SETTLEMENT AGREEMENT AND MUTUAL GENERAL RELEASE
This Settlement Agreement and Mutual General Release (this "Agreement") is
made and entered into as of March 9, 1999, by and among Incomnet, Inc., a
California corporation ("Incomnet"), GenSource Corporation, a California
corporation (formerly known as California Interactive Computing, Inc., the
"Company"), Jerry C. Buckley, an individual ("Buckley"), Ralph M. Flygare, an
individual ("Flygare"), Robert Reisbaum, an individual ("Reisbaum") and E. V.
Schmidt, an individual ("Schmidt").
RECITALS
A. Pursuant to a Stock Purchase Agreement dated April 25, 1997, among
Incomnet, the Company and Buckley, Incomnet purchased 25,129.5 shares of capital
stock, par value $0.10 per share (the "Company Stock"), of the Company (the
"Buckley Shares"). In consideration for such shares, Incomnet issued a
promissory note to Buckley in the principal amount of $500,000 (the "Buckley
Purchase Note"). Also, Incomnet assumed the Company's obligation to Buckley in
the outstanding amount of $286,011.89, $90,000 of which was paid in cash by
Incomnet and the remaining balance of $196,011.89 is the subject of a promissory
note (the "Buckley Assumption Note").
B. Pursuant to a Stock Purchase Agreement dated April 25, 1997, among
Incomnet, the Company and Flygare, Incomnet purchased 25,129.5 shares of Company
Stock (the "Flygare Shares"). In consideration for such shares, Incomnet issued
a promissory note to Flygare in the principal amount of $500,000 (the "Flygare
Purchase Note"). Also, Incomnet assumed the Company's obligation to Flygare in
the outstanding amount of $132,516.02, $75,000 of which was paid in cash by
Incomnet and the remaining balance of $57,516.02 is the subject of a promissory
note (the "Flygare Assumption Note").
C. Pursuant to a Stock Purchase Agreement dated April 25, 1997, between
Incomnet and Reisbaum, Incomnet purchased 24,629.5 shares of Company Stock (the
"Reisbaum Shares"). In consideration for such shares, Incomnet made a cash down
payment of $27,860 and issued a promissory note to Reisbaum in the principal
amounts of $27,859 and $434,333 (such debt to be hereinafter referred to as the
"Reisbaum Purchase Note").
D. Pursuant to a Stock Purchase Agreement dated April 25, 1997, between
Incomnet and Schmidt, Incomnet purchased 11,982 shares of Company Stock (the
"Schmidt Shares"). In consideration for such shares, Incomnet made a cash down
payment of $27,108 and issued a promissory note to Schmidt in the principal
amount of $211,297 (the "Schmidt Purchase Note").
E. Pursuant to a Stock Purchase Agreement dated April 25, 1997, between
Incomnet and Dianne Orendorff, Incomnet purchased 1,000 shares of Company Stock.
In consideration for such shares, Incomnet paid $19,900 in cash to Ms.
Orendorff.
F. Pursuant to a Stock Purchase Agreement dated April 25, 1997, between
Incomnet and Nora Kenner Hoffberg, Incomnet purchased 500 shares of Company
Stock. In consideration for such shares, Incomnet paid $9,950 in cash to Ms.
Hoffberg.
G. For purposes of this Agreement, the Buckley Assumption Note and the
Flygare Assumption Note shall be hereinafter referred to collectively as the
"Assumption Notes." For purposes of this Agreement, the Buckley Purchase Note,
the Flygare Purchase Note, the Assumption Notes, the Reisbaum Purchase Note and
the Schmidt Purchase Note shall be hereinafter referred to collectively as the
"Notes."
H. Also, in connection with these purchases of Company Stock, Incomnet
entered into escrow agreements (the "Escrow Agreements") with each of Buckley,
Flygare, Reisbaum and Schmidt (collectively, the "Noteholders") and the escrow
agent thereunder.
I. Since the date of these Purchase Agreements, Incomnet has made capital
contributions to the Company of approximately $1,500,000 (the "Capital
Infusions").
J. A dispute has arisen among Incomnet and the Noteholders as to
Incomnet's obligations under the Notes and claims that Incomnet has against the
Noteholders in connection with the sales of shares of Company Stock to Incomnet
and Incomnet's Capital Infusions to the Company.
K. As a result, Buckley and Flygare, as plaintiffs, and Incomnet, as
defendant, are parties to a certain lawsuit, Buckley et al. v. Incomnet, Case
No. LC046449 (the "Action"), filed in the Superior Court for the County of Los
Angeles of the State of California (the "Court").
L. Buckley, Flygare and Incomnet have agreed to settle the Action, and the
Noteholders, the Company and Incomnet have agreed to resolve their disputes as
set forth in this Agreement:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Return of Shares; Issuance of Securities; and Settlement.
