<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NO. 0-12386
INCOMNET, INC.
A California IRS Employer No.
Corporation 95-2871296
21031 Ventura Blvd., Suite 1100
Woodland Hills, California 91364
Telephone no. (818) 887-3400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:.................None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:...............Common
Stock, No Par Value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. YES X NO
- --
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [ ]
Aggregate market value of voting common stock held by
non-affiliates of the registrant (based upon the average of
the closing bid and ask prices of $2 13/16 and $2 15/16
respectively, as reported by the NASDAQ System on March 21, 1997) $30,958,080
Number of shares of registrant's common stock outstanding as
of March 21, 1997 13,520,669
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PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT
The directors and executive officers of the Company and its wholly-owned
subsidiaries, National Telephone Communications, Inc. (NTC) and California
Interactive Computing, Inc. (CIC), which was acquired on May 2, 1997 [see
"Certain Relationships and Related Transactions - Acquisition of California
Interactive Computing"], are set forth below.
Name Positions
- ---- ---------
Melvyn Reznick President, Chief Executive Officer, Chief
Financial Officer and Chairman of the Board,
Incomnet and CIC.
Nancy Zivitz Director, Incomnet
Albert Milstein Director, Incomnet
Howard Silverman Director, Incomnet
Stephen A. Caswell Vice President and Corporate Secretary, Incomnet
and Executive Vice President, Director and
Secretary of CIC
Edward R. Jacobs Chairman and Chief Executive Officer, NTC
James R. Quandt President, NTC
Victor C. Streufert Vice President, Finance & Administration and Chief
Financial Officer, NTC
Jerry C. Buckley Director, CIC
Eric Hoffberg General Manager, CIC
The biographies of the directors and executive officers of the Company and its
NTC and CIC subsidiaries, including certain additional information, are set
forth below.
MELVYN REZNICK, 53, has been the President, Chief Executive Officer and Chief
Financial Officer of Incomnet since November 1995 and the Chairman of the Board
since June 11, 1996. He also serves as the Chief Executive Officer, Chairman,
President and Chief Financial Officer of CIC since its acquisition on May 2,
1997 [see "Certain Relationships and Related Transactions - Acquisition of
California Interactive Computing"]. 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).
NANCY S. ZIVITZ, 48, 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.
ALBERT MILSTEIN, 50, 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 specializes in the representation of nursing homes and other
long-term care facilities. He received his Juris Doctor from Chicago Law School
in 1972 and received a Bachelor of Arts from Yeshiva University in 1969.
HOWARD SILVERMAN, 53, joined the Company's Board in January 1997 to fill a
vacancy on the Board. From May 1995 to the present, Mr. Silverman has 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
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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.
STEPHEN A. CASWELL, 48, is Vice President of Incomnet. He joined the Company in
August 1987 and has been Secretary since August 1989. He also is Executive Vice
President, Director and Secretary of CIC since the acquisition by the Company
[see "Certain Relationships and Related Transactions - Acquisition of California
Interactive Computing"]. He was a director 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 an 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, 59, is Chairman and Chief Executive Officer 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 prior years before joining the
Company 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 of NTC. Prior to joining NTC, 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, from 1995. 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 Bank in Los Angeles, California. Mr. Quandt earned a B. S. 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.
VICTOR C. STREUFERT, 40, is 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 since 1995. From 1989 to 1995, he was
Executive Vice President and Chief Financial Officer for American Health
Properties. Mr. Streufert has a B. A. in Economics from Valparaiso University in
1979 and an MBA in Finance and Marketing from the University of Chicago in 1985.
JERRY C. BUCKLEY, 61, is a director of CIC. Upon the acquisition pf CIC by the
Company on May 2, 1997, he signed a two-year employment agreement with the
Company to serve in a non-executive officer position as the director of
strategic planning [see "Certain Relationships and Related Transactions -
Acquisition of California Interactive Computing"]. In 1977, he was one of the
founders of CIC and served as CIC's President and Chairman until the acquisition
by the Company. Prior to founding CIC, he was employed in various positions in
software development and engineering by Lockheed. He received a B. A. in Geology
from USC in 1960.
