Document:

EXHIBIT 10.2

     

    Exhibit
      10.2

    SECURED
      CONVERTIBLE PROMISSORY NOTE

     

    

    
      	
              $900,000

            	
              September
                15, 2005

            

    

     

     

    FOR
      VALUE RECEIVED,
      the
      undersigned, Equitex,
      Inc.,
      a
      Delaware corporation (the “Maker”),
      hereby
      promises to pay to the order of Pandora
      Select Partners, L.P.,
      a
      British Virgin Islands limited partnership, or its assigns (the “Payee”),
      at
      such place as the Payee may designate in writing, the principal sum of NINE
      HUNDRED THOUSAND Dollars ($900,000) under the terms set forth herein. This
      Note
      is one of a series of two Notes (together, the “Series
      Notes”)
      being
      issued by Maker on the date hereof, but the only Note issued to Payee on such
      date.

     

    1. Interest.
      The
      unpaid principal balance hereof from time to time outstanding shall bear
      interest from the date hereof at the rate of ten percent (10%) per
      annum.

     

    2. Payment.
      Except
      as otherwise provided herein, and subject to any default hereunder, the
      principal and interest hereof is payable as follows:

     

    (a) Interest
      only is payable in cash in arrears on October 15, November 15 and December
      15,
      2005; and

     

    (b) Beginning
      on January 15, 2006, and on the 15th day of each of the following twenty (20)
      months, Maker shall pay amortized principal and interest of $46,894.34 (the
      “Monthly
      Scheduled Payment”)
      on this
      Note.

     

    (c) In
      the
      event that Maker fails by the 180th day after the date hereof to obtain
      effectiveness under the Securities Act of 1933, as amended (the “Securities
      Act”)
      and
      applicable state securities laws of a registration statement (the “Payee
      Registration Statement”)
      pursuant to Section 2.1 of that certain Registration Rights Agreement of this
      date among Maker, Payee and the other purchaser named therein (the “Registration
      Rights Agreement”),
      then
      for each full month (prorated for partial months) that this failure continues
      (the “Failure
      Term”),
      Maker
      shall pay in arrears in cash, with each next otherwise Monthly Scheduled Payment
      under Section 2(b) above, additional interest (the “Contingent
      Additional Interest”)
      at a
      rate equal to 2.0% per month of the Failure Term thereafter, of the original
      principal balance of this Note.

     

    (d) Except
      as
      otherwise provided in Section 6 of this Note, the Maker shall have no right
      to
      early prepayment on this Note.

     

    3. Optional
      Payment in Stock. 

     

    (a) In
      lieu
      of making a cash payment under Section 2(a) or 2(b), Maker may pay the scheduled
      payment, or any portion thereof, by the issuance of shares of its common stock,
      $0.01 par value per share (the “Common
      Stock”),
      based
      on the Per Share Value of the Common Stock. For purposes of this Note, the
“Per
      Share Value” of the Common Stock as of any scheduled payment date is 85%
      (rounded to the nearest $.01) of the average of the closing bid prices of
      Maker’s Common Stock on the Trading System for the 20 consecutive trading days
      immediately preceding the relevant scheduled payment date. For purposes of
      this
      Note, the term “Trading System” means the Nasdaq National Market or, if the
      securities are not then quoted on the Nasdaq National Market, the OTC Bulletin
      Board as reported by bigcharts.com or, if this service is discontinued, such
      other reporting services as is mutually acceptable to Maker and
      Payee.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b) Payment
      in shares of Common Stock shall be deemed to be made by the Maker by giving
      written notice to Payee; provided that certificates representing those shares
      are delivered to Payee within five (5) trading days after such payment due
      date.

     

    (c) Despite
      the foregoing, the Maker may not issue shares of its Common Stock as payment
      pursuant to this Section 3 unless all of the following conditions are
      met:

     

    (i) the
      Maker
      gives the Payee written notice at least thirty (30) days prior to the relevant
      payment date of the Maker’s intention to make a payment using shares of Common
      Stock (and specifying the payment amount to be settled by the issuance of
      shares);

     

    (ii) on
      the
      date that the relevant payment is due, the Maker has, pursuant to the terms
      of
      the Registration Rights Agreement, an effective registration statement under
      the
      Securities Act and applicable state securities laws covering the public resale
      of such shares by Payee;

     

    (iii) the
      number of shares of Common Stock that may be issued to pay all or any portion
      of
      any particular monthly payment may not exceed 10% of the sum of the trading
      volume of the Common Stock for the 20 trading days immediately preceding such
      monthly payment date; and

     

    (iv) such
      issuance shall not be violative of Section 9 hereof.

     

    4. Conversion
      at Option of Payee.
      

     

    (a) At
      any
      time after 120 days from the date hereof, while any portion of the principal
      or
      interest of this Note is outstanding, the Payee may give the Maker written
      notice (the “Payee
      Notice”)
      of its
      intention to convert all or any portion of the outstanding principal and/or
      accrued but unpaid interest on this Note into shares of the Maker’s Common Stock
      based on a conversion rate as described below (the “Conversion
      Rate”);
      provided
      that,
      such
      conversion is not violative of Section 9 hereof. Upon receipt of the Payee
      Notice, the Maker shall promptly cause certificates dated the Payee Notice
      date
      and representing those shares to be delivered to Payee within five (5) trading
      days of, and payment shall be deemed to have been made on, the date of the
      Payee
      Notice.

     

    (b) The
      Conversion Rate shall initially be equal to $5.50 per share.

     

    (c) The
      Conversion Rate shall be adjusted proportionally for any subsequent stock
      dividend or split, stock combination or other similar recapitalization,
      reclassification or reorganization of or affecting Maker’s Common Stock. In case
      of any consolidation or merger to which the Maker is a party other than a merger
      or consolidation in which the Maker is the continuing corporation, or in case
      of
      any sale or conveyance to another corporation of the property of the Maker
      as an
      entirety or substantially as an entirety, or in the case of any statutory
      exchange of securities with another corporation (including any exchange effected
      in connection with a merger of a third corporation into the Maker), then instead
      of receiving shares of Maker’s Common Stock, Payee shall have the right
      thereafter to receive the kind and amount of shares of stock and other
      securities and property which the Payee would have owned or have been entitled
      to receive immediately after such consolidation, merger, statutory exchange,
      sale or conveyance had the same portion of this Note been paid or converted
      immediately prior to the effective date of such consolidation, merger, statutory
      exchange, sale or conveyance and, in any such case, if necessary, appropriate
      adjustment shall be made in the application of the provisions set forth in
      this
      Section with respect to the rights and interests thereafter of the Payee, to
      the
      end that the provisions set forth in this Section shall thereafter
      correspondingly be made applicable, as nearly as may reasonably be, in relation
      to any shares of stock and other securities and property thereafter deliverable
      in connection with this Note. The provisions of this subsection shall similarly
      apply to successive consolidations, mergers, statutory exchanges, sales or
      conveyances. Notwithstanding the foregoing, the transaction contemplated by
      the
      Maker in that certain Merger Agreement dated as of September 13, 2005 by and
      among the Hydrogen Power, Inc., Maker and EI Acquisition Corp., a wholly owned
      subsidiary of Maker, shall not constitute an event cause an adjustment to the
      Conversion Rate pursuant to this Section 4(c).

