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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)
Equalnet Holding Corp.
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(Name of the Issuer)
Common Stock, par value $.01 per share
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(Title of Class of Securities)
294408109
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(CUSIP Number)
Dean H. Fisher
1250 Wood Branch Park Dr.
Houston, Texas 77079
281/529-4686
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
December 2, 1997
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1 (b)(3) or (4), check the following box [ ].
Page 1 of 9 Pages
Exhibit Index on Page 9
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CUSIP No. 294408109 13D Page 2 of 9 Pages
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1 NAMES OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
The Willis Group, LLC (76-0537286)
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b) x
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
OO
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ]
REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Texas
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NUMBER 7 SOLE VOTING POWER
OF 8,081,633
SHARES ------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED -0-
BY ------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 8,081,633
PERSON ------------------------------------
WITH 10 SHARED DISPOSITIVE POWER
-0-
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,081,623 shares of Common Stock underlying currently exercisable
warrants and a convertible note or issuable, in the form of shares or warrants,
pursuant to existing agreements.
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12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
51%
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14 TYPE OF REPORTING PERSON
OO
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CUSIP No. 294408109 13D Page 3 of 9 Pages
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1 NAMES OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Michael T. Willis
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b) x
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
AF
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ]
REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
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NUMBER 7 SOLE VOTING POWER
OF -0-
SHARES ----------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED 8,081,623
BY ----------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON ----------------------------------
WITH 10 SHARED DISPOSITIVE POWER
8,081,623
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,081,623 shares of Common Stock underlying currently exercisable
warrants and a convertible note or issuable, in the form of shares or warrants,
pursuant to existing agreements.
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12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
51%
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14 TYPE OF REPORTING PERSON
IN
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CUSIP No. 294408109 13D Page 4 of 9 Pages
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1 NAMES OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Mark Willis
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b) x
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
AF
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ]
REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
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NUMBER 7 SOLE VOTING POWER
OF -0-
SHARES ----------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED 8,081,623
BY ----------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON ----------------------------------
WITH 10 SHARED DISPOSITIVE POWER
8,081,623
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,081,623 shares of Common Stock underlying currently exercisable
warrants and a convertible note or issuable, in the form of shares or warrants,
pursuant to existing agreements.
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12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
51%
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14 TYPE OF REPORTING PERSON
IN
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CUSIP No. 294408109 13D Page 5 of 9 Pages
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1 NAMES OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
James T. Harris
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b) x
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
AF
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5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ]
REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
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NUMBER 7 SOLE VOTING POWER
OF -0-
SHARES ---------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED 8,081,623
BY ---------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON ---------------------------------
WITH 10 SHARED DISPOSITIVE POWER
8,081,623
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,081,623 shares of Common Stock underlying currently exercisable
warrants and a convertible note or issuable, in the form of shares or warrants,
pursuant to existing agreements.
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12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
51%
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14 TYPE OF REPORTING PERSON
IN
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CUSIP No. 294408109 13D Page 6 of 9 Pages
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ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
On December 2, 1997, The Willis Group, LLC ("The Willis Group") entered
into a Switch Agreement with the Issuer and its subsidiary (the "Switch
Agreement") pursuant to which it will receive, in exchange for certain
telecommunications switches (the "Switches"), cash, 400,000 shares of Common
Stock and a warrant for the purchase of an additional 400,000 shares of Common
Stock at $1.50 per share.
Also, on December 2, 1997, Netco Acquisition, LLC ("Netco LLC), of
which The Willis Group is a member, and its subsidiary, Netco Acquisition Corp.
("Netco"), entered into an Agreement of Merger and Plan of Reorganization with
the Issuer and its subsidiary (the "Merger Agreement") pursuant to which Netco
LLC will receive, in exchange for its shares of Netco, (a) 2,081,633 shares of
Common Stock, (b) a number of shares of Common Stock equal to the working
capital loans made by the members of Netco LLC or their affiliates prior to the
closing, which amount is expected to be not less that $1.5 million, divided by
$1.00 and (c) 2,000 shares of Series A Preferred Stock of the Issuer (the
"Series A Preferred"). Holders of Series A Preferred will have the right to
convert their shares into shares of Common Stock initially at the rated of
833.33 shares of Common Stock per share of Series A Preferred (or the stated
value divided by $1.20), or an aggregate of 1,666,667 shares of Common Stock.
The Willis Group owns a 50% membership interest in Netco LLC and, pursuant to
prior agreement, has the right to receive the 2,081,633 shares of Common Stock
issuable under the Merger Agreement. The other consideration to be issued by the
Issuer in connection with the Merger Agreement will be distributed to the other
members of Netco LLC.
Additionally, on December 2, 1997, The Willis Group entered into a
Stock Purchase Agreement with the Issuer (the "Stock Purchase Agreement")
pursuant to which it will purchase 4,000,000 shares of the Common Stock at a
price of $1.00 per share in cash.
The Willis Group also beneficially holds, through Netco LLC and Netco,
a warrant to purchase 150,000 shares of Common Stock, which warrant will become
exercisable on February 1, 1998 if transactions contemplated in the agreements
described in this Item 3 are not consummated before then.
ITEM 4. PURPOSE OF TRANSACTION.
The Filing Persons acquired their shares of Common Stock as part of
their previously described plan to acquire control of the Issuer. The Filing
Persons currently do not intend to acquire additional shares of the Common Stock
materially above their current ownership, however, the Filing Persons intend to
review their investment in the Issuer on a continuing basis and, depending upon
the price of the Common Stock, subsequent developments affecting the Issuer, the
Issuer's business and prospects, general stock market and economic conditions,
tax considerations and other factors deemed relevant, may decide to increase or
decrease their investment in the Common Stock of the Issuer.
On December 2, 1997, the Filing Persons entered into the agreements
described in Item 3 above (the "Agreements"). The Filing Persons intend to
control the board of directors of the Issuer as a result of its potential
acquisition of these and additional shares of Common Stock. There can be no
assurance, however, that the Filing Persons and the Issuer will complete the
transactions contemplated in the Agreements.
Except as set forth above in this Item 4, none of the Filing Persons
nor, to the best of each Filing Person's knowledge, none of the executive
officers or directors of such Filing Persons, as applicable, has any plans or
proposals that relate to or would result in any of the actions specified in
clauses (a) through (j) of Item 4 to Schedule 13D.
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CUSIP No. 294408109 13D Page 7 of 9 Pages
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ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) The Filing Persons beneficially own, directly or indirectly, the
right, in the form of currently exercisable warrants and a convertible note, or
pursuant to the Agreements, to acquire 8,081,633 shares of Common Stock of the
Issuer, which constitutes 51% of the Common Stock outstanding based on the
number of securities assumed to be outstanding on the Record Date (7,787,724) as
contained in the Issuer's Preliminary Proxy Statement on Schedule 14A, filed
confidentially with the Securities and Exchange Commission on December 9, 1997
and including as outstanding the 8,081,633 shares issuable to The Willis Group
under currently exercisable warrants, a convertible note and the Agreements.
Such securities, or the rights thereto, were acquired pursuant to the
transactions described in Item 3 hereof and the initial filing of this Schedule
13D.
(b) Of the shares beneficially owned by the Filing Persons, The Willis
Group has, or will have, sole voting power and power to dispose of the 8,081,633
shares of Common Stock they have the right to acquire under currently
exercisable warrants, a convertible note and the Agreements and each of Messrs.
Mike Willis, Mark Willis and Harris, as 47.5%, 47.5% and 5% membership interest
owners, respectively, of The Willis Group, have shared voting and dispositive
power with respect to all such shares.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
See Items 3 and 4 hereof.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
1. Switch Agreement between EqualNet Holding Corp., EQ
Acquisition Sub, Inc. and The Willis Group, LLC dated
December 2, 1997.
2. Agreement of Merger and Plan of Reorganization between
EqualNet Holding Corp., EQ Acquisition Sub, Inc., Netco
Acquisition, LLC and Netco Acquisition Corp. dated December 2,
1997.
3. Stock Purchase Agreement by and among The Willis Group, LLC
and EqualNet Holding Corp. dated as of December 2, 1997.
4. Joint Filing Agreement, dated as of December 11, 1997, among
The Willis Group, Michael T. Willis, Mark Willis and James T.
Harris.
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CUSIP No. 294408109 13D Page 8 of 9 Pages
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
THE WILLIS GROUP, LLC
December 11, 1997 By: /S/ MARK WILLIS
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Date Mark Willis, President
/S/ MICHAEL T. WILLIS
--------------------------
Michael T. Willis
/S/ MARK WILLIS
--------------------------
Mark Willis
/S/ JAMES T. HARRIS
--------------------------
James T. Harris
The original statement shall be signed by each person on whose behalf
the statement is filed or his authorized representative. If the statement is
signed on behalf of a person by his authorized representative (other than an
executive officer or general partner of this filing person), evidence of the
representative's authority to sign on behalf of such person shall be filed with
the statement, provided, however, that a power of attorney for this purpose
which is already on file with the Commission may be incorporated by reference.
The name and any title of each person who signs the statement shall be typed or
printed beneath his signature.
ATTENTION: INTENTIONAL MISSTATEMENTS OR OMISSIONS OF FACT
CONSTITUTE FEDERAL CRIMINAL VIOLATIONS
(SEE 18 U.S.C. 1001)
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CUSIP No. 294408109 13D Page 9 of 9 Pages
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EXHIBIT INDEX
Exhibit
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1. Switch Agreement between EqualNet Holding Corp., EQ
Acquisition Sub, Inc. and The Willis Group, LLC dated
December 2, 1997.
2. Agreement of Merger and Plan of Reorganization between
EqualNet Holding Corp., EQ Acquisition Sub, Inc., Netco
Acquisition, LLC and Netco Acquisition Corp. dated December 2,
1997.
3. Stock Purchase Agreement by and among The Willis Group, LLC
and EqualNet Holding Corp. dated as of December 2, 1997.
4. Joint Filing Agreement, dated as of October 10, 1997, among
The Willis Group, Michael T. Willis, Mark Willis and James T.
Harris.
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EXHIBIT 1
SWITCH AGREEMENT
BETWEEN
EQUALNET HOLDING CORP.,
EQ ACQUISITION SUB, INC.
AND
WILLIS GROUP, LLC
December 2, 1997
1
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TABLE OF CONTENTS
1. Definitions............................................................1
2. The Acquisition........................................................5
(a) Basic Transaction................................................5
(b) Acquisition Consideration........................................6
(c) The Closing......................................................6
(d) Deliveries at the Closing........................................6
3. Representations and Warranties of EqualNet and Sub.....................6
(a) Organization, Qualification, and Corporate Power.................6
(b) Authorization of Transaction.....................................7
(c) Brokers' Fees....................................................7
(d) No Violation.....................................................7
(e) Consents.........................................................7
(f) Financial Information............................................7
(g) Liabilities......................................................8
(h) Litigation.......................................................8
(i) Compliance with ERISA............................................8
(j) Taxes; Governmental Charges......................................8
(k) Defaults.........................................................9
(l) Compliance with the Law..........................................9
(m) Investment Company Act...........................................9
(n) Public Utility Holding Company Act...............................9
(o) Disclosure.......................................................9
(p) Structure; Capitalization........................................9
(q) Environmental Matters...........................................10
(r) Intellectual Property and Other Intangible Assets...............11
(s) Insurance Coverage..............................................12
4. Representations and Warranties of TWG.................................12
(a) Company Existence...............................................12
(b) Corporate Power and Authorization...............................12
(c) Binding Obligations.............................................12
(d) Brokers' Fees...................................................13
(e) Investment......................................................13
(f) Title...........................................................13
5. Pre-Closing Covenants.................................................13
(a) General.........................................................13
(b) Inspection......................................................13
(c) Notices and Consents............................................13
(d) Notice of Developments..........................................14
(e) Ordinary Course.................................................14
i
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(f) Changes in Employment Arrangements..............................16
(g) Severance.......................................................16
(h) Other Actions...................................................16
(i) Valid Issuance..................................................16
(j) Government Regulations..........................................16
(k) ERISA...........................................................17
(l) Corporate Existence; Maintenance of Properties..................17
(m) Insurance.......................................................17
(n) Further Assurances..............................................17
(o) Notices of Certain Events.......................................17
(p) Environmental Laws..............................................18
(q) Registration Rights.............................................18
(r) Shareholder Approval; Preparation of Proxy Statements...........18
(s) No Solicitation.................................................19
(t) Listing of Common Stock.........................................20
(u) Acquisition Loan................................................21
6. Conditions to Obligation to Close.....................................21
(a) Conditions to Obligation of TWG.................................21
(b) Conditions to Obligation of EqualNet and Sub....................22
7. Termination...........................................................23
(a) Termination of Agreement........................................23
(b) Effect of Termination...........................................24
8. Remedies for Breaches of This Agreement...............................24
(a) Survival of Representations and Warranties......................24
(b) Indemnification Provisions for Benefit of TWG...................24
(c) Indemnification Provisions for Benefit of EqualNet..............24
(d) Matters Involving Third Parties.................................24
(e) Claims for Indemnification......................................25
(f) Determination of Adverse Consequences...........................26
(g) Other Indemnification Provisions................................26
9. Miscellaneous.........................................................26
(a) Press Releases and Public Announcements.........................26
(b) No Third-Party Beneficiaries....................................26
(c) Succession and Assignment.......................................26
(d) Counterparts....................................................26
(e) Notices.........................................................27
(f) Governing Law...................................................27
(g) Amendments and Waivers..........................................27
(h) Severability....................................................28
(i) Expenses........................................................28
(j) Construction....................................................28
(k) Incorporation of Exhibits, Annexes, and Schedules...............28
ii
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SWITCH AGREEMENT
This Switch Agreement is entered into as of December 2, 1997, by and
between EqualNet Holding Corp., a Texas corporation ("EqualNet"), EQ Acquisition
Sub, Inc., a Delaware corporation and a wholly owned subsidiary of EqualNet
("Sub"), and Willis Group, LLC, a Texas limited liability company ("TWG").
EqualNet, Sub and TWG are referred to collectively herein as the "PARTIES."
RECITALS
This Agreement contemplates a transaction in which the Sub will purchase
the Switches (the "Acquisition").
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"ACQUISITION LOAN" has the meaning set forth in Section 5(v).
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, Taxes, liens, losses, expenses and fees, including court
costs and reasonable attorneys' fees and expenses.
"APPLICABLE RATE" means the corporate base rate or prime rate of
interest publicly announced from time to time by Texas Commerce Bank,
National Association, Houston, Texas plus 5.0% per annum.
"BASIS" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis
for any specified consequences.
"BUSINESS DAY" means any day that is not a Saturday, a Sunday, or a
day that is a banking holiday under United States or Texas Law.
"CAPITALIZED LEASE OBLIGATIONS" shall mean all rental obligations
which, under GAAP in effect on the day such obligation is incurred, are
required to be capitalized on the books of EqualNet or any Subsidiary, in
each case taken at the amount thereof accounted for as indebtedness (net
of interest expense) in accordance with such principles.
1
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"CLOSING" has the meaning set forth in Section 2(c).
"CLOSING DATE" has the meaning set forth in Section 2(c).
"COMMISSION" shall mean the United States Securities and Exchange
Commission.
"CURRENT INDEBTEDNESS" shall mean any obligation for borrowed money
(including notes payable and drafts accepted representing extensions of
credit whether or not representing obligations for borrowed money) payable
on demand or within a period of one year from the date of creation
thereof; provided, any obligation shall be treated as Funded Indebtedness,
regardless of its term, if such obligation is renewable pursuant to the
terms thereof or of a revolving credit or similar agreement effective for
more than one year after the date of the creation of such obligation, or
may be payable out of the proceeds of a similar obligation pursuant to the
terms of such obligation or of any such agreement. Any obligation secured
by a Lien on, or payable out of the proceeds of production from, property
of EqualNet or any Subsidiary shall be deemed to be Funded or Current
Indebtedness, as the case may be, of EqualNet or such Subsidiary even
though such obligation shall not be assumed by EqualNet or such
Subsidiary.
"EQUALNET COMMON SHARE" means any share of the common stock of
EqualNet, $.01 par value per share.
"ENVIRONMENTAL LAW" shall mean any judgment, decree, order, law,
license, rule, regulation or private agreement (such as covenants,
conditions, and restrictions), of any federal, state or local executive,
legislative, judicial, regulatory or administrative agency, board, or
authority designed to protect the environment, air, surface, water,
groundwater or soil, control pollution, or regulate the exploration,
manufacturing, processing, distributing, use, storage, transport or
handling of Hazardous Materials, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act (42
U.S.C. ss. 9601 ET SEQ.) ("CERCLA"), the Oil Pollution Act (33 U.S.C. ss.
2701 ET SEQ.) ("OPA"), the Resource Conservation and Recovery Act (42
U.S.C. ss. 6901 ET SEQ.) ("RCRA"), and the Federal Water Pollution Control
Act (33 U.S.C. ss. 1251 ET SEQ.) ("CWA"), as such laws have been or
hereafter may be amended or supplemented, and any and all analogous
present and future federal, state, and local laws in jurisdictions where
EqualNet and its Subsidiaries do business.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time. Section references to ERISA are to
ERISA as in effect at the date of this Agreement and any subsequent
provisions of ERISA amendatory thereof, supplemental thereto or
substituted therefor.
"ERISA AFFILIATE" shall mean each trade or business (whether or not
incorporated) which together with EqualNet or a Subsidiary of EqualNet
would be deemed to be a "single employer" within the meaning of Section
4001 of ERISA immediately following the acquisition.
2
<PAGE> 6
"FUNDED INDEBTEDNESS" shall mean and include without duplication any
obligation payable more than one year from the date of the creation
thereof (including the current portion of Funded Indebtedness), which
under generally accepted accounting principles is shown on the balance
sheet as a liability (including, without limitation, Capitalized Lease
Obligations and excluding reserves for deferred income taxes and other
reserves to the extent that such reserves do not constitute an
obligation).
"GAAP" shall mean generally accepted accounting principles
consistently applied throughout the period or periods in question.
"GOVERNMENTAL AUTHORITY" shall mean any foreign or domestic federal,
state, county, municipal, or other governmental or regulatory authority,
agency, board, body, commission, instrumentality, court, or any political
subdivision thereof.
"GOVERNMENTAL REQUIREMENT" shall mean any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization, or other direction
or requirement (including but not limited to any of the foregoing which
relate to Environmental Laws, energy regulations and occupational, safety
and health standards or controls) of any Governmental Authority.
"HAZARDOUS MATERIALS" shall mean, collectively, (i) those substances
included within the definition of or identified as "hazardous substances,"
"hazardous materials," "toxic substances," or "solid waste" in or pursuant
to, without limitation, CERCLA, OPA, RCRA, and the Occupational Health and
Safety Act, and in the regulations promulgated pursuant to said laws, all
as amended; (ii) any material, waste or substance which is or contains (A)
petroleum, including crude oil or any fraction thereof, natural gas, or
synthetic gas usable for fuel or any mixture thereof; (B) asbestos; (C)
polychlorinated biphenyls; (D) designated as a "hazardous substance"
pursuant to Section 307 or 311 of the CWA; (E) flammable explosives; or
(F) radioactive materials; and (iii) any such other substances, materials
and wastes which are or become regulated as hazardous or toxic under
applicable local, state or federal law, or which are currently classified
as hazardous or toxic under local, state or federal laws or regulations.
"INDEBTEDNESS" shall mean Funded Indebtedness and/or Current
Indebtedness.
"INDEMNIFIED PARTY" has the meaning set forth in Section 9(d).
"INDEMNIFYING PARTY" has the meaning set forth in Section 9(d).
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to
become due).
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means any
material and adverse effect on, or change to, (i) the assets, liabilities,
financial condition, business, or operations of EqualNet and its
Subsidiaries on a consolidated basis, or (ii) the ability of
3
<PAGE> 7
EqualNet and its Subsidiaries on a consolidated basis to carry out their
business as of September 30, 1997.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotations system.
"NOTE AND WARRANT PURCHASE AGREEMENT" shall mean that certain
agreement by and among TWG, EqualNet and its Subsidiaries dated as of
October 1, 1997.
"PARTY" has the meaning set forth in the preface above.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor entity
thereto.
"PENSION PLAN" shall mean any multiemployer plan or single-employer
plan, as defined in Section 4001 of ERISA and subject to Title IV of
ERISA, which is maintained after the Acquisition for employees of
EqualNet, any of its Subsidiaries or any ERISA Affiliates.
"PERMITS" shall mean all licenses, permits, exceptions, franchises,
accreditations, privileges, rights, variances, waivers, approvals and
other authorizations (including, without limitation, those relating to
environmental matters) of, by or from Governmental Authorities necessary
for the conduct of the business of EqualNet and its Subsidiaries
immediately prior to the Closing and as proposed to be conducted by
EqualNet and its Subsidiaries after the Closing.
"PERSON" shall mean and include an individual, a partnership, a
joint venture, a corporation, a limited liability company, a trust, an
unincorporated organization and a government or any department or agency
thereof.
"RELEASE" shall mean release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration
into the environment or into or out of any property, including the
movement of Hazardous Materials through or in the air, surface water, or
groundwater.
"REMEDIAL ACTION" shall mean any action required by any federal,
state or judicial body or administration or agency acting under an
Environmental Law to (i) clean up, remove or treat Hazardous Materials in
the environment; (ii) prevent a Release or threat of Release or minimize
the further Release of Hazardous Materials so they do not migrate or
endanger or threaten to endanger public health or the environment; (iii)
perform post-remedial monitoring and care; or (iv) cure a violation of any
Environmental Law.
"REORGANIZATION AGREEMENT" means the Agreement and Plan of
Reorganization of even date herewith among EqualNet, Sub, Netco
Acquisition, LLC and Netco Acquisition Corp.
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"REPORTABLE EVENT" shall mean an event described in Section 4043(b)
of ERISA with respect to which the 30-day notice requirement has not been
waived by the PBGC.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens, (b) liens for taxes not yet due and
payable or for taxes that the taxpayer is contesting in good faith through
appropriate proceedings diligently conducted and with respect to which
adequate reserves have been set aside on the books of the taxpayer, and
(c) purchase money liens and liens securing rental payments under capital
lease arrangements.
"SHARES" means the EqualNet Common Shares to be issued by EqualNet
pursuant to Section 2.
"SINGLE-EMPLOYER PENSION PLAN" shall mean a Pension Plan which is a
"single-employer plan" as defined in Section 4001 of ERISA.
"STOCK PURCHASE AGREEMENT" means the Stock Purchase Agreement of
even date herewith between EqualNet and TWG.
"SUBSIDIARY" shall mean any corporation or similar entity a majority
of the stock of every class of which, except directors' qualifying shares,
shall, at the time as of which any determination is being made, be owned
by EqualNet, either directly or indirectly.
"SWITCHES" means the telecommunications equipment described in
Exhibit A attached hereto.
"THIRD PARTY CLAIM" has the meaning set forth in Section 9(d).
"WARRANT" has the meaning set forth in Section 2(d).
2. THE ACQUISITION.
(a) BASIC TRANSACTION. On and subject to the terms and conditions of this
Agreement, at the Closing TWG will sell to Sub and Sub will purchase from TWG
the Switches. EXCEPT FOR THE REPRESENTATIONS SET FORTH IN SECTION 4, THE
SWITCHES SHALL BE SOLD TO SUB AS-IS, WHERE-IS AND WITHOUT REPRESENTATION OR
WARRANTY BY TWG AND TWG HEREBY EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND
WARRANTIES REGARDING THE SWITCHES INCLUDING, WITHOUT LIMITATION, REGARDING THE
MERCHANTABILITY OF THE SWITCHES OR THE FITNESS OF THE SWITCHES FOR ANY
PARTICULAR PURPOSE.
(b) ACQUISITION CONSIDERATION. The consideration payable to TWG for the
sale of the Switches shall consist of the following:
(i) if the Acquisition Loan has not been obtained pursuant to
Section 5(v), $5,850,000 in cash;
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(ii) if the Acquisition Loan has been obtained, the assumption of
the Acquisition Loan and a cash amount equal to $5,850,000 less the
original principal amount of plus accrued and unpaid interest on the
Acquisition Loan;
(iii) 400,000 shares of EqualNet Common Shares; and
(iv) A warrant issued by EqualNet to TWG for 400,000 EqualNet Common
Shares exercisable at $1.50 per share, such warrant to be in the form of
Exhibit B (the "Warrant").
The purchase price for the Switches does not includes sales taxes that may
be triggered by the sale of the Switches, and any such taxes shall be paid by
Sub or EqualNet.
(c) THE CLOSING. Subject to the satisfaction of the conditions set forth
herein, the closing of the transaction contemplated by this Agreement (the
"CLOSING") shall take place on a Business Day mutually agreeable to EqualNet and
TWG within ten Business Days following the satisfaction of the conditions set
forth in Section 6(a)(iii) (the actual date on which the Closing occurs being
referred to herein as the "Closing Date").
(d) DELIVERIES AT THE CLOSING. At the Closing, (i) EqualNet and Sub will
deliver to TWG the various certificates, instruments and documents referred to
in Section 6(a), (ii) TWG will deliver to EqualNet the various certificates,
instruments and documents referred to in Section 6(b), (iii) EqualNet will
deliver to TWG the stock certificates for the Shares, the Warrant, any cash
consideration required pursuant to Section 2(b), and (if applicable) assumption
documents whereby EqualNet and Sub assume the Acquisition Loan (such documents
to be in form and content satisfactory to the lender of the Acquisition Loan and
TWG); and (iv) TWG will execute and deliver to Sub a bill of sale covering the
Switches.
3. REPRESENTATIONS AND WARRANTIES OF EQUALNET AND SUB. EqualNet and Sub
represent and warrant to TWG that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made throughout this Section 3),
except as set forth in the disclosure schedule delivered by EqualNet to TWG on
the date hereof and initialed by authorized representatives of EqualNet, Sub and
TWG (the "Disclosure Schedule").
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. EqualNet and Sub are
corporations duly organized, validly existing, and in good standing under the
laws of the states of Texas and Delaware, respectively. Each of EqualNet and Sub
has the requisite corporate power and authority and all licenses, permit and
authorizations necessary to carry on the businesses in which it is engaged and
to own and use the properties owned and used by it except where the failure to
do so would not have a Material Adverse Effect.
(b) AUTHORIZATION OF TRANSACTION. The boards of directors of EqualNet and
Sub have duly approved this Agreement and the transactions contemplated hereby,
and each of EqualNet and the Sub has requisite corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of EqualNet
and Sub, enforceable in accordance with its terms and conditions except to the
extent
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that enforceability may be limited by bankruptcy, insolvency and other similar
laws affecting the enforcement of creditors' rights generally and except for the
application of general principles of equity. Except as disclosed in Schedule
3(b) of the Disclosure Schedule, neither EqualNet nor the Sub needs to give any
notice to, make any filing with, or obtain any authorization, consent or
approval of any Governmental Authority or any other Person in order to
consummate the transactions contemplated by this Agreement.
(c) BROKERS' FEES. Neither EqualNet nor Sub has any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which TWG could
become liable or obligated, and neither EqualNet nor Sub has any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
(d) NO VIOLATION. Except as disclosed in Schedule 3(d) of the Disclosure
Schedule, neither the execution and delivery of this Agreement, the consummation
of the transactions provided for herein or contemplated hereby nor the
fulfillment by EqualNet or Sub of the terms hereof will (i) violate any
provision of the Articles of Incorporation or the by-laws of EqualNet or the
Certificate of Incorporation of bylaws of Sub, (ii) result in a default, give
rise to any right of termination, cancellation, acceleration or imposition of
any Indebtedness or Security Interest, or require any consent or approval (other
than any consent or approval that has previously been obtained), under any of
the terms, conditions or provisions of any of the Permits or any note, bond,
mortgage, indenture, loan, distribution agreement, license, agreement, lease or
instrument or obligation to which EqualNet or Sub is a party or by which
EqualNet or Sub may be bound (except where the failure to obtain such consent or
approval will not have a Material Adverse Effect), or (iii) violate any law,
judgment, order, writ, injunction, decree, statute, rule, or regulation of any
Governmental Authority applicable to EqualNet or Sub (except where such
violation will not have a Material Adverse Effect).
(e) CONSENTS. Except as disclosed in Section 3(e) of the Disclosure
Schedule, all consents, approvals, qualifications, orders, or authorizations of,
or filings with, any Governmental Authority, and all consents under any material
contracts, agreements, or instruments by which EqualNet or Sub is bound or to
which it is subject, which are required in connection with EqualNet's or Sub's
valid execution, delivery, or performance of this Agreement and the offer, sale
and delivery of the Shares have been obtained or made.
