fairly, in all material respects, the financial position of Parent as of the dates thereof and the results of operations and changes in financial position thereof for the periods then ended, in each case in conformity with generally accepted accounting principles, consistently applied, except as noted therein. Since December 31, 1999, there has been no change in accounting principles applicable to, or methods of accounting utilized by, Parent, except as noted in the Parent Financial Statements. The books and records of Parent have been and are being maintained in accordance with good business practice, reflect only valid transactions, are complete and correct in all material respects, and present fairly in all material respects the basis for the financial position and results of operations of Parent set forth in the Parent Financial Statements. 4.11 ABSENCE OF CERTAIN CHANGES. Since December 31, 1999, Parent has not, except as otherwise set forth in the Parent SEC Reports or on Schedule 4.11: (a) suffered any adverse change in the business, operation, assets, or financial condition except for such changes that would not have a Parent Material Adverse Effect; (b) suffered any material damage or destruction to or loss of the assets of Parent or any of the Merger Subsidiary, whether or not covered by insurance, which property or assets are material to the operations or business of Parent and its subsidiaries taken as a whole; (c) settled, forgiven, compromised, canceled, released, waived or permitted to lapse any material rights or claims other than in the Ordinary Course of Business; (d) entered into or terminated any Material Contract or agreed or made any changes in any Material Contract, other than renewals or -22- extensions thereof and leases, agreements, transactions and commitments entered into or terminated in the Ordinary Course of Business; (e) entered into any transaction, other than at arms-length in the Ordinary Course of Business, between Parent and any stockholder, director, officer, or any affiliate of any such officer, director or stockholder; (f) made any material change in the accounting policy, procedure or practice employed with respect to Parent; (g) sold any of the assets of Parent (tangible or intangible), other than in the Ordinary Course of Business; (h) paid or incurred any capital expenditures, other than capital expenditures incurred in the Ordinary Course of Business which do not exceed $10,000 (any single item or group of related items); (i) written up, written down or written off the book value of any material amount of assets other than in the Ordinary Course of Business; (j) declared, paid or set aside for payment any dividend or distribution with respect to Parent's capital stock; (k) redeemed, purchased or otherwise acquired, or sold, granted or otherwise disposed of, directly or indirectly, any of Parent's capital stock or securities or any rights to acquire such capital stock or securities, or agreed to changes in the terms and conditions of any such rights outstanding as of the date of this Agreement; (l) increased the compensation of or paid any bonuses to any employees or contributed to any employee benefit plan, other than in accordance with established policies, practices or requirements and as provided in Section 5.2 hereof; (m) entered into any employment, consulting or compensation agreement with any person or group, except for agreements which would not have a Parent Material Adverse Effect; (n) entered into any collective bargaining agreement with any person or group; (o) entered into, adopted or amended any employee benefit plan; or (p) entered into any agreement to do any of the foregoing. -23- 4.12 NO MATERIAL UNDISCLOSED LIABILITIES. There are no liabilities or obligations of Parent and its consolidated subsidiaries of any nature, whether absolute, accrued, contingent, or otherwise, other than: (a) liabilities and obligations that are reflected, accrued or reserved against on the Parent Balance Sheet or referred to in the footnotes to the Parent Balance Sheet, or incurred in the Ordinary Course of Business and consistent with past practices since March 31, 2000; or (b) liabilities and obligations which in the aggregate would not result in a Parent Material Adverse Effect. 4.13 TAX RETURNS; TAXES. Each of Parent and the Merger Subsidiary has filed all federal, state, county, local, and foreign tax returns, including information returns, required to be filed by it, and paid all taxes owed by it, including those with respect to income, withholding, social security, unemployment, workers' compensation, franchise, ad valorem, premium, excise and sales taxes, and no taxes shown on such returns to be owed by it or assessments received by it are delinquent. Federal income tax returns of Parent for the fiscal year ended December 31, 1995, and for all fiscal years prior thereto, are for the purposes of routine audit by the Internal Revenue Service closed because of the statute of limitations, and no claims for additional taxes for such fiscal years are pending. No tax return of Parent or any Parent Subsidiary is being audited. Neither Parent nor the Merger Subsidiary is a party to any pending action or proceeding, nor, to Parent's knowledge, is any such action or proceeding threatened by any governmental authority, for the assessment or collection of taxes, interest, penalties, assessments or deficiencies and no issue has been raised by any federal, state, local or foreign taxing authority in connection with any audit or examination of the tax returns, business or properties of Parent and the Merger Subsidiary which has not been settled, resolved and fully satisfied. Except for amounts not yet due and payable, each of Parent and the Merger Subsidiary has paid all taxes owed or which it is required to withhold from amounts owing to employees, creditors or other third parties. The balance sheet as of December 31, 1999, referred to in Section 4.10, includes adequate provision for all accrued but unpaid federal, state, county, local and foreign taxes, interests, penalties, assessments or deficiencies of Parent with respect to all periods through the date thereof. 4.14 MATERIAL CONTRACTS. Parent has furnished or made available to Key accurate and complete copies of the Parent Material Contracts (as defined herein) applicable to Parent or the Merger Subsidiary. There is not under the Parent Material Contracts any existing breach, default or event of default by Parent or the Merger Subsidiary nor event that with notice or lapse of time or both would constitute a breach, default or event of default by Parent or the Merger Subsidiary other than breaches, defaults or events of default which would not have a Parent Material Adverse Effect nor does Parent know of, and Parent has not received notice of, or made a claim with respect to, any breach or default by any other party thereto which would, severally or in the aggregate, have a Parent Material Adverse Effect. As used herein, the term "Parent Material -24- Contracts" shall mean all contracts and agreements required to be filed as exhibits to Parent's Annual Report on Form 10-KSB for the year ending December 31, 2000 as if such report would be filed as of the date hereof. 4.15 LITIGATION AND GOVERNMENT CLAIMS. Except as disclosed in the Parent SEC Reports, there is no pending suit, claim, action or litigation, or administrative, arbitration or other proceeding or governmental investigation or inquiry against Parent or the Merger Subsidiary to which their businesses or assets are subject which would, severally or in the aggregate, reasonably be expected to result in a Parent Material Adverse Effect nor have any such proceedings been threatened or contemplated. Neither Parent nor the Parent Subsidiary is subject to any judgment, decree, injunction, rule or order of any court, or, to the knowledge of Parent, any governmental restriction applicable to Parent or the Parent Subsidiary which is reasonably likely to have a Parent Material Adverse Effect. 4.16 COMPLIANCE WITH LAWS. Parent and the Merger Subsidiary each have all material authorizations, approvals, licenses and orders to carry on their respective businesses as they are now being conducted, to own or hold under lease the properties or assets they own or hold under lease and to perform all of their obligations under the agreements to which they are a party, except for instances which would not have a Parent Material Adverse Effect. Parent and the Merger Subsidiary have been and are, to the knowledge of Parent, in compliance with all applicable laws (including those referenced in the Parent SEC Reports), regulations and administrative orders of any country, state or municipality or any subdivision of any thereof to which their respective businesses and their employment of labor or their use or occupancy of properties or any part hereof are subject, the violation of which would have a Parent Material Adverse Effect. 4.17 EMPLOYMENT AGREEMENTS; LABOR RELATIONS. (a) Schedule 4.17 sets forth a complete and accurate list of all material employee benefit or compensation plans, agreements and arrangements to which Parent is a party and which are not disclosed in the Parent Information, including without limitation (i) all severance, employment, consulting or similar contracts, (ii) all material agreements and contracts with "change of control" provisions or similar provisions and (iii) all indemnification agreements or arrangements with directors or officers. (b) Parent is in compliance in all material respects with all laws (including Federal and state laws) respecting employment and employment practices, terms and conditions of employment, wages and hours, and is not engaged in any unfair labor or unlawful employment practice. 4.18 PARENT EMPLOYEE BENEFIT PLANS. Parent has no employee benefit plans subject to ERISA. -25- 4.19 INTELLECTUAL PROPERTY. Parent and the Merger Subsidiary own or have valid, binding and enforceable rights to use all material patents, trademarks, trade names, service marks, service names, copyrights, applications therefor and licenses or other rights in respect thereof ("Parent Intellectual Property") used or held for use in connection with the business of Parent or the Merger Subsidiary, without any known conflict with the rights of others, except for such conflicts as do not have a Parent Material Adverse Effect. Neither Parent nor the Merger Subsidiary has received any notice from any other person pertaining to or challenging the right of Parent or the Merger Subsidiary to use any Parent Intellectual Property or any trade secrets, proprietary information, inventions, know-how, processes and procedures owned or used or licensed to Parent or the Merger Subsidiary, except with respect to rights the loss of which, individually or in the aggregate, would not have a Parent Material Adverse Effect. 4.20 PROPERTIES AND RELATED MATTERS. Neither Parent nor the Merger Subsidiary owns any real property. Except as may be reflected in the Parent Financial Statements and except for any lien for current taxes not yet delinquent, Parent has good title free and clear of any material liens, claims, charges, options, encumbrances, or similar restrictions to all the personal property reflected in Parent's balance sheet as of December 31, 1999, and all personal property acquired since that date, except such personal property as has been disposed of in the Ordinary Course of Business. All leases of real property and all other leases material to Parent pursuant to which Parent, as lessee, leases real or personal property, which leases are described on Schedule 4.20, are valid and effective in accordance with their respective terms, and there is not, under any such lease, any material existing default by Parent or any event which, with notice or lapse of time or both, constitute such a material default. Substantially all of Parent's building and equipment have been well maintained and are in good and serviceable condition, reasonable wear and tear accepted. 4.21 LICENSES AND PERMITS. Parent and the Merger Subsidiary have obtained all licenses, permits, qualifications, franchises and other governmental authorizations and approvals, including, without limitation, all state licenses and, as applicable, approvals by FRB and under the BHC Act, required in order for it to conduct its business as presently conducted, all of which are noted in the Parent SEC Reports or listed on Schedule 4.21 hereto. All of such licenses, permits, qualifications, franchises and other authorizations are in full force and effect and will remain in full force and effect immediately after the Closing and shall not be violated by or effected, impaired or acquire any further action to remain effective as a result of the Closing. No violation exists in respect of any such license, permit, qualification, franchise, authorization or approval. No proceeding is pending, or to the knowledge of Key, threatened to revoke or limit any such license, permit, qualification, franchise, authorization or approval. 4.22 SOFTWARE. All of the computer software used by or for Parent or the Merger Subsidiary in the conduct of its business (the "Software") is either (i) owned by Parent or the Merger Subsidiary free and clear of any and all liens, claims, equities, security interests, and encumbrances whatsoever, or (ii) used by Parent or the Merger Subsidiary pursuant to a fully-paid license granted to Parent or the Merger Subsidiary for the third party pursuant to the terms of such license. No such computer software license shall terminate or -26- become terminable as a result of the transactions contemplated hereby. There are no infringement suits pending or, to Parent's knowledge, threatened against Parent or the Merger Subsidiary with respect to any of the Software, and, to the knowledge of Parent, no fact or condition exists which could give rise to any such infringement suit. 4.23 MATERIAL INTERESTS OF CERTAIN PERSONS. Except as set forth in the Parent SEC Reports or on Schedule 4.23, to Parent's knowledge no officer or director of Parent, or any "associate" (as such term is defined in Rule 14a-1 under the Exchange Act) of any such officer or director, has any interest in any material contract or property (real or personal), tangible or intangible, used in or pertaining to the business of Parent. The Parent SEC Reports or Schedule 4.23 sets forth a correct and complete list of any loan from Parent to any present stockholder, officer, director, employee or associate or related interest of any such person. 4.24 REGISTRATION OBLIGATIONS. Except as set forth in Parent SEC Reports, or on Schedule 4.24, Parent is, and on the Effective Date will be, under no obligation, contingent or otherwise, which will survive the Merger by reason of any agreement to register any of its securities under the Securities Act. 4.25 ENVIRONMENTAL MATTERS. Except as reported in the Parent SEC Reports or on Schedule 4.25, to the knowledge of Parent: (a) No Hazardous Material (as defined below) has been disposed of on, released to or from, threatened to be released to or from or is presently at, on, beneath, in or upon any partial of real property owned or leased by Parent or the Merger Subsidiary or upon any adjacent parcels of real estate in amounts or concentration which constitute or constituted a violation of, or which could reasonably be expected to give rise to liability under, any Environmental Law (as defined below). (b) There has been no generation, production, refining, processing, manufacturing, use, storage, disposal, treatment, shipment or receipt of a Hazardous Material at or from any parcel of real property owned or leased by Parent or the Merger Subsidiary relating to the operations of Parent or the Merger Subsidiary in violation of or in a manner that could give rise to liability under Environmental Laws. (c) The operations of Parent or the Merger Subsidiary are in compliance and have been in compliance with all applicable Environmental Laws, and there is no violation of any Environmental Law with respect to any parcels of real property owned or leased by Parent or the Merger Subsidiary which could interfere with the continued operation of the business of Parent or the Merger Subsidiary or impair its fair salable value. (d) Neither Parent nor the Merger Subsidiary have received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with -27- environmental laws with regard to any parcels of real property owned or leased by Parent or the Merger Subsidiary from any person, nor does Parent or the Merger Subsidiary have knowledge or reason to believe that any such notice will be received from or is being threatened by any person. (e) No judicial proceedings, governmental administrative actions, investigations or internal or non-public agency proceedings are pending or threatened, under any environmental law, to which Parent or the Merger Subsidiary is or will be named as a party, nor are the any consent decrees, or other decrees, consent orders, agreements, administrative orders, other orders, judicial or administrative requirements outstanding under any environmental law with respect to Parent or the Merger Subsidiary. (f) "HAZARDOUS MATERIALS" means any substance (a) the presence of which at, on, over, beneath, in or upon any real or personal property, building, structure, container of any nature or description, subsurface strata, ambient air or ambient water (including surface and groundwater) requires investigation, removal or remediation under any Environmental Law or common law, (b) which is or becomes defined as a "hazardous substance," "hazardous material," "hazardous waste," "pollutant" or "contaminant" under any Environmental Law, and/or (c) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or becomes regulated by any governmental authority under any Environmental Law, (d) the presence of which causes or threatens to cause a nuisance or trespass upon real property or to adjacent properties or poses or threatens to pose a hazard to the environment, and/or to the health or safety of persons on or about any real property, and/or (e) which contains urea-formaldehyde, polychlorinated biphenyls, asbestos or asbestos containing materials, radon, petroleum or petroleum products. (g) "ENVIRONMENTAL LAW OR LAWS" means any and all federal, state, local or municipal laws, rules, orders, regulations, statutes, treaties, ordinances, codes, decrees, or requirements of any governmental authority regulating, relating to or imposing liability or standards of conduct concerning environmental protection, health or safety matters, including all requirements pertaining to reporting, licensing, permitting, investigation, removal or remediation of emissions, discharges, releases, or threatened releases of Hazardous Materials, chemical substances, pollutants or contaminants or relating to the manufacture, generation, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials, chemical substances, pollutants or contaminants, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Toxic Substance Control Act ("TSCA"), the Resource Conservation and Recovery Act ("RCRA"), the Clean Air Act ("CAA"), the Clean Water Act ("CWA") and the Occupational Safety and Health Act of 1970 ("OSHA"), all as may have been amended. 4.26 BROKERS AND FINDERS. Neither Parent, nor to Parent's knowledge any of its officers, directors and employees has employed any broker, finder or investment bank or incurred any liability for any investment banking fees, -28- financial advisory fees, brokerage fees or finders' fees in connection with the transactions contemplated hereby. Parent is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. 4.27 INTERIM OPERATIONS OF MERGER SUBSIDIARY. Merger Subsidiary was formed solely for the purpose of engaging in the transactions contemplated hereby, has engaged in no other business activities and has conducted its operations only as contemplated hereby. 4.28 DISCLOSURE. The representations and warranties contained in this Article 4 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Article 4 not misleading. ARTICLE 5 CERTAIN COVENANTS AND AGREEMENTS 5.1 CONDUCT OF BUSINESS BY Key. From the date hereof to the Effective Date, Key will, except as required in connection with the Merger and the other transactions contemplated by this Agreement and except as otherwise disclosed in the Key Information or consented to in writing by Parent: (a) not engage in any new line of business or enter into any Material Contract, transaction or activity or make any material commitment except (i) those in the Ordinary Course of Business and not otherwise prohibited under this Section 5.1, and (ii) Material Contracts approved by Parent; (b) maintain its corporate existence in good standing and neither change nor amend its Articles of Incorporation or Bylaws; (c) maintain proper business and accounting records in accordance with generally accepted accounting principles; (d) maintain its property in good repair and condition, ordinary wear and tear accepted; (e) maintain in all material respects presently existing insurance coverage; (f) use its best efforts to preserve its business organization in-tact, to keep the services of its present principal employees and to preserve its good will and the good will of its suppliers, customers and others having business relationships with it; -29- (g) use its best efforts to obtain any approvals or consents required to maintain existing leases and other contracts in effect following the Merger; (h) comply in all material respects with all laws, regulations, ordinances, codes, orders, licenses and permits applicable to the properties and the operations of Key and correct or remedy any material violation of any law or regulation upon identification thereof at Parent's request; (i) create, incur, assume or guarantee any indebtedness for borrowed money other than indebtedness incurred in the Ordinary Course of Business; (j) make any loan to or investment in, or acquire any securities or assets of any other person or entity; (k) sell any of its assets except in the Ordinary Course of Business; (l) increase the compensation of any officers, directors or executive employees, except pursuant to existing compensation plans or practices; (m) not issue or sell shares of capital stock of Key or issue, sell or grant options, warrants or rights to purchase or subscribe to, or enter into any arrangement or contract with respect to the issuance or sale of any of the capital stock of Key or rights or obligations convertible into or exchangeable for any shares of the capital stock of Key and not make any changes (by split-up, combination, reorganization or otherwise) in the capital structure of Key; (n) except as set forth on Schedule 5.1(n) hereof, not declare, pay or set aside for payment any dividend or other distribution in respect of the capital stock or other equity securities of Key and not redeem, purchase or otherwise acquire any shares of the capital stock or other securities of Key or rights or obligations convertible into or exchangeable for any shares of the capital stock or other securities of Key or obligations convertible into such, or any options, warrants or other rights to purchase or subscribe to any of the foregoing; (o) not acquire or enter into any agreement to acquire, by merger, consolidation or purchase of stock or assets, any business or entity; (p) perform all of its obligations under all Material Contracts (except those being contested in good faith) and not enter into, assume or amend any contract or commitment that would be a Material Contract; and (q) prepare and file all federal, state, local and foreign returns for taxes and other tax reports, filings and amendments thereto required to be filed by it, and allow Parent, at its request, to review all such returns, reports, filings and amendments at Key's offices prior to the filing thereof, which review shall not interfere with the timely filing of such returns. -30- In connection with the continued operation of the business of Key between the date of this Agreement and the Effective Date, Key shall confer in good faith and on a regular and frequent basis with one or more representatives of Parent designated in writing to report operational matters of materiality and the general status of ongoing operations. Key acknowledges that Parent does not and will not waive any rights it may have under this Agreement as a result of such consultations nor shall Parent be responsible for any decisions made by Key's officers and directors with respect to matters which are the subject of such consultation. 5.2 CONDUCT OF BUSINESS BY PARENT. From the date hereof to the Effective Date, Parent will, and will cause the Merger Subsidiary to, except as required in connection with the Merger and the other transactions contemplated by this Agreement and except as otherwise disclosed in the Parent Information hereto or consented to in writing by Key: (a) not engage in any new line of business or enter into any Material Contract, transaction or activity or make any material commitment except (i) those in the Ordinary Course of Business and not otherwise prohibited under this Section 5.2, and (ii) Material Contracts in which Key or Key is the other party; (b) maintain its corporate existence in good standing and neither change nor amend its Certificate of Incorporation or Bylaws; (c) maintain proper business and accounting records in accordance with generally accepted principles; (d) maintain its property in good repair and condition, ordinary wear and tear accepted; (e) maintain in all material respects presently existing insurance coverage; (f) use its best efforts to preserve its business organization in tact, to keep the services of its present principal employees and to preserve its good will and the good will of its suppliers, customers and others having business relationships with it; (g) use its best efforts to obtain any approvals or consents required to maintain existing leases and other contracts in effect following the Merger; (h) comply in all material respects with all laws, regulations, ordinances, codes, orders, licenses and permits applicable to the properties and the operations of Parent and Merger Subsidiary -31- and correct remedy any material violation of any law, regulation upon identification thereof at Key's request; (i) except as set forth in Schedule 5.2(i), not authorize or incur any long-term debt (other than deposit liabilities); (j) increase the compensation of any officers, directors or executive employees, except pursuant to existing compensation plans or practices; (k) not make any changes (by split-up, combination, reorganization or otherwise) in the capital structure of Parent, or the Merger Subsidiary; (l) except as set forth on Schedule 5.2(l), not issue or sell shares of capital stock of Parent or issue, sell or grant options, warrants or rights to purchase or subscribe to, or enter into any arrangement or contract with respect to the issuance or sale of any of the capital stock of Parent or rights or obligations convertible into or exchangeable for any shares of the capital stock of Key and not alter the terms of any outstanding options or the Option Plans; (m) not declare, pay or set aside for payment any dividend or other distribution in respect of the capital stock or other equity securities of Parent and not redeem, purchase or otherwise acquire any shares of the capital stock or other securities of Parent or any of the Merger Subsidiary, or rights or obligations convertible into or exchangeable for any shares of the capital stock or other securities of Parent, the Merger Subsidiary or any of the Merger Subsidiary or obligations convertible into such, or any options, warrants or other rights to purchase or subscribe to any of the foregoing; (n) not acquire or enter into any agreement to acquire, by merger, consolidation or purchase of stock or assets, any business or entity; (o) not make or incur (other than in the Ordinary Course of Business) any capital expenditures; (p) perform all of its obligations under all Material Contracts (except those being contested in good faith) and not enter into, assume or amend any contract or commitment that would be a Material Contract; and (q) prepare and file all federal, state, local and foreign returns for taxes and other tax reports, filings and amendments thereto required to be filed by it, and allow Key, at its request, to review all such returns, reports, filings and amendments at Parent's office prior to the filing thereof, which review shall not interfere with the timely filing of such returns. -32- 5.3 INSPECTION AND ACCESS TO INFORMATION. (a) Between the date of this Agreement and the Effective Date, Key will provide to the Merger Subsidiary and Parent and their accountants, counsel and other authorized representatives reasonable access during normal business hours to its premises, and will cause its officers to furnish to Parent and the Merger Subsidiary and their authorized representatives such financial, technical and operating data and other information pertaining to its business, as the Merger Subsidiary and Parent shall from time to time reasonably request. No such examination by Parent or its representatives either before or after the date of this Agreement shall in any way effect, diminish or terminate any of the representations, warranties or covenants of Key herein expressed. (b) Between the date of this Agreement and the Effective Date, Parent will, and will cause the Merger Subsidiary to, provide to Key and its accountants, counsel and other authorized representatives reasonable access, during normal business hours to its premises, and will cause its officers to furnish to Key and its authorized representatives such financial, technical and operating data and other information pertaining to its business, as Key shall from time to time reasonably request. No such examination by Key or its representatives either before or after the date of this Agreement shall in any way effect, diminish or terminate any of the representations, warranties or covenants of Parent herein expressed. (c) Each of the parties hereto and their respective representatives shall maintain the confidentiality of all information (other than information which is generally available to the public) concerning the other parties hereto acquired pursuant to the transactions contemplated hereby in the event that the Merger is not consummated. Each of the parties hereto and their representatives shall not use such information so obtained to the detriment or competitive disadvantage of the other party hereto. All files, records, documents, information, data and similar items relating to the confidential information of Key, whether prepared by Parent or otherwise coming into Parent's possession, shall remain the exclusive property of Key and shall be promptly delivered to Key upon termination of this Agreement. All files, records, documents, information, data and similar items relating to the confidential information of Parent, whether prepared by Key or otherwise coming into Key's possession, shall remain the exclusive property of Parent and shall be promptly delivered to Parent upon termination of this Agreement. 5.4 PARENT EXCHANGE ACT REPORTS. Key acknowledges that Parent will be required to report its acquisition of Key promptly following the Effective Date and include information regarding Key in the Proxy Statement for Parent's upcoming special meeting of shareholders. Key agrees to provide as promptly as practicable to Parent such information concerning its business and financial statements and affairs as, in the reasonable judgment of Parent, may be required or appropriate for inclusion in the required report, or in any amendments or supplements thereto, and to cause its counsel and auditors to cooperate with Parent's counsel and auditors in the preparation of such report. Key represent and warrant to Parent that the foregoing information will (i) not contain any -33- untrue statement of immaterial fact, or omit to state any material fact required to be stated therein as necessary, in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) comply in all material respects with the provisions of the Securities Act and Exchange Act, as applicable, and the rules and regulations thereunder. 5.5 REASONABLE EFFORTS; FURTHER ASSURANCES; COOPERATION. Subject to the other provisions of this Agreement, the parties hereby shall each use their reasonable efforts to perform their obligations herein and to take, or cause to be taken or do, or cause to be done, all things reasonably necessary, proper or advisable under applicable law to obtain all regulatory approvals and satisfy all conditions to the obligations of the parties under this Agreement and to cause the Merger and the other transactions contemplated herein to be carried out promptly in accordance with the terms hereof. The parties agree to use their reasonable best efforts to consummate the transactions contemplated hereby by September 1, 2000 subject to an automatic 30 day extension by either party if necessary to accommodate any special meeting of the shareholders of either party to approve certain corporate actions necessary to complete the transactions contemplated by this Agreement. The parties shall cooperate fully with each other and their respective officers, directors, employees, agents, counsel, accountants and other designees in connection with any steps required to be taken as a part of their respective obligations under this Agreement, including without limitation: (a) If any claim, action, suit, investigation or other proceeding by any governmental body or other person is commenced which questions the validity or legality of the Merger or any of the other transactions contemplated hereby or seeks damages in connection therewith, the parties agree to cooperate and use all reasonable efforts to defend against such claim, action, suit, investigation or other proceeding and, if an injunction or other order is issued in any such action, suit or other proceeding, to use all reasonable efforts to have such injunction or other order lifted, and to cooperate reasonably regarding any other impediment to the consummation of the transactions contemplated by this Agreement. (b) Each party shall give prompt written notice to the other of (i) the occurrence, or failure to occur, of any event which occurrence or failure would be likely to cause any representation or warranty of Key or Parent, as the case may be, contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date hereof to the Effective Date or that will or may result in the failure to satisfy the conditions specified in Article 6 or 7 or would constitute either an Key Material Adverse Effect or a Parent Material Adverse Effect, and (ii) any failure of Key or Parent, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder. 5.6 PUBLIC ANNOUNCEMENTS. The timing and content of all announcements regarding any aspect of this Agreement or the Merger to the financial community, government agencies, employees or the general public shall be mutually agreed upon in advance (unless Parent or Key is advised by counsel that any such announcement or other disclosure not mutually agreed upon in advance is required -34- to be made by law and then only after making a reasonable attempt to comply with the provisions of this Section). 5.7 NO SOLICITATION. (a) From the date hereof until this Agreement is terminated or abandoned as provided in Section 8.1 of this Agreement, Key shall not directly or indirectly (i) solicit or initiate discussion with or (ii) enter into negotiations or agreements with, or furnish any information to, any corporation, partnership, person or other entity or group (other than an affiliate of Parent or its authorized representatives pursuant to this Agreement) concerning any proposal for a merger, sale of substantial assets, sale of shares of stock or securities or other takeover or business combination transaction (the "Acquisition Proposal") involving Key, and Key will instruct its officers, directors, advisors and its financial and legal representatives and consultants not to take any action contrary to the foregoing provisions of this sentence; provided, however, that Key, its officers, directors, advisors and its financial and legal representatives and consultants will not be prohibited from taking any action described in (ii) above to the extent such action is taken by, or upon the authority of, the Board of Directors of Key in the exercise of good faith judgment as to its fiduciary duties to the shareholders of Key, which judgment is based upon the written advice of independent, outside legal counsetl that a failure of the Board of Directors of Key to take such action would be likely to constitute a breach of its fiduciary duties to such shareholders. Key will notify Parent promptly if Key becomes aware that any inquiries or proposals are received by, any information is requested from or any negotiations or discussions are sought to be initiated with, Key with respect to an Acquisition Proposal, and Key shall promptly deliver to Parent any written inquiries or proposals received by Key relating to an Acquisition Proposal or accurately summarize in writing for Parent any other inquires or discussions with respect to an Acquisition Proposal. ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF Key Except as may be waived by Key, the obligations of Key to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction on or before the Closing Date of each of the following conditions: 6.1 COMPLIANCE. Parent shall have, or shall have caused to be, satisfied or complied with and performed in all material respects all terms, covenants and conditions of this Agreement to be complied with or performed by Parent on or before the Closing Date. 6.2 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties made by Parent in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same force and effect as if such representations and warranties had been made at and as of the Closing Date, except for changes permitted or contemplated by this Agreement. -35- 6.3 MATERIAL ADVERSE CHANGES. Subsequent to March 31, 2000 there shall have occurred no Parent Material Adverse Effect other than any such change that affects both Parent and Key in a substantially similar manner. 6.4 CERTIFICATES. Key shall have received a certificate or certificates, executed on behalf of Parent by an executive officer of Parent, to the effect that the conditions contained in Sections 6.1, 6.2 and 6.3 hereof have been satisfied. Such certificate shall further certify that the shares of Parent Common Stock issued to the Key stockholders pursuant to the Merger shall represent at least twenty-five percent (25%) of the total number of shares of Parent Common Stock issued and outstanding as of the Effective Date, determined after giving effect to the consummation of the Merger and the related transaction described in Section 6.10 hereof, and the issuance of Parent common stock to raise the cash consideration payable pursuant to the Merger and the related transaction described in Section 6.10 hereof. 6.5 CONSENTS; LITIGATION. Other than the filing of the Certificates of Merger and Articles of Merger as described in Article 1, all authorizations, consents, orders or approvals of, or declarations or filings with, or expirations or terminations of waiting periods imposed by any governmental entities, and all required third-party consents, the failure to obtain which would have a Key Material Adverse Effect or Parent Material Adverse Effect, shall have been obtained. In addition, no preliminary or permanent injunction or other order shall have been issued by any court or by any governmental or regulatory agency, body or authority which prohibits the consummation of the Merger and the transactions contemplated by this Agreement and which is in effect at the Effective Date. 6.6 DUE DILIGENCE. Key shall have completed to its satisfaction a due diligence investigation, including, but not limited to, a review of the Parent Financial Statements and the Parent SEC Reports. 6.7 TAX-FREE REORGANIZATION. The shares of Parent Common Stock to be received by the Key stockholders shall be received in connection with a tax-free reorganization under the Code, and each party shall take all necessary action to ensure such treatment. 6.8 REGISTRATION RIGHTS. Parent shall execute and deliver to Key at Closing, a registration rights agreement substantially in the form of Exhibit A. 6.9 EMPLOYMENT AGREEMENTS. Parent shall have executed and delivered to each of Charles R. Darst and Scott Lucas written employment agreements and other documents memorializing stock options to be granted to each of them as of the Effective Date, setting forth the terms and conditions under which such individuals will be employed by Parent or Key following the Effective Date, which terms and conditions shall be acceptable to Key and such individuals in their sole discretion. -36- 6.10 COMPLETION OF OTHER TRANSACTION. As the transaction contemplated by that certain Agreement and Plan of Reorganization dated as of even date among the Parent, Nova Financial Systems, Inc. and Nova Acquisition Corp. is part of the same Plan of Reorganization as the transaction contemplated by this Agreement, both transactions shall be completed simultaneously with the Closing. 6.11 PARENT SUBSIDIARIES. Parent shall have consummated a merger of all of its business development company subsidiaries (including First Bankers Mortgage Services, Inc.) into Equitex 2000, Inc. and a spin-off of the outstanding shares of Equitex 2000, Inc. to the Parent stockholders, Equitex 2000, Inc. shall have assumed all obligations of Parent to the former stockholders of any subsidiaries merged into Equitex 2000, Inc. After giving effect to the foregoing transactions, Parent will own a controlling interest in only Merger Subsidiary and the merger subsidiary formed for the purpose of consummating the transaction described in Section 6.10 hereof, and Parent will have unrestricted cash in the amount of Two Million Dollars ($2,000,000). 6.12 INCREASE OF AUTHORIZED CAPITAL STOCK OF PARENT. Parent shall have filed with the Secretary of State of the State of Delaware (a) a Certificate of Amendment to its Certificate of Incorporation for purposes of increasing its authorized capital stock to 50,000,000 shares of Parent Common Stock, and (b) such other certificates as may be necessary to eliminate the certificate of designations in effect for each series of preferred stock of the Parent of which no shares are issued and outstanding. ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND THE MERGER SUBSIDIARY Except as may be waived by Parent and the Merger Subsidiary, the obligations of Parent and the Merger Subsidiary to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction, on or before the Closing Date, of each of the following conditions: 7.1 COMPLIANCE. Key shall have, or shall have caused to be, satisfied or complied with and performed in all material respects all terms, covenants, and conditions of this Agreement to be complied with or performed by it on or before the Closing Date. 7.2 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties made by Key in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same force and effect as if such representations and warranties had been made at and as of the Closing Date, except for changes permitted or contemplated by this Agreement. -37- 7.3 MATERIAL ADVERSE CHANGE. Since March 31, 2000, except as set forth in this Agreement or on the schedules hereto, there shall have occurred no Key Material Adverse Effect other than any such change that affects both Parent and Key in a substantially similar manner. 7.4 CERTIFICATES. Parent shall have received a certificate or certificates, executed by the and on behalf of Key by an executive officer of Key, to the effect that the conditions in Sections 7.1, 7.2 and 7.3 hereof have been satisfied. 7.5 CONSENTS; LITIGATION. Other than the filing of the Certificate of Merger as described in Article 1, all authorizations, consents, orders or approvals of, or declarations or filings with, or expirations or terminations of waiting periods imposed by, any governmental entity, and all required third-party consents, the failure to obtain which would have an Key Material Adverse Effect or a Parent Material Adverse Effect, shall have been obtained. In addition, no preliminary or permanent injunction or other order shall have been issued by any court or by any governmental or regulatory agency, body or authority which prohibits the consummation of the Merger and the transactions contemplated by this Agreement and which is in effect at the Effective Date. 7.6 DUE DILIGENCE. Parent shall have completed to its satisfaction a due diligence investigation, including, but not limited to, a review of the Key Financial Statements. 7.7 ACCOUNTING TREATMENT. The transactions contemplated by this Agreement shall qualify for purchase accounting treatment under generally accepted accounting principles, and each shall take all necessary action to ensure such treatment. 7.8 TAX-FREE REORGANIZATION. The shares of Parent Common Stock to be delivered to the Key stockholders shall be delivered in connection with a tax-free reorganization under the Code, and each party shall take all necessary action to ensure such treatment. 7.9 BHC ACT. The transactions contemplated hereby shall be subject to the determination of Parent's counsel and the Federal Reserve Bank of Atlanta that the business activities are permitted by the BHC Act, including but not limited to, Section 225.28 of the BHC Act. 7.10 STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been approved by the affirmative vote of the holders of the percentage of the outstanding shares of Parent required for approval of a Plan of Merger in accordance with the provisions of Parent's Certificate of Incorporation and the DGCL. 7.11 COMPLETION OF OTHER TRANSACTION. As the Merger with Nova Financial Systems, Inc. is part of the same Plan of Reorganization as the transaction contemplated by this Agreement, both transactions shall be completed simultaneously with the Closing. -38- 7.12 STOCKHOLDER CONTROL OF PARENT. No single stockholder, or group of stockholders that can be considered a control group under SEC or Federal Reserve law, will directly control more than 9.9% of the outstanding Parent Common Stock on a fully diluted basis. The calculation of outstanding Common Stock of Parent will take into effect: (a) all the outstanding Parent Common Stock, including, without limitation, the Parent Common Stock to be issued pursuant to the Merger and the related transaction described in Section 6.10 hereof; (b) all outstanding warrants or other securities convertible into Parent Common Stock, including, without limitation, the Warrants to be issued pursuant to the Merger and the related transaction described in Section 6.10 hereof; (c) all Parent Common Stock issued or to be issued to raise the cash consideration payable pursuant to the Merger and the related transaction described in Section 6.10 hereof; and (d) the Parent Common Stock to be issued under the proposed merger between Parent and First TeleBanc Corp. 7.13 SOLVENCY OPINION. Key shall provide to Parent an opinion by a certified public accounting firm acceptable to Parent that as of the Effective Date, after taking into account all distributions including the Final Distribution subject to Section 5.1(n) and Schedule 5.1(n) of this Agreement, Key is solvent, fully able to meet all of its obligations (whether fixed, liquidated, contingent or otherwise) as they become due and Key has a positive tangible net worth of at least $100,000. ARTICLE 8 MISCELLANEOUS 8.1 TERMINATION. In addition to the provisions regarding termination set forth elsewhere herein, this Agreement and the transactions contemplated hereby may be terminated at any time on or before the Closing Date: (a) by mutual consent of Key and Parent; (b) by either Parent or Key if the transactions contemplated by this Agreement have not been consummated by September 1, 2000, subject to an automatic 30 day extension if necessary to accommodate a special meeting of the shareholders of either party to approve certain corporate actions necessary to complete the transactions contemplated -39- by this Agreement, unless such failure of consummation is due to the failure of the terminating party to perform or observe the covenants, agreements, and conditions hereof to be performed or observed by it at or before the Closing Date; or (c) by either Key or Parent if the transactions contemplated hereby violate any nonappealable final order, decree, or judgment of any court or governmental body or agency having competent jurisdiction. 8.2 EXPENSES. If the transactions contemplated by this Agreement are not consummated and termination is sought under the termination provisions hereof, each party hereto shall pay its own expenses incurred in connection with this Agreement and the transactions contemplated hereby. If the transactions contemplated by this Agreement are not consummated because the representations and warranties of one party are false or misleading in any material respect, then that party shall be liable for the expenses, including attorneys fees, of the other party. 8.3 ENTIRE AGREEMENT. This Agreement and the exhibits and schedules hereto contain the complete agreement among the parties with respect to the transactions contemplated hereby and supersede all prior agreements and understandings among the parties with respect to such transactions. Section and other headings are for reference purposes only and shall not affect the interpretation or construction of this Agreement. The parties hereto have not made any representation or warranty except as expressly set forth in this Agreement or in any certificate or schedule delivered pursuant hereto. The obligations of any party under any agreement executed pursuant to this Agreement shall not be affected by this section. 8.4 INDEMNIFICATION. The Key shareholders shall indemnify and hold Parent harmless against any and all claims, costs, liabilities, expenses and attorney's fees arising out of or in any manner related to the matters captioned EDWARD BARBARA, JR. V. C. ROBERT DARST, DIA ERICKSON, ANTHONY N. AMICO, Key FINANCIAL SYSTEMS, INC. AND KEY FINANCIAL SYSTEMS, INC., CIRCUIT COURT CASE NO.: 00-1995-CI-019; AMERICAN ARBITRATION ASSOCIATION, CASE NO.: 33 160 00080 00; AND KEY FINANCIAL SYSTEMS, INC. AND Key FINANCIAL SYSTEMS, INC. V. CAPITAL GAINS OF NAPLES, INC., CHRIS HEBARD, GENE HIRAI, FIRST NATIONAL BANK IN BROOKINGS, AND CREDITNOW, SIXTH JUDICIAL CIRCUIT, PINELLAS COUNTY, FLORIDA, CASE NO. 00-1163-CI-15. 8.5 POST-CLOSING OBLIGATIONS OF PARENT. The following obligations of Parent shall expressly survive the Effective Date: (a) Parent hereby covenants to the Key stockholders that the aggregate number of shares of Parent Common Stock issued to the Key stockholders pursuant to the Merger and to the stockholders of Key Financial Systems, Inc., pursuant to the related transaction described in Section 6.10 hereof will represent, as of the Effective Date, at least fifty percent (50%) of the total number of shares of Parent -40- Common Stock issued and outstanding as of the Closing Date, determined after giving effect to the consummation of the Merger and the related transaction described in Section 6.10 hereof, and the issuance of Parent common stock to raise the cash consideration payable pursuant to the Merger and the related transaction described in Section 6.10 hereof. If, for any reason, the aggregate number of shares of Parent Common Stock issued on the Effective Date to the Key stockholders and stockholders of Key Financial Systems, Inc. is less than the amount required in the foregoing covenant, then Parent shall promptly issue to the Key stockholders and the stockholders of Key Financial Systems, Inc. such additional amount of Parent Common Stock as shall be necessary to make the covenant true and correct in all respects. (b) On the Closing Date Parent will have executed or shall execute minutes or a consent to action expanding the size of the Board of Directors of Parent to five members. In addition, on the Closing date one member of the current Board of Directors of Parent shall resign and three Directors designated by the shareholders of Key and Key Financial Systems, Inc. shall be appointed to the Board of Directors of Parent, provided that, the composition of the Parent Board of Directors complies with the rules, regulations and bylaws of the National Association of Securities Dealers and NASDAQ. 8.6 Survival of Representations and Warranties. The representations and warranties of each party contained herein or in any exhibit, certificate, document or instrument delivered pursuant to this Agreement shall not survive the Closing, with the express exception of the indemnification provision of Section 8.4 of this Agreement and the indemnity agreements between Parent and the Officers and Directors of Parent which shall continue in full force and effect indefinitely. 8.7 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute only one original. 8.8 Notices. All notices, demands, requests, or other communications that may be or are required to be given, served, or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be sent by facsimile transmission, next-day courier or mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery, addressed as follows: (a) If to Key: Mr. Scott Lucas, President Key Financial Systems, Inc. 5770 Roosevelt Blvd., Suite 410 Clearwater, Florida 33760-3431 Telephone: (727) 524-8410 Facsimile: (727) 524-3874 -41- with a copy (which shall not constitute notice) to: Leslie Wager Hudock, Esq. Barnett, Bolt, Kirkwood & Long 601 Bayshore Boulevard, Suite 700 Tampa, Florida 33606 Telephone: (813) 253-2020 Facsimile: (813) 251-6711 (b) If to Parent or the Merger Subsidiary: Mr. Thomas Olson, Secretary Equitex, Inc. 7315 East Peakview Ave., Suite 211 Englewood, Colorado 80111 Telephone: (303) 796-8940 Facsimile: (303) 796-9762 with a copy (which does not constitute notice) to: John W. Kellogg, Esq. Friedlob Sanderson Paulson & Tourtillott, LLC 1400 Glenarm Place, Suite 300 Denver, Colorado 80202 Telephone: (303) 595-3970 Facsimile: (303) 571-1400 Each party may designate by notice in writing a new address to which any notice, demand, request, or communication may thereafter be so given, served, or sent. Each notice, demand, request, or communication that is mailed, delivered, or transmitted in the manner described above shall be deemed sufficiently given, served, sent, and received for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt or the affidavit of messenger being deemed conclusive evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation. 8.9 SUCCESSORS; ASSIGNMENTS. This Agreement and the rights, interests, and obligations hereunder shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, by operation of law or otherwise, by any of the parties hereto without the prior written consent of the other. -42- 8.10 GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the internal laws of the State of Delaware. 8.11 WAIVER AND OTHER ACTION. This Agreement may be amended, modified, or supplemented only by a written instrument executed by the parties against which enforcement of the amendment, modification or supplement is sought. 8.12 SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid, or unenforceable, such provision shall be fully severable, and this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision were never a part hereof; the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance; and in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as part of this Agreement, a provision as similar in its terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable. 8.13 MUTUAL CONTRIBUTION. The parties to this Agreement and their counsel have mutually contributed to its drafting. Consequently, no provision of this Agreement shall be construed against any party on the ground that such party drafted the provision or caused it to be drafted or the provision contains a covenant of such party. [THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK] -43- SIGNATURES IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. Key Financial Systems, Inc. By:/S/ Scott Lucas ---------------------------------- Name: Scott Lucas Title: President Equitex, Inc. By:/s/ Henry Fong ---------------------------------- Name: Henry Fong Title: President and Chief Executive Officer Key Merger Corporation By:/s/ Henry Fong ---------------------------------- Name: Henry Fong Title: President and Chief Executive Officer -44- LIST OF EXHIBITS Exhibit A Form of Registration Rights Agreement LIST OF SCHEDULES Schedule 2.3 Key Convertible Securities Schedule 3.7(c) Voting Arrangements Schedule 3.7(e) Redemptions and Distributions Schedule 3.9 Changes in Accounting Principles Schedule 3.13 Tax Returns; Taxes Schedule 3.14 Material Contracts Schedule 3.15 Litigation and Government Claims Schedule 3.19 Employee Benefit Plans Schedule 3.20 Employment Agreements Schedule 3.23 Properties and Related Matters Schedule 3.25 Material Interests Schedule 3.32 Accounts Receivable Schedule 3.33 Notes Receivable Schedule 3.36 Rights to All Telemarketing Schedule 4.4 Parent Subsidiaries Schedule 4.7 Capitalization of Parent Schedule 4.11 Absence of Certain Changes -45- Schedule 4.17 Employment Agreements Schedule 4.21 Licenses and Permits Schedule 4.23 Material Interests Schedule 4.24 Registration Obligations Schedule 4.25 Environmental Matters Schedule 5.1(n) Permitted Distributions Schedule 5.2(i) Parent long-term debt Schedule 5.2(l) Parent transactions -46- Table of Contents ARTICLE 1 Basic Plan of Reorganization........................................-1- 1.1 Merger.....................................................-1- 1.2 Continuing Corporate Existence.............................-1- 1.3 Effective Date.............................................-1- 1.4 Corporate Government of the Surviving Corporation..........-2- 1.5 Closing....................................................-2- 1.6 Tax Consequences...........................................-2- ARTICLE 2 Conversion of Shares................................................-3- 2.1 Conversion of Shares.......................................-3- 2.2 Fractional Shares..........................................-4- 2.3 Convertible Securities.....................................-4- 2.4 Exchange of Key Common Stock...............................-4- 2.5 Adjustment.................................................-5- 2.6 Status of Parent Securities................................-5- 2.7 Registration of Parent Securities..........................-5- ARTICLE 3 Representations and Warranties of Key...............................-6- 3.1 Organization and Good Standing of Key......................-6- 3.2 Foreign Qualification......................................-6- 3.3 Company Power and Authority................................-6- 3.4 No Key Subsidiaries........................................-6- 3.5 Authorization..............................................-6- 3.6 Absence of Restrictions and Conflicts......................-6- 3.7 Capitalization of Key......................................-7- 3.8 Key Information............................................-8- 3.9 Financial Statements and Records of Key....................-8- 3.10 Reports....................................................-8- 3.11 Absence of Certain Changes.................................-8- 3.12 No Material Undisclosed Liabilities.......................-10- 3.13 Tax Returns; Taxes........................................-10- -i- 3.14 Material Contracts........................................-10- 3.15 Litigation and Government Claims..........................-11- 3.16 Compliance With Laws......................................-11- 3.17 Policies and Procedures...................................-11- 3.18 Licenses and Permits......................................-11- 3.19 Employee Benefit Plans....................................-12- 3.20 Employment Agreements; Labor Relations....................-12- 3.21 Intellectual Property.....................................-13- 3.22 Software..................................................-13- 3.23 Properties and Related Matters............................-14- 3.24 Insurance.................................................-14- 3.25 Material Interests of Certain Persons.....................-14- 3.26 Registration Obligations..................................-14- 3.27 Environmental Matters.....................................-14- 3.28 Referral Sources; Investors...............................-16- 3.29 Brokers and Finders.......................................-16- 3.30 Proxy Statement...........................................-16- 3.31 Inventory.................................................-16- 3.32 Accounts Receivable.......................................-16- 3.33 Notes Receivable..........................................-17- 3.34 Powers of Attorney........................................-17- 3.35 Guaranties................................................-17- 3.36 Rights to all Telemarketing or Mailing Lists..............-17- 3.37 Disclosure................................................-17- ARTICLE 4 Representations and Warranties of Parent and the Merger Subsidiary..........................................-18- 4.1 Organization and Good Standing............................-18- 4.2 Foreign Qualification.....................................-18- 4.3 Corporate Power and Authority.............................-18- 4.4 Parent Subsidiaries. ....................................-18- 4.5 Authorization.............................................-19- 4.6 Absence of Restrictions and Conflicts.....................-19- 4.7 Capitalization of Parent..................................-19- 4.8 Capitalization of Merger Subsidiary.......................-21- 4.9 Parent SEC Reports........................................-21- 4.10 Financial Statements and Records of Parent................-22- 4.11 Absence of Certain Changes................................-22- 4.12 No Material Undisclosed Liabilities.......................-24- -ii- 4.13 Tax Returns; Taxes........................................-24- 4.14 Material Contracts........................................-24- 4.15 Litigation and Government Claims..........................-25- 4.16 Compliance with Laws......................................-25- 4.17 Employment Agreements; Labor Relations....................-25- 4.18 Parent Employee Benefit Plans.............................-25- 4.19 Intellectual Property.....................................-26- 4.20 Properties and Related Matters............................-26- 4.21 Licenses and Permits......................................-26- 4.22 Software..................................................-26- 4.23 Material Interests of Certain Persons. ..................-27- 4.24 Registration Obligations. ...............................-27- 4.25 Environmental Matters.....................................-27- 4.26 Brokers and Finders.......................................-28- 4.27 Interim Operations of Merger Subsidiary...................-29- 4.28 Disclosure. .............................................-29- ARTICLE 5 Certain Covenants and Agreements...................................-29- 5.1 Conduct of Business by Key...............................-29- 5.2 Conduct of Business by Parent.............................-31- 5.3 Inspection and Access to Information......................-33- 5.4 Parent Exchange Act Reports...............................-33- 5.5 Reasonable Efforts; Further Assurances; Cooperation.......-34- 5.6 Public Announcements......................................-34- 5.7 No Solicitation...........................................-35- ARTICLE 6 Conditions Precedent to Obligations of Key.........................-35- 6.1 Compliance................................................-35- 6.2 Representations and Warranties............................-35- 6.3 Material Adverse Changes..................................-36- 6.4 Certificates..............................................-36- 6.5 Consents; Litigation......................................-36- 6.6 Due Diligence.............................................-36- 6.7 Tax-free Reorganization...................................-36- 6.8 Registration Rights.......................................-36- 6.9 Employment Agreements. ..................................-36- 6.10 Completion of Other Transaction. ........................-37- -iii- 6.11 Parent Subsidiaries. ....................................-37- 6.12 Increase of Authorized Capital Stock of Parent. .........-37- ARTICLE 7 Conditions Precedent to obligations of Parent and the Merger Subsidiary..........................................-37- 7.1 Compliance................................................-37- 7.2 Representations and Warranties............................-37- 7.3 Material Adverse Change...................................-38- 7.4 Certificates..............................................-38- 7.5 Consents; Litigation......................................-38- 7.6 Due Diligence.............................................-38- 7.7 Accounting Treatment......................................-38- 7.8 Tax-free Reorganization...................................-38- 7.9 BHC Act. ................................................-38- 7.10 Stockholder Approval. ...................................-38- 7.11 Completion of Other Transaction. ........................-38- 7.12 Stockholder Control of Parent. ..........................-39- 7.13 Solvency Opinion. .......................................-39- ARTICLE 8 Miscellaneous......................................................-39- 8.1 Termination...............................................-39- 8.2 Expenses..................................................-40- 8.3 Entire Agreement..........................................-40- 8.4 Indemnification...........................................-40- 8.5 Post-Closing Obligations of Parent. .....................-40- 8.6 Survival of Representations and Warranties................-41- 8.7 Counterparts..............................................-41- 8.8 Notices...................................................-41- 8.9 Successors; Assignments...................................-43- 8.10 Governing Law.............................................-43- 8.11 Waiver and Other Action...................................-43- 8.12 Severability..............................................-43- 8.13 Mutual Contribution.......................................-43- List of Exhibits...................................................-45- List of Schedules..................................................-45- -iv- Agreement and Plan of Reorganization AMONG Equitex, Inc. (a Delaware corporation) ----------------------------------- Key Financial Systems, Inc. (a Florida corporation) ----------------------------------- AND Key Merger Corp. (a Delaware corporation) JUNE ___, 2000 EX-2 5 eqtxkey8kex23.txt EXHIBIT 2.3 AGREEMENT AND PLAN OF REORGANIZATION This Agreement and Plan of Reorganization (the "Agreement") is made as of the 29th day of June, 2000, among Equitex, Inc., a Delaware corporation ("Parent"); Nova Financial Systems, Inc., a Florida corporation ("Nova"); and Nova Acquisition Corp., a Delaware corporation (the "Merger Subsidiary"), which is wholly owned by Parent. W I T N E S S E T H: WHEREAS, the respective Boards of Directors of the Merger Subsidiary and Nova each have determined that it is advisable and in the best interests of their respective stockholders to effect a reorganization whereby the Merger Subsidiary will be merged by statutory merger with and into Nova upon the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and certain other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto covenant and agree as follows: ARTICLE 1 BASIC PLAN OF REORGANIZATION 1.1 MERGER. In accordance with the provisions of the business corporation laws of the States of Delaware and Florida at the Effective Date (as hereinafter defined), the Merger Subsidiary shall be merged with and into Nova (the "Merger"), within ten business days following the satisfaction or waiver, if permissible, of the conditions set forth in Articles 7 and 8 of this Agreement or on such other date as may be agreed to by the parties (the "Closing Date"). Following the Merger, Nova shall continue as the surviving corporation (the "Surviving Corporation") and shall continue to be governed by the laws of the State of Florida. 1.2 CONTINUING CORPORATE EXISTENCE. Except as may otherwise be set forth herein, the corporate existence and identity of Nova, with all its purposes, powers, franchises, privileges, rights and immunities, shall continue unaffected and unimpaired by the Merger, and the corporate existence and identity of Merger Subsidiary, with all its purposes, powers, franchises, privileges, rights and immunities, at the Effective Date shall be merged with and into that of Nova, and the Surviving Corporation shall be vested fully therewith and the separate corporate existence and identity of the Merger Subsidiary shall thereafter cease except to the extent continued by statute. -1- 1.3 EFFECTIVE DATE. The Merger shall become effective upon the filing of the Certificate of Merger with the Secretary of State of the States of Delaware and the Articles of Merger with the Secretary of State of the State of Florida pursuant to the provisions of the General Corporation Law of Delaware and the Florida Business Corporation Act. The date and time when the Merger shall become effective is hereinafter referred to as the "Effective Date." 1.4 CORPORATE GOVERNMENT OF THE SURVIVING CORPORATION. (a) The Articles of Incorporation of Nova, as in effect on the Effective Date, shall continue in full force and effect and shall be the Articles of Incorporation of the Surviving Corporation. (b) The Bylaws of the Nova, as in effect as of the Effective Date, shall continue in full force and effect and shall be the Bylaws of the Surviving Corporation. (c) The members of the Board of Directors of the Surviving Corporation shall be the persons holding such office in Nova as of the Effective Date. (d) The officers of the Surviving Corporation shall be the persons holding such offices in Nova as of the Effective Date. 1.5 CLOSING. Consummation of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Friedlob Sanderson Paulson & Tourtillott, LLC in Denver, Colorado, commencing at 10:00 a.m., Mountain Time, as soon as practicable after the last to be fulfilled or waived of the conditions set forth in Articles 7 and 8 or at such other place, time and date as shall be fixed by mutual agreement between Parent and Nova; PROVIDED, HOWEVER, the Closing shall occur on or before September 1, 2000, subject to an automatic 30 day extension if necessary to accommodate a special meeting of the shareholders of either party to approve certain corporate actions necessary to complete the transactions contemplated by this Agreement, unless the date is extended by mutual agreement of Parent and Nova. The day on which the Closing shall occur is referred to herein as the "Closing Date." Each party will cause to be prepared, executed and delivered the Certificate of Merger to be filed with the Secretary of State of Delaware and Articles of Merger to be filed with the Secretary of State of Florida and all other appropriate and customary documents as any party or its counsel may reasonably request or as may be contemplated in Article 7 hereof for the purpose of consummating the transactions contemplated by this Agreement. All actions taken at the Closing shall be deemed to have been taken simultaneously at the time the last of any such actions is taken or completed. 1.6 TAX CONSEQUENCES. It is intended that the Merger shall constitute a reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code"), and that this Agreement shall constitute a "plan of reorganization" for the purposes of Section 368 of the Code. -2- ARTICLE 2 CONVERSION OF SHARES 2.1 CONVERSION OF SHARES. At the Effective Date, by virtue of the Merger and without any action on the part of the holder thereof: (a) All outstanding shares of Nova common stock, no par value, (the "Nova Common Stock") outstanding immediately prior to the Effective Date will be converted into and represent the right to receive, on a pro rata basis, the following: (i) 3,570,146 shares of Parent common stock, par value $.02 (the "Parent Common Stock"), or such greater or lesser number of shares of Parent Common Stock as shall equal twenty-five percent (25%) of the total number of shares of Parent common stock issues and outstanding as of the Closing Date, determined after giving effect to the consummation of the Merger and the related transaction described in Section 6.10 hereof, and the issuance of Parent Common Stock to raise the cash consideration payable pursuant to the Merger and the related transaction described in Section 6.10 hereof; (ii) Warrants, in a form and on terms mutually agreeable to the parties, for the purchase of Parent Common Stock in a number equal to fifty percent (50%) of any warrants, option, preferred stock, or other securities outstanding as of the Closing Date and exchangeable for or convertible into Parent Common Stock (the "Warrants"), at an exercise price, (A) with respect to Warrants other than Warrants based on the outstanding preferred stock, equal to the weighted average exercise price of such previously outstanding warrants, options, or other securities exchangeable for or convertible into Parent Common Stock, (B) with respect to Parent's outstanding preferred stock, Parent will either issue a Warrant or issue additional shares of Parent Common Stock (to be agreed by the parties) so as to minimize the creation of good will from the Merger. (iii) $2,500,000 in United States currency and in immediately available funds (the "Cash Consideration"). The consideration outlined in Section 2.1(a)(i)-(iii) above shall be referred to as the "Merger Consideration" and each share of Nova Common Stock converted pursuant to this Section 2.1(a) shall be referred to as a "Converted Share." -3- (b) Each share of common stock, $.01 par value, of the Merger Subsidiary which shall be outstanding immediately prior to the Effective Date shall at the Effective Date, by virtue of the Merger and without any action on the part of the holder thereof, be converted into one share of newly issued Nova Common Stock. The shares of Nova Common Stock issued pursuant to this Section 2.1(b) shall be validly issued, fully paid and non-assessable. 