EXHIBIT 10.1
NOTE AND WARRANT PURCHASE AGREEMENT
EQUALNET HOLDING CORP.
EQUALNET CORPORATION
TELESOURCE, INC.
EQUALNET WHOLESALE SERVICES, INC.
EQUALNET PLAZA
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
February 3, 1997
The ▇▇▇▇▇ Group, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: $3,000,000 10% Notes due December 31, 1998, Warrants
for the Purchase of 1,500,000 Shares of Common Stock
and Refinancing Notes due December 31, 1998
Gentlemen:
Since November 1, 1996, EqualNet Holding Corp., a Texas corporation
(the "COMPANY"), and its subsidiary, EqualNet Corporation, a Delaware
corporation ("EQUALNET SUBSIDIARY"), have used The ▇▇▇▇▇ Group, Inc., a New
Jersey corporation (the "PURCHASER"), as their long-distance carrier for
long-distance services ultimately provided by Sprint Corp., and, since that
time, have been billed by Purchaser at Purchaser's cost without premium (the
"SPRINT ARRANGEMENT"). In consideration for this valuable service, the Company
agreed to issue Purchaser a warrant to purchase Common Stock (as herein defined)
at an exercise price of $2.00 per share, somewhat above the trading price of the
Common Stock on November 1, 1996 of $1.93 per share. In consideration for the
Company's prior agreement to issue a warrant, and for the
considerations described herein, the Company, 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 COMPANIES"), agree with the
Purchaser, as follows:
ARTICLE 1.
PURCHASE AND SALE AND TERMS OF NOTES AND WARRANTS
a. THE NOTES. The EqualNet Companies have authorized the issuance
and sale to the Purchaser of the EqualNet Companies' 10% Notes due December 31,
1998 (the "NOTES"), in the original aggregate principal amount of $3,000,000.
The Notes shall be substantially in the form set forth in EXHIBIT A attached
hereto.
b. THE WARRANTS. The Company has authorized the issuance and sale to
the Purchaser of the Company's Warrants to Purchase 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 (the "WARRANT STOCK"), of common
stock, par value $.01 per share (the "COMMON STOCK"), of the Company. The
Warrants shall be substantially in the form set forth in EXHIBIT B attached
hereto.
c. PURCHASE AND SALE OF NOTES AND WARRANTS. The EqualNet Companies
and the Company, respectively, shall issue and sell to the Purchaser, and,
subject to and in reliance upon the representations, warranties, terms and
conditions of this Agreement, the Purchaser shall purchase, the Notes and the
Warrants. Such purchase and sale shall take place at a closing (the "CLOSING")
to be held at the offices of ▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇, at 10:00 a.m. on the date of execution and delivery of this
Agreement, or on such other date and at such time as may be mutually agreed upon
(the "CLOSING DATE"). At the Closing, each EqualNet Company will issue and
deliver Notes, and the Company will issue and deliver the Warrants, in
denominations designated by the Purchaser and registered in the name of the
Purchaser or its nominee to Chase Manhattan Bank, a New York State chartered
bank ("ESCROWEE") under an Escrow Agreement substantially in the form attached
hereto as EXHIBIT E (the "ESCROW AGREEMENT"), against payment of the purchase
price of $3,000,000, of which $2,070,000 (which represents the purchase price
net of payments to be made out of proceeds to Purchaser and its counsel as
designated in Section 1.4 to be paid upon release of funds from under the Escrow
Agreement) shall be delivered in immediately available funds to the Escrowee
under the Escrow Agreement.
d. USE OF PROCEEDS. The EqualNet Companies will use the proceeds
from the sale of the Notes and Warrants as follows: $1 million for general
working capital needs excluding repayment of the Loans, as hereinafter defined,
of which (a) $790,000 shall be used to repay trade payables currently owed to
Purchaser, (b) $100,000 shall be used as a credit towards certain trade
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payables owed to Purchaser and (c) $40,000 shall be paid to Purchaser's legal
counsel; $1 million to reduce the EqualNet Companies' account payable to AT&T;
$1 million for sales and marketing activities directly related to new account
generation, of which $500,000 shall be used exclusively for such activities
related to the generation of new Sprint accounts.
ARTICLE 2.
DELIVERY OF REFINANCING NOTES; REFINANCING LOANS
a. INITIAL REFINANCING LOAN. The Company is a party to a Credit
Agreement dated as of November 30, 1995 (as amended to date, the "CREDIT
AGREEMENT") among the Company and each of the lenders who is or may become from
time to time a party thereto (the "LENDERS") and Comerica Bank-Texas, a Texas
banking association ("COMERICA"), as Agent (the "AGENT") for such Lenders,
pursuant to which the Lenders have and will from time to time make loans
("LOANS") to the Company. Under the terms of an Intercreditor and Subordination
Agreement, dated as of February 3, 1997 (the "INTERCREDITOR AGREEMENT") among
the Purchaser, the Agent, the Lenders and the Company, the Purchaser has the
right to repay on behalf of the Company a portion of the Loans by paying an
amount equal to 100% of the principal amount of the Loans so paid plus unpaid
accrued interest. In the event that the Purchaser repays such Loans pursuant to
the Intercreditor Agreement, each EqualNet Company agrees that the amount paid
by the Purchaser, without any further authorization from any EqualNet Company,
shall constitute a loan (the "INITIAL REFINANCING LOAN") by the Purchaser to the
EqualNet Companies in a principal amount equal to the amount so paid by the
Purchaser, including accrued interest. The obligation to repay such Initial
Refinancing Loan and any further loans made by the Purchaser pursuant to Section
2.2 (the Initial Refinancing Loan and any further loans are herein called the
"REFINANCING LOANS") shall be evidenced by refinancing promissory notes of the
EqualNet Companies delivered at the Closing (the "REFINANCING NOTES"). The
Refinancing Notes shall be substantially in the form of EXHIBIT C attached
hereto.
b. ADDITIONAL REFINANCING LOANS. If the Purchaser makes the Initial
Refinancing Loan, the Purchaser agrees to make further Refinancing Loans as
follows, subject to the terms and conditions set forth herein. The aggregate
principal amount of the Refinancing Loans outstanding at any time shall not
exceed the lesser of (i) the Borrowing Base (as hereinafter defined) or (ii) an
amount (the "MAXIMUM COMMITMENT") equal to the lesser of 100% of the Initial
Refinancing Loan or such lower amount, not less than the principal amount of the
Refinancing Notes outstanding, as the Maker may specify from time to time in
writing to the Purchaser. Notwithstanding the foregoing, in the event that the
outstanding principal amount of the Refinancing Loans shall ever exceed the
amount set forth above, such Refinancing Loans shall nevertheless constitute
Refinancing Loans and, as such, shall be entitled to all the benefits thereof
and the security therefor. The Purchaser is hereby authorized to endorse, or
cause to be endorsed, the date and the amount of each Refinancing Loan made by
the Purchaser and each repayment thereof on a schedule annexed to each
Refinancing Note, which endorsement shall constitute PRIMA FACIE evidence of the
accuracy of the information so endorsed; in lieu of
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endorsing such schedule, the Purchaser is hereby authorized, at its option, to
record the amount of each Refinancing Loan and repayments thereof on its books
and records, such books and records to constitute PRIMA FACIE evidence of the
accuracy of the information contained therein.
c. REPAYMENT OF REFINANCING LOANS. The Refinancing Loans shall be
due and payable as follows:
(a) In the event that the outstanding principal amount of the
Refinancing Loans shall ever exceed the maximum amount set forth in Section 2.2,
the EqualNet Companies shall immediately repay the excess of the outstanding
principal balance, and interest thereon, over such maximum amount, together with
unpaid accrued interest thereon; and
(b) The entire principal amount of the Refinancing Loans,
together with all unpaid interest accrued thereon, unless earlier paid, shall be
due and payable on the earlier of (i) December 31, 1998 or (ii) the Maturity
Date (as defined in the Credit Agreement), as such Maturity Date may be
accelerated or extended under the terms of the Credit Agreement.
(c) All payments of principal, accrued interest, and any other
amounts owed to Purchaser by the EqualNet Companies, shall be effected by wire
transfer to the account of Purchaser, or Purchaser's agent, in the State of New
York. Payments hereunder or in connection with any of the Notes or Refinancing
Notes shall not be made or delivered to Purchaser in any jurisdiction except in
the State of New York.
d. CONDITIONS TO REFINANCING LOANS. The obligation of the Purchaser
to make any Refinancing Loans (other than the Initial Refinancing Loan) is
subject to the following conditions:
(a) The Purchaser shall have received by 10:00 a.m. on any
business day a request in writing signed by the EqualNet Companies specifying
the amount of the proposed borrowing, the proposed borrowing date, which shall
not be earlier than 11:00 a.m. that day (or the next day if notice is given
after 10:00 a.m.), and the account of the EqualNet Companies to which funds are
to be disbursed and a Borrowing Base Certificate as of the most recent
practicable date (and in no event more than 31 days in advance of the date of
the proposed borrowing) demonstrating that the aggregate principal amount of the
Refinancing Loans, after taking into account the proposed borrowing, will not
exceed the amount of the Borrowing Base or otherwise exceed the maximum
principal amount of the Refinancing Loans specified in Section 2.2; and
(b) Each of the representations and warranties of the EqualNet
Companies set forth in Article IV of this Agreement and in the Security
Agreement shall be true and correct on the date of such request and on the
proposed date of borrowing, the EqualNet Companies shall have complied with all
covenants set forth in Article V of this Agreement and in the Security
Agreement, no Event of Default (as defined in the Refinancing Notes) or event or
occurrence that with notice or passage of time, or both, would constitute an
Event of Default, shall have occurred and be continuing and the Purchaser shall
have received a certificate signed by
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the President or the Chief Financial Officer of each of the EqualNet Companies
certifying the foregoing matters.
e. DEFINITIONS. The following terms shall have the meanings set
forth below.
"ACCOUNTS" shall mean all accounts within the meaning assigned
to such term in the Uniform Commercial Code as in effect in the State of New
York.
"BORROWING BASE" shall mean, as of any date, an amount equal
to 87.5% of the Eligible Accounts of the EqualNet Companies at such date.
"BORROWING BASE CERTIFICATE" shall mean a certificate duly
executed by the Chief Executive Officer, Chief Financial Officer, Treasurer or
Controller of the EqualNet Companies setting forth in reasonable detail
satisfactory to the Purchaser the EqualNet Companies' calculation of the
Eligible Accounts and the Borrowing Base.
"ELIGIBLE ACCOUNTS" shall mean, as at any date of
determination thereof, each Account of the EqualNet Companies that is subject to
the Security Agreement and on which the Purchaser shall have a first-priority,
perfected security interest and that complies with the following requirements:
(a) The Account arises from the provision of
telecommunications services to an account debtor on an absolute sale
basis on open account and not subject to any other refund agreement,
and no material part of the service has been rejected or is subject
to any claimed dissatisfaction, the Account is stated to be payable
in U.S. dollars and is not evidenced by chattel paper or an
instrument of any kind and such account debtor is not insolvent or
subject to any bankruptcy or insolvency proceedings of any kind;
(b) The account debtor is located in the United States;
(c) The Account is a valid obligation of the account debtor
thereunder and is not subject to any offset or other defense on the
part of such account debtor or to any claim on the part of such
account debtor denying liability thereunder;
(d) Such Account is subject to no lien or security interest
whatsoever, except for liens created or permitted pursuant to the
Security Agreement;
(e) Such Account is evidenced by an invoice submitted to the
account debtor in a timely fashion in the normal course of business;
(f) Such Account has not remained unpaid beyond 90 days after
the date of the invoice; provided that if such invoice date is on or
after August 5, 1996, and if the applicable account debtor is one
which is no longer being serviced by the EqualNet Companies, the
applicable account debtor does not have any
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other Account owed to the EqualNet Companies which remain unpaid
beyond 90 days after the date of the applicable invoice;
(g) Not more than (1) 75% (if such date is on or after July 5,
1996 but prior to August 5, 1996), (2) 50% if such date is on or
after August 5, 1996 but prior to September 5, 1996) or (3) 25% (if
such date is on or after September 5, 1996), of the other Accounts
of the applicable account debtor or any of its affiliates owed in
the aggregate to the EqualNet Companies fail to satisfy all of the
requirements of an "Eligible Account;"
(h) Such Account does not arise out of transactions with an
employee, officer, agent, director or stockholder of any of the
EqualNet Companies unless approved in writing by the Purchaser; and
(i) The applicable account debtor is not one which the
Purchaser has, in the exercise of its sole discretion, determined to
be (based on such factors as the Purchaser deems appropriate), and
has given notice of such determination to the EqualNet Companies, an
ineligible account debtor; PROVIDED, HOWEVER, that any such notice
shall not apply as to any Account of such account debtor that has
previously been included in the Borrowing Base prior to the giving
of such notice by the Purchaser and that meets each and every other
requirement for the denomination of such Account as a "Eligible
Account;"
(j) Each of the representations and warranties set forth in
the Security Agreement executed by the EqualNet Companies with
respect thereto is true and correct in all material respects on such
date.
