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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K
Pursuant to Section 13 OR 15(D) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 7, 1996
INCOMNET, INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA
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(State or other jurisdiction of incorporation)
0-12386 95-2871296
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(Commission File Number) (I.R.S. Employer
Identification No.)
21031 Ventura Boulevard, Suite 1100, Woodland Hills, California 91364
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818) 887-3400
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Total number of pages in this document: 20
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TABLE OF CONTENTS
ITEM 5. OTHER EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
EXHIBITS
Settlement Agreement Between Incomnet, Inc.
and Joel W Greenberg, dated as of May 9, 1996 . . . . . . . . . . . . . . . . A
Settlement Agreement Between Incomnet, Inc.
and Sam D. Schwartz, dated June 7, 1996 . . . . . . . . . . . . . . . . . . . B
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ITEM 5.OTHER EVENTS
On June 7, 1996, Incomnet, Inc. (the "Company") entered into an
agreement with Joel W. Greenberg pursuant to which Mr. Greenberg resigned
from the Boards of Directors of the Company, National Telephone &
Communications, Inc. and Rapid Cast, Inc., effective May 9, 1996. Mr.
Greenberg also paid short-swing profits of $44,424 to the Company, released
it from all claims and agreed not to solicit proxies or attempt to assert
control of the Company for a period of eight years. In consideration for Mr.
Greenberg's covenants, the Company granted options to Mr. Greenberg to
purchase 75,000 shares of its common stock for a price of $5.37 per share,
exercisable until May 9, 2001, warrants to purchase 100,000 shares of the
Company's common stock at an exercise price of $6.00 per share, exercisable
until May 9, 2001, subject to certain conditions and warrants to purchase
50,000 shares of the Company's common stock at an exercise price of $7.00 per
share, exercisable until May 9, 2001 subject to certain conditions. The
Company also agreed to dismiss its lawsuit to collect short-swing profits
from Mr. Greenberg and to indemnify him to the extent permitted under the
California Corporations Code for claims which may be made for events
occurring while he was a director of the Company. A copy of the complete
agreement is attached hereto as Exhibit A. The disclosures regarding this
agreement are qualified in their entirety by the actual contents of the
agreement.
On June 11, 1996, the Company's Board of Directors elected Gerald Katell
to replace Mr. Greenberg on the Company's Board of Directors. The Board
previously nominated Mr. Katell to stand for election to the Board at the
Company's Annual Meeting, which is rescheduled for July 29, 1996. The meeting
was previously scheduled for June 14, 1996.
On June 7, 1996, the Company entered into a settlement agreement with Sam
D. Schwartz, the former President and Chairman of the Board of Directors of the
Company, pursuant to which Mr. Schwartz agreed to pay short-swing profits of
$2,128,424 plus interest at 8.25% per annum until June 7, 1996, and thereafter
at the prime rate of interest quoted from time to time by the Bank of America in
Los Angeles, California, in accordance with Section 16(b) of the Securities and
Exchange Act of 1934, as amended. The settlement agreement will be effective
upon its approval by the plaintiff and by the federal district court in the
pending derivative lawsuit known as MORALES VS. INCOMNET, INC. AND SAM D.
SCHWARTZ, CV 96-0225, filed in the Southern District of New York. There is no
assurance that the plaintiff will agree to the settlement or that the court will
approve it, or whether or when the settlement agreement will be effective.
The settlement agreement applies only to transactions in the Company's
stock engaged in by Mr. Schwartz from December 27, 1993 until September 1, 1995
which have been disclosed by Mr. Schwartz in Form 4 and Form 5 filings. Any
short-swing profits earned on transactions not disclosed in such public filings
are still subject to collection by the Company outside of the scope of the
settlement agreement. After the settlement agreement was executed, the Company
was notified by the plaintiff that there was evidence of additional transactions
in the Company's common stock by Mr. Schwartz which appear not to have been
reported on Form 4 or Form 5 filings. Consequently, the plaintiff is moving for
additional discovery from Mr. Schwartz in the derivative lawsuit and for either
(a) a freeze of Mr. Schwartz's shares pending resolution of the lawsuit and
payment of the short-swing profits, or (b) the voluntary deposit by Mr. Schwartz
of 800,000 shares of his stock as security for the obligation until it is paid
to the Company. It is uncertain at this time how the court will rule on the
motions, how Mr. Schwartz will respond to the requests, and how the proceedings
will effect the status of the existing settlement agreement. The Company is not
objecting to the plaintiff's motions and requests.
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The settlement agreement provides that the payment of short-swing profits
plus interest will be made according to the following schedule: 20% on the
effective date of the settlement agreement, 10% 90 days after the effective
date, 10% 180 days after the effective date, 10% 270 days after the effective
date, 10% 360 days after the effective date, 10% 450 days after the effective
date, 10% 540 days after the effective date, and the balance 630 days after the
effective date. The Company or Mr. Schwartz have the option to either have
sufficient shares redeemed from Mr. Schwartz by the Company to pay the
installments of short-swing profits plus interest, based on the average last
sale price of the Company's common stock quoted on the NASDAQ market during the
five trading days immediately preceding the payment date, or to have Mr.
Schwartz sell shares in the open market or otherwise pay the installment in
cash.
On the effective date of the agreement, Mr. Schwartz has agreed to (i) pay
the initial 20% installment and (2) deposit into an escrow account, in which the
Company will have a perfected security interest, the number of his shares of the
Company's common stock having an aggregate value equal to 120% of the
outstanding balance of short-swing profits plus interest due (after the 20%
downpayment), based on the average last sale price of the Company's common stock
quoted on the NASDAQ market during the five trading days immediately preceding
the day before the effective date. The Company will draw payments due pursuant
to the settlement agreement from this escrow account. If the aggregate value of
the shares in the escrow account is below the outstanding balance due on Mr.
