EXHIBIT 10.39
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER ANY STATE
SECURITIES LAW AND SUCH SECURITIES MAY NOT BE PLEDGED, SOLD, ASSIGNED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT
WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY
BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS.
INCOMNET, INC.
10% CONVERTIBLE SECURED DEBENTURE DUE APRIL 30, 1998
$ up to 185,000 January 20, 1998
FOR VALUE RECEIVED, INCOMNET, INC., a California corporation (the
"Company"), hereby promises to pay collectively to the order of Jeff Rubin,
Alan Cohen and Robert Cohen (the "Original Holder"), or their registered
assigns (collectively with the Original Holder, the "Holder") on April 30,
1998 (the "Maturity Date"), the principal amount of up to One Hundred
Eighty-Five Thousand Dollars ($185,000), or, if less, the aggregate unpaid
principal amount of all sums advanced under this Debenture, plus all accrued
interest thereon. This Convertible Secured Debenture (the "Debenture") has
been issued pursuant to that certain Convertible Debenture and Warrant
Subscription and Security Agreement executed between the Original Holder and
the Company dated as of January 5, 1998 (the "Agreement").
ARTICLE 1 DISBURSEMENT OF PRINCIPAL; INTEREST; METHOD OF PAYMENT; PRE-PAYMENT.
SECTION 1.1 DISBURSEMENT OF PRINCIPAL TO THE COMPANY. Upon the date
hereof, the Holder shall release to the Company One Hundred Thousand Dollars
($100,000) of the principal. Thereafter, the Company may call for the release
of the remaining Eighty-Five Thousand Dollars ($85,000) ("Second Tranche") by
executing the attached schedule hereto and providing the executed schedule to
Jeff Rubin. The Second Tranche shall be released to the Company three (3)
business days after receipt of the executed schedule.
SECTION 1.2 INTEREST RATE. Interest shall accrue at a rate equal to ten
percent (10%) per annum, computed on the basis of a year of three hundred sixty
(360) days for the actual number of days elapsed. After maturity (whether by
acceleration or otherwise, and before as well as after judgment), all unpaid
principal and interest shall bear interest until it is paid at eighteen percent
(18%). All agreements between the Company and the Holder are expressly
limited so that in no contingency or event whatsoever shall the amount paid
or agreed to be paid by the Company for the use, forbearance or detention of
the indebtedness evidenced by this Debenture exceed the maximum amount
permissible under applicable law. If from any circumstance the Holder should
ever receive as interest an amount which would exceed the highest lawful
rate, such amount as would be excessive interest shall be applied to the
reduction of the principal amount owing under this Debenture and not to the
payment of interest.
SECTION 1.3 METHOD OF PAYMENT. This Debenture must be surrendered to the
Company free and clear of any and all claims, liens or encumbrances in order for
the Holder to receive payment of the principal amount hereof. Subject to
Articles 2 and 3 hereof, the Company shall pay the principal of and interest on
this Debenture in United States dollars on the Maturity Date. Payments shall be
subject to withholding (if any) under applicable United States Federal Internal
Revenue Service Regulations. All payments shall be applied first to accrued
interest and then to principal.
SECTION 1.4 REQUIRED PRE-PAYMENT. The Company must repay the Debenture in
full ten (10) days following the sale of assets of the Company from which the
Company nets One Million Dollars ($1,000,000).
ARTICLE 2. CONVERSION.
SECTION 2.1 CONVERSION PRIVILEGE.
(a) Subject to the terms and conditions of this Debenture, the Holder
of this Debenture shall have the right, at any time prior to the Maturity Date,
exercisable at one or more times, at its sole option, to convert all or a
portion of this Debenture, including all accrued interest, into the common
stock, par value $.01 per share ("Common Stock"), of the Company as specified
herein. The number of shares of Common Stock issuable upon the conversion of
this Debenture shall be determined by dividing the principal amount hereof to be
converted by the Conversion Price (as defined in paragraph (b) of this Section
2.1 below) in effect on the conversion date and rounding the result to the next
whole share.
(b) The "Conversion Price" for each conversion shall equal the number
obtained by multiplying .80 by the average Closing Bid Price of the Common Stock
for the five (5) trading days immediately preceding the date of the Company's
receipt of the Holder's Notice of Conversion (as described in Section 2.2) for
such conversion (the foregoing number being hereinafter referred to as the
"Market Price"); PROVIDED, HOWEVER, that in no event shall the Conversion Price
exceed $1.09 per share of Common Stock. For purposes hereof, the "Closing Bid
Price" shall mean the closing bid price on the Nasdaq Small Cap System published
by the Nasdaq Stock Market or if no longer traded on the Nasdaq Small Cap, the
closing bid price on the over-the-counter market or the principal national
securities exchange on which the Common Stock is so traded, and if such closing
bid prices are not available, the mean of the high and low
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prices on the principal national securities exchange, the over-the-counter
market or the Nasdaq Stock Market on which the Common Stock is so traded.
SECTION 2.2 CONVERSION PROCEDURE. To convert this Debenture into
Common Stock the Holder must (a) complete and sign the Notice of Conversion
attached hereto and (b) surrender the Debenture to the Company free and clear
of any and all claims, liens and/or encumbrances. Except as otherwise
provided herein, the date upon which the Company receives the completed
Notice of Conversion (by recognized overnight courier, hand-delivery or
facsimile, followed by hand-delivery or courier delivery within two (2)
business days thereafter) is the Conversion Date, provided that the Company
shall not be required to deliver or cause to be delivered a certificate for
shares of Common Stock unless and until the Company receives the original
Debenture. Within five (5) business days after receipt of the Notice of
Conversion as aforesaid, provided the Company has received the original
Debenture from the Holder, the Company shall deliver or cause to be delivered
a certificate as specified in the Agreement for the number of shares of
Common Stock issuable upon the conversion. The person in whose name the
certificate representing shares of Common Stock is to be registered shall be
treated as a shareholder of record on and after the conversion date. Upon
surrender of a Debenture that is to be converted in part, the Company shall
issue to the Holder a new Debenture equal in principal amount to the
unconverted portion of the Debenture surrendered.
SECTION 2.3 FRACTIONAL SHARES. The Company shall not issue a fractional
share of Common Stock upon the conversion of all or any portion of this
Debenture. Instead, the Company shall round-up any fractional share to the next
whole share.
SECTION 2.4 TAXES ON CONVERSION. The Company shall pay any documentary,
stamp or similar issue or transfer tax due on the issuance of Common Stock upon
the conversion of this Debenture. The Holder, however, shall pay any such tax
which is due because such shares are issued in a name other than its name.
SECTION 2.5 COMPANY TO RESERVE STOCK. The Company shall reserve out of its
authorized but unissued Common Stock for issuance as provided in the Agreement a
sufficient number of shares of Common Stock. All shares of Common Stock which
may be issued upon the conversion hereof shall be fully paid and nonassessable.
SECTION 2.6 RESTRICTIONS ON TRANSFER. This Debenture and the Common Stock
issuable upon the conversion hereof have not been registered under the Act and
have been sold pursuant to an exemption under the Act. The Debenture may not be
pledged, transferred or resold except pursuant to registration under or an
exemption from, the Act. Any shares of Common Stock issued hereunder shall bear
a restrictive legend similar to the legend set forth on the first page hereof.
