EXHIBIT 10.12 -- SETTLEMENT AND RELEASE AGREEMENT AMONGST INCOMNET, INC.,
IRONWOOD TELECOM LLC, ELLEN COHEN AND MARTIN FABRIKANT,
DATED NOVEMBER 5, 1998.
SETTLEMENT AGREEMENT
This Settlement Agreement ("SETTLEMENT AGREEMENT") is made and entered into
as of November 5, 1998, by and among Ellen Cohen, an individual ("COHEN"),
Martin Fabrikant, an individual ("FABRIKANT") (collectively the "PREFERRED
HOLDERS"), Ironwood Telecom LLC, a Colorado limited liability company ("LENDER")
and Incomnet, Inc., a California corporation (the "COMPANY").
R E C I T A L S
WHEREAS, on June 10, 1998, Fabrikant notified the Company of his election
to convert all of the Company's Series A Preferred Stock then owned by him into
shares of the Company's common stock ("COMMON STOCK");
WHEREAS, on June 11, 1998, Cohen notified the Company of her election to
convert all of the Company's Series B Preferred Stock then owned by her into
Common Stock;
WHEREAS, shortly after receiving the notices of election to convert by the
Preferred Holders on June 10 and June 11, 1998, the Company informed the
Preferred Holders that the Company had insufficient authorized Common Stock to
effect all of the conversions of the Series A and B Preferred tendered by the
Preferred Holders (the "UNCONVERTIBLE PREFERRED");
WHEREAS, on or about June 18, 1998, Cohen and Fabrikant rescinded their
elections to convert their Unconvertible Preferred due to the Company's failure
to have a sufficient number of authorized shares of Common Stock to accommodate
the conversion and with a reservation of all rights;
WHEREAS, on September 29, 1998 the Company closed the Board Change
Agreement entered into on August 28, 1998 among the Company, John P. Casey and
the then members of the Company's Board which resulted in changes in the
membership of the Company's Board of Directors and management;
WHEREAS, the Company's new management is in the process of obtaining new
financing by Lender and Lender is requiring as a condition to the Company
obtaining new financing that this Settlement Agreement be entered into;
WHEREAS, the Company desires to resolve the status of the attempted
conversions in June, 1998 and obtain financing from the Lender; and
WHEREAS, the Preferred Holders desire to settle their claims in respect of
the Unconvertible Preferred.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound, the parties agree as follows:
1. Cash Payments and Warrants to Preferred Holders.
On November 5, 1998 (i) Lender shall pay to each of the Preferred
Holders the "cash payment" amount set forth opposite such Preferred Holder's
name on EXHIBIT A hereto (the "CASH PAYMENT"); (ii) the Company shall issue to
the Preferred Holders the Warrants also listed on EXHIBIT A hereto (the
"WARRANTS"); and (iii) the Company shall execute a warrant agreement with each
Preferred Holder in the form of EXHIBIT B hereto (the
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"WARRANT AGREEMENT") in exchange for a transfer by each of the Preferred
Holders to Lender of all of the Preferred Holders' right, title and interest
in respect of such Preferred Holders' Unconvertible Preferred, including such
Preferred Holders' rights, if any, to receive Common Stock in respect of the
Unconvertible Preferred and any claims in respect of the Company's inability
to deliver Common Stock upon the tender of a conversion notice in June, 1998
(the "PREFERRED STOCK RIGHTS"). Each of the Preferred Holders shall deliver a
certificate representing their Unconvertible Preferred Shares with an
assignment of such certificate to Lender on or before November 5, 1998. In
accordance with the terms of the Warrant Agreement, each Warrant shall
entitle the holder to purchase one (1) share of Common Stock at an exercise
price of $1.00 per share. The Warrants may be exercised at any time during
the five-year period after a meeting of the Company's shareholders at which
shareholders approve an increase in the authorized number of shares of Common
Stock to permit the issuance of common stock underlying the Warrants. The
Cash Payment shall be delivered by wire transfer to Camhy Karlinsky & Stein
LLP to the attention of Robert S. Matlin (the "Camhy Firm") and the Camhy
Firm shall be responsible for distributing the Cash Payments to the Preferred
Holders.
