UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
Amendment No. 2 to
Annual Report on Form 10-K
on
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-25482
EQUALNET HOLDING CORP.
(Exact name of registrant as specified in its charter)
Texas 76-0457803
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1250 Wood Branch Park Drive, Houston, Texas 77079
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, include area code: (281) 529-4600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of October 27, 1997, was $6,316,337, based upon the closing price
of $1.50 per share quoted by The Nasdaq Stock Market, Inc.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Title of Class Outstanding at October 27, 1997
-------------- -----------------------------
Common Stock 6,660,968
par value $.01 per share
<PAGE>
EXPLANATORY NOTE
This Form 10-K/A amends Items 10, 11, 12, 13 and 14(c) of the Annual Report
on Form 10-K, as amended by Amendment No. 1 to Annual Report on Form 10-K on
Form 10-k/A, of EqualNet Holding Corp. ("EqualNet or the "Company") for the year
ended June 30, 1997.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names, ages and titles of the
Company's directors and executive officers as of October 27, 1997.
Year Term
As Director
Name Age Position(s) Will Expire
Zane Russell 32 Chairman of the Board, 1999
Chief Executive Officer,
President and Director
Michael L. Hlinak 48 Executive Vice President, 1998
Chief Financial Officer,
Chief Operating Officer
and Director
Dean H. Fisher 47 Senior Vice President,
General Counsel and Secretary
Terry S. Parker 52 Director 1998
Walter V. Klemp 38 Director 1997
ZANE RUSSELL co-founded EqualNet in July 1990 and served as President
and director since that time until November 1994 when he assumed the position of
Chairman of the Board and Chief Executive Officer. He has also served as the
President of the Company since January 1996. Prior to the formation of EqualNet,
from January to July 1990, he was a commercial accounts manager for American
Telco Long Distance. From November 1989 to November 1990, Mr. Russell served as
project manager for Natkin Mechanical, a construction company.
MICHAEL L. HLINAK has served as a director of EqualNet since July 1991
and as Chief Financial Officer since June 1994, becoming Senior Vice President
in November 1994 and Chief Operating Officer in May 1996. Mr. Hlinak, a
certified public accountant, is President and sole owner of Cardinal Interests,
Inc., a diversified Houston investment company which he founded in 1985. He also
has been the President of Partners Management Company, a management services
company, since 1986.
DEAN H. FISHER became Vice President and General Counsel of EqualNet in
May 1993, Senior Vice President in November 1994 and Secretary in January 1995.
He has also served as director of EqualNet Corporation, a wholly-owned
subsidiary of the Company, since July 1991. From May 1976 to June 1993, Mr.
Fisher was engaged in the private practice of law in Houston, Texas, serving as
President of Fisher & Readhimer, P.C. from April 1985 to June 1993.
TERRY S. PARKER has served as a director of EqualNet since November
1995. Mr. Parker also serves on the Boards of Directors of CellStar Corporation
("CellStar") and Highway Master Communications, Inc. Mr. Parker was the
president and chief operating officer of CellStar, a major supplier of cellular
telecommunications products, from April 1995 until July 1996. Prior to joining
CellStar, Mr. Parker was with GTE Corporation, where he served as president of
GTE Telecommunications Products and Services from 1990 to 1993 and served as
both senior vice president of GTE Corporation and president of GTE Personal
Communications Services from April 1993 to March 1995.
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<PAGE>
WALTER V. KLEMP has served as a director of the Company since April
1995. He has served as Chairman of the Board and Co-Chief Executive Officer of
Drypers Corporation, which manufactures and markets disposable diapers, since
January 1995 and has also been a director since its formation in 1987. He served
as the Managing Director-Finance of Drypers Corporation from its formation until
December 1994. In 1984, Mr. Klemp participated in the formation of VMG Holdings
Corp., a disposable diaper manufacturer, and in 1987, the formation of Drypers
Corporation. From February 1984 to April 1986, he served as Chief Financial
Officer of VMG Holdings Corp. Prior to 1984, Mr. Klemp, a certified public
accountant, specialized in consulting to development stage businesses with the
accounting firm of Coopers & Lybrand L.L.P.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of reports on Forms 3 and 4 and amendments
thereto furnished to the Company during its most recent fiscal year and written
representations from certain reporting persons that no report on Form 5 was
required, the Company believes that during the fiscal year ended June 30, 1997,
all officers, directors and greater than 10% shareholders complied with all
filing requirements applicable to them, except that The Furst Group, Inc. failed
to file a Form 3 on a timely basis and Michael L. Hlinak failed to file a Form 5
on a timely basis.
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table summarizes compensation information concerning the
Chief Executive Officer and each of the Company's most highly compensated
executive officers as to whom the total annual salary and bonus for the fiscal
year ended June 30, 1997, exceeded $100,000 (the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
COMMON STOCK ALL OTHER
NAME AND FISCAL UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS (2)
<S> <C> <C> <C> <C> <C>
Zane Russell
Chairman of the Board and 1997 $178,000 - 90,000 $ 3,498
Chief Executive Officer 1996 178,000 - - 4,249
and President 1995 175,000 $69,025 - 7,107
Michael L. Hlinak
Executive Vice President,
Chief Financial Officer 1997 155,000 - 90,000 3,607
and Chief Operating 1996 128,000 - - 6,576
Officer 1995 125,000 34,513 - 2,409
Dean H. Fisher
Senior Vice President, 1997 129,000 - 35,000 3,451
General Counsel and 1996 128,000 - - 6,097
Secretary 1995 125,000 34,513 - 8,401
</TABLE>
- ----------
(1) Bonuses reported for fiscal 1995, although paid in fiscal 1996, relate to
the Company's results of operations in fiscal 1995. No bonuses were paid
relating to the Company's results of operations for fiscal 1996, and none
will be paid relating to the Company's results of operations for fiscal
1997.
2
<PAGE>
(2) Represents contributions in 1995 by the Company under the Company's 401(k)
Plan for Messrs. Russell, Hlinak and Fisher of $2,002, $2,409, and $2,011,
respectively, and health insurance premiums paid by the Company for Messrs.
Russell, Hlinak and Fisher of $5,105, $0 and $6,390, respectively.
Represents contributions in 1996 by the Company under the Company's 401(k)
Plan for Messrs. Russell, Hlinak and Fisher of $1,676, $2,477 and $1,676,
respectively, and health insurance premiums paid by the Company for Messrs.
Russell, Hlinak and Fisher of $4,572, $4,100 and $4,421, respectively.
Represents contributions in 1997 by the Company under the Company's 401(k)
Plan for Messrs. Russell, Hlinak and Fisher of $1,676, $1,785, and $1,676,
respectively, and health insurance premiums paid in 1997 by the Company for
Messrs. Russell, Hlinak and Fisher of $1,823, $1,823, and $1,775,
respectively.
OPTION GRANTS IN FISCAL 1997
The following table summarizes options to purchase shares of the Company's
Common Stock that were granted to the Named Executive Officers during fiscal
1997. No Options were exercised by any of the Named Executive Officers during
fiscal 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR OPTION
TERM (1)
---------------------------
SHARES OF PERCENT OF
COMMON STOCK TOTAL OPTIONS Exercise
UNDERLYING GRANTED TO Price per
NAME OPTIONS EMPLOYEES Share EXPIRATION 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Zane Russell 45,000 9.1% $4.25 7/11/06 $120,276 $354,409
45,000 (2) 9.1 2.50 1/20/07 70,750 208,476
Michael L. Hlinak 45,000 9.1 4.25 7/11/06 120,276 354,409
45,000 (2) 9.1 2.50 1/20/07 70,750 208,476
Dean H. Fisher 17,500 3.5 4.25 7/11/06 46,774 137,826
17,500 (2) 3.5 2.50 1/20/07 27,514 81,074
</TABLE>
- ----------
(1) The potential realizable value of the options, if any, granted in fiscal
1997 to each of the Named Executive Officers was calculated by multiplying
the number of shares of Common Stock underlying such options by the excess
of (a) the assumed value, at the date of expiration of such option, of the
Company's Common Stock if the value of the Company's Common Stock were to
appreciate at a compounded annual rate of 5% or 10% from the date of the
grant of the option until the date of expiration of the option over (b) the
exercise price shown. The 5% and 10% appreciation rates are set forth in
regulations promulgated by the Securities and Exchange Commission, and no
representation is made that the Common Stock will appreciate at these
assumed rates or at all.
(2) Exercisable on or after July 11, 1998.
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<PAGE>
The following table sets forth information regarding the value of
unexercised options held by the Named Executive Officers. None of the Named
Executive Officers exercised any options in fiscal 1997.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED OPTIONS VALUE OF UNEXERCISED
AT JUNE 30, 1997 IN-THE-MONEY OPTIONS AT
(# SHARES) JUNE 30, 1997 ($)(1)
----------------------------------- ------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Zane Russell -- 90,000 - -
Michael L. Hlinak -- 90,000 - -
Dean H. Fisher -- 35,000 - -
</TABLE>
- ---------------
(1) Based on $2.06 per share, the closing price of the Common Stock on June 30,
1997, as reported by The Nasdaq Stock Market, Inc.
COMPENSATION OF DIRECTORS
Each non-employee director is paid $10,000 per year, plus $500 for each
meeting of the Board which he personally attends, $350 for each meeting of a
committee of the Board which he personally attends and $100 for each meeting in
which he participates by telephone. All non-employee directors of the Company
are reimbursed for ordinary and necessary expenses incurred in attending Board
or committee meetings. The Company has adopted the Director Plan, pursuant to
which each non-employee director receives options to purchase 5,000 shares of
Common Stock on the date of his election as a director and options to purchase
1,000 shares of Common Stock on the day following each annual meeting of the
Company's shareholders. These options have an exercise price equal to the
closing price on the day before the date of grant and vest over three years in
33-1/3% increments. Employee directors of the Company do not receive any
additional compensation from the Company for their services as directors.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement (the "Employment
Agreement") with Zane Russell. The Employment Agreement provides for an annual
salary of $175,000 during the term of the Employment Agreement, which terminates
February 1, 1998, with month-to-month renewals thereafter. In addition, if the
Company's audited consolidated income, before taxes and bonuses paid to senior
executive officers, exceeds $2 million in each fiscal year covered by the
Employment Agreement, Mr. Russell will receive a bonus in an amount equal to 4%
of the amount by which the Company's pre-tax and pre-bonus income exceeds $2
million. However, such bonus shall not exceed 75% of Mr. Russell's salary in any
fiscal year. The Employment Agreement also provides for certain employee
benefits, vacation and reimbursement of expenses.
4
<PAGE>
The Employment Agreement may be terminated by the Company (i) for cause (as
hereinafter defined), (ii) upon notice to the Company by Mr. Russell of his
intention to terminate the Employment Agreement, (iii) upon the death of Mr.
Russell or (iv) upon disability of Mr. Russell. Under the Employment Agreement,
cause is defined to mean (i) if Mr. Russell is guilty of willful misconduct or
neglect in the discharge of his duties under the Employment Agreement after
notice thereof has been given, (ii) if Mr. Russell is convicted of or pleads
guilty or nolo contendere to any act involving moral turpitude, other than an
offense that in the opinion of the Board of Directors does not affect Mr.
Russell's position as an employee or (iii) if Mr. Russell violates any material
part of the Employment Agreement regarding confidentiality or the solicitation
of Company employees. Mr. Russell may be removed as an officer at any time by
the Company without cause, but such removal will not affect his right to a
salary or his right to remain covered by the Company's medical insurance
policies throughout the remaining term of the Employment Agreement. Upon such
removal, all other benefits will cease, including any right to receive any
variable bonus.
Mr. Russell has agreed that for the term of his Employment Agreement and
for a period of two years after termination for whatever reason, he will not,
directly or indirectly, engage or participate in any business engaged in the
sale or marketing of long-distance service within the United States, employ any
of the Company's employees or induce any of the Company's employees to leave
their employment with the Company.
The Company has also entered into an employment agreement (the "Hlinak
Employment Agreement") with Michael L. Hlinak. The Hlinak Employment Agreement
provides for an annual salary of $170,000 during the term of the Employment
Agreement which terminates March 31, 1999. In addition the Hlinak Employment
Agreement provides that Mr. Hlinak will be offered an annual performance bonus
based on the Company's performance, in an amount not to exceed 33-1/3% of Mr,
Hlinak's base pay. The Employment Agreement also provides for certain employee
benefits (including medical, dental, and life insurance), vacation, and
reimbursement of expenses.
The Employment Agreement may be terminated by the Company (i) for cause (as
hereinafter defined), (ii) upon notice to the Company by Mr. Hlinak of his
intention to terminate the Employment Agreement, (iii) upon the death of Mr.
Hlinak or (iv) upon disability of Mr. Hlinak. Under the Employment Agreement,
cause is defined to mean (i) if Mr. Hlinak is guilty of willful misconduct or
neglect in the discharge of his duties under the Employment Agreement after
notice thereof has been given, (ii) if Mr. Hlinak is convicted of or pleads
guilty or nolo contendere to any act involving moral turpitude, other than an
offense that in the opinion of the Board of Directors does not affect Mr.
Hlinak's position as an employee or (iii) if Mr. Hlinak violates any material
part of the Employment Agreement regarding confidentiality or the solicitation
of Company employees. Mr. Hlinak may be removed as an officer at any time by the
Company without cause, but upon such removal he would be entitled to a severance
payment equal to 18 months salary and bonus as well as continued coverage under
the Company's medical insurance policies throughout the remaining term of the
Employment Agreement. Upon such removal, all other benefits will cease,
including any right to receive any variable bonus.
Mr. Hlinak has agreed that for the term of his Employment Agreement and for
a period of two years after termination for whatever reason, he will not,
directly or indirectly, engage or participate in any business engaged in the
sale or marketing of long-distance service within the United States, employ any
of the Company's employees or induce any of the Company's employees to leave
their employment with the Company.
5
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of October 27, 1997 (unless
indicated otherwise), with respect to (i) persons known to the Company to be the
beneficial owners of more than 5% of the outstanding shares of the Common Stock,
(ii) each director and Named Executive Officer and (iii) all directors and
executive officers of the Company as a group:
BENEFICIAL
OWNERSHIP(1)
NAME SHARES PERCENT
- -------------------------------------------------- ----------- --------
The Furst Group, Inc.(2) ......................... 1,500,000 18.4%
459 Oakshade Road
Shamong, New Jersey 08088
James D. Kaylor(2) ............................... 1,500,000 18.4
916 P Street, Suite 200
Lincoln, Nebraska 68508
John S. Streep(2) ................................ 1,500,000 18.4
15841 Kilmarnock Drive
Ft. Myers, Florida 33912
The Willis Group, LLC(3) ......................... 1,200,000 15.3
5005 Woodway, Suite 350
Houston, Texas 77056
Michael T. Willis(3) ............................. 1,200,000 15.3
5005 Woodway, Suite 350
Houston, Texas 77056
Mark Willis(3) ................................... 1,200,000 15.3
5005 Woodway, Suite 350
Houston, Texas 77056
James T. Harris(3) ............................... 1,200,000 15.3
5005 Woodway, Suite 350
Houston, Texas 77056
Zane Russell(4) .................................. 1,012,556 15.1
1250 Wood Branch Park Drive
Houston, Texas 77079
Marc R. Smith(5) ................................. 967,556 14.5
2500 City West, Suite 300
Houston, Texas 77042
Massachusetts Financial Services Company(6) ...... 520,400 7.8
500 Boylston Street
Boston, Massachusetts 02116
Michael L. Hlinak(4) ............................. 312,973 4.7
Dean H. Fisher(7) ................................ 246,982 3.7
Walter V. Klemp(8) ............................... 4,334 *
Terry S. Parker(9) ............................... 1,667 *
Current directors and executive officers
as a group (5 persons)(10) ..................... 1,578,512 23.3
- ----------
* Less than one percent.
(1) Except as otherwise noted, each shareholder has sole voting and dispositive
power with respect to the shares of Common Stock.
(2) Information relating to ownership by The Furst Group, Inc. ("TFG"), Mr.
Kaylor and Mr. Streep is based on reports on Schedule 13D filed with the
Securities and Exchange Commission on March 6, 1997. According to those
reports, TFG holds a warrant for the purchase of all 1,500,000 shares, none
of which were issued as of October 27, 1997. Messrs. Kaylor and Streep each
own 45% of the Common Stock of TFG, Mr. Kaylor is the Chairman of the Board
of TFG, and Mr. Streep is the Chief Executive Officer of TFG. According to
those reports, TFG has sole voting and
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<PAGE>
dispositive power with respect to all of such shares and Messrs. Kaylor and
Streep have shared voting and dispositive power with respect to such
shares.
(3) Information relating to ownership by The Willis Group, LLC ("TWG") and
Messrs. Michael T. Willis, Mark Willis and Harris is based on reports on
Schedule 13D filed with the Securities and Exchange Commission on October
10 and 14, 1997. According to those reports, TWG holds a convertible
promissory note convertible into approximately 1,000,000 shares of Common
Stock (which conversion is based on the price of the Common Stock and may
increase or decrease). TWG also holds a warrant for the purchase of 200,000
shares of Common Stock. None of such shares were outstanding as of October
27, 1997. Messrs. Mike Willis and Mark Willis each own 47.5% of the
membership interest in The Willis Group and Mr. Harris owns the remaining
5% membership interest. Mr. Mike Willis is the Secretary of The Willis
Group, Mr. Mark Willis is the President of The Willis Group and Mr. Harris
is the Treasurer of The Willis Group. According to the report, TWG has sole
voting and dispositive power with respect to all of such shares and Messrs.
Mike Willis, Mark Willis and Harris have shared voting and dispositive
power with respect to such shares.
(4) Excludes 45,000 shares of Common Stock issuable upon exercise of stock
options awarded under the Company's Employee Stock Option and Restricted
Stock Plan (the "Employee Plan") that are not exercisable within sixty
days.
(5) Information relating to ownership by Mr. Smith is based solely on a report
on Schedule 13G filed with the Securities and Exchange Commission on
February 14, 1996. According to that report, Mr. Smith has sole investment
discretion and sole voting authority with respect to all 967,556 shares of
Common Stock.
(6) Information relating to ownership by Massachusetts Financial Services
Company, an institutional investment manager ("MFS"), is based solely on a
report on Schedule 13G/A filed with the Securities and Exchange Commission
on February 11, 1997. According to that report, MFS has sole investment
discretion and sole voting authority with respect to all of such shares.
According to this report on Schedule 13G, MFS Series Trust II - MFS
Emerging Growth Fund is also a beneficial owner of all of such shares.
(7) Excludes 17,500 shares of Common Stock issuable upon exercise of stock
options awarded under the Employee Plan that are not exercisable within
sixty days. Also excludes 40,000 shares of Common Stock held by trusts for
the benefit of Mr. Fisher's children. Mr. Fisher has disclaimed any
beneficial ownership of these shares.
(8) Includes 4,334 shares of Common Stock issuable upon exercise of stock
options awarded under the Company's 1995 Non-Employee Director Stock Option
Plan (the "Director Plan"), which options will be exercisable within sixty
days. Excludes 2,666 shares of Common Stock issuable upon exercise of stock
options awarded under the Director Plan that are not exercisable within
sixty days.
(9) Includes 1,667 shares of Common Stock issuable upon exercise of stock
options awarded under the Director Plan, which options will be exercisable
within sixty days. Excludes 4,333 shares of Common Stock issuable upon
exercise of stock options awarded under the Director Plan that are not
exercisable within sixty days.
(10) See notes (4) and (7) through (9) above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In February 1997, the Company issued to The Furst Group, Inc. ("TFG") (i)
a subordinated note in the principal amount of $3 million, bearing interest at
10% per annum, due December 31, 1998 (the "TFG Note"), (ii) warrants
exercisable for the purchase of 1.5 million shares of Common Stock at $2.00
per share (the "TFG Warrants") and (iii) a Right in the Event of a Change of
Control (the "TFG Right"), all for an aggregate consideration of approximately
$2,210,000 in cash and $790,000 in credit towards the purchase of long-
distance services from Sprint Communications Company, L.P. ("Sprint"). In
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connection with this transaction, the Company began utilizing, effective
November 1, 1996, TFG's contract with Sprint for the purchase of long-distance
services. During fiscal 1997, the Company purchased approximately $1.5 million
of long-distance services from Sprint under this contract. The TFG Note is
secured by all of the accounts and general intangibles of the Company. As of
October 27, 1997, the TFG Warrants had not been exercised. The TFG Right
provides that TFG will receive approximately 11.5% of the fair market value of
consideration provided in the event EqualNet engages in certain significant
transactions within two years of the date of the TFG Right. Transactions that
would trigger the TFG Right include EqualNet's consolidation with, or merger
with or into another person other than TFG and the sale by EqualNet or its
subsidiaries of a significant portion of the Company's assets.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(c) Exhibits.
Exhibits designated by the symbol * are filed with this Amendment No. 2 to
Annual Report on Form 10-K on Form 10-K/A. All exhibits not so designated are
incorporated by reference to a prior filing as indicated.
Exhibits designated by the symbol ** are management contracts or
compensatory plans or arrangements that are required to be filed with this
report pursuant to this Item 14.
The Company undertakes to furnish to any shareholder so requesting a copy
of any of the following exhibits upon payment to the Company of the reasonable
costs incurred by the Company in furnishing any such exhibit.