Schwartz's short-swing profit obligation to the Company for 15 consecutive
trading days, then Mr. Schwartz is obligated to deposit additional shares into
the escrow account to eliminate any deficiency. In any event, if for any reason
the Company does not receive full payment of the short-swing profits plus
interest by a date 630 days after the effective date of the agreement, then Mr.
Schwartz is obligated to pay the balance to the Company.
Pursuant to the settlement agreement, the Company reversed the redemption
of 250,000 stock options tendered by Mr. Schwartz on August 18, 1995 and
September 1, 1995. As a result, Mr. Schwartz owns those stock options in their
original form. The stock options vest once National Telephone & Communications,
Inc. earns an aggregate of $15,000,000 in pre-tax profits in any four
consecutive fiscal quarters until December 31, 1997. The exercise price is
$11.00 per share and they are exercisable for a period of three years after they
vest. The Company has agreed to file a registration statement under the
Securities Act of 1933, as amended, covering the shares issued upon the exercise
of the stock options within 90 days after all of the options are exercised, if
they are exercised.
A copy of the complete agreement is attached hereto as Exhibit B. The
disclosures regarding this agreement are qualified in their entirety by the
actual contents of the agreement.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
INCOMNET, INC.
(Registrant)
Date: June 7, 1996 By: /s/ Melvyn Reznick
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Melvyn Reznick, President and Chief
Executive Officer
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SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (the "Agreement") is entered into as of this 9th
day of May 1996 by and between Joel W. Greenberg, an individual ("Greenberg"),
and Incomnet, Inc., a California corporation ("Incomnet" or the "Company"), with
respect to the following facts.
R E C I T A L S
A. Greenberg has been the Chairman of the Board of Directors of Incomnet.
Incomnet has three other directors. Certain members of the Board of
Directors of Incomnet requested that Greenberg voluntarily agree to not
stand for reelection to the Board of Directors of Incomnet.
B. Greenberg was not nominated to stand for reelection as a member of the
Board of Directors of Incomnet when the nominations were made on
April 8, 1996.
C. Greenberg asserted that he would file his own proxy statement and
engage in a proxy contest in order to be elected to the Incomnet Board
of Directors at the 1996 Annual Meeting of the Shareholders initially
scheduled to be held on June 14, 1996.
D. Greenberg owes Incomnet $44,424 in short-swing profits (the "Short-
Swing Profits") pursuant to Section 16(b) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Greenberg has agreed to
pay the Short-Swing Profits to Incomnet pursuant to the terms and
conditions of this Agreement. On May 6, 1996, Incomnet filed a lawsuit
in the United States District Court in the Central District of
California, entitled INCOMNET, INC. VS. JOEL W. GREENBERG, Case Number
CV 96-3230 SVW (CTx) (the "Lawsuit"), to collect the Short-Swing
Profits owed to Incomnet.
E. In lieu of engaging in a potentially damaging proxy context and
subjecting Incomnet to expensive litigation which could have delayed
its annual meeting and diverted management's time, attention and
resources away from the business operations of Incomnet and its
subsidiaries, and in light of the negative impact such contest could
have on the investment community and on the shareholders of Incomnet,
Incomnet has decided to settle with Greenberg on the terms and
conditions set forth in this Agreement.
F. Greenberg has decided to settle with Incomnet on the terms and
conditions of this Agreement rather than engage in an expensive and
potentially damaging proxy contest with the other Board members of
Incomnet.
G. The members of the Board of Directors of Incomnet believe in their best
business judgment that this Settlement Agreement is preferable to a
proxy contest and is in the best interests of the Incomnet
shareholders, especially in light of management's responsibilities
relating to the financing and operation of Incomnet's and its
subsidiaries' businesses.
H. Greenberg presently holds vested options to purchase 25,000 shares of
the common stock of Incomnet, which vested on April 5, 1996 and which
entitle him to purchase those shares at an exercise price of $4.37 per
share until April 5, 2001.
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I. Greenberg holds vested warrants to purchase 35,000 shares of the common
stock of Incomnet which entitle him to purchase those shares at a price
of $4.87 per share until December 31, 1997.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, the parties hereby
agree as follows:
1. RESIGNATION AND AGREEMENT NOT TO ASSERT CONTROL
In consideration for the compensation payable to Greenberg by Incomnet
pursuant to Section 3 of this Agreement, Incomnet's release in Section 7 of this
Agreement, and other valuable consideration, the sufficiency of which is
acknowledged, Greenberg agrees not to seek nor to accept any position with
Incomnet, whether as an officer, director, affiliate (as "affiliate" is defined
in Rule 405 of the Securities Act of 1933, as amended (the "Act"), or otherwise,
nor to seek or accept control of Incomnet or to participate in any group seeking
or accepting control of Incomnet (as "control" is defined in Rule 405 of the
Act), nor to initiate, participate in, encourage, finance or facilitate any
proxy contest with the Incomnet Board of Directors, nor to solicit or
participate in any way in the solicitation of proxies from the shareholders of
Incomnet for any purpose, nor to acquire or to seek to acquire a number of
shares of Incomnet's outstanding stock which would result in Greenberg being
deemed to be an "affiliate" of Incomnet, for a period of eight years from the
commencement date of this Agreement. Upon the execution of this Agreement by
Incomnet and Greenberg, Greenberg hereby resigns as a director and Chairman of
the Board of Directors of Incomnet, and as a director of National Telephone
Communications, Inc. and Rapid Cast, Inc., as well as any other positions he may
hold with those companies, effective as of May 9, 1996.
