THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN EXEMPTION FROM SUCH REGISTRATION.
No. WA___1 Warrant to Purchase 2,000,000 Shares of
Common Stock (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
of
INCOMNET, INC.
This certifies that, for value received, IRONWOOD TELECOM LLC and its
registered assigns ("Holder") is entitled, subject to the terms set forth below,
to purchase from INCOMNET, INC., a California corporation (the "Company"),
2,000,000 shares of the Common Stock of the Company, on the date the Company's
Articles of Incorporation are amended to provide for a sufficient number of
authorized shares of Common Stock to allow for the issuance of the number of
shares of Common Stock underlying this Warrant (the date of such amendment, the
"Initial Exercise Date"), upon surrender hereof, at the principal office of the
Company referred to below, with the Notice of Exercise form attached hereto (the
"Notice of Exercise") duly executed, and simultaneous payment therefor in lawful
money of the United States as hereinafter provided, at the Exercise Price as set
forth in Section 2 below. The number, character and Exercise Price of such
shares of Common Stock are subject to adjustment as provided below. The term
"Warrant" as used herein shall include this Warrant and any warrants delivered
in substitution or exchange therefor as provided herein.
This Warrant is issued in connection with the transactions described the
Loan and Security Agreement dated as of December 15, 1998 (the "Loan
Agreement"), between the Company, the Holder and the other party identified
therein.
1. Term of Warrant. Subject to the terms and conditions set forth herein,
this Warrant shall be exercisable, in whole or in part, during the term
commencing on the Initial Exercise Date and ending at 5:00 p.m., Pacific
Standard Time, on the five-year anniversary of the Initial Exercise Date, and
shall be void thereafter.
2. Exercise Price. The Exercise Price at which this Warrant may be
exercised shall be $1.00 per share of Common Stock, as adjusted from time to
time pursuant to Section 11 hereof.
3. Exercise of Warrant.
3.1. Notice of Exercise. The purchase rights represented by this
Warrant are exercisable by the holder in whole or in part, but not for less than
10,000 shares at a time (or such lesser number of shares which may then
constitute the maximum number purchasable; such number being subject to
adjustment as provided in Section 11 below), at any time, or from time to time,
during the term hereof as described in Section 1 above, by the surrender of this
Warrant
and the Notice of Exercise duly completed and executed on behalf of the Holder,
at the office of the Company (or such other office or agency of the Company as
it may designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company), upon payment in cash or by check
acceptable to the Company of the purchase price of the shares to be purchased.
3.2. Issuance of Stock. This Warrant shall be deemed to have been
exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above, and the person entitled to receive the
shares of Common Stock issuable upon such exercise shall be treated for all
purposes as the holder of record of such shares as of the close of business on
such date. As promptly as practicable on or after such date and in any event
within ten (10) days thereafter, the Company at its expense shall issue and
deliver to the person or persons entitled to receive the same a certificate or
certificates for the number of shares issuable upon such exercise. In the event
that this Warrant is exercised in part, the Company at its expense will execute
and deliver a new Warrant of like tenor exercisable for the number of shares for
which this Warrant may then be exercised.
4. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. Replacement of Warrant. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, on delivery of an indemnity
agreement reasonably satisfactory in form and substance to the Company or, in
the case of mutilation, on surrender and cancellation of this Warrant, the
Company at its expense shall execute and deliver, in lieu of this Warrant, a new
warrant of like tenor and amount.
6. Rights of Shareholders. Subject to Sections 9 and 11 of this Warrant,
the Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised as provided herein.
7. Transfer of Warrant.
7.1. Warrant Register. The Company will maintain a register (the
"Warrant Register") containing the names and addresses of the Holder or Holders.
Any Holder of this Warrant or any portion thereof may change its address as
shown on the Warrant Register by written notice to the Company requesting such
change and the Company shall immediately make the appropriate changes to the
Warrant Register. Any notice or written communication required or permitted to
be given to the Holder may be delivered or given by mail to such Holder as shown
on the Warrant Register and at the address shown on the Warrant Register. Until
this
2
Warrant is transferred on the Warrant Register of the Company, the Company may
treat the Holder as shown on the Warrant Register as the absolute owner of this
Warrant for all purposes, notwithstanding any notice to the contrary.
7.2. Warrant Agent. The Company may, by written notice to the
Holder, appoint an agent for the purpose of maintaining the Warrant Register
referred to in Section 7(a) above, issuing the Common Stock or other securities
then issuable upon the exercise of this Warrant, exchanging this Warrant,
replacing this Warrant, or any or all of the foregoing. Thereafter, any such
registration, issuance, exchange, or replacement, as the case may be, shall be
made at the office of such agent.
7.3. Transferability and NonNegotiability of Warrant. This Warrant
may not be transferred or assigned in whole or in part without compliance with
all applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested by
the Company), provided, however, that this Warrant may not be transferred in
part unless such transfer is to a transferee who pursuant to such transfer
receives the right to purchase at least 10,000 shares hereunder. Subject to the
provisions of this Warrant with respect to compliance with the Securities Act of
1933, as amended (the "Act"), title to this Warrant may be transferred by
endorsement (by the Holder executing the Assignment Form attached hereto (the
"Assignment Form") and delivery in the same manner as a negotiable instrument
transferable by endorsement and delivery.