     

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

     

    (d) The
      Conversion Rate shall be subject to certain diluting issues as follows:

 

    (i)           
      Special Definitions:

    
       

      
        	 	 	
                (1)

              	
                “Options”
                  shall mean rights, options or warrants (other than as excluded
                  by Section
                  4(d)(i)(4) below) to subscribe for, purchase or otherwise acquire
                  either
                  Common Stock or Convertible Securities (as defined
                  herein).

              

      

       

      
        	 	
                (2)

              	
                “Original
                  Issue Date” shall mean the date on which this Note was first issued.
                  

              

      

       

      
        	 	
                (3)

              	
                “Convertible
                  Securities” shall mean securities (other than as excluded by Section
                  4(d)(i)(4) below) convertible, either directly or indirectly, into
                  or
                  exchangeable for Common Stock.

              

      

       

      
        	 	
                (4)

              	
                “Additional
                  Shares of Common Stock” shall mean all shares of Common Stock issued
                  (or deemed to be issued) by the Maker after the Original Issue
                  Date, other
                  than shares of Common Stock
                  issuable:

              

      

       

      
        	 	
                (A)

              	
                upon
                  conversion of this Note;

              

      

       

      
        	 	
                (B)

              	
                to
                  employees, officers, consultants or directors pursuant to stock
                  option,
                  stock grant, stock purchase or similar plans or arrangements approved
                  by
                  the Maker's Board of Directors;

              

      

       

      
        	 	
                (C)

              	
                as
                  a dividend or distribution for which an adjustment of the Conversion
                  Rate
                  is made pursuant to Section 4(c)
                  above;

              

      

       

       

      
        
          
          

        

        
          -3-

          
            

          

        

        
          
          

        

      

       

      
        	 	
                (D)

              	
                
                  in
                    a merger, consolidation, acquisition or similar business combination
                    that
                    is approved by the Maker's Board of
                    Directors;

                

              

      

       

      
        	 	
                (E)

              	
                pursuant
                  to any rights or agreements outstanding on the Original Issue Date;
                  or

              

      

       

      
        	 	
                (F)

              	
                if
                  the holders of a majority-in-interest of the then outstanding Note
                  agree
                  in writing that such shares shall not constitute Additional Shares
                  of
                  Common Stock.

              

      

       

      
        	 	
                (ii)

              	
                In
                  the event the Maker at any time or from time to time after the
                  Original
                  Issue Date shall issue any Options or Convertible Securities or
                  shall fix
                  a record date for the determination of any holders of any class
                  of
                  securities entitled to receive any such Options or Convertible
                  Securities,
                  then the maximum number of shares (as set forth in the instrument
                  relating
                  thereto without regard to any provisions contained therein designed
                  to
                  protect against dilution) of Common Stock issuable upon the exercise
                  of
                  such Options or, in the case of Convertible Securities and Options
                  therefore, the conversion or exchange of such Convertible Securities,
                  shall be deemed to be Additional Shares of Common Stock issued
                  as of the
                  time of such issue or, in case such record date shall have been
                  fixed, as
                  of the close of business on such record date, provided that in
                  any such
                  case in which Additional Shares of Common Stock are deemed to be
                  issued:

              

      

       

      
        	 	
                (1)

              	
                no
                  further adjustment in the Conversion Rate shall be made upon the
                  subsequent issue of such Convertible Securities or shares of Common
                  Stock
                  upon the exercise of such Options or conversion or exchange of
                  such
                  Convertible Securities;

              

      

       

      
        	 	
                (2)

              	
                if
                  such Options or Convertible Securities by their terms provide,
                  with the
                  passage of time or otherwise, for any increase or decrease in the
                  consideration payable to the Maker, or increase or decrease in
                  the number
                  of shares of Common Stock issuable upon the exercise, conversion
                  or
                  exchange thereof, the Conversion Rate computed upon the original
                  issue
                  thereof or upon the occurrence of a record date with respect thereto,
                  and
                  any subsequent adjustments based thereon, shall, upon any such
                  increase or
                  decrease becoming effective, be recomputed to reflect such increase
                  or
                  decrease;

              

      

       

      
        	 	
                (3)

              	
                upon
                  the expiration of any such Option or any rights of conversion or
                  exchange
                  under such Convertible Securities which shall not have been exercised,
                  the
                  Conversion Rate computed upon the original issue thereof or upon
                  occurrence of a record date with respect thereto, and any subsequent
                  adjustments based thereon, shall, upon such
                  expiration:

              

      

       

       

      
        
          
          

        

        
          -4-

          
            

          

        

        
          
          

        

      

       

      
        	 	
                (A)

              	
                in
                  the case of Convertible Securities or Options for Common Stock,
                  be
                  recomputed as though the only Additional Shares of Common Stock
                  issued
                  were shares of Common Stock, if any, actually issued upon the exercise
                  of
                  such Options or the conversion or exchange of such Convertible
                  Securities,
                  and the consideration received therefore was the consideration
                  actually
                  received by the Maker for the issue of all such Options, whether
                  or not
                  exercised, plus the consideration actually received by the Maker
                  upon such
                  exercise, or for the issue of all such Convertible Securities,
                  whether or
                  not converted or exchanged, plus the additional consideration,
                  if any,
                  actually received by the Maker upon such conversion or exchange;
                  and

              

      

       

      
        	 	
                (B)

              	
                in
                  the case of Options for Convertible Securities, be recomputed as
                  though
                  only the Convertible Securities, if any, actually issued upon the
                  exercise
                  thereof were issued at the time of issue of such Options and the
                  consideration received by the Maker for the Additional Shares of
                  Common
                  Stock deemed to have been then issued was the consideration actually
                  received by the Company for the issue of all such Options, whether
                  or not
                  exercised, plus the consideration deemed to have been received
                  by the
                  Maker upon the issue of the Convertible Securities with respect
                  to which
                  such Options were actually
                  exercised.

              

      

       

      
         

        
          	 	
                  (4)    

                	
                  if
                    such Options or Convertible Securities by their terms provide,
                    with the
                    passage of time or otherwise, for any increase or decrease in
                    the
                    consideration payable to the Maker, or increase or decrease in
                    the number
                    of shares of Common Stock issuable upon the exercise, conversion
                    or
                    exchange thereof, the Conversion Rate computed upon the original
                    issue
                    thereof or upon the occurrence of a record date with respect
                    thereto, and
                    any subsequent adjustments based thereon, shall, upon any such
                    increase or
                    decrease becoming effective, be recomputed to reflect such increase
                    or
                    decrease;

                

        

         

        
          	 	
                  (5)

                	
                  upon
                    the expiration of any such Option or any rights of conversion
                    or exchange
                    under such Convertible Securities which shall not have been exercised,
                    the
                    Conversion Rate computed upon the original issue thereof or upon
                    occurrence of a record date with respect thereto, and any subsequent
                    adjustments based thereon, shall, upon such
                    expiration:

                

        

        
           

        

      

      
        	 	
                (iii)

              	
                If
                  the Maker, at any time after the Original Issue Date, shall issue
                  any
                  Additional Shares of Common Stock without consideration or for
                  consideration at a price per share less than the applicable Conversion
                  Rate then in effect, then the applicable Conversion Rate upon each
                  such
                  issuance shall be adjusted to that price (rounded to the nearest
                  cent)
                  determined by multiplying the applicable Conversion Rate then in
                  effect by
                  a fraction, the numerator of which shall be equal to the sum of
                  the number
                  of shares of Common Stock outstanding immediately prior to the
                  issuance of
                  such Additional Shares of Common Stock plus the number of shares of
                  Common Stock (rounded to the nearest whole share) which the aggregate
                  consideration for the total number of such Additional Shares of
                  Common
                  Stock so issued would purchase at a price per share equal to the
                  applicable Conversion Rate then in effect, and the denominator
                  of which
                  shall be equal to the number of shares of Common Stock outstanding
                  immediately after the issuance of such Additional Shares of Common
                  Stock.