2. PAYMENT OF SHORT-SWING PROFITS
Greenberg herewith pays to Incomnet Short-Swing Profits in the amount of
$44,424.
3. COMPENSATION TO GREENBERG
Incomnet hereby issues to Greenberg the following stock options and
warrants to purchase the common stock of Incomnet:
A. Incomnet hereby issues to Greenberg as of May 9, 1996 options to
purchase 75,000 shares of Incomnet's common stock at an exercise price
of $5.37 per share, exercisable at any time from May 9, 1996 until May
9, 2001.
B. Incomnet hereby issues to Greenberg, as of May 9, 1996, warrants to
purchase 100,000 shares of Incomnet's common stock at an exercise price
of $6.00 per share. These warrants will vest and thereby become
exercisable only on the date, if occurring on or before May 9, 1999, on
which the last sale price of Incomnet's common stock quoted on the
NASDAQ Small Capital Market, or the primary exchange or market on which
Incomnet common stock is traded, has equaled or exceeded $6.00 per
share for 20 trading days during a 40 consecutive trading day period.
Once vested, the warrants will be exercisable at any time until May 9,
2001.
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C. Incomnet hereby issues to Greenberg, as of May 9, 1996, warrants to
purchase 50,000 shares of Incomnet's common stock at an exercise price
of $7.00 per share. These warrants will vest and thereby become
exercisable only on the date, if occurring on or before May 9, 1999, on
which the last sale price of Incomnet's common stock quoted on the
NASDAQ Small Capital Market, or the primary exchange or market on which
Incomnet is traded, has equaled or exceeded $7.00 per share for 20
trading days during a 40 consecutive trading day period. Once vested,
the warrants will be exercisable at any time until May 9, 2001.
If Incomnet's common stock is not traded on a particular day, then the last
sale price of Incomnet's stock on the previous trading day on which it did trade
will be carried forward and assumed to be the last sale price on such day when
it did not trade. The stock options referred to in Section 3(A) and Recital H
of this Agreement will be included in Incomnet's 1996 Stock Option Plan to be
presented for ratification by the Incomnet shareholders at the 1996 Annual
Meeting and, if ratified, will be covered by a Form S-8 registration statement.
Incomnet will file a registration statement under the Act registering for sale
the shares purchased upon the exercise of, or underlying, the warrants referred
to in Sections 3(B) and 3(C) of this Agreement within 90 days after all of the
warrants referred to in Section 3(B) of this Agreement are exercised, and will
thereafter seek to have the registration statement declared effective as soon as
feasible. The registration statement will be amended from time to time as may
be necessary to cause the registration statement to remain effective until such
time as Greenberg sells all shares that he may purchase or such earlier time
that Greenberg may sell these shares pursuant to Rule 144 of the Act. Greenberg
shall provide written notice of exercise to Incomnet pursuant to Section 4.5 of
this Agreement. Greenberg may pay the exercise price of the warrants referred
to in Section 3(B) of this Agreement in cash or pursuant to a noninterest
bearing promissory note payable to the Company on the effective date of the
registration statement covering the shares and underlying shares issued or to be
issued upon the exercise of the warrants referred to in Sections 3(B) and 3(C)
of this Agreement; provided, that the shares issuable upon the exercise of any
of said warrants will not be issued to Greenberg until the full exercise price
for the shares is paid to Incomnet in cash. Notwithstanding anything else
herein to the contrary, Greenberg may only sell the shares purchased upon the
exercise of the warrants referred to in Sections 3(B) and 3(C) within the volume
limitations prescribed by Rule 144(e)(1) of the Act as in effect on the date of
this Agreement. The stock options and warrants referred to in Section 3 and
Recital H of this Agreement are not assignable except to Greenberg's heirs in
the event of his death or incompetency and may only be exercised by Greenberg or
his heirs. In the event of a breach of Section 1 of this Agreement by
Greenberg, all outstanding stock options and warrants described in Section 3 and
Recital H of this Agreement will automatically be canceled; provided, that in
the case where Greenberg does not write or cause any writings to be made in
opposition to Incomnet's Board of Directors or management, then Greenberg will
have a period of ten (10) days after receipt of written notice from Incomnet
notifying him that he has breached Section 1 of this Agreement to cure said
breach.
4. ADJUSTMENTS TO WARRANTS AND OPTIONS
4.1 SUBDIVISION OR COMBINATION OF INCOMNET COMMON STOCK
If Incomnet at any time subdivides (by any stock or unit split, stock
or unit dividend, recapitalization or otherwise) one or more classes of its
outstanding shares of common stock into a greater number of shares, the exercise
price (and the price, if any, at which such shares
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must trade or sell before such warrant becomes exercisable) of the warrant
and option in effect immediately prior to such subdivision shall be
proportionately reduced and the number of shares of Incomnet common stock
obtainable upon exercise of the warrant and option shall be proportionately
increased. If Incomnet at any time combines (by reverse stock or unit split
or otherwise) one or more classes of its outstanding shares of common stock
into a smaller number of shares, the exercise price (and the price, if any,
at which such shares must trade or sell before such warrant becomes
exercisable) of the warrant and option in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Incomnet common stock obtainable upon exercise of the warrant and option
shall be proportionately decreased.