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ARTICLE 3. SECURITY. This Debenture shall be secured by the assets of
AutoNETWORK, a division of the Company, as provided for in the Agreement, which
security interest shall be in addition to all other rights and remedies granted
to Holder in this Debenture, the Agreement, any other instrument or agreement
relating thereto and any other applicable laws.
ARTICLE 4. CERTAIN PAYMENTS.
SECTION 4.1 REGISTRATION STATEMENT. In the event that the shares of
Common Stock are not included in the Shelf Registration Statement (as defined in
the Agreement) or in the Registration Statement (as defined in the Agreement),
or if registered and freely tradeable shares of Common Stock are not otherwise
made available by the Company to the Holder, this Debenture, or any portion
hereof outstanding on and after the Conversion Date, shall bear interest at a
rate per annum equal to eighteen percent (18%).
SECTION 4.2 FAILURE TO CONVERT. In the event the Company breaches its
obligation to deliver or cause to be delivered certificates for Common Stock
under Section 2.2, the Company shall be required to make payment to the Holder
of this Debenture within five (5) business days after each demand by the Holder,
of an amount equal to One Thousand Dollars ($1,000) per day with respect to each
One Hundred Thousand Dollars ($100,000) principal amount of this Debenture
outstanding during such period as such breach continues.
SECTION 4.3 RIGHTS AND REMEDIES. The rights and remedies provided to the
Holder under Sections 4.1 and 4.2 above shall not limit any other rights and
remedies afforded by law to the Holder.
ARTICLE 5. RECAPITALIZATION, MERGERS, ETC.
SECTION 5.1 RECAPITALIZATION GENERALLY. In case the Company, prior to the
Maturity Date, shall (i) subdivide its outstanding Common Stock (including by
means of a dividend or distribution on the Common Stock payable in Common
Stock), (ii) combine its outstanding Common Stock into a smaller number of
shares, or (iii) issue by capital reorganization or reclassification of its
Common Stock (other than a subdivision or combination of its shares provided for
above, a reorganization, merger, consolidation, or sale of assets provided for
elsewhere in this Article 5, or the issuance of any shares of Common Stock in
connection with the acquisition of assets or the repayment of debt) any shares
of Common Stock of the Company, the Conversion Price in effect thereafter shall
be adjusted so that it shall equal the Market Price as adjusted to the extent
necessary to reflect such action. An adjustment made pursuant to this
subsection shall become effective retroactively immediately after the effective
date in the case of a subdivision, combination or reclassification.
SECTION 5.2 MERGERS. Until this Debenture is paid in full or has been
converted into Common Stock, the Company shall not consolidate or merge into, or
transfer all or substantially
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all of its assets to, any person, unless such person assumes the obligations
of the Company under this Debenture and immediately after such transaction no
Event of Default exists. Any reference herein to the Company shall refer to
such surviving or transferee corporation and the obligations of the Company
shall terminate upon such assumption. If the Company merges or consolidates
with another corporation or sells or transfers all or substantially all of
its assets to another person and the holders of the Common Stock are entitled
to receive stock, securities or property in respect of, or in exchange for,
Common Stock, then, as a condition of such merger, consolidation, sale or
transfer the Company and any such successor, purchaser or transferee shall
amend this Debenture to provide that it may thereafter be converted on the
terms and subject to the conditions set forth above into the stock,
securities or property receivable upon such merger, consolidation, sale or
transfer by a holder of shares of Common Stock into which this Debenture
might have been converted immediately before such merger, consolidation, sale
or transfer. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Article 5 with respect to the rights of
the Holder upon and after such merger, consolidation, sale or transfer to the
end that the provisions of this Article 5 (including adjustment of the
Conversion Price then in effect and the number of shares issuable upon
conversion of this Debenture) shall be applicable after that event as nearly
equivalently as may be practicable. Except as otherwise provided herein, the
Conversion Price shall be the same as the applicable Conversion Price defined
in Article 2 above.
ARTICLE 6. REPORTS.
The Company will mail to the Holder hereof at its address as shown on the
Register (as defined in Section 8.2) a copy of any annual, quarterly or current
report that it files with the Securities and Exchange Commission promptly after
the filing thereof and a copy of any annual, quarterly or other report or proxy
statement that it gives to its shareholders generally at the time such report or
statement is sent to shareholders.
ARTICLE 7. DEFAULTS AND REMEDIES.
SECTION 7.1 EVENTS OF DEFAULT. An "Event of Default" shall be deemed to
have occurred if (a) the Company fails to pay the principal and all accrued
interest thereon on the Maturity Date or upon any earlier date as provided
herein, (b) the Company fails to issue and deliver or cause to be delivered
Common Stock upon conversion, within the time period specified in Section 2.2,
(c) any of the representations or warranties made by the Company herein or in
the Agreement shall be false or misleading, in any material respect, as of the
date made, or (d) the Company breaches any of its agreements contained in the
Agreement or this Debenture.
SECTION 7.2 ACCELERATION. If an Event of Default occurs and is
continuing, the Holder hereof by notice to the Company may declare the
principal, and all interest thereon, of this Debenture to be immediately due and
payable. Upon such declaration, the principal and all
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interest thereon shall be due and payable immediately without presentment,
demand, protest or notice of any kind, all of which are hereby expressly
waived, anything herein or in any note or other instruments contained to the
contrary notwithstanding, and the Holder may immediately, and without
expiration of any period of grace, enforce any and all of the Holder's rights
or remedies afforded by law. The Company expressly waives demand and
presentment for payment, notice of nonpayment, protest, notice of protest,
notice of dishonor, notice of acceleration or intent to accelerate, bringing
of suit and diligence in taking any action to collect amounts called for
hereunder and shall be directly and primarily liable for the payment of all
sums owing and to be owing hereon, regardless of and without any notice,
diligence, act or omission as or with respect to the collection of any amount
called for hereunder and for the payment of all costs and reasonable legal
fees incurred by the Holder in efforts to collect amounts due and payable
hereunder, including, without limitation, the commencement and prosecution of
any lawsuits.
ARTICLE 8. REGISTERED DEBENTURES.
SECTION 8.1 SERIES. This Debenture may be one of a numbered series of
Debentures issued to the Holder and certain other parties and designated as
"Convertible Secured Debentures Due April 30, 1998." Such Debentures are
referred to herein collectively as the "Debentures."
SECTION 8.2 RECORD OWNERSHIP. The Company shall maintain a register of
the holders of the Debentures (the "Register") showing their names and addresses
and the serial numbers and principal amounts of Debentures issued to or
transferred of record by them from time to time. The Register may be maintained
in electronic, magnetic or other form. The Company may treat the person named
as the Holder of this Debenture in the Register as the sole owner of the
Debenture. The Holder of the Debenture is the person exclusively entitled to
receive notifications with respect to the Debenture, convert it into Common
Stock and otherwise exercise all of the rights and powers as the absolute owner
hereof.
