WARRANT AGREEMENT
This WARRANT AGREEMENT (this "Agreement") is made and entered into as of
November 16, 1998, by and between Incomnet, Inc., a California corporation (the
"Company"), and Ironwood Telecom LLC, a Colorado limited liability company (the
"Investor").
BACKGROUND
The Company is authorized to issue one class of Common Stock and three
classes of Preferred Stock. Pursuant to this Agreement, the Company shall issue
100,000 warrants to the Investor entitling the Investor to purchase an aggregate
of 100,000 shares of Common Stock of the Company representing not less than 0.5%
of the outstanding shares of Common Stock of the Company.
The Company and the Investor previously entered into a Bridge Loan and
Security Agreement dated November 4, 1998 (the "Bridge Loan and Security
Agreement"), pursuant to which the Investor has agreed to make a secured term
loan to the Company in the original principal amount of $1,785,470. In addition,
the Company issued to the Investor an additional Secured Promissory Note dated
November 16, 1998 (the "$1M Note"), in the original principal amount of
$1,000,000, in connection with an additional loan of $1,000.000 made by the
Investor to the Company. The obligations under the $1M Note are secured by the
collateral described in, and pursuant to, the Bridge Loan and Security Agreement
Issuance of the warrants described herein is in partial consideration for the
loan evidenced by the $1M Note.
AGREEMENT
NOW, THEREFORE, the Company and the Investor agree as follows:
1.
DEFINITIONS
1.1. Certain Defined Terms.
The following terms used in this Agreement have the following meanings:
"$1M Note" means the Secured Promissory Note dated November 16, 1998, in
the original principal amount of $1 million, issued by the Company in favor of
the Investor.
"Accredited Investor" has the meaning given to that term in Section 501(a)
of Regulation D promulgated under the Act.
"Act" means the Securities Act of 1933, as amended from time to time, or
any successor statute.
"Bridge Loan" has the meaning given to that term in the Bridge Loan and
Security Agreement.
"Bridge Loan and Security Agreement" means the Bridge Loan and Security
Agreement, dated the date hereof, between the Company and the Investor.
"Bridge Loan Note" has the meaning given to that term in the Bridge Loan
and Security Agreement.
"Charter Documents" of a Person means the articles or certificate of
incorporation, the by-laws and any other charter documents of such Person,
including without limitation any certificate of designation, as amended or
restated and as in effect as of the Closing Date.
"Common Stock" means the Company's Common Stock, no par value.
"Closing Date" means the date on which the proceeds of the $1M are
disbursed in accordance with the Bridge Loan Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Act.
"Current Exercise Price" means the Exercise Price immediately before the
occurrence of any event which, pursuant to Article 4, causes an adjustment to
the Exercise Price.
"Distribution" means any transfer of cash or property by a Person to the
Investor without consideration, whether by way of dividend or otherwise, or the
purchase or redemption by such Person of its shares for cash or other property.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor statute.
"Exercise Price" means the price of $1.00 per share, adjusted from time to
time as provided in Article 4.
"Expiration Date" means 5:00 p.m., Los Angeles time, on November 16, 2003,
subject to extensions pursuant to Section 2.1.
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"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts and other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
"Subsidiary" of any Person means a corporation of which more than fifty
percent (50%) of the outstanding shares of capital stock of each class having
ordinary voting power is owned by such Person, by one or more Subsidiaries of
such Person, or by such Person and one or more of its Subsidiaries.
"Transfer" means the sale, pledge, assignment or other transfer of the
Warrants or the Warrant Shares, in whole or in part, and of the rights of the
Investors under this Agreement.
"Warrant Certificate" means the certificate representing the Warrants,
registered in the name of the Investor, substantially in the form of Exhibit A.
"Warrants" means the warrants issued pursuant to this Agreement, which,
when exercised, give the Investor the right to obtain one share of Common Stock
per warrant, subject to adjustment as provided herein.
"Warrant Shares" means the shares of Common Stock acquired or
acquirable upon exercise of the Warrants, any shares of Common Stock issued
as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of, such shares of Common
Stock and any other interest in the Company that has been or may be acquired
upon exercise of the Warrants; provided, however, that a Warrant Share will
no longer be a Warrant Share when such share is sold to a Person acquiring
such share from a selling Investor in a sale by such Investor pursuant to a
registered public offering or an offering made to the public that is exempted
from registration by rule or regulation of the Commission, including Rules
144 and 144A under the Act or any successor rule or regulation.