4.2 REORGANIZATION, RECLASSIFICATION, RECAPITALIZATION, MERGER OR SALE
Any recapitalization, reorganization, reclassification, consolidation,
merger, or sale, directly or indirectly, of all or substantially all of
Incomnet's assets to another person or entity or other transaction which is
effected in such a way that holders of shares of Incomnet common stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
units, securities or assets with respect to or in exchange for shares of
Incomnet common stock is referred to herein as an "Organic Change." Any Organic
Change pursuant to which no value is received by Incomnet but holders of shares
of Incomnet common stock are entitled to receive (either directly or upon
subsequent liquidation) stock, units, securities or assets with respect to or in
exchange for Incomnet common stock and the collective ownership thereafter
represented by the shares of Incomnet common stock and such additional stock,
units, securities or other assets is substantially the same as the ownership
represented by the shares of Incomnet common stock prior to such Organic Change,
is referred to herein as an "Organic Reorganization." Prior to the consummation
of any Organic Change (a) any provision of the warrants referred to in Sections
3(B) and 3(C) of this Agreement requiring that the shares of Incomnet common
stock be selling or trading at a specified dollar amount shall no longer be
applicable, such warrant being thereafter immediately exercisable, which
exercise shall be subject to the consummation of such Organic Change, and (b) in
the case of any Organic Change (other than an Organic Reorganization), such
warrant must be exercised by the holder, if at all, prior to the consummation of
such Organic Change or shall expire unexercised. With respect only to the
warrants referred to in Sections 3(B) and 3(C) of this Agreement, prior to the
consummation of any Organic Reorganization, Incomnet shall elect either to (i)
adjust the exercise price for the warrant to the lesser of (a) the exercise
price in effect prior to such Organic Reorganization or (b) the closing price
for the Incomnet common stock immediately prior to the record date for such
Organic Reorganization (in either case such warrant must be exercised by the
holder prior to the consummation of such Organic Reorganization whereupon the
warrant shall automatically terminate), or (ii) make fair and adequate provision
to insure that the holder of the warrant shall thereafter have the right to
acquire and receive in lieu of or in addition to (as the case may be) the shares
of Incomnet common stock immediately theretofore acquirable and receivable upon
the exercise of such holder's warrants, such shares of stock, units, securities
or assets as may be issued or payable with respect to or in exchange for the
number of shares of Incomnet common stock immediately therefore acquirable and
receivable upon the consummation of such Organic Reorganization if the holder
had exercised the warrant immediately prior thereto. Incomnet shall notify the
holder of the warrant in writing at least ten (10) days prior to the record date
used for determining the holders of Incomnet's common shares who shall receive
consideration or any property in the event of any Organic Change.
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4.3 STOCK OPTIONS SUBJECT TO STOCK OPTION PLAN
The stock options referred to in Section 3(A) and Recital H of this
Agreement are issued pursuant to and are subject to all of the terms and
conditions of Incomnet's 1996 Stock Option Plan as adopted by Incomnet's Board
of Directors and which shall be presented to the shareholders for ratification
at Incomnet's 1996 Annual Meeting of the Shareholders. Such Stock Option Plan
may be amended in the future from time to time pursuant to its terms. Any
amendment to the Stock Option Plan will be applicable to the stock options
referred to in Section 3(A) and Recital H of this Agreement in the same manner
as it would be applicable to all other options issued under the Stock Option
Plan. Except as otherwise provided herein, no further action is required by or
on behalf of Incomnet in connection with the issuance of the Options or Warrants
referred to in Section 3 of this Agreement.
4.4 NO IMPAIRMENT
Until the expiration date of the warrants and options referred to in
Section 3 of this Agreement, or the exercise of said options and warrants,
Incomnet shall not, by amendment of its Articles of Incorporation or Bylaws or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities, or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of said
options and warrants, but shall at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
reasonably necessary or appropriate in order to protect the rights of the holder
of said warrants and options against impairment. Without limiting the
generality of the foregoing, Incomnet shall take all such action as may be
necessary or appropriate in order that Incomnet may validly and legally issue
fully paid and non-assessable shares of stock upon the exercise of said warrants
and options.
4.5 EXERCISE OF THE WARRANTS AND OPTIONS
In the absence of any formal instructions as to the method of exercise
of the options or warrants, they may be exercised by notifying Incomnet in
writing prior to the expiration of the option or warrant of Greenberg's exercise
of the options or warrants. Such notification shall be to Incomnet's current
address, unless Incomnet notifies Greenberg in writing of a change of address.
At such time as Greenberg notifies Incomnet of his exercise, Incomnet shall make
arrangements for the prompt issuance of shares being purchased and Greenberg
shall make prompt payment pursuant to the terms contained in Incomnet's 1996
Stock Option Plan or pursuant to the terms contained in Section 3 hereof for the
exercise of warrants, subject to the terms of this Agreement. The number of
shares subject to the options or warrants shall be reduced automatically by the
number of shares purchased pursuant thereto.
5. INDEMNIFICATION OF GREENBERG
Incomnet hereby agrees to indemnify and hold Greenberg harmless from any
liability, claims, damages, losses, expenses, judgments or settlements as a
former director or agent of Incomnet to the maximum extent permissible by the
general corporations law of California, and the Articles of Incorporation and
Bylaws of Incomnet. Nothing contained herein shall be deemed or construed to
limit the indemnification protections that Greenberg shall have as a former
director of Incomnet, nor shall the provisions contained herein be construed or
deemed to broaden or otherwise increase the right to indemnification that would
otherwise be limited by statutory or case law, or by the Articles of
Incorporation and the Bylaws of Incomnet. No
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action shall be taken or initiated by the Board of Directors of Incomnet to
limit the protections of the current indemnification provision available to
Greenberg, unless required by law.
6. REIMBURSEMENT
In the event that it is determined that Greenberg is not entitled to
indemnification by Incomnet pursuant to Section 5 of this Agreement, then
Greenberg is obligated to reimburse Incomnet for all amounts paid by Incomnet on
behalf of Greenberg pursuant to the indemnification provisions of this
Agreement. In the event that Greenberg is successful on the merits in the
defense of any proceeding referred to in Section 5 of this Agreement, or any
related claim, issue or matter, then Incomnet will indemnify and hold Greenberg
harmless from all fees, costs and expenses actually incurred by him in
connection with the defense of any such proceeding, claim, issue or matter which
have not otherwise already been advanced to Greenberg by Incomnet in accordance
with this Agreement.