              

      

       

       

      
        
          
          

        

        
          -5-

          
            

          

        

        
          
          

        

      

       

      
        	 	
                (iv)

              	
                No
                  adjustment of the applicable Conversion Rate shall be made upon
                  the
                  issuance of any Additional Shares of Common Stock unless consideration
                  per
                  share for an additional share of Common Stock issued or deemed
                  to be
                  issued by the Maker is less than the Conversion Rate in effect
                  on the date
                  of, and immediately prior to, such
                  issue.

              

      

       

      
        	 	
                (v)

              	
                For
                  purposes of this Section 4(d), the consideration received by the
                  Maker for
                  any Additional Shares of Common Stock issued (or deemed to be issued)
                  shall be computed as follows:

              

      

       

      
         

        
          	 	
                  (1)

                	
                  Such
                    consideration shall:

                

        

      

       

      
        
          	 	
                  (A)

                	
                  insofar
                    as it consists of cash, be computed at the aggregate amount of
                    cash
                    received by the Maker;

                

        

         

        
          	 	
                  (B)

                	
                  insofar
                    as it consists of property other than cash, be computed at the
                    fair market
                    value thereof at the time of such issuance, as determined in
                    good faith by
                    the Maker's Board of Directors; and

                

        

         

        
          	 	
                  (C)

                	
                  if
                    Additional Shares of Common Stock are issued (or deemed to be
                    issued)
                    together with other shares or securities or other assets of the
                    Maker for
                    consideration which covers both, be the proportion of such consideration
                    so received, computed as provided in clauses (A) and (B) above,
                    as
                    determined in good faith by the Maker's Board of
                    Directors.

                

        

         

        
          
            	 	
                    (2)

                  	
                    The
                      consideration received by the Maker for Additional Shares of
                      Common Stock
                      deemed to have been issued pursuant to Section 4(d)(ii) relating
                      to Option
                      and Convertible Securities, shall be the sum of the total amount,
                      if any,
                      received or receivable by the Maker as consideration for the
                      issue of such
                      Options or Convertible Securities, plus the minimum aggregate
                      amount of
                      additional consideration (as set forth in the instruments relating
                      thereto, without regard to any provision contained therein
                      designed to
                      protect against dilution) payable to the Maker upon the exercise
                      of such
                      Options or the conversion or exchange of such Convertible Securities,
                      or
                      in the case of Options for Convertible Securities, the exercise
                      of such
                      Options for Convertible Securities and the conversion or exchange
                      of such
                      Convertible Securities.

                  

          

           

           

          
            
              
              

            

            
              -6-

              
                

              

            

            
              
              

            

          

           

          (e) No
            fractional shares of Maker's Common Stock shall be issued upon conversion
            of the
            Note. In lieu of any fractional shares to which Payee would otherwise
            be
            entitled, the Maker shall pay cash equal to the fair market value of
            such
            fraction on the date of conversion as determined in good faith by the
            Maker's
            Board.

        

      

    

     

    5. Security.
      The
      full and timely payment of this Note, together with the Maker's obligations
      under that certain Purchase Agreement of this date among Maker, Payee and the
      other purchaser named therein (the “Purchase
      Agreement”)
      shall
      be secured by the Amended Security Agreement and Stock Pledge Agreement, each
      of
      this date (all together, the “Security
      Agreements”)
      and
      guaranteed by Henry Fong (the “Guarantor”)
      pursuant to a Guaranty of this date (the “Guaranty”).
      The
      security interest granted under the Security Agreements shall be a first
      priority security interest subordinate to no other secured rights, but shared
      with the other holder of the Series Notes and the holders of a series of notes
      sold by Maker pursuant to that certain Purchase Agreement dated March 8, 2004
      by
      and among Maker, Payee and the other purchaser named therein (the “March
      2004 Purchase Agreement”).

     

    6. Conversion
      at Option of Maker.
      

     

    (a) If
      a
      "Trading Event" (as defined below) occurs at any time prior to September 15,
      2007 (the “Maturity
      Date”),
      the
      Maker has the right, at its option, to require the Payee to convert the
      outstanding principal balance of this Note plus accrued but unpaid interest
      into
      shares of Maker’s Common Stock based on the Conversion Rate (subject to
      adjustment as otherwise provided herein). The Maker may exercise its rights
      under this Section 6 by giving written notice (the “Maker
      Notice”)
      of its
      intention to Payee within three (3) trading days following the occurrence of
      the
      Trading Event. The Maker Notice shall specify the ten-day trading period during
      which the Trading Event occurred and the payment amount to be settled by such
      conversion. Payment in shares of Common Stock shall be deemed to have been
      made
      on the date of the Maker Notice, provided that certificates representing those
      shares are delivered to Payee within ten (10) days after the date of the Maker
      Notice.

     

    (b) For
      purposes hereof, a “Trading
      Event”
means
      a
      period of ten (10) consecutive trading days in which (i) the volume weighted
      average closing bid price of Maker’s Common Stock was equal to $10.00 and (ii)
      the minimum daily trading volume of Maker's Common Stock was 100,000 shares.
      In
      computing the minimum daily trading volume under this subsection (b), the Maker
      shall exclude shares sold by or for the account of or at the direction of the
      Maker, officers, directors or consultants of Maker, any member of the immediate
      family of those persons or any entity in which any of those persons owns any
      beneficial interest.

     

    (c) Despite
      the foregoing, the Maker may not exercise its rights pursuant to this Section
      6
      unless all of the following conditions are met:

     

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

     

    (i) on
      the
      date of the Maker Notice, the terms of the Registration Rights Agreement, an
      effective registration statement under the Securities Act and applicable state
      securities laws covering the public resale of such shares by Payee;
      and

     

    (ii) the
      resulting issuance would not be violative of Section 9 hereof.

     

    7. Optional
      Repurchase Upon a Change in Control

     

    (a) If
      a “Change
      in Control”
      (as
      defined below) occurs at any time prior to the Maturity Date, the Payee has
      the
      right, at its option, to require the Maker to repurchase the Note at a price
      in
      cash equal to 100% of the outstanding principal balance of the Note, plus
      accrued but unpaid interest (including any Contingent Additional Interest)
      to,
      but excluding, the repurchase date. The repurchase price shall be paid
      immediately before the effective date of the Change in Control, which date
      is
      referred to in this Section 7 as the “Repurchase
      Date”.
      The
      Payee may exercise its rights under this Section 7 by giving written notice
      of
      its intention to the Maker at least three (3) business days before the
      Repurchase Date.

