SCHEDULE 14A
                                (RULE 14a-101)

                             INFORMATION REQUIRED
                              IN PROXY STATEMENT

                           SCHEDULE 14A INFORMATION

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

Filed by the Registrant                     [X]

Filed by a Party other than the Registrant  [_]

Check the appropriate box:

[X]  Preliminary Proxy Statement

[_]  Confidential, for Use of the Commission only (as permitted by 
     Rule 14a-6(e)(2))

[_]  Definitive Proxy Statement  [_] Definitive Additional Materials

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

                         EQUALNET COMMUNICATIONS CORP.

               (Name of Registrant as Specified in its Charter)

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

Payment of Filing Fee (Check the appropriate box):

[_]  No fee required.

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

     1. Title of each class of securities to which transaction applies: Common
        Stock

     2. Aggregate number of securities to which transaction applies:

        7,379,162 shares of Common Stock issuable in the ACMI Acquisition
        (assuming an average closing sale price of the Common Stock of $0.7344
        per share for all purposes and assuming that the Commissionable Revenue
        is $2.5 million, $3.0 million and $3.5 million in years one, two and
        three following the closing of the ACMI Acquisition)

     3. Per unit price or other underlying value of transaction computed
        pursuant to Exchange Act Rule 0-11: $0.7344

     4. Proposed maximum aggregate value of transaction: $5,419,257

     5. Total fee paid: $1,084

[_]  Fee paid previously with preliminary materials.

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

     1. Amount Previously Paid: N/A

     2. Form, Schedule or Registration Statement no.: N/A

     3. Filing Party: N/A

     4. Date Filed: N/A

 
[EQUALNET LOGO]

                                April __, 1999

Dear Shareholder:

You are cordially invited to attend the Annual Meeting of Shareholders of
Equalnet Communications Corp. to be held at 10:00 a.m., Houston time, on
_________, May __, 1999, in the Equal Access Room at Equalnet's headquarters,
1250 Wood Branch Park Drive, Houston, Texas.

This year you will be asked to vote in favor of the following proposals: (1) the
approval of an amendment to Equalnet's Articles of Incorporation effecting a
one-for-four reverse stock split of Equalnet's common stock capital; (2) the
ratification of certain transactions Equalnet entered into in September 1998 and
the approval of the issuance of common stock upon the exercise of warrants or
the conversion of securities issued by Equalnet pursuant to those transactions;
(3) the election of four directors;  (4) the ratification of an amendment of the
Statement of Resolution of the Board of Directors with respect to the Series A
Convertible Preferred Stock and the approval of the issuance of common stock
upon the conversion of Series A Convertible Preferred Stock pursuant to the
terms of the amended Statement of Resolution ; (5) the ratification of the
acquisition by a wholly owned subsidiary of Equalnet of the business and assets
of LIMIT LLC (d/b/a ACMI); and (6) the ratification of the Board of Directors'
appointment of independent certified public accountants for Equalnet and its
subsidiaries for fiscal year 1999.  We describe and explain these matters more
fully in the attached proxy statement, which you should read.

The Board of Directors has approved the proposals described herein.  WE BELIEVE
THAT THE PROPOSALS DESCRIBED HEREIN ARE IN THE BEST INTERESTS OF EQUALNET AND
ITS SHAREHOLDERS AND RECOMMEND THAT YOU VOTE FOR APPROVAL OF THE MATTERS
PROPOSED HEREIN.

In connection with our approval of the transactions entered into in September
1998 described herein, we received and took into account the opinion, dated
September 3, 1998, of G. A. Herrera & Co., Equalnet's financial advisor, to the
effect that, as of the date of such opinion and subject to certain matters
stated therein, such transactions were fair to Equalnet from a financial point
of view.  We have included a copy of the opinion in the accompanying Proxy
Statement as Annex C, and we encourage you to read the opinion carefully in its
entirety.

WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, IT IS IMPORTANT THAT YOUR SHARES
BE REPRESENTED AND VOTED.  ACCORDINGLY, WE ASK THAT YOU MARK, DATE, SIGN AND
RETURN YOUR PROXY AT YOUR EARLIEST CONVENIENCE IN THE ENVELOPE PROVIDED.

Thank you for your continued interest and cooperation.

                              Very truly yours,

 
                              -------------------------------------
                              Mark A. Willis, Chairman of the Board

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

                   NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
                           TO BE HELD MAY ___, 1999

          The Annual Meeting of the Shareholders of Equalnet Communications
Corp., a Texas corporation (the "Company"), will be held at 10:00 a.m., Houston
time, on _________, May __, 1999, in the Equal Access Room at Equalnet's
headquarters, 1250 Wood Branch Park Drive, Houston, Texas, for the following
purposes:

     (1)  to approve an amendment to Equalnet's Articles of Incorporation
          effecting a one-for-four reverse stock split of Equalnet's common
          stock;

     (2)  to ratify certain transactions consummated by Equalnet in September
          1998 involving the issuance by Equalnet of:

          . $3,000,000 aggregate principal amount of 6% Senior Secured
            Convertible Notes of Equalnet;

          . two Common Stock Purchase Warrants to purchase, in the aggregate,
            666,232 shares of common stock; and

          . 3,750 shares of Series D Convertible Preferred Stock in exchange for
            3,000,000 shares of common stock,

          and to approve the issuance of common stock by Equalnet upon the
          conversion of such 6% Senior Secured Convertible Notes and such Series
          D Convertible Preferred Stock and upon the exercise of such Common
          Stock Purchase Warrants;

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

     (4)  to ratify an amendment of Equalnet's Statement of Resolution of the
          Board of Directors with respect to the Series A Convertible Preferred
          Stock and to approve the issuance of common stock by Equalnet upon the
          conversion of Series A Convertible Preferred Stock pursuant to the
          terms of the amended Statement of Resolution;

     (5)  to ratify the acquisition by a wholly owned subsidiary of Equalnet of
          the business and  assets of LIMIT LLC (d/b/a ACMI);

     (6)  to ratify the Board of Directors' appointment of independent certified
          public accountants for Equalnet and its subsidiaries for fiscal year
          1999; and

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

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

          The holders of common stock and of Series B Senior Convertible
Preferred Stock of record at the close of business on April __, 1999, will be
entitled to vote at the meeting.

               By Order of the Board of Directors,

                    Dean H. Fisher
                    General Counsel

April __, 1999

                                   IMPORTANT

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

 
                         EQUALNET COMMUNICATIONS CORP.


                                PROXY STATEMENT

                      FOR ANNUAL MEETING OF SHAREHOLDERS

                           TO BE HELD MAY ___, 1999

          This Proxy Statement is furnished to the holders of common stock and
Series B Senior Convertible Preferred Stock of Equalnet Communications Corp.,
1250 Wood Branch Park Drive, Houston, Texas 77079 (Tel. No. 281/529-4600), in
connection with the solicitation by the Board of Directors of Equalnet of
proxies to be used at the Annual Meeting of Shareholders, or any adjournment
thereof (the "Meeting").  The Board of Directors is sometimes referred to in
this Proxy Statement as "we" or "us."  We will hold the Meeting at 10:00 a.m.,
Houston time, on __________, May __, 1999, in the Equal Access Room at
Equalnet's headquarters, 1250 Wood Branch Park Drive, Houston, Texas.

          Proxies in the form enclosed, properly executed and received in time
for the Meeting, will be voted as specified therein. If you do not specify
otherwise, the shares represented by your proxy will be voted for the election
of each of the director nominees identified herein and for the other proposals
described herein.  If you grant your proxy, you may still attend the Meeting and
vote in person.  You may revoke your proxy at any time before it is exercised by
delivering written notice to Equalnet at or before the Meeting.  We are mailing
this Proxy Statement on or about April __, 1999, to holders of common stock and
Series B Senior Convertible Preferred Stock of record on April __, 1999 (the
"Record Date").

          At the close of business on the Record Date, 19,910,832 shares of
Equalnet's common stock, par value $.01 per share and 3,000 shares of Series B
Senior Convertible Preferred Stock were outstanding and entitled to vote at the
Meeting.  Only the holders of Common Stock and the Series B Preferred
(collectively, the "Voting Shareholders") of record on the Record Date may vote
at the Meeting.  Any shareholder of Equalnet may examine a list of Voting
Shareholders at the offices of Equalnet located at 1250 Wood Branch Park Drive,
Houston, Texas during usual business hours within 10 days before the Meeting.

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

          (1) to vote for or against the approval of an amendment to Equalnet's
Articles of Incorporation effecting a one-for-four reverse stock split of
Equalnet's common stock as described herein or to abstain from voting on such
approval;

          (2) to vote for or against the ratification of the transactions
consummated by Equalnet in September 1998 and the approval of the issuance of
Common Stock by Equalnet 

 
upon the conversion of the securities and the exercise of the warrants issued
pursuant to those transactions or to abstain from voting on such ratification
and approval;

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

          (4) to vote for or against the ratification of an amendment of
Equalnet's Statement of Resolution of the Board of Directors with respect to the
Series A Convertible Preferred Stock and the approval of the issuance of common
stock by Equalnet upon the conversion of Series A Convertible Preferred Stock
pursuant to the terms of the amended Statement of Resolution or to abstain from
voting on such ratification and approval;

          (5) to vote for or against the ratification of the acquisition of the
business and assets of LIMIT LLC (d/b/a/ ACMI) by a wholly owned subsidiary of
Equalnet, or to abstain from voting on such ratification; and

          (6) to vote for or against the ratification of the Board of Directors'
appointment of independent certified public accountants for Equalnet and its
subsidiaries for fiscal year 1999, or to abstain from voting on such
ratification.

          Equalnet's Annual Report to Shareholders for the year ended June 30,
1998, which includes, among other things, Equalnet's audited consolidated
balance sheets at June 30, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for
each of the three years in the period ended June 30, 1998, is being mailed with
this Proxy Statement to all Voting Shareholders of record as of the Record Date.

                                       2

 
PROPOSAL 1: TO APPROVE AN AMENDMENT TO THE ARTICLES OF INCORPORATION

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

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

          We expect that, if the Reverse Stock Split is approved by the Voting
Shareholders at the Meeting, the amendment will be filed promptly.  However,
notwithstanding approval of the Reverse Stock Split by the Voting Shareholders,
we may elect not to file, or to delay the filing of, the amendment, if we
determine that filing the amendment would not be in the best interest of
Equalnet's shareholders at such time.  Factors leading to such a determination
could include, without limitation, any possible effect on Equalnet's Nasdaq
listing or future securities offerings.

REASONS FOR THE AMENDMENT

          On March 26, 1999, the Board of Directors adopted resolutions
approving the amendment and directing that the amendment be placed on the agenda
for approval by the Voting Shareholders at the Meeting.

          We believe that the Reverse Stock Split will cause the stock price of
the Common Stock, currently below $1.00, and the number of shares of Common
Stock outstanding to be more appropriately aligned with Equalnet's peers in the
telecommunications sector. The Reverse Stock Split should cause the Common Stock
to be more attractive to the financial community and lower trading costs for the
investing public. Further, the Reverse Stock Split will reduce administrative
costs for Equalnet.

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

                                       3

 
low priced stock generally represents a higher percentage of the sales price
than the commission on higher priced issues. Finally, rules of the Nasdaq
National Market require that Equalnet's Common Stock maintain a minimum bid
price per share of $1.00. We believe that the Reverse Stock Split will
facilitate Equalnet's compliance with these rules.

          We believe that the shares of Common Stock will, as a result of the
Reverse Stock Split, trade at higher prices than those that have prevailed
recently. We cannot assure you, however, that such increase in the market value
will occur or, if such an increase occurs, that it will equal or exceed the
direct arithmetical result of the Reverse Stock Split since there are numerous
factors and contingencies that would affect such value, including the status of
the market for the shares of Common Stock at the time, Equalnet's reported
results of operations in future fiscal periods and general stock market
conditions. THEREFORE, WE CANNOT ASSURE YOU THAT THE SHARES OF COMMON STOCK WILL
NOT, DESPITE THE REVERSE STOCK SPLIT, TRADE AT PRICES THAT ARE LESS THAN THE
ARITHMETICAL EQUIVALENT SHARE PRICE RESULTING FROM THE REVERSE STOCK SPLIT.

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

EFFECTS OF THE AMENDMENT

          Subject to Voting Shareholder approval, the Reverse Stock Split will
be effected by filing the amendment to Equalnet's Articles of Incorporation, and
will be effective immediately upon such filing.  Although Equalnet expects to
file the amendment with the Texas Secretary of State's office promptly following
approval of the Reverse Stock Split at the meeting, the actual timing of such
filing will be determined by Equalnet's management based upon their evaluation
as to when such action will be most advantageous to Equalnet and its
shareholders.  Equalnet reserves the right to forego or postpone filing the
amendment, if such action is determined to be in the best interests of Equalnet
and its shareholders.

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

          Equalnet is authorized to issue 50,000,000 shares of Common Stock, of
which 19,910,832 shares were issued and outstanding at the close of business on
the Record Date.  Equalnet is also authorized to issue 5,000,000 shares of
Preferred Stock, each share having a par value of one cent, of which 215,557
were issued and outstanding at the close of business on the Record Date.

          If the amendment is approved by the Voting Shareholders, the principal
effect of the Reverse Stock Split will be to decrease the number of outstanding
shares of Common Stock from 19,910,832 shares to approximately 4,977,708 shares,
based on share information as of March 15, 1999.  The Reverse Stock Split will
not affect the number of authorized shares of Common Stock.  After the Reverse
Stock Split, Equalnet estimates that it will have approximately the same number
of shareholders.  Except for the receipt of cash in lieu of 

                                       4

 
fractional interests, the amendment would not affect any shareholder's
proportionate equity interest in Equalnet or the relative rights, preferences or
priorities of any shareholder. The amendment will not affect the registration of
the Common Stock under the Securities Exchange Act of 1934.

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

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

EXCHANGE OF STOCK CERTIFICATES

          The exchange of shares of Common Stock will occur on the Effective
Date without any action on the part of Equalnet's shareholders and without
regard to the date or dates certificates formerly representing shares of Common
Stock are physically surrendered for certificates representing the number of
shares of Common Stock such shareholders are entitled to receive as a result of
the Reverse Stock Split. Equalnet's transfer agent, American Stock Transfer &
Trust Company, will effectuate the exchange of certificates.

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

          So that Equalnet may avoid the expense and inconvenience of issuing
and transferring fractional shares of Common Stock, shareholders who would
otherwise be entitled to receive a fractional share of Common Stock will receive
payment in cash in lieu of receiving a fractional share of Common Stock. Payment
for fractional shares will be based upon the closing price reported for the
Common Stock on the Nasdaq National Market on the Effective Date.

                                       5

 
FEDERAL INCOME TAX CONSEQUENCES

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

          General Rules

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

          Cash in Lieu of Fractional Shares

          Holders of Common Stock who receive cash in lieu of fractional shares
in the Reverse Stock Split will recognize gain or loss equal to the difference,
if any, between such holder's adjusted basis in the fractional share of Common
Stock deemed received and the amount of cash received in exchange therefor.
Such gain or loss will be a capital gain or loss, long-term or short-term,
depending on the holder's holding period, if the Common Stock is held by such
holder as a capital asset at the time of the Reverse Stock Split.

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

REQUIRED VOTE

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

                                       6

 
and outstanding shares of capital stock held by the Voting Shareholders,
abstentions and broker non-votes will have the same effect as a vote against
approval of the amendment.

RECOMMENDATION OF THE BOARD OF DIRECTORS

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

                                       7

 
PROPOSAL 2:  TO RATIFY THE NOTE ISSUANCE TRANSACTION AND TO APPROVE THE ISSUANCE
OF COMMON STOCK UPON THE CONVERSION

          Effective as of July 31, 1998, Equalnet entered into a Master Purchase
Agreement, a Note Purchase Agreement and Note Purchase and Exchange Agreements
(collectively, the "Note Agreements") with certain buyers.  Under the Note
Agreements, Equalnet received, in the aggregate, $3,000,000 in cash and
3,000,000 shares of Common Stock held by some of the buyers (the "Buyers'
Consideration") in exchange for:

     (1)  $3,000,000 aggregate principal amount of 6% Senior Secured Convertible
          Notes of Equalnet due 2001 (the "Notes"),

     (2)  an aggregate of 3,750 shares of Series D Convertible Preferred Stock
          (the "Series D Preferred") of Equalnet, and

     (3)  two Common Stock Purchase Warrants (the "Warrants").

We refer to the foregoing transaction and the execution of all related documents
as the "Note Issuance Transaction."  At the Meeting, we will ask you to vote to
ratify the Note Issuance Transaction and approve the issuance of Common Stock
upon the conversion or exercise (the "Conversion") of the securities issued
pursuant to the Note Issuance Transaction.

          We are asking you to ratify the Note Issuance Transaction and approve
the issuance of Common Stock upon the Conversion to comply with rules of the
Nasdaq National Market that require such approval for any transaction involving
the issuance of common stock (or securities convertible into or exercisable for
common stock) equal to 20% or more of the issuer's outstanding common stock for
less than the market value of the common stock.  The Note Issuance Transaction
does not currently require Equalnet to issue common stock in an amount in excess
of 19.99% of Equalnet's outstanding Common Stock immediately before the closing
of the Note Issuance Transaction.  If, however, the Voting Shareholders do not
approve the issuance of Common Stock upon the Conversion at the Meeting, the
holders of the Notes and the Series D Preferred will have the right to require
Equalnet to redeem, at a 115% premium, all of the Notes and the Series D
Preferred.  See "Mandatory Redemption."  The payment of the entire principal
amount of the Notes and the entire value of the outstanding Series D Preferred,
and the 115% premium thereon, would have a material adverse effect on Equalnet's
financial condition.  Equalnet may not have adequate funds to effect any such
redemption.  Equalnet may have to file a petition for relief under the United
States bankruptcy code if it is required to effect such redemption.

BACKGROUND OF THE NOTE ISSUANCE TRANSACTION

          Because of the decrease in the size of the customer account base,
order activity and calling volume of its operating subsidiaries, Equalnet has
experienced significant operating and financial difficulties and is in default
under certain agreements.  In addition, one of Equalnet's operating
subsidiaries, Equalnet Corporation, and its wholly owned subsidiary, Equalnet
Wholesale Services, Inc., filed voluntary petitions for relief under Chapter 11
of the United States bankruptcy code on September 10, 1998.  On October 2, 1998,
Equalnet Wholesale Services, Inc. filed a motion to convert its bankruptcy
proceeding from a Chapter 11 

                                       8

 
reorganization to a Chapter 7 liquidation. Equalnet currently is largely
dependent on private sources of capital to fund its operations. Equalnet entered
into the Note Issuance Transaction to provide working capital needed to operate
its businesses.

THE NOTE ISSUANCE TRANSACTION

     Consideration to be Received by Equalnet

          Equalnet issued the Notes, an aggregate of 3,750 shares of Series D
Preferred and the Warrants to the buyers in exchange for $3,000,000 and
3,000,000 shares of Common Stock held by the buyers.

     The Note Purchase Agreement and Note Purchase and Exchange Agreements

          Equalnet entered into Note Purchase and Exchange Agreements with
Advantage Fund Limited and Willis Group, LLC.  Under each agreement, Equalnet
issued 1,875 shares of Series D Preferred in exchange for 1,500,000 shares of
Common Stock and an exchange fee of $100,000.  Willis Group, LLC also purchased
a Note in the principal amount of $1,500,000.  Equalnet entered into a Note
Purchase Agreement with Genesee Fund Limited-Portfolio B under which Genesee
purchased a Note in the principal amount of $1,500,000.  Each Note was issued
with a $100,000 original issue discount, and thus the net purchase price paid to
Equalnet for each Note was $1,400,000.  Equalnet issued separate Warrants to
Willis Group, LLC under the Note Purchase and Exchange Agreement and to Genesee
under the Note Purchase Agreement.  Each Warrant entitles its holder to purchase
333,116 shares of Common Stock at an exercise price of $0.9006 per share.

          Equalnet did not register the issuance of the Notes and the Warrants
and the exchange of the Series D Preferred for Common Stock under the Securities
Act of 1933, as amended, in reliance upon the exemptions from registration
afforded by Rule 506 and Section 3(a)(9) under the Securities Act.  Equalnet
must pay the buyers for all of their reasonable expenses incurred in connection
with the Note Agreements.  Under each Note Agreement, Equalnet granted the buyer
a right of first refusal with respect to any securities of Equalnet that are
issued at below-market prices until September 4, 1999.

     The Notes

          The Notes rank equally with all other unsubordinated debt obligations
of Equalnet and bear interest at the rate of 6% per year.  The Notes mature
September 4, 2001.  Equalnet's obligations under the Notes are secured by
certain collateral pursuant to the security agreement described below under "The
Security Agreement."  Equalnet must pay interest on the Notes quarterly in
arrears commencing November 15, 1998 in cash or in the form of additional Notes.
Except as specified below, the Notes may not be prepaid or redeemed by Equalnet
before September 4, 2001.  The terms of the Notes, as amended effective as of
March 22, 1999, are set forth below.

                                       9

 
     Conversion

          Any holder of a Note may convert the Note, in whole or in part, into
shares of Common Stock at a conversion price per share equal to the lesser of:

 .    the product of (1) the average of the lowest sales price of the Common
     Stock on the Nasdaq National Market for any 5 trading days, whether or not
     consecutive, during the period of 25 trading days immediately preceding the
     date of conversion and (2) 85% (subject to reduction pursuant to the terms
     of the Notes); and

 .    $0.9006 (subject to reduction pursuant to the terms of the Notes).

However, as long as (1) the Common Stock is listed or quoted on the Nasdaq
National Market, the Nasdaq Small Cap Market, the New York Stock Exchange or the
American Stock Exchange and (2) Equalnet is in compliance in all material
respects with its obligations to the holders of the Notes, the conversion price
will be at least $0.75 per share.

     Mandatory Redemption

     A holder of a Note may require Equalnet to repurchase the Note if any of
the following occur:

 .    certain defaults by Equalnet under the Note;

 .    a change of control of Equalnet by virtue of a consolidation or merger;

 .    Equalnet fails to obtain shareholder ratification of the Note Issuance
     Transaction;

 .    no sales price is reported for the Common Stock on the Nasdaq National
     Market or any national exchange for five consecutive trading days or the
     Common Stock is not listed on the Nasdaq National Market or any national
     exchange;

 .    the holder of a Note is unable pursuant to the Registration Statement to
     sell Common Stock issued upon conversion of a Note for any reason for 45 or
     more days; and

 .    any action is taken without the consent of the holders of a majority of the
     aggregate outstanding principal amount of all Notes issued pursuant to the
     Note Issuance Transaction (the "Majority Holders"), which action materially
     and adversely affects the holder of any Note.

     Events of Default

     Events of default under the Notes include:

 .    Equalnet fails to pay principal or interest on the Notes, or any Notes
     issued as interest upon the Notes, when due;

 .    the Nasdaq National Market delists the Common Stock;

                                       10

 
 .    the commencement of voluntary or involuntary liquidation or reorganization
     proceedings by or against Equalnet or any of its subsidiaries if such
     commencement is not stayed or dismissed within 60 days;

 .    Equalnet fails to issue Common Stock upon the valid conversion of any Note
     or the valid exercise of any Warrant;

 .    Equalnet breaches certain representations, warranties or covenants under
     the Note;

 .    a court enters a final judgment against Equalnet or any of its subsidiaries
     in an amount in excess of $100,000, which is not discharged or satisfied
     within 30 days; and

 .    except as agreed between Equalnet and the holder of the Note, Equalnet or
     any of its subsidiaries default on a payment with respect to indebtedness
     for borrowed money in excess of $100,000 individually or $200,000 in the
     aggregate.

     Optional Redemption

     If on any 20 consecutive trading days commencing on or after August 25,
2000, the lowest sales price per share of the Common Stock on the Nasdaq
National Market during each day of such 20 day period is at least $1.8012
(subject to certain conditions and adjustments), then Equalnet may redeem the
entire principal amount of any Note by paying to the holder of the Note the
unpaid principal amount of the Note as of that date, any accrued and unpaid
interest on the Note and any accrued and unpaid default interest on the Note.

     Additionally, if, at any time, (1) Equalnet is not in default under any
Note, (2) a registration statement is in effect with respect to the sale of any
shares of Common Stock issuable upon conversion of a Note, and (3) no event
requiring the repurchase of the Note has occurred, Equalnet may redeem any Note
at a price equal to the greater of:

     (x) the product of:

     .   the sum of (1) the outstanding principal amount of the Note, (2)
         accrued but unpaid interest on the Note and (3) accrued but unpaid
         default interest on the Note; and

     .   115%; and

     (y) the product of:

     .   the number of shares of Common Stock that would be issuable if the
         holder of the Note were to convert the Note into Common Stock on such
         date; and

     .   the average of the lowest sales price of the Common Stock on the Nasdaq
         National Market for the five trading days immediately preceding such
         date.

     Any amendment of the terms of a Note requires the consent of the Majority
Holders, and certain types of amendments also require the consent of any holder
of a Note affected thereby.

                                       11

 
     The Notes were issued with an original issue discount for federal income
tax purposes.  The amount of the discount for each Note is $100,000, or the
excess of the stated principal amount over the actual issuance price.  A portion
of the discount, on a gradually increasing basis, will accrue as income to the
holder of a Note on each day until the maturity date of the Note.  Equalnet will
be entitled to an income tax deduction each year for the aggregate amount of the
discount accrued as income by the holders of the Notes during that year.
Equalnet will report this amount to the Internal Revenue Service.

     The Notes contain adjustment mechanisms that protect the buyers against
dilution of the value of their conversion right through stock-splits,
combinations, reclassifications or declaration of dividends.

     The Series D Preferred

     In connection with the Note Issuance Transaction, Equalnet issued to
certain buyers, in the aggregate, approximately 3,750 shares of Series D
Preferred in exchange for, in the aggregate, 3,000,000 shares of Common Stock
and exchange fees of, in the aggregate, $200,000.

     The shares of Common Stock that the buyers delivered to Equalnet are
materially different securities from the shares of Series D Preferred the buyers
received from Equalnet.  Unlike the Common Stock exchanged by the buyers, the
Series D Preferred are not listed on the Nasdaq National Market or any national
securities exchange.  The shares of Common Stock possess standard voting rights.
The shares of Series D Preferred have very limited voting rights.  The shares of
Series D Preferred have preference over the Common Stock with respect to
dividends and liquidation rights and are convertible into Common Stock at the
option of the holder.

     A copy of the Statement of Resolution of the Board of Directors
establishing and designating the Series D Preferred, as filed with the Secretary
of State of the State of Texas, as amended effective as of March 25, 1999, is
attached to this Proxy Statement as Annex B.  The holders of Series D Preferred
have no voting rights except that the vote of a majority of such holders is
required (1) to amend Equalnet's Articles of Incorporation if the amendment
materially and adversely affects the Series D Preferred, and (2) to approve the
creation of any series of stock that is senior to the Series D Preferred in
dividend or liquidation preference.

     The Series D Preferred consist of 6,500 authorized shares, 1,500 of which
(the "Dividend Shares") may be issued only as dividends on the outstanding
shares of Series D Preferred.  Equalnet does not expect to issue any shares of
Series D Preferred other than in connection with the Note Issuance Transaction
or as Dividend Shares.  Each share of Series D Preferred will be entitled to
receive dividends at a rate of $60.00 per share per year, payable if declared by
the Board of Directors.  Any dividends that accrue on the Series D Preferred may
be paid, at Equalnet's option (subject to certain limitations), in cash or, in
whole or in part, by issuing Dividend Shares.  Under the terms of the Series D
Preferred, Equalnet may not declare or distribute any dividends to holders of
Common Stock unless all dividends on the Series D Preferred have been paid.

                                       12

 
     Conversion

     Holders of shares of Series D Preferred can convert each of their shares
into a number of shares of Common Stock equal to the quotient of:

 .    the sum of (1) $1,000 (subject to adjustment pursuant to the Statement of
     Resolution to prevent diminution in the value of the conversion right upon
     the issuance of certain securities), (2) accrued but unpaid dividends to
     the applicable conversion date on the share of Series D Preferred being
     converted, and (3) accrued but unpaid interest on the dividends on the
     share of Series D Preferred being converted (we refer to the sum of the
     amounts referred to in clauses (1), (2) and (3) as the "Principal Amount");
     and

 .    an amount equal to the lesser of:

     .    the product of (1) the average of the lowest sales price of the Common
          Stock on the Nasdaq National Market for any 5 trading days, whether or
          not consecutive, during the period of 25 trading days immediately
          preceding the conversion date and (2) 85% (subject to reduction, if
          applicable, pursuant to the Statement of Resolution); and

     .    $1.2281 (subject to reduction pursuant to the Statement of
          Resolution),

subject to adjustment pursuant to the anti-dilution provisions set forth in
Annex B. However, as long as (1) the Common Stock is listed or quoted on the
Nasdaq National Market, the Nasdaq Small Cap Market, the New York Stock Exchange
or the American Stock Exchange and (2) Equalnet is in compliance in all material
respects with its obligations to the holders of the Series D Preferred, the
conversion price will be at least $0.75 per share.

     Optional Redemption

     Equalnet can redeem the outstanding shares of Series D Preferred for cash
at any time if:

 .    Equalnet is in compliance in all material respects with its obligations to
     the holders of shares of Series D Preferred;

 .    on the date a notice of redemption is given and at all times until the
     actual date of redemption, a registration statement filed with the
     Securities and Exchange Commission (the "SEC") is effective and available
     for use by each holder of shares of Series D Preferred for the resale of
     shares of Common Stock acquired by such holder upon conversion of shares of
     Series D Preferred; and

 .    at such time, no holder of Series D Preferred has exercised its right to
     require Equalnet to redeem the Series D Preferred following an Optional
     Redemption Event (as defined below under "Mandatory Redemption").

     Equalnet can redeem the shares of Series D Preferred for an amount equal to
     the greater of:

                                       13

 
 .    the product of the Principal Amount (as calculated on the applicable
     conversion date) and 115% (we refer to such product as the "Premium
     Price"); and

 .    (subject to certain adjustments pursuant to the Statement of Resolution) as
     of the date of determination, the product of:

     .    the number of shares of Common Stock that would be issuable on
          conversion of a share of Series D Preferred (and any accrued and
          unpaid dividends thereon and any accrued and unpaid interest on
          dividends thereon) effected under the procedures referenced above if
          the holder of such share gave a notice on such date of determination
          of intent to convert; and

     .    the average of the lowest sales price of the Common Stock on the
          Nasdaq National Market for the five trading days immediately preceding
          such date of determination.

          The Statement of Resolution does not expressly prohibit Equalnet from
redeeming the Series D Preferred if dividends thereon are in arrears.

     Final Redemption

     Equalnet can redeem all of the outstanding shares of Series D Preferred at
any time on or after August 20, 2001 if:

 .    Equalnet is in compliance in all material respects with its obligations to
     the holders of Series D Preferred; and

 .    at such time, no holder of Series D Preferred has exercised its right to
     require Equalnet to redeem the Series D Preferred following an Optional
     Redemption Event.

     If Equalnet redeems all of the shares of Series D Preferred at its election
on or after August 20, 2001, each such share may be redeemed for an amount equal
to the product of:

 .    the sum of (1) 1,000, (2) an amount equal to the accrued but unpaid
     dividends on such share, and (3) an amount equal to the accrued and unpaid
     interest on dividends in arrears on such share; and

 .    115%.

     Mandatory Redemption

     Any holder of a share of Series D Preferred can require Equalnet to redeem
all shares held by such holder if any of the following events (each an "Optional
Redemption Event") occurs on or before August 31, 2001:

 .    no sales price is reported for the Common Stock on the Nasdaq National
     Market or any national exchange for five consecutive trading days;

                                       14

 
 .    the holder of a share of Series D Preferred is unable pursuant to the
     Registration Statement (as defined below under "The Registration Rights
     Agreements") to sell Common Stock issued upon conversion of such share for
     45 or more days;

 .    a change of control of Equalnet by virtue of a consolidation or merger;

 .    any action is taken without the consent of the Majority Holders that
     materially and adversely affects the holder of any share of Series D
     Preferred;

 .    a material default by Equalnet under the Statement of Resolution or the
     Registration Rights Agreements or any other agreement or document entered
     into in connection with the issuance of the Series D Preferred;

 .    Equalnet fails to obtain shareholder ratification of the Note Issuance
     Transaction;

 .    Equalnet fails to issue Common Stock upon the valid conversion of the
     Series D Preferred; and

 .    the Common Stock is not listed for trading on the Nasdaq National Market or
     any national exchange.

     The redemption price per share for shares redeemed as a result of the
occurrence of an Optional Redemption Event is an amount equal to the Premium
Price.

     If Equalnet were to be liquidated, the holders of the Series D Preferred
would be entitled to receive out of the assets of Equalnet $1,000 (plus any
accrued and unpaid dividends and accrued and unpaid interest thereon) per share
of Series D Preferred before any distributions would be made to the holders of
Common Stock (but only after liquidation preferences of Equalnet's Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock have been
satisfied).  The Series D Preferred will not have voting rights except with
respect to any amendment of the Articles of Incorporation that materially and
adversely affects the rights of holders of Series D Preferred or with respect to
the creation of any series of shares that has dividend or liquidation rights
senior to the Series D Preferred.

     Article XI of Equalnet's Articles of Incorporation prohibits certain
changes in the control of Equalnet (for example, a merger, share exchange,
reclassification or sale of substantially all of Equalnet's assets) without the
approval of:

 .    the votes of at least two-thirds of the issued and outstanding shares of
     capital stock held by the Voting Shareholders; and

 .    the votes of two-thirds of the issued and outstanding shares of capital
     stock held by the Voting Shareholders, excluding shares held by Voting
     Shareholders that hold an interest in the other party to the proposed
     change of control.

                                       15

 
     The Warrants

          Each of the two Warrants entitles its holder to purchase (subject to
certain restrictions) 333,116 shares of Common Stock at a purchase price of
$0.9006 per share.  The Warrants expire on September 4, 2003.  The Warrants
contain customary provisions to prevent dilution of the rights of the holder of
the Warrant in the event of stock dividends, stock splits, or dividends to
existing shareholders in the form of cash, other property or stock of another
company.

     The Registration Rights Agreements

          In connection with the Note Agreements, Equalnet entered into
Registration Rights Agreements, each dated as of July 31, 1998, with each buyer.
These agreements grant to the buyers demand and "piggy-back" registration rights
with respect to the Common Stock issuable upon the conversion of the Notes,
Notes issued in payment of interest on the Notes, shares of Series D Preferred
or Dividend Shares or upon the exercise of the Warrants.  The Registration
Rights Agreements require Equalnet to prepare and file with the SEC a shelf
registration statement (the "Registration Statement") with respect to such
shares that will generally allow such shares to be resold by the buyers
publicly.  The Registration Statement is required to be filed within 60 days
after the closing under the Note Agreements and to be effective no later than
105 days after the closing date for a filing on Form S-3, or 120 days for a
filing on Form S-1.  Equalnet is currently not in compliance with its
obligations to file and obtain the effectiveness of the Registration Statement
within the required time periods.  Equalnet must pay substantially all costs
associated with the Registration Statement.

          The agreements also provide that if (1) Equalnet fails to file and
maintain the effectiveness of the Registration Statement for the buyers' shares,
or (2) Equalnet fails to otherwise comply with the Registration Rights
Agreements, then Equalnet must include the buyers' shares in certain future
registration statements that it files with respect to an offering of its shares
for its own account or the account of others.  These piggy-back registration
rights do not apply to registration statements filed with respect to shares to
be issued by Equalnet solely in connection with (1) stock option or other
employee benefit plans or (2) mergers and acquisitions.

     The Security Agreement

          The obligations of Equalnet under the Note Agreements are secured by
certain collateral of Equalnet, Equalnet Corporation, USC Telecom, Inc. and
Netco Acquisition Corp. (collectively, the "Debtors"), pursuant to that certain
Security Agreement, dated as of July 31, 1998, by and among the Debtors, Willis
Group, LLC and Genesee.  The collateral under the Security Agreement consists of
certain goods (including equipment), accounts, general intangibles and chattel
paper of the Debtors.  The security interests granted to Willis Group, LLC and
Genesee under the Security Agreement are subordinate to security interests in
the collateral held by RFC Capital Corporation, Greyrock Business Credit, Finova
Capital Corporation, Netco, LLC, Frontier Communications of the West, Inc. and
Willis Group, LLC.

                                       16

 
     The Independent Committee of the Board of Directors

          Some of Equalnet's directors are affiliated with the buyers that
participated in the Note Issuance Transaction.  Those directors took part in the
meeting of the Board of Directors at which the Note Issuance Transaction was
approved.  To ensure that the interested directors' interest in the transaction
did not improperly affect our approval of the transaction, we created a
committee of independent, disinterested directors to evaluate the fairness of
the Note Issuance Transaction to Equalnet and the holders of Common Stock.  The
members of the independent committee were John Isaac "Ike" Epley, Zane Russell
and Ronald J. Salazar.  All members of the independent committee reviewed and
approved the Note Issuance Transaction.

     The Fairness Opinion

          The independent committee engaged G.A. Herrera & Co., a private
investment banking and consulting firm, to evaluate the fairness of the Note
Issuance Transaction to the holders of Common Stock.   G.A. Herrera & Co. opined
that as of September 3, 1998 the Note Issuance Transaction was fair to the
holders of Common Stock from a financial standpoint.  A copy of that opinion is
attached to this Proxy Statement as Annex C.

USE OF CONSIDERATION

     Equalnet will use the consideration it received pursuant to the Note
Issuance Transaction and, if applicable, the proceeds from the exercise of the
Warrants, to repay debt and for general corporate purposes.  If Genesee and
Willis Group, LLC exercise all of the Warrants, the aggregate proceeds to
Equalnet will be $600,008.

POSSIBLE ADVERSE CONSEQUENCES OF THE NOTE ISSUANCE TRANSACTION

          The Note Issuance Transaction could have adverse consequences for the
holders of the Common Stock.  Under the Note Agreements, Equalnet will incur
additional debt of $3,000,000.  Given Equalnet's cash flow difficulties,
Equalnet may be unable to adequately service the additional debt. If Equalnet
were unable to make payments on its existing debt and the debt to be incurred in
connection with the Note Issuance Transaction as such debts become due, that
nonpayment could have a material adverse effect on Equalnet's business,
operations and cash flow.

          There were 19,910,832 shares of Common Stock outstanding on the Record
Date.  Equalnet reserved 11,407,606 shares of Common Stock for issuance upon the
Conversion.  If the buyers convert the Notes or the Series D Preferred, or
exercise the Warrants, the equity holdings of Equalnet's shareholders will be
significantly diluted.

          A shareholder holding 1,000 shares of Common Stock before the
Conversion holds approximately 0.005% (1,000/19,910,832) of the then-outstanding
Common Stock. If a total of 11,407,606 shares are issued upon the Conversion,
the total number of shares of Common Stock outstanding after the Conversion will
be 31,318,438 (assuming Equalnet does not issue any other Common Stock).
Accordingly, a shareholder holding 1,000 shares of Common Stock after the
Conversion will hold approximately 0.003% (1,000/31,318,438) of the outstanding
Common Stock. Thus, assuming the Conversion results in the issuance of
11,407,606 new shares of 

                                       17

 
Common Stock, shareholders who hold Common Stock before the Note Issuance
Transaction will experience dilution of approximately 40% in their holdings of
Common Stock as a result of the Conversion.

REQUIRED VOTE

          The affirmative vote of a majority of the issued and outstanding
shares of capital stock held by the Voting Shareholders represented at the
Meeting, in person or by proxy, is required to ratify the Note Issuance
Transaction and approve the issuance of Common Stock upon the Conversion.
Abstentions and broker non-votes will not be treated as either a vote for or
against ratification of the transaction and approval of the issuance.  However,
because the ratification of the Note Issuance Transaction and approval of the
issuance of Common Stock upon the Conversion requires the affirmative vote of a
majority of the issued and outstanding shares of capital stock held by the
Voting Shareholders, abstentions and broker non-votes will have the same effect
as a vote against ratification of the transaction and approval of the issuance.

RECOMMENDATION OF THE BOARD OF DIRECTORS

          For the reasons set forth above, we believe the Note Issuance
Transaction is fair to and in the best interests of Equalnet and its
shareholders.  WE RECOMMEND THAT YOU VOTE "FOR" THE RATIFICATION OF THE NOTE
ISSUANCE TRANSACTION AND THE APPROVAL OF THE ISSUANCE OF COMMON STOCK UPON THE
CONVERSION.

                                       18

 
PROPOSAL 3: TO ELECT FOUR DIRECTORS

          Equalnet's Articles of Incorporation provide for six directors or such
other number as is established by resolution of the Board of Directors.
Equalnet currently has eight director positions and five acting directors.
Michael L. Hlinak resigned his position as a director on June 12, 1998, James T.
Harris resigned his position as a director on October 15, 1998 and Zane Russell
resigned his position as a director effective as of February 22, 1999.  The
terms of directors Mitchell H. Bodian, Ronald J. Salazar, and Robert H. Turner
will expire at the Meeting.  We have resolved that after the Meeting, Equalnet
will have six directors.