7. RELEASE OF CLAIMS AND DISMISSAL OF LAWSUIT
7.1 RELEASE AND DISMISSAL
Effective upon the execution of this Agreement by Incomnet and Greenberg
and full payment of the Short-Swing Profits by Greenberg to Incomnet pursuant to
the terms of this Agreement, Incomnet (a) fully and forever releases and
discharges Greenberg from any and all claims, demands, obligations, losses,
damages, or causes of action of any nature, whether based in contract, tort or
any other theory of recovery, whether for compensatory or punitive damages, and
whether known or unknown, that now exist or may hereafter accrue based on
actions occurring prior to the effective date of this release, and relating to
(i) any claim for which Greenberg would receive indemnification from Incomnet
pursuant to Sections 5 or 6 of this Agreement, and (ii) any obligation by
Greenberg to pay the Short-Swing Profits to Incomnet pursuant to Section 16(b)
of the Exchange Act, and (b) agrees to dismiss the Lawsuit (referred to in
Recital D hereof) with prejudice and execute any documents and take any action
necessary or appropriate in order to effect such dismissal. Effective upon the
execution of this Agreement by Greenberg and Incomnet, Greenberg hereby releases
and forever discharges Incomnet and any of its past, present and future
affiliates, employees, officers, directors, shareholders, attorneys,
accountants, successors and predecessors, from any and all claims, demands,
obligations, losses, damages, or causes of action of any nature, whether based
in contract, tort or any other theory of recovery, whether for compensatory or
punitive damages, and whether known or unknown, that now exist or may hereafter
accrue based on actions occurring prior to the effective date of this release
and relating to Incomnet or any of its subsidiaries. Nothing contained herein
shall be deemed or construed to release Incomnet from its obligations pursuant
to Section 5 or 6 hereunder.
7.2 REPRESENTATIONS AND AGREEMENTS
The undersigned agree that these releases shall not be considered
admissions by any party of any liability. The undersigned warrant that no
promise or inducement has been offered except as herein set forth. The
undersigned are of legal age and legally competent to execute this release and
accept full responsibility therefor. The undersigned declare that the terms of
this full and final release of the claims described in this Agreement have been
completely read by the undersigned and are fully understood and voluntarily
accepted for the purpose of making a full and final compromise and settlement.
Incomnet and Greenberg represent and warrant
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that they have not assigned any of their above referenced released claims to
any third party. These releases will not extend to a breach of this
Agreement by either party. The parties hereto further agree that all rights
under Section 1542 of the Civil Code of California, and any similar law of
any state or territory of the United States or other jurisdiction, are hereby
expressly waived. Said Section reads 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."
8. AUTHORIZATION FOR AGREEMENT
The Board of Directors of Incomnet has authorized Incomnet's officers to
negotiate and enter into this Agreement with Greenberg.
9. INJUNCTIVE RELIEF
9.1 DAMAGES INADEQUATE
Each party acknowledges that it would be impossible to measure in money the
damages to the other party if there is a failure to comply with any covenants
and provisions of this Agreement, and agrees that in the event of any breach of
any covenant or provision, the other party to this Agreement will not have an
adequate remedy at law.
9.2 INJUNCTIVE RELIEF
It is therefore agreed that the other party to this Agreement who is
entitled to the benefit of the covenants and provisions of this Agreement which
have been breached, in addition to any other rights or remedies which they may
have, shall be entitled to immediate injunctive relief to enforce such covenants
and provisions, and that in the event that any such action or proceeding is
brought in equity to enforce them, the defaulting or breaching party will not
urge a defense that there is an adequate remedy at law.
10. WAIVERS
If any party shall at any time waive any rights hereunder resulting from
any breach by the other party of any of the provisions of this Agreement, such
waiver is not to be construed as a continuing waiver of other breaches of the
same or other provisions of this Agreement. Resort to any remedies referred to
herein shall not be construed as a waiver of any other rights and remedies to
which such party is entitled under this Agreement or otherwise.
11. SUCCESSORS AND ASSIGNS
Each covenant and representation of this Agreement shall inure to the
benefit of and be binding upon each of the parties, their personal
representatives, assigns and other successors in interest.
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<PAGE>
12. ENTIRE AND SOLE AGREEMENT
This Agreement constitutes the entire agreement between the parties and
supersedes all other agreements, representations, warranties, statements,
promises and undertakings, whether oral or written, with respect to the subject
matter of this Agreement. This Agreement may be modified only by a written
agreement signed by all parties.
13. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of California, and any action hereunder to enforce, interpret
or seek judicial relief under this Agreement may be brought either in the County
of Los Angeles, State of California, or in the County of Cook, State of
Illinois.
14. COUNTERPARTS
This Agreement may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
such counterparts shall constitute but one and the same instrument.
15. ATTORNEYS' FEES AND COSTS
In the event that either party must resort to legal action in order to
enforce the provisions of this Agreement or to defend such action, the
prevailing party shall be entitled to receive reimbursement from the
nonprevailing party for all reasonable attorneys' fees and all other costs
incurred in commencing or defending such action, or in enforcing this Agreement,
including but not limited to post judgment costs.
IN WITNESS WHEREOF, this Agreement has been entered into as of the date
first above written.
INCOMNET: INCOMNET, INC.