1.2. Interpretation
Unless the context of this Agreement clearly requires otherwise,
references to the plural include the singular, to the singular include the
plural, and to the part include the whole. The term "including" is not limiting
and the term "or" has the inclusive meaning represented by the term "and/or."
The words "hereof," "herein," "hereunder," and similar terms in this Agreement
refer to this Agreement as a whole and not to any particular provision of this
Agreement. References to "Articles," "Sections," "Subsections," "Exhibits," and
"Schedules" are to Articles, Sections, Subsections, Exhibits and Schedules,
respectively, of this Agreement, unless otherwise specifically provided. Terms
defined herein may be used in the singular or the plural. Any
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capitalized terms used herein which are not specifically defined herein have the
meaning given to them in the Loan Agreement.
2.
THE WARRANTS
2.1. Issuance of Warrants
On the Closing Date, in consideration of the purchase by the
Investor of the Bridge Loan Note, the Company shall issue to the Investor One
Hundred Thousand (100,000) Warrants and shall deliver to the Investor a
Warrant Certificate representing such Warrants.
2.2. Execution of Warrant Certificates
Warrant Certificates may be signed on behalf of the Company by
any person authorized by the Company to do so. Any person who, on the actual
date of the execution of a Warrant Certificate, is authorized by the Company
to sign the Warrant Certificate, may sign on the Company's behalf even if
such person was not authorized to do so on the Closing Date.
2.3. Registration
The Company may deem and treat the registered Investor of a
Warrant Certificate as the absolute owner for all purposes, notwithstanding
any notation of ownership or other writing thereon made by anyone.
2.4. Transfers
The Warrants may not be Transferred without the prior written
consent of the Company.
2.5. Exchanges
At the option of the Investor, any Warrant Certificate may be
exchanged when surrendered at the principal office of the Company for one or
more Warrant Certificates representing in the aggregate a Warrant or Warrants
to acquire a like number and kind of shares of Common Stock in the Company by
the Investor. Warrant Certificates surrendered for exchange shall be
canceled by the Company.
2.6. Mutilated or Missing Warrant Certificates
If any of the Warrant Certificates shall be mutilated, lost,
stolen or destroyed, the Company shall issue, in exchange and substitution
for and upon
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cancellation of such Warrant Certificate, a new Warrant Certificate representing
an equivalent number of Warrants, but only upon receipt of evidence of such
loss, theft or destruction reasonably satisfactory to the Company or, if
requested by the Company, upon receipt of a duly executed indemnification
agreement reasonably satisfactory to the Company; provided, however, that the
Investor shall not be required to deliver an indemnity bond.
2.7. Term and Exercisability of Warrants
The Warrants shall be exercisable, in whole or in part, at any
time and from time to time in number described in Section 2.1 and in the
manner provided in Section 2.8; provided, however, that at the Expiration
Date (as reset from time to time pursuant to Section 2.1) any unexercised
Warrants shall become void and all rights of the Investor as a Investor of
the Warrants shall cease.
2.8. Manner of Exercise of Warrants
Subject to the provisions of this Agreement, the Investor shall
have the right to purchase from the Company, and the Company shall issue and
sell to such Investor, one share of Common Stock for each Warrant exercised,
upon surrender to the Company at its principal office of the Warrant
Certificate representing such Warrant, together with a Form of Warrant
Subscription in substantially the form of Exhibit C completed and signed, and
upon payment to the Company of the Exercise Price in lawful money of the
United States of America.
2.9. Issuance of Shares Upon Exercise
Upon exercise of a Warrant, the Company shall issue and cause to be
delivered to the Investor, registered in such name or names as the Investor may
designate, a certificate representing the share or shares of Common Stock
issuable upon the exercise of such Warrant. The Warrants shall be exercisable,
at the election of the Investor thereof, either as an entirety or for part only
of the number of Warrants specified in the Warrant Certificate representing such
Warrants. If less than all of the Warrants evidenced by a Warrant Certificate
are exercised at any time prior to the Expiration Date, a new Warrant
Certificate or Certificates shall be issued by the Company, to the Investor
representing the remaining unexercised number of Warrants evidenced by the
Warrant Certificate so surrendered. All Warrant Certificates surrendered upon
exercise of Warrants shall be canceled by the Company.
