Exhibit 10.1 - Commitment Letter provided by Ironwood Telecom LLC to
Incomnet, Inc., dated October 30, 1998
Ironwood Telecom
555 Zang Street
Suite 300
Lakewood, CO 80228
October 30, 1998
Incomnet, Inc.
2801 Main Street
Irvine, California 92614
Attention: Mr. Denis Richard
President and Chief Executive Officer
Re: Commitment to Fund
Dear Denis:
Set forth below are the terms and conditions upon which Ironwood Telecom
LLC ("Ironwood") is willing to commit to provide Incomnet, Inc. ("Incomnet")
with a secured credit facility. The facility has two tranches, referred to in
this letter as the "Bridge Loan" and the "Term Loan," under which Ironwood will
provide a total of $20 million in secured financing. If Incomnet agrees with
the terms and conditions set forth in this letter, it should countersign this
letter as provided below, after which this letter will constitute a binding
agreement enforceable against Ironwood and Incomnet in accordance with its terms
and conditions.
As part of its commitment to provide $20 million in secured financing,
Ironwood will make a loan (the "Casey Loan") to John P. Casey, for the benefit
of Incomnet, to facilitate the exercise of Casey's option to purchase
outstanding Preferred Stock of Incomnet (the "Cohen Preferred") from Dr. Robert
Cohen and certain other parties (the "Cohen Group"). Casey is obligated to
tender the Cohen Preferred to Incomnet for redemption at his acquisition cost
(including financing charges and legal fees) when Incomnet is legally permitted
to redeem such stock (and hold such stock for a one-year period pending
redemption), in accordance with the Board Change Agreement dated August 28,
1998, among Incomnet, Casey and certain other parties (the "Board Change
Agreement"). If Incomnet is not legally permitted to redeem the Cohen Preferred
prior to expiration of the one-year period Casey is obligated to hold the Cohen
Preferred awaiting redemption, then thereafter Casey is obligated to undertake a
rights offering and offer Incomnet's shareholders the opportunity to purchase
such stock on a pro rata basis at his acquisition cost (including financing
charges and legal fees), in accordance with the Board Change Agreement.
The Casey Loan will be secured by the Cohen Preferred and accrue interest
at the rate of 18% per annum (with a default rate of 21% per annum). Incomnet
and its subsidiary, National Telephone & Communications, Inc. ("NTC"), will
guarantee Casey's obligations under the Casey Loan. Principal and interest will
be due and payable on redemption of the Cohen Preferred or the closing of a
rights offering relating to such stock.
As part of its commitment to provide $20 million in secured financing,
Ironwood is willing to purchase outstanding Preferred Stock (the "Other
Preferred Stock") from certain holders other than the Cohen Group (the "Other
Preferred Holders"), for the benefit of Incomnet, and tender such stock for
redemption by Incomnet when Incomnet is legally permitted to redeem such stock,
or undertake a rights offering to Incomnet's shareholders, all on the same terms
Casey is obligated to do so under the Board Change Agreement. The redemption
price of the Other Preferred Stock (or price at which the stock will be offered
to shareholders in a rights offering) that will be payable to Ironwood will
equal the purchase price paid by Ironwood to acquire such stock, plus a
financing charge equal to 18% per annum and all legal and other costs associated
with such purchase, redemption and rights offering incurred by Ironwood.
FUNDING COMMITMENT; PREFERRED STOCK PURCHASE COMMITMENT
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Subject to the terms and conditions set forth herein, (i) Ironwood agrees
to fund the Bridge Loan to Incomnet, and Incomnet agrees to accept funds under
the Bridge Loan from Ironwood, on November 4, 1998, (ii) Ironwood agrees to fund
the Casey Loan to Casey on November 4, 1998, (iii) Ironwood agrees to fund the
Term Loan to Incomnet, and Incomnet agrees to accept funds under the Term Loan
from Ironwood, on December 15, 1998 and (iv) Ironwood agrees to purchase the
Other Preferred Stock on terms to be agreed upon among Incomnet, Ironwood and
the Other Preferred Holders, and tender such stock for redemption or offer such
stock in a rights offering to Incomnet's shareholders, on the same terms set
forth in the Board Change Agreement.
