EXCHANGE AGREEMENT
EQUALNET HOLDING CORP.
EQUALNET CORPORATION
TELESOURCE, INC.
EQUALNET WHOLESALE SERVICES, INC.
EQUALNET PLAZA
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
March 6, 1998
The ▇▇▇▇▇ Group, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Exchange of $3,000,000 10% Notes due December 31, 1998
and Warrants for the Purchase of 1,500,000 Shares of Common
STOCK FOR 3,000 SHARES OF SERIES B CONVERTIBLE PREFERRED STOCK
Gentlemen:
The ▇▇▇▇▇ Group, Inc., a New Jersey corporation ("▇▇▇▇▇"), is the
holder of $3,000,000 principal amount of 10% Notes due December 31, 1998 (the
"NOTES") of EqualNet Holding Corp., a Texas corporation (the "COMPANY"), and its
subsidiaries, EqualNet Corporation, a Delaware corporation ("EQUALNET
SUBSIDIARY"), TeleSource Inc., a Texas corporation ("TELESOURCE"), and EqualNet
Wholesale Services, Inc., a Delaware corporation ("WHOLESALE") (each of the
Company, EqualNet Subsidiary, TeleSource and Wholesale are referred to herein
individually as an "EQUALNET COMPANY" and collectively as the "EQUALNET
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COMPANIES"), and Warrants for Purchase of Common Stock (the "WARRANTS") relating
to the purchase of 1,500,000 shares, as adjusted from time to time pursuant to
the terms of the Warrants, of common stock, par value $.01 per share (the
"COMMON STOCK"), of the Company. The EqualNet Companies have requested that
▇▇▇▇▇ exchange the Notes and the Warrants for shares of preferred stock of the
Company as described herein, and to induce ▇▇▇▇▇ to effect such exchange, hereby
agree with ▇▇▇▇▇ as follows:
ARTICLE 1.
EXCHANGE AND TERMS OF SERIES B PREFERRED STOCK
a. SERIES B PREFERRED STOCK. The Company shall authorize the
issuance and sale to ▇▇▇▇▇ of 3,000 shares of Series B Senior Convertible
Preferred Stock ("SERIES B PREFERRED STOCK") of the Company. The Series B
Preferred Stock shall have the terms set forth in EXHIBIT A attached hereto.
b. EXCHANGE OF NOTES AND WARRANTS FOR SERIES B PREFERRED STOCK. The
Company shall issue and sell to ▇▇▇▇▇ the Series B Preferred Stock, and, subject
to and in reliance upon the representations, warranties, terms and conditions of
this Agreement, ▇▇▇▇▇ shall purchase the Series B Preferred Stock by
surrendering in exchange therefor the Notes and the Warrants. Such exchange
shall take place at a closing (the "CLOSING") to be held on March 6, 1998 at
10:00 a.m. or on such other date and at such time as may be mutually agreed upon
(the "CLOSING DATE"). At the Closing, the Company will issue and deliver the
Series B Preferred Stock in denominations designated by ▇▇▇▇▇ and registered in
the name of ▇▇▇▇▇ against delivery to the Company of the Notes and the Warrants.
c. CANCELLATION OF NOTES AND WARRANTS. The EqualNet Companies will
cancel the Notes and Warrants delivered by ▇▇▇▇▇ pursuant hereto.
d. ISSUANCE OF COMMON STOCK. In connection with the exchange, the
Company shall issue to ▇▇▇▇▇ 322,500 shares of Common Stock of the Company
("Interest Common Stock") representing one share of Common Stock for each $1.00
of interest on the Notes due and payable to ▇▇▇▇▇ on the date hereof. ▇▇▇▇▇
hereby agrees to accept such shares in lieu of interest payable in cash.
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ARTICLE 2.
CONDITIONS TO ▇▇▇▇▇'▇ OBLIGATION
The obligation of ▇▇▇▇▇ to exchange the Notes and Warrants for
Series B Preferred Stock at the Closing is subject to the following conditions:
a. REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the EqualNet Companies set forth in Article 3 hereof shall be true
on the Closing Date.