    

     

    (b) At
      least
      twenty (20) trading days before the Repurchase Date, the Maker shall give
      written notice of any Change in Control to the Payee. Such notice shall state
      the event causing the repurchase, the Repurchase Date and the proposed price,
      terms and conditions of the Change in Control.

    

     

    (c) For
      purposes hereof, a “Change
      in Control”
      means
      the occurrence of any of the following events: (i) any “person” or “group” (as
      these terms are used for purposes of Section 13(d) or 14(d) of the Securities
      Exchange Act of 1934) becomes the “beneficial owner” (as that term is used in
      Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly,
      of 50% or more of the total voting power of the then outstanding voting
      securities of the Maker; or (ii) a merger, consolidation or reorganization
      of
      the Maker in which more than 50% of the total voting power of the continuing
      or
      surviving entity's voting securities outstanding immediately after such merger,
      consolidation or reorganization is beneficially owned, directly or indirectly,
      by persons who were not the beneficial owners of the voting securities of the
      Maker immediately prior to such merger, consolidation or reorganization; or
      (iii) the sale or other disposition of all or substantially all of the assets
      of
      the Maker in one transaction or a series of related transactions.

    

    8. Default.
      The
      occurrence of any one or more of the following events shall constitute an event
      of default, upon which Payee may declare the entire principal amount of this
      Note, together with all accrued but unpaid interest (including any Contingent
      Additional Interest), to be immediately due and payable:

     

    (a) The
      Maker
      shall fail to make any required payment of principal or interest (including
      Contingent Additional Interest) when due, and such failure shall continue
      through ten (10) days after Payee gives written notice of such failure to
      Maker.

     

    (b) The
      Maker
      shall fail to materially comply with any covenant, agreement, term or provision
      contained in the Purchase Agreement, any of the Security Agreements, the
      Registration Rights Agreement or the Warrant being issued on the date hereof
      by
      Maker to Payee (the “Warrant”),
      and
      such failure shall continue through twenty (20) days after Payee gives written
      notice of such default to Maker. Despite the foregoing, a failure by Maker
      to
      timely obtain effectiveness of the Payee Registration Statement under the
      Securities Act will not, without Maker’s subsequent failure to timely pay
      Contingent Additional Interest, constitute an event of default under this
      subsection (b).

     

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

     

    (c) The
      Guarantor shall be in default of any term, provision or agreement contained
      in
      the Guaranty and such default is not cured within twenty (20) days after written
      notice from Payee to Guarantor.

     

    (d) The
      Maker
      or Guarantor shall become insolvent or shall fail to pay, or become unable
      to
      pay, its debts as they become due; or any bankruptcy, reorganization, debt
      arrangement or other proceeding under any bankruptcy or insolvency law shall
      be
      instituted by or against the Maker or Guarantor.

     

    (e) Any
      representation or warranty made by the Maker or Guarantor in, pursuant to or
      in
      connection with the Purchase Agreement, any of the Security Agreements, the
      Registration Rights Agreement, the Warrant or the Guaranty shall be untrue
      in
      any material respect (including by omission of material information necessary
      to
      make such representation or warranty not misleading).

     

    (f) The
      Maker
      incurs an event of default under the terms of any of the other Series Notes
      or
      any of the notes sold pursuant to the March 2004 Purchase Agreement (the
“March
      2004 Notes”).

     

    Without
      limiting the above, the Maker acknowledges that payments on the various
      scheduled due dates, are of essence and that any failure to timely pay any
      installment of principal or interest (within any permitted grace period above),
      including Contingent Additional Interest, permits Payee to declare this Note
      immediately due in cash in its entirety without any prior notice of any kind
      to
      Maker, except for the specific notices provided above. Further, the Maker agrees
      that any event of default under this Note shall constitute an event of default
      under each of the March 2004 Notes.

     

    9. Limitations
      on Conversion and Payment. 

     

    (a) Notwithstanding
      anything to the contrary contained herein, the number of shares of Common Stock
      that may be acquired by the Payee upon any conversion of this Note or upon
      payment on this Note (or otherwise in respect hereof) shall be limited to the
      extent necessary to insure that, following such conversion or payment (or other
      issuance), the total number of shares of Common Stock then beneficially owed
      by
      Payee and its affiliates and any other persons whose beneficial ownership of
      Common Stock would be aggregated with the Payee’s for purposes of Section 13(d)
      of the Securities Exchange Act of 1934, does not exceed 4.99% of the total
      number of issued and outstanding shares of Common Stock (including for such
      purpose the shares of Common Stock issuable upon such conversion or payment).
      For such purposes, beneficial ownership shall be determined in accordance with
      Section 13(d) of the Securities Exchange Act of 1934 and the rules and
      regulations promulgated thereunder. This provision shall not restrict the number
      of shares of Common Stock which Payee may receive or beneficially own in order
      to determine the amount of securities or other consideration that Payee may
      receive in the event of a merger, sale, exchange or other transaction as
      contemplated in Section 4(c) of this Note. By written notice to the Company,
      Payee may waive the provision of this Section 9(a) as to itself, but any such
      waiver shall not be effective until the 61st
      day
      after delivery thereof.

     

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

     

    (b) Notwithstanding
      any other term of this Note, Maker may not pay all or any portion of this Note
      or convert all or any portion of this Note in Common Stock as set forth in
      Section 3 or Section 6 hereof, as applicable, and Payee may not convert all
      or
      any portion of this Note into Common Stock pursuant to Section 4, in the event
      the number of shares of Common Stock to be issued upon such payment or
      conversion of this Note, when aggregated with the shares of Common Stock issued
      upon prior conversion or payment of the Series Notes, plus 125,000 shares of
      Common Stock issuable upon the exercise of warrants issued by Maker pursuant
      to
      the Purchase Agreement, would equal or exceed ten percent (10%) of the number
      of
      shares of Maker's Common Stock that were issued and outstanding on the date
      hereof (the “Maximum
      Issuance Amount”).
      In
      such an event, Maker shall issue to Payee only such number of shares of Maker's
      Common Stock as shall not exceed such Maximum Issuance Amount and shall pay
      Payee cash for the remainder of the amount owed. In computing the cash balance
      that relates to the shares in excess of the Maximum Issuance Amount (the
“Excess
      Shares”),
      the
      Maker shall pay Payee the greater of (i) the actual cash amount computed under
      the other provisions of this Note or (ii) the fair market value of the Excess
      Shares, computed by reference to the average (rounded to the nearest $.01)
      of
      the closing bid prices of Maker's Common Stock on the Trading System for the
      five (5) consecutive trading days immediately preceding the date when the Maker
      would otherwise issue the Excess Shares pursuant to the Note but for the Maximum
      Issuance Amount limitation.

     

    10. Applicable
      Law.
      THE
      VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THE NOTE SHALL BE GOVERNED BY
      THE
      INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT
      OF
      LAWS PRINCIPLES THEREOF.

     

    11. Waivers.
      The
      Maker hereby waives presentment for payment, notice of dishonor, protest and
      notice of payment and all other notices of any kind in connection with the
      enforcement of this Note.

     

    12. No
      Setoffs.
      The
      Maker shall pay principal and interest under the Note without any deduction
      for
      any setoff or counterclaim.