2.10. Payment of Fees, Expenses and Taxes
The Investor shall pay all expenses and taxes imposed by law or any
governmental agency, including any documentary stamp taxes, attributable to the
issuance of Warrant Shares upon the exercise of Warrant.
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The Borrower shall pay to the Lender on demand all costs and
expenses that the Lender pays or incurs in connection with the negotiation,
preparation, consummation, administration, enforcement, and termination of
this Warrant Agreement, including, without limitation reasonable attorneys'
and paralegals' fees and disbursements of counsel to the Lender.
2.11. Reservation of Shares
The Company covenants and agrees that, so long as any Warrants remain
outstanding, the Company shall at all times have authorized and reserved a
number of shares of Common Stock sufficient to provide for the exercise of
the Warrants.
2.12. Fractional Shares
The Company need not issue fractional shares upon the exercise of Warrants
but in lieu thereof may pay to the Investor the Fair Value of such fractional
shares; provided, however, that in the event that the Company undertakes a
reduction in the number of shares of Common Stock outstanding, it shall be
required to issue fractional shares to the Investor which exercises all or any
part of its Warrants.
3.
REPRESENTATIONS AND WARRANTIES
3.1. By the Company
The Company represents and warrants to the Investor as follows:
3.1.1. Legal Status
The Company and its Subsidiaries are corporations duly formed and
existing under the laws of the state where organized.
3.1.2. Valid Issue.
All shares of Common Stock, which may be issued upon exercise of the
Warrants are duly authorized and, upon issuance in accordance with the
provisions of this Agreement, shall be validly issued, fully paid and
nonassessable and free from all taxes, liens, charges and security interests.
3.1.3. Authority; No Conflicts.
This Agreement, and any instrument or agreement required
hereunder, are within the Company's powers, have been duly authorized, and do
not conflict with any of its Charter Documents.
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3.1.4. Binding and Enforceable.
This Agreement is a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, subject,
as to enforcement, (i) to bankruptcy, insolvency, reorganization, arrangement,
moratorium and other laws of general applicability relating to or affecting
creditors' rights and (ii) to general principles of equity, whether such
enforcement is considered in a proceeding at law or in equity.
3.1.5. Conflict.
This Agreement does not conflict with any law, agreement, or
obligation by which the Company or any of its Subsidiaries is bound.
3.2. Securities Law Representations of the Investor
The Investor represents, warrants and acknowledges to the Company as
follows:
3.2.1. Investment.
The Warrants issued to the Investor, and the Warrant Shares to be
issued to the Investor upon exercise of the Warrants, are being acquired for
investment for the Investor's own account, not as a nominee or agent, and not
with a view to or for sale in connection with the distribution thereof. The
Investor has not been contacted concerning the acquisition of the Warrants or
Warrant Shares by means of any advertisement.
3.2.2. Sophistication.
The Investor has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of the
Investor's investment in the Warrants and the Warrant Shares; the Investor has
the ability to bear the economic risks of such investment; the Investor has the
capacity to protect its own interests in connection with the transactions
contemplated by this Agreement; and the Investor has had an opportunity to ask
questions of management of the Company and to obtain such financial and other
information from the Company as the Investor deems necessary or appropriate in
connection with evaluating the merits of the investment in the Warrants and the
Warrant Shares. The Investor acknowledges that the Warrants have not been and
will not be registered under the Act and may not be transferred except in
compliance with the Act and with the prior consent of the Company.
3.2.3. Transfer Restrictions.
There are no more than 10 members of the Investor and the Investor
will cause each of its members to agree to appropriate restrictions on
transferability of their member interests in the Investor in order to prevent a
possible public distribution of the Warrant Shares under federal and applicable
state securities laws.
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4.
ANTI-DILUTION PROTECTION
4.1. Stock Splits, Consolidations, Dividends and Distributions
If the outstanding shares of Common Stock are subdivided into a greater
number of shares of Common Stock or if the Company makes a dividend in the form
of stock or other Distribution of its stock to stock Investors, the Current
Exercise Price shall, simultaneously with the effectiveness of such subdivision,
dividend or Distribution, be proportionately reduced, and conversely, if the
outstanding shares of Common Stock shall be combined into a smaller number of
shares of Common Stock, the Current Exercise Price shall, simultaneously with
the effectiveness of such combination, be proportionately increased.
4.2. Successive Changes
The provisions of this Article shall apply to successive dividends or
other Distributions, subdivisions and combinations on or of shares of Common
Stock after the date of this Agreement.