b. DOCUMENTATION AT CLOSING. ▇▇▇▇▇ shall have received all of the
following, each in form and substance satisfactory to ▇▇▇▇▇ and its counsel:
(i) Copies of all charter documents and bylaws of the Company
and of resolutions of the Board of Directors of each EqualNet Company evidencing
approval of this Agreement and the issuance of the Series B Preferred Stock, all
certified by the Secretary or any Assistant Secretary of the Company;
(ii) An opinion of Fulbright & ▇▇▇▇▇▇▇▇ L.L.P., counsel for
the EqualNet Companies, regarding the due authorization, execution and delivery
of this Agreement and the validity, binding effect and enforceability thereof,
and the due authorization, validity and fully paid and nonassessable status when
issued of the Series B Preferred Stock and the Common Stock to be issued upon
conversion of the Interest Common Stock, the Series B Preferred Stock (the
"Conversion Stock") and such other matters as ▇▇▇▇▇ shall reasonably request;
(iii) Evidence of the filing with, and acceptance by, the
Secretary of State of the State of Texas, an amendment to the Company's charter
documents to reflect the authorization of the Series B Preferred Stock and the
increase in the number of authorized shares of Common Stock, such that there
will be a number of shares of Common Stock authorized sufficient to permit the
issuance of the Interest Common Stock and the conversion of the Series B
Preferred Stock;
(iv) A certificate of the Secretary or an Assistant Secretary
of each EqualNet Company that shall certify the names of the officers of such
EqualNet Company authorized to sign this Agreement and the certificate(s) for
the Interest Common Stock and the Series B Preferred Stock to which the Company
is a party together with the true signatures of such officers;
(v) If this Agreement is executed and delivered on a date
other than the Closing Date, a certificate of each EqualNet Company signed by a
duly authorized officer of such EqualNet Company stating that the
representations and warranties of the EqualNet Companies contained in Article 3
hereof are true and correct;
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(vi) A binding payment agreement between the Company and AT&T
providing, among other things, that at no time will the Company be obligated to
pay AT&T more than is called for in the payment schedule attached hereto as
EXHIBIT B attached hereto; and
(vii) A certificate of the Company stating that the Proposed
Transactions (as hereinafter defined) have been consummated as described in the
Proxy Statement (as hereinafter defined).
c. PERFORMANCE; NO DEFAULT. The Company shall have performed and
complied with all agreements and conditions contained in this Agreement required
to be performed or complied with by the Company prior to or at the Closing.
d. PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be satisfactory to
▇▇▇▇▇ and its counsel, and ▇▇▇▇▇ and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as they may
reasonably request.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES AND AGREEMENTS
OF THE EQUALNET COMPANIES
The EqualNet Companies, jointly and severally, represent and warrant
to, and (in the case of Section 3.q. agree with), ▇▇▇▇▇ that:
a. ORGANIZATION AND STANDING OF THE COMPANY. Each EqualNet Company
is a corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation and has all requisite corporate power and
authority to own and operate its properties, to carry on its business as now
conducted and to enter into and, as applicable, perform its obligations
hereunder. Each EqualNet Company is qualified to do business and is in good
standing in each jurisdiction in which it is required to so qualify and where
the failure to be so qualified would have a material adverse effect on the
business, assets, financial condition or results of operations of the Company or
the EqualNet Companies taken as a whole (a "MATERIAL ADVERSE EFFECT").
b. CORPORATE ACTION. Each EqualNet Company has taken all corporate
action required to make this Agreement valid and enforceable (including approval
of holders of outstanding Series A Preferred Stock (as hereinafter defined) of
the Company).
c. VALIDITY OF DOCUMENTS. This Agreement has been duly authorized
and executed by each EqualNet Company and constitutes a valid and legally
binding obligation of
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each EqualNet Company, enforceable in accordance with its terms. The Interest
Common Stock and the Series B Preferred Stock when issued as contemplated by
this Agreement will be validly issued, fully paid and nonassessable. At Closing,
a sufficient number of shares of duly authorized and unissued Common Stock of
the Company will have been reserved for issuance upon conversion of the Series B
Preferred Stock, and no further corporate action is required for the valid
issuance of the Conversion Stock upon the conversion of the Series B Preferred
Stock. The issuance of the Conversion Stock in accordance with the terms of the
Series B Preferred Stock will not, at the Closing and thereafter, be subject to
preemptive, antidilution or similar rights of any Person, and when issued and
delivered against payment therefor in accordance with the terms of the Series B
Preferred Stock, will be validly issued, fully paid and nonassessable.
d. CONSENTS. The execution and delivery by each EqualNet Company of
this Agreement and the performance of the transactions contemplated hereby (i)
do not and under present law will not violate, or require any consent or
approval pursuant to, any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award, (ii) do not violate any provision of
its certificate or articles of incorporation or bylaws, (iii) do not and will
not give rise to any lien upon any of its assets, except as otherwise
contemplated hereby, and (iv) do not violate any provision of, or cause a
default under, any material agreement, lease, instrument or other contract to
which it is a party.
