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Exhibit 20.01 -- AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is entered into the 8th day of
July 2000, among EZCONNECT, INC., a Nevada corporation ("EZConnect");
EZCONNECT MERGER CO., a Nevada corporation ("Merger Sub"); and ENCORE
WIRELESS, INC., a California corporation ("Encore"). EZConnect, Merger Sub
and Encore are sometimes referred to herein individually as a "Party" and
together as the "Parties."
PREMISES
WHEREAS, the respective boards of directors of EZConnect, Merger Sub and
Encore have each determined that the merger of Merger Sub with and into Encore
(the "Merger") upon the terms and subject to the conditions set forth in this
Agreement is in the best interests of their respective corporations and
stockholders and have approved the Merger and the other transactions
contemplated by this Agreement; and
WHEREAS, it is intended that, for federal income tax purposes, the Merger will
qualify as a tax-free reorganization under Section 368 of the Internal Revenue
Code of 1986, as amended and the rules and regulations promulgated thereunder
(the "Code");
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained in this Agreement, and intending to be
legally bound hereby, the parties hereby agree as follows:
ARTICLE I
THE STOCK PURCHASE AND MERGER
Section 1.01. The Stock Purchase.
(a) On the date of execution of this Agreement, EZConnect shall purchase from
Encore, and Encore shall issue and deliver to EZConnect, 316,456 shares (the
"Encore Shares") of Encore common stock, no par value, which shall constitute
5% of the issued and outstanding shares of capital stock of Encore after
giving effect to the issuance of the Encore Shares. The purchase price for
the Encore Shares shall be $250,000 payable in immediately available funds at
the times and in the manner described below.
(b) Encore shall use its commercial best efforts to prepare and deliver to
EZConnect on July 17, 2000, the unaudited financial statements of Encore (the
"Unaudited Financial Statements"), including the balance sheet of Encore as of
June 30, 2000 and the unaudited statements of operations, cash flows and
changes in stockholders equity for the period from inception through June 30,
2000, together with the notes thereto, all of which have been prepared in
accordance with generally accepted accounting principles consistently applied
("GAAP"). The date that is two days after the date on which the Unaudited
Financial Statements and supporting books and records of Encore, in a form and
condition suitable for audit, are first made available to the independent
certified public accountants engaged to audit the Unaudited Financial
Statements is referred to herein as the "Audit Start Date;" provided, that in
no event shall the Audit Start Date occur sooner than July 19, 2000. As
provided in Section 5.03 herein, the Unaudited Financial Statements of Encore
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shall be audited as quickly as practicable following the Audit Start Date,
with the date such audited financial statements are completed being referred
to herein as the "Audit Completion Date" and the audited financial statements
being referred to herein as the "Audited Financial Statements." In addition,
on or before July 12, 2000, Encore shall deliver to EZConnect the detailed
operating budget of Encore (the "Encore Budget") for the period from June 1,
2000 through December 31, 2000, which shall be presented on a weekly basis
with one-quarter of the monthly overhead allocated to each week occurring
during that month. The Budget shall contain a separate schedule indicating
the total annual compensation to be paid to each Encore employee or consultant
commencing July 1, 2000 and continuing through December 31, 2000.
(c) EZConnect shall continue its due diligence investigation of Encore through
and including that date that is two days following the Audit Start Date (the
"Due Diligence Termination Date"). At any time prior to the Due Diligence
Termination Date EZConnect may terminate this Agreement for any reason or for
no reason, by delivering a written notice to Encore indicating that this
Agreement has been terminated.
(d) The purchase price for the Encore Shares shall be paid by EZConnect as
follows: (i) $50,000 on the date of execution of this Agreement; and (ii)
$200,000 on the Audit Completion Date. If the Audit Completion Date has not
occurred by that date that is thirty (30) days after the Audit Start Date,
EZConnect shall pay an additional $50,000 of the purchase price for the Encore
Shares and the balance of $150,000 shall be payable on the Audit Completion
Date. If the Audit Completion Date has not occurred by that date which is 75
days from the Audit Start Date, either Party may terminate this Agreement upon
written notice to the other Party. Except as otherwise provided in this
Agreement, the stock certificate representing the Encore Shares shall be
delivered to EZConnect at the time the purchase price for the Encore Shares
has been paid in full. In the event the total assets minus the total
liabilities of Encore ("the Encore Net Worth") shown on the balance sheet
included in the Audited Financial Statements is materially less than the
Encore Net Worth shown on the balance sheet included in the Unaudited
Financial Statements, EZConnect may, at its option, terminate this Agreement
upon written notice to Encore, or proceed with the transactions contemplated
by this Agreement and reduce the payments to be made to the Encore
Shareholders at Closing by the amount of the shortfall in the Encore Net Worth
as follows: (i) reduce the $250,000 cash payment by the amount of the
shortfall up to $75,000, and (ii) reduce the balance of the cash payment
(after (i) above) and the number of shares of EZConnect Preferred Stock to be
issued to the Encore Shareholders by the remaining amount of the shortfall
(after (i) above), with the reduction in cash bearing the same proportion to
the reduction in stock that $250,000 (the cash portion of the purchase price
at Closing) bears to $6,000,000 (the EZConnect Preferred Stock portion of the
purchase price at Closing). For purposes of this Section, a reduction in the
Encore Net Worth of 5% or more shall be deemed to be material.
The initial $50,000 installment shall be deemed to be a loan from EZConnect to
Encore up to and including the Due Diligence Termination Date and Encore shall
provide EZConnect with a promissory note in the principal amount of $50,000,
without interest, which shall become due and payable if EZConnect terminates
this Agreement on or before the Due Diligence Termination Date, with the
repayment of the note to be made five days following such termination. From
and after the Due Diligence Termination Date, if the same has passed without
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the termination of this Agreement by EZConnect, the initial $50,000
installment shall constitute a deposit from EZConnect which is non-refundable;
provided, that such amount shall be refunded to EZConnect if: (i) this
Agreement is terminated by EZConnect due to a material reduction in the
Encore Net Worth as provided above; (ii) Sprint Spectrum LP should exercise
its right of first refusal to acquire Encore, which right is described in the
Encore Disclosure Schedules; (iii) this Agreement should be terminated by
EZConnect due to a material misrepresentation by Encore herein or a material
breach by Encore of its obligations hereunder; or (iv) this agreement should
be terminated by Encore pursuant to section 5.10.
Section 1.02. The Merger. At the Effective Time (as defined in
Section 1.03(b)) and subject to and upon the terms and conditions of this
Agreement and in accordance with the Nevada Revised Statutes ("NRS") , Merger
Sub shall be merged with and into Encore and the separate corporate existence
of Merger Sub shall cease. Encore shall continue as the surviving corporation
(sometimes referred to herein as the "Surviving Corporation ") in the Merger,
and as of the Effective Time shall be a wholly-owned subsidiary of EZConnect.
The Merger shall have the effects specified in Section 78.549 of the NRS.
Section 1.03. The Closing; Effective Time.
(a)The closing of the Merger (the "Closing ") shall take place (i) at the
offices of EZConnect, 6009 South Redwood Road, Salt Lake City, Utah 84123, at
10:00 A.M. local time, on the earlier of October 15, 2000 and the second
business day following the date on which the last to be satisfied or waived of
the conditions set forth in Articles VI and VII (other than those conditions
that by their nature are to be satisfied at the Closing) shall be satisfied or
waived in accordance with this Agreement or (ii) at such other place, time
and/or date as EZConnect and Encore shall agree (the date of the Closing, the
"Closing Date").
(b)On the Closing Date, EZConnect, Encore and Merger Sub shall cause articles
of merger with respect to the Merger to be properly executed, and filed with
the Secretary of State of the State of Nevada as provided in Sections 78.461
and 78.458 of the NRS. The Merger shall become effective at such time as the
articles of merger shall be duly filed with Secretary of State of Nevada, or
at such later time reflected in such articles of merger as shall be agreed
upon by EZConnect and Encore (the time that the Merger becomes effective, the
"Effective Time").
Section 1.04. Subsequent Actions. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills
of sale, assignments, assurances or any other actions or things are necessary
or desirable to continue in, vest, perfect or confirm of record or otherwise
the Surviving Corporation's right, title or interest in, to or under any of
the rights, properties, privileges, franchises or assets of either of its
constituent corporations acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger, or otherwise to
carry out the intent of this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of either of the constituent corporations of the Merger, all
such deeds, bills of sale, assignments and assurances and to take and do, in
the name and on behalf of each of such corporations or otherwise, all such
other actions and things as may be necessary or desirable to vest, perfect or
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confirm any and all right, title and interest in, to and under such rights,
properties, privileges, franchises or assets in the Surviving Corporation or
otherwise to carry out the intent of this Agreement. In any such event, not
less than five (5) days prior to the date any of the actions provided for
herein is taken, notice of such action shall be provided to Tod Turley and
Kevin Hamilton, the executive officers of Encore, at the address for Encore
set forth in Section 9.05 herein.
Section 1.05. Articles of Incorporation; Bylaws; Directors and Officers of
the Surviving Corporation. Unless otherwise agreed by EZConnect and Encore
prior to the Closing, at the Effective Time:
(a)The Articles of Incorporation of Merger Sub (the "Encore Articles of
Incorporation") as in effect immediately prior to the Effective Time shall be
at and after the Effective Time (until amended as provided by law and by such
Articles of Incorporation) the articles of incorporation of the Surviving
Corporation.
(b)The Bylaws of Merger Sub as in effect immediately prior to the Effective
Time shall be at and after the Effective Time (until amended as provided by
law, its Articles of Incorporation and its Bylaws, as applicable) the Bylaws
of the Surviving Corporation;
(c)The officers of Encore immediately prior to the Effective Time shall
continue to serve in their respective offices of the Surviving Corporation
from and after the Effective Time, until their successors are elected or
appointed and qualified or until their resignation or removal, subject to the
officers' written employment agreements with EZConnect in effect as of the
Effective Time; and
(d)The directors of Merger Sub immediately prior to the Effective Time shall
be the directors of the Surviving Corporation from and after the Effective
Time, until their successors are elected or appointed and qualified or until
their resignation or removal.
Section 1.06. Manner and Basis of Converting Stock. The manner and basis of
converting the shares of common stock of Encore and Merger Sub, by virtue of
the Merger and without any action on the part of any holder thereof, shall be
as set forth in this Section 1.06.
(a) Conversion of Common Stock. On or before the Closing Date, Encore take
all actions as may be required to convert its outstanding shares of preferred
stock to Encore Common Stock and to cause any outstanding options, warrants or
similar rights pertaining to any securities of Encore or its Subsidiaries to
be converted into shares of Encore Common Stock (through exercise or
otherwise) or terminated. Subject to the terms and conditions of this
Agreement, each share of Encore Common Stock issued and outstanding
immediately prior to the Effective Time (excluding those held by EZConnect or
any of its Subsidiaries (collectively, the "Excluded Shares ")), and all
rights in respect thereof, shall at the Effective Time, without any action on
the part of any holder thereof, forthwith cease to exist and be converted into
the right to receive the cash payment described below and that number of
shares of newly designated EZConnect Series A Preferred Stock (the "EZConnect
Preferred Stock") calculated by (i) dividing $6,000,000 by the Trailing
Trading Price, and (ii) dividing the quotient obtained in (i) by 6,020,000
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(the number of shares of Encore Common Stock outstanding on the Closing Date
excluding any shares held by EZConnect) (the "Exchange Ratio"). The Exchange
Ratio shall be expressed as a numeral carried out five decimal places. For
purposes of illustration only, assuming there were 6,020,000 shares of Encore
Common Stock outstanding on the Closing Date and the Trailing Trading Price
were $3.00, each share of Encore Common Stock would be converted into the
right to receive .33220 shares of EZConnect Preferred Stock ($6,000,000
divided by $3 = 2,000,000; 2,000,000 divided by 6,020,000 = .33220). The
"Trailing Trading Price" shall be the average of the Closing Price for
EZConnect common stock on each of the five consecutive trading days occurring
immediately prior to the date of execution of this Agreement; provided, that
in no event shall the Trailing Trading Price be less than $2.40 or greater
than $3.00. The Closing Price shall be the average of the closing inside bid
and asked quotations for EZConnect common stock as quoted on the OTC Bulletin
Board on the date in question.
The cash payment to which each share of Encore Common Stock outstanding
immediately prior to the Effective Time is entitled shall be calculated by
dividing $250,000 by [6,020,000] (the number of Encore shares outstanding on
the Closing Date excluding any shares held by EZConnect).