     

    13. Costs
      of Collection.
      If this
      Note is not paid when due, the Maker shall pay Payee’s reasonable costs of
      collection, including reasonable attorney’s fees.

     

    
      	 	 	 
	 	
              EQUITEX,
                INC.

            
	 
 	 
 	 
 
	 	By:  	/s/ Henry
              Fong
	 	
              

              Henry
                Fong, President

            
	 	 

    

     

    
      
        
        

      

      
        -10-EXHIBIT 10.3

     

    Exhibit
      10.3

    SECURED
      CONVERTIBLE PROMISSORY NOTE

     

    
      
        	
                $600,000

              	
                September
                  15, 2005

              

      

    

     

    

    FOR
      VALUE RECEIVED,
      the
      undersigned, Equitex,
      Inc.,
      a
      Delaware corporation (the “Maker”),
      hereby
      promises to pay to the order of Whitebox
      Hedged High Yield Partners, L.P.,
      a
      British Virgin Islands limited partnership, or its assigns (the “Payee”),
      at
      such place as the Payee may designate in writing, the principal sum of SIX
      HUNDRED THOUSAND Dollars ($600,000) under the terms set forth herein. This
      Note
      is one of a series of two Notes (together, the “Series
      Notes”)
      being
      issued by Maker on the date hereof, but the only Note issued to Payee on such
      date.

     

    1.  Interest.
      The
      unpaid principal balance hereof from time to time outstanding shall bear
      interest from the date hereof at the rate of ten percent (10%) per
      annum.

     

    2.  Payment.
      Except
      as otherwise provided herein, and subject to any default hereunder, the
      principal and interest hereof is payable as follows:

     

    (a)  Interest
      only is payable in cash in arrears on October 15, November 15 and December
      15,
      2005; and

     

    (b)  Beginning
      on
      January 15, 2006, and on the 15th day of each of the following twenty (20)
      months, Maker shall pay amortized principal and interest of $31,262.89 (the
      “Monthly
      Scheduled Payment”)
      on this
      Note.

     

    (c)  In
      the
      event that Maker fails by the 180th day after the date hereof to obtain
      effectiveness under the Securities Act of 1933, as amended (the “Securities
      Act”)
      and
      applicable state securities laws of a registration statement (the “Payee
      Registration Statement”)
      pursuant to Section 2.1 of that certain Registration Rights Agreement of this
      date among Maker, Payee and the other purchaser named therein (the “Registration
      Rights Agreement”),
      then
      for each full month (prorated for partial months) that this failure continues
      (the “Failure
      Term”),
      Maker
      shall pay in arrears in cash, with each next otherwise Monthly Scheduled Payment
      under Section 2(b) above, additional interest (the “Contingent
      Additional Interest”)
      at a
      rate equal to 2.0% per month of the Failure Term thereafter, of the original
      principal balance of this Note.

     

    (d)  Except
      as
      otherwise provided in Section 6 of this Note, the Maker shall have no right
      to
      early prepayment on this Note.

     

    3.  Optional
      Payment in Stock. 

     

    (a)  In
      lieu
      of making a cash payment under Section 2(a) or 2(b), Maker may pay the scheduled
      payment, or any portion thereof, by the issuance of shares of its common stock,
      $0.01 par value per share (the “Common
      Stock”),
      based
      on the Per Share Value of the Common Stock. For purposes of this Note, the
“Per
      Share Value” of the Common Stock as of any scheduled payment date is 85%
      (rounded to the nearest $.01) of the average of the closing bid prices of
      Maker’s Common Stock on the Trading System for the 20 consecutive trading days
      immediately preceding the relevant scheduled payment date. For purposes of
      this
      Note, the term “Trading System” means the Nasdaq National Market or, if the
      securities are not then quoted on the Nasdaq National Market, the OTC Bulletin
      Board as reported by bigcharts.com or, if this service is discontinued, such
      other reporting services as is mutually acceptable to Maker and
      Payee.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b)  Payment
      in shares of Common Stock shall be deemed to be made by the Maker by giving
      written notice to Payee; provided that certificates representing those shares
      are delivered to Payee within five (5) trading days after such payment due
      date.

     

    (c)  Despite
      the foregoing, the Maker may not issue shares of its Common Stock as payment
      pursuant to this Section 3 unless all of the following conditions are
      met:

     

    (i)  the
      Maker
      gives the Payee written notice at least thirty (30) days prior to the relevant
      payment date of the Maker’s intention to make a payment using shares of Common
      Stock (and specifying the payment amount to be settled by the issuance of
      shares);

     

    (ii)  on
      the
      date that the relevant payment is due, the Maker has, pursuant to the terms
      of
      the Registration Rights Agreement, an effective registration statement under
      the
      Securities Act and applicable state securities laws covering the public resale
      of such shares by Payee;

     

    (iii)  the
      number of shares of Common Stock that may be issued to pay all or any portion
      of
      any particular monthly payment may not exceed 10% of the sum of the trading
      volume of the Common Stock for the 20 trading days immediately preceding such
      monthly payment date; and

     

    (iv)  such
      issuance shall not be violative of Section 9 hereof.

     

    4.  Conversion
      at Option of Payee.
      

     

    (a)  At
      any
      time after 120 days from the date hereof, while any portion of the principal
      or
      interest of this Note is outstanding, the Payee may give the Maker written
      notice (the “Payee
      Notice”)
      of its
      intention to convert all or any portion of the outstanding principal and/or
      accrued but unpaid interest on this Note into shares of the Maker’s Common Stock
      based on a conversion rate as described below (the “Conversion
      Rate”);
      provided
      that,
      such
      conversion is not violative of Section 9 hereof. Upon receipt of the Payee
      Notice, the Maker shall promptly cause certificates dated the Payee Notice
      date
      and representing those shares to be delivered to Payee within five (5) trading
      days of, and payment shall be deemed to have been made on, the date of the
      Payee
      Notice.

     

    (b)  The
      Conversion Rate shall initially be equal to $5.50 per share.

     

    (c)  The
      Conversion Rate shall be adjusted proportionally for any subsequent stock
      dividend or split, stock combination or other similar recapitalization,
      reclassification or reorganization of or affecting Maker’s Common Stock. In case
      of any consolidation or merger to which the Maker is a party other than a merger
      or consolidation in which the Maker is the continuing corporation, or in case
      of
      any sale or conveyance to another corporation of the property of the Maker
      as an
      entirety or substantially as an entirety, or in the case of any statutory
      exchange of securities with another corporation (including any exchange effected
      in connection with a merger of a third corporation into the Maker), then instead
      of receiving shares of Maker’s Common Stock, Payee shall have the right
      thereafter to receive the kind and amount of shares of stock and other
      securities and property which the Payee would have owned or have been entitled
      to receive immediately after such consolidation, merger, statutory exchange,
      sale or conveyance had the same portion of this Note been paid or converted
      immediately prior to the effective date of such consolidation, merger, statutory
      exchange, sale or conveyance and, in any such case, if necessary, appropriate
      adjustment shall be made in the application of the provisions set forth in
      this
      Section with respect to the rights and interests thereafter of the Payee, to
      the
      end that the provisions set forth in this Section shall thereafter
      correspondingly be made applicable, as nearly as may reasonably be, in relation
      to any shares of stock and other securities and property thereafter deliverable
      in connection with this Note. The provisions of this subsection shall similarly
      apply to successive consolidations, mergers, statutory exchanges, sales or
      conveyances. Notwithstanding the foregoing, the transaction contemplated by
      the
      Maker in that certain Merger Agreement dated as of September 13, 2005 by and
      among the Hydrogen Power, Inc., Maker and EI Acquisition Corp., a wholly owned
      subsidiary of Maker, shall not constitute an event cause an adjustment to the
      Conversion Rate pursuant to this Section 4(c).

