<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________.
Commission file number: 0-27249
EZCONNECT, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 87-0284731
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
716 EAST 4500 SOUTH, SUITE N-142, MURRAY, UT 84107
- --------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(801) 270-9711
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- ------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), Yes [X] No [ ] and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of each of the issuer's classes of common
stock, was 8,660,424 shares of common stock, par value $0.001, as of December
31, 1999.
<PAGE>
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB pursuant to the rules and
regulations of the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a complete presentation of
the financial position, results of operations, cash flows, and stockholders'
equity in conformity with generally accepted accounting principles. In the
opinion of management, all adjustments considered necessary for a fair
presentation of the results of operations and financial position have been
included and all such adjustments are of a normal recurring nature.
The unaudited balance sheet of the Company as of December 31, 1999; the
related audited balance sheet of the Company as of June 30, 1999; and the
related unaudited statements of operations and cash flows for the three and
six month periods ended December 31, 1999 and 1998 and from November 1, 1996
(inception of the development stage) through December 31, 1999; are attached
hereto and incorporated herein by this reference.
Operating results for the three and six month periods ended December 31,
1999 is not necessarily indicative of the results that can be expected for the
Company's fiscal year ending June 30, 2000.
<PAGE>
<PAGE> 3
EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(Development Stage Companies)
Consolidated Balance Sheets
ASSETS
------
December 31, June 30,
1999 1999
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash $ 8,992 $ -
------------ ------------
Total Current Assets 8,992 -
------------ ------------
PROPERTY AND EQUIPMENT
Computer and office equipment 26,286 -
Less: accumulated depreciation (1,345) -
------------ ------------
Total Property and Equipment 24,941 -
------------ ------------
OTHER ASSETS:
Intangible assets, less amortization of $150 8,860 -
------------ ------------
TOTAL ASSETS $ 42,793 -
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 80 -
Accrued liabilities 3,020 -
Customer deposits 1,050 -
Accrued payroll taxes 3,774 -
------------ ------------
Total Current Liabilities 7,924 -
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.001,
5,000,000 shares authorized, no shares
issued and outstanding - -
Common stock, par value $0.001, 40,000,000
shares authorized, 8,660,424 and 3,463,659
shares issued and outstanding, respectively 8,660 34,637
Capital in excess of par value 1,272,505 1,061,294
Earnings (deficit) prior to November 1, 1996 (654,259) (654,259)
Earnings (deficit) accumulated during the
development stage (592,037) (441,672)
------------ ------------
Total Stockholders' Equity 34,869 -
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 42,793 $ -
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 4
EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(Development Stage Companies)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the For the For the For the Cumulative
Three Months Three Months Six Months Six Months During
Ended Ended Ended Ended the
December 31, December 31, December 31, December 31, Development
1999 1998 1999 1998 Stage
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES $ - $ - $ - $ - $ -
------------ ------------ ------------ ------------ ------------
EXPENSES
Selling and marketing 1,385 - 1,385 - 1,385
General and administrative 111,467 27,290 122,849 29,460 525,701
Research and development 22,713 - 22,713 - 22,713
Depreciation and amortization 1,495 - 1,495 - 3,525
------------ ------------ ------------ ------------ ------------
Total Expenses 137,060 27,290 148,442 29,460 553,324
------------ ------------ ------------ ------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSE) (137,060) (27,290) (148,442) (29,460) (553,324)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest expense (2,340) - (2,340) - (15,599)
Loss on sale of assets - - - - (27,781)
Interest income 417 - 417 - 417
Other income - - - - 4,250
------------ ------------ ------------ ------------ ------------
Total Other Income (Expense) (1,923) - (1,923) - (38,713)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (138,983) $ (27,290) $ (150,365) $ (29,460) $ (592,037)
============ ============ =========== ============ ============
EARNINGS (LOSS) PER SHARE $ (0.02) $ (0.01) $ (0.02) $ (0.01)
============ ============ =========== ============
WEIGHTED AVERAGE NUMBER OF SHARES 8,294,330 3,463,659 5,879,994 3,463,659
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 5
EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(Development Stage Companies)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the For the For the For the Cumulative
Three Months Three Months Six Months Six Months During
Ended Ended Ended Ended the
December 31, December 31, December 31, December 31, Development
1999 1998 1999 1998 Stage
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (138,983) $ (27,290) $ (150,365) $ (29,460) $ (592,037)
Adjustments to Reconcile Net Income
(Loss) to net cash used by operations
Depreciation and amortization 1,495 - 1,495 - 3,525
Loss from sale of assets - - - - 27,781
Stock issued for services - 26,585 7,500 26,585 195,063
Changes in Assets and Liabilities:
(Increase) decrease in prepaid
expenses - - - - 2,533
(Increase) decrease in other assets - - - - 5,867
Increase (decrease) in accounts
payable (3,000) - (2,920) - (2,920)
Increase (decrease) in accrued
liabilities 3,020 - 3,020 - 13,279
Increase (decrease) in customers
deposits 1,050 - 1,050 - 1,050
Increase (decrease) in accrued
payroll taxes 3,774 - 3,774 - 3,774
------------ ------------ ------------ ------------ ------------
Net Cash Provided (Used) in
Operating Activities (132,644) (705) (136,446) (2,875) (342,085)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment on note payable - - (30,000) - (30,000)
Acquisition of EZConnect USA, Inc. 6,169 - 6,169 - 6,169
Sale of property - - - - 25,000
Patent costs (9,010) - (9,010) - (9,010)
Acquisition of computer and office
equipment (8,771) - (8,771) - (8,771)
Purchase of property - - - - (54,811)
------------ ------------ ------------- ----------- ------------
Net Cash Provided (Used) in
Investing Activities $ (11,612) $ - $ (41,612) $ - $ (71,423)
------------ ------------ ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock $ 169,000 $ - $ 200,000 $ - $ 252,000
Stock offering costs - - - - (12,500)
Proceeds from convertible debentures - - - - 169,350
Lease payments (12,950) - (12,950) - (12,950)
Proceeds from payments on shareholder
loans (3,417) - - - -
Proceeds from notes payable - - - - 25,000
------------ ------------ ------------ ------------ ------------
Net Cash Provided (Used) by
Financing Activities 152,633 - 187,050 - 420,900
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 8,377 (705) 8,992 (2,875) 7,392
CASH - BEGINNING OF PERIOD 615 705 - 2,875 1,600
------------ ------------ ------------ ------------ ------------
CASH - END OF PERIOD $ 8,992 $ - $ 8,992 $ - $ 8,992
============ ============ ============ ============ ============
</TABLE>
<PAGE> 6
EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(Development Stage Companies)
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
For the For the For the For the Cumulative
Three Months Three Months Six Months Six Months During
Ended Ended Ended Ended the
December 31, December 31, December 31, December 31, Development
1999 1998 1999 1998 Stage
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NON-CASH FINANCING ACTIVITIES
Common stock issued for accrued
interest $ - $ - $ - $ - $ 10,259
Common stock issued for the
conversion of debentures $ - $ - $ - $ - $ 169,350
Common stock issued for the
conversion of a note payable $ - $ - $ - $ - $ 25,000
Common stock issued for services
rendered $ - $ 26,585 $ 7,500 $ 26,585 $ 195,063
SUPPLEMENTAL SCHEDULE OF CASH FLOW
ACTIVITIES
CASH PAID FOR:
Interest $ 2,340 $ - $ - $ 1,000 $ 4,840
Taxes $ - $ - $ 385 $ - $ 385
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 7
EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(Development Stage Companies)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company, without audit, has prepared the accompanying consolidated
financial statements. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
consolidated financial position, results of operation and cash flows at
December 31, 1999 and 1998 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's June 30, 1999
audited financial statements. The results of operations for the periods ended
December 31, 1999 and 1998 are not necessarily indicative of the operating
results for the full year.
