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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 29, 1998
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Incomnet, Inc.
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(Exact Name of Registrant as Specified in its Charter)
California 0-12386 95-2871296
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
2801 Main Street, Irvine, California 92614
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (949) 251-8000
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20501 Ventura Boulevard, Suite 265, Woodland Hills, California 91364
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(Former Name or Former Address, if Changed Since Last Report)
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Item 1. Change in Control of Registrant.
CHANGE IN COMPOSITION OF BOARD. Incomnet, Inc. (the "Registrant" or the
"Company") previously entered into the Board Change Agreement dated August
28, 1998 (the "Board Change Agreement"), with the then current directors of
the Company and John P. Casey, the Company's single largest shareholder. The
summary of the terms of the Board Change Agreement set forth below is
qualified by, and should be read in conjunction with, the Board Change
Agreement in its entirety, a copy of which was included as an exhibit to the
Company's Current Report on Form 8-K dated August 28, 1998 filed with the
Securities and Exchange Commission ("SEC") and is incorporated by reference
into this Current Report. On September 29, 1998, in accordance with the Board
Change Agreement, Messrs. Melvyn H. Reznick, Rolf Lesem, Richard M. Horowitz
and David Wilstein and Ms. Nancy S. Zivitz resigned as directors of the
Company as well as from any other office they may have then held, and Dr.
Howard Silverman continued to serve as a member of the Board of Directors.
In addition, on September 29, 1998 and in accordance with the Board Change
Agreement, Mr. Casey and two of Mr. Casey's designees, John Hill, Jr. and
Michael A. Stein, were appointed as directors of the Company (the change in
the composition of the Board of Directors in accordance with the Board Change
Agreement is sometimes referred to in this Current Report as the "Board
Change"). Further, on September 29, 1998, Mr. Casey was appointed Chairman
of the Board of Directors. The Company has entered into an employment
agreement with Mr. Casey relating to his duties as Chairman. See "Item 5.
Other Events -- Casey Services Agreement."
On October 2, 1998, the Board of Directors appointed Mr. Denis Richard and
Mr. Scott Eisenberg as directors of the Company, filling two of three vacant
positions on the seven-member Board of Directors. Mr. Richard was also
appointed President and Chief Executive Officer of the Company and its
subsidiary, National Telephone & Communications, Inc. ("NTC"). The Company has
entered into an employment agreement with Mr. Richard relating to his duties as
President and Chief Executive Officer of the Company and NTC. See "Item 5 Other
Events -- Richard Employment Agreement." Thus, following the appointment of
these two directors on October 2, 1998, the Company's Board of Directors
consisted of Messrs. Casey (Chairman), Eisenberg, Hill, Richard and Stein and
Dr. Silverman.
A description of the business experience of the current directors of the
Company is set forth below.
JOHN P. CASEY, 49, has been a director and Chairman of the Board of the
Company and since September 29, 1998 and a director of NTC since October 1,
1998. Mr. Casey also is the Senior Vice President, Financial Marketing for
Meridian Investments, Inc., an NASD registered broker-dealer ("Meridian"), since
1981. Meridian is a privately held company and Mr. Casey believes that it is
one of the largest originators of tax credit equity in the United States.
Mr. Casey is primarily responsible for the design of financial marketing plans
for Meridian. Since 1996, Mr. Casey has served as a director of Val-u-net and
since 1997 he has served as a director of 1-800-Database, which are privately
held companies involved in electronic commerce and internet technologies.
Mr. Casey also currently serves as a director of the Make-a-Wish Foundation for
the
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Mid-Atlantic region. Mr. Casey received a Bachelor of Science degree in
Political Science in 1971 from the University of Massachusetts (Boston State
College).
SCOTT EISENBERG, 39, has been a director of the Company since October 2,
1998. Since June 1996, Mr. Eisenberg has been the Director, Product Management
for CyberCash, a leading provider of payment solutions for internet and
real-world storefronts. From March 1993 until he joined CyberCash in June 1996,
Mr. Eisenberg had key management positions with MCI Telecommunications in its
internet services sector and long distance telephony services sector. From 1989
to 1993, Mr. Eisenberg was a partner in an investment banking firm where he
advised emerging growth companies in connection with equity and debt financings
and mergers and acquisitions. Mr. Eisenberg received a Bachelor of Science
Degree in Engineering, summa cum laude, from the University of Pennsylvania in
1981, a Bachelor of Science Degree in Economics, summa cum laude, from the
Wharton School of the University of Pennsylvania in 1981, and a Masters in
Business Administration (MBA) degree, with distinction, from the Harvard
Business School of Harvard University in 1986.
JOHN P. HILL, JR., 38, has been a director of the Company since September
29, 1998 and a director of NTC since October 1, 1998. Mr. Hill is the President
of Quince Associates, a closely held company with investments in real estate,
retail convenience stores, restaurants, technology and various other public and
private companies. Since 1989, he has also served as President of Trans Pacific
Stores, Ltd., a privately held operator of retail stores. Since 1997, Mr. Hill
has served as a director of Covol Technologies, Inc., a publicly traded
technology development company based in Utah. Prior to 1989, Mr. Hill was the
Chief Financial Officer for various privately held retail and restaurant
companies. Mr. Hill received a Bachelor of Science degree in Accounting from
the University of Maryland and became a certified public accountant in 1984.
DENIS RICHARD, 38, has been the President and Chief Executive Officer of
the Company and NTC since September 29, 1998, a director of NTC since October 1,
1998 and a director of the Company since October 2, 1998. From 1995 to
September 1998, Mr. Richard held management positions at Teleglobe Inc. and its
subsidiary, Teleglobe International Corp. Teleglobe is one of the world's
largest intercontinental telecommunications companies. In 1996, Mr. Richard was
appointed Vice President, Law & Corporate Affairs for Teleglobe International
Corp. Prior to this appointment, he served as Director of Special Projects for
Teleglobe Inc. From 1989 until he joined Teleglobe in 1995, Mr. Richard was
Senior Counsel with BCE Inc., where he was involved in many of that company's
telecommunications investment activities, as well as heading several other
divestiture and reorganization projects. Mr. Richard received Bachelor of Law
and Bachelor of Communication and Science degrees from the University of Moncton
in New Brunswick.
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DR. HOWARD SILVERMAN, 57, has been a director of the Company since
January 1997. He is presently an independent consultant in the investment
banking industry. From November 1996 to October 1997, he served as an
investment banking consultant with Andrew, Alexander, Wise & Co. From May 1995
to November 1996, Dr. Silverman served as Vice President of Corporate Finance
for Rickel & Associates. From 1991 until he joined Rickel, he served as an
independent consultant to development stage and middle market companies. From
1985 to 1991, he was the founder and Chairman of the Board of Vision Sciences, a
company that developed, manufactured and marketed 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.