SECTION 8.3 REGISTRATION OF TRANSFER. Transfers of this Debenture may be
registered on the books of the Company maintained for such purpose pursuant to
Section 8.2 above (i.e., the Register). Transfers shall be registered when this
Debenture is presented to the Company with a request to register the transfer
hereof and the Debenture is duly endorsed by the Holder, reasonable assurances
are given that the endorsements are genuine and effective, the Company has
received a certificate from the Holder that it owns this Debenture free and
clear of all claims, liens and/or encumbrances, and the Company has received
evidence satisfactory to it that such transfer is rightful and in compliance
with all applicable laws, including tax laws and State and Federal securities
laws. When this Debenture is presented for transfer and duly transferred
hereunder, it shall be canceled and one or more new Debentures showing the
name(s) of the transferee(s) as the Holder(s) thereof shall be issued in lieu
hereof. When this Debenture is presented to the Company with a reasonable
request to exchange it for an equal principal amount of Debentures of other
denominations, the Company shall make such exchange and shall cancel
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this Debenture and issue, in lieu thereof, Debentures having a total
principal amount equal to this Debenture in the denominations requested by
the Holder.
SECTION 8.4 WORN AND LOST DEBENTURES. If this Debenture becomes worn,
defaced or mutilated but is still substantially intact and recognizable, the
Company or its agent may issue a new Debenture in lieu hereof upon its
surrender. Where the Holder of this Debenture claims that the Debenture has
been lost, destroyed or wrongfully taken, the Company shall issue a new
Debenture in place of the original Debenture if the Holder so requests by
written notice to the Company (which notice is actually received by the Company
before it is notified that this Debenture has been acquired by a bona fide
purchaser) and the Holder has delivered to the Company an indemnity bond in such
amount and issued by such surety as the Company deems satisfactory together with
an affidavit of the Holder setting forth the facts concerning such loss,
destruction or wrongful taking and such other information in such form and with
such proof or verification as the Company may request.
ARTICLE 9. NOTICES.
All notices and other communications provided for or permitted hereunder
shall be made in writing by hand delivery, registered first class mail,
overnight courier, or telecopied, initially to the address set forth below, and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Article 9.
All notices to the Company are to be directed to:
INCOMNET, INC.
21031 Ventura Boulevard, # 1100
Woodland Hills, California 91364
Attn: Melvyn Reznick
Telephone: (818) 887-3400
Telecopier: (818) 587-5697
with a copy (which shall not constitute notice) to:
Law Office of Mark J. Richardson
1200 Ocean Avenue, Suite 900
Santa Monica, California 90401
Attn: Mark J. Richardson, Esq.
Telephone: (310) 393-9992
Telecopier: (310) 393-2004
All notices to Holders are to be directed to each Holder as follows:
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c/o Jeff Rubin
111 Deer Run
Roslyn, New York 11577
Telephone: (516) 465-6901
Telecopier: (516) 465-7317
with a copy (which shall not constitute notice) to:
Camhy Karlinsky & Stein LLP
1740 Broadway
New York, New York 10019-4315
Attn: Robert S. Matlin, Esq.
Telephone: (212) 977-6600
Telecopier: (212) 977-8389
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; three (3) business days
after being deposited in the mail, postage prepaid, if mailed; the next business
day after being deposited with an overnight courier, if deposited with a
nationally recognized, overnight courier service; when receipt is acknowledged
if telecopied.
ARTICLE 10. TIMES.
Where this Debenture authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specific hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of this Debenture.
ARTICLE 11. RULES OF CONSTRUCTION.
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in this Debenture are inserted for
convenience of reference only, and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation hereof. Wherever,
in this Debenture, a determination of the Company is required or allowed, such
determination shall be made by a
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majority of the Board of Directors of the Company and if it is made in good
faith, it shall be conclusive and binding upon the Company and the Holder of
this Debenture.
ARTICLE 12. NATURE OF THE OBLIGATION; RANK.
No provision of this Debenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of this
Debenture at the time and place and in the coin or currency, herein prescribed.
This Debenture and all other Debentures now or hereafter issued of similar terms
are direct obligations of the Company. This Debenture ranks equally with all
other Debentures now or hereafter issued under the terms set forth herein.
ARTICLE 13. GOVERNING LAW; JURISDICTION; WAIVER OF SERVICE OF PROCESS.
The validity, terms, performance and enforcement of this Debenture shall
be governed and construed by the provisions hereof and in accordance with the
laws of the State of New York without regard to the laws governing conflicts
of laws. The parties consent to the jurisdiction of the federal and state
courts located in the State of New York, and agree that such courts shall
have the exclusive jurisdiction to resolve any and all disputes that may
arise with respect to this Debenture. The parties also agree that service of
process may be satisfied by the delivery of such process as provided for the
giving of notice pursuant to Article 9 of this Debenture, and such notice
shall constitute good and sufficient service.
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of the
date first written above.
INCOMNET, INC.
By:
-------------------------
Name: Melvyn Reznick
Title: Chairman and CEO
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SCHEDULE
DATE AMOUNT ACKNOWLEDGEMENT
---- ------ ---------------
_______________ $100,000 _______________
_______________ $ _______________
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NOTICE OF CONVERSION
[To be completed and signed only upon conversion of Debenture]
The undersigned, the Holder of this Debenture, hereby irrevocably elects
to exercise the right to convert it into Common Stock, par value $.01 per
share, of Incomnet, Inc. as follows:
[Complete if Dollars ($ )*
less than all ------------------------------------------------------------
of the
principal
amount is to be
converted]
[Signature must ------------------------------------------------------------
be guaranteed (Name of Holder of shares if different than registered
if registered Holder of Debenture)
holder of stock
differs from
registered
Holder of
Debenture]
------------------------------------------------------------
(Address of Holder of shares if different than address of
registered Holder of Debenture)
------------------------------------------------------------
(Social Security or EIN of Holder of shares if different
than Holder of Debenture)
* If the principal amount of the Debenture to be converted is less than the
entire principal amount thereof, a new Debenture for the balance of the
principal amount shall be returned to the Holder of the Debenture. All
notices to be transmitted by hand delivery, facsimile or overnight courier.
Date:-------------- Sign: -------------------------------------------------
(Signature must conform in all respects to name
of Holder shown on face of Debenture)
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ASSIGNMENT OF DEBENTURE
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
- -------------------------------------------------------------------------------
(name, address and SSN or EIN of assignee)
- -------------------------------------------------------------------------------
(amount of Debenture)
of principal amount of the Debenture.
Date:-------------- Sign: -------------------------------------------------
(Signature must conform in all respects to name
of Holder shown on face of Debenture)
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CONVERTIBLE DEBENTURE AND WARRANT SUBSCRIPTION
AND SECURITY AGREEMENT
OF INCOMNET, INC.
THIS CONVERTIBLE DEBENTURE AND WARRANT SUBSCRIPTION AND SECURITY AGREEMENT
(the "Agreement") is made and entered into as of the 5th day of January, 1998,
by and among INCOMNET, INC., a California corporation ("Seller") and JEFF RUBIN,
ALAN COHEN and ROBERT COHEN (collectively, the "Buyer"), providing for the
purchase and sale of up to One Hundred Eighty-Five Thousand Dollars ($185,000)
of certain convertible secured debentures of Seller (the "Debentures"),
convertible into shares (the "Debenture Shares") of the common stock, par value
$.01 per share (the "Common Stock") of Seller, bearing interest at ten percent
(10%) per annum and eighteen thousand (18,000) warrants (the "Warrants") of
Seller, each Warrant entitling Buyer to purchase one share (collectively, the
"Warrant Shares") of Common Stock (the Debenture Shares and the Warrant Shares
being hereinafter collectively referred to as the "Shares"). Seller and Buyers
(collectively, the "Parties") hereby represent and agree as follows:
1. AGREEMENT TO SUBSCRIBE; PURCHASE PRICE.
(i) Buyer hereby subscribes for Debentures having an aggregate
principal amount of up to One Hundred Eighty-Five Thousand Dollars
($185,000) and eighteen thousand (18,000) Warrants. The Debentures shall
be convertible into Shares in accordance with the terms set forth in the
form of Debenture attached as Exhibit A to this Agreement. The Warrants
shall entitle Buyer to purchase Shares in accordance with the terms of the
form of Warrant attached as Exhibit B to this Agreement. In addition,
Seller agrees to reset the exercise price of certain warrants held by Buyer
as provided herein.