ERIC HOFFBERG, 44, has been employed at CIC since January 1990 and has more than
20 years of experience in the insurance industry [see "Certain Relationships and
Related Transactions - Acquisition of California Interactive Computing"]. From
January 1991 to his promotion to General Manager at the acquisition by the
Company, he served as CIC's Vice President of System Services. From January 1990
- - December 1990, he served the Director of Systems & Programming from January
1990. Prior to joining CIC, 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 B. A. in Business Administration
from Long Beach State University.
ITEM 11 - 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.
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TOTAL CASH COMPENSATION
<TABLE>
<CAPTION>
Name of
Individual Position 1996 1995 1994
- ---------- -------- ---- ---- ----
<S> <C> <C> <C> <C>
Edward R. Jacobs President and Chief Executive
Officer, NTC $360,000 (1) $292,499 (1) $114,919
Melvyn Reznick President and Chief Executive
Officer, Incomnet $350,000 (2) $15,234 (3) --
Stephen A. Caswell Vice President, Incomnet $140,000 (4) $80,000 (5) $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, a cash bonus of $40,000 and options to
acquire $135,000 worth of shares in NTC if and when NTC becomes a public
corporation. The exercise price of the options will be determined by the
fair market per share value of NTC as of December 31, 1996. This value has
not yet been set and will be determined by the Company's auditor. Effective
December 1, 1996, Mr. Reznick's salary was increased to $250,000, with an
incentive bonus program that could result in additional compensation of
$100,000.
(3) Consists of cash compensation for one month of service based upon an annual
salary of $182,800 per year.
(4) Consists of a salary of $90,000, a cash bonus of $10,000 and options to
acquire $40,000 worth of shares in NTC if and when NTC becomes a public
corporation. The exercise price of the options will be determined by the
fair market per share value of NTC as of December 31, 1996. This value has
not yet been set and will be determined by the Company's auditor. Effective
January 1, 1997, Mr. Caswell's salary was increased to $115,000, with an
incentive bonus program that could result in additional compensation of
$35,000.
(5) 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"].
TOTAL STOCK OPTION COMPENSATION
<TABLE>
<CAPTION>
Name of
Individual Position 1996 1995 1994
- ---------- -------- ---- ---- ----
<S> <C> <C> <C> <C>
Edward R. Jacobs President and Chief Executive
Officer, NTC -- $2,343,759 (1) --
Stephen A. Caswell Vice President, Incomnet -- $996,599 (3) --
</TABLE>
(1) Consists of 150,000 stock options at $5.00 per share exercised 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"].
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STOCK OPTIONS & WARRANTS
In August 1994, the Company authorized a stock option plan for executives,
directors, key employees and key consultants that allowed 1,800,000 shares to be
granted. This stock option plan was approved by shareholders at its Annual
Meeting held on May 16, 1995. On February 5, 1996, the Board of Directors
authorized the prior stock option plan to be replaced by the proposed new
Incomnet 1996 Stock Option Plan. This plan was approved by shareholders at the
July 29, 1996 Annual Meeting of Shareholders.
Options approved under the previous plan that have not been returned or expired
are as follows:
Employee Number Base Price Disposition and terms
- -------- ------- ---------- ---------------------
Edward Jacobs 1,200,000 $10.00 Still held. These options will be
returned upon the adoption of a
separate stock option program for
National Telephone &
Communications that is a part of a
recent agreement contemplating
that NTC will eventually become a
public corporation. In any event,
these options do not vest unless
and until NTC earns at least $15
million in pre-tax earnings in
four continuous audited quarters
by December 31, 1997.
HOLDINGS AND GRANTS
The following stock options and warrants are held by the following directors and
executive officers. The table does not include 1,200,000 stock options held by
Edward R. Jacobs as disclosed above that the Company expects will be returned
upon adoption of a separate stock option plan by National Telephone &
Communications, Inc.
