EXHIBIT 10.11 -- SETTLEMENT AND RELEASE AGREEMENT BETWEEN INCOMNET, INC. AND
THE COHEN PARTIES, INCLUDING DR. ROBERT COHEN, STEFANIE
RUBIN, ALLYSON COHEN, JEFFREY COHEN, JEFFREY RUBIN, DR. ALAN
COHEN, LENORE KATZ, BROADWAY PARTNERS AND MERYL COHEN,
CUSTODIAN FOR GABRIELLE COHEN, ERICA COHEN, JACLYN COHEN AND
NICOLE COHEN.
SETTLEMENT AND RELEASE AGREEMENT
THIS SETTLEMENT AND RELEASE AGREEMENT (the "SETTLEMENT AGREEMENT") is
entered into this 5th day of November, 1998, by and among Dr. Robert Cohen, an
individual, Stefanie Rubin, an individual, Allyson Cohen, an individual, Jeffrey
Cohen, an individual, Jeffrey Rubin, an individual, Dr. Alan Cohen, an
individual, Lenore Katz, an individual, Broadway Partners, a general
partnership, and Meryl Cohen, an individual and as custodian for Gabrielle
Cohen, Jaclyn Cohen, Erica Cohen and Nicole Cohen (collectively the "COHEN
PARTIES"), and Incomnet, Inc., a California corporation (the "COMPANY").
R E C I T A L S
WHEREAS, the Company has granted to the Cohen Parties warrants to purchase
the Company's common stock, options to purchase preferred stock, various rights
under an agreement dated January 21, 1997 and certain registration rights
(collectively, the "OLD SECURITIES RIGHTS");
WHEREAS, the Company and the Cohen Parties desire to clarify and to settle
all rights of the Cohen Parties in respect of securities of the Company and
registration rights relating thereto by replacing the Old Securities Rights with
the rights and obligations set forth in this Settlement Agreement (the "NEW
SECURITIES RIGHTS");
WHEREAS, the Company deems it to be in the best interests of all
shareholders to obtain certainty and to document the outstanding rights of the
Cohen Parties by replacing the Old Securities Rights with the New Securities
Rights set forth in this Settlement Agreement;
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged by the parties, the parties hereby
agree as follows:
1. WARRANTS
A list of all warrants currently held by the Cohen Parties is set forth on
EXHIBIT A hereto (the "WARRANTS"). The agreements evidencing the Warrants are
set forth in EXHIBIT B hereto (the "WARRANT AGREEMENTS"). Dr. Robert Cohen
agrees that the Warrant Agreement in his name for 16,666 shares at an exercise
price of $3.50 per share should have been in the name of Lenore Katz as
specified on EXHIBIT A and is hereby deemed to be in the name of Lenore Katz.
Jeffrey Rubin agrees that the Warrant Agreement in his name for 10,000 shares at
an exercise price of $3.50 per share should have been in the name of Stefanie
Rubin as specified on EXHIBIT A and is hereby deemed to be in the name of
Stefanie Rubin. The Warrant Agreements shall continue to govern the terms of
the Warrants except as modified by Section 2 of this Settlement Agreement.
2. EXERCISE PERIOD FOR THE WARRANTS
The last date on which each of the Warrants may be exercised shall be the
later of:
(i) the date on which the Company's common stock ("COMMON STOCK")
underlying such Warrant has been registered under an effective registration
statement for a period of 120 days (whether or not consecutive), provided,
however, (i) such 120-day period does not commence unless and until the Company
has amended its Articles of Incorporation to increase the number of authorized
shares of Common Stock to allow for issuance of a sufficient number of shares of
Common Stock underlying the Warrants; (ii) such 120-day period shall be tolled
for the number of days that the Cohen Party holding such Warrant is restricted
or prohibited by the Company, any underwriter or by law from selling their
Registrable Securities or the registration statement covering the Registrable
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Securities is not effective; and (iii) such 120-day period shall be tolled until
the closing price for the Company's Common Stock is greater than the Warrant
exercise price for 20 trading days (each, a "Pricing Day") (of which at least
five Pricing Days must be consecutive trading days); or
(ii) 11:59 p.m. (Pacific Time) on the last exercise date as set forth
in EXHIBIT A hereto for such Warrant.
3. OPTIONS TO PURCHASE PREFERRED STOCK
Stefanie Rubin currently holds an option to purchase 200 shares of the
Company's Series B Preferred Stock (the "SERIES B OPTION") and an option to
purchase 250 shares of a new class of Preferred Stock of the Company designated
as Series C Preferred Stock (the "SERIES C OPTION"). Stefanie Rubin shall sell
to the Company and the Company shall purchase the Series B and Series C Options
from Stefanie Rubin for an aggregate purchase price of $85,000 payable on or
before November 5, 1998 (the "OPTION PAYMENT"). The Option Payment shall be
delivered to Robert Matlin of Camhy Karlinsky & Stein LLP and, upon receipt of
such payment, the Series B and Series C Options shall terminate and Stefanie
Rubin shall have no further rights in respect of such Series B and Series C
Options.