1.1. Return of Shares. At the Closing, Incomnet shall transfer (i)
25,129.50 shares of Company Stock (the "Buckley Return Shares") to Buckley, (ii)
24,627 shares of Company Stock (the "Flygare Return Shares") to Flygare and
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(iii) 12,221.5 shares of Company Stock (the "Schmidt Return Shares") to Schmidt,
in the manner directed by each of Buckley, Flygare and Schmidt (collectively,
the "Returning Shareholders"). In consideration therefor, at the Closing, the
Returning Shareholders shall cancel their respective Notes, which Notes shall
become null and void and be without further effect.
1.2. Issuance of Replacement Notes by the Company. At the Closing,
the Company shall issue replacement promissory notes (the "Replacement Notes")
to Buckley and Flygare in the principal amounts of $196,011.89 and $52,512.79,
respectively, copies of which have been provided to Incomnet.
1.3. Issuance of Company Stock to Buckley and Flygare. At the
Closing, the Company shall issue 1,930 and 1,394 shares of Company Stock to
Buckley and Flygare, respectively, in partial consideration of the Capital
Infusions made by Incomnet to the Company and cancellation of shares of Company
Stock currently owed by Incomnet. These shares are being directed by Incomnet to
Buckley and Flygare in consideration for amounts of unpaid interest currently
owed to such Noteholders under their respective Notes.
1.4. Exchange of Reisbaum Purchase Note. At the Closing, the Company
shall issue a replacement promissory note to Reisbaum in form and substance as
attached hereto as Exhibit A (the "Reisbaum Replacement Note") in the principal
amount of $336,255.67. At the Closing, a guaranty of the Reisbaum Replacement
Note shall be executed and delivered by each of Eric Hoffberg and Nora Kenner
Hoffberg and Mr. and Mrs. Jerry C. Buckley, which signatures shall be
authenticated by a notary public (such guaranty to be hereinafter referred to as
the "Guaranty"). The Guaranty shall be in form and substance as attached hereto
as Exhibit B. In addition, at the Closing, the Company shall pay to Reisbaum
$31,810.02 by certified or cashier's check. In exchange therefore, Reisbaum
shall cancel the Reisbaum Purchase Note, and such note shall become null and
void and be of no further effect.
1.5. Issuance of Preferred Stock to Incomnet. At the Closing, in
partial consideration for the Capital Infusions and the cancellation of certain
shares of Company Stock pursuant to Section 1.7 hereof, the Company shall issue
to Incomnet 15,507 shares of the Company's Series A Preferred Stock (the
"Preferred Stock"), such Preferred Stock to have the rights, privileges,
preferences and designations as set forth in the Amended and Restated Articles
of Incorporation (the "Restated Articles") attached hereto as Exhibit C.
1.6. Cancellation of Incomnet Shares. At the Closing, Incomnet shall
transfer 26,392.5 shares of Company Stock to the Company representing the
remainder of shares of Company Stock owned by Incomnet after the transfers
described in Section 1.1. Upon receipt thereof, such shares shall be canceled
and retired by the Company.
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1.7. Termination of Escrow Agreements. At the Closing, the Escrow
Agreements shall be terminated and all right, title and interest in the shares
of Common Stock held thereunder shall vest in Incomnet; provided, however, that
the Incomnet shall continue to be obligated to transfer such shares in
accordance with the provisions of this Agreement.
1.8. Settlement. At the Closing, Buckley and Flygare shall cause the
Action to be dismissed with prejudice as to all parties thereto and Incomnet
shall pay a settlement fee of a total of $10,000 to Buckley and Flygare in the
manner so designated by them.
2. Closing.
2.1. Time and Place. The closing of the transactions contemplated by
this Agreement (the "Closing") will take place at the offices of Heller Ehrman
White & McAuliffe, 601 South Figueroa Street, California 90017, at 2:15 p.m. on
March 9, 1999, or such other date and time as agreed upon unless this Agreement
shall have terminated pursuant to Section 8.1 hereof.
2.2. Deliveries. At the Closing:
(a) Incomnet will deliver to Buckley, Flygare, Reisbaum and
Schmidt, as applicable:
i. Stock certificate(s) evidencing the Buckley Return
Shares, duly endorsed (or accompanied by a duly executed stock power) for
transfer to Buckley;
ii. Stock certificate(s) evidencing the Flygare Return
Shares, duly endorsed (or accompanied by a duly executed stock power) for
transfer to Flygare;
iii. Stock certificate(s) evidencing the Schmidt Return
Shares, duly endorsed (or accompanied by a duly executed stock power) for
transfer to Schmidt;
iv. Payment of $5,000 by certified or cashier's check to
Buckley;
v. Payment of $5,000 by certified or cashier's check to
Flygare; and
vi. A certificate executed by Incomnet confirming (A)
the accuracy of the representations and warranties of Incomnet and (B) the
performance of the covenants of Incomnet and the Company, as provided in Section
6 of this Agreement.
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(b) The Company will deliver to Buckley, Flygare and Reisbaum,
as applicable:
i. A Replacement Note issued to Buckley in accordance
with Section 1.2 of this Agreement;
ii. A Replacement Note issued to Flygare in accordance
with Section 1.2 of this Agreement;
iii. The Reisbaum Replacement Note issued to Reisbaum in
accordance with Section 1.4 of this Agreement;
iv. Payment of $31,810.02 by certified or cashier's
check to Reisbaum; and
v. Stock certificates evidencing the shares of Common
Stock to be issued to Buckley and Flygare pursuant to Section 1.3 of this
Agreement.
