As filed with the Securities and Exchange Commission on March 13, 1997
Registration Number 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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EQUALNET HOLDING CORP.
(Exact name of Registrant as specified in its charter)
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Texas 76-0457803
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1250 Wood Branch Park Drive
Houston, Texas 77079
281/529-4600
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Michael L. Hlinak
1250 Wood Branch Park Drive
Houston, Texas 77079
281/529-4600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPY TO:
Robert F. Gray, Jr.
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010-3095
(713) 651-5151
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================
Amount Proposed Proposed Amount of
Title of each class of to be maximum maximum registration
securities to be registered registered offering price aggregate fee
per share(1) offering price(1)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value 1,750,000 $ 1-11/16 $ 2,953,125 $ 895
$.01 per share(2)
=======================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457 of the Securities Act of 1933, as amended, on the
basis of the average of the high and low prices of the Common Stock as
reported by The Nasdaq Market on March 11, 1997.
(2) Includes shares to be issued on exercise of certain warrants to purchase
shares of Common Stock (the "Warrants").
Pursuant to Rule 416, there also are being registered such additional
shares of Common Stock as may become issuable pursuant to anti-dilution
provisions of the Warrants.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL
THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
PROSPECTUS
1,750,000 SHARES
EQUALNET HOLDING CORP.
COMMON STOCK
---------------
The common stock, par value $.01 per share (the "Common Stock"), of
EqualNet Holding Corp., a Texas corporation ("EqualNet" or the "Company"), is
included in The Nasdaq National Market under the symbol "ENET", and the last
sales price of the Common Stock as reported by The Nasdaq Stock Market on March
11, 1997, was $1-23/32.
---------------
THE COMMON STOCK OFFERED BY THIS PROSPECTUS INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE FOR A DISCUSSION OF CERTAIN
MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The 1,750,000 shares of Common Stock offered hereby are being offered
for the account of certain shareholders of the Company named under the heading
"Selling Shareholders". The Company will receive no portion of the proceeds of
the sale of the shares of Common Stock offered hereby and will bear certain of
the expenses incident to registration.
Sales of shares of Common Stock by the Selling Shareholders may be
made from time to time in the over-the-counter market, on any stock exchange on
which the Common Stock may be listed at the time of sale, in private
transactions or pursuant to underwriting agreements at prices related to prices
then prevailing involving payment of customary commissions or discounts. See
"Plan of Distribution".
MARCH 13, 1997
<PAGE>
ADDITIONAL INFORMATION
EqualNet has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (herein, together with all
amendments, exhibits and financial statement schedules thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain items of which are contained in exhibits to the Registration Statement
as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement, which may be inspected without charge at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of which may
be obtained from the Commission at prescribed rates. The Registration Statement
may also be viewed through the Commission's Web site at http:\\www.sec.gov.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Company furnishes holders of Common Stock annual reports containing
financial statements audited by its independent auditors in accordance with
generally accepted accounting principles following the end of each fiscal year.
The Company is subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports and other information with the Commission. Such reports and other
information may be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at 7 World Trade Center, 13th Floor, New York, New York
10048 and at Citicorp Center, 500 West Madison Street, 14th Floor, Chicago,
Illinois 60661. The Commission also maintains a World Wide Web site on the
Internet at http://www.sec.gov. which contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. Such reports, proxy and information statements and other
information concerning the Company can also be inspected and copied at the
offices of the National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been filed by the Company with the Commission
pursuant to the Exchange Act and are incorporated herein by reference:
(i) the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1996, filed with the Commission on October 15, 1996, as
amended by Amendment No. 1 to Form 10-K on Form 10-K/A, filed with the
Commission on November 1, 1996;
(ii) the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1996, filed with the Commission on November 14,
1996;
(iii) the Company's Quarterly Report on Form 10-Q for the quarterly
period ended December 31, 1996, filed with the Commission on February 14,
1997;
(iv) the description of the Common Stock, contained in a
registration statement on Form 8-A filed with the Commission on February
2, 1995 (Registration No. 1-5725), including any amendment or report filed
with the Commission for the purpose of updating such description; and
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<PAGE>
(v) the Company's Current Report on Form 8-K dated September 30,
1996, filed with the Commission on September 30, 1996.
All documents subsequently filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of the offering by this Prospectus shall be deemed to be
incorporated herein by reference and to be a part hereof from the date of the
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus has been delivered, upon written or oral request of such person,
a copy of any or all of the documents incorporated by reference herein (other
than certain exhibits to such documents not specifically incorporated by
reference). Requests for such copies should be directed to Investor Relations,
EqualNet Holding Corp., 1250 Wood Branch Park Drive, Houston, Texas 77079,
telephone number 281/529-4600.
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<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
EqualNet Holding Corp. ("EqualNet" or the "Company") is a long-distance
telephone company that provides services to customers nationwide. The Company
currently uses AT&T Corp. ("AT&T") and Sprint Communications Company, L.P.