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

    (d)  The
      Conversion Rate shall be subject to certain diluting issues as follows:

     

    
       

      
        	 	
                (i)

              	
                Special
                  Definitions:

              

      

    

     

    
      	 	 	
              (1)

            	
              “Options”
                shall mean rights, options or warrants (other than as excluded by
                Section
                4(d)(i)(4) below) to subscribe for, purchase or otherwise acquire
                either
                Common Stock or Convertible Securities (as defined
                herein).

            

    

     

    
      	 	
              (2)

            	
              “Original
                Issue Date”
                shall mean the date on which this Note was first issued.
                

            

    

     

    
      	 	
              (3)

            	
              “Convertible
                Securities”
                shall mean securities (other than as excluded by Section 4(d)(i)(4)
                below)
                convertible, either directly or indirectly, into or exchangeable
                for
                Common Stock.

            

    

     

    
      	 	
              (4)

            	
              “Additional
                Shares of Common Stock”
                shall mean all shares of Common Stock issued (or deemed to be issued)
                by
                the Maker after the Original Issue Date, other than shares of Common
                Stock
                issuable:

            

    

     

    
      	 	
              (A)

            	
              upon
                conversion of this Note;

            

    

     

    
      	 	
              (B)

            	
              to
                employees, officers, consultants or directors pursuant to stock option,
                stock grant, stock purchase or similar plans or arrangements approved
                by
                the Maker's Board of Directors;

            

    

     

    
      	 	
              (C)

            	
              as
                a dividend or distribution for which an adjustment of the Conversion
                Rate
                is made pursuant to Section 4(c)
                above;

            

    

    

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

    
      	 	
              (D)

            	
              in
                a merger, consolidation, acquisition or similar business combination
                that
                is approved by the Maker's Board of
                Directors;

            

    

    

    
      	 	
              (E)

            	
              pursuant
                to any rights or agreements outstanding on the Original Issue Date;
                or

            

    

     

    
      	 	
              (F)

            	
              if
                the holders of a majority-in-interest of the then outstanding Note
                agree
                in writing that such shares shall not constitute Additional Shares
                of
                Common Stock.

            

    

     

    
      	 	
              (ii)

            	
              In
                the event the Maker at any time or from time to time after the Original
                Issue Date shall issue any Options or Convertible Securities or shall
                fix
                a record date for the determination of any holders of any class of
                securities entitled to receive any such Options or Convertible Securities,
                then the maximum number of shares (as set forth in the instrument
                relating
                thereto without regard to any provisions contained therein designed
                to
                protect against dilution) of Common Stock issuable upon the exercise
                of
                such Options or, in the case of Convertible Securities and Options
                therefore, the conversion or exchange of such Convertible Securities,
                shall be deemed to be Additional Shares of Common Stock issued as
                of the
                time of such issue or, in case such record date shall have been fixed,
                as
                of the close of business on such record date, provided that in any
                such
                case in which Additional Shares of Common Stock are deemed to be
                issued:

            

    

     

    
      	 	
              (1)

            	
              no
                further adjustment in the Conversion Rate shall be made upon the
                subsequent issue of such Convertible Securities or shares of Common
                Stock
                upon the exercise of such Options or conversion or exchange of such
                Convertible Securities;

            

    

     

    
      	 	
              (2)

            	
              if
                such Options or Convertible Securities by their terms provide, with
                the
                passage of time or otherwise, for any increase or decrease in the
                consideration payable to the Maker, or increase or decrease in the
                number
                of shares of Common Stock issuable upon the exercise, conversion
                or
                exchange thereof, the Conversion Rate computed upon the original
                issue
                thereof or upon the occurrence of a record date with respect thereto,
                and
                any subsequent adjustments based thereon, shall, upon any such increase
                or
                decrease becoming effective, be recomputed to reflect such increase
                or
                decrease;

            

    

     

    
      	 	
              (3)

            	
              upon
                the expiration of any such Option or any rights of conversion or
                exchange
                under such Convertible Securities which shall not have been exercised,
                the
                Conversion Rate computed upon the original issue thereof or upon
                occurrence of a record date with respect thereto, and any subsequent
                adjustments based thereon, shall, upon such
                expiration:

            

    

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

    
      	 	
              (A)

            	
              in
                the case of Convertible Securities or Options for Common Stock, be
                recomputed as though the only Additional Shares of Common Stock issued
                were shares of Common Stock, if any, actually issued upon the exercise
                of
                such Options or the conversion or exchange of such Convertible Securities,
                and the consideration received therefore was the consideration actually
                received by the Maker for the issue of all such Options, whether
                or not
                exercised, plus the consideration actually received by the Maker
                upon such
                exercise, or for the issue of all such Convertible Securities, whether
                or
                not converted or exchanged, plus the additional consideration, if
                any,
                actually received by the Maker upon such conversion or exchange;
                and

            

    

     

    
      	 	
              (B)

            	
              in
                the case of Options for Convertible Securities, be recomputed as
                though
                only the Convertible Securities, if any, actually issued upon the
                exercise
                thereof were issued at the time of issue of such Options and the
                consideration received by the Maker for the Additional Shares of
                Common
                Stock deemed to have been then issued was the consideration actually
                received by the Company for the issue of all such Options, whether
                or not
                exercised, plus the consideration deemed to have been received by
                the
                Maker upon the issue of the Convertible Securities with respect to
                which
                such Options were actually
                exercised.

            

    

    
       

      
        	 	
                (4)

              	
                
                  no
                    readjustment pursuant to clause (2) or (3) above shall have the
                    effect of
                    increasing the Conversion Rate to an amount which exceeds the
                    Conversion
                    Rate existing immediately prior to the original adjustment with
                    respect to
                    the issuance of such Options or Convertible Securities, as adjusted
                    for
                    any Additional Shares of Common Stock issued (or deemed to be
                    issued)
                    between such original adjustment date and such readjustment date;
                    and

                

              

      

       

      
        
           

          
            	 	
                    (5)

                  	
                    
                      
                        in
                          the case of any Option or Convertible Security with respect
                          to which the
                          maximum number of shares of Common Stock issuable upon
                          exercise or
                          conversion or exchange thereof is not determinable, no
                          adjustment to the
                          Conversion Rate shall be made until such number becomes
                          determinable.

                      

                    

                  

          

           

        

      

    

     

    
      	 	
              (iii)

            	
              If
                the Maker, at any time after the Original Issue Date, shall issue
                any
                Additional Shares of Common Stock without consideration or for
                consideration at a price per share less than the applicable Conversion
                Rate then in effect, then the applicable Conversion Rate upon each
                such
                issuance shall be adjusted to that price (rounded to the nearest
                cent)
                determined by multiplying the applicable Conversion Rate then in
                effect by
                a fraction, the numerator of which shall be equal to the sum of the
                number
                of shares of Common Stock outstanding immediately prior to the issuance
                of
                such Additional Shares of Common Stock plus
                the number of shares of Common Stock (rounded to the nearest whole
                share)
                which the aggregate consideration for the total number of such Additional
                Shares of Common Stock so issued would purchase at a price per share
                equal
                to the applicable Conversion Rate then in effect, and the denominator
                of
                which shall be equal to the number of shares of Common Stock outstanding
                immediately after the issuance of such Additional Shares of Common
                Stock.