(c) The Noteholders will deliver to Incomnet:
i. The Notes, accompanied by a notification that such
Notes, and the indebtedness represented thereby, may be canceled and will have
no further force and effect upon the consummation of the transactions
contemplated by this Agreement; and
ii. A certificate executed by each Noteholder confirming
(A) the accuracy of the representations and warranties of such Noteholder and
(B) the performance of the covenants of such Noteholder, as provided in Section
5.2 of this Agreement.
(d) The Company will deliver to Incomnet a stock certificate
evidencing Incomnet's ownership of the shares of Preferred Stock as set forth in
Section 1.5 of the Agreement.
(e) Incomnet shall deliver to the Company a stock
certificate(s) evidencing all shares of Company Stock owned by it other than the
Buckley Return Shares, the Flygare Return Shares and the Schmidt Return Shares,
duly endorsed (or accompanied by a duly executed stock power) for transfer to
the Company.
(f) Buckley and Eric Hoffberg shall deliver to Reisbaum:
i. The Guaranty executed by the parties in accordance
with Section 1.4.
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ii. The Net Worth Certification in form and substance as
attached hereto as Exhibit D executed by Jerry Buckley and Ruth Buckley.
iii. The Net Worth Certification in form and substance
as attached hereto as Exhibit E executed by Eric Hoffberg and Nora Kenner
Hoffberg.
(g) Buckley and Flygare shall deliver to Incomnet a duly
executed copy of a dismissal with prejudice of the Action in the form attached
hereto as Exhibit F.
(h) Incomnet shall assign to the Company all of Incomnet's
right, title and interest to trademarks and trade names to the name "GenSource"
and any derivation thereof and to any other product of the Company.
3. Representations and Warranties.
3.1. Representations and Warranties of Incomnet. Incomnet represents
and warrants to the Noteholders as follows:
(a) Incomnet is a corporation duly organized, validly existing
and in good standing under the laws of the State of California.
(b) This Agreement constitutes the legal, valid, and binding
obligation of Incomnet, enforceable against Incomnet in accordance with its
terms. Incomnet has the corporate power, authority and capacity to execute and
deliver this Agreement and to perform its obligations under this Agreement.
(c) Neither the execution and delivery of this Agreement by
Incomnet nor the consummation or performance of any of the transactions
contemplated by this Agreement by Incomnet will give any corporation,
partnership, other entity or individual (each a "Person") the right to prevent,
delay or otherwise interfere with any of the transactions contemplated by this
Agreement pursuant to (i) any provision of Incomnet's Articles of Incorporation
or Bylaws; (ii) any resolution adopted by the Board of Directors or the
shareholders of Incomnet; (iii) any legal requirement or court order to which
Incomnet may be subject; or (iv) any contract to which Incomnet is a party.
(d) Incomnet is not and will not be required to obtain any
approval or consent which it has not already obtained from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of the transactions contemplated by this Agreement.
(e) Incomnet owns the Buckley Return Shares, Flygare Return
Shares and Schmidt Return Shares free and clear of all encumbrances other than
those restrictions set forth in the Escrow Agreements, and upon the transfer and
delivery of such shares to the Returning Shareholders, respectively, such
Returning Shareholders
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shall receive good and marketable title to such shares, except for restrictions
on transferability generally imposed on securities under federal and state
securities laws.
3.2. Representations and Warranties of the Noteholders. Each
Noteholder, severally and not jointly, represents and warrants to Incomnet as
follows:
(a) This Agreement constitutes the legal, valid and binding
obligation of such Noteholder, enforceable against such Noteholder in accordance
with its terms. Such Noteholder has the power and authority to execute and
deliver this Agreement and to perform his obligations under this Agreement.
(b) Neither the execution and delivery of this Agreement by
such Noteholder nor the consummation or performance of any of the transactions
contemplated by this Agreement by such Noteholder will give any Person the right
to prevent, delay or otherwise interfere with any of the transactions
contemplated by this Agreement pursuant to (i) any legal requirement or court
order to which he may be subject; or (ii) any contract to which he is a party or
by which he may be bound.
(c) Such Noteholder is not, nor will be, required to obtain
any approval or consent which he has not already obtained from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the transactions contemplated by this Agreement.
(d) Such Noteholder owns his Note(s) free and clear of all
encumbrances, and upon the transfer and delivery of his Note(s) to Incomnet, and
the cancellation thereof, such Note(s) shall be null and void and be of no
further effect.
(e) Such Noteholder is fully familiar with the condition of
the business and finances of the Company and is not relying upon Incomnet for
any information or assurances with respect to the Company.
