UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Sections 13 and 15(d) of
the Securities Exchange Act of 1934
January 8, 1998
Date of Report (Date of earliest event reported)
SA TELECOMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-18048 75-2258519
(State of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
1600 Promenade Center, 15th Floor
Richardson, TX 75080
(Address of Principal Executive Office)
(972) 690-5888
(Registrant's Telephone Number, Including Area Code)
(Not Applicable)
(Former Name or Former Address,
if Changed Since Last Report)
<PAGE>
Item 5. Other Events
On December 24, 1997, SA Telecommunications, Inc. and its subsidiaries
(collectively, the "Company") entered into a letter of intent (the "Letter of
Intent") to sell substantially all of their assets to EqualNet Holding Corp.
("EqualNet"). The Letter of Intent also provides for debtor-in-possession
financing by The Willis Group LLC (the "Willis Group") to the Company in an
amount of up to $3,000,000 (the "DIP Financing"). A copy of the Letter of Intent
is attached hereto as Exhibit 99.1, and incorporated herein by reference.
Following a hearing before the Bankruptcy Court on January 5, 1998 in
connection with the Letter of Intent, the Company, EqualNet and the Willis Group
entered into an amendment to the Letter of Intent (the "Amendment"), dated as of
January 7, 1998. The modifications to the Letter of Intent are set forth in the
Amendment, which is attached hereto as Exhibit 99.2 and incorporated herein by
reference.
Item 7. Financial Statements and Exhibits
(c) Exhibits:
Exhibit 99.1 Letter of Intent by and between SA
Telecommunications, Inc. and its
Subsidiaries, EqualNet Holding
Corp. and The Willis Group LLC.
Exhibit 99.2 Amendment to Letter of Intent by
and between SA Telecommunications,
Inc. and its Subsidiaries,
EqualNet Holding Corp. and The
Willis Group LLC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SA TELECOMMUNICATIONS, INC.
DATE: January 9, 1998 BY: /s/ Albert B. Gordon, Jr.
-------------------------
Albert B. Gordon, Jr.
Chief Executive Officer
SA TELECOMMUNICATIONS, INC.
1600 PROMENADE CENTER, 15TH FLOOR
RICHARDSON, TEXAS 75080
LETTER OF INTENT
December 24, 1997
EqualNet Holding Corp.
1250 Wood Branch Park Drive
Houston, Texas 77079
Attention: Mr. Zane D. Russell
Chief Executive Officer
The Willis Group LLC
5005 Woodway, Suite 350
Houston, Texas 77056
Attention: Mr. Mark Willis
Ladies and Gentlemen:
This is to confirm the proposal of (i) EqualNet Holding Corp.
("EqualNet") to purchase the assets and business of SA Telecommunications, Inc.
and its subsidiaries (collectively, "SA Telecom") on the terms set forth below
(the "Acquisition") and (ii) in connection therewith, Willis Group LLC, a Texas
limited liability company ("The Willis Group"), to provide debtor-in-possession
financing to SA Telecom. The Acquisition is subject to all of the conditions set
forth in Section 4, including the execution and delivery by EqualNet and SA
Telecom of a definitive purchase agreement (the "Purchase Agreement") providing
for the transactions referred to herein, which Purchase Agreement shall contain
such terms, conditions, representations and warranties as are customary for
transactions of this nature and as each party may deem appropriate. The
debtor-in-possession financing is subject to all of the conditions in Section
3(a), including the execution and delivery by The Willis Group, Greyrock
Business Credit ("Greyrock") and SA Telecom of definitive debtor- in-possession
financing documents consistent with the terms of Section 3. SA Telecom filed for
relief under the Bankruptcy Code on November 19, 1997 (the "Petition Date"). The
parties expect that the proposed Acquisition will occur as a sale under Section
363 of the Bankruptcy Code.