(ii) The Debentures shall bear interest at ten percent (10%) per annum
and shall mature on April 30, 1998. Subject to the terms and limitations
contained in the Debentures, the Debentures shall be convertible into
Shares at a price per Share (the "Conversion Price") equal to eighty
percent (80%) of the average closing bid price of the Common Stock on the
Nasdaq SmallCap Market for the five (5) trading days immediately preceding
the date of requested conversion; PROVIDED, HOWEVER, that in no event shall
the Conversion Price exceed $1.09 per share of Common Stock. Subject to
the terms and limitations contained therein, the Warrants shall be
exercisable at any time after Closing. Each Warrant shall entitle the
holder thereof to purchase one Share at the closing bid price of a share of
Common Stock as reported on the Nasdaq SmallCap Market on the date
immediately prior to the date of this Agreement (the "Exercise
Price"); PROVIDED, HOWEVER, that in no event shall the Exercise Price
exceed $1.09 per share of Common Stock.
(iii) Buyer shall pay the aforesaid principal amount as the
purchase price subscribed for by it by check or wire transfer of
immediately available, Federal funds in United States dollars against
counter-delivery of the Debentures and Warrants by Seller.
2. SECURITY INTEREST
To secure timely payment and the due performance of all obligations,
whether now existing or hereafter arising, of Seller to Buyer arising under or
out of or in any way connected with this Agreement and the Debentures, and all
instruments, agreements and documents executed, issued and delivered pursuant
thereto, including, without limitation, the payment in full of the principal of
the Debentures and all accrued interest thereon, and the conversion of the
entire Debentures, all hereinafter collectively referred to as the
"Obligations", Seller hereby assigns, pledges, hypothecates, transfers, sets
over and delivers unto Buyer, and grants to Buyer, a first lien on and security
interest in the Collateral. "Collateral" shall mean all right, title and
interest of Seller in the assets of AutoNETWORK, a division of Seller, whether
now or hereafter existing or now owned or hereafter acquired and wherever
located, of every kind and description, tangible or intangible, including,
without limitation, all goods, equipment, inventory, bank accounts, contracts,
documents, chattel paper, accounts receivable, intellectual property, general
intangibles, claims, books and records pertaining to such Collateral, all
substitutions and replacements therefore, all products and proceeds thereof and
all proceeds of insurance thereon.
3. BUYERS' REPRESENTATIONS AND COVENANTS.
Buyer represents, warrants and covenants to Seller as follows:
(i) This Agreement has been duly authorized, validly executed and
delivered on behalf of Buyer and is a valid and binding agreement of Buyer
enforceable in accordance with its terms, subject to general principles of
equity and of bankruptcy or other laws affecting the enforcement of
creditors' rights;
(ii) Buyer is purchasing the Debentures and Warrants for its own
account for investment purposes only and not with a view towards
distribution. Buyer understands and agrees that it must bear the economic
risks of its investment for an indefinite period of time. Buyer has
received and carefully reviewed copies of the Public Documents (as defined
in Section 4). Buyer understands that the offer and sale of the Debentures
and Warrants are being made only by means of this Agreement. No
representations or warranties have been made to Buyer by Seller, the
officers or directors of Seller, or any agent, employee or affiliate of
any of them, except as specifically set forth herein. Buyer is aware that
the purchase of the Debentures and Warrants involves a high
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degree of risk and that it may sustain, and has the financial ability to
sustain, the loss of its entire investment. Buyer has had the
opportunity to ask questions of, and receive answers satisfactory to it
from, Seller's management regarding Seller. Buyer understands that no
federal or state governmental authority has made any finding or
determination relating to the fairness of an investment in the
Debentures and Warrants and that no federal or state governmental
authority has recommended or endorsed, or will recommend or endorse, the
investment herein. Buyer, in making the decision to purchase the
Debentures and Warrants subscribed for, has relied upon independent
investigation made by it and has not relied on any information or
representations made by third parties. Buyer has significant assets and
upon consummation of the purchase of the Debentures and Warrants will
continue to have significant assets exclusive of the Debentures and
Warrants. Buyer has not been organized for the sole purpose of
acquiring the Debentures and Warrants;
(iii) Buyer is an "accredited investor" within the meaning of Rule
501 promulgated under the Securities Act of 1933, as amended (the
"Securities Act");
(iv) Buyer understands that the Debentures and Warrants are being
offered and sold to it in reliance on specific provisions of federal and
state securities laws and that Seller is relying upon the truth and
accuracy of the representations, warranties, agreements, acknowledgements
and understandings of Buyer set forth herein in order to determine the
applicability of such provisions;
(v) Buyer has not employed any investment banker, broker or finder or
incurred any liability for any brokerage fees, commissions or finder's fees
in connection with the transactions contemplated by this Agreement;
(vi) Buyer understands that neither the Debentures, the Warrants, nor
the Shares have been registered under the Securities Act and therefore it
cannot dispose of any or all of the Debentures, the Warrants or the Shares
unless and until such Debentures, Warrants or Shares, as the case may be,
are subsequently registered under the Securities Act or exemptions from
such registration are available, it being understood that subject to
certain limitations, only the Shares shall be registered by Seller. Buyer
acknowledges that a legend substantially as follows will be placed on the
certificates representing the Debentures, the Warrants and the Shares:
THE SECURITIES REPRESENTED HEREBY ARE RESTRICTED SECURITIES WITHIN THE
MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH SUCH ACT AND THE RULES AND REGULATIONS PROMULGATED
-3-
THEREUNDER AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
THE ISSUER OF THESE SECURITIES WILL NOT TRANSFER SUCH SECURITIES
EXCEPT UPON RECEIPT OF EVIDENCE SATISFACTORY TO THE ISSUER THAT THE
REGISTRATION PROVISIONS OF SUCH ACT HAVE BEEN COMPLIED WITH OR THAT
SUCH REGISTRATION IS NOT REQUIRED AND THAT SUCH TRANSFER WILL NOT
VIOLATE ANY APPLICABLE FEDERAL OR STATE SECURITIES LAWS.
(vii) Buyer acknowledges that the security interest granted hereby
shall terminate when all of the Obligations have been satisfied in full, at
which time Buyer shall execute and deliver to Seller all Uniform Commercial
Code termination statements and similar documents prepared by Seller which
it shall reasonably request to evidence such termination.