(f) FINANCIAL INFORMATION.
(i) The audited consolidated balance sheet of EqualNet and its
Subsidiaries as at June 30, 1997, and the related consolidated statements
of operations, shareholders' equity and cash flows for the 12-month period
then ended, including in each case the related schedules and notes,
reported on by Ernst & Young LLP, are complete and correct and fairly
present in all material respects the consolidated financial position of
EqualNet and its Subsidiaries as at the date thereof and the consolidated
results of operations and changes in cash flows for such period, in
accordance with GAAP.
(ii) The unaudited consolidated balance sheet of EqualNet and its
Subsidiaries as at September 30, 1997, and the related unaudited
consolidated statements of operations,
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shareholders' equity and cash flows for the three-month period then ended,
as included in EqualNet's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1997, true copies of which have been previously
delivered to TWG, are complete and correct and fairly present in all
material respects the consolidated financial position of EqualNet and its
Subsidiaries as at the date thereof and the consolidated results of
operations and changes in cash flows for such period in conformity with
GAAP, subject only to normal year-end audit adjustments.
(iii) Since September 30, 1997, there has been no Material Adverse
Effect.
(g) LIABILITIES. Except for liabilities incurred in the ordinary course of
business, none of EqualNet or any of its Subsidiaries has any material
(individually or in the aggregate) liabilities, direct or contingent (including
but not limited to liability with respect to any Plan) except as disclosed or
referred to in Section 3(g) of the Disclosure Schedule or in the financial
statements referred to in Section 3(f). Neither EqualNet nor any of its
Subsidiaries has any Funded Indebtedness other than Indebtedness disclosed in
Section 3(g) of the Disclosure Schedule.
(h) LITIGATION. Except as disclosed in Section 3(h) of the Disclosure
Schedule or as described in any report filed by EqualNet with the Commission and
delivered to TWG, there is no action, suit, or proceeding, or any governmental
investigation or any arbitration, in each case pending or, to the knowledge of
EqualNet, threatened against EqualNet or any of its Subsidiaries or any material
property of any thereof before any court or arbitrator or any governmental or
administrative body, agency or official (i) which challenges the validity of
this Agreement; or (ii) which, if adversely determined, would have a Material
Adverse Effect.
(i) COMPLIANCE WITH ERISA. Each Plan is in substantial compliance with
ERISA, no Plan has an accumulated or waived funding deficiency within the
meaning of Section 412 or Section 418(B) of the Code, no proceedings have been
instituted to terminate any Plan, and except as disclosed in Section 3(i) of the
Disclosure Schedule, none of EqualNet or any of its Subsidiaries nor any ERISA
Affiliate has incurred any material liability to or on account of a Plan under
ERISA, and except as disclosed in Section 3(i) of the Disclosure Schedule, no
condition exists which presents a material risk to EqualNet or any of its
Subsidiaries of incurring such a liability.
(j) TAXES; GOVERNMENTAL CHARGES. Each of EqualNet and its Subsidiaries has
filed all tax returns and reports required to be filed and has paid all taxes,
assessments, fees, and other governmental charges levied upon any of them or
upon any of their respective properties or income which are due and payable,
including interest and penalties, or has provided adequate reserves for the
payment thereof, except where the failure to so file, pay, or reserve would not
have a Material Adverse Effect.
(k) DEFAULTS. Except as disclosed in Section 3(k) of the Disclosure
Schedule, none of EqualNet or any of its Subsidiaries is in default, nor has any
event or circumstance occurred which, but for the passage of time or the giving
of notice, or both, would constitute a default (in any respect which may have a
Material Adverse Effect) under any loan or credit agreement, indenture,
mortgage, deed of trust, security agreement, or other instrument or agreement
evidencing or pertaining to any Indebtedness of EqualNet or any Subsidiary, or
under any material agreement or instrument to which
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EqualNet or any Subsidiary is a party or by which EqualNet or any Subsidiary is
bound. No default hereunder has occurred and is continuing.
(l) COMPLIANCE WITH THE LAW. None of EqualNet or any of its Subsidiaries
(i) is in violation of any Governmental Requirement or (ii) has failed to obtain
any license, permit, franchise or other governmental authorization necessary to
the ownership of any of their respective properties or the conduct of their
respective business, which violation or failure would have (in the event that
such a violation or failure were asserted by any Person through appropriate
action) a Material Adverse Effect.
(m) INVESTMENT COMPANY ACT. None of EqualNet or any of its Subsidiaries is
an "investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
(n) PUBLIC UTILITY HOLDING COMPANY ACT. None of EqualNet or any of its
Subsidiaries is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," or a "public utility" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
(o) DISCLOSURE. EqualNet's filings made pursuant to the Securities
Exchange Act of 1934, as amended and listed on Section 3(o) of the Disclosure
Schedule hereto as of their respective dates, did not contain any untrue
statement of a material fact and did not omit to state any material fact
necessary in order to make the statements contained therein not misleading in
the light of the circumstances under which they were made.
(p) STRUCTURE; CAPITALIZATION.
(i) Section 3(p) of the Disclosure Schedule contains (except as
noted therein) a complete and correct list of EqualNet's Subsidiaries,
showing, as to each Subsidiary, the correct name thereof, the jurisdiction
of its organization, and the percentage of shares of each class of its
capital stock or similar equity interests outstanding owned by EqualNet
and each other Subsidiary.
(ii) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Section 3(p) of the
Disclosure Schedule as being owned by EqualNet and its Subsidiaries have
been validly issued, are fully paid and nonassessable, and are owned by
EqualNet or such other Subsidiaries free and clear of any Security
Interest (except as otherwise disclosed in Section 3(p) of the Disclosure
Schedule).
(iii) No Subsidiary of EqualNet is a party to, or otherwise subject
to any legal restriction of any agreement (other than this Agreement and
customary limitations imposed by corporate law statutes) restricting the
ability of such Subsidiary to pay dividends out of profits or make any
other similar distributions of profits to EqualNet or any of its
Subsidiaries that owns outstanding shares of capital stock or similar
equity interests of such Subsidiary.
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(iv) As of the Closing Date and after giving effect to the
transactions contemplated in this Agreement, the Stock Purchase Agreement
and the Reorganization Agreement (i) EqualNet's authorized capital stock
will consist of 55,000,000 shares, of which 50,000,000 will be designated
EqualNet Common Shares and 5,000,000 shares are designated as preferred
stock (2,000 of which will be designated as Series A Convertible Preferred
Stock, $.01 par value per share); (ii) 14,269,357 of EqualNet Common
Shares, issued and outstanding and 5,450,677 shares are or will be
reserved for issuance in connection with EqualNet's outstanding warrants
and stock options all of which, when issued in accordance with the terms
of such warrants and stock options, will be validly issued, fully paid,
and non-assessable; (iii) no shares are owned or held by or for the
account of EqualNet or any of its Subsidiaries (except as disclosed in the
financial statements described in Section 3(f)); (iv) except as disclosed
on Section 3(p) of the Disclosure Schedule, neither EqualNet nor any of
its Subsidiaries has outstanding any stock or other securities convertible
into or exchangeable for any shares of capital stock, any rights to
subscribe for or to purchase or any options for the purchase of, or any
agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any other character relating to the
issuance of, any capital stock, or any stock or securities convertible
into or exchangeable for any capital stock which have not been waived
(other than as contemplated by this Agreement); and (v) except as
disclosed in Section 3(p) of the Disclosure Schedule, neither EqualNet nor
any of its Subsidiaries is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of
capital stock.
(q) ENVIRONMENTAL MATTERS.
(i) Neither any property of any of EqualNet or any of its
Subsidiaries nor the operations conducted thereon violate any order of any
court or Governmental Authority or Environmental Laws which violations
could reasonably be expected to result in liability in excess of $250,000
or which could reasonably be expected to result in obligations in excess
of $250,000 for required Remedial Action, assuming disclosure to the
applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to the relevant property.
(ii) Without limitation of clause (i) above, no property of any of
EqualNet or any of its Subsidiaries nor the operations currently conducted
thereon or by any prior owner or operator of such property or operation,
are in violation of or subject to any existing, pending or, to the
knowledge of EqualNet, threatened action, suit, investigation, inquiry or
proceeding by or before any court or Governmental Authority or to any
obligations for required Remedial Action under Environmental Laws which
could reasonably be expected to result in liability in excess of $250,000,
or which could reasonably be expected to result in obligations for
required Remedial Action in excess of $250,000 assuming disclosure to the
applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to the relevant property.
(iii) All notices, permits, licenses or similar authorizations, if
any, required to be obtained or filed in connection with the operation or
use of any and all property of EqualNet and its Subsidiaries, including
but not limited to past or present treatment, storage, disposal
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or release of Hazardous Materials into the environment, have been duly
obtained or filed, except where the failure to so obtain or file would not
have a Material Adverse Effect.
(r) INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS.
(i) EqualNet and its Subsidiaries (i) own or have the right to use,
free and clear of all liens, claims, and restrictions, all patents,
trademarks, service marks, trade names, and copyrights, and all
applications, licenses, and rights with respect to the foregoing, and all
trade secrets, including know-how, inventions, designs, processes, works
of authorship, computer programs, and technical data and information
(collectively, "Intellectual Property") used and sufficient for use in the
conduct of its business as now conducted and/or as presently proposed to
be conducted (including, without limitation, the development, manufacture,
operation, and sale of all products and services sold or proposed to be
sold by EqualNet and its Subsidiaries during the next 24 months following
the date of this Agreement) without infringing upon or violating any
right, lien, or claim of others, including, without limitation, former
employees and former employers of its past and present employees, and (ii)
except as described in Section 3(r) of the Disclosure Schedule, is not
obligated or under any liability whatsoever to make any payments by way of
royalties, fees, or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright,
or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise.
(ii) Any and all Intellectual Property of any kind, relating to the
business of EqualNet and its Subsidiaries currently being developed, or
developed in the future, by any employee of EqualNet and its Subsidiaries
while in the employ of EqualNet and its Subsidiaries shall be the property
solely of EqualNet and its Subsidiaries. EqualNet and its Subsidiaries
have taken security measures to protect the secrecy, confidentiality, and
value of all Intellectual Property, which measures are reasonable and
customary in the industry in which EqualNet and its Subsidiaries operate.
EqualNet and its Subsidiaries' employees and other persons who, either
alone or in concert with others, developed, invented, discovered, derived,
programmed, or designed the Intellectual Property (the "Technical
Employees"), or who have knowledge of or access to information about the
Intellectual Property, have entered into a written agreement with EqualNet
or its Subsidiaries, in form and substance satisfactory to EqualNet's
management (the "Proprietary Information Agreement") regarding ownership
and treatment of the Intellectual Property.
(iii) Except as described in Section 3(r) of the Disclosure
Schedule, none of EqualNet or its Subsidiaries has received any
communications alleging that EqualNet or such Subsidiary has violated, or
by conducting its business as proposed would violate, any of the patents,
trademarks, service marks, trade names, copyrights, or trade secrets or
other proprietary rights of any other Person or entity. None of EqualNet's
and its Subsidiaries' employees is obligated under any contract (including
licenses, covenants, or commitments of any nature) or other agreement, or
subject to any judgment, decree, or order of any court or administrative
agency, that would interfere with the use of such employee's best efforts
to promote the interests of EqualNet or its Subsidiaries or that would
conflict with EqualNet's or its Subsidiaries' business as presently
conducted and as proposed to be conducted. Neither
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the execution nor delivery of this Agreement, nor the carrying on of
EqualNet's or its Subsidiaries' business by the employees of EqualNet and
its Subsidiaries, nor the conduct of EqualNet's or its Subsidiaries'
business as proposed to be conducted, will conflict with or result in a
breach of the terms, conditions, or provisions of, or constitute a default
under, any contract, covenant, or instrument under which any of such
employees is now obligated. It is not, and will not become, necessary to
utilize any inventions of any of EqualNet's or its Subsidiaries' employees
(or people EqualNet and its Subsidiaries currently intends to hire) made
prior to their employment by EqualNet and its Subsidiaries other than
those that have been assigned to EqualNet and its Subsidiaries pursuant to
the Proprietary Information Agreement signed by such employee.
(s) INSURANCE COVERAGE. The properties of EqualNet and its Subsidiaries
are insured in amounts deemed adequate by EqualNet's management against risks
usually insured against by Persons operating businesses similar to those of
EqualNet and its Subsidiaries in the localities where such properties are
located.
4. REPRESENTATIONS AND WARRANTIES OF TWG.
TWG represents and warrants to EqualNet that the statements contained in
this Section 4 are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date was substituted for the date of this Agreement
throughout this Section 4).
(a) COMPANY EXISTENCE. TWG is a limited liability company duly organized,
legally existing, and in good standing under the laws of the State of Texas. TWG
is duly qualified as a limited liability company (or other legal entity) in all
jurisdictions in which the nature of its business activities or its ownership or
leasing of property makes such qualification necessary, except where the failure
to so qualify will not have a Material Adverse Effect.
(b) CORPORATE POWER AND AUTHORIZATION. TWG has the requisite corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. All action on
TWG's part requisite for the due execution, delivery, and performance of this
Agreement has been duly and effectively taken.
(c) BINDING OBLIGATIONS. This Agreement is enforceable in accordance with
its terms (except that enforcement may be subject to (i) any applicable
bankruptcy, insolvency or similar laws generally affecting the enforcement of
creditors' rights and (ii) general principles in equity regardless of whether
such enforcement is sought in a proceeding in equity or at law).
(d) BROKERS' FEES. TWG has no Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which EqualNet or Sub could become liable or
obligated, and TWG has no any Liability or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement.
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(e) INVESTMENT. TWG (i) understands that the Shares when issued at the
Closing and the shares issued in connection with an exercise of the Warrant will
not be registered under the Securities Act, or under any state securities laws,
and are being offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (ii) is acquiring the Shares and
Warrant when issued at the Closing solely for its own account for investment
purposes and not with a view to the distribution thereof, (iii) is a
sophisticated investor with knowledge and experience in business and financial
matters, (iv) has received certain information concerning EqualNet and has had
the opportunity to obtain additional information as desired in order to evaluate
the merits and the risks inherent in holding the Shares and the Warrant, (v) is
able to bear the economic risk and lack of liquidity inherent in holding the
Shares and the Warrant, and (vi) is an Accredited Investor.
(f) TITLE. TWG owns the Switches free and clear of any Security Interest
other than any Security Interest (if any) that encumbered the Switches at the
time the same were sold to TWG pursuant to the instrument attached as Exhibit A.
5. PRE-CLOSING COVENANTS.
The Parties agree as follows with respect to the period between the
execution of this Agreement (or such earlier time as may be indicated) and the
earlier to occur of the Closing or the termination of this Agreement pursuant to
Section 7:
(a) GENERAL. Each of the Parties will use commercially reasonable best
efforts to take all actions and to do all things necessary, proper or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in Section 6).
(b) INSPECTION. EqualNet and TWG each agree to permit the other, and its
officers, directors, employees, accountants, counsel and other authorized
representatives, during normal business hours, to inspect its records and to
consult with its officers, employees, attorneys, and agents for the purpose of
determining the accuracy of the representations and warranties hereinabove made
and the compliance with covenants contained in this Agreement. EqualNet and TWG
each agrees that it and its officers and representatives shall hold all data and
information obtained with respect to the other party hereto in confidence and
each further agrees that it will not use such data or information or disclose
the same to others, except to the extent such data or information either are, or
become, published or a matter of public knowledge.
(c) NOTICES AND CONSENTS. To the extent, if any, noted in Section 3(c) of
the Disclosure Schedule as being required, EqualNet will give any notices to
third parties, and will use and cause EqualNet to use all reasonable efforts to
obtain the required consent of its shareholders and any third-parties.
(d) NOTICE OF DEVELOPMENTS. Each Party will give prompt written notice to
the other of any material adverse development causing a breach of or
constituting an intervening event with respect to any of its own representations
and warranties in Sections 3 and 4. No disclosure by any Party pursuant to this
Section 5(d), however, shall be deemed to amend or supplement the Disclosure
Schedule or to prevent or cure any misrepresentation, breach of warranty, or
breach of covenant.
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(e) ORDINARY COURSE. Except for transactions to which TWG is a party or as
otherwise specifically contemplated by the terms of this Agreement, EqualNet
shall and shall cause its Subsidiaries to carry on their respective businesses
in the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent therewith, use all reasonable
efforts to preserve intact their current officers and employees and preserve
their relationships with customers, suppliers, licensors, licensees,
distributors and others having business dealings with them, in each case
consistent with past practice, to the end that their goodwill and ongoing
businesses shall be unimpaired to the fullest extent possible at the Closing
Date. Without limiting the generality of the foregoing, and except as otherwise
expressly contemplated by this Agreement, EqualNet shall not, and shall not
permit any of its Subsidiaries to:
(i) (A) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, other than
dividends and distributions by any direct or indirect wholly owned
Subsidiary of EqualNet to EqualNet or to another direct or indirect wholly
owned Subsidiary of EqualNet, (B) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital
stock or (C) purchase, redeem or otherwise acquire any shares of capital
stock of EqualNet or any of its Subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or
other securities other than in connection with the exercise of outstanding
stock options and satisfaction of withholding obligations under
outstanding stock options and restricted stock;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares
of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities other than, in the
case of EqualNet, the issuance of EqualNet Common Shares upon the exercise
of stock options outstanding on the date of this Agreement in accordance
with their current terms;
(iii) amend its Articles of Incorporation, By-laws or other
comparable charter or organizational document;
(iv) acquire or agree to acquire (A) by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of, or
by any other manner, any business or any corporation, partnership,
association, joint venture, limited liability company or other entity or
division thereof or (B) any assets that, in each case, would be material,
individually or in the aggregate, to EqualNet and its Subsidiaries taken
as a whole, except purchases in the ordinary course of business consistent
with past practice;
(v) sell, lease, mortgage, pledge, grant a Security Interest in or
otherwise encumber or dispose of any of its properties or assets, except
(A) sales or leases in the ordinary course of business consistent with
past practice and (B) other immaterial transactions not in excess of
$250,000 in the aggregate;
(vi) (A) incur indebtedness for borrowed money or guarantee any such
indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of EqualNet or any
of its Subsidiaries, guarantee any debt
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securities of another Person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another Person
or enter into any arrangement having the economic effect of any of the
foregoing, except for working capital borrowings under currently existing
revolving credit facilities incurred in the ordinary course of business,
or (B) make any loans, advances or capital contributions to, or
investments in, any other Person that would be material, individually or
in the aggregate, to EqualNet and its Subsidiaries taken as a whole, other
than by EqualNet to any direct or indirect wholly owned Subsidiary of
EqualNet;
(vii) make or incur any new capital expenditure, which, singly or in
the aggregate with all other capital expenditures, would exceed $100,000;
(viii) make any material election relating to Taxes or settle or
compromise any material tax liability;
(ix) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of EqualNet included in the Commission Documents or
incurred in the ordinary course of business consistent with past practice;
(x) waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which EqualNet or any
of its Subsidiaries is a party;
(xi) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
(xii) enter into any new collective bargaining agreement;
(xiii) change any material accounting principle used by it, except
as required by regulations promulgated by the Commission;
(xiv) settle or compromise any litigation (whether or not commenced
prior to the date of this Agreement) other than settlements or
compromises: (A) of litigation where the amount paid in settlement or
compromise does not exceed $100,000, or (B) in consultation and
cooperation with TWG, and, with respect to any such settlement, with the
prior written consent of TWG, which consent shall not be unreasonably
withheld;
(xv) except for those contracts and agreements entered into in the
ordinary course of business or with the prior written consent of TWG,
which consent shall not be unreasonably withheld, enter into any joint
venture or partnership contract or agreement; or
(xvi) authorize any of, or commit or agree to take any of, the
foregoing actions.
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(f) CHANGES IN EMPLOYMENT ARRANGEMENTS. Neither EqualNet nor any of its
Subsidiaries shall adopt or amend (except as may be required by law) any bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement, trust, fund
or other arrangement for the benefit or welfare of any employee, director or
former director or employee, increase the compensation or fringe benefits of any
officer of EqualNet or any of its Subsidiaries, or, except as provided in an
existing benefit plan or in the ordinary course of business consistent with past
practice, increase the compensation or fringe benefits of any employee or former
employee or pay any benefit not required by any existing plan, arrangement or
agreement.
(g) SEVERANCE. Neither EqualNet nor any of its Subsidiaries shall grant
any new or modified severance or termination arrangement or increase or
accelerate any benefits payable under its severance or termination pay policies
in effect on the date hereof.
(h) OTHER ACTIONS. EqualNet shall not, and shall not permit any of its
Subsidiaries to, take any action that would, or that could reasonably be
expected to, result (i) in any of the representations and warranties of EqualNet
set forth in this Agreement becoming untrue or (ii) in any of the covenants
contained in this Agreement becoming unperformable. Pending the Closing,
EqualNet will promptly advise TWG of any action or event of which it becomes
aware which has the effect of making incorrect any of such representations or
warranties or which has the effect of rendering unperformable any of such
covenants.
(i) VALID ISSUANCE. EqualNet covenants that the EqualNet Common Shares to
be issued by EqualNet pursuant to Section 2(b) and by EqualNet pursuant to an
exercise of the Warrant will, upon issuance and upon delivery of certificates
representing such shares, be validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance thereof.
(j) GOVERNMENT REGULATIONS. EqualNet covenants that it will comply, and
will cause each of its Subsidiaries to comply, with all applicable governmental
restrictions and regulations, the failure to comply with which would have a
material adverse effect on the business or financial condition of EqualNet and
its Subsidiaries taken as a whole, and obtain and maintain in good standing all
licenses, permits and approvals from any and all governments, governmental
commissions, boards or agencies of jurisdictions in which it or any of its
Subsidiaries carries on business required in respect of the operations of
EqualNet or any of its Subsidiaries, the failure to comply with which would have
a Material Adverse Effect.
(k) ERISA. Promptly (and in any event within 30 days) after EqualNet or
any of its Subsidiaries knows or has reason to know that a Reportable Event with
respect to any Pension Plan has occurred, that any Pension Plan is or may be
terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA or that EqualNet or any of its Subsidiaries will or may incur any
liability to or on account of a Pension Plan under Sections 4062, 4063, 4064,
4201 or 4204 of ERISA, EqualNet will deliver to TWG a certificate of the chief
financial officer of EqualNet setting forth information as to such occurrence
and what action, if any, EqualNet is required or proposes to take with respect
thereto, together with any notices concerning such occurrences which are (a)
required to be filed by EqualNet or the plan administrator of any such Pension
Plan controlled by EqualNet or its Subsidiaries, with the PBGC or (b) received
by EqualNet or its Subsidiaries from any
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plan administrator of a multiemployer or other Pension Plan not under their
control. EqualNet shall furnish to TWG a copy of each annual report (Form 5500
Series) of any Pension Plan received or prepared by EqualNet or any of its
Subsidiaries. Each annual report and any notice required to be delivered
hereunder shall be delivered no later than 10 days after the later of the date
such report or notice is filed with the Internal Revenue Service or the PBGC or
the date such report or notice is received by EqualNet or any of its
Subsidiaries, as the case may be.
(l) CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. EqualNet covenants
that it (i) will do or cause to be done all things reasonably necessary to
preserve and keep in full force and effect the corporate existence and material
rights of EqualNet and all of its Subsidiaries, (ii) will cause its properties
and the properties of its Subsidiaries used or useful in the conduct of their
respective businesses to be maintained and kept in good condition, repair and
working order and will use commercially reasonable efforts to cause to be made
all necessary repairs, renewals, replacements, betterments and improvements
thereto, and (iii) will, and will cause each of its Subsidiaries to, qualify and
remain qualified to conduct business in each jurisdiction where the nature of
the business or the ownership of property by EqualNet or such Subsidiary may
require such qualification and where the failure to so qualify would have a
Material Adverse Effect.
(m) INSURANCE. EqualNet covenants that it will maintain, and will cause
each of its Subsidiaries to maintain, with financially sound and reputable
insurance companies, funds or underwriters, insurance for EqualNet and its
Subsidiaries of the kinds, covering the risks and in the relative proportionate
amounts usually carried by companies conducting business activities similar to
those of EqualNet and its Subsidiaries.
(n) FURTHER ASSURANCES. EqualNet covenants that it shall cooperate with
TWG and execute such further instruments and documents as TWG shall reasonably
request to carry out to the satisfaction of TWG the transactions contemplated by
this Agreement.
(o) NOTICES OF CERTAIN EVENTS. EqualNet shall promptly give notice to TWG
(i) of any default or event of default that has not been cured within any
applicable grace period under any (y) Indebtedness of EqualNet or any of its
Subsidiaries, or (z) contractual obligation of EqualNet or any of its
Subsidiaries or (ii) of any pending or threatened litigation, investigation or
proceeding to which EqualNet or any of its Subsidiaries is or is threatened to
be a party and of which EqualNet has been given notice; provided that any such
default as specified in clause (z) above, litigation, investigation or
proceeding would have a Material Adverse Effect. Any notice delivered pursuant
to this Section 5(o) shall be accompanied by an officer's certificate specifying
the details of the occurrence referred to therein and stating what action
EqualNet proposes to take with respect thereto.
(p) ENVIRONMENTAL LAWS. EqualNet and its Subsidiaries shall comply with
all applicable Environmental Laws the failure to comply with which would have a
Material Adverse Effect. If EqualNet or any Subsidiary shall receive written
notice that there exists a violation of Environmental Law with respect to its
operations or any real property owned, formerly owned, used, or leased thereby,
which violation could have a Material Adverse Effect, EqualNet shall immediately
notify in writing TWG. Furthermore, if EqualNet or any Subsidiary shall receive
written notice that there exists a violation of Environmental Law with respect
to its operations or any real property owned, formerly owned, used or leased
thereby, which violation could have a Material Adverse Effect,
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EqualNet shall within the time period permitted by the applicable governmental
authority (unless otherwise contested by EqualNet in good faith) remove or
remedy such violation in accordance with all applicable Environmental Laws
unless the Board of Directors of EqualNet makes a good faith determination that
it would be in the best interest of EqualNet to delay the remedy of such
violation, so long as no Material Adverse Effect is suffered by EqualNet or its
Subsidiaries during such delay.
(q) REGISTRATION RIGHTS. EqualNet hereby grants to TWG the same rights to
cause EqualNet to register the EqualNet Common Shares to be issued pursuant to
Section 2(b) and pursuant to an exercise of the Warrant under state and federal
securities laws and all such other rights as set forth in Section 4.1.11 of the
Note and Warrant Purchase Agreement at any time from and after the Closing Date;
provided, such registration rights shall be effective immediately upon the
Closing Date notwithstanding whether or not the Note or Warrants under the Note
and Warrant Purchase Agreement have been converted or exercised, as the case may
be.
(r) SHAREHOLDER APPROVAL; PREPARATION OF PROXY STATEMENTS.
(i) EqualNet shall, as soon as practicable following the execution
and delivery of this Agreement duly call, give notice of, convene and hold
a meeting of EqualNet's shareholders (the "Shareholders Meeting") for the
following purposes: (i) approving this Agreement, the issuance of the
Shares and the transactions contemplated hereby, (ii) ratifying the Note
and Warrant Purchase Agreement and the transactions contemplated thereby,
(iii) approving the Stock Purchase Agreement and the issuance of EqualNet
Common Shares thereunder, (iv) approving Reorganization Agreement, (v)
approving the increase in authorized shares of EqualNet Common Shares to
55,000,000 and (vi) approving the other related transactions. EqualNet
will, through its officers and its Board of Directors, unanimously
recommend to its shareholders the approval and adoption of the foregoing
transactions.
(ii) Promptly following the date of this Agreement, EqualNet shall
prepare and file with the Commission a proxy statement relating to the
Shareholders Meeting (such proxy statement as amended or supplemented from
time to time, the "Proxy Statement"). TWG shall have the right to review
and approve the Proxy Statement prior to EqualNet filing the Proxy
Statement with the Commission. EqualNet will use all commercially
reasonable efforts to cause the Proxy Statement to be mailed to EqualNet's
shareholders as promptly as practicable. EqualNet will notify TWG promptly
of the receipt of any written or oral comments from the Commission or its
staff and of any request by the Commission or its staff for amendments or
supplements to the Proxy Statement or for additional information and will
supply TWG with copies of all correspondence between EqualNet or any of
its representatives, on the one hand, and the Commission or its staff, on
the other hand, with respect to the Proxy Statement.
