INCOMNET INC, DEF 14A, 1997-11-19

INCOMNET INC
DEF 14A, 1997-11-19
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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant /X/
Filed by a party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12

INCOMNET, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required

/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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/ / Fee paid previously with preliminary materials.

/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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INCOMNET, INC.

21031 Ventura Boulevard, Suite 1100
Woodland Hills, California 91364

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

November 17, 1997

TO OUR SHAREHOLDERS:

You are cordially invited to attend the 1997 Annual Meeting of Shareholders of
Incomnet, Inc., to be held on Monday, December 15, 1997 at 9:30 A.M., Pacific
Time, at the Marriott Hotel, 21859 Oxnard St., Woodland Hills, California, to
consider and act upon the following proposals, as described in the accompanying
Proxy Statement:

1. To elect seven (7) directors to serve until the next Annual Meeting of
Shareholders and thereafter until their successors are elected and
qualified.

2. To amend the Articles of Incorporation of the Company to delete
reference to the number of directors in order to be consistent with
the Company's Bylaws and with customary practice under the California
Corporations Code, as amended in 1977.

3. To ratify the selection of Stonefield Josephson LLP to serve as the
Company's independent auditors for the year ending December 31, 1997.

4. To transact such other business as may properly come before the
meeting or any adjournments thereof.

The Board of Directors has fixed the close of business on November 7, 1997, as
the record date for Shareholders entitled to notice of and to vote at this
meeting and any adjournments thereof.

By Order of the Board of Directors

Stephen A. Caswell, Secretary

November 17, 1997
Woodland Hills, California

ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO COMPLETE,
SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOUR PROXY
WILL NOT BE USED IF YOU ARE PRESENT AT THE ANNUAL MEETING AND DESIRE TO VOTE
YOUR SHARES PERSONALLY AT THAT TIME.

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INCOMNET, INC.

21031 Ventura Boulevard, Suite 1100
Woodland Hills, California 91364

PROXY STATEMENT

SOLICITATION, VOTING AND REVOCABILITY OF PROXIES

The enclosed proxy is solicited by the Board of Directors of Incomnet, Inc. (the
"Company"), 21031 Ventura Boulevard, Suite 1100, Woodland Hills, California
91364, for use at the 1997 Annual Meeting of Shareholders to be held on Monday,
December 15, 1997 (the "Annual Meeting"). The Company intends to send this
Proxy Statement and the accompanying Notice of Annual Meeting of Shareholders
and form of proxy to the holders of its Common Stock, no par value (the "Common
Stock"), on or about November 17, 1997. The cost of soliciting proxies will be
borne by the Company. It is expected that proxies will be solicited exclusively
by mail; however, if it should appear desirable to do so, officers and employees
of the Company may communicate with shareholders, banks, brokerage houses,
nominees and others by telephone, facsimile, or in person, to request that
proxies be furnished. Officers and employees soliciting proxies will not
receive any additional compensation for their services. The Company will
reimburse brokers and other nominees for their reasonable out-of-pocket expenses
incurred in forwarding solicitation material to beneficial owners of shares held
of record by such brokers or nominees.

The proxy, if returned properly executed and not subsequently revoked, will be
voted in accordance with the choices made by the shareholders with respect to
the proposals listed thereon. If no choice is made with respect to the
proposals, the proxy will be voted for the election of the Board of Directors'
nominees. If any other matters should be presented at the Annual Meeting, the
holders of the proxies will vote on such matters in accordance with the views of
a majority of the directors. Any shareholder giving a proxy may revoke it at
any time before it is exercised by filing an instrument revoking it or a duly
executed proxy bearing a later date with the Secretary of the Company, or by
attending the meeting and voting in person.

The Company's Annual Report on Form 10-K as submitted to the Securities &
Exchange Commission for the year ended December 31, 1996, is being mailed
concurrently with this Proxy Statement. Brokerage houses, custodians, nominees,
and others may obtain additional copies of the Annual Report or this Proxy
Statement by written request to the Company.

OUTSTANDING SHARES AND VOTING RIGHTS

The classes of the Company's equity securities outstanding are its Common Stock,
its Series A Preferred Stock and its Series B Preferred Stock. The Series A
Preferred Stock and the Series B Preferred Stock do not have voting rights.
Shareholders of record at the close of business on November 7, 1997 are entitled
to one vote for each share of Common Stock held by them. As of November 4,
1997, there were 14,122,803 shares of Common Stock outstanding, consisting of
12,622,803 issued shares and 1,500,000 that have been reserved for the
settlement of the class action lawsuit against the Company (see the Company's
Report on Form 10-Q for the Third Quarter ended September 30, 1997).

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth information as of November 4, 1997, with respect
to each person who is known by the Company to own beneficially 5% or more of the
Company's outstanding Common Stock.

Name and Amount and Percent of
Address of Nature of Shares of
Beneficial Beneficial Common Stock
Owner Ownership Outstanding (4)
- ----- --------- ---------------

Sam D. Schwartz 832,944 (1) 5.42%
333 S. Hope St. - 43rd Floor
Los Angeles, CA 90071

Clarence Robert Zivitz 729,300 (2) 4.75%
7734 Silver Bell Drive
Sarasota, FL 34241

David Wilstein 522,179 (3) 3.40%
2080 Century Park East - Penthouse
Los Angeles, CA 90067

Richard Horowitz 373,530 (3) 2.43%
9301 Wilshire Blvd. #206
Beverly Hills, CA 90210

Robert Epstein 325,000 (3) 2.11%
5000 Plaza on the Lake #180
Austin, Texas 78735

Jack Gilbert 201,500 (3) 1.31%
15456 Coutolenc Road
Magalia, CA 95954

Leonard Wilstein 166,779 (3) 1.08%
11201 Hindry Avenue
Los Angeles, CA 90045

(1) Excludes 90,000 shares owned by Rita L. Schwartz, which are her sole and
separate property, in which Mr. Schwartz disclaims any beneficial interest.
Includes 90,000 shares acquired upon the conversion of 8% convertible
promissory notes.

(2) Includes 644,300 shares owned by Clarence R. Zivitz, Nancy Zivitz' husband,
and stock options to purchase 85,000 shares owned by Nancy Zivitz, a member
of the Company's Board of Directors, 50,000 of which have an exercise price
of $4.37 per share and 35,000 of which have an exercise price of $4.25 per
share. The stock options are exercisable as follows: 25,000 at any time
until February 28, 2001, 25,000 at any time until January 1, 2002, and
35,000 at any time until January 22, 2002.

(3) All of these individuals filed a Schedule 13D/A on August 15, 1997 in which
they stated that although they have not entered into any written agreement
relating to voting of their shares or relating to any particular course of
action concerning the voting of their shares, they have deemed themselves
to be a group pursuant to Rule 13d-5 (b) (1) of the Securities & Exchange
Act. As a group, they own a total of 1,606,188 shares or 10.46% of the
outstanding shares of the Company.

(4) Assumes 15,340,303 shares outstanding, including 1,500,000 shares reserved
for settling the class action lawsuit against the Company and 1,217,500
shares issuable upon the exercise of stock options and warrants which have
vested, but which have not yet been exercised.

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SECURITY OWNERSHIP OF MANAGEMENT

The following table sets forth information as of November 4, 1997, with respect
to the beneficial ownership by each director and officer, and by all directors
and officers as a group. All shares shown below are owned by such beneficial
owners directly unless otherwise indicated.

Amount and Percent of
Name of Nature of Shares of
Beneficial Beneficial Common Stock
Owner Ownership Outstanding (7)
- ----- --------- ----------------
Nancy Zivitz 729,300 (1) 4.75%
David Wilstein 522,179 (2) 3.40
Richard Horowitz 373,530 (2) 2.43
Melvyn Reznick 303,400 (3) 1.97
Stanley Weinstein 140,550 0.91
Albert Milstein 125,000 (4) 0.81
Howard Silverman 35,000 (5) 0.22
Stephen A. Caswell 20,000 (6) 0.13
Edward R. Jacobs -- --
James R. Quandt -- --
Victor C. Streufert -- --
Michael Keebaugh -- --
Debra Chuckas -- --
Louis Cheng -- --
Eric Hoffberg -- --
Nora Kenner -- --
Michael Ewing -- --
Jerry C. Buckley 400 --

All directors and
officers as a group
(18 persons) 2,248,959 14.65%

(1) Includes 644,300 shares owned by Clarence R. Zivitz, Nancy Zivitz'
husband, and stock options or warrants to purchase 85,000 shares owned by
Nancy Zivitz, a member of the Company's Board of Directors, 50,000 of which
have an exercise price of $4.37 per share and 35,000 of which have an
exercise price of $4.25 per share. The stock options are exercisable as
follows: 25,000 at any time until February 28, 2001, 25,000 at any time
until January 1, 2002, and 35,000 at any time until January 22, 2002.

(2) Mr. Wilstein and Mr. Horowitz are members of a group that filed a Schedule
13D/A on August 15, 1997 in which they stated that although they have not
entered into any written agreement relating to voting of their shares or
relating to any particular course of action concerning the voting of their
shares, they have deemed themselves to be a group pursuant to Rule
13d-5 (b) (1) of the Securities & Exchange Act. As a group, they own a
total of 1,606,188 shares or 10.46% of the outstanding shares of the
Company.

(3) Includes stock options to purchase 25,000 shares at an exercise price
of $4.87 per share, exercisable at any time until February 28, 2001, stock
options to purchase 25,000 shares at an exercise price of $4.87 per share,
exercisable at any time until May 31, 2001, stock options to purchase
25,000 shares at an exercise price of $4.87 per share, exercisable at any
time until August 31, 2001, stock options to purchase 25,000 shares at an
exercise price of $4.87 per share, exercisable at any time until November
30, 2001, and stock options to purchase 150,000 shares at an exercise price
of $4.37 per share, exercisable at any time until April 5, 2001, with
respect to 100,000 of those options, February 28, 2002, with respect to
25,000 of those options, and May 31, 2002, with respect to 25,000 of those
options. Does not include stock options to purchase 200,000 shares at
an exercise price of $4.87 per share, which do not vest until RCI
achieves certain financial performance goals, and stock options to purchase
50,000 shares at an exercise price of $4.37 per share, which do not vest
until RCI becomes a public company. See "Ratification of 1996 Stock Option
Program for Directors, Officers and Key Consultants" in the Company's Proxy
Statement for its 1996 Annual Meeting of the Shareholders, and "Directors
and Executive Officers - Stock Options" in this Proxy Statement.

