EQUALNET COMMUNICATIONS CORP, DEF 14A, 2000-05-01

EQUALNET COMMUNICATIONS CORP
DEF 14A, 2000-05-01
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED
IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement

[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12

EQUALNET COMMUNICATIONS CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transaction applies:
N/A
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: N/A

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(4) Proposed maximum aggregate value of transaction:
N/A
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(5) Total fee paid:
N/A
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[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.

(1) Amount Previously Paid:
N/A
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(2) Form, Schedule or Registration Statement No.:
N/A
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(3) Filing Party:
N/A
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(4) Date Filed:
N/A
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[EQUALNET LOGO]

May 1, 2000

Dear Shareholder:

You are cordially invited to attend the Annual Meeting of Shareholders of
Equalnet Communications Corp. to be held at 10:00 a.m., Houston time, on
Tuesday, May 23, 2000, in the Texas Ballroom I Room at the Marriott Westside,
13210 Katy Freeway, Houston, Texas.

This year you will be asked to vote in favor of the following proposals: (1)
the approval of an amendment to Equalnet's Articles of Incorporation effecting
a one-for-ten reverse stock split of Equalnet's common stock with the
implementation of such amendment to be in the discretion of the Board of
Directors; (2) the approval of an amendment to Equalnet's Articles of
Incorporation to increase the Company's authorized share capital from
50,000,000 shares of common stock and 5,000,000 shares of preferred stock to
200,000,000 shares of common stock and 5,000,000 shares of preferred stock with
the implementation of such amendment to be in the discretion of the Board of
Directors; (3) the election of three directors; (4) the approval of the
issuance of warrants to certain officers and former officers of Equalnet to
purchase shares of Equalnet common stock at a fixed exercise price of $0.25 per
share; (5) the approval of the issuance of common stock to certain directors
and officers of Equalnet in satisfaction of payment obligations to such
individuals; (6) the approval of resolutions waiving the convening and
conducting of the 1998 Annual Meeting of Shareholders of the Company; (7) the
ratification of the Board of Directors' appointment of independent auditors for
Equalnet and its subsidiaries for fiscal year 1999, and (8) the approval of an
amendment to the Company's Employee Stock Option and Restricted Stock Plan. We
describe and explain these matters more fully in the attached proxy statement,
which you should read.

The Board of Directors has approved the proposals described herein. WE
BELIEVE THAT THE PROPOSALS DESCRIBED HEREIN ARE IN THE BEST INTERESTS OF
EQUALNET AND ITS SHAREHOLDERS AND RECOMMEND THAT YOU VOTE FOR APPROVAL OF THE
MATTERS PROPOSED HEREIN. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED. ACCORDINGLY, WE ASK THAT
YOU MARK, DATE, SIGN AND RETURN YOUR PROXY AT YOUR EARLIEST CONVENIENCE IN THE
ENVELOPE PROVIDED.

Thank you for your continued interest and cooperation.

Very truly yours,

/s/ MARK A. WILLIS
Mark A. Willis, Chairman of the Board
<PAGE>

EQUALNET COMMUNICATIONS CORP.
1250 Wood Branch Park Drive
Houston, Texas 77079

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD TUESDAY, MAY 23, 2000

The Annual Meeting of the Shareholders of Equalnet Communications Corp., a
Texas corporation ("Equalnet" or the "Company"), will be held at 10:00 a.m.,
Houston time, on Tuesday, May 23, 2000, in the Texas Ballroom I Room at the
Marriott Westside, 13210 Katy Freeway, Houston, Texas, for the following
purposes:

(1) to approve an amendment to Equalnet's Articles of Incorporation
effecting a one-for-ten reverse stock split of Equalnet's common stock
with the implementation of such amendment to be in the discretion of
the Board of Directors;

(2) to approve an amendment to Equalnet's Articles of Incorporation to
increase the Company's authorized share capital from 50,000,000 shares
of common stock and 5,000,000 shares of preferred stock to 200,000,000
shares of common stock and 5,000,000 shares of preferred stock with the
implementation of such amendment to be in the discretion of the Board
of Directors;

(3) to elect three directors to Equalnet's Board of Directors;

(4) to approve the issuance of warrants to certain officers and former
officers of Equalnet to purchase shares of Equalnet common stock at a
fixed exercise price of $0.25 per share;

(5) to ratify the issuance of common stock to certain directors and
officers of Equalnet in satisfaction of payment obligations to such
individuals;

(6) the approval of resolutions waiving the convening and conducting of the
1998 Annual Meeting of Shareholders of the Company;

(7) to ratify the Board of Directors' appointment of independent auditors
for Equalnet and its subsidiaries for fiscal year 1999;

(8) the approval of an amendment to the Company's Employee Stock Option and
Restricted Stock Plan to increase the number of shares of common stock
available under the Plan from 4,000,000 to 8,000,000 shares and to
increase the maximum number of shares of common stock that may be
awarded to any one employee in any consecutive 12 month period from
750,000 to 1,000,000 shares; and

(9) to transact such other business as may properly come before the meeting
or any adjournment thereof.

THE BOARD OF DIRECTORS OF EQUALNET RECOMMENDS THAT YOU VOTE FOR ALL OF THE
PROPOSALS SET FORTH IN THE ATTACHED PROXY STATEMENT.

The holders of common stock and of Series B preferred stock of record at the
close of business on March 24, 2000, will be entitled to vote at the meeting.

By Order of the Board of Directors,

Mark A. Willis
Chairman of the Board

May 1, 2000

IMPORTANT

YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. EVEN IF YOU PLAN
TO BE PRESENT, YOU ARE URGED TO SIGN, DATE AND MAIL THE ENCLOSED PROXY
PROMPTLY. IF YOU ATTEND THE MEETING, YOU CAN VOTE EITHER IN PERSON OR BY YOUR
PROXY.
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TABLE OF CONTENTS

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PROPOSAL 1: TO APPROVE AN AMENDMENT TO THE ARTICLES OF INCORPORATION TO
EFFECT A REVERSE STOCK SPLIT............................................ 3
REASONS FOR THE AMENDMENT.............................................. 3
EFFECTS OF THE AMENDMENT............................................... 6
EXCHANGE OF STOCK CERTIFICATES......................................... 7
FEDERAL INCOME TAX CONSEQUENCES........................................ 7
General Rules........................................................ 7
Cash in Lieu of Fractional Shares.................................... 7
REQUIRED VOTE.......................................................... 8
RECOMMENDATION OF THE BOARD OF DIRECTORS............................... 8

PROPOSAL 2: TO APPROVE AN AMENDMENT TO THE ARTICLES OF INCORPORATION TO
INCREASE THE AUTHORIZED CAPITAL SHARES.................................. 8
EFFECTS OF THE AMENDMENT............................................... 8
REQUIRED VOTE.......................................................... 9
RECOMMENDATION OF THE BOARD OF DIRECTORS............................... 9

PROPOSAL 3: TO ELECT THREE DIRECTORS..................................... 10
DIRECTOR NOMINEES...................................................... 10
BACKGROUND OF DIRECTORS AND NOMINEES................................... 10
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETING ATTENDANCE............ 11
COMPENSATION OF DIRECTORS.............................................. 12
REQUIRED VOTE.......................................................... 12
RECOMMENDATION OF THE BOARD OF DIRECTORS............................... 12

PROPOSAL 4: TO APPROVE THE ISSUANCE OF WARRANTS TO CERTAIN OFFICERS AND
FORMER OFFICERS......................................................... 13
REQUIRED VOTE.......................................................... 13
RECOMMENDATION OF THE BOARD OF DIRECTORS............................... 13

PROPOSAL 5: TO RATIFY THE ISSUANCE OF COMMON STOCK TO CERTAIN DIRECTORS
AND OFFICERS............................................................ 14
REQUIRED VOTE.......................................................... 14
RECOMMENDATION OF THE BOARD OF DIRECTORS............................... 14

PROPOSAL 6: TO APPROVE THE WAIVING OF THE CONVENING AND CONDUCTING OF THE
1998 ANNUAL MEETING OF SHAREHOLDERS..................................... 14
REQUIRED VOTE.......................................................... 15
RECOMMENDATION OF THE BOARD OF DIRECTORS............................... 15

PROPOSAL 7: TO RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS............ 15
REQUIRED VOTE.......................................................... 15
RECOMMENDATION OF THE BOARD OF DIRECTORS............................... 15

PROPOSAL 8: AMENDMENT OF THE COMPANY'S EMPLOYEE STOCK OPTION AND
RESTRICTED STOCK PLAN................................................... 16
REASONS FOR THE AMENDMENT.............................................. 16
CERTAIN CONSIDERATIONS................................................. 16
DESCRIPTION OF EMPLOYEE PLAN........................................... 16
THE EMPLOYEE PLAN AMENDMENT............................................ 17
EMPLOYEE PLAN AMENDMENT BENEFITS....................................... 17
FEDERAL TAX CONSEQUENCES............................................... 18
REQUIRED VOTE.......................................................... 19
RECOMMENDATION OF THE BOARD OF DIRECTORS............................... 19
</TABLE>

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TABLE OF CONTENTS
(continued)

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EXECUTIVE OFFICERS AND COMPENSATION........................................ 20

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.................... 21
BASE SALARY.............................................................. 21
ANNUAL INCENTIVE COMPENSATION............................................ 21
STOCK INCENTIVE PROGRAMS................................................. 21
SUMMARY OF COMPENSATION.................................................. 22
WARRANT AND OPTION GRANTS IN FISCAL 1998................................. 23
WARRANT AND OPTION GRANTS IN FISCAL 1999................................. 23

PERFORMANCE PRESENTATION................................................... 24

EMPLOYMENT AGREEMENTS...................................................... 25

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION................ 25

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 25

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 30

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.................... 33

PROPOSALS FOR NEXT ANNUAL MEETING.......................................... 33

OTHER MATTERS.............................................................. 34
</TABLE>

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EQUALNET COMMUNICATIONS CORP.

PROXY STATEMENT

FOR ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD TUESDAY, May 23, 2000

This Proxy Statement is furnished to the holders of the $0.01 par value
voting common stock (hereinafter the "common stock" or "Common Stock") and
Series B preferred stock of Equalnet Communications Corp., 1250 Wood Branch
Park Drive, Houston, Texas 77079 (Tel. No. 281/529-4600), in connection with
the solicitation by the Board of Directors of Equalnet of proxies to be used at
the Annual Meeting of Shareholders, or any adjournment thereof (the "Meeting").
The Board of Directors is sometimes referred to in this Proxy Statement as "we"
or "us." We will hold the Meeting at 10:00 a.m., Houston time, on Tuesday, May
23, 2000, in the Texas Ballroom I Room at the Marriott Westside, 13210 Katy
Freeway, Houston, Texas.

Proxies in the form enclosed, properly executed and received in time for the
Meeting, will be voted as specified therein. If you do not specify otherwise,
the shares represented by your proxy will be voted FOR the election of each of
the director nominees identified herein and for the other proposals described
herein. If you grant your proxy, you may still attend the Meeting and vote in
person. You may revoke your proxy at any time before it is exercised by
delivering written notice to Equalnet at or before the Meeting. We are mailing
this Proxy Statement on or about May 1, 2000, to holders of common stock and
Series B preferred stock of record on March 24, 2000 (the "Record Date").

At the close of business on the Record Date, 36,231,035 shares of Equalnet's
common stock and 2,000 shares of Series B preferred stock were outstanding and
entitled to vote at the Meeting. Only the holders of common stock and the
Series B preferred stock (collectively, the "Voting Shareholders") of record on
the Record Date may vote at the Meeting. Any shareholder of Equalnet may
examine a list of Voting Shareholders at the offices of Equalnet located at
1250 Wood Branch Park Drive, Houston, Texas during usual business hours within
10 days before the Meeting.

The Voting Shareholders of record on the Record Date may cast one vote per
share on each matter presented to the shareholders at the Meeting. The enclosed
form of proxy provides a means for you:

(1) to vote for or against the approval of an amendment to Equalnet's
Articles of Incorporation effecting a one-for-ten reverse stock split of
Equalnet's common stock as described herein or to abstain from voting on
such approval with the implementation of such amendment to be in the
discretion of the Board of Directors;

(2) to vote for or against the approval of an amendment to Equalnet's
Articles of Incorporation to increase the Company's authorized capital
shares from 50,000,000 shares of common stock and 5,000,000 shares of
preferred stock to 200,000,000 shares of common stock and 5,000,000 shares
of preferred stock, as described herein or to abstain from voting on such
approval with the implementation of such amendment to be in the discretion
of the Board of Directors;

(3) to vote for or against any director-nominee named herein or to
withhold authority to vote for any or all of such director-nominees;

(4) to vote for or against the approval of the issuance of warrants to
certain officers and former officers of Equalnet to purchase shares of
Equalnet common stock at a fixed exercise price of $0.25 per share, or to
abstain from voting on such approval;

(5) to vote for or against the ratification of the issuance of common
stock to certain directors and officers of Equalnet in satisfaction of
payment obligations to such individuals, or to abstain from voting on such
ratification;

(6) to vote for or against the approval of resolutions waiving the
convening and conducting of the 1998 Annual Meeting of Shareholders, or to
abstain from voting on such approval;
<PAGE>

(7) to vote for or against the ratification of the Board of Directors'
appointment of independent auditors for Equalnet and its subsidiaries for
fiscal year 1999, or to abstain from voting on such ratification; and

(8) to vote for or against the approval of an amendment to the Company's
Employee Stock Option and Restricted Stock Plan, increasing the number of
shares of common stock available under the Plan from 4,000,000 to 8,000,000
shares and to increase the maximum number of shares of common stock that
may be awarded to any one employee in any consecutive 12 month period from
750,000 to 1,000,000 shares or to abstain from voting on such approval.

The Annual Report on Form 10-K/A for 1998 and the Annual Report on Form 10-
K/A for 1999, the Quarterly Report on Form 10-Q for the quarter ending
September 30, 1999 and the Quarterly Report on Form 10-Q for the quarter ending
December 31, 1999, with their respective financial statements, are being mailed
with this Proxy Statement to all Shareholders of record entitled to vote as of
the Record Date, but do not constitute any part of the proxy solicitation
material.