4. Covenants.
4.1. Covenants Prior to the Closing.
(a) Incomnet shall give prompt notice to each Noteholder, and
each Noteholder shall give prompt notice to Incomnet, of (i) the occurrence, or
failure to occur, of any event that causes any representation or warranty
contained in this Agreement to be untrue or inaccurate at any time from the date
of this Agreement to the Closing Date and (ii) any failure of Incomnet or such
Noteholder, as the case may be, to comply with or satisfy, in any material
respect, any covenant, condition or agreement to be complied with or satisfied
by it or him under this Agreement.
(b) Incomnet and each Noteholder agree to cooperate and use
their best efforts to obtain (and will immediately prepare all registrations,
filings and
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applications, requests and notices preliminary to) any and all approvals and
permits that may be necessary or which may be reasonably requested by Incomnet
or such Noteholders to consummate the transactions contemplated by this
Agreement.
4.2. Covenants Continuing After the Closing.
(a) If at any time Buckley, Flygare or Schmidt wishes to sell,
or otherwise dispose of, any shares of Company Stock owned by him to any person
(the "Purchaser"), Incomnet, or any subsequent holders of Preferred Stock (each
a "Holder"), shall have the right to participate pro rata in such transaction,
and accordingly shall have the right to require, as a condition to such sale or
disposition, that the Purchaser purchase from such Holder(s), at the same price
per share and on the same terms and conditions as involved in such sale or
disposition by such Noteholder, a portion of the shares of Preferred Stock held
by such Holder(s) which such Purchaser would otherwise purchase from such
Noteholder, equal to the total number of shares purchased by such Purchaser
multiplied by the quotient of (x) the number of shares of Preferred Stock owned
by such Holder(s) by (y) the number of shares of Company Stock owned by such
Noteholder plus the number of shares of Preferred Stock owned by such Holder(s).
The Holder(s) wishing so to participate in any such sale or disposition shall
notify such Noteholder within 30 days after the receipt of notice of such
proposed sale or disposition from such Noteholder.
(b) The Company may issue stock options to purchase up to an
aggregate of 4,300 shares of Company Stock, with an exercise price of $9.90 per
share and vesting over a three-year period, to Eric Hoffberg, Nora Kenner
Hoffberg and other key employees of the Company; provided, however, that the
Company shall not grant options to purchase Company Stock (or any security
directly or indirectly convertible into Company Stock) to any Noteholder.
(c) For so long as Incomnet owns any Preferred Stock of the
Company, the Company shall not, without the prior written consent of Incomnet,
(i) pay any dividends; (ii) increase compensation, if any, currently payable to
Buckley, Flygare, Eric Hoffberg or Nora Kenner Hoffberg, other than as provided
in employment or consulting agreements currently in existence; or (iii) enter
into any transaction or agreement, including employment and consulting
agreements other than those currently in existence, with any person or entity
that is, or, immediately prior to entering into such a transaction or agreement,
is controlled by, (A) an existing officer of the Company, (B) an existing
director of the Company, (C) a Noteholder, (D) an owner of more than 5% of the
equity securities of the Company, or (E) a family member of any of the
aforementioned.
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5. Conditions Precedent to Incomnet's Obligation to Close. The following
conditions shall be fulfilled as a condition precedent to the obligations of
Incomnet to consummate the transactions contemplated by this Agreement.
5.1. Deliveries. All deliveries shall have been made pursuant to
Sections 2.2(c), 2.2(d) and 2.2(g) of this Agreement.
5.2. Accuracy of Representations and Warranties and Performance of
Covenants. All of the representations and warranties of the Noteholders in this
Agreement shall have been accurate in all material respects as of the date of
this Agreement and shall be accurate in all material respects as of the Closing
Date as if made on the Closing Date. The Noteholders shall have in all material
respects performed, satisfied and complied with all covenants, agreements and
conditions required by the Agreement to be performed, satisfied or complied with
by them on or before the date of this Agreement.
6. Conditions Precedent to Noteholders' Obligations to Close. As a
condition precedent to the obligation of each Noteholder to consummate the
transactions contemplated by this Agreement, all of the representations and
warranties of Incomnet in this Agreement shall have been accurate in all
material respects as of the date of this Agreement and shall be accurate in all
material respects as of the Closing Date as if made on the Closing Date.
Incomnet shall have in all material respects performed, satisfied and complied
with all covenants, agreements and conditions required by the Agreement to be
performed, satisfied or complied with by it on or before the date of this
Agreement.
6.1. Additional Conditions Precedent to Buckley's Obligations to
Close. The following conditions shall be fulfilled as additional conditions
precedent to the obligations of Buckley to consummate the transactions
contemplated by this Agreement.
(a) Deliveries. All deliveries shall have been made pursuant
to Sections 2.2(a)(i), 2.2(a)(iv), 2.2(b)(i), 2.2(b)(v) and 2.2(e) of this
Agreement.
(b) Issuance of Company Stock to Guarantors. The Company shall
have issued 4,300 shares of Company Stock to each of (i) Jerry Buckley and Ruth
Buckley, and (ii) Eric Hoffberg and Nora Kenner Hoffberg, in consideration for
the Guaranty.