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

DIRECTOR NOMINEES

          The Board has nominated the following persons (the "Nominees") to be
elected directors at the Meeting:  Messrs. Mitchell H. Bodian, Nathan Isaac
Prager, C. Keith LaMonda and Dr. Ronald J. Salazar.  Mr. Bodian and Dr. Salazar
will serve three year terms expiring in 2001.  Mr. Prager will serve a two-year
term expiring in 2000, and Mr. LaMonda will serve a one year term expiring in
1999.  Mr. Prager is a designee of LIMIT LLC (d/b/a ACMI), a party to the
transactions described in Proposal 5.  The Board is required to nominate Mr.
LaMonda pursuant to the Stock and Warrant Purchase Agreement between Equalnet
and LaMonda Family Limited Partnership described below under "Certain
Relationships and Related Transactions".

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

                                   POSITION WITH                TERM AS DIRECTOR
NAME                         AGE   EQUALNET                      WILL EXPIRE(1)
- - ----                         ---   --------                      --------------

Mark A. Willis                30   Chairman of the Board of           2000
                                   Directors

Mitchell H. Bodian            47   Chief Executive Officer,           1998
                                   President, Director and
                                   Director Nominee

John Isaac "Ike" Epley        32   Director                           1999

Ronald J. Salazar, Ph.D.      50   Director and Director Nominee      1998

Nathan Isaac Prager           46   Director Nominee                    --

C. Keith LaMonda              44   Director Nominee                    --

                                       19

 
          (1) Directors' terms of office are scheduled to expire at the annual
meeting of shareholders to be held at the end of the year indicated.

BACKGROUND OF DIRECTORS AND NOMINEES

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

          MITCHELL H. BODIAN has been President and Chief Executive Officer
since July 1998 and a director of Equalnet since March 1998. Mr. Bodian has been
the Managing Director of Bodian Associates, an investment banking firm providing
financial advisory services to middle market companies, since 1990. Bodian
Associates specializes in providing merger and acquisition services to niche
telecommunications services providers. Mr. Bodian also served as Chapter 11
Trustee for Conectco, a switchless reseller that sold telephone debit cards and
provided one plus telecommunications services, and that filed for protection
under the United States bankruptcy laws in August 1996. Mr. Bodian has
approximately twenty years of experience in management consulting and investment
banking with Kearney Management Consultants, Warburg Paribas Becker and Merrill
Lynch. Mr. Bodian holds an MBA from Stanford Business School.

          JOHN ISAAC "IKE" EPLEY has been a director of Equalnet since March
1998. Mr. Epley has been a Managing Director of Omni Ventures, L.L.C., a venture
capital and investment banking firm, since August 1995. He also has been a
Managing Director of Omni Securities, L.L.C., a registered broker/dealer, since
its inception in November 1997. He is a registered Principal and General
Securities Representative. Mr. Epley served as Vice-President of Alex Brown &
Sons in Houston from January 1993 to 1995.

          C. KEITH LAMONDA has been the Chief Investment Officer of Accelerated
Benefits Corporation, a viatical settlement company, since 1995, and has been
the owner and Chief Executive Officer of the Agent's School of Continuing
Education, a provider of continuing education courses for insurance agents,
since 1986. Mr. LaMonda has also been owner and President of LaMonda Brokerage
Services, an insurance brokerage company, since 1992, owner of TCB
Publishing/Florida, L.L.C., a company that owns the rights to publish an
insurance trade publication in Texas and Florida, since 1998, and President of
the general partner of LaMonda Management Family Limited Partnership, a
partnership that holds various assets for management and investment, since April
1997. Mr. LaMonda owns and operates each of the foregoing entities individually
and through limited partnerships owned by Mr. LaMonda's family. None of the
foregoing entities is an affiliate of Equalnet. Mr. LaMonda also invests in
commercial real estate individually and through the foregoing entities.

                                       20

 
          NATHAN ISAAC PRAGER, a certified public accountant, has been President
of LIMIT LLC (d/b/a ACMI), a network marketing company, since 1997. Mr. Prager
has also been President of Anderton Communication Marketing, Inc., a
telecommunications network marketing company, since 1996, President of Prager
and Associates, a firm of certified public accountants, since 1984, and Chief
Financial Officer of Meucci Originals, Inc., a custom pool cue manufacturer,
since 1995. None of the foregoing entities is an affiliate of Equalnet. Mr.
Prager has served as president of PIN, Inc., formerly known as Anderton
Communication Marketing, Inc. since February 1996. PIN, Inc. filed a voluntary
petition for relief under Chapter 7 of the United States bankruptcy code in
September 1998. In August 1995, Mr. Prager filed a voluntary petition for relief
under Chapter 7 of the United States bankruptcy code. None of the foregoing
entities is an affiliate of Equalnet.

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

COMMITTEES OF THE BOARD OF DIRECTORS AND MEETING ATTENDANCE

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

          We have an audit committee and a compensation committee.  John Isaac
"Ike" Epley and Ronald J. Salazar are the only members of each of the audit
committee and the compensation committee.  We have not established an executive
or nominating committee. Board nominees are proposed by management.

          The audit committee:

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

     .    reviews their fees,

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

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

     .    reviews consolidated financial statements, and

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

                                       21

 
The audit committee held one meeting during the fiscal year ended June 30, 1998.

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

COMPENSATION OF DIRECTORS

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

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

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

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

REQUIRED VOTE

          A Voting Shareholder entitled to vote for the election of directors
may withhold authority to vote for any or all of the Nominees. Nominees
receiving at least the votes of the holders of a plurality of the shares of
capital stock held by the Voting Shareholders present in person or by proxy at
the meeting and voting for the position for which such Nominee has been
nominated will be elected as directors. Abstentions and broker non-votes will
not be treated as a vote for or against any of the Nominees and will have no
effect on the outcome of the elections.

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

RECOMMENDATION OF THE BOARD OF DIRECTORS

          WE RECOMMEND THAT YOU VOTE "FOR" THE ELECTION OF EACH OF THE NOMINEES.

                                       22

 
PROPOSAL 4: TO RATIFY THE AMENDMENT OF THE STATEMENT OF RESOLUTION OF THE BOARD
OF DIRECTORS WITH RESPECT TO THE SERIES A PREFERRED AND TO APPROVE THE ISSUANCE
OF COMMON STOCK UPON THE CONVERSION OF THE SERIES A PREFERRED PURSUANT TO THE
TERMS OF THE AMENDED SERIES A STATEMENT OF RESOLUTION

          We have filed, as an amendment to Equalnet's original Statement of
Resolution of Board of Directors Fixing the Rights and Preferences of the Series
A Convertible Preferred Stock, an amended Statement of Resolution of Board of
Directors Fixing the Rights and Preferences of the Series A Convertible
Preferred Stock (the "Amended Series A Statement of Resolution").  Equalnet
filed the Amended Series A Statement of Resolution pursuant to the terms of the
Amendment Agreement, dated as of July 31, 1998, between Equalnet and MCM
Partners.  The Amendment Agreement was entered into in connection with the Note
Issuance Transaction.  MCM Partners, the holder of all 2,000 shares of the
issued and outstanding Series A Preferred, is an affiliate of Genesee and
Advantage Fund Limited, two of the parties to the Note Issuance Transaction.

          Under the Amendment Agreement, MCM Partners waived its right to
receive existing accrued and unpaid dividends on the Series A Preferred in
consideration for an amendment to the terms of the Series A Preferred.  The
Amended Series A Statement of Resolution decreases the dividends per share per
year from $80 to $60, but increases the rate of interest on dividends in arrears
from 12% to 14%.  In addition, unlike the original terms of the Series A
Preferred, the Amended Series A Statement of Resolution permits Equalnet to pay
dividends on the Series A Preferred in the form of additional shares of Series A
Preferred rather than in cash.  A copy of the Amended Series A Statement of
Resolution is attached hereto as Annex D.

          A summary of the original terms of the Series A Preferred is set forth
below under "Compensation Committee Report on Executive Compensation -- Certain
Relationships and Related Transactions." Except as set forth in the next
sentence, the amended terms of the Series A Preferred are similar in all
material respects to the terms of the Series D Preferred, the terms of which are
summarized above under "Proposal 2 -- To Ratify the Note Issuance Transaction
and Approve the Issuance of Common Stock Upon the Conversion -- The Series D
Preferred." Under the amended terms of the Series A Preferred, unlike the terms
of the Series D Preferred, "optional redemption events" and "registration
events" (in each case as defined therein) do not include the event that the
Common Stock is not listed for trading on the Nasdaq National Market, the Nasdaq
Small Cap Market, the New York Stock Exchange or the American Stock Exchange. In
addition, under the terms of the Series D Preferred, the following constitutes
an optional redemption event and a registration event:

     "There is no reported sale price for the Common Stock on the Nasdaq
     National Market, the Nasdaq Small Cap Market, the New York Stock Exchange
     or the American Stock Exchange for any period of five consecutive trading
     days."

Under the amended terms of the Series A Preferred, that clause reads as follows:

                                       23

 
     "For so long as the Common Stock is listed for trading on the Nasdaq
     National Market, the Nasdaq Small Cap, the NYSE or the AMEX, there is no
     reported sale price for the Common Stock on the Nasdaq National Market, the
     Nasdaq Market, the New York Stock Exchange or the American Stock Exchange
     for any period of five consecutive trading days."

          Equalnet has reserved 2,000,000 shares of Common Stock for issuance
upon the conversion of the Series A Preferred.  Under the terms of the Amended
Series A Statement of Resolution, Equalnet is required to reserve 666,667
additional shares of Common Stock for issuance upon the conversion of the Series
A Preferred.

REASON FOR SEEKING RATIFICATION OF THE AMENDMENT OF THE STATEMENT OF RESOLUTION
OF THE BOARD OF DIRECTORS WITH RESPECT TO THE SERIES A PREFERRED AND APPROVAL OF
THE ISSUANCE OF COMMON STOCK UPON THE CONVERSION OF THE SERIES A PREFERRED

          We are submitting the amendment of the Statement of Resolution of the
Board of Directors with respect to the Series A Preferred for ratification and
the issuance of Common Stock upon the conversion of the Series A Preferred for
approval to comply with the shareholder approval requirements of the Nasdaq
National Market.

POSSIBLE ADVERSE CONSEQUENCES OF THE FILING OF THE AMENDED SERIES A STATEMENT OF
RESOLUTION AND THE ISSUANCE OF COMMON STOCK UPON THE CONVERSION OF THE SERIES A
PREFERRED

          The change in the terms of the Series A Preferred could further dilute
the equity of the holders of Common Stock.  Pursuant to the change in the
conversion terms of the Series A Preferred, Equalnet must increase the number of
shares of Common Stock that it reserves for issuance upon conversion of the
Series A Preferred from 2,000,000 to approximately 2,666,667.

          Assuming that Equalnet has 19,910,832 shares of Common Stock
outstanding before the conversion of the Series A Preferred, a shareholder
holding 1,000 shares of Common Stock before the conversion holds approximately
0.005% (1,000/19,910,832) of the outstanding Common Stock.  If Equalnet issued
2,000,000 shares of Common Stock upon the conversion of the Series A Preferred
(the amount reserved under pursuant to the original terms of the Series A
Preferred), a shareholder holding 1,000 shares of Common Stock after the
conversion would hold approximately 0.0046% (1,000/21,910,832) of the
outstanding Common Stock.  If Equalnet issues 2,666,667 shares of Common Stock
upon the conversion of the Series A Preferred (the amount required to be
reserved under the terms of the Amended Series A Statement of Resolution), a
shareholder holding 1,000 shares of Common Stock after the conversion will hold
approximately 0.0044% (1,000/22,577,499) of the outstanding Common Stock.  Thus,
assuming the conversion of the Series A Preferred results in the issuance of
2,666,667 shares of Common Stock, shareholders holding Common Stock before the
conversion will experience dilution of approximately 12% under the amended terms
of the Series A Preferred compared to dilution of approximately 6% under the
original terms of the Series A Preferred.

                                       24

 
REQUIRED VOTE

          The affirmative vote of a majority of the issued and outstanding
shares of capital stock held by the Voting Shareholders represented at the
Meeting, in person or by proxy, is required to ratify the amendment of the
Statement of Resolution of the Board of Directors with respect to the Series A
Preferred and to approve the issuance of Common Stock upon the conversion of the
Series A Preferred.  Abstentions and broker non-votes will not be treated as
either a vote for or against the ratification of the amendment of the terms of
the Series A Preferred and approval of the issuance.

RECOMMENDATION OF THE BOARD OF DIRECTORS

          For the reasons set forth above, we believe the filing of the Amended
Series A Statement of Resolution and the issuance of Common Stock upon the
conversion of the Series A Preferred are fair to and in the best interests of
Equalnet and its shareholders.  WE RECOMMEND THAT YOU VOTE "FOR" THE
RATIFICATION OF THE AMENDMENT OF THE STATEMENT OF RESOLUTION OF THE BOARD OF
DIRECTORS WITH RESPECT TO THE SERIES A PREFERRED AND THE APPROVAL OF THE
ISSUANCE OF COMMON STOCK UPON THE CONVERSION OF THE SERIES A PREFERRED PURSUANT
TO THE TERMS OF THE AMENDED SERIES A STATEMENT OF RESOLUTION.

                                       25

 
PROPOSAL 5: TO RATIFY THE ACMI ACQUISITION

          Effective as of November 6, 1998, Equalnet and ACMI Acquisition Corp.
("Acquisition Corp."), a wholly owned subsidiary of Equalnet, entered into an
Amended and Restated Asset Purchase Agreement (the "ACMI Agreement") with LIMIT
LLC, a Nevada limited liability company doing business under the name ACMI
("ACMI"), with its principal executive offices at 5425 E. Rains Road, Suite 1,
Memphis, Tennessee 39120, telephone number (901) 363-2100, and its members
(collectively, the "Members"),  providing for Acquisition Corp. to acquire
substantially all of the assets (the "ACMI Assets") of ACMI (the "ACMI
Acquisition").  In exchange for the sale of the ACMI Assets to Acquisition
Corp., Equalnet will issue to ACMI 2,500,000 shares of Common Stock, subject to
reduction if Acquisition Corp. fails to meet certain revenue-based performance
targets within six months after the closing of the transaction.  ACMI and the
Members will also have the right to receive additional shares of Common Stock if
certain conditions are met following the closing.  See "-- Common Stock Issuance
Provisions."

          We are submitting the ACMI Acquisition for ratification by the Voting
Shareholders to comply with the shareholder approval requirements of the Nasdaq
National Market and because the ACMI Agreement requires Equalnet to amend its
Articles of Incorporation to increase the number of shares of authorized Common
Stock.

BACKGROUND OF THE ACMI ACQUISITION

          On or about September 16, 1998, Equalnet and certain members of ACMI
began discussions concerning Equalnet's use of ACMI as a marketing channel for
the long distance subsidiaries of Equalnet, EqualNet Corporation and USC
Telecom, Inc.  Some of the principals of ACMI previously worked for a company
that was an independent contractor sales agent for EqualNet Corporation, and
were familiar with EqualNet Corporation's products, services and agent programs.

          On October 8, 1998, the parties signed a Letter of Intent for the
acquisition of certain assets of ACMI, including ACMI's contracts with its
consultants.  Equalnet sought to acquire the services of these consultants to
market the long distance products and services of Equalnet's long distance
subsidiaries.  On October 24, 1998, the parties signed a definitive agreement
for the acquisition of certain assets of ACMI, subject to the approval of the
Board of Directors of Equalnet and other contingencies.  An amended agreement
between the parties approved by the Board of Directors of Equalnet was executed
as of December 31, 1998.  The transaction was closed in January 1999.

DESCRIPTION OF ACMI'S BUSINESS

     ACMI is a network marketing company, the principals of which have been in
the telecommunication business since 1992. The business has evolved through
several different business entities; the first of these was Advantage
Communications, Inc., which marketed prepaid calling cards and 1+ and 0+ long
distance services under the name of ACI. In 1993 ACI changed its name to
Anderton Communications Marketing, Inc. and marketed its services and products
under the name ACMI. In December 1995, Anderton Communications Marketing, Inc.

                                       26

 
sold its assets, including the name ACMI, to Conquest Telecommunications of
Dublin, Ohio. In April 1997, the current company, LIMIT LLC, purchased the
assets of the former ACMI, including the name ACMI, from Conquest and has
operated the business since then. ACMI's marketing has been and continues to be
headed by the same individuals since the inception of ACI in 1992.

     ACMI is a commissioned sales agent for 1+ and 0+ and is a switch based
provider of prepaid calling cards.  ACMI  or its predecessors-in-interest have
been in the prepaid calling card business since 1993.  ACMI has issued
promotional cards for many Fortune 1000 companies and is the principal provider
of telecommunications services for 240 Postal Annex stores.  ACMI consultants
have the option of becoming independent travel agents to complement their sales
of prepaid travel cards.  The termination of ACMI's relationship with Conquest
Telecommunications has required ACMI to rebuild its entire sales force since
April 1997. ACMI currently has 2,500 active agents.  Equalnet expects the ACMI
Acquisition to enable it to expand its business and more effectively market its
telecommunications products through the addition of ACMI's marketing team.  ACMI
has six members, and there is no public trading market for membership interests
in ACMI.

THE ACMI AGREEMENT

        The ACMI Agreement provides for the acquisition by Acquisition Corp. of
the ACMI Assets in exchange for the assumption by Acquisition Corp. of certain
liabilities of ACMI and the issuance by Equalnet of 2,500,000 shares of Common
Stock  to ACMI.

        The ACMI Assets

        The ACMI Assets consist of, among other things:

        (1) the business operations of ACMI as a going concern,

        (2)  ACMI's right to use the assumed name of ACMI, and all goodwill
             associated with that name, and

        (3)  except for certain excluded assets, all of the other assets of
             ACMI, whether real property or personal property, tangible or
             intangible, including, but not limited to, contract rights, choses
             in action, accounts receivable, computer software, patents,
             trademarks, service marks and related intellectual property rights,
             goods, accounts, inventory, supplies and all of the customers and
             customer contracts of ACMI.

        Aggregate Consideration to be Paid by Acquisition Corp. and Equalnet

        The aggregate consideration paid by Acquisition Corp. and Equalnet for
the ACMI Assets consists of (1) 2,500,000 shares of Equalnet Common Stock,
1,000,000 shares of which were issued at the closing and 1,500,000 shares of
which are issuable six months after the closing, subject to reduction as
described below under "--Adjustment to Purchase Price," and (2) if applicable,
the Common Stock issuable pursuant to the Common Stock Issuance Provisions.

                                       27

 
     Assumed Liabilities

     Under the ACMI Agreement, Acquisition Corp. assumed the following
liabilities of ACMI:

     .    accounts payable of approximately $63,020;

     .    a note payable in the principal amount of $1,000,000; and

     .    the obligation to pay a $20,000 placement fee payable by ACMI under an
          agreement between ACMI and an executive search firm.

     Common Stock Issuance Provisions

     The ACMI Agreement contains two provisions that may require the issuance
of additional shares of Common Stock (such provisions, collectively, the "Common
Stock Issuance Provisions").

     If the average closing sales price of the Common Stock on the Nasdaq
National Market for the period between 150 and 180 days following the closing
date (the "Post Closing Average Price") is less than $0.75, then Equalnet must
issue to ACMI an additional number of shares of Common Stock equal to the
quotient of:

     .    1,875,000, minus the product of (a) 2,500,000 and (b) the greater of
          (i) $0.50 and (ii) the Post Closing Average Price; and

     .    the Post Closing Average Price.

     The ACMI Agreement also requires Equalnet to issue to individual Members,
if such Members continue to perform the same duties for Acquisition Corp. after
the closing as they have for ACMI before the closing, on the basis of conversion
percentages for such Members as set forth in a schedule to the ACMI Agreement,
an amount of Common Stock equal to:

 .    at the end of the first full year after the closing date, the quotient of:

     .    the excess of (A) the greater of (1) the sum of (a) the gross revenues
          of Acquisition Corp. under certain scheduled existing customer
          contracts, (b) all debit card revenues, (c) certain revenue described
          in an Agent Marketing Agreement to be entered into by Acquisition
          Corp. and the Members, and (d) all revenue from any other activities
          of Acquisition Corp., less the commission received on any revenue
          under clauses (a), (b), (c) and (d) and taxes or other revenues
          collected that reflect pass-through items not truly reflective of
          Acquisition Corp.'s revenue (the sum of such numbers, the
          "Commissionable Revenue") for the 12 months immediately following the
          closing date, and (2) $2,500,000 (the greater of (1) and (2), the
          "Year 1 Number") over (B) $1,675,000; and

     .    the average closing sales price of the Common Stock on the Nasdaq
          National 

                                       28

 
          Market during the period between 335 and 365 days after the
          closing date; and

 .    at the end of the second full year after the closing date, the quotient of:

     .    the excess of (A) the Commissionable Revenue for the thirteenth
          through twenty-fourth month immediately following the closing date
          (the Commissionable Revenue for such period, the "Year 2 Number") over
          (B) the product of (1) the greater of (x) the Year 1 Number and (y)
          $2,500,000 and (2) 0.5; and

     .    the average closing sales price of the Common Stock on the Nasdaq
          National Market during the period between 700 and 730 days following
          the closing date; and

 .    at the end of the third full year after the closing date, the quotient
     of:

     .    the excess of (A) the Commissionable Revenue for the twenty-fifth
          through thirty-sixth month immediately following the closing date over
          (B) the product of (1) the greater of (x) the Year 2 Number and (y)
          $2,500,000 and (2) 0.5; and

     .    the average closing sales price of the Common Stock on the Nasdaq
          National Market during the period between 1065 and 1095 days following
          the closing date.

          However, if the Commissionable Revenue for any year is less than
$2,500,000 during any of the three consecutive one-year periods following the
closing, no Common Stock will be issuable under the earn-out provision for that
year.

     Adjustment to Purchase Price

     If Acquisition Corp. does not acquire new customer accounts with an
average monthly Commissionable Revenue of at least $670,000 per account within
six months after the closing date, then the 1,500,000 shares issuable to ACMI
six months after the closing will be reduced by a number equal to the product
of:

     .    1,500,000; and

     .    the quotient of (1) the Commissionable Revenue for such six month
          period and (2) $670,000.

     Limitation on Shares Issuable Under the ACMI Agreement

          The ACMI Agreement does not require Equalnet to issue in excess of
3,677,166 shares of Common Stock under the agreement unless Equalnet has
obtained, at the time of such issuance, the Voting Shareholder's approval of the
issuance of such shares for less than the book or market value of the Common
Stock.  However, if ACMI does not receive the full number of shares that it
would otherwise have been entitled to receive under the agreement because of
this limitation, Equalnet is required to negotiate in good faith to provide
alternative compensation to ACMI in lieu of the shares that are not issued.

                                       29

 
       Management of Acquisition Corp. after the Closing

       The ACMI Agreement provides that, for so long as Acquisition Corp. meets
or exceeds certain financial return targets, ACMI management will have
meaningful input as to the strategic direction of Acquisition Corp. and will
manage the day to day affairs of Acquisition Corp. after the closing date.

       Right to Designate Director Nominee

       The ACMI Agreement requires Equalnet to cause one designee of ACMI to be
nominated to serve on the Board of Directors of Equalnet to be elected at the
first annual meeting of Equalnet's shareholders after the closing date.

TRANSACTION WITH FORMER DIRECTOR ZANE RUSSELL IN CONNECTION WITH THE ACMI
ACQUISITION

          As compensation for structuring and facilitating the ACMI Acquisition,
Equalnet issued 105,000 shares of Common Stock to Zane Russell.  Mr. Russell was
a member of Equalnet's Board of Directors at the time of such issuance.

REASONS FOR THE ACMI ACQUISITION

          Equalnet believes that the ACMI Acquisition was in the best interests
of Equalnet and its shareholders for the following reasons.

       Increased Shareholder Value

       Equalnet believes that the ACMI Acquisition will enhance shareholder
value by providing an experienced marketing team to market Equalnet's
telecommunications products.  Equalnet believes that its expected financial
condition, results of operations and overall business prospects after the ACMI
Acquisition are likely to be better than those of Equalnet standing alone.
Equalnet believes that the expertise and management of personnel currently
employed by ACMI will add significant value to Equalnet's operations.

       Cost Savings

       Equalnet also believes that it can obtain greater sales volume and
customer exposure through the integration of ACMI's marketing team into
Equalnet's operations than could be obtained through contractual marketing
arrangements with third parties.  Equalnet may realize additional savings from
the elimination of personnel needed to interact with third-party marketing
agencies.

FINANCIAL INFORMATION REGARDING EQUALNET AND ACMI

          Summary financial information for Equalnet for the fiscal years ended
June 30, 1998, 1997, 1996, 1995 and 1994 and for the six month periods ended
December 31, 1998 and 1997, and pro-forma financial data giving effect, on a per
share basis, to the ACMI Acquisition, is attached to this Proxy Statement as
Annex E.

                                       30

 
          Financial statements of ACMI as of and for the two years ended
December 31, 1998 are attached to this Proxy Statement as Annex F.  Annex F also
contains a management's discussion and analysis of ACMI's financial condition
and results of operations for the periods covered by the financial statements.
The ACMI Acquisition will be treated as a purchase transaction for accounting
purposes.

Regulatory Filings and Approvals

          No federal or state regulatory requirements are required to be
complied with, nor must any federal or state approval be obtained, in connection
with the ACMI Acquisition.

          The high sales price of the Common Stock on the Nasdaq National Market
on October 23, 1998 (the trading day preceding the announcement of the proposed
ACMI Acquisition) was $1.94 per share; the low sales price on such date was
$0.25 per share.

POSSIBLE ADVERSE CONSEQUENCES OF THE ACMI ACQUISITION

          The ACMI Acquisition could have adverse consequences for the holders
of the Common Stock.  Equalnet might not be able to realize the value of ACMI's
goodwill and its customer base.  Equalnet has attributed significant value to
such goodwill and such customer base in negotiating the ACMI Acquisition.  An
inability to market Equalnet's products to that customer base could have a
material adverse effect on Equalnet's results of operations and cash flow.

          Further, there were 18,385,832 shares of Common Stock outstanding
before the closing of the ACMI Acquisition.  Equalnet has issued 1,000,000
shares, and will issue an additional 1,500,000 shares, of Common Stock pursuant
to the ACMI Agreement.  If ACMI and/or the Members cause Equalnet to issue
Common Stock pursuant to the Common Stock Issuance Provisions, the equity
holdings of Equalnet's shareholders could be significantly diluted.

          A shareholder holding 1,000 shares of Common Stock before the closing
of the ACMI Acquisition held approximately 0.005% (1,000/18,385,832) of the
then-outstanding Common Stock. If 2,500,000 shares are issued pursuant to the
ACMI Acquisition, the number of shares of Common Stock outstanding after such
issuance will be 20,990,832 (including the 105,000 shares of Common Stock issued
to Zane Russell in connection with the ACMI Acquisition but otherwise assuming
Equalnet did not issue any other Common Stock after the closing). Accordingly, a
shareholder holding 1,000 shares of Common Stock after the issuance of all
Common Stock reserved for issuance pursuant to the ACMI Acquisition will hold
approximately 0.0048% (1,000/20,990,832) of the outstanding Common Stock. Thus,
assuming the ACMI Acquisition results in the issuance of 2,500,000 new shares of
Common Stock, shareholders who held Common Stock before the ACMI Acquisition
will experience dilution of approximately 12% in their holdings of Common Stock
as a result of the ACMI Acquisition.

REQUIRED VOTE

          The affirmative vote of a majority of the issued and outstanding
shares of capital stock held by the Voting Shareholders represented at the
Meeting, in person or by proxy, is 

                                       31

 
required to ratify the ACMI Acquisition. Abstentions and broker non-votes will
not be treated as either a vote for or against ratification of the acquisition.
However, because the ratification of the ACMI Acquisition requires the
affirmative vote of a majority of the issued and outstanding shares of capital
stock held by the Voting Shareholders, abstentions and broker non-votes will
have the same effect as a vote against ratification of the acquisition.

RECOMMENDATION OF THE BOARD OF DIRECTORS

          For the reasons set forth above, we believe the ACMI Acquisition is
fair to and in the best interests of Equalnet and its shareholders.  WE
RECOMMEND THAT YOU VOTE "FOR" THE RATIFICATION OF THE ACMI ACQUISITION.

                                       32

 
PROPOSAL 6: TO RATIFY THE APPOINTMENT OF CERTIFIED INDEPENDENT PUBLIC
ACCOUNTANTS

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

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

          Representatives of Ernst & Young are expected to be present at the
Meeting, will have the opportunity to make a statement if they so desire and are
expected to be available to respond to appropriate questions.

REQUIRED VOTE

          Ratification of our appointment of Ernst & Young to serve as the
principal independent certified public accountants for Equalnet and its
subsidiaries for the 1999 fiscal year will require the affirmative vote of the
majority of shares of capital stock held by the Voting Shareholders represented
at the Meeting, in person or by proxy.  Abstentions and broker non-votes will
not be treated as either a vote for or a vote against ratification of our
appointment of Ernst & Young.

RECOMMENDATION OF THE BOARD OF DIRECTORS

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

                                       33

 
EXECUTIVE OFFICERS AND COMPENSATION

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

Name                     Age   Position with Equalnet
- - ----------------------   ---   -------------------------------------
Mitchell H. Bodian        47   President and Chief Executive Officer

William D. Rhodes, Jr.    50   Chief Operating Officer

Dean H. Fisher            48   General Counsel

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

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

          DEAN H. FISHER became Vice President and General Counsel of Equalnet
Corporation in May 1993, Senior Vice President in November 1994 and Secretary in
January 1995.  In January 1995, Mr. Fisher was elected Senior Vice President,
Secretary and General Counsel of Equalnet.  Mr. Fisher resigned from his
positions as Senior Vice President and Secretary of Equalnet during February
1999.  He has also served as a director of Equalnet Corporation from July 1991
to April 1998.  From May 1976 to June 1993, Mr. Fisher was engaged in the
private practice of law in Houston, Texas, serving as President of Fisher &
Readhimer, P.C. from April 1985 to June 1993.

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

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

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

                                       34

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

BASE SALARY

          The base salaries of Equalnet's executive officers were determined in
1995 before, and in anticipation of, Equalnet's initial public offering.  At
that time, salaries were targeted to be within the 50th to 75th percentile for
similar positions in other high technology companies with similar revenues ($40
million to $99 million), based on a published survey of such companies.  The
survey relied upon in setting those salaries did not specify which companies
were included in the survey, and Equalnet thus did not attempt to use those
companies to determine its peer group for purposes of its comparative
performance presentation.  Further, Equalnet believes that its most direct
competitors for executive talent are not necessarily those included in the peer
group used by Equalnet to compare shareholder returns.  See "Performance
Presentation."  Thus, the group of high technology companies by which Equalnet
measured executive compensation in 1995 are not the same as those included in
Equalnet's peer group index in its 40 Month Cumulative Total Return graph
included in this Proxy Statement.  The Committee has not significantly increased
the salary for any of its senior executive positions during the period since
1995 in view of Equalnet's results of operations for those fiscal years.

          The Committee evaluates the Chief Executive Officer's performance,
recommends changes to his annual compensation level for future years to the
Board and reviews and approves changes to compensation levels for all executive
officers.  The Committee retained the services of a nationally recognized
executive search and placement firm for the placement of a chief executive
officer and used that firm's expertise and experience in the area of executive
compensation to help determine appropriate compensation packages for its
executive officers.  The Committee did not increase the salary structure for the
Chief Executive Officer in fiscal 1998.  The salary of Mr. Fisher for fiscal
1998 was not increased.  No merit increases or other bonuses were awarded for
fiscal 1998.  The Committee made these determinations because of Equalnet's
financial performance, the depreciation in its stock price and its liquidity
problems.

ANNUAL INCENTIVE COMPENSATION

          Equalnet's executive officers, other than the Chief Executive Officer,
and other management employees are eligible to receive annual cash bonus awards
that are linked directly to Equalnet's pre-tax income. The Named Executive
Officers (as defined below under "Summary of Compensation") other than the Chief
Executive Officer can each earn an annual bonus equal to 2% of the amount by
which Equalnet's pre-tax and pre-bonus income for the fiscal year exceeds
$2,000,000. The maximum bonus received in any fiscal year cannot exceed 75% of
the officer's base salary. The Chief Executive Officer is entitled to receive
bonuses in an amount equal to 4% of the amount by which Equalnet's pre-tax and
pre-bonus income for the fiscal year exceeds $2,000,000. None of the executive
officers received a bonus for the fiscal year ended June 30, 1998.

                                       35

 
STOCK INCENTIVE PROGRAMS

          The Committee believes that compensation in the form of stock provides
an incentive for management to increase shareholder value by closely aligning
management compensation with the performance of the Common Stock.  Equalnet has
adopted the Employee Plan, under which the Committee may authorize grants of
stock options and restricted stock awards.  During fiscal year 1998, the
Committee did not award shares of restricted stock to members of senior
management or key employees.

                                                      THE COMPENSATION COMMITTEE

                                                          John Isaac "Ike" Epley
                                                        RONALD J. SALAZAR, PH.D.

SUMMARY OF COMPENSATION

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

                              ANNUAL COMPENSATION

       
                                                                                   
                                                                                     Common 
                                                                                     Stock  
Name and                                    Fiscal                                 Underlying       All Other
Principal Position                           Year         Salary       Bonus        Options       Compensation(1)
- - ----------------------------------------    ------        ------       -----       ----------     ---------------
                                                                                   
Robert H. Turner                             1998        $100,961         -                 -              $3,076
former Chief Executive Officer               1997               -
                                             1996               -
Zane Russell                                 1998        $142,931         -                 -              $6,073
former Chairman of the Board and             1997         178,000         -            90,000               3,498
 former  Chief Executive Officer and         1996         178,000         -                 -               4,249
 former President
 
Michael L. Hlinak                            1998         175,182         -                 -               6,434
former Executive Vice President, Chief       1997         155,000         -            90,000               3,607
 Financial Officer and Chief Operating       1996         128,000         -                 -               6,576
 Officer
 
Dean H. Fisher                               1998         129,800         -                 -               6,059
General Counsel and former Senior Vice       1997         129,000         -            35,000               3,451
 President and Secretary                     1996         128,000         -                 -               6,097
 

(1)  Represents contributions in 1996 by Equalnet under Equalnet's 401(k) Plan
     for Messrs. Russell, Hlinak and Fisher of $1,676, $2,477 and $1,676,
     respectively, and health insurance premiums paid by Equalnet for Messrs.
     Russell, Hlinak and Fisher of $4,572, $4,100 and $4,421, respectively.
     Represents contributions in 1997 by Equalnet under Equalnet's 401(k) Plan
     for Messrs. Russell, Hlinak and Fisher of $1,676, $1,785, and $1,676,
     respectively, and health insurance premiums paid in 1997 by Equalnet for

                                       36

 
     Messrs. Russell, Hlinak and Fisher of $1,823, $1,823, and $1,775,
     respectively.  Represents contributions in 1998 by Equalnet under
     Equalnet's 401(k) Plan for Messrs. Russell, Hlinak and Fisher of $2,651,
     $661, and $3,894, respectively, and health insurance premiums paid in 1998
     by Equalnet for Messrs. Turner, Russell, Hlinak and Fisher of $3,076,
     $3,422, $5,773, and $2,165, respectively.

WARRANT AND OPTION GRANTS IN FISCAL 1998

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

                                              
                         NUMBER OF SHARES OF  
                      COMMON STOCK UNDERLYING          VALUE OF UNEXERCISED
                      UNEXERCISED WARRANTS AND       IN THE MONEY WARRANTS AND 
                      OPTIONS AT JUNE 30, 1998      OPTIONS AT JUNE 30, 1998(1)
                     ---------------------------    ----------------------------
NAME                 EXERCISABLE   UNEXERCISABLE    EXERCISABLE    UNEXERCISABLE
                     -----------   -------------    -----------    -------------
Robert H. Turner         ---            ---             ---             ---
Zane Russell            90,000          ---           $5,400            ---
Michael L. Hlinak       90,000          ---           $5,400            ---
Dean H. Fisher          35,000          ---             ---             ---

(1)  The value of each unexercised in-the money warrant or option is equal to
the difference between the closing price of the Common Stock on the Nasdaq
National Market on June 30, 1998 of $2.06 per share and the exercise price of
the warrant or option.

PERFORMANCE PRESENTATION


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

                                       37

 
 
 
                                          COMPARISON OF 40 MONTH CUMULATIVE TOTAL RETURN*
                                               AMONG EQUALNET COMMUNICATIONS CORP.,
                                               THE NASDAQ STOCK MARKET (U.S.) INDEX
                                              AND THE NASDAQ TELECOMMUNICATIONS INDEX

                                                       [GRAPH APPEARS HERE]

          *$100 INVESTED ON 3/9/95 IN STOCK OR INDEX-
           INCLUDING REINVESTMENT OF DIVIDENDS.
           FISCAL YEAR ENDING JUNE 30.

                                 MARCH 9, 1995   JUNE 30, 1995   JUNE 30, 1996   JUNE 30, 1997   JUNE 30, 1998
                                 -------------   -------------   -------------   -------------   -------------
                                                                                  
Equalnet Communications Corp.            100.0           134.8            34.8            18.5            18.5
Nasdaq Stock Market                      100.0           117.3           150.8           183.4          241.89
Nasdaq Stock Market Telephone            100.0           108.3           150.0           181.4          261.43
Communications Companies
(SIC 4810-4819 US Companies)


Note:  The indices are reweighed daily, using the market capitalization on the
previous trading day.

EMPLOYMENT AGREEMENTS

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

                                       38

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

          Equalnet terminated an executive employment agreement with Michael L.
Hlinak during the second half of fiscal year 1998.  Equalnet is currently
obligated to make severance payments of $155,833 to Mr. Hlinak over an 11 month
severance period and is providing health insurance benefits to him during that
period.  Additionally, Equalnet issued a warrant to Mr. Hlinak for the purchase
of up to 90,000 shares of Common Stock at an exercise price of $2.00 per share.
Equalnet is currently in default on its severance payments to Mr. Hlinak.

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

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

          Mr. Epley and Dr. Salazar served as members of the compensation
committee during fiscal year 1998.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          In February 1997, Equalnet issued to The Furst Group, Inc. ("TFG"):

     .    a subordinated note in the principal amount of $3,000,000, bearing
          interest at 10% per annum, due December 31, 1998 (the "TFG Note");

     .    warrants to purchase 1,500,000 shares of Common Stock at an exercise
          price of $2.00 per share (the "TFG Warrants"); and

     .    a Right in the Event of a Change of Control (the "TFG Right"),

all for aggregate consideration of approximately $2,210,000 in cash and $790,000
in credit towards the purchase of long-distance services from Sprint
Communications Company, L.P. ("Sprint").  In connection with this transaction,
effective November 1, 1996, Equalnet began using TFG's contract with Sprint for
the purchase of long-distance services.  During fiscal 1997 and 1998, Equalnet
purchased approximately $1,500,000 and $2,200,000 of long-distance services,
respectively, from Sprint under this contract.  TFG beneficially owns more than
five percent of Equalnet's voting securities.

          The TFG Note is secured by all of the accounts and general intangibles
of Equalnet.  The TFG Right provides that TFG will receive approximately 11.5%
of the fair market value of consideration provided if Equalnet engages in
certain significant transactions within two years of the date of the TFG Right.
Transactions that would trigger the TFG Right include Equalnet's consolidation
with, or merger with or into, a person other than TFG and the sale by Equalnet
or its subsidiaries of a significant portion of its or their assets.

                                       39

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

          On March 6, 1998, as a result of various transactions, Willis Group,
LLC and its affiliates gained control of the Board of Directors of Equalnet,
having nominated for shareholder approval four of the seven members of the
Board.  Willis Group, LLC beneficially owns more than five percent of Equalnet's
voting securities.  Mark A. Willis, the Chairman of the Board of Directors of
Equalnet, owns a 47.5% membership interest in Willis Group, LLC.

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

          Under the terms of several related agreements (the "Agreements") among
Equalnet, Willis Group, LLC and MCM Partners entered into on December 2, 1997,
Equalnet acquired nine telecommunications switches (the "Switches") from Willis
Group, LLC for aggregate consideration consisting of $5,850,000 in cash,
1,400,000 shares of Common Stock, and warrants to purchase an additional 400,000
shares of Common Stock. Equalnet secured  financing of $6,050,000 for the cash
portion of the consideration through an unaffiliated third party lender, which
loan is secured by the Switches, bears interest at an annual rate of 6.42% above
an index rate based on U.S. Treasury Notes (the loan interest rate currently is
12.1%) and is payable in 36 consecutive monthly payments.  In addition, Equalnet
granted 500,000 warrants to Michael T. Willis, a member of Willis Group, LLC and
father of director Mark A. Willis, for guaranteeing a portion of this financing.