BRIDGE LOAN
Incomnet and Ironwood agree that the Bridge Loan shall have the following
terms:
Principal Amount: $5 million less the principal amount of the
Casey Loan and purchase price of Other
Preferred Stock
Interest Rate: 15% (Accrue only)
Default Rate: 18%
Maturity; Payment: Principal and Accrued Interest due on funding
of Term Loan (December 15, 1998)
Warrants: Warrants to purchase 500,000 shares of
Incomnet's Common Stock, at an exercise price
equal to the lesser of (i) 50% of the closing
price of Incomnet's Common Stock on the
Nasdaq Stock Market on October 29, 1998 and
(ii) $1.00; customary anti-dilution
protection for stock splits, stock dividends
and recapitalizations; S-3 demand/shelf
registration rights one-year after issuance,
with unlimited piggyback registration rights
(pari passu with other piggyback rights)
Origination Fee: $150,000 payable on closing of the Bridge
Loan
Collateral: Proceeds from any future sale of Rapid Cast,
Inc. stock owned by Incomnet (with the
delivery of stock certificates representing
those shares to be held in trust by
Ironwood); all bank and other accounts of
Incomnet, general intangibles of Incomnet and
any equipment or furniture of Incomnet; NTC
will guarantee Incomnet's obligations under
the Bridge Loan
Use of Proceeds: To be "downstreamed" to NTC; Payment by NTC
to WorldCom of current trade payables;
Thereafter, For NTC's General Corporate
Purposes
Other: Such other terms and conditions as may agreed
upon by Incomnet and Ironwood
TERM LOAN
Incomnet and Ironwood agree that the Term Loan shall have the following
terms:
Principal Amount: $20 million less principal amount of Casey
Loan and purchase price of Other Preferred
Stock
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Interest Rate: 12% (Payable Quarterly)
Default Rate: 15%
Maturity; Payment: Principal (and Accrued and Unpaid Interest)
due on December 31, 2000
Warrants: FIRST TRANCHE: Warrants to purchase 2 million
shares of Incomnet's Common Stock, at an
exercise price equal to the lesser of (i) 50%
of the closing price of Incomnet's Common
Stock on the Nasdaq Stock Market on
October 29, 1998 and (ii) $1.00, exercisable
immediately and for five years thereafter,
with the number of Warrants and the exercise
price subject to pro rata adjustment if NTC's
annualized fourth quarter 1999 gross revenue
is less than $98 million; customary
anti-dilution protection for stock splits,
stock dividends and recapitalizations; S-3
demand/shelf registration rights one-year
after issuance, with unlimited piggyback
registration rights (pari passu with other
piggyback rights)
SECOND TRANCHE: Warrants to purchase 1
million shares of Incomnet's Common Stock,
at an exercise price of $2.25 per share,
exercisable on first anniversary of issuance
and for five years thereafter, with the
number of Warrants and the exercise price
subject to pro rata adjustment if annualized
fourth quarter 2000 gross revenue target is
less than $222.9 million; customary
anti-dilution protection for stock splits,
stock dividends and recapitalizations; S-3
demand/shelf registration rights one-year
after issuance, with unlimited piggyback
registration rights (pari passu with other
piggyback rights)
Origination Fee: $350,000 payable on closing of the Term Loan
Collateral: Substantially all the assets of Incomnet
(excluding the capital stock of Rapid Cast,
Inc. and GenSource, but including the capital
stock of NTC owned by Incomnet);
substantially all the assets of NTC (provided
that WorldCom will have a lien on the
customer accounts of NTC and will release
such lien upon payment to WorldCom of certain
amounts and the change of credit terms
extended to NTC by WorldCom to net 30 days);
and proceeds from any future sale of Rapid
Cast, Inc. stock owned by Incomnet; NTC will
guarantee obligations under the Term Loan; at
Ironwood's option, Ironwood may elect to
utilize a portion of the amount which would
otherwise have constituted part of the Term
Loan to pay-off First Bank and WorldCom
directly in exchange for an assignment of all
of their rights against NTC under the
appropriate documents, such payoff advances
shall also be guaranteed by NTC
Use of Proceeds: To be "downstreamed" to Incomnet's
subsidiary, National Telephone &
Communications, Inc. ("NTC"); subject to the
terms set forth above regarding direct
payment to First Bank by Ironwood, pay-off of
First Bank by NTC; subject to the terms set
forth above regarding direct payment to
WorldCom
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by Ironwood, payment by NTC of balance of
amounts in default plus accrued interest
thereon owing to WorldCom (approximately
$1.65 million, $550,000 of which payable on
1/15/99, 2/15/99 and 3/15/99) subject to
the terms set forth above; thereafter For
NTC's General Corporate Purposes
Other: Such other terms and conditions as may agreed
upon by Incomnet and Ironwood
COVENANTS
Under both the Bridge Loan and the Term Loan, Incomnet will be required to
meet operating covenants relating to its (i) net worth and (ii) earnings before
interest, taxes, depreciation and amortization (EBITDA), both of which at such
levels to be agreed upon by the parties. Incomnet will also be prohibited under
the Bridge Loan and the Term Loan from undertaking certain actions without the
prior written consent of Ironwood, as are customary and reasonable for the type
of loan being made, including being prohibited from selling any Rapid Cast stock
owned by Incomnet without the prior written consent of Ironwood.