4. SELLER'S REPRESENTATIONS AND COVENANTS.
Seller represents, warrants and covenants to Buyer as follows:
(i) Seller has been duly incorporated and is validly existing and in
good standing under the laws of the State of California, with full
corporate power and authority to own, lease and operate its properties and
to conduct its business as currently conducted, and is duly registered and
qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of
its business requires such registration or qualification, except where the
failure to register or qualify is not reasonably anticipated to have a
material adverse effect on the condition (financial or other), business,
properties, net worth or results of operations of Seller and its
subsidiaries taken as a whole;
(ii) Seller has registered shares of its Common Stock pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), is in full compliance with all reporting requirements of
the Exchange Act, and the Common Stock is quoted on the Nasdaq SmallCap
Market (trading symbol ICNT);
(iii) Seller has furnished Buyer with copies of Seller's most
recent Annual Report on Form 10-K filed with the Securities and Exchange
Commission (the "Commission"), all Forms 10-Q and 8-K filed thereafter and
all other filings made with the Commission after the filing of the most
recent Form 10-K (collectively, the "Public Documents"). The Public
Documents at the time of their filing did not include any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements contained therein, in light of the circumstances under
which they were made, not misleading;
-4-
(iv) At the Closing, the Debentures and the Warrants shall be duly
authorized and validly issued, and each of them shall be enforceable in
accordance with their terms (subject to general principles of equity and
bankruptcy, fraudulent conveyance, preference and other laws affecting
creditors' rights generally). The Shares, when issued and delivered upon
conversion of the Debentures or exercise of the Warrants, will be duly and
validly authorized and issued, fully paid and nonassessable, free from all
encumbrances and restrictions other than restrictions on transfer imposed
by applicable securities laws and/or this Agreement, and will not subject
the holders thereof to personal liability by reason of being such holders.
Seller has reserved a sufficient number of shares of Common Stock for
issuance upon conversion of the Debentures and exercise of the Warrants.
There are no preemptive rights of any shareholder of Seller with respect to
the Debentures, the Warrants or the Shares;
(v) This Agreement has been duly authorized, validly executed and
delivered on behalf of Seller and is a valid and binding agreement of
Seller enforceable in accordance with its terms, subject to general
principles of equity and to bankruptcy or other laws affecting the
enforcement of creditors' rights generally, and Seller has full power and
authority to execute and deliver this Agreement and the other agreements
and documents contemplated hereby and to perform its obligations hereunder
and thereunder;
(vi) The execution and delivery of this Agreement (including the grant
of the security interest created hereby), the issuance of the Debentures,
the Warrants and the Shares (upon conversion of the Debentures and the
exercise of the Warrants), and the consummation of the transactions
contemplated by this Agreement by Seller, will not conflict with or result
in a breach of or a default under any of the terms or provisions of,
Seller's certificate of incorporation or By-laws, or of any material
provision of any indenture, mortgage, deed of trust or other material
agreement or instrument to which Seller is a party or by which it or any of
its properties or assets is bound, any material provision of any law,
statute, rule, regulation, or any existing applicable decree, judgment or
order by any court, federal or state regulatory body, administrative
agency, or other governmental body having jurisdiction over Seller, or any
of its properties or assets or will result in the creation or imposition of
any material lien, charge or encumbrance upon any property or assets of
Seller or any of its subsidiaries pursuant to the terms of any agreement or
instrument to which any of them is a party or by which any of them may be
bound or to which any of their property or any of them is subject;
(vii) No authorization, approval, filing with or consent of any
governmental body is required for the issuance and sale of the Debentures,
the Warrants or the Shares (upon conversion of the Debentures or the
exercise of the Warrants) as contemplated by this Agreement, except as may
be required under the securities or blue sky laws of the various states;
-5-
(viii) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending or,
to the actual knowledge of Seller (without inquiry), threatened, against or
affecting Seller, or any of its properties, which would reasonably be
anticipated to result in any material adverse change in the condition
(financial or otherwise) or in the earnings, business affairs, business
prospects, properties or assets of Seller and its subsidiaries, taken as a
whole, except as disclosed in the Public Documents;
(ix) Seller shall issue the Debentures as directed by Buyer. Seller
shall issue the Warrants as directed by Buyer. Upon conversion of the
Debentures or the exercise of the Warrants, Seller will issue one or more
certificates representing the Shares in the name of Buyer, with a legend
(if applicable) substantially in the form specified by Section 3(vi) above,
and in such denominations to be specified by Buyer prior to conversion or
exercise, as the case may be;
(x) Seller has not employed any investment banker, broker or finder
or incurred any liability for any brokerage fees, commissions or finder's
fees in connection with the transactions contemplated by this Agreement;
(xi) Seller has agreed to reimburse Buyer for its legal fees and
expenses of up to Five Thousand Dollars ($5,000). Such amount shall be
deducted from the proceeds of the Debentures;
(xii) Seller grants Buyer, for a period of one hundred eighty
(180) days from the date hereof (the "Period"), a right of first refusal
(the "Right") with respect to any other raising of funds, through the
issuance of equity, debt or a combination thereof (a "Financing"). If
Seller intends to do a Financing, then it shall give notice to Buyer who
shall have twenty-one (21) days from the receipt of the notice to determine
if Buyer shall provide the requested Financing. If Buyer does not provide
the Financing, this shall not waive Buyer's Right with respect to other
proposed Financings during the Period;
(xiii) Seller acknowledges that as of the date hereof there are
one hundred five thousand (105,000) warrants outstanding held by Buyer
(the "Outstanding Warrants") and agrees that the exercise price of such
Outstanding Warrants shall be adjusted as follows: (x) fifty thousand
(50,000) Outstanding Warrants shall be exercisable at an exercise price
of Three Dollars and 50/100 ($3.50) per share; and (y) the remaining
fifty-five thousand (55,000) Outstanding Warrants shall be exercisable
at an exercise price of Two Dollars ($2.00) per share. Seller shall
immediately issue new warrants to Buyer reflecting such adjustment;
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(xiv) AutoNETWORK is a division of Seller, and Seller is the legal
and equitable owner of the Collateral, free and clear of all liens,
encumbrances, restrictions or adverse claims;
(xv) By virtue of the execution and delivery by Seller of this
Agreement, Buyer will obtain a valid, legal and perfected first priority
lien upon and security interest in the Collateral as security for the
repayment of the Obligations to the extent that such lien relates to
collateral in which a security interest can be granted under the Uniform
Commercial Code ("Code") and perfected under the Code by the filing of
financing statements, free and clear of all liens;
(xvi) Seller shall (x) not sell, transfer, assign, pledge,
hypothecate or in any manner terminate, modify or change the terms or
conditions of the Collateral, (y) keep the Collateral free of liens,
security interests and adverse claims, and (z) defend the Collateral
against the claims and demands of all persons;
(xvii) Seller, in its name or in the name of AutoNETWORK or
otherwise, will execute and deliver to Buyer all financing statements and
amendments thereto, and such additional conveyances, assignments,
agreements, instruments and other documents, and do such further acts and
things, as are from time to time reasonably requested by Buyer in order to
perfect and to maintain and protect its security interest in the Collateral
and to enable Buyer to exercise and enforce its rights and remedies
hereunder with respect to the Collateral, and in connection with the
administration and enforcement of this Agreement or in order better to
assure and confirm unto Buyer its rights and remedies hereunder;
(xviii) Seller will permit Buyer or any representative thereof to
inspect any books and records relating to the Collateral upon reasonable
notice and at reasonable times; and
(xix) Seller acknowledges that the security interest granted
hereby shall terminate when all of the Obligations have been paid in full.