          Under the terms of the Agreements, Equalnet acquired Netco Acquisition
Corp. ("Netco"), a Delaware corporation, from Willis Group, LLC.  Netco held
certain intangible rights and assets previously acquired by Willis Group, LLC
and formerly held by Total National Telecommunications. These assets consisted
of intangible rights to use certain software and codes necessary to operate the
Switches. Equalnet acquired Netco for aggregate consideration consisting of
approximately 3,581,633 shares of Common Stock, 2,000 shares of Series A
Preferred and the issuance of approximately 4,000,000 shares of Common Stock for
$1.00 per share in cash.  MCM Partners, the holder of all 2,000 shares of Series
A Preferred, beneficially owns more than five percent of Equalnet's voting
securities.  Mitchell H. Bodian, President, Chief Executive Officer and a
director of Equalnet, is an affiliate of MCM Partners.

          Under the terms of the original Statement of Resolution with respect
to the Series A Preferred, the Series A Preferred had very limited voting
rights, had a stated value of $1,000 per share and were entitled to receive
dividends at the rate of $80.00 per share per year, payable quarterly. Holders
of Series A Preferred had the right to convert their shares into Common Stock at
the rate of 1,000 shares of Common Stock per share of Series A Preferred (or the
stated value divided by $1.00), or an aggregate of 2,000,000 shares of Common
Stock, subject to adjustment 

                                       40

 
pursuant to certain anti-dilution provisions. The Series A Preferred had a
$1,000 per share liquidation preference over Equalnet's Common Stock. Dividends
when not paid were cumulative and bore interest at a rate of 12.0% per year.
Cumulative dividends in arrears at June 30, 1998 were approximately $52,000, or
$25.78 per Series A Preferred share. Equalnet may not declare or pay dividends
on the Common Stock unless all accrued dividends on the Series A Preferred have
been paid. Under the original terms of the Series A Preferred, Equalnet could
redeem the outstanding shares of Series A Preferred at a price of $1,000 per
share (plus any accrued and unpaid dividends and any interest thereon) if the
market price of the Common Stock exceeded $5.00 per share.

          The terms of the Series A Preferred have been amended. See "Proposal
4: To Ratify the Amendment of the Statement of Resolution of the Board of
Directors With Respect to the Series A Preferred and To Approve the Issuance of
Common Stock Upon the Conversion of the Series A Preferred Pursuant to the Terms
of the Amended Series A Statement of Resolution."

          On March 6, 1998, Equalnet entered into an exchange agreement (the
"Exchange Agreement") with TFG, an accredited investor and the holder of
Equalnet's $3.0 million subordinated debt. Under the Exchange Agreement, TFG
exchanged the TFG Note and the TFG Warrant for 3,000 shares of Series B
Preferred along with 322,500 shares of Common Stock to satisfy the accrued
interest due on the TFG Note.

          Each share of the Series B Preferred has a stated value of $1,000 and
is entitled to share with the Common Stock in any dividends declared based upon
the number of shares of Common Stock the Series B Preferred is convertible into
at the time such dividend is declared.  Each share of Series B Preferred is
convertible into 500 shares of Common Stock, subject to certain anti-dilution
provisions.  The Series B Preferred has a $1,000 per share liquidation
preference over the Series A Preferred and the Common Stock.  Each share of
Series B Preferred also entitles the holder thereof to one vote, voting as a
single class with the Common Stock, on matters submitted to the shareholders of
Equalnet.

          During the quarter ended March 31, 1998, Equalnet obtained a cash flow
bridge loan of $400,000 from Netco Acquisition, LLC, an entity owned 50% by
Willis Group, LLC.  This note was payable on March 31, 1998 and had an interest
rate of 10%.  This note is secured by the accounts attributable to web page
customers.  Equalnet is currently in default on this note as no principal or
interest payments have been made.

          Willis Group, LLC received a finder's fee of $54,000 related to
certain financing transactions that closed during fiscal year 1998.  Willis
Group, LLC entered into an agreement with Equalnet in April 1998 related to
merger and acquisition consulting services.  The agreement requires Equalnet to
pay Willis Group, LLC $20,000 per month beginning in May 1998, and a success fee
based on a percentage of the purchase price of acquisitions closed by Equalnet.
To date, Equalnet has not made any payments to Willis Group, LLC with respect to
the foregoing agreements.

          During fiscal year 1998, Willis Group, LLC incurred approximately
$140,000 in out-of-pocket expenses on behalf of Equalnet related to services
provided by consultants, travel 

                                       41

 
expenses and other miscellaneous expenses. Equalnet issued a note dated as of
July 31, 1998 payable to Willis Group, LLC for these expenses.

          On September 2, 1998, Equalnet executed a loan agreement in favor of
Willis Group, LLC in the amount of $241,106.  The loan documents certain
advances Willis Group, LLC has made on Equalnet's behalf.  This loan is secured
by the assets of Equalnet and its subsidiaries.  The loan bears interest at a
rate of 11% per year and matures on January 31, 1999.

          Equalnet has also entered into certain other transactions with Willis
Group, LLC, Genesee and Advantage Fund Limited, which transactions are described
above under "Proposal 2: To Ratify the Note Issuance Transaction and Approve the
Issuance of Common Stock Upon the Conversion."

          Equalnet entered into a Stock and Warrant Purchase Agreement in
January 1999 with LaMonda Management Family Limited Partnership (the "LaMonda
Partnership"), an affiliate of director nominee C. Keith LaMonda, under which,
as such agreement has been amended to date, Equalnet agreed to issue:

     .    769,000 shares of Common Stock, and

     .    warrants to purchase an additional 150,000 shares of Common Stock at
          an average exercise price of $1.50, 

in exchange for aggregate consideration of $500,000. In addition, the agreement
requires Equalnet to:

     .    cause Intelesis Group, Inc. to issue 250,000 shares of its common
          stock to the LaMonda Partnership at a purchase price of $1.00 per
          share; and

     .    nominate Mr. LaMonda for election to EqualNet's Board of Directors.

          John Isaac "Ike" Epley, a member of Equalnet's Board of Directors, has
been performing consulting services for Equalnet since June 1998.  Mr. Epley has
consulted on such matters as mergers, acquisitions, strategy and corporate
development for Equalnet.  He has been paid $60,576 to date under this
arrangement, based upon annual compensation of $175,000.  Mr. Epley will
continue to serve as a consultant to Equalnet on a month-to-month basis in the
future.

          In February 1999, Equalnet entered into an Employment Agreement with
William D. Rhodes, Jr., Equalnet's Chief Operating Officer, pursuant to which
Equalnet is required to grant to Mr. Rhodes, under Equalnet's Employee Stock
Option and Restricted Stock Plan, 

                                       42

 
options to purchase an aggregate of 500,000 shares of Common Stock at an
exercise price of $1.00 per share. One-third of the options vest on February 8,
2000, one-third vest on February 8, 2001 and one-third vest on February 8, 2002.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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



DIRECTORS, EXECUTIVE OFFICERS                                SERIES A                            SERIES C           SERIES D
AND 5.0% SHAREHOLDERS              COMMON STOCK (1)         PREFERRED(2)   SERIES B PREFERRED   PREFERRED(2)       PREFERRED(2)
- - -----------------------------   ----------------------   -----------------   ---------------  ----------------   -----------------
                                Number         PERCENT   NUMBER    PERCENT   NUMBER  PERCENT  NUMBER   PERCENT   NUMBER    PERCENT
                                  OF              OF       OF         OF       OF      OF       OF        OF       OF          OF
                                SHARES         CLASS(3)  SHARES     CLASS    SHARES   CLASS   SHARES    CLASS    SHARES      CLASS
                                ----------------------   -----------------   ---------------  ----------------   -----------------
                                                                                              
Michael T. Willis           12,776,769 (4)      49.2%         -         -         -       -        -        -     1,925 (16)    50%
  5005 Woodway,
  Suite 350
  Houston, Texas  77056

James T. Harris             12,576,769 (4)(7)   49.3%         -         -          -      -        -        -     1,925 (16)    50%
  5005 Woodway,
  Suite 350
  Houston, Texas  77056

Willis Group, LLC           12,276,769 (4)      48.2%         -         -          -      -        -        -     1,925 (16)    50%
  5005 Woodway, Suite 350
  Houston, Texas  77056

Mark A. Willis              12,276,769 (4)      48.2%         -         -          -      -        -        -     1,925 (16)    50%
  5005 Woodway,
  Suite 350
  Houston, Texas  77056

James R. Crane               3,570,000 (5)      17.7%         -         -          -      -        -        -         -          -
  15350 Vickery Drive
  Houston, Texas 77032

MCM Partners                 2,666,667 (6)      11.8%     2,000       100%         -      -        -        -         -          -
  10500 NE 8th, Suite 1920
  Bellevue, Washington
  98004

Genesee Fund Limited         2,387,137 (8)      10.7%         -         -          -      -        -        -         -          -
  Portfolio B
  10500 NE 8th, Suite 1920
  Bellevue, Washington
  98004

Advantage Fund Limited       2,589,166 (9)       8.9%         -         -          -      -        -        -     1,925         50%
  10500 NE 8th, Suite 1920
  Bellevue, Washington
  98004

SA Telecommunications, Inc   2,067,070 (10)      9.4%         -         -          -      -     206,707    100%       -          -
  1600 Promenade Center,
  15th Floor
  Richardson, Texas 75080

The Furst Group, Inc         1,822,500 (11)      8.5%         -         -      3,000    100%       -        -         -          -
  459 Oakshade Road
  Shamong, New Jersey
  08088

 

                                       43

 


DIRECTORS, EXECUTIVE OFFICERS                                SERIES A                            SERIES C           SERIES D
AND 5.0% SHAREHOLDERS              COMMON STOCK (1)         PREFERRED(2)   SERIES B PREFERRED   PREFERRED(2)       PREFERRED(2)
- - -----------------------------   ----------------------   -----------------   ---------------  ----------------   -----------------
                                Number         PERCENT   NUMBER    PERCENT   NUMBER  PERCENT  NUMBER   PERCENT   NUMBER    PERCENT
                                  OF              OF       OF         OF       OF      OF       OF        OF       OF          OF
                                SHARES         CLASS(3)  SHARES     CLASS    SHARES   CLASS   SHARES    CLASS    SHARES      CLASS
                                ----------------------   -----------------   ---------------  ----------------   -----------------
                                                                                              
James D. Kaylor              1,822,500 (11)      8.5%         -         -          -      -        -        -         -          -
  916 P Street, Suite 200
  Lincoln, Nebraska  68508

John S. Streep               1,822,500 (11)      8.5%         -         -          -      -        -        -         -          -
  15841 Kilmarnock Drive
  Ft. Myers, Florida
  33912

Mitchell H. Bodian                   -             -          -         -          -      -        -        -         -          -
  1250 Wood Branch Park Dr.
  Houston, Texas 77079

Robert H. Turner                     -             -          -         -          -      -        -        -         -          -
  1250 Wood Branch Park Dr.
  Houston, Texas 77079

Zane Russell                 1,152,556 (7)(12)  17.7%         -         -          -      -        -        -         -          -
  20607 Shadow Mill Court
  Houston, Texas  77450

LIMIT LLC (d/b/a ACMI)       1,000,000           5.0%
  5425 E. Rains Road
  Suite 1
  Memphis, Tennessee
  39120

Nathan Isaac Prager          1,000,000 (17)      5.0%         -         -          -      -        -        -         -          -
  10645 Chapel Hill Rd.
  Arlington, Texas  38002

C. Keith LaMonda             1,444,800 (18)      6.9%         -         -          -      -        -        -         -          -
  105 East Robinson Street
  Second Floor
  Orlando, Florida  32801

Dean H. Fisher                 267,602 (13)      1.3%         -         -          -      -        -        -         -          -
  1250 Wood Branch Park Dr.
  Houston, Texas 77079

Michael L. Hlinak              190,000 (12)       *           -         -          -      -        -        -         -          -
  1250 Wood Branch Park Dr.
  Houston, Texas 77079

John Isaac "Ike" Epley               -             -          -         -          -      -        -        -         -          -
  1250 Wood Branch Park Dr.
  Houston, Texas 77079

Ronald J. Salazar, Ph.D.             -             -          -         -          -      -        -        -         -          -
  1250 Wood Branch Park Dr.
  Houston, Texas 77079

Frank Hevrdejs               1,400,000 (14)      7.0%         -         -          -      -        -        -         -          -
  8 Greenway Plaza
  Houston, Texas  77046

William D. Rhodes, Jr.               -             -          -         -          -      -        -           -      -          -
  1250 Wood Branch Park Dr.
  Houston, Texas 77079

Current directors and       12,544,371 (15)     49.1%         -         -          -      -        -        -     1,925 (17)    50%
  executive officers as
  a group (7 persons)

   __________________
   *   Less than 1%.

   (1) Except as otherwise noted, each shareholder has sole voting and
       dispositive power with respect to the shares of Common Stock.

                                       44

 
   (2) Except under limited circumstances, the holders of the Series A
       Preferred, Series C Convertible Preferred Stock and Series D Preferred
       are not entitled to vote.

   (3) For purposes of calculating the beneficial ownership of each stockholder,
       it was assumed (in accordance with the SEC's definition of "beneficial
       ownership") that such stockholder had exercised all options or warrants,
       or converted any convertible securities, by which such stockholder had
       the right, within 60 days following the Record Date, to acquire shares of
       Common Stock. It was further assumed that in each case, the exercise or
       conversion was based on a conversion or exercise price of $0.75 per
       share.

   (4) Includes warrants exercisable for an aggregate of 933,116 shares of
       Common Stock, 1,925 shares of Series D Convertible Preferred Stock
       convertible in the aggregate into approximately 2,566,666 shares of
       Common Stock and notes convertible in the aggregate into approximately
       2,054,021 shares of Common Stock. Michael T. Willis holds directly a
       warrant for the purchase of 500,000 shares of Common Stock and James T.
       Harris holds 300,000 shares of Common Stock directly as the result of a
       transfer from Willis Group, LLC. None of such shares was outstanding as
       of October 2, 1998. Information relating to ownership by Willis Group,
       LLC and Messrs. Michael T. Willis, Mark A. Willis and James T. Harris is
       based on Amendment No. 5 to Schedule 13D filed with the SEC on March 12,
       1999. Mr. Harris holds 300,000 shares of Common Stock directly as a
       result of a transfer from Willis Group, LLC. Michael T. Willis and Mark
       A. Willis each own 47.5% of the membership interest in Willis Group, LLC
       and Mr. Harris owns the remaining 5% membership interest. Michael T.
       Willis is the Secretary of Willis Group, LLC, Mark A. Willis is the
       President of Willis Group, LLC and Mr. Harris is the Treasurer of Willis
       Group, LLC. According to the report, Willis Group, LLC has sole voting
       and dispositive power with respect to all shares other than shares or
       warrants held directly and Messrs. Michael T. Willis, Mark A. Willis and
       Harris have shared voting and dispositive power with respect to all
       shares other than shares or warrants held directly.

   (5) Includes a warrant exercisable for an aggregate of 170,000 shares of
       Common Stock, none of which had been issued as of October 2, 1998.
       Information relating to ownership by James R. Crane is based on reports
       on Schedule 13D filed with the SEC on May 6, 1998.

   (6) Consists of 2,000 shares of Series A Preferred currently convertible in
       the aggregate into approximately 2,666,667 shares of Common Stock.

   (7) Excludes 5,000 shares of Common Stock issuable upon exercise of stock
       options awarded under the Director Plan that are not exercisable within
       60 days.

   (8) Includes a warrant exercisable for an aggregate of 333,116 shares of
       Common Stock and notes convertible into an aggregate of approximately
       2,054,021 shares of Common Stock.

   (9) Includes 1,925 shares of Series D Convertible Preferred Stock convertible
       in the aggregate into approximately 2,566,666 shares of Common Stock.

  (10) Includes 206,707 shares of Series C Convertible Preferred Stock
       convertible in the aggregate into 2,067,070 shares of Common Stock.

                                       45

 
  (11) Includes 3,000 shares of Series B Convertible Preferred Stock convertible
       in the aggregate into 1,500,000 shares of Common Stock. Information
       relating to ownership by TFG, James D. Kaylor and John S. Streep is based
       on management's information regarding the transactions. Messrs. Kaylor
       and Streep each own 45% of the Common Stock of TFG. Mr. Kaylor is the
       Chairman of the Board of TFG and Mr. Streep is the Chief Executive
       Officer of TFG.

  (12) Includes a warrant exercisable for an aggregate of 90,000 shares of
       Common Stock.

  (13) Includes options exercisable for an aggregate of 35,000 shares of Common
       Stock. Excludes 40,000 shares of Common Stock held by trusts for the
       benefit of Mr. Fisher's children. Mr. Fisher has disclaimed any
       beneficial ownership of these shares.

  (14) Includes beneficial ownership of warrants exercisable for an aggregate of
       66,667 shares of Common Stock.

  (15) See Notes 3, 4 and 13 above and Note 16 below.

  (16) All 1,925 shares of Series D Convertible Preferred Stock are beneficially
       owned by Mark A. Willis and are held directly by Willis Group, LLC.

  (17) All 1,000,000 shares of Common Stock are held directly by LIMIT LLC
       (d/b/a ACMI). Mr. Prager is the president of LIMIT LLC (d/b/a ACMI) and
       owns a 10% membership interest therein.

  (18) Includes 769,000 shares of Common Stock issuable to LaMonda Management
       Family Limited Partnership under a Stock Warrant Purchase Agreement
       between Equalnet and such limited partnership and warrants issuable to
       such partnership exercisable for an aggregate of 150,000 shares of Common
       Stock. Mr. LaMonda is the President of the general partner of, and
       indirectly controls, such partnership.

          Under the terms of the 6% Senior Secured Convertible Notes due 2001,
the warrants held by Willis Group, LLC and Genesee Fund Limited-Portfolio B, and
the Series A and Series D Convertible Preferred Stock, those securities are
convertible or exercisable by any holder only to the extent that the number of
shares of Common Stock issuable upon the conversion of those securities,
together with the number of shares of Common Stock owned by the holder and its
affiliates (but not including shares of Common Stock underlying unconverted and
unexercised portions of those securities or securities containing similar
provisions) would not exceed 4.9% of the then outstanding Common Stock as
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended.  Thus, the number of shares of Common Stock set forth in the
table for each of Willis Group, Genesee, MCM Partners and Advantage Fund Limited
exceeds the number of shares of Common Stock that Willis Group, Genesee, MCM
Partners and Advantage could own beneficially at any given time through their
ownership of the 6% Senior Secured Convertible Notes due 2001, the warrants and
the Series A and Series D Convertible Preferred Stock.

                                       46

 
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

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

PROPOSALS FOR NEXT ANNUAL MEETING

          Any proposals of Voting Shareholders intended to be presented at the
annual meeting of shareholders of Equalnet with respect to fiscal year 1999 must
be received by Equalnet at its principal executive offices, 1250 Wood Branch
Park Drive, Houston, Texas 77079, no later than December __, 1999 to be included
in the proxy statement and form of proxy relating to that meeting.

OTHER MATTERS

          The management of Equalnet knows of no other matters that may come
before the Meeting. However, if any matters other than those referred to above
should properly come before the Meeting, the persons named in the enclosed proxy
intend to vote such proxy in accordance with their best judgment.

CAUTION AS TO FORWARD-LOOKING STATEMENTS

          This Proxy Statement includes forward-looking statements, including
without limitation,

     .    statements regarding Equalnet's financial position, business strategy,
          products, products under development, markets, budgets and plans and
          objectives of management for future operations; and

     .    statements preceded by, followed by or that include the words
          "expects," "anticipates" or similar expressions.

For those statements, Equalnet claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.  Although Equalnet believes that the expectations of such forward-
looking statements are reasonable, Equalnet cannot assure you that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from Equalnet's expectations ("Cautionary

                                       47

 
Statements") are disclosed elsewhere in this Proxy Statement, including, without
limitation, in conjunction with the forward-looking statements included in this
Proxy Statement, and under the heading "Cautionary Statements" in documents that
are incorporated herein by reference.  All subsequent written and oral forward-
looking statements attributable to Equalnet, or persons on its behalf, are
expressly qualified in their entirety by the Cautionary Statements.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

          The following documents filed with the SEC by Equalnet (File No. 0-
025842) are incorporated in this Proxy Statement by reference, and we are
sending copies of such documents to Voting Shareholders entitled to vote at the
Meeting together with this Proxy Statement:

     (1)  Annual Report on Form 10-K for the fiscal year ended June 30, 1998,
          filed with the SEC on October 13, 1998.

     (2)  Quarterly Report on Form 10-Q for the fiscal quarter ended September
          30, 1998, filed with the SEC on November 20, 1998.

     (3)  Quarterly Report on Form 10-Q for the fiscal quarter ended December
          31, 1998 filed with the SEC on February 19, 1999.

     (4)  Current Report on Form 8-K filed with the SEC on September 21, 1998.

     (5)  Current Report on Form 8-K filed with the SEC on February 5, 1999.

                                       48

 
                                                                         ANNEX A

                       PROPOSED AMENDMENT TO EQUALNET'S
                           ARTICLES OF INCORPORATION

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

          "2. Effective as of the close of business on the date of filing
     of this amendment to the Articles of Incorporation (the "Effective
     Time"), the filing of this amendment shall effect a reverse stock
     split (the "Reverse Stock Split") pursuant to which each three (3)
     shares of common stock of the corporation issued and outstanding,
     shall be combined into one (1) validly issued, fully paid and
     nonassessable share of common stock of the corporation.  The number of
     authorized shares, the number of shares of treasury stock and the par
     value of the common stock shall not be affected by the Reverse Stock
     Split.  Each stock certificate that prior to the Effective Time
     represented shares of common stock shall, following the Effective
     Time, represent the number of shares into which the shares of common
     stock represented by such certificate shall be combined.  Fractional
     shares that occur as a result of the foregoing shall be purchased by
     the corporation based upon the closing price reported for the common
     stock on the Nasdaq National Market on the date of filing of this
     amendment."

 
                                                                         ANNEX B

                         EQUALNET COMMUNICATIONS CORP.

          STATEMENT OF RESOLUTION OF BOARD OF DIRECTORS ESTABLISHING AND
          DESIGNATING SERIES D CONVERTIBLE PREFERRED STOCK AND  FIXING THE
          RIGHTS AND PREFERENCES OF SUCH SERIES

                            ----------------------

TO THE SECRETARY OF STATE
   OF THE STATE OF TEXAS:

          Equalnet Communications Corp., pursuant to the provisions of Articles
2.13 and 2.19B of the Texas Business Corporation Act, submits the following
statement for the purpose of establishing and designating a series of shares and
fixing and determining the relative rights and preferences thereof:

          1.  The name of the Corporation is Equalnet Communications Corp.

          2.  The following is a true and correct copy of an extract from the
minutes of a meeting of the Board of Directors of the Corporation held on March
9, 1999, and includes a true and correct copy of certain resolutions duly
adopted  thereat.

          RESOLVED, that pursuant to authority vested in the Board of Directors
by the Articles of Incorporation of the Corporation, the Board of Directors does
hereby provide that the Statement of Resolution of Board of Directors
Establishing and Designating Series D Convertible Preferred Stock and Fixing the
Rights and Preferences of Such Series that was filed with the Secretary of State
of the State of Texas on September 1, 1998 is cancelled and deleted in its
entirety and shall be replaced with the following:

                      SERIES D CONVERTIBLE PREFERRED STOCK

          SECTION 1.  DEFINITIONS.  As used herein, the following terms shall
have the following meanings:

          "Affiliate" means, with respect to any person, any other person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the subject person; for purposes
of this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
whether through the ownership of voting securities or by contract or otherwise.

 
          "Aggregated Person" means, with respect to any person, any person
whose beneficial ownership of shares of Common Stock would be aggregated with
the beneficial ownership of shares of Common Stock by such person for purposes
of Section 13(d) of the Exchange Act, and Regulation 13D-G thereunder.

          "AMEX" means the American Stock Exchange, Inc.

          "Average Market Price" for any date means the arithmetic average of
the Market Price on each of the five Trading Days, whether or not consecutive,
during the applicable Measurement Period having the lowest Market Prices.

          "Board of Directors" or "Board" means the Board of Directors of the
Corporation.

          "Ceiling Price" means $1.228 (subject to equitable adjustments from
time to time on terms reasonably acceptable to the Majority Holders for stock
splits, stock dividends, combinations, recapitalizations, reclassifications and
similar events occurring or with respect to which "ex-" trading commences on or
after the date of filing of this Statement of Resolution with the Secretary of
State of the State of Texas); provided, however, that, notwithstanding any other
provision hereof, the Ceiling Price applicable to a particular conversion shall
be subject to reduction as provided in Section 10(b)(6); provided further,
however, that if a Registration Event occurs, then, in addition to any other
right or remedy of any holder of shares of Series D Convertible Preferred Stock
thereafter the Ceiling Price shall be permanently reduced on each Computation
Date by an amount equal to two percent of the amount that the Ceiling Price
otherwise would have been without any reduction pursuant to this proviso (pro
rated in the case of any Computation Date which is less than 30 days after a
Registration Event occurs or less than 30 days after another Computation Date).

          "Common Stock" means the Common Stock, $.01 par value, of the
Corporation.

          "Computation Date" means, if a Registration Event occurs, any of (1)
the date which is 30 days after such Registration Event occurs, if any
Registration Event is continuing on such date, (2) each date which is 30 days
after a Computation Date, if any Registration Event is continuing on such date,
and (3) the date on which all Registration Events cease to continue.

          "Conversion Agent" means American Stock Transfer & Trust Company, or
its duly appointed successor, as conversion agent for the Series D Convertible
Preferred Stock pursuant to the Transfer Agent Instruction.

          "Conversion Amount" initially shall be equal to $1,000.00, subject to
adjustment as herein provided.

          "Conversion Date" means, with respect to each conversion of shares of
Series D Convertible Preferred Stock pursuant to Section 10, the date on which
the Conversion Notice relating to such conversion is actually received by the
Conversion 

                                       2

 
Agent, whether by mail, courier, personal service, telephone line facsimile
transmission or other means.

          "Conversion Notice" means a written notice, duly signed by or on
behalf of a holder of shares of Series D Convertible Preferred Stock, stating
the number of shares of Series D Convertible Preferred Stock to be converted in
the form specified in the Exchange Agreements.

          "Conversion Percentage" means 85%; provided, however, that,
notwithstanding any other provision hereof, if a Registration Event occurs, then
such percentage stated above shall be permanently reduced by two percentage
points on each Computation Date (pro rated in the case of any Computation Date
which is less than 30 days after a Registration Event occurs or less than 30
days after another Computation Date).

          "Conversion Price" means the lesser of:

          (1) the product of (a) the Average Market Price for such date times
(b) the applicable Conversion Percentage; and

          (2)  the Ceiling Price;

          provided, however, that the Conversion Price applicable to a
particular conversion shall be subject to reduction as provided in Section
10(b)(6);

          provided, further, however, that as long as (x) the Common Stock is
listed or quoted on the Nasdaq, the Nasdaq Small Cap, the NYSE or the AMEX and
(y) the Corporation is in compliance in all material respects with its
obligations to the holders of the Series D Convertible Preferred Stock, the
Conversion Price shall be no less than $0.75.

          "Conversion Rate" shall have the meaning provided in Section 10(a).

          "Converted Market Price" means, for any share of Series D Convertible
Preferred Stock as of any date of determination, an amount equal to the product
obtained by multiplying (x) the number of shares of Common Stock which would, at
the time of such determination, be issuable on conversion in accordance with
Section 10(a) of one share of Series D Convertible Preferred Stock and any
accrued and unpaid dividends thereon and any accrued and unpaid interest on
dividends thereon in arrears if a Conversion Notice were given by the holder of
such share of Series D Convertible Preferred Stock on the date of such
determination (determined without regard to any limitation on conversion based
on beneficial ownership contained in Section 10(a)) times (y) the arithmetic
average of the Market Price of the Common Stock for the five consecutive Trading
Days ending on the Trading Day prior to the date of such determination.

          "Corporation Optional Redemption Notice" means a notice given by the
Corporation to the holders of shares of Series D Convertible Preferred Stock
pursuant to 

                                       3

 
Section 9(a) which notice shall state (1) that the Corporation is exercising its
right to redeem all or a portion of the outstanding shares of Series D
Convertible Preferred Stock pursuant to Section 9(a), (2) the number of shares
of Series D Convertible Preferred Stock held by such holder which are to be
redeemed, (3) the Redemption Price per share of Series D Convertible Preferred
Stock to be redeemed or the formula for determining the same, determined in
accordance herewith, and (4) the applicable Redemption Date.

          "Current Price" means with respect to any date the arithmetic average
of the Market Price of the Common Stock on the 30 consecutive Trading Days
commencing 45 Trading Days before such date.

          "Dividend Shares" means shares of Series D Convertible Preferred Stock
issued as dividends on outstanding shares of Series D Convertible Preferred
Stock in accordance with Section 5(b).

          "Exchange Act" means the Securities Exchange Act of 1934, as amended.

          "Exchange Agreements" means the several Note Purchase and Exchange
Agreements by and between the Corporation and the original holders of shares of
Series D Convertible Preferred Stock pursuant to which the shares of Series D
Convertible Preferred Stock were issued.

          "Final Redemption Date" means the date of redemption of shares of
Series D Convertible Preferred Stock pursuant to Section 9(b), determined in
accordance therewith.

          "Final Redemption Notice" means a notice given by the Corporation to
each holder of Series D Convertible Preferred Stock pursuant to Section 9(b),
which notice shall state (1) that the Corporation is exercising its right to
redeem all outstanding shares of Series D Convertible Preferred Stock pursuant
to Section 9(b), (2) the number of shares of Series D Convertible Preferred
Stock held by such holder which are to be redeemed, (3) the Final Redemption
Price per share of Series D Convertible Preferred Stock held by such holder
which are to be redeemed, determined in accordance herewith, and (4) the Final
Redemption Date.

          "Final Redemption Price" on any date means an amount equal to the
product obtained by multiplying (a) the sum of (1) $1,000 plus (2) an amount
equal to the accrued but unpaid dividends on the share of Series D Convertible
Preferred Stock to be redeemed to the Final Redemption Date, plus (3) an amount
equal to the accrued and unpaid interest on dividends in arrears on such share
of Series D Convertible Preferred Stock to the Final Redemption Date (determined
as provided in Section 5) times (b) the Premium Percentage.

          "Inconvertibility Notice" shall have the meaning provided in Section
7(a)(2).

          "Issuance Date" means the first date of original issuance of any
shares of Series D Convertible Preferred Stock.

                                       4

 
          "Junior Dividend Stock" means, collectively, the Common Stock and any
other class or series of capital stock of the Corporation ranking junior as to
dividends to the Series D Convertible Preferred Stock.

          "Junior Liquidation Stock" means the Common Stock or any other class
or series of the Corporation's capital stock ranking junior as to liquidation
rights to the Series D Convertible Preferred Stock.

          "Liquidation Preference" means, for each share of Series D Convertible
Preferred Stock, the sum of (i) all dividends accrued and unpaid thereon to the
date of final distribution to such holders, (ii) accrued and unpaid interest on
dividends in arrears (computed in accordance with Section 5(a)) to the date of
such distribution, and (iii) $1,000.00.

          "Majority Holders" means at any time the holders of shares of Series D
Preferred Stock which shares constitute a majority of the outstanding shares of
Series D Preferred Stock.

          "Market Price" of the Common Stock on any date means the lowest sale
price (regular way) for one share of Common Stock on such date on the first
applicable among the following:  (a) the national securities exchange on which
the shares of Common Stock are listed which constitutes the principal securities
market for the Common Stock, (b) the Nasdaq, if the Nasdaq constitutes the
principal market for the Common Stock on such date, or (c) the Nasdaq SmallCap,
if the Nasdaq SmallCap constitutes the principal securities market for the
Common Stock on such date, in any such case as reported by Bloomberg, L.P.;
provided, however, that if during any Measurement Period or other period during
which the Market Price is being determined:

          (i) The Corporation shall declare or pay a dividend or make a
     distribution to all holders of the outstanding Common Stock in shares of
     Common Stock or fix any record date for any such action, then the Market
     Price for each day in such Measurement Period or such other period which
     day is prior to the earlier of (1) the date fixed for the determination of
     stockholders entitled to receive such dividend or other distribution and
     (2) the date on which ex-dividend trading in the Common Stock with respect
     to such dividend or distribution begins shall be reduced by multiplying the
     Market Price (determined without regard to this proviso) for each such day
     in such Measurement Period or such other period by a fraction, the
     numerator of which shall be the number of shares of Common Stock
     outstanding at the close of business on the earlier of (1) the record date
     fixed for such determination and (2) the date on which ex-dividend trading
     in the Common Stock with respect to such dividend or distribution begins
     and the denominator of which shall be the sum of such number of shares and
     the total number of shares constituting such dividend or other
     distribution;

          (ii) The Corporation shall issue rights or warrants to all holders of
     its outstanding shares of Common Stock, or fix a record date for such
     issuance, which rights or warrants entitle such holders (for a period
     expiring within 

                                       5

 
     forty-five (45) days after the date fixed for the determination of
     stockholders entitled to receive such rights or warrants) to subscribe for
     or purchase shares of Common Stock at a price per share less than the
     Market Price (determined without regard to this proviso) for any day in
     such Measurement Period or such other period which day is prior to the end
     of such 45-day period, then the Market Price for each such day shall be
     reduced so that the same shall equal the price determined by multiplying
     the Market Price (determined without regard to this proviso) by a fraction,
     the numerator of which shall be the number of shares of Common Stock
     outstanding at the close of business on the record date fixed for the
     determination of stockholders entitled to receive such rights or warrants
     plus the number of shares which the aggregate offering price of the total
     number of shares so offered would purchase at such Market Price, and the
     denominator of which shall be the number of shares of Common Stock
     outstanding on the close of business on such record date plus the total
     number of additional shares of Common Stock so offered for subscription or
     purchase. In determining whether any rights or warrants entitle the holders
     to subscribe for or purchase shares of Common Stock at less than the Market
     Price (determined without regard to this proviso), and in determining the
     aggregate offering price of such shares of Common Stock, there shall be
     taken into account any consideration received for such rights or warrants,
     the value of such consideration, if other than cash, to be determined in
     good faith by a resolution of the Board of Directors of the Corporation;

          (iii)  The outstanding shares of Common Stock shall be subdivided into
     a greater number of shares of Common Stock or a record date for any such
     subdivision shall be fixed, then the Market Price of the Common Stock for
     each day in such Measurement Period or such other period which day is prior
     to the earlier of (1) the day upon which such subdivision becomes effective
     and (2) the date on which ex-dividend trading in the Common Stock with
     respect to such subdivision begins shall be proportionately reduced, and
     conversely, in case the outstanding shares of Common Stock shall be
     combined into a smaller number of shares of Common Stock, the Market Price
     each trade (regular way) on for each day in such Measurement Period or such
     other period which day is prior to the earlier of (1) the date on which
     such combination becomes effective and (2) the date on which trading in the
     Common Stock on a basis which gives effect to such combination begins,
     shall be proportionately increased;

          (iv) The Corporation shall, by dividend or otherwise, distribute to
     all holders of its Common Stock shares of any class of capital stock of the
     Corporation (other than any dividends or distributions to which clause (i)
     of this proviso applies) or evidences of its indebtedness, cash or other
     assets (including securities, but excluding any rights or warrants referred
     to in clause (ii) of this proviso and dividends and distributions paid
     exclusively in cash and excluding any capital stock, evidences of
     indebtedness, cash or assets distributed upon a merger or consolidation)
     (the foregoing hereinafter in this clause (iv) of this proviso called the
     "Securities"), or fix a record date for any such distribution, then, in
     each such case, the Market Price for each day in such Measurement 

                                       6

 
     Period or such other period which day is prior to the earlier of (1) the
     record date for such distribution and (2) the date on which ex-dividend
     trading in the Common Stock with respect to such distribution begins shall
     be reduced so that the same shall be equal to the price determined by
     multiplying the Market Price (determined without regard to this proviso) by
     a fraction, the numerator of which shall be the Market Price (determined
     without regard to this proviso) for such date less the fair market value
     (as determined in good faith by resolution of the Board of Directors of the
     Corporation) on such date of the portion of the Securities so distributed
     or to be distributed applicable to one share of Common Stock and the
     denominator of which shall be the Market Price (determined without regard
     to this proviso) for such date; provided, however, that in the event the
     then fair market value (as so determined) of the portion of the Securities
     so distributed applicable to one share of Common Stock is equal to or
     greater than the Market Price (determined without regard to this clause
     (iv) of this proviso) for any such Trading Day, in lieu of the foregoing
     adjustment, adequate provision shall be made so that the holders of shares
     of Series D Preferred Stock shall have the right to receive upon conversion
     of the shares of Series D Preferred Stock the amount of Securities the
     holders of shares of Series D Preferred Stock would have received had the
     holders of shares of Series D Preferred Stock converted the shares of
     Series D Preferred Stock immediately prior to the record date for such
     distribution. If the Board of Directors of the Corporation determines the
     fair market value of any distribution for purposes of this clause (iv) by
     reference to the actual or when issued trading market for any securities
     comprising all or part of such distribution, it must in doing so consider
     the prices in such market on the same day for which an adjustment in the
     Market Price is being determined.

     For purposes of this clause (iv) and clauses (i) and (ii) of this proviso,
     any dividend or distribution to which this clause (iv) is applicable that
     also includes shares of Common Stock, or rights or warrants to subscribe
     for or purchase shares of Common Stock to which clause (i) or (ii) of this
     proviso applies (or both), shall be deemed instead to be (1) a dividend or
     distribution of the evidences of indebtedness, assets, shares of capital
     stock, rights or warrants other than such shares of Common Stock or rights
     or warrants to which clause (i) or (ii) of this proviso applies (and any
     Market Price reduction required by this clause (iv) with respect to such
     dividend or distribution shall then be made) immediately followed by (2) a
     dividend or distribution of such shares of Common Stock or such rights or
     warrants (and any further Market Price reduction required by clauses (i)
     and (ii) of this proviso with respect to such dividend or distribution
     shall then be made), except that any shares of Common Stock included in
     such dividend or distribution shall not be deemed "outstanding at the close
     of business on the date fixed for such determination" within the meaning of
     clause (i) of this proviso;

          (v) The Corporation or any subsidiary of the Corporation shall (x) by
     dividend or otherwise, distribute to all holders of its Common Stock cash
     in (or fix any record date for any such distribution), or (y) repurchase or
     reacquire shares of its Common Stock (other than an Option Share Surrender)
     for, in either case, an aggregate amount that, combined with (1) the
     aggregate amount of any 

                                       7

 
     other such distributions to all holders of its Common Stock made
     exclusively in cash after the Issuance Date and within the 12 months
     preceding the date of payment of such distribution, and in respect of which
     no adjustment pursuant to this clause (v) has been made, (2) the aggregate
     amount of any cash plus the fair market value (as determined in good faith
     by a resolution of the Board of Directors of the Corporation) of
     consideration paid in respect of any repurchase or other reacquisition by
     the Corporation or any subsidiary of the Corporation of any shares of
     Common Stock (other than an Option Share Surrender) made after the Issuance
     Date and within the 12 months preceding the date of payment of such
     distribution or making of such repurchase or reacquisition, as the case may
     be, and in respect of which no adjustment pursuant to this clause (v) has
     been made, and (3) the aggregate of any cash plus the fair market value (as
     determined in good faith by a resolution of the Board of Directors of the
     Corporation) of consideration payable in respect of any Tender Offer by the
     Corporation or any of its subsidiaries for all or any portion of the Common
     Stock concluded within the 12 months preceding the date of payment of such
     distribution or completion of such repurchase or reacquisition, as the case
     may be, and in respect of which no adjustment pursuant to clause (vi) of
     this proviso has been made (such aggregate amount combined with the amounts
     in clauses (1), (2) and (3) above being the "Combined Amount"), exceeds 10%
     of the product of the Market Price (determined without regard to this
     proviso) for any day in such Measurement Period or such other period which
     day is prior to the earlier of (A) the record date with respect to such
     distribution and (B) the date on which ex-dividend trading in the Common
     Stock with respect to such distribution begins or the date of such
     repurchase or reacquisition, as the case may be, times the number of shares
     of Common Stock outstanding on such date, then, and in each such case, the
     Market Price for each such day shall be reduced so that the same shall
     equal the price determined by multiplying the Market Price (determined
     without regard to this proviso) for such day by a fraction (i) the
     numerator of which shall be equal to the Market Price (determined without
     regard to this proviso) for such day less an amount equal to the quotient
     of (x) the excess of such Combined Amount over such 10% and (y) the number
     of shares of Common Stock outstanding on such day and (ii) the denominator
     of which shall be equal to the Market Price (determined without regard to
     this proviso) for such day; provided, however, that in the event the
     portion of the cash so distributed or paid for the repurchase or
     reacquisition of shares (determined per share based on the number of shares
     of Common Stock outstanding) applicable to one share of Common Stock is
     equal to or greater than the Market Price (determined without regard to
     this clause (v) of this proviso) of the Common Stock for any such day, then
     in lieu of the foregoing adjustment with respect to such day, adequate
     provision shall be made so that the holders of shares of Series D Preferred
     Stock shall have the right to receive upon conversion of shares of Series D
     Preferred Stock the amount of cash the holders of shares of Series D
     Preferred Stock would have received had the holders of shares of Series D
     Preferred Stock converted shares of Series D Preferred Stock immediately
     prior to the record date for such distribution or the payment date of such
     repurchase, as applicable; or

                                       8

 
          (vi) A Tender Offer made by the Corporation or any of its subsidiaries
     for all or any portion of the Common Stock shall expire and such Tender
     Offer (as amended upon the expiration thereof) shall require the payment to
     stockholders (based on the acceptance (up to any maximum specified in the
     terms of the Tender Offer) of Purchased Shares (as defined below)) of an
     aggregate consideration having a fair market value (as determined in good
     faith by resolution of the Board of Directors of the Corporation) that
     combined together with (1) the aggregate of the cash plus the fair market
     value (as determined in good faith by a resolution of the Board of
     Directors of the Corporation), as of the expiration of such Tender Offer,
     of consideration payable in respect of any other Tender Offers, by the
     Corporation or any of its subsidiaries for all or any portion of the Common
     Stock expiring within the 12 months preceding the expiration of such Tender
     Offer and in respect of which no adjustment pursuant to this clause (vi)
     has been made, (2) the aggregate amount of any cash plus the fair market
     value (as determined in good faith by a resolution of the Board of
     Directors of the Corporation) of consideration paid in respect of any
     repurchase or other reacquisition by the Corporation or any subsidiary of
     the Corporation of any shares of Common Stock (other than an Option Share
     Surrender) made after the Issuance Date and within the 12 months preceding
     the expiration of such Tender Offer and in respect of which no adjustment
     pursuant to clause (v) of this proviso has been made, and (3) the aggregate
     amount of any distributions to all holders of Common Stock made exclusively
     in cash within 12 months preceding the expiration of such Tender Offer and
     in respect of which no adjustment pursuant to clause (v) of this proviso
     has been made, exceeds 10% of the product of the Market Price (determined
     without regard to this proviso) for any day in such period times the number
     of shares of Common Stock outstanding on such day, then, and in each such
     case, the Market Price for such day shall be reduced so that the same shall
     equal the price determined by multiplying the Market Price (determined
     without regard to this proviso) for such day by a fraction, the numerator
     of which shall be the number of shares of Common Stock outstanding on such
     day multiplied by the Market Price (determined without regard to this
     proviso) for such day and the denominator of which shall be the sum of (x)
     the fair market value (determined as aforesaid) of the aggregate
     consideration payable to stockholders based on the acceptance (up to any
     maximum specified in the terms of the Tender Offer) of all shares validly
     tendered and not withdrawn as of the last time tenders could have been made
     pursuant to such Tender Offer (the "Expiration Time") (the shares deemed so
     accepted, up to any such maximum, being referred to as the "Purchased
     Shares") and (y) the product of the number of shares of Common Stock
     outstanding (less any Purchased Shares) on such day times the Market Price
     (determined without regard to this proviso) of the Common Stock on the
     Trading Day next succeeding the Expiration Time.  If the application of
     this clause (vi) to any Tender Offer would result in an increase in the
     Market Price (determined without regard to this proviso) for any trade, no
     adjustment shall be made for such Tender Offer under this clause (vi) for
     such day.