7.4. Exchange of Warrant Upon a Transfer. On surrender of this
Warrant for exchange, properly endorsed on the Assignment Form and subject to
the provisions of this Warrant with respect to compliance with the Act and with
the limitations on assignments and transfers and contained in this Section 7,
the Company at its expense shall issue to or on the order of the Holder a new
warrant or warrants of like tenor, in the name of the Holder or as the Holder
(on payment by the Holder of any applicable transfer taxes) may direct, for the
number of shares issuable upon exercise hereof.
7.5. Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Common Stock or Common
Stock to be issued upon exercise hereof are being acquired solely for the
Holder's own account and not as a nominee for any other party, and for
investment, and that the Holder will not offer, sell or otherwise dispose
of this Warrant or any shares of Common Stock to be issued upon exercise
hereof except under circumstances that will not result in a violation of
the Act or any state securities laws. Upon exercise of this Warrant, the
Holder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of Common Stock so purchased
are being acquired solely for the Holder's own account and not as a
nominee for any other party, for investment, and not with a view toward
distribution or resale.
3
(ii) This Warrant and all shares of Common Stock issued upon
exercise hereof shall be stamped or imprinted with a legend in
substantially the following form (in addition to any legend required by
state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SECURITIES
AND ANY SECURITIES OR SHARES ISSUED HEREUNDER OR THEREUNDER MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF
THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE MAY BE OBTAINED AT
NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OR RECORD HEREOF TO THE
SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
COMPANY.
8. Reservation of Stock. The Company covenants that during the term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its Articles of Incorporation (the "Articles")
to provide sufficient reserves of shares of Common Stock issuable upon exercise
of this Warrant; provided, however, that as of December 15, 1998 the Company
does not have any shares of Common Stock available for issuance upon the
exercise of this Warrant, and the Holder hereby acknowledges that she
understands that shares of Common Stock are so unavailable; provided, further,
that the Company hereby covenants and agrees to request that its shareholders
approve of a proposal at the next annual meeting of shareholders to amend the
Articles to increase the Company's authorized Common Stock in sufficient number
to provide for the issuance of all securities of the Company outstanding as of
the Initial Exercise Date exercisable or convertible into Common Stock. The
Company further covenants that all shares that may be issued upon the exercise
of rights represented by this Warrant, upon exercise of the rights represented
by this Warrant and payment of the Exercise Price, all as set forth herein, will
be free from all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously or otherwise
specified herein). The Company agrees that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the exercise of this Warrant.
9. Notices. Upon the written request of the Holder, whenever the Exercise
Price or number of shares purchasable hereunder shall be adjusted pursuant to
Section 11 hereof, the Company shall issue a certificate signed by its Chief
Financial Officer setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the Exercise Price and number of shares purchasable
hereunder after giving effect to such adjustment, and shall cause a copy of such
certificate to be mailed (by first-class mail, postage prepaid) to the Holder of
this Warrant. All notices and requests required under this Warrant shall be in
writing and shall be deemed to have been given for all purposes (a) upon
personal delivery, (b) one day after being sent, when sent by professional
overnight courier service from and to locations within the continental United
States, (c) five days after posting when sent by registered or certified mail,
or (d) on the date of transmission (if transmitted during normal business hours
otherwise on the next succeeding business day) when sent by telegram, telegraph,
telex or telecopier, addressed to the Holder at its addresses set forth on the
Warrant Register, and addressed to the Company at ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Telecopier No. (▇▇▇) ▇▇▇▇▇▇▇. The Holder or the Company may
from time to time by notice in writing delivered as provided herein, designate a
different mailing address to which such notices or requests shall thereafter be
delivered.
4
10. Amendments.
10.1. Amendment. Any term of this Warrant may be amended with the
written consent of the Company and the Holder. Any amendment effected in
accordance with this Section 10 shall be binding upon the Company and each
future holder of this Warrant.
10.2. Waiver. No waivers of, or exceptions to, any term, condition
or provision of this Warrant, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, condition
or provision.
11. Adjustments. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
11.1. Gross Revenue Target. If the gross revenue of the Company
during the fourth quarter of 1999, on an annualized basis, is less than $98
million, the Exercise Price shall be reduced, and the number of shares of Common
Stock issuable upon the exercise of this Warrant shall be increased, in the same
proportion as the difference between the Company's actual revenues during the
fourth quarter of 1999, on an annualized basis, and $98 million. Gross revenue
shall be determined in accordance with generally accepted accounting principles;
provided, however, that for purposes of determining the Company's actual gross
revenue during the fourth quarter of 1999 in order to make an adjustment in the
Exercise Price or number of shares of Common Stock issuable upon exercise of
this Warrant, the gross revenue of any corporation, partnership, limited
liability company or other entity acquired or merged with or into the Company
during or before the fourth quarter of 1999 shall be included in the calculation
of the Company's revenue as if the acquired company's gross revenues were part
of the Company's gross revenues for the entire fourth quarter of 1999, whether
or not such inclusion of revenues is consistent with generally accepted
accounting principles.