(iii) EqualNet agrees to cause all shares of capital stock, if any,
owned by it or any other Subsidiary or its officers and directors to be
voted in favor of the approval and adoption of this Agreement, the Note
and Warrant Purchase Agreement, the Stock Purchase Agreement, the
Reorganization Agreement and the other related transactions.
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(iv) EqualNet will cause its transfer agent to make stock transfer
records relating to EqualNet available to the extent reasonably necessary
to effectuate the intent of this Agreement.
(s) NO SOLICITATION. (i) EqualNet shall not, nor shall it permit any of
its Subsidiaries to, nor shall it authorize or permit any officer, director or
employee of EqualNet or any investment banker, attorney or other advisor, agent
or representative of EqualNet or any of its Subsidiaries to, directly or
indirectly, (1) solicit, initiate or encourage the submission of any takeover
proposal, (2) enter into any agreement (other than confidentiality and
standstill agreements in accordance with the immediately following proviso) with
respect to any takeover proposal, or (3) participate in any discussions or
negotiations regarding, or furnish to any Person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may be reasonably be expected to lead to, any
takeover proposal; provided, in the case of this clause (3), that prior to the
vote of shareholders of EqualNet for approval of the matters referred to in
Section 5(s) (and not thereafter if such matters are approved thereby) to the
extent required by the fiduciary obligations of the Board of Directors of
EqualNet, determined in good faith by a majority of the disinterested members
thereof based on the advice of outside counsel, EqualNet, in response to an
unsolicited superior proposal and a request for information pursuant thereto,
may furnish information to any person or "group" within the meaning of Section
13(d)(3) of the Exchange Act pursuant to a confidentiality agreement. Without
limiting the foregoing, it is understood that any violation of the restrictions
set forth in the preceding sentence by any officer, director or employee of
EqualNet or any of its Subsidiaries or any investment banker, attorney or other
advisor, agent or representative of EqualNet, whether or not such Person is
purporting to act on behalf of EqualNet or otherwise, shall be deemed to be a
material breach of this Agreement by EqualNet. For purposes of this Section
5(t), "takeover proposal" means (x) any proposal, other than a proposal by TWG
or any of its Affiliates, for a merger or other business combination involving
EqualNet, (y) any proposal or offer, other than a proposal or offer by TWG or
any of its Affiliates, to acquire from EqualNet or any of its Affiliates in any
manner, directly or indirectly, an equity interest in EqualNet or any
Subsidiary, any voting securities of EqualNet or any Subsidiary or a material
amount of the assets of EqualNet and its Subsidiaries, taken as a whole, or (z)
any proposal or offer, other than a proposal or offer by TWG or any of its
Affiliates, to acquire from the shareholders of EqualNet by tender offer,
exchange offer or otherwise more than 20% of the outstanding shares of Common
Shares.
(ii) Neither the Board of Directors of EqualNet nor any committee
thereof shall, except in connection with the termination of this Agreement
pursuant to Section 7, (1) withdraw or modify, or propose to withdraw or modify,
in a manner adverse to TWG the approval or recommendation by the Board of
Directors of EqualNet or any such committee thereof of this Agreement or take
any action having such effect; provided, a statement by the Board of Directors
of EqualNet to its shareholders as contemplated by Rule 14e-2(a) of the Exchange
Act following TWG's receipt of a Notice of Superior Proposal (defined below)
shall not be deemed to constitute a withdrawal or modification of its
recommendation of this Agreement, or (2) approve or recommend, or propose to
approve or recommend, any takeover proposal. Notwithstanding the foregoing, in
the event that the Board of Directors of EqualNet receives a takeover proposal
that, in the exercise of its fiduciary obligations (as determined in good faith
by a majority of the disinterested members thereof based on the advice of
outside counsel), it determines to be a superior proposal, the Board of
Directors of EqualNet may withdraw or modify its approval or recommendation of
this
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Agreement and may (subject to the following sentence) terminate this Agreement,
in each case at any time after midnight on the fifth Business Day following
TWG's receipt of written notice (a "Notice of Superior Proposal") advising TWG
that the Board of Directors of EqualNet has received a takeover proposal that it
has determined to be a superior proposal, specifying the material terms and
conditions of such superior proposal (including the proposed financing for such
proposal and a copy of any documents conveying such proposal) and identifying
the Person making such superior proposal. EqualNet may terminate this Agreement
pursuant to the preceding sentence only if the shareholders of EqualNet have not
yet voted upon the matters set forth in Section 5(s). Any of the foregoing to
the contrary notwithstanding, EqualNet may engage in discussions with any Person
or group that has made an unsolicited takeover proposal for the limited purpose
of determining whether such proposal is a superior proposal. Nothing contained
herein shall prohibit EqualNet from taking and disclosing to its shareholders a
position contemplated by Rule 14e-2(a) following TWG's receipt of a Notice of
Superior Proposal.
(iii) For purposes of this Section 5(t), a "superior proposal" means
any BONA FIDE takeover proposal to acquire, directly or indirectly, for
consideration consisting of cash, securities or a combination thereof, all of
the EqualNet Common Shares then outstanding or all or substantially all of the
assets of EqualNet and its Subsidiaries, and otherwise on terms that a majority
of the disinterested members of the Board of Directors of EqualNet determines in
its good faith reasonable judgment (based on the advice of a financial advisor
of nationally recognized reputation, a copy of which shall be provided to TWG)
to be more favorable to EqualNet's shareholders than the transactions
contemplated by this Agreement, the Stock Purchase Agreement and the
Reorganization Agreement.
(iv) In addition to the obligations of EqualNet set forth in clause
(ii) above, EqualNet shall promptly advise TWG orally and in writing of any
takeover proposal or any inquiry with respect to or which could lead to any
takeover proposal, the material terms and conditions of such inquiry or takeover
proposal (including the financing for such proposal and a copy of such documents
conveying such proposal), and the identity of the Person making any such
takeover proposal or inquiry.
(t) LISTING OF COMMON STOCK. EqualNet warrants and agrees for the benefit
of the TWG that it will use commercially reasonable efforts to cause the
EqualNet Common Shares to be issued pursuant to Section 2 and pursuant to the
Warrant to be approved for listing, subject to official notice of issuance, on
the NASDAQ National Market as of the Closing Date.
(u) ACQUISITION LOAN. TWG may elect to obtain financing for the Switches
from a bank or other third party lender, such financing to be in a principal
amount not to exceed the $5,850,000 purchase price paid by TWG for the Switches.
Any such financing shall be secured by a first priority lien and security
interest on the Switches and otherwise on terms satisfactory to TWG and EqualNet
(the "Acquisition Loan"). If a guarantee is required to obtain such loan, then
such guarantee shall be satisfactory to TWG in its sole discretion. Among other
conditions that may be applicable, any such guarantee provided by or arranged
for by TWG shall be conditioned upon EqualNet agreeing to pay TWG a guarantee
fee on the outstanding balance of the Acquisition Loan. The loan documents shall
provide that if the closing of the transaction contemplated by this Agreement
occurs,
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then the Sub and EqualNet shall assume (or otherwise become liable on) the
Acquisition Loan and TWG shall be released from any liability on the Acquisition
Loan effective as of such closing.
6. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF TWG. The obligation of TWG to consummate
the transactions to be performed by it in connection with the Closing is subject
to satisfaction of the following conditions:
(i) The representations and warranties set forth in Section 3 shall
be true and correct in all material respects at and as of the Closing
Date.
(ii) EqualNet and Sub shall have performed and complied with all of
their respective covenants hereunder in all material respects through the
Closing.
(iii) EqualNet shall have procured all of the consents of third
parties required in connection with the consummation of the transactions
contemplated by this Agreement, and EqualNet shall have procured the
approval of its shareholders at the Shareholders Meeting for the matters
set forth in Section 5(r).
(iv) The closing under that certain Stock Purchase Agreement dated
November 21, 1997, between EqualNet and TWG and under the Reorganization
Agreement shall have occurred or be occurring simultaneous with the
Closing hereunder.
(v) The issuance of the EqualNet Common Shares and Warrant under
this Agreement shall have complied with all applicable requirements of
federal and state securities laws.
(vi) Subsequent to the date hereof, no legislation, order, rule,
ruling or regulation shall have been enacted or made by or on behalf of
any governmental body, department or agency of the United States, nor
shall any legislation have been introduced and favorably reported for
passage to either House of Congress by any committee of either such House
to which such legislation has been referred for consideration, nor shall
any decision of any court of competent jurisdiction within the United
States have been rendered which would materially and adversely affect an
investment in the EqualNet Common Shares. There shall be no action, suit,
investigation or proceeding pending, or to EqualNet's knowledge,
threatened, against or affecting EqualNet or any of its Subsidiaries, or
any of their respective properties or rights, or any of their affiliates,
associates, officers or directors, before any court, arbitrator or
administrative or governmental body which (i) seeks to restrain, enjoin,
prevent the consummation of or otherwise adversely affect the transactions
contemplated by this Agreement or (ii) questions the validity or legality
of any such transaction or seeks to recover damages or to obtain other
relief in connection with any such transaction, and to EqualNet's
knowledge there shall be no valid basis for any such action, proceeding or
investigation.
(vii) EqualNet shall have duly received all authorizations,
consents, approvals, licenses, franchises, permits and certificates by or
of all federal, state and local governmental
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authorities, by any third parties pursuant to the terms of any agreement
to which EqualNet is a party or by the National Association of Securities
Dealers, Inc. or any other body or agency with jurisdiction, by contract
or otherwise, over EqualNet, necessary for the issuance of the Shares and
the Warrant by EqualNet and the consummation of the transactions
contemplated hereby, and all thereof shall be in full force and effect at
the time of the Closing.
(viii)There shall not have occurred any Material Adverse Change with
respect to EqualNet and its Subsidiaries since the date hereof.
(ix) EqualNet shall have delivered to TWG a certificate to the
effect that each of the conditions specified above in Section 6(a)(i)-(ix)
is satisfied in all respects.
(x) TWG shall have received from Fulbright & Jaworski, L.L.P.,
counsel to EqualNet and Sub, an opinion in form and substance as set forth
in Exhibit C attached hereto, addressed to TWG and dated as of Closing
Date.
(xi) EqualNet shall have delivered to TWG the original stock
certificates specified in Section 2(b) representing the Shares and the
original Warrant.
(xii) The EqualNet Common Shares issued pursuant to Section 2 and to
be issued pursuant to the Warrant shall have been approved for listing,
subject to official notice, on the NASDAQ National Market as of the
Closing Date.
All actions to be taken by EqualNet in connection with consummation of the
transactions contemplated hereby and all certificates, opinions, instruments,
and other documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to TWG. TWG may waive any
condition specified in this Section 6(a) if it executes a writing so stating at
or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF EQUALNET AND SUB. The obligations of
EqualNet and Sub to consummate the transactions to be performed by it in
connection with the Closing are subject to satisfaction of the following
conditions:
(i) The representations and warranties set forth in Section 4 shall
be true and correct in all material respects at and as of the Closing
Date.
(ii) TWG shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing.
(iii) EqualNet shall have obtained the approval of its shareholders
at the Shareholders Meeting for the matters set forth in Section 5(s).
(iv) There shall be no action, suit, investigation or proceeding
pending, or to EqualNet's knowledge, threatened, against or affecting
EqualNet or any of its Subsidiaries, or any of their respective properties
or rights, or any of their affiliates, associates, officers or directors,
before any court, arbitrator or administrative or governmental body which
(i) seeks
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to restrain, enjoin, prevent the consummation of or otherwise adversely
affect the transactions contemplated by this Agreement or (ii) questions
the validity or legality of any such transaction or seeks to recover
damages or to obtain other relief in connection with any such transaction.
(v) TWG shall have delivered to EqualNet a certificate to the effect
that each of the conditions specified above in Section 6(b)(i)-(ii) is
satisfied in all respects.
(vi) EqualNet shall have received from Vinson & Elkins L.L.P.,
counsel to TWG, an opinion in form and substance as set forth in Exhibit D
attached hereto, addressed to EqualNet and dated as of the Closing Date.
All actions to be taken by TWG in connection with consummation of the
transactions contemplated hereby and all certificates, opinions, instruments,
and other documents required to effect the transactions contemplated hereby will
be reasonably satisfactory in form and substance to EqualNet. EqualNet may waive
any condition specified in this Section 6(b) if it executes a writing so stating
at or prior to the Closing.
7. TERMINATION.
(a) TERMINATION OF AGREEMENT. This Agreement may be terminated only as
provided below:
(i) EqualNet, Sub and TWG may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) Either EqualNet, Sub and TWG may terminate this Agreement by
giving written notice to the other parties prior to the Closing if the
shareholders of EqualNet fail to give any required approval of this
Agreement and the transactions contemplated hereby upon a vote at the
Shareholders meeting or at any adjournment thereof;
(iii) TWG may terminate this Agreement by giving written notice to
EqualNet and Sub at any time prior to the Closing (A) in the event
EqualNet or Sub has breached any representation, warranty or covenant on
their part contained in this Agreement in any material respect, TWG
notified EqualNet or Sub of the breach or occurrence, and the breach or
occurrence has continued without cure for a period until the earlier of 15
days after the notice of breach or the scheduled Closing Date or (B) if
the Closing shall not have occurred on or before February 1, 1998, by
reason of the failure of any condition precedent under Section 6(a)
(unless the failure results primarily from TWG breaching any
representation, warranty or covenant on its part contained in this
Agreement); and
(iv) EqualNet and Sub may terminate this Agreement by giving written
notice to TWG at any time prior to the Closing (A) in the event TWG has
breached any representation, warranty or covenant on its part contained in
this Agreement in any material respect, EqualNet has notified TWG of the
breach, and the breach has continued without cure for a period until the
earlier of 15 days after the notice of breach or the scheduled Closing
Date or
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(B) if the Closing shall not have occurred on or before February 1, 1998,
by reason of the failure of any condition precedent under Section 6(b)
(unless the failure results primarily from EqualNet or Sub breaching any
representation, warranty or covenant on his part contained in this
Agreement).
(b) EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 7(a), all rights and obligations of the Parties hereunder shall
terminate without any Liability of any Party to any other Party (except for any
Liability of any Party for any breach of a covenant or for any knowing and
willful breach of any representation or warranty).
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations
and warranties of the Parties contained in Sections 3 and 4 shall survive the
Closing hereunder.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF TWG. If any representation
or warranty set forth in Section 3 or any covenant or agreement set forth herein
made by EqualNet or Sub is breached, then EqualNet agrees to indemnify TWG from
and against any Adverse Consequences that TWG may suffer through and after the
date of the claim for indemnification to the extent resulting from, arising out
of, relating to, or caused by such breach. In addition, Sub assumes and Equal
and Sub agree to indemnify TWG from and against any and all sales taxes due in
connection with the sale and transfer of the Switches from TWG to the Sub.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF EQUALNET. If TWG breaches
any of its representations and warranties in Section 4 or any covenant or
agreement set forth herein made by TWG, then TWG agree to indemnify EqualNet
from and against any Adverse Consequences EqualNet may suffer through and after
the date of the claim for indemnification to the extent resulting from, arising
out of, relating to, or caused by such breach.
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") that may give
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 8, then the Indemnified Party
shall promptly notify the Indemnifying Party thereof in writing; provided,
no delay on the part of the Indemnified Party in notifying the
Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) The Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of the
former's choice reasonably satisfactory to the Indemnified Party so long
as (1) the Indemnifying Party notifies the Indemnified Party in writing
within 15 days after the Indemnified Party has give notice of the Third
Party Claim that the Indemnifying Party will indemnify the Indemnified
Party from and against the entirety of any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating to,
in the nature of, or caused by the Third Party Claim, (2) the Indemnifying
Party
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<PAGE> 28
provides the Indemnified Party with evidence reasonably acceptable to the
Indemnified Party that the Indemnifying Party will have the financial
resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (3) the Third Party Claim involves
only money damages and does not seek an injunction or other equitable
relief, (4) settlement of, or an adverse judgment with respect to, the
Third Party Claim is not in the good faith judgment of the Indemnified
Party, likely to establish a precedential custom or practice materially
adverse to the continuing business interests of the Indemnified Party, and
(5) the Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 8(d)(ii), (1) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (2) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnifying Party (not to be withheld
unreasonably), and (3) the Indemnifying Party will not consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in Section 8(d)(ii) is or
becomes unsatisfied, however, (1) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, the Indemnifying Party in
connection therewith), (2) the Indemnifying Party will reimburse the
Indemnified Party promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable attorneys' fees and
expenses), and (3) the Indemnifying Party will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third
Party Claim to the fullest extent provided in this Section 8.
(e) CLAIMS FOR INDEMNIFICATION.
(i) Whenever any claim shall arise for indemnification under Section
8(b) or 8(c), the Indemnified Party shall describe such claim in a written
notice ("Notice of Claim") to the Indemnifying Party (and for purposes of
this Section 9(e), a notice given pursuant to Section 9(d) shall
constitute a "Notice of Claim") and, when known, specify the facts
constituting the basis for such claim and the amount or an estimate of the
amount of such claim.
(ii) Following the receipt by the Indemnifying Party of each Notice
of Claim, the Indemnifying Party may give the Indemnified Party written
notice ("Notice of Objection") (1) attaching a copy of such Notice of
Claim, (2) stating that, in the opinion of the Indemnifying Party, the
claim described in such Notice of Claim is invalid (either in whole or in
specified part), (3) giving the reasons for the alleged invalidity, and
(4) stating that, based on such alleged invalidity, the Indemnifying Party
objects to the payment of any portion of the amount claimed pursuant to
such Notice of Claim. If a Notice of Objection alleges that
25
<PAGE> 29
a Notice of Claim is only partially invalid, the Indemnifying Party within
30 days of the receipt of such Notice of Claim, agrees to deliver to the
Indemnified Party that portion of the amount claimed pursuant to such
Notice of Claim as to which no objection is made.
(f) DETERMINATION OF ADVERSE CONSEQUENCES. There shall be taken into
account the time cost of money (using the Applicable Rate as the discount rate)
and appropriate adjustments shall be made for tax consequences and insurance in
determining Adverse Consequences for purposes of this Section 8.
(g) OTHER INDEMNIFICATION PROVISIONS. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of this Agreement.
9. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of TWG
and EqualNet; provided, either Party may make any public disclosure it believes
in good faith is required by applicable law or the requirements of NASDAQ.
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of other Parties.
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be sent by (i) personal delivery
(including courier service), (ii) telecopier during normal business hours to the
number indicated, or (iii) registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below (any communication shall be deemed given upon receipt):
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<PAGE> 30
IF TO EQUALNET OR SUB:
1250 Wood Branch Park Drive
Houston, TX 77079-1212
Attention: General Counsel
Telecopier No.: 281-529-4686
WITH A COPY TO:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attention: Robert F. Gray, Jr.
Telecopier No.: 713-651-5246
IF TO TWG:
5005 Woodway, Suite 350
Houston, Texas 77056
Attention: Mark Willis and Jim Harris
Telecopier No.: 713-626-8333
WITH A COPY TO:
Vinson & Elkins L.L.P.
1001 Fannin, Suite 2300
Houston, Texas 77002-6760
Attention: Rell Tipton
Telecopier No.: 713-615-5553
Any Party may change its telecopier number or its address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Party notice in the manner herein set forth.
(f) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
(g) AMENDMENTS AND WAIVERS. No amendments of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Parties. No waiver by any Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
(h) SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms
27
<PAGE> 31
and provisions hereof or the validity or enforceability of the offending term or
provision in any other situation or in any other jurisdiction.
(i) EXPENSES. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(j) CONSTRUCTION. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties, and no presumption or burden of proof shall arise
favoring or disfavoring either Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance.
(k) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
28
<PAGE> 32
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
EQUALNET HOLDING CORP.
By: /S/ ZANE RUSSELL
Name: ZANE RUSSELL
Title: CEO
EQ ACQUISITION SUB, INC.
By: /S/ MICHAEL HLINAK
Name: MICHAEL HLINAK
Title: COO
WILLIS GROUP, LLC
By: /S/ MARK WILLIS
Name: MARK WILLIS
Title: PRES.
[signature page to Switch Agreement]
29
<PAGE> 1
EXHIBIT 2
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
BETWEEN
EQUALNET HOLDING CORP.,
EQ ACQUISITION SUB, INC.
NETCO ACQUISITION, LLC
AND
NETCO ACQUISITION CORP.
December 2, 1997
<PAGE> 2
TABLE OF CONTENTS
1. Definitions......................................................1
2. The Merger.......................................................6
(a) Basic Transaction..........................................6
(b) Conversion of Shares.......................................6
(c) Consummation of the Merger.................................6
(d) Certificate of Incorporation; Bylaws.......................7
(e) Directors and Officers.....................................7
(f) Exchange of Securities.....................................7
(g) Exchange of Certificates...................................7
(h) Terms of the Preferred Stock..............................8
(i) Tax Effect of Transaction..................................8
(j) The Closing................................................8
(k) Deliveries at the Closing..................................8
3. Representations and Warranties of EqualNet and Sub...............9
(a) Organization, Qualification, and Corporate Power...........9
(b) Authorization of Transaction...............................9
(c) Brokers' Fees..............................................9
(d) No Violation...............................................9
(e) Consents..................................................10
(f) Financial Information.....................................10
(g) Liabilities...............................................10
(h) Litigation................................................10
(i) Compliance with ERISA.....................................11
(j) Taxes; Governmental Charges...............................11
(k) Defaults..................................................11
(l) Compliance with the Law...................................11
(m) Investment Company Act....................................11
(n) Public Utility Holding Company Act........................11
(o) Disclosure................................................11
(p) Structure; Capitalization.................................12
(q) Environmental Matters.....................................13
(r) Intellectual Property and Other Intangible Assets.........13
(s) Insurance Coverage........................................14
4. Representations and Warranties of Netco Acquisition.............14
(a) Corporate Existence.......................................15
(b) Corporate Power and Authorization.........................15
(c) Brokers' Fees. ..........................................15
(d) No Violation. ...........................................15
(e) Consents..................................................15
(f) Financial Information. ..................................16
(g) Compliance with the Law. ................................16
(h) Investment Company Act. .................................16
(i) Public Utility Holding Company Act........................16
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(j) Investment................................................16
(k) Title.....................................................17
5. Pre-Closing Covenants...........................................17
(a) General...................................................17
(b) Inspection................................................18
(c) Notices and Consents......................................18
(d) Notice of Developments....................................18
(e) Ordinary Course...........................................18
(f) Changes in Employment Arrangements........................20
(g) Severance.................................................20
(h) Other Actions.............................................20
(i) Valid Issuance............................................21
(j) Government Regulations....................................21
(k) ERISA.....................................................21
(l) Corporate Existence; Maintenance of Properties............21
(m) Insurance.................................................22
(n) Further Assurances........................................22
(o) Notices of Certain Events.................................22
(p) Board Nominees............................................22
(q) Environmental Laws........................................22
(r) Registration Rights.......................................23
(s) Shareholder Approval; Preparation of Proxy Statements.....23
(t) No Solicitation...........................................23
(u) Listing of Common Stock...................................25
(v) Netco Matters.............................................25
6. Conditions to Obligation to Close...............................26
(a) Conditions to Obligation of Netco Acquisition and Netco...26
(b) Conditions to Obligation of EqualNet......................27
7. Termination.....................................................28
(a) Termination of Agreement..................................28
(b) Effect of Termination.....................................29
8. Remedies for Breaches of This Agreement.........................29
(a) Survival of Representations and Warranties................29
(b) Indemnification Provisions for Benefit of Netco
Acquisition, its members and ADV..........................29
(c) Indemnification Provisions for Benefit of EqualNet........30
(d) Matters Involving Third Parties...........................30
(e) Claims for Indemnification................................31
(f) Determination of Adverse Consequences.....................31
(g) Other Indemnification Provisions..........................31
9. Miscellaneous...................................................32
(a) Press Releases and Public Announcements...................32
(b) No Third-Party Beneficiaries..............................32
(c) Succession and Assignment.................................32
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(d) Counterparts..............................................32
(e) Notices...................................................32
(f) Governing Law.............................................33
(g) Amendments and Waivers....................................33
(h) Severability..............................................33
(i) Expenses..................................................33
(j) Construction..............................................34
(k) Incorporation of Exhibits, Annexes, and Schedules.........34
(l) Warrant...................................................34
(m) Certain Shareholders......................................34
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<PAGE> 5
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
This Agreement of Merger and Plan of Reorganization is entered into as of
December 2, 1997, by and between EqualNet Holding Corp., a Texas corporation
("EqualNet"), EQ Acquisition Sub, Inc., a Delaware corporation and a wholly
owned subsidiary of EqualNet ("Sub"), Netco Acquisition, LLC, a Delaware limited
liability company ("Netco Acquisition"), and Netco Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Netco Acquisition ("Netco").
EqualNet, Sub, Netco Acquisition and Netco are each referred to herein as a
"Party" and collectively as the "PARTIES."
RECITALS
This Agreement contemplates a transaction in which Sub will merge with and
into Netco, with Netco being the surviving corporation (the "Merger").
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
1. DEFINITIONS.
"ACCREDITED INVESTOR" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"ADDITIONAL WORKING CAPITAL LOANS" has the meaning assigned to such
term in the Limited Liability Company Agreement referenced in the
definition of "Working Capital Loans".
"ADV" means Advantage Fund, Ltd., a British Virgin Islands Company.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, amounts paid in settlement, Liabilities,
obligations, taxes, liens, losses, expenses and fees, including court
costs and reasonable attorneys' fees and expenses.
"APPLICABLE RATE" means the corporate base rate or prime rate of
interest publicly announced from time to time by Texas Commerce Bank,
National Association, Houston, Texas plus 5.0% per annum.
"ASSIGNMENT" means the Assignment and Bill of Sale dated effective
as of September 24, 1997, by and among Randy Williams, Trustee of the
Estate of Total National Communications, Inc. and TWG.
"BUSINESS DAY" means any day that is not a Saturday, a Sunday, or a
day that is a banking holiday under United States or Texas Law.
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<PAGE> 6
"CAPITALIZED LEASE OBLIGATIONS" means all rental obligations which,
under GAAP in effect on the day such obligation is incurred, are required
to be capitalized on the books of EqualNet or any Subsidiary, in each case
taken at the amount thereof accounted for as indebtedness (net of interest
expense) in accordance with such principles.
"CLOSING" has the meaning set forth in Section 2(f).
"CLOSING DATE" has the meaning set forth in Section 2(f).
"COMMISSION" shall mean the United States Securities and Exchange
Commission.
"CURRENT INDEBTEDNESS" means any obligation for borrowed money
(including notes payable and drafts accepted representing extensions of
credit whether or not representing obligations for borrowed money) payable
on demand or within a period of one year from the date of creation
thereof; provided, any obligation shall be treated as Funded Indebtedness,
regardless of its term, if such obligation is renewable pursuant to the
terms thereof or of a revolving credit or similar agreement effective for
more than one year after the date of the creation of such obligation, or
may be payable out of the proceeds of a similar obligation pursuant to the
terms of such obligation or of any such agreement. Any obligation secured
by a Lien on, or payable out of the proceeds of production from, property
of EqualNet or any Subsidiary shall be deemed to be Funded or Current
Indebtedness, as the case may be, of EqualNet or such Subsidiary even
though such obligation shall not be assumed by EqualNet or such
Subsidiary.
"DGL" means the General Corporation Law of the State of
Delaware.
"EQUALNET COMMON SHARE" means any share of the common stock of
EqualNet, $.01 par value per share.
"EQUALNET PREFERRED SHARES" means 2,000 shares of EqualNet Preferred
Stock.
"EQUALNET PREFERRED STOCK" means the Series A Convertible Preferred
Stock, $.01 par value per share, $1,000 stated value per share, of
EqualNet referenced in Section 2(d).
"ENVIRONMENTAL LAW" means any judgment, decree, order, law, license,
rule, regulation or private agreement (such as covenants, conditions, and
restrictions), of any federal, state or local executive, legislative,
judicial, regulatory or administrative agency, board, or authority
designed to protect the environment, air, surface, water, groundwater or
soil, control pollution, or regulate the exploration, manufacturing,
processing, distributing, use, storage, transport or handling of Hazardous
Materials, including, without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. ss. 9601 ET SEQ.)
("CERCLA"), the Oil Pollution Act (33 U.S.C. ss. 2701 ET
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<PAGE> 7
SEQ.) ("OPA"), the Resource Conservation and Recovery Act (42 U.S.C. ss.