1. Principal Terms of Acquisition. The principal terms of Acquisition
shall be as follows:
(a) Assets. The assets to be purchased (the "Assets") shall be
all assets of SA Telecom, but excluding (i) cash and cash equivalents, (ii)
all income tax refunds and credits of SA Telecom, (iii) all causes of
action of SA Telecom, (iv) all rights of SA Telecom, as
debtor-in-possession, under Sections 544, 545, 547, 548, 549, 550 and
553(b) of the Bankruptcy Code and all amounts recovered by SA Telecom
pursuant thereto, (v) all contracts of SA Telecom (other than contracts
specified by EqualNet and which are assignable under applicable law (the
"Assigned Contracts")) and (vi) such other excluded assets as shall be
specified in the Purchase Agreement. A critical component of the proposed
Acquisition is the assignment to EqualNet of all carrier identification
codes currently held by SA Telecom. To the extent that such assignments are
not possible in connection with a sale of the Assets under Section 363 of
the Bankruptcy Code, the parties shall restructure the Acquisition to allow
for such assignments.
(b) Liabilities. EqualNet shall not be required to assume any
liabilities of SA Telecom other than (i) liabilities under the Assigned
Contracts that accrue after the date of assignment, (ii) unless not
included within the Assets to be purchased by EqualNet, the indebtedness of
SA Telecom associated with all telecommunications switches and related
equipment and software to be acquired by EqualNet, (iii) the pre- and
post-petition indebtedness (limited to principal, interest and up to
$100,000 of costs and attorney's fees) outstanding under the existing
financing between Greyrock and SA Telecom (the "Greyrock Facility") and
(iv) such other liabilities as the parties shall mutually agree.
(c) Consideration. Subject to Section 1(d) below, the
consideration to be paid by EqualNet for the Assets shall consist of (i)
the amount of the DIP Financing (including accrued interest thereon)
provided to SA Telecom by The Willis Group pursuant to Section 3, which
indebtedness shall be repaid by EqualNet on the closing date of the
Acquisition, plus (ii) a cash payment in an amount equal to the excess of
$3,000,000 over the outstanding amount of the DIP Financing immediately
prior to the closing of the Acquisition, which shall be used to pay
administrative expenses of SA Telecom to facilitate confirmation of a plan
of reorganization, plus (iii) an amount equal to all "cure payments"
required to be made by SA Telecom under the Bankruptcy Code in respect of
the Assigned Contracts, plus (iv) a cash payment in the amount of $22,500
per calendar day for the period from January 30, 1998 through the closing
date of the Acquisition; provided that such amount shall not exceed
$472,500 in the aggregate, plus (v) a promissory note (the "Note") to be
issued by EqualNet in favor of Greyrock in an amount equal to the lesser of
(a) the amount of the outstanding indebtedness (limited to principal,
interest and up to $100,000 of costs and attorney's fees) of SA Telecom to
Greyrock on the closing date of the Acquisition in excess of 75% of SA
Telecom's then outstanding accounts receivable that have aged by no more
than 119 days (excluding Excluded Receivables (as defined in the Greyrock
Facility)) and (b) $1,000,000 which Note shall bear interest at prime plus
2.5%, shall be payable in equal monthly installments of interest over a one
year period and equal monthly installments of principal over a nine month
period commencing three months after the issuance thereof and shall provide
for acceleration and attorney's fees upon the occurrence of an event of
default, plus (vi) the number of shares of Convertible Preferred Stock of
EqualNet ("Preferred Stock") equal to the quotient of (A) (x) 40% of the
annualized revenues of SA Telecom during the two calendar months ending
immediately prior to the closing date of the Acquisition less (y) all
amounts paid by EqualNet pursuant to clauses (i), (ii), (iii), (iv) and (v)
above and (B) $2.75, which Preferred Stock shall be convertible at the
option of the holder thereof into common stock, par value $.01 per share,
of EqualNet ("Common Stock") at the rate of (the "Conversion Price") (A) if
the average closing price of EqualNet's Common Stock for the five business
days ending on the third business day immediately preceding the closing
date of the Acquisition (the "Determination Period") is less than or equal
to $2.07 per share, one share of Common Stock in exchange for each share of
Preferred Stock or (B) if the average closing price of EqualNet's Common
Stock for the Determination Period is greater than $2.07 per share, the
number of shares of Common Stock equal to the product of (x) one and (y) a
fraction, the numerator of which is equal to $2.75 and the denominator of
which is equal to 133% of the average closing price of the Common Stock for
the Determination Period, in exchange for each share of Preferred Stock.