(b) Earn-out Provisions. The shares of EZConnect Preferred Stock to be
delivered to Tod M. Turley and Kevin Hamilton pursuant to subparagraph (a)
above, shall be placed in escrow with a mutually acceptable escrow agent and
shall be released from escrow based on the performance criteria set forth
below. One-half the shares placed in escrow shall be "earned-out" based on
Encore achieving a minimum number of subscribers (the "Subscriber Base
Shares") and one-half of the shares placed in escrow shall be "earned-out"
based on the continued active involvement of Messrs. Turley and Hamilton with
the growth and development of Encore (the "Continued Growth Shares"). The
Subscriber Base Shares and the Continued Growth Shares shall be released from
escrow as follows:
(i) the Subscriber Base Shares shall be released to Messrs. Turley and
Hamilton (in equal amounts) at such time as Encore has achieved a subscriber
base of 15,000 active mobile identification numbers ("MINS"), which MINS were
acquired in the ordinary course of Encore's business consistent with past
practice; it being understood that the Encore shareholders shall not be given
credit for any MINS acquired at a margin significantly lower, or a cost
significantly higher, than the market conditions prevailing at the time any
such MINS were acquired; provided, that except as provided below, if Encore
has not achieved 15,000 such MINS by February 28, 2000: (x) the escrow shall
terminate with respect to the Subscriber Base Shares and Messrs. Turley and
Hamilton shall receive an aggregate number of Subscriber Base Shares (divided
between them in equal amounts) calculated by multiplying the number of
Subscriber Base Shares held in escrow by a fraction, the numerator of which is
the number of such MINS on February 28, 2000 and the denominator of which is
15,000, and (y) the balance of the Subscriber Base Shares shall be cancelled
and returned to the status of authorized and unissued shares. In the Event
the Audit Completion Date does not occur thirty (30) days after the Audit
Start Date, the February 28, 2000 deadline for the earn-out of the Subscriber
Base Shares shall be extended by one day for each day that the Audit
Completion Date occurs more than thirty days from the Audit Start Date. In
addition, in the event Encore is unable to operate its business in the
ordinary course due to war, invasion, hostilities, riots, rebellion,
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insurrection, seizure, confiscation by order of any government or public
authority, or any event of similar magnitude that is beyond the control of
Encore, the February 28, 2000 deadline for the earn-out of the Subscriber Base
Shares shall be extended for a number of days equal to the number of days
Encore is prevented operating its business due to the occurrence of such
event.
(ii) the Continued Growth Shares shall be released to Messrs. Turley and
Hamilton as follows: (x) one-half of the Continued Growth shares shall be
released to Messrs. Turley and Hamilton (in equal amounts) on that date which
is one year from the Closing Date; and (y) one-twelfth of the Continued Growth
Shares remaining in escrow after delivery of the shares contemplated by
subparagraph (x) shall be released to Messrs. Turley and Hamilton (in equal
amounts) on the last day of each of the twelve calendar months occurring after
the first anniversary of the Closing Date; in each case subject to forfeiture
based on the following described events. If either Mr. Turley or Mr. Hamilton
should voluntarily terminate his employment with EZConnect, or if EZConnect
should terminate either of such persons employment as a result of a material
breach by such persons of the terms of their respective employment agreements,
all shares held in escrow for the person whose employment is terminated, on
the date such employment is terminated, shall be cancelled and returned to the
status of authorized and unissued shares. If the employment of either Mr.
Turley or Mr. Hamilton should be terminated under circumstances giving rise to
the cancellation of the shares held for him in escrow, the shares remaining in
escrow shall be released to the person whose employment is continuing in
accordance with the above schedule.
(c) Designation of EZConnect Preferred Stock. Prior to the Closing Date, the
board of directors of EZConnect shall take all actions required to establish
and authorize the issuance of the EZConnect Preferred Stock and shall cause to
be filed with the Nevada Secretary of State a designation of rights,
privileges and preferences with respect to the EZConnect Preferred Stock. The
EZConnect Preferred Stock shall have rights, privileges and preferences
substantially identical to those set forth in Exhibit "A" attached hereto and
incorporated herein by reference.
(d) Exchange Procedures. Except as otherwise provided herein, commencing
immediately after the Effective Time, each certificate which, immediately
prior to the Effective Time, represented issued and outstanding shares of
Encore Common Stock shall evidence the right to receive the cash payment and
the number of whole shares of EZConnect Common Stock on the basis set forth in
paragraph (a) above. Upon the surrender by the holders of Encore Common Stock
to the transfer agent and registrar of EZConnect of the stock certificate or
certificates of Encore, together with the investment representation letter
described in Section 5.09(c) and all other documents and materials reasonably
required by such transfer agent to be delivered in connection therewith, the
holders of the Encore Common Stock shall be entitled to receive a certificate
or certificates representing the number of whole shares of EZConnect Preferred
Stock to which they are entitled. No scrip or fractional share certificates
for EZConnect Preferred Stock will be issued and any fractional share shall be
rounded to the nearest whole share.
(e) Cancellation of Excluded Shares. At the Effective Time, each Excluded
Share, by virtue of the Merger and without any action on the part of the
holder thereof, shall cease to be outstanding, shall be canceled and retired,
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and no shares of stock or other securities of EZConnect or the Surviving
Corporation shall be issuable, and no payment or other consideration shall be
made or paid, with respect thereto.
(f)Conversion of Common Stock of Merger Sub. At the Effective Time, each
share of common stock of Merger Sub issued and outstanding immediately prior
to the Effective Time, and all rights in respect thereof, shall, without any
action on the part of EZConnect, forthwith cease to exist and be converted
into one validly issued, fully paid and nonassessable share of common stock of
the Surviving Corporation.
(g)Certain Adjustments. If between the date of this Agreement and the
Effective Time, the outstanding shares of EZConnect Common Stock or Encore
Common Stock shall be changed into a different number of shares by reason of
any stock split, combination of shares, or if any dividend payable in stock
shall be declared thereon with a record date within such period, the Exchange
Ratio shall be appropriately adjusted to provide the holders of Encore Shares
the same economic effect as contemplated by this Agreement prior to such
event.
ARTICLE II
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF ENCORE
Except as set forth in the corresponding sections or subsections of the
disclosure schedules, dated the date hereof, delivered by Encore to EZConnect
(the Encore Disclosure Schedules), Encore hereby represents and warrants to
EZConnect as follows:
Section 2.01 Organization.
(a)Encore is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. Each of the Subsidiaries
of Encore is a corporation or other business entity duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, and each of Encore and its Subsidiaries has the
requisite corporate or other organizational power and authority to own,
operate or lease its properties and to carry on its business as it is now
being conducted, and is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, operated or leased or the nature of its activities makes
such qualification necessary, in each case except as would not, individually
or in the aggregate, reasonably be expected to have an Encore Material Adverse
Effect.
(b)All of the outstanding shares of capital stock and other equity securities
of the Subsidiaries of Encore have been validly issued and are fully paid and
nonassessable, and are owned, directly or indirectly, by Encore, free and
clear of all pledges and security interests. All outstanding shares of
capital stock and other equity interests of each Subsidiary of Encore owned
directly or indirectly by Encore are free and clear of all liens, claims or
encumbrances. There are no subscriptions, options, warrants, calls,
commitments, agreements, conversion rights or other rights of any character
(contingent or otherwise) entitling any Person to purchase or otherwise
acquire from Encore or any of its Subsidiaries at any time, or upon the
happening of any stated event, any shares of capital stock, membership
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interest or other equity securities of any of the Subsidiaries of Encore. The
Encore Disclosure Schedules list the name and jurisdiction of incorporation or
organization of each of the Subsidiaries of Encore.
(c) Except for interests in its Subsidiaries, neither Encore nor any of its
Subsidiaries owns directly or indirectly any material equity interest in any
Person or has any obligation or has made any commitment to acquire any such
interest or make any such investment.
Section 2.02 Certificate of Incorporation and Bylaws. Encore has furnished,
or otherwise made available, to Encore a complete and correct copy of the
articles of incorporation and bylaws, as amended to the date of this
Agreement, of Encore. Such articles of incorporation and bylaws are in full
force and effect. Encore is not in violation of any of the provisions of its
articles of incorporation or bylaws.
Section 2.03 Capitalization. The authorized capitalization of Encore consists
of 50,000,000 shares of Common Stock, no par value (the "Encore Common
Stock"), of which 6,000,000 shares are issued and outstanding, and 10,000,000
shares of preferred stock, no par value, of which 20,000 shares are issued and
outstanding. All issued and outstanding shares of Encore are legally issued,
fully paid, nonassessable, and free of preemptive rights. There are no
dividends or other amounts due or payable with respect to any of the shares of
capital stock of Encore. On the Closing Date, there shall be 6,020,000 shares
of Encore Common Stock, and no shares of Encore preferred stock, issued and
outstanding, except for any shares with respect to which dissenters' rights
have been exercised.
Section 2.04 Power and Authority; Authorization; Valid & Binding. Encore has
the necessary corporate power and authority to enter into and deliver this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby, except that the Merger is subject to the
adoption and approval of this Agreement and the Merger by Encore's
stockholders as required by the California Corporations Code ("CCC"). The
execution and delivery of this Agreement by Encore, the performance by it of
its obligations hereunder and the consummation by Encore of the transactions
contemplated hereby, have been duly authorized by all necessary corporate
action on the part of Encore (other than with respect to the Merger, the
adoption and approval of this Agreement and the Merger by its stockholders as
required by the CCC). This Agreement has been duly executed and delivered by
Encore and, assuming the due authorization, execution and delivery by
EZConnect and Merger Sub, constitutes a legal, valid and binding obligation of
Encore enforceable against it in accordance with the terms hereof or thereof,
subject to bankruptcy, insolvency, fraudulent transfer, moratorium,
reorganization and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles (regardless of
whether such enforceability is considered in a proceeding in equity or at
law).
Section 2.05 No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by Encore does not, and the performance by
Encore of its obligations hereunder and thereunder and the consummation by
Encore of the transactions contemplated hereby, and thereby will not,
(i) violate or conflict with the articles of incorporation, or bylaws of
Encore, (ii) subject to obtaining or making the notices, reports, filings,
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waivers, consents, approvals or authorizations referred to in paragraph (b)
below, conflict with or violate any law, regulation, court order, judgment or
decree applicable to Encore or any of its Subsidiaries or by which any of
their respective property is bound or affected, (iii) result in any breach of
or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, cancellation, vesting, modification, alteration or acceleration
of any obligation under, result in the creation of a lien, claim or
encumbrance on any of the properties or assets of Encore or any of its
Subsidiaries pursuant to, result in the loss of any material benefit under
(including an increase in the price paid by, or cost to, Encore or any of its
Subsidiaries), require the consent of any other party to, or result in any
obligation of the part of Encore or any of its Subsidiaries to repurchase
(with respect to a bond or a note), any agreement, contract, instrument, bond,
note, indenture, permit, license or franchise to which Encore or any of its
Subsidiaries is a party or by which Encore, any of its Subsidiaries or any of
their respective property is bound or affected, except, in the case of
clauses (ii) and (iii) above, as would not, individually or in the aggregate,
reasonably be expected to have an Encore Material Adverse Effect. The Encore
Disclosure Schedules describe Encore's obligation to offer Sprint the right of
first refusal to purchase Encore.
(b) Except for the filing of articles of merger with respect to the Merger as
required by the NRS and the CCC, filings with the SEC under the Securities Act
and the Exchange Act, any filings required pursuant to any state securities or
"blue sky" laws, and any applicable Environmental Laws (as defined herein)
governing the transfer of any interest in real property or of business
operations (including without limitation transfer acts, notifications, and
deed restrictions), neither Encore nor any of its Subsidiaries is required to
submit any notice, report or other filing with any Governmental Entity
(defined below) in connection with the execution, delivery, performance or
consummation of this Agreement or the Merger except for such notices, reports
or filings that, if not made, would not, individually or in the aggregate,
reasonably be expected to have an Encore Material Adverse Effect. Except as
set forth in the immediately preceding sentence, no waiver, consent, approval
or authorization of any governmental or regulatory authority, court, agency,
commission or other governmental entity or any securities exchange or other
self-regulatory body, domestic or foreign ("Governmental Entity "), is
required to be obtained by Encore or any of its Subsidiaries in connection
with its execution, delivery, performance or consummation of this Agreement or
the transactions contemplated hereby except for such waivers, consents,
approvals or authorizations that, if not obtained or made, would not,
individually or in the aggregate, reasonably be expected to have, an Encore
Material Adverse Effect.
Section 2.06 Financial Statements. (a) As provided in Section 1.01, Encore
shall deliver to EZConnect the Unaudited Financial Statements two days prior
to the Audit Start Date. As provided in Sections 1.01 and 5.03, the Audited
Financial Statements shall be delivered to EZConnect as soon as practicable
following the execution of this Agreement. The following representations
shall be deemed to apply to the Unaudited Financial Statements at the time
they are delivered to EZConnect.
(b) The balance sheet included in the Unaudited Financial Statements (the
"Unaudited Balance Sheet") has been prepared in accordance with generally
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accepted accounting principles. The Unaudited Balance Sheet presents fairly
as of its date the financial condition of Encore. Encore did not have, as of
the date of the Unaudited Balance Sheet, except as and to the extent reflected
or reserved against therein, any liabilities or obligations (absolute or
contingent) which should be reflected in a balance sheet or the notes thereto,
prepared in accordance with generally accepted accounting principles, and all
assets reflected therein are properly reported and present fairly the value of
the assets of Encore in accordance with generally accepted accounting
principles. The statements of operations, stockholders' equity, and cash flows
included in the Unaudited Financial Statements reflect fairly the information
required to be set forth therein by generally accepted accounting principles.
(c)Encore has no liabilities with respect to the payment of any federal,
state, county, local or other taxes (including any deficiencies, interest, or
penalties), except for taxes accrued but not yet due and payable.
