<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 4)
Equalnet Communications Corp.
- --------------------------------------------------------------------------------
(Name of the Issuer)
Common Stock, par value $.01 per share
- --------------------------------------------------------------------------------
(Title of Class of Securities)
294408109
- --------------------------------------------------------------------------------
(CUSIP Number)
Dean H. Fisher
1250 Wood Branch Park Dr.
Houston, Texas 77079
281/529-4648
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
September 4, 1998
- --------------------------------------------------------------------------------
(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 10 Pages
Exhibit Index on Page 10
<PAGE> 2
CUSIP No. 294408109 13D Page 2 of 10 Pages
1 NAMES OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
The Willis Group, LLC (76-0537286)
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b) x
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
OO
- --------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ]
REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Texas
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER 7,632,966
OF --------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED -0-
BY --------------------------------------------------------------
EACH
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 7,632,966
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
-0-
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
7,632,966 shares of Common Stock beneficially owned or underlying
currently exercisable warrants.
- --------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
40%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
OO
- --------------------------------------------------------------------------------
<PAGE> 3
CUSIP No. 294408109 13D Page 3 of 10 Pages
1 NAMES OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Michael T. Willis
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b) x
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
PF
- --------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ]
REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER 500,000
OF --------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED 7,632,966
BY --------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 500,000
WITH --------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
7,632,966
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,132,966 shares of Common Stock beneficially owned or underlying
currently exercisable warrants.
- --------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
42%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
<PAGE> 4
CUSIP No. 294408109 13D Page 4 of 10 Pages
1 NAMES OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Mark Willis
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b) x
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
AF
- --------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ]
REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER -0-
OF --------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED 7,632,966
BY --------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON -0-
WITH --------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
7,632,966
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
7,632,966 shares of Common Stock beneficially owned or underlying
currently exercisable warrants.
- --------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
40%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
<PAGE> 5
CUSIP No. 294408109 13D Page 5 of 10 Pages
1 NAMES OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
James T. Harris
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b) x
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
AF
- --------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ]
REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER -0-
OF --------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED 7,632,966
BY --------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON -0-
WITH --------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
7,632,966
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
7,632,966 shares of Common Stock beneficially owned or underlying
currently exercisable warrants.
- --------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
40%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
<PAGE> 6
CUSIP No. 294408109 13D Page 6 of 10 Pages
ITEM 1. SECURITY AND ISSUER.
This Amendment No. 4 on Schedule 13D amends Items 1 and 3 through 7 of
Amendment No. 3 on Schedule 13D dated March 12, 1998 filed by the Filing
Persons. This Amendment No. 4 relates to the Common Stock, par value $.01 per
share (the "Common Stock") of Equalnet Communications Corp., a Texas
corporation, formerly known as Equalnet Holding Corp. (the "Issuer").
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The Willis Group entered into a Note Purchase and Exchange Agreement
(the "Note Purchase and Exchange Agreement") dated as of July 31, 1998 with the
Issuer pursuant to which The Willis Group acquired 1,875 newly issued shares
(the "Series D Preferred Shares") of the Issuer's Series D Convertible Preferred
Stock, par value $.01 per share (the "Series D Preferred Stock"), in exchange
for 1,500,000 shares of Common Stock and $100,000 in cash. The 1,500,000 shares
of Common Stock exchanged for the Series D Preferred Shares were acquired by The
Willis Group on March 6, 1998 as part of the transactions contemplated by the
Agreements described in Amendment No. 3 to this Schedule 13D, and the $100,000
cash payment was made from funds obtained from the Willis Note (as defined
below). Also pursuant to the Note Purchase and Exchange Agreement, in exchange
for a cash payment of $1,400,000, The Willis Group received the Issuer's Senior
Secured Convertible Note due 2001 in the aggregate principal amount of
$1,500,000 (the "September Convertible Note") and warrants to purchase 333,116
shares of Common Stock (the "September Warrants"). The source of the cash
payment was funds from the Willis Note. On September 5, 1998, The Willis Group
executed a Promissory Note in favor of Mike Willis (the "Willis Note"), pursuant
to which The Willis Group borrowed $1,500,000 from Mike Willis. The Willis Note
bears interest at 7% per year and is due and payable on December 31, 1999,
subject to earlier payment as described therein.
The Series D Preferred Stock and the September Convertible Note are
convertible into shares of Common Stock at the lesser of (i) a fluctuating
conversion price representing a discount to the market price of the Common Stock
during specified periods prior to conversion or (ii) a specified ceiling price.
The right to convert Series D Preferred Stock and the September Convertible Note
commences on the earlier of (x) the date the Securities and Exchange Commission
declares effective the Company's registration statement to be filed under the
Securities Act of 1933, as amended, registering for resale the Common Stock
issuable upon such conversions and (y) December 3, 1998. The September Warrants
are exercisable at any time for $.9006 per share and expire on September 4,
2003.
ITEM 4. PURPOSE OF TRANSACTION.
The Filing Persons acquired the Series D Preferred Shares, the
September Convertible Note and the September Warrants as part of their ongoing
investment strategy regarding 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.
Except as set forth above in this Item 4, none of the Filing Persons
nor, to the best of each Filing Person's knowledge, any of the executive
officers or directors of such Filing Persons, as applicable, has any plans or
proposal that relate to or would result in any of the actions specified in
clauses (a) through (j) of Item 4 to Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) The terms of the Series D Preferred Stock, the September
Convertible Note and the September Warrants provide that a holder thereof may
not convert or exercise any portion of such securities if such conversion or
exercise
<PAGE> 7
CUSIP No. 294408109 13D Page 7 of 10 Pages
would cause such holder's beneficial ownership of the Common Stock, including
shares held by all persons whose beneficial ownership would be aggregated with
such holder (other than shares so owned through ownership of such unconverted
securities or other convertible securities containing similar restrictions), to
exceed 4.9% of the outstanding Common Stock (collectively, the "Conversion
Restrictions"). Since the beneficial ownership of the Common Stock of each of
the Filing Persons exceeds 4.9% of the outstanding Common Stock and would be
aggregated with the beneficial ownership of the Common Stock issuable upon
conversion or exercise of the Series D Preferred Shares, the September
Convertible Note and the September Warrants, the Conversion Restrictions
currently prevent any conversion or exercise of such securities. In addition,
due to the waiting period required before The Willis Group may exercise the
initial right to convert the Series D Preferred Stock and the September
Convertible Note, the Filing Persons believe that they do not have the right to
acquire the Common Stock issuable upon such conversions within 60 days of the
date of this Amendment No. 4. Accordingly, none of the Filing Persons currently
beneficially own any of the shares of Common Stock which would otherwise be
issuable upon conversion of the Series D Preferred Shares or the September
Convertible Note or upon the exercise of the September Warrants.
(b) At present, and as a result of the exchange of the 1,500,000 shares
of Common Stock described herein, the Filing Persons, other than Mike Willis,
beneficially own or have the right to acquire in the form of currently
exercisable warrants, directly or indirectly, 7,632,966 shares of Common Stock
of the Issuer, which constitutes 40% of the Common Stock outstanding, and Mike
Willis beneficially owns or has the right to acquire in the form of currently
exercisable warrants, directly or indirectly, 8,132,966 shares of Common Stock
of the Issuer, which constitutes 42% of the Common Stock outstanding, each based
on the total number of shares outstanding (18,393,070), which number is
comprised of the number of shares outstanding on the Record Date (21,393,070) as
contained in the Issuer's Definitive Proxy Statement on Schedule 14A, filed with
the Securities and Exchange Commission on June 15, 1998 and including as
outstanding the 600,000 shares and, in the case of Mike Willis, the additional
500,000 shares, issuable to The Willis Group or Mike Willis, as the case may be,
under currently exercisable warrants, less the 1,500,000 shares of Common Stock
exchanged by The Willis Group as described in Item 3 and an additional 1,500,000
shares of Common Stock exchanged by another shareholder of the Issuer in a
similar transaction. Such securities, or the rights thereto, were acquired (and
certain securities were disposed of) pursuant to the transactions described in
Item 3 hereof and in the initial filing of and Amendment No. 1, Amendment No. 2
and Amendment No. 3 to this Schedule 13D. In addition, pursuant to the
conversion into Common Stock of the Note (as defined in Item 3 of the initial
filing of this Schedule 13D), the Filing Persons acquired an additional 51,333
shares of Common Stock, representing accrued interest on such Note.
(c) 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
7,632,966, shares of Common Stock they own or have the right to acquire under
currently exercisable warrants, 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. Mr. Mike Willis will have sole voting power and power to dispose of the
500,000 shares of Common Stock he has the right to acquire under a currently
exercisable warrant.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
See Items 3 and 4 hereof.
Pursuant to the Registration Rights Agreement, dated as of July 31,
1998, between the Issuer and The Willis Group and entered into in connection
with the transactions described in Item 3 (the "Registration Rights Agreement"),
the Issuer granted certain registration rights to The Willis Group with respect
to shares of Common Stock issuable upon conversion or exercise of the September
Convertible Note, the Series D Preferred Shares and the September Warrants.
These rights include certain mandatory registration rights in addition to
"piggy-back" registration rights, each as described in the Registration Rights
Agreement.
<PAGE> 8
CUSIP No. 294408109 13D Page 8 of 10 Pages
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
1. Note Purchase and Exchange Agreement, dated as of July 31, 1998
(including Schedule 3(b)-2 thereto).
2. September Convertible Note, dated September 4, 1998.
3. Common Stock Purchase Warrant (September Warrants, as defined
above), dated September 4, 1998.
4. Promissory Note (Willis Note, as defined above), dated
September 5, 1998.
5. Joint Filing Agreement, dated as of September 23, 1998, among The
Willis Group, Michael T. Willis, Mark Willis and James T. Harris.
<PAGE> 9
CUSIP No. 294408109 13D Page 9 of 10 Pages
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
Dated: September 23, 1998 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
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)
<PAGE> 10
CUSIP No. 294408109 13D Page 10 of 10 Pages
EXHIBIT INDEX
Exhibit
1. Note Purchase and Exchange Agreement, dated as of July 31, 1998 (including
Schedule 3(b)-2 thereto).
2. September Convertible Note, dated September 4, 1998.
3. Common Stock Purchase Warrant (September Warrants, as defined above), dated
September 4, 1998.
4. Promissory Note (Willis Note, as defined above), dated September 5, 1998.
5. Joint Filing Agreement, dated as of September 23, 1998, among The Willis
Group, Michael T. Willis, Mark Willis and James T. Harris.
<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 4)
Equalnet Communications Corp.
- --------------------------------------------------------------------------------
(Name of the Issuer)
Common Stock, par value $.01 per share
- --------------------------------------------------------------------------------
(Title of Class of Securities)
294408109
- --------------------------------------------------------------------------------
(CUSIP Number)
Dean H. Fisher
1250 Wood Branch Park Dr.
Houston, Texas 77079
281/529-4648
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
September 4, 1998
- --------------------------------------------------------------------------------
(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 10 Pages
Exhibit Index on Page 10
<PAGE> 2
CUSIP No. 294408109 13D Page 2 of 10 Pages
1 NAMES OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
The Willis Group, LLC (76-0537286)
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b) x
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
OO
- --------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ]
REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Texas
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER 7,632,966
OF --------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED -0-
BY --------------------------------------------------------------
EACH
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 7,632,966
--------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
-0-
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
7,632,966 shares of Common Stock beneficially owned or underlying
currently exercisable warrants.
- --------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
40%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
OO
- --------------------------------------------------------------------------------
<PAGE> 3
CUSIP No. 294408109 13D Page 3 of 10 Pages
1 NAMES OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Michael T. Willis
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b) x
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
PF
- --------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ]
REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER 500,000
OF --------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED 7,632,966
BY --------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 500,000
WITH --------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
7,632,966
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
8,132,966 shares of Common Stock beneficially owned or underlying
currently exercisable warrants.
- --------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
42%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
<PAGE> 4
CUSIP No. 294408109 13D Page 4 of 10 Pages
1 NAMES OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Mark Willis
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b) x
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
AF
- --------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ]
REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER -0-
OF --------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED 7,632,966
BY --------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON -0-
WITH --------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
7,632,966
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
7,632,966 shares of Common Stock beneficially owned or underlying
currently exercisable warrants.
- --------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
40%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
<PAGE> 5
CUSIP No. 294408109 13D Page 5 of 10 Pages
1 NAMES OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
James T. Harris
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)
(b) x
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS
AF
- --------------------------------------------------------------------------------
5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS [ ]
REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER -0-
OF --------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED 7,632,966
BY --------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON -0-
WITH --------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
7,632,966
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
7,632,966 shares of Common Stock beneficially owned or underlying
currently exercisable warrants.
- --------------------------------------------------------------------------------
12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
40%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IN
- --------------------------------------------------------------------------------
<PAGE> 6
CUSIP No. 294408109 13D Page 6 of 10 Pages
ITEM 1. SECURITY AND ISSUER.
This Amendment No. 4 on Schedule 13D amends Items 1 and 3 through 7 of
Amendment No. 3 on Schedule 13D dated March 12, 1998 filed by the Filing
Persons. This Amendment No. 4 relates to the Common Stock, par value $.01 per
share (the "Common Stock") of Equalnet Communications Corp., a Texas
corporation, formerly known as Equalnet Holding Corp. (the "Issuer").
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The Willis Group entered into a Note Purchase and Exchange Agreement
(the "Note Purchase and Exchange Agreement") dated as of July 31, 1998 with the
Issuer pursuant to which The Willis Group acquired 1,875 newly issued shares
(the "Series D Preferred Shares") of the Issuer's Series D Convertible Preferred
Stock, par value $.01 per share (the "Series D Preferred Stock"), in exchange
for 1,500,000 shares of Common Stock and $100,000 in cash. The 1,500,000 shares
of Common Stock exchanged for the Series D Preferred Shares were acquired by The
Willis Group on March 6, 1998 as part of the transactions contemplated by the
Agreements described in Amendment No. 3 to this Schedule 13D, and the $100,000
cash payment was made from funds obtained from the Willis Note (as defined
below). Also pursuant to the Note Purchase and Exchange Agreement, in exchange
for a cash payment of $1,400,000, The Willis Group received the Issuer's Senior
Secured Convertible Note due 2001 in the aggregate principal amount of
$1,500,000 (the "September Convertible Note") and warrants to purchase 333,116
shares of Common Stock (the "September Warrants"). The source of the cash
payment was funds from the Willis Note. On September 5, 1998, The Willis Group
executed a Promissory Note in favor of Mike Willis (the "Willis Note"), pursuant
to which The Willis Group borrowed $1,500,000 from Mike Willis. The Willis Note
bears interest at 7% per year and is due and payable on December 31, 1999,
subject to earlier payment as described therein.
The Series D Preferred Stock and the September Convertible Note are
convertible into shares of Common Stock at the lesser of (i) a fluctuating
conversion price representing a discount to the market price of the Common Stock
during specified periods prior to conversion or (ii) a specified ceiling price.
The right to convert Series D Preferred Stock and the September Convertible Note
commences on the earlier of (x) the date the Securities and Exchange Commission
declares effective the Company's registration statement to be filed under the
Securities Act of 1933, as amended, registering for resale the Common Stock
issuable upon such conversions and (y) December 3, 1998. The September Warrants
are exercisable at any time for $.9006 per share and expire on September 4,
2003.
ITEM 4. PURPOSE OF TRANSACTION.
The Filing Persons acquired the Series D Preferred Shares, the
September Convertible Note and the September Warrants as part of their ongoing
investment strategy regarding 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.
Except as set forth above in this Item 4, none of the Filing Persons
nor, to the best of each Filing Person's knowledge, any of the executive
officers or directors of such Filing Persons, as applicable, has any plans or
proposal that relate to or would result in any of the actions specified in
clauses (a) through (j) of Item 4 to Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) The terms of the Series D Preferred Stock, the September
Convertible Note and the September Warrants provide that a holder thereof may
not convert or exercise any portion of such securities if such conversion or
exercise
<PAGE> 7
CUSIP No. 294408109 13D Page 7 of 10 Pages
would cause such holder's beneficial ownership of the Common Stock, including
shares held by all persons whose beneficial ownership would be aggregated with
such holder (other than shares so owned through ownership of such unconverted
securities or other convertible securities containing similar restrictions), to
exceed 4.9% of the outstanding Common Stock (collectively, the "Conversion
Restrictions"). Since the beneficial ownership of the Common Stock of each of
the Filing Persons exceeds 4.9% of the outstanding Common Stock and would be
aggregated with the beneficial ownership of the Common Stock issuable upon
conversion or exercise of the Series D Preferred Shares, the September
Convertible Note and the September Warrants, the Conversion Restrictions
currently prevent any conversion or exercise of such securities. In addition,
due to the waiting period required before The Willis Group may exercise the
initial right to convert the Series D Preferred Stock and the September
Convertible Note, the Filing Persons believe that they do not have the right to
acquire the Common Stock issuable upon such conversions within 60 days of the
date of this Amendment No. 4. Accordingly, none of the Filing Persons currently
beneficially own any of the shares of Common Stock which would otherwise be
issuable upon conversion of the Series D Preferred Shares or the September
Convertible Note or upon the exercise of the September Warrants.
(b) At present, and as a result of the exchange of the 1,500,000 shares
of Common Stock described herein, the Filing Persons, other than Mike Willis,
beneficially own or have the right to acquire in the form of currently
exercisable warrants, directly or indirectly, 7,632,966 shares of Common Stock
of the Issuer, which constitutes 40% of the Common Stock outstanding, and Mike
Willis beneficially owns or has the right to acquire in the form of currently
exercisable warrants, directly or indirectly, 8,132,966 shares of Common Stock
of the Issuer, which constitutes 42% of the Common Stock outstanding, each based
on the total number of shares outstanding (18,393,070), which number is
comprised of the number of shares outstanding on the Record Date (21,393,070) as
contained in the Issuer's Definitive Proxy Statement on Schedule 14A, filed with
the Securities and Exchange Commission on June 15, 1998 and including as
outstanding the 600,000 shares and, in the case of Mike Willis, the additional
500,000 shares, issuable to The Willis Group or Mike Willis, as the case may be,
under currently exercisable warrants, less the 1,500,000 shares of Common Stock
exchanged by The Willis Group as described in Item 3 and an additional 1,500,000
shares of Common Stock exchanged by another shareholder of the Issuer in a
similar transaction. Such securities, or the rights thereto, were acquired (and
certain securities were disposed of) pursuant to the transactions described in
Item 3 hereof and in the initial filing of and Amendment No. 1, Amendment No. 2
and Amendment No. 3 to this Schedule 13D. In addition, pursuant to the
conversion into Common Stock of the Note (as defined in Item 3 of the initial
filing of this Schedule 13D), the Filing Persons acquired an additional 51,333
shares of Common Stock, representing accrued interest on such Note.