2.2 FRACTIONAL SHARES. No scrip or fractional shares of Parent Common Stock shall be issued in the Merger. All fractional shares of Parent Common Stock to which a holder of Nova Common Stock immediately prior to the Effective Date would otherwise be entitled at the Effective Date shall be aggregated. If a fractional share results from such aggregation the share shall be rounded to the nearest whole share. 2.3 CONVERTIBLE SECURITIES. Except as set forth on Schedule 2.3, there are no options, warrants, preferred stock or convertible securities outstanding entitling the holder thereof to purchase Nova Common Stock. 2.4 EXCHANGE OF NOVA COMMON STOCK. (a) At Closing, the Nova stockholders, at their expense, shall deliver to Parent all outstanding shares of Nova Common Stock endorsed in blank or accompanied by stock powers executed in blank, all signatures guaranteed by a national bank and with all necessary transfer tax or revenue stamps required and affixed (the "Certificates"). Parent, in turn, will deliver to the Nova stockholders, certificates representing the number of whole shares of Parent Common Stock to which the holders of Nova Common Stock are entitled pursuant to Section 2.1(a)(i) (the "Parent Certificates"), and warrant agreements, in a form and on terms mutually agreeable to the parties, representing the number of Warrants to which the holders of Nova Common Stock are entitled pursuant to Section 2.1(a)(ii) (the "Warrant Agreements"), and will pay to the Nova stockholders collected funds representing the Cash Consideration to which the holders of Nova Common Stock are entitled pursuant to Section 2.1(a)(iii). Upon delivery of the Certificates to Parent, the holder of such Certificate shall be entitled to receive in exchange therefor one or more Parent Certificates and Warrant Agreements as requested by the holder (properly issued, executed and countersigned, as appropriate) representing that number of whole shares of Parent Common Stock and that number of Warrants to which such holder of Nova Common Stock shall become entitled pursuant to the provisions of Section 2.1(a), plus his or her pro rata share of the Cash Consideration, and the Certificate so surrendered shall forthwith be canceled. (b) Parent shall pay any transfer or other taxes required by reason of the issuance of the Parent Certificates and Warrant Agreements; PROVIDED, HOWEVER, that such Parent Certificates and Warrant Agreements are issued in the name of the person in whose name the Certificate surrendered in exchange therefor is registered. If any portion of the consideration to be received pursuant to this Article 2 -4- upon exchange of a Certificate is to be issued or paid to a person other than the person in whose name the Certificate surrendered in exchange therefor is registered, it shall be a condition of such issuance and payment that the Certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the person requesting such exchange shall pay in advance any transfer or other taxes or transfer fee required by reason of the issuance of a Parent Certificate and Warrant Agreement to such other person, or establish to the satisfaction of the Exchange Agent that such tax has been paid or that no such tax is applicable. (c) In the case of any lost, mislaid, stolen or destroyed Certificates, the holder thereof may be required, as a condition precedent to the delivery to such holder of the consideration described in this Article 2, to deliver to Parent a bond, in such reasonable sum as Parent may direct, or other form of indemnity satisfactory to Parent, as indemnity against any claim that may be made against the Parent or Nova with respect to the Certificate alleged to have been lost, mislaid, stolen or destroyed. (d) After the Effective Date, there shall be no transfers on the stock transfer books of Nova of the shares of Nova Common Stock that were outstanding immediately prior to the Effective Date. If, after the Effective Date, Certificates are presented to Nova for transfer, they shall be canceled and exchanged for the consideration described in this Article 2. 2.5 ADJUSTMENT. If, between the date of this Agreement and the Closing Date or the Effective Date, as the case may be, the outstanding shares of Nova Common Stock or Parent Common Stock shall have been changed into a different number of shares or a different class by reason of any classification, recapitalization, split-up, combination, exchange of shares, or readjustment or a stock dividend thereon shall be declared with a record date within such period, then the consideration to be received pursuant to Section 2.1 hereof by the holders of shares of Nova Common Stock shall be adjusted to accurately reflect such change. 2.6 STATUS OF PARENT SECURITIES. The shares of Parent Common Stock being issued in the Merger are and will be "restricted securities" as defined in Rule 144 (the "Rule") under the Securities Act of 1933, as amended (the "Securities Act") and (unless registered for resale or some other exemption from registration is available) the shares of Parent Common Stock must be held for a minimum of one year following the Merger, and thereafter may be sold in only limited amounts in a specified manner in accordance with the terms and conditions of the Rule, if the Rule is applicable (there being no representation by Parent that it will be applicable). If the Rule is not applicable, any sales may be made only pursuant to an effective registration statement or an available exemption fromregistration. Parent will cause its stock transfer agent to reflect such restrictions in Parent's stock transfer books and to place an appropriate restrictive legend or legend on any certificates evidencing the Parent Common Stock and any certificates issued in replacement or exchange therefor. 2.7 Registration of Parent Securities. At the Closing, the parties shall execute a Registration Rights Agreement substantially in the form of Exhibit A. -5- ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF NOVA Nova represents and warrants to Parent that the statements contained in Article 3 are true and correct in all material respects, except as set forth in the schedules attached hereto. As used in this Article 3 and elsewhere in this Agreement, the phrases "to Nova's knowledge" or "to Nova's actual knowledge" shall mean to the knowledge, after reasonable investigation, of the officer of Nova who has the principal responsibility for the matter being stated. 3.1 ORGANIZATION AND GOOD STANDING OF NOVA. Nova is a corporation duly organized, validly existing and in good standing under the laws of Florida. 3.2 FOREIGN QUALIFICATION. Nova is duly qualified or licensed to do business and is in good standing as a foreign corporation in every jurisdiction where the failure to so qualify would have a material adverse effect on (a) the business, operation, assets or financial condition of Nova or (b) the validity or enforceability of, or the ability of Nova to perform its obligations under, this Agreement (a "Nova Material Adverse Effect"). 3.3 COMPANY POWER AND AUTHORITY. Nova has the corporate or company power and authority to own, lease and operate its properties and assets and to carry on its business as currently being conducted. Nova has furnished Parent with true and correct copies of its Articles of Incorporation and by-laws, as amended. 3.4 NO NOVA SUBSIDIARIES. Nova does not own beneficially, directly or indirectly, more than 5% of any class of equity securities or similar interests of any corporation, bank, business trust, association, limited liability company or similar organization, and is not, directly or indirectly, a partner in any partnership, or joint venture. 3.5 AUTHORIZATION. Nova has the corporate power and authority to execute and deliver this Agreement and, subject to the approval of this Agreement and the Merger by its stockholders, to perform its obligations under this Agreement and to consummate the Merger. The execution, delivery and performance by Nova of this Agreement has been duly authorized by all necessary corporate action. Subject to such approval of stockholders and of government agencies and other government boards having regulatory authority over Nova as may be required by statute or regulation, this Agreement is the legal, valid and binding obligation of Nova enforceable in accordance with its terms. 3.6 Absence of Restrictions and Conflicts. The execution, delivery and performance of this Agreement and the consummation of the Merger and the -6- fulfillment of and compliance with the terms and conditions of this Agreement do not and will not, with the passing of time or the giving of notice or both, violate or conflict with, constitute a breach of or default under, result in the loss of any material benefit under, or permit the acceleration of any obligation under, (i) any term or provision of the Articles of Incorporation or Bylaws of Nova, (ii) any "Material Contract" (as defined in Section 3.13), (iii) any judgment, decree or order of any court or governmental authority or agency to which Nova is a party or by which Nova or any of its properties is bound, or (iv) any statute, law, regulation or rule applicable to Nova other than such violations, conflicts, breaches or defaults as would not have a Nova Material Adverse Effect. Except for the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and Articles of Merger with the Secretary of State of the State of Florida, compliance with the applicable requirements of the Florida Business Corporation Act, Securities Act, Securities Exchange Act of 1934, as amended (the "Exchange Act"), and applicable state securities and banking laws, no consent, approval, order or authorization of, or registration, declaration or filing with, any governmental agency or public or regulatory unit, agency, body or authority with respect to Nova is required in connection with the execution, delivery or performance of this Agreement by Nova or the consummation of the transactions contemplated hereby. 3.7 CAPITALIZATION OF NOVA. (a) The authorized capital stock of Nova consists of (i) 7,500 shares of Nova Common Stock, no par value per share; and (ii) no shares of preferred stock. As of the date hereof, there were 1,000 shares of Nova Common Stock issued and outstanding and no shares of Nova Common Stock reserved for issuance upon the exercise of options, warrants or convertible securities. (b) All of the issued and outstanding shares of Nova Common Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights. (c) Except as set forth on Schedule 3.7(c), there are no voting trusts, stockholder agreements or other voting arrangements between or among the stockholders of Nova. (d) No equity security of Nova is or may be required to be issued by reason of any option, warrant, scrip, preemptive right, right to subscribe to, call or commitment of any character whatsoever relating to, or security or right convertible into, any shares of capital stock of such subsidiary, and there are no contracts, commitments, understandings or arrangements by which Nova is bound to issue additional shares of its capital stock, or any option warrant or right to purchase or acquire any additional shares of its capital stock. (e) Except as set forth on Schedule 3.7(e), since December 31, 1999, no shares of capital stock have been purchased, redeemed or otherwise reacquired, directly or indirectly, by Nova and no dividends or other distributions have been declared, set aside, made or paid to the stockholders of Nova. -7- 3.8 NOVA INFORMATION. Nova has made or will make available to Parent and the Merger Subsidiary all information that Nova has available (including all tax returns, financial statements given to any other person, contracts, payroll schedules, financial books and records), and all other information concerning Nova, its business, its customers, its management, and its financial condition which Parent may have requested (all such information being referred to herein as the "Nova Information"). As of their respective dates, the Nova Information 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. 3.9 FINANCIAL STATEMENTS AND RECORDS OF NOVA. Nova has made available and will provide to Parent and the Merger Subsidiary true, correct and complete copies of the following financial statements (the "Nova Financial Statements"): (i) audited consolidated balance sheets of Nova as of December 31, 1999 and 1998 and related audited consolidated statements of income, stockholder's equity and cash flows for the two years ended December 31, 1999, together with the notes thereto (the "Nova Year-End Statements"); and (ii) unaudited consolidated balance sheets of Nova and related consolidated statements of income, stockholder's equity and cash flows as of and for the quarter ended March 31, 2000 and as soon as they are available, for each quarter ended prior to Closing (the "Nova Quarterly Statements"). The Nova Year-End Statements and Nova Quarterly Statements present or will present fairly, in all material respects, the financial position of Nova as of the dates thereof and the results of operations and cash flows thereof for the periods then ended, in each case in conformity with generally accepted accounting principles, consistently applied, except as noted therein. Since January 1, 1999, there has been no change in accounting principles applied to, or methods of accounting utilized by, Nova, except as noted in the Nova Financial Statements or as otherwise described on Schedule 3.9. The books and records of Nova have been and are being maintained in accordance with good business practice, reflect only valid transactions, are complete and correct in all material respects and present fairly in all material respects the basis for the financial position and results of operations of Nova as set forth on the Nova Year-End Statement and Nova Quarterly Statements. 3.10 REPORTS. Since December 31, 1994, Nova has not been required to file any reports, registrations and statements with (i) the Federal Reserve Board ("FRB"), (ii) the Securities and Exchange Commission ("SEC") or (iii) any applicable state securities, banking or financial authorities. 3.11 ABSENCE OF CERTAIN CHANGES. Since December 31, 1999, Nova has not, except as otherwise set forth in the Nova Information or the Nova Financial Statements or as otherwise set forth on Schedule 3.11: -8- (a) suffered any adverse change in its business, operation, assets, or financial condition, except for such changes that would not have a Nova Material Adverse Effect; (b) suffered any material damage, destruction, loss or forfeiture of its assets, whether or not covered by insurance, which property or assets are material to its operations or business, taken as a whole; (c) settled, forgiven, compromised, canceled, released, waived or permitted to lapse any material rights or claims other than in the ordinary course of business consistent with past practice and business custom ("Ordinary Course of Business"); (d) entered into or terminated any Material Contract or agreed or made any changes in any Material Contract, other than renewals or extensions thereof and leases, agreements, transactions and commitments entered into or terminated in the Ordinary Course of Business; (e) entered into any transaction, other than at arms-length in the Ordinary Course of Business, between Nova and any stockholder, director, officer, or any affiliate of any such officer, director or stockholder; (f) made any material change in the accounting policy, procedure or practice employed with respect to Nova; (g) sold any of the assets of Nova (tangible or intangible), other than in the Ordinary Course of Business; (h) paid or incurred any capital expenditures, other than capital expenditures incurred in the Ordinary Course of Business which do not exceed $10,000 (any single item or group of related items); (i) written up, written down or written off the book value of any material amount of assets other than in the Ordinary Course of Business; (j) declared, paid or set aside for payment any dividend or distribution with respect to its capital stock; (k) redeemed, purchased or otherwise acquired, or sold, granted or otherwise disposed of, directly or indirectly, any of its capital stock or securities or any rights to acquire such capital stock or securities, or agreed to changes in the terms and conditions of any such rights outstanding as of the date of this Agreement; (l) increased the compensation of or paid any bonuses to any employees or contributed to any employee benefit plan, other than in accordance with established policies, practices or requirements or as provided in Section 5.1 hereof; -9- (m) entered into any employment, consulting or compensation agreement with any person or group, except as set forth on Schedule 3.11(m); (n) entered into any collective bargaining agreement with any person or group; (o) entered into, adopted or amended any employee benefit plan; or (p) entered into any agreement to do any of the foregoing. 3.12 NO MATERIAL UNDISCLOSED LIABILITIES. There are no liabilities or obligations of Nova of any nature, whether absolute, accrued, contingent, or otherwise, other than: (a) the liabilities and obligations that are reflected, accrued or reserved against on the Nova Financial Statements, or referred to in the footnotes thereto, or incurred in the Ordinary Course of Business and consistent with past practices since December 31, 1999; or (b) liabilities and obligations which in the aggregate would not have a Nova Material Adverse Effect. 3.13 TAX RETURNS; TAXES. Nova has filed all federal, state, county, local, and foreign tax returns, including information returns, required to be filed by it, and has paid all taxes owed by it, including those with respect to income, withholding, social security, unemployment, workers' compensation, franchise, ad valorem, premium, excise and sales taxes, and no taxes shown on such returns to be owed by it or assessments received by it are delinquent. Federal income tax returns of Nova for the fiscal year ended December 31, 1995, and for all fiscal years prior thereto, are for the purposes of routine audit by the Internal Revenue Service closed because of the statute of limitations, and no claims for additional taxes for such fiscal years are pending. Except as set forth on Schedule 3.13, no tax return of Nova is being audited. Nova is not a party to any pending action or proceeding, nor, to Nova's knowledge, is any such action or proceeding threatened by anygovernmental authority for the assessment or collection of taxes, interest, penalties, assessments or deficiencies and no issue has been raised by any federal, state, local or foreign taxing authority in connection with any audit or examination of the tax returns, business or properties of Nova which has not been settled, resolved and fully satisfied. Except for amounts not yet due and payable, Nova has paid all taxes owed or which it is required to withhold from amounts owing to employees, creditors or other third parties. The balance sheet as of December 31, 1999, referred to in Section 3.9, includes adequate provision for all accrued but unpaid federal, state, county, local and foreign taxes, interests, penalties, assessments or deficiencies of Nova with respect to all periods through the date thereof. 3.14 MATERIAL CONTRACTS. Nova has furnished or made available to Parent accurate and complete copies of the Material Contracts (as defined herein) applicable to Nova. Except as set forth on Schedule 3.14, there is not under any of the Material Contracts any existing breach, default or event of default by Nova nor any event that with notice or lapse of time or both would constitute a -10- breach, default or event of default by Nova other than breaches, defaults or events of default which would not have nor does Nova know of, and Nova has not received notice of, or made a claim with respect to, any breach or default by any other party thereto which would, severally or in the aggregate, have an Nova Material Adverse Effect. As used herein, the term "Material Contracts" shall mean (i) all strategic alliance contracts and agreements; (ii) all agreements to pay percentages or profits, revenue, or fees; and (iii) all other contracts and agreements providing for expenditures or commitments by Nova in excess of $15,000 over more than a 12-month period all as set forth on Schedule 3.14 (which Schedule contains true and accurate information regarding the nature and status of such contracts and agreements). 3.15 LITIGATION AND GOVERNMENT CLAIMS. Except as set forth on Schedule 3.15, there is no pending suit, claim, action or litigation, or administrative, arbitration or other proceeding or governmental investigation or inquiry against Nova to which its business or assets are subject which would, severally or in the aggregate, reasonably be expected to result in an Nova Material Adverse Effect nor have any such proceedings been threatened or contemplated. Nova is not subject to any judgment, decree, injunction, rule or order of any court, or, to the knowledge of Nova, any governmental restriction applicable to Nova which is reasonably likely (i) to have a Nova Material Adverse Effect or (ii) to cause a material limitation on Parent's ability to operate the business of Nova (as it is currently operated) after the Closing. 3.16 COMPLIANCE WITH LAWS. Nova has all authorizations, approvals, licenses and orders to carry on its business as it is now being conducted, to own or hold under lease the properties or assets it owns or holds under lease and to perform all of its obligations under the agreements to which they are a party, except for instances which would not have a Nova Material Adverse Effect. Except for instances which would not have a Nova Material Adverse Effect, to Nova's knowledge, Nova has been and is in compliance with all applicable laws, including but not limited to, banking, financial and Securities laws, regulations and administrative orders of any country, state or municipality or subdivision thereof. 3.17 POLICIES AND PROCEDURES. Nova has provided Parent with all of its standard consumer forms, including all form disclosures and notices, warranty, shipment, and order forms, and all instruments and agreements used in the operation of its business (the "Consumer Forms"). Nova has provided Parent with a copy of its internal practices and procedures and Nova and its employees have complied and are in compliance with such practices and procedures in all material respects. To the knowledge of Nova, all such practices and procedures and all Consumer Forms comply in all material respects with (i) Federal and state law, as required in the states in which Nova is conducting its business. 3.18 LICENSES AND PERMITS. Nova is not and has not ever been required to obtain any licenses, permits, qualifications, franchises or other governmental authorizations or approvals, in order for it to conduct its past or current business, and if it is determined that any licenses, permits, qualifications, franchises or other governmental authorizations or approvals -11- were necessary prior to the Closing Date, the failure to obtain such licenses, permits, qualifications, franchises or other governmental authorizations or approvals will not have a Nova Material Adverse Effect. 3.19 EMPLOYEE BENEFIT PLANS. (a) Schedule 3.19 contains an accurate and complete list of all Employee Benefit Plans, contributed to, maintained or sponsored by Nova, to which Nova is obligated to contribute or with respect to which Nova has any liability or potential liability, whether direct or indirect (collectively the "Plans" or individually a "Plan"). None of the Plans are pension plans for purposes of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). (b) Nova does not contribute to, have an obligation to contribute to or otherwise have any liability or potential liability with respect to (a) any Multiemployer Plan (as such term is defined in Section 3(37) of ERISA, (b) any plan of the type described in Sections 4063 and 4064 of ERISA or in Section 413 of the Code (and regulations promulgated thereunder), or (c) any plan which provides heath, life insurance, accident or other welfare-type benefits to current, future, or former employees, their spouses or dependents, other than in accordance with Section 4980B of the Code or applicable state continuation coverage law. 3.20 EMPLOYMENT AGREEMENTS; LABOR RELATIONS. (a) Schedule 3.20 sets forth a complete and accurate list of all material employee benefit or compensation plans, agreements and arrangements to which Nova is a party and which are not disclosed in the Nova Information, including without limitation (i) severance, employment, consulting or similar contracts, (ii) material agreements and contracts with "change of control" provisions or similar provisions and (iii) indemnification agreements or arrangements with directors or officers. (b) Nova is in compliance in all material respects with all laws (including Federal and state laws) respecting employment and employment practices, terms and conditions of employment, wages and hours, and is not engaged in any unfair labor or unlawful employment practice. (c) No work stoppage involving Nova is pending or, to Nova's knowledge, threatened. Nova is not involved in, affected by or, to Nova's knowledge, threatened with, any labor dispute, arbitration, lawsuit or administrative proceeding which could have a Nova Material Adverse Effect. No employees of Nova or any Nova Subsidiary are represented by any labor union or any collective bargaining agreement otherwise in effect with respect to such employees. -12- 3.21 INTELLECTUAL PROPERTY. (a) Nova owns or has valid, binding and enforceable rights to use all material patents, trademarks, trade names, service marks, service names, copyrights, applications therefor and licenses or other rights in respect thereof ("Intellectual Property") used or held for use in connection with the business of Nova, without any known conflict with the rights of others, except for such conflicts as do not have a Nova Material Adverse Effect. Each item of Intellectual Property owned or used by Nova or any Nova Subsidiary immediately prior to the Closing will be owned or available for use by Parent on no less favorable terms and conditions immediately subsequent to the Closing except to the extent Parent has agreed to modify such terms and conditions. Nova has taken all necessary action to maintain and protect each item of Intellectual Property that it owns or uses. (b) To the knowledge of Nova, Nova has not interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of third parties. None of the directors and officers of Nova (including employees with responsibility for Intellectual Property matters) has ever received any charge, complaint, claim, demand or notice alleging any such interference, infringement, misappropriation or violation (including any claim that Nova must license or refrain from using any Intellectual property rights of any third party). To the Knowledge of Nova and its employees with responsibility for Intellectual Property matters, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of Nova. (c) No patent or registration has been issued to or applied for by Nova, with respect to any of its Intellectual Property. Nova does not use any trade name or unregistered trademark in connection with its business. (d) Nova does not use any Intellectual Property not owned by Nova which is material to the Business of Nova as currently conducted (excluding packaged commercially available software available to the public through retail dealers which have been licensed to Nova pursuant to end-user licenses). (e) To the knowledge of Nova, and any employees with responsibility for Intellectual Property matters, the business of Nova will not interfere with, infringe upon, misappropriate, or otherwise come into conflict with, any Intellectual Property rights of third parties as a result of the continued operation of its business as presently conducted and as presently proposed to be conducted. 3.22 SOFTWARE. All of the computer software used by or for Nova in the conduct of its business (the "Software") is either (i) owned by Nova free and clear of any and all liens, claims, equities, security interests, and encumbrances whatsoever, or (ii) used by Nova pursuant to a fully- paid license granted to Nova for the third party pursuant to the terms of such license, -13- except for any noncompliance the effect of which would not have a Nova Material Adverse Effect. No such computer software license shall terminate or become terminable as a result of the transactions contemplated hereby. There are no infringement suits pending or, to Nova's knowledge, threatened against Nova with respect to any of the Software, and, to the knowledge of Nova, no fact or condition exists which could give rise to any such infringement suit. 3.23 PROPERTIES AND RELATED MATTERS. Except as may be reflected in the Nova Financial Statements and except for any lien for current taxes not yet delinquent, Nova has good title free and clear of any material liens, claims, charges, options, encumbrances, or similar restrictions to all the real and personal property reflected in Nova's balance sheet as of December 31, 1999, and all real and personal property acquired since that date, except such real and personal property as has been disposed of in the Ordinary Course of Business. All leases of real property and all other leases material to Nova pursuant to which Nova, as lessee, leases real or personal property, which leases are described on Schedule 3.23, are valid and effective in accordance with their respective terms, and there is not, under any such lease, any material existing default by Nova or any event which, with notice or lapse of time or both, constitute such a material default. Substantially all of Nova's buildings and equipment have been well maintained and are in good and serviceable condition, reasonable wear and tear accepted. 3.24 INSURANCE. Nova maintains and has maintained insurance, for reasonable amounts with financially sound and reputable insurance companies against such risks as companies engaged in a similar business would, in accordance with good business practice, customarily be insured and has maintained all insurance acquired by applicable law and regulation. 3.25 MATERIAL INTERESTS OF CERTAIN PERSONS. Except as set forth on Schedule 3.25, to Nova's knowledge, no officer or director of Nova, or any "associate" (as such term is defined in Rule 14a-1 under the Exchange Act) of any such officer or director, has any interest in any material contract or property (real or personal), tangible or intangible, used in or pertaining to the business of Nova. Schedule 3.25 sets forth a correct and complete list of any loan from Nova to any present stockholder, officer, director, employee or associate or related interest of any such person. 3.26 REGISTRATION OBLIGATIONS. Nova is under no obligation, contingent or otherwise, which will survive the Merger by reason of any agreement to register any of its securities under the Securities Act. 3.27 ENVIRONMENTAL MATTERS. To the knowledge of Nova: (a) No Hazardous Material (as defined below) has been disposed of on, released to or from, threatened to be released to or from or is presently at, on, beneath, in or upon any parcel of real property owned or leased by Nova or upon any adjacent parcels of real estate in amounts or concentration which constitute or constituted a violation -14- of, or which could reasonably be expected to give rise to liability under, any Environmental Law (as defined below). (b) There has been no generation, production, refining, processing, manufacturing, use, storage, disposal, treatment, shipment or receipt of a Hazardous Material at or from any parcel of real property owned or leased by Nova relating to the operations of Nova in violation of or in a manner that could give rise to liability under Environmental Laws. (c) The operations of Nova are in compliance and have been in compliance with all applicable Environmental Laws, and there is no violation of any Environmental Law with respect to any parcels of real property owned or leased by Nova which could interfere with the continued operation of the business of Nova or impair its fair salable value. (d) Nova has not received any notice of violation, alleged violation, non- compliance, liability or potential liability regarding environmental matters or compliance with environmental laws with regard to any parcels of real property owned or leased by Nova from any person, nor does Nova have knowledge or reason to believe that any such notice will be received from or is being threatened by any person. (e) No judicial proceedings, governmental administrative actions, investigations or internal or non-public agency proceedings are pending or threatened, under any environmental law, to which Nova is or will be named as a party, nor are the any consent decrees, or other decrees, consent orders, agreements, administrative orders, other orders, judicial or administrative requirements outstanding under any environmental law with respect to Nova. (f) "HAZARDOUS MATERIALS" means any substance (a) the presence of which at, on, over, beneath, in or upon any real or personal property, building, structure, container of any nature or description, subsurface strata, ambient air or ambient water (including surface and groundwater) requires investigation, removal or remediation under any Environmental Law or common law, (b) which is or becomes defined as a "hazardous substance," "hazardous material," "hazardous waste," "pollutant" or "contaminant" under any Environmental Law, and/or (c) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or becomes regulated by any governmental authority under any Environmental Law, (d) the presence of which causes or threatens to cause a nuisance or trespass upon real property or to adjacent properties or poses or threatens to pose a hazard to the environment, and/or to the health or safety of persons on or about any real property, and/or (e) which contains urea-formaldehyde, polychlorinated biphenyls, asbestos or asbestos containing materials, radon, petroleum or petroleum products. (g) "ENVIRONMENTAL LAW OR LAWS" means any and all federal, state, local or municipal laws, rules, orders, regulations, statutes, treaties, ordinances, codes, decrees, or requirements of any -15- governmental authority regulating, relating to or imposing liability or standards of conduct concerning environmental protection, health or safety matters, including all requirements pertaining to reporting, licensing, permitting, investigation, removal or remediation of emissions, discharges, releases, or threatened releases of Hazardous Materials, chemical substances, pollutants or contaminants or relating to the manufacture, generation, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials, chemical substances, pollutants or contaminants, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Toxic Substance Control Act ("TSCA"), the Resource Conservation and Recovery Act ("RCRA"), the Clean Air Act ("CAA"), the Clean Water Act ("CWA") and the Occupational Safety and Health Act of 1970 ("OSHA"), all as may have been amended. 3.28 REFERRAL SOURCES; INVESTORS. Nova has not been advised that any of its officers, referral sources or investors intend to cease doing business with Nova which cessation in the aggregate or otherwise could have a Nova Material Adverse Effect. 3.29 BROKERS AND FINDERS. Neither Nova, nor to Nova's knowledge any of its officers, directors, employees, or stockholders has employed any broker, finder or investment bank or incurred any liability for any investment banking fees, financial advisory fees, brokerage fees or finders' fees in connection with the transactions contemplated hereby. Nova is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. 