(d)Except as and to the extent disclosed in the Unaudited Balance Sheet,
Encore has no material contingent liabilities, direct or indirect, matured or
unmatured.
(e) Encore has filed or will have filed as of the Closing Date all Tax Returns
required to be filed by it from inception to the Closing Date and has paid all
Taxes shown on such Tax Returns to be due and has provided adequate accruals
in the Unaudited Balance Sheet for any Taxes that have not been paid. All
such Tax Returns are accurate and correct in all material respects. Neither
Encore nor its Subsidiaries has any liabilities with respect to the payment of
any federal, state, county, local, or other Taxes (including any deficiencies,
interest, or penalties) accrued for or applicable to the period ended on the
date of the Unaudited Balance Sheet, except to the extent reflected on the
Unaudited Balance Sheet and adequately provided for, and all such dates and
years and periods prior thereto and for which Encore or its Subsidiaries may
at said date have been liable in its own right or as transferee of the assets
of, or as successor to, any other corporation or entity, except for taxes
accrued but not yet due and payable, and no deficiency assessment or proposed
adjustment of any such Tax Return is pending, proposed or contemplated. None
of such Tax Returns has been examined or is currently being examined by the
Internal Revenue Service, and no deficiency assessment or proposed adjustment
of any such return is pending, proposed or contemplated. There are no tax
liens upon any of the assets of Encore or its Subsidiaries. As used herein,
"Taxes" shall mean all taxes of any kind, including, without limitation, those
on or measured by or referred to as income, gross receipts, sales, use, ad
valorem, franchise, profits, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, value added, property or
windfall profits taxes, customs, duties or similar fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any governmental authority,
domestic or foreign As used herein, "Tax Return" shall mean any return,
report or statement required to be filed with any governmental authority with
respect to Taxes.
Section 2.07 Options or Warrants. Except as set forth in the Encore
Disclosure Schedules, there are no existing options, warrants, calls, rights,
agreements or commitments of any character relating to the authorized and
unissued capital stock or other securities of Encore or its Subsidiaries to
which it or any of its Subsidiaries is a party or by which it or any of its
11
Subsidiaries is bound obligating it (a) to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of capital stock, or (b) to grant, extend, accelerate the vesting of,
change the price of, or otherwise amend or enter into any such option,
warrant, call, right, commitment or agreement. Encore has not adopted any
employee or director stock option plans. On the Closing Date any options,
warrants or similar rights described in the Encore Disclosure Schedules in
response to this section shall have been converted to Encore Common Stock
(through exercise or otherwise) or terminated.
Section 2.08 Absence of Certain Changes or Events. Since June 30, 2000 (the
"Balance Sheet Date"):
(a)Encore has conducted its business in the ordinary and usual course and
there has not been (i) any change, event or condition in the business,
operations, properties, level of inventory, assets, or condition of Encore or
(ii) any damage, destruction, or loss to Encore (whether or not covered by
insurance) that has resulted in or might reasonably be expected to result in
an Encore Material Adverse Effect;
(b)Neither Encore nor its Subsidiaries have (i) amended their respective
articles of incorporation or bylaws; (ii) declared, set aside, or made, or
agreed to declare, set aside or make, any payment of dividends or
distributions of any assets of any kind whatsoever to stockholders or
purchased or redeemed, or agreed to purchase or redeem, any of their capital
stock; (iii) waived any rights of value which in the aggregate are
extraordinary or material considering the business of Encore and its
Subsidiaries; (iv) made any material change in their methods of management,
operation, or accounting; (v) entered into any other material transactions;
(vi) made any accrual or arrangement for or payment of any severance or
termination pay to any present or former officer, director or employee; (vii)
increased the rate of compensation payable or to become payable by it to any
of their respective officers or directors or any of their respective
employees whose monthly compensation exceeds $5,000; or (viii) made any
increase in any profit-sharing, bonus, deferred compensation, insurance,
pension, retirement, or other employee benefit plan, payment, or arrangement
made to, for, or with their officers, directors, or employees;
(c)Encore has not (i) granted or agreed to grant any options, warrants,
calls, commitments or other rights for its capital stock or other equity
interests calling for the issuance thereof; (ii) borrowed or agreed to borrow
any funds or incurred, or become subject to, any material obligation or
liability (absolute or contingent) except liabilities incurred in the ordinary
course of business; (iii) paid any material obligation or liability (absolute
or contingent) other than current liabilities reflected on or shown on the
Unaudited Balance Sheet and current liabilities incurred since that date in
the ordinary course of business; (iv) sold or transferred, or agreed to sell
or transfer, any of its respective assets, properties, or rights (except
assets, properties, or rights not used or useful in its business which, in the
aggregate have a value of less than $10,000) or canceled, or agreed to cancel,
any debts or claims (except debts and claims which in the aggregate are of a
value of less than $10,000); (v) made or permitted any amendment or
termination of any contract, agreement, or license to which it is a party if
such amendment or termination is material, considering the business of Encore
and its Subsidiaries; (vi) issued, delivered, or agreed to issue or deliver
12
any capital stock, bonds, member interests or other equity interests or
securities including debentures (whether authorized and unissued or held as
treasury stock); or (vii) entered into, amended, modified or changed any
Encore Affiliate Transaction (as defined in Section 2.19) or paid, discharged,
released, waived, transferred, assigned, canceled or terminated any rights,
duties, liabilities or obligations under any Encore Affiliate Transaction.
(d) Neither Encore nor its Subsidiaries has, to the best knowledge of Encore,
become subject to any law or regulation, which materially and adversely
affects, or in the future may adversely affect, the business, operations,
properties, assets, or condition of Encore and its Subsidiaries.
Section 2.09Title and Related Matters. Encore and its Subsidiaries have good
and marketable title to all of their respective properties, tangible and
intangible, real or personal, inventory, interests in properties, and assets,
which are reflected in the Unaudited Balance Sheet and all such properties,
inventory, interests and assets acquired after that date (the "Encore
Assets")(except those sold or otherwise disposed of since such date in the
ordinary course of business), free and clear of all mortgages, security
interests, royalties, liens, pledges, charges, or encumbrances, except (i)
statutory liens or claims not yet delinquent; and (ii) such imperfections of
title and easements as do not, and will not, materially detract from, or
interfere with, the present or proposed use of the properties subject thereto
or affected thereby or otherwise materially impair present business operations
on such properties.
Section 2.10 Litigation and Proceedings. There are no actions, suits, or
administrative or other proceedings pending or, to the knowledge of Encore,
threatened by or against it or its Subsidiaries or affecting Encore or its
Subsidiaries or their respective properties or any of their respective
officers, directors or Affiliates, at law or in equity, before any court or
other governmental agency or instrumentality, domestic or foreign, or before
any arbitrator of any kind. Encore does not have any knowledge of any default
on the part of it or its Subsidiaries with respect to any judgment, order,
writ, injunction, decree, award, rule, or regulation of any court, arbitrator,
or governmental agency or instrumentality. There is no judgment, decree or
order against Encore or any of its subsidiaries that could prevent, enjoin,
alter or materially delay any of the transactions contemplated by this
Agreement, or that could reasonably be expected to have an Encore Material
Adverse Effect.
Section 2.11 Contracts. Except as included or described in the Encore
Disclosure Schedules:
(a)There are no material contracts, agreements, franchises, license
agreements, or other commitments to which Encore or its Subsidiaries are
parties or by which it or its Subsidiaries or the properties of it or is
Subsidiaries are bound;
(b)All contracts, agreements, franchises, license agreements, and other
commitments to which Encore and its Subsidiaries are parties or by which their
respective properties are bound and which are material to the operations or
financial condition of Encore and its Subsidiaries are valid and enforceable
by Encore or its Subsidiaries, as applicable, in all material respects;
13
(c) Encore and its Subsidiaries are not parties to or bound by, and their
respective properties are not subject to, any material contract, agreement,
other commitment or instrument; any charter or other corporate restriction; or
any judgment, order, writ, injunction, decree, or award which materially and
adversely affects, or in the future may (as far as Encore can now foresee)
materially and adversely affect, the business, operations, properties, assets,
or condition of Encore and its Subsidiaries; and
(d)Neither Encore nor its Subsidiaries is a party to any oral or written
(i) contract for the employment of any officer, director, or employee
which is not terminable on 30 days (or less) notice;
(ii) profit-sharing, bonus, deferred compensation, stock option,
severance pay, pension benefit or retirement plan, agreement, or arrangement
whether or not covered by Title IV of the Employment Retirement Income
Security Act, as amended;
(iii) agreement, contract, or indenture relating to the borrowing of
money;
(iv) guarantee of any obligation, other than one on which Encore is a
primary obligor, for the borrowing of money or otherwise, excluding
endorsements made for collection and other guarantees of obligations, which,
in the aggregate do not exceed $10,000;
(v) consulting or other similar contract with an unexpired term or more
than one year or providing for payments in excess of $10,000 in the aggregate;
(vi) collective bargaining agreement;
(vii) agreement with any present or former officer or director of Encore
or its subsidiaries; or
(viii) contract, agreement, or other commitment involving payments by it
of more than $10,000 in the aggregate.
Section 2.12 Material Contract Defaults. Neither Encore nor any of its
Subsidiaries is in default under the terms of any outstanding contract,
agreement, lease, or other commitment which would result in an Encore Material
Adverse Effect, and there is no event of default or other event which, with
notice or lapse of time or both, would constitute a default in any material
respect under any such contract, agreement, lease, or other commitment in
respect of which Encore or its Subsidiaries, as the case may be, has not taken
adequate steps to prevent such a default from occurring.
Section 2.13 Intellectual Property. All patents, patent applications,
trademarks, trade secrets, know-how, software and technical data (collectively
"Intellectual Property") owned by Encore and its Subsidiaries constitutes all
of the intellectual property, whether or not owned by Encore or its
Subsidiaries used by them to any material extent in the conduct of the
business in which they or any of them are presently engaged. None of such
Intellectual Property has been assigned, transferred or licensed to or from
any third party and the validity or enforceability of such Intellectual
Property as used in the conduct of such business has not been challenged by
14
others in any proceeding or dispute about which any of them has received
written notice in writing, nor is there any pending or, to the best knowledge
of any of them, threatened litigation or proceeding challenging any of their
right to use any such Intellectual Property. The consummation of the
transactions contemplated by this Agreement will not adversely affect their
rights to the Intellectual Property.
Section 2.14 Real Estate. The Encore Disclosure Schedules set forth a
list and summary description of all leases, subleases or other agreements (the
"Leases") under which Encore and any of its Subsidiaries hold, as lessor,
sublessor, landlord, lessee, sublessee, renter or otherwise any real property
and all other interests in real property as the case may be. Unless otherwise
indicated in the Encore Disclosure Schedules, the Leases are in full force and
effect and neither Encore nor any of its Subsidiaries has any knowledge of any
event of default thereunder. The Leases under which Encore and its
Subsidiaries are lessees are subject to no material lien, claim, charge or
other encumbrance.
Section 2.15 Governmental Authorizations. Encore and its Subsidiaries
have obtained all licenses, franchises, permits, and other governmental
authorizations that are legally required to enable them to conduct their
businesses in all material respects as conducted on the date of this
Agreement. Except for the satisfaction of requirements of federal and state
securities and corporation laws, as hereinafter provided, no authorization,
approval, consent, or order of, or registration, declaration, or filing with,
any court or other governmental body is required in connection with the
execution and delivery by Encore or its Subsidiaries of this Agreement and the
consummation by Encore and its Subsidiaries of the transactions contemplated
hereby.
Section 2.16 Compliance With Laws and Regulations. Encore and its
Subsidiaries have complied with and are not in violation of and have not
received any notices of violation with respect to any applicable statutes and
regulations of any federal, state, or other governmental entity or agency
thereof, except to the extent that noncompliance would not constitute an
Encore Material Adverse Effect. .
Section 2.17 Insurance. Encore and each of its Subsidiaries have policies
of insurance and bonds of the type and in the amounts customarily carried by
persons conducting businesses or owning assets similar to those of Encore and
its Subsidiaries. All of the insurable properties of Encore and its
Subsidiaries are insured for full replacement value (subject to reasonable
deductibles) against losses due to fire and other casualty, with extended
coverage, and other risks customarily insured against by persons operating
similar properties in the localities where such properties are located and
under valid and enforceable policies issued by insurers of recognized
responsibility. Such policy or policies containing substantially equivalent
coverage will be outstanding and in full force at the Closing Date, as
hereinafter defined. There is no material claim pending under any of the
policies or bonds referenced in this Section as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds.
All premiums due and payable under all such policies and bonds have been paid
and Encore and its Subsidiaries are otherwise in material compliance with the
terms of such policies and bonds. Encore has no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
15
policies.
Section 2.18 Employee Relations. Encore and its Subsidiaries have
complied in all material respects with all applicable laws, rules, and
regulations that relate to salaries, wages, hours, harassment, disabled
access, overtime compensation, employee privacy rights, occupational health
and safety and discrimination in employment and collective bargaining and to
the operation of its business and is not liable for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
Encore believes that the relations of Encore and its Subsidiaries with their
employees are satisfactory.