(c) 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
7,632,966, shares of Common Stock they own or have the right to acquire under
currently exercisable warrants, 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. Mr. Mike Willis will have sole voting power and power to dispose of the
500,000 shares of Common Stock he has the right to acquire under a currently
exercisable warrant.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
See Items 3 and 4 hereof.
Pursuant to the Registration Rights Agreement, dated as of July 31,
1998, between the Issuer and The Willis Group and entered into in connection
with the transactions described in Item 3 (the "Registration Rights Agreement"),
the Issuer granted certain registration rights to The Willis Group with respect
to shares of Common Stock issuable upon conversion or exercise of the September
Convertible Note, the Series D Preferred Shares and the September Warrants.
These rights include certain mandatory registration rights in addition to
"piggy-back" registration rights, each as described in the Registration Rights
Agreement.
<PAGE> 8
CUSIP No. 294408109 13D Page 8 of 10 Pages
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
1. Note Purchase and Exchange Agreement, dated as of July 31, 1998
(including Schedule 3(b)-2 thereto).
2. September Convertible Note, dated September 4, 1998.
3. Common Stock Purchase Warrant (September Warrants, as defined
above), dated September 4, 1998.
4. Promissory Note (Willis Note, as defined above), dated
September 5, 1998.
5. Joint Filing Agreement, dated as of September 23, 1998, among The
Willis Group, Michael T. Willis, Mark Willis and James T. Harris.
<PAGE> 9
CUSIP No. 294408109 13D Page 9 of 10 Pages
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
Dated: September 23, 1998 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
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)
<PAGE> 10
CUSIP No. 294408109 13D Page 10 of 10 Pages
EXHIBIT INDEX
Exhibit
1. Note Purchase and Exchange Agreement, dated as of July 31, 1998 (including
Schedule 3(b)-2 thereto).
2. September Convertible Note, dated September 4, 1998.
3. Common Stock Purchase Warrant (September Warrants, as defined above), dated
September 4, 1998.
4. Promissory Note (Willis Note, as defined above), dated September 5, 1998.
5. Joint Filing Agreement, dated as of September 23, 1998, among The Willis
Group, Michael T. Willis, Mark Willis and James T. Harris.
<PAGE> 1
EXHIBIT 2
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"). THE ISSUANCE TO THE HOLDER OF THIS NOTE OF THE SHARES OF
COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE AND IN PAYMENT OF INTEREST ON
THIS NOTE ARE NOT COVERED BY A REGISTRATION STATEMENT UNDER THE 1933 ACT. THIS
NOTE HAS BEEN ACQUIRED, AND SUCH SHARES MUST BE ACQUIRED, FOR INVESTMENT ONLY
AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF REGISTRATION OF
THE RESALE THEREOF UNDER THE 1933 ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY IN FORM, SCOPE AND SUBSTANCE TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
EQUALNET COMMUNICATIONS CORP.
6% SENIOR SECURED CONVERTIBLE NOTE DUE 2001
No. 2 $1,500,000.00
New York, New York
September 4, 1998
FOR VALUE RECEIVED, EQUALNET COMMUNICATIONS CORP., a Texas corporation
(hereinafter called the "Company"), hereby promises to pay to WILLIS GROUP LLC,
5005 Woodway, Suite 350, Houston, Texas 77056, or registered assigns (the
"Holder") or order, the sum of One Million Five Hundred Thousand Dollars
($1,500,000.00), on the Maturity Date, and to pay interest on the unpaid
principal balance hereof at the Applicable Rate from the date hereof, until the
same becomes due and payable, whether at maturity or upon acceleration or by
repurchase in accordance with the terms hereof or otherwise. Any amount of
principal of or interest on this Note which is not paid when due shall bear
interest at the Default Rate from the due date thereof until the same is paid
("Default Interest"). Interest shall be payable in arrears on each Interest
Payment Date, commencing on November 15, 1998, on the principal amount
outstanding on such date. Interest on this Note shall be computed on the basis
of a 360-day year of 12 30-day months and actual days elapsed. No interest shall
be payable on an Interest Payment Date on any portion of the principal amount of
this Note which shall have been converted or redeemed prior to such Interest
Payment Date so long as the Company shall have complied in full with its
obligations with respect to such conversion or redemption.
All payments of principal of and premium, if any, and interest on this
Note shall be made in lawful money of the United States of America, or, at the
option of the Company and subject to the provisions of this Note, interest
payable on the Interest Payment Dates may be paid in whole or in part in
Interest Notes. All cash payments shall be made by wire transfer of immediately
available funds to such account as the Holder may from time to time designate by
written notice in accordance with the provisions of this Note. Whenever any
amount expressed to be due by the terms of this Note is due on any day which is
not a Business Day, the same shall instead be due on the next succeeding day
which is a Business Day and, in the case of any Interest Payment Date which is
not the date on which this Note is paid in full, the extension of the due date
thereof shall not be taken into account for purposes of determining the amount
of interest due on such date. Certain capitalized terms used in this Note are
defined in Article VI.
<PAGE> 2
The obligations of the Company under this Note shall rank in right of
payment on a parity with all other unsubordinated obligations of the Company for
indebtedness for borrowed money or the purchase price of property. This Note is
issued pursuant to the Note Purchase Agreement and the Holder of this Note and
this Note are subject to the terms of the Note Purchase Agreement. The
obligations of the Company under this Note are secured pursuant to, and the
Holder of this Note is entitled to the benefits of, the Security Agreement. This
Note is one of the several 6% Senior Secured Convertible Notes due 2001 in the
original aggregate principal amount of $3,000,000.00 issued by the Company
pursuant to the Master Purchase Agreement, the Note Purchase Agreement and the
Other Note Purchase Agreements.
The following terms shall apply to this Note:
ARTICLE I
INTEREST NOTES; NO PREPAYMENT
1.1 ISSUANCE OF INTEREST NOTES IN LIEU OF CASH INTEREST. (a) If the
Company exercises its option to make a payment of interest on this Note wholly
or partly in Interest Notes (herein sometimes called the "Interest Note Payment
Option"), the issuance of Interest Notes upon such exercise of the Interest Note
Payment Option shall have been authorized by the Board of Directors of the
Company.
(b) The Company shall not be permitted to exercise the Interest Note
Payment Option with respect to any payment of interest on this Note if:
(i) the number of shares of Common Stock authorized, unissued and
unreserved for all purposes, or held in the Company's treasury, is
insufficient to permit the conversion in full of the Interest Notes to be
so issued;
(ii) the issuance or delivery of such Interest Note or the public
resale of the shares of Common Stock issuable upon conversion of such
Interest Note by the Holder would require registration with or approval of
any governmental authority under any law or regulation, and such
registration or approval has not been effected or obtained or is not in
effect or the Registration Statement is unavailable for use by the Holder
for the resale of such shares of Common Stock; provided, however, that this
limitation shall not be deemed to be applicable prior to the date which is
105 days after the Issuance Date, if the Registration Statement is on Form
S-3, or the date which is 120 days after the Issuance Date, if the
Registration Statement is on Form S-1, if this limitation otherwise would
be applicable solely because the Registration Statement shall not yet have
been declared effective, so long as the Company shall be in compliance in
all material respects with its obligations under the Registration Rights
Agreement;
(iii) the shares of Common Stock issuable upon conversion of such
Interest Note shall not at the time of issuance have been authorized for
listing, upon official notice of issuance, on the principal securities
exchange on which the Common Stock is then listed and traded;
(iv) an Event of Default has occurred and is continuing;
(v) any Repurchase Event shall have occurred and the Holder or the
holder of any Other Note shall have executed repurchase rights by reason
thereof and the Company shall not have paid the Repurchase Price hereof or
the repurchase price thereof; or
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<PAGE> 3
(vi) the Common Stock is neither (i) listed or admitted for trading on
a national securities exchange nor (ii) quoted on the Nasdaq or the Nasdaq
SmallCap.
(c) If the Interest Note Payment Option is elected, the Company shall
issue and deliver or cause to be delivered to the Holder on or before the due
date of such interest payment an Interest Note, duly executed on behalf of the
Company, in the principal amount equal to the total amount of lawful money of
the United States of America which the Holder would receive if the aggregate
amount of interest on this Note which is being paid in such Interest Note were
being paid in such lawful money; provided, however, that if in connection with
any such election the Company shall have failed to deliver such Interest Note to
the Holder within three Trading Days after the applicable Interest Payment Date,
then the Company shall not be entitled to use the Interest Note Payment Option
in respect of such Interest Payment Date, such cash interest shall be
immediately due and payable and the Company shall pay the interest for such
Interest Payment Date in cash with Default Interest, at the rate provided in
this Note, from such Interest Payment Date until paid.
(d) If the Company exercises the Interest Note Payment Option with
respect to a payment of interest on this Note, the Company shall deliver to the
Holder, on or prior to the date on which such Interest Note is to be received by
the Holder, a Company Certificate setting forth (i) the total amount of the
interest payment to which the Holder is entitled, (ii) the portion of the
interest payment being made in an Interest Note and (iii) a brief statement that
none of the conditions set forth in Section 1.1(b) has occurred and is existing.
Each Interest Note shall be issued in the name of the Holder or its nominee. In
addition, on or before the date of issuance of each Interest Note the Company
shall notify the Transfer Agent of the issuance of such Interest Note, the
principal amount thereof and the name of the registered holder thereof.
(e) Each Interest Note, when issued pursuant to and in compliance with
this Section 1.1, shall be, and for all purposes shall be deemed to be, duly
authorized and a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, and the shares of Common Stock
issuable upon conversion of such Interest Note, when so issued, shall be, and
for all purposes shall be deemed to be, validly issued, fully paid and
nonassessable shares of Common Stock; the issuance and delivery of such Interest
Note and such shares is in all respects authorized; and the issuance of such
Interest Note will be, and for all purposes shall be deemed to be, in full
discharge and satisfaction of the Company's obligation to pay the interest on
this Note to which such Interest Note relates.
1.2 OPTIONAL REDEMPTION. If (1) the Company shall be in compliance in
all material respects with its obligations to the Holder and the holders of the
Other Notes (including, without limitation, its obligations under the
Transaction Documents), (2) on the date the Company Optional Redemption Notice
is given and at all times until the Redemption Date, the Registration Statement
is effective and available for use by the Holder and each holder of Other Notes
for the resale of shares of Common Stock acquired by the Holder upon conversion
of this Note or by such other holders upon conversion of the Other Notes and (3)
no Repurchase Event shall have occurred with respect to which, on the date a
Redemption Notice is to be given or on the Redemption Date, the Holder or any
holder of Other Notes shall have exercised optional repurchase rights under
Sections 5.1 and 5.2 (or the comparable provisions of any Interest Note or Other
Note) by reason of such Repurchase Event and the Company shall not have paid the
Repurchase Price to the Holder or the repurchase price has not been paid to such
holder, as the case may be, then the Company shall have the right, exercisable
by giving a Company Optional Redemption Notice not less than 30 days or more
than 60 days prior to the Redemption Date the Holders, at any time to redeem all
or from time to time to redeem any part of the outstanding principal amount of
this Note in accordance with this Section 1.2. The Company Optional Redemption
Notice shall state that: (1) the Company is exercising its right to redeem this
Note in accordance with this Section 1.3, (2) the principal
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<PAGE> 4
amount of this Note to be redeemed, (3) the Redemption Event Redemption Price
and (4) the Redemption Event Redemption Date. If the Company shall redeem less
than all the outstanding principal amount of this Note, such redemption shall be
made as nearly as practical pro rata from the Holder and all holders of Other
Notes. Any Company Optional Redemption Notice under this Section 1.2 shall be
given to the Holder at its address appearing on the records of the Company. On
the Redemption Date (or such later date as the Holder surrenders this Note to
the Company), the Company shall make payment of the applicable Redemption Price
to the Holder in immediately available funds to such account as specified by the
Holder in writing to the Company at least one Business Day prior to the
Redemption Date. The Holder shall be entitled to convert this Note or the
portion hereof to be redeemed in accordance with Article II through the day
prior to the Redemption Date and (2) if the Company shall fail to pay the
Redemption Price of this Note or the portion hereof to be redeemed when due, at
any time after the due date thereof until such date as the Company pays the
Redemption Price of this Note or the portion hereof to be redeemed. This Note or
any portion hereof as to which the Holder exercises the right of conversion
pursuant to Article II or the optional repurchase right pursuant to Sections 5.1
and 5.2 may be redeemed by the Company pursuant to this Section 1.2 on or after
the date of exercise of such conversion right or optional repurchase right, as
the case may be, regardless of whether the Company Optional Redemption Notice
shall have been given prior to, or on or after, the date of exercise of such
conversion right or optional redemption right, as the case may be.
1.3 OPTIONAL REDEMPTION BY COMPANY FOR OPTIONAL REDEMPTION EVENT. (a)
If an Optional Redemption Event occurs the Company shall have the right to
redeem at any one time with respect to such Optional Redemption Event all of the
outstanding principal amount of this Note at the Redemption Event Redemption
Price pursuant to this Section 1.3 on any Redemption Event Redemption Date, so
long as (x) on the date the Redemption Event Redemption Notice is given and at
all times to and including the applicable Redemption Event Redemption Date, no
Event of Default has occurred and is continuing and no Repurchase Event has
occurred with respect to which the Holder or the holder of any Other Note has
exercised repurchase rights pursuant to Sections 5.1 and 5.2 (or the comparable
provisions of any Interest Note or Other Note) and the Repurchase Price has not
been paid to the Holder or the repurchase price has not been paid to such
holder, as the case may be, and (y) on the date a Redemption Event Redemption
Notice is given and at all times to and including the applicable Redemption
Event Redemption Date, the Company is in compliance in all material respects
with its obligations to the Holder and the holders of the Other Notes
(including, without limitation, its obligations under the Transaction
Documents). In order to exercise its right of redemption under this Section 1.3,
the Company shall give a Redemption Event Redemption Notice to the Holder not
later than ten days after an Optional Redemption Event occurs and not less than
20 days or more than 30 days prior to the Redemption Event Redemption Date
stating that: (1) the Company is exercising its right to redeem this Note in
accordance with this Section 1.3, (2) the principal amount of this Note to be
redeemed, (3) the Redemption Event Redemption Price and (4) the Redemption Event
Redemption Date. On the applicable Redemption Event Redemption Date (or such
later date as the Holder surrenders this Note to the Company) the Company shall
pay to or upon the order of the Holder by wire transfer of immediately available
funds to such account as shall be specified for such purpose by the Holder at
least one Business Day prior to the Redemption Event Redemption Date an amount
equal to the Redemption Event Redemption Price of this Note.
(b) The Company shall not be entitled to give a Redemption Event
Redemption Notice or to redeem any portion of this Note with respect to which
the Holder has given a Conversion Notice. Notwithstanding the giving of a
Redemption Event Redemption Notice, the Holder shall be entitled to convert this
Note in accordance with the terms of this Note by giving a Conversion Notice at
any time prior to the later of (1) the date which is one Business Day prior to
the applicable Redemption Event Redemption Date and (2) the date on which the
Company pays the Redemption Event Redemption Price of this Note to the Holder.
The Redemption Event Redemption Price set forth in an Redemption Event
Redemption Notice shall be adjusted to reflect
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<PAGE> 5
the reduced outstanding principal amount of this Note and related accrued
interest and Default Interest on the Redemption Event Redemption Date resulting
from any permitted conversions of this Note after the Redemption Event
Redemption Notice is given.
(c) Any redemption of this Note pursuant to this Section 1.3 shall be
made at the same time as a redemption by the Company of the Interest Notes and
the Other Notes. The Company shall not redeem any of the Interest Notes or the
Other Notes pursuant to the provisions thereof similar to this Section 1.3 or
repurchase or otherwise acquire any of the Interest Notes or the Other Notes
(other than a mandatory redemption pursuant to provisions of the Interest Notes
or the Other Notes comparable to Section 2.4) unless the Company offers
simultaneously to redeem, repurchase or otherwise acquire a pro rata portion
(based on outstanding principal amount) of this Note for cash at the same price
as the Interest Note or Interest Notes or the Other Note or Other Notes.
1.4 NO PREPAYMENT. Except as otherwise specifically provided in Section
1.2 and 1.3, this Note may not be prepaid, redeemed or repurchased at the option
of the Company prior to September 4, 2001.
ARTICLE II
CONVERSION; CERTAIN MANDATORY REDEMPTION
RIGHTS AND OBLIGATIONS
2.1 CONVERSION RIGHT. Upon the terms and subject to the limitations
contained herein, the Holder shall have the right at any time on or after the
earlier of (x) the SEC Effective Date and (y) the date which is 90 days on and
after the Issuance Date, and in either such case at any time prior to the
payment in full of this Note, to convert at any time all or from time to time
any part of the outstanding and unpaid principal amount of this Note, and
accrued and unpaid interest on the principal amount to be converted and Default
Interest on any such interest, into fully paid and nonassessable shares of
Common Stock at the Conversion Price in effect on the date the applicable
Conversion Notice is given in accordance with this Note. Notwithstanding any
other provision of this Note, in no event shall the Holder be entitled at any
time to convert any portion of the principal amount of this Note (and accrued
and unpaid interest thereon and Default Interest on any such interest) in excess
of that portion of the principal amount of this Note (and accrued and unpaid
interest thereon and Default Interest on any such interest) upon conversion of
which the sum of (1) the number of shares of Common Stock beneficially owned by
the Holder (including shares of Common Stock beneficially owned by all
Aggregated Persons) (other than shares of Common Stock deemed beneficially owned
by the Holder or any Aggregated Person of the Holder through the ownership of
(x) the unconverted portion of the principal amount of this Note, any Interest
Notes and the Other Notes and accrued and unpaid interest thereon and on any
such interest and (y) the unconverted or unexercised portion of the Warrants or
any instrument which contains limitations similar to those set forth in this
sentence) and (2) the number of shares of Common Stock issuable upon conversion
of the portion of the principal amount of this Note and accrued and unpaid
interest thereon and Default Interest on any such interest with respect to which
the determination in this sentence is being made, would result in beneficial
ownership by the Holder and all Aggregated Persons of the Holder of more than
4.9% of the outstanding shares of Common Stock. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the 1934 Act, and Regulation 13D-G thereunder, except as
otherwise provided in clause (1) of the immediately preceding sentence. For
purposes of the second preceding sentence, the Company shall be entitled to
rely, and shall be fully protected in relying, on any statement or
representation made by the Holder to the Company in connection with a particular
conversion, without any obligation on the part of the Company to make any
inquiry or investigation or to examine its records or the records of any
transfer agent for
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<PAGE> 6
the Common Stock and without any liability of the Company with respect thereto.