("Sprint") to provide transmission of its customers' traffic. EqualNet markets
its services primarily to small business customers with monthly long-distance
bills less than $1,000. The current monthly long-distance bill for an average
EqualNet customer is approximately $50.
The Company's principal executive offices are located at 1250 Wood Branch
Park Drive, Houston, Texas 77079, and its telephone number is 281/529-4600.
THE OFFERING
Securities Offered................ 1,750,000 shares of Common Stock.
Use of Proceeds................... The Company will not receive any proceeds
from the sale of the shares of Common Stock
offered by the Selling Shareholders
hereunder.
Nasdaq ........................... The shares of Common Stock are included in
the Nasdaq National Market under the symbol
"ENET".
See "Description of Capital Stock--Common Stock" for a more complete
description of the Common Stock.
RISK FACTORS
The Common Stock offered by this Prospectus involves a high degree of
risk. For a discussion of certain matters that should be considered by
prospective purchasers of the Common Stock offered hereby, see "Risk Factors".
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<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK BEING OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE
FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION CONCERNING THE
COMPANY AND ITS BUSINESS CONTAINED IN THIS PROSPECTUS, BEFORE PURCHASING THE
SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS, IN ADDITION TO
HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY. FACTORS
THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED
TO, THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
NO ASSURANCE OF ADDITIONAL NECESSARY CAPITAL
The Company continues to pursue additional financing of between $2.0 and
$4.0 milllion in debt or equity and the replacement of its existing credit
agreement, which expires July 1, 1997, with alternate long-term working capital
financing. If the Company is unsuccessful in achieving one or a combination of
these objectives sufficient to meet the Company's liquidity needs, it will be
necessary to seek an alliance with a strategic partner, or in the event no such
strategic alliance is accomplished, the Company may be required to seek
protection under United States bankruptcy laws.
ATTRITION RATES
In the event that the Company experiences attrition rates in excess of
those anticipated either as a result of increased provisioning times by its
underlying carrier, the purchase of poorly performing traffic, or the inability
to properly manage the existing customer base, additional charges that affect
earnings may be incurred.
DEPENDENCE ON INDEPENDENT MARKETING AGENTS
The Company has a small internal sales force and obtains a significant
majority of its new customers from independent marketing agents ("Agents"). The
Company's near-term ability to expand its business depends upon whether it can
continue to maintain favorable relationships with existing Agents and recruit
and establish new relationships with additional Agents. No assurances can be
made as to the willingness of the existing Agents to continue to provide new
orders to the Company or as to the Company's ability to attract and establish
relationships with new Agents.
DEPENDENCE ON AT&T AND OTHER FACILITIES-BASED CARRIERS
The Company does not own transmission facilities and currently depends
primarily upon AT&T and, to a lesser extent, upon Sprint, through its
arrangement with The Furst Group, Inc. ("Furst") to provide the
telecommunications services that it resells to its customers and the detailed
information upon which it bases its customer billings. The Company's near-term
ability to expand its business depends upon whether it can continue to maintain
favorable relationships with AT&T and Furst. Although the Company believes that
its relations with AT&T and Furst are good and should remain so with continued
compliance with their respective agreements, the termination of the Company's
current agreements with AT&T or Furst or the loss of the telecommunications
services that the Company receives from AT&T or through Furst could have a
material adverse effect on the Company's results of operations and financial
condition.
This dependence on the Company's primary carrier further manifested
itself during the quarter ended March 31, 1996, as continued delays in
provisioning (activating new customers) by the carrier continued to result in a
backlog of customers who would otherwise have been activated on the Company's
long distance service and billing. More recently, the carrier experienced
systems difficulties which resulted in the majority of its provisioning being
performed manually and longer provisioning times for the Company. Although the
carrier has taken certain steps to attempt to achieve provisioning times that
are acceptable to the Company, there can be no assurance that similar delays
will not occur in the future.
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<PAGE>
CARRIER COMMITMENTS
The Company has significant commitments with its primary carrier to
resell long distance services. The Company's contract with its carrier contains
clauses that could materially and adversely impact the Company should the
Company incur a shortfall in meeting its commitments. The Company currently is
in a shortfall situation with its primary carrier. Although the Company has from
time to time failed to meet its commitment levels under a particular contract
and in each case been able to negotiate a settlement with the carrier which
resulted in no penalty being incurred by the Company, there can be no assurances
that the Company will be able to reach similar favorable settlements with its
carriers currently or in the event that the Company should continue to fail to
meet its commitments.
In recent years, AT&T, MCI Communications Corporation ("MCI") and Sprint
have consistently followed one another in pricing their long distance products.
If MCI and Sprint were to lower their rates for long distance service and AT&T
did not adopt a similar price reduction, adverse customer reaction could affect
the Company's ability to meet its commitments under the AT&T contract, which
could have a material adverse affect on the Company's financial position and
results of operations.