2. Assignment by Lender.
Lender hereby assigns the Preferred Stock Rights to the Company on
condition that (a) the Company is financially able to redeem the Preferred Stock
Rights, (b) the Company reimburses Lender for the amount of the Cash Payment
plus interest on the amount of the Cash Payment at an annualized rate of 18%
plus reasonable out of pocket legal and other costs associated with entering
into this Settlement Agreement (collectively, the "LENDER REIMBURSEMENT
PAYMENT"). For purposes of determining whether the Company is financially able
to redeem the Preferred Stock Rights, the Company must have cash on hand
necessary to undertake such a transaction taking into account the other cash
requirements of the Company and its subsidiaries and also meet all requirements
under applicable law, including, if applicable, section 500 et seq. of the
California General Corporation's Law and any applicable contractual
restrictions.
If the Company is not financially able to redeem the Preferred Stock Rights
during the two-year period following the date of this Settlement Agreement,
Lender shall tender the Preferred Stock Rights to the Company and the Company
shall convert the Preferred Stock Rights into 1,359,265 shares of Common Stock
(the "SETTLEMENT COMMON STOCK"). As soon as practicable thereafter, Lender
agrees to offer such Settlement Common Stock to all shareholders on a pro rata
basis. The aggregate price for the Settlement Common Stock shall be the sum of
all costs attributable to the offering of the Settlement Common Stock, including
SEC registration fees, state securities fees, attorneys and accounting fees and
the Lender Reimbursement Payment. To the extent that the Settlement Common
Stock is undersubscribed for during the initial round of the offering, Lender
shall be obligated in such offering to make a second round offer on a pro rata
basis to the subscribing record holders. If the offering is not fully
subscribed after the second round, Lender shall be entitled to offer the balance
of the Settlement Common Stock to the parties designated by it, including itself
and its affiliates, in its sole discretion.
Lender shall have no obligations or liabilities to the Preferred Holders,
except to make the Cash Payments and to perform in accordance with the terms of
Sections 1 and 2 of this Settlement Agreement.
3. Releases.
Effective upon receipt of Cash Payment, delivery of the Warrant Agreements
and a signed copy of this Settlement Agreement, each of the Preferred Holders
agrees to forever release and discharge the Company and any of its past,
present, and future affiliates, employees, officers, directors, shareholders,
attorneys, accountants, successors and predecessor from any and all claims,
demands, obligations, losses, damages or causes of action of any nature relating
to their respective Preferred Stock Rights (other than for a breach of this
Agreement or the Warrant Agreement by the Company), whether based in tort,
contract or other theory of recovery, and whether for compensatory or punitive
damages, that now exist or may hereafter accrue based on actions occurring prior
to the effective date of this release. The parties agree that this release
shall not be considered an admission by any party of any liability or
wrongdoing. The parties warrant that no promise or inducement has been offered
except as set forth herein. The Preferred Holders are of legal age and legally
competent to execute this release and accept full responsibility therefor. The
Preferred Holders declare that the terms of this full and final release of
claims have been completely read by them and are fully understood and
voluntarily accepted for purposes of making a full and
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final compromise and settlement. The Preferred Holders hereby represent and
warrant that they have not assigned and will not assign any of their
above-referenced released claims to any third parties.
Effective upon receipt of the stock certificates representing the
Unconvertible Preferred Shares, endorsed for transfer to Lender, and a signed
copy of this Settlement Agreement by each of the Preferred Holders, the Company
agrees to forever release and discharge the Preferred Holders from any and all
claims, demands, obligations, losses, damages or causes of action of any nature
relating to their respective ownership, purchase and sale of Common Stock and
Series A and Series B Preferred Stock of the Company (and Common Stock
underlying such Preferred Stock) (other than for breach of this Settlement
Agreement), whether based on tort, contract or other theory of recovery, and
whether for compensatory or punitive damages, that now exist or may hereafter
accrue based on actions occurring prior to the effective date of this release.
The Company agrees that this release will not be considered an admission by any
party of any liability or wrongdoing. The Company warrants that no promise or
inducement has been offered except as set forth herein. The Company declares
that the terms of this full and final release of claims has been completely read
by it and is fully understood and voluntarily accepted for purposes of making a
full and final compromise and settlement.
4. Waiver of Section 1542 of the California Civil Code.
The parties further agree that in connection with the foregoing releases,
that the rights under Section 1542 of the Civil Code of California, any similar
law of any state or territory of the United States or any other jurisdiction,
are hereby expressly waived. That section 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."