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PROPOSAL 1: TO APPROVE AN AMENDMENT TO THE ARTICLES OF
INCORPORATION TO EFFECT A REVERSE STOCK SPLIT

We have resolved to amend Equalnet's Articles of Incorporation and will
submit the amendment to a vote at the Meeting.

The amendment would effect a one-for-ten reverse stock split of the common
stock. A copy of the proposed amendment is attached hereto as Exhibit A. If the
amendment is approved by the Voting Shareholders, each ten shares of common
stock outstanding on the Effective Date (as defined below) will be converted
automatically into one share of common stock. To avoid the existence of
fractional shares of common stock, shareholders who would otherwise be entitled
to receive fractional shares of common stock will receive a cash distribution
in lieu thereof. See "Exchange of Stock Certificates." The "Effective Date"
will be the date on which the amendment is filed with the Secretary of State of
the State of Texas.

Notwithstanding approval of the reverse stock split by the Voting
Shareholders, we may elect not to file, or to delay the filing of, the
amendment, if we determine that filing the amendment would not be in the best
interest of Equalnet's shareholders at such time. Factors leading to such a
determination could include, without limitation, any possible effect on
Equalnet's possible Nasdaq listing or future securities offerings.

Reasons for the Amendment

On September 16, 1999, the Board of Directors signed a written consent
approving the amendment and directing that the amendment be placed on the
agenda for approval by the Voting Shareholders at the Meeting.

We believe that the reverse stock split is likely to cause the stock price
of the common stock and the number of shares of common stock outstanding to be
more appropriately aligned with Equalnet's peers in the telecommunications
sector. The reverse stock split should cause the common stock to be more
attractive to the financial community and lower trading costs for the investing
public.

In conjunction with confirming and consummating the Second Amended Joint
Plan of Reorganization of EqualNet Corporation and Equalnet Communications
Corp. (the "Plan"), Equalnet raised $2.2 million through the sale of 3,666,666
shares of its common stock, sold 833,333 shares of a newly designated Series E
preferred stock for $500,000, and issued the 3,000,000 shares of common stock
to the trust as provided in the bankruptcy court orders concerning the Plan.
Equalnet also entered into a collateralized guarantee of a minimum stock sales
price of $1.00 per share for the shares of common stock transferred to the
trust, subject to a restriction on sales of no more than 375,000 shares of
common stock in any 6 month period. A portion of the funds raised through the
sale of these securities were used for (i) the payment of $1.35 million cash to
the trust for unsecured creditors, (ii) payment of approximately $1.4 million
in administrative claims and (iii) payment of $265,000 of obligations of the
Company under an agreement it had to guarantee certain obligations of EqualNet
Corporation ("EqualNet"), a wholly owned subsidiary of the Company. The Company
also issued a warrant for the purchase of up to 300,000 shares of its common
stock at an exercise price of $1.50 per share for a period of 5 years. In
addition, the Company borrowed $550,000 from the purchaser of accounts
receivable of its subsidiaries, EqualNet and USC Telecom, Inc. to fund the
balance of its obligations under the Plan, and to provide funding for general
corporate purposes. Equalnet also agreed to the potential issuance of
additional shares of its common stock to satisfy its "New Value Contribution"
obligations (as defined below). This is a commitment on the part of the Company
to pay to the trust for the unsecured creditors an amount equal to 5% of the
allowed claims in excess of the undisputed general unsecured claims identified
in EqualNet Corporation's bankruptcy schedules (the "New Value Contribution").
Payment of this last item is to be in the form of newly issued common stock
valued at $1 per share, one half of which is subject to the collateralized
guarantee described in (iii) above. The number of shares required to fund the
New Value Contribution increases in the event the Average Closing Price (i.e.,
the average closing price for Equalnet's stock during the 25 consecutive
trading days immediately preceding the date that is two years after the
effective date of the Plan) for the common stock is below $1 per share, in an
amount equal to the quotient of (A) the product of (x) ($1 minus the Average
Closing Price) and (y) 1,500,000; and (B) Average Closing Price. The court also
entered a

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stipulation with a creditor of both EqualNet Corporation and Equalnet for the
release of the creditor's claim against Equalnet in exchange for an immediate
payment of $130,000, a second payment of $135,000 on or before June 30, 1999,
and the issuance of a warrant for the purchase of up to 300,000 shares of
common stock at an exercise price of $1.50 per share for a period of 5 years.
The obligation of Equalnet arose out of a guarantee of several equipment leases
of EqualNet.

Equalnet has historically reserved shares of its authorized but unissued
common stock to ensure its ability to complete its obligations to issue such
shares at a later date. Since the last annual meeting of shareholders, Equalnet
has entered into agreements such as the purchase of certain assets of LIMIT LLC
(d/b/a ACMI), the purchase of certain assets of The Intelesis Group, Inc.
("Intelesis"), the proposed issuance (as described in Proposal 6) of warrants
to certain officers and former officers of Equalnet that would result, upon
exercise, in the issuance of shares of common stock, the issuance of shares of
common stock in connection with raising the funding necessary to consummate the
Plan, the payment to the trustee under the Plan for the unsecured creditors of
EqualNet Corporation of shares of common stock as required by the Plan, the
issuance of Common Stock pursuant to a Subscription Agreement with Infinity
Investors Limited ("Infinity") and IEO Holdings Limited ("IEO") and, with a
newly formed acquisition subsidiary of Equalnet, Equalnet Acquisition
Corporation, an Agreement and Plan of Merger (the "Merger Agreement") with
e.Volve Technology Group, Inc. The Merger Agreement was subsequently terminated
by the parties thereto; however, no agreement has been reached regarding any
fees which may be owed thereunder. The parties to the ACMI asset purchase
agreement subsequently amended that agreement to remove the earn out provisions
of that agreement which would have required Equalnet to issue additional shares
of its common stock should certain new revenue commitments be achieved by the
former members of LIMIT LLC, and to transfer the shares of the acquisition
subsidiary to LIMIT LLC, in consideration of, among other things, the retention
of certain assets by EqualNet, the assumption of certain liabilities by
EqualNet, and the release of EqualNet's obligation to pay other liabilities as
set forth in the original agreement to acquire certain assets of LIMIT LLC. In
addition to the foregoing, the Company sold in a private placement 1,500,000
shares of Common Stock to help fund the development and marketing efforts of
the advertiser sponsored long distance product related to the assets acquired
in the Intelesis asset acquisition transaction. Further, the Company has agreed
to pay certain obligations it owes to the bankruptcy estate of SA
Telecommunications, Inc. by the issuance of shares of Common Stock.

In addition to the SA Telecommunications settlement and the foregoing
agreements, Management has been in negotiations for the settlement of various
claims which have been asserted against the Company and/or certain of its
subsidiaries. It is possible that a portion of settlement payments to these
persons and/or entities may be made either in shares of common stock or
warrants to purchase common stock.

The Company has also been in negotiations to acquire certain assets of a
company providing voice mail broadcasting services which could be used to
complement marketing plans for the Company. If this agreement is consummated
substantially as set forth in the non-binding letter of intent between the
parties, the Company would issue 675,000 shares of Common Stock and propose to
issue additional shares of Common Stock based upon the voicemail broadcasting
operations obtaining certain revenue goals, which are currently being
negotiated. Although the voice mail broadcasting services are already
operational, if the proposed transaction is completed, the Company would intend
to put in place additional communications equipment to increase the capacity
for these services. The Company has also recently signed an agreement to
acquire the outstanding capital stock of a company providing prepaid local
exchange services (a Competitive Local Exchange Carrier or "CLEC") which
services could be used to complement existing services provided for certain
customers of the Company and provide additional potential customers for the
long distance services the Company sells. In addition to other consideration
the acquisition agreement, if the transaction is consummated, would require the
issuance of approximately 5,000,000 to 12,000,000 shares of Common Stock as a
portion of the proposed acquisition price. Shareholder approval of either
Proposal 1 or Proposal 2 contained in this Proxy Statement is a condition that
must be satisfied in order for the Company to close this transaction.

Management has been in negotiations with certain independent contractors to
provide marketing services in connection with its advertiser sponsored long
distance product. It is anticipated that compensation for these

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services will be primarily in the form of Common Stock grants and/or options to
acquire Common Stock pursuant to the Company's Independent Contractor Stock
Plan. The Independent Contractor Stock Plan currently has 3,000,000 shares of
Common Stock authorized for issuance. The incentive compensation portions of
these marketing proposals would probably result in the need for the Board of
Directors to significantly increase the number of shares of Common Stock
authorized under the Independent Contractor Stock Plan. If the Company is not
able to amend its Articles of Incorporation to increase the number of
authorized shares available for these programs, either through a reverse stock
split or an increase in the number of authorized shares, it may not be able to
pursue these marketing initiatives.

On March 14, 2000, the Company became the successful bidder at a bankruptcy
auction to purchase substantially all of the assets of a reseller of
telecommunications services. A portion of the purchase price for these assets
included 365,044 of shares of Common Stock. If the Company is not able to amend
its Articles of Incorporation to increase the number of authorized shares
available for acquisitions and marketing efforts such as these, either through
a reverse stock split or an increase in the number of authorized shares, it may
not be able to pursue future such acquisition situations similarly presented.

In order to have shares of common stock available to issue in connection
with each of the foregoing matters, Equalnet has not reserved any shares for
issuance for the conversion of either the Series D convertible preferred stock
or the Series F convertible preferred stock, and has exhausted its shares
reserved for the conversion of the remaining Series A convertible preferred
stock. The number of shares required to fully reserve for these potential
conversions will depend upon the market price for the Company's Common Stock;
however on the Record Date, the number of shares that would need to be issued
given the full conversion of the remaining Series A, Series D and Series F
convertible preferred stock would have been 24,465,650 shares. The reverse
stock split will enable Equalnet to again fully reserve shares for issuance (1)
upon the conversion or exercise of such securities, and (2) in connection with
settlement of claims and in future acquisition activities.

Further, many institutional and other investors look upon stock trading at
low prices as unduly speculative in nature and, as a matter of policy, avoid
investment in such stocks. Accordingly, we believe that the current per share
price of the common stock may reduce the effective marketability of the shares
because of the reluctance of many leading brokerage firms to recommend low
priced stock to their clients. Further, various brokerage house policies and
practices tend to discourage individual brokers from dealing in low priced
stocks. Some of those policies and practices pertain to the payment of brokers'
commissions and to time-consuming procedures that function to make the handling
of low priced stocks unattractive to brokers from an economic standpoint.
Additionally, the structure of trading commissions also tends to have an
adverse impact upon holders of low priced stock because the brokerage
commission on a sale of low priced stock generally represents a higher
percentage of the sales price than the commission on higher priced issues.

Finally, on May 5, 1999, the Nasdaq Listing Qualifications Panel determined
that Equalnet had failed to meet the minimum bid price and minimum net tangible
assets requirements for continued listing on the Nasdaq National Market.
However, the panel granted a temporary exception to permit Equalnet to trade on
the Nasdaq SmallCap Market. On November 16, 1999, the Nasdaq Listing
Qualifications Panel notified the Company that as a result of the Company's
failure to meet the continuing listing requirements for inclusion on the Nasdaq
SmallCap Market, the Company's shares of common stock would be removed from
that exchange and would become immediately eligible to trade on the OTC
Bulletin Board. We believe that the reverse stock split will facilitate
Equalnet's compliance with these rules should Equalnet's common shares be
allowed to again trade on the Nasdaq SmallCap Market.

We believe that the shares of common stock will, as a result of the reverse
stock split, trade at higher prices than those that have prevailed recently. We
cannot assure you, however, that such increase in the market value will occur
or, if such an increase occurs, that it will equal or exceed the direct
arithmetical result of the reverse stock split since there are numerous factors
and contingencies that would affect such value including the status of the
market for the shares of common stock at the time, Equalnet's reported results
of operations in future fiscal periods and general stock market conditions.
THEREFORE, WE CANNOT ASSURE YOU THAT

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THE SHARES OF COMMON STOCK WILL NOT, DESPITE THE REVERSE STOCK SPLIT, TRADE AT
PRICES THAT ARE LESS THAN THE ARITHMETICAL EQUIVALENT SHARE PRICE RESULTING
FROM THE REVERSE STOCK SPLIT.

Shareholders have no rights of dissent under Texas law or under Equalnet's
Articles of Incorporation and Bylaws in connection with the reverse stock split
amendment.

Effects of the Amendment

Subject to Voting Shareholder approval, and the decision of the Board of
Directors to implement this proposal, the reverse stock split will be effected
by filing the amendment to Equalnet's Articles of Incorporation, and will be
effective immediately upon such filing. The actual timing of the filing of the
amendment with the Texas Secretary of State's office will be determined by
Equalnet's management based upon their evaluation as to if and when such action
will be most advantageous to Equalnet and its shareholders. THE BOARD OF
DIRECTORS OF EQUALNET RESERVES THE RIGHT TO FOREGO OR POSTPONE FILING THE
AMENDMENT, IF SUCH ACTION IS DETERMINED TO BE IN THE BEST INTERESTS OF EQUALNET
AND ITS SHAREHOLDERS.

The reverse stock split will also result in some shareholders owning "odd
lots" of less than 100 shares of common stock received as a result of the
reverse stock split. Brokerage commissions and other costs of transactions in
odd lots may be higher, particularly on a per-share basis, than the cost of
transactions in even multiples of 100 shares.

Equalnet is authorized to issue 50,000,000 shares of common stock, of which
36,231,035 shares were issued and outstanding at the close of business on the
Record Date. Equalnet is also authorized to issue 5,000,000 shares of Preferred
Stock, each share having a par value of one cent, of which 234,487 were issued
and outstanding at the close of business on the Record Date.

If the amendment is approved by the Voting Shareholders, the principal
effect of the Reverse Stock Split will be to decrease the number of outstanding
shares of common stock from 36,231,035 shares to approximately 3,623,103
shares, based on share information as of the Record Date. The reverse stock
split will not affect the number of authorized shares of common stock. After
the reverse stock split, Equalnet estimates that it will have approximately the
same number of shareholders. Except for the receipt of cash in lieu of
fractional interests, the amendment would not affect any shareholder's
proportionate equity interest in Equalnet or the relative rights, preferences
or priorities of any shareholder. The amendment will not affect the
registration of the common stock under the Securities Exchange Act of 1934, as
amended.