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<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Exercise or Date of Appreciation for Term
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 $ 33,637 $ 74,330
options 100,000 (2) 4.37 4/5/01 120,736 266,792
options 25,000 (1) 4.87 5/31/01 33,637 74,330
options 25,000 (1) 4.87 8/31/01 33,637 74,330
options 25,000 (1) 4.87 11/30/01 33,637 74,330
options 25,000 (2) 4.37 2/28/02 30,184 66,698
options 25,000 (2)(5) 4.37 5/31/02 30,184 66,698
options 50,000 (3) 4.37 5 years from vesting 60,368 133,396
options 200,000 (1)(4) 4.87 5 years from vesting 269,098 594,637
Stephen A. Caswell options 50,000 (4) 4.37 5 years from vesting 60,368 133,396
options 40,000 (6) 4.25 1/21/02 -- $23,261
Albert Milstein options 25,000 4.37 4/5/01 30,184 66,698
options 25,000 4.37 1/1/02 30,184 66,698
options 35,000 (7) 4.25 1/21/02 -- $20,353
Mark Richardson options 15,000 4.37 4/5/01 18,110 40,018
options 15,000 4.37 1/1/02 42,258 93,377
options 20,000 (7) 4.25 1/21/02 -- $11,630
Nancy Zivitz options 25,000 4.37 2/5/01 30,184 66,698
options 25,000 4.37 1/1/02 30,184 66,698
options 35,000 (7) 4.25 1/21/02 -- $20,353
Howard Silverman options 35,000 (7) 4.25 1/21/02 -- $20,353
</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.
(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 will vest on May 31, 1997.
(6) 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 issued by the Board of Directors on January
21, 1997 upon recommendation by the Compensation Committee.
(7) These options were issued by the Board of Directors on January 21, 1997 upon
recommendation of the Company's Compensation Committee.
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, Howard Silverman and
Stephen Caswell. Mr. Caswell did not participate in discussion on 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
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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. 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 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. 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"].
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 extensively 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
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a reliable 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 pending 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 consultants to the
Company pursuant to Incomnet, Inc.'s 1996 Stock Option Plan. See the Stock
Option Table in "Item 11. Executive Compensation - Holdings and Grants".
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of May 23, 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 1,998,610 (1) 14.19%
333 S. Hope St. - 43rd Floor
Los Angeles, CA 90071
Clarence Robert Zivitz 729,300 (2) 5.18%
7734 Silver Bell Drive
Sarasota, FL 34241
David Wilstein 454,971 (3) 3.23%
2080 Century Park East - Penthouse
Los Angeles, CA 90067
Leonard Wilstein 98,588 (3) 0.70%
11201 Hindry Avenue
Los Angeles, CA 90045
Jack Gilbert 205,000 (3) 1.46%
15456 Coutolenc Road
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Magalia, CA 95954
Richard Horowitz 360,535 (3) 2.56%
9301 Wilshire Blvd. #206
Beverly Hills, CA 90210
(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 on May 5, 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 7.65% of the outstanding shares of the
Company.
(4) Assumes 14,080,593 shares outstanding, including 570,000 shares issuable
upon the exercise of stock options and warrants which have vested, but
which have not yet been exercised.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of May 23, 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 (6)
- ----- --------- ---------------
Nancy Zivitz 729,300 (1) 5.18%
Melvyn Reznick 280,300 (2) 1.99
Albert Milstein 125,000 (3) 0.89
Howard Silverman 35,000 (4) 0.25
Stephen A. Caswell 20,000 (5) 0.14
Edward R. Jacobs -- --
James R. Quandt -- --
Victor C. Streufert -- --
Jerry Buckley -- --
Eric Hoffberg -- --
All directors and
officers as a group
(10 persons) 1,189,600 8.45%
(1) 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.
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(2) 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 100,000 shares at an
exercise price of $4.37 per share, exercisable at any time until April 5,
2001. 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, 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, and stock options to purchase an additional
25,000 shares at an exercise price of $4.37 per share, which do not vest
until May 31, 1997. 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.
(3) 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, 2002, and stock options to
purchase 35,000 shares at an exercise price of $4.25 per share exercisable
at any time January 22, 2002.
(4) 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.
(5) 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"].
(6) Assumes 14,080,593 shares outstanding, including 570,000 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, other than: (1) a report on Form 4 due from Joel W.
Greenberg, the Company's former Chairman of the Board on or before May 10, 1996
with respect to 25,000 stock options which vested on April 5, 1996, (2) certain
officers of National Telephone & Communications, Inc. were late in their Form 3
filings when they became executive officers in February 1996, and a director of
that subsidiary is late in Form 4 and Form 5 filings for 1995, but the Form 3
filings have been brought current, and (3) reports on Form 4 and Form 5 of
transactions occurring from January 1993 until July 1995 were reported late by
Sam D. Schwartz, the Company's former Chairman, President and Chief Executive
Officer.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITION OF CALIFORNIA INTERACTIVE COMPUTING, INC.