In the event of any dispute under the foregoing criteria about whether an
Account is or has ceased to be an Eligible Account, the decision of the
Purchaser, made in good faith, shall be conclusive and binding, absent manifest
error.
f. DELIVERY OF BORROWING BASE CERTIFICATES. The EqualNet Companies
will deliver to the Purchaser a Borrowing Base Certificate at any time that the
Purchaser notifies the Borrower that it is considering making the Initial
Refinancing Loan as provided in Section 2.1 hereof and thereafter during any
period in which any Refinancing Loans are outstanding as often as the Purchaser
shall reasonably request.
ARTICLE 3.
CONDITIONS TO PURCHASER'S OBLIGATION
The obligation of the Purchaser to purchase and pay for the Notes
and Warrants at the Closing is subject to the following conditions:
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a. REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the EqualNet Companies set forth in Article 4 hereof shall be true
on the Closing Date.
b. EXECUTION AND DELIVERY OF INTERCREDITOR AGREEMENT. The
Intercreditor Agreement shall have been executed and delivered by all the
parties thereto.
c. EXECUTION AND DELIVERY OF SECURITY AGREEMENT. A Security
Agreement ("SECURITY AGREEMENT") in substantially the form of EXHIBIT D attached
hereto, securing the obligations of the EqualNet Companies under the Notes and
the Refinancing Notes, shall have been executed and delivered by each EqualNet
Company.
d. EXECUTION AND DELIVERY OF RIGHT AGREEMENT. The Right in the Event
of a Change of Control (the "RIGHT AGREEMENT") between the Company and Purchaser
shall have been executed and delivered by both parties thereto.
e. DOCUMENTATION AT CLOSING. The Purchaser shall have received all
of the following, each in form and substance satisfactory to the Purchaser and
its counsel:
(a) Copies of all charter documents and bylaws of each
EqualNet Company and of resolutions of the Board of Directors of each EqualNet
Company evidencing approval of this Agreement, the Notes, the Warrants and the
Refinancing Notes, all certified by the Secretary or any Assistant Secretary of
such EqualNet Company;
(b) An opinion of Fulbright & ▇▇▇▇▇▇▇▇ L.L.P., counsel for the
EqualNet Companies, regarding the due authorization, execution and delivery of
this Agreement, the Notes, the Warrants, the Refinancing Notes, the
Intercreditor Agreement, the Security Agreement, and the Right Agreement, the
validity, binding effect and enforceability thereof, and the due authorization,
validity and fully paid and nonassessable status when issued of the Warrant
Stock and such other matters as the Purchaser shall reasonably request;
(c) 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 the Documents (as hereinafter defined) to
which such EqualNet Company is a party together with the true signatures of such
officers; and
(d) 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 4
hereof are true and correct.
f. PERFORMANCE; NO DEFAULT. The EqualNet Companies shall have
performed and complied with all agreements and conditions contained in this
Agreement required to be performed or complied with by them prior to or at the
Closing and, after giving effect to the issue and sale of the Notes and Warrants
(and the application of the proceeds thereof as contemplated
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hereby) and delivery of the Refinancing Notes, no Default or Event of Default
(as hereinafter defined) shall have occurred and be continuing.
g. 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
Purchaser and its counsel, and Purchaser and its counsel shall have received all
such counterpart originals or certified or other copies of such documents as
they may reasonably request.
h. UCC MATTERS. The EqualNet Companies shall have provided to
Purchaser's counsel searches, acceptable in all respects to such counsel, of all
appropriate Uniform Commercial Code filing offices for financing statements
filed against any EqualNet Company as debtor, which searches disclose no liens
or filings other than those related to the Credit Agreement and those listed on
Schedule 3.8 hereto, and each EqualNet Company shall have executed and caused
the filing with the appropriate offices of all financing statements reasonably
requested by Purchaser or its counsel in connection with this Agreement or any
other Document and shall have furnished evidence of filing of such financing
statements to Purchaser or its counsel.
i. BUSINESS REVIEW. The Purchaser shall be satisfied in its sole
discretion with the results of its review of the business, licenses, properties,
assets, liabilities, technology, contractual arrangements, financial condition,
results of operations and prospects of the EqualNet Companies.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF THE EQUALNET COMPANIES The EqualNet
Companies, jointly and severally, represent and warrant to the
Purchaser 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 and under the Notes, the Warrants, the Refinancing Notes, the
Intercreditor Agreement, the Security Agreement and under all other documents
and instruments to be executed and delivered as contemplated by this Agreement
(this Agreement, the Notes, the Warrants, the Refinancing Notes, the
Intercreditor Agreement, the Security Agreement, the Right Agreement and all
such other documents and instruments to be executed by the EqualNet Companies in
connection with the Closing hereinafter referred to, individually, as a
"DOCUMENT" and collectively, as the "DOCUMENTS") to which it is a party. 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
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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 the Documents to which it is a party valid and
enforceable obligations of such EqualNet Company, including, without limitation,
approval by each EqualNet Company's board of directors.
c. VALIDITY OF DOCUMENTS. This Agreement and the other Documents
have been duly authorized and executed by each EqualNet Company that is a party
thereto and constitute valid and legally binding obligations of each such
EqualNet Company, enforceable in accordance with their terms. A sufficient
number of shares of duly authorized and unissued Common Stock of the Company has
been reserved for issuance upon the exercise of the Warrants, and no further
corporate action is required for the valid issuance of the Warrant Stock (as
defined in the form of Warrant) upon the exercise of the Warrants. The issuance
of the Warrant Stock in accordance with the terms of the Warrants will, at the
Closing and thereafter, not 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 Warrants, will be duly and validly issued,
fully paid and nonassessable.
d. CONSENTS. The execution and delivery by each EqualNet Company of
this Agreement and the other Documents to which it is a party and the
performance of the transactions contemplated hereby and thereby (a) 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, (b) do not violate any provision of its certificate or
articles of incorporation or bylaws, (c) do not and will not give rise to any
lien upon any of its assets, except as otherwise contemplated hereby, and (d) 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. The Company has a total
authorized capitalization consisting of (i) 20,000,000 shares of Common Stock,
of which 6,152,000 shares are currently issued and outstanding and 402,000 are
reserved for issuance upon exercise of outstanding stock options and warrants
and (ii) 1,000,000 shares of Preferred Stock, par value $.01 per share, none of
which are currently issued and outstanding. All the outstanding shares of Common
Stock of the Company have been duly authorized, are validly issued and are fully
paid and nonassessable. 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, except as set forth above,
pursuant to this Agreement or as set forth on Schedule 4.5. There are no
restrictions on the transfer of shares of Warrant Stock, other than those
imposed by relevant state and federal securities laws or as expressly set forth
in the form of the Warrants.
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f. PRIVATE OFFERING. Based on and assuming the accuracy of the
representations of Purchaser set forth in Section 6.2 hereof, the offer, sale,
issuance and delivery to the Purchaser pursuant to the terms of this Agreement
of the Notes, the Warrants, the Refinancing Notes and the Warrant Stock, are
exempt from registration under the Securities Act of 1933, as amended (the
"SECURITIES ACT") and no qualification of an indenture under the Trust Indenture
Act of 1939, as amended, is required in connection with such transaction.
g. TITLE TO ASSETS. Each of the EqualNet Companies has good and
marketable title to all of its properties and assets, free and clear of all
liens and encumbrances, other than liens and encumbrances (i) contemplated
hereby, (ii) in existence on the date hereof granted in connection with the
Credit Agreement, (iii) or as set forth on Schedule 4.7 hereto.
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. SECURITY INTEREST. The Security Agreement, when it has been duly
executed and delivered by the EqualNet Companies and the financing statements
required to be filed thereunder have been duly filed, will create and grant to
the Purchaser a valid and perfected security interest in the Collateral (as
defined in the Security Agreement).
j. 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 on Schedule 4.10 hereto, (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 change in the business, financial condition
or operations of the Company since September 30, 1996.
k. 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.
l. ACCOUNTING CONTROLS. The EqualNet Companies maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (a)
transactions are
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executed in accordance with management's general and specific authorization, (b)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for assets,
(c) access to assets is permitted only in accordance with management's general
or specific authorization, and (d) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
m. NO LITIGATION. Except as disclosed in the SEC Filings filed prior
to the date of this Agreement, 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.
n. NO DEFAULT. No Event of Default (as defined in the Notes) or
other event which, with the giving of notice or the passage of time or both,
would constitute an Event of Default has occurred and is continuing.
o. DISCLOSURE GENERALLY. The representations and statements made by
the EqualNet Companies or on their behalf in connection with this Agreement 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 the Purchaser in connection with this Agreement 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.
p. REGISTRATION RIGHTS. Except as disclosed on Schedule 4.17, (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.
q. NO SUBSIDIARIES. Except for EqualNet Subsidiary, TeleSource and
Wholesale, the Company has no equity, partnership or other similar interest,
direct or indirect, in any person.
ARTICLE 5.
COVENANTS
Each EqualNet Company shall, for so long as any portion of the Notes
or the Refinancing Notes is unpaid, comply with the covenants set forth in
Sections 7.1 through 7.8, 7.10 through 7.14 and Article VIII (substituting the
Purchaser for the Agent and the Lenders where appropriate) of the Credit
Agreement, as such covenants are in effect on the date hereof and irrespective
of any amendment, modification or termination of the Credit Agreement or any
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waiver by the Lenders thereunder. In addition to such covenants, the Company
agrees to promptly have any shares of Warrant Stock that are issued pursuant to
the Warrants approved for quotation on the Nasdaq National Market or such other
primary market or trading system on which the Common Stock then trades.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES
AND COVENANTS OF THE PURCHASER
The Purchaser 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 the Purchaser enforceable in accordance with its terms.
b. INVESTMENT REPRESENTATIONS; TRANSFER.
(a) The Notes, the Warrants and the Refinancing Notes are
being acquired by the Purchaser for investment for its own account, and not with
a view to the sale or distribution of any part thereof or of the Warrant 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.
(b) The Purchaser understands that the Notes, the Refinancing
Notes, the Warrants and the Warrant Stock have not been registered under the
Securities Act of 1933, as amended (the "SECURITIES ACT") on the basis that the
offer and sale thereof as provided for in this Agreement and the issuance of the
Warrant 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 the Purchaser's representations set forth herein.
(c) The Purchaser 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. The Purchaser has made its own
evaluation of its investment in the Notes and the Warrants, and will make its
own evaluation of its investment in the Refinancing Notes, based upon such
information as is available to it and without reliance upon the Company or any
other person or entity, and the Purchaser agrees that neither the Company nor
any other person or entity has any obligation to furnish any additional
information to the Purchaser except as expressly set forth herein.
-12-
(d) The Purchaser understands that the Notes, the Refinancing
Notes, the Warrants and Warrant 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 Notes, the Refinancing Notes, the Warrants
or the Warrant Stock or an available exemption from registration under the
Securities Act, the Notes, the Refinancing Notes, the Warrants and the Warrant
Stock must be held indefinitely.
c. LEGENDS; STOP TRANSFER. Each Purchaser agrees that all Notes,
Refinancing Notes, Warrants and Warrant 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."
For Notes and Refinancing Notes only:
THIS NOTE IS SUBJECT TO THE PROVISIONS OF THE INTERCREDITOR
AGREEMENT REFERRED TO HEREIN.
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, the Notes, the Refinancing Notes, the Warrants and the Warrant
Stock, provided that EqualNet shall only be obligated for up to $30,000 of
Purchaser's reasonable attorney fees incurred in connection therewith. 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, and the original issuance of the Notes, the Refinancing Notes, the
Warrants and the Warrant Stock.
b. LIMITATION ON LIABILITY; INDEMNIFICATION.
(a) Purchaser shall not have any liability to any EqualNet
Company for any matter arising under or relating in any manner to the Documents
unless caused exclusively by
-13-
the gross negligence or willful misconduct of Purchaser. To the extent permitted
by applicable law, in addition to the payment of costs and expenses pursuant to
Section 7.1 hereof, and irrespective of whether the transactions contemplated
hereby shall be consummated, the EqualNet Companies agree to indemnify,
exonerate, pay and hold the Purchaser, and any holder of any interest in the
Notes, the Refinancing Notes, the Warrants or the Warrant Stock, and the
officers, directors, employees and agents of the Purchaser 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 out of this Agreement or any of the other Documents or in connection
with any claim asserted against the Purchaser by any person or entity arising
out of or in any way connected with this Agreement or any of the other Documents
(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.
(b) If for any reason the indemnification provided in
paragraph (a) 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 the
Purchaser before or after the Closing or the decision of the Purchaser to
complete the Closing, the Purchaser shall be entitled to rely upon the
representations and warranties set forth herein.
d. PRIOR AGREEMENTS. This Agreement and the other Documents
constitute 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 the Purchaser 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.