As a result of the reverse stock split, Equalnet will have a greater number
of authorized but unissued shares of common stock than prior to the reverse
stock split. The increase in the authorized but unissued shares of common stock
could make a change in control of Equalnet more difficult to achieve. Under
certain circumstances, such shares of common stock could be used to create
voting impediments to frustrate persons seeking to effect a takeover or
otherwise gain control of Equalnet. Such shares could be sold privately to
purchasers who might side with the Board of Directors in opposing a takeover
bid that the Board determines is not in the best interests of Equalnet and its
shareholders.

The number of shares subject to stock options granted to officers, directors
and employees of Equalnet under stock option plans and the strike price for
such options will be proportionately adjusted for the reverse stock split. The
number of shares of common stock authorized for the stock option plans will
also be proportionately adjusted. The number of shares issuable upon the
exercise of outstanding warrants and nonemployee options and the conversion of
outstanding convertible securities of Equalnet will also be proportionately
adjusted for the reverse stock split.

6
<PAGE>

Exchange of Stock Certificates

The exchange of shares of common stock will occur on a date to be determined
by the Board of Directors of the Company (the "Effective Date") without any
action on the part of Equalnet's shareholders and without regard to the date or
dates certificates formerly representing shares of common stock are physically
surrendered for certificates representing the number of shares of common stock
such shareholders are entitled to receive as a result of the reverse stock
split. Equalnet's transfer agent, American Stock Transfer & Trust Company, will
effectuate the exchange of certificates.

As soon as practicable after the Effective Date, transmittal forms will be
mailed to each holder of record of certificates representing shares of common
stock to be used in forwarding their certificates for surrender and exchange
for certificates representing the number of shares of common stock such
shareholders are entitled to receive as a result of the reverse stock split.
After receipt of such transmittal form, each such holder will surrender the
certificates formerly representing shares of common stock of Equalnet and such
holder will receive in exchange therefor certificates representing the number
of shares of common stock to which such holder is entitled. These transmittal
forms will be accompanied by instructions specifying other details of the
exchange. SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE
A TRANSMITTAL FORM.

So that Equalnet may avoid the expense and inconvenience of issuing and
transferring fractional shares of common stock, shareholders who would
otherwise be entitled to receive a fractional share of common stock will
receive payment in cash in lieu of receiving a fractional share of common
stock. Payment for fractional shares will be based upon the closing price
reported for the common stock on the Over The Counter Bulletin Board on the
Effective Date.

Federal Income Tax Consequences

The following description of the material federal income tax consequences of
the reverse stock split is based on the Internal Revenue Code of 1986, as
amended (the "Code"), the final, temporary and proposed Treasury Regulations
promulgated thereunder, judicial authority and current administrative rulings
and pronouncements as in effect on the date of this proxy statement.

General Rules

Equalnet has not sought, and will not seek, a ruling from the Internal
Revenue Service or an opinion of counsel regarding the federal income tax
consequences of the reverse stock split. However, Equalnet believes that the
reverse stock split will constitute a recapitalization, and hence a
reorganization, within the meaning of Section 368(a)(1)(E) of the Code.
Generally, the holders of common stock will not recognize gain or loss for
federal income tax purposes as a result of the reverse stock split, except that
a holder of common stock who receives cash in lieu of fractional shares
pursuant to the reverse stock split may recognize gain or loss as provided in
"--Cash in Lieu of Fractional Shares" below. No gain or loss will be recognized
by Equalnet as a result of the reverse stock split. Following the reverse stock
split, a holder of common stock received in the reverse stock split will have
an adjusted basis in such common stock (including any fractional share deemed
received) equal to the adjusted basis of the common stock held by that holder
immediately prior to the reverse stock split. In addition, a holder of common
stock will have a holding period for the common stock received in the reverse
stock split that includes the holding period of the common stock exchanged
therefor, provided that such common stock is a capital asset in the hands of
such holder at the time of the reverse stock split.

Cash in Lieu of Fractional Shares

Holders of common stock who receive cash in lieu of fractional shares in the
reverse stock split will recognize gain or loss equal to the difference, if
any, between such holder's adjusted basis in the fractional share of common
stock deemed received and the amount of cash received in exchange therefor.
Such gain or

7
<PAGE>

loss will be a capital gain or loss, long-term or short-term, depending on the
holder's holding period, if the common stock is held by such holder as a
capital asset at the time of the reverse stock split.

SHAREHOLDERS OF THE COMPANY ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE
REVERSE STOCK SPLIT.

Required Vote

Approval of the amendment requires the affirmative vote of two-thirds of the
issued and outstanding shares of Common Stock and Series B Preferred held by
the Voting Shareholders. If not otherwise indicated, proxies will be voted
"FOR" approval of the amendment. Abstentions and broker non-votes will not be
treated as either a vote for or against approval of the amendment. However,
because the approval of the amendment requires the affirmative vote of two-
thirds of the issued and outstanding shares of capital stock held by the Voting
Shareholders, abstentions and broker non-votes will have the same effect as a
vote against approval of the amendment.

Recommendation of the Board of Directors

We Recommend that You Vote "FOR" THE APPROVAL OF THE AMENDMENT.

PROPOSAL 2: TO APPROVE AN AMENDMENT TO THE ARTICLES OF
INCORPORATION TO INCREASE THE AUTHORIZED CAPITAL SHARES

The Board of Directors has adopted a resolution setting forth a proposed
amendment to the Company's Articles of Incorporation (the "Amendment") and
directing that the Amendment be submitted to a vote at the next meeting of
shareholders.

The Amendment would increase the authorized shares of the Company from
50,000,000 shares of par value $0.01 per share common stock ("Common Stock")
and 5,000,000 shares of par value $0.01 per share preferred stock ("Preferred
Stock") to 200,000,000 shares of Common Stock and 5,000,000 shares of Preferred
Stock. The Amendment would amend the first paragraph of Article IV of the
Company's Articles of Incorporation, and the full text of that paragraph, as
amended, is as follows:

"The total number of shares of all classes of stock that the
Corporation shall be authorized to issue is two hundred five million
(205,000,000) shares, divided into the following (i) five million
(5,000,000) shares of Preferred Stock, of the par value of $0.01 per
share (hereinafter called "Preferred Stock"); and two hundred million
(200,000,000) shares of common stock, of the par value of $0.01 per
share (hereinafter called "Common Stock")."

Effects of the Amendment

The Company's Articles of Incorporation preclude preemptive rights with
respect to Common Stock, and no preemptive rights will be related to the
additional Common Stock authorized by the Amendment.

At the close of business on the Record Date, 36,231,035 shares of Common
Stock were outstanding. In addition, the Company holds an aggregate of 38,504
shares of Common Stock in treasury, and the Board of Directors has reserved as
of the Mailing Date (i) an aggregate of 4,821,082 shares of Common Stock for
issuance on exercise of options outstanding and to be granted under the
Company's stock option plans (ii) an aggregate of 3,029,616 shares of Common
Stock for issuance on exercise of warrants; and (iii) an aggregate of 2,300,000
shares of Common Stock for issuance on the conversion of shares of convertible
preferred stock. The shares of the Series A, Series D and Series F preferred
stock have the right to convert into Common Stock at conversion prices
dependent upon the current market price of the Common Stock. The Company does
not have

8
<PAGE>

a sufficient number of shares of Common Stock either authorized or reserved for
issuance upon full conversion of the Series A, Series D and Series F preferred
stock. At the Record Date, the Company had exhausted its shares of Common Stock
reserved for the conversion of the remaining Series A preferred stock. Under
the terms of the Amended Series A Statement of Resolution, Equalnet is required
to reserve such additional shares of common stock for issuance upon the full
conversion of the Series A preferred stock. Assuming full conversion of the
Series A, Series D and Series F preferred stock, at the Record Date, the
Company would have needed to have 24,465,650 shares of Common Stock reserved
for the full conversion of these preferred shares. The Company currently does
not have sufficient authorized, unreserved shares to satisfy these obligations.

Preferred Stock may be issued in one or more series from time to time at the
discretion of the Board of Directors. The Board of Directors is authorized to
fix the respective designations, relative rights, preferences, qualifications,
restrictions and limitations of each series. The issuance of Preferred Stock
could be used as an anti-takeover device without requiring further action on
the part of the holders of Common Stock.

At the Record Date 234,487 shares of Preferred Stock were issued and
outstanding, consisting of 1,328 shares of Series A preferred stock, 2,000
shares of Series B preferred stock, 223,880 shares of Series C preferred stock,
3,937 shares of Series D preferred stock, zero shares of Series E preferred
stock, and 3,342 shares of Series F preferred stock. The Company may issue
Preferred Stock in connection with future acquisitions.

The Company is actively evaluating opportunities to acquire businesses and
assets either complementary or related to its business and operations. Unless
required by law, regulatory authorities or applicable rules of any stock market
or exchange where shares of Common Stock may trade in the future, the Company
does not anticipate any future authorization by a vote of shareholders will be
sought for the issuance of any shares of Common Stock. To the extent the
Company issues shares of Common Stock in an equity financing, or in the
settlements of claims, or in the grant of shares or options to acquire shares
pursuant to the Company's Employee Stock Option and Restricted Stock Plan or
the Company's Independent Contractor Stock Plan, or in connection with an
acquisition, such issuance could result in dilution to existing shareholders.

Many of the reasons for the Amendment are the same as those of Proposal 1,
namely that without either the approval of this Proposal 2 or Proposal 1 above,
the Company will not have sufficient authorized shares to satisfy its
obligations for the conversion of preferred shares into Common Stock, or to
undertake future equity financing, or to make any future acquisitions using
shares of Common Stock, or make settlements of claims or to pursue marketing
initiatives utilizing Company stock, and may not have a sufficient number of
shares available to satisfy its obligations under the Plan. See Proposal 1:
"Reasons for the Amendment". THE BOARD OF DIRECTORS OF EQUALNET RESERVES THE
RIGHT TO FOREGO OR POSTPONE FILING THE AMENDMENT, IF SUCH ACTION IS DETERMINED
TO BE IN THE BEST INTERESTS OF EQUALNET AND ITS SHAREHOLDERS.

Required Vote

Recommendation of the Board of Directors

We Recommend that You Vote "FOR" THE APPROVAL OF THE AMENDMENT.

9
<PAGE>

PROPOSAL 3: TO ELECT THREE DIRECTORS

Equalnet's Articles of Incorporation provide for six directors or such other
number as is established by resolution of the Board of Directors. Equalnet
currently has six director positions and three acting directors. Michael L.
Hlinak resigned his position as a director on June 12, 1998, James T. Harris
resigned his position as a director on October 15, 1998, Zane Russell resigned
his position as a director effective as of February 22, 1999, Robert H. Turner
resigned his position as a director effective as of April 20, 1999, and J. Ike
Epley resigned his position as a director on January 10, 2000. The terms of
directors Mitchell H. Bodian and Ronald J. Salazar will expire at the Meeting.
We have resolved that after the Meeting, Equalnet will continue to have six
director positions, although we currently anticipate having only four of such
positions filled at the conclusion of the annual meeting. The Board of
Directors intends to continue searching for qualified candidates to fill the
remaining two director positions.

At the Meeting, three directors are to be elected, constituting one half of
the Board of Directors and three fourths of the number of directors the Company
anticipates having at the conclusion of the Meeting. Equalnet's Articles of
Incorporation provide that the Board will be divided into three classes, each
class to be composed as equally as possible. The term of one class expires at
each annual meeting of shareholders and each class serves three-year terms.

Director Nominees

The Board has nominated the following persons (the "Nominees") to be elected
directors at the Meeting: Messrs. Mitchell H. Bodian, R. Chadwick Paul, Jr. and
Dr. Ronald J. Salazar. Mr. Bodian and Dr. Salazar will serve two year terms
expiring in 2001. Mr. Paul will serve a three year term expiring in 2002. The
Board is required to nominate Mr. Paul pursuant to the Plan.

The following table sets forth certain information with respect to
Equalnet's continuing directors and the Nominees as of the Record Date:

<TABLE>
<CAPTION>
Term as Director
Name Age Position with Equalnet will expire(1)
---- --- ---------------------- ----------------
<C> <C> <S> <C>
Mark A. Willis................... 31 Chairman of the Board of 2000
Directors
Mitchell H. Bodian............... 48 Chief Executive Officer, 1998
President, Director and
Director Nominee
Ronald J. Salazar, Ph.D.......... 52 Director and Director 1998
Nominee
R. Chadwick Paul, Jr. ........... 45 Director Nominee --
</TABLE>
- --------
(1) Directors' terms of office are scheduled to expire at the annual meeting
of shareholders to be held at the end of the year indicated.

Background of Directors and Nominees

MARK A. WILLIS has been Chairman of the Board and a director since March
1998. Mr. Willis founded Willis Group, LLC, an investment fund, in 1997 and
serves as its President. The fund has made investments in industries such as
offshore oil platform equipment, geophysical services, oil and gas production
and telecommunications, and aircraft parts supplies. Before forming Willis
Group, LLC, Mr. Willis worked at Eagle USA Airfreight, an air freight
forwarder, for two and one-half years, where he rose to the position of
Regional Sales & Marketing Manager. Before that, Mr. Willis served as a
marketing and sales representative for Talent Tree, a temporary help agency
providing primarily clerical and office staffing services. Dr. Salazar, a
director, is married to Mr. Willis's aunt.

MITCHELL H. BODIAN has been President and Chief Executive Officer since July
1998 and a director of Equalnet since March 1998. Mr. Bodian has been the
Managing Director of Bodian Associates, an

10
<PAGE>

investment banking firm providing financial advisory services to middle market
companies, since 1990. Bodian Associates specializes in providing merger and
acquisition services to niche telecommunications services providers. Mr. Bodian
also served as Chapter 11 Trustee for Conectco, a switchless reseller that sold
telephone debit cards and provided one plus telecommunications services, and
that filed for protection under the United States bankruptcy laws in August
1996. Mr. Bodian has approximately twenty years of experience in management
consulting and investment banking with Kearney Management Consultants, Warburg
Paribas Becker and Merrill Lynch. Mr. Bodian holds an MBA from Stanford
Business School.

R. CHADWICK PAUL, JR. has served as Vice President of Conversion for
NEXTLINK, a competitive local exchange carrier, since 1998 and was Vice
President of Business Services from 1997 to 1998. Mr. Paul served as President
of Chadwick Telecommunications Corporation, a long distance carrier with
customers in 38 states, from 1983 through 1997. Since 1976, he has also been
President of Chadwick Telephone, a company that sells, services and installs
telephone systems and equipment. Mr. Paul holds an MBA and a B.S. in Economics,
both from Lehigh University.

