UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _______________, 19__ to_________________, 19___.
Commission File Number: 0-25482
EQUALNET HOLDING CORP.
(Exact Name of Registrant as Specified in its Charter)
TEXAS 76-0457803
(State of Other Jurisdiction of (I.R.S. Employer Identi-
Incorporation or Organization) fication Number)
1250 WOOD BRANCH PARK DRIVE
HOUSTON, TEXAS 77079
Address of Principal Executive Offices, Including Zip Code
(281) 529-4600
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No___
There were 21,393,070 shares of the Registrant's $.01 par value common stock
outstanding as of May 11, 1998.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
EQUALNET HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1998
------------ ------------
(NOTE) (UNAUDITED)
ASSETS
Current assets
<S> <C> <C>
Cash and equivalents ............................... $ 828,478 $ 2,999,201
Accounts receivable, net of allowance
for doubtful accounts of $1,450,954 at June 30,
1997 and $596,246 at March 31, 1998 ........... 9,048,961 4,795,026
Receivable from officers ........................... 28,367 --
Due from agents .................................... 2,907,922 1,539,080
Acquisition advance ................................ -- 1,550,000
Prepaid expenses and other ......................... 285,516 440,584
------------ ------------
Total current assets .................................... 13,099,244 11,323,891
Property and equipment
Computer equipment ................................. 3,435,121 16,803,600
Office furniture and fixtures ...................... 1,209,032 1,209,032
Network assets ..................................... -- 835,226
Leasehold improvements ............................. 1,174,777 1,177,591
------------ ------------
5,818,930 20,025,449
Accumulated depreciation and
amortization ....................................... (3,028,768) (4,215,848)
------------ ------------
2,790,162 15,809,601
Customer acquisition costs, net of
accumulated amortization of $13,050,667
at June 30, 1997 and $14,031,407 at
March 31, 1998 ..................................... 1,262,939 282,199
Other assets ............................................ 1,027,507 2,148,055
Goodwill, net of accumulated amortization of $46,020 at
June 30, 1997 and $137,110 at March 31, 1998 ............ 982,308 891,218
------------ ------------
Total assets ............................................ $ 19,162,160 $ 30,454,964
============ ============
</TABLE>
Note: The balance sheet at June 30, 1997 has been derived from the audited
financial statements at that date. See accompanying notes.
<PAGE>
EQUALNET HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1998
------------- ----------------
(NOTE) (UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable ........................................................... $ 1,858,065 $ 1,973,966
Accrued expenses ........................................................... 1,398,319 2,958,613
Accrued sales taxes ........................................................ 591,182 257,725
Brokerage commissions payable .............................................. 151,755 75,320
Payable to providers of long distance services ............................. 7,977,531 6,712,415
Current maturities of capital lease obligations ............................ 51,000 --
Note payable to long distance provider ..................................... 1,183,059 1,183,059
Current maturities of note payable ......................................... -- 400,000
Revolving line of credit ................................................... 4,555,442 --
Contractual obligations with regard to receivable sales
agreement ............................................................. -- 1,861,274
------------ ------------
Total current liabilities ....................................................... 17,766,353 15,422,372
Notes payable ................................................................... -- 6,050,000
Subordinated note payable ....................................................... 2,864,058 --
Deferred rent ................................................................... 220,288 227,491
Commitments and contingencies
Shareholders' equity (deficit)
Preferred stock,$0.01 par value 1,000,000 shares authorized
at June 30, 1997 and 5,000,000 shares at March 31, 1998
Series A, non-voting, aggregate liquidation preference
of $2.0 million at March 31, 1998; 0 shares issued and outstanding at
June 30, 1997 and 2,000 shares issued and outstanding at March 31, 1998 -- 20
Series B, voting, aggregate liquidation preference of $3.0 million at
March 31, 1998; 0 shares issued and outstanding at June 30, 1997
and 3,000 shares issued and outstanding at March 31, 1998 ............. -- 30
Common stock, $.01 par value, 20,000,000 shares authorized
and 6,173,750 shares issued and outstanding at June 30, 1997 and
50,000,000 shares authorized and 18,393,517 shares issued and
outstanding at March 31, 1998 ......................................... 61,738 183,934
Treasury stock at cost, 21,750 shares at
June 30, 1997 and 394,994 at March 31, 1998 ........................... (104,881) (804,881)
Additional paid in capital .................................................. 20,390,927 38,957,886
Warrants outstanding ........................................................ 368,000 1,249,000
Deferred compensation ....................................................... (245,829) (193,327)
Retained deficit ............................................................ (22,158,494) (30,637,561)
------------ ------------
Total shareholders' equity (deficit) ............................................ (1,688,539) 8,775,101
============ ============
Total liabilities and shareholders' equity ...................................... $ 19,162,160 $ 30,454,964
============ ============
</TABLE>
Note: The balance sheet at June 30, 1997 has been derived from the audited
financial statements at that date. See accompanying notes.
<PAGE>
EQUALNET HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales .................................................. $ 10,662,051 $ 5,765,688 $ 36,067,019 $ 20,574,243
Cost of sales .......................................... 7,844,314 4,640,738 27,777,251 15,634,291
------------ ----------- ------------ ------------
2,817,737 1,124,950 8,289,768 4,939,952
Selling, general and administrative
expenses ............................................... 2,822,974 3,749,553 9,037,655 9,005,284
Depreciation and amortization .......................... 1,502,343 1,146,239 5,200,166 3,302,027
Write down of assets ................................... -- -- 4,400,000 --
----------- ----------- ----------- -----------
Operating loss ......................................... (1,507,580) (3,770,842) (10,348,053) (7,367,359)
Other income (expense)
Interest income ................................... 1,683 5,537 1,745 6,700
Interest expense .................................. (240,370) (245,319) (719,010) (1,180,773)
Miscellaneous ..................................... (193,240) (31,507) (386,477) 73,922
----------- ----------- ----------- -----------
(431,927) (271,289) (1,103,742) (1,100,151)
Loss before income taxes ............................... (1,939,507) (4,042,131) (11,451,795) (8,467,510)
Benefit for income taxes ............................... -- -- (802,845) --
----------- ----------- ----------- -----------
Net loss ............................................... (1,939,507) (4,042,131) (10,648,950) (8,467,510)
Preferred stock dividends .............................. -- 11,557 -- 11,557
----------- ----------- ----------- -----------
Net loss available to common shareholders .............. $(1,939,507) $(4,053,688) $(10,648,950) $(8,479,067)
=========== =========== ============ ===========
Net loss per common share-basic & diluted .............. $ (0.32) $ (0.43) $ (1.75) $ (1.15)
=========== =========== ============ ===========
</TABLE>
See accompanying notes.
<PAGE>
EQUALNET HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1997 1998
------------ ------------
OPERATING ACTIVITIES
<S> <C> <C>
Net loss ............................................ $(10,648,950) $ (8,467,510)
Adjustments to reconcile net loss to cash provided by
(used in) operating activities:
Depreciation and amortization .................. 5,200,166 3,302,027
Provision for bad debt ......................... 1,448,033 1,112,310
Interest charge on convertible debt issued at
discount ..................................... -- 150,000
Equity in loss on investment ................... 295,704 --
Benefit for deferred income taxes .............. (802,845) --
Loss on sale of assets ......................... 341 --
Imputed interest on notes payable .............. 20,372 --
Compensation expense recognized for common stock
issue ........................................ 67,506 52,502
Write down of long term assets ................. 4,400,000 --
Change in operating assets and liabilities:
Accounts receivable .................. 3,818,573 3,141,625
Due from agents ...................... (1,589,008) 1,068,981
Prepaid expenses and other ........... 1,123,319 (294,782)
Other assets ......................... (1,303,866) (1,167,723)
Deferred rent ........................ -- 7,203
Customer acquisition costs ........... (76,457) --
Accounts payable and accrued
liabilities ....................... 2,019,751 130,461
------------ ------------
Net cash provided by (used in) operating activities . 3,972,639 (964,906)
INVESTING ACTIVITIES
Purchase of property and equipment .................. (92,734) (6,369,202)
Acquisition advances ................................ -- (1,550,000)
Proceeds from sale of equipment ..................... 800 --
------------ ------------
Net cash used in investing activities ............... (91,934) (7,919,202)
FINANCING ACTIVITIES
Proceeds from subordinated notes payable ............ 3,000,000 --
Proceeds from notes payable ......................... -- 7,407,260
Net repayments on revolving line of credit .......... (5,531,986) (4,555,442)
Net proceeds on contractual obligations with regard
to receivable sales agreement .................. -- 1,861,274
Repayments on capital lease obligations ............. (63,000) (51,000)
Proceeds from issuance of stock ..................... -- 6,249,999
Proceeds from issuance of warrants .................. -- 142,740
------------ ------------
Net cash provided by (used in) financing activities (2,594,986) 11,054,831
Net increase in cash ................................ 1,285,719 2,170,723
Cash, beginning of period ........................... 381,849 828,478
------------ ------------
Cash, end of period ................................. $ 1,667,568 $ 2,999,201
============ ============
</TABLE>
See accompanying notes.
<PAGE>
EQUALNET HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - MANAGEMENT'S REPRESENTATION
The consolidated financial statements included herein have been
prepared by the management of EqualNet Holding Corp. (the
"Company") without audit. Certain information and note
disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted
accounting principles have been omitted. In the opinion of the
management of the Company, all adjustments considered necessary
for fair presentation of the consolidated financial statements
have been included and were of a normal recurring nature, and the
accompanying consolidated financial statements present fairly the
financial position of the Company as of March 31, 1998, and the
results of operation and cash flows for the nine months ended
March 31, 1998.
It is suggested that these consolidated financial statements be
read in conjunction with the consolidated financial statements
and notes for the three years ended June 30, 1997, included in
the Company's Annual Report on Form 10-K for the year ended June
30, 1997, as amended, which was filed with the Securities and
Exchange Commission. The interim results are not necessarily
indicative of the results for a full year.
NOTE 2 - ACCOUNTING CHANGE
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("FAS") No. 128,
Earnings per Share. Statement 128 replaced the previously
reported primary and fully diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any
dilutive effect of options, warrants, and convertible securities.
Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. Upon adoption of FAS
No. 128 in the quarter ended December 31, 1997, all earnings per
share amounts for all periods have been presented, and where
necessary, restated to conform to the Statement 128 requirements.
NOTE 3 - INCOME TAXES
The Company recorded a valuation allowance amounting to the
entire net deferred tax asset balance at June 30, 1997, due to
recent operating losses which give rise to uncertainty as to
whether the deferred tax asset is realizable. The Company has
recorded no income tax benefit for the period ended March 31,
1998.
NOTE 4 - CHANGE IN CONTROL OF REGISTRANT & SECURITIES
On March 6, 1998, the shareholders of the Company approved
certain transactions detailed below:
On December 2, 1997, EqualNet entered into several related
agreements, (as amended, the "Agreements") involving the Willis
Group, LLC, a privately held investment partnership ("the Willis
Group"), and other third parties. Collectively, these Agreements
provided for a recapitalization of the Company and for the
Company to acquire certain telecommunications network assets and
switches (collectively the "Transactions".)
<PAGE>
On March 6, 1998 as a result of various transactions, the Willis
Group and its affiliates acquired approximately 8.53 million
shares of the Company's Common Stock, par value $0.01 per share
("Common Stock"). The Willis Group also gained control of the
Board of Directors of the Company, having nominated for
shareholder approval four of the seven members of the Board of
Directors.
On October 1, 1997, the Company issued to the Willis Group a $1.0
million Convertible Secured Note, bearing interest at the rate of
12% per year and maturing April 1, 1998 (the "Note"), and a
warrant for the purchase of up to 0.2 million shares of Common
Stock at an exercise price of $1.00 per share, subject to
adjustment (the "October Warrant"). The October Warrant was
exercisable for five years. The outstanding balance of the Note
was convertible into a number of shares of Common Stock
determined by dividing the outstanding balance by the lesser of
$1.00 or 85% of the market price of the Common Stock. As of the
date of issuance of the convertible debt the Company recorded an
interest charge of $0.15 million to record the impact of the debt
being convertible at a discount to market. On March 5, 1998, the
Note, warrants and accrued interest were exchanged for 1.05
million shares of Common Stock.
Under the terms of the Agreements the Company acquired nine
telecommunications switches (the "Switches") from the Willis
Group for $8.1 million of aggregate consideration, consisting of
$5.9 million in cash, 1.4 million shares of Common Stock, and
warrants to purchase an additional 0.4 million shares of Common
Stock. The Company secured financing of $6.05 million for the
cash portion of the consideration through an unaffiliated third
party lender, which loan is secured by the Switches, bears
interest at a rate per year of 6.42% above an index rate based
on U.S. Treasury Notes (the loan interest rate currently is
12.1%) and is payable in 36 consecutive monthly payments. In
addition, an individual investor was granted 0.5 million warrants
for guaranteeing this financing.
Under the terms of the Agreements, the Company acquired Netco
Acquisition Corp. ("Netco"), a Delaware corporation controlled by
the Willis Group, which held certain intangible rights and assets
previously acquired by the Willis Group and formerly held by
Total National Telecommunications. These assets consisted of
intangible rights to use certain software and codes necessary to
operate the Switches. The Company acquired Netco for $5.6 million
in aggregate consideration, including 2.08 million shares of
Common Stock, 1.5 million shares of Common Stock (equal to the
working capital loans made by the members of Netco Acquisition
LLC or their affiliates to Netco prior to the closing divided by
$1.00), and 2,000 shares of the Company's Series A Convertible
Preferred Stock ("Series A Preferred".) The Series A Preferred is
non-voting and has a stated value of $1,000 per share and is
entitled to received dividends at the rate of $80.00 per year,
payable quarterly. Holders of Series A Preferred have the right
to convert their shares into Common Stock initially at the rate
of 1,000 shares of Common Stock per share of Series A Preferred
(or the stated value divided by $1.00), or an aggregate of 2.0
million shares of Common Stock, subject to adjustment pursuant to
certain anti-dilution provisions. The Series A Preferred has a
$1,000 per share liquidation preference over the Company's Common
Stock. Dividends are payable at the determination of the Board of
Directors. Dividends when not paid are cumulative and bear
interest at a rate of 12.0%. Cumulative dividends in arrears at
March 31, 1998 are $11,557 or $5.78 per Series A Preferred share.
Under the instrument defining the rights of the holders of the
Series A Preferred, the Company is prohibited from declaring or
paying dividends on the Common Stock unless all accrued dividends
on the Series A Preferred have been paid.
Under the terms of the Agreements, the Company also issued and
sold to the Willis Group 4.0 million shares of Common Stock at a
price of $1.00 per share in cash.
<PAGE>
On March 6, 1998, the Company entered into an exchange agreement
("Exchange Agreement") with The Furst Group, ("Furst"), a New
Jersey corporation, an accredited investor and the holder of the
Company's $3.0 million subordinated debt, pursuant to which Furst
exchanged the $3.0 million 10% subordinated note due December 31,
1998 and warrants to purchase 1.5 million shares of Common Stock
for 3,000 shares of Series B Senior Convertible Preferred Stock
("Series B Preferred") along with 0.3 million shares of the
Company's Common Stock to satisfy the accrued interest due on the
notes. Each share of the Series B Preferred has a stated value of
$1,000 and is entitled to share with the Common Stock in any
dividends declared based upon the number of shares of Common
Stock the Series B is convertible into at the time such dividend
is declared. Each share of Series B Preferred is convertible
initially into 500 shares of Common Stock, subject to adjustment
if the market price of the Common Stock is below $2.00 per share
between May 8, 1998 and June 5, 1998, and also subject to certain
anti-dilution provisions. The Series B Preferred has a $1,000 per
share liquidation preference over the Series A Preferred and the
Common Stock. Each share of Series B Preferred also entitles the
holder thereof to one vote, voting as a single class with the
Common Stock, on matters submitted to the shareholders of the
Company.
On March 26, 1998, the Company issued to First Sterling Ventures,
a Texas corporation, and an individual, both accredited
investors, an aggregate of 1.33 million shares of Common Stock
and warrants to purchase an additional 0.67 million Common Stock
shares for an aggregate of $2.0 million in cash. The Willis Group
was granted a 1.0% facilitation fee for these transactions
totaling $0.02 million.
NOTE 5 - PENDING TRANSACTIONS
On January 21, 1998, the Company signed an agreement with SA
Telecommunications, Inc., ("SA Telecom") a switched based, long
distance telecommunications carrier serving customers primarily
in Texas and California to acquire certain assets and a customer
base in exchange for a combination of shares of stock, cash and
assumption of certain liabilities. The transaction is subject to
certain conditions, including approval of the bankruptcy court
supervising the reorganization of SA Telecom under Chapter 11 of
the United States Bankruptcy Code. The transaction is further
subject to being the successful bidder at a bankruptcy auction
for the sale of the assets. On March 9, 1998, the Company won
approval from the bankruptcy court to acquire SA Telecom's assets
for $3.47 million in cash and approximately $5.4 million in
preferred stock. Per this approval, the Company advanced $1.5
million of the total purchase consideration to the bankruptcy
estate. Additionally, the Company will assume approximately $4
million in debt, to be liquidated by SA Telecom's accounts
receivable. This transaction is subject to the approval of the
Company's shareholders and other certain conditions. Pending the
closing of this transaction, the Company and SA Telecom entered
into a management agreement on April 1, 1998 pursuant to which
the Company will manage the operations of SA Telecom until the
transaction is closed, whereby the Company is responsible for
any profits or losses from SA Telecom's operations.
The successful completion of the SA Telecom transaction is
contingent upon the Company securing additional working capital
financing to replace the facility currently in place at SA
Telecom. The Company is negotiating with its current financing
source and other lenders to provide such a facility. There can be
no assurance that the Company will be able to obtain this
financing on favorable terms.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
<PAGE>
The Company's intrastate long-distance telecommunications
operations are subject to various state laws and regulations,
including consumer protection statutes enforced by the Attorney
General of each state. During 1995, 1996 and 1997 the Attorneys
General of eleven states alleged violations of various consumer
protection statutes against EqualNet. Each of these matters
alleged that the state received an excessive number of customer
complaints that long-distance service was switched to the Company
without the customer's knowledge or informed consent, with
sanctions being sought under the deceptive trade practices or
consumer protection statutes of these states. The Company reached
a settlement agreement on December 22, 1997. The result of the
settlement was that the Company agreed to pay a total of $225,000
to the Attorneys General of the eleven states involved by
February 28, 1998. The payments were reimbursement for
investigative costs and attorney's fees incurred by the Attorneys
General in connection with the investigation of the alleged
consumer protection violations and to conduct consumer education
activities. In addition, the Company agreed to adjust balances
appropriately on any pending and unresolved complaints, which
complaints are to be identified by each Attorney General. It is
anticipated that the amount of these adjustments will not be
material. The settlement payments were made to the appropriate
states in March 1998.
NOTE 7 - DEFAULT ON SUBORDINATED NOTE AND NOTES PAYABLE
Through March 5, 1998 the Company was not in compliance with the
interest payment covenant of its subordinated note agreement with
Furst. On March 6, 1998, the Company agreed with Furst to issue
to the holder one share of Common Stock for every dollar of
interest in arrears due to the note holder. The Company issued
0.3 million shares in satisfaction of this obligation. See Note 4
and Management's Discussion and Analysis of Financial Condition
and Results of Operations under "Liquidity and Capital
Resources".
At March 31, 1998, the Company was in default on its $1.18
million note with one of its carriers. The Company is negotiating
to revise the terms of the note. Outstanding interest due at
March 31, 1998 was $0.09 million.
NOTE 8 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share :
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1998 1997 1998
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
NUMERATOR:
NET LOSS ................................................. $(1,939,507) $(4,042,131) $(10,648,950) $(8,467,510)
PREFERRED STOCK DIVIDENDS ................................ 0 (11,557) 0 (11,557)
----------- ----------- ------------ -----------
NUMERATOR FOR BASIC AND DILUTED LOSS PER
COMMON SHARE - INCOME AVAIL. TO COMMON
SHAREHOLDERS ................................... $(1,939,507) $(4,053,688) $(10,648,950) $(8,479,067)
EFFECT OF DILUTIVE SECURITIES: ........................... 0 0 0 0
----------- ----------- ------------ -----------
NUMERATOR FOR DILUTED LOSS PER COMMON SHARE
INCOME AVAILABLE TO COMMON
SHAREHOLDERS ................................... $(1,939,507) $(4,053,688) $(10,648,950) $(8,479,067)
DENOMINATOR:
DENOMINATOR FOR BASIC LOSS PER COMMON
SHARE - WEIGHTED AVERAGE SHARES................. 6,152,000 9,486,275 6,078,909 7,365,587
DILUTIVE POTENTIAL COMMON SHARES ......................... 0 0 0 0
----------- ----------- ------------ -----------
DENOMINATOR FOR DILUTED LOSS PER COMMON
SHARE ADJUSTED WEIGHTED-AVERAGE SHARES
AND ASSUMED CONVERSIONS ........................ 6,152,000 9,486,275 6,078,909 7,365,587
----------- ----------- ------------ -----------
BASIC AND DILUTED LOSS PER COMMON SHARE .................. $ (0.32) (0.43) $ (1.75) $ (1.15)
=========== =========== ============ ===========
</TABLE>
<PAGE>
The analysis assumes that there are no conversions of any securities during the
periods shown because there is a loss in each quarter, and therefore the effect
of the conversion of any security would be anti-dilutive.
<PAGE>
NOTE 9 - DEBT
During the quarter ended March 31, 1998, the Company obtained a
cash flow bridge loan of $0.4 million from the Willis Group. This
is a note payable maturing May 1, 1999 with consecutive monthly
installments at 10.0%
NOTE 10 - SUBSEQUENT EVENTS
On April 24, 1998, the Company entered into an agreement with an
individual investor to issue 3.4 million shares of par $.01 per
share Common Stock of the Company which, if issued as of the date
hereof, would constitute approximately 15.9% of the outstanding
Common Stock and warrants for the purchase of 0.17 million shares
of Common Stock in exchange for $3.4 million. In addition, the
Willis Group will receive a 1.0% facilitation fee for this
transaction totaling $0.03 million.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of operations and financial condition of the Company
should be read in conjunction with the Financial Statements and Notes thereto
included elsewhere in this Quarterly Report on Form 10-Q. Special Note: Certain
statements set forth below constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended. See "Special Note Regarding
Forward-Looking Statements" and "Cautionary Statements".
RESULTS OF OPERATIONS
The following table sets forth for the fiscal periods indicated the percentages
of total sales represented by certain items reflected in the Company's
consolidated statements of operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1998 1997 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Sales ............................. 100.0% 100.0% 100.0% 100.0%
Cost of sales ..................... 73.6% 80.5% 77.0% 76.0%
------ ------ ------ ------
26.4% 19.5% 23.0% 24.0%
Selling, general and
administrative expense ....... 26.5% 65.0% 25.1% 43.8%
Depreciation and amortization ..... 14.0% 19.9% 14.4% 16.0%
Write down of assets .............. 0.0% 0.0% 12.2% 0.0%
------ ------ ------ ------
Operating loss .................... (14.1%) (65.4%) (28.7%) (35.8%)
Other income (expense)
Interest income .............. 0.0% 0.1% 0.0% 0.0%
Interest expense ............. (2.3%) (4.3%) (2.0%) (5.7%)
Miscellaneous ................ (1.8%) (0.5%) (1.1%) 0.4%
------ ------ ------ ------
(4.1%) (4.7%) (3.1%) (5.3%)
Loss before income taxes .......... (18.2%) (70.1%) (31.8%) (41.1%)
------ ------ ------ ------
Benefit for income taxes .......... (0.0%) (0.0%) (2.2%) (0.0%)
------ ------ ------ ------
Net loss .......................... (18.2%) (70.1%) (29.6%) (41.1%)
====== ====== ====== ======
</TABLE>
<PAGE>
SALES
The Company's sales in the three months ended March 31, 1998 decreased 45.9% to
$5.8 million compared to $10.7 million for the comparable period of the prior
year. For the nine months ended March 31, 1998 sales decreased 43.0% to $20.6
million compared to $36.1 million for the same period in the previous year. The
decrease for both periods was due primarily to a decrease in the number of
customer accounts and a corresponding decrease in billable minutes. Total
billable minutes for the quarter ended March 31, 1998 decreased 53.6% to 18.0
million minutes from 38.8 million minutes for the same period of the prior year
and for the nine months ended March 31, 1998 decreased 46.2% to 67.7 million
minutes from 125.8 million minutes for the comparable period of fiscal 1998. The
decline in revenues and billable minutes was the result of the continued rate of
attrition for existing customers and a continuing decline in order activity. The
Company's continuing liquidity problems during this time frame have not allowed
for the funding of order activity as significant as that in the same period of
the prior year.
COST OF SALES
The cost of sales for the three months ended March 31, 1998 decreased 40.8% to
$4.6 million compared to $7.8 million for the comparable period of the prior
year. Cost of sales for the nine months ended March 31, 1998 decreased 43.7% to
$15.6 million compared to $27.8 million for the nine months ended March 31,
1998. The decreases were primarily attributable to a decrease in sales. Cost of
sales as a percentage of sales increased to 80.5% from 73.6% for the three
months ended March 31, 1998 and decreased to 76.0% from 77.0% in the nine months
ended March 31, 1998. The increase as a percentage of sales for the quarter
ended March 31, 1998 was due to increases in the cost of long-distance,
commission expenses and bad debt expense as detailed below. The decrease as a
percentage of sales for the nine months was due to a reduction in the Company's
cost of long distance from its primary underlying carrier, as well as a reversal
of an accrual for usage charges of $0.34 million for a joint venture which has
ceased doing business actively.
The Company's cost of long-distance (which is a component of cost of sales)
increased as a percentage of sales to 55.0% from 53.2% for the three months
ended March 31, 1998 and 1997, respectively. This increase was due to
fluctuations in customer usage patterns over the quarter. For the nine months
ended March 31, 1998, the cost of long-distance decreased as a percentage of
sales to 53.9% from 59.7% for the corresponding period in fiscal 1997. The
decrease was the result of the Company reducing its cost of long-distance by
negotiating more favorable rates with providers, as well as a reversal of an
accrual for usage charges of $0.34 million for a joint venture which has ceased
doing business actively .
Commission expense (which is a component of cost of sales) as a percent of sales
increased to 11.5% for the third quarter of fiscal 1998, compared to 7.7% for
the third quarter of fiscal 1997. Commission expense as a percent of sales for
the nine months ended March 31, 1998 was 8.4%, an increase over the first nine
months of fiscal 1997 which was 6.1%.This increase is due primarily to the
Company's return to acquiring new customers utilizing advances and residual
commissions rather than through purchased orders.
Billing expense (which is a component of cost of sales) as a percentage of sales
decreased to 7.4% for the three months ended March 31, 1998 compared to 9.2% for
the same period in the previous year as a result of the Company's transition to
a less expensive in-house billing system for its direct bill customers. Billing
expense as a percentage of sales increased to 8.0% for the nine months ended
March 31, 1998 compared to 7.1% for the same period in fiscal 1997 as a result
of an increase in the overall proportion of customers being billed through Local
Exchange Carriers ("LECs"). Billings through the LECs represented 45.9% and
46.6% of the Company's revenues for the three and nine months ended, March 31,
1998 respectively.
<PAGE>
Bad debt expense (which is a component of cost of sales) as a percentage of
sales increased for the three and nine months ended March 31, 1998 to 6.2% and
5.4% of sales, respectively, as compared to 3.2% and 4.0% of sales for the three
and nine months ended March 31, 1997, respectively. The increase in percentage
was due to increased write-offs of bad debt over a smaller current base of
sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 32.8% to $3.7 million for
the three months ended March 31, 1998, from $2.8 million for the same period of
the prior year. Selling, general and administrative expenses increased as a
percentage of sales to 65.0% for the three months ended March 31, 1998 from
26.5% for the same period of the prior year. For the nine months ended March 31,
1998 selling, general and administrative expenses as a percent of sales
increased to 43.8% compared to 25.1% for the first nine months of fiscal 1997.
The increase in selling, general and administrative expenses as a percentage of
sales relates primarily to the substantial decrease in sales, the corresponding
loss of back office economies of scale, costs associated with several severance
packages and fees associated with the Transactions.
Salary expense increased $0.1 million for the quarter ended March 31, 1998
compared to the quarter ended March 31, 1997 relating to severance agreements
expense of $0.45 million. These severance agreements limited the potential
decrease in salary expense to a $0.3 million decrease for the nine months ended
March 31, 1998 compared to the corresponding nine months of fiscal 1997.
Staffing decreased from 144 employees at March 31, 1997 to 109 employees at
March 31, 1998.
Departmental expenses increased $0.8 million for the three and nine months ended
March 31, 1998 compared to the corresponding periods in fiscal 1997. These
increases were due to fees related to the Transactions, other merger and
acquisition costs and capital resource opportunities.
The Company reduced administrative expenses $0.1 million in the third quarter of
fiscal 1998 compared to the same period in fiscal 1997 and $0.3 million for the
nine months ended, March 31, 1998 as compared to the nine months ending March
31, 1997 as part of an overall cost reduction efforts.
Lease expense decreased $0.2 million in the quarter and nine months ended March
31, 1998 compared to the corresponding periods in fiscal 1997 due to
renegotiated lease terms with a third party leasing company in the third quarter
of 1998.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased 23.7% to $1.1 million for the quarter
ended March 31, 1998 as compared to $1.5 million for the same period in the
previous year and decreased 36.5% to $3.3 million for the nine months ended
March 31, 1998 as compared to $5.2 million for the nine months ended March 31,
1997. The decrease is the result of the write off of significant purchases of
customer accounts during the 1997 fiscal year. Purchased accounts are amortized
utilizing a declining balance method. The write offs resulted in significant
reductions in quarterly and nine month amortization expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $1.0 million in cash from operations for the nine months ended
March 31,1998, compared to $4.0 million cash generated for the same period of
the prior year. Cash used from operations for the nine month period ending,
March 31, 1998 was primarily used to fund operating expenses.
Cash used in investing activities totaled $7.9 million for the nine months ended
March 31, 1998, compared to $0.1 million for the same period of the previous
year. Cash used in investing activities in the first three quarters of fiscal
<PAGE>
1998 consisted primarily of asset additions including the computer equipment and
software installation costs related to the Company's new billing system,
acquisition of the Switches and related assets and acquisition advances related
to the purchase of SA Telecom.
Cash provided by financing activities was $11.1 million for the nine months
ended March 31, 1998, compared to cash used of $2.6 million for the same period
in the previous year. This primarily related to proceeds received from the
issuance of stock to a private investment group, a note from Finova for $6.05
million and a note payable and subsequent conversion to stock from The Willis
Group for $1.0 million.
At March 31, 1998 , the Company had a receivables sale agreement with
Receivables Funding Corporation ("RFC"). The agreement funded on July 7, 1997.
The agreement provides for accounts receivable purchase commitments of up to
$8.0 million for the purchase of the Company's receivables from customers that
meet specified eligibility requirements. Funding is based on a percentage of the
Company's outstanding receivables and allows for RFC to cease funding new
receivables without prior written consent at RFC's option. The program fee
applied to the outstanding balance of net purchased receivables is prime plus
4.5% (13.0% at March 31, 1998.)
On March 6, 1998, the Company entered into an exchange agreement ("Exchange
Agreement") with Furst, the holder of the Company's $3.0 million subordinated
debt, pursuant to which Furst exchanged the $3.0 million 10% subordinated note
due December 31, 1998 and warrants to purchase 1.5 million shares of Common
Stock for 3,000 shares of the Company's Series B Preferred, par value $0.01 per
share along with 0.3 million shares of Common Stock to satisfy the accrued
interest due on the note. On March 6, 1998, the Company agreed with Furst to
issue to the holder one share of Common Stock for every dollar of interest in
arrears due to the note holder. The Company issued 0.3 million shares in
satisfaction of this obligation.
On January 28, 1998, the Company issued to the Willis Group 4.0 million shares
of Common Stock for an aggregate of $4.0 million.
On March 26, 1998, the Company issued to First Sterling Ventures, a Texas
corporation, and an individual, both accredited investors, an aggregate of 1.33
million shares of Common Stock and warrants to purchase an additional 0.67
million Common Stock shares for an aggregate of $2.0 million in cash. The Willis
Group was granted a 1.0% facilitation fee for these transactions totaling $0.02
million.
On April 24, 1998, the Company entered into an agreement with an individual
investor to issue 3.4 million shares of par $.01 per share Common Stock of the
Company which, if issued as of the date hereof, would constitute approximately
15.9% of the outstanding Common Stock and warrants for the purchase of 0.17
million shares of Common Stock in exchange for $3.4 million. In addition, the
Willis Group will receive a 1.0% facilitation fee for this transaction totaling
$0.03 million.
During the period ended March 31, 1998 the Company initiated the conversion of
its customer support and billing systems from an internally developed system to
Platinum AMS, a commercially available software package. According to its
developer, Platinum AMS is a year 2000 compliant system. Platinum AMS is a fully
integrated customer support and billing system for the telecommunications
industry which has been successfully installed at a significant number of
companies. Management initiated the conversion project because, upon successful
completion of the project, Platinum AMS should upgrade the Company's back office
capabilities significantly. Management chose to install a commercially available
system rather than to develop a custom system in-house in order to reduce the
cost and risk of the project. The Company is working closely with the vendor to
complete the conversion project. To date, the conversion is on schedule and the
majority of the Company's bill cycles have been converted successfully. However,
there can be no assurance that the Company will complete the conversion project
successfully or that the software will perform according to specifications once
it is installed. Any delays in implementation would have a negative effect on
cash flows.
The successful completion of the SA Telecom transaction is contingent upon the
Company securing additional working capital financing to replace the facility
currently in place at SA Telecom. The Company is negotiating with its current
financing source and other lenders to provide such a facility. There can be no
assurance that the Company will be able to obtain this financing on favorable
terms. The Company believes economies of scale can be reached through combining
duplicate job functions, integrating SA Telecom's network into the Company's
network and converting SA Telecom. billing cycles to the Company's billing
system. To date, the Company has successfully reduced personnel, integrated
selected portions of SA Telecom's network to its own network and converted
several of SA Telecom's billing cycles. However, there can be no assurance that
the Company will not be required to fund continuing unexpected losses related to
SA Telecom.
<PAGE>
There can be no assurances that the Transactions will return the company to
profitability. If the Company continues to incur substantial operating losses,
the Company may be forced to seek protection under the United States bankruptcy
laws.
Mangement has developed a strategy for rebuilding the Company through an
aggressive acquisition program. This acquisition program may require significant
additional capital. The Company intends to seek additional capital as neccessary
to fund such aqcuisitions through one or more funding sources that may include
borrowings under additional credit facilities, or offerings of debt and/or
equity securities of the Company. Cash provided by operating activities may also
be used to fund a portion of future acquisitions. Although management believes
that the Company will be able to obtain sufficent capital to fund acquisitions,
there can be no assurances that such capital will be avaiable to the Company at
the time it is required or on the terms acceptable to the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's intrastate long-distance telecommunications operations are subject
to various state laws and regulations, including consumer protection statutes
enforced by the Attorney General of each state. During 1995, 1996 and 1997 the
Attorneys General of eleven states alleged violations of various consumer
protection statutes against EqualNet. Each of these matters alleged that the
state received an excessive number of customer complaints that long-distance
service was switched to the Company without the customer's knowledge or informed
consent, with sanctions being sought under the deceptive trade practices or
consumer protection statutes of these states. The Company reached a settlement
agreement on December 22, 1997. The result of the settlement was that the
Company agreed to pay a total of $225,000 to the Attorneys General of the eleven
states involved by February 28, 1998 . The payments were reimbursement for
investigative costs and attorney's fees incurred by the Attorneys General in
connection with the investigation of the alleged consumer protection violations
and to conduct consumer education activities. In addition, the Company agreed to
adjust balances appropriately on any pending and unresolved complaints, which
complaints were to be identified by each Attorney General. It is anticipated
that the amount of these adjustments will not be material. The settlement
payments were made to the appropriate states in March 1998.
On February 12, 1998, Comerica Leasing Corporation brought suit against EqualNet
Corporation in Harris County District Court for default of lease payments of
approximately $1.5 million for computer hardware. On March 6, 1998, the suit was
dismissed and a settlement was reached calling for an immediate payoff of three
of the leases totaling approximately $0.2 million and variable monthly payments
with a balloon payment in December 1999 for approximately $0.2 million.
ITEM 2. CHANGES IN SECURITIES
On December 2, 1997, EqualNet entered into several related agreements, (as
amended, the "Agreements") involving the Willis Group, LLC, a privately held
investment partnership ("the Willis Group"), and other third parties.
Collectively, these Agreements provided for a recapitalization of the Company
and for the Company to acquire certain telecommunications network assets and
switches (collectively the "Transactions".)
Under the terms of the Agreements the Company issued 1.4 million
shares of Common Stock, and warrants to purchase an additional
0.4 million shares of Common Stock at $1.00 per share as partial
consideration for the Switches. A loan from an unaffiliated third
party was obtained for the cash portion to purchase the Switches.
An individual investor was issued 0.5 million warrants for
guaranteeing this financing.
Under the terms of the Agreements the Company acquired Netco
Acquisition Corp. ("Netco"), a Delaware corporation, in exchange
for 3.58 million shares of Common Stock, and 2,000 shares of
Series A Preferred. Series A Preferred has a stated value of
$1,000 and will be entitled to receive dividends at the rate of
$80.00 per year, payable quarterly. Holders of Series A Preferred
will have the right to convert their shares into Common Stock
initially at the rate of 1,000 shares of Common Stock per share
of Series A Preferred (or the stated value divided by $1.00), or
an aggregate of 2.0 million shares of Common Stock, subject to
adjustment pursuant to certain anti-dilution provisions. The
Series A Preferred has a $1,000 per share liquidation preference
over the Company's Common Stock. Under the instrument defining
the rights of the holders of the Series A Preferred, the Company
is prohibited from declaring or paying dividends on the Common
Stock unless all accrued dividends on the Series A Preferred have
been paid.
<PAGE>
Under the terms of the Agreements the Company issued and sold to
the Willis Group 4.0 million shares of Common Stock at a price of
$1.00 per share in cash.
The Company believes that the issuances of Common Stock and
Series A Preferred Stock are exempt from registration under
section 4(2) and 4(6) of the Securities Act of 1933 ("the
Securities Act".)
On March 6, 1998, the Company entered into an exchange agreement ("Exchange
Agreement") with Furst, an accredited investor and the holder of the Company's
$3.0 million subordinated debt, pursuant to which Furst exchanged the $3.0
million 10% subordinated note due December 31, 1998 and warrants to purchase 1.5
million shares of Common Stock for 3,000 shares of Series B Preferred along with
0.3 million shares of the Company's Common Stock to satisfy the accrued interest
due on the notes. Each share of the Series B Preferred has a stated value of
$1,000 and is entitled to share with the Common Stock in any dividends declared
based upon the number of shares of Common Stock the Series B is convertible into
at the time such dividend is declared. Each share of Series B Preferred is
convertible initially into 500 shares of Common Stock, subject to adjustment if
the market price of the Common Stock is below $2.00 per share between May 8,
1998 and June 5, 1998, and also subject to certain anti-dilution provisions. The
Series B Preferred has a $1,000 per share liquidation preference over the Series
A Preferred and the Common Stock. Each share of Series B Preferred also entitles
the holder thereof to one vote, voting as a single class with the Common Stock,
on matters submitted to the shareholders of the Company. The Company believes
that such issuance and exchange was exempt from registration under sections 4(2)
and 4(6) of the Securities Act.
On January 28, 1998, the Company issued to the Willis Group 4.0 million shares
of Common Stock for an aggregate of $4.0 million.
On March 26, 1998, the Company issued to First Sterling Ventures, a Texas
corporation, and an individual, both accredited investors, an aggregate of 1.33
million shares of Common Stock and warrants to purchase an additional 0.67
million Common Stock shares for an aggregate of $2.0 million in cash. The Willis
Group was granted a 1.0% facilitation fee for these transactions totaling $0.02
million.
The Company believes that such offering and sale was exempt from registration
under section 4(2) and 4(6) of the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Through March 5, 1998, the Company was not in compliance with the interest
payment covenant of its subordinated note agreement. On March 6, 1998, the
Company agreed with a holder of the subordinated note of the Company to issue to
the holder one share of Common Stock for every dollar of interest in arrears due
to the note holder. The Company issued 0.3 million shares in satisfaction of
this obligation.
The Series A Preferred is entitled to quarterly dividends of $20 per share (or
$40,000 in the aggregate) beginning April 1, 1998. On April 1, 1998, the Series
A Preferred had been outstanding for 26 days, and each share was therefore
entitled to a dividend of $5.78. The Company did not declare or pay the dividend
due on the Series A Preferred on April 1, 1998. The Company did accrue the
obligation incurred through March 31, 1998. Such dividends, when not paid, are
cumulative and bear interest at the rate of 12.0% per year until paid. The
aggregate dividend arrearage on the Series A Preferred as of the date of this
report is $11,557.
At March 31, 1998, the Company was in default on its $1.18 million note payable
to one of its carriers. The Company is negotiating to revise the terms of the
note. Outstanding interest due at March 31, 1998 was $0.09 million.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 5, 1998, the Company held its Annual Meeting of Shareholders where
several proposals were approved as follows:
1. The Company's Articles of Incorporation were amended increasing the Company's
authorized share capital to 55.0 million shares, consisting of 50.0 million
shares of common stock, par value $.01 per share and 5.0 million shares of
preferred stock, par value $.01 per share. Votes cast for - 4,652,683, against -
4,890, and withheld - 14,550.
2. The acquisition by the Company of communications network equipment for a
aggregate of (i) $5.85 million in cash, for which the Company expects to incur
indebtedness (ii) 1.4 million shares of Common Stock (iii) warrants to purchase
0.4 million shares of Common Stock and (iv) warrants to purchase 0.5 million
shares of Common Stock in exchange for a guarantee of debt.
The acquisition by the Company of certain intangible rights and assets used in
the telecommunications business through the merger of a wholly-owned subsidiary
of the Company with and into the holder of those rights and assets, where the
Company issued 3.58 million shares of Common Stock and 2,000 shares of Preferred
Stock (convertible in the aggregate into approximately 2.0 million shares of
Common Stock.)
The Company issued 4.0 million shares of Common Stock for $1.00 per share in
cash. Votes cast for - 4,653,669, against - 4,890 and withheld - 13,564.
3. The Shareholders ratified the issuance by the Company on October 1, 1997, of
a $1.0 million Convertible Secured Note (convertible into approximately 1.0
million shares of Common Stock) and a warrant for the purchase of up to 0.2
million shares of Common Stock to one of such investors. Votes cast for -
4,640,169, against - 11,890 and withheld - 20,064.
4. The election of six directors as follows:
Mr. James T. Harris (three year term) for - 4,652,133, against - 0 and withheld
- - 19,990.
Mr. Mark A. Willis (three year term) for - 4,652,133, against - 0 and withheld -
19,990.
Mr. John Isaac "Ike" Epley (two year term) for - 4,652,133, against - 0 and
withheld - 19,990
Mr. Mitchell H. Bodian (one year term) for - 4,652,133, against - 0 and withheld
- - 19,990
Dr. Ronald J. Salazar (one year term) for - 4,652,133, against - 0 and withheld
- - 19,990.
Mr. Walter V. Klemp (one year term) for - 4,652,133, against - 0 and withheld -
19,990.
Continuing Directors:
Zane Russell
Michael L. Hlinak
Mr. Walter Klemp resigned effective upon the closing of the Transactions.
On all proposals above, there were no broker non-votes.
ITEM 5. OTHER INFORMATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS:
This Quarterly Report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the
<PAGE>
"Exchange Act"). All statements other than statements of historical facts
included in this report, including without limitation, statements regarding the
Company's financial position, business strategy, products, products under
development, markets, budgets and plans and objectives of management for future
operations, are forward-looking statements. Although the Company believes that
the expectation of such forward-looking statements are reasonable, it can give
no assurance that such expectations will prove to have been correct. Important
factors that could cause actual results to differ materially from the Company's
expectations ("Cautionary Statements") are disclosed under "Cautionary
Statements" and elsewhere in this Report, including, without limitation, in
conjunction with the forward-looking statements included in this Report. All
subsequent written and oral forward-looking statements attributable to the
Company, or persons on its behalf, are expressly qualified in their entirety by
the Cautionary Statements.
CAUTIONARY STATEMENTS:
See "Special Note Regarding Forward-Looking Statements".
SA TELECOM INTEGRATION - The successful completion of the SA Telecom transaction
is contingent upon the Company securing additional working capital financing to
replace the facility currently in place at SA Telecom. The Company is
negotiating with its current financing source and other lenders to provide such
a facility. There can be no assurance that the Company will be able to obtain
this financing on favorable terms. The Company believes economies of scale can
be reached through combining duplicate job functions, integrating SA Telecom's
network into the Company's network and coverting SA Telecom's billing cycles to
the Company's billing system. To date, the Company has successfully reduced
personnel, integrated selected portions of SA Telecom's network to its own
network and converted several of SA Telecom's billing cycles. However, there can
be no assurance that the Company will not be required to fund continuing
unexpected losses related to SA Telecom.
SYSTEMS CONVERSION PROJECT - During the period ended March 31, 1998 the Company
initiated the conversion of its customer support and billing systems from an
internally developed system to Platinum AMS, a commercially available, fully
integrated customer support and billing system for the telecommunications
industry. According to its developer, Platinum AMS is a Year 2000 compliant
system. The Company is working closely with the vendor to complete the
conversion project. However, there can be no assurance that the Company will
complete the conversion project successfully or that the software will perform
according to specifications once it is installed
POSSIBLE ADVERSE CONSEQUENCES OF THE TRANSACTIONS - There can be no assurance of
the Company's ability to service the additional debt incurred in the
Transactions. Further, there can be no assurance regarding the condition of the
Switches and other assets acquired in the Transactions.
CONTINUED OPERATING LOSSES -The objective of the change of control Transactions
(see Note 4) is to strengthen the Company's financial position and its
operations and competitive position in the industry by transforming it from a
reseller to a facilities-based carrier with a nationwide network. The Company
believes that by becoming a switch-based carrier it can increase margins and
cash flow. However, there can be no assurances that the Transactions will return
the Company to profitability. In the event of continued losses, the Company may
be forced to seek protection under the United States bankruptcy laws.
ATTRITION RATES - In the event that the Company experiences attrition rates in
excess of those anticipated either as a result of increased provisioning times
by its underlying carrier, the purchase of poor performing traffic, or the
inability to properly manage the existing customer base, additional charges that
affect earnings may be incurred.
DEPENDENCE ON INDEPENDENT MARKETING AGENTS - The Company has a small internal
sales force and obtains a significant majority of its new customers from
independent marketing agents ("Agents"). The Company's near-term ability to
expand its business depends upon whether it can continue to maintain favorable
relationships with existing Agents and recruit and establish new relationships
with additional Agents. No assurances can be made as to the willingness of the
existing Agents to continue to provide new orders to the Company or as to the
Company's ability to attract and establish relationships with new Agents.
DEPENDENCE ON AT&T AND OTHER FACILITIES-BASED CARRIERS - While the Company is
implementing the new network, the Company currently depends primarily upon AT&T
and, to a lesser extent, upon Sprint, through its contract with Furst, to
provide the telecommunications services to a majority of its current customers.
The termination of the Company's current contract with AT&T or the loss of the
telecommunications services that the Company receives from AT&T or Sprint
(through Furst) could have a material adverse effect on the Company's results of
operations and financial condition.
<PAGE>
CARRIER COMMITMENTS - The Company has significant commitments with its primary
carrier to resell long-distance services. The Company's contract with its
carrier contains clauses that could materially and adversely impact the Company
should the Company incur a shortfall in meeting its commitments. Although the
Company has from time to time failed to meet its commitment levels under a
particular contract and in each case has been able to negotiate a settlement
with the carrier which resulted in no penalty being incurred by the Company,
there can be no assurances that the Company will be able to reach similar
favorable settlements with its carriers in the event that the Company should
fail to meet its future commitments.
In recent years, AT&T, MCI Communications Corporation ("MCI") and Sprint have
consistently followed one another in pricing their long-distance products. If
MCI and Sprint were to lower their rates for long-distance service and AT&T did
not adopt a similar price reduction, adverse customer reaction could affect the
Company's ability to meet its commitments under the AT&T contract which could
have a material adverse affect on the Company's financial position and results
of operations.
RELATIONSHIPS WITH STATE REGULATORY AGENCIES - The Company's intrastate
long-distance telecommunications operations are subject to various state laws
and regulations, including prior certification, notification or registration
requirements. The Company must generally obtain and maintain certificates of
public convenience and necessity from regulatory authorities in most states in
which it offers service. Any failure to maintain proper certification in
jurisdictions in which the Company provides a significant amount of intrastate
long-distance service could have a material adverse effect on the Company's
business.
VOLATILITY OF SECURITIES PRICES - Historically, the market price of the Common
Stock has been highly volatile. During the period January 1, 1996 to March 31,
1998, the market price for the Common Stock as reported by The Nasdaq Stock
Market has ranged from a high of $10 1/2 per share to a low of $ 9/16 per share.
There can be no assurance that the market price of the Common Stock will remain
at any level for any period of time or that it will increase or decrease to any
level. Changes in the market price of the Common Stock may bear no relation to
EqualNet's actual operational or financial results.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
+ 4.1 Loan and Security Agreement, dated March 6, 1998, between the
Company and Finova Capital Corporation.
4.2 Note dated October 1, 1997, issued by the Company to the
Willis Group.
10.1 Note and Warrant Purchase Agreement, dated October 1, 1997, by
and among the Company and the Willis Group., as amended
February 12, 1998.
10.2 Switch Agreement, dated December 2, 1997, between the Company
and the Willis Group, as amended by First Amendment dated
December 19, 1997, and Second Amendment dated February 12,
1998.
10.3 Agreement of Merger and Plan of Reorganization , dated
December 2, 1997, between the Company and EQ Acquisition Sub,
Inc., Netco Acquisition , LLC and Netco Acquisition Corp., as
amended by First Amendment dated December 19, 1997, and Second
Amendment dated February 12, 1998.
10.4 Stock Purchase Agreement, dated December 2, 1997, by and among
the Company and the Willis Group., as amended by First
Amendment dated December 19, 1997.
+ 10.5 Exchange Agreement, dated March 6, 1998 between the Company
and The Furst Group, Inc.
+ 10.6 Stock and Warrant Purchase Agreement dated March 26 1998,
between the Company and First Sterling Ventures Corp. and
Frank Hevrdejs.
+ 10.7 Stock Purchase Warrant dated March 26, 1998, between the
Company and First Sterling Ventures Corp.
+ 10.8 Stock Purchase Warrant dated March 26, 1998, between the
Company and Frank Hevrdejs.
+ 10.9 Stock and Warrant Purchase Agreement dated April 24, 1998,
between the Company and James R. Crane.
+ 10.10 Registration Rights Agreement dated April 24, 1998, between
the Company and James R. Crane.
+ 10.11 Warrant Agreement dated April 24, 1998, between the Company
and James R. Crane.
+ 10.12 Purchase Agreement dated January 15, 1998 between the Company
and SA Telecommunications, Inc. and Certain of its
Subsidiaries as amended by Amendment dated March 10, 1998.
+ 10.13 Management Services Agreement dated March 12, 1998 between the
Company and SA Telecommunications, Inc.
+ 27.1 Financial Data Schedule
b. Reports on Form 8-K
On March 10, 1998, the Company filed with the Securities and Exchange Commission
a Current Report on Form 8-K reporting, under Items 1, 5 and 7, the change of
control of the Company and the Transactions described in this report. The
Company included a pro forma balance sheet as of January 31, 1998 after giving
effect to the Transactions, in that report.
+ Filed herewith
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EQUALNET HOLDING CORP.
Date May 15, 1998 /s/ LANCE A. HACK
-------------------------------
interim Chief Financial Officer
(duly authorized officer and
principal financial officer)
LOAN AND SECURITY AGREEMENT
Dated March , 1998
by and between
NETCO ACQUISITION CORP.
as Borrower
------------------------------
(Federal Tax ID No. of Borrower)
and
FINOVA CAPITAL CORPORATION
as Lender
$6,050,000
Amount of Loan
COMMERCIAL EQUIPMENT FINANCE
<PAGE>
LOAN AND SECURITY AGREEMENT
AGREEMENT, dated as of March , 1998, by and between NETCO ACQUISITION
CORP., a Delaware corporation ("BORROWER"), having its principal place of
business at EqualNet Plaza, 1250 Wood Branch Park Drive, Houston, Texas
77079-1212; and FINOVA CAPITAL CORPORATION, a Delaware corporation ("LENDER"),
having a place of business at 115 West Century Road, Paramus, New Jersey 07652.
W I T N E S S E T H :
WHEREAS, Borrower has requested Lender to make a loan to Borrower and
Lender is willing to make such loan to Borrower upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto covenant and agree as follows:
<PAGE>
ARTICLE 2. DEFINITIONS; CONSTRUCTION
2.1 DEFINITIONS.
In addition to other words and terms defined elsewhere in this Agreement
(including the Schedule), as used herein the following words and terms have the
following meanings, respectively, unless the context hereof otherwise clearly
requires:
"AGREEMENT" means this Loan and Security Agreement (including the
Schedules) as amended, modified or supplemented from time to time.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day on
which banking institutions are authorized or obligated to close in New Jersey or
Arizona.
"CLOSING DATE" means the date on which the parties enter into this
Agreement.
"COLLATERAL" means all assets of Borrower in which Borrower has granted or
will grant a Lien to Lender, pursuant to this Agreement or otherwise, including
those assets described and defined as Collateral in Section 3.1.
"CONSTITUENT DOCUMENTS" means the certificate of incorporation, agreement
of partnership or limited partnership, organizational agreement, operating
agreement, by-laws, or such other similar document pursuant to which Borrower
and/or the Guarantors were organized or their affairs are governed.
"CORPORATE GUARANTOR(S)" means the "Corporate Guarantor(s)" defined on
the Schedule.
"DEFAULT" means an event which with notice or lapse of time, or both,
would constitute an Event of Default.
"DISBURSEMENT DATE" means the date on which all conditions to the Loan are
satisfied by Borrower (which shall not be later than the Outside Date) and the
Loan proceeds are disbursed to Borrower or to other Persons at Borrower's
direction.
"EQ ACQUISITION" means EQ Acquisition Sub, Inc., a Delaware corporation
and, prior to its merger into Borrower (which is one of the conditions to the
Loan), a wholly owned subsidiary of EqualNet Holding.
"EQUALNET CORPORATION" means EqualNet Corporation, a Delaware corporation,
a wholly owned subsidiary of EqualNet Holding and an affiliate of Borrower.
EqualNet Corporation is also a Corporate Guarantor.
"EQUALNET HOLDING" means EqualNet Holding Corp., a Texas corporation and
the owner of all of the issued and outstanding stock of Borrower.
EqualNet Holding is also a Guarantor.
"EQUIPMENT" means the telecommunication
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equipment and other machinery, equipment and assets described or listed on
Exhibit B annexed hereto, together with all parts, components, attachments,
accessories, accessions, additions, improvements and upgrades now or hereafter
to, of or for the Equipment or any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EVENT OF DEFAULT" means any of the Events of Default described in
Section 7.1 hereof.
"EXECUTIVE OFFICER" means the President, the Chief Executive Officer,
Chief Operating Officer or the Chief Financial Officer of Borrower elected
from time to time.
"GAAP" means generally accepted accounting principles in the United States
of America (as such principles may change from time to time) applied on a
consistent basis (except for changes in application in which Borrower's
independent certified public accountants concur), applied both to classification
of items and amounts.
"GUARANTY(IES)" means the unconditional Guarantees of the due payment and
performance of all of the Obligations of Borrower to Lender, executed by each of
the Guarantors, in form and substance satisfactory to Lender.
"GUARANTOR(S)" means the "Guarantor(s)" defined on the Schedule.
"INDIVIDUAL GUARANTOR" means the "Individual Guarantor" defined on the
Schedule.
"INTEREST RATE" means the "Interest Rate" defined on the Schedule.
"LAW" means any law (including common law), constitution, statute, treaty,
regulation, rule, ordinance, order, injunction, writ, decree or award of any
government or governmental agency.
"LEASE" means that certain agreement for the lease of the Equipment as
described in the Schedule.
"LEGAL REQUIREMENTS" means any and all present and future judicial, and
administrative rulings or decisions, and any and all present and future federal,
state, and local laws, ordinances, rules, regulations, permits and certificates,
in each case, in any way applicable to Borrower (or the ownership or use of the
Collateral or its other assets) and/or the Guarantors, or this transaction.
"LIEN" means any pledge, lien, mortgage, security interest (including
without limitation any conditional sale or other title retention agreement),
grant of a leasehold, charge or other encumbrance of any nature whatsoever, and
also means the filing of or the agreement to give any financing statement or
analogous document under the UCC or analogous law of any jurisdiction.
"LOAN" has the meaning given to such term in Section 2.1 hereof.
"LOAN DOCUMENTS" means this Agreement, the Note, the Guaranties, the
Insurance Letter, the Environmental Certificate with Representations, Covenants
and Warranties, the Environmental Questionnaire and Disclosure Statement and any
other agreements, instruments and documents required to be, or which are,
executed by Borrower or the Guarantors in connection with this Agreement or the
Loan (as the same may from time to time be amended, modified or supplemented).
"MATURITY DATE" means the "Maturity Date" defined on the Schedule.
"MCM" means MCM Partners, a Washington general partnership.
"MERGER AGREEMENT" means the Agreement of Merger and Plan of
Reorganization dated as of December 2, 1997 among EqualNet Holding, EQ
Acquisition, Netco LLC and Borrower, as amended by Amendment to Agreement of
Merger and Plan of Reorganization dated as of December 19, 1997 among EqualNet
Holding, EQ Acquisition, Netco LLC, Borrower, Willis Group, MCM and Advantage
Fund, Ltd., and Amendment to Agreement of Merger and Plan of Reorganization
dated February 12, 1998 pursuant to which, among other things, EQ Acquisition is
merging with and into Borrower and not less than $1,500,000 of indebtedness of
Netco LLC to Willis Group and MCM (being the Additional Working Capital Loans
and the Working Capital Loans defined in the
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<PAGE>
Merger Agreement) is being cancelled and converted into common stock of Equal
Net Holding.
"NETCO LLC" means Netco Acquisition LLC, a Delaware limited liability
company.
"NOTE" means the promissory note of Borrower executed and delivered by
Borrower under this Agreement, in substantially the form annexed hereto as
Exhibit A with the blanks appropriately filled in.
"OBLIGATIONS" means all of the indebtedness, liabilities and obligations
of every kind and nature of Borrower to Lender, whether now existing or
hereafter arising, whether or not currently contemplated, howsoever arising,
including, without limitation, all indebtedness, liabilities and obligations
arising under, in connection with or evidenced by this Agreement, the Note, the
other Loan Documents, or otherwise.
"OFFICE", when used in connection with Lender, means its office located at
115 West Century Road, Paramus, New Jersey 07652, or such other office of Lender
as may be designated in writing from time to time by Lender to Borrower.
"OUTSIDE DATE" means the "Outside Date" defined on the Schedule.
"PERSON" means an individual, corporation, national banking association,
partnership, trust, unincorporated association, joint venture, joint-stock
company, government (including political subdivisions), governmental authority
or agency, or any other entity.
"PLAN" means any employee benefit plan which is covered by ERISA and which
is maintained by Borrower or, in the case of a plan to which more than one
employer contributes, to which Borrower made contributions at any time within
the five plan years preceding the date of termination.
"PREMISES" means the locations listed on Exhibit C annexed hereto.
"SCHEDULE" means the Schedule annexed to this Agreement and made a part
hereof. The Schedule is an integral part of this Agreement. All references to
Athis Agreement@, "herein", "herewith", "hereunder" and "hereof" and words of
similar import shall for all purposes be deemed to include the Schedule.
"STOCK PURCHASE AGREEMENT" means the Stock Purchase Agreement dated
December 2, 1997 between Willis Group and EqualNet Holding, as amended by
Amendment to Stock Purchase Agreement dated as of December 19, 1997 between
Willis Group and EqualNet Holding, pursuant to which, among other things, Willis
Group is purchasing common stock of EqualNet Holding for a cash purchase price
of $4,000,000.
"SWITCH AGREEMENT" means the Switch Agreement dated as of December 2, 1997
among EqualNet Holding, EQ Acquisition and Willis Group, as amended by Amendment
to Switch Agreement dated February 12, 1998 among EqualNet Holding, EQ
Acquisition and Willis Group, pursuant to which, among other things, Willis
Group agrees to sell the Equipment to EQ Acquisition and EQ Acquisition agrees
to purchase the Equipment from Willis Group. All of the rights and obligations
of EQ Acquisition under the Switch Agreement was assumed by Borrower upon
consummation of the Merger Agreement.