6901 ET SEQ.) ("RCRA"), and the Federal Water Pollution Control Act (33
U.S.C. ss. 1251 ET SEQ.) ("CWA"), as such laws have been or hereafter may
be amended or supplemented, and any and all analogous present and future
federal, state, and local laws in jurisdictions where EqualNet and its
Subsidiaries do business.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time. Section references to ERISA are to ERISA as
in effect at the date of this Agreement and any subsequent provisions of
ERISA amendatory thereof, supplemental thereto or substituted therefor.
"ERISA AFFILIATE" means each trade or business (whether or not
incorporated) which together with EqualNet or a Subsidiary of EqualNet
would be deemed to be a "single employer" within the meaning of Section
4001 of ERISA immediately following the acquisition.
"FUNDED INDEBTEDNESS" means and include without duplication any
obligation payable more than one year from the date of the creation
thereof (including the current portion of Funded Indebtedness), which
under GAAP is shown on the balance sheet as a liability (including,
without limitation, Capitalized Lease Obligations and excluding reserves
for deferred income taxes and other reserves to the extent that such
reserves do not constitute an obligation).
"GAAP" means generally accepted accounting principles consistently
applied throughout the period or periods in question.
"GOVERNMENTAL AUTHORITY" shall mean any foreign or domestic federal,
state, county, municipal, or other governmental or regulatory authority,
agency, board, body, commission, instrumentality, court, or any political
subdivision thereof.
"GOVERNMENTAL REQUIREMENT" means any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, permit,
certificate, license, authorization, or other direction or requirement
(including but not limited to any of the foregoing which relate to
Environmental Laws, energy regulations and occupational, safety and health
standards or controls) of any Governmental Authority.
"HAZARDOUS MATERIALS" means, collectively, (i) those substances
included within the definition of or identified as "hazardous substances,"
"hazardous materials," "toxic substances," or "solid waste" in or pursuant
to, without limitation, CERCLA, OPA, RCRA, and the Occupational Health and
Safety Act, and in the regulations promulgated pursuant to said laws, all
as amended; (ii) any material, waste or substance which is or contains (A)
petroleum, including crude oil or any fraction thereof, natural gas, or
synthetic gas usable for fuel or any mixture thereof; (B) asbestos; (C)
polychlorinated biphenyls; (D) designated as a "hazardous substance"
pursuant to Section 307 or 311 of the CWA; (E) flammable explosives; or
(F) radioactive materials; and (iii) any such other
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<PAGE> 8
substances, materials and wastes which are or become regulated as
hazardous or toxic under applicable local, state or federal law, or which
are currently classified as hazardous or toxic under local, state or
federal laws or regulations.
"INDEBTEDNESS" means Funded Indebtedness and/or Current
Indebtedness.
"INDEMNIFIED PARTY" has the meaning set forth in Section 8(d).
"INDEMNIFYING PARTY" has the meaning set forth in Section 8(d).
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to
become due).
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means any
material and adverse effect on, or change to, (i) the assets, liabilities,
financial condition, business, or operations of EqualNet and its
Subsidiaries on a consolidated basis, or (ii) the ability of EqualNet and
its Subsidiaries on a consolidated basis to carry out their business as at
the date of this Agreement.
"MCM" means MCM Partners, a Washington limited partnership.
"NASDAQ" means The Nasdaq Stock Market, Inc.
"NETCO" means Netco Acquisition Corp., a Delaware corporation.
"NETCO ACQUISITION" means Netco Acquisition, LLC, a Delaware limited
liability company.
"NETCO ASSETS" means those assets described on Exhibit A.
"NETCO MATERIAL ADVERSE EFFECT" means any material and adverse
effect on, or change to, the assets, liabilities or financial condition of
Netco.
"NOTE AND WARRANT PURCHASE AGREEMENT" means that certain note and
warrant purchase agreement by and among TWG, EqualNet and its Subsidiaries
dated as of October 1, 1997.
"PARTY" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor entity thereto.
"PENSION PLAN" means any multiemployer plan or single-employer plan,
as defined in Section 4001 of ERISA and subject to Title IV of ERISA,
which is maintained after the Acquisition for employees of EqualNet, any
of its Subsidiaries or any ERISA Affiliates.
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"PERMITS" means all licenses, permits, exceptions, franchises,
accreditations, privileges, rights, variances, waivers, approvals and
other authorizations (including, without limitation, those relating to
environmental matters) of, by or from Governmental Authorities necessary
for the conduct of the business of EqualNet and its Subsidiaries
immediately prior to the Closing and as proposed to be conducted by
EqualNet and its Subsidiaries after the Closing.
"PERSON" means and include an individual, a partnership, a joint
venture, a corporation, a limited liability company, a trust, an
unincorporated organization and a government or any department or agency
thereof.
"REGISTRATION AGREEMENT" means the Registration Rights Agreement in
the form of Exhibit A.
"RELEASE" means release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration
into the environment or into or out of any property, including the
movement of Hazardous Materials through or in the air, surface water, or
groundwater.
"REMEDIAL ACTION" means any action required by any federal, state or
judicial body or administration or agency acting under an Environmental
Law to (i) clean up, remove or treat Hazardous Materials in the
environment; (ii) prevent a Release or threat of Release or minimize the
further Release of Hazardous Materials so they do not migrate or endanger
or threaten to endanger public health or the environment; (iii) perform
post-remedial monitoring and care; or (iv) cure a violation of any
Environmental Law.
"REPORTABLE EVENT" means an event described in Section 4043(b) of
ERISA with respect to which the 30-day notice requirement has not been
waived by the PBGC.
"SECURITY INTEREST" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens, (b) liens for taxes not yet due and
payable or for taxes that the taxpayer is contesting in good faith through
appropriate proceedings diligently conducted and with respect to which
adequate reserves have been set aside on the books of the taxpayer, and
(c) purchase money liens and liens securing rental payments under capital
lease arrangements.
"SHARES" means the EqualNet Common Shares and EqualNet Preferred
Shares.
"SINGLE-EMPLOYER PENSION PLAN" means a Pension Plan which is a
"single-employer plan" as defined in Section 4001 of ERISA.
"STOCK PURCHASE AGREEMENT" means the Stock Purchase Agreement dated
of even date herewith between EqualNet and TWG.
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"SUBSIDIARY" means any corporation or similar entity a majority of
the stock of every class of which, except directors' qualifying shares,
shall, at the time as of which any determination is being made, be owned
by EqualNet, either directly or indirectly.
"THIRD PARTY CLAIM" has the meaning set forth in Section 8(d).
"TWG" means Willis Group, LLC, a Texas limited liability company.
"WORKING CAPITAL LOANS" has the meaning attributed to such term in
Article 4 of the Limited Liability Company Agreement of Netco Acquisition,
LLC dated as of October 1, 1997.
2. THE MERGER.
(a) BASIC TRANSACTION. On and subject to the terms and conditions of this
Agreement, at the Closing Sub will be merged with and into Netco with Netco
being the surviving corporation (the "Merger"). As a result of the Merger, the
separate corporate existence of Sub shall cease and Netco shall continue as the
surviving corporation (sometimes referred to herein as the "Surviving
Corporation"), and all the properties, rights, privileges, powers and franchises
of Netco and Sub shall vest in the Surviving Corporation, without any transfer
or assignment having occurred, and all debts, liabilities and duties of Netco
and Sub shall attach to the Surviving Corporation, all in accordance with the
DGCL.
(b) CONVERSION OF SHARES. Upon consummation of the Merger, all of the
outstanding shares of Netco shall be transferred to EqualNet in exchange for:
(i) 2,081,633 shares of EqualNet Common Shares;
(ii) the number of EqualNet Common Shares equal to (A) the sum of
the outstanding principal and accrued interest on all Working Capital
Loans and the Additional Working Capital Loan, if any, existing as of the
Closing Date divided by (B) $1.00; and
(iii) the EqualNet Preferred Shares.
(c) CONSUMMATION OF THE MERGER. As soon as practicable on or after the
Closing, the parties will cause the Merger to be consummated by filing with the
Secretary of State of Delaware a certificate of merger or other documents in
such form as required by, and executed in accordance with, the relevant
provisions of the DGCL. The "Effective Time" of the Merger as that term is used
in this Agreement shall mean such time as the certificate of merger is duly
filed with the Secretary of State of Delaware. The Merger shall have the effects
set forth in the applicable provisions of the DGCL.
(d) CERTIFICATE OF INCORPORATION; BYLAWS. The Certificate of Incorporation
and bylaws of Sub, as in effect immediately prior to the Effective Time, shall
be the Certificate of Incorporation and bylaws of the Surviving Corporation and
thereafter
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shall continue to be its Certificate of Incorporation and bylaws until amended
as provided therein and under the DGCL.
(e) DIRECTORS AND OFFICERS. The directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation at and after
the Effective Time, each to hold office in accordance with the Certificate of
Incorporation and bylaws of the Surviving Corporation, and the officers of Sub
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation at and after the Effective Time, in each case until their respective
successors are duly elected or appointed and qualified.
(f) EXCHANGE OF SECURITIES. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Netco or Sub, all of the shares of Netco capital stock issued and
outstanding immediately prior to the Effective Time shall be transferred by
Netco Acquisition to EqualNet in exchange for the EqualNet Common Shares and the
EqualNet Preferred Shares.
(g) EXCHANGE OF CERTIFICATES.
(i) As soon as practicable after the Effective Time, Netco
Acquisition, as the holder of the Netco capital stock certificate, shall be
entitled upon surrender thereof to EqualNet or its transfer agent to receive in
exchange therefor (i) a certificate or certificates representing the shares
comprising the EqualNet Common Shares into which the shares of Netco capital
stock so surrendered shall have been converted as aforesaid, in such
denominations and registered in such names as such holder may request, and (ii)
a certificate or certificates representing the 2,000 shares comprising the
EqualNet Preferred Shares into which the shares of Netco capital stock so
surrendered shall have been exchanged as aforesaid, in such denominations and
registered in such names as such holder may request. Unless and until such
certificate shall be so surrendered and exchanged, no dividends or other
distributions payable to the holders of EqualNet Common Shares or EqualNet
Preferred Shares, as of any time on or after the Effective Time, shall be paid
on any certificate representing any of the Shares; provided, upon any such
surrender and exchange of such certificate, there shall be paid to the record
holders of the certificates issued and exchanged therefor the amount, without
interest thereon, of dividends and other distributions, if any, that theretofore
were declared and became payable after the Effective Time with respect to the
number of shares of EqualNet Common Shares or EqualNet Preferred Shares issued
to such holder.
(ii) All EqualNet Common Shares and EqualNet Preferred Shares issued
upon the surrender for exchange of the certificate for shares of Netco capital
stock in accordance with the terms hereof shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares. At and after the
Effective Time, except for the transfer there shall be no further registration
of transfers on the stock transfer books of the Surviving Corporation of the
shares of Netco capital stock that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, certificates which prior to the
Effective Time represented shares of Netco capital stock
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<PAGE> 12
are presented to the Surviving Corporation for any reason, they shall be
canceled and exchanged as provided in this Section 2(g).
(iii) If any certificate for any of the EqualNet Common Shares or
EqualNet Preferred Shares is to be issued in a name other than that in which the
certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange shall have paid to EqualNet or its transfer agent any
transfer or other taxes required by reason of the issuance of a certificate for
any of the EqualNet Common Shares or EqualNet Preferred Shares in any name other
than that of the registered holder of the certificate surrendered, or
established to the satisfaction of EqualNet or its transfer agent that such tax
has been paid or is not payable. Netco Acquisition shall designate at the
Closing that number of the EqualNet Common Shares to be registered in each of
TWG's and ADV's name and all of the EqualNet Preferred Shares to be registered
in the name of MCM.
(iv) None of EqualNet, Sub, Netco, the Surviving Corporation or
their transfer agents shall be liable to a holder of any shares of Netco capital
stock for any amount properly paid to a public official pursuant to applicable
property, escheat or similar laws.
(h) TERMS OF THE PREFERRED STOCK. The rights, preferences, terms and
provisions of the EqualNet Preferred Stock shall be as provided in the Statement
of Resolution Establishing the Series A Convertible Preferred Stock, a copy of
which is attached hereto as Exhibit B (the "Series A Statement of Resolution").
(i) TAX EFFECT OF TRANSACTION. It is the intention of the parties that the
transaction contemplated by this Agreement constitute a reorganization within
the meaning of Sections 368(a) of the Code. The parties agree to file all of
their respective tax returns and reports in a manner consistent with such
intention, and to not take any filing position inconsistent with such intention
unless compelled to do so by court order or administrative decree; provided,
each party shall be permitted to disclose all information required pursuant to
Treas. Reg.ss. 1.368(a). Each party agrees to furnish such information and take
such action as may be reasonably requested of the other party in connection with
the foregoing (which action shall not include any change in the commercial terms
of this Agreement and the other transactions incident thereto). In no event,
however, shall EqualNet be required to incur any out-of-pocket expenses in
defending such position or providing such information or taking such action, nor
shall the foregoing constitute a warranty or guaranty that the transactions
contemplated by this Agreement will, in fact, constitute such a reorganization.
(j) THE CLOSING. Subject to the satisfaction of the conditions set forth
herein, the closing of the transaction contemplated by this Agreement (the
"Closing") shall take place on a Business Day mutually agreeable to EqualNet and
Netco Acquisition within ten Business Days following the satisfaction of the
conditions set forth in Section 6(a)(iii) (the "Closing Date").
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<PAGE> 13
(k) DELIVERIES AT THE CLOSING. At the Closing, (i) EqualNet and Sub will
deliver to Netco Acquisition and Netco the various certificates, instruments and
documents referred to in Section 6(a), (ii) Netco Acquisition and Netco will
deliver to EqualNet and Sub the various certificates, instruments and documents
referred to in Section 6(b), and (iii) EqualNet will deliver to Netco
Acquisition the stock certificates for the Shares registered in the name of the
members or creditor of Netco Acquisition as designated by Netco Acquisition
pursuant to Section 2(g).
3. REPRESENTATIONS AND WARRANTIES OF EQUALNET AND SUB. EqualNet and Sub
represent and warrant to Netco Acquisition as of the date of this Agreement and
as of the Closing Date (as though made throughout this Section 3), except as set
forth in the disclosure schedule delivered by EqualNet to Netco Acquisition on
the date hereof and initialed by authorized representatives of EqualNet, Sub and
Netco Acquisition (the "Disclosure Schedule"). The representations and
warranties of EqualNet and Sub set forth in this Section 3 shall inure to the
benefit of and may be relied upon by each member or creditor of Netco
Acquisition that becomes the holder of any of the Shares (such members or
creditor being The Willis Group, LLC, MCM Partners and Advantage Fund, Ltd.).
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. EqualNet and Sub are
corporations duly organized, validly existing, and in good standing under the
laws of the states of Texas and Delaware, respectively. Each of EqualNet and Sub
has the requisite corporate power and authority and all licenses, permits,
qualifications and authorizations necessary to carry on the businesses in which
it is engaged and to own and use the properties owned and used by it except
where the failure to do so would not have a Material Adverse Effect.
(b) AUTHORIZATION OF TRANSACTION. The boards of directors of EqualNet and
Sub have duly approved this Agreement and the transactions contemplated hereby,
and each of EqualNet and the Sub has requisite corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of EqualNet
and Sub, enforceable in accordance with its terms and conditions except to the
extent that enforceability may be limited by bankruptcy, insolvency and other
similar laws affecting the enforcement of creditors' rights generally and except
for the application of general principles of equity. Except as disclosed in
Schedule 3(b) of the Disclosure Schedule, neither EqualNet nor the Sub needs to
give any notice to, make any filing with, or obtain any authorization, consent
or approval of any Governmental Authority or any other Person in order to
consummate the transactions contemplated by this Agreement.
(c) BROKERS' FEES. Neither EqualNet nor Sub has any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which Netco
Acquisition or Netco could become liable or obligated, and neither EqualNet nor
Sub has any Liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this
Agreement.
(d) NO VIOLATION. Except as disclosed in Schedule 3(d) of the Disclosure
Schedule, neither the execution and delivery of this Agreement, the consummation
of
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<PAGE> 14
the transactions provided for herein or contemplated hereby nor the fulfillment
by EqualNet or Sub of the terms hereof will (i) violate any provision of the
Articles of Incorporation or the by-laws of EqualNet or the Certificate of
Incorporation of bylaws of Sub, (ii) result in a default, give rise to any right
of termination, cancellation, acceleration or imposition of any Indebtedness or
Security Interest, or require any consent or approval (other than any consent or
approval that has previously been obtained), under any of the terms, conditions
or provisions of any of the Permits or any note, bond, mortgage, indenture,
loan, distribution agreement, license, agreement, lease or instrument or
obligation to which EqualNet or Sub is a party or by which EqualNet or Sub may
be bound (except where the failure to obtain such consent or approval will not
have a Material Adverse Effect), or (iii) violate any law, judgment, order,
writ, injunction, decree, statute, rule, or regulation of any Governmental
Authority applicable to EqualNet or Sub (except where such violation will not
have a Material Adverse Effect).
(e) CONSENTS. Except as disclosed in Section 3(e) of the Disclosure
Schedule, all consents, approvals, qualifications, orders, or authorizations of,
or filings with, any Governmental Authority, and all consents under any material
contracts, agreements, or instruments by which EqualNet or Sub is bound or to
which it is subject, which are required in connection with EqualNet's or Sub's
valid execution, delivery, or performance of this Agreement and the offer, sale
and delivery of the Shares have been obtained or made.
(f) FINANCIAL INFORMATION.
(i) The audited consolidated balance sheet of EqualNet and its
Subsidiaries as at June 30, 1997, and the related consolidated statements
of operations, shareholders' equity and cash flows for the 12-month period
then ended, including in each case the related schedules and notes,
reported on by Ernst & Young LLP, are complete and correct and fairly
present in all material respects the consolidated financial position of
EqualNet and its Subsidiaries as at the date thereof and the consolidated
results of operations and changes in cash flows for such period, in
accordance with GAAP.
(ii) The unaudited consolidated balance sheet of EqualNet and its
Subsidiaries as at September 30, 1997, and the related unaudited
consolidated statements of operations, shareholders' equity and cash flows
for the three-month period then ended, as included in EqualNet's Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1997,
true copies of which have been previously delivered to Netco Acquisition,
are complete and correct and fairly present in all material respects the
consolidated financial position of EqualNet and its Subsidiaries as at the
date thereof and the consolidated results of operations and changes in
cash flows for such period in conformity with GAAP, subject only to normal
year-end audit adjustments.
(iii) Since September 30, 1997, there has been no Material Adverse
Effect.
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<PAGE> 15
(g) LIABILITIES. Except for liabilities incurred in the ordinary course of
business, none of EqualNet or any of its Subsidiaries has any material
(individually or in the aggregate) liabilities, direct or contingent (including
but not limited to liability with respect to any Plan) except as disclosed or
referred to in Section 3(g) of the Disclosure Schedule or in the financial
statements referred to in Section 3(f). Neither EqualNet nor any of its
Subsidiaries has any Funded Indebtedness other than Indebtedness disclosed in
Section 3(g) of the Disclosure Schedule.
(h) LITIGATION. Except as disclosed in Section 3(h) of the Disclosure
Schedule or as described in any report filed by EqualNet with the Commission and
delivered to Netco, there is no action, suit, or proceeding, or any governmental
investigation or any arbitration, in each case pending or, to the knowledge of
EqualNet, threatened against EqualNet or any of its Subsidiaries or any material
property of any thereof before any court or arbitrator or any governmental or
administrative body, agency or official (i) which challenges the validity of
this Agreement; or (ii) which, if adversely determined, would have a Material
Adverse Effect.
(i) COMPLIANCE WITH ERISA. Each Plan is in substantial compliance with
ERISA, no Plan has an accumulated or waived funding deficiency within the
meaning of Section 412 or Section 418(B) of the Code, no proceedings have been
instituted to terminate any Plan, and except as disclosed in Section 3(i) of the
Disclosure Schedule, none of EqualNet or any of its Subsidiaries nor any ERISA
Affiliate has incurred any material liability to or on account of a Plan under
ERISA, and except as disclosed in Section 3(i) of the Disclosure Schedule, no
condition exists which presents a material risk to EqualNet or any of its
Subsidiaries of incurring such a liability.
(j) TAXES; GOVERNMENTAL CHARGES. Each of EqualNet and its Subsidiaries has
filed all tax returns and reports required to be filed and has paid all taxes,
assessments, fees, and other governmental charges levied upon any of them or
upon any of their respective properties or income which are due and payable,
including interest and penalties, or has provided adequate reserves for the
payment thereof, except where the failure to so file, pay, or reserve would not
have a Material Adverse Effect.
(k) DEFAULTS. Except as disclosed in Section 3(k) of the Disclosure
Schedule, none of EqualNet or any of its Subsidiaries is in default, nor has any
event or circumstance occurred which, but for the passage of time or the giving
of notice, or both, would constitute a default (in any respect which may have a
Material Adverse Effect) under any loan or credit agreement, indenture,
mortgage, deed of trust, security agreement, or other instrument or agreement
evidencing or pertaining to any Indebtedness of EqualNet or any Subsidiary, or
under any material agreement or instrument to which EqualNet or any Subsidiary
is a party or by which EqualNet or any Subsidiary is bound. No default hereunder
has occurred and is continuing.
(l) COMPLIANCE WITH THE LAW. None of EqualNet or any of its Subsidiaries
(i) is in violation of any Governmental Requirement or (ii) has failed to obtain
any license, permit, franchise or other governmental authorization necessary to
the ownership of any of their respective properties or the conduct of their
respective business, which violation or failure would have (in the event that
such a violation or
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<PAGE> 16
failure were asserted by any Person through appropriate action) a Material
Adverse Effect.
(m) INVESTMENT COMPANY ACT. None of EqualNet or any of its Subsidiaries is
an "investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
(n) PUBLIC UTILITY HOLDING COMPANY ACT. None of EqualNet or any of its
Subsidiaries is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," or a "public utility" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
(o) DISCLOSURE. EqualNet's filings made pursuant to the Securities
Exchange Act of 1934, as amended and listed on Section 3(o) of the Disclosure
Schedule hereto as of their respective dates, did not contain any untrue
statement of a material fact and did not omit to state any material fact
necessary in order to make the statements contained therein not misleading in
the light of the circumstances under which they were made.
(p) STRUCTURE; CAPITALIZATION.
(i) Section 3(p) of the Disclosure Schedule contains (except as
noted therein) a complete and correct list of EqualNet's Subsidiaries,
showing, as to each Subsidiary, the correct name thereof, the jurisdiction
of its organization, and the percentage of shares of each class of its
capital stock or similar equity interests outstanding owned by EqualNet
and each other Subsidiary.
(ii) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Section 3(p) of the
Disclosure Schedule as being owned by EqualNet and its Subsidiaries have
been validly issued, are fully paid and nonassessable, and are owned by
EqualNet or such other Subsidiaries free and clear of any Security
Interest (except as otherwise disclosed in Section 3(p) of the Disclosure
Schedule).
(iii) No Subsidiary of EqualNet is a party to, or otherwise subject
to any legal restriction of any agreement (other than this Agreement and
customary limitations imposed by corporate law statutes) restricting the
ability of such Subsidiary to pay dividends out of profits or make any
other similar distributions of profits to EqualNet or any of its
Subsidiaries that owns outstanding shares of capital stock or similar
equity interests of such Subsidiary.
(iv) As of the Closing Date and after giving effect to the
transactions contemplated in this Agreement, the Stock Purchase Agreement
and the Switch Agreement (i) EqualNet's authorized capital stock will
consist of 55,000,000 shares, of which 50,000,000 will be designated
EqualNet Common Shares and 5,000,000 shares are designated as preferred
stock (2,000 of which will be designated as Series A Convertible Preferred
Stock, $.01 par value per share); (ii) 14,269,357 of EqualNet Common
Shares, issued and outstanding and
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<PAGE> 17
5,450,677 shares are or will be reserved for issuance in connection with
EqualNet's outstanding warrants and stock options all of which, when
issued in accordance with the terms of such warrants and stock options,
will be validly issued, fully paid, and non-assessable; (iii) no shares
are owned or held by or for the account of EqualNet or any of its
Subsidiaries (except as disclosed in the financial statements described in
Section 3(f)); (iv) except as disclosed on Section 3(p) of the Disclosure
Schedule", neither EqualNet nor any of its Subsidiaries has outstanding
any stock or other securities convertible into or exchangeable for any
shares of capital stock, any rights to subscribe for or to purchase or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
other character relating to the issuance of, any capital stock, or any
stock or securities convertible into or exchangeable for any capital stock
which have not been waived (other than as contemplated by this Agreement);
and (v) except as disclosed in Section 3(p) of the Disclosure Schedule",
neither EqualNet nor any of its Subsidiaries is subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any
shares of capital stock.
(q) ENVIRONMENTAL MATTERS.
(i) Neither any property of any of EqualNet or any of its
Subsidiaries nor the operations conducted thereon violate any order of any
court or Governmental Authority or Environmental Laws which violations
could reasonably be expected to result in liability in excess of $250,000
or which could reasonably be expected to result in obligations in excess
of $250,000 for required Remedial Action, assuming disclosure to the
applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to the relevant property.
(ii) Without limitation of clause (i) above, no property of any of
EqualNet or any of its Subsidiaries nor the operations currently conducted
thereon or by any prior owner or operator of such property or operation,
are in violation of or subject to any existing, pending or, to the
knowledge of EqualNet, threatened action, suit, investigation, inquiry or
proceeding by or before any court or Governmental Authority or to any
obligations for required Remedial Action under Environmental Laws which
could reasonably be expected to result in liability in excess of $250,000,
or which could reasonably be expected to result in obligations for
required Remedial Action in excess of $250,000 assuming disclosure to the
applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to the relevant property.
(iii) All notices, permits, licenses or similar authorizations, if
any, required to be obtained or filed in connection with the operation or
use of any and all property of EqualNet and its Subsidiaries, including
but not limited to past or present treatment, storage, disposal or release
of Hazardous Materials into the environment, have been duly obtained or
filed, except where the failure to so obtain or file would not have a
Material Adverse Effect.
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<PAGE> 18
(r) INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS.
(i) EqualNet and its Subsidiaries (i) own or have the right to use,
free and clear of all liens, claims, and restrictions, all patents,
trademarks, service marks, trade names, and copyrights, and all
applications, licenses, and rights with respect to the foregoing, and all
trade secrets, including know-how, inventions, designs, processes, works
of authorship, computer programs, and technical data and information
(collectively, "Intellectual Property") used and sufficient for use in the
conduct of its business as now conducted and/or as presently proposed to
be conducted (including, without limitation, the development, manufacture,
operation, and sale of all products and services sold or proposed to be
sold by EqualNet and its Subsidiaries during the next 24 months following
the date of this Agreement) without infringing upon or violating any
right, lien, or claim of others, including, without limitation, former
employees and former employers of its past and present employees, and (ii)
except as described in Section 3(r) of the Disclosure Schedule", is not
obligated or under any liability whatsoever to make any payments by way of
royalties, fees, or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service mark, trade name, copyright,
or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise.
(ii) Any and all Intellectual Property of any kind, relating to the
business of EqualNet and its Subsidiaries currently being developed, or
developed in the future, by any employee of EqualNet and its Subsidiaries
while in the employ of EqualNet and its Subsidiaries shall be the property
solely of EqualNet and its Subsidiaries. EqualNet and its Subsidiaries
have taken security measures to protect the secrecy, confidentiality, and
value of all Intellectual Property, which measures are reasonable and
customary in the industry in which EqualNet and its Subsidiaries operate.
EqualNet and its Subsidiaries' employees and other persons who, either
alone or in concert with others, developed, invented, discovered, derived,
programmed, or designed the Intellectual Property (the "Technical
Employees"), or who have knowledge of or access to information about the
Intellectual Property, have entered into a written agreement with EqualNet
or its Subsidiaries, in form and substance satisfactory to EqualNet's
management (the "Proprietary Information Agreement") regarding ownership
and treatment of the Intellectual Property.
(iii) Except as described in Section 3(r) of the Disclosure
Schedule, none of EqualNet or its Subsidiaries has received any
communications alleging that EqualNet or such Subsidiary has violated, or
by conducting its business as proposed would violate, any of the patents,
trademarks, service marks, trade names, copyrights, or trade secrets or
other proprietary rights of any other Person or entity. None of EqualNet's
and its Subsidiaries' employees is obligated under any contract (including
licenses, covenants, or commitments of any nature) or other agreement, or
subject to any judgment, decree, or order of any court or administrative
agency, that would interfere with the use of such employee's best efforts
to promote the interests of EqualNet or its Subsidiaries or that would
conflict with EqualNet's or its Subsidiaries' business as presently
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<PAGE> 19
conducted and as proposed to be conducted. Neither the execution nor
delivery of this Agreement, nor the carrying on of EqualNet's or its
Subsidiaries' business by the employees of EqualNet and its Subsidiaries,
nor the conduct of EqualNet's or its Subsidiaries' business as proposed to
be conducted, will conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any contract,
covenant, or instrument under which any of such employees is now
obligated. It is not, and will not become, necessary to utilize any
inventions of any of EqualNet's or its Subsidiaries' employees (or people
EqualNet and its Subsidiaries currently intends to hire) made prior to
their employment by EqualNet and its Subsidiaries other than those that
have been assigned to EqualNet and its Subsidiaries pursuant to the
Proprietary Information Agreement signed by such employee.