MICHAEL A. STEIN, 49, has been a director of the Company since September
29, 1998. In October 1998, Mr. Stein became the Executive Vice President and
Chief Financial Officer of Nordstrom, Inc., a fashion specialty retailer with 97
stores located in 22 states. At Nordstrom, Mr. Stein is responsible for all of
Nordstrom's financial operations and strategic planning. From 1993 through
September 1998, Mr. Stein was the Executive Vice President and Chief Financial
Officer of Marriott International, Inc. At Marriott, Mr. Stein was responsible
for Marriott's treasury, corporate and project finance, investor relations,
controllership, tax, risk management and internal audit functions. Mr. Stein
joined Marriott in 1989 as its Vice President, Finance and Chief Accounting
Officer. Prior to joining Marriott, Mr. Stein spent 18 years with Arthur
Andersen LLP where he was a partner. Mr. Stein graduated from the University of
Maryland and is a certified public accountant.
As more fully described in Mr. Casey's Schedule 13-D filed on April 7,
1998, as amended, Mr. Casey beneficially owns 6,137,504 shares of the
Company's Common Stock (approximately 30% of the outstanding shares of Common
Stock) and has an option to purchase 1,598.2 shares of the Company's
Preferred Stock from certain persons (the "Cohen Group") who filed a Schedule
13-D with the SEC on June 19, 1998 as a group (as amended, the "Cohen 13-D").
Under the Board Change Agreement, Mr. Casey has certain obligations to
assign or transfer to the Company the Cohen Option or shares of Preferred
Stock underlying the Cohen Option (the "Cohen Preferred Stock"). See "--
Other Terms of Board Change Agreement." Mr. Casey purchased 1,907,404 shares
of Common Stock using a credit facility ("Casey Credit Facility") provided by
Trans Pacific Stores, Ltd., a Hawaiian corporation. The Casey Credit
Facility is secured by a pledge of certain personal assets of Mr. Casey not
including any shares of the Company's Common Stock owned by Mr. Casey. The
Casey Credit Facility bears a simple interest rate of 18% per annum and has
no minimum periodic payments and no prepayment penalties. The Casey Credit
Facility is due and payable in full with accrued interest by no later than
June 30, 1999, unless extended by mutual agreement. As described above, a
director of the Company, John Hill, is President of Trans Pacific Stores, Ltd.
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Based on the percentage of his stock ownership and since Mr. Casey was
appointed a director and Chairman of the Board and designated two other members
to the Company's Board of Directors pursuant to the Board Change Agreement, Mr.
Casey may be deemed to have acquired control over the Company (as control is
defined under the Securities Exchange Act of 1934, as amended) following
completion of the Board Change Agreement on September 29, 1998.
OTHER TERMS OF BOARD CHANGE AGREEMENT. In addition to the change in the
composition of the Board of Directors, the Board Change Agreement obligates the
Company, subject to applicable law, to nominate Dr. Silverman for reelection to
the Board of Directors at the next annual meeting of the Company's shareholders.
Further, the Board Change Agreement obligates the Company to form and appoint
members to an Audit Committee, a Compensation Committee and a Disinterested
Director Committee and offer Mr. Silverman the opportunity to be a member on
those committees. Also, if the Company forms an Executive Committee, the
Company must offer Dr. Silverman the opportunity to become a member of that
committee.
Under the Board Change Agreement, Mr. Casey is obligated to assign the
Cohen Option to the Company if (i) the Company is financially able to purchase
or redeem the Cohen Preferred Stock at the exercise price set forth in the
agreement among Mr. Casey and the Cohen Group (the "Cohen Option Agreement")
prior to termination of the Cohen Option, (ii) the Cohen Group consents to the
assignment, (iii) the Company agrees to exercise the Cohen Option and redeem the
Cohen Preferred Stock prior to termination of the Cohen Option and (iv) the
Company agrees to reimburse Mr. Casey for costs and expenses associated with
acquiring and assigning the Cohen Option (including the Cohen Option price and
Mr. Casey's closing costs and reasonable legal fees relating thereto). The
Cohen Option initially was scheduled to terminate on October 14, 1998 but has
been extended by agreement between Mr. Casey and the Cohen Group and will
terminate on November 5, 1998 (the "Cohen Option Termination Date").
Under the Board Change Agreement, if the Company is not financially able to
redeem the Cohen Preferred Stock on or before the Cohen Option Termination Date,
then Mr. Casey is obligated under the Board Change Agreement to exercise the
option and acquire the underlying Cohen Preferred Stock. For the one-year
period after the exercise of the Cohen Option by Mr. Casey, the Company will
have the right to redeem the Cohen Preferred Stock at a redemption price equal
to Mr. Casey's purchase price plus carrying costs, and Mr. Casey will be
obligated to hold the Cohen Preferred Stock (without transferring or converting
it) during that one-year period.
If the Company is not financially able to redeem the Cohen Preferred Stock
from Mr. Casey during such one-year period, then Mr. Casey is obligated under
the Board Change Agreement to tender the Cohen Preferred Stock to the Company
for conversion at the end of such one-year period and the Company will convert
the Cohen Preferred Stock into Common Stock (the "Cohen Common") at a conversion
price which approximates
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the conversion price per share when the Cohen Preferred Stock was tendered for
conversion by the Cohen Group on June 10 and 11, 1998 (i.e., approximately $0.19
per share of Common Stock). In such an event, Mr. Casey has agreed to register
and offer the Cohen Common to all of the Company's shareholders on a pro rata
basis for a purchase price equal to the sum of (i) the conversion price paid by
Mr. Casey (i.e., approximately $0.28 per share), (ii) Mr. Casey's carrying costs
and reasonable legal fees and costs attributable to the purchase of the Cohen
Preferred Stock and the offering of the Cohen Common. To the extent that the
Cohen Common is not fully subscribed in the first offering, Mr. Casey has agreed
to offer the remaining Cohen Common to the subscribing shareholders on a pro
rata basis in a second round, after which any remaining Cohen Common could be
retained by Mr. Casey or assigned by him in his sole discretion.
Under the Board Change Agreement, the Company has agreed to solicit the
approval of the Company's shareholders to the proposed amendment to the
Company's Articles of Incorporation, as amended, to increase the number of
authorized shares of the Company's Common Stock to 50 million. Mr. Casey has
agreed to vote in favor of such amendment at any shareholders' meeting duly
called for that purpose.
The Company is obligated under the Board Change Agreement to reimburse
Mr. Casey for any reasonable costs and expenses (including reasonable attorneys'
fees and costs), in addition to the expense reimbursements already described,
which are incurred by him in connection with: (i) the settlement of the class
action lawsuit known as Saundra Gayles vs. Incomnet, Inc. and Sam D. Schwartz,
(ii) filings made with the Securities and Exchange Commission or any other
regulatory agency in connection with the Board Change, (iii) preparation of the
information statement delivered to the Company's shareholders in connection with
the Board Change, (iv) obtaining directors' and officers' insurance coverage,
(v) negotiating and preparing the term sheet relating to the Board Change and
the Board Change Agreement, (vi) any negotiations with WorldCom or First Bank
with respect to NTC, and (vii) any negotiations by Mr. Casey with institutional
investors relating to additional equity or debt financing for the Company or
NTC.