GENERAL: On May 2, 1997, Incomnet, Inc. ("Company") acquired 88,370.5 shares
representing 100% of the outstanding common stock of California Interactive
Computing, Inc. ("CIC"), a private corporation headquartered in Valencia,
Califonria. The Company agreed to pay a total of $1,758,302 in cash, payable
over a five year period of time. In addition, the Company has agreed to
assume the outstanding balance of $418,527.91 for loans to CIC made by two of
CIC's shareholders. The Company has also signed an employment agreement for a
period of two years with Jerry C. Buckley, CIC's former president and CEO,
pursuant to which it will pay Mr. Buckley $10,000 per month in consideration
for Mr. Buckley's services as the Director of Strategic Planning for CIC. The
Company has also agreed to provide 10,000 and 20,000 stock options,
respectively, in CIC to two former shareholders when a plan is established
for CIC's officers, directors, employees and key consultants.
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CIC is engaged in the development and marketing of software that is used to
process insurance-related claims, including workers compensation, disability,
general medical and property & casualty. Its software is leased to companies who
provide their own insurance and claims administration, to insurance companies,
and to third-party administrators who process claims for either self-insured
companies or insurance companies. CIC was incorporated in 1977 in California
and has provided software for claims processing for 20 years.
SCHEDULE OF PAYMENTS: At the close of the transaction on May 2, 1997, the
Company paid a total of $249,818 to the former shareholders of CIC, $84,818 of
which was paid to acquire CIC's stock and $165,000 of which was utilized to pay
down loans to two former CIC shareholders. The Company has signed promissory
notes in the aggregate principal amount of $1,927,016.91 to four former
shareholders of CIC to repay the balance of the loans owed by CIC ($253,527.91
as of May 2, 1997) and the balance of the price to purchase their CIC stock by
the Company ($1,674,489 as of May 2, 1997). These notes bear interest at the
simple rate of 8% per annum. The outstanding balances owed on these notes can be
repaid at any time, which would lower the total amount of scheduled payments,
including interest.
During the first year after the acquisition, the Company has agreed to pay
$27,859 to one shareholder in 12 equal monthly payments of principal and
interest. During the 13th - 24th month after the acquisition, the Company has
contracted to pay a total of $591,175 of principal and interest, of which
$369,136 is scheduled to be paid for the purchase of CIC stock from four former
shareholders and of which $222,039 is scheduled to pay down the outstanding
loans to two former shareholders.
During the 25th - 36th month after the acquisition, the Company has contracted
to pay a total of $559,662 of principal and interest, of which $514,662 is
scheduled to be paid for the purchase of CIC stock from four former and of which
$45,000 is scheduled to pay off the remaining balance of the loans owed to two
former shareholders.
During the 37th - 48th month after the acquisition, the Company is contracted to
pay a total of $574,572 of principal and interest for the purchase of CIC stock
from four former shareholders.
During the 49th - 60th month after the acquisition, the Company is contracted to
pay a total of $514,662 of principal and interest for the purchase of CIC stock
from four former shareholders.
PRODUCTS AND SERVICES: CIC develops and markets a trademarked line of software
products designed to handle insurance-related claims processing. Insurance-
related products include GenCOMP-TM-, GenMED-TM-, GenDIS-TM-, GenPAC-TM-,
GenRISK-TM-, GenIRIS-TM- and Top Rate-TM-. In addition, CIC also offers several
computer and service-related products, including GenARS-TM-, which is an optical
disk-based information storage and retrieval system, and GenSERVE-TM-, which is
a maintenance and service program customers.
GenCOMP, GenMED, GenDIS and GenPAC automate claims processing for workers'
compensation, general medical, disability and property & casualty, respectively.
Top Rate is used to rate the strength of a disability claim in the State of
California.
DIRECTORS AND OFFICERS: The former directors of CIC tendered their resignation,
effective at the acquisition. The Company has named Melvyn Reznick, its
President and CEO, Stephen A. Caswell, its Vice President and Corporate
Secretary, and Jerry C. Buckley, CIC's former President and CEO to serve on
CIC's Board of Directors. Mr. Reznick will serve as Chairman, President, CEO and
CFO of CIC. Mr. Caswell will serve as Executive Vice President and Secretary of
CIC. Mr. Buckley will serve as a director.
CIC has engaged Mr. Buckley in an employment contract for a period of two years
at a rate of $120,000 per year. CIC has no other employment agreements. The
Company has named Eric Hoffberg, Michael Ewing and Nora Kenner as officers of
CIC. Mr. Hoffberg will serve as General Manager of CIC. Mr. Ewing will serve as
Vice President of Marketing and Ms. Kenner will serve as Vice President of
Consulting Services.