By:
--------------------------------------
Melvyn Reznick, President
Date:
------------------------------------
GREENBERG:
-----------------------------------------
Joel W. Greenberg
Date:
------------------------------------
- 8 -
<PAGE>
EXHIBIT B
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- ------------------------------------
RICHARD MORALES :
PLAINTIFF, :
: CV 96 0225
- VS -
:
INCOMNET, INC. AND : STIPULATION OF SETTLEMENT
SAM D. SCHWARTZ,
:
DEFENDANTS.
- ------------------------------------
IT IS HEREBY STIPULATED AND AGREED to by and between the Parties hereto
and their respective attorneys, as follows:
<PAGE>
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (the "Agreement") is entered into this 5th day of
June 1996 by and between Sam D. Schwartz, an individual ("Schwartz"), and
Incomnet, Inc., a California corporation ("Incomnet"), with respect to the
following facts.
R E C I T A L S
A. Schwartz and Incomnet have agreed upon the amount of short-swing
profits ("Short-Swing Profits") owed by Schwartz to Incomnet pursuant
to Section 16(b) of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), as the result of disclosed purchases and
sales of Incomnet's common stock made by Schwartz from December 27,
1993 until September 1, 1995 while he was the President, Chief
Executive Officer and Chairman of the Board of Directors of Incomnet.
B. Schwartz and Incomnet have been named as defendants in the pending
lawsuit entitled RICHARD MORALES VERSUS INCOMNET, INC. AND SAM D.
SCHWARTZ, Case Number CV 96-0225, filed in the United States District
Court in the Southern District of New York (the "Court") in January
1996 (the "Lawsuit").
C. The short-swing profits alleged in the Lawsuit by plaintiff (the
"Plaintiff") are equal to the Short-Swing Profits agreed upon by
Incomnet and Schwartz in this Agreement.
D. Schwartz presently owns approximately 1,998,500 shares of Incomnet's
Common Stock. Schwartz has no other significant liquid assets from
which to pay Short-Swing Profits, and is subject to significant bank
debt, other monetary obligations, and contingent liabilities,
including but not limited to claims made in a pending class action
lawsuit and related lawsuits naming Incomnet and Schwartz as
defendants, and in an ongoing investigation by the Securities and
Exchange Commission. Incomnet, in its business judgment, believes
that the terms and conditions for payment of the Short-Swing Profits
set forth in this Agreement are the best and most efficient means of
collecting the Short-Swing Profits from Schwartz.
E. This Agreement is entered into by Incomnet and Schwartz for the
purpose of settling all claims made in the Lawsuit and Incomnet's
claims for payment of the Short-Swing Profits by Schwartz. This
Agreement is also made in compliance with the Severance Agreement
entered into by Schwartz and Incomnet, dated November 30, 1995, and in
particular as a resolution of all issues under Section 5 of said
Severance Agreement (the "Severance Agreement"). This Agreement and
the scope of the term "Short-Swing Profits" covers the transactions
disclosed by Schwartz on Form 4 and Form 5 filings with the Securities
and Exchange Commission for the period from December 27, 1993 until
September 1, 1995 (the "Period"). Any undisclosed transactions would
be subject to an entirely separate calculation and, if appropriate,
additional obligation by Schwartz pursuant to Section 16(b) of the
Exchange Act outside the scope of this Agreement.
- 1 -
<PAGE>
NOW THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged by the parties, the parties hereby
agree as follows:
1. AMOUNT OF SHORT-SWING PROFITS AND INTEREST
Incomnet and Schwartz agree that the amount of the Short-Swing Profits is
$2,128,872. The outstanding Short-Swing Profits accrue interest at the simple
rate equal to 8.25% per annum through April 30, 1996 and thereafter equal to the
prime rate of interest quoted from time to time by the Bank of America in Los
Angeles, California (the "Prime Rate"). The accrued interest on the outstanding
Short-Swing Profits as of May 1, 1996 is $174,976. Incomnet hereby agrees to
credit Schwartz with $36,000 of interest at 8% per annum which he previously
waived on his $900,000 convertible note while it was outstanding, issued to him
on February 8, 1995. Therefore, as of May 1, 1996, the total outstanding
liability to Incomnet for Short-Swing Profits plus interest is $2,267,848, and
this liability will thereafter bear simple interest at the Prime Rate, as
adjusted from time to time. Schwartz agrees to pay the amount of Short-Swing
Profits plus interest to Incomnet in accordance with the terms of this
Agreement. Schwartz represents and warrants that he has disclosed on Form 4 and
Form 5 filings with the Securities and Exchange Commission all transactions made
by him or for his benefit in Incomnet's stock during the Period.
2. PAYMENT OF SHORT-SWING PROFITS
Schwartz agrees to pay the Short-Swing Profits plus accrued but unpaid
interest thereon in cash or pursuant to the redemption of his shares of
Incomnet Common Stock, based on the average of the last sale price of
Incomnet's Common Stock on the NASDAQ on the five trading days immediately
preceding the date of his elected redemption, according to the following
schedule, subject to Incomnet's rights in Section 4 of this Agreement: At
least 30% of the total outstanding principal liability plus total accrued but
unpaid interest on the Effective Date of this Agreement, as provided and as
hereafter defined in Section 5 of this Agreement, at least 10% of the total
outstanding principal liability plus total accrued but unpaid interest 90
days after the Effective Date, at least 10% of the total outstanding
principal liability plus total accrued but unpaid interest 180 days after the
Effective Date, at least 10% of the total outstanding principal liability
plus the accrued but unpaid interest 270 days after the Effective Date, at
least 10% of the total outstanding principal liability plus total accrued but
unpaid interest 360 days after the Effective Date, at least 10% of the total
outstanding principal liability plus total accrued but unpaid interest 450
days after the Effective Date, at least 10% of the total outstanding
principal liability plus total accrued but unpaid interest 540 days after the
Effective Date, and the balance of the total outstanding principal liability
plus total accrued but unpaid interest on or before a date 630 days after the
Effective Date. Incomnet may in its sole discretion at any time require that
Schwartz sell any shares which would otherwise be tendered to Incomnet for
redemption and cancellation pursuant to the terms of this Agreement, and
remit the amount owed by Schwartz to Incomnet in cash as payment on
Schwartz's obligations to Incomnet hereunder in lieu of redeeming and
cancelling said shares. Schwartz covenants to cooperate fully with
Incomnet's requests for sales of shares in lieu of redemption and
cancellation. Schwartz may prepay the Short-Swing Profits plus interest to
Incomnet in whole or in part at any time without penalty or premium.