3.30 PROXY STATEMENT. None of the information regarding Nova supplied by Nova for inclusion in any (i) proxy statement to be mailed to its shareholders or Parent's stockholders and (ii) any other documents to be filed with the SEC or any regulatory authority in connection with the transactions contemplated hereby will, at the respective times that such documents are filed with the SEC or any regulatory authority and, with respect to the proxy statement, when mailed, be false or misleading with respect to any material facts, or omit to state any material fact necessary in order to make the statements therein not misleading or, in the case of the proxy statement or any amendment thereof or supplement thereto, at the time of the meeting of shareholders, be false or misleading with respect to any material fact, or omit to state a material fact necessary to correct any statement in any earlier communication with respect to the solicitation of any proxy for such meeting. 3.31 INVENTORY. The Inventory of Nova consists of supplies, all of which are merchantable and fit for the purpose for which it was procured or manufactured, subject to only the reserve for inventory write-down set forth in the Nova Financial Statements, as adjusted for the passage of time through the Closing Date in accordance with past custom and practice of Nova. 3.32 ACCOUNTS RECEIVABLE. Schedule 3.32 lists all accounts receivable of Nova as of the most recent fiscal month end. Said accounts receivable have arisen in the Ordinary Course of Business and represent valid obligations due to Nova. Such accounts receivable (net of any reserve for doubtful accounts as -16- reflected in Schedule 3.32) are collectible in accordance with their terms, in the Ordinary Course of Business and in the aggregate recorded amounts thereof. Such accounts receivable are not subject to any material set-offs or material counterclaims. At the Closing, Nova shall amend Schedule 3.32 to reflect all accounts receivable of Nova as of the Closing Date. 3.33 NOTES RECEIVABLE. Schedule 3.33 summarizes the outstanding terms, payment history and balance of the notes receivable of Nova as of the most recent fiscal month end, which shall be amended to reflect the notes receivable of Nova as of the Closing Date. Said notes receivable have arisen (and will arise) in the Ordinary Course of Business and represent (and as of the Closing will represent) valid obligations due to Nova. Such notes receivable (net of any reserve for doubtful accounts as reflected in Schedule 3.33) are current in accordance with their terms, all in the Ordinary Course of Business and in the aggregate recorded amounts thereof. Such notes receivable are not subject to any material set-offs or material counterclaims. 3.34 POWERS OF ATTORNEY. There are no outstanding powers of attorney executed on behalf of Nova. 3.35 GUARANTIES. Nova is not a guarantor or otherwise liable for any liability or obligation (including indebtedness) of any other Person. 3.36 RIGHTS TO ALL TELEMARKETING OR MAILING LISTS. Nova represents and warrants to the Parent that Nova's right, licence, consent, permission, contract or any other form of grant to use all telemarketing, mailing or similar lists, databases or compilations of any sort currently used in the operation of Nova's business ("Data Base Information") are currently valid, lawfully acquired or rightfully obtained in accordance with all applicable federal and/or state telemarketing laws and Nova further represents and warrants that such rights will be unaffected by the closing of this transaction. No person who supplies Data Base Information to Nova has identified in writing or orally to Nova or any officer or director of Nova that it will stop supplying Data Base Information to Nova. Schedule 3.36 identifies all of Nova's current rights, licences, consents, permission, contracts, or any other form of grant to all Data Base Information. 3.37 DISCLOSURE. The representations and warranties contained in this Article 3 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Article 3 not misleading. -17- ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND THE MERGER SUBSIDIARY Parent and the Merger Subsidiary represent and warrant to Nova that the statements contained in Article 4 are true and correct in all material respects. As used in this Article 4 and elsewhere in this Agreement, the phrase "to Parent's or the Merger Subsidiary's knowledge" or "to Parent's or the Merger Subsidiary's actual knowledge" shall mean to the knowledge of the officer of Parent or the Merger Subsidiary who has the principal responsibility for the matter being stated. 4.1 ORGANIZATION AND GOOD STANDING. Each of Parent and the Merger Subsidiary is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization. 4.2 FOREIGN QUALIFICATION. Parent and the Merger Subsidiary are duly qualified or licensed to do business and are in good standing as a foreign corporation in every jurisdiction where the failure so to qualify would have a material adverse effect (a "Parent Material Adverse Effect") on (a) the business, operation, assets or financial condition of Parent or the Merger Subsidiary taken as a whole or (b) the validity of enforceability of, or the ability of Parent or the Merger Subsidiary, to perform their respective obligations under, this Agreement. 4.3 CORPORATE POWER AND AUTHORITY. Parent and the Merger Subsidiary have the corporate power and authority and all material licenses and permits to own, lease and operate their respective properties and assets and to carry on their respective businesses as currently being conducted. 4.4 PARENT SUBSIDIARIES. Schedule 4.4 sets forth the complete and correct list, after giving effect to the pending spin-off of Equitex 2000, Inc., of all Parent Subsidiaries as of the date hereof (individually a "Parent Subsidiary" and collectively the "Parent Subsidiaries"). Except as set forth on Schedule 4.4, Parent does not own beneficially, directly or indirectly, more than 5% of any class of equity securities or similar interests of any corporation, bank, business trust, association, limited liability company or similar organization, and is not, directly or indirectly, a partner in any partnership, or joint venture, after giving effect to the pending spin-off of Equitex 2000, Inc. -18- 4.5 AUTHORIZATION. Parent and the Merger Subsidiary have the corporate power and authority to execute and deliver this Agreement and, subject to the approval of this Agreement and the Merger by the sole stockholder of Merger Subsidiary, to perform their obligations under this Agreement and to consummate the Merger. The execution, delivery and performance by Parent and the Merger Subsidiary of this Agreement has been duly authorized by all necessary corporate action. Subject to such approval of stockholders and of government agencies and other government boards having regulatory authority over Parent and the Merger Subsidiary as may be required by statute or regulation, this Agreement is the legal, valid and binding obligation of Parent and the Merger Subsidiary enforceable in accordance with its terms. 4.6 ABSENCE OF RESTRICTIONS AND CONFLICTS. The execution, delivery and performance of this Agreement and the consummation of the Merger and the fulfillment of and compliance with the terms and conditions of this Agreement do not and will not, with the passing of time or the giving of notice or both, violate or conflict with, constitute a breach of or default under, result in the loss of any material benefit under, or permit the acceleration of any obligation under, (i) any term or provision of the Certificate of Incorporation or Bylaws of Parent or the Merger Subsidiary, (ii) any "Parent Material Contract" (as defined in Section 4.14), (iii) any judgment, decree or order of any court or governmental authority or agency to which Parent or the Merger Subsidiary is a party or by which Parent or any of the Merger Subsidiary or any of their respective properties is bound, or (iv) any statute, law, regulation or rule applicable to Parent or the Merger Subsidiary other than such violations, conflicts, breaches or defaults as would not have a Parent Material Adverse Effect. Except for the filing of the Certificate of Merger with the Secretary of State of Delaware and Articles of Merger with the Secretary of State of Florida, compliance with the Bank Holding Company Act of 1954, the Securities Act, the Exchange Act and applicable state securities laws, no consent, approval, order or authorization of, or registration, declaration or filing with, any governmental agency or public or regulatory unit, agency, body or authority with respect to Parent or the Merger Subsidiary is required in connection with the execution, delivery or performance of this Agreement by Parent or the Merger Subsidiary or the consummation of the transactions contemplated hereby. 4.7 CAPITALIZATION OF PARENT. (a) The authorized capital stock of Parent consists of 7,500,000 shares of Parent Common Stock, $.02 par value, and 2,000,000 shares of preferred stock, $0.01 par value. Parent currently plans to call a special meeting of the stockholders to, among other things, authorize an increase of capital stock to allow for 50,000,000 shares of authorized Parent Common Stock. Schedule 4.7 lists, as of the date hereof: (i) the number of shares of Parent Common Stock outstanding, (ii) the number of shares of preferred stock outstanding, -19- (iii) the number of shares of Parent Common Stock reserved for issuance upon the conversion of outstanding preferred stock and the exercise of outstanding options and outstanding warrants (including, without limitation, any preferred stock, options and warrants that Parent has agreed to issue subject to amending its Certificate of Incorporation to increase the amount of authorized capital stock), (iv) the additional number of shares of Parent Common Stock exchangeable for stock options that are authorized, but unissued, under any stock option plans of the Parent, and (v) the number of shares of Parent Common Stock proposed to be issued to raise the capital required to pay the aggregate Cash Consideration payable pursuant to the Merger and the related transaction described in Section 6.10 hereof. With respect to any outstanding options and warrants to acquire Parent Common Stock or other securities of Parent convertible into or exchangeable for Parent Common Stock, Schedule 4.7 accurately sets forth the holder, the number of shares covered, the exercise price, and the expiration date. With respect to any outstanding preferred stock of Parent, Schedule 4.7 accurately sets forth the holder, the number of shares owned by each holder, the basis upon which such shares may be converted into Parent Common Stock and the material terms of any put, call or similar rights with respect thereto. (b) All of the issued and outstanding shares of Parent Common Stock and other securities convertible into or exchangeable for Parent Common Stock or other capital stock of Parent have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights. (c) The shares of Parent Common Stock to be issued in the Merger will be duly authorized and validly issued and will be fully paid, nonassessable shares of Parent Common Stock free of preemptive rights. (d) To Parent's knowledge, there are no voting trusts, stockholder agreements or other voting arrangements between or among the stockholders of Parent. (e) Except as set forth in subsection (a) above or Schedule 4.7(e), no equity security of Parent is or may be required to be issued by reason of any option, warrant, scrip, preemptive right, right to subscribe to, call or commitment of any character whatsoever relating to, or security or right convertible into, any shares of capital stock of Parent, and there are no contracts, commitments, understandings or -20- arrangements by which Parent is bound to issue additional shares of its capital stock, or any option, warrant or right to purchase or acquire any additional shares of its capital stock (f) Except as reported in the Parent SEC Reports or in connection with the spin- off of Equitex 2000, Inc., since December 31, 1999, no shares of capital stock have been purchased, redeemed or otherwise reacquired, directly or indirectly, by Parent or the Merger Subsidiary and no dividends or other distributions have been declared, set aside, made or paid to the stockholders of Parent. 4.8 CAPITALIZATION OF MERGER SUBSIDIARY. (a) The authorized capital stock of Merger Subsidiary consists of 1,000 shares of Merger Subsidiary Common Stock $.01 par value, all of which are issued and outstanding. (b) The shares of Merger Subsidiary Common Stock to be issued in the Merger will be duly authorized and validly issued and will be fully paid, nonassessable shares of Merger Subsidiary Common Stock free of preemptive rights. (c) Except as set forth in this Agreement and subsection (a) above, there is no outstanding subscription, contract, convertible or exchangeable security, option, warrant, call or other right obligating Merger Subsidiary to issue, sell, exchange, or otherwise dispose of, or to purchase, redeem or otherwise acquire, shares of, or securities convertible into or exchangeable for, capital stock of Merger Subsidiary. 4.9 PARENT SEC REPORTS. Parent has made available to Nova (i) Parent's Annual Reports on Form 10-KSB, including all exhibits filed thereto and items incorporated therein by reference, (ii) Parent's Quarterly Reports on Form 10-QSB, including all exhibits thereto and items incorporated therein by reference, (iii) proxy statements relating to Parent's meetings of stockholders and (iv) all other reports or registration statements (as amended or supplemented prior to the date hereof), filed by Parent with the Securities and Exchange Commission ("SEC") since January 1, 1996, including all exhibits thereto and items incorporated therein by reference (items (i) through (iv) being referred to as the "Parent SEC Reports"). As of their respective dates, Parent SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Since January 1, 1997, Parent has filed, on or before the respective due date therefor as such may have been extended by the SEC, all material forms (and necessary amendments), reports and documents with the SEC required to be filed by it pursuant to the federal securities laws and the SEC rules and regulations thereunder, each of which complied as to form, at the time such form, report or document was filed, in all material respects with the applicable requirements of the Securities Act and the Exchange Act and the applicable rules and regulations thereunder. -21- 4.10 FINANCIAL STATEMENTS AND RECORDS OF PARENT. Parent has made or will make available to Nova true, correct and complete copies of the following financial statements (the "Parent Financial Statements"): (a) the balance sheets of Parent as of December 31, 1999 and 1998, and the statements of income, stockholders' equity and cash flows for the fiscal years then ended, including the notes thereto, in each case examined by and accompanied by the report of Gelfond Hochstadt Pangburn, P.C.; and (b) the unaudited consolidated balance sheet of Parent as of March 31, 2000 (the "Parent Balance Sheet"), with any notes thereto, and the related unaudited statement of income for March 31, 2000, and, as soon as they are available, for each quarter ended prior to Closing (collectively, the "Parent Quarterly Statements"). The Parent Financial Statements present or will present fairly, in all material respects, the financial position of Parent as of the dates thereof and the results of operations and changes in financial position thereof for the periods then ended, in each case in conformity with generally accepted accounting principles, consistently applied, except as noted therein. Since December 31, 1999, there has been no change in accounting principles applicable to, or methods of accounting utilized by, Parent, except as noted in the Parent Financial Statements. The books and records of Parent have been and are being maintained in accordance with good business practice, reflect only valid transactions, are complete and correct in all material respects, and present fairly in all material respects the basis for the financial position and results of operations of Parent set forth in the Parent Financial Statements. 4.11 ABSENCE OF CERTAIN CHANGES. Since December 31, 1999, Parent has not, except as otherwise set forth in the Parent SEC Reports or on Schedule 4.11: (a) suffered any adverse change in the business, operation, assets, or financial condition except for such changes that would not have a Parent Material Adverse Effect; (b) suffered any material damage or destruction to or loss of the assets of Parent or any of the Merger Subsidiary, whether or not covered by insurance, which property or assets are material to the operations or business of Parent and its subsidiaries taken as a whole; (c) settled, forgiven, compromised, canceled, released, waived or permitted to lapse any material rights or claims other than in the Ordinary Course of Business; (d) entered into or terminated any Material Contract or agreed or made any changes in any Material Contract, other than renewals or -22- extensions thereof and leases, agreements, transactions and commitments entered into or terminated in the Ordinary Course of Business; (e) entered into any transaction, other than at arms-length in the Ordinary Course of Business, between Parent and any stockholder, director, officer, or any affiliate of any such officer, director or stockholder; (f) made any material change in the accounting policy, procedure or practice employed with respect to Parent; (g) sold any of the assets of Parent (tangible or intangible), other than in the Ordinary Course of Business; (h) paid or incurred any capital expenditures, other than capital expenditures incurred in the Ordinary Course of Business which do not exceed $10,000 (any single item or group of related items); (i) written up, written down or written off the book value of any material amount of assets other than in the Ordinary Course of Business; (j) declared, paid or set aside for payment any dividend or distribution with respect to Parent's capital stock; (k) redeemed, purchased or otherwise acquired, or sold, granted or otherwise disposed of, directly or indirectly, any of Parent's capital stock or securities or any rights to acquire such capital stock or securities, or agreed to changes in the terms and conditions of any such rights outstanding as of the date of this Agreement; (l) increased the compensation of or paid any bonuses to any employees or contributed to any employee benefit plan, other than in accordance with established policies, practices or requirements and as provided in Section 5.2 hereof; (m) entered into any employment, consulting or compensation agreement with any person or group, except for agreements which would not have a Parent Material Adverse Effect; (n) entered into any collective bargaining agreement with any person or group; (o) entered into, adopted or amended any employee benefit plan; or (p) entered into any agreement to do any of the foregoing. -23- 4.12 NO MATERIAL UNDISCLOSED LIABILITIES. There are no liabilities or obligations of Parent and its consolidated subsidiaries of any nature, whether absolute, accrued, contingent, or otherwise, other than: (a) liabilities and obligations that are reflected, accrued or reserved against on the Parent Balance Sheet or referred to in the footnotes to the Parent Balance Sheet, or incurred in the Ordinary Course of Business and consistent with past practices since March 31, 2000; or (b) liabilities and obligations which in the aggregate would not result in a Parent Material Adverse Effect. 4.13 TAX RETURNS; TAXES. Each of Parent and the Merger Subsidiary has filed all federal, state, county, local, and foreign tax returns, including information returns, required to be filed by it, and paid all taxes owed by it, including those with respect to income, withholding, social security, unemployment, workers' compensation, franchise, ad valorem, premium, excise and sales taxes, and no taxes shown on such returns to be owed by it or assessments received by it are delinquent. Federal income tax returns of Parent for the fiscal year ended December 31, 1995, and for all fiscal years prior thereto, are for the purposes of routine audit by the Internal Revenue Service closed because of the statute of limitations, and no claims for additional taxes for such fiscal years are pending. No tax return of Parent or any Parent Subsidiary is being audited. Neither Parent nor the Merger Subsidiary is a party to any pending action or proceeding, nor, to Parent's knowledge, is any such action or proceeding threatened by any governmental authority, for the assessment or collection of taxes, interest, penalties, assessments or deficiencies and no issue has been raised by any federal, state, local or foreign taxing authority in connection with any audit or examination of the tax returns, business or properties of Parent and the Merger Subsidiary which has not been settled, resolved and fully satisfied. Except for amounts not yet due and payable, each of Parent and the Merger Subsidiary has paid all taxes owed or which it is required to withhold from amounts owing to employees, creditors or other third parties. The balance sheet as of December 31, 1999, referred to in Section 4.10, includes adequate provision for all accrued but unpaid federal, state, county, local and foreign taxes, interests, penalties, assessments or deficiencies of Parent with respect to all periods through the date thereof. 4.14 MATERIAL CONTRACTS. Parent has furnished or made available to Nova accurate and complete copies of the Parent Material Contracts (as defined herein) applicable to Parent or the Merger Subsidiary. There is not under the Parent Material Contracts any existing breach, default or event of default by Parent or the Merger Subsidiary nor event that with notice or lapse of time or both would constitute a breach, default or event of default by Parent or the Merger Subsidiary other than breaches, defaults or events of default which would not have a Parent Material Adverse Effect nor does Parent know of, and Parent has not received notice of, or made a claim with respect to, any breach or default by any other party thereto which would, severally or in the aggregate, have a Parent Material Adverse Effect. As used herein, the term "Parent Material -24- Contracts" shall mean all contracts and agreements required to be filed as exhibits to Parent's Annual Report on Form 10-KSB for the year ending December 31, 2000 as if such report would be filed as of the date hereof. 4.15 LITIGATION AND GOVERNMENT CLAIMS. Except as disclosed in the Parent SEC Reports, there is no pending suit, claim, action or litigation, or administrative, arbitration or other proceeding or governmental investigation or inquiry against Parent or the Merger Subsidiary to which their businesses or assets are subject which would, severally or in the aggregate, reasonably be expected to result in a Parent Material Adverse Effect nor have any such proceedings been threatened or contemplated. Neither Parent nor the Parent Subsidiary is subject to any judgment, decree, injunction, rule or order of any court, or, to the knowledge of Parent, any governmental restriction applicable to Parent or the Parent Subsidiary which is reasonably likely to have a Parent Material Adverse Effect. 4.16 COMPLIANCE WITH LAWS. Parent and the Merger Subsidiary each have all material authorizations, approvals, licenses and orders to carry on their respective businesses as they are now being conducted, to own or hold under lease the properties or assets they own or hold under lease and to perform all of their obligations under the agreements to which they are a party, except for instances which would not have a Parent Material Adverse Effect. Parent and the Merger Subsidiary have been and are, to the knowledge of Parent, in compliance with all applicable laws (including those referenced in the Parent SEC Reports), regulations and administrative orders of any country, state or municipality or any subdivision of any thereof to which their respective businesses and their employment of labor or their use or occupancy of properties or any part hereof are subject, the violation of which would have a Parent Material Adverse Effect. 4.17 EMPLOYMENT AGREEMENTS; LABOR RELATIONS. (a) Schedule 4.17 sets forth a complete and accurate list of all material employee benefit or compensation plans, agreements and arrangements to which Parent is a party and which are not disclosed in the Parent Information, including without limitation (i) all severance, employment, consulting or similar contracts, (ii) all material agreements and contracts with "change of control" provisions or similar provisions and (iii) all indemnification agreements or arrangements with directors or officers. (b) Parent is in compliance in all material respects with all laws (including Federal and state laws) respecting employment and employment practices, terms and conditions of employment, wages and hours, and is not engaged in any unfair labor or unlawful employment practice. 4.18 PARENT EMPLOYEE BENEFIT PLANS. Parent has no employee benefit plans subject to ERISA. -25- 4.19 INTELLECTUAL PROPERTY. Parent and the Merger Subsidiary own or have valid, binding and enforceable rights to use all material patents, trademarks, trade names, service marks, service names, copyrights, applications therefor and licenses or other rights in respect thereof ("Parent Intellectual Property") used or held for use in connection with the business of Parent or the Merger Subsidiary, without any known conflict with the rights of others, except for such conflicts as do not have a Parent Material Adverse Effect. Neither Parent nor the Merger Subsidiary has received any notice from any other person pertaining to or challenging the right of Parent or the Merger Subsidiary to use any Parent Intellectual Property or any trade secrets, proprietary information, inventions, know-how, processes and procedures owned or used or licensed to Parent or the Merger Subsidiary, except with respect to rights the loss of which, individually or in the aggregate, would not have a Parent Material Adverse Effect. 4.20 PROPERTIES AND RELATED MATTERS. Neither Parent nor the Merger Subsidiary owns any real property. Except as may be reflected in the Parent Financial Statements and except for any lien for current taxes not yet delinquent, Parent has good title free and clear of any material liens, claims, charges, options, encumbrances, or similar restrictions to all the personal property reflected in Parent's balance sheet as of December 31, 1999, and all personal property acquired since that date, except such personal property as has been disposed of in the Ordinary Course of Business. All leases of real property and all other leases material to Parent pursuant to which Parent, as lessee, leases real or personal property, which leases are described on Schedule 4.20, are valid and effective in accordance with their respective terms, and there is not, under any such lease, any material existing default by Parent or any event which, with notice or lapse of time or both, constitute such a material default. Substantially all of Parent's building and equipment have been well maintained and are in good and serviceable condition, reasonable wear and tear accepted. 4.21 LICENSES AND PERMITS. Parent and the Merger Subsidiary have obtained all licenses, permits, qualifications, franchises and other governmental authorizations and approvals, including, without limitation, all state licenses and, as applicable, approvals by FRB and under the BHC Act, required in order for it to conduct its business as presently conducted, all of which are noted in the Parent SEC Reports or listed on Schedule 4.21 hereto. All of such licenses, permits, qualifications, franchises and other authorizations are in full force and effect and will remain in full force and effect immediately after the Closing and shall not be violated by or effected, impaired or acquire any further action to remain effective as a result of the Closing. No violation exists in respect of any such license, permit, qualification, franchise, authorization or approval. No proceeding is pending, or to the knowledge of Nova, threatened to revoke or limit any such license, permit, qualification, franchise, authorization or approval. 4.22 SOFTWARE. All of the computer software used by or for Parent or the Merger Subsidiary in the conduct of its business (the "Software") is either (i) owned by Parent or the Merger Subsidiary free and clear of any and all liens, claims, equities, security interests, and encumbrances whatsoever, or (ii) used by Parent or the Merger Subsidiary pursuant to a fully-paid license granted to Parent or the Merger Subsidiary for the third party pursuant to the terms of such license. No such computer software license shall terminate or -26- become terminable as a result of the transactions contemplated hereby. There are no infringement suits pending or, to Parent's knowledge, threatened against Parent or the Merger Subsidiary with respect to any of the Software, and, to the knowledge of Parent, no fact or condition exists which could give rise to any such infringement suit. 4.23 MATERIAL INTERESTS OF CERTAIN PERSONS. Except as set forth in the Parent SEC Reports or on Schedule 4.23, to Parent's knowledge no officer or director of Parent, or any "associate" (as such term is defined in Rule 14a-1 under the Exchange Act) of any such officer or director, has any interest in any material contract or property (real or personal), tangible or intangible, used in or pertaining to the business of Parent. The Parent SEC Reports or Schedule 4.23 sets forth a correct and complete list of any loan from Parent to any present stockholder, officer, director, employee or associate or related interest of any such person. 4.24 REGISTRATION OBLIGATIONS. Except as set forth in Parent SEC Reports, or on Schedule 4.24, Parent is, and on the Effective Date will be, under no obligation, contingent or otherwise, which will survive the Merger by reason of any agreement to register any of its securities under the Securities Act. 4.25 ENVIRONMENTAL MATTERS. Except as reported in the Parent SEC Reports or on Schedule 4.25, to the knowledge of Parent: (a) No Hazardous Material (as defined below) has been disposed of on, released to or from, threatened to be released to or from or is presently at, on, beneath, in or upon any partial of real property owned or leased by Parent or the Merger Subsidiary or upon any adjacent parcels of real estate in amounts or concentration which constitute or constituted a violation of, or which could reasonably be expected to give rise to liability under, any Environmental Law (as defined below). (b) There has been no generation, production, refining, processing, manufacturing, use, storage, disposal, treatment, shipment or receipt of a Hazardous Material at or from any parcel of real property owned or leased by Parent or the Merger Subsidiary relating to the operations of Parent or the Merger Subsidiary in violation of or in a manner that could give rise to liability under Environmental Laws. (c) The operations of Parent or the Merger Subsidiary are in compliance and have been in compliance with all applicable Environmental Laws, and there is no violation of any Environmental Law with respect to any parcels of real property owned or leased by Parent or the Merger Subsidiary which could interfere with the continued operation of the business of Parent or the Merger Subsidiary or impair its fair salable value. (d) Neither Parent nor the Merger Subsidiary have received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with -27- environmental laws with regard to any parcels of real property owned or leased by Parent or the Merger Subsidiary from any person, nor does Parent or the Merger Subsidiary have knowledge or reason to believe that any such notice will be received from or is being threatened by any person. (e) No judicial proceedings, governmental administrative actions, investigations or internal or non-public agency proceedings are pending or threatened, under any environmental law, to which Parent or the Merger Subsidiary is or will be named as a party, nor are the any consent decrees, or other decrees, consent orders, agreements, administrative orders, other orders, judicial or administrative requirements outstanding under any environmental law with respect to Parent or the Merger Subsidiary. (f) "HAZARDOUS MATERIALS" means any substance (a) the presence of which at, on, over, beneath, in or upon any real or personal property, building, structure, container of any nature or description, subsurface strata, ambient air or ambient water (including surface and groundwater) requires investigation, removal or remediation under any Environmental Law or common law, (b) which is or becomes defined as a "hazardous substance," "hazardous material," "hazardous waste," "pollutant" or "contaminant" under any Environmental Law, and/or (c) which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or becomes regulated by any governmental authority under any Environmental Law, (d) the presence of which causes or threatens to cause a nuisance or trespass upon real property or to adjacent properties or poses or threatens to pose a hazard to the environment, and/or to the health or safety of persons on or about any real property, and/or (e) which contains urea-formaldehyde, polychlorinated biphenyls, asbestos or asbestos containing materials, radon, petroleum or petroleum products. (g) "ENVIRONMENTAL LAW OR LAWS" means any and all federal, state, local or municipal laws, rules, orders, regulations, statutes, treaties, ordinances, codes, decrees, or requirements of any governmental authority regulating, relating to or imposing liability or standards of conduct concerning environmental protection, health or safety matters, including all requirements pertaining to reporting, licensing, permitting, investigation, removal or remediation of emissions, discharges, releases, or threatened releases of Hazardous Materials, chemical substances, pollutants or contaminants or relating to the manufacture, generation, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials, chemical substances, pollutants or contaminants, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Toxic Substance Control Act ("TSCA"), the Resource Conservation and Recovery Act ("RCRA"), the Clean Air Act ("CAA"), the Clean Water Act ("CWA") and the Occupational Safety and Health Act of 1970 ("OSHA"), all as may have been amended. 4.26 BROKERS AND FINDERS. Neither Parent, nor to Parent's knowledge any of its officers, directors and employees has employed any broker, finder or investment bank or incurred any liability for any investment banking fees, -28- financial advisory fees, brokerage fees or finders' fees in connection with the transactions contemplated hereby. Parent is not aware of any claim for payment of any finder's fees, brokerage or agent's commissions or other like payments in connection with the negotiations leading to this Agreement or the consummation of the transactions contemplated hereby. 4.27 INTERIM OPERATIONS OF MERGER SUBSIDIARY. Merger Subsidiary was formed solely for the purpose of engaging in the transactions contemplated hereby, has engaged in no other business activities and has conducted its operations only as contemplated hereby. 