5. Registration Rights.
The Preferred Holders shall have the registration rights set forth below in
respect of the shares of Common Stock underlying the Warrants (the "REGISTRABLE
SECURITIES"). These registration rights are granted to the Preferred Holders
and may not be transferred to any other person without the prior written consent
of the Company which will not be unreasonably withheld, except that, such
registration rights may be transferred to any affiliate of the Preferred
Holders, the "COHEN PARTIES" (as defined in the Settlement and Release Agreement
dated November 5, 1998 between the Company and the Cohen Parties) or any
affiliates 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 request to all non-requesting holders of
Registrable Securities. 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. The
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Company shall only be obligated to file one 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 have no further obligation to register such Registrable
Securities once the Company has offered to register the Registrable
Securities on a Shelf Registration
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
sufficiently large to 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 loose 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. For purposes of this Agreement, the fair market value of the
Registrable Securities shall be determined as follows:
(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 the non-requesting
holder 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
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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 participating in 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.
(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 suchoffering 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:
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(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 Preferred
Holders 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 other
holder, SECOND to the securities sought to be included by the Company, and THIRD
to the Registrable Securities sought to be included by the Preferred Holders 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,
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 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;
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(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 selling 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 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,
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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 7c)
(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 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
8
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 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.
9
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each holder of Registrable Securities 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 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
10
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 Preferred Holder 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. Representations and Warranties by Preferred Holders.
The Preferred Holders represent and warrant to Lenders and the Company that
they are the sole, true, lawful, record and beneficial owners of their
Unconvertible Preferred Shares listed opposite their names on EXHIBIT A hereto,
free and clear of all encumbrances and without restrictions on voting rights or
rights of disposition other than pursuant to this Settlement Agreement. Each
Preferred Holder's Unconvertible Preferred Shares are such Preferred Holder's
sole and separate property and the execution of a spousal consent to the
transactions contemplated by this Settlement Agreement is not required. There
are no legends or encumbrances on the Unconvertible Preferred Shares other than
the standard Securities Act legend. The Unconvertible Preferred Shares are all
of the shares of preferred stock of the Company owned by the Preferred Holders.
Except for this Settlement Agreement, each of the Preferred Holders has not
entered into any contract relating to the issuance, sale, or transfer of any of
the Unconvertible Preferred Shares or rights relating thereto. The Preferred
Holders will each convey to Lender good and valid title to the Unconvertible
Preferred Shares, free and clear of all liens, claims, charges, encumbrances and
security interests.
12. Successors and Assigns.
Each covenant and representation of this Settlement Agreement shall inure
to the benefit and be binding upon each of the parties, their personal
representatives, assigns and other successors in interest.
13. Entire and Sole 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 written agreement signed by all parties.
14. Governing Law.
11
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 form in the County of Los Angeles, State of
California.
12
15. Counterparts.
This Settlement Agreement may be executed simultaneously in any number of
counterparts and by facsimile, each of which counterpart shall be deemed to be
an original and such counterpart shall constitute one and the same instrument.
16. 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.
17. Further Acts of the Parties.
The parties to this Settlement Agreement hereby agree to execute any other
documents and to take further actions which are reasonably necessary and
appropriate in order to implement the transactions contemplated by this
Settlement Agreement.
18. Time of the Essence.
Time is of the essence in the performance of the obligations under this
Settlement Agreement.
19. Authorized Signatures.
Each of the parties to this Settlement Agreement hereby represents that the
person signing below are 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 written above.
"COMPANY"
Incomnet, Inc.
By: /s/ Denis Richard
--------------------------------
Denis Richard, President and
Chief Executive Officer
"LENDER"
Ironwood Telecom LLC
By: /s/ Daniel V. Berlanti
--------------------------------
Its: Member
"PREFERRED HOLDERS"
13
By: /s/ Ellen Cohen
---------------
Ellen Cohen
By: /s/ Martin Fabrikant
--------------------
Martin Fabrikant
14
EXHIBIT A
Unconvertible Cash Number of
Preferred Holder Preferred Shares Payment Warrants
- - ---------------- ---------------- --------- ---------
Ellen Cohen 168.03 $336,060 168,030
Series B
Martin Fabrikant 76.840 $153,680 76,840
Series A
15
EXHIBIT B
FORM OF WARRANT AGREEMENT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN EXEMPTION FROM SUCH REGISTRATION.
No. WA-A -1 Warrant to Purchase [XXXXX] Shares of
Common Stock (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
OF
INCOMNET, INC.