4. REDEMPTION OF WARRANTS
In the event that at the next meeting of the Company's shareholders, which
is expected to occur no later than April 30, 1999 (the "SHAREHOLDERS MEETING"),
the shareholders do not approve an increase in the number of authorized shares
of Common Stock that is sufficient to permit the exercise of the Warrants, the
holders of the Warrants shall be entitled to have the Company redeem all or any
part of their Warrants, at the holders' sole option, at any time during the 120
days following the earlier of April 30, 1999 or the Shareholders Meeting (the
"REDEMPTION PERIOD"). The holders of the Warrant shall elect to redeem by
sending a notice to the Company's President (the "REDEMPTION NOTICE"). To be
effective, the Redemption Notice must be received by the Company's President by
personal delivery, facsimile, overnight delivery service or certified mail
during the Redemption Period. The Redemption Notice shall be deemed received on
the day of delivery if sent by personal delivery or facsimile sent prior to 5:00
p.m. (Pacific Time), the next business day following deposit with an overnight
delivery service or facsimile sent after 5:00 p.m. (Pacific Time) and on the
date of receipt if sent by certified mail.
In the event that the Company's shareholders do not approve an increase in
the number of authorized shares of Common Stock sufficient enough to cover the
Common Stock underlying the Warrants at the next Shareholders Meeting, the
Company shall proceed at each subsequent annual and special meeting to include a
proposal to increase the number of authorized shares of Common Stock until such
approval is obtained.
The redemption price for the Warrants shall be the difference between the
Warrant exercise price set forth in EXHIBIT A and the average closing price for
the Company's Common Stock during the 20 trading days prior to the date of
receipt of the Redemption Notice (the "REDEMPTION PRICE").
The Company shall not be obligated to redeem the Warrants if it is not
permitted to do so under applicable law, including applicable provisions of the
California Corporations Code, and the Redemption Period shall be tolled until
the Company is legally permitted to complete the redemption. If the Company is
legally permitted to redeem some, but not all of the Warrants tendered for
redemption, the Company shall redeem such Warrants in the order of receipt of
the Redemption Notices. To the extent that the Company cannot redeem all
Warrants that are the subject of a Redemption Notice on a single date, the
Company shall redeem such Warrants on a pro-rata basis among the tendering
holders and the Company shall extend the Redemption Period on the balance of the
Warrants tendered for redemption until the date that the Company is permitted to
redeem the balance of the Warrants. In any event, the Redemption Price shall be
the price as calculated on the date of receipt of the Redemption Notice.
5. REGISTRATION RIGHTS.
The Cohen Parties owning Warrants shall have the registration rights set
forth below in respect of the Warrants and shares of Common Stock underlying
the Warrants (the "REGISTRABLE SECURITIES"). These registration rights are
granted to the holders of the Warrants
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and may not be transferred to any other person without the prior written
consent of the Company unless such transfer is to another member of the Cohen
Parties.
(a) SHELF REGISTRATION. (i) At the Company's election or (ii) upon
the written request of the holders of not less than 50% of the Registrable
Securities at any time following August 5, 1999 and provided that the Company is
eligible to use Form S-3 (or a comparable form permitting substantial
incorporation by reference), the Company shall file a "shelf" registration
statement on any appropriate form pursuant to Rule 415 (or similar rule that may
be adopted by the SEC) under the Securities Act (a "SHELF REGISTRATION") for all
of the then Registrable Securities, subject to the request of any holder to
exclude any Registrable Securities as provided below. Within ten (10) days
after receipt of a request for a Shelf Registration, the Company shall give
written notice of such registration (i) to all holders of Registrable Securities
in the event of an election by the Company or (ii) to all non-requesting holders
of Registrable Securities in the event of a request by the holders. The Company
shall exclude from such registration all Registrable Securities with respect to
which the Company received written requests for exclusion therefrom within
fifteen (15) days after the receipt of the notice by the applicable holder.
The Company hereby agrees to file such Shelf Registration as promptly
as practicable, but not later than forty-five (45) days following the request
therefor and thereafter to use its best efforts to cause such Shelf Registration
to become effective as soon as possible. The Company further agrees to keep the
Shelf Registration continuously effective for a period of 120 days following the
date that the Securities and Exchange Commission ("SEC") declares the Shelf
Registration effective, or such shorter period as shall terminate on the date on
which all the Registrable Securities covered by the Shelf Registration have been
sold pursuant to such Shelf Registration. If the Shelf Registration is not
effective at any time during such 120-day period, the Company shall use its best
efforts to make it effective as soon as possible. The Company shall only be
obligated to file one Shelf Registration and the tolling of the exercise period
for all Warrants under Section 2 of this Settlement Agreement on account of
Section 2(i)shall terminate upon the conclusion of the 120 day registration
period regardless of whether all Underlying Common were included in such
registration unless such failure to be included was at the Company's election.
The Company further agrees to supplement or make amendments to the
Shelf Registration, if required by the rules, regulations or instructions
applicable to the registration form utilized by the Company or by the Securities
Act or rules and regulations thereunder for shelf registration or requested by
the holders of a majority of the Registrable Securities covered by such
registration or any underwriter of the Registrable Securities.