e. CAPITALIZATION; STATUS OF CAPITAL STOCK. Upon consummation of the
actions and transactions (the "Proposed Transactions") described in the Proxy
Statement of the Company dated February 17, 1998 (the "Proxy Statement") and the
filing of the amendment to the Company's charter described therein, the Company
will have authorized capitalization consisting of (i) 50,000,000 shares of
Common Stock, par value $.01 per share, of which 16,637,737 will be outstanding
and 1,850,000 will be reserved for issuance upon exercise of outstanding stock
options and warrants and (ii) 5,000,000 shares of Preferred Stock, par value
$.01 per share, of which 5,000 shares of Series A Convertible Preferred Stock
("Series A Preferred Stock") will be issued and outstanding. All of the
outstanding shares of Common Stock of the Company have been, and all of the
shares of Common Stock to be issued pursuant to the Proposed Transactions will
be, when issued, duly authorized, validly issued and fully paid and
nonassessable. Except as set forth in the Proxy Statement, as disclosed to ▇▇▇▇▇
in writing or as set forth in this Agreement, no options or rights to purchase
shares of capital stock, or securities convertible into shares of capital stock,
are authorized, issued or outstanding, nor is the Company obligated in any other
manner to issue shares of its capital stock or securities convertible into or
evidencing any right to acquire shares of its capital stock. There are no
restrictions on the transfer of shares of Interest Common Stock or Conversion
Stock, other than those imposed by relevant state and federal securities laws.
f. PRIVATE OFFERING. Based on and assuming the accuracy of the
representations of ▇▇▇▇▇ set forth in Section 5.b. hereof, the issuance of the
Interest Common Stock and the exchange pursuant to the terms of this Agreement
of the Notes and the Warrants
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for Series B Preferred Stock, are exempt from registration under the Securities
Act of 1933, as amended (the "SECURITIES ACT").
g. TITLE TO ASSETS. Each of the EqualNet Companies has good title to
all of its material properties and assets, free and clear of all material liens
and encumbrances, other than liens and encumbrances described in the Proxy
Statement, the SEC filings (as hereinafter defined) and Section 3.q. of this
Agreement.
h. INSURANCE. Each of the EqualNet Companies maintains with
financially sound and reputable insurers, risk of physical loss or damage
insurance covering its assets wherever the same may be located, insuring against
the risk of fire, explosion, theft and such other risks as are prudently insured
against by corporations engaged in the same business and similarly situated with
the EqualNet Companies in an amount usually carried by corporations engaged in
the same business and similarly situated with the Companies.
i. FINANCIAL STATEMENTS. The Company's consolidated financial
statements, set forth in the Company's Annual Report on Form 10-K for its latest
fiscal year ended, consisting of balance sheets and statements of operations and
cash flows and accompanying footnotes, certified by the Company's independent
accountants, and the interim financial statements, set forth in the Company's
Quarterly Report on Form 10-Q filed after such Form 10-K, as filed with the
Securities and Exchange Commission (the "SEC FILINGS"), fairly present, in all
material respects, the financial condition and results of operations of the
Company and its subsidiaries as of the dates and for the periods presented
therein, all in accordance with generally accepted accounting principles
consistently applied ("GAAP"). Except as set forth in the Proxy Statement, (i)
there are no liabilities, fixed or contingent, which are material but not
reflected in such financial statements other than liabilities arising in the
ordinary course of business since the date of the interim financial statements
and (ii) there has been no material adverse change in the business, financial
condition or operations of the Company since December 31, 1997.
j. BOOKS AND RECORDS. The books and records of the EqualNet
Companies accurately reflect in all material respects the transactions to which
any EqualNet Company is a party or by which its properties are subject or bound,
and such books and records have been properly kept and maintained in all
material respects.
k. ACCOUNTING CONTROLS. The EqualNet Companies maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general and specific
authorization, (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP and to maintain accountability
for assets, (iii) access to assets is permitted only in accordance with
management's general or specific authorization, and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
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l. NO LITIGATION. Except as disclosed in the SEC Filings filed prior
to the date of this Agreement or otherwise disclosed in writing to ▇▇▇▇▇, no
EqualNet Company is now engaged in or threatened in writing with any litigation
or other proceeding in connection with its affairs which would or could
reasonably be expected to have a Material Adverse Effect.
m. Intentionally omitted.
