EXHIBIT 10.4 - WARRANT AGREEMENT BETWEEN INCOMNET, INC. AND
IRONWOOD TELECOM LLC, DATED NOVEMBER 4, 1998
WARRANT AGREEMENT
This WARRANT AGREEMENT (this "Agreement") is made and entered into as of
November 4, 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 500,000
warrants to the Investor entitling the Investor to purchase an aggregate of
500,000 shares of Common Stock of the Company representing not less than 2% of
the outstanding shares of Common Stock of the Company.
Concurrently herewith the Company and the Investor are entering into a 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 $3,000,000.
Issuance of the warrants described herein is a condition to the effectiveness of
the Investor's obligations under such Bridge Loan and Security Agreement.
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:
"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 Bridge Loan Note are
disbursed in accordance with the Bridge Loan and Security 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.
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"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 4, 2003,
subject to extensions pursuant to Section 2.1.
"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
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 Five
Hundred Thousand (500,000) 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
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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 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 A-2 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.
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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.
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.
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.
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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 each
member will agree to appropriate restrictions.
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
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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.
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.
5.7. INCORPORATION OF EXHIBITS AND SCHEDULES BY REFERENCE
All Exhibits and Schedules to this Agreement are incorporated herein by this
reference.
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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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