If the holders of a majority of the Registrable Securities being
registered so elect, the offering of Registrable Securities pursuant to a Shelf
Registration shall be in the form of a registration in which the Registrable
Securities are sold to an underwriter (an "UNDERWRITTEN OFFERING"). If the
managing underwriter or underwriters of such offering advise the Company and the
holders of Registrable Securities in writing that in their opinion the number of
shares of Registrable Securities requested to be included in such offering is
too large and would materially and adversely affect the success of such
offering, the Company will include in such offering the aggregate number of
Registrable Securities which in the opinion of such managing underwriter or
underwriters can be sold without any such material adverse effect and the amount
to be offered for the accounts of all of such holders shall be reduced pro rata
(according to the Registrable Securities beneficially owned by such holders) to
the extent necessary to reduce the total amount of securities to be included in
such offering to the amount recommended by such managing underwriter or
underwriters. To the extent that the underwriter excludes any Registrable
Securities, the holders of such Registrable Securities shall not lose any other
registration rights. Unless the holders of a majority of the Registrable
Securities to be included in such offering shall consent in writing, no other
party, including the Company, shall be permitted to offer securities in any such
offering.
(b) DEMAND REGISTRATION. If all of the Registrable Securities have
not been registered before May 5, 2001, then at any time after May 5, 2001, the
holders of not less than 50% of the Registrable Securities may make a written
request (the "DEMAND NOTICE") for registration under the Securities Act (a
"DEMAND REGISTRATION") of the Registrable Securities held by them; PROVIDED,
HOWEVER, that in lieu of making such Demand Registration, the Company may, at
its election, by notice to the holders of such Registrable Securities, redeem
the Warrants for cash in an amount equal to the difference between (i) the fair
market value of the Registrable Securities and (ii) the exercise price for such
Warrants as set forth in EXHIBIT A. For purposes of this Settlement Agreement,
the fair market value of the Registrable Securities shall be determined as
follows:
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(i) if the security is listed on any established stock exchange or
a national market system, including, without limitation, the National Market
System or the SmallCap Market of the National Association of Securities Dealers
Automated Quotation System, its fair market value shall be the average closing
sales price (or the closing bid if no sales were reported) for the 20 trading
days prior to the date of receipt of the Demand Notice as reported in THE WALL
STREET JOURNAL or similar publication;
(ii) if the security is regularly quoted by a recognized securities
dealer but selling prices are not reported, its fair market value shall be the
average of the mean between the high bid and low asked prices for the security
for the 20 trading days prior to the date of receipt of the Demand Notice; or
(iii) in the absence of an established market for the security, the
fair market value shall be determined in good faith by the Company's Board of
Directors, with reference to the Company's net worth, prospective earning power,
dividend-paying capacity and other relevant factors, including the goodwill of
the Company, the economic outlook in the Company's industry, the Company's
position in the industry and its management and the values of stock of other
corporations in the same or a similar line of business (all of such factors
determined as of the date of the Demand Notice).
Within ten (10) days after receipt of each Demand Notice, the Company
shall give written notice of such registration request to all non-requesting
holders of Registrable Securities and shall, subject to the provisions of the
following paragraph, include in such registration all Registrable Securities
with respect to which the Company received written requests for inclusion
therein within fifteen (15) days after the receipt of the notice of such demand
registration request by the applicable holder. Both the Demand Notice and any
request to have Registrable Securities included in a Demand Registration will
specify the number of shares of Registrable Securities proposed to be sold and
will also specify the intended method of disposition thereof. Unless the
holders of a majority of the Registrable Securities to be included in such
registration shall consent in writing, no other party, including the Company,
shall be permitted to offer securities under any such Demand Registration. The
Company shall not be obligated to effect more than one Demand Registration under
this Section 5(b), PROVIDED, HOWEVER, that if the Shelf Registration is declared
effective by the SEC in accordance with Section 5(a), then the Company shall not
be obligated to effect any Demand Registrations under this Section 5(b) unless a
holder of Registrable Securities was excluded from the Shelf Registration.
A registration requested pursuant to this Section 5(b) will not be
deemed to have been effected unless the Registration Statement relating thereto
has become effective under the Securities Act; provided, however , that if,
after such Registration Statement has become effective, the offering of the
Registrable Securities pursuant to such registration is interfered with by any
stop order, injunction or other order or requirement of the SEC or other
governmental agency or court, such registration will be deemed not to have been
effected. Holders of a majority of the Registrable Securities with respect to
which registration has been requested pursuant to this Section 5(b) may, at any
time prior to the effective date of the Registration Statement relating to such
registration, revoke such request with respect to their Registrable Securities
by providing a written notice to the Company revoking such request; PROVIDED,
HOWEVER, that the Company shall have no further obligation to register such
Registrable Securities that are the subject of a revocation pursuant to Section
5(b), but all other registration rights under Section 5(c) shall remain in
effect.
If the holders of a majority of the Registrable Securities being
registered so elect, the offering of Registrable Securities pursuant to a Demand
Registration shall be in the form of an Underwritten Offering. If the managing
underwriter or underwriters of such offering advise the Company and the holders
of Registrable Securities in writing that in their opinion the number of shares
of Registrable Securities requested to be included in such offering is
sufficiently large to materially and adversely affect the success of such
offering, the Company will include in such registration the aggregate number of
Registrable Securities which in the opinion of such managing underwriter or
underwriters can be sold without any such material adverse effect, and the
amount of Registrable Securities to be offered for the accounts of all of such
holders shall be reduced pro rata (according to the Registrable Securities
beneficially owned by such holders) to the extent necessary to reduce the total
amount of securities to be included in such offering to the amount recommended
by such managing underwriter or underwriters.