"TERM" means the period beginning on the first payment date following the
Disbursement Date and ending on the Maturity Date.
"UCC" means the Uniform Commercial Code as adopted in the State of
Arizona.
"WILLIS GROUP" means Willis Group, LLC, a Texas limited liability company.
2.2 GENERAL INTERPRETIVE PRINCIPLES.
For purposes of this Agreement, except as otherwise expressly provided
herein or unless the context otherwise requires:
(i) any pronoun used shall be deemed to cover both gender
forms as well as the neuter form;
(ii) all references to the plural shall include the singular,
the singular the plural and the part the whole;
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<PAGE>
(iii) the word "or" has the inclusive meaning frequently
identified by the phrase "and/or";
(iv) accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(v) the words "herein", "herewith", "hereunder" and "hereof"
and similar terms in this Agreement refer to this Agreement as a whole and not
to any particular provision of this Agreement;
(vi) references herein to "Articles", "Sections",
"Subsections", "Paragraphs", and other subdivisions without reference to a
document are to designated Articles, Sections, Subsections, Paragraphs and other
subdivisions of this Agreement;
(vii) a reference to a Subsection without further reference to
a Section is a reference to such Subsection as contained in the same Section in
which the reference appears, and this rule shall also apply to Paragraphs and
other subdivisions;
(viii) the term "include" or "including" shall mean, without
limitation, by reason of enumeration; and
(ix) the term "satisfactory to Lender" or "satisfaction of
Lender" or "satisfactory to counsel" or "satisfaction of counsel" or other
similar terms means satisfactory to Lender or its counsel in its sole and
absolute discretion.
ARTICLE 3. THE LOAN
3.1 THE LOAN.
Subject to the terms and conditions and relying upon the representations
and warranties herein set forth, including, without limitation, the fulfillment
of each and every condition of lending, Lender agrees to make a Loan to Borrower
in the principal amount set forth on the Schedule (the "Loan").
3.2 USE OF PROCEEDS.
The proceeds of the Loan shall be used by Borrower solely for the purposes
set forth on the Schedule.
3.3 THE NOTE.
The obligation of Borrower to repay the Loan and to pay interest thereon
shall be evidenced by the Note. The Note shall be dated the Closing Date and
shall be executed by Borrower delivered to Lender on the Closing Date.
3.4 DISBURSEMENT.
Subject to the conditions set forth herein, Lender shall, on the
Disbursement Date, credit, by wire transfer, the amount of the Loan to the
account of Borrower or the Person or Persons specified in writing by Borrower.
3.5 LOAN ACCOUNT.
Lender shall maintain a loan account on its books in the name of Borrower
for the Loan in which will be recorded all payments of principal thereof and all
accruals and payments of interest thereon. The entries in the loan account (in
the absence of manifest error in the making thereof) shall be conclusive
evidence of the outstanding principal thereof and accrued interest thereon from
time to time. Lender shall provide Borrower with statements of said account from
time to time on request.
3.6 INTEREST RATES.
3.6.1 INTEREST PRIOR TO MATURITY. Prior to maturity (whether by
acceleration or otherwise) the unpaid principal amount of the Loan shall bear
interest at the Interest Rate.
3.6.2 INTEREST AFTER MATURITY. Commencing with the day after the
principal amount of any part of the Loan shall have become due and payable (by
acceleration or otherwise), such part of the Loan or the entire Loan (as the
case may be) shall bear interest at the daily rate of four percent (4%) per
annum above the Interest Rate (the "Default Rate").
3.6.3 MAXIMUM RATE. Lender
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<PAGE>
and Borrower intend the Loan Documents to comply in all respects with all
provisions of Law and not to violate, in any way, any legal limitations on
interest charges. Accordingly, if, for any reason, Borrower is required to pay,
or has paid, interest at a rate in excess of the highest rate of interest which
may be charged by Lender or which Borrower may legally contract to pay under
applicable law (the "Maximum Rate"), then the Interest Rate shall be deemed to
be reduced, automatically and immediately, to the Maximum Rate, and interest
payable hereunder shall be computed and paid at the Maximum Rate and the portion
of all prior payments of interest in excess of the Maximum Rate shall be deemed
to have been prepayments of the outstanding principal of the Loan and applied to
the installments in the inverse order of their maturities.
3.7 PAYMENTS.
3.7.1 TIME; PLACE; MANNER. All payments to be made in respect of
principal, interest, or other amounts due from Borrower hereunder or under the
Note shall become due at 12:00 o'clock noon, New Jersey time, on the day when
due without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived. Such payments shall be made to Lender in lawful money
of the United States of America in immediately available funds.
3.7.2 PAYMENTS OF PRINCIPAL AND INTEREST. The Loan, together with
interest thereon shall be repaid by Borrower to Lender in the amounts and on the
dates and as otherwise set forth on the Schedule.
3.7.3 APPLICATION OF PAYMENTS. Each payment under this Agreement and
the other Loan Documents shall be applied, first to fees, costs, expenses and
charges, if any, owing to Lender, then to interest as may be due hereunder, and
the balance of such payment shall be applied to the principal balance of the
Loan.
3.7.4 NET PAYMENTS. All payments hereunder and under the Note shall
be made by Borrower to Lender without defense, set-off, claim or counterclaim
and without deduction for any present or future income, stamp or other taxes,
levies, imposts, deductions, charges or withholdings whatsoever imposed,
assessed, levied or collected by or for the benefit of any jurisdiction or
taxing authority. In addition, Borrower shall pay any and all taxes (stamp or
otherwise) payable or determined to be payable in connection with the execution
and delivery of this Agreement, the Note and the other Loan Documents and on all
payments to be made by Borrower hereunder and under the Note and the other Loan
Documents (other than Lender's income taxes) and all taxes payable in connection
with or related to the Collateral.
3.8 PREPAYMENTS.
The Loan may be prepaid only as set forth on the Schedule.
3.9 ADMINISTRATIVE COSTS.
If Borrower shall fail to make any payment of principal or interest within
ten (10) days after the same is due, Borrower shall pay a late charge of five
percent (5%) of the unpaid amounts, but in no event greater than the maximum
rate permitted by law, and such amount shall be payable upon demand. Such
payment is not interest for the use of money, but is solely to cover Lender's
administrative costs occasioned by such delay.
ARTICLE 4. SECURITY
4.1 SECURITY.
As security for the full and timely payment and performance of all of the
Obligations of Borrower to Lender, Borrower hereby assigns, pledges, transfers
and sets over to Lender, and hereby agrees that Lender shall have, and hereby
grants to and creates in favor of Lender, a first security interest under the
UCC subject to no other Liens, in and to the following, in each case, whether
now existing or hereafter arising, now owned or hereafter acquired, wherever
located:
4.1.1 The Equipment;
4.1.2 All Software, now or hereafter used in, for, with respect to
or in connection with the use or operation of the Equipment; including Software
that has been licensed by Siemens for Call processing, maintenance and
administration and user data base management; and
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<PAGE>
4.1.3 The Lease and all of the lease, rental and other payments and
amounts thereunder and all of Borrowers right, title and interest therein.
4.1.4 All accessions and additions thereto, substitutions for, and
all replacements of, any and all of the foregoing, and all proceeds of the
foregoing, cash and non-cash, including insurance proceeds.
4.2 LENDER HAS RIGHTS AND REMEDIES OF A SECURED PARTY.
In addition to all rights and remedies given to Lender by this Agreement,
Lender shall have all the rights and remedies of a secured party under the UCC.
4.3 ADDITIONAL PROVISIONS APPLICABLE TO THE COLLATERAL.
The parties agree that, at all times during the term of this Agreement,
the following provisions shall be applicable to the Collateral:
4.3.1 Borrower covenants and agrees that it will keep accurate and
complete books and records concerning the Collateral owned or acquired by it in
accordance with GAAP.
4.3.2 Lender shall have the right to review the books and records of
Borrower pertaining to the Collateral and to copy the same and to make excerpts
therefrom, all at such reasonable times upon reasonable notice and as often as
Lender may reasonably request.
4.3.3 Borrower shall maintain and keep its principal place of
business and its chief executive office at the address set forth at the
beginning of this Agreement, and at no other location without giving Lender at
least thirty (30) days prior written notice of any move. Borrower shall maintain
and keep its records concerning the Collateral at such address and at no other
location without giving Lender at least thirty (30) days prior written notice of
any move. Borrower shall keep all Collateral only at the Premises at which it is
presently located. Borrower may not move the Collateral without the prior
written consent of Lender.
4.3.4 Except for Liens granted to Lender hereunder and pursuant to
the Lease, Borrower shall not sell, lease, transfer or otherwise dispose of or
encumber any of the Collateral.
4.3.5 Borrower shall cause the Collateral to be maintained and
preserved in the same condition, repair and working order as when acquired by
Borrower, ordinary wear and tear excepted, and shall promptly make or cause to
be made all repairs, replacements and other improvements in connection therewith
which are necessary or desirable to that end.
4.3.6 Borrower shall not affix or permit the Collateral to become
affixed to real estate or to any other goods, and such Collateral shall remain
personal property, whether or not so affixed.
4.4 CERTAIN COVENANTS.
Borrower covenants and agrees with Lender for the benefit of Lender that:
4.4.1 Borrower has and will have good and merchantable title to all
of its assets, including the Collateral, in each case as from time to time owned
or acquired by it, and shall keep the Collateral free and clear of all Liens,
other than those granted to Lender and those pursuant to the Lease. Borrower
will defend such title against the claims and demands of all Persons whomsoever.
4.4.2 Borrower will faithfully preserve and protect Lender's Liens
in the Collateral and will, at its own cost and expense, cause said Liens to be
perfected and continued perfected, and for such purpose Borrower will from time
to time at the request of Lender and at the expense of Borrower, make, execute,
acknowledge and deliver, and file or record, or cause to be filed or recorded,
in the proper filing places, all such instruments, documents and notices,
including without limitation financing statements and continuation statements,
as Lender may deem necessary or advisable from time to time in order to perfect
and continue perfected said security interest. Borrower will do all such other
acts and things and make, execute, acknowledge and deliver all such other
instruments and documents, including without limitation further
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<PAGE>
security agreements, pledges, endorsements, assignments and notices, as Lender
may deem necessary or advisable from time to time in order to perfect and
preserve the priority of said Liens as a first and only Lien on and security
interest in the Collateral prior to the rights of all other Persons therein or
thereto.
4.4.3 Borrower will not, without the prior written consent of
Lender, (i) borrow or permit any Person to borrow against the Collateral other
than the Loan to Borrower from Lender pursuant to this Agreement; (ii) create,
incur, assume or suffer to exist any Lien with respect to any of the Collateral
except as provided herein or pursuant to the Lease; (iii)
permit any levy or attachment to be made against any of the Collateral except
any levy or attachment relating to this Agreement; or (iv) permit any financing
statement to be on file with respect to any of the Collateral, except financing
statements in favor of Lender.
4.4.4 Risk of loss of, damage to or destruction of the Collateral is
and shall remain upon Borrower. Borrower will insure the Collateral as provided
in Section 6.3 of this Agreement. If Borrower fails to effect and keep in full
force and effect such insurance or fails to pay the premiums thereon when due,
Lender may do so for the account of Borrower and add the cost thereof to the
Obligations and the same shall be payable to Lender on demand. Borrower hereby
assigns and sets over unto Lender for the benefit of Lender all moneys which may
become payable on account of such insurance, including without limitation any
return of unearned premiums which may be due upon cancellation of any such
insurance, and directs the insurers to pay Lender any amount so due. Lender, its
officers, employees and authorized agents and its successors and assigns, are
hereby appointed attorneys-in-fact of Borrower, for the purpose of endorsing any
draft or check which may be payable to Borrower in order to collect the proceeds
of such insurance or any return of unearned premiums. Such appointment is
irrevocable and coupled with an interest. The proceeds of insurance shall be
applied to reduction of the Obligations in the manner set forth in Section 2.7.3
or, in Lender's sole discretion, to the repair or replacement of the Collateral,
or any part thereof, in which case Lender may impose such conditions on the
disbursement of the proceeds as Lender in its sole discretion deems appropriate.
4.4.5 Upon the occurrence and during the continuation or existence
of any Event of Default, Borrower shall promptly upon demand by Lender assemble
the Collateral and make it available to Lender at the place or places to be
designated by Lender. The right of Lender to have the Collateral assembled and
made available to it is of the essence of this Agreement and Lender may, at its
election, enforce such right in equity for specific performance.
4.4.6 Lender shall have no duty as to the collection or protection
of the Collateral or any part thereof or any income thereon, or as to the
preservation of any rights pertaining thereto, beyond exercising reasonable care
in the custody of any Collateral actually in the possession of Lender. Lender
shall be deemed to have exercised reasonable care in the custody and
preservation of such of the Collateral as may be in its possession if it takes
such action for that purpose as Borrower shall request in writing, provided that
such requested action shall not, in the judgment of Lender, impair Lender's
security interest in the Collateral or its rights in, or the value of, the
Collateral, and provided further that such written request is received by Lender
in sufficient time to permit it to take the requested action.
ARTICLE 5. CONDITIONS OF CLOSING
The obligation of Lender to make the Loan hereunder is subject to the
accuracy, as of the date hereof and the Disbursement Date, of the
representations and warranties herein contained, to the performance by Borrower
of its obligations to be performed hereunder on or before such Disbursement Date
and to the fulfillment (to the satisfaction of Lender and its counsel) of the
following further conditions. If all conditions contained herein are not so
satisfied by the Outside Date, Lender shall have no obligation whatsoever to
make the Loan and shall have no liability for its refusal to do so.
5.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties contained in Article 5 hereof shall be
true on the
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Closing Date and on and as of the Disbursement Date with the same effect as if
made on and as of such date.
5.2 CORPORATE ACTION.
On the Closing Date, Borrower shall deliver to Lender a certificate in
form and substance satisfactory to Lender, dated the Closing Date, signed by a
duly authorized officer of Borrower and the Corporate Guarantors, as the case
may be, certifying as to (a) true copies of the Constituent Documents of
Borrower and the Corporate Guarantors, all as in effect on such date, (b) true
copies of all action taken by Borrower and the Corporate Guarantors relative to
this Agreement, the Note and the other Loan Documents, and (c) the names, true
signatures and incumbency of the officer or officers of Borrower and the
Corporate Guarantors authorized to execute and deliver this Agreement, the Note
and the other Loan Documents on behalf of Borrower and the Corporate Guarantors
(and Lender may conclusively rely on such certificate unless and until a later
certificate revising the prior certificate has been furnished to Lender).
Borrower shall also deliver to Lender good standing certificates for Borrower
and the Corporate Guarantors issued by the Secretary of State of its State of
incorporation and each state listed in the Schedule.
5.3 OPINION OF COUNSEL.
On the Closing Date, Lender shall have received a favorable written
opinion of counsel for Borrower and the Guarantors, dated the Closing Date and
in form and substance satisfactory to Lender and its counsel, Winick & Rich,
P.C.
5.4 NO CHANGE OF LAW OR FACTS.
No change shall have occurred after the date of execution and delivery of
this Agreement in applicable Law or regulations thereunder or interpretations
thereof by appropriate regulatory authorities which, in the opinion of Lender or
its counsel, would make it illegal for Lender to acquire the Note, make the
Loan, or otherwise to participate in the Loan, nor shall any facts come to the
attention of Lender, concerning Borrower, its business or financial condition
which, in the opinion of Lender would increase the risk to Lender of repayment
of the Loan by Borrower.
5.5 DOCUMENTS.
The following documents shall have been duly authorized, executed and
delivered by the respective party or parties thereto, shall be in form and
substance satisfactory to Lender and its counsel and shall be in full force and
effect on the Closing Date and on the Disbursement Date, and an executed
counterpart of each thereof shall have been delivered to Lender and its counsel:
5.5.1 this Agreement;
5.5.2 the Note;
5.5.3 the Guaranties;
5.5.4 insurance certificates or policies of insurance evidencing the
coverages required by Section 6.3 hereof;
5.5.5 an agreement with respect to certain environmental matters
(the"Environmental Certificate with Representations, Covenants and Warranties")
and a questionnaire and disclosure statement with respect to such environmental
matters (the "Environmental Questionnaire and Disclosure Statement");
5.5.6 the Schedule, whose terms and conditions are incorporated in
this Agreement as if fully stated in this Agreement; and
5.5.7 other Loan Documents, if any.
5.6 COLLATERAL.
Borrower shall provide to Lender a complete description of the Collateral,
together with evidence, in form and substance satisfactory to Lender in its sole
discretion, that Borrower owns legal title to the Collateral, free and clear of
all Liens, except for Liens held by Lender.
5.7 FINANCING STATEMENTS.
On the Closing Date, UCC financing statements covering the security
interest created by this Agreement in the Collateral shall have been
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duly filed in the office of the Secretary of State of each State where the
Collateral is located and in all other places as, in the opinion of Lender, or
its counsel, are necessary or desirable to perfect such Liens, and Lender shall
have been granted a perfected first and only Lien covering the Collateral.
5.8 LICENSES AND PERMITS.
All appropriate action shall have been taken prior to the Closing Date in
order to permit consummation of the transactions contemplated herein and hereby
and enforcement of all of the terms hereof and thereof, and all licenses,
permits, waivers, exemptions, authorizations and approvals required (or, in the
opinion of Lender or its counsel, advisable) to be in effect on the Closing Date
shall have been issued and shall be in full force and effect on such date, and
copies thereof shall have been delivered to Lender.
5.9 ADDITIONAL CONDITIONS.
5.9.1 Lender shall have received all other agreements, instruments,
financing statements, certificates, waivers, searches, releases, terminations,
reports, confirmations, corporate or other action, opinion letters, copies of
acquisition documents, copies of all leases, evidence of delivery and acceptance
of the Collateral, evidence of performance of work, evidence of payment of
obligations, agreements with suppliers and contractors, evidence of ownership of
the Collateral and other documents as Lender or its counsel shall have requested
(each in form and substance satisfactory to Lender and its counsel), including,
without limitation, certificates of incorporation and by-laws, UCC-1 financing
statements, lien waivers, credit references, consents, approvals, authorization
to date documents, casualty and liability insurance policies and endorsements
related to such insurance, satisfactory environmental audits and other
environmental information and certificates, appraisals, surveys and financial
statements and other financial information.
5.9.2 Lender shall have completed its environmental due diligence.
5.9.3 After giving effect to the Loan, there shall be no Default or
Event of Default hereunder or under the other Loan Documents.
5.9.4 All legal matters incident to the Loan shall be satisfactory
to Lender and its counsel.
5.9.5 All additional conditions set forth on the Schedule shall have
been satisfied, true and in full force and effect.
ARTICLE 6. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender that:
6.1 ORGANIZATION AND QUALIFICATION.
Borrower is duly organized, validly existing and in good standing as a
corporation under the Laws of the State set forth on the Schedule with full
power and authority to own its properties and to transact its business as now
transacted and as contemplated to be transacted. Borrower is qualified and in
good standing to transact business in each jurisdiction set forth on the
Schedule, which are all of the jurisdictions where the ownership of its
properties or the transaction of its business requires such qualification. Each
Corporate Guarantor is duly organized, validly existing and in good standing as
a corporation under the Laws of the State set forth on the Schedule with full
power and authority to own its properties and to transact its business as now
transacted and as contemplated to be transacted. Each Corporate Guarantor is
qualified and in good standing to transact business in each State set forth on
the Schedule, and in all other jurisdictions where the ownership of its
properties or the transaction of its business requires such qualification,
except where the failure to so qualify would not have a material adverse effect
on that business or operations thereof.
6.2 AUTHORITY AND AUTHORIZATION.
Borrower has full power and authority to execute, deliver and carry out
the provisions of this Agreement, the Note and the other Loan Documents to which
it is a party, to borrow hereunder and under the other Loan Documents and to
create the Liens provided for herein, and to perform its obligations hereunder
and thereunder, and all such action has been duly and validly authorized by all
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necessary proceedings on its part. Each Corporate Guarantor has full power and
authority to execute, deliver and carry out the provisions of its Guaranty and
the other Loan Documents to which it is a party and to perform its obligations
thereunder, and all such action has been duly and validly authorized by all
necessary proceedings on its part.
6.3 EXECUTION AND BINDING EFFECT.
This Agreement, the Note and the other Loan Documents to which Borrower is
a party have been duly and validly executed and delivered by Borrower and
constitute the legal, valid and binding obligation of Borrower enforceable in
accordance with their respective terms. The Guaranties and the other Loan
Documents to which the Guarantors are parties have been duly and validly
executed and delivered by the Guarantors and each constitutes the legal, valid
and binding obligation of the Guarantor executing the same, enforceable in
accordance with their respective terms.
6.4 AUTHORIZATIONS AND FILINGS.
Except for the filing of UCC financing statements, no authorization,
consent, approval, license, exemption or other action by, and no registration,
qualification, designation, declaration or filing with, any governmental
authority is or will be necessary or advisable in connection with the execution
and delivery of this Agreement, the Note, the Guaranties, the other Loan
Documents or the consummation by Borrower and the Guarantors of the transactions
herein and therein contemplated, or performance by Borrower and the Guarantors
of or compliance by Borrower and the Guarantors with, the terms and conditions
hereof or thereof.
6.5 ABSENCE OF CONFLICTS.
Neither the execution and delivery of this Agreement, the Note, the
Guaranties or the other Loan Documents, nor consummation of the transactions
herein or therein contemplated nor performance of, or compliance with the terms
and conditions hereof or thereof will (a) result in any violation or breach of
(i) the provisions of Borrower's or the Corporate Guarantors' Constituent
Documents, or (ii) any Law, or the order, rule or regulation of any court or
governmental agency or body having jurisdiction over Borrower or any Guarantor,
or any of their respective properties, or (iii) any agreement, bond, note,
instrument or indenture to which Borrower or any Guarantor is a party or
pursuant to which any of their respective properties are affected, or (b) result
in the creation or imposition of any Lien upon any property (now owned or
hereafter acquired) of Borrower or any Guarantor, except for the Lien created by
this Agreement.
6.6 FINANCIAL STATEMENTS.
Borrower and the Corporate Guarantors have heretofore furnished to Lender
certain financial statements and related financial information ("Financial
Statements"). Such Financial Statements (including the notes thereto) present
fairly the financial condition of Borrower and the Corporate Guarantors as of
the dates of the balance sheets contained therein, and the results of their
consolidated operations for the periods then ended, all in conformity with GAAP
on a basis consistent with that of Financial Statements for corresponding prior
periods. Except as disclosed therein, neither Borrower nor any Corporate
Guarantor has any material contingent liabilities (including liabilities for
taxes), unusual forward or long-term commitments or unrealized or anticipated
losses from unfavorable commitments.
6.7 NO DEFAULTS.
There is no Default under the Loan Documents.
6.8 LITIGATION.
Except as set forth in the Schedule, there is no pending or threatened
claim or proceeding by or before any court or governmental agency against or
affecting Borrower or any Guarantor which, if adversely decided would have a
material adverse effect on the business, operations or financial condition of
Borrower or any Guarantor or on the ability of Borrower or any Guarantor to
perform their respective obligations under this Agreement, the Note or the other
Loan Documents or on the Collateral.
6.9 TITLE TO COLLATERAL.
Borrower has good title to all of its assets,
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including, without limitation, the Collateral and all assets reflected in the
most recent balance sheet referred to in Section 5.6 hereof, free and clear of
all Liens covering the Collateral, other than the Liens granted hereunder to
Lender covering the Collateral, which are and will at all times be perfected
first Liens covering the Collateral and other than the interest pursuant to the
Lease (such other interest in the Collateral pursuant to the Lease being subject
and subordinate to the liens and interests granted to Lender hereunder).
6.10 TAXES.
All tax returns required to be filed by Borrower have been properly
prepared, executed and filed. All taxes, assessments, fees and other
governmental charges upon Borrower or upon any of its properties, incomes, sales
or franchises which are due and payable have been paid.
6.11 FINANCIAL ACCOUNTING PRACTICES.
Borrower makes and keeps books, records and accounts which, in reasonable
detail, accurately and fairly reflect Borrower's transactions and dispositions
of its assets.
6.12 POWER TO CARRY ON BUSINESS.
Borrower and the Corporate Guarantors have all requisite power and
authority to own and operate their respective properties and to carry on their
businesses as now conducted and as presently planned to be conducted.
6.13 NO MATERIAL ADVERSE CHANGE.
Since December 31, 1997 there has been no material adverse change in the
business, operations or financial condition of Borrower or any Guarantor.
6.14 COMPLIANCE WITH LAWS.
Neither Borrower nor any Guarantor is in violation of any Law, except for
violations which in the aggregate do not have a material adverse effect on the
business, operations or financial condition of Borrower or any Guarantor or on
the Collateral.
6.15 COMPLIANCE WITH AGREEMENTS.
Neither Borrower nor any Guarantor is in default under any agreement,
bond, note, indenture or contract, except for defaults which in the aggregate do
not have a material adverse effect on the business, operation or financial
condition of Borrower or any Guarantor or on the Collateral.
6.16 BANKRUPTCY.
Neither Borrower nor the Guarantors have made or contemplate an assignment
for the benefit of creditors. No application or petition has been filed for the
appointment of a custodian, trustee, receiver or agent to take possession of the
Collateral, or to take possession of any of the other properties or assets of
Borrower or the Guarantors. Borrower and the Guarantors are generally paying
their respective debts as such debts become due. Neither Borrower nor the
Guarantors are "insolvent" as that term is defined in Section 101(26) of the
"Bankruptcy Code" (Title 11 of the United States Code, 11 U.S.C. Section 101, et
seq.) or would be insolvent after giving effect to the Loan and the transactions
contemplated by the Loan Documents. Neither Borrower nor the Guarantors have
filed a petition with the Bankruptcy Court under the Bankruptcy Code, or
commenced any proceeding relating to Borrower or the Guarantors under any
bankruptcy or reorganization statute or under any arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction. No
petition or application of the type described above has been filed or commenced
against Borrower or the Guarantors, in which (i) Borrower or either Guarantor,
by any act, has indicated or intends to indicate its approval thereof, consent
thereto, or acquiescence therein; (ii) an order has been or is expected to be
entered appointing any such custodian, trustee, receiver or agent, adjudicating
Borrower or Guarantors bankrupt or insolvent, or approving such petition or
application in any such proceeding; (iii) the Bankruptcy Court has ordered or is
expected to order relief against Borrower or Guarantors under the Bankruptcy
Code; or (iv) such petition or application was not dismissed within ninety (90)
days of such filing or commencement.
6.17 ACCURATE AND COMPLETE DISCLOSURE.
No representation or warranty made by
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Borrower in this Agreement and no statement made by Borrower or any Guarantor in
the Financial Statements furnished pursuant to Section 5.6 hereof or otherwise,
or any certificate, report, exhibit or document furnished by Borrower or any
Guarantor to Lender pursuant to or in connection with this Agreement or the Loan
is false or misleading in any material respect (including by omission of
material information necessary to make such representation, warranty or
statement not misleading).
6.18 REGULATIONS G AND U.
Borrower is not engaged in the business of extending credit for the
purpose of purchasing or carrying "margin stock", as such term is used in
Regulations G or U promulgated by the Board of Governors of the Federal Reserve
System as amended from time to time. No part of the proceeds of the Loan will be
used to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any "margin stock".
Borrower does not own any "margin stock".
6.19 PERFECTION.
Except for the filings under Article 9 of the UCC specified in Section 4.7
hereof (and continuation statements at periodic intervals), no further filing or
recording is necessary under the UCC or under any other Laws of any
jurisdiction, in order to perfect in all applicable jurisdictions the Liens of
Lender in the Collateral. Upon such filings, Lender will be granted a perfected
first Lien covering the Collateral. There are no other Liens covering the
Collateral.
6.20 PLACE OF BUSINESS.
Both the place of business (or chief executive office if there is more
than one place of business) of Borrower and the place where it keeps its
corporate records concerning the Collateral and all of its interest in, to and
under this Agreement are located at the address set forth at the beginning of
this Agreement.
6.21 LOCATION OF COLLATERAL.
For all purposes, including, without limitation, perfection of security
interests therein under Article 9 of the UCC, the Collateral is deemed located
and at all times shall be located at the Premises and shall not be moved from
the Premises at which it is presently located.
6.22 NAME CHANGES, MERGERS, ACQUISITIONS. Except in connection with the
Merger and the Switch Acquisition, Borrower has not within the six-year period
immediately preceding the Closing Date, changed its name, been the surviving
entity of a merger or consolidation, or acquired all or substantially all of the
assets of any Person.
6.23 MERGER; SWITCH ACQUISITION.
Borrower has heretofore delivered to Lender, true and correct copies of
the Merger Agreement and the Switch Agreement. Borrower has, prior to the
execution and delivery of this Agreement and the making of the Loan, consummated
the Merger pursuant to the Merger Agreement. Borrower has, concurrently with the
execution and delivery of this Agreement and the making of the Loan, consummated
the Switch Acquisition pursuant to the Switch Agreement. Borrower has acquired,
by virtue of the consummation of the Switch Acquisition and the Merger, and now
has, valid, legal and marketable title to all of the Equipment and valid, legal
and marketable title or the right to use while any of the Obligations are
outstanding, all software, computer programs, discs, tapes, tape files,
licenses, license agreements (including, without limitation, the Software
Product License from Siemens Stromberg-Carlson) (the ALicense Agreement@),
copyrights, general intangibles, trademarks, consents, approvals and
authorizations and other intellectual property used in, for, with respect to or
in connection with the operation of the Equipment (collectively, the
ASoftware@). There is no other Software necessary for the normal and proper use
and operation of the Equipment. The License Agreement has been assigned to and
assumed by Borrower and Borrower possesses all rights to use and possess the
Software covered by the License Agreement. The License Agreement is assignable
without the consent of the licensor under the License Agreement and is in full
force and effect.
6.24 CONDITION OF COLLATERAL.
Borrower acknowledges that the proceeds of this loan are to be used to
acquire the Equipment
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and some or all of the other Collateral and the Loan is for all purposes
classified as purchase money financing. Prior to consummation of the Switch
Agreement Borrower examined, inspected and tested the Equipment and other
Collateral which is the subject thereof, and all such Equipment and other
Collateral is in good working order and repair as of the date hereof.
ARTICLE 7. COVENANTS
Borrower covenants that from and after the date hereof and until payment
in full of the Note and interest thereon and all other amounts due from Borrower
hereunder or under the Note or the other Loan Documents, unless Lender shall
otherwise consent in writing:
7.1 REPORTING AND INFORMATION REQUIREMENTS.
7.1.1 ANNUAL FINANCIAL STATEMENTS. As soon as practicable, and in
any event within one hundred (100) days after the close of each fiscal year of
Borrower and the Corporate Guarantors, Borrower and the Corporate Guarantors
shall furnish to Lender their consolidated annual audit reports for such year
for Borrower and the Corporate Guarantors, including audited statements of
income, retained earnings and statements of cash flow of Borrower and the
Corporate Guarantors for such fiscal year and audited balance sheets of Borrower
and the Corporate Guarantors as of the close of such fiscal year, and notes to
each, all in reasonable detail, setting forth in comparative form the
corresponding figures for the preceding fiscal year where such presentation is
appropriate under GAAP, certified without qualification by independent certified
public accountants of recognized standing selected by Borrower and the Corporate
Guarantors and satisfactory to Lender, together with (or included in such
certification) a written statement of such accountants substantially to the
effect that (i) such accountants examined such financial statements in
accordance with generally accepted auditing standards and accordingly made such
tests of accounting records and such other auditing procedures as they
considered necessary in the circumstances and (ii) in the opinion of such
accountants such financial statements present fairly the financial position of
Borrower and the Corporate Guarantors as of the end of such fiscal year and the
results of their operations and the changes in their financial position for the
fiscal year then ended, in conformity with GAAP applied on a basis consistent
with that of the preceding fiscal year (except for changes in application in
which such accountants concur).
7.1.2 QUARTERLY FINANCIAL STATEMENTS. Within sixty (60) days after
the end of each of the first three fiscal quarters of each fiscal year, Borrower
and the Corporate Guarantors shall furnish to Lender a copy of their
consolidated interim financial statements of the type described in Section 6.1.1
above (but without duplication of notes to the financial statements appearing in
the most recent annual audit report), certified by an Executive Officer of
Borrower and the Corporate Guarantors or if Borrower or the Corporate Guarantors
chooses, audited, as set forth in Section 6.1.1 above, and certified by an
Executive Officer of Borrower.
7.1.3 FURTHER REQUESTS. Borrower will promptly furnish to Lender
such other information (financial or otherwise) concerning Borrower, its assets,
the Collateral or the Guarantors, in such form as Lender may reasonably request.
7.1.4 COMPLIANCE CERTIFICATES. At the same time Borrower delivers
the financial statements required under the provisions of Sections 6.1.1 and
6.1.2, Borrower shall furnish to Lender a certificate of an Executive Officer to
the effect that no Default or Event of Default exists, or, if such cannot be so
certified, specifying in reasonable detail the exceptions, if any, to such
statement.
7.1.5 GUARANTOR FINANCIAL STATEMENTS. The Borrower shall cause the
Individual Guarantor to furnish to Lender all financial statements and other
information as is required to be delivered pursuant to his Guaranty.
7.1.6 NOTICE OF EVENT OF DEFAULT. Promptly upon becoming aware of
any Default or Event of Default, Borrower shall give Lender notice thereof,
together with a written statement of a Chief Executive Officer of Borrower
setting forth the details thereof and any action with respect thereto taken or
contemplated to be taken by Borrower.
7.1.7 NOTICE OF MATERIAL ADVERSE CHANGE. Promptly upon becoming
aware thereof,
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Borrower shall give Lender written notice about any material adverse change in
the business, operations or financial condition of Borrower or any Guarantor or
on the Collateral or on the ability of Borrower or any Guarantor to perform
their obligations under this Agreement, the Note or the other Loan Documents.
7.1.8 NOTICE OF MATERIAL PROCEEDINGS. Promptly upon becoming aware
thereof Borrower shall give Lender written notice of the commencement, existence
or threat of any proceeding by or before any court or administrative agency
against or affecting Borrower, any Guarantor or the Collateral which, if
adversely decided, would have a material adverse effect on the business,
operations or financial condition of Borrower or any Guarantor or on the ability
of Borrower or any Guarantor to perform its obligations under this Agreement,
the Note, the other Loan Documents or on the Collateral.
7.1.9 VISITATION. Borrower shall permit such persons as Lender may
designate to visit and inspect the Collateral and to examine the books and
records of Borrower and take copies and extracts therefrom, and to discuss its
affairs with officers of Borrower and its independent accountants, at such
reasonable times and as often as Lender may reasonably request.
7.1.10 OTHER DELIVERIES. Promptly upon their becoming available,
Borrower shall furnish to Lender, copies of all registration statements and any
amendments and supplements thereto and any regular and periodic reports filed by
Borrower or the Corporate Guarantors with any securities exchange or with the
Securities and Exchange Commission or any governmental authority succeeding to
any or all of the functions of said commissions and all letters of comment or
correspondence sent to Borrower or the Corporate Guarantors from such exchanges
or to such exchanges from Borrower or the Corporate Guarantors.
7.2 PRESERVATION OF EXISTENCE AND FRANCHISES.
7.2.1 Neither Borrower nor the Corporate Guarantors shall enter into
any merger in which it is not the survivor, reorganization or consolidation, or
wind up, liquidate or dissolve, nor agree to do any of the foregoing without the
prior written consent of Lender. The Borrower shall not amend, modify or extend
the Lease without the prior written consent of Lender.
7.2.2 Borrower will qualify to do business and will remain in good
standing under the laws of each jurisdiction in which it is required to be
qualified by reason of the location of the properties owned or leased by it or
the conduct of its business. Each Corporate Guarantor will qualify to do
business and will remain in good standing under the laws of each jurisdiction in
which it is required to be qualified by reason of the location of the properties
owned or leased by it or the conduct of its business.
7.2.3 Borrower shall do, or cause to be done, all things reasonably
necessary to preserve and keep in full force and effect its corporate existence
and all permits, licenses, rights and privileges necessary or appropriate for
the conducting of its business as now and hereafter conducted. Borrower shall
not change its name. Borrower shall continue to engage in the same kind of
business and shall not make any material change in its business or in the nature
of its operations or engage in any unrelated line of business. Each Corporate
Guarantor shall do, or cause to be done, all things reasonably necessary to
preserve and keep in full force and effect its corporate existence and all
permits, licenses, rights and privileges necessary or appropriate for the
conducting of its business as now and hereafter conducted. No Corporate
Guarantor shall change its name without thirty (30) days prior written notice to
Lender. Each Corporate Guarantor shall continue to engage in the same kind of
business and shall not make any material change in its business or in the nature
of its operations or engage in any unrelated line of business.
7.2.4 Borrower will comply with all Laws relative to the conduct of
its business or the location of the properties owned or leased by it, the
non-compliance with which could have a material adverse effect on the business,
operations, assets or financial or other condition of Borrower, as contemplated
hereby, or the ability of Borrower to perform its Obligations under this
Agreement, the Note or the other Loan Documents and will obtain or cause to be
obtained as promptly as possible any permit, license, consent, privilege or
approval of
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any governmental authority and make any filing or registration therewith which
at the time shall be required with respect to the performance of its Obligations
under this Agreement, the Note or the other Loan Documents or for the operation
of its business as presently conducted or as contemplated by it. Each Corporate
Guarantor will comply with all Laws relative to the conduct of its business or
the location of the properties owned or leased by it, the non-compliance with
which could have a material adverse effect on the business, operations, assets
or financial or other condition of the Corporate Guarantors, as contemplated
hereby, or the ability of the Corporate Guarantors to perform their Obligations
under their Guaranties or the other Loan Documents and will obtain or cause to
be obtained as promptly as possible any permit, license, consent, privilege or
approval of any governmental authority and make any filing or registration
therewith which at the time shall be required with respect to the performance of
its Obligations under this Agreement, the Guaranties or the other Loan Documents
or for the operation of their business as presently conducted or as contemplated
by them.
7.2.5 Borrower shall not except as provided herein or pursuant to
the Lease convey, assign, sell, mortgage, encumber, pledge, hypothecate, grant a
security interest in, grant options with respect to, lease or otherwise dispose
of all or any part of any legal or beneficial interest in any part or all of the
Collateral or any interest therein. The Corporate Guarantors shall not, directly
or indirectly sell, assign, lease or otherwise dispose of or permit the sale,
assignment or other disposition of any legal or beneficial interest in the stock
or other ownership interest in the Borrower or the Collateral. Borrower shall
not convey, assign, transfer or otherwise dispose of a material portion of its
assets (other than the Collateral, the prohibition on transfer of which is
governed by the first sentence of this subparagraph 6.2.5 above). EqualNet
Holding will at all times following the Merger own and continue to own directly
all legal and beneficial equity ownership interest in Borrower.
7.3 INSURANCE.
Borrower shall, at its own expense, maintain and deliver evidence to
Lender of such insurance required by Lender, written by insurers and in amounts
satisfactory to Lender.
7.4 MAINTENANCE OF PROPERTIES.
Borrower shall maintain or cause to be maintained in good repair, working
order and condition the properties now or hereafter owned, leased or otherwise
possessed by it, including the Collateral, and shall make or cause to be made
all needful and proper repairs, renewals, replacements and improvements thereto
so that the business carried on in connection therewith may be properly and
advantageously conducted at all times.
7.5 PAYMENT OF TAXES AND OTHER POTENTIAL CHARGES.
Borrower shall pay or discharge
7.5.1 all taxes, assessments and other governmental charges or
levies imposed upon it or any of its properties, including the Collateral, or
income (including such as may arise under ERISA or any similar provision of
law), on or prior to the date on which penalties attach thereto (including,
without limitation, any and all sales, use or other taxes due or which may
become due pursuant to or as a result of consummation of the transactions
contemplated by the Switch Agreement); and
7.5.2 all lawful claims of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons which, if unpaid, might result in
the creation of a Lien upon any such property, on or prior to the date when due;
PROVIDED, that unless and until foreclosure, distraint, levy, sale or similar
proceedings shall have been commenced, Borrower need not pay or discharge any
such tax, assessment, charge, levy, claim or current liability so long as (i)
the validity thereof is contested in good faith and by appropriate proceedings
diligently pursued, (ii) in Lender's sole judgment there is no reasonably
foreseeable risk of forfeiture of the Collateral, and (iii) such reserves or
other appropriate provisions as may be required by GAAP shall have been made
therefor, and so long as such failure to pay or discharge does not have a
material adverse effect on the business, operations or financial condition of
Borrower or the Collateral.
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7.6 FINANCIAL ACCOUNTING PRACTICES.
Borrower shall make and keep books, records and accounts which, in
reasonable detail, accurately and fairly reflect its business, including all
transactions and dispositions of its assets, all prepared in accordance with
GAAP. Lender and/or its agents shall have the right to review the books and
records of Borrower and to photocopy the same and to make excerpts therefrom, at
all reasonable times and upon reasonable notice and as often as Lender may
reasonably request.
7.7 COMPLIANCE WITH LAWS.
Borrower shall comply with all applicable Laws in all respects, provided,
that Borrower shall not be deemed to be in violation of this Section 6.7 as a
result of any failures to comply which would not result in fines, penalties,
injunctive relief or other civil or criminal liabilities which, in the
aggregate, would not materially affect the business or operations of Borrower or
the ability of Borrower to perform its obligations under this Agreement, the
Note or the other Loan Documents or the Collateral.
7.8 MATERIAL OBLIGATIONS.
Borrower shall pay and satisfy, when due, all material liabilities and
obligations, including, without limitation, all obligations under all leases
(real or personal property) to which it is a party.
7.9 MAINTENANCE OF COLLATERAL.
Borrower will maintain and preserve the Collateral in good condition,
repair and working order, promptly repairing, replacing or rebuilding any part
of the Collateral which may be destroyed by any casualty, or become damaged,
worn or dilapidated.
7.10 MAINTENANCE OF PRINCIPAL PLACE OF BUSINESS.
Borrower shall maintain and keep its principal place of business and chief
executive office at the address set forth at the beginning of this Agreement,
and at no other location without giving Lender at least thirty (30) days prior
written notice of any move. Borrower shall maintain and keep its records at such
address and at no other location without giving Lender at least thirty (30) days
prior written notice of any move.
7.11 AMENDMENT TO CONSTITUENT DOCUMENTS.
Borrower shall not amend or modify any of its Constituent Documents.
7.12 NAMES.
Borrower shall not use any corporate or fictitious name other than its
corporate name as set forth in its Articles or Certificate of Incorporation on
the date hereof or as set forth on the Schedule;
7.13 PREPAYMENT.
Borrower shall not prepay any indebtedness, other than trade payables or
the Obligations.
7.14 MARGIN SECURITY.
Borrower shall not own, purchase or acquire (or enter into any contract to
purchase or acquire) any "margin security" as defined by any regulation of the
Federal Reserve Board as now in effect or as the same may hereafter be in
effect.
7.15 SATISFACTION OF CERTAIN OBLIGATIONS.
In the event Borrower fails to make any payment or do any act as herein
provided (including, but not limited to, maintaining any insurance required to
be maintained under the Loan Documents or paying all taxes in accordance with
the terms hereof) or there shall be a claim or Lien asserted or filed against
the Collateral, Lender may, but shall not be obligated to (and without releasing
Borrower from any obligation hereunder), make all such payments and perform all
such acts or otherwise satisfy such obligations. All sums paid by Lender in
respect thereof and all costs, fees and expenses, including reasonable
attorneys' fees, court costs, expenses and other charges relating thereto, which
are incurred by Lender on account thereof, shall bear interest at the Default
Rate, shall be payable on demand by Borrower to Lender, and shall be additional
Obligations hereunder secured by the Collateral.
7.16 GUARANTEES AND CONTINGENT LIABILITIES.
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Borrower shall not directly or indirectly assume, guarantee, endorse,
become or remain directly or contingently liable upon or with respect to any
obligations or liability of any other Person or entity other than in connection
with the endorsement or deposit of checks in the ordinary course of business.
7.17 DISTRIBUTIONS, DIVIDENDS.
Borrower shall not declare or pay any dividends or make any distributions
of any kind or make any other similar payments or set aside any sum for any such
purpose, except that Borrower may declare and make dividends payable solely in
shares of its common stock.
7.18 REDEMPTIONS.
Borrower shall not purchase, redeem, retire or otherwise acquire, directly
or indirectly, or make any sinking fund payments with respect to, any shares of
any class of stock of Borrower, now or hereafter existing, or set apart any sum
for such purposes.
7.19 STOCK ISSUANCE.
Borrower shall not issue any additional shares or any right or option to
acquire any shares, or any security convertible into any shares, of the capital
stock of Borrower.
7.20 INVESTMENTS, LOANS, ADVANCES.
Borrower shall not directly or indirectly make or have outstanding at any
time any investments in or loans to any other Person (including any subsidiary),
whether by way of advance, loan, guaranty, extension of credit, capital
contribution, purchase of stock, notes, bonds or other securities or evidence of
indebtedness, or acquisition of limited or general partnership or other
interests.
7.21 TRANSACTIONS WITH AFFILIATES.
Borrower shall not, and shall not permit any of its subsidiaries or
Guarantors, to, directly or indirectly, enter into any purchase, sale, lease or
other transaction with any affiliate, except for those transactions described in
the Proxy Statement in the ordinary course of business on terms that are no less
favorable than those which might be obtained at the time in a comparable arm's
length transaction with any Person who is not an affiliate.
7.22 FURTHER ASSURANCES.
Borrower shall cause to be done, executed, acknowledged and delivered all
and every such further act, conveyance and assurance as Lender shall require for
accomplishing the purposes of this Agreement, the Note and the other Loan
Documents. Borrower will defend and protect its title with respect to the
Collateral and will indemnify Lender with respect thereto. Any payment in
respect of such indemnity shall be made directly to Lender on demand in
immediately available funds. Forthwith after notice from Lender, Borrower shall
promptly, without further consideration, execute, acknowledge and deliver such
further instruments and documents and will take such other actions as Lender may
deem necessary or advisable from time to time to ensure the enforceability or
priority of the Liens granted hereby, or otherwise to confirm and carry out the
intent and purpose of this Agreement.
ARTICLE 8. DEFAULTS AND REMEDIES
8.1 EVENTS OF DEFAULT.
The occurrence of one or more of the following described events is an
Event of Default:
8.1.1 Borrower fails to make any payment of principal of or interest
on the Note, within ten (10) days after such payment is or shall become due; or
8.1.2 Borrower fails to perform or observe any of its covenants or
agreements contained herein or in any other Loan Documents which cannot be
cured; or
8.1.3 Borrower fails to perform or observe any other covenant or
agreement to be performed or observed by it hereunder or under the other Loan
Documents and such failure continues unremedied for a period of fifteen (15)
days after such failure; or
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8.1.4 Borrower voluntarily creates, suffers to exist, incurs or
assumes any Lien, security interest, charge or encumbrance on, or with respect
to, any part of or all the Collateral (other than Liens permitted under this
Agreement), or the Liens held by Lender in and to the Collateral shall cease to
be the first perfected Lien in and to the Collateral; or
8.1.5 Borrower sells, assigns, leases (other than the Lease), or
otherwise disposes of or relinquishes possession of, any Collateral; or
8.1.6 any representation or warranty made by Borrower or a Guarantor
herein or in any other Loan Document or in any document or certificate furnished
by Borrower to Lender in connection herewith or therewith at any time proves to
have been incorrect in any material respect when made; or
8.1.7 this Agreement or any Loan Document at any time for any reason
ceases to be in full force and effect or is declared by a court or governmental
agency of competent jurisdiction to be null and void; or
8.1.8 Borrower breaches or defaults under the terms of any
agreement, instrument or document with or for the benefit of Lender which is not
a Loan Document or under any other loan, credit facility or other financial
accommodation made by Lender to Borrower, including, without limitation, all
promissory notes, guarantees, equipment leases, security agreements and deeds of
trust; or
8.1.9 Borrower or any Guarantor is indicted or threatened with
indictment by a governmental authority under any criminal statute or there is
commenced against Borrower or any Guarantor a criminal or civil proceeding
pursuant to which the proceedings, penalties or remedies sought or available
include forfeiture of any of the Collateral or a material portion of the assets
of Borrower or any Guarantor; or
8.1.10 any Guarantor fails to perform or observe any of its
covenants or agreements contained in the Guaranties or any other Loan Documents
to which they are a party which cannot be cured; or
8.1.11 any Guarantor fails to perform or observe any other covenant
or agreement to be performed or observed by it under the Loan Documents to which
they are a party and such failure continues unremedied for a period of fifteen
(15) days after such failure; or
8.1.12 any Guarantor breaches or defaults under the terms of any
agreement, instrument or document with or for the benefit of Lender which is not
a Loan Document or under any other loan, credit facility or other financial
accommodation made by Lender to any or all of the Guarantors, including, without
limitation, all promissory notes, guarantees, equipment leases, security
agreements, mortgages and deeds of trust; or
8.1.13 there is a material adverse change in the business,
operations or financial condition of Borrower or any Guarantor or in the
Collateral; or
8.1.14 a proceeding is instituted seeking a decree or order for
relief in respect of Borrower or any Guarantor in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect or for the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of Borrower or any Guarantor,
or for any substantial part of its properties or for the dissolution, winding-up
or liquidation of its affairs or any substantial part of any of its properties
and such proceeding remains undismissed or unstayed for a period of sixty (60)
consecutive days or such court enters a decree or order granting the relief
sought in such proceeding; or
8.1.15 Borrower or any Guarantor voluntarily suspends transaction of
its business, commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, consents to the
entry of an order for relief in an involuntary case under any such law or
consents to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official) of
Borrower or any Guarantor for any substantial part of any of its properties, or
makes a general assignment for the benefit of creditors, or takes any action in
furtherance of any of the foregoing; or
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8.1.16 there shall be a judgment or judgments against Borrower or
any Guarantor for any amount in excess of $75,000 in the aggregate, which shall
remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a
period of thirty (30) days or more; or
8.1.17 Borrower shall have conveyed, sold, assigned, encumbered or
otherwise transferred all or substantially all of its assets (or any interest
therein) (other than pursuant to the Lease) or any stock of Borrower is sold,
conveyed, transferred or encumbered; or
8.1.18 Borrower fails to perform or observe any of its covenants or
agreements contained in Section 6.3 hereof or in the letter regarding insurance
requirements delivered by Borrower in connection with the Loan or the Loan
Documents (the "Insurance Letter") or any such insurance shall at any time cease
to be in full force and effect; or
8.1.19 Borrower ceases to operate its business at any of the
Premises without the prior consent of Lender; or
8.1.20 the Letter of Credit shall at any time cease to be in full
force and effect or is terminated; or
8.1.21 Borrower shall default under or breach any term contained in
any loan agreement, promissory note, equipment lease, security document or other
agreement or evidence of indebtedness with any other lender, lessor or provider
of credit which relate to, or evidence, indebtedness for borrowed money or
capitalized lease obligations which on the date of default is in the principal
amount of not less than $100,000 or Borrower shall otherwise default in the
payment of such indebtedness.
8.1.22 Borrower shall fail to provide Lender with satisfactory
evidence that any and all sales, use and other similar taxes due pursuant to or
as a result of the consummation of the transaction contemplated by the Switch
Agreement have been fully paid within forty-five (45) days after the date hereof
or, if later, the date when due.
8.1.23 Any Corporate Guarantor breaches or defaults (which default
is not cured within any applicable cure period, if any) under the terms of any
agreement, instrument or document which such Corporate Guarantor has for any
loan, credit facility or other financial accommodation now or hereinafter
entered into with any other lender or other Person which on the date of breach
or default is in the principal amount of not less than $250,000.
8.1.24 There shall occur any default or event of default under the
Lease (which is not cured within any applicable cure period, if any).
8.2 CONSEQUENCES OF EVENT OF DEFAULT.
8.2.1 If an Event of Default occurs, Lender may, by notice to
Borrower, declare the unpaid principal amount of the Note and interest accrued
thereon and all other Obligations and liabilities of Borrower hereunder or under
the Note or the Loan Documents to be immediately due and payable and the same
shall thereupon become and be immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived, and an action therefor shall immediately accrue.
8.2.2 In addition, if an Event of Default occurs, Lender shall have
all rights and remedies granted herein and in the other Loan Documents and all
rights or remedies available at law (including, without limitation, the UCC) or
equity, whether as a secured party or otherwise (including specifically those
granted by the Uniform Commercial Code as in effect in the jurisdiction or
jurisdictions where the Collateral is located) and, except as limited by Law,
all remedies of Lender (i) shall be cumulative and concurrent; (ii) may be
pursued separately, successively or concurrently against Borrower or against all
or any portion of the Collateral, at the sole discretion of Lender; (iii) may be
exercised as often as occasion therefor shall arise, it being agreed by Borrower
that the exercise or failure to exercise any rights or remedies shall in no
event be construed as a waiver or release thereof or of any other right, remedy
or recourse; and (iv) are intended to be, and shall be, nonexclusive. To the
fullest extent permitted by applicable Law, Lender may resort to the rights,
remedies and
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recourses set forth herein and any other security therefor in such order and
manner as Lender may elect.
8.2.3 Without limiting any of the foregoing, Borrower agrees that
(i) Lender may, with or without notice and without legal process, enter upon any
property owned, leased or otherwise under the real or apparent control of
Borrower or any agent thereof or any other location where the Collateral may be
located and disassemble, disconnect, render unusable or repossess all or any
item of the Collateral; (ii) written notice mailed to Borrower, as provided in
this Agreement for the giving of notice, shall be reasonable if given ten (10)
days prior to (a) any public sale or (b) the date after which a private sale may
be made; (iii) a sale of the Collateral may be made as a unit or in parcels and
for cash and upon terms; (iv) Lender may buy the Collateral at any public sale
and at any private sale as permitted by the UCC; and (v) such public or private
sale or sales may be held or adjourned from time to time, and Lender shall have
the right to conduct such sale or sales on Borrower's premises (including,
without limitation, the Premises) or elsewhere where the Collateral is located,
and shall have the right to use Borrower's premises without charge for such sale
or sales for such time or times as Lender may determine.
ARTICLE 9. EXPENSES AND INDEMNITIES
9.1 EXPENSES.
Borrower shall promptly reimburse Lender for all costs, fees and expenses
incurred by Lender in connection with the negotiation, preparation, execution,
delivery, administration, operation and enforcement of each of the Loan
Documents, including, but not limited to, the attorneys' and paralegals' fees of
in-house and outside counsel, expert witness fees, lien, title search and
insurance fees, appraisal fees, all charges and expenses incurred in connection
with any and all environmental reports and environmental remediation activities,
and all other costs, expenses, taxes and filing or recording fees payable in
connection with the transactions contemplated by this Agreement, including,
without limitation, all such costs, fees and expenses as Lender shall incur or
for which Lender shall become obligated in connection with (i) any inspection or
verification of the Collateral, (ii) any proceeding relating to the Loan
Documents or the Collateral, (iii) actions taken with respect to the Collateral
and Lender's security interest therein, including, without limitation, the
defense or prosecution of any action involving Lender and Borrower or any third
party, (iv) enforcement of any of Lender's rights and remedies with respect to
the Obligations or Collateral, (v) consultation with Lender's attorneys and
participation in any workout, bankruptcy or other insolvency or other proceeding
involving any Borrower or any Guarantor or any affiliate, whether or not suit is
filed, and (vi) any other matters relating to or arising out of the Loan and/or
the Loan Documents.
9.2 ENVIRONMENTAL MATTERS.
9.2.1 DEFINITIONS. The following definitions apply to the provisions
of this Section 8.2: (a) the term "Applicable Law" shall include, but shall not
be limited to, each statute named or referred to in this Section 8.2.1 and all
rules and regulations thereunder, and any other local, state and/or federal
laws, rules, regulations or ordinances, whether currently in existence or
hereafter enacted, which govern, to the extent applicable to the Property or to
Borrower, (i) the existence, cleanup and/or remedy of contamination on real
property; (ii) the protection of the environment from soil, air or water
pollution, or from spilled, deposited or otherwise emplaced contamination; (iii)
the emission or discharge of hazardous substances into the environment; (iv) the
control of hazardous wastes; or (v) the use, generation, transport, treatment,
removal or recovery of Hazardous Substances; (b) the term "Hazardous
Substance(s)" shall mean (i) any oil, flammable substance, explosives,
radioactive materials, hazardous wastes or substances, toxic wastes or
substances or any other wastes, materials or pollutants which either pose a
hazard to the Property or to persons on or about the Property or cause the
Property to be in violation of any Applicable Law; (ii) asbestos in any form
which is or could become friable, urea formaldehyde foam insulation,
transformers or other equipment which contain dielectric fluid containing levels
of polychlorinated biphenyls, or radon gas; (iii) any chemical, material or
substance defined as or included in the definition of "hazardous substances,"
"waste," "hazardous wastes,"
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hazardous materials," "extremely hazardous waste," "restricted hazardous waste,"
or "toxic substances" or words or similar import under any Applicable Law,
including, but not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 USC " 9601 ET SEQ.; the Resource
Conservation and Recovery Act ("RCRA"), 42 USC " 6901 ET SEQ.; the Hazardous
Materials Transportation Act, 49 USC " 1801 ET SEQ.; the Federal Water Pollution
Control Act, 33 USC " 1251 ET SEQ.; and every other Applicable Law; (iv) any
other chemical, material or substance, exposure to which is prohibited, limited
or regulated by any governmental authority which may or could pose a hazard to
the health or safety of the occupants of the Property or the owners and/or
occupants of property adjacent to or surrounding the Property, or any other
person coming upon the property or adjacent property; and (v) any other
chemical, materials or substance which may or could pose a hazard to the
environment; and (c) the term "Property" shall mean all real property, wherever
located, in which Borrower has any right, title or interest, whether now
existing or hereafter arising, and including, without limitation, as owner,
lessor or lessee.
9.2.2 COVENANTS AND REPRESENTATIONS. (1) Borrower represents and
warrants that there have not been during the period of Borrower's possession of
any interest in the Property and, to the best of its knowledge after reasonable
inquiry, there have not been at any other time, any activities on the Property
involving, directly or indirectly, the use, generation, treatment, storage or
disposal of any Hazardous Substances except in compliance with Applicable Law
(i) under, on or in the land included in the Property, whether contained in
soil, tanks, sumps, ponds, lagoons, barrels, cans or other containments,
structures or equipment, (ii) incorporated in the buildings, structures or
improvements included in the Property, including any building material
containing asbestos, or (iii) used in connection with any operations on or in
the Property. (2) Without limiting the generality of the foregoing and to the
extent not included within the scope of this Section 8.2.2, Borrower represents
and warrants that it is in full compliance with Applicable Law and has received
no notice from any person or any governmental agency or other entity of any
violation by Borrower or its affiliates of any Applicable Law. (3) Borrower
shall be solely responsible for and agrees to indemnify Lender, protect and
defend Lender with counsel reasonably acceptable to Lender, and hold Lender
harmless from and against any claims, actions, administrative proceedings,
judgments, damages, punitive damages, penalties, fines, costs, liabilities
(including sums paid in settlements of claims), interest or losses, attorneys'
fees (including any fees and expenses incurred in enforcing this indemnity),
consultant fees, expert fees, and other out-of-pocket costs or expenses actually
incurred by Lender (collectively, the "Environmental Costs"), that may, at any
time or from time to time, arise directly or indirectly from or in connection
with: (i) the presence, suspected presence, release or suspected release of any
Hazardous Substance whether into the air, soil, surface water or groundwater of
or at the Property, or any other violation of Applicable Law, or (ii) any breach
of the foregoing representations and covenants; except to the extent any of the
foregoing result from the actions of Lender, its employees, agents and
representatives. All Environmental Costs incurred or advanced by Lender shall be
deemed to be made by Lender in good faith and shall constitute Obligations
hereunder.
ARTICLE 10. MISCELLANEOUS
10.1 FURTHER ASSURANCES.
Borrower shall at any time and from time to time upon the written request
of Lender, execute and deliver such further agreements, instruments and
documents and do such further acts and things as Lender may reasonably request
in order to effect the purposes of this Agreement.
10.2 GENERAL INDEMNITY.
Borrower shall indemnify, defend and hold harmless Lender from and
against, and, upon demand, reimburse Lender for, all claims, demands,
liabilities, losses, damages, judgments, penalties, costs and expenses,
including, without limitation, reasonable attorneys' fees and disbursements,
which may be imposed upon, asserted against or incurred or paid by Lender, on
account of any act performed or omitted to be performed under this Agreement,
the Note or the other Loan Documents or on account of any
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transaction arising out of or in any way connected with the Collateral or this
Agreement, the Note or the other Loan Documents (including, without limitation,
any litigation matter involving claims or alleged claims by or disputes with
third parties), except as a result of the willful misconduct or gross negligence
of Lender.