-14-
f. GOVERNING LAW. THIS AGREEMENT AND THE OTHER DOCUMENTS 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 the Purchaser
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 this Agreement or any of the other Documents. The EqualNet Companies
and the Purchaser 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 the Purchaser,
pertaining directly or indirectly to this Agreement or to any of the Documents
or to any matter arising therefrom, provided that notwithstanding the foregoing,
Purchaser may bring any suit action or proceeding arising out of or relating to
this Agreement or any of the other Documents, in the courts of any place where
Purchaser 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 the Purchaser 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 the Purchaser shall cooperate in issuing press releases or
otherwise making public statements with respect to this Agreement and the
transactions contemplated
-15-
hereby, which cooperation shall include first consulting the other party hereto
concerning the requirement for, and timing and content of, such public
announcement.
-16-
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: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
President
EQUALNET CORPORATION
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
President
TELESOURCE, INC.
By: /s/ (SIG. ILLEGIBLE)
President
EQUALNET WHOLESALE SERVICES, INC.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
President
PURCHASER:
THE ▇▇▇▇▇ GROUP, INC.
By:SIG. ILLEGIBLE
Executive Vice President
-17-
EXHIBIT A
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.
THIS NOTE IS SUBJECT TO THE PROVISIONS OF THE INTERCREDITOR
AGREEMENT REFERRED TO HEREIN.
No. ____ EQUALNET HOLDING CORP.
EQUALNET CORPORATION
TELESOURCE, INC.
EQUALNET WHOLESALE SERVICES, INC.
10% Note due December 31, 1998
$_______ ________, 199__
FOR VALUE RECEIVED, EqualNet Holding Corp., a Texas corporation,
EqualNet Corporation, a Delaware corporation, TeleSource, Inc., a Texas
corporation, and EqualNet Wholesale Services, Inc., a Delaware corporation, each
having an address at EqualNet Plaza, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇ (hereinafter referred to collectively as the "MAKER"), jointly and
severally hereby promise to pay to the order of _____________________, having an
address at ___________________________ (the "PAYEE"), on or before December 31,
1998, the principal sum of ______________ Dollars ($_________), and to pay
interest from the date funds are advanced by the Payee to the Escrowee pursuant
to Section 1.3 of the Agreement (as herein defined) and the Escrow Agreement
dated February 11, 1997 among the Maker, The ▇▇▇▇▇ Group, Inc., a New Jersey
corporation ("TFG") and the Escrowee (defined therein) on the principal sum
remaining from time to time unpaid at the rate of ten percent (10%) per annum,
such interest to be payable monthly in arrears on the first business
A-1
day of every calendar month commencing __________, 1997. Principal and
interest shall be payable and delivered, without surrender or presentation of
this Note, in lawful money of the United States of America by wire transfer of
immediately available funds to Payee, or to Payee's agent, in the State of New
York. Any amounts not paid when due shall bear interest at the rate of thirteen
percent (13%) compounded monthly. Interest shall be computed on the basis of a
360-day year of twelve 30-day months.
This Note is one of an issue of 10% Notes due December 31, 1998 of
the Maker in an aggregate principal amount of $3,000,000 (collectively, the
"NOTES") issued pursuant to a certain Notes and Warrants Purchase Agreement,
dated as of February 3, 1997, between the Maker and TFG (the "AGREEMENT").
Capitalized terms used herein but not defined herein shall have the meaning
ascribed to them in the Agreement.
Section 1. OPTIONAL REDEMPTION. The Maker may at any time redeem the
Notes in whole or in part (in integral multiples of $1,000) by a payment of a
redemption price equal to the principal amount thereof, together with interest
due on the amount so redeemed to the date of redemption, without premium or
penalty of any nature. In the event of prepayment of this Note in full, any
prepaid but unearned interest shall be credited against the redemption price.
Section 2. NOTICE OF REDEMPTION. Notice of any redemption shall be
given to the Payee at least three days prior to the date of such redemption.
Each redemption of Notes shall be made so that, as nearly as may be practicable,
the Notes then held by each holder shall be redeemed in a principal amount which
shall bear the same ratio to the total principal amount of Notes being redeemed
as the principal amount of Notes then held by such holder bears to the aggregate
principal amount of the Notes then outstanding.
Section 3. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be
made on the Notes shall be due on a Saturday, Sunday or a public holiday under
the laws of the State of New York or the State of Texas, such payment may be
made on the next succeeding business day with the same effect as if made on the
nominal date for payment.
Section 4. REGISTRATION. The Maker shall maintain at its principal
office a register of the Notes and shall record therein the names and addresses
of the holders of the Notes, the address to which notices are to be sent and the
address to which payments are to be made as designated by the holder if other
than the address of the holder, and the particulars of all transfers, exchanges
and replacements of Notes. Each Note issued hereunder, whether originally or
upon transfer, exchange or replacement of a Note, shall be registered on the
date of execution thereof by the Maker.
Section 5. TRANSFER AND EXCHANGE. Transfer of a Note may be effected
by endorsement and delivery. The holder of any Note may, prior to maturity or
redemption thereof, surrender such Note at the principal office of the Maker for
transfer or exchange. Within a reasonable time after notice to the Maker from a
holder of its intention to make such exchange and without expense (other than
applicable transfer taxes, if any) to such holder, the Maker shall issue in
exchange therefor another Note or Notes dated the date to which interest has
been paid
A-2
on, and for the unpaid principal amount of, the Note or Notes so surrendered,
containing the same provisions and subject to the same terms and conditions as
the Note or Notes so surrendered. Each new Note shall be made payable to such
person or entity, as the registered holder of such surrendered Note or Notes may
designate. Notes issued upon any transfer or exchange shall be only in
authorized denominations, which shall be $100,000 and integral multiples of
$50,000 in excess thereof or, in the event of partial redemption by the Maker of
any Notes or partial surrender of such Notes in connection with the exercise of
the Warrants (as defined in the Agreement), such lesser amount as shall
constitute the entire remaining principal amount of such Note.
Section 6. REPLACEMENT. Upon receipt of evidence reasonably
satisfactory to the Maker of the loss, theft, destruction or mutilation of any
Note and, if requested by the Maker in the case of any such loss, theft or
destruction, upon delivery of an indemnity agreement of the holder satisfactory
to the Maker, or, in the case of any such mutilation, upon surrender and
cancellation of such Note, the Maker will issue a new Note, of like tenor, in
the amount of the unpaid principal of such Note, and dated the date to which
interest has been paid, in lieu of such lost, stolen, destroyed or mutilated
Note.
Section 7. INTERCREDITOR AGREEMENT. The Maker, for itself and its
successors and assigns, covenants and agrees, and the Payee and each successor
holder of Notes by such holder's acceptance thereof, likewise covenants and
agrees, that notwithstanding any other provision of the Notes, the payment of
the principal and interest on each Note and all other obligations of any kind,
now or hereafter owing under this Note or in respect of the indebtedness
evidenced hereby, shall be governed by that certain Intercreditor and
Subordination Agreement dated January __, 1997 (the "INTERCREDITOR AGREEMENT")
among the Maker, certain lenders party thereto, Comerica Bank-Texas, as agent
for such lenders, and The ▇▇▇▇▇ Group, Inc., a New Jersey corporation.
Section 8. EVENTS OF DEFAULT. Any of the following shall constitute
an "EVENT OF DEFAULT" with respect to the Notes:
(a) an Event of Default, as defined in the Credit Agreement on
the date of the Agreement and irrespective of any amendment, modification
or termination of the Credit Agreement or any waiver by the Lenders
thereunder, shall have occurred;
(b) a failure to pay principal of or interest on any Note, or
any other amount payable thereunder when due;
(c) a failure of the Maker to observe or perform any term,
covenant or agreement contained in the Agreement or any of the Documents
and, in the case of affirmative covenants contained in Article VII of the
Credit Agreement, continuation of such failure for a period ending five
business days after notice to the EqualNet Companies at the address set
forth above (or such other address as the EqualNet Companies may furnish
to the holder hereof in writing) by any holder of the Notes or the time
such failure becomes known to any officer of an EqualNet Company,
whichever is earlier;
A-3
(d) any statement, certificate, report, representation or
warranty made or furnished on behalf of the Maker in the Agreement or any
of the Documents shall prove to have been false or misleading in any
material respect when made;
Upon the occurrence of an Event of Default, while such event shall be
continuing, holders representing a majority of the then outstanding principal
amount of the Notes may, by notice to the Maker, declare the entire unpaid
principal amount of the Notes and all interest accrued and unpaid thereon to be
forthwith due and payable, whereupon all such amounts shall become and be
forthwith due and payable (unless there shall have occurred an Event of Default
under paragraph (a) above because of an Event of Default as set forth in Section
9.1(f), (g) or (h) of the Credit Agreement as in effect on the date of the
Agreement and irrespective of any amendment, modification or termination of the
Credit Agreement or any waiver by the Lenders thereunder, in which case all such
amounts shall automatically become due and payable), without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Maker.
This Note is secured in accordance with the provisions of the
Security Agreement dated as of February 3, 1997 between the Maker and The ▇▇▇▇▇
Group, Inc., a New Jersey corporation.
The Maker hereby agrees to pay on demand all costs and expenses
incurred in collecting the Maker's obligations hereunder or in enforcing or
attempting to enforce any of the holder's rights hereunder or under the
Agreement or the Security Agreement, including, but not limited to, reasonable
attorneys' fees and expenses if collected by or through any attorney, whether or
not suit is filed.
THIS NOTE 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.
The Maker hereby waives presentment, demand, notice of nonpayment,
protest and all other demands and notices in connection with the delivery,
acceptance, performance or enforcement of this Note.
A-4
EQUALNET HOLDING CORP.
By:_________________________________
President
EQUALNET CORPORATION
By:_________________________________
President
TELESOURCE, INC.
By:_________________________________
President
EQUALNET WHOLESALE SERVICES, INC.
By:_________________________________
President
A-5
EXHIBIT B
THE SECURITIES REPRESENTED HEREBY AND THE COMMON STOCK ISSUABLE HEREUNDER
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.
WARRANT NO.___ _____ SHARES
EQUALNET HOLDING CORP.
Warrant for Purchase of Common Stock
___________, 199__
This is to certify that ________________ (the "HOLDER"), with an
address at _______________________________, is entitled to purchase _______
shares of Common Stock, par value $.01 per share (the "WARRANT STOCK"), of
EqualNet Holding Corp., a Texas corporation (the "COMPANY"), at a price and
subject to the terms and conditions contained herein. This warrant is one of the
warrants (collectively, "WARRANTS") of the Company issued under a Notes and
Warrants Purchase Agreement (the "AGREEMENT") dated as of February 3, 1997
between the Company, EqualNet Corporation, TeleSource, Inc. and EqualNet
Wholesale Services, Inc. and The ▇▇▇▇▇ Group, Inc., a New Jersey corporation.
Capitalized terms used herein and not otherwise defined herein (including in
Section 13 hereof) have the meanings specified in the Agreement.
Section 1. EXERCISE OF THE WARRANT
(a) This Warrant shall be exercisable at any time subsequent to the
date hereof until 5:00 P.M. Houston, Texas time on December 31, 1999, at which
time this Warrant shall expire.
(b) This Warrant may be exercised by the Holder in whole or in part
upon surrender of the Warrant with the duly completed and executed subscription
form attached hereto at the office of the Company at its address set forth in
Section 7, or at such other place in the
B-1
United States as the Company may designate for such purpose by notice hereunder,
upon payment to the Company of the Warrant Price (as hereinafter defined in
Section 2). Payment of the Warrant Price may be made:
(i) by delivery of Notes or Refinancing Notes in an unpaid
principal amount which is, together with unpaid accrued interest, equal to
the Warrant Price;
(ii) by delivery of cash or a bank cashier's or certified
check payable in United States currency to the order of the Company in the
amount of the Warrant Price or wire transfer of the Warrant Price in
immediately available funds; or
(iii) by delivery of a combination of (i) and (ii).
(c) The Holder may also effect a cashless exercise by surrender of
this Warrant at such office with a duly completed and executed cashless exercise
form attached hereto (a "CASHLESS EXERCISE"). In the event of a Cashless
Exercise, the Holder shall exchange this Warrant for that number of shares of
Warrant Stock determined by multiplying the number of shares of Warrant Stock as
to which a Cashless Exercise is made by a fraction, the numerator of which shall
be the difference between the then Current Price Per Share as of the close of
business on the business day prior to the date of exercise and the Warrant
Price, and the denominator of which shall be such Current Price Per Share.
(d) Stock issuable upon the exercise of this Warrant shall be and
will be deemed to be issued to the Holder or its nominee as record owner of such
shares as of the close of business on the date on which this Warrant shall have
been surrendered and the Warrant Price paid as provided above (and any Notes or
Refinancing Notes delivered as aforesaid shall be deemed paid on such date) or
Cashless Exercise is effected. Certificates for such shares shall be delivered
to the Holder as soon as practicable but not later than seven business days
after such exercise to the Holder or its agent at an address in the State of New
York provided to the Company by the Holder.