This certifies that, for value received, [NAME] and her registered assigns
("Holder") is entitled, subject to the terms set forth below, to purchase from
INCOMNET, INC., a California corporation (the "Company"), [XXXXX] shares of the
Common Stock of the Company, on the date the Company's Articles of Incorporation
are amended to provide for a sufficient number of authorized shares of Common
Stock to allow for the issuance of the number of shares of Common Stock
underlying this Warrant (the date of such amendment, the "Initial Exercise
Date"), upon surrender hereof, at the principal office of the Company referred
to below, with the Notice of Exercise form attached hereto (the "Notice of
Exercise") duly executed, and simultaneous payment therefor in lawful money of
the United States as hereinafter provided, at the Exercise Price as set forth in
Section 2 below. The number, character and Exercise Price of such shares of
Common Stock are subject to adjustment as provided below. The term "Warrant" as
used herein shall include this Warrant and any warrants delivered in
substitution or exchange therefor as provided herein.
This Warrant is issued in connection with the transactions described in
Section 1 of Settlement Agreement dated as of November 5, 1998 (the "Settlement
Agreement"), between the Company, the Holder and the other party identified
therein.
1. Term of Warrant. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on the Initial Exercise Date and ending at 5:00 p.m., Pacific
Standard Time, on the five-year anniversary of the Initial Exercise Date, and
shall be void thereafter.
2. Exercise Price. The Exercise Price at which this Warrant may be
exercised shall be $1.00 per share of Common Stock, as adjusted from time to
time pursuant to Section 11 hereof.
3. Exercise of Warrant.
3.1 Notice of Exercise. The purchase rights represented by this
Warrant are exercisable by the holder in whole or in part, but not for less than
10,000 shares at a time (or such lesser number of shares which may then
constitute the maximum number purchasable; such number being subject to
adjustment as provided in Section 11 below), at any time, or from time to time,
during the term hereof as described in Section 1 above, by the surrender of this
Warrant and the Notice of Exercise duly completed and executed on behalf of the
Holder, at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company), upon payment in cash or by
check acceptable to the Company of the purchase price of the shares to be
purchased.
16
3.2 Issuance of Stock. This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to receive the
shares of Common Stock issuable upon such exercise shall be treated for all
purposes as the holder of record of such shares as of the close of business on
such date. As promptly as practicable on or after such date and in any event
within ten (10) days thereafter, the Company at its expense shall issue and
deliver to the person or persons entitled to receive the same a certificate or
certificates for the number of shares issuable upon such exercise. In the event
that this Warrant is exercised in part, the Company at its expense will execute
and deliver a new Warrant of like tenor exercisable for the number of shares for
which this Warrant may then be exercised.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor and amount.
6. Rights of Shareholders. Subject to Sections 9 and 11 of this Warrant,
the Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised as provided herein.
7. Transfer of Warrant.
7.1 Warrant Register. The Company will maintain a register (the
"Warrant Register") containing the names and addresses of the Holder or Holders.
Any Holder of this Warrant or any portion thereof may change his or her address
as shown on the Warrant Register by written notice to the Company requesting
such change. Any notice or written communication required or permitted to be
given to the Holder may be delivered or given by mail to such Holder as shown on
the Warrant Register and at the address shown on the Warrant Register. Until
this Warrant is transferred on the Warrant Register of the Company, the Company
may treat the Holder as shown on the Warrant Register as the absolute owner of
this Warrant for all purposes, notwithstanding any notice to the contrary.
7.2 Warrant Agent. The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register referred to
in Section 7(a) above, issuing the Common Stock or other securities then
issuable upon the exercise of this Warrant, exchanging this Warrant, replacing
this Warrant, or any or all of the foregoing. Thereafter, any such
registration, issuance, exchange, or replacement, as the case may be, shall be
made at the office of such agent.
7.3 Transferability and Non-Negotiability of Warrant. This Warrant
may not be transferred or assigned in whole or in part without compliance with
all applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested by
the Company), provided, however, that this Warrant may not be transferred in
part unless such transfer is to a transferee who pursuant to such transfer
receives
17
the right to purchase at least 10,000 shares hereunder. Subject to the
provisions of this Warrant with respect to compliance with the Securities Act
of 1933, as amended (the "Act"), title to this Warrant may be transferred by
endorsement (by the Holder executing the Assignment Form attached hereto (the
"Assignment Form") and delivery in the same manner as a negotiable instrument
transferable by endorsement and delivery.
7.4 Exchange of Warrant Upon a Transfer. On surrender of this
Warrant for exchange, properly endorsed on the Assignment Form and subject to
the provisions of this Warrant with respect to compliance with the Act and with
the limitations on assignments and transfers and contained in this Section 7,
the Company at its expense shall issue to or on the order of the Holder a new
warrant or warrants of like tenor, in the name of the Holder or as the Holder
(on payment by the Holder of any applicable transfer taxes) may direct, for the
number of shares issuable upon exercise hereof.