The number of shares of Common Stock to be issued upon each conversion of this
Note shall be determined by dividing the sum of (1) that portion of the
principal amount of this Note to be converted plus (2) accrued and unpaid
interest on such principal amount to the date the Conversion Notice for such
conversion is given plus (3) accrued and unpaid Default Interest, if any, on the
amount referred to in the immediately preceding clause (2) to the date such
Conversion Notice is given, by the Conversion Price in effect on the date the
Conversion Notice for such conversion is given.
2.2 AUTHORIZED SHARES. The Company covenants that, during the period
the conversion rights exist, the Company will reserve from its authorized,
unissued and otherwise unreserved Common Stock free from preemptive and similar
rights 13,043,468 shares (such amount to be subject to equitable adjustment from
time to time on terms reasonably acceptable to the Holder for stock splits,
stock dividends, combinations, capital reorganizations and similar events
relating to the Common Stock occurring on or after the Issuance Date) to provide
for the issuance of Common Stock upon the conversion in full of this Note, the
Interest Notes and the Other Notes, subject to reduction from time to time by
the number of shares of Common Stock issued on conversion of this Note, the
Interest Notes and the Other Notes. The Company shall, from time to time,
authorize and reserve additional shares of Common Stock, free from preemptive
and similar rights, to be issuable pursuant to the terms of this Note as shall
be necessary to ensure that an adequate number of shares of Common Stock are at
all times authorized and reserved for issuance upon conversion in full of this
Note, the Interest Notes and the Other Notes. The Company shall notify the
Holder promptly, but in no event more than ten Business Days, after the Company
so reserves additional shares of Common Stock, which notice shall set forth the
number of additional shares of Common Stock so reserved. If at any time the
number of authorized but unissued shares of Common Stock not reserved or
required to be reserved for any other purpose shall be insufficient to effect
the conversion of this Note, all Interest Notes and all Other Notes, the Company
promptly shall seek, and use its best efforts to obtain and complete, such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose. The Company represents and warrants that
upon issuance, such shares of Common Stock will be duly and validly issued,
fully paid and non-assessable. The Company agrees that its issuance of this Note
shall constitute full authority to its officers and agents who are charged with
the duty of executing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the conversion of this Note.
2.3 METHOD OF CONVERSION. (a) The right of the Holder to convert this
Note shall be exercised by delivering (which may be made by telephone line
facsimile transmission) to the Transfer Agent at the addresses or telephone line
facsimile transmission number provided in or pursuant to the Transfer Agent
Instruction, a Conversion Notice. On the date the Conversion Notice is
delivered, the Company shall acknowledge the Conversion Notice and forward the
Conversion Notice as so acknowledged to the Transfer Agent. The number of shares
of Common Stock to be issued upon each conversion of this Note shall be the
number set forth in the applicable Conversion Notice, which number shall be
conclusive absent manifest error. The Company shall notify the Holder of any
claim by the Company of manifest error in a Conversion Notice within one Trading
Day after the Holder gives such Conversion Notice and no such claim of error
shall limit or delay performance of the Company's obligation to issue upon such
conversion the number of shares of Common Stock which are not in dispute. A
Conversion Notice shall be deemed for all purposes to be in proper form unless
the Company notifies the Holder by telephone line facsimile transmission within
one Trading Day after a Conversion Notice has been given (which notice from the
Company shall specify all defects in the Conversion Notice) and any Conversion
Notice containing any such defect shall nonetheless be effective on the date
given if the Holder promptly undertakes to correct all such defects. If the
Company shall have notified the Transfer Agent and such holder of any such
manifest error, and the Company and such holder do not agree as to a resolution
of such manifest error on or before the date of such notice by the Company of an
error
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<PAGE> 7
in such Conversion Notice, the Company shall on the date such notice is given
submit the dispute to Ernst & Young LLP or another firm of independent public
accountants of recognized national standing (the "Auditors") for determination
and shall instruct the Auditors to resolve such dispute and to notify the
Company, the Transfer Agent and such holder within one Trading Day after such
dispute is submitted to the Auditors. Immediately after receipt of timely notice
of the Auditors' determination (but in any event within three Trading Days after
the applicable Conversion Notice is given to the Transfer Agent), the Transfer
Agent shall issue to the converting Holder any additional shares of Common Stock
to which such holder is entitled based on the determination of the Auditors. The
Transfer Agent is authorized and directed to rely on the Auditors'
determination. If the Auditors shall fail to notify the Transfer Agent of their
determination within three Trading Days after the applicable Conversion Notice
is given to the Transfer Agent, then the Transfer Agent shall, within three
Trading Days after receipt of the applicable Conversion Notice, issue to the
converting holder any additional shares of Common Stock to which such Holder is
entitled based on the applicable Conversion Notice. The Company shall pay any
transfer or issuance taxable payable in connection with any conversion of this
Note except that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of
shares of Common Stock or other securities or property on conversion of this
Note in a name other than that of the Holder, and the Company shall not be
required to issue or deliver any such shares or other securities or property
unless and until the person or persons requesting the issuance thereof shall
have paid to the Company the amount of any such tax or shall have established to
the satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for the amount of any withholding tax payable in connection with any
conversion of this Note.
(b) If the Holder elects to convert this Note in accordance with
Section 2.1(a), the Holder shall not be required to surrender this Note
physically unless the entire unpaid principal amount of this Note is so
converted. The Company shall maintain records showing the principal amount so
converted and the dates of such conversions or shall use such other method,
reasonably satisfactory to the Holder, so as not to require physical surrender
of this Note upon each such conversion. In the event of any dispute or
discrepancy, such records of the Company shall be controlling and determinative
in the absence of manifest error. Notwithstanding the foregoing, if any portion
of this Note is converted without physical surrender of this Note to the Company
as aforesaid, the Holder may not transfer this Note unless (1) the Holder first
physically surrenders this Note to the Company, whereupon the Company will
forthwith issue and deliver upon the order of the Holder a new note of like
tenor, registered as the Holder (upon payment by the Holder of any applicable
transfer taxes) may request, representing in the aggregate the remaining unpaid
principal amount of this Note and (2) such transfer is otherwise in compliance
with Section 7.7 hereof. The Company may by notice to the Holder from time to
time require the Holder to surrender this Note in exchange for the issuance by
the Company of a new Note in a principal amount equal to the outstanding
principal amount of this Note and otherwise having terms identical to this Note.
Such new Note shall be delivered by the Company to the Holder within three
Trading Days after the Company receives this Note from the Holder in response to
such notice. The Holder and any assignee, by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of this paragraph,
following conversion of a portion of this Note, the unpaid and unconverted
principal amount of this Note represented by this Note may be less than the
amount stated on the face hereof.
(c) In case of any consolidation or merger of the Company with any
other corporation (other than a wholly-owned subsidiary of the Company) in which
the Company is not the surviving corporation, or in case of any sale or transfer
of all or substantially all of the assets of the Company, or in the case of any
share exchange pursuant to which all of the outstanding shares of Common Stock
are converted into other securities or property, the Company shall make
appropriate provision or cause appropriate provision to be made so that the
Holder shall have the right thereafter to convert this Note into the kind of
shares of stock and other securities and
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property receivable upon such consolidation, merger, sale, transfer or share
exchange by the persons who were holders of Common Stock immediately prior to
the effective date of such consolidation, merger, sale, transfer or share
exchange and on a basis which preserves the economic benefits of the conversion
rights of the Holder on a basis as nearly as practical as such rights existed
prior to such consolidation, merger, sale, transfer or share exchange. If, in
connection with any such consolidation, merger, sale, transfer or share exchange
each holder of shares of Common Stock is entitled to elect to receive either
securities, cash or other assets upon completion of such transaction, the
Company shall provide or cause to be provided to the Holder the right to elect
the securities, cash or other assets into which this Note shall be convertible
after completion of any such transaction on the same terms and subject to the
same conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made, and the effect of failing to exercise the
election). The Company shall not effect any such transaction unless the
provisions of this paragraph have been complied with. The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers or share
exchanges.
Whenever the Company shall propose to take any of the actions specified
in this Section 2.3(c), the Company shall cause a notice to be mailed to the
Holder at least 20 days prior to the date on which the books of the Company will
close or on which a record will be taken for such action. Such notice shall
specify the action proposed to be taken by the Company and the date as of which
holders of record of the Common Stock shall participate in any such actions or
be entitled to exchange their Common Stock for securities or other property, as
the case may be.
(d) Upon receipt by the Transfer Agent from the Holder of a Conversion
Notice meeting the requirements for conversion as provided in Section 2.1(a) and
this Section 2.3, the Company shall issue and deliver or cause to be issued and
delivered to the Holder certificates for the Common Stock issuable upon such
conversion by the close of business on the third Trading Day after the date of
such receipt, and as of the close of business on the date of receipt of such
Conversion Notice the Holder shall be deemed to be the holder of record of the
Common Stock issuable upon such conversion, the outstanding principal amount and
the amount of accrued and unpaid interest and Default Interest on this Note
shall be reduced to reflect such conversion, and all rights with respect to the
portion of this Note being so converted shall forthwith terminate except the
right to receive the Common Stock or other securities, cash or other assets, as
herein provided, on such conversion except as otherwise provided herein. If the
Holder shall have given a Conversion Notice in accordance with the terms of this
Note, the Company's obligation to issue and deliver the certificates for Common
Stock shall be absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with respect
to any provision thereof, the recovery of any judgment against any person or any
action to enforce the same, any failure or delay in the enforcement of any other
obligation of the Company to the Holder, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder or any other person of any obligation to the Company or any violation or
alleged violation of law by the Holder or any other person, and irrespective of
any other circumstance which might otherwise limit such obligation of the
Company to the Holder in connection with such conversion. The occurrence of an
event which requires an equitable adjustment of the Market Price as contemplated
by the definition thereof in Section 6.1 shall in no way restrict or delay the
right of the Holder to receive shares of Common Stock upon conversion of this
Note and the Company shall use its best efforts to implement such adjustment on
terms reasonably acceptable to the Holder within two Business Days after such
occurrence. If the Company fails to issue and deliver the certificates for the
Common Stock to the Holder pursuant to the first sentence of this Section 2.3(d)
as and when required to do so, in addition to any other liabilities the Company
may have hereunder and under applicable law (1) the Company shall pay or
reimburse the Holder on demand for all out-of-pocket expenses, including,
without limitation, fees and expenses of legal counsel, incurred by the Holder
as a result of such failure, (2) the Conversion Percentage used to determine the
Conversion Price applicable to such conversion shall
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<PAGE> 9
be reduced by one percentage point from the Conversion Percentage otherwise used
to calculate the Conversion Price applicable to such conversion or, if such
conversion is based on the Ceiling Price, the ceiling price used to determine
the Conversion Price applicable to such conversion shall be reduced by one
percentage point from the amount that the Conversion Price otherwise would have
been without reduction pursuant hereto, in either case, for each Trading Day
after such third Trading Day until such shares of Common Stock are delivered to
the Holder and (3) the Holder may by notice (which may be given by mail,
courier, personal service or telephone line facsimile transmission) or oral
notice (promptly confirmed in writing) given at any time prior to delivery to
the Holder of the shares of Common Stock issuable upon such conversion of this
Note, rescind such conversion, whereupon the Holder shall have the right to
convert this Note thereafter in accordance herewith.
(e) No fractional shares of Common Stock shall be issued upon
conversion of this Note but, in lieu of any fraction of a share of Common Stock
which would otherwise be issuable in respect of the aggregate number of such
shares converted at one time by the same holder, the Company may round the
number of shares of Common Stock issued on such conversion up to the next
highest whole share or may pay lawful money of the United States of America for
such fractional share, based on a value of one share of Common Stock being equal
to the Market Price, as reported by Bloomberg, L.P, of the Common Stock on the
date the applicable Conversion Notice is given to the Company.
2.4 LIMITATION ON SHARES ISSUABLE ON CONVERSION; MANDATORY REDEMPTION.
(a) Notwithstanding any other provision herein, unless the Stockholder Approval
shall have been obtained from the stockholders of the Company or waived by
Nasdaq (or other appropriate stock exchange or market), so long as the Common
Stock is listed on the Nasdaq, the Nasdaq SmallCap, the NYSE or the AMEX the
Company shall not be required to issue upon conversion of this Note and the
Interest Notes a number of shares of Common Stock in excess of the Maximum Share
Amount. The Company shall maintain records which show the number of shares of
Common Stock issued by the Company upon conversion from time to time of this
Note and any Interest Notes, which records shall be controlling in the absence
of manifest error. The Company shall maintain records which show the principal
amount of Interest Notes issued by the Company pursuant to Section 1.1 in
payment of interest on this Note and issued pursuant to any Interest Note in
payment of interest thereon, which records shall be controlling in the absence
of manifest error. Each Interest Note shall be allocated a portion of the
Maximum Share Amount allocated to this Note and the other Interest Notes
outstanding at the time of issuance of such Interest Note, based on the
outstanding principal amounts thereof at the time of such issuance, and the
certificate for such Interest Note shall bear a notation as to the certificate
number of this Note. Upon surrender of this Note for transfer or re-registration
hereof (or, at the option of the Holder, for conversion pursuant to Section
2.1(a) of less than all of this Note), the Company shall make a notation on the
new Note issued upon such transfer or re-registration or evidencing such
unconverted portion of this Note, as the case may be, as to the remaining number
of shares of Common Stock from the Maximum Share Amount remaining available for
conversion of the Note evidenced by such new certificate. If this Note is
surrendered for split-up into two or more Notes representing an aggregate
principal amount equal to the principal amount of this Note at the time so
surrendered (as reduced by any contemporaneous conversion of this Note), each
Note issued on such split-up shall bear a notation of the portion of the Maximum
Share Amount allocated thereto determined by pro rata allocation from among the
remaining Maximum Share Amount at the time this Note is so surrendered. If this
Note is converted in full, repaid, repurchased or redeemed, all of the Maximum
Share Amount which remains unissued after such conversion, repayment, repurchase
or redemption shall be re-allocated (1) to all Interest Notes and Other Notes
held by the Holder at the close of business on the Conversion Date for such
conversion, based on the outstanding principal amounts thereof, and (2) if the
Holder does not hold any Interest Notes or Other Notes at the close of business
on such Conversion Date, to the Other Notes, based on the principal amounts
thereof outstanding at the close of business on such Conversion Date. If any
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<PAGE> 10
Other Note is converted in full, repaid, repurchased or redeemed, all of the
portion of the Maximum Share Amount (as defined in such Other Note) of such
Other Note not re-allocated to Other Notes held by the holder of such Other Note
and which remains unissued after such conversion, repayment, repurchase or
redemption shall be re-allocated to this Note, the Interest Notes and the Other
Notes outstanding at the close of business on the date of such conversion,
repayment, repurchase or redemption of the Other Note so converted, repaid,
repurchased or redeemed pro rata based on the principal amounts outstanding at
the close of business on such date.
(b) (1) If on or after December 16, 1998 and on or prior to September
4, 2001 a Maximum Share Amount Inconvertibility occurs, then the Company shall
promptly, but in no event later than five Business Days after each such
occurrence, give an Inconvertibility Notice to the Holder (by telephone line
facsimile transmission at such number as the Holder has specified in writing to
the Company for such purposes or, if the Holder shall not have specified any
such number, by overnight courier at the Holder's address as the same appears on
the records of the Company) and the Holder may at any time after such occurrence
give an Inconvertibility Notice to the Company. If the Company shall have given
or been required to give any Inconvertibility Notice, or if the Holder shall
have given any Inconvertibility Notice, then within the applicable Redemption
Election Period the Holder shall have the right by a Redemption Election given
to the Company (which may be contained in the Inconvertibility Notice given by
the Holder) to direct the Company to redeem the portion of this Note (which, if
applicable, shall be all of this Note) as shall not, on the Business Day prior
to the applicable Share Limitation Redemption Date be convertible into shares of
Common Stock by reason of the limitations set forth in Section 2.4(a) on the
applicable Share Limitation Redemption Date, at a price equal to the Share
Limitation Redemption Price, payable on the date which is five Business Days
after the Holder gives such Redemption Election. If the Holder directs the
Company to redeem this Note or any portion hereof and, prior to the date the
Company is required to redeem this Note or such portion hereof, the Company
would have been able, within the limitations set forth in Section 2.4(a), to
convert all of this Note (determined without regard to the limitation, if any,
on beneficial ownership of shares of Common Stock by the Holder contained in the
second sentence of Section 2.1) on any ten Trading Days within any period of 15
consecutive Trading Days commencing after the period of 20 consecutive Trading
Days which gave rise to the applicable Inconvertibility Notice from the Company
or the Holder, as the case may be, had the Holder exercised its right to convert
this Note in full on each of such ten Trading Days within such 15 Trading Day
period, then the Company shall not be required to redeem any of this Note by
reason of such Inconvertibility Notice.
(2) An Inconvertibility Notice or a Redemption Election given by the
Holder shall be deemed for all purposes to be in proper form unless the Company
notifies the Holder in writing within three Business Days after an
Inconvertibility Notice or a Redemption Election has been given (which notice
shall specify all defects in the Inconvertibility Notice or Redemption
Election), and any Inconvertibility Notice or Redemption Election containing any
such defect shall nonetheless be effective on the date given if the Holder
promptly undertakes to correct all such defects. Whether or not the Holder has
given such undertaking, no such claim of error shall limit or delay performance
of the Company's obligation to redeem the full amount of the portion of this
Note as to which a Redemption Election has been given and which is not in
dispute.
(c) Notwithstanding the giving of any Inconvertibility Notice by the
Company to the Holder or the giving or the absence of any Inconvertibility
Notice or Redemption Election by the Holder or any redemption of an
inconvertible portion of this Note pursuant to Section 2.4(b), thereafter the
provision of Section 2.4(b) shall continue to be applicable on any occasion
unless the Stockholder Approval shall have been obtained or waived by the
Nasdaq.