10.3 NO IMPLIED WAIVER; CUMULATIVE REMEDIES.
No course of dealing and no delay or failure of Lender in exercising any
right, power or privilege under this Agreement, the Note or any of the other
Loan Documents shall affect such right, power or privilege except as and to the
extent that the assertion of any such right, power or privilege shall be barred
by an applicable statute of limitations; nor shall any single or partial
exercise thereof or any abandonment or discontinuance of steps to enforce such a
right, power or privilege preclude any further exercise thereof or of any other
right, power or privilege. The rights and remedies of Lender under this
Agreement, the Note or the other Loan Documents are cumulative and not exclusive
of any rights or remedies which Lender would otherwise have.
10.4 TAXES.
Borrower agrees to pay or reimburse Lender for any and all stamp,
document, transfer, recording or filing taxes or fees and all similar
impositions payable or hereafter determined by Lender to be payable in
connection with this Agreement, the Note or the other Loan Documents (including
but not limited to those necessary or advisable to record or to ensure the
enforceability or priority of this Agreement, the Note or the other Loan
Documents), as determined by Lender in its sole discretion from time to time,
and any other documents, instruments or transactions pursuant to or in
connection herewith, and Borrower agrees to save Lender harmless from and
against any and all present or future claims or liabilities with respect to or
resulting from any delay in paying or omission to pay any such taxes, fees or
similar impositions.
10.5 TIME OF ESSENCE.
Time is of the essence for the performance by Borrower of the Obligations
set forth in this Agreement and the other Loan Documents.
10.6 POWER OF ATTORNEY.
Borrower appoints Lender and its designees as Borrower's attorney, with
the power to endorse Borrower's name on any checks, notes, acceptances, money
orders or other forms of payment or security that come into Lender's possession;
to sign Borrower's name on any invoice or bill of lading relating to any
receivable, on drafts against customers, on assignments of receivables, on
notices of assignment, financing statements and other public records, on
verifications of accounts and on notices to customers or account debtors; to
send requests for verification of receivables to customers or account debtors;
after the occurrence of any Event of Default, to notify the post office
authorities to change the address for delivery of Borrower's mail to an address
designated by Lender and to open and dispose of all mail addressed to Borrower;
and to do all other things Lender deems necessary or desirable to carry out the
terms of this Agreement. Borrower hereby ratifies and approves all acts of such
attorney. Neither Lender nor any of its designees shall be liable for any acts
or omissions nor for any error of judgment or mistake of fact or law while
acting as Borrower's attorney. This power, being coupled with an interest, is
irrevocable until the Obligations have been fully satisfied and Lender's
obligation to provide loans hereunder shall have terminated.
10.7 MODIFICATIONS, AMENDMENTS OR WAIVERS.
Lender and Borrower may from time to time enter into written agreements
amending, modifying or supplementing this Agreement, the Note or the other Loan
Documents or changing the rights of Lender or Borrower hereunder or thereunder,
and Lender may from time to time grant waivers or consents to a departure from
the due performance of the obligations of Borrower thereunder. Any such
agreement, waiver or consent must be in writing and shall be effective only to
the extent set forth in such writing. In the case of any such waiver or consent,
any Event of Default so waived or consented to shall be deemed to be cured and
not continuing, but no such waiver or consent shall extend to any subsequent or
other Event of
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Default or impair any right consequent thereto.
10.8 HOLIDAYS.
Except as otherwise provided herein, whenever any payment or action to be
made or taken hereunder or the Note or any other Loan Document shall be stated
to be due on a day which is not a Business Day, such payment or action shall be
made or taken on the next following Business Day (and such day shall be included
in the calculation of interest due), unless such next succeeding Business Day
falls in a different calendar month, in which case payment or action shall be
made or taken on the next preceding Business Day.
10.9 NOTICES.
10.9.1 Except as otherwise provided herein, all notices and other
communications required under the terms and provisions of this Agreement, the
Note or the other Loan Documents shall be in writing and shall become effective
when delivered by hand or received by overnight courier, telex, facsimile,
telegram or registered first class mail, postage prepaid, addressed as follows:
If to Lender, at:
FINOVA Capital Corporation
115 West Century Road
Paramus, New Jersey 07652
Facsimile No. 201-634-3325
Attention: Pamela Marchant Vice President
with a copy to:
Winick & Rich, P.C.
919 Third Avenue
New York, New York 10022
Facsimile No. 212-308-5945
Attention: Michael A. Karpen, Esq.
If to Borrower, at the address set forth on the Schedule.
or at such other address as either party may, from time to time, designate in
writing to the other party hereto.
10.9.2 If any notice is given by telex, facsimile transmission, or
telegram, the party giving such notice shall confirm such notice by a writing
delivered by hand or overnight courier; PROVIDED, HOWEVER, that for all purposes
hereunder, notice shall be deemed effective at the time given by telex,
telecopier or telegram.
10.10 GOVERNING LAW.
THIS AGREEMENT, THE NOTE, THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO AND THERETO SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA.
10.11 PERSONAL JURISDICTION AND SERVICE OF PROCESS.
BORROWER IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING AGAINST
BORROWER UNDER, ARISING OUT OF, OR IN ANY MANNER RELATING TO THIS AGREEMENT, THE
NOTE OR THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN ANY STATE COURT OF THE STATE
OF ARIZONA LOCATED IN MARICOPA COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF ARIZONA. BORROWER, BY ITS EXECUTION AND DELIVERY OF THIS
AGREEMENT, EXPRESSLY AND IRREVOCABLY CONSENTS AND SUBMITS TO THE PERSONAL
JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDING. BORROWER
FURTHER AGREES THAT ANY LEGAL ACTION OR PROCEEDING BORROWER MAY BRING, ARISING
OUT OF OR IN ANY MANNER RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS,
SHALL ONLY BE BROUGHT IN ANY STATE COURT OF THE STATE OF ARIZONA LOCATED IN
MARICOPA COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
ARIZONA. BORROWER ALSO IRREVOCABLY CONSENTS TO THE SERVICE OF ANY COMPLAINT,
SUMMONS, NOTICE OR OTHER PROCESS RELATING TO SUCH ACTION OR
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PROCEEDING BY DELIVERY THEREOF TO BORROWER IN THE MANNER PROVIDED FOR NOTICES IN
THIS AGREEMENT. BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY CLAIM OR
DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS OR ANY SIMILAR BASIS.
BORROWER SHALL NOT BE ENTITLED IN ANY SUCH ACTION OR PROCEEDING TO ASSERT ANY
DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF
ARIZONA, UNLESS SUCH DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE
OF ARIZONA. NOTHING HEREIN SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY EXTENT
THE RIGHT OF LENDER TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
BORROWER IN ANY OTHER JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED
BY LAW.
10.12 WAIVER OF JURY TRIAL.
BORROWER AND LENDER HEREBY WAIVE ANY RIGHT TO TRIAL BY JURY WITH RESPECT
TO ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY AGREEMENT,
INSTRUMENT OR DOCUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH OR
THEREWITH, INCLUDING THE LOAN DOCUMENTS.
10.13 SEVERABILITY.
The provisions of this Agreement, the Note and any other Loan Document are
intended to be severable. If any such provision is held invalid or unenforceable
in whole or in part in any jurisdiction, such provision shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
10.14 PRIOR UNDERSTANDINGS.
This Agreement and the other Loan Documents supersede all prior
understandings and agreements, whether written or oral, between the parties
hereto relating to the transactions provided for herein or therein.
10.15 SURVIVAL.
All representations and warranties of Borrower contained in this Agreement
or any other Loan Document or made in writing in connection herewith or
therewith shall survive the execution and delivery of this Agreement, the Note
and the other Loan Documents, any investigation or inspection by Lender, the
making of the Loan hereunder, the payment of the Note or the expiration of this
Agreement. All covenants and agreements of Borrower contained herein shall
continue in full force until payment in full of the Obligations. Borrower's
obligation to pay the principal of and interest on the Note and all such other
amounts shall be absolute and unconditional under any and all circumstances.
10.16 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and shall inure to the benefit of
Lender and Borrower and their respective successors and permitted assigns,
except that Borrower may not assign, delegate or transfer any of its rights or
obligations hereunder or any interest herein without the written consent of
Lender which Lender may withhold in its absolute discretion. Any actual or
attempted assignment by Borrower without Lender's consent shall be null, void
and of no effect whatsoever. Lender may assign or otherwise transfer any or all
of its rights, title, interests and obligations hereunder and under the Note and
the other Loan Documents in whole or in part. If Lender makes such an
assignment, the assignee shall have all of the rights of the Lender and Borrower
shall not assert against the assignee any defense, counterclaims or setoff which
Borrower may have against Lender. Except to the extent otherwise required by its
context, the word "Lender" where used in this Agreement shall mean and include
the holder of the Note originally issued to Lender, and the holder of such Note
shall be bound by and have the benefits of this Agreement to the same extent as
if such holder had been a signatory hereto, except that no assignee shall be
deemed to assume any obligation or duty imposed upon Lender hereunder or the
other Loan Documents and Borrower shall look only to Lender for performance
thereof. As used in this Section 9.16, "assign" shall be deemed to include a
pledge, sale of, or grant of a mortgage on, or a security interest in, any of
the Collateral (except as allowed by this Agreement) or this Agreement or the
other Loan Documents by Lender and the term "assignee" shall be deemed to refer
to the recipient of such pledge, sale, mortgage or security interest.
10.17 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts each of which, when so
executed and delivered by the parties,
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<PAGE>
constituting an original but all such counterparts together constituting but one
and the same instrument.
10.18 PUBLICITY.
Lender is hereby authorized to issue appropriate press releases and to
cause a tombstone to be published announcing the consummation of the
transactions contemplated in this Agreement, including the aggregate amount of
the Loan. Borrower and the Guarantors may with the prior consent (and approval
as to content) of Lender issue appropriate press releases regarding the
transaction contemplated by this Agreement. To the extent required by law,
Borrower and the Guarantors may include a copy of this Agreement and summary
descriptions transactions contemplated hereby in public disclosure documents.
Subject to the requirements of applicable laws, Borrower and Guarantors will use
their best efforts to provide summary descriptions of this Agreement and the
transactions contemplated hereby in lieu of filing copies of the Agreement.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed and delivered this Agreement effective as of the day
and year first above written.
NETCO ACQUISITION CORP.
By:________________________________
Title:_____________________________
FINOVA CAPITAL CORPORATION
By: ________________________________
Title:______________________________
<PAGE>
EXHIBIT A
NOTE
See attached.
<PAGE>
SECURED PROMISSORY NOTE
$6,050,000 _______________, 1998
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned, NETCO ACQUISITION CORP., a Delaware
corporation ("Borrower"), hereby promises to pay to the order of FINOVA CAPITAL
CORPORATION ("Lender"), the principal sum of Six Million Fifty Thousand Dollars
($6,050,000), together with interest on the unpaid principal balance hereof from
time to time outstanding at the rate per annum and on the dates and all as
otherwise provided in that certain Loan and Security Agreement of even date
herewith (the "Loan Agreement") by and between Lender and Borrower.
This Note is the Note referred to in the Loan Agreement, is secured as set
forth in the Loan Agreement, may not be prepaid except as provided in the Loan
Agreement and is entitled to the benefits of the Loan Agreement. All capitalized
terms used in this Note which are not otherwise defined herein shall have the
respective meanings ascribed to them in the Loan Agreement.
All payments of principal and interest on this Note are to be made in
lawful money of the United States of America in immediately available funds,
without setoff, counterclaim or deduction of any nature, at the office of Lender
at 115 West Century Road, Paramus, New Jersey 07652 (or such other place as the
holder hereof shall designate to Borrower in writing), prior to 12:00 Noon,
local time, on the day when due.
If any payment of principal or interest becomes due on a day which is not
a Business Day, that payment shall be made on the next Business Day unless such
next Business Day falls in another calendar month in which event that payment
shall be made on the next preceding Business Day.
Lender and Borrower intend this Note to comply in all respects with all
provisions of law and not to violate, in any way, any legal limitations on
interest charges. Accordingly, if, for any reason, Borrower is required to pay,
or has paid, interest at a rate in excess of the highest rate of interest which
may be charged by Lender or which Borrower may legally contract to pay under
applicable law (the "Maximum Rate"), then the interest rate shall be deemed to
be reduced, automatically and immediately, to the Maximum Rate, and interest
payable hereunder shall be computed and paid at the Maximum Rate and the portion
of all prior payments of interest in excess of the Maximum Rate shall be deemed
to have been prepayments of the outstanding principal of this Note and applied
to the installments in the inverse order of their maturities.
If Borrower fails to make any payment of principal or interest within ten
(10) days after the payment is due, Borrower shall pay a late charge of five
percent (5%) of the unpaid amount, but in no event more than the maximum amount
permitted by applicable law, and such amount shall be payable upon demand. Such
payment is not interest for the use of money, but is intended to cover Lender's
administrative costs occasioned by such delay.
Upon the occurrence of an Event of Default, Lender shall have all of the
rights and remedies contained in the Loan Agreement, including, without
limitation, the right, at its option, to declare all indebtedness under this
Note to be immediately due and payable.
Borrower hereby expressly waives presentment for payment, demand for
payment, notice of dishonor, protest, notice of protest, notice of non-payment,
and all lack of diligence or delays in collection or enforcement of this Note or
the Loan Agreement.
-1-
<PAGE>
Lender may extend the time of payment of this Note, postpone the
enforcement hereof, release any Collateral, or grant any other indulgences
whatsoever, without affecting or diminishing Lender's right of recourse against
Borrower, as provided herein and in the Loan Agreement and in the other Loan
Documents, which right is hereby expressly reserved. The failure to assert any
right by Lender shall not be deemed a waiver thereof.
Borrower agrees to pay all costs, fees and expenses of collection,
including, without limitation, Lender's reasonable attorneys' fees and
disbursements, in the event that any action, suit or proceeding is brought by
the holder hereof to collect this Note or if an Event of Default occurs.
THIS NOTE IS DEEMED TO HAVE BEEN MADE IN, AND SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF, THE STATE OF ARIZONA. BORROWER IRREVOCABLY CONSENTS
THAT ANY LEGAL ACTION OR PROCEEDING AGAINST BORROWER UNDER, ARISING OUT OF, OR
IN ANY MANNER RELATING TO THIS NOTE, THE LOAN AGREEMENT OR THE OTHER LOAN
DOCUMENTS MAY BE BROUGHT IN ANY STATE COURT OF THE STATE OF ARIZONA LOCATED IN
MARICOPA COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
ARIZONA. BORROWER, BY ITS EXECUTION AND DELIVERY OF THIS NOTE, EXPRESSLY AND
IRREVOCABLY CONSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH
COURTS IN ANY SUCH ACTION OR PROCEEDING. BORROWER FURTHER AGREES THAT ANY LEGAL
ACTION OR PROCEEDING BORROWER MAY BRING, ARISING OUT OF OR IN ANY MANNER
RELATING TO THIS NOTE, THE LOAN AGREEMENT OR THE OTHER LOAN DOCUMENTS, SHALL
ONLY BE BROUGHT IN ANY STATE COURT OF THE STATE OF ARIZONA LOCATED IN MARICOPA
COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA.
BORROWER ALSO IRREVOCABLY CONSENTS TO THE SERVICE OF ANY COMPLAINT, SUMMONS,
NOTICE OR OTHER PROCESS RELATING TO SUCH ACTION OR PROCEEDING BY DELIVERY
THEREOF TO BORROWER IN THE MANNER PROVIDED FOR NOTICES IN THE LOAN AGREEMENT.
BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY CLAIM OR DEFENSE IN ANY
SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL JURISDICTION,
IMPROPER VENUE OR FORUM NON CONVENIENS OR ANY SIMILAR BASIS. BORROWER SHALL NOT
BE ENTITLED IN ANY SUCH ACTION OR PROCEEDING TO ASSERT ANY DEFENSE GIVEN OR
ALLOWED UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF ARIZONA, UNLESS SUCH
DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE OF ARIZONA. NOTHING
HEREIN SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY EXTENT THE RIGHT OF LENDER
TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWER IN ANY OTHER
JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
IN WITNESS WHEREOF, Borrower has duly executed this Note on the date first
above written.
NETCO ACQUISITION CORP.
By:________________________________
Title:______________________________
Federal Tax Identification No. 76-0562950
-2-
<PAGE>
EXHIBIT B
EQUIPMENT
See attached.
<PAGE>
EXHIBIT C
PREMISES
- -------------------------------------------------------------------------------
ATLANTA SWITCH CHICAGO SWITCH
- -------------- --------------
3525 Piedmont NE 600 S. Federal
Bldg. 8, Suite 120 Suite 404
Atlanta, Georgia 30305 Chicago, Illinois 60605
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DALLAS SWITCH HOUSTON SWITCH
- ------------- --------------
13601 Preston Rd. 500 S. Dallas
Bldg. A Suite L-50
Dallas, Texas 75240 Houston, Texas 77002
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOS ANGELES SWITCH
KANSAS CITY SWITCH 700 S. Flowers
- ------------------
324 East 11th Street Suite 360
Kansas City, Missouri 64105 Los Angeles, California 90017
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NEW YORK SWITCH
MIAMI SWITCH 2 World Trade Center
8830 N.W. 18th Terrace Level B6
Miami, Florida 33172 New York, New York 10048
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SEATTLE SWITCH
11311 120th Avenue
Kirkland, Washington 98033
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: NETCO ACQUISITION CORP.
ADDRESS: EQUALNET PLAZA
1250 WOOD BRANCH PARK DRIVE
HOUSTON, TEXAS 77079-1212
DATE: MARCH , 1998
THIS SCHEDULE FORMS AN INTEGRAL PART OF THE LOAN AND SECURITY AGREEMENT BETWEEN
THE ABOVE BORROWER AND FINOVA CAPITAL CORPORATION DATED THE ABOVE DATE, AND ALL
REFERENCES HEREIN AND THEREIN TO "THIS AGREEMENT" SHALL BE DEEMED TO REFER TO
SAID AGREEMENT AND TO THIS SCHEDULE (AS EACH OF THE SAME MAY BE AMENDED,
MODIFIED OR SUPPLEMENTED FROM TIME TO TIME.)
ADDITIONAL DEFINITIONS (SECTION 1.1):
"CORPORATE GUARANTOR(S)" MEANS EQUALNET HOLDING AND EQUALNET CORPORATION.
"GUARANTOR(S)" MEANS THE CORPORATE GUARANTORS AND THE INDIVIDUAL
GUARANTORS.
"INDIVIDUAL GUARANTOR" MEANS MICHAEL T. WILLIS.
"INTEREST RATE" MEANS THE INDEX RATE PLUS SIX AND FORTY-TWO HUNDREDTHS
PERCENT (6.42%)T. THE "INDEX RATE" SHALL BE THE HIGHEST YIELD, AS
PUBLISHED IN THE WALL STREET JOURNAL, on the first (1st) Business Day
preceding the Disbursement Date, for Treasury Notes having a maturity date
on or closest to the Maturity Date. Interest shall be calculated on the
basis of a year of 360 days and twelve months of thirty (30) days each and
charged on a daily basis.
ALEASE@ means that certain Switches and Network Lease Agreement by and
between Borrower and EqualNet Corporation dated March , 1998 as may be
amended, modified or extended.
"MATURITY DATE" means the date upon which the thirty-sixth (36th)
consecutive monthly payment of principal and interest is due.
"OUTSIDE DATE" means March 30, 1998.
THE LOAN (SECTION 2.1):
"PRINCIPAL AMOUNT OF THE LOAN: $6,050,000
<PAGE>
USE OF PROCEEDS (SECTION 2.2):
THE PROCEEDS OF THE LOAN SHALL BE USED BY BORROWER SOLELY TO PAY TO WILLIS
GROUP THE COST OF THE PURCHASE OF THE EQUIPMENT UNDER THE SWITCH AGREEMENT
AND TO PAY CERTAIN SALES TAXES WITH RESPECT THERETO.
PAYMENTS OF PRINCIPAL AND INTEREST (SECTION 2.7.2):
THE LOAN, TOGETHER WITH INTEREST THEREON AT THE INTEREST RATE, SHALL BE
REPAID IN THIRTY-SIX (36) EQUAL CONSECUTIVE MONTHLY PAYMENTS CONSISTING OF
(A) PRINCIPAL AND INTEREST CALCULATED AT THE INTEREST RATE EACH IN AN
AMOUNT WHICH WILL FULLY AMORTIZE SEVENTY PERCENT (70%) OF THE LOAN AT THE
INTEREST RATE OVER THE TERM PLUS (B) INTEREST ON THIRTY PERCENT (30%) OF
THE LOAN CALCULATED AT THE INTEREST RATE. THE REMAINING UNPAID PRINCIPAL
BALANCE OF THE LOAN, PLUS ALL ACCRUED AND UNPAID INTEREST ON THE LOAN
CALCULATED AT THE INTEREST RATE SHALL BE PAYABLE WITH THE THIRTY-SIXTH
(36TH) PAYMENT ON THE MATURITY DATE. THE FIRST SUCH MONTHLY PAYMENT OF
PRINCIPAL AND INTEREST SHALL BE DUE AND PAYABLE ON THE THIRTIETH (30TH)
DAY OF THE MONTH IMMEDIATELY SUCCEEDING THE DISBURSEMENT DATE AND THE
PAYMENTS SHALL CONTINUE ON A LIKE DAY IN EACH AND EVERY MONTH THEREAFTER
THROUGH AND INCLUDING THE MATURITY DATE; PROVIDED THAT IF THE DISBURSEMENT
DATE IS NOT THE THIRTIETH (30TH) DAY OF THE MONTH, BORROWER SHALL PAY, ON
THE THIRTIETH (30TH) DAY OF THE MONTH IN WHICH THE DISBURSEMENT DATE
OCCURS, INTEREST ONLY, AT THE INTEREST RATE, FROM THE DISBURSEMENT DATE TO
THE THIRTIETH (30TH) DAY OF THE MONTH IN WHICH THE DISBURSEMENT DATE
OCCURS. LENDER SHALL COMPUTE THE AMOUNT OF EACH PAYMENT AND ADVISE
BORROWER OF SUCH AMOUNT. THE ENTIRE UNPAID PRINCIPAL BALANCE WHICH WAS NOT
PAYABLE EARLIER, WHETHER DUE TO REGULARLY SCHEDULED PAYMENTS, ACCELERATION
OR OTHERWISE, TOGETHER WITH ANY UNPAID INTEREST, FEES, COSTS AND CHARGES
SHALL BE DUE AND PAYABLE ON THE MATURITY DATE. AFTER THE MATURITY OF ALL
OR ANY PART OF THE LOAN (BY ACCELERATION OR OTHERWISE), INTEREST ON THE
LOAN OR SUCH PART THEREOF SHALL BE DUE AND PAYABLE AT THE DEFAULT RATE ON
DEMAND. CONTEMPORANEOUSLY HEREWITH, LENDER WILL DELIVER TO BORROWER AN
AMORTIZATION SCHEDULE.
PREPAYMENTS (SECTION 2.8):
BORROWER MAY NOT PREPAY THE LOAN, IN WHOLE OR IN PART, PRIOR TO THE FIRST
REGULARLY SCHEDULED PAYMENT DATE OCCURRING AFTER THE EIGHTEENTH (18TH)
MONTH ANNIVERSARY OF THE DISBURSEMENT DATE. BORROWER SHALL HAVE THE RIGHT,
UPON NOT LESS THAN TEN (10) DAYS PRIOR WRITTEN NOTICE TO LENDER, ON ANY
REGULARLY SCHEDULED PAYMENT DATE OCCURRING AFTER THE 18TH MONTH
ANNIVERSARY OF THE DISBURSEMENT DATE (SUBJECT TO THE FOLLOWING TERMS AND
CONDITIONS), TO PREPAY THE OUTSTANDING PRINCIPAL BALANCE OF THE LOAN IN
WHOLE, BUT NOT IN PART, PROVIDED THAT BORROWER SHALL PAY TO LENDER,
TOGETHER WITH THE PRINCIPAL BALANCE OF THE LOAN, (I) ALL ACCRUED AND
UNPAID INTEREST ON THE AMOUNT PREPAID THROUGH THE DATE OF PREPAYMENT, (II)
ALL OUTSTANDING FEES, CHARGES AND OTHER AMOUNTS THEN DUE UNDER THE LOAN
DOCUMENTS, AND (III) A PREPAYMENT FEE IN AN AMOUNT EQUAL TO THE PRODUCT OF
(A) THE OUTSTANDING PRINCIPAL BALANCE OF THE LOAN AT THE TIME OF
PREPAYMENT, TIMES (B) IF PREPAYMENT OCCURS (I) AFTER THE 18TH MONTH BUT
PRIOR TO THE 25TH MONTH ANNIVERSARY OF THE DISBURSEMENT DATE THEN 5%; (II)
ON OR AFTER THE 25TH MONTH BUT PRIOR TO THE 31TH MONTH ANNIVERSARY OF THE
DISBURSEMENT DATE THEN 2%; (III) ON OR AFTER THE 31TH MONTH BUT PRIOR TO
THE 36TH MONTH ANNIVERSARY OF THE DISBURSEMENT DATE THEN 1.25%. ONCE
GIVEN, THE NOTICE OF PREPAYMENT SHALL BE IRREVOCABLE. ANY ACCELERATION OF
THE LOAN AS A CONSEQUENCE OF THE OCCURRENCE OF AN EVENT OF DEFAULT SHALL
BE PRESUMED TO BE A MECHANISM TO AVOID THE REQUIREMENTS OF THIS PROVISION
AND SHALL BE DEEMED A PREPAYMENT AND SUBJECT TO THE APPROPRIATE PREPAYMENT
PREMIUM SET FORTH ABOVE, IN ADDITION TO ALL DAMAGES AND OTHER AMOUNTS
OTHERWISE DUE UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. IF THE
LOAN IS ACCELERATED PRIOR TO THE DATE UPON WHICH PREPAYMENT IS PERMITTED
TO BE MADE HEREUNDER, THE APPLICABLE PERCENTAGE SHALL BE 5%.
ADDITIONAL CONDITIONS (SECTION 4.9.5):
THE OBLIGATION OF LENDER TO MAKE THE LOAN HEREUNDER IS SUBJECT TO THE
FULFILLMENT, TO THE SATISFACTION OF LENDER AND ITS COUNSEL, OF EACH OF THE
FOLLOWING CONDITIONS, IN ADDITION TO THE OTHER CONDITIONS SET FORTH IN
ARTICLE 4 ABOVE:
(A) THERE SHALL HAVE BEEN NO MATERIAL ADVERSE CHANGE IN THE BUSINESS,
OPERATIONS OR FINANCIAL CONDITION OF BORROWER OR ANY GUARANTOR OR IN
THE COLLATERAL SINCE DECEMBER 31, 1997.
(B) ADDITIONAL CONDITIONS:
(I) LETTER OF CREDIT. Borrower shall have delivered to Lender, an
Irrevocable Standby Letter of Credit in the face amount of
$2,117,500, issued by a bank satisfactory to Lender,
designating Lender as beneficiary, and otherwise in all
respects in form and substance satisfactory to Lender (the
ALetter of Credit@).
(ii) SWITCH ACQUISITION. Borrower shall have delivered to
Lender a true and correct copy of the Switch Agreement, and
all of the transactions contemplated by the Switch
Agreement shall have been fully consummated, including,
without limitation, the purchase by Borrower from Willis
Group of all of the Equipment for a purchase price of
$5,850,000 (plus $200,000 to be used solely for the payment
of sales taxes resulting from the Switch Acquisition), free
and clear of all Liens (the "Switch Acquisition"); and
Borrower shall have delivered to Lender evidence of the
foregoing satisfactory to Lender. Netco LLC shall have
contributed to the capital of Borrower all improvements and
upgrades to the Equipment which were financed by Netco LLC.
(iii) MERGER. Borrower shall have delivered to Lender a true and
correct copy of the Merger Agreement, and all of the
transactions contemplated by the Merger Agreement shall have
been fully consummated, including, without limitation, (A) EQ
Acquisition shall have merged with and into Borrower (the
"Merger"), and (B) not less than $1,500,000 of indebtedness of
Netco LLC to Willis Group and MCM (being the Additional
Working Capital Loans and the Working Capital Loans defined in
the Merger Agreement) shall have been cancelled and converted
into common stock of EqualNet Holding; and Borrower shall have
delivered to Lender evidence of the foregoing satisfactory to
Lender.
(iv) STOCK PURCHASE AGREEMENT. All of the transactions contemplated
by the Stock Purchase Agreement shall be simultaneously
consummated, including, without limitation, the purchase by
Willis Group of common stock of EqualNet Holding for a cash
purchase price of not less than $4,000,000; and Borrower shall
have delivered to Lender evidence of the foregoing
satisfactory to Lender.
(v) ADDITIONAL CONVERSION. Not less than $1,000,000 of additional
outstanding notes of EqualNet Holding Corp. to the Willis
Group shall have been cancelled and converted into shares of
common stock of EqualNet Holding; and Borrower shall have
delivered to Lender evidence thereof satisfactory to Lender.
(vi) CONSUMMATION OF OTHER TRANSACTIONS. All other Transactions
(under and as defined in EqualNet Holding=s Proxy Statement
dated February 17, 1998 (the AProxy Statement@)) shall have
been approved by the requisite number of shareholders of
EqualNet Holding and such Transactions shall have been
consummated in accordance with the terms of the Proxy
Statement.
(vii) ASSIGNMENT OF LEASE. Borrower shall execute and deliver an
Assignment of Lease (in form and substance acceptable to
Lender) pursuant to which Borrower assigns all of its right,
title and interest in and to the Lease to Lender and the
Lessee thereunder covenants and agrees that its interest under
the Lease (and the Equipment subject thereto) is subject and
subordinate to the interests of Lender hereunder.
ORGANIZATION AND QUALIFICATION (SECTION 5.1):
Borrower:
State of Organization, etc.: Delaware
States of Qualification, etc.: Texas
Corporate Guarantors:
EqualNet Holding.:
State of Organization, etc. Texas
States of Qualification, etc.: Texas
EqualNet Corporation:
State of Organization, etc. Delaware
States of Qualification, etc.: Delaware
Georgia
Illinois
Texas
Missouri
California
Florida
New York
Washington
LITIGATION (SECTION 5.8): See Exhibit 5.8 attached hereto.
<PAGE>
NAMES (SECTION 6.12): None
NOTICES (SECTION 9.9.1)
Address of Notices to Borrower:
Netco Acquisition Corp.
c/o EqualNet Holding Corp.
EqualNet Plaza
1250 Wood Branch Park Drive
Houston, Texas 77079-1212
Facsimile No. 281-529-4686
Attention: General Counsel
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed and delivered this Schedule effective as of the day
and year first above written.
NETCO ACQUISITION CORP.
By:________________________________
Title:______________________________
Federal Tax Identification No. 76-0562950
FINOVA CAPITAL CORPORATION
By: ________________________________
Title:______________________________
EXCHANGE AGREEMENT
EQUALNET HOLDING CORP.
EQUALNET CORPORATION
TELESOURCE, INC.
EQUALNET WHOLESALE SERVICES, INC.
EQUALNET PLAZA
1250 WOOD BRANCH PARK DRIVE
HOUSTON, TX 77079-1212
March 6, 1998
The Furst Group, Inc.
459 Oakshade Road
Shamong, NJ 08088
Re: Exchange of $3,000,000 10% Notes due December 31, 1998
and Warrants for the Purchase of 1,500,000 Shares of Common
STOCK FOR 3,000 SHARES OF SERIES B CONVERTIBLE PREFERRED STOCK
Gentlemen:
The Furst Group, Inc., a New Jersey corporation ("FURST"), is the
holder of $3,000,000 principal amount of 10% Notes due December 31, 1998 (the
"NOTES") of EqualNet Holding Corp., a Texas corporation (the "COMPANY"), and its
subsidiaries, EqualNet Corporation, a Delaware corporation ("EQUALNET
SUBSIDIARY"), TeleSource Inc., a Texas corporation ("TELESOURCE"), and EqualNet
Wholesale Services, Inc., a Delaware corporation ("WHOLESALE") (each of the
Company, EqualNet Subsidiary, TeleSource and Wholesale are referred to herein
individually as an "EQUALNET COMPANY" and collectively as the "EQUALNET
-1-
<PAGE>
COMPANIES"), and Warrants for Purchase of Common Stock (the "WARRANTS") relating
to the purchase of 1,500,000 shares, as adjusted from time to time pursuant to
the terms of the Warrants, of common stock, par value $.01 per share (the
"COMMON STOCK"), of the Company. The EqualNet Companies have requested that
Furst exchange the Notes and the Warrants for shares of preferred stock of the
Company as described herein, and to induce Furst to effect such exchange, hereby
agree with Furst as follows:
ARTICLE 1.
EXCHANGE AND TERMS OF SERIES B PREFERRED STOCK
a. SERIES B PREFERRED STOCK. The Company shall authorize the
issuance and sale to Furst of 3,000 shares of Series B Senior Convertible
Preferred Stock ("SERIES B PREFERRED STOCK") of the Company. The Series B
Preferred Stock shall have the terms set forth in EXHIBIT A attached hereto.
b. EXCHANGE OF NOTES AND WARRANTS FOR SERIES B PREFERRED STOCK. The
Company shall issue and sell to Furst the Series B Preferred Stock, and, subject
to and in reliance upon the representations, warranties, terms and conditions of
this Agreement, Furst shall purchase the Series B Preferred Stock by
surrendering in exchange therefor the Notes and the Warrants. Such exchange
shall take place at a closing (the "CLOSING") to be held on March 6, 1998 at
10:00 a.m. or on such other date and at such time as may be mutually agreed upon
(the "CLOSING DATE"). At the Closing, the Company will issue and deliver the
Series B Preferred Stock in denominations designated by Furst and registered in
the name of Furst against delivery to the Company of the Notes and the Warrants.
c. CANCELLATION OF NOTES AND WARRANTS. The EqualNet Companies will
cancel the Notes and Warrants delivered by Furst pursuant hereto.
d. ISSUANCE OF COMMON STOCK. In connection with the exchange, the
Company shall issue to Furst 322,500 shares of Common Stock of the Company
("Interest Common Stock") representing one share of Common Stock for each $1.00
of interest on the Notes due and payable to Furst on the date hereof. Furst
hereby agrees to accept such shares in lieu of interest payable in cash.
-2-
<PAGE>
ARTICLE 2.
CONDITIONS TO FURST'S OBLIGATION
The obligation of Furst to exchange the Notes and Warrants for
Series B Preferred Stock at the Closing is subject to the following conditions:
a. REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the EqualNet Companies set forth in Article 3 hereof shall be true
on the Closing Date.
b. DOCUMENTATION AT CLOSING. Furst shall have received all of the
following, each in form and substance satisfactory to Furst and its counsel:
(i) Copies of all charter documents and bylaws of the Company
and of resolutions of the Board of Directors of each EqualNet Company evidencing
approval of this Agreement and the issuance of the Series B Preferred Stock, all
certified by the Secretary or any Assistant Secretary of the Company;
(ii) An opinion of Fulbright & Jaworski L.L.P., counsel for
the EqualNet Companies, regarding the due authorization, execution and delivery
of this Agreement and the validity, binding effect and enforceability thereof,
and the due authorization, validity and fully paid and nonassessable status when
issued of the Series B Preferred Stock and the Common Stock to be issued upon
conversion of the Interest Common Stock, the Series B Preferred Stock (the
"Conversion Stock") and such other matters as Furst shall reasonably request;
(iii) Evidence of the filing with, and acceptance by, the
Secretary of State of the State of Texas, an amendment to the Company's charter
documents to reflect the authorization of the Series B Preferred Stock and the
increase in the number of authorized shares of Common Stock, such that there
will be a number of shares of Common Stock authorized sufficient to permit the
issuance of the Interest Common Stock and the conversion of the Series B
Preferred Stock;
(iv) A certificate of the Secretary or an Assistant Secretary
of each EqualNet Company that shall certify the names of the officers of such
EqualNet Company authorized to sign this Agreement and the certificate(s) for
the Interest Common Stock and the Series B Preferred Stock to which the Company
is a party together with the true signatures of such officers;
(v) If this Agreement is executed and delivered on a date
other than the Closing Date, a certificate of each EqualNet Company signed by a
duly authorized officer of such EqualNet Company stating that the
representations and warranties of the EqualNet Companies contained in Article 3
hereof are true and correct;
-3-
<PAGE>
(vi) A binding payment agreement between the Company and AT&T
providing, among other things, that at no time will the Company be obligated to
pay AT&T more than is called for in the payment schedule attached hereto as
EXHIBIT B attached hereto; and
(vii) A certificate of the Company stating that the Proposed
Transactions (as hereinafter defined) have been consummated as described in the
Proxy Statement (as hereinafter defined).
c. PERFORMANCE; NO DEFAULT. The Company shall have performed and
complied with all agreements and conditions contained in this Agreement required
to be performed or complied with by the Company prior to or at the Closing.
d. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be satisfactory to
Furst and its counsel, and Furst and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as they may
reasonably request.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES AND AGREEMENTS
OF THE EQUALNET COMPANIES
The EqualNet Companies, jointly and severally, represent and warrant
to, and (in the case of Section 3.q. agree with), Furst that:
a. ORGANIZATION AND STANDING OF THE COMPANY. Each EqualNet Company
is a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation and has all requisite corporate power and
authority to own and operate its properties, to carry on its business as now
conducted and to enter into and, as applicable, perform its obligations
hereunder. Each EqualNet Company is qualified to do business and is in good
standing in each jurisdiction in which it is required to so qualify and where
the failure to be so qualified would have a material adverse effect on the
business, assets, financial condition or results of operations of the Company or
the EqualNet Companies taken as a whole (a "MATERIAL ADVERSE EFFECT").
b. CORPORATE ACTION. Each EqualNet Company has taken all corporate
action required to make this Agreement valid and enforceable (including approval
of holders of outstanding Series A Preferred Stock (as hereinafter defined) of
the Company).
c. VALIDITY OF DOCUMENTS. This Agreement has been duly authorized
and executed by each EqualNet Company and constitutes a valid and legally
binding obligation of
-4-
<PAGE>
each EqualNet Company, enforceable in accordance with its terms. The Interest
Common Stock and the Series B Preferred Stock when issued as contemplated by
this Agreement will be validly issued, fully paid and nonassessable. At Closing,
a sufficient number of shares of duly authorized and unissued Common Stock of
the Company will have been reserved for issuance upon conversion of the Series B
Preferred Stock, and no further corporate action is required for the valid
issuance of the Conversion Stock upon the conversion of the Series B Preferred
Stock. The issuance of the Conversion Stock in accordance with the terms of the
Series B Preferred Stock will not, at the Closing and thereafter, be subject to
preemptive, antidilution or similar rights of any Person, and when issued and
delivered against payment therefor in accordance with the terms of the Series B
Preferred Stock, will be validly issued, fully paid and nonassessable.
d. CONSENTS. The execution and delivery by each EqualNet Company of
this Agreement and the performance of the transactions contemplated hereby (i)
do not and under present law will not violate, or require any consent or
approval pursuant to, any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award, (ii) do not violate any provision of
its certificate or articles of incorporation or bylaws, (iii) do not and will
not give rise to any lien upon any of its assets, except as otherwise
contemplated hereby, and (iv) do not violate any provision of, or cause a
default under, any material agreement, lease, instrument or other contract to
which it is a party.
e. CAPITALIZATION; STATUS OF CAPITAL STOCK. Upon consummation of the
actions and transactions (the "Proposed Transactions") described in the Proxy
Statement of the Company dated February 17, 1998 (the "Proxy Statement") and the
filing of the amendment to the Company's charter described therein, the Company
will have authorized capitalization consisting of (i) 50,000,000 shares of
Common Stock, par value $.01 per share, of which 16,637,737 will be outstanding
and 1,850,000 will be reserved for issuance upon exercise of outstanding stock
options and warrants and (ii) 5,000,000 shares of Preferred Stock, par value
$.01 per share, of which 5,000 shares of Series A Convertible Preferred Stock
("Series A Preferred Stock") will be issued and outstanding. All of the
outstanding shares of Common Stock of the Company have been, and all of the
shares of Common Stock to be issued pursuant to the Proposed Transactions will
be, when issued, duly authorized, validly issued and fully paid and
nonassessable. Except as set forth in the Proxy Statement, as disclosed to Furst
in writing or as set forth in this Agreement, no options or rights to purchase
shares of capital stock, or securities convertible into shares of capital stock,
are authorized, issued or outstanding, nor is the Company obligated in any other
manner to issue shares of its capital stock or securities convertible into or
evidencing any right to acquire shares of its capital stock. There are no
restrictions on the transfer of shares of Interest Common Stock or Conversion
Stock, other than those imposed by relevant state and federal securities laws.
f. PRIVATE OFFERING. Based on and assuming the accuracy of the
representations of Furst set forth in Section 5.b. hereof, the issuance of the
Interest Common Stock and the exchange pursuant to the terms of this Agreement
of the Notes and the Warrants
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for Series B Preferred Stock, are exempt from registration under the Securities
Act of 1933, as amended (the "SECURITIES ACT").
g. TITLE TO ASSETS. Each of the EqualNet Companies has good title to
all of its material properties and assets, free and clear of all material liens
and encumbrances, other than liens and encumbrances described in the Proxy
Statement, the SEC filings (as hereinafter defined) and Section 3.q. of this
Agreement.
h. INSURANCE. Each of the EqualNet Companies maintains with
financially sound and reputable insurers, risk of physical loss or damage
insurance covering its assets wherever the same may be located, insuring against
the risk of fire, explosion, theft and such other risks as are prudently insured
against by corporations engaged in the same business and similarly situated with
the EqualNet Companies in an amount usually carried by corporations engaged in
the same business and similarly situated with the Companies.
i. FINANCIAL STATEMENTS. The Company's consolidated financial
statements, set forth in the Company's Annual Report on Form 10-K for its latest
fiscal year ended, consisting of balance sheets and statements of operations and
cash flows and accompanying footnotes, certified by the Company's independent
accountants, and the interim financial statements, set forth in the Company's
Quarterly Report on Form 10-Q filed after such Form 10-K, as filed with the
Securities and Exchange Commission (the "SEC FILINGS"), fairly present, in all
material respects, the financial condition and results of operations of the
Company and its subsidiaries as of the dates and for the periods presented
therein, all in accordance with generally accepted accounting principles
consistently applied ("GAAP"). Except as set forth in the Proxy Statement, (i)
there are no liabilities, fixed or contingent, which are material but not
reflected in such financial statements other than liabilities arising in the
ordinary course of business since the date of the interim financial statements
and (ii) there has been no material adverse change in the business, financial
condition or operations of the Company since December 31, 1997.
j. BOOKS AND RECORDS. The books and records of the EqualNet
Companies accurately reflect in all material respects the transactions to which
any EqualNet Company is a party or by which its properties are subject or bound,
and such books and records have been properly kept and maintained in all
material respects.
k. ACCOUNTING CONTROLS. The EqualNet Companies maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general and specific
authorization, (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP and to maintain accountability
for assets, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
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l. NO LITIGATION. Except as disclosed in the SEC Filings filed prior
to the date of this Agreement or otherwise disclosed in writing to Furst, no
EqualNet Company is now engaged in or threatened in writing with any litigation
or other proceeding in connection with its affairs which would or could
reasonably be expected to have a Material Adverse Effect.
m. Intentionally omitted.
n. DISCLOSURE GENERALLY. The representations and statements made by
the EqualNet Companies in this Agreement and the information contained in the
Proxy Statement do not and will not contain any untrue statement of a material
fact or, taken collectively, omit to state a material fact or any fact necessary
to make the representations and statements made not materially misleading. No
written information, exhibit, report or financial statement furnished by the
EqualNet Companies to Furst in connection with this Agreement, including the
Proxy Statement, contains or will contain any material misstatement of fact or,
taken collectively, omit to state a material fact or any fact necessary to make
the statements contained therein not materially misleading.
o. REGISTRATION RIGHTS. Except as disclosed in the SEC filings or
the Proxy Statement, (i) no person has rights to the registration of any
securities of the Company or any subsidiary and (ii) neither the Company nor any
of its subsidiaries will have any liability for any rights of any person for the
registration of any securities of the Company.
p. Intentionally omitted.
q. WILLIS TRANSACTIONS.
(i) Neither the Company nor any subsidiary or affiliate
thereof has granted, or will at any time grant, to any party providing financing
as part of the Proposed Transactions any security interest in any assets of the
Company or any subsidiary of the Company other than the Switches (as defined in
the Proxy Statement), to secure obligations incurred as part of the Proposed
Transactions.
(ii) For so long as the Series B Preferred Stock is
outstanding, without the prior written consent of Furst, neither the Company nor
any subsidiary of the Company will grant any security interest to Willis Group
LLC or any subsidiary or affiliate thereof in any assets of the Company or any
subsidiary of the Company.
(iii) The amount of the investment of the Willis Group LLC
relating to the Switches to be purchased by the Company is in all material
respects as set forth in the Proxy Statement.
(iv) The investment of the Willis Group LLC in the Company
includes at least $4,000,000 in cash.
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(v) The cash invested in the Company by the Willis Group LLC
will be used by the Company for the purposes set forth in the Proxy Statement in
all material respects. The financing for the Switches is to be provided by
Finova.
ARTICLE 4.
COVENANTS
a. LISTING ON NASDAQ NATIONAL MARKET. The Company agrees to promptly
have the shares of Interest Common Stock and any shares of Conversion Stock that
are issued upon conversion of the Series B Preferred Stock approved for
quotation on the Nasdaq National Market or such other primary market or trading
system on which the Common Stock then trades.
b. SPRINT AGREEMENT. The EqualNet Companies shall pay all amounts
due to Sprint no more than 45 days from the date of any future Sprint invoice to
any EqualNet Company, for so long as any EqualNet Company is provided service
under a partition under Furst's contract with Sprint. Furst shall, after the
date of the Closing, be allowed to mark up its cost of Sprint services to any
EqualNet Company by five percent (5%). If Furst receives price reductions from
Sprint, Furst shall keep the first five percent (5%) of any such reductions in
the costs of long distance service purchased from Sprint by the Company for all
bills rendered by Sprint to the Company after the Closing. Any additional cost
savings above such five percent (5%) reduction shall be shared equally by Furst
and the Company. Furst shall maintain similar rights to those it currently has
under the Receivables Funding Corporation agreement in the event the EqualNet
Companies should fail to make payments directly to Sprint within such 45 day
period and may make payments directly to Sprint from such proceeds prior to
distributing any excess to the EqualNet Companies. Furst agrees to cooperate
fully with the Company and any lender the Company may select in the event the
Company decides to replace Receivables Funding Corporation as its first lien
funding source, to place any such substitute lender in a superior lien position
with respect to Furst and to retain Furst's rights concerning Sprint payments
similar to those currently in place under the Receivables Funding Corporation
agreement.
c. REPURCHASE OF SERIES B PREFERRED STOCK. In the event of any
material breach by any EqualNet Company of any of the representations and
warranties or covenants set forth in Section 3.q. hereof, the EqualNet Companies
hereby jointly and severally agree with Furst to repurchase the Series B
Preferred Stock from Furst at a price of $1,000 per share, payable in cash, on a
date designated by Furst upon not less than 10 days' prior written notice to the
Company.
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ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
AND COVENANTS OF FURST
Furst represents and warrants to the EqualNet Companies and
covenants and agrees with the EqualNet Companies as follows:
a. AUTHORIZATION. This Agreement constitutes a valid and legally
binding obligation of Furst enforceable in accordance with its terms.
b. INVESTMENT REPRESENTATIONS; TRANSFER.
(i) The Series B Preferred Stock is being acquired by Furst
for investment for its own account, and not with a view to the sale or
distribution of any part thereof or of the Conversion Stock or Interest Common
Stock, and it has no present intention of selling, granting participation in, or
otherwise distributing the same except for distributions that are exempt from
the registration requirements of applicable securities laws (other than any
notice provisions thereof) or pursuant to a registered offering.
(ii) Furst understands that the Interest Common Stock, the
Series B Preferred Stock and the Conversion Stock have not been registered under
the Securities Act on the basis that the offer and sale thereof as provided for
in this Agreement and the issuance of the Interest Common Stock and the
Conversion Stock are exempt from registration under the Securities Act pursuant
to Section 4(2) thereof, and that the Company's reliance on such exemption is
predicated on Furst's representations set forth herein.
(iii) Furst is an "accredited investor" within the meaning of
Rule 501 of Regulation D promulgated under the Securities Act, is experienced in
evaluating investments in companies such as the Company, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment and has the ability to bear the entire
economic risk of its investment. Furst has made its own evaluation of its
investment in the Interest Common Stock and the Series B Preferred Stock, based
upon such information as is available to it and without reliance upon the
Company or any other person or entity, and Furst agrees that neither the Company
nor any other person or entity has any obligation to furnish any additional
information to Furst except as expressly set forth herein.
(iv) Furst understands that the Interest Common Stock, the
Series B Preferred Stock and the Conversion Stock may not be sold, transferred,
pledged, hypothecated or otherwise disposed of without registration under the
Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering the Interest Common Stock, the Series
B Preferred Stock or the Conversion Stock or an available exemption from
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registration under the Securities Act, the Interest Common Stock, the Series B
Preferred Stock and the Conversion Stock must be held indefinitely.
c. LEGENDS; STOP TRANSFER. Furst agrees that all Interest Common
Stock, Series B Preferred Stock and Conversion Stock shall bear legends in
substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
THE SECURITIES LAWS OF ANY OTHER STATE. THE SECURITIES REPRESENTED
HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR
OFFERED FOR SALE OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN
OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED."
ARTICLE 6.
REGISTRATION RIGHTS
a. As promptly as practicable after the Closing Date, if requested
by Furst, the Company will file a registration statement (the "SHELF
REGISTRATION") with the Commission under the Securities Act permitting the
disposition of the Interest Common Stock and the Conversion Stock ("Registrable
Stock") in accordance with the intended methods thereof as specified in writing
by Furst. The Company will use its commercially reasonable efforts to have the
Shelf Registration declared effective by the Commission as soon as practicable
after the filing date and to at all times maintain the effectiveness thereof.
The holders of Series B Preferred Stock (the "Holders") representing (assuming
conversion of all Series B Preferred Stock) more than 50% of the Registrable
Stock ("MAJORITY HOLDERS") may, at any time, request that the Company supplement
or amend the Shelf Registration to effect an underwritten offering of the
Registrable Stock by one or more underwriters selected by the Majority Holders;
provided that the Majority Holders may make such request only a total of three
(3) times. The Company will as promptly as practicable supplement or amend such
Shelf Registration to the extent required to permit the disposition in
accordance with such request and use its commercially reasonable efforts to have
the amendment declared effective by the SEC as soon as practicable after the
filing date. The Company shall enter into an underwriting agreement in customary
form used by such underwriter or underwriters, which shall include, among other
provisions, contribution and indemnities of the Company and the Holders party
thereto to the effect and to the extent provided in this Article 6. The Holders
whose Registrable Stock is to be distributed by such underwriters shall be
parties to such underwriting agreement. No Holder may participate in such
underwritten
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offering unless such Holder agrees to sell its Registrable Stock on the basis
provided in such underwriting agreement and completes and executes all
questionnaires, powers of attorney, indemnities and other documents reasonably
required under the terms of such underwriting agreement. The obligations of the
Company under this Article 6 (i) shall terminate on the earlier to occur of (A)
the third anniversary of the date of this Agreement and (B) at such time as all
Holders may transfer, without restriction whatsoever, all of the Registrable
Stock held by them or issuable to them upon conversion of the Series B Preferred
Stock held by them, pursuant to Rule 144(k) promulgated under the Securities
Act.
b. At any time that the Shelf Registration is not available for any
reason or not required pursuant to Section 6.a., upon written notice
("REGISTRATION NOTICE") from the Majority Holders to the Company requesting that
the Company effect the registration under the Securities Act of at least 15% of
the Registrable Stock or any lesser percentage so long as the anticipated
proceeds from such offering exceed $500,000, which Registration Notice shall
specify the intended method or methods of disposition of such Registrable Stock,
the Company shall use its commercially reasonable efforts to effect (at the
earliest practicable date) the registration under the Securities Act of such
Registrable Stock (each, a "DEMAND REGISTRATION") for disposition in accordance
with the intended method or methods of disposition stated in such Registration
Notice; PROVIDED that a Holder shall have the right to deliver Registration
Notices to effect three (3) demand registrations pursuant to this Section 6.b.
and no more without regard to the number of underwritten offerings requested
pursuant to Section 6.a. hereof.
c. Whenever the Company proposes to file a Registration Statement
with the Commission pursuant to the Securities Act in connection with a public
offering by the Company of its Common Stock, whether for the Company's own
account or for the account of others, other than a Registration Statement on
Form S-4 or Form S-8 or any successor forms thereto (a "PIGGYBACK
REGISTRATION"), the Company will give prompt written notice to all Holders and
will include in such Piggyback Registration all Registrable Stock with respect
to which the Company has received written requests for inclusion within 20 days
after the Company's mailing of such notice; provided that if the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in such offering, at a price reasonably related to fair value, the
Company will allocate the securities to be included first to the Company, then
on a pro rata basis among the Holders and any other person with registration
rights not subordinated to those of the Holders.
d. If the proposed filing of a Registration Statement of which the
Company gives notice pursuant to Section 6.c. hereof is for a registered public
offering involving an underwriting, the Company shall so advise the Holders as
part of the written notice given pursuant to Section 6.c. In such event, if a
Holder proposes to distribute Registrable Stock through such underwriting, such
Holder shall (together with the Company and the other holders of securities of
the Company distributing their securities through such underwriting) enter into
an underwriting agreement in such form as shall have been negotiated and agreed
to by the Company with the underwriter or underwriters selected for such
underwriting by the Company.
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The Company will give the Holders notice (the "Pricing Notice") of the
anticipated range of the public offering price not later than two weeks prior to
the anticipated effective date of any Registration Statement which includes
Registrable Stock to be sold for the account of a Holder. A Holder may in its
discretion withdraw any time prior to five days after receipt of the Pricing
Notice, but may not thereafter withdraw any Registrable Stock, unless the public
offering price is below the lowest price in the range of anticipated public
offering prices specified in the Pricing Notice. In order to facilitate the
execution of the underwriting agreement and the closing thereunder, a Holder
will, at the request of the managing underwriter, enter into a custody agreement
and power of attorney consistent with the preceding sentence.
e. Notwithstanding the foregoing, if, at any time after giving
written notice of its proposal to file a Registration Statement pursuant to
Section 6.c. hereof and prior to the effective date of such Registration
Statement, the Company shall determine for any reason not to register the
securities proposed to be covered thereby, the Company may, at its election,
give written notice of such determination to the Holders and upon the withdrawal
of such Registration Statement shall have no further obligation to register any
Registrable Stock held by the Holders in connection with such registration. In
the event of such withdrawal by the Company, the Company shall promptly
reimburse the Holders for the reasonable fees and expenses of their own legal
counsel and other reasonable expenses incurred in connection with such
registration.
f. Subject to subsection 6.g(ii) below, in connection with any
registration effected hereunder, the Company shall bear all expenses incurred by
it in connection therewith and in connection with the related distribution,
which shall include, without limitation, the following costs and expenses: (i)
printing and engraving costs; (ii) transfer agent's and registrar's fees; (iii)
legal and accounting fees and expenses (provided that such expenses shall
include only one counsel for all selling Holders); (iv) registration and filing
fees with the Commission and any other regulatory or self-regulatory agencies or
bodies; and (v) reasonable costs of investigation of matters subject to
disclosure in the Registration Statement, including the fees and appraisers or
other experts. Notwithstanding the foregoing, and subject to subsection 6.g(i)
below, in connection with any registration effected hereunder, a Holder shall
bear all of his own expenses, including, without limitation, any underwriting
commissions or discounts in respect of the sale of its Registrable Stock and the
legal fees of its own counsel.
g. In connection with any Registration Statement filed hereunder in
which the Holder participates as a selling stockholder, the following provisions
as to indemnification shall apply:
(i) The Company shall indemnify and hold harmless the Holders
against any losses, claims, damages or liabilities to which he may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any preliminary
prospectus, the prospectus or any amendment or supplement thereto, or arise out
of or are based
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upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they are made, not misleading; and the Company
will reimburse any legal or other expenses reasonably incurred by the Holders in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage,
liability, action or proceeding arises out of or is based upon any untrue
statement or alleged untrue statement, or upon any omission or alleged omission,
of any material fact contained in the Registration Statement, any preliminary
prospectus, the prospectus or any such amendment or supplement, to the extent
that such fact was included or omitted in reliance upon and in conformity with
information furnished to the Company by or through such Holder specifically for
use in the preparation thereof. This indemnity will be in addition to any
liability which the Company may otherwise have.
(ii) A Holder will indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the Registration
Statement and each person, if any, who controls the Company, within the meaning
of the Securities Act or otherwise, against any losses, claims, damages or
liabilities to which it may become subject under the Securities Act or otherwise
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any preliminary prospectus, the prospectus or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading; and a Holder will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that the Holder will be liable in each case under this
subsection 6.g(ii) to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any preliminary prospectus, the prospectus or any
such amendment or supplement in reliance upon and in conformity with information
furnished to the Company by or through such Holder specifically for use in the
preparation thereof. This indemnity will be in addition to any liability which
the Holder may otherwise have.
(iii) Promptly after receipt by an indemnified party pursuant
to the foregoing provisions of notice of the commencement of any action or
proceeding, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party hereunder, notify the indemnifying party of
the commencement thereof, provided that the omission to so notify the
indemnifying party will not relieve the indemnifying party from any liability
which it may have to any indemnified party under this Agreement or otherwise
unless such failure results in material prejudice to the indemnifying party. In
case any such action or proceeding is brought against any indemnified party, and
such party notifies an indemnifying
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party of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party or its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party hereunder for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that if
an indemnified party determines in good faith that it has existing or potential
claims against, or other conflicts with, the indemnifying party, the
indemnifying party may not assume the defense of such indemnified party but
shall remain liable for the separate legal and other expenses of such
indemnified party incurred in connection therewith. An indemnifying party shall
not be liable for any settlement of any action or claim affected without its
written consent thereto.
ARTICLE 7.
MISCELLANEOUS
a. COSTS, EXPENSES AND TAXES. The EqualNet Companies shall bear all
costs and expenses in connection with the preparation, execution and delivery of
this Agreement and the issuance of the Interest Common Stock, the Series B
Preferred Stock and the Conversion Stock. The EqualNet Companies shall pay any
and all stamp and other taxes payable or determined to be payable in connection
with the execution and delivery of this Agreement, the issuance of the Interest
Common Stock and the exchange of the Notes and the Warrants for the Series B
Preferred Stock.
b. LIMITATION ON LIABILITY; INDEMNIFICATION.
(i) Furst shall not have any liability to any EqualNet Company
for any matter arising under or relating in any manner to this Agreement unless
caused exclusively by the gross negligence or willful misconduct of Furst. To
the extent permitted by applicable law, in addition to the payment of costs and
expenses pursuant to Section 7.a. hereof, and irrespective of whether the
transactions contemplated hereby shall be consummated, the EqualNet Companies
agree to indemnify, exonerate, pay and hold Furst, and any holder of any
interest in the Interest Common Stock, the Series B Preferred Stock or the
Conversion Stock, and the officers, directors, employees and agents of Furst or
such holders (collectively, the "INDEMNITEES") harmless from and against any and
all liabilities, obligations, losses, damages, penalties, actions, causes of
action, judgments, suits, claims, costs, expenses, and disbursements of any kind
or nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding, irrespective of whether
such Indemnitee shall be designated a party thereto), which may be imposed on,
incurred by, or asserted against such Indemnitee, in any matter relating to or
arising
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out of this Agreement or in connection with any claim asserted against Furst by
any person or entity arising out of or in any way connected with this Agreement
(collectively, the "INDEMNIFIED LIABILITIES"); provided however, that the
EqualNet Companies shall have no obligation hereunder with respect to an
Indemnitee for any Indemnified Liabilities proximately caused by the gross
negligence or willful misconduct of such Indemnitee.