DEVELOPMENTAL PROBLEMS WITH NETBASE
NetBase Plus(R), the Company's second generation customer management
system, was not able to meet the operating requirements of the Company. As a
result, in the third quarter of fiscal 1996 the Company began reverting to an
enhanced version of the original NetBase customer management system. Although
the Company successfully completed the reversion in the fourth quarter of fiscal
1996 and has made continued improvements to the customer management system, to
the extent that the Company experiences significant growth, the existing NetBase
customer management system may reach technical limitations and hinder reporting
visibility to management as well as cause a decline in customer service, thereby
negatively impacting attrition levels and, therefore, results of operations.
RELATIONSHIPS WITH STATE REGULATORY AGENCIES
The Company's intrastate long distance telecommunications operations are
subject to various state laws and regulations, including prior certification,
notification or registration requirements. The Company must generally obtain and
maintain certificates of public convenience and necessity from regulatory
authorities in most states in which it offers service. The Company is presently
responding to consumer protection inquiries from ten states. Management believes
these inquiries will be resolved satisfactorily, although settlement offers may
be made or accepted in instances in which it is determined to be cost effective.
Assessment of significant monetary sanctions and the refusal by the regulatory
agencies to allow the sanctions to be deferred for a period of time could have a
material adverse effect on the Company's cash flow and liquidity. Failure to
resolve inquiries satisfactorily or reach a settlement with the regulatory
agencies could, in the extreme, result in the inability of the Company to
provide long distance service in the jurisdiction requiring regulatory
certification. Any failure to maintain proper certification in jurisdictions in
which the Company provides a significant amount of intrastate long distance
service could have a material adverse effect on the Company's business.
VOLATILITY OF SECURITIES PRICES
Historically, the market price of the Common Stock has been highly
volatile. During the last two quarters of fiscal 1996 and the first three
quarters of fiscal 1997 (through February 28, 1997), the market price for the
Common Stock as reported by The Nasdaq Stock Market has ranged from a high of
$10-1/2 per share to a low of $1-7/16 per share. There can be no assurance that
the market price of the Common Stock will remain at any level for any period of
time or that it will increase or decrease to any level. Changes in the market
price of the Common Stock may bear no relation to EqualNet's actual operational
or financial results.
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<PAGE>
COMPETITION
Competition in the long-distance telephone industry is based upon
pricing, customer service, network quality and value-added services. The prices
at which a reseller such as the Company can obtain long-distance
telecommunications services depend almost entirely upon the amount of traffic it
can commit to the underlying carrier. Failure to meet these traffic commitments,
however, can result in substantial penalties being assessed against the reseller
under its contract with the underlying carrier. See "-Carrier Commitments". The
relationship between resellers, such as the Company, and the major underlying
carriers is predicated primarily upon the pricing strategy of the underlying
carriers. There is significant competition in the long-distance telephone
industry, and there can be no assurance that the Company will be able to compete
successfully for sufficient volumes of customer traffic to achieve or maintain
profitability.
POSSIBLE ANTI-TAKEOVER EFFECTS
EqualNet's Restated Articles of Incorporation, as amended and corrected
(the "Articles of Incorporation"), and Bylaws (the "Bylaws") include a number of
provisions that may have the effect of encouraging persons considering
unsolicited tender offers and other unilateral takeover proposals to negotiate
with the Board of Directors rather than pursue non-negotiated takeover attempts.
These provisions include authorized blank check preferred stock, super-majority
voting requirements for the approval of certain business combinations, the
denial of cumulative voting and limitation of the persons who may call a special
meeting of the shareholders. See "Description of Capital Stock--Common Stock".
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SELLING SHAREHOLDERS
Of the 1,750,000 shares of Common Stock offered hereby, 100,000
shares were issued or are issuable upon exercise of certain warrants (the
"Creative Warrants") to purchase shares of Common Stock that were issued in
November 1996 in connection with the acquisition by the Company of certain
assets of Creative Communications International, Inc. ("Creative"). In addition,
1,500,000 of the shares of Common Stock offered hereby, were issued or are
issuable upon exercise of certain warrants (the "Furst Warrants") to purchase
shares of Common Stock that were issued in February 1997 in connection with a
financing transaction between the Company and The Furst Group, Inc. ("Furst").
The remaining 150,000 shares of Common Stock were also issued in November 1996
in connection with the acquisition of assets from Creative. The Registration
Statement of which this Prospectus forms a part has been filed by the Company to
fulfill obligations of the Company (i) under a Registration Rights Agreement
between the Company and Creative entered into in connection with the issuance of
the Common Stock offered hereby and the Warrants and (ii) under a Warrant for
Purchase of Common Stock issued by the Company to Furst. The following table
sets forth the names of the Selling Shareholders, together with the number of
shares of Common Stock of the Company that may be offered and sold hereby.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING SUBSEQUENT TO OFFERING
-------------------- ----------------------
NUMBER OF
SHARES
NAME SHARES(1) PERCENT TO BE SOLD(1) SHARES PERCENT
- ----------------------- ---------- ------- ------------- ------ -------
<S> <C> <C> <C> <C> <C>
The Furst Group, Inc.(2) 1,500,000 19.6% 1,500,000 -- --
Creative Communications 203,627 * 203,627 -- --
International, Inc.(3)
Duane W. Richardson(4) 23,151 * 23,151 -- --
Dan D. Sudduth 23,222 * 23,222 -- --
</TABLE>
- ------------
*Less than 1%.