(d) On each Share Limitation Redemption Date, the Company shall make
payment in immediately available funds of the applicable Share Limitation
Redemption Price to or
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upon the order of the Holder as specified by the Holder in writing to the
Company at least one Business Day prior to such Share Limitation Redemption
Date. If the Company is required to redeem this Note or any portion hereof
pursuant to this Section 2.4, the Company shall make payment to the Holder of an
amount equal to the Share Limitation Redemption Price. Upon redemption of less
than all of this Note, promptly, but in no event later than three Business Days
after surrender of this Note to the Company, the Company shall issue a
replacement Note of like tenor having a principal amount equal to the principal
amount of this Note remaining after such redemption.
ARTICLE III
CERTAIN COVENANTS
So long as the Company shall have any obligation under this Note:
3.1 CERTAIN REPURCHASES. (a) The Company shall not itself, and shall
not permit any Subsidiary to redeem, repurchase or otherwise acquire in any one
transaction or series of related transactions any shares of Common Stock if the
number of shares so repurchased, redeemed or otherwise acquired in such
transaction or series of related transactions (excluding any Option Share
Surrender) is more than either (x) 5.0% of the number of shares of Common Stock
outstanding immediately prior to such transaction or series of related
transactions or (y) 1% of the number of shares of Common Stock outstanding
immediately prior to such transaction or series of related transactions if such
transaction or series of related transactions is with any one person or group of
affiliated persons, unless the Company or such Subsidiary offers to purchase for
cash from the Holder at the time of such redemption, repurchase or acquisition
the same percentage of the outstanding principal amount of this Note as the
percentage of the number of outstanding shares of Common Stock to be so
redeemed, repurchased or acquired at a purchase price equal to the greater of
(i) the Premium Price on the date of purchase pursuant to this Section 3.1(a)
and (ii) the Converted Market Price on the date of purchase pursuant to this
Section 3.1(a); provided, however, that if in connection with any determination
of the purchase price payable pursuant to this Section 3.1 the amount specified
in clause (y) of the definition of the term Converted Market Price is greater
than 200% of the Ceiling Price on the date as of which such amount is
determined, then for purposes of computing the purchase price payable pursuant
to this Section 3.1 in such instance, the amount otherwise specified in clause
(y) of the definition of the term Converted Market Price shall be reduced by 20%
of the amount by which (A) the amount otherwise specified in clause (y) of the
definition of the term Converted Market Price exceeds (B) the Ceiling Price on
the date as of which such amount is determined.
(b) The Company shall not, and shall not permit any Subsidiary,
directly or indirectly to repurchase, redeem or otherwise acquire any shares of
its capital stock other than Common Stock other than repurchases or redemptions
of the Company's Series A Preferred Stock or Series D Convertible Preferred
Stock which are required to be made by the Company in accordance with the terms
thereof as in effect on the Issuance Date or as proposed to be amended pursuant
to the Amendment Agreement.
3.2 CERTAIN TENDER OFFERS. The Company shall not itself, and shall not
permit any Subsidiary to (1) make any Tender Offer for outstanding shares of
Common Stock unless the Company contemporaneously therewith makes an offer, or
(2) enter into an agreement regarding a Tender Offer for outstanding shares of
Common Stock by any person other than the Company or any Subsidiary, unless such
person agrees with the Company to make an offer, in either such case, to the
Holder to purchase the same percentage of the outstanding principal amount of
this Note held by the Holder as the percentage of outstanding shares of Common
Stock offered to be purchased in such Tender Offer, at a price equal to the
greater of (i) the Premium Price on the
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<PAGE> 12
date of purchase pursuant to this Section 3.2 and (ii) the greater of (x) the
Converted Market Price on the date of purchase pursuant to this Section 3.2 and
(y) the greater of (A) the Converted Market Price on the date of the first
public announcement of such Tender Offer and (B) the Converted Market Price on
the date of purchase pursuant to this Section 3.2.
3.3 PAYMENT OF OBLIGATIONS. The Company will pay and discharge, and
will cause each Subsidiary to pay and discharge when due, all their respective
obligations and liabilities which are material to the Company and the
Subsidiaries, taken as a whole, including, without limitation, tax liabilities,
except where the same may be contested in good faith by appropriate proceedings
and for which appropriate reserves have been made on the books of the Company or
such Subsidiary.
3.4 MAINTENANCE OF PROPERTY; Insurance. (a) The Company will keep, and
will cause each Subsidiary to keep, all property useful and necessary in its
business in good working order and condition, ordinary wear and tear excepted.
(b) The Company will maintain, and will cause each Subsidiary to
maintain, with financially sound and responsible insurance companies, insurance
against loss or damage by fire or other casualty and such other insurance,
including but not limited to, product liability insurance, in such amounts and
covering such risks as is reasonably adequate for the conduct of their
businesses and the value of their properties in at least such amounts and
against such risks as is reasonably adequate for the conduct of their respective
businesses and the value of their respective properties.
3.5 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Company will
continue, and will cause each Subsidiary to continue, to engage in business of
the same general type as conducted by the Company and the Subsidiaries on the
Issuance Date, and will preserve, renew and keep in full force and effect, and
will cause each Subsidiary to preserve, renew and keep in full force and effect,
their respective corporate existence and their respective rights, privileges and
franchises necessary or desirable in the normal conduct of business.
3.6 COMPLIANCE WITH LAWS. The Company will comply, and will cause each
Subsidiary to comply, in all material respects with all applicable laws,
ordinances, rules, regulations, decisions, orders and requirements of
governmental authorities and courts (including, without limitation,
environmental laws) except (i) where compliance therewith is contested in good
faith by appropriate proceedings or (ii) where non-compliance therewith could
not reasonably be expected to have a material adverse effect on the business,
condition (financial or otherwise), operations, performance, properties or
prospects of the Company and the Subsidiaries, taken as a whole.
3.7 INVESTMENT COMPANY ACT. The Company will not be or become an
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
3.8 TRANSACTIONS WITH AFFILIATES. The Company will not, and will not
permit any Subsidiary, directly or indirectly, to pay any funds to or for the
account of, make any investment (whether by acquisition of stock or
Indebtedness, by loan, advance, transfer of property, guarantee or other
agreement to pay, purchase or service, directly or indirectly, any Indebtedness,
or otherwise) in, lease, sell, transfer or otherwise dispose of any assets,
tangible or intangible, to, or participate in, or effect any transaction in
connection with, any joint enterprise or other joint arrangement with, any
Affiliate of the Company or any Affiliate of any Subsidiary, except, on terms to
the Company or such Subsidiary no less favorable than terms that could be
obtained by the Company or such Subsidiary from a Person that is not an
Affiliate of the Company or an Affiliate of any Subsidiary, as determined in
good faith by the Board of Directors.
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3.9 COMPLIANCE. The Company shall (a) use its commercially reasonable
best efforts to obtain knowledge of any failure or default by the Company in the
timely performance of any material obligation to the Holder or the holder of any
Interest Note or Other Note under the terms of this Note or any other
Transaction Document and (b) shall notify the Holder promptly, but in no event
later than three Business Days after the Company first learns of any such
failure or default.
ARTICLE IV
EVENTS OF DEFAULT
If any of the following events of default (each, an "Event of Default")
shall occur:
4.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Company fails (a) to pay
the principal, Redemption Price, Redemption Event Redemption Price or Repurchase
Price hereof or of any Interest Note when due, whether at maturity, upon
redemption, upon acceleration or otherwise, as applicable, or (b) to pay any
installment of interest hereon or on any Interest Note when due and, in the case
of this clause (b) of this Section 4.1 only, such failure continues for a period
of three Business Days after the due date thereof; or
4.2 CONVERSION AND THE SHARES. The Company fails to issue or cause to
be issued shares of Common Stock to the Holder upon exercise by the Holder of
the conversion rights of the Holder in accordance with the terms of this Note or
upon exercise of the Warrants or fails to transfer any certificate for shares of
Common Stock issued to the Holder upon conversion of this Note or any Interest
or upon exercise of the Warrants as and when required by this Note, the Interest
Notes, the Note Purchase Agreement, the Transfer Agent Instruction and the
Warrants; or
4.3 BREACH OF COVENANT. The Company (a) fails to comply with Section
3.1, 3.2 or 3.9 or (b) fails to comply in any material respect with any
provision of Article III of this Note (other than Section 3.1, 3.2 or 3.9) or
breaches any other material covenant or other material term or condition of this
Note (other than as specifically provided in Sections 4.1, 4.2, 4.3(a)), the
Note Purchase Agreement, the Security Agreement, the Transfer Agent Instruction
or the Warrants, and in the case of this clause (b) of this Section 4.3 only,
such breach continues for a period of 20 days after written notice thereof to
the Company from the Holder; or
4.4 BREACH OF REPRESENTATIONS AND WARRANTIES. Any material
representation or warranty of the Company made herein or in any agreement,
statement or certificate given in writing pursuant hereto or in connection
herewith (including, without limitation, the Note Purchase Agreement, the
Security Agreement, the Transfer Agent Instruction and the Warrants) shall be
false or misleading in any material respect when made; or
4.5 CERTAIN VOLUNTARY PROCEEDINGS. The Company or any Subsidiary shall
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or shall consent
to any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it, or
shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due or shall admit in writing its
inability generally to pay its debts as they become due; or
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4.6 CERTAIN INVOLUNTARY PROCEEDINGS. An involuntary case or other
proceeding shall be commenced against the Company or any Subsidiary seeking
liquidation, reorganization or other relief with respect to it or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 60 consecutive days; or
4.7 JUDGMENTS. Any court of competent jurisdiction shall enter one or
more final judgments against the Company or any Subsidiary or any of their
respective properties or other assets in an aggregate amount in excess of
$100,000, which is not vacated, bonded, stayed, discharged, satisfied or waived
for a period of 30 consecutive days; or
4.8 DEFAULT UNDER OTHER AGREEMENTS. Except as otherwise agreed in
writing by the Company and the original Holder of this Note (which agreement
shall be binding on any subsequent Holder of this Note or any Interest Note) (a)
the Company or any Subsidiary shall default in any payment with respect to any
indebtedness for borrowed money (other than this Note) which indebtedness has an
outstanding principal amount in excess of $100,000 individually or $200,000 in
the aggregate for the Company and the Subsidiaries, beyond the period of grace,
if any, provided in the instrument or agreement under which such indebtedness
was created; provided, however, that the events and conditions described in the
preceding clause shall not constitute an Event of Default unless and until the
Company fails to take the action necessary to correct such event or condition
within five (5) Business Days of becoming aware of such event or condition; or
(b) any indebtedness of the Company or any Subsidiary which has an outstanding
principal amount in excess of $100,000 individually or $200,000 in the aggregate
shall, in accordance with its terms, be declared to be due and payable, or
required to be prepaid other than by a regularly scheduled or required payment
prior to the stated maturity thereof;
4.9 DELISTING OF COMMON STOCK. The Common Stock shall cease to be
listed on any of Nasdaq, the NYSE or the AMEX and shall remain unlisted for a
period of three Trading Days; or
4.10 FAILURE TO OBTAIN OPINION. The Company fails to deliver an opinion
of its counsel, Weil, Gotshal & Manges LLP addressed to the Holder as provided
in Section 4(l) of the Note Purchase Agreement within seven (7) Business Days of
the issuance of this Note;
then, (X) upon the occurrence and during the continuation of any Event of
Default specified in Section 4.1, 4.2, 4.3, 4.4, 4.7, 4.8, 4.9 or 4.10, at the
option of the Holder the Company shall, and upon the occurrence of any Event of
Default specified in Section 4.5 or 4.6, the Company shall, pay to the Holder an
amount equal to the Premium Price on the date of such payment, (Y) all other
amounts payable hereunder shall immediately become due and payable, all without
demand, presentment or notice, all of which hereby are expressly waived,
together with all costs, including, without limitation, reasonable legal fees
and expenses, of collection, and (Z) the Holder shall be entitled to exercise
all other rights and remedies available at law or in equity, including all
rights and remedies under or in connection with the Security Agreement;
provided, however, that if in connection with any Event of Default the Company
shall not at such time be in compliance with its obligations under Section 1.2,
3.1 or 3.2 or shall be obligated, or to cause another Person, to redeem,
repurchase or purchase all or any portion of this Note, then in lieu of payment
of the amount provided in the preceding clause (X) the Company shall pay to the
Holder an amount equal to the amount which would be payable to the Holder upon
redemption, repurchase or purchase of this Note in accordance with Section 1.2,
3.1 or 3.2 as if the Company had exercised its right to redeem or repurchase
this Note (or such Person had become obligated to purchase this Note) pursuant
thereto on the date of such payment pursuant hereto.
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ARTICLE V
REPURCHASE UPON A REPURCHASE EVENT
5.1 REPURCHASE RIGHT UPON REPURCHASE EVENT. If a Repurchase Event
occurs, then the Holder shall have the right, at the Holder's option, to require
the Company to repurchase all of this Note, or any portion hereof (in a minimum
principal amount of $100,000 or integral multiples thereof (or such lesser
remaining principal amount of this Note)), on the repurchase date that is five
Business Days after the date of the Holder Notice delivered with respect to such
Repurchase Event. The Holder shall have the right to require the Company to
repurchase all or any such portion of this Note if a Repurchase Event occurs at
any time while any portion of the principal amount of this Note is outstanding
at a price equal to the Repurchase Price.
5.2 NOTICES; METHOD OF EXERCISING REPURCHASE RIGHTS, ETC. (a) On or
before the fifth Business Day after the occurrence of a Repurchase Event, the
Company shall give to the Holder a Company Notice of the occurrence of the
Repurchase Event and of the repurchase right set forth herein arising as a
result thereof. Such Company Notice shall set forth:
(i) a statement that a Repurchase Event has occurred, the date of such
occurrence and the type of Repurchase Event (by reference to the applicable
clause of the definition of such term);
(ii) the date by which the repurchase right must be exercised, and
(iii) a description of the procedure (set forth in this Section 5.2)
which the Holder must follow to exercise the repurchase right.
No failure of the Company to give a Company Notice or defect therein shall limit
the Holder's right to exercise the repurchase right or affect the validity of
the proceedings for the repurchase of this Note or portion hereof.
(b) To exercise the repurchase right, the Holder shall deliver to the
Company on or before the 30th day after a Company Notice (or if no such Company
Notice has been given, within 40 days after the Holder first learns of the
Repurchase Event) (i) a Holder Notice setting forth the name of the Holder and
the principal amount of this Note to be repurchased, and (ii) this Note, duly
endorsed for transfer to the Company of the portion of the principal amount of
this Note to be repurchased. A Holder Notice may be revoked by the Holder at any
time prior to the time the Company pays the applicable Repurchase Price to the
Holder.
(c) If the Holder shall have given a Holder Notice, on the date which
is five Business Days after the date such Holder Notice is given (or such later
date as the Holder surrenders this Note) the Company shall make payment in
immediately available funds of the applicable Repurchase Price to such account
as specified by the Holder in writing to the Company at least one Business Day
prior to the applicable repurchase date.
5.3 OTHER. (a) If the Company fails to repurchase on the applicable
repurchase date this Note (or portion hereof) as to which the repurchase right
has been properly exercised pursuant to this Article V, then the Repurchase
Price for the portion (which, if applicable, may be all) of this Note which is
required to have been so repurchased shall bear interest to the extent not
prohibited by applicable law from the applicable repurchase date until paid at
the Default Rate.
(b) If a portion of this Note is to be repurchased, upon surrender of
this Note to the Company in accordance with the terms of this Article V, the
Company shall execute and deliver
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<PAGE> 16
to the Holder without service charge, a new Note or Notes, having the same date
hereof and containing identical terms and conditions, in such denomination or
denominations as requested by the Holder in aggregate principal amount equal to,
and in exchange for, the unrepurchased portion of the principal amount of the
Note so surrendered.
(c) A Holder Notice given by the Holder shall be deemed for all
purposes to be in proper form unless the Company notifies the Holder within
three Business Days after such Holder Notice has been given (which notice shall
specify all defects in the Holder Notice), and any Holder Notice containing any
such defect shall nonetheless be effective on the date given if the Holder
promptly undertakes to correct all such defects. No such claim of defect shall
limit or delay performance of the Company's obligation to repurchase any portion
of this Note, the repurchase of which is not in dispute.
ARTICLE VI
DEFINITIONS
6.1 CERTAIN DEFINED TERMS. (a) All the agreements or instruments herein
defined shall mean such agreements or instruments as the same may from time to
time be supplemented or amended or the terms thereof waived or modified to the
extent permitted by, and in accordance with, the terms thereof and of this Note.
(b) The following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Affiliate" means, with respect to any Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or under common control with the subject Person. For purposes of
the term "Affiliate", the term "control" (including the terms "controlling",
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or to cause the direction of the management and
policies of a Person, whether through the ownership of securities, by contract
or otherwise.
"Aggregated Person" means any person whose beneficial ownership of
shares of Common Stock would be aggregated with the Holder's beneficial
ownership of shares of Common Stock for purposes of Section 13(d) of the 1934
Act and Regulation 13D-G thereunder.
"Amendment Agreement" means the Amendment Agreement, dated as of July
31, 1998, by and between the Company and MCM Partners, relating to amendment of
the rights and preferences of the Series A Preferred Stock.
"AMEX" means the American Stock Exchange, Inc.
"Applicable Rate" means six percent per annum.
"Average Market Price" for any date means the arithmetic average of the
Market Price on each of the five Trading Days, whether or not consecutive,
during the applicable Measurement Period having the lowest Market Prices.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which commercial banks in The City of New York are authorized or required
by law or executive order to remain closed.
"Ceiling Price" means $.9006 (subject to equitable adjustments from
time to time on
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<PAGE> 17
terms reasonably acceptable to the Majority Holders for stock splits, stock
dividends, combinations, recapitalizations, reclassifications and similar events
occurring or with respect to which "ex-" trading commences on or after the
Issuance Date); provided, however, that, notwithstanding any other provision
hereof, the Ceiling Price applicable to a particular conversion shall be subject
to reduction as provided in Section 2.3(d); provided further, however, that if a
Registration Event occurs, then, in addition to any other right or remedy of the
Holder, thereafter the Ceiling Price shall be permanently reduced on each
Computation Date by an amount equal to two percent of the amount that the
Ceiling Price otherwise would have been without any reduction pursuant to this
proviso (pro rated in the case of any Computation Date which is less than 30
days after a Registration Event occurs or less than 30 days after another
Computation Date).
"Common Stock" shall mean the Common Stock, $.01 par value, or any
shares of capital stock into which such stock shall be changed or reclassified
after the Issuance Date.
"Company" shall have the meaning provided in the first paragraph of
this Note.
"Company Certificate" means a certificate of the Company signed by an
Officer.