5. REGISTRATION.
Seller hereby agrees to amend its current registration statement (the
"Shelf Registration Statement") to include all Shares or, if Seller, at its sole
discretion, determines that such amendment is impracticable, to make available
to Buyer shares of Common Stock registered thereunder which are freely
tradeable. In the event that Seller cannot amend such registration statement or
make available to Buyer shares of Common Stock registered thereunder, it will
file within thirty (30) days from a demand of Buyer, a registration statement
(the "Registration Statement") under the Securities Act on Form S-3, covering
all the Shares. Seller shall use its best efforts to cause the Registration
Statement to become effective within sixty (60) days after the date of filing of
the Registration Statement. The Registration Statement shall be
-7-
a "shelf" registration statement for purposes of Rule 415 under the
Securities Act, and Seller shall maintain its effectiveness until the earlier
of (x) three (3) years from the date the Registration Statement has been
declared effective and (y) the date all the Shares have been sold. In
furtherance of the foregoing, Seller shall, as expeditiously as possible:
(i) before filing a registration statement or prospectus or any
amendments or supplements thereto (x) furnish to one counsel selected by
Buyer copies of all such documents proposed to be filed, and (y) notify
Buyer and such counsel of any stop order issued or threatened by the
Commission and take all reasonable actions required to prevent the entry of
such stop order or to remove it if entered;
(ii) prepare and file with the Commission such amendments and
supplements to any registration statement and the prospectus included
therein as may be necessary to keep such registration statement effective
until the earlier of (x) the date the distribution described in the
Registration Statement is completed and (y) the date all Shares shall
otherwise have been sold (but not before the expiration of the period
referred to in Section 4(3) of the Securities Act and Rule 174 thereunder,
if applicable), and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration
Statement;
(iii) furnish to Buyer and any underwriter of the Shares to be
included in the Registration Statement, copies of such Registration
Statement as filed and each amendment and supplement thereto (in each case
including all exhibits thereto), the prospectus included in such
Registration Statement (including each preliminary prospectus) and such
other documents as Buyer may reasonably request in order to facilitate the
disposition of the Shares owned by Buyer;
(iv) use its reasonable best efforts to register or qualify the Shares
under such other securities or blue sky laws of such jurisdictions as Buyer
or any underwriter of the Shares reasonably requests, and do any and all
other acts which may be reasonably necessary or advisable to enable Buyer
to consummate the disposition in such jurisdictions of the Shares; PROVIDED
that Seller will not be required to (x) qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify but
for this Section 5(iv), (y) subject itself to taxation in any such
jurisdiction, or (z) consent to general service of process in any such
jurisdiction;
(v) use its reasonable best efforts to cause the Shares covered by
such Registration Statement to be registered with or approved by such other
governmental agencies or other authorities as may be necessary by virtue of
the business and operations of Seller to enable Buyer to consummate the
disposition of the Shares;
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(vi) notify Buyer and any underwriter of the Shares, at any time when
a prospectus relating thereto is required to be delivered under the
Securities Act (even if such time is after the period referred to in
Section 5(ii)), of the happening of any event as a result of which the
prospectus included in such Registration Statement contains an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein in light
of the circumstances under which they were made not misleading, and prepare
a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of the Shares, such prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
in light of the circumstances under which they were made not misleading;
(vii) make available for inspection by Buyer, any underwriter
participating in any disposition pursuant to such Registration Statement,
and any attorney, accountant or other agent retained by Buyer or any such
underwriter (collectively, the "Inspectors"), all financial and other
pertinent records and pertinent corporate documents of Seller
(collectively, the "Records"), and cause Seller's officers, directors and
employees to supply all information reasonably requested by any such
Inspector, as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, in connection with such Registration
Statement. Records or other information which Seller determines, in good
faith, to be confidential and which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (x) the
disclosure of such Records or other information is necessary to avoid or
correct a misstatement or omission in the Registration Statement, or (y)
the release of such Records or other information is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction. Buyer
shall, upon learning that disclosure of such Records or other information
is sought in a court of competent jurisdiction, give notice to Seller and
allow Seller, at Seller's expense, to undertake appropriate action to
prevent disclosure of the Records or other information deemed confidential;
(viii) enter into customary agreements (including if the method of
distribution is by means of an underwriting, an underwriting agreement in
customary form) and take such other actions as are reasonably required in
order to expedite or facilitate the disposition of the Shares to be so
included in the Registration Statement; and
(ix) use its reasonable best efforts to cause all the Shares to be
quoted on the Nasdaq SmallCap Market System.
Seller may require Buyer to furnish to Seller such information regarding
the distribution of the Shares as Seller may from time to time reasonably
request in writing. Buyer agrees to timely cooperate with Seller in connection
with the preparation and filing of the Registration Statement and to promptly
furnish to Seller such information regarding Buyer and
-9-
the distribution of the Shares as reasonably requested by Seller. Buyer
represents and warrants that no information furnished in writing to Seller
will contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements contained therein not misleading.
Buyer agrees that, upon receipt of any notice from Seller of the happening
of any event of the kind described in Section 5(vi) hereof, Buyer will forthwith
discontinue disposition of the Shares pursuant to the Registration Statement
until Buyer's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 5(vi) hereof, and, if so directed by Seller, Buyer will
deliver to Seller (at Seller's expense) all copies, other than permanent file
copies then in Buyer's possession, of the prospectus covering the Shares current
at the time of receipt of such notice. In the event Seller shall give any such
notice, Seller shall extend the period during which the Registration Statement
shall be maintained effective pursuant to this Agreement by the number of days
during the period from and including the date of the giving of such notice
pursuant to Section 5(vi) hereof to and including the date when Buyer shall have
received the copies of the supplemented or amended prospectus contemplated by
Section 5(vi) hereof.
6. EXPENSES OF REGISTRATION.
All expenses incurred in connection with the registration of the Shares
contemplated by this Agreement, excluding underwriters' discounts and
commissions and the fees of Buyer's counsel in connection with the registration
process, but including, without limitation, all registration, filing and
qualification fees, word processing, duplicating, printers, and Seller's
accounting fees (including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance), exchange
listing fees or National Association of Securities Dealers fees, messenger and
delivery expenses, all fees and expenses of complying with securities or blue
sky laws and fees and disbursements of counsel for Seller shall be paid by
Seller. Buyer shall bear and pay any underwriting commissions and discounts
applicable to the Shares offered for its account and the fees of its counsel in
connection with any registrations, filings and qualifications made pursuant to
this Agreement.
7. INDEMNIFICATION AND CONTRIBUTION
IN CONNECTION WITH REGISTRATION.
(i) Subject to Buyer's obligation to indemnify Seller as provided in
Section 7(ii), Seller agrees to indemnify, to the full extent permitted by
law, Buyer, its officers, directors, employees, shareholders, attorneys and
agents and each person who controls Buyer (within the meaning of the
Securities Act) against any and all losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of
material fact contained in any Registration Statement, (including any
prospectus or preliminary prospectus constituting a part thereof) or any
amendment thereof or supplement thereto or any omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein (in case of a prospectus or preliminary
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prospectus, in the light of the circumstances under which they were made)
not misleading. Seller will also indemnify any underwriters of the Shares,
their officers and directors and each person who controls such underwriters
(within the meaning of the Securities Act) to the same extent as provided
above with respect to the indemnification of Buyer.