n. DISCLOSURE GENERALLY. The representations and statements made by
the EqualNet Companies in this Agreement and the information contained in the
Proxy Statement do not and will not contain any untrue statement of a material
fact or, taken collectively, omit to state a material fact or any fact necessary
to make the representations and statements made not materially misleading. No
written information, exhibit, report or financial statement furnished by the
EqualNet Companies to ▇▇▇▇▇ in connection with this Agreement, including the
Proxy Statement, contains or will contain any material misstatement of fact or,
taken collectively, omit to state a material fact or any fact necessary to make
the statements contained therein not materially misleading.
o. REGISTRATION RIGHTS. Except as disclosed in the SEC filings or
the Proxy Statement, (i) no person has rights to the registration of any
securities of the Company or any subsidiary and (ii) neither the Company nor any
of its subsidiaries will have any liability for any rights of any person for the
registration of any securities of the Company.
p. Intentionally omitted.
▇. ▇▇▇▇▇▇ TRANSACTIONS.
(i) Neither the Company nor any subsidiary or affiliate
thereof has granted, or will at any time grant, to any party providing financing
as part of the Proposed Transactions any security interest in any assets of the
Company or any subsidiary of the Company other than the Switches (as defined in
the Proxy Statement), to secure obligations incurred as part of the Proposed
Transactions.
(ii) For so long as the Series B Preferred Stock is
outstanding, without the prior written consent of ▇▇▇▇▇, neither the Company nor
any subsidiary of the Company will grant any security interest to ▇▇▇▇▇▇ Group
LLC or any subsidiary or affiliate thereof in any assets of the Company or any
subsidiary of the Company.
(iii) The amount of the investment of the ▇▇▇▇▇▇ Group LLC
relating to the Switches to be purchased by the Company is in all material
respects as set forth in the Proxy Statement.
(iv) The investment of the ▇▇▇▇▇▇ Group LLC in the Company
includes at least $4,000,000 in cash.
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(v) The cash invested in the Company by the ▇▇▇▇▇▇ Group LLC
will be used by the Company for the purposes set forth in the Proxy Statement in
all material respects. The financing for the Switches is to be provided by
Finova.
ARTICLE 4.
COVENANTS
a. LISTING ON NASDAQ NATIONAL MARKET. The Company agrees to promptly
have the shares of Interest Common Stock and any shares of Conversion Stock that
are issued upon conversion of the Series B Preferred Stock approved for
quotation on the Nasdaq National Market or such other primary market or trading
system on which the Common Stock then trades.
b. SPRINT AGREEMENT. The EqualNet Companies shall pay all amounts
due to Sprint no more than 45 days from the date of any future Sprint invoice to
any EqualNet Company, for so long as any EqualNet Company is provided service
under a partition under ▇▇▇▇▇'▇ contract with Sprint. ▇▇▇▇▇ shall, after the
date of the Closing, be allowed to ▇▇▇▇ up its cost of Sprint services to any
EqualNet Company by five percent (5%). If ▇▇▇▇▇ receives price reductions from
Sprint, ▇▇▇▇▇ shall keep the first five percent (5%) of any such reductions in
the costs of long distance service purchased from Sprint by the Company for all
bills rendered by Sprint to the Company after the Closing. Any additional cost
savings above such five percent (5%) reduction shall be shared equally by ▇▇▇▇▇
and the Company. ▇▇▇▇▇ shall maintain similar rights to those it currently has
under the Receivables Funding Corporation agreement in the event the EqualNet
Companies should fail to make payments directly to Sprint within such 45 day
period and may make payments directly to Sprint from such proceeds prior to
distributing any excess to the EqualNet Companies. ▇▇▇▇▇ agrees to cooperate
fully with the Company and any lender the Company may select in the event the
Company decides to replace Receivables Funding Corporation as its first lien
funding source, to place any such substitute lender in a superior lien position
with respect to ▇▇▇▇▇ and to retain ▇▇▇▇▇'▇ rights concerning Sprint payments
similar to those currently in place under the Receivables Funding Corporation
agreement.
c. REPURCHASE OF SERIES B PREFERRED STOCK. In the event of any
material breach by any EqualNet Company of any of the representations and
warranties or covenants set forth in Section 3.q. hereof, the EqualNet Companies
hereby jointly and severally agree with ▇▇▇▇▇ to repurchase the Series B
Preferred Stock from ▇▇▇▇▇ at a price of $1,000 per share, payable in cash, on a
date designated by ▇▇▇▇▇ upon not less than 10 days' prior written notice to the
Company.
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ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
AND COVENANTS OF ▇▇▇▇▇
▇▇▇▇▇ represents and warrants to the EqualNet Companies and
covenants and agrees with the EqualNet Companies as follows:
a. AUTHORIZATION. This Agreement constitutes a valid and legally
binding obligation of ▇▇▇▇▇ enforceable in accordance with its terms.
b. INVESTMENT REPRESENTATIONS; TRANSFER.