(4) Includes stock options to purchase 25,000 shares at an exercise price of
$4.37 per share exercisable at any time until April 5, 2001, stock options
to purchase 25,000 at an exercise price of $4.37 per share exercisable at
any time until January 1,

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2002, and options to purchase 35,000 shares at an exercise price of $4.25
per share exercisable at any time until January 22, 2002.

(5) Reflects 35,000 stock options to purchase 35,000 shares of the Company's
Common Stock at an exercise price of $4.25 per share, exercisable at any
time until January 22, 2002.

(6) Does not include stock options to purchase 50,000 shares at an exercise
price of $4.37 per share, which do not vest until RCI achieves certain
financial performance goals, and stock options to purchase 40,000 shares at
an exercise price of $4.25 per share, exercisable at any time until January
22, 2002, which are pledged to the Company as additional collateral for a
non-recourse loan previously made to Mr. Caswell [see "Item 13. Certain
Relationships and Related Transaction - Note Receivable From
Officer"].

(7) Assumes 15,340,303 shares outstanding, including 1,500,000 shares reserved
for settling the class action lawsuit against the Company and 1,217,500
shares issuable upon the exercise of stock options and warrants which have
vested, but which have not yet been exercised.

Based upon the Company's review of Forms 3, 4 and 5 and any amendments
thereto furnished to the Company in compliance with Section 16 of the
Securities Exchange Act of 1934, as amended, all of such Forms were filed on a
timely basis by such reporting persons.

ELECTION OF DIRECTORS

Directors are elected by the shareholders at each annual meeting to hold office
until their respective successors are elected and qualified. Pursuant to the
Bylaws of the Company, the Board of Directors consists of not less than five (5)
nor more than nine (9) directors, and the number is presently fixed at seven (7)
members. Melvyn Reznick, Nancy Zivitz and Albert Milstein were elected to the
Board of Directors at the 1996 Annual Meeting of Shareholders. Howard Silverman
was appointed to the Board on January 20, 1997 to fill one of the vacancies [see
"Certain Relationships and Related Transactions - Appointment of Howard
Silverman as Director"]. Richard Horowitz, Stanley Weinstein and David Wilstein
were appointed to the Board on August 13, 1997 to fill the remaining vacancies
[see "Certain Relationships and Related Transactions - Appointment of Richard
Horowitz, Stanley Weinstein and David Wilstein as Directors"].

Voting for the election of directors may be either cumulative or non-cumulative.
Under California law, cumulative voting is not permitted unless, at the Annual
Meeting and prior to the voting, at least one shareholder gives notice of his
intention to cumulate his votes. If that occurs, then all the Company's
shareholders have cumulative voting rights in the election of directors. If no
such notice is given, voting for directors will be non-cumulative, which means
that a simple majority of the shares voting may elect all of the directors.
Under cumulative voting, each shareholder entitled to vote has the right to give
one candidate a number of votes equal to the number of authorized directors
multiplied by the number of votes to which his shares are entitled, or to
distribute his votes on the same principle among as many candidates as he
desires. Each share of Common Stock, therefore, has a number of votes equal to
the number of authorized directors. Proxies may not be voted for more than
seven (7) directors.

Although management of the Company expects that each of the following nominees
will be available to serve as a director, in the event that any of them should
become unavailable prior to the Annual Meeting, management's proxies will be
voted for a nominee or nominees designated by management or will be voted for a
lesser number of directors. If there are other nominees, management's proxies
will be voted so as to elect the greatest number of the following nominees.
Management has no reason to believe that any of its nominees, if elected, will
be unavailable to serve.

The nominees for election to the Board of Directors as selected by the Board of
Directors of the Company are set forth below alphabetically:

Richard Horowitz
Albert Milstein
Melvyn Reznick
Howard Silverman
Stanley Weinstein
David Wilstein
Nancy Zivitz

The biographies of nominees, including certain additional information, are set
forth below alphabetically:

RICHARD M. HOROWITZ, 56, joined the Board in August 1997 to fill a vacancy. He
has served as President of Management Brokers Insurance Agency (Beverly Hills,
CA) since 1974. He also serves as Chairman of Leviathan Corporation, a computer
sales, consulting and software company, and Chairman of Dial 800, Inc., a
telecommunication company. Since 1990, he has been

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a member of the Board of Directors of Trio-Tech International, a company that
produces environmental testing equipment. He has an MBA from Pepperdine
University.

ALBERT MILSTEIN, 51, joined the Company's Board of Directors in November
1995. He is a partner with the law firm of Winston & Strawn, for whom he has
worked since 1972. He practices in the area of real estate and health care. He
received his Juris Doctor from the University of Chicago Law School in 1972 and
received a Bachelor of Arts from Yeshiva University in 1969. Since 1986. He has
been a member of the Board of Directors of Biologic Systems Corp., a publicly-
traded computerized medical diagnostic company.

MELVYN REZNICK, 55, has been the President, Chief Executive Officer and
Chief Financial Officer of Incomnet since November 1995 and the Chairman of the
Board since May 9, 1996. He also serves as the Chief Executive Officer,
Chairman, President and Chief Financial Officer of GenSource Corporation since
its acquisition on May 2, 1997 as California Interactive Computing, Inc. (CIC)
[CIC's name was changed to GenSource Corporation on October 15, 1997. See
"Certain Relationships and Related Transactions - Change of Name of California
Interactive Computing to GenSource Corporation"]. He has 30 years of experience
in engineering, manufacturing, management, marketing, real estate and
corporate development. Since 1978, he has been a partner in two real estate
companies, Property Research and Management Co. and PRM Realty. Prior to
entering the real estate industry, he was an engineer in the aerospace industry.
He has a Bachelor of Science and a Master of Science in Mechanical Engineering
from the Massachusetts Institute of Technology and is a member of the Society of
Sigma Xi. He is also an active member of the National Association of
Corporate Directors (NACD).

HOWARD SILVERMAN, 57, joined the Company's Board in January 1997 to fill
a vacancy on the Board. He is presently an independent consultant in the field
of investment banking. From November 1996 to October 1997, he served as an
investment banking consultant with Andrew, Alexander, Wise & Co. (New York, NY).
From May 1995 to November 1996, Mr. Silverman served as Vice President of
Corporate Finance for Rickel & Associates. From 1991 until he joined Rickel, he
served as an independent consultant to early stage and mid-sized
operating companies. From 1985 to 1991, he was the founder and Board Chairman
of Vision Sciences, a company that developed, manufactured and sold in-office
lens casting systems. In 1968, Dr. Silverman received a Doctor of Optometry from
Illinois College of Optometry and in 1965, he received a Chemical Engineering
degree from the College of the City of New York.

STANLEY C. WEINSTEIN, 65, joined the Board in August 1997 to fill a vacancy. He
is a co-founder and the Managing Shareholder of Weinstein Spira & Company, P.C.
Certified Public Accountants, which was established in 1962 in Houston, TX. His
expertise includes diverse business consulting, executive recruitment and
compensation, and the development and utilization of marketing strategies. Mr.
Weinstein attended Rutgers University and obtained a B.B.A. from Upsala College.
He is a member of the American Institute of Certified Public Accountants (AICPA)
and the Texas Society of Certified Public Accountants (TSCPA).

DAVID WILSTEIN, 69, joined the Board in August 1997 to fill a vacancy. He is the
President and Chairman of the Realtech Group, a real estate development and
management firm in Los Angeles, CA, which he founded in 1968. He is also the
Chairman of the Board of Aero Products Research, a company that develops plastic
products and is a member of the Board of C. I. Systems, a company that develops
electro-optical test equipment. Mr. Wilstein has a B.S. in Civil Engineering
from the University of Pittsburgh.

NANCY S. ZIVITZ, 49, joined the Company's Board of Directors in November
1995. From 1987 to 1991, she was Senior Vice President of City National Bank
in Washington, D.C. where she was head of the Retail Banking Unit. From 1991 to
the present, she has been involved in community service for such organizations
as the Coalition of Christians and Jews and the Association of Professional
Women. She has a Bachelor of Business Administration from George Washington
University.

AMENDMENTS TO BYLAWS

On June 8, 1997, the Board of Directors of the Company adopted an amendment to
the Company's Bylaws relating to the procedures for nominating candidates for
election as directors of the Company. The amendment states as follows:

"Section 3.A. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the procedures set forth in this Section 3A shall be
eligible for election as, and to serve as, directors. Nominations of
persons for election to the Board of Directors may be made at a meeting of
the stockholders at which directors are to be elected (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is a stockholder of record at the time of the giving of
such stockholder's notice provided for in this Section 3A, who shall be
entitled to vote at such meeting in the election of directors and who
complies with the requirements of this Section 3A. Such nominations, other
than those made by or at the direction of the Board of Directors, shall be
preceded by timely advance notice in writing to the Secretary of the
Corporation. To be timely, a stockholders' notice shall be delivered to,

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or mailed and received at, the principal executive offices of the
Corporation (i) with respect to an election to be held at the annual
meeting of the stockholders of the Corporation, not later than the close of
business on the 90th day prior to the first anniversary of the preceding
year's annual meeting; PROVIDED, HOWEVER, that with respect to the annual
meeting of stockholders to be held in 1997 or in the event that the date of
the annual meeting is more than 30 days before or more than 60 days after
such anniversary date, notice by the stockholder to be timely must be so
delivered not later than the close of business on the later of the 90th day
prior to such annual meeting or the 10th day following the day on which
public announcement of the date of such meeting is first made by the
Corporation; and (ii) with respect to an election to be held at a special
meeting of stockholders of the Corporation for the election of directors,
not later than the close of business on the tenth day following the day on
which notice of the date of the special meeting was mailed to stockholders
of the Corporation or public disclosure of the date of the special meeting
was made, whichever first occurs.