Notwithstanding anything else herein to the contrary, if for any reason by
630 days after the Effective Date Incomnet has not received full payment of
the Short-Swing Profits plus interest from Schwartz either in cash or through
the redemption of shares and the Note pursuant to the terms of this
Agreement, then Incomnet is entitled to have additional shares redeemed and
cancelled or sold in accordance with this Agreement, either from the Escrow
Account (as defined in Section 4 herein) or, if sufficient shares are not
available in the Escrow Account, from additional shares tendered by Schwartz
into the Escrow Account for the benefit of Incomnet.
- 2 -
<PAGE>
3. SECURITY FOR THE PAYMENT OF SHORT-SWING PROFITS
As a first priority perfected security interest for Schwartz's
obligation to pay Short-Swing Profits to Incomnet under this Agreement,
Schwartz agrees to deposit 400,000 shares of the Common Stock of Incomnet,
with duly executed stock transfer powers containing certified signatures,
into an escrow account jointly administered by legal counsel for Incomnet and
legal counsel for Schwartz (the "Escrow Account"), in addition to and at the
same time that the first installment on the Short-Swing obligation is paid to
Incomnet pursuant to Section 2 of this Agreement. Said legal counsel will
follow the written instructions of Schwartz, subject to his minimum
obligations to Incomnet in this Agreement, including but not limited to
Schwartz's obligation to sell shares and remit cash proceeds in lieu of
having the shares redeemed and cancelled as provided in Section 2 of this
Agreement. If the last sale price quoted for Incomnet's Common Stock on the
NASDAQ (or other public trading market if not then traded on the NASDAQ) is
below $4.50 per share for ten consecutive trading days, then Schwartz is
obligated to deposit additional shares of Incomnet's Common Stock, duly
endorsed and certified, into the Escrow Account on an ongoing basis so that
the value of the shares in the Escrow Account equals or exceeds the
outstanding balance of Short-Swing Profits plus Interest owed to Incomnet. If
Schwartz does not make said deposit within ten days after his obligation to
do so, Incomnet may immediately redeem and cancel the balance of the shares
held in the Escrow Account, crediting Schwartz with payment equal to the
value of said shares based on the average last sale price of the stock on the
NASDAQ (or other public trading market if not then traded on the NASDAQ)
during the five trading days immediately preceding said redemption, and
Schwartz will continue to owe the balance of any remaining unpaid Short-Swing
Profits plus interest. In the event that Schwartz voluntarily files, or is
subject to an involuntary filing of, a petition for bankruptcy or similar
proceeding in any federal or state court, then Incomnet will have the right
to immediately redeem and cancel the Note and all shares remaining in the
Escrow Account, or at Incomnet's written election, to immediately have said
legal counsel sell all said shares for the benefit of Incomnet and remit the
net proceeds to Incomnet as soon as they are available. At all times under
this Agreement, payments by Schwartz will be credited first to outstanding
unpaid interest and then to the outstanding principal balance of Short-Swing
Profits.
4. REVERSAL OF REDEMPTION AND CANCELLATION OF STOCK OPTIONS
The cancellation and redemption of the 250,000 stock options tendered by
Schwartz on August 18, 1995 and September 1, 1995 to the Company as payment on
the Short-Swing Profit obligation is hereby revoked and said stock options are
deemed outstanding in full as of said date. The terms and conditions of said
options are as they were on the respective tender dates (i.e. the options will
vest and thereby become exercisable upon National Telephone Communications, Inc.
earning an aggregate of $15,000,000 in pre-tax profits in any four consecutive
fiscal quarters until December 31, 1997, the exercise price will be $11.00 per
share, and the options will be exercisable for a period of three years after
they vest). The cancellation of the redemption of the options shall not be
deemed to be a transaction under Section 16(b) of the Exchange Act, and is made
as consideration for the overall facilitation of the settlements embodied in
this Agreement. Incomnet will file a registration statement under the
Securities Act of 1933, as amended, covering the shares purchased upon the
exercise of the options within 90 days after all of the options have been
exercised, and will thereafter seek to have the registration statement declared
effective as soon as feasible. Schwartz may pay
- 3 -
<PAGE>
the exercise price of the options in cash or pursuant to a noninterest
bearing promissory note payable to the Company on the effective date of the
registration statement covering said shares; provided, that the shares
issuable upon the exercise of the options will not be issued to Schwartz
until the full exercise price is paid in cash in full.
5. CONDITIONS TO EFFECTIVENESS OF AGREEMENT
This Agreement will become effective upon its execution by Incomnet and
Schwartz and its approval by the Court, provided, that this Agreement shall
be effective as between Schwartz and Incomnet even if the Lawsuit is
dismissed without Court approval of this Agreement (the "Effective Date").
6. SATISFACTION OF THE SEVERANCE AGREEMENT
The effectiveness of this Agreement will be deemed to satisfy and supersede
the provisions of Section 5 of the Severance Agreement.