EXHIBIT NO. DESCRIPTION
- ----------- ------------
3.1 Articles of Incorporation of the Registrant (incorporated by reference
to Exhibit 3.1 to Amendment No. 1 to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-88742); filed on February
13, 1995).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to
the Registrant's Registration Statement on Form S-1 (Registration No.
33-88742); filed on January 24, 1995).
4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit
4.1 to Amendment No. 2 to the Registrant's Registration Statement on
Form S-1 (Registration No. 33-88742) filed March 2, 1995).
4.2 The Company's 10% Senior Subordinated Note due December 31, 1998, in
the principal amount of $3,000,000 (incorporated by reference to
Exhibit 4.3 to the Company's Registration Statement on Form S-3
(Registration No. 333-23427), filed March 31, 1997).
10.1 AT&T Billing Service Agreement between EqualNet and AT&T
Communications, Inc., as amended by letter agreement dated October 28,
1994, between EqualNet and AT&T Corp. (incorporated by reference to
Exhibit 10.2 to the Registrant's Registration Statement on Form S-1
(Registration No. 33-88742) filed on January 24, 1995).
10.2** Form of Employment Agreement, by and between EqualNet and the persons
listed on the schedule attached thereto (incorporated by reference to
Exhibit 10.3 to Amendment No. 1 to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-88742) filed on February
13, 1995).
10.3 Lease Agreement dated June 28, 1994, between EqualNet and Caroline
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Partners, Ltd., as amended by First Amendment dated August 15, 1994,
and Second Amendment dated September 8, 1994 (incorporated by reference
to Exhibit 10.6 to Registrant's Registration Statement on Form S-1
(Registration No. 33-88742) filed on January 24, 1995).
10.4** EqualNet Holding Corp. Stock Option and Restricted Stock Plan
(incorporated by reference to Exhibit 10.8 to Annual Report as Form
10-K for the year ended June 30, 1996, filed October 15, 1996).
10.5 EqualNet Corporation 401(k) Plan effective January 1, 1993, as amended
by the First Amendment to the Equal Net Communications, Inc. 401(k)
Plan, dated effective as of July 1, 1993, and First Amendment to the
Adoption Agreement dated effective as of June 2, 1994 (incorporated by
reference to Exhibit 10.8 to Registrant's Registration Statement on
Form S-1 (Registration No. 33-88742) filed January 24, 1995).
10.6 Interstate and International Carrier Transport Switch Services
Agreement dated effective August 1, 1994, by and between EqualNet and
Sprint Communications Company, L.P. ("Sprint"), as amended by the
Amendment dated effective August 1, 1994, between EqualNet and Sprint
(incorporated by reference to Exhibit 10.11 to Registrant's
Registration Statement on Form S-1(Registration No. 33-88742) filed
January 24, 1995).
10.7 EqualNet Holding Corp. Employee Stock Purchase Plan (incorporated by
reference to Exhibit 10.15 to Registrant's Annual Report on Form 10-K
for the year ended June 30, 1996, filed October 15, 1996.
10.8** Promissory Note by Zane D. Russell in favor of EqualNet (incorporated
by reference to Exhibit 10.16 to Registrant's Registration Statement on
Form S-1 (Registration No. 33-88742) filed on January 24, 1995).
10.9** Promissory Note by Marc R. Smith in favor of EqualNet (incorporated by
reference to Exhibit 10.17 to Registrant's Registration Statement on
Form S-1 (Registration No. 33-88742) filed January 24, 1995).
10.10** Promissory Note by Byron A. Russell in favor of EqualNet (incorporated
by reference to Exhibit 10.18 to Registrant's Registration Statement on
Form S-1 (Registration No. 33-88742) filed January 24, 1995).
10.11 Loan Agreement dated March 10, 1995, between EqualNet Corporation and
EqualNet Holding Corp. (incorporated by reference to Exhibit 10.2 to
the Registrant's Quarterly Report on Form 10-Q for the period ended
March 31, 1995).
10.12 Security Agreement dated March 10, 1995 by EqualNet Corporation in
favor of EqualNet Holding Corp. (incorporated by reference to Exhibit
10.3 to the Registrant's Quarterly Report on Form 10-Q for the period
ended March 31, 1995).
10.13 Note and Warrant Purchase Agreement, dated February 3, 1997, among the
Company, EqualNet Corporation, a Delaware corporation, and The Furst
Group, Inc., a New Jersey corporation. (incorporated by reference to
Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q, filed May
15, 1997).
10.14 Warrant for Purchase of Common Stock, issued February 11, 1997
(incorporated by reference to Exhibit 10.2 to Registrant's Quarterly
Report on Form 10-Q, filed May 15, 1997).
10.15 Security Agreement, dated February 11,1997, among the Company, its
subsidiaries and The Furst Group, Inc., a New Jersey corporation
(incorporated by reference to Exhibit 10.3 to Registrant's Quarterly
Report on Form 10-Q, filed May 15, 1997).
9
<PAGE>
10.16 Right in the Event of Change of Control, dated February 11, 1997
(incorporated by reference to Exhibit 10.4 to Registrant's Quarterly
Report on Form 10-Q, filed May 15, 1997).
10.17* Financing agreement between Receivables Funding Corporation and
EqualNet Holding Corporation, dated June 18, 1997.
10.18* Carrier Agreement between AT & T and EqualNet Corporation, dated May
13, 1997 (certain confidential portions of this exhibit have been
omitted pursuant to a request for confidential treatment pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934.)
10.19** Employment Agreement, dated as of April 1, 1997, between Michael L.
Hlinak and the Company.
21.1 List of Subsidiaries of EqualNet (incorporated by reference to Exhibit
21.1 to Registrant's Annual Report on Form 10-K, filed September 29,
1997.)
23.1 Consent of Ernst & Young LLP (incorporated by reference to Exhibit 21.1
to Registrant's Annual Report on Form 10-K, filed September 29, 1997.)
10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
EQUALNET HOLDING CORP.
BY: /s/ MICHAEL L. HLINAK
Michael L. Hlinak, Chief
Operating Officer, Chief
Financial Officer and Director
(principal accounting officer and
duly authorized representative)
Date: October 28, 1997
11
EXHIBIT 10.17
RECEIVABLES SALE AGREEMENT
Dated as of June 18, 1997
by and between
EQUALNET CORPORATION,
as Seller, and
RECEIVABLES FUNDING CORPORATION
as Purchaser and Master Servicer
<PAGE>
RECEIVABLES SALE AGREEMENT (the "Agreement"), dated as of June 18, 1997,
by and between EQUALNET CORPORATION, a Delaware corporation, as Seller and
Subservicer, and RECEIVABLES FUNDING CORPORATION, a Delaware corporation, as
Purchaser and Master Servicer.
WITNESSETH:
WHEREAS, the Seller desires to sell certain of its telecommunication
receivables and the Purchaser is a corporation formed for the purpose of
purchasing certain telecommunication receivables from time to time;
WHEREAS, the Purchaser shall act in its capacity as the Master Servicer to
perform certain servicing, administrative and collection functions in respect of
the receivables purchased by the Purchaser under this Agreement (the "Purchased
Receivables");
WHEREAS, the Purchaser and the Master Servicer desire that the Subservicer
be appointed to perform certain servicing, administrative and collection
functions in respect of the Purchased Receivables; and
WHEREAS, the Seller has been requested and is willing to act as the
Subservicer.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I - DEFINITIONS
Section 1.1. CERTAIN DEFINED TERMS. The terms used in this Agreement shall
have the respective meanings set forth on Exhibit A.
Section 1.2. OTHER TERMS. All accounting terms not specifically defined in
this Agreement shall be construed in accordance with generally accepted
accounting principles. All terms used in Article 9 of the UCC, and not
specifically defined in this Agreement, are used in this Agreement as defined in
such Article 9.
ARTICLE II - PURCHASE AND SALE; ESTABLISHMENT OF ACCOUNTS
Section 2.1. OFFER TO SELL. Seller shall offer to sell, transfer, assign
and set over to Purchaser those Eligible Receivables set forth on a list of such
Eligible Receivables which shall be delivered by the Seller to the Purchaser no
later than three (3) Business Days prior to each Purchase Date.
Section 2.2. PURCHASE OF RECEIVABLES. Upon receipt of the list of Eligible
Receivables pursuant to Section 2.1, the Master Servicer, in its sole
discretion, will confirm which of the Eligible Receivables offered by Seller
that the Purchaser will Purchase. The Purchase of such Receivables shall occur
upon payment of the Purchase Price. Upon Purchase of the Receivables, Seller
will have sold, transferred, assigned, set over and conveyed to Purchaser, all
of Seller's right, title and interest in and to the Purchased Receivables. The
Seller shall not take any action inconsistent with such ownership and shall not
claim any ownership in any Purchased Receivable. The Seller shall indicate in
its Records that ownership interest in any Purchased Receivable is held by the
Purchaser. In addition, the Seller shall respond to any inquiries with respect
to ownership of a Purchased Receivable by stating that it is no longer the owner
of such Purchased Receivable and that ownership of such Purchased Receivable is
held by the Purchaser. Documents relating to the Purchased Receivables shall be
held in trust by the Seller and the Subservicer, for the benefit of the
Purchaser as the owner of the Purchased Receivables, and possession of any
Required Information relating to the Purchased Receivables so retained is for
the sole purpose of facilitating the servicing of the Purchased Receivables.
Such retention and possession is at the will of the Purchaser and in a custodial
capacity for the benefit of the Purchaser only.
Section 2.3. PURCHASE PRICE AND PAYMENT. The Purchase Price for
Receivables purchased on any Purchase Date shall be an amount equal to the
aggregate Net Values of such Purchased Receivables. The Purchase Price to be
paid
<PAGE>
on such Purchase Date shall be reduced by (a) the Program Fees as of such
Purchase Date, (b) the amount, if any, by which the Seller Credit Reserve
Account (net of withdrawals required hereunder) is less than the Specified
Credit Reserve Balance as of such Purchase Date, (c) any Rejected Receivable
Amount, (c) any Defaulted Receivable Amount, and (e) other amounts due the
Purchaser in accordance with this Agreement.
Section 2.4. ESTABLISHMENT OF ACCOUNTS; CONVEYANCE OF INTERESTS THEREIN;
INVESTMENTS. (a) A Lockbox Account(s) will be established or assigned, as the
case may be, for the benefit of the Purchaser into which all Collections from
Payors with respect to Receivables shall be deposited. The Lockbox Account(s)
will be maintained at the expense of the Seller. The Seller agrees to deposit
all Collections it receives with respect to Receivables in said Lockbox
Account(s) and will instruct all Payors to make all payments on Receivables to
said Lockbox Account(s). Such direction shall be provided to each Payor in a
timely manner mutually agreed upon by the Seller and Purchaser.
(b) The Purchaser has established and shall maintain the "Collection
Account" (the "Collection Account") and the "Seller Credit Reserve Account" (the
"Seller Credit Reserve Account").
(c) The Seller does hereby sell, transfer, assign, set over and convey to
the Purchaser all right, title and interest of the Seller in and to all amounts
deposited, from time to time, in the Lockbox Account(s), the Collection Account
and the Seller Credit Reserve Account. The Purchaser agrees to return in a
timely manner to Seller any payments or amounts received in the Collection
Account other than Collections with respect to Purchased Receivables subject to
(i) that the Purchaser has reasonably sufficient information to properly
identify the underlying Receivable to which such Collection(s) should be applied
and (ii) the satisfaction of any amounts due and owing the Purchaser in
accordance with Section 5.3 of this Agreement. Any Collections relating to
Receivables held by the Seller or the Subservicer pending deposit to the Lockbox
Account(s) as provided in this Agreement, shall be held in trust for the benefit
of the Purchaser until such amounts are deposited into the Lockbox Account(s) or
such other accounts established by the Seller and placed under the sole
direction and control of the Purchaser. All Collections in respect of Purchased
Receivables received by the Seller and not deposited directly by the Payor in
the Lockbox Account(s) shall be remitted to the Lockbox Account(s) or other such
account(s) established by the Seller and which shall be assigned to and under
the sole discretion of the Purchaser on the day of receipt or the following
Business Day if the day of receipt is not a Business Day, and if such
Collections are not remitted on a timely basis, in addition to its other
remedies hereunder, the Purchaser shall be entitled to receive a late charge
(which shall be in addition to the Program Fee) equal to 12% per annum or the
maximum rate legally permitted if less than such rate, calculated as of the
first Business Day of such delinquency.
Section 2.5. GRANT OF SECURITY INTEREST. It is the intention of the
parties to this Agreement that each payment of the Purchase Price by the
Purchaser to the Seller for Purchased Receivables to be made under this
Agreement shall constitute part of the purchase and sale of such Purchased
Receivables and not a loan. In the event, however, that a court of competent
jurisdiction were to hold that the transaction evidenced by this Agreement
constitutes a loan and not a purchase and sale, it is the intention of the
parties that this Agreement shall constitute a security agreement under the UCC
and any other applicable law, and that the Seller shall be deemed to have
granted to the Purchaser a first priority perfected security interest in all of
the Seller's right, title and interest in, to and under the Purchased
Receivables; all payments of principal of or interest on such Purchased
Receivables; all amounts on deposit from time to time in the Lockbox Account(s),
the Collection Account and the Seller Credit Reserve Account; all other rights
relating to and payments made under this Agreement, and all proceeds of any of
the foregoing.
Section 2.6. FURTHER ACTION EVIDENCING PURCHASES. The Seller agrees that,
from time to time, at its expense, it will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or appropriate, or that the Purchaser may reasonably request, in order
to perfect, protect or more fully evidence the transfer of ownership of the
Purchased Receivables or to enable the Purchaser to exercise or enforce any of
its rights hereunder.
ARTICLE III - CONDITIONS OF PURCHASES
<PAGE>
Section 3.1. CONDITIONS PRECEDENT TO ALL PURCHASES. Each Purchase from the
Seller by the Purchaser shall be subject to the conditions precedent that:
(a) No Event of Seller Default has occurred and the Seller is in
compliance with each of its covenants and representations set forth in Sections
4.1 and 4.2 of this Agreement;
(b) The Seller shall have delivered to the Purchaser a complete copy of
each of the then current Carrier Agreements, Clearinghouse Agreements and
Billing and Collection Agreements and any amendment or modification of such
agreements;
(c) The Seller shall have delivered to the Purchaser a copy of each
written notice delivered by or received by either the Carrier, Billing and
Collection Agent, Clearinghouse Agent or the Seller with respect to any Carrier
Agreements, Clearinghouse Agreements and/or the Billing and Collection
Agreements; and
(d) The Termination Date shall not have occurred.
ARTICLE IV - REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER
Section 4.1. REPRESENTATIONS, WARRANTIES AND COVENANTS AS TO THE SELLER.
The Seller represents and warrants to the Purchaser and Master Servicer, as of
the date of this Agreement and on each subsequent Purchase Date, as follows:
(a) The Seller is a corporation duly organized, validly existing and in
good standing under the laws of its state of incorporation and is duly qualified
to do business and is in good standing in each jurisdiction in which it is doing
business (as of the date hereof such representation is subject to that set forth
on Schedule 6 attached hereto) and has the power and authority to own and convey
all of its properties and assets and to execute and deliver this Agreement and
the Related Documents and to perform the transactions contemplated thereby; and
each is the legal, valid and binding obligation of the Seller enforceable
against the Seller in accordance with its terms;
(b) The execution, delivery and performance by the Seller of this
Agreement and the Related Documents and the transactions contemplated thereby
(i) have been duly authorized by all necessary corporate or other action on the
part of the Seller, (ii) do not contravene or cause the Seller to be in default
under (A) any contractual restriction contained in any loan or other agreement
or instrument binding on or affecting the Seller or its property; or (B) any
law, rule, regulation, order, writ, judgment, award, injunction, or decree
applicable to, binding on or affecting the Seller or its property and (iii) does
not result in or require the creation of any adverse claim upon or with respect
to any of the property of the Seller (other than in favor of the Purchaser as
contemplated hereunder);
(c) Other than as set forth on Schedule 4 attached hereto, there is no
court order, judgment, writ, pending or threatened action, suit or proceeding,
of a material nature against or affecting the Seller, its officers or directors,
or the property of the Seller, in any court or tribunal, or before any
arbitrator of any kind or before or by any Governmental Authority (i) asserting
the invalidity of this Agreement or any of the Related Documents, (ii) seeking
to prevent the sale and assignment of any Receivable or the consummation of any
of the transactions contemplated thereby, (iii) seeking any determination or
ruling that might materially and adversely affect the Seller, this Agreement,
the Related Documents, the Receivables, the Contracts or any LOA, or (iv)
asserting a claim for payment of money in excess of $50,000;
(d) The primary business of the Seller is the provision of
telecommunication services and/or equipment. All license numbers issued to the
Seller by any Governmental Authority are set forth on Schedule 1 and the Seller
has complied in all material respects with all applicable laws, rules,
regulations, orders and related Contracts and all restrictions contained in any
agreement or instrument binding on or affecting the Seller, and has and
maintains all permits, licenses, certifications, authorizations, registrations,
approvals and consents of Governmental Authorities or any other party materially
necessary for the business of the Seller and each of its Subsidiaries;
(e) The Seller (i) has filed on a timely basis all tax returns (federal,
state, and local) required to be filed and has paid or made adequate provisions
for the payment of all taxes, assessments, and other governmental charges due
from the Seller, which, if not paid in such manner could have a material adverse
affect on the results or operations or the
<PAGE>
financial condition of the Seller or its ability to comply with the terms and
conditions of this Agreement; (ii) has furnished to the Purchaser copies of its
financial statements for the nine month period ended March 31, 1997, prepared
internally by the Seller, which fairly present the financial condition of the
Seller, all in accordance with generally accepted accounting principles
consistently applied; (iii) since March 31, 1997 there has been no material
adverse change in any such condition, business or operations other than that
disclosed to the Purchaser by the Seller prior to the date of this Agreement;
and (iv) the Seller has delivered to the Purchaser within 45 days after the end
of each subsequent three month period the financial statements, including
balance sheet and income statement prepared in accordance with generally
accepted accounting principles, of the Seller as of the end of such three month
period, certified by an officer of the Seller;
(f) All information furnished by or on behalf of the Seller to the Master
Servicer or the Purchaser in connection with this Agreement is true and complete
in all material respects and does not omit to state a material fact and the
sales of Purchased Receivables under this Agreement are made by the Seller for
reasonably equivalent value and without intent to hinder, delay or defraud
present or future creditors of the Seller;
(g) The Lockbox Account(s) is/are the only lockbox account(s) to which
Payors have been or will be instructed to direct Receivable proceeds and each
Payor of an Eligible Receivable has been directed upon its receipt of the notice
attached hereto as Exhibit B, which such notice is to provided to each Payor in
a timely manner, to remit all payments with respect to such Receivable for
deposit in the Lockbox Account(s);
(h) The principal place of business and chief executive office of the
Seller are located at the address of the Seller set forth under its signature
below and there are not now, and during the past four months there have not
been, any other locations where the Seller is located (as that term is used in
the UCC) or keeps Records except as set forth on Schedule 2 attached hereto;
(i) The legal name of the Seller is as set forth at the beginning of this
Agreement. During the past six years, the Seller changed its name from Equal Net
Communications, Inc. to EqualNet Corporation, and during such period, and during
such period, the Seller did not use, nor does the Seller now use any tradenames,
fictitious names, assumed names or "doing business as" names other than those
appearing on Schedule 2 of this Agreement;
(j) The Seller has not done anything to impede or interfere with the
collection by the Purchaser of the Purchased Receivables and shall not waive or
otherwise permit or agree to any deviation from the terms or conditions of any
Purchased Receivable or any related Carrier Agreement, Clearinghouse Agreement,
Billing and Collection Agreement, Contract or LOA without first providing the
Purchaser with thirty days written notice thereof except where such amendment or
waiver would not have a material adverse effect upon either the validity or
ability of the Subservicer to collect amounts due and owing with respect to
Purchased Receivables; and
(k) For federal income tax reporting and accounting purposes, the Seller
will treat the sale of each Purchased Receivable pursuant to this Agreement as a
sale of, or absolute assignment of its full right, title and ownership interest
in such Purchased Receivable to the Purchaser to the extent such treatment does
not conflict with either GAAP or the Internal Revenue Code of 1986, as amended
from time to time (the "Code"), to the extent that such treatment does not
conflict with either GAAP or the Code.