Any such stockholder's notice to the Secretary of the Corporation
shall set forth (x) as to each person whom the stockholder proposes to
nominate for election or re-election as a director (i) the name, age,
business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the number of
shares of each class of capital stock of the Corporation beneficially
owned by such person, (iv) the written consent of such person to
having such person's name placed in nomination at the meeting and to
serve as a director if elected and (v) any other information relating
to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and (y) as to the stockholder giving the
notice, (i) the name and address, as they appear on the Corporation's
books, of such stockholder and (ii) the number of shares of each class
of voting stock of the Corporation which is then beneficially owned by
such stockholder. The presiding officer of the meeting of
stockholders shall determine whether the requirements of this Section
3A have been met with respect to any nomination or intended
nomination. If the presiding officer determines that any nomination
was not made in accordance with the requirements of this Section 3A,
he shall so declare at the meeting and the defective nomination shall
be disregarded. Notwithstanding the foregoing provisions of this
Section 3A, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations
thereunder with respect to the matters set forth in this Section 3A."

On August 13, 1997, the Board of Directors of the Company adopted an amendment
to the Company's Bylaws providing that the fixed number of directors of the
Company will be seven (7) members, rather than six (6) members, within a range
of permitted directors numbering a minimum of five (5) and a maximum of nine
(9).

On November 5, 1997, the Board of Directors of the Company adopted an amendment
to the Company's Bylaws providing that all formal resolutions, acts or decisions
of the Board must be approved by a majority vote, plus one additional vote, of
the directors present at a meeting duly held at which a quorum is present. The
new amended Bylaw states as follows:

Section 10. QUORUM. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to
adjourn as hereinafter provided. Every act or decision done or made by
a majority vote, plus one additional vote, of the directors present at
a meeting duly held at which a quorum is present shall be regarded as
the act of the Board of Directors, subject to the provisions of
Section 310 of the Corporations Code of California (approval of
contracts or transactions in which a director has a direct or indirect
material financial interest), Section 311 (appointment of committees),
and Section 317(e) (indemnification or directors). A meeting at which
a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority vote, plus one additional vote, of the
required quorum for such meeting.

DIRECTORS AND EXECUTIVE OFFICERS

MEETINGS AND COMPENSATION OF BOARD OF DIRECTORS

The Board of Directors of the Company held nine meetings during the year ended
December 31, 1996. Each director attended all meetings for which he or she was
eligible to attend. The Company has standing audit, compliance and compensation
committees. Board members are reimbursed for out-of-pocket expenses and will
receive stock options as defined in the section entitled "Directors and
Executive Officers - Stock Options & Warrants."

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company and its wholly-owned
subsidiaries, National Telephone Communications, Inc. (NTC) and GenSource
Corporation (GenSource) [formerly California Interactive Computing, Inc. (CIC)],
which was acquired on May 2, 1997 [see "Certain Relationships and Related
Transactions - Change of Name of California Interactive

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Computing to GenSource Corporation"], are set forth below, along with their
biographies [see "Election of Directors" for the biographies of the Company's
directors].

Name Positions
- ---- ---------

Melvyn Reznick President, Chief Executive Officer, Chief Financial
Officer and Chairman of the Board, Incomnet and
GenSource.
Richard Horowitz Director, Incomnet
Albert Milstein Director, Incomnet
Howard Silverman Director, Incomnet
Stanley Weinstein Director, Incomnet
David Wilstein Director, Incomnet
Nancy Zivitz Director, Incomnet
Stephen A. Caswell Vice President and Corporate Secretary, Incomnet and
Vice President, Director and Corporate Secretary of
GenSource
Edward R. Jacobs Chairman, NTC
James R. Quandt President and Chief Executive Officer, NTC
Victor C. Streufert Senior Vice President -- Finance & Administration and
Chief Financial Officer, NTC
Michael J. Keebaugh Vice President of Operations, NTC
Timothy M. Ciaccio Vice President of Information technology and Chief
Information Officer, NTC
Debra A. L. Chuckas Senior Vice President of Marketing Support, NTC
Jerry C. Buckley Director, GenSource
Eric Hoffberg President and Chief Operating Officer, GenSource
Nora Kenner Vice President of Customer Services, GenSource
Michael Ewing Vice President of Sales & Marketing, GenSource

STEPHEN A. CASWELL, 48, is Vice President and Corporate Secretary of Incomnet.
He joined the Company in August 1987 and has been Secretary since August 1989.
He also is Vice President, Director and Corporate Secretary of GenSource since
its acquisition by the Company [On October 15, 1997, CIC's name was changed to
GenSource Corporation. See "Certain Relationships and Related Transactions -
Change of Name of California Interactive Computing, Inc."]. He was a director of
Incomnet, Inc. from April 1988 to November 1995 when he resigned. Mr. Caswell
is a leading expert in electronic messaging networks. From 1982 to 1987, Mr.
Caswell had his own consulting firm that specialized in designing PC-based
networking systems. He has a Master of Arts in Communications from American
University in Washington, D.C. and a Bachelor of Arts in Philosophy from Tufts
University.

EDWARD R. JACOBS, 60, is Chairman of the Board of Directors of NTC. He has
in excess of 20 years experience in management with Fortune 500 firms such as
CCH- Computax and McDonnell Douglas. For the five years before joining NTC in
March 1992, he managed his own investment banking firm. Prior to that, he
co-founded Dataccount Corporation, one of the largest privately
held computerized financial services companies in Southern California.

JAMES R. QUANDT, 48, is President, Chief Executive Officer and a director of
NTC. Prior to joining NTC in January 1997, Mr. Quandt was the Chairman of the
Board of Directors of Global Financial Information Corporation, a privately held
group of companies in the financial information and technology industry, a
position which he held from 1995 to January 6, 1997. From 1991 to 1995, Mr.
Quandt was the President and Chief Executive Officer of Standard & Poors
Financial Information Services, a subsidiary of McGraw Hill Corporation in New
York, New York. From 1980 to 1991, Mr. Quandt was an executive officer in
various capacities with Security Pacific National Bank in Los Angeles,
California. Mr. Quandt earned a Bachelors of Science in Economics and Business
Administration from Saint Mary's College of California in 1971 and completed the
program at the Graduate School of Business, Management Policy Institute, at the
University of Southern California.

- 7 -

<PAGE>

VICTOR C. STREUFERT, 40, is Senior Vice President of Finance & Administration,
Chief Financial Officer and Secretary of NTC. Prior to joining NTC in 1997,
Mr. Streufert was Vice President of Finance and Chief Financial Officer for
PYXIS Corp., a $200 million health care company, from 1995 to 1997. From 1989 to
1995, he was Executive Vice President and Chief Financial Officer for American
Health Properties. Mr. Streufert has a Bachelors of Arts in Economics from
Valparaiso University in 1979 and a Masters of Business Administration in
Finance and Marketing from the University of Chicago in 1985.

MICHAEL J. KEEBAUGH, 43, has been the Vice President of Operations of NTC since
March 1997. As Vice President of Operations, Mr. Keebaugh is responsible for
the NTC Call Center, facilities management, billing, collections, and order
processing, as well as the ongoing relationship with key vendors. Prior to
joining NTC, Mr. Keebaugh was the Vice President of Operations for GE Capital
Commercial Direct in Atlanta, Georgia, and the Vice President of Operations for
Mid Communication, Inc. in Seattle, Washington. GE Capital Commercial Direct
and Mid Communication, Inc. are both long distance telephone service resale
companies. Prior to joining Mid Communication, Inc. in May 1995, Mr. Keebaugh
worked in a variety of management positions, including National Customer Support
Manager, for Sprint Communications in Overland Park, Kansas. Mr. Keebaugh has a
Bachelor of Science degree from Bowling Green State University in Ohio.

TIMOTHY M. CIACCIO, 39, has been Vice President of Information Technology since
August 1997. Prior to joining NTC, Mr. Ciaccio was Vice President of Information
Technology for NextWave Telecom, Inc. where he was responsible for the defining
and creation of the information systems organization for this nationwide
wireless telecommunications start-up company. Before joining NextWave, Mr.
Ciaccio was Vice President and Chief Information officer for LA Cellular,
headquartered in Cerritos, CA where he was responsible for the strategic
direction of information technology, including business applications and
information systems architecture. Mr. Ciaccio has a Bachelors of Science in
Information and Computer Science and a Masters Degree in Business Administration
from the University of California at Irvine

DEBRA A. L. CHUCKAS, 38, is the Senior Vice President of Marketing Support for
NTC and has held a number of other marketing positions with NTC since she joined
that company in June 1993. As Senior Vice President of Marketing Support, Ms.
Chuckas directs the development and implementation of long distance service
marketing programs as well as the ongoing support of NTC's independent sales
representatives. Prior to joining NTC, Ms. Chuckas held management positions in
the retail industry where she was responsible for the management of a women's
apparel chain. Ms. Chuckas has also held positions in the marketing,
communication and management fields in the hotel industry in Chicago and New
Orleans. Ms. Chuckas holds a Bachelors of Arts in Business Administration from
the University of Hawaii.

JERRY C. BUCKLEY, 61, was one of the founders of GenSource Corporation in 1977
[formerly CIC until October 15, 1997. See "Certain Relationships and Related
Transactions - Change of Name of California Interactive Computing to GenSource
Corporation"] and served as GenSource's Chairman, President and CEO from
GenSource's inception until GenSource was acquired by the Company on May 2,
1997. Prior to founding GenSource, he was employed in various positions in
software development and engineering by Lockheed. He received a Bachelor of
Arts in Geology from USC in 1960.