RONALD J. SALAZAR, PH.D. has been a director of Equalnet since March 1998.
Dr. Salazar received his Ph.D. in business administration from the University
of Texas in 1990 in the area of Strategic Management and Competitive Strategy.
Since 1995, Dr. Salazar has been a partner in the management consulting firm of
Palladian Analysis & Consulting, LLC in Houston, Texas. From 1988 through 1994,
Dr. Salazar taught management courses as an assistant professor at the
University of Houston and Idaho State University. Dr. Salazar is married to
director Mark A. Willis's aunt.

Committees of the Board of Directors and Meeting Attendance

During the fiscal year ended June 30, 1998, we held nine meetings. Each
director attended at least 75% of the total combined number of meetings held by
us and by the committees on which each director served.

During the fiscal year ended June 30, 1999, we held 21 meetings. Each
director attended 100% of all meetings held by us and by the committees on
which each director served, with the exceptions of James T. Harris, who
attended two-thirds of the meetings held while he was a director, and Robert H.
Turner, who attended 14% of the meetings held while he was a director.

We have an audit committee and a compensation committee. Mitchell H. Bodian,
John Isaac "Ike" Epley and Ronald J. Salazar were the only members of each of
the audit committee and the compensation committee during fiscal 1999. Mr.
Bodian resigned from each of those committees effective July 13, 1998 when he
became an officer and employee of the Company. Mr. Epley resigned as a director
of the Company and consequently also as a member of the audit and compensation
committees on January 10, 2000, leaving Dr. Salazar as the sole member of the
audit and compensation committees. We have not established an executive or
nominating committee. Board nominees are proposed by management.

The audit committee:

. recommends to us the appointment of Equalnet's independent auditors,

. reviews their fees,

. ensures that proper guidelines are established for the dissemination of
financial information,

. meets periodically with the independent auditors, the Board and certain
officers of Equalnet and its subsidiaries to ensure the adequacy of
internal controls and reporting,

. reviews consolidated financial statements, and

. performs any other duties or functions deemed appropriate by the Board.

The audit committee held one meeting during the fiscal year ended June 30, 1998
and did not meet during the fiscal year ended June 30, 1999.

11
<PAGE>

The compensation committee awards options and stock awards pursuant to
Equalnet's stock option and restricted stock award plans, and determines the
terms and conditions of such options and awards, including (1) the persons to
whom such options and stock awards will be granted and (2) the form, terms and
provisions of any agreement pursuant to which such options or stock awards are
awarded. This committee also considers compensation matters for Equalnet's
executive officers. The compensation committee held two meetings during the
fiscal year ended June 30, 1998 and two meetings during the fiscal year ended
June 30, 1999.

Compensation of Directors

Each non-employee director is paid $20,000 per year, plus $1,500 for each
meeting of the Board that he personally attends, $1,500 for each meeting of a
committee of the Board that he personally attends and $500 for each meeting in
which he participates by telephone. Equalnet reimburses its non-employee
directors for ordinary and necessary expenses incurred in attending Board or
committee meetings. Equalnet has adopted Equalnet's 1995 Non-Employee Director
Stock Option Plan (as amended in May 1998, the "Director Plan"), pursuant to
which each non-employee director receives:

. options to purchase a number of shares of common stock equal to $60,000
divided by the average of the highest and lowest price of the common
stock the day before the date of his election as a director ("Fair
Market Value"), and

. options to purchase a number of shares of common stock equal to $30,000
divided by the Fair Market Value of the common stock the day before each
annual meeting of Equalnet's shareholders for each year thereafter.

These options have an exercise price equal to the Fair Market Value of the
common stock. The initial grants vest over three years in 33 1/3% increments
and the annual grants vest six months from the date of grant. Employee
directors of Equalnet do not receive any additional compensation from Equalnet
for their services as directors.

In March, 1999, certain directors of the Company agreed to receive at least
a portion of their compensation for serving on the board of directors in common
stock rather than in cash (see Proposal 5).

Required Vote

A Voting Shareholder entitled to vote for the election of directors may
withhold authority to vote for any or all of the Nominees. Nominees receiving
at least the votes of the holders of a plurality of the shares of Common Stock
and Series B Preferred held by the Voting Shareholders present in person or by
proxy at the meeting and voting for the position for which such Nominee has
been nominated will be elected as directors. If not otherwise indicated,
proxies will be voted "FOR" the election of each director nominee. Abstentions
and broker non-votes will not be treated as a vote for or against any of the
Nominees and will have no effect on the outcome of the elections.

Any vacancies that occur during the year may be filled by an individual
appointed by the Board of Directors to serve for the remainder of the term of
that director position.

Recommendation of the Board of Directors

We Recommend that You Vote "FOR" the Election of Each of the Nominees.

12
<PAGE>

PROPOSAL 4: TO APPROVE THE ISSUANCE OF WARRANTS TO CERTAIN
OFFICERS AND FORMER OFFICERS

At the Meeting, you will be asked to vote in favor of a proposal to approve
the issuance of warrants to certain officers and former officers of Equalnet to
purchase shares of Equalnet common stock at an exercise price of $0.25 per
share. The closing price for the common stock on the day before the Board of
Directors' approval of the warrants, which approval occurred on April 27, 2000
was $0.24 per share. The warrants are to be issued to the individuals named
below as follows:

<TABLE>
<C> <S>
Mitchell H. Bodian...... . 3,000,000 shares of Common Stock to vest
immediately upon approval by the shareholders,
with a second warrant for the purchase of up
to 2,000,000 shares of Common Stock to vest on
December 31, 2000, subject only to Mitchell H.
Bodian not voluntarily resigning as Chief
Executive Officer of Equalnet prior to that
date or not being removed from the position of
Chief Executive Officer of Equalnet by the
Board of Directors for cause prior to that
date.
David Kerr.............. . 1,000,000 shares of common stock to vest
immediately upon approval by the shareholders.
Dean H. Fisher.......... . 700,000 shares of common stock to vest
immediately upon approval by the shareholders.
</TABLE>

The warrants will have customary anti-dilution provisions, will provide the
holders with registration rights to have the underlying shares included in the
next registration statement filed by Equalnet, and will be exercisable for 7
years from the date of the grant. In the event of a reverse stock split, such
as that proposed under Proposal 1, the number of shares for which the warrants
would be exercisable would be adjusted in relation to the stock split in the
same manner as if the shares were issued on the day before the reverse stock
split; however the exercise price of the warrant shares would not be adjusted.

Mr. Bodian became Chief Executive Officer of Equalnet on short notice at a
time when Equalnet was in severe financial distress. He has spent many hours
and incurred significant personal sacrifice to take Equalnet from a significant
negative cash flow position to almost cash flow neutral in less than one year.

Mr. Kerr became Chief Financial Officer of Equalnet at a time when Equalnet
was in severe financial distress and in need of strong cash flow management,
which he provided. These warrants recognize the value of the service Mr. Kerr
rendered on behalf of Equalnet.

Mr. Fisher has served as Equalnet's General Counsel from its inception until
the appointment of Mr. Bruce N. Shortt to that position on April 3, 2000. He
was the only remaining member of management after two significant management
changes were made during calendar year 1998. He spent many hours representing
Equalnet and its subsidiaries under difficult situations, including the
preparation and negotiation of the Plan, which has now been successfully
confirmed and consummated.

Required Vote

The affirmative vote of a majority of the issued and outstanding shares of
Common Stock and Series B Preferred held by the Voting Shareholders present and
voting at the Meeting, either in person or by proxy, is required to approve the
issuance of the warrants. If not otherwise indicated, proxies will be voted
"FOR" approval of this proposal. Abstentions and broker non-votes will not be
treated as either a vote for or against approval of the issuance. Therefore,
abstentions and broker non-votes will have no effect on the approval of the
issuance.

Recommendation of the Board of Directors

We believe the issuance of the warrants is appropriate. The Board of
Directors, with Mr. Bodian abstaining, unanimously approved the issuance of the
warrants. WE UNANIMOUSLY (WITH MR. BODIAN ABSTAINING) RECOMMEND THAT YOU VOTE
"FOR" THE APPROVAL OF THE ISSUANCE OF THE WARRANTS.

13
<PAGE>

PROPOSAL 5: TO RATIFY THE ISSUANCE OF COMMON STOCK TO CERTAIN
DIRECTORS AND OFFICERS

At the meeting, you will be asked to vote in favor of a proposal to ratify
the issuance of common stock to certain directors and officers of Equalnet in
full payment of all director fees owned to such individuals through March 9,
1999. The common stock was issued to the individuals named below as follows:

<TABLE>
<C> <S>
Mitchell H. Bodian...... . 23,777 shares of unregistered common stock.
Mark A. Willis.......... . 30,747 shares of unregistered common stock.
John Isaac "Ike" Epley.. . 19,243 shares of unregistered common stock.
Ronald J. Salazar....... . 62,529 shares of unregistered common stock.
</TABLE>

The number of shares issued to each of the above-referenced directors
represents the quotient of (A) the director fees owed to that director and (B)
$0.50. The closing price for shares of common stock on the day prior to the
agreement to issue such shares was $0.48.

Required Vote

The affirmative vote of a majority of the issued and outstanding shares of
Common Stock and Series B Preferred held by the Voting Shareholders present and
voting at the Meeting, either in person or by proxy, is required to ratify the
issuance of the common stock. If not otherwise indicated, proxies will be voted
"FOR" ratification of this proposal. Abstentions and broker non-votes will not
be treated as either a vote for or against ratification of the issuance.
Therefore, abstentions and broker non-votes will have no effect on the
ratification of the issuance.

Recommendation of the Board of Directors

We believe the issuance of the common stock was appropriate. The members of
the Board of Directors who were present at the meeting of the Board of
Directors at which the issuance was approved (each of whom received stock in
the issuance) unanimously approved the issuance of the common stock. Robert H.
Turner, the only member (as of the date the issuance was approved) of the Board
of Directors who did not receive shares pursuant to the issuance, did not
attend the meeting of the Board of Directors at which the issuance was
approved. WE RECOMMEND THAT YOU VOTE "FOR" THE RATIFICATION OF THE ISSUANCE OF
THE COMMON STOCK.

PROPOSAL 6: TO APPROVE THE WAIVING OF THE CONVENING AND
CONDUCTING OF THE 1998 ANNUAL MEETING OF SHAREHOLDERS

The Company postponed the convening and conducting of the 1998 Annual
Meeting of shareholders in order to include in the resolutions to be considered
by the shareholders matters relating to anticipated transactions which the
rules and regulations of Nasdaq would require to be submitted for shareholder
approval. The Company did this in part to avoid the expense of having to
conduct a special meeting of shareholders in addition to the expenses normally
associated with an annual meeting of shareholders. The Company had hoped to
conduct a single meeting to address the issues normally presented at an annual
meeting of shareholders as well as the matters which would have required an
affirmative vote of shareholders to comply with the rules and regulations of
Nasdaq.

Subsequently, the Company's shares of Common Stock were moved from listing
on the Nasdaq National Market and later the Nasdaq SmallCap Market to the OTC
Bulletin Board, effectively removing the transactions in question from the
requirements of the rules and regulations of Nasdaq with respect to these
matters. Compliance with the rules and regulations of Nasdaq was the primary
reason for the submission of these matters to a vote of the shareholders of the
Company.

14
<PAGE>

Required Vote

The affirmative vote of a majority of the issued and outstanding shares of
Common Stock and Series B Preferred held by the Voting Shareholders present and
voting at the Meeting, either in person or by proxy, is required to approve the
proposal. If not otherwise indicated, proxies will be voted "FOR" approval of
this proposal. Abstentions and broker non-votes will not be treated as either a
vote for or against approval of the proposal. Therefore, abstentions and broker
non-votes will have no effect on the approval of the proposal.

Recommendation of the Board of Directors

We believe the failure to convene and conduct the 1998 Annual Meeting of
Shareholders was, in the business judgment of the Board of Directors, proper.
WE UNANIMOUSLY RECOMMEND THAT YOU VOTE "FOR" THE APPROVAL OF THE PROPOSAL.

PROPOSAL 7: TO RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS

At the recommendation of the audit committee, we appointed Ernst & Young LLP
("Ernst & Young") to serve as the principal independent auditors for Equalnet
and its subsidiaries for the 1999 fiscal year.

We intend to submit the appointment to the Voting Shareholders for
ratification at the Meeting. Ernst & Young has served as EqualNet Corporation's
auditors from the 1992 fiscal year through the 1995 fiscal year, and has served
as Equalnet's auditors from the 1995 fiscal year through the 1998 fiscal year.
We are advised that no member of Ernst & Young has any direct or material
indirect financial interest in Equalnet or, during the past six years, has had
any connection with Equalnet in the capacity of promoter, underwriter, voting
trustee, director, officer or employee. Although we are not required by law to
submit this matter to the shareholders, we will reconsider our appointment of
Ernst & Young if the appointment is not ratified by the Voting Shareholders.

Required Vote

Ratification of our appointment of Ernst & Young to serve as the principal
independent auditors for Equalnet and its subsidiaries for the 1999 fiscal year
will require the affirmative vote of the majority of shares of Common Stock and
Series B Preferred held by the Voting Shareholders represented at the Meeting,
in person or by proxy. If not otherwise indicated, proxies will be voted "FOR"
ratification of this proposal. Abstentions and broker non-votes will not be
treated as either a vote for or a vote against ratification of our appointment
of Ernst & Young.

Recommendation of the Board of Directors

WE RECOMMEND THAT YOU VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF ERNST
& YOUNG AS INDEPENDENT AUDITORS FOR EQUALNET AND ITS SUBSIDIARIES FOR THE 1999
FISCAL YEAR.

15
<PAGE>

PROPOSAL 8: AMENDMENT OF THE COMPANY'S EMPLOYEE STOCK OPTION AND RESTRICTED
STOCK PLAN

At the meeting the shareholders of the Company will be asked to vote on a
proposal (the "Amendment") to amend the Company's Employee Stock Option and
Restricted Stock Plan (the "Employee Plan"). Approval of the Amendment requires
the affirmative vote of the holders of a majority of the shares of Common Stock
and Series B Preferred that are outstanding as of the Record Date.