4.28 DISCLOSURE. The representations and warranties contained in this Article 4 do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained in this Article 4 not misleading. ARTICLE 5 CERTAIN COVENANTS AND AGREEMENTS 5.1 CONDUCT OF BUSINESS BY NOVA. From the date hereof to the Effective Date, Nova will, except as required in connection with the Merger and the other transactions contemplated by this Agreement and except as otherwise disclosed in the Nova Information or consented to in writing by Parent: (a) not engage in any new line of business or enter into any Material Contract, transaction or activity or make any material commitment except (i) those in the Ordinary Course of Business and not otherwise prohibited under this Section 5.1, and (ii) Material Contracts approved by Parent; (b) maintain its corporate existence in good standing and neither change nor amend its Articles of Incorporation or Bylaws; (c) maintain proper business and accounting records in accordance with generally accepted accounting principles; (d) maintain its property in good repair and condition, ordinary wear and tear accepted; (e) maintain in all material respects presently existing insurance coverage; (f) use its best efforts to preserve its business organization in-tact, to keep the services of its present principal employees and to preserve its good will and the good will of its suppliers, customers and others having business relationships with it; -29- (g) use its best efforts to obtain any approvals or consents required to maintain existing leases and other contracts in effect following the Merger; (h) comply in all material respects with all laws, regulations, ordinances, codes, orders, licenses and permits applicable to the properties and the operations of Nova and correct or remedy any material violation of any law or regulation upon identification thereof at Parent's request; (i) create, incur, assume or guarantee any indebtedness for borrowed money other than indebtedness incurred in the Ordinary Course of Business; (j) make any loan to or investment in, or acquire any securities or assets of any other person or entity; (k) sell any of its assets except in the Ordinary Course of Business; (l) increase the compensation of any officers, directors or executive employees, except pursuant to existing compensation plans or practices; (m) not issue or sell shares of capital stock of Nova or issue, sell or grant options, warrants or rights to purchase or subscribe to, or enter into any arrangement or contract with respect to the issuance or sale of any of the capital stock of Nova or rights or obligations convertible into or exchangeable for any shares of the capital stock of Nova and not make any changes (by split-up, combination, reorganization or otherwise) in the capital structure of Nova; (n) except as set forth on Schedule 5.1(n) hereof, not declare, pay or set aside for payment any dividend or other distribution in respect of the capital stock or other equity securities of Nova and not redeem, purchase or otherwise acquire any shares of the capital stock or other securities of Nova or rights or obligations convertible into or exchangeable for any shares of the capital stock or other securities of Nova or obligations convertible into such, or any options, warrants or other rights to purchase or subscribe to any of the foregoing; (o) not acquire or enter into any agreement to acquire, by merger, consolidation or purchase of stock or assets, any business or entity; (p) perform all of its obligations under all Material Contracts (except those being contested in good faith) and not enter into, assume or amend any contract or commitment that would be a Material Contract; and (q) prepare and file all federal, state, local and foreign returns for taxes and other tax reports, filings and amendments thereto required to be filed by it, and allow Parent, at its request, to review all such returns, reports, filings and amendments at Nova's offices prior to the filing thereof, which review shall not interfere with the timely filing of such returns. -30- In connection with the continued operation of the business of Nova between the date of this Agreement and the Effective Date, Nova shall confer in good faith and on a regular and frequent basis with one or more representatives of Parent designated in writing to report operational matters of materiality and the general status of ongoing operations. Nova acknowledges that Parent does not and will not waive any rights it may have under this Agreement as a result of such consultations nor shall Parent be responsible for any decisions made by Nova's officers and directors with respect to matters which are the subject of such consultation. 5.2 CONDUCT OF BUSINESS BY PARENT. From the date hereof to the Effective Date, Parent will, and will cause the Merger Subsidiary to, except as required in connection with the Merger and the other transactions contemplated by this Agreement and except as otherwise disclosed in the Parent Information hereto or consented to in writing by Nova: (a) not engage in any new line of business or enter into any Material Contract, transaction or activity or make any material commitment except (i) those in the Ordinary Course of Business and not otherwise prohibited under this Section 5.2, and (ii) Material Contracts in which Nova or Nova is the other party; (b) maintain its corporate existence in good standing and neither change nor amend its Certificate of Incorporation or Bylaws; (c) maintain proper business and accounting records in accordance with generally accepted principles; (d) maintain its property in good repair and condition, ordinary wear and tear accepted; (e) maintain in all material respects presently existing insurance coverage; (f) use its best efforts to preserve its business organization in tact, to keep the services of its present principal employees and to preserve its good will and the good will of its suppliers, customers and others having business relationships with it; (g) use its best efforts to obtain any approvals or consents required to maintain existing leases and other contracts in effect following the Merger; (h) comply in all material respects with all laws, regulations, ordinances, codes, orders, licenses and permits applicable to the properties and the operations of Parent and Merger Subsidiary -31- and correct remedy any material violation of any law, regulation upon identification thereof at Nova's request; (i) except as set forth in Schedule 5.2(i), not authorize or incur any long-term debt (other than deposit liabilities); (j) increase the compensation of any officers, directors or executive employees, except pursuant to existing compensation plans or practices; (k) not make any changes (by split-up, combination, reorganization or otherwise) in the capital structure of Parent, or the Merger Subsidiary; (l) except as set forth on Schedule 5.2(l), not issue or sell shares of capital stock of Parent or issue, sell or grant options, warrants or rights to purchase or subscribe to, or enter into any arrangement or contract with respect to the issuance or sale of any of the capital stock of Parent or rights or obligations convertible into or exchangeable for any shares of the capital stock of Nova and not alter the terms of any outstanding options or the Option Plans; (m) not declare, pay or set aside for payment any dividend or other distribution in respect of the capital stock or other equity securities of Parent and not redeem, purchase or otherwise acquire any shares of the capital stock or other securities of Parent or any of the Merger Subsidiary, or rights or obligations convertible into or exchangeable for any shares of the capital stock or other securities of Parent, the Merger Subsidiary or any of the Merger Subsidiary or obligations convertible into such, or any options, warrants or other rights to purchase or subscribe to any of the foregoing; (n) not acquire or enter into any agreement to acquire, by merger, consolidation or purchase of stock or assets, any business or entity; (o) not make or incur (other than in the Ordinary Course of Business) any capital expenditures; (p) perform all of its obligations under all Material Contracts (except those being contested in good faith) and not enter into, assume or amend any contract or commitment that would be a Material Contract; and (q) prepare and file all federal, state, local and foreign returns for taxes and other tax reports, filings and amendments thereto required to be filed by it, and allow Nova, at its request, to review all such returns, reports, filings and amendments at Parent's office prior to the filing thereof, which review shall not interfere with the timely filing of such returns. -32- 5.3 INSPECTION AND ACCESS TO INFORMATION. (a) Between the date of this Agreement and the Effective Date, Nova will provide to the Merger Subsidiary and Parent and their accountants, counsel and other authorized representatives reasonable access during normal business hours to its premises, and will cause its officers to furnish to Parent and the Merger Subsidiary and their authorized representatives such financial, technical and operating data and other information pertaining to its business, as the Merger Subsidiary and Parent shall from time to time reasonably request. No such examination by Parent or its representatives either before or after the date of this Agreement shall in any way effect, diminish or terminate any of the representations, warranties or covenants of Nova herein expressed. (b) Between the date of this Agreement and the Effective Date, Parent will, and will cause the Merger Subsidiary to, provide to Nova and its accountants, counsel and other authorized representatives reasonable access, during normal business hours to its premises, and will cause its officers to furnish to Nova and its authorized representatives such financial, technical and operating data and other information pertaining to its business, as Nova shall from time to time reasonably request. No such examination by Nova or its representatives either before or after the date of this Agreement shall in any way effect, diminish or terminate any of the representations, warranties or covenants of Parent herein expressed. (c) Each of the parties hereto and their respective representatives shall maintain the confidentiality of all information (other than information which is generally available to the public) concerning the other parties hereto acquired pursuant to the transactions contemplated hereby in the event that the Merger is not consummated. Each of the parties hereto and their representatives shall not use such information so obtained to the detriment or competitive disadvantage of the other party hereto. All files, records, documents, information, data and similar items relating to the confidential information of Nova, whether prepared by Parent or otherwise coming into Parent's possession, shall remain the exclusive property of Nova and shall be promptly delivered to Nova upon termination of this Agreement. All files, records, documents, information, data and similar items relating to the confidential information of Parent, whether prepared by Nova or otherwise coming into Nova's possession, shall remain the exclusive property of Parent and shall be promptly delivered to Parent upon termination of this Agreement. 5.4 PARENT EXCHANGE ACT REPORTS. Nova acknowledges that Parent will be required to report its acquisition of Nova promptly following the Effective Date and include information regarding Nova in the Proxy Statement for Parent's upcoming special meeting of shareholders. Nova agrees to provide as promptly as practicable to Parent such information concerning its business and financial statements and affairs as, in the reasonable judgment of Parent, may be required or appropriate for inclusion in the required report, or in any amendments or supplements thereto, and to cause its counsel and auditors to cooperate with Parent's counsel and auditors in the preparation of such report. Nova represent and warrant to Parent that the foregoing information will (i) not contain any -33- untrue statement of immaterial fact, or omit to state any material fact required to be stated therein as necessary, in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (ii) comply in all material respects with the provisions of the Securities Act and Exchange Act, as applicable, and the rules and regulations thereunder. 5.5 REASONABLE EFFORTS; FURTHER ASSURANCES; COOPERATION. Subject to the other provisions of this Agreement, the parties hereby shall each use their reasonable efforts to perform their obligations herein and to take, or cause to be taken or do, or cause to be done, all things reasonably necessary, proper or advisable under applicable law to obtain all regulatory approvals and satisfy all conditions to the obligations of the parties under this Agreement and to cause the Merger and the other transactions contemplated herein to be carried out promptly in accordance with the terms hereof. The parties agree to use their reasonable best efforts to consummate the transactions contemplated hereby by September 1, 2000 subject to an automatic 30 day extension by either party if necessary to accommodate any special meeting of the shareholders of either party to approve certain corporate actions necessary to complete the transactions contemplated by this Agreement. The parties shall cooperate fully with each other and their respective officers, directors, employees, agents, counsel, accountants and other designees in connection with any steps required to be taken as a part of their respective obligations under this Agreement, including without limitation: (a) If any claim, action, suit, investigation or other proceeding by any governmental body or other person is commenced which questions the validity or legality of the Merger or any of the other transactions contemplated hereby or seeks damages in connection therewith, the parties agree to cooperate and use all reasonable efforts to defend against such claim, action, suit, investigation or other proceeding and, if an injunction or other order is issued in any such action, suit or other proceeding, to use all reasonable efforts to have such injunction or other order lifted, and to cooperate reasonably regarding any other impediment to the consummation of the transactions contemplated by this Agreement. (b) Each party shall give prompt written notice to the other of (i) the occurrence, or failure to occur, of any event which occurrence or failure would be likely to cause any representation or warranty of Nova or Parent, as the case may be, contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date hereof to the Effective Date or that will or may result in the failure to satisfy the conditions specified in Article 6 or 7 or would constitute either an Nova Material Adverse Effect or a Parent Material Adverse Effect, and (ii) any failure of Nova or Parent, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder. 5.6 PUBLIC ANNOUNCEMENTS. The timing and content of all announcements regarding any aspect of this Agreement or the Merger to the financial community, government agencies, employees or the general public shall be mutually agreed upon in advance (unless Parent or Nova is advised by counsel that any such announcement or other disclosure not mutually agreed upon in advance is required -34- to be made by law and then only after making a reasonable attempt to comply with the provisions of this Section). 5.7 NO SOLICITATION. (a) From the date hereof until this Agreement is terminated or abandoned as provided in Section 8.1 of this Agreement, Nova shall not directly or indirectly (i) solicit or initiate discussion with or (ii) enter into negotiations or agreements with, or furnish any information to, any corporation, partnership, person or other entity or group (other than an affiliate of Parent or its authorized representatives pursuant to this Agreement) concerning any proposal for a merger, sale of substantial assets, sale of shares of stock or securities or other takeover or business combination transaction (the "Acquisition Proposal") involving Nova, and Nova will instruct its officers, directors, advisors and its financial and legal representatives and consultants not to take any action contrary to the foregoing provisions of this sentence; provided, however, that Nova, its officers, directors, advisors and its financial and legal representatives and consultants will not be prohibited from taking any action described in (ii) above to the extent such action is taken by, or upon the authority of, the Board of Directors of Nova in the exercise of good faith judgment as to its fiduciary duties to the shareholders of Nova, which judgment is based upon the written advice of independent, outside legal counsetl that a failure of the Board of Directors of Nova to take such action would be likely to constitute a breach of its fiduciary duties to such shareholders. Nova will notify Parent promptly if Nova becomes aware that any inquiries or proposals are received by, any information is requested from or any negotiations or discussions are sought to be initiated with, Nova with respect to an Acquisition Proposal, and Nova shall promptly deliver to Parent any written inquiries or proposals received by Nova relating to an Acquisition Proposal or accurately summarize in writing for Parent any other inquires or discussions with respect to an Acquisition Proposal. ARTICLE 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF NOVA Except as may be waived by Nova, the obligations of Nova to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction on or before the Closing Date of each of the following conditions: 6.1 COMPLIANCE. Parent shall have, or shall have caused to be, satisfied or complied with and performed in all material respects all terms, covenants and conditions of this Agreement to be complied with or performed by Parent on or before the Closing Date. 6.2 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties made by Parent in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same force and effect as if such representations and warranties had been made at and as of the Closing Date, except for changes permitted or contemplated by this Agreement. -35- 6.3 MATERIAL ADVERSE CHANGES. Subsequent to March 31, 2000 there shall have occurred no Parent Material Adverse Effect other than any such change that affects both Parent and Nova in a substantially similar manner. 6.4 CERTIFICATES. Nova shall have received a certificate or certificates, executed on behalf of Parent by an executive officer of Parent, to the effect that the conditions contained in Sections 6.1, 6.2 and 6.3 hereof have been satisfied. Such certificate shall further certify that the shares of Parent Common Stock issued to the Nova stockholders pursuant to the Merger shall represent at least twenty-five percent (25%) of the total number of shares of Parent Common Stock issued and outstanding as of the Effective Date, determined after giving effect to the consummation of the Merger and the related transaction described in Section 6.10 hereof, and the issuance of Parent common stock to raise the cash consideration payable pursuant to the Merger and the related transaction described in Section 6.10 hereof. 6.5 CONSENTS; LITIGATION. Other than the filing of the Certificates of Merger and Articles of Merger as described in Article 1, all authorizations, consents, orders or approvals of, or declarations or filings with, or expirations or terminations of waiting periods imposed by any governmental entities, and all required third-party consents, the failure to obtain which would have a Nova Material Adverse Effect or Parent Material Adverse Effect, shall have been obtained. In addition, no preliminary or permanent injunction or other order shall have been issued by any court or by any governmental or regulatory agency, body or authority which prohibits the consummation of the Merger and the transactions contemplated by this Agreement and which is in effect at the Effective Date. 6.6 DUE DILIGENCE. Nova shall have completed to its satisfaction a due diligence investigation, including, but not limited to, a review of the Parent Financial Statements and the Parent SEC Reports. 6.7 TAX-FREE REORGANIZATION. The shares of Parent Common Stock to be received by the Nova stockholders shall be received in connection with a tax-free reorganization under the Code, and each party shall take all necessary action to ensure such treatment. 6.8 REGISTRATION RIGHTS. Parent shall execute and deliver to Nova at Closing, a registration rights agreement substantially in the form of Exhibit A. 6.9 EMPLOYMENT AGREEMENTS. Parent shall have executed and delivered to each of Charles R. Darst and Scott Lucas written employment agreements and other documents memorializing stock options to be granted to each of them as of the Effective Date, setting forth the terms and conditions under which such individuals will be employed by Parent or Nova following the Effective Date, which terms and conditions shall be acceptable to Nova and such individuals in their sole discretion. -36- 6.10 COMPLETION OF OTHER TRANSACTION. As the transaction contemplated by that certain Agreement and Plan of Reorganization dated as of even date among the Parent, Key Financial Systems, Inc. and Key Merger Corp. is part of the same Plan of Reorganization as the transaction contemplated by this Agreement, both transactions shall be completed simultaneously with the Closing. 6.11 PARENT SUBSIDIARIES. Parent shall have consummated a merger of all of its business development company subsidiaries (including First Bankers Mortgage Services, Inc.) into Equitex 2000, Inc. and a spin-off of the outstanding shares of Equitex 2000, Inc. to the Parent stockholders, Equitex 2000, Inc. shall have assumed all obligations of Parent to the former stockholders of any subsidiaries merged into Equitex 2000, Inc. After giving effect to the foregoing transactions, Parent will own a controlling interest in only Merger Subsidiary and the merger subsidiary formed for the purpose of consummating the transaction described in Section 6.10 hereof, and Parent will have unrestricted cash in the amount of Two Million Dollars ($2,000,000). 6.12 INCREASE OF AUTHORIZED CAPITAL STOCK OF PARENT. Parent shall have filed with the Secretary of State of the State of Delaware (a) a Certificate of Amendment to its Certificate of Incorporation for purposes of increasing its authorized capital stock to 50,000,000 shares of Parent Common Stock, and (b) such other certificates as may be necessary to eliminate the certificate of designations in effect for each series of preferred stock of the Parent of which no shares are issued and outstanding. ARTICLE 7 CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND THE MERGER SUBSIDIARY Except as may be waived by Parent and the Merger Subsidiary, the obligations of Parent and the Merger Subsidiary to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction, on or before the Closing Date, of each of the following conditions: 7.1 COMPLIANCE. Nova shall have, or shall have caused to be, satisfied or complied with and performed in all material respects all terms, covenants, and conditions of this Agreement to be complied with or performed by it on or before the Closing Date. 7.2 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties made by Nova in this Agreement shall be true and correct in all material respects at and as of the Closing Date with the same force and effect as if such representations and warranties had been made at and as of the Closing Date, except for changes permitted or contemplated by this Agreement. -37- 7.3 MATERIAL ADVERSE CHANGE. Since March 31, 2000, except as set forth in this Agreement or on the schedules hereto, there shall have occurred no Nova Material Adverse Effect other than any such change that affects both Parent and Nova in a substantially similar manner. 7.4 CERTIFICATES. Parent shall have received a certificate or certificates, executed by the and on behalf of Nova by an executive officer of Nova, to the effect that the conditions in Sections 7.1, 7.2 and 7.3 hereof have been satisfied. 7.5 CONSENTS; LITIGATION. Other than the filing of the Certificate of Merger as described in Article 1, all authorizations, consents, orders or approvals of, or declarations or filings with, or expirations or terminations of waiting periods imposed by, any governmental entity, and all required third-party consents, the failure to obtain which would have an Nova Material Adverse Effect or a Parent Material Adverse Effect, shall have been obtained. In addition, no preliminary or permanent injunction or other order shall have been issued by any court or by any governmental or regulatory agency, body or authority which prohibits the consummation of the Merger and the transactions contemplated by this Agreement and which is in effect at the Effective Date. 7.6 DUE DILIGENCE. Parent shall have completed to its satisfaction a due diligence investigation, including, but not limited to, a review of the Nova Financial Statements. 7.7 ACCOUNTING TREATMENT. The transactions contemplated by this Agreement shall qualify for purchase accounting treatment under generally accepted accounting principles, and each shall take all necessary action to ensure such treatment. 7.8 TAX-FREE REORGANIZATION. The shares of Parent Common Stock to be delivered to the Nova stockholders shall be delivered in connection with a tax-free reorganization under the Code, and each party shall take all necessary action to ensure such treatment. 7.9 BHC ACT. The transactions contemplated hereby shall be subject to the determination of Parent's counsel and the Federal Reserve Bank of Atlanta that the business activities are permitted by the BHC Act, including but not limited to, Section 225.28 of the BHC Act. 7.10 STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been approved by the affirmative vote of the holders of the percentage of the outstanding shares of Parent required for approval of a Plan of Merger in accordance with the provisions of Parent's Certificate of Incorporation and the DGCL. 7.11 COMPLETION OF OTHER TRANSACTION. As the Merger with Key Financial Systems, Inc. is part of the same Plan of Reorganization as the transaction contemplated by this Agreement, both transactions shall be completed simultaneously with the Closing. -38- 7.12 STOCKHOLDER CONTROL OF PARENT. No single stockholder, or group of stockholders that can be considered a control group under SEC or Federal Reserve law, will directly control more than 9.9% of the outstanding Parent Common Stock on a fully diluted basis. The calculation of outstanding Common Stock of Parent will take into effect: (a) all the outstanding Parent Common Stock, including, without limitation, the Parent Common Stock to be issued pursuant to the Merger and the related transaction described in Section 6.10 hereof; (b) all outstanding warrants or other securities convertible into Parent Common Stock, including, without limitation, the Warrants to be issued pursuant to the Merger and the related transaction described in Section 6.10 hereof; (c) all Parent Common Stock issued or to be issued to raise the cash consideration payable pursuant to the Merger and the related transaction described in Section 6.10 hereof; and (d) the Parent Common Stock to be issued under the proposed merger between Parent and First TeleBanc Corp. 7.13 SOLVENCY OPINION. Nova shall provide to Parent an opinion by a certified public accounting firm acceptable to Parent that as of the Effective Date, after taking into account all distributions including the Final Distribution subject to Section 5.1(n) and Schedule 5.1(n) of this Agreement, Nova is solvent, fully able to meet all of its obligations (whether fixed, liquidated, contingent or otherwise) as they become due and Nova has a positive tangible net worth of at least $100,000. ARTICLE 8 MISCELLANEOUS 8.1 TERMINATION. In addition to the provisions regarding termination set forth elsewhere herein, this Agreement and the transactions contemplated hereby may be terminated at any time on or before the Closing Date: (a) by mutual consent of Nova and Parent; (b) by either Parent or Nova if the transactions contemplated by this Agreement have not been consummated by September 1, 2000, subject to an automatic 30 day extension if necessary to accommodate a special meeting of the shareholders of either party to approve certain corporate actions necessary to complete the transactions contemplated -39- by this Agreement, unless such failure of consummation is due to the failure of the terminating party to perform or observe the covenants, agreements, and conditions hereof to be performed or observed by it at or before the Closing Date; or (c) by either Nova or Parent if the transactions contemplated hereby violate any nonappealable final order, decree, or judgment of any court or governmental body or agency having competent jurisdiction. 8.2 EXPENSES. If the transactions contemplated by this Agreement are not consummated and termination is sought under the termination provisions hereof, each party hereto shall pay its own expenses incurred in connection with this Agreement and the transactions contemplated hereby. If the transactions contemplated by this Agreement are not consummated because the representations and warranties of one party are false or misleading in any material respect, then that party shall be liable for the expenses, including attorneys fees, of the other party. 8.3 ENTIRE AGREEMENT. This Agreement and the exhibits and schedules hereto contain the complete agreement among the parties with respect to the transactions contemplated hereby and supersede all prior agreements and understandings among the parties with respect to such transactions. Section and other headings are for reference purposes only and shall not affect the interpretation or construction of this Agreement. The parties hereto have not made any representation or warranty except as expressly set forth in this Agreement or in any certificate or schedule delivered pursuant hereto. The obligations of any party under any agreement executed pursuant to this Agreement shall not be affected by this section. 8.4 INDEMNIFICATION. The Nova shareholders shall indemnify and hold Parent harmless against any and all claims, costs, liabilities, expenses and attorney's fees arising out of or in any manner related to the matters captioned EDWARD BARBARA, JR. V. C. ROBERT DARST, DIA ERICKSON, ANTHONY N. AMICO, NOVA FINANCIAL SYSTEMS, INC. AND KEY FINANCIAL SYSTEMS, INC., CIRCUIT COURT CASE NO.: 00-1995-CI-019; AMERICAN ARBITRATION ASSOCIATION, CASE NO.: 33 160 00080 00; AND KEY FINANCIAL SYSTEMS, INC. AND NOVA FINANCIAL SYSTEMS, INC. V. CAPITAL GAINS OF NAPLES, INC., CHRIS HEBARD, GENE HIRAI, FIRST NATIONAL BANK IN BROOKINGS, AND CREDITNOW, SIXTH JUDICIAL CIRCUIT, PINELLAS COUNTY, FLORIDA, CASE NO. 00-1163-CI-15. 8.5 POST-CLOSING OBLIGATIONS OF PARENT. The following obligations of Parent shall expressly survive the Effective Date: (a) Parent hereby covenants to the Nova stockholders that the aggregate number of shares of Parent Common Stock issued to the Nova stockholders pursuant to the Merger and to the stockholders of Key Financial Systems, Inc., pursuant to the related transaction described in Section 6.10 hereof will represent, as of the Effective Date, at least fifty percent (50%) of the total number of shares of Parent -40- Common Stock issued and outstanding as of the Closing Date, determined after giving effect to the consummation of the Merger and the related transaction described in Section 6.10 hereof, and the issuance of Parent common stock to raise the cash consideration payable pursuant to the Merger and the related transaction described in Section 6.10 hereof. If, for any reason, the aggregate number of shares of Parent Common Stock issued on the Effective Date to the Nova stockholders and stockholders of Key Financial Systems, Inc. is less than the amount required in the foregoing covenant, then Parent shall promptly issue to the Nova stockholders and the stockholders of Key Financial Systems, Inc. such additional amount of Parent Common Stock as shall be necessary to make the covenant true and correct in all respects. (b) On the Closing Date Parent will have executed or shall execute minutes or a consent to action expanding the size of the Board of Directors of Parent to five members. In addition, on the Closing date one member of the current Board of Directors of Parent shall resign and three Directors designated by the shareholders of Nova and Key Financial Systems, Inc. shall be appointed to the Board of Directors of Parent, provided that, the composition of the Parent Board of Directors complies with the rules, regulations and bylaws of the National Association of Securities Dealers and NASDAQ. 8.6 Survival of Representations and Warranties. The representations and warranties of each party contained herein or in any exhibit, certificate, document or instrument delivered pursuant to this Agreement shall not survive the Closing, with the express exception of the indemnification provision of Section 8.4 of this Agreement and the indemnity agreements between Parent and the Officers and Directors of Parent which shall continue in full force and effect indefinitely. 8.7 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute only one original. 8.8 Notices. All notices, demands, requests, or other communications that may be or are required to be given, served, or sent by any party to any other party pursuant to this Agreement shall be in writing and shall be sent by facsimile transmission, next-day courier or mailed by first-class, registered or certified mail, return receipt requested, postage prepaid, or transmitted by hand delivery, addressed as follows: (a) If to Nova: Mr. Scott Lucas, President Nova Financial Systems, Inc. 5770 Roosevelt Blvd., Suite 410 Clearwater, Florida 33760-3431 Telephone: (727) 524-8410 Facsimile: (727) 524-3874 -41- with a copy (which shall not constitute notice) to: Leslie Wager Hudock, Esq. Barnett, Bolt, Kirkwood & Long 601 Bayshore Boulevard, Suite 700 Tampa, Florida 33606 Telephone: (813) 253-2020 Facsimile: (813) 251-6711 (b) If to Parent or the Merger Subsidiary: Mr. Thomas Olson, Secretary Equitex, Inc. 7315 East Peakview Ave., Suite 211 Englewood, Colorado 80111 Telephone: (303) 796-8940 Facsimile: (303) 796-9762 with a copy (which does not constitute notice) to: John W. Kellogg, Esq. Friedlob Sanderson Paulson & Tourtillott, LLC 1400 Glenarm Place, Suite 300 Denver, Colorado 80202 Telephone: (303) 595-3970 Facsimile: (303) 571-1400 Each party may designate by notice in writing a new address to which any notice, demand, request, or communication may thereafter be so given, served, or sent. Each notice, demand, request, or communication that is mailed, delivered, or transmitted in the manner described above shall be deemed sufficiently given, served, sent, and received for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt or the affidavit of messenger being deemed conclusive evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation. 8.9 SUCCESSORS; ASSIGNMENTS. This Agreement and the rights, interests, and obligations hereunder shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, by operation of law or otherwise, by any of the parties hereto without the prior written consent of the other. -42- 8.10 GOVERNING LAW. This Agreement shall be construed and enforced in accordance with the internal laws of the State of Delaware. 8.11 WAIVER AND OTHER ACTION. This Agreement may be amended, modified, or supplemented only by a written instrument executed by the parties against which enforcement of the amendment, modification or supplement is sought. 8.12 SEVERABILITY. If any provision of this Agreement is held to be illegal, invalid, or unenforceable, such provision shall be fully severable, and this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision were never a part hereof; the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance; and in lieu of such illegal, invalid, or unenforceable provision, there shall be added automatically as part of this Agreement, a provision as similar in its terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable. 8.13 MUTUAL CONTRIBUTION. The parties to this Agreement and their counsel have mutually contributed to its drafting. Consequently, no provision of this Agreement shall be construed against any party on the ground that such party drafted the provision or caused it to be drafted or the provision contains a covenant of such party. [THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK] -43- SIGNATURES IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. Nova Financial Systems, Inc. By:/S/ Scott Lucas ---------------------------------- Name: Scott Lucas Title: President Equitex, Inc. By:/s/ Henry Fong ---------------------------------- Name: Henry Fong Title: President and Chief Executive Officer Nova Acquisition Corporation By:/s/ Henry Fong ---------------------------------- Name: Henry Fong Title: President and Chief Executive Officer -44- LIST OF EXHIBITS Exhibit A Form of Registration Rights Agreement LIST OF SCHEDULES Schedule 2.3 Nova Convertible Securities Schedule 3.7(c) Voting Arrangements Schedule 3.7(e) Redemptions and Distributions Schedule 3.9 Changes in Accounting Principles Schedule 3.13 Tax Returns; Taxes Schedule 3.14 Material Contracts Schedule 3.15 Litigation and Government Claims Schedule 3.19 Employee Benefit Plans Schedule 3.20 Employment Agreements Schedule 3.23 Properties and Related Matters Schedule 3.25 Material Interests Schedule 3.32 Accounts Receivable Schedule 3.33 Notes Receivable Schedule 3.36 Rights to All Telemarketing Schedule 4.4 Parent Subsidiaries Schedule 4.7 Capitalization of Parent Schedule 4.11 Absence of Certain Changes -45- Schedule 4.17 Employment Agreements Schedule 4.21 Licenses and Permits Schedule 4.23 Material Interests Schedule 4.24 Registration Obligations Schedule 4.25 Environmental Matters Schedule 5.1(n) Permitted Distributions Schedule 5.2(i) Parent long-term debt Schedule 5.2(l) Parent transactions -46- Table of Contents ARTICLE 1 Basic Plan of Reorganization........................................