NOTE 2 - CHANGE OF CORPORATE DOMICILE AND OTHER CORPORATE MATTERS
On October 15, 1999, the shareholders of EZConnect, Inc. effected a 1 for 2.5
reverse spit in the issued and outstanding shares of EZConnect, Inc.'s common
stock. This transaction has been retroactively reflected in these financial
statements. EZConnect, Inc., with the approval of its shareholders, also
changed its Corporate domicile from Utah to Nevada and in connection with this
action changed the name of the Company from Diversified Industries, Inc. to
EZConnect, Inc. and modified certain other provisions of the Company's
governing instruments by merging it into a new Nevada corporation created for
the purpose of changing its Corporate domicile. At the time of the change of
Corporate domicile, the Company changed its authorized shares of common stock
to 40,000,000 shares, and its par value to $.001, and authorized 5,000,000
shares of preferred stock at a $.001 par value.
NOTE 3 - BUSINESS COMBINATION
On September 27, 1999, the Company and EZConnect USA, Inc. entered into an
Agreement and Plan of Reorganization which was approved by a majority of the
Company's shareholders at a special meeting held October 15, 1999. EZConnect
USA, Inc. is a Utah Corporation which was newly formed in 1999, to engage in
the remote establishment and disconnection of utility services and is a
development stage company.
The Acquisition agreement provided that EZConnect, Inc. acquire all the issued
and outstanding shares of EZConnect USA, Inc. shares of common stock held by
its shareholders in exchange for 6,075,000 shares of EZConnect, Inc. common
stock and after the transaction was completed EZConnect USA, Inc. became a
wholly owned subsidiary of EZConnect, Inc. The business combination has been
treated as a reverse acquisition and has been treated as a recapitalization of
EZConnect USA, Inc. Operations of the consolidated entities are combined
starting from October 1, 1999.
<PAGE> 8
EZCONNECT, INC. AND SUBSIDIARY
(Formerly Diversified Industries, Inc.)
(Development Stage Companies)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - SUBSEQUENT EVENT
EZConnect, Inc. has entered into a credit agreement with an individual for a
credit line up to $1,500,000 to be used for general working capital in
operating the business of the Company. The interest on the line of credit
has been set at 10%. Assets of the Company will secure the line of credit as
outlined in the agreement. The debt can be converted at any time to equity
in the Company at the rate of one share of common stock for every $1.00 of
outstanding principal and interest of the borrowings. The Company may make
periodic payments in part or in full of the "average daily balance" as defined
in the agreement.
<PAGE>
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-looking Statements
- ---------------------------------------------------------
This report may contain "forward-looking" statements. The Company is
including this cautionary statement for the express purpose of availing itself
of the protections of the safe harbor provided by the Private Securities
Litigation Reform Act of 1995 with respect to all such forward-looking
statements. Examples of forward-looking statements include, but are not
limited to: (a) projections of revenues, capital expenditures, growth,
prospects, dividends, capital structure and other financial matters; (b)
statements of plans and objectives of the Company or its management or Board
of Directors; (c) statements of future economic performance; (d) statements of
assumptions underlying other statements and statements about the Company and
its business relating to the future; and (e) any statements using the words
"anticipate," "expect," "may," "project," "intend" or similar expressions.
Overview
- --------
From November 1, 1996 (inception of the development stage) through October 15,
1999, the Company had no operations and its business purpose was to locate and
consummated a merger or acquisition with a private entity. On October 15,
1999, the Company completed the acquisition of EZ Connect USA, Inc., a Utah
corporation ("EZ").
Prior to the Company's acquisition of EZ, the Company was settling with
creditors in order to reduce the Company's liabilities so that the Company
could recommence business operations. The costs and expenses associated with
the maintaining the Company's operations have been provided by existing
shareholders who have in the past made loans to the Company or been issued
shares of the Company's restricted common stock as compensation for services.
Current Business Activities
- ----------------------------
On September 27, 1999, the Company entered into an Agreement and Plan of
Reorganization (the "Acquisition Agreement") relating to the acquisition of EZ
through a share exchange. The Acquisition Agreement was approved by the board
of directors and shareholders of EZ and the board of directors of the Company,
and was approved by the Company's shareholders at a special meeting on October
15, 1999. In connection with the acquisition the Company's shareholders
approved proposals changing the Company's corporate domicile to Nevada;
changing the Company's name to "EZConnect, Inc."; effecting a 1-for-2.5
reverse split of the Company's issued and outstanding shares; and electing new
directors.
EZ was formed in 1999, to engage in the remote establishment and disconnection
of utility services and should be considered a start-up or development stage
business. EZ is the result of two years of effort by its founders who develop
the concept of having EZ change utilities and other services without the
hassle of telephoning the individual providers. EZ has filed for patent
protection on its concept and software. The new management of the Company
intends to make EZ's services available via the internet. Under the guidance
of new management, the Company is commencing a beta test of EZ's services. The
beta test is being conducted with regional real estate brokerage firms. The
Company has hired a call center to offer support for its beta test.
<PAGE>
<PAGE> 10
Discussion and Analysis of Financial Condition and Results of Operations
- ------------------------------------------------------------------------
Despite the acquisition of EZ, the Company's business activities are subject
to several significant risks which arise primarily as a result of the fact
that the Company is still in the development stage.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1999, the Company had current assets of $8,992 and current
liabilities of $7,924, for working capital of $1,068. For the six month
period ended December 31, 1999, the Company had general and administrative
expenses of $122,849 primarily associated with conducting its business
operations. In addition, the Company expended $22,713 during the same period
in connection with research and development of its proprietary technology.
In September 1999, the Company entered into subscription agreements to sell
2,850,000 shares of its restricted common stock at $0.07 per share and
received $200,000 cash.
Effective February 1, 2000, the Company entered into a credit agreement with
the Company's new CEO to provide the Company with a line of credit up to
$1,500,000 for working capital purposes. The line of credit is for a term of
one year and is renewable for a similar term. The line of credit will bear
interest on the outstanding balance at 10% per annum and the principle and
accrued interest are convertible into common stock of the Company at the
election of the lender at a conversion rate of one share of common stock for
each $1.00 of principle and accrued interest. The line of credit is secured by
all the assets of the Company. The Company believes the line of credit will be
sufficient to fund the Company's working capital needs for the balance of the
Company's fiscal year.
Results of Operations
- ---------------------
Since discontinuing operations in November 1996, the Company has not generated
revenue. For the six month period ended December 31, 1999, the Company has
incurred $148,442 in expenses. Since inception of the development stage the
Company has an accumulated deficit of $(553,324). The Company expects to
continue operating at a loss until such time as it begins to receive revenues
from operations. The Company does not expect to receive revenues from
operations until the later half of March 2000. The Company is unable at this
time to predict whether actual revenues received from operations will be
sufficient to offset the costs and expenses of operations for the
corresponding period.