Prior to joining CIC 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 Manager of
Sales for VMark Software (Irvine, CA) from October 1990 - May 1996. In 1978,
he received a B. A. in Public Administration from UCLA.
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<PAGE>
Eric Hoffberg has been employed by CIC since January 1990 and has more than
20 years of experience in the insurance industry. From January 1991 to his
promotion to General Manager upon the acquisition of CIC by the Company, he
served as CIC's Vice President of System Services. From January 1990 to
December 1990, he served the Director of Systems & Programming. Prior to
joining CIC, 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 B. A. in Business Administration from
Long Beach State University in 1976.
Nora Kenner has been employed by CIC since 1980 when she joined as an
administrative assistant. From January 1991 to her promotion to Vice President
of Consulting Services at the acquisition 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 B.A. in Biology
from UCLA.
Mr. Buckley was one of the founders of CIC in 1977 and has served as CIC's
Chairman, President and CEO from CIC's inception until CIC was acquired by
the Company on May 2, 1997. Prior to founding CIC, he was employed in various
positions in software development and engineering by Lockheed. He received a
B.A. in Geology from USC in 1960.
EMPLOYMENT OF JAMES QUANDT AS PRESIDENT OF NTC:
Mr. Quandt's employment agreement commenced on January 6, 1997 and has a term of
three years. 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. Until
Mr. Quandt becomes the Chief Executive Officer of NTC (which is contemplated but
not guaranteed), he and the President of the newly formed marketing division
will report to Mr. Jacobs. The employment agreement recites that Mr. Jacobs
also contemplates retiring as the Chairman of the Board of Directors of NTC on
July 25, 1999, although such retirement is not contractually mandated. 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. See "THE COMPANY - Amendment to NTC
Management Incentive Agreement." 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
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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.
Prior to assuming his executive position with NTC, 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. Global Financial Information Corporation operates from a
base of 27 offices internationally, with a staff of approximately 840
professionals. 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. At Standard &
Poors, Mr. Quandt was responsible for all executive, administrative and
operational functions of nine domestic and international companies that
comprised the Standard & Poors Group. From 1980 to 1991, Mr. Quandt was an
executive officer in various capacities with Security Pacific Bank in Los
Angeles, California. Mr. Quandt was the Senior Vice President and Group
Division Head of Security Pacific Bank's Financial Management & Trust Services
Group from 1988 to 1991. From 1983 to 1990, Mr. Quandt was the President and
Chief Executive Officer of Security Pacific Brokerage, Inc., a subsidiary of
Security Pacific Bank, for which he negotiated the sale in 1990 to Fidelity
Investments. Mr. Quandt was Group Vice President of Security Pacific Financial
Management Centers from 1980 to 1983. From 1976 to 1980, Mr. Quandt was a Second
Vice President with Smith, Barney, Harris, Upham & Co. in Los Angeles,
California, and from 1972 to 1976, he was a Senior Account Executive with the
Bank of America. Mr. Quandt earned a Bachelor of Science in Economic 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. Mr. Quandt is a member of
the Board of Regents of Saint Mary's College of California and the Alumni
Council Board of the American Bankers Association. Mr. Quandt is also a member
of the New York Municipal Forum.
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's independent sales representative system. 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 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 officer
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 the
officer 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 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
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
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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 pending
financing with the Investors.
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.
ELECTION 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. From May 1995
to the present, Mr. Silverman has 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.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: May 22, 1997
INCOMNET, INC.
--------------
(Registrant)
By: /s/ MELVYN REZNICK
------------------
MELVYN REZNICK
President and Chief Executive Officer
Pursuant to requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
/s/ MELVYN REZNICK President, Chief Executive
- ------------------ Officer, and Chairman of the
MELVYN REZNICK Board of Directors May 22, 1997
/s/ ALBERT MILSTEIN Director May 22, 1997
- -------------------
ALBERT MILSTEIN
/s/ Dr. HOWARD SILVERMAN Director May 22, 1997
- ------------------------
Dr. HOWARD SILVERMAN
/s/ NANCY ZIVITZ Director May 22, 1997
- ----------------
NANCY ZIVITZ
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