Other than the costs and expenses relating to the Cohen Preferred Stock and
those matters described in clauses (i) through (vii) above, (a) upon the
approval of a majority of the Disinterested Director Committee (and without
requiring the approval of the Company's shareholders), the Company will
reimburse Mr. Casey up to $100,000 of costs and expenses incurred by him on or
after April 1, 1998 in connection with due diligence concerning the Company and
its proposal to sell NTC, the attempt to prevent such sale and any related
documentation and his evaluation of his rights and alternatives as a significant
shareholder of the Company (collectively, the "Due Diligence and Other Costs"),
and (b) upon the approval of the majority of the Disinterested Director
Committee and the Company's disinterested shareholders, the Company will
reimburse Mr. Casey for Due Diligence and Other Costs in excess of $100,000.
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Under the Board Change Agreement, the parties released each other and
certain of their respective affiliates from Claims (as specifically defined in
the Board Change Agreement) which may arise from (i) the Board Change, (ii) the
proposed sale or recapitalization of NTC originally contemplated in or about
December 1997, including pursuant to the Asset Purchase Agreement dated as of
March 31, 1998 between NTC Acquisition, Inc. and NTC, (iii) the proposed NTC
debt financing with a financial institution in July 1998, (iv) the sale of up to
2.5 million shares of Rapid Cast, Inc. ("RCI") at $.60 per share, (v) upon the
redemption of the Cohen Preferred Stock or the approval by the Company's
shareholders of the amendment to the Company's Articles of Incorporation, as
amended, increasing the authorized number of shares of the Company's Common
Stock to 50 million shares and subsequent conversion of the Cohen Preferred
Stock into shares of Common Stock based on the conversion price when tendered
for conversion on June 10 and 11, 1998, the failure to have shares of Common
Stock available for issuance to the holders of the Cohen Preferred Stock upon
their attempted conversion of such stock into shares of Common Stock on June 10
and 11, 1998 or (vi) any action, failure to act, representation, event,
transaction, occurrence or other subject matter resulting from, arising out of,
relating to, connected in any way with, or alleged, suggested or mentioned in
connection with the foregoing matters. The parties have also agreed to
indemnify each other generally for any losses they may incur as a result of the
assertion of any released Claims against them.
Item 5. Other Events.
RICHARD EMPLOYMENT AGREEMENT. The Company and NTC entered into an
employment agreement with Mr. Richard as of September 29, 1998 (the "Richard
Employment Agreement"), pursuant to which Mr. Richard agreed to serve as the
President and Chief Executive Officer of the Company and NTC. The following
summary of the terms of the Richard Employment Agreement is qualified by, and
should be read in conjunction with, the Richard Employment Agreement in its
entirety, a copy of which is attached to this Current Report as an exhibit and
incorporated herein by reference.
The term of the Richard Employment agreement commenced on September 29,
1998 and terminates on December 31, 2001. During the term of the agreement, the
Richard Employment Agreement obligates the Company and NTC to nominate Mr.
Richard as a director of the Company and NTC (and Chairman of the Board of NTC),
if Mr. Richard so requests. Mr. Richard was appointed a director of NTC (and
its Chairman) on October 1, 1998 and a director of the Company on October 2,
1998.
Mr. Richard will receive an annual base salary of no less than $325,000.
In addition, Mr. Richard is entitled to receive a one-time signing bonus of
$353,000. If Mr. Richard terminates his employment voluntarily without "Good
Reason" (as defined in the
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Richard Employment Agreement), he must return a prorated portion of his signing
bonus. He is also eligible to participate in any executive bonus plan of the
Company and may receive up to 100% of his then current base salary as a bonus,
as determined by the Company's Board of Directors, provided, however, that Mr.
Richard is entitled to a minimum guaranteed bonus for fiscal 1999 and 2000 equal
to 50% of his then current base salary. Mr. Richard is also entitled to certain
fringe benefits under the Richard Employment Agreement, including a car
allowance, a temporary housing allowance, broker and closing
costs on sale and purchase of his residence and moving expenses.
Under the Richard Employment Agreement, the Company has agreed to issue to
Mr. Richard 13 shares of the Company's Series D Preferred Stock (inadvertently
referred to as Series C Preferred Stock in the Richard Employment Agreement).
The Series D Preferred Stock will be convertible into an aggregate of 1,300,000
shares of the Company's Common Stock at such time as the Company's Articles of
Incorporation have been amended to increase the authorized number of shares of
the Company's Common Stock to permit such conversion. The issuance to Mr.
Richard of the Series D Preferred Stock is subject (i) to the completion of a
Certificate of Determination that establishes the rights, preferences,
privileges and restrictions of such Series D Preferred Stock and (ii) the filing
of the Certificate of Determination with the Office of the California Secretary
of State. The 13 shares of Series D Preferred Stock will be entitled to vote
with the holders of the Company's Common Stock on all matters submitted to
shareholders on an as-converted-to-Common basis (i.e., the right vote as if the
shares of Series D Preferred Stock were converted into 1.3 million shares of
Common Stock). Mr. Richard has certain rights to require the Company to
register the Common Stock under the Securities Act of 1933, as amended,
following the first anniversary of the commencement of his employment with the
Company.
Under the Richard Employment Agreement, the shares of Series D Preferred
Stock and the shares of the Company's Common Stock that would be issued upon
conversion of the Series D Preferred Stock are subject to (i) a thirty-day right
of first refusal in favor of the Company (the "Company Repurchase Right") if Mr.
Richard at any time desires to sell, transfer or assign any of such securities;
and (ii) a right in favor of the Company to repurchase all, but not less than
all, of such securities if Mr. Richard terminates voluntarily without Good
Reason or is terminated by the Company for "Cause" (as defined in the Richard
Employment Agreement) prior to the first anniversary of the Employment Agreement
(the "Company Repurchase Option"). The purchase price for the securities
purchased by the Company under the Company Repurchase Right or under the Company
Repurchase Option will be the then current per share market price of the
Company's Common Stock reduced by $2.1775 (calculated on an as converted to
Common Stock basis, if the securities being transferred are Series D Preferred
Stock). The grant of the Series D Preferred Stock by the Company to Mr. Richard
is deemed to be compensation from the Company to Mr. Richard and no
consideration will be paid by Mr.
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Richard either for the issuance of the Series D Preferred Stock or upon the
conversion of the Series D Preferred Stock into shares of Common Stock.
Under the Richard Employment Agreement, the Company is obligated to pay Mr.
Richard severance if Mr. Richard terminates for Good Reason or is terminated by
the Company without Cause, as follows: (i) continued payment of base salary for
18 months or, if longer, until December 31, 2001, and (ii) reimbursement of
health insurance premiums for 18 months or, if earlier, until December 31, 2001.
The Company is also obligated to indemnify Mr. Richard against certain
liabilities relating to his service to the Company and NTC and provide coverage
for Mr. Richard under commercially reasonable directors and officers liability
insurance during the term of his employment and for three years thereafter.