(s) INSURANCE COVERAGE. The properties of EqualNet and its Subsidiaries
are insured in amounts deemed adequate by EqualNet's management against risks
usually insured against by Persons operating businesses similar to those of
EqualNet and its Subsidiaries in the localities where such properties are
located.
4. REPRESENTATIONS AND WARRANTIES OF NETCO ACQUISITION.
Netco Acquisition represents and warrants to EqualNet that the statements
contained in this Section 4 are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date was substituted for the date of this
Agreement throughout this Section 4).
(a) CORPORATE EXISTENCE. Netco is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware. Netco
Acquisition is a limited liability company duly organized, legally existing, and
in good standing under the laws of the State of Delaware. Netco Acquisition is
duly authorized to conduct business and is in good standing under the laws of
each jurisdiction in which the nature of its business activities or its
ownership or leasing of property makes such qualification necessary.
(b) CORPORATE POWER AND AUTHORIZATION. Netco's board of directors and
stockholders have duly approved this Agreement and the transactions contemplated
hereby. Netco Acquisition's members have duly approved this Agreement and the
transactions contemplated hereby. Netco has the requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby. Netco Acquisition has
the requisite limited liability company power and authority to execute, deliver
and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. All action on Netco's and Netco Acquisition's
part requisite for the due execution, delivery, and performance of this
Agreement has been duly and effectively taken. This Agreement constitutes the
valid and legally binding obligation of Netco Acquisition and Netco, enforceable
in accordance with its terms and conditions except to the extent that
enforceability may be limited by bankruptcy, insolvency and other similar laws
affecting the enforcement of creditor's rights generally and except for the
application of general principles of equity. Neither Netco Acquisition nor Netco
needs
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<PAGE> 20
to give any notice to, make any filing with, or obtain any authorization,
consent or approval of any Governmental Authority or any other Person in order
to consummate the transactions contemplated by this Agreement.
(c) BROKERS' FEES. Neither Netco nor Netco Acquisition has any Liability
or obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement for which
EqualNet or Sub could become liable or obligated, and neither Netco nor Netco
Acquisition has any Liability or obligation to pay any fees or commissions to
any broker, finder, or agent with respect to the transactions contemplated by
this Agreement.
(d) NO VIOLATION. Neither the execution and delivery of this Agreement,
the consummation of the transactions provided for herein or contemplated hereby
nor the fulfillment by Netco or Netco Acquisition of the terms hereof will (i)
violate any provision of the Certificate of Incorporation or bylaws of Netco or
the Certificate of Formation or Limited Liability Company Agreement of Netco
Acquisition, (ii) result in a default, give rise to any right of termination,
cancellation, acceleration or imposition of any Indebtedness or Security
Interest, or (iii) violate any law, judgment, order, writ, injunction, decree,
statute, rule or regulation of any Governmental Authority applicable to Netco
Acquisition or Netco (except where the failure to obtain such consent or
approval will not have a Netco Material Adverse Effect and except such consents,
approvals, permits and licenses as are required to effectively transfer or
required to use or operate the Netco Assets).
(e) CONSENTS. All consents, approvals, qualifications, orders or
authorizations of, or filings with, any Governmental Authority, and all consents
under any material contracts, agreements or instruments by which Netco
Acquisition or Netco is bound or to which either is subject, which are required
in connection with Netco Acquisition and Netco's valid execution, delivery or
performance of this Agreement and the consummation of the transactions
contemplated hereby have been obtained or made, except such consents, approvals,
permits and licenses as are required to effectively transfer or operate the
Netco Assets.
(f) FINANCIAL INFORMATION. Netco holds the Netco Assets. Netco has no
indebtedness for borrowed monies or other Liabilities other than Liabilities
(excluding indebtedness for borrowed monies) described in Schedule 4(f).
(g) COMPLIANCE WITH THE LAW. Neither Netco Acquisition nor Netco (i) is in
violation of any Governmental Requirement, except such consents, approvals,
permits and licenses as are required to effectively transfer or required to use
or operate the Netco Assets or (ii) has failed to obtain any license, permit,
franchise or other governmental authorization necessary to the ownership of any
of their respective properties or the conduct of their respective business,
which violation or failure would have (in the event that such violation or
failure were asserted by any Person through appropriate action) a Netco Material
Adverse Effect; provided, Netco Acquisition makes no representation regarding
whether any violation of any Governmental Requirement has occurred with respect
to the ownership, use or the operation of the Netco Assets by Netco or any other
entity or whether any license, permit, franchise or other governmental
authorization is required for the ownership or operation of the Netco
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<PAGE> 21
Assets (none of which have been obtained nor are intended to be obtained prior
to the Closing by Netco or Netco Acquisition).
(h) INVESTMENT COMPANY ACT. Neither Netco Acquisition nor Netco is an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(i) PUBLIC UTILITY HOLDING COMPANY ACT. Neither Netco Acquisition nor
Netco is a "holding company" or a "subsidiary company" of a "holding company" or
an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
(j) INVESTMENT. As referenced on the signature pages to this Agreement,
TWG, MCM and ADV are joining in this Agreement solely for the purpose of making
the representations, covenants and agreements set forth in this Section 4(j) and
the additional agreements set forth on such signature pages.
(i) The Shares are being acquired by each of Netco Acquisition, TWG,
MCM and ADV for its own account and not with a view to the public resale
or distribution of all or any part thereof in any transaction which would
constitute a "distribution" within the meaning of the Securities Act.
(ii) Each of Netco Acquisition, TWG, MCM and ADV acknowledges that
the Shares have not been registered under the Securities Act.
(iii) Each of Netco Acquisition, TWG, MCM and ADV is an "accredited
investor" within the meaning of Rule 501 under Regulation D promulgated
under the Securities Act, is experienced in evaluating investments in
companies such as EqualNet, has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks
of its investment and has the ability to bear the entire economic risk of
its investment. Each of Netco Acquisition, TWG, MCM and ADV has made its
own evaluation of its investment in the Shares, based upon such
information as is available to it and without reliance upon EqualNet or
any other person or entity, and each of Netco Acquisition, TWG, MCM and
ADV agrees that neither EqualNet nor any other person or entity has any
obligation to furnish any additional information to Netco Acquisition
except as expressly set forth herein.
(d) Each of Netco Acquisition, TWG, MCM and ADV acknowledges that
the Shares may not be sold, transferred, pledged, hypothecated, or
otherwise disposed of without registration under the Securities Act or an
exemption therefrom, and that in the absence of an effective registration
statement covering the Shares or an available exemption from registration
under the Securities Act, the Shares must be held indefinitely.
(e) Each of Netco Acquisition, TWG, MCM and ADV agrees that the
Shares shall bear legends in substantially the following form:
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"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE TRANSFERRED,
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT. ANY SALE PURSUANT TO CLAUSE (ii) OF THE
PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH
EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH
SALE."
(k) TITLE. Netco owns the Netco Assets free and clear of any Security
Interest except for any Security Interest in favor of or created by EqualNet or
any Affiliate of EqualNet and any prior assignment, transfer or lease of any of
the Netco Assets to or by EqualNet or any Affiliate to EqualNet.
5. PRE-CLOSING COVENANTS.
The Parties agree as follows with respect to the period between the
execution of this Agreement (or such earlier time as may be indicated) and the
earlier to occur of the Closing or the termination of this Agreement pursuant to
Section 7:
(a) GENERAL. Each of the Parties will use commercially reasonable efforts
to take all actions and to do all things necessary, proper or advisable in order
to consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 6).
(b) INSPECTION. EqualNet and Netco Acquisition each agree to permit the
other, and its officers, directors, employees, accountants, counsel and other
authorized representatives, during normal business hours, to inspect its records
and to consult with its officers, employees, attorneys, and agents for the
purpose of determining the accuracy of the representations and warranties
hereinabove made and the compliance with covenants contained in this Agreement;
provided, however, that any non-public information obtained regarding EqualNet
shall be protected and treated as strictly confidential. EqualNet and Netco
Acquisition each agrees that it and its officers and representatives shall hold
all data and information obtained with respect to the other party hereto in
confidence and each further agrees that it will not use such data or information
or disclose the same to others, except to the extent such data or information
either are, or become, published or a matter of public knowledge.
(c) NOTICES AND CONSENTS. To the extent, if any, noted in Section 3(c) of
the Disclosure Schedule as being required, EqualNet will give any notices to
third parties, and will use and cause EqualNet to use all reasonable efforts to
obtain the required consent of its shareholders and any third-parties.
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(d) NOTICE OF DEVELOPMENTS. Each Party will give prompt written notice to
the other of any material adverse development causing a breach of or
constituting an intervening event with respect to any of its own representations
and warranties in Sections 3 and 4. No disclosure by any Party pursuant to this
Section 5(c), however, shall be deemed to amend or supplement the Disclosure
Schedule or to prevent or cure any misrepresentation, breach of warranty, or
breach of covenant.
(e) ORDINARY COURSE. Except as set forth in Schedule 5(e) hereof and
except for transactions to which Netco Acquisition and Netco or their affiliates
are a party or as otherwise specifically contemplated by the terms of this
Agreement, EqualNet shall and shall cause its Subsidiaries to carry on their
respective businesses in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted and, to the extent consistent therewith,
use commercially reasonable efforts to preserve intact their current officers
and employees and preserve their relationships with customers, suppliers,
licensors, licensees, distributors and others having business dealings with
them, in each case consistent with past practice, to the end that their goodwill
and ongoing businesses shall be unimpaired to the fullest extent possible at the
Closing Date. Without limiting the generality of the foregoing, and except as
otherwise expressly contemplated by this Agreement and the Schedules hereto,
EqualNet shall not, and shall not permit any of its Subsidiaries to:
(i) (A) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, other than
dividends and distributions by any direct or indirect wholly owned
Subsidiary of EqualNet to EqualNet or to another direct or indirect wholly
owned Subsidiary of EqualNet, (B) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital
stock or (C) purchase, redeem or otherwise acquire any shares of capital
stock of EqualNet or any of its Subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or
other securities other than in connection with the exercise of outstanding
stock options and warrants and satisfaction of withholding obligations
under outstanding stock options and restricted stock;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares
of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities other than, in the
case of EqualNet, the issuance of shares of Common Stock upon the exercise
of stock options and warrants outstanding on the date of this Agreement in
accordance with their current terms;
(iii) amend its Articles of Incorporation, By-laws or other
comparable charter or organizational document other than as contemplated
in the Stock Purchase Agreement;
(iv) acquire or agree to acquire (A) by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of, or
by any other manner, any business or any corporation, partnership,
association, joint venture, limited liability company or other entity or
division thereof or (B) any assets
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<PAGE> 24
that, in each case, would be material, individually or in the aggregate,
to EqualNet and its Subsidiaries taken as a whole, except purchases in the
ordinary course of business consistent with past practice;
(v) sell, lease, mortgage, pledge, grant a Security Interest in or
otherwise encumber or dispose of any of its properties or assets, except
(A) sales or leases in the ordinary course of business consistent with
past practice and (B) other immaterial transactions not in excess of
$250,000 in the aggregate;
(vi) (A) incur indebtedness for borrowed money or guarantee any such
indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of EqualNet or any
of its Subsidiaries, guarantee any debt securities of another Person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another Person or enter into any arrangement having
the economic effect of any of the foregoing, except for working capital
borrowings under currently existing revolving credit facilities incurred
in the ordinary course of business, or (B) make any loans, advances or
capital contributions to, or investments in, any other Person that would
be material, individually or in the aggregate, to EqualNet and its
Subsidiaries taken as a whole, other than by EqualNet to any direct or
indirect wholly owned Subsidiary of EqualNet;
(vii) make or incur any new capital expenditure, which, singly or in
the aggregate with all other capital expenditures, would exceed $250,000;
(viii) make any material election relating to Taxes or settle or
compromise any material tax liability;
(ix) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of EqualNet included in the Commission Documents or
incurred in the ordinary course of business consistent with past practice;
(x) waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which EqualNet or any
of its Subsidiaries is a party;
(xi) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
(xii) enter into any new collective bargaining agreement;
(xiii) change any material accounting principle used by it, except
as required by regulations promulgated by the Commission or as mandated by
the
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American Institute of Certified Public Accountants or similar accounting
boards or bodies;
(xiv) settle or compromise any litigation (whether or not commenced
prior to the date of this Agreement) other than settlements or
compromises: (A) of litigation where the amount paid in settlement or
compromise does not exceed $100,000, or (B) in consultation and
cooperation with Netco, and, with respect to any such settlement, with the
prior written consent of Netco Acquisition, which consent shall not be
unreasonably withheld;
(xv) except for those contracts and agreements entered into in the
ordinary course of business or with the prior written consent of Netco
Acquisition, which consent shall not be unreasonably withheld or delayed,
enter into any joint venture or partnership contract or agreement; or
(xvi) authorize any of, or commit or agree to take any of, the
foregoing actions.
(f) CHANGES IN EMPLOYMENT ARRANGEMENTS. Neither EqualNet nor any of its
Subsidiaries shall adopt or amend (except as may be required by law) any bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement, trust, fund
or other arrangement for the benefit or welfare of any employee, director or
former director or employee, increase the compensation or fringe benefits of any
officer of EqualNet or any of its Subsidiaries, or, except as provided in an
existing benefit plan or in the ordinary course of business consistent with past
practice, increase the compensation or fringe benefits of any employee or former
employee or pay any benefit not required by any existing plan, arrangement or
agreement.
(g) SEVERANCE. Neither EqualNet nor any of its Subsidiaries shall grant
any new or modified severance or termination arrangement or increase or
accelerate any benefits payable under its severance or termination pay policies
in effect on the date hereof.
(h) OTHER ACTIONS. EqualNet shall not, and shall not permit any of its
Subsidiaries to, take any action that would, or that could reasonably be
expected to, result (i) in any of the representations and warranties of EqualNet
set forth in this Agreement becoming untrue or (ii) in any of the covenants
contained in this Agreement becoming unperformable. Pending the Closing,
EqualNet will promptly advise Netco Acquisition and Netco of any action or event
of which it becomes aware which has the effect of making incorrect any of such
representations or warranties or which has the effect of rendering unperformable
any of such covenants.
(i) VALID ISSUANCE. EqualNet covenants that the Shares to be issued by
EqualNet pursuant to Section 2(b) will, upon the effectiveness of the Merger in
accordance with the terms hereof and upon delivery of certificates representing
such Shares, be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issuance thereof.
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(j) GOVERNMENT REGULATIONS. EqualNet covenants that it will comply, and
will cause each of its Subsidiaries to comply, with all applicable governmental
restrictions and regulations, the failure to comply with which would have a
material adverse effect on the business or financial condition of EqualNet and
its Subsidiaries taken as a whole, and obtain and maintain in good standing all
licenses, permits and approvals from any and all governments, governmental
commissions, boards or agencies of jurisdictions in which it or any of its
Subsidiaries carries on business required in respect of the operations of
EqualNet or any of its Subsidiaries, the failure to comply with which would have
a Material Adverse Effect.
(k) ERISA. Promptly (and in any event within 30 days) after EqualNet or
any of its Subsidiaries knows or has reason to know that a Reportable Event with
respect to any Pension Plan has occurred, that any Pension Plan is or may be
terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA or that EqualNet or any of its Subsidiaries will or may incur any
liability to or on account of a Pension Plan under Sections 4062, 4063, 4064,
4201 or 4204 of ERISA, EqualNet will deliver to Netco Acquisition and Netco a
certificate of the chief financial officer of EqualNet setting forth information
as to such occurrence and what action, if any, EqualNet is required or proposes
to take with respect thereto, together with any notices concerning such
occurrences which are (a) required to be filed by EqualNet or the plan
administrator of any such Pension Plan controlled by EqualNet or its
Subsidiaries, with the PBGC or (b) received by EqualNet or its Subsidiaries from
any plan administrator of a multiemployer or other Pension Plan not under their
control. EqualNet shall furnish to Netco Acquisition and Netco a copy of each
annual report (Form 5500 Series) of any Pension Plan received or prepared by
EqualNet or any of its Subsidiaries. Each annual report and any notice required
to be delivered hereunder shall be delivered no later than 10 days after the
later of the date such report or notice is filed with the Internal Revenue
Service or the PBGC or the date such report or notice is received by EqualNet or
any of its Subsidiaries, as the case may be.
(l) CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. EqualNet covenants
that it (i) will do or cause to be done all things reasonably necessary to
preserve and keep in full force and effect the corporate existence and material
rights of EqualNet and all of its Subsidiaries, (ii) will cause its properties
and the properties of its Subsidiaries used or useful in the conduct of their
respective businesses to be maintained and kept in good condition, repair and
working order and will use commercially reasonable efforts to cause to be made
all necessary repairs, renewals, replacements, betterments and improvements
thereto, and (iii) will, and will cause each of its Subsidiaries to, qualify and
remain qualified to conduct business in each jurisdiction where the nature of
the business or the ownership of property by EqualNet or such Subsidiary may
require such qualification and where the failure to so qualify would have a
Material Adverse Effect.
(m) INSURANCE. EqualNet covenants that it will maintain, and will cause
each of its Subsidiaries to maintain, with financially sound and reputable
insurance companies, funds or underwriters, insurance for EqualNet and its
Subsidiaries of the kinds, covering the risks and in the relative proportionate
amounts usually carried by companies conducting business activities similar to
those of EqualNet and its Subsidiaries.
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<PAGE> 27
(n) FURTHER ASSURANCES. EqualNet covenants that it shall cooperate with
Netco Acquisition and Netco and execute such further instruments and documents
as Netco Acquisition and Netco shall reasonably request to carry out to the
satisfaction of Netco Acquisition and Netco the transactions contemplated by
this Agreement.
(o) NOTICES OF CERTAIN EVENTS. EqualNet shall promptly give notice to
Netco Acquisition and Netco (i) of any default or event of default that has not
been cured within any applicable grace period under any (y) Indebtedness of
EqualNet or any of its Subsidiaries, or (z) contractual obligation of EqualNet
or any of its Subsidiaries or (ii) of any pending or threatened litigation,
investigation or proceeding to which EqualNet or any of its Subsidiaries is or
is threatened to be a party and of which EqualNet has been given notice;
provided that any such default as specified in clause (z) above, litigation,
investigation or proceeding would have a Material Adverse Effect. Any notice
delivered pursuant to this Section 5(o) shall be accompanied by an officer's
certificate specifying the details of the occurrence referred to therein and
stating what action EqualNet proposes to take with respect thereto.
(p) BOARD NOMINEES. Effective as of the Closing, in addition to the
covenant in Section 5.J of the Stock Purchase Agreement, the directors of
EqualNet shall elect one new director who shall have been nominated by MCM
Partners, a Washington limited partnership, subject to the directors of EqualNet
approving the individual so nominated by MCM Partners, and if such approval is
not given, then MCM Partners shall have the right to nominate additional
individuals to serve as such director until such approval is obtained.
EqualNet's board of directors shall not unreasonably withhold or delay the
approval of the individual(s) so nominated by MCM Partners. Such director shall
serve a term expiring at the next shareholders meeting of EqualNet applicable to
the class to which such director is elected.
(q) ENVIRONMENTAL LAWS. EqualNet and its Subsidiaries shall comply with
all applicable Environmental Laws the failure to comply with which would have a
Material Adverse Effect. If EqualNet or any Subsidiary shall receive written
notice that there exists a violation of Environmental Law with respect to its
operations or any real property owned, formerly owned, used, or leased thereby,
which violation could have a Material Adverse Effect, EqualNet shall immediately
notify in writing Netco Acquisition and Netco. Furthermore, if EqualNet or any
Subsidiary shall receive written notice that there exists a violation of
Environmental Law with respect to its operations or any real property owned,
formerly owned, used or leased thereby, which violation could have a Material
Adverse Effect, EqualNet shall within the time period permitted by the
applicable governmental authority (unless otherwise contested by EqualNet in
good faith) remove or remedy such violation in accordance with all applicable
Environmental Laws unless the Board of Directors of EqualNet makes a good faith
determination that it would be in the best interest of EqualNet to delay the
remedy of such violation, so long as no Material Adverse Effect is suffered by
EqualNet or its Subsidiaries during such delay.
(r) REGISTRATION RIGHTS. At the Closing EqualNet will grant to MCM and ADV
certain registration rights pursuant to the Registration Agreement.
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(s) SHAREHOLDER APPROVAL; PREPARATION OF PROXY STATEMENTS.
(i) EqualNet shall, as soon as practicable following the execution
and delivery of this Agreement duly call, give notice of, convene and hold
a meeting of EqualNet's shareholders (the "Shareholders Meeting") for the
following purposes: (i) approving this Agreement, the issuance of the
Shares and the transactions contemplated hereby, (ii) ratifying the Note
and Warrant Purchase Agreement and the transactions contemplated thereby,
(iii) approving the Stock Purchase Agreement and the issuance of EqualNet
Common Shares thereunder, (iv) approving the Switch Agreement, (v)
approving an amendment to the Company's Articles of Incorporation to
increase the aggregate number of authorized EqualNet Common Shares to
55,000,000, and (vi) approving the other related transactions. EqualNet
will, through its officers and its Board of Directors, unanimously
recommend to its shareholders the approval and adoption of the foregoing
transactions.
(ii) Promptly following the date of this Agreement, EqualNet shall
prepare and file with the Commission a proxy statement relating to the
Shareholders Meeting (such proxy statement as amended or supplemented from
time to time, the "Proxy Statement"). Netco Acquisition and Netco shall
have the right to review and approve the Proxy Statement prior to EqualNet
filing the Proxy Statement with the Commission, which approval shall not
be unreasonably withheld. EqualNet will use commercially reasonable
efforts to cause the Proxy Statement to be mailed to EqualNet's
shareholders as promptly as practicable. EqualNet will notify Netco
Acquisition and Netco promptly of the receipt of any written or oral
comments from the Commission or its staff and of any request by the
Commission or its staff for amendments or supplements to the Proxy
Statement or for additional information and will supply Netco Acquisition
and Netco with copies of all correspondence between EqualNet or any of its
representatives, on the one hand, and the Commission or its staff, on the
other hand, with respect to the Proxy Statement.
(iii) EqualNet will cause its transfer agent to make stock transfer
records relating to EqualNet available to the extent reasonably necessary
to effectuate the intent of this Agreement.
(t) NO SOLICITATION. (i) EqualNet shall not, nor shall it permit any of
its Subsidiaries to, nor shall it authorize or permit any officer, director or
employee of EqualNet or any investment banker, attorney or other advisor, agent
or representative of EqualNet or any of its Subsidiaries to, directly or
indirectly, (1) solicit, initiate or encourage the submission of any takeover
proposal, (2) enter into any agreement (other than confidentiality and
standstill agreements in accordance with the immediately following proviso) with
respect to any takeover proposal, or (3) participate in any discussions or
negotiations regarding, or furnish to any Person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may be reasonably be expected to lead to, any
takeover proposal; provided, in the case of this clause (3), that prior to the
vote of shareholders of EqualNet for approval of the matters referred to in
Section 5(s) (and not thereafter if such matters are approved thereby) to the
extent required by the fiduciary obligations
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of the Board of Directors of EqualNet, determined in good faith by a majority of
the disinterested members thereof based on the advice of outside counsel,
EqualNet, in response to an unsolicited superior proposal and a request for
information pursuant thereto, may furnish information to any person or "group"
within the meaning of Section 13(d)(3) of the Exchange Act pursuant to a
confidentiality agreement. Without limiting the foregoing, it is understood that
any violation of the restrictions set forth in the preceding sentence by any
officer, director or employee of EqualNet or any of its Subsidiaries or any
investment banker, attorney or other advisor, agent or representative of
EqualNet, whether or not such Person is purporting to act on behalf of EqualNet
or otherwise, shall be deemed to be a material breach of this Agreement by
EqualNet. For purposes of this Section 5(t), "takeover proposal" means (x) any
proposal, other than a proposal by TWG or any of its Affiliates, for a merger or
other business combination involving EqualNet, (y) any proposal or offer, other
than a proposal or offer by TWG or any of its Affiliates, to acquire from
EqualNet or any of its Affiliates in any manner, directly or indirectly, an
equity interest in EqualNet or any Subsidiary, any voting securities of EqualNet
or any Subsidiary or a material amount of the assets of EqualNet and its
Subsidiaries, taken as a whole, or (z) any proposal or offer, other than a
proposal or offer by TWG or any of its Affiliates, to acquire from the
shareholders of EqualNet by tender offer, exchange offer or otherwise more than
20% of the outstanding shares of Common Shares.
(ii) Neither the Board of Directors of EqualNet nor any committee
thereof shall, except in connection with the termination of this Agreement
pursuant to Section 7, (1) withdraw or modify, or propose to withdraw or modify,
in a manner adverse to Netco Acquisition or Netco the approval or recommendation
by the Board of Directors of EqualNet or any such committee thereof of this
Agreement or take any action having such effect; provided, a statement by the
Board of Directors of EqualNet to its shareholders as contemplated by Rule
14e-2(a) of the Exchange Act following Netco Acquisition's and Netco's receipt
of a Notice of Superior Proposal (defined below) shall not be deemed to
constitute a withdrawal or modification of its recommendation of this Agreement,
or (2) approve or recommend, or propose to approve or recommend, any takeover
proposal. Notwithstanding the foregoing, in the event that the Board of
Directors of EqualNet receives a takeover proposal that, in the exercise of its
fiduciary obligations (as determined in good faith by a majority of the
disinterested members thereof based on the advice of outside counsel), it
determines to be a superior proposal, the Board of Directors of EqualNet may
withdraw or modify its approval or recommendation of this Agreement and may
(subject to the following sentence) terminate this Agreement, in each case at
any time after midnight on the fifth Business Day following Netco Acquisition's
and Netco's receipt of written notice (a "Notice of Superior Proposal") advising
Netco Acquisition and Netco that the Board of Directors of EqualNet has received
a takeover proposal that it has determined to be a superior proposal, specifying
the material terms and conditions of such superior proposal (including the
proposed financing for such proposal and a copy of any documents conveying such
proposal) and identifying the Person making such superior proposal. EqualNet may
terminate this Agreement pursuant to the preceding sentence only if the
shareholders of EqualNet have not yet voted upon the matters set forth in
Section 5(s). Any of the foregoing to the contrary notwithstanding, EqualNet may
engage in discussions with any Person or group that has made an unsolicited
takeover proposal for the limited purpose of determining whether such proposal
is a superior
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<PAGE> 30
proposal. Nothing contained herein shall prohibit EqualNet from taking and
disclosing to its shareholders a position contemplated by Rule 14e-2(a)
following Netco Acquisition and Netco's receipt of a Notice of Superior
Proposal.
(iii) For purposes of this Section 5(t), a "superior proposal" means
any BONA FIDE takeover proposal to acquire, directly or indirectly, for
consideration consisting of cash, securities or a combination thereof, all of
the EqualNet Common Shares then outstanding or all or substantially all of the
assets of EqualNet and its Subsidiaries, and otherwise on terms that a majority
of the disinterested members of the Board of Directors of EqualNet determines in
its good faith reasonable judgment (based on the advice of a financial advisor
of nationally recognized reputation, a copy of which shall be provided to Netco
Acquisition and Netco) to be more favorable to EqualNet's shareholders than the
transactions contemplated by this Agreement, the Stock Purchase Agreement and
the Switch Agreement.
(iv) In addition to the obligations of EqualNet set forth in clause
(ii) above, EqualNet shall promptly advise Netco Acquisition and Netco orally
and in writing of any takeover proposal or any inquiry with respect to or which
could lead to any takeover proposal, the material terms and conditions of such
inquiry or takeover proposal (including the financing for such proposal and a
copy of such documents conveying such proposal), and the identity of the Person
making any such takeover proposal or inquiry.