-1- 1.1 Merger.....................................................-1- 1.2 Continuing Corporate Existence.............................-1- 1.3 Effective Date.............................................-1- 1.4 Corporate Government of the Surviving Corporation..........-2- 1.5 Closing....................................................-2- 1.6 Tax Consequences...........................................-2- ARTICLE 2 Conversion of Shares................................................-3- 2.1 Conversion of Shares.......................................-3- 2.2 Fractional Shares..........................................-4- 2.3 Convertible Securities.....................................-4- 2.4 Exchange of Nova Common Stock..............................-4- 2.5 Adjustment.................................................-5- 2.6 Status of Parent Securities................................-5- 2.7 Registration of Parent Securities..........................-5- ARTICLE 3 Representations and Warranties of Nova..............................-6- 3.1 Organization and Good Standing of Nova.....................-6- 3.2 Foreign Qualification......................................-6- 3.3 Company Power and Authority................................-6- 3.4 No Nova Subsidiaries.......................................-6- 3.5 Authorization..............................................-6- 3.6 Absence of Restrictions and Conflicts......................-6- 3.7 Capitalization of Nova.....................................-7- 3.8 Nova Information...........................................-8- 3.9 Financial Statements and Records of Nova...................-8- 3.10 Reports....................................................-8- 3.11 Absence of Certain Changes.................................-8- 3.12 No Material Undisclosed Liabilities.......................-10- 3.13 Tax Returns; Taxes........................................-10- -i- 3.14 Material Contracts........................................-10- 3.15 Litigation and Government Claims..........................-11- 3.16 Compliance With Laws......................................-11- 3.17 Policies and Procedures...................................-11- 3.18 Licenses and Permits......................................-11- 3.19 Employee Benefit Plans....................................-12- 3.20 Employment Agreements; Labor Relations....................-12- 3.21 Intellectual Property.....................................-13- 3.22 Software..................................................-13- 3.23 Properties and Related Matters............................-14- 3.24 Insurance.................................................-14- 3.25 Material Interests of Certain Persons.....................-14- 3.26 Registration Obligations..................................-14- 3.27 Environmental Matters.....................................-14- 3.28 Referral Sources; Investors...............................-16- 3.29 Brokers and Finders.......................................-16- 3.30 Proxy Statement...........................................-16- 3.31 Inventory.................................................-16- 3.32 Accounts Receivable.......................................-16- 3.33 Notes Receivable..........................................-17- 3.34 Powers of Attorney........................................-17- 3.35 Guaranties................................................-17- 3.36 Rights to all Telemarketing or Mailing Lists..............-17- 3.37 Disclosure................................................-17- ARTICLE 4 Representations and Warranties of Parent and the Merger Subsidiary..........................................-18- 4.1 Organization and Good Standing............................-18- 4.2 Foreign Qualification.....................................-18- 4.3 Corporate Power and Authority.............................-18- 4.4 Parent Subsidiaries. ....................................-18- 4.5 Authorization.............................................-19- 4.6 Absence of Restrictions and Conflicts.....................-19- 4.7 Capitalization of Parent..................................-19- 4.8 Capitalization of Merger Subsidiary.......................-21- 4.9 Parent SEC Reports........................................-21- 4.10 Financial Statements and Records of Parent................-22- 4.11 Absence of Certain Changes................................-22- 4.12 No Material Undisclosed Liabilities.......................-24- -ii- 4.13 Tax Returns; Taxes........................................-24- 4.14 Material Contracts........................................-24- 4.15 Litigation and Government Claims..........................-25- 4.16 Compliance with Laws......................................-25- 4.17 Employment Agreements; Labor Relations....................-25- 4.18 Parent Employee Benefit Plans.............................-25- 4.19 Intellectual Property.....................................-26- 4.20 Properties and Related Matters............................-26- 4.21 Licenses and Permits......................................-26- 4.22 Software..................................................-26- 4.23 Material Interests of Certain Persons. ..................-27- 4.24 Registration Obligations. ...............................-27- 4.25 Environmental Matters.....................................-27- 4.26 Brokers and Finders.......................................-28- 4.27 Interim Operations of Merger Subsidiary...................-29- 4.28 Disclosure. .............................................-29- ARTICLE 5 Certain Covenants and Agreements...................................-29- 5.1 Conduct of Business by Nova...............................-29- 5.2 Conduct of Business by Parent.............................-31- 5.3 Inspection and Access to Information......................-33- 5.4 Parent Exchange Act Reports...............................-33- 5.5 Reasonable Efforts; Further Assurances; Cooperation.......-34- 5.6 Public Announcements......................................-34- 5.7 No Solicitation...........................................-35- ARTICLE 6 Conditions Precedent to Obligations of Nova........................-35- 6.1 Compliance................................................-35- 6.2 Representations and Warranties............................-35- 6.3 Material Adverse Changes..................................-36- 6.4 Certificates..............................................-36- 6.5 Consents; Litigation......................................-36- 6.6 Due Diligence.............................................-36- 6.7 Tax-free Reorganization...................................-36- 6.8 Registration Rights.......................................-36- 6.9 Employment Agreements. ..................................-36- 6.10 Completion of Other Transaction. ........................-37- -iii- 6.11 Parent Subsidiaries. ....................................-37- 6.12 Increase of Authorized Capital Stock of Parent. .........-37- ARTICLE 7 Conditions Precedent to obligations of Parent and the Merger Subsidiary..........................................-37- 7.1 Compliance................................................-37- 7.2 Representations and Warranties............................-37- 7.3 Material Adverse Change...................................-38- 7.4 Certificates..............................................-38- 7.5 Consents; Litigation......................................-38- 7.6 Due Diligence.............................................-38- 7.7 Accounting Treatment......................................-38- 7.8 Tax-free Reorganization...................................-38- 7.9 BHC Act. ................................................-38- 7.10 Stockholder Approval. ...................................-38- 7.11 Completion of Other Transaction. ........................-38- 7.12 Stockholder Control of Parent. ..........................-39- 7.13 Solvency Opinion. .......................................-39- ARTICLE 8 Miscellaneous......................................................-39- 8.1 Termination...............................................-39- 8.2 Expenses..................................................-40- 8.3 Entire Agreement..........................................-40- 8.4 Indemnification...........................................-40- 8.5 Post-Closing Obligations of Parent. .....................-40- 8.6 Survival of Representations and Warranties................-41- 8.7 Counterparts..............................................-41- 8.8 Notices...................................................-41- 8.9 Successors; Assignments...................................-43- 8.10 Governing Law.............................................-43- 8.11 Waiver and Other Action...................................-43- 8.12 Severability..............................................-43- 8.13 Mutual Contribution.......................................-43- List of Exhibits...................................................-45- List of Schedules..................................................-45- -iv- Agreement and Plan of Reorganization AMONG Equitex, Inc. (a Delaware corporation) ----------------------------------- Nova Financial Systems, Inc. (a Florida corporation) ----------------------------------- AND Nova Acquisition Corp. (a Delaware corporation) JUNE ___, 2000 EX-4 6 eqtxkey8kex41.txt EXHIBIT 4.1 Warrant Holder THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE. ----------------------- WARRANT AGREEMENT This Agreement (the "Agreement") dated August 3, 2001 between Equitex, Inc., a Delaware corporation (the "Company" and the "Initial Warrant Agent") and the Warrant Holder or its registered assigns (the "Warrant Holder"). WITNESSETH: WHEREAS, for value received by the Company, the Company has agreed to issue warrants to the Warrant Holder (the "Warrants") enabling the Warrant Holder to acquire up to ___________ shares of the Company's $.02 par value common stock (the "Common Stock") at an exercise price of $5.65 per share; WHEREAS, the Company desires to provide for the issuance of certificates representing the Warrants (a "Warrant Certificate" or collectively the "Warrant Certificates"); WHEREAS, the Company desires to act as the warrant agent in connection with the issuance, registration, transfer and exchange of certificates and the exercise of the Warrants, until such time as a successor warrant agent is appointed; NOW, THEREFORE, in consideration of the above and foregoing premises and the mutual promises and agreements hereinafter set forth, it is agreed that: 1. WARRANT CERTIFICATES. -------------------- (a) Each Warrant shall entitle the holder in whose name the certificate shall be registered on the books maintained by the Company (the "Warrant Holder," or, in the aggregate, the "Warrant Holders") to purchase one share of Common Stock on the exercise thereof (each a "Warrant Share" or collectively the "Warrant Shares"), subject to modification and adjustment as provided in Section 8 hereof. Warrant Certificates shall be executed by the Company's Chairman or President and attested to by the Company's Secretary. (b) Subject to the provisions of Sections 3 and 8 hereof, the Company shall deliver Warrant Certificates in required whole number denominations to Warrant Holders in connection with any transfer or exchange permitted under this Agreement. Except as provided in Section 7 hereof, no certificates shall be issued except: (i) certificates initially issued hereunder; (ii) certificates issued on or after their initial issuance date upon the exercise of any Warrant to evidence the unexercised Warrants held by the exercising Warrant Holder; and, (iii) Warrant Certificates issued after their initial issuance date, upon any transfer or exchange of certificates or replacements of lost or mutilated certificates. 2. FORM AND EXECUTION OF CERTIFICATES. ---------------------------------- (a) The Warrant Certificates shall be dated the date of their issuance, whether on initial transfer or exchange or in lieu of mutilated, lost, stolen or destroyed certificates. The form of Warrant Certificate is attached hereto as Exhibit "A." (b) Each Warrant Certificate shall be numbered serially in accordance with the Common Stock initially attached thereto. Each Warrant Certificate shall have set forth thereon the designation "WAA-___." (c) The Warrant Certificates shall be manually signed on behalf of the Company by a proper officer thereof and shall not be valid for any purpose unless so signed. If any officer of the Company who executed certificates shall cease to be an officer of the Company, such certificates may be issued and delivered by the Company or transferred by the Warrant Holders with the same force and effect as though the person who signed such certificate had not ceased to be an officer of the Company; and any certificate signed on behalf of the Company by any person, who at the actual date of the execution of such certificate was a proper officer of the Company, shall be proper notwithstanding that at the date of execution of this Agreement any such person was not such an officer. 3. EXERCISE. -------- (a) Subject to the provisions of Section 8 hereof, the Warrants as they may be adjusted as set forth herein, may be exercised at $5.65 per share (the "Exercise Price"). The Warrants may be exercised in whole or in part at any time during the period (the "Warrant Exercise Period") commencing on their issuance and ending at 12:00 midnight Mountain Time on November 10, 2004, unless extended by a majority vote of the Company's Board of Directors for such length of time as they, in their sole discretion, deem reasonable and necessary. (b) Each Warrant shall be deemed to have been exercised immediately prior to the close of business on the date (each, an "Exercise Date") of the surrender for exercise of the Warrant 2 Certificate. The exercise form shall be executed by the Warrant Holder thereof or his attorney duly authorized in writing and shall be delivered together with payment to the Company at its corporate offices located at 7315 East Peakview Avenue, Englewood, Colorado 80111 (the "Corporate Office"), or at any such other office or agency as the Company may designate, in cash, by official bank or certified check or other immediately available funds, of an amount equal to the aggregate Exercise Price, in lawful money of the United States of America. (c) Unless Warrant Shares may not be issued as provided herein, the person entitled to receive the number of Warrant Shares deliverable on exercise shall be treated for all purposes as the holder of such Warrant Shares as of the close of business on the Exercise Date. The Company shall not be obligated to issue any fractional share interest in Warrant Shares issuable or deliverable on the exercise of any Warrant or scrip or cash therefor and such fractional shares shall be of no value whatsoever. (d) Within ten days after the Exercise Date and, in any event, prior to the Warrant Expiration Date, the Company, at its own expense, shall cause to be issued and delivered to the person or persons entitled to receive the same, a certificate or certificates in the name requested by the Warrant Holder for the number of Warrant Shares deliverable on such exercise. No adjustment shall be made in respect of cash dividends on Warrant Shares delivered on exercise of any Warrant. (e) The Warrants shall not entitle the holder thereof to any of the rights of shareholders or to any dividend declared on the Common Stock unless such holder or holders shall have exercised the Warrants prior to the record date fixed by the Board of Directors for the determination of holders of Common Stock entitled to such dividends or other rights. 4. REGISTRATION RIGHTS. ------------------- The Warrant Shares underlying the Warrants will be registered pursuant to the Registration Rights Agreement executed by and among Equitex, Inc. and the Warrant Holder dated August 3, 2001. 5. RESERVATION OF SHARES AND PAYMENT OF TAXES. ------------------------------------------ (a) The Company covenants that it shall at all times reserve and have available from its authorized Common Stock such number of shares as shall then be issuable on the exercise of all outstanding Warrants. The Company covenants that all Warrant Shares upon issuance in accordance with the terms of the Warrant shall be duly and validly issued, fully paid and nonassessable, and shall be free from all taxes, liens and charges with respect to the issuance thereof. (b) No Warrants may be exercised by the Warrant Holder, nor may any Warrant Shares be issued or delivered by the Company unless on the Exercise Date (i) there is an effective registration statement covering the issuance of the securities being acquired under the Securities Act and applicable "Blue Sky" statutes; or (ii) an exemption is available from registration thereunder. 3 (c) The Company shall pay all documentary, stamp or similar taxes and other government charges that may be imposed with respect of the issuance of the Warrants, and/or the issuance, transfer or delivery of any Common Stock constituting the Warrant Shares on the exercise or redemption of the Warrants. If the shares of Common Stock constituting the Warrant Shares are to be delivered in a name other than the name of the registered Warrant Holder of the certificate, no such delivery shall be made unless the person requesting the same has paid to the Company the amount of any such taxes, charges, or transfer fees incident thereto. 6. REGISTRATION OF TRANSFER. ------------------------ (a) The Warrant Certificates may, subject to provisions of Federal and state securities laws, be transferred in whole or in part. Certificates to be exchanged shall be surrendered to the Company at its Corporate Office. The Company shall execute, issue and deliver in exchange therefor the Warrant Certificates that the holder making the transfer shall be entitled to receive. (b) The Company shall keep transfer books at its Corporate Office which shall register certificates and the transfer thereof. On due presentment for registration of transfer of any certificate at the Corporate Office, the Company shall execute, issue and deliver to the transferee or transferees a new certificate or certificates representing an equal aggregate number of securities. All such certificates shall be duly endorsed or be accompanied by a written instrument or instruments of transfer in form reasonably satisfactory to the Company. The established transfer fee for any registration of transfer of certificates shall be paid by the Warrant Holder or the person presenting the certificate for transfer. (c) Prior to due presentment for registration or transfer thereof, the Company may treat the registered Warrant Holder of any certificate as the absolute owner thereof (notwithstanding any notations of ownership or writing thereon made by anyone) for all purposes, and the parties hereto shall not be affected by any notice to the contrary. 7. LOSS OR MUTILATION. ------------------ On receipt by the Company of evidence satisfactory as to the ownership of and the loss, theft, destruction or mutilation of any Warrant Certificate, the Company shall execute and deliver in lieu thereof a new certificate representing an equal number of Warrants. In the case of loss, theft or destruction of any certificate, the individual requesting reissuance of a new certificate shall be required to indemnify the Company and also to post an open-penalty insurance or indemnity bond. If a certificate is mutilated, such certificate shall be surrendered and canceled by the Company prior to delivery of a new certificate. Applicants for a new certificate shall also comply with such other regulations and pay such other reasonable charges as the Company may prescribe. 4 8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES PURCHASABLE. ------------------------------------------------------------- For purposes hereof, the term "Exercise Price" shall mean, with respect to the Warrants, the price determined in accordance with Section 3(a), above. The Exercise Price and the number of shares of Common Stock purchasable pursuant to the Warrants shall be subject to adjustment from time to time as hereinafter set forth in this Section 8; PROVIDED, HOWEVER, that no adjustment shall be made unless by reason of the happening of any one or more of the events hereinafter specified, the Exercise Price then in effect shall be changed by one percent or more, but any adjustment that would otherwise be required to be made but for this provision shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, together with any adjustment or adjustments so carried forward, amounts to one percent or more. (a) ADJUSTMENT OF EXERCISE PRICE IN THE EVENT OF STOCK DIVIDENDS, STOCK SPLITS AND REVERSE STOCK SPLITS. In case the Company shall at any time issue Common Stock or securities convertible into Common Stock by way of dividend or other distribution on any stock of the Company or effect a stock split or reverse stock split of the outstanding shares of Common Stock, the Exercise Price then in effect shall be proportionately decreased in the case of such issuance (on the day following the date fixed for determining shareholders entitled to receive such dividend or other distribution) or decreased in the case of such stock split or increased in the case of such reverse stock split (on the date that such stock split or reverse stock split shall become effective), by multiplying the Exercise Price in effect immediately prior to the stock dividend, stock split or reverse stock split by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately prior to such stock dividend, stock split or reverse stock split, and the denominator of which is the number of shares of Common Stock outstanding immediately after such stock dividend, stock split or reverse stock split. (b) RIGHT TO REDUCE EXERCISE PRICE. The Company shall have the right to reduce the Exercise Price at any time and from time to time that such appears in the Company's best interests to do so. (c) SUBDIVISION OR COMBINATIONS. In case the Company shall at any time change as a whole, by subdivision or combination in any manner or by the making of a stock dividend, the number of outstanding shares of Common Stock into a different number of shares, with or without par value, (i) the number of shares of Common Stock which immediately prior to such change the Warrant Holders shall have been entitled to purchase pursuant to this Agreement shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease, respectively, in the number of shares outstanding immediately prior to such change, and (ii) the Exercise Price in effect immediately prior to such change shall be increased or decreased, as the case may be, in inverse proportion to such increase or decrease in the number of such shares outstanding immediately prior to such change. (d) REORGANIZATION; ASSETS SALES; ETC. In case of any capital reorganization or any reclassification of the capital stock of the Company or in case of a non-surviving combination or a 5 disposition of the assets of the Company other than in the ordinary course of the Company's business, the Warrant Holders shall thereafter be entitled to purchase (and it shall be a condition to the consummation of any such reorganization, reclassification, non-surviving combination or disposition that appropriate provision shall be made so that such Warrant Holder shall thereafter be entitled to purchase) the kind and amount of shares of stock and other securities and property receivable in such transaction by a holder of the number of shares of Common Stock of the Company into which this Agreement entitled the holder to purchase immediately prior to such capital reorganization, reclassification of capital stock, non-surviving combination or disposition; and in any such case appropriate adjustments shall be made in the application of the provisions of this Section 8 with respect to rights and interests thereafter or the holder to the end that the provisions of this Section 8 shall thereafter be applicable, as near as reasonably may be, in relation to any shares or other property thereafter purchasable upon the exercise of a Warrant. (e) TERMINOLOGY OF "COMMON STOCK". Whenever reference is made in this Section 8 to the issue or sale of shares of Common Stock, or simply shares, such term shall mean any stock of any class of the Company other than preferred stock with a fixed limit on dividends and a fixed amount payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company. The Warrant Shares shall, however, be shares of Common Stock of the Company, with a par value of $0.02, as constituted at the date hereof, except as otherwise provided in Sections 8(d). (f) ADJUSTMENT STATEMENT. Whenever the Exercise Price is adjusted as herein provided, the Company shall forthwith deliver to each Warrant Holder a statement signed by the President of the Company and by its Treasurer or Secretary stating the adjusted Exercise Price and number of shares for which such Warrant is exercisable, determined as specified herein. The statement shall show in detail the facts requiring such adjustment. (g) PRIOR NOTICE TO WARRANT HOLDERS. If at any time: (1) The Company shall pay any dividend payable in stock upon its Common Stock or make any distribution (other than cash dividends) to the holders of its Common Stock; or (2) The Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or any other rights; or (3) The Company shall effect any capital reorganization or any reclassification of or change in the outstanding capital stock of the Company (other than a change in par value, or a change from par value to no par value, or a change from no par value to par value, or a change resulting solely from a subdivision or combination of outstanding shares), or any consolidation or merger, or any sale, transfer or other disposition of all or substantially all of its property, assets, business and goodwill as an entirety, or the liquidation, dissolution or winding up of the Company; or 6 (4) The Company shall declare a dividend upon its Common Stock payable otherwise than out of earnings or earned surplus or otherwise than in shares or any stock or obligations directly or indirectly convertible into or exchangeable for shares; then, in any such event, the Company shall cause at least thirty (30) days' prior written notice to be mailed to each Warrant Holder at the address of such holder shown on the books of the Company. The notice shall also specify the date on which the books of the Company shall close or a record be taken for such stock dividend, distribution or subscription rights, or the date on which such reclassification, reorganization, consolidation, merger, sale, transfer, disposition, liquidation, dissolution, winding up, or dividend, as the case may be, shall take place, and the date of participation therein by the holders of shares of Common Stock if any such date is to be fixed, and shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action on the rights of the holder. (h) DISPUTES. If there is any dispute as to the computation of the Exercise Price or the number of shares of Common Stock required to be issued upon the exercise of the Warrants, the Company will retain an independent and nationally recognized accounting firm to conduct an audit of the computations pursuant to the terms hereof involved in such dispute, including the financial statements or other information upon which such computations were based. The determination of such nationally recognized accounting firm shall, in the absence of manifest error, be binding. If there shall be a dispute as to the selection of such nationally recognized accounting firm, such firm shall be appointed by the American Institute of Certified Public Accountants ("AICPA") if willing, otherwise the American Arbitration Association ("AAA"). If the Exercise Price or number of shares of Common Stock as determined by such accounting firm is one percent or more higher or lower than the calculations thereof computed by the Company, the expenses of such accounting firm and, if any, of AICPA and AAA, shall be borne completely by the Company. In all other cases, they shall be borne by the complaining Warrant Holders, as applicable. (i) CORPORATE ACTION. Before taking any action which would cause an adjustment reducing the Exercise Price below the then par value of the Warrant Shares, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock at the adjusted Exercise Price. 9. WARRANT AGENT. ------------- The Company shall act as the Initial Warrant Agent in connection with the issuance, registration, transfer and exchange of certificates and the exercise of the Warrants. The Company may, without the consent or prior approval of the Warrant Holders, appoint a successor Warrant Agent, provided such successor Warrant Agent is a registered transfer agent under Section 17A(c) of the Securities Exchange Act of 1934. Notice of the appointment of a successor Warrant Agent shall be promptly given by the Company to all registered Warrant Holders. 7 10. NOTICES. ------- All notices, demands, elections, opinions or requests (however characterized or described) required or authorized hereunder shall be deemed given sufficiently if in writing and sent by registered or certified mail, return receipt requested and postage prepaid, or by confirmed telex, telegram, facsimile transmission or cable to, in the case of the Company: Thomas B. Olson Equitex, Inc. 7315 East Peakview Avenue Englewood, Colorado 80111 and if to the Warrant Holder at the address of such holder as set forth on the books maintained by or on behalf of the Company. 11. BINDING AGREEMENT. ----------------- This Agreement shall be binding upon and inure to the benefit of the Company and the Warrant Holders. Nothing in this Agreement is intended or shall be construed to confer upon any other person any right, remedy or claim or to impose on any other person any duty, liability or obligation. 12. FURTHER INSTRUMENTS. ------------------- The parties shall execute and deliver any and all such other instruments and take any and all other actions as may be reasonably necessary to carry out the intention of this Agreement. 13. SEVERABILITY. ------------ If any provision of this Agreement shall be held, declared or pronounced void, voidable, invalid, unenforceable, or inoperative for any reason by any court of competent jurisdiction, government authority or otherwise, such holding, declaration or pronouncement shall not affect adversely any other provision of this Agreement, which shall otherwise remain in full force and effect and be enforced in accordance with its terms, and the effect of such holding, declaration or pronouncement shall be limited to the territory or jurisdiction in which made. 14. WAIVER. ------ No delay or failure on the part of any party in the exercise of any right or remedy arising from a breach of this Agreement shall operate as a waiver of any subsequent right or remedy arising from a subsequent breach of this Agreement. 8 15. GENERAL PROVISIONS. ------------------ THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF DELAWARE. This Agreement may not be modified or amended or any term or provision hereof waived or discharged except in writing by the party against which such amendment, modification, waiver or discharge is sought to be enforced; except that, this agreement may be amended in connection with the appointment of a successor Warrant Agent without the consent or prior notice to the Warrant Holders, provided no such amendment adversely effects the interests of the Warrant Holders and the Company obtains an opinion of independent legal counsel to that effect. The headings of this Agreement are for convenience and reference only and shall not limit or otherwise affect the meaning hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the date first set forth above. EQUITEX, INC. By_________________________________ Henry Fong, President [CORPORATE SEAL] ATTEST:________________________ Thomas B. Olson, Secretary WARRANT HOLDER: ------------------------------------ Name 9 EX-4 7 eqtxkey8kex42.txt EXHIBIT 4.2 Warrant Holder THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE. ----------------------- WARRANT AGREEMENT This Agreement (the "Agreement") dated August 3, 2001 between Equitex, Inc., a Delaware corporation (the "Company" and the "Initial Warrant Agent") and the Warrant Holder or its registered assigns (the "Warrant Holder"). WITNESSETH: WHEREAS, for value received by the Company, the Company has agreed to issue warrants to the Warrant Holder (the "Warrants") enabling the Warrant Holder to acquire up to ___________ shares of the Company's $.02 par value common stock (the "Common Stock") at an exercise price of $0.02 per share; WHEREAS, the Company desires to provide for the issuance of certificates representing the Warrants (a "Warrant Certificate" or collectively the "Warrant Certificates"); WHEREAS, the Company desires to act as the warrant agent in connection with the issuance, registration, transfer and exchange of certificates and the exercise of the Warrants, until such time as a successor warrant agent is appointed; NOW, THEREFORE, in consideration of the above and foregoing premises and the mutual promises and agreements hereinafter set forth, it is agreed that: 1. WARRANT CERTIFICATES. -------------------- (a) Each Warrant shall entitle the holder in whose name the certificate shall be registered on the books maintained by the Company (the "Warrant Holder," or, in the aggregate, the "Warrant Holders") to purchase one share of Common Stock on the exercise thereof (each a "Warrant Share" or collectively the "Warrant Shares"), subject to modification and adjustment as provided in Section 8 hereof. Warrant Certificates shall be executed by the Company's Chairman or President and attested to by the Company's Secretary. (b) Subject to the provisions of Sections 3 and 8 hereof, the Company shall deliver Warrant Certificates in required whole number denominations to Warrant Holders in connection with any transfer or exchange permitted under this Agreement. Except as provided in Section 7 hereof, no certificates shall be issued except: (i) certificates initially issued hereunder; (ii) certificates issued on or after their initial issuance date upon the exercise of any Warrant to evidence the unexercised Warrants held by the exercising Warrant Holder; and, (iii) Warrant Certificates issued after their initial issuance date, upon any transfer or exchange of certificates or replacements of lost or mutilated certificates. 2. FORM AND EXECUTION OF CERTIFICATES. ---------------------------------- (a) The Warrant Certificates shall be dated the date of their issuance, whether on initial transfer or exchange or in lieu of mutilated, lost, stolen or destroyed certificates. The form of Warrant Certificate is attached hereto as Exhibit "A." (b) Each Warrant Certificate shall be numbered serially in accordance with the Common Stock initially attached thereto. Each Warrant Certificate shall have set forth thereon the designation "WNA-___." (c) The Warrant Certificates shall be manually signed on behalf of the Company by a proper officer thereof and shall not be valid for any purpose unless so signed. If any officer of the Company who executed certificates shall cease to be an officer of the Company, such certificates may be issued and delivered by the Company or transferred by the Warrant Holders with the same force and effect as though the person who signed such certificate had not ceased to be an officer of the Company; and any certificate signed on behalf of the Company by any person, who at the actual date of the execution of such certificate was a proper officer of the Company, shall be proper notwithstanding that at the date of execution of this Agreement any such person was not such an officer. 