(1) Includes 1,600,000 shares of Common Stock issuable upon exercise of the
Warrants.
(2) On February 11, 1997, the Company issued the Furst Warrants and a
promissory note in the principal amount of $3,000,000 to Furst in exchange
for $3,000,000.
(3) The Company purchased substantially all of the assets of Creative
Communications International, Inc. ("Creative") in November 1996 in
exchange for the Common Stock offered hereby and the Creative Warrants.
(4) Mr. Richardson is an employee of the Company.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares
of Common Stock offered by the Selling Shareholders hereunder.
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<PAGE>
DESCRIPTION OF COMMON STOCK
The following summary of certain provisions of the capital stock of
EqualNet does not purport to be complete and is subject to and qualified in its
entirety by the Articles of Incorporation and the Bylaws, which are included as
exhibits to the registration statement of which this Prospectus forms a part,
and by the provisions of applicable law.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
EqualNet is authorized by the Articles of Incorporation to issue
20,000,000 shares of Common Stock and 1,000,000 shares of preferred stock, par
value $.01 per share ("Preferred Stock"). At the date of this Prospectus,
6,152,000 shares of Common Stock are issued and outstanding, and no shares of
Preferred Stock were outstanding. In addition, there are an aggregate of
approximately 2,650,000 shares of Common Stock reserved for issuance upon
exercise of outstanding warrants and options, and under director and employee
benefit plans.
The holders of the Common Stock are entitled to one vote per share in the
election of directors and on all other matters on which shareholders are
entitled or permitted to vote. Such holders are not entitled to vote
cumulatively for the election of directors. Holders of Common Stock have no
redemption, conversion, preemptive or other subscription rights. Each share of
Common Stock entitles the holder thereof to one vote at all meetings of the
shareholders of EqualNet. The affirmative vote of the holders of at least
two-thirds of the outstanding shares of capital stock entitled to vote is
required under the Articles of Incorporation to (i) approve a merger, similar
reorganization or certain other transactions involving EqualNet if the other
party already owns or controls 5% of the outstanding Common Stock and the Board
of Directors of EqualNet has not approved the transaction or certain "best
price" conditions have not been satisfied (in which case, the transaction must
also be approved by holders of two-thirds of the voting power of the outstanding
voting stock, excluding shares held by such 5% shareholder); (ii) amend the
foregoing and certain other provisions of the Articles of Incorporation; (iii)
amend the Bylaws; and (iv) remove a director, which removal may be only for
cause. The holders of the Common Stock are not permitted to act by written
consent. The Bylaws provide that special meetings of shareholders may be called
only by the Board of Directors. The Common Stock is listed on the Nasdaq
National Market under the symbol "ENET".
In addition, the affirmative vote of the holders of at least two-thirds
of the outstanding shares of capital stock entitled to vote is required to (i)
amend the remaining provisions of the Articles of Incorporation; (ii) approve a
merger, similar reorganization or certain other transactions involving EqualNet
(except that such vote shall not be required for the merger of any other
corporation into the Company if Texas law does not otherwise require the vote of
shareholders of the Company as a condition to such a merger); and (iii) dissolve
the Company.
In the event of the liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all of the
assets of the Company remaining, if any, after satisfaction of the debts and
liabilities of the Company and the preferential rights of the holders of the
Preferred Stock, if any, then outstanding. The outstanding shares of Common
Stock are, and the shares of Common Stock offered hereby will be, upon payment
therefor as contemplated herein, validly issued, fully paid and nonassessable.
The Company also is subject to certain restrictions on distributions to the
holders of its Common Stock under the provisions of its revolving credit
facility.
CERTAIN ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE ARTICLES OF
INCORPORATION, BYLAWS AND TEXAS LAW
The Articles of Incorporation and Bylaws contain certain provisions that
could make more difficult the acquisition of the Company by means of a tender or
exchange offer, a proxy contest or otherwise. The description of such provisions
set forth below is intended only as a summary and is qualified in its entirety
by reference to the Articles of Incorporation and the Bylaws, each of which is
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part. See "Risk Factors--Possible Anti-Takeover Effects".
PREFERRED STOCK. The Articles of Incorporation authorizes the Board of
Directors to establish one or more series of Preferred Stock and to determine,
with respect to any series of Preferred Stock, the terms and rights of
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<PAGE>
such series. The Company believes that the ability of the Board of Directors to
issue one or more series of Preferred Stock will provide the Company with
flexibility in structuring possible future financing and acquisitions and in
meeting other corporate needs that may arise. The authorized shares of Preferred
Stock, as well as shares of Common Stock, will be available for issuance without
further action by the Company's shareholders, unless such action is required by
the Articles of Incorporation, applicable laws or the rules of any stock
exchange or automated quotation system on which the Company's securities may be
listed or traded.