4.3. Adjustment of Shares Issuable Upon Exercise of Warrants
Upon each adjustment of the Exercise Price as a result of the
calculations made pursuant to this Article 4, each Warrant outstanding prior
to the making of the adjustment in the Exercise Price shall thereafter be
treated as that number of Warrants, and shall evidence the right to purchase,
at the adjusted Exercise Price, that number of shares of Common Stock
(calculated to the nearest hundredths), obtained by (i) multiplying the
number of shares of Common Stock purchasable upon exercise of a Warrant prior
to adjustment by the Exercise Price in effect prior to adjustment, and
(ii) dividing the product so obtained by the Exercise Price in effect after
such adjustment of the Exercise Price.
4.4. Notice of Adjustment to Investors
Upon the occurrence of each adjustment or readjustment of the Exercise
Price, the Company shall compute such adjustment or readjustment in accordance
with the terms hereof. The Company shall furnish the Investor with a certificate
signed by the Company's chief financial officer setting forth in reasonable
detail (i) the Exercise Price after such adjustment or readjustment, (ii) the
method of calculation and the facts upon which such calculation is based and
(iii) the number of shares of Common Stock purchasable upon exercise of a
Warrant after such adjustment or readjustment.
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5.
MISCELLANEOUS
5.1. Notices
In order to be effective, any notice or other communication required or
permitted hereunder shall be in the form, and transmitted in the manner,
required under the Secured Promissory Note.
5.2. Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Investor may not Transfer any of the Warrants without the prior written
consent of the Company.
5.3. Governing Law
This Agreement shall be governed by and construed in accordance with
the laws of the State of Colorado applicable to contracts entered into and to
be performed wholly within Colorado by Colorado residents.
5.4. Consent to Jurisdiction
The Company hereby consents to the non-exclusive jurisdiction, venue
and forum of any state or federal court in Colorado with respect to any
action, whether commenced by the Investor or any other Person, which, in
whole or in part, in any way arises under or relates to this Agreement.
5.5. Execution in Counterparts
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which, when so
executed, shall be deemed to be an original and all of which, when taken
together, shall constitute but one and the same agreement.
5.6. Remedies
In the event of a breach by the Company of this Agreement, any Investor
injured by such breach, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, shall be entitled to specific
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach of this Agreement by the Company and hereby waives the defense in any
action for specific performance that a remedy at law would be adequate.
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5.7. Incorporation of Exhibits and Schedules by Reference
All Exhibits and Schedules to this Agreement are incorporated herein by
this reference.
5.8. Entire Agreement; Amendment
This Agreement (including the Exhibits, Schedules and the parts of
the Bridge Loan and Security Agreement incorporated by reference herein) is
issued pursuant to the letter agreement, dated October 30, 1998, between the
Company and the Investor and constitutes the entire agreement between the
Company and the Investor with respect to the subject matter hereof, superseding
all prior or contemporaneous negotiations, communications, discussions and
correspondence concerning the subject matter hereof. This Agreement may be
modified or amended or any provision hereof may be waived only with the written
consent of the Company and the Investor.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, this Agreement
to become effective as of the date first above written.
INCOMNET, INC.,
a California corporation
By: /s/ Denis Richard
--------------------------------------
Denis Richard
President and Chief Executive Officer
IRONWOOD TELECOM LLC,
a Colorado limited liability company
By: /s/ Donald V. Berlanti
--------------------------------------
Donald V. Berlanti
Member
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EXHIBITS
Exhibit A: Form of Warrant Certificate
Exhibit B: Form of Assignment
Exhibit C: Form of Warrant Subscription
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EXHIBIT A
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE AND THE SHARES PURCHASABLE
UPON EXERCISE OF THE WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT") AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE ACT, THE RULES AND REGULATIONS PROMULGATED THEREUNDER AND
ANY APPLICABLE STATE SECURITIES LAWS.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ARE ISSUED PURSUANT TO AND ARE
SUBJECT TO A WARRANT AGREEMENT WHICH FIXES THE RIGHTS AND OBLIGATIONS OF THE
COMPANY AND THE INVESTOR OF THESE WARRANTS. A COPY OF THE WARRANT AGREEMENT IS
ON FILE AT THE COMPANY'S PRINCIPAL OFFICE.