(u) LISTING OF COMMON STOCK. EqualNet warrants to and agrees with Netco
Acquisition that it will use commercially reasonable efforts to cause the
EqualNet Common Shares to be issued pursuant to the Merger or upon conversion of
the EqualNet Preferred Shares to be approved for listing, subject to official
notice of issuance, on the NASDAQ National Market as of the Closing Date.
(v) NETCO MATTERS. Netco Acquisition shall not permit Netco to:
(i) amend its Certificate of Incorporation or bylaws;
(ii) declare, set aside or pay any dividends on, or make any other
distributions in respect of any of Netco's capital stock, or split, combine or
reclassify any of Netco's capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for Netco's
capital stock;
(iii) issue, sell, pledge or otherwise encumber any shares of
Netco's capital stock;
(iv) Netco shall not acquire any assets other than the Netco Assets;
(v) Netco shall not incur any Liabilities other than in connection
with the transfer, operation or use of the Netco Assets;
(vi) Netco shall not sell, lease, mortgage, pledge, grant a Security
Interest in or otherwise encumber or dispose of any of the Netco Assets, other
than any lease or assignment of the Netco Assets to EqualNet or any Affiliate of
EqualNet;
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(vii) Netco shall not incur any indebtedness for borrowed money or
guarantee any indebtedness of another Person;
(viii) Netco shall not make or incur any capital expenditure other
than in connection with the maintenance, operation or use of the Netco Assets;
(ix) Netco shall not adopt a plan of complete or partial liquidation
or take any other action that would prevent it from consummating the
transactions contemplated by this Agreement; and
(x) Netco shall not engage any employees.
6. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF NETCO ACQUISITION AND NETCO. The
obligation of Netco Acquisition and Netco to consummate the transactions to be
performed by them in connection with the Closing is subject to satisfaction of
the following conditions:
(i) The representations and warranties set forth in Section 3 shall
be true and correct in all material respects at and as of the Closing
Date.
(ii) EqualNet and Sub shall have performed and complied with all of
their respective covenants hereunder in all material respects through the
Closing.
(iii) EqualNet shall have procured all of the consents of third
parties required in connection with the consummation of the transactions
contemplated by this Agreement, and EqualNet shall have procured the
approval of its shareholders at the Shareholders Meeting for the matters
set forth in Section 5(r).
(iv) The closing under that certain Stock Purchase Agreement dated
November 21, 1997, between EqualNet and TWG, and the closing under that
certain Switch Agreement dated November 21, 1997, between TWG, EqualNet
and Sub, shall have occurred or be occurring simultaneous with the Closing
hereunder.
(v) The offering and sale of the Shares under this Agreement shall
have complied with all applicable requirements of federal and state
securities laws.
(vi) Subsequent to the date hereof, no legislation, order, rule,
ruling or regulation shall have been enacted or made by or on behalf of
any governmental body, department or agency of the United States, nor
shall any legislation have been introduced and favorably reported for
passage to either House of Congress by any committee of either such House
to which such legislation has been referred for consideration, nor shall
any decision of any court of competent jurisdiction within the United
States have been rendered which would materially
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and adversely affect an investment in the Shares. There shall be no
action, suit, investigation or proceeding pending, or to EqualNet's or
Netco Acquisition's knowledge, threatened, against or affecting EqualNet
or any of its Subsidiaries or Netco Acquisition or any of its members, or
any of their respective properties or rights, or any of their affiliates,
associates, officers or directors, before any court, arbitrator or
administrative or governmental body which (i) seeks to restrain, enjoin,
prevent the consummation of or otherwise adversely affect the transactions
contemplated by this Agreement or (ii) questions the validity or legality
of any such transaction or seeks to recover damages or to obtain other
relief in connection with any such transaction, and to EqualNet's or Netco
Acquisition's knowledge there shall be no valid basis for any such action,
proceeding or investigation.
(vii) EqualNet shall have duly received all authorizations,
consents, approvals, licenses, franchises, permits and certificates by or
of all federal, state and local governmental authorities, by any third
parties pursuant to the terms of any agreement to which EqualNet is a
party or by the National Association of Securities Dealers, Inc. or any
other body or agency with jurisdiction, by contract or otherwise, over
EqualNet, necessary for the issuance of the Shares by EqualNet and the
consummation of the transactions contemplated hereby, and all thereof
shall be in full force and effect at the time of the Closing.
(viii) The nominee designated by MCM Partners pursuant to Section
5(p) shall have been appointed to EqualNet's Board of Directors effective
upon the Closing.
(ix) There shall not have occurred any Material Adverse Change with
respect to EqualNet and its Subsidiaries since the date hereof.
(x) EqualNet shall have delivered to Netco Acquisition and Netco a
certificate to the effect that each of the conditions specified above in
Section 6(a)(i)-(ix) is satisfied in all respects.
(xi) Netco Acquisition and Netco shall have received from Fulbright
& Jaworski, L.L.P., counsel to EqualNet and Sub, an opinion in form and
substance as set forth in Exhibit C attached hereto, addressed to Netco
Acquisition, and dated as of Closing Date.
(xii) MCM and ADV shall have been delivered the Registration
Agreement executed by EqualNet.
(xiii) The EqualNet Common Shares issued pursuant to the Merger or
upon the conversion of the EqualNet Preferred Shares shall have been
approved for listing, subject to official notice of issuance, on the
NASDAQ National Market as of the Closing Date.
All actions to be taken by EqualNet in connection with consummation of the
transactions contemplated hereby and all certificates, opinions, instruments,
and other documents required to effect the transactions contemplated hereby will
be reasonably
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<PAGE> 33
satisfactory in form and substance to Netco Acquisition and Netco. Netco
Acquisition and Netco may waive any condition specified in this Section 6(a) if
it executes a writing so stating at or prior to the Closing.
(b) CONDITIONS TO OBLIGATION OF EQUALNET. The obligations of EqualNet and
Sub to consummate the transactions to be performed by it in connection with the
Closing are subject to satisfaction of the following conditions:
(i) The representations and warranties set forth in Section 4 shall
be true and correct in all material respects at and as of the Closing
Date.
(ii) Netco Acquisition and Netco shall have performed and complied
with all of its covenants hereunder in all material respects through the
Closing.
(iii) EqualNet shall have obtained the approval of its shareholders
at the Shareholders Meeting for the matters set forth in Section 5(s).
(iv) The closing under that certain Stock Purchase Agreement dated
November 21, 1997, between EqualNet and TWG, and the closing under that
certain Switch Agreement dated November 21, 1997, between EQ Acquisition
Sub, Inc., EqualNet, TWG and Sub, shall have occurred or be occurring
simultaneous with the Closing hereunder.
(v) There shall be no action, suit, investigation or proceeding
pending, or to EqualNet's or Netco Acquisition's knowledge, threatened,
against or affecting EqualNet or any of its Subsidiaries or Netco
Acquisition or any of its members, or any of their respective properties
or rights, or any of their affiliates, associates, officers or directors,
before any court, arbitrator or administrative or governmental body which
(i) seeks to restrain, enjoin, prevent the consummation of or otherwise
adversely affect the transactions contemplated by this Agreement or (ii)
questions the validity or legality of any such transaction or seeks to
recover damages or to obtain other relief in connection with any such
transaction.
(vi) Netco Acquisition and Netco shall have delivered to EqualNet a
certificate to the effect that each of the conditions specified above in
Section 6(b)(i)-(ii) is satisfied in all respects.
(vii) EqualNet shall have received from Vinson & Elkins L.L.P.,
counsel to Netco Acquisition and Netco, an opinion in form and substance
as set forth in Exhibit D attached hereto, addressed to EqualNet and dated
as of the Closing Date.
(viii) Netco Acquisition and Netco shall have executed and delivered
to EqualNet the Merger Agreement.
All actions to be taken by Netco Acquisition and Netco in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated
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<PAGE> 34
hereby will be reasonably satisfactory in form and substance to EqualNet.
EqualNet may waive any condition specified in this Section 6(b) if it executes a
writing so stating at or prior to the Closing.
7. TERMINATION.
(a) TERMINATION OF AGREEMENT. This Agreement may be terminated only as
provided below:
(i) EqualNet, Sub, Netco Acquisition and Netco may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(ii) Either EqualNet, Sub, Netco Acquisition or Netco may terminate
this Agreement by giving written notice to the other parties prior to the
Closing if the shareholders of EqualNet fail to give any required approval
of this Agreement and the transactions contemplated hereby upon a vote at
the Shareholders Meeting or at any adjournment thereof;
(iii) Netco Acquisition and Netco may terminate this Agreement by
giving written notice to EqualNet and Sub at any time prior to the Closing
(A) in the event EqualNet or Sub has breached any representation, warranty
or covenant on their part contained in this Agreement in any material
respect, Netco Acquisition and Netco have notified EqualNet or Sub of the
breach or occurrence, and the breach or occurrence has continued without
cure for a period until the earlier of 15 days after the notice of breach
or the scheduled Closing Date or (B) if the Closing shall not have
occurred on or before February 1, 1998, by reason of the failure of any
condition precedent under Section 6(a) (unless the failure results
primarily from Netco Acquisition or Netco breaching any representation,
warranty or covenant on its part contained in this Agreement); and
(iv) EqualNet and Sub may terminate this Agreement by giving written
notice to Netco Acquisition or Netco at any time prior to the Closing (A)
in the event Netco Acquisition or Netco has breached any representation,
warranty or covenant on their part contained in this Agreement in any
material respect, EqualNet has notified Netco Acquisition and Netco of the
breach, and the breach has continued without cure for a period until the
earlier of 15 days after the notice of breach or the scheduled Closing
Date or (B) if the Closing shall not have occurred on or before February
1, 1998, by reason of the failure of any condition precedent under Section
6(b) (unless the failure results primarily from EqualNet or Sub breaching
any representation, warranty or covenant on his part contained in this
Agreement).
(b) EFFECT OF TERMINATION. If this Agreement is terminated pursuant to
Section 7(a), all rights and obligations of the Parties hereunder shall
terminate without any Liability of any Party to any other Party (except for any
Liability of any Party for any breach of a covenant or for any knowing and
willful breach of any representation or warranty).
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<PAGE> 35
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations
and warranties of the Parties contained in Sections 3 and 4 shall survive the
Closing hereunder for a period of four years from the date of this Agreement.
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF NETCO ACQUISITION, ITS
MEMBERS AND ADV. If any representation or warranty set forth in Section 3 or any
covenant or agreement set forth herein made by EqualNet or Sub is breached, then
EqualNet agrees to indemnify Netco Acquisition and any member of Netco
Acquisition or ADV that becomes a holder of any of the Shares from and against
any Adverse Consequences that Netco Acquisition and each such member or ADV may
suffer through and after the date of the claim for indemnification to the extent
resulting from, arising out of, relating to, or caused by such breach.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF EQUALNET. If Netco
Acquisition or Netco breaches any of its representations and warranties in
Section 4 or any covenant or agreement set forth herein made by Netco
Acquisition and Netco, then Netco Acquisition agrees to indemnify EqualNet from
and against any Adverse Consequences EqualNet may suffer through and after the
date of the claim for indemnification to the extent resulting from, arising out
of, relating to, or caused by such breach.
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") that may give
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 8, then the Indemnified Party
shall promptly notify the Indemnifying Party thereof in writing; provided,
no delay on the part of the Indemnified Party in notifying the
Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) The Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of the
former's choice reasonably satisfactory to the Indemnified Party so long
as (1) the Indemnifying Party notifies the Indemnified Party in writing
within 15 days after the Indemnified Party has give notice of the Third
Party Claim that the Indemnifying Party will indemnify the Indemnified
Party from and against the entirety of any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating to,
in the nature of, or caused by the Third Party Claim, (2) the Indemnifying
Party provides the Indemnified Party with evidence reasonably acceptable
to the Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim and fulfill
its indemnification obligations hereunder, (3) the Third Party Claim
involves only money damages and does not seek an injunction or other
equitable relief, (4) settlement of, or an adverse judgment with respect
to, the Third Party Claim is not in the good faith judgment of the
Indemnified Party, likely to establish a
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<PAGE> 36
precedential custom or practice materially adverse to the continuing
business interests of the Indemnified Party, and (5) the Indemnifying
Party conducts the defense of the Third Party Claim actively and
diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 8(d)(ii), (1) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (2) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnifying Party (not to be withheld
unreasonably), and (3) the Indemnifying Party will not consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in Section 8(d)(ii) is or
becomes unsatisfied, however, (1) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, the Indemnifying Party in
connection therewith), (2) the Indemnifying Party will reimburse the
Indemnified Party promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable attorneys' fees and
expenses), and (3) the Indemnifying Party will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third
Party Claim to the fullest extent provided in this Section 8.
(e) CLAIMS FOR INDEMNIFICATION.
(i) Whenever any claim shall arise for indemnification under Section
8(b) or 8(c), the Indemnified Party shall describe such claim in a written
notice ("Notice of Claim") to the Indemnifying Party (and for purposes of
this Section 9(e), a notice given pursuant to Section 9(d) shall
constitute a "Notice of Claim") and, when known, specify the facts
constituting the basis for such claim and the amount or an estimate of the
amount of such claim.
(ii) Following the receipt by the Indemnifying Party of each Notice
of Claim, the Indemnifying Party may give the Indemnified Party written
notice ("Notice of Objection") (1) attaching a copy of such Notice of
Claim, (2) stating that, in the opinion of the Indemnifying Party, the
claim described in such Notice of Claim is invalid (either in whole or in
specified part), (3) giving the reasons for the alleged invalidity, and
(4) stating that, based on such alleged invalidity, the Indemnifying Party
objects to the payment of any portion of the amount claimed pursuant to
such Notice of Claim. If a Notice of Objection alleges that a Notice of
Claim is only partially invalid, the Indemnifying Party within 30 days of
the receipt of such Notice of Claim, agrees to deliver to the Indemnified
Party that portion of the amount claimed pursuant to such Notice of Claim
as to which no objection is made.
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<PAGE> 37
(f) DETERMINATION OF ADVERSE CONSEQUENCES. There shall be taken into
account the time cost of money (using the Applicable Rate as the discount rate)
and appropriate adjustments shall be made for tax consequences and insurance in
determining Adverse Consequences for purposes of this Section 8.
(g) OTHER INDEMNIFICATION PROVISIONS. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of this Agreement.
9. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of Netco
Acquisition and EqualNet; provided, either Party may make any public disclosure
it believes in good faith is required by applicable law or the requirements of
NASDAQ.
(b) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns except for the members of Netco Acquisition and
ADV with respect to and as contemplated by Sections 3 and 8.
(c) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of other Parties.
(d) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(e) NOTICES. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be sent by (i) personal delivery
(including courier service), (ii) telecopier during normal business hours to the
number indicated, or (iii) registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below (any communication shall be deemed given upon receipt):
IF TO EQUALNET OR SUB:
1250 Wood Branch Park Drive
Houston, TX 77079-1212
Attention: General Counsel
Telecopier No.: 281-529-4686
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<PAGE> 38
WITH A COPY TO:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attention: Robert F. Gray, Jr.
Telecopier No.: 713-651-5246
IF TO NETCO OR NETCO ACQUISITION:
5005 Woodway, Suite 350
Houston, Texas 77056
Attention: Mark Willis and Jim Harris
Telecopier No.: 713-626-8333
WITH A COPY TO:
MCM Partners
10500 NE 8th, Suite 1920
Bellevue, Washington 98004-4332
Attention: Chris Purrier and Howard Coleman
Telecopier No.: 425-462-4645
AND:
Vinson & Elkins L.L.P.
1001 Fannin, Suite 2300
Houston, Texas 77002-6760
Attention: Rell Tipton
Telecopier No.: 713-615-5553
Any Party may change its telecopier number or its address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Party notice in the manner herein set forth.
(f) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
(g) AMENDMENTS AND WAIVERS. No amendments of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Parties. No waiver by any Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
(h) SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforce-
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<PAGE> 39
ability of the offending term or provision in any other situation or in any
other jurisdiction.
(i) EXPENSES. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(j) CONSTRUCTION. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties, and no presumption or burden of proof shall arise
favoring or disfavoring either Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance.
(k) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(l) WARRANT. Contemporaneous with the execution hereof, EqualNet shall
execute and deliver to Netco Acquisition the Warrant Agreement in the form of
Exhibit G attached hereto and a duly completed Warrant Certificate in the form
attached as Exhibit A to the such Warrant Agreement.
(m) CERTAIN SHAREHOLDERS. By December 10, 1997, EqualNet shall deliver to
Netco Acquisition the form of agreement attached as Exhibit H hereto duly
executed by the indicated shareholders.
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<PAGE> 40
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
EQUALNET HOLDING CORP.
By: /S/ ZANE RUSSELL
Name: ZANE RUSSELL
Title: CEO
EQ ACQUISITION SUB, INC.
By: /S/ MICHAEL L. HLINAK
Name: MICHAEL L. HLINAK
Title: COO
NETCO ACQUISITION CORP.
By: /S/ MARK WILLIS
Name: MARK WILLIS
Title: PRES.
NETCO ACQUISITION, LLC
By: /S/ JAMES T. HARRIS
Name: JAMES T. HARRIS
Title: SECRETARY
[signature page to Agreement of Merger and Plan of Reorganization]
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<PAGE> 41
x x x x x x x x x x x x
TWG, MCM and ADV are joining in this Agreement solely for the purpose of
making the representations and agreements set forth in Section 4(j) and the
agreements set forth in the following provisions of this paragraph. As to each
representation and agreement set forth in Section 4(j), each of TWG, MCM and ADV
hereby (a) make such representation only as to itself and (where applicable) the
Shares acquired by it and (b) make such agreements only as to itself and (where
applicable) the Shares acquired by it. As an inducement to EqualNet and Sub to
enter into this Agreement, ADV agrees to make to Netco Acquisition and Netco the
Working Capital Loans and Additional Working Capital Loan contemplated and as
required on its part by Section 4.03 of the Limited Liability Company Agreement
of Netco Acquisition (up to an aggregate principal amount of $1,500,000), and at
the Closing ADV agrees to convert such Working Capital Loans and Additional
Working Capital Loan made by ADV into and in exchange for the EqualNet Common
Shares to be issued pursuant to Section 2(b)(ii) of this Agreement with respect
to the Working Capital Loans and Additional Working Capital Loan made by ADV. As
an inducement to EqualNet and Sub to enter into this Agreement, TWG agrees to
make to Netco Acquisition the Working Capital Loans contemplated and required on
its part by Section 4.03 of the Limited Liability Company Agreement of Netco
Acquisition (up to an aggregate principal amount of $1,500,000), and at the
Closing TWG agrees to convert such Working Capital Loans made by TWG into and in
exchange for the EqualNet Common Shares to be issued pursuant to Section
2(b)(ii) of this Agreement with respect to the Working Capital Loans made by
TWG.
WILLIS GROUP, LLC
By: /S/ MARK WILLIS
Name: MARK WILLIS
Title: PRES.
[signature page to Agreement of Merger and Plan of Reorganization]
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<PAGE> 42
MCM PARTNERS
By: /S/ DONALD R. MORKEN
Name: DONALD R. MORKEN
Title: GENERAL PARTNER OF MCM PARTNERS
ADVANTAGE FUND, LTD.
By: /S/ ARNO DE GROOT
Name: ARNO DE GROOT
Title: PRESIDENT
[signature page to Agreement of Merger and Plan of Reorganization]
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<PAGE> 1
EXHIBIT 3
STOCK PURCHASE AGREEMENT
By and Among
THE WILLIS GROUP, LLC
and
EQUALNET HOLDING CORP.
Dated as of December 2, 1997
<PAGE> 2
TABLE OF CONTENTS
Page
1. Definitions. .........................................................1
2. Purchase and Sale of Common Stock; Closing.............................4
2A. Purchase and Sale of Common Stock...............................4
2B. Closing.........................................................5
3. Purchaser's Conditions of Closing......................................5
3A. Opinion of the Company's Counsel................................5
3B. Representations and Warranties..................................5
3C. Charter Documents and By-Laws...................................5
3D. Purchase Permitted by Applicable Laws...........................5
3E. Letter of Accountants; Accompanying Officer's Certificate.......5
3F. Shareholder Approval............................................6
3G. Compliance with Securities Laws.................................6
3H. No Adverse U.S. Legislation, Action or Decision.................6
3I. Approvals and Consents..........................................6
3J. Board Nominees..................................................6
3K. No Material Adverse Change. There shall not have occurred
any Material Adverse Change with respect to the Company since
the date hereof.................................................6
3L. Network Transactions............................................6
4. Company's Conditions of Closing........................................7
4A. Representations and Warranties..................................7
4B. Purchase of Shares..............................................7
4C. Shareholder Approval............................................7
4D. No Adverse Action or Decision...................................7
4E. Network Transactions............................................7
5. Affirmative Covenants..................................................7
5A. Conduct of Business of the Company..............................7
5B. Valid Issuance.................................................10
5C. Government Regulations.........................................10
5D. ERISA..........................................................10
5E. Corporate Existence; Maintenance of Properties.................11
5F. Insurance......................................................11
5G. Further Assurances.............................................11
5H. Securities Act Registration Statements.........................11
5I. Notices of Certain Events......................................12
5J. Board Nominees.................................................12
(i)
<PAGE> 3
5K. Environmental Laws.............................................12
5L. Registration Rights............................................12
5M. Shareholder Approval; Preparation of Proxy Statements..........13
5N. No Solicitation................................................13
5O. Listing of Common Stock........................................15
6. Representations and Warranties........................................15
6A. Corporate Existence............................................15
6B. Corporate Power and Authorization..............................15
6C. Board Recommendation...........................................15
6D. Binding Obligations............................................16
6E. No Violation...................................................16
6F. Consents.......................................................16
6G. Financial Information..........................................16
6H. Liabilities....................................................17
6I. Litigation.....................................................17
6J. Compliance with ERISA..........................................17
6K. Taxes; Governmental Charges....................................17
6L. Defaults.......................................................17
6M. Compliance with the Law........................................18
6N. Investment Company Act.........................................18
6O. Public Utility Holding Company Act.............................18
6P. Fees and Commissions...........................................18
6Q. Disclosure.....................................................18
6R. Structure; Capitalization......................................18
6S. Environmental Matters..........................................19
6T. Intellectual Property and Other Intangible Assets..............20
6U. Insurance Coverage.............................................21
7. Representations and Warranties of Purchaser...........................21
7A. Purchase for Investment........................................21
7B. Authorization; No Conflict.....................................22
8. Termination, Amendment and Waiver.....................................22
8A. Termination....................................................22
8B. Effect of Termination..........................................23
9. Miscellaneous.........................................................23
9A. Fees and Expenses..............................................23
9B. Amendment......................................................23
9C. Extension; Waiver..............................................23
9D. Assignment.....................................................24
9E. Survival of Representations and Warranties.....................24
9F. Successors and Assigns; No Third Party.........................24
9G. Notices........................................................24
9H. Descriptive Headings...........................................24
9I. Satisfaction Requirement.......................................24
(ii)
<PAGE> 4
9J. Governing Law; Consent to Jurisdiction.........................25
9K. Remedies.......................................................25
9L. Entire Agreement...............................................25
9M. Severability...................................................25
9N. Counterparts...................................................25
9O. Brokerage......................................................25
(iii)
<PAGE> 5
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made as of December
2, 1997, by and among WILLIS GROUP, LLC, a Texas limited liability company (the
"Purchaser"), and EQUALNET HOLDING CORP., a Texas corporation (the "Company").
RECITALS
Purchaser desires to purchase from the Company, and the Company desires
to issue and sell to Purchaser, subject to the terms and conditions set forth
herein, 4,000,000 shares of Common Stock (as hereinafter defined) of the
Company.
AGREEMENTS
In consideration of the recitals and the mutual covenants herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS. For the purpose of this Agreement, and in addition to
terms defined elsewhere in this Agreement, the following terms shall have the
following meanings. In addition, all terms of an accounting character not
specifically defined herein shall have the meanings assigned thereto by
accounting principles generally accepted in the United States of America.
"AFFILIATE" shall mean, with respect to any Person, a Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person, except a Subsidiary of such Person. A Person shall be
deemed to control a corporation if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"BUSINESS DAY" shall mean any day which is not a Saturday, Sunday or day
on which banks are authorized by law to close in the States of New York and
Texas.
"CAPITALIZED LEASE OBLIGATIONS" shall mean all rental obligations which,
under GAAP in effect on the day such obligation is incurred, are required to be
capitalized on the books of the Company or any Subsidiary, in each case taken at
the amount thereof accounted for as indebtedness (net of interest expense) in
accordance with such principles.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COMMISSION" shall mean the United States Securities and Exchange
Commission.
"CURRENT INDEBTEDNESS" shall mean any obligation for borrowed money
(including notes payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money) payable on demand or
within a period of one year from the date of creation thereof; PROVIDED that any
obligation shall be treated as Funded Indebtedness, regardless of its term, if
such obligation is renewable pursuant to the terms thereof or of a revolving
credit or similar agreement effective for more than one year after the date of
the creation of such obligation, or may
1
<PAGE> 6
be payable out of the proceeds of a similar obligation pursuant to the terms of
such obligation or of any such agreement. Any obligation secured by a Lien on,
or payable out of the proceeds of production from, property of the Company or
any Subsidiary shall be deemed to be Funded or Current Indebtedness, as the case
may be, of the Company or such Subsidiary even though such obligation shall not
be assumed by the Company or such Subsidiary.
"ENVIRONMENTAL LAW" shall mean any judgment, decree, order, law,
license, rule, regulation or private agreement (such as covenants, conditions,
and restrictions), of any federal, state or local executive, legislative,
judicial, regulatory or administrative agency, board, or authority designed to
protect the environment, air, surface, water, groundwater or soil, control
pollution, or regulate the exploration, manufacturing, processing, distributing,
use, storage, transport or handling of Hazardous Materials, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. ss. 9601 ET SEQ.) ("CERCLA"), the Oil Pollution Act (33
U.S.C. ss. 2701 ET SEQ.) ("OPA"), the Resource Conservation and Recovery Act (42
U.S.C. ss. 6901 ET SEQ.) ("RCRA"), and the Federal Water Pollution Control Act
(33 U.S.C. ss. 1251 ET SEQ.) ("CWA"), as such laws have been or hereafter may be
amended or supplemented, and any and all analogous present and future federal,
state, and local laws in jurisdictions where the Company and its Subsidiaries do
business.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time. Section references to ERISA are to ERISA as in
effect at the date of this Agreement and any subsequent provisions of ERISA
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA AFFILIATE" shall mean each trade or business (whether or not
incorporated) which together with the Company or a Subsidiary of the Company
would be deemed to be a "single employer" within the meaning of Section 4001 of
ERISA immediately following the acquisition.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"FUNDED INDEBTEDNESS" shall mean and include without duplication any
obligation payable more than one year from the date of the creation thereof
(including the current portion of Funded Indebtedness), which under GAAP is
shown on the balance sheet as a liability (including, without limitation,
Capitalized Lease Obligations and excluding reserves for deferred income taxes
and other reserves to the extent that such reserves do not constitute an
obligation).
"GAAP" shall mean generally accepted accounting principles consistently
applied throughout the period or periods in question.
"GOVERNMENTAL AUTHORITY" shall mean any foreign or domestic federal,
state, county, municipal, or other governmental or regulatory authority, agency,
board, body, commission, instrumentality, court, or any political subdivision
thereof.
"GOVERNMENTAL REQUIREMENT" shall mean any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization, or other direction or requirement
(including but not limited to any of the foregoing which relate to
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Environmental Laws, energy regulations and occupational, safety and health
standards or controls) of any Governmental Authority.
"HAZARDOUS MATERIALS" shall mean, collectively, (i) those substances
included within the definition of or identified as "hazardous substances,"
"hazardous materials," "toxic substances," or "solid waste" in or pursuant to,
without limitation, CERCLA, OPA, RCRA, and the Occupational Health and Safety
Act, and in the regulations promulgated pursuant to said laws, all as amended;
(ii) any material, waste or substance which is or contains (A) petroleum,
including crude oil or any fraction thereof, natural gas, or synthetic gas
usable for fuel or any mixture thereof; (B) asbestos; (C) polychlorinated
biphenyls; (D) designated as a "hazardous substance" pursuant to Section 307 or
311 of the CWA; (E) flammable explosives; or (F) radioactive materials; and
(iii) any such other substances, materials and wastes which are or become
regulated as hazardous or toxic under applicable local, state or federal law, or
which are currently classified as hazardous or toxic under local, state or
federal laws or regulations.
"INDEBTEDNESS" shall mean Funded Indebtedness and/or Current
Indebtedness.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any lease in
the nature thereof, and the filing of or agreement to give any financing
statement or like instrument under the laws of any jurisdiction).