The Preferred Stock shall have the terms set forth in Annex I hereto and
such other terms as shall be negotiated by the parties.
(d) Escrow of Consideration. On the closing date of the
Acquisition, a number of shares of Preferred Stock equal in value to 20% of
the total consideration to be paid by EqualNet pursuant to Section 1(c)
shall be placed in escrow with a mutually acceptable escrow agent (the
"Escrowed Stock"). For purposes of the preceding sentence, each share of
Preferred Stock shall be valued at the Conversion Price thereof determined
pursuant to Section 1(c). On the fifth business day following the end of
the first two calendar months immediately following the closing date of the
Acquisition, EqualNet shall calculate the average monthly billable minutes
for such two calendar months (the "Post-Closing Monthly Minutes") in
respect of all of the customers of SA Telecom acquired by EqualNet pursuant
to the Acquisition. If the Post-Closing Monthly Minutes are at least equal
to 90% of SA Telecom's average monthly billable minutes for the two
calendar months ending immediately prior to the closing date of the
Acquisition (the "Pre- Closing Monthly Minutes"), 100% of the Escrowed
Stock shall be distributed to SA Telecom. If the Post-Closing Monthly
Minutes are equal to between 90% and 87% of the Pre-Closing Monthly
Minutes, 50% of the Escrowed Stock shall be distributed to SA Telecom and
the balance shall be returned to EqualNet. If the Post-Closing Monthly
Minutes are equal to or less than 87% of the Pre-Closing Monthly Minutes,
100% of the Escrowed Stock shall be distributed to EqualNet.
(e) Break-up Fee and Expenses. If, following the execution of
this letter by all parties, any third party or parties (other than EqualNet
or its affiliates), whether through a sale of assets, stock sale, merger,
consolidation, reorganization or other business combination involving SA
Telecom or otherwise, regardless of whether such transaction is pursuant to
a chapter 11 plan of reorganization, acquire all or any material portion
of, or interest in, the Assets, SA Telecom shall upon the closing of such
transaction (i) reimburse EqualNet for up to $100,000 of the expenses
(including attorney's fees) incurred by it in connection with the proposed
Acquisition and (ii) pay EqualNet a break-up fee of $400,000.
(f) Financing Conditions. The Acquisition shall not be subject to
any financing conditions, and EqualNet hereby confirms that it will have
all necessary financial resources to effect the Acquisition.
2. Auction. EqualNet understands that SA Telecom may be required under
the Bankruptcy Code to conduct an auction of the Assets and to sell the Assets
to any person or entity making an offer therefor which is determined by the
bankruptcy court to be higher and better than that reflected in this letter. The
parties hereto agree that such auction shall not occur prior to the earlier of
(i) February 6, 1997 and (ii) the closing of the transactions to be entered into
among EqualNet, The Willis Group and MCM Partners as described in that certain
EqualNet Proxy Statement filed with the Securities and Exchange Commission on
December 9, 1997. SA Telecom hereby agrees that it will not accept any offer to
purchase the Assets unless the fair market value of the total consideration to
be paid therefor exceeds the fair market value of the total consideration
(including assumption of liabilities) to be paid by EqualNet under this proposal
by at least $750,000.