"Company Notice" means a notice from the Company to the Holder setting
forth the information provided in Section 5.2.
"Company Optional Redemption Notice" means a notice from the Company to
the Holder setting forth the information required by Section 1.2.
"Computation Date" means, if a Registration Event occurs, any of (1)
the date which is 30 days after such Registration Event occurs, if any
Registration Event is continuing on such date, (2) each date which is 30 days
after a Computation Date, if any Registration Event is continuing on such date,
and (3) the date on which all Registration Events cease to continue.
"Conversion Date" means the date on which a Conversion Notice is
actually received by the Transfer Agent, whether by mail, courier, personal
service, telephone line facsimile transmission or other means.
"Conversion Notice" means a Notice of Conversion of 6% Senior
Convertible Note due 2001 substantially in the form attached hereto as EXHIBIT
A, given by the Holder.
"Conversion Percentage" means 85%; provided, however, that,
notwithstanding any other provision hereof, if a Registration Event occurs, then
such percentage stated above shall be permanently reduced by two percentage
points on each Computation Date (pro rated in the case of any Computation Date
which is less than 30 days after a Registration Event occurs or less than 30
days after another Computation Date).
"Conversion Price" means the lesser of:
(1) the product of (a) the Average Market Price for such date times (b)
the applicable Conversion Percentage; and
(2) the Ceiling Price;
provided, however, that the Conversion Price applicable to a particular
conversion shall be subject to reduction as provided in Section 2.3(d).
"Converted Market Price" means, for this Note or any portion hereof as
of any date of determination, an amount equal to the product obtained by
multiplying (x) the number of shares
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<PAGE> 18
of Common Stock which would, at the time of such determination, be issuable on
conversion in accordance with Article II of this Note or such portion hereof and
any accrued and unpaid interest hereon and any accrued and unpaid Default
Interest hereon if a Conversion Notice were given by the Holder on the date of
such determination (determined without regard to any limitation on conversion
based on beneficial ownership contained in Section 2.1 times (y) the arithmetic
average of the Market Price of the Common Stock for the five consecutive Trading
Days ending on the Trading Day prior to the date of such determination.
"Default Interest" shall have the meaning provided in the first
paragraph of this Note.
"Default Rate" means 14 percent per annum (or such lesser rate equal to
the highest rate permitted by applicable law).
"Event of Default" shall have the meaning provided in Article IV.
"Generally Accepted Accounting Principles" for any Person means the
generally accepted accounting principles and practices applied by such Person
from time to time in the preparation of its audited financial statements.
"Holder" shall have the meaning provided in the first paragraph of this
Note.
"Holder Notice" means a Holder Notice in the form attached hereto as
EXHIBIT E.
"Inconvertibility Notice" means a notice from the Company to the Holder
in the form set forth in EXHIBIT B or a notice from the Holder to the Company in
the form set forth in EXHIBIT C.
"Indebtedness" as used in reference to any Person means all
indebtedness of such person for borrowed money, the deferred purchase price of
property, goods and services and obligations under leases which are required to
be capitalized in accordance with Generally Accepted Accounting Principles and
shall include all such indebtedness guaranteed in any manner by such person or
in effect guaranteed by such person through a contingent agreement to purchase
and all indebtedness for the payment or purchase of which such person has
contingently agreed to advance or supply funds and all indebtedness secured by
mortgage or other lien upon property owned by such person, although such person
has not assumed or become liable for the payment of such indebtedness, and, for
all purposes hereof, such indebtedness shall be treated as though it has been
assumed by such person.
"Interest Note" means any 6% Senior Convertible Note due 2001 of like
tenor with this Note which is issued by the Company in payment of interest on
this Note or any Interest Note in accordance with the terms hereof or thereof.
"Interest Note Payment Option" shall have the meaning provided in
Section 1.1(a).
"Interest Payment Dates" shall mean each February 15, May 15, August 15
and November 15 and the Maturity Date.
"Issuance Date" means the date this Note was issued to the original
Holder of this Note.
"Majority Holders" means at any time the holders of this Note, Interest
Notes and the Other Notes which hold Notes, Interest Notes and Other Notes
which, based on the outstanding principal amounts thereof, represent a majority
of the aggregate outstanding principal
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<PAGE> 19
amount of this Note, the Interest Notes and the Other Notes.
"Market Price" of the Common Stock on any date means the lowest sale
price (regular way) for one share of Common Stock on such date on the first
applicable among the following: (a) the national securities exchange on which
the shares of Common Stock are listed which constitutes the principal securities
market for the Common Stock, (b) the Nasdaq, if the Nasdaq constitutes the
principal market for the Common Stock on such date, or (c) the Nasdaq SmallCap,
if the Nasdaq SmallCap constitutes the principal securities market for the
Common Stock on such date, in any such case as reported by Bloomberg, L.P.;
provided, however, that if during any Measurement Period or other period during
which the Market Price is being determined:
(i) The Company shall declare or pay a dividend or make a distribution
to all holders of the outstanding Common Stock in shares of Common Stock or
fix any record date for any such action, then the Market Price for each day
in such Measurement Period or such other period which day is prior to the
earlier of (1) the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution and (2) the date on
which ex-dividend trading in the Common Stock with respect to such dividend
or distribution begins shall be reduced by multiplying the Market Price
(determined without regard to this proviso) for each such day in such
Measurement Period or such other period by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding at the
close of business on the earlier of (1) the record date fixed for such
determination and (2) the date on which ex-dividend trading in the Common
Stock with respect to such dividend or distribution begins and the
denominator of which shall be the sum of such number of shares and the
total number of shares constituting such dividend or other distribution;
(ii) The Company shall issue rights or warrants to all holders of its
outstanding shares of Common Stock, or fix a record date for such issuance,
which rights or warrants entitle such holders (for a period expiring within
forty-five (45) days after the date fixed for the determination of
stockholders entitled to receive such rights or warrants) to subscribe for
or purchase shares of Common Stock at a price per share less than the
Market Price (determined without regard to this proviso) for any day in
such Measurement Period or such other period which day is prior to the end
of such 45-day period, then the Market Price for each such day shall be
reduced so that the same shall equal the price determined by multiplying
the Market Price (determined without regard to this proviso) by a fraction,
the numerator of which shall be the number of shares of Common Stock
outstanding at the close of business on the record date fixed for the
determination of stockholders entitled to receive such rights or warrants
plus the number of shares which the aggregate offering price of the total
number of shares so offered would purchase at such Market Price, and the
denominator of which shall be the number of shares of Common Stock
outstanding on the close of business on such record date plus the total
number of additional shares of Common Stock so offered for subscription or
purchase. In determining whether any rights or warrants entitle the holders
to subscribe for or purchase shares of Common Stock at less than the Market
Price (determined without regard to this proviso), and in determining the
aggregate offering price of such shares of Common Stock, there shall be
taken into account any consideration received for such rights or warrants,
the value of such consideration, if other than cash, to be determined in
good faith by a resolution of the Board of Directors of the Corporation;
(iii) The outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock or a record date for any such
subdivision shall be fixed, then the Market Price of the Common Stock for
each day in such Measurement Period or such other period which day is prior
to the earlier of (1) the day upon which such subdivision becomes effective
and (2) the date on which ex-dividend trading in the
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<PAGE> 20
Common Stock with respect to such subdivision begins shall be
proportionately reduced, and conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares of Common
Stock, the Market Price each trade (regular way) on for each day in such
Measurement Period or such other period which day is prior to the earlier
of (1) the date on which such combination becomes effective and (2) the
date on which trading in the Common Stock on a basis which gives effect to
such combination begins, shall be proportionately increased;
(iv) The Company shall, by dividend or otherwise, distribute to all
holders of its Common Stock shares of any class of capital stock of the
Company (other than any dividends or distributions to which clause (i) of
this proviso applies) or evidences of its indebtedness, cash or other
assets (including securities, but excluding any rights or warrants referred
to in clause (ii) of this proviso and dividends and distributions paid
exclusively in cash and excluding any capital stock, evidences of
indebtedness, cash or assets distributed upon a merger or consolidation)
(the foregoing hereinafter in this clause (iv) of this proviso called the
"Securities"), or fix a record date for any such distribution, then, in
each such case, the Market Price for each day in such Measurement Period or
such other period which day is prior to the earlier of (1) the record date
for such distribution and (2) the date on which ex-dividend trading in the
Common Stock with respect to such distribution begins shall be reduced so
that the same shall be equal to the price determined by multiplying the
Market Price (determined without regard to this proviso) by a fraction, the
numerator of which shall be the Market Price (determined without regard to
this proviso) for such date less the fair market value (as determined in
good faith by resolution of the Board of Directors of the Company) on such
date of the portion of the Securities so distributed or to be distributed
applicable to one share of Common Stock and the denominator of which shall
be the Market Price (determined without regard to this proviso) for such
date; provided, however, that in the event the then fair market value (as
so determined) of the portion of the Securities so distributed applicable
to one share of Common Stock is equal to or greater than the Market Price
(determined without regard to this clause (iv) of this proviso) for any
such Trading Day, in lieu of the foregoing adjustment, adequate provision
shall be made so that the Holder shall have the right to receive upon
conversion of this Note the amount of Securities the Holder would have
received had the holders of shares of Series C Preferred Stock converted
the shares of Series C Preferred Stock immediately prior to the record date
for such distribution. If the Board of Directors of the Corporation
determines the fair market value of any distribution for purposes of this
clause (iv) by reference to the actual or when issued trading market for
any securities comprising all or part of such distribution, it must in
doing so consider the prices in such market on the same day for which an
adjustment in the Market Price is being determined.
For purposes of this clause (iv) and clauses (i) and (ii) of this
proviso, any dividend or distribution to which this clause (iv) is
applicable that also includes shares of Common Stock, or rights or warrants
to subscribe for or purchase shares of Common Stock to which clause (i) or
(ii) of this proviso applies (or both), shall be deemed instead to be (1) a
dividend or distribution of the evidences of indebtedness, assets, shares
of capital stock, rights or warrants other than such shares of Common Stock
or rights or warrants to which clause (i) or (ii) of this proviso applies
(and any Market Price reduction required by this clause (iv) with respect
to such dividend or distribution shall then be made) immediately followed
by (2) a dividend or distribution of such shares of Common Stock or such
rights or warrants (and any further Market Price reduction required by
clauses (i) and (ii) of this proviso with respect to such dividend or
distribution shall then be made), except that any shares of Common Stock
included in such dividend or distribution shall not be deemed "outstanding
at the close of business on the date fixed for such determination" within
the meaning of clause (i) of this proviso;
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<PAGE> 21
(v) The Company or any Subsidiary shall (x) by dividend or otherwise,
distribute to all holders of its Common Stock cash in (or fix any record
date for any such distribution), or (y) repurchase or reacquire shares of
its Common Stock (other than an Option Share Surrender) for, in either
case, an aggregate amount that, combined with (1) the aggregate amount of
any other such distributions to all holders of its Common Stock made
exclusively in cash after the Issuance Date and within the 12 months
preceding the date of payment of such distribution, and in respect of which
no adjustment pursuant to this clause (v) has been made, (2) the aggregate
amount of any cash plus the fair market value (as determined in good faith
by a resolution of the Board of Directors of the Company) of consideration
paid in respect of any repurchase or other reacquisition by the Company or
any Subsidiary of any shares of Common Stock (other than an Option Share
Surrender) made after the Issuance Date and within the 12 months preceding
the date of payment of such distribution or making of such repurchase or
reacquisition, as the case may be, and in respect of which no adjustment
pursuant to this clause (v) has been made, and (3) the aggregate of any
cash plus the fair market value (as determined in good faith by a
resolution of the Board of Directors of the Company) of consideration
payable in respect of any Tender Offer by the Company or any Subsidiary for
all or any portion of the Common Stock concluded within the 12 months
preceding the date of payment of such distribution or completion of such
repurchase or reacquisition, as the case may be, and in respect of which no
adjustment pursuant to clause (vi) of this proviso has been made (such
aggregate amount combined with the amounts in clauses (1), (2) and (3)
above being the "Combined Amount"), exceeds 10% of the product of the
Market Price (determined without regard to this proviso) for any day in
such Measurement Period or such other period which day is prior to the
earlier of (A) the record date with respect to such distribution and (B)
the date on which ex-dividend trading in the Common Stock with respect to
such distribution begins or the date of such repurchase or reacquisition,
as the case may be, times the number of shares of Common Stock outstanding
on such date, then, and in each such case, the Market Price for each such
day shall be reduced so that the same shall equal the price determined by
multiplying the Market Price (determined without regard to this proviso)
for such day by a fraction (i) the numerator of which shall be equal to the
Market Price (determined without regard to this proviso) for such day less
an amount equal to the quotient of (x) the excess of such Combined Amount
over such 10% and (y) the number of shares of Common Stock outstanding on
such day and (ii) the denominator of which shall be equal to the Market
Price (determined without regard to this proviso) for such day; provided,
however, that in the event the portion of the cash so distributed or paid
for the repurchase or reacquisition of shares (determined per share based
on the number of shares of Common Stock outstanding) applicable to one
share of Common Stock is equal to or greater than the Market Price
(determined without regard to this clause (v) of this proviso) of the
Common Stock for any such day, then in lieu of the foregoing adjustment
with respect to such day, adequate provision shall be made so that the
Holder shall have the right to receive upon conversion of this Note the
amount of cash the Holders would have received had the Holder converted
this Note immediately prior to the record date for such distribution or the
payment date of such repurchase, as applicable; or
(vi) A Tender Offer made by the Company or any Subsidiary for all or
any portion of the Common Stock shall expire and such Tender Offer (as
amended upon the expiration thereof) shall require the payment to
stockholders (based on the acceptance (up to any maximum specified in the
terms of the Tender Offer) of Purchased Shares (as defined herein)) of an
aggregate consideration having a fair market value (as determined in good
faith by resolution of the Board of Directors of the Company) that combined
together with (1) the aggregate of the cash plus the fair market value (as
determined in good faith by a resolution of the Board of Directors of the
Company), as of the expiration of such Tender Offer, of consideration
payable in respect of any other Tender Offers, by the Company or
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<PAGE> 22
any Subsidiary for all or any portion of the Common Stock expiring within
the 12 months preceding the expiration of such Tender Offer and in respect
of which no adjustment pursuant to this clause (vi) has been made, (2) the
aggregate amount of any cash plus the fair market value (as determined in
good faith by a resolution of the Board of Directors of the Company) of
consideration paid in respect of any repurchase or other reacquisition by
the Company or any Subsidiary of any shares of Common Stock (other than an
Option Share Surrender) made after the Issuance Date and within the 12
months preceding the expiration of such Tender Offer and in respect of
which no adjustment pursuant to clause (v) of this proviso has been made,
and (3) the aggregate amount of any distributions to all holders of Common
Stock made exclusively in cash within 12 months preceding the expiration of
such Tender Offer and in respect of which no adjustment pursuant to clause
(v) of this proviso has been made, exceeds 10% of the product of the Market
Price (determined without regard to this proviso) for any day in such
period times the number of shares of Common Stock outstanding on such day,
then, and in each such case, the Market Price for such day shall be reduced
so that the same shall equal the price determined by multiplying the Market
Price (determined without regard to this proviso) for such day by a
fraction, the numerator of which shall be the number of shares of Common
Stock outstanding on such day multiplied by the Market Price (determined
without regard to this proviso) for such day and the denominator of which
shall be the sum of (x) the fair market value (determined as aforesaid) of
the aggregate consideration payable to stockholders based on the acceptance
(up to any maximum specified in the terms of the Tender Offer) of all
shares validly tendered and not withdrawn as of the last time tenders could
have been made pursuant to such Tender Offer (the "Expiration Time") (the
shares deemed so accepted, up to any such maximum, being referred to as the
"Purchased Shares") and (y) the product of the number of shares of Common
Stock outstanding (less any Purchased Shares) on such day times the Market
Price (determined without regard to this proviso) of the Common Stock on
the Trading Day next succeeding the Expiration Time. If the application of
this clause (vi) to any Tender Offer would result in an increase in the
Market Price (determined without regard to this proviso) for any trade, no
adjustment shall be made for such Tender Offer under this clause (vi) for
such day.
"Master Purchase Agreement" means the Master Purchase Agreement, dated
as of July 31,1998, by and between the Company Genesee Fund Limited-Portfolio B,
a British Virgin Islands corporation, Willis Group, LLC, a Texas limited
liability company and Advantage Fund Limited, a British Virgin Islands
corporation.
"Maturity Date" means September 4, 2001.
"Maximum Share Amount" means 142,620 shares, less from time to time the
number of shares issued upon exercise of the Warrants, or such greater number as
permitted by the rules of Nasdaq (such amount to be subject to equitable
adjustment from time to time on terms reasonably acceptable to the Majority
Holders for stock splits, stock dividends, combinations, capital reorganizations
and similar events relating to the Common Stock occurring after the Issuance
Date) of Common Stock; provided, however, that if for purposes of Rule 4460(i)
of the Nasdaq (or any successor or replacement provision of any stock exchange
or stock market on which the Common Stock is listed or traded) the (x) issuance
of the Warrants and the shares of Common Stock issuable upon exercise of the
Warrants or (y) the issuance of shares of Series D Convertible Preferred Stock
and the issuance of shares of Common Stock upon conversion thereof or (z) the
issuance of the common stock purchase warrants issued in connection with the
issuance of the Series D Convertible Preferred Stock and the issuance of shares
of Common Stock upon exercise thereof is not required to be integrated with the
issuance of this Note and the Other Notes and the issuance of shares of Common
Stock upon conversion thereof, then in each such case the "Maximum Share Amount"
shall mean such greater number as equals the maximum number of shares of Common
Stock as are permitted by the rules of the Nasdaq or such exchange or market
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<PAGE> 23
(determined by pro rata allocation of any increase thereof among the Note and
the Other Notes based on the original principal amounts thereof) (such amount to
be subject to equitable adjustment in terms reasonably acceptable to the
Majority Holders from time to time for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common
Stock occurring after the Issuance Date).
"Maximum Share Amount Inconvertibility" means the occurrence within any
period of ten consecutive Trading Days of five or more Trading Days on which all
or any portion of this Note is inconvertible due to the restrictions in Section
2.4.
"Measurement Period" means with respect to any date the period of 25
consecutive Trading Days ending on the Trading Day prior to such date.
"Nasdaq" means the Nasdaq National Market.
"Nasdaq SmallCap" means the Nasdaq SmallCap Market.
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Note" means this instrument as originally executed, or if later
amended or supplemented in accordance with its terms, then as so amended or
supplemented.