Reasons for the Amendment

The Board of Directors believes it is in the best interest of the Company to
attract and retain the services of experienced and knowledgeable employees and
to provide an incentive for such employees to increase their proprietary
interest in the Company's long-term success and progress. The Employee Plan is
designed to provide certain full time key employees, including officers and
employee directors of the Company and its subsidiaries (approximately 100
persons at June 30, 1999) with additional incentives to promote the success of
the Company's business and to enhance the Company's ability to attract and
retain the services of qualified persons. The Employee Plan Amendment would
provide the Company with additional shares to be granted pursuant to options
and restricted stock awards under the Employee Plan and would allow the Company
greater flexibility in granting such awards.

Certain Considerations

Shareholders should note that certain disadvantages may result from the
adoption of the Employee Plan Amendment, including a reduction in their
interest of the Company with respect to earnings per share, voting, liquidation
value and book and market value per share if options to acquire the authorized
shares of Common Stock are granted and subsequently exercised or if the
restricted stock is granted and subsequently vests.

Description of Employee Plan

Pursuant to applicable federal securities laws, the Company is required to
furnish to its shareholders in the proxy statement certain information with
respect to the Employee Plan. The following summary does not purport to be a
complete summary of the Employee Plan and is qualified in its entirety by
reference to such plan.

The Employee Plan was adopted by the Board of Directors and approved by the
shareholders in February 1995. The Employee Plan authorized a committee of the
Board of Directors to issue options intended to qualify as incentive stock
options ("ISOs"), as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), stock options that are not intended to confirm
to the requirements of the Code Section ("Non-ISOs") and restricted stock
awards.

The Employee Plan is designed to provide certain full-time key employees,
including officers and employee directors of the Company and its subsidiaries
(approximately 100 persons at June 30, 1999), with additional incentives to
promote the success of the Company's business and to enhance the Company's
ability to attract and retain the services of qualified persons. The Employee
Plan is to be administered by a committee (the "Committee") of no less than two
persons appointed by the Board of Directors. Committee members may not be
employees of the Company and must be disinterested persons. Under the Employee
Plan, options to purchase Common Stock and restricted stock awards of Common
Stock, up to an aggregate of 4,000,000 shares of Common Stock, may be granted
by the Committee. The maximum number of shares of Common Stock subject to
options that may be awarded under the Employee Plan to any employee during any
consecutive 12 month period is 750,000. The maximum number of shares of Common
Stock that may be awarded under the Employee Plan to any employee pursuant to
restricted stock awards during any consecutive 12 month period is 200,000. The
exercise price of an option granted pursuant to the Employee Plan is determined
by the Committee on the date the option is granted and may not be less than the
fair market value of the shares of

16
<PAGE>

Common Stock on such date. In the case of a grant to an employee who owns ten
percent or more of the outstanding shares of Common Stock (a "10%
Shareholder"), the exercise price of each option under the Employee Plan may
not be less than 110% of the fair market value of the Common Stock on the date
of the grant. No option may be granted under the Employee Plan for a term of
more than ten years. In the case of a 10% Shareholder, no option that is an ISO
may be granted that is exercisable for more than five years from the date of
grant. To the extent that the aggregate fair market value (determined as of the
date the option is granted) of the Common Stock with respect to which ISOs are
exercisable for the first time by the option holder in any calendar year (under
this Employee Plan and any other incentive stock option plans of the Company
and any parent and subsidiary corporation within the meaning of Section 424 of
the Code) exceeds $100,00, the options must be treated as Non-ISOs. In making
this determination, options shall be taken into account in the order in which
they were granted. No options were granted under the Employee Plan prior to the
end of fiscal 1996. In July 1996, the Company granted options to purchase
45,000, 45,000, and 17,500 shares of Common Stock to Messrs. Zane Russell,
Michael L. Hlinak and Dean H. Fisher, respectively. In January 1997, the
Company granted additional options to purchase 45,000, 45,000 and 17,500 shares
of Common Stock to Messrs. Russell, Hlinak and Fisher, respectively. In March,
1999, the Company granted options to purchase 500,000 shares of Common Stock to
Bill Rhodes. In August 1999, the Company granted options to purchase 300,000
shares of Common Stock to Michael Gallagher. In December 1999, the Company
granted options to purchase 250,000 shares of Common Stock to Forrest Robinson,
an employee-director of a subsidiary of the Company.

Under the Employee Plan, the Committee also may issue shares of restricted
stock to employees for no payment by the employee or for a payment below the
fair market value on the date of grant. The restricted stock is subject to
certain restrictions described in the Employee Plan. Restricted stock will
constitute issued and outstanding Common Stock for all corporate purposes.
Subject to the terms of the Employee Plan and the recipient's agreement with
respect to the award, the recipient will have the right to vote the restricted
stock awarded to such recipient and to receive and retain all regular cash
dividends, and to exercise all other rights, powers, and privileges of a holder
of Common Stock with respect to such restricted stock. In 1995, the Company
granted restricted stock awards for an aggregate of 63,638 shares of Common
Stock to certain key employees, none of whom were directors or named executive
officers. These employees were not required to make any payment for these
restricted stock awards, which vested over five years from the grant date in
20% increments. Restrictions on transfer and forfeiture provisions upon
termination of employment applied to the restricted stock covered by the awards
for a period of five years, after which time the restrictions lapsed and the
stock was owned by the employees free of further restrictions under the
Employee Plan. The Company granted no restricted stock awards during the fiscal
1996, 1997, 1998 or 1999 years.

The Employee Plan Amendment

The Employee Plan currently provides (i) that options to purchase Common
Stock and restricted stock awards of Common Stock may be granted with respect
to an aggregate of up to 4,000,000 shares of Common Stock; (ii) that the
maximum number of shares of Common Stock subject to options that may be awarded
to any one employee in any consecutive 12 month period under the Employee Plan
is 750,000; and (iii) that the maximum number of shares of Common Stock that
may be awarded to any one employee pursuant to restricted stock awards in any
consecutive 12 month period under the Employee Plan is 200,000. The Employee
Plan Amendment would increase the aggregate number of shares of Common Stock
with respect to which such awards could be granted to 8,000,000 and to increase
the maximum number of shares of common stock that may be awarded to any one
employee in any consecutive 12 month period from 750,000 to 1,000,000 shares.
The Board of Directors has adopted the Employee Plan Amendment and directed
that it be presented to the shareholders for their approval.

Employee Plan Amendment Benefits

Non-employee directors are not eligible to receive awards under the Employee
Plan. The benefits or amounts that will be received by or allocated to the
executive officers and employees of the Company under the

17
<PAGE>

Employee Plan Amendment are not determinable, as the Employee Plan does not
provide for any automatic grants but is administered by the Committee. No
options were granted under the Employee Plan prior to the end of fiscal 1996.
In fiscal 1997, the Company granted options to purchase 90,000, 90,000, and
35,000 shares of Common Stock to Messrs. Zane Russell, Michael L. Hlinak and
Dean H. Fisher, respectively, and options to purchase an aggregate of 281,000
shares of Common Stock to employees other than executive officers. In fiscal
1998, the Company granted options to purchase an aggregate of 1,350,000 shares
of Common Stock to employees other than executive officers. In fiscal 1999, the
Company granted options to purchase 500,000 shares of Common Stock to Mr. Bill
Rhodes and options to purchase an aggregate of 1,535,000 shares of Common Stock
to employees other than executive officers.

Federal Tax Consequences

Options granted under the Employee Plan may be either ISOs which satisfy the
requirements of Section 422 of the Code of Non-ISOs which are not intended to
meet these requirements. The federal income tax treatment for the two types of
options differs as follows.

In general, no tax consequences should result from the grant to or exercise
by an employee of an ISO under the Employee Plan. The optionee will, however,
recognize taxable income in the year in which the purchased shares are sold or
otherwise made the subject of a disposition.

For federal income tax purposes, dispositions are either qualifying or
disqualifying. An optionee makes a qualifying disposition of the purchased
shares if he sells or otherwise disposes of the shares after holding them for
more than two years after the date the option was granted and more than one
year after the exercise date. If the optionee fails to satisfy either of these
two holding periods prior to the sale or other disposition, a disqualifying
disposition will result.

Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying
disposition of the shares, the excess of (i) the fair market value of those
shares on the date the option was exercised over (ii) the exercise price paid
for the shares generally will be taxable as ordinary income. Any additional
gain recognized upon the disposition will be a capital gain. If, however, the
disqualifying disposition is a sale or exchange with respect to which a loss
(if sustained) would be recognized, the amount of ordinary income realized by
the optionee cannot exceed the amount on the sale or exchange over the exercise
price paid for the shares.

If the optionee makes a disqualifying disposition of the purchased shares,
the Company will be entitled to an income tax deduction for the taxable year in
which the disposition occurs, equal to the excess of (i) the fair market value
of such shares on the date the option was exercised over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.

No taxable income is recognized by an optionee upon the grant of a Non-ISO.
The optionee will in general recognize ordinary income, in the year in which
the option is exercised, equal to the excess of the fair market value of the
purchased shares on the date of exercise over the exercise over the exercise
price paid for the shares. The Company is entitled to a deduction in the same
amount as the income recognized by the optionee, provided that the Company
withholds income tax with respect to that amount if the optionee is an
employee.

In general, the recipient of a restricted stock award will recognize income
as the award vests. The Company will be entitled to a deduction for the income
attributable to the restricted stock, subject to certain limitations that apply
if the recipient's aggregate compensation is greater than $1,000,000. Although
amounts in excess of $1,000,000 may not, under certain circumstances, be
deductible by the Company, the Company does not anticipate that any recipient's
compensation will exceed the $1,000,000 limit on deductions.

18
<PAGE>

Required Vote

Approval of the Employee Plan Amendment requires the affirmative vote of the
holders of a majority of the combined shares of Common Stock and Series B
Preferred that are voted at the meeting in person or by proxy. If not otherwise
provided, proxies will be voted "FOR" approval of the Employee Plan Amendment.
Abstentions will not be counted as shares voting on the proposal, and,
therefore, an abstention will have no effect on the outcome of the proposal. A
broker non-vote will not be treated as a share entitled to vote on the proposal
and will not be considered as a vote for or against the proposal. Therefore, a
broker non-vote will have no effect on the outcome of the proposal.

Recommendation of the Board of Directors

For the reasons set forth above, the Board of Directors believes the
Employee Plan Amendment is in the best interests of the Company's shareholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE EMPLOYEE
PLAN AMENDMENT.

19
<PAGE>

EXECUTIVE OFFICERS AND COMPENSATION

The following table sets forth the names, ages and titles of Equalnet's
executive officers:

<TABLE>
<CAPTION>
Name Age Position with Equalnet
---- --- ----------------------
<C> <C> <S>
Mitchell H. Bodian............... 48 President, Chief Executive Officer
and Director
William D. Rhodes, Jr. .......... 51 Chief Operating Officer
Bruce N. Shortt.................. 48 Executive Vice President,
Secretary and General Counsel
</TABLE>

For further information regarding the background of Mr. Bodian, see
"Background of Directors and Nominees."

WILLIAM D. RHODES, JR. became Chief Operating Officer of Equalnet in March
1999. Mr. Rhodes has over 12 years of executive telecommunications management
experience, including roles as Marketing and Sales Director, Vice
President/Chief Operating Officer and President. Mr. Rhodes was President of
Valu-Line of Longview, a switch-based interexchange carrier with competitive
local exchange carrier authority in the state of Texas, from 1996 until 1999,
and Vice President and Chief Operating Officer of Advanced Communications
Group, a switch-based interexchange carrier with competitive local exchange
carrier authority in the state of Texas, from 1998 until 1999. During the prior
20 years, Mr. Rhodes served in various capacities, including Marketing and
Sales Director, for Rockwell International, a diversified conglomerate in
electronics, communications and avionics. None of the foregoing entities is an
affiliate of Equalnet. Through this experience, Mr. Rhodes acquired knowledge
regarding the business operations of an interexchange carrier (IXC) and
competitive local exchange carrier (CLEC), alternatives for expansion of an
IXC/CLEC customer base and the necessary methods for growing corporate
infrastructure while providing quality service to customers. Mr. Rhodes holds
an MSEE and a BSEE from the University of Missouri at Columbia.

BRUCE N. SHORTT has been Executive Vice President and General Counsel of the
Company since April 2000. From 1995 until his employment with the Company, Mr.
Shortt was an investor and also engaged in the private practice of law. From
1987 to 1995 Mr. Shortt was an attorney with the law firm of Weil, Gotshal &
Manges in its Houston, Texas and New York, New York offices. Mr. Shortt holds a
J.D. from Harvard University and a Ph.D. from Stanford University.

All executive officers of Equalnet hold office until the regular meeting of
the Board of Directors following the annual meeting of shareholders and until
their successors are elected and qualified or their earlier resignation or
removal.

20
<PAGE>

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors (the "Committee"),
which is composed of non-employee directors and performs the duties described
above under "Committees of the Board of Directors and Meeting Attendance," has
furnished the following report on executive compensation for fiscal years 1998
and 1999.

Equalnet's compensation package is designed to benefit Equalnet's
shareholders by providing a variety of incentive compensation opportunities to
senior management and executive officers of Equalnet. The compensation plan
consists of base salary, annual cash incentive compensation and stock reward
plans (stock options and restricted stock awards).

Base Salary

The Committee evaluates the Chief Executive Officer's performance,
recommends changes to annual compensation level for future years to the Board
and reviews and approves changes to compensation levels for all executive
officers. In making its compensation determinations, the Committee considers a
number of factors. These factors include: compensation offered by other
similarly situated publicly traded companies; progress made in achieving the
financial and operational objectives of the Company established by its Board of
Directors; amounts required to be paid to attract qualified candidates for the
position and other factors relating to the issues being faced by the Company
and its management at the time of the determination which the Committee deems
to be relevant.

Annual Incentive Compensation

Equalnet's executive officers and other management employees are eligible to
receive annual cash bonus awards that may, in the discretion of the Committee,
be issued. None of the executive officers received a bonus during either the
fiscal year ended June 30, 1998 or June 30, 1999.