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(c) INCIDENTAL REGISTRATION. If at any time prior to the date that
all Registrable Securities have been registered (and provided that the Company
has not already registered the Registrable Securities for 120 days), the Company
proposes to file a registration statement under the Securities Act (other than
in connection with the Shelf Registration, or a Registration Statement on Form
S-4 or S-8, or any form substituting therefor) with respect to an offering of
any class of security by the Company for its own account or for the account of
any of its security holders, then the Company shall give written notice of such
proposed filing to the holders of the Registrable Securities as soon as
practicable (but in no event less than thirty days before the anticipated filing
date), and such notice shall offer such holders the opportunity to register such
number of Registrable Securities as each such holder may request. Each holder
of Registrable Securities desiring to have its Registrable Securities registered
under this subsection 5(c) shall so advise the Company in writing within 20 days
after the date of receipt of such notice from the Company (which request shall
set forth the number of Registrable Securities for which registration is
requested). The Company shall include in such Registration Statement all such
Registrable Securities so requested to be included therein, and, if such
registration is an Underwritten Registration, the Company shall use its best
efforts to cause the managing underwriter or underwriters to permit the
Registrable Securities requested to be included in the Registration Statement
for such offering to be included (on the same terms and conditions as similar
securities of the Company included therein to the extent appropriate); provided,
however, that if the managing underwriter or underwriters of such offering
deliver a written opinion to the holders of such Registrable Securities that the
total number of securities that the Company, the holders of Registrable
Securities, or such other persons propose to include in suc offering is such
that the success of the offering would be materially and adversely affected by
inclusion of the securities requested to be included, then the amount of
securities to be offered for the accounts of the Company, the holders of
Registrable Securities and other holders registering securities pursuant to
registration rights shall be allocated as follows:
(i) if such registration has been initiated by the Company as a
primary offering, FIRST to the securities sought to be included by the Company,
and SECOND to the Registrable Securities sought to be included by the holders
thereof and the securities sought to be included by other holders of
registration rights, pro rata, on the basis of the number of securities owned by
each such holder; and
(ii) if such registration has been initiated by another holder of
registration rights, FIRST to the securities sought to be included by such
demanding holder, SECOND to the securities sought to be included by the Company,
and third to the Registrable Securities sought to be included by the holders
thereof and to all other securities sought to be included by other holders of
registration rights, pro rata, on the basis of the number of securities owned by
each such holder.
6. HOLD-BACK AGREEMENTS.
(a) RESTRICTIONS ON PUBLIC SALE BY HOLDER OF REGISTRABLE
SECURITIES. Each holder of Registrable Securities whose Registrable Securities
are covered by a Registration Statement filed pursuant to Section 5 hereof
agrees, if requested in writing by the managing underwriters in an Underwritten
Offering, not to effect any public sale or distribution of securities of the
Company of the same class as the securities included in such Registration
Statement, including a sale pursuant to Rule 144 under the Securities Act
(except as part of such Underwritten Registration), during the 10-day period
prior to the filing of a Registration Statement with respect to such
Underwritten Offering, and during the 90-day period beginning on the closing
date of each Underwritten Offering made pursuant to such Registration Statement
(the "Block-Out Period"), to the extent timely notified in writing by the
Company or the managing underwriters.
(b) RESTRICTIONS ON SALE OF SECURITIES BY THE COMPANY. The Company
agrees not to effect any public sale or distribution of any securities similar
to those being registered, or any securities convertible into or exchangeable or
exercisable for such securities (except pursuant to a registration statement on
Form S-4 or S-8, or any substitute form that may be adopted by the SEC) during
the ten days prior to the filing of a registration statement with respect to
such Underwritten Offering, and during the 90-day period beginning on the
effective date of any Registration Statement (except as part of such
registration statement (x) where the holders of a majority of the shares of
Registrable Securities to be included in such registration statement consent or
(y) where holders of Registrable Securities are participating in such
registration statement pursuant to Section 5(c) hereof, such registration
statement was filed by the Company with respect to the sale of securities by the
Company, and no holder
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is simultaneously participating in a registration statement pursuant to
Section 5(b) hereof) or the commencement of a public distribution of
Registrable Securities pursuant to such registration statement.