Impact of Inflation
- -------------------
The Company does not anticipate that inflation will have a material impact on
its current or proposed business operations.
Principal Customers
- -------------------
During the six month period ended December 31, 1999, the Company had no
revenues.
Seasonality
- -----------
Management of the Company knows of no seasonal aspects relating to the nature
of the Company business operations that had a material effect on the financial
condition or results of operation of the Company.
<PAGE> 11
Year 2000 Computer Problem
- --------------------------
The Year 2000, or Y2K problem concerns potential failure of certain computer
software to correctly process information because of the software's inability
to calculate dates. The Registrant has no operations or current equipment
which were affected by the Year 2000 computer glitch. The Company has
completed its assessment of potential Y2K problems and is confident that its
existing hardware and software is fully Y2K compliant. The costs of preparing
for Y2K have been included as an integral part of the development of the
Company's proprietary technology, and the Company had no discreet costs
directly attributable to Y2K. Y2K has not poses any significant risks to the
internal operations of its proprietary technology. Because management believes
the risks of significant Y2K problems comes from external sources over which
the Company has no control, the Company has not and does not intend to prepare
any contingency plan. If the kind of systemic failure noted above occurs, it
could have a material impact on the operations and expected revenues of the
Company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
Exhibit No. SEC Ref. No. Title of Document
- ----------- ------------ -----------------
10.01 10 Credit Agreement and Related Exhibits
27 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
In November 1999, the Company filed a Current Report on Form 8-K reporting
that the Company had entered into an agreement with Prudential California
Realty, an independently owned and operated member of Prudential Real Estate
Affiliates, Inc., to jointly market the Registrant's services through a co-
branding arrangement.
<PAGE>
<PAGE> 12
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 thereunto duly authorized.
EZCONNECT, INC.
[Registrant]
Dated: February 8, 2000 /S/Frank Gillen, Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 8,992
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,992
<PP&E> 24,941
<DEPRECIATION> (1,345)
<TOTAL-ASSETS> 42,793
<CURRENT-LIABILITIES> 7,924
<BONDS> 0
0
0
<COMMON> 1,281,165
<OTHER-SE> (1,246,296)
<TOTAL-LIABILITY-AND-EQUITY> 42,793
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 148,442
<OTHER-EXPENSES> 1,923
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,340
<INCOME-PRETAX> (150,365)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (150,365)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
<PAGE> 1
Exhibit 10.01
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") is made and entered into effective
the 1st day of February, 2000, and between PHILIP R. LACERTE ("Lender"), and
EZCONNECT, INC., a Nevada corporation ("Borrower").
Recitals
A. Lender has made or will extend credit to Borrower from time to time,
aggregating up to the principal sum of $1,500,000. Borrower is applying all
credit provided hereunder for general working capital in operating the
Borrower's business.
B. Borrower desires to obtain a commitment from Lender to extend Borrower
credit for such purchasers aggregating up to $1,500,000, as hereinafter
provided.
C. Lender is willing to extend such credit commitment to Borrower on the
terms and subject to the conditions hereinafter set forth.
Agreement
NOW, THEREFORE, in reliance upon the recitals set forth above and for and in
consideration of the mutual promises and covenants contained herein and the
mutual benefits to the parties to be derived from this Agreement, it is hereby
agreed as follows:
ARTICLE I
CREDIT
1.1 Amount. Pursuant to the terms of this Agreement, Lender shall extend
credit to Borrower from time to time aggregating up to the principal amount of
$1,500,000. The credit extended under the Agreement and as evidenced by this
Agreement is to be used by Borrower for working capital in operating the
Borrower's business. Borrower agrees that the monthly statements of account
provided by the Lender to the Borrower shall serve as prima facie evidence as
to the unpaid and funded principal balance owed to Lender, in the event that
it should become necessary for Lender to commence an appropriate action
seeking to collect the unpaid principal funded balance under this Agreement
and interest, costs, and attorneys' fees in any court of competent
jurisdiction.
1.2 Interest. All credit provided pursuant to the terms of this Agreement
shall bear interest on the average daily balance (as defined below in Section
1.5 (c)) at ten percent (10%) per annum from the date hereof until either paid
in full or renegotiated. Any additional extensions of credit by Lender to
Borrower shall bear interest at the foregoing rate from and after the date of
such loan. The principal and interest, together with any extensions,
modifications, renewals, or additional loans; the performance of the covenants
and agreements of Borrower contained herein; and the obligations of Borrower
under the terms of the accompanying security agreement attached hereto shall
be hereinafter referred to collectively as the "Obligation."
1.3. Security Agreement. As security for the Obligation, including any
modifications, extensions, or renewals thereof, Borrower will execute the
Security Agreement attached hereto as Exhibit A and incorporated herein by
this reference (the "Security Agreement"), granting Lender a security interest
in all the Borrower's assets, which shall be deemed the "Collateral."
<PAGE> 2
1.4 Right to Convert the Obligation to Equity. Notwithstanding the Lender's
rights to receive cash payment(s) for the Obligation, at any time during the
term of the Obligation, at the election of the Lender, the Lender may receive
in satisfaction of a portion of or the entire Obligation, shares of the
Borrower's common stock, par value $0.001 per share (the "Common Stock") at
the rate of one share of Common Stock for every $1.00 of outstanding principal
and interest amount of the Promissory Note.
1.5 Billing and Payment.
(a) The Lender shall provide Borrower with a statement of Borrower's
account on a calendar monthly basis.
(b) Borrower may make periodic payments in part or full payment of the
"average daily balance" as defined in subsection (c) of this section.
(c) The "average daily balance" will be computed by taking the beginning
balance of Borrower's account each day, adding any loans, and subtracting any
payments or credits and unpaid finance charges. Lender will then add up all
the average daily balances for the billing cycle and divide the total by the
number of days in the billing cycle.
(d) The "billing cycle" shall begin the first day of each calendar month
and end on the last day of such calendar month.
(e) The entire amount of credit extended under this Agreement will be
due immediately upon the expiration of the notice of default given to
Borrower from Lender in the event of default by Borrower as hereinafter
provided.
1.6 Term. Unless terminated earlier by the mutual agreement of the parties or
pursuant to another provision of this Agreement, this Agreement shall continue
in full force and effect for a term of one (1) year, renewable annually, from
the date hereof, or until the entire amount owned by Borrower hereunder is
paid-in-full or has been renegotiated with Lender, which ever is the latest to
occur.
ARTICLE II
CONDITIONS OF LENDER'S OBLIGATIONS
All obligations of Lender under this Agreement are subject to the fulfillment,
prior to any credit extended hereunder, of each of the following conditions,
any or all of which may be waived in writing in whole or in part by Lender at
or prior to execution.
2.1 Satisfaction of Conditions. Borrower shall have performed and satisfied
in all material respects all obligations, conditions, and covenants required
by this Agreement to be performed and satisfied by it at or before the
execution of this Agreement.