                                       9

 
          "Maximum Share Amount" means 1,932,562 shares, (such amount to be
subject to equitable adjustment from time to time on terms reasonably acceptable
to the Majority Holders for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring or
with respect to which "ex-" trading commences after the date of filing this
Statement of Resolution with the Secretary of State of the State of Texas), of
Common Stock, or such greater number as permitted by the rules of the Nasdaq;
provided, however, that if for purposes of Rule 4460(i) of the Nasdaq (or any
successor or replacement provision of any stock exchange or stock market on
which the Common Stock is listed or traded) the (x) the issuance of the Notes
and the issuance of shares of Common Stock upon conversion thereof or (y) the
issuance of the common stock purchase warrants issued in connection with the
issuance of the Notes and the issuance of shares of Common Stock upon exercise
thereof is not required to be integrated with the issuance of the shares of
Series D Convertible Preferred Stock and the issuance of shares of Common Stock
upon conversion thereof, then in each such case the "Maximum Share Amount" shall
mean such greater number as equals the maximum number of shares of Common Stock
permitted by the rules of the Nasdaq (determined by pro rata allocation of any
increase thereof among the shares of Series D Convertible Preferred Stock based
on the number of shares of Series D Convertible Preferred Stock originally
represented by each certificate therefor) (such amount to be subject to
equitable adjustment in terms reasonably acceptable to the Majority Holders from
time to time for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring after
the date of filing of this Statement of Resolution with the Secretary of State
of the State of Texas).

          "Measurement Period" means, with respect to any date, the period of 25
consecutive Trading Days ending on the Trading Day prior to such date.

          "Nasdaq" means the Nasdaq National Market.

          "Nasdaq SmallCap" means the Nasdaq SmallCap Market.

          "NYSE" means the New York Stock Exchange, Inc.

          "Option Share Surrender" means the surrender of shares of Common Stock
to the Corporation in payment of the exercise price or tax obligations incurred
in connection with the exercise of a stock option granted by the Corporation to
any of its employees, directors or consultants.

          "Optional Redemption Event" means the occurrence on or before August
31, 2001 of any one of the following events:

          (1) For any period of five consecutive Trading Days there shall be no
     reported sale price of the Common Stock on the Nasdaq, the Nasdaq SmallCap,
     the NYSE or the AMEX;

          (2) The Common Stock is not listed for trading on any of the NYSE, the
     AMEX, the Nasdaq or the Nasdaq SmallCap;

                                       10

 
          (3) The inability for 45 or more days (whether or not consecutive) of
     any holder of shares of Series D Convertible Preferred Stock to sell shares
     of Common Stock issued or issuable on conversion of shares of Series D
     Convertible Preferred Stock pursuant to the Registration Statement for any
     reason on each of such 45 days;

          (4) The Corporation shall (A) default in the timely performance of the
     obligation to issue shares of Common Stock upon conversion of shares of
     Series D Convertible Preferred Stock as and when required by Section 10 or
     shall default in the timely performance of its obligations under Section
     12(d)(7) or (B) the Corporation shall fail or default in the timely
     performance of any material obligation (other than as specifically set
     forth elsewhere in this definition) to a holder of shares of Series D
     Convertible Preferred Stock under the terms of this Statement of Resolution
     or under the Registration Rights Agreements or any other agreement or
     document entered into in connection with the issuance of shares of Series D
     Convertible Preferred Stock, as such instruments may be amended from time
     to time and such failure or default shall continue for ten business days
     after notice thereof from any holder of shares of Series D Convertible
     Preferred Stock to the Corporation;

          (5) Any consolidation or merger of the Corporation with or into
     another entity (other than a merger or consolidation of a subsidiary of the
     Corporation into the Corporation or a wholly-owned subsidiary of the
     Corporation) where the shareholders of the Corporation immediately prior to
     such transaction do not collectively own at least 51% of the outstanding
     voting securities of the surviving corporation of such consolidation or
     merger immediately following such transaction or the common stock of such
     surviving corporation is not listed for trading on the NYSE, the AMEX, the
     Nasdaq or the Nasdaq SmallCap or any sale or other transfer of all or
     substantially all of the assets of the Corporation;

          (6) The taking of any action, including any amendment to the
     Corporation's Articles of Incorporation, without the consent of the
     Majority Holders which materially and adversely affects the rights of any
     holder of shares of Series D Convertible Preferred Stock; or

          (7) The Stockholder Approval shall not have been obtained on or before
     the date which is 120 days after the Issuance Date.

          "Optional Redemption Notice" means a notice from a holder of shares of
Series D Convertible Preferred Stock to the Corporation which states (1) that
the holder delivering such notice is thereby requiring the Corporation to redeem
shares of Series D Convertible Preferred Stock pursuant to Section 11, (2) in
general terms the Optional Redemption Event giving rise to such redemption, and
(3) the number of shares of Series D Convertible Preferred Stock held by such
holder which are to be redeemed.

                                       11

 
          "Optional Redemption Price" means the Premium Price on the applicable
redemption date.

          "Parity Dividend Stock" means any class or series or the Corporation's
capital stock ranking, as to dividends, on a parity with the Series D
Convertible Preferred Stock.

          "Parity Liquidation Stock" means any class or series of the
Corporation's capital stock having parity as to liquidation rights with the
Series D Convertible Preferred Stock.

          "Premium Percentage" means 115%.

          "Premium Price" means, for any share of Series D Convertible Preferred
Stock as of any date of determination, the product obtained by multiplying (a)
the sum of (1) the Conversion Amount plus (2) an amount equal to the accrued but
unpaid dividends on such share of Series D Convertible Preferred Stock to the
date of determination, plus (3) an amount equal to the accrued and unpaid
interest on dividends in arrears (as provided in Section 5) to the date of
determination times (b) the Premium Percentage.

          "Redemption Date" means the date of a redemption of shares of Series D
Convertible Preferred Stock pursuant to Section 9(a) determined in accordance
therewith.

          "Redemption Price" means the greater of:

          (1) the Premium Price on the applicable Redemption Date; and

          (2) the Converted Market Price on the applicable Redemption Date;
     provided, however, that if in connection with any determination of the
     Redemption Price the amount specified in clause (y) of the definition of
     the term Converted Market Price is greater than 200% of the Ceiling Price
     on the date as of which such amount is determined, then for purposes of
     computing the Redemption Price in such instance, the amount otherwise
     specified in clause (y) of the definition of the term Converted Market
     Price shall be reduced by 20% of the amount by which (A) the amount
     otherwise specified in clause (y) of the definition of the term Converted
     Market Price exceeds (B) the Ceiling Price on the date as of which such
     amount is determined.

          "Registration Event" shall mean (1) the Registration Statement is not
effective within 105 days of the Issuance Date, if the Registration Statement is
on Form S-3, or 120 days after the Issuance Date, if the Registration Statement
is on Form S-1, (2) the Company fails to file the Registration Statement with
the SEC within 60 days after the Issuance Date, (3) the Company fails to submit
a request for acceleration of the effective date of the Registration Statement
in accordance with Section 3(a) of the Registration Rights Agreement, (4) the
Registration Statement shall cease to be available for use by any holder of
shares of Series D Convertible Preferred Stock who is named therein as a selling
stockholder for any reason (including, without limitation, by reason of an SEC
stop order, a material misstatement or omission in the Registration Statement or

                                       12

 
the information contained in the Registration Statement having become outdated);
provided, however, that no Registration Event pursuant to this clause (4) shall
be deemed to occur prior to the SEC Effective Date, (5) the Common Stock is not
listed for trading on any of the NYSE, the AMEX, the Nasdaq or the Nasdaq
SmallCap, or (6) a holder of shares of Series D Preferred Stock having become
unable to convert any shares of Series D Preferred Stock in accordance with
Section 10(a) for any reason (other than by reason of the 4.9% limitation on
beneficial ownership set forth therein or a redemption or repurchase thereof).

          "Registration Rights Agreements" means the several Registration Rights
Agreements entered into between the Corporation and the original holders of the
shares of Series D Convertible Preferred Stock, as amended or modified from time
to time in accordance with their respective terms.

          "Registration Statement" means the Registration Statement required to
be filed by the Corporation with the SEC pursuant to Section 2(a) of the
Registration Rights Agreements.

          "SEC" means the United States Securities and Exchange Commission.

          "SEC Effective Date" means the date the Registration Statement is
first declared effective by the SEC.

          "Senior Dividend Stock" means any class or series of capital stock of
the Corporation ranking senior as to dividends to the Series D Convertible
Preferred Stock.

          "Senior Liquidation Stock" means any class or series of capital stock
of the Corporation ranking senior as to liquidation rights to the Series D
Convertible Preferred Stock.

          "Series D Convertible Preferred Stock" means the Series D Convertible
Preferred Stock, $.01 par value, of the Corporation.

          "Share Limitation Redemption Date" shall mean each date on which the
Corporation is required to redeem shares of Series D Convertible Preferred Stock
as provided in Section 7(a).

          "Share Limitation Redemption Price" means the Premium Price on the
applicable Share Limitation Redemption Date.

          "Stockholder Approval" shall mean the approval by a majority of the
votes cast by the holders of shares of Common Stock (in person or by proxy) at a
meeting of the stockholders of the Corporation (duly convened at which a quorum
was present), or a written consent of holders of shares of Common Stock entitled
to such number of votes given without a meeting, of the issuance by the
Corporation of 20% or more of the Common Stock of the Corporation outstanding on
the Issuance Date for less than the greater of the book or market value of such
Common Stock on conversion of the Series D 

                                       13

 
Convertible Preferred Stock, as and to the extent required under Rule 4460(i) of
the Nasdaq as in effect from time to time or any successor provision.

          "Tender Offer" means a tender offer or exchange offer.

          "Trading Day" means a day on whichever of (x) the national securities
exchange, (y) the Nasdaq or (z) the Nasdaq SmallCap which at the time
constitutes the principal securities market for the Common Stock is open for
general trading of securities.

          "Transfer Agent Instruction" means the Transfer Agent Instruction from
the Corporation to the Conversion Agent for the benefit of the holders from time
to time of shares of Series D Convertible Preferred Stock, provided for in the
Exchange Agreements.

          SECTION 2.  DESIGNATION AND AMOUNT.  The shares of such series shall
be designated as "Series D Convertible Preferred Stock", and the number of
shares constituting the Series D Convertible Preferred Stock shall be 6,500, and
shall not be subject to increase.  Of the authorized shares of Series D
Convertible Preferred Stock, 1,500 shares may be issued only as dividends on the
outstanding shares of Series D Convertible Preferred Stock.

          SECTION 3.  SERIES D PREFERRED STOCK CAPITAL.  The amount to be
represented in the Series D Convertible Preferred Stock capital of the
Corporation at all times for each outstanding share of Series D Convertible
Preferred Stock shall be the greater of (i) the Premium Price and (ii) the
Converted Market Price.  The Corporation shall take such action as may be
required to maintain the amount required by this Section 3 to be represented in
stated capital for the Series D Convertible Preferred Stock capital not less
frequently than monthly.

          SECTION 4.  RANK.  All Series D Convertible Preferred Stock shall rank
(i) senior to the Common Stock, now or hereafter issued, as to payment of
dividends and distribution of assets upon liquidation, dissolution, or winding
up of the Corporation, whether voluntary or involuntary, (ii) junior to the
Series A Convertible Preferred Stock, Series B Senior Convertible Preferred
Stock and Series C Convertible Preferred Stock of the Corporation, both as to
payment of dividends and as to distributions of assets upon liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary
and (iii) senior to any additional series of the class of Preferred Stock which
series the Board of Directors may from time to time authorize and any additional
class of preferred stock (or series of preferred stock of such class) which the
Board of Directors or the stockholders may from time to time authorize in
accordance herewith.

          SECTION 5.  DIVIDENDS AND DISTRIBUTIONS.  (a) The holders of shares of
Series D Convertible Preferred Stock shall be entitled to receive, when, as, and
if declared by the Board of Directors out of funds legally available for such
purpose, dividends at the rate of $60.00 per annum per share, and no more, which
shall be fully cumulative, shall accrue without interest (except as otherwise
provided herein as to 

                                       14

 
dividends in arrears) from the date of original issuance of each share of Series
D Convertible Preferred Stock and shall be payable quarterly on February 15, May
15, August 15, and November 15 of each year commencing November 15, 1998 (except
that if any such date is a Saturday, Sunday, or legal holiday, then such
dividend shall be payable on the next succeeding day that is not a Saturday,
Sunday, or legal holiday) to holders of record as they appear on the stock books
of the Corporation on such record dates, not more than 20 nor less than 10 days
preceding the payment dates for such dividends, as shall be fixed by the Board.
Dividends on the Series D Convertible Preferred Stock shall be paid in cash or,
subject to the limitations in Section 5(b) hereof, Dividend Shares or any
combination of cash and Dividend Shares, at the option of the Corporation as
hereinafter provided. The amount of the dividends payable per share of Series D
Convertible Preferred Stock for each quarterly dividend period shall be computed
by dividing the annual dividend amount by four. The amount of dividends payable
for the initial dividend period and any period shorter than a full quarterly
dividend period shall be computed on the basis of a 360-day year of twelve 30-
day months. Dividends not paid on a payment date, whether or not such dividends
have been declared, will bear interest at the rate of 14% per annum until paid
(or such lesser rate as shall be the maximum rate allowable by applicable law).
No dividends or other distributions, other than the dividends payable solely in
shares of any Junior Dividend Stock, shall be paid or set apart for payment on
any shares of Junior Dividend Stock, and no purchase, redemption, or other
acquisition shall be made by the Corporation of any shares of Junior Dividend
Stock (except for Option Share Surrenders), unless and until all accrued and
unpaid dividends on the Series D Convertible Preferred Stock and interest on
dividends in arrears at the rate specified herein shall have been paid or
declared and set apart for payment.

          If at any time any dividend on any Senior Dividend Stock shall be in
arrears, in whole or in part, no dividend shall be paid or declared and set
apart for payment on the Series D Convertible Preferred Stock unless and until
all accrued and unpaid dividends with respect to the Senior Dividend Stock,
including the full dividends for the then current dividend period, shall have
been paid or declared and set apart for payment, without interest.  No full
dividends shall be paid or declared and set apart for payment on any Parity
Dividend Stock for any period unless all accrued but unpaid dividends (and
interest on dividends in arrears at the rate specified herein) have been, or
contemporaneously are, paid or declared and set apart for such payment on the
Series D Convertible Preferred Stock.  No full dividends shall be paid or
declared and set apart for payment on the Series D Convertible Preferred Stock
for any period unless all accrued but unpaid dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such full dividends.  When dividends are not paid in full upon the
Series D Convertible Preferred Stock and the Parity Dividend Stock, all
dividends paid or declared and set apart for payment upon shares of Series D
Convertible Preferred Stock (and interest on dividends in arrears at the rate
specified herein) and the Parity Dividend Stock shall be paid or declared and
set apart for payment pro rata, so that the amount of dividends paid or declared
and set apart for payment per share on the Series D Convertible Preferred Stock
and the Parity Dividend Stock shall in all cases bear to each 

                                       15

 
other the same ratio that accrued and unpaid dividends per share on the shares
of Series D Convertible Preferred Stock and the Parity Dividend Stock bear to
each other.

          Any references to "distribution" contained in this Section 5 shall not
be deemed to include any stock dividend or distributions made in connection with
any liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary.

          (b) If the Corporation elects in the exercise of its sole discretion
to issue Dividend Shares in payment of dividends on the Series D Convertible
Preferred Stock in respect of any dividend payment date, the Corporation shall
issue and deliver, or cause to be issued and delivered, by the third Trading Day
after such dividend payment date to each holder of shares of Series D
Convertible Preferred Stock a certificate representing the number of whole
Dividend Shares arrived at by dividing (x) the total amount of cash dividends
such holder would be entitled to receive if the aggregate dividends on the
Series D Convertible Preferred Stock held by such holder which are being paid in
Dividend Shares were being paid in cash by  (y) $1,000.00; provided, however,
that if certificates representing Dividend Shares are issued and delivered to
holders of Series D Convertible Preferred Stock subsequent to the third Trading
Day after a dividend payment date, the amount so divided into such total amount
of cash dividends will be reduced by $10.00 for each Trading Day after the third
Trading Day following such dividend payment date to the date of delivery of
Dividend Shares.  No fractional Dividend Shares shall be issued in payment of
dividends.  In lieu thereof, the Corporation shall pay cash in an amount equal
to the balance of such dividend which is not paid in Dividend Shares.  The
Corporation shall not exercise its right to issue Dividend Shares in payment of
dividends on Series D Convertible Preferred Stock if:

          (i) the number of shares of Series D Convertible Preferred Stock at
     the time authorized, unissued and unreserved for all purposes, or held in
     the Corporation's treasury, is insufficient to permit the conversion of
     such Dividend Shares into shares of Common Stock;

          (ii) the issuance or delivery of Dividend Shares as a dividend payment
     or the issuance of shares of Common Stock upon conversion of such Dividend
     Shares by the holder thereof would require registration with or approval of
     any governmental authority under any law or regulation, and such
     registration or approval has not been effected or obtained or is not in
     effect or the Registration Statement is unavailable for use by such holder
     for the resale of such shares of Common Stock; provided, however, that this
     limitation shall not be deemed to be applicable at any time prior to the
     date which is 105 days after the Issuance Date, if the Registration
     Statement is on Form S-3, or 120 days after the Issuance Date, if the
     Registration Statement is on Form S-1, if this limitation otherwise would
     be applicable solely because the Registration Statement shall not yet have
     been declared effective, so long as the Corporation shall be in compliance
     in all material respects with its obligations under the Registration Rights
     Agreements;

                                       16

 
          (iii)  the shares of Common Stock issuable upon conversion of such
     Dividend Shares have not been authorized for listing, upon official notice
     of issuance, on any securities exchange or market on which the Common Stock
     is then listed; or have not been approved for quotation if the Common Stock
     is traded in the over-the-counter market;

          (iv) the number of shares of Common Stock registered pursuant to
     Section 2(a) of the Registration Rights Agreements for resale upon issuance
     upon conversion of Dividend Shares shall be sufficient (after taking into
     account the number of shares of Common Stock issued or issuable upon
     conversion of Dividend Shares theretofore issued) to prevent the resale
     pursuant to the Registration Statement of the shares of Common Stock
     issuable upon conversion of such Dividend Shares;

          (v) the shares of Common Stock issuable upon conversion of such
     Dividend Shares (A) cannot be sold or transferred without restriction by
     unaffiliated holders who receive such Dividend Shares or (B) are no longer
     listed on any of the NYSE, the AMEX, the Nasdaq or the Nasdaq SmallCap; or

          (vi) an Optional Redemption Event shall have occurred and any holder
     of shares of Series D Convertible Preferred Stock shall have exercised
     optional redemption rights under Section 11 by reason of such Optional
     Redemption Event and the Corporation shall not have paid the Optional
     Redemption Price to each holder.

          Dividend Shares issued in payment of dividends on Series D Convertible
Preferred Stock pursuant to this Section and shares of Common Stock issuable
upon conversion of such Dividend Shares shall be, and for all purposes shall be
deemed to be, validly issued, fully paid and nonassessable shares of the
Corporation; the issuance and delivery thereof is hereby authorized; and the
delivery will be, and for all purposes shall be deemed to be, payment in full of
the cumulative dividends to which holders are entitled on the applicable
dividend payment date.

          (c) Neither the Corporation nor any subsidiary of the Corporation
shall redeem, repurchase or otherwise acquire in any one transaction or series
of related transactions any shares of Common Stock, Junior Dividend Stock or
Junior Liquidation Stock if the number of shares so repurchased, redeemed or
otherwise acquired in such transaction or series of related transactions
(excluding any Option Share Surrender) is more than either (x) 5.0% of the
number of shares of Common Stock, Junior Dividend Stock or Junior Liquidation
Stock, as the case may be, outstanding immediately prior to such transaction or
series of related transactions or (y) 1% of the number of shares of Common
Stock, Junior Dividend Stock or Junior Liquidation Stock, as the case may be,
outstanding immediately prior to such transaction or series of related
transactions if such transaction or series of related transactions is with any
one person or group of affiliated persons, unless the Corporation or such
subsidiary offers to purchase for cash from each holder of shares of Series D
Convertible Preferred Stock at the time of such redemption, repurchase or
acquisition the same percentage of such holder's shares of Series D 

                                       17

 
Convertible Preferred Stock as the percentage of the number of outstanding
shares of Common Stock, Junior Dividend Stock or Junior Liquidation Stock, as
the case may be, to be so redeemed, repurchased or acquired at a purchase price
per share of Series D Convertible Preferred Stock equal to the greater of (i)
the Premium Price in effect on the date of purchase pursuant to this Section
5(c) and (ii) the Converted Market Price on the date of purchase pursuant to
this Section 5(c); provided, however, that if in connection with any
determination of the purchase price payable pursuant to this Section 5(c) the
amount specified in clause (y) of the definition of the term Converted Market
Price is greater than 200% of the Ceiling Price on the date as of which such
amount is determined, then for purposes of computing the purchase price payable
pursuant to this Section 5(c) in such instance, the amount otherwise specified
in clause (y) of the definition of the term Converted Market Price shall be
reduced by 20% of the amount by which (A) the amount otherwise specified in
clause (y) of the definition of the term Converted Market Price exceeds (B) the
Ceiling Price on the date as of which such amount is determined.

          (d) Neither the Corporation nor any subsidiary of the Corporation
shall (1) make any Tender Offer for outstanding shares of Common Stock, unless
the Corporation contemporaneously therewith makes an offer, or (2) enter into an
agreement regarding a Tender Offer for outstanding shares of Common Stock by any
person other than the Corporation or any subsidiary of the Corporation, unless
such person agrees with the Corporation to make an offer, in either such case to
each holder of outstanding shares of Series D Convertible Preferred Stock to
purchase for cash at the time of purchase in such Tender Offer the same
percentage of shares of Series D Convertible Preferred Stock held by such holder
as the percentage of outstanding shares of Common Stock offered to be purchased
in such Tender Offer at a price per share of Series D Convertible Preferred
Stock equal to the greater of (i) the Premium Price in effect on the date of
purchase pursuant to this Section 5(d) and (ii) the Converted Market Price on
the date of purchase pursuant to this Section 5(d).

          SECTION 6.  LIQUIDATION PREFERENCE.  In the event of a liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series D Convertible Preferred Stock shall be entitled to receive
out of the assets of the Corporation, whether such assets constitute stated
capital or surplus of any nature, an amount per share of Series D Convertible
Preferred Stock equal to the Liquidation Preference, and no more, before any
payment shall be made or any assets distributed to the holders of Junior
Liquidation Stock; provided, however, that such rights shall accrue to the
holders of Series D Convertible Preferred Stock only in the event that the
Corporation's payments with respect to the liquidation preference of the holders
of Senior Liquidation Stock are fully met.  After the liquidation preferences of
the Senior Liquidation Stock are fully met, the entire assets of the Corporation
available for distribution shall be distributed ratably among the holders of the
Series D Convertible Preferred Stock and any Parity Liquidation Stock in
proportion to the respective preferential amounts to which each is entitled (but
only to the extent of such preferential amounts).  After payment in full of the
Liquidation Preference of the shares of Series D Convertible Preferred Stock and
the liquidation preference of the shares of Parity Liquidation Stock, the
holders of such shares shall not be entitled to any further 

                                       18

 
participation in any distribution of assets by the Corporation. Neither a
consolidation or merger of the Corporation with another corporation nor a sale
or transfer of all or part of the Corporation's assets for cash, securities, or
other property in and of itself will be considered a liquidation, dissolution or
winding up of the Corporation.

          SECTION 7.  MANDATORY REDEMPTION.

          (a) MANDATORY REDEMPTION BASED ON MAXIMUM SHARE AMOUNT.  (1)
Notwithstanding any other provision herein, unless the Stockholder Approval
shall have been obtained from the stockholders of the Corporation or waived by
the Nasdaq, so long as the Common Stock is listed on the Nasdaq, the Nasdaq
SmallCap, the NYSE or the AMEX, the Corporation shall not be required to issue
upon conversion of shares of Series D Convertible Preferred Stock pursuant to
Section 10 more than the Maximum Share Amount.  The Maximum Share Amount shall
be allocated among the shares of Series D Convertible Preferred Stock at the
time of initial issuance thereof pro rata based on the initial issuance of 5,000
shares of Series D Convertible Preferred Stock.  Each certificate for shares of
Series D Convertible Preferred Stock initially issued shall bear a notation as
to the number of shares constituting the portion of the Maximum Share Amount
allocated to the shares of Series D Convertible Preferred Stock represented by
such certificate for purposes of conversion thereof.  The Corporation shall
maintain records which show the number of shares of Series D Convertible
Preferred Stock issued by the Corporation pursuant to Section 5 as dividends on
the shares of Series D Convertible Preferred Stock represented by each
certificate, which records shall be controlling in the absence of manifest
error.  Each such additional share of Series D Convertible Preferred Stock shall
be allocated a portion of the Maximum Share Amount allocated to the shares of
Series D Convertible Preferred Stock in respect of which such additional shares
of Series D Convertible Preferred Stock are issued as a dividend and the
certificate for such additional shares of Series D Convertible Preferred Stock
shall bear a notation as to the certificate number of the share of Series D
Convertible Preferred Stock in respect of which such additional share of Series
D Convertible Preferred Stock is issued as a dividend.  Upon surrender of any
certificate for shares of Series D Convertible Preferred Stock for transfer or
re-registration thereof (or, at the option of the holder, for conversion
pursuant to Section 10(a) of less than all of the shares of Series D Convertible
Preferred Stock represented thereby), the Corporation shall make a notation on
the new certificate issued upon such transfer or re-registration or evidencing
such unconverted shares, as the case may be, as to the remaining number of
shares of Common Stock from the Maximum Share Amount remaining available for
conversion of the shares of Series D Convertible Preferred Stock evidenced by
such new certificate.  If any certificate for shares of Series D Convertible
Preferred Stock is surrendered for split-up into two or more certificates
representing an aggregate number of shares of Series D Convertible Preferred
Stock equal to the number of shares of Series D Convertible Preferred Stock
represented by the certificate so surrendered (as reduced by any contemporaneous
conversion of shares of Series D Convertible Preferred Stock represented by the
certificate so surrendered), each certificate issued on such split-up shall bear
a notation of the portion of the Maximum Share Amount allocated thereto
determined by pro rata allocation from among the remaining portion of the
Maximum Share Amount allocated to the certificate so surrendered.  If any shares
of Series D Convertible Preferred Stock 

                                       19

 
represented by a single certificate are converted in full pursuant to Section
10, all of the portion of the Maximum Share Amount allocated to such shares of
Series D Convertible Preferred Stock which remains unissued after such
conversion shall be re-allocated pro rata to the outstanding shares of Series D
Convertible Preferred Stock held of record by the holder of record at the close
of business on the date of such conversion of the shares of Series D Convertible
Preferred Stock so converted, and if there shall be no other shares of Series D
Convertible Preferred Stock held of record by such holder at the close of
business on such date, then such portion of the Maximum Share Amount shall be
allocated pro rata among the shares of Series D Convertible Preferred Stock
outstanding on such date.

          (2) The Corporation shall promptly, but in no event later than five
business days after the occurrence, give notice to each holder of shares of
Series D Convertible Preferred Stock (by telephone line facsimile transmission
at such number as such holder has specified in writing to the Corporation for
such purposes or, if such holder shall not have specified any such number, by
overnight courier or first class mail, postage prepaid, at such holder's address
as the same appears on the stock books of the Corporation) and any holder of
shares of Series D Convertible Preferred Stock may at any time after the
occurrence give notice to the Corporation, in either case, if at any time on or
after December 16, 1998 and on or prior to August 31, 2001 on any ten Trading
Days within any period of 20 consecutive Trading Days the Corporation would not
have been required to convert shares of Series D Convertible Preferred Stock of
such holder in accordance with Section 10(a) as a consequence of the limitations
set forth in Section 7(a)(1) had the shares of Series D Convertible Preferred
Stock held by such holder been converted in full into Common Stock on each such
day, determined without regard to the limitation, if any, on such holder
contained in the proviso to the second sentence of Section 10(a) (any such
notice, whether given by the Corporation or a holder, an "Inconvertibility
Notice").  If the Corporation shall have given or been required to give any
Inconvertibility Notice, or if a holder shall have given any Inconvertibility
Notice, then within ten Trading Days after such Inconvertibility Notice is given
or was required to be given, the holder receiving or giving, as the case may be,
such Inconvertibility Notice shall have the right by written notice to the
Corporation (which written notice may be contained in the Inconvertibility
Notice given by such holder) to direct the Corporation to redeem the portion of
such holder's outstanding shares of Series D Convertible Preferred Stock (which,
if applicable, shall be all of such holder's outstanding shares of Series D
Convertible Preferred Stock) as shall not, on the business day prior to the date
of such redemption, be convertible into shares of Common Stock by reason of the
limitations set forth in Section 7(a)(1) (determined without regard to the
limitation, if any, on beneficial ownership of Common Stock by such holder
contained in the proviso to the second sentence of Section 10(a)), within ten
business days after such holder so directs the Corporation, at a price per share
equal to the Share Limitation Redemption Price.  If a holder of shares of Series
D Convertible Preferred Stock directs the Corporation to redeem outstanding
shares of Series D Convertible Preferred Stock and, prior to the date the
Corporation is required to redeem such shares of Series D Convertible Preferred
Stock, the Corporation would have been able, within the limitations set forth in
Section 7(a)(1), to convert all of such holder's shares of Series D Convertible
Preferred Stock (determined without regard to the limitation, if any, on

                                       20

 
beneficial ownership of shares of Common Stock by such holder contained in the
proviso to the second sentence of Section 10(a)) on any ten Trading Days within
any period of 15 consecutive Trading Days commencing after the period of 20
consecutive Trading Days which gave rise to the applicable Inconvertibility
Notice from the Corporation or such holder of shares of Series D Convertible
Preferred Stock, as the case may be, had such holder exercised its right to
convert all of such holder's shares of Series D Convertible Preferred Stock into
Common Stock on each of such ten Trading Days within such 15 Trading Day period,
then the Corporation shall not be required to redeem any shares of Series D
Convertible Preferred Stock by reason of such Inconvertibility Notice.

          (3) Notwithstanding the giving of any Inconvertibility Notice by the
Corporation to the holders of Series D Convertible Preferred Stock pursuant to
Section 7(a)(2) or the giving or the absence of any notice by the holders of the
Series D Convertible Preferred Stock in response thereto or any redemption of
shares of Series D Convertible Preferred Stock pursuant to Section 7(a)(2),
thereafter the provisions of Section 7(a)(2) shall continue to be applicable on
any occasion unless the Stockholder Approval shall have been obtained from the
stockholders of the Corporation or waived by the Nasdaq.

          (4) On each Share Limitation Redemption Date (or such later date as a
holder of shares of Series D Convertible Preferred Stock shall surrender to the
Corporation the certificate(s) for the shares of Series D Convertible Preferred
Stock being redeemed pursuant to this Section 7(a)), the Corporation shall make
payment in immediately available funds of the applicable Share Limitation
Redemption Price to such holder of shares of Series D Convertible Preferred
Stock to be redeemed to or upon the order of such holder as specified by such
holder in writing to the Corporation at least one business day prior to such
Share Limitation Redemption Date.  Upon redemption of less than all of the
shares of Series D Convertible Preferred Stock evidenced by a particular
certificate, promptly, but in no event later than three business days after
surrender of such certificate to the Corporation, the Corporation shall issue a
replacement certificate for the shares of Series D Convertible Preferred Stock
evidenced by such certificate which have not been redeemed.  Only whole shares
of Series D Convertible Preferred Stock may be redeemed.

          (B) NO OTHER MANDATORY REDEMPTION.  The shares of Series D Convertible
Preferred Stock shall not be subject to mandatory redemption by the Corporation
except as provided in Section 7(a).

          SECTION 8.  NO SINKING FUND.  The shares of Series D Convertible
Preferred Stock shall not be subject to the operation of a purchase, retirement
or sinking fund.

          SECTION 9.  OPTIONAL REDEMPTION.

          (A) CORPORATION OPTIONAL REDEMPTION.  If (1) the Corporation shall be
in compliance in all material respects with its obligations to the holders of
shares of Series D Convertible Preferred Stock (including, without limitation,
its obligations under 

                                       21

 
the Exchange Agreement, the Registration Rights Agreements and the provisions of
this Statement of Resolution), (2) on the date the Corporation Optional
Redemption Notice is given and at all times until the Redemption Date, the
Registration Statement is effective and available for use by each holder of
shares of Series D Convertible Preferred Stock for the resale of shares of
Common Stock acquired by such holder upon conversion of all shares of Series D
Convertible Preferred Stock held by such holder and (3) no Optional Redemption
Event shall have occurred with respect to which, on the date a Corporation
Optional Redemption Notice is given or on the Redemption Date, any holder of
shares of Series D Convertible Preferred Stock shall have exercised optional
redemption rights under Section 11 by reason of such Optional Redemption Event
and the Corporation shall not have paid the Optional Redemption Price to such
holder, then the Corporation shall have the right, exercisable by giving a
Corporation Optional Redemption Notice not less than 30 days or more than 60
days prior to the Redemption Date to all holders of record of the shares of
Series D Convertible Preferred Stock, at any time to redeem all or from time to
time to redeem any part of the outstanding shares of Series D Convertible
Preferred Stock in accordance with this Section 9(a). If the Corporation shall
redeem less than all outstanding shares of Series D Convertible Preferred Stock,
such redemption shall be made as nearly as practical pro rata from all holders
of shares of Series D Convertible Preferred Stock. Any Corporation Optional
Redemption Notice under this Section 9(a) shall be given to the holders of
record of the shares of Series D Convertible Preferred Stock at their addresses
appearing on the records of the Corporation; provided, however, that any failure
or defect in the giving of such notice to any such holder shall not affect the
validity of notice to or the redemption of shares of Series D Convertible
Preferred Stock of any other holder. On the Redemption Date (or such later date
as a holder of shares of Series D Convertible Preferred Stock surrenders to the
Corporation the certificate(s) for shares of Series D Convertible Preferred
Stock to be redeemed pursuant to this Section 9(a)), the Corporation shall make
payment of the applicable Redemption Price to each holder of shares of Series D
Convertible Preferred Stock to be redeemed in immediately available funds to
such account as specified by such holder in writing to the Corporation at least
one business day prior to the Redemption Date. A holder of shares of Series D
Convertible Preferred Stock to be redeemed pursuant to this Section 9(a) shall
be entitled to convert such shares of Series D Convertible Preferred Stock in
accordance with Section 10(a) through the day prior to the Redemption Date and
(2) if the Corporation shall fail to pay the Redemption Price of any share of
Series D Convertible Preferred Stock when due, at any time after the due date
thereof until such date as the Corporation pays the Redemption Price of such
share of Series D Convertible Preferred Stock. No share of Series D Convertible
Preferred Stock as to which the holder exercises the right of conversion
pursuant to Section 10 or the optional redemption right pursuant to Section 11
may be redeemed by the Corporation pursuant to this Section 9(a) on or after the
date of exercise of such conversion right or optional redemption right, as the
case may be, regardless of whether the Corporation Optional Redemption Notice
shall have been given prior to, or on or after, the date of exercise of such
conversion right or optional redemption right, as the case may be.

          (B) FINAL REDEMPTION.  The Corporation shall have the right to redeem
all, but not less than all, outstanding shares of Series D Convertible Preferred
Stock at any time on or after the date which is 1,080 days after the Issuance
Date so long 

                                       22

 
as (1) the Corporation shall be in compliance in all material respects with its
obligations to the holders of the Series D Convertible Preferred Stock
(including, without limitation, its obligations under the Exchange Agreements,
the Registration Rights Agreements and this Statement of Resolution) and (2) no
Optional Redemption Event shall have occurred with respect to which on the date
a Final Redemption Notice is to be given or on the Final Redemption Date, any
holder of shares of Series D Convertible Preferred Stock shall have exercised
optional redemption rights under Section 11 by reason of such Optional
Redemption Event and the Corporation shall not have paid the Optional Redemption
Price to such holder. In order to exercise its rights under this Section 9(b),
the Corporation shall give a Final Redemption Notice not less than 20 or more
than 40 Trading Days prior to the Final Redemption Date to all holders of record
of the shares of Series D Convertible Preferred Stock. Any Final Redemption
Notice shall be given to the holders of record of the shares of Series D
Convertible Preferred Stock by telephone line facsimile transmission to such
number as shown on the records of the Corporation for such purpose; provided,
however, that any failure or defect in the giving of such notice to any such
holder shall not affect the validity of notice to or the redemption of shares of
Series D Convertible Preferred Stock of any other holder. On the Final
Redemption Date (or such later date as a holder of shares of Series D
Convertible Preferred Stock surrenders to the Corporation the certificate(s) for
shares of Series D Convertible Preferred Stock to be redeemed pursuant to this
Section 9(b)), the Corporation shall make payment of the applicable Final
Redemption Price to each holder of shares of Series D Convertible Preferred
Stock to be redeemed in immediately available funds to such account as specified
by such holder in writing to the Corporation at least one business day prior to
the Final Redemption Date. A holder of shares of Series D Convertible Preferred
Stock to be redeemed pursuant to this Section 9(b) shall be entitled to convert
such shares of Series D Convertible Preferred Stock in accordance with Section
10 through the day prior to the Final Redemption Date and (2) if the Corporation
shall fail to pay the Final Redemption Price of any share of Series D
Convertible Preferred Stock when due, at any time after the due date thereof
until such date as the Corporation pays the Final Redemption Price of such share
of Series D Convertible Preferred Stock to such holder. No share of Series D
Convertible Preferred Stock as to which a holder exercises the right of
conversion pursuant to Section 10 or the optional redemption right pursuant to
Section 11 may be redeemed by the Corporation pursuant to this Section 9(b) on
or after the date of exercise of such conversion right or optional redemption
right, as the case may be, regardless of whether the Final Redemption Notice
shall have been given prior to, or on or after, the date of exercise of such
conversion right or optional redemption right, as the case may be. So long as
during the period from the Issuance Date through the date the Corporation pays
the Final Redemption Price the Corporation shall not have commenced a voluntary
case or other proceeding, and no person shall have commenced an involuntary case
or other proceeding against the Corporation, in any such case seeking
liquidation, reorganization or other relief with respect to the Corporation or
its debts under any bankruptcy, insolvency, receivership, moratorium, or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian, or other similar official of the Corporation or
any substantial part of the Corporation's property, the Corporation shall not
have consented to any such relief or to the appointment of or taking 

                                       23

 
possession by any such official in an involuntary case or other proceeding
commenced against it, and the Corporation shall not have made a general
assignment for the benefit of creditors, then the Corporation shall have the
right, exercisable by a statement to such effect in the Final Redemption Notice,
to pay the Final Redemption Price by the issuance to the holders of shares of
Series D Convertible Preferred Stock to be redeemed of shares of Common Stock,
valued for this purpose at the Conversion Price on the Final Redemption Date, in
lieu of payment of cash, so long as all shares of Common Stock to be so issued
would, if issued as dividends on shares of Series D Convertible Preferred Stock,
meet the criteria in clauses (i) through (vi) of Section 5(b).