7. RELEASE OF CLAIMS AND DISMISSAL OF LAWSUIT
7.1 INCOMNET AND SCHWARTZ
Effective on the date of full payment of the Short-Swing Profits by
Schwartz to Incomnet pursuant to the terms of this Agreement, Incomnet fully and
forever releases and discharges Schwartz from any and all claims, demands,
obligations, losses, damages, or causes of action of any nature relating to any
obligation by Mr. Schwartz to pay the Short-Swing Profits accrued during the
Period to Incomnet pursuant to Section 16(b) of the Securities and Exchange Act
of 1934, as amended. Effective on the date of the approval of this Agreement by
Court order, Schwartz hereby releases and forever discharges Incomnet and any of
its past, present and future affiliates, employees, officers, directors,
shareholders, attorneys, accountants, successors and predecessors, from any and
all claims, demands, obligations, losses, damages, or causes of action of any
nature relating to Section 5 of the Severance Agreement and the payment of
Short-Swing Profits.
7.2 THE LAWSUIT
Effective on the date of the approval of this Agreement by Court order, (a)
Plaintiff fully and forever releases and discharges Incomnet and Schwartz from
any and all claims, demands, obligations, losses, damages, or causes of action
of any nature relating to any obligation by Schwartz to pay the Short-Swing
Profits accrued during the period to Incomnet pursuant to Section 16(b) of the
Securities and Exchange Act of 1934, as amended, and (b) Plaintiff agrees to
dismiss the Lawsuit with prejudice, and to execute any documents and take any
action necessary or appropriate in order to effect such dismissals.
7.3 REPRESENTATIONS AND AGREEMENTS
The undersigned agree that these releases shall not be considered
admissions by any party of any liability or wrongdoing. The undersigned warrant
that no promise or inducement has been offered except as herein set forth. The
undersigned are of legal age and legally competent to execute this release and
accept full responsibility therefor. The undersigned declare that the terms of
this full and final release of claims for payment of the Short-Swing Profits
have been completely read by the undersigned and are fully understood and
voluntarily accepted for the purpose of making a full and final compromise and
settlement. Incomnet,
- 4 -
<PAGE>
Schwartz and Plaintiff represent and warrant that they have not assigned any
of their above referenced released claims to any third party.
8. INJUNCTIVE RELIEF
8.1 DAMAGES INADEQUATE
Each party acknowledges that it would be impossible to measure in money the
damages to the other party if there is a failure to comply with any covenants
and provisions of this Agreement, and agrees that in the event of any breach of
any covenant or provision, the other party to this Agreement will not have an
adequate remedy at law.
8.2 INJUNCTIVE RELIEF
It is therefore agreed that the other party to this Agreement who is
entitled to the benefit of the covenants and provisions of this Agreement which
have been breached, in addition to any other rights or remedies which they may
have, shall be entitled to immediate injunctive relief to enforce such covenants
and provisions, and that in the event that any such action or proceeding is
brought in equity to enforce them, the defaulting or breaching party will not
urge a defense that there is an adequate remedy at law.
9. WAIVERS
If any party shall at any time waive any rights hereunder resulting from
any breach by the other party of any of the provisions of this Agreement, such
waiver is not to be construed as a continuing waiver of other breaches of the
same or other provisions of this Agreement. Resort to any remedies referred to
herein shall not be construed as a waiver of any other rights and remedies to
which such party is entitled under this Agreement or otherwise.
10. SUCCESSORS AND ASSIGNS
Each covenant and representation of this Agreement shall inure to the
benefit of and be binding upon each of the parties, their personal
representatives, assigns and other successors in interest.
11. ENTIRE AND SOLE AGREEMENT
This Agreement constitutes the entire agreement between the parties and
supersedes all other agreements, representations, warranties, statements,
promises and undertakings, whether oral or written, with respect to the subject
matter of this Agreement. This Agreement may be modified only by a written
agreement signed by all parties.
12. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of California, and the venue for any action hereunder shall be
in the appropriate forum in the County of Los Angeles, State of California.
13. COUNTERPARTS
This Agreement may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
such counterparts shall constitute but one and the same instrument.
- 5 -
<PAGE>
14. ATTORNEYS' FEES AND COSTS
In the event that either party must resort to legal action in order to
enforce the provisions of this Agreement or to defend such action, the
prevailing party shall be entitled to receive reimbursement from the
nonprevailing party for all reasonable attorneys' fees and all other costs
incurred in commencing or defending such action, or in enforcing this Agreement,
including but not limited to post judgment costs.
IN WITNESS WHEREOF, this Agreement has been entered into as of the date
first above written.
INCOMNET: INCOMNET, INC.
By:
---------------------------------
Melvyn Reznick, President
Date:
-------------------------------
------------------------------------
Mark J. Richardson, Esq.
Attorney for Incomnet, Inc.
1299 Ocean Avenue, Suite 900
Santa Monica, California 90401
(310) 393-9992
SCHWARTZ:
-----------------------------------------
Sam D. Schwartz
Date:
------------------------------------
SHEPPARD, MULLIN, RICHTER AND HAMPTON LLP
Attorneys for Sam D. Schwartz
333 South Hope Street, 48th Floor
Los Angeles, California 90071-1448
BY:
--------------------------------------
James L. Sanders, Esq.
PLAINTIFF: ACKNOWLEDGED AND AGREED:
-----------------------------------------
Richard Morales
-----------------------------------------
David Lopez, Esq.
Attorney for Richard Morales
171 Edge of Woods Road
P.O. Box 323
Southampton, New York 11968
SO ORDERED:
- ---------------------------------
U.S. DISTRICT JUDGE
- 6 -