7. REGISTRATION PROCEDURES.
In connection with the Company's registration obligations pursuant to
Section 5 hereof, the Company will use its best efforts to effect such
registration to permit the sale of such Registrable Securities in accordance
with the intended method or methods of distribution thereof, and pursuant
thereto the Company will as expeditiously as possible:
(a) prepare and file with the SEC, as soon as practicable, a
Registration Statement relating to the applicable registration on any
appropriate form under the Securities Act, which forms shall be available for
the sale of the Registrable Securities in accordance with the intended method or
methods of distribution thereof and shall include all financial statements of
the Company, and use its best efforts to cause such Registration Statement to
become effective; provided that before filing a Registration Statement or
Prospectus or any amendments or supplements thereto, including documents
incorporated by reference after the initial filing of the Registration
Statement, the Company will furnish one counsel selected by the holders of a
majority of the shares of Registrable Securities covered by such registration
statement, and the underwriters, if any, copies of all such documents proposed
to be filed, which documents will be subject to the review of such counsel and
underwriters, and the Company will not file any Registration Statement or
amendment thereto or any prospectus or any supplement thereto (including such
documents incorporated by reference) to which such counsel or the underwriters,
if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective for the applicable period, or such
shorter period which will terminate when all Registrable Securities covered by
such Registration Statement have been sold; cause the Prospectus to be
supplemented by any required prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 under the Securities Act; and comply with the
provisions of all securities covered by such Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration Statement or
supplement to the prospectus; the Company shall not be deemed to have used its
best efforts to keep a Registration Statement effective during the applicable
period if it voluntarily takes any action that would result in the holders of
the Registrable Securities covered thereby not being able to sell such
Registrable Securities during that period unless such action is required under
applicable law; provided that the foregoing shall not apply to actions taken by
the Company in good faith and for valid business reasons, including without
limitation the acquisition or divestiture of assets, so long as the Company
promptly thereafter complies with the requirements of Section 7(l) hereof, if
applicable;
(c) notify the selling holders of Registrable Securities and the
managing underwriters, if any, promptly, and confirm such advice in writing, (1)
when the Prospectus or any Prospectus supplement or post-effective amendment has
been filed, and, with respect to the Registration Statement or any
post-effective amendment, when the same has become effective, (2) of any request
by the SEC for amendments or supplements to the Registration Statement or the
Prospectus or for additional information, (3) of the issuance by the SEC of any
stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, (4) if at any time the
representations and warranties of the Company contemplated by paragraph (n)
below cease to be true and correct, (5) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (6) of the happening of any
event which makes any statement made in the Registration Statement, the
Prospectus or any document incorporated therein by reference untrue or which
requires the making of any changes in the Registration Statement, the Prospectus
or any document incorporated therein by reference in order to make the
statements therein not misleading;
(d) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(e) if reasonably requested by the managing underwriter or
underwriters or a holder of Registrable Securities being sold in connection with
an Underwritten Offering, promptly incorporate in a Prospectus supplement or
post-effective amendment such information as the managing underwriters and the
holders of a
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majority in number of the Registrable Securities being sold agree should be
included therein relating to the sale of the Registrable Securities,
including, without limitation, information with respect to the number of
Registrable Securities being sold to such underwriters, the purchase price
being paid therefor by such underwriters and with respect to any other terms
of the Underwritten (or best efforts underwritten) Offering of the Registrable
Securities to be sold in such offering; and make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment;
(f) promptly prior to the filing of any document which is to be
incorporated by reference into the Registration Statement or the prospectus
(after initial filing of the Registration Statement), make available
representatives of the Company for discussion of such document and make such
changes in such document prior to the filing thereof as counsel for such selling
holders or underwriters may reasonably request;
(g) furnish to each selling holder of Registrable Securities and
each managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(h) deliver to each selling holder of Registrable Securities and
the underwriters, if any, without charge, as many copies of the prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; the Company consents to the use of the
prospectus or any amendment or supplement thereto by each of the selling holders
of Registrable Securities and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by the prospectus or any
amendment or supplement thereto;
(i) prior to any public offering of Registrable Securities,
register or qualify or cooperate with the selling holders of Registrable
Securities, the underwriters, if any, and their respective counsel in connection
with the registration or qualification of such Registrable Securities for offer
and sale under the securities or blue sky laws of such jurisdictions as any
seller or underwriter reasonably requests in writing and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the Registration
Statement;
(j) cooperate with the selling holders of Registrable Securities
and the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities to be in
such denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of Registrable Securities
to the underwriters;
(k) cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof or the underwriters, if any, to consummate the disposition of
such Registrable Securities;
(1) upon the occurrence of any event contemplated by Section
7(c)(6) above, prepare a supplement or post-effective amendment to the
Registration Statement or the related prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, the prospectus will
not contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading;
(m) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange on which similar securities
issued by the Company are then listed;
(n) enter into such agreements (including an underwriting
agreement) and take all such other actions in connection therewith in order to
expedite or facilitate the disposition of such Registrable Securities and in
connection therewith, whether or not an underwriting agreement is entered into
and whether or not the registration is an Underwritten Registration, (1) make
such representations and warranties to the holders of such Registrable
Securities and the underwriters, if any, in form, substance and scope as are
customarily made by issuers to
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underwriters in primary underwritten offerings; (2) obtain opinions of counsel
to the Company and updates thereof (which counsel and opinions (in form, scope
and substance) shall be reasonably satisfactory to the managing underwriters,
if any, and the holders of a majority of the Registrable Securities included
in such registration, covering the matters customarily covered in opinions
requested in Underwritten Offerings and such other matters as may be
reasonably requested by such holders and underwriters); (3) obtain "cold
comfort" letters and updates thereof from the Company's independent certified
public accountants addressed to the selling holders of Registrable Securities
and the underwriters, if any, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters by
underwriters in connection with primary Underwritten Offerings; (4) if an
underwriting agreement is entered into, the same shall set forth in full the
indemnification provisions and procedures of Section 9 hereof with respect to
all parties to be indemnified pursuant to said Section; and (5) the Company
shall deliver such documents and certificates as may be requested by the
holders of a majority of the Registrable Securities being sold and the
managing underwriters, if any, to evidence compliance with clause (1) above
and with any customary conditions contained in the underwriting agreement or
other agreement entered into by the Company. The above shall be done at each
closing under such underwriting or similar agreement or as and to the extent
required thereunder;
(o) make available for inspection by a representative of the
holders of the Registrable Securities, any underwriter participating in any
disposition pursuant to such registration, and any attorney or accountant
retained by the sellers or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such representative, underwriter, attorney or accountant in
connection with such registration; provided that any records, information or
documents that are designated by the Company in writing as confidential shall be
kept confidential by such Persons unless disclosure of such records, information
or documents is required by court or administrative order;
(p) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering a period of 12
months, beginning within three months after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
section 11(a) of the Securities Act; and
(q) cooperate with each seller of Registrable Securities and each
underwriter participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. (the "NASD").