"Note Purchase Agreement" shall mean the Note Purchase Agreement or
Note Purchase and Exchange Agreement, as the case may be, dated as of July 31,
1998, by and between the Company and the original Holder of this Note.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Officer" means the Chairman of the Board, the Chief Executive Officer,
the President or the Chief Financial Officer of the Company.
"Optional Redemption Event" means that on each Trading Day in any
period of 20 consecutive Trading Days commencing on or after the date which is
730 days after the Issuance Date, the Market Price of the Common Stock shall
have been not less than 200% of the Ceiling Price in effect on such Trading Day.
"Option Share Surrender" means the surrender of shares of Common Stock
to the Company in payment of the exercise price or tax obligations incurred in
connection with the exercise of a stock option granted by the Company to any of
its employees, directors or consultants.
"Other Notes" means the several 6% Senior Convertible Notes due 2001
issued by the Company pursuant to the Other Note Purchase Agreements and any
other promissory notes of like tenor issued by the Company in payment of
interest thereon or on any Other Note so issued.
"Other Note Purchase Agreements" means the several Note Purchase and
Exchange Agreements or the Note Purchase Agreement, as the case may be, dated as
of the date of the Note Purchase Agreement, by and between the Company and the
several buyers named therein.
"Permitted Transferee" means any person who is an "accredited investor"
as defined in Regulation D under the 1933 Act.
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<PAGE> 24
"Person" means any natural person, corporation, partnership, limited
liability company, trust, incorporated organization, unincorporated association
or similar entity or any government, governmental agency or political
subdivision.
"Premium Percentage" means 115%.
"Premium Price" means, for this Note or any portion hereof as of any
date of determination, the product obtained by multiplying (a) the sum of (1)
the outstanding principal amount of this Note or such portion hereof plus (2) an
amount equal to the accrued but unpaid interest on this Note or such portion
hereof to the date of determination, plus (3) an amount equal to the accrued and
unpaid Default Interest on this Note or such portion hereof to the date of
determination times (b) the Premium Percentage.
"Redemption Date" means the date of a redemption of this Note or a
portion hereof pursuant to Section 1.2, determined in accordance herewith.
"Redemption Election" means (1) a notice by the Holder to the Company
substantially in the form set forth in EXHIBIT D or (2) a notice by the Holder
to the Company included in the form of Inconvertibility Notice set forth in
EXHIBIT C.
"Redemption Election Period" means, with respect to a particular
inconvertibility of this Note pursuant to Section 2.4, the period of ten
Business Days after the later of (x) the date an Inconvertibility Notice with
respect to such inconvertibility is given or (y) the date such Inconvertibility
Notice was required to have been given by the Company.
"Redemption Event Redemption Date" means any Business Day during the
period commencing on the date which is 730 days after the Issuance Date and
ending on September 4, 2001.
"Redemption Event Redemption Notice" means a Redemption Event
Redemption Notice setting forth the information required by Section 1.3(a).
"Redemption Event Redemption Price" means an amount in cash equal to
the sum of (1) the outstanding principal amount of this Note on the Redemption
Event Redemption Date plus (2) accrued and unpaid interest on such principal
amount to the Redemption Event Redemption Date plus (3) accrued and unpaid
Default Interest, if any, on the amount referred to in the immediately preceding
clause (2) at the rate provided in this Note to the Redemption Event Redemption
Date.
"Redemption Price" means the greater of:
(1) the Premium Price on the applicable Redemption Date; and
(2) the Converted Market Price on the applicable Redemption Date;
provided, however, that if in connection with any determination of the
Redemption Price the amount specified in clause (y) of the definition of
the term Converted Market Price is greater than 200% of the Ceiling Price
on the date as of which such amount is determined, then for purposes of
computing the Redemption Price in such instance, the amount otherwise
specified in clause (y) of the definition of the term Converted Market
Price shall be reduced by 20% of the amount by which (A) the amount
otherwise specified in clause (y) of the definition of the term Converted
Market Price exceeds (B) the Ceiling Price on the date as of which such
amount is determined.
"Registration Event" shall mean (1) the Registration Statement is not
effective
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<PAGE> 25
within 105 days after the Issuance Date, if the Registration Statement is on
Form S-3, or 120 days after the Issuance Date, if the Registration Statement is
on Form S-1, (2) the Company fails to file the Registration Statement with the
SEC within 60 days after the Issuance Date, (3) the Company fails to submit a
request for acceleration of the effective date of the Registration Statement in
accordance with Section 3(a) of the Registration Rights Agreement, (4) the
Registration Statement shall cease to be available for use by the Holder for any
reason (including, without limitation, by reason of an SEC stop order, a
material misstatement or omission in the Registration Statement or the
information contained in the Registration Statement having become outdated);
provided, however, that no Registration Event pursuant to this clause (4) shall
be deemed to occur prior to the SEC Effective Date, (5) the Common Stock is not
listed for trading on any of the NYSE, the AMEX, the Nasdaq or the Nasdaq
SmallCap, or (6) the Holder having become unable to convert this Note in
accordance with Article II for any reason (other than by reason of the 4.9%
limitation on beneficial ownership set forth therein or a redemption or
repurchase thereof).
"Registration Rights Agreements" means the several Registration Rights
Agreements entered into between the Company and the original Holder and the
original holders of the Other Notes, as amended or modified from time to time in
accordance with their respective terms.
"Registration Statement" means the Registration Statement required to
be filed by the Company with the SEC pursuant to Section 2(a) of the
Registration Rights Agreements.
"Repurchase Event" means the occurrence on or before September 4, 2001
of any one or more of the following events:
(1) For any period of five consecutive Trading Days following the date
hereof there shall be no reported sale price of the Common Stock on the
Nasdaq, the Nasdaq SmallCap, the NYSE or the AMEX;
(2) The Common Stock is not listed for trading on any of the Nasdaq,
the Nasdaq SmallCap, the NYSE or the AMEX;
(3) The inability for 45 or more days (whether or not consecutive) of
the Holder or the holder of any Other Note to sell shares of Common Stock
issued or issuable on conversion of this Note, any Interest Note or any
Other Note pursuant to the Registration Statement for any reason on each of
such 45 days;
(4) The Company shall (A) default in the timely performance of the
obligation to issue shares of Common Stock upon conversion of this Note,
any Interest Note or any Other Note as and when required by hereby or
thereby or the timely performance of its obligations under Section 3.9 or
(B) the Company shall fail or default in the timely performance of any
material obligation (other than as specifically set forth elsewhere in this
definition) to the Holder or the holder of any Other Note under the terms
of this Note, any Interest Note, any Other Note or any of the other
Transaction Documents, as such instruments may be amended from time to
time, and in the case of this clause (B) only, such failure or default
shall continue for ten Business Days after notice thereof from the Holder
to the Company;
(5) Any consolidation or merger of the Company with or into another
entity (other than a merger or consolidation of a Subsidiary into the
Company or a wholly-owned Subsidiary) where the stockholders of the Company
immediately prior to such transaction do not collectively own at least 51%
of the outstanding voting securities of the surviving corporation of such
consolidation or merger immediately following such transaction or the
common stock of such surviving corporation is not listed for trading on the
NYSE, the
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<PAGE> 26
AMEX, the Nasdaq or the Nasdaq SmallCap, or any sale or other transfer of
all or substantially all of the assets of the Company;
(6) The taking of any action, including any amendment to the Company's
Articles of Incorporation, without the consent of the Majority Holders
which materially and adversely affects the rights of the Holder or any
holder of Other Notes;
(7) The Stockholder Approval shall not have been obtained on or before
the date which is 120 days after the Issuance Date; or
(8) The occurrence of any Event of Default specified in Article IV of
this Note.
"Repurchase Price" means with respect to any repurchase pursuant to
Sections 5.1 and 5.2 an amount in cash equal to the Premium Price on the
applicable repurchase date.
"SEC" means the Securities and Exchange Commission.
"SEC Effective Date" means the date on which the Registration Statement
is first declared effective by the SEC.
"Security Agreement" means the Security Agreement, dated as of
September 4, 1998, by and between the Company and the original Holder of this
Note.
"Series A Preferred Stock" means the Company's Series A Convertible
Preferred Stock, $.01 par value.
"Share Limitation Redemption Date" shall mean each date on which the
Company is required to redeem this Note or any portion hereof as provided in
Section 2.4(b).
"Share Limitation Redemption Price" means an amount in cash equal to
the Premium Price on the applicable Share Limitation Redemption Date.
"Stockholder Approval" means the approval by a majority of the votes
cast by the holders of shares of Common Stock (in person or by proxy) at a
meeting of the stockholders of the Company (duly convened at which a quorum was
present), or a written consent of holders of shares of Common Stock entitled to
such number of votes given without a meeting, of the issuance by the Company of
20% or more of the outstanding Common Stock of the Company for less than the
greater of the book or market value of such Common Stock on conversion of this
Note and the Other Notes, as and to the extent required under Rule 4460(i) of
Nasdaq as in effect at such time (or any successor or replacement provision
thereof).
"Subsidiary" means any corporation or other entity of which a majority
of the capital stock or other ownership interests having ordinary voting power
to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by the Company.
"Tender Offer" means a tender offer or exchange offer.
"Trading Day" means a day on whichever of (x) the national securities
exchange, (y) Nasdaq or (z) the Nasdaq SmallCap which at the time constitutes
the principal securities market for the Common Stock is open for general trading
of securities.
"Transaction Documents" means this Note, the Interest Notes, the Other
Notes, the Note Purchase Agreement, the Other Note Purchase Agreements, the
Security Agreement, the
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<PAGE> 27
Transfer Agent Instruction from the Company to the Transfer Agent for the
benefit of, among others, the Holder of this Note and the Holders of the Other
Notes, as contemplated by the Note Purchase Agreement.
"Transfer Agent" means American Stock Transfer & Trust Company, its
successor or such other person who shall be serving as transfer agent and
registrar for the Common Stock and who shall have been authorized by the Company
to act as conversion agent for this Note in accordance with the Transfer Agent
Instruction and the name, address and telephone number of whom shall have been
given to the Holder by notice from the Company.
"Transfer Agent Instruction" means the Transfer Agent Instruction from
the Company to the Transfer Agent for the benefit of, among others, the Holder
of this Note and the holders of the Other Notes, as contemplated by the Note
Purchase Agreement.
"Warrants" means the Common Stock Purchase Warrants of the Company
issued to the original Holder of this Note pursuant to the Note Purchase
Agreement and to the original holders of the Other Notes pursuant to the Other
Note Purchase Agreements.
ARTICLE VII
MISCELLANEOUS
7.1 FAILURE OR INDULGENCY NOT WAIVER. No failure or delay on the part
of the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
7.2 NOTICES. Except as otherwise specifically provided herein, any
notice herein required or permitted to be given shall be in writing and may be
personally served, sent by telephone line facsimile transmission or delivered by
courier or sent by United States mail and shall be deemed to have been given
upon receipt if personally served, sent by telephone line facsimile transmission
or sent by courier or three (3) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if sent by mail.
For the purposes hereof, the address of the Holder shall be as shown on the
records of the Company (telephone line facsimile transmission number
011-599-932-2008, with a copy to Genesee International, Inc., 10500 N.E. 8th
Street, Suite 1920, Bellevue, Washington 98004-4332 (telephone line facsimile
number (425) 462-4645); and the address of the Company shall be 1250 Wood Branch
Park Drive, Houston, Texas 77079, Attention: Chief Executive Officer (telephone
line facsimile transmission number (281) 529-4650). The Holder or the Company
may change its address for service by service of written notice to the other as
herein provided.
7.3 AMENDMENT, WAIVERS, ETC.. (a) Neither this Note, any Interest Note
or any Other Note nor the Security Agreement nor any terms hereof or thereof may
be changed, waived, discharged or terminated unless such change, waiver,
discharge or termination is in writing signed by the Majority Holders, provided
that no such change, waiver, discharge or termination shall, without the consent
of the Holder and the holders of the Other Notes affected thereby (i) extend the
scheduled final maturity of this Note, any Interest Note or any Other Note, or
reduce the rate or extend the time of payment of interest (other than as a
result of waiving the applicability of any post-default increase in interest
rates) hereon or thereon or reduce the principal amount hereof or thereof or the
Redemption Price, the Redemption Event Redemption Price, the Share Limitation
Redemption Price or the Repurchase Price, (ii) release the collateral or reduce
the
-27-
<PAGE> 28
amount of collateral required to be deposited or maintained by the Company
pursuant to the Security Agreement except as expressly provided in the Security
Agreement, (iii) amend, modify or waive any provision of this Section 7.3, (iv)
reduce any percentage specified in, or otherwise modify, the definition of
Majority Holders or (v) except as provided in this Note, change the method of
calculating the Conversion Price in a manner adverse to the Holder.
(b) Notwithstanding any other provision of this Note or the Note
Purchase Agreement, in addition to the requirements of Section 7.3(a), any
amendment of (x) the second or third sentence of Section 2.1, (y) the definition
of the term Aggregated Person or (z) this Section 7.3(b) shall require approval
by the affirmative vote of the holders of a majority of the outstanding shares
of Common Stock, present in person or represented by proxy at a duly convened
meeting of stockholders of the Company, and entitled to vote or the consent
thereto in writing by holders of a majority of the outstanding shares of Common
Stock, and the stockholders of the Company are hereby expressly made third party
beneficiaries of this Section 7.3(b).
7.4 ASSIGNABILITY. This Note shall be binding upon the Company and its
successors, and shall inure to the benefit of and be binding upon the Holder and
its successors and permitted assigns. The Company may not assign its rights or
obligations under this Note.
7.5 CERTAIN EXPENSES. The Company shall pay on demand all expenses
incurred by the Holder, including reasonable attorneys' fees and expenses, as a
consequence of, or in connection with (x) any amendment, modification, waiver or
consent relating to this Note, (y) any default or breach of any of the Company's
obligations set forth in the Transaction Documents and (z) the enforcement or
restructuring of any right of, including the collection of any payments due, the
Holder under the Transaction Documents, including any action or proceeding
relating to such enforcement or any order, injunction or other process seeking
to restrain the Company from paying any amount due the Holder.
7.6 GOVERNING LAW; EXECUTION, ISSUANCE AND DELIVERY. This Note shall be
governed by the internal laws of the State of New York, without regard to the
principles of conflict of laws. This Note has been signed, issued and delivered
in the State of New York and it is the intention of the Company and the Holder
that this Note shall be construed accordingly for all purposes.
7.7 TRANSFER OF NOTE. This Note has not been and is not being
registered under the provisions of the 1933 Act or any state securities laws and
this Note may not be transferred unless (1) the transferee is a Permitted
Transferee and (2) the Holder shall have delivered to the Company an opinion of
counsel, reasonably satisfactory in form, scope and substance to the Company, to
the effect that this Note may be sold or transferred without registration under
the 1933 Act. Prior to any such transfer, such transferee shall have represented
in writing to the Company that such transferee has requested and received from
the Company all information relating to the business, properties, operations,
condition (financial or other), results of operations or prospects of the
Company and the Subsidiaries deemed relevant by such transferee; that such
transferee has been afforded the opportunity to ask questions of the Company
concerning the foregoing and has had the opportunity to obtain and review the
Registration Statement and the prospectus included therein, each as amended or
supplemented to the date of transfer to such transferee, and the reports and
other information concerning the Company which at the time of such transfer have
been filed by the Company with the SEC pursuant to the 1934 Act and which are
incorporated by reference in such prospectus as of the date of such transfer. If
such transfer is intended to assign the rights and obligations under (x)
Sections 4, 5 and 9 of the Note Purchase Agreement, such transfer shall
otherwise be made in compliance with Section 9(h) of the Note Purchase Agreement
and (y) the Registration Rights Agreement to which the Holder is entitled to the
benefits such transfer shall otherwise be made in compliance with Section 9 of
such Registration Rights Agreement.
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<PAGE> 29
7.8 ENFORCEABLE OBLIGATION. The Company represents and warrants that at
the time of the original issuance of this Note it received the full purchase
price payable pursuant to the Note Purchase Agreement in an amount at least
equal to the original principal amount of this Note, and that this Note is an
enforceable obligation of the Company which is not subject to any offset,
reduction, counterclaim or disallowance of any sort.
7.9 CERTAIN AMOUNTS. Whenever pursuant to this Note the Company is
required to pay an amount in excess of the outstanding principal amount (or the
portion thereof required to be paid at that time) plus accrued and unpaid
interest plus Default Interest on such interest, the Company and the Holder
agree that the actual damages to the Holder from the receipt of cash payment on
this Note may be difficult to determine and the amount to be so paid by the
Company represents stipulated damages and not a penalty and is intended to
compensate the Holder in part for loss of the opportunity to convert this Note
and to earn a return from the sale of shares of Common Stock acquired upon
conversion of this Note at a price in excess of the price paid for such shares
pursuant to this Note. The Company and the Holder hereby agree that such amount
of stipulated damages is not plainly disproportionate to the possible loss to
the Holder from the receipt of a cash payment without the opportunity to convert
this Note into shares of Common Stock.
7.10 REPLACEMENT OF NOTES. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of this Note and (a) in the case of loss, theft or
destruction, of indemnity from the Holder reasonably satisfactory in form to the
Company (and without the requirement to post any bond or other security) or (b)
in the case of mutilation, upon surrender and cancellation of this Note, the
Company will execute and deliver to the Holder a new Note of like tenor without
charge to the Holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 30
IN WITNESS WHEREOF, the Company has caused this Note to be signed in
its name by its duly authorized officer on the day and in the year first above
written.
EQUALNET COMMUNICATIONS CORP.
By: /s/ MITCHELL H. BODIAN
-----------------------------------
Name: Mitchell H. Bodian
Title: President & CEO
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<PAGE> 31
EXHIBIT A
NOTICE OF CONVERSION
OF 6% SENIOR SECURED CONVERTIBLE NOTE DUE 2001
OF EQUALNET COMMUNICATIONS CORP.
To: American Stock Transfer & Trust Company,
as Transfer Agent
6201 Fifteen Avenue
Third Floor
Brooklyn, New York 11219
Attention: Mr. Barry Rosenthal
Facsimile No.: (718) 259-1144
(1) Pursuant to the terms of the 6% Senior Secured Convertible Note due
2001 (the "Note"), the undersigned hereby elects to convert $___________ of the
Note, equal to the sum of $___________ principal amount of the Note,
$___________ of accrued and unpaid interest on such principal amount and
$___________ of Default Interest on such interest into shares of Common Stock of
Equalnet Communications Corp., a Texas corporation (the "Company"), at a
Conversion Price per share equal to $___________. Capitalized terms used herein
and not otherwise defined herein have the respective meanings provided in the
Note.