If Mr. Richard is terminated for Cause or the voluntary terminates his
employment without Good Reason, Mr. Richard is prohibited under the Richard
Employment Agreement from competing (as described in the agreement) against the
Company or NTC and from soliciting employees of the Company and NTC, both for a
period 18 months following employment termination.
CASEY SERVICES AGREEMENT. On September 29, 1998, Mr. Casey and the
Company entered into an agreement (the "Casey Services Agreement"), under
which Mr. Casey agreed to perform certain duties as the Chairman of the Board
of Directors of the Company. The following summary of the terms of the Casey
Services Agreement is qualified by, and should be read in conjunction with,
the Casey Services Agreement in its entirety, a copy of which is attached to
this Current Report as an exhibit and is incorporated herein by reference.
The term of the Casey Services Agreement is three years ending on September
29, 2001, provided, however, that the agreement does not obligate Mr. Casey
to remain as Chairman of the Board nor does it obligate the Company to retain
Mr. Casey as Chairman of the Board.
Under the Casey Services Agreement, for so long as Mr. Casey acts as
Chairman of the Board, Mr. Casey will be entitled to a quarterly service fee
based on the fair market value of the Company's Common Stock at the end of each
fiscal quarter during the term of the agreement. Under the Casey Services
Agreement, fair market value of the Company's Common Stock is generally equal to
the average closing price of the Common Stock for the last five trading days
during the applicable fiscal quarter. If the fair market value of the Common
Stock is less than $4 per share at the end of each fiscal quarter during the
term of the agreement, Mr. Casey will be entitled to a service fee of $1 for
that quarter. If the fair market value of the Common Stock is $4 or more at the
end of a calendar quarter, Mr. Casey will be entitled to a service fee equal to
the product of (A) $25,000 and (B) the number determined by dividing the fair
market value of Common Stock by four. Generally, this will result in a $25,000
quarterly service fee to Mr. Casey if the market price of the Common Stock is
$4, and an additional $25,000 for each additional $4 increase in the market
price of the Common Stock.
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The maximum fee Mr. Casey would be entitled to in any fiscal quarter is
$250,000. If Mr. Casey resigns or is not elected or otherwise retained by the
Company as Chairman of the Board during the term of the Casey Services
Agreement, he will not be entitled to any quarterly services fee after such
resignation or termination of services. Under the Casey Services Agreement, Mr.
Casey has waived any right to receive retainer fees, meeting fees or other
remuneration given to other directors of the Company.
Mr. Casey has certain rights under the Casey Services Agreement to be
indemnified from claims against him arising out of his service to the Company as
Chairman of the Board.
DIRECTOR STOCK OPTION GRANTS. On September 29, 1998, the Board of
Directors granted an option to purchase 10 shares of the Company's Preferred
Stock to each non-employee director of the Company then in office (i.e., options
were granted to Mr. Hill, Dr. Silverman and Mr. Stein). On October 2, 1998, the
Board of Directors granted an option to purchase 10 shares of the Company's
Preferred Stock to Mr. Eisenberg upon his appointment to the Board of Directors
(the options granted to Messrs. Hill, Eisenberg and Stein and Dr. Silverman are
referred to in this Current Report as the "Nonemployee Director Options"). No
options were granted to either Mr. Casey or Mr. Richard.
The Nonemployee Director Options have a term of ten years and vest as
follows: (i) four shares of Preferred Stock are immediately exerciseable (upon
the filing of a Certificate of Determination with the California Secretary of
State establishing the rights, preferences and privileges thereto); (ii) three
shares of Preferred Stock vest on the first anniversary of the date of grant;
and (iii) three shares of Preferred Stock vest on the second anniversary of the
date of grant. Each share of Preferred Stock will be convertible into 10,000
shares of the Company's Common Stock. Since all of the Company's authorized
Common Stock is currently issued and outstanding, the right to convert the
Preferred Stock into Common Stock is subject to the approval by the Company's
shareholders of an amendment to the Company's Articles of Incorporation to
increase the number of authorized shares of Common Stock available for issuance.
For Mr. Hill, Dr. Silverman and Mr. Stein, the exercise price of each
share of Preferred Stock is $20,000 which represents $2.00 per share of the
underlying Common Stock into which such Preferred Stock will be convertible.
The closing price per share of the Company's Common Stock as reported by the
Nasdaq Stock Market on the date these options were granted to Mr. Hill, Dr.
Silverman and Mr. Stein (September 29, 1998) was $2.00 (i.e., these options
were granted at 100% of the market price of the underlying Common Stock at
the date of grant). For Mr. Eisenberg, the exercise price of each share of
Preferred Stock is $22,500 which represents $2.25 per share of the underlying
Common Stock into which such Preferred Stock will be convertible. The closing
price per share of the Company's Common Stock as reported by the Nasdaq Stock
Market on the date these options were granted to Mr. Eisenberg (October 2,
1998) was $2.25 (i.e., these
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options were granted at 100% of the market price of the underlying Common Stock
at the date of grant).
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits.
Exhibits.
<TABLE>
<C> <S>
10.1 Board Change Agreement dated as of August 28,
1998, among Incomnet, Inc., Richard Horowitz,
Rolf Lesem, Melvyn Reznick, Howard Silverman,
David Wilstein, Nancy Zivitz and John P. Casey
(previously filed with the SEC as an exhibit to
Registrant's Current Report on Form 8-K dated
August 28, 1998 and incorporated herein by
reference).
10.2 Employment Agreement dated as of September
29, 1998, among Incomnet, Inc., National
Telephone & Communications, Inc. and Denis
Richard.
10.3 Letter Agreement dated September 29, 1998,
between Incomnet, Inc. and John P. Casey
relating to Mr. Casey's services as Chairman
of the Board of Incomnet, Inc.
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
October 13, 1998 INCOMNET, INC.
By /s/ DENIS RICHARD
----------------------------------
Denis Richard
President and Chief Executive Officer
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EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of September 29, 1998, by and among
Incomnet, Inc., ("Incomnet"), a California corporation and National Telephone
& Communications, Inc., ("NTC"), a Delaware corporation, (together the
"Companies") and Denis Richard a resident of Potomac, Maryland ("Executive").
WITNESSETH:
WHEREAS, Incomnet desires to employ Executive as the President and Chief
Executive Officer of Incomnet and NTC desires to employ Executive as the
President and Chief Executive Officer of NTC and Executive is willing to
serve in each capacity; and
WHEREAS, the Companies and Executive desire to set forth the terms and
conditions of such employment.
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties agree as
follows:
1. TERM OF EMPLOYMENT. Except for earlier termination as provided in
Section 7 hereof, Executive's employment under this Agreement shall be for a
term (the "Employment Term") commencing on September 29, 1998 (the
"Commencement Date") and terminating on December 31, 2001.