Although the Board of Directors has no intention at the present time of
doing so, it could issue a series of Preferred Stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The Board of Directors will make any determination to
issue such shares based on its judgment as to the best interests of the Company
and its shareholders. The Board of Directors, in so acting, could issue
Preferred Stock having terms that could discourage an acquisition attempt
through which an acquiror may be otherwise able to change the composition of the
Board of Directors, including a tender or exchange offer or other transaction
that some, or a majority, of the Company's shareholders might believe to be in
their best interests or in which shareholders might receive a premium for their
stock over the then current market price of such stock.
SPECIAL MEETING OF SHAREHOLDERS. The Bylaws provide that special meetings
of shareholders may be called only by the Board of Directors. Such provisions,
together with the other anti-takeover provisions described herein, also could
have the effect of discouraging a third party from initiating a proxy contest,
making a tender or exchange offer or otherwise attempting to obtain control of
the Company.
CLASSIFIED BOARD OF DIRECTORS. The Articles of Incorporation provide that
the Board of Directors shall be divided into three classes, the members of which
will serve staggered three-year terms. The Company believes that a classified
board of directors could help to assure the continuity and stability of the
Board's and the Company's business strategies and policies as determined by the
Board of Directors. The classified board provision could have the effect of
making the removal of incumbent directors more time-consuming and, therefore,
discouraging a third party from making a tender offer or otherwise attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its stockholders. Thus, the classified board provision could
increase the likelihood that incumbent directors would retain their positions.
LIMITATION ON DIRECTORS' LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation provides that a director of the Company
shall not be personally liable to the Company or its shareholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its shareholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for any transaction from which
the director derived an improper benefit or (iv) an act or omission for which
the liability of a director is expressly provided by an applicable statute. The
Company is required to indemnify any present or former director who was, is or
is threatened to be made a named defendant or respondent in a proceeding because
he or she is or was a director to the full extent permitted by Texas law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
10
<PAGE>
PLAN OF DISTRIBUTION
The 1,750,000 shares of Common Stock offered pursuant to this Prospectus
are being offered for the account of the Selling Shareholders.
Sales of the shares of Common Stock by the Selling Shareholders may be
made from time to time in the over-the-counter market, on any stock exchange on
which the Common Stock may be listed at the time of sale or in private
transactions at prices then prevailing. The shares of Common Stock offered
hereby may be sold by any one or more of the following methods: (i) a block
trade (which may involve crosses) in which the broker or dealer so engaged will
attempt to sell the securities as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (ii) purchases by a broker
or dealer as principal; (iii) ordinary brokerage transactions in which the
broker solicits purchasers; and (iv) privately negotiated transactions. The
Selling Shareholders and any broker-dealers that participate in the distribution
of the shares of Common Stock may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales, and any profit on
the sale of shares of Common Stock by it and any fees and commissions received
by any such broker-dealers may be deemed to be underwriting discounts and
commissions. The shares of Common Stock also may be sold pursuant to Rule 144 of
the Securities Act to the extent such sales may be made in compliance with the
requirements of Rule 144.
At the time a particular offering of the Common Stock is made hereunder,
to the extent required by law, a Prospectus supplement will be distributed which
will set forth the amount of Common Stock being offered and the terms of the
offering, including the purchase price, the name or names of any dealers or
agents, the purchase price paid for the Common Stock purchased from the Selling
Shareholders and any items constituting compensation from the Selling
Shareholders.
On March 11, 1997, the last sales price of the Common Stock, as reported
by The Nasdaq Stock Market was $1-23/32 per share.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock were passed upon
for the Company by Fulbright & Jaworski L.L.P., Houston, Texas, counsel to the
Company.
EXPERTS
The consolidated financial statements of EqualNet Holding Corp. appearing
in EqualNet Holding Corp.'s Annual Report (Form 10-K) for the year ended June
30, 1996, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
11
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================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
PAGE
----
Additional Information.............................................. 2
Incorporation of Certain Information by Reference................... 2
Prospectus Summary.................................................. 4
Risk Factors........................................................ 5
Selling Shareholders................................................ 8
Use of Proceeds..................................................... 8
Description of Capital Stock........................................ 9
Plan of Distribution................................................ 11
Legal Matters....................................................... 11
Experts............................................................. 11
================================================================================
1,750,000 SHARES
EQUALNET HOLDING CORP.