ERIC HOFFBERG, 43, has been employed at GenSource since January 1990 [formerly
CIC until October 15, 1997. See "Certain Relationships and Related Transactions
- - Change of Name of California Interactive Computing to GenSource Corporation"]
and has more than 20 years of experience in the insurance industry [see "Certain
Relationships and Related Transactions - Change of Name of California
Interactive Computing to GenSource Corporation"]. From January 1991 to his
promotion to President and Chief Operating Officer at the acquisition by
the Company, he served as GenSource's Vice President of System Services. From
January 1990 - December 1990, he served as the Director of Systems &
Programming for GenSource. Prior to joining GenSource, he worked as Assistant
Vice President & MIS Director for a subsidiary of Continental Insurance from
1988 - 1990. Mr. Hoffberg is married to Nora Kenner. In 1976, he received a
Bachelor of Arts in Business Administration from Long Beach State University.

NORA KENNER, 38, has been employed by GenSource since 1980 when she joined as
an administrative assistant [formerly CIC until October 15, 1997. See "Certain
Relationships and Related Transactions - Change of Name of California
Interactive Computing to GenSource Corporation"]. From January 1991 to her
promotion to Vice President of Consulting Services upon the acquisition of
GenSource by the Company, she served as Assistant Vice President of Consulting
Services. Prior to 1991, she served in various capacities, including Director of
Consulting Services from 1988 - 1991. Ms. Kenner is married to Mr. Hoffberg. In
1979, she received a Bachelor of Arts in Biology from UCLA.

MICHAEL EWING, 44, is Vice President of Sales and Marketing at GenSource
[formerly CIC until October 15, 1997. See "Certain Relationships and Related
Transactions - Change of Name of California Interactive Computing to GenSource
Corporation"]. Prior to joining GenSource upon the acquisition by the Company,
Mr. Ewing served as the Regional Director of Channel Sales for Business Objects
(Newport Beach, CA) from May 1996 - May 1997. Prior to that, he served as
Regional

- 8 -

<PAGE>

Manager of Sales for VMark Software (Irvine, CA) from October 1990 - May 1996.
In 1978, he received a Bachelor of Arts in Public Administration from
UCLA.

EXECUTIVE COMPENSATION

The following tables set forth certain information concerning cash and stock
option compensation paid or accrued by the Company for the years ended December
31, 1996, 1995 and 1994 to the Chief Executive Officer and to each of the five
most highly compensated executives of the Company whose aggregate cash
compensation, bonuses and stock option compensation exceeded $100,000.

TOTAL CASH COMPENSATION

Name of
Individual Position 1996 1995 1994
- ---------- -------- ---- ---- ----

<S> <C> <C> <C> <C>
Edward R. Jacobs Chairman, NTC $405,471 (1) $292,499 (1) $114,919

Melvyn Reznick President and Chief Executive
Officer, Incomnet $350,000 (2) $15,234 (3) --

Jerry Ballah (4) Consultant, NTC $344,068 $360,537 $335,193

William Savage (4) Vice President
of Operations, NTC $185,574 $134,542 --

Richard Marting (4) Vice President, NTC $175,746 $134,229 $102,998

Stephen A. Caswell Vice President, Incomnet $130,000 (5) $80,000 (6) $70,000
</TABLE>

(1) All compensation was received as cash in the form of salary. Does not
include proceeds of loans made to Mr. Jacobs by NTC [see "Certain
Relationships and Related Transactions - Settlement With NTC Directors"].
Effective June 1, 1996, Mr. Jacob's annual salary was increased from
$240,000 to $480,000.

(2) Consists of a salary of $175,000 and a cash bonus of $175,000. Effective
December 1, 1996, Mr. Reznick's annual salary was increased to $250,000,
with an incentive bonus program that could result in additional
compensation of $100,000 if certain goals are achieved in 1997 [see
"Directors and Executive Officers - Compensation Committee Report" and
"Certain Relationships and Related Transactions - Employment Agreements
With Company Management"].

(3) Consists of cash compensation for one month of service based upon an annual
salary of $182,800 per year.

(4) Mr. Ballah, Mr. Savage and Mr. Marting are no longer employed at NTC. Mr.
Ballah resigned as an officer and director of NTC on March 20, 1997. He now
serves as a consultant to NTC.

(5) Consists of a salary of $90,000 and a cash bonus of $40,000. Effective
January 1, 1997, Mr. Caswell's annual salary was increased to $115,000,
with an incentive bonus program that could result in additional
compensation of $35,000 if certain goals are achieved in 1997 [see
"Directors and Executive Officers - Compensation Committee Report" and
"Certain Relationships and Related Transactions - Employment Agreements
With Company Management."]

(6) All compensation was received as cash in the form of salary. Does not
include proceeds of loans made to Mr. Caswell by the Company [see "Certain
Relationships and Related Transactions - Note Receivable From Officer"].

- 9 -

<PAGE>

TOTAL STOCK OPTION COMPENSATION
Name of
Individual Position 1996 1995 1994
- ---------- -------- ---- ---- ----

Edward R. Jacobs Chairman, NTC -- $2,343,759 (1) --

Stephen A. Caswell Vice President,
Incomnet -- $996,599 (2) --

(1) Consists of 150,000 stock options exercised at $5.00 per share on July 25,
1995 when the stock was priced at 20-5/8, bringing the Company $750,000.
This stock was not sold at the time of exercise. The Company made a loan of
$307,240 to Mr. Jacobs associated with this transaction [see "Certain
Relationships and Related Transactions - Settlement With NTC Directors"].

(2) Consists of 89,582 stock options exercised at $5.00 per share on April 4,
1995 when the stock was priced at 16-1/8, bringing the Company $447,910.
This stock was not sold at the time of exercise. The Company made a loan of
$300,000 to Mr. Caswell associated with this transaction [see "Certain
Relationships and Related Transactions - Note Receivable from Officer"].

STOCK OPTIONS AND WARRANTS GRANTED BY THE COMPANY

The following stock options and warrants are held by the following directors and
executive officers of the Company. These stock options and warrants relate to
the options to purchase the common stock of Incomnet, Inc. and do not include
any stock options granted by NTC to purchase the common stock of NTC [see
"Directors and Executive Officers - Stock Options Granted by NTC"]. These stock
options also do not include any stock options or warrants issued by Rapid Cast,
Inc. to certain executive officers and directors of the Company in consideration
for services rendered and loans made to Rapid Cast, Inc. [see "Certain
Relationships and Related Transactions - Recent Recapitalization of RCI."]

<TABLE>
<CAPTION>
Exercise or Date of Potential Value (8)
Employee Type Number Base Price Expiration 5% 10%
- -------- ------- ------- ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>

Melvyn Reznick options 25,000 (1) $4.87 2/28/01 $ -- $ --
options 100,000 (2) 4.37 4/5/01 -- 25,589
options 25,000 (1) 4.87 5/31/01 -- --
options 25,000 (1) 4.87 8/31/01 -- --
options 25,000 (1) 4.87 11/30/01 -- --
options 25,000 (2) 4.37 2/28/02 -- 14,933
options 25,000 (2) 4.37 5/31/02 -- 17,962
options 50,000 (3) 4.37 5 years from vesting -- 48,039
options 200,000 (1) (4) 4.87 5 years from vesting -- 92,158
Stephen A. Caswell options 50,000 (4) 4.37 5 years from vesting -- 48,039
options 40,000 (5) 4.25 1/21/02 -- 24,000
Albert Milstein options 25,000 4.37 4/5/01 -- 6,500
options 25,000 4.37 1/1/02 -- 12,000
options 35,000 (6) 4.25 1/21/02 -- 21,000
Mark Richardson options 15,000 4.37 4/5/01 -- 3,900
options 15,000 4.37 1/1/02 -- 7,200
options 20,000 (6) 4.25 1/21/02 -- 12,000
Nancy Zivitz options 25,000 4.37 2/5/01 -- 3,750
options 25,000 4.37 1/1/02 -- 12,000
options 35,000 (6) 4.25 1/21/02 -- 21,000
Howard Silverman options 35,000 (7) 4.25 1/21/02 -- 21,000
</TABLE>

(1) These options were issued on November 30, 1995 pursuant to an employment
contract between Mr. Reznick and Incomnet (see "Employment Agreement
Between Melvyn Reznick and Incomnet"). All other options listed in this
table were granted under the Incomnet 1996 Stock Option Plan.

- 10 -

<PAGE>

(2) These options were issued for service to the Company and because Mr.
Reznick had personally guaranteed a line of credit for the Company in the
amount of $1,020,000. The Company repaid the line of credit in October 1996
and the line has been closed [see "Certain Relationships and Related
Transactions - Loan to Company By Melvyn Reznick".]

(3) These options do not vest until Rapid Cast, Inc. becomes a publicly-traded
company.

(4) These options do not vest until Rapid Cast, Inc. achieves certain financial
performance goals.

(5) These options were pledged as collateral for a loan provided to Mr. Caswell
by the Company [see "Certain Relationships and Related Transactions - Note
Receivable from Officer"] and were authorized for grant by the Board of
Directors on January 21, 1997 upon recommendation of the Compensation
Committee.

(6) These options were granted by the Board of Directors on January 21, 1997.
They were not granted pursuant to and are not covered by the provisions of
the Company's 1996 Stock Option Plan.

(7) These options were granted by the Board of Directors on January 21, 1997.

(8) These columns show the potential realizable value at assumed annual rates
of stock price appreciation based upon the last reported sale price of the
Company's common stock on October 22, 1997 on the NASDAQ Small Cap Market,
which was $3.31 per share.