Section 2. WARRANT PRICE AND WARRANT STOCK ADJUSTMENTS.
(a) The price at which the shares of Warrant Stock shall be
purchasable upon the exercise of this Warrant shall be $2.00 per share (the
"WARRANT PRICE"), subject to adjustments as hereinafter set forth:
(i) If the Company shall issue or sell Options or Convertible
Securities (other than Excluded Securities) for consideration less than
the Warrant Price at the date of such issue or sale, the Warrant Price
shall be adjusted down to an amount that is equivalent to such
consideration.
(ii) If the Company shall issue or sell Common Stock (other
than pursuant to Excluded Securities or pursuant to Options or Convertible
Securities outstanding on the date hereof) for a consideration per share
less than the Warrant Price at
B-2
the date of such issue or sale, the Warrant Price shall be adjusted down
to an amount that is equivalent to such consideration.
(iii) The Warrant Price shall be adjusted as provided in
subsection 2(b)(v) hereof.
(iv) In the event that (A) at any time ▇▇▇▇ ▇▇▇▇▇▇▇ ceases to
be and act as the chief executive officer of the Company or (B) ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ceases to be and act as chief operating officer of the Company, the
Warrant Price shall be adjusted down to that number that is equal to the
Warrant Price at the time of such failure or cessation divided by two;
provided that, if such cessation is a result of a termination for good
cause, as determined in good faith by the Board of Directors of the
Company, or the death, disability or incapacity of ▇▇▇▇ ▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇
▇▇▇▇▇▇, respectively, no adjustment in the Warrant Price shall be made
under this subparagraph (iv); provided further that no adjustments shall
be made to the Warrant Price with respect to (B) above after the earlier
to occur of the passage of one year from the date of the Agreement or the
date on which ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and the Company enter into an employment
agreement containing terms consistent with industry practice and ▇▇▇▇▇▇▇
▇▇▇▇▇▇'▇ position with the Company and with a term of at least one year.
(v) The Warrant Price shall be adjusted as provided in
subsection 2(c) hereof.
(b) The number of shares purchasable upon the exercise of this
Warrant and the Warrant Price shall upon the occurrence of any of the following
events after the date hereof be subject to adjustment as follows:
(i) In case the Company shall issue shares of Common Stock,
Options or Convertible Securities (except Excluded Securities and shares
of Common Stock issuable pursuant to the exercise of Excluded Securities),
the number of shares of Warrant Stock that immediately prior to such
issuance the Holder of this Warrant shall have been entitled to purchase
pursuant to this Warrant shall be increased in direct proportion to the
increase in the number of shares of Common Stock outstanding immediately
prior to such issuance (in the case of the issuance of Options or
Convertible Securities, the number of shares of Common Stock outstanding
shall include the maximum aggregate number of shares of Common Stock
issuable pursuant to such Options and Convertible Securities assuming full
exercisability thereof at the time of issuance); provided that if such
shares of Common Stock, Options or Convertible Securities (except Excluded
Securities and shares of Common Stock issuable pursuant to the Exercise of
Excluded Securities) are issued for a consideration per share less than
the Warrant Price at the date of such issue or sale, the number of shares
of Warrant Stock that immediately prior to such issuance the Holder of
this Warrant shall have been entitled to purchase pursuant to this Warrant
shall be increased to the greater of (A) that number of shares that is
equal to the number of shares of Warrant Stock that immediately prior to
such issuance the Holder of this Warrant shall have been entitled to
purchase pursuant to this Warrant multiplied by a fraction, the
B-3
numerator of which is the Warrant Price and the denominator of which is
such consideration per share, and (B) the number of shares of Warrant
Stock otherwise calculated under this paragraph (i).
(ii) In case the Company shall (A) pay a dividend in Common
Stock, (B) subdivide its outstanding Common Stock, or (C) combine its
outstanding Common Stock into a smaller number of shares, the number of
shares of Warrant Stock which immediately prior to such event the Holder
of this Warrant shall have been entitled to purchase pursuant to this
Warrant shall be increased or decreased in direct proportion to the
increase or decrease, respectively, in the number of shares of Common
Stock outstanding immediately prior to such event. An adjustment made
pursuant to this subsection 2(b)(ii) shall become effective retroactively
immediately after the record date in the case of a dividend and shall
become effective immediately after the effective date in the case of a
subdivision or combination.
(iii) In case the Company shall distribute to all holders of
its Common Stock evidences of its indebtedness or other assets (other than
distributions payable in Common Stock, then in each such case the number
of shares of Warrant Stock thereafter purchasable upon the exercise of
this Warrant shall be determined by multiplying the number of shares of
Warrant Stock theretofore purchasable upon the exercise of this Warrant,
by a fraction, of which the numerator shall be the then Current Price Per
Share on the date of such distribution and of which the denominator shall
be such Current Price Per Share less the then Fair Market Value of the
portion of the assets or evidences of indebtedness so distributed to one
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made, and shall become effective retroactively immediately
after the record date for the determination of stockholders entitled to
receive such distribution.
(iv) No adjustment in the number of shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the number of shares
purchasable upon the exercise of this Warrant; provided, however, that any
adjustments which by reason of this sentence are not required to be made
shall be carried forward and taken into account on any subsequent
adjustment.
(v) Whenever the number of shares purchasable upon the
exercise of this Warrant is adjusted as herein provided in subsection
2(b)(ii) or 2(b)(iii) above, the Warrant Price per share payable upon
exercise of this Warrant shall be adjusted by multiplying such Warrant
Price immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of shares purchasable upon the exercise of
each Warrant immediately prior to such adjustment, and of which the
denominator shall be the number of shares so purchasable immediately
thereafter.
(vi) In case of any capital reorganization or reclassification
of the capital stock of the Company, the Holder of this Warrant shall
thereafter be entitled to purchase, for the aggregate Warrant Price
payable hereunder in order to exercise this Warrant, the
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Other Securities and property receivable upon such capital reorganization
or reclassification by a holder of the number of shares of Common Stock
which this Warrant entitled the Holder hereof to purchase immediately
prior to such capital reorganization or reclassification.
(vii) If the Company shall at any time consolidate with or
merge with or into another corporation or entity or shall sell or transfer
to another entity all or substantially all of the assets of the Company,
the Holder of this Warrant will thereafter have the right to purchase, for
the aggregate Warrant Price payable hereunder in order to exercise this
Warrant, the Other Securities and/or property receivable by a holder of
the number of shares of Common Stock which this Warrant entitled the
Holder of this Warrant to purchase immediately prior to such
consolidation, merger, sale or transfer, if any. The Company shall take
such steps in connection with such consolidation, merger, sale or
transfer, as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly as reasonably may be, in relation to
Other Securities or property thereafter deliverable upon the exercise of
this Warrant. The Company, the successor corporation or the purchasing
entity, as the case may be, shall execute and deliver to the Holder a
supplemental Warrant so providing.
(viii) In the event that at any time, as a result of an
adjustment made pursuant to subsection 2(a)(vi) or 2(a)(vii) above, the
Holder of this Warrant shall become entitled to purchase any Other
Securities or property other than Common Stock, thereafter the number of
such Other Securities or property so purchasable upon exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in this Section 2.
(ix) The number of shares purchasable upon the exercise of
this Warrant shall be adjusted as set forth in subsection 2(c)
(c) (i) In the event that the Company becomes aware that it will
fail to satisfy the quantitative continued listing requirements of the Nasdaq
National Market, the Company shall, as promptly as practicable, give written
notice (the "DELISTING NOTICE") to the Holder and request the Holder to exercise
all or a portion of the Warrant. The Delisting Notice shall set forth the dollar
amount (the "EXERCISE AMOUNT") that the Company requires to continue satisfying
the quantitative continued listing requirements. Upon receipt of the Delisting
Notice, the Holder shall have the right at its sole option to exercise (or elect
not to exercise) all or part of the Warrant, provided that, as to that portion
of the Warrant so exercised (up to the Exercise Amount), the Warrant Price shall
be adjusted down to that number that is equal to the Warrant Price at the time
of receipt of the Delisting Notice divided by two (but not less than $1.00 per
share), and the number of shares purchasable under that portion of the Warrant
so exercised at the time of receipt of the Delisting Notice shall be increased
by multiplying such number by two (but not more than 3,000,000 shares). No
change shall be made as to the Warrant Price or the number of shares purchasable
under all or that portion of the Warrant that is not so exercised. (As an
example, if the Warrant Price is $2.00 and the number of shares purchasable
under the Warrant is 1,500,000
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at the time the Holder receives a Delisting Notice, and the Exercise Amount set
forth in the Delisting Notice is $1,000,000, the Holder shall have the option of
exercising Warrants to purchase 1,000,000 shares at $1.00 per share, and, if the
Holder elects to so exercise, the remaining Warrant will continue to permit the
Holder to purchase 1,000,000 shares at $2.00 per share).
(ii) If the Company fails to provide the Delisting Notice to
the Holder and the Company is subsequently suspended or delisted from trading on
the Nasdaq National Market, the Warrant Price shall be adjusted down to that
number that is equal to the Warrant Price at the time of such suspension or
delisting divided by two, and the number of shares purchaseable under the
Warrant at the time of such suspension or delisting shall be increased by
multiplying such number by two.
(d) For the purposes of this Section 2:
(i) the consideration for the issue or sale of any Common
Stock shall, irrespective of the accounting treatment of such
consideration,
(A) insofar as it consists of cash, be computed at the
net amount of cash received by the Company, after deducting
any expenses paid or incurred by the Company and any
commissions or compensations paid or concessions or discounts
allowed to underwriters, dealers or others performing similar
services in connection with such issue or sale,
(B) insofar as it consists of property (including
securities) other than cash, be computed at the Fair Market
Value thereof at the time of such issue or sale, and
(C) in case Common Stock, Options or Convertible
Securities are issued or sold together with other stock or
securities or other assets of the Company for a consideration
which covers both, be the portion of such consideration so
received, computed as provided in clauses (A) and (B) above,
allocable to such Common Stock, Options or Convertible
Securities all as determined by an independent appraiser
reasonably satisfactory to both the Holder and the Company;
(ii) Options and Convertible Securities shall be deemed to
have been issued for a consideration per share determined by
dividing
(A) the total amount, if any, received and receivable by
the Company as consideration for the issue, sale, grant or
assumption of the Options or Convertible Securities in
question, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for
a subsequent adjustment of such consideration to protect
against dilution) payable to the
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Company upon the exercise in full of such options or the
conversion or exchange of such Convertible Securities or, in
the case of Options for Convertible Securities, the exercise
of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities, in each case
computing such consideration as provided in the foregoing
subsection 2(d)(i).
by
(B) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to
any provision contained therein for a subsequent adjustment of
such number to protect against dilution) issuable upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities; and
(iii) Common Stock issued as a result of stock dividends,
stock splits, etc., shall be deemed to have been issued for no
consideration.
Section 3. NOTIFICATION UPON THE OCCURRENCE OF CERTAIN EVENTS. (a) Upon
any adjustment pursuant to Section 2 hereof, the Company within 10 days
thereafter shall give notice thereof to the Holder of this Warrant, in the
manner specified in Section 7 hereof, which notice shall state the adjusted
Warrant Price, the increased or decreased number of shares or the adjusted other
securities or property purchasable hereunder and the method of calculation and
the facts upon which such calculation is based.
(b) In case:
(i) the Company shall propose to take a record of the holders
of its Common Stock (or other securities at the time receivable upon the
exercise of the Warrant) for the purpose of entitling them to receive any
dividend or distribution or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities, or to receive any other right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation
with or merger of the Company with and into another corporation or other
entity, or any conveyance of all or substantially all of the assets of the
Company to another entity, or
(iii) of any voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Holder of this Warrant, at least 30 days in advance of any of the foregoing
actions, a notice specifying, as the case may be, (y) the date on which a record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right,
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or (z) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place, and
the time, if any, as to which the holders of record of Common Stock (or such
other securities at the time receivable upon the exercise of the Warrant) shall
be entitled to exchange their shares of Common Stock (or such other securities)
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger.
Section 4. RESERVATION OF WARRANT STOCK; REPRESENTATIONS.
The Company covenants that it will at all times reserve and keep
available out of its authorized shares of stock, solely for the purpose of issue
upon exercise of this Warrant as herein provided, such number of shares of
Common Stock or Other Securities as shall then be issuable upon the exercise of
the Warrant. The Company represents that all shares of Warrant Stock to which
the Holders of the Warrants shall be entitled upon the exercise thereof (i) are
duly authorized by the Articles of Incorporation of the Company in accordance
with the laws of the State of Texas, (ii) have been duly authorized to be issued
upon the exercise of the Warrants from time to time in whole or in part, (iii)
will be, when issued in accordance with the terms of the Warrants, duly
authorized and validly issued and fully paid and nonassessable and free and
clear of all liens and rights of others whatsoever (other than liens and rights
of others claiming by, through or under the Holder) and (iv) will not be at the
time of such exercise subject to any restrictions on transfer or sale except as
provided by applicable securities laws or otherwise herein.