COMMON STOCK
PROSPECTUS
MARCH 13, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses solely in connection with the proposed sale of the
1,750,000 shares of Common Stock offered by the Selling Shareholders hereby are:
Securities and Exchange Commission Registration Fee...... $ 895
Nasdaq Listing Fees...................................... 17,500
Accounting Fees and Expenses............................. 5,000
Legal Fees and Expenses.................................. 7,500
Printing Expenses........................................ 2,000
Miscellaneous............................................ 0
-----------
TOTAL $ 32,895
===========
All of such expenses are being paid by the Company.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IX of the Bylaws provides for mandatory indemnification to at least
the extent specifically allowed by Article 2.02-1 of the Texas Business
Corporation Act (the "TBCA").
Pursuant to Article 2.02-1 of the TBCA, the Registrant generally has the
power to indemnify its current and former directors, officers, employees and
agents against expenses and liabilities incurred by them in connection with any
suit to which they were, are, or are threatened to be made, a party by reason of
their serving in such positions so long as they acted in good faith and in a
manner in which they reasonably believed to be, or, under certain circumstances,
not opposed to, the best interest of the Registrant, and with respect to any
criminal action, they had no reasonable cause to believe their conduct was
unlawful. However, indemnification is not available if such person is adjudged
to be liable to the Registrant unless the court determines that indemnification
is appropriate, in which case indemnification is limited to reasonable expenses
actually incurred by that person in connection with the proceeding. The
Registrant also has the power to purchase and maintain insurance for such
persons.
The above discussion of the Registrant's Bylaws and Article 2.02-1 of the
TBCA is not intended to be exhaustive and is qualified in its entirety by such
document and statute.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
EXHIBIT NO. DESCRIPTION
4.1 Articles of Incorporation (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 February 13, 1995).
4.2 Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1 (Registration No. 33-88742) filed
January 24, 1995).
II-1
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4.3* The Registrant's 10% Subordinated Note due December 31, 1998, in the
principal amount of $3,000,000.
4.4 Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to Amendment No. 3 to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-88742) filed March 2,
1995).
5.1* Opinion of Fulbright & Jaworski L.L.P.
23.1* Consent of Ernst & Young LLP.
23.2* Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1
hereto).
24.1* Power of Attorney (contained on page II-4 hereto).
- ------------
* Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change and the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs as contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
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The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of any employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on March 13, 1997.
EQUALNET HOLDING CORP.
By: /S/ ZANE RUSSELL
ZANE RUSSELL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Zane Russell and Dean H. Fisher, and each
of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same and all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 13th day of March, 1997.
SIGNATURE TITLE
/S/ ZANE RUSSELL President and Chief Executive Officer and
ZANE RUSSELL Director
(principal executive officer)
/S/ MICHAEL L. HLINAK Chief Financial Officer, Chief Operating
MICHAEL L. HLINAK Officer and Director
(principal financial officer)
/S/ CURTIS L. MACKEY Controller
CURTIS L. MACKEY (principal accounting officer)
_________________________ Director
WALTER V. KLEMP
/S/ TERRY S. PARKER Director
TERRY S. PARKER
II-4
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
4.1 Articles of Incorporation (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 February 13, 1995).
4.2 Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1 (Registration No. 33-88742) filed
January 24, 1995).
4.3* The Registrant's 10% Subordinated Note due December 31, 1998, in the
principal amount of $3,000,000.
4.4 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1
to Amendment No. 3 to the Registrant's Registration Statement on Form S-1
(Registration No. 33-88742) filed March 2, 1995).
5.1* Opinion of Fulbright & Jaworski L.L.P.
23.1* Consent of Ernst & Young LLP.
23.2* Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5.1
hereto).
24.1* Power of Attorney (contained on page II-4 hereto).
- ------------
* Filed herewith.
II-5
EXHIBIT 4.3
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY OTHER STATE. THE SECURITIES REPRESENTED HEREBY
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR OFFERED FOR
SALE OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL
OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION
IS NOT REQUIRED.
THIS NOTE IS SUBJECT TO THE PROVISIONS OF THE INTERCREDITOR AGREEMENT
REFERRED TO HEREIN.
No. 1 EQUALNET HOLDING CORP.
EQUALNET CORPORATION
TELESOURCE, INC.
EQUALNET WHOLESALE SERVICES, INC.
10% Note due December 31, 1998
$3,000,000 February 11, 1997
FOR VALUE RECEIVED, EqualNet Holding Corp., a Texas corporation,
EqualNet Corporation, a Delaware corporation, TeleSource, Inc., a Texas
corporation, and EqualNet Wholesale Services, Inc., a Delaware corporation, each
having an address at EqualNet Plaza, 1250 Wood Branch Park Drive, Houston, TX
77079 (hereinafter referred to collectively as the "MAKER"), jointly and
severally hereby promise to pay to the order of The Furst Group, Inc., having an
address at 459 Oakshade Road, Shamong, NJ 08088 (the "PAYEE"), on or before
December 31, 1998, the principal sum of Three Million Dollars ($3,000,000), and
to pay interest from the date funds are advanced by the Payee to the Escrowee
pursuant to Section 1.3 of the Agreement (as herein defined) and the Escrow
Agreement dated February 11, 1997 among the Maker, The Furst Group, Inc., a New
Jersey corporation ("TFG") and the Escrowee (defined therein) on the principal
sum remaining from time to time unpaid at the rate of ten percent (10%) per
annum, such interest to be payable monthly in arrears on the first business day
of every
1
<PAGE>
calendar month commencing March 3, 1997. Principal and interest shall be payable
and delivered, without surrender or presentation of this Note, in lawful money
of the United States of America by wire transfer of immediately available funds
to Payee, or to Payee's agent, in the State of New York. Any amounts not paid
when due shall bear interest at the rate of thirteen percent (13%) compounded
monthly. Interest shall be computed on the basis of a 360-day year of twelve
30-day months.