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 7(l) hereof, such holder
will forthwith discontinue disposition of Registrable Securities until such
holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 7(l) hereof, or until it is advised in writing (the
"ADVICE") by the Company that the use of the prospectus may be resumed, and has
received copies of any additional or supplemental filings which are incorporated
by reference in the prospectus, and, if so directed by the Company such holder
will deliver to the Company (at the Company's expense), all copies, other than
permanent file copies then in such holder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the time periods
regarding the effectiveness of Registration Statements set forth in Section 5
hereof and Section 7(b) hereof shall be extended by the number of days during
the period from and including the date of the giving of such notice pursuant to
Section 7(c)(6) hereof to the date when the selling holders of Registrable
Securities covered by such registration statement shall receive copies of the
supplemented or amended prospectus contemplated by Section 7(l) hereof or the
Advice.
8. REGISTRATION EXPENSES.
All expenses incident to the Company's performance of or compliance with
this Settlement Agreement, including without limitation: all registration and
filing fees; fees with respect to filings required to be made with the NASD;
fees and expenses of compliance with
8
securities or blue sky laws (including fees and disbursements of counsel for
the underwriters of Registrable Securities in connection with blue sky
qualifications of the Registrable Securities and determination of their
eligibility for investment under the laws of such jurisdictions as the
managing underwriters or holders of a majority of the Registrable Securities
being sold may designate); printing expenses, messenger, telephone and
delivery expenses; fees and disbursements of counsel for the Company and
customary fees and expenses for independent certified public accountants
retained by the Company (including the expenses of any comfort letters or
costs associated with the delivery by independent certified public
accountants of a comfort letter or comfort letters requested pursuant to
Section 7(n) hereof); securities acts liability insurance, if the Company so
desires; all internal expenses of the Company (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties); the expense of any annual audit; the fees and expenses
incurred in connection with the listing of the securities to be registered on
each securities exchange on which similar securities issued by the Company
are then listed; and the fees and expenses of any person, including special
experts, retained by the Company (all such expenses being herein called
"REGISTRATION EXPENSES") will be borne by the Company regardless of whether
the Registration Statement becomes effective. The Company shall not have any
obligation to pay any underwriting discounts, commissions or similar fees
attributable to the sale of Registrable Securities, or any legal fees and
expenses of counsel to the holders of Registrable Securities.
9. INDEMNIFICATION: CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each holder of Registrable Securities and its
partners, and their respective partners, officers, directors, employees and
agents, and each person who controls such person (within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act) against all losses,
claims, damages, liabilities and expenses arising out of or based upon any
untrue or alleged untrue statement of a material fact contained in any
Registration Statement, prospectus or preliminary prospectus or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
the same are caused by or contained in any information furnished in writing to
the Company by the holders of Registrable Securities expressly for use therein.
The Company will also indemnify underwriters, selling brokers, dealer managers
and similar securities industry professionals participating in the distribution,
their officers and directors and each person who controls such persons (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) to the same extent as provided above with respect to the indemnification of
the holders of Registrable Securities, if requested.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. Each
holder of Registrable Securities agrees to indemnify and hold harmless the
Company and its directors, officers, employees and agents, and each person who
controls the Company (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue statement of a material fact or any
omission of a material fact required to be stated in the Registration Statement
or prospectus or preliminary prospectus or necessary to make the statements
therein not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information or affidavit so furnished
in writing by such holder to the Company specifically for inclusion in such
Registration Statement or prospectus. In no event shall the liability of any
selling holder of Registrable Securities hereunder be greater in amount than the
dollar amount of the proceeds received by such holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation. The
Company shall be entitled to receive indemnities from underwriters, selling
brokers, dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as provided above with
respect to information so furnished in writing by such persons specifically for
inclusion in any prospectus or Registration Statement.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided, however , that any person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such person unless (a) the
indemnifying party has agreed to
9
pay such fees or expenses, (b) the indemnifying party shall have failed to
assume the defense of such claim and employ counsel reasonably satisfactory to
such person or (c) based upon written advice of counsel to such person, there
shall be one or more defenses available to such person that are not available
to the indemnifying party or there shall exist conflicts of interest pursuant
to applicable rules of professional conduct between such person and the
indemnifying party (in which case, if the person notifies the indemnifying
party in writing that such person elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such claim on behalf of such person), in each
of which events the fees and expenses of such counsel shall be at the expense
of 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), but if settled with its written consent, or if
there be a final judgment for the plaintiff in any such action or proceeding,
the indemnifying party shall indemnify and hold harmless the indemnified
parties from and against any loss or liability (to the extent stated above) by
reason of such settlement or judgment. No indemnified party will be required
to consent to entry of any judgment or enter into any settleent 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
to such claim or litigation.