Section 5. REGISTRATION RIGHTS.
(a) As promptly as practicable after the Closing Date, the Company
will file a registration statement (the "SHELF REGISTRATION") with the
Commission under the Securities Act permitting the disposition of the Warrant
Stock in accordance with the intended methods thereof as specified in writing by
the Purchaser. 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 Warrants and Warrant Stockholders representing (assuming
exercise of all Warrants) more than 50% of the Warrant Stock ("MAJORITY
HOLDERS") may, at any time, request that the Company supplement or amend the
Shelf Registration to effect an underwritten offering of the Warrant Stock by
one or more underwriters selected by the Majority Holders; provided that the
Majority Holders may only make such request 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 to the effect and to
the extent provided in this Section 5. The Warrant Stockholders whose Warrant
Stock is to be distributed by such underwriters shall be parties to such
underwriting agreement. No Warrant Stockholder may participate in such
underwritten offering unless such Warrant Stockholder agrees to sell its Warrant
Stock on the basis provided in such underwriting agreement and completes and
executes all questionnaires, powers of attorney,
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indemnities and other documents reasonably required under the terms of such
underwriting agreement. The obligations of the Company under this Section 5 (a)
shall terminate on the earlier to occur of (i) the third anniversary of the date
of this Warrant and (ii) at such time as all Holders and Warrant Stockholders
may transfer, without restriction whatsoever, all of the Warrant Stock held by
them or issuable to them upon conversion of Warrants 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 5(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 Warrant 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 Warrant Stock, the Company
shall use its commercially reasonable efforts to effect (at the earliest
practicable date) the registration under the Securities Act of such Warrant
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 5(b) and no more
without regard to the number of underwritten offerings requested pursuant to
Section 5(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
Warrant Stockholders and will include in such Piggyback Registration all Warrant
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 Warrant
Stockholders and any other person with registration rights not subordinated to
those of the Warrant Stockholders.
(d) If the proposed filing of a Registration Statement of which the
Company gives notice pursuant to Section 5(c) hereof is for a registered public
offering involving an underwriting, the Company shall so advise the Holders and
the Warrant Stockholders as part of the written notice given pursuant to Section
5(c). In such event, if a Warrant Stockholder proposes to distribute Warrant
Stock through such underwriting, such Warrant Stockholder 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. The
Company will give the Holders and the Warrant Stockholders 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
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includes Warrant Stock to be sold for the account of a Holder or Warrant
Stockholder. A Holder or Warrant Stockholder may in its discretion withdraw any
time prior to five days after receipt of the Pricing Notice, but may not
thereafter withdraw any Warrant 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 or Warrant Stockholder 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 5(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 Warrant
Stockholders and upon the withdrawal of such Registration Statement shall have
no further obligation to register any Warrant Stock held by the Holders or
Warrant Stockholders in connection with such registration. In the event of such
withdrawal by the Company, the Company shall promptly reimburse the Holders and
Warrant Stockholders 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 5(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 Warrant Stockholders); (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 5(g)(i) below, in connection with any registration effected
hereunder, a Warrant Stockholder shall bear all of his own expenses, including,
without limitation, any underwriting commissions or discounts in respect of the
sale of its Warrant 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 Warrant
Stockholders 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 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
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reasonably incurred by the Warrant Stockholders 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 Warrant Stockholder specifically for use in the preparation
thereof. This indemnity will be in addition to any liability which the Company
may otherwise have.
(ii) A Warrant Stockholder 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 Warrant
Stockholder 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 5(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 Warrant Stockholder
specifically for use in the preparation thereof. This indemnity will be in
addition to any liability which the Warrant Stockholder 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 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
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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.
Section 6. TRANSFER, EXCHANGE OR REPLACEMENT OF WARRANT, ETC.
(a) Subject to compliance with the transfer restrictions set forth
herein and in the Agreement, the Holder may surrender this Warrant at the office
of the Company determined in accordance with Section 7 hereof for transfer or
exchange. Within a reasonable time after notice to the Company from a Holder of
its intention to make such transfer or exchange and without expense (other than
applicable transfer taxes, if any) to such Holder, the Company shall issue in
exchange therefor another Warrant or Warrants containing the same provisions and
in the aggregate for the same number of shares of Common Stock as the Warrant so
surrendered. Subject to the restrictions on transfer set forth in the Agreement,
each new Warrant shall be registered in the name of such person or entity as the
Holder of the surrendered Warrant may designate. Warrants issued upon any
transfer or exchange shall be only in authorized denominations, which shall be
for 1,000 shares of Common Stock and amounts in excess thereof.
(b) Upon receipt of evidence satisfactory to the Company of the
loss, theft, mutilation or destruction of this Warrant, and in the case of any
such loss, theft, or destruction upon delivery of any indemnity agreement of the
Holder as shall be reasonably satisfactory to the Company, or in the case of
such mutilation upon surrender and cancellation of this Warrant, the Company
will issue at the expense of the Company in lieu thereof a new Warrant of like
tenor for the same number of shares of Common Stock.
Section 7. NOTICES
(a) Any notice hereunder shall be given to the Company in writing
and such notice and any payment by the Holder of this Warrant hereunder shall be
deemed duly given or made only upon receipt thereof at the Company's office at
EqualNet Plaza, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ or at such
other address as the Company may designate by notice to the Holder. A copy of
the notice shall be given to Fulbright & ▇▇▇▇▇▇▇▇ L.L.P., ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, to the attention of ▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇.
(b) Any notice or other communication to the Holder of this Warrant
or to a Warrant Stockholder upon exercise of this Warrant shall be in writing
and such notice shall be deemed duly given or made only upon receipt thereof at
the address specified herein or such other address as the Holder or a Warrant
Stockholder may designate by notice to the Company.
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Section 8. WAIVER.
Neither this Warrant nor any term thereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
Section 9. FRACTIONAL SHARES.
Nothing contained herein shall obligate the Company to issue
fractional shares of its securities. Any exercise of this Warrant shall be for
the purpose of whole shares only. If any fraction of a share of stock would be,
except for this provision, issuable on the exercise of this Warrant, the Company
may at its option purchase such fraction for an amount equal in cash to the
Current Price Per Share of such fraction.
Section 10. GOVERNING LAW.
THIS WARRANT 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.
Section 11. SUCCESSORS AND ASSIGNS.
All of the provisions of this Warrant shall be binding upon the
Company and its successors and assigns.
Section 12. NO RIGHTS AS STOCKHOLDER; LIMITATION OF LIABILITY.
This Warrant shall not entitle the Holder hereof to any of the
rights of a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Holder hereof to purchase shares of Warrant Stock, and
no mere enumeration herein of the rights or privileges of the Holder hereof,
shall give rise to any liability of such Holder for the Warrant Price or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company.
Section 13. DEFINITIONS.
As used herein, unless the context otherwise requires, the following
terms have the following respective meanings:
COMMISSION: the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
COMMON STOCK: the class of stock designated as Common Stock, par
value $.01 per share, of the Company on the date of this Agreement. For purposes
of Section 2 only, Common Stock shall also include any capital stock with voting
rights of the Company.
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CONVERTIBLE SECURITIES: any evidences of indebtedness, shares of
stock (other than Common Stock) or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
CURRENT PRICE PER SHARE: the Current Trading Price Per Share or, if
no Current Trading Price Per Share is available, Fair Market Value.
CURRENT TRADING PRICE PER SHARE: the "Current Trading Price Per
Share" of any security, including the Common Stock (a "Security"), on any date
shall be deemed to be the average of the daily closing prices (as such term is
hereinafter defined) per share of such Security for the 20 consecutive Trading
Days (as such term is hereinafter defined) immediately prior to such date. The
"closing price" for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the Security is listed or
admitted to trading or, if the Security is not listed or admitted to trading on
any national securities exchange but is included in the Nasdaq Stock Market, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices, in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System or such
other system then in use. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the Security is listed or
admitted to trading is open for the transaction of business or, if the Security
is not listed or admitted to trading on any national securities exchange, a
Business Day. The term "Business Day" shall mean any day other than a Saturday,
a Sunday, or a day on which The New York Stock Exchange is closed.
EXCLUDED SECURITIES: the 1,050,000 shares of Common Stock reserved
for issuance pursuant to the EqualNet Holding Corp. Employee Stock Option and
Restricted Stock Plan and the EqualNet Holding Corp. Non-Employee Director Stock
Plan and any additional shares of Common Stock issuable pursuant to any
antidilution provisions thereof; the warrants to purchase not more than
1,000,000 shares of Common Stock issuable to certain agents of the Company
pursuant to agent agreements substantially in the form delivered to the Holder
prior to the date of the Agreement; the 100,000 shares of Common Stock issuable
to Creative Communications, Inc. pursuant to a warrant dated November 12, 1996,
and not more than 150,000 shares of Common Stock that the Company may issue in
future periods for purposes of management incentive compensation to officers and
employees.
FAIR MARKET VALUE: the amount a willing buyer under no compulsion to
buy and in possession of all relevant information would pay a willing seller
under no compulsion to sell.
HOLDER: the person or entity in whose name this Warrant is
registered.
HOLDERS: the persons or entities in whose name this Warrant and
other Warrants are registered.
B-14
OPTIONS: rights, options or warrants to subscribe for, purchase or
otherwise acquire either Common Stock or Convertible Securities.
OTHER SECURITIES: any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which the
holders of the Warrants at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrants, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 2 or otherwise.
SECURITIES ACT: the Securities Act of 1933, as amended.
WARRANT STOCKHOLDERS: the persons or entities in whose names Warrant
Stock is registered unless such shares have been sold pursuant to a Registration
Statement filed pursuant to Section 5 hereof or pursuant to Rule 144 under the
Securities Act.
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IN WITNESS WHEREOF, EQUALNET HOLDING CORP. has caused this
Warrant to be signed in its corporate name by its President as of the day and
year above written.
EQUALNET HOLDING CORP.
By________________________
President
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ASSIGNMENT
(To be Executed by the Holder if such Holder Desires to
Transfer the Within Warrant)
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
--------------------------
(Name)
--------------------------
(Address)
the right to purchase ____ shares of Common Stock, covered by the within Warrant
and does hereby irrevocably constitute and appoint ________________ Attorney to
make such transfer on the books of the Company maintained for the purpose, with
full power of substitution.
Signature__________________
Dated: , 19__
NOTICE
The signature of the foregoing Assignment must correspond to the
name as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
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SUBSCRIPTION FORM
(TO BE EXECUTED UPON EXERCISE PURSUANT TO SECTION 1(B)(I), (II) OR (III))
TO: EQUALNET HOLDING CORP.
1. The undersigned Holder of the attached original, executed Warrant to
purchase Common Stock of EqualNet Holding Corp., a Texas corporation (the
"COMPANY"), hereby elects to exercise its purchase right under such Warrant with
respect to _________ shares of Warrant Stock.
2. The undersigned Holder elects to pay the aggregate exercise price for
such Warrant Shares in the following manner:
_____ by delivery of Notes or Refinancing Notes in a principal
amount plus unpaid accrued interest of $__________;
_____ by lawful money of the United States or the enclosed bank
cashier's check or certified check to the order of the
Company in the amount of
$________;
_____ by wire transfer of United States funds to the account of
the Company in the amount of $____________, which transfer
has been made before or simultaneously with the delivery of
this Subscription Form pursuant to the instructions of the
Company; or
_____ by the combination of the foregoing indicated above or on
the attached sheet.
3. Please issue a stock certificate or certificates representing the
appropriate number of shares of Warrant Stock in the name of the undersigned as
is specified below:
Name:
Address:
Tax Identification No.:
HOLDER:
By:
Its:
Date:
NOTE: The signature of the Warrant Holder must conform in all respects to the
name of the Warrant Holder as specified on the face of the Warrant, without
alteration, enlargement or any change whatsoever.
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CASHLESS EXERCISE FORM
(TO BE EXECUTED UPON EXERCISE OF WARRANT
PURSUANT TO SECTION 1(C))
TO: EQUALNET HOLDING CORP.
1. The undersigned Holder of the attached original, executed Warrant to
purchase Common Stock of EqualNet Holding Corp., a Texas corporation (the
"Company"), hereby irrevocably elects to make a Cashless Exercise, as provided
for in Section 1(c) of such Warrant, with respect to _______ shares of Warrant
Stock, as defined in the Warrant.
2. Please issue a stock certificate or certificates representing the
appropriate number of shares of Common Stock issuable upon such Cashless
Exercise in the name of the undersigned as is specified below:
Name:
Address:
Tax Identification No.:
HOLDER:
By:
Its:
Date:
NOTE: The signature of the Warrant Holder must conform in all respects to the
name of the Warrant Holder as specified on the face of the Warrant, without
alteration, enlargement or any change whatsoever.