Section 2.19Encore Affiliate Transactions. There are no accrued liabilities
owed to any officer or director of Encore or its Subsidiaries, and neither
Encore nor any of its Subsidiaries is indebted to any director, officer,
employee, agent or Affiliate of Encore or any of its Subsidiaries, and no
such person is indebted to Encore or any of its subsidiaries, and there have
been no other transactions of the type required to be disclosed pursuant to
items 402 and 404 of Regulation S-K under the Securities Act and the Exchange
Act since June 30, 2000 (the foregoing being referred to herein as "Encore
Affiliate Transactions").
Section 2.20 Minute Books. The minute books of Encore and its
Subsidiaries made available to Encore contain a complete and accurate summary
of all meetings of directors and stockholders or actions by written consent
from its inception through the date of this Agreement, and reflect all
transactions referred to in such minutes accurately in all material respects.
Section 2.21Brokers' and Finders' Fees. Encore has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
ARTICLE II
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF EZCONNECT
Except as set forth in the corresponding sections or subsections of the
disclosure schedules, dated the date hereof, delivered by EZConnect and Merger
Sub to Encore (the EZConnect Disclosure Schedules), EZConnect and Merger Sub
hereby jointly and severally represent and warrant to Encore as follows:
Section 3.01 Organization.
(a)EZConnect is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. Each of the Subsidiaries of
EZConnect is a corporation or other business entity duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization, and each of EZConnect and its Subsidiaries has
the requisite corporate or other organizational power and authority to own,
operate or lease its properties and to carry on its business as it is now
being conducted, and is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, operated or leased or the nature of its activities makes
such qualification necessary, in each case except as would not, individually
16
or in the aggregate, reasonably be expected to have an EZConnect Material
Adverse Effect.
(b)All of the outstanding shares of capital stock and other equity securities
of the Subsidiaries of EZConnect have been validly issued and are fully paid
and nonassessable, and are owned, directly or indirectly, by EZConnect, free
and clear of all pledges and security interests. All outstanding shares of
capital stock and other equity interests of each Subsidiary of EZConnect owned
directly or indirectly by EZConnect are free and clear of all liens, claims or
encumbrances. There are no subscriptions, options, warrants, calls,
commitments, agreements, conversion rights or other rights of any character
(contingent or otherwise) entitling any Person to purchase or otherwise
acquire from EZConnect or any of its Subsidiaries at any time, or upon the
happening of any stated event, any shares of capital stock, membership
interest or other equity securities of any of the Subsidiaries of EZConnect.
The EZConnect Disclosure Schedules list the name and jurisdiction of
incorporation or organization of each of the Subsidiaries of EZConnect.
(c)Except for interests in its Subsidiaries, neither EZConnect nor any of its
Subsidiaries owns directly or indirectly any material equity interest in any
Person or has any obligation or has made any commitment to acquire any such
interest or make any such investment.
Section 3.02Certificate of Incorporation and Bylaws. EZConnect has furnished,
or otherwise made available, to Encore a complete and correct copy of the
articles of incorporation and bylaws, as amended to the date of this
Agreement, of EZConnect. Such articles of incorporation and bylaws are in
full force and effect. EZConnect is not in violation of any of the provisions
of its articles of incorporation or bylaws.
Section 3.03 Capitalization. The authorized capitalization of EZConnect
consists of 50,000,000 shares of Common Stock, $0.001 par value (the
"EZConnect Common Stock"), of which 8,680,657 shares are issued and
outstanding, and 5,000,000 shares of preferred stock, $0.001 par value, none
of which is issued and outstanding. All issued and outstanding shares of
EZConnect are legally issued, fully paid, nonassessable, and free of
preemptive rights. There are no dividends or other amounts due or payable
with respect to any of the shares of capital stock of EZConnect. Prior to
closing, the capitalization of EZConnect will change as the result of the
issuance of equity and/or debt securities for the purpose of funding the
obligations of EZConnect under this Agreement.
Section 3.04Power and Authority; Authorization; Valid & Binding. Each of
EZConnect and Merger Sub has the necessary corporate power and authority to
deliver this Agreement, to perform its obligations hereunder, as applicable,
and to consummate the transactions contemplated hereby, as applicable. The
execution and delivery by each of EZConnect and Merger Sub of this Agreement,
the performance by it of its obligations hereunder and thereunder, as
applicable, and the consummation by EZConnect of the transactions contemplated
hereby and thereby, as applicable, have been duly authorized by all necessary
corporate action on the part of EZConnect. This Agreement has been duly
executed and delivered by EZConnect and Merger Sub and, assuming the due
authorization, execution and delivery by Encore, constitutes a legal, valid
and binding obligation of EZConnect and Merger Sub enforceable against such
parties in accordance with the terms hereof or thereof, subject to bankruptcy,
17
insolvency, fraudulent transfer, moratorium, reorganization and similar laws
of general applicability relating to or affecting creditors' rights and to
general equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
Section 3.05 No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by each of EZConnect and Merger Sub does not,
and the performance by EZConnect of its obligations hereunder and thereunder
and the consummation by EZConnect of the transactions contemplated hereby and
thereby will not, (i) violate or conflict with the articles of incorporation
or bylaws of EZConnect (ii) subject to obtaining or making the notices,
reports, filings, waivers, consents, approvals or authorizations referred to
in paragraph (b) below, conflict with or violate any law, regulation, court
order, judgment or decree applicable to EZConnect or any of its Subsidiaries
or by which any of their respective property is bound or affected,
(iii) result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, cancellation, vesting, modification,
alteration or acceleration of any obligation under, result in the creation of
a lien, claim or encumbrance on any of the properties or assets of EZConnect
or any of its Subsidiaries pursuant to, result in the loss of any material
benefit under (including an increase in the price paid by, or cost to,
EZConnect or any of its Subsidiaries), require the consent of any other party
to, or result in any obligation on the part of EZConnect or any of its
Subsidiaries to repurchase (with respect to a bond or a note), any agreement,
contract, instrument, bond, note, indenture, permit, license or franchise to
which EZConnect or any of its Subsidiaries is a party or by which EZConnect,
any of its Subsidiaries or any of their respective property is bound or
affected, except, in the case of clauses (ii) and (iii) above, as would not,
individually or in the aggregate, reasonably be expected to have an EZConnect
Material Adverse Effect.
(b)Except for the filing of articles of merger with respect to the Merger as
required by the NRS, filings with the SEC under the Securities Act and the
Exchange Act, any filings required pursuant to any state securities or "blue
sky" laws, or any applicable Environmental Laws (as defined herein) governing
the transfer of any interest in real property or of business operations
(including without limitation transfer acts, notifications, and deed
restrictions), neither EZConnect nor any of its Subsidiaries (including Merger
Sub) is required to submit any notice, report or other filing with any
Governmental Entity in connection with the execution, delivery, performance or
consummation of this Agreement or the Merger except for such notices, reports
or filings, that, if not made, would not, individually or in the aggregate,
reasonably be expected to have an EZConnect Material Adverse Effect. Except
as set forth in the immediately preceding sentence, no waiver, consent,
approval or authorization of any Governmental Entity is required to be
obtained by EZConnect or any of its Subsidiaries (including Merger Sub) in
connection with its execution, delivery, performance or consummation of this
Agreement or the transactions contemplated hereby and thereby except for such
waivers, consents, approvals or authorizations that, if not obtained or made,
would not, individually or in the aggregate, reasonably be expected to have an
EZConnect Material Adverse Effect.
Section 3.06 SEC Reports; Financial Statements. (a) EZConnect has filed
all forms, reports and documents (including all Exhibits, Schedules and
18
Annexes thereto) required to be filed by it with the SEC since it became
subject to the reporting requirements of section 13 or 15(d) of the Exchange
Act, including any amendments or supplements thereto (collectively, including
any such forms, reports and documents filed after the date hereof, the
"EZConnect SEC Reports "), and, with respect to the EZConnect SEC Reports
filed by EZConnect after the date hereof and prior to the Closing Date, will
deliver or make available, to Encore all of its EZConnect SEC Reports in the
form filed with the SEC. The EZConnect SEC Reports (i) were (and any
EZConnect SEC Reports filed after the date hereof will be) in all material
respects in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations promulgated
thereunder, and (ii) as of their respective filing dates, did not (and any
EZConnect SEC Reports filed after the date hereof will not) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. On the
Closing Date, EZConnect shall be current in the filing of the EZConnect SEC
Reports.
(b)The financial statements, including all related notes and schedules,
contained in the EZConnect SEC Reports (or incorporated therein by reference)
(the "Financial Statements") fairly present in all material respects (or, with
respect to financial statements contained in the EZConnect SEC Reports filed
after the date hereof, will fairly present in all material respects) the
consolidated financial position of EZConnect and its consolidated subsidiaries
as of the respective dates thereof and the consolidated results of operations,
retained earnings and cash flows of EZConnect and its consolidated
subsidiaries for the respective periods indicated, in each case in accordance
with GAAP applied on a consistent basis throughout the periods involved
(except for changes in accounting principles disclosed in the notes thereto)
and the rules and regulations of the SEC, except that interim financial
statements are subject to normal year-end adjustments which are not and are
not expected to be, individually or in the aggregate, material in amount and
do not include certain notes which may be required by GAAP but which are not
required by Form 10-QSB of the SEC.
(c)EZConnect has filed or will have filed as of the Closing Date all Tax
Returns required to be filed by it from January 1, 1998 to the Closing Date
and has paid all Taxes shown on such Tax Returns to be due and has provided
adequate accruals in the Financial Statements for any Taxes that have not been
paid. All such Tax Returns are accurate and correct in all material respects.
Neither EZConnect nor its Subsidiaries has any liabilities with respect to the
payment of any federal, state, county, local, or other Taxes (including any
deficiencies, interest, or penalties) accrued for or applicable to the period
ended on the date of the most recent unaudited consolidated balance sheet of
EZConnect included in its Report on Form 10-QSB for the quarter ended March
31, 2000, except to the extent reflected on such balance sheet and adequately
provided for, and all such dates and years and periods prior thereto and for
which EZConnect or its subsidiaries may at said date have been liable in its
own right or as transferee of the assets of, or as successor to, any other
corporation or entity, except for taxes accrued but not yet due and payable,
and no deficiency assessment or proposed adjustment of any such Tax Return is
pending, proposed or contemplated. None of such Tax Returns has been examined
or is currently being examined by the Internal Revenue Service, and no
deficiency assessment or proposed adjustment of any such return is pending,
19
proposed or contemplated. There are no tax liens upon any of the assets of
EZConnect or its Subsidiaries. As used herein, "Taxes" shall mean all taxes
of any kind, including, without limitation, those on or measured by or
referred to as income, gross receipts, sales, use, ad valorem, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, value added, property or windfall profits taxes, customs,
duties or similar fees, assessments or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by any governmental authority, domestic or foreign As used
herein, "Tax Return" shall mean any return, report or statement required to be
filed with any governmental authority with respect to Taxes.
Section 3.07 Options or Warrants. Except as set forth in the EZConnect
Disclosure Schedules, there are no existing options, warrants, calls, rights,
agreements or commitments of any character relating to the authorized and
unissued capital stock of EZConnect to which it is a party or by which it is
bound obligating it (a) to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of
capital stock, or (b) to grant, extend, accelerate the vesting of, change the
price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. Except as set forth in the EZConnect
Disclosure Schedules, EZConnect has not adopted any employee or director stock
option plans.
Section 3.08 Absence of Certain Changes or Events. Since March 31, 2000
(the "Balance Sheet Date"):
(a)EZConnect has conducted its business in the ordinary course and there has
not been (i) any change, event or condition in the business, operations,
properties, level of inventory, assets, or condition of EZConnect or (ii) any
damage, destruction, or loss to EZConnect (whether or not covered by
insurance) that has resulted in or might reasonably be expected to result in
an EZConnect Material Adverse Effect;
(b)Neither EZConnect nor its Subsidiaries have (i) amended their respective
articles of incorporation or bylaws; (ii) declared, set aside, or made, or
agreed to declare, set aside or make, any payment of dividends or
distributions of any assets of any kind whatsoever to stockholders or
purchased or redeemed, or agreed to purchase or redeem, any of their capital
stock; (iii) waived any rights of value which in the aggregate are
extraordinary or material considering the business of EZConnect and its
Subsidiaries; (iv) made any material change in their methods of management,
operation, or accounting; (v) entered into any other material transactions;
(vi) made any accrual or arrangement for or payment of any severance or
termination pay to any present or former officer, director or employee; (vii)
increased the rate of compensation payable or to become payable by it to any
of their respective officers or directors or any of their respective
employees whose monthly compensation exceeds $5,000; or (viii) made any
increase in any profit-sharing, bonus, deferred compensation, insurance,
pension, retirement, or other employee benefit plan, payment, or arrangement
made to, for, or with their officers, directors, or employees;
(c)EZConnect has not (i) granted or agreed to grant any options, warrants,
calls, commitments or other rights for its capital stock or other equity
interests calling for the issuance thereof; (ii) borrowed or agreed to borrow
20
any funds or incurred, or become subject to, any material obligation or
liability (absolute or contingent) except liabilities incurred in the ordinary
course of business; (iii) paid any material obligation or liability (absolute
or contingent) other than current liabilities reflected on or shown on the
March 31, 2000 balance sheet and current liabilities incurred since that date
in the ordinary course of business; (iv) sold or transferred, or agreed to
sell or transfer, any of its respective assets, properties, or rights (except
assets, properties, or rights not used or useful in its business which, in the
aggregate have a value of less than $10,000) or canceled, or agreed to cancel,
any debts or claims (except debts and claims which in the aggregate are of a
value of less than $10,000); (v) made or permitted any amendment or
termination of any contract, agreement, or license to which it is a party if
such amendment or termination is material, considering the business of
EZConnect and its Subsidiaries; (vi) issued, delivered, or agreed to issue or
deliver any capital stock, bonds, member interests or other equity interests
or securities including debentures (whether authorized and unissued or held
as treasury stock); or (vii) entered into, amended, modified or changed any
EZConnect Affiliate Transaction (as defined in Section 3.19) or paid,
discharged, released, waived, transferred, assigned, canceled or terminated
any rights, duties, liabilities or obligations under any EZConnect Affiliate
Transaction.