(ii) If for any reason the indemnification provided in
paragraph (i) is unavailable to any Indemnitee or insufficient to hold it
harmless as contemplated thereby then the EqualNet Companies shall contribute to
the amount paid or payable by the Indemnitee as a result of such loss, claim,
liability or expense in such proportion as is appropriate to reflect not only
the relative benefits received by the EqualNet Companies, on the one hand and
such Indemnitee on the other hand, but also the relative fault of the EqualNet
Companies and the Indemnitee, as well as any equitable considerations.
c. SURVIVAL OF REPRESENTATIONS. The representations and warranties
contained in this Agreement or in any certificate furnished hereunder shall
survive the Closing. Notwithstanding any investigation conducted by Furst before
or after the Closing or the decision of Furst to complete the Closing, Furst
shall be entitled to rely upon the representations and warranties set forth
herein.
d. PRIOR AGREEMENTS. This Agreement constitutes the entire agreement
between the parties concerning the subject matter hereof and supersede any prior
representations, understandings or agreements. There are no representations,
warranties, agreements, conditions or covenants, of any nature whatsoever
(whether express or implied, written or oral) between the parties hereto with
respect to such subject matter except as expressly set forth herein or therein,
and Furst acknowledges not having relied upon any such representations,
warranties, agreements, conditions or covenants which may have been previously
made by or on behalf of the EqualNet Companies or any officers or agents or any
other person or entity.
e. SEVERABILITY. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision.
f. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO ITS CHOICE OF LAW RULES.
g. LITIGATION. Each of the EqualNet Companies and Furst hereby
waives trial by jury in any action or proceeding of any kind or nature in any
court in which an action may be commenced by or against it arising out of or
relating to this Agreement. The EqualNet Companies and Furst hereby agree that
the United States District Court for the Southern District of New York, if a
basis for jurisdiction exists, and otherwise the courts of the State of New York
located in the Borough of Manhattan, the City of New York, shall have exclusive
jurisdiction to hear and determine any claims or disputes between any of the
EqualNet Companies and Furst,
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pertaining directly or indirectly to this Agreement or to any matter arising
therefrom, provided that notwithstanding the foregoing, Furst may bring any suit
action or proceeding arising out of or relating to this Agreement, in the courts
of any place where Furst can establish jurisdiction over the EqualNet Companies.
The parties hereto expressly submit and consent in advance to such jurisdiction
in any action or proceeding commenced in such courts, hereby waiving personal
service of the summons and complaint, or other process or papers issued therein
and agreeing that service of such summons and complaint or other process or
papers may be made by registered or certified mail addressed to such party at
its address provided herein. Each of the parties hereto waives any objection
that it may now or hereafter have to the laying of venue brought in the
aforementioned courts and hereby waives and agrees not to plead or claim in such
courts that any such action or proceeding brought in such court is brought in an
inconvenient forum.
h. HEADINGS. Article and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
i. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
j. BINDING EFFECT. This Agreement shall be binding upon and enure to
the benefit of the parties hereto and their respective successors and permitted
assigns.
k. PUBLICITY. Except as required by law or the rules of the Nasdaq
Stock Market, neither the EqualNet Companies nor Furst shall, nor shall they
permit their respective stockholders, directors, officers or advisors to, issue
or cause the publication of any press release or make any other public
statement, filing or announcement with respect to this Agreement and the
transactions contemplated hereby without the prior consent of the other parties.
The Company and Furst shall cooperate in issuing press releases or otherwise
making public statements with respect to this Agreement and the transactions
contemplated hereby, which cooperation shall include first consulting the other
party hereto concerning the requirement for, and timing and content of, such
public announcement.
-16-
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound, have caused this Agreement to be executed by their respective duly
authorized officers, as of the date first above written.
EQUALNET COMPANIES:
EQUALNET HOLDING CORP.
By:_______________________
President
EQUALNET CORPORATION
By:_______________________
President
TELESOURCE, INC.
By:_______________________
President
EQUALNET WHOLESALE SERVICES, INC.
By:_______________________
President
FURST:
THE FURST GROUP, INC.
By:_______________________
Executive Vice President
-17-
STOCK AND WARRANT PURCHASE AGREEMENT
By and Among
FIRST STERLING VENTURES CORP.
and
FRANK HEVRDEJS
as Purchasers
and
EQUALNET HOLDING CORP.
as Issuer
Dated as of March 26, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. PURCHASE AND SALE OF SECURITIES; CLOSING............................. 1
1.1. PURCHASE AND SALE OF SECURITIES................................ 1
1.2. CLOSING........................................................ 2
2. PURCHASERS' CONDITIONS OF CLOSING.................................... 2
2.1. REPRESENTATIONS AND WARRANTIES................................. 2
2.2. PURCHASE PERMITTED BY APPLICABLE LAWS.......................... 2
2.3. COMPLIANCE WITH SECURITIES LAWS................................ 2
3. COMPANY'S CONDITIONS OF CLOSING...................................... 2
3.1. REPRESENTATIONS AND WARRANTIES................................. 2
3.2. PURCHASE OF SECURITIES......................................... 2
3.3. NO ADVERSE ACTION OR DECISION.................................. 2
4. REPRESENTATIONS AND WARRANTIES....................................... 3
4.1. CORPORATE EXISTENCE............................................ 3
4.2. CORPORATE POWER AND AUTHORIZATION.............................. 3
4.3. BINDING OBLIGATIONS............................................ 3
5. REPRESENTATIONS AND WARRANTIES OF PURCHASERS......................... 3
5.1. PURCHASE FOR INVESTMENT........................................ 3
5.2. AUTHORIZATION; NO CONFLICT..................................... 4
6. TERMINATION, AMENDMENT AND WAIVER.................................... 5
6.1. TERMINATION.................................................... 5
6.2. EFFECT OF TERMINATION.......................................... 5
7. MISCELLANEOUS........................................................ 5
7.1. AMENDMENT...................................................... 5
7.2. EXTENSION; WAIVER.............................................. 5
7.3. ASSIGNMENT..................................................... 6
7.4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES..................... 6
7.5. SUCCESSORS AND ASSIGNS; NO THIRD PARTY......................... 6
7.6. NOTICES........................................................ 6
7.7. DESCRIPTIVE HEADINGS........................................... 6
7.8. GOVERNING LAW; CONSENT TO JURISDICTION......................... 6
7.9. REMEDIES....................................................... 7
7.10. ENTIRE AGREEMENT............................................... 7
7.11. SEVERABILITY................................................... 7
7.12. COUNTERPARTS................................................... 7
7.13. BROKERAGE...................................................... 7
i
<PAGE>
STOCK AND WARRANT PURCHASE AGREEMENT
This STOCK AND WARRANT PURCHASE AGREEMENT (this "AGREEMENT") is made as of
March 26, 1998, by and among FIRST STERLING VENTURES CORP., a Texas corporation
("STERLING"), FRANK HEVRDEJS, an individual residing in Houston, Texas
("HEVRDEJS", and collectively with Sterling, "PURCHASERS", and each a
"PURCHASER"), and EQUALNET HOLDING CORP., a Texas corporation (the "COMPANY").
RECITALS
Purchasers desire to purchase from the Company, and the Company desires to
issue and sell to Purchasers, subject to the terms and conditions set forth
herein, an aggregate of 1,333,333 shares of Common Stock (as hereinafter
defined) of the Company and warrants to purchase an aggregate of 66,667
additional shares of Common Stock.
AGREEMENTS
In consideration of the recitals and the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
PURCHASE AND SALE OF SECURITIES; CLOSING.
PURCHASE AND SALE OF SECURITIES.
Subject to the terms and conditions herein set forth, the
Company agrees to sell to Sterling and Sterling agrees to purchase from
the Company, an aggregate of 666,667 shares (the "STERLING SHARES") of the
Company's Common Stock, par value $.01 per share (the "COMMON STOCK") and
warrants, exercisable for five years from the date of issuance, for the
purchase of 33,334 additional shares of Common Stock at a purchase price
of $1.50 per share (the "STERLING WARRANTS"), for an aggregate purchase
price of $1,000,000.
Subject to the terms and conditions herein set forth, the
Company agrees to sell to Hevrdejs and Hevrdejs agrees to purchase from
the Company, an aggregate of 666,666 shares (the "HEVRDEJS SHARES", and
collectively with the Sterling Shares the "SHARES") of Common Stock and
warrants, exercisable for five years from the date of issuance, for the
purchase of 33,333 additional shares of Common Stock at a purchase price
of $1.50 per share (the "HEVRDEJS WARRANTS", and collectively with the
Sterling Warrants, the "WARRANTS", the Shares and Warrants being
collectively referred to as the "SECURITIES"), for an aggregate purchase
price of $1,000,000.
1
<PAGE>
CLOSING. The purchase and delivery of the Securities shall take
place at a closing (the "CLOSING") at the offices of Fulbright & Jaworski
L.L.P., Houston, Texas, at 10:00 a.m., local time, on March 26, 1998, or at such
other time and place or on such other business day thereafter as the parties
hereto may agree (herein called the "CLOSING DATE"). On the Closing Date, the
Company will deliver the Securities in definitive form against receipt of the
purchase price therefor by wire transfer of immediately available funds to the
Company, or by such other payment method as is mutually agreed to by the
Purchasers and the Company.
PURCHASERS' CONDITIONS OF CLOSING. The Purchasers' obligation to
purchase and pay for the Securities is subject to the satisfaction or waiver, on
or before the Closing Date, of the conditions contained in this Section 2.
REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in Paragraph 4 hereof shall be true in all material respects on and as
of the Closing Date, except to the extent of changes caused by the transactions
herein contemplated; and the Company shall have delivered to the Purchasers a
certificate of a duly authorized officer of the Company, dated the Closing Date,
to such effect.
PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment
for the Securities shall not be prohibited by any applicable law or governmental
regulation.
COMPLIANCE WITH SECURITIES LAWS. The offering and sale of the
Securities under this Agreement shall have complied with all applicable
requirements of federal and state securities laws.
COMPANY'S CONDITIONS OF CLOSING. The Company's obligations to sell
the Securities hereunder is subject to the satisfaction or waiver, on or before
the Closing Date, of the conditions contained in this Section 3.
REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in Paragraph 5 hereof shall be true in all material respects on and as
of the Closing Date; and the Purchasers shall have delivered to the Company a
certificate of a duly authorized officer of Sterling and a certificate signed by
Hevrdejs in his individual capacity, dated the Closing Date, to such effect.
PURCHASE OF SECURITIES. The Purchasers shall have purchased and
paid for the Securities.
NO ADVERSE ACTION OR DECISION. There shall be no action, suit,
investigation or proceeding pending, or to the Company's knowledge, threatened,
against or affecting the Company or any of its properties or rights, or any of
its affiliates, associates, officers or directors, before any court, arbitrator
or administrative or governmental body which (i) seeks to restrain, enjoin,
prevent the consummation of or otherwise adversely affect the transactions
contemplated by this Agreement or (ii) questions the validity or legality of any
such transaction or seeks to recover damages or to obtain other relief in
connection with any such transaction.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Purchasers as of the date hereof and as of the
Closing Date that:
2
<PAGE>
CORPORATE EXISTENCE. The Company is a corporation duly organized,
legally existing, and in good standing under the laws of the State of Texas.
CORPORATE POWER AND AUTHORIZATION. The Company has the requisite
corporate power and authority to issue the Securities and to execute, deliver,
and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby (including the issuance, against payment
therefor, of the shares of Common Stock issuable on exercise of the Warrants
(the "WARRANT SHARES"). All action on the Company's part requisite for the due
issuance, against payment therefor of the Securities and the Warrant Shares and
for the due execution, delivery, and performance of this Agreement has been duly
and effectively taken.
BINDING OBLIGATIONS. This Agreement is enforceable in accordance
with its terms (except that enforcement may be subject to (i) any applicable
bankruptcy, insolvency or similar laws generally affecting the enforcement of
creditors' rights (ii) general principles in equity regardless of whether such
enforcement is sought in a proceeding in equity or at law, and except to the
extent enforceability of the indemnification provisions may be limited under
applicable securities laws).
REPRESENTATIONS AND WARRANTIES OF PURCHASERS. To induce the
Company to enter into this Agreement, each of Sterling and Hevrdejs represents
and warrants to the Company that:
PURCHASE FOR INVESTMENT.
Each Purchaser is acquiring the Securities for its own account
and not with a view to the public resale or distribution of all or any
part thereof in any transaction which would constitute a "distribution"
within the meaning of the Securities Act of 1933 (the "SECURITIES ACT").
Each Purchaser acknowledges that it does not currently intend to assign
its rights under this Agreement to any third party prior to the Closing.
Each Purchaser acknowledges that the Securities have not been
registered under the Securities Act and that the Warrant Shares will not
be registered under the Securities Act.
Each Purchaser is an "accredited investor" within the meaning
of Rule 501 under Regulation D promulgated under the Securities Act, is
experienced in evaluating investments in companies such as the Company,
has such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of its investment and has
the ability to bear the entire economic risk of its investment. Each
Purchaser has made its own evaluation of its investment in the Securities,
based upon such information as is available to it and without reliance
upon the Company or any other person or entity, and each Purchaser agrees
that neither the Company nor any other person or entity has any obligation
to furnish any additional information to either Purchaser except as
expressly set forth herein.
Each Purchaser acknowledges that it has been provided with
copies of the Company's Annual Report on Form 10-K for the year ended June
30, 1997, as amended, each of the Company's Quarterly Reports on Form 10-Q
for the quarters ended September 30, 1997 and December 31, 1997, and each
of the Company's Current Reports on Form 8-K filed
3
<PAGE>
July 10, 1997, July 22, 1997 and March 10, 1998. Each Purchaser also
acknowledges that the Company has advised it of the facts set forth on
SCHEDULE A hereto (the "MATERIAL NON-PUBLIC INFORMATION"). Purchasers
acknowledge that they are aware that the United States securities laws
prohibit them, their representatives, and any person who has received
Material Non-public Information about the Company from purchasing or
selling securities of the Company or from communicating such information
to any other person under circumstances in which it is reasonably
foreseeable that such person will purchase or sell such securities in
reliance on such information. Purchasers covenant and agree not to
purchase or sell any securities of the Company (other than pursuant to
this Agreement) or to communicate Material Non-public Information to any
person until such time as all of the Material Non-public Information has
been made public by the Company or the Company has informed the Purchasers
that such information is no longer material.
Each Purchaser acknowledges that the Securities and the
Warrant Shares may not be sold, transferred, pledged, hypothecated, or
otherwise disposed of without registration under the Securities Act or an
exemption therefrom, and that in the absence of an effective registration
statement covering the Securities (or the Warrant Shares, as applicable),
or an available exemption from registration under the Securities Act, the
Securities (or the Warrant Shares, as applicable) must be held
indefinitely.
Purchaser agrees that the Shares (and the Warrant Shares)
shall bear legends in substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE TRANSFERRED, EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT. ANY SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE
MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY TO THE EFFECT THAT SUCH EXEMPTION FROM REGISTRATION IS
AVAILABLE IN CONNECTION WITH SUCH SALE."
AUTHORIZATION; NO CONFLICT. Sterling is a corporation duly
organized, legally existing and in good standing under the laws of the State of
Texas. Sterling has all requisite corporate power and authority to enter into
this Agreement and to carry out and perform its obligations under the terms of
this Agreement. Hevrdejs has all requisite capacity and authority to enter into
this Agreement and to carry out and perform his obligations under the terms of
this Agreement. This Agreement is a legal, valid, and binding obligation of each
Purchaser. The execution, delivery, and performance of this Agreement by
Purchasers and the consummation by Purchasers of the transactions contemplated
hereby will not conflict with or result in a default under the terms of the
charter or bylaws of Sterling or any material contract, agreement, obligation or
commitment applicable to either Purchaser.
TERMINATION, AMENDMENT AND WAIVER.
4
<PAGE>
TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date:
by mutual written consent of Purchasers and the Company;
by either Purchasers or the Company;
if the transaction contemplated by this Agreement shall
not have been consummated on or before April 30, 1998, unless the
failure to consummate the transaction contemplated by this
Agreement is the result of a material breach of this Agreement by
the party seeking to terminate this Agreement; or
if any permanent injunction or other order of a court or
other competent authority preventing the consummation of the
transactions contemplated by this Agreement shall have become
final and nonappealable.
by Purchasers, if the Company breaches any of its
representations or warranties herein or fails to perform in any material
respect any of its covenants, agreements or obligations under this
Agreement; and
by the Company, if either Purchaser breaches any of its
representations or warranties herein or fails to perform in any material
respect any of its covenants, agreements or obligations under this
Agreement.
EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Company or Purchasers as provided in Section 8A, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Purchaser or the Company.
MISCELLANEOUS.
AMENDMENT. This Agreement may be amended by the parties hereto at
any time. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties.
EXTENSION; WAIVER. At any time prior to the Closing Date, the
parties may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or the other acts of the other parties,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto or (c) waive compliance with
any of the agreements or conditions contained herein. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise, and any attempt at assignment shall be void.
5
<PAGE>
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties contained herein or made in writing by or on behalf of any party
to this Agreement in connection herewith shall survive the execution and
delivery of this Agreement and shall terminate on the fourth anniversary of the
Closing Date.
SUCCESSORS AND ASSIGNS; NO THIRD PARTY. All covenants and
agreements in this Agreement contained by or on behalf of the parties hereto
shall bind and inure to the benefit of the respective successors and assigns of
the parties hereto and, to the extent provided in this Agreement. Subject to the
foregoing, nothing in this Agreement shall confer upon any person or entity not
a party to this Agreement, or the legal representatives of such person or
entity, any rights or remedies of any nature or kind whatsoever under or by
reason of this Agreement.
NOTICES. All communications provided for hereunder shall be
delivered personally or sent by registered or certified mail and, if to the
Purchasers, to the address set forth on the signature page hereto and if to the
Company addressed to it at EqualNet Holding Corp., 1250 Wood Branch Park Drive,
Houston, Texas 77079-1212, Attn: General Counsel, with a copy to Fulbright &
Jaworski L.L.P., 1301 McKinney, Suite 5100, Houston, Texas 77010, Attn: Robert
F. Gray, Jr., or to such other address with respect to any party as such party
shall notify the other in writing. Within 5 days after the date of such mailing
(save for any postal interruption) such communication shall be deemed to have
been received.
DESCRIPTIVE HEADINGS. The descriptive headings of the several
Paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the law of the State of Texas without giving effect to the
choice of law or conflicts principles thereof. Any legal action or proceeding
with respect to this Agreement may be brought in the courts of the State of
Texas or of the United States of America for the Southern District of Texas,
and, by execution and delivery of this Agreement, the Company hereby accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. Each Purchaser and the Company irrevocably
consents to the service of process out of any of the aforementioned courts in
any such action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to its address set forth herein, such service
to become effect 30 days after such mailing. Nothing herein shall affect the
right of the Company or the Purchasers to serve process in any other manner
permitted by law.
REMEDIES. In case any one or more of the covenants and/or
agreements set forth in this Agreement shall have been breached by the Company
or the Purchasers, the Company or the Purchasers, as applicable, may proceed to
protect and enforce its or their rights either by suit in equity and/or by
action at law.
ENTIRE AGREEMENT. This Agreement, including the Schedules hereto,
and the other writings referred to herein or delivered pursuant hereto contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
6
<PAGE>
SEVERABILITY. Any provisions of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but which
together shall constitute a single agreement.
BROKERAGE. Each party hereto will indemnify and hold harmless the
others against and in respect of any claim for brokerage or other commissions
relative to this Agreement or to the transactions contemplated hereby, based in
any way on agreements, arrangements or understandings made or claimed to have
been made by such party with any third party.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be
duly executed and delivered as of the date first above written.
EQUALNET HOLDING CORP.
By: /S/ MICHAEL L. HLINAK
Name: MICHAEL L. HLINAK
Title: COO
FIRST STERLING VENTURES CORP.
By: /S/ FRANK J. HEVRDEJS
Name: FRANK J. HEVRDEJS
Title: PRESIDENT
address for notices:
8 GREENWAY PLAZA, SUITE 702
Houston, Texas 77046-0801
FRANK HEVRDEJS
/S/ FRANK J. HEVRDEJS
address for notices:
8 GREENWAY PLAZA, SUITE 702
Houston, Texas 77046-0801
8
EQUALNET HOLDING CORP.
STOCK PURCHASE WARRANT
This Stock Purchase Warrant ("Warrant"), issued this 26th day of March,
1998, by EqualNet Holding Corp., a Texas corporation (the "Company"), to First
Sterling Capital Ventures Corp., a Texas corporation (the "Purchaser").
W I T N E S S E T H:
ISSUANCE OF WARRANT; TERM; VESTING.
For and in consideration of the sum of $10.00 and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company hereby grants to the Purchaser, subject to the
provisions hereinafter set forth, the right to purchase 33,334 shares of Common
Stock, $.01 par value, of the Company (the "Common Stock"). The shares of Common
Stock issuable upon exercise of this Warrant are hereinafter referred to as the
"Shares".
This Warrant shall be exercisable at any time on or before the
fifth anniversary of the date hereof.
EXERCISE PRICE. The exercise price per share for which all or any of
the Shares may be purchased pursuant to the terms of this Warrant shall be $1.50
(hereinafter referred to as the "Exercise Price").
EXERCISE.
This Warrant may be exercised by the Purchaser for the
purchase of any of the Shares for which this Warrant is then exercisable
pursuant to Section 1(b) hereof in whole or in part, upon delivery of written
notice of intent to the Company at the following address: 1250 Wood Branch Park
Drive, Houston, Texas 77079 or such other address as the Company shall designate
in written notice to the Purchaser, together with this Warrant and payment (in
the manner described in Section 3(b) below) for the aggregate Exercise Price of
the Shares so purchased. Upon exercise of this Warrant as aforesaid, the Company
shall as promptly as practicable execute and deliver to the Purchaser a
certificate or certificates for the total number of whole Shares for which this
Warrant is being exercised in such names and denominations as are requested by
the Purchaser. If this Warrant shall be exercised with respect to less than all
of the Shares, the Purchaser shall be entitled to receive a new Warrant covering
the number of Shares in respect of which this Warrant shall not have been
exercised, which new Warrant shall in all other respects be identical to this
Warrant.
Payment for the Shares to be purchased upon exercise of this
Warrant may be made by the delivery of a certified or cashier's check payable to
the Company for the aggregate Exercise Price of the Shares to be purchased.
<PAGE>
COVENANTS AND CONDITIONS. The above provisions are subject to the
following:
Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended (the "Act"), or any state securities laws
("Blue Sky Laws"). This Warrant and the Shares have been acquired for investment
purposes and not with a view to distribution or resale and the Shares may not be
made subject to a security interest, pledged, hypothecated, sold or otherwise
transferred without an effective registration statement therefor under the Act
and such applicable Blue Sky Laws or an opinion of counsel (which opinion and
counsel rendering same shall be reasonably acceptable to the Company) that
registration is not required under the Act and under any applicable Blue Sky
Laws. The certificates representing the Shares shall bear substantially the
following legend:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED FOR THE
PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD OR
TRANSFERRED UNTIL A REGISTRATION STATEMENT UNDER THE ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO, OR IN THE OPINION OF COUNSEL (WHOSE OPINION AND COUNSEL SHALL BE
REASONABLY ACCEPTABLE TO THE COMPANY) REGISTRATION UNDER THE ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED OFFER, SALE OR TRANSFER.
Other legends as required by applicable federal and state laws may be placed on
such certificates. the Purchaser and the Company agree to execute such documents
and instruments as counsel for the Company reasonably deems necessary to effect
compliance of the issuance of this Warrant and any Shares issued upon exercise
hereof with applicable federal and state securities laws. the Purchaser agrees
that the Company may decline to permit a transfer of this Warrant if the
proposed transferee does not meet then applicable qualifications for investors
in securities offerings exempt from registration.
The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment therefor,
be legally and validly issued and outstanding, fully paid and nonassessable. The
Company shall at all times, commencing on the date this Warrant shall become
exercisable, reserve and keep available for issuance upon the exercise of this
Warrant such number of authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of the Warrant.
WARRANT HOLDER NOT STOCKHOLDER. This Warrant does not confer upon
the Purchaser any right whatsoever as a stockholder of the Company.
ANTI-DILUTION. In case at any time or from time to time after the
date of this Warrant, all of the holders of Common Stock of the Company shall
have received or shall have become legally entitled to receive:
other or additional stock or other securities or
property (other than cash) by way of a dividend or other distribution; or
2
<PAGE>
other or additional (or less) stock or other securities
or property (including cash) by way of stock-split, spin-off, split-up,
reclassification, combination of shares or similar corporate rearrangement
(but not including any cash dividends),
then and in each such case the Purchaser, upon the exercise hereof as provided
in Section 3, shall be entitled to receive, in lieu of (or in addition to, as
the case may be) the Shares theretofore receivable upon the exercise of this
Warrant, the amount of stock and other securities and property (including cash
in the case referred to in clause (ii) above) which the Purchaser would have
held on the date of such exercise if on the date of such conversion, dividend,
distribution, corporate rearrangement or such other event as described in clause
(ii) above the Purchaser had been the holder of record of the number of Shares
receivable upon exercise of this Warrant and had thereafter, during the period
from the date thereof to and including the date of such exercise, obtained such
Shares and all other or additional (or less) stock and other securities and
property (including cash in the case referred to in clause (ii) above)
receivable by the Purchaser as aforesaid during such period.
NOTICES. All notices, requests, offers, elections and other
communications under this Warrant shall be in writing and shall be deemed to
have been given at the time when deposited in the United States mail at a
general or branch post office, postage prepaid, registered or certified mail
(return receipt requested), and addressed to the respective parties at the
addresses stated below or to such other changed addresses as the parties may
have fixed by notice; provided, however, that any notice of change of address
shall be effective only upon receipt.
Notices addressed to the Purchaser shall be addressed as indicated on the
signature page below. Notices to the Company shall be addressed to:
EqualNet Holding Corp.
1250 Wood Branch Park Drive
Houston, Texas 77079
Attn: General Counsel
Telephone: (281) 529-4648
Facsimile: (281) 529-4686
With a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attn: Robert F. Gray, Jr.
Telephone: (713) 651-5566
Facsimile: (713) 651-5246
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Stock Purchase Warrant to
be executed and delivered by its duly authorized officer as of the date first
above written.
EQUALNET HOLDING CORP.
By: /S/ MICHAEL L. HLINAK
Name: MICHAEL L. HLINAK
Title: COO
4
EQUALNET HOLDING CORP.
STOCK PURCHASE WARRANT
This Stock Purchase Warrant ("Warrant"), issued this 26th day of March,
1998, by EqualNet Holding Corp., a Texas corporation (the "Company"), to Frank
Hevrdejs, an individual residing in Houston, Texas (the "Purchaser").
W I T N E S S E T H:
ISSUANCE OF WARRANT; TERM; VESTING.
For and in consideration of the sum of $10.00 and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company hereby grants to the Purchaser, subject to the
provisions hereinafter set forth, the right to purchase 33,333 shares of Common
Stock, $.01 par value, of the Company (the "Common Stock"). The shares of Common
Stock issuable upon exercise of this Warrant are hereinafter referred to as the
"Shares".
This Warrant shall be exercisable at any time on or before the
fifth anniversary of the date hereof.
EXERCISE PRICE. The exercise price per share for which all or any of
the Shares may be purchased pursuant to the terms of this Warrant shall be $1.50
(hereinafter referred to as the "Exercise Price").
EXERCISE.
This Warrant may be exercised by the Purchaser for the
purchase of any of the Shares for which this Warrant is then exercisable
pursuant to Section 1(b) hereof in whole or in part, upon delivery of written
notice of intent to the Company at the following address: 1250 Wood Branch Park
Drive, Houston, Texas 77079 or such other address as the Company shall designate
in written notice to the Purchaser, together with this Warrant and payment (in
the manner described in Section 3(b) below) for the aggregate Exercise Price of
the Shares so purchased. Upon exercise of this Warrant as aforesaid, the Company
shall as promptly as practicable execute and deliver to the Purchaser a
certificate or certificates for the total number of whole Shares for which this
Warrant is being exercised in such names and denominations as are requested by
the Purchaser. If this Warrant shall be exercised with respect to less than all
of the Shares, the Purchaser shall be entitled to receive a new Warrant covering
the number of Shares in respect of which this Warrant shall not have been
exercised, which new Warrant shall in all other respects be identical to this
Warrant.
Payment for the Shares to be purchased upon exercise of this
Warrant may be made by the delivery of a certified or cashier's check payable to
the Company for the aggregate Exercise Price of the Shares to be purchased.
<PAGE>
COVENANTS AND CONDITIONS. The above provisions are subject to the
following:
Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended (the "Act"), or any state securities laws
("Blue Sky Laws"). This Warrant and the Shares have been acquired for investment
purposes and not with a view to distribution or resale and the Shares may not be
made subject to a security interest, pledged, hypothecated, sold or otherwise
transferred without an effective registration statement therefor under the Act
and such applicable Blue Sky Laws or an opinion of counsel (which opinion and
counsel rendering same shall be reasonably acceptable to the Company) that
registration is not required under the Act and under any applicable Blue Sky
Laws. The certificates representing the Shares shall bear substantially the
following legend:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED FOR THE
PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD OR
TRANSFERRED UNTIL A REGISTRATION STATEMENT UNDER THE ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO, OR IN THE OPINION OF COUNSEL (WHOSE OPINION AND COUNSEL SHALL BE
REASONABLY ACCEPTABLE TO THE COMPANY) REGISTRATION UNDER THE ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED OFFER, SALE OR TRANSFER.
Other legends as required by applicable federal and state laws may be placed on
such certificates. the Purchaser and the Company agree to execute such documents
and instruments as counsel for the Company reasonably deems necessary to effect
compliance of the issuance of this Warrant and any Shares issued upon exercise
hereof with applicable federal and state securities laws. the Purchaser agrees
that the Company may decline to permit a transfer of this Warrant if the
proposed transferee does not meet then applicable qualifications for investors
in securities offerings exempt from registration.
The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment therefor,
be legally and validly issued and outstanding, fully paid and nonassessable. The
Company shall at all times, commencing on the date this Warrant shall become
exercisable, reserve and keep available for issuance upon the exercise of this
Warrant such number of authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of the Warrant.
WARRANT HOLDER NOT STOCKHOLDER. This Warrant does not confer upon
the Purchaser any right whatsoever as a stockholder of the Company.
ANTI-DILUTION. In case at any time or from time to time after the
date of this Warrant, all of the holders of Common Stock of the Company shall
have received or shall have become legally entitled to receive:
other or additional stock or other securities or
property (other than cash) by way of a dividend or other distribution; or
2
<PAGE>
other or additional (or less) stock or other securities
or property (including cash) by way of stock-split, spin-off, split-up,
reclassification, combination of shares or similar corporate rearrangement
(but not including any cash dividends),
then and in each such case the Purchaser, upon the exercise hereof as provided
in Section 3, shall be entitled to receive, in lieu of (or in addition to, as
the case may be) the Shares theretofore receivable upon the exercise of this
Warrant, the amount of stock and other securities and property (including cash
in the case referred to in clause (ii) above) which the Purchaser would have
held on the date of such exercise if on the date of such conversion, dividend,
distribution, corporate rearrangement or such other event as described in clause
(ii) above the Purchaser had been the holder of record of the number of Shares
receivable upon exercise of this Warrant and had thereafter, during the period
from the date thereof to and including the date of such exercise, obtained such
Shares and all other or additional (or less) stock and other securities and
property (including cash in the case referred to in clause (ii) above)
receivable by the Purchaser as aforesaid during such period.
NOTICES. All notices, requests, offers, elections and other
communications under this Warrant shall be in writing and shall be deemed to
have been given at the time when deposited in the United States mail at a
general or branch post office, postage prepaid, registered or certified mail
(return receipt requested), and addressed to the respective parties at the
addresses stated below or to such other changed addresses as the parties may
have fixed by notice; provided, however, that any notice of change of address
shall be effective only upon receipt.
Notices addressed to the Purchaser shall be addressed as indicated on the
signature page below. Notices to the Company shall be addressed to:
EqualNet Holding Corp.
1250 Wood Branch Park Drive
Houston, Texas 77079
Attn: General Counsel
Telephone: (281) 529-4648
Facsimile: (281) 529-4686
With a copy to:
Fulbright & Jaworski L.L.P.
1301 McKinney, Suite 5100
Houston, Texas 77010
Attn: Robert F. Gray, Jr.
Telephone: (713) 651-5566
Facsimile: (713) 651-5246
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Stock Purchase Warrant to
be executed and delivered by its duly authorized officer as of the date first
above written.
EQUALNET HOLDING CORP.
By: /S/ MICHAEL L. HLINAK
Name: MICHAEL L. HLINAK
Title: COO
4
STOCK AND WARRANT PURCHASE AGREEMENT
By and Among
JAMES R. CRANE
and
EQUALNET HOLDING CORP.
Dated as of April 24, 1998
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINITIONS. ....................................................... 1
2. PURCHASE AND SALE OF COMMON STOCK AND WARRANTS; CLOSING.............. 5
2.A. PURCHASE AND SALE OF COMMON STOCK.............................. 5
2.B. CLOSING........................................................ 5
3. PURCHASER'S CONDITIONS OF CLOSING.................................... 5
3.A. OPINION OF THE COMPANY'S COUNSEL............................... 5
3.B. REPRESENTATIONS AND WARRANTIES................................. 5
3.C. CHARTER DOCUMENTS AND BY-LAWS.................................. 6
3.D. PURCHASE PERMITTED BY APPLICABLE LAWS.......................... 6
3.E. LETTER OF ACCOUNTANTS; ACCOMPANYING OFFICER'S CERTIFICATE...... 6
3.F. COMPLIANCE WITH SECURITIES LAWS................................ 6
3.G. NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION................ 6
3.H. APPROVALS AND CONSENTS......................................... 7
3.I. REGISTRATION RIGHTS AGREEMENT.................................. 7
3.K. NO MATERIAL ADVERSE CHANGE..................................... 7
4. COMPANY'S CONDITIONS OF CLOSING...................................... 7
4.A. REPRESENTATIONS AND WARRANTIES................................. 7
4.B. PURCHASE OF SHARES............................................. 7
4.C. NO ADVERSE ACTION OR DECISION.................................. 7
4.D. QUOTATION...................................................... 7
5. AFFIRMATIVE COVENANTS................................................ 8
5.A. CONDUCT OF BUSINESS OF THE COMPANY............................. 8
5.B. VALID ISSUANCE................................................. 10
5.C. GOVERNMENT REGULATIONS......................................... 10
5.D. ERISA.......................................................... 11
5.E. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES................. 11
5.F. INSURANCE...................................................... 11
5.G. FURTHER ASSURANCES............................................. 11
5.H. RESERVED....................................................... 12
5.I. NOTICES OF CERTAIN EVENTS...................................... 12
5.J. RESERVED....................................................... 12
5.K. ENVIRONMENTAL LAWS............................................. 12
5.L. RESERVED....................................................... 12
5.M. RESERVED....................................................... 12
5.N. CERTAIN INFORMATION............................................ 12
5.O. QUOTATION OF COMMON STOCK...................................... 12
6. REPRESENTATIONS AND WARRANTIES....................................... 13
6.A. CORPORATE EXISTENCE............................................ 13
6.B. CORPORATE POWER AND AUTHORIZATION.............................. 13
6.C. RESERVED....................................................... 13
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<PAGE>
6.D. BINDING OBLIGATIONS............................................ 13
6.E. NO VIOLATION................................................... 13
6.F. CONSENTS....................................................... 13
6.G. FINANCIAL INFORMATION.......................................... 14
6.H. LIABILITIES.................................................... 14
6.I. LITIGATION..................................................... 14
6.J. COMPLIANCE WITH ERISA.......................................... 14
6.K. TAXES; GOVERNMENTAL CHARGES.................................... 14
6.L. DEFAULTS....................................................... 15
6.M. COMPLIANCE WITH THE LAW........................................ 15
6.N. INVESTMENT COMPANY ACT......................................... 15
6.O. PUBLIC UTILITY HOLDING COMPANY ACT............................. 15
6.P. FEES AND COMMISSIONS........................................... 15
6.Q. DISCLOSURE..................................................... 15
6.R. STRUCTURE; CAPITALIZATION...................................... 15
6.S. ENVIRONMENTAL MATTERS.......................................... 16
6.T. INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS.............. 17
6.U. INSURANCE COVERAGE............................................. 18
7. REPRESENTATIONS AND WARRANTIES OF PURCHASER.......................... 18
7.A. PURCHASE FOR INVESTMENT........................................ 18
7.B. AUTHORIZATION; NO CONFLICT..................................... 19
8. TERMINATION, AMENDMENT AND WAIVER.................................... 19
8.A. TERMINATION.................................................... 20
8.B. EFFECT OF TERMINATION.......................................... 20
9. MISCELLANEOUS........................................................ 20
9.A. FEES AND EXPENSES.............................................. 20
9.B. AMENDMENT...................................................... 20
9.C. EXTENSION; WAIVER.............................................. 21
9.D. ASSIGNMENT..................................................... 21
9.E. SURVIVAL OF REPRESENTATIONS AND WARRANTIES..................... 21
9.F. SUCCESSORS AND ASSIGNS; NO THIRD PARTY......................... 21
9.G. NOTICES........................................................ 21
9.H. DESCRIPTIVE HEADINGS........................................... 22
9.I. SATISFACTION REQUIREMENT....................................... 22
9.J. GOVERNING LAW; CONSENT TO JURISDICTION......................... 22
9.K. REMEDIES....................................................... 22
9.L. ENTIRE AGREEMENT............................................... 22
9.M. SEVERABILITY................................................... 22
9.N. COUNTERPARTS................................................... 22
9.O. BROKERAGE...................................................... 22
ii
<PAGE>
STOCK AND WARRANT PURCHASE AGREEMENT
This STOCK AND WARRANT PURCHASE AGREEMENT (this "Agreement") is made as of
April 24, 1998, by and among JAMES R. CRANE (the "Purchaser"), and EQUALNET
HOLDING CORP., a Texas corporation (the "Company").
RECITALS
Purchaser desires to purchase from the Company, and the Company desires to
issue and sell to Purchaser, subject to the terms and conditions set forth
herein, 3,400,000 shares of Common Stock (as hereinafter defined) of the Company
and warrants for the purchase of 170,000 shares of Common Stock.
AGREEMENTS
In consideration of the recitals and the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS. For the purpose of this Agreement, and in addition to
terms defined elsewhere in this Agreement, the following terms shall have the
following meanings. In addition, all terms of an accounting character not
specifically defined herein shall have the meanings assigned thereto by
accounting principles generally accepted in the United States of America.
"AFFILIATE" shall mean, with respect to any Person, a Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person, except a Subsidiary of such Person. A Person shall be
deemed to control a corporation if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"BUSINESS DAY" shall mean any day which is not a Saturday, Sunday or day
on which banks are authorized by law to close in the States of New York and
Texas.
"CAPITALIZED LEASE OBLIGATIONS" shall mean all rental obligations which,
under GAAP in effect on the day such obligation is incurred, are required to be
capitalized on the books of the Company or any Subsidiary, in each case taken at
the amount thereof accounted for as indebtedness (net of interest expense) in
accordance with such principles.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"COMMISSION" shall mean the United States Securities and Exchange
Commission.
1
<PAGE>
"CURRENT INDEBTEDNESS" shall mean any obligation for borrowed money
(including notes payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money) payable on demand or
within a period of one year from the date of creation thereof; PROVIDED that any
obligation shall be treated as Funded Indebtedness, regardless of its term, if
such obligation is renewable pursuant to the terms thereof or of a revolving
credit or similar agreement effective for more than one year after the date of
the creation of such obligation, or may be payable out of the proceeds of a
similar obligation pursuant to the terms of such obligation or of any such
agreement. Any obligation secured by a Lien on, or payable out of the proceeds
of production from, property of the Company or any Subsidiary shall be deemed to
be Funded or Current Indebtedness, as the case may be, of the Company or such
Subsidiary even though such obligation shall not be assumed by the Company or
such Subsidiary.
"ENVIRONMENTAL LAW" shall mean any judgment, decree, order, law, license,
rule, regulation or private agreement (such as covenants, conditions, and
restrictions), of any federal, state or local executive, legislative, judicial,
regulatory or administrative agency, board, or authority designed to protect the
environment, air, surface, water, groundwater or soil, control pollution, or
regulate the exploration, manufacturing, processing, distributing, use, storage,
transport or handling of Hazardous Materials, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
ss. 9601 ET SEQ.) ("CERCLA"), the Oil Pollution Act (33 U.S.C. ss. 2701 ET SEQ.)
("OPA"), the Resource Conservation and Recovery Act (42 U.S.C. ss. 6901 ET SEQ.)
("RCRA"), and the Federal Water Pollution Control Act (33 U.S.C. ss. 1251 ET
SEQ.) ("CWA"), as such laws have been or hereafter may be amended or
supplemented, and any and all analogous present and future federal, state, and
local laws in jurisdictions where the Company and its Subsidiaries do business.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time. Section references to ERISA are to ERISA as in effect
at the date of this Agreement and any subsequent provisions of ERISA amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA AFFILIATE" shall mean each trade or business (whether or not
incorporated) which together with the Company or a Subsidiary of the Company
would be deemed to be a "single employer" within the meaning of Section 4001 of
ERISA immediately following the acquisition.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"FUNDED INDEBTEDNESS" shall mean and include without duplication any
obligation payable more than one year from the date of the creation thereof
(including the current portion of Funded Indebtedness), which under GAAP is
shown on the balance sheet as a liability (including, without limitation,
Capitalized Lease Obligations and excluding reserves for deferred income taxes
and other reserves to the extent that such reserves do not constitute an
obligation).
"GAAP" shall mean generally accepted accounting principles consistently
applied throughout the period or periods in question.
2
<PAGE>
"GOVERNMENTAL AUTHORITY" shall mean any foreign or domestic federal,
state, county, municipal, or other governmental or regulatory authority, agency,
board, body, commission, instrumentality, court, or any political subdivision
thereof.
"GOVERNMENTAL REQUIREMENT" shall mean any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, permit,
certificate, license, authorization, or other direction or requirement
(including but not limited to any of the foregoing which relate to Environmental
Laws, energy regulations and occupational, safety and health standards or
controls) of any Governmental Authority.
"HAZARDOUS MATERIALS" shall mean, collectively, (i) those substances
included within the definition of or identified as "hazardous substances,"
"hazardous materials," "toxic substances," or "solid waste" in or pursuant to,
without limitation, CERCLA, OPA, RCRA, and the Occupational Health and Safety
Act, and in the regulations promulgated pursuant to said laws, all as amended;
(ii) any material, waste or substance which is or contains (A) petroleum,
including crude oil or any fraction thereof, natural gas, or synthetic gas
usable for fuel or any mixture thereof; (B) asbestos; (C) polychlorinated
biphenyls; (D) designated as a "hazardous substance" pursuant to Section 307 or
311 of the CWA; (E) flammable explosives; or (F) radioactive materials; and
(iii) any such other substances, materials and wastes which are or become
regulated as hazardous or toxic under applicable local, state or federal law, or
which are currently classified as hazardous or toxic under local, state or
federal laws or regulations.
"INDEBTEDNESS" shall mean Funded Indebtedness and/or Current Indebtedness.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any lease in
the nature thereof, and the filing of or agreement to give any financing
statement or like instrument under the laws of any jurisdiction).
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means any material
and adverse effect on, or change to, (i) the assets, liabilities, financial
condition, business, or operations of the Company and its Subsidiaries on a
Consolidated basis, or (ii) the ability of the Company and its Subsidiaries on a
Consolidated basis to carry out their business as at the date of this Agreement.
"NASDAQ" shall mean the Nasdaq Stock Market, Inc., National Market System.
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the
delivering party, by its President, one of its Vice Presidents, its Treasurer or
other authorized officer so designated by the receiving party.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor entity thereto.
"PENSION PLAN" shall mean any multiemployer plan or single-employer plan,
as defined in Section 4001 of ERISA and subject to Title IV of ERISA, which is
maintained after the Acquisition for employees of the Company, any of its
Subsidiaries or any ERISA Affiliates.
3
<PAGE>
"PERMITS" shall mean all licenses, permits, exceptions, franchises,
accreditations, privileges, rights, variances, waivers, approvals and other
authorizations (including, without limitation, those relating to environmental
matters) of, by or from Governmental Authorities necessary for the conduct of
the business of the Company and its Subsidiaries immediately prior to the
Closing and as proposed to be conducted by the Company and its Subsidiaries
after the Closing.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
substantially in the form of Exhibit A hereto, as the same may be amended,
supplemented or otherwise modified from time to time.
"PERSON" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization, a limited
liability company and a government or any department or agency thereof.
"RELEASE" shall mean release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the environment or into or out of any property, including the movement of
Hazardous Materials through or in the air, surface water, or groundwater.
"REMEDIAL ACTION" shall mean any action required by any federal, state or
judicial body or administration or agency acting under an Environmental Law to
(i) clean up, remove or treat Hazardous Materials in the environment; (ii)
prevent a Release or threat of Release or minimize the further Release of
Hazardous Materials so they do not migrate or endanger or threaten to endanger
public health or the environment; (iii) perform post-remedial monitoring and
care; or (iv) cure a violation of any Environmental Law.
"REPORTABLE EVENT" shall mean an event described in Section 4043(b) of
ERISA with respect to which the 30-day notice requirement has not been waived by
the PBGC.
"RESPONSIBLE OFFICER" shall mean the President, any Vice President (of
whatever designation), the Treasurer or the Secretary or any officers performing
functions similar to those performed by the persons who at the time shall be
such officers.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SINGLE-EMPLOYER PENSION PLAN" shall mean a Pension Plan which is a
"single-employer plan" as defined in Section 4001 of ERISA.
"SUBSIDIARY" shall mean any corporation or similar entity a majority of
the stock of every class of which, except directors' qualifying shares, shall,
at the time as of which any determination is being made, be owned by the
Company, either directly or indirectly.
"WARRANT AGREEMENT" means the Warrant Agreement to be executed by the
Company, substantially in the form of Exhibit B hereto, as the name may be
amended, supplemented, or otherwise modified from time to time.
4
<PAGE>
"WARRANT CERTIFICATE" means the certificate evidencing Warrants,
substantially in the form of Exhibit A to the Warrant Agreement, as the same may
be amended, supplemented, or otherwise modified from time to time.
"WARRANT HOLDER" means any holder of the Warrants.
"WARRANT SHARES" means the shares of common stock issued or issuable upon
the exercise of the Warrants.
"WARRANTS" means warrants to purchase shares of common stock of the
Company issued to Purchaser pursuant to this Agreement and the Warrant Agreement
and evidenced by the Warrant Certificate.
2. PURCHASE AND SALE OF COMMON STOCK AND WARRANTS; CLOSING.
2.A. PURCHASE AND SALE OF COMMON STOCK AND WARRANTS. The Company, subject
to the terms and conditions herein set forth, hereby agrees to sell to the
Purchaser and, subject to the terms and conditions herein set forth, the
Purchaser agrees to purchase from the Company, 3,400,000 shares (the "Shares")
of the Company's Common Stock, par value $.01 per share (the "Common Stock"),
which, if issued as of the date hereof, would constitute approximately 15.9% of
the outstanding Common Stock as of the date hereof, and the Warrants. The
aggregate purchase price for the Shares and the Warrants shall be $3,400,000.
2.B. CLOSING. The purchase and delivery of the Shares and the Warrants
shall take place at a closing (the "Closing") at the offices of Fulbright &
Jaworski L.L.P., Houston, Texas, at 10:00 a.m., local time, on April 24, 1998,
or at such other time and place or on such other business day thereafter as the
parties hereto may agree (herein called the "Closing Date"). On the Closing
Date, the Company will deliver the Shares and the Warrants in definitive form,
and in such authorized denominations as the Purchaser may request (such request
to be in writing and delivered to the Company at least forty-eight hours prior
to the Closing), against receipt of the purchase price therefor by wire transfer
of immediately available funds, to the Company, or by such other payment method
as is mutually agreed to by the Purchaser and the Company.
3. PURCHASER'S CONDITIONS OF CLOSING. The Purchasers' obligation to
purchase and pay for the Shares and the Warrants is subject to the satisfaction
or waiver, on or before the Closing Date, of the conditions contained in
Paragraphs 3A through 3K.
3.A. OPINION OF THE COMPANY'S COUNSEL. The Purchaser shall have received
from Fulbright & Jaworski L.L.P., special counsel for the Company, a legal
opinion addressed to the Purchaser and dated the Closing Date substantially in
the form attached hereto as Exhibit C.
3.B. REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in Paragraph 6 hereof shall be true in all material respects on and as
of the Closing Date, except to the extent of changes caused by the transactions
herein contemplated; and the Company shall have delivered to the Purchaser an
Officer's Certificate, dated the Closing Date, to such effect.
5
<PAGE>
3.C. CHARTER DOCUMENTS AND BY-LAWS. The Purchaser shall have received a
certificate, dated the Closing Date, of the Secretary of the Company attaching
(i) a true and complete copy of the Company's Articles of Incorporation with all
amendments thereto, as filed with the Secretary of State of the State of Texas,
(ii) a true and complete copy of the Company's By-Laws in effect as of such
date, (iii) certificates of good standing of the appropriate officials of the
jurisdiction of incorporation of the Company, and (iv) resolutions of the Board
of Directors of the Company authorizing the execution and delivery of this
Agreement and the issuance of the Shares and the Warrant Shares.
3.D. PURCHASE PERMITTED BY APPLICABLE LAWS. The purchase of and payment
for the Shares and the Warrants shall not be prohibited by any applicable law or
governmental regulation (including, without limitation, Regulations G, T and X
of the Board of Governors of the Federal Reserve System) and such purchase and
payment shall not in and of themselves subject the Purchaser to any material
tax, penalty, liability or other materially onerous condition under or pursuant
to any applicable law or governmental regulation.
3.E. LETTER OF ACCOUNTANTS; ACCOMPANYING OFFICER'S CERTIFICATE. The
Purchaser shall have received a certificate from the chief financial officer or
chief executive officer of the Company, dated the Closing Date, to the effect
that the interim financial statements at or for the period ended December 31,
1997, have been prepared using the same accounting policies as those used in
preparing the financial statements for the year ended June 30, 1997 (except as
such policies were otherwise required to be changed or modified by the Company
during the interim period by an appropriate Governmental Authority or the
American Institute of Certified Public Accountants ("AICPA") or similar
accounting boards or bodies), and that since June 30, 1997, such policies have
been used in maintaining the Company's accounting books and records.
3.F. COMPLIANCE WITH SECURITIES LAWS. The offering and sale of the Shares
and the Warrants under this Agreement shall have complied with all applicable
requirements of federal and state securities laws.
3.G. NO ADVERSE U.S. LEGISLATION, ACTION OR DECISION. Subsequent to the
date hereof, no legislation, order, rule, ruling or regulation shall have been
enacted or made by or on behalf of any governmental body, department or agency
of the United States, nor shall any legislation have been introduced and
favorably reported for passage to either House of Congress by any committee of
either such House to which such legislation has been referred for consideration,
nor shall any decision of any court of competent jurisdiction within the United
States have been rendered which would materially and adversely affect an
investment in the Shares or the Warrants. There shall be no action, suit,
investigation or proceeding pending, or to the Company's knowledge, threatened,
against or affecting the Company or any of its Subsidiaries or the Purchaser, or
any of their respective properties or rights, or any of their affiliates,
associates, officers or directors, before any court, arbitrator or
administrative or governmental body which (i) seeks to restrain, enjoin, prevent
the consummation of or otherwise adversely affect the transactions contemplated
by this Agreement or (ii) questions the validity or legality of any such
transaction or seeks to recover damages or to obtain other relief in connection
with any such transaction, and to the Company's knowledge there shall be no
valid basis for any such action, proceeding or investigation.
6
<PAGE>
3.H. APPROVALS AND CONSENTS. The Company shall have duly received all
authorizations, consents, approvals, licenses, franchises, permits and
certificates by or of all federal, state and local governmental authorities, by
any third parties pursuant to the terms of any agreement to which the Company is
a party or by the National Association of Securities Dealers, Inc. or any other
body or agency with jurisdiction, by contract or otherwise, over the Company,
necessary for the issuance of the Shares and the Warrants by the Company and the
consummation of the transactions contemplated hereby, and all thereof shall be
in full force and effect at the time of the Closing. The Company shall have
delivered to the Purchaser an Officer's Certificate, dated the Closing Date, to
such effect.
3.I. REGISTRATION RIGHTS AGREEMENT. The Company shall have executed and
delivered to the Purchaser the Registration Rights Agreement.
3.J. WILLIS GROUP WAIVER. With respect to all securities convertible into
Common Stock, the conversion price of which would otherwise be adjusted as a
result of the transactions contemplated by this Agreement, the Company shall
have received a waiver (the "Willis Group Waiver") of such adjustment as it
applies to the transactions contemplated by this Agreement from the holder of
such securities and Crane shall have received a copy of such waiver.
3.K. NO MATERIAL ADVERSE CHANGE. There shall not have occurred any
Material Adverse Change with respect to the Company since the date hereof.
4. COMPANY'S CONDITIONS OF CLOSING. The Company's obligations to sell the
Shares and the Warrants hereunder is subject to the satisfaction or waiver, on
or before the Closing Date, of the conditions contained in Paragraphs 4A through
4F.
4.A. REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in Paragraph 7 hereof shall be true in all material respects on and as
of the Closing Date; and the Purchaser shall have delivered to the Company an
Officer's Certificate, dated the Closing Date, to such effect.
4.B. PURCHASE OF SHARES. The Purchaser shall have purchased and paid for
the Shares and the Warrants.
4.C. NO ADVERSE ACTION OR DECISION. There shall be no action, suit,
investigation or proceeding pending, or to the Company's knowledge, threatened,
against or affecting the Company or any of its Subsidiaries, or any of their
respective properties or rights, or any of their affiliates, associates,
officers or directors, before any court, arbitrator or administrative or
governmental body which (i) seeks to restrain, enjoin, prevent the consummation
of or otherwise adversely affect the transactions contemplated by this Agreement
or (ii) questions the validity or legality of any such transaction or seeks to
recover damages or to obtain other relief in connection with any such
transaction.
4.D. QUOTATION. The Shares and Warrant Shares shall have been approved for
quotation, subject to official notice of issuance, on the NASDAQ National Market
as of the Closing Date.
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5. AFFIRMATIVE COVENANTS. All covenants contained herein shall be given
independent effect.
5.A. CONDUCT OF BUSINESS OF THE COMPANY.
(a) ORDINARY COURSE. Except as set forth in SCHEDULE 5(A)(A), during the
period from the date of this Agreement to the Closing Date, the Company shall
and shall cause its Subsidiaries to carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent therewith, use commercially
reasonable efforts to preserve intact their current officers and employees and
preserve their relationships with customers, suppliers, licensors, licensees,
distributors and others having business dealings with them, in each case
consistent with past practice, to the end that their goodwill and ongoing
businesses shall be unimpaired to the fullest extent possible at the Closing
Date. Without limiting the generality of the foregoing, except as otherwise
expressly contemplated by this Agreement and the Schedules hereto, without the
prior written consent of the Purchaser, the Company shall not, and shall not
permit any of its Subsidiaries to:
(i) (A) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, other than
dividends and distributions by any direct or indirect wholly owned
Subsidiary of the Company to the Company or a wholly owned Subsidiary of
the Company, (B) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock or (C)
purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its Subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities
other than in connection with the exercise of outstanding stock options
and warrants and satisfaction of withholding obligations under outstanding
stock options and restricted stock;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares
of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities other than, in the
case of the Company, the issuance of shares of Common Stock upon the
exercise of stock options and warrants outstanding on the date of this
Agreement in accordance with their current terms;
(iii) amend its Articles of Incorporation, By-laws or other
comparable charter or organizational document;
(iv) acquire or agree to acquire (A) by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of, or
by any other manner, any business or any corporation, partnership,
association, joint venture, limited liability company or other entity or
division thereof or (B) any assets that, in each case, would be material,
individually or in the aggregate, to the Company and its Subsidiaries
taken as a whole, except purchases in the ordinary course of business
consistent with past practice;
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(v) sell, lease, mortgage, pledge, grant a Lien on or otherwise
encumber or dispose of any of its properties or assets, except (A) sales
or leases in the ordinary course of business consistent with past practice
and (B) other immaterial transactions not in excess of $250,000 in the
aggregate;
(vi) (A) incur indebtedness for borrowed money or guarantee any
such indebtedness of another Person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or
any of its Subsidiaries, guarantee any debt securities of another Person,
enter into any "keep well" or other agreement to maintain any financial
statement condition of another Person or enter into any arrangement having
the economic effect of any of the foregoing, except for working capital
borrowings under currently existing revolving credit facilities incurred
in the ordinary course of business, or (B) make any loans, advances or
capital contributions to, or investments in, any other Person that would
be material, individually or in the aggregate, to the Company and its
Subsidiaries taken as a whole, other than to the Company or any direct or
indirect wholly owned Subsidiary of the Company;
(vii) make or incur any new capital expenditure (other than
purchases in the ordinary course of business), which, singly or in the
aggregate with all other expenditures, would exceed $100,000;
(viii) make any material election relating to Taxes or settle or
compromise any material Tax liability;
(ix) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in the
ordinary course of business consistent with past practice or in accordance
with their terms, of liabilities reflected or reserved against in, or
contemplated by, the most recent consolidated financial statements (or the
notes thereto) of the Company included in the Commission Documents or
incurred in the ordinary course of business consistent with past practice;
(x) waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company or
any of its Subsidiaries is a party;
(xi) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization;
(xii) enter into any new collective bargaining agreement;
(xiii) change any material accounting principle used by it, except
as required by regulations promulgated by the Commission or as mandated by
AICPA or similar accounting boards or bodies;
(xiv) settle or compromise any litigation (whether or not
commenced prior to the date of this Agreement) other than settlements or
compromises: (A) of litigation where the amount paid in settlement or
compromise does not
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exceed $100,000, or (B) in consultation and cooperation with the
Purchaser, and, with respect to any such settlement, with the prior
written consent of the Purchaser, which shall not be unreasonably withheld
or delayed;
(xv) except for those contracts and agreements entered into in the
ordinary course of business with the consent of the Purchaser, which
consent shall not be unreasonably withheld or delayed, enter into any
joint venture or partnership contract or agreement; or
(xvi) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) CHANGES IN EMPLOYMENT ARRANGEMENTS. During the period from the date of
this Agreement to the Closing Date, neither the Company nor any of its
Subsidiaries shall adopt or amend (except as may be required by law) any bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, agreement, trust, fund
or other arrangement for the benefit or welfare of any employee, director or
former director or employee, increase the compensation or fringe benefits of any
officer of the Company or any of its Subsidiaries, or, except as provided in an
existing benefit plan or in the ordinary course of business consistent with past
practice, increase the compensation or fringe benefits of any employee or former
employee or pay any benefit not required by any existing plan, arrangement or
agreement.
(c) SEVERANCE. During the period from the date of this Agreement to the
Closing Date, neither the Company nor any of its Subsidiaries shall grant any
new or modified severance or termination arrangement or increase or accelerate
any benefits payable under its severance or termination pay policies in effect
on the date hereof.
(d) OTHER ACTIONS. During the period from the date of this Agreement to
the Closing Date, the Company shall not, and shall not permit any of its
Subsidiaries to, take any action that would, or that could reasonably be
expected to, result (i) in any of the representations and warranties of the
Company set forth in this Agreement becoming untrue or (ii) in any of the
covenants contained in this Agreement becoming unperformable. Pending the
Closing, the Company will promptly advise the Purchaser of any action or event
of which they become aware which has the effect of making incorrect any of such
representations or warranties or which has the effect of rendering unperformable
any of such covenants.
5.B. VALID ISSUANCE. The Company covenants that the Shares and Warrant
Shares, will, upon issuance and upon full payment therefor in accordance with
the terms hereof, be validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issuance thereof.
5.C. GOVERNMENT REGULATIONS. The Company covenants that it will comply,
and will cause each of its Subsidiaries to comply, with all applicable
governmental restrictions and regulations, the failure to comply with which
would have a material adverse effect on the business or financial condition of
the Company and its Subsidiaries taken as a whole, and obtain and maintain in
good standing all licenses, permits and approvals from any and all governments,
governmental commissions, boards or agencies of jurisdictions in which it or any
of its Subsidiaries carries on
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business required in respect of the operations of the Company or any of its
Subsidiaries, the failure to comply with which would have a material adverse
effect on the business or financial condition of the Company and its
Subsidiaries taken as a whole.
5.D. ERISA. Promptly (and in any event within 30 days) after the Company
or any of its Subsidiaries knows or has reason to know that a Reportable Event
with respect to any Pension Plan has occurred, that any Pension Plan is or may
be terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA or that the Company or any of its Subsidiaries will or may incur any
liability to or on account of a Pension Plan under Sections 4062, 4063, 4064,
4201 or 4204 of ERISA, the Company will deliver to the Purchaser a certificate
of the chief financial officer of the Company setting forth information as to
such occurrence and what action, if any, the Company is required or proposes to
take with respect thereto, together with any notices concerning such occurrences
which are (a) required to be filed by the Company or the plan administrator of
any such Pension Plan controlled by the Company or its Subsidiaries, with the
PBGC or (b) received by the Company or its Subsidiaries from any plan
administrator of a multiemployer or other Pension Plan not under their control.
The Company shall furnish to the Purchaser a copy of each annual report (Form
5500 Series) of any Pension Plan received or prepared by the Company or any of
its Subsidiaries. Each annual report and any notice required to be delivered
hereunder shall be delivered no later than 10 days after the later of the date
such report or notice is filed with the Internal Revenue Service or the PBGC or
the date such report or notice is received by the Company or any of its
Subsidiaries, as the case may be.