B-19
EXHIBIT C
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.
THIS NOTE IS SUBJECT TO THE PROVISIONS OF THE INTERCREDITOR AGREEMENT
REFERRED TO HEREIN.
No. ____
EQUALNET HOLDING CORP.
EQUALNET CORPORATION
TELESOURCE, INC.
EQUALNET WHOLESALE SERVICES, INC.
Refinancing Note
________, 199_
FOR VALUE RECEIVED, EqualNet Holding Corp., a Texas corporation, EqualNet
Corporation, a Delaware corporation, TeleSource, Inc., a Texas corporation, and
EqualNet Wholesale Services, Inc., a Delaware corporation, each having an
address at EqualNet Plaza, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(hereinafter referred to collectively as the "MAKER"), jointly and severally
hereby promise to pay to the order of ______________________, having an address
at ____________________________________ (the "PAYEE"), on or before the dates
for payment set forth in Section 2.3 of the Agreement (as hereinafter defined)
the unpaid principal balance (if any) of the Refinancing Loans to or for the
benefit of the Maker (or such percentage of such principal balance as shall be
set forth on the signature page hereof) and to pay
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interest on such principal balance at the interest rate then payable under the
Credit Agreement or, if for any reason no such rate shall apply, the rate of ten
percent per annum (the "INTEREST RATE"), such interest to be payable monthly in
arrears on the first day of every calendar month. Principal and interest shall
be payable, without surrender or presentation of this Refinancing Note, in
lawful money of the United States of America by wire transfer of immediately
available funds to Payee, or to Payee's agent, in the State of New York. Any
amounts not paid when due shall bear interest at the rate of the Interest Rate
plus three percent (3%) compounded monthly (the "PAST DUE RATE"). Interest shall
be computed on the basis set forth in the Credit Agreement or, if the rate under
the Credit Agreement shall not be applicable, on the basis of a 360-day year of
twelve 30-day months.
Section 1. AGREEMENT. This Refinancing Note is issued pursuant to a
certain Notes and Warrants Purchase Agreement, dated as of February 3, 1997 (the
"AGREEMENT"), between the Maker, certain subsidiaries of the Maker and The ▇▇▇▇▇
Group, Inc., a New Jersey corporation (the "PURCHASER"). Capitalized terms used
herein but not defined herein shall have the meaning ascribed to them in the
Agreement.
Section 2. REVOLVING LOAN. The principal balance hereof may be
prepaid at any time in whole or in part by the Maker and, if prepaid, may
thereafter be reborrowed by the Maker, subject to the conditions set forth in
the Agreement.
Section 3. COMMITMENT FEE. The Maker shall pay to the Payee a
commitment fee (the "COMMITMENT FEE") for the period from the date that the
Initial Refinancing Loan is made to and including the earlier of December 31,
1998 or the date on which the Maker notifies the Purchaser in writing that its
obligation to make Refinancing Loans is terminated, calculated daily, equal to
0.25% per annum on the excess of (a) the aggregate amount of the Maximum
Commitment for such day over (b) the amount of the aggregate unpaid principal
balance on the Refinancing Notes. Accrued Commitment Fee shall be payable
monthly when payments of interest are due hereunder. Any past due Commitment Fee
shall bear interest at the Past Due Rate.
Section 4. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be
made on the Refinancing Notes shall be due on a Saturday, Sunday or a public
holiday under the laws of the State of New York or the State of Texas, such
payment may be made on the next succeeding business day with the same effect as
if made on the nominal date for payment.
Section 5. REGISTRATION. The Maker shall maintain at its principal
office a register of the Refinancing Notes and shall record therein the names
and addresses of the holders of the Refinancing Notes, the address to which
notices are to be sent and the address to which payments are to be made as
designated by the holder if other than the address of the holder, and the
particulars of all transfers, exchanges and replacements of Refinancing Notes.
Each Refinancing Note issued hereunder, whether originally or upon transfer,
exchange or replacement of a Refinancing Note, shall be registered on the date
of execution thereof by the Maker.
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Section 6. TRANSFER AND EXCHANGE. Transfer of a Refinancing Note may
be effected by endorsement and delivery. The holder of any Refinancing Note may,
prior to maturity or prepayment thereof, surrender such Refinancing Note at the
principal office of the Maker for transfer or exchange. Within a reasonable time
after notice to the Maker from a holder of its intention to make such transfer
or exchange and without expense (other than applicable transfer taxes, if any)
to such holder, the Maker shall issue in exchange therefor another Refinancing
Note or Notes dated the date to which interest has been paid on, and for the
unpaid principal amount of, the Refinancing Note or Refinancing Notes so
surrendered, containing the same provisions and subject to the same terms and
conditions as the Refinancing Note or Refinancing Notes so surrendered. Each new
Refinancing Note shall be made payable to such person or entity, as the
registered holder of such surrendered Refinancing Note or Refinancing Notes may
designate.
Section 7. REPLACEMENT. Upon receipt of evidence reasonably
satisfactory to the Maker of the loss, theft, destruction or mutilation of any
Refinancing Note and, if requested by the Maker in the case of any such loss,
theft or destruction, upon delivery of an indemnity agreement of the holder
satisfactory to the Maker, or, in the case of any such mutilation, upon
surrender and cancellation of such Refinancing Note, the Maker will issue a new
Refinancing Note, of like tenor, in the amount of the unpaid principal of such
Refinancing Note, and dated the date to which interest has been paid, in lieu of
such lost, stolen, destroyed or mutilated Refinancing Note.
Section 8. INTERCREDITOR AGREEMENT. The Maker, for itself and its
successors and assigns, covenants and agrees, and each original and successor
holder of Refinancing Notes by such holder's acceptance thereof, likewise
covenants and agrees, that notwithstanding any other provision of the
Refinancing Notes, the payment of the principal and interest on each Refinancing
Note and all other obligations of any kind, now or hereafter owing under this
Refinancing Note or in respect of the indebtedness evidenced hereby, shall be
governed by that certain Intercreditor and Subordination Agreement dated January
__, 1997 (the "INTERCREDITOR AGREEMENT") among EqualNet Holding Corp., Comerica
Bank-Texas ("COMERICA") and ▇▇▇▇▇ Fargo Bank (Texas) N.A., as Lenders, Comerica,
as Agent, and the Purchaser.
Section 9. EVENTS OF DEFAULT. Any of the following shall constitute
an "EVENT OF DEFAULT" with respect to the Refinancing Notes:
(a) an Event of Default as defined in the Credit Agreement on
the date of the Agreement and irrespective of any amendment, modification
or termination of the Credit Agreement or any waiver by the Lenders
thereunder, shall have occurred;
(b) a failure to pay principal of or interest on any Note or
Refinancing Note, or any other amount payable thereunder, when due;
(c) a failure of the Maker to observe or perform any term,
covenant or agreement contained in the Agreement or any of the Documents
and, in the case of affirmative covenants contained in Article VII of the
Credit Agreement, continuation of such failure for a period ending five
business days after notice to the Maker at the address
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set forth above (or such other address as the Maker may furnish to the
holder hereof in writing) by any holder of the Refinancing Notes or the
time such failure becomes known to any officer of the Maker, whichever is
earlier; or
(d) any statement, certificate, report, representation or
warranty made or furnished on behalf of the Maker in the Agreement or any
of the Documents shall prove to have been false or misleading in any
material respect when made.
Upon the occurrence of an Event of Default, while such event shall be
continuing, holders representing a majority of the then outstanding principal
amount of the Refinancing Notes may, by notice to the Maker, declare the entire
unpaid principal amount of the Refinancing Notes and all interest accrued and
unpaid thereon to be forthwith due and payable, whereupon all such amounts shall
become and be forthwith due and payable (unless there shall have occurred an
Event of Default under paragraph (a) above because of an Event of Default as set
forth in Section 9.1(f), (g) or (h) of the Credit Agreement as in effect on the
date of the Agreement and irrespective of any amendment, modification or
termination of the Credit Agreement or any waiver by the Lenders thereunder, in
which case all such amounts shall automatically become due and payable), without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Maker.
This Refinancing Note is secured in accordance with the provisions
of the Security Agreement dated February 11, 1997 between the Maker and The
▇▇▇▇▇ Group, Inc., a New Jersey corporation.
The Maker hereby agrees to pay on demand all costs and expenses
incurred in collecting the Maker's obligations hereunder or in enforcing or
attempting to enforce any of the holder's rights hereunder or under the
Agreement or the Security Agreement, including, but not limited to, reasonable
attorneys' fees and expenses if collected by or through any attorney, whether or
not suit is filed.
THIS REFINANCING NOTE 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.
C-4
The Maker hereby waives presentment, demand, notice of nonpayment,
protest and all other demands and notices in connection with the delivery,
acceptance, performance or enforcement of this Refinancing Note.
Percentage of Refinancing Loans EQUALNET HOLDING CORP.
payable to Payee:
_____________% By:_________________________________
President
EQUALNET CORPORATION
By:_________________________________
President
TELESOURCE, INC.
By:_________________________________
President
EQUALNET WHOLESALE SERVICES, INC.
By:_________________________________
President
C-5
EXHIBIT D
SECURITY AGREEMENT
SECURITY AGREEMENT (this "AGREEMENT"), dated as of February __,
1997, by and between EqualNet Holding Corp., a Texas corporation (the
"COMPANY"), having an office at EqualNet Plaza, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, its subsidiaries, EqualNet Corporation, a Delaware
corporation ("E SUB"), TeleSource, Inc., a Texas corporation ("TELESOURCE"), and
EqualNet Wholesale Services, Inc., a Delaware corporation ("WHOLESALE," and
together with E Sub and TeleSource, the "SUBSIDIARIES" and the Subsidiaries
together with the Company, the "EQUALNET COMPANIES"), and The ▇▇▇▇▇ Group, Inc.,
a New Jersey corporation (the "PURCHASER"), having an office at ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇.
PRELIMINARY STATEMENT
The EqualNet Companies have entered into a Note and Warrant Purchase
Agreement, dated as of January __, 1997 (the "NOTE AGREEMENT"; capitalized terms
defined in the Note Agreement and not otherwise defined herein being used herein
as therein defined), with the Purchaser. It is a condition to the Purchaser's
obligation to purchase the Notes, Refinancing Notes and Warrants under the Note
Agreement that this Security Agreement be executed and delivered.
NOW, THEREFORE, in consideration of the premises and intending to be
legally bound hereby, the parties hereto agree as follows:
1. GRANT OF SECURITY INTEREST. Each EqualNet Company hereby pledges,
hypothecates, transfers, grants and assigns to the Purchaser, and agrees that
the Purchaser shall have, a security interest in and lien on the following:
a. all of the accounts and general intangibles, whether now owned or
hereafter created arising or acquired, of such EqualNet Company or
in which EqualNet Company now or hereafter has any interest, and all
guarantees thereof and all security now or hereafter held by such
EqualNet Company for the payment or satisfaction thereof; and
b. all proceeds of the foregoing and proceeds of other proceeds; and
c. without limiting the generality of (a) or (b) above, all customer
lists, letters of authorization, letters of agency, verification
tapes and other supporting documentation and books and records
relative to (a) or (b) above.
All of the foregoing being referred to herein as the "Collateral." The terms
"accounts," "general intangible" and "proceeds" as used herein shall have the
meanings specified from time to time in the Uniform Commercial Code as in effect
in the State of New York (the "UCC").
D-1
2. OBLIGATIONS SECURED. The Collateral secures the payment in full,
when due, of any and all indebtedness (including but not limited to network
usage and non-usage charges and other trade indebtedness) and other obligations
of such EqualNet Company to the Purchaser, whether now existing or hereafter
incurred or arising, of every kind and description, direct or indirect, primary
or secondary, including, without limitation, indebtedness and other obligations
arising out of the Note Agreement, the Notes, the Refinancing Notes, the
Warrants, this Agreement, or any supplement thereto or hereto, in each case as
the same may be increased or reduced from time to time, and whether or not
evidenced by any note or other instrument, including without limitation any and
all sums from time to time advanced by the Purchaser in payment of taxes,
assessments and other public charges and expenses, or to satisfy prior
encumbrances, or for the payment of which such EqualNet Company otherwise is
obligated and which, if not paid, might encumber any property of such EqualNet
Company, it being understood and agreed, nevertheless, that the Purchaser shall
not have any obligation to make any such advance (all of the indebtedness and
other obligations described in this Section 2 being herein sometimes referred to
collectively as the "OBLIGATIONS SECURED"). Payments of all amounts owed
hereunder by any of the EqualNet Companies to Purchaser shall be made and
delivered to Secured Party, or its agent, in the State of New York, by wire
transfer of immediately available funds. Secured Party shall deliver to the
EqualNet Companies written wire transfer instructions with respect to the
foregoing.