          (C) NO OTHER OPTIONAL REDEMPTION.  The shares of Series D Convertible
Preferred Stock shall not be subject to redemption at the option of the
Corporation except as provided in Sections 9(a) and 9(b).

          SECTION 10.  CONVERSION.

          (A) CONVERSION AT OPTION OF HOLDER.  The holders of the Series D
Convertible Preferred Stock may at any time on or after the earlier of (x) the
SEC Effective Date and (y) the date which is 90 days after the Issuance Date
convert at any time all or from time to time any part of their shares of Series
D Convertible Preferred Stock into fully paid and nonassessable shares of Common
Stock and such other securities and property as herein provided.  Each share of
Series D Convertible Preferred Stock may be converted at the office of the
Conversion Agent or at such other additional office or offices, if any, as the
Board of Directors may designate, into such number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) determined by dividing (x) the sum of (i) the
Conversion Amount, (ii) accrued but unpaid dividends to the applicable
Conversion Date on the share of Series D Convertible Preferred Stock being
converted, and (iii) accrued but unpaid interest on the dividends on the share
of Series D Convertible Preferred Stock being converted in arrears to the
applicable Conversion Date at the rate provided in Section 5 by (y) the
Conversion Price for such Conversion Date (the "Conversion Rate"); provided,
however, that in no event shall any holder of shares of Series D Convertible
Preferred Stock be entitled to convert any shares of Series D Convertible
Preferred Stock in excess of that number of shares of Series D Convertible
Preferred Stock upon conversion of which the sum of (1) the number of shares of
Common Stock beneficially owned by such holder and all Aggregated Persons of
such holder (other than shares of Common Stock deemed beneficially owned through
the ownership of unconverted shares of Series D Convertible Preferred Stock) and
(2) the number of shares of Common Stock issuable upon the conversion of the
number of shares of Series D Convertible Preferred Stock with respect to which
the determination in this proviso is being made, would result in beneficial
ownership by such holder and all Aggregated Persons of such holder of more than
4.9% of the outstanding shares of Common Stock.  For purposes of the proviso to
the immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and Regulation 13D-G
thereunder, except as otherwise provided in clause (1) of the proviso to the
immediately preceding sentence.

                                       24

 
          (B) OTHER PROVISIONS.  (1) Notwithstanding anything in this Section
10(b) to the contrary, no change in the Conversion Amount pursuant to this
Section 10(b) shall actually be made until the cumulative effect of the
adjustments called for by this Section 10(b) since the date of the last change
in the Conversion Amount would change the Conversion Amount by more than 1%.
However, once the cumulative effect would result in such a change, then the
Conversion Amount shall actually be changed to reflect all adjustments called
for by this Section 10(b) and not previously made.  Notwithstanding anything in
this Section 10(b), no change in the Conversion Amount shall be made that would
result in the price at which a share of Series D Convertible Preferred Stock is
converted being less than the par value of the Common Stock into which shares of
Series D Convertible Preferred Stock are at the time convertible.

          (2) The holders of shares of Series D Convertible Preferred Stock at
the close of business on the record date for any dividend payment to holders of
Series D Convertible Preferred Stock shall be entitled to receive the dividend
payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after such dividend payment record date
or the Corporation's default in payment of the dividend due on such dividend
payment date; provided, however, that the holder of shares of Series D
Convertible Preferred Stock surrendered for conversion during the period between
the close of business on any record date for a dividend payment and the opening
of business on the corresponding dividend payment date must pay to the
Corporation, within five days after receipt by such holder, an amount equal to
the dividend payable on such shares on such dividend payment date if such
dividend is paid by the Corporation to such holder.  A holder of shares of
Series D Convertible Preferred Stock on a record date for a dividend payment who
(or whose transferee) tenders any of such shares for conversion into shares of
Common Stock on or after such dividend payment date will receive the dividend
payable by the Corporation on such shares of Series D Convertible Preferred
Stock on such date, and the converting holder need not make any payment of the
amount of such dividend in connection with such conversion of shares of Series D
Convertible Preferred Stock.  Except as provided above, no adjustment shall be
made in respect of cash dividends on Common Stock or Series D Convertible
Preferred Stock that may be accrued and unpaid at the date of surrender of
shares of Series D Convertible Preferred Stock.

          (3)  (A)  The right of the holders of Series D Convertible Preferred
Stock to convert their shares shall be exercised by giving (which may be done by
telephone line facsimile transmission) a Conversion Notice to the Conversion
Agent.  If a holder of Series D Convertible Preferred Stock elects to convert
any shares of Series D Convertible Preferred Stock in accordance with Section
10(a), such holder shall not be required to surrender the certificate(s)
representing such shares of Series D Convertible Preferred Stock to the
Corporation unless all of the shares of Series D Convertible Preferred Stock
represented thereby are so converted.  Each holder of shares of Series D
Convertible Preferred Stock and the Corporation shall maintain records showing
the number of shares so converted and the dates of such conversions or shall use
such other method, satisfactory to such holder and the Corporation, so as to not
require physical surrender of such certificates upon each such conversion.  In
the event of any dispute or discrepancy, such records of the Corporation shall
be controlling and determinative in the 

                                       25

 
absence of manifest error. Notwithstanding the foregoing, if any shares of
Series D Convertible Preferred Stock evidenced by a particular certificate
therefor are converted as aforesaid, the holder of Series D Convertible
Preferred Stock may not transfer the certificate(s) representing such shares of
Series D Convertible Preferred Stock unless such holder first physically
surrenders such certificate(s) to the Corporation, whereupon the Corporation
will forthwith issue and deliver upon the order of such holder of shares of
Series D Convertible Preferred Stock new certificate(s) of like tenor,
registered as such holder of shares of Series D Convertible Preferred Stock
(upon payment by such holder of shares of Series D Convertible Preferred Stock
of any applicable transfer taxes) may request, representing in the aggregate the
remaining number of shares of Series D Convertible Preferred Stock represented
by such certificate(s). Each holder of shares of Series D Convertible Preferred
Stock, by acceptance of a certificate for such shares, acknowledges and agrees
that (1) by reason of the provisions of this paragraph, following conversion of
any shares of Series D Convertible Preferred Stock represented by such
certificate, the number of shares of Series D Convertible Preferred Stock
represented by such certificate may be less than the number of shares stated on
such certificate, and (2) the Corporation may place a legend on the certificates
for shares of Series D Convertible Preferred Stock which refers to or describes
the provisions of this paragraph.

          (B) The Corporation shall pay any transfer tax arising in connection
with any conversion of shares of Series D Convertible Preferred Stock except
that the Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery upon
conversion of shares of Common Stock or other securities or property in a name
other than that of the holder of the shares of the Series D Convertible
Preferred Stock being converted, and the Corporation shall not be required to
issue or deliver any such shares or other securities or property unless and
until the person or persons requesting the issuance thereof shall have paid to
the Corporation the amount of any such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.  The number of
shares of Common Stock to be issued upon each conversion of shares of Series D
Convertible Preferred Stock shall be the number set forth in the applicable
Conversion Notice which number shall be conclusive absent manifest error.  The
Corporation shall notify a holder who has given a Conversion Notice of any claim
of manifest error within one Trading Day after such holder gives such Conversion
Notice and no such claim of error shall limit or delay performance of the
Corporation's obligation to issue upon such conversion the number of shares of
Common Stock which are not in dispute.  A Conversion Notice shall be deemed for
all purposes to be in proper form unless the Corporation notifies a holder of
shares of Series D Convertible Preferred Stock being converted within one
Trading Day after a Conversion Notice has been given (which notice shall specify
all defects in the Conversion Notice) and any Conversion Notice containing any
such defect shall nonetheless be effective on the date given if the converting
holder promptly undertakes to correct all such defects.

          (4) The Corporation shall reserve from its authorized, unissued and
otherwise unreserved Common Stock free from preemptive and similar rights
5,933,332 shares (such amount to be subject to equitable adjustment from time to
time on terms reasonably acceptable to the Holder for stock splits, stock
dividends, combinations, 

                                       26

 
capital reorganizations and similar events relating to the Common Stock
occurring on or after the Issuance Date) to provide for the issuance of Common
Stock upon the conversion in full of the Series D Convertible Preferred Stock,
subject to reduction from time to time by the number of shares of Common Stock
issued on conversion of the Series D Convertible Preferred Stock. The
Corporation (and any successor corporation) shall take all action necessary so
that a number of shares of the authorized but unissued Common Stock (or common
stock in the case of any successor corporation) sufficient to provide for the
conversion of the Series D Convertible Preferred Stock outstanding upon the
basis hereinbefore provided are at all times reserved by the Corporation (or any
successor corporation), free from preemptive rights, for such conversion,
subject to the provisions of the next succeeding paragraph. If the Corporation
shall issue any securities or make any change in its capital structure which
would change the number of shares of Common Stock into which each share of the
Series D Convertible Preferred Stock shall be convertible as herein provided,
the Corporation shall at the same time also make proper provision so that
thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Series D Convertible Preferred Stock on the new basis. If at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all of the outstanding shares of Series D
Convertible Preferred Stock, the Corporation promptly shall seek, and use its
best efforts to obtain and complete, such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.

          (5) In case of any consolidation or merger of the Corporation with any
other corporation (other than a wholly-owned subsidiary of the Corporation) in
which the Corporation is not the surviving corporation, or in case of any sale
or transfer of all or substantially all of the assets of the Corporation, or in
the case of any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property, the Corporation
shall make appropriate provision or cause appropriate provision to be made so
that each holder of shares of Series D Convertible Preferred Stock then
outstanding shall have the right thereafter to convert such shares of Series D
Convertible Preferred Stock into the kind of shares of stock and other
securities and property receivable upon such consolidation, merger, sale,
transfer, or share exchange by a holder of shares of Common Stock into which
such shares of Series D Convertible Preferred Stock could have been converted
immediately prior to the effective date of such consolidation, merger, sale,
transfer, or share exchange and on a basis which preserves the economic benefits
of the conversion rights of the holders of shares of Series D Convertible
Preferred Stock on a basis as nearly as practical as such rights exist hereunder
prior thereto.  If, in connection with any such consolidation, merger, sale,
transfer, or share exchange, each holder of shares of Common Stock is entitled
to elect to receive securities, cash, or other assets upon completion of such
transaction, the Corporation shall provide or cause to be provided to each
holder of Series D Convertible Preferred Stock the right to elect the
securities, cash, or other assets into which the Series D Convertible Preferred
Stock held by such holder shall be convertible after completion of any such
transaction on the same terms and subject to the same conditions applicable to
holders of the Common Stock (including, without limitation, notice of the right
to 

                                       27

 
elect, limitations on the period in which such election shall be made, and the
effect of failing to exercise the election). The Corporation shall not effect
any such transaction unless the provisions of this paragraph have been complied
with. The above provisions shall similarly apply to successive consolidations,
mergers, sales, transfers, or share exchanges.

          (6) If a holder shall have given a Conversion Notice for shares of
Series D Convertible Preferred Stock, the Corporation shall issue and deliver to
such person certificates for the Common Stock issuable upon such conversion
within three Trading Days after such Conversion Notice is given and the person
converting shall be deemed to be the holder of record of the Common Stock
issuable upon such conversion, and all rights with respect to the shares
surrendered shall forthwith terminate except the right to receive the Common
Stock or other securities, cash, or other assets as herein provided.  If a
holder shall have given a Conversion Notice as provided herein, the
Corporation's obligation to issue and deliver the certificates for Common Stock
shall be absolute and unconditional, irrespective of any action or inaction by
the converting holder to enforce the same, any waiver or consent with respect to
any provision thereof, the recovery of any judgment against any person or any
action to enforce the same, any failure or delay in the enforcement of any other
obligation of the Corporation to such holder, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by such
holder or any other person of any obligation to the Corporation or any violation
or alleged violation of law by such holder or any other person, and irrespective
of any other circumstance which might otherwise limit such obligation of the
Corporation to the holder in connection with such conversion.  If the
Corporation fails to issue and deliver the certificates for the Common Stock to
the holder converting shares of Series D Convertible Preferred Stock pursuant to
the first sentence of this paragraph as and when required to do so, in addition
to any other liabilities the Corporation may have hereunder and under applicable
law (1) the Corporation shall pay or reimburse such holder on demand for all
out-of-pocket expenses including, without limitation, reasonable fees and
expenses of legal counsel incurred by such holder as a result of such failure,
(2) the Conversion Percentage used to determine the Conversion Price applicable
to such conversion shall be reduced by one percentage point from the Conversion
Percentage otherwise used to calculate the Conversion Price applicable to such
conversion or, if such conversion is based on the Ceiling Price, the Ceiling
Price used to determine the Conversion Price applicable to such conversion shall
be reduced by one percentage point from the amount that the Conversion Price
otherwise would have been without reduction pursuant hereto, in either such
case, for each Trading Day after such third Trading Day until such shares of
Common Stock are delivered to such holder and (3) such holder may by written
notice (which may be given by mail, courier, personal service or telephone line
facsimile transmission) or oral notice (promptly confirmed in writing) given at
any time prior to delivery to such holder of the certificates for the shares of
Common Stock issuable upon such conversion of shares of Series D Convertible
Preferred Stock, rescind such conversion, whereupon such holder shall have the
right to convert such shares of Series D Convertible Preferred Stock thereafter
in accordance herewith.

          (7) No fractional shares of Common Stock shall be issued upon
conversion of Series D Convertible Preferred Stock but, in lieu of any fraction
of a share 

                                       28

 
of Common Stock to purchase fractional shares of Common Stock which would
otherwise be issuable in respect of the aggregate number of such shares
surrendered for conversion at one time by the same holder, the Corporation shall
pay in cash an amount equal to the product of (i) the arithmetic average of the
Market Price of one share of Common Stock on the three consecutive Trading Days
ending on the Trading Day immediately preceding the Conversion Date times (ii)
such fraction of a share.

          (8) The Conversion Amount shall be adjusted from time to time under
certain circumstances, subject to the provisions of Section 10(b)(1), as
follows:

          (i) In case the Corporation shall issue rights or warrants on a pro
rata basis to all holders of the Common Stock entitling such holders to
subscribe for or purchase Common Stock on the record date referred to below at a
price per share less than the Current Price for such record date, then in each
such case the Conversion Amount in effect on such record date shall be adjusted
in accordance with the formula

     C\\1\\ = C x  O + N
               -----
              O + N x P
                  -----
                   M
where
     C\\1\\ =  the adjusted Conversion Amount
     C  =  the current Conversion Amount
     O  =  the number of shares of Common Stock outstanding on the record date.
     N  =  the number of additional shares of Common Stock issuable pursuant to
           the exercise of such rights or warrants.
     P  =  the offering price per share of the additional shares (which amount
           shall include amounts received by the Corporation in respect of the
           issuance and the exercise of such rights or warrants).
     M  =  the Current Price per share of Common Stock on the record date.


          Such adjustment shall become effective immediately after the record
     date for the determination of stockholders entitled to receive such rights
     or warrants.  If any or all such rights or warrants are not so issued or
     expire or terminate before being exercised, the Conversion Amount then in
     effect shall be readjusted appropriately.

          (ii) In case the Corporation shall, by dividend or otherwise,
distribute to all holders of its Junior Stock (as hereinafter defined) evidences
of its indebtedness or assets (including securities, but excluding any warrants
or subscription rights referred to in subparagraph (i) above and any dividend or
distribution paid in cash out of the retained earnings of the Corporation), then
in each such case the Conversion Amount then in effect shall be adjusted in
accordance with the formula

                                       29

 
    C\\1\\ = C x M
             ----
             M - F
where
    C\\1\\ = the adjusted Conversion Amount
    C  =   the current Conversion Amount
    M  =   the Current Price per share of Common Stock on the record date
           mentioned below.
    F  =   the aggregate amount of such cash dividend and/or the fair market
           value on the record date of the assets or securities to be
           distributed divided by the number of shares of Common Stock
           outstanding on the record date. The Board of Directors shall
           determine such fair market value, which determination shall be
           conclusive.

Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii), "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series D Convertible Preferred Stock.

          (iii)  All calculations hereunder shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.

          (iv) If at any time as a result of an adjustment made pursuant to
Section 10(b)(5), the holder of any Series D Convertible Preferred Stock
thereafter surrendered for conversion shall become entitled to receive
securities, cash, or assets other than Common Stock, the number or amount of
such securities or property so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (i) to (iii) above.

          (9) Except as otherwise provided above in this Section 10, no
adjustment in the Conversion Amount shall be made in respect of any conversion
for share distributions or dividends theretofore declared and paid or payable on
the Common Stock.

          (10) Whenever the Conversion Amount is adjusted as herein provided,
the Corporation shall send to each holder and each transfer agent, if any, for
the Series D Convertible Preferred Stock and the transfer agent for the Common
Stock, a statement signed by the Chairman of the Board, the President, or any
Vice President of the Corporation and by its Treasurer or its Secretary or an
Assistant Secretary stating the adjusted Conversion Amount determined as
provided in this Section 10, and any adjustment so evidenced, given in good
faith, shall be binding upon all stockholders and upon the Corporation.
Whenever the Conversion Amount is adjusted, the Corporation will give notice by
mail to the holders of record of Series D Convertible Preferred Stock, 

                                       30

 
which notice shall be made within 15 days after the effective date of such
adjustment and shall state the adjustment and the Conversion Amount.
Notwithstanding the foregoing notice provisions, failure by the Corporation to
give such notice or a defect in such notice shall not affect the binding nature
of such corporate action of the Corporation.

          (11) Whenever the Corporation shall propose to take any of the actions
specified in Section 10(b)(5) or in subparagraphs (i) or (ii) of Section
10(b)(8) which would result in any adjustment in the Conversion Amount under
this Section 10(b), the Corporation shall cause a notice to be mailed at least
20 days prior to the date on which the books of the Corporation will close or on
which a record will be taken for such action, to the holders of record of the
outstanding Series D Convertible Preferred Stock on the date of such notice.
Such notice shall specify the action proposed to be taken by the Corporation and
the date as of which holders of record of the Common Stock shall participate in
any such actions or be entitled to exchange their Common Stock for securities or
other property, as the case may be.  Failure by the Corporation to mail the
notice or any defect in such notice shall not affect the validity of the
transaction.

          SECTION 11.  REDEMPTION AT OPTION OF HOLDERS.

          (A) REDEMPTION RIGHT.  If an Optional Redemption Event occurs, then,
in addition to any other right or remedy of any holder of shares of Series D
Convertible Preferred Stock, each holder of shares of Series D Convertible
Preferred Stock shall have the right, at such holder's option, to require the
Corporation to redeem all of such holder's shares of Series D Convertible
Preferred Stock, or any portion thereof, on the date that is 10 business days
after the date such holder gives the Corporation an Optional Redemption Notice
with respect to such Optional Redemption Event at any time while any of such
holder's shares of Series D Convertible Preferred Stock are outstanding, at a
price equal to the Optional Redemption Price.

          (B) NOTICES; METHOD OF EXERCISING OPTIONAL REDEMPTION RIGHTS, ETC.
(1) On or before the fifth business day after the occurrence of an Optional
Redemption Event, the Corporation shall give to each holder of outstanding
shares of Series D Convertible Preferred Stock a notice of the occurrence of
such Optional Redemption Event and of the redemption right set forth herein
arising as a result thereof.  Such notice from the Corporation shall set forth:

          (i) the date by which the optional redemption right must be exercised,
     and

          (ii) a description of the procedure (set forth below) which each such
     holder must follow to exercise such holder's optional redemption right.

          No failure of the Corporation to give such notice or defect therein
     shall limit the right of any holder of shares of Series D Convertible
     Preferred Stock to exercise the optional redemption right or affect the
     validity of the proceedings for the redemption of such holder's shares of
     Series D Convertible Preferred Stock.

                                       31

 
          (2) To exercise its optional redemption right, each holder of
outstanding shares of Series D Convertible Preferred Stock shall deliver to the
Corporation on or before the thirtieth day after the notice required by Section
11(b)(1) is given to such holder (or if no such notice has been given by the
Corporation to such holder, within forty days after such holder first learns of
such Optional Redemption Event) an Optional Redemption Notice to the
Corporation.  An Optional Redemption Notice may be revoked by such holder giving
such Optional Redemption Notice by giving notice of such revocation to the
Corporation at any time prior to the time the Corporation pays the Optional
Redemption Price to such holder.

          (3) If a holder of shares of Series D Convertible Preferred Stock
shall have given an Optional Redemption Notice, on the date which is three
business days after the date such Optional Redemption Notice is given (or such
later date as such holder surrenders such holder's certificates for the shares
of Series D Convertible Preferred Stock redeemed) the Corporation shall make
payment in immediately available funds of the applicable Optional Redemption
Price to such account as specified by such holder in writing to the Corporation
at least one business day prior to the applicable redemption date.

          (C) OTHER.  (1) In connection with a redemption pursuant to this
Section 11 of less than all of the shares of Series D Convertible Preferred
Stock evidenced by a particular certificate, promptly, but in no event later
than three Trading Days after surrender of such certificate to the Corporation,
the Corporation shall issue and deliver to such holder a replacement certificate
for the shares of Series D Convertible Preferred Stock evidenced by such
certificate which have not been redeemed.

          (2) An Optional Redemption Notice given by a holder of shares of
Series D Convertible Preferred Stock shall be deemed for all purposes to be in
proper form unless the Corporation notifies such holder in writing within three
business days after such Optional Redemption Notice has been given (which notice
shall specify all defects in such Optional Redemption Notice), and any Optional
Redemption Notice containing any such defect shall nonetheless be effective on
the date given if such holder promptly undertakes to correct all such defects.
No such claim of error shall limit or delay performance of the Corporation's
obligation to redeem all shares of Series D Convertible Preferred Stock not in
dispute whether or not such holder makes such undertaking.

          Section 12.  VOTING RIGHTS; CERTAIN RESTRICTIONS.

          (A) VOTING RIGHTS.  Except as otherwise required by law or expressly
provided herein, shares of Series D Convertible Preferred Stock shall not be
entitled to vote on any matter.

          (B) ARTICLES OF INCORPORATION; CERTAIN STOCK.  The affirmative vote or
consent of the holders of a majority of the outstanding shares of the Series D
Convertible Preferred Stock, voting separately as a class, will be required for
(1) any amendment, alteration, or repeal, whether by merger or consolidation or
otherwise, of the 

                                       32

 
Corporation's Articles of Incorporation if the amendment, alteration, or repeal
materially and adversely affects the powers, preferences, or special rights of
the Series D Convertible Preferred Stock, or (2) the creation and issuance of
any Senior Dividend Stock or Senior Liquidation Stock; provided, however, that
any increase in the authorized Preferred Stock of the Corporation or the
creation and issuance of any stock which is both Junior Dividend Stock and
Junior Liquidation Stock shall not be deemed to affect materially and adversely
such powers, preferences, or special rights and any such increase or creation
and issuance may be made without any such vote by the holders of Series D
Convertible Preferred Stock except as otherwise required by law.

          (C) REPURCHASES OF SERIES D CONVERTIBLE PREFERRED STOCK.  The
Corporation shall not repurchase or otherwise acquire any shares of Series D
Convertible Preferred Stock (other than pursuant to Sections 7(a), 9(a), 9(b) or
11) unless the Corporation offers to repurchase or otherwise acquire
simultaneously a pro rata portion of each holder's shares of Series D
Convertible Preferred Stock for cash at the same price per share.

          (D) OTHER.  So long as any shares of Series D Convertible Preferred
Stock are outstanding:

          (1) PAYMENT OF OBLIGATIONS.  The Corporation will pay and discharge,
and will cause each subsidiary of the Corporation to pay and discharge, when due
all their respective obligations and liabilities which are material to the
Corporation and its subsidiaries taken as a whole, including, without
limitation, tax liabilities, except where the same may be contested in good
faith by appropriate proceedings.

          (2) MAINTENANCE OF PROPERTY; INSURANCE.  (A)  The Corporation will
keep, and will cause each subsidiary of the Corporation to keep, all material
property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted.

          (B) The Corporation will maintain, and will cause each subsidiary of
the Corporation to maintain, with financially sound and responsible insurance
companies, insurance against loss or damage by fire or other casualty and such
other insurance, including but not limited to, product liability insurance, in
such amounts and covering such risks as is reasonably adequate for the conduct
of their businesses and the value of their properties.

          (3) CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE.  The Corporation
will continue, and will cause each subsidiary of the Corporation to continue, to
engage in business of the same general type as conducted by the Corporation and
its operating subsidiaries at the time this Statement of Resolution filed with
the Secretary of State of the State of Texas, and will preserve, renew and keep
in full force and effect, and will cause each subsidiary of the Corporation to
preserve, renew and keep in full force and effect, their respective corporate
existence and their respective material rights, privileges and franchises
necessary or desirable in the normal conduct of business.

                                       33

 
          (4) COMPLIANCE WITH LAWS.  The Corporation will comply, and will cause
each subsidiary of the Corporation to comply, in all material respects with all
applicable laws, ordinances, rules, regulations, decisions, orders and
requirements of governmental authorities and courts (including, without
limitation, environmental laws) except (i) where compliance therewith is
contested in good faith by appropriate proceedings or (ii) where non-compliance
therewith could not reasonably be expected to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Corporation and its subsidiaries, taken as a
whole.

          (5) INVESTMENT COMPANY ACT.  The Corporation will not be or become an
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended, or any successor provision.

          (6) TRANSACTIONS WITH AFFILIATES.  The Corporation will not, and will
not permit any subsidiary of the Corporation, directly or indirectly, to pay any
funds to or for the account of, make any investment (whether by acquisition of
stock or indebtedness, by loan, advance, transfer of property, guarantee or
other agreement to pay, purchase or service, directly or indirectly, any
indebtedness, or otherwise) in, lease, sell, transfer or otherwise dispose of
any assets, tangible or intangible, to, or participate in, or effect any
transaction in connection with, any joint enterprise or other joint arrangement
with, any Affiliate of the Corporation, except, on terms to the Corporation or
such subsidiary no less favorable than terms that could be obtained by the
Corporation or such subsidiary from a person that is not an Affiliate of the
Corporation, as determined in good faith by the Board of Directors.

          (7) COMPLIANCE.  The Corporation shall (a) use its commercially
reasonable best efforts to obtain knowledge of any failure or default by the
Corporation in the timely performance of any material obligation to the holders
of the Series D Convertible Preferred Stock under the terms of this Statement of
Resolution, the Exchange Agreements, the Registration Rights Agreement, the
Transfer Agent Instruction or any other document or instrument executed and
delivered by the Corporation in connection herewith or therewith and (b) shall
notify the holders of the Series D Convertible Preferred Stock promptly, but in
no event later than three Business Days after the Corporation first learns of
any such failure or default.

          SECTION 13.  OUTSTANDING SHARES.  For purposes of this Statement of
Resolution, all shares of Series D Convertible Preferred Stock shall be deemed
outstanding except (i) from the applicable Conversion Date, each share of Series
D Convertible Preferred Stock converted into Common Stock, unless the
Corporation shall default in its obligation to issue and deliver shares of
Common Stock upon such conversion as and when required by Section 10; (ii) from
the date of registration of transfer, all shares of Series D Convertible
Preferred Stock held of record by the Corporation or any subsidiary or Affiliate
of the Corporation (other than any original holder of shares of Series D
Convertible Preferred Stock) and (iii) from the applicable Redemption Date,
Share Limitation Redemption Date, Final Redemption Date or date of 

                                       34

 
redemption pursuant to Section 11, all shares of Series D Convertible Preferred
Stock which are redeemed or repurchased, so long as in each case the Redemption
Price, the Share Limitation Redemption Price, the Final Redemption Price, the
Optional Redemption Price or other repurchase price, as the case may be, of such
shares of Series D Convertible Preferred Stock shall have been paid by the
Corporation as and when due hereunder.

          SECTION 14.  MISCELLANEOUS.

          (A) NOTICES.  Any notices required or permitted to be given under the
terms of this Statement of Resolution shall be in writing and shall be sent by
mail or delivered personally (which shall include telephone line facsimile
transmission) or by courier and shall be deemed given five days after being
placed in the mail, if mailed, or upon receipt, if delivered personally or by
courier (a) in the case of the Corporation, addressed to the Corporation at 1250
Wood Branch Park Drive, Houston, Texas, 77079, Attention:  Chief Executive
Officer (telephone line facsimile transmission number (281) 529-4650), or, in
the case of any holder of shares of Series D Convertible Preferred Stock, at
such holder's address or telephone line facsimile transmission number shown on
the stock books maintained by the Corporation with respect to the Series D
Convertible Preferred Stock or such other address as the Corporation shall have
provided by notice to the holders of shares of Series D Convertible Preferred
Stock in accordance with this Section or any holder of shares of Series D
Convertible Preferred Stock shall have provided to the Corporation in accordance
with this Section.

          (B) REPLACEMENT OF CERTIFICATES.  Upon receipt by the Corporation of
evidence reasonably satisfactory to the Corporation of the ownership of and the
loss, theft, destruction or mutilation of any certificate for shares of Series D
Convertible Preferred Stock and (1) in the case of loss, theft or destruction,
of indemnity from the record holder of the certificate for such shares of Series
D Convertible Preferred Stock reasonably satisfactory in form to the Corporation
(and without the requirement to post any bond or other security) or (2) in the
case of mutilation, upon surrender and cancellation of the certificate for such
shares of Series D Convertible Preferred Stock, the Corporation will execute and
deliver to such holder a new certificate for such shares of Series D Convertible
Preferred Stock without charge to such holder.

          (C) OVERDUE AMOUNTS.  Except as otherwise specifically provided in
Section 5 with respect to dividends in arrears on the Series D Convertible
Preferred Stock, whenever any amount which is due to any holder of shares of
Series D Convertible Preferred Stock is not paid to such holder when due, such
amount shall bear interest at the rate of 14% per annum (or such other rate as
shall be the maximum rate allowable by applicable law) until paid in full.

                                       35

 
          IN WITNESS WHEREOF, Equalnet Communications Corp. has caused this
certificate to be signed by Mitchell H. Bodian, its Chief Executive Officer, as
of the 12th day of March, 1999.

                            EQUALNET COMMUNICATIONS CORP.

                            By: /s/ Mitchell H. Bodian
                               -----------------------
                              Mitchell H. Bodian

                                       36

 
                                                                         Annex I


                              NOTICE OF CONVERSION
                                       OF
                      SERIES D CONVERTIBLE PREFERRED STOCK
                                       OF
                         EQUALNET COMMUNICATIONS CORP.

TO:  American Stock Transfer & Trust Company,
        as Transfer Agent and Registrar
     6201 Fifteenth Avenue
     Third Floor
     Brooklyn, New York 11219

     Attention:  Mr. Barry Rosenthal

     Facsimile No.:  (718) 259-1144

          (1) Pursuant to the terms of the Series D Convertible Preferred Stock
(the "Preferred Stock") of Equalnet Communications Corp., a Texas corporation
(the "Company"), the undersigned hereby elects to convert ________________
shares of the Preferred Stock together with accrued and unpaid dividends thereon
in the amount of $_______________ and interest on dividends in arrears in the
amount of $________________ into shares of Common Stock, $.01 par value (the
"Common Stock"), of the Company, or such other securities into which the
Preferred Stock is currently convertible.  Capitalized terms used in this Notice
and not otherwise defined herein have the respective meanings provided in the
Statement of Resolution of the Board of Directors Establishing and Designating
Series D Convertible Preferred Stock and Fixing the Rights and Preferences of
Such Series (the "Statement of Resolution").

          (2) Please issue a certificate or certificates for ________________
shares of Common Stock or other securities into which such number of shares of
Preferred Stock is convertible in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:

     _____________________                      _____________________
     Name                                               Name

     _____________________                      _____________________
     Address                                    Address

     _____________________                      _____________________
     SS or Tax ID Number                        SS or Tax ID Number

          (3) The Conversion Date is __________________________________.  Check
and complete one of the following:

                                       37

 
                    The undersigned elects to convert based on the Average
          Market Price of the Common Stock.  The Market Price of the Common
          Stock on each of the five Trading Days (whether or not consecutive)
          during the 25 consecutive Trading Days preceding the Conversion Date
          having the lowest Market Prices, and the arithmetic average thereof
          are as follows:

     Date                       Market Price
     ----                       ------------

     _________                  ____________

     _________                  ____________

     _________                  ____________

     _________                  ____________

     _________                  ____________

     Arithmetic Average: $_______________

          OR


                    The undersigned elects to convert based on the Ceiling Price
          of the Common Stock of $__________ applicable to conversions of
          Preferred Stock.

          (4) If the shares of Common Stock issuable upon conversion of the
Preferred Stock have not been registered for resale under the Securities Act of
1933, as amended (the "Act"), and this Notice is submitted prior to the date
which is two years after the Issuance Date, the undersigned represents and
warrants that (i) the shares of Common Stock not so registered are being
acquired for the account of the undersigned for investment, and not with a view
to, or for resale in connection with, the public distribution thereof other than
pursuant to registration under the Act, and that the undersigned has no present
intention of distributing or reselling the shares of Common Stock not so
registered other than pursuant to registration under the Act and (ii) the
undersigned is an "accredited investor" as defined in Regulation D under the
Act.  The undersigned further agrees that (A) the shares of Common Stock not so
registered shall not be sold or transferred unless either (i) they first shall
have been registered under the Act and applicable state securities laws or (ii)
the Company first shall have been furnished with an opinion of legal counsel
reasonably satisfactory to the Company to the effect that such sale or transfer
is exempt from the registration requirements of the Act and (B) the Company may
place a legend on the certificate(s) for the shares of Common 

                                       38

 
Stock not so registered to that effect and place a stop-transfer restriction in
its records relating to the shares of Common Stock not so registered.

          Date _________________________
     ____________________________________
                                    Signature of Holder (Must be signed exactly
                              as name appears on the Preferred Stock
                              Certificate.)

                                       39

 
                                                                       ANNEX C


                                                             September 3, 1998



The Independent Committee of the Board of Directors
EqualNet Communications Corp.
1250 Wood Branch Park Dr.
Houston, TX  77079

Attention: Mr. John Isaac "Ike" Epley, Chairman

RE: EQUALNET COMMUNICATIONS CORPORATION  -- SENIOR CONVERTIBLE NOTES FAIRNESS
    OPINION.

Dear Mr. Epley:

G. A. Herrera & Co. (herein referred to as "GAH") has been engaged by the
Independent Committee of the Board of Directors of EqualNet Communications Corp.
(herein referred to as the "Independent Committee") to evaluate the fairness,
from a financial standpoint, of a proposed convertible debt offering (herein
referred to as the "Offering") to the holders of the outstanding common stock,
par value $0.01 per share (herein referred to as the "Common Stock") of EqualNet
Communications Corp. (herein referred to as "EqualNet" or the "Company").
Enclosed is our report summarizing the analysis and conclusions developed from
our review and evaluation of the documents, agreements, financial statements and
other information provided as part of our engagement.

The purpose of this engagement was to assist management of the Company, its
Board of Directors and the Independent Committee in (i) evaluating, analyzing
and reviewing the terms of the proposed Offering, (ii) evaluating the merits of
the Offering in light of the Company's current financial position and (iii)
attesting as to fairness of the Offering to the holders of Common Stock. This
report is not and should not be used as a solvency opinion. The use of this
report is specifically limited by the terms and conditions expressed herein, and
to the purposes described herewith.

EqualNet is a telecommunications company providing a variety of in-bound and
out-bound long distance, internet, data and prepaid services to its customers on
a nationwide basis. The Company offers switched and dedicated long-distance
services via an array of distribution channels; dial-up, high-speed internet and
data services; pre-paid calling cards, premium and incentive phone cards, stored
value debit cards, "800 and 888" products and interactive voice response
services.

 
                                                  EQUALNET COMMUNICATIONS CORP.
- - --------------------------------------------------------------------------------

GAH is a Houston, Texas based private investment banking and consulting firm
that provides merger and acquisition advisory services, debt and equity
placements, valuations, litigation support and expert testimony services
specializing in value-added distributors and contractors serving the
telecommunications, food products, energy, health care and environmental
markets. As part of our investment banking business, GAH is continually involved
in the valuation of private and public businesses and securities in connection
with mergers, acquisitions, dispositions, dissolutions, private equity
transactions and valuations for tax, estate, corporate and other purposes. GAH's
active participation in the valuation field and specific telecommunications
industry expertise provides extensive knowledge with respect to valuation theory
and Internal Revenue Service (herein referred to as "IRS") rulings and
guidelines which are significant factors in the determination of fairness
opinions.

For purposes of this engagement and report, we utilized IRS Revenue Ruling
59-60, 1959-1 C.B. 237 as the primary basis in arriving at our opinion. This
methodology is widely utilized to determine the price at which property would
change hands between a willing buyer and a willing seller, when the former is
not under any compulsion to buy and the latter is not under any compulsion to
sell, both having reasonable knowledge of relevant facts. In arriving at our
opinion we considered available financial data as well as other relevant
business and industry factors including, the following:

     . the nature and history of the business;

     . the economic outlook in general and the current condition and prospect
       for EqualNet's business;

     . the total shareholders equity, liquidity and financial condition of
       EqualNet;

     . the historical and future earning capacity of EqualNet;

     . the dividend paying capacity of EqualNet;

     . EqualNet's goodwill or other intangible value;

     . relevant sales of EqualNet stock and the economic impact of the subject
       Offering; and

     . the market price of public companies engaged in the same or similar lines
       of business as EqualNet.

EqualNet has experienced significant operating and financial difficulties that
have negatively impacted its business. The Company has sustained material and
on-going losses primarily resulting from the erosion of its customer account
base, order activity and calling volumes. The Company has not been in compliance
with certain agreements 


- - --------------------------------------------------------------------------------
G. A. HERRERA & CO.                                                    PAGE  2

                                       2

 
                                                  EQUALNET COMMUNICATIONS CORP.
- - --------------------------------------------------------------------------------

and was previously the subject of various proceedings alleging violations of
state consumer protection statutes. Accordingly, EqualNet has been, and is,
dependent on raising funds from private sources as a result of its inability to
generate funds from operations sufficient to satisfy its on-going operations.
These risks and conditions coupled with the Company's continuing losses and
dependence on raising additional funding pose a material concern with respect to
the future financial and operational performance of EqualNet.

The need to fund on-going operations has created an immediate financing
requirement. EqualNet is considering a $3,000,000 convertible debt transaction
(herein referred to as the "Notes") proposal from the Willis Group, L.L.C. and
Genesee funds. The Notes will be issued at a discount and the proceeds to the
Company will be $2,880,000. The 6% senior convertible Notes would be due 2001
pursuant to the Offering, and any Notes issued as payment of interest accrued on
such Notes may be converted, in whole or in part, by the holders of the Notes
into Common Stock at any time on or after the earlier of (i) the date a
registration statement is effective with the Securities Exchange Commission with
respect to the Common Stock issuable pursuant to the Offering and (ii) the date
90 days after the closing of the transactions contemplated by the Offering
(herein referred to as the "Closing").

The conversion price for each share of Common Stock (herein referred to as the
"Conversion Price") is the lesser of (1) 85% of the average of the lowest sale
price of the Common Stock as reported on NASDAQ for five days within a
twenty-five day period prior to the date of conversion (herein referred to as
the "Average Price") and (2) $0.9006 per share. In addition, the Note holders
will be entitled to a special payment in the event the assets of Netco
Acquisition Corp. (herein referred to as "Netco"), a wholly owned subsidiary of
the Company, are sold at a price exceeding Netco's secured debt and closing
costs. If the sale of Netco's assets occurs prior to redemption or conversion of
the Notes, the Note holders will receive 5% of the excess sales price over
Netco's secured debt plus closing costs.