Stock Incentive Programs

The Committee believes that compensation in the form of stock provides an
incentive for management to increase shareholder value by closely aligning
management compensation with the performance of the common stock. Equalnet has
adopted the Employee Plan, under which the Committee may authorize grants of
stock options and restricted stock awards. During fiscal year 1998, the
Committee did not award shares of restricted stock to members of senior
management or key employees. During fiscal year 1999, the Committee awarded,
subject to the satisfaction of various vesting requirements, options to acquire
500,000 shares of common stock to a member of senior management and options to
acquire 1,535,000 shares of common stock to key employees.

THE COMPENSATION COMMITTEE

RONALD J. SALAZAR, PH.D.

21
<PAGE>

Summary of Compensation

The following table summarizes compensation information concerning the Chief
Executive Officer and each of Equalnet's most highly compensated executive
officers and employees as to whom total annual salary and bonus for the fiscal
years ended June 30, 1998 and 1999 exceeded $100,000 (the "Named Executive
Officers and Employees").

ANNUAL COMPENSATION

<TABLE>
<CAPTION>
Common
Stock
Fiscal Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation(1)
- --------------------------- ------ -------- ----- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Mitchell H. Bodian............. 1999 $204,818 -- -- $ 24
President, Chief Executive 1998 --
Officer and Director 1997 --

Robert H. Turner............... 1999 $ 14,423 -- -- $ 658
former Chief Executive Officer 1998 100,961 3,076
and Director 1997 -- --

Zane Russell................... 1999 $ -- -- -- $ --
former Chairman of the Board, 1998 142,931 -- -- 6,073
Director, Chief Executive 1997 178,000 -- 90,000 3,498
Officer and President

Michael L. Hlinak.............. 1999 $ -- -- -- $6,846
former Executive Vice 1998 175,182 -- -- 6,434
President, Chief Financial 1997 155,000 -- 90,000 3,607
Officer and Chief
Operating Officer

Dean H. Fisher................. 1999 $167,887 -- -- $9,713
former General Counsel, Senior 1998 129,800 -- -- 6,059
Vice President and Secretary 1997 129,000 -- 35,000 3,451
</TABLE>
- --------
(1) Represents contributions in 1997 by Equalnet under Equalnet's 401(k) Plan
for Messrs. Russell, Hlinak and Fisher of $1,676, $1,785, and $1,676,
respectively, and health insurance premiums paid in 1997 by Equalnet for
Messrs. Russell, Hlinak and Fisher of $1,823, $1,823, and $1,775,
respectively. Represents contributions in 1998 by Equalnet under
Equalnet's 401(k) Plan for Messrs. Russell, Hlinak and Fisher of $2,651,
$661, and $3,894, respectively, and health insurance premiums paid in 1998
by Equalnet for Messrs. Turner, Russell, Hlinak and Fisher of $3,076,
$3,422, $5,773, and $2,165, respectively. Represents contributions in 1999
by Equalnet under Equalnet's 401(k) Plan for Mr. Fisher of $2,136, and
health insurance premiums paid in 1999 by Equalnet for Messrs. Bodian,
Fisher, Hlinak and Turner of $24, $7,577, $6,846, and $658, respectively.

22
<PAGE>

Warrant and Option Grants in Fiscal 1998

Equalnet did not grant options to any of the Named Executive Officers and
Employees during fiscal 1998. The following table sets forth information
regarding the value of unexercised warrants and options held by the Named
Executive Officers and Employees. None of the Named Executive Officers and
Employees exercised any warrants or options in fiscal year 1998.

<TABLE>
<CAPTION>
Number of Shares of
Common Stock Underlying Value of Unexercised
Unexercised Warrants and In the Money Warrants and
Options at June 30, 1998 Options at June 30, 1998(1)
------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
Robert H. Turner........ -- -- -- --
Zane Russell............ 90,000 -- $ 5,400 --
Michael L. Hlinak....... 90,000 -- $ 5,400 --
Dean H. Fisher.......... 35,000 -- -- --
</TABLE>
- --------
(1) The value of each unexercised in-the money warrant or option is equal to
the difference between the closing price of the common stock on the Nasdaq
National Market on June 30, 1998 of $2.06 per share and the exercise price
of the warrant or option.

Warrant and Option Grants in Fiscal 1999

Equalnet granted the following options to Named Executive Officers and
Employees during fiscal 1999. The following table sets forth information
regarding the value of unexercised warrants and options held by the Named
Executive Officers and Employees. None of the Named Executive Officers and
Employees exercised any warrants or options in fiscal year 1999.

<TABLE>
<CAPTION>
Number of Shares of
Common Stock Underlying Value of Unexercised
Unexercised Warrants and In the Money Warrants and
Options at June 30, 1999 Options at June 30, 1999(1)
------------------------- -------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Mitchell H. Bodian...... -- -- -- --
William D. Rhodes....... -- 500,000 -- $ 0.00
</TABLE>
- --------
(1) The value of each unexercised in-the money warrant or option is equal to
the difference between the closing price of the common stock on the Nasdaq
SmallCap Market on June 30, 1999 of $0.68 per share and the exercise price
of the warrant or option.

23
<PAGE>

PERFORMANCE PRESENTATION

The following performance graph compares the performance of the common stock
on an indexed basis to the Center for Research in Security Prices ("CRSP")
Index for The Nasdaq Stock Market (US Companies) and a CRSP index of Nasdaq
Stock Market telephone communications companies (SIC codes 4810 through 4819).
Information with respect to the common stock, the CRSP Index for The Nasdaq
Stock Market (US Companies) and a CRSP index of Nasdaq Stock Market telephone
communications companies (SIC codes 4810 through 4819) is from March 9, 1995,
the date on which the common stock first began public trading. The graph
assumes that the value of the investment in the common stock and each index was
$100 at March 9, 1995, and that all dividends were reinvested. Equalnet will
provide the names of the companies included in the telephone communications
index (SIC codes 4810 through 4819) upon written request to the Investor
Relations Department of Equalnet.

COMPARISON OF 52 MONTH CUMULATIVE TOTAL RETURN*
AMONG EQUALNET COMMUNICATIONS CORPORATION,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE NASDAQ TELECOMMUNICATIONS INDEX

[PERFORMANCE GRAPH APPEARS HERE]

* $100 invested on 3/9/95 in stock or index including reinvestment of
dividends. Fiscal year ending June 30.

<TABLE>
<CAPTION>
March 9, June 30, June 30, June 30, June 30, June 30,
1995 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Equalnet Communications
Corp.................... 100.0 134.8 34.8 18.5 18.5 6.18
Nasdaq Stock Market...... 100.0 117.3 150.8 183.4 241.89 346.33
Nasdaq Stock Market
Telephone Communications
Companies (SIC 4810-4819
US Companies)........... 100.0 108.3 150.0 181.4 261.43 415.67
</TABLE>
Note: The indices are reweighed daily, using the market capitalization on
the previous trading day.

24
<PAGE>

EMPLOYMENT AGREEMENTS

Equalnet terminated an executive employment agreement with Zane Russell
during the second half of fiscal year 1998. Ongoing payments due to Mr. Russell
are as follows: severance payments through January 31, 1999 at an annualized
rate of $87,500 and forgiveness and cancellation of the remaining balance under
a $75,000 note payable by Mr. Russell to Equalnet. Additionally, Equalnet
issued a warrant to Mr. Russell for the purchase of up to 90,000 shares of
common stock at an exercise price of $2.00 per share. Equalnet is currently in
default on its severance payments to Mr. Russell.

Mr. Russell has agreed that for a period of time ending June 1, 1999 he will
not engage in or participate in any business engaged in the sale or marketing
of long-distance service within the United States, employ any of Equalnet's
employees or induce any of Equalnet's employees to leave their employment with
Equalnet.

Equalnet terminated an executive employment agreement with Michael L. Hlinak
during the second half of fiscal year 1998. On April 7, 1999, Equalnet executed
an agreement with Michael L. Hlinak, former Chief Operating Officer, in which
Equalnet issued 100,000 shares of common stock to Mr. Hlinak in exchange for a
release of all remaining severance obligations of Equalnet to Mr. Hlinak.
Equalnet has agreed to register the shares transferred to Mr. Hlinak for resale
under the next registration statement Equalnet files.

Mr. Hlinak has agreed that for a period of two years after termination he
will not engage in or participate in any business engaged in the sale or
marketing of long-distance service within the United States, employ any of
Equalnet's employees or induce any of Equalnet's employees to leave their
employment with Equalnet.

In February 1999, Equalnet entered into an Employment Agreement with William
D. Rhodes, Jr., Equalnet's Chief Operating Officer, pursuant to which Equalnet
is required to grant to Mr. Rhodes, under Equalnet's Employee Stock Option and
Restricted Stock Plan, options to purchase an aggregate of 500,000 shares of
common stock at an exercise price of $1.00 per share. One-third of the options
vested on February 8, 2000, one-third vests on February 8, 2001 and one-third
vests on February 8, 2002.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Mr. Bodian, Mr. Epley and Dr. Salazar served as members of the compensation
committee at various times during fiscal years 1998 and 1999.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On February 11, 1997, Equalnet issued to The Furst Group, Inc., a New Jersey
corporation ("Furst Group") and an accredited investor, a $3,000,000 note
bearing interest at the rate of 10% per year and maturing December 31, 1998
(the "Furst Note") and a warrant for the purchase of up to 1,500,000 shares of
common stock at an exercise price of $2.00 per share (the "Furst Warrant"),
together with certain rights in the event of a change of control. On March 9,
1998, Equalnet and Furst entered into an Exchange Agreement (the "Exchange
Agreement") pursuant to which Furst exchanged the Furst Note, the Furst Warrant
and the aforementioned rights for 3,000 shares of Series B preferred stock and
322,000 shares of common stock (representing the accrued and unpaid interest on
the Furst Note). The Exchange Agreement enabled Equalnet to reduce its debt and
increase its tangible net worth while allowing Furst to maintain a liquidation
preference over the common stock with respect to its initial $3,000,000
investment.

The Series B preferred stock consists of 3,000, shares all of which were
issued in connection with the Exchange Agreement. Each share of Series B
preferred stock has a stated value of $1,000 and is entitled to receive
dividends only if, as and when the Board of Directors declares dividends on the
common stock. Each share of Series B preferred stock is convertible initially
into 500 shares of common stock (for an aggregate of 1,500,000 shares), subject
to adjustment pursuant to certain anti-dilution provisions. (Each share of
Series B preferred stock automatically converts into common stock, based upon
the conversion rate then in effect, on April 30, 2000.)

25
<PAGE>

If Equalnet were to be liquidated, the holders of the Series B preferred
stock would be entitled to receive out of the assets of Equalnet $1,000 per
share before any distributions would be made to holders of common stock. Each
shares of Series B preferred stock generally entitles the holder thereof to one
vote on matters submitted to the holders of common stock for approval, with the
holders of common stock and Series B preferred stock voting as a single class.
Holders of Series B preferred stock will be entitled to vote as a class on
transactions involving an amendment or waiver of the rights of holders of
Series B preferred or in the creation of a series of shares with liquidation
rights equal to or greater than the Series B preferred stock.

On March 6, 1998, the shareholders of Equalnet approved certain transactions
detailed below:

On March 6, 1998, as a result of various transactions, Willis Group and its
affiliates obtained the right to nominate for shareholder approval four of the
seven members of the Board of Directors of Equalnet. Willis Group beneficially
owns more than five percent of Equalnet's voting securities. Mark A. Willis,
the Chairman of the Board of Directors of Equalnet, owns a 48.5% membership
interest in Willis Group.

On October 1, 1997, Equalnet issued to Willis Group a $1,000,000 Convertible
Secured Note, bearing interest at the rate of 12% per year and maturing April
1, 1998 (the "October Note"), and a warrant for the purchase of up to 200,000
shares of common stock at an exercise price of $1.00 per share, subject to
adjustment (the "October Warrant"). The October Warrant is exercisable for five
years. As of the date of issuance of the October Note Equalnet recorded an
interest charge of $150,000 to record the impact of the debt being convertible
at a discount to market. On March 5, 1998, the October Note and accrued
interest were exchanged for 1,050,000 shares of common stock.

Under the terms of several related agreements (the "Agreements") among
Equalnet, Willis Group and MCM Partners entered into on December 2, 1997,
Equalnet acquired nine telecommunications switches (the "Switches") from Willis
Group for aggregate consideration consisting of $5,850,000 in cash, 1,400,000
shares of common stock, and warrants to purchase an additional 400,000 shares
of common stock. Equalnet secured financing of $6,050,000 for the cash portion
of the consideration through an unaffiliated third party lender, which loan is
secured by the Switches, bears interest at an annual rate of 6.42% above an
index rate based on U.S. Treasury Notes and is payable in 36 consecutive
monthly payments. In addition, Equalnet granted a warrant for the purchase of
up to 500,000 shares of Common Stock at an exercise price of $1.00 per share to
Michael T. Willis, a member of Willis Group and father of director Mark A.
Willis, for guaranteeing a portion of this financing. Equalnet has further
agreed to pay any costs and expenses associated with maintaining a letter of
credit which serves as collateral securing such guarantee.

Under the terms of the Agreements, Equalnet acquired Netco Acquisition Corp.
("Netco"), a Delaware corporation from Netco Acquisition LLC, a Delaware
limited liability company owned by Willis Group and MCM Partners. Netco held
certain intangible rights and assets formerly held by Total National
Telecommunications. These assets consisted of intangible rights to use certain
software and codes necessary to operate the Switches. Equalnet acquired Netco
for aggregate consideration consisting of approximately 3,581,633 shares of
common stock, 2,000 shares of Series A preferred stock and the issuance of
approximately 4,000,000 shares of common stock for $1.00 per share in cash. MCM
Partners is the holder of all 1,328 issued and outstanding shares of Series A
preferred stock as of the Record Date. Mitchell H. Bodian, President, Chief
Executive Officer and a director of Equalnet, has been a consultant, on a fee
basis, for MCM Partners and its affiliates for several years.