3. EXERCISE. -------- (a) Subject to the provisions of Section 8 hereof, the Warrants as they may be adjusted as set forth herein, may be exercised at $0.02 per share (the "Exercise Price"). The Warrants may be exercised in whole or in part at any time during the period (the "Warrant Exercise Period") commencing on their issuance and ending at 12:00 midnight Mountain Time on November 10, 2004, unless extended by a majority vote of the Company's Board of Directors for such length of time as they, in their sole discretion, deem reasonable and necessary. (b) Each Warrant shall be deemed to have been exercised immediately prior to the close of business on the date (each, an "Exercise Date") of the surrender for exercise of the Warrant 2 Certificate. The exercise form shall be executed by the Warrant Holder thereof or his attorney duly authorized in writing and shall be delivered together with payment to the Company at its corporate offices located at 7315 East Peakview Avenue, Englewood, Colorado 80111 (the "Corporate Office"), or at any such other office or agency as the Company may designate, in cash, by official bank or certified check or other immediately available funds, of an amount equal to the aggregate Exercise Price, in lawful money of the United States of America. (c) Unless Warrant Shares may not be issued as provided herein, the person entitled to receive the number of Warrant Shares deliverable on exercise shall be treated for all purposes as the holder of such Warrant Shares as of the close of business on the Exercise Date. The Company shall not be obligated to issue any fractional share interest in Warrant Shares issuable or deliverable on the exercise of any Warrant or scrip or cash therefor and such fractional shares shall be of no value whatsoever. (d) Within ten days after the Exercise Date and, in any event, prior to the Warrant Expiration Date, the Company, at its own expense, shall cause to be issued and delivered to the person or persons entitled to receive the same, a certificate or certificates in the name requested by the Warrant Holder for the number of Warrant Shares deliverable on such exercise. No adjustment shall be made in respect of cash dividends on Warrant Shares delivered on exercise of any Warrant. (e) The Warrants shall not entitle the holder thereof to any of the rights of shareholders or to any dividend declared on the Common Stock unless such holder or holders shall have exercised the Warrants prior to the record date fixed by the Board of Directors for the determination of holders of Common Stock entitled to such dividends or other rights. 4. REGISTRATION RIGHTS. ------------------- The Warrant Shares underlying the Warrants will be registered pursuant to the Registration Rights Agreement executed by and among Equitex, Inc. and the Warrant Holder dated August 3, 2001. 5. RESERVATION OF SHARES AND PAYMENT OF TAXES. ------------------------------------------ (a) The Company covenants that it shall at all times reserve and have available from its authorized Common Stock such number of shares as shall then be issuable on the exercise of all outstanding Warrants. The Company covenants that all Warrant Shares upon issuance in accordance with the terms of the Warrant shall be duly and validly issued, fully paid and nonassessable, and shall be free from all taxes, liens and charges with respect to the issuance thereof. (b) No Warrants may be exercised by the Warrant Holder, nor may any Warrant Shares be issued or delivered by the Company unless on the Exercise Date (i) there is an effective registration statement covering the issuance of the securities being acquired under the Securities Act and applicable "Blue Sky" statutes; or (ii) an exemption is available from registration thereunder. 3 (c) The Company shall pay all documentary, stamp or similar taxes and other government charges that may be imposed with respect of the issuance of the Warrants, and/or the issuance, transfer or delivery of any Common Stock constituting the Warrant Shares on the exercise or redemption of the Warrants. If the shares of Common Stock constituting the Warrant Shares are to be delivered in a name other than the name of the registered Warrant Holder of the certificate, no such delivery shall be made unless the person requesting the same has paid to the Company the amount of any such taxes, charges, or transfer fees incident thereto. 6. REGISTRATION OF TRANSFER. ------------------------ (a) The Warrant Certificates may, subject to provisions of Federal and state securities laws, be transferred in whole or in part. Certificates to be exchanged shall be surrendered to the Company at its Corporate Office. The Company shall execute, issue and deliver in exchange therefor the Warrant Certificates that the holder making the transfer shall be entitled to receive. (b) The Company shall keep transfer books at its Corporate Office which shall register certificates and the transfer thereof. On due presentment for registration of transfer of any certificate at the Corporate Office, the Company shall execute, issue and deliver to the transferee or transferees a new certificate or certificates representing an equal aggregate number of securities. All such certificates shall be duly endorsed or be accompanied by a written instrument or instruments of transfer in form reasonably satisfactory to the Company. The established transfer fee for any registration of transfer of certificates shall be paid by the Warrant Holder or the person presenting the certificate for transfer. (c) Prior to due presentment for registration or transfer thereof, the Company may treat the registered Warrant Holder of any certificate as the absolute owner thereof (notwithstanding any notations of ownership or writing thereon made by anyone) for all purposes, and the parties hereto shall not be affected by any notice to the contrary. 7. LOSS OR MUTILATION. ------------------ On receipt by the Company of evidence satisfactory as to the ownership of and the loss, theft, destruction or mutilation of any Warrant Certificate, the Company shall execute and deliver in lieu thereof a new certificate representing an equal number of Warrants. In the case of loss, theft or destruction of any certificate, the individual requesting reissuance of a new certificate shall be required to indemnify the Company and also to post an open-penalty insurance or indemnity bond. If a certificate is mutilated, such certificate shall be surrendered and canceled by the Company prior to delivery of a new certificate. Applicants for a new certificate shall also comply with such other regulations and pay such other reasonable charges as the Company may prescribe. 4 8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES PURCHASABLE. ------------------------------------------------------------- For purposes hereof, the term "Exercise Price" shall mean, with respect to the Warrants, the price determined in accordance with Section 3(a), above. The Exercise Price and the number of shares of Common Stock purchasable pursuant to the Warrants shall be subject to adjustment from time to time as hereinafter set forth in this Section 8; PROVIDED, HOWEVER, that no adjustment shall be made unless by reason of the happening of any one or more of the events hereinafter specified, the Exercise Price then in effect shall be changed by one percent or more, but any adjustment that would otherwise be required to be made but for this provision shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, together with any adjustment or adjustments so carried forward, amounts to one percent or more. (a) ADJUSTMENT OF EXERCISE PRICE IN THE EVENT OF STOCK DIVIDENDS, STOCK SPLITS AND REVERSE STOCK SPLITS. In case the Company shall at any time issue Common Stock or securities convertible into Common Stock by way of dividend or other distribution on any stock of the Company or effect a stock split or reverse stock split of the outstanding shares of Common Stock, the Exercise Price then in effect shall be proportionately decreased in the case of such issuance (on the day following the date fixed for determining shareholders entitled to receive such dividend or other distribution) or decreased in the case of such stock split or increased in the case of such reverse stock split (on the date that such stock split or reverse stock split shall become effective), by multiplying the Exercise Price in effect immediately prior to the stock dividend, stock split or reverse stock split by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately prior to such stock dividend, stock split or reverse stock split, and the denominator of which is the number of shares of Common Stock outstanding immediately after such stock dividend, stock split or reverse stock split. (b) RIGHT TO REDUCE EXERCISE PRICE. The Company shall have the right to reduce the Exercise Price at any time and from time to time that such appears in the Company's best interests to do so. (c) SUBDIVISION OR COMBINATIONS. In case the Company shall at any time change as a whole, by subdivision or combination in any manner or by the making of a stock dividend, the number of outstanding shares of Common Stock into a different number of shares, with or without par value, (i) the number of shares of Common Stock which immediately prior to such change the Warrant Holders shall have been entitled to purchase pursuant to this Agreement shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease, respectively, in the number of shares outstanding immediately prior to such change, and (ii) the Exercise Price in effect immediately prior to such change shall be increased or decreased, as the case may be, in inverse proportion to such increase or decrease in the number of such shares outstanding immediately prior to such change. (d) REORGANIZATION; ASSETS SALES; ETC. In case of any capital reorganization or any reclassification of the capital stock of the Company or in case of a non-surviving combination or a 5 disposition of the assets of the Company other than in the ordinary course of the Company's business, the Warrant Holders shall thereafter be entitled to purchase (and it shall be a condition to the consummation of any such reorganization, reclassification, non-surviving combination or disposition that appropriate provision shall be made so that such Warrant Holder shall thereafter be entitled to purchase) the kind and amount of shares of stock and other securities and property receivable in such transaction by a holder of the number of shares of Common Stock of the Company into which this Agreement entitled the holder to purchase immediately prior to such capital reorganization, reclassification of capital stock, non-surviving combination or disposition; and in any such case appropriate adjustments shall be made in the application of the provisions of this Section 8 with respect to rights and interests thereafter or the holder to the end that the provisions of this Section 8 shall thereafter be applicable, as near as reasonably may be, in relation to any shares or other property thereafter purchasable upon the exercise of a Warrant. (e) TERMINOLOGY OF "COMMON STOCK". Whenever reference is made in this Section 8 to the issue or sale of shares of Common Stock, or simply shares, such term shall mean any stock of any class of the Company other than preferred stock with a fixed limit on dividends and a fixed amount payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company. The Warrant Shares shall, however, be shares of Common Stock of the Company, with a par value of $0.02, as constituted at the date hereof, except as otherwise provided in Sections 8(d). (f) ADJUSTMENT STATEMENT. Whenever the Exercise Price is adjusted as herein provided, the Company shall forthwith deliver to each Warrant Holder a statement signed by the President of the Company and by its Treasurer or Secretary stating the adjusted Exercise Price and number of shares for which such Warrant is exercisable, determined as specified herein. The statement shall show in detail the facts requiring such adjustment. (g) PRIOR NOTICE TO WARRANT HOLDERS. If at any time: (1) The Company shall pay any dividend payable in stock upon its Common Stock or make any distribution (other than cash dividends) to the holders of its Common Stock; or (2) The Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or any other rights; or (3) The Company shall effect any capital reorganization or any reclassification of or change in the outstanding capital stock of the Company (other than a change in par value, or a change from par value to no par value, or a change from no par value to par value, or a change resulting solely from a subdivision or combination of outstanding shares), or any consolidation or merger, or any sale, transfer or other disposition of all or substantially all of its property, assets, business and goodwill as an entirety, or the liquidation, dissolution or winding up of the Company; or 6 (4) The Company shall declare a dividend upon its Common Stock payable otherwise than out of earnings or earned surplus or otherwise than in shares or any stock or obligations directly or indirectly convertible into or exchangeable for shares; then, in any such event, the Company shall cause at least thirty (30) days' prior written notice to be mailed to each Warrant Holder at the address of such holder shown on the books of the Company. The notice shall also specify the date on which the books of the Company shall close or a record be taken for such stock dividend, distribution or subscription rights, or the date on which such reclassification, reorganization, consolidation, merger, sale, transfer, disposition, liquidation, dissolution, winding up, or dividend, as the case may be, shall take place, and the date of participation therein by the holders of shares of Common Stock if any such date is to be fixed, and shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action on the rights of the holder. (h) DISPUTES. If there is any dispute as to the computation of the Exercise Price or the number of shares of Common Stock required to be issued upon the exercise of the Warrants, the Company will retain an independent and nationally recognized accounting firm to conduct an audit of the computations pursuant to the terms hereof involved in such dispute, including the financial statements or other information upon which such computations were based. The determination of such nationally recognized accounting firm shall, in the absence of manifest error, be binding. If there shall be a dispute as to the selection of such nationally recognized accounting firm, such firm shall be appointed by the American Institute of Certified Public Accountants ("AICPA") if willing, otherwise the American Arbitration Association ("AAA"). If the Exercise Price or number of shares of Common Stock as determined by such accounting firm is one percent or more higher or lower than the calculations thereof computed by the Company, the expenses of such accounting firm and, if any, of AICPA and AAA, shall be borne completely by the Company. In all other cases, they shall be borne by the complaining Warrant Holders, as applicable. (i) CORPORATE ACTION. Before taking any action which would cause an adjustment reducing the Exercise Price below the then par value of the Warrant Shares, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock at the adjusted Exercise Price. 9. WARRANT AGENT. ------------- The Company shall act as the Initial Warrant Agent in connection with the issuance, registration, transfer and exchange of certificates and the exercise of the Warrants. The Company may, without the consent or prior approval of the Warrant Holders, appoint a successor Warrant Agent, provided such successor Warrant Agent is a registered transfer agent under Section 17A(c) of the Securities Exchange Act of 1934. Notice of the appointment of a successor Warrant Agent shall be promptly given by the Company to all registered Warrant Holders. 7 10. NOTICES. ------- All notices, demands, elections, opinions or requests (however characterized or described) required or authorized hereunder shall be deemed given sufficiently if in writing and sent by registered or certified mail, return receipt requested and postage prepaid, or by confirmed telex, telegram, facsimile transmission or cable to, in the case of the Company: Thomas B. Olson Equitex, Inc. 7315 East Peakview Avenue Englewood, Colorado 80111 and if to the Warrant Holder at the address of such holder as set forth on the books maintained by or on behalf of the Company. 11. BINDING AGREEMENT. ----------------- This Agreement shall be binding upon and inure to the benefit of the Company and the Warrant Holders. Nothing in this Agreement is intended or shall be construed to confer upon any other person any right, remedy or claim or to impose on any other person any duty, liability or obligation. 12. FURTHER INSTRUMENTS. ------------------- The parties shall execute and deliver any and all such other instruments and take any and all other actions as may be reasonably necessary to carry out the intention of this Agreement. 13. SEVERABILITY. ------------ If any provision of this Agreement shall be held, declared or pronounced void, voidable, invalid, unenforceable, or inoperative for any reason by any court of competent jurisdiction, government authority or otherwise, such holding, declaration or pronouncement shall not affect adversely any other provision of this Agreement, which shall otherwise remain in full force and effect and be enforced in accordance with its terms, and the effect of such holding, declaration or pronouncement shall be limited to the territory or jurisdiction in which made. 14. WAIVER. ------ No delay or failure on the part of any party in the exercise of any right or remedy arising from a breach of this Agreement shall operate as a waiver of any subsequent right or remedy arising from a subsequent breach of this Agreement. 8 15. GENERAL PROVISIONS. ------------------ THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF DELAWARE. This Agreement may not be modified or amended or any term or provision hereof waived or discharged except in writing by the party against which such amendment, modification, waiver or discharge is sought to be enforced; except that, this agreement may be amended in connection with the appointment of a successor Warrant Agent without the consent or prior notice to the Warrant Holders, provided no such amendment adversely effects the interests of the Warrant Holders and the Company obtains an opinion of independent legal counsel to that effect. The headings of this Agreement are for convenience and reference only and shall not limit or otherwise affect the meaning hereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the date first set forth above. EQUITEX, INC. By_________________________________ Henry Fong, President [CORPORATE SEAL] ATTEST:________________________ Thomas B. Olson, Secretary WARRANT HOLDER: ------------------------------------ Name 9 EX-4 8 eqtxkey8kex45.txt EXHIBIT 4.5 CERTIFICATE OF DESIGNATION OF SERIES I 6% CONVERTIBLE PREFERRED STOCK OF EQUITEX, INC. - -------------------------------------------------------------------------------- Pursuant to Section 151 of the General Corporation Law of the State of Delaware - -------------------------------------------------------------------------------- Equitex, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "CORPORATION"), hereby certifies that the following resolutions were adopted by the Board of Directors of the Corporation on July 20, 2001 pursuant to authority of the Board of Directors as required by Section 151 of the General Corporation Law of the State of Delaware: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (the "BOARD OF DIRECTORS" or the "BOARD") in accordance with the provisions of its Certificate of Incorporation, the Board of Directors hereby authorizes a series of the Corporation's previously authorized Preferred Stock, par value $.01 per share (the "PREFERRED STOCK"), and hereby states the designation and number of shares, and fixes the relative rights, preferences, privileges, powers and restrictions thereof as follows: Series I 6% Convertible Preferred Stock: ARTICLE 1 DEFINITIONS The terms defined in this Article whenever used in this Certificate of Designation have the following respective meanings: (a) "ADDITIONAL CAPITAL SHARES" has the meaning set forth in Section 6.1(c). (b) "AFFILIATE" has the meaning ascribed to such term in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. (c) "BUSINESS DAY" means a day other than Saturday, Sunday or any day on which banks located in the State of New York are authorized or obligated to close. (d) "CAPITAL SHARES" means the Common Shares and any other shares of any other class or series of capital stock, whether now or hereafter authorized and however designated, which have the right to participate in the distribution of earnings and assets (upon dissolution, liquidation or winding-up) of the Corporation. (e) "COMMON SHARES" or "COMMON STOCK" means shares of common stock, par value $.02 per share, of the Corporation. (f) "COMMON STOCK ISSUED AT CONVERSION", when used with reference to the securities issuable upon conversion of the Series I Preferred Stock, means all Common Shares now or hereafter Outstanding and securities of any other class or series into which the Series I Preferred Stock hereafter shall have been changed or substituted, whether now or hereafter created and however designated. (g) "CONVERSION DATE" means any day on which all or any portion of shares of the Series I Preferred Stock is converted in accordance with the provisions hereof. (h) "CONVERSION NOTICE" means a written notice of conversion substantially in the form annexed hereto as Annex I. (i) "CONVERSION PRICE" means on any date of determination the applicable price for the conversion of shares of Series I Preferred Stock into Common Shares on such day as set forth in Section 6.1. (j) "CORPORATION" means Equitex, Inc., a Delaware corporation, and any successor or resulting corporation by way of merger, consolidation, sale or exchange of all or substantially all of the Corporation's assets, or otherwise. (k) "CORPORATION SHAREHOLDER APPROVAL" shall have the meaning set forth in the Securities Purchase Agreement. (l) "CURRENT MARKET PRICE" means on any date of determination the closing bid price of a Common Share in the regular day session on such day as reported on Nasdaq; PROVIDED, if such security is not listed or admitted to trading on Nasdaq, as reported on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the closing bid price of such security on the over-the-counter market in the regular day session on the day in question as reported by Bloomberg LP, or a similar generally accepted reporting service, as the case may be. (m) "DEFAULT DIVIDEND RATE" is equal to the Dividend Rate plus an additional 4% per annum. (n) "DIVIDEND PERIOD" means the quarterly period commencing on and including the Issue Date or, if a dividend has previously been paid, the day after the immediately preceding Dividend Payment Due Date and ending on and including the immediately subsequent Dividend Payment Due Date; provided, however, that the first Dividend Period shall commence on and include the Issue Date and end on and include September 30, 2001. (o) "DIVIDEND PAYMENT DUE DATE" means March 31, June 30, September 30 and December 31 of each year. (p) "DIVIDEND RATE" means 6% per annum, computed on the basis of a 360-day year. -2- (q) "HOLDER" means the initial purchaser of the Series I Preferred Stock, any successor thereto, or any Person or Persons to whom the Series I Preferred Stock is subsequently transferred in accordance with the provisions hereof. (r) "ISSUE DATE" means, as to any share of Series I Preferred Stock, the date of issuance of such share. (s) "JUNIOR SECURITIES" means all capital stock of the Corporation except for the Series I Preferred Stock. (t) "KEY-NOVA ACQUISITION" shall mean the acquisition by the Corporation of Nova Financial Systems, Inc. and Key Financial Systems, Inc. as described in the Corporation's Definitive Proxy Statement on Schedule 14A dated May 16, 2001. (u) "LIQUIDATION PREFERENCE" means, with respect to a share of the Series I Preferred Stock, an amount equal to the sum of (i) the Stated Value thereof, plus (ii) an amount equal to 25% of such Stated Value, PLUS (iii) the aggregate of all accrued and unpaid dividends (whether or not earned or declared, whether or not there were funds legally available for the payment of dividends and whether or not a Dividend Payment Due Date has occurred since the last dividend payment) on such share of Series I Preferred Stock until the most recent Dividend Payment Due Date; PROVIDED THAT, in the event of an actual liquidation, dissolution or winding up of the Corporation, the amount referred to in clause (iii) above shall be calculated by including accrued and unpaid dividends to the actual date of such liquidation, dissolution or winding up, rather than the Dividend Payment Due Date referred to above. (v) "MANDATORY CONVERSION DATE" has the meaning set forth in Section 6.8. (w) "MARKET PRICE" per Common Share means the arithmetic mean of the closing bid prices of the Common Shares in the regular day session as reported on Nasdaq for the five Trading Days during any Valuation Period, it being understood that such five Trading Days need not be consecutive; PROVIDED, if such security is not listed or admitted to trading on Nasdaq, as reported on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the closing bid price of such security in the regular day session on the over-the-counter market on the day in question as reported by Bloomberg LP, or a similar generally accepted reporting service, for the five Trading Days during any Valuation Period, it being understood that such five Trading Days need not be consecutive. (x) "NASDAQ" means the Nasdaq SmallCap Market. (y) "OPTIONAL REDEMPTION PRICE" has the meaning set forth in Section 6.5. (z) "OUTSTANDING", when used with reference to Common Shares or Capital Shares (collectively, "SHARES"), means, on any date of determination, all issued and outstanding Shares, and includes all such Shares issuable in respect of outstanding scrip or any certificates representing fractional interests in such Shares; PROVIDED, HOWEVER, that any such Shares directly or indirectly owned or -3- held by or for the account of the Corporation or any Subsidiary of the Corporation shall not be deemed "Outstanding" for purposes hereof. (aa) "PERSON" means an individual, a corporation, a partnership, an association, a limited liability company, an unincorporated business organization, a trust or other entity or organization, and any government or political subdivision or any agency or instrumentality thereof. (bb) "REDEMPTION DATE" has the meaning set forth in Section 6.5. (cc) "REGISTRATION RIGHTS AGREEMENT" means that certain Registration Rights Agreement to be dated as of August 2, 2001 between the Corporation and the initial Holder of the Series I Preferred Stock. (dd) "SEC" means the United States Securities and Exchange Commission. (ee) "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC thereunder, all as in effect at the time. (ff) "SECURITIES PURCHASE AGREEMENT" means that certain Securities Purchase Agreement to be dated as of August 2, 2001 between the Corporation and the initial Holder of the Series I Preferred Stock. (gg) "SERIES H PREFERRED SHARES" or "Series H Preferred Stock" means the shares of Series H Convertible Preferred Stock of the Corporation or such other convertible preferred stock of the Corporation as may be exchanged therefor. (hh) "SERIES I PREFERRED SHARES" or "Series I Preferred Stock" means the shares of Series I 6% Convertible Preferred Stock of the Corporation or such other convertible preferred stock of the Corporation as may be exchanged therefor. (ii) "SPIN-OFF" means the proposed distribution by the Corporation of all of its assets and liabilities to Equitex 2000, Inc. ("EQUITEX 2000") and the distribution by the Corporation of all outstanding shares of common stock of Equitex 2000 to the Corporation's stockholders, in each case, pursuant to the terms described in the Corporation's Definitive Proxy Statement on Schedule 14A dated May 16, 2001. (jj) "STATED VALUE" has the meaning set forth in Article 2. (kk) "SUBSIDIARY" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are owned directly or indirectly by the Corporation. (ll) "Trading Day" means any day on which (a) purchases and sales of securities authorized for quotation on Nasdaq are reported thereon, (b) no event which results in a material suspension or limitation of trading of the Common Shares on Nasdaq has occurred and (c) at least one bid for the trading of Common Shares is reported on Nasdaq. -4- (mm) "VALUATION EVENT" has the meaning set forth in Section 6.1. (nn) "VALUATION PERIOD" means the period of 5 Trading Days immediately preceding the Conversion Date; PROVIDED, HOWEVER, that if a Valuation Event occurs during a Valuation Period on a date less than 5 Trading Days before the Conversion Date, the Valuation Period shall be extended until the date 5 Trading Days after the occurrence of the Valuation Event. All references to "CASH" or "$" herein mean currency of the United States of America. ARTICLE 2 DESIGNATION AND AMOUNT The designation of this series, which consists of 4,000 shares of Preferred Stock, shall be Series I 6% Convertible Preferred Stock (the "SERIES I PREFERRED STOCK") and the stated value shall be $1,000 per share (the "STATED VALUE"). ARTICLE 3 RANK The Series I Preferred Stock shall rank prior to any other capital stock of the Corporation. ARTICLE 4 DIVIDENDS (a) (i) The Holder shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends, dividends at the Dividend Rate on the Stated Value of each share of Series I Preferred Stock on and as of each Dividend Payment Due Date with respect to each Dividend Period; provided, however, that if any dividend is not paid in full on any Dividend Payment Due Date, dividends shall thereafter accrue and be payable at the Default Dividend Rate on the Stated Value of each share of Series I Preferred Stock until all accrued dividends are paid in full. Dividends on the Series I Preferred Stock shall be cumulative from the date of issue, whether or not declared for any reason, including if such declaration is prohibited under any outstanding indebtedness or borrowings of the Corporation or any of its Subsidiaries, or any other contractual provision binding on the Corporation or any of its Subsidiaries, and whether or not there shall be funds legally available for the payment thereof. (ii) Each dividend shall be payable in equal quarterly amounts on each Dividend Payment Due Date, commencing September 30, 2001, to the Holders of record of shares of the Series I Preferred Stock, as they appear on the stock records of the Corporation at the close of business on such record date, not more than 60 days or less than 10 days preceding the payment dates thereof, as shall be fixed by the Board of Directors. Accrued and unpaid dividends for any -5- past Dividend Period may be declared and paid at any time, without reference to any Dividend Payment Due Date, to Holders of record, not more than 15 days preceding the payment date thereof, as may be fixed by the Board of Directors. (iii) At the option of the Corporation, the dividend shall be paid either (x) in cash or (y) through the issuance of duly and validly authorized and issued, fully paid and nonassessable shares of the Common Stock valued at the then applicable Conversion Price calculated in accordance with the provisions of Section 6.1, assuming for this purpose, that the applicable Dividend Payment Date is the applicable Conversion Date and registered for resale in open market transactions on the Registration Statement (as defined in the Registration Rights Agreement), which Registration Statement shall then be effective under the Securities Act; PROVIDED, HOWEVER, that if no funds are legally available for the payment of cash dividends on the Series I Preferred Stock, dividends shall be paid as provided in clause (y) above. (b) Except as provided in Section 4(d) hereof, the Holder shall not be entitled to any dividends in excess of the cumulative dividends, as herein provided, on the Series I Preferred Stock. (c) So long as any shares of the Series I Preferred Stock are outstanding, no dividends shall be declared or paid or set apart for payment or other distribution declared or made upon any Junior Securities, nor shall any Junior Securities be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of shares of Common Stock made for purposes of an employee incentive or benefit plan (including a stock option plan) of the Corporation or any Subsidiary) for any consideration by the Corporation, directly or indirectly, nor shall any moneys be paid to or made available for a sinking fund for the redemption of any shares of any Junior Securities, unless in each case (i) the full cumulative dividends required to be paid in cash on all outstanding shares of the Series I Preferred Stock shall have been paid or set apart for payment for all past Dividend Periods with respect to the Series I Preferred Stock and (ii) sufficient funds shall have been paid or set apart for the payment of the dividend for the current Dividend Period with respect to the Series I Preferred Stock. (d) If the Corporation shall at any time or from time to time after the Issue Date declare, order, pay or make a dividend or other distribution (including, without limitation, any distribution of stock or other securities or property or rights or warrants to subscribe for securities of the Corporation or any of its Subsidiaries by way of dividend or spin-off) on shares of its Common Stock, then, and in each such case, in addition to the dividend obligation of the Corporation specified in Section 4(a) hereof, the Corporation shall declare, order, pay and make the same dividend or distribution to each Holder of Series I Preferred Stock as would have been made with respect to the number of Common Shares the Holder would have received had it converted all of its Series I Preferred Shares, and exercised the Warrants held by it in full for all the Common Shares then underlying the Warrants, immediately prior to such dividend or distribution. ARTICLE 5 LIQUIDATION PREFERENCE; MERGERS, CONSOLIDATIONS, ETC. (a) If the Corporation shall commence a voluntary case under the Federal bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in an involuntary -6- case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee or sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Corporation shall be entered by a court having jurisdiction in the premises in an involuntary case under the Federal bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency or similar law resulting in the appointment of a receiver, liquidator, assignee, custodian, trustee or sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of 30 consecutive days and, on account of any such event, the Corporation shall liquidate, dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve or wind up, no distribution shall be made to the holders of any shares of capital stock of the Corporation upon liquidation, dissolution or winding-up unless prior thereto, the Holders of shares of Series I Preferred Stock, subject to this Article 5, shall have received the Liquidation Preference with respect to each share. (b) In case the Corporation shall reorganize its capital, reclassify its capital stock, consolidate or merge with or into another Person (where the Corporation is not the survivor or where there is a change in or distribution with respect to the Common Stock of the Corporation), sell, convey, transfer or otherwise dispose of all or substantially all its property, assets or business to another Person, or effectuate a transaction or series of related transactions in which more than 50% of the voting power of the Corporation is disposed of (each, a "FUNDAMENTAL CORPORATE CHANGE") and, pursuant to the terms of such Fundamental Corporate Change, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock or other 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 ("OTHER PROPERTY"), are to be received by or distributed to the holders of Common Stock of the Corporation, then each Holder of Series I Preferred Stock shall have the right thereafter, at its sole option, either (x) to require the Corporation to deem such Fundamental Corporate Change to be a liquidation, dissolution or winding up of the Corporation pursuant to which the Corporation shall be required to distribute, upon consummation of and as a condition to, such Fundamental Corporate Change an amount equal to 120% of the Liquidation Preference with respect to each outstanding share of Series I Preferred Stock, (y) to receive the number of shares of common stock of the successor or acquiring corporation or of the Corporation, if it is the surviving 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 I Preferred Stock may be converted at the Conversion Price applicable immediately prior to such Fundamental Corporate Change or (z) require the Corporation, or such successor, resulting or purchasing corporation, as the case may be, to, without benefit of any additional consideration therefor, to execute and deliver to the Holder shares of its Preferred Stock with substantial identical rights, preferences, privileges, powers, restrictions and other terms as the Series I Preferred Stock equal to the number of shares of Series I Preferred Stock held by such Holder immediately prior to such Fundamental Corporate Change; PROVIDED, that all Holders of Series I Preferred Stock shall be deemed to elect the option set forth in clause (x) above if -7- Holders holding at least 90% of the outstanding Series I