In connection with the issuance of the Notes, the Company grants to each
investor a 5 year warrant to purchase, at the Conversion Price, a number of
shares of Common Stock equal to the quotient obtained by dividing (x) the
quotient obtained by dividing the amount invested by such investor by the
Average Price by (y) five. For a period of one year after the date of the
Closing, the Company may not sell or offer to sell any equity securities or
securities convertible into Common Stock at a price below the market price
unless the Company first gives the purchasers of the Notes the right to purchase
such securities from the Company at the price at which such securities were
offered to other investors.

A related transaction is contemplated in connection with the issuance of the
Notes. The Willis Group, L.L.C. and Advantage Funds will exchange in the
aggregate 3,000,000 shares of Common Stock currently owned by those entities for
3,750 shares of Series D Preferred Stock (herein referred to as "Series D
Preferred") of the Company. The par 

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G. A. HERRERA & CO.                                                    PAGE  3

                                       3

 
                                                  EQUALNET COMMUNICATIONS CORP.
- - --------------------------------------------------------------------------------

value of each share of Series D Preferred is $1,000. The Company will receive an
exchange fee of $200,000. The Series D Preferred will not have priority over the
Company's Preferred Stock, which is currently outstanding. The Series D
Preferred will be convertible into Common Stock at a conversion price for each
share of Common Stock equal to the lessor of (1) 85% of the average of the
lowest sales price of the Common Stock as reported on NASDAQ for five days
within a twenty-five day period prior to the date of conversion and (2) $1.2281
per share.

The approaches and methodologies used in our work were limited as referenced
herein and did not comprise an examination in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the fair presentation of financial statements or other financial
information presented in accordance with generally accepted accounting
principles. We express no opinion and accept no responsibility for the accuracy
and completeness of the financial information or other data provided to us by
others. We assumed that the financial and other information provided to us was
accurate and complete, and we relied upon this information in performing our
valuation for purposes of this engagement.

In performing our work, we were provided with various information, including the
following:

         .    EqualNet's proxy statement dated June 15, 1998 for a special
              meeting of the shareholders held June 30, 1998;

         .    EqualNet's proxy statement dated December 29, 1997 for the annual
              meeting of the shareholders held January 27, 1998;

         .    EqualNet's  10-Q for the period ended March 31, 1998 and 10-K for
              the fiscal year ended June 30, 1997.

         .    Draft notice of conversion, joint escrow instructions, note
              purchase agreement and common stock warrant for the proposed
              Offering; and

         .    EqualNet's marketing and other related literature.

 The procedures employed in this engagement included such steps, we considered
necessary, including, but not limited to, the following:

         .    Discussions with EqualNet's management and personnel concerning
              the past and future operations of the Company and an explanation
              and clarification of data provided by management;

         .    An analysis of the financial condition of EqualNet inclusive of
              the financial and operational issues set forth herein;


- - --------------------------------------------------------------------------------
G. A. HERRERA & CO.                                                    PAGE  4

                                       4

 
                                                  EQUALNET COMMUNICATIONS CORP.
- - --------------------------------------------------------------------------------

         .    A tour of EqualNet's offices located in Houston, Texas;

         .    An analysis of the condition and trends of the telecommunications
              industry and the switched and dedicated market, including an
              analysis of the competitive environment; and

         .    An analysis of other pertinent facts and data resulting in our
              conclusion and opinion.

The summary of our procedures is intended solely to provide EqualNet and its
management with an overview of our approach. We have not made an independent
valuation or appraisal of the assets or liabilities of the Company and have not
been furnished with any such evaluation or appraisal. For purposes of this
engagement and report, we made no investigation of, and assumed no
responsibility for, the titles to, or any liens against, the assets of EqualNet
or the proposed Offering. Neither did we attempt to determine what the Offering
or the shares of EqualNet might have sold for in the public or private market or
account for the costs that might have been incurred if the Offering or shares of
the Company had been sold. We assumed there were no hidden or unexpected
conditions associated with EqualNet or the Offering that would adversely affect
the Offering or our opinion.

GAH was not asked to consider and accordingly our opinion and this report does
not address the relative merits of the proposed Offering as compared to other
alternative business strategies that might exist for the Company, or the effect
of any other transactions in which EqualNet might engage. We have not contacted
potential purchasers of the Offering and, therefore, our opinion does not
represent (1) that a market exists or (2) a price from a specific purchaser, for
the Offering. Furthermore, the price a willing buyer would pay a willing seller
for the Offering, neither being under any compulsion to buy nor sell, is
significantly influenced by industry, economic and market conditions, which may
vary from those present on the date of this report. Furthermore, the conditions
and circumstances prevailing at the date of this report will often vary from
future results and no reliance can be or has been provided thereon. This report
and the opinion contained herein does not constitute a recommendation (1) on
behalf of the Offering, (2) to any holder of Common Stock to vote in favor of
the Offering or (3) that the Offering is in the best interests of the Company.

None of the G. A. Herrera & Co. employees or partners who have worked on this
engagement have any known or contemplated interests in or with EqualNet, its
related parties or its affiliates. Further, the compensation for this valuation
engagement is neither based nor contingent upon the opinion provided. This
opinion may be produced in whole, but not in part, in the filings and statements
as required by applicable law; provided, that any excerpt from or reference to
this opinion or report must be approved by GAH in advance in writing. This
report stating the significant assumptions made, the methodologies employed, and
the conclusions reached are solely for the information of,

- - --------------------------------------------------------------------------------
G. A. HERRERA & CO.                                                    PAGE  5

                                       5

 
                                                  EQUALNET COMMUNICATIONS CORP.
- - --------------------------------------------------------------------------------

and assistance to, the Independent Committee of EqualNet, and are not to be
referred to or distributed for any other purposes.

In accordance with the foregoing, and as further described herein, it is our
opinion that as of the date hereof, the terms and conditions of the proposed
Offering are fair to the holders of Common Stock from a financial standpoint.

If you have any questions, please call Gilbert A. Herrera at (713) 860-1431.




                                                   Sincerely,



                                                   G. A. Herrera & Co.















- - --------------------------------------------------------------------------------
G. A. HERRERA & CO.                                                    PAGE  6

                                       6

 
                                                                         ANNEX D

                         EQUALNET COMMUNICATIONS CORP.
                 STATEMENT OF RESOLUTION OF BOARD OF DIRECTORS
               ESTABLISHING AND DESIGNATING SERIES A CONVERTIBLE
           PREFERRED STOCK AND FIXING THE RIGHTS AND PREFERENCES OF
                                  SUCH SERIES


TO THE SECRETARY OF STATE
OF THE STATE OF TEXAS

     Equalnet Communications Corp., pursuant to the provisions of Articles 2.13
and 2.19B of the Texas Business Corporation Act, submits the following statement
for the purpose of establishing and designating a series of shares and fixing
the rights and preferences thereof:

     1. The name of the Corporation is Equalnet Communications Corp.

     2. The following is a true and correct copy of an extract from
the minutes of a meeting of the Board of Directors of the Corporation held on
October 28, 1998, and includes a true and correct copy of certain resolutions
duly adopted thereat.

     RESOLVED, that pursuant to authority vested in the Board of Directors by
the Articles of Incorporation of the Corporation, the Board of Directors does
hereby provide that the Statement of Resolution Establishing Series of Shares
(Series A Convertible Preferred) that was filed with the Secretary of State of
the State of Texas on March 5, 1998 is cancelled and deleted in its entirety and
shall be replaced with the following:

 
                     SERIES A CONVERTIBLE PREFERRED STOCK

     SECTION 1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:

     "Affiliate" means, with respect to any person, any other person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with the subject person; for purposes
of this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
whether through the ownership of voting securities or by contract or otherwise.

     "Aggregated Person" means, with respect to any person, any person whose
beneficial ownership of shares of Common Stock would be aggregated with the
beneficial ownership of shares of Common Stock by such person for purposes of
Section 13(d) of the Exchange Act, and Regulation 13D-G thereunder.

     "Amendment Agreement" means the Amendment Agreement, dated as of July 31,
1998, by and between the Corporation and the original holder of Series A
Convertible Preferred Stock.

     "AMEX" means the American Stock Exchange, Inc.

     "Average Market Price" for any date means the arithmetic average of the
Market Price on each of the five Trading Days, whether or not consecutive,
during the applicable Measurement Period having the lowest Market Prices.

     "Board of Directors" or "Board" means the Board of Directors of the
Corporation.

     "Ceiling Price" means $1.2281 (subject to equitable adjustments from time
to time on terms reasonably acceptable to the Majority Holders for stock splits,
stock dividends, combinations, recapitalizations, reclassifications and similar
events occurring or with respect to which "ex-" trading commences on or after
the date of filing of this Statement of Resolution with the Secretary of State
of the State of Texas); provided, however, that, notwithstanding any other
provision hereof, the Ceiling Price applicable to a particular conversion shall
be subject to reduction as provided in Section 10(b)(6); provided further,
however, that if a Registration Event occurs, then, in addition to any other
right or remedy of any holder of shares of Series A Convertible Preferred Stock
thereafter the Ceiling Price shall be permanently reduced on each Computation
Date by an amount equal to two percent of the amount that the Ceiling Price
otherwise would have been without any reduction pursuant to this proviso (pro
rated in the case of any Computation Date which is less than 30 days after a
Registration Event occurs or less than 30 days after another Computation Date).


                                       2

 
     "Common Stock" means the Common Stock, $.01 par value, of the Corporation.

     "Computation Date" means, if a Registration Event occurs, any of (1) the
date which is 30 days after such Registration Event occurs, if any Registration
Event is continuing on such date, (2) each date which is 30 days after a
Computation Date, if any Registration Event is continuing on such date, and (3)
the date on which all Registration Events cease to continue.

     "Conversion Amount" initially shall be equal to $1,000.00, subject to
adjustment as herein provided.

     "Conversion Date" means, with respect to each conversion of shares of
Series A Convertible Preferred Stock pursuant to Section 10, the date on which
the Conversion Notice relating to such conversion is actually received by the
Transfer Agent, whether by mail, courier, personal service, telephone line
facsimile transmission or other means.

     "Conversion Notice" means a written notice, duly signed by or on behalf of
a holder of shares of Series A Convertible Preferred Stock, stating the number
of shares of Series A Convertible Preferred Stock to be converted in the form
attached hereto as ANNEX I or such other form as agreed to by the Majority
Holders.

     "Conversion Percentage" means 85%; provided, however, that, notwithstanding
any other provision hereof, if a Registration Event occurs, then such percentage
stated above shall be permanently reduced by two percentage points on each
Computation Date (pro rated in the case of any Computation Date which is less
than 30 days after a Registration Event occurs or less than 30 days after
another Computation Date).

     "Conversion Price" means the lesser of:

     (1) the product of (a) the Average Market Price for such date times (b) the
applicable Conversion Percentage; and

     (2) the Ceiling Price;

provided, however, that the Conversion Price applicable to a particular
conversion shall be subject to reduction as provided in Section 10(b)(6);

provided, further, however, that as long as (x) the Common Stock is listed or
quoted on the Nasdaq, the Nasdaq Small Cap, the NYSE or the AMEX and (y) the
Corporation is in compliance in all material respects with its obligations to
the holders of the Series A Convertible Preferred Stock, the Conversion Price
shall be no less than $0.75.

     "Conversion Rate" shall have the meaning provided in Section 10(a).


                                       3

 
     "Converted Market Price" means, for any share of Series A Convertible
Preferred Stock as of any date of determination, an amount equal to the product
obtained by multiplying (x) the number of shares of Common Stock which would, at
the time of such determination, be issuable on conversion in accordance with
Section 10(a) of one share of Series A Convertible Preferred Stock and any
accrued and unpaid dividends thereon and any accrued and unpaid interest on
dividends thereon in arrears if a Conversion Notice were given by the holder of
such share of Series A Convertible Preferred Stock on the date of such
determination (determined without regard to any limitation on conversion based
on beneficial ownership contained in Section 10(a)) times (y) the arithmetic
average of the Market Price of the Common Stock for the five consecutive Trading
Days ending on the Trading Day prior to the date of such determination.

     "Corporation Optional Redemption Notice" means a notice given by the
Corporation to the holders of shares of Series A Convertible Preferred Stock
pursuant to Section 9(a) which notice shall state (1) that the Corporation is
exercising its right to redeem all or a portion of the outstanding shares of
Series A Convertible Preferred Stock pursuant to Section 9(a), (2) the number of
shares of Series A Convertible Preferred Stock held by such holder which are to
be redeemed, (3) the Redemption Price per share of Series A Convertible
Preferred Stock to be redeemed or the formula for determining the same,
determined in accordance herewith, and (4) the applicable Redemption Date.

     "Current Price" means with respect to any date the arithmetic average of
the Market Price of the Common Stock on the 30 consecutive Trading Days
commencing 45 Trading Days before such date.

     "Dividend Shares" means shares of Series A Convertible Preferred Stock
issued as dividends on outstanding shares of Series A Convertible Preferred
Stock in accordance with Section 5(b).

     "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     "Exchange Agreements" means the several Note Purchase and Exchange
Agreements by and between the Corporation and the original holders of shares of
Series D Convertible Preferred Stock pursuant to which the shares of Series D
Convertible Preferred Stock were issued.

     "Final Redemption Date" means the date of redemption of shares of Series A
Convertible Preferred Stock pursuant to Section 9(b), determined in accordance
therewith.

     "Final Redemption Notice" means a notice given by the Corporation to each
holder of Series A Convertible Preferred Stock pursuant to Section 9(b), which
notice shall state (1) that the Corporation is exercising its right to redeem
all outstanding shares of Series A Convertible Preferred Stock pursuant to
Section 9(b), (2) the number of shares of Series A Convertible Preferred Stock
held by such holder which are to be redeemed, (3) the Final Redemption Price per
share of Series A Convertible Preferred


                                       4

 
Stock held by such holder which are to be redeemed, determined in accordance
herewith, and (4) the Final Redemption Date.

     "Final Redemption Price" on any date means an amount equal to the product
obtained by multiplying (a) the sum of (1) $1,000 plus (2) an amount equal to
the accrued but unpaid dividends on the share of Series A Convertible Preferred
Stock to be redeemed to the Final Redemption Date, plus (3) an amount equal to
the accrued and unpaid interest on dividends in arrears on such share of Series
A Convertible Preferred Stock to the Final Redemption Date (determined as
provided in Section 5) times (b) the Premium Percentage.

     "Inconvertibility Notice" shall have the meaning provided in Section
7(a)(2).

     "Issuance Date" means the first date of original issuance of any shares of
Series D Convertible Preferred Stock.

     "Junior Dividend Stock" means, collectively, the Common Stock and any other
class or series of capital stock of the Corporation ranking junior as to
dividends to the Series A Convertible Preferred Stock.

     "Junior Liquidation Stock" means the Common Stock or any other class or
series of the Corporation's capital stock ranking junior as to liquidation
rights to the Series A Convertible Preferred Stock.

     "Liquidation Preference" means, for each share of Series A Convertible
Preferred Stock, the sum of (i) all dividends accrued and unpaid thereon to the
date of final distribution to such holders, (ii) accrued and unpaid interest on
dividends in arrears (computed in accordance with Section 5(a)) to the date of
such distribution, and (iii) $1,000.00.

     "Majority Holders" means at any time the holders of shares of Series A
Preferred Stock which shares constitute a majority of the outstanding shares of
Series A Preferred Stock.

     "Market Price" of the Common Stock on any date means the lowest sale price
(regular way) for one share of Common Stock on such date on the first applicable
among the following: (a) the national securities exchange on which the shares of
Common Stock are listed which constitutes the principal securities market for
the Common Stock, (b) the Nasdaq, if the Nasdaq constitutes the principal market
for the Common Stock on such date, or (c) the Nasdaq SmallCap, if the Nasdaq
SmallCap constitutes the principal securities market for the Common Stock on
such date, in any such case as reported by Bloomberg, L.P.; provided, however,
that if during any Measurement Period or other period during which the Market
Price is being determined:

     (i)   The Corporation shall declare or pay a dividend or make a
   distribution to all holders of the outstanding Common Stock in shares of
   Common Stock or fix any record date for any such action, then the Market
   Price for each day in such Measurement Period or such other period


                                       5

 
   which day is prior to the earlier of (1) the date fixed for the determination
   of stockholders entitled to receive such dividend or other distribution and
   (2) the date on which ex-dividend trading in the Common Stock with respect to
   such dividend or distribution begins shall be reduced by multiplying the
   Market Price (determined without regard to this proviso) for each such day in
   such Measurement Period or such other period by a fraction, the numerator of
   which shall be the number of shares of Common Stock outstanding at the close
   of business on the earlier of (1) the record date fixed for such
   determination and (2) the date on which ex-dividend trading in the Common
   Stock with respect to such dividend or distribution begins and the
   denominator of which shall be the sum of such number of shares and the total
   number of shares constituting such dividend or other distribution;

     (ii)  The Corporation shall issue rights or warrants to all holders of its
   outstanding shares of Common Stock, or fix a record date for such issuance,
   which rights or warrants entitle such holders (for a period expiring within
   forty-five (45) days after the date fixed for the determination of
   stockholders entitled to receive such rights or warrants) to subscribe for or
   purchase shares of Common Stock at a price per share less than the Market
   Price (determined without regard to this proviso) for any day in such
   Measurement Period or such other period which day is prior to the end of such
   45-day period, then the Market Price for each such day shall be reduced so
   that the same shall equal the price determined by multiplying the Market
   Price (determined without regard to this proviso) by a fraction, the
   numerator of which shall be the number of shares of Common Stock outstanding
   at the close of business on the record date fixed for the determination of
   stockholders entitled to receive such rights or warrants plus the number of
   shares which the aggregate offering price of the total number of shares so
   offered would purchase at such Market Price, and the denominator of which
   shall be the number of shares of Common Stock outstanding on the close of
   business on such record date plus the total number of additional shares of
   Common Stock so offered for subscription or purchase. In determining whether
   any rights or warrants entitle the holders to subscribe for or purchase
   shares of Common Stock at less than the Market Price (determined without
   regard to this proviso), and in determining the aggregate offering price of
   such shares of Common Stock, there shall be taken into account any
   consideration received for such rights or warrants, the value of such
   consideration, if other than cash, to be determined in good faith by a
   resolution of the Board of Directors of the Corporation;

     (iii) The outstanding shares of Common Stock shall be subdivided into a
   greater number of shares of Common Stock or a record date for any such
   subdivision shall be fixed, then the Market Price of the Common Stock for
   each day in such Measurement Period or such other period which day is prior
   to the earlier of (1) the day upon which such subdivision becomes effective
   and (2) the date on which ex-dividend trading in the Common Stock with
   respect to such subdivision begins shall be proportionately reduced, and
   conversely, in case the outstanding shares of Common Stock shall be combined
   into a smaller number of


                                       6

 
   shares of Common Stock, the Market Price each trade (regular way) on for each
   day in such Measurement Period or such other period which day is prior to the
   earlier of (1) the date on which such combination becomes effective and (2)
   the date on which trading in the Common Stock on a basis which gives effect
   to such combination begins, shall be proportionately increased;

     (iv)  The Corporation shall, by dividend or otherwise, distribute to all
   holders of its Common Stock shares of any class of capital stock of the
   Corporation (other than any dividends or distributions to which clause (i) of
   this proviso applies) or evidences of its indebtedness, cash or other assets
   (including securities, but excluding any rights or warrants referred to in
   clause (ii) of this proviso and dividends and distributions paid exclusively
   in cash and excluding any capital stock, evidences of indebtedness, cash or
   assets distributed upon a merger or consolidation) (the foregoing hereinafter
   in this clause (iv) of this proviso called the "Securities"), or fix a record
   date for any such distribution, then, in each such case, the Market Price for
   each day in such Measurement Period or such other period which day is prior
   to the earlier of (1) the record date for such distribution and (2) the date
   on which ex-dividend trading in the Common Stock with respect to such
   distribution begins shall be reduced so that the same shall be equal to the
   price determined by multiplying the Market Price (determined without regard
   to this proviso) by a fraction, the numerator of which shall be the Market
   Price (determined without regard to this proviso) for such date less the fair
   market value (as determined in good faith by resolution of the Board of
   Directors of the Corporation) on such date of the portion of the Securities
   so distributed or to be distributed applicable to one share of Common Stock
   and the denominator of which shall be the Market Price (determined without
   regard to this proviso) for such date; provided, however, that in the event
   the then fair market value (as so determined) of the portion of the
   Securities so distributed applicable to one share of Common Stock is equal to
   or greater than the Market Price (determined without regard to this clause
   (iv) of this proviso) for any such Trading Day, in lieu of the foregoing
   adjustment, adequate provision shall be made so that the holders of shares of
   Series A Preferred Stock shall have the right to receive upon conversion of
   the shares of Series A Preferred Stock the amount of Securities the holders
   of shares of Series A Preferred Stock would have received had the holders of
   shares of Series A Preferred Stock converted the shares of Series A Preferred
   Stock immediately prior to the record date for such distribution. If the
   Board of Directors of the Corporation determines the fair market value of any
   distribution for purposes of this clause (iv) by reference to the actual or
   when issued trading market for any securities comprising all or part of such
   distribution, it must in doing so consider the prices in such market on the
   same day for which an adjustment in the Market Price is being determined.

     For purposes of this clause (iv) and clauses (i) and (ii) of this proviso,
   any dividend or distribution to which this clause (iv) is applicable that
   also includes shares of Common Stock, or rights or warrants to subscribe for
   or purchase shares of Common Stock to which clause (i) or (ii) of this
   proviso applies (or both), shall be deemed instead to be (1) a dividend or
   distribution of the evidences of


                                       7

 
   indebtedness, assets, shares of capital stock, rights or warrants other than
   such shares of Common Stock or rights or warrants to which clause (i) or (ii)
   of this proviso applies (and any Market Price reduction required by this
   clause (iv) with respect to such dividend or distribution shall then be made)
   immediately followed by (2) a dividend or distribution of such shares of
   Common Stock or such rights or warrants (and any further Market Price
   reduction required by clauses (i) and (ii) of this proviso with respect to
   such dividend or distribution shall then be made), except that any shares of
   Common Stock included in such dividend or distribution shall not be deemed
   "outstanding at the close of business on the date fixed for such
   determination" within the meaning of clause (i) of this proviso;

     (v)   The Corporation or any subsidiary of the Corporation shall (x) by
   dividend or otherwise, distribute to all holders of its Common Stock cash in
   (or fix any record date for any such distribution), or (y) repurchase or
   reacquire shares of its Common Stock (other than an Option Share Surrender)
   for, in either case, an aggregate amount that, combined with (1) the
   aggregate amount of any other such distributions to all holders of its Common
   Stock made exclusively in cash after the Issuance Date and within the 12
   months preceding the date of payment of such distribution, and in respect of
   which no adjustment pursuant to this clause (v) has been made, (2) the
   aggregate amount of any cash plus the fair market value (as determined in
   good faith by a resolution of the Board of Directors of the Corporation) of
   consideration paid in respect of any repurchase or other reacquisition by the
   Corporation or any subsidiary of the Corporation of any shares of Common
   Stock (other than an Option Share Surrender) made after the Issuance Date and
   within the 12 months preceding the date of payment of such distribution or
   making of such repurchase or reacquisition, as the case may be, and in
   respect of which no adjustment pursuant to this clause (v) has been made, and
   (3) the aggregate of any cash plus the fair market value (as determined in
   good faith by a resolution of the Board of Directors of the Corporation) of
   consideration payable in respect of any Tender Offer by the Corporation or
   any of its subsidiaries for all or any portion of the Common Stock concluded
   within the 12 months preceding the date of payment of such distribution or
   completion of such repurchase or reacquisition, as the case may be, and in
   respect of which no adjustment pursuant to clause (vi) of this proviso has
   been made (such aggregate amount combined with the amounts in clauses (1),
   (2) and (3) above being the "Combined Amount"), exceeds 10% of the product of
   the Market Price (determined without regard to this proviso) for any day in
   such Measurement Period or such other period which day is prior to the
   earlier of (A) the record date with respect to such distribution and (B) the
   date on which ex-dividend trading in the Common Stock with respect to such
   distribution begins or the date of such repurchase or reacquisition, as the
   case may be, times the number of shares of Common Stock outstanding on such
   date, then, and in each such case, the Market Price for each such day shall
   be reduced so that the same shall equal the price determined by multiplying
   the Market Price (determined without regard to this proviso) for such day by
   a fraction (i) the numerator of which shall be equal to the Market Price
   (determined without regard to this proviso) for such day less an amount equal
   to the quotient of (x) the excess of such Combined Amount over 


                                       8

 
   such 10% and (y) the number of shares of Common Stock outstanding on such day
   and (ii) the denominator of which shall be equal to the Market Price
   (determined without regard to this proviso) for such day; provided, however,
   that in the event the portion of the cash so distributed or paid for the
   repurchase or reacquisition of shares (determined per share based on the
   number of shares of Common Stock outstanding) applicable to one share of
   Common Stock is equal to or greater than the Market Price (determined without
   regard to this clause (v) of this proviso) of the Common Stock for any such
   day, then in lieu of the foregoing adjustment with respect to such day,
   adequate provision shall be made so that the holders of shares of Series A
   Preferred Stock shall have the right to receive upon conversion of shares of
   Series A Preferred Stock the amount of cash the holders of shares of Series A
   Preferred Stock would have received had the holders of shares of Series A
   Preferred Stock converted shares of Series A Preferred Stock immediately
   prior to the record date for such distribution or the payment date of such
   repurchase, as applicable; or

     (vi)  A Tender Offer made by the Corporation or any of its subsidiaries for
   all or any portion of the Common Stock shall expire and such Tender Offer (as
   amended upon the expiration thereof) shall require the payment to
   stockholders (based on the acceptance (up to any maximum specified in the
   terms of the Tender Offer) of Purchased Shares (as defined below)) of an
   aggregate consideration having a fair market value (as determined in good
   faith by resolution of the Board of Directors of the Corporation) that
   combined together with (1) the aggregate of the cash plus the fair market
   value (as determined in good faith by a resolution of the Board of Directors
   of the Corporation), as of the expiration of such Tender Offer, of
   consideration payable in respect of any other Tender Offers, by the
   Corporation or any of its subsidiaries for all or any portion of the Common
   Stock expiring within the 12 months preceding the expiration of such Tender
   Offer and in respect of which no adjustment pursuant to this clause (vi) has
   been made, (2) the aggregate amount of any cash plus the fair market value
   (as determined in good faith by a resolution of the Board of Directors of the
   Corporation) of consideration paid in respect of any repurchase or other
   reacquisition by the Corporation or any subsidiary of the Corporation of any
   shares of Common Stock (other than an Option Share Surrender) made after the
   Issuance Date and within the 12 months preceding the expiration of such
   Tender Offer and in respect of which no adjustment pursuant to clause (v) of
   this proviso has been made, and (3) the aggregate amount of any distributions
   to all holders of Common Stock made exclusively in cash within 12 months
   preceding the expiration of such Tender Offer and in respect of which no
   adjustment pursuant to clause (v) of this proviso has been made, exceeds 10%
   of the product of the Market Price (determined without regard to this
   proviso) for any day in such period times the number of shares of Common
   Stock outstanding on such day, then, and in each such case, the Market Price
   for such day shall be reduced so that the same shall equal the price
   determined by multiplying the Market Price (determined without regard to this
   proviso) for such day by a fraction, the numerator of which shall be the
   number of shares of Common Stock outstanding on such day multiplied by the
   Market Price (determined without regard to this 

                                       9

 
   proviso) for such day and the denominator of which shall be the sum of (x)
   the fair market value (determined as aforesaid) of the aggregate
   consideration payable to stockholders based on the acceptance (up to any
   maximum specified in the terms of the Tender Offer) of all shares validly
   tendered and not withdrawn as of the last time tenders could have been made
   pursuant to such Tender Offer (the "Expiration Time") (the shares deemed so
   accepted, up to any such maximum, being referred to as the "Purchased
   Shares") and (y) the product of the number of shares of Common Stock
   outstanding (less any Purchased Shares) on such day times the Market Price
   (determined without regard to this proviso) of the Common Stock on the
   Trading Day next succeeding the Expiration Time. If the application of this
   clause (vi) to any Tender Offer would result in an increase in the Market
   Price (determined without regard to this proviso) for any trade, no
   adjustment shall be made for such Tender Offer under this clause (vi) for
   such day.

     "Maximum Share Amount" means 3,478,613 shares, (such amount to be subject
to equitable adjustment from time to time on terms reasonably acceptable to the
Majority Holders for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring or
with respect to which "ex-" trading commences after the date of filing this
Statement of Resolution with the Secretary of State of the State of Texas), of
Common Stock, or such greater number as permitted by the rules of the Nasdaq;
provided, however, that if for purposes of Rule 4460(i) of the Nasdaq (or any
successor or replacement provision of any stock exchange or stock market on
which the Common Stock is listed or traded) the (x) the issuance of the Notes
and the issuance of shares of Common Stock upon conversion thereof or (y) the
issuance of the common stock purchase warrants issued in connection with the
issuance of the Notes and the issuance of shares of Common Stock upon exercise
thereof is not required to be integrated with the issuance of the shares of
Series A Convertible Preferred Stock and the issuance of shares of Common Stock
upon conversion thereof, then in each such case the "Maximum Share Amount" shall
mean such greater number as equals the maximum number of shares of Common Stock
permitted by the rules of the Nasdaq (determined by pro rata allocation of any
increase thereof among the shares of Series A Convertible Preferred Stock based
on the number of shares of Series A Convertible Preferred Stock originally
represented by each certificate therefor) (such amount to be subject to
equitable adjustment in terms reasonably acceptable to the Majority Holders from
time to time for stock splits, stock dividends, combinations, capital
reorganizations and similar events relating to the Common Stock occurring after
the date of filing of this Statement of Resolution with the Secretary of State
of the State of Texas).

     "Measurement Period" means, with respect to any date, the period of 25
consecutive Trading Days ending on the Trading Day prior to such date.

     "Nasdaq" means the Nasdaq National Market.

     "Nasdaq SmallCap" means the Nasdaq SmallCap Market.

     "NYSE" means the New York Stock Exchange, Inc.


                                       10

 
     "Option Share Surrender" means the surrender of shares of Common Stock to
the Corporation in payment of the exercise price or tax obligations incurred in
connection with the exercise of a stock option granted by the Corporation to any
of its employees, directors or consultants.

     "Optional Redemption Event" means the occurrence on or before September 4,
2001 of any one of the following events:

     (1)  For so long as the Common Stock is listed for trading on the Nasdaq
   SmallCap, the NYSE or the AMEX, for any period of five consecutive Trading
   Days there shall be no reported sale price of the Common Stock on the Nasdaq,
   the Nasdaq SmallCap, the NYSE or the AMEX;

     (2)  The inability for 45 or more days (whether or not consecutive) of any
   holder of shares of Series A Convertible Preferred Stock to sell shares of
   Common Stock issued or issuable on conversion of shares of Series A
   Convertible Preferred Stock pursuant to the Registration Statement for any
   reason on each of such 45 days;

     (3) The Corporation shall (A) default in the timely performance of the
   obligation to issue shares of Common Stock upon conversion of shares of
   Series A Convertible Preferred Stock as and when required by Section 10 or
   shall default in the timely performance of its obligations under Section
   12(d)(7) or (B) the Corporation shall fail or default in the timely
   performance of any material obligation (other than as specifically set forth
   elsewhere in this definition) to a holder of shares of Series A Convertible
   Preferred Stock under the terms of this Statement of Resolution or under the
   Registration Rights Agreement or any other agreement or document entered into
   in connection with the issuance of shares of Series A Convertible Preferred
   Stock, as such instruments may be amended from time to time and such failure
   or default shall continue for ten business days after notice thereof from any
   holder of shares of Series A Convertible Preferred Stock to the Corporation;

     (4)  Any consolidation or merger of the Corporation with or into another
   entity (other than a merger or consolidation of a subsidiary of the
   Corporation into the Corporation or a wholly-owned subsidiary of the
   Corporation) where the shareholders of the Corporation immediately prior to
   such transaction do not collectively own at least 51% of the outstanding
   voting securities of the surviving corporation of such consolidation or
   merger immediately following such transaction or the common stock of such
   surviving corporation is not listed for trading on the NYSE, the AMEX, the
   Nasdaq or the Nasdaq SmallCap or any sale or other transfer of all or
   substantially all of the assets of the Corporation; or

     (5)  The taking of any action, including any amendment to the Corporation's
   Articles of Incorporation, without the consent of the Majority Holders


                                       11

 
   which materially and adversely affects the rights of any holder of shares of
   Series A Convertible Preferred Stock.

     "Optional Redemption Notice" means a notice from a holder of shares of
Series A Convertible Preferred Stock to the Corporation which states (1) that
the holder delivering such notice is thereby requiring the Corporation to redeem
shares of Series A Convertible Preferred Stock pursuant to Section 11, (2) in
general terms the Optional Redemption Event giving rise to such redemption, and
(3) the number of shares of Series A Convertible Preferred Stock held by such
holder which are to be redeemed.

     "Optional Redemption Price" means the Premium Price on the applicable
redemption date.

     "Parity Dividend Stock" means any class or series or the Corporation's
capital stock ranking, as to dividends, on a parity with the Series A
Convertible Preferred Stock.

     "Parity Liquidation Stock" means any class or series of the Corporation's
capital stock having parity as to liquidation rights with the Series A
Convertible Preferred Stock.

     "Premium Percentage" means 115%.

     "Premium Price" means, for any share of Series A Convertible Preferred
Stock as of any date of determination, the product obtained by multiplying (a)
the sum of (1) the Conversion Amount plus (2) an amount equal to the accrued but
unpaid dividends on such share of Series A Convertible Preferred Stock to the
date of determination, plus (3) an amount equal to the accrued and unpaid
interest on dividends in arrears (as provided in Section 5) to the date of
determination times (b) the Premium Percentage.

     "Redemption Date" means the date of a redemption of shares of Series A
Convertible Preferred Stock pursuant to Section 9(a) determined in accordance
therewith.

     "Redemption Price" means the greater of:

     (1) the Premium Price on the applicable Redemption Date; and

     (2) the Converted Market Price on the applicable Redemption Date; provided,
   however, that if in connection with any determination of the Redemption Price
   the amount specified in clause (y) of the definition of the term Converted
   Market Price is greater than 200% of the Ceiling Price on the date as of
   which such amount is determined, then for purposes of computing the
   Redemption Price in such instance, the amount otherwise specified in clause
   (y) of the definition of the term Converted Market Price shall be reduced by
   20% of the amount by which (A) the amount otherwise specified in clause (y)
   of the definition of the term Converted Market Price exceeds (B) the Ceiling
   Price on the date as of which such amount is determined.



                                       12

 
     "Registration Event" shall mean (1) the Registration Statement is not
effective within 105 days of the Issuance Date, if the Registration Statement is
on Form S-3, or 120 days after the Issuance Date, if the Registration Statement
is on Form S-1, (2) the Company fails to file the Registration Statement with
the SEC within 60 days after the Issuance Date, (3) the Registration Statement
shall cease to be available for use by any holder of shares of Series A
Convertible Preferred Stock who is named therein as a selling stockholder for
any reason (including, without limitation, by reason of an SEC stop order, a
material misstatement or omission in the Registration Statement or the
information contained in the Registration Statement having become outdated);
provided, however, that no Registration Event pursuant to this clause (3) shall
be deemed to occur prior to the SEC Effective Date, or (4) a holder of shares of
Series A Preferred Stock having become unable to convert any shares of Series A
Preferred Stock in accordance with Section 10(a) for any reason (other than by
reason of the 4.9% limitation on beneficial ownership set forth therein or a
redemption or repurchase thereof).

     "Registration Rights Agreement" means the Registration Rights Agreement
entered into between the Corporation and the original holders of the shares of
Series A Convertible Preferred Stock, as amended or modified from time to time
in accordance with their respective terms.

     "Registration Statement" means the Registration Statement required to be
filed by the Corporation with the SEC pursuant to Section 1 of the Registration
Rights Agreement.

     "SEC" means the United States Securities and Exchange Commission.

     "SEC Effective Date" means the date the Registration Statement is first
declared effective by the SEC.

     "Senior Dividend Stock" means any class or series of capital stock of the
Corporation ranking senior as to dividends to the Series A Convertible Preferred
Stock.

     "Senior Liquidation Stock" means any class or series of capital stock of
the Corporation ranking senior as to liquidation rights to the Series A
Convertible Preferred Stock.

     "Series A Convertible Preferred Stock" means the Series A Convertible
Preferred Stock, $.01 par value, of the Corporation.

     "Series D Convertible Preferred Stock" means the Series D Convertible
Preferred Stock, $.01 par value, of the Corporation.

     "Share Limitation Redemption Date" shall mean each date on which the
Corporation is required to redeem shares of Series A Convertible Preferred Stock
as provided in Section 7(a).

     "Share Limitation Redemption Price" means the Premium Price on the
applicable Share Limitation Redemption Date.


                                       13

 
     "Stockholder Approval" shall mean the approval by a majority of the votes
cast by the holders of shares of Common Stock (in person or by proxy) at a
meeting of the stockholders of the Corporation (duly convened at which a quorum
was present), or a written consent of holders of shares of Common Stock entitled
to such number of votes given without a meeting, of the issuance by the
Corporation of 20% or more of the Common Stock of the Corporation outstanding on
the Issuance Date for less than the greater of the book or market value of such
Common Stock on conversion of the Series A Convertible Preferred Stock, as and
to the extent required under Rule 4460(i) of the Nasdaq as in effect from time
to time or any successor provision.

     "Tender Offer" means a tender offer or exchange offer.

     "Trading Day" means a day on whichever of (x) the national securities
exchange, (y) the Nasdaq or (z) the Nasdaq SmallCap which at the time
constitutes the principal securities market for the Common Stock is open for
general trading of securities.

     "Transfer Agent" means American Stock Transfer & Trust Company, or its duly
appointed successor, as transfer agent for the Series A Convertible Preferred
Stock.






                                       14

 
     SECTION 2. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Series A Convertible Preferred Stock", and the number of shares
constituting the Series A Convertible Preferred Stock shall be 2,500, and shall
not be subject to increase.

     SECTION 3. LIMITATION ON ISSUANCE. Of the authorized shares of Series A
Convertible Preferred Stock, 500 shares may be issued only as dividends on the
outstanding shares of Series A Convertible Preferred Stock.

     SECTION 4. RANK. All Series A Convertible Preferred Stock shall rank (i)
senior to the Common Stock, Series C Convertible Preferred Stock and Series D
Convertible Preferred Stock of the Corporation now or hereafter issued, as to
payment of dividends and distribution of assets upon liquidation, dissolution,
or winding up of the Corporation, whether voluntary or involuntary, (ii) junior
to the Series B Senior Convertible Preferred Stock of the Corporation, both as
to payment of dividends and as to distributions of assets upon liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary
and (iii) senior to any additional series of the class of Preferred Stock which
series the Board of Directors may from time to time authorize and any additional
class of preferred stock (or series of preferred stock of such class) which the
Board of Directors or the stockholders may from time to time authorize in
accordance herewith.




                                       15

 
     SECTION 5. DIVIDENDS AND DISTRIBUTIONS. (a) The holders of shares of Series
A Convertible Preferred Stock shall be entitled to receive, when, as, and if
declared by the Board of Directors out of funds legally available for such
purpose, dividends at the rate of $60.00 per annum per share, and no more, which
shall be fully cumulative, shall accrue without interest (except as otherwise
provided herein as to dividends in arrears) from the date of original issuance
of each share of Series A Convertible Preferred Stock and shall be payable
quarterly on February 15, May 15, August 15, and November 15 of each year
commencing November 15, 1998 (except that if any such date is a Saturday,
Sunday, or legal holiday, then such dividend shall be payable on the next
succeeding day that is not a Saturday, Sunday, or legal holiday) to holders of
record as they appear on the stock books of the Corporation on such record
dates, not more than 20 nor less than 10 days preceding the payment dates for
such dividends, as shall be fixed by the Board. Dividends on the Series A
Convertible Preferred Stock shall be paid in cash or, subject to the limitations
in Section 5(b) hereof, Dividend Shares or any combination of cash and Dividend
Shares, at the option of the Corporation as hereinafter provided. The amount of
the dividends payable per share of Series A Convertible Preferred Stock for each
quarterly dividend period shall be computed by dividing the annual dividend
amount by four. The amount of dividends payable for the initial dividend period
and any period shorter than a full quarterly dividend period shall be computed
on the basis of a 360-day year of twelve 30-day months. Dividends not paid on a
payment date, whether or not such dividends have been declared, will bear
interest at the rate of 14% per annum until paid (or such lesser rate as shall
be the maximum rate allowable by applicable law). No dividends or other
distributions, other than the dividends payable solely in shares of any Junior
Dividend Stock, shall be paid or set apart for payment on any shares of Junior
Dividend Stock, and no purchase, redemption, or other acquisition shall be made
by the Corporation of any shares of Junior Dividend Stock (except for Option
Share Surrenders), unless and until all accrued and unpaid dividends on the
Series A Convertible Preferred Stock and interest on dividends in arrears at the
rate specified herein shall have been paid or declared and set apart for
payment.