(d)Neither EZConnect nor its Subsidiaries has, to the best knowledge of
EZConnect, become subject to any law or regulation, which materially and
adversely affects, or in the future may adversely affect, the business,
operations, properties, assets, or condition of EZConnect and its
Subsidiaries.
Section 3.09 Title and Related Matters. EZConnect and its Subsidiaries have
good and marketable title to all of their respective properties, tangible and
intangible, real or personal, inventory, interests in properties, and assets,
which are reflected in the consolidated balance sheet contained in the
Financial Statements as of the Balance Sheet Date and all such properties,
inventory, interests and assets acquired after that date (the "EZConnect
Assets")(except those sold or otherwise disposed of since such date in the
ordinary course of business), free and clear of all mortgages, security
interests, royalties, liens, pledges, charges, or encumbrances, except (i)
statutory liens or claims not yet delinquent; and (ii) such imperfections of
title and easements as do not, and will not, materially detract from, or
interfere with, the present or proposed use of the properties subject thereto
or affected thereby or otherwise materially impair present business operations
on such properties.
Section 3.10 Litigation and Proceedings. There are no actions, suits, or
administrative or other proceedings pending or, to the knowledge of EZConnect,
threatened by or against it or its Subsidiaries or affecting EZConnect or its
Subsidiaries or their respective properties or any of their respective
officers, directors or Affiliates, at law or in equity, before any court or
other governmental agency or instrumentality, domestic or foreign, or before
any arbitrator of any kind. EZConnect does not have any knowledge of any
default on the part of it or its Subsidiaries with respect to any judgment,
order, writ, injunction, decree, award, rule, or regulation of any court,
arbitrator, or governmental agency or instrumentality. There is no judgment,
decree or order against EZConnect or any of its subsidiaries that could
prevent, enjoin, alter or materially delay any of the transactions
21
contemplated by this Agreement, or that could reasonably be expected to have
an EZConnect Material Adverse Effect.
Section 3.11Contracts. Except as included or described in the EZConnect
Disclosure Schedules:
(a)There are no material contracts, agreements, franchises, license
agreements, or other commitments to which EZConnect or its Subsidiaries are
parties or by which it or its Subsidiaries or the properties of it or is
Subsidiaries are bound;
(b)All contracts, agreements, franchises, license agreements, and other
commitments to which EZConnect and its Subsidiaries are parties or by which
their respective properties are bound and which are material to the operations
or financial condition of EZConnect and its Subsidiaries are valid and
enforceable by EZConnect or its Subsidiaries, as applicable, in all material
respects;
(c)EZConnect and its Subsidiaries are not parties to or bound by, and their
respective properties are not subject to, any material contract, agreement,
other commitment or instrument; any charter or other corporate restriction; or
any judgment, order, writ, injunction, decree, or award which materially and
adversely affects, or in the future may (as far as EZConnect can now foresee)
materially and adversely affect, the business, operations, properties, assets,
or condition of EZConnect and its Subsidiaries; and
(d)Neither EZConnect nor its Subsidiaries is a party to any oral or written
(i) contract for the employment of any officer, director, or employee
which is not terminable on 30 days (or less) notice;
(ii) profit-sharing, bonus, deferred compensation, stock option,
severance pay, pension benefit or retirement plan, agreement, or arrangement
whether or not covered by Title IV of the Employment Retirement Income
Security Act, as amended;
(iii) agreement, contract, or indenture relating to the borrowing of
money;
(iv) guarantee of any obligation, other than one on which EZConnect is a
primary obligor, for the borrowing of money or otherwise, excluding
endorsements made for collection and other guarantees of obligations, which,
in the aggregate do not exceed $10,000;
(v) consulting or other similar contract with an unexpired term or more
than one year or providing for payments in excess of $10,000 in the aggregate;
(vi) collective bargaining agreement;
(vii) agreement with any present or former officer or director of
EZConnect or its subsidiaries; or
(viii) contract, agreement, or other commitment involving payments by it
of more than $10,000 in the aggregate.
22
Section 3.12 Material Contract Defaults. Neither EZConnect nor any of its
Subsidiaries is in default under the terms of any outstanding contract,
agreement, lease, or other commitment which would result in an EZConnect
Material Adverse Effect, and there is no event of default or other event
which, with notice or lapse of time or both, would constitute a default in any
material respect under any such contract, agreement, lease, or other
commitment in respect of which EZConnect or its Subsidiaries, as the case may
be, has not taken adequate steps to prevent such a default from occurring.
Section 3.13 Intellectual Property. All patents, patent applications,
trademarks, trade secrets, know-how, software and technical data (collectively
"Intellectual Property") owned by EZConnect and its Subsidiaries constitutes
all of the intellectual property, whether or not owned by EZConnect or its
Subsidiaries used by them to any material extent in the conduct of the
business in which they or any of them are presently engaged. None of such
Intellectual Property has been assigned, transferred or licensed to or from
any third party and the validity or enforceability of such Intellectual
Property as used in the conduct of such business has not been challenged by
others in any proceeding or dispute about which any of them has received
written notice in writing, nor is there any pending or, to the best knowledge
of any of them, threatened litigation or proceeding challenging any of their
right to use any such Intellectual Property. The consummation of the
transactions contemplated by this Agreement will not adversely affect their
rights to the Intellectual Property.
Section 3.14 Real Estate. The EZConnect Disclosure Schedules set forth a
list and summary description of all leases, subleases or other agreements (the
"Leases") under which EZConnect and any of its Subsidiaries hold, as lessor,
sublessor, landlord, lessee, sublessee, renter or otherwise any real property
and all other interests in real property as the case may be. Unless otherwise
indicated in the EZConnect Disclosure Schedules, the Leases are in full force
and effect and neither EZConnect nor any of its Subsidiaries has any knowledge
of any event of default thereunder. The Leases under which EZConnect and its
Subsidiaries are lessees are subject to no material lien, claim, charge or
other encumbrance.
Section 3.15 Governmental Authorizations. EZConnect and its Subsidiaries
have obtained all licenses, franchises, permits, and other governmental
authorizations that are legally required to enable them to conduct their
businesses in all material respects as conducted on the date of this
Agreement. Except for the satisfaction of requirements of federal and state
securities and corporation laws, as hereinafter provided, no authorization,
approval, consent, or order of, or registration, declaration, or filing with,
any court or other governmental body is required in connection with the
execution and delivery by EZConnect or its Subsidiaries (including Merger Sub)
of this Agreement and the consummation by EZConnect and its Subsidiaries of
the transactions contemplated hereby.
Section 3.16 Compliance With Laws and Regulations. EZConnect and its
Subsidiaries have complied with and are not in violation of and have not
received any notices of violation with respect to any applicable statutes and
regulations of any federal, state, or other governmental entity or agency
thereof, except to the extent that noncompliance would not constitute an
EZConnect Material Adverse Effect. .
23
Section 3.17 Insurance. EZConnect and each of its Subsidiaries have
policies of insurance and bonds of the type and in the amounts customarily
carried by persons conducting businesses or owning assets similar to those of
EZConnect and its Subsidiaries. All of the insurable properties of EZConnect
and its Subsidiaries are insured for full replacement value (subject to
reasonable deductibles) against losses due to fire and other casualty, with
extended coverage, and other risks customarily insured against by persons
operating similar properties in the localities where such properties are
located and under valid and enforceable policies issued by insurers of
recognized responsibility. Such policy or policies containing substantially
equivalent coverage will be outstanding and in full force at the Closing Date,
as hereinafter defined. There is no material claim pending under any of the
policies or bonds referenced in this Section as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds.
All premiums due and payable under all such policies and bonds have been paid
and EZConnect and its Subsidiaries are otherwise in material compliance with
the terms of such policies and bonds. EZConnect has no knowledge of any
threatened termination of, or material premium increase with respect to, any
of such policies.
Section 3.18 Employee Relations. EZConnect and its Subsidiaries have
complied in all material respects with all applicable laws, rules, and
regulations that relate to salaries, wages, hours, harassment, disabled
access, overtime compensation, employee privacy rights, occupational health
and safety and discrimination in employment and collective bargaining and to
the operation of its business and is not liable for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing.
EZConnect believes that the relations of EZConnect and its Subsidiaries with
their employees are satisfactory.
Section 3.19Affiliate Transactions. There are no accrued liabilities owed to
any officer or director of EZConnect or its Subsidiaries, and neither
EZConnect nor any of its Subsidiaries is indebted to any director, officer,
employee, agent or Affiliate of EZConnect or any of its Subsidiaries, and no
such person is indebted to EZConnect or any of its subsidiaries, and there
have been no other transactions of the type required to be disclosed pursuant
to items 402 and 404 of Regulation S-K under the Securities Act and the
Exchange Act since March 31, 2000 (the foregoing being referred to herein as
"EZConnect Affiliate Transactions").
Section 3.20 Minute Books. The minute books of EZConnect and its
Subsidiaries made available to Encore contain a complete and accurate summary
of all meetings of directors and stockholders or actions by written consent
from January 1, 2000 through the date of this Agreement, and reflect all
transactions referred to in such minutes accurately in all material respects.
Section 3.21Brokers' and Finders' Fees. EZConnect has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
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ARTICLE IV
INTERIM OPERATIONS
Section 4.01 Activities of EZConnect, Merger Sub and Encore.
(a)From and after the date of this Agreement until the Closing Date and except
as set forth in the respective Disclosure Schedules to be delivered by
EZConnect and Encore pursuant hereto or as permitted or contemplated by this
Agreement, EZConnect, Merger Sub and Encore will each:
(i) carry on their respective businesses in substantially the same
manner as it has prior to the negotiation and execution of this Agreement;
(ii) maintain in full force and effect insurance comparable in
amount and scope of coverage to that now maintained by it;
(iii) perform in all material respects all of their respective
obligations under material contracts, leases, and instruments relating to or
affecting their respective assets, properties, and businesses;
(iv) use reasonable best efforts to maintain and preserve their
respective business organizations intact, to retain their respective key
employees, and to maintain their respective relationships with material
suppliers and customers;
(v) duly and timely file for all taxable periods ending on or
prior to the Closing Date all Tax Returns required to be filed by or on behalf
of such entity or any of their respective Subsidiaries or for which such
entity or any of their respective Subsidiaries may be held responsible and
shall pay, or cause to pay, all Taxes required to be shown as due and payable
on such returns, as well as all installments of taxes due and payable during
the period commencing on the date of this Agreement and ending on the Closing
Date. All such Tax Returns shall be prepared in a manner consistent with the
preparation of prior years' Tax Returns except as required by law or as agreed
to by the parties hereto prior to the filing thereof;
(vi) withhold from each payment made on or prior to the Closing Date
to each employee of such corporation the amount of all taxes required to be
withheld therefrom and will pay the same, before becoming delinquent, to the
proper tax receiving officers; and
(vii) fully comply with and perform in all material respects all
obligations and duties imposed on it by all federal, state, county and local
laws and all rules, regulations, and orders imposed by federal, state, county
and local governmental authorities.
(b)From and after the date of this Agreement until the Closing Date and
except as set forth in the respective Disclosure Schedules to be delivered by
EZConnect and Encore pursuant hereto or as permitted or contemplated by this
Agreement, EZConnect, Merger Sub and Encore shall not without the prior
written consent of the other Parties:
(i) make any change in its articles of incorporation or bylaws;
26
(ii) take any action described in Section 2.08 in the case of Encore
and Section 3.08 in the case of EZConnect and Merger Sub, except that
EZConnect may issue additional equity or debt securities for the purpose of
funding the obligations of EZConnect under this Agreement subject to the
limitations set forth in Section 4.04; or
(iii) enter into or amend any contract, agreement, or other
instrument of any of the types described in such party's disclosure schedules
except such contracts, agreements or other instruments as are entered into in
the regular and ordinary course of a Party's business and that are not
material to the financial condition or results of operations of such Party,
considered as a whole; or
(iv) enter into any agreement, waiver, or other arrangement
providing for an extension of time with respect to payment by, or assessment
against, such entity or any of its Subsidiaries of any tax due and payable
with respect to the period commencing on the date of this Agreement and ending
on the Closing Date.
Section 4.02 Access to Properties and Records. Encore and EZConnect will
afford to the officers and authorized representatives of the other full access
to the properties, books, and records of Encore and EZConnect and their
respective Subsidiaries and ventures, as the case may be, in order that the
other may have full opportunity to make such reasonable investigation as it
shall desire to make of the affairs of the other and will furnish the other
with such additional financial and operating data and other information as to
the business and properties of the other as may from time to time be
reasonably requested. Any and all such information shall be considered
confidential and proprietary information of the Party providing the
information and shall be handled in the manner specified in the
confidentiality agreements previously entered into between the Parties.