3. DIP Financing. (a) Subject to the following conditions, The Willis
Group shall, if so requested by SA Telecom, on or after January 5, 1998 (as
determined pursuant to an operating budget prepared by SA Telecom and approved
by The Willis Group (the "Operating Budget")), provide SA Telecom with
debtor-in-possession financing in the amount of up to $3,000,000 (the "DIP
Financing") on the terms set forth in Section 3(b);
o Approval by the bankruptcy court of (i) the terms of the DIP
Financing set forth in this Section 3, (ii) the break- up fee and
reimbursement of expenses set forth in Section 1(e) and (iii) the
requirement in Section 2 that the fair market value of the total
consideration for any other offer to purchase the Assets exceed
the fair market value of the total consideration (including
assumption of liabilities) to be paid by EqualNet by at least
$750,000.
o Each of Greyrock, The Willis Group and SA Telecom shall be
satisfied with the pending post-petition amendments to the
Greyrock Facility and with the definitive agreements documenting
the DIP Financing, which definitive agreements shall contain
certain mutually acceptable operating covenants designed to
minimize SA Telecom's operating expenses.
o The Willis Group shall be satisfied that SA Telecom has not lost
more than 3% of its pre-petition customer base as a result of any
carriers or telecommunication service providers having
discontinued or refused service to SA Telecom on or prior to the
initial funding of the DIP Financing. The Willis Group shall be
satisfied with the order of the bankruptcy court to be entered on
or after January 5, 1998 with respect to (i) whether the carriers
and other telecommunication service providers are utilities for
purposes of Section 366 of the Bankruptcy Code and (ii) the
adequate assurances to be provided by SA Telecom to the carriers
and telecommunication service providers. Such order shall provide
that prior to discontinuing, altering or refusing service to SA
Telecom, the carriers and telecommunication service providers
shall have an obligation to notify the court and SA Telecom's
secured creditors and, upon receipt of such notice, the automatic
stay shall be lifted and such creditors shall have a reasonable
period in which to provide security to the carriers and
telecommunication service providers to ensure that they do not
discontinue, alter or refuse service prior to the time in which
the secured creditors can conduct a foreclosure sale.
(b) The terms of the DIP Financing shall be as follows:
o Except as set forth below, on terms substantially identical to
those set forth in the Greyrock Facility.
o Interest rate of 14% per annum.
o The liens securing the DIP Financing shall be prior to the liens
securing the Greyrock Facility in an amount equal to the lesser
of (i) $750,000 and (ii) 25% of the outstanding amount of the DIP
Financing (the "Senior Debt"); provided, however, that The Willis
Group can only foreclose on the portion of the DIP Financing that
is subordinate to the Greyrock Facility and if Greyrock
forecloses upon its senior interest it will remit the first net
proceeds to The Willis Group, as received, until payment of the
portion of the DIP Financing that is senior to the Greyrock
Facility.
o In the event that any of the liens securing the existing Greyrock
Facility are set aside, modified, altered or voided (collectively
a "Security Interest Invalidation"), the DIP Financing shall
nonetheless (i) be secured by all of the assets of SA Telecom and
(ii) be an administrative expense in accordance with Section
364(c)(1) and 364(d) of the Bankruptcy Code with priority over
all other administrative expenses of the kind specified in
Section 503(b) and 507(b) of the Bankruptcy Code; provided;
however, that in the event of a Security Interest Invalidation,
any payment made on account of the DIP Financing shall, to the
extent of receipt of such payment, decrease the priority of the
Senior Debt. In the event the liens securing the Greyrock
Facility are set aside or voided, the priority claims granted in
respect of the DIP Financing shall be subject to a carve-out on
the same terms as that agreed to by Greyrock for (x) the payment
of professional fees in an aggregate amount not to exceed
$200,000 and (y) the payment of unpaid fees under 28 U.S.C. ss.