            

    

     

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

    
      	 	
              (iv)

            	
              No
                adjustment of the applicable Conversion Rate shall be made upon the
                issuance of any Additional Shares of Common Stock unless consideration
                per
                share for an additional share of Common Stock issued or deemed to
                be
                issued by the Maker is less than the Conversion Rate in effect on
                the date
                of, and immediately prior to, such
                issue.

            

    

     

    
      	 	
              (v)

            	
              For
                purposes of this Section 4(d), the consideration received by the
                Maker for
                any Additional Shares of Common Stock issued (or deemed to be issued)
                shall be computed as follows:

            

    

     

    
       

      
        	 	
                (1)

              	
                Such
                  consideration shall:

              

      

       

    

    
      
        	 	
                (A)

              	
                insofar
                  as it consists of cash, be computed at the aggregate amount of
                  cash
                  received by the Maker;

              

      

      
         

        
          	 	
                  (B)

                	
                  insofar
                    as it consists of property other than cash, be computed at the
                    fair market
                    value thereof at the time of such issuance, as determined in
                    good faith by
                    the Maker's Board of Directors; and

                

        

         

        
          	 	
                  (C)

                	
                  if
                    Additional Shares of Common Stock are issued (or deemed to be
                    issued)
                    together with other shares or securities or other assets of the
                    Maker for
                    consideration which covers both, be the proportion of such consideration
                    so received, computed as provided in clauses (A) and (B) above,
                    as
                    determined in good faith by the Maker's Board of
                    Directors.

                

        

         

      

    

    
      
        	 	
                (2)

              	
                
                  The
                    consideration received by the Maker for Additional Shares of
                    Common Stock
                    deemed to have been issued pursuant to Section 4(d)(ii) relating
                    to Option
                    and Convertible Securities, shall be the sum of the total amount,
                    if any,
                    received or receivable by the Maker as consideration for the
                    issue of such
                    Options or Convertible Securities, plus the minimum aggregate
                    amount of
                    additional consideration (as set forth in the instruments relating
                    thereto, without regard to any provision contained therein designed
                    to
                    protect against dilution) payable to the Maker upon the exercise
                    of such
                    Options or the conversion or exchange of such Convertible Securities,
                    or
                    in the case of Options for Convertible Securities, the exercise
                    of such
                    Options for Convertible Securities and the conversion or exchange
                    of such
                    Convertible Securities. 

                

              

      

       

      
        
          
          

        

        
          -6-

          
            

          

        

        
          
          

        

      

    

    (e)  No
      fractional shares of Maker's Common Stock shall be issued upon conversion of
      the
      Note. In lieu of any fractional shares to which Payee would otherwise be
      entitled, the Maker shall pay cash equal to the fair market value of such
      fraction on the date of conversion as determined in good faith by the Maker's
      Board.

     

    5.  Security.
      The
      full and timely payment of this Note, together with the Maker's obligations
      under that certain Purchase Agreement of this date among Maker, Payee and the
      other purchaser named therein (the “Purchase
      Agreement”)
      shall
      be secured by the Amended Security Agreement and Stock Pledge Agreement, each
      of
      this date (all together, the “Security
      Agreements”)
      and
      guaranteed by Henry Fong (the “Guarantor”)
      pursuant to a Guaranty of this date (the “Guaranty”).
      The
      security interest granted under the Security Agreements shall be a first
      priority security interest subordinate to no other secured rights, but shared
      with the other holder of the Series Notes and the holders of a series of notes
      sold by Maker pursuant to that certain Purchase Agreement dated March 8, 2004
      by
      and among Maker, Payee and the other purchaser named therein (the “March
      2004 Purchase Agreement”).

     

    6.  Conversion
      at Option of Maker.
      

     

    (a)  If
      a
      "Trading Event" (as defined below) occurs at any time prior to September 15,
      2007 (the “Maturity
      Date”),
      the
      Maker has the right, at its option, to require the Payee to convert the
      outstanding principal balance of this Note plus accrued but unpaid interest
      into
      shares of Maker’s Common Stock based on the Conversion Rate (subject to
      adjustment as otherwise provided herein). The Maker may exercise its rights
      under this Section 6 by giving written notice (the “Maker
      Notice”)
      of its
      intention to Payee within three (3) trading days following the occurrence of
      the
      Trading Event. The Maker Notice shall specify the ten-day trading period during
      which the Trading Event occurred and the payment amount to be settled by such
      conversion. Payment in shares of Common Stock shall be deemed to have been
      made
      on the date of the Maker Notice, provided that certificates representing those
      shares are delivered to Payee within ten (10) days after the date of the Maker
      Notice.

     

    (b) For
      purposes hereof, a “Trading
      Event”
means
      a
      period of ten (10) consecutive trading days in which (i) the volume weighted
      average closing bid price of Maker’s Common Stock was equal to $10.00 and (ii)
      the minimum daily trading volume of Maker's Common Stock was 100,000 shares.
      In
      computing the minimum daily trading volume under this subsection (b), the Maker
      shall exclude shares sold by or for the account of or at the direction of the
      Maker, officers, directors or consultants of Maker, any member of the immediate
      family of those persons or any entity in which any of those persons owns any
      beneficial interest.

     

    (c) Despite
      the foregoing, the Maker may not exercise its rights pursuant to this Section
      6
      unless all of the following conditions are met:

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

    (i) on
      the
      date of the Maker Notice, the terms of the Registration Rights Agreement, an
      effective registration statement under the Securities Act and applicable state
      securities laws covering the public resale of such shares by Payee;
      and

     

    (ii) the
      resulting issuance would not be violative of Section 9 hereof.

     

    7.  Optional
      Repurchase Upon a Change in Control

     

    (a)  If
      a “Change
      in Control”
      (as
      defined below) occurs at any time prior to the Maturity Date, the Payee has
      the
      right, at its option, to require the Maker to repurchase the Note at a price
      in
      cash equal to 100% of the outstanding principal balance of the Note, plus
      accrued but unpaid interest (including any Contingent Additional Interest)
      to,
      but excluding, the repurchase date. The repurchase price shall be paid
      immediately before the effective date of the Change in Control, which date
      is
      referred to in this Section 7 as the “Repurchase
      Date”.
      The
      Payee may exercise its rights under this Section 7 by giving written notice
      of
      its intention to the Maker at least three (3) business days before the
      Repurchase Date.

     

    (b)  At
      least
      twenty (20) trading days before the Repurchase Date, the Maker shall give
      written notice of any Change in Control to the Payee. Such notice shall state
      the event causing the repurchase, the Repurchase Date and the proposed price,
      terms and conditions of the Change in Control.