COMPENSATION COMMITTEE REPORT

The Company's Compensation Committee met on January 21, 1997 and
made recommendations regarding compensation for the Company's executives.
The Committee consists of Nancy Zivitz, Albert Milstein and Howard Silverman.
Stephen Caswell was a member of the Compensation Committee until he resigned
from that position on June 27, 1997. Mr. Caswell did not participate in
discussion of his compensation. Mr. Silverman did not vote on the
recommendations because he had just joined the Board. The recommendations were
as follows:

(1) Melvyn Reznick's annual salary for the twelve month period commencing on
December 1, 1996 and ending on December 1, 1997 should be increased to $250,000.
Mr. Reznick should be granted a cash bonus of $40,000. He should also be
granted options to purchase a certain number of shares of NTC common stock from
the Company. The number of options will be calculated based on the fair market
value of NTC's stock as of December 31, 1996, which is being determined pursuant
to a Duff & Phelps appraisal expected to be completed in the near future. The
number of options to purchase NTC stock will equal $135,000 divided by the fair
market value of each share of NTC stock on December 31, 1996. The exercise
price will equal the fair market value of NTC stock and the term of the options
will be three years. On June 27, 1997, the Company's Board of Directors and Mr.
Reznick agreed that Mr. Reznick would be paid the balance of his bonus in cash
in an amount equal to $135,000 in lieu of options to purchase NTC stock from the
Company. The Company's Compensation Committee also recommended that Mr.
Reznick's bonus for 1997 be $100,000, subject to the approval of the Company's
Board of Directors, provided that the Board determines that Mr. Reznick
satisfies the following criteria: The Company completes the spin-off of 10% of
the common stock of NTC that it owns, the pending investigation of the Company
by the Securities and Exchange Commission is settled and terminated, the
Company's legal and regulatory issues are under control and, if possible,
resolved, the Company expands its corporate communications activities so that
its stock is presented properly to the investment community, the Company
develops a new source of revenues and profits so that Incomnet, Inc. has a clear
potential to cover its costs independent of NTC and RCI, and there is
significant appreciation in the value of the Company's stock.

(2) Stephen A. Caswell's annual salary for the twelve month period
commencing on January 1, 1997 should be increased to $115,000. Mr. Caswell
should be granted a cash bonus of $10,000. He should also be granted options to
purchase a certain number of shares of NTC common stock from the Company,
calculated in the same manner as for Mr. Reznick, except that the dollar amount
of options is $40,000 rather than $135,000. On June 27, 1997, the Company's
Board of Directors and Mr. Caswell agreed that Mr. Caswell would be paid the
balance of his bonus in cash in an amount equal to $40,000 in lieu of options to
purchase NTC stock from the Company. The Compensation Committee recommended and
the Board of Directors approved a potential cash bonus of $35,000 for Mr.
Caswell for 1997, provided that the Company achieves the same goals as are
applicable to Mr. Reznick's potential 1997 bonus.

The Compensation Committee also reviewed the settlement between the Company
and Mr. Caswell in November 1995 and recommended that Mr. Caswell receive
40,000 stock options for services he performed for the Company, provided that
those options be held as collateral against the loan that Mr. Caswell owes to
the Company. The Committee also recommended that the Company assume all
tax liabilities that Mr. Caswell would incur should the stock held as collateral
not be sufficient to pay off the outstanding loan. [See "Item 13.
Certain Relationships and Related Transaction - Note Receivable From
Officer"].

- 11 -

<PAGE>

In making the recommendations to the Board of Directors for Mr. Reznick's
and Mr. Caswell's compensation, the Compensation Committee in its report
noted extraordinary work performed by these executives under difficult
conditions. Mr. Reznick performed an important and deciding role in financing
and procuring the equity financing for Rapid Cast, Inc., one of the Company's
subsidiaries. Mr. Reznick personally made and guaranteed bridge loans to Rapid
Cast, Inc. as well as coordinating negotiations with J.P. Morgan and The Clipper
Group to complete the institutional financing of Rapid Cast, Inc. Mr. Reznick is
serving a key role on the Board of Directors, Audit Committee and Compensation
Committee for Rapid Cast, Inc. He also works with the research and
development department of Rapid Cast, Inc. The Compensation Committee believes
that the institutional financing of Rapid Cast, Inc. may not have been
accomplished without the financial and managerial involvement of Mr.
Reznick.

The Compensation Committee noted that Mr. Reznick was also instrumental
in resolving the issues with National Telephone & Communications, Inc.,
the Company's 100% owned subsidiary, including initiating the procedures
necessary to accomplish the eventual spin-off of a portion of the Company's NTC
shares. The current management incentive agreement with NTC provides Incomnet,
Inc. with a source of working capital in 1997. The Compensation Committee
also noted that Mr. Reznick served as an effective leader in resolving and
making progress in resolving difficult legal and regulatory issues affecting
the Company. The Compensation Committee made a comparative analysis of
Mr. Reznick's annual salary in relation to the salaries of chief executive
officers of public companies of approximately the same size, as well as the
salaries of the chief executive officers of NTC and RCI, and determined that
the recommendation for Mr. Reznick's compensation was fair and reasonable.

The Compensation Committee also issued a report with respect to Mr.
Caswell which noted his valuable work in providing support for the Company's
litigation tasks, including his assistance in the legal action for the recovery
of short swing profits for the Company in MORALES VS. INCOMNET, INC. AND SAM
D. SCHWARTZ. Mr. Caswell performed critical tasks in connection with the
Company raising $2,440,000 in the private placement of the Series A 2%
Convertible Preferred Stock. Mr. Caswell was also instrumental in establishing
an investor relations program for the Company including the hiring of Fi.Comm,
Ltd., the Company's investor relations firm. The Compensation Committee made
a comparative analysis of Mr. Caswell's annual salary in relation to the
salaries of corporate secretaries of public companies of approximately the same
size, and determined that the recommendation for Mr. Caswell's compensation was
fair and reasonable.

On January 21, 1997, the Board of Directors approved the recommendation of
the Compensation Committee regarding compensation for Mr. Caswell and Mr.
Reznick and for changes to the settlement with Mr. Caswell in November 1995. The
Board also granted the stock options to officers, directors and members of
committees to the Company's Board of Directors described under "Directors and
Executive Officers - Stock Options and Warrants Granted By The Company".

STOCK OPTIONS GRANTED BY NTC

On March 20, 1997, the Board of Directors of NTC adopted the National
Telephone & Communications, Inc. Key Independent Representatives Stock Option
Plan, effective as of February 28, 1997. This plan authorizes the grant of
stock options to purchase up to 2,884,615 shares of NTC common stock to key
independent sales representatives. A total of 961,538 stock options were
granted under this plan as of February 28, 1997 to a total of 54 independent
sales representatives. The exercise price of the stock options is $3.50 per
share and they are exercisable for a period of five years from the date of
grant. In the future, any stock options granted under this plan will have an
exercise price equal to the greater of $3.50 per share or the fair market value
of NTC common stock. The 961,538 stock options granted to date under this plan
vest and are exercisable commencing on June 30, 1998 with respect to 480,769
options, and on June 30, 1999 with respect to 480,769 options, subject to
acceleration with respect to the second 480,769 stock options to a date 180 days
after the sale of NTC shares in any bona fide underwriting. In the future, any
stock options granted under this plan will vest and commence being exercisable
in not less than four equal installments on each anniversary date after the date
of the grant. The stock options expire 30 days after the termination of any
independent sales representative from NTC.

On March 20, 1997, the Board of Directors of NTC adopted the National
Telephone & Communications, Inc. 1996 Stock Option Plan for the executive
officers, directors, employees and key consultants of NTC, effective as of
February 28, 1997. This plan authorizes the grant of stock options to purchase
up to 3,705,001 shares of NTC common stock to executive officers, directors,
employees and key consultants. The exercise price of these stock options will
be the greater of $3.50 per share or the fair market value of NTC common stock.
A total of 3,172,094 stock options were granted under this plan, 2,437,094 of
which were granted effective on February 28, 1997 to a total of 263 employees
and consultants of NTC, and 735,000 of which were granted effective March 31,
1997 to a total of 18 key employees and consultants of NTC. The exercise price
of the 2,437,094 of these stock options is $3.50 per share and the exercise
price of the 735,000 of these stock options is $3.75 per share. All of the
stock options are exercisable for a period of ten years after they are granted.
The stock options terminate 90 days from the date of the termination of an
employee's employment with NTC, or 30 days from such termination in the case of
consultants to NTC.

- 12 -

<PAGE>

The 735,000 stock options vest on June 30, 1998. The 2,437,094 stock options
were granted in two groups: 239,400 stock options among 249 employees and
consultants, and 2,197,694 stock options among 14 executive officers, directors
and key consultants of NTC. The 239,400 stock options vest as follows: (1)
119,700 stock options vest according to the following schedule: 40% on the later
of the second anniversary of the employee's hire date or 180 days after the
first sale by NTC of common shares in a bona fide underwriting pursuant to a
registration statement under the Securities Act of 1933, as amended (an
"Underwriting"), 20% on the later of the third anniversary of the employee's
hire date or 180 days after an Underwriting, 20% on the later of the fourth
anniversary of the employee's hire date or 180 days after an Underwriting, and
20% on the later of the fifth anniversary of the employee's hire date or 180
days after an Underwriting; and (2) 119,700 stock options vest according to the
following schedule: 40% on the second anniversary of the employee's hire date,
20% on the third anniversary of the employee's hire date, 20% on the fourth
anniversary of the employee's hire date, and 20% on the firth anniversary of the
employee's hire date.

The 2,197,694 stock options vest as indicated in the following table, which also
includes the convertible debt units granted to Mr. Jacobs and Mr. Ballah
pursuant to the National Telephone & Communications, Inc. Convertible Debt Plan,
as discussed later in this section.