1930(a) and unpaid fees payable to the clerk of the bankruptcy
court or the United States Trustee.
o Upon the occurrence of any Event of Default (as defined in the
Greyrock Facility (as amended to include the DIP Financing), but
excluding any provision therein relating to the insolvency or
financial condition of SA Telecom or the filing of its Chapter 11
bankruptcy case) or at such time as any carrier or
telecommunication service provider discontinues, alters or
refuses service to SA Telecom or obtains bankruptcy court
approval to discontinue, alter or refuse service to SA Telecom,
the automatic stay shall immediately be lifted upon notice by
Greyrock or The Willis Group to the bankruptcy court and SA
Telecom and each of Greyrock and the Willis Group shall have the
right to commence foreclosure proceedings in respect of the
collateral securing the Greyrock Facility or the DIP Financing,
as applicable.
o The proceeds of the DIP Financing shall be used in accordance
with the Operating Budget to pay amounts for administrative
expenses and for the working capital requirements of SA Telecom.
o The DIP Financing shall mature and be paid in full on the
earliest of (i) the closing date of the Acquisition or the
closing of a sale of all or substantially all of the Assets to
any other party, (ii) March 31, 1998 and (iii) the effective date
of a plan of reorganization for SA Telecom.
o Upon the initial funding of the DIP Financing, SA Telecom shall
pay The Willis Group a $45,000 origination fee and shall
reimburse The Willis Group for up to $50,000 of the expenses
incurred by it (including attorney's fees) in connection with the
DIP Financing.
o Subject to Greyrock and EqualNet reaching an agreement otherwise,
until the Greyrock Facility is paid in full, (i) the Assets
acquired by EqualNet and all new accounts receivable generated by
the customer base acquired by EqualNet in the Acquisition shall
be subject to the first priority liens thereon in favor of
Greyrock and (ii) all of the remaining assets of SA Telecom,
including the Preferred Stock issued by EqualNet as consideration
for the purchase of the Assets, shall be subject to a first
priority lien in favor of Greyrock, both of which first priority
liens shall be evidenced by a UCC-1 Financing Statement, Security
Agreement and Pledge Agreement containing provisions identical to
those underlying the Greyrock Facility.
o EqualNet agrees that upon the closing of the Acquisition it shall
administer the collection of the accounts receiv- able acquired
by it in the Acquisition and all new accounts receivable
generated by the customer base acquired by it in the Acquisition,
and shall remit all such collections to Greyrock, without
deduction for costs of administration, until such time as the
Greyrock Facility has been paid in full (including, but not
limited to, all indebtedness thereunder due and owing pre-
petition and post-petition and all sums due and owing under the
Note referenced in Section 1(c) above). All such collections
shall be applied first to the sums due and owing to Greyrock
other than under the Note and, after all of those sums have been
paid in full, shall then be applied to the Note in inverse order
of maturity.
4. Conditions to Closing the Acquisition. (a) The obligation of
EqualNet to purchase the Assets shall be subject to the following conditions:
(i) the negotiation and execution by EqualNet and SA Telecom of a
mutually acceptable Purchase Agreement, which Purchase Agreement shall be
executed and delivered on or before January 8, 1998;
(ii) the absence of any material adverse change in the assets of
SA Telecom from the date hereof;
(iii) the completion by EqualNet of a due diligence review of SA
Telecom and EqualNet's satisfaction with the results thereof, which due
diligence shall be completed within 10 business days from the date hereof;
(iv) the approval by the bankruptcy court of the terms of the
Purchase Agreement and the Acquisition;
(v) the receipt by each party of all necessary board of directors
approvals;
(vi) the receipt of all necessary governmental and regulatory
approvals; and
(vii) the Acquisition shall close on or before February 19, 1998.