5.E. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. The Company covenants
that it (i) will do or cause to be done all things reasonably necessary to
preserve and keep in full force and effect the corporate existence and material
rights of the Company and all of its Subsidiaries, (ii) will cause its
properties and the properties of its Subsidiaries used or useful in the conduct
of their respective businesses to be maintained and kept in good condition,
repair and working order and will use commercially reasonable efforts to cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereto, and (iii) will, and will cause each of its Subsidiaries
to, qualify and remain qualified to conduct business in each jurisdiction where
the nature of the business or the ownership of property by the Company or such
Subsidiary may require such qualification and where the failure to so qualify
would have a material adverse effect on the business or financial condition of
the Company and its Subsidiaries taken as a whole.
5.F. INSURANCE. The Company covenants that it will maintain, and will
cause each of its Subsidiaries to maintain, with financially sound and reputable
insurance companies, funds or underwriters, insurance for the Company and its
Subsidiaries of the kinds, covering the risks and in the relative proportionate
amounts usually carried by companies conducting business activities similar to
those of the Company and its Subsidiaries.
5.G. FURTHER ASSURANCES. The Company covenants that it shall cooperate
with the Purchaser and execute such further instruments and documents as the
Purchaser shall reasonably request to carry out to the satisfaction of the
Purchaser the transactions contemplated by this Agreement.
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5.H. RESERVED.
5.I. NOTICES OF CERTAIN EVENTS. The Company shall promptly give notice to
the Purchaser (i) of any default or event of default that has not been cured
within any applicable grace period under any (y) Indebtedness of the Company or
any of its Subsidiaries, and (z) contractual obligation of the Company or any of
its Subsidiaries or (ii) of any pending or threatened litigation, investigation
or proceeding to which the Company or any of its Subsidiaries is or is
threatened to be a party and of which the Company has been given notice;
PROVIDED that any such default as specified in (z) above, litigation,
investigation or proceeding would have a material adverse effect on the business
or financial condition of the Company and its Subsidiaries taken as a whole. Any
notice delivered pursuant to this Paragraph 5I shall be accompanied by an
Officer's Certificate specifying the details of the occurrence referred to
therein and stating what action the Company proposes to take with respect
thereto.
5.J. RESERVED.
5.K. ENVIRONMENTAL LAWS. The Company and its Subsidiaries shall comply
with all applicable Environmental Laws the failure to comply with which would
have a material adverse effect on the business or financial condition of the
Company and its Subsidiaries taken as a whole. If the Company or any Subsidiary
shall receive written notice that there exists a violation of Environmental Law
with respect to its operations or any real property owned, formerly owned, used,
or leased thereby, which violation could have a material adverse effect on the
business or financial condition of the Company and its Subsidiaries taken as a
whole, the Company shall immediately notify in writing the Purchaser.
Furthermore, if the Company or any Subsidiary shall receive written notice that
there exists a violation of Environmental Law with respect to its operations or
any real property owned, formerly owned, used or leased thereby, which violation
could have a material adverse effect on the business or financial condition of
the Company and its Subsidiaries taken as a whole, the Company shall within the
time period permitted by the applicable governmental authority (unless otherwise
contested by the Company in good faith) remove or remedy such violation in
accordance with all applicable Environmental Laws unless the Board of Directors
of the Company determines that it would be in the best interest of the Company
to delay the remedy of such violation, so long as no material adverse effect is
suffered by the Company during such delay.
5.L. RESERVED.
5.M. RESERVED.
5.N. CERTAIN INFORMATION. To the extent reasonably requested by Buyer, and
at the expense of Buyer, subject to appropriate confidentiality agreements by
Buyer, the Company shall provide such financial information to the Buyer as may
enable the Buyer to determine whether or not the Company is a Qualified Small
Business within the meaning of Section 1202(d) of the Internal Revenue Code.
5.O. QUOTATION OF COMMON STOCK. The Company warrants and agrees for the
benefit of the Purchaser that it will use commercially reasonable efforts to
cause the Shares and Warrant Shares to be approved for quotation, subject to
official notice of issuance, on the NASDAQ National Market as of the Closing
Date.
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6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to the Purchaser as of the date hereof and as of the Closing Date
that:
6.A. CORPORATE EXISTENCE. The Company is a corporation duly organized,
legally existing, and in good standing under the laws of the State of Texas.
6.B. CORPORATE POWER AND AUTHORIZATION. The Company has the requisite
corporate power and authority to issue the Shares, the Warrants and the Warrant
Shares, to execute, deliver, and perform its obligations under this Agreement
and to consummate the transactions contemplated hereby. All action on the
Company's part requisite for the due issuance of the Shares, Warrants and the
Warrant Shares and for the due execution, delivery, and performance of this
Agreement has been duly and effectively taken.
6.C. RESERVED.
6.D. BINDING OBLIGATIONS. This Agreement is enforceable in accordance with
its terms (except that enforcement may be subject to (i) any applicable
bankruptcy, insolvency or similar laws generally affecting the enforcement of
creditors' rights (ii) general principles in equity regardless of whether such
enforcement is sought in a proceeding in equity or at law, and except to the
extent enforceability of the indemnification provisions may be limited under
applicable securities laws).
6.E. NO VIOLATION. Except as disclosed in SCHEDULE 6E, neither the
execution and delivery of this Agreement, the consummation of the transactions
provided for herein or contemplated hereby nor the fulfillment by the Company of
the terms hereof will (a) violate any provision of the Articles of Incorporation
or the by-laws of the Company, (b) result in a default or breach, give rise to
any right of termination, cancellation, acceleration or imposition of any
Indebtedness or Lien, conflict with or require any consent or approval (other
than any consent or approval that has previously been obtained) under any of the
terms, conditions or provisions of any of the Permits or any note, bond,
mortgage, indenture, loan, distribution agreement, license, agreement, lease, or
instrument or obligation to which the Company is a party or by which the Company
may be bound (except where the failure to obtain such consent or approval will
not have a Material Adverse Effect), or (c) violate any law, judgment, order,
writ, injunction, decree, statute, rule, or regulation of any Governmental
Authority applicable to the Company (except where such violation will not have a
Material Adverse Effect). Subject to the receipt by the Company of the Willis
Group Waiver, the sale of Shares, the Warrants and the Warrant Shares will not
result in any change in any exercise price, conversion rate or similar change in
price of any convertible or exchangeable security, option, warrant, right or
other derivative security issued by the Company.
6.F. CONSENTS. Except as disclosed in SCHEDULE 6F, all consents,
approvals, qualifications, orders, or authorizations of, or filings with, any
Governmental Authority, and all consents under any material contracts,
agreements, or instruments by which the Company is bound or to which it is
subject, and required in connection with the Company's valid execution,
delivery, or performance of this Agreement and the offer, sale, and delivery of
the Shares and the consummation of any other transaction contemplated on the
part of the Company have been obtained or made.
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6.G. FINANCIAL INFORMATION.
(a) The Consolidated balance sheet of the Company and its
Subsidiaries as at June 30, 1997, and the related Consolidated statements
of operations, shareholders' equity and cash flows for the 12-month period
then ended, including in each case the related schedules and notes,
reported on by Ernst & Young LLP, are complete and correct and fairly
present in all material respects the Consolidated financial position of
the Company and its Subsidiaries as at the date thereof and the
Consolidated results of operations and changes in cash flows for such
period, in accordance with GAAP.
(b) The unaudited Consolidated balance sheet of the Company and
its Subsidiaries as at December 31, 1997, and the related unaudited
Consolidated statements of operations, shareholders' equity and cash flows
for the three-month period then ended, as included in the Company's
Quarterly Report on Form 10-Q for the quarterly period ended December 31,
1997, true copies of which have been previously delivered to Purchaser,
are complete and correct and fairly present in all material respects the
Consolidated financial position of the Company and its Subsidiaries as at
the date thereof and the Consolidated results of operations and changes in
cash flows for such period in conformity with GAAP, subject only to normal
year-end audit adjustments.
(c) Since June 30, 1997, there has been no Material Adverse
Effect.
6.H. LIABILITIES. Except for liabilities incurred in the ordinary course
of business, none of the Company or any of its Subsidiaries has any material
(individually or in the aggregate) liabilities, direct or contingent (including
but not limited to liability with respect to any Plan) except as disclosed or
referred to in SCHEDULE 6H or in the financial statements referred to in
Paragraph 6G. Neither the Company nor any of its Subsidiaries has any
Indebtedness other than Indebtedness disclosed in SCHEDULE 6H.
6.I. LITIGATION. Except as disclosed in SCHEDULE 6I or as described in any
report filed by the Company with the Commission and delivered to Purchaser,
there is no action, suit, or proceeding, or any governmental investigation or
any arbitration, in each case pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries or any material
property of any thereof before any court or arbitrator or any governmental or
administrative body, agency or official (i) which challenges the validity of
this Agreement; or (ii) which, if adversely determined, would have a Material
Adverse Effect.
6.J. COMPLIANCE WITH ERISA. Each Plan is in substantial compliance with
ERISA, no Plan has an accumulated or waived funding deficiency within the
meaning of Section 412 or Section 418(B) of the Code, no proceedings have been
instituted to terminate any Plan, and except as disclosed in SCHEDULE 6J, none
of the Company or any of its Subsidiaries nor any ERISA Affiliate has incurred
any material liability to or on account of a Plan under ERISA, and except as
disclosed in SCHEDULE 6J, no condition exists which presents a material risk to
the Company or any of its Subsidiaries of incurring such a liability.
6.K. TAXES; GOVERNMENTAL CHARGES. Each of the Company and its Subsidiaries
has filed all tax returns and reports required to be filed and has paid all
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taxes, assessments, fees, and other governmental charges levied upon any of them
or upon any of their respective properties or income which are due and payable,
including interest and penalties, or has provided adequate reserves for the
payment thereof, except where the failure to so file, pay, or reserve would not
have a Material Adverse Effect.
6.L. DEFAULTS. Except as disclosed in SCHEDULE 6L, none of the Company or
any of its Subsidiaries is in default, nor has any event or circumstance
occurred which, but for the passage of time or the giving of notice, or both,
would constitute a default (in any respect which may have a Material Adverse
Effect) under any loan or credit agreement, indenture, mortgage, deed of trust,
security agreement, or other instrument or agreement evidencing or pertaining to
any Indebtedness of the Company or any Subsidiary, or under any material
agreement or instrument to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary is bound. No default hereunder has occurred
and is continuing.
6.M. COMPLIANCE WITH THE LAW. None of the Company or any of its
Subsidiaries (a) is in violation of any Governmental Requirement or (b) has
failed to obtain any license, permit, franchise, or other governmental
authorization necessary to the ownership of any of their respective properties
or the conduct of their respective business, which violation or failure would
have (in the event that such a violation or failure were asserted by any Person
through appropriate action) a Material Adverse Effect.
6.N. INVESTMENT COMPANY ACT. None of the Company or any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
6.O. PUBLIC UTILITY HOLDING COMPANY ACT. None of the Company or any of its
Subsidiaries is a "holding company," or a "Subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "Subsidiary company"
of a "holding company," or a "public utility" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
6.P. FEES AND COMMISSIONS. None of the Company or any of its Subsidiaries
nor, to the knowledge of any of the Company, their Affiliates has retained a
finder, broker, agent, financial advisor, or other intermediary (collectively,
an "INTERMEDIARY") in connection with the transactions contemplated by this
Agreement, and the Company agrees to pay and to indemnify and hold harmless
Purchaser from and against liability for any compensation to any Intermediary
and the fees and expenses of defending against such liability or alleged
liability.
6.Q. DISCLOSURE. The Company's filings made pursuant to the Exchange Act
and listed on SCHEDULE 6Q hereto as of their respective dates, did not contain
any untrue statement of a material fact and did not omit to state any material
fact necessary in order to make the statements contained therein or herein not
misleading in the light of the circumstances under which they were made.
6.R. STRUCTURE; CAPITALIZATION.
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(a) SCHEDULE 6R contains (except has noted therein) a complete and
correct list of the Company's Subsidiaries, showing, as to each
Subsidiary, the correct name thereof, the jurisdiction of its
organization, and the percentage of shares of each class of its capital
stock or similar equity interests outstanding owned by the Company and
each other Subsidiary.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in SCHEDULE 6R as being owned by
the Company and its Subsidiaries have been validly issued, are fully paid
and nonassessable, and are owned by the Company or such other Subsidiaries
free and clear of any Lien (except as otherwise disclosed in SCHEDULE 6R.
(c) No Subsidiary of the Company is a party to, or otherwise
subject to any legal restriction of any agreement (other than this
Agreement and customary limitations imposed by corporate law statutes)
restricting the ability of such Subsidiary to pay dividends out of profits
or make any other similar distributions of profits to the Company or any
of its Subsidiaries that owns outstanding shares of capital stock or
similar equity interests of such Subsidiary.
(d) As of the Closing Date, immediately after giving effect to the
transactions contemplated in this Agreement (i) the Company's authorized
capital stock will consist of 55,000,000 shares, of which 50,000,000 are
designated Common Stock and 5,000,000 shares are designated preferred
stock (2,000 of which will be designated as Series A Convertible Preferred
Stock, $.01 par value per share and 3,000 of which will be designated as
Series B Convertible Preferred Stock, $.01 par value per share); (ii) the
number of Shares of Common Stock outstanding will be as set forth on
SCHEDULE 6R all of which will be validly issued, fully paid, and
non-assessable; (iii) the only outstanding warrants, options or other
securities convertible into Common Stock will be those set forth (and
exercisable on the dates and at the amounts per share set forth) in
SCHEDULE 6R; (iv) no shares of Common Stock will be owned or held by or
for the account of the Company or any of its Subsidiaries (except as
disclosed in the financial statements described in Paragraph 6G); (v)
except as disclosed on SCHEDULE 6R, neither the Company nor any of its
Subsidiaries will have outstanding any stock or other securities
convertible into or exchangeable for any shares of capital stock, any
rights to subscribe for or to purchase or any options for the purchase of,
or any agreements providing for the issuance (contingent or otherwise) of,
or any calls, commitments or claims of any other character relating to the
issuance of, any capital stock, or any stock or securities convertible
into or exchangeable for any capital stock which have not been waived
(other than as contemplated by this Agreement); and (vi) except as
disclosed in SCHEDULE 6R, neither the Company nor any of its Subsidiaries
will be subject to any obligation (contingent or otherwise) to repurchase
or otherwise acquire or retire any shares of capital stock.
6.S. ENVIRONMENTAL MATTERS.
(a) Neither any property of any of the Company or any of its
Subsidiaries nor the operations conducted thereon violate any order of any
court or Governmental Authority or Environmental Laws which violations
could reasonably be expected to result in liability in excess of $250,000
or which could
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reasonably be expected to result in remedial obligations in excess of
$250,000, assuming disclosure to the applicable Governmental Authority of
all relevant facts, conditions and circumstances, if any, pertaining to
the relevant property.
(b) Without limitation of clause (a) above, no property of any of
the Company or any of its Subsidiaries nor the operations currently
conducted thereon or by any prior owner or operator of such property or
operation, are in violation of or subject to any existing, pending or, to
the knowledge of the Company, threatened action, suit, investigation,
inquiry or proceeding by or before any court or Governmental Authority or
to any remedial obligations under Environmental Laws which could
reasonably be expected to result in liability in excess of $250,000, or
which could reasonably be expected to result in remedial obligations in
excess of $250,000 assuming disclosure to the applicable Governmental
Authority of all relevant facts, conditions and circumstances, if any,
pertaining to the relevant property.
(c) All notices, permits, licenses or similar authorizations, if
any, required to be obtained or filed in connection with the operation or
use of any and all property of the Company and its Subsidiaries, including
but not limited to past or present treatment, storage, disposal or release
of Hazardous Materials into the environment, have been duly obtained or
filed, except where the failure to so obtain or file would not have a
Material Adverse Effect.
6.T. INTELLECTUAL PROPERTY AND OTHER INTANGIBLE ASSETS.
(a) The Company and its Subsidiaries (i) own or have the right to
use, free and clear of all liens, claims, and restrictions, all patents,
trademarks, service marks, trade names, and copyrights, and all
applications, licenses, and rights with respect to the foregoing, and all
trade secrets, including know-how, inventions, designs, processes, works
of authorship, computer programs, and technical data and information
(collectively, "INTELLECTUAL PROPERTY") used and sufficient for use in the
conduct of its business as now conducted and/or as presently proposed to
be conducted (including, without limitation, the development, manufacture,
operation, and sale of all products and services sold or proposed to be
sold by the Company and its Subsidiaries during the next 24 months
following the date of this Agreement) without infringing upon or violating
any right, lien, or claim of others, including, without limitation, former
employees and former employers of its past and present employees, and (ii)
except described in SCHEDULE 6T, is not obligated or under any liability
whatsoever to make any payments by way of royalties, fees, or otherwise to
any owner or licensee of, or other claimant to, any patent, trademark,
service mark, trade name, copyright, or other intangible asset, with
respect to the use thereof or in connection with the conduct of its
business or otherwise.
(b) Any and all Intellectual Property of any kind, relating to the
business of the Company and its Subsidiaries currently being developed, or
developed in the future, by any employee of the Company and its
Subsidiaries while in the employ of the Company and its Subsidiaries shall
be the property solely of the Company and its Subsidiaries. The Company
and its Subsidiaries have taken security measures to protect the secrecy,
confidentiality, and value of all Intellectual Property, which measures
are reasonable and customary in the
17
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industry in which the Company and its Subsidiaries operate. The Company
and its Subsidiaries' employees and other persons who, either alone or in
concert with others, developed, invented, discovered, derived, programmed,
or designed the Intellectual Property (the "TECHNICAL EMPLOYEES"), or who
have knowledge of or access to information about the Intellectual
Property, have entered into a written agreement with the Company or its
Subsidiaries, in form and substance satisfactory to the Company's
management (the "PROPRIETARY INFORMATION AGREEMENT") regarding ownership
and treatment of the Intellectual Property.
(c) Except as described in SCHEDULE 6T, none of the Company or its
Subsidiaries has received any communications alleging that the Company or
such Subsidiary has violated, or by conducting its business as proposed
would violate, any of the patents, trademarks, service marks, trade names,
copyrights, or trade secrets or other proprietary rights of any other
Person or entity. None of the Company's and its Subsidiaries' employees is
obligated under any contract (including licenses, covenants, or
commitments of any nature) or other agreement, or subject to any judgment,
decree, or order of any court or administrative agency, that would
interfere with the use of such employee's best efforts to promote the
interests of the Company or its Subsidiaries or that would conflict with
the Company's or its Subsidiaries' business as presently conducted and as
proposed to be conducted. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's or its Subsidiaries'
business by the employees of the Company and its Subsidiaries, nor the
conduct of the Company's or its Subsidiaries' business as proposed to be
conducted, will conflict with or result in a breach of the terms,
conditions, or provisions of, or constitute a default under, any contract,
covenant, or instrument under which any of such employees is now
obligated. It is not, and will not become, necessary to utilize any
inventions of any of the Company's or its Subsidiaries' employees (or
people the Company and its Subsidiaries currently intends to hire) made
prior to their employment by the Company and its Subsidiaries other than
those that have been assigned to the Company and its Subsidiaries pursuant
to the Proprietary Information Agreement signed by such employee.
6.U. INSURANCE COVERAGE. The properties of the Company and its
Subsidiaries are insured in amounts deemed adequate by the Company's management
against risks usually insured against by Persons operating businesses similar to
those of the Company and its Subsidiaries in the localities where such
properties are located.
7. REPRESENTATIONS AND WARRANTIES OF PURCHASER. To induce the Company to
enter into this Agreement, Purchaser represents and warrants to the Company
that:
7.A. PURCHASE FOR INVESTMENT.
(a) Purchaser is acquiring the Shares and the Warrants (and the
Warrant Shares) for his own account and not with a view to the public
resale or distribution of all or any part thereof in any transaction which
would constitute a "distribution" within the meaning of the Securities
Act. Purchaser acknowledges that he does not currently intend to assign
its rights under this Agreement to any third party prior to the Closing.
18
<PAGE>
(b) Purchaser acknowledges that the Shares and the Warrants (and
the Warrant Shares) have not been registered under the Securities Act.
(c) Purchaser is an "accredited investor" within the meaning of
Rule 501 under Regulation D promulgated under the Securities Act, is
experienced in evaluating investments in companies such as the Company,
has such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of his investment and has
the ability to bear the entire economic risk of his investment. Purchaser
has made his own evaluation of his investment in the Common Stock, based
upon such information as is available to him and without reliance upon the
Company or any other person or entity, and Purchaser agrees that neither
the Company nor any other person or entity has any obligation to furnish
any additional information to Purchaser except as expressly set forth
herein.
(d) Purchaser acknowledges that the Shares and the Warrants (and
the Warrant Shares) may not be sold, transferred, pledged, hypothecated,
or otherwise disposed of without registration under the Securities Act or
an exemption therefrom, and that in the absence of an effective
registration statement covering the Shares the Warrants or the Warrant
Shares, as applicable, or an available exemption from registration under
the Securities Act, the Shares and the Warrants (and the Warrant Shares)
must be held indefinitely.
(e) Purchaser agrees that the Shares and the Warrants (and the
Warrant Shares) shall bear legends in substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE
TRANSFERRED, EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, OR (ii) AN APPLICABLE
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT. ANY SALE
PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST BE
ACCOMPANIED BY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY TO THE EFFECT THAT SUCH EXEMPTION FROM REGISTRATION IS
AVAILABLE IN CONNECTION WITH SUCH SALE."
7.B. AUTHORIZATION; NO CONFLICT. Purchaser has all requisite capacity and
authority to enter into this Agreement and to carry out and perform his
obligations under the terms of this Agreement. This Agreement is a legal, valid,
and binding obligation of Purchaser. The execution, delivery, and performance of
this Agreement by Purchaser and the consummation by Purchaser of the
transactions contemplated hereby will not conflict with or result in a default
under the terms of any material contract, agreement, obligation or commitment
applicable to Purchaser.
8. TERMINATION, AMENDMENT AND WAIVER.
19
<PAGE>
8.A. TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by mutual written consent of Purchaser and the Company;
(b) by either Purchaser or the Company;
(i) if the transaction contemplated by this Agreement shall
not have been consummated on or before May 31, 1998, unless the
failure to consummate the transaction contemplated by this
Agreement is the result of a material breach of this Agreement by
the party seeking to terminate this Agreement; or
(ii) if any permanent injunction or other order of a court or
other competent authority preventing the consummation of the
transactions contemplated by this Agreement shall have become
final and nonappealable.
(c) by Purchaser, if the Company breaches any of its
representations or warranties herein or fails to perform in any material
respect any of its covenants, agreements or obligations under this
Agreement; and
(d) by the Company, if Purchaser breaches any of its
representations or warranties herein or fails to perform in any material
respect any of its covenants, agreements or obligations under this
Agreement.
8.B. EFFECT OF TERMINATION. In the event of termination of this Agreement
by either the Company or Purchaser as provided in Section 8A, this Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of Purchaser or the Company, other than the provisions of
Section 9A.
9. MISCELLANEOUS.
9.A. FEES AND EXPENSES.
(a) Reserved.
(b) The Company agrees, in the event that the transactions hereby
contemplated shall be consummated, to pay all reasonable out-of-pocket
expenses of the Purchaser arising in connection with the transactions and
other agreements and instruments contemplated by this Agreement, including
reasonable fees and expenses of counsel incurred in connection with the
preparation and negotiation of this Agreement, any other agreement or
instrument to be executed and delivered in connection with this Agreement.
The Company agrees to pay the Purchaser and/or their counsel, as
appropriate, all such fees and expenses incurred up to and including the
Closing, at the Closing.
9.B. AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
20
<PAGE>
9.C. EXTENSION; WAIVER. At any time prior to the Closing Date, the parties
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or the other acts of the other parties, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto or (c) subject to the proviso of Section 9B,
waive compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of such rights.
9.D. ASSIGNMENT. This Agreement shall not be assigned by operation of law
or otherwise before the Closing Date, and any attempt at assignment shall be
void; PROVIDED, HOWEVER, that the Purchaser shall be permitted to assign its
rights under this Agreement to a third party ("Purchaser Assignee") before the
Closing Date so long as (i) Purchaser retains its obligations under this
Agreement, (ii) such third party becomes a party to this Agreement and joins
Purchaser in the representations and warranties in Paragraph 7 of this
Agreement, and (iii) Purchaser first offers to assign its rights under this
Agreement to a third party designated by the Company ("Company Designee") on
substantially similar terms as offered by Purchaser Assignee and the Company
Designee shall fail to respond or purchase such rights during the offer period
(the term of which period the Parties hereto shall mutually agree).
9.E. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained herein or made in writing by or on behalf of any party to
this Agreement in connection herewith shall survive the execution and delivery
of this Agreement, regardless of any investigation made by the Purchaser or on
their behalf, and shall terminate on the fourth anniversary of the Closing Date.
9.F. SUCCESSORS AND ASSIGNS; NO THIRD PARTY. All covenants and agreements
in this Agreement contained by or on behalf of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto and, to the extent provided in this Agreement, to the benefit of any
future holders of any Common Stock. Subject to the foregoing, nothing in this
Agreement shall confer upon any person or entity not a party to this Agreement,
or the legal representatives of such person or entity, any rights or remedies of
any nature or kind whatsoever under or by reason of this Agreement.
9.G. NOTICES. All communications provided for hereunder shall be sent by
registered or certified mail and, if to the Purchaser, to the following: James
R. Crane, 15350 Vickery Drive, Houston, Texas 77032, with a copy to Gene J.
Oshman, at Baker & Botts, L.L.P., 3000 One Shell Plaza, 910 Louisiana, Houston,
Texas 77002; if to the Company addressed to it at EqualNet Holding Corp., 1250
Wood Branch Park Drive, Houston, Texas 77079-1212, Attn: General Counsel, with a
copy to Fulbright & Jaworski L.L.P., 1301 McKinney, Suite 5100, Houston, Texas
77010, Attn: Robert F. Gray, Jr., or to such other address with respect to any
party as such party shall notify the other in writing; provided, however, that
any such communication to the Company may also, at the option of the Purchaser,
be either delivered to the Company at the Company's address set forth above or
to any officer of the Company. Within 5 Business Days after the date of such
mailing (save for any postal interruption) such communication shall be deemed to
have been received.
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<PAGE>
9.H. DESCRIPTIVE HEADINGS. The descriptive headings of the several
Paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
9.I. SATISFACTION REQUIREMENT. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to the Purchaser, the determination of such
satisfaction shall be made by the Purchaser in its sole and exclusive reasonable
judgment exercised in good faith.
9.J. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the law of the State of Texas without giving effect to the
choice of law or conflicts principles thereof. Any legal action or proceeding
with respect to this Agreement may be brought in the courts of the State of
Texas or of the United States of America for the Southern District of Texas,
and, by execution and delivery of this Agreement, the Company hereby accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The Company irrevocably consents to the
service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the Company at its address set forth in Section 9G, such
service to become effect 30 days after such mailing. Nothing herein shall affect
the right of the Purchaser to serve process in any other manner permitted by law
or to commence legal proceedings or otherwise proceed against the Company in any
other jurisdiction.
9.K. REMEDIES. In case any one or more of the covenants and/or agreements
set forth in this Agreement shall have been breached by the Company or the
Purchaser, the Company or the Purchaser, as applicable, may proceed to protect
and enforce its or their rights either by suit in equity and/or by action at
law.
9.L. ENTIRE AGREEMENT. This Agreement, including the Schedules hereto, and
the other writings referred to herein or delivered pursuant hereto contain the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior and contemporaneous arrangements or understandings with
respect thereto.
9.M. SEVERABILITY. Any provisions of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
9.N. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but which together
shall constitute a single agreement.
9.O. BROKERAGE. Each party hereto will indemnify and hold harmless the
others against and in respect of any claim for brokerage or other commissions
relative to this Agreement or to the transactions contemplated hereby, based in
any way on agreements, arrangements or understandings made or claimed to have
been made by such party with any third party.
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<PAGE>
9.P INDEMNIFICATION. The Company hereby agrees to indemnify and defend the
Purchaser and his agents and representatives ("Indemnified Persons") from and
hold each of them harmless against any and all losses, liabilities, claims or
damages, arising from any investigation, litigation or other proceeding related
primarily to this Agreement and brought or threatened by any third-party that is
wholly unaffiliated with such Indemnified Person including, without limitation,
amounts paid in settlement, court costs and the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding (but excluding any such losses, liabilities,
claims, damages or expenses incurred by reason of the negligence, gross
negligence or willful misconduct of the Indemnified Persons). All obligations
provided for in this PARAGRAPH 9P shall survive any termination of this
Agreement. Promptly after receipt by an Indemnified Person of notice of any
claim or the commencement of any action, such Indemnified Person shall, if any
claim in respect there is to be made against the Company under this PARAGRAPH
9P, notify the Company in writing of the claim or the commencement of that
action. The Company shall not be liable for any settlement of any such claim or
action involving the payment of monetary damages effected without its prior
written consent, which consent the Company may grant or withhold in its sole and
absolute discretion. If any such claim or action shall be brought against an
Indemnified Person and it shall notify the Company thereof and the Company
acknowledges its liability in writing pursuant to this paragraph, the Company
shall be entitled to assume and control the defense thereof, subject to the
right of the Indemnified Person to participate in the defense at its own cost.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be duly
executed and delivered as of the date first above written.
EQUALNET HOLDING CORP.
By: /S/ ROBERT H. TURNER
Robert H. Turner, President and
Chief Executive Officer
/S/ JAMES R. CRANE
JAMES R. CRANE
24
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of April 24, 1998 is entered
into between EQUALNET HOLDING CORP., a Texas corporation (the "Company") and
JAMES R. CRANE, a natural person residing in Texas ("Crane").
RECITALS
In connection with the consummation of the transactions contemplated by
the certain Stock and Warrant Purchase Agreement dated April 24, 1998 among the
Company and Crane (the "Agreement"), 3,400,000 shares (the "Shares") of the
Common Stock of the Company, $.01 par value per share (the "Common Stock"), and
a warrant (the "Warrant") for the purchase of an additional 170,000 shares of
Common Stock were issued to Crane.
Pursuant to the terms of this Agreement, the Company has agreed to grant
to Crane (and his successors and permitted assigns) certain registration rights
with respect to the Shares and the Common Stock issuable upon exercise of the
Warrant (collectively, the "Registrable Shares").
NOW, THEREFORE, in and for the mutual covenants and agreements set forth
herein, the Company and Crane agree as follows:
A. REGISTRATION RIGHTS.
1. DEMAND REGISTRATION RIGHTS. (a) The Company covenants and agrees with
Crane that within 60 days after receipt of a written request from Crane (the
"Initiating Holder"), the Company shall file a registration statement (and use
its commercially reasonable efforts to cause such registration statement to
become effective under the Securities Act of 1933, as amended (the "Securities
Act")) with respect to the offering and sale or other disposition of any number
of shares of the Registrable Securities (the "Demand Securities"); provided that
the Company may defer its obligations under this Section 1 for a period of no
more than 90 days if the Company's Board of Directors adopts a resolution that
filing such a registration statement would require a public disclosure by the
Company which disclosure would have material adverse consequences for the
Company, such as a disclosure regarding a pending material acquisition by the
Company; provided further that once such information has been publicly
disclosed, then the Company shall promptly proceed to fulfill its obligations
under this Section 1. The
<PAGE>
Company shall continuously maintain the effectiveness of such registration
statement for the lesser of (i) 180 days after the effective date of the
registration statement or (ii) the consummation of the distribution by the
holders of the Demand Securities covered by such registration statement (the
ATermination Date@); provided, however, that if at the Termination Date, the
Demand Securities are covered by a registration statement which also covers
other securities and which is required to remain in effect beyond the
Termination Date, the Company shall maintain in effect such registration
statement as it relates to the Demand Securities for so long as such
registration statement (or any subsequent registration statement) remains or is
required to remain in effect for any of such other securities. The Company shall
not be required to comply with more than two requests for registration pursuant
to this Section 1. In addition, the Company shall be required to effect up to
three registrations of the Registerable Securities on Form S-3 or any successor
to such form promulgated under the Securities Act at the request of Crane;
PROVIDED that the requirements for use of such from set forth in the
instructions to such form are met. All expenses of such registration shall be
borne by the Company, except that underwriting commissions and expenses
attributable to the Demand Securities and fees and disbursements of counsel and
other advisors (if any) to the Initiating Holder will be borne by such holders
requesting that such securities be offered.
(b) If the Initiating Holder intends to distribute the Demand Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to this Section 1. The right of
any other holder to registration pursuant to this Section 1 shall be conditioned
upon such holder's participation in such underwriting and the inclusion of such
holder's Demand Securities in the underwriting (unless otherwise mutually agreed
by a majority in interest of the Initiating Holder and such holder with respect
to such participation and inclusion) to the extent provided herein. A holder may
elect to include in such underwriting all or a part of the Demand Securities it
holds. If other holders of registration rights request inclusion in any
registration statement pursuant to this Section 1(b), such holders may be
included in the underwriting conditioned on their acceptance of the further
applicable provisions of this Section 1(b). The Company shall (together with
other holders proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with a
representative of the underwriter or underwriters selected for such underwriting
by a majority in interest of the Initiating Holder. If the representative
advises the Initiating Holder in writing that marketing factors require a
limitation on the number of shares to be underwritten, then securities held by
holders other than the Initiating Holder shall be excluded from such
registration to the extent so required by such limitation.
2. PIGGY-BACK REGISTRATION RIGHTS. The Company covenants and agrees with
Crane that, in the event the Company proposes to file a registration statement
under the Securities Act with respect to a firm commitment offering of Common
Stock (other than in connection with an exchange offer or a registration
statement on Form S-4 or S-8 or other similar registration statements not
available to register securities so requested to be
<PAGE>
included), the Company shall in each case give written notice of such proposed
filing to Crane at least 30 days before the earlier of the anticipated or the
actual effective date of the registration statement and at least ten days before
the initial filing of such registration statement and such notice shall offer to
such holders the opportunity to include in such registration statement such
number of shares of the Registrable Securities (the APiggyback Securities@) as
they may request. Holders desiring inclusion of Piggy-back Securities in such
registration statement shall so inform the Company by written notice, given
within ten days of the giving of such notice by the Company. The Company shall
permit, or shall cause the managing underwriter of a proposed offering to
permit, the holders of Piggy-back Securities requested to be included in the
registration to include such securities in the proposed offering on the same
terms and conditions as applicable to securities of the Company, if any,
included therein for the account of any person other than the Company and the
holders. Notwithstanding the foregoing, if any such managing underwriter shall
advise the Company in writing that, in its opinion, the distribution of
securities by holders thereof, including all or a portion of the Piggy-back
Securities, requested to be included in the registration concurrently with the
securities being registered by the Company, would materially adversely affect
the distribution of such securities by the Company for its own account, then the
holders of the Registrable Securities shall delay their offering and sale of the
Registrable Securities (or the portions thereof so designated by such managing
underwriter) for such period, not to exceed 120 days, as the managing
underwriter shall request, provided that if any other securities are included in
such registration statement for the account of any person other than the Company
and the holders of Piggy-back Securities, then such securities, including the
Piggy-back Securities, so included shall be apportioned among holders who wish
to be included therein pro rata according to amounts so requested to be included
by each such person. No such delay shall in any event impair any right granted
hereunder to make subsequent requests for inclusion pursuant to the terms of
this Section 2. The Company shall continuously maintain in effect any
registration statement with respect to which the Piggy-back Securities have been
requested to be included (and so included) for a period of not less than 180
days after the effectiveness of such registration statement (APiggy-back
Termination Date@); provided, however, that if at the Piggy-back Termination
Date the Piggy-back Securities are covered by a registration statement which is,
or is required to remain, in effect beyond the Piggy-back Termination Date, the
Company shall maintain in effect the registration statement as it relates to the
Piggy-back Securities for so long as such registration statement remains or is
required to remain in effect for any of such other securities. All expenses of
such registration shall be borne by the Company, except that underwriting
commissions and expenses attributable to the Piggy-back Securities and fees and
distributions of counsel and other advisors (if any) to the holders requesting
that the Piggy-back Securities be offered will be borne by such holders.
3. OTHER MATTERS. In connection with the registration of Registrable
Securities in accordance with Sections 1 or 2 above, the Company agrees to:
<PAGE>
(i) Use its commercially reasonable efforts to register or qualify
the Registrable Securities for offer or sale under state securities or
Blue Sky laws of such jurisdictions in which the holders of such
Registrable Securities shall designate; provided that in no event shall
the Company be obligated to qualify to do business in any jurisdiction
where it is not now so qualified or to take any action which would subject
it to general service of process in any jurisdiction where it is not now
so subject, and use its commercially reasonable efforts to do any and all
other acts and things which may be necessary or advisable to enable the
holders of Registrable Securities to consummate the sale, transfer, or
other disposition of such securities in any jurisdiction;
(ii) Enter into indemnity and contribution agreements, each in
customary form, with each underwriter, if any, and each holder of
Registrable Securities included in such registration statement; and, if
requested, enter into an underwriting agreement containing customary
representations, warranties, covenants, allocation of expenses, and
customary closing conditions including, but not limited to, opinions of
counsel and accountants= cold comfort letters with any underwriter who
participates in the offering of Registrable Securities;
(iii) Pay all expenses in connection with the registration of the
Registrable Securities under the Securities Act and compliance with the
provisions of clause (i) above, except to the extent otherwise provided in
Sections 1 or 2; and
(iv) List or quote the Registrable Securities on each securities
exchange or quotation system, if any, on which the Common Stock is listed
or quoted.
In connection with the registration of Registrable Securities in
accordance with Section 2, the holders agree to enter into an underwriting
agreement containing customary representations, warranties, covenants,
allocation of expenses (not otherwise inconsistent with this Agreement), and
customary closing conditions, with any underwriter who participates in the
offering of Registrable Securities.
4. RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The Company agrees not to
effect any public sale or distribution of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for such shares of
Common Stock (or any option or other right for such securities), except for any
securities that may be issued to the holders upon conversion of Preferred Stock,
during the 15-day period prior to, and during the 60-day period beginning on the
effective date of any registration statement under which the Registrable
Securities are registered in accordance with Sections 1 or 2 above (other than
as part of such registration).
5. RULE 144. With a view to making available to Crane the benefits of
certain rules of the Securities and Exchange Commission (the ACommission@) that
may permit
<PAGE>
the sale of Registrable Securities to the public without registration, the
Company hereby covenants and agrees to use its commercially reasonable best
efforts to: (i) file in a timely manner all reports and other documents required
to be filed by it under the Securities Act and the Securities Exchange Act of
1934, as amended, and the rules and regulations adopted by the Commission
thereunder necessary to permit sales under Rule 144 under the Securities Act,
and the Company will take such further action to the extent reasonably required
from time to time to permit Crane to sell Registrable Securities (whether or not
any such securities have been the subject of a demand or piggy-back request
under Sections 1 and 2 hereof) without registration under the Securities Act
within the limitation of the exemptions provided by (A) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (B) any
similar rule or regulation hereafter adopted by the Commission and (ii) promptly
furnish to Crane a copy of all such reports and documents upon request. Upon the
request of Crane, the Company will deliver to Crane a written statement as to
whether it has complied with such requirements.
6. OTHER REGISTRATION RIGHTS. The Company hereby agrees that it shall not
grant any additional registration rights with respect to shares of its Common
Stock, warrants to purchase its Common Stock or securities convertible into its
Common Stock, which are inconsistent with the provisions of this Agreement. The
Company hereby represents that, subject to the receipt of the Willis Group
Waiver (as defined in the Agreement), this Registration Rights Agreement does
not conflict with any outstanding registration rights granted by the Company
with respect to any shares of its Common Stock, warrants to purchase its Common
Stock or securities convertible into its Common Stock.
7. MISCELLANEOUS.
(a) This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
(b) All covenants and agreements in this Agreement contained by or
on behalf of the parties hereto shall bind and inure to the benefit of the
respective successors and permitted assigns of the parties hereto and, to the
extent provided in this Agreement, to the benefit of any future holders of any
Registrable Securities. Neither this Agreement nor any of the rights, interest
or obligations hereunder shall be assigned by either of the parties hereto
without the prior written consent of the other party hereto. Subject to the
foregoing, nothing in this Agreement shall confer upon any person or entity not
a party to this Agreement, or the legal representatives of such person or
entity, any rights or remedies of any nature or kind whatsoever under or by
reason of this Agreement.
(c) All communications provided for hereunder shall be sent by
<PAGE>
registered or certified mail and, if to Crane, to the following: James R. Crane,
15350 Vickery Drive, Houston, Texas 77032, with a copy to Gene J. Oshman, at
Baker & Botts, L.L.P., 3000 One Shell Plaza, 910 Louisiana, Houston, Texas
77002; if to the Company addressed to it at EqualNet Holding Corp., 1250 Wood
Branch Park Drive, Houston, Texas 77079-1212, Attn: General Counsel, with a copy
to Fulbright & Jaworski L.L.P., 1301 McKinney, Suite 5100, Houston, Texas 77010,
Attn: Robert F. Gray, Jr., or to such other address with respect to any party as
such party shall notify the other in writing; provided, however, that any such
communication to the Company may also, at the option of Crane, be either
delivered to the Company at the Company's address set forth above or to any
officer of the Company. Within five business days after the date of such mailing
(save for any postal interruption) such communication shall be deemed to have
been received.
(d) This Agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law of the State
of Texas without giving effect to the choice of law or conflicts principles
thereof. Any legal action or proceeding with respect to this Agreement may be
brought in the courts of the State of Texas or of the United States of America
for the Southern District of Texas, and, by execution and delivery of this
Agreement, the Company hereby accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts. The
Company irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to the Company at its
address set forth in above, such service to become effect 30 days after such
mailing. Nothing herein shall affect the right of the Crane to serve process in
any other manner permitted by law or to commence legal proceedings or otherwise
proceed against the Company in any other jurisdiction.
(e) In case any one or more of the covenants and/or agreements set
forth in this Agreement shall have been breached by the Company or Crane, the
Company or Crane, as applicable, may proceed to protect and enforce its or their
rights either by suit in equity and/or by action at law.
(f) This Agreement contains the entire agreement among the parties
with respect to the subject matter hereof and supersede all prior and
contemporaneous arrangements or understandings with respect thereto.
<PAGE>
(g) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute a single agreement.
EQUALNET HOLDING CORP.
By:/S/ ROBERT H. TURNER
Robert H. Turner, President and
Chief Executive officer
/S/ JAMES R. CRANE
JAMES R. CRANE
WARRANT AGREEMENT
This WARRANT AGREEMENT dated as of April 24, 1998, between EQUALNET
HOLDING CORP., a Texas corporation (the "COMPANY"), and JAMES R. CRANE, a
natural person residing in Texas ("CRANE" and, together with any transferee of
Warrants or Warrant Shares, the "WARRANT HOLDER(S)").
WHEREAS, Crane and the Company have entered into a certain Stock and
Warrant Purchase Agreement (the "PURCHASE AGREEMENT") dated April 24, 1998; and
WHEREAS, the Company proposes to issue to Crane pursuant to the Purchase
Agreement, common stock purchase warrants (the "WARRANTS") to purchase up to
170,000 shares (the "WARRANT SHARES") of the Company's common stock, par value
$0.01 per share (the "COMMON STOCK"), each Warrant entitling the holder thereof
to purchase one share of Common Stock.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein and in the Agreement set forth and for other good and valuable
consideration, the parties hereto agree as follows:
1. ISSUANCE OF WARRANTS; FORM OF WARRANT. The Company will issue and
deliver the Warrants to Crane on the Closing Date referred to in the Purchase
Agreement. The aggregate number of Warrants to be issued and delivered shall be
170,000. The Warrants shall be exercisable on or after such Closing Date. The
text of each Warrant shall be substantially as set forth in the Warrant
Certificate attached as Exhibit A hereto. The Warrants shall be executed on
behalf of the Company by the manual or facsimile signature of the present or any
future Chairman of the Board, President, or Vice President of the Company,
attested by the manual or facsimile signature of the present or future
Secretary or an Assistant Secretary of the Company. A Warrant bearing the manual
or facsimile signature of individuals who were at any time the proper officers
of the Company shall bind the Company notwithstanding that such individuals or
any of them shall have ceased to hold such offices prior to the delivery of such
Warrant or did not hold such offices on the date of this Warrant Agreement.
Warrants shall be dated as of the date of execution thereof by the Company
either upon initial issuance or upon division, exchange, substitution or
transfer.
The demand and the piggy-back registration rights set forth in Section 16
hereof may be exercised at any time during the term of the Warrants.
2. REPRESENTATIONS AND WARRANTIES.
(a) The Company hereby represents and warrants as follows:
(i) POWER AND AUTHORITY. The Company has all requisite corporate
power and authority, and has taken all corporate action necessary, to
execute,
<PAGE>
deliver and perform this Warrant Agreement, to grant, issue, and deliver
the Warrants and to authorize and reserve for issuance and, upon payment
from time to time of the Exercise Price, to issue and deliver the shares
of Common Stock or other securities issuable upon exercise of the
Warrants. This Warrant Agreement has been duly executed and delivered by
the Company.
(ii) RESERVATION, ISSUANCE AND DELIVERY OF COMMON STOCK. There have
been reserved for issuance, and the Company shall at all times keep
reserved, out of the authorized and unissued shares of Common Stock, a
number of shares sufficient to provide for the exercise of the rights of
purchase represented by the Warrants, and such shares, when issued upon
receipt of payment therefor or upon a net exercise in accordance with the
terms of the Warrants and of this Warrant Agreement, will be legally and
validly issued, fully paid and non-assessable and will be free of any
preemptive rights of shareholders or any restrictions.
(b) The Warrant Holder hereby represents and warrants as follows:
(i) ACCREDITED INVESTOR. The Warrant Holder is an "accredited
investor" within the meaning of Rule 501 under Regulation D promulgated
under the Securities Act, is experienced in evaluating investments in
companies such as the Company, has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits
and risks of its investment and has the ability to bear the entire
economic risk of its investment. The Warrant Holder has made its own
evaluation of its investment in the Warrants, based upon such information
as is available to it and without reliance upon the Company or any other
person or entity, and the Warrant Holder agrees that neither the Company
nor any other person or entity has any obligation to furnish any
additional information to the Warrant Holder except as expressly set forth
herein.
3. CONDITIONS TO PURCHASE. Crane's obligations hereunder shall be subject
to satisfaction of the following conditions on the Closing Date and those
referred to in the Purchase Agreement:
(a) All corporate proceedings and other legal matters incident to
the authorization, form and validity of this Warrant Agreement and the
Warrants and all other legal matters relating to this Warrant Agreement,
the Warrants and the transactions contemplated hereby shall be
satisfactory in all respects to Baker & Botts L.L.P., counsel for Crane,
in their reasonable judgment, and the Company shall have furnished to such
counsel all documents and information that they may reasonably request to
enable them to pass judgment upon such matters.
(b) There shall have been duly tendered to Crane or upon the order
of
<PAGE>
Crane a certificate or certificates representing the Warrants.
(c) Each of the "Conditions Precedent" set forth in Section 3 of the
Purchase Agreement shall have been satisfied.
4. REGISTRATION. The Warrants shall be numbered and shall be registered on
the books of the Company (the "WARRANT REGISTER") as they are issued. The
Warrants shall be registered initially in such names and such denominations as
Crane has specified to the Company.
5. EXCHANGE OF WARRANT CERTIFICATES. Subject to any restriction upon
transfer set forth in this Warrant Agreement, each Warrant certificate may be
exchanged at the option of the Warrant Holder thereof for another certificate or
certificates of different denominations entitling the Warrant Holder thereof to
purchase upon surrender to the Company or its duly authorized agent a like
aggregate number of Warrant Shares as the certificate or certificates
surrendered then entitle such Warrant Holder to purchase. Any Warrant Holder
desiring to exchange a Warrant certificate or certificates shall make such
request in writing delivered to the Company, and shall surrender, properly
endorsed, the certificate or certificates to be so exchanged. Thereupon, the
Company shall execute and deliver to the person entitled thereto a new Warrant
certificate or certificates, as the case may be, as so requested. Any Warrant
issued upon exchange, transfer or partial exercise of the Warrants shall be the
valid obligation of the Company, evidencing the same generic rights and entitled
to the same generic benefits under this Warrant Agreement as the Warrants
surrendered for such exchange, transfer or exercise.
6. TRANSFER OF WARRANTS. Subject to the provisions of Section 14 hereof,
the Warrants shall be transferrable only on the Warrant Register upon delivery
to the Company of the Warrant certificate or certificates duly endorsed by the
Warrant Holder or by his duly authorized attorney-in-fact or legal
representative, or accompanied by proper evidence of succession, assignment or
authority to transfer. In all cases of transfer by an attorney-in-fact, the
original power of attorney, duly approved, or an official copy thereof, duly
certified, shall be deposited with the Company. In case of transfer by
executors, administrators, guardians or other legal representatives, duly
authenticated evidence of their authority shall be produced, and may be required
to be deposited with the Company in its discretion. Upon any registration of
transfer, the Company shall deliver a new Warrant or Warrants to the person
entitled thereto.
<PAGE>
7. TERM OF WARRANTS; EXERCISE OF WARRANTS.
(a) Each Warrant entitles the Warrant Holder thereof to purchase one share
of Common Stock during the time period and subject to the conditions set forth
in the respective Warrant Certificates at an exercise price of $1.00 per share,
subject to adjustment in accordance with Section 12 hereof (the "EXERCISE
PRICE"). Each Warrant terminates on the fifth anniversary of the date on which
such Warrant becomes exercisable in accordance with its terms (the "EXPIRATION
DATE").
(b) The Exercise Price and the number of shares issuable upon exercise of
Warrants are subject to adjustment upon the occurrence of certain events,
pursuant to the provisions of Section 12 of this Warrant Agreement. Subject to
the provisions of this Warrant Agreement, each Warrant Holder shall have the
right, which may be exercised as expressed in such Warrants, to purchase from
the Company (and the Company shall issue and sell to such Warrant Holder) the
number of fully paid and nonassessable shares of Common Stock specified in such
Warrants, upon surrender to the Company, or its duly authorized agent, of such
Warrants, with the purchase form on the reverse thereof duly filled in and
signed, and upon payment to the Company of the Exercise Price, as adjusted in
accordance with the provisions of Section 12 of this Warrant Agreement or upon a
net exercise pursuant to this subsection of this Warrant Agreement, for the
number of shares in respect of which such Warrants are then exercised. The
Warrant Holder may (i) pay the Exercise Price in cash, by certified or official
bank check payable to the order of the Company, (ii) pay the Exercise Price by
the surrender to the Company of securities of the Company having a Market Price
equal to the Exercise Price or (iii) make an exercise of Warrants for "Net
Warrant Shares." The number of Net Warrant Shares will be determined as
described by the following formula: Net Warrant Shares = [WS x (MP-EP)]/MP. "WS"
is the number of Warrant Shares issuable upon exercise of the Warrants or
portion of Warrants in question. "MP" is the Market Price of the Common Stock on
the last trading day preceding the date of the request to exercise the Warrants.
"MARKET PRICE" shall mean the then current market price per share of Common
Stock, as determined in paragraph 12.1(e). "EP" shall mean the Exercise Price.
Upon such surrender of Warrants, and payment of the Exercise Price, with
cash or securities, or upon a net exercise as aforesaid, the Company at its
expense shall issue and cause to be delivered with all reasonable dispatch to or
upon the written order of the Warrant Holder and in such name or names as the
Warrant Holder may designate, a certificate or certificates for the number of
full shares of Common Stock so purchased upon the exercise of such Warrants,
together with cash, as provided in Section 12 of this Warrant Agreement, in
respect of any fraction of a share of such stock otherwise issuable upon such
surrender. Such certificate or certificates shall be deemed to have been issued,
and any person so designated to be named therein shall be deemed to have become
a holder of record of such shares, as of the date of the surrender of such
<PAGE>
Warrants and payment of the Exercise Price or receipt of shares by net exercise
as aforesaid. The rights of purchase represented by the Warrants shall be
exercisable, at the election of the Warrant Holders thereof, either in full or
from time to time in part and, in the event that any Warrant is exercised in
respect of less than all of the shares purchasable on such exercise at any time
prior to the Expiration Date, a new certificate evidencing the remaining Warrant
or Warrants will be issued.
8. COMPLIANCE WITH GOVERNMENT REGULATIONS. The Company covenants that if
any share of Common Stock required to be reserved for purposes of exercise or
conversion of Warrants require, under any federal or state law or applicable
governing rule or regulation of any national securities exchange, registration
with or approval of any governmental authority, or listing or quotation on any
such national securities exchange or quotation system, before such shares may be
issued upon exercise, the Company will use its commercially reasonable efforts
to cause such shares to be duly registered, approved or listed or quoted on the
relevant national securities exchange or quotation system, as the case may be.
9. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes, if
any, attributable to the initial issuance of Warrant Shares upon the exercise of
Warrants and any securities issued pursuant to Section 12 hereof; PROVIDED,
HOWEVER, that the Company shall not be required to pay any tax or taxes which
may be payable in respect of any transfer involved in the issue or delivery of
any Warrants or certificates for Warrant Shares and any securities issued
pursuant to Section 12 hereof in a name other than that of the Warrant Holder of
such Warrants.
10. MUTILATED OR MISSING WARRANTS. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and in substitution for the Warrant lost, stolen, or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest.
11. RESERVATION OF WARRANT SHARES; PURCHASE AND CANCELLATION OF WARRANTS.
The Company shall at all times reserve, out of the authorized and unissued
shares of Common Stock, a number of shares sufficient to provide for the
exercise of the rights of purchase represented by the Warrants, and the transfer
agent for the Common Stock ("TRANSFER AGENT") and every subsequent transfer
agent for any shares of the Company's capital stock issuable upon the exercise
of any of the rights of purchase aforesaid are hereby irrevocably authorized and
directed at all times until the Expiration Date to reserve such number of
authorized and unissued shares as shall be requisite for such purpose. The
Company will keep a copy of this Warrant Agreement on file with the Transfer
Agent and with every subsequent transfer agent for any shares of the Company's
capital stock issuable upon the exercise of the rights of purchase represented
<PAGE>
by the Warrants. The Company will supply the Transfer Agent and any such
subsequent transfer agent with duly executed stock certificates for such purpose
and will itself provide or otherwise make available any cash which may be
issuable as provided by Section 13 of this Warrant Agreement. The Company will
furnish to the Transfer Agent and any such subsequent transfer agent a copy of
all notices of adjustments, and certificates related thereto, transmitted to
each Warrant Holder pursuant to Section 12.3 hereof. All warrants surrendered in
the exercise of the rights thereby evidenced shall be canceled, and such
canceled Warrants shall constitute sufficient evidence of the number of shares
of stock which have been issued upon the exercise of such Warrants (subject to
adjustment as herein provided). No shares of stock shall be subject to
reservation in respect of the Warrants subsequent to the Expiration Date except
to the extent necessary to comply with the terms of this Warrant Agreement.
12. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The number
and kind of securities purchasable upon the exercise of each Warrant and the
Exercise Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as hereafter defined.
12.1. MECHANICAL ADJUSTMENTS. The number of Warrant Shares
purchasable upon the exercise of each Warrant and the Warrant Price shall
be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend to holders of
Common Stock in shares of Common Stock or make a distribution to
holders of Common Stock in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock into a larger number of
shares of Common Stock, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv)
issue by reclassification of its shares of Common Stock other
securities of the Company (including any such reclassification in
connection with a consolidation or merger in which the Company is
the surviving corporation), the number of Warrant Shares purchasable
upon exercise of each Warrant immediately prior thereto shall be
adjusted so that the Warrant Holder shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company
which he would have owned or have been entitled to receive after the
happening of any of the events described above, had such Warrant
been exercised immediately prior to the happening of such event or
any record date with respect thereto regardless of whether the
Warrants are exercisable at the time of the happening of such event
or at the time of any record date with respect thereto. An
adjustment made pursuant to this paragraph (a) shall become
effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
<PAGE>
(b) In case the Company shall issue rights, options, or
warrants to holders of its outstanding Common Stock, without any
charge to such holders, entitling them to subscribe for or purchase
shares of Common Stock at a price per share (the "Subscription
Price") which is lower at the record date mentioned below than
(i) the Exercise Price, then (A) the Exercise Price in
effect immediately prior to such issuance shall immediately be
reduced to the price that is equivalent to such Subscription
Price and (B) the number of Warrant Shares thereafter
purchasable upon the exercise of each Warrant shall be
increased in direct proportion to the increase in the number
of shares of Common Stock outstanding on a fully diluted basis
immediately prior to such issuance; or
(ii) the then current market price of a share of Common
Stock and equal to or greater than the Exercise Price, then
the number of shares of Common Stock that immediately prior to
such issuance the Warrant Holder shall have been entitled to
purchase pursuant to this Warrant shall be increased to the
greater of (A) that number of shares of Common Stock that
immediately prior to such issuance the Warrant Holder shall
have been entitled to purchase pursuant to this Warrant
multiplied by a fraction, the numerator of which is such
current market price and the denominator of which is the
Subscription Price, and (B) the number of shares of Common
Stock otherwise calculated under this Section 12.1.
Such adjustment shall be made whenever such rights, options, or
warrants are issued, and shall become effective immediately after
the record date for the determination of stockholders entitled to
receive such rights, options, or warrants; PROVIDED that this
Section 12.1(b) shall expire and be of no force and effect on or
after October 24, 1998.
(c) In case the Company shall distribute to holders of its
shares of Common Stock evidences of its indebtedness or assets
(including cash dividends or other cash distributions) or capital
stock other than as provided for in paragraphs (a) or (b), or
rights, options, or warrants, or convertible or exchangeable
securities containing the right to subscribe for or purchase shares
of Common Stock (excluding those referred to in paragraph (b)
above), then in each case the number of Warrant Shares thereafter
purchasable upon the exercise of each Warrant shall be determined by
multiplying the number of Warrant Shares theretofore purchasable
upon the exercise of each Warrant by a fraction, of which the
numerator shall be the
<PAGE>
then current market price per share of Common Stock (as determined
in accordance with paragraph (e) below) on the date of such
distribution, and of which the denominator shall be the then current
market price per share of Common Stock, less the then fair value (as
determined in good faith by the Board of Directors of the Company)
of the portion of the assets or evidences of indebtedness so
distributed or of such subscription rights, options, or warrants, or
of such convertible or exchangeable securities applicable to one
share of Common Stock. Such adjustment shall be made whenever any
such distribution is made, and shall become effective on the date of
distribution retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
In the event of distribution by the Company to holders of its
shares of Common Stock of stock of a subsidiary or securities
convertible into or exercisable for such stock, then in lieu of an
adjustment in the number of Warrant Shares purchasable upon the
exercise of each Warrant, the Warrant Holder, upon the exercise
thereof at any time after such distribution, shall be entitled to
receive from the Company, such subsidiary, or both, as the Company
shall determine, the stock or other securities to which such Warrant
Holder would have been entitled if such Warrant Holder had exercised
such Warrant immediately prior thereto regardless of whether the
Warrants are exercisable at such time, all subject to further
adjustment as provided in this subsection 12.1; PROVIDED, HOWEVER,
that no adjustment in respect of dividends or interest on such stock
or other securities shall be made during the term of a Warrant or
upon the exercise of a Warrant; PROVIDED FURTHER that this Section
12.1(c) shall expire and be of no force and effect on or after
October 24, 1998.