     If at any time any dividend on any Senior Dividend Stock shall be in
arrears, in whole or in part, no dividend shall be paid or declared and set
apart for payment on the Series A Convertible Preferred Stock unless and until
all accrued and unpaid dividends with respect to the Senior Dividend Stock,
including the full dividends for the then current dividend period, shall have
been paid or declared and set apart for payment, without interest. No full
dividends shall be paid or declared and set apart for payment on any Parity
Dividend Stock for any period unless all accrued but unpaid dividends (and
interest on dividends in arrears at the rate specified herein) have been, or
contemporaneously are, paid or declared and set apart for such payment on the
Series A Convertible Preferred Stock. No full dividends shall be paid or
declared and set apart for payment on the Series A Convertible Preferred Stock
for any period unless all accrued but unpaid dividends have been, or
contemporaneously are, paid or declared and set apart for payment on the Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such full dividends. When dividends are not paid in full upon the
Series A Convertible Preferred Stock and the Parity Dividend Stock, all
dividends paid or declared and set apart for payment upon shares of Series A
Convertible Preferred 


                                      16

 
Stock (and interest on dividends in arrears at the rate specified herein) and
the Parity Dividend Stock shall be paid or declared and set apart for payment
pro rata, so that the amount of dividends paid or declared and set apart for
payment per share on the Series A Convertible Preferred Stock and the Parity
Dividend Stock shall in all cases bear to each other the same ratio that accrued
and unpaid dividends per share on the shares of Series A Convertible Preferred
Stock and the Parity Dividend Stock bear to each other.

     Any references to "distribution" contained in this Section 5 shall not be
deemed to include any stock dividend or distributions made in connection with
any liquidation, dissolution, or winding up of the Corporation, whether
voluntary or involuntary.

     (b) If the Corporation elects in the exercise of its sole discretion to
issue Dividend Shares in payment of dividends on the Series A Convertible
Preferred Stock in respect of any dividend payment date, the Corporation shall
issue and deliver, or cause to be issued and delivered, by the third Trading Day
after such dividend payment date to each holder of shares of Series A
Convertible Preferred Stock a certificate representing the number of whole
Dividend Shares arrived at by dividing (x) the total amount of cash dividends
such holder would be entitled to receive if the aggregate dividends on the
Series A Convertible Preferred Stock held by such holder which are being paid in
Dividend Shares were being paid in cash by (y) $1,000.00; provided, however,
that if certificates representing Dividend Shares are issued and delivered to
holders of Series A Convertible Preferred Stock subsequent to the third Trading
Day after a dividend payment date, the amount so divided into such total amount
of cash dividends will be reduced by $10.00 for each Trading Day after the third
Trading Day following such dividend payment date to the date of delivery of
Dividend Shares. No fractional Dividend Shares shall be issued in payment of
dividends. In lieu thereof, the Corporation shall pay cash in an amount equal to
the balance of such dividend which is not paid in Dividend Shares. The
Corporation shall not exercise its right to issue Dividend Shares in payment of
dividends on Series A Convertible Preferred Stock if:

         (ii)  the number of shares of Series A Convertible Preferred Stock at
     the time authorized, unissued and unreserved for all purposes, or held in
     the Corporation's treasury, is insufficient to permit the conversion of
     such Dividend Shares into shares of Common Stock;

         (iii) the issuance or delivery of Dividend Shares as a dividend payment
     or the issuance of shares of Common Stock upon conversion of such Dividend
     Shares by the holder thereof would require registration with or approval of
     any governmental authority under any law or regulation, and such
     registration or approval has not been effected or obtained or is not in
     effect or the Registration Statement is unavailable for use by such holder
     for the resale of such shares of Common Stock; provided, however, that this
     limitation shall not be deemed to be applicable at any time prior to the
     date which is 105 days after the Issuance Date, if the Registration
     Statement is on Form S-3, or 120 days after the Issuance Date, if the
     Registration Statement is on Form S-1, if this limitation otherwise would
     be applicable solely because the Registration Statement shall not yet have
     been 


                                      17

 
     declared effective, so long as the Corporation shall be in compliance in
     all material respects with its obligations under the Registration Rights
     Agreement;

         (iv)  the shares of Common Stock issuable upon conversion of such
     Dividend Shares have not been authorized for listing, upon official notice
     of issuance, on any securities exchange or market on which the Common Stock
     is then listed; or have not been approved for quotation if the Common Stock
     is traded in the over-the-counter market;

         (v)   the number of shares of Common Stock registered pursuant to
     Section 1 of the Registration Rights Agreement for resale upon issuance
     upon conversion of Dividend Shares shall be sufficient (after taking into
     account the number of shares of Common Stock issued or issuable upon
     conversion of Dividend Shares theretofore issued) to prevent the resale
     pursuant to the Registration Statement of the shares of Common Stock
     issuable upon conversion of such Dividend Shares;

         (vi)  the shares of Common Stock issuable upon conversion of such
     Dividend Shares (A) cannot be sold or transferred without restriction by
     unaffiliated holders who receive such Dividend Shares or (B) are no longer
     listed on any of the NYSE, the AMEX, the Nasdaq or the Nasdaq SmallCap; or

         (vii) an Optional Redemption Event shall have occurred and any holder
     of shares of Series A Convertible Preferred Stock shall have exercised
     optional redemption rights under Section 11 by reason of such Optional
     Redemption Event and the Corporation shall not have paid the Optional
     Redemption Price to each holder.

         Dividend Shares issued in payment of dividends on Series A Convertible
Preferred Stock pursuant to this Section and shares of Common Stock issuable
upon conversion of such Dividend Shares shall be, and for all purposes shall be
deemed to be, validly issued, fully paid and nonassessable shares of the
Corporation; the issuance and delivery thereof is hereby authorized; and the
delivery will be, and for all purposes shall be deemed to be, payment in full of
the cumulative dividends to which holders are entitled on the applicable
dividend payment date.

         (c) Neither the Corporation nor any subsidiary of the Corporation shall
redeem, repurchase or otherwise acquire in any one transaction or series of
related transactions any shares of Common Stock, Junior Dividend Stock or Junior
Liquidation Stock if the number of shares so repurchased, redeemed or otherwise
acquired in such transaction or series of related transactions (excluding any
Option Share Surrender) is more than either (x) 5.0% of the number of shares of
Common Stock, Junior Dividend Stock or Junior Liquidation Stock, as the case may
be, outstanding immediately prior to such transaction or series of related
transactions or (y) 1% of the number of shares of Common Stock, Junior Dividend
Stock or Junior Liquidation Stock, as the case may be, outstanding immediately
prior to such transaction or series of related transactions if such transaction
or series of related transactions is with any one person or group of affiliated



                                       18

 
persons, unless the Corporation or such subsidiary offers to purchase for cash
from each holder of shares of Series A Convertible Preferred Stock at the time
of such redemption, repurchase or acquisition the same percentage of such
holder's shares of Series A Convertible Preferred Stock as the percentage of the
number of outstanding shares of Common Stock, Junior Dividend Stock or Junior
Liquidation Stock, as the case may be, to be so redeemed, repurchased or
acquired at a purchase price per share of Series A Convertible Preferred Stock
equal to the greater of (i) the Premium Price in effect on the date of purchase
pursuant to this Section 5(c) and (ii) the Converted Market Price on the date of
purchase pursuant to this Section 5(c); provided, however, that if in connection
with any determination of the purchase price payable pursuant to this Section
5(c) the amount specified in clause (y) of the definition of the term Converted
Market Price is greater than 200% of the Ceiling Price on the date as of which
such amount is determined, then for purposes of computing the purchase price
payable pursuant to this Section 5(c) in such instance, the amount otherwise
specified in clause (y) of the definition of the term Converted Market Price
shall be reduced by 20% of the amount by which (A) the amount otherwise
specified in clause (y) of the definition of the term Converted Market Price
exceeds (B) the Ceiling Price on the date as of which such amount is determined.

     (d) Neither the Corporation nor any subsidiary of the Corporation shall (1)
make any Tender Offer for outstanding shares of Common Stock, unless the
Corporation contemporaneously therewith makes an offer, or (2) enter into an
agreement regarding a Tender Offer for outstanding shares of Common Stock by any
person other than the Corporation or any subsidiary of the Corporation, unless
such person agrees with the Corporation to make an offer, in either such case to
each holder of outstanding shares of Series A Convertible Preferred Stock to
purchase for cash at the time of purchase in such Tender Offer the same
percentage of shares of Series A Convertible Preferred Stock held by such holder
as the percentage of outstanding shares of Common Stock offered to be purchased
in such Tender Offer at a price per share of Series A Convertible Preferred
Stock equal to the greater of (i) the Premium Price in effect on the date of
purchase pursuant to this Section 5(d) and (ii) the Converted Market Price on
the date of purchase pursuant to this Section 5(d).



                                       19

 
     SECTION 6. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution, or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series A Convertible Preferred Stock shall be entitled to receive
out of the assets of the Corporation, whether such assets constitute stated
capital or surplus of any nature, an amount per share of Series A Convertible
Preferred Stock equal to the Liquidation Preference, and no more, before any
payment shall be made or any assets distributed to the holders of Junior
Liquidation Stock; provided, however, that such rights shall accrue to the
holders of Series A Convertible Preferred Stock only in the event that the
Corporation's payments with respect to the liquidation preference of the holders
of Senior Liquidation Stock are fully met. After the liquidation preferences of
the Senior Liquidation Stock are fully met, the entire assets of the Corporation
available for distribution shall be distributed ratably among the holders of the
Series A Convertible Preferred Stock and any Parity Liquidation Stock in
proportion to the respective preferential amounts to which each is entitled (but
only to the extent of such preferential amounts). After payment in full of the
Liquidation Preference of the shares of Series A Convertible Preferred Stock and
the liquidation preference of the shares of Parity Liquidation Stock, the
holders of such shares shall not be entitled to any further participation in any
distribution of assets by the Corporation. Neither a consolidation or merger of
the Corporation with another corporation nor a sale or transfer of all or part
of the Corporation's assets for cash, securities, or other property in and of
itself will be considered a liquidation, dissolution or winding up of the
Corporation.

     SECTION 7. MANDATORY REDEMPTION.

     (a) MANDATORY REDEMPTION BASED ON MAXIMUM SHARE AMOUNT. (1)
Notwithstanding any other provision herein, unless the Stockholder Approval
shall have been obtained from the stockholders of the Corporation or waived by
the Nasdaq, so long as the Common Stock is listed on the Nasdaq, the Nasdaq
SmallCap, the NYSE or the AMEX, the Corporation shall not be required to issue
upon conversion of shares of Series A Convertible Preferred Stock pursuant to
Section 10 more than the Maximum Share Amount. The Maximum Share Amount shall be
allocated among the shares of Series A Convertible Preferred Stock at the time
of initial issuance thereof pro rata based on the initial issuance of 2,000
shares of Series A Convertible Preferred Stock. Each certificate for shares of
Series A Convertible Preferred Stock initially issued shall bear a notation as
to the number of shares constituting the portion of the Maximum Share Amount
allocated to the shares of Series A Convertible Preferred Stock represented by
such certificate for purposes of conversion thereof. The Corporation shall
maintain records which show the number of shares of Series A Convertible
Preferred Stock issued by the Corporation pursuant to Section 5 as dividends on
the shares of Series A Convertible Preferred Stock represented by each
certificate, which records shall be controlling in the absence of manifest
error. Each such additional share of Series A Convertible Preferred Stock shall
be allocated a portion of the Maximum Share Amount allocated to the shares of
Series A Convertible Preferred Stock in respect of which such additional shares
of Series A Convertible Preferred Stock are issued as a dividend and the
certificate for such additional shares of Series A Convertible Preferred Stock
shall bear a notation as to the certificate number of the share of Series A
Convertible Preferred Stock in respect of which such additional share of Series
A Convertible Preferred Stock is 


                                       20

 
issued as a dividend. Upon surrender of any certificate for shares of Series A
Convertible Preferred Stock for transfer or re-registration thereof (or, at the
option of the holder, for conversion pursuant to Section 10(a) of less than all
of the shares of Series A Convertible Preferred Stock represented thereby), the
Corporation shall make a notation on the new certificate issued upon such
transfer or re-registration or evidencing such unconverted shares, as the case
may be, as to the remaining number of shares of Common Stock from the Maximum
Share Amount remaining available for conversion of the shares of Series A
Convertible Preferred Stock evidenced by such new certificate. If any
certificate for shares of Series A Convertible Preferred Stock is surrendered
for split-up into two or more certificates representing an aggregate number of
shares of Series A Convertible Preferred Stock equal to the number of shares of
Series A Convertible Preferred Stock represented by the certificate so
surrendered (as reduced by any contemporaneous conversion of shares of Series A
Convertible Preferred Stock represented by the certificate so surrendered), each
certificate issued on such split-up shall bear a notation of the portion of the
Maximum Share Amount allocated thereto determined by pro rata allocation from
among the remaining portion of the Maximum Share Amount allocated to the
certificate so surrendered. If any shares of Series A Convertible Preferred
Stock represented by a single certificate are converted in full pursuant to
Section 10, all of the portion of the Maximum Share Amount allocated to such
shares of Series A Convertible Preferred Stock which remains unissued after such
conversion shall be re-allocated pro rata to the outstanding shares of Series A
Convertible Preferred Stock held of record by the holder of record at the close
of business on the date of such conversion of the shares of Series A Convertible
Preferred Stock so converted, and if there shall be no other shares of Series A
Convertible Preferred Stock held of record by such holder at the close of
business on such date, then such portion of the Maximum Share Amount shall be
allocated pro rata among the shares of Series A Convertible Preferred Stock
outstanding on such date.

         (2) The Corporation shall promptly, but in no event later than five
business days after the occurrence, give notice to each holder of shares of
Series A Convertible Preferred Stock (by telephone line facsimile transmission
at such number as such holder has specified in writing to the Corporation for
such purposes or, if such holder shall not have specified any such number, by
overnight courier or first class mail, postage prepaid, at such holder's address
as the same appears on the stock books of the Corporation) and any holder of
shares of Series A Convertible Preferred Stock may at any time after the
occurrence give notice to the Corporation, in either case, if at any time on or
after December 16, 1998 and on or prior to September 4, 2001 on any ten Trading
Days within any period of 20 consecutive Trading Days the Corporation would not
have been required to convert shares of Series A Convertible Preferred Stock of
such holder in accordance with Section 10(a) as a consequence of the limitations
set forth in Section 7(a)(1) had the shares of Series A Convertible Preferred
Stock held by such holder been converted in full into Common Stock on each such
day, determined without regard to the limitation, if any, on such holder
contained in the proviso to the second sentence of Section 10(a) (any such
notice, whether given by the Corporation or a holder, an "Inconvertibility
Notice"). If the Corporation shall have given or been required to give any
Inconvertibility Notice, or if a holder shall have given any Inconvertibility
Notice, then within ten Trading Days after such Inconvertibility Notice is given
or was required


                                       21

 
to be given, the holder receiving or giving, as the case may be, such
Inconvertibility Notice shall have the right by written notice to the
Corporation (which written notice may be contained in the Inconvertibility
Notice given by such holder) to direct the Corporation to redeem the portion of
such holder's outstanding shares of Series A Convertible Preferred Stock (which,
if applicable, shall be all of such holder's outstanding shares of Series A
Convertible Preferred Stock) as shall not, on the business day prior to the date
of such redemption, be convertible into shares of Common Stock by reason of the
limitations set forth in Section 7(a)(1) (determined without regard to the
limitation, if any, on beneficial ownership of Common Stock by such holder
contained in the proviso to the second sentence of Section 10(a)), within ten
business days after such holder so directs the Corporation, at a price per share
equal to the Share Limitation Redemption Price. If a holder of shares of Series
A Convertible Preferred Stock directs the Corporation to redeem outstanding
shares of Series A Convertible Preferred Stock and, prior to the date the
Corporation is required to redeem such shares of Series A Convertible Preferred
Stock, the Corporation would have been able, within the limitations set forth in
Section 7(a)(1), to convert all of such holder's shares of Series A Convertible
Preferred Stock (determined without regard to the limitation, if any, on
beneficial ownership of shares of Common Stock by such holder contained in the
proviso to the second sentence of Section 10(a)) on any ten Trading Days within
any period of 15 consecutive Trading Days commencing after the period of 20
consecutive Trading Days which gave rise to the applicable Inconvertibility
Notice from the Corporation or such holder of shares of Series A Convertible
Preferred Stock, as the case may be, had such holder exercised its right to
convert all of such holder's shares of Series A Convertible Preferred Stock into
Common Stock on each of such ten Trading Days within such 15 Trading Day period,
then the Corporation shall not be required to redeem any shares of Series A
Convertible Preferred Stock by reason of such Inconvertibility Notice.

         (3) Notwithstanding the giving of any Inconvertibility Notice by the
Corporation to the holders of Series A Convertible Preferred Stock pursuant to
Section 7(a)(2) or the giving or the absence of any notice by the holders of the
Series A Convertible Preferred Stock in response thereto or any redemption of
shares of Series A Convertible Preferred Stock pursuant to Section 7(a)(2),
thereafter the provisions of Section 7(a)(2) shall continue to be applicable on
any occasion unless the Stockholder Approval shall have been obtained from the
stockholders of the Corporation or waived by the Nasdaq.

         (4) On each Share Limitation Redemption Date (or such later date as a
holder of shares of Series A Convertible Preferred Stock shall surrender to the
Corporation the certificate(s) for the shares of Series A Convertible Preferred
Stock being redeemed pursuant to this Section 7(a)), the Corporation shall make
payment in immediately available funds of the applicable Share Limitation
Redemption Price to such holder of shares of Series A Convertible Preferred
Stock to be redeemed to or upon the order of such holder as specified by such
holder in writing to the Corporation at least one business day prior to such
Share Limitation Redemption Date. Upon redemption of less than all of the shares
of Series A Convertible Preferred Stock evidenced by a particular certificate,
promptly, but in no event later than three business days after surrender of such
certificate to the Corporation, the Corporation shall issue a replacement
certificate for the

                                       22

 
shares of Series A Convertible Preferred Stock evidenced by such certificate
which have not been redeemed. Only whole shares of Series A Convertible
Preferred Stock may be redeemed.

     (b) NO OTHER MANDATORY REDEMPTION. The shares of Series A Convertible
Preferred Stock shall not be subject to mandatory redemption by the Corporation
except as provided in Section 7(a).

     SECTION 8. NO SINKING FUND. The shares of Series A Convertible Preferred
Stock shall not be subject to the operation of a purchase, retirement or sinking
fund.

     SECTION 9. OPTIONAL REDEMPTION.

     (a) CORPORATION OPTIONAL REDEMPTION. If (1) the Corporation shall be in
compliance in all material respects with its obligations to the holders of
shares of Series A Convertible Preferred Stock (including, without limitation,
its obligations under the Amendment Agreement, the Registration Rights Agreement
and the provisions of this Statement of Resolution), (2) on the date the
Corporation Optional Redemption Notice is given and at all times until the
Redemption Date, the Registration Statement is effective and available for use
by each holder of shares of Series A Convertible Preferred Stock for the resale
of shares of Common Stock acquired by such holder upon conversion of all shares
of Series A Convertible Preferred Stock held by such holder and (3) no Optional
Redemption Event shall have occurred with respect to which, on the date a
Corporation Optional Redemption Notice is given or on the Redemption Date, any
holder of shares of Series A Convertible Preferred Stock shall have exercised
optional redemption rights under Section 11 by reason of such Optional
Redemption Event and the Corporation shall not have paid the Optional Redemption
Price to such holder, then the Corporation shall have the right, exercisable by
giving a Corporation Optional Redemption Notice not less than 30 days or more
than 60 days prior to the Redemption Date to all holders of record of the shares
of Series A Convertible Preferred Stock, at any time to redeem all or from time
to time to redeem any part of the outstanding shares of Series A Convertible
Preferred Stock in accordance with this Section 9(a). If the Corporation shall
redeem less than all outstanding shares of Series A Convertible Preferred Stock,
such redemption shall be made as nearly as practical pro rata from all holders
of shares of Series A Convertible Preferred Stock. Any Corporation Optional
Redemption Notice under this Section 9(a) shall be given to the holders of
record of the shares of Series A Convertible Preferred Stock at their addresses
appearing on the records of the Corporation; provided, however, that any failure
or defect in the giving of such notice to any such holder shall not affect the
validity of notice to or the redemption of shares of Series A Convertible
Preferred Stock of any other holder. On the Redemption Date (or such later date
as a holder of shares of Series A Convertible Preferred Stock surrenders to the
Corporation the certificate(s) for shares of Series A Convertible Preferred
Stock to be redeemed pursuant to this Section 9(a)), the Corporation shall make
payment of the applicable Redemption Price to each holder of shares of Series A
Convertible Preferred Stock to be redeemed in immediately available funds to
such account as specified by such holder in writing to the Corporation at least
one business day prior to the Redemption Date. A


                                      23

 
holder of shares of Series A Convertible Preferred Stock to be redeemed pursuant
to this Section 9(a) shall be entitled to convert such shares of Series A
Convertible Preferred Stock in accordance with Section 10(a) through the day
prior to the Redemption Date and (2) if the Corporation shall fail to pay the
Redemption Price of any share of Series A Convertible Preferred Stock when due,
at any time after the due date thereof until such date as the Corporation pays
the Redemption Price of such share of Series A Convertible Preferred Stock. No
share of Series A Convertible Preferred Stock as to which the holder exercises
the right of conversion pursuant to Section 10 or the optional redemption right
pursuant to Section 11 may be redeemed by the Corporation pursuant to this
Section 9(a) on or after the date of exercise of such conversion right or
optional redemption right, as the case may be, regardless of whether the
Corporation Optional Redemption Notice shall have been given prior to, or on or
after, the date of exercise of such conversion right or optional redemption
right, as the case may be.

     (b) FINAL REDEMPTION. The Corporation shall have the right to redeem all,
but not less than all, outstanding shares of Series A Convertible Preferred
Stock at any time on or after the date which is 1,080 days after the Issuance
Date so long as (1) the Corporation shall be in compliance in all material
respects with its obligations to the holders of the Series A Convertible
Preferred Stock (including, without limitation, its obligations under the
Amendment Agreement, the Registration Rights Agreement and this Statement of
Resolution) and (2) no Optional Redemption Event shall have occurred with
respect to which on the date a Final Redemption Notice is to be given or on the
Final Redemption Date, any holder of shares of Series A Convertible Preferred
Stock shall have exercised optional redemption rights under Section 11 by reason
of such Optional Redemption Event and the Corporation shall not have paid the
Optional Redemption Price to such holder. In order to exercise its rights under
this Section 9(b), the Corporation shall give a Final Redemption Notice not less
than 20 or more than 40 Trading Days prior to the Final Redemption Date to all
holders of record of the shares of Series A Convertible Preferred Stock. Any
Final Redemption Notice shall be given to the holders of record of the shares of
Series A Convertible Preferred Stock by telephone line facsimile transmission to
such number as shown on the records of the Corporation for such purpose;
provided, however, that any failure or defect in the giving of such notice to
any such holder shall not affect the validity of notice to or the redemption of
shares of Series A Convertible Preferred Stock of any other holder. On the Final
Redemption Date (or such later date as a holder of shares of Series A
Convertible Preferred Stock surrenders to the Corporation the certificate(s) for
shares of Series A Convertible Preferred Stock to be redeemed pursuant to this
Section 9(b)), the Corporation shall make payment of the applicable Final
Redemption Price to each holder of shares of Series A Convertible Preferred
Stock to be redeemed in immediately available funds to such account as specified
by such holder in writing to the Corporation at least one business day prior to
the Final Redemption Date. A holder of shares of Series A Convertible Preferred
Stock to be redeemed pursuant to this Section 9(b) shall be entitled to convert
such shares of Series A Convertible Preferred Stock in accordance with Section
10 through the day prior to the Final Redemption Date and (2) if the Corporation
shall fail to pay the Final Redemption Price of any share of Series A
Convertible Preferred Stock when due, at any time after the due date thereof
until such date as the Corporation pays the Final Redemption Price of such share
of Series A


                                      24

 
Convertible Preferred Stock to such holder. No share of Series A Convertible
Preferred Stock as to which a holder exercises the right of conversion pursuant
to Section 10 or the optional redemption right pursuant to Section 11 may be
redeemed by the Corporation pursuant to this Section 9(b) on or after the date
of exercise of such conversion right or optional redemption right, as the case
may be, regardless of whether the Final Redemption Notice shall have been given
prior to, or on or after, the date of exercise of such conversion right or
optional redemption right, as the case may be. So long as during the period from
the Issuance Date through the date the Corporation pays the Final Redemption
Price the Corporation shall not have commenced a voluntary case or other
proceeding, and no person shall have commenced an involuntary case or other
proceeding against the Corporation, in any such case seeking liquidation,
reorganization or other relief with respect to the Corporation or its debts
under any bankruptcy, insolvency, receivership, moratorium, or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian, or other similar official of the Corporation or any
substantial part of the Corporation's property, the Corporation shall not have
consented to any such relief or to the appointment of or taking possession by
any such official in an involuntary case or other proceeding commenced against
it, and the Corporation shall not have made a general assignment for the benefit
of creditors, then the Corporation shall have the right, exercisable by a
statement to such effect in the Final Redemption Notice, to pay the Final
Redemption Price by the issuance to the holders of shares of Series A
Convertible Preferred Stock to be redeemed of shares of Common Stock, valued for
this purpose at the Conversion Price on the Final Redemption Date, in lieu of
payment of cash, so long as all shares of Common Stock to be so issued would, if
issued as dividends on shares of Series A Convertible Preferred Stock, meet the
criteria in clauses (i) through (vi) of Section 5(b).

     (c) NO OTHER OPTIONAL REDEMPTION. The shares of Series A Convertible
Preferred Stock shall not be subject to redemption at the option of the
Corporation except as provided in Sections 9(a) and 9(b).

     SECTION 10. CONVERSION.

     (a) CONVERSION AT OPTION OF HOLDER. The holders of the Series A Convertible
Preferred Stock may at any time on or after the earlier of (x) the SEC Effective
Date and (y) the date which is 90 days after the Issuance Date convert at any
time all or from time to time any part of their shares of Series A Convertible
Preferred Stock into fully paid and nonassessable shares of Common Stock and
such other securities and property as herein provided. Each share of Series A
Convertible Preferred Stock may be converted at the office of the Transfer Agent
or at such other additional office or offices, if any, as the Board of Directors
may designate, into such number of fully paid and nonassessable shares of Common
Stock (calculated as to each conversion to the nearest 1/100th of a share)
determined by dividing (x) the sum of (i) the Conversion Amount, (ii) accrued
but unpaid dividends to the applicable Conversion Date on the share of Series A
Convertible Preferred Stock being converted, and (iii) accrued but unpaid
interest on the dividends on the share of Series A Convertible Preferred Stock
being converted in arrears to the applicable Conversion Date at the rate
provided in Section 5 by (y) the Conversion Price for such Conversion Date (the
"Conversion Rate");


                                      25

 
provided, however, that in no event shall any holder of shares of Series A
Convertible Preferred Stock be entitled to convert any shares of Series A
Convertible Preferred Stock in excess of that number of shares of Series A
Convertible Preferred Stock upon conversion of which the sum of (1) the number
of shares of Common Stock beneficially owned by such holder and all Aggregated
Persons of such holder (other than shares of Common Stock deemed beneficially
owned through the ownership of unconverted shares of Series A Convertible
Preferred Stock) and (2) the number of shares of Common Stock issuable upon the
conversion of the number of shares of Series A Convertible Preferred Stock with
respect to which the determination in this proviso is being made, would result
in beneficial ownership by such holder and all Aggregated Persons of such holder
of more than 4.9% of the outstanding shares of Common Stock. For purposes of the
proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Exchange Act and Regulation
13D-G thereunder, except as otherwise provided in clause (1) of the proviso to
the immediately preceding sentence.

     (b) OTHER PROVISIONS. (1) Notwithstanding anything in this Section 10(b) to
the contrary, no change in the Conversion Amount pursuant to this Section 10(b)
shall actually be made until the cumulative effect of the adjustments called for
by this Section 10(b) since the date of the last change in the Conversion Amount
would change the Conversion Amount by more than 1%. However, once the cumulative
effect would result in such a change, then the Conversion Amount shall actually
be changed to reflect all adjustments called for by this Section 10(b) and not
previously made. Notwithstanding anything in this Section 10(b), no change in
the Conversion Amount shall be made that would result in the price at which a
share of Series A Convertible Preferred Stock is converted being less than the
par value of the Common Stock into which shares of Series A Convertible
Preferred Stock are at the time convertible.

     (2) The holders of shares of Series A Convertible Preferred Stock at the
close of business on the record date for any dividend payment to holders of
Series A Convertible Preferred Stock shall be entitled to receive the dividend
payable on such shares on the corresponding dividend payment date
notwithstanding the conversion thereof after such dividend payment record date
or the Corporation's default in payment of the dividend due on such dividend
payment date; provided, however, that the holder of shares of Series A
Convertible Preferred Stock surrendered for conversion during the period between
the close of business on any record date for a dividend payment and the opening
of business on the corresponding dividend payment date must pay to the
Corporation, within five days after receipt by such holder, an amount equal to
the dividend payable on such shares on such dividend payment date if such
dividend is paid by the Corporation to such holder. A holder of shares of Series
A Convertible Preferred Stock on a record date for a dividend payment who (or
whose transferee) tenders any of such shares for conversion into shares of
Common Stock on or after such dividend payment date will receive the dividend
payable by the Corporation on such shares of Series A Convertible Preferred
Stock on such date, and the converting holder need not make any payment of the
amount of such dividend in connection with such conversion of shares of Series A
Convertible Preferred Stock. Except as provided above, no adjustment shall be
made in respect of cash dividends on Common Stock or Series A Convertible



                                      26

 
Preferred Stock that may be accrued and unpaid at the date of surrender of
shares of Series A Convertible Preferred Stock.

     (3) (A) The right of the holders of Series A Convertible Preferred Stock to
convert their shares shall be exercised by giving (which may be done by
telephone line facsimile transmission) a Conversion Notice to the Transfer
Agent. If a holder of Series A Convertible Preferred Stock elects to convert any
shares of Series A Convertible Preferred Stock in accordance with Section 10(a),
such holder shall not be required to surrender the certificate(s) representing
such shares of Series A Convertible Preferred Stock to the Corporation unless
all of the shares of Series A Convertible Preferred Stock represented thereby
are so converted. Each holder of shares of Series A Convertible Preferred Stock
and the Corporation shall maintain records showing the number of shares so
converted and the dates of such conversions or shall use such other method,
satisfactory to such holder and the Corporation, so as to not require physical
surrender of such certificates upon each such conversion. In the event of any
dispute or discrepancy, such records of the Corporation shall be controlling and
determinative in the absence of manifest error. Notwithstanding the foregoing,
if any shares of Series A Convertible Preferred Stock evidenced by a particular
certificate therefor are converted as aforesaid, the holder of Series A
Convertible Preferred Stock may not transfer the certificate(s) representing
such shares of Series A Convertible Preferred Stock unless such holder first
physically surrenders such certificate(s) to the Corporation, whereupon the
Corporation will forthwith issue and deliver upon the order of such holder of
shares of Series A Convertible Preferred Stock new certificate(s) of like tenor,
registered as such holder of shares of Series A Convertible Preferred Stock
(upon payment by such holder of shares of Series A Convertible Preferred Stock
of any applicable transfer taxes) may request, representing in the aggregate the
remaining number of shares of Series A Convertible Preferred Stock represented
by such certificate(s). Each holder of shares of Series A Convertible Preferred
Stock, by acceptance of a certificate for such shares, acknowledges and agrees
that (1) by reason of the provisions of this paragraph, following conversion of
any shares of Series A Convertible Preferred Stock represented by such
certificate, the number of shares of Series A Convertible Preferred Stock
represented by such certificate may be less than the number of shares stated on
such certificate, and (2) the Corporation may place a legend on the certificates
for shares of Series A Convertible Preferred Stock which refers to or describes
the provisions of this paragraph.

     (B) The Corporation shall pay any transfer tax arising in connection with
any conversion of shares of Series A Convertible Preferred Stock except that the
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery upon conversion of
shares of Common Stock or other securities or property in a name other than that
of the holder of the shares of the Series A Convertible Preferred Stock being
converted, and the Corporation shall not be required to issue or deliver any
such shares or other securities or property unless and until the person or
persons requesting the issuance thereof shall have paid to the Corporation the
amount of any such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid. The number of shares of Common Stock to
be issued upon each conversion of shares of Series A Convertible Preferred Stock
shall be the number set forth in the applicable Conversion Notice which


                                      27

 
number shall be conclusive absent manifest error. The Corporation shall notify a
holder who has given a Conversion Notice of any claim of manifest error within
one Trading Day after such holder gives such Conversion Notice and no such claim
of error shall limit or delay performance of the Corporation's obligation to
issue upon such conversion the number of shares of Common Stock which are not in
dispute. A Conversion Notice shall be deemed for all purposes to be in proper
form unless the Corporation notifies a holder of shares of Series A Convertible
Preferred Stock being converted within one Trading Day after a Conversion Notice
has been given (which notice shall specify all defects in the Conversion Notice)
and any Conversion Notice containing any such defect shall nonetheless be
effective on the date given if the converting holder promptly undertakes to
correct all such defects. If the Corporation shall have notified the Transfer
Agent and such holder of any such manifest error, and the Corporation and such
holder do not agree as to a resolution of such manifest error on or before the
date of such notice by the Corporation of an error in such Conversion Notice,
the Corporation shall on the date such notice is given submit the dispute to
Ernst & Young LLP or another firm of independent public accountants of
recognized national standing (the "Auditors") for determination and shall
instruct the Auditors to resolve such dispute and to notify the Corporation, the
Transfer Agent and such holder within one Trading Day after such dispute is
submitted to the Auditors. Immediately after receipt of timely notice of the
Auditors' determination (but in any event within three Trading Days after the
applicable Conversion Notice is given to the Transfer Agent), the Transfer Agent
shall issue to the converting Holder any additional shares of Common Stock to
which such holder is entitled based on the determination of the Auditors. The
Transfer Agent is authorized and directed to rely on the Auditors'
determination. If the Auditors shall fail to notify the Transfer Agent of their
determination within three Trading Days after the applicable Conversion Notice
is given to the Transfer Agent, then the Transfer Agent shall, within three
Trading Days after receipt of the applicable Conversion Notice, issue to the
converting holder any additional shares of Common Stock to which such Holder is
entitled based on the applicable Conversion Notice.

     (4) The Corporation shall reserve from its authorized, unissued and
otherwise unreserved Common Stock free from preemptive and similar rights
666,667 shares in addition to the 2,000,000 shares of Common Stock previously
reserved for issuance upon conversion of the Series A Convertible Preferred
Stock (such amount to be subject to equitable adjustment from time to time on
terms reasonably acceptable to the Holder for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common
Stock occurring on or after the Issuance Date) to provide for the issuance of
Common Stock upon the conversion in full of the Series A Convertible Preferred
Stock, subject to reduction from time to time by the number of shares of Common
Stock issued on conversion of the Series A Convertible Stock. The Corporation
(and any successor corporation) shall take all action necessary so that a number
of shares of the authorized but unissued Common Stock (or common stock in the
case of any successor corporation) sufficient to provide for the conversion of
the Series A Convertible Preferred Stock outstanding upon the basis hereinbefore
provided are at all times reserved by the Corporation (or any successor
corporation), free from preemptive rights, for such conversion, subject to the
provisions of the next succeeding paragraph. If the Corporation shall issue any
securities or make any change in its capital structure



                                      28

 
which would change the number of shares of Common Stock into which each share of
the Series A Convertible Preferred Stock shall be convertible as herein
provided, the Corporation shall at the same time also make proper provision so
that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Series A Convertible Preferred Stock on the new basis. If at any
time the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all of the outstanding shares of Series A
Convertible Preferred Stock, the Corporation promptly shall seek, and use its
best efforts to obtain and complete, such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.

     (5) In case of any consolidation or merger of the Corporation with any
other corporation (other than a wholly-owned subsidiary of the Corporation) in
which the Corporation is not the surviving corporation, or in case of any sale
or transfer of all or substantially all of the assets of the Corporation, or in
the case of any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property, the Corporation
shall make appropriate provision or cause appropriate provision to be made so
that each holder of shares of Series A Convertible Preferred Stock then
outstanding shall have the right thereafter to convert such shares of Series A
Convertible Preferred Stock into the kind of shares of stock and other
securities and property receivable upon such consolidation, merger, sale,
transfer, or share exchange by a holder of shares of Common Stock into which
such shares of Series A Convertible Preferred Stock could have been converted
immediately prior to the effective date of such consolidation, merger, sale,
transfer, or share exchange and on a basis which preserves the economic benefits
of the conversion rights of the holders of shares of Series A Convertible
Preferred Stock on a basis as nearly as practical as such rights exist hereunder
prior thereto. If, in connection with any such consolidation, merger, sale,
transfer, or share exchange, each holder of shares of Common Stock is entitled
to elect to receive securities, cash, or other assets upon completion of such
transaction, the Corporation shall provide or cause to be provided to each
holder of Series A Convertible Preferred Stock the right to elect the
securities, cash, or other assets into which the Series A Convertible Preferred
Stock held by such holder shall be convertible after completion of any such
transaction on the same terms and subject to the same conditions applicable to
holders of the Common Stock (including, without limitation, notice of the right
to elect, limitations on the period in which such election shall be made, and
the effect of failing to exercise the election). The Corporation shall not
effect any such transaction unless the provisions of this paragraph have been
complied with. The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers, or share exchanges.

     (6) If a holder shall have given a Conversion Notice for shares of Series A
Convertible Preferred Stock, the Corporation shall issue and deliver to such
person certificates for the Common Stock issuable upon such conversion within
three Trading Days after such Conversion Notice is given and the person
converting shall be deemed to be the holder of record of the Common Stock
issuable upon such conversion, and all rights with respect to the shares
surrendered shall forthwith terminate except the


                                       29

 
right to receive the Common Stock or other securities, cash, or other assets as
herein provided. If a holder shall have given a Conversion Notice as provided
herein, the Corporation's obligation to issue and deliver the certificates for
Common Stock shall be absolute and unconditional, irrespective of any action or
inaction by the converting holder to enforce the same, any waiver or consent
with respect to any provision thereof, the recovery of any judgment against any
person or any action to enforce the same, any failure or delay in the
enforcement of any other obligation of the Corporation to such holder, or any
setoff, counterclaim, recoupment, limitation or termination, or any breach or
alleged breach by such holder or any other person of any obligation to the
Corporation or any violation or alleged violation of law by such holder or any
other person, and irrespective of any other circumstance which might otherwise
limit such obligation of the Corporation to the holder in connection with such
conversion. If the Corporation fails to issue and deliver the certificates for
the Common Stock to the holder converting shares of Series A Convertible
Preferred Stock pursuant to the first sentence of this paragraph as and when
required to do so, in addition to any other liabilities the Corporation may have
hereunder and under applicable law (1) the Corporation shall pay or reimburse
such holder on demand for all out-of-pocket expenses including, without
limitation, reasonable fees and expenses of legal counsel incurred by such
holder as a result of such failure, (2) the Conversion Percentage used to
determine the Conversion Price applicable to such conversion shall be reduced by
one percentage point from the Conversion Percentage otherwise used to calculate
the Conversion Price applicable to such conversion or, if such conversion is
based on the Ceiling Price, the Ceiling Price used to determine the Conversion
Price applicable to such conversion shall be reduced by one percentage point
from the amount that the Conversion Price otherwise would have been without
reduction pursuant hereto, in either such case, for each Trading Day after such
third Trading Day until such shares of Common Stock are delivered to such holder
and (3) such holder may by written notice (which may be given by mail, courier,
personal service or telephone line facsimile transmission) or oral notice
(promptly confirmed in writing) given at any time prior to delivery to such
holder of the certificates for the shares of Common Stock issuable upon such
conversion of shares of Series A Convertible Preferred Stock, rescind such
conversion, whereupon such holder shall have the right to convert such shares of
Series A Convertible Preferred Stock thereafter in accordance herewith.

     (7) No fractional shares of Common Stock shall be issued upon conversion of
Series A Convertible Preferred Stock but, in lieu of any fraction of a share of
Common Stock to purchase fractional shares of Common Stock which would otherwise
be issuable in respect of the aggregate number of such shares surrendered for
conversion at one time by the same holder, the Corporation shall pay in cash an
amount equal to the product of (i) the arithmetic average of the Market Price of
one share of Common Stock on the three consecutive Trading Days ending on the
Trading Day immediately preceding the Conversion Date times (ii) such fraction
of a share.