(b) The obligation of SA Telecom to sell the Assets to EqualNet shall
be subject to conditions specified in clauses (i), (iv), (v) and (vi) of
paragraph 4(a) above and to the following additional conditions:
(i) the absence of any material adverse change in the financial
condition or results of operations of EqualNet from that reflected in the
financial statements of EqualNet dated September 30, 1997;
(ii) the completion by SA Telecom of a due diligence review of
EqualNet and SA Telecom's satisfaction with the results thereof, which due
diligence shall be completed within 10 business days from the date hereof;
(iii) if so requested by SA Telecom, The Willis Group shall have
provided the DIP Financing to SA Telecom in accordance with Section 3; and
(iv) SA Telecom shall not have received an offer for the Assets
at the auction referred to in Section 2 above, the fair market value of the
total consideration for which exceeds the fair market value of the total
consideration (including assumption of liabilities) to be paid by EqualNet
by at least $750,000.
5. Confidentially. Upon execution of this letter by all parties,
EqualNet, SA Telecom and The Willis Group shall enter into a mutually acceptable
Confidentiality Agreement. In the conduct by EqualNet, SA Telecom and The Willis
Group of their respective due diligence reviews and thereafter, such parties and
their respective employees, officers, agents and representatives shall be bound
by the provisions of such Confidentiality Agreement.
6. Cooperation; Access. (a) It is the intent of the parties that
negotiations leading to a definitive Purchase Agreement shall commence promptly
after the execution of this letter by all parties, that a definitive Purchase
Agreement be executed forthwith and that the closing of the Acquisition occur as
soon as practicable thereafter in accordance with the terms of the definitive
Purchase Agreement and any applicable provisions of the Bankruptcy Code and
orders of the bankruptcy court. Upon receipt of a fully executed copy of this
letter, SA Telecom will cause its attorneys to prepare a form of the proposed
Purchase Agreement. EqualNet and SA Telecom agree to cooperate with each other
and negotiate in good faith in order to prepare and execute as promptly as
possible a mutually acceptable definitive Purchase Agreement (which shall
contain no material conditions precedent except as set forth in Section 4) and
to prepare and file as promptly as possible all filings which must be made with
any court or governmental authorities with respect to the Acquisition.
(b) Upon execution of this letter by all parties, each party will
commence its due diligence review of the other party. Each party agrees to
afford representatives of other party and its legal, financial, accounting and
other advisors reasonable access to such party's books, records and facilities,
offices, and employees during normal working hours in order to permit each party
to conduct its due diligence review of the other party. Such due diligence shall
be completed within 10 business days from the date hereof.
7. Public Announcement. Except as otherwise required by law, pending
the closing of the transaction, the parties hereto shall not, without the prior
written consent of the other parties hereto, which consent shall not be
unreasonably withheld, issue any press releases or make any other public
announcement with respect to this letter of intent, the proposed Acquisition or
the other transactions contemplated hereby, and shall generally treat the same
as confidential.
8. Expenses. Except as set forth in Section 1(e) and Section 3(b)
above, each of SA Telecom, EqualNet and The Willis Group will bear its own
expenses in connection with this letter of intent, the due diligence review
contemplated herein, the negotiations of the Purchase Agreement and the
completion of the Acquisition.
9. Governing Law. This letter shall be governed by and construed in
accordance with the laws of the State of New York, without regard to its
conflict of laws principles.
10. Non-Solicitation. If the Acquisition does not take place, EqualNet
will not, prior to December 31, 1999 solicit any customers of SA Telecom who
were such customers on the date hereof or any day during the period of
negotiations for the Acquisition, except for solicitations directed to the
public at large and not to specific customers of SA Telecom. If the Acquisition
does not take place, EqualNet will not, without SA Telecom's consent, prior to
February 28, 1998 solicit for employment, consulting or other relevant services
any officers or employees of SA Telecom, except for solicitations directed to
the public at large and not to specific officers or employees of SA Telecom.
EqualNet will indemnify SA Telecom from and against all expenses and losses
which SA Telecom may sustain by reason of any breach by EqualNet of its
agreements contained in this Section 10. This indemnity shall survive any
termination of negotiations with respect to the Acquisition.