(d) In case the Company shall sell and issue shares of Common
Stock (other than pursuant to rights, options, warrants, or
convertible securities initially issued before the date of this
Agreement) or rights, options, warrants, or convertible securities
containing the right to subscribe for or purchase shares of Common
Stock (excluding shares, rights, options, warrants, or convertible
securities issued in any of the transactions described in paragraphs
(a), (b) or (c) above) at a price per share of Common Stock
(determined, in the case of such rights, options, warrants or
convertible securities, by dividing (w) the total of the amount
received or receivable by the Company (determined as provided below)
in consideration of the sale and issuance of such rights, options,
warrants, or convertible securities, by (x) the total number of
shares of Common Stock covered by such rights, options, warrants, or
convertible securities) lower than the Exercise Price in effect
immediately prior to such sale and issuance, then (i) the Exercise
Price in effect immediately prior to such
<PAGE>
issuance shall immediately be reduced to the price that is
equivalent to such consideration received by the Company upon such
issuance and (ii) the number of Warrant Shares thereafter
purchasable upon the exercise of the Warrants shall be increased in
direct proportion to the increase in the number of shares of Common
Stock outstanding on a fully diluted basis immediately prior to such
issuance; PROVIDED that if such shares of Common Stock, options or
other convertible securities (other than pursuant to rights,
options, warrants, or convertible securities initially issued before
the date of this Agreement) are issued for consideration per share
less than the Exercise Price at the date of such issue or sale, the
number of shares of Common Stock that immediately prior to such
issuance the Warrant Holder shall have been entitled to purchase
pursuant to this Warrant shall be increased to the greater of (i)
that number of shares of Common Stock that immediately prior to such
issuance the Warrant Holder shall have been entitled to purchase
pursuant to this Warrant multiplied by a fraction, the numerator of
which is the Exercise Price and the denominator of which is such
consideration per share, and (ii) the number of shares of Common
Stock otherwise calculated under this Section 12.1. Such adjustment
shall be made successively whenever such as issuance is made;
PROVIDED that this Section 12.1(d) shall expire and be of no force
and effect on or after October 24, 1998. For the purposes of such
adjustments, the consideration received or receivable by the Company
for rights, options, warrants, or convertible securities shall be
deemed to be the consideration received by the Company for such
rights, options, warrants, or convertible securities, plus the
consideration or premiums stated in such rights, options, warrants,
or convertible securities to be paid for the shares of Common Stock
covered thereby. In case the Company shall sell and issue shares of
Common Stock, or rights, options, warrants, or convertible
securities containing the right to subscribe for or purchase shares
of Common Stock, for a consideration consisting, in whole or in
part, of property other than cash or its equivalent, then in
determining the "price per share of Common Stock" and the
"consideration received or receivable by the Company" for purposes
of the first sentence of this paragraph (d), the Board of Directors
shall determine, in its discretion, the fair value of said property.
(e) For the purpose of any computation under paragraphs (b),
(c), and (d) of this Section, the current market price per share of
Common Stock at any date shall be the average of the daily closing
prices of the Company's Common Stock, for five consecutive trading
days ending one trading day before the date of such computation. The
closing price for each day shall be the last such reported sales
price regular way or, in case no such reported sale takes place on
such day, the average of the closing bid and asked prices regular
way for such day, in each case on the principal
<PAGE>
national securities exchange on which the shares of Common Stock are
listed or admitted to trading or, if not listed or admitted to
trading, the average of the closing bid and asked prices of the
Common Stock in the over-the-counter market as reported by NASDAQ or
any comparable system. In the absence of one or more such
quotations, the Board of Directors of the Company shall determine
the current market price, in good faith, on the basis of such
quotations as it considers appropriate. Notwithstanding the
foregoing, for the purpose of any calculation under paragraph (d)
above (A) with respect to any issuance of options under the
Company's employee or director compensation stock option plans as in
effect or as adopted by the Board of Directors of the Company on the
date hereof, the term "current market price", in such instances,
shall mean the fair market price on the date of the issuance of any
such option determined in accordance with the Company's employee
compensation stock option plans as in effect or adopted by the Board
of Directors of the Company on the date hereof; and (B) with respect
to any issuances of Common Stock (or rights, options, warrants, or
convertible securities containing the right to subscribe for or
purchase shares of Common Stock) in connection with BONA FIDE
corporate transactions (other than issuances in such transactions
for cash or similar consideration), the term "fair market price"
shall mean the fair market price per share as determined in
arm's-length negotiations by the Company and such other parties
(other than affiliates or subsidiaries of the Company) to such
transactions as reflected in the definitive documentation with
respect thereto, unless such determination is not reasonably related
to the closing market price on the date of such determination.
(f) In any case in which this Section 12.1 shall require that
any adjustment in the number of Warrant Shares be made effective as
of immediately after a record date for a specified event, the
Company may elect to defer until the occurrence of the event the
issuing to the holder of any Warrant exercised after that record
date the shares of Common Stock and other securities of the Company,
if any, issuable upon the exercise of any Warrant over and above the
shares of Common Stock and other securities of the Company, if any,
issuable upon the exercise of any Warrant prior to such adjustment;
PROVIDED, HOWEVER, that the Company shall deliver to such Warrant
Holder a due bill or other appropriate instrument evidencing the
holder's right to receive such additional shares or securities upon
the occurrence of the event requiring such adjustment.
(g) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the number of
Warrant
<PAGE>
Shares purchasable upon the exercise of each Warrant; PROVIDED,
HOWEVER, that any adjustments which by reason of this paragraph (g)
are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations shall be made
to the nearest one-thousandth of a share.
(h) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as herein provided, the
Warrant Price payable upon the exercise of each Warrant shall be
adjusted by multiplying such Warrant Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the number
of Warrant Shares purchasable upon the exercise of such Warrant
immediately prior to such adjustment, and of which the denominator
shall be the number of Warrant Shares purchasable immediately.
(i) No adjustment in the number of Warrant Shares purchasable
upon the exercise of each Warrant need be made under paragraphs (a),
(b) and (c) if the Company issues or distributes to each Warrant
Holder the rights, options, warrants, or convertible or exchangeable
securities, or evidences of indebtedness or assets referred to in
those paragraphs which each Warrant Holder would have been entitled
to receive had the Warrants been exercised prior to the happening of
such event or the record date with respect thereto regardless of
whether the Warrants are exercisable at the time of the happening of
such event or at the time of any record date with respect thereto.
No adjustment need be made for a change in the par value of the
Warrant Shares.
(j) For the purpose of this Section 12.1, the terms "shares of
Common Stock" shall mean (i) the class of stock designated as the
Common Stock of the Company at the date of this Agreement, or (ii)
any other class of stock resulting from successive changes or
reclassifications of such shares consisting solely of changes in par
value, or from par value to no par value, or from no par value to
par value. In the event that at any time, as a result of an
adjustment made pursuant to paragraph (a) above, the Warrant Holders
shall become entitled to purchase any securities of the Company
other than shares of Common Stock, thereafter the number of such
other securities so purchasable upon exercise of each Warrant and
the Exercise Price of such securities shall be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares
contained in paragraphs (a) through (i), inclusive, above, and the
provisions of Section 7 and Section 12.2 through 12.5, inclusive,
with respect to the Warrant Shares, shall apply on like terms to any
such other securities.
<PAGE>
(k) Upon the expiration of any rights, options, warrants, or
conversion or exchange privileges, if any thereof shall not have
been exercised, the Warrant Price and the number of shares of Common
Stock purchasable upon the exercise of each warrant shall, upon such
expiration, be readjusted and shall thereafter be such as it would
have been had it been originally adjusted (or had the original
adjustment not been required, as the case may be) as if (A) the only
shares of Common Stock so issued were the shares of Common Stock, if
any, actually issued or sold upon the exercise of such rights,
options, warrants, or conversion or exchange rights and (B) such
shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise
plus the aggregate consideration, if any, actually received by the
Company for the issuance, sale or grant of all such rights, options,
warrants, or conversion or exchange rights whether or not exercised;
provided, however, that no such readjustment shall have the effect
of increasing the Warrant Price or decreasing the number of Warrant
Shares by an amount in excess of the amount of the adjustment
initially made with respect to the issuance, sale or grant of such
rights, options, warrants, or conversion or exchange rights.
(l) In addition to the adjustments set forth above, the
Exercise Price shall be immediately reduced and the number of
Warrant Shares shall be immediately increased, in each case, on a
PARI PASSU basis with the conversion, exercise, or strike price of
any other derivative securities of the Company whether now
outstanding or hereafter issued.
12.2. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may, at its
option, at any time during the term of the Warrants, reduce the then
current Exercise Price to any amount determined appropriate by the Board
of Directors of the Company.
12.3. NOTICE OF ADJUSTMENT. When the number of Warrant Shares
purchasable upon the exercise of each Warrant or the Exercise Price of
such Warrant Shares is adjusted, as herein provided, the Company shall
promptly mail by first class, postage prepaid, to each Warrant Holder
notice of such adjustment or adjustments and a certificate of a firm of
independent public accountants selected by the Board of Directors of the
Company (who may be the regular accountants employed by the Company)
setting forth the number of Warrant Shares purchasable upon the exercise
of each Warrant and the Exercise Price of such Warrant Shares after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was
made. Such certificate, absent manifest error, shall be
<PAGE>
conclusive evidence of the correctness of such adjustment.
12.4. PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION,
ETC. In case of any consolidation of the Company with or merger of the
Company into another person or in case of any sale, transfer, or lease to
another person of all of or substantially all the assets of the Company,
the Company or such successor or purchaser, as the case may be, shall
execute with each Warrant Holder an agreement that each Warrant Holder
shall have the right thereafter upon payment of the Exercise Price in
effect immediately prior to such action to purchase upon exercise of each
Warrant the kind and amount of shares and other securities and property
which the Warrant Holder would have owned or have been entitled to receive
after the happening of such consolidation, merger, sale, transfer, or
lease had such Warrant been exercised immediately prior to such action
regardless of whether the Warrants are exercisable at the time of such
action. Such agreement shall provide for adjustments, which shall be as
nearly equivalent as may be practicable to the adjustments provided for in
this Section 12. The provisions of this Section 12.4 shall similarly apply
to successive consolidations, mergers, sales, transfers, or leases.
12.5. STATEMENT ON WARRANTS. Even though Warrants heretofore or
hereafter issued may continue to express the same price and number and
kind of shares as are stated in the Warrants initially issuable pursuant
to this Warrant Agreement, the parties understand and agree that such
Warrants will represent rights consistent with any adjustments in the
Exercise Price or the number or kind of shares purchasable upon the
exercise of the Warrants.
13. FRACTIONAL INTERESTS. The Company shall not be required to issue
fractional Warrant Shares on the exercise of Warrants. If more than one Warrant
shall be presented for exercise in full at the same time by the same Warrant
Holder, the number of full Warrant Shares which shall be issuable upon the
exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of a Warrant Share would, except for the provisions of this Section 13,
be issuable on the exercise of any Warrant (or specified portion, thereof), the
Company shall pay an amount in cash equal to the closing price for one share of
the Common Stock on the trading day immediately preceding the date the Warrant
is presented for exercise, multiplied by such fraction.
14. REGISTRATION UNDER THE SECURITIES ACT OF 1933. Crane represents and
warrants to the Company that it will not dispose of the Warrant or Warrant
Shares except pursuant to (i) an effective registration statement, or (ii) an
applicable exemption from registration under the Securities Act of 1933 (the
"ACT"). In connection with any sale by Crane pursuant to clause (ii) of the
preceding sentence, it shall furnish to the Company an opinion of counsel
reasonably satisfactory to the Company to the effect that such
<PAGE>
exemption from registration is available in connection with such sale.
15. CERTIFICATE TO BEAR LEGENDS. The Warrants shall be subject to a
stop-transfer order and the certificate or certificates therefor shall bear the
following legend by which each Warrant Holder shall be bound:
"THE WARRANTS REPRESENTED HEREBY AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY OTHER STATE.
THE WARRANTS REPRESENTED HEREBY AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR OFFERED
FOR SALE OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO (I) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR (II) AN APPLICABLE
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT. ANY SALE PURSUANT TO
CLAUSE (II) OF THE PRECEDING SENTENCE MUST BE ACCOMPANIED BY AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH
EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION WITH SUCH SALE."
The Warrant Shares or other securities issued upon exercise of the
Warrants shall, unless issued pursuant to an effective registration statement,
be subject to a stop-
transfer order and the certificate or certificates evidencing any such Warrant
Shares or securities shall bear the following legend by which the Warrant Holder
thereof shall be bound:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE TRANSFERRED, EXCEPT
PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, OR (II) AN APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT. ANY SALE PURSUANT TO CLAUSE (II) OF THE PRECEDING SENTENCE
MUST BE ACCOMPANIED BY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY TO THE EFFECT THAT SUCH EXEMPTION FROM REGISTRATION IS
AVAILABLE IN CONNECTION WITH SUCH SALE."
16. REGISTRATION RIGHTS. The Warrant Shares shall be subject to the
registration rights set forth in the Registration Rights Agreement of even date
herewith between Crane and the Company.
<PAGE>
17. NO RIGHTS AS STOCKHOLDERS; NOTICE TO WARRANT HOLDERS. Nothing
contained in this Warrant Agreement or in any of the Warrants shall be construed
as conferring upon the Warrant Holders or their transferees the right to vote or
to receive dividends or to consent or to receive notice as stockholders in
respect of any meeting of stockholders for the election of directors of the
Company or any other matter, or any rights whatsoever as stockholders of the
Company. If, however, at any time prior to the expiration of the Warrants and
prior to their exercise, any of the following events shall occur:
(a) the Company shall declare any dividend payable in any securities
upon its shares of Common Stock or make any distribution (other than a
cash dividend) to the holders of its shares of Common Stock; or
(b) the Company shall offer to the holders of its shares of Common
Stock any additional shares of Common Stock or securities convertible into
or exchangeable for shares of Common Stock or any right to subscribe to or
purchase any thereof; or
(c) a dissolution, liquidation, or winding up of the Company (other
than in connection with a consolidation, merger, sale, transfer, or lease
or all or substantially all of its property, assets, and business as an
entirety) shall be proposed; or
(d) the Company shall take any action that would cause an adjustment
to the number of Warrant Shares or the Exercise Price pursuant to Section
12.1 hereof,
then in any one or more of said events the Company shall give notice in writing
of such event to the Warrant Holders as provided in Section 20 hereof, with such
notice to be completed at least 15 days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, or subscription rights, or
for the determination of stockholders entitled to vote on such proposed
dissolution, liquidation or winding up. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be. Failure to
provide or receive such notice or any defect therein or in the mailing thereof
shall not affect the validity of any action taken in connection with such
dividend, distribution, or subscription rights, or such proposed dissolution,
liquidation ,or winding up.
18. EXPENSES. The Company shall pay all legal and other reasonable
out-of-pocket expenses of the Warrant Holders and of their counsel (up to a
maximum of $25,000). The Company agrees to reimburse Crane upon demand for its
reasonable out-of-pocket costs and expenses incurred in connection with the
preparation, review,
<PAGE>
negotiation, execution, and delivery of this Warrant Agreement and all other
related documents.
19. RIGHT TO INFORMATION. The Company, in accordance with Section 16(c)
above, will provide to all Warrant Holders and to all holders of Warrant Shares,
on a timely basis, copies of all documents and reports delivered to its
shareholders.
20. NOTICES. Any notice pursuant to this Warrant Agreement to be given or
made by the holder of any Warrant or Warrant Shares to or on the Company shall
be sufficiently given or made if sent by first-class mail, postage prepaid,
addressed as follows:
EqualNet Holding Corp.
1250 Wood Branch Park Drive
Houston, Texas 77079
Attention: General Counsel
Notices or demands authorized by this Warrant Agreement to be given or made to
or on the Warrant Holder of any Warrant or Warrant Shares shall be sufficiently
given or made (except as otherwise provided in this Warrant Agreement) if sent
by registered mail, return receipt requested, postage prepaid, addressed to such
Warrant Holder at the address of such Warrant Holder as shown on the Warrant
Register or the Common Stock Register, as the case may be.
21. GOVERNING LAW. THIS WARRANT AGREEMENT, THE WARRANTS AND ALL RELATED
DOCUMENTS SHALL BE DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING
EFFECT TO PRINCIPLES OF CONFLICTS OF LAW. ANY DISPUTE HEREUNDER OR UNDER THE
WARRANTS OR RELATED DOCUMENTS SHALL BE DETERMINED EXCLUSIVELY IN ACCORDANCE WITH
SECTION 9J OF THE PURCHASE AGREEMENT.
22. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Holders may
from time to time supplement or amend this Warrant Agreement in order to cure
any ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision herein, or to make any
other provisions in regard to matters or questions arising hereunder which the
Company and the Warrant Holder may deem necessary or desirable and which shall
not be inconsistent with the provisions of the Warrants and which shall not
adversely affect the interests of the Warrant Holders. Any amendment to this
Warrant Agreement may be effected with the consent of Warrant Holders of at
least a majority of the total then outstanding Warrants (for this purpose
Warrant Shares shall be deemed to be Warrants in the proportion that Warrant
Shares are then issuable upon the exercise of Warrants); PROVIDED that any
<PAGE>
amendment which shall have the effect of materially adversely affecting the
interests of any Warrant Holder shall not be effective with respect to such
Warrant Holder if such Warrant Holder shall not have consented thereto.
23. SURVIVAL OF COVENANTS. All covenants and agreements made herein shall
survive the execution and delivery of this Warrant Agreement and the Warrants
and shall remain in force and effect until the Expiration Date of all Warrants.
24. SUCCESSORS. All representations and warranties of the Company and all
covenants and agreements of this Warrant Agreement by or for the benefit of the
Company or the Warrant Holders shall bind and inure to the benefit of their
respective successors and assigns hereunder.
25. BENEFITS OF THIS WARRANT AGREEMENT. Nothing in this Warrant Agreement
shall be construed to give to any person or corporation other than the Company
and the Warrant Holders, any legal or equitable right, remedy, or claim under
this Warrant Agreement, but this Warrant Agreement shall be for the sole and
exclusive benefit of the Company and the holders of the Warrants and Warrant
Shares.
26. CAPTIONS. The captions of the sections and subsections of this Warrant
Agreement have been inserted for convenience and shall have no substantive
effect.
27. COUNTERPARTS. This Warrant Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
such counterparts together shall constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be duly executed on the day, month and year first above written.
EQUALNET HOLDING CORP.
By: /S/ ROBERT H. TURNER
Robert H. Turner, President and
Chief Executive Officer
/S/ JAMES R. CRANE
JAMES R. CRANE
<PAGE>
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED HEREBY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY OTHER STATE. THE WARRANTS
REPRESENTED HEREBY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE
TRANSFERRED, EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, OR (ii) AN APPLICABLE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT. ANY SALE PURSUANT TO CLAUSE (ii) OF THE PRECEDING SENTENCE MUST
BE ACCOMPANIED BY AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
TO THE EFFECT THAT SUCH EXEMPTION FROM REGISTRATION IS AVAILABLE IN CONNECTION
WITH SUCH SALE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS AND COMMON STOCK
UNDERLYING SUCH WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED
TO HEREIN.
No. _____ 170,000 Warrants
VOID AFTER 5:00 P.M. HOUSTON, TEXAS TIME
ON APRIL 23, 2003
EQUALNET HOLDING CORP.
WARRANT CERTIFICATE
THIS CERTIFIES THAT for value received JAMES R. CRANE, the registered
holder hereof or registered assigns (the "WARRANT HOLDER"), is the owner of the
number of the Warrants set forth above, each of which entitles the owner thereof
to purchase at any time from 9:00 A.M., Houston, Texas time, on April 24, 1998,
until 5:00 P.M., Houston, Texas time on April 23, 2003, one fully paid and
nonassessable share of the common stock (subject to adjustment), par value $0.01
per share (the "COMMON STOCK"), of EQUALNET HOLDING CORP., a Texas corporation
(the "COMPANY"), at the exercise price of $1.00 per share, subject to adjustment
and limitation as described in the Warrant Agreement referred to below (the
"EXERCISE PRICE"). The Warrant Holder may pay the Exercise Price in cash, or by
certified or official bank check OR by delivery of securities OR
<PAGE>
by making a net exercise for Net Warrant Shares as described in the Warrant
Agreement.
This Warrant Certificate is subject to, and entitled to the benefits of,
all of the terms, provisions and conditions of an agreement dated April 24, 1998
(the "WARRANT AGREEMENT"), between the Company and Crane which Warrant Agreement
is hereby incorporated herein by reference and made a part hereof and to which
Warrant Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Company and the Warrant Holders of the Warrant Certificates. Copies of the
Warrant Agreement are on file at the principal office of the Company.
The Warrant Holder hereof may be treated by the Company and all other
persons dealing with this Warrant Certificate as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented
hereby, or to the transfer hereof on the books of the Company, any notice to the
contrary notwithstanding, and until such transfer on such books, the Company may
treat the Warrant Holder hereof as the owner for all purposes.
The Warrant Certificate, with or without other Warrant Certificates, upon
surrender at the principal office of the Company, may be exchanged for another
Warrant Certificate or Warrant Certificates of like tenor and date evidencing
Warrants entitling the Warrant Holder to purchase a like aggregate number of
shares of Common Stock as the Warrants evidenced by the Warrant Certificate or
Warrant Certificates surrendered entitled to such Warrant Holder to purchase. If
this Warrant Certificate shall be exercised in part, the Warrant Holder shall be
entitled to receive upon surrender hereof, another Warrant Certificate or
Warrant Certificates for the number of whole Warrants not exercised.
No fractional shares of Common Stock will be issued upon the exercise of
any Warrant or Warrants evidenced hereby, but in lieu thereof a cash payment
will be made, as provided in the Warrant Agreement.
Neither the Warrants nor the Warrant Certificate entitles any Warrant
Holder hereof to any of the rights of a stockholder of the Company.
THIS WARRANT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS,
WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
<PAGE>
IN WITNESS WHEREOF, the Company has caused the signature of its President
and Secretary to be printed hereon.
EQUALNET HOLDING CORP.
By:
Robert H. Turner, President and
Chief Executive Officer
ATTEST:
- ------------------------------------
Dean H. Fisher, Secretary
PURCHASE AGREEMENT
DATED AS OF JANUARY 15, 1998
AMONG
SA TELECOMMUNICATIONS, INC.
AND CERTAIN OF ITS SUBSIDIARIES,
SELLERS
EQUALNET CORPORATION
BUYER
AND
EQUALNET HOLDING CORP.
<PAGE>
TABLE OF CONTENTS
PAGE
----
Section 1. DEFINITIONS.............................................-2-
Section 2. RULES OF CONSTRUCTION, ETC.............................-10-
Section 3. SALE AND PURCHASE......................................-10-
(a) ASSETS.............................................-10-
(b) EXCLUDED ASSETS....................................-13-
(c) ASSUMPTION OF LIABILITIES..........................-15-
(d) CONSIDERATION......................................-16-
(e) TRANSFERABILITY OF PREFERRED SHARES................-17-
(f) PAYMENT OF CURE AMOUNTS; ASSURANCE OF FUTURE
PERFORMANCE......................................-18-
(g) ALLOCATION OF CONSIDERATION AMONG ASSETS...........-18-
(h) ALLOCATION OF CONSIDERATION AMONG SELLERS..........-18-
(i) TRANSFER AND SALES TAXES...........................-19-
(j) DISCLAIMER OF WARRANTIES...........................-19-
(k) PRORATIONS; EXPENSES...............................-19-
(l) ASSIGNMENT TO BUYER'S DESIGNEES....................-20-
Section 4. THE CLOSING; ESCROW OF SHARES..........................-20-
Section 5. POST-CLOSING ADJUSTMENTS...............................-22-
(a) VERIFICATION OF REVENUE AMOUNT.....................-22-
(b) ADJUSTMENT FOR POST-CLOSING MONTHLY MINUTES........-25-
Section 6. BANKRUPTCY COURT FILINGS...............................-29-
(a) APPROVAL OF BREAK-UP FEE, EXPENSE REIMBURSEMENT AND
UPSET PRICE......................................-29-
(b) SCHEDULING OF AUCTION SALE AND APPROVAL OF SALE
PROCEDURE........................................-29-
(c) MOTION TO APPROVE SALE.............................-29-
(d) REVIEW BY BUYER....................................-31-
Section 7. REPRESENTATIONS AND WARRANTIES OF SELLERS..............-31-
(a) ORGANIZATION AND GOOD STANDING.....................-31-
(b) AUTHORITY..........................................-31-
(c) EXECUTION AND DELIVERY.............................-31-
(i)
(d) NO CONFLICT........................................-32-
(e) GOVERNMENTAL APPROVALS.............................-33-
(f) LEGAL PROCEEDINGS..................................-33-
(g) COMPLIANCE WITH LAW................................-33-
(h) DESIGNATED CONTRACTS...............................-34-
(i) TITLE TO ASSETS....................................-34-
(j) INTELLECTUAL PROPERTY AND INTANGIBLES..............-34-
(k) PERMITS, LICENSES AND TARIFFS......................-35-
(l) EMPLOYEE BENEFIT PLANS; LABOR AGREEMENTS...........-35-
(m) NO BROKERS.........................................-35-
(n) INVESTOR REPRESENTATIONS...........................-36-
(o) SUBSCRIBERS........................................-36-
(p) EMPLOYEES..........................................-36-
(q) SPC................................................-37-
Section 8. REPRESENTATIONS AND WARRANTIES OF BUYER................-37-
(a) ORGANIZATION AND GOOD STANDING.....................-37-
(b) AUTHORITY; EXECUTION AND DELIVERY..................-37-
(c) NO CONFLICTS, ETC..................................-38-
(d) GOVERNMENTAL APPROVALS.............................-39-
(e) PREFERRED SHARES...................................-39-
(f) LEGAL PROCEEDINGS..................................-40-
(g) FINANCING..........................................-40-
(h) FINANCIAL STATEMENTS AND REPORTS...................-40-
(i) NO BROKERS.........................................-41-
Section 9. CERTAIN COVENANTS AND AGREEMENTS.......................-41-
(a) ACCESS TO FACILITIES OF SELLERS....................-41-
(b) ACCESS TO INFORMATION AND REPORTS OF EQUALNET
PARTIES..........................................-41-
(c) CONFIDENTIALITY....................................-42-
(d) CONDUCT OF SELLERS' BUSINESS.......................-43-
(e) MUTUAL COOPERATION.................................-44-
(f) CONSENTS AND PERMITS...............................-44-
(g) INFORMATION........................................-45-
(h) NON-SOLICITATION...................................-45-
(i) EVIDENCE OF BUYER'S ABILITY TO CLOSE...............-45-
(j) ESTABLISHMENT OF SPC...............................-46-
(k) LIENS IN FAVOR OF GREYROCK.........................-46-
Section 10. CONDITIONS TO EACH PARTY'S OBLIGATIONS................-47-
(a) BANKRUPTCY COURT APPROVAL..........................-47-
(ii)
<PAGE>
(b) NO ADVERSE PROCEEDINGS.............................-49-
(c) NO CHANGE IN LAW...................................-49-
(d) GOVERNMENTAL APPROVALS AND CONSENTS................-50-
(e) ESCROW AGREEMENT...................................-50-
Section 11. CONDITIONS TO OBLIGATIONS OF BUYER....................-50-
(a) BANKRUPTCY COURT ORDERS; EVIDENCE OF SERVICE.......-50-
(b) REPRESENTATIONS AND WARRANTIES OF SELLERS..........-50-
(c) CORPORATE ACTION...................................-51-
(d) SELLERS' PERFORMANCE...............................-51-
(e) INSTRUMENTS OF CONVEYANCE AND TRANSFER.............-51-
(f) MATERIAL CONSENTS..................................-51-
(g) ESCROW AGREEMENT...................................-51-
(h) SELLERS' REVENUE AMOUNT CERTIFICATE................-51-
(i) PRE-CLOSING MONTHLY MINUTES CERTIFICATE............-51-
(j) ADDITIONAL MATTERS.................................-51-
(k) ...................................................-52-
(l) SPC................................................-52-
(m) NO MATERIAL ADVERSE CHANGE.........................-52-
Section 12. CONDITIONS TO OBLIGATIONS OF SELLERS..................-52-
(a) REPRESENTATIONS AND WARRANTIES TRUE AT
THE CLOSING DATE.................................-52-
(b) CORPORATE ACTION...................................-53-
(c) EQUALNET PARTIES' PERFORMANCE......................-53-
(d) MATERIAL CONSENTS..................................-53-
(e) ESCROW AGREEMENT...................................-53-
(f) PREFERRED STOCK PROVISIONS.........................-53-
(g) CONSIDERATION......................................-53-
(h) DISCHARGE OF WILLIS GROUP DIP FINANCING............-53-
(i) ADDITIONAL MATTERS.................................-54-
(j) NO MATERIAL ADVERSE CHANGE.........................-54-
Section 13. TERMINATION...........................................-54-
(a) TERMINATION........................................-54-
(b) EFFECT OF TERMINATION..............................-56-
(c) REMEDIES CUMULATIVE................................-56-
(d) SPECIFIC PERFORMANCE...............................-56-
Section 14. BREAK-UP PROVISIONS AND BIDDING PROCEDURE.............-57-
(a) UPSET PRICE........................................-57-
(b) PAYMENT OF BREAK-UP FEE AND REIMBURSEMENT
OF EXPENSES .....................................-57-
(iii)
<PAGE>
Section 15. ADDITIONAL POST-CLOSING COVENANTS.....................-58-
(a) FURTHER ASSURANCES.................................-58-
(b) BENEFITS UNDER UNASSIGNABLE CONTRACTS..............-59-
(c) USE OF SELLERS' PREMISES...........................-59-
(d) RECORDS............................................-60-
(e) SELLERS' EMPLOYEES.................................-60-
Section 16. INDEMNIFICATION AND RELATED MATTERS...................-61-
(a) INDEMNIFICATION BY SELLERS.........................-61-
(b) INDEMNIFICATION BY EQUALNET PARTIES................-62-
(c) DETERMINATION OF DAMAGES AND RELATED MATTERS.......-62-
(d) TERMINATION OF REPRESENTATIONS AND WARRANTIES......-63-
(e) NOTICE OF INDEMNIFICATION..........................-63-
(f) INDEMNIFICATION PROCEDURE FOR THIRD PARTY CLAIMS...-64-
(h) EXCLUSIVE REMEDY...................................-65-
Section 17. GOVERNING LAW; SUBMISSION TO JURISDICTION.............-66-
Section 18. MISCELLANEOUS.........................................-67-
(a) NOTICES............................................-67-
(b) ENTIRE AGREEMENT; AMENDMENTS.......................-68-
(c) PRESS RELEASES.....................................-69-
(d) SUCCESSORS AND ASSIGNS.............................-69-
(e) NO THIRD PARTY BENEFICIARIES.......................-69-
(f) WAIVERS............................................-70-
(g) SEVERABILITY.......................................-70-
(h) EXPENSES...........................................-70-
(i) NO RECOURSE........................................-70-
(j) GUARANTY BY EQUALNET...............................-71-
(k) COUNTERPARTS.......................................-71-
(iv)
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EXHIBITS
Exhibit A - Summary of Terms of Preferred Stock
Exhibit B - Form of Escrow Agreement
SCHEDULES
Schedule 3(a)(iii) - Description of Network Facilities
Schedule 3(a)(iv) - Designated Contracts
Schedule 3(a)(v) - Designated Permits
Schedule 3(a)(vi) - Intangibles
Schedule 3(a)(vii) - Intellectual Property
Schedule 3(b)(viii) - Certain Excluded Assets
Schedule 3(b)(ix) - Excluded Contracts and Leases
Schedule 3(b)(x) - Excluded Books and Records
Schedule 3(b)(xi) - Maximum Amount of Current Excluded
Receivable to be retained by Sellers
Schedule 3(g) - Allocation of Consideration Among Assets
Schedule 7(e) - Sellers' Governmental Approvals
Schedule 7(f) - Sellers' Legal Proceedings
Schedule 7(h) - Payment Defaults and Notices of Default
Under Designated Contracts
Schedule 7(i) - Certain Liens
Schedule 7(j) - Liens and Claims on Intellectual Property
Schedule 7(k) - Sellers' Permits, Licenses & Tariffs
Schedule 7(l) - Sellers' Employee Benefit Plans and Labor
Agreements
Schedule 8(d) - EqualNet Parties' Governmental Approvals
Schedule 8(f) - EqualNet Parties' Legal Proceedings
Schedule 10(d) - Governmental Approvals
Schedule 11(f) - EqualNet Parties' Third-Party Consents
Schedule 12(d) - Sellers' Third-Party Consents
(v)
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PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of January 15, 1998 among EQUALNET
CORPORATION, a Delaware corporation ("BUYER"), EQUALNET HOLDING CORP., a Texas
corporation ("EQUALNET"), and SA TELECOMMUNICATIONS, INC., a Delaware
corporation ("SA TELECOM"), and its subsidiaries named on the signature page
hereof (collectively, "SELLERS").
R E C I T A L S
A. Sellers are full service regional interexchange carriers providing long
distance telecommunication services (the "SERVICES") in the west, southwest and
south central United States, including domestic long distance services,
wholesale long distance services, operator and wireless services, voice and data
private lines, "800/888" services, internet access and telephone travel cards.
B. Sellers provide the Services through a network of owned and leased
switching and transmission facilities (the "NETWORK FACILITIES") consisting of
equipment, switches, software and line capacity (the Services and the Network
Facilities collectively, the "BUSINESS").
C. On November 19, 1997 (the "Petition Date") Sellers filed petitions for
relief under Chapter 11 of title 11 of the United States Code, as amended (the
"BANKRUPTCY CODE"), in the United States Bankruptcy Court for the District of
Delaware
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(the "BANKRUPTCY Court"), Case Nos. 97-2395 through 97-2401 (PJW).
D. Sellers have determined that it is in their best interests to sell to
Buyer, and for Buyer to purchase from Sellers, pursuant to Section 363(b) of the
Bankruptcy Code, specified assets and rights of Sellers described herein for the
consideration and upon the terms and conditions hereinafter set forth, and Buyer
is willing, in connection with its purchase of the Assets, to assume certain
liabilities and obligations of Sellers, all on the terms and conditions set
forth below.
E. Buyer is a wholly owned subsidiary of EqualNet.
ACCORDINGLY, in consideration of the mutual benefits to be derived from
this Agreement and the representations, warranties, covenants and agreements
contained herein, the parties hereto represent, warrant, covenant and agree as
follows:
Section I. As used herein the following terms shall have the respective
meanings set forth for such terms in this Section 1 or elsewhere in this
Agreement:
"ADJUSTED PRE-CLOSING MONTHLY MINUTES" shall mean (i) the
Pre-Closing Monthly Minutes multiplied by (ii) the seasonality factor referred
to in clause (ii) of the definition of the term Revenue Amount.
"ASSETS" shall have the meaning specified in Section 3(a).
"ASSUMED LIABILITIES" shall have the meaning specified in
Section 3(c).
"BANKRUPTCY CASES" shall mean the cases under Chapter 11 of the
Bankruptcy Code commenced by the Debtors in the Bankruptcy Court (Case Nos.
97-2395 through 97-2401 (PJW)) and any cases under Chapter 7 of the Bankruptcy
Code to which any such cases are converted.
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"BANKRUPTCY CODE" and "BANKRUPTCY COURT" shall have the meanings
specified in Recital C hereto.
"BANKRUPTCY RULES" shall mean the Federal Rules of Bankruptcy
Procedure.
"BILLABLE MINUTE" shall mean (i) prior to the Closing Date, all
billable minutes generated by Sellers' Business and (ii) after the Closing Date,
all billable minutes generated by the Subscribers, in each case as measured by
call detail records supplied by switch tapes and carrier tapes.
"BREAK-UP FEE" shall have the meaning specified in Section 14(b).
"BUSINESS" shall have the meaning specified in the Recitals hereto.
"BUYER" shall mean EqualNet Corporation, a Delaware corporation.
"BUYER'S AUDITOR" and "BUYER'S AUDITOR CERTIFICATE" shall have the
respective meanings specified in Section 5(a)(ii).
"CLOSING" and "CLOSING DATE" shall have the meanings specified in
Section 4(a).
"CLOSING DATE MARKET VALUE" shall mean, with respect to the Common
Stock, the average of the last sale price of shares of the Common Stock on the
five (5) business days ending on the third business day immediately preceding
the Closing Date.
"COMMON STOCK" shall mean the common stock, par value $.01 per
share, of EqualNet.
"CONFIDENTIALITY AGREEMENT" shall have the meaning specified in
Section 9(c).
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"CONSIDERATION" shall have the meaning specified in Section 3(d).
"CONVERSION RATE" shall mean the number of shares of Common Stock
that the holder of Preferred Shares shall receive upon conversion of one
Preferred Share, as set forth below (subject to adjustment as set forth in the
Preferred Stock Provisions for the effect of dilutive and concentrative events
affecting the Common Stock). If the Closing Date Market Value of Common Stock is
less than or equal to $2.07 per share, one Preferred Share shall be convertible
into ten shares of the Common Stock. If the Closing Date Market Value of the
Common Stock is greater than $2.07 per share, one Preferred Share shall be
convertible into the number of shares of the Common Stock equal to the product
of (i) ten and (ii) a fraction, the numerator of which is equal to $2.75 and the
denominator of which is equal to 133% of the Closing Date Market Value.
"CREDITORS' COMMITTEE" shall mean the Official Unsecured Creditors'
Committee appointed in the Bankruptcy Cases.
"CURE AMOUNTS" shall mean all monetary amounts which the Bankruptcy
Court finds are required to cure monetary defaults under the Designated
Contracts so as to permit Sellers to assume the Designated Contracts pursuant to
Section 365(b)(1) of the Bankruptcy Code and to assign them to Buyer under
Section 365(f) of the Bankruptcy Code.
"DAMAGES" means, as to any party, all claims, actions, losses,
damages, costs (including, without limitation, costs of investigation), expenses
and liabilities (including reasonable attorneys' fees incident to the
foregoing), incurred or suffered by
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such party.
"DESIGNATED CONTRACTS" shall have the meaning specified in clause
(iii) of Section 3(a).
"DESIGNATED PERMITS" shall have the meaning specified in clause (iv)
of Section 3(a).
"DESIGNEE" shall have the meaning specified in Section 3(e).
"DIP FINANCING" shall mean the Greyrock Financing and the Willis
Group DIP Financing.
"DIP FINANCING DOCUMENTS" shall mean all agreements, instruments,
stipulations and Bankruptcy Court orders pursuant to which the DIP Financing is
extended, evidenced and authorized.
"DISPUTE AUDITOR" and "DISPUTE AUDITOR'S CERTIFICATE" shall have the
respective meanings specified in Section 5(a)(iii).
"EMPLOYEE BENEFIT PLAN" shall mean any "employee pension benefit
plan", "employee benefit plan" or "employee welfare plan" as defined in Sections
3(1) or 3(3) of ERISA including any multiemployer employee benefit plan.
"EQUALNET" shall mean EqualNet Holding Corp., a Texas corporation.
"EQUALNET PARTY" shall mean Buyer or EqualNet.
"ERISA" shall mean the Employee Retirement Security Act of 1974, as
amended, and all regulations issued thereunder.
"ESCROW AGENT", "ESCROW AGREEMENT" and "ESCROWED SHARES" shall have
the meanings specified in Section 4(d).
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"EXCLUDED ASSETS" shall have the meaning specified in Section 3(b).
"EXCLUDED LIABILITIES" shall mean all liabilities and obligations of
Sellers other than the Assumed Liabilities.
"EXCLUDED RECEIVABLES" shall have the meaning specified in the DIP
Financing Documents.
"FCC" shall mean the Federal Communications Commission.
"FINAL AUDITOR'S CERTIFICATE" shall mean (a) the Sellers'
Auditor Certificate if no Buyer's Notice of Disagreement is delivered, (b) the
Buyer's Auditor Certificate if a Buyer's Notice of Disagreement is delivered but
no Sellers' Notice of Disagreement is delivered, and (c) the Dispute Auditor's
Certificate if both a Buyer's Notice of Disagreement and a Sellers' Notice of
Disagreement is delivered.
"GAAP" shall mean generally accepted accounting principles in the
United States.
"GOVERNMENTAL ENTITY" shall mean any domestic or foreign court,
government, governmental agency, authority, entity or instrumentality.
"GREYROCK" shall mean Greyrock Business Credit, a division of
NationsCredit Commercial Corporation.
"GREYROCK FINANCING" shall mean the pre-petition and post-petition
financing provided by Greyrock to Sellers pursuant to that certain Loan and
Security Agreement, dated December 26, 1996, between Greyrock and Sellers, as
amended, restated or otherwise modified.
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"INDEMNITOR" and "INDEMNITEE" shall have the respective meanings
specified in Section 16(e).
"INTANGIBLES" shall have the meaning specified in clause (v) of
Section 3(a).
"INTELLECTUAL PROPERTY" shall have the meaning specified in clause
(vi) Section 3(a).
"LEGAL PROCEEDINGS" shall mean any judicial, administrative,
regulatory or arbitral proceeding, investigation or inquiry or administrative
charge or complaint pending at law or in equity before any Governmental Entity.
"LEGAL REQUIREMENTS" shall have the meaning specified in
Section 7(g).
"LETTER OF INTENT" shall mean the Letter of Intent dated December
24, 1997, as amended by the Amendment to Letter of Intent dated as of January 7,
1998, among Sellers, EqualNet, the Willis Group and Greyrock.
"LIENS" shall mean liens, security interests, mortgages, pledges,
charges, claims, conditional sales arrangements, adverse interests (whether
legal or equitable) and other encumbrances of any kind.
"NETWORK FACILITIES" shall have the meaning specified in Recital B.
"PAYMENT ORDER" shall have the meaning specified in Section 6(a).
"PERMITTED LIENS" shall mean the Liens securing the DIP Financing
and any Liens to which any real estate owned by the Borrower is subject.
"PERSON" shall mean an individual corporation, partnership, trust,
limited liability company, Governmental Entity or other type of entity.
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"PETITION DATE" shall have the meaning specified in Recital C.
"POST-PETITION OVERADVANCES" shall mean advances under the Greyrock
Financing after the Petition Date to the extent that after giving effect thereto
the principal amount of the DIP Financing exceeds the sum of (i) $1,276,031 plus
(ii) 80% of the Eligible Receivables (as defined in the DIP Financing Documents)
as of the date of any such advance.
"PRE-CLOSING MONTHLY MINUTES" and "POST-CLOSING MONTHLY MINUTES"
shall have the respective meanings specified in Section 5(b)(i).
"PREFERRED SHARES" shall mean the shares of Preferred Stock issued
to Sellers as part of the Consideration pursuant to Sections 3(d) and 5(a),
including the Escrowed Shares.
"PREFERRED STOCK" shall mean the Series B Convertible Preferred
Stock of EqualNet.
"PREFERRED STOCK PROVISIONS" shall mean the provisions of EqualNet's
Statement of Resolution Establishing Series B Convertible Preferred Stock
setting forth the terms of the Preferred Stock, which terms shall be consistent
with the terms specified for the Preferred Stock herein and in Exhibit A hereto.
"REVENUE AMOUNT" shall mean (i) the gross revenue of Sellers,
determined in accordance with GAAP, during the two calendar month period
immediately preceding the month in which the Closing occurs multiplied by (ii)
an adjustment factor mutually agreed to by the EqualNet Parties and Sellers to
reflect industry seasonality, such factor to be determined based on data
available from the FCC
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<PAGE>
for interstate access minutes, by month, for Southwestern Bell in Texas.
"SA TELECOM" shall mean SA Telecommunications, Inc., a Delaware
corporation.
"SALE ORDER" shall have the meaning specified in Section 10(a).
"SCHEDULING ORDER" shall have the meaning specified in Section 6(b).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SELLERS" shall mean SA Telecom and its subsidiaries named on the
signature page hereof.
"SELLERS' AUDITOR" and "SELLERS' AUDITOR CERTIFICATE" shall have the
respective meanings specified in Section 5(a)(i).
"SELLERS' REVENUE AMOUNT CERTIFICATE" shall mean a certificate of SA
Telecom setting forth SA Telecom's determination of the Revenue Amount, subject
to the final determination thereof pursuant to Section 5(a).
"SPC" shall have the meaning specified in Section 9(j).
"SUBSCRIBERS" shall have the meaning specified in clause (i) of
Section 3(a).
"TRANSACTION DOCUMENTS" shall mean this Agreement, the Escrow
Agreement, the Confidentiality Agreement and all bills of sale, assignment
instruments and assumption instruments executed or delivered by the parties
hereto at the Closing.
"UPSET PRICE" shall have the meaning specified in Section 14(a).
"WILLIS GROUP" shall mean the Willis Group LLC, a Texas limited
liability company.
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"WILLIS GROUP DIP FINANCING" shall mean the post-petition financing,
if any, provided by the Willis Group to Sellers.
Section II. RULES OF CONSTRUCTION, ETC.
(a) Unless the context otherwise requires, (i) all references to Sections,
Schedules or Exhibits are to Sections of or to Schedules or Exhibits to this
Agreement, (ii) each accounting term not otherwise defined in this Agreement has
the meaning assigned to it in accordance with GAAP, (iii) "or" is disjunctive
but not necessarily exclusive, and (iv) words in the singular include the plural
and vice versa. All references to "$" or dollar amounts will be to lawful
currency of the United States of America.
(b) No provision of this Agreement will be interpreted in favor of, or
against, any of the parties hereto by reason of the extent to which either such
party or its counsel participated in the drafting thereof.
(c) The Section headings and other captions contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section III. SALE AND PURCHASE
A. ASSETS. Subject to the terms and conditions hereof, on the Closing
Date, Sellers will sell, convey, transfer and deliver to Buyer, and Buyer will
purchase from Sellers, except as provided in Section 3(b), all of the assets of
Sellers' Business (collectively, the "ASSETS"), free and clear of liens,
encumbrances and claims other than Permitted Liens, including any and all of the
following assets:
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1. SUBSCRIBERS. All of Sellers' rights and interests to all
accounts of subscribers to the Services of Sellers (collectively, the
"SUBSCRIBERS") as of the Closing Date;
2. all accounts receivable and notes receivable of Sellers (other
than Excluded Receivables specified in Section 3(b)(xi));
3. NETWORK FACILITIES. The Network Facilities of Sellers, as more
fully described in Schedule 3(a)(iii) (provided that to the extent the
Network Facilities are represented by contracts, said contracts shall not
be an Asset unless they are Designated Contracts);
4. CONTRACTS. All rights, title and interests of Sellers under the
leases, contracts and agreements specified in Schedule 3(a)(iv), to the
extent assignable pursuant to applicable law without regard to the consent
of any third party that may be required with respect to such assignment or
as to which such third party consents have been obtained (collectively,
the "DESIGNATED CONTRACTS");
5. PERMITS. All rights, title and interest of Sellers in and under
the licenses, permits, authorizations and approvals issued to Sellers by
any Governmental Entity and listed on Schedule 3(a)(v), but only to the
extent the same are assignable under applicable law (collectively, the
"DESIGNATED PERMITS");
6. INTANGIBLE TELECOMMUNICATIONS ASSETS. To the extent assignable,
all rights, title and interest of Sellers in and to the intangible
telecommunications assets owned or used by Sellers in connection with the
Business, including, telecommunications numbering codes, locating routing
codes and "800" and "888" numbers and other customer billing and inquiry
numbers, carrier identification codes and other operating codes,
including, without limitation, those listed or described on Schedule
3(a)(vi) (collectively, the "INTANGIBLES");
7. INTELLECTUAL PROPERTY. All rights, title and interest of Sellers
in and to all domestic and foreign letters patent, patents, patent
applications, patent licenses, software licenses and know-how licenses,
trade names, trademarks, registered copyrights, service marks, trademark
registrations and applications, service mark registrations and
applications and copyright registrations and applications, if any, owned
or used by Sellers and all trade secrets, technical knowledge, know-how
and other confidential proprietary information and related ownership, use
and other rights of Sellers, including, without limitation, those listed
or described on Schedule 3(a)(vii) (collectively, the "INTELLECTUAL
PROPERTY");
8. SELLERS' NAMES. All of Sellers' rights to use their corporate
names as well as the names "USC", "USI", "First Choice Long Distance",
"Southwest Long Distance Network", "Addtel", "SA Telecom" and any other
trade names used in Sellers' Business and any and all variants,
combinations and derivatives thereof, and any and all trademarks, service
marks, tradenames and copyrights which contain said names or any variants,
combinations and derivatives thereof; PROVIDED, HOWEVER, that Sellers
shall be entitled to continue to use their respective corporate name for
purposes of the Bankruptcy Cases and filing tax returns;
9. MANUFACTURERS WARRANTIES. All of Sellers' rights under
warranties, representations and guaranties made by suppliers and
manufacturers of the Assets or the Business;
10. BOOKS AND RECORDS. All of Sellers' existing books and records
relating to the foregoing Assets or the Business, including, but not
limited to, sales records, customer lists, customer folders and all
historical customer records and files which relate to the Business, but
excluding those books and records listed on Schedule 3(b)(x) or specified
in Section 3(b);
11. SHARES OF SPC. All shares of the capital stock of the SPC, if it
is established pursuant to Section 9(j); and
12. GOODWILL. All goodwill relating to the foregoing Assets and the
Business.
Buyer shall have the right, exercisable in writing prior to the Closing
Date, to exclude from the Assets any asset it elects, and specifically to
exclude from Designated Contracts any contract or lease it elects, but such
election shall not entitle Buyer to any adjustment in the Consideration.
B. EXCLUDED ASSETS. There are expressly excluded from the sale,
conveyance, transfer and delivery referred to in Section 3(a) above, and the
term "Assets" shall not include, the following assets of Sellers' Business (the
"EXCLUDED ASSETS"):
1. all cash and cash equivalent of Sellers;
2. all income tax refunds and income tax credits of Sellers;
3. all claims and causes of action of Sellers;
4. all claims and causes of action of Sellers' estates
arising under Sections 509, 510, 542 through 549, inclusive, 550, 552 or
553 of the Bankruptcy Code;
5. all assets excluded from the Assets by Buyer in
writing prior to the Closing Date;
6. all rights of Sellers under insurance policies and under
warranties (expressed or implied), representations and guaranties made by
suppliers, manufacturers and contractors relating to Excluded Assets or
any event, condition or occurrence that gives rise to a liability that is
not an Assumed Liability;
7. all capital stock and stock certificates of Sellers (other than
to the stock of the SPC and the certificates representing the same),
including all treasury stock and stock of subsidiaries;
8. the assets listed in Schedule 3(b)(viii); 9. the contracts and
leases listed in Schedule 3(b)(ix);
10. the books and records listed on Schedule 3(b)(x) and any other
books, records or other data relating to Sellers' ownership or operation
of the Business which are required by applicable law to be retained by
Sellers; PROVIDED, HOWEVER, that copies of such books, records and other
data relating to the Business shall be furnished to Buyer promptly upon
Buyer's written request; and
11. All Excluded Receivables more than 90 days past due as of the
Closing Date and Excluded Receivables 90 days or less past due as of the
Closing Date in an amount equal to the lesser of (A) 133% of the claims of
Zero Plus Dialing, Inc., d/b/a U.S. Billing ("ZPDI/USBI") against Sellers
as of the Closing Date for outstanding advances by ZPDI/USBI to Sellers in
respect of the Excluded Receivables and (B) the amount specified in
Schedule 3(b)(xi).
C. ASSUMPTION OF LIABILITIES. Subject to the terms and conditions hereof,
on the Closing Date Buyer shall assume and agree to pay, perform and discharge
(i) all liabilities arising out of, related to or incurred in connection with
the ownership of the Assets after the Closing Date; (ii) all liabilities and
obligations of each Seller (x) under all Designated Contracts and the other
Assets which accrue after the Closing Date and (y) in respect of all security
deposits, if any, of the Subscribers to be acquired hereunder; and (iii) all
liabilities and obligations of Sellers in respect of indebtedness accruing on or
before the Closing Date under the Greyrock Financing and all interest, costs and
attorneys' fees accruing under the Greyrock Financing after the Closing Date
(limited to principal (not to exceed $7,000,000), interest and costs and
attorneys' fees, provided that Buyer shall not be required to assume or pay (x)
any Post-Petition Overadvances or any interest thereon or (y) more than $100,000
of costs and attorneys' fees under the Greyrock Financing, other than any such
costs and expenses arising after the Closing Date and attributable to actions of
Buyer after the Closing Date, all at which shall be guarantied by EqualNet
pursuant to Greyrock's standard form guaranty) (all the foregoing herein
collectively called the "ASSUMED LIABILITIES"). Except as expressly provided in
this Section 3(c), Buyer will not assume or be bound by any liabilities or
obligations of Sellers.
D. CONSIDERATION. In addition to the assumption of the Assumed Liabilities
and subject to Section 4(d), the consideration to be paid or delivered by Buyer
to Sellers on the Closing Date for the Assets (the "CONSIDERATION") shall
consist of: (i) the payment and discharge by Buyer of all obligations of Sellers
on the Closing Date in respect of the outstanding principal amount of, and all
accrued and unpaid interest on, the Willis Group DIP Financing, if any; plus
(ii) a cash payment in an amount equal to the excess of $3,000,000 over the
outstanding principal amount of, and all accrued and unpaid interest on, the
Willis Group DIP Financing on the Closing Date; plus (iii) a cash payment in the
amount of $22,500 per calendar day for each day from January 30, 1998 through
the Closing Date (provided that the cash payment referred to in this clause
(iii) shall not exceed $472,500 in the aggregate and shall stop accruing on the
date following the satisfaction or waiver of all conditions precedent set forth
in Sections 10, 11 and 12); plus (iv) a promissory note (the "NOTE") to be
issued by Buyer in favor of Greyrock in an amount equal to the lesser of (a) the
amount of the outstanding indebtedness (limited to principal (excluding
Post-Petition Overadvances), interest and up to $100,000 of costs and attorneys'
fees) of Sellers to Greyrock under the Greyrock Financing on the Closing Date in
excess of 75% of Sellers then outstanding accounts receivable that have aged by
no more than 119 days (excluding Excluded Receivables) and (b) $1,000,000; plus
(v) a cash payment equal to all Cure Amounts; plus (vi) the number of shares of
Preferred Stock equal to the quotient of (A) (x) 40% of the annualized Revenue
Amount (i.e., the Revenue Amount multiplied by six (6)) less (y) the aggregate
amount paid by Buyer pursuant to clauses (i), (ii), (iii), (iv) and (v) above,
and (B) $27.50. Said shares of Preferred Stock shall be convertible at the
option of the holder thereof into shares of Common Stock at the Conversion Rate.
E. TRANSFERABILITY OF PREFERRED SHARES. The Preferred Shares will not be
registered under the Securities Act. Accordingly, unless and until Sellers
deliver to EqualNet a "no action letter" from the Securities and Exchange
Commission or a final order of the Bankruptcy Court providing that the Preferred
Shares will be exempt from registration under the Securities Act and any state
law pursuant to Section 1145 of the Bankruptcy Code, the Preferred Shares may
not be sold, assigned, hypothecated or otherwise disposed by Sellers (except
that Sellers may grant to Greyrock (which retains a security interest in the
Preferred Shares as proceeds of its collateral) a security interest in the
Preferred Shares to secure the Greyrock Financing) until such time that the sale
and transfer of the Preferred Shares is registered under the Securities Act;
provided that any such sale, transfer or other disposition may be made if the
holder of the Preferred Shares seeking to effect such disposition delivers to
EqualNet an opinion of counsel for such holder reasonably satisfactory to
EqualNet to the effect that such registration is not required for such
disposition. Absent such "no action letter," final order of the Bankruptcy Court
or opinion of counsel reasonably satisfactory to EqualNet, then prior to any
distribution of the Preferred Shares to any creditors or equity security holders
of the Sellers or to any other Person, EqualNet will at the request of SA
Telecom register the Preferred Shares under the Securities Act and under any
applicable state securities laws. EqualNet may defer such registration for a
period not exceeding 75 days after SA Telecom's request therefor if EqualNet
reasonably determines that to do so is necessary to avoid an adverse effect on
any pending or contemplated securities offering by EqualNet. The cost of any
such registration of the Preferred Shares shall be borne 50% by Sellers and 50%
by EqualNet.
F. PAYMENT OF CURE AMOUNTS; ASSURANCE OF FUTURE PERFORMANCE. Sellers shall
apply the applicable portion of the RFORMANCE Consideration to the payment of
the Cure Amounts, as and when required to do so by Section 365 of the Bankruptcy
Code. Buyer will provide adequate assurances of future performance in respect of
Designated Contracts, in such manner and in such amounts as the Bankruptcy Court
may direct.
G. ALLOCATION OF CONSIDERATION AMONG ASSETS. The Consideration shall be
allocated among the Assets in accordance with the provisions of Schedule 3(g),
which allocation shall be binding upon Buyer and the Sellers, provided that such
allocation shall not preclude or limit any allocation of the Assets or
Consideration among Sellers pursuant to Section 3(h). Each party agrees to
report the transactions contemplated hereby on all applicable tax returns or
filings in a manner consistent with such allocation.
H. ALLOCATION OF CONSIDERATION AMONG SELLERS. The Consideration shall be
delivered by Buyer to SA Telecom, as agent for all Sellers, and shall be held by
SA Telecom for all Sellers. SA Telecom shall apply the portion of the
Consideration consisting of the Cure Amounts to the payment of the Cure Amounts.
The balance of the Consideration shall be allocated among Sellers in such manner
as Sellers shall agree, subject to the approval of the Bankruptcy Court,
consistent with each Seller's interest in the Assets, Designated Contracts and
Assumed Liabilities.
I. TRANSFER AND SALES TAXES. All sales, transfer and similar taxes
incurred as a result of the sale of the Assets shall be paid 50% by Buyer and
50% by Sellers.
J. DISCLAIMER OF WARRANTIES. Buyer and EqualNet hereby acknowledge and
agree that the Sellers are not making any representation or warranty whatsoever,
express or implied, except those representations and warranties of Sellers
expressly set forth in this Agreement. Subject to the foregoing, THE ASSETS
BEING PURCHASED BY BUYER PURSUANT TO THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY SHALL BE ACQUIRED BY BUYER ON AN "AS IS, WHERE IS" BASIS AND
IN THEIR THEN PRESENT CONDITION, AND BUYER SHALL RELY SOLELY UPON ITS OWN
EXAMINATION THEREOF. Without limiting the generality of the foregoing, except as
expressly set forth in this Agreement, NONE OF SELLERS OR ANY OF THEIR OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, AFFILIATES OR REPRESENTATIVES HAS MADE OR IS
MAKING ANY REPRESENTATION, EXPRESS OR IMPLIED, AS TO THE VALUE OF ANY ASSET
BEING ACQUIRED, OR ANY WARRANTY OF MERCHANTABILITY, SUITABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR QUALITY WITH RESPECT TO ANY OF THE ASSETS, OR AS TO THE
CONDITION OR WORKMANSHIP THEREOF, OR AS TO THE ABSENCE OF ANY DEFECTS THEREIN,
WHETHER LATENT OR PATENT.
K. PRORATIONS; EXPENSES. Prepaid rentals, prepaid utility charges, real
property taxes, personal property taxes, similar assessments and other prepaid
expenses (the "EXPENSES") payable in respect of any of the Assets applicable to
periods both prior to and after Closing, shall be prorated as of the Closing
Date. The estimated net amounts of such prorations shall be subtracted from the
cash portion of the Consideration if Buyer is entitled to a credit therefor, or
added to the cash portion of the Consideration if Sellers are entitled to a
credit therefor. Buyer and Sellers shall use their reasonable best efforts to
calculate all prorations and the Expenses at or prior to the Closing. In the
event that such proration cannot be agreed to by Sellers and Buyer, such dispute
shall be referred to the Dispute Auditor under and in accordance with the
provisions of Section 5(a), whose determination shall be binding upon the
parties.
L. ASSIGNMENT TO BUYER'S DESIGNEES. Subject to Bankruptcy Court approval,
Buyer shall have the right to assign to one or more subsidiaries of Buyer the
right to purchase such of the Assets as Buyer shall determine and to designate
one or more subsidiaries of Buyer to assume all or any portion of the Assumed
Liabilities specified by Buyer, provided that (i) Buyer shall unconditionally
guarantee the performance by each such designated subsidiary of all Assumed
Liabilities assumed by such subsidiary and (ii) no such assignment or
designation may be made if it would materially delay the Closing or otherwise
adversely affect the prompt consummation of the transactions contemplated
hereby. Any such assignee or designee of Buyer is herein called a "DESIGNEE".
Section IV. THE CLOSING; ESCROW OF SHARES
A. Subject to the satisfaction of all of the conditions in Sections 10, 11
and 12, the closing of the sale and transfer of the Assets (the "CLOSING") shall
take place at the offices of White & Case LLP (or at such other place as the
parties may designate) on the first business day after each condition specified
in Sections 10, 11 and 12 has been satisfied (or waived by the party entitled to
waive that condition). The date on which the Closing occurs is herein called the
"CLOSING DATE."
B. At the Closing: (i) Buyer shall pay the cash portion of the
Consideration by a wire transfer in immediately available funds to the account
of SA Telecom, as agent for Sellers, at __________________________ or to such
other account or accounts as SA Telecom shall specify by a notice in writing to
Buyer at least two business days prior to the Closing Date; (ii) EqualNet shall
deliver to SA Telecom, as agent for Sellers, or (to the extent provided in
Section 4(d)) to the Escrow Agent the Preferred Shares, registered in such names
as SA Telecom shall reasonably specify; (iii) Buyer shall deliver to SA Telecom,
as agent for Sellers, such documentation as Sellers shall reasonably specify
evidencing Buyer's assumption of the Assumed Liabilities; (iv) Sellers shall
deliver to Buyer a bill of sale in form and substance reasonably satisfactory to
Buyer and consistent with the terms hereof and such other instruments of
assignments as Buyer shall reasonably specify; and (v) Sellers and Buyer shall
deliver to each other the respective documents, certificates and agreements
specified in Sections 10, 11 and 12.