     

    (c)  For
      purposes hereof, a “Change
      in Control”
      means
      the occurrence of any of the following events: (i) any “person” or “group” (as
      these terms are used for purposes of Section 13(d) or 14(d) of the Securities
      Exchange Act of 1934) becomes the “beneficial owner” (as that term is used in
      Rule 13d-3 under the Securities Exchange Act of 1934), directly or indirectly,
      of 50% or more of the total voting power of the then outstanding voting
      securities of the Maker; or (ii) a merger, consolidation or reorganization
      of
      the Maker in which more than 50% of the total voting power of the continuing
      or
      surviving entity's voting securities outstanding immediately after such merger,
      consolidation or reorganization is beneficially owned, directly or indirectly,
      by persons who were not the beneficial owners of the voting securities of the
      Maker immediately prior to such merger, consolidation or reorganization; or
      (iii) the sale or other disposition of all or substantially all of the assets
      of
      the Maker in one transaction or a series of related transactions.

    

    8.  Default.
      The
      occurrence of any one or more of the following events shall constitute an event
      of default, upon which Payee may declare the entire principal amount of this
      Note, together with all accrued but unpaid interest (including any Contingent
      Additional Interest), to be immediately due and payable:

     

    (a)  The
      Maker
      shall fail to make any required payment of principal or interest (including
      Contingent Additional Interest) when due, and such failure shall continue
      through ten (10) days after Payee gives written notice of such failure to
      Maker.

     

    (b)  The
      Maker
      shall fail to materially comply with any covenant, agreement, term or provision
      contained in the Purchase Agreement, any of the Security Agreements, the
      Registration Rights Agreement or the Warrant being issued on the date hereof
      by
      Maker to Payee (the “Warrant”),
      and
      such failure shall continue through twenty (20) days after Payee gives written
      notice of such default to Maker. Despite the foregoing, a failure by Maker
      to
      timely obtain effectiveness of the Payee Registration Statement under the
      Securities Act will not, without Maker’s subsequent failure to timely pay
      Contingent Additional Interest, constitute an event of default under this
      subsection (b).

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

    (c)  The
      Guarantor shall be in default of any term, provision or agreement contained
      in
      the Guaranty and such default is not cured within twenty (20) days after written
      notice from Payee to Guarantor.

     

    (d)  The
      Maker
      or Guarantor shall become insolvent or shall fail to pay, or become unable
      to
      pay, its debts as they become due; or any bankruptcy, reorganization, debt
      arrangement or other proceeding under any bankruptcy or insolvency law shall
      be
      instituted by or against the Maker or Guarantor.

     

    (e)  Any
      representation or warranty made by the Maker or Guarantor in, pursuant to or
      in
      connection with the Purchase Agreement, any of the Security Agreements, the
      Registration Rights Agreement, the Warrant or the Guaranty shall be untrue
      in
      any material respect (including by omission of material information necessary
      to
      make such representation or warranty not misleading).

     

    (f)  The
      Maker
      incurs an event of default under the terms of any of the other Series Notes
      or
      any of the notes sold pursuant to the March 2004 Purchase Agreement (the
“March
      2004 Notes”).

     

    Without
      limiting the above, the Maker acknowledges that payments on the various
      scheduled due dates, are of essence and that any failure to timely pay any
      installment of principal or interest (within any permitted grace period above),
      including Contingent Additional Interest, permits Payee to declare this Note
      immediately due in cash in its entirety without any prior notice of any kind
      to
      Maker, except for the specific notices provided above. Further, the Maker agrees
      that any event of default under this Note shall constitute an event of default
      under each of the March 2004 Notes.

     

    9.  Limitations
      on Conversion and Payment. 

     

    (a)  Notwithstanding
      anything to the contrary contained herein, the number of shares of Common Stock
      that may be acquired by the Payee upon any conversion of this Note or upon
      payment on this Note (or otherwise in respect hereof) shall be limited to the
      extent necessary to insure that, following such conversion or payment (or other
      issuance), the total number of shares of Common Stock then beneficially owed
      by
      Payee and its affiliates and any other persons whose beneficial ownership of
      Common Stock would be aggregated with the Payee’s for purposes of Section 13(d)
      of the Securities Exchange Act of 1934, does not exceed 4.99% of the total
      number of issued and outstanding shares of Common Stock (including for such
      purpose the shares of Common Stock issuable upon such conversion or payment).
      For such purposes, beneficial ownership shall be determined in accordance with
      Section 13(d) of the Securities Exchange Act of 1934 and the rules and
      regulations promulgated thereunder. This provision shall not restrict the number
      of shares of Common Stock which Payee may receive or beneficially own in order
      to determine the amount of securities or other consideration that Payee may
      receive in the event of a merger, sale, exchange or other transaction as
      contemplated in Section 4(c) of this Note. By written notice to the Company,
      Payee may waive the provision of this Section 9(a) as to itself, but any such
      waiver shall not be effective until the 61st
      day
      after delivery thereof.

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

    (b)  Notwithstanding
      any other term of this Note, Maker may not pay all or any portion of this Note
      or convert all or any portion of this Note in Common Stock as set forth in
      Section 3 or Section 6 hereof, as applicable, and Payee may not convert all
      or
      any portion of this Note into Common Stock pursuant to Section 4, in the event
      the number of shares of Common Stock to be issued upon such payment or
      conversion of this Note, when aggregated with the shares of Common Stock issued
      upon prior conversion or payment of the Series Notes, plus 125,000 shares of
      Common Stock issuable upon the exercise of warrants issued by Maker pursuant
      to
      the Purchase Agreement, would equal or exceed ten percent (10%) of the number
      of
      shares of Maker's Common Stock that were issued and outstanding on the date
      hereof (the “Maximum
      Issuance Amount”).
      In
      such an event, Maker shall issue to Payee only such number of shares of Maker's
      Common Stock as shall not exceed such Maximum Issuance Amount and shall pay
      Payee cash for the remainder of the amount owed. In computing the cash balance
      that relates to the shares in excess of the Maximum Issuance Amount (the
“Excess
      Shares”),
      the
      Maker shall pay Payee the greater of (i) the actual cash amount computed under
      the other provisions of this Note or (ii) the fair market value of the Excess
      Shares, computed by reference to the average (rounded to the nearest $.01)
      of
      the closing bid prices of Maker's Common Stock on the Trading System for the
      five (5) consecutive trading days immediately preceding the date when the Maker
      would otherwise issue the Excess Shares pursuant to the Note but for the Maximum
      Issuance Amount limitation.

     

    10.  Applicable
      Law.
      THE
      VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THE NOTE SHALL BE GOVERNED BY
      THE
      INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT
      OF
      LAWS PRINCIPLES THEREOF.

     

    11.  Waivers.
      The
      Maker hereby waives presentment for payment, notice of dishonor, protest and
      notice of payment and all other notices of any kind in connection with the
      enforcement of this Note.

     

    12.  No
      Setoffs.
      The
      Maker shall pay principal and interest under the Note without any deduction
      for
      any setoff or counterclaim.

     

    13.  Costs
      of Collection.
      If this
      Note is not paid when due, the Maker shall pay Payee’s reasonable costs of
      collection, including reasonable attorney’s fees.

     

    
      	 	 	 
	 	EQUITEX,
              INC.
	 
 	 
 	 
 
	 	By:  	/s/ Henry
              Fong
	 	
              
By
              Henry Fong, President

    

     

    
      
        
        

      

      -10-

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