6.2. Additional Condition Precedent to Flygare's Obligations to
Close. As an additional condition precedent to the obligations of Flygare to
consummate the transactions contemplated by this Agreement, all deliveries shall
have been made pursuant to Sections 2.2(a)(ii), 2.2(a)(v), 2.2(b)(ii), 2.2(b)(v)
and 2.2(e) of this Agreement.
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6.3. Additional Conditions Precedent to Reisbaum's Obligations to
Close. As an additional condition precedent to the obligations of Reisbaum to
consummate the transactions contemplated by this Agreement, all deliveries shall
have been made pursuant to Sections 2.2(b)(iii), 2.2(b)(iv) and 2.2(f) of this
Agreement.
6.4. Additional Condition Precedent to Schmidt's Obligations to
Close. As an additional condition precedent to the obligations of Schmidt to
consummate the transactions contemplated by this Agreement, all deliveries shall
have been made pursuant to Sections 2.2(a)(iii) and 2.2(e) of this Agreement.
7. Releases; Covenant Not to Sue; Related Matters.
7.1. General Releases. At the Closing, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
each party hereto, on behalf of himself or itself and, to the fullest extent
permitted by law, each of his or its Related Persons (as defined below) (each, a
"Releasor"), hereby fully releases and forever discharges each of the other
parties hereto (each, a "Releasee") and each of their past, present and future
officers, directors, stockholders, agents, attorneys, accountants, financial
advisors, representatives, employees, executors, administrators, heirs, spouses,
successors and assigns (each, a "Releasee Affiliate") from any and all
liability, obligation and responsibility for any and all Claims (as defined
below).
7.2. Covenant not to Sue. At the Closing, each Releasor covenants
and agrees not to participate in, commence or to permit (to the extent within
their control) the assertion or commencement of any demand, allegation,
litigation or similar proceeding or action relating to any Claim, including,
without limitation, by or through the Company, and not to encourage, assist or
cooperate with any Person pursuing or asserting any Claim, against any Releasee
or any Releasee Affiliate.
7.3. Waiver of Statutory Provision. Each Releasor hereby waives the
provisions of Section 1542 of the California Civil Code only to the extent it
applies to the releases given by such Releasor in Section 7.1. Section 1542 of
the California Civil Code provides 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.
7.4. Indemnity. At the Closing, without in any way limiting any of
the rights and remedies otherwise available to any Releasee, each party hereto
(each, an "Indemnitor"), severally and not jointly, shall indemnify and hold
harmless each Releasee from and against all loss, liability, claim, damage
(including incidental and consequential
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damages) or expense (including costs of investigation and defense and reasonable
attorneys' fees) whether or not involving third party claims, arising directly
or indirectly from or in connection with (i) the assertion by or on behalf of
such Indemnitor or any of his Related Persons of any claim or other matter
purported to be released pursuant to the release set forth in Section 7.1 and
(ii) the assertion by any third party of any claim or demand against any
Releasee which claim or demand arises directly or indirectly from, or in
connection with, any assertion by or on behalf of such Indemnitor or any of his
Related Persons against such third party of any claims or other matters
purported to be released pursuant to the release set forth in Section 7.1.
7.5. Certain Definitions.
(a) As used in this Agreement, with respect to a specified
Releasor or Indemnitor who is an individual, the term "Related Person" means (i)
each other member of such individual's Family; (ii) any Person that is directly
or indirectly controlled by such individual or one or more members of such
individual's Family; (iii) any Person in which such individual or members of
such individual's Family hold (individually or in the aggregate) a Material
Interest; and (iv) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity). For purposes of this Agreement,
the term "Family" means (i) the individual, (ii) the individual's spouse, (iii)
any other natural person who is related to the individual or the individual's
spouse within the second degree, and (iv) any other natural person who resides
with such individual. Further, for purposes of this Agreement, the term
"Material Interest" means direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Exchange Act) of voting securities or other voting
interests representing at least 10% of the outstanding voting power of any
Person or equity securities or other equity interests representing at least 10%
of the outstanding equity securities or equity interests in any Person.
(b) As used in this Agreement, with respect to a specified
Releasor or Indemnitor which is not an individual, the term "Related Person"
means (i) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control with
such specified Releasor or Indemnitor, (ii) any individual or Person that holds
a Material Interest in such specified Releasor or Indemnitor, (iii) each
individual that serves as a director, officer, partner, executor, or trustee of
such specified Releasor or Indemnitor (or in a similar capacity), (iv) any
Person in which such specified Releasor or Indemnitor holds a Material Interest,
(v) any Person with respect to which such specified Indemnitor serves as a
general partner or a trustee (or in a similar capacity) and (vi) any Related
Person of any individual described in clause (ii) or (iii) of this Section
7.5(b).
(c) As used in this Agreement, the term "Claim" means any
actual or alleged liability, claim, action, suit, cause of action, obligation,
debt, controversy, dispute, promise, contract, lien, judgment, account,
representation, covenant,
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agreement, demand of any kind or nature, whether known or unknown, foreseen or
unforeseen, both at law and in equity, that any Releasor may or could have had
or now or hereafter may have against the respective Releasees, including,
without limitation, any claims arising out of, relating to or connected in any
way with the Stock Purchase Agreements, the Notes or the Escrow Agreements
described in the recitals to this Agreement.