(2) The number of shares of Common Stock issuable upon the conversion
of the Note to which this Notice relates is ___________.
(3) If the conversion of the Note by this Notice is based on the Market
Prices during a Measurement Period, set forth below or on a schedule which
accompanies this Notice are the Market Prices during the Measurement Period
applicable to this Notice and an indication of the five Market Prices used to
determine the Conversion Price set forth above.
<TABLE>
<CAPTION>
Date Trading Price
---- -------------
<S> <C>
1. ___________, _____ $ ___________
2. ___________, _____ $ ___________
3. ___________, _____ $ ___________
4. ___________, _____ $ ___________
5. ___________, _____ $ ___________
6. ___________, _____ $ ___________
7. ___________, _____ $ ___________
8. ___________, _____ $ ___________
9. ___________, _____ $ ___________
10. ___________, _____ $ ___________
</TABLE>
A-1
<PAGE> 32
<TABLE>
<S> <C>
11. ___________, _____ $ ___________
12. ___________, _____ $ ___________
13. ___________, _____ $ ___________
14. ___________, _____ $ ___________
15. ___________, _____ $ ___________
16. ___________, _____ $ ___________
17. ___________, _____ $ ___________
18. ___________, _____ $ ___________
19. ___________, _____ $ ___________
20. ___________, _____ $ ___________
21. ___________, _____ $ ___________
22. ___________, _____ $ ___________
23. ___________, _____ $ ___________
24. ___________, _____ $ ___________
25. ___________, _____ $ ___________
</TABLE>
(4) Please issue a certificate or certificates for _________ shares of
Common Stock in the name(s) specified immediately below or, if additional space
is necessary, on an attachment hereto:
____________________________ ____________________________
Name Name
____________________________ ____________________________
Address Address
____________________________ ____________________________
SS or Tax ID Number SS or Tax ID Number
Delivery Instructions
for Common Stock: ____________________________
____________________________
____________________________
____________________________
A-2
<PAGE> 33
(5) The Holder hereby represents to the Company that the exercise of
conversion rights contained herein does not violate the provisions of Section
2.1(a) of the Note relating to beneficial ownership in excess of 4.9% of the
Common Stock.
(6) If this Notice is given on or prior to the date which is two years
after the Issuance Date and the shares of Common Stock issuable upon conversion
of the Note have not been registered under the Securities Act of 1933, as
amended (the "Act"), the undersigned represents and warrants that (i) the shares
of Common Stock issuable upon the conversion of the Note to which this Notice
relates are being acquired for the account of the undersigned for investment,
and not with a view to, or for resale in connection with, the distribution
thereof and (ii) the undersigned is an "accredited investor" as defined in
Regulation D under the 1933 Act. The undersigned further agrees that (A) such
shares shall not be sold or transferred unless either (i) they first shall have
been registered under the 1933 Act and applicable state securities laws or (ii)
the Company shall have been furnished with an opinion of legal counsel
reasonably satisfactory to the Company to the effect that such sale or transfer
is exempt from the registration requirements of the 1933 Act and (B) until such
shares are registered under the 1933 Act, the Company may place a legend on the
certificate(s) for the shares to that effect and place a stop-transfer
restriction in its records relating to the shares.
NAME:_________________________________
Date _________________________ ______________________________________
Signature of Registered Holder
(Must be signed exactly as name
appears in the Note.)
A-3
<PAGE> 34
EXHIBIT B
COMPANY INCONVERTIBILITY NOTICE
(SECTION 2.4(b) OF 6% SENIOR SECURED CONVERTIBLE NOTE DUE 2001)
TO:_____________________________
(Name of Holder)
(1) Pursuant to the terms of the 6% Senior Secured Convertible Note due
2001 (the "Note"), Equalnet Communications Corp., a Texas corporation (the
"Company"), hereby notifies the above-named Holder:
(a) On (fill in date) five Inconvertibility Days had occurred in a
period of ten Trading Days and on such date $ (fill in amount) of principal
of the Note and the related interest, if any, became inconvertible by
reason of the occurrence of five Inconvertibility Days within a period of
ten consecutive Trading Days.
(b) The five Inconvertibility Days covered by this Notice and the
applicable Conversion Price on each such day are as follows:
___________________, _______ $______________
___________________, _______ $______________
___________________, _______ $______________
___________________, _______ $______________
___________________, _______ $______________
(2) Capitalized terms used herein and not otherwise defined herein have
the respective meanings provided in the Note.
Date________________________ EQUALNET COMMUNICATIONS CORP.
By_____________________________________
B-1
<PAGE> 35
EXHIBIT C
HOLDER INCONVERTIBILITY NOTICE
(SECTION 2.4(b) OF 6% SENIOR SECURED CONVERTIBLE NOTE DUE 2001)
TO: EQUALNET COMMUNICATIONS CORP.
(1) Pursuant to the terms of the 6% Senior Secured Convertible Note due
2001 (the "Note"), the undersigned (the "Holder"), hereby notifies Equalnet
Communications Corp., a Texas corporation (the "Company"):
(a) On (fill in date) five Inconvertibility Days had occurred in a
period of ten Trading Days and on such date $ (fill in amount) of principal
of the Note and the related interest, if any, became inconvertible by
reason of the occurrence of five Trading Days on which all or a portion of
this Note was inconvertible within a period of ten consecutive Trading
Days.
(b) The five Trading Days on which all or a portion of this Note was
inconvertible and which are covered by this Notice and the applicable
Conversion Price on each such day are as follows:
___________________, _______ $______________
___________________, _______ $______________
___________________, _______ $______________
___________________, _______ $______________
___________________, _______ $______________
(2) If the following date and amounts are completed in this Notice, the
Holder hereby directs the Company to redeem the principal amount set forth below
(and the related interest) in accordance with Section 7(a) of the Certificate of
Designations set forth below:
(a) Principal amount of Note to be redeemed: ________________________
(fill in)
(b) On (fill in Redemption Date), the Company shall pay the Holder the
Share Limitation Redemption Price of the portion (which, if applicable, may
be all) of the Note to be redeemed.
(3) Capitalized terms used herein and not otherwise defined herein have
the respective meanings provided in the Note.
Date _________________________ NAME OF HOLDER:
__________________________________
By________________________________
Title:
C-1
<PAGE> 36
EXHIBIT D
HOLDER REDEMPTION ELECTION
(SECTION 2.4(b) OF 6% SENIOR
SECURED CONVERTIBLE NOTE DUE 2001)
TO: EQUALNET COMMUNICATIONS CORP.
(1) Pursuant to the terms of the 6% Senior Secured Convertible Note due
2001 (the "Note"), the undersigned (the "Holder") hereby notifies Equalnet
Communications Corp., a Texas corporation (the "Company"), that the Holder is
exercising its right to require the Company to redeem a portion (which, if
applicable, may be all) of the Note as set forth below in accordance with
Section 2.4(b) of the Note. On ________________ (fill in Redemption Date), the
Company shall pay the Holder the Share Limitation Redemption Price for
redemption of $_________ principal amount of the Note and the related interest.
(2) Capitalized terms used herein and not otherwise defined herein have
the respective meanings provided in the Note.
Date _________________________ NAME OF HOLDER:
__________________________________
By________________________________
Title:
D-1
<PAGE> 37
EXHIBIT E
HOLDER NOTICE
(SECTION 5.2(b) OF 6% SENIOR SECURED CONVERTIBLE NOTE DUE 2001)
TO: EQUALNET COMMUNICATIONS CORP.
(1) Pursuant to the terms of the 6% Senior Secured Convertible Note due
2001 (the "Note"), the undersigned Holder hereby elects to exercise its right to
require repurchase by the Company pursuant to Sections 5.2(a) and 5.2(b) of
$_______________ of the Note, equal to the sum of $_______________ principal
amount of the Note, $________________ of accrued and unpaid interest on such
principal amount and $ of Default Interest on such interest at the Repurchase
Price provided in the Note.
(2) Capitalized terms used herein and not otherwise defined herein have
the respective meanings provided in the Note.
Date _________________________ NAME OF HOLDER:
__________________________________
By________________________________
Signature of Registered Holder
(Must be signed exactly as name
appears in the Note.)
E-1
<PAGE> 1
EXHIBIT 3
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE RESOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT.
Right to Purchase 333,116 Shares of Common
Stock of Equalnet Communications Corp.
EQUALNET COMMUNICATIONS CORP.
COMMON STOCK PURCHASE WARRANT
NO. W-1
EQUALNET COMMUNICATIONS CORP., a Texas corporation (the
"Company"), hereby certifies that, for value received, Willis Group, LLC or
registered assigns (the "Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company at any time or from time to time after the
date hereof, and before 5:00 p.m., New York City time, on the Expiration Date
(as defined herein), 333,116 fully paid and nonassessable shares of Common
Stock (as defined herein) at a purchase price per share equal to the Purchase
Price (as hereinafter defined). The number of such shares of Common Stock and
the Purchase Price are subject to adjustment as provided in this Warrant.
As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:
"AMEX" means the American Stock Exchange, Inc.
"Common Stock" includes the Company's Common Stock, $.01 par
value per share, as authorized on the date hereof, and any other
securities into which or for which the Common Stock may be converted
or exchanged pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise.
"Company" shall include Equalnet Communications Corp. and any
corporation that shall succeed to or assume the obligation of Equalnet
Communications Corp. hereunder in accordance with the terms hereof.
"Expiration Date" means September 4, 2003.
"Issuance Date" means the first date of original issuance of
this Warrant.
"Maximum Share Amount" shall have the meaning provided in the
Note.
"Nasdaq" means the Nasdaq National Market.
"Nasdaq SmallCap" means the Nasdaq SmallCap Market.
"1934 Act" means the Securities Exchange Act of 1934, as
amended.
<PAGE> 2
"1933 Act" means the Securities Act of 1933, as amended.
"Note" means the 6% Senior Secured Convertible Note due 2001
issued by the Company, all 6% Senior Secured Convertible Notes due
2001 issued by the Company upon transfer, re-registration or split-up
thereof and all Interest Notes, as defined therein.
"Note Purchase Agreement" means the Note Purchase Agreement or
the Note Purchase and Exchange Agreement, as the case may be, dated as
of July 31 1998, by and between the Company and the original Holder of
this Warrant, as amended from time to time in accordance with its
terms.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person
(corporate or otherwise) which the Holder at any time shall be
entitled to receive, or shall have received, on the exercise of this
Warrant, in lieu of or in addition to Common Stock, or which at any
time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to Section 4.
"Purchase Price" shall mean $.9006 per share, subject to
adjustment as provided in this Warrant.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of July 31, 1998, by and between the Company and
the original Holder of this Warrant, as amended from time to time in
accordance with its terms.
"Stockholder Approval" means the approval by a majority of the
votes cast by the holders of shares of Common Stock (in person or by
proxy) at a meeting of the stockholders of the Company (duly convened
at which a quorum was present), or a written consent of holders of
shares of Common Stock entitled to such number of votes given without
a meeting, of the issuance by the Company of 20% or more of the
outstanding Common Stock of the Company for less than the greater of
the book or market value of such Common Stock on conversion of this
Note and the Other Notes, as and to the extent required under Rule
4460(i) of Nasdaq as in effect at such time (or any successor or
replacement provision thereof).
"Trading Day" means a day on which the principal securities
market for the Common Stock is open for general trading of securities.
1. EXERCISE OF WARRANT.
1.1 EXERCISE. (a) This Warrant may be exercised by the
Holder hereof in full or in part at any time or from time to time during the
exercise period specified in the first paragraph hereof until the Expiration
Date by surrender of this Warrant and the subscription form annexed hereto
(duly executed by the Holder), to the Company's transfer agent and registrar
for the Common Stock, and by making payment, in cash or by certified or
official bank check payable to the order of the Company, in the amount obtained
by multiplying (a) the number of shares of Common Stock designated by the
Holder in the subscription form by (b) the Purchase Price then in effect. On
any partial exercise the Company will forthwith issue and deliver to or upon
the order of the Holder hereof a new Warrant or Warrants of like tenor, in the
name of the Holder hereof or as the Holder (upon payment by the Holder of any
applicable transfer taxes) may request, providing in the aggregate on the face
or faces thereof for the purchase of the number of shares of Common Stock for
which such Warrant or Warrants may still be exercised.
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<PAGE> 3
(b) Notwithstanding any other provision of this Warrant,
in no event shall the Holder be entitled at any time to purchase a number of
shares of Common Stock on exercise of this Warrant in excess of that number of
shares upon purchase of which the sum of (1) the number of shares of Common
Stock beneficially owned by the Holder and all persons whose beneficial
ownership of shares of Common Stock would be aggregated with the Holder's
beneficial ownership of shares of Common Stock for purposes of Section 13(d) of
the 1934 Act and Regulation 13D-G thereunder, (each such person other than the
Holder an "Aggregated Person" and all such persons other than the Holder,
collectively, the "Aggregated Persons") (other than shares of Common Stock
deemed beneficially owned through the ownership by the Holder and all
Aggregated Persons of the Holder of the unexercised portion of this Warrant and
any other security of the Company which contains similar provisions) and (2)
the number of shares of Common Stock issuable upon exercise of the portion of
this Warrant with respect to which the determination in this sentence is being
made, would result in beneficial ownership by the Holder and all Aggregated
Persons of the Holder of more than 4.9% of the outstanding shares of Common
Stock. For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the 1934 Act
and Regulation 13D-G thereunder, except as otherwise provided in clause (1) of
the immediately preceding sentence. For purposes of the second preceding
sentence, the Company shall be entitled to rely, and shall be fully protected
in relying, on any statement or representation made by the Holder to the
Company in connection with a particular exercise of this Warrant, without any
obligation on the part of the Company to make any inquiry or investigation or
to examine its records or the records of any transfer agent for the Common
Stock.
1.2 NET ISSUANCE. Notwithstanding anything to the
contrary contained in Section 1.1, the Holder may elect to exercise this
Warrant in whole or in part by receiving shares of Common Stock equal to the
net issuance value (as determined below) of this Warrant, or any part hereof,
upon surrender of this Warrant to the Company's transfer agent and registrar
for the Common Stock the principal office of the Company together with the
subscription form annexed hereto (duly executed by the Holder), in which event
the Company shall issue to the Holder a number of shares of Common Stock
computed using the following formula:
X = Y (A-B)
-------
A
Where: X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock as to which this
Warrant is to be exercised
A = the current fair market value of one share of Common Stock
calculated as of the last trading day immediately
preceding the exercise of this Warrant
B = the Purchase Price
As used herein, current fair market value of Common Stock as
of a specified date shall mean with respect to each share of Common Stock the
average of the closing sale price of the Common Stock on the principal
securities market on which the Common Stock may at the time be listed or, if
there have been no sales on any such exchange on such day, the average of the
highest bid and lowest asked prices on the principal securities market at the
end of such day, or, if on such day the Common Stock is not so listed, the
average of the representative bid and asked prices quoted in the Nasdaq System
as of 4:00 p.m., New York City time, or, if on such day the Common Stock is not
quoted in the Nasdaq System, the average of the highest bid and
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<PAGE> 4
lowest asked price on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of five
consecutive Trading Days consisting of the day as of which the current fair
market value of a share of Common Stock is being determined (or if such day is
not a Trading Day, the Trading Day next preceding such day) and the four
consecutive Trading Days prior to such day. If on the date for which current
fair market value is to be determined the Common Stock is not listed on any
securities exchange or quoted in the Nasdaq System or the over-the-counter
market, the current fair market value of Common Stock shall be the highest
price per share which the Company could then obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the Company,
from authorized but unissued shares, as determined in good faith by the Board
of Directors of the Company, unless prior to such date the Company has become
subject to a merger, acquisition or other consolidation pursuant to which the
Company is not the surviving party, in which case the current fair market value
of the Common Stock shall be deemed to be the value received by the holders of
the Company's Common Stock for each share thereof pursuant to the Company's
acquisition.
1.3 LIMITATION ON SHARES ISSUABLE ON EXERCISE.
Notwithstanding any other provision herein, unless the Stockholder Approval
shall have been obtained from the stockholders of the Company or waived by the
Nasdaq (or other appropriate stock exchange or market), so long as the Common
Stock is listed on the Nasdaq, the Nasdaq SmallCap, the NYSE or the AMEX the
Company shall not be required to issue upon conversion of this Warrant a number
of shares of Common Stock in excess of the Maximum Share Amount. The Company
shall maintain records which show the number of shares of Common Stock issued
by the Company upon conversion from time to time of the Note and exercise of
this Warrant, which records shall be controlling in the absence of manifest
error. Upon surrender of this Warrant for transfer or re- registration hereof
(or, at the option of the Holder, for exercise of less than all of this
Warrant), the Company shall make a notation on the new Warrant issued upon such
transfer or re-registration or evidencing such unexercised portion of this
Warrant, as the case may be, as to the remaining number of shares of Common
Stock from the Maximum Share Amount remaining available for conversion of the
Note and exercise of the Warrant evidenced by such new certificate. If this
Warrant is surrendered for split-up into two or more Warrants representing the
right to purchase an aggregate number of shares equal to the number of shares
which may be purchased upon exercise of this Warrant at the time so surrendered
(as reduced by any contemporaneous exercise of this Warrant), each Warrant
issued on such split-up shall bear a notation of the portion of the Maximum
Share Amount allocated thereto determined by pro rata allocation from among the
remaining Maximum Share Amount at the time this Warrant is so surrendered.
2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE.
As soon as practicable after the exercise of this Warrant, and in any event
within three Trading Days thereafter, the Company at its expense (including the
payment by it of any applicable issue or stamp taxes) will cause to be issued
in the name of and delivered to the Holder hereof, or as the Holder (upon
payment by the Holder of any applicable transfer taxes) may direct, a
certificate or certificates for the number of fully paid and nonassessable
shares of Common Stock (or Other Securities) to which the Holder shall be
entitled on such exercise, in such denominations as may be requested by the
Holder, plus, in lieu of any fractional share to which the Holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current fair market value (as determined in accordance with subsection 1.2) of
one full share, together with any other stock or other securities any property
(including cash, where applicable) to which the Holder is entitled upon such
exercise pursuant to Section 1 or otherwise. Upon exercise of this Warrant as
provided herein, the Company's obligation to issue and deliver the certificates
for Common Stock shall be absolute and unconditional, irrespective of the
absence of any action by the Holder to enforce the same, any waiver or consent
with respect to any provision thereof, the recovery of
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<PAGE> 5
any judgment against any person or any action to enforce the same, any failure
or delay in the enforcement of any other obligation of the Company to the
Holder, or any setoff, counterclaim, recoupment, limitation or termination, or
any breach or alleged breach by the Holder or any other person of any
obligation to the Company, and irrespective of any other circumstance which
might otherwise limit such obligation of the Company to the Holder in
connection with such exercise. If the Company fails to issue and deliver the
certificates for the Common Stock to the Holder pursuant to the first sentence
of this paragraph as and when required to do so, in addition to any other
liabilities the Company may have hereunder and under applicable law, the
Company shall pay or reimburse the Holder on demand for all out-of-pocket
expenses including, without limitation, fees and expenses of legal counsel
incurred by the Holder as a result of such failure.