2.2 Certain Documents. The obligation of Lender to extend credit to Borrower
is subject to the condition that all of the following documents shall have
been received by Lender:
(a) The Security Agreement in the form of Exhibit A attached hereto,
with appropriate insertions, executed as appropriate by Borrower;
(b) The Master Promissory Note in the form of Exhibit B attached hereto,
with appropriate insertions, executed as appropriate by Borrower;
<PAGE> 3
(c) Form UCC-1, executed as appropriate by Borrower; and
(d) This Agreement executed by Borrower and Lender.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BORROWER
In order to obtain Lender's reliance and agreement to enter into this
Agreement and the transactions contemplated hereby, Borrower makes the
following representations and warranties:
3.1 No Conflicting Agreements. The execution and delivery of this Agreement
and the consummation of the transactions provided for herein will not violate
or conflict with or result in the breach of any provision or covenant or
constitute a default or an event which with notice or lapse of time or both
would constitute a default under, or accelerate the performance required by,
or result in the termination of any agreement, stipulation, order, judgment,
or decree to which Borrower is a party or is subject or which binds any of the
properties or assets of Borrower.
3.2 Litigation. Borrower is not aware of any claim or pending litigation
that would prevent or encumber its power to execute, deliver, or consummate
this Agreement and the transactions contemplated hereby.
3.3 Binding Obligation. This Agreement, the Security Agreement and the
Master Promissory Note have been duly executed and delivered by Borrower and
constitute legal, valid, and binding obligations of Borrower and are
enforceable against them in accordance with their terms, except as the
enforceability may be affected by bankruptcy, insolvency, or similar laws
affecting the enforcement of creditors' rights generally and to the extent the
availability of certain remedies may be limited by certain equitable
principles of general applicability.
3.4 No Existing Default. Borrower is not in default, nor has any event
occurred that with notice or the passage of time or both would constitute a
default under any agreement, indenture, or contract relating to any material
obligation for borrowed money or any form of credit agreement whatsoever,
including, without limitation, any installment purchase agreements.
ARTICLE IV
NEGATIVE COVENANTS OF BORROWER
Borrower agrees that it will not, prior to the satisfaction of all its
obligations under the terms of this Agreement and the Security Agreement, do
any of the following:
4.1 Satisfaction of Existing Obligations. Other than in the ordinary course
of business as now conducted, Borrower shall not cause to be created or suffer
to exist any additional lien, mortgage, pledge, charge, security, or other
encumbrance on any of the Collateral.
4.2 Amendment of Contracts. Other than in the ordinary course of business as
now conducted, Borrower shall not engage in any transaction that would create
or result in any additional indebtedness or pay any obligation or liability or
enter into, terminate, or amend any agreement or transfer or grant any rights
under any lease, license, or other agreement or in any manner dispose of or
acquire any material amount of assets.
<PAGE> 4
4.3 Continuation of Business. Borrower shall use its best efforts consistent
with prudent business practices to preserve and maintain the business and
business organization of Borrower intact; to preserve its goodwill; to pay its
obligations as they mature; and to retain Borrower's relationship with its
customers.
4.4 Regulatory Compliance. Borrower shall not violate in any material
respect any law, rule, regulation, order, or ordinance applicable to the
conduct of the business of Borrower or relinquish or terminate any rights,
qualifications, license, or permits that would materially affect the financial
condition or the business of Borrower.
ARTICLE V
AFFIRMATIVE COVENANTS OF BORROWER
5.1 Use of Credit. Borrower shall utilize 100% of the credit extended hereby
for working capital.
5.2 Financial Records. Borrower shall maintain adequate books, accounts, and
records in accordance with the practices of prudent businessmen and in
accordance with generally accepted accounting principles, consistently
applied, and shall make all such records available for inspection and
duplication, by Lender or its agents at any time during reasonable business
hours.
5.3 Insurance. Borrower shall insure and keep insured at all times all of
their property of an insurable nature, with insurers who are financially sound
and responsible, against loss or damage from fire and other risks, casualties,
or contingencies, and shall carry such public liability as is reasonably
prudent in the conducting of Borrower's business.
5.4 Compliance With Laws. Borrower shall take whatever actions are necessary
to comply with all statutes and regulations governing the activities and
operations of Borrower and maintain its corporate existence and right to carry
on business in each state or other jurisdiction in which Borrower now conducts
business.
ARTICLE VI
DEFAULT
6.1 Events of Default. Upon the occurrence and during the continuance of any
one or more of the events hereinafter enumerated, Lender may forthwith or at
any time thereafter during the continuance of any such event, by notice in
writing to Borrower, declare the unpaid balance of the principal and interest
then accrued to be immediately due and payable, and the principal and interest
shall become and shall be immediately due and payable without presentation,
demand, protest, notice of protest, or other notice of dishonor, all of which
are hereby expressly waived by Borrower, such events being as follows:
(a) Default in the payment of the principal and interest or any portion
thereof when the same shall become due and payable, whether at maturity as
therein expressed, by acceleration, or otherwise, unless cured within fifteen
(15) days after notice thereof by the Lender to Borrower;
(b) The creditors under any priority secured indebtedness of Borrower
shall declare the amounts due thereunder to be due and payable following
default;
<PAGE> 5
(c) Default in the due observance or performance of any other covenant
or obligation contained in this Agreement, the Security Agreement, or the
Master Promissory Note unless observed or performed within fifteen (15) days
after notice thereof to Borrower by Lender; provided, if compliance is not
possible within fifteen (15) days, default shall occur upon failure within
fifteen (15) days to take steps that will produce compliance as soon as is
reasonably practicable;
(d) Borrower shall file a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization, or shall file an answer admitting
the jurisdiction of the court and any material allegations of an involuntary
petition filed pursuant to any act of Congress relating to bankruptcy or to
any act purporting to be amendatory thereof, or shall be adjudicated bankrupt,
or shall make an assignment for the benefit of creditors, or shall apply for
or consent to the appointment of any receiver or trustee for Borrower, or of
all or any substantial portion of its property, or Borrower shall make an
assignment to an agent authorized to liquidate any substantial part of its
assets;
(e) An order shall be entered pursuant to any act of Congress relating
to bankruptcy or to any act purporting to be amendatory thereof approving an
involuntary petition seeking reorganization of Borrower, or an order of any
court shall be entered appointing any receiver or trustee of or for Borrower,
or any receiver or trustee of all or any substantial portion of the property
of Borrower, or a writ or warrant of attachment or any similar process shall
be issued by any court against all or any substantial portion of the property
of Borrower, and such order approving a petition seeking reorganization or
appointing a receiver or trustee is not vacated or stayed, or such writ,
warrant of attachment, or similar process is not released or bonded within 60
days after its entry or levy.
6.2 Procedure on Default. Upon the occurrence of an event of default, and at
any time thereafter, Lender may elect to declare the entire Obligation hereby
secured immediately due and payable:
(a) In the event of default in the payment of said Obligation when due
or declared due, Lender, shall have all the rights and remedies of a secured
party and shall be entitled to avail itself of all such other rights and
remedies that may now or hereafter exist at law or in equity for the
collection of the Obligation and the enforcement of the covenants herein and
the foreclosure of the security interest created hereby and resort to any
remedy provided hereunder or provided by the Utah Uniform Commercial Code, or
by any other law of the state of Utah, shall not prevent the concurrent or
subsequent employment of any other appropriate remedy or remedies; and
(b) In the event of default, and after notice of default has expired, at
any time thereafter, without further notice, Lender may elect to take
possession of the Collateral, and to avail itself to all such other rights and
remedies that may now or hereafter exist at law or in equity for the
repossession of the Collateral, the collection of any amounts due for the sale
thereof, or any other amounts due or arising from and out of the terms of this
Agreement. In the event that Lender elects to take possession of the
Collateral or exercise any other self-help remedies available to it, Borrower
shall allow Lender to enter the premises at which the Collateral is located
and shall give Lender its full and complete cooperation in immediately
identifying the Collateral provided by Lender and assist in returning the same
so as to protects Lender's interest in the Collateral. Furthermore, Borrower
shall hold Lender harmless with respect to any and all claims, legal or
monetary, which may arise as a result of the exercise of the self-help or
repossession remedies which Lender may utilize.