7.6. Limitations. Notwithstanding the foregoing, the releases and
indemnity in this Section 7 shall not extend to any claims arising out of or
relating to the failure of any party to perform his, her or its obligations
under this Agreement or the Replacement Notes, the Reisbaum Replacement Note,
the Guaranty or the Restated Articles, or arising from any of the Net Worth
Certificates (collectively, the "Other Agreements").
8. TERMINATION
8.1. Termination Events. This Agreement may, by notice given prior
to or at the Closing, be terminated:
(a) by any party, if a material breach of any provision of
this Agreement has been committed by another party and such breach has not been
waived;
(b) (i) by Buckley, Flygare, Reisbaum or Schmidt if any of the
conditions precedent to such person's obligations to close in Section 6 is, or
becomes, impossible to satisfy or fails to be satisfied (other than through the
failure of any of the Noteholders to comply with his obligations under this
Agreement) and such party seeking termination has not waived or does not waive
such condition in writing; or (ii) by Incomnet, if any of the conditions
precedent in Section 5 is, or becomes, impossible to satisfy or fails to be
satisfied (other than through the failure of Incomnet to comply with its
obligations under this Agreement) and Incomnet has not waived or does not waive
such condition in writing; or
(c) by mutual consent of each Noteholder and Incomnet; or
8.2. Actions Upon Termination. Upon termination of this Agreement
pursuant Section 8.1, each party shall immediately return all monies,
instruments, certificates or other thing tendered to such party in anticipation
of the closing of the transactions contemplated by this Agreement.
8.3. Effect of Termination. Each party's right of termination under
Section 8.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination shall not be an
election of remedies. If this Agreement is terminated pursuant to Section 8.1,
all further obligations of the parties under this Agreement shall terminate;
provided, however, that if this Agreement is
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terminated by a party because of the breach of the Agreement by another party or
because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies shall survive such termination unimpaired.
9. MISCELLANEOUS
9.1. Rules of Construction. This Agreement shall be construed in
accordance with the following rules of construction:
(a) the terms defined in this Agreement include the plural as
well as the singular;
(b) all references in the Agreement to designated "Sections"
and other subdivisions are to the designated Sections and other subdivisions of
the body of this Agreement, and all such references are for convenience of
reference only, and shall be ignored in the construction and interpretation of
this Agreement;
(c) pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms;
(d) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Section or other subdivision; and
(e) the words "includes" and "including" are not limiting.
9.2. Expenses. Subject to Sections 7.4 and Section 9.10, each party
shall bear his or its own expenses, including attorneys' fees, incurred by him
or it in connection with the negotiation, execution, delivery and performance of
this Agreement.
9.3. Survival of Representations and Covenants. All representations,
warranties, covenants, and obligations in this Agreement and any other
certificate or document delivered pursuant to this Agreement will survive the
Closing. The waiver of any condition based on the accuracy of any representation
or warranty, or on the performance of or compliance with any covenant or
obligation, shall constitute a waiver of the right to indemnification, payment
of damages, or other remedy based on such representations, warranties, covenants
and obligations.
9.4. Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (when an appropriate answer back is received
from the recipient's telecopier), provided that a copy is mailed by U.S. mail,
or (c) when received by the addressee, if sent by a
13
nationally recognized overnight delivery service, in each case to the
appropriate addresses and telecopier numbers set forth in Exhibit G (or to such
other addresses and telecopier numbers as a party may designate by notice to the
other parties).
9.5. Equitable Remedies. Each party hereto acknowledges that any
other party hereto to whom or which it owes any obligation hereunder would not
have an adequate remedy at law for money damages, and that irreparable harm
would occur, in the event that any or all of such obligations were not honored
strictly in accordance with their terms, and therefore agrees that such other
party or parties shall be entitled to an injunction (or other appropriate
equitable remedy) to prevent any such breach of those obligations and to obtain
specific enforcement of such obligations in addition to any other remedy to
which it may be entitled at law or in equity.
9.6. Entire Agreement; Amendment. This Agreement and the Other
Agreements supersede all prior and contemporaneous written and oral agreements
and understandings between the parties with respect to their respective subject
matters and each constitutes a complete and exclusive statement of the terms of
the agreement between the parties thereto with respect to its subject matter.
This Agreement may not be amended except by a written agreement executed by the
party to be charged with the amendment.
9.7. Successors; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors,
heirs, representatives and permitted assigns, but no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto.
9.8. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California,
without regard to the principles of conflicts of laws.
9.9. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
9.10. Attorneys' Fees. If any legal proceeding should be instituted
to enforce any term hereof by any party, the prevailing party or parties in such
litigation shall be entitled to recover all of their costs and expenses,
including reasonable attorneys' fees and related costs and expenses.
9.11. Further Assurances. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other
14
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement.