C. All proceedings to be taken and all documents to be executed and
delivered at the Closing shall be reasonably satisfactory in form and substance
to Buyer and its counsel and to Sellers and their counsel. All proceedings to be
taken and all documents to be executed and delivered by all parties at the
Closing shall be deemed to have been taken, executed and delivered
simultaneously, and no proceedings shall be deemed taken nor any documents
executed or delivered until all have been taken, executed and delivered.
D. On the Closing Date a number of Preferred Shares having a value (as
determined below) equal to 20% of the total Consideration to be paid to Sellers
pursuant to Section 3(d) shall be placed in escrow with an escrow agent mutually
acceptable to EqualNet and Sellers (the "ESCROW AGENT") pursuant to an Escrow
Agreement substantially in the form of Exhibit B hereto (the "ESCROW
Agreement"). The Preferred Shares so placed in escrow are herein called the
"ESCROWED SHARES." For purposes of the foregoing, each Preferred Share shall be
deemed to have a value equal to $27.50. The Escrowed Shares shall be released
from escrow on the terms set forth in the Escrow Agreement and Section 5(b).
Section V. POST-CLOSING ADJUSTMENTS
A. VERIFICATION OF REVENUE AMOUNT. 1. As soon as practicable, but in any
event no later than fifteen (15) days after the Closing Date, Sellers will cause
Price Waterhouse LLP (the "SELLERS' AUDITOR") to verify Sellers' calculation of
the Revenue Amount. The Sellers' Auditor will deliver certified copies of its
calculations (the "SELLERS' AUDITOR CERTIFICATE") simultaneously to Sellers,
Buyer.
2. If, on or prior to the 15th day following its receipt of the Sellers'
Auditor Certificate, Buyer shall not have delivered to Sellers a notice
("BUYER'S NOTICE OF DISAGREEMENT") stating that Buyer disagrees with the
Sellers' Auditor Certificate, the Revenue Amount shall be deemed to be finally
determined for the purposes of this Agreement in accordance with the Sellers'
Auditor Certificate. Buyer's Notice of Disagreement shall specify in reasonable
detail the nature of any disagreement so asserted. If a Buyer's Notice of
Disagreement has been delivered to Sellers within such 15-day period, then (x)
Sellers shall have five (5) business days to review the objections set forth
therein, (y) Sellers and Buyer will seek in good faith to resolve in writing
such matters of disagreement specified in such Buyer's Notice of Disagreement
for a period of 30 days after the delivery thereof, and (z) if no such
resolution has been reached at the end of such 30-day period, the parties hereto
will submit any matters remaining in disagreement to Ernst & Young (the "BUYER'S
AUDITOR") for review. The Buyer's Auditor shall determine all disputed
calculations relating to the Revenue Amount and shall deliver a certificate to
the parties as soon as practicable, which certificate shall set forth the
Buyer's Auditor's determination of the Revenue Amount (the "BUYER'S AUDITOR
CERTIFICATE").
3. If, on or prior to the 15th day following its receipt of the Buyer's
Auditor Certificate, SA Telecom shall not have delivered to Buyer a notice
("SELLERS' NOTICE OF DISAGREEMENT") stating that Sellers disagree with the
Buyer's Auditor Certificate, the Revenue Amount shall be deemed to be finally
determined for the purposes of this Agreement in accordance with the Buyer's
Auditor Certificate. Any Sellers' Notice of Disagreement shall specify in
reasonable detail the nature of any disagreement so asserted. If a Sellers'
Notice of Disagreement has been delivered to Buyer within such 15-day period,
then (x) Buyer shall have five (5) business days to review the objections set
forth therein, (y) Sellers and Buyer will seek in good faith to resolve in
writing such matters of disagreement specified in Sellers' Notice of
Disagreement for a period of 30 days after the delivery thereof, and (z) if no
such resolution has been reached at the end of such 30-day period, the parties
hereto will submit any matters remaining in disagreement to Arthur Andersen LLP
(the "DISPUTE AUDITOR") for review;
4. The Dispute Auditor shall determine all disputed calculations relating
to the Revenue Amount and shall deliver a certificate to the parties as soon as
practicable, which certificate shall set forth the Dispute Auditor's
determination of the Revenue Amount (the "DISPUTE AUDITOR'S CERTIFICATE"). Upon
receipt of the Dispute Auditor's Certificate, the Revenue Amount shall be deemed
to be finally determined for purposes of this Agreement in accordance with such
Certificate. The fees and expenses of Sellers' Auditor shall be borne by
Sellers, the fees and expenses of Buyer's Auditor shall be borne by Buyer and
the fees and expenses of the Dispute Auditor shall be borne 50% by Buyer and 50%
by Sellers; PROVIDED that if the Dispute Auditor determines that one party's
position is completely correct, then such party shall not pay any of the fees,
costs and expenses charged by the Dispute Auditor and the other party shall pay
all of such fees, costs and expenses.
5. If the Revenue Amount, as set forth in the Final Auditor's Certificate
is greater than or less than the Revenue Amount set forth in the Sellers'
Revenue Amount Certificate, the number of Preferred Shares constituting the
Consideration shall be recalculated in accordance with the provision of clause
(iv) of Section 3(d). If the Revenue Amount as so finally determined is greater
than the amount set forth in the Sellers' Revenue Amount Certificate, EqualNet
will, subject to compliance with applicable securities laws, deliver to Sellers
additional Preferred Shares equal to the difference between the recalculated
number of the Preferred Shares and the number of Preferred Shares delivered on
the Closing Date. If the Revenue Amount as so finally determined is less than
the Revenue Amount set forth in the Sellers' Revenue Amount Certificate,
EqualNet shall cancel, and Sellers shall return to EqualNet, so many of the
Preferred Shares as exceed such recalculated number of Preferred Shares. If the
escrow referred to in Section 5(b) below is in effect on the date that the
recalculation specified in this paragraph (iv) is made, 20% of all additional
Preferred Shares to be delivered to Sellers shall be delivered instead to the
Escrow Agent and shall constitute additional Escrowed Shares and 20% of all
Preferred Shares required to be returned by Sellers to Buyer shall be returned
by the Escrow Agent from the Escrowed Shares.
B. ADJUSTMENT FOR POST-CLOSING MONTHLY MINUTES.
1. On or before the Closing Date, Sellers shall calculate the average
monthly Billable Minutes for each of the two full calendar months immediately
preceding the month in which the Closing occurs (the "PRE-CLOSING MONTHLY
MINUTES") and notify Buyer thereof, which notice shall set forth in reasonable
detail Sellers' calculation thereof. On the fifth business day following the end
of the first two full calendar months immediately following the month in which
the Closing occurs, Buyer shall calculate the average monthly Billable Minutes
for each of such two calendar months (the "POST-CLOSING MONTHLY MINUTES") in
respect of all Subscribers acquired by Buyer pursuant hereto and shall notify
Sellers thereof, which notice shall set forth in reasonable detail Buyer's
calculation thereof. Subject to paragraph (ii) below, if the Post-Closing
Monthly Minutes are at least equal to 90% of the Adjusted Pre-Closing Monthly
Minutes, 100% of the Escrowed Shares shall be delivered by the Escrow Agent to
SA Telecom. If the Post-Closing Monthly Minutes are more than 87% but less than
90% of the Adjusted Pre-Closing Monthly Minutes, 50% of the Escrowed Shares
shall be delivered to SA Telecom, and the balance of the Escrowed Shares shall
be returned to, and canceled by, Buyer. If the Post Closing Monthly Minutes are
equal to or less than 87% of the Adjusted Pre-Closing Monthly Minutes, 100% of
the Escrowed Shares shall be returned to, and canceled by, Buyer. All Escrowed
Shares delivered by the Escrow Agent to SA Telecom shall be held by it as agent
for all Sellers.
2. Sellers' calculation of the Pre-Closing Monthly Minutes shall be
verified by the Sellers' Auditor at the time Sellers' Auditor verifies the
Revenue Amount. Concurrently with the delivery to Buyer of the Sellers' Auditor
Certificate, Sellers' Auditor shall deliver to Buyer and the Escrow Agent a
certificate setting forth the Seller's Auditor's calculation of the Pre-Closing
Monthly Minutes. The Sellers' Auditor's calculation of the Pre-Closing Monthly
Minutes, as set forth in the certificate referred to above, shall be conclusive
unless, within 15 days after its receipt of such certificate, any EqualNet Party
delivers a notice to SA Telecom and the Escrow Agent disputing such calculation,
which notice shall specify in reasonable detail the nature of any disagreement.
In the event of any such dispute by any EqualNet Party, such dispute shall be
resolved in accordance with the provisions of Section 2(a) of the form of the
Escrow Agreement attached hereto.
3. Buyer's calculation of the Post-Closing Monthly Minutes shall be
verified by the Buyer's Auditor, and the Buyer's Auditor shall deliver to
Sellers and the Escrow Agent a certificate setting forth the Buyer's Auditor's
calculation of the Post-Closing Monthly Minutes, which certificate shall be
delivered no later than fifteen (15) days after Buyer's notice to Sellers of the
Post-Closing Monthly Minutes. The Buyer's Auditor's calculation of the
Post-Closing Monthly Minutes, as set forth in the certificate referred to above,
shall be conclusive unless, within fifteen (15) days after its receipt of such
certificate, any Seller delivers a notice to Buyer disputing such calculation,
which notice shall specify in reasonable detail the nature of any disagreement.
In the event of such dispute by any Seller, such dispute shall be resolved in
accordance with the provisions of Section 2(b) of the form of Escrow Agreement
attached hereto.
4. Seller shall pay the fees and expenses of Sellers' Auditor for
verifying the Pre-Closing Monthly Minutes and the Post-Closing Monthly Minutes,
and Buyer shall pay the fees and expenses of Buyer's Auditor for verifying the
Pre-Closing Monthly Minutes and the Post-Closing Monthly Minutes. Buyer shall
pay all fees and expenses of the Dispute Auditor in calculating the Pre-Closing
Monthly Minutes unless the Dispute Auditor determines that the Pre-Closing
Monthly Minutes are more than 103% of the amount thereof calculated by Sellers'
Auditor, in which case Sellers shall pay such fees and expenses of the Dispute
Auditor. Sellers shall pay all fees and expenses of the Dispute Auditor in
calculating the Post-Closing Monthly Minutes, unless the Dispute Auditor
determines that the Post-Closing Monthly Minutes are more than 103% of the
amount thereof calculated by Buyer's Auditor, in which case Buyer shall pay such
fees and expenses of the Dispute Auditor.
5. From the Closing Date until the expiration of the first two full
calendar months immediately following the month in which the Closing occurs (the
"RELEVANT PERIOD") Buyer shall not reduce the level or quality of services
provided to Subscribers acquired by Buyer from Sellers from that provided by
Sellers to such Subscribers as of the Closing Date or increase the rates charged
to such Subscribers from those charged by Sellers to such Subscribers for such
services as of the Closing Date; PROVIDED, HOWEVER, that Buyer shall be
permitted to (x) terminate service to any Subscriber whose account is more than
60 days past due and (y) increase the rates charged to any Subscriber to the
extent necessary to cover increased costs arising after the date hereof of
providing Services to such Subscriber that affect the entire industry. Buyer
shall take all appropriate steps during the Relevant Period (including
maintenance of appropriate identifying codes) to ensure that Billable Minutes of
any Subscriber acquired by the Buyer from Sellers are properly attributed to
such Subscriber for purpose of determining the Post-Closing Monthly Minutes.
Buyer shall also take due care to implement any network changes during the
Relevant Period so as not to affect the number of billable minutes recorded for
purposes of determining the Post-Closing Monthly Minutes. Buyer's calculation of
the Post-Closing Monthly Minutes shall account for any unidentifiable or
unbillable traffic or service disruptions resulting from any network changes.
Section VI. BANKRUPTCY COURT FILINGS.
A. APPROVAL OF BREAK-UP FEE, EXPENSE REIMBURSEMENT AND UPSET PRICE.
On December 23, 1997, Sellers have filed motions with the Bankruptcy Court to
approve the provisions of Section 14 relating to the Break-up Fee, the Expense
Reimbursement and the Upset Price and have given notice thereof as required by
the Bankruptcy Court, and on January 8, 1998 the Bankruptcy Court entered an
order (the "PAYMENT ORDER") granting such approval.
B. SCHEDULING OF AUCTION SALE AND APPROVAL OF SALE PROCEDURE. On December
23, 1997 Sellers filed a motion with the CEDURE Bankruptcy Court for an order
scheduling an auction sale of the Assets and setting forth the procedures for
such auction sale and on January 9, 1998 the Bankruptcy Court entered such order
(the "SCHEDULING ORDER").
C. MOTION TO APPROVE SALE. As promptly as practicable after the date
hereof, but in any event no later than January 16, 1998, Sellers shall file
motions with the Bankruptcy Court for an order approving the sale of the Assets
pursuant to ss. 363(b) and 363(f) of the Bankruptcy Code and authorizing Sellers
to assume and assign the Designated Contracts pursuant to ? 365 of the
Bankruptcy Code and authorizing Sellers to execute and deliver such instruments
as Sellers are required to execute and deliver pursuant to the terms of this
Agreement. Sellers shall give prompt notice of such motions, in accordance with
Rules 6004 and 6006 of the Bankruptcy Rules, to the U.S. Trustee, to all other
parties in interest who have filed a notice of appearance in the Bankruptcy
Cases and as directed by the Bankruptcy Court. As part of the motion to approve
the sale, Sellers shall request that the Bankruptcy Court's order provide that
(i) Buyer is acting and has acted in good faith and is entitled to the
protections of a buyer under Section 363(m) of the Bankruptcy Code; (ii) notice
of the transactions contemplated by this Agreement has been properly given;
(iii) the transfer of the Assets by Sellers to Buyer will be a legal, valid and
effective transfer of the Assets notwithstanding any requirement for approval or
consent by any Person; (iv) title to the Assets will be transferred to Buyer
free and clear of (x) all Liens and claims, other than Permitted Liens, and (y)
all rights or options to effect any forfeiture, modification or termination of
Sellers' or Buyer's interest in the Assets by reason of such transfer, and any
such Liens or claims which existed prior to the sale of the Assets shall attach
to the Consideration paid to the Sellers; (v) neither Buyer nor EqualNet shall
be deemed to be a successor to Sellers for any purpose, including claims arising
out of the Employee Benefit Plans, other than ? 1145(a) of the Bankruptcy Code;
(vi) in the event the Preferred Shares are distributed to the creditors or
equity security holders of any of Sellers in exchange for a claim against or
interest in any of the Sellers in connection with plans or reorganization of
Sellers, EqualNet shall be deemed to be persons that participate in good faith
in the offer, issuance or sale of a security offered or sold under the plan or
plans of the Sellers as provided in ? 1125(e) of the Bankruptcy Code and a
successor of the Sellers solely for purposes of Section 1145 of the Bankruptcy
Code; and (vii) the transfer of the Assets to Buyer is not subject to taxation
under any state or local law imposing a stamp or similar tax in accordance with
ss. 1146(c) and 105 of the Bankruptcy Code.
D. REVIEW BY BUYER. Sellers will provide Buyer and EqualNet with a
reasonable opportunity to review and comment upon all motions, applications and
supporting papers prepared by Sellers relating to this Agreement (including
forms of orders and notices to interested parties) prior to the filing thereof
in the Bankruptcy Cases.
Section VII. REPRESENTATIONS AND WARRANTIES OF SELLERS. Sellers hereby
represent and warrant to Buyer and EqualNet as follows:
A. ORGANIZATION AND GOOD STANDING. Each Seller is a corporation duly
organized and validly existing under the laws of the jurisdiction of its
incorporation. Each Seller has all requisite corporate power to carry on its
business as it is now being conducted and to own, lease or otherwise hold the
Assets owned, leased or held by it.
B. AUTHORITY. Each Seller has the requisite corporate power and authority
to execute and deliver this Agreement and each other Transaction Document to
which it is a party and to carry out the transactions contemplated hereby and
thereby. The execution, delivery and performance by Sellers of this Agreement
and the other Transaction Documents to which any of them is a party, including,
without limitation, the sale of the Assets contemplated hereby, have all been
duly and effectively authorized by each of the Sellers' Board of Directors. No
other corporate proceedings on the part of the Sellers are necessary to
authorize this Agreement and the other Transaction Documents and the
transactions contemplated herein and therein.
C. EXECUTION AND DELIVERY. This Agreement has been duly executed and
delivered by each Seller and when approved by the Bankruptcy Court (and assuming
the due execution and delivery of this Agreement by Buyer) will constitute, the
legal, valid and binding obligation of each Seller enforceable against each
Seller in accordance with its terms, subject to all orders of the Bankruptcy
Court (including the Sale Order). When executed and delivered by each Seller and
Buyer and when approved by the Bankruptcy Court, each of the other Transaction
Documents to which any Seller is a party will constitute the legal, valid and
binding obligation of each Seller enforceable against each Seller in accordance
with its terms, subject to all orders of the Bankruptcy Court (including the
Sale Order).
D. NO CONFLICT. Assuming the approval of this Agreement by the Bankruptcy
Court, neither the execution and delivery of this Agreement or the other
Transaction Documents to which any Seller is a party, nor the consummation by
Sellers of the transactions contemplated herein and therein, nor the compliance
by Sellers with any of the provisions hereof or thereof will (with or without
the giving of notice or the passage of time) (i) violate, conflict with, result
in a breach of, or constitute a default under (x) the certificate of
incorporation or by-laws of any Seller or (y) any contract, agreement,
instrument, security, lease or license to which any Seller is a party or by
which it or any of its assets or properties may be bound, or (ii) violate any
law, regulation or any order of any Governmental Entity applicable to any Seller
or any of its assets other than, in the case of clause (i), any violation,
conflict, breach or default which, individually or in the aggregate, would not
materially adversely affect the Assets or materially impair or delay the ability
of Sellers to perform their obligations hereunder.
E. GOVERNMENTAL APPROVALS. The only approvals, licenses, permits or
authorizations of, or filing or qualifications with, any Governmental Entity
required to be obtained or made by Sellers to consummate the transactions
contemplated by this Agreement and the other Transaction Documents to which any
Seller is a party (other than the Sale Order and other required Bankruptcy Court
orders) are those specified in Schedule 7(e) hereto.
F. LEGAL PROCEDINGS. Except for the Bankruptcy Cases, there are no Legal
Proceedings pending or, to the knowledge of Sellers, threatened that question
the validity of this Agreement or any other Transaction Document to which any
Seller is a party or any action taken or to be taken by Sellers in connection
with the consummation of the transactions contemplated hereby or thereby. All
Legal Proceedings relating to the Business pending or, to the knowledge of
Sellers, threatened in which any Seller is or would be the defendant and which,
if adversely determined, would have a material adverse effect on the Assets or
would result in a judgment against any Sellers, not covered by insurance,
exceeding $10,000 are set forth in SA Telecom's Report on Form 10-K for its
fiscal year ended December 31, 1996, its Report on Form 10-Q for its fiscal
quarter ended June 30, 1997 or in Schedule 7(f).
G. COMPLIANCE WITH LAW. Except for violations of law asserted in the Legal
Proceedings referred to in Section 7(f), Sellers are in compliance with all
federal, state and local laws, regulations, permits, orders and decrees,
including those relating to protection of the environment and employee health
and safety ("LEGAL REQUIREMENTS"), except for any failure to comply which would
not, alone or in the aggregate, have a material adverse effect on the Assets.
Nothing in this Section 7(g) is intended to address any compliance issue that is
specifically addressed by any other representation or warranty set forth herein.
H. DESIGNATED CONTRACTS. To Sellers' knowledge, other than (i) payment
defaults listed in Schedule 7(h) or in the Schedule of Liabilities filed by
Sellers with the Bankruptcy Court and (ii) defaults triggered by the financial
condition or insolvency of the Sellers or the existence of the Bankruptcy Cases,
Sellers and all other parties to the Designated Contracts are in compliance with
the provisions thereof. Other than as set forth on Schedule 7(h), Sellers have
not received notice that any event has occurred which with or without the giving
of notice or lapse of time, or both, would constitute a default under any
Designated Contract. The copies of the Designated Contracts provided to Buyer by
Sellers pursuant to Section 9(l) shall be true and complete copies of such
Designated Contracts.
I. TITLE TO ASSETS. Except for Liens securing the DIP Financing, Liens
covering real estate owned by Sellers or Liens listed or described on Schedule
7(i) and except for lessors' interest in assets leased by Sellers, Sellers have
good and valid title to all Assets, free and clear of all Liens.
J. INTELLECTUAL PROPERTY AND INTANGIBLES. Except as set forth on
Schedule 7(j), Sellers own the entire right, title and interest in and to the
Intellectual Property, if any, and Intangibles included in the Assets
(including, without limitation, the right to use and license the same). Except
as set forth in Schedule 7(j), there are no pending or, to the knowledge of the
Sellers, threatened actions of any nature affecting the Intellectual Property or
Intangibles. Schedule 7(j) lists all notices or claims concurrently pending or
received by Sellers that claim infringement of any domestic or foreign letters
patent, patents, patent applications, patent licenses, software licenses and
know-how licenses, trade names, trademark registrations and applications,
service marks, copyrights, copyright registrations and applications, trade
secrets, technical knowledge, know-how or other confidential proprietary
information relating to the Assets. All letters patent, registrations and
certificates issued by any Governmental Entity relating to any of the
Intellectual Property or Intangibles and all licenses and other agreements
pursuant to which Sellers use any of the Intellectual Property or Intangibles
are valid and subsisting, have been properly maintained and, to the knowledge of
Sellers, neither Sellers nor any other persons are in material default or
violation thereunder.
K. PERMITS, LICENSES AND TARIFFS. The permits listed on Schedule 7(k)
represent all material permits, tariffs, authorizations, variances, exemptions,
orders and approvals from Governmental Entities required to be held by Sellers
in order to conduct the Business substantially in the manner heretofore
conducted.
L. EMPLOYEE BENEFIT PLANS; LABOR AGREEMENTS. Except as set forth on
Schedule 7(l), (i) Sellers do not maintain or contribute to, are not required to
contribute to, and are not a party to or a participating employer of, any
Employee Benefit Plans and (ii) Sellers are not parties to any collective
bargaining or other labor agreements.
M. NO BORKERS. Such Seller has not entered into and will not enter into
any agreement, arrangement or understanding with any person or firm which will
result in the obligation of Buyer to pay any finder's fee, brokerage commission
or similar payment in connection with the transactions contemplated hereby or by
the other Transaction Documents.
N. INVESTOR REPRESENTATIONS. Sellers understand that the Preferred Shares
have not been registered under the Securities Act and that the transferability
thereof is restricted as provided in Section 3(e). Sellers recognize that
ownership of the Preferred Shares involves a high degree of risk including, but
not limited to, the risk of economic losses from the EqualNet Parties'
operations and the total loss of investment. Sellers have been furnished by
EqualNet with copies of all reports filed by EqualNet under the Securities
Exchange Act of 1934, as amended, since June 30, 1995.
O. SUBSCRIBERS. Sellers have heretofore delivered, or prior to the Closing
Date will deliver, to Buyer a complete and correct list of the names, addresses
and account information of all Subscribers of Sellers as of a date close to the
date of such delivery, including the security deposits paid by each Subscriber.
All of Sellers' rights and interests to all accounts of the Subscribers to the
Services of Sellers are assignable to Buyer without the consent of the
Subscribers.
P. EMPLOYEES. Each Seller acknowledges and agrees that Buyer may, but
shall not be required to, offer employment to and employ any employees or
officers of Sellers following the Closing Date. Notwithstanding the foregoing,
Sellers have assumed that Buyer will not hire any employees or officers of
Sellers and Sellers have given, or prior to the Closing Date will give, all
notices (if any) required by the Worker Adjustment and Retraining Notification
Act (WARN) as if all of Sellers' employees and officers will be terminated by
Sellers as of the Closing Date.
Q. SPC. If the SPC is established pursuant to Section 9(j), it shall be a
corporation duly organized and validly existing under the laws of the State of
Delaware and shall have all requisite power to hold the assets transferred to it
by Sellers. The shares of the SPC transferred to Buyer on the Closing Date shall
constitute all outstanding shares of the capital stock of the SPC and all such
shares shall be duly issued, fully paid and non-assessable.
R. SCHEDULES. All Schedules delivered to Buyer by Sellers pursuant to
Section 7 are complete and correct.
S. SELLERS. The subsidiaries of SA Telecom named as Sellers in this
Agreement are all the operating subsidiaries of SA Telecom and own all the
operating assets of the Business.
Section VIII. REPRESENTATIONS AND WARRANTIES OF BUYER. Each EqualNet Party
hereby represents and warrants to each Seller as follows:
A. ORGANIZATION AND GOOD STANDING. Each EqualNet Party is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and has all requisite corporate power to carry on
its business as it is now being conducted and contemplated to be conducted after
the Closing.
B. AUTHORITY; EXECUTION AND DELIVERY. Each EqualNet Party has the
requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and each other Transaction Document to which it
is a party, to purchase the Assets in accordance with the terms hereof (in the
case of Buyer) and to issue to Sellers the Preferred Shares (in the case of
EqualNet). The execution, delivery and performance by each EqualNet Party of
this Agreement and the other Transaction Documents to which it is a party,
including, without limitation, the purchase of the Assets contemplated hereby
and the issuance to Sellers of the Preferred Shares, have all been duly and
effectively authorized by each EqualNet Party's Board of Directors. No other
corporate proceedings on the part of any EqualNet Party are necessary to
authorize this Agreement, the other Transaction Documents, the issuance of the
Preferred Shares to Sellers pursuant hereto and the transactions contemplated
herein and therein. This Agreement has been duly executed and delivered by each
EqualNet Party and (assuming the due execution and delivery of this Agreement by
each Seller) constitutes the legal, valid and binding obligation of each
EqualNet Party enforceable against it in accordance with its terms, subject to
the orders of the Bankruptcy Court (including the Sale Order). When executed and
delivered by the EqualNet Party and each Seller party thereto and approved by
the Bankruptcy Court, each of the other Transaction Documents to which Buyer is
a party will constitute the legal, valid and binding obligation of each EqualNet
Party enforceable against it in accordance with its terms, subject to all orders
of the Bankruptcy Court (including the Sale Order).
C. NO CONFLICTS, ETC. Neither the execution and delivery of this Agreement
or the other Transaction Documents to which an EqualNet Party is a party nor the
issuance to Sellers of the Preferred Shares, nor the consummation by the
EqualNet Parties of the transactions contemplated herein and therein nor the
compliance by the EqualNet Parties with any of the provisions hereof or thereof
will (with or without the giving of notice or the passage of time) (i) violate,
conflict with, result in a breach of, or constitute a default under (x) the
certificate or articles of incorporation or by-laws of any EqualNet Party or (y)
any contract, agreement, instrument, security, lease or license to which any
EqualNet Party is a party or by which it or any of its assets or properties may
be bound, or (ii) violate any law, regulation or any order of any Governmental
Entity applicable to any EqualNet Party or any of its assets other than, in the
case of clause (i), any violation, conflict, breach or default which,
individually or in the aggregate, would not materially impair or delay the
ability of the EqualNet Parties to perform their respective obligations
hereunder or impair the validity or value of the Preferred Shares.
D. GOVERNMENTAL APPROVALS. The only approvals, licenses, permits or
authorizations of, or filings or qualifications with, any Governmental Entity
required to be obtained or made by any EqualNet Party to consummate the
transactions contemplated by this Agreement and the other Transaction Documents
to which any EqualNet Party is a party (other than the Sale Order and other
required Bankruptcy Court orders) are those specified in Schedule 8(d) hereto.
E. PREFERRED SHARES. Upon the delivery thereof to Sellers or the Escrow
Agent pursuant to Sections 3(d) or 5(b), the Preferred Shares will be duly
authorized, fully paid and non-assessable and will not be issued in violation of
any preemptive rights. Subject to the escrow of the Escrowed Shares in
accordance with Section 4(d) and the Escrow Agreement and the security interest
thereon in favor of Greyrock in respect of the Greyrock Financing, the Preferred
Shares will be delivered to Sellers free from any Liens.
LEGAL PROCEEDINGS. Except for the Bankruptcy Cases and as set forth in
EqualNet's Report on Form 10-K for the fiscal year ended June 30, 1997,
EqualNet's Report on Form 10-Q for the quarterly period ended September 30, 1997
or in Schedule 8(f), there are no Legal Proceedings pending or, to the knowledge
of any EqualNet Party, threatened that question the validity of this Agreement
or any other Transaction Document to which any EqualNet Party is a party or any
action taken or to be taken by any EqualNet Party in connection with the
consummation of the transactions contemplated hereby or thereby or which, if
adversely determined, would have a material adverse effect on the financial
condition, business or operations of any EqualNet Party.
G. FINANCING. On the Closing Date, Buyer will have sufficient funds to
effect the Closing and consummate the transactions contemplated by this
Agreement.
H. FINANCIAL STATEMENTS AND REPORTS. EqualNet's financial statements for
its fiscal year ended June 30, 1997 and for its fiscal quarter ended September
30, 1997 contained in EqualNet's Reports on Form 10-K and 10-Q filed with the
Securities and Exchange Commission, copies of which have heretofore been
delivered by EqualNet to Sellers, have been, and EqualNet's financial statements
in all such Reports delivered to Sellers on or before the Closing Date pursuant
to Section 9(b) will be, prepared in accordance with GAAP applied consistently
with past practice and present and will present fairly, in all materials
respects, the consolidated financial position and results of operations of
EqualNet at and for the fiscal periods specified therein, subject (in the case
of unaudited interim financial statements) to normal year end audit adjustments.
Said Reports do not and will not contain any untrue statement of a material
fact, and do not and will not omit to state any material fact necessary to make
the statements contained therein not misleading.
I. NO BROKERS. Neither EqualNet Party has entered into any agreement,
arrangement or understanding with any Person which will result in the obligation
of Seller to pay any finder's fee, brokerage commission or similar payment in
connection with the transactions contemplated hereby.
Section IX. CERTAIN COVENANTS AND AGREEMENTS
A. ACCESS TO FACILITIES OF SELLERS. From and after the date hereof, each
EqualNet Party and its employees, agents and representatives, upon reasonable
notice to Sellers, shall have full access to all books, records, facilities and
personnel of Sellers. Each Seller shall make available to each EqualNet Party,
upon reasonable prior notice for examinations and reproduction (at Buyer's
expense), all documents and data of every kind and character relating to the
Assets in possession or control of, or subject to reasonable access by, such
Seller, including, without limitation, all files, records, data and information
relating to the Assets (whether stored in paper, magnetic or other storage
media) and all agreements, instruments, contracts, assignments, certificates,
orders, and amendments thereto. Each Seller shall also allow each EqualNet Party
reasonable access to, and the right to inspect, the Assets of such Seller during
normal business hours and upon reasonable prior notice.
B. ACCESS TO INFORMATION AND REPORTS OF EQUALNET PARTIES. If so requested
by Sellers, upon reasonable prior notice, each EqualNet Party shall cause its
officers, directors and representatives to meet with Sellers' officers,
directors or representatives at EqualNet's offices for the purpose of permitting
such officers, directors and representatives of Sellers to ask questions of, and
receive answers to such questions from, such officers and representatives of
such EqualNet Party concerning the business and operations of such EqualNet
Party and to obtain any additional information regarding EqualNet to the extent
reasonably available. EqualNet shall deliver to Sellers copies of all final
reports and final proxy statements filed by EqualNet under the Securities
Exchange Act of 1934, as amended, at any time after September 30, 1997 and prior
to the Closing Date.
C. CONFIDENTIALITY. The parties hereto have heretofore entered into a
Confidentiality Agreement in connection with the transactions contemplated
hereby (as from time to time amended, the "CONFIDENTIALITY AGREEMENT"). During
the period through the Closing Date and (in the event for any reason the Closing
under this Agreement does not occur) thereafter each party shall keep, and cause
its affiliates, employees and representatives to keep, strictly confidential in
accordance with the terms of the Confidentiality Agreement, all information of
any kind relating to the other parties, their business, assets or operations
obtained by such party in connection with this transaction and not otherwise
publicly available or learned through third-parties under no confidentiality
obligation, whether learned before or after the date hereof, and shall not use
any such information for any purposes whatsoever nor disclose any such
information to any third party. If this Agreement shall terminate for any
reason, each party shall immediately return all documents or other writings
received from any other party or copied by such party and shall destroy any
other writings containing any of such information.
D. CONDUCT OF SELLERS' BUSINESS. Subject to (i) orders of the Bankruptcy
Court, (ii) the DIP Financing Documents, (iii) applicable duties, obligations
and limitations of a debtor in bankruptcy proceedings under the Bankruptcy Code
and (iv) Sellers' financial condition and cash availability, from the date
hereof up to and including the earlier of the Closing Date or the termination of
this Agreement, Sellers will use their reasonable good faith efforts to (x)
cause their business to be conducted only in the ordinary course (except that
Sellers will have no obligation to solicit or obtain new customers or (except
when necessary to operate the Business in the ordinary course) retain personnel)
and (y) do, or as the case may be not do the following:
a. maintain in full force and effect Sellers' insurance policies
insofar as they cover any of the Assets;
b. maintain Sellers' books and records in the manner consistent with
past practices and in any event in a commercially reasonable manner;
c. preserve the Assets intact as well as the present relationships
of Sellers with persons having significant relationships therewith;
d. not sell, lease, transfer or dispose of any Assets (other than
the transfers to the SPC specified in Section 9(j));
e. not terminate any contract, agreement, license or other
instrument to which such Seller is a party constituting or relating to the
Assets, other than for any such termination in the ordinary course which
would not have a material adverse effect on the Assets;
f. to the extent that failure to do so would have a material adverse
effect on the Assets, pay or cause to be paid all post-petition costs and
expenses incurred in connection with the operation of Sellers' assets or
their bankruptcy proceedings in a timely manner and, to the extent
permitted by the Bankruptcy Code, keep all material contracts in full
force and effect;
g. comply with all applicable Legal Requirements except when failure
to do so would not have a material adverse effect on the Business or the
Assets;
h. retain all Subscribers in existence on the date of this
Agreement; and
i. not compromise or discount any account receivable except for
compromises of billing disputes with Subscribers in the ordinary course of
business.
E. MUTUAL COOPERATION. The parties hereto will cooperate with each other,
and will use all reasonable efforts to cause the fulfillment of the conditions
to the parties' obligations hereunder (including, without limitation, the
entering of the Sale Order), to assume and assign all agreements necessary for
the transfer to Buyer of the Assets, and to obtain as promptly as possible all
consents, authorizations, orders or approvals from each and every third party,
whether private or governmental, required in connection with the transactions
contemplated by this Agreement.
F. CONSENTS AND PERMITS. Sellers and the EqualNet Parties shall use all
reasonable efforts to obtain any consents, approval, permit, order or
authorization of any Governmental Entities and other third parties required for
the purchase and sale of the Assets and the other transactions contemplated
hereby, including all approvals, authorizations, permits and consents specified
in Schedules 7(e) and 8(d).
G. INFORMATION. From and after the date hereof until the Closing Date, (x)
Sellers shall keep the EqualNet Parties fully informed with respect to all
material developments relating to the Assets and shall promptly comply with any
reasonable requests of any EqualNet Party for Sellers to provide it with
information with respect to the Assets and (y) the EqualNet Parties shall keep
Sellers fully informed with respect to all material developments affecting the
EqualNet Parties, their business, assets and or capital stock. Any such
information provided by Sellers or the EqualNet Parties shall be true and
correct to the best knowledge of the party providing such information.
H. NON-SOLICITATION. If the Closing does not take place, no EqualNet Party
will (i) prior to December 31, 1999, solicit any subscribers of any Seller who
were such subscribers on the date hereof or any day prior to the termination of
this Agreement, except for solicitations directed to the public at large and not
to specific subscribers of Sellers and (ii) prior to February 28, 1998, solicit
for employment, consulting or other relevant services any officers or employees
of any Seller except with the consent of SA Telecom or solicitations directed to
the public at large and not to specific officers or employees of any Seller.
I. EVIDENCE OF BUYER'S ABILITY TO CLOSE. If so requested by Sellers, Buyer
shall promptly furnish to Sellers evidence reasonably satisfactory to Sellers
that Buyer has, or on the Closing Date will have, sufficient funds to consummate
the transactions contemplated hereby.
J. ESTABLISHMENT OF SPC. Prior to the Closing Date, if so requested by
Buyer (and provided the same can be effected without a material disruption of
Sellers' Business and at no material cost to Sellers), Sellers shall, subject to
the approval of the Bankruptcy Court, establish a Delaware corporation (the
"SPC") to which all Sellers will transfer all carrier identification codes,
their Subscriber accounts and all other Assets reasonably specified by Buyer
which are necessary to provide services to such Subscribers in connection with
such transfer of such carrier identification codes. The shares of the SPC's
capital stock shall be allocated among Sellers as agreed to by Sellers so as to
reflect their respective contribution of assets to the SPC. Promptly after such
transfer to the SPC, each transferor shall give notice thereof to BELLCORE. The
SPC shall engage in no business other than holding the carrier identification
codes and the Subscriber accounts transferred to it and activities directly
incidental thereto and shall incur no indebtedness or liabilities to any Person.
K. LIENS IN FAVOR OF GREYROCK. Buyer acknowledges that the Assets will be
transferred to it subject to the Liens thereon in favor of Greyrock, and Buyer
agrees that the Assets will remain subject to such Liens after the Closing Date
until payment of the Greyrock Facility assumed by Buyer. Without limiting the
generality of the foregoing, Buyer agrees that stock of the SPC, if required to
be delivered to Buyer on the Closing Date, will be pledged by it to Greyrock to
secure the Greyrock Facility. Buyer further agrees to grant to Greyrock a
perfected senior Lien on all accounts receivable arising after the Closing Date
generated from Subscribers acquired by Buyer from Sellers, which Lien shall
secure all amounts of the Greyrock Facility assumed by Buyer and shall be
evidenced by a UCC-1 Financing Statement and Security Agreement containing
provisions identical to the Greyrock Facility.
L. DESIGNATED CONTRACTS. Promptly upon Buyer's request, Sellers shall
provide Buyer with true and correct copies of the Designated Contracts.
M. SCHEDULES. Sellers shall, as soon as practicable but in any event no
later than January 23, 1998 deliver to Buyer all Schedules specified in Section
7 or Sections 3(a) and 3(b) to the extent not attached hereto on the date
hereof. Buyer shall, within five (5) business days after the delivery of any
such Schedule to it, notify Sellers whether Buyer is satisfied with the terms
thereof or the information contained therein. The EqualNet Parties shall deliver
to Sellers as soon as practicable but in any event no later than January 20,
1998 the schedule of Designated Contracts specified in clause (iv) of Section
3(a). Buyer and Sellers shall co-operate to complete all other Schedules hereto
on or before January 23, 1998 (or such later date as shall be agreed to by all
parties), which other Schedules shall be satisfactory to all parties hereto. All
Schedules attached hereto or delivered by any party pursuant hereto are an
integral part of this Agreement.
Section X. CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of each party to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment on or prior to the Closing Date of
the following conditions:
A. BANKRUPTCY COURT APPROVAL. The Payment Order and the Scheduling Order
shall have been entered by the Bankruptcy Court and shall contain terms and
conditions reasonably satisfactory to Buyer and Sellers. The Bankruptcy Court
shall have entered an order (the "SALE ORDER") approving the transactions
contemplated by this Agreement, any motion for rehearing or reconsideration of
the Sale Order shall have been denied, the time allowed for appeals of the Sale
Order shall have expired without appeals being taken or if the Sale Order shall
have been appealed, no stay thereof shall be in effect. The Sale Order shall
provide that (i) this Agreement and the transactions contemplated herein are
approved; (ii) the transfer of the Assets by Sellers to Buyer will be a legal,
valid and effective transfer of the Assets notwithstanding any requirement for
approval or consent by any Person; (iii) the Sellers have good and valid title
to the Assets and such title shall be transferred to Buyer or its designees free
of (x) all Liens and claims, other than Permitted Liens, and (y) all rights or
options to effect any forfeiture, modification or termination of Sellers' or
Buyer's interest in the Assets by reason of such transfer, and any such Liens or
claims which existed prior to the sale of the Assets shall attach to the
Consideration paid to the Sellers; (iv) Buyer is purchasing the Assets in good
faith within the meaning of ? 363(m) of the Bankruptcy Code; (v) the
consideration to be paid by Buyer for the Assets is fair and reasonable; (vi)
there exist exigent business reasons for the sale of the Assets contemplated
hereby; (vii) such sale is in the best interests of the Sellers' estates, their
creditors and equity security holders; (viii) there has been proper and adequate
notice given to all parties required by law to receive notice of the sale; (ix)
the Assets have been adequately marketed and will lose value absent a sale; (x)
the requirements of ? 363 of the Bankruptcy Code have been met; (xi) provided a
plan of reorganization for Sellers is confirmed in the Bankruptcy Cases, the
issuance and sale of the Preferred Shares is exempt from registration under the
Securities Act and all applicable state securities laws pursuant to Section 1145
of the Bankruptcy Code and neither Buyer nor EqualNet shall be deemed to be a
successor to the Sellers for any purpose, including claims arising out of the
Employee Benefit Plans, other than ?1145 of the Bankruptcy Code; and (xii) in
accordance with Sections 1146(c) and 105(a) of the Bankruptcy Code, the transfer
of the Assets to Buyer is not subject to taxation under any state or local law
imposing a stamp or similar tax on such transfer. The Sale Order shall not
impose any material obligations on the EqualNet Parties or Sellers not
contemplated herein. Nothing in this Agreement shall preclude Sellers or Buyer
from consummating the transactions contemplated herein if Buyer, in its sole
discretion, waives the requirement that the Sale Order or any other order shall
have become final orders. No notice of such waiver of this or any other
condition to Closing need be given except to Sellers, as explicitly required in
this Agreement, it being the intention of the parties hereto that Buyer shall be
entitled to, and is not waiving, the protection of Section 363(m) of the
Bankruptcy Code, the mootness doctrine and any similar statute or body of law if
the Closing occurs in the absence of final orders.
B. NO ADVERSE PROCEEDINGS. There shall not be outstanding any injunction,
decree or order of any court or Governmental Entity prohibiting the consummation
of the transactions contemplated by this Agreement that remains in effect
following entry of the Sale Order.
C. NO CHANGE IN LAW. There shall not have been any action taken or any
statute enacted by any Governmental Entity that would render the parties unable
to consummate the transactions contemplated hereby or make the transactions
contemplated hereby illegal or prohibit the consummation of the transactions
contemplated hereby.
D. GOVERNMENTAL APPROVALS AND CONSENTS. Sellers and the EqualNet Parties
shall have obtained all approvals and consents from all Governmental Entities
specified in Schedule 10(d).
E. EXCROW AGREEMENT. The Escrow Agent shall have executed the Escrow
Agreement.
Section XI. CONDITIONS TO OBLIGATIONS OF BUYER. In addition to the
conditions set forth in Section 10, the obligation of the EqualNet Parties to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment, or the waiver by the EqualNet Parties, on or prior to the
Closing Date, of the following conditions:
A. BANKRUPTCY COURT ORDERS; EVIDENCE OF SERVICE. Sellers shall have
delivered to Buyer copies of the Payment Order, the Scheduling Order and the
Sale Order and appropriate proof of service demonstrating service of the
Scheduling Order in accordance with the terms thereof.
B. REPRESENTATIONS AND WARRANTIES OF SELLERS. The representations and
warranties of Sellers contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date as though made on such date,
and Sellers shall have delivered to Buyer a certificate dated the Closing Date
to such effect, signed by an officer of SA Telecom.
C. CORPORATE ACTION. At the Closing Sellers shall deliver to Buyer
certified copies of board of directors resolutions approving the execution,
delivery and performance of this Agreement and the other Transaction Documents
and the transactions contemplated hereunder and thereunder.
D. SELLERS' PERFORMANCE. Each of the obligations of Sellers to be
performed on or before the Closing Date, pursuant to the terms of this Agreement
shall have been duly performed in all material respects by the Closing Date.
E. INSTRUMENTS OF CONVEYANCE AND TRANSFER. At the Closing, each Seller
shall have delivered to Buyer a bill of sale in form and substance reasonably
satisfactory to Buyer and consistent with the terms hereof, as well as such
other instruments of assignment, conveyance and transfer as Buyer shall
reasonably require.
F. MATERIAL CONSENTS. The EqualNet Parties shall have obtained the
third-party consents listed on Schedule 11(f) hereto.
G. ESCROW AGREEMENT. Sellers shall have executed the Escrow Agreement.
H. SELLERS' REVENUE AMOUNT CERTIFICATE. SA Telecom shall have delivered
the Sellers' Revenue Amount Certificate to Buyer.
I. PRE-CLOSING MONTHLY MINUTES CERTIFICATE. SA Telecom shall have
delivered to Buyer a certificate as to the Adjusted Pre-Closing Monthly Minutes.
J. ADDITIONAL MATTERS. Buyer shall have received such additional
documents, instruments or items of information reasonably requested by it from
Sellers in respect of any aspect of the transactions contemplated hereby. All
corporate and other proceedings, and all documents, instruments and other legal
matters in connection with the transactions contemplated by this Agreement or by
the other agreements referred to herein shall be reasonably satisfactory in form
and substance to Buyer and its counsel.
K. Buyer shall have received all Schedules to this Agreement and shall be
satisfied with the information set forth therein.
L. SPC. If so requested by Buyer at least ten days prior to the Closing
Date, the SPC shall have been established and all assets required to be
transferred thereto pursuant to Section 9(j), to the extent assignable, shall
have been so transferred, and Buyer shall have received stock certificates, duly
endorsed by the registered owners thereof, representing all shares of the
capital stock of the SPC.
M. NO MATERIAL ADVERSE CHANGE. There shall have occurred no material
adverse change after the date hereof in the Assets, Business or operations of
Sellers, taken as a whole, and Sellers shall have delivered to Buyer a
certificate dated the Closing Date and signed by an officer of SA Telecom to
such effect and further certifying that since the date of this Agreement Sellers
have caused their business to be conducted only in the ordinary course (which
certificate may be qualified as being to the best knowledge and belief of such
officer).
Section XII. CONDITIONS TO OBLITGATIONS OF SELLERS. In addition to the
conditions set forth in Section 10, the obligations of Sellers to consummate the
transactions contemplated hereby shall be subject to the fulfillment, or the
waiver by Sellers, on or prior to the Closing Date of the following conditions:
A. REPRESENTATIONS AND WARRANTIES TRUE AT THE CLOSING DATE. The
representations and warranties of each EqualNet Party contained in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date as though made on such date, and the EqualNet Parties shall have
delivered to Sellers a certificate dated the Closing Date to such effect, signed
by an officer of Buyer.
B. CORPORATE ACTION. At the Closing the EqualNet Parties shall deliver to
Sellers certified copies of board of director resolutions approving the
execution, delivery and performance of this Agreement and the other Transaction
Documents, the issuance of the Preferred Shares to Sellers and the transactions
contemplated hereunder and thereunder.
C. EQUALNET PARTIES' PERFORMANCE. Each of the obligations of the EqualNet
Parties to be performed on or before the Closing Date pursuant to the terms of
this Agreement shall have been duly performed in all material respects by the
Closing Date.
D. MATERIAL CONSENTS. Sellers shall have obtained the third-party consents
listed on Schedule 12(d) hereto.
E. ESCROW AGREEMENT. The EqualNet Parties shall have executed the Escrow
Agreement.
F. PREFERRED STOCK PROVISIONS. The terms of the Preferred Stock Provisions
shall be consistent with the terms of Section 3(d) and Exhibit A and shall
otherwise be reasonably acceptable to Sellers.
G. CONDISERATION. The EqualNet Parties shall have paid and delivered the
Consideration (other than the Escrowed Shares) to or for the account of Sellers
and shall have delivered the Escrowed Shares to the Escrow Agent.
H. DISCHARGE OF WILLIS GROUP DIP FINANCING. To the extent that the Willis
Group DIP Financing exists, the Willis Group shall have delivered to Sellers
written confirmation that Buyer has paid and discharged all obligations of
Sellers in respect of the Willis Group DIP Financing.
I. ADDITIONAL MATTERS. Sellers shall have received such additional
documents, instruments or items of information reasonably requested by them in
respect of any aspect of the transactions contemplated hereby. All corporate and
other proceedings, and all documents, instruments and other legal matters in
connection with the transactions contemplated by this Agreement or by the other
agreements referred to herein shall be reasonably satisfactory in form and
substance to Sellers and their counsel.
J. NO MATERIAL ADVERSE CHANGE. There shall have occurred no material
adverse change in the financial condition or results of operations of EqualNet
from that reflected in its financial statements at and for the period ending
September 30, 1997.
Section XIII. TERMINATION
A. TERMINATION. This Agreement may be terminated by written notice at any
time:
1. by mutual consent of the EqualNet Parties and Sellers;
2. by either the EqualNet Parties or Sellers if there shall be in
effect a final nonappealable order of a court of competent jurisdiction
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereby;
3. by either the EqualNet Parties or Sellers (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall
have been a material breach of any of the representations or warranties
set forth in this Agreement on the part of the other party, which breach
is not cured within fifteen (15) days following written notice (which
shall state that it is a "Notice of Default") to the party committing such
breach or which breach, by its nature, cannot be cured prior to the
Closing, and which breach, individually or together with all other such
breaches, would have a material adverse effect on the Assets or Sellers'
ability to consummate the transactions contemplated hereby, in the case of
breaches by Sellers, or a material adverse effect on the EqualNet Parties'
ability to consummate the transactions contemplated hereby or the value of
the Preferred Shares, in the case of breaches by an EqualNet Party;
4. by either the EqualNet Parties or Sellers (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or the agreement contained herein) if there shall have
been a material breach of any of the covenants or agreements set forth in
this Agreement on the part of the other party, which breach shall not have
been cured within fifteen (15) days following receipt by the breaching
party of written notice of such breach from the other party hereto, which
notice shall state that it is a "Notice of Default";
5. by any party (unless such party is in default under this
Agreement) if the Sale Order is not entered on or before February 16, 1998
or if the Closing does not occur on or before February 28, 1998;
6. upon entry of an order of the Bankruptcy Court approving the
sale of all or a material portion of the Assets to a Person other than
Buyer or its Designees; or
7. pursuant to an order of the Bankruptcy Court.
B. EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 13(a), this Agreement, other than the
provisions of this Section 13 and Sections 9(c), 9(h), 14(b), 17 and 18 and, to
the extent applicable, Section 16, shall forthwith become wholly void and of no
further force and effect; PROVIDED, HOWEVER, that the termination of this
Agreement shall not relieve any party hereto from any liability hereunder which
accrued prior to such termination.
C. REMEDIES CUMULATIVE. The remedies provided herein shall be cumulative
and shall not preclude assertion by any party hereto of any other right or the
seeking of any other remedies against any other party hereto.
D. SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges and
agrees that the EqualNet Parties on the one hand, and the Sellers on the other,
would be irreparably damaged in the event any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. Accordingly, each of the parties hereto agrees that each
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions hereof and/or the remedy of specific performance hereof in any action
instituted in any court of the United States or any state thereof having subject
matter jurisdiction, in addition to any other remedy to which such party may be
entitled, at law or in equity.
Section XIV. BREAK-UP PROVISIONS AND BIDDING PROCEDURE.
A. UPSET PRICE. Sellers shall be entitled to solicit higher and better
offers for the Business and the Assets from third parties, provided that (i)
Sellers shall require that any such offer for the Assets have a fair market
value (including the amount of Sellers' liabilities to be assumed) at least
$500,000 greater than the fair market value of the sum of the Consideration and
the Assumed Liabilities (the "UPSET PRICE") and (ii) Sellers shall not sell the
Assets to any Person whose offer, as determined jointly by Sellers and the
Creditors' Committee, with the approval of the Bankruptcy Court, does not have a
fair market value at least equal to the Upset Price.
B. PAYMENT OF BREAK-UP FEE AND REIMBURSEMENT OF EXPENSES. If, following
the execution of this Agreement by all parties hereto, any third party or
parties (other than Buyer or its affiliates) acquire, for consideration other
than the cancellation of indebtedness or the extension of trade credit terms by
vendors, 50% or more of, or 50% or more of an interest in, the Assets or equity
in Sellers (the "OTHER ACQUISITION"), whether such Other Acquisition is
accomplished by means of an asset sale, stock sale, merger, consolidation,
reorganization or other business combination, and regardless of whether such
Other Acquisition is accomplished pursuant to a plan of reorganization in the
Bankruptcy Cases or a sale pursuant to section 363(b) of the Bankruptcy Code,
then upon the closing of such Other Acquisition (or upon the effective date of a
plan of reorganization for Sellers in the Bankruptcy Cases accomplishing the
same), Sellers shall (i) reimburse the EqualNet Parties for up to $100,000 of
the EqualNet Parties' aggregate expenses (including reasonable attorneys' fees)
incurred by them in connection with the transactions contemplated hereby (the
"SALE EXPENSE REIMBURSEMENT"), and (ii) pay to Buyer a fee of $300,000 (the
"BREAK-UP FEE"). If by February 13, 1998, a sale hearing pursuant to section
363(b) of the Bankruptcy Code has not been held and concluded by the Bankruptcy
Court, then Sellers shall reimburse the EqualNet Parties for up to $100,000 of
the aggregate expenses (including reasonable attorneys' fees) incurred by them
in connection with the transactions contemplated hereby (the "RESTRUCTURING
EXPENSE REIMBURSEMENT", and collectively with the Sale Expense Reimbursement,
the "EXPENSE REIMBURSEMENTS"). If due and payable in accordance with the terms
hereof, Sellers shall pay the EqualNet Parties the approved Restructuring
Expense Reimbursement on March 31, 1998. To the extent of any inconsistency
between the foregoing provisions of this Section 14(b) and the Payment Order,
the Payment Order shall prevail; provided, HOWEVER, that notwithstanding the
foregoing provisions of this Section 14(b), Buyer shall not be entitled to the
Break-Up Fee or Expense Reimbursement (i) if this Agreement is terminated by
Sellers pursuant to clause (iii) or (iv) of Section 13(a) prior to the approval
by the Bankruptcy Court of an Other Transaction, (ii) if Buyer breaches its
covenants contained in Section 9(i) or (iii) if Buyer fails to purchase the
Assets on the Closing Date notwithstanding the satisfaction of all conditions
specified in Sections 10, 11 and 12 to Buyer's obligation to do so.
Section XV. ADDITIONAL POST-CLOSING COVENANTS.
A. FURTHER ASSURANCES. From and after the Closing Date, from time to time,
at Buyer's request and expense, Sellers will execute and deliver such other
instruments and take such other action as Buyer may reasonably request to more
effectively put Buyer in possession and control of all or any part of the Assets
and confirm its title thereto.
B. BENEFITS UNDER UNASSIGNABLE CONTRACTS. If a consent of a third party
which is required in order to assign any Asset (or claim, right or benefit
arising thereunder or resulting therefrom) is not obtained prior to the Closing
Date, or if an attempted assignment would be ineffective or would adversely
affect the ability of Sellers to convey their interest in question to Buyer,
Sellers will cooperate with Buyer and use reasonable efforts in any lawful
arrangement to provide that Buyer shall receive Sellers' interest in the
benefits of such Asset. If any consent or waiver is not obtained before the
Closing Date and the Closing is nevertheless consummated, Sellers agree to
continue to use their reasonable efforts for a period of 90 days after the
Closing to obtain all such consents as have not been obtained prior to such
date.
C. USE OF SELLERS' PREMISES. Buyer shall remove all Assets at its sole
expense as soon after the Closing as possible but shall have the option to use
all or some of the premises under lease to Sellers for a period of up to 60 days
after the Closing in order to facilitate the sale and transfer of the Assets
(the "DESIGNATED PREMISES"). At least three (3) days prior to Closing, Buyer
shall notify Sellers in writing of those premises it intends to utilize
subsequent to the Closing and for what period of time. Buyer shall pay to
Sellers use and occupancy, calculated on a per diem basis, so as to pay those
monetary obligations Sellers may incur under Section 365(d)(3) of the Bankruptcy
Code in respect of such Designated Premises. Sellers agree to timely move to
extend their time to assume or reject the leases for the Designated Premises
upon timely request of Buyer and to use reasonable good faith efforts to obtain
an extension of its time to assume or reject said leases. In no event will
Sellers be required by this Section to assume any lease. To the extent Sellers'
ability to comply with this Section 15(a) is conditioned by the Bankruptcy Court
upon assumption of one or more leases, then Sellers shall be excused from
complying with this Section unless such leases constitute Designated Contracts.
D. RECORDS. Buyer covenants and agrees that following the Closing it shall
1. hold, maintain and preserve for a period of at least four (4) years all books
and records and other documents and materials relating to the assets,
properties, business and operations of Sellers included in the Assets and
transferred to Buyer pursuant hereto and shall not destroy or discard any such
books, records, documents or materials without at least thirty (30) days prior
notice to the Sellers and in no event until the Bankruptcy Cases are concluded
and 2. allow Sellers and their employees, accountants and agents access to such
books, records, documents, material and personnel, and (at Sellers' expense)
permit Sellers to make copies of or extracts from such books, records and
documents, for valid purposes, upon reasonable advance notice during normal
business hours and (iii) direct Buyer's employees to assist Sellers in obtaining
access to or copies of such books, records and documents. Such access shall
include the right to examine and make extracts or copies of any such books,
records, documents or materials and, if deemed necessary by counsel for Sellers,
the right to have the originals thereof delivered to and held by such counsel
during the pendency of the Bankruptcy proceedings.
E. SELLERS' EMPLOYEES. Buyer may, but shall not be required to, offer
employment to or employ any employees or officers of Sellers as Buyer shall
determine in its sole discretion on such terms and conditions as Buyer shall
determine in its sole discretion. Sellers agree to use their reasonable efforts
to cause their employees and officers who have received offers of employment
from Buyer to accept such offers of employment. In the event that Buyer employs
any officer or employee of Sellers, Sellers shall provide Buyer with such
information in respect of such individuals as Buyer reasonably may request,
including, without limitation, personnel files and other records. Buyer shall
not have any liability in respect of any officers or employees of Sellers,
whether employed by Buyer or not, resulting from such officers' and employees'
termination of employment with Sellers, including, without limitation, any
liability under the Worker Adjustment and Retraining Notification Act, on
account of severance benefits, bonuses, vacation time or pay or incentive
programs of any type, nor shall Buyer acquire any obligation under any contract,
Employee Benefit Plan or other agreement or arrangement of Sellers with respect
to any officer or employee or former officer employee of Sellers, except to the
extent such liability is an Assumed Liability.
Section XVI. INDEMNIFICATION AND RELATED MATTERS
(a) INDEMNIFICATION BY SELLERS. Subject to the provisions of this Section
16 and if (but only if) the Closing is consummated, Sellers agree, jointly and
severally, to indemnify and hold each EqualNet Party and its officers,
directors, employees and agents (collectively, the "BUYER INDEMNIFIED PARTIES")
harmless from and against all Damages resulting from or arising out of:
(i) any breach of Sellers' representations and warranties set forth
in Sections 7(a), 7(b), 7(c), 7(f), 7(h), 7(i), 7(j), 7(m), 7(o), 7(p) and
7(q); and/or
(ii) the Excluded Liabilities.
(b) DETERMINATION OF DAMAGES AND RELATED MATTERS. Subject to the
provisions of this Section 16 and if (but only if) the Closing is consummated,
the EqualNet Parties agree, jointly and severally, to indemnify and hold Sellers
and their respective officers, directors, employees and agents (collectively,
the "SELLER INDEMNIFIED PARTIES") harmless from and against all Damages
resulting from or arising out of:
(i) a breach of any EqualNet Party's representations and warranties
set forth in sections 8(a), 8(b), 8(e), 8(g), 8(h) and 8(i); and/or
(ii) the Assumed Liabilities.
(c) DETERMINATION OF DAMAGES AND RELATED MATTERS. In calculating any
amounts payable pursuant to paragraphs (a) and (b) above, Sellers or the
EqualNet Parties, as the case may be, shall receive credit for (a) any tax
benefit allowable as a result of the facts giving rise to the claim for
indemnification, and (b) any insurance recoveries, and no amount shall be
included for the EqualNet Parties' or Sellers', as the case may be, special,
consequential or punitive damages. Sellers and the EqualNet Parties agree that,
except as specifically set forth in this Agreement (including the Schedules and
Exhibits hereto), no party to this Agreement (including its respective
representatives) has made or shall have liability for any representation or
warranty, express or implied, in connection with the transactions contemplated
by this Agreement, including in the case of Sellers and their respective
representatives, any representation or warranty, express or implied (written or
oral), as to the accuracy or completeness of any information regarding the
Business.