<PAGE> 6
(c) The requirement of reasonable notice to Borrower of the time and
place of any public sale of the Collateral or of the time after which any
private sale, or any other intended disposition thereof is to be made, shall
be met if such notice is mailed, postage prepaid, to Borrower at the address
of such party designated below, at least 30 days before the date of any public
or private sale or other disposition is to be made.
6.3 Defaults Upon Prior Indebtedness. Upon the default by Borrower of any
term, covenant, or condition required to be performed by it on any priority
secured indebtedness or the receipt by Borrower from any such priority secured
creditor of notice of any default under such indebtedness, whether or not
repayment of the indebtedness is accelerated, Borrower shall promptly advise
Lender in writing of the nature and amount of default and of the action, if
any, threatened by such priority secured creditor. Notwithstanding the
Borrower's obligation to cure any and all such defaults, Lender may, but shall
not be obligated to do so, in the name, place, and stead of Borrower and, in
the case of such curative efforts by Lender, succeed to all of the rights,
remedies, and security of such priority creditor.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Assignment of Agreement. Except as expressly provided, neither the
rights nor the obligations of the parties to this agreement may be assigned or
delegated by either party in whole or in part without the prior written
consent of the other party.
7.2 Governing Law. Unless otherwise provided herein, this Agreement shall be
governed by and construed and enforced in accordance with the laws of the
state of Utah.
7.3 Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if personally delivered to it or, if
sent by facsimile transmission or other electronic communication confirmed by
registered or certified mail, postage prepaid, or if sent by prepaid telegram
addressed as follows:
If to Lender: PHILIP R. LACERTE If to Borrower: EZCONNECT, INC.
Box 1392 716 East 4500 South, N-142
Carbondale, CO 81623 Salt Lake City, UT 84107
Fax No: (970) 963-8700 Fax No.: (801) 270-9712
or such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder, and any such notice or communication
shall be deemed to have been given as of the date so delivered or sent by
facsimile transmission or other electronic communication, three days after the
date so mailed, or one day after the date so telegraphed or sent by overnight
delivery.
7.4 Title and Captions. Section titles or captions to this Agreement are for
convenience and reference only and shall not be deemed part of this Agreement
and shall not be interpreted to define, limit, augment, extend, or describe
the scope, content, or intent of any part or parts of this Agreement.
7.5 Pronouns and Plurals. Whenever the context may require, all pronouns
used herein shall include the corresponding masculine, feminine, or neuter
forms and the singular form of pronouns and verbs shall include the plural and
vice versa. Each of the foregoing genders and plurals is understood to refer
to a corporation, partnership, or other legal entity when the context so
requires.
<PAGE> 7
7.6 Further Action. The parties shall execute and deliver all documents or
instruments, provide all information, and take or forebear from all such
action as may be necessary or appropriate to achieve the purpose of this
Agreement.
7.7 Binding Effect Upon Successors. This Agreement shall be binding upon,
and inure to the benefit of, the parties and their respective heirs,
executors, administrators, successors, legal representatives, and assigns;
provided, that this provision shall not be construed as permitting assignment,
substitution, delegation, or other transfer of rights or obligations, except
strictly in accordance with the provisions of the other sections of this
Agreement.
7.8 Creditors. Unless expressly provided in this Agreement, none of the
provisions of this Agreement shall be for the benefit of, or enforceable by,
any creditors of any party hereto.
7.9 Waiver. No failure by any party to insist upon the strict performance of
any covenant, duty, promise, or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute a waiver of
any such breach or any other covenant, duty, promise, or condition. Any party
may, by notice delivered in the manner provided in this Agreement, but shall
be under no obligation to, waive any of its rights or any conditions to its
obligations hereunder, or any duty, obligation, or covenant of any other
party. No waiver shall affect or alter the remainder of this Agreement, but
each and every other covenant, duty, promise, and condition hereof shall
continue in force and effect with respect to any other then existing or
subsequently occurring breach.
7.10 Severability. In the event that any condition, covenant, or other
provision herein contained is held to be invalid or void by any court of
competent jurisdiction, the same shall be deemed severable from the remainder
of this Agreement and shall in no way affect any other covenant or condition
herein contained. If such condition, covenant, or other provision shall be
deemed invalid due to its scope or breadth, such provision shall be deemed
valid to the extent of the scope or breadth permitted by law.
7.11 Exhibits. All exhibits annexed to this Agreement and any documents to
be delivered herewith are expressly made a part of this Agreement as fully as
though completely set forth in it. All references to this Agreement, either
in the Agreement itself or in any of such writings, shall be deemed to refer
to and include this Agreement itself or in any of such exhibits or writings.
Any breach of or default under any provision of any of such writing shall, for
all purposes, constitute a breach or default under this Agreement and all
other such writings.
7.12 Attorneys' Fees. Should either party take any legal action to enforce
any of the terms or provisions of this Agreement, or any costs are incurred by
reason of breach or default in any of the covenants, representations,
warranties, terms, or conditions of this Agreement, the non-defaulting party
shall be entitled to recover any costs, including attorneys' fees incurred in
enforcing the obligations of the other party under the terms of this Agreement
or in collecting any judgment that may be entered.
7.13 Time of Essence. Time is of the essence in the performance of the
duties, covenants, or obligations of the parties under the terms of this
Agreement.
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
LENDER: BORROWER:
/S/PHILIP R. LACERTE EZCONNECT, INC.
/S/Frank Gillen
Its Duly Authorized Officer
<PAGE>
<PAGE> 9
Exhibit A
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is effective this 1st day of
February, 2000, by and between PHILIP R. LACERTE ("Lender"), and EZCONNECT,
INC., a Nevada corporation ("Borrower").
Recitals
Contemporaneously with the execution of this Agreement, Lender has agreed to
provide credit to Borrower in a principal amount of up to $1,500,000, all as
more particularly set forth in that certain Credit Agreement of even date
between Borrower and Lender (the "Credit Agreement"). Borrower shall use all
of the credit extended pursuant to the Credit Agreement in such manner as may
be from time to time approved by the Lender, but for such purposes as for
working capital in operating the Borrower's business. The Lender would not
have extended credit to Borrower without the grant by the Borrower of a Master
Promissory Note and a security interest in favor of the Lender in the
collateral described below. In order to provide security for the performance
of certain terms, covenants, and conditions set forth in the Credit Agreement
and the Master Promissory Note and the various obligations represented hereby,
Borrower is granting to the Lender a security interest in and to the
collateral hereinafter described. The credit extended, together with any
extensions, modifications, or renewals; the performance of the covenants and
agreements of Borrower contained in the Credit Agreement and Master Promissory
Note; and the obligations of the Borrower under this Agreement are hereinafter
referred to collectively as the "Obligation."