(ii)In connection with any Registration Statement (pursuant to which
the Shares are to be registered), Buyer will furnish promptly to Seller in
writing such information with respect to Buyer as Seller reasonably
requests for use in connection with any such Registration Statement or
amendment thereof or supplement thereto and agrees to indemnify, to the
extent permitted by law, Seller, its officers, directors, employees,
shareholders, attorneys and agents and each person who controls Seller
(within the meaning of the Securities Act) against any and all losses,
claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of material fact or any omission or alleged
omission of a material fact required to be stated in the Registration
Statement, (including the prospectus or preliminary prospectus constituting
a part thereof) or any amendment thereof or supplement thereto or necessary
to make the statements therein (in the case of a prospectus or preliminary
prospectus, in the light of the circumstances under which they were made)
not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information with respect to Buyer
furnished or required to be furnished by Buyer. Notwithstanding the
foregoing, the liability of Buyer under this Section 7(ii) shall be limited
to an amount equal to the gross proceeds of the Shares sold by Buyer under
the Registration Statement, unless such liability arises out of or is based
on the gross negligence and/or willful misconduct of Buyer.
(iii) Any person entitled to indemnification hereunder agrees to
give prompt written notice to the indemnifying party after the receipt by
such person of any written notice of the commencement of any action, suit,
proceeding or investigation for which such person will or may claim
indemnification or contribution pursuant to this Agreement and, unless in
the reasonable judgment of such indemnified party, a conflict of interest
may exist between such indemnified party and the indemnifying party with
respect to such claim, permit the indemnifying party to assume the defense
of such claims with counsel reasonably satisfactory to such indemnified
party. Whether or not such defense is assumed by the indemnifying party,
the indemnifying party will not be subject to any liability for any
settlement made without its consent (but such consent will not be
unreasonably withheld and/or delayed). Failure by such person to provide
said notice to the indemnifying party shall in and of itself not create
liability except to the extent of any injury directly resulting therefrom.
No indemnifying party will consent to entry of any judgment or enter into
any settlement which does not include, as an unconditional term thereof,
the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect of such claim or litigation. If the
indemnifying party is not entitled to, or elects not to,
-11-
assume the defense of a claim, it will not be obligated to pay the fees
and expenses of more than one counsel with respect to such claim, unless
in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other such
indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of
such additional counsel or counsels.
(iv) If, for any reason, the indemnity provided for in this Section 7
is unavailable to, or is insufficient to hold harmless, an indemnified
party, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims,
damages, liabilities or expenses (x) in such proportion as is appropriate
to reflect the relative benefits received by the indemnifying party on the
one hand and the indemnified party on the other, or (y) if the allocation
provided by clause (x) above is not permitted by applicable law, or
provides a lesser sum to the indemnified party than the amount hereinafter
calculated, in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnifying party on the one hand and
the indemnified party on the other but also the relative fault of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied
(or required to be supplied) by, such indemnifying party or indemnified
parties, and the Parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such action. The amount paid or
payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the
limitations set forth in Section 7(iii), any legal or other fees or
expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The Parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 7(iv) were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
If indemnification is available under this Section 7, the
indemnifying parties shall indemnify each indemnified party to the full
extent provided in Sections 7(i) and (ii) without regard to the relative
fault of said indemnifying party or indemnified party or any other
equitable consideration provided for in this Section 7.
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(v) The provisions of this Section 7 shall survive any termination of
this Agreement.
8. REMEDIES IN CASE OF EVENT OF DEFAULT.
Upon the occurrence and during the continuance of an Event of Default (as
defined in the Debenture), whether or not all of the Obligations shall have
become due and payable, in addition to its rights under the Debenture:
(i) Buyer shall have all of the rights and remedies with respect to
the Collateral of a secured party under the Code as in effect in the State
of New York (whether or not said Code is in effect in the jurisdiction
where the rights and remedies are asserted) and such additional rights and
remedies to which a secured party is entitled under the laws in effect in
any jurisdiction where any rights and remedies hereunder may be asserted
(and Seller agrees at its sole expense to take all such action as may be
necessary, appropriate or requested by Buyer to give effect to such right);
(ii) Buyer in its discretion may, in its name or in the name of Seller
or AutoNETWORK or otherwise, demand, sue for, collect or receive any money
or property at any time payable or receivable on account of or in exchange
for any of the Collateral, but shall be under no obligation to do so;
(iii) Buyer may, upon ten (10) days' prior written notice to
Seller, with respect to the Collateral or any part thereof which shall then
be or shall thereafter come into the possession, custody or control of
Buyer, sell, lease, assign or otherwise dispose of all or part of such
Collateral, at such place or places as Buyer deems best, and for cash or
for credit or for future delivery (without thereby assuming any credit
risk), at public or private sale, without demand of performance or notice
of intention to effect any such disposition or of the time or place thereof
(except such notice as is required above or by applicable statute and
cannot be waived), and Buyer or anyone else may be the purchaser, lessee,
assignee or recipient of any or all of the Collateral so disposed of at any
public sale (or, to the extent permitted by law, at any private sale) and
thereafter hold the same absolutely, free from any claim or right of
whatsoever kind, including any right or equity of redemption (statutory or
otherwise) of Seller, any such demand, notice and right or equity being
hereby expressly waived and released. Buyer may, without notice or
publication, adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place fixed for
the sale, and such sale may be made at any time or place to which the sale
may be so adjourned. Seller shall remain liable for any deficiency if the
proceeds of any sale or disposition of the Collateral are insufficient to
pay all amounts to which Buyer is entitled;
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(iv) Except as otherwise provided herein, Seller hereby appoints Jeff
Rubin ("Rubin") the attorney-in-fact of Seller, and Rubin hereby accepts
such appointment, which appointment is irrevocable and coupled with an
interest, for the purposes of carrying out the provisions of this Agreement
or taking any action or executing any instrument which Rubin may deem
necessary or advisable to accomplish the purposes hereof; and
(v) The proceeds of any sale of Collateral pursuant to Section 8(iii)
hereof, as well as any Collateral consisting of cash, shall be applied by
Rubin in the following order of priority with respect to an Event of
Default:
FIRST, to the extent not theretofore paid, to pay all fees, costs
and expenses of Rubin incurred in connection with the performance of
his duties hereunder, including reasonable attorneys' fees and
expenses and all costs and expenses incurred by Rubin in connection
with his entering upon, taking possession of, holding, operating,
managing, selling or otherwise disposing of the Collateral or any part
thereof, any and all taxes, assessments or other charges of any kind
pertaining to any lien on any Collateral which Rubin has determined in
good faith to pay or which Rubin has paid pursuant to directions of
Buyer;
SECOND, to the payment in full of all unpaid interest on the
Debentures PRO RATA among the holders thereof in accordance with the
principal amount of outstanding Debentures held by them;
THIRD, to the payment in full of the unpaid principal amount of
the Debentures PRO RATA among the holders thereof in accordance with
the principal amount of outstanding Debentures held by them;
FOURTH, to the payment in full of all other Obligations (other
than those referred to above), PRO RATA among the Buyers in accordance
with the aggregate amount of the Obligations owing to such Buyers; and
FIFTH, the balance, if any, to Seller or such other person or
persons as are entitled thereto.