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means any
material and adverse effect on, or change to, (i) the assets, liabilities,
financial condition, business, or operations of the Company and its Subsidiaries
on a Consolidated basis, or (ii) the ability of the Company and its Subsidiaries
on a Consolidated basis to carry out their business as at the date of this
Agreement.
"NASDAQ" shall mean the Nasdaq Stock Market, Inc., National Market
System.
"NETWORK AGREEMENT AND PLAN OF REORGANIZATION" shall mean that certain
agreement by and among the Company, EQ Acquisition Sub, Inc., Netco Acquisition,
L.L.C. and Netco Acquisition Co., dated as of the date of this Agreement.
"SWITCH AGREEMENT" shall mean that certain agreement by and among the
Company, EQ Acquisition Sub, Inc. and the Purchaser dated as of the date of this
Agreement.
"NOTE AND WARRANT PURCHASE AGREEMENT" shall mean that certain agreement
by and among the Purchaser, the Company and its Subsidiaries dated as of October
1, 1997.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of
the delivering party, by its President, one of its Vice Presidents, its
Treasurer or other authorized officer so designated by the receiving party.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor entity thereto.
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"PENSION PLAN" shall mean any multiemployer plan or single-employer
plan, as defined in Section 4001 of ERISA and subject to Title IV of ERISA,
which is maintained after the Acquisition for employees of the Company, any of
its Subsidiaries or any ERISA Affiliates.
"PERMITS" shall mean all licenses, permits, exceptions, franchises,
accreditations, privileges, rights, variances, waivers, approvals and other
authorizations (including, without limitation, those relating to environmental
matters) of, by or from Governmental Authorities necessary for the conduct of
the business of the Company and its Subsidiaries immediately prior to the
Closing and as proposed to be conducted by the Company and its Subsidiaries
after the Closing.
"PERSON" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, a limited
liability company and a government or any department or agency thereof.
"RELEASE" shall mean release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the environment or into or out of any property, including the movement of
Hazardous Materials through or in the air, surface water, or groundwater.
"REMEDIAL ACTION" shall mean any action required by any federal, state
or judicial body or administration or agency acting under an Environmental Law
to (i) clean up, remove or treat Hazardous Materials in the environment; (ii)
prevent a Release or threat of Release or minimize the further Release of
Hazardous Materials so they do not migrate or endanger or threaten to endanger
public health or the environment; (iii) perform post-remedial monitoring and
care; or (iv) cure a violation of any Environmental Law.
"REPORTABLE EVENT" shall mean an event described in Section 4043(b) of
ERISA with respect to which the 30-day notice requirement has not been waived by
the PBGC.
"RESPONSIBLE OFFICER" shall mean the President, any Vice President (of
whatever designation), the Treasurer or the Secretary or any officers performing
functions similar to those performed by the persons who at the time shall be
such officers.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SINGLE-EMPLOYER PENSION PLAN" shall mean a Pension Plan which is a
"single-employer plan" as defined in Section 4001 of ERISA.
"SUBSIDIARY" shall mean any corporation or similar entity a majority of
the stock of every class of which, except directors' qualifying shares, shall,
at the time as of which any determination is being made, be owned by the
Company, either directly or indirectly.
2. PURCHASE AND SALE OF COMMON STOCK; CLOSING.
2A. PURCHASE AND SALE OF COMMON STOCK. The Company, subject to the terms
and conditions herein set forth, hereby agrees to sell to the Purchaser and,
subject to the terms and conditions herein set forth, the Purchaser agrees to
purchase from the Company, 4,000,000 shares (the "Shares") of the Company's
Common Stock, par value $.01 per share (the "Common Stock")
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<PAGE> 9
at a purchase price of $1.00 per share, which will represent approximately 41%,
together with other Common Stock, warrants and convertible notes which will be
held by Purchaser on the Closing Date, of the Company's outstanding Common Stock
on a fully diluted basis on the Closing Date.
2B. CLOSING. The purchase and delivery of the Shares shall take place at
a closing (the "Closing") at the offices of Vinson & Elkins L.L.P., Houston,
Texas, at 10:00 a.m., local time, on January 28, 1998, or at such other time and
place or on such other business day thereafter as the parties hereto may agree
(herein called the "Closing Date"). On the Closing Date, the Company will
deliver the Shares in definitive form, and in such authorized denominations as
the Purchaser may request (such request to be in writing and delivered to the
Company at least forty-eight hours prior to the Closing), against receipt of the
purchase price therefor by wire transfer of immediately available funds, to the
Company, or by such other payment method as is mutually agreed to by the
Purchaser and the Company.
3. PURCHASER'S CONDITIONS OF CLOSING. The Purchasers' obligation to
purchase and pay for the Shares is subject to the satisfaction or waiver, on or
before the Closing Date, of the conditions contained in Paragraphs 3A through
3L.
3A. OPINION OF THE COMPANY'S COUNSEL. The Purchaser shall have received
from Fulbright & Jaworski L.L.P., special counsel for the Company, a legal
opinion addressed to the Purchaser and dated the Closing Date substantially in
the form attached hereto as Exhibit A.
3B. REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in Paragraph 6 hereof shall be true in all material respects on and as
of the Closing Date, except to the extent of changes caused by the transactions
herein contemplated; and the Company shall have delivered to the Purchaser an
Officer's Certificate, dated the Closing Date, to such effect.
3C. CHARTER DOCUMENTS AND BY-LAWS. The Purchaser shall have received a
certificate, dated the Closing Date, of the Secretary of the Company attaching
(i) a true and complete copy of the Company's Articles of Incorporation with all
amendments thereto, as filed with the Secretary of State of the State of Texas,
(ii) a true and complete copy of the Company's By-Laws in effect as of such
date, (iii) certificates of good standing of the appropriate officials of the
jurisdiction of incorporation of the Company, and (iv) resolutions of the Board
of Directors of the Company authorizing the execution and delivery of this
Agreement and the issuance of the Shares.
3D. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment
for the Shares shall not be prohibited by any applicable law or governmental
regulation (including, without limitation, Regulations G, T and X of the Board
of Governors of the Federal Reserve System) and such purchase and payment shall
not in and of themselves subject the Purchaser to any material tax, penalty,
liability or other materially onerous condition under or pursuant to any
applicable law or governmental regulation.
3E. LETTER OF ACCOUNTANTS; ACCOMPANYING OFFICER'S CERTIFICATE. The
Purchaser shall have received a certificate from the chief financial officer or
chief executive officer of the Company, dated the Closing Date, to the effect
that the interim financial statements at or for the period ended September 30,
1997, have been prepared using the same accounting policies as those used in
preparing the financial statements for the year ended June 30, 1997 (except as
such policies were
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<PAGE> 10
otherwise required to be changed or modified by the Company during the interim
period by an appropriate Governmental Authority or the American Institute of
Certified Public Accountants ("AICPA") or similar accounting boards or bodies),
and that since June 30, 1997, such policies have been used in maintaining the
Company's accounting books and records.
3F. SHAREHOLDER APPROVAL. The Company shall have obtained the approval
of its shareholders at the Shareholders Meeting (as defined herein) for the
matters set forth in Paragraph 5M.
3G. COMPLIANCE WITH SECURITIES LAWS. The offering and sale of the Shares
under this Agreement shall have complied with all applicable requirements of
federal and state securities laws.
3H. NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION. Subsequent to the
date hereof, no legislation, order, rule, ruling or regulation shall have been
enacted or made by or on behalf of any governmental body, department or agency
of the United States, nor shall any legislation have been introduced and
favorably reported for passage to either House of Congress by any committee of
either such House to which such legislation has been referred for consideration,
nor shall any decision of any court of competent jurisdiction within the United
States have been rendered which would materially and adversely affect an
investment in the Shares. There shall be no action, suit, investigation or
proceeding pending, or to the Company's knowledge, threatened, against or
affecting the Company or any of its Subsidiaries, or any of their respective
properties or rights, or any of their affiliates, associates, officers or
directors, before any court, arbitrator or administrative or governmental body
which (i) seeks to restrain, enjoin, prevent the consummation of or otherwise
adversely affect the transactions contemplated by this Agreement or (ii)
questions the validity or legality of any such transaction or seeks to recover
damages or to obtain other relief in connection with any such transaction, and
to the Company's knowledge there shall be no valid basis for any such action,
proceeding or investigation.
3I. APPROVALS AND CONSENTS. The Company shall have duly received all
authorizations, consents, approvals, licenses, franchises, permits and
certificates by or of all federal, state and local governmental authorities, by
any third parties pursuant to the terms of any agreement to which the Company is
a party or by the National Association of Securities Dealers, Inc. or any other
body or agency with jurisdiction, by contract or otherwise, over the Company,
necessary for the issuance of the Shares by the Company and the consummation of
the transactions contemplated hereby, and all thereof shall be in full force and
effect at the time of the Closing. The Company shall have delivered to the
Purchaser an Officer's Certificate, dated the Closing Date, to such effect.
3J. BOARD NOMINEES. The nominees designated by the Purchaser shall have
been appointed to the Company's Board of Directors effective upon the Closing.
3K. NO MATERIAL ADVERSE CHANGE. There shall not have occurred any
Material Adverse Change with respect to the Company since the date hereof.
3L. NETWORK TRANSACTIONS. The Company shall have simultaneously closed
the transactions pursuant to the Network Agreement and Plan of Reorganization
and the Switch Agreement.
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4. COMPANY'S CONDITIONS OF CLOSING. The Company's obligations to sell
the Shares hereunder is subject to the satisfaction or waiver, on or before the
Closing Date, of the conditions contained in Paragraphs 4A through 4E.
4A. REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in Paragraph 7 hereof shall be true in all material respects on and as
of the Closing Date; and the Purchaser shall have delivered to the Company an
Officer's Certificate, dated the Closing Date, to such effect.
4B. PURCHASE OF SHARES. The Purchaser shall have purchased and paid for
the Shares.
4C. SHAREHOLDER APPROVAL. The Company shall have obtained the approval
of its shareholders at the Shareholders Meeting (as defined herein) for the
matters set forth in Paragraph 5M.
4D. NO ADVERSE ACTION OR DECISION. There shall be no action, suit,
investigation or proceeding pending, or to the Company's knowledge, threatened,
against or affecting the Company or any of its Subsidiaries, or any of their
respective properties or rights, or any of their affiliates, associates,
officers or directors, before any court, arbitrator or administrative or
governmental body which (i) seeks to restrain, enjoin, prevent the consummation
of or otherwise adversely affect the transactions contemplated by this Agreement
or (ii) questions the validity or legality of any such transaction or seeks to
recover damages or to obtain other relief in connection with any such
transaction.
4E. NETWORK TRANSACTIONS. The Company shall have simultaneously closed
the transactions pursuant to the Network Agreement and Plan of Reorganization
and the Network Switches Agreement and Plan of Reorganization.
4F. LISTING. The Shares shall have been approved for listing, subject
to official notice of issuance, on the NASDAQ National Market as of the Closing
Date.
5. AFFIRMATIVE COVENANTS. All covenants contained herein shall be given
independent effect.
5A. CONDUCT OF BUSINESS OF THE COMPANY.
(a) ORDINARY COURSE. Except as set forth in SCHEDULE 5(A)(a), during the
period from the date of this Agreement to the Closing Date (except for
transactions to which Purchaser or its affiliates are a party or as otherwise
specifically contemplated by the terms of this Agreement), the Company shall and
shall cause its Subsidiaries to carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent therewith, use commercially
reasonable efforts to preserve intact their current officers and employees and
preserve their relationships with customers, suppliers, licensors, licensees,
distributors and others having business dealings with them, in each case
consistent with past practice, to the end that their goodwill and ongoing
businesses shall be unimpaired to the fullest extent possible at the Closing
Date. Without limiting the generality of the foregoing, and except as otherwise
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<PAGE> 12
expressly contemplated by this Agreement and the Schedules hereto, the Company
shall not, and shall not permit any of its Subsidiaries to:
(i) (A) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, other than
dividends and distributions by any direct or indirect wholly owned
Subsidiary of the Company to the Company or a wholly owned Subsidiary of
the Company, (B) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock or (C)
purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its Subsidiaries or any other securities thereof or
any rights, warrants or options to acquire any such shares or other
securities other than in connection with the exercise of outstanding
stock options and warrants and satisfaction of withholding obligations
under outstanding stock options and restricted stock;
(ii) issue, deliver, sell, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities
other than, in the case of the Company, the issuance of shares of Common
Stock upon the exercise of stock options and warrants outstanding on the
date of this Agreement in accordance with their current terms;
(iii) amend its Articles of Incorporation, By-laws or other
comparable charter or organizational document;
(iv) acquire or agree to acquire (A) by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of,
or by any other manner, any business or any corporation, partnership,
association, joint venture, limited liability company or other entity or
division thereof or (B) any assets that, in each case, would be
material, individually or in the aggregate, to the Company and its
Subsidiaries taken as a whole, except purchases in the ordinary course
of business consistent with past practice;
(v) sell, lease, mortgage, pledge, grant a Lien on or otherwise
encumber or dispose of any of its properties or assets, except (A) sales
or leases in the ordinary course of business consistent with past
practice and (B) other immaterial transactions not in excess of $250,000
in the aggregate;
(vi) (A) incur indebtedness for borrowed money or guarantee any
such indebtedness of another Person, issue or sell any debt securities
or warrants or other rights to acquire any debt securities of the
Company or any of its Subsidiaries, guarantee any debt securities of
another Person, enter into any "keep well" or other agreement to
maintain any financial statement condition of another Person or enter
into any arrangement having the economic effect of any of the foregoing,
except for working capital borrowings under currently existing revolving
credit facilities incurred in the ordinary course of business, or (B)
make any loans, advances or capital contributions to, or investments in,
any other Person that would be material, individually or in the
aggregate, to the Company and its Subsidiaries taken as a whole, other
than to the Company or any direct or indirect wholly owned Subsidiary of
the Company;
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(vii) make or incur any new capital expenditure (other than
purchases in the ordinary course of business), which, singly or in the
aggregate with all other expenditures, would exceed $100,000;
(viii) make any material election relating to Taxes or settle or
compromise any material Tax liability;
(ix) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved
against in, or contemplated by, the most recent consolidated financial
statements (or the notes thereto) of the Company included in the
Commission Documents or incurred in the ordinary course of business
consistent with past practice;
(x) waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company or
any of its Subsidiaries is a party;
(xi) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization;
(xii) enter into any new collective bargaining agreement;
(xiii) change any material accounting principle used by it,
except as required by regulations promulgated by the Commission or as
mandated by AICPA or similar accounting boards or bodies;
(xiv) settle or compromise any litigation (whether or not
commenced prior to the date of this Agreement) other than settlements or
compromises: (A) of litigation where the amount paid in settlement or
compromise does not exceed $100,000, or (B) in consultation and
cooperation with the Purchaser, and, with respect to any such
settlement, with the prior written consent of the Purchaser, which shall
not be unreasonably withheld or delayed;
(xv) except for those contracts and agreements entered into in
the ordinary course of business with the consent of the Purchaser, which
consent shall not be unreasonably withheld or delayed, enter into any
joint venture or partnership contract or agreement; or
(xvi) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) CHANGES IN EMPLOYMENT ARRANGEMENTS. During the period from the date
of this Agreement to the Closing Date, neither the Company nor any of its
Subsidiaries shall adopt or amend (except as may be required by law) any bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement, trust, fund
or other arrangement for the benefit or welfare of any employee, director or
former director or employee, increase the compensation or fringe benefits of any
officer of the Company or any of its Subsidiaries, or, except as provided in an
existing benefit plan or in the ordinary course of business
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<PAGE> 14
consistent with past practice, increase the compensation or fringe benefits of
any employee or former employee or pay any benefit not required by any existing
plan, arrangement or agreement.
(c) SEVERANCE. During the period from the date of this Agreement to the
Closing Date, neither the Company nor any of its Subsidiaries shall grant any
new or modified severance or termination arrangement or increase or accelerate
any benefits payable under its severance or termination pay policies in effect
on the date hereof.
(d) OTHER ACTIONS. During the period from the date of this Agreement to
the Closing Date, the Company shall not, and shall not permit any of its
Subsidiaries to, take any action that would, or that could reasonably be
expected to, result (i) in any of the representations and warranties of the
Company set forth in this Agreement becoming untrue or (ii) in any of the
covenants contained in this Agreement becoming unperformable. Pending the
Closing, the Company will promptly advise the Purchaser of any action or event
of which they become aware which has the effect of making incorrect any of such
representations or warranties or which has the effect of rendering unperformable
any of such covenants.
5B. VALID ISSUANCE. The Company covenants that the Shares will, upon
issuance and upon full payment therefor in accordance with the terms hereof, be
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof.
5C. GOVERNMENT REGULATIONS. The Company covenants that it will comply,
and will cause each of its Subsidiaries to comply, with all applicable
governmental restrictions and regulations, the failure to comply with which
would have a material adverse effect on the business or financial condition of
the Company and its Subsidiaries taken as a whole, and obtain and maintain in
good standing all licenses, permits and approvals from any and all governments,
governmental commissions, boards or agencies of jurisdictions in which it or any
of its Subsidiaries carries on business required in respect of the operations of
the Company or any of its Subsidiaries, the failure to comply with which would
have a material adverse effect on the business or financial condition of the
Company and its Subsidiaries taken as a whole.
5D. ERISA. Promptly (and in any event within 30 days) after the Company
or any of its Subsidiaries knows or has reason to know that a Reportable Event
with respect to any Pension Plan has occurred, that any Pension Plan is or may
be terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA or that the Company or any of its Subsidiaries will or may incur any
liability to or on account of a Pension Plan under Sections 4062, 4063, 4064,
4201 or 4204 of ERISA, the Company will deliver to the Purchaser a certificate
of the chief financial officer of the Company setting forth information as to
such occurrence and what action, if any, the Company is required or proposes to
take with respect thereto, together with any notices concerning such occurrences
which are (a) required to be filed by the Company or the plan administrator of
any such Pension Plan controlled by the Company or its Subsidiaries, with the
PBGC or (b) received by the Company or its Subsidiaries from any plan
administrator of a multiemployer or other Pension Plan not under their control.
The Company shall furnish to the Purchaser a copy of each annual report (Form
5500 Series) of any Pension Plan received or prepared by the Company or any of
its Subsidiaries. Each annual report and any notice required to be delivered
hereunder shall be delivered no later than 10 days after the later of the date
such report or notice is filed with the Internal Revenue
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Service or the PBGC or the date such report or notice is received by the Company
or any of its Subsidiaries, as the case may be.
5E. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Company
covenants that it (i) will do or cause to be done all things reasonably
necessary to preserve and keep in full force and effect the corporate existence
and material rights of the Company and all of its Subsidiaries, (ii) will cause
its properties and the properties of its Subsidiaries used or useful in the
conduct of their respective businesses to be maintained and kept in good
condition, repair and working order and will use commercially reasonable efforts
to cause to be made all necessary repairs, renewals, replacements, betterments
and improvements thereto, and (iii) will, and will cause each of its
Subsidiaries to, qualify and remain qualified to conduct business in each
jurisdiction where the nature of the business or the ownership of property by
the Company or such Subsidiary may require such qualification and where the
failure to so qualify would have a material adverse effect on the business or
financial condition of the Company and its Subsidiaries taken as a whole.
5F. INSURANCE. The Company covenants that it will maintain, and will
cause each of its Subsidiaries to maintain, with financially sound and reputable
insurance companies, funds or underwriters, insurance for the Company and its
Subsidiaries of the kinds, covering the risks and in the relative proportionate
amounts usually carried by companies conducting business activities similar to
those of the Company and its Subsidiaries.
5G. FURTHER ASSURANCES. The Company covenants that it shall cooperate
with the Purchaser and execute such further instruments and documents as the
Purchaser shall reasonably request to carry out to the satisfaction of the
Purchaser the transactions contemplated by this Agreement.
5H. SECURITIES ACT REGISTRATION STATEMENTS. The Company covenants that
the Purchaser shall have the right, at any time when it may be deemed to be a
controlling person of the Company, to participate in the preparation of such
registration statement (regardless of whether or not the Purchaser will be a
selling security holder in connection with such registration statement) and to
request the insertion therein of material furnished to the Company in writing
which in the Purchaser's judgment should be included. In connection with any
registration statement referred to in this Paragraph 5H, the Company will
indemnify the Purchaser, its members, officers and directors and each person, if
any, who controls the Purchaser within the meaning of Section 15 of the
Securities Act, against all losses, claims, damages, liabilities and expenses
caused by any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus or any amendment thereof
or supplement thereto or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except insofar as such losses, claims, damages, liabilities or
expenses are caused by any untrue statement or alleged untrue statement or
omission or alleged omission contained in written information furnished to the
Company by the Purchaser expressly for use in such registration statement. If,
in connection with any such registration statement, the Purchaser shall furnish
written information to the Company expressly for use in the registration
statement, the Purchaser will indemnify the Company, its directors, each of its
officers who signs such registration statement and each person, if any, who
controls the Company within the meaning of the Securities Act against all
losses, claims, damages, liabilities and expenses caused by any untrue statement
or alleged untrue statement of a material fact or any omission or
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alleged omission of a material fact required to be stated in the registration
statement or prospectus or any preliminary prospectus or any amendment thereto
or supplement thereto or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or alleged untrue
statement or such omission or alleged omission is contained in information so
furnished in writing by the Purchaser for use therein.
5I. NOTICES OF CERTAIN EVENTS. The Company shall promptly give notice to
the Purchaser (i) of any default or event of default that has not been cured
within any applicable grace period under any (y) Indebtedness of the Company or
any of its Subsidiaries, and (z) contractual obligation of the Company or any of
its Subsidiaries or (ii) of any pending or threatened litigation, investigation
or proceeding to which the Company or any of its Subsidiaries is or is
threatened to be a party and of which the Company has been given notice;
PROVIDED that any such default as specified in (z) above, litigation,
investigation or proceeding would have a material adverse effect on the business
or financial condition of the Company and its Subsidiaries taken as a whole. Any
notice delivered pursuant to this Paragraph 5I shall be accompanied by an
Officer's Certificate specifying the details of the occurrence referred to
therein and stating what action the Company proposes to take with respect
thereto.
5J. BOARD NOMINEES. Effective as of the Closing, the directors of the
Company shall elect four (4) new directors (representing a majority of the
Company's Board of Directors), three (3) of which shall have been designated by
the Purchaser, to the Company's Board of Directors. Such directors shall serve
terms expiring at the annual shareholders meeting of the Company applicable to
the class to which each such director is elected.
5K. ENVIRONMENTAL LAWS. The Company and its Subsidiaries shall comply
with all applicable Environmental Laws the failure to comply with which would
have a material adverse effect on the business or financial condition of the
Company and its Subsidiaries taken as a whole. If the Company or any Subsidiary
shall receive written notice that there exists a violation of Environmental Law
with respect to its operations or any real property owned, formerly owned, used,
or leased thereby, which violation could have a material adverse effect on the
business or financial condition of the Company and its Subsidiaries taken as a
whole, the Company shall immediately notify in writing the Purchaser.
Furthermore, if the Company or any Subsidiary shall receive written notice that
there exists a violation of Environmental Law with respect to its operations or
any real property owned, formerly owned, used or leased thereby, which violation
could have a material adverse effect on the business or financial condition of
the Company and its Subsidiaries taken as a whole, the Company shall within the
time period permitted by the applicable governmental authority (unless otherwise
contested by the Company in good faith) remove or remedy such violation in
accordance with all applicable Environmental Laws unless the Board of Directors
of the Company determines that it would be in the best interest of the Company
to delay the remedy of such violation, so long as no material adverse effect is
suffered by the Company during such delay.
5L. REGISTRATION RIGHTS. The Company hereby grants to the Purchaser (and
any transferees of the Shares) the same rights to cause the Company to register
the Shares, and all other shares of the Company's Common Stock acquired by the
Purchaser pursuant to the Switch Agreement or issued upon the exercise of the
warrant issued to Purchaser pursuant to the Switch Agreement, under state and
federal securities laws and all such other rights as set forth in SECTION 4.1.11
of the Note and Warrant Purchase Agreement at any time from and after the
Closing Date;
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PROVIDED, HOWEVER, that such registration rights shall be effective immediately
upon the Closing Date notwithstanding whether or not the Note or Warrants under
the Note and Warrant Purchase Agreement have been converted or exercised, as the
case may be.
5M. SHAREHOLDER APPROVAL; PREPARATION OF PROXY STATEMENTS.
(a) The Company shall, as soon as practicable following the
execution and delivery of this Agreement duly call, give notice of,
convene and hold a meeting of the Company's shareholders (the
"Shareholders Meeting") for the following purposes: (i) approving this
Agreement, the issuance of the Shares and the transactions contemplated
hereby, (ii) ratifying the Note and Warrant Purchase Agreement and the
transactions contemplated thereby, (iii) approving the acquisition, by
merger, of certain operating network assets (the "Network") from that
certain Network company, of which the Purchaser is an equity holder, for
consideration consisting of Common Stock, convertible preferred stock
and other securities of the Company as more fully described in the
Network Agreement and Plan of Reorganization relating to the purchase of
the Network, (iv) approving the acquisition, by merger, of certain
network switches relating to the Network (the "Network Switches") from
that certain Network Switches company, of which the Purchaser is an
equity holder, for consideration consisting of Common Stock, warrants to
purchase Common Stock and cash as more fully described in the Switch
Agreement, (v) approving an amendment to the Company's Articles of
Incorporation to increase the aggregate number of authorized shares of
Common Stock to 50,000,000, and (vi) approving the other related
transactions. The Company will, through its officers and its Board of
Directors, unanimously recommend to its shareholders the approval and
adoption of the foregoing transactions.
(b) Promptly following the date of this Agreement, the Company
shall prepare and file with the Commission a proxy statement relating to
the Shareholders Meeting (such proxy statement as amended or
supplemented from time to time, the "Proxy Statement"). The Purchaser
shall have the right to review and approve the Proxy Statement prior to
the Company filing the Proxy Statement with the Commission which
approval shall not be unreasonably withheld. The Company will use all
commercially reasonable efforts to cause the Proxy Statement to be
mailed to the Company's shareholders as promptly as practicable. The
Company will notify the Purchaser promptly of the receipt of any written
or oral comments from the Commission or its staff and of any request by
the Commission or its staff for amendments or supplements to the Proxy
Statement or for additional information and will supply the Purchaser
with copies of all correspondence between the Company or any of its
representatives, on the one hand, and the Commission or its staff, on
the other hand, with respect to the Proxy Statement.
(c) The Company will cause its transfer agent to make stock
transfer records relating to the Company available to the extent
reasonably necessary to effectuate the intent of this Agreement.
5N. NO SOLICITATION. (a) The Company shall not, nor shall it permit any
of its Subsidiaries to, nor shall it authorize or permit any officer, director
or employee of the Company or any investment banker, attorney or other advisor,
agent or representative of the Company or any of its Subsidiaries to, directly
or indirectly, (i) solicit, initiate or encourage the submission of any takeover
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proposal, (ii) enter into any agreement (other than confidentiality and
standstill agreements in accordance with the immediately following proviso) with
respect to any takeover proposal, or (iii) participate in any discussions or
negotiations regarding, or furnish to any Person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may be reasonably be expected to lead to, any
takeover proposal; PROVIDED, HOWEVER, in the case of this clause (iii), that
prior to the vote of shareholders of the Company for approval of the matters
referred to in Paragraph 5M hereof (and not thereafter if such matters are
approved thereby) to the extent required by the fiduciary obligations of the
Board of Directors of the Company, determined in good faith by a majority of the
disinterested members thereof based on the advice of outside counsel, the
Company, in response to an unsolicited superior proposal and a request for
information pursuant thereto, may furnish information to any person or "group"
within the meaning of Section 13(d)(3) of the Exchange Act pursuant to a
confidentiality agreement. Without limiting the foregoing, it is understood that
any violation of the restrictions set forth in the preceding sentence by any
officer, director or employee of the Company or any of its Subsidiaries or any
investment banker, attorney or other advisor, agent or representative of the
Company, whether or not such Person is purporting to act on behalf of the
Company or otherwise, shall be deemed to be a material breach of this Agreement
by the Company. For purposes of this Paragraph 5M, "takeover proposal" means (i)
any proposal, other than a proposal by the Purchaser or any of its Affiliates,
for a merger or other business combination involving the Company, (ii) any
proposal or offer, other than a proposal or offer by the Purchaser or any of its
Affiliates, to acquire from the Company or any of its Affiliates in any manner,
directly or indirectly, an equity interest in the Company or any Subsidiary, any
voting securities of the Company or any Subsidiary or a material amount of the
assets of the Company and its Subsidiaries, taken as a whole, or (iii) any
proposal or offer, other than a proposal or offer by the Purchaser or any of its
Affiliates, to acquire from the shareholders of the Company by tender offer,
exchange offer or otherwise more than 20% of the outstanding shares of Common
Stock.