Agreement
1. Creation of Security Interest. In consideration of financial
accommodations given, to be given, or continued, Borrower grants to Lender a
security interest in and to the assets of the Borrower and any proceeds which
the Borrower may receive on account of such collateral (hereinafter called
"Collateral"). If at any time the Collateral representing the Security
Interest hereby granted should decline in value or become impaired or for any
other reason be deemed by the Lender to be insufficient to secure the payment
of all sums due and compliance with all obligations created under the
Obligation, Borrower agrees, within 24 hours of demand by Lender, to furnish
such additional Collateral as may be satisfactory to the Lender. Unless
otherwise defined, the words used herein shall have the same meaning given
them in the Utah Uniform Commercial Code as now adopted and as hereafter
amended from time to time.
2. Payment of Principal and Interest. The Security Interest shall secure the
repayment of the indebtedness evidenced by the Credit Agreement and Master
Promissory Note of even date herewith in the principal sum of $1,500,000, with
interest thereon at ten percent (10%) per annum from and after the date
thereof. The amount of credit extended under the Credit Agreement, including
the principal and interest, is due and payable as follows:
(a) The Lender shall provide Borrower with a statement of Borrower's
account on a calendar monthly basis.
(b) Borrower may make periodic payments in part or full payment of the
"average daily balance" as defined in subsection (c) of this section.
<PAGE> 10
(c) The "average daily balance" will be computed by taking the beginning
balance of Borrower's account each day, adding any new purchases, and
subtracting any payments or credits and unpaid finance charges. Lender will
then add up all the average daily balances for the billing cycle and divide
the total by the number of days in the billing cycle.
(d) The "billing cycle" shall begin the first day of each calendar month
and end on the last day of such calendar month.
(e) The entire amount of credit extended under the Credit Agreement will
be due immediately upon the expiration of the notice of default given to
Borrower from Lender in the event of default by Borrower as hereinafter
provided.
3. Application of Payments. Unless applicable law provides otherwise, all
payments received by Lender shall be applied by Lender first in payment of
interest payable, next to the principal, and last to any other sums secured by
this Agreement.
4. Collateral Generally. As to all Collateral hereafter acquired by
Borrower, unless specifically otherwise agreed by the Lender in writing, the
Borrower will:
(a) Maintain possession of the Collateral at the location disclosed to
the Lender, and not remove the Collateral from that location;
(b) Keep the Collateral separate and identifiable; and
(c) Maintain the Collateral in good and saleable condition and repair if
necessary, clean, maintain, and otherwise deal with the Collateral in all such
ways as are considered good practice by owners of like property, use if
lawfully and only as permitted by insurance policies, and permit the Lender to
inspect the Collateral at any reasonable time.
5. Ownership of Collateral. The Borrower shall own all the Collateral
absolutely and no other person shall have any interest in the Collateral;
except (a) as disclosed on the date hereof as a matter of public record in the
proper place for filing notices of encumbrances on the respective kinds of
property so affected; and (b) except as warranted or disclosed in the
Agreement. The Borrower will defend any proceeding which may affect the title
to or the Lender's security interest in any Collateral, and will indemnify the
Lender and hold it harmless from all damages to Lender from any such claim,
including all costs and expenses of the Lender's defense.
6. Charges, Liens, and Encumbrances on Collateral. The Borrower will pay,
when due, all future charges, liens, obligations, or encumbrances on, and all
taxes and assessments hereafter imposed on or affecting the Collateral and, if
the Collateral is in the Borrower's possession, the realty on which the
Collateral is located.
7. Insurance. The Borrower will insure the Collateral with companies, and
against risks and liability satisfactory to the Lender and hereby agrees to
deliver copies thereof to the Lender, at the Lender's request.
8. Prior Indebtedness. The Security Interest granted hereby is not
subordinate to any other interests or claims of other Lenders.
<PAGE> 11
9. Events of Default. Upon the occurrence or during the continuance of any
one or more of the events hereinafter enumerated, Lender may forthwith or at
any time thereafter during the continuance of any such event, by notice in
writing to Borrower, declare the unpaid balance of the principal and all
interest then accrued on the Note to be immediately due and payable, and the
principal shall become and shall be immediately due and payable without
presentation, demand, protest, notice of protest, or other notice of dishonor,
all of which are hereby expressly waived by Borrower, such events being as
follows:
(a) Default in the payment of the principal and interest or any portion
thereof when the same shall become due and payable, whether at maturity as
herein expressed, by acceleration, or otherwise, unless cured within 15 days
after notice thereof by Borrower;
(b) Default in the due observance or performance of any other covenant
or obligation contained in this Agreement or the Credit Agreement and/or
Master Promissory Note, unless observed or performed within 15 days after
notice thereof to Borrower by Lender, provided, if compliance is not possible
within 15 days, default shall occur upon failure within 15 days to take steps
that will produce compliance as soon as reasonably practicable;
(c) The creditors under any secured indebtedness of Borrower having a
priority over the indebtedness of Lender shall declare the amounts owing
thereunder to be due and payable following default;
(d) Borrower shall file a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization, or shall file an answer admitting
the jurisdiction of the court and any material allegations of an involuntary
petition filed pursuant to any act of Congress relating to bankruptcy or to
any act purporting to be amendatory thereof, or shall be adjudicated bankrupt,
or shall make an assignment for the benefit of Lenders, or shall apply for or
consent to the appointment of any receiver or trustee for Borrower, or of all
or any substantial portion of its property, or Borrower shall make an
assignment to an agent authorized to liquidate any substantial part of its
assets;
(e) An order shall be entered pursuant to any act of Congress relating
to bankruptcy or to any act purporting to be amendatory thereof approving an
involuntary petition seeking reorganization of Borrower, or an order of any
court shall be entered appointing any receiver or trustee of or for Borrower,
or any receiver or trustee of all or any substantial portion of the property
of Borrower, or a writ or warrant of attachment or any similar process shall
be issued by any court against all or any substantial portion of the property
of Borrower, and such order approving a petition seeking reorganization or
appointing a receiver or trustee is not vacated or stayed, or such writ,
warrant of attachment, or similar process is not released or bonded within 60
days after its entry or levy.
10. Procedure on Default. Upon the occurrence of an event of default, and at
any time thereafter, Lender may elect to declare the entire Obligation hereby
secured immediately due and payable:
(a) In the event of default in the payment of said Obligation when due
or declared due, Lender, shall have all the rights and remedies of a secured
party and shall be entitled to avail itself of all such other rights and
remedies that may now or hereafter exist at law or in equity for the
collection of the Obligation and the enforcement of the covenants herein and
<PAGE> 12
the foreclosure of the security interest created hereby and resort to any
remedy provided hereunder or provided by the Utah Uniform Commercial Code, or
by any other law of the state of Utah, shall not prevent the concurrent or
subsequent employment of any other appropriate remedy or remedies; and
(b) In the event of default, and after notice of default has expired, at
any time thereafter, without further notice, Lender may elect to take
possession of the Collateral, and to avail itself to all such other rights and
remedies that may now or hereafter exist at law or in equity for the
repossession of the Collateral, the collection of any amounts due for the sale
thereof, or any other amounts due or arising from and out of the terms of this
Agreement. In the event that Lender elects to take possession of the
Collateral or exercise any other self-help remedies available to it, Borrower
shall allow Lender to enter the premises at which the Collateral is located
and shall give Lender its full and complete cooperation in immediately
identifying the Collateral provided by Lender and assist in returning the same
so as to protects Lender's interest in the Collateral. Furthermore, Borrower
shall hold Lender harmless with respect to any and all claims, legal or
monetary, which may arise as a result of the exercise of the self-help or
repossession remedies which Lender may utilize.