(i) The Series B Preferred Stock is being acquired by ▇▇▇▇▇
for investment for its own account, and not with a view to the sale or
distribution of any part thereof or of the Conversion Stock or Interest Common
Stock, and it has no present intention of selling, granting participation in, or
otherwise distributing the same except for distributions that are exempt from
the registration requirements of applicable securities laws (other than any
notice provisions thereof) or pursuant to a registered offering.
(ii) ▇▇▇▇▇ understands that the Interest Common Stock, the
Series B Preferred Stock and the Conversion Stock have not been registered under
the Securities Act on the basis that the offer and sale thereof as provided for
in this Agreement and the issuance of the Interest Common Stock and the
Conversion Stock are exempt from registration under the Securities Act pursuant
to Section 4(2) thereof, and that the Company's reliance on such exemption is
predicated on ▇▇▇▇▇'▇ representations set forth herein.
(iii) ▇▇▇▇▇ is an "accredited investor" within the meaning of
Rule 501 of Regulation D promulgated under the Securities Act, is experienced in
evaluating investments in companies such as the Company, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment and has the ability to bear the entire
economic risk of its investment. ▇▇▇▇▇ has made its own evaluation of its
investment in the Interest Common Stock and the Series B Preferred Stock, based
upon such information as is available to it and without reliance upon the
Company or any other person or entity, and ▇▇▇▇▇ agrees that neither the Company
nor any other person or entity has any obligation to furnish any additional
information to ▇▇▇▇▇ except as expressly set forth herein.
(iv) ▇▇▇▇▇ understands that the Interest Common Stock, the
Series B Preferred Stock and the Conversion Stock may not be sold, transferred,
pledged, hypothecated or otherwise disposed of without registration under the
Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering the Interest Common Stock, the Series
B Preferred Stock or the Conversion Stock or an available exemption from
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registration under the Securities Act, the Interest Common Stock, the Series B
Preferred Stock and the Conversion Stock must be held indefinitely.
c. LEGENDS; STOP TRANSFER. ▇▇▇▇▇ agrees that all Interest Common
Stock, Series B Preferred Stock and Conversion Stock shall bear legends in
substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
THE SECURITIES LAWS OF ANY OTHER STATE. THE SECURITIES REPRESENTED
HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR
OFFERED FOR SALE OR OTHERWISE TRANSFERRED, EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN
OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED."
ARTICLE 6.
REGISTRATION RIGHTS
a. As promptly as practicable after the Closing Date, if requested
by ▇▇▇▇▇, the Company will file a registration statement (the "SHELF
REGISTRATION") with the Commission under the Securities Act permitting the
disposition of the Interest Common Stock and the Conversion Stock ("Registrable
Stock") in accordance with the intended methods thereof as specified in writing
by ▇▇▇▇▇. The Company will use its commercially reasonable efforts to have the
Shelf Registration declared effective by the Commission as soon as practicable
after the filing date and to at all times maintain the effectiveness thereof.
The holders of Series B Preferred Stock (the "Holders") representing (assuming
conversion of all Series B Preferred Stock) more than 50% of the Registrable
Stock ("MAJORITY HOLDERS") may, at any time, request that the Company supplement
or amend the Shelf Registration to effect an underwritten offering of the
Registrable Stock by one or more underwriters selected by the Majority Holders;
provided that the Majority Holders may make such request only a total of three
(3) times. The Company will as promptly as practicable supplement or amend such
Shelf Registration to the extent required to permit the disposition in
accordance with such request and use its commercially reasonable efforts to have
the amendment declared effective by the SEC as soon as practicable after the
filing date. The Company shall enter into an underwriting agreement in customary
form used by such underwriter or underwriters, which shall include, among other
provisions, contribution and indemnities of the Company and the Holders party
thereto to the effect and to the extent provided in this Article 6. The Holders
whose Registrable Stock is to be distributed by such underwriters shall be
parties to such underwriting agreement. No Holder may participate in such
underwritten
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offering unless such Holder agrees to sell its Registrable Stock on the basis
provided in such underwriting agreement and completes and executes all
questionnaires, powers of attorney, indemnities and other documents reasonably
required under the terms of such underwriting agreement. The obligations of the
Company under this Article 6 (i) shall terminate on the earlier to occur of (A)
the third anniversary of the date of this Agreement and (B) at such time as all
Holders may transfer, without restriction whatsoever, all of the Registrable
Stock held by them or issuable to them upon conversion of the Series B Preferred
Stock held by them, pursuant to Rule 144(k) promulgated under the Securities
Act.