2. POSITIONS. (a) During the Employment Term, Executive shall serve
as President and Chief Executive Officer of Incomnet, and as President and
Chief Executive Officer of NTC. It is the intention of the parties that
during the Employment Term, Executive shall have the option to also serve on
the Board of Directors of each of the Companies without additional
compensation and if requested by the Executive, the Companies shall, during
the Employment Term, nominate Executive as a director. If the Executive
serves on the Board of Directors of NTC, he shall act as Chairman of the
Board. Incomnet and NTC each agree that it shall jointly and severally be
responsible for obligations of each of the Companies to the Executive under
this Agreement.
(b) Executive shall report directly to the Board of Directors of
Incomnet (the "Incomnet Board") and the Board of Directors of NTC.
(c) During the Employment Term, Executive shall devote
substantially all of his business time and efforts to the performance of his
duties hereunder and use his best efforts in such endeavors; provided,
however that Executive shall be allowed, to the extent that such activities
do not materially interfere with the performance of his duties and
responsibilities hereunder, to manage his passive personal investments and to
serve on corporate, civic, or charitable boards or committees.
Notwithstanding the foregoing, Executive shall not serve on any corporate
board of directors if such service would be inconsistent with his fiduciary
responsibilities to the Companies and in no event shall Executive serve on
any such board unless previously approved by the Incomnet Board.
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(d) Upon request of the Incomnet Board, Executive shall also serve
as an officer of affiliates of the Companies with no additional compensation.
Any compensation paid to Executive by any such affiliate shall reduce the
Companies' compensation obligations hereunder.
(e) Both during his employment hereunder, and for a three year
period commencing after the Executive ceases to be an employee of the
Companies, the Companies shall maintain commercially reasonable directors'
and officers' liability insurance policies covering the Executive with
respect to his service as an officer and/or director of the Companies or any
of its affiliates and to the maximum extent permitted by law and the
applicable Articles of Incorporation and By-laws, shall indemnify the
Executive from liability, loss or expense (including reasonable attorney's
fees) arising out of such service.
3. BASE SALARY. During the Employment Term, Executive shall be paid a
base salary at the annual rate of not less than three hundred twenty-five
thousand dollars ($325,000). Base salary shall be payable by Incomnet in
accordance with its usual payroll practices but not less frequently than once
every two weeks. Executive's Base Salary shall be subject to annual review
by the Incomnet Board, and may be increased, but not decreased, from time to
time. The base salary as determined as aforesaid from time to time shall
constitute "Base Salary" for purposes of this Agreement.
4. COMPENSATION AND OTHER BENEFITS. (a) ANNUAL BONUS. For each
fiscal year or portion thereof during the Employment Term, Executive shall be
eligible to participate in an annual bonus plan of Incomnet in accordance
with, and subject to the terms of, such plan as determined by the Incomnet
Board, with a maximum award level equal to one hundred percent (100%) of Base
Salary, provided that Executive's minimum annual bonus for fiscal year 1999
and 2000 shall be fifty percent (50%) of Base Salary (the "Guaranteed Bonus")
and further provided that beginning with Incomnet's 1999 fiscal year,
Incomnet shall have the right to condition the payment of an annual bonus
(other than the Guaranteed Bonus) on shareholder approval, as and to the
extent required by Section 162(m) of the Internal Revenue Code of 1986, as
amended, of an annual bonus plan designed to comply with the requirements of
such section for performance based compensation.
(b) SIGNING BONUS. Incomnet on behalf of both the Companies shall
pay Executive a signing bonus equal to three hundred fifty-three thousand
dollars ($353,000) (the "Signing Bonus") within thirty (30) days after the
Commencement Date. Notwithstanding anything else herein, if Executive
voluntarily terminates his employment with the Companies without Good Reason
within one (1) year following the date of payment of the signing Bonus,
Executive shall repay to Incomnet a percentage of the Signing Bonus equal to
the percentage of the year remaining after the date of termination. The
repayment shall occur within sixty (60) days of the date of such termination.
(c) LONG TERM INCENTIVE PLAN. For each fiscal year or portion
thereof during the Employment Term, Executive shall be eligible to
participate in any stock option plan made available to senior executives of
the Incomnet in accordance with, and subject to the terms of,
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such plan. Incomnet hereby acknowledges that it intends to adopt a stock
option plan for use in connection of the recruitment of other senior
executives.
(d) STOCK GRANT. It is the intention of the parties hereto that
on the Commencement Date the Executive will receive stock rights which,
subject to the terms hereinafter set forth, will permit the Executive to
acquire five percent (5%) of the common stock of Incomnet outstanding on the
Commencement Date determined on a fully diluted basis. In order to
accomplish this result, Incomnet shall cause each of the following to occur:
(i) Prior to the Commencement Date, the Incomnet Board shall
designate thirteen (13) shares of its Preferred Shares as Series C preferred
stock and shall designate that each share of Series C preferred stock may be
converted into 100,000 shares of its common stock.
(ii) On the Commencement Date, Incomnet shall issue to the
Executive thirteen (13) shares of its Series C preferred stock (the "C
Preferred Shares"). The C Preferred Shares shall be subject to the following
restrictions:
(A) The Executive shall not be entitled to convert the C
Preferred Shares into Incomnet common stock until the Articles of
Incorporation of Incomnet have been amended to authorize a sufficient number
of additional shares of such common stock to permit exercise of the
conversion rights. The number of shares of Incomnet common stock to be
issued upon exercise of the conversion rights shall be adjusted to reflect
the impact of any common stock splits or stock dividends occurring after the
Commencement Date.
(B) In the event the Executive or his personal
representative, heirs or legatees at any time desire to sell, transfer or
assign any of the C Preferred Shares or the shares of common stock obtained
on conversion of the C Preferred Shares, such shares shall first be offered
for sale to Incomnet. The price at which such shares will be offered to
Incomnet will be calculated as follows:
(x) For purposes of such calculation, any
unconverted C Preferred Shares shall be deemed to have been converted into
Incomnet common stock.
(y) The shares of Incomnet common stock to be sold,
transferred or assigned (the "Transferred Shares"), shall be deemed at the
time of the offer to have a fair market value equal to the then current
public offering price for the same number of shares of Incomnet common stock
which are registered under the Securities Act of 1933.
(z) the offer price for the Transfer Shares will
equal the fair market value of the Transferred Shares calculated as specified
in paragraph (y) above (i) reduced by the fair market value of the
Transferred Shares as of the close of business two days after the
Commencement Date (the "Valuation Date") (calculated based on the public
market price as of the close of business on the Valuation Date as reported in
the WALL STREET
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JOURNAL for the same number of Incomnet common stock registered under the
Securities Act of 1933) and (ii) increased by one cent ($.01) for each share
of Incomnet common stock included in the Transferred Shares. The per share
public market price as of the close of business on the Valuation Date as
reported in the WALL STREET JOURNAL shall be reflected on Schedule I hereto.
The restrictions on the sale of Incomnet stock set forth in
this Section 4(d)(ii)(B) will never lapse. However, if Incomnet does not
complete the purchase of the shares of any stock offered for sale by the
Executive under the terms of this Section 4(d)(ii)(B), within thirty (30)
days from the date of the offer, the Executive shall thereafter be free to
sell such shares (the "Unrestricted Shares") free from such restrictions.