9.12. Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Except as provided in Section 9.3,
neither the failure nor any delay by any party in exercising any right, power,
or privilege under this Agreement or the documents referred to in this Agreement
will operate as a waiver of such right, power, or privilege, and no single or
partial exercise of any such right, power, or privilege will preclude any other
or further exercise of such right, power, or privilege or the exercise of any
other right, power, or privilege. No provision of this Agreement may be waived
except in a writing signed by the party to be charged with the waiver. To the
maximum extent permitted by applicable law, (a) no waiver that may be given by a
party will be applicable except in the specific instance for which it is given
and (b) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement.
9.13. Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement shall remain in full force and effect provided that
the essential terms and conditions of this Agreement for all parties remain
valid, binding and enforceable. Any provision of this Agreement held invalid or
unenforceable only in part or degree shall remain in full force and effect to
the extent not held invalid or unenforceable.
15
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
INCOMNET, INC.
By: /s/ Denis Richard
-------------------------------------
Denis Richard
President and Chief Executive Officer
GENSOURCE CORPORATION
By: /s/ Eric Hoffberg
-------------------------------------
Eric Hoffberg
President
NOTEHOLDERS:
/s/ Jerry C. Buckley
-------------------------------------
Jerry C. Buckley
/s/ Ralph M. Flygare
-------------------------------------
Ralph M. Flygare
/s/ Robert Reisbaum
-------------------------------------
Robert Reisbaum
/s/ E. V. Schmidt
-------------------------------------
E. V. Schmidt
16
EXHIBIT C
FORM OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
See attached.
17
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF GENSOURCE CORPORATION
Eric Hoffberg and Jerry Buckley certify that:
1. They are the President and Secretary, respectively, of GenSource
Corporation, a California corporation (the "Corporation" or the "Company").
2. The Articles of Incorporation of the Corporation are amended and
restated to read in full as set forth on Exhibit A hereto:
3. The foregoing amendment and restatement was approved by the Board of
Directors of the Corporation.
4. The foregoing amendment and restatement was approved by the required
vote of the shareholders of the Corporation entitled to vote, in accordance with
Section 902 of the General Corporation Law of California. The total number of
outstanding shares entitled to vote with respect to the foregoing amendment and
restatement was eighty-eight thousand three hundred seventy and one-half
(88,370.5) shares of capital stock. The number of shares voting in favor of the
foregoing amendment and restatement equaled or exceeded the vote required. The
required vote was a majority of the outstanding shares of capital stock.
We further declare under penalty of perjury under the law of the State
of California that the matters set forth in this Certificate are true and
correct of our own knowledge.
Date: February __, 1999
-------------------------------
Eric Hoffberg, President
-------------------------------
Jerry Buckley, Secretary
18
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
GENSOURCE CORPORATION
10.
The name of this corporation is GenSource Corporation.
11.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
12.
This corporation is authorized to issue only two (2) classes of shares of
stock to be designated respectively "Preferred Stock" and "Common Stock". The
total number of such shares which this corporation is authorized to issue is
two-hundred fifteen thousand five-hundred seven (215,507); the number of
Preferred Shares shall be fifteen-thousand five-hundred seven (15,507) of the
par value of $0.001 each, and the number of Common Shares shall be two-hundred
thousand (200,000) of the par value of $0.001 each.
The following provisions shall constitute the rights, preferences,
privileges and restrictions granted to or imposed upon the Preferred Stock:
(a) Designation, Amount and Par Value.
A series of Preferred Stock shall be designated as the Non-Voting
Convertible Series A Preferred Stock (the "Series A Preferred Stock"), and the
number of shares so designated shall be 15,507. The par value of each share of
Series A Preferred Stock shall be $0.001 par value. Each share of Series A
Preferred Stock shall have a stated value of $32.25 per share (the "Stated
Value").
(b) Dividends and Distributions.
The holders of Series A Preferred Stock (the "Holders") shall have the
rights to receive dividends set forth in this Section 2. The Holders shall be
entitled to receive any dividend or distribution declared on the Common Stock of
the Company. Upon declaration of such a dividend or distribution on the Common
Stock of the Company,
each Holder shall be entitled to such dividend or distribution that such Holder
would have been entitled to had such Holder's shares of Series A Preferred Stock
been converted into shares of Common Stock pursuant to Section 5 below
immediately prior to the record date of such dividend or distribution on the
Common Stock. Except as stated in this Section 2, the Holders shall not be
entitled to receive dividends.