This Note is one of an issue of 10% Notes due December 31, 1998
of the Maker in an aggregate principal amount of $3,000,000 (collectively, the
"NOTES") issued pursuant to a certain Notes and Warrants Purchase Agreement,
dated as of February 3, 1997, between the Maker and TFG (the "AGREEMENT").
Capitalized terms used herein but not defined herein shall have the meaning
ascribed to them in the Agreement.
Section 1. OPTIONAL REDEMPTION. The Maker may at any time redeem
the Notes in whole or in part (in integral multiples of $1,000) by a payment of
a redemption price equal to the principal amount thereof, together with interest
due on the amount so redeemed to the date of redemption, without premium or
penalty of any nature. In the event of prepayment of this Note in full, any
prepaid but unearned interest shall be credited against the redemption price.
Section 2. NOTICE OF REDEMPTION. Notice of any redemption shall
be given to the Payee at least three days prior to the date of such redemption.
Each redemption of Notes shall be made so that, as nearly as may be practicable,
the Notes then held by each holder shall be redeemed in a principal amount which
shall bear the same ratio to the total principal amount of Notes being redeemed
as the principal amount of Notes then held by such holder bears to the aggregate
principal amount of the Notes then outstanding.
Section 3. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to
be made on the Notes shall be due on a Saturday, Sunday or a public holiday
under the laws of the State of New York or the State of Texas, such payment may
be made on the next succeeding business day with the same effect as if made on
the nominal date for payment.
Section 4. REGISTRATION. The Maker shall maintain at its
principal office a register of the Notes and shall record therein the names and
addresses of the holders of the Notes, the address to which notices are to be
sent and the address to which payments are to be made as designated by the
holder if other than the address of the holder, and the particulars of all
transfers, exchanges and replacements of Notes. Each Note issued hereunder,
whether originally or upon transfer, exchange or replacement of a Note, shall be
registered on the date of execution thereof by the Maker.
Section 5. TRANSFER AND EXCHANGE. Transfer of a Note may be
effected by endorsement and delivery. The holder of any Note may, prior to
maturity or redemption thereof, surrender such Note at the principal office of
the Maker for transfer or exchange. Within a reasonable time after notice to the
Maker from a holder of its intention to make such exchange
2
<PAGE>
and without expense (other than applicable transfer taxes, if any) to such
holder, the Maker shall issue in exchange therefor another Note or Notes dated
the date to which interest has been paid on, and for the unpaid principal amount
of, the Note or Notes so surrendered, containing the same provisions and subject
to the same terms and conditions as the Note or Notes so surrendered. Each new
Note shall be made payable to such person or entity, as the registered holder of
such surrendered Note or Notes may designate. Notes issued upon any transfer or
exchange shall be only in authorized denominations, which shall be $100,000 and
integral multiples of $50,000 in excess thereof or, in the event of partial
redemption by the Maker of any Notes or partial surrender of such Notes in
connection with the exercise of the Warrants (as defined in the Agreement), such
lesser amount as shall constitute the entire remaining principal amount of such
Note.
Section 6. REPLACEMENT. Upon receipt of evidence reasonably
satisfactory to the Maker of the loss, theft, destruction or mutilation of any
Note and, if requested by the Maker in the case of any such loss, theft or
destruction, upon delivery of an indemnity agreement of the holder satisfactory
to the Maker, or, in the case of any such mutilation, upon surrender and
cancellation of such Note, the Maker will issue a new Note, of like tenor, in
the amount of the unpaid principal of such Note, and dated the date to which
interest has been paid, in lieu of such lost, stolen, destroyed or mutilated
Note.
Section 7. INTERCREDITOR AGREEMENT. The Maker, for itself and its
successors and assigns, covenants and agrees, and the Payee and each successor
holder of Notes by such holder's acceptance thereof, likewise covenants and
agrees, that notwithstanding any other provision of the Notes, the payment of
the principal and interest on each Note and all other obligations of any kind,
now or hereafter owing under this Note or in respect of the indebtedness
evidenced hereby, shall be governed by that certain Intercreditor and
Subordination Agreement dated January __, 1997 (the "INTERCREDITOR AGREEMENT")
among the Maker, certain lenders party thereto, Comerica Bank-Texas, as agent
for such lenders, and The Furst Group, Inc., a New Jersey corporation.