(c) The requirement of reasonable notice to Borrower of the time and
place of any public sale of the Collateral or of the time after which any
private sale, or any other intended disposition thereof is to be made, shall
be met if such notice is mailed, postage prepaid, to Borrower at the address
of such party designated below, at least 30 days before the date of any public
or private sale or other disposition is to be made.
11. Cumulative Remedies. The security interest herein granted shall not be
affected by nor affect any other security taken for the indebtedness hereby
secured, or any part thereof, and any extensions may be made of the
indebtedness and this security interest and any releases may be executed,
releasing the Collateral, or any part thereof without effecting the priority
of this security interest or the validity thereof with reference to any third
person, and the holder of said indebtedness shall not be limited by any
election of remedies if he chooses to foreclose this security interest by
suit. All remedies provided in this Agreement are distinct and cumulative to
any other right or remedy under this Agreement or afforded by law or equity,
and may be exercised concurrently, independently, or successively.
12. Financing Statement. The Borrower agrees that this Agreement shall also
constitute a financing statement under the Utah Uniform Commercial Code. If
the Lender shall so request, Borrower shall also execute and deliver a
financing statement on form UCC-1 to further evidence such security interest.
13. Notices. All notices, consents, waivers, and other communications
hereunder shall be in writing and shall be deemed to have been given when sent
by prepaid air mail letter and shall be addressed to each of the parties as
set forth in the Credit Agreement, or at such other address as may be
designated by notice hereunder.
14. Survival of Warranties and Representations. The representations,
warranties, covenants, agreements, indemnities, and undertakings of the
parties in this Agreement shall not expire with, or be terminated or
extinguished by, the execution and delivery of this Agreement or any document
or instrument contemplated hereby, notwithstanding any investigations of the
facts constituting the basis of the representations and warranties of another
party by any party hereto or anyone on behalf of any party hereto.
<PAGE> 13
Consummation of the transactions contemplated hereby shall not be deemed or
construed as a waiver of any right or remedy that any party hereto may have or
covenant, notwithstanding any fact or facts that such party knew or should
have known at such time.
15. Severability. In the event of this Agreement or the application of any
such provision to any person or circumstance shall conflict with any
jurisdiction, then such conflict shall not affect any other provision of this
Agreement which can be given effect without the conflicting provision and the
remainder of this Agreement or the application of such provisions to persons
or circumstances other than those as to which such provisions are held invalid
or unenforceable, shall not be affected thereby. The invalidity or
unenforceability of this Agreement or any provisions thereof in any
jurisdiction shall not affect the validity or enforceability of this Agreement
or of such provision in any other jurisdiction. To this end, the provisions
of this Agreement are declared to be severable. In the event that any law
limiting the amount of interest or other charges permitted to be collected
from the undersigned is interpreted so that any charge provided for in this
Agreement, whether considered separately or together with other charges that
are considered a party of this Agreement, violates such law, and the Borrower
declared by a court having jurisdiction in the premises to be entitled to the
benefit of such law, such charge is hereby reduced to the extent necessary to
eliminate such violation. The amounts, if any, previously paid to the Lender
in excess of the amounts payable to the Lender computed on the basis of such
charges as reduced shall be applied by Lender to reduce the principal of the
indebtedness secured by this Agreement.
16. Modification. This Agreement may not be supplemented, varied, or
rescinded except by a writing which contains an express reference to this
Agreement and which is signed by the party against whom enforcement of the
supplement, variance, or rescission is asserted.
17. Governing Law. This Agreement is being executed and delivered and is
intended to be performed in, and the execution, validity, construction, and
performance of this Agreement shall be construed and enforced in accordance
with, the laws of the state of Utah.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
LENDER:
/S/PHILIP R. LACERTE
BORROWER:
EZCONNECT, INC., a Nevada corporation
By /S/ Frank Gillen, Its Duly Authorized Representative
<PAGE>
<PAGE> 14
MASTER PROMISSORY NOTE
$1,500,000.00 DATE: FEBRUARY 1, 2000
FOR VALUE RECEIVED, EZCONNECT, INC., a Nevada corporation ("Borrower"),
promises to pay to PHILIP R. LACERTE (the "Lender"), or order, the principal
amount of One Million Five Hundred Thousand Dollars ($1,500,000.00) with
interest on the unpaid principal balance at ten percent (10%) per annum.
This Promissory Note is the Master Promissory Note referred to in the Credit
Agreement of even date herewith entered into by Borrower and Lender.
1. Master Note Agreement. This Promissory Note shall constitute a "Master
Note" under which the Lender may make periodic advances to Borrower from time
to time aggregating up to the principal amount of this Promissory Note as
shown on the face hereof. Borrower agrees that the records of the Lender
shall serve as prima facia evidence as to the unpaid and funded principal
balance of this Promissory Note, from time to time, in the event that it
should become necessary for the Lender to commence an appropriate action
seeking to collect the unpaid principal funded balance of this Promissory Note
and interests, costs, and attorney's fees in any court of competent
jurisdiction.
2. Payment of Principal and Interest. The principal shall bear interest on
the average daily balance (as defined in subsection (b) of this section) at
ten percent (10%) per annum from and after the date thereof until payment in
full. The principal and interest, is due and payable as follows:
(a) Borrower may make periodic payments in part or full payment of the
"average daily balance" as defined in subsection (c) of this section.
(b) The "average daily balance" will be computed by taking the beginning
balance of Borrower's account each day, adding any advances and subtracting
any payments or credits and unpaid finance charges. Lender will then add up
all the average daily balances for the billing cycle and divide the total by
the number of days in the billing cycle.
(c) The "billing cycle" shall begin the first day of each calendar month
and end on the last day of such calendar month.
(d) The entire amount of credit extended under the Credit Agreement and
this Promissory Note will be due immediately upon the expiration of the
notice of default given to Borrower from Lender in the event of default by
Borrower as hereinafter provided.
3. Application of Payments. Unless applicable law provides otherwise, all
payments received by Lender shall be applied by Lender first in payment of
interest payable, next to the principal, and last to any other sums secured by
this Agreement.
4. Term. Unless terminated earlier by the mutual agreement of the parties or
pursuant to another provision of this Agreement, this Agreement shall continue
in full force and effect for a term of one (1) year, renewable annually, from
the date hereof, or until the entire amount owned by Borrower hereunder is
paid-in-full or has been renegotiated with Lender, which ever is the latest to
occur.