On October 1, 1997, Bodian Associates ("Bodian"), an entity controlled by
Mitchell H. Bodian, President and Chief Executive Officer and a director of
Equalnet, entered into an investment advisory services agreement with Genesee.
Under the terms of the agreement, Bodian was to provide, among other things,
the following services to Genesee, Advantage Fund and their affiliates:

26
<PAGE>

. assisting and advising Genesee in connection with pursuing and
implementing alternatives to maximize the value of the Genesee entities'
investments in Total World Telecommunications, Inc. ("TWTI"), a party to
the transactions approved at the March 5, 1998 annual meeting of the
shareholders of Equalnet, and Total National Telecom, Inc. ("TNT")
(including analyzing, from a financial perspective, alternatives
available to the Genesee entities throughout the bankruptcy proceedings
of TNT, and in negotiating the letter of intent with Willis Group and
Equalnet for the creation of Netco Acquisition LLC, an entity that
acquired and transferred certain network assets to Equalnet as described
in the February 15, 1998 proxy statement related to, and as approved at,
the March 5, 1998 annual meeting of the shareholders of Equalnet);

. assisting and advising the Genesee entities in connection with their
investment in Netco Acquisition LLC and with regard to their investment
in Equalnet or other alternatives with regard to the Genesee investment
in Netco Acquisition LLC;

. assisting Netco Acquisition LLC in maximizing the cash consideration to
be realized from the liquidation of the assets of Netco Acquisition LLC;
and

. providing such opinions regarding the value, from a financial point of
view, of the investments of the Genesee entities in TNT and TWTI as may
be reasonably be requested by Genesee.

As compensation for these services, Genesee agreed to pay Bodian:

. a non-refundable cash retainer of $100,000;

. a non-recourse loan to acquire, at the face amount of the investment by
the Genesee entities, an interest equal to 10% of the interest of the
Genesee entities in Equalnet, or, in the event the Equalnet investment by
Genesee did not "materialize", a similar sort of compensation arrangement
to be negotiated between Genesee and Bodian with regard to an alternate
transaction;

. $10,000 per month on October 1, November 1, and December 1, 1997 for
assistance through December 31, 1997 in regard to the causes of action
related to the Genesee entities' investments in TNT and TWTI or such
other services related to TNT, TWTI or Netco Acquisition LLC as Genesee
reasonably requested;

. a time based fee if Bodian's assistance is requested by Genesee after
December 31, 1997;

. certain additional compensation from Netco Acquisition LLC; and

. reimbursement, upon Bodian's request, for any of Bodian's out-of-pocket
expenses incurred in connection with any of the services.

Further, the Genesee entities agreed to use their best efforts to cause
Equalnet to retain the services of Bodian at market rates to be negotiated
between Bodian and Equalnet in connection with any extraordinary corporate
transactions contemplated by Equalnet and in connection with Equalnet's
corporate development activities generally.

Under the terms of the original Statement of Resolution with respect to the
Series A preferred stock, the Series A preferred stock had very limited voting
rights, had a stated value of $1,000 per share and were entitled to receive
dividends at the rate of $80.00 per share per year, payable quarterly. Holders
of Series A preferred stock had the right to convert their shares into common
stock at the rate of 1,000 shares of common stock per share of Series A
preferred stock (or the stated value divided by $1.00), or an aggregate of
2,000,000 shares of common stock, subject to adjustment pursuant to certain
anti-dilution provisions. The Series A preferred stock had a $1,000 per share
liquidation preference over Equalnet's common stock. Dividends when not paid
were cumulative and bore interest at a rate of 12.0% per year. Cumulative
dividends in arrears at June 30, 1998 were approximately $52,000, or $25.78 per
Series A preferred stock share. Equalnet may not declare or pay dividends on the
common stock unless all accrued dividends on the Series A preferred stock have
been paid. Under the original terms of the Series A preferred stock, Equalnet
could redeem the outstanding shares of Series A preferred stock at a price of
$1,000 per share (plus any accrued and unpaid dividends and any interest
thereon) if the market price of the common stock exceeded $5.00 per share.

27
<PAGE>

The terms of the Series A preferred stock have been amended. The amended
Statement of Resolution provides for the payment of dividends to the holders of
Series A preferred stock at the rate of $60.00 per share per year, payable
quarterly. Holders of Series A preferred stock have the right to convert their
shares into a number of shares of common stock equal to product of the number
of shares of Series A preferred stock to be converted and the quotient of the
per share conversion amount (set by the Statement of Resolutions as $1,000 plus
any accrued and unpaid dividends plus interest on dividends in arrears) divided
by the average market price (as defined in the Statement of Resolution).
Dividend on the Series A preferred stock were current as of the Record Date.

During the quarter ended March 31, 1998, EqualNet obtained a cash flow
bridge loan of $400,000 from Netco Acquisition, LLC, an entity owned 50% by
Willis Group. This note was payable on March 31, 1998 and had an interest rate
of 10%. This note was secured by the accounts attributable to web page
customers. This note was treated as a claim in EqualNet's bankruptcy
proceedings.

Willis Group received a finder's fee of $54,000 related to certain financing
transactions that closed during fiscal year 1998. Willis Group entered into an
agreement with Equalnet in April 1998 related to merger and acquisition
consulting services. The agreement required Equalnet to pay Willis Group
$20,000 per month beginning in May 1998, and a success fee based on a
percentage of the purchase price of acquisitions closed by Equalnet. Willis
Group subsequently agreed to a termination of the merger and acquisition
consulting services agreement with no payments having been made or due under
such agreement.

On September 2, 1998, Equalnet executed a loan agreement in favor of Willis
Group in the amount of $241,106. The loan documents certain advances Willis
Group has made on Equalnet's behalf. This loan is secured by the assets of
Equalnet and its subsidiaries. The related note bore interest at a rate of 11%
per year and matured on January 31, 1999. This note was renewed and extended
through July 31, 2000.

Equalnet pays Willis Group $6,250 per month for consulting services
performed by Mark Willis, Chairman of the Board of Equalnet, pursuant to an
Independent Contractor/Consulting Agreement entered into between Equalnet and
Willis Group on October 30, 1998, as modified on October 26, 1999. From October
30, 1998 through October 26, 1999, Equalnet paid Willis Group $12,500 per month
for consulting services performed by Mark Willis.

Effective July 31, 1998, the Company issued two 6% Senior Secured
Convertible Notes due in 2001 (the "2001 Notes") in the amount of $1.5 million
each to the Willis Group, an affiliate of the Company, and Genesee Fund
Limited--Portfolio B ("Genesee"), a British Virgin Islands corporation, both
accredited investors. The 2001 Notes were convertible into a variable number of
shares of the Company's Common Stock. The 2001 Notes bore interest at 6% and
interest payments were due each February 15, May 15, August 15 and November 15
commencing on November 15, 1998. The 2001 Notes were issued with an original
issue discount ("OID") in an initial amount of $100,000 for each note.

The 2001 Notes ranked equally with all other unsubordinated debt obligations
of the Company. The Company's obligations under the 2001 Notes were secured by
certain collateral pursuant to security agreements. A holder of the 2001 Note
could require the Company to repurchase the 2001 Note if an event of default
occurred. Events of default included among other things, the Nasdaq delisting
of the Common Stock.

In connection with the issuance of the 2001 Notes, the Company issued to
each of the Willis Group and Genessee a warrant ("Warrant") to purchase 333,116
shares of Common Stock at a purchase price of $0.9006 per share. The Warrants
expire on September 4, 2003.

On June 15, 1999, Equalnet entered into a series of transactions with Willis
Group, Genesee, MCM Partners and Advantage Fund Limited to modify the terms of
the Series A and D Preferred Stock and to convert the Convertible Notes into
Series F Preferred Stock. According to the terms of the transactions, Series A
and D Preferred Stock were modified and Series F Preferred Stock was created so
that they contained

28
<PAGE>

essentially the same provisions, including limited voting rights, except for
liquidation preferences. The conversion formulas were modified to adjust the
conversion floor on a semi-annual basis provided the Corporation obtains
shareholder approval and implements a Reverse Stock Split similar to that
described in Proposal One to a conversion price equal to 75% of the then-
prevailing market price of the stock. The provisions, however, were contingent
upon the Common Stock's continued listing on the NASDAQ National or SmallCap
market. Under the terms of each series of Preferred Stock, there is no
conversion price floor in the event the Common Stock is removed from trading on
the NASDAQ SmallCap market. The Common Stock was removed from trading on the
NASDAQ SmallCap market on November 17, 1999 and subsequently began trading on
the Over The Counter Bulletin Board. The transactions with Willis Group,
Genesee, MCM Partners and Advantage Fund Limited also call for the Corporation
to register a sufficient number of shares for full conversion of the Series A,
D and F Preferred Stock and grant waivers to the Corporation through January
15, 2000 for Optional Redemption Events (as defined in the Statement of
Resolutions for each series) and reservation of a sufficient number of shares
for full conversion of the respective series.

The Plan empowers the trustee of the Unsecured Creditors' Trust to select a
director nominee to the board of directors. The trustee, in the exercise of
this authority, has selected Mr. Paul as such nominee. The Plan provides
generally for the establishment of the Unsecured Creditors' Trust and payment
to the trust by the plan proponents of $1.35 million plus 3,000,000 shares of
common stock of Equalnet for the benefit of the unsecured creditors of EqualNet
Corporation. In addition, payments are to be made of administrative claims of
approximately $1.5 million.

John Isaac "Ike" Epley, a member of Equalnet's Board of Directors, performed
consulting services for Equalnet from June 1998 through March 1999. Mr. Epley
has consulted on such matters as mergers, acquisitions, strategy and corporate
development for Equalnet. He has been paid $85,400 to date under this
arrangement.

In July 1999, Equalnet entered into an Employment Agreement with Michael P.
Gallagher to become Equalnet's Chief Financial Officer, pursuant to which
Equalnet was required to grant to Mr. Gallagher, under Equalnet's Employee
Stock Option and Restricted Stock Plan, options to purchase an aggregate of
300,000 shares of common stock at an exercise price of $0.56 per share for a
term of five years. One-third of the options were to vest on July 26, 2000,
one-third were to vest on July 26, 2001 and one-third were to vest on July 26,
2002. Mr. Gallagher terminated his employment with the Company on February 25,
2000 without vesting in any of these options.

29
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of the Record Date (unless
indicated otherwise), with respect to the beneficial ownership of the common
stock and the Series B preferred stock of Equalnet by (1) persons known to
Equalnet to be the beneficial owners of more than 5% of any class of capital
stock of Equalnet, (2) each director, director nominee and Named Executive
Officer of Equalnet and (3) all directors and executive officers of Equalnet as
a group.

<TABLE>
<CAPTION>
Series B
Common Stock Preferred
Directors, Executive officers and Number % of Number of % of
5.0% Shareholders of Shares Class Shares Class
--------------------------------- ------------ ----- --------- -----
<S> <C> <C> <C> <C>
Michael T. Willis................... 13,954,082(1)(2) 36.8% -- 0.0%
1701 S. Shepherd #200
Houston, TX 77019

James T. Harris..................... 13,454,082(1) 36.0% -- 0.0%
1701 S. Shepherd #200
Houston, TX 77019

Willis Group........................ 13,454,082(1) 36.0% -- 0.0%
1701 S. Shepherd #200
Houston, TX 77019

Mark A. Willis...................... 13,488,162(1)(3) 36.1% -- 0.0%
1701 S. Shepherd #200
Houston, TX 77019

SA Telecommunications, Inc.......... 2,238,800(4) 5.8% -- 0.0%
1600 Promenade Center
15th Floor
Richardson, TX 75080

The Furst Group..................... 1,000,000(5) 2.7% 2,000 100.0%
459 Oakshade Road
Shamong, NJ 08088

James D. Kaylor..................... 1,000,000(5) 2.7% 2,000 100.0%
916 P Street, Ste. 200
Lincoln, NE 68508

John S. Streep...................... 1,000,000(5) 2.7% 2,000 100.0%
15841 Kilmarnock Drive
Ft. Meyers, FL 33912

Mitchell H. Bodian.................. 27,110(6) 0.1% -- 0.0%
1250 Wood Branch Park Dr.
Houston, TX 77079

R. Chadwick Paul.................... -- 0.0% -- 0.0%
1250 Wood Branch Park Dr.
Houston, TX 77079

John Isaac "Ike" Epley.............. 22,576(7) 0.1% -- 0.0%
1250 Wood Branch Park Dr.
Houston, TX 77079

Ronald J. Salazar, Ph.D............. 95,862(8) 0.3% -- 0.0%
1250 Wood Branch Park Dr.
Houston, TX 77079
</TABLE>

30
<PAGE>

<TABLE>
<CAPTION>
Series B
Common Stock Preferred
Directors, Executive officers and 5.0% Number % of Number of % of
Shareholders of Shares Class Shares Class
-------------------------------------- ------------ ----- --------- -----
<S> <C> <C> <C> <C>
William D. Rhodes....................... 166,666(9) 0.5% -- 0.0%
1250 Wood Branch Park Dr.
Houston, TX 77079

Michael P. Gallagher.................... -- 0.0% -- 0.0%
1250 Wood Branch Park Dr.
Houston, TX 77079

Dean H. Fisher.......................... 267,601(10) 0.7% -- 0.0%
1250 Wood Branch Park Dr.
Houston, TX 77079

Robert H. Turner........................ 575,000(11) 1.6% -- 0.0%
8714 Stable Crest
Houston, TX 77024

Zane Russell............................ 1,137,556(12) 3.1% -- 0.0%
20607 Shadow Mill Court
Houston, TX 77450

Michael L. Hlinak....................... 190,000(13) 0.5% -- 0.0%
19910 Erika Way
Katy, TX 77450

Bruce N. Shortt......................... -- 0.0% -- 0.0%
1250 Wood Branch Park Dr.
Houston, TX 77079
</TABLE>
- --------
(1) Includes warrants exercisable for an aggregate of 1,169,783 shares of
common stock in the name of the Willis Group, LLC, but does not include
2,100 shares of Series D Preferred Stock or 1,671 shares of Series F
Preferred Stock, which if converted, would convert in the aggregate into
13,267,751 shares of common stock. The terms of both the Series D and
Series F Preferred Stock designation allow conversion of the respective
series of preferred stock only so long as the holder seeking conversion
does not hold more than 4.9% of the Company's common stock at the time of
conversion. None of such shares issuable pursuant to the terms of the
warrants were outstanding as of March 24, 2000. Information relating to
ownership by Willis Group and Messrs. Michael T. Willis, Mark A. Willis
and James T. Harris is based on Schedule 13-D/A filed with the SEC on
March 9, 1999 and Schedule 13-D/A filed with the SEC on April 6, 2000.
Michael T. Willis and Mark A. Willis each own 48.5% of the membership
interest in Willis Group and Mr. Harris owns the remaining 3% membership
interest. Michael T. Willis is the Secretary of Willis Group, Mark A.
Willis is the President of Willis Group, and Mr. Harris is the Treasurer
of Willis Group. According to the report, Willis Group has sole voting
and dispositive power with respect to all shares other than shares or
warrants held directly and Messrs. Michael T. Willis, Mark A. Willis and
Harris have shared voting and dispositive power with respect to all
shares other than shares or warrants held directly.
(2) Includes warrants for the purchase of 500,000 shares of common stock.
(3) Includes 3,333 shares of common stock issuable upon exercise of stock
options awarded under the Non-Employee Director Stock Option Plan (the
"Director Plan") that are exercisable within 60 days, but does not
include 1,667 shares of common stock issuable upon exercise of stock
options awarded under the Director Plan that are not exercisable within
60 days.
(4) Includes 223,880 shares of Series C Preferred Stock convertible in the
aggregate into 2,238,880 shares of common stock. Does not include a
number of shares to be paid in satisfaction of amounts owing to SA
Telecommunications, Inc in the amount of $811,896 ($662,772 plus an
amount equal to 22.5% of $662,772) divided by the lesser of $0.28 per
share or the market price of Equalnet Common Stock at the date
registration of the shares to be paid in satisfaction of such amount is
effective.