(C) The stock certificates representing the C Preferred
Shares and the common stock into which it is converted shall be legended to
reflect Incomnet's purchase rights set forth in paragraph B above. The
legend shall be removed from certificates representing the Unrestricted
Shares.
(iii) As expeditiously as possible after the Commencement
Date, Incomnet will use its best efforts to cause its Articles of
Incorporation to be amended to authorize a sufficient number of additional
shares of common stock to permit the conversion of the C Preferred Shares
into common stock.
(e) REGISTRATION RIGHTS AND CALL RIGHTS.
(i) REGISTRATION RIGHTS. After the first anniversary of the
Commencement Date, if at any time the Executive holds any Unrestricted Shares
which the Executive is restricted from reselling under the terms of Rule 144
promulgated under the Securities Act of 1933, then the Executive may request
that Incomnet effect the registration on Form S-3 (or a successor form) of
all of the Unrestricted Shares. Thereupon, Incomnet shall, as expeditiously
as possible, use its best efforts to effect such registration to the extent
permitted and in accordance with applicable law and at its expense.
(ii) CALL RIGHTS. If prior to the first anniversary of the
Commencement Date, there occurs either the termination of the Executive's
employment by the Companies for Cause pursuant to Section 7(e) hereof or the
voluntary termination of employment by Executive without Good Reason (as
defined in Section 7(d) hereof), Incomnet shall have an option (the
"Repurchase Option") to repurchase all, but not less than all, of the C
Preferred Shares, or the shares of common stock obtained on conversion of the
C Preferred Shares, which are owned by the Executive at the time of such
termination. The Repurchase Option must be exercised by written notice given
to the Executive within ten (10) business days from the date of the
termination of Executive's employment. The Repurchase Option shall expire if
not timely exercised, time being of the essence. Settlement with respect to
any timely exercised Repurchase Option shall occur within twenty (20) days
from the date of exercise of the Repurchase Option. The purchase price for
the stock subject to the Repurchase Option shall be calculated in accordance
with the terms of Section 4(d)(ii)(B) in the same
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manner as if the Executive had offered such stock for sale to Incomnet in
accordance with the terms of such Section on the date of termination of the
Executive's employment.
(f) OTHER COMPENSATION. Incomnet may, upon recommendation of the
Compensation Committee of the Incomnet Board, award to Executive such other
bonuses and compensation as it deems appropriate and reasonable.
5. EMPLOYEE BENEFITS AND FRINGES. (a) During the Employment Term,
Executive shall be entitled to participate in all pension, retirement,
savings, welfare and other pension and welfare employee benefit plans and
arrangements and shall be eligible to receive all fringe benefits and
perquisites generally maintained or provided by either of the Companies from
time to time for the benefit of senior executives of the Companies, in
accordance with their respective terms as in effect from time to time (other
than any special arrangement entered into by contract with an executive).
(b) During the Employment Term Incomnet shall make available to
Executive for his exclusive use a company leased automobile of the type
customarily provided to senior executive officers of Incomnet and its
affiliates or, if requested by Executive, will provide a car allowance of one
thousand ($1,000) per month. Incomnet shall in addition pay for the cost of
insurance, maintenance, garaging and fuel for such automobile. Executive
shall be responsible for any income tax consequences arising from the use of
the automobile under this arrangement.
(c) Incomnet agrees to reimburse Executive for (i) all reasonable
expenses incurred by Executive in moving from Montgomery County, Maryland to
Orange County, California, and (ii) all reasonable broker and closing costs
incurred by Executive in connection with the sale of Executive's current
principal residence and the purchase of a new principal residence in Orange
County, California. Executive shall be responsible for any income tax
consequences arising from the payments made under this Section 5(c).
(d) In order to facilitate the ability of the Executive to
purchase a new principal residence in Orange County, California, at the
request of the Executive, Incomnet will loan to the Executive an amount equal
to a percentage of the cost of such new principal residence which is equal to
the percentage differential in the median cost of housing in Montgomery
County, Maryland and Orange County, California. The loan will accrue
interest at the rate of eight percent (8%) per annum and the loan plus
accrued interest will be due upon the first to occur of (i) the sale of the
new principal residence or (ii) one year after the termination of the
Executive's employment hereunder.
(e) Incomnet shall provide Executive with a temporary housing
allowance for a period not to exceed six months for housing expenses in
Orange County, California which allowance shall not exceed two thousand
dollars ($2,000) per month, or as the parties may agree, the Company shall
make available for Executive other suitable temporary living quarters in
Orange County, California. If Executive incurs any income tax liability as a
result of the housing benefit pursuant to this Section 5(e), Incomnet shall
reimburse Executive for such tax liability on a fully grossed up basis.
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(f) Incomnet will reimburse the Executive for reasonable legal
fees incurred in negotiating this Agreement.
(g) During the Employment Term, Executive shall be entitled to
vacation each year in accordance with Incomnet's policies in effect from time
to time, but in no event less than five (5) weeks paid vacation per calendar
year. Executive shall also be entitled to such periods of sick leave as is
customarily provided by Incomnet for its senior executive officers.
6. BUSINESS EXPENSES. Upon submission of appropriate documentation,
Executive shall be reimbursed for the travel, entertainment and other
business expenses incurred by Executive in the performance of his duties
hereunder, in accordance with the applicable policies as in effect from time
to time.
7. TERMINATION.
(a) The employment of Executive under this Agreement shall
terminate upon the occurrence of any of the following events:
(i) the death of Executive;
(ii) the termination of Executive's employment by the
Companies due to Executive's Disability pursuant to Section 7(b) hereof;
(iii) the termination of Executive's employment by the
Executive for Good Reason pursuant to Section 7(c) hereof;
(iv) the termination of Executive's employment by the
Companies without Cause;
(v) the voluntary termination of employment by Executive
without Good Reason upon thirty (30) days' prior written notice;
(vi) the termination of the Employment Term in accordance with
Section 1 hereof;
(vii) the termination of Executive's employment by the
Companies for Cause pursuant to Section 7(e) hereof.
(b) DISABILITY. If, by reason of the same or related physical or
mental reasons, Executive is unable to carry out his material duties pursuant
to this Agreement for more than six (6) months in any twelve (12) month
period, the Companies may terminate Executive's employment for Disability
upon thirty (30) days prior written notice, at any time thereafter during
such twelve (12) month period in which Executive is unable to carry out his
duties as a result of the same or related physical or mental illness. Such
termination shall not be effective if Executive returns to the full time
performance of his material duties within such thirty (30) day notice period.
If Executive is eligible for disability payments prior to said termination
under any
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disability plan sponsored by either of the Companies, his Base Salary shall
be reduced by the amount of such disability payments.