(b) Neither the Board of Directors of the Company nor any committee
thereof shall, except in connection with the termination of this Agreement
pursuant to Paragraph 8A, (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to the Purchaser the approval or recommendation by
the Board of Directors of the Company or any such committee thereof of this
Agreement or take any action having such effect; PROVIDED, HOWEVER, that a
statement by the Board of Directors of the Company to its shareholders as
contemplated by Rule 14e-2(a) of the Exchange Act following Purchaser's receipt
of a Notice of Superior Proposal (defined below) shall not be deemed to
constitute a withdrawal or modification of its recommendation of this Agreement,
or (ii) approve or recommend, or propose to approve or recommend, any takeover
proposal. Notwithstanding the foregoing, in the event that the Board of
Directors of the Company receives a takeover proposal that, in the exercise of
its fiduciary obligations (as determined in good faith by a majority of the
disinterested members thereof based on the advice of outside counsel), it
determines to be a superior proposal, the Board of Directors of the Company may
withdraw or modify its approval or recommendation of this Agreement and may
(subject to the following sentence) terminate this Agreement, in each case at
any time after midnight on the fifth Business Day following Purchaser's receipt
of written notice (a "Notice of Superior Proposal") advising Purchaser that the
Board of Directors of the Company has received a takeover proposal that it has
determined to be a superior proposal, specifying the material terms and
conditions of such superior proposal (including the proposed financing for such
proposal and a copy of any documents conveying such proposal) and identifying
the person making such superior proposal. The Company may terminate this
Agreement
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pursuant to the preceding sentence only if the shareholders of the Company have
not yet voted upon the matters set forth in Paragraph 5M hereof. Any of the
foregoing to the contrary notwithstanding, the Company may engage in discussions
with any Person or group that has made an unsolicited takeover proposal for the
limited purpose of determining whether such proposal is a superior proposal.
Nothing contained herein shall prohibit the Company from taking and disclosing
to its shareholders a position contemplated by Rule 14e-2(a) following
Purchaser's receipt of a Notice of Superior Proposal.
(c) For purposes of this Paragraph 5N, a "superior proposal" means any
BONA FIDE takeover proposal to acquire, directly or indirectly, for
consideration consisting of cash, securities or a combination thereof, all of
the shares of Common Stock then outstanding or all or substantially all of the
assets of the Company and its Subsidiaries, and otherwise on terms that a
majority of the disinterested members of the Board of Directors of the Company
determines in its good faith reasonable judgment (based on the advice of a
financial advisor of nationally recognized reputation, a copy of which shall be
provided to Purchaser) to be more favorable to the Company's shareholders than
the transactions contemplated by this Agreement, the Network Agreement and Plan
of Reorganization and the Switch Agreement.
(d) In addition to the obligations of the Company set forth in paragraph
(b), the Company shall promptly advise the Purchaser orally and in writing of
any takeover proposal or any inquiry with respect to or which could lead to any
takeover proposal, the material terms and conditions of such inquiry or takeover
proposal (including the financing for such proposal and a copy of such documents
conveying such proposal), and the identity of the Person making any such
takeover proposal or inquiry.
5O. LISTING OF COMMON STOCK. The Company warrants and agrees for the
benefit of the Purchaser that it will use commercially reasonable efforts to
cause the Shares to be approved for listing, subject to official notice of
issuance, on the NASDAQ National Market as of the Closing Date.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to the Purchaser as of the date hereof and as of the Closing Date
that:
6A. CORPORATE EXISTENCE. The Company is a corporation duly organized,
legally existing, and in good standing under the laws of the State of Texas.
6B. CORPORATE POWER AND AUTHORIZATION. The Company has the requisite
corporate power and authority to issue the Shares, to execute, deliver, and
perform its obligations under this Agreement and, subject to approval of this
Agreement by the holders of a majority of the shares of Common Stock as of the
record date for the Shareholders Meeting present in person or represented by
proxy, to consummate the transactions contemplated hereby. All action, except
for the approval by the shareholders of the Company, on the Company's part
requisite for the due issuance of the Shares and for the due execution,
delivery, and performance of this Agreement has been duly and effectively taken.
6C. BOARD RECOMMENDATION. The Board of Directors of the Company, at a
meeting duly called and held, has by vote of those directors present (i)
determined that this Agreement and the
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transactions contemplated hereby and by Section 5M hereof are fair to and in the
best interests of the shareholders of the Company and (ii) resolved to
unanimously recommend that the Company's shareholders approve this Agreement and
the transactions contemplated hereby and by Section 5M hereof.
6D. BINDING OBLIGATIONS. This Agreement is enforceable in accordance
with its terms (except that enforcement may be subject to (i) any applicable
bankruptcy, insolvency or similar laws generally affecting the enforcement of
creditors' rights (ii) general principles in equity regardless of whether such
enforcement is sought in a proceeding in equity or at law, and except to the
extent enforceability of the indemnification provisions may be limited under
applicable securities laws).
6E. NO VIOLATION. Except as disclosed in SCHEDULE 6E, neither the
execution and delivery of this Agreement, the consummation of the transactions
provided for herein or contemplated hereby nor the fulfillment by the Company of
the terms hereof will (a) violate any provision of the Articles of Incorporation
or the by-laws of the Company, (b) result in a default, give rise to any right
of termination, cancellation, acceleration or imposition of any Indebtedness or
Lien, or require any consent or approval (other than any consent or approval
that has previously been obtained), under any of the terms, conditions or
provisions of any of the Permits or any note, bond, mortgage, indenture, loan,
distribution agreement, license, agreement, lease, or instrument or obligation
to which the Company is a party or by which the Company may be bound (except
where the failure to obtain such consent or approval will not have a Material
Adverse Effect), or (c) violate any law, judgment, order, writ, injunction,
decree, statute, rule, or regulation of any Governmental Authority applicable to
the Company (except where such violation will not have a Material Adverse
Effect).
6F. CONSENTS. Except as disclosed in SCHEDULE 6F, all consents,
approvals, qualifications, orders, or authorizations of, or filings with, any
Governmental Authority, and all consents under any material contracts,
agreements, or instruments by which the Company is bound or to which it is
subject, and required in connection with the Company's valid execution,
delivery, or performance of this Agreement and the offer, sale, and delivery of
the Shares and the consummation of any other transaction contemplated on the
part of the Company have been obtained or made.
6G. FINANCIAL INFORMATION.
(a) The Consolidated balance sheet of the Company and its
Subsidiaries as at June 30, 1997, and the related Consolidated
statements of operations, shareholders' equity and cash flows for the
12-month period then ended, including in each case the related schedules
and notes, reported on by Ernst & Young LLP, are complete and correct
and fairly present in all material respects the Consolidated financial
position of the Company and its Subsidiaries as at the date thereof and
the Consolidated results of operations and changes in cash flows for
such period, in accordance with GAAP.
(b) The unaudited Consolidated balance sheet of the Company and
its Subsidiaries as at September 30, 1997, and the related unaudited
Consolidated statements of operations, shareholders' equity and cash
flows for the three-month period then ended, as included in the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1997, true copies of which have been previously delivered
to Purchaser, are complete and correct and fairly present in all
material respects the Consolidated financial position of the
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Company and its Subsidiaries as at the date thereof and the Consolidated
results of operations and changes in cash flows for such period in
conformity with GAAP, subject only to normal year-end audit adjustments.
(c) Since June 30, 1997, there has been no Material Adverse
Effect.
6H. LIABILITIES. Except for liabilities incurred in the ordinary course
of business, none of the Company or any of its Subsidiaries has any material
(individually or in the aggregate) liabilities, direct or contingent (including
but not limited to liability with respect to any Plan) except as disclosed or
referred to in SCHEDULE 6H or in the financial statements referred to in
Paragraph 6H. Neither the Company nor any of its Subsidiaries has any
Indebtedness other than Indebtedness disclosed in SCHEDULE 6H.
6I. LITIGATION. Except as disclosed in SCHEDULE 6I or as described in
any report filed by the Company with the Commission and delivered to Purchaser,
there is no action, suit, or proceeding, or any governmental investigation or
any arbitration, in each case pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries or any material
property of any thereof before any court or arbitrator or any governmental or
administrative body, agency or official (i) which challenges the validity of
this Agreement; or (ii) which, if adversely determined, would have a Material
Adverse Effect.
6J. COMPLIANCE WITH ERISA. Each Plan is in substantial compliance with
ERISA, no Plan has an accumulated or waived funding deficiency within the
meaning of Section 412 or Section 418(B) of the Code, no proceedings have been
instituted to terminate any Plan, and except as disclosed in SCHEDULE 6J, none
of the Company or any of its Subsidiaries nor any ERISA Affiliate has incurred
any material liability to or on account of a Plan under ERISA, and except as
disclosed in SCHEDULE 6J, no condition exists which presents a material risk to
the Company or any of its Subsidiaries of incurring such a liability.
6K. TAXES; GOVERNMENTAL CHARGES. Each of the Company and its
Subsidiaries has filed all tax returns and reports required to be filed and has
paid all taxes, assessments, fees, and other governmental charges levied upon
any of them or upon any of their respective properties or income which are due
and payable, including interest and penalties, or has provided adequate reserves
for the payment thereof, except where the failure to so file, pay, or reserve
would not have a Material Adverse Effect.
6L. DEFAULTS. Except as disclosed in SCHEDULE 6L, none of the Company or
any of its Subsidiaries is in default, nor has any event or circumstance
occurred which, but for the passage of time or the giving of notice, or both,
would constitute a default (in any respect which may have a Material Adverse
Effect) under any loan or credit agreement, indenture, mortgage, deed of trust,
security agreement, or other instrument or agreement evidencing or pertaining to
any Indebtedness of the Company or any Subsidiary, or under any material
agreement or instrument to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary is bound. No default hereunder has occurred
and is continuing.
6M. COMPLIANCE WITH THE LAW. None of the Company or any of its
Subsidiaries (a) is in violation of any Governmental Requirement or (b) has
failed to obtain any license, permit, franchise,
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or other governmental authorization necessary to the ownership of any of their
respective properties or the conduct of their respective business, which
violation or failure would have (in the event that such a violation or failure
were asserted by any Person through appropriate action) a Material Adverse
Effect.
6N. INVESTMENT COMPANY ACT. None of the Company or any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
6O. PUBLIC UTILITY HOLDING COMPANY ACT. None of the Company or any of
its Subsidiaries is a "holding company," or a "Subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "Subsidiary company"
of a "holding company," or a "public utility" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
6P. FEES AND COMMISSIONS. None of the Company or any of its Subsidiaries
nor, to the knowledge of any of the Company, their Affiliates has retained a
finder, broker, agent, financial advisor, or other intermediary (collectively,
an "INTERMEDIARY") in connection with the transactions contemplated by this
Agreement, and the Company agrees to pay and to indemnify and hold harmless
Purchaser from and against liability for any compensation to any Intermediary
and the fees and expenses of defending against such liability or alleged
liability.
6Q. DISCLOSURE. The Company's filings made pursuant to the Exchange Act
and listed on SCHEDULE 6Q hereto as of their respective dates, did not contain
any untrue statement of a material fact and did not omit to state any material
fact necessary in order to make the statements contained therein or herein not
misleading in the light of the circumstances under which they were made.
6R. STRUCTURE; CAPITALIZATION.
(a) SCHEDULE 6R contains (except has noted therein) a complete
and correct list of the Company's Subsidiaries, showing, as to each
Subsidiary, the correct name thereof, the jurisdiction of its
organization, and the percentage of shares of each class of its capital
stock or similar equity interests outstanding owned by the Company and
each other Subsidiary.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in SCHEDULE 6R as being owned
by the Company and its Subsidiaries have been validly issued, are fully
paid and nonassessable, and are owned by the Company or such other
Subsidiaries free and clear of any Lien (except as otherwise disclosed
in SCHEDULE 6R.
(c) No Subsidiary of the Company is a party to, or otherwise
subject to any legal restriction of any agreement (other than this
Agreement and customary limitations imposed by corporate law statutes)
restricting the ability of such Subsidiary to pay dividends out of
profits or make any other similar distributions of profits to the
Company or any of its Subsidiaries that owns outstanding shares of
capital stock or similar equity interests of such Subsidiary.
(d) As of the Closing Date and after giving effect to the
transactions contemplated in this Agreement, the Network Agreement and
the Switch Agreement (i) the Company's
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authorized capital stock will consist of 55,000,000 shares, of which
50,000,000 are designated Common Stock and 5,000,000 shares are
designated preferred stock (2,000 of which will be designated as Series
A Convertible Preferred Stock, $.01 par value per share); (ii)
14,269,357 shares of Common Stock, issued and outstanding and 5,450,677
shares are or will be reserved for issuance in connection with the
Company's outstanding warrants and stock options all of which, when
issued in accordance with the terms of such warrants and stock options,
will be validly issued, fully paid, and non-assessable; (iii) no shares
of Common Stock are owned or held by or for the account of the Company
or any of its Subsidiaries (except as disclosed in the financial
statements described in Paragraph 6G); (iv) except as disclosed on
SCHEDULE 6R, neither the Company nor any of its Subsidiaries has
outstanding any stock or other securities convertible into or
exchangeable for any shares of capital stock, any rights to subscribe
for or to purchase or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any other character relating to the issuance
of, any capital stock, or any stock or securities convertible into or
exchangeable for any capital stock which have not been waived (other
than as contemplated by this Agreement); and (v) except as disclosed in
SCHEDULE 6R, neither the Company nor any of its Subsidiaries is subject
to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of capital stock.
6S. ENVIRONMENTAL MATTERS.
(a) Neither any property of any of the Company or any of its
Subsidiaries nor the operations conducted thereon violate any order of
any court or Governmental Authority or Environmental Laws which
violations could reasonably be expected to result in liability in excess
of $250,000 or which could reasonably be expected to result in remedial
obligations in excess of $250,000, assuming disclosure to the applicable
Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to the relevant property.
(b) Without limitation of clause (a) above, no property of any
of the Company or any of its Subsidiaries nor the operations currently
conducted thereon or by any prior owner or operator of such property or
operation, are in violation of or subject to any existing, pending or,
to the knowledge of the Company, threatened action, suit, investigation,
inquiry or proceeding by or before any court or Governmental Authority
or to any remedial obligations under Environmental Laws which could
reasonably be expected to result in liability in excess of $250,000, or
which could reasonably be expected to result in remedial obligations in
excess of $250,000 assuming disclosure to the applicable Governmental
Authority of all relevant facts, conditions and circumstances, if any,
pertaining to the relevant property.
(c) All notices, permits, licenses or similar authorizations, if
any, required to be obtained or filed in connection with the operation
or use of any and all property of the Company and its Subsidiaries,
including but not limited to past or present treatment, storage,
disposal or release of Hazardous Materials into the environment, have
been duly obtained or filed, except where the failure to so obtain or
file would not have a Material Adverse Effect.
6T. INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS.
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(a) The Company and its Subsidiaries (i) own or have the right
to use, free and clear of all liens, claims, and restrictions, all
patents, trademarks, service marks, trade names, and copyrights, and all
applications, licenses, and rights with respect to the foregoing, and
all trade secrets, including know-how, inventions, designs, processes,
works of authorship, computer programs, and technical data and
information (collectively, "INTELLECTUAL PROPERTY") used and sufficient
for use in the conduct of its business as now conducted and/or as
presently proposed to be conducted (including, without limitation, the
development, manufacture, operation, and sale of all products and
services sold or proposed to be sold by the Company and its Subsidiaries
during the next 24 months following the date of this Agreement) without
infringing upon or violating any right, lien, or claim of others,
including, without limitation, former employees and former employers of
its past and present employees, and (ii) except described in SCHEDULE
6T, is not obligated or under any liability whatsoever to make any
payments by way of royalties, fees, or otherwise to any owner or
licensee of, or other claimant to, any patent, trademark, service mark,
trade name, copyright, or other intangible asset, with respect to the
use thereof or in connection with the conduct of its business or
otherwise.
(b) Any and all Intellectual Property of any kind, relating to
the business of the Company and its Subsidiaries currently being
developed, or developed in the future, by any employee of the Company
and its Subsidiaries while in the employ of the Company and its
Subsidiaries shall be the property solely of the Company and its
Subsidiaries. The Company and its Subsidiaries have taken security
measures to protect the secrecy, confidentiality, and value of all
Intellectual Property, which measures are reasonable and customary in
the industry in which the Company and its Subsidiaries operate. The
Company and its Subsidiaries' employees and other persons who, either
alone or in concert with others, developed, invented, discovered,
derived, programmed, or designed the Intellectual Property (the
"TECHNICAL EMPLOYEES"), or who have knowledge of or access to
information about the Intellectual Property, have entered into a written
agreement with the Company or its Subsidiaries, in form and substance
satisfactory to the Company's management (the "PROPRIETARY INFORMATION
AGREEMENT") regarding ownership and treatment of the Intellectual
Property.
(c) Except as described in SCHEDULE 6T, none of the Company or
its Subsidiaries has received any communications alleging that the
Company or such Subsidiary has violated, or by conducting its business
as proposed would violate, any of the patents, trademarks, service
marks, trade names, copyrights, or trade secrets or other proprietary
rights of any other Person or entity. None of the Company's and its
Subsidiaries' employees is obligated under any contract (including
licenses, covenants, or commitments of any nature) or other agreement,
or subject to any judgment, decree, or order of any court or
administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Company or its
Subsidiaries or that would conflict with the Company's or its
Subsidiaries' business as presently conducted and as proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's or its Subsidiaries' business by the
employees of the Company and its Subsidiaries, nor the conduct of the
Company's or its Subsidiaries' business as proposed to be conducted,
will conflict with or result in a breach of the terms, conditions, or
provisions of, or constitute a default under, any contract, covenant, or
instrument under which any of such employees is now obligated.
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It is not, and will not become, necessary to utilize any inventions of
any of the Company's or its Subsidiaries' employees (or people the
Company and its Subsidiaries currently intends to hire) made prior to
their employment by the Company and its Subsidiaries other than those
that have been assigned to the Company and its Subsidiaries pursuant to
the Proprietary Information Agreement signed by such employee.
6U. INSURANCE COVERAGE. The properties of the Company and its
Subsidiaries are insured in amounts deemed adequate by the Company's management
against risks usually insured against by Persons operating businesses similar to
those of the Company and its Subsidiaries in the localities where such
properties are located.
7. REPRESENTATIONS AND WARRANTIES OF PURCHASER. To induce the Company to
enter into this Agreement, Purchaser represents and warrants to the Company
that:
7A. PURCHASE FOR INVESTMENT.
(a) Purchaser is acquiring the Shares for its own account and
not with a view to the public resale or distribution of all or any part
thereof in any transaction which would constitute a "distribution"
within the meaning of the Securities Act. Purchaser acknowledges that it
does not currently intend to assign its rights under this Agreement to
any third party prior to the Closing.
(b) Purchaser acknowledges that the Shares have not been
registered under the Securities Act.
(c) Purchaser is an "accredited investor" within the meaning of
Rule 501 under Regulation D promulgated under the Securities Act, is
experienced in evaluating investments in companies such as the Company,
has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of its investment and
has the ability to bear the entire economic risk of its investment.
Purchaser has made its own evaluation of its investment in the Common
Stock, based upon such information as is available to it and without
reliance upon the Company or any other person or entity, and Purchaser
agrees that neither the Company nor any other person or entity has any
obligation to furnish any additional information to Purchaser except as
expressly set forth herein.
(d) Purchaser acknowledges that the Shares may not be sold,
transferred, pledged, hypothecated, or otherwise disposed of without
registration under the Securities Act or an exemption therefrom, and
that in the absence of an effective registration statement covering the
Shares or an available exemption from registration under the Securities
Act, the Shares must be held indefinitely.
(e) Purchaser agrees that the Shares shall bear legends in
substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE
TRANSFERRED,
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EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, OR (ii) AN APPLICABLE EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT. ANY SALE PURSUANT TO
CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN
CONNECTION WITH SUCH SALE."
7B. AUTHORIZATION; NO CONFLICT. Purchaser has all requisite power and
authority to enter into this Agreement and to carry out and perform its
obligations under the terms of this Agreement. This Agreement is a legal, valid,
and binding obligation of Purchaser. The execution, delivery, and performance of
this Agreement by Purchaser and the consummation by Purchaser of the
transactions contemplated hereby will not conflict with or result in a default
under the terms of any material contract, agreement, obligation, commitment, or
organizational document applicable to Purchaser.
8. TERMINATION, AMENDMENT AND WAIVER.
8A. TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date, whether before or after approval of matters presented in
connection with this Agreement by the shareholders of the Company:
(a) by mutual written consent of Purchaser and the Company;
(b) by either Purchaser or the Company;
(i) if the shareholders of the Company fail to give any
required approval of this Agreement and the transactions
contemplated hereby upon a vote at a duly held meeting of
shareholders of the Company or at any adjournment thereof;
(ii) if the transaction contemplated by this Agreement
shall not have been consummated on or before February 1, 1998,
unless the failure to consummate the transaction contemplated by
this Agreement is the result of a material breach of this
Agreement by the party seeking to terminate this Agreement; or
(iii) if any permanent injunction or other order of a
court or other competent authority preventing the consummation
of the transactions contemplated by this Agreement or the
Network Agreement and Plan of Reorganization or Network Switches
Agreement and Plan of Reorganization shall have become final and
nonappealable.
(c) by Purchaser, if the Company breaches any of its
representations or warranties herein or fails to perform in any material
respect any of its covenants, agreements or obligations under this
Agreement;
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(d) by the Company, if Purchaser breaches any of its
representations or warranties herein or fails to perform in any material
respect any of its covenants, agreements or obligations under this
Agreement; and
(e) by the Company to the extent permitted under Section 5N.
8B. EFFECT OF TERMINATION. In the event of termination of this Agreement
by either the Company or Purchaser as provided in Section 8A, this Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of Purchaser or the Company, other than the provisions of
Section 9A.
9. MISCELLANEOUS.
9A. FEES AND EXPENSES.
(a) The Company agrees to pay Purchaser a fee in immediately
available funds of $500,000 (the "Termination Fee") promptly upon the
termination of the Agreement in the event this Agreement is terminated
by the Company as permitted by Section 5N. The Termination Fee shall be
payable promptly upon termination of this Agreement if the foregoing
events shall have occurred prior to termination.
(b) In addition, the Company agrees, in the event that the
transactions hereby contemplated shall be consummated to pay all
reasonable out-of-pocket expenses of the Purchaser arising in connection
with the transactions and other agreements and instruments contemplated
by this Agreement, including reasonable fees and expenses of counsel
incurred in connection with the preparation and negotiation of this
Agreement, any other agreement or instrument to be executed and
delivered in connection with this Agreement. The Company agrees to pay
the Purchaser and/or their counsel, as appropriate, all such fees and
expenses incurred up to and including the Closing, at the Closing.
9B. AMENDMENT. This Agreement may be amended by the parties hereto at
any time before or after any required approval of matters presented in
connection with the transaction contemplated by this Agreement by the
shareholders of the Company; provided, however, that after any such approval,
there shall be made no amendment that by law requires further approval by such
shareholders without the further approval of such shareholders. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties.
9C. EXTENSION; WAIVER. At any time prior to the Closing Date, the
parties may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or the other acts of the other parties,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto or (c) subject to the
proviso of Section 9B, waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver of
such rights.
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9D. ASSIGNMENT. This Agreement shall not be assigned by operation of law
or otherwise before the Closing Date, and any attempt at assignment shall be
void; PROVIDED, HOWEVER, that the Purchaser shall be permitted to assign its
rights under this Agreement to a third party ("Purchaser Assignee") before the
Closing Date so long as (i) Purchaser retains its obligations under this
Agreement, (ii) such third party becomes a party to this Agreement and joins
Purchaser in the representations and warranties in Paragraph 7 of this
Agreement, and (iii) Purchaser first offers to assign its rights under this
Agreement to a third party designated by the Company ("Company Designee") on
substantially similar terms as offered by Purchaser Assignee and the Company
Designee shall fail to respond or purchase such rights during the offer period
(the term of which period the Parties hereto shall mutually agree).
9E. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained herein or made in writing by or on behalf of any party to
this Agreement in connection herewith shall survive the execution and delivery
of this Agreement, regardless of any investigation made by the Purchaser or on
their behalf, and shall terminate on the fourth anniversary of the Closing Date.
9F. SUCCESSORS AND ASSIGNS; NO THIRD PARTY. All covenants and agreements
in this Agreement contained by or on behalf of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto and, to the extent provided in this Agreement, to the benefit of any
future holders of any Common Stock. Subject to the foregoing, nothing in this
Agreement shall confer upon any person or entity not a party to this Agreement,
or the legal representatives of such person or entity, any rights or remedies of
any nature or kind whatsoever under or by reason of this Agreement.
9G. NOTICES. All communications provided for hereunder shall be sent by
registered or certified mail and, if to the Purchaser, to the following: 5005
Woodway, Suite 350, Houston, Texas 77056, Attn: Mark Willis, with a copy to
Robert K. Hatcher, at Vinson & Elkins L.L.P., 1001 Fannin, Houston, Texas 77002;
if to the Company addressed to it at EqualNet Holding Corp., 1250 Wood Branch
Park Drive, Houston, Texas 77079-1212, Attn: General Counsel, with a copy to
Fulbright & Jaworski L.L.P., 1301 McKinney, Suite 5100, Houston, Texas 77010,
Attn: Robert F. Gray, Jr., or to such other address with respect to any party as
such party shall notify the other in writing; provided, however, that any such
communication to the Company may also, at the option of the Purchaser, be either
delivered to the Company at the Company's address set forth above or to any
officer of the Company. Within 5 Business Days after the date of such mailing
(save for any postal interruption) such communication shall be deemed to have
been received.
9H. DESCRIPTIVE HEADINGS. The descriptive headings of the several
Paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
9I. SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to the Purchaser, the determination of such
satisfaction shall be made by the Purchaser in its sole and exclusive reasonable
judgment exercised in good faith.
9J. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the law of the State
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of Texas without giving effect to the choice of law or conflicts principles
thereof. Any legal action or proceeding with respect to this Agreement may be
brought in the courts of the State of Texas or of the United States of America
for the Southern District of Texas, and, by execution and delivery of this
Agreement, the Company hereby accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts. The
Company irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to the Company at its
address set forth in Section 9G, such service to become effect 30 days after
such mailing. Nothing herein shall affect the right of the Purchaser to serve
process in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against the Company in any other jurisdiction.
9K. REMEDIES. In case any one or more of the covenants and/or agreements
set forth in this Agreement shall have been breached by the Company or the
Purchaser, the Company or the Purchaser, as applicable, may proceed to protect
and enforce its or their rights either by suit in equity and/or by action at
law.
9L. ENTIRE AGREEMENT. This Agreement, including the Schedules hereto,
and the other writings referred to herein or delivered pursuant hereto contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
9M. SEVERABILITY. Any provisions of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
9N. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but which
together shall constitute a single agreement.
9O. BROKERAGE. Each party hereto will indemnify and hold harmless the
others against and in respect of any claim for brokerage or other commissions
relative to this Agreement or to the transactions contemplated hereby, based in
any way on agreements, arrangements or understandings made or claimed to have
been made by such party with any third party.
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IN WITNESS WHEREOF, the parties hereto caused this Agreement to be duly
executed and delivered as of the date first above written.
EQUALNET HOLDING CORP.
By: /S/ ZANE RUSSELL
Name: ZANE RUSSELL
Title: CEO
WILLIS GROUP, LLC
By: /S/ MARK WILLIS
Name: MARK WILLIS
Title: PRES.
[signature page to Stock Purchase Agreement]
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EXHIBIT 4
JOINT FILING AGREEMENT
The undersigned, and each of them, do hereby agree and consent to the
filing of a single statement on behalf of all of them on Schedule 13D and
amendments thereto, in accordance with the provisions of Rule 13d-1(f)(1) of the
Securities Exchange Act of 1934, as amended.
Dated: December 11, 1997
THE WILLIS GROUP, LLC
By: /S/ MARK WILLIS
--------------------------
Mark Willis, President
/S/ MICHAEL T. WILLIS
--------------------------
Michael T. Willis
/S/ MARK WILLIS
--------------------------
Mark Willis
/S/ JAMES T. HARRIS
--------------------------
James T. Harris