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Grantee(10) Type Number Exercise or Date of Value at Assumed Annual Rates of Stock
Conversion Expiration Price Appreciation For Term (9)
Price 5% 10%
-- ---
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Edward R. Jacobs(1) Stock Options 240,385 $3.50 3/20/2007 $ 333,338 $1,029,143
Stock Options 288,462 $3.50 3/20/2007 $ 400,004 $1,234,617
Convertible
Debt Units 1,407,115 $3.01 4/11/2002 $ 1,170,167 $2,585,764
- --------------------------------------------------------------------------------------------------------------------------------
James R. Quandt(2) Stock Options 300,000 $3.50 3/20/2007(7) $ 416,000 $1,284,000
Stock Options 300,000 $3.50 3/20/2007(8) $ 416,000 $1,284,000
- --------------------------------------------------------------------------------------------------------------------------------
Michael Keebaugh(3) Stock Options 50,000 $3.50 3/20/2007(7) $ 69,334 $ 214,000
Stock Options 50,000 $3.50 3/20/2007(8) $ 69,334 $ 214,000
- --------------------------------------------------------------------------------------------------------------------------------
Victor C. Streufert(4) Stock Options 75,000 $3.50 3/20/2007(7) $ 104,001 $ 321,000
Stock Options 50,000 $3.50 3/20/2007(8) $ 69,334 $ 214,000
- --------------------------------------------------------------------------------------------------------------------------------
Deborah Chuckas(5) Stock Options 50,000 $3.50 3/20/2007(7) $ 69,334 $ 214,000
Stock Options 50,000 $3.50 3/20/2007(8) $ 69,334 $ 214,000
- --------------------------------------------------------------------------------------------------------------------------------
Timothy Ciaccio(6) Stock Options 50,000 $3.50 11/01/2007(8) $ 69,334 $ 214,000
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Mr. Jacobs is the Chairman of the Board of NTC. The conversion price of
$3.01 per share for the convertible debt units does not include accrued
interest on the outstanding debentures. A description of the NTC
Convertible Debt Plan is included in the second paragraph after the
footnotes to this table. Pursuant to his new employment agreement with NTC
dated October 30, 1997, Mr. Jacobs' stock options have all vested.

(2) Mr. Quandt is the President, Chief Executive Officer and a director of NTC.

(3) Mr. Keebaugh is the Vice President of Operations of NTC.

(4) Mr. Streufert is the Chief Financial Officer of NTC.

(5) Ms. Chuckas is the Senior Vice President of Marketing Support for NTC.

(6) Mr. Ciaccio is the Vice President of Information Systems for NTC.

(7) These stock options vest and are exercisable on the later of (i) 15 months
after the employee's date of hire or 15 months after the employee's date
of promotion to the employee's current position, whichever is later, or
(ii) 180 days after the first sale by NTC of common stock shares in a bona
fide underwriting pursuant to a registration statement under the Securities
Act of 1933, as amended (an "Underwriting").

- 13 -

<PAGE>

(8) These stock options vest and are exercisable in accordance with the
following schedule, subject to acceleration as described after the
vesting schedule: (a) 25% on the later of the first anniversary of each
employee' date of grant or 180 days after an Underwriting, (b) 25% on the
second anniversary of each employee's date of grant, (c) 25% on the third
anniversary of each employee's date of grant, and (d) 25% on the fourth
anniversary of each employee's date of grant. In the event that the total
of NTC's net income plus income and franchise taxes paid or accrued during
each fiscal quarter exceeds $10,000,000 in any four consecutive calendar
quarters up to and including the fourth calendar quarter of 1997, the
vesting of these outstanding stock options would accelerate so that all
shares subject to such options would vest on the later to occur of (i) 45
days after the last day of the fourth consecutive calendar quarter on which
the total of NTC's net income plus income and franchise taxes exceeded
$10,000,000, or (ii) 180 days after an Underwriting. In the event that the
total net income plus income and franchise taxes paid or accrued during
each fiscal quarter of 1997 does not exceed $10,000,000 but total net
income plus income and franchise taxes paid or accrued during 1998 is more
than twice NTC's total net income plus income and franchise taxes paid or
accrued during 1997, the vesting of these stock options would accelerate so
that all shares subject to such options would vest on the later of (i)
February 15, 1999, or (ii) 180 days after an Underwriting.

(9) Assumes a current value of $3.50 per share for each share of NTC common
stock.

(10) The grantees listed on the table are the executive officers and directors
of NTC and do not include seven other NTC employees and key consultants
who were granted a total of 115,000 stock options at an exercise price of
$3.50 per share, exercisable for a period of ten years from the date of
grant, 57,500 of which vest according to the schedule described in footnote
7 above and 57,500 of which vest according to the schedule described in
footnote 8 of this table. The grantees listed on the table also do not
include Jerry Ballah, a consultant to NTC who resigned as an officer and
director of NTC on March 20, 1997. See "Certain Relationships and Related
Transactions - Settlement Agreement With NTC Directors" and "Certain
Relationships and Related Transactions - Reincorporation of NTC and
Resignation of Director."

On March 20, 1997, the Board of Directors of NTC adopted the National
Telephone & Communications, Inc. Directors Stock Option Plan, effective as of
February 28, 1997. This plan authorizes the grant of stock options to purchase
up to 300,000 shares of NTC common stock to the directors of NTC. 75,000
options have been granted to date under this plan to NTC Board members. The
exercise price of the stock options will be the fair market value of the NTC
common stock on the date of the grant, and the options will be exercisable for a
period of time determined by the NTC Board of Directors at the time of grant,
but not to exceed ten years from the date of grant. The stock options terminate
90 days from the date of the termination of a director's membership on the NTC
Board of Directors.

On April 11, 1997, the NTC Board of Directors adopted the National Telephone &
Communications, Inc. Convertible Debt Plan, effective as of February 28, 1997.
This plan authorizes the grant of convertible debt units convertible into up to
2,664,231 shares of NTC common stock to Edward Jacobs and Jerry Ballah. As
disclosed on the table above, NTC has granted 1,407,115 convertible debt units
to Edward Jacobs and 1,257,116 convertible debt units to Jerry Ballah. The
conversion price of the shares is equal to $3.01 plus accrued simple interest
from the date of grant to the date of conversion at the rate of 6.49% per annum,
convertible at any time during the five year period after the units were
granted. Mr. Jacobs and Mr. Ballah issued full recourse interest bearing
debentures to NTC in the amount of $3.00 per unit (the additional $.01 per share
is paid at the time of conversion), with a maturity date the earlier of April
11, 2002 or the conversion date. Mr. Jacobs and Mr. Ballah have agreed to enter
into lock-up agreements with NTC and any underwriter of NTC stock by a date 30
days prior to any Underwriting, pursuant to which they would agree not to sell
or otherwise dispose of any units or conversion shares for a period of 180 days
after the Underwriting. The convertible debentures issued by Messrs. Jacobs and
Ballah to NTC are secured by a pledge to NTC of 70% of the outstanding
convertible debt units owned by the grantees.

AMENDMENT TO ARTICLES OF INCORPORATION

The Company proposes to amend the Articles of Incorporation of the Company
to delete the following provision:

"FOURTH. The number of directors of this corporation shall be three (3)."

- 14 -

<PAGE>

the Company's Articles of Incorporation be consistent with its Bylaws, the
Company proposes to amend its Articles of Incorporation by deleting Article
Fourth, which otherwise requires that the Company's Board of Directors be
limited to three members. In order to adopt the clarifying amendment to the
Company's Articles of Incorporation, the holders of a majority of the
outstanding shares of the Company's common stock voting on the proposal must
consent to the amendment, provided that a quorum (i.e. holders of shares
representing more than 50% of the outstanding voting shares) is present in
person or by proxy to vote on the proposed amendment.

The Board of Directors recommends that the proposed amendment to its Articles of
Incorporation be approved.

COMPANY PERFORMANCE

The following chart shows a 9-year comparison of cumulative total returns for
the Company's common stock, the NASDAQ Composite Stock Index and the NASDAQ
Telecommunications Stock ("NASDAQ-Telecom") index. The comparison shows the
percentage increase of the indices at of the end of each quarter from December
31, 1987 through December 31, 1996, with each index beginning with a value of
100. The total cumulative return on investment (percentage change in the year
end stock price plus reinvested dividends) for each of the periods for the
Company's common stock, the NASDAQ Composite Index and the NASDAQ-Telecom index
is based on the stock price or composite index at the end of 1987.

Dec 87 Mar 88 Jun 88 Sep 88 Dec 88 Mar 89 Jun 89 Sep 89 Dec 89 Mar 90 Jun 90 Sep 90 Dec 90
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ 100 113.9 121.1 120.3 118.7 127.5 137.4 149.6 143.9 139.0 148.2 111.3 122.2
NASDAQ
Telecom 100 108.2 121.9 137.3 147.8 178.9 219.4 239.7 232.9 196.0 211.9 148.2 156.9
Incomnet 100 200.0 200.0 333.3 433.3 500.0 500.0 600.0 566.7 466.7 366.7 300.0 266.7
</TABLE>

Mar 91 Jun 91 Sep 91 Dec 91 Mar 92 Jun 92 Sep 92 Dec 92 Mar 93 Jun 93 Sep 93 Dec 93
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
158.7 156.9 175.1 196.1 202.2 188.3 195.9 228.0 232.3 236.7 256.5 260.2
187.1 183.8 207.4 216.5 221.6 220.2 226.0 265.9 295.5 339.4 399.8 409.8
300.0 533.3 533.3 1266.7 1433.3 1266.7 1366.7 1766.7 1500.0 2266.7 1966.7 2100.0
</TABLE>

Mar-94 Jun-94 Sep-94 Dec-94 Mar-95 Jun-95 Sep-95 Dec-95 Mar-96 Jun-96 Sep-96 Dec-96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
249.5 237.8 257.5 254.6 284.0 324.8 364.0 368.3 385.7 417.3 432.1 453.4
353.4 339.4 370.3 339.5 353.0 373.3 426.1 408.3 471.6 486.4 457.5 458.3
2266.7 3266.7 3800.0 4866.7 4800.0 5000.0 3666.7 1533.3 1800.0 1600.0 1433.3 1000.0
</TABLE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CHANGE OF NAME OF CALIFORNIA INTERACTIVE COMPUTING TO GENSOURCE CORPORATION

On May 2, 1997, the Company acquired 100% of California Interactive Computing,
Inc. (CIC) [see the Company's Report on Form 10-Q for the Quarter ended June 30,
1997]. On October 15, 1997, the Company changed CIC's name to GenSource
Corporation in order to create what management considered to be a better
marketing identity for the subsidiary. GenSource offers a comprehensive set of
fully integrated software systems for administering insurance-related claims and
managing risk, including workers' compensation, non-occupational disability,
property and casualty and group medical. GenSource was founded in 1977 as CIC
and has more than 20 years of experience in the insurance-related claims market.