31
<PAGE>

(5) Includes 2,000 shares of Series B Preferred Stock convertible in the
aggregate into 1,000,000 shares of common stock. Information relating to
ownership by Furst Group, James D. Kaylor and John S. Streep is based on
management's information regarding the transactions. Messrs. Kaylor and
Streep each own 45% of the common stock of Furst Group. Mr. Kaylor is the
Chairman of the Board of Furst Group and Mr. Streep is the Chief
Executive Officer of Furst Group.
(6) Includes 3,333 shares of common stock issuable upon exercise of stock
options awarded under the Director Plan that are exercisable within 60
days, but does not include 1,667 shares of common stock issuable upon
exercise of stock options awarded under the Director Plan that are not
exercisable within 60 days.
(7) Includes 3,333 shares of common stock issuable upon exercise of stock
options awarded under the Director Plan that are exercisable within 60
days, but does not include 1,667 shares of common stock issuable upon
exercise of stock options awarded under the Director Plan that are not
exercisable within 60 days.
(8) Includes 3,333 shares of common stock issuable upon exercise of stock
options awarded under the Director Plan that are exercisable within 60
days, but does not include 1,667 shares of common stock issuable upon
exercise of stock options awarded under the Director Plan that are not
exercisable within 60 days.
(9) Includes 166,666 shares of common stock issuable upon exercise of stock
options awarded under the Employee Stock Option Plan that are exercisable
within 60 days, but does not include 333,334 shares of common stock
issuable upon exercise of stock options awarded under the Employee Stock
Option Plan that are not exercisable within 60 days.
(10) Includes 35,000 shares of common stock issuable upon exercise of stock
options awarded under the Employee Stock Option Plan that are exercisable
within 60 days.
(11) Includes 450,000 shares of common stock issuable upon exercise of stock
options awarded under the Independent Contractor Stock Option Plan that
are exercisable within 60 days.
(12) Includes warrants for the purchase of 90,000 shares of common stock.
(13) Includes warrants for the purchase of 90,000 shares of common stock.

Except as otherwise noted, each shareholder has sole voting and dispositive
power with respect to the shares of common stock held by it to be voted at the
Meeting. Except under limited circumstances, the holders of the Series A
preferred stock, Series C preferred stock, Series D preferred stock and Series
F preferred stock are not entitled to vote. For purposes of calculating the
beneficial ownership of each stockholder, it was assumed (in accordance with
the SEC's definition of "beneficial ownership") that such stockholder had
exercised all options or warrants, or converted any convertible securities, by
which such stockholder had the right, within 60 days following the Record Date,
to acquire shares of common stock.

Each share of Series A, B, C, D and F preferred stock is convertible (on the
Record Date) into 3,518 shares, 500 shares, 10 shares, 3,518 shares and 3,518
shares of Common Stock, respectively. Under the terms of the warrants held by
Willis Group, LLC and Genesee Fund Limited--Portfolio B, and the Series A,
Series D and Series F preferred stock, those securities are convertible or
exercisable by any holder only to the extent that the number of shares of
common stock issuable upon the conversion of those securities, together with
the number of shares of common stock beneficially owned by the holder and its
affiliates (but not including shares of common stock underlying unconverted and
unexercised portions of those securities or securities containing similar
provisions) would not exceed 4.9% of the then outstanding common stock as
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. As the number of shares of common stock set forth in the
table for Willis Group exceeds the number of shares of common stock that Willis
Group could own beneficially at any given time through their ownership of the
warrants and the Series D and Series F preferred stock, Willis Group is
effectively precluded from exercising its warrants or converting the Series D
and Series F preferred stock without first selling enough common stock so that
its common stock holdings do not exceed 4.9% of the then outstanding common
stock. Furthermore, Genesee Fund Limited--Portfolio B, MCM Partners and
Advantage Fund Limited are not included on the above table as they are
prevented by the

32
<PAGE>

terms of the warrants, Series A, Series D and Series F preferred stock from
holding more than 4.9% of the then outstanding common stock at any time.
However, this limitation does not prevent any of Willis Group, Genesee Fund
Limited--Portfolio B, MCM Partners or Advantage Fund Limited from converting
and selling some of its holdings and then converting more of its holdings. By
doing this, any of Willis Group, Genesee Fund Limited--Portfolio B, MCM
Partners or Advantage Fund Limited could sell more than 4.9% of the outstanding
common stock of Equalnet while never holding more than 4.9% at any one time.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires Equalnet's
officers, directors and persons who own more than 10% of a registered class of
Equalnet's equity securities to file Form 3, Form 4 and Form 5 reports of
ownership and changes in ownership with the SEC. Officers, directors and
greater than 10% shareholders are required by the regulation to furnish
Equalnet with copies of all Section 16(a) reports they file.

Based solely on a review of reports on Forms 3 and 4 and amendments thereto
furnished to Equalnet during the fiscal year ended June 30, 1998 and written
representations from certain reporting persons that no report on Form 5 was
required, Equalnet believes that during the fiscal year ended June 30, 1998,
all officers, directors and greater than 10% shareholders complied with all
filing requirements applicable to them, except that Dean H. Fisher and James T.
Harris failed to file timely Forms 5. Messrs. Fisher and Harris completed and
filed delinquent Forms 5 on October 13, 1998.

Based solely on a review of reports on Forms 3 and 4 and amendments thereto
furnished to Equalnet during the fiscal year ended June 30, 1999 and written
representations from certain reporting persons that no report on Form 5 was
required, Equalnet believes that during the fiscal year ended June 30, 1999,
all officers, directors and greater than 10% shareholders complied with all
filing requirements applicable to them, except that Mitchell H. Bodian, Mark A.
Willis, John Isaac "Ike" Epley and Ronald J. Salazar failed to file timely
Forms 5. Mr. Epley completed and filed a delinquent Form 5 on or about January
20, 2000, Mark A. Willis and Ronald J. Salazar completed and filed delinquent
Form 5's on or about February 9, 2000 and Mitchell H. Bodian completed and
filed a delinquent Form 5 on or about April 28, 2000.

PROPOSALS FOR NEXT ANNUAL MEETING

Any proposals of Voting Shareholders intended to be presented at the annual
meeting of shareholders of Equalnet with respect to fiscal year 2000 must be
received by Equalnet at its principal executive offices, 1250 Wood Branch Park
Drive, Houston, Texas 77079, a reasonable period of time prior to the date of
that meeting, which is currently scheduled to occur in December 2000, to be
included in the proxy statement and form of proxy relating to that meeting.
Proposals must meet certain eligibility requirements under the rules of the
SEC.

Shareholder proposals for the next annual meeting submitted outside of the
SEC's procedures for including such proposals in Equalnet's Proxy Statement
must be mailed or delivered to the attention of Equalnet's corporate Secretary
at the address above and must be received by Equalnet a reasonable period of
time prior to the date of that meeting. If a proposal or notice of nomination
is received after such time, Equalnet's proxy for that meeting may confer
discretionary authority to vote on such matter without any discussion of such
matter in the Proxy Statement for that meeting.

33
<PAGE>

OTHER MATTERS

As of the date of this proxy statement, the management of Equalnet has no
knowledge of any business to be presented for consideration at the meeting
other than that described above. If any other business should properly come
before the meeting, it is intended that the shares represented by proxies will
be voted in respect thereto in accordance with the judgment of the persons
named in such proxies.

The cost of any solicitation of proxies will be borne by Equalnet. In
addition to solicitation by use of the mails, certain officers and regular
employees of Equalnet may solicit the return of proxies by telephone, telex or
personal interview. Arrangements may also be made with broker firms and other
custodians, nominees and fiduciaries for the forwarding of material to and
solicitation of proxies from the beneficial owners of common stock and Series B
preferred stock held of record by such persons, and Equalnet will reimburse
such brokerage firms, custodians, nominees and fiduciaries for reasonable out-
of-pocket expenses incurred by them in connection therewith.

34
<PAGE>

ANNEX A

PROPOSED AMENDMENT TO EQUALNET'S
ARTICLES OF INCORPORATION

We will file Articles of Amendment to Equalnet's Articles of Incorporation
amending such Articles of Incorporation, Section 2 of which Articles of
Amendment is as follows:

"2. Effective as of the close of business on the date of filing of this
amendment to the Articles of Incorporation (the "Effective Time"), the
filing of this amendment shall effect a reverse stock split (the "Reverse
Stock Split") pursuant to which each ten (10) shares of common stock of the
corporation issued and outstanding, shall be combined into one (1) validly
issued, fully paid and nonassessable share of common stock of the
corporation. The number of authorized shares, and the par value of the
common stock shall not be affected by the Reverse Stock Split. Each stock
certificate that prior to the Effective Time represented shares of common
stock shall, following the Effective Time, represent the number of shares
into which the shares of common stock represented by such certificate shall
be combined. Fractional shares that occur as a result of the foregoing
shall be purchased by the corporation based upon the closing price reported
for the common stock on the OTC Bulletin Board on the date of filing of
this amendment."
<PAGE>

EQUALNET COMMUNICATIONS CORP.
1250 WOOD BRANCH PARK DRIVE, HOUSTON, TEXAS 77079
THIS PROXY FOR HOLDERS OF COMMON STOCK IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 23, 2000.

The shareholder of Equalnet Communications Corp. (the "Company") whose signature
appears on the reverse side of this Proxy hereby appoints Mark A. Willis and
Mitchell H. Bodian, and each of them, attorneys and proxies of the undersigned,
with full power of substitution, to vote, as designated on the reverse side
hereof, the number of votes which the undersigned would be entitled to cast if
personally present at the Annual Meeting of Shareholders of the Company to be
held at the Texas I Room, Houston Marriott Westside, 13210 Katy Freeway,
Houston, Texas at 10:00 a.m., Tuesday, May 23, 2000, and at any adjournment
thereof.

THIS PROXY WILL BE VOTED AS DIRECTED. IF NOT OTHERWISE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF THE DIRECTOR NOMINEES NAMED IN ITEM 3
OR, IF ANY OF THE NOMINEES BECOMES UNAVAILABLE, FOR ANOTHER NOMINEE TO BE
SELECTED BY THE BOARD OF DIRECTORS AND FOR ALL OF THE OTHER PROPOSALS SET FORTH
IN ITEMS 1 THROUGH 2 AND 4 THROUGH 9.

SEE REVERSE SIDE
<PAGE>

PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!

ANNUAL MEETING OF SHAREHOLDERS
EQUALNET COMMUNICATIONS CORP.
MAY 23, 2000

Please Detach and Mail in the Envelope Provided

A [X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.

<TABLE>
<CAPTION>
WITHHOLD
FOR AUTHORITY
ALL NOMINEES TO VOTE FOR ALL NOMINEES
LISTED AT RIGHT LISTED AT RIGHT
<S> <C> <C> <C>
3. ELECTION OF [_] [_] Nominees:
DIRECTORS Mitchell H. Bodian (two-year term)
Ronald J. Salazar, Ph.D. (two-year term)
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY R. Chadwick Paul, Jr. (three-year term)
INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S NAME IN THE
SPACE PROVIDED BELOW.

____________________________________________________
</TABLE>

<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
1. PROPOSAL TO APPROVE AN AMENDMENT TO EQUALNET'S ARTICLES [_] [_] [_]
OF INCORPORATION EFFECTING A ONE-FOR-TEN REVERSE STOCK
SPLIT OF EQUALNET'S COMMON STOCK.

2. PROPOSAL TO APPROVE AN AMENDMENT TO EQUALNET'S ARTICLES [_] [_] [_]
OF INCORPORATION TO INCREASE THE COMPANY'S AUTHORIZED
CAPITAL SHARES.

4. PROPOSAL TO APPROVE THE ISSUANCE OF WARRANTS TO CERTAIN [_] [_] [_]
OFFICERS AND FORMER OFFICERS OF EQUALNET.

5. PROPOSAL TO RATIFY THE ISSUANCE OF COMMON STOCK TO CERTAIN [_] [_] [_]
DIRECTORS AND OFFICERS OF EQUALNET.

6. PROPOSAL TO APPROVE RESOLUTIONS WAIVING THE CONVENING AND [_] [_] [_]
CONDUCTING OF THE 1998 ANNUAL MEETING OF SHAREHOLDERS OF
THE COMPANY.

7. PROPOSAL TO RATIFY THE BOARD OF DIRECTORS' APPOINTMENT OF [_] [_] [_]
INDEPENDENT AUDITORS FOR EQUALNET AND ITS SUBSIDIARIES
FOR FISCAL 1999.

8. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S EMPLOYEE [_] [_] [_]
STOCK OPTION AND RESTRICTED STOCK PLAN.

9. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE ON [_] [_] [_]
SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING
OR ANY ADJOURNMENT THEREOF AND UPON MATTERS INCIDENT TO THE CONDUCT OF THE MEETING.
</TABLE>

SIGNATURE(S) ________________________________________ DATE: _____________ , 2000

NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS IT APPEARS HEREON.