3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY,
ETC.; RECLASSIFICATION, ETC. In case at any time or from time to time, all the
holders of Common Stock (or Other Securities) shall have received, or (on or
after the record date fixed for the determination of stockholders eligible to
receive) shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or
property (other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out
of earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or
property (including cash) by way of spin-off, split-up,
reclassification, recapitalization, combination of shares or similar
corporate rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are
provided for in Section 5), then and in each such case the Holder, on the
exercise hereof as provided in Section 1, shall be entitled to receive the
amount of stock and other securities and property (including cash in the cases
referred to in subdivisions (b) and (c) of this Section 3) which the Holder
would hold on the date of such exercise if on the date thereof the Holder had
been the holder of record of the number of shares of Common Stock called for on
the face of this Warrant and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares and all
such other or additional stock and other securities and property (including
cash in the case referred to in subdivisions (b) and (c) of this Section 3)
receivable by the Holder as aforesaid during such period, giving effect to all
adjustments called for during such period by Section 4.
4. EXERCISE UPON REORGANIZATION, CONSOLIDATION, MERGER,
ETC. In case at any time or from time to time, the Company shall (a) effect a
reorganization, (b) consolidate with or merge into any other person, or (c)
transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, as a condition of such reorganization,
consolidation, merger, sale or conveyance, the Company shall give at least 30
days notice to the Holder of such pending transaction whereby the Holder shall
have the right to exercise this Warrant prior to any such reorganization,
consolidation, merger, sale or conveyance. Any exercise of this Warrant
pursuant to notice under this Section shall be conditioned upon the closing of
such reorganization, consolidation, merger, sale or conveyance which is the
subject of the notice and the exercise of this Warrant shall not be deemed to
have occurred until immediately prior to the closing of such transaction.
5. ADJUSTMENT FOR EXTRAORDINARY EVENTS. In the event
that the Company shall (i) issue additional shares of the Common Stock as a
dividend or other distribution on
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<PAGE> 6
outstanding Common Stock, (ii) subdivide or reclassify its outstanding shares
of Common Stock, or (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, then, in each such event, the
Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the Purchase Price in effect immediately prior to such
event by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such event and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
after such event, and the product so obtained shall thereafter be the Purchase
Price then in effect. The Purchase Price, as so adjusted, shall be readjusted
in the same manner upon the happening of any successive event or events
described herein in this Section 5. The Holder shall thereafter, on the
exercise hereof as provided in Section 1, be entitled to receive that number of
shares of Common Stock determined by multiplying the number of shares of Common
Stock which would be issuable on such exercise immediately prior to such
issuance by a fraction of which (i) the numerator is the Purchase Price in
effect immediately prior to such issuance and (ii) the denominator is the
Purchase Price in effect on the date of such exercise.
6. FURTHER ASSURANCES. The Company will take all action
that may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock, free from all
taxes, liens and charges with respect to the issue thereof, on the exercise of
all or any portion of this Warrant from time to time outstanding.
7. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Company of a record of the holders
of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend on, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other
right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all of the assets of
the Company to or consolidation or merger of the Company with or into
any other person, or
(c) any voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder, at least ten days prior to such record date, a notice specifying (i)
the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up is to take place, and the time,
if any is to be fixed, as of which the holders of record of Common Stock (or
Other Securities) shall be entitled to exchange their shares of Common Stock
(or Other Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up, and (iii) the amount and
character of any stock or other securities, or rights or options with respect
thereto, proposed to be issued or granted, the date of such proposed issue or
grant and the persons or class of persons to whom such proposed issue or grant
is to be offered or made. Such notice shall also state that the action in
question or the record date is subject to the effectiveness of a registration
statement under the 1933 Act, or a favorable vote of stockholders if either is
required. Such notice shall be mailed at least ten days prior to the date
specified in such notice on which any such action is to be taken or the record
date, whichever is earlier.
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<PAGE> 7
8. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF
WARRANTS. The Company will at all times reserve and keep available out of its
authorized but unissued shares of capital stock, solely for issuance and
delivery on the exercise of this Warrant, a sufficient number of shares of
Common Stock (or Other Securities) to effect the full exercise of this Warrant
and the exercise, conversion or exchange of any other warrant or security of
the Company exercisable for, convertible into, exchangeable for or otherwise
entitling the holder to acquire shares of Common Stock (or Other Securities),
and if at any time the number of authorized but unissued shares of Common Stock
(or Other Securities) shall not be sufficient to effect such exercise,
conversion or exchange, the Company shall take such action as may be necessary
to increase its authorized but unissued shares of Common Stock (or Other
Securities) to such number as shall be sufficient for such purposes.
9. TRANSFER OF WARRANT. This Warrant shall inure to the
benefit of the successors to and assigns of the Holder. This Warrant and all
rights hereunder, in whole or in part, are registrable at the office or agency
of the Company referred to below by the Holder hereof in person or by his duly
authorized attorney, upon surrender of this Warrant properly endorsed.
10. REGISTER OF WARRANTS. The Company shall maintain, at
the principal office of the Company (or such other office as it may designate
by notice to the Holder hereof), a register in which the Company shall record
the name and address of the person in whose name this Warrant has been issued,
as well as the name and address of each successor and prior owner of such
Warrant. The Company shall be entitled to treat the person in whose name this
Warrant is so registered as the sole and absolute owner of this Warrant for all
purposes.
11. EXCHANGE OF WARRANT. This Warrant is exchangeable,
upon the surrender hereof by the Holder hereof at the office or agency of the
Company referred to in Section 10, for one or more new Warrants of like tenor
representing in the aggregate the right to subscribe for and purchase the
number of shares of Common Stock which may be subscribed for and purchased
hereunder, each of such new Warrants to represent the right to subscribe for
and purchase such number of shares as shall be designated by said Holder hereof
at the time of such surrender.
12. REPLACEMENT OF WARRANT. On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of
any such mutilation, on surrender and cancellation of this Warrant, the Company
at its expense will execute and deliver, in lieu thereof, a new Warrant of like
tenor.
13. WARRANT AGENT. In accordance with the Transfer Agent
Instruction, dated September __, 1998, by and among the Company, American Stock
Transfer & Trust Company, as Transfer Agent and Registrar (the "Transfer
Agent"), and the original Holder of this Warrant and the other common stock
purchase warrants of like tenor issued by the Company in connection with the
issuance of this Warrant the Company has appointed the Transfer Agent as the
exercise agent for purposes of issuing shares of Common Stock (or Other
Securities) on the exercise of this Warrant pursuant to Section 1. The Company
may, by notice to the Holder, appoint an agent having an office in the United
States of America for the purpose of exchanging this Warrant pursuant to
Section 11 and replacing this Warrant pursuant to Section 12, or either of the
foregoing, and thereafter any such exchange or replacement, as the case may be,
shall be made at such office by such agent.
14. REMEDIES. The Company stipulates that the remedies
at law of the Holder in the event of any default or threatened default by the
Company in the performance of or
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<PAGE> 8
compliance with any of the terms of this Warrant are not and will not be
adequate, and that such terms may be specifically enforced by a decree for the
specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
15. NO RIGHTS OR LIABILITIES AS A STOCKHOLDER. This
Warrant shall not entitle the Holder hereof to any voting rights or other
rights as a stockholder of the Company. No provision of this Warrant, in the
absence of affirmative action by the Holder hereof to purchase Common Stock,
and no mere enumeration herein of the rights or privileges of the Holder
hereof, shall give rise to any liability of the Holder for the Purchase Price
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.
16. NOTICES, ETC. All notices and other communications
from the Company to the registered Holder shall be mailed by first class
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by the Holder or at the address shown for the Holder on
the register of Warrants referred to in Section 10.
17. TRANSFER RESTRICTIONS. By acceptance of this
Warrant, the Holder represents to the Company that this Warrant is being
acquired for the Holder's own account and for the purpose of investment and not
with a view to, or for sale in connection with, the distribution thereof, nor
with any present intention of distributing or selling the Warrant or the Common
Stock issuable upon exercise of the Warrant. The Holder acknowledges and
agrees that this Warrant and, except as otherwise provided in the Registration
Rights Agreement, the Common Stock issuable upon exercise of this Warrant (if
any) have not been (and at the time of acquisition by the Holder, will not have
been or will not be), registered under the 1933 Act or under the securities
laws of any state, in reliance upon certain exemptive provisions of such
statutes. The Holder further recognizes and acknowledges that because this
Warrant and, except as provided in the Registration Rights Agreement, the
Common Stock issuable upon exercise of this Warrant (if any) are unregistered,
they may not be eligible for resale, and may only be resold in the future
pursuant to an effective registration statement under the 1933 Act and any
applicable state securities laws, or pursuant to a valid exemption from such
registration requirements. Unless the shares of Common Stock issuable upon
exercise of this Warrant have theretofore been registered for resale under the
1933 Act, the Company may require, as a condition to the issuance of Common
Stock upon the exercise of this Warrant (i) in the case of an exercise in
accordance with Section 1.1 hereof, a confirmation as of the date of exercise
of the Holder's representations pursuant to this Section 17, or (ii) in the
case of an exercise in accordance with Section 1.2 hereof, an opinion of
counsel reasonably satisfactory to the Company that the shares of Common Stock
to be issued upon such exercise may be issued without registration under the
1933 Act.
18. LEGEND. Unless theretofore registered for resale
under the 1933 Act, each certificate for shares issued upon exercise of this
Warrant shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities have been acquired for investment and may not be resold,
transferred or assigned in the absence of an effective registration
statement for the securities under the Securities Act of 1933, as
amended, or an opinion of counsel that registration is not required
under said Act.
19. MISCELLANEOUS. This Warrant and any terms hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the internal laws of the State of New York.
The headings in this Warrant are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The invalidity or
unenforceability of any provision hereof shall in no way affect the validity or
enforceability of any other provision.
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<PAGE> 9
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed on its behalf by one of its officers thereunto duly authorized.
Dated: September 4, 1998 EQUALNET COMMUNICATIONS CORP.
By: /s/ MITCHELL H. BODIAN
-----------------------
Mitchell H. Bodian
Title: President & CEO
---------------------
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<PAGE> 10
FORM OF SUBSCRIPTION
EQUALNET COMMUNICATIONS CORP.
(To be signed only on exercise of Warrant)
TO: American Stock Transfer & Trust Company,
as Transfer Agent
6201 Fifteenth Avenue
Brooklyn, New York 11219
1. The undersigned Holder of the attached original, executed
Warrant hereby elects to exercise its purchase right under such Warrant with
respect to ______________ shares of Common Stock, as defined in the Warrant, of
Equalnet Communications Corp., a Texas corporation (the "Company").
2. The undersigned Holder (check one):
[ ] (a) elects to pay the aggregate purchase price for such
shares of Common Stock (the "Exercise Shares") (i) by
lawful money of the United States or the enclosed
certified or official bank check payable in United
States dollars to the order of the Company in the
amount of $___________, or (ii) by wire transfer of
United States funds to the account of the Company in
the amount of $____________, which transfer has been
made before or simultaneously with the delivery of
this Form of Subscription pursuant to the
instructions of the Company;
or
[ ] (b) elects to receive shares of Common Stock having a
value equal to the value of the Warrant calculated in
accordance with Section 1.2 of the Warrant.
3. Please issue a stock certificate or certificates representing
the appropriate number of shares of Common Stock in the name of the undersigned
or in such other names as is specified below:
4. The undersigned Holder hereby represents to the Company that
the exercise of the Warrant elected hereby does not violate Section 1.1(b) of
the Warrant.
Name:
--------------------------------
Address:
-----------------------------
-----------------------------
-----------------------------
Dated: ,
---------------- --- ------ -------------------------------------
(Signature must conform to name of
Holder as specified on the face of
the Warrant)
<PAGE> 1
EXHIBIT 4
PROMISSORY NOTE
$1,500,000.00 Houston, Texas September 5, 1998
FOR VALUE RECEIVED, after date, without grace, in the manner,
on the dates, and in the amounts so herein stipulated, the undersigned, WILLIS
GROUP, L.L.C., a Texas limited liability company, acting by and through its
duly authorized officers ("Maker"), promises to pay to the order of MICHAEL T.
WILLIS ("Payee"), whose address is 4400 Post Oak Parkway, Suite 1130, Houston,
Texas, 77027-3413 Harris County, Texas, the sum of ONE MILLION FIVE HUNDRED
THOUSAND AND NO/100 DOLLARS ($1,500,000.00) in lawful money of the United
States of America, which shall be legal tender, in payment of all debts and
dues, public and private, at the time of payment and to pay interest thereon
from date until maturity at a rate of seven percent (7%) per annum, payable as
stipulated herein.
This note is due and payable in full on or before December 31, 1999 OR
at such earlier time(at the election of Payee) that any proceeds are received
by Maker from any investment in EqualNet Communications Corp. Where such
proceeds will go toward the reduction of outstanding principal and interest and
only the amount of such proceeds will become due under this note until December
31, 1999, at which the entire amount becomes due.
This note may be prepaid in whole or in part at any time without
penalty; provided, however, that all payments received by Payee from Maker upon
this note shall first be applied to the payment of accrued but unpaid interest,
with the balance thereof to be applied to the reduction of the outstanding
principal of this note. All prepayments shall be applied to the outstanding
principal balance of this note in the inverse order of maturity.
Whenever any payment to be made under this note shall be stated to be
due on a Saturday, Sunday or legal holiday for commercial banks under the laws
of the State of Texas, then such payment shall be made on the next succeeding
business day and such extension of time shall in such case be included in the
computation of payment of interest hereunder.
In addition to all principal and accrued interest on this note, Maker
agrees to pay (a) all reasonable costs and expenses incurred by all owners and
holders of this note in collecting this note through probate, reorganization,
bankruptcy or any other proceeding, (b) reasonable attorneys' fees when and if
this note is placed in the hands of an attorney for collection after default,
and (c) the reasonable attorneys' fees, costs and expenses incurred by Payee in
connection with the preparation and filing of the agreements and documents
contemplated herein.
<PAGE> 2
Unless otherwise provided by law, Maker and any and all co-makers,
endorsers, guarantors and sureties severally waive notice (including, but not
limited to, notice of protest, notice of dishonor and notice of intent to
accelerate and notice of acceleration), demand, presentment for payment,
protest and the filing of suit for the purpose of fixing liability and consent
that the time of payment hereof may be extended and re-extended from time to
time without notice to them or any of them, and each agrees that his, her or
its liability on or with respect to this note shall not be affected by any
release of or change in any security at any time existing or by any failure to
perfect or to maintain perfection of any lien on or security interest in any
such security.
Maker warrants and represents to Payee, and to all other owners and
holders of any indebtedness evidenced hereby, that the loan evidenced by this
Note is and shall be solely for business, commercial or agricultural purposes
and not primarily for personal, family or household use. Maker acknowledges
that the loan evidenced by this Note is specifically exempted under Section
226.3(a) of Regulation Z issued by the Board of Governors of the Federal
Reserve System and under the Truth-in-Lending Act and that no disclosures are
required to be given under such regulations and federal laws in connection with
this Note.
This Note is secured by all assets now owned or to be obtained by
Maker.
It is agreed that time is of the essence of this agreement, and that
in the event of default in the payment of any installment of principal or
interest when due the holder hereof may declare the unpaid principal balance
plus all accrued but unpaid interest due thereon immediately due and payable
without notice, and failure to exercise said option shall not constitute a
waiver on the part of the holder of the right to exercise the same at any other
time.
In the event of default in the making of any payment herein provided,
either of principal or interest, or in the event the entirety of the
indebtedness evidenced hereby is declared due, interest shall accrue at the
maximum rate allowed by law.
All agreements between the Maker and the Payee, whether now existing
or hereafter arising and whether written or oral, are hereby expressly limited
so that in no event, whether by reason of acceleration of maturity hereof or
otherwise, shall the amount paid or agreed to be paid to the Payee for the use,
forbearance or detention of the money to be loaned hereunder or otherwise,
exceed the maximum amount permissible under applicable law. If fulfillment of
any provision hereof or of any mortgage, loan agreement, or other document
evidencing or securing the indebtedness evidenced hereby, at the time
performance of such provision shall be due, shall involve transcending the
limit of validity prescribed by law, then, ipso facto, the obligation to be
fulfilled shall be
<PAGE> 3
reduced to the limit of such validity; and if the Payee shall ever receive
anything of value deemed interest under applicable law which would exceed
interest at the highest lawful rate, an amount equal to any excessive interest
shall be applied to the reduction of the principal amount owing hereunder and
not to the payment of interest, or if such excessive interest exceeds the
unpaid balance of principal hereof, such excess shall be refunded to the Maker.
All sums paid or agreed to be paid to the Payee for the use, forbearance, or
detention of the indebtedness of the Maker to the Payee shall, to the extent
permitted by applicable law, be amortized, prorated, allocated, and spread
throughout the full term of such indebtedness until payment in full so that the
rate of interest on account of such indebtedness is uniform throughout the term
thereof. The provisions of this paragraph shall control all agreements between
the Maker and the Payee.
This note has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the
United States of America, except that Tex. Rev. Civ. Stat. Ann. Art. 5069, Ch.
15, as amended (which regulates certain revolving credit loan accounts and
revolving tri-party accounts), shall not apply hereto. For purposes of any suit
relating to this note, Maker hereof submits itself to the jurisdiction of any
court sitting in the State of Texas and further agrees that venue in any suit
arising out of this note or any venue shall be fixed in Harris County, Texas.
Final judgment in any suit shall be conclusive and may be enforced in any
jurisdiction within or without the United States of America, by suit on the
judgment, a certified or exemplified copy of which shall be conclusive evidence
of such liability.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
"MAKER"
WILLIS GROUP, L.L.C.
By:
---------------------------------------
Mark Willis, President
<PAGE> 1
EXHIBIT 5
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: September 23, 1998
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