Section 8. EVENTS OF DEFAULT. Any of the following shall
constitute an "EVENT OF DEFAULT" with respect to the Notes:
(a) an Event of Default, as defined in the Credit
Agreement on the date of the Agreement and irrespective of any
amendment, modification or termination of the Credit Agreement or any
waiver by the Lenders thereunder, shall have occurred;
(b) a failure to pay principal of or interest on any Note,
or any other amount payable thereunder when due;
(c) a failure of the Maker to observe or perform any term,
covenant or agreement contained in the Agreement or any of the Documents
and, in the case of affirmative covenants contained in Article VII of
the Credit Agreement, continuation of such failure for a period ending
five business days after notice to the EqualNet
3
<PAGE>
Companies at the address set forth above (or such other address as the
EqualNet Companies may furnish to the holder hereof in writing) by any
holder of the Notes or the time such failure becomes known to any
officer of an EqualNet Company, whichever is earlier;
(d) any statement, certificate, report, representation or
warranty made or furnished on behalf of the Maker in the Agreement or
any of the Documents shall prove to have been false or misleading in any
material respect when made;
Upon the occurrence of an Event of Default, while such event shall be
continuing, holders representing a majority of the then outstanding principal
amount of the Notes may, by notice to the Maker, declare the entire unpaid
principal amount of the Notes and all interest accrued and unpaid thereon to be
forthwith due and payable, whereupon all such amounts shall become and be
forthwith due and payable (unless there shall have occurred an Event of Default
under paragraph (a) above because of an Event of Default as set forth in Section
9.1(f), (g) or (h) of the Credit Agreement as in effect on the date of the
Agreement and irrespective of any amendment, modification or termination of the
Credit Agreement or any waiver by the Lenders thereunder, in which case all such
amounts shall automatically become due and payable), without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Maker.
This Note is secured in accordance with the provisions of the
Security Agreement dated February 11, 1997 between the Maker and The Furst
Group, Inc., a New Jersey corporation.
The Maker hereby agrees to pay on demand all costs and expenses
incurred in collecting the Maker's obligations hereunder or in enforcing or
attempting to enforce any of the holder's rights hereunder or under the
Agreement or the Security Agreement, including, but not limited to, reasonable
attorneys' fees and expenses if collected by or through any attorney, whether or
not suit is filed.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CHOICE
OF LAW RULES.
The Maker hereby waives presentment, demand, notice of
nonpayment, protest and all other demands and notices in connection with the
delivery, acceptance, performance or enforcement of this Note.
4
<PAGE>
EQUALNET HOLDING CORP.
By:/s/[ILLEGIBLE]
President
EQUALNET CORPORATION
By:/s/[ILLEGIBLE]
President
TELESOURCE, INC.
By:/s/[ILLEGIBLE]
President
EQUALNET WHOLESALE SERVICES,
INC.
By:/s/[ILLEGIBLE]
President
5
EXHIBIT 5.1
[Letterhead of Fulbright & Jaworski L.L.P.]
March 14, 1997
EqualNet Holding Corp.
1250 Wood Branch Park Drive
Houston, Texas 77079
Ladies and Gentlemen:
We have acted as counsel for EqualNet Holding Corp., a Texas corporation
(the "Company"), in connection with the proposed offering by certain
shareholders of the Company (the "Selling Shareholders") of an aggregate of
1,750,000 shares (the "Shares") of the Company's common stock, par value $.01
per share (the "Common Stock"). Of the Shares, 150,000 (the "Outstanding
Shares") were issued November 12, 1996, and 1,600,000 (the "Warrant Shares") are
issuable upon exercise of certain warrants to purchase shares of Common Stock
(the "Warrants").
In connection therewith, we have examined, among other things, the
Articles of Incorporation, as corrected, of the Company (the "Articles") and the
Bylaws of the Company, the corporate proceedings with respect to the issuance of
the Outstanding Shares and the Warrants and the Registration Statement on Form
S-3 to be filed by the Company with the Securities and Exchange Commission for
the registration of the Shares under the Securities Act of 1933 (the
Registration Statement, as amended at the time when it becomes effective, being
herein referred to as the "Registration Statement").
Based on the foregoing, and having regard for such legal considerations as
we have deemed relevant, we are of the opinion that:
a. The Outstanding Shares have been legally issued and are fully paid
and non-assessable shares of Common Stock.
b. Subject to the exercise of the applicable Warrants in accordance
with the terms of such Warrants, the Warrant Shares will be
legally issued, fully paid and non-assessable shares of Common
Stock.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ FULBRIGHT & JAWORSKI L.L.P.
Fulbright & Jaworski L.L.P.
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of EqualNet Holding
Corp. for the registration of 1,750,000 shares of its common stock and to the
incorporation by reference therein of our report dated September 28, 1996, with
respect to the consolidated financial statements of EqualNet Holding Corp.
including in its Annual Report (Form 10-K) for the year ended June 30, 1996,
filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Houston, Texas
March 14, 1997