3. REPRESENTATIONS AND WARRANTIES. The EqualNet Companies jointly
and severally represent and warrant to the Purchaser that:
a. None of the EqualNet Companies have changed their name in the last
year;
b. The location of the chief executive office of each of the EqualNet
Companies is the office whose address is set forth above; and
c. Except as set forth in a notice delivered to the Purchaser, none of
the presently existing Collateral arises out of a contract with the
United States or any department, agency or instrumentality thereof.
So long as any Obligations Secured remain unpaid or the EqualNet Companies shall
be entitled to borrow under the Note Agreement, the EqualNet Companies shall be
deemed to represent and warrant continuously to the Purchaser all of the
representations and warranties set forth in this Section 3.
4. MAINTENANCE OF COLLATERAL AND TITLE THERETO. The Equal Net
Companies jointly and severally represent, warrant and covenant to and with the
Purchaser that they have or will acquire and maintain absolute and exclusive
title to each and every item of the Collateral, free and clear of all liens,
claims, security interests and other encumbrances (except only security
interests in favor of the Purchaser and except for those liens and security
interests granted pursuant to the Credit Agreement dated as of November 30, 1995
(the "CREDIT AGREEMENT") among the Company and each of the lenders who is or may
become from time to time a party
D-2
thereto and Comerica Bank-Texas, as agent). The EqualNet Companies will jointly
and severally warrant and defend unto the Purchaser and its successors and
assigns title to all of the Collateral purported to be owned by them against the
claims and demands of all persons whomsoever except the liens granted pursuant
to the Credit Agreement. The EqualNet Companies shall pay any and all taxes,
assessments and other public accounts and charges of every kind and nature which
may be levied upon or assessed against any part of the Collateral. The EqualNet
Companies shall not permit any liens, claims, security interests or other
encumbrances (except only security interests in favor of the Purchaser and
except for those liens and security interests granted pursuant to the Credit
Agreement) to attach to any part of the Collateral, nor permit any part of the
Collateral to be levied upon under any legal process. Without the prior written
consent of the Purchaser, the EqualNet Companies shall not amend or terminate
any contract or other document or instrument constituting part of the
Collateral, except for routine transactions in the ordinary course of business.
Except in the ordinary course of business consistent with past practice, the
EqualNet Companies shall not do or permit to be done anything which might impair
the value of any item of the Collateral owned by them or the security intended
to be afforded hereby.
5. COLLECTION OF ACCOUNTS.
a. The EqualNet Companies will cause all moneys, checks, notes, drafts
and other payments relating to or constituting proceeds of accounts
of the EqualNet Companies upon which the Purchaser has a first
priority security interest to be forwarded to a U.S. Postal Service
box ("LOCKBOX") specified by Purchaser for deposit in an account
("COLLATERAL ACCOUNT") of the EqualNet Companies under the control
of Purchaser as may be specified in an agreement among the Company,
the Purchaser and the institution where such Collateral Account is
located. The EqualNet Companies will advise each account debtor to
address all remittances with respect to amounts payable on account
of any accounts to the specified Lockbox and all invoices relating
to any such accounts to indicate that payment is to be made via the
specified Lockbox.
b. The EqualNet Companies and the Purchaser shall cause all collected
balances in the Collateral Account to be:
(i) paid to the Purchaser or other holders of the
Refinancing Notes to the extent of any amount due and payable
pursuant to Section 2.3(a) of the Note Agreement, and
(ii)with respect to the balance, so long as no Event of
Default under the Notes or the Refinancing Notes has occurred and is
continuing, transferred to a deposit account of the EqualNet
Companies as instructed by the EqualNet Companies from time to time.
c. Any monies, checks, notes, drafts or other payments referred to in
paragraph (a) of this Section 5 which, notwithstanding the terms of
such
D-3
paragraph, are received by or on behalf of the EqualNet Companies,
will be held in trust and transferred as promptly as possible, in
the exact form received, together with any necessary endorsements
for deposit in the Collateral Account.
6. VERIFICATION AND NOTIFICATION. The Purchaser shall have the right
at any time and from time to time,
a. in the name of any of the EqualNet Companies or in the name of the
Purchaser to verify the validity, amount or any other matter
relating to any accounts by mail, telephone, telegraph or otherwise,
and
b. to notify the account debtors under any accounts of the assignment
of such accounts to the Purchaser and to direct such account debtor
to make payment of all amounts due or to become due thereunder
directly to the Purchaser upon such notification and after the
occurrence of an Event of Default, to enforce collection of any such
accounts, and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as the EqualNet
Companies might have done.
7. DELIVERY OF INSTRUMENTS. In the event any Account becomes
evidenced by a promissory note, trade acceptance or any other instrument for the
payment of money, the EqualNet Companies will immediately thereafter deliver
such instrument to the Purchaser, appropriately endorsed to the Purchaser.
8. INSPECTION. The Purchaser (by any of its officers, employees or
agents) shall have the right at any time or times to inspect all files relating
to the Collateral to discuss the EqualNet Companies' affairs and finances,
insofar as the same are reasonably related to the rights of the Purchaser
hereunder or under any of the Documents, with any Person to verify the amount,
quantity, value and condition of, or any other matter relating to, any of the
Collateral and, in this connection, to review, audit and make extracts from all
records and files related to any of the Collateral.
9. SCHEDULE OF ACCOUNTS. At the request of the Purchaser, the
EqualNet Companies shall deliver to the Purchaser on or before the 15th day of
each month a schedule of their accounts receivable which
a. shall be as of the end of the immediately preceding month,
b. shall be reconciled to the Borrowing Base Certificate, if any, as of
the end of such month,
c. shall set forth a detailed aged trial balance of all its then
existing Accounts, specifying the names, addressed and balance due
for each account debtor obligated on an Account so listed, and
D-4
d. shall set forth a detailed report of balances due from each account
debtors, specifying the names and addresses of each account debtor.
10. POWER OF ATTORNEY. Each EqualNet Company hereby appoints the
Purchaser as its attorney, with power
a. as long as an Event of Default has occurred and is continuing, to
endorse the name of such EqualNet Company on any checks, notes,
acceptances, money orders, drafts or other forms of payment or
security that may come into the Purchaser's possession, and
b. to sign the name of such EqualNet Company on any notices of
assignment, financing statements and other public records relating
to the perfection or priority of the security interest or
verification of accounts and on notices to or from customers.
11. GOVERNMENT ACCOUNTS. If any account arises out of a contract
with the United States or any department, agency or instrumentality thereof, the
EqualNet Companies shall immediately notify the Purchaser thereof in writing and
execute any instruments and take any steps required by the Purchaser in order
that the security interest hereunder in the applicable EqualNet Company's
contract right under such contract and in all accounts arising thereunder and in
the proceeds thereof shall be perfected under the provisions of the Federal
Assignment of Claims Act.
12. CHANGE IN NAME OR CHIEF EXECUTIVE OFFICE. The EqualNet Companies
shall notify the Purchaser in writing 30 days prior to any change in the name of
an EqualNet Company or any change in the location of its chief executive office.
13. RIGHTS AND REMEDIES UPON DEFAULT. Upon the occurrence and during
the continuation of any Event of Default under the Notes or the Refinancing
Notes, the Lender shall have, in addition to all other rights and remedies
provided by law, all of the rights and remedies of a secured creditor under the
UCC.
14. WAIVERS AND OTHER AGREEMENTS. Each EqualNet Company to the
extent of its interest in the Collateral hereby waives and releases any and all
right to require the Purchaser to collect any of the Obligations Secured from
any specific item or items of the Collateral or from any other collateral
security under any theory of marshaling of assets or otherwise, and each
EqualNet Company specifically authorizes the Purchaser to apply any item or
items of the Collateral in which any EqualNet Company may have any interest
against any portion of the Obligations Secured in such manner as the Purchaser
may determine in the Purchaser's exclusive discretion. Purchaser is hereby
authorized by the EqualNet Companies without any liability to the Purchaser, in
its exclusive discretion and without notice to or demand upon any of the
EqualNet Companies and without otherwise affecting any of the EqualNet
Companies' obligations hereunder, from time to time to take and hold other
collateral (in addition to or other than the Collateral itself) for the payment
of the Obligations Secured or any
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part thereof, and to accept and hold any endorsement or guaranty of payment of
the Obligations Secured or any part thereof and to release or substitute any
endorser or guarantor or any other person granting security for or in any other
way obligated upon the Obligations Secured or any part thereof.
15. FURTHER ASSURANCES, ETC. With respect to the Collateral, each
EqualNet Company agrees to do, file, record, make, execute and deliver all such
acts, deeds, things, notices and instruments as may be necessary or desirable in
the opinion of the Purchaser in order to vest more fully in and assure to the
Purchaser the liens on and security interests in the Collateral created hereby
or intended so to be and the enforcement and realization of the benefits of, all
of the rights, remedies and powers of the Purchaser hereunder relating to the
Collateral. The Purchaser shall not have any obligation to take any steps, and
each EqualNet Company shall in each case duly take all steps, necessary to
perfect and otherwise preserve against all other parties the rights of such
EqualNet Company and those of the Purchaser in the Collateral and each and every
item thereof.
16. TRANSFER OF INTEREST. Any or all of the rights, benefits and
advantages of the Purchaser under this Agreement or any of the other Documents,
and the right to receive payment of the principal of and premium, if any, and
interest on the Notes and Refinancing Notes as and when due and payable by the
EqualNet Companies may be assigned by the Purchaser and reassigned by any
assignee at any time and from time to time.
17. EXPENSES. The EqualNet Companies shall pay all costs of filing
of any financing, continuation or termination statements or security agreements
with respect to the Collateral deemed by the Purchaser to be necessary or
advisable in order to perfect and protect the liens and security interests
hereby created in favor of the Purchaser or intended so to be. Each EqualNet
Company agrees that the Collateral secures, and further agrees to pay on demand,
all reasonable expenses (including but not limited to reasonable attorneys' fees
and other costs for legal services, costs of insurance and payments of taxes or
other charges) of or incidental to the custody, care, sale or collection of or
realization on any of the Collateral or in any way relating to the enforcement
or protection of the rights of the Purchaser hereunder or under the other
Documents.
18. SEVERABILITY. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
19. 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.
20. 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.
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21. 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.
22. INTERCREDITOR AGREEMENT. This Agreement and the security
interest granted hereby are subject to the terms of the Intercreditor Agreement.
23. BINDING EFFECT. This Agreement shall be binding upon and enure
to the benefit of the parties and their respective successors and assigns.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their proper corporate officers thereunto duly authorized as of
the day and year first above written.
EQUALNET COMPANIES:
EQUALNET HOLDING CORP.
By:_____________________________________
President
EQUALNET CORPORATION
By:_____________________________________
President
TELESOURCE, INC.
By:_____________________________________
President
EQUALNET WHOLESALE SERVICES, INC.
By:_____________________________________
President
PURCHASER:
THE ▇▇▇▇▇ GROUP, INC.
By:_____________________________________
President
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EXHIBIT E
ESCROW AGREEMENT
This Escrow Agreement dated as of February__, 1997 by and among EqualNet
Holding Corp., a Texas corporation (the "COMPANY"), its wholly-owned
subsidiaries, EqualNet Corporation, a Delaware corporation, TeleSource, Inc., a
Texas corporation, EqualNet Wholesale Services, Inc., a Delaware corporation
(the Company and its subsidiaries, the "ISSUERS"), The ▇▇▇▇▇ Group, Inc., a New
Jersey corporation (the "PURCHASER"), and the Chase Manhattan Bank, a New York
State chartered bank (the "ESCROW AGENT").
WITNESSETH
WHEREAS, the Issuers and the Purchaser have executed the Note and Warrant
Purchase Agreement dated as of February 3, 1997 (the "PURCHASE AGREEMENT") and
certain instruments and documents referred to therein, and the Company and the
Purchaser have executed the Right Agreement dated as of February 11, 1997 (the
"RIGHT AGREEMENT"); and
WHEREAS, it is the intent of the Issuers and the Purchaser that the
transactions contemplated by the Purchase Agreement and the Right Agreement not
become effective until the Effective Time ( as herein defined) and that such
transactions not be effective at all if a Termination Event (as herein defined)
occurs prior to the Effective Time.
NOW THEREFORE, in order to evidence such intent and provide for certain
other matters, and in consideration of the mutual covenants herein contained,
the parties hereto hereby agree as set forth herein.
1. ESTABLISHMENT OF ESCROW
Simultaneously with the execution and delivery of this Agreement,
the following property (the "ESCROW PROPERTY") shall be deposited with the
Escrow Agent by the Issuers and the Purchaser:
a. Four executed counterparts of the Purchase Agreement;
b. Four executed counterparts of the Right Agreement;
c. A 10% Note due December 31, 1998 of the Issuers in the principal
amount of $3,000,000 payable to the Purchaser;
d. A Refinancing Note of the Issuers payable to the Purchaser;
e. A Warrant for the purchase of 1,500,000 shares of Common Stock of
the Company registered in the name of the Purchaser;
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f. Four executed counterparts of a Security Agreement between the
Issuer and the Purchasers;
g. Cash (paid to the Escrow Agent by wire transfer from the Purchaser)
in the amount of $2,070,000;
h. Two executed counterparts of an opinion of Fulbright & ▇▇▇▇▇▇▇▇
L.L.P. addressed to the Purchaser; and
i. A Secretary's Certificate and an Officers' Certificate for each of
the Issuers.