EMPLOYMENT OF EDWARD R. JACOBS AS CHAIRMAN OF NTC

On October 30, 1997, the Company's NTC subsidiary entered into a new employment
agreement with Edward R. Jacobs, who had been the Chairman and Chief Executive
Officer of NTC under a previous employment agreement from December 28, 1994 to
July 25, 1997. Under terms of the new agreement, which was approved by NTC's
Board of Directors, Mr. Jacobs will serve as the Chairman of the Board of NTC
until July 25, 1999.

- 15 -

<PAGE>

Pursuant to the employment agreement, Mr. Jacobs is entitled to the
following compensation: (1) A base salary of $40,000 per month, (2) insurance
policies paid for by NTC at no tax consequence to Mr. Jacobs that includes long-
term disability at 70% of the salary that Mr. Jacobs was receiving on the first
day of his long-term disability and (3) full vesting of Mr. Jacobs' stock
options [see "DIRECTORS AND EXECUTIVE OFFICERS - Stock Options Granted By
NTC"].

EMPLOYMENT OF JAMES QUANDT AS PRESIDENT OF NTC

On January 6, 1997, the Company's NTC subsidiary hired James R. Quandt as its
President under an employment contract that expires on January 6, 2000 [for a
description of his background, see DIRECTORS AND EXECUTIVE OFFICERS - Directors
and Executive Officers"]. The employment agreement provides for Mr. Quandt to
implement a separation of the functions of the Company into an operating
division, with primary responsibility for the telephone business, and a
marketing division, with primary responsibility for the independent sales
representatives. On October 30, 1997, Mr. Quandt was promoted by NTC's Board of
Directors to President and Chief Executive Officer when Mr. Jacobs stepped down
as Chief Executive Officer. Mr. Jacobs remains as the Chairman of the Board of
NTC [see "CERTAIN RELATIONSHIPS and RELATEDS TRANSACTIONS - Employment of
Edward R. Jacobs As Chairman of NTC"]. The employment agreement contemplates
that Mr. Quandt may be nominated to become the Chairman of the Board of
Directors of NTC upon Mr. Jacobs' retirement from that position.

Pursuant to the employment agreement, Mr. Quandt is entitled to the
following compensation: (1) A base salary of $40,000 per month, (2) an
incentive bonus equal to one and one-half (1.5%) of the quarterly net profit
earned by NTC, provided that the quarterly net profit is at least $1,250,000,
the payment of the bonus does not cause the quarterly net profit of NTC to be
less than $1,250,000, and NTC's pretax profit for the succeeding calendar
quarter is reasonably expected to exceed the minimum quarterly net profit of
$1,250,000, and (3) nonqualified stock options to purchase 600,000 shares of the
common stock of NTC. The stock options will have an exercise price determined
by the Board of Directors of NTC in accordance with the NTC Stock Option Plan,
but in no event greater than the higher of $5.00 per share or the fair market
value of NTC's stock at the time of the grant. The stock options will have an
exercise period of five years from the date of grant. The stock options will
vest as follows: (1) 250,000 stock options will vest upon Mr. Quandt completing
15 months of employment for NTC under the employment agreement, and (2) 350,000
stock options will vest only in the event NTC achieves cumulative pretax profits
which total a minimum of $10,000,000 in any four contiguous calendar quarters
prior to January 1, 1998.

In addition to the base salary, regular bonus and stock options, Mr. Quandt will
earn a hiring bonus equal to $225,000, payable if NTC's quarterly net profits
exceed $1,250,000, but in any event no later than December 31, 1997 with
respect to $150,000 of the guaranteed hiring bonus, and the balance by no later
than June 30, 1998. The hiring bonus will be paid at the rate of 1.5% of
quarterly pre-tax profits of NTC in excess of $1,250,000, and if not earned in
that manner, will be paid in full in two installments as follows: $150,000 by
December 31, 1997 and the balance by June 30, 1998. To the extent that the
regular bonus and guaranteed hiring bonuses are paid to Mr. Quandt pursuant to
his employment agreement, Mr. Jacobs has agreed to waive any remaining portion
of the quarterly incentive bonus payable by NTC to Mr. Jacobs (i.e. 1.5% of the
pre-tax net profits in excess of $1,250,000 of net profits of NTC per calendar
quarter) pursuant to Mr. Jacobs' current employment agreement with NTC.

Under the employment agreement, Mr. Quandt is entitled to a significant
severance payment if his employment terminates prior to the agreement's
termination date because of his death, disability, or for a reason other than
cause, or because of a voluntary resignation by Mr. Quandt for "good cause", as
defined in the employment agreement. Mr. Quandt has agreed not to compete with
NTC during the term of his employment agreement and for a period of one year
after the agreement terminates for any reason. The effectiveness of Mr.
Quandt's employment agreement is conditioned on its approval by the NTC Board of
Directors, which is expected to be given in the near future.

SETTLEMENT AGREEMENT WITH NTC DIRECTORS

In November 1996, the Company reached settlement agreements with Edward
Jacobs and Jerry Ballah, each an officer and director of NTC at the time. Mr.
Ballah subsequently resigned as an officer and director of NTC and is now a
consultant to NTC. Mr. Jacobs and Mr. Ballah agreed to release the Company and
its officers and directors from all claims they may have as a result of the
exercise of their warrants in the Company in July 1995 at the request of Sam D.
Schwartz, the Company's former President, and other claims they may have against
the Company and its affiliates, including any claims Mr. Jacobs may have with
respect to his employment agreement with the Company. Mr. Jacobs and Mr.
Ballah assigned their alleged claims against Mr. Schwartz to the Company. In
consideration for the release and assignment of claims, the Company agreed to
assume an aggregate of approximately $1,012,000 plus interest of the loans owed
by Mr. Jacobs and Mr. Ballah to NTC, which they incurred in connection with the
exercise of their warrants in the Company in July 1995, and to pay an aggregate
of approximately $988,000 in cash to Mr. Jacobs and Mr. Ballah (i.e. a total
settlement not to exceed $2,000,000 in loan assumptions and cash), payable on
or before January 1998, to cover Mr. Jacobs' and Mr. Ballah's federal and state
tax

- 16 -

<PAGE>

liabilities resulting from the loan assumptions by the Company. The Company and
NTC have agreed that the assumed loans would be written off as intercompany
items. The settlement agreements between the Company, Ed Jacobs and Jerry
Ballah include mutual general releases.

NOTE RECEIVABLE FROM OFFICER

The Company has a note receivable from Stephen A. Caswell of $340,000, which
was increased during 1996 from $300,000. Mr. Caswell is a Vice President and
Corporate Secretary of the Company. The note receivable was in connection with
the exercise of his options to purchase the Company's common stock at the
request of the Company's former President. The Company has agreed to look only
to the shares held by Mr. Caswell as a source of loan repayment. Accordingly, a
reserve of $208,800 was provided in the fourth quarter of 1995, representing the
difference between the market value of the shares held by the officer, and the
amount of the loan. In January 1997, Mr. Caswell agreed to add to the collateral
against the outstanding loan by pledging newly-granted stock options that he was
issued to acquire 40,000 shares of stock at $4.25 per share. At that time, the
Company also agreed that it would pay all tax-related expenses that Mr. Caswell
might incur if the loan is not repaid in full.

AMENDMENT OF EMPLOYMENT AGREEMENT OF MELVYN REZNICK AND EMPLOYMENT AGREEMENT
WITH STEPHEN A. CASWELL

On January 20, 1997, the Company amended the Employment Agreement with
Melvyn Reznick, dated November 27, 1995 (the "Agreement"), by changing the date
that the Agreement terminates from November 30, 1997 to December 31, 1999. Mr.
Reznick is the Company's Chairman, President and Chief Executive Officer. The
term of the Agreement was extended to December 31, 1999 because of a private
placement of $12 million that was completed on January 17, 1997 between the
Company's subsidiary, Rapid Cast, Inc. (RCI) and J.P. Morgan Capital Corporation
and affiliates of The Clipper Group (the "Investors"). Mr. Reznick has been
asked to serve on the Board of Directors of RCI and to take an active role on
two committees of RCI's Board of Directors: the Compensation Committee and the
Audit Committee, of which he has been asked to serve as Chairman. In August
1996, the Investors asked the Company if it could provide assurances that Mr.
Reznick would be available to serve for an extended period of time on RCI's
Board as the representative from the Company and requested that Mr. Reznick's
employment agreement be extended for a period of two years. To provide such
assurance, the Company's Board of Directors voted unanimously at a telephonic
meeting held on September 3, 1996 to extend the length of the term of Mr.
Reznick's employment agreement to December 31, 1999, contingent upon RCI closing
its financing with the Investors, which it did on January 16, 1997.

