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