COMMON STOCK WARRANT CERTIFICATE
For the Purchase of 100,000
shares of Common Stock
Incomnet, Inc., a California corporation (the "Company"), hereby certifies
that, for value received, Ironwood Telecom LLC or any registered assigns, is the
registered investor (the "Investor") of One Hundred Thousand (100,000) Warrants
(the "Warrants") to purchase One Hundred Thousand (100,000) shares (the
"Shares") of Common Stock of the Company ("Common Stock"); provided, however,
the number of Warrants represented by this Common Stock Warrant Certificate and
the number of shares of the Company's common stock issuable upon exchange of the
Warrants shall be increased in accordance with Article 4 of the Warrant
Agreement. Each Warrant entitles the Investor to purchase from the Company one
fully paid and nonassessable share of Common Stock at an initial exercise price
(the "Exercise Price") of $1.00 per share.
The Investor's right to purchase Shares hereunder shall be exercised by
surrender to the Company of this Warrant Certificate, together with an executed
Form of Warrant Subscription (attached hereto) and payment of the aggregate
Exercise Price of the Warrants exercised, at the principal executive office of
the Company, upon the terms and subject to the conditions set forth in this
Warrant Certificate and in the Warrant Agreement referred to herein.
The Warrants represented by this Warrant Certificate have been issued
pursuant to a Warrant Agreement dated as of November 16, 1998 (the "Warrant
Agreement")
Exh. A-1
between the Company and Ironwood Telecom LLC. The Warrant Agreement is
incorporated in this Warrant Certificate by this reference and must be referred
to for a description of the rights, obligations and duties of the Company and
the Investors of the Warrants issued pursuant to the Warrant Agreement.
If, upon any exercise of Warrants represented by this Warrant Certificate,
the number of Warrants exercised is less than the total number of Warrants
represented by this Warrant Certificate, there shall be issued to the Investor
or the Investor's assignee a new Warrant Certificate representing the number of
Warrants not exercised.
This Warrant Certificate, when surrendered to the Company in accordance
with the terms of the Warrant Agreement, may be exchanged without payment of any
service charge for another Warrant Certificate or Warrant Certificates
representing in the aggregate a like number of Warrants.
Subject to and in accordance with the terms of the Warrant Agreement, any
or all of the Warrants represented by this Warrant Certificate may be
transferred by presentation to the Company accompanied by an executed Form of
Assignment (attached hereto). A new Warrant Certificate representing the number
of Warrants so transferred shall be issued to the transferee, subject to any
limitations provided in the Warrant Agreement, without charge. If the number of
Warrants so transferred is less than the total number of Warrants represented by
this Warrant Certificate, there shall be issued to the transferor a new Warrant
Certificate representing the number of Warrants not transferred.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
signed by the person named below thereunto duly authorized.
DATED: November 16, 1998 INCOMNET, INC.,
a California corporation
By:
-----------------------------------
Its:
-----------------------------------
Exh. A-2
EXHIBIT B
FORM OF ASSIGNMENT
(To be executed by the registered Investor if such Investor
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED, __________ hereby sells, assigns and
transfers unto __________, the Warrants represented by the attached Warrant
Certificate, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ____________ to transfer such Warrants
on the books of the within-named Corporation with full power of substitution.
DATED: , 19
------------------
Signature
---------------------------
Exh. B-1
EXHIBIT C
FORM OF WARRANT SUBSCRIPTION
(To be signed only upon exercise of Warrant.)
TO____________________:
The undersigned, the Investor of the Warrants represented by the attached
Warrant Certificate (the "Investor"), hereby irrevocably elects to exercise the
purchase right represented by such Warrants for, and to purchase thereunder,
__________* Shares of Common Stock (the "Shares") of Incomnet, Inc. (the
"Company") and herewith makes payment, as provided in the Warrant Agreement, of
US $_____________ therefor. The Investor hereby requests that the Company issue
______ shares of Common Stock and requests that the certificate(s) for such
Shares be issued in the name of, and delivered to:
_________________________ (Signature must conform in all
_________________________ respects to name of Investor as
(Address) specified on the face of the
Warrant Certificate)
Dated:______________19__.
*Insert here the number of Shares called for on the face of the Warrant
Certificate (or, in the case of a partial exercise, the portion thereof as to
which the Warrants are being exercised), in either case without making any
adjustment for additional Shares or any other securities or property or cash
which, pursuant to the adjustment provisions of the Warrant Agreement, may be
deliverable upon exercise.
Exh. C-1