(d) TERMINATION OF REPRESENTATIONS AND WARRANTIES. The parties hereto
agree that the representations and warranties made in this Agreement (other than
the representations and warranties set forth in Sections 7(a), 7(b), 7(c), 7(f),
7(h), 7(i), 7(j), 7(m), 7(o), 7(p), 7(q), 8(a), 8(b), 8(e), 8(g), 8(h) and 8(i))
shall terminate immediately upon consummation of the Closing or upon the
termination of this Agreement pursuant to Section 13, as the case may be, and
that Sellers' representations and warranties contained in Sections 7(f), 7(h),
7(i), 7(j), 7(o), 7(p) and 7(q) shall terminate on the earlier of (i) the
confirmation of plans of reorganization for Sellers and (ii) the 120th day
following the Closing Date. No claim in respect of a breach of any
representation or warranty may be made after the termination thereof. However,
each party hereto shall remain liable for any breach by such party of any
covenant or agreement of such party contained herein.
(e) NOTICE OF INDEMNIFICATION. In the event any Legal Proceeding shall be
threatened or instituted or any claim or demand shall be asserted by any Buyer
Indemnified Party entitled to indemnification or any Seller Indemnified Party
entitled to indemnification in respect of which payment may be sought under the
provisions of this Section 16 or for breach of any of the representations and
warranties set forth herein, the Buyer Indemnified Party entitled to
indemnification or the Seller Indemnified Party entitled to indemnification
seeking indemnification (the "INDEMNITEE") shall promptly cause written notice
of the assertion of any such claim of which it has knowledge and which it
reasonably believes to be covered by this indemnity to be forwarded to Sellers
or Buyer, as the case may be (the "INDEMNITOR"); PROVIDED, HOWEVER, that the
failure to give such notice shall not affect the indemnification provided
hereunder except to the extent the Indemnitor has actually been prejudiced as a
result of such failure. Subject to the foregoing, any notice of a claim by
reason of any of the covenants contained in this Agreement shall state
specifically the covenant with respect to which the claim is made, the facts
giving rise to an alleged basis for the claim, and the amount of the liability
asserted against the Indemnitor by reason of the claim.
(f) INDEMNIFICATION PROCEDURE FOR THIRD PARTY CLAIMS. Except as otherwise
provided herein, in the event of the initiation of any Legal Proceeding against
an Indemnitee by a third party, the Indemnitor shall have the right after the
receipt of notice, at its option and at its own expense, to be represented by
counsel (which counsel shall be reasonably satisfactory to the Indemnitee) and
to defend against, negotiate, settle or otherwise deal with any proceeding,
claim or demand which relates to any Damages indemnified against hereunder;
PROVIDED, HOWEVER, (i) that the Indemnitor exercises such option in writing
within 30 days of receipt of notice; and (ii) that the Indemnitee may
participate in any such proceeding with counsel of its choice and at its
expense. The parties hereto agree to cooperate fully with each other in
connection with the defense, negotiation or settlement of any such Legal
Proceeding, claim or demand. To the extent the Indemnitor elects not to defend
such proceeding, claim or demand, and the Indemnitee defends against or
otherwise deals with any such proceeding, claim or demand, the Indemnitee may
retain counsel (reasonably satisfactory to Indemnitor) at the expense of the
Indemnitor and control the defense of and settlement of such proceeding;
PROVIDED, that the Indemnitor shall nevertheless indemnify the Indemnitee for
the full amount of the Damages relating to such proceeding, claim or demand; and
PROVIDED, FURTHER, that the Indemnitee shall give the Indemnitor twenty (20)
days written notice prior to entering into any such settlement and shall not
settle any such claim without the consent of the Indemnitor, which consent shall
not be unreasonably withheld and which consent shall be deemed to have been
granted if the Indemnitor fails to respond to the Indemnitee's properly noticed
request for such consent. If the Indemnitee shall settle any such proceeding
without the consent of the Indemnitor, the Indemnitee shall thereafter have no
claim against the Indemnitor under this Section 16 with respect to any Damages
occasioned by such settlement.
(g) Notwithstanding anything to the contrary contained herein, no
Indemnitee shall be entitled to recover any amount from any Indemnitor for
breach of such Indemnitor's representations and warranties contained herein
(other than the representations and warranties contained in Section 7(m) and
8(i)) unless the aggregate Damages incurred by the Indemnitee for breach of the
Indemnitor's representations and warranties contained herein exceed $75,000, and
then the Indemnitee shall only be entitled to recover the amount of such excess.
The foregoing limitation shall not apply to a breach of the representations and
warranties contained in Section 7(m) or 8(i) or to a claim for breach of any
covenant or agreement of any party contained herein, for failure by Buyer to pay
any Assumed Liabilities or for any Damages incurred by the EqualNet Parties in
respect of Excluded Liabilities.
(h) EXCLUSIVE REMEDY. The exclusive remedy available to a party hereto in
respect of the matters covered by Section 16(a) or 16(b) shall be to proceed in
the manner and subject to the limitations contained in this Section 16.
Section XVII. GOVERNING LAW; SUBMISSION TO JURISDICTION
A. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE CHOICE OF LAW PRINCIPLES
THEREOF WHICH WOULD MAKE THE LAWS OF ANY OTHER JURISDICTION APPLICABLE TO THIS
AGREEMENT.
B. ANY LEGAL ACTION OR PROCEEDING RELATING TO OR ARISING UNDER THIS
AGREEMENT SHALL BE BROUGHT IN THE BANKRUPTCY COURT AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH SELLER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT
OF ITS PROPERTY, AND EACH EQUALNET PARTY HEREBY ACCEPTS FOR ITSELF, GENERALLY
AND UNCONDITIONALLY, THE JURISDICTION OF THE BANKRUPTCY COURT WITH REGARD TO ALL
SUCH ACTIONS OR PROCEEDINGS. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE ANY
OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH ANY OF THEM MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN THE
BANKRUPTCY COURT.
Section XVIII. MISCELLANEOUS
A. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing (including facsimile transmission) and shall be
deemed to have been duly given when received if delivered in person or by
courier, or facsimile transmission or mailed by certified or registered mail,
postage prepaid: If to any Seller:
c/o SA Telecommunications, Inc.
1600 Promenade Center, 15th Floor
Richardson, Texas 75080
Fax No. 972-889-1543
972-690-5925
Attention: Albert B. Gordon, Jr.
WITH COPIES TO:
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Fax No. 212-354-8113
Attention: Andrew DeNatale, Esq.
IF TO ANY EQUALNET PARTY:
c/o EqualNet Holding Corp.
1250 Wood Branch Park Drive
Houston, Texas 77079
Fax No. 281-529-4650
Attention: Mr. Michael L. Hlinak
WITH COPIES TO:
Weil Gotshal & Manges LLP
700 Louisiana, Suite 1600
Houston, Texas 77002
Fax No. 713-224-9511
Attention: W. Robert Shearer, Esq.
Copies of all notices given by any party hereunder shall be sent to
counsel for the Creditors' Committee, addressed as follows (but failure to send
such copy shall not affect the validity of any such notices):
Kelley, Drye & Warren, LLP
101 Park Avenue
New York, New York
Fax No. 212-808-7897
Attention: Mark I. Bane, Esq.
Any party may, by written notice to the other parties, change the address
to which notices to such party are to be delivered or mailed.
B. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Confidentiality
Agreement, the Escrow Agreement, the other Transaction Documents and the other
agreements referred to herein and entered into in connection herewith set forth
the entire agreement and understanding of the parties in respect of the
transactions contemplated hereby and supersede all prior agreements,
arrangements and understandings relating to the subject matter hereof between
Sellers and the EqualNet Parties, including the Letter of Intent. No
representation, promise, inducement or statement of intention has been made by
Sellers or the EqualNet Parties that is not embodied in this Agreement or any of
the other agreements referred to herein and entered into in connection herewith,
the Exhibits or Schedules hereto, or the written statements, certificates or
other documents delivered pursuant hereto, and neither Sellers nor the EqualNet
Parties shall be bound by or liable for any alleged representation, promise,
inducement or statement of intention not set forth herein. This Agreement may be
amended or modified only by a written instrument executed by the EqualNet
Parties and Sellers or by their successors and assigns.
C. PRESS RELEASES. Neither Sellers nor the EqualNet Parties shall issue
any press releases or make any public announcements of any of the transactions
contemplated by this Agreement except as may be mutually agreed to in writing by
Sellers and the EqualNet Parties; PROVIDED, HOWEVER, that notwithstanding the
foregoing, Sellers and the EqualNet Parties shall be permitted, upon prior
notice to the other party, to make such disclosures to the public, customers,
employees, carriers or other providers of wholesale telephone services or
Governmental Entities, including filings with the Bankruptcy Court, as they or
their respective counsel shall deem necessary to maintain existing commercial
relationships or comply with, or prevent violation of, applicable laws.
D. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of Sellers and the EqualNet
Parties. Except as provided in Section 3(l), neither party hereto may assign its
rights or obligations hereunder without the prior written consent of the other
party hereto.
E. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement, expressed or
implied, is intended to confer upon any other person or entity other than the
parties hereto and their successors and assigns, any rights or remedies
hereunder and all third-party beneficiary rights are hereby expressly
disclaimed.
F. WAIVERS. Any of the terms or conditions of this Agreement may be waived
at any time and from time to time in writing by the party entitled to the
benefits thereof without affecting any other terms or conditions of this
Agreement.
G. SEVERABILITY. To the extent that any provision of this Agreement shall
be invalid or unenforceable, it shall be considered deleted herefrom and the
remainder of such provision and of this Agreement shall be unaffected and shall
continue in full force and effect.
H. EXPENSES. Except as otherwise expressly provided in this Agreement or
the Escrow Agreement and regardless of whether the actions contemplated in this
Agreement are consummated, each of the parties hereto shall bear its own
expenses (including, without limitation, fees and disbursements of its counsel,
accountants, financial advisors and other experts), incurred by it in connection
with the preparation, negotiation, execution, delivery and performance of this
Agreement, each of the other documents and instruments executed in connection
with or contemplated by this Agreement and the consummation of the transactions
contemplated hereby and thereby; PROVIDED, HOWEVER, that in any litigation to
enforce the terms of this Agreement the prevailing party shall be entitled to
recover from the losing party the legal fees and expenses incurred by the
prevailing party in such litigation.
I. NO RECOURSE. Notwithstanding any provision of this Agreement, each of
the EqualNet Parties, on the one hand, and the Sellers, on the other hand, agree
that neither it nor any person acting on its behalf may assert any claims or
cause of action against any officer or director of the other party or parties or
(except as provided in Section 18(j)) stockholder of such other party or parties
in connection with or arising out of this Agreement or the transactions
contemplated hereby.
J. GUARANTY BY EQUALNET. EqualNet hereby guaranties the due and punctual
payment and performance by Buyer of all Buyer's obligations hereunder and under
any Transaction Document to which Buyer is a party.
K. COURTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed the day and year first above written.
BUYER:
EQUALNET CORPORATION
By______________________
Name:
Title:
EQUALNET:
EQUALNET HOLDING CORP.
By______________________
Name:
Title:
SELLERS:
SA TELECOMMUNICATIONS, INC.
ADDTEL COMMUNICATIONS, INC.
LONG DISTANCE NETWORK, INC.
NORTH AMERICAN TELECOMMUNICATIONS CORPORATION
U.S. COMMUNICATIONS, INC.
SOUTHWEST LONG DISTANCE NETWORK, INC.
UNIQUEST COMMUNICATIONS, INC.,
Debtors and Debtors-in-possession
By______________________
Name:
Title:
-11-
<PAGE>
EXHIBIT A
SUMMARY OF TERMS OF PREFERRED STOCK
Dividend rate: $2.00 per share per annum when, as and if declared
by the Board of Directors out of funds legally available
for the payment of dividends, payable "in kind" or cash
at EqualNet's sole discretion.
Liquidation Preference
Amount: $27.50 per share.
Redemption at the
Company's option: The Preferred Stock may be redeemed by
EqualNet as a whole or in part at any time on
not less than 30 nor more than 60 days' prior
notice, beginning on the one year anniversary
of the date of issuance of the Preferred
Stock, except that the Preferred Stock may be
called prior to that date at such time as the
Common Stock of EqualNet shall have traded at
125% or more of $2.75 (unless adjusted in
accordance with the definition of the term
"Conversion Rate") for at least 20 of 30
trading days. The redemption price per share
for the twelve-month periods beginning on the
Closing Date and on each anniversary thereof
of each year set below will be:
YEAR
----
REDEMPTION
----------
PRICE PER SHARE
- ---------------
1998
$28.875
1999
28.1875
2000 and
thereafter 27.50
Rank: Prior to the Common Stock and junior to the
Series A Preferred Stock to be issued in
connection with the transactions among
EqualNet, the Willis Group and MCM Partners.
<PAGE>
SCHEDULE 3(B)(X)
EXCLUDED BOOKS AND RECORDS
1. All of Sellers' tax returns and related records.
2. All of Sellers' corporate records, including, without limitation, minutes,
the stock ledger and the minute books.
3. Any of Sellers' books and records relating to liabilities that are not
Assumed Liabilities or assets that are not Assets.
4. General ledger and related information supporting Sellers' financial
statements.
5. Corporate seal.
6. Business plans and financial projections of Sellers.
<PAGE>
AMENDMENT
dated as of March 10, 1998
to
PURCHASE AGREEMENT
dated as of January 15, 1998
WHEREAS, EqualNet Corporation, a Delaware corporation ("BUYER"),
EqualNet Holding Corp., a Texas Corporation ("EQUALNET"), and SA
Telecommunications, Inc., a Delaware corporation ("SA TELECOM"), and its
subsidiaries named as Sellers on the signature pages hereto (SA Telecom and such
subsidiaries collectively, "SELLERS") are parties to a Purchase Agreement dated
as of January 15, 1998 (the "PURCHASE AGREEMENT," capitalized terms used but not
defined herein having the meaning specified in the Purchase Agreement) pursuant
to which Buyer agreed to purchase from Sellers, and Sellers agreed to sell to
Buyer, on the terms and conditions set forth therein, the assets of Sellers
specified therein (the "ASSETS");
WHEREAS, on March 4, 1998, Sellers conducted an auction of their
assets (the "AUCTION") pursuant to a Second Amended Order (i) Authorizing and
Scheduling Auction at Which the Sellers May Sell Substantially All Their Assets
Free And Clean Of All Liens, Claims, and Encumbrances; (ii) Approving Proposed
Auction Procedures; (iii) Scheduling Hearing and Objections Deadline on Motion
of Debtors to Sell Assets; and (iv) Approving Notice and Service of the Sale
approval Motion (the "AMENDED SCHEDULING ORDER"), which Amended Scheduling Order
was entered by the Bankruptcy Court on February 23, 1998;
WHEREAS, at the Auction Buyer enhanced its offer contained in the
Purchase Agreement for the Assets;
WHEREAS, the Buyer's offer, as so enhanced, was determined by
Sellers and the Creditors' Committee to be the highest and best offer for the
Assets; and
WHEREAS, Buyer has agreed to provide Sellers with a
debtor-in-possession financing in the amount of $1,500,000, available commencing
no later than March 10, 1998, on the terms and conditions set forth in the
Stipulation dated as of March 10, 1998, among Sellers, Buyer and Greyrock,
subject to the approval by the Bankruptcy Court of the sale of the Assets to
Buyer pursuant to the Purchase Agreement as modified hereby;
WHERAS, Sellers, Buyer and EqualNet wish to Amend the Purchase
Agreement to reflect said enhancement of Buyer's offer and to clarify other
matters;
NOW, THEREFORE, Buyer, EqualNet and Sellers hereby agree as follows:
1. The definitions of the terms "Adjusted Pre-Closing Monthly
Minute", "Pre-Closing Monthly Minutes", "Post-Closing Monthly Minutes", "Closing
Date Market Value", "Billable Minute" "Escrow Agreement", "Escrowed Shares", and
"Willis Group" contained in Section 1 of the Purchase Agreement are hereby
deleted.
2. The definition of the term "Conversion Rate" set forth in Section
1 of the Purchase Agreement is amended to read in its entirety as follows:
"'CONVERSION RATE' shall mean the number of shares of Common Stock
that the holder of Preferred Shares shall receive upon conversion of one
Preferred Share. Subject to adjustment as set forth in the Preferred Stock
Provisions for the effect of dilutive and concentrative events affecting
the Common Stock, one Preferred Share shall be convertible into ten shares
of Common Stock."
3. There is inserted the following new definitions in Section 1 of
the Purchase Agreement, in appropriate alphabetical sequence:
"'EQUALNET DIP FINANCING' shall mean the debtor-in-possession
financing in the principal amount of $1,500,000 provided or to be provided
by EqualNet to Sellers."
All references in the Purchase Agreement to the "Willis Group DIP Financing"
shall be to the EqualNet DIP Financing and all references in the Purchase
Agreement to the "Willis Group" shall be to EqualNet.
4. The definition of the term "Revenue Amount" set forth in Section
1 of the Purchase Agreement is amended to read it its entirety as follows:
"REVENUE AMOUNT" shall mean the gross revenue of Sellers, determined
in accordance with GAAP, during the months of December 1997 and January
1998; provided, however, that if the gross revenue of Sellers during the
month of February 1998 is less than 92% of the average monthly gross
revenue of Sellers during the months of December 1997 and January 1998,
then "Revenue Amount" shall mean the gross revenue of Sellers, determined
in accordance with GAAP, during the months of January and February 1998."
5. Section 3(d) of the Purchase Agreement is amended by adding the
following new sentence at the end thereof:
"If on the Closing Date the amount of principal and interest owing by
Sellers in respect of the EqualNet DIP Financing is less than $1,500,000
(the amount by which it is less herein called the "AVAILABLE EQUALNET DIP
AMOUNT") , then (i) an amount equal to the lesser of (x) $300,000 or (y)
the Available EqualNet DIP Amount shall be applied by Sellers to the
repayment of the Greyrock Financing and (ii) EqualNet shall issue to SA
Telecom, as agent for Sellers, a promissory note in an amount equal to the
amount specified in clause (i) above, which promissory note (x) shall bear
interest at the rate of 10% per annum, payable quarterly on the last day
of each calender quarter and at maturity, (y) shall mature on the first
anniversary of the issuance thereof and (z) after the payment in full of
the Greyrock Financing, shall be prepaid on the last day of each calender
quarter by an amount equal to 25% of the original principal amount of such
promissory note (but the entire outstanding balance of such promissory
note and all accrued interest thereon shall, in any event, be due and
payable on the first anniversary of the issuance date thereof). The amount
applied to the payment of the Greyrock Financing pursuant to clause (i) of
the preceding sentence shall be in addition to the payment required to be
made by Sellers to Greyrock pursuant to Section 9(n)."
6. All references in the Purchase Agreement to "Scheduling Order"
shall be to the Amended Scheduling Order.
7. Clause (i) of Section 4(b) of the Purchase Agreement is amended
to read in its entirety as follows:
"(i) Buyer shall pay the cash portion of the Consideration by a wire
transfer in immediately available funds to such account or accounts as SA
Telecom, as agent for Sellers, shall specify by a notice in writing to
Buyer at least two business days prior to the Closing Date;"
8. Sections 4(d) and 5(b) and the last sentence of Section 5(a)(v)
of the Purchase Agreement are hereby deleted.
9. Section 5(a) of the Purchase Agreement is amended by deleting the
words "fifteen days after the Closing Date" set forth therein and substituting
therefor the words "April 1, 1998."
10. The third sentence of Section 8(b) of the Purchase Agreement is
amended to read as follows:
"No other corporate proceedings on the part of any EqualNet Party, other
than the approval of the shareholders of EqualNet, are necessary to
authorize this Agreement, the other Transaction Documents, the issuance of
the Preferred Shares to Sellers pursuant hereto or the transactions
contemplated herein or therein."
11. Section 9 of the Purchase Agreement is amended by adding the
following new paragraph (n) at the end thereof:
"(n) GREYROCK OVERADVANCES. On the Closing Date the Sellers shall
pay to Greyrock, for application to the Greyrock Financing, an amount
equal to the lesser of (i) the Post-Petition Overadvances or (ii) $73,969.
Such payment shall be in addition to the payment, if any, on the Greyrock
Financing required to be made pursuant to the penultimate sentence of
Section 3(d)."
12. Sections 10(e), 11(g), 11(i) and 12(e) of the Purchase Agreement
are hereby deleted.
13. Section 11 of the Purchase Agreement is hereby amended by adding
the following new paragraph (n) at the end thereof:
"(n) SHAREHOLDER APPROVAL The shareholders of EqualNet
shall have approved the transactions contemplated by this
Agreement."
14." \* MERGEFORMAT 14. Section 12 of the Purchase Agreement is
amended by adding at the end thereof the following new paragraph (k):
"(k) EQUALNET DIP FINANCING. Buyer shall have provided
to Sellers the EqualNet DIP Financing."
15. Clause (v) of Section 13(a) is amended to read as follows: "(v)
by any party (unless such party is in default under this Agreement) if the Sale
Order is not entered on or before March 13, 1998 or if the Closing does not
occur on or before May 31, 1998."
16. Section 14(b) of the Purchase Agreement is amended by (a)
changing the dates "February 13, 1998" and "March 31, 1998" set forth therein
to, respectively, "March 13, 1998" and "May 31, 1998"; and (b) adding the
following new clause (iv) to the proviso at the end of said paragraph 14(b):
"or (iv) if Buyer fails to purchase the Assets because the
conditions specified in Sections 10(d) or 11(n) are not satisfied or
Sellers refuse to sell the Assets to Buyer because the condition specified
in Section 12(k) is not satisfied."
17. Exhibit B to the Purchase Agreement is hereby deleted.
18. Provided that Sellers turn over to the EqualNet Parties
operational control of Sellers' business on or before March 17, 1998 pursuant to
a Management and Services Agreement to be entered into by Sellers and the
EqualNet Parties, all Operating Losses and Operating Income (as such terms are
defined in such Management and Services Agreement) of Sellers accruing on or
after April 1, 1998, and until the Closing Date, shall be for the account of
Buyer. Buyer shall pay to Sellers or shall reimburse Sellers for the amount of
any such Operating Losses, and Sellers shall pay to Buyer the amount of any such
Operating Income, all in accordance with the terms of said Management and
Services Agreement. Any such payment by Buyer shall be in addition to the
Consideration to be paid by Buyer for the Assets pursuant to Section 3(d) of the
Purchase Agreement.
19. The Sellers have been advised by the EqualNet Parties that in
connection with the solicitation of the consent of EqualNet's shareholders to
the transactions contemplated by the Purchase Agreement, an audit of Sellers'
financial statements may be required. In the event such audit is required,
Sellers shall permit an accounting firm selected by the EqualNet Parties to
conduct such audit, at the sole cost and expense of the EqualNet Parties, and
shall cooperate fully with such accounting firm in its performance of such
audit.
20. Except as amended hereby, the Purchase agreement and the
respective rights and obligations of the parties thereunder, shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first written above.
BUYER:
EQUALNET CORPORATION
By:
Name:
Title:
EQUALNET:
EQUALNET HOLDING CORP.
By:
Name:
Title:
SELLERS:
SA TELECOMMUNICATIONS, INC.
ADDTEL COMMUNICATIONS, INC.
LONG DISTANCE NETWORK, INC.
NORTH AMERICAN TELECOMMUNICATIONS
CORPORATION
U.S. COMMUNICATIONS, INC.
SOUTHWEST LONG DISTANCE NETWORK, INC.
UNIQUEST COMMUNICATION, INC.
Debtors and Debtors-in-possession
By:
Name:
Title:
Willis Group LLC and Mr. Zane Russell (collectively, the
"SHAREHOLDERS"), being the holders, collectively, of not less than 51% of the
outstanding shares of the common stock of EqualNet Holding Corp., hereby confirm
to the Sellers referred to in the foregoing Amendment that the Shareholders will
vote their respective shares of EqualNet Holding Corp. stock in favor of the
transactions contemplated by the Purchase Agreement referred to in, and as
amended by, the foregoing Amendment.
WILLIS GROUP LLC
By:
Name:
Title:
-------------------------------
Zane Russell
<PAGE>
AMENDMENT
dated as of March 5, 1998
to
PURCHASE AGREEMENT
dated as of January 15, 1998
WHEREAS, EqualNet Corporation, a Delaware corporation ("BUYER"),
EqualNet Holding Corp., a Texas Corporation ("EQUALNET"), and SA
Telecommunications, Inc., a Delaware corporation ("SA TELECOM"), and its
subsidiaries named as Sellers on the signature pages hereto (SA Telecom and such
subsidiaries collectively, "SELLERS") are parties to a Purchase Agreement dated
as of January 15, 1998 (the "PURCHASE AGREEMENT," capitalized terms used but not
defined herein having the meaning specified for such terms in the Purchase
Agreement) pursuant to which Buyer agreed to purchase from Sellers, and Sellers
agreed to sell to Buyer, on the terms and conditions set forth therein, the
assets of Seller specified therein (the "ASSETS");
WHEREAS, on March 4, 1998, Sellers conducted an auction of their
assets (the "AUCTION") pursuant to a Second Amended Order (i) Authorizing and
Scheduling Auction at Which the Sellers May Sell Substantially All Their Assets
Free And Clean Of All Liens, Claims, and Encumbrances; (ii) Approving Proposed
Auction Procedures; (iii) Scheduling Hearing and Objections Deadline on Motion
of Debtors to Sell Assets; and (iv) Approving Notice and Service of the Sale
approval Motion (the "AMENDED SCHEDULING ORDER"), which Amended Scheduling Order
was entered by the Bankruptcy Court on February 23, 1998;
WHEREAS, at the Auction Buyer modified and clarified the terms of
its offer contained in the Purchase Agreement to purchase the Assets;
WHEREAS, the Buyer's offer, as so modified and clarified, was
determined by Sellers and the Creditors' Committee to be the highest and best
offer for the Assets;
WHEREAS, Buyer has agreed to provide Sellers with a debtor-in-
possession financing in the amount of $1,000,000, available commencing
on March 9, 1998 on the terms and conditions set forth in the Stipulation dated
March __, 1998, among Sellers, Buyer and Greyrock, subject to the approval by
the Bankruptcy Court of the sale of the Assets to Buyer pursuant to the Purchase
Agreement as modified hereby;
WHERAS, Sellers, Buyer and EqualNet wish to Amend the Purchase
Agreement to reflect said modification and clarification of Buyer's offer and
clarify other matters;
NOW THEREFORE, Buyer, EqualNet and Sellers hereby agree as follows:
1. The definitions of the terms "Adjusted Pre-Closing Monthly
Minute", "Pre-Closing Monthly Minutes", "Post-Closing Monthly Minutes", "Closing
Date Market Value", "Billable Minute" "Escrow Agreement", "Escrowed Shares", and
"Willis Group" contained in Section 1 of the Purchase Agreement and all
references to said terms in the Purchase Agreement are hereby deleted.
2. The definition of the term "Conversion Rate" set forth in Section
1 of the Purchase Agreement is amended to read in its entirety as follows:
"CONVERSION RATE shall mean the number of shares of Common Stock
that the holder of Preferred Shares shall receive upon conversion of one
Preferred Share. Subject to adjustment as set forth in the Preferred Stock
Provisions for the effect of dilutive and concentrative events affecting
the Common Stock, one Preferred Share shall be convertible into ten shares
of Common Stock."
3. There is inserted the following new definitions in Section 1 of
the Purchase Agreement, in appropriate alphabetical sequence:
"EQUALNET DIP FINANCING shall mean the
debtor-in-possession financing provided or to be provided by
Buyer to Sellers."
All references in the Purchase Agreement to the "Willis Group DIP Financing"
shall be to the EqualNet DIP Financing and all references in the Purchase
Agreement to the "Willis Group" shall be to Buyer.
4. The definition of the term "Revenue Amount" set forth in Section
1 of the Credit Agreement is amended to read it its entirety as follows:
"REVENUE AMOUNT" shall mean the gross revenue of Sellers, determined
in accordance with GAAP, during the months of December 1997 and January
1998; provided, however, that if the gross revenue of Sellers during the
month of February 1998 is less than 92% of the average monthly gross
revenue of Sellers during the months of December 1997 and January 1998,
then "Revenue Amount" shall mean the gross revenue of Sellers, determine
in accordance with GAAP, during the months of January and February 1998.
5. All references in the Purchase Agreement to "Scheduling Order"
shall be to the Amended Scheduling Order.
6. Clause (i) of Section 4(b) of the Purchase Agreement is amended
to read in its entirety as follows:
"(i) Buyer shall pay the cash portion of the Consideration by a wire
transfer in immediately available funds to such account or accounts as SA
Telecom, as agent for Sellers, shall specify by a notice in writing to
Buyer at least two business days prior to the Closing Date;"
7. Sections 4(d) and 5(b) and the last sentence of Section 5(a)(v)
of the Purchase Agreement are hereby deleted.
8. Section 5(a) of the Purchase Agreement is amended by deleting the
words "fifteen days after the Closing Date" set forth therein and substituting
therefor the words "April 1, 1998."
9. The third sentence of Section 8(b) of the Purchase Agreement is
amended to read as follows:
"No other corporate proceedings on the part of any EqualNet Party, other
than the approval of the shareholders of EqualNet, are necessary to
authorize this Agreement, the other Transaction Documents, the issuance of
the Preferred Shares to Sellers pursuant hereto or the transactions
contemplated herein or therein."
10. Sections 10(e), 11(g), 11(i) and 12(e) of the Purchase Agreement
are hereby deleted.
11. Section 11 of the Purchase Agreement is hereby amended by adding
the following new paragraph (n) at the end thereof:
"(n) SHAREHOLDER APPROVAL The shareholders of EqualNet
shall have approved the transactions contemplated by this
Agreement."
12. Section 12 of the Purchase Agreement is amended by adding at the
end thereof the following new paragraph (k):
"(k) EQUALNET DIP FINANCING. Buyer shall have provided
to Sellers the EqualNet DIP Financing."
13. Clause (v) of Section 13(a) is amended to read as follows:
"(v) by any party (unless such party is in default under this
Agreement) if the Sale Order is not entered on or before March 13, 1998 or
if the Closing does not occur on or before May 31, 1998."
14. Section 14(b) of the Purchase Agreement is amended by (a)
changing the dates "February 13, 1998" and "March 31, 1998" set forth therein
to, respectively, "March 13, 1998" and "May 31, 1998"; and (b) adding the
following new clause (iv) to the proviso at the end of said paragraph 14(b):
"or (iv) if Buyer fails to purchase the Assets because the conditions
specified in Sections 10(d), 11(m) or 11(n) are not satisfied or Sellers
refuse to sell the Assets to Buyer because the condition specified in
Section 12(k) is not satisfied."
15. Exhibit A to the Purchase Agreement (Summary of Terms of
Preferred Stock) is amended to provide that the Preferred Stock shall rank as
follows:
"Senior to the Common Stock and the Series A Preferred Stock to be issued
in connection with the transaction among EqualNet, the Willis Group and
MCM Partners."]
16. Exhibit B to the Purchase Agreement is hereby deleted.
17. Provided that Sellers turn over to the EqualNet Partners
operational control of Sellers business on or before March 17, 1998 pursuant to
a Management and Service Agreement to be entered into by Sellers and the
EqualNet Parties, all operating losses of Sellers accruing on or after April 1,
1998 and until the Closing Date shall be for the account of Buyer, and Buyer
shall pay, or shall reimburse Sellers for, such operating losses on the Closing
Date. Such payment or reimbursement by Buyer shall be in addition to the
Consideration to be paid by Buyer for the Assets pursuant to Section 3(d) of the
Purchase Agreement.
18. Except as amended hereby, the Purchase agreement and the
respective rights and obligations of the parties thereunder, shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first written above.
BUYER:
EQUALNET CORPORATION
By:
Name:
Title:
EQUALNET:
EQUALNET HOLDING CORP.
By:
Name:
Title:
<PAGE>
SELLERS:
SA TELECOMMUNICATIONS, INC.
ADDTEL COMMUNICATIONS, INC.
LONG DISTANCE NETWORK, INC.
NORTH AMERICAN TELECOMMUNICATIONS
CORPORATION
U.S. COMMUNICATIONS, INC.
SOUTHWEST LONG DISTANCE NETWORK, INC.
UNIQUEST COMMUNICATION, INC.
Debtors and Debtors-in-possession
By:
Name:
Title:
[The Willis Group, LLC] and _____ (the "SHAREHOLDERS"), being the
holders, respectively of not less than ___% and ___% of the outstanding shares
of the common stock of EqualNet Holding Corp., hereby confirm to the Sellers
referred to in the foregoing Amendment that the Shareholders will vote their
respective shares of EqualNet Holding Corp. stock in favor of the transactions
contemplated by the Purchase Agreement referred to in, and as amended by, the
foregoing Amendment.
[THE WILLIS GROUP, LLC]
By:
Name:
Title:
MANAGEMENT AND SERVICES AGREEMENT
MANAGEMENT AND SERVICES AGREEMENT dated as of March 12, 1998, by and
among EQUALNET CORPORATION, a Delaware corporation ("Buyer"), EQUALNET HOLDING
CORP., a Texas corporation ("EqualNet" and, collectively with Buyer, the
"EqualNet Parties"), and SA TELECOMMUNICATIONS, INC., a Delaware corporation
("SA Telecom"), and its subsidiaries named on the signature page hereof
(collectively, the "Sellers").
W I T N E S S E T H:
WHEREAS, on November 19, 1997, Sellers filed petitions for
reorganization under Chapter 11 of title 11 of the United States Code (the
"Bankruptcy Code") with the Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court");
WHEREAS, the EqualNet Parties and the Sellers are parties to a
Purchase Agreement dated as of January 15, 1998 (as amended from time to time,
the "Purchase Agreement") (capitalized terms used but not defined herein have
the meanings specified in the Purchase Agreement), pursuant to which the Sellers
agreed to sell to Buyer, and Buyer agreed to purchase from Sellers, all of the
Sellers' rights, titles and interests in and to substantially all of the assets
of the Sellers (the "Assets");
WHEREAS, the Bankruptcy Court has approved the sale of the Assets
to the Buyer pursuant to the Purchase Agreement;
WHEREAS, the Buyer will purchase, as part of the Assets, all of the
accounts (the "Accounts") of the subscribers (the "Subscribers") to the Sellers'
long distance telecommunications services (the "Services");
<PAGE>
WHEREAS, the Services are provided to the Subscribers through the
Sellers' network of switching and transmission facilities (the "Sellers' Network
Facilities"), consisting of equipment, switches, software and line capacity;
WHEREAS, the Sellers' Network Facilities are a combination of (i)
owned assets and (ii) leased contractual arrangements (capital and operating)
with third parties (the "Network Contracts");
WHEREAS, the Buyer's purchase of the Assets may be delayed because
of the need to obtain the approval of EqualNet's shareholders and certain
regulatory approvals for such purchases;
WHEREAS, for various technical and operating reasons, the Buyer may
be unable to transition the Subscribers from the Sellers' Network Facilities to
its own network of switching and transmission facilities (the "Transition") by
the Closing Date; and
WHEREAS, in order to facilitate the Transition and to limit the cost
and expense borne by the Sellers in operating the business pending the closing
under the Purchase Agreement, the Sellers and the EqualNet Parties have agreed
to enter into this Agreement whereby from the Effective Date to the conclusion
of the Transition Period (as such terms are defined below), (i) the Buyer will
manage the telecommunications business of the Sellers (the "Business") and (ii)
the Sellers will provide to the Buyer telecommunications services pursuant to
the network contracts to be specified by the Buyer to the Sellers in writing no
later than the Closing Date (the "Specified Network Contracts"), upon the terms
and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
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<PAGE>
1. APPOINTMENT OF BUYER. Effective as of 12:01 a.m. on the first day
following the date that the Bankruptcy Court approves this Agreement (the
"Effective Date"), the Sellers hereby appoint and retain the Buyer, and the
Buyer hereby agrees, to manage the Business of the Sellers during the term of
this Agreement; PROVIDED that the Sellers shall continue to perform all of their
obligations under all contracts in effect during the Transition Period.
2. AUTHORITY TO BE RETAINED BY SELLERS. Except as provided herein,
Sellers retain full authority to manage the affairs of the Sellers and their
estates. Without limiting the generality of the foregoing, the Sellers have
exclusive authority to (i) administer the Sellers' Chapter 11 cases, (ii) assume
or reject any executory contract or unexpired lease to which any Seller is a
party to the extent not inconsistent herewith or with the Purchase Agreement,
(iii) sell any of their assets to the extent not prohibited under the Purchase
Agreement, (iv) borrow under each of those certain debtor-in-possession
financings provided by (a) Greyrock Business Credit and (b) EqualNet, (v) pay
all accounts payable and other expenses of any of the Sellers, (vi) enforce,
defend and compromise any claim by or against any Seller or its estate, and
(vii) commence, continue and defend any actions or proceedings involving any
Seller or its estate.
3. SERVICES TO BE PROVIDED BY SELLERS. The Sellers shall provide to
Buyer from and after the Closing Date until the conclusion of the Transition
Period telecommunications services under the Specified Network Contracts at a
cost equal to the cost to the Sellers of providing such services, including,
without limitation, all charges payable by the Sellers under the Specified
Network Contracts in connection with the provision of such services.
4. SERVICES TO BE PROVIDED BY BUYER. (a) In the performance of its
duties hereunder, the Buyer shall supervise and assist in the supervision and
management of all aspects of the Business, including the Specified Network
Contracts, during the Transition Period. The Buyer shall devote such reasonable
time, personnel, attention and effort as it may deem necessary to the
performance of its duties hereunder. The Buyer shall have the complete authority
to do
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<PAGE>
whatever it may deem necessary, appropriate or convenient to conduct, manage and
operate the Business, subject, however, to satisfaction and performance of and
full compliance with (i) reasonable business judgment in accordance with all
industry norms and standards, (ii) the terms of the Specified Network Contracts
and all other legal and contractual obligations of the Sellers, and (iii) all
applicable federal and state laws, including, without limitation, (a) all laws
relating to the employment/labor industry, without limitation, the provision
thereof relating to wages, hours, conditions of employment, collective
bargaining and the payment of social security taxes or other payroll taxes, (b)
federal, state or local laws, statutes or regulations or the common law relating
to the environmental or occupational health and safety, and (c) all federal laws
and regulations relating to the performance of government contracts. Nothing
contained herein shall authorize Buyer to take any action in respect of Sellers'
Chapter 11 cases or in respect of any claim by or against Sellers.
(b) The Sellers shall cause the Sellers and all of their employees,
agents, and representatives to cooperate in all material respects with the
Buyer's activities as contemplated herein and shall make Sellers' books and
records specifically relating to the Business or the Specified Network Contracts
available to the Buyer at all times.
(c) During the Transition Period, Buyer agrees, absent the Sellers'
prior written consent, not to authorize, direct or otherwise take any of the
following actions:
(1) Any action which would be deemed to constitute a breach by
the Sellers of any contractual obligations of the Sellers;
(2) Sell or otherwise dispose of any equipment, inventory or
assets of the Sellers;
(3) Destroy any of Sellers' books and records, including,
without limitation, any computer data information;
-4-
<PAGE>
(4) Incur any liability on behalf of the Sellers, except to
the extent (i) necessary or appropriate to manage the Business
or perform under the Specified Network Contracts during the
Transition Period; or (ii) expressly authorized by Sellers in
writing;
(5) Assume or reject any executory contract or unexpired lease
to which any Seller is a party; and
(6) Commence any litigation in the name of any Seller, release
or compromise any claim or cause of action of any Seller, file
any plan of reorganization in Sellers' Chapter 11 cases, or
waive any defense or objection of any Seller in respect of any
claim against any Seller or its estate. With respect to the
commencement of any litigation, Sellers will not unreasonably
withhold their consent to the commencement of such action.
5. TERM OF AGREEMENT. (a) Subject to subsections (c) and (d) below,
the term of this Agreement shall be the period commencing on the Effective Date
and ending 12:01 a.m. on the 60th day following the Closing Date (the
"Transition Period"), subject to extensions of the Transition Period as provided
in this Section; PROVIDED, HOWEVER, that nothing contained herein shall be
deemed to extend the term of any other contract, agreement or lease to which any
of the Sellers is a party.
(b) In the event the Transition is not completed within the
Transition Period, the Buyer shall have the right to extend the Transition
Period, for a period which, in the Buyer's best estimation, shall be sufficient
to permit the completion of the Transition (a "Transition Period Extension").
The Buyer must provide the Sellers' with ten (10) days' prior written notice of
its desire to extend the Transition Period, which notice shall specify the
requested Transition Period Extension. The terms of this Agreement and, in
particular, the terms contained in
-5-
<PAGE>
subsection (c) below shall govern any such Transition Period Extension. The term
Transition Period shall include any such Transition Period Extension.
(c) In the event all or any portion of the Transition is completed
prior to the end of the Transition Period, Buyer shall have the right, upon five
days' prior written notice to Sellers, to terminate its receipt of services
under any Specified Network Contracts.
(d) Any party may terminate this Agreement prior to the Closing Date
(i) if the Closing Date does not occur on or before May 31, 1998, (ii) if the
Purchase Agreement is terminated by any party thereto or (iii) upon fifteen (15)
days' prior written notice to the other parties hereto by (x) any Seller if any
EqualNet Party breaches any of its obligations under this Agreement or (y)
either EqualNet Party if any Seller breaches any of its obligations under this
Agreement and, in either case, such breach is not cured within such fifteen (15)
day period.
(e) If this Agreement is terminated prior to the Closing Date, the
EqualNet Parties shall cooperate with the Sellers to restore to the Sellers'
Network Facilities all telecommunications traffic relating to the Subscribers
that had been transferred to the EqualNet Parties' network facilities during the
term of this Agreement and, if so requested by the Sellers, will permit the
Sellers to use for sixty (60) days after the termination of this Agreement the
EqualNet Parties' network facilities to carry such traffic at a cost equal to
the EqualNet Parties' cost of carrying such traffic.
6. ASSUMPTION OF LIABILITIES AND FUNDING REQUIREMENTS. (a) The Buyer
agrees to assume and pay to the Sellers, or as directed by Sellers, (i) all
Increased Costs (as defined below) incurred by the Sellers from the Effective
Date to March 31, 1998 by reason of any action taken by either EqualNet Party
pursuant hereto, (ii) all Operating Losses (as defined below) incurred by
Sellers during the period commencing on April 1, 1998 and ending on the Closing
Date, and (iii) all liabilities incurred or accrued by Sellers to other parties
under or in respect of the Specified Network Contracts during the period
commencing on the Closing Date
-6-
<PAGE>
and ending on the last day of the Transition Period (the "Specified Network
Contracts Liabilities").
(b) Sellers agree to pay to Buyer all Operating Income (as defined
below) of Sellers for the period commencing on April 1, 1998 through the Closing
Date.
(c) The Increased Costs shall be payable as and when they become
due, but, in any event, no later than the last day of the Transition Period, the
Operating Losses or Operating Income shall be payable on the Closing Date, or as
soon thereafter as is practical, but, in no event, later than sixty (60) days
after the Closing Date, and the Specified Network Contracts Liabilities shall be
payable as and when the same are required to be paid under the relevant
Specified Network Contract, but in any event no later than the last day of the
Transition Period.
(d) From the Effective Date to March 31, 1998, prior to implementing
any change in the Sellers' operations that is inconsistent with the Sellers'
plans for such period, the EqualNet Parties and the Sellers shall agree on the
net amount of any increased costs to Sellers that will result from such change
(the "Increased Costs").
(e) For purposes of this Agreement: "Operating Losses" shall, for
any relevant period, be defined as the amount by which (i) all costs and
expenses of the Sellers accrued during such period (including all amounts
accrued by the Sellers during such period under all capital leases, but
excluding (x) all non-cash items, (y) all professional fees and expenses
incurred by the Sellers in connection with the administration of the Sellers'
Chapter 11 cases and (z) all amounts that accrue under the Sellers' self-funded
health insurance plan in excess of the product of (A) $20,000 and (B) the number
of weeks from April 1, 1998 to the Closing Date) exceed (ii) all revenues of the
Sellers accrued during such period (excluding all non-cash items); and
"Operating Income" shall, for any relevant period, be defined as the amount by
which the amount calculated pursuant to clause (ii) of the definition of
Operating Losses exceeds the amount calculated pursuant to clause (i) of the
definition of Operating Losses.
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<PAGE>
7. CHANGE IN OPERATIONS. If the EqualNet Parties wish to take any
action in connection with their management of the Sellers' business pursuant
hereto, which action the EqualNet Parties believe will result in a cost savings
to the Sellers, and for which the Sellers' consent is required, the EqualNet
Parties shall deliver to the Sellers a written request for such consent, which
request shall describe in reasonable detail the action proposed to be taken and
the basis for the EqualNet Parties' belief that such action will result in a
cost savings to the Sellers. In such case, the Sellers shall not unreasonably
withhold their consent to such actions, provided that the granting of such
consent is consistent with the Sellers' fiduciary duties as
debtors-in-possession.
8. TRUE-UP. The Buyer and the Sellers shall use reasonable good
faith efforts to resolve any disputes regarding amounts owing by either party
hereunder. If Sellers and Buyer cannot resolve any such dispute within thirty
(30) days after such dispute arises, such dispute shall be resolved by the
Bankruptcy Court as provided in Section 13 of this Agreement.
9. OUTSIDE ACTIVITIES. Nothing in this Agreement shall prevent,
limit or restrict the Buyer, its officers, directors, employees or agents in any
way from (i) acting for any other entity as administrative manager, management
consultant, or in any other advisory, consultative or professional capacity, or
(ii) engaging in any other business or devoting its, his or her time and
attention to the management or any other aspects of any other business, whether
of a similar or dissimilar nature to the Business.
10. BOOKS AND RECORDS. From the Effective Date to the Closing Date,
to the extent any books and records of the Sellers are held or controlled by the
EqualNet Parties, the EqualNet Parties will fully cooperate with and provide
full access to Sellers with respect to such books and records for the purpose of
permitting Sellers to prepare all necessary financial reports and tax returns,
verify, assess, assert or defend claims and for all other purposes relating to
the Sellers' administration of their Chapter 11 cases. Upon termination of this
Agreement, the
-8-
<PAGE>
EqualNet Parties will as promptly as practical return all such books and records
to the Sellers, provided that if such termination occurs after the Closing Date
the EqualNet Parties may retain such books and records that constitute Assets.
11. NOTICE OF APPROVAL OR DISAPPROVAL. The Sellers and Buyer each
agree to provide notice by facsimile transmission to the other within one (1)
business day of their receipt of a written objection to this Agreement from any
party to a Specified Network Contracts or its representative (a "Specified
Network Contracts Party").
12. NO REPRESENTATIONS OR WARRANTIES. The EqualNet Parties hereby
acknowledge and agree that the Sellers are not making any representation or
warranty whatsoever, express or implied, that any consent or authorization of
any party for the arrangement provided for in this Agreement will be obtained or
that any of the Specified Network Contracts will remain in effect during the
Transition Period, and Sellers' obligations hereunder are subject to the receipt
of any required consent or authorization. However, the Sellers shall use
reasonable good faith efforts to obtain, as promptly as possible, all consents,
authorizations, orders or approvals, if any, from each and every Specified
Network Contracts Party, whether private or governmental, required in connection
with the arrangement contemplated by this Agreement. Sellers agree that they
will not reject, without Buyer's consent, any Specified Network Contract during
the Transition Period unless the failure to do so would constitute an assumption
of such Specified Network Contract. In no event will Sellers be required by this
Agreement to assume any contract or lease, including any Specified Network
Contract. To the extent Sellers' ability to comply with this Agreement is
conditioned by the Bankruptcy Court upon assumption of one or more contracts or
leases, including any Specified Network Contracts, then Sellers shall be excused
from complying with this Agreement in respect of any such contract or lease.
-9-
<PAGE>
13. DISPUTE RESOLUTION AND REMEDY. (a) If any dispute or
disagreement shall arise in connection with either this Agreement or the
interpretation or performance thereof, then the matter in controversy shall be
submitted to the Bankruptcy Court for prompt resolution.
(b) THE PARTIES HERETO AGREE THAT ANY LEGAL ACTION OR PROCEEDING
RELATING TO OR ARISING UNDER THIS AGREEMENT SHALL BE LITIGATED IN THE BANKRUPTCY
COURT AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH SELLER HEREBY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, AND EACH EQUALNET PARTY
HEREBY ACCEPTS FOR ITSELF, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF
THE BANKRUPTCY COURT WITH REGARD TO ALL SUCH ACTIONS OR PROCEEDINGS. THE PARTIES
HERETO HEREBY IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING, WITHOUT LIMITATION,
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH ANY OF THEM MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN THE BANKRUPTCY COURT.
14. NOTICES AND INSTRUCTIONS. Any notice or instruction provided for
herein shall be provided to the parties hereto by facsimile transmission.
15. CONDITIONS. This Agreement and all obligations of the Sellers
and the EqualNet Parties hereunder are subject to and expressly conditioned upon
entry of an order by the Bankruptcy Court approving this Agreement.
16. MISCELLANEOUS. (a) This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; PROVIDED that none of the parties hereto may assign their rights
and obligations hereunder, other than for breach of this Agreement, without the
consent of the other parties hereto. No person, other than the parties
-10-
<PAGE>
hereto or their respective successors and assigns, shall have any legal or
equitable right, remedy or claim under or in respect of this Agreement.
(b) This Agreement contains the entire understanding of the parties
hereto with respect to the subject matter hereof and may not be modified except
by a writing signed by all the parties hereto.
(c) The descriptive headings contained in this Agreement are
inserted for convenience and do not constitute part of this Agreement.
(d) This Agreement may be terminated upon written mutual consent of
the Sellers and the EqualNet Parties.
(e) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE CHOICE OF LAW
PRINCIPLES THEREOF WHICH WOULD MAKE THE LAWS OF ANY OTHER JURISDICTION
APPLICABLE TO THIS AGREEMENT.
(f) All capitalized terms used herein which are not defined herein
shall have the meaning given to them in the Purchase Agreement.
(g) The Sellers and the Buyer agree to reasonably cooperate
regarding any written, oral or electronic mail communications made to employees
of the Sellers during the Transition Period.
(h) In the event there is a conflict between the terms of the
Purchase Agreement and the terms of this Agreement, the terms of the Purchase
Agreement shall govern.
(i) Nothing contained herein shall limit, impair, or otherwise
affect any rights or obligations of the EqualNet Parties or Sellers under the
Purchase Agreement.
-11-
<PAGE>
(j) To the extent that any provision of this Agreement, or any part
thereof, shall be declared invalid or unenforceable, it shall be considered
deleted herefrom and the remainder of such provision and of this Agreement shall
be unaffected and shall continue in full force and effect.
(k) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all or which together shall constitute
one and the same instrument.
(l) Nothing contained herein shall be deemed to amend, modify,
terminate or extend any lease, contract or agreement to which any Seller is a
party or any rights or obligations of any party thereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
EQUALNET CORPORATION
By:
Name:
Title:
EQUALNET HOLDING CORP.
By:
Name:
Title:
SA TELECOMMUNICATIONS, INC.
ADDTEL COMMUNICATIONS, INC.
LONG DISTANCE NETWORK, INC.
NORTH AMERICAN TELECOMMUNICATIONS
CORPORATION
U.S. COMMUNICATIONS, INC.
SOUTHWEST LONG DISTANCE NETWORK, INC.
UNIQUEST COMMUNICATIONS, INC.
By:
Name:
Title:
-12-
<PAGE>
AMENDMENT
dated as of March 5, 1998
to
PURCHASE AGREEMENT
dated as of January 15, 1998
WHEREAS, EqualNet Corporation, a Delaware corporation ("BUYER"),
EqualNet Holding Corp., a Texas Corporation ("EQUALNET"), and SA
Telecommunications, Inc., a Delaware corporation ("SA TELECOM"), and its
subsidiaries named as Sellers on the signature pages hereto (SA Telecom and such
subsidiaries collectively, "SELLERS") are parties to a Purchase Agreement dated
as of January 15, 1998 (the "PURCHASE AGREEMENT," capitalized terms used but not
defined herein having the meaning specified for such terms in the Purchase
Agreement) pursuant to which Buyer agreed to purchase from Sellers, and Sellers
agreed to sell to Buyer, on the terms and conditions set forth therein, the
assets of Seller specified therein (the "ASSETS");
WHEREAS, on March 4, 1998, Sellers conducted an auction of their
assets (the "AUCTION") pursuant to a Second Amended Order (i) Authorizing and
Scheduling Auction at Which the Sellers May Sell Substantially All Their Assets
Free And Clean Of All Liens, Claims, and Encumbrances; (ii) Approving Proposed
Auction Procedures; (iii) Scheduling Hearing and Objections Deadline on Motion
of Debtors to Sell Assets; and (iv) Approving Notice and Service of the Sale
approval Motion (the "AMENDED SCHEDULING ORDER"), which Amended Scheduling Order
was entered by the Bankruptcy Court on February 23, 1998;
WHEREAS, at the Auction Buyer modified and clarified the terms of
its offer contained in the Purchase Agreement to purchase the Assets;
WHEREAS, the Buyer's offer, as so modified and clarified, was
determined by Sellers and the Creditors' Committee to be the highest and best
offer for the Assets;
WHEREAS, Buyer has agreed to provide Sellers with a
debtor-in-possession financing in the amount of $1,000,000, available commencing
on March 9, 1998 on the terms and conditions set forth in the Stipulation dated
March __, 1998, among Sellers, Buyer and Greyrock, subject to the approval by
the Bankruptcy Court of the sale of the Assets to Buyer pursuant to the Purchase
Agreement as modified hereby;
WHERAS, Sellers, Buyer and EqualNet wish to Amend the Purchase
Agreement to reflect said modification and clarification of Buyer's offer and
clarify other matters;
<PAGE>
NOW THEREFORE, Buyer, EqualNet and Sellers hereby agree as follows:
1. The definitions of the terms "Adjusted Pre-Closing Monthly
Minute", "Pre-Closing Monthly Minutes", "Post-Closing Monthly Minutes", "Closing
Date Market Value", "Billable Minute" "Escrow Agreement", "Escrowed Shares", and
"Willis Group" contained in Section 1 of the Purchase Agreement and all
references to said terms in the Purchase Agreement are hereby deleted.
2. The definition of the term "Conversion Rate" set forth in Section
1 of the Purchase Agreement is amended to read in its entirety as follows:
"CONVERSION RATE shall mean the number of shares of Common Stock
that the holder of Preferred Shares shall receive upon conversion of one
Preferred Share. Subject to adjustment as set forth in the Preferred Stock
Provisions for the effect of dilutive and concentrative events affecting
the Common Stock, one Preferred Share shall be convertible into ten shares
of Common Stock."
3. There is inserted the following new definitions in Section 1 of
the Purchase Agreement, in appropriate alphabetical sequence:
"EQUALNET DIP FINANCING shall mean the debtor-in-possession
financing provided or to be provided by Buyer to Sellers."
All references in the Purchase Agreement to the "Willis Group DIP Financing"
shall be to the EqualNet DIP Financing and all references in the Purchase
Agreement to the "Willis Group" shall be to Buyer.
4. The definition of the term "Revenue Amount" set forth in Section
1 of the Credit Agreement is amended to read it its entirety as follows:
"REVENUE AMOUNT" shall mean the gross revenue of Sellers, determined
in accordance with GAAP, during the months of December 1997 and January
1998; provided, however, that if the gross revenue of Sellers during the
month of February 1998 is less than 92% of the average monthly gross
revenue of Sellers during the months of December 1997 and January 1998,
then "Revenue Amount" shall mean the gross revenue of Sellers, determine
in accordance with GAAP, during the months of January and February 1998.
5. All references in the Purchase Agreement to "Scheduling Order"
shall be to the Amended Scheduling Order.
6. Clause (i) of Section 4(b) of the Purchase Agreement is amended
to read in its entirety as follows:
"(i) Buyer shall pay the cash portion of the Consideration by a wire
transfer in immediately available funds to such account or accounts as SA
Telecom, as agent for
-2-
<PAGE>
Sellers, shall specify by a notice in writing to Buyer at least two
business days prior to the Closing Date;"
7. Sections 4(d) and 5(b) and the last sentence of Section 5(a)(v)
of the Purchase Agreement are hereby deleted.
8. Section 5(a) of the Purchase Agreement is amended by deleting the
words "fifteen days after the Closing Date" set forth therein and substituting
therefor the words "April 1, 1998."
9. The third sentence of Section 8(b) of the Purchase Agreement is
amended to read as follows:
"No other corporate proceedings on the part of any EqualNet Party, other
than the approval of the shareholders of EqualNet, are necessary to
authorize this Agreement, the other Transaction Documents, the issuance of
the Preferred Shares to Sellers pursuant hereto or the transactions
contemplated herein or therein."
10. Sections 10(e), 11(g), 11(i) and 12(e) of the Purchase Agreement
are hereby deleted.
11. Section 11 of the Purchase Agreement is hereby amended by adding
the following new paragraph (n) at the end thereof:
"(n) SHAREHOLDER APPROVAL The shareholders of EqualNet
shall have approved the transactions contemplated by this
Agreement."
12. Section 12 of the Purchase Agreement is amended by adding at the
end thereof the following new paragraph (k):
"(k) EQUALNET DIP FINANCING. Buyer shall have provided
to Sellers the EqualNet DIP Financing."
13. Clause (v) of Section 13(a) is amended to read as follows:
"(v) by any party (unless such party is in default under this
Agreement) if the Sale Order is not entered on or before March 13, 1998 or
if the Closing does not occur on or before May 31, 1998."
14. Section 14(b) of the Purchase Agreement is amended by (a)
changing the dates "February 13, 1998" and "March 31, 1998" set forth therein
to, respectively, "March 13, 1998" and "May 31, 1998"; and (b) adding the
following new clause (iv) to the proviso at the end of said paragraph 14(b):
"or (iv) if Buyer fails to purchase the Assets because the conditions
specified in Sections 10(d), 11(m) or 11(n) are not satisfied or Sellers
refuse to sell the
-3-
<PAGE>
Assets to Buyer because the condition specified in Section 12(k) is not
satisfied."
[15. Exhibit A to the Purchase Agreement (Summary of Terms of
Preferred Stock) is amended to provide that the Preferred Stock shall rank as
follows:
"Senior to the Common Stock and the Series A Preferred Stock to be issued
in connection with the transaction among EqualNet, the Willis Group and
MCM Partners."]
16. Exhibit B to the Purchase Agreement is hereby deleted.
17. Provided that Sellers turn over to the EqualNet Partners
operational control of Sellers business on or before March 17, 1998 pursuant to
a Management and Service Agreement to be entered into by Sellers and the
EqualNet Parties, all operating losses of Sellers accruing on or after April 1,
1998 and until the Closing Date shall be for the account of Buyer, and Buyer
shall pay, or shall reimburse Sellers for, such operating losses on the Closing
Date. Such payment or reimbursement by Buyer shall be in addition to the
Consideration to be paid by Buyer for the Assets pursuant to Section 3(d) of the
Purchase Agreement.
18. Except as amended hereby, the Purchase agreement and the
respective rights and obligations of the parties thereunder, shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first written above.
BUYER:
EQUALNET CORPORATION
By:
Name:
Title:
EQUALNET:
EQUALNET HOLDING CORP.
By:
Name:
Title:
-4-
<PAGE>
SELLERS:
SA TELECOMMUNICATIONS, INC.
ADDTEL COMMUNICATIONS, INC.
LONG DISTANCE NETWORK, INC.
NORTH AMERICAN TELECOMMUNICATIONS
CORPORATION
U.S. COMMUNICATIONS, INC.
SOUTHWEST LONG DISTANCE NETWORK, INC.
UNIQUEST COMMUNICATION, INC.
Debtors and Debtors-in-possession
By:
Name:
Title:
[The Willis Group, LLC] and _____ (the "SHAREHOLDERS"), being the
holders, respectively of not less than ___% and ___% of the outstanding shares
of the common stock of EqualNet Holding Corp., hereby confirm to the Sellers
referred to in the foregoing Amendment that the Shareholders will vote their
respective shares of EqualNet Holding Corp. stock in favor of the transactions
contemplated by the Purchase Agreement referred to in, and as amended by, the
foregoing Amendment.
[THE WILLIS GROUP, LLC]
By:
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 2,999,201
<SECURITIES> 0
<RECEIVABLES> 5,391,272
<ALLOWANCES> 596,246
<INVENTORY> 0
<CURRENT-ASSETS> 11,323,891
<PP&E> 20,025,449
<DEPRECIATION> 4,215,848
<TOTAL-ASSETS> 30,454,964
<CURRENT-LIABILITIES> 15,422,372
<BONDS> 0
50
0
<COMMON> 183,934
<OTHER-SE> 8,571,117
<TOTAL-LIABILITY-AND-EQUITY> 30,454,964
<SALES> 0
<TOTAL-REVENUES> 20,574,243
<CGS> 0
<TOTAL-COSTS> 14,521,981
<OTHER-EXPENSES> 12,226,689
<LOSS-PROVISION> 1,112,310
<INTEREST-EXPENSE> 1,180,773
<INCOME-PRETAX> (8,467,510)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,479,067)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,479,067)
<EPS-PRIMARY> (1.15)
<EPS-DILUTED> (1.15)
</TABLE>