11.2. Merger, Sale of Assets, etc. If at any time while this
Warrant, or any portion thereof, is outstanding and unexpired there shall be (i)
a reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash, or
otherwise, or (iii) a sale or transfer of the Company's properties and assets
as, or substantially as, an entirety to any other person, then, as a part of
such reorganization, merger, consolidation, sale or transfer, lawful provision
shall be made so that the holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Exercise Price then in effect, the number of shares of stock
or other securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if this
Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 11. The foregoing provisions of this Section 11.2 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation that are
at the time receivable upon the exercise of this Warrant. If the per-share
consideration payable to the holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in good
faith by the Company's Board of Directors) shall be made in the application of
the provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
5
11.3. Reclassification, etc. If the Company, at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 11.
11.4. Split, Subdivision or Combination of Shares. If the Company at
any time while this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the Exercise Price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination.
11.5. Adjustments for Dividends in Stock or Other Securities or
Property. If while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible shareholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefor, the
amount of such other or additional stock or other securities or property (other
than cash) of the Company that such holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock available by it as aforesaid
during such
6
period, giving effect to all adjustments called for during such period by the
provisions of this Section 11.
11.6. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 11, the Company shall, upon
the written request, at any time, of any Holder of this Warrant, furnish or
cause to be furnished to such Holder a like certificate setting forth: (i)
adjustments and readjustments in accordance with the terms hereof; (ii) the
Exercise Price at the time in effect; and (iii) the number of shares and the
amount, if any, of other property that at the time would be received upon the
exercise of the Warrant.
12. Registration Rights. Upon exercise of this Warrant, the Holder shall
have and be entitled to exercise, together with all other holders of Registrable
Securities possessing registration rights under that certain Registration Rights
Agreement, dated November 5, 1998, between the Company, the Holder and the other
parties identified therein or are otherwise bound thereby (the "Registration
Rights Agreement"), the rights of registration granted under the Registration
Rights Agreement to Registrable Securities (with respect to the shares issued on
exercise of this Warrant). By its receipt of this Warrant, ▇▇▇▇▇▇ agrees to be
bound by the Registration Rights Agreement upon exercise of this Warrant as a
party thereto.
13. Miscellaneous.
(a) Attorneys' Fees. In any action at law or in equity to enforce
any of the provisions or rights under this Warrant, the unsuccessful party to
such litigation, as determined by the court in a final judgment or decree, shall
pay the successful party all costs, expenses and reasonable attorneys' fees
incurred by the successful party (including, without limitation, costs, expenses
and fees on any appeal).
(b) Governing Law; Venue. This Warrant and the legal relations
between the Holder and the Company shall be governed by and construed in
accordance with the laws of the State of Colorado applicable to contracts made
and performed in such State and without regard to conflicts of law doctrines of
any other State or country. In the event of any action at law or equity to
enforce any of the provisions or rights under this Agreement, the parties agree
that the proper venue for such action is Denver, Colorado and that the parties
may bring such an action to enforce their respective rights under this Agreement
only in a court located within ▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇▇▇ County, State of Colorado.
The parties further agree that such court shall have personal jurisdiction over
each of the parties to this Agreement.
7
IN WITNESS WHEREOF, INCOMNET, INC. has caused this Warrant to be
executed by its officers thereunto duly authorized.
Dated: December 15, 1998 INCOMNET, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇
President and Chief Executive
Officer
ATTEST:
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Assistant Secretary
8
NOTICE OF EXERCISE
To: INCOMNET, INC.
(1) The undersigned hereby elects to purchase ______ shares of Common
Stock of INCOMNET, INC., pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price for such shares in full.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock or the Common Stock are being
acquired solely for the account of the undersigned and not as a nominee for any
other party, and for investment, and that the undersigned will not offer, sell
or otherwise dispose of any such shares of Common Stock or Common Stock except
under circumstances that will not result in a violation of the Securities Act of
1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing those shares
of Common Stock in the name of the undersigned or in such other name as is
specified below:
--------------------------------------
(Name)
--------------------------------------
(Name)
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
--------------------------------------
(Name)
------------------------ --------------------------------------
(Date) (Signature)
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under the within Warrant, with respect to the number
of shares of Common Stock (or Common Stock) set forth below:
Name of Assignee Address No. of Shares
---------------- ------- -------------
and does hereby irrevocably constitute and appoint ________________________ as
Attorney-in-Fact to make such transfer on the books of INCOMNET, INC.,
maintained for the purpose, with full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of stock to be issued upon
exercise hereof or conversion thereof are being acquired for investment and that
the Assignee will not offer, sell or otherwise dispose of this Warrant or any
shares of stock to be issued upon exercise hereof or conversion thereof except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended, or any state securities laws. Further, the Assignee has
acknowledged that upon exercise of this Warrant, the Assignee shall, if
requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the shares of stock so purchased are being acquired for investment
and not with a view toward distribution or resale.
Dated:
-----------------------
--------------------------------------
Signature of Holder
ATTEST:
-----------------------------
Signature of Assignee