7.5 Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Common Stock or Common
Stock to be issued upon exercise hereof are being acquired solely for
the Holder's own account and not as a nominee for any other party, and
for investment, and that the Holder will not offer, sell or otherwise
dispose of this Warrant or any shares of Common Stock to be issued upon
exercise hereof except under circumstances that will not result in a
violation of the Act or any state securities laws. Upon exercise of
this Warrant, the Holder shall, if requested by the Company, confirm in
writing, in a form satisfactory to the Company, that the shares of
Common Stock so purchased are being acquired solely for the Holder's own
account and not as a nominee for any other party, for investment, and
not with a view toward distribution or resale.
(ii) This Warrant and all shares of Common Stock issued upon
exercise hereof shall be stamped or imprinted with a legend in
substantially the following form (in addition to any legend required by
state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH
SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER OR THEREUNDER
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING
THE PURCHASE OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE
MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OR
RECORD HEREOF TO THE SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE
OFFICES OF THE COMPANY.
8. Reservation of Stock. The Company covenants that during the term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its Articles of Incorporation (the "Articles")
to provide sufficient reserves of shares of Common Stock issuable upon exercise
of this Warrant; provided, however, that as of the November 5, 1998 the Company
does not have any shares of Common Stock available for issuance upon the
exercise of this Warrant, and the Holder hereby acknowledges that she
understands that shares of Common Stock are so unavailable; provided, further,
that the Company hereby covenants and agrees to request that its shareholders
approve of a proposal at the next annual meeting of shareholders to amend the
Articles to increase the Company's authorized Common Stock in sufficient number
to provide for the issuance of all securities of the Company outstanding as of
the Initial Exercise Date exercisable or convertible into Common Stock. The
Company further covenants that all shares that may be issued upon the exercise
of rights represented by this Warrant, upon exercise of the rights represented
by this Warrant and payment of the Exercise Price, all as set forth herein, will
be free from all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously or otherwise
specified herein).
18
The Company agrees that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the exercise of this Warrant.
9. Notices. Upon the written request of the holder, whenever the
Exercise Price or number of shares purchasable hereunder shall be adjusted
pursuant to Section 11 hereof, the Company shall issue a certificate signed by
its Chief Financial Officer setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Exercise Price and number of shares
purchasable hereunder after giving effect to such adjustment, and shall cause a
copy of such certificate to be mailed (by first-class mail, postage prepaid) to
the Holder of this Warrant. All notices and requests required under this
Warrant shall be in writing and shall be deemed to have been given for all
purposes (a) upon personal delivery, (b) one day after being sent, when sent by
professional overnight courier service from and to locations within the
continental United States, (c) five days after posting when sent by registered
or certified mail, or (d) on the date of transmission (if transmitted during
normal business hours otherwise on the next succeeding business day) when sent
by telegram, telegraph, telex or telecopier, addressed to the Holder at his or
her addresses set forth on the Warrant Register, and addressed to the Company at
2801 Main Street, Irvine, California 92614, Telecopier No. (949) 224-7474. The
Holder or the Company may from time to time by notice in writing delivered as
provided herein, designate a different mailing address to which such notices or
requests shall thereafter be delivered.
10. Amendments.
10.1 Amendment. Any term of this Warrant may be amended with the
written consent of the Company and the Holder. Any amendment effected in
accordance with this Section 10 shall be binding upon the Company and each
future holder of this Warrant.
10.2 Waiver. No waivers of, or exceptions to, any term, condition or
provision of this Warrant, in any one or more instances, shall be deemed to be,
or construed as, a further or continuing waiver of any such term, condition or
provision.
11. Adjustments. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
11.1 Merger, Sale of Assets, etc. If at any time while this Warrant,
or any portion thereof, is outstanding and unexpired there shall be (i) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash, or
otherwise, or (iii) a sale or transfer of the Company's properties and assets
as, or substantially as, an entirety to any other person, then, as a part of
such reorganization, merger, consolidation, sale or transfer, lawful provision
shall be made so that the holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Exercise Price then in effect, the number of shares of stock
or other securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if this
Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 11. The foregoing provisions of this Section 11.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation that are
at the time receivable upon the exercise of this Warrant. If the per-share
consideration payable to the holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all
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events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of
this Warrant with respect to the rights and interests of the Holder after the
transaction, to the end that the provisions of this Warrant shall be
applicable after that event, as near as reasonably may be, in relation to any
shares or other property deliverable after that event upon exercise of this
Warrant.