<PAGE>
<PAGE> 15
5. Conversion. Subject to, and in compliance with, the provisions contained
herein, the Lender is entitled, at his option, at any time prior to maturity,
or in case this Promissory Note or some portion hereof shall have been called
for prepayment prior to such date, then, in respect of this Promissory Note or
such portion hereof, until and including, but not after, the close of business
within 5 days of the date of notice of prepayment, to convert this Promissory
Note (or any portion of the principal amount and accrued interest hereof),
into fully paid and nonassessable shares of common stock of the Borrower at a
rate of $1.00 per share (the "Shares"). The conversion right shall be
exercised with conversion occurring by surrender of the Promissory Note, duly
endorsed (if so required by the Borrower) or assigned to the Borrower or in
blank, to the Borrower at its offices, accompanied by written notice to the
Borrower, in the form prescribed by the Borrower, that the Lender elects to
convert this Promissory Note or, if less than the entire principal and accrued
interest, the amount to be converted. On conversion, accrued interest due on
the Promissory Note shall be convertible at the same rate as the principal on
the Promissory Note. No fractions of Shares will be issued on conversion, but
instead of any fractional interest, the Borrower will pay cash adjustments as
provided herein.
6. Limitations on Right on Conversion. Following receipt of the written
notice of intention to convert the Promissory Note, the Borrower shall take
such steps as it deems appropriate to permit conversion of the Promissory Note
as specified in the notice without registration or qualification under
applicable federal and state securities laws. The Borrower may require the
Lender to make certain representations and execute and deliver to the Borrower
certain documents as a condition to exercise of the conversion rights
hereunder, all in form and substance satisfactory to the Borrower as
determined in its sole discretion. In the event the Borrower reasonably
determines that the Promissory Note cannot be converted in compliance with
applicable federal and state securities laws in the absence of registration or
qualification under such statutes, the Borrower shall be under no obligation
to permit conversion of the Promissory Note and issue any Shares pursuant
hereto.
7. Events of Default. Upon the occurrence or during the continuance of any
one or more of the events hereinafter enumerated, Lender may forthwith or at
any time thereafter during the continuance of any such event, by notice in
writing to Borrower, declare the unpaid balance of the principal and all
interest then accrued on the Promissory Note to be immediately due and
payable, and the principal and accrued interest shall become immediately due
and payable without presentation, demand, protest, notice of protest, or other
notice of dishonor, all of which are hereby expressly waived by Borrower, such
events being as follows:
(a) Default in the payment of the principal and interest of the
Promissory Note or any portion thereof when the same shall become due and
payable, unless cured within 15 days after notice thereof by the Borrower;
(b) Default in the due observance or performance of an other covenant or
obligation contained in this Promissory Note or the Credit Agreement and/or
Security Agreement, unless observed or performed within 15 days after notice
thereof to Borrower by Lender, provided, if compliance is not possible within
15 days, default shall occur upon failure within 15 days to take steps that
will produce compliance as soon as reasonably possible;
(c) The lenders under any secured indebtedness of Borrower having a
priority over the indebtedness of Lender shall declare the amounts owing
thereunder to be due and payable following default;
<PAGE> 16
(d) Borrower shall file a voluntary petition in bankruptcy or a
voluntary petition seeking reorganization, or shall file an answer admitting
the jurisdiction of the court and any material allegations of an involuntary
petition filed pursuant to any act of Congress relating to bankruptcy or to
any act purporting to be amendatory thereof, or shall be adjudicated bankrupt,
or shall make an assignment for the benefit of creditors, or shall apply for
or consent to the appointment of any receiver or trustee for Borrower, or of
all or any substantial portion of its property, or Borrower shall make an
assignment to an agent authorized to liquidate any substantial part of its
assets; or
(e) An order shall be entered pursuant to any act of Congress relating
to bankruptcy or to any act purporting to be amendatory thereof approving an
involuntary petition seeking reorganization of Borrower, or an order of any
court shall be entered appointing any receiver or trustee of or for Borrower,
or any receiver or trustee of all or any substantial portion of the property
of Borrower, or a writ or warrant of attachment or any similar process shall
be issued by any court against all or any substantial portion of the property
of Borrower, and such order approving a petition seeking reorganization or
appointing a receiver or trustee is not vacated or stayed, or such writ,
warrant of attachment, or similar process is not released or bonded within 60
days after its entry or levy.
8. Procedure on Default. Upon the occurrence of an event of default, and at
any time thereafter, Lender may elect to declare the entire Promissory Note
immediately due and payable:
(a) In the event of default in the payment of the Promissory Note when
due or declared due, Lender, shall have all the rights and remedies of a
secured party and shall be entitled to avail itself of all such other rights
and remedies that may now or hereafter exist at law or in equity for the
collection of the Promissory Note and the enforcement of the covenants herein
and the foreclosure of the security interest created in connection with the
issuance of the Promissory Note and resort to any remedy provided hereunder or
provided by the Utah Uniform Commercial Code, or by any other law of the state
of Utah, shall not prevent the concurrent or subsequent employment of any
other appropriate remedy or remedies; and
(b) In the event of default, and after notice of default has expired, at
any time thereafter, without further notice, Lender may elect to take
possession of the Collateral, and to avail itself to all such other rights and
remedies that may now or hereafter exist at law or in equity for the
repossession of the Collateral, the collection of any amounts due for the sale
thereof, or any other amounts due or arising from and out of the terms of the
Credit Agreement and Security Agreement. In the event that Lender elects to
take possession of the Collateral or exercise any other self-help remedies
available to it, Borrower shall allow Lender to enter the premises at which
the Collateral is located and shall give Lender its full and complete
cooperation in immediately identifying the Collateral provided by Lender and
assist in returning the same so as to protects Lender's interest in the
Collateral. Furthermore, Borrower shall hold Lender harmless with respect to
any and all claims, legal or monetary, which may arise as a result of the
exercise of the self-help or repossession remedies which Lender may utilize.
(c) The requirement of reasonable notice to Borrower of the time and
place of any public sale of the Collateral or of the time after which any
private sale, or any other intended disposition thereof is to be made, shall
be met if such notice is mailed, postage prepaid, to Borrower at the address
of such party designated below, at least 30 days before the date of any public
or private sale or other disposition is to be made.
<PAGE> 17
9. Severability. In case any provision in this Promissory Note shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
10. Governing Law. This Note shall be governed by and construed and
interpreted in accordance with the laws of the state of Utah.
11. Security Interest. This Promissory Note is secured by a security
interest in all the assets of the Borrower (the "Collateral"), in accordance
with the Security Agreement relating thereto.
12. Legal Holidays. In any case where any date provided herein shall not be
a business day, then (notwithstanding any other provision of this Promissory
Note) the event required or permitted on such date shall be required or
permitted, as the case may be, on the next succeeding business day with the
same force and effect as if made on the date upon which such event was
required or permitted pursuant hereto.
13. Delay or Omission; No Waiver. No delay or omission of the Lender to
exercise any right or remedy accruing upon any event of default shall impair
any such right or remedy or constitute a waiver of any such event or default
or any acquiescence therein. Every right or remedy given hereby or by law may
be exercised from time to time, and as often as may be deemed expedient.
14. Miscellaneous. None of the rights and remedies of the registered holder
of the Promissory Note shall be waived or affected by failure or delay to
exercise them. All remedies conferred on the Lender shall be cumulated and
none is exclusive. Such remedies may be exercised concurrently or
consecutively at the Lender's option.
DATED effective as of the 1st day of February, 2000.
EZCONNECT, INC., a Nevada corporation
By/S/Frank Gillen, Its Duly Authorized Officer