If the foregoing correctly sets forth our understanding, please sign,
date and return to SA Telecom, 1600 Promenade Center, 15th Floor, Richardson,
Texas 75080, Attn: Albert B. Gordon, Jr., the enclosed copy of this letter
signifying your assent to the terms and conditions herein set forth.
Very truly yours,
SA TELECOMMUNICATIONS, INC.
By: /s/ Albert B. Gordon, Jr.
----------------------------
Name: Albert B. Gordon, Jr.
Title: CEO
Confirmed and Agreed:
EQUALNET HOLDING CORP.
By: /s/ Michael L. Hlinak Date: 12/24/97
------------------------ ---------------
Name: Michael L. Hlinak
Title: COO
THE WILLIS GROUP LLC
By: /s/ Mark Willis Date: 12/24/97
------------------------ ----------------
Name: Mark Willis
Title: President
Confirmed and Agreed as to Sections 1 and 3:
GREYROCK BUSINESS CREDIT, a
Division of NationsCredit
Commercial Corporation
By: /s/ Richard Suhl Date: 12/24/97
------------------------ ----------------
Name: Richard Suhl
Title: President
<PAGE>
ANNEX I
Convertible Preferred Stock
Summary of Terms for Discussion Purposes ONLY
Security offered:
Convertible Preferred Stock issued by
EqualNet Holding Corp. ("EqualNet"). The
parties intend that the Preferred Stock
shall be offered and sold under a plan or
reorganization in accordance with Section
1145(a)(1) of the Bankruptcy Code, and
that for purposes of such section only,
EqualNet shall be a successor to SA
Telecom under the plan.
Dividend rate: $0.20 per share per annum when, as and if
declared by the Board of Directors out of
funds legally available for the payment of
dividends, payable "in kind" or cash at
EqualNet's sole discretion. Liquidation
Preference
Amount: $2.75 per share.
Redemption at the The Preferred Stock may be redeemed by
Company's option: EqualNet as a whole or in part at any time
on not less than 30 nor more than 60 days
prior notice, beginning on the one year
anniversary of the date of issuance of the
Preferred Stock, except that the Preferred
Stock may be called prior to that date at
such time as the Common Stock of EqualNet
shall have traded at 125% or more of the
conversion price then in effect for at
least 20 of 30 trading days. The
redemption price per share for the
twelve-month periods beginning on of each
year set below will be:
Year Redemption
Price Per Share
---- ---------------
1998 $2.8875
1999 2.81875
2000 and thereafter 2.75
Rank: Prior to the Common stock and junior to
the Series A Preferred Stock to be issued
in connection with the transactions among
EqualNet, The Willis Group and MCM
Partners.
SA TELECOMMUNICATIONS, INC.
1600 PROMENADE CENTER, 15TH FLOOR
RICHARDSON, TEXAS 75080
AMENDMENT TO LETTER OF INTENT
Dated as of January 7, 1998
EqualNet Holding Corp.
1250 Wood Branch Park Drive
Houston, Texas 77079
Attention: Mr. Zane D. Russell
Chief Executive Officer
Willis Group LLC
5005 Woodway, Suite 350
Houston, Texas 77056
Attention: Mr. Mark Willis
Gentlemen:
Let this letter amendment serve as an agreement of understanding among
the signatories hereto to that certain Letter of Intent, dated December 24,
1997, among the parties hereto (the "Letter of Intent") with respect to certain
required modifications thereto. Unless otherwise defined herein, all capitalized
terms shall have the meaning ascribed to them in the Letter of Intent.