CONDITIONS
The Bridge Loan shall be conditioned upon the occurrence of the following
events: (i) the renegotiation of severance arrangements with former management
of Incomnet and NTC (Messrs. Reznick, Caswell, Quandt and Streufort) on terms
that are acceptable to Ironwood, and termination of stock options previously
granted to Messrs. Reznick, Caswell, Greenberg and Richardson; (ii) the
agreement of the Other Preferred Holders to sell the Other Preferred Stock to
Ironwood, on terms that are acceptable to Ironwood, such purchase to be made for
the benefit of Incomnet and obligate Ironwood to tender such stock for
redemption by Incomnet when Incomnet is legally permitted to redeem such stock,
or undertake a rights offering to Incomnet's shareholders, all on the same terms
Casey is obligated to do so under the Board Change Agreement; (iii) the
negotiation and preparation of definitive documents relating to the Bridge Loan
that are mutually acceptable to Ironwood and Incomnet; (iv) the consent of First
Bank and WorldCom to the terms of the Bridge Loan and the Term Loan and the
agreement of First Bank and WorldCom to forbear from taking any actions
concerning defaults by NTC until December 15, 1998; and (v) the agreement of
WorldCom to release its lien on NTC's customer accounts and any other assets of
NTC on December 15, 1998 (or as soon thereafter as the following conditions are
met) if (A) payment has been made of all amounts in default and interest thereon
(approximately $3.3 million) and (B) NTC changes WorldCom's vendor credit terms
to net 30 days.
The Term Loan shall be conditioned upon the occurrence of the following
events: (i) funding of the Bridge Loan; (ii) the dismissal or settlement of
claims brought by the two groups of shareholders (the "Beltz Group" and the
"Silva Run Group") who opted out of the class action entitled SANDRA GAYLES ET.
AL V. SAM D. SCHWARTZ AND INCOMNET, INC. (CASE NO. CV95-0399 AWT (BQRX) (the
"Class Action Lawsuit"), on terms that are acceptable to Ironwood; and (iii) the
absence of a breach by plaintiffs in the Class Action Lawsuit under the
settlement agreement relating to that action that would cause Ironwood to
conclude, in its reasonable judgment, that the settlement agreement will not
close on the terms set forth therein; and (iv) the negotiation and preparation
of definitive documents relating to the Term Loan that are mutually acceptable
to Ironwood and Incomnet.
GOVERNING LAW
This Agreement and any definitive documents evidencing the Bridge Loan or
the Term Loan shall be deemed for all purposes to have been made in the State of
Colorado and shall be governed by and interpreted in accordance with the laws of
such state, except that no doctrine of choice of law shall be used to apply the
laws of any other state or jurisdiction.
If Incomnet agrees with the terms and conditions set forth in this letter,
please so signify by signing below and returning the countersigned copy to
Ironwood, after which this letter will constitute a binding agreement
enforceable against Ironwood and Incomnet in accordance with its terms and
conditions.
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Very truly yours,
/s/ Donald V. Berlanti
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ACKNOWLEDGED AND AGREED:
INCOMNET, INC.
By: /s/ Denis Richard
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President and Chief Executive Officer
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