b. At any time that the Shelf Registration is not available for any
reason or not required pursuant to Section 6.a., upon written notice
("REGISTRATION NOTICE") from the Majority Holders to the Company requesting that
the Company effect the registration under the Securities Act of at least 15% of
the Registrable Stock or any lesser percentage so long as the anticipated
proceeds from such offering exceed $500,000, which Registration Notice shall
specify the intended method or methods of disposition of such Registrable Stock,
the Company shall use its commercially reasonable efforts to effect (at the
earliest practicable date) the registration under the Securities Act of such
Registrable Stock (each, a "DEMAND REGISTRATION") for disposition in accordance
with the intended method or methods of disposition stated in such Registration
Notice; PROVIDED that a Holder shall have the right to deliver Registration
Notices to effect three (3) demand registrations pursuant to this Section 6.b.
and no more without regard to the number of underwritten offerings requested
pursuant to Section 6.a. hereof.
c. Whenever the Company proposes to file a Registration Statement
with the Commission pursuant to the Securities Act in connection with a public
offering by the Company of its Common Stock, whether for the Company's own
account or for the account of others, other than a Registration Statement on
Form S-4 or Form S-8 or any successor forms thereto (a "PIGGYBACK
REGISTRATION"), the Company will give prompt written notice to all Holders and
will include in such Piggyback Registration all Registrable Stock with respect
to which the Company has received written requests for inclusion within 20 days
after the Company's mailing of such notice; provided that if the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number that
can be sold in such offering, at a price reasonably related to fair value, the
Company will allocate the securities to be included first to the Company, then
on a pro rata basis among the Holders and any other person with registration
rights not subordinated to those of the Holders.
d. If the proposed filing of a Registration Statement of which the
Company gives notice pursuant to Section 6.c. hereof is for a registered public
offering involving an underwriting, the Company shall so advise the Holders as
part of the written notice given pursuant to Section 6.c. In such event, if a
Holder proposes to distribute Registrable Stock through such underwriting, such
Holder shall (together with the Company and the other holders of securities of
the Company distributing their securities through such underwriting) enter into
an underwriting agreement in such form as shall have been negotiated and agreed
to by the Company with the underwriter or underwriters selected for such
underwriting by the Company.
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The Company will give the Holders notice (the "Pricing Notice") of the
anticipated range of the public offering price not later than two weeks prior to
the anticipated effective date of any Registration Statement which includes
Registrable Stock to be sold for the account of a Holder. A Holder may in its
discretion withdraw any time prior to five days after receipt of the Pricing
Notice, but may not thereafter withdraw any Registrable Stock, unless the public
offering price is below the lowest price in the range of anticipated public
offering prices specified in the Pricing Notice. In order to facilitate the
execution of the underwriting agreement and the closing thereunder, a Holder
will, at the request of the managing underwriter, enter into a custody agreement
and power of attorney consistent with the preceding sentence.
e. Notwithstanding the foregoing, if, at any time after giving
written notice of its proposal to file a Registration Statement pursuant to
Section 6.c. hereof and prior to the effective date of such Registration
Statement, the Company shall determine for any reason not to register the
securities proposed to be covered thereby, the Company may, at its election,
give written notice of such determination to the Holders and upon the withdrawal
of such Registration Statement shall have no further obligation to register any
Registrable Stock held by the Holders in connection with such registration. In
the event of such withdrawal by the Company, the Company shall promptly
reimburse the Holders for the reasonable fees and expenses of their own legal
counsel and other reasonable expenses incurred in connection with such
registration.
f. Subject to subsection 6.g(ii) below, in connection with any
registration effected hereunder, the Company shall bear all expenses incurred by
it in connection therewith and in connection with the related distribution,
which shall include, without limitation, the following costs and expenses: (i)
printing and engraving costs; (ii) transfer agent's and registrar's fees; (iii)
legal and accounting fees and expenses (provided that such expenses shall
include only one counsel for all selling Holders); (iv) registration and filing
fees with the Commission and any other regulatory or self-regulatory agencies or
bodies; and (v) reasonable costs of investigation of matters subject to
disclosure in the Registration Statement, including the fees and appraisers or
other experts. Notwithstanding the foregoing, and subject to subsection 6.g(i)
below, in connection with any registration effected hereunder, a Holder shall
bear all of his own expenses, including, without limitation, any underwriting
commissions or discounts in respect of the sale of its Registrable Stock and the
legal fees of its own counsel.