Section 4.03 Encore Standstill and No-Shop. Encore agrees that from the
date of this Agreement until the consummation or termination of the
transactions contemplated by this Agreement, Encore shall not enter into any
transaction involving the acquisition by any Person of all or any interest in
the debt or equity securities or assets of Encore or any of its Subsidiaries,
or any transaction involving the acquisition by Encore or its Subsidiaries of
any interest in the debt or equity securities or assets of another Person (an
"Encore Acquisition Transaction"). Further, Encore shall immediately cease
and terminate any existing solicitation, initiation, encouragement, activity,
discussion or negotiation with any Persons conducted heretofore by Encore, its
Subsidiaries or any of their respective representatives with respect to any
proposed, potential or contemplated Encore Acquisition Transaction, and shall
not, directly or indirectly, solicit, initiate or encourage (including by way
of furnishing information) or take any other action to facilitate any
inquiries or the making of any proposal which constitutes or may reasonably be
expected to lead to an Encore Acquisition Transaction.
Section 4.04 Limitation on Transactions by EZConnect. EZConnect agrees that
from the date of this Agreement until the consummation or termination of the
transactions contemplated by this Agreement, it will not enter into any
transaction involving the acquisition by any Person of all or substantially
all of the securities or assets of EZConnect or any transaction involving the
acquisition by EZConnect of any interest in the securities or assets of
27
another Person which involves the issuance by EZConnect of shares in a number
greater than 5% of the EZConnect shares outstanding on the date of this
Agreement or the payment of cash in an amount greater than $100,000 (an
"EZConnect Acquisition Transaction"), without first submitting the terms and
conditions of any such transaction, and copies of the relevant disclosure
documents and related materials pertaining thereto, to Encore for its
consideration. Encore shall have two (2) business days from the date of its
receipt of such submission to advise EZConnect of its acceptance or rejection
with respect to any such transaction. In the event Encore has not responded
within such two (2) business day period, it shall be deemed to have approved
such transaction. In the event Encore approves such transaction, EZConnect
may proceed with the transaction on substantially the same terms and
conditions as presented to Encore. If Encore disapproves of such transaction,
EZConnect may either cease its participation in such transaction or notify
Encore within two (2) business days after its receipt of Encore's notice of
disapproval of the transaction that it intends to pursue such transaction
notwithstanding Encore's disapproval, in which event Encore shall be entitled
to terminate this Agreement within two (2) business days after its receipt of
EZConnect's notice of intent to proceed with a disapproved transaction. In
the event Encore has not responded within such two (2) business day period, it
shall be deemed to have waived its right to terminate this Agreement. Except
as otherwise provided in this Agreement, If Encore so terminates this
Agreement after its receipt of the initial $50,000 payment provided for in
Section 1.01 but prior to its receipt of the $200,000 payment described in
Section 1.01, it shall be entitled to retain the initial $50,000 payment as
agreed upon liquidated damages. If Encore so terminates this Agreement after
its receipt of the second $50,000 payment provided for in Section 1.01 but
prior to its receipt of the remaining $150,000 payment described in Section
1.01, Encore shall be entitled to retain such payments and EZConnect shall be
issued 126,582 shares of Encore Common Stock (316,456 x 100,000/250,000). If
Encore so terminates this Agreement after its receipt of the total $250,000
payments described in Section 1.01, Encore shall be entitled to retain such
payments and EZConnect shall be entitled to retain the equity interest of
Encore acquired pursuant to such payments. Notwithstanding the foregoing,
nothing is this Section shall prevent EZConnect from issuing additional debt
or equity securities to fund its obligations under this Agreement; provided,
that EZConnect shall not issue additional equity securities with a value less
than the common stock equivalent of $1.00 per share and shall not issue debt
securities subject to an annual rate of interest greater than 18%.
Section 4.05 Limit on Encore Business Transactions. Notwithstanding any
provision to the contrary contained herein, during the period from the
execution of this Agreement until the earlier of the Effective Time or the
date of termination of this Agreement, Encore shall not, without the prior
written consent of EZConnect, enter into any agency agreement or any other
agreement involving total payments of $20,000 or more over the term of such
agreement. In addition, Encore shall not, without the prior written consent
of EZConnect, take any action that would cause it to exceed the expenditures
set forth in the Encore Budget for any period included in the Encore Budget.
28
ARTICLE V
SPECIAL COVENANTS
Section 5.01 Encore Stockholder Approval. Encore shall have obtained
approval of the stockholders of Encore, in accordance with the applicable
provisions of the laws of the state of Nevada and all applicable federal and
state securities laws of the transactions contemplated by this Agreement.
Concurrently with the execution of this Agreement, Encore and EZConnect shall
enter into a written agreement with each of Tod Turley and Kevin Hamilton, the
executive officers and principal shareholders of Encore, pursuant to which
such persons agree to vote all shares of Encore Common Stock held by them on
the date hereof in favor of the transactions contemplated by this Agreement.
Section 5.02 Information Statement, Meeting of EZConnect Shareholders. As
promptly as practicable after the execution of this Agreement, EZConnect
shall, if and to the extent required, prepare and file with the SEC, a
preliminary information statement including a notice of special or annual
meeting of its stockholders and related material (the "Information Statement")
relating to the approval by the EZConnect shareholders of the transactions
contemplated by this Agreement (the "EZConnect Proposals") and, as promptly as
practicable following receipt of SEC comments thereon (or, should no SEC
comments be forthcoming or the lapse of the period of time during which SEC
comments are required to be furnished, promptly following a determination that
no comments are forthcoming or the lapse of such period), EZConnect shall file
with the SEC and mail to its stockholders of record a definitive Information
Statement relating to such matters. The Information Statement shall set a
date of record for all shareholders entitled to vote on the EZConnect
Proposals and shall include the recommendation of the Board of Directors of
EZConnect in favor of such matters. EZConnect shall promptly after the date
hereof take all action necessary in accordance with the NRS and its Articles
of Incorporation and Bylaws to convene the EZConnect Stockholders Meeting on
or prior to September 15, 2000 or as soon thereafter as is practicable.
Section 5.03 Encore Audited Financial Statements/Additional Financial
Information.
(a)At the earliest practicable date following the execution of this Agreement,
Encore shall cause to be prepared and delivered to EZConnect the Audited
Financial Statements, and the opinion of Encore's independent certified public
accountants, with respect thereto. All such financial statements of Encore
shall be prepared in accordance with generally accepted accounting principles
and Regulation SX and shall present fairly as of their respective dates the
financial condition of Encore. The balance sheet included in the Audited
Financial Statements shall not indicate any material adverse change in the
financial position of Encore from that set forth in the Unaudited Balance
Sheet. EZConnect shall select the independent certified public accountants to
perform the audit and shall pay their fees for conducting the audit.
(b)To the extent required, EZConnect and Encore shall utilize their best
efforts and cooperate to provide the information necessary to present the pro
forma consolidated and consolidating financial statements and pro forma
consolidated and consolidating summary information, including a pro forma
consolidated and consolidating balance sheet, pro forma consolidated and
consolidating income statements, pro forma summaries of earnings (with
aggregate and per-share earnings), and pro forma (combined basis) earnings
data for all periods required to be presented and in the form and manner
29
required for use in the EZConnect Form 8-K and/or Information Statement or any
other document required to be filed with the SEC or state securities agencies,
requiring the presentation of EZConnect consolidated financial statements
under generally accepted accounting principles.
Section 5.04 Encore Liabilities. On the Closing Date, Encore shall have no
liabilities other than notes payable with an aggregate outstanding balance on
such date of $300,000 and trade payables incurred in the ordinary and usual
course of Encore's business consistent with past practice. On the Closing
Date, Encore shall use its commercial best efforts in good faith to cause the
holders of the notes payable to accept shares of EZConnect Common Stock in
full payment and satisfaction of $200,000 of the outstanding balance of the
notes. The number of shares of EZConnect Common Stock to be issued to such
note holders shall be determined by dividing $200,000 by the Trailing Trading
Price. The note holders shall execute agreements in a form acceptable to
EZConnect and shall execute and deliver investment representation letters in
substantially the same form as that attached hereto as Exhibit B-1 and
incorporated herein by reference. The $100,000 outstanding balance of the
notes remaining after the conversion to EZConnect Common Stock shall be paid
by EZConnect in cash within three (3) days following the Closing Date.
Section 5.05 Encore Representation on EZConnect Board. EZConnect shall take
such steps as may be necessary to appoint Kevin Hamilton to the Board of
Directors of EZConnect effective as of the Effective Time and, if Mr. Hamilton
is to be elected by the shareholders of EZConnect, to use its best efforts in
good faith to cause the EZConnect shareholders to elect Mr. Hamilton as a
director of EZConnect. In the event that Mr. Hamilton shall be unable or
unwilling to serve as a member of the Board of Directors of EZConnect, Tod
Turley shall be elected to the Board of Directors of EZConnect as Mr.
Hamilton's replacement.
Section 5.06 Transactions With Affiliates. Encore shall provide to
EZConnect, for possible inclusion in SEC fillings, a description of every
material contract, agreement, or arrangement between Encore and any person who
is or has ever been an officer or director of Encore or person owning of
record, or known by Encore to own beneficially, 5% or more of the issued and
outstanding Encore Common Stock and which is to be performed in whole or in
part after the date hereof or was entered into within three years before the
date hereof. Encore represents and warrants that, in all of such
circumstances, the contract, agreement, or arrangement was for a bona fide
business purpose of Encore and the amount paid or received, whether in cash,
in services, or in kind, is, has been during the full term thereof, and is
required to be during the unexpired portion of the term thereof, no less
favorable to Encore than terms available from otherwise unrelated parties in
arm's length transactions. Except as disclosed in such description, no
officer or director of Encore, or 10% shareholder of Encore has, or has had
during the preceding three years, any interest, directly or indirectly, in any
material transaction with Encore. The description shall also include a
description of any commitment by Encore, whether written or oral, to lend any
funds to, borrow any money from, or enter into any other material transaction
with, any such affiliated person.
Section 5.07 Indemnification by Encore. Encore will indemnify and hold
harmless EZConnect and its directors and officers, and each person, if any,
who controls EZConnect within the meaning of the Securities Act, from and
29
against any and all losses, claims, damages, expenses, liabilities, or actions
to which any of them may become subject under applicable law (including the
Securities Act and the Exchange Act) and will reimburse them for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any claims or actions, whether or not resulting in liability,
insofar as such losses, claims, damages, expenses, liabilities, or actions
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any application or statement filed
with a governmental body or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein, or necessary in order to make the statements therein not misleading,
but only insofar as any such statement or omission was made in reliance upon
and in conformity with information furnished in writing by Encore expressly
for use therein. Encore agrees at any time upon the request of EZConnect to
furnish it with a written letter or statement confirming the accuracy of the
information with respect to Encore contained in any report or other
application or statement referred to in this Section 5.07, or in any draft of
any such documents, and confirming that the information with respect to Encore
contained in such document or draft was furnished by Encore, indicating the
inaccuracies or omissions contained in such document or draft or indicating
the information not furnished by Encore expressly for use therein. The
indemnity agreement contained in this Section 5.07 shall remain operative and
in full force and effect, regardless of any investigation made by or on behalf
of EZConnect and shall survive the consummation of the transactions
contemplated by this Agreement for a period of two years.
Section 5.08 Indemnification by EZConnect. EZConnect will indemnify and
hold harmless Encore, its directors and officers, and each person, if any, who
controls Encore within the meaning of the Securities Act, from and against any
and all losses, claims, damages, expenses, liabilities, or actions to which
any of them may become subject under applicable law (including the Securities
Act and the Exchange Act) and will reimburse them for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any claims or actions, whether or not resulting in liability,
insofar as such losses, claims, damages, expenses, liabilities, or actions
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any application or statement filed
with a governmental body or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein, or necessary in order to make the statements therein not misleading,
but only insofar as any such statement or omission was made in reliance upon
and in conformity with information furnished in writing by EZConnect expressly
for use therein. EZConnect agrees at any time upon the request of Encore to
furnish to it a written letter or statement confirming the accuracy of the
information with respect to EZConnect and its subsidiaries contained in any
information statement, report, or other application or statement referred to
in this Section 5.08, or in any draft of any such document, and confirming
that the information with respect to EZConnect contained in such document or
draft was furnished by EZConnect, indicating the inaccuracies or omissions
contained in such document or draft or indicating the information not
furnished by EZConnect expressly for use therein. The indemnity agreement
contained in this Section 5.08 shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of Encore and
shall survive the consummation of the transactions contemplated by this
Agreement for a period of two years.
30
Section 5.09 Exemption from Registration for Acquisition of EZConnect
Stock.
(a)The consummation of this Agreement and the Merger contemplated herein,
including the issuance of the EZConnect Preferred Stock to the Encore
stockholders in exchange for all of the issued and outstanding Encore Common
Stock, and the issuance of EZConnect Common Stock as partial payment of the
outstanding Encore notes payable, as contemplated herein, constitute the offer
and sale of securities under the Securities Act and applicable state statutes.