9. TRANSFER OF RIGHTS AND OBLIGATIONS.
The rights and obligations of Buyer under this Agreement (including the
registration rights with respect to the Shares) may be assigned to any person;
PROVIDED that such transfer may otherwise be effected in accordance with
applicable securities laws; PROVIDED FURTHER, that Buyer shall give Seller
written notice at or prior to the time of such transfer stating the name and
address of the transferee and identifying the securities with respect to which
the rights under this Agreement are being transferred; PROVIDED FURTHER, that
such transferee shall agree in writing, in form and substance satisfactory to
Seller, to be bound by the provisions of
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this Agreement; and PROVIDED FURTHER, that such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by such transferee is restricted under the Securities Act. With
respect to the foregoing, in the event of any such transfer by Buyer, such
transferee (of the rights and obligations of Buyer hereunder) shall
thereafter be deemed to be Buyer hereunder.
10. INDEMNIFICATION BY BUYER.
In addition to the indemnification provisions contained in Section 7
hereof, Buyer hereby agrees to indemnify and hold harmless Seller and its
officers, directors, shareholders, employees, agents and attorneys against any
and all losses, claims, damages, liabilities and expenses incurred by each such
person in connection with defending or investigating any such claims or
liabilities, whether or not resulting in any liability to such person, to which
any such indemnified party may become subject under the Securities Act, or under
any other statute, at common law or otherwise, insofar as such losses, claims,
demands, liabilities and expenses arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact made by Buyer, (ii) any
omission or alleged omission of a material fact with respect to Buyer or (ii)
any breach of any representation, warranty or agreement made by Buyer in this
Agreement.
11. DELIVERIES AT CLOSING.
(i) Buyer shall make the following deliveries to Seller at the
Closing: payment of the purchase price as provided in Section 1(iii).
(ii) Seller shall make the following deliveries to Buyer at the
Closing: (x) deliver in the name of Buyer certificates for the Debentures
and the Warrants; and (y) file the appropriate financing statements under
the Code.
12. MISCELLANEOUS.
(i) WAIVER. No failure on the part of Buyer to exercise, and no
delay in exercising, any right, power or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such
right, power or remedy by Buyer preclude any other or further exercise
thereof of the exercise of any other right, power or remedy. All remedies
hereunder are cumulative and are not exclusive of any other remedies
provided by law. Any waiver by any Party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any
other breach of such provision or of any breach of any other provision of
this Agreement. The failure of a Party to insist upon strict adherence to
any term of this Agreement on one or more occasion shall not be considered
a waiver or deprive that Party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement. The
Parties shall not be deemed to have waived any rights hereunder or under
any other
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agreement or instrument unless such waiver shall be in writing and signed
by such Parties.
(ii) SECURITY INTEREST ABSOLUTE. All rights of Buyer hereunder, the
grant of a security interest in the Collateral and all obligations of
Seller hereunder shall be absolute and unconditional irrespective of (x)
any lack of validity or enforceability of any agreement with respect to any
of the Obligations or any agreement or instrument relating to any of the
foregoing, (y) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from this Agreement, the
Debentures or any other agreement or instrument, or (z) any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, Seller in respect of the Obligations or in respect of this
Agreement.
(iii) GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without
giving effect to the rules governing the conflicts of laws.
(iv) CONSENT TO JURISDICTION AND SERVICE OF PROCESS. The Parties
consent to the jurisdiction of the federal and state courts located in the
State of New York, and agree that such courts shall have the exclusive
jurisdiction to resolve any and all disputes, claims or controversies
arising out of or concerning this Agreement. The Parties also agree that
service of process may be satisfied by the delivery of notice of such
process as set forth in Section 12(vii) and that such delivery shall
constitute good and sufficient service.
(v) FACSIMILE SIGNATURE; COUNTERPARTS. This Agreement may be
executed by facsimile signature and in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the
same instrument.
(vi) FEES AND EXPENSES. Each of the Parties agrees to pay its own
expenses incident to this Agreement and the performance of its obligations
hereunder, including, but not limited to, the fees and expenses of each
such Party's legal counsel; PROVIDED, HOWEVER, that if Seller shall default
under the Agreement, Debentures or Warrants, Seller agrees to pay all
reasonable costs and expenses of Buyer in connection with the enforcement
of Seller's obligations under the Agreement, Debentures and Warrants
including, without limitation, the reasonable fees and expenses of Buyer's
counsel (whether or not suit is instigated).
(vii) NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand delivery, express
overnight courier, registered first class mail, overnight courier, or
telecopied, initially to
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the address set forth below, and thereafter at such other address, notice
of which is given in accordance with the provisions of this Section 12.
if to Seller:
Incomnet, Inc.
21031 Ventura Boulevard, # 1100
Woodland Hills, California 91364
Attn: Melvyn Reznick
Telephone: (818) 887-3400
Telecopier: (818) 587-5697
with a copy (which shall not constitute notice) to:
Law Office of Mark J. Richardson
1200 Ocean Avenue, Suite 900
Santa Monica, California 90401
Attn: Mark J. Richardson, Esq.
Telephone: (310) 393-9992
Telecopier: (310) 393-2004
if to Buyer, to Buyer c/o Jeff Rubin at such address as is
set forth on the signature page hereto, with a copy (which
shall not constitute notice) to:
Camhy Karlinsky & Stein LLP
1740 Broadway
New York, New York 10019-4315
Attn: Robert S. Matlin, Esq.
Telephone: (212) 977-6600
Telecopier: (212) 977-8389
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; three (3) business
days after being deposited in the mail, postage prepaid, if mailed; the
next business day after being deposited with an overnight courier, if
deposited with a nationally recognized, overnight courier service; when
receipt is acknowledged, if telecopied.
(viii) SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in
any respect, no Party hereto shall be required to comply with such
provision for so long as such provision is held to be invalid, illegal or
unenforceable and the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired. The Parties shall endeavor in good faith
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negotiations to replace the invalid, illegal and unenforceable provisions
with valid provisions, the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
(ix) HEADINGS. The headings used herein are for convenience only and
are not to affect the construction of, or to be taken into consideration in
interpreting, this Agreement.
(x) ENTIRE AGREEMENT. This Agreement together with the Exhibits and
Schedules hereto constitutes the entire agreement of the Parties with
respect to the subject matter hereof and supersedes all prior oral or
written proposals or agreements relating thereto. This Agreement may not
be amended or any provision hereof waived in whole or in part, except by a
written amendment signed by both of the Parties.
IN WITNESS WHEREOF, this Agreement was duly executed as of the date first
written above.
INCOMNET, INC.
By:
-----------------------
Name: Melvyn Reznick
Title: Chairman and CEO
Address: 21031 Ventura Boulevard, # 1100
Woodland Hills, California 91364
Telephone: (818) 887-3400
Telecopier: (818) 587-5697
JEFF RUBIN, ALAN COHEN AND ROBERT COHEN
By:
-----------------------
Jeff Rubin
Address: 111 Deer Run
Roslyn, New York 11577
Telephone: (516) 465-6901
Telecopier: (516) 465-7317
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