Specifically, the parties hereto agree that the Letter of Intent shall
be amended and modified as follows:
(1) Section 1(e) of the Letter of Intent shall be deleted in its entirely
and replaced by the following:
(e)(i) If, following execution of the Asset Purchase Agreement by all
parties, any third party or parties (other than EqualNet or its
affiliates), acquires -- for consideration other than the cancellation
of indebtedness or the extension of trade credit terms by vendors --
50% or more of, or 50% or more of an interest in, the Assets or equity
in the reorganized Debtors (the "Other Acquisition"), whether such
Other Acquisition is accomplished by means of an asset sale, stock
sale, merger, consolidation, reorganization or other business
combination, and regardless of whether such Other Acquisition is
accomplished pursuant to a chapter 11 plan of reorganization or a sale
pursuant to section 363(b) of the Bankruptcy Code, then upon the
closing of such Other Acquisition (or upon the effective date of a
chapter 11 plan accomplishing the same), SA Telecom shall (i)
reimburse EqualNet for up to $100,000 of EqualNet's expenses
(including attorneys' fees) incurred by it in connection with its
proposed acquisition (the "Sale Expense Reimbursement"), and (ii) pay
EqualNet a break-up fee of $300,000 (the "Break-Up Fee").
(e) (ii) If by February 13, 1998, a sale hearing pursuant to section
363(b) of the Bankruptcy Code has not been held and concluded by the
Bankruptcy Court, then SA Telecom shall reimburse EqualNet for up to
$100,000 of the expenses (including attorneys' fees) incurred by it in
connection with its proposed acquisition (the "Restructuring Expense
Reimbursement," and collectively with the Sale Expense Reimbursement,
the "Expense Reimbursements"). EqualNet's right to receive the
Restructuring Expense Reimbursement shall vest upon entry of an order
of the Bankruptcy Court approving the same, and SA Telecom shall be
required to pay EqualNet this Restructuring Expense Reimbursement on
March 31, 1998.
(2) The last sentence of paragraph 2 of the Letter of Intent is amended to
provide that SA Telecom hereby agrees that it will not accept any offer to
purchase the Assets unless the fair market value of the total consideration
to be paid therefor exceeds the fair market value of the total
consideration (including assumption of liabilities) to be paid by EqualNet
under this proposal by at least $500,000.
(3) Paragraph 3 of the Letter of Intent is deleted in its entirety. The
Willis Group shall hereafter have no obligation under the Letter of Intent
to provide SA Telecom with any debtor-in- possession financing. Any
references found in the remainder of the Letter of Intent with respect to
The Willis Group's obligations to provide debtor- in-possession financing
shall be ignored.
(4) Paragraph 4(a)(i) of the Letter of Intent is amended to read as
follows: "(i) the negotiation and execution by EqualNet and SA Telecom of a
mutually acceptable Purchase Agreement, which Purchase Agreement shall be
executed and delivered on or before January 12, 1998."
(5) Paragraph 4(b)(iv) of the Letter of Intent is amended to provide that
"SA Telecom shall not have received an offer for the Assets at the auction
referred to in Section 2 above, the fair market value of the total
consideration for which exceeds the fair market value of the total
consideration (including assumption of liabilities) to be paid by EqualNet
by at least $500,000."
In all other respects, the signatories hereto agree that the Letter of
Intent shall remain in full force and effect according to its terms and
conditions.
Very truly yours,
SA TELECOMMUNICATIONS, INC.
By: /s/ Albert B. Gordon, Jr.
--------------------------
Name: Albert B. Gordon, Jr.
Title: CEO
Confirmed and Agreed to:
EQUALNET HOLDING CORP.
By: /s/ Zane Russell
--------------------------
Name: Zane Russell
Title: CEO
Date: January 8, 1998
WILLIS GROUP LLC
By: /s/ Mark Willis
--------------------------
Name: Mark Willis
Title: President
Date: January 8, 1998
GREYROCK BUSINESS CREDIT, a
Division of Nationscredit
Commercial Corporation
By: /s/ Richard Suhl
--------------------------
Name: Richard Suhl
Title: President
Date: January 8, 1998