Such transactions shall be consummated in reliance on exemptions from the
registration and prospectus delivery requirements of such statutes which
depend, among other items, on the circumstances under which such securities
are acquired. In order to provide documentation for reliance upon the
exemptions from the registration and prospectus delivery requirements for such
transactions, each shareholder and converting note holder of Encore shall
execute and deliver to EZConnect an investment representation letter in
substantially the same form as that attached hereto as Exhibit "B-2."
(b)In connection with the transactions contemplated by this Agreement,
Encore and EZConnect shall each file, with the assistance of the other and
their respective legal counsel, such notices, applications, reports, or other
instruments as may be deemed by them to be necessary or appropriate in an
effort to document reliance on such exemptions, including a notice on form D
to be filed with the SEC, and the appropriate regulatory authority in the
state where Encore stockholders reside unless an exemption requiring no filing
is available in such jurisdiction, all to the extent and in the manner as may
be deemed by such parties to be appropriate.
(c)In order to more fully document reliance on the exemptions as provided
herein, Encore shall execute and deliver to EZConnect, at or prior to the
Closing, such further letters of representation, acknowledgment, suitability,
or the like, as EZConnect and its counsel may reasonably request in connection
with reliance on exemptions from registration under such securities laws.
(d)EZConnect and Encore acknowledge that the basis for relying on
exemptions from registration or qualifications are factual, depending on the
conduct of the various parties, and that no legal opinion or other assurance
will be required or given to the effect that the transactions contemplated
hereby are in fact exempt from registration or qualification.
Section 5.10Tax Aspects of Merger. Within thirty (30) days from the date of
execution of this Agreement, Encore shall have taken such steps as it deems
necessary to confirm its understanding that the receipt of the EZConnect
Preferred Stock by the Encore Shareholders as a result of the Merger will not
be taxable to the Encore Shareholders at the time of the Merger under section
368 of the Code. If within such period, Encore reasonably determines that the
receipt of the EZConnect Preferred Stock will be taxable to the Encore
Shareholders, the parties will use their best efforts in good faith to alter
the structure of the transaction (without altering the economic substance or
relevant rights or benefits to the Parties) so as to avoid such adverse tax
consequences. If the transaction cannot be so restructured on terms
acceptable to both parties, and Encore provides a written legal opinion from
qualified legal counsel to the effect that the receipt of the EZConnect
Preferred Stock will be taxable to the Encore Shareholders, Encore may
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terminate this Agreement upon its refund to EZConnect of all amounts paid by
EZConnect to Encore hereunder.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF ENCORE
The obligations of Encore under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
Section 6.01 Accuracy of Representations. The representations and
warranties made by EZConnect in this Agreement were true when made and shall
be true at the Closing Date with the same force and effect as if such
representations and warranties were made at and as of the Closing Date (except
for changes therein permitted by this Agreement), and EZConnect shall have
performed or complied with all covenants and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing.
Encore shall be furnished with certificate, signed by a duly authorized
officer of EZConnect and dated the Closing Date, to the foregoing effect.
Section 6.02 Officer's Certificates. Encore shall have been furnished
with a certificate dated the Closing Date and signed by a duly authorized
executive officer of EZConnect to the effect that no litigation, proceeding,
investigation, or inquiry is pending or, to the best knowledge of EZConnect,
threatened, which might result in an action to enjoin or prevent the
consummation of the transactions contemplated by this Agreement. Furthermore,
based on certificates of good standing, representations of government agencies
and EZConnect's own documents, the certificate shall represent that:
(a)This Agreement and each other agreement or document to be executed and
delivered pursuant to the terms of this Agreement has been duly approved by
EZConnect's board of directors and has been duly executed and delivered in the
name and on behalf of EZConnect by its duly authorized officers pursuant to,
and in compliance with, authority granted by the board of directors and
shareholders of EZConnect in the manner required by the NRS;
(b) The representations and warranties of EZConnect set forth in this
Agreement and each other agreement or document to be executed and delivered
pursuant to this Agreement are true and correct as of the date of the
certificate;
(c) There has been no EZConnect Material Adverse Effect up to and including
the date of the certificate, and EZConnect is current in the filing of all
periodic reports required to be filed by it with the SEC; and
(d) All conditions required by this Agreement to have been met, satisfied, or
performed by EZConnect have been met, satisfied or performed.
Section 6.03 No EZConnect Material Adverse Effect. There shall not have
occurred any EZConnect Material Adverse Effect.
Section 6.04 Good Standing. Encore shall have received certificates of
good standing from the Nevada Secretary of State, dated as of a date within
five days prior to the Closing Date, certifying that EZConnect and Merger Sub
are in good standing as a corporations in the state of Nevada.
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Section 6.05 Employment Agreements. EZConnect shall have entered into
employment agreements with each of Tod M. Turley and Kevin Hamilton in
substantially the same form as those attached hereto as Exhibits "C-1" and "C-
2" and incorporated herein by reference.
Section 6.06Nature of EZConnect Trading Market. The daily trading volume of
EZConnect Common Stock as reported on the OTC Bulletin Board shall have been a
minimum of 10,000 shares on at least fifteen of the thirty trading days
immediately preceding the Closing Date and the average Closing Price for
EZConnect Common Stock during the thirty trading days prior to the Closing
Date shall be not less than $3.00 per share.
Section 6.07Working Capital. On the Closing Date, EZConnect shall have
working capital in the minimum amount of $300,000 for use in connection with
the execution of Encore's business plan (including the payment of additional
security to obtain more favorable payment terms from Encore's vendors), or
shall have received binding commitments from third parties to provide funding
to EZConnect for such purposes within thirty (30) days from the Closing Date
in an amount not less than the difference between $300,000 and the amount of
EZConnect's working capital on the Closing Date.
Section 6.08Waiver of Sprint Right of First Refusal. Sprint Spectrum L.P.
shall not have exercised within the time period required its right of first
refusal to acquire Encore which is described in the Encore Schedules, and
there shall not exist any additional or other right entitling any person to
acquire all or any interest in Encore.
Section 6.09Registration Rights Agreement. EZConnect shall have entered into
a registration rights agreement with the Encore shareholders in a mutually
acceptable form entitling the Encore shareholders to: (i) "piggyback"
registration rights in the customary form (and subject to exclusion based on
the objection of the underwriter in any offering giving rise to such
registration rights); and demand registration rights requiring EZConnect to
use its best efforts to file and cause to become effective a registration
statement at the expense of EZConnect (except for sales commissions, selling
shareholder legal fees and other items customarily paid for by the selling
shareholders) on one occasion upon the demand of Encore Shareholders holding
more than 50% of the EZConnect Preferred Stock (including EZConnect Common
Stock into which the EZConnect Preferred Stock has been converted) and to
cause such registration statement to remain effective for a period of not less
than six months. The piggyback registration rights described in (i) above
shall become effective commencing on the date the escrow with respect to the
Subscriber Base Shares is terminated and shall continue for three years; and
(ii) the demand registration rights described in (ii) above shall become
effective one year from the date the escrow with respect to the Subscriber
Base Shares is terminated and shall continue for two years. The registration
rights agreement shall provide that unless otherwise consented to by EZConnect
in writing, no Encore Shareholder (and any person whose sales would be
required to be aggregated with his or hers under Rule 144 promulgated under
the Securities Act) shall sell a number of shares of EZConnect Common Stock in
any single week which is greater than 10% of the average weekly reported
volume of trading in EZConnect common stock on the OTC Bulletin Board (or any
successor exchange or market) during the four calendar weeks preceding the
week in which sales are to take place.
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Section 6.10 EZConnect Acquisition Transactions. EZConnect shall have
complied with, and on the Closing Date shall be in compliance with, its
obligations under Section 4.04 hereof.
Section 6.11 EZConnect Stockholder Approval. The shareholders of EZConnect
shall have approved this Agreement and the Merger if and to the extent
required by the NRS.
Section 6.12 Other Items. Encore shall have received such further documents,
certificates, or instruments relating to the transactions contemplated hereby
as Encore may reasonably request.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF EZCONNECT AND MERGER SUB
The obligations of EZConnect and Merger Sub under this Agreement are
subject to the satisfaction, at or before the Closing Date, of the following
conditions:
Section 7.01 Accuracy of Representations. The representations and warranties
made by Encore in this Agreement were true when made and shall be true at the
Closing Date with the same force and effect as if such representations and
warranties were made at and as of the Closing Date (except for changes therein
permitted by this Agreement), and Encore shall have performed or complied with
all covenants and conditions required by this Agreement to be performed or
complied with by Encore prior to or at the Closing. EZConnect shall be
furnished with a certificate, signed by a duly authorized officer of Encore
and dated the Closing Date, to the foregoing effect.
Section 7.02 Officer's Certificates. EZConnect shall have been furnished
with a certificate dated the Closing Date and signed by a duly authorized
executive officer of Encore to the effect that no litigation, proceeding,
investigation, or inquiry is pending or, to the best knowledge of Encore,
threatened, which might result in an action to enjoin or prevent the
consummation of the transactions contemplated by this Agreement. Furthermore,
based on certificates of good standing, representations of government
agencies, and Encore's own documents, the certificate shall represent that:
(a)This Agreement and each other agreement or document to be executed and
delivered pursuant to the terms of this Agreement has been duly approved by
Encore's board of directors and has been duly executed and delivered in the
name and on behalf of Encore by its duly authorized officers pursuant to, and
in compliance with, authority granted by the board of directors and
shareholders of Encore in the manner required by the NRS;
(b)The representations and warranties of Encore set forth in this Agreement
and each other agreement or document to be executed and delivered pursuant to
this Agreement are true and correct as of the date of the certificate;
(c)There has been no Encore Material Adverse Effect up to and including the
date of the certificate; and
(d)All conditions required by this Agreement to have been met, satisfied, or
performed by Encore have been met, satisfied or performed.
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Section 7.03 No Encore Material Adverse Effect. Except as provided or
permitted herein, prior to the Closing Date, there shall not have occurred any
Encore Material Adverse Effect.
Section 7.04 Good Standing. EZConnect shall have received a certificate of
good standing from the California Secretary of State, dated as of a date
within five days prior to the Closing Date, certifying that Encore is in good
standing as a corporation in the state of California.
Section 7.05 Audited Financial Statements of Encore. Encore shall have
delivered to EZConnect the audited financial statements of Encore described in
Section 5.03 and the Audited Balance Sheet shall not indicate any material
adverse change in the financial position of Encore from the Unaudited Balance
Sheet.
Section 7.06 Elimination of Preferred Stock and Options. All outstanding
shares of Encore preferred stock shall have been converted to Encore Common
Stock and any outstanding options, warrants or similar rights pertaining to
any securities of Encore or its Subsidiaries shall have been converted to
shares of Encore Common Stock (through exercise or otherwise) or terminated.
Section 7.07 Waiver of Sprint Right of First Refusal. Sprint Spectrum L.P.
shall not have exercised within the time period required its right of first
refusal to acquire Encore which is described in the Encore Schedules, and
there shall not exist any additional or other right entitling any person to
acquire all or any interest in Encore.
Section 7.08 Limited Liabilities of Encore. At the Closing Date, the
liabilities of Encore shall consist solely of notes payable in the aggregate
principal amount of $300,000 and trade payables incurred in the ordinary and
usual course of Encore's business consistent with past practice. Tod Turley
and Kevin Hamilton shall deliver agreements to EZConnect certifying that this
condition has been satisfied and agreeing to indemnify EZConnect for any
undisclosed liabilities of Encore.
Section 7.09 Material Contracts in Force. All contracts that are necessary or
desirable for the profitable operation of Encore's business, including but not
limited to the contracts identified in the Encore Disclosure Schedules, shall
be in full force and effect at the Closing Date and Encore shall not be in
default of its obligations thereunder, and the counter parties to such
agreements shall have provided written notice to EZConnect to the effect that:
such contracts are in full force and effect, Encore is not in default in the
performance of its obligations under such contracts, and there are no offsets
or claims against amounts paid or to be paid in the future to Encore under
such contracts.
Section 7.10 Channels of Distribution. On or prior to the Closing Date,
Encore shall have entered into a total of not less than four private label
joint marketing and agency agreements similar to the agreement with Big
Planet, Inc., and the counter parties to such agreements shall be actively
engaged in selling subscriptions in accordance with the terms of such
agreements.
Section 7.11 Employment Agreements. EZConnect shall have entered into
employment agreements with each of Tod M. Turley and Kevin Hamilton in
35
substantially the same form as those attached hereto as Exhibits "C-1" and
"C-2" and incorporated herein by reference.
Section 7.12 Encore Stockholder Approval. The shareholders of Encore shall
have approved this Agreement and the Merger in the manner required by the
California Corporations Code.
Section 7.13 Encore Standstill and No Shop. Encore shall have complied with,
and on the Closing Date shall be in compliance with, its obligations under
Section 4.03 hereof.