(d) CONTRIBUTION. If for any reason the indemnification provided
for in the preceding clauses (a) and (b) is unavailable to an indemnified party
or insufficient to hold it harmless as contemplated by the preceding clauses (a)
and (b), then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by the indemnified party and the indemnifying party, but also
the relative fault of the indemnified party and the indemnifying party, as well
as any other relevant equitable considerations, provided, that no holder of
Registrable Securities shall be required to contribute an amount greater than
the dollar amount of the proceeds received by such holder with respect to the
sale of the Registrable Securities giving rise to such indemnification
obligation. The relative fault of the Company on the one hand and of the
selling holders on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement or omission.
No person guilty of fraudulent misrepresentation (within the meaning of Section
10(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentations.
10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
(a) If any of the Registrable Securities covered by the Shelf
Registration are to be sold in an Underwritten Offering, the investment banker
or investment bankers and manager or managers that will administer the offering
will be selected by the holders of a majority of the Registrable Securities
included in such offering; provided that such investment bankers and managers
must be reasonably satisfactory to the Company.
(b) No Person may participate in any underwritten registration
hereunder unless such person (i) agrees to sell such person's securities on the
basis provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
Nothing in this Section 10 shall be construed to create any additional rights
regarding the registration of Registrable Securities in any Person otherwise
than as set forth herein.
11. EFFECT OF AGREEMENT
This Settlement Agreement supersedes all prior oral or written agreements
relating to the Old Securities Rights, including but not limited that certain
agreement dated January 27, 1997, by and between the Company and Jeff Rubin, a
copy of which is attached to this Settlement Agreement as EXHIBIT C. The Cohen
Parties and the Company agree that other than the Preferred Stock that is being
transferred on November 5, 1998 pursuant to the agreement between the Cohen
Parties and John P. Casey dated as of July 15, 1998, as extended, and as set
forth in this Settlement Agreement, the Cohen Parties, as of the date of this
Settlement Agreement: (i) do not own and are not entitled to be granted any
options, warrants, Preferred Stock or convertible securities of the Company,
(ii) are not entitled to be issued any additional securities in the Company,
(iii) are not entitled to registration rights in
10
respect of any of the Company's securities and (iv) are not owed any fees or
other compensation by the Company, GenSource Corporation or National Telephone
& Communications, Inc.
12. RELEASE OF CLAIMS
Upon the execution of this Settlement Agreement and receipt of the Option
Payment as set forth in Section 3 hereof, the Cohen Parties fully and forever
release and discharge the Company and any of its past, present and future
affiliates, employees, officers, directors, shareholders, attorneys,
accountants, successors and predecessors from any and all claims, demands,
obligations, losses, damages or cause of action of any nature relating to the
Old Securities Rights (other than for a breach of this Settlement Agreement by
the Company), whether based in tort, contract or any other theory of recovery,
and whether for compensatory or punitive damages, that now exist or may
hereafter accrue based and actions occurring prior to the effective date of this
release. The Cohen Parties agree that this release shall not be considered an
admission by any party of any liability or wrongdoing. The Cohen Parties
warrant that no promises or inducement has been offered except as set forth
herein. The Cohen Parties are of legal age (or are represented by a guardian
who is of legal age) and are legally competent (or their legal guardian is
legally competent) to execute this release and accept full responsibility
therefor. The Cohen Parties declare that the terms of this full and final
release of claims have been completely read by the Cohen Parties and are fully
understood and voluntarily accepted for the purpose of making a full and final
compromise and settlement. The Cohen Parties hereby represent and warrant that
they have not assigned and will not assign any of their above referenced
released claims to any third party. The Cohen Parties acknowledge that they are
familiar with Section 1542 of the California Civil Code, which reads as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR
AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY
HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH
THE DEBTOR."
The Cohen Parties acknowledge that they are releasing unknown claims and
waive all rights they have or may have under California Civil Code Section 1542
or any other statute or common law principles of similar effect. However, the
Cohen Parties are not waiving any rights or claims that may arise out of acts or
events that may occur after the date of this Settlement Agreement or which do
not arise out of or relate to the Old Securities Rights.
13. WAIVERS
If any party shall at any time waive any rights thereunder resulting from
any breach by the other party of any of the provisions of this Settlement
Agreement, such waiver is not to be construed as a continuing waiver of other
breaches of the same or other provisions of this Settlement Agreement. Resort
to any remedies referred to herein shall not be construed as a waiver of any
other rights and remedies to which such party is entitled under this Settlement
Agreement or otherwise.
14. SUCCESSORS AND ASSIGNS
Each covenant and representation of this Settlement Agreement shall inure
to the benefit of and be binding upon each of the parties, their personal
representatives, assigns and other successors in interest.
