Settlement Final in Suit Over SEC Probe of Incomnet

Incomnet Inc. said a U.S. District Court granted final approval of its settlement with plaintiffs in a class action suit charging the Irvine company with falsely denying the existence of a Securities and Exchange Commission investigation.

Incomnet had said last October that it would incur a third-quarter charge of about $5 million as a result of its agreement to pay $8.65 million to settle the suit.

The suit, filed against the company in January 1995 by a shareholder who purchased Incomnet stock between Aug. 1, 1994 and Sept. 1, 1995, also charged that the company’s former chairman and president conducted undisclosed trading in Incomnet stock.

In a press release Thursday, the company, a reseller of long distance service, said it would pay $500,000 in cash and reimburse plaintiff expenses up to $100,000.

The settlement also includes payment in stock--at least 1.4 million shares if the company’s stock is trading at $3 a share or more at the time of computations, or at least 4.1 million shares if the stock is trading at $1 or less at the time of computation.

The company expects to compute the exact number of shares in the fall.

The stock closed Thursday at $1.81 a share, unchanged, in Nasdaq trading.

Incomnet also said it signed a letter of intent with its secured lender, Ironwood Telecom, to convert about $16.8 million of secured debt into preferred stock, subject to customary conditions and shareholder approval.

The preferred stock will be convertible into common shares at a discount to market price after certain holding periods.

The holding periods are designed to give the company a chance to grow its business and so reduce any dilutive effect caused by the conversion, Incomnet said.