Section 7.14 Changes in Encore Payment Terms. The Encore vendors described
below shall have consented in writing to change Encore's trade credit
arrangements to terms not less favorable to Encore than those described below,
which agreements shall not cause Encore to provide more than $300,000 in
additional security to such vendors: (a) Sprint Spectrum LP: "net 10 days,"
(b) Focus Affiliates, Inc. and any other material supplier of equipment to
Encore: "net 30 days," and (c) Martin Dawes Technologies Ltd. and any other
vendor providing material billing, sales and customer support services to
Encore: "net 30 days." Any additional security required to be provided by
Encore to such vendors (within the limits described above) in order to achieve
the payment terms described above, shall be provided by EZConnect at or within
thirty days after the Closing Date, and any amounts so provided or agreed to
be provided shall reduce the amount of working capital required to be made
available by EZConnect for Encore's business plan as provided in Section 6.07.
Section 7.15 Other Items. EZConnect shall have received such further
documents, certificates, or instruments relating to the transactions
contemplated hereby as EZConnect may reasonably request.
ARTICLE VIII
TERMINATION
Section 8.01 Termination. This Agreement may be terminated at any time before
the Effective Time (except as otherwise provided) as follows:
(a)by mutual written consent of each of EZConnect and Encore;
(b)by any Party, if the Effective Time shall not have occurred on or before
October 15, 2000 (the "Termination Date "); provided, however, that the right
to terminate this Agreement under this Section 8.01(b) shall not be available
to any Party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Effective Time to occur
on or before the Termination Date;
(c)by any Party, if a Governmental Entity shall have issued an order, decree
or injunction having the effect of making the Merger illegal or permanently
prohibiting the consummation of the Merger, and such order, decree or
injunction shall have become final and
nonappealable (but only if such Party shall have used its reasonable best
efforts to cause such order, decree or injunction to be lifted or vacated);
(d)by any Party if (i) there shall have been a material breach by the other of
any of its representations, warranties, covenants or agreements contained in
this Agreement, and such breach shall be incapable of being cured or, if
36
capable of being cured, shall not have been cured within 10 days after written
notice thereof shall have been received by the Party alleged to be in breach;
(e) by any Party if the audit of the Encore financial statements has not been
completed by that date which is 75 days after the Audit Start Date;
(f) by EZConnect for any reason or no reason at any time through and including
the Due Diligence Termination Date;
(g) by EZConnect if the Encore shareholders fail to approve this Agreement and
the Merger in the manner required by the California Corporations Code;
(h) by Encore if approval of this Agreement and/or the Merger by the
EZConnect shareholders is required by the NRS and such approval is not
obtained;
(i) by Encore if EZConnect is not ready, willing and able to purchase the
Encore Common Stock as provided in Section 1.01;
(j) by Encore if EZConnect should enter into an EZConnect Acquisition
Transaction not approved by Encore in the manner provided in Section 4.04; and
(k) by Encore if the receipt of the EZConnect Preferred Stock is determined to
be taxable to the Encore shareholders as provided in Section 5.10.
Section 8.02 Effect of Termination and Abandonment.
(a) In the event of termination of this Agreement pursuant to this Article
VIII, this Agreement (other than as set forth in Section 9.11) shall become
void and of no effect with no liability on the part of any party hereto (or of
any of its Representatives); provided, however, no such termination shall
relieve any party hereto from (i) any liability for damages resulting from any
willful and intentional breach of this Agreement, (ii) the liability of Encore
in certain circumstances to refund the $50,000 installment(s) made by
EZConnect, or issue the Encore Shares to EZConnect, pursuant to Section 1.01,
or (iii) any obligation to provide reimbursement for or pay the Fees and
Expenses (as defined below) pursuant to this Section 8.02; and
(b) In the event that this Agreement is terminated pursuant to Section 8.01(g)
or (h) by reason of the failure to obtain required stockholder approvals, the
Party not obtaining such approvals shall promptly upon such termination
(following receipt of a statement therefor) reimburse the other Party for all
fees and expenses (including, without limitation, fees and expenses of
counsel, accountants, consultants and other advisors and Representatives)
incurred by it in connection with this Agreement and the Merger ("Fees and
Expenses ").
ARTICLE IX
MISCELLANEOUS
Section 9.01 Publicity. The Parties agree that the initial press release with
respect to the Merger shall be a joint press release in a form reasonably
acceptable to both Parties, which shall not be issued until the Due Diligence
Termination Date has passed without the termination of this Agreement by
EZConnect, subject to the parties obligations under applicable securities
37
laws. Thereafter, subject to their respective legal obligations (including
requirements of stock exchanges and other similar regulatory bodies), the
Parties shall consult with one another, and use reasonable best efforts to
agree upon the text of any press release, before issuing any such press
release or otherwise making public statements with respect to the Merger and
in making any filings with any federal or state governmental or regulatory
agency or with any national securities exchange with respect thereto.
Section 9.02 Brokers. EZConnect and Encore agree that there were no finders
or brokers involved in bringing the parties together or who were instrumental
in the negotiation, execution, or consummation of this Agreement. Further,
EZConnect and Encore each agree to indemnify the other against any claim by
any third person for any commission, brokerage, or finder's fee or other
payment with respect to this Agreement or the transactions contemplated hereby
based on any alleged agreement or understanding between such party and such
third person, whether express or implied, from the actions of such party.
The covenants set forth in this section shall survive the Closing Date and the
consummation of the transactions herein contemplated.
Section 9.03 No Representation Regarding Tax Treatment. No representation or
warranty is made by any party to any other regarding the treatment of this
transaction for purposes of federal or state income taxation. Although this
transaction has been structured in part in an effort to qualify for treatment
under Section 368(D) of the Code, there is no assurance that any part of this
transaction in fact meets the requirements for such qualification. Each party
has relied exclusively on its own legal, accounting, and other tax adviser
regarding the treatment of this transaction for federal and state income taxes
and on no representation, warranty, or assurance from any other party or such
other party's legal, accounting, or other adviser.
Section 9.04 Governing Law. This Agreement shall be governed by, enforced and
construed under and in accordance with the laws of the United States of
America and, with respect to matters of state law, with the laws of the state
of Nevada.
Section 9.05 Notices. All notices, demands, requests, or other communications
required or authorized hereunder shall be deemed given sufficiently if in
writing and if personally delivered; if sent by facsimile transmission,
confirmed with a written copy thereof sent by overnight express delivery; if
sent by registered mail or certified mail, return receipt requested and
postage prepaid; or if sent by overnight express delivery:
If to EZConnect or
Merger Sub to:EZConnect, Inc..
Attn: J. Greg Spencer, President
6009 South Redwood Road
Salt Lake City, Utah 84123
Telecopy No: (801) 270-9712
With a copies to: Elliott N. Taylor, Esq.
TAYLOR AND ASSOCIATES
3090 East 3300 South, Suite 400
Salt Lake City, Utah 84109
Telecopy No: (801) 463-6085; and
38
Mark N. Schneider, Esq.
65 East 100 South, Suite 250
Salt Lake City, Utah 84111
Telecopy No.: (801) 359-1988
If to Encore, to: Encore Wireless, Inc.
Attn: Tod M. Turley, President
2900 Townsgate Road, Suite 200
Westlake Village, California 91361-3001
Telecopy No: (208) 279-9332
or such other addresses and facsimile numbers as shall be furnished by any
party in the manner for giving notices hereunder, and any such notice, demand,
request, or other communication shall be deemed to have been given as of the
date so delivered or sent by facsimile transmission, three days after the date
so mailed, or one day after the date so sent by overnight delivery.
Section 9.06 Certain Definitions; Interpretation. (a) For purposes of this
Agreement, the following terms shall have the following meanings:
(i) "Encore Material Adverse Effect" means any change in or effect (x) that is
or will be materially adverse to the business, results of operations, or
financial condition of Encore and its Subsidiaries taken as a whole, or
(y) that will prevent or materially impair Encore' ability to consummate the
Merger, provided that an Encore Material Adverse Effect shall not include
(xxx) changes or effects relating to economic conditions or financial markets
in general or the wireless communications industry in general, or (yyy) the
payment of salaries to Tod Turley and Kevin Hamilton subsequent to the date of
this Agreement in amounts not greater than those described in the Encore
Budget.
(ii) "EZConnect Material Adverse Effect" means any change in or effect (x)
that is or will be materially adverse to the business, results of operations
or financial condition of EZConnect and its Subsidiaries taken as a whole, or
(y) that will prevent or materially impair EZConnect's ability to consummate
the Merger or to issue shares of EZConnect Common Stock in accordance with the
terms hereof, provided that an EZConnect Material Adverse Effect shall not
include (xx) changes or effects relating to economic conditions or financial
markets in general or the wireless communications industry in general, (yyy)
changes in EZConnect's business plan and nature of operations consistent with
those disclosed in the EZConnect Disclosure Schedules, or (zzz) the issuance
of additional equity or debt securities of EZConnect to fund the obligations
of EZConnect under this Agreement. A decline in the stock market price of the
shares of EZConnect Common Stock in and of itself shall not be deemed an
"EZConnect Material Adverse Effect" but this qualification shall not alter the
conditions set forth in Section 6.06 of this Agreement.
(iii)" Affiliate" of a Person means a Person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned Person.
(iv) "Closing Price" means the average of the closing inside bid and asked
quotations for EZConnect common stock as quoted on the OTC Bulletin Board on
the date in question.
39
(v) "Control" (including the terms "controlled by" and "under common control
with") means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether
through the ownership of stock, as trustee or executor, by contract or credit
arrangement or otherwise.
(vi)"Person" means an individual, corporation, partnership, limited liability
company, association, trust, unincorporated organization, entity or group (as
defined in the Exchange Act).
(vii) "Subsidiary" of a Person means any corporation or other legal entity of
which such Person (either alone or through or together with any other
Subsidiary or Subsidiaries) is the general partner or managing entity or of
which at least a majority of the stock or other equity interests, the holders
of which are generally entitled to vote for the election of the board of
directors or others performing similar functions of such corporation or other
legal entity, is directly or indirectly owned or controlled by such Person
(either alone or through or together with any other Subsidiary or
Subsidiaries).
(viii) "Trailing Trading Price" means the average of the Closing Price for
EZConnect common stock on each of the five consecutive trading days occurring
immediately prior to the date of execution of this Agreement; provided, that
in no event shall the Trailing Trading Price be less than $2.40 or greater
than $3.00.
Section 9.07 Attorneys' Fees. In the event that any party institutes any
action or suit to enforce this Agreement or to secure relief from any default
hereunder or breach hereof, the prevailing party or parties shall reimburse
the non-prevailing party or parties for all costs, including reasonable
attorneys' fees, incurred in connection therewith and in enforcing or
collecting any judgment rendered therein.
Section 9.08 Schedules; Knowledge. Whenever in any section of this
Agreement reference is made to information set forth in the Disclosure
Schedules provided by EZConnect, Merger Sub, or Encore, such reference is to
information specifically set forth in such schedules and clearly marked to
identify the section of this Agreement to which the information relates.
Whenever any representation is made to the "knowledge" of any party, it shall
be deemed to be a representation that no officer or director of such party,
after reasonable investigation, has any knowledge of such matters.
Section 9.09 Third Party Beneficiaries. This contract is solely between
EZConnect, Merger Sub, and Encore and, except as specifically provided, no
director, officer, stockholder, employee, agent, independent contractor, or
any other person or entity shall be deemed to be a third party beneficiary of
this Agreement.
Section 9.10 Entire Agreement. This Agreement represents the entire
agreement among the parties relating to the subject matter hereof. All
previous agreements between the parties, whether written or oral, have been
merged into this Agreement. This Agreement alone fully and completely
expresses the agreement of the parties relating to the subject matter hereof.
There are no other courses of dealing, understandings, agreements,
representations, or warranties, written or oral, except as set forth herein.
40
Section 9.11 Survival. The representations, warranties, and covenants of the
respective parties shall survive the Closing Date and the consummation of the
transactions herein contemplated for a period of two years from the Closing
Date.
Section 9.12 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument.
Section 9.13 Remedies Cumulative; Amendment or Waiver. Every right and
remedy provided herein shall be cumulative with every other right and remedy,
whether conferred herein, at law, or in equity, and such remedies may be
enforced concurrently, and no waiver by any party of the performance of any
obligation by the other shall be construed as a waiver of the same or any
other default then, theretofore, or thereafter occurring or existing. At any
time prior to the Closing Date, this Agreement may be amended by a writing
signed by all parties hereto, with respect to any of the terms contained
herein, and any term or condition of this Agreement may be waived or the time
for performance thereof may be extended by a writing signed by the party or
parties for whose benefit the provision is intended.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their respective officers, thereunto duly authorized, as of the date first
above written.
EZConnect: EZConnect, Inc.
A Nevada Corporation
By /S/ J. Greg Spencer
Its: President
Encore: Encore Wireless, Inc.
A California Corporation
By /S/ Tod M. Turley
Its: President
Merger Sub: EZConnect Merger Co.
A Nevada corporation
By /S/ J. Greg Spencer
Its: President
41
EXHIBITS TO AGREEMENT AND PLAN OF MERGER
Exhibit A -- Designation of Rights, Privileges and Preferences of EZConnect
Preferred Stock
Exhibit B-1 Form of Investment Representation Letter to be signed by
Encore note holders.
Exhibit B-2 Form of Investment Representation Letter to be signed by
Encore shareholders.
Exhibit C-1 Form of employment agreement with Kevin Hamilton.
Exhibit C-2 Form of employment agreement with Tod Turley.