(c) TERMINATION FOR GOOD REASON. A Termination for Good Reason
means a termination by Executive by written notice given within ninety (90)
days after the occurrence of the Good Reason event. For purposes of this
Agreement, "Good Reason" shall mean the occurrence or failure to cause the
occurrence, as the case may be, without Executive's express written consent,
of any of the following circumstances, unless such circumstances are fully
corrected prior to the date of determination specified in the Notice of
Termination for Good Reason (as defined in Section 7(d) hereof): (i) any
material diminution of Executive's responsibilities hereunder as President
and Chief Executive Officer of the Companies (except in each case in
connections with the termination of Executive's employment for Cause or
Disability or as a result of Executive's death, or temporarily as a result of
Executive's illness or other absence); (ii) Executive's removal from or
failure to be re-elected to, the Board of Directors of the Companies provided
the Executive desires to serve on such Boards, (other than for cause within
the meaning of the law of the state in which the Companies are then
incorporated); (iii) any material breach by either of the Companies of any
provision of this Agreement; or (iv) the occurrence of a Change in Control
(as defined in Exhibit A hereto).
(d) NOTICE OF TERMINATION FOR GOOD REASON. A Notice of
Termination for Good Reason shall mean a notice that shall indicate the
specific termination provision in Section 7(c) relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for his termination for Good Reason. The failure by Executive to set
forth in the Notice of Termination for Good Reason any facts or circumstances
which contribute to the showing of Good Reason shall not waive any right of
Executive hereunder or preclude Executive from asserting such fact or
circumstance in enforcing his rights hereunder. The Notice of Termination
for Good Reason shall provide for a date of termination not less than thirty
(30) nor more than sixty (60) days after the date such Notice of Termination
for Good Reason is given.
(e) CAUSE. Subject to the notification provisions of Section 7(f)
below, Executive's employment hereunder may be terminated by the Companies
for Cause. For purposes of this Agreement, the term "Cause" shall be limited
to (i) willful misconduct by Executive with regard to either of the
Companies, their affiliates, their businesses or employees if such misconduct
is not cured within seven (7) days after written notice specifying the
misconduct or, to the extent it is not feasible to complete the cure within
such period, if the Executive shall commence the cure within such period and
complete the cure within thirty (30) days; (ii) the refusal of Executive to
follow the proper written direction of the Board of Directors of either or
both of the Companies, provided that the foregoing refusal shall not be
"Cause" if Executive in good faith believes that such direction is illegal,
unethical or immoral and promptly so notifies the entity or person giving the
direction, as applicable; (iii) continuing willful refusal by Executive to
attempt to perform the duties required of him hereunder (other than any such
failure resulting from incapacity due to physical or mental illness) after a
written demand for performance is delivered to Executive by the Incomnet
Board which specifically identifies the manner in which it is believed that
Executive has continually refused to attempt to perform his duties hereunder;
(iv) Executive being convicted of a felony (other than a felony involving a
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traffic violation); (v) the breach by Executive of any material fiduciary
duty owed by Executive to either or both of the Companies or their
affiliates; or (vi) Executive's material misappropriation or fraud with
regard to either or both of the Companies or its affiliates (other than good
faith expense account disputes).
(f) NOTICE OF TERMINATION FOR CAUSE. A Notice of Termination for
Cause shall mean a notice that shall indicate the specific termination
provision in Section 7(e) relied upon and shall set forth in reasonable
detail the facts and circumstances which provide for a basis for Termination
for Cause. The date of termination for a termination for Cause shall be the
date indicated in the Notice of Termination. Any purported termination for
Cause which is held by a court not to have been based on the grounds set
forth in this Agreement or not to have followed the procedures set forth in
this Agreement shall be deemed a termination by the Company without Cause,
and the Executive shall be awarded any reasonable attorney's fees incurred by
the Executive with respect to such court proceedings.
8. CONSEQUENCES OF TERMINATION OF EMPLOYMENT.
(a) DEATH. If Executive's employment is terminated during the
Employment Term by reason of Executive's death, the Employment Term under
this Agreement shall terminate without further obligations to Executive's
legal representatives under this Agreement or otherwise except for: (i) any
compensation earned but not yet paid, including without limitation, any
declared but unpaid bonus for the prior fiscal year, any unpaid Signing
Bonus, any amount of Base Salary or deferred compensation, if any, accrued or
earned but unpaid, any accrued vacation pay payable pursuant to the
Companies' policies, any unreimbursed business expenses payable pursuant to
Section 6, which amounts shall be promptly paid in a lump sum to Executive's
estate and any stock rights arising under Section 4(d); and (ii) any other
amounts or benefits owing to Executive under the then applicable employee
benefit or equity plans of the Companies, which shall be paid in accordance
with such plans.
(b) DISABILITY. If Executive's employment is terminated by reason
of Executive's Disability, Executive shall be entitled to receive the
payments and benefits to which his representatives would be entitled in the
event of a termination of employment by reason of his death pursuant to
Section 8(a)(i) and any amounts Executive is eligible to receive under any
long term disability policy or program maintained by the Companies and the
Companies shall have no further obligations to Executive under this Agreement
or otherwise.
(c) TERMINATION BY EXECUTIVE FOR GOOD REASON OR TERMINATION BY THE
COMPANY WITHOUT CAUSE. If (i) Executive terminates his employment hereunder
for Good Reason during the Employment Term or (ii) if Executive's employment
with the Companies is terminated by the Companies without Cause during the
Employment Term, the Company shall have no further obligations to Executive
under this Agreement or otherwise, except that, subject to Section 9 and 10
hereof, Executive shall be entitled to receive: (A) any unreimbursed business
expenses payable pursuant to Section 6, any stock rights arising under
Section 4(d), and any Base Salary, bonus, vacation pay or other compensation
accrued or earned, but not yet paid at the date of termination; (B) equal
monthly payments, in accordance with Incomnet's normal payroll
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practices, of an amount equal to the monthly payments of Executive's then
Base Salary for a period of eighteen (18) months following the date of his
termination or until December 31, 2001 whichever is later; (C) reimbursement
for the cost of Executive's continued participation in Incomnet's health
insurance plan until the expiration of the maximum period permitted by COBRA
or until December 31, 2001 which ever shall occur first and (D) any other
amounts or benefits due Executive under the then applicable employee benefit,
long term incentive plans or equity plans in which he then participates as
shall be determined and paid in accordance with such plans.
(d) TERMINATION WITH CAUSE OR VOLUNTARY RESIGNATION WITHOUT GOOD
REASON OR DUE TO EXPIRATION OF THE EMPLOYMENT TERM. If Executive's
employment hereunder is terminated (i) by the Companies for Cause, or (ii)
voluntarily by Executive without Good Reason in accordance with Section
7(a)(v) hereof, or (iii) due to the expiration of the Employment Term in
accordance with Section 1 hereof, Executive shall be entitled to receive only
his Base Salary through the date of termination, any stock rights arising
under Section 4(d), any unreimbursed business expenses payable pursuant to
Section 6 and any accrued vacation pay payable pursuant to applicable
policies of the Companies. Executive's rights under any benefit plan or any
equity plan following such termination of employment shall be determined in
accordance with the provisions of the applicable benefit or equity plan.