On June 8, 1997, the Company's Board of Directors approved an extension of the
employment agreement with Melvyn Reznick, the President and Chairman of the
Board of the Company, and a new employment agreement with Stephen A. Caswell,
the Company's Vice President and Corporate Secretary. The existing employment
agreement with Mr. Reznick was extended until the earlier of (i) June 30, 2002,
or (ii) six months after the date that 100% of the Company's holdings of NTC
stock are sold, conveyed or otherwise distributed but no sooner than December
31, 1999 ("Early Termination Date"). The annual salary was established to be
$250,000 for the term of the contract. In the event of an improper termination
of the agreement by the Company for any reason, Mr. Reznick is entitled (i) to
be paid a lump sum amount equal to his annual salary during the remaining term
of his agreement plus his annual salary for three additional years, plus accrued
bonus, if any, (ii) to receive all of his benefits during such period, and (iii)
to exercise all of his vested stock options at any time during the remaining
term of the options. In the event of an early termination because of the
disposition of 100% of the Company's NTC stock, then the Company has agreed to
pay Mr. Reznick a lump sum amount equal to the sum of the annual compensation
and accrued but unpaid bonus (if any, with respect to the bonus) which would be
payable to him for one additional year after the Early Termination Date, but not
beyond June 30, 2002, as well as receive his benefits during that period and
exercise his vested stock options during the remaining term of the options.

Mr. Caswell's employment agreement has a term which expires on the earlier of
(i) December 31, 1999, or (ii) six months after the date that 100% of the
Company's holdings of NTC stock are sold, conveyed or otherwise distributed.
His annual salary is $115,000 during the term of the contract. In the event of
an improper termination of Mr. Caswell's employment agreement by the Company for
any reason, Mr. Caswell is entitled (i) to be paid a lump sum amount equal to
his annual salary during the remaining term of his agreement plus his annual
salary for 15 additional months, (ii) to receive all of his benefits during that
period, and (iii) to exercise all of his vested stock options at any time during
the remaining term of the options. In the event of an early termination because
of the disposition of 100% of the Company's NTC stock, then the Company has
agreed to pay Mr. Caswell a lump sum amount equal to the sum of the annual
compensation and accrued bonus (if any, with respect to the bonus) which would
be payable to him for one additional year after the Early Termination Date, but
not beyond December 31, 1999, as well as receive his benefits during the
remaining term of the options.

LOAN BY THE COMPANY TO NANCY ZIVITZ

- 17 -

<PAGE>

On November 5, 1996, the Company extended to Nancy Zivitz, a member of the
Company's Board of Directors, and her husband, Clarence Robert Zivitz, a loan of
$265,000 at an interest rate of 10% until January 15, 1997. The loan was secured
by 201,800 shares of the Company's common stock that was signed over to the
Company by Mr. and Mrs. Zivitz. On January 15, 1997, the note was extended
until May 1, 1997. A new note was signed on May 1, 1997 for $277,955 bearing
interest at the rate of 10% per annum, due and payable in full on January 15,
1998.

LOAN TO COMPANY BY MELVYN REZNICK

On February 2, 1996, Melvyn Reznick, the Company's President, Chief Executive
Officer and Chairman of the Board, arranged for a line of credit under his
personal guarantee to be made available to the Company in the amount up to
$750,000 from a bank in Los Angeles, California and from Mr. Reznick's personal
funds. The line of credit was expanded to $820,000 on June 7, 1996 and to
$1,020,000 on June 18, 1996. The line of credit was repaid in October 1996 from
the proceeds of a private placement of preferred stock and the line of credit
was terminated.

APPOINTMENT OF HOWARD SILVERMAN AS DIRECTOR

On January 20, 1997, the Company's Board of Directors elected Dr.
Howard Silverman to fill a vacancy on the Company's Board that was created when
Gerald Katell declined to serve on the Company's Board on July 29, 1996 [see
"Election of Directors."]

REINCORPORATION OF NTC AND RESIGNATION OF DIRECTOR OF NTC

On March 20, 1997, NTC reincorporated under the laws of the State of Delaware.
At the same time Jerry Ballah resigned as an officer and director of NTC, which
was accepted by the NTC Board of Directors. The Board of Directors of NTC
authorized NTC to enter into a consulting agreement with Mr. Ballah pursuant to
which he would provide marketing consulting services to NTC for $150,000 per
year in consulting fees. The NTC Board of Directors also authorized NTC to make
a one year loan of up to $600,000 to Mr. Ballah bearing interest at the
applicable federal rate, evidenced by a promissory note payable to NTC. The
outstanding balance of the loan is approximately $550,000 as of June 27, 1997.

APPOINTMENT OF RICHARD HOROWITZ, STANLEY WEINSTEIN AND DAVID WILSTEIN AS
DIRECTORS

On August 13, 1997, the Company's Board of Directors amended the Company's By-
laws to set the number of directors of the Company to seven members from its
present level of six members, with two vacancies. The Company's Board elected
Richard M. Horowitz, Stanley C. Weinstein and David Wilstein to fill the
vacancies on the Board [see "Election of Directors."]

DISGORGEMENT OF SHORT SWING PROFITS TO COMPANY

In January 1996, the Company was served with a derivative shareholders lawsuit
entitled RICHARD MORALES VS. INCOMNET, INC. AND SAM D. SCHWARTZ, 96 Civil 0225
in the United States District Court for the Southern District of New York,
alleging violations of Section 16(b) of the Securities Exchange Act of 1934, as
amended, and demanding that the Company assert claims against Mr. Schwartz for
the payment of short-swing profits plus interest. On July 10, 1997, the United
States District Court for the Southern District of New York gave final approval
to the settlement of that lawsuit in which Mr. Sam D. Schwartz agreed to pay to
the Company cash and stock valued at $4,250,000. In final settlement of the
lawsuit, Mr. Schwartz has delivered to the Company 1,047,966 shares of the
Company's common stock for cancellation and $600,000 in cash. Under the
agreement, the Company paid $626,450 in attorney's fees and expenses to the
shareholder's counsel.

ISSUANCE OF SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK

Since October 1996, the Company has issued a total 2,440 shares of Series A 2%
Convertible Preferred Stock ("Series A Stock") and 2,434 shares of Series B 6%
Convertible Preferred Stock ("Series B Stock") [For a more detailed description,
see the Company's Annual Report on Form 10-K and Reports on Form 10-Q for the
second and third quarters ending June 30, 1997 and September 30, 1997,
respectively.]. In total, the Company has raised $4,840,000 through the issuance
of Series A and Series B Stock. Each share of Series A and Series B Stock is
worth $1,000 and can be converted to the Company's Common Stock at the lesser of
(a) 80% of the average bid price for the Company's common stock on the public
trading market for the five trading days immediately preceding the conversion
date, as specified by the Preferred Stockholder, or (b) the bid price of the
Company's common stock on the funding date. The closing bid price for the Series
A Stock on the funding date was $4.25 per share, while the closing bid price of
1,834 shares of Series B Stock was $4.29 and of 600 shares of Series B Stock was
$3.00.

As of November 7, 1997, 615 shares of Series A Stock has been converted into
278,009 shares of the Company's common stock, 1,825 shares of Series A Stock
remains outstanding and 2,434 shares of Series B Stock remains outstanding.

-18-
<PAGE>

PROXY CARD
Incomnet, Inc.
21031 Ventura Blvd. #1100
Woodland Hills, CA 91364

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF INCOMNET, INC.

The undersigned hereby appoints Melvyn Reznick and Stephen A. Caswell as
Proxies, each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated below, all shares of Common Stock
of Incomnet, Inc., held of record by the undersigned on November 7, 1997 at the
Annual Meeting of Shareholders to be held on December 15, 1997 at 9:30 am
Pacific Time, or any adjournment thereof, at the Marriott Hotel, 21859 Oxnard
St., Woodland Hills, CA.

1. ELECTION OF DIRECTORS:

____ FOR all nominees listed below (except as marked to the contrary below)

____ WITHHOLD AUTHORITY to vote for all nominees listed below

(INSTRUCTION: To withhold authority to vote for any individual nominee, mark the
box next to the nominee's name below:

____ Melvyn Reznick ____ Richard Horowitz ____ Albert Milstein

____ Howard Silverman ____ Stanley Weinstein ____ David Wilstein

____ Nancy Zivitz

2. RATIFICATION OF AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
ELIMINATING ARTICLE FOUR

____ FOR the proposed Amendment

____ AGAINST the proposed Amendment

The Company proposes to amend the Articles of Incorporation of the Company
to delete the following provision:

"FOURTH. The number of directors of this corporation shall be three (3)."

The above provision was included in the Company's original Articles of
Incorporation filed when the Company was formed in 1974. In 1977, the
California Corporations Code was amended to eliminate the requirement that the
number of directors of a corporation be established in the articles of
incorporation. Since 1977, the common practice in California has been to
establish the number of directors in the corporation's bylaws and in
incorporating resolutions. The record is ambiguous as to whether or not the
Company's Articles of Incorporation were effectively amended to be consistent
with its Bylaws, which provide for a Board ranging in size from five (5) to nine
(9), with the number currently fixed at six (6). Since 1974, the Company has
operated with a Board of Directors ranging in size from three to six members.
In order to eliminate the ambiguity, and to have the Company's Articles of
Incorporation be consistent with its Bylaws, the Company proposes to amend its
Articles of Incorporation by deleting Article Fourth, which otherwise requires
that the Company's Board of Directors be limited to three members. In order to
adopt the clarifying amendment to the Company's Articles of Incorporation, the
holders of a majority of the outstanding shares of the Company's common stock
voting on the proposal must consent to the amendment, provided that a quorum
(i.e. holders of shares representing more than 50% of the outstanding voting
shares) is present in person or by proxy to vote on the proposed amendment.

<PAGE>

3. RATIFICATION OF STONEFIELD JOSEPHSON AS THE COMPANY'S INDEPENDENT AUDITORS

____ FOR Stonefield Josephson As the Company's Independent Auditors

____ AGAINST Stonefield Josephson As the Company's Independent Auditors

INSTRUCTION: To vote FOR or AGAINST the proposal, mark the appropriate box. For
a more detailed description of the plan, see "Ratification of Stock Option
Program for Officers, Directors, Employees and Key Consultants" in the Company's
Proxy Statement that accompanied this ballot.

This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder. If no direction is made, the proxy will be voted
FOR proposals 1, 2 and 3. Please sign exactly as name appears below. When shares
are held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized person.

Dated: ________________________, 1997

________________________________
signature

________________________________
signature if held jointly