2. HOLDING OF ESCROW PROPERTY
The Escrow Agent shall hold the Escrow Property until disposed of in
accordance with paragraph 4 hereof. All cash shall be invested and reinvested by
the Escrow Agent in the Chase Manhattan Bank Money Management Account.
3. DEFINITIONS; AGREEMENT TO NOTIFY
a. As used in this Agreement, the following terms shall have the
meanings stated:
"EFFECTIVE DATE" shall mean 10:00 a.m. New York City time,
on February __, 1997 or such other date as may be designated in a
written notice signed on behalf of the Company and the Purchaser by
their respective officers and delivered to the Escrow Agent at or
prior to the Effective Time.
"TERMINATION EVENT" shall mean:
i. Commencement of any action, suit or proceeding against
any of the Issuers, the Purchaser or any of their
respective directors or officers seeking to restrain or
enjoin any of the transactions contemplated by the
Purchase Agreement or the Right Agreement or otherwise
challenging the legality or validity thereof; or
ii. Commencement by or against any Issuer of a case or other
proceeding seeking liquidation, reorganization or other
relief with respect to such Issuer or its debts under
any bankruptcy, insolvency or other similar law now or
hereinafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or similar
official of any Issuer or any substantial part of its
property or providing for a general assignment for the
benefit of creditors on
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behalf of any Issuer or any corporate action on behalf
of any Issuer to authorize any of the foregoing.
"TERMINATION NOTICE" shall mean a written notice given by
any Issuer or the Purchaser to the other and to the Escrow Agent
stating that a Termination Event has occurred.
b. Each of the Issuers and the Purchaser agrees to give a Termination
Notice immediately upon obtaining knowledge of the occurrence of a
Termination Event.
4. DISPOSITION OF ESCROW PROPERTY
a. If the Escrow Agent receives a Termination Notice, the Escrow Agent
shall hand ▇▇▇▇ (the "▇▇▇▇") each page of any of the documents set
forth in paragraph 1 hereof containing an original signature "VOID"
and shall deliver:
i. two executed counterparts of each of the documents
specified in 1.a, 1.b and 1.f, each bearing the ▇▇▇▇, to
each of the Company and the Purchaser;
ii. each of the documents specified in 1.c, 1.d, 1.e and 1.i
to the Company;
iii. the cash specified in 1.g plus interest earned thereon,
net of any unpaid fees and expenses of the Escrow Agent,
to the Purchaser; and
iv. both counterparts of the document specified in 1.h to
Fulbright & ▇▇▇▇▇▇▇▇, L.L.P. at the address specified on
its letterhead.
b. If no Notice of Termination is received prior to the Effective Date,
the Escrow Agent shall deliver:
i. two executed counterparts of each of the documents
specified in 1.a, 1.b and 1.f to each of the Company and
the Purchaser;
ii. each of the documents specified in 1.c, 1.d, 1.e, and
1.i to the Purchaser.
iii. the cash specified in 1.g, plus interest earned thereon,
net of any unpaid fees and expenses of the Escrow Agent,
to the Issuers; and
iv. both counterparts of the opinion document specified in
1.h. to the Purchaser.
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c. All Escrow Property and deposit account balances other than cash
shall be sent by Federal Express or other recognized overnight
delivery service to the Company or the Purchaser, as appropriate, at
their respective addresses specified in paragraph 13, and cash and
deposit account balances shall be sent by wire transfer of
immediately available funds in accordance with the wire transfer
instructions set forth in paragraph 13.
d. Notwithstanding the foregoing, the Issuers and the Purchaser may
jointly instruct the Escrow Agent in writing to dispose of the
Escrow Property in any other manner.
5. DUTIES LIMITED
The Escrow Agent undertakes to perform only such duties as are
expressly set forth herein.
6. RELIANCE ON INSTRUMENTS
The Escrow Agent may rely and shall be protected in acting or
refraining from acting upon any written notice, instruction or request furnished
to it hereunder and believed by it to be genuine and to have been signed or
presented by the proper party or parties. The Escrow Agent shall be under no
duty to inquire into or investigate the validity, accuracy or content of any
such document. The Escrow Agent shall have no duty to solicit any payments which
may be due it hereunder.
7. LIMITATION OF LIABILITY
The Escrow Agent shall not be liable for any action taken or omitted
by it in good faith unless a court of competent jurisdiction determines that the
Escrow Agent's gross negligence willful misconduct was the primary cause of any
loss to the Issuers or the Purchaser. In the administration of the escrow
account hereunder, the Escrow Agent may execute any of its powers and perform
its duties hereunder directly or through agents or attorneys and may, consult
with counsel, accountants and other skilled persons to be selected and retained
by it. The Escrow Agent shall not be liable for anything done, suffered or
omitted in good faith by it in accordance with the advice or opinion of any such
counsel, accountants or other skilled persons.
8. RESIGNATION
The Escrow Agent may resign and be discharged from its duties or
obligations hereunder by giving notice in writing of such resignation specifying
a date when such resignation shall take effect. The Escrow Agent shall have the
right to withhold an amount equal to the amount due and owing to the Escrow
Agent, plus any costs and expenses the Escrow Agent shall reasonably believe may
be incurred by the Escrow Agent in connection with the termination of the Escrow
Agreement.
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9. COMPENSATION
The Issuers hereby agree to jointly and severally (i) pay the Escrow
Agent compensation for the services to be rendered hereunder, as described in
Schedule I attached hereto and (ii) pay or reimburse the Escrow Agent upon
request for all expenses, disbursements and advances, including reasonable
attorney's fees, incurred or made by it in connection with the preparation,
execution, performance, delivery, modification and termination of this
Agreement.
10. INDEMNITY
The Issuers hereby agree to jointly and severally indemnify the
Escrow Agent for, and to hold it harmless against any loss, liability or expense
arising out of or in connection with this Agreement and carrying out its duties
hereunder, including the costs and expenses of defending itself against any
claim of liability, except in those cases where the Escrow Agent has been guilty
of gross negligence or willful misconduct. Anything in this agreement to the
contrary notwithstanding, in no event shall the Escrow Agent be liable for
special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Escrow Agent has been
advised of the likelihood of such loss or damage and regardless of the form of
action.
11. INTEREST
The Company and the Purchaser shall, in the notice section of this
Agreement, provide the Escrow Agent with their respective Tax Identification
Numbers as assigned by the Internal Revenue Service. All interest or other
income earned under the Escrow Agreement shall be allocated and paid as provided
herein and reported by the recipient to the Internal Revenue Service as having
been so allocated and paid.
12. NO FUTURE OR OTHER DUTIES
The duties and responsibilities of the Escrow Agent hereunder shall
be determined solely by the express provisions of this Agreement, and no other
or future duties or responsibilities shall be implied. The Escrow Agent shall
not have any liability under, nor duty to inquire into the terms and provisions
of any agreement or instructions, other than outlined in this Agreement.
13. NOTICES
All notices and communications hereunder shall be in writing and
shall be delivered by hand (including by a recognized overnight delivery
service) and by fax and addressed as follows:
The Chase Manhattan Bank
Corporate Trust Group
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇-▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Escrow Administration, 15th Floor
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
To the Company or to any of the Other Issuers:
EqualNet Holding Corp.
EqualNet Plaza
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Chief Financial Officer
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
TIN: ▇▇-▇▇▇▇▇▇▇
Wire Transfers: ABA #▇▇▇▇▇▇▇▇▇
Account # 7871 003492
To the Purchaser:
The ▇▇▇▇▇ Group, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Financial Officers
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
TIN: ▇▇-▇▇▇▇▇▇▇
Wire Transfers: (account at Chase to be provided)
or at such other address as any of the above may have furnished to the other
parties in writing by notice given in the same manner. Any such notice or
communication given in the manner specified in this Paragraph 13 shall be deemed
to have been given when received in any manner. In the event that the Escrow
Agent, in its sole discretion, shall determine that an emergency exists, the
Escrow Agent may use such other reasonable means of communications as the Escrow
Agent deems advisable.
14. FUNDS TRANSFER
a. In the event funds transfer instructions are given (other than in
writing at the time of execution of this Agreement), whether in
writing or by telecopier, the Escrow Agent is authorized to seek
confirmation of such instructions by telephone call-back to the
person or persons designated on Schedule II hereto, and the Escrow
Agent may rely upon the confirmations of anyone purporting to be the
person or persons so designated. The persons and telephone numbers
for call- back may be changed only in a writing actually received
and acknowledged by the Escrow Agent. The parties to this Agreement
acknowledge that such security procedure is commercially reasonable.
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b. It is understood that the Escrow Agent and the beneficiary's bank in
any funds transfer may rely solely upon any account numbers or
similar identifying number provided in writing by either of the
other parties hereto to identify (i) the beneficiary, (ii) the
beneficiary's bank, or (iii) an intermediary bank. The Escrow Agent
may apply any of the escrowed funds for any payment order it
executes using any such identifying number, even where its use may
result in a person other than the beneficiary being paid, or the
transfer of funds to a bank other than the beneficiary's bank, or an
intermediary bank designated.
15. WAIVERS
The provisions of this Escrow Agreement may be waived, altered,
amended or supplemented, in whole or in part, only by a writing signed by all of
the parties hereto.
16. NO ASSIGNMENT
Neither this Escrow Agreement nor any right or interest hereunder
may be assigned in whole or in part by any party without the prior consent of
the other parties.
17. COUNTERPARTS
This Escrow Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
18. NO LIABILITY FOR ESCROW AGENT
The Escrow Agent shall not incur any liability for following the
instructions herein contained or expressly provided for, or written instructions
given by the parties hereto.
19. FURTHER INSTRUCTIONS
In the event that the Escrow Agent shall be uncertain as to its
duties or rights hereunder or shall receive instructions, claims or demands from
any party hereto which, in its opinion, conflict with any of the provisions of
this Agreement, it shall be entitled to refrain from taking any action and its
sole obligation shall be to keep safely all property held in escrow until it
shall be directed otherwise in writing by all of the other parties hereto or by
a final order or judgement of a court of competent jurisdiction.
20. MERGER, ETC. OF ESCROW AGENT
Any corporation into which the Escrow Agent in its individual
capacity may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Escrow Agent in its individual capacity shall be a party, or any corporation to
which substantially all the corporate trust business of the Escrow
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Agent in its individual capacity may be transferred, shall be the Escrow Agent
under this Escrow Agreement without further act.
21. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to its principles of conflicts
of laws and any action brought hereunder shall be brought in the courts of the
State of New York, located in the County of New York. Each party hereto
irrevocably waives any objection on the grounds of venue, forum non-conveniens
or any similar grounds and irrevocably consents to service of process by mail or
in any other manner permitted by applicable law and consents to the jurisdiction
of said courts.
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IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
on the date and year first above written.
EQUALNET COMPANIES:
EQUALNET HOLDING CORP.
By:_____________________________________
Vice President
EQUALNET CORPORATION
By:_____________________________________
Vice President
TELESOURCE, INC.
By:_____________________________________
Vice President
EQUALNET WHOLESALE SERVICES, INC.
By:_________________________________
Vice President
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PURCHASER:
THE ▇▇▇▇▇ GROUP, INC.
By:_____________________________________
Vice President
ESCROW AGENT:
THE CHASE MANHATTAN BANK
By:_____________________________________
Title:
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SCHEDULE I
1. A fee shall be paid upon the execution hereof equal to .00125 multiplied by
the highest value of cash in escrow held on deposit with the Escrow Agent or any
part thereof without proration for partial years, subject to a minimum of $5,000
per annum or any part thereof without proration for partial years, (such fee
includes all costs of investment in a Chase Manhattan Bank Money Market Account
or The Chase Manhattan Bank Mutual Fund known as the Vista Fund).
2. There will be a $75 transaction charge per investment of cash in escrow
(excludes Money Market or Vista Fund investments).
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SCHEDULE II
TELEPHONE NUMBER(S) FOR CALL-BACKS AND
PERSON(S) DESIGNATED TO CONFORM FUNDS TRANSFER INSTRUCTIONS
If to the Purchaser:
NAME TELEPHONE NUMBER
---- ----------------
1. ▇▇▇▇ ▇▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
2. ___________________________ ___________________________
3. ___________________________ ___________________________
If to the Issuers:
NAME TELEPHONE NUMBER
---- ----------------
1. ▇▇▇▇ ▇▇▇▇▇▇▇ (▇▇▇) ▇▇▇-▇▇▇▇
2. ___________________________ ___________________________
3. ___________________________ ___________________________
Telephone call-backs shall be made to each of the Purchaser and the Issuers if
joint instructions are required pursuant to the Agreement.
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