Preferred Shares elect such option. Notwithstanding the foregoing, the Spin-Off shall not be deemed a Fundamental Corporate Change. For purposes of this Section 5(b), "COMMON STOCK OF THE SUCCESSOR OR ACQUIRING CORPORATION" shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this Section 5(b) shall similarly apply to successive Fundamental Corporate Changes. ARTICLE 6 CONVERSION OF PREFERRED STOCK SECTION 6.1 Conversion; Conversion Price At the option of the Holder, the shares of Series I Preferred Stock may be converted, either in whole or in part, into Common Shares (calculated as to each such conversion to the nearest 1/100th of a share) at any time and from time to time following the Issue Date at a Conversion Price per share of Common Stock equal to the lesser of: (i) $5.98 (subject to adjustment for any stock-split or stock combination to occur after the date hereof), or (ii) 65% of the Market Price (the lower of (i) and (ii), the "CONVERSION PRICE"); PROVIDED, that if the Corporation's Common Stock is delisted off Nasdaq for any reason, then any remaining unconverted Series I Preferred Stock may be converted, at the sole option of the Holder, at a Conversion Price per share of Common Stock equal to 50% of the Market Price. At the Corporation's option, the amount of accrued and unpaid dividends as of the Conversion Date (whether or not earned or declared, whether or not there were funds legally available for the payment of dividends and whether or not a Dividend Payment Due Date has occurred since the last dividend payment) shall not be subject to conversion but instead may be paid in cash as of the Conversion Date; if the Corporation elects to convert the amount of such accrued and unpaid dividends at the Conversion Date into Common Stock, the Common Stock issued to the Holder shall be valued at the applicable Conversion Price. The number of shares of Common Stock due upon conversion of Series I Preferred Stock shall be (i) the number of shares of Series I Preferred Stock to be converted, multiplied by (ii) the Stated Value plus accrued and unpaid dividends (whether or not earned or declared, whether or not there were funds legally available for the payment of dividends and whether or not a Dividend Payment Due Date has occurred since the last dividend payment), to the extent the Corporation does not at its election pay such accrued and unpaid dividends in cash, and divided by (iii) the applicable Conversion Price. Within two Business Days of the occurrence of a Valuation Event, the Corporation shall send notice thereof to each Holder. Notwithstanding anything to the contrary contained herein, if a Valuation Event occurs during any Valuation Period, the Holder may convert some or all of its Series I Preferred Stock, at its sole option, at a Conversion Price equal to the Current Market Price on any Trading Day during the Valuation Period. For purposes of this Section 6.1, a "VALUATION EVENT" shall mean an event in which the Corporation takes any of the following actions: -8- (a) subdivides or combines its Capital Shares; (b) makes any distribution on its Capital Shares; (c) issues any additional Capital Shares (the "ADDITIONAL CAPITAL SHARES"), otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b) above, at a price per share less, or for other consideration lower, than the Current Market Price in effect immediately prior to such issuances, or without consideration, except for issuances under employee benefit plans consistent with those presently in effect and issuances under presently outstanding warrants, options or convertible securities; (d) issues any warrants, options or other rights to subscribe for or purchase any Additional Capital Shares if the price per share for which Additional Capital Shares may at any time thereafter be issuable pursuant to such warrants, options or other rights shall be less than the Current Market Price in effect immediately prior to such issuance; (e) issues any securities convertible into or exchangeable or exercisable for Additional Capital Shares if the consideration per share for which Additional Capital Shares may at any time thereafter be issuable pursuant to the terms of such convertible, exchangeable or exercisable securities shall be less than the Current Market Price in effect immediately prior to such issuance; (f) announces or effects a Fundamental Corporate Change; (g) makes any distribution of its assets or evidences of indebtedness to the holders of its Capital Shares as a dividend in liquidation or by way of return of capital or other than as a dividend payable out of earnings or surplus legally available for the payment of dividends under applicable law or any distribution to such holders made in respect of the sale of all or substantially all of the Corporation's assets (other than under the circumstances provided for in the foregoing Sections 6.1(a) through 6.1(e)); or (h) takes any action affecting the number of Outstanding Capital Shares, other than an action described in any of the foregoing Sections 6.1(a) through 6.1(g) hereof, inclusive, which in the opinion of the Holder, determined in good faith, would have a material adverse effect upon the rights of the Holder at the time of a conversion of the Preferred Stock or is reasonably likely to result in a decrease in the Market Price, PROVIDED, HOWEVEr, that notwithstanding the foregoing, neither the Spin-Off nor the Key-Nova Acquisition shall be a Valuation Event. SECTION 6.2 Exercise of Conversion Privilege (a) Conversion of the Series I Preferred Stock may be exercised, in whole or in part, by the Holder by telecopying an executed and completed Conversion Notice to the Corporation. Each date on which a Conversion Notice is telecopied to the Corporation in accordance with the provisions of this Section 6.2 shall constitute a Conversion Date. The Corporation shall convert the Preferred Stock and issue the Common Stock Issued at Conversion, and all voting and other rights associated with the beneficial ownership of the Common Stock Issued at -9- Conversion shall vest with the Holder, effective as of the Conversion Date at the time specified in the Conversion Notice. The Conversion Notice also shall state the name or names (with addresses) of the Persons who are to become the holders of the Common Stock Issued at Conversion in connection with such conversion. The Holder shall deliver the shares of Series I Preferred Stock to the Corporation by express courier within 30 days following the Conversion Date. Upon surrender for conversion, the Preferred Stock shall be accompanied by a proper assignment thereof to the Corporation or be endorsed in blank. As promptly as practicable after the receipt of the Conversion Notice as aforesaid, but in any event not more than five Business Days after the Corporation's receipt of such Conversion Notice, the Corporation shall (i) issue the Common Stock issued at Conversion in accordance with the provisions of this Article 6, and (ii) cause to be mailed for delivery by overnight courier to the Holder (x) a certificate or certificate(s) representing the number of Common Shares to which the Holder is entitled by virtue of such conversion, (y) cash, as provided in Section 6.3, in respect of any fraction of a Common Share issuable upon such conversion and (z) if the Corporation chooses to pay accrued and unpaid dividends in cash, cash in the amount of accrued and unpaid dividends as of the Conversion Date. Such conversion shall be deemed to have been effected at the time at which the Conversion Notice indicates so long as the Series I Preferred Stock shall have been surrendered as aforesaid at such time, and at such time the rights of the Holder of the Series I Preferred Stock, as such, shall cease and the Person or Persons in whose name or names the Common Stock Issued at Conversion shall be issuable shall be deemed to have become the holder or holders of record of the Common Shares represented thereby and all voting and other rights associated with the beneficial ownership of such Common Shares shall at such time vest with such Person or Persons. The Conversion Notice shall constitute a contract between the Holder and the Corporation, whereby the Holder shall be deemed to subscribe for the number of Common Shares which it will be entitled to receive upon such conversion and, in payment and satisfaction of such subscription (and for any cash adjustment to which it is entitled pursuant to Section 6.3), to surrender the Series I Preferred Stock and to release the Corporation from all liability thereon. No cash payment aggregating less than $1.00 shall be required to be given unless specifically requested by the Holder. (b) If, at any time (i) the Corporation challenges, disputes or denies the right of the Holder hereof to effect the conversion of the Series I Preferred Stock into Common Shares or otherwise dishonors or rejects any Conversion Notice delivered in accordance with this Section 6.2 or (ii) any third party commences any lawsuit or proceeding or otherwise asserts any claim before any court or public or governmental authority which seeks to challenge, deny, enjoin, limit, modify, delay or dispute the right of the Holder hereof to effect the conversion of the Series I Preferred Stock into Common Shares, then the Holder shall have the right, by written notice to the Corporation, to require the Corporation promptly to redeem the Series I Preferred Stock for cash at a redemption price equal to 125% of the Stated Value thereof together with all accrued and unpaid dividends (whether or not earned or declared, whether or not there were funds legally available for the payment of dividends and whether or not a Dividend Payment Due Date has occurred since the last dividend payment) thereon (the "MANDATORY PURCHASE AMOUNT"). Under any of the circumstances set forth above, the Corporation shall be responsible for the payment of all costs and expenses of the Holder, including reasonable legal fees and expenses, as and when incurred in disputing any such action or pursuing its rights hereunder (in addition to any other rights of the Holder). -10- (c) The Holder shall be entitled to exercise its conversion privilege notwithstanding the commencement of any case under 11 U.S.C.ss. 101 et seq. (the "BANKRUPTCY CODE"). In the event the Corporation is a debtor under the Bankruptcy Code, the Corporation hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C.ss. 362 in respect of the Holder's conversion privilege. The Corporation hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C. ss. 362 in respect of the conversion of the Series I Preferred Stock. The Corporation agrees, without cost or expense to the Holder, to take or consent to any and all action necessary to effectuate relief under 11 U.S.C.ss. 362. SECTION 6.3 Fractional Shares No fractional Common Shares or scrip representing fractional Common Shares shall be issued upon conversion of the Series I Preferred Stock. Instead of any fractional Common Shares which otherwise would be issuable upon conversion of the Series I Preferred Stock, the Corporation shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction. SECTION 6.4 Adjustments to Conversion Price For so long as any shares of the Series I Preferred Stock are outstanding, if the Corporation issues and sells pursuant to an exemption from registration under the Securities Act (A) Common Shares at a purchase price that is lower than the Conversion Price on the date of issuance of such Common Shares, (B) warrants or options with an exercise price on the date of issuance thereof that is lower than the Conversion Price for the Holder on such date, except for warrants or options issued pursuant to employee stock option agreements or stock incentive agreements of the Corporation, or (C) convertible, exchangeable or exercisable securities with a right to exchange at lower than the Current Market Price on the date of issuance or conversion, as applicable, of such convertible, exchangeable or exercisable securities, except for stock option agreements or stock incentive agreements, then the Conversion Price shall be reduced to equal the lowest of any such purchase price, exercise price or exchange price, and the number of shares of Common Stock into which the Series I Preferred Stock is convertible pursuant to the second paragraph of Section 6.1 shall be correspondingly adjusted. After such reduction, the Conversion Price shall never exceed the Conversion Price as so reduced, in spite of any subsequent increase in the Market Price. Notwithstanding the foregoing, the Key-Nova Acquisition shall not trigger an adjustment to the Conversion Price under this Section 6.4. SECTION 6.5 Optional Redemption At any time after the date of issuance of the Series I Preferred Stock until the Mandatory Conversion Date (as defined below), the Corporation, upon notice delivered to the Holder as provided in Section 6.6, may redeem, in cash, the Series I Preferred Stock (but only with respect to such shares as to which the Holder has not theretofore furnished a Conversion Notice in compliance with Section 6.2), at 125% of the Stated Value thereof (the "OPTIONAL REDEMPTION PRICE"), together with all accrued and unpaid dividends (whether or not earned or declared, whether or not there were funds legally available for the payment of dividends and whether or not a Dividend Payment Due -11- Date has occurred since the last dividend payment) thereon to the date of redemption (the "REDEMPTION DATE"); PROVIDED, HOWEVER, that the Corporation may only redeem the Series I Preferred Stock under this Section 6.5 if the Current Market Price is less than the Current Market Price on the Issue Date and provided, further, that the Corporation may not redeem a Holder's Series I Preferred Shares pursuant to this Section 6.5 if such Holder has not received payment for any preferred shares of the Corporation held by such Holder that were previously redeemed by the Corporation. Except as set forth in this Section 6.5, the Corporation shall not have the right to redeem the Series I Preferred Stock. SECTION 6.6 Notice of Redemption Notice of redemption pursuant to Section 6.5 shall be provided by the Corporation to the Holder in writing (by registered mail or overnight courier at the Holder's last address appearing in the Corporation's security registry) not less than 10 nor more than 15 days prior to the Redemption Date, which notice shall specify the Redemption Date and refer to Section 6.5 (including a statement of the Current Market Price per Common Share) and this Section 6.6. SECTION 6.7 Surrender of Preferred Stock Upon any redemption of the Series I Preferred Stock pursuant to Sections 6.5 and 6.6, the Holder shall either deliver the Series I Preferred Stock by hand to the Corporation at its principal executive offices or surrender the same to the Corporation at such address by express courier within 14 days after the date that the Buyer receives payment therefore. Payment of the Optional Redemption Price shall be made by the Corporation to the Holder by wire transfer of immediately available funds to such account(s) as the Holder shall specify to the Corporation. If payment of such Optional Redemption Price is not made in full by the Redemption Date, the Holder shall again have the right to convert the Series I Preferred Stock as provided in Article 6 hereof. SECTION 6.8 Mandatory Conversion On the later of (i) the third anniversary of the date of this Certificate of Designation and (ii) the date which is thirty (30) months after the date on which the Registration Statement (as defined in the Registration Rights Agreement) is declared effective by the SEC (the later of (i) and (ii), the "MANDATORY CONVERSION DATE"), the Corporation shall convert all Series I Preferred Stock outstanding, at the Conversion Price utilizing the Stated Value (plus accrued and unpaid dividends (whether or not earned or declared, whether or not there were funds legally available for the payment of dividends and whether or not a Dividend Payment Due Date has occurred since the last dividend payment)) as the value of each share of Series I Preferred Stock, into shares of Common Stock registered for resale in open market transactions on the Registration Statement (as defined in the Registration Rights Agreement), which Registration Statement shall then be effective under the Securities Act. SECTION 6.9 Certain Conversion Limitations (a) Notwithstanding anything herein to the contrary, the Holder shall not have the right, and the Corporation shall not have the obligation, to convert all or any portion of the Series I Preferred Stock (and the Corporation shall not have the right to pay dividends on the Series I Preferred Stock in shares of Common Stock) if and to the extent that the issuance to the Holder of shares of Common Stock upon such conversion (or payment of dividends) would result in the -12- Holder being deemed the "beneficial owner" of more than 5% of the then Outstanding shares of Common Stock within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder. If any court of competent jurisdiction shall determine that the foregoing limitation is ineffective to prevent a Holder from being deemed the beneficial owner of more than 5% of the then Outstanding shares of Common Stock, then the Corporation shall redeem so many of such Holder's shares (the "REDEMPTION SHARES") of Series I Preferred Stock as are necessary to cause such Holder to be deemed the beneficial owner of not more than 5% of the then Outstanding shares of Common Stock. Upon such determination by a court of competent jurisdiction, the Redemption Shares shall immediately and without further action be deemed returned to the status of authorized but unissued shares of Series I Preferred Stock, and the Holder shall have no interest in or rights under such Redemption Shares. Any and all dividends paid on or prior to the date of such determination shall be deemed dividends paid on the remaining shares of Series I Preferred Stock held by the Holder. Such redemption shall be for cash at a redemption price equal to the sum of (i) 125% of the Stated Value of the Redemption Shares and (ii) any accrued and unpaid dividends (whether or not earned or declared, whether or not there were funds legally available for the payment of dividends and whether or not a Dividend Payment Due Date has occurred since the last dividend payment) to the date of such redemption. All amounts payable to Holder pursuant to this Section 6.9(a) shall be paid immediately and in no event later than twenty (20) Business Days after the determination that redemption is required pursuant to this Section 6.9(a). (b) Notwithstanding anything herein to the contrary, if and to the extent that, on any date (the "SECTION 16 DETERMINATION DATE"), the holding by the Holder of shares of the Series I Preferred Stock would result in the Holder's becoming subject to the provisions of Section 16(b) of the Exchange Act in virtue of being deemed the "beneficial owner" of more than 10% of the then Outstanding shares of Common Stock, then the Holder shall not have the right, and the Corporation shall not have the obligation, to convert so many of such Holder's shares of Series I Preferred Stock (the "SECTION 16 REDEMPTION SHARES") as shall cause such Holder to be deemed the beneficial owner of more than 10% of the then Outstanding shares of Common Stock during the period ending 60 days after the Section 16 Determination Date. If any court of competent jurisdiction shall determine that the foregoing limitation is ineffective to prevent a Holder from being deemed the beneficial owner of more than 10% of the then Outstanding shares of Common Stock for the purposes of such Section 16(b), then the Corporation shall redeem the Section 16 Redemption Shares. Upon such determination by a court of competent jurisdiction, the Section 16 Redemption Shares shall immediately and without further action be deemed returned to the status of authorized but unissued shares of Series I Preferred Stock, and the Holder shall have no interest in or rights under such Section 16 Redemption Shares. Any and all dividends paid on or prior to the date of such determination shall be deemed dividends paid on the remaining shares of Series I Preferred Stock held by the Holder. Such redemption shall be for cash at a redemption price equal to the sum of (i) 105% of the Stated Value of the Section 16 Redemption Shares and (ii) any declared and unpaid dividends to the date of such redemption. All amounts payable to Holder pursuant to this Section 6.9(b) shall be paid immediately and in no event later than twenty (20) Business Days after the determination that redemption is required pursuant to this Section 6.9(b). -13- (c) Unless the Corporation shall have obtained the approval of its voting stockholders to such issuance in accordance with the rules of Nasdaq or any other stock market rules with which the Corporation shall be required to comply, but only to the extent required thereby, the Corporation shall not issue shares of Common Stock (i) upon conversion of any shares of Series I Preferred Stock (ii) as a dividend on the Series I Preferred Stock (iii) upon conversion of any shares of Series H Preferred Stock or (iv) as a dividend on the Series H Preferred Stock, if such issuance of Common Stock, when added to the number of shares of Common Stock previously issued by the Corporation (x) upon conversion of shares of the Series H Preferred Stock or the Series I Preferred Stock, (y) upon exercise of the Warrants issued pursuant to the terms of the Securities Purchase Agreement (the "WARRANTS") and (z) in payment of dividends on the Series I Preferred Stock, would equal or exceed 20% of the number of shares of the Corporation's Common Stock which were issued and Outstanding on the Issue Date (the "MAXIMUM ISSUANCE AMOUNT"). In the event that a properly executed Conversion Notice is received by the Corporation which would require the Corporation to issue shares of Common Stock equal to or in excess of the Maximum Issuance Amount, the Corporation shall honor such conversion request by (a) converting the number of shares of Series I Preferred Stock stated in the Conversion Notice which is not in excess of the Maximum Issuance Amount and (b) redeeming the remaining number of shares of Series I Preferred Stock stated in the Conversion Notice in cash at a price equal to 125% of the Stated Value thereof, together with all accrued and unpaid dividends (whether or not earned or declared, whether or not there were funds legally available for the payment of dividends and whether or not a Dividend Payment Due Date has occurred since the last dividend payment) on the total number of shares stated in the Conversion Notice. All amounts payable to Holder pursuant to this Section 6.9(c) shall be paid immediately and, in no event later than twenty (20) Business Days after the delivery of the Conversion Notice pursuant to the previous sentence. In the event that the Corporation shall elect to pay a dividend in shares of Common Stock which would require the Corporation to issue shares of Common Stock equal to or in excess of the Maximum Issuance Amount, the Corporation shall pay (1) a dividend in a number of shares of Common Stock equal to one less than the Maximum Issuance Amount and (2) the balance of the dividend in cash. SECTION 6.10 Injunction In the event a Holder shall elect to convert any Series I Preferred Stock, the Corporation shall not refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, or for any other reason, unless, an injunction from a court, on notice, restraining and or enjoining conversion of any Series I Preferred Stock shall have been sought and obtained. The Corporation shall have two (2) Business Days after the Corporation's receipt of a Conversion Notice pursuant to Section 6.2(a) to notify the Holder in writing of its intent to seek an injunction from a court (the "Injunction Notice"). In the event the Holder shall not have received the Injunction Notice within such two Business Day period, the Corporation shall promptly honor such Conversion Notice in accordance with Section 6.2(a). Immediately following the Holder's receipt of the Injunction Notice, the five (5) Business Day time period for conversion of the Series I Preferred Stock in Section 6.2(a) shall be extended until the earlier to occur of (i) the date on which a court of competent jurisdiction grants a final, non-appealable permanent injunction on the applicable conversion, (ii) the date on which a court of competent jurisdiction dismisses the Corporation's action seeking a temporary or permanent injunction on the applicable conversion and such dismissal is final and non-appealable, and (iii) the date which is four (4) -14- weeks from the date the Holder received the Injunction Notice. The provisions of this Certificate of Designation, including, but not limited to, the provisions of this Section 6.10, shall not in any way affect the rights of the Holder under Section 6.2(b). ARTICLE 7 VOTING RIGHTS The Holders of the Series I Preferred Stock have no voting power, except as otherwise provided by the General Corporation Law of the State of Delaware (the "DGCL"), in this Article 7, and in Article 8 below. Notwithstanding the above, the Corporation shall provide each Holder of Series I Preferred Stock with prior notification of any meeting of the shareholders (and copies of all proxy materials and other information sent to shareholders). In the event of any taking by the Corporation of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed liquidation, dissolution or winding up of the Corporation, the Corporation shall mail a notice thereof to each Holder at least 30 days prior to the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, together with a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. To the extent that under the DGCL the vote of the Holders of the Series I Preferred Stock, voting separately as a class or series as applicable, is required to authorize a given action of the Corporation, the affirmative vote or consent of the Holders of at least 90% of the outstanding shares of Series I Preferred Stock represented at a duly held meeting at which a quorum is present or by written consent of at least 90% of the outstanding shares of Series I Preferred Stock (except as otherwise may be required under the DGCL) shall constitute the approval of such action by the class. To the extent that under the DGCL Holders of the Series I Preferred Stock are entitled to vote on a matter with holders of Common Stock, voting together as one class, each share of Series I Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which it is then convertible using the record date for the taking of such vote of shareholders as the date as of which the Conversion Price is calculated. Holders of the Series I Preferred Stock shall be entitled to notice of all shareholder meetings or written consents (and copies of all proxy materials and other information sent to shareholders) with respect to which they would be entitled to vote, which notice would be provided pursuant to the Corporation's bylaws and the DGCL. -15- ARTICLE 8 PROTECTIVE PROVISIONS So long as shares of Series I Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided in the DGCL) of the Holders of at least 90% of the then outstanding shares of Series I Preferred Stock: (a) alter or change the rights, preferences or privileges of the Series I Preferred Stock; (b) create any new class or series of capital stock having a preference over the Series I Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Corporation ("SENIOR SECURITIES") or alter or change the rights, preferences or privileges of any Senior Securities so as to affect adversely the Series I Preferred Stock; (c) increase the authorized number of shares of Series I Preferred Stock; or (d) do any act or thing not authorized or contemplated by this Certificate of Designation which would result in taxation of the Holders of shares of the Series I Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable provision of the Internal Revenue Code of 1986, as hereafter from time to time amended). In the event Holders of least 90% of the then outstanding shares of Series I Preferred Stock agree to allow the Corporation to alter or change the rights, preferences or privileges of the shares of Series I Preferred Stock, pursuant to subsection (a) above, so as to affect the Series I Preferred Stock, then the Corporation will deliver notice of such approved change to the Holders of the Series I Preferred Stock that did not agree to such alteration or change (the "DISSENTING HOLDERS") and Dissenting Holders shall have the right for a period of 30 days to convert pursuant to the terms of this Certificate of Designation as in effect prior to such alteration or change or to continue to hold their shares of Series I Preferred Stock. Notwithstanding anything to the contrary herein, if at any time the Corporation shall "spin-off" certain of its assets or businesses by transferring, directly or indirectly, such assets or businesses to a Subsidiary of the Corporation ("SPINCO") and making a dividend (the "SPIN-OFF DIVIDEND") to the Corporation's stockholders of the shares of capital stock of Spinco, then prior to making the Spin-off Dividend, the Corporation shall cause Spinco to issue to each Holder that number of shares of preferred stock of Spinco with substantially identical rights, preferences, privileges, powers, restrictions and other terms as the Series I Preferred Stock equal to the number of shares of Series I Preferred Shares held by such Holder immediately prior to the Spin-off Dividend, provided, however, that this paragraph shall not apply to the Spin-Off. -16- ARTICLE 9 MISCELLANEOUS SECTION 9.1 Loss, Theft, Destruction of Preferred Stock Upon receipt of evidence satisfactory to the Corporation of the loss, theft, destruction or mutilation of shares of Series I Preferred Stock 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 any such mutilation, upon surrender and cancellation of the Series I Preferred Stock, the Corporation shall make, issue and deliver, in lieu of such lost, stolen, destroyed or mutilated shares of Series I Preferred Stock, new shares of Series I Preferred Stock of like tenor. The Series I Preferred Stock shall be held and owned upon the express condition that the provisions of this Section 9.1 are exclusive with respect to the replacement of mutilated, destroyed, lost or stolen shares of Series I Preferred Stock and shall preclude any and all other rights and remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement of negotiable instruments or other securities without the surrender thereof. SECTION 9.2 Who Deemed Absolute Owner The Corporation may deem the Person in whose name the Series I Preferred Stock shall be registered upon the registry books of the Corporation to be, and may treat it as, the absolute owner of the Series I Preferred Stock for the purpose of receiving payment of dividends on the Series I Preferred Stock, for the conversion of the Series I Preferred Stock and for all other purposes, and the Corporation shall not be affected by any notice to the contrary. All such payments and such conversion shall be valid and effectual to satisfy and discharge the liability upon the Series I Preferred Stock to the extent of the sum or sums so paid or the conversion so made. SECTION 9.3 Fundamental Corporate Change In the case of the occurrence of any Fundamental Corporate Change described in Section 5(b), the Corporation shall cause to be mailed to the Holder of the Series I Preferred Stock at its last address as it appears in the Corporation's security registry, at least 20 days prior to the applicable record, effective or expiration date specified in connection therewith (or, if such 20 days notice is not possible, at the earliest possible date prior to any such record, effective or expiration date), a notice stating (x) the date on which a record is to be taken for the purpose of such corporate action, or if a record is not to be taken, the date as of which the Holders of record of Series I Preferred Stock to be entitled to any dividend, distribution, issuance or granting of rights, options or warrants are to be determined or the date on which such Fundamental Corporate Change is expected to become effective, and (y) the date as of which it is expected that Holders of record of Series I Preferred Stock will be entitled to exchange their shares for securities, cash or other property deliverable upon such Fundamental Corporate Change. SECTION 9.4 Register The Corporation shall keep at its principal office a register in which the Corporation shall provide for the registration of the Series I Preferred Stock. -17- Upon any transfer of the Series I Preferred Stock in accordance with the provisions hereof, the Corporation shall register such transfer on the register of Series I Preferred Stock. SECTION 9.5 Withholding To the extent required by applicable law, the Corporation may withhold amounts for or on account of any taxes imposed or levied by or on behalf of any taxing authority in the United States having jurisdiction over the Corporation from any payments made pursuant to the Series I Preferred Stock. SECTION 9.6 Headings The headings of the Articles and Sections of this Certificate of Designation are inserted for convenience only and do not constitute a part of this Certificate of Designation. SECTION 9.7 Severability If any provision of this Certificate of Designation, or the application thereof to any person or entity or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor 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. SECTION 9.8 Specific Enforcement, Consent to Jurisdiction The Corporation and Holder acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Certificate were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Certificate and to enforce specifically the terms and provisions hereof or thereof, this being in addition to any other remedy to which any of them may be entitled by law or equity. Each of the Corporation and Holder hereby waives, and agrees not to assert in any such suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such court, that the suit, action or proceeding is brought in an inconvenient forum or that the venue of the suit, action or proceeding is improper. Nothing in this Section shall affect or limit any right to serve process in any other manner permitted by law. [SIGNATURE PAGE FOLLOWS.] -18- IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be signed by its duly authorized officers on August, 2 2001. EQUITEX, INC. By: /s/ Henry Fong -------------- Name: Henry Fong Title: CEO ANNEX I FORM OF CONVERSION NOTICE TO: Equitex, Inc. 7315 East Peakview Avenue Englewood, Colorado 80111 The undersigned owner of this Series I 6% Convertible Preferred Stock (the "Series I Preferred Stock") issued by Equitex, Inc. (the "Corporation") hereby irrevocably exercises its option to convert [________] shares of the Series I Preferred Stock into shares of the common stock, par value $.02 per share ("Common Stock"), of the Corporation in accordance with the terms of the Certificate of Designation. The undersigned hereby instructs the Corporation to convert the number of shares of the Series I Preferred Stock specified above into Shares of Common Stock Issued at Conversion in accordance with the provisions of Article 6 of the Certificate of Designation. The undersigned directs that the Common Stock issuable and certificates therefor deliverable upon conversion and the recertificated Series I Preferred Stock, if any, not being surrendered for conversion hereby, together with any check in payment for fractional Common Stock, be issued in the name of and delivered to the undersigned unless a different name has been indicated below. All capitalized terms used and not defined herein have the respective meanings assigned to them in the Certificate of Designation. So long as the Series I Preferred Stock shall have been surrendered for conversion hereby, the conversion pursuant hereto shall be deemed to have been effected at the date and time specified below, and at such time the rights of the undersigned as a Holder of the Series I Preferred Stock shall cease and the Person or Persons in whose name or names the Common Stock Issued at Conversion shall be issuable shall be deemed to have become the holder or holders of record of the Common Shares represented thereby and all voting and other rights associated with the beneficial ownership of such Common Shares shall at such time vest with such Person or Persons. Date and time: ------------------------------------------- --------------------------------------------------------- Signature Fill in for registration of Series I Preferred Stock: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Please print name and address (including zip code number) -----END PRIVACY-ENHANCED MESSAGE-----