g. In connection with any Registration Statement filed hereunder in
which the Holder participates as a selling stockholder, the following provisions
as to indemnification shall apply:
(i) The Company shall indemnify and hold harmless the Holders
against any losses, claims, damages or liabilities to which he may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any preliminary
prospectus, the prospectus or any amendment or supplement thereto, or arise out
of or are based
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upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they are made, not misleading; and the Company
will reimburse any legal or other expenses reasonably incurred by the Holders in
connection with investigating or defending any such loss, claim, damage,
liability, action or proceeding; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage,
liability, action or proceeding arises out of or is based upon any untrue
statement or alleged untrue statement, or upon any omission or alleged omission,
of any material fact contained in the Registration Statement, any preliminary
prospectus, the prospectus or any such amendment or supplement, to the extent
that such fact was included or omitted in reliance upon and in conformity with
information furnished to the Company by or through such Holder specifically for
use in the preparation thereof. This indemnity will be in addition to any
liability which the Company may otherwise have.
(ii) A Holder will indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the Registration
Statement and each person, if any, who controls the Company, within the meaning
of the Securities Act or otherwise, against any losses, claims, damages or
liabilities to which it may become subject under the Securities Act or otherwise
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any preliminary prospectus, the prospectus or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they are made, not misleading; and a Holder will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that the Holder will be liable in each case under this
subsection 6.g(ii) to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any preliminary prospectus, the prospectus or any
such amendment or supplement in reliance upon and in conformity with information
furnished to the Company by or through such Holder specifically for use in the
preparation thereof. This indemnity will be in addition to any liability which
the Holder may otherwise have.
(iii) Promptly after receipt by an indemnified party pursuant
to the foregoing provisions of notice of the commencement of any action or
proceeding, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party hereunder, notify the indemnifying party of
the commencement thereof, provided that the omission to so notify the
indemnifying party will not relieve the indemnifying party from any liability
which it may have to any indemnified party under this Agreement or otherwise
unless such failure results in material prejudice to the indemnifying party. In
case any such action or proceeding is brought against any indemnified party, and
such party notifies an indemnifying
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party of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party or its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party hereunder for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that if
an indemnified party determines in good faith that it has existing or potential
claims against, or other conflicts with, the indemnifying party, the
indemnifying party may not assume the defense of such indemnified party but
shall remain liable for the separate legal and other expenses of such
indemnified party incurred in connection therewith. An indemnifying party shall
not be liable for any settlement of any action or claim affected without its
written consent thereto.
ARTICLE 7.
MISCELLANEOUS
a. COSTS, EXPENSES AND TAXES. The EqualNet Companies shall bear all
costs and expenses in connection with the preparation, execution and delivery of
this Agreement and the issuance of the Interest Common Stock, the Series B
Preferred Stock and the Conversion Stock. The EqualNet Companies shall pay any
and all stamp and other taxes payable or determined to be payable in connection
with the execution and delivery of this Agreement, the issuance of the Interest
Common Stock and the exchange of the Notes and the Warrants for the Series B
Preferred Stock.
b. LIMITATION ON LIABILITY; INDEMNIFICATION.
(i) ▇▇▇▇▇ shall not have any liability to any EqualNet Company
for any matter arising under or relating in any manner to this Agreement unless
caused exclusively by the gross negligence or willful misconduct of ▇▇▇▇▇. To
the extent permitted by applicable law, in addition to the payment of costs and
expenses pursuant to Section 7.a. hereof, and irrespective of whether the
transactions contemplated hereby shall be consummated, the EqualNet Companies
agree to indemnify, exonerate, pay and hold ▇▇▇▇▇, and any holder of any
interest in the Interest Common Stock, the Series B Preferred Stock or the
Conversion Stock, and the officers, directors, employees and agents of ▇▇▇▇▇ or
such holders (collectively, the "INDEMNITEES") harmless from and against any and
all liabilities, obligations, losses, damages, penalties, actions, causes of
action, judgments, suits, claims, costs, expenses, and disbursements of any kind
or nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding, irrespective of whether
such Indemnitee shall be designated a party thereto), which may be imposed on,
incurred by, or asserted against such Indemnitee, in any matter relating to or
arising
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out of this Agreement or in connection with any claim asserted against ▇▇▇▇▇ by
any person or entity arising out of or in any way connected with this Agreement
(collectively, the "INDEMNIFIED LIABILITIES"); provided however, that the
EqualNet Companies shall have no obligation hereunder with respect to an
Indemnitee for any Indemnified Liabilities proximately caused by the gross
negligence or willful misconduct of such Indemnitee.