15. ENTIRE AGREEMENT
This Settlement Agreement constitutes the entire agreement between the
parties and supersedes all other agreements, representations, warranties,
statements, promises and undertakings, whether oral or written, with respect to
the subject matter of this Settlement Agreement. This Settlement Agreement may
be modified only by a written agreement signed by all parties.
11
16. GOVERNING LAW
This Settlement Agreement shall be governed by and construed in accordance
with the laws of the State of California, and the venue for any action hereunder
shall be in the appropriate forum in the County of Los Angeles, State of
California.
17. COUNTERPARTS
This Settlement Agreement may be executed simultaneously in any number of
counterparts and by facsimile, each of which counterparts shall be deemed to be
an original, and such counterparts shall constitute but one and the same
instrument.
18. ATTORNEYS' FEES AND COSTS
In the event that either party must resort to legal action in order to
enforce the provisions of this Settlement Agreement or to defend such action,
the prevailing party shall be entitled to receive reimbursement from the
nonprevailing party for all reasonable attorneys' fees' and all other costs
incurred in commencing or defending such action, or in enforcing this Settlement
Agreement, including but not limited to post judgment costs.
19. FURTHER ACTS
The parties to this Settlement Agreement hereby agree to execute any other
documents and take any further actions which are reasonably necessary or
appropriate in order to implement the transactions contemplated by this
Settlement Agreement.
20. TIME OF ESSENCE
Time is of the essence in the performance of the obligations under this
Settlement Agreement.
21. AUTHORIZED SIGNATURES
Each party to this Settlement Agreement hereby represents that the person
signing below are duly authorized to execute this Settlement Agreement on behalf
of their respective party.
IN WITNESS WHEREOF, this Settlement Agreement has been entered into as of the
date first above written.
THE "COMPANY"
INCOMNET, INC.,
a California corporation
By: /s/ Denis Richard
-----------------
Denis Richard, President
"COHEN PARTIES":
Robert Cohen
By: /s/ Dr. Robert Cohen
--------------------
Dr. Robert Cohen
12
Stefanie Rubin
By: /s/ Dr. Robert Cohen
--------------------
Dr. Robert Cohen, Attorney-in-Fact
Allyson Cohen
By: /s/ Dr. Robert Cohen
--------------------
Dr. Robert Cohen, Attorney-in-Fact
Jeffrey Cohen
By: /s/ Dr. Robert Cohen
--------------------
Dr. Robert Cohen, Attorney-in-Fact
Jeffrey Rubin
By: /s/ Dr. Robert Cohen
--------------------
Dr. Robert Cohen, Attorney-in-Fact
Alan Cohen
By: /s/ Dr. Robert Cohen
--------------------
Dr. Robert Cohen, Attorney-in-Fact
Lenore Katz
By: /s/ Dr. Robert Cohen
--------------------
Dr. Robert Cohen, Attorney-in-Fact
BROADWAY PARTNERS
Jeffrey Cohen, Partner
By: /s/ Dr. Robert Cohen
--------------------
Dr. Robert Cohen, Attorney-in-Fact
Meryl Cohen
By: /s/ Dr. Robert Cohen
--------------------
Dr. Robert Cohen, Attorney-in-Fact
Meryl Cohen as custodian for Gabrielle Cohen
By: /s/ Dr. Robert Cohen
--------------------
Dr. Robert Cohen, Attorney-in-Fact
Meryl Cohen as custodian for Jaclyn Cohen
By: /s/ Dr. Robert Cohen
--------------------
Dr. Robert Cohen, Attorney-in-Fact
Meryl Cohen as custodian for Erica Cohen
By: /s/ Dr. Robert Cohen
--------------------
Dr. Robert Cohen, Attorney-in-Fact
13
Meryl Cohen as custodian for Nicole Cohen
By: /s/ Dr. Robert Cohen
--------------------
Dr. Robert Cohen, Attorney-in-Fact
14
EXHIBIT A
WARRANTS
Number of Original
Number of Underlying Exercise Exercise
Name of Warrantholder Warrants Shares Price Period
--------------------- --------- ---------- -------- --------
Dr. Robert Cohen 100,000 100,000 $3.75 12/9/96 - 12/9/99
Dr. Alan Cohen 100,000 100,000 $3.75 12/9/96 - 12/9/99
Jeffrey Cohen 50,000 50,000 $3.75 12/9/96 - 12/9/99
Stefanie Rubin 10,000 10,000 $3.75 12/9/96 - 12/9/99
Lenore Katz 10,000 10,000 $3.75 12/9/96 - 12/9/99
Allyson Cohen 50,000 50,000 $3.75 12/9/96 - 12/9/99
Broadway Partners 40,000 40,000 $3.75 12/9/96 - 12/9/99
Stefanie Rubin 16,667 16,667 $3.50 7/29/97 - 7/29/99
Lenore Katz 16,666 16,666 $3.50 7/29/97 - 7/29/99
Stefanie Rubin 55,000 55,000 $2.00 11/3/97 - 11/3/99
Jeff Rubin 6,000 6,000 $1.09 1/20/98 - 1/21/2001
Dr. Robert Cohen 6,000 6,000 $1.09 1/20/98 - 1/21/2001
Dr. Alan Cohen 6,000 6,000 $1.09 1/20/98 - 1/21/2001
------- -------
Total 466,333 466,333
15