11.2 Reclassification, etc. If the Company, at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 11.
11.3 Split, Subdivision or Combination of Shares. If the Company at
any time while this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the Exercise Price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination.
11.4 Adjustments for Dividends in Stock or Other Securities or
Property. If while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible shareholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefor, the
amount of such other or additional stock or other securities or property (other
than cash) of the Company that such holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock available by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 11.
11.5 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 11, the Company shall, upon
the written request, at any time, of any Holder of this Warrant, furnish or
cause to be furnished to such Holder a like certificate setting forth: (i)
adjustments and readjustments in accordance with the terms hereof; (ii) the
Exercise Price at the time in effect; and (iii) the number of shares and the
amount, if any, of other property that at the time would be received upon the
exercise of the Warrant.
12. Registration Rights. Upon exercise of this Warrant, the Holder shall
have and be entitled to exercise, together with all other holders of
"Registrable Securities" (as defined in the Settlement Agreement among Ellen
Cohen, Martin Fabrikant, Ironwood Telecom LLC and the Company dated November 5,
1998 (the "Settlement Agreement")) possessing registration rights under the
Settlement Agreement, the rights of registration granted under the Settlement
Agreement to Registrable Securities (with respect to the shares issued on
exercise of this Warrant). By its receipt of this Warrant, Holder agrees to be
bound by the Settlement Agreement upon exercise of this Warrant as a party
thereto.
13. Miscellaneous.
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(a) Attorneys' Fees. In any action at law or in equity to enforce
any of the provisions or rights under this Warrant, the unsuccessful party to
such litigation, as determined by the court in a final judgment or decree, shall
pay the successful party all costs, expenses and reasonable attorneys' fees
incurred by the successful party (including, without limitation, costs, expenses
and fees on any appeal).
(b) Governing Law; Venue. This Warrant and the legal relations
between the Holder and the Company shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts made
and performed in such State and without regard to conflicts of law doctrines of
any other State or country. In the event of any action at law or equity to
enforce any of the provisions or rights under this Agreement, the parties agree
that the proper venue for such action is Los Angeles, California and that the
parties may bring such an action to enforce their respective rights under this
Agreement only in a court located within the County of Los Angeles, State of
California. The parties further agree that such court shall have personal
jurisdiction over each of the parties to this Agreement.
IN WITNESS WHEREOF, INCOMNET, INC. has caused this Warrant to be executed
by its officers thereunto duly authorized.
Dated: November 5, 1998 INCOMNET, INC.
By: /s/ Denis Richard
-----------------
Denis Richard
President and Chief Executive Officer
ATTEST:
By: /s/ Michael Keebaugh
--------------------
Michael Keebaugh
Assistant Secretary
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NOTICE OF EXERCISE
To: INCOMNET, INC.
(1) The undersigned hereby elects to purchase ______ shares of Common
Stock of INCOMNET, INC., pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price for such shares in full.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock or the Common Stock are being
acquired solely for the account of the undersigned and not as a nominee for any
other party, and for investment, and that the undersigned will not offer, sell
or otherwise dispose of any such shares of Common Stock or Common Stock except
under circumstances that will not result in a violation of the Securities Act of
1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing those shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
-----------------------------------------
(Name)
-----------------------------------------
(Name)
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
-----------------------------------------
(Name)
- - ------------------------- -----------------------------------------
(Date) (Signature)
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ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under the within Warrant, with respect to the number of shares
of Common Stock (or Common Stock) set forth below:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
and does hereby irrevocably constitute and appoint ________________________ as
Attorney-in-Fact to make such transfer on the books of INCOMNET, INC.,
maintained for the purpose, with full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of stock to be issued upon
exercise hereof or conversion thereof are being acquired for investment and
that the Assignee will not offer, sell or otherwise dispose of this Warrant
or any shares of stock to be issued upon exercise hereof or conversion
thereof except under circumstances which will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Further, the Assignee has acknowledged that upon exercise of this Warrant,
the Assignee shall, if requested by the Company, confirm in writing, in a
form satisfactory to the Company, that the shares of stock so purchased are
being acquired for investment and not with a view toward distribution or
resale.
Dated:
-------------------
-------------------------------------
Signature of Holder
ATTEST:
- - -------------------------------
Signature of Assignee
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