(ii) If for any reason the indemnification provided in
paragraph (i) is unavailable to any Indemnitee or insufficient to hold it
harmless as contemplated thereby then the EqualNet Companies shall contribute to
the amount paid or payable by the Indemnitee as a result of such loss, claim,
liability or expense in such proportion as is appropriate to reflect not only
the relative benefits received by the EqualNet Companies, on the one hand and
such Indemnitee on the other hand, but also the relative fault of the EqualNet
Companies and the Indemnitee, as well as any equitable considerations.
c. SURVIVAL OF REPRESENTATIONS. The representations and warranties
contained in this Agreement or in any certificate furnished hereunder shall
survive the Closing. Notwithstanding any investigation conducted by ▇▇▇▇▇ before
or after the Closing or the decision of ▇▇▇▇▇ to complete the Closing, ▇▇▇▇▇
shall be entitled to rely upon the representations and warranties set forth
herein.
d. PRIOR AGREEMENTS. This Agreement constitutes the entire agreement
between the parties concerning the subject matter hereof and supersede any prior
representations, understandings or agreements. There are no representations,
warranties, agreements, conditions or covenants, of any nature whatsoever
(whether express or implied, written or oral) between the parties hereto with
respect to such subject matter except as expressly set forth herein or therein,
and ▇▇▇▇▇ acknowledges not having relied upon any such representations,
warranties, agreements, conditions or covenants which may have been previously
made by or on behalf of the EqualNet Companies or any officers or agents or any
other person or entity.
e. SEVERABILITY. The invalidity or unenforceability of any provision
hereof shall in no way affect the validity or enforceability of any other
provision.
f. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO ITS CHOICE OF LAW RULES.
g. LITIGATION. Each of the EqualNet Companies and ▇▇▇▇▇ hereby
waives trial by jury in any action or proceeding of any kind or nature in any
court in which an action may be commenced by or against it arising out of or
relating to this Agreement. The EqualNet Companies and ▇▇▇▇▇ hereby agree that
the United States District Court for the Southern District of New York, if a
basis for jurisdiction exists, and otherwise the courts of the State of New York
located in the Borough of Manhattan, the City of New York, shall have exclusive
jurisdiction to hear and determine any claims or disputes between any of the
EqualNet Companies and ▇▇▇▇▇,
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pertaining directly or indirectly to this Agreement or to any matter arising
therefrom, provided that notwithstanding the foregoing, ▇▇▇▇▇ may bring any suit
action or proceeding arising out of or relating to this Agreement, in the courts
of any place where ▇▇▇▇▇ can establish jurisdiction over the EqualNet Companies.
The parties hereto expressly submit and consent in advance to such jurisdiction
in any action or proceeding commenced in such courts, hereby waiving personal
service of the summons and complaint, or other process or papers issued therein
and agreeing that service of such summons and complaint or other process or
papers may be made by registered or certified mail addressed to such party at
its address provided herein. Each of the parties hereto waives any objection
that it may now or hereafter have to the laying of venue brought in the
aforementioned courts and hereby waives and agrees not to plead or claim in such
courts that any such action or proceeding brought in such court is brought in an
inconvenient forum.
h. HEADINGS. Article and Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
i. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
j. BINDING EFFECT. This Agreement shall be binding upon and enure to
the benefit of the parties hereto and their respective successors and permitted
assigns.
k. PUBLICITY. Except as required by law or the rules of the Nasdaq
Stock Market, neither the EqualNet Companies nor ▇▇▇▇▇ shall, nor shall they
permit their respective stockholders, directors, officers or advisors to, issue
or cause the publication of any press release or make any other public
statement, filing or announcement with respect to this Agreement and the
transactions contemplated hereby without the prior consent of the other parties.
The Company and ▇▇▇▇▇ shall cooperate in issuing press releases or otherwise
making public statements with respect to this Agreement and the transactions
contemplated hereby, which cooperation shall include first consulting the other
party hereto concerning the requirement for, and timing and content of, such
public announcement.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound, have caused this Agreement to be executed by their respective duly
authorized officers, as of the date first above written.
EQUALNET COMPANIES:
EQUALNET HOLDING CORP.
By:_______________________
President
EQUALNET CORPORATION
By:_______________________
President
TELESOURCE, INC.
By:_______________________
President
EQUALNET WHOLESALE SERVICES, INC.
By:_______________________
President
▇▇▇▇▇:
THE ▇▇▇▇▇ GROUP, INC.
By:_______________________
Executive Vice President
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