     (8) The Conversion Amount shall be adjusted from time to time under certain
circumstances, subject to the provisions of Section 10(b)(1), as follows:

     (i) In case the Corporation shall issue rights or warrants on a pro rata
basis to all holders of the Common Stock entitling such holders to subscribe for
or


                                       30

 
purchase Common Stock on the record date referred to below at a price per share
less than the Current Price for such record date, then in each such case the
Conversion Amount in effect on such record date shall be adjusted in accordance
with the formula

     C\\1\\ = C x  O + N
                   ------
                   O + N x P
                       -----
                         M
where

     C\\1\\  = the adjusted Conversion Amount

     C       = the current Conversion Amount

     O       = the number of shares of Common Stock outstanding on the record
               date.

     N       = the number of additional shares of Common Stock issuable pursuant
               to the exercise of such rights or warrants.

     P       = the offering price per share of the additional shares (which
               amount shall include amounts received by the Corporation in
               respect of the issuance and the exercise of such rights or
               warrants).

     M       = the Current Price per share of Common Stock on the record date.

Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants. If
any or all such rights or warrants are not so issued or expire or terminate
before being exercised, the Conversion Amount then in effect shall be readjusted
appropriately.

     (ii) In case the Corporation shall, by dividend or otherwise, distribute to
all holders of its Junior Stock (as hereinafter defined) evidences of its
indebtedness or assets (including securities, but excluding any warrants or
subscription rights referred to in subparagraph (i) above and any dividend or
distribution paid in cash out of the retained earnings of the Corporation), then
in each such case the Conversion Amount then in effect shall be adjusted in
accordance with the formula

     C\\1\\ = C x  M  
                 -----
                 M - F

where

     C\\1\\  = the adjusted Conversion Amount

     C       = the current Conversion Amount

     M       = the Current Price per share of Common Stock on the record date
               mentioned below.



                                       31

 
     F   = the aggregate amount of such cash dividend and/or the fair
           market value on the record date of the assets or securities to
           be distributed divided by the number of shares of Common Stock
           outstanding on the record date. The Board of Directors shall
           determine such fair market value, which determination shall be
           conclusive.

Such adjustment shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution.
For purposes of this subparagraph (ii), "Junior Stock" shall include any class
of capital stock ranking junior as to dividends or upon liquidation to the
Series A Convertible Preferred Stock.

          (iii)  All calculations hereunder shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.

          (iv)   If at any time as a result of an adjustment made pursuant to
Section 10(b)(5), the holder of any Series A Convertible Preferred Stock
thereafter surrendered for conversion shall become entitled to receive
securities, cash, or assets other than Common Stock, the number or amount of
such securities or property so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (i) to (iii) above.

          (9)    Except as otherwise provided above in this Section 10, no
adjustment in the Conversion Amount shall be made in respect of any conversion
for share distributions or dividends theretofore declared and paid or payable on
the Common Stock.

          (10)   Whenever the Conversion Amount is adjusted as herein provided,
the Corporation shall send to each holder and each transfer agent, if any, for
the Series A Convertible Preferred Stock and the transfer agent for the Common
Stock, a statement signed by the Chairman of the Board, the President, or any
Vice President of the Corporation and by its Treasurer or its Secretary or an
Assistant Secretary stating the adjusted Conversion Amount determined as
provided in this Section 10, and any adjustment so evidenced, given in good
faith, shall be binding upon all stockholders and upon the Corporation. Whenever
the Conversion Amount is adjusted, the Corporation will give notice by mail to
the holders of record of Series A Convertible Preferred Stock, which notice
shall be made within 15 days after the effective date of such adjustment and
shall state the adjustment and the Conversion Amount. Notwithstanding the
foregoing notice provisions, failure by the Corporation to give such notice or a
defect in such notice shall not affect the binding nature of such corporate
action of the Corporation.

          (11)   Whenever the Corporation shall propose to take any of the
actions specified in Section 10(b)(5) or in subparagraphs (i) or (ii) of Section
10(b)(8) which would result in any adjustment in the Conversion Amount under
this Section 10(b), the Corporation shall cause a notice to be mailed at least
20 days prior to the date on which the books of the Corporation will close or on
which a record will be taken for such action,


                                      32

 
to the holders of record of the outstanding Series A Convertible Preferred Stock
on the date of such notice. Such notice shall specify the action proposed to be
taken by the Corporation and the date as of which holders of record of the
Common Stock shall participate in any such actions or be entitled to exchange
their Common Stock for securities or other property, as the case may be. Failure
by the Corporation to mail the notice or any defect in such notice shall not
affect the validity of the transaction.

     SECTION 11. REDEMPTION AT OPTION OF HOLDERS.

     (a)  REDEMPTION RIGHT. If an Optional Redemption Event occurs, then, in
addition to any other right or remedy of any holder of shares of Series A
Convertible Preferred Stock, each holder of shares of Series A Convertible
Preferred Stock shall have the right, at such holder's option, to require the
Corporation to redeem all of such holder's shares of Series A Convertible
Preferred Stock, or any portion thereof, on the date that is 10 business days
after the date such holder gives the Corporation an Optional Redemption Notice
with respect to such Optional Redemption Event at any time while any of such
holder's shares of Series A Convertible Preferred Stock are outstanding, at a
price equal to the Optional Redemption Price.

     (b)  NOTICES; METHOD OF EXERCISING OPTIONAL REDEMPTION RIGHTS, ETC. (1) On
or before the fifth business day after the occurrence of an Optional Redemption
Event, the Corporation shall give to each holder of outstanding shares of Series
A Convertible Preferred Stock a notice of the occurrence of such Optional
Redemption Event and of the redemption right set forth herein arising as a
result thereof. Such notice from the Corporation shall set forth:

     (i)  the date by which the optional redemption right must be exercised, and

     (ii) a description of the procedure (set forth below) which each such
   holder must follow to exercise such holder's optional redemption right.

No failure of the Corporation to give such notice or defect therein shall limit
the right of any holder of shares of Series A Convertible Preferred Stock to
exercise the optional redemption right or affect the validity of the proceedings
for the redemption of such holder's shares of Series A Convertible Preferred
Stock.

     (2) To exercise its optional redemption right, each holder of outstanding
shares of Series A Convertible Preferred Stock shall deliver to the Corporation
on or before the thirtieth day after the notice required by Section 11(b)(1) is
given to such holder (or if no such notice has been given by the Corporation to
such holder, within forty days after such holder first learns of such Optional
Redemption Event) an Optional Redemption Notice to the Corporation. An Optional
Redemption Notice may be revoked by such holder giving such Optional Redemption
Notice by giving notice of such revocation to the Corporation at any time prior
to the time the Corporation pays the Optional Redemption Price to such holder.



                                       33

 
     (3) If a holder of shares of Series A Convertible Preferred Stock shall
have given an Optional Redemption Notice, on the date which is three business
days after the date such Optional Redemption Notice is given (or such later date
as such holder surrenders such holder's certificates for the shares of Series A
Convertible Preferred Stock redeemed) the Corporation shall make payment in
immediately available funds of the applicable Optional Redemption Price to such
account as specified by such holder in writing to the Corporation at least one
business day prior to the applicable redemption date.

     (c) OTHER. (1) In connection with a redemption pursuant to this Section 11
of less than all of the shares of Series A Convertible Preferred Stock evidenced
by a particular certificate, promptly, but in no event later than three Trading
Days after surrender of such certificate to the Corporation, the Corporation
shall issue and deliver to such holder a replacement certificate for the shares
of Series A Convertible Preferred Stock evidenced by such certificate which have
not been redeemed.

     (2) An Optional Redemption Notice given by a holder of shares of Series A
Convertible Preferred Stock shall be deemed for all purposes to be in proper
form unless the Corporation notifies such holder in writing within three
business days after such Optional Redemption Notice has been given (which notice
shall specify all defects in such Optional Redemption Notice), and any Optional
Redemption Notice containing any such defect shall nonetheless be effective on
the date given if such holder promptly undertakes to correct all such defects.
No such claim of error shall limit or delay performance of the Corporation's
obligation to redeem all shares of Series A Convertible Preferred Stock not in
dispute whether or not such holder makes such undertaking.

     SECTION 12. VOTING RIGHTS; CERTAIN RESTRICTIONS.

     (a) VOTING RIGHTS. Except as otherwise required by law or expressly
provided herein, shares of Series A Convertible Preferred Stock shall not be
entitled to vote on any matter.

     (b) ARTICLES OF INCORPORATION; CERTAIN STOCK. The affirmative vote or
consent of the holders of a majority of the outstanding shares of the Series A
Convertible Preferred Stock, voting separately as a class, will be required for
(1) any amendment, alteration, or repeal, whether by merger or consolidation or
otherwise, of the Corporation's Articles of Incorporation if the amendment,
alteration, or repeal materially and adversely affects the powers, preferences,
or special rights of the Series A Convertible Preferred Stock, or (2) the
creation and issuance of any Senior Dividend Stock or Senior Liquidation Stock;
provided, however, that any increase in the authorized Preferred Stock of the
Corporation or the creation and issuance of any stock which is both Junior
Dividend Stock and Junior Liquidation Stock shall not be deemed to affect
materially and adversely such powers, preferences, or special rights and any
such increase or creation and issuance may be made without any such vote by the
holders of Series A Convertible Preferred Stock except as otherwise required by
law.


                                       34

 
     (c) REPURCHASES OF SERIES A CONVERTIBLE PREFERRED STOCK. The Corporation
shall not repurchase or otherwise acquire any shares of Series A Convertible
Preferred Stock (other than pursuant to Sections 7(a), 9(a), 9(b) or 11) unless
the Corporation offers to repurchase or otherwise acquire simultaneously a pro
rata portion of each holder's shares of Series A Convertible Preferred Stock for
cash at the same price per share.

     (d) OTHER. So long as any shares of Series A Convertible Preferred Stock
are outstanding:

     (1) PAYMENT OF OBLIGATIONS. The Corporation will pay and discharge, and
will cause each subsidiary of the Corporation other than EqualNet Corporation
and EqualNet Wholesale Services, Inc., to the extent not required or permitted
to do so in connection with their respective bankruptcy proceedings, to pay and
discharge, when due all their respective obligations and liabilities which are
material to the Corporation and its subsidiaries taken as a whole, including,
without limitation, tax liabilities, except where the same may be contested in
good faith by appropriate proceedings.

     (2) MAINTENANCE OF PROPERTY; INSURANCE. (A) The Corporation will keep, and
will cause each subsidiary of the Corporation to keep, all material property
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted.

     (B) The Corporation will maintain, and will cause each subsidiary of the
Corporation to maintain, with financially sound and responsible insurance
companies, insurance against loss or damage by fire or other casualty and such
other insurance, including but not limited to, product liability insurance, in
such amounts and covering such risks as is reasonably adequate for the conduct
of their businesses and the value of their properties.

     (3) CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Corporation will
continue, and will cause each subsidiary of the Corporation other than EqualNet
Corporation and EqualNet Wholesale Services, Inc. to continue, to engage in
business of the same general type as conducted by the Corporation and its
operating subsidiaries at the time this Statement of Resolution is filed with
the Secretary of State of the State of Texas, and will preserve, renew and keep
in full force and effect, and will cause each subsidiary of the Corporation
other than EqualNet Corporation and EqualNet Wholesale Services, Inc., to the
extent not required or permitted to do so in connection with their respective
bankruptcy proceedings, to preserve, renew and keep in full force and effect,
their respective corporate existence and their respective material rights,
privileges and franchises necessary or desirable in the normal conduct of
business.

     (4) COMPLIANCE WITH LAWS. The Corporation will comply, and will cause each
subsidiary of the Corporation to comply, in all material respects with all
applicable laws, ordinances, rules, regulations, decisions, orders and
requirements of governmental authorities and courts (including, without
limitation, environmental laws) except (i) where compliance therewith is
contested in good faith by appropriate


                                       35

 
proceedings or (ii) where non-compliance therewith could not reasonably be
expected to have a material adverse effect on the business, condition (financial
or otherwise), operations, performance, properties or prospects of the
Corporation and its subsidiaries, taken as a whole.

     (5) INVESTMENT COMPANY ACT. The Corporation will not be or become an open-
end investment trust, unit investment trust or face-amount certificate company
that is or is required to be registered under Section 8 of the Investment
Company Act of 1940, as amended, or any successor provision.

     (6) TRANSACTIONS WITH AFFILIATES. The Corporation will not, and will not
permit any subsidiary of the Corporation, directly or indirectly, to pay any
funds to or for the account of, make any investment (whether by acquisition of
stock or indebtedness, by loan, advance, transfer of property, guarantee or
other agreement to pay, purchase or service, directly or indirectly, any
indebtedness, or otherwise) in, lease, sell, transfer or otherwise dispose of
any assets, tangible or intangible, to, or participate in, or effect any
transaction in connection with, any joint enterprise or other joint arrangement
with, any Affiliate of the Corporation, except, on terms to the Corporation or
such subsidiary no less favorable than terms that could be obtained by the
Corporation or such subsidiary from a person that is not an Affiliate of the
Corporation, as determined in good faith by the Board of Directors.

     (7) COMPLIANCE. The Corporation shall (a) use its commercially reasonable
best efforts to obtain knowledge of any failure or default by the Corporation in
the timely performance of any material obligation to the holders of the Series A
Convertible Preferred Stock under the terms of this Statement of Resolution, the
Amendment Agreement, the Registration Rights Agreement or any other document or
instrument executed and delivered by the Corporation in connection herewith or
therewith and (b) shall notify the holders of the Series A Convertible Preferred
Stock promptly, but in no event later than three Business Days after the
Corporation first learns of any such failure or default.



                                       36

 
     SECTION 13. OUTSTANDING SHARES. For purposes of this Statement of
Resolution, all shares of Series A Convertible Preferred Stock shall be deemed
outstanding except (i) from the applicable Conversion Date, each share of Series
A Convertible Preferred Stock converted into Common Stock, unless the
Corporation shall default in its obligation to issue and deliver shares of
Common Stock upon such conversion as and when required by Section 10; (ii) from
the date of registration of transfer, all shares of Series A Convertible
Preferred Stock held of record by the Corporation or any subsidiary or Affiliate
of the Corporation (other than any original holder of shares of Series A
Convertible Preferred Stock) and (iii) from the applicable Redemption Date,
Share Limitation Redemption Date, Final Redemption Date or date of redemption
pursuant to Section 11, all shares of Series A Convertible Preferred Stock which
are redeemed or repurchased, so long as in each case the Redemption Price, the
Share Limitation Redemption Price, the Final Redemption Price, the Optional
Redemption Price or other repurchase price, as the case may be, of such shares
of Series A Convertible Preferred Stock shall have been paid by the Corporation
as and when due hereunder.

     SECTION 14. MISCELLANEOUS.

     (a) NOTICES. Any notices required or permitted to be given under the terms
of this Statement of Resolution shall be in writing and shall be sent by mail or
delivered personally (which shall include telephone line facsimile transmission)
or by courier and shall be deemed given five days after being placed in the
mail, if mailed, or upon receipt, if delivered personally or by courier (a) in
the case of the Corporation, addressed to the Corporation at 1250 Wood Branch
Park Drive, Houston, Texas, 77079, Attention: Chief Executive Officer (telephone
line facsimile transmission number (281) 529-4650), or, in the case of any
holder of shares of Series A Convertible Preferred Stock, at such holder's
address or telephone line facsimile transmission number shown on the stock books
maintained by the Corporation with respect to the Series A Convertible Preferred
Stock or such other address as the Corporation shall have provided by notice to
the holders of shares of Series A Convertible Preferred Stock in accordance with
this Section or any holder of shares of Series A Convertible Preferred Stock
shall have provided to the Corporation in accordance with this Section.

     (b) REPLACEMENT OF CERTIFICATES. Upon receipt by the Corporation of
evidence reasonably satisfactory to the Corporation of the ownership of and the
loss, theft, destruction or mutilation of any certificate for shares of Series A
Convertible Preferred Stock and (1) in the case of loss, theft or destruction,
of indemnity from the record holder of the certificate for such shares of Series
A Convertible Preferred Stock reasonably satisfactory in form to the Corporation
(and without the requirement to post any bond or other security) or (2) in the
case of mutilation, upon surrender and cancellation of the certificate for such
shares of Series A Convertible Preferred Stock, the Corporation will execute and
deliver to such holder a new certificate for such shares of Series A Convertible
Preferred Stock without charge to such holder.

     (c) OVERDUE AMOUNTS. Except as otherwise specifically provided in Section 5
with respect to dividends in arrears on the Series A Convertible Preferred  


                                      37

 
Stock, whenever any amount which is due to any holder of shares of Series A
Convertible Preferred Stock is not paid to such holder when due, such amount
shall bear interest at the rate of 14% per annum ( or such other rate as shall
be the maximum rate allowable by applicable law) until paid in full.

     IN WITNESS WHEREOF, the undersigned has executed these Articles of
Amendment as of March __, 1999.


                                       EQUALNET COMMUNICATIONS CORP.

                                       By: /s/ Mitchell H. Bodian
                                           ------------------------------
                                           Mitchell H. Bodian
                                           President and Chief Executive Officer







                                       38

 
                                                                      Annex I
                                                                         to
                                                                     Articles of
                                                                      Amendment


                             NOTICE OF CONVERSION
                                      OF
                     SERIES A CONVERTIBLE PREFERRED STOCK
                                      OF
                         EQUALNET COMMUNICATIONS CORP.


TO:  American Stock Transfer & Trust Company,
       as Transfer Agent and Registrar
     6201 Fifteenth Avenue
     Third Floor
     Brooklyn, New York 11219

     Attention: Mr. Barry Rosenthal

     Facsimile No.: (718) 259-1144


          (1) Pursuant to the terms of the Series A Convertible Preferred Stock
(the "Preferred Stock") of Equalnet Communications Corp., a Texas corporation
(the "Company"), the undersigned hereby elects to convert ________________
shares of the Preferred Stock together with accrued and unpaid dividends thereon
in the amount of $_______________ and interest on dividends in arrears in the
amount of $________________ into shares of Common Stock, $.01 par value (the
"Common Stock"), of the Company, or such other securities into which the
Preferred Stock is currently convertible. Capitalized terms used in this Notice
and not otherwise defined herein have the respective meanings provided in the
Amended Statement of Resolution of the Board of Directors Establishing and
Designating Series A Convertible Preferred Stock and Fixing the Rights and
Preferences of Such Series (the "Amended Statement of Resolution").

          (2) Please issue a certificate or certificates for ________________
shares of Common Stock or other securities into which such number of shares of
Preferred Stock is convertible in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:

         ---------------------                     ---------------------
         Name                                      Name


         ---------------------                     ---------------------
         Address                                   Address


         ---------------------                     ---------------------
         SS or Tax ID Number                       SS or Tax ID Number

 
          (3) The Conversion Date is _______________________. Check and complete
one of the following:



          The undersigned elects to convert based on the Average Market Price of
     the Common Stock. The Market Price of the Common Stock on each of the five
     Trading Days (whether or not consecutive) during the 25 consecutive Trading
     Days preceding the Conversion Date having the lowest Market Prices, and the
     arithmetic average thereof are as follows:

 
           Date                                        Market Price


        ----------                                     ------------------


        ----------                                     ------------------


        ----------                                     ------------------


        ----------                                     ------------------


        ----------                                     ------------------

         Arithmetic Average: $               
                              -----------
                  OR


          The undersigned elects to convert based on the Ceiling Price of the
     Common Stock of $__________ applicable to conversions of Preferred Stock.

     (4) If the shares of Common Stock issuable upon conversion of the Preferred
Stock have not been registered for resale under the Securities Act of 1933, as
amended (the "Act"), and this Notice is submitted prior to the date which is two
years after the Issuance Date, the undersigned represents and warrants that (i)
the shares of Common Stock not so registered are being acquired for the account
of the undersigned for investment, and not with a view to, or for resale in
connection with, the public distribution thereof other than pursuant to
registration under the Act, and that the undersigned has no present intention of
distributing or reselling the shares of Common Stock not so registered other
than pursuant to registration under the Act and (ii) the undersigned is an
"accredited investor" as defined in Regulation D under the Act. The undersigned
further agrees that (A) the shares of Common Stock not so registered shall not
be sold or transferred unless either (i) they first shall have been registered
under the


                                       2

 
Act and applicable state securities laws or (ii) the Company first shall have
been furnished with an opinion of legal counsel reasonably satisfactory to the
Company to the effect that such sale or transfer is exempt from the registration
requirements of the Act and (B) the Company may place a legend on the
certificate(s) for the shares of Common Stock not so registered to that effect
and place a stop-transfer restriction in its records relating to the shares of
Common Stock not so registered.




Date _________________________              ____________________________________
                                            Signature of Holder (Must
                                            be signed exactly as name
                                            appears on the Preferred
                                            Stock Certificate.)







                                      3

 
                                                                         ANNEX E

                         EQUALNET COMMUNICATIONS CORP.
            SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION

     The following historical consolidated financial information of Equalnet has
been derived from its historical consolidated financial statements and should be
read in conjunction with the separate consolidated financial statements and the
notes thereto incorporated in this Proxy Statement by reference.  The historical
information is not necessarily indicative of results to be expected after the
ACMI Acquisition is consummated.  The selected historical consolidated financial
information for Equalnet corresponds to its annual reporting period, which is
the fiscal year ending June 30.



                                               SIX MONTHS
                                            ENDED DECEMBER 31,                             YEAR ENDED JUNE 30,
                                      --------------------------  ------------------------------------------------------------------

                                          1998          1997          1998          1997          1996         1995        1994
                                      ------------  ------------  ------------  ------------  ------------  -----------  -----------

INCOME STATEMENT DATA:
                                                                                                   
 Net Sales..........................  $ 16,010,585  $ 14,808,555  $ 24,876,242  $ 46,588,496  $ 78,354,858  $67,911,405  $35,397,331

 Gross profit.......................    (1,338,748)    3,815,002     2,884,562    12,107,368    16,547,745   13,256,092    6,595,815

 Operating income (loss)............   (12,628,749)   (3,596,517)  (17,123,855)  (10,746,344)   (9,988,379)   2,964,158    1,026,426

 Interest expense...................    (1,334,941)     (785,454)   (1,145,262)    1,022,284       679,745      526,733      140,743

 Income (loss) before income taxes..   (13,945,713)   (4,275,380)  (17,943,388)  (12,635,233)  (11,077,266)   2,871,302    1,769,342
                                                                                                                                    
 Net income (loss)..................   (14,088,371)   (4,275,380)  (17,943,388)  (14,980,544)   (8,417,413)   2,364,245    1,769,342

 Earnings (loss) per common share(1)         (0.73)        (0.68)        (1.64)        (2.46)        (1.40)        0.38         0.27

 Cash dividends per share...........            --            --            --            --            --         0.22         0.61

 
BALANCE SHEET DATA:
 Working capital (deficit)..........   (16,045,188)  (10,232,053)  (13,559,609)   (4,667,109)   (3,161,437)   7,772,366      230,448

 Total assets.......................    37,019,879    12,667,760    27,760,447    19,162,160    34,595,832   39,315,569    9,044,595

 Long-term debt and capital leases,
  net of current portion............     9,140,331             0             0     2,864,058        45,000    1,142,640      512,914

 
Shareholders' equity (deficit)......    (4,414,085)   (5,386,177)    2,957,782    (1,688,539)   12,383,998   20,705,724    1,350,698

 
Book value per share................         (1.00)                      (0.10)

Income (loss) per share from
continuing operations...............         (0.73)                      (1.64)
 
Pro forma book value per share 
after giving effect to 
the ACMI Acquisition................         (0.72)                       0.03
 
Pro forma income (loss) per share 
from continuing operations 
after giving effect to 
the ACMI Acquisition................         (0.67)                      (1.42)
 

 
                                                                         ANNEX F

                                 LIMIT L.L.C.
                                  D/B/A ACMI
                            UNAUDITED BALANCE SHEET
                               DECEMBER 31, 1998

                       ASSETS
Current Assets
     Cash and Cash Equivalents....................          $   17,005
     Accounts Receivable-Non Trade................             203,356
     Inventory-Materials and Debit Cards..........             349,346
     Due From Consultants.........................              31,998
                                                            ----------
Total Current Assets..............................             601,705
 
Fixed Assets
     Furniture, Equipment and Switch..............             513,767
     Less:  Accumulated Depreciation..............            (191,194)
                                                            ----------
     Net Fixed Assets.............................             322,573
 
Other Assets
     Purchased Goodwill Net of Amortization.......             386,371
 
Total Assets......................................          $1,310,649
                                                            ==========
 
                  LIABILITIES AND CAPITAL
 
Current Liabilities...............................                  --
 
Long Term Liabilities
     Note Payable Purchase........................           1,000,000
 
Members' Equity
 
     Members' Equity..............................             310,649
                                                            ----------
 
Total Liabilities and Members' Equity.............          $1,310,649
                                                            ==========

 
                                 LIMIT L.L.C.
                                  D/B/A ACMI
                          UNAUDITED INCOME STATEMENTS
 
 
                                                                                                  PERIOD FROM 
                                                                                               INCEPTION (MARCH 31, 
                                                                         YEAR ENDED                 1997) TO
                                                                      DECEMBER 31, 1998         DECEMBER 31, 1997
                                                                      -----------------         -----------------
                                                                                              
Revenues
     Commissions.........................................                $  133,649                 $  194,606
     Telecard Sales......................................                   806,192                    749,627
     Hospitality.........................................                    17,722                     31,878
     Travel Packs........................................                    83,205                      9,668
     Income Consultants..................................                    45,250                     56,558
     Other Income........................................                     8,283                    240,880
                                                                         ----------                 ----------
Total Revenue............................................                 1,094,301                  1,283,013
Direct Expenses
     Commissions Paid One Plus...........................                    43,003                     70,912
     Commissions Paid Telecards..........................                    68,294                     97,482
     Other Commissions Paid..............................                    11,282                     17,085
     Promotion Bonuses...................................                    97,041                     91,128
     Travel Packs........................................                    43,041                     10,561
     Printing Costs......................................                    69,383                     69,813
     Network Cost........................................                   116,255                    115,394
                                                                         ----------                 ----------
     Total Direct Expenses...............................                   448,299                    472,374
                                                                         ----------                 ----------
Gross Profit.............................................                   646,002                    810,638
Other Expenses
     Advertising.........................................                       553                        602
     Bad Debt Expense....................................                    22,397                     17,584
     Bank Charges........................................                    11,172                     12,568
     Computer Support....................................                     3,727                      1,350
     Contract Labor......................................                     8,026                     12,739
     Dues and Subscriptions..............................                     9,705                      9,228
     Entertainment Expense...............................                     2,190                      8,318
     Equipment Rental....................................                    18,717                     18,440
     Insurance...........................................                    22,318                     23,148
     Legal and Professional..............................                     5,900                      4,631
     Maintenance and Repairs.............................                    22,000                     16,542
     Meeting and Seminars................................                     6,288                      9,342
     Office Supplies and Expense.........................                    11,103                     10,162
     Other Taxes.........................................                       992                      1,077
     Payroll Expenses....................................                    83,131                    134,014
     Payroll Taxes.......................................                    28,455                     50,807
     Postage and Shipping................................                    12,743                     20,252
     Rent................................................                    67,680                     61,741
     Telephone...........................................                    59,948                     32,311
     Travel..............................................                    22,978                     40,488
     Utilities...........................................                    11,686                     11,343
                                                                         ----------                 ----------
Total Other Expenses.....................................                   431,709                    493,678
                                                                         ----------                 ----------
Net Income Before Interest and Depreciation..............                   214,294                    316,961
 
Interest.................................................                    42,000                    114,300
Depreciation.............................................                   100,000                    118,000
                                                                         ----------                 ----------
Net Income...............................................                $   72,294                 $   84,661
                                                                         ==========                 ==========


 
       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
                             RESULTS OF OPERATIONS

GENERAL

  The following discussion contains forward-looking statements regarding ACMI
and its operations within the meaning of the Private Securities Litigation
Reform Act of 1995.  These statements are based on the current plans and
expectations of ACMI and involve risks and uncertainties that could cause actual
future activities and results of operations to be materially different from
those set forth in the forward-looking statements.

RESULTS OF OPERATIONS

  The following table sets forth for the periods indicated selected financial
information expressed as a percentage of revenues.

                                                        Period from
                                                      Inception (March
                                   Year Ended           31, 1997) to
                                December 31, 1998    December 31, 1997
                                -----------------   --------------------
 
Revenues.....................         100.0%                100.0%
Direct expenses..............          41.1                  36.8
Gross profit.................          58.9                  63.2
Other expenses...............          39.5                  37.7
Net income before interest             19.5                  24.8
 and depreciation............
Net income...................           6.6                   6.6

     Year Ended December 31, 1998 Compared to Period From Inception (March 31,
1997) to December 31, 1997

     Revenues. Revenues decreased by $188,712, or 14.7%, from $1,283,013 in the
nine months ended December 31, 1997 to $1,094,301 in the year ended December
31,1998. The decrease in total revenues was primarily attributable to decreases
in revenues from commissions, telecard sales and other income. Commissions
decreased because of ACMI's shift away from 1+ business in late 1997 and early
1998, which was caused by ACMI's inability to control provisioning, billing and
customer service. Equalnet's acquisition of ACMI enables ACMI to reenter this
market. Other revenues decreased because of ACMI's decision to discontinue sales
of its "Virtual Personal Assistant" product.

     Direct Expenses. As a percentage of revenues, direct expenses increased
from 36.8% for the nine months ended December 31, 1997 to 41.1% for the year
ended December 31, 1998. This percentage increase was primarily the result of
increased network costs that are expected to decrease because of the ACMI
Acquisition.

     Other Expenses. As a percentage of revenues, other expenses increased from
37.7% for the nine months ended December 31, 1997 to 39.5% for the year ended
December 31, 1998. 

 
This percentage increase was primarily the result of reduced gross revenues and
fixed overhead costs. Actual other expenses decreased by approximately $62,800.

     Net Income Before Interest and Depreciation. For the reasons described
above, as a percentage of revenues, net income before interest and depreciation
decreased from 24.8% for the nine months ended December 31, 1997 to 19.5% for
the year ended December 31, 1998. We expect net income to increase as a
percentage of revenues because the ACMI Acquisition enables ACMI to sell 1+
service.

     Net Income. As a percentage of revenues, net income did not vary from the
nine months ended December 31, 1997 to the year ended December 31, 1998.

LIQUIDITY AND CAPITAL RESOURCES

     ACMI's principal source of capital is its $1,000,000 note with a bank
lender. The note is currently being restructured to provide for amortization
over a three year period. The management of ACMI is not aware of any trends,
events or uncertainties that are reasonably likely to have a material impact on
ACMI's short-term or long-term liquidity.

 
                               TABLE OF CONTENTS

PROPOSAL 1: TO APPROVE AN AMENDMENT TO THE ARTICLES OF 
     INCORPORATION.....................................................        1

Reasons for the Amendment..............................................        1
                                                                               
Effects of the Amendment...............................................        2
                                                                               
Exchange of Stock Certificates.........................................        3
                                                                               
Federal Income Tax Consequences........................................        4
                                                                               
Required Vote..........................................................        4
                                                                               
Recommendation of the Board of Directors...............................        5
                                                                               
PROPOSAL 2: TO RATIFY THE NOTE ISSUANCE TRANSACTION AND TO                     
     APPROVE THE ISSUANCE OF COMMON STOCK UPON THE CONVERSION..........        6
                                                                               
Background of the Note Issuance Transaction............................        6
                                                                               
The Note Issuance Transaction..........................................        7
                                                                               
Consideration to be Received by Equalnet...............................        7
                                                                               
The Note Purchase Agreement and Note Purchase and Exchange Agreements..        7
                                                                               
The Notes..............................................................        7
                                                                               
Conversion.............................................................        8
                                                                               
Mandatory Redemption...................................................        8
                                                                               
Events of Default......................................................        8
                                                                               
Optional Redemption....................................................        9

The Series D Preferred.................................................       10
                                                                               
Conversion.............................................................       11
                                                                               
Optional Redemption....................................................       11
                                                                               
Final Redemption.......................................................       12
                                                                               
Mandatory Redemption...................................................       12
                                                                               
The Warrants...........................................................       14
                                                                               
The Registration Rights Agreements.....................................       14
                                                                               
The Security Agreement.................................................       14
                                                                               
The Independent Committee of the Board of Directors....................       15
                                                                               
The Fairness Opinion...................................................       15
                                                                               
Use of Consideration...................................................       15
                                                                               
Possible Adverse Consequences of the Note Issuance Transaction.........       15

                                       i

 
Required Vote..........................................................       16
                                                                               
Recommendation of the Board of Directors...............................       16
                                                                               
PROPOSAL 3: TO ELECT FOUR DIRECTORS....................................       17
                                                                               
Director Nominees......................................................       17
                                                                               
Background of Directors and Nominees...................................       18
                                                                               
Committees of the Board of Directors and Meeting Attendance............       19
                                                                               
Compensation of Directors..............................................       20
                                                                               
Required Vote..........................................................       20
                                                                               
Recommendation of the Board of Directors...............................       20

PROPOSAL 4: TO RATIFY THE AMENDMENT OF THE STATEMENT OF 
     RESOLUTION OF THE BOARD OF DIRECTORS WITH RESPECT TO THE 
     SERIES A PREFERRED AND TO APPROVE THE ISSUANCE OF COMMON 
     STOCK UPON THE CONVERSION OF THE SERIES A PREFERRED 
     PURSUANT TO THE TERMS OF THE AMENDED SERIES A STATEMENT 
     OF RESOLUTION.....................................................       21
                                                                               
Reason for Seeking Ratification of the Amendment of the Statement              
     of Resolution of the Board of Directors With Respect to the               
     Series A Preferred and Approval of the Issuance of Common Stock           
     Upon the Conversion of the Series A Preferred.....................       22
                                                                               
Possible Adverse Consequences of the Filing of the Amended Series A            
     Statement of Resolution and the Issuance of Common Stock                  
     Upon the Conversion of the Series A Preferred.....................       22
                                                                               
Required Vote..........................................................       23
                                                                               
Recommendation of the Board of Directors...............................       23
                                                                               
PROPOSAL 5: TO RATIFY THE ACMI ACQUISITION.............................       24
                                                                               
Background of the ACMI Acquisition.....................................       24
                                                                               
Description of ACMI's Business.........................................       24
                                                                               
The ACMI Agreement.....................................................       25
                                                                               
Transaction With Former Director Zane Russell in Connection With               
     the ACMI Acquisition..............................................       28
                                                                               
Reasons for the ACMI Acquisition.......................................       28
                                                                               
Financial Information Regarding Equalnet and ACMI......................       28
                                                                               
Regulatory Filings and Approvals.......................................       29
                                                                               
Possible Adverse Consequences of the ACMI Acquisition..................       29
                                                                               
Required Vote..........................................................       29

                                      ii

 
Recommendation of the Board of Directors...............................       30
                                                                               
PROPOSAL 6: TO RATIFY THE APPOINTMENT OF CERTIFIED INDEPENDENT                 
     PUBLIC ACCOUNTANTS................................................       31
                                                                               
Required Vote..........................................................       31
                                                                               
Recommendation of the Board of Directors...............................       31
                                                                               
EXECUTIVE OFFICERS AND COMPENSATION....................................       32
                                                                               
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION................       32
                                                                               
Base Salary............................................................       33
                                                                               
Annual Incentive Compensation..........................................       33
                                                                               
Stock Incentive Programs...............................................       34
                                                                               
SUMMARY OF COMPENSATION................................................       34
                                                                               
WARRANT AND OPTION GRANTS IN FISCAL 1998...............................       35
                                                                               
PERFORMANCE PRESENTATION...............................................       35
                                                                               
EMPLOYMENT AGREEMENTS..................................................       36
                                                                               
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION............       37
                                                                               
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.........................       37
                                                                               
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.........       41
                                                                               
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE................       45
                                                                               
PROPOSALS FOR NEXT ANNUAL MEETING......................................       45
                                                                               
OTHER MATTERS..........................................................       45
                                                                               
CAUTION AS TO FORWARD-LOOKING STATEMENTS...............................       45
                                                                               
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................       46

                                      iii

 
     An extra section break has been inserted above this paragraph. Do not
delete this section break if you plan to add text after the Table of
Contents/Authorities. Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following the
Table of Contents/Authorities.

 
 
 

                                                                                                           PRELIMINARY COPY
                                                                                                           Please mark your     
                                                                                                           vote as indicated 
                                                                                                           in this example   [X]    
                                                                            
1. APPROVAL OF THE AMENDMENT TO THE       2. RATIFICATION OF THE NOTE ISSUANCE   3. ELECTION OF DIRECTORS
   COMPANY'S ARTICLES OF INCORPORATION       TRANSACTION       
   REGARDING A ONE-FOR-FOUR REVERSE STOCK                                         NOMINEES: Mitchell H. Bodian, Nathan Isaac Prager,
   SPLIT OF THE COMPANY'S COMMON STOCK        FOR       AGAINST       ABSTAIN     C. Keith LaMonda and Ronald J. Salazar
                                              [ ]        [  ]          [ ]        
    FOR     AGAINST    ABSTAIN                                                    FOR all nominees        WITHHOLD AUTHORITY
    [ ]      [ ]         [ ]                                                      listed above            to vote for the following
                                                                                  (except as marked       nominees:
                                                                                  to the contrary)         _______________________
                                                                                                           _______________________
                                                                                  [ ]                      _______________________
                                                                                                           _______________________

4. RATIFICATION OF THE AMENDMENT OF THE   5. RATIFICATION OF THE ACMI ACQUISITION  6. RATIFICATION OF THE APPOINTMENT OF  
   SERIES A STATEMENT OF RESOLUTION AND                                               ERNST & YOUNG LLP AS THE COMPANY'S
   APPROVAL OF THE ISSUANCE OF COMMON         FOR       AGAINST       ABSTAIN         INDEPENDENT CERTIFIED PUBLIC 
   STOCK UPON CONVERSION OF THE SERIES A      [ ]        [  ]          [ ]            ACCOUNTANTS FOR FISCAL YEAR 1999
   PREFERRED PURSUANT TO THE TERMS OF                                   
   THE AMENDED SERIES A STATEMENT OF                                                     FOR       AGAINST       ABSTAIN
   RESOLUTION                                                                            [ ]        [  ]          [ ]   

      FOR       AGAINST       ABSTAIN
      [ ]        [  ]          [ ]   

7. With discretionary authority as to such other matters as      ----              Dated ___________________________, 1999
   may properly come before the meeting.                            |              _______________________________________
                                                                                   Signature
                                                                                   _______________________________________
                                                                                   Signature
 
                                                                                   Note: Please sign exactly as name appears 
                                                                                         hereon. Joint owners should each sign.  
                                                                                         When signing as attorney, executor,
                                                                                         administrator, trustee, or guardian, 
                                                                                         please give full title as such.
- - ------------------------------------------------------------------------------------------------------------------------------------

 
P
 
R
 
O                        EQUALNET COMMUNICATIONS CORP.
              PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
X              FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
                                 May __, 1999
Y
          The undersigned hereby appoints Mitchell H. Bodian and Dean H. Fisher
jointly and severally, as proxies, with full power of substitution and with
discretionary authority, to vote all shares of Common Stock and, if applicable,
Series B Senior Convertible Preferred Stock that the undersigned is entitled to
vote at the Annual Meeting of Stockholders of Equalnet Communications Corp. (the
"Company") to be held on _____________, May __, 1999, in the Equal Access Room
at the Company's headquarters, 1250 Wood Branch Park Drive, Houston, Texas, at
10:00 a.m., or at any adjournment thereof, hereby revoking any proxy heretofore
given.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS INDICATED, THE SHARES WILL BE VOTED "FOR" THE APPROVAL OF AN
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO EFFECT A ONE-FOR-FOUR
REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK, "FOR" THE RATIFICATION OF
CERTAIN TRANSACTIONS THE COMPANY ENTERED INTO IN SEPTEMBER 1998, "FOR" THE
ELECTION OF FOUR DIRECTORS, "FOR" THE RATIFICATION OF THE AMENDMENT OF THE
SERIES A STATEMENT OF RESOLUTION AND THE APPROVAL OF THE ISSUANCE OF COMMON
STOCK UPON CONVERSION OF THE SERIES A PREFERRED PURSUANT TO THE TERMS OF THE
AMENDED SERIES A STATEMENT OF RESOLUTION, "FOR" THE RATIFICATION OF THE
ACQUISITION OF CERTAIN ASSETS OF LIMIT LLC (d/b/a ACMI) BY A WHOLLY OWNED
SUBSIDIARY OF THE COMPANY AND "FOR" THE RATIFICATION OF THE BOARD OF DIRECTORS'
APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS FOR THE COMPANY AND ITS
SUBSIDIARIES FOR FISCAL YEAR 1999.  EACH OF THE PROPOSALS SET FORTH ABOVE IS
BEING MADE BY THE COMPANY.