(c) Voting Rights; Access Rights.
i. Except as otherwise required by law or hereunder, as to any
matters submitted to a vote of the shareholders (including but not limited to
the election of directors), the holder of each share of Common Stock issued and
outstanding shall have one vote and the Holders shall not be entitled to vote on
any matter; provided, however, that the Company shall not take any of the
following actions without the consent of the holders of a majority of the then
issued and outstanding shares of Series A Preferred Stock (the "Majority
Holders"):
(i) Issue any securities (other than an aggregate of 4,300 shares of
Common Stock upon exercise of employee stock options) at a purchase price below
$19.00 per share (exclusive of any underwriting discounts and commissions in a
public offering); or
(ii) Merge or consolidate with any other corporation, partnership or
other entity or transfer or sell all or substantially all of the assets of the
Company to any other corporation, partnership or other entity; provided,
however, the Company may proceed with such a transaction without the consent of
the Majority Holders if the Company can cause a fairness opinion to be delivered
to the Holders from a mutually agreed upon valuation firm that the transaction
is fair to the Holders from a financial point of view. If the Company and the
Holders are unable to mutually agree upon a valuation firm to render such
opinion, then each of the Company and the Holders shall select a valuation firm
of their own choosing and such firms shall together choose a third valuation
firm. The opinion of a majority of the selected valuation firms will determine
whether the transaction is fair to the Holders from a financial point of view.
ii. The Holders shall be entitled to information and access
rights, including, but not limited to, (i) the right to receive monthly
unaudited financial reports and annual financial statements (such financial
statements shall be audited beginning with the statement for the year ended
December 31, 1999), (ii) access to attend meetings of the Company's Board of
Directors, and special committees thereof, and (iii) opportunities to meet and
discuss matters with management of the Company.
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(d) Liquidation.
Upon any liquidation, dissolution, or winding-up of the Company, whether
involuntary or voluntary (a "Liquidation"), the Holders shall be entitled to
receive, out of the assets of the Company, whether such assets are capital or
surplus, for each share of Series A Preferred Stock an amount equal to the
Stated Value, plus an amount equal to accrued but unpaid dividends payable to
such Holders pursuant to Section 2 above. Such payment shall be in preference to
the holders of Junior Securities (defined below). If the assets of the Company
shall be insufficient to pay in full the amounts payable to the Holders, then
the entire assets to be distributed shall be distributed among the Holders
ratably in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full. The Company shall mail
written notice of any such Liquidation, not less than 60 days prior to the
payment date stated therein, to each record holder of Series A Preferred Stock.
(e) Conversion.
i. Each share of Series A Preferred Stock shall be
automatically converted into shares of Common Stock, at the Conversion Ratio, at
the closing of the following events:
(i) a public offering of Common Stock in which the aggregate proceeds
received by the Company exceeds $1,000,000, net of underwriting discounts and
commissions;
(ii) a merger, consolidation, recapitalization or reorganization of the
Company (other than such a transaction conducted solely for the purpose of
changing the Company's state of incorporation);
(iii) a transfer or sale of all or substantially all of the assets of the
Company; or
(iv) a transfer, sale or the issuance of 50% or more of the then issued
and outstanding Common Stock.
ii.
(i) The initial Conversion Price shall be $1.00 per share.
(ii) If the Company, at any time while any shares of Series A Preferred
Stock are outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of Common Stock payable in shares of its
capital stock (whether payable in shares of Common Stock or of capital stock of
any class), (b) subdivide outstanding shares of Common Stock into a larger
number of shares, (c)
21
combine outstanding shares of Common Stock into a smaller number of shares, or
(d) issue by reclassification of shares of Common Stock any shares of capital
stock of the Company, the Conversion Price shall be multiplied by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding
before such event and of which the denominator shall be the number of shares of
Common Stock outstanding after such event. Any adjustment made pursuant to this
Section 5(b)(ii) shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification.
(iii) All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(iv) Whenever the Conversion Price is adjusted pursuant to Section
5(b)(ii), the Company shall promptly mail to each Holder, a notice setting forth
the Conversion Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment.
iii. Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
the Company elects not, or is unable, to make such a cash payment, the Holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
iv. The issuance of certificates for shares of Common Stock on
conversion of Series A Preferred Stock shall be made without charge to the
holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of such shares of Series A
Preferred Stock so converted and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
v. Shares of Series A Preferred Stock converted into Common
Stock shall be canceled and shall have the status of authorized but unissued
shares of Preferred Stock.
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(f) Definitions.
"Conversion Ratio" means, at any time, a fraction, of which the numerator
is 1, and of which the denominator is the Conversion Price at such time.
"Junior Securities" means the Common Stock and all other equity securities
of the Company, except for the Series A Preferred Stock.
"Per Share Market Value" means on any particular date (a) the closing sale
price per share of the Common Stock of such date on The Nasdaq Stock Market or
other stock exchange on which the Common Stock has been listed or if there is no
such price on such date, then the closing bid price on such exchange on the date
nearest preceding such date, or (b) if the Common Stock is not listed on The
Nasdaq Stock Market or any stock exchange, the closing bid for a share of Common
Stock in the over-the-counter market, as reported by the NASD at the close of
business of such date, or (c) the closing bid price for a share of Common Stock
in the over-the-counter market as reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), or (d) if the Common Stock is not publicly traded the fair
market value of a share of Common Stock as determined in good faith by the Board
of Directors.
(g) Notices.
Any notice required by the provisions hereof to be given to the Holders shall be
deemed given when personally delivered to such Holder or five business days
after the same has been deposited in the United States mail, certified or
registered mail, return receipt requested, postage prepaid, and addressed to
each Holder of record at his address appearing on the books of the Company.
23