Section 4.2. REPRESENTATIONS AND WARRANTIES OF THE SELLER AS TO PURCHASED
RECEIVABLES. With respect to each Purchased Receivable sold pursuant to this
Agreement the Seller represents and warrants, as of the date hereof and on each
subsequent Purchase Date, as follows:
(a) Such Receivable (i) consists of all the Required Information; (ii) is
the liability of an Eligible Payor and (iii) was created by the provision or
sale of telecommunication services or equipment by the Seller in the ordinary
course of its business; (iv) has a Purchase Date no later than 90 days from its
Billing Date, is not a Purchased Receivable which, as of any Determination Date,
payment by the Payor of such Receivable has been received and is not duplicative
of any other Receivable; and (v) is owned by the Seller free and clear of any
adverse claim, and the Seller has the right to sell, assign and transfer the
same and interests therein as contemplated under this Agreement and no consent
other than those secured and
<PAGE>
delivered to the Purchaser on or prior to the Closing Date from any Governmental
Authority, the Payor, a Carrier, the Billing and Collection Agent, the
Clearinghouse Agent or any other Person shall be required to effect the sale of
any Purchased Receivables;
(b) The Eligible Receivable Amount set forth in the applicable Required
Information of such Receivable is payable in United States Dollars and is not in
excess of $25,000 with respect to any one individual Payor of any Payor Class
other than an Eligible Receivable payable under a Billing and Collection
Agreement as set forth on the attached Schedule 3, and is net of any adjustments
or other modifications contemplated by any Carrier Agreement, Clearinghouse
Agreement, Billing and Collection Agreement or otherwise and neither the
Receivable nor the related Carrier Agreement, Clearinghouse Agreement, Billing
and Collection Agreement or Contract has or will be compromised, adjusted,
extended, satisfied, subordinated, rescinded, set-off or modified by the Seller,
the Payor, the Carrier, the Clearinghouse Agent or the Billing and Collection
Agent other than routine credits and adjustments made in the ordinary course of
providing customer service to customer accounts, and is not nor will be subject
to compromise, adjustment, termination or modification, whether arising out of
transactions concerning the Contract, any Carrier Agreement, Clearinghouse
Agreement, Billing and Collection Agreement or otherwise; and
(c) There are no procedures or investigations pending or threatened before
any Governmental Authority (i) asserting the invalidity of such Receivable,
Carrier Agreement, Clearinghouse Agreement, Billing and Collection Agreement,
LOA or such Contract, (ii) asserting the bankruptcy or insolvency of the related
Payor, (iii) seeking the payment of such Receivable or payment and performance
of the related Carrier Agreement, Clearinghouse Agreement, Billing and
Collection Agreement, or such other Contract, (iv) seeking any determination or
ruling that might materially and adversely affect the validity or enforceability
of such Receivable or the related Carrier Agreement, Clearinghouse Agreement,
Billing and Collection Agreement, or such other Contract or LOA.
Section 4.3. NEGATIVE COVENANTS OF THE SELLER. The Seller shall not,
without the written consent of the Purchaser and the Master Servicer, which such
consent will not be unreasonably withheld:
(a) Sell, assign or otherwise dispose of, or create or suffer to exist any
adverse claim or lien upon any Receivable, related Contract, the Lockbox
Account(s), the Collection Account, or any other account in which any
Collections of any Receivable are deposited, or assign any right to receive
income in respect of any Receivable;
(b) Submit or permit to be submitted to Payors any invoice for
telecommunication services or equipment rendered by or on behalf of Seller which
contains a "pay to" address other than the Lockbox Account(s);
(c) Make any change to (i) the location of its chief executive office or
the location of the office where Records are kept or (ii) its corporate name or
use any tradenames, fictitious names, assumed names or "doing business as"
names; or
(d) Enter into or execute any Clearinghouse Agreement or Billing and
Collection Agreement (other than those listed on Exhibit 3 hereof) or any
amendment or modification thereof, unless such amendment or modification would
not have a material adverse effect upon either the validity or ability of the
Subservicer to collect amounts due and owing with respect to Purchased
Receivables.
Section 4.4. REPURCHASE OBLIGATIONS. Upon discovery by any party to this
Agreement of a breach of any representation or warranty in this Article IV which
materially and adversely affects the value of a Purchased Receivable or the
interests of the Purchaser therein (herein a "Rejected Receivable"), the party
discovering such breach shall give prompt written notice to the other parties to
this Agreement. Thereafter, on the next Purchase Date, the Net Value of the
Rejected Receivables shall be deducted from the amount otherwise payable to the
Seller pursuant to Section 2.3. In the event that the full Net Value of such
Rejected Receivables is not deposited in the Collection Account pursuant to the
foregoing sentence, the Purchaser shall deduct any such deficiency from the
Excess Collection Amount and/or make demand upon the Seller to pay any such
deficiency to the Purchaser for deposit to the Collection Account.
<PAGE>
ARTICLE V - ACCOUNTS ADMINISTRATION
Section 5.1. COLLECTION ACCOUNT. The Purchaser and the Master Servicer
acknowledge that certain amounts deposited in the Collection Account may relate
to Receivables other than Purchased Receivables and that such amounts continue
to be owned by the Seller. All such amounts shall be administered in accordance
with Section 5.3.
Section 5.2. DETERMINATIONS OF THE MASTER SERVICER. On each Determination
Date, the Master Servicer will determine:
(a) the Net Value of all Purchased Receivables which have become Rejected
Receivables since the prior Purchase Date (the "Rejected Receivable Amount");
(b) the amount of Collections up to the Purchase Price of all Purchased
Receivables received since the prior Determination Date (the "Paid Receivables
Amount");
(c) the Net Value of all Purchased Receivables which have become Defaulted
Receivables since the prior Purchase Date (the "Defaulted Receivable Amount");
(d) the aggregate amount deposited in the Collection Account in excess of
the Purchase Price of each Purchased Receivable since the prior Determination
Date (the "Excess Collection Amount"); and
(e) the Net Value of all Purchased Receivables less the Rejected
Receivable Amount and the Defaulted Receivable Amount as of the current
Determination Date. The Master Servicer's determinations of the foregoing
amounts shall be presumed correct unless later determined to be in error, in
which case the party alleging such error must provide the other party with
written notification thereof, and any mutually agreed upon and verified variance
in such determination shall be corrected in a timely manner. The Master Servicer
shall notify the Purchaser of such determinations.
Section 5.3. DISTRIBUTIONS FROM ACCOUNTS. (a) No later than 11:00 a.m. on
each Determination Date, following the determinations set forth in Section 5.2,
the Master Servicer will withdraw from the accounts the following amounts:
(i) the Paid Receivables Amount and the Rejected Receivable Amount
plus any outstanding Rejected Receivable Amount applicable to any prior period
from the Collection Account and deposit such amount in the Purchase Account;
(ii) the Defaulted Receivable Amount from the Seller Credit Reserve
Account and deposit such amount in the Purchase Account; and
(iii) the Excess Collection Amount and deposit such amount in the
Seller Credit Reserve Account to the extent that the Seller Credit Reserve
Account is less than the Specified Credit Reserve Balance.
(b) Until the Termination Date, on each Purchase Date the Master Servicer
shall pay to the Purchaser by withdrawal from the Collection Account all amounts
due and owing the Purchaser in accordance with Sections 2.3, 4.4, 5.4, 8.1 and
9.4 and pay the balance, if any, to the Seller by check or wire transfer;
PROVIDED, HOWEVER, with respect to Receivables processed or cleared pursuant to
any Carrier Agreement, Clearinghouse Agreement or Billing and Collection
Agreement, if applicable, any Excess Collection Amount shall be retained by the
Purchaser until such time that the billing cycle (or batch) to which such Excess
Collection Amount applies is deemed closed by the Purchaser which, absent the
occurrence of an Event of Default, will occur no later than the Purchase Date
following such determination.
Section 5.4. ALLOCATION OF MONEYS FOLLOWING TERMINATION DATE. Following
the Termination Date and the Purchaser's receipt of the Termination Fee, if
applicable, from the Seller, the Master Servicer shall withdraw an amount
<PAGE>
equal to the Program Fee, to the extent owed, Rejected Receivable Amount and any
deficiency in the Specified Credit Reserve Account balance from the Collection
Account on each Purchase Date and deposit it in the Purchase Account. To the
extent that such funds do not equal the Program Fee and Rejected Receivable
Amount, the Seller shall deposit any such deficiency in the Purchase Account
within five Business Days following demand therefor. After withdrawing such
amounts, if any, owed to Purchaser, Purchaser shall forward to Seller in a
timely manner the balance of any funds held by Purchaser which the right, title
and interest therein belongs to Seller. Distribution of monies collected
subsequent to the Termination Date will continue in a manner consistent with
that described in Section 5.3.
ARTICLE VI - APPOINTMENT OF THE SUBSERVICER
Section 6.1. APPOINTMENT OF THE SUBSERVICER. The Master Servicer and the
Purchaser hereby appoint the Seller and the Seller hereby accepts such
appointment to act as Subservicer under this Agreement. The Subservicer shall
service the Purchased Receivables and enforce the Purchaser's respective rights
and interests in and under each Purchased Receivable and each related Contract
or LOA; and shall take, or cause to be taken, all such actions as may be
necessary or advisable to service, administer and collect each Purchased
Receivable all in accordance with (i) customary and prudent servicing procedures
for telecommunication receivables of a similar type, and (ii) all applicable
laws, rules and regulations; and shall serve in such capacity until the
termination of its responsibilities pursuant to Section 6.4 or 7.1. The
Subservicer may, with the prior consent of the Purchaser, which consent shall
not be unreasonably withheld and which shall be considered delivered upon
execution of this Agreement with respect to USBI, ESBI, Claremont, Centillion,
ACUS, Millikan & Michael and Pinnacle Financial, subcontract with a subservicer
for billing, collection, servicing or administration of the Receivables. Any
termination or resignation of the Subservicer under this Agreement shall not
affect any claims that the Purchaser may have against the Subservicer for events
or actions taken or not taken by the Subservicer arising prior to any such
termination or resignation.
Section 6.2. DUTIES AND OBLIGATIONS OF THE SUBSERVICER. (a) The
Subservicer shall at any time permit the Purchaser or any of its representatives
to visit the offices of the Subservicer and examine and make copies of all
Servicing Records;
(b) The Subservicer shall notify the Purchaser of any action, suit,
proceeding, dispute, offset, deduction, defense or counterclaim, other than
routine matters which are processed and resolved by the Subservicer in less than
thirty days, that is or may be asserted by any Person with respect to any
Purchased Receivable.
(c) The Purchaser shall not have any obligation or liability with respect
to any Purchased Receivables or related Contracts, nor shall it be obligated to
perform any of the obligations of the Subservicer hereunder.
Section 6.3. SUBSERVICING EXPENSES. The Subservicer shall be required to
pay for all expenses incurred by the Subservicer in connection with its
activities hereunder (including any payments to accountants, counsel or any
other Person) and shall not be entitled to any payment or reimbursement
therefor.
Section 6.4. SUBSERVICER NOT TO RESIGN. The Subservicer shall not resign
from the duties and responsibilities hereunder except upon determination that
(a) the performance of its duties hereunder has become impermissible under
applicable law and (b) there is no reasonable action which the Subservicer could
take to make the performance of its duties hereunder permissible under
applicable law evidenced as to clause (a) above by an opinion of counsel to such
effect delivered to the Purchaser.
Section 6.5. AUTHORIZATION OF THE MASTER SERVICER. The Seller hereby
authorizes the Master Servicer (including any successors thereto) to take any
and all reasonable steps in its name and on its behalf necessary or desirable in
the determination of the Master Servicer to collect all amounts due under any
and all Purchased Receivables, process all Collections, commence proceedings
with respect to enforcing payment of such Purchased Receivables and the related
Contracts, and adjusting, settling or compromising the account or payment
thereof. The Seller shall furnish the Master
<PAGE>
Servicer (and any successors thereto) with any powers of attorney and other
documents necessary or appropriate to enable the Master Servicer to carry out
its servicing and administrative duties under this Agreement, and shall
cooperate with the Master Servicer to the fullest extent in order to ensure the
collectibility of the Purchased Receivables.
ARTICLE VII - EVENTS OF SELLER DEFAULT
Section 7.1. EVENTS OF SELLER DEFAULT. If any of the following events
(each, an "Event of Seller Default") shall occur and be continuing:
(a) The Seller (either as Seller or Subservicer) shall materially fail to
perform or observe any term, covenant or agreement contained in this Agreement
which remains uncured for 5 Business Days following notice from the Purchaser
with respect thereto, provided, however, the failure of the Purchaser to provide
such notice shall not in any way be considered a waiver of any right or remedy
available to the Purchaser under this Agreement;
(b) An Insolvency Event shall have occurred; however, if such Insolvency
Event is initiated by third parties against the Seller, Seller shall not be in
default unless Seller fails or refuses to have such third party action dismissed
within sixty days of service of process on Seller seeking such relief;
(c) There is a material breach of any of the representations and
warranties of the Seller as stated in Sections 4.1 or 4.2 that has remained
uncured for a period of 30 days;
(d) Any Governmental Authority shall file notice of a lien with regard to
any of the assets of the Seller or with regard to the Seller which remains
undischarged for a period of 30 days;
(e) As of the first day of any month, the aggregate Net Value of Purchased
Receivables which became Defaulted Receivables or Rejected Receivables during
the prior three-month period shall exceed 5.0% of the average aggregate Net
Values of all Purchased Receivables then owned by the Purchaser at the end of
each of such three months;
(f) This Agreement shall for any reason cease to evidence the transfer to
the Purchaser (or its assignees or transferees) of the legal and equitable title
to, and ownership of, the Purchased Receivables;
(g) The termination of any Clearinghouse Agreement, if applicable, and/or
any Carrier Agreement or Billing and Collection Agreement for any reason
whatsoever absent the consummation of a substitute Clearinghouse Agreement,
Carrier Agreement and/or Billing and Collections Agreement, as the case may be,
within ten Business Days of the termination thereof;
(h) The amount deposited hereunder (net of withdrawals required hereunder)
in the Seller Credit Reserve Account has remained at less than the Specified
Credit Reserve Balance for fourteen consecutive days; or
(i) A Termination Event shall have occurred;
then and in any such event, the Master Servicer may, by notice to the Seller and
the Purchaser declare that an Event of Seller Default shall have occurred and,
the Termination Date shall forthwith occur, without demand, protest or further
notice of any kind, and the Purchaser shall make no further Purchases from the
Seller. The Purchaser and the Master Servicer shall have, in addition to all
other rights and remedies under this Agreement, all other rights and remedies
provided under the UCC and other applicable law, which rights shall be
cumulative.
ARTICLE VIII - INDEMNIFICATION AND SECURITY INTEREST
<PAGE>
Section 8.1. INDEMNITIES BY THE SELLER. (a) Without limiting any other
rights that the Purchaser, the Master Servicer, or any director, officer,
employee or agent of either such party (each an "Indemnified Party") may have
under this Agreement or under applicable law, the Seller hereby agrees to
indemnify each Indemnified Party from and against any and all claims, losses,
liabilities, obligations, damages, penalties, actions, judgments, suits, and
related costs and expenses of any nature whatsoever, including reasonable
attorneys' fees and disbursements (all of the foregoing being collectively
referred to as "Indemnified Amounts") which may be imposed on, incurred by or
asserted against an Indemnified Party in any way arising out of or relating to
this Agreement or the ownership of the Purchased Receivables or in respect of
any Receivable or any Contract, excluding, however, Indemnified Amounts to the
extent resulting from gross negligence or willful misconduct on the part of such
Indemnified Party.
(b) Any Indemnified Amounts subject to the indemnification provisions of
this Section shall be paid to the Indemnified Party within five Business Days
following demand therefor, which such demand shall set forth satisfactory
evidence of a right of indemnification and the corresponding amount at issue,
together with interest at the lesser of 12% per annum or the highest rate
permitted by law from the date of demand for such Indemnified Amount.
Section 8.2 SECURITY INTEREST. The Seller hereby grants to the Purchaser a
first priority perfected security interest in the Seller's Customer Base,
including but not limited to, all past, present and future customer contracts,
lists, agreements, LOA's (other than as set forth on Schedule 5 attached hereto
as to such LOA's only) or arrangements relating thereto; all of the Seller's
right, title and interest in, to and under all of the Seller's Receivables not
sold to the Purchaser hereunder, including all rights to payments under any
related Contracts, contract rights, instruments, documents, chattel paper,
general intangibles, LOA's or other agreements with all Payors and all the
Collections, Records and proceeds thereof; any other obligations or rights of
Seller to receive any payments in money or kind; all cash or non-cash proceeds
of the foregoing; all of the right, title and interest of the Seller in and with
respect to the goods, services or other property which gave rise to or which
secure any of the foregoing as security for the timely payment and performance
of any and all obligations the Seller or the Subservicer may owe the Purchaser
under Sections 2.4, 4.4, 5.2, 7.1(a) and (b), and 8.1, but excluding recourse
for unpaid Purchased Receivables. This Section 8.2 shall constitute a security
agreement under the UCC and any other applicable law and the Purchaser shall
have the rights and remedies of a secured party thereunder. Such security
interest shall be further evidenced by Seller's execution of appropriate UCC-1
financing statements prepared by and acceptable to the Purchaser, and such other
further assurances that may be reasonably requested by the Purchaser from time
to time.
ARTICLE IX - MISCELLANEOUS
Section 9.1. NOTICES, ETC. All notices, shall be in writing and mailed or
telecommunicated, or delivered as to each party hereto, at its address set forth
under its name on the signature pages hereof or at such other address as shall
be designated by such party in a written notice to the other parties hereto. All
such notices and communications shall not be effective until received by the
party to whom such notice or communication is addressed.
Section 9.2. REMEDIES. No failure or delay on the part of the Purchaser or
the Master Servicer to exercise any right hereunder shall operate as a waiver or
partial waiver thereof. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
Section 9.3. BINDING EFFECT; ASSIGNABILITY. This Agreement shall be
binding upon and inure to the benefit of the Seller, the Subservicer, the
Purchaser, the Master Servicer and their respective successors and permitted
assigns. Neither the Seller nor the Subservicer may assign any of their rights
and obligations hereunder or any interest herein without the prior written
consent of the Purchaser and the Master Servicer. The Purchaser may, at any
time, without the consent of the Seller or the Subservicer, assign any of its
rights and obligations hereunder or interest herein to any Person. Without
limiting the generality of the foregoing, the Seller acknowledges that the
Purchaser has assigned its rights hereunder for the benefit of third parties.
The Seller does hereby further agree to execute and deliver to the Purchaser all
documents and amendments presented to the Seller by the Purchaser in order to
effectuate the assignment by the Purchaser in furtherance of this
<PAGE>
Section 9.3 consistent with the terms and provisions of this Agreement. This
Agreement shall create and constitute the continuing obligations of the parties
hereto in accordance with its terms, and shall remain in full force and effect
until its termination; PROVIDED, that the rights and remedies with respect to
any breach of any representation and warranty made by the Seller or the Master
Servicer pursuant to Article IV and the indemnification and payment provisions
of Article VIII shall be continuing and shall survive any termination of this
Agreement.
Section 9.4. COSTS, EXPENSES AND TAXES. (a) In addition to the rights of
indemnification under Article VIII, the Seller agrees to pay upon demand, all
reasonable costs and expenses in connection with the administration (including
periodic auditing, modification and amendment) of this Agreement, and the other
documents to be delivered hereunder, including, without limitation: (i) the
reasonable fees and out-of-pocket expenses of counsel for the Purchaser or the
Master Servicer with respect to (A) advising the Purchaser as to its rights and
remedies under this Agreement or (B) the enforcement (whether through
negotiations, legal proceedings or otherwise) of this Agreement or the other
documents to be delivered hereunder; (ii) any and all accrued Program Fee and
amounts related thereto not yet paid to the Purchaser; and (iii) any and all
stamp, sales, excise and other taxes and fees payable or determined to be
payable in connection with the execution, delivery, filing or recording of this
Agreement or the other agreements and documents to be delivered hereunder, and
agrees to indemnify and save each Indemnified Party from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes and fees.
(b) If the Seller or the Subservicer fails to pay any Lockbox Account(s)
fees or other charges or debits related to such accounts, to pay or perform any
agreement or obligation contained under this Agreement, the Purchaser may, or
may direct the Master Servicer to pay or perform, or cause payment or
performance of, such agreement or obligation, and the expenses of the Purchaser
or the Master Servicer incurred in connection therewith shall be payable by the
party which has failed to so perform.
Section 9.5. AMENDMENTS; WAIVERS; CONSENTS. No modification, amendment or
waiver of, or with respect to, any provision of this Agreement or the Related
Documents, shall be effective unless it shall be in writing and signed by each
of the parties hereto. This Agreement, the Related Documents and the documents
referred to therein embody the entire agreement among the Seller, the
Subservicer, the Purchaser and the Master Servicer, and supersede all prior
agreements and understandings relating to the subject hereof, whether written or
oral.
Section 9.6. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) OF THE STATE OF OHIO,
EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE INTERESTS OF THE
PURCHASER IN THE PURCHASED RECEIVABLES OR REMEDIES HEREUNDER OR THEREUNDER, IN
RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE
OF OHIO.
(b) THE SELLER AND THE SUBSERVICER HEREBY SUBMIT TO THE EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF OHIO AND THE UNITED STATES DISTRICT
COURT LOCATED IN THE SOUTHERN DISTRICT OF OHIO, AND EACH WAIVES PERSONAL SERVICE
OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE
MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS SET FORTH ON THE SIGNATURE PAGE
HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE DAYS AFTER THE
SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE PREPAID. THE SELLER
AND THE SUBSERVICER EACH HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON
CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF THE
PURCHASER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT
THE RIGHT OF THE PURCHASER TO BRING ANY ACTION OR PROCEEDING AGAINST THE SELLER
OR ITS PROPERTY, OR THE SUBSERVICER OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION. THE SELLER AND THE SUBSERVICER EACH HEREBY AGREE THAT THE
EXCLUSIVE AND APPROPRIATE FORUMS FOR ANY DISPUTE HEREUNDER ARE THE COURTS OF THE
STATE OF OHIO
<PAGE>
AND THE UNITED STATES DISTRICT COURT LOCATED IN THE SOUTHERN DISTRICT OF OHIO
AND AGREE NOT TO INSTITUTE ANY ACTION IN ANY OTHER FORUM.
(c) THE SELLER, AND THE SUBSERVICER EACH HEREBY WAIVES ANY RIGHT TO HAVE A
JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT,
OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN CONNECTION WITH
THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A
BENCH TRIAL WITHOUT A JURY.
Section 9.7. EXECUTION IN COUNTERPARTS; SEVERABILITY. This Agreement may
be executed in any number of counterparts, each of which when so executed shall
be deemed to be an original and all of which when taken together shall
constitute one and the same agreement. In case any provision in or obligation
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
<PAGE>
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.
EQUALNET CORPORATION, as Seller and as Subservicer
By: ____________________________
Name: Michael Hlinak
Title: Vice President / Chief Operating Officer
Address at which the chief executive office
is located:
Address: 1250 Wood Branch Park Drive
Houston, Texas 77079
Attention: Carl Schmidt, C.F.O.
Phone number: (281) 529-4646
Telecopier number: (281) 529-4650
ADDITIONAL LOCATIONS AT WHICH THE SELLER
DOES BUSINESS AND MAINTAINS RECORDS:
_______________________________________________
_______________________________________________
ADDITIONAL NAMES UNDER WHICH SELLER DOES BUSINESS:
Equal Net Communications
EqualNet Communications
Creative Communications
Creative Communications International
Agency Services
US Business Alliance
Digital Network Services
RECEIVABLES FUNDING CORPORATION
By: ____________________________
Name: Mark D. Quinlan
Title: Vice President
Address: 130 East Chestnut Street
Suite 400
Columbus, OH 43215
Attention: Mark Quinlan
Phone number: (614) 229-7979
Telecopier number: (614) 229-7980
<PAGE>
EXHIBIT A
DEFINITIONS
"BASE RATE" means, as of any Purchase Date, a percentage equal to the
Provident Bank prime lending rate plus 4.5% per annum.
"BILLED AMOUNT" means, with respect to any Receivable the amount billed or
to be billed to the related Payor with respect thereto prior to the application
of any Gross Liquidation Rate.
"BILLING AND COLLECTION AGENT" means the party performing billing and
collection services for and on behalf of the Seller pursuant to the terms of a
Billing and Collection Agreement.
"BILLING AND COLLECTION AGREEMENT" means any written agreement whereby a
party is obligated to provide end-user billing and collection services with
respect to the Seller's accounts.
"BILLING DATE" means the date on which the invoice with respect to a
Receivable was submitted to the related Payor which shall be not more than 45
days from the date on which telecommunication services were provided to the end
user of such services.
"BUSINESS DAY" means any day of the year other than a Saturday, Sunday or
any day on which banks are required, or authorized, by law to close in the State
of Ohio.
"CARRIER" means a provider of telecommunication services which such
services are resold by the Seller.
"CARRIER AGREEMENT" means any written agreement, contract or arrangement
whereby a Carrier is obligated to provide certain services to the Seller.
"CLEARINGHOUSE AGENT" means the party performing services for and on
behalf of the Seller pursuant to the terms and provisions of a Clearinghouse
Agreement.
"CLEARINGHOUSE AGREEMENT" means any written agreement, contract or
arrangement whereby a party is obligated to perform certain services for the
Seller, including, without limitation, processing certain information provided
by the Seller to the Clearinghouse Agent and remitting such processed
information to one or more Billing and Collection Agents for billing and
collection of Seller's accounts.
"CLOSING DATE" means June 18, 1997.
"COLLECTION ACCOUNT" means the account established pursuant to Section
2.4(b).
"COLLECTIONS" means, with respect to any Receivable, all cash collections
and other cash proceeds of such Receivable.
"CONTRACT" means an agreement (or agreements) pursuant to, or under which,
a Payor shall be obligated to pay for telecommunication services rendered by the
Seller from time to time.
"CUSTOMER BASE" means all of the Seller's past, present and future
customer contracts, agreements, LOA's or other arrangements, any customer list
relating thereto and any information regarding prospective customers and
contracts, agreements, LOA's or other arrangements and all of the goodwill and
other intangible assets associated with any of the foregoing.
<PAGE>
"DEFAULTED RECEIVABLE" means a Receivable as to which, on any
Determination Date (a) any part of the Net Value thereof remains unpaid for more
than 90 days from the Billing Date for such Receivable; or (b) the Payor thereof
has taken any action, or suffered any event to occur, of the type described in
Section 7.1(b); or (c) the Master Servicer otherwise deems any part of the Net
Value thereof to be uncollectible for reasons other than a breach of a
representation or warranty under Article IV hereof.
"DEFAULTED RECEIVABLE AMOUNT" has the meaning specified in Section 5.2(c).
"DETERMINATION DATE" means the Business Day preceding the Purchase Date of
each week.
"ELIGIBLE PAYOR" means a Payor which is (a) (i) a corporation, partnership
or any other statutory organization organized under the laws of any jurisdiction
in the United States and having its principal office in the United States; (ii)
an individual or sole proprietorship which is a resident of any jurisdiction in
the United States; (iii) a Clearinghouse Agent; or (iv) a Billing and Collection
Agent; (b) not an Affiliate of any of the parties hereto; (c) has executed and
delivered to the Seller either (i) a Contract, (ii) an LOA, (iii) a
Clearinghouse Agreement or (iv) a Billing and Collection Agreement; and (d) not
subject to bankruptcy or insolvency proceedings at the time of sale of the
Receivables to be purchased.
"ELIGIBLE RECEIVABLE" means, at any time, a Receivable as to which the
representations and warranties of Section 4.2 are materially true and correct in
all respects at the time of Purchase.
"ELIGIBLE RECEIVABLE AMOUNT" means, with respect to any Eligible
Receivable, an amount equal to its Billed Amount after giving effect to the
Gross Liquidation Rate associated with the Payor Class with respect to such
Eligible Receivable.
"EVENT OF SELLER DEFAULT" has the meaning specified in Section 7.1.
"EXCESS COLLECTION AMOUNT" has the meaning specified in Section 5.2(d).
"GOVERNMENTAL AUTHORITY" means the United States of America, Federal, any
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions thereof
or pertaining thereto.
"GROSS LIQUIDATION RATE" means a factor, conclusively determined by the
Master Servicer from time to time, with respect to a designated Payor Class
based on (i) the Seller's historical experience with respect to Collections for
such Payor Class, (ii) the terms and provisions of any Billing and Collection
Agreement and (iii) the terms and provisions of any Clearinghouse Agreement,
determined on the basis of actual Collections which are expected to be received
on a Receivable within 90 days of its Billing Date.
"INSOLVENCY EVENT" means the occurrence of an event whereby the Seller
makes a general assignment for the benefit of creditors; or where any proceeding
is instituted by or against the Seller seeking to adjudicate it a bankrupt or
insolvent, or which seeks the liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of the Seller or any
of its Debts under any law relating to bankruptcy, insolvency or reorganization
or relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, custodian or other similar official for it or for any
substantial part of its property.
"LOA" means a letter of agency, or other authorization, obtained by the
Seller from each Payor designating the Seller as its long distance
telecommunications provider and otherwise of a type or in a form acceptable
under applicable laws.
"LOCKBOX ACCOUNT(S)" means the account established pursuant to Section
2.4(a).
<PAGE>
"MASTER SERVICER" means Receivables Funding Corporation, a Delaware
corporation, or any Person designated as the successor Master Servicer, and its
successors and assigns, from time to time.
"NET VALUE" of any Receivable at any time means an amount (not less than
zero) equal to (a)(i) the Eligible Receivable Amount multiplied by (ii) .90;
minus (b) all Collections received with respect thereto; PROVIDED, that if the
Master Servicer makes a determination that all payments by the Payor with
respect to such Receivable have been made, the Net Value shall be zero.
"PAID RECEIVABLES AMOUNT" has the meaning specified in Section 5.2(b).
"PAYOR" means, the Person obligated to make payments in respect of any
Receivables.
"PAYOR CLASS" means, with respect to any Payor, one of the following: (a)
Clearinghouse Agent; (b) Billing and Collection Agent; (c) statutory
organization; or (d) individuals and sole proprietorships.
"PERSON" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, voluntary association, joint
venture, a government or any agency or political subdivision thereof, or any
other entity of whatever nature.
"PRIOR NET VALUE AMOUNT" has the meaning specified in Section 5.2(a).
"PROGRAM FEE" means (a) as of each Purchase Date, an amount equal to (i)
7/360 of the annualized Base Rate multiplied by (ii) the then current Net Value
of all Purchased Receivables including (A) Rejected Receivables and (B) those
Receivables to be purchased on such Purchase Date.
"PURCHASE" means a purchase by the Purchaser of Eligible Receivables from
the Seller pursuant to Section 2.2.
"PURCHASE ACCOUNT" means the account of the Purchaser titled "Purchase
Account."
"PURCHASE COMMITMENT" means an amount not to exceed $8,000,000 with an
initial maximum funding of up to $6,000,000. Maximum monthly increases
thereafter shall not exceed $350,000 above the prior month's highest outstanding
aggregate Net Value of Purchased Receivables, or other such amounts to which
Seller and Purchaser may otherwise agree in writing. Subject to the prior
written approval by the Purchaser and payment by the Seller of all applicable
fees as agreed by and between the Seller and Purchaser, the Seller may request,
in writing, an incremental increase in the Purchase Commitment in an amount
equal to $3,000,000 during the period commencing six months from the Closing
Date through a period nine months from such Closing Date; and an additional
$4,000,000 during the period commencing ten months from the Closing Date through
the one year anniversary of the Closing Date.
"PURCHASE DATE" means the Closing Date and thereafter, Wednesday of each
week or the next succeeding Business Day if such day is not a Business Day, or
such other date that the Seller and Purchaser may mutually agree.
"PURCHASE PRICE" has the meaning specified in Section 2.3.
"PURCHASED RECEIVABLE" means any Receivable which has been purchased by
the Purchaser hereunder including a Rejected Receivable prior to its repurchase.
"PURCHASER" means Receivables Funding Corporation, a Delaware corporation,
together with its successors and assigns.
"RECEIVABLE" means (a) an account receivable arising from the provision or
sale of telecommunication services for a single monthly usage period (and any
services or sales ancillary thereto) by the Seller including the right to
<PAGE>
payment of any interest or finance charges and other obligations of such Payor
with respect thereto; (b) all security interests or liens and property subject
thereto from time to time purporting to secure payment by the Payor; (c) all
rights, remedies, guarantees, indemnities and warranties and proceeds thereof,
proceeds of insurance policies, UCC financing statements and other agreements or
arrangements of whatever character from time to time supporting or securing
payment of such Receivable including, but not limited to, any Billing and
Collection Agreement and any Clearinghouse Agreement; and (d) all Collections,
Records and proceeds with respect to any of the foregoing. In the instance of a
Receivable with respect to which the Payor is a Billing and Collection Agent
pursuant to a Billing and Collection Agreement, the amount owed to the Seller by
the Billing and Collection Agent is the "Receivable" which is eligible for
Purchase by the Purchaser and not the amount owing to, or collected by, the
Billing and Collection Agent from the end user of telecommunication services
provided by the Seller.
"RECORDS" means all Contracts, LOA's and other documents, books, records
and other information (including, without limitation, computer programs, tapes,
disks, punch cards, data processing software and related property and rights)
prepared and maintained by the Seller, the Subservicer or Additional Subservicer
with respect to Receivables (including Purchased Receivables) and the related
Payors.
"REJECTED RECEIVABLE AMOUNT" has the meaning specified in Section 5.2(e).
"REJECTED RECEIVABLE" has the meaning specified in Section 4.4.
"RELATED DOCUMENTS" means all documents required to be delivered
thereunder and under this Agreement.
"REQUIRED INFORMATION" means, with respect to a Receivable, (a) the Payor,
(b) the Eligible Receivable Amount, (c) the Billing Date, (d) the Payor
telephone number and (e) the Payor account number, if applicable.
"SELLER" means EqualNet Corporation, a Delaware corporation, together with
its successors and assigns.
"SELLER CREDIT RESERVE ACCOUNT" means the account established pursuant to
Section 2.4(c).
"SERVICING RECORDS" means all documents, books, records and other
information (including, without limitation, computer programs, tapes, disks,
punch cards, data processing software and related property and rights) prepared
and maintained by the Subservicer, Additional Subservicer or the Master Servicer
with respect to the Purchased Receivables and the related Payors.
"SPECIFIED CREDIT RESERVE BALANCE" means, as of any Purchase Date, an
amount equal to 5.00% of the Net Value of Purchased Receivables including (a)
Rejected Receivables (net of recoveries) and (b) those Receivables to be
purchased on such Purchase Date.
"SUBSERVICER" means the Seller, or any Person designated as Subservicer
hereunder.
"TERMINATION DATE" means the earlier of (a) June 18, 1998; (b) a
Termination Event; (c) the occurrence of an Event of Seller Default as set forth
in Section 7.1 of this Agreement; or (d) ninety days following the Seller's
delivery of a written notice to the Purchaser setting forth Seller's desire to
terminate this Agreement and the payment of the Termination Fee with respect
thereto.
"TERMINATION EVENT" means the occurrence of an event under any loan
agreement, indenture or governing document following which the funding of the
Purchaser to be utilized in purchasing Receivables hereunder may be terminated.
"TERMINATION FEE" means an amount to be paid by the Seller to the
Purchaser equal to 2.5% of the Purchase Commitment in the event of an occurrence
of an Event of Seller Default resulting in the termination of this Agreement; or
in the event the Seller desires to terminate this Agreement, whereby such
termination shall be effective only
<PAGE>
in the event that (a) the Seller has provided the Purchaser prior written notice
thereof; and (b) the Seller has paid to Purchaser and Purchaser has received
from Seller an amount equal to (i) 2.5% of the Purchase Commitment if such
notice of termination is provided to the Purchaser not less than 30 days prior
to the expiration of the six month period following the Closing Date; and (ii)
2.0% of the Purchase Commitment if such notice of termination is provided to the
Purchaser during the period commencing with the seventh month from the Closing
Date and ending on the one year anniversary from the Closing Date.
"UCC" means the Uniform Commercial Code as from time to time in effect in
the state of the location of the Seller's chief executive office.
<PAGE>
SCHEDULE 1
SELLER'S LICENSE NUMBERS
NAME OF SELLER LICENSE NUMBERS
-------------------- ---------------------
EqualNet Corporation FCC Account No. 0760315215
12
<PAGE>
SCHEDULE 2
LIST OF NAMES UNDER WHICH SELLER IS DOING BUSINESS
AND ADDRESSES AT WHICH SELLER IS DOING BUSINESS
NAMES UNDER WHICH SELLER IS ADDRESSES AT WHICH
DOING BUSINESS AND PAYEE NAMES SELLER IS DOING BUSINESS
EqualNet Corporation 1250 Wood Branch Park Drive
Houston, Texas 77079
Creative Communications (Harris County)
Creative Communications International
Agency Services
Equal Net Communications
EqualNet Communications
US Business Alliance
Digital Network Services
Agency Services
Equal WATS
EqualNet
United WATS
ACMI
Enhanced Wats
Tele Consortium
Comtel
UWI
Network Plus
NPI
13
<PAGE>
SCHEDULE 4.1(C)
LEGAL PROCEEDINGS
From time to time the Company is involved in what it believes to be routine
litigation or other legal proceedings that may be considered as part of the
ordinary course of its business. Currently the Company is involved in litigation
filed in August, 1995 under Cause No. 95-CH-01472 in the Circuit Court of the
Seventh Judicial Circuit of Sangamon County, Illinois brought by the Illinois
Attorney General under that state's Consumer Fraud and Deceptive Business
Practices Act seeking injunctive relief, attorneys fees and civil penalties in
the amount of $50,000 for each violation of that Act. The Company is also
involved in litigation filed in February, 1996 under Cause No. 95-CH-01472, in
the Chancery Court of Pulansky County, Arkansas, 1st Division brought by the
Arkansas Attorney General under that state's Deceptive Trade Practices Act
seeking injunctive relief, attorneys fees, restitution to consumers and civil
penalties in the amount of $10,000 for each violation of the Act. The Company is
also involved in litigation filed in February, 1996 in the Fourth Judicial
District of the State of Idaho in and for the County of Ada under Cause No.
CV-DC-9600809D brought by the Idaho Attorney General under that state's Consumer
Protection Act, Telephone Solicitation Act and Rules of Telephone Solicitations
seeking injunctive relief, restitution to consumers, attorneys fees and civil
penalties in the amount of $5,000 for each violation of either the Consumer
Protection or Telephone Solicitation Acts. Each of these matters allege that the
Company has received an excessive number of customer complaints that
long-distance service was switched to EqualNet without the customer's knowledge
or informed consent, with remedies being sought under the deceptive trade
practices-consumer protection statutes of these states. While the Company
acknowledges that some customers may not fully understand the technical
distinction between being a customer of one of the Company's underlying carriers
and being a customer of EqualNet with all network processes being handled by
those same underlying carriers, the Company vigorously denies that it has
engaged in any program or pattern of wrongfully switching customers'
long-distance service in violation of state or federal laws. Although it is not
possible at this time to predict with any degree of certainty the ultimate
exposure of the Company in these matters, the Company does not believe that the
outcome of any of these proceedings will have a material adverse effect on the
Company's results of operations or financial condition.
The Company has been informed by the Attorney Generals from the states of
Arizona, Kansas, Michigan, Nevada, New Jersey, Tennessee, Texas, and Wisconsin
that they intend to participate in any settlement of the above legal proceedings
which settlements would include consent orders in each jurisdiction.
The Company has been informed that American Teletronics Long Distance and Metro
Link Communications, Inc., have filed suit against EqualNet Corporation and
EqualNet Wholesale Services, Inc., under Cause No. 97-C-2842 in the United
States District Court for the Northern District of Illinois, Eastern Division.
However, the Company has not been served with citation in that matter and is not
yet been required to file an answer.
<PAGE>
SCHEDULE 4.1(I)
ASSUMED NAMES - EQUALNET CORPORATION
1. Agency Services
2. Equal Net Communications
3. EqualNet Communications
4. Creative Communications
5. Creative Communications International
6. U.S. Business Alliance
7. Digital Network Services
ADDITIONAL PAYEE NAMES RECIEVED FROM PAYOFFS
1. Equal WATS
2. EqualNet
3. United WATS
4. ACMI
5. Enhanced WATS
6. Tele Consortium
7. Comtel
8. UWI
9. Network Plus
10. NPI
<PAGE>
SCHEDULE 6
EqualNet Corporation (DE DOM)
Formerly
EqualNet Acquisition Corp.
6-17-97
<TABLE>
<CAPTION>
NAME
QUALIFIED
STATE UNDER STATUS
- ----- --------- ------
<S> <C> <C>
AL current not in good standing; details confidential at Revenue Dept.
AK did not check
AR current in good standing; however annual report due 6-1-97 not filed
AZ current revoked 5-10-97
CA former in good standing; however annual report due 3-97 not filed
CO current not in good standing; biennial report due 5-1-97 not filed
CT former in good standing;
DC current not in good standing; biennial report due 4-15-97 not filed
DE current in good standing; however annual report due 3-1-97 not filed
FL former not in good standing; annual report due 5-1-97 not filed
GA former not in good standing; annual report due 3-31-97 not filed
HI current in good standing; annual report due by 6-30-97
IA current not in good standing; annual report due 3-31-97 not filed
ID current revoked 12-2-96
IL former not in good standing; annual report due 2-1-97 not filed
IN former not in good standing; 1st biennial report due 2-28-97 not
filed
KS current revoked 1-15-97
KY current in good standing; next annual report due by 6-30-97
LA current not in good standing; annual report due 3-6-97 not filed
MA former not in good standing; annual report due 9-15-97 not filed
MD current not in good standing; annual report due 4-15-97
ME current not in good standing; annual report due 6-1-97 not filed
MI former in good standing; however annual report due 5-15-97 not filed
MN former not in good standing; annual report due 5-15-97 not filed
MO current in good standing; next annual report due 10-15-97
MS current in good standing; however annual report due 4-1-97 not filed
MT former not in good standing; annual report due 4-1-97 not filed
NC current not in good standing; annual report due 4-30-97 not filed
ND current in good standing; however annual report due 5-15-97 not filed
NE former revoked 4-16-97
NH current not in good standing; annual report due 4-1-97 not on record
NJ former not in good standing; annual report due 2-28-97 not filed
NM former not in good standing; biennial report due 3-15-97 not filed
NV former not in good standing; annual report due 3-1-97 not filed
NY current active; however biennial report due 2-28-97 not filed
OH former in good standing; however annual reports for '96 & '97 not filed
OK former revoked 1-10-97
OR former revoked 4-17-97
PA former in good standing; no reports are filed at Secy of State in PA
RI former not in good standing; annual report due 3-1-97 not filed
SC former revoked 3-28-97
SD former not in good standing; annual report due 5-1-97 not filed
TN former active; next annual report due 10-1-97 (Rev. also determines status)
TX current active at Secy of State; in TEMPORARY good standing at Comptroller-
franchise tax return due 5-15-97 and IF received not yet posted
UT current in good standing; however listed as UT domestic; state checking files
VA current in good standing; next report due 4-98
VT former revoked 10-6-97
WA former in good standing; next report due 2-98
WI former in good standing; however annual report due 3-31-97 not filed
WV former in good standing;
WY former not in good standing; annual report due 2-1-97 not filed
</TABLE>
<PAGE>
ANNEX 3
BILLING SERVICE AGREEMENTS
1. One Plus Billing and Information Management Services Agreement between
Billing Information Concepts, Inc. d/b/a U.S. Billing and EqualNet Corporation
dated August 1, 1996.
2. Enhanced Services Billing and Information Management Services Agreement
between Enhanced Services Billing, Inc. and EqualNet Corporation dated August 1,
1996.
EXHIBIT 10.18
CARRIER AGREEMENT
BETWEEN AT&T
AND
EQUALNET CORPORATION
CONFIDENTIAL AND PROPRIETARY
between
AT&T and EqualNet Corporation
<PAGE>
TABLE OF CONTENTS
Section 0 Signature Page
Section 1 General Terms and Conditions
Section 2 Eligibility of Customer
Section 3 Responsibilities of Customer
Section 4 Responsibilities of AT&T
Section 5 Services and Service Descriptions
Section 6 Service Rates, Terms and Conditions
Section 7 International Usage Rates
2
CONFIDENTIAL AND PROPRIETARY
between
AT&T and EqualNet Corporation
<PAGE>
SECTION 0: SIGNATURE PAGE
THIS CARRIER AGREEMENT ("Agreement") is made and entered into by and
between AT&T Corp., a corporation organized and existing under the laws of the
State of New York and having an office at 295 North Maple Avenue, Basking Ridge,
New Jersey 07920 ("AT&T") and EqualNet Corporation, having an office at 1250
Wood Branch Park Drive, Houston, Texas 77079 ("Customer"). The terms and
conditions herein constitute an offer by Customer as of the date of Customer's
signature below which may be accepted only by AT&T's signature below. This
Agreement shall become effective when signed by both parties ("Effective Date").
AT&T and Customer, acting through their duly authorized representatives,
hereby agree to the terms set forth in Sections 1 through 6 of this Agreement as
attached hereto.
CUSTOMER AT&T CORP.
By:_____________________________ By:_______________________________
________________________________ __________________________________
Printed or Typed Name Printed or Typed Name
________________________________ ___________________________________
Title Title
________________________________ ___________________________________
Date Date
3
CONFIDENTIAL AND PROPRIETARY
between
AT&T and EqualNet Corporation
<PAGE>
SECTION 1: GENERAL TERMS AND CONDITIONS
1.A. ASSIGNMENT. Customer may not assign this Agreement in whole or in part
without the prior written consent of AT&T, which shall not be unreasonably
withheld. AT&T may, in its discretion, condition its consent to such assignment
upon the posting of an appropriate deposit by the assignee pursuant to Paragraph
4.D. of this Agreement. AT&T reserves the right to deny or revoke its consent to
such assignment at any time if the assignee proves unwilling or unable to meet
the eligibility requirements of this Agreement, in which event the Customer
shall remain or again become responsible for performance of all terms of this
Agreement. This provision shall not affect the Customer's right to resell
Service. Further, any resale or assignment shall not release the original
Customer from its obligations under this Agreement.
1.B. COMBINATION WITH OTHER SERVICES OR OFFERS. This AT&T Carrier Agreement may
not be used in conjunction with any other AT&T Carrier Agreement, AT&T Contract
Tariff, or promotions for any AT&T Services.
1.C. INDEPENDENT PARTIES. The relationship established by this Agreement shall
in no way constitute AT&T (or its agents or employees) as a partner, agent or
fiduciary of Customer. The relationship established by this Agreement shall in
no way constitute the Customer (or their agents or employees) as a partner,
agent or fiduciary of AT&T. The provision of Service described in this Agreement
does not establish any joint undertaking, joint venture, or fiduciary
relationship between AT&T and Customer.
1.D. ACKNOWLEDGMENT OF RIGHT TO COMPETE. Customer acknowledges and understands
that it remains at all times solely responsible for the success and profits of
its business, and that AT&T makes no promises, warranties or representations
regarding the Customer's business success or prospects of business success in
connection with the provision of service pursuant to this Agreement. Customer
acknowledges and understands that AT&T will continue to market AT&T services
directly to the public and that such marketing may from time to time bring AT&T
into direct or indirect competition with Customer, and that AT&T may also market
its services to competitors of Customer. Customer acknowledges and understands
that nothing in this Agreement diminishes or restricts in any way the rights of
AT&T to engage in competition with Customer or to market its services to
competitors of Customer.
1.E. USE OF PROPRIETARY INFORMATION. In the event that either Customer or AT&T,
in the course of performance of their obligations to each other under this
Agreement, obtains or receives proprietary information from the other, it agrees
to use such information only for the purpose of complying with its obligations
under this Agreement and not to use such information for its own marketing
purposes. Customer acknowledges that AT&T may use for its own marketing purposes
any and all information that it obtains from sources other than Customer,
including but not limited to information that AT&T may have regarding Customer's
End-Users as a result of the past or present sale or provision by AT&T of
telecommunications services or equipment to said End-Users.
4
CONFIDENTIAL AND PROPRIETARY
between
AT&T and EqualNet Corporation
<PAGE>
1.F. FORCE MAJEURE. Neither party nor its affiliates, subsidiaries,
subcontractors, or parent corporation shall be liable in any way for delay,
failure in performance, loss or damage due to any of the following: fire,
strike, embargo, explosion, power blackout, earthquake, volcanic action, floor,
war, water, the elements, labor disputes, civil or military authority, acts of
God, acts of the public enemy, inability to secure raw materials, inability to
secure products, acts or omissions of carriers, or other causes beyond its
reasonable control, whether or not similar to the foregoing.
1.G. SEVERABILITY. If any portion of this Agreement shall be found to be invalid
or unenforceable, such portion shall be void and of no effect, but the remainder
of the Agreement shall continue in full force and effect unless the Agreement
fails of its essential purpose without the voided portion.
1.H. NOTICES. All notices, identifications, formal requests or other formal
communications required or desired to be given in connection with this
Agreement, shall be in writing and shall be effective when delivered in person,
when received if made by registered or certified mail (return receipt requested)
or by overnight delivery, or the day of transmission, if made by facsimile
before 3:00 p.m. on a business day, or the business day after transmission if
made by facsimile after 3:00 p.m., unless the parties otherwise agree in
writing. Notice shall be addressed to the following:
If to AT&T: Thomas Lysinger
General Manager
300 Atrium Drive
Somerset, New Jersey 08873
Facsimile: (908) 805-6093
If to Customer: Zane Russell
President and CEO
1250 Wood Branch Park Drive
Houston, Texas 77079
Facsimile: (281) 529-4650
1.I. MODIFICATION AND WAIVER. This Agreement may be modified only by a writing
signed by both parties. The failure of a party to enforce any right under this
Agreement at any particular point in time shall not constitute a continuing
waiver of any such right with respect to the remaining term of this Agreement,
or the waiver of any other right under this Agreement.
1.J. COMPLIANCE WITH LAWS. Each party is responsible for its own compliance with
all laws and regulations affecting its business, including but not limited to
the collection and remittance of all taxes and other levies imposed by law.
5
CONFIDENTIAL AND PROPRIETARY
between
AT&T and EqualNet Corporation
<PAGE>
1.K. CHOICE OF LAW. The domestic law of the State of New York, except its
conflict-of-laws rules, shall govern the construction, interpretation, and
performance of this Agreement.
1.L. CONFIDENTIALITY. The Terms, conditions, and rates contained in this
Agreement are confidential, and shall remain so unless and until it shall be
determined by AT&T that the Communications Act of 1934 (or any subsequent
legislation) and the regulations promulgated thereunder require the filing of
this Agreement with the Federal Communications Commission ("Commission"), or
unless the Commission orders the filing of this Agreement pursuant to authority
granted to the Commission by law or regulation. In such event, AT&T shall file
the Agreement within thirty days of its execution, or upon such determination
that filing is required, or upon being ordered by the Commission to do so
(whichever is later); provided, that AT&T nonetheless shall keep the identity of
Customer confidential unless required by law, regulation or the Commission to
disclose such identity. Absent such a filing requirement, neither party shall
disclose the terms or conditions of this Agreement to any third party, nor issue
any public statements relating to this Agreement without the written consent of
the other party, unless such disclosure or statement is reasonably believed by
the party to be compelled by governmental authority. A disclosing party shall
furnish reasonable prior notice to the other party before making the statement
or disclosure unless prohibited by law from doing so.
1.M. DISPUTE RESOLUTION. If a dispute arises out of or relates to this
Agreement, or its breach, the parties agree to submit the dispute to a sole
mediator selected by the parties or, at any time at the option of a party, to
mediation by the American Arbitration Association ("AAA"), to be held in New
York, New York. If not resolved by mediation, it shall be referred to a sole
arbitrator selected by the parties within thirty (30) days of the mediation or,
in the absence of such selection, to AAA arbitration which shall be held in
Dallas, Texas. The arbitration shall be governed by the United States
Arbitration Act and judgment on the award may be entered in any court having
jurisdiction. The arbitrator may not limit, expand or otherwise modify the terms
of this Agreement. The parties, their representatives, other participants and
the mediator and arbitrator shall hold the existence, content and results of
mediation and arbitration in confidence.
1.N. USE OF SERVICES PROVIDED FOR RESALE OR SHARED USE
1.N.1. When the services provided under this Carrier Agreement are resold
or shared, the Customer may advise its End User that a portion of the
Customer's service is provided by AT&T. However, the Customer shall not
publish or use any advertising, sales promotions, press releases or other
publicity matters which use AT&T's corporate or trade names, logos,
trademarks, service marks, trade dress, or other symbols that serve to
identify and distinguish AT&T from its competitors (or which use
confusingly similar corporate or other trade names, logos, trademarks,
service marks, trade dress or other symbols), and the Customer may not
conduct business under AT&T's corporate or trade names, logos, trademarks,
service marks, trade dress, of other symbols that service to identify and
distinguish
6
CONFIDENTIAL AND PROPRIETARY
between
AT&T and EqualNet Corporation
<PAGE>
AT&T from its competitors (or under any confusingly similar corporate or
trade names, logos, trademarks, service marks, trade dress or other
symbols), except to the limited extent as is permissible under contract or
applicable law. Customer shall comply with AT&T's "Naming Guidelines", as
they may be reasonably amended by AT&T from time to time on notice to
Customer.
1.N.2. If AT&T finds that the Customer, in connection with its resale of
the Services Provided under this Carrier Agreement, is using AT&T's
corporate or trade names, logos, trademarks, service marks, trade dress or
other symbols that serve to identify and distinguish AT&T from its
competitors, in a manner inconsistent with the provisions of Section
1.N.1, AT&T may provide written notice of such inconsistent use to the
Customer. If the Customer fails, within thirty (30) days after the receipt
of such notice, to substantiate to AT&T that such inconsistent use has
ended or has been corrected, the discounts specified in Section 6.D and
the credits specified in Sections 6.E.1, 6.E.2, 6.E.4, 6.E.6, and 6.E.7
(the "Affected Discounts and Credits") will not apply from the 30th day
after the receipt of such notice until such time as the Customer
substantiates to AT&T that the inconsistent use has ended and has been
corrected. Any such suspension of the Affected Discounts and Credits shall
not relieve the Customer from its obligations to comply with any other
conditions contained in this Carrier Agreement, including the Minimum
Revenue Commitments. If it is finally determined by adjudication (or, if
agreed by AT&T and the Customer, by arbitration) that AT&T's initial
finding of an inconsistent use was in error, then the Customer shall
receive a credit equal to the amount of the Affected Discounts and Credits
that were not applied as a result of AT&T's initial finding, and AT&T's
initial finding will have no further effect.
1.N.3 The Customer shall take such steps as are reasonably possible to
ensure that no Intermediate Reseller takes any action that, if done
directly by Customer, would violate Section 1.N.1. If an Intermediated
Reseller does take such action, the Customer shall take such steps as are
reasonably possible to cause the inconsistent use by such Intermediate
Reseller to be ended and corrected, to AT&T's reasonable satisfaction.
1.N.4 If AT&T finds that the Customer has failed to take such action as is
required pursuant to Section 1.N.3, AT&T may provide written notice of
such failure to the Customer. If the Customer fails, within thirty (30)
days after the receipt of such notice, to substantiate to AT&T that the
inconsistent use by the other Carrier has ended and has been corrected or
the Customer has taken the steps required under the preceding paragraph,
the Affected Discounts and Credits will not apply from the 30th day after
the receipt of such notice until such time as Customer substantiates to
AT&T that the inconsistent use has ended and has been corrected. Any such
suspension of the Affected Discounts and Credits shall not relieve the
Customer from its obligations to comply with any other conditions
contained in this Carrier Agreement including the Minimum Revenue
7
CONFIDENTIAL AND PROPRIETARY
between
AT&T and EqualNet Corporation
<PAGE>
Commitments. If it is finally determined by adjudication (or, if agreed by
AT&T and the Customer, by arbitration) that AT&T's initial finding of a
failure by Customer to take required steps was in error, then the Customer
shall receive a credit equal to the amount of the Affected Discounts and
Credits that were not applied as a result of AT&T's initial finding, and
AT&T's initial finding will have no further effect.
1.O. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior
written or oral agreements, proposals or understandings, except that a letter
from AT&T to EqualNet dated on or prior to the Effective Date of this Agreement
does reflect the understanding of the parties with respect to circumstances
under which a deposit will not be required.
1.P. DEFINITIONS. As used in this Agreement, the definitions set forth in
AT&T Tariff F.C.C. Nos. 1, 2, 9, 11 and 14 shall apply except to the extent
that they are modified or supplemented as follows:
1.P.1 TARIFFS: As used in this Agreement, the term "tariffs" "Applicable
Tariffs," or any variation thereof shall mean AT&T Tariff F.C.C. Nos. 1,
2, 9, 11 and 14, as amended from time to time, as well as the documents of
general application that replace such tariffs upon their cancellation.
1.P.2. END-USERS: Those persons or entities to which Customer or an
Intermediate Reseller provides service utilizing the service provided to
Customer by AT&T pursuant to this Agreement.
1.P.3. INTERMEDIATE RESELLER: All resellers and other intermediaries in
the sales chain between CUSTOMER (including its employees, agents and
independently contracted sales representatives) and an End-User.
1.P.4. DISPUTE: Any controversy or claim between the parties under this
Agreement or which relates directly or indirectly to this Agreement or the
services provided hereunder, whether based on contract, product liability,
statute, tort (including negligence or strict liability) or other legal or
equitable theory, whenever brought, between the parties or any of their
employees or agents.
1.P.5. DIRECT DIAL STATION CALL: That service where the person originating
the call dials the telephone number desired, completes the call without
the assistance of an operator, and the call is billed to the originating
number.
1.P.6. IXC SWITCH: An IXC switch is a telecommunications switch with the
following characteristics: (a) it is owned and operated by the Customer,
(b) it has the capability to be used for the transmission of calls that
are routed by a Local Exchange Carrier to the IXC Switch using Feature
Group D access; (c) it is capable of interconnecting circuits or
transferring calling between circuits; (d) it
8
CONFIDENTIAL AND PROPRIETARY
between
AT&T and EqualNet Corporation
<PAGE>
has a maximum capacity of a least 100,000 access lines; and (e) it is used
by Customer to provide service to End-Users as a common carrier.
1.Q. SIX MONTH REVIEW. In November, 1997, AT&T and CUSTOMER will engage in a
contract price review, which will include good faith negotiations as to whether
any changes should be made in rates and fees for intrastate, interstate, inbound
and non-qualified usage.
CONFIDENTIAL AND PROPRIETARY
between
AT&T and EqualNet Corporation
9
<PAGE>
SECTION 2: REQUIREMENTS AND CERTIFICATION OF ELIGIBILITY
2.A. ELIGIBILITY. The rates, terms and conditions herein are expressly
conditioned upon the Customer's meeting the following eligibility requirements.
Customer is an interexchange telecommunications common carrier which certifies
as follows:
2.A.1. Customer has obtained the required operating authority in all
states in which it conducts business, as well as all authority required by
the FCC for resale of telecommunications services, including but not
limited to authority required pursuant to Section 214 of the
Communications Act of 1934, 47 U.S.C. ss.214.
2.A.2. Customer complies and will continue to comply at all times with all
federal and state laws and regulations applicable to the sale and
provision of service to its customers, including but not limited to those
laws and regulations applicable to the authorization and proof of
authorization necessary to convert an End-User's former service to
Customer's service as the End-User's Primary Interexchange Carrier.
2.A.3. Customer will utilize the Service offered hereunder only for lawful
purposes, including but not limited to resale of the Service or components
thereof. In the event that Customer resells the Service provided
hereunder, it will comply with the provisions of this Agreement regarding
the use of AT&T's trade names, trademarks and service marks, and will
ensure that its Intermediate Resellers do not engage in any activity in
connection with the resale of the Service provided under this Agreement
that, if done by CUSTOMER, would violate such provisions.
2.B. TERMINATION FOR LACK OF ELIGIBILITY. If at any time during the term of this
Agreement Customer fails to comply with any requirement for eligibility
contained in Paragraphs 2.A.1 through 2.A.3., above, such failure shall
constitute a material breach of this Agreement which shall entitle AT&T to
terminate this Agreement and the Service provided hereunder by proving notice of
termination, if Customer fails to cure such breach within thirty (30) days after
AT&T provided notice of such breach. In the event of such termination, Customer
shall indemnify, defend and hold harmless AT&T from any and all complaints,
causes or action or other claims brought against AT&T by any of End-Users due to
said termination.
2.C. DEFAULT. If at any time during the term of this Agreement, receivership,
insolvency, reorganization, dissolution, liquidation, or other proceedings (not
including a proceeding under the federal Bankruptcy Code) shall be instituted by
or against either party or all or any substantial part of its property under an
applicable law of the United States or any state thereof, and such proceedings
shall not have been stayed or dismissed within ninety (90) days from service of
process upon such party, then the non-defaulting party shall have the right to
terminate this Agreement. Customer acknowledges that AT&T is a "utility" for
purposes of Section 366 of the Bankruptcy Code, and that AT&T will be entitled
to adequate assurance of payment as provided in that Section in the event that
Customer becomes the subject of a petition filed under the Bankruptcy Code.
10
CONFIDENTIAL AND PROPRIETARY
between
AT&T and EqualNet Corporation
<PAGE>
Notwithstanding the provisions of the first sentence of this Section, AT&T's
right to terminate this Agreement in the event that Customer becomes the subject
of a proceeding under the federal Bankruptcy Code will be governed by Section
366 of Bankruptcy Code.
CONFIDENTIAL AND PROPRIETARY
between
AT&T and EqualNet Corporation
11
<PAGE>
SECTION 3: RESPONSIBILITIES OF AT&T
3.A. PROVISION OF SERVICE. Subject to its Correspondent Agreements with foreign
carriers and regulation by Federal and state authorities, AT&T shall provide
Service in accordance with its standard practices and procedures for the
operation of its network. Service shall be available 24 hours per day, seven
days per week. AT&T is responsible for the provision of Service from station to
station, but is not responsible for the quality of transmission or signaling on
the Customer's side of the interface at a Customer's premises. Service is
furnished subject to the availability of the service components required.
3.B. INSTALLATION. Upon execution of this Agreement AT&T shall establish a due
date for commencement of installation of Service and confirm said date with the
Customer (CISD). A Customer may delay said due date for commencement of
installation when the Customer's written request for said delay is received by
AT&T at least five (5) business days prior to said due date, provided that the
delay of said due date shall not exceed 30 cumulative calendar days. AT&T will
make every reasonable effort to commence installation of Service by the due
date, but Customer acknowledges that in some cases a delay in commencement of
installation may be unavoidable. If commencement of installation is delayed for
more than 45 days beyond the due date, and such delay is not requested or caused
in whole or in part by the Customer, the Customer may cancel its order for
Service pursuant to this Agreement and shall not thereby be considered to have
breached this Agreement, such cancellation shall be Customer's sole remedy for
such delay.
3.C. MAINTENANCE. AT&T shall maintain Service in conformity with its
standard network operating procedures.
3.D. LIMITATION OF LIABILITY. AT&T (including its subsidiaries, affiliate,
predecessors, successors and assigns) makes no warranties, express or implied,
and specifically disclaims any warranty of merchantability or fitness for a
particular purpose with respect to services or products provided pursuant to
this Agreement. AT&T's liability for service interruptions for any service
provided pursuant to this Agreement shall not exceed an amount equal to a
pro-rated portion of the recurring charges provided for under this Agreement for
the service affected for the period(s) during which said service was affected.
This limitation of liability shall apply regardless of the form of action,
whether in contract, tort, warranty, strict liability, or negligence (including
without limitation active and passive negligence). In no event shall AT&T be
liable for consequential, special or indirect damages or lost profits sustained
by reason of its performance of this Agreement, or for any failure, breakdown,
or interruption of service, whatever shall be the cause, or however long it
shall last, and regardless of whether anyone has been advised of the possibility
of such damages. AT&T shall have no liability for damages caused (1) by
Customer's failure to perform its responsibilities under this Agreement, or (2)
by the acts of third parties (including without limitation Customer's users or
end users). AT&T does not guarantee or make any warranty with respect to the
service provided pursuant to this Agreement when used in an explosive
atmosphere. This Agreement does not create any claim or right of action, nor is
it intended to confer any benefit on any
12
CONFIDENTIAL AND PROPRIETARY
between
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<PAGE>
third party, including but not limited to any user or end-user of Customer. The
limitations of liability set forth in this Agreement shall survive failure of an
exclusive remedy.
3.E. SERVICE, CHANNELS OR EQUIPMENT OF OTHERS. AT&T is not liable for damages
associated with service, channels, or equipment that it does not furnish. AT&T
does not provide Customer equipment.
3.F. NO PATENT OR SOFTWARE LICENSE. No license under patents or software
copyrights (other than the limited license to use) is granted by AT&T or shall
be implied or arise by estoppel, with respect to Service offered under this
Agreement.
3.G. PERIODIC REVIEW. Beginning in the sixth month of the Term of this
Agreement, and every six months thereafter, AT&T will review with CUSTOMER the
status of CUSTOMER'S revenue/volume commitments, changes in its actual available
traffic, and the pricing of the services provided under this Agreement. If AT&T
and the CUSTOMER agree that revisions to this Agreement would be advantageous to
both parties, then AT&T and CUSTOMER will cooperate in efforts to develop a
mutually agreeable alternative proposal that will satisfy the concerns of both
parties and comply with all applicable legal and regulatory requirements. By way
of example and not limitation, such alternative proposal may include changes in
rates, nonrecurring charges, revenue and/or volume commitments, discounts, the
term and other provisions. This provision shall not apply to a change resulting
from a decision by CUSTOMER to transfer portions of its traffic or projected
growth to carriers other than AT&T. This provision does not constitute a waiver
of any charges, including shortfall charges, incurred by the CUSTOMER prior to
the time any amendment to this Agreement is made.
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SECTION 4: RESPONSIBILITIES OF CUSTOMER
4.A. PLACEMENT OF ORDERS AND COMPLIANCE WITH REGULATIONS. Customer is
responsible for placing any necessary orders and for assuring that it, its Users
and its End-Users comply with the provisions of this Agreement and with all
applicable federal and state laws and regulations.
4.B. BILLING; RESPONSIBILITY FOR PAYMENT. Customer is liable for all amounts due
to AT&T hereunder, subject to the following. AT&T will provide to Customer a
single monthly bill for each of the Services provided under this Agreement, or
at AT&T's option a single monthly bill for all of the Services provided under
this Agreement. Said bill or bills (including call detail records) will be
provided on magnetic tape or such other electronic media as the parties agree in
writing, and will be sent to one Customer location designated by the Customer.
Except as provided in the Payment Plan set forth in a separate, contemporaneous
Settlement Agreement between the parties, payment of charges is due upon
presentation of a bill (including call detail records). Payment shall be
considered past due if not made within thirty (30) days after the date of the
bill on which the charges first appear. Customer shall be solely responsible for
rendering of bills to and collection of charges from its end-users. Failure of
Customer to bill and collect charges from its end-users shall not excuse in
whole or in part Customer's responsibilities to AT&T under this Agreement,
including but not limited to the responsibility to render to AT&T timely payment
of charges. Customer shall reimburse AT&T for reasonable attorneys' fees (in the
event of a collection arbitration or litigation) and any other costs associated
with collecting delinquent payments from Customer. At AT&T's option, interest
charges may be added to any undisputed adjudged past due amounts at the rate of
one and one-half per cent (1 1/2%) per month, unless such interest rate exceeds
the maximum allowed by applicable law, in which case interest shall be at the
maximum lawful rate. The failure of Customer to make timely payment of charges
pursuant to this paragraph shall constitute a material breach of this Agreement
by Customer which shall entitle AT&T to terminate this Agreement and the service
provided hereunder upon five (5) days written notice to Customer.
Notwithstanding the foregoing, AT&T may continue to issue bills to Customer's
End-Users for 800 Services until October 31, 1997. Beginning July 1, 1997, the
bills will not include AT&T brand identification.
4.C. INTERFACING AND COMMUNICATING WITH END-USERS. Interfacing and communicating
with End-Users shall be the sole responsibility of Customer with respect to any
use that Customer may make of the service provided pursuant to this Agreement to
in turn provide service to other persons or entities. Such interfacing and
communicating shall include without limitation installation of service,
termination of service, placing of orders, billing and billing inquiries,
reporting of service outages and problems, collection of charges and handling
and resolution of all disputes.
4.D. DEPOSITS. AT&T may require the Customer, prior to or during the provision
of service pursuant to this Agreement, to tender a deposit in an amount to be
determined by
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AT&T in its reasonable discretion to be held by AT&T as a guarantee for the
payment of charges (including but not limited to shortfall charges attributable
to Customer's failure to comply with any revenue or volume commitment or any
monitoring condition in this Agreement or under a prior serving arrangement);
provided, that such deposit shall not exceed the greater of four million five
hundred thousand dollars ($4,500,000) or three times the average monthly charges
(after discount) for the six months preceding the calculation of the deposit
amount. To determine the financial responsibility of Customer and/or the
specific amount of any deposit required, AT&T may rely upon commercially
reasonable factors to assess and manage the risk of non-payment, including but
not limited to payment history for telecommunications service (including such
service purchased from AT&T), number of years in business, bankruptcy or
insolvency history, current AT&T account treatment status, financial statement
analysis, and commercial credit bureau rating. It shall be Customer's
responsibility to provide to AT&T upon request such information as is necessary
for AT&T to determine the financial responsibility of Customer, including but
not limited too Customer's tax returns, audited or unaudited financial
statements and loan applications. AT&T will enter into a reasonable
non-disclosure agreement to protect the confidentiality of such information. A
deposit does not relieve Customer of the responsibility for the prompt payment
of bills on presentation or the due date appearing on the face of the bills. In
lieu of a cash deposit, AT&T will accept Bank Letters of Credit and Surety Bonds
which have been approved by AT&T. Interest will be paid to a Customer for the
period that a cash deposit is held by AT&T. The interest rate used will be
simple interest at the rate of six percent (6%) annually unless a different rate
has been established by the appropriate legal authority in the state where the
Service offering is located. The failure of Customer to post a deposit as
required by AT&T pursuant to this paragraph shall constitute a material breach
of this Agreement by Customer which shall entitle AT&T to terminate this
Agreement and the service provided hereunder upon four (4) business days written
notice to Customer. When the service for which the deposit has been required is
discontinued, the deposit will be applied to the final bill and any credit
balance will be refunded to the Customer with applicable interest accrued.
4.E. CUSTOMER'S USE OF SERVICE. Customer may use the services provided pursuant
to this Agreement for any lawful purpose consistent with the transmission and
switching parameters of the telecommunications network, and may resell its use
(or the use of any part thereof) to a third party in the normal course of the
Customer's business, subject to the following:
4.E.1 ABUSE. The abuse of Service is prohibited. The following activities
constitute abuse:
4.E.1.A. Using Service to make calls that might reasonably be
expected to frighten, abuse, torment, or harass another, or
4.E.1.B. Using Service in such a way that it interferes unreasonably
with the use of Service or AT&T's network by others.
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In any instance in which AT&T believes in good faith that there is
abuse of Service as set forth above, AT&T may, upon five (5) days
prior written notice to the Customer, and without liability on the
part of AT&T, restrict, suspend or discontinue providing Service,
unless Customer cures such abuse to AT&T's reasonable satisfaction
within such period.
4.E.2. FRAUDULENT USE. The fraudulent use of, or the intended or attempted
fraudulent use of, Service is prohibited. The following activities
constitute fraudulent use:
4.E.2.A. Using Service to transmit any message or code, locate a
person, or otherwise give or obtain information, without payment for
Service, or
4.E.2.B. Using or attempting to use Service with the intent to avoid
the payment, either in whole or in part, of any charges by any means
or device, or
4.E.2.C. Using Service to carry calls that originate on the network
of a facilities-based interexchange carrier other than AT&T and
terminate disproportionately to locations for which the cost to AT&T
of terminating switched access is above the average cost of
terminating switched access, based on the published access tariffs
of local exchange companies.
In any instance in which AT&T believes in good faith that there is
fraudulent use of Service as set forth above, AT&T may, immediately
and upon written notice to the Customer, and without liability on
the part of AT&T, restrict, suspend or discontinue providing
Service.
4.E.3. INTERFERENCE, IMPAIRMENT OR IMPROPER USE. Customer may not use
Service in any manner that subjects AT&T personnel or non-AT&T personnel
to hazardous conditions or results in immediate harm to the AT&T network
or other AT&T services. In any instance in which AT&T believes in good
faith that Service is being used in such manner, AT&T may immediately
restrict Service on a temporary basis. In such cases, AT&T will make a
reasonable effort to give the Customer prior notice. In the event that
Customer does not provide to AT&T within five (5) business days of the
temporary restriction of service acceptable proof that said use has ceased
and that appropriate measures have been taken to prevent its recurrence,
AT&T may immediately and without further notice terminate service.
4.F. ACCESS TO CUSTOMER'S PREMISES. The Customer is responsible for arranging
premises access at any reasonable time so that AT&T personnel may install,
repair, maintain, inspect or remove Service components. Premises access must be
made available at a time mutually agreeable to the Customer and AT&T.
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4.G. LOSS. The Customer is liable to AT&T for the replacement cost of
AT&T-provided equipment installed at the Customer's premises in the event of
loss of said equipment for any reason, including but not limited to theft.
4.H. DUTY TO INDEMNIFY AND DEFEND. Customer shall indemnify, defend, and hold
harmless AT&T and its directors, officers, employees, agents, parent,
subsidiaries, successors, and assigns from all claims, damages and expenses
(including reasonable attorneys' fees) asserted against AT&T arising out of or
resulting from, in whole or in part, the acts or omissions of Customer, any
Intermediate Resellers or any End-Users related to the resale or use of the
Services provided under this Agreement, including but not limited to claims for
libel, slander, invasion of privacy, or infringement of copyright arising from
any communication and claims for patent infringement arising from combining or
using services or equipment furnished by AT&T in connection with services or
equipment furnished by others. Customer shall also indemnify, defend and hold
AT&T harmless for all causes of action, claims, liabilities or expenses asserted
or incurred by any of Customer's Users or End-Users arising out of any failure,
breakdown, or interruption of service provided to Customer by AT&T or to
End-Users or Intermediate Resellers by Customer. Customer shall indemnify,
defend and hold AT&T harmless for all causes of action, claims, liabilities or
expenses asserted against AT&T by Intermediate Resellers or End-Users related to
the resale or use of the Services provided under this Agreement or the
Customer's marketing efforts, including but not limited to Customer's violation
of laws and regulations applicable to the authorization and proof of
authorization necessary to convert an End-User's former service to Customer's
service as the End-User's Primary Interexchange Carrier. AT&T shall indemnify,
defend, and hold harmless Customer and its directors, officers, employees,
agents, parent, subsidiaries, successors, and assigns from all claims, damages
and expenses (including reasonable attorneys' fees) arising out of or resulting
from claims for patent infringement arising solely from the use of services
provided by AT&T.
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SECTION 5: SERVICES AND SERVICE DESCRIPTIONS
5.A. SERVICES PROVIDED: AT&T will provide the following Domestic and
International Services to the Customer under this Agreement and pursuant to the
Applicable AT&T Tariffs which are specified below.
5.A.1. AT&T SOFTWARE DEFINED NETWORK (SDN) SERVICES (AT&T TARIFF F.C.C.
NO. 1) consisting of:
a) AT&T Custom SDN Service and International Calling Capability
5.A.2 AT&T DISTRIBUTED NETWORK SERVICE (DNS) SERVICES (AT&T TARIFF F.C.C.
NO. 1) consisting of:
a) AT&T DNS Service and AT&T DNS International Calling Capability
5.A.3. AT&T MEGACOM SERVICE (AT&T TARIFF F.C.C. NO. 1) CONSISTING OF:
a) AT&T MEGACOMsm Service and International Calling Capability
5.A.4. AT&T 800 SERVICES (AT&T TARIFF F.C.C. NO. 2 AND 14) CONSISTING OF:
a) AT&T 800 READYLINEsm Service-Domestic
b) AT&T 800 READYLINEsm Service-Canada
c) AT&T 800 READYLINEsm Service-Mexico
d) AT&T 800 READYLINEsm Service-Overseas
e) AT&T 800 READYLINEsm Service-Puerto Rico and the U.S.
Virgin Islands
f) AT&T MEGACOM 800 Service-Domestic
5.A.5. AT&T PRIVATE LINE SERVICES (AT&T TARIFF F.C.C. NO. 9) CONSISTING
OF:
a) AT&T ACCUNETsm T1.5 Service Access Connections
5.A.6. AT&T LOCAL CHANNEL SERVICES (AT&T TARIFF F.C.C. NO. 11) CONSISTING
OF:
a) AT&T TERRESTRIAL 1.544 Mbps local Channel Services
5.B. INTRASTATE SERVICES. The following intrastate services are provided
pursuant to AT&T's state tariffs governing such service:
5.B.1. AT&T MEGACOM Service-Domestic
5.B.2. AT&T SDN Service-Domestic
5.B.3. AT&T 800 READYLINE Service-Domestic
5.B.4. AT&T DNS Service-Domestic
5.B.5. AT&T MEGACOM 800 Service-Domestic
SECTION 6: SERVICES RATES, TERMS AND CONDITIONS
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6.A. SERVICE TERM. The term of this Agreement is 36 months beginning with the
first day of the Customer's first full billing month on or after the effective
Date of this Carrier Agreement, which is referred to as the Customer's Initial
Service Date (CISD). No renewal option is available for this Agreement. For the
AT&T 800 READYLINE Services provided under this Agreement, the Interim Service
Period is the period from CISD through the date on which billing for such
services converts from paper bills issued by AT&T to End-User locations, to
magnetic or electronic bills issued by AT&T to Customer.
6.B. MINIMUM REVENUE COMMITMENTS
6.B.1. The combined Minimum Semi-Annual Revenue Commitment (MSARC) for the
AT&T Custom SDN Service and International Calling Capability, AT&T DNS
Service and International Calling Capability, AT&T MEGACOM Service and
International Calling Capability, and AT&T 800 Services provided under
this Agreement, after the application of the Discounts as specified in
Section 6.D., and the Credits specified in 6.E.1., 6.E.2., 6.E.3.,
following, have been applied ("Net Billing"), are as follows, for each
six-month (semi-annual) period of the Service Term.
ANNUALIZED
MSARC MSARC
----------- -----------
Months 1 - 6 $ 8,000,000
Months 7 - 12 $10,000,000 $18,000,000
Months 13 - 18 $10,000,000
Months 19 - 24 $10,000,000 $20,000,000
Months 25 - 30 $10,000,000
Months 31 - 36 $10,000,000 $20,000,000
If, at the end of each semi-annual period following CISD, the Customer
failed to satisfy the MSARC, the Customer will be billed the difference
between the MSARC and actual Net Billing for that semi-annual period.
However, if on any anniversary of the CISD, the Customer satisfies
the Annualized MSARC for AT&T Custom SDN Service and International Calling
Capability, AT&T DNS Service and International Calling Capability, AT&T
MEGACOM Service and International Calling Capability, and AT&T 800
Service, excluding any shortfall charges(s) paid by the Customer for the
preceding 12-month period, any MSARC shortfall charge(s) for AT&T Custom
SDN Service and International Calling Capability, AT&T DNS Service and
International Calling Capability, AT&T MEGACOM Service and International
Calling Capability, and AT&T 800 Services, pursuant to this Section,
incurred by the Customer in the preceding 12-month period, will be applied
as a credit to the Customer's bill.
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6.C. USAGE RATES. AT&T reserves the right to increase from time to time the
rates for the Services provided under this Agreement, regardless of any
provisions in this Agreement that would otherwise stabilize rates or limit rate
increases, as a result of charges imposed on AT&T stemming from an order, rule
or regulation of the Federal Communications Commission or a court having
competent jurisdiction relating to compensation of payphone service providers.
The Contract Prices for the Services provided pursuant to this Agreement are as
follows:
6.C.1. The Contract Price for the AT&T SDN Services and International
Calling Capability provided under this Agreement is the same as the
undiscounted Recurring and Nonrecurring Rates and Charges specified in
AT&T Tariff F.C.C. No. 1, as amended from time to time, except for those
Usage Rates specified below:
SDN RATE SCHEDULE A AND A-PV (EXCLUDING NRA)
INITIAL 18 SECONDS EACH ADDITIONAL 6 SECONDS
----------------------------- ---------------------------
DAY EVENING NIGHT DAY EVENING NIGHT
ALL -------- -------- ------- ------- ------- -------
MILEAGE [TEXT [TEXT [TEXT [TEXT [TEXT [TEXT
BANDS REDACTED] REDACTED] REDACTED] REDACTED] REDACTED]REDACTED]
SDN RATE SCHEDULE B AND B-PV (EXCLUDING NRA)
INITIAL 18 SECONDS EACH ADDITIONAL 6 SECONDS
----------------------------- ---------------------------
DAY EVENING NIGHT DAY EVENING NIGHT
ALL -------- -------- ------- ------- ------- -------
MILEAGE [TEXT [TEXT [TEXT [TEXT [TEXT [TEXT
BANDS REDACTED] REDACTED] REDACTED] REDACTED] REDACTED]REDACTED]
SDN RATE SCHEDULE C AND C-PV (EXCLUDING NRA)
INITIAL 18 SECONDS EACH ADDITIONAL 6 SECONDS
----------------------------- ---------------------------
DAY EVENING NIGHT DAY EVENING NIGHT
ALL -------- -------- ------- ------- ------- -------
MILEAGE [TEXT [TEXT [TEXT [TEXT [TEXT [TEXT
BANDS REDACTED] REDACTED] REDACTED] REDACTED] REDACTED]REDACTED]
6.C.2. The Contract Price for the AT&T DNS Service and AT&T DNS Direct
Dial International Calling Capability provided under this Agreement is the
same as the
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undiscounted Recurring and Nonrecurring Rates and Charges specified in
AT&T Tariff F.C.C. No. 1, as amended from time to time.
6.C.3. The Contract Price for the AT&T MEGACOM Service provided under this
Agreement is the same as the undiscounted Recurring and Nonrecurring Rates
and Charges specified in AT&T Tariff F.C.C. No. 1, as amended from time to
time, except that the following usage rate, and the discounts specified in
Section 6.D.3. of this Agreement, applies for AT&T MEGACOM
Service-Domestic Interstate calls which originate at an IXC Switch, as
defined in Section 1.P.6., preceding. The Contract Price for AT&T MEGACOM
Service-Domestic Interstate Service is [TEXT REDACTED] for the initial 18
seconds or fraction thereof and [TEXT REDACTED] for each additional 6
seconds or fraction thereof for all time of day rates periods and mileage
bands.
6.C.4. The Contract Price for the AT&T MEGACOM Service International
Calling Capability provided under this Agreement is the same as the
undiscounted Recurring and Nonrecurring Rates and Charges specified in
AT&T Tariff F.C.C. No. 1, as amended from time to time, except that the
International usage rates specified in Section 7, following, and the
discounts specified in Section 6.D.4. of this Agreement, applies for AT&T
MEGACOM Service-International Calling Capability calls which originate at
an IXC Switch, as defined in Section 1.P.6., preceding. AT&T may at any
time during the Term of this Agreement, and at its sole discretion, upon
thirty (30) days notice to Customer, change the Rates for AT&T MEGACOM
Service International Calling Capability provided in Section 7. following.
6.C.5. The Contract Price for the AT&T READYLINE 800 Services provided
under this Agreement is the same as the undiscounted Recurring and
Nonrecurring Rates and Charges specified in AT&T Tariff F.C.C. No. 2 and
14, as amended from time to time, except for those Usage Rates specified
below, which only apply after the interim Service Period:
AT&T READYLINE 800 SERVICE-INTERSTATE
PER HOUR OF USE
SERVICE AREA BUSINESS DAY EVENING NIGHT/WEEKEND
------------ ------------ ------- -------------
ALL [TEXT REDACTED] [TEXT REDACTED] [TEXT REDACTED]
6.C.6. The Contract Price for the AT&T MEGACOM 800 Services provided under
this Agreement is the same as the undiscounted Recurring and Nonrecurring
Rates and Charges specified in AT&T Tariff F.C.C. No. 2, as amended from
time to time, except that the following usage rate, and the discounts
specified in Section 6.D.6. of this Agreement, applies for AT&T MEGACOM
800 Service-Domestic Interstate calls which terminate at an IXC switch, as
defined in Section 1.P.6., preceding. The
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Contract Price for AT&T MEGACOM 800 Service-Domestic Interstate Service is
[TEXT REDACTED] per hour for all day parts and mileage bands.
6.C.7. The Contract Price for AT&T TERRESTRIAL 1.544 Mbps Local Channel
Services provided under this Agreement is the same as the undiscounted
Recurring and Nonrecurring Rates and Charges specified in AT&T Tariff
F.C.C. No. 11, as amended from time to time.
6.C.8. The Contract Price for AT&T ACCUNET T1.5 Access Connections
provided under this Agreement is the same as the undiscounted Recurring
and Nonrecurring Rates and Charges specified in AT&T Tariff F.C.C. No.
9, as amended from time to time.
6.D. DISCOUNTS. Volume discounts applicable to the Services provided
pursuant to this Agreement are as follows. No other discounts apply.
6.D.1. AT&T SDN SERVICES
(a)BASE DISCOUNTS - The Customer will receive the following discounts,
each month, in lieu of those specified for the SDN Term and Volume Plan
(TVP) in AT&T Tariff F.C.C. No. 1. These discounts will be applied to
qualified AT&T SDN Gross Monthly Usage Charges (GMUC) in the same
manner as the TVP specified in AT&T Tariff F.C.C.
No. 1, as amended from time to time.
QUALIFIED AT&T SDN GROSS MONTHLY USAGE CHARGES DISCOUNT
----------------------------------------------- ---------------
All Gross Direct Dialed AT&T SDN-Domestic Usage [TEXT REDACTED]
DISCOUNT
---------------
All Gross Direct Dialed AT&T SDN-International Usage [TEXT REDACTED]
(b)ADDITIONAL DISCOUNTS - None.
6.D.2. AT&T DNS SERVICE
(a)BASE DISCOUNTS - The following discounts for AT&T DNS are applied to
AT&T DNS usage charges in the billing month in which the AT&T DNS
charges are billed. The following discounts will be applied, each
month, using the same method as specified in Section 6.12. of AT&T
Tariff F.C.C. No. 1 (Method of Determining Discount).
1) The Customer will receive the following discounts, each month, on
all domestic direct dialed (1+) AT&T DNS monthly gross usage
charges.
o [TEXT REDACTED] discount on the amounts over $0 up to
$10,000.00
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o [TEXT REDACTED] discount on the amounts over $10,000.00
up to $20,000.00
o [TEXT REDACTED] discount on the amounts over $20,000.00
2) The Customer will receive the following discounts, each month, on
international direct dialed (1+) AT&T DNS monthly gross usage
charge:
o [TEXT REDACTED] discount on the amounts over $0 up to
$5,000.00
o [TEXT REDACTED] discount on the amounts over $5,000.00
up to $15,000.00
o [TEXT REDACTED] discount on the amounts over $15,000.00
up to $60,000.00
o [TEXT REDACTED] discount on the amounts over $60,000.00
up to $200,000.00
o [TEXT REDACTED] discount on the amounts over $200,000.00
(b)ADDITIONAL DISCOUNTS - None.
6.D.3. AT&T MEGACOM SERVICE-DOMESTIC
(a)BASE DISCOUNTS - The Customer will receive one of the following
discounts, each month, on AT&T MEGACOM Service-Domestic gross monthly
usage charges in lieu of any other term plan or discounts.
DOMESTIC GROSS MONTHLY USAGE DISCOUNT
---------------------------- ----------------
$0 to $20,000 [TEXT REDACTED]
over $20,000 [TEXT REDACTED]
over $50,000 [TEXT REDACTED]
over $100,000 [TEXT REDACTED]
over $200,000 [TEXT REDACTED]
over $500,000 [TEXT REDACTED]
(b)ADDITIONAL DISCOUNTS - None.
6.D.4. AT&T MEGACOM SERVICE INTERNATIONAL CALLING CAPABILITY
(a)BASE DISCOUNTS - The Customer will receive one of the following
discounts, each month, on AT&T MEGACOM Services International Calling
Capability gross monthly usage charges in lieu of any other term plan
or discounts.
INTERNATIONAL GROSS MONTHLY USAGE DISCOUNTS
--------------------------------- ---------------
$0 to $25,000 [TEXT REDACTED]
over $25,000 [TEXT REDACTED]
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over $100,000 [TEXT REDACTED]
over $200,000 [TEXT REDACTED]
6.D.5. AT&T 800 READYLINE SERVICES
(a) BASE DISCOUNTS - The Customer will receive a [TEXT
REDACTED]discount, each month, on AT&T 800 READYLINE Service-Domestic
gross usage charges, in lieu of any other term plan or discount.
(b) ADDITIONAL DISCOUNTS - After the discounts in Section 6.D.5. (a)
have been applied, the Customer will receive the following additional
discount on interstate AT&T 800 READYLINE Service-Domestic usage
charges:
(1) Interim Service Period Discount - During the Interim Service
Period, the Customer will receive an additional discount
that is the same as the discount that would apply under the
Revenue Volume Pricing Plan as specified in AT&T Tariff
F.C.C. No. 2, as amended by AT&T from time to time.
(2) Post-Interim Service Period Discount - After the Interim
Service Period, the Customer will receive the following
additional discount.
NET AT&T 800 READYLINE INTERSTATE
SERVICE - DOMESTIC DISCOUNT
----------------------- ----------
$0 - $300,000 [TEXT REDACTED]
over $300,000 [TEXT REDACTED]
6.D.6. AT&T MEGACOM 800 SERVICE
(a) BASE DISCOUNT - The Customer will receive one of the following
discounts, each month, on AT&T MEGACOM 800 Service-Domestic gross usage
charges in lieu of any other term plan or discounts.
DOMESTIC GROSS MONTHLY USAGE DISCOUNT
---------------------------- ---------------
$0 to $50,000 [TEXT REDACTED]
over $50,000 [TEXT REDACTED]
over $100,000 [TEXT REDACTED]
over $200,000 [TEXT REDACTED]
over $500,000 [TEXT REDACTED]
(b) ADDITIONAL DISCOUNTS - None.
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6.E. ADDITIONAL PROMOTIONS, CREDITS AND WAIVERS. The Customer is ineligible for
any promotions, credits or waivers for the Services provided under this
Agreement, which are filed or which may be filed in the AT&T tariffs specified
in Section 5., preceding, or which may be otherwise made available by AT&T.
6.E.1. AT&T DNS DOMESTIC CREDIT - AT&T will apply a domestic AT&T DNS
credit, each month, in the billing month following the initial application
of the discounts specified in 6.D.2.(a)1., above, in an amount equal to
the difference between (a) all qualified domestic direct dial AT&T DNS
gross usage less a [TEXT REDACTED] discount and (b) the actual billed
charges for direct dial domestic AT&T DNS usage less the discount in
6.D.2.(a)1.
6.E.2. AT&T DNS INTERNATIONAL CREDIT - AT&T will apply an International
AT&T DNS credit, each month, in the billing month following the initial
application of the discounts specified in 6.D.2.(a)2., above, in an amount
equal to the difference between (a) all qualified international direct
dial AT&T DNS gross usage less a [TEXT REDACTED] discount and (b) actual
billed charges for international AT&T DNS usage less the discounts in
Section 6.D.2.(a)2.
6.E.3. AT&T DNS INTERSTATE CREDIT - AT&T will apply an Interstate AT&T DNS
credit, each month, in the billing month following the initial application
of the discounts specified in 6.D.2.(a)1., above, in an amount equal to
the difference between (a) all qualified interstate AT&T DNS minutes times
[TEXT REDACTED] and (b) the actual billed charges for interstate AT&T DNS
usage less the discounts in 6.D.2.(a)1. and the credit in 6.E.1.
6.E.4. AT&T will waive the Nonrecurring AT&T MEGACOM Service Establishment
Charge per recording number per AT&T MEGACOM Service central office, as
specified in AT&T Tariff F.C.C. No. 1, as amended from time to time, that
is associated with providing AT&T MEGACOM Service at an IXC Switch under
this Agreement, provided that said Service remains in place for at least
twelve (12) months. If the Customer disconnects Service receiving waiver
prior to the end of the twelve (12) month period, the Customer will be
liable for the previously waived Nonrecurring charges and will be billed
for those charges at the time of disconnect.
6.E.5. AT&T will waive the Nonrecurring AT&T MEGACOM 800 Service
Establishment Charge per routing arrangement per AT&T MEGACOM 800 Service
central office, as specified in AT&T Tariff F.C.C. No. 2, as amended from
time to time, that is associated with providing AT&T MEGACOM 800
Service-Domestic at an IXC Switch under this Agreement, provided that said
Service remains in place for at least twelve (12) months. If the Customer
disconnects Service receiving waiver prior to the end of the (12) month
period, the Customer will be liable for the previously waived Nonrecurring
charges, and will be billed for those charges at the time of disconnect.
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<PAGE>
6.E.6. AT&T READYLINE 800 SERVICES-DOMESTIC CREDIT - After the end of the
Interim Service Period, AT&T will apply a one-time credit in an amount
equal to the difference between (a) all interstate AT&T READYLINE 800
Service-Domestic minutes of use during the Interim Service Period times
[TEXT REDACTED] and (b) the actual billed charges for interstate AT&T
READYLINE 800 Service-Domestic provided during the Interim Service Period
(after application of all applicable discounts).
6.E.7. AT&T DNS CREDITS - AT&T will apply a credit of [TEXT REDACTED]in
the 2nd full billing month following the CISD. If the Customer fails to
satisfy the first MSARC of the term of this Agreement, excluding any
shortfall charges paid, AT&T will bill the Customer an amount equal to the
credit received. Any such bill must be paid by the Customer within thirty
(30) days.
6.F. CLASSIFICATIONS, PRACTICES AND REGULATIONS. Except as otherwise provided in
this Agreement, the rates and regulations that apply to the Services provided
specified in Section 5., preceding, are as set forth in the Applicable AT&T
Tariffs.
6.G. MONITORING CONDITIONS. The Customer must satisfy the following Monitoring
Conditions which will be monitored on each anniversary of the CISD. The
Monitoring Period is the 12 months immediately preceding each anniversary of the
CISD.
6.G.1. At least 50% of the AT&T SDN Domestic Direct Dialed minutes of use
must be interstate.
6.G.2. At least 50% of the AT&T READYLINE 800 Service-Domestic minutes of
use must be interstate.
6.G.3. At least 90% of the Customer's AT&T MEGACOM Service-Domestic
minutes of use must be interstate.
6.G.4. At least 90% of the Customer's AT&T MEGACOM 800 Service-Domestic
minutes of use must be interstate.
6.G.5. Customer must have an Average Length of Call (ALOC) of a least 3.0
minutes for AT&T SDN Domestic calls.
6.G.6. Customer must have an ALOC of at least 2.5 minutes for AT&T
READYLINE 800 Service Domestic calls.
6.G.7. Customer must have an ALOC of at least 2.5 minutes for AT&T MEGACOM
800 Domestic calls.
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CONFIDENTIAL AND PROPRIETARY
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<PAGE>
6.G.8. Customer must have an ALOC of at least 2.5 minutes for AT&T MEGACOM
Domestic calls.
If the Customer, during any Monitoring Period, has failed to satisfy any
of the above Monitoring Conditions, AT&T will notify the Customer in
writing of the specific failure(s) and the Customer will be billed and
shall pay within thirty (30) days an amount equal to 20% of all previously
applied discounts specified in Section 6.D. and credits specified in
Section 6.E. preceding, received by the Customer to which each unfulfilled
Monitoring Condition is applicable during the Monitoring Period.
6.H. DISCONTINUANCE - In lieu of any Discontinuance With or Without Liability
provisions that are specified in the AT&T Tariff F.C.C. Nos. 1, 2, 9, 11 and 14
the following provisions shall apply.
6.H.1. The Customer may discontinue this Agreement without incurring a
Termination Charge prior to the expiration of he Agreement Term, provided
the Customer, (1) is current in payments to AT&T, at the time of
discontinuance, (2) is current in meeting the MSARC at time of
discontinuance, calculated based upon dividing the MSARC by 6 and
multiplying by the number of months that service was in place for that
semi-annual period prior to discontinuance, and (3) replaces this
Agreement with another AT&T Carrier Agreement for AT&T Tariff F.C.C. Nos.
1, 2, 9, 11 and 14 Services or equivalent services with revenue
commitments at least equal to or greater than revenue commitments
remaining in this Agreement and a term commitment at least equal to or
greater than the term remaining in this Agreement.
6.H.2. During the twenty-fourth through twenty-sixth months of the Term,
the Customer may discontinue this Agreement without incurring a
Termination Charge, upon at least thirty (30) days prior written notice,
if during the first twenty-four months of the Term the Customer has
incurred total billed charges equal to or greater than [TEXT REDACTED]
(after the application of the Discounts as specified in Section 6.D.,
preceding, and the Credits specified in Sections 6.E.1., 6.E.2., and
6.E.3., preceding) for Services provided under this Agreement.
6.H.3. If the Customer discontinues this Agreement prior to the expiration
of the Agreement Term, or if AT&T terminates this Agreement or the Service
provided pursuant to this Agreement due to Customer's breach of this
Agreement, prior to the expiration of the Agreement Term, the Customer
will be billed for and shall pay within thirty (30) days a Termination
Charge. The Termination Charge for the AT&T Services provided under this
Agreement will be an amount equal to 100% of the unsatisfied MSARC for the
six-month period in which the Customer discontinues and 50% of the MSARC
for each semi-annual period remaining in the Service Term.
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CONFIDENTIAL AND PROPRIETARY
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<PAGE>
SECTION 7. INTERNATIONAL USAGE RATES
7.A. AT&T MEGACOM SERVICE-INTERNATIONAL CALLING CAPABILITY
1. MEXICO RATE SCHEDULE - This schedule applies to Customer dialed
calls to stations in Mexico from the U.S. Mainland.
(a). The following rates for calls between the U.S. Mainland and
the point of connection at the international boundary apply for
all days of the week including holidays.
<TABLE>
<CAPTION>
STANDARD ECONOMY
----------------------------- ----------------------------------
MON-FRI SAT/SUN MON-FRI SAT/SUN
7:00AM-7:00PM 5PM-MID 7:00PM-7:00AM ALL DAY/MID-5PM
-----------------------------------------------------------------
INITIAL EACH ADD'L INITIAL EACH ADD'L
RATE 30 SECONDS OR 6 SECONDS OR 30 SECONDS OR 6 SECONDS OR
MILEAGE FRACTION FRACTION FRACTION FRACTION
------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
0-10 [TEXT REDACTED] [TEXT REDACTED] [TEXT REDACTED] [TEXT REDACTED]
11-22 [TEXT REDACTED] [TEXT REDACTED] [TEXT REDACTED] [TEXT REDACTED]
23-55 [TEXT REDACTED] [TEXT REDACTED] [TEXT REDACTED] [TEXT REDACTED]
56-124 [TEXT REDACTED] [TEXT REDACTED] [TEXT REDACTED] [TEXT REDACTED]
125-292 [TEXT REDACTED] [TEXT REDACTED] [TEXT REDACTED] [TEXT REDACTED]
293-430 [TEXT REDACTED] [TEXT REDACTED] [TEXT REDACTED] [TEXT REDACTED]
431-925 [TEXT REDACTED] [TEXT REDACTED] [TEXT REDACTED] [TEXT REDACTED]
926-3000 [TEXT REDACTED] [TEXT REDACTED] [TEXT REDACTED] [TEXT REDACTED]
</TABLE>
The rates for Customer Dialed Person (DP), Operator Placed Station (OS)
and Operator Placed Person-to-Person (OP) calls, (as defined in Section
24.1.2.B.2.(a) of AT&T Tariff F.C.C. No. 27) between the point of
connection at the international boundary and Mexico are as specified in
Section 24.1.2.B.2. of AT&T Tariff F.C.C. No. 27.
The rates for calls between the point of connection at the international
boundary and Mexico are as specified in AT&T F.C.C. Tariff No. 1, Section
3.2.4.L.5., as amended from time to time.
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CONFIDENTIAL AND PROPRIETARY
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<PAGE>
2. ALL OTHER COUNTRIES -This schedule applies to Customer dialed calls to
stations in All Other Countries from the U.S. Mainland.
INITIAL PERIOD ADDITIONAL PERIOD
--------------------------- -------------------------
COUNTRIES STANDARD DISCOUNT ECONOMY STANDARD DISCOUNT ECONOMY
------------------ -------- -------- ------- -------- -------- -------
ALBANIA, SOCIALIST [TEXT REDACTED]
REPUBLIC OF
ALGERIA
AMERICAN SAMOA
ANDORRA
ANGOLA
ANGUILLA
ANTARCTICA (CASEY)
ANTARCTICA (SCOTT)
ANTIGUA (BARBUDA)
ARGENTINA
ARMENIA
ARUBA
ASCENSION ISLAND
AUSTRALIA
AUSTRIA
AZERBAIJAN
BAHAMAS
BAHRAIN
BANGLADESH,PEOPLE'S
REPUBLIC OF
BARBADOS
BELARUS
BELGIUM
BELIZE
BENIN, PEOPLE'S
REPUBLIC OF
BERMUDA
BHUTAN
BOLIVIA
BOSNIA-HERCEGOVINA
BOTSWANA
BRAZIL
BRITISH VIRGIN ISLANDS
BRUNEI
BULGARIA
BURKINA FASO
BURMA
BURUNDI
CANADA
CAMBODIA
CAMEROON, UNITED
REPUBLIC OF
29
CONFIDENTIAL AND PROPRIETARY
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<PAGE>
INITIAL PERIOD ADDITIONAL PERIOD
--------------------------- -------------------------
COUNTRIES STANDARD DISCOUNT ECONOMY STANDARD DISCOUNT ECONOMY
------------------ -------- -------- ------- -------- -------- -------
CAPE VERDE ISLANDS [TEXT REDACTED]
CAYMAN ISLANDS
CENTRAL AFRICAN
REPUBLIC
CHAD REPUBLIC
CHILE
CHINA, PEOPLE'S
REPUBLIC OF
CHRISTMAS & COCOS
ISLANDS
COLOMBIA
COMOROS, FEDERAL &
ISLAMIC REPUBLIC OF
CONGO, REPUBLIC OF
COOK ISLANDS
COSTA RICA
CROATIA
CUBA
CYPRUS
CZECH REPUBLIC
DENMARK
DIEGO GARCIA
DJIBOUTI, REPUBLIC OF
DOMINICA
DOMINICAN REPUBLIC
ECUADOR
EGYPT, ARAB REPUBLIC
OF
EL SALVADOR
EQUATORIAL GUINEA
REPUBLIC OF
ERITREA
ESTONIA
ETHIOPIA
FAEROE ISLANDS
FALKLAND ISLANDS
FEDERATED STATES OF
MICRONESIA
FIJI ISLANDS
FINLAND
FRANCE
FRENCH ANTILLES
FRENCH GUIANA
FRENCH POLYNESIA
GABON REPUBLIC
GAMBIA
GEORGIA
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CONFIDENTIAL AND PROPRIETARY
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<PAGE>
INITIAL PERIOD ADDITIONAL PERIOD
--------------------------- -------------------------
COUNTRIES STANDARD DISCOUNT ECONOMY STANDARD DISCOUNT ECONOMY
------------------ -------- -------- ------- -------- -------- -------
GERMANY, FEDERAL [TEXT REDACTED]
REPUBLIC OF
GHANA
GIBRALTAR
GREECE
GREENLAND
GRENADA
GUADELOUPE
GUAM
GUANTANAMO
GUATEMALA
GUINEA BISSAU
GUINEA, PEOPLE'S
REVOLUTIONARY
REPUBLIC
GUYANA
HAITI
HONDURAS
HONG KONG
HUNGARY
ICELAND
INDIA
INDONESIA
IRAN
IRAQ
IRELAND
ISRAEL
ITALY
IVORY COAST
JAMAICA
JAPAN
JORDAN
KAZAKHSTAN
KENYA
KIRIBATI
KOREA, PEOP DEM REP
KOREA, REPUBLIC OF
KUWAIT
KYRGYZSTAN
LAOS
LATVIA
LEBANON
LESOTHO
LIBERIA
LIBYAN A P S J
LIECHTENSTEIN
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CONFIDENTIAL AND PROPRIETARY
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<PAGE>
INITIAL PERIOD ADDITIONAL PERIOD
--------------------------- -------------------------
COUNTRIES STANDARD DISCOUNT ECONOMY STANDARD DISCOUNT ECONOMY
------------------ -------- -------- ------- -------- -------- -------
LITHUANIA [TEXT REDACTED]
LUXEMBOURG
MACAO
MACEDONIA
MADAGASCAR
DEMOCRATIC REPUBLIC
OF
MALAWI
MALAYSIA
MALDIVES, REPUBLIS OF
MALI REPUBLIC
MALTA, REPUBLIC OF
MARSHALL ISLAND
MAURITANIA, ISLAMIC
REPUBLIC OF
MAURITIUS
MAYOTTE ISLAND
MOLDOVA
MONACO
MONGOLIAN PEOPLE'S
REPUBLIC
MONTSERRAT
MOROCCO, KINGDOM OF
MOZAMBIQUE
NAMIBIA
NAURU
NEPAL
NETHERLANDS
NETHERLANDS ANTILLES
NEVIS
NEW CALEDONIA
NEW ZEALAND
NICARAGUA
NIGER REPUBLIC
NIGERIA, FEDERAL
REPUBLIC OF
NIUE
NORFOLK ISLAND
NORWAY
OMAN
PAKISTAN
PALAU, REPUBLIC OF
PANAMA, REPUBLIC OF
PAPUA NEW GUINEA
PARAGUY
PERU
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<PAGE>
INITIAL PERIOD ADDITIONAL PERIOD
--------------------------- -------------------------
COUNTRIES STANDARD DISCOUNT ECONOMY STANDARD DISCOUNT ECONOMY
------------------ -------- -------- ------- -------- -------- -------
PHILIPPINES [TEXT REDACTED]
POLAND, PEOPLE'S
REPUBLIC OF
PORTUGAL
QATAR
REUNION ISLAND
ROMANIA, SOCIALIST
REPUBLIC OF
RUSSIA
RWANDA
SAIPAN
SAN MARINO
SAO TOME
SAUDI ARABIA
SENEGAL REPUBLIC
SEYCHELLES ISLAND
SIERRA LEONE
SINGAPORE, REPUBLIC
OF
SLOVAKIA
SLOVENIA
SOLOMON ISLANDS
SOLMALI, REPUBLIC OF
SOUTH AFRICA,
REPUBLIC OF
SPAIN
SRI LANKA,
DEMOCRATIC SOCIALIST
REPUBLIC OF
ST. HELENA
ST. KITTS
ST. LUCIA
ST. PIERRE & MIQUELON
ST. VINCENT & THE
GRENADINES
SUDAN
SURINAME, REPUBLIC OF
SWAZILAND
SWEDEN
SWITZERLAND
SYRIAN ARAB REPUBLIC
TAIWAN
TAJIKISTAN
TANZANIA
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<PAGE>
INITIAL PERIOD ADDITIONAL PERIOD
--------------------------- -------------------------
COUNTRIES STANDARD DISCOUNT ECONOMY STANDARD DISCOUNT ECONOMY
------------------ -------- -------- ------- -------- -------- -------
THAILAND [TEXT REDACTED]
TOGO, REPUBLIC OF
TONGA ISLANDS
TRINIDAD & TOBAGO,
DEMOCRATIC REPUBLIC
OF
TUNISIA
TURKEY
TURKMENISTAN
TURKS & CAICOS
ISLANDS
TUVALU
UGANDA
UKRAINE
UNITED ARAB EMIRATES
UNITED KINGDOM
URUGUAY
UZBEKISTAN
VANUATU REPUBLIC
VATICAN CITY
VENEZUELA
VIETNAM, SOCIALIST
REPUBLIC OF
WALLIS & FORTUNA
ISLANDS
WESTERN SAMOA
YEMEN, REPUBLIC OF
YUGOSLAVIA
ZAIRE, REPUBLIC OF
ZAMBIA
ZIMBABWE
END OF AGREEMENT
34
CONFIDENTIAL AND PROPRIETARY
between
AT&T and EqualNet Corporation
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made effective as of
April 1, 1997, between Michael L. Hlinak ("Employee") and EqualNet Holding
Corp., a Texas corporation ("Employer").
1. EMPLOYMENT. Employee shall be retained as Executive Vice President and Chief
Operating Officer to perform such specific duties and have such responsibilities
as the Employer's President and Chief Executive Officer will, from time to time,
establish. As Executive Vice President and Chief Operating Officer, Employee
shall be responsible for the day-to-day operation of the Employer and its
subsidiaries (collectively, the "Company") and will have reporting to him the
Vice Presidents which head each of the Company's operating departments (i.e.,
Customer Service, Information Systems, Network Operations and Finance).
2. TERM OF EMPLOYMENT. Employee's employment in this position shall commence on
April, 1997, and shall continue thereafter for a term of approximately two years
ending March 31, 1999.
3. COMPENSATION AND BENEFITS.
(a) As compensation for his services hereunder during the term of
this Agreement, the Employee shall be paid wages at the rate of
$170,000 per year for each year during the term of this
Agreement (the "Salary"). All payments of the Salary shall be
paid in accordance with the usual payroll practices of the
Employer subject to all appropriate withholdings or deductions
required by law or by Employer's established policies. Employer
may increase the Salary at Employer's sole discretion but shall
not reduce the Salary below the annual rate established by this
Agreement.
(b) Employer agrees to offer to Employee an annual performance bonus
beginning on January 1, 1998, and on an annual basis thereafter.
Employer and Employee will negotiate and agree upon the
parameters of this performance bonus. They currently anticipate
that the performance bonus will be based upon Employer's
performance in relationship to the annual budgets that Employee
will prepare and will be in an amount not to exceed 33 and 1/3
percent of Employee's base pay as outlined in 3(a) above,
assuming Employee achieves 100 percent of the to-be-determined
bonus criteria objectives.
(c) During the term of the Employee's employment under this
Agreement, the Employee also shall be entitled to receive the
following:
i. health insurance benefits and participation in the
Employer's other benefit plans (other than any stock
option or similar plan(s)) to such extent as determined
by the Board of Directors of the Employer;
ii. 25 days of combined vacation and sick days for use at
the Employee's discretion ("Choice Days") and all
holidays for which the Employer is not open for
business;
<PAGE>
iii. reimbursement of reasonable expenses related to the
performance of his duties hereunder; provided, however,
that in order to be reimbursed the Employee must submit
vouchers or other satisfactory evidence of such
expenses; and
iv. the benefits summarized on EXHIBIT A attached hereto.
No cash payments shall be made to the Employee for Choice Days
not taken, nor shall Choice Days accumulate from year to year,
except that if any Choice Days remain unused on the expiration
of 60 calendar days following the anniversary date of the
Employee's employment with the Employer, a cash equivalent of up
to a maximum of five Choice Days shall be contributed to the
Employer's 401(k) Plan. Any remaining unused Choice Days shall
be forfeited.
(d) Employer and Employee agree that upon surrender of Employee's
option agreements listed on EXHIBIT B hereto, Employer will
grant to Employee options for an equal number of shares of
Common Stock, $.01 par value per share, of Employer (the "Common
Stock") at an exercise price equal to the fair market value of
the Common Stock on the date of such grant and with similar
terms as the options surrendered, except that upon a change of
control of Employer, all of such options will immediately vest.
4. CONFIDENTIAL INFORMATION AND DISCOVERIES OF THE EMPLOYER.
(a) The Employee has access to confidential information of the
Employer, including, but not limited to, corporate books and
records, financial information, personnel information, lists of
customers and suppliers, processes or dealings, patents,
inventions, discoveries, information, data, programs, know-how,
knowledge, and other trade secrets ("CONFIDENTIAL INFORMATION").
"Confidential Information" shall also include but is not limited
to confidential evaluations of, and the confidential use or
non-use by the Employer or any subsidiary thereof of, technical
or business information not in the public domain.
To ensure the continued secrecy of the Confidential Information,
the Employee agrees that he will not at any time during the term
of this Agreement or thereafter, until such Confidential
Information comes into the public domain other than as a result
of actions taken by the Employee, divulge such Confidential
Information to any person or entity or use such Confidential
Information himself outside of his employment by the Employer.
During the term of this Agreement, the Employee shall not make,
other than for the benefit of the Employer, any notes or
memoranda relating to any matter within the scope of the
business of the Employer or concerning any of its dealings or
affairs, nor shall the Employee use or permit to be used any
such notes or memoranda, other than for the benefit of the
Employer. Upon the termination of the term of this Agreement,
the Employee shall not take from the Employer, or otherwise
retain, and shall surrender to the Employer, any such
Confidential Information and any records, files, notes,
memoranda, or other documents, or copies thereof, relating to
the business or affairs of the Employer.
-2-
<PAGE>
The obligations of this Section 4(a) shall not apply to
Confidential Information that: (i) at the time of the Employee's
employment by the Employer was in the public domain; (ii) is or
becomes generally available in the public domain other than
pursuant to a breach by the Employee of his obligations under
this Section 4(a); or (iii) the Employee can show was acquired,
or is acquired after the date of this Agreement, from a third
party and such third party did not obtain such Confidential
Information from the Employer subject to or in violation of
obligations similar to those set forth in this Section 4(a).
(b) Any and all inventions, discoveries, processes, methods,
designs, programs and/or know-how, whether or not patentable,
that the Employee may conceive or make, either jointly or alone,
during the term of this Agreement and: (i) for which the
Employer provided equipment, supplies, facilities, or
Confidential Information; or (ii) that was developed on or
partially on the Employer's time; or (iii) that relates to the
Employer's current business or business that the Employer is
planning to develop or to the Employer's actual or planned
research or development or that results from any work performed
by the Employee for the Employer, shall be the sole and
exclusive property of the Employer (collectively, referred to as
an "EMPLOYER INVENTION"). The Employee shall promptly disclose
to the Employer all Employer Inventions that he may conceive or
make, alone or with others, during the term of his employment by
the Employer, and that directly or indirectly are based on his
knowledge of the information or the actual or anticipated
business or interests of the Employer or any of its
subsidiaries.
Without further compensation, but at the Employer's expense, the
Employee shall give all testimony and execute all patent
applications, rights or priority, assignments and other
documents and in general do all lawful things requested of the
Employee by the Employer to enable the Employer to obtain,
maintain and enforce protection of such ideas, inventions and
discoveries, and any improvements or modifications therein, for
and in the name of the Employer, or its nominee, in all
countries of the world. However, should the Employee render any
of these services following termination of the Term of
Agreement, the Employee shall be compensated at a rate of
$100.00 per hour and shall be reimbursed for reasonable
out-of-pocket expenses incurred in rendering the services.
5. NON-COMPETITION.
(a) Employee acknowledges that he has had and during the Term of
Agreement the Employer has agreed to provide to him, and he has
and shall receive from the Employer special knowledge. Employee
acknowledges that included in the special knowledge received is
the Confidential Information identified in Section 4 above.
Employee acknowledges that this Confidential Information is
valuable to the Employer and, therefore, its protection and
maintenance constitutes a legitimate interest to be protected by
the Employer by the enforcement of this covenant not to compete.
Therefore, Employee agrees that during the term of this
Agreement and for a period commencing upon the
-3-
<PAGE>
termination of Employee's engagement hereunder and ending upon
the second anniversary thereof, unless otherwise extended
pursuant to the terms hereof, Employee will not, directly or
indirectly, either as an employee, employer, consultant, agent,
principal, partner, stockholder (other than as the owner of less
than five percent of the equity securities of a business
entity), corporate officer, director, or in any other individual
or representative capacity, engage or participate in any
business that is engaged in the sale or marketing of long
distance telephone service within the United States of America
or within any other geographic area of the world where the
Employer engages or proposes at the time of the termination of
the Term of Agreement to engage in business (the "Restricted
Area"). Employee represents to the Employer that the enforcement
of the restriction contained in this Section 5 would not be
unduly burdensome to Employee and that Employee agrees to be
bound by this covenant not to compete in order to induce the
Employer to pay the Employee's compensation during the term of
this Agreement in the amount set forth in Section 3 hereof.
(b) Employee agrees that a breach or violation of this covenant not
to compete by Employee shall entitle the Employer, as a matter
of right, to an injunction issued by any court of competent
jurisdiction as set forth in Section 8 hereof. Such right to an
injunction shall be cumulative and in addition to, and not in
lieu of, any other remedies to which the Employer may show
itself justly entitled. Further, during any period in which
Employee is in breach of this covenant not to compete, the time
period of this covenant shall be extended for an amount of time
that Employee is in breach hereof.
(c) In addition to the restrictions set forth in paragraph 5(a) of
this Section 5, Employee shall not for a period commencing upon
the termination of the term of this Agreement and ending upon
the second anniversary thereof, either directly or indirectly,
(i) make known to any person, firm or corporation that is
engaged in the sale or marketing of long distance telephone
service, the names and addresses of any of the customers or
agents of the Employer or contacts of the Employer or any other
information pertaining to such persons, (ii) call on, solicit or
take away, or attempt to call on, solicit or take away, any of
the customers or agents of the Employer within the Restricted
Area on whom Employee called or with whom Employee became
acquainted during Employee's association with the Employer,
whether for Employee or for any other person, firm or
corporation within any state in which Employer is conducting or
has conducted its business during the term of the Agreement or
(iii) recruit or hire or attempt to recruit or hire, directly or
by assisting others, any employee, agent or consultant of the
Employer or any of its affiliates.
(d) The representations and covenants contained in this Section 5 on
the part of Employee will be construed as ancillary to and
independent of any other provision of this Agreement, and the
existence of any claim or cause of action of Employee against
the Employer or any officer, director, or shareholder of the
Employer, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by the
Employer of the covenants of the Employee contained in this
Section 5.
-4-
<PAGE>
In addition, the provisions of this Section 5 shall continue to
be binding upon Employee in accordance with its terms,
notwithstanding the termination of the term of this Agreement
for any reason.
(e) If Employee violates any covenant contained in this Section 5
and the Employer brings legal action for injunctive or other
relief, the Employer shall not, as a result of the time involved
in obtaining the relief, be deprived of the benefit of the full
period of any such covenant. Accordingly, the covenants of
Employee contained in this Section 5 shall be deemed to have
durations as specified above, which periods shall commence upon
the termination of the term of this Agreement and shall be
extended for the amount of time between the termination of the
term of this Agreement and the date of entry by a court of
competent jurisdiction of a final judgment enforcing such
covenants.
(f) The parties to this Agreement agree that the limitations
contained in this Section 5 with respect to geographic area,
duration and scope of activity are reasonable. However, if any
court shall determine that the geographic area, duration or
scope of activity of any restriction contained in this Section 5
is unenforceable, it is the intention of the parties that such
restrictive covenant set forth herein shall not thereby be
terminated but shall be deemed amended to the extent required to
render it valid and enforceable.
6. TERMINATION.
(a) The term of this Agreement and Employee's obligations to
Employee hereunder may be terminated by the Employer upon the
occurrence of any of the following events:
i. if the Employer gives written notice to the Employee of
its intent to terminate this Agreement for Cause (as
defined below), with the date of termination to be
specified in such notice;
ii. if the Employee notifies Employer of his intent to
terminate his employment hereunder;
iii. the death of the Employee; or
iv. if, for a continuous period of 90 calendar days, or for
more than 120 calendar days in any 365 day calendar
period, excluding any authorized Choice Days or
authorized leave of absence, the Employee
(1) is absent or,
(2) is expected to be absent from his employment or
is otherwise unable to perform his duties, as
reasonably determined by a disinterested
physician selected by the Board of Directors,
by reason of illness, injury, or mental or physical
disability;
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provided that, in the case set forth in Section
4.2(iv)(b), the Employer shall continue to pay the
employee his salary and provide him and his dependents
with coverage under his existing medical insurance
policies until the earlier to occur of (i) ninety (90)
days after the date of termination and (ii) the
Employee's disability policy begins to pay benefits to
Employee.
For purposes of this Section 6(a), "CAUSE" shall mean:
(a) if the Employee is guilty of any willful misconduct
or neglect in the discharge of his duties hereunder,
provided that notice thereof has been given to employee;
(b) if the Employee is convicted of or pleads guilty or
nolo contendere to any act of moral turpitude, other
than an offense that in the opinion of the Board of
Directors does not affect the Employee's position as an
employee; or (c) if the Employee violates any material
provision of Sections 4, 5 or 7 of this Agreement.
(b) Employer may terminate this Agreement at any time prior to March
31, 1999, without Cause; provided that upon any such termination
Employee shall receive as severance pay an amount equal to
eighteen (18) months of Salary and bonus, if any has been earned
as provided herein and Employee shall have the right to remain
covered by the Employer's medical insurance policies, if any,
pursuant to the terms hereof (subject to the earlier termination
of such medical insurance benefits upon the provision of similar
insurance benefits by a subsequent employer), although any and
all other benefits would cease.
(c) Employee may terminate this agreement if (i) Employer materially
breaches any of the provisions in this Agreement, (ii) a change
of control of the Employer occurs or (iii) Employer materially
changes Employee's duties. If Employee terminates this agreement
as provided in this paragraph 6(c) then, provided that Employee
is not materially at fault, Employee shall not be liable to
Employer for any damages as a result thereof and shall not be
bound by the provisions of Section 5 of this agreement.
Additionally, Employee shall receive as severance pay an amount
equal to eighteen (18) months of the Salary and bonus, if any
has been earned, as provided for herein. The Salary will be paid
by Employer to Employee pursuant to regular payroll cycles upon
termination and said bonus, if any has been earned, will be paid
quarterly for six consecutive quarters as provided herein. For
purposes of this paragraph 6(c), the term "change of control of
Employer" shall mean the consummation of any event or series of
events that results in (i) Employer's consolidation with, or
merger with or into, any other entity if in connection with such
consolidation or merger, all or part of the Common Stock shall
be changed into or exchanged for stock or other securities of
any other entity or cash or any other property, (ii) Employer's
selling or otherwise transferring (or one or more of its
subsidiaries selling or otherwise transferring) to a person or
person or entity or entities, in one or more transactions or a
series of related transactions, assets that constitute 50% or
more of the assets of the Company or assets that provide or
previously provided 50% or more of the consolidated revenues of
the Company or (iii) a person or entity, together with its
affiliates, acquiring 50% or more of the outstanding capital
stock of Employer.
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<PAGE>
7. AGREEMENT NOT TO SOLICIT. To induce the Employer to enter into this
Agreement, the Employee agrees, during the term of the Term of Agreement, and
for a period of two years after the termination of this Agreement pursuant to
Section 6 for any reason, not to, directly or indirectly, for his own account or
for the account of others, employ any of the Employer's employees or induce any
of the Employer's employees to leave their employment, nor will the Employee in
any other way interfere with the employee relations of the Employer.
8. REMEDIES. The Employee acknowledges that the provisions of Sections 4, 5 and
7 are reasonable and necessary for the protection of the Employer and that the
Employer will be irrevocably damaged if such provisions are not specifically
enforced. Accordingly, in the event of breach or threatened breach of the
provisions of Sections 4, 5 or 7 it is understood and agreed that the Employer
shall be entitled to injunctive relief (without bond or other security being
required) as well as any and all other applicable remedies at law and in equity.
Should a court of competent jurisdiction declare any of these provisions
unenforceable due to an unreasonable restriction of duration or geographical
area, or for any other reason, such court shall have the express authority of
the parties to this Agreement to reform such provisions and/or to grant the
Employer any and all other relief, at law or in equity, reasonably necessary to
protect the interests of the Employer. The Employee expressly acknowledges that
(i) he has been represented by separate legal counsel in connection with the
negotiation of this Agreement who has explained the legal effects of these
provisions and (ii) he considers these provisions to be reasonable.
9. NOTICES. Any notice, request or other communication to be given by any party
to this agreement shall be in writing and be sent by certified mail, postage
prepaid, addressed to the parties as follows:
If to Employer: EqualNet Holding Corp.
1250 Wood Branch Park Drive
Houston, Texas 77079
Attention: President and Chief Executive Officer
If to Employee: Michael L. Hlinak
19910 Erika Way
Katy, Texas 77450
or mailed to such other address as the parties respectively may designate by
notice given in a like manner and any such notice, request or other
communication shall be deemed to have been given when mailed as described above.
10. WAIVER OF BREACH. The waiver by Employee or Employer of any breach of any
provision of this Agreement by Employer or Employee respectively shall not
operate or be construed as a waiver by Employee or Employer of any subsequent
breach by Employer or Employee respectively.
11. ENTIRE AGREEMENT. All prior negotiations and agreements between the parties
to this agreement with respect to the matters herein contained are superseded by
this agreement and there are no representations, warranties, understandings or
agreements other than those expressly set forth in this agreement.
12. AMENDMENT. This agreement may be amended only by a written instrument signed
by all parties hereto.
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<PAGE>
13. PRESERVATION OF BUSINESS; FIDUCIARY RESPONSIBILITY. The Employee shall use
his best efforts to preserve the business and organization of the Employer, to
keep available to the Employer the services of its employees and to preserve the
business relations of the Employee shall not commit any act that might
reasonably be expected to injure the Employer. The Employee shall observe and
fulfill proper standards of fiduciary responsibility attendant upon his service
and office.
14. ASSIGNMENTS. The rights and obligations of the Employee hereunder are
personal to him, and no such rights, benefits, duties or obligations shall be
subject to voluntary or involuntary alienation, assignment or transfer.
15. EFFECT OF AGREEMENT. This Agreement shall be binding upon the Employee and
his heirs, executors, administrators and legal representatives and upon the
Employer and its successors and any permitted assigns.
16. GOVERNING LAW. This agreement and all claims or disputes relating to it or
arising out of it, as well as its making, performance and interpretation, shall
be governed by the laws of the State of Texas without giving effect to the
choice of law principles.
17. WAIVER OF BREACH. The waiver by either party hereto of a breach of any
provision of this Agreement by the other party hereto shall not operate or be
construed as a waiver by such party of any subsequent breach of such other
party.
18. SEVERABILITY. If any provision of this Agreement is declared unenforceable
by a court of last resort, such declaration shall not affect the validity of any
other provision of this Agreement.
19. CONSTRUCTION. The headings contained in this Agreement are for reference
purposes only and shall not affect this Agreement in any manner whatsoever.
Wherever required by the context, any gender shall include any other gender, the
singular shall include the plural, and the plural shall include the singular.
20. TIME FOR PERFORMANCE. If the time for performance of any obligation set
forth in this Agreement falls on a Saturday, Sunday, or legal holiday,
compliance with such obligation on the next business day following such
Saturday, Sunday, or legal holiday shall be deemed acceptable.
21. EXECUTION. This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original but all of which shall be deemed one
instrument. The Employee acknowledges that he has read this Agreement and he
understands that executing this Agreement is a condition of his employment by
the Employer.
IN WITNESS THEREOF, the parties have executed this agreement on the
date above set forth.
EQUALNET HOLDING CORP.
By: /S/ ZANE RUSSELL /S/ MICHAEL L. HLINAK
Zane D. Russell Michael L. Hlinak
President and CEO Employee
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<PAGE>
EXHIBIT A
HEALTH AND WELFARE BENEFITS SUMMARY
o Group comprehensive medical, dental, and term life insurance. Premiums
for Employee and his dependents are paid in full by Employer.
o Long term disability insurance.
o Term life insurance in the amount of $250,000.00.
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EXHIBIT B
Option to purchase 45,000 shares of the common stock of EqualNet Holding Corp.
at a per share exercise price of $2.50.
B-1