9. NO MITIGATION: SET-OFF. In the event of any termination of
employment under Section 8, Executive shall be under no obligation to seek
other employment and, subject to Section 10 below, there shall be no offset
against any amounts due Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that Executive may
obtain. Any amounts due under Section 8 are in the nature of severance
payments, or liquidated damages, or both, and are not in the nature of a
penalty. Such amounts are inclusive, and in lieu of any amounts payable
under any other salary continuation or cash severance arrangement of the
Companies and to the extent paid or provided under any other such arrangement
shall be offset from the amount due hereunder. The Companies shall have no
obligations to Executive upon a termination of employment except as provided
in Section 8 or as otherwise specified in this Agreement. If Executive dies
while receiving payments under Section 8(c), any remaining payments shall be
paid to Executive's estate.
10. CONFIDENTIAL INFORMATION, NON-COMPETITION AND NON-SOLICITATION OF
THE COMPANY. (a) (i) Executive acknowledges that as a result of his
employment by the Companies, Executive will obtain secret and confidential
information as to the Companies and their affiliates and the Companies and
their affiliates will suffer substantial damage, which would be difficult to
ascertain, if Executive should use such confidential information and that
because of the nature of the information that will be known to Executive it
is necessary for the Companies and their affiliates to be protected by the
prohibition against Competition as set forth herein, as well as the
Confidentiality restrictions set forth herein.
(ii) Executive acknowledges that the retention of nonclerical
employees employed by either or both of the Companies and their affiliates in
which either or both of the Companies and their affiliates have invested
training and depend on for the
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operation of their businesses is important to the businesses of the Companies
and their affiliates, that Executive will obtain unique information as to
such employees as an executive of the Companies and will develop a unique
relationship with such persons as a result of being an executive of the
Companies and, therefore, it is necessary for the Companies and their
affiliates to be protected from Executive's Solicitation of such employees as
set forth below.
(iii) Executive acknowledges that the provisions of this
Agreement are reasonable and necessary for the protection of the businesses
of the Companies and their affiliates and that part of the compensation paid
under this Agreement and the agreement to pay severance in certain instances
is in consideration for the agreements in this Section 10.
(b) Competition shall mean: (i) participating, directly or
indirectly, as an individual proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, consultant or in any
capacity whatsoever within the United States of America, in a business in
competition with any business conducted by the Companies, provided, however,
that such participation shall not include (i) the mere ownership of not more
than one percent (1%) of the total outstanding stock of a publicly held
company; (ii) the performance of services for any enterprise to the extent no
portion of such services are performed, directly or indirectly, for the
portion of the enterprise in the aforesaid competition; or (iii) any activity
engaged in with the prior written approval of the Incomnet Board.
(c) Solicitation shall mean: recruiting, soliciting or inducing,
of any nonclerical employee or employees of either or both of the Companies
or their affiliates to terminate their employment with, or otherwise cease
their relationship with, either or both of the Companies or their affiliates
or hiring or assisting another person or entity to hire any nonclerical
employee of either or both of the Companies or their affiliates or any person
who within six (6) months before had been a nonclerical employee of either or
both of the Companies or their affiliates, provided, however, that
solicitation shall not include any of the foregoing activities engaged in
with the prior written approval of the Incomnet Board.
(d) If any restriction set forth with regard to Competition or
Solicitation is found by any court of competent jurisdiction, or an
arbitrator, to be unenforceable because it extends for too long a period of
time or over too great a range of activities or in too broad a geographic
area, it shall be interpreted to extend over the maximum period of time,
range of activities or geographic area as to which it may be enforceable. If
any provision of this Section 10 shall be declared to be invalid or
unenforceable, in whole or in part, as a result of the foregoing, as a result
of public policy or for any other reason, such invalidity shall not affect
the remaining provisions of this Section which shall remain in full force and
effect.
(e) During and after the Employment Term, Executive shall hold in
a fiduciary capacity for the benefit of the Companies and their affiliates
all secret or confidential information, knowledge or data relating to the
Companies and their affiliates, and their respective businesses, including
any confidential information as to customers of the Companies and their
affiliates, (i) obtained by Executive during his employment by the Companies
and their affiliates and (ii) not otherwise public knowledge or known within
the applicable industry (other than by
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acts of Executive in violation of this Agreement). Executive shall not,
without prior written consent of the Companies, unless compelled pursuant to
the order of a court or other governmental or legal body having jurisdiction
over such matter, communicate or divulge any such information, knowledge or
data to anyone other than the Companies and those designated by them. In the
event Executive is compelled by order of a court or other governmental or
legal body to communicate or divulge any such information, knowledge or data
to anyone other than the foregoing, he shall promptly notify the Companies of
any such order and he shall cooperate fully with the Companies in protecting
such information to the extent possible under applicable law.
(f) Upon termination of his employment with the Companies and
their affiliates, or at any time as the Companies may request, Executive will
promptly deliver to the Companies, as requested, all documents (whether
prepared by the Companies, an affiliate, Executive or a third party) relating
to either or both of the Companies, an affiliate or any of their businesses
or property which he may possess or have under his direction or control other
than documents provided to Executive in his capacity as a participant in any
employee benefit plan, policy or program of the Companies or any agreement by
and between Executive and the Companies with regard to Executive's employment
or severance.
(g) During his employment by the Companies Executive will not
enter into Competition with either or both of the Companies or their
affiliates. Furthermore, in the event of any termination of Executive's
employment for Cause or the voluntary termination of employment by Executive
without Good Reason, Executive for eighteen (18) months thereafter will not
enter into Competition with the Companies or engage in Solicitation.
(h) In the event of a breach or potential breach of this Section
10, Executive acknowledges that the Companies and their affiliates will be
caused irreparable injury and that money damages may not be an adequate
remedy and agree that the Companies and their affiliates shall be entitled to
injunctive relief (in addition to its other remedies at law) to have the
provisions of this Section 10 enforced.
11. EXECUTIVE'S REPRESENTATION. Executive represents and warrants to
the Companies that as of the date hereof there is no legal impediment to his
performing his obligations under this Agreement and neither entering into
this Agreement nor performing his contemplated service hereunder will violate
any agreement to which he is a party or the date hereof any other legal
restriction.
12. COMPANIES' REPRESENTATIONS. The Companies represent and warrant to
the Executive that as of the date hereof there are no legal impediments on
their performance of their obligations under the Agreement and that neither
the entering into of this Agreement nor the performing of their obligations
hereunder will violate any agreement in which they are a party as the date
hereof or any other legal restriction.
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13. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without
reference to principles of conflict of laws.
(b) ENTIRE AGREEMENT/AMENDMENTS. This Agreement and the
instruments contemplated herein, contain the entire understanding of the
parties with respect to the employment of Executive by the Companies and
supersedes any policy of the Companies with regard to severance payments and
any prior agreements between the Companies and Executive with regard to
employment or severance. There are no restriction, agreements, promises,
warranties, covenants, representations or undertakings between the parties
with respect to the subject matter herein other than those expressly set
forth herein and therein. This Agreement may not be altered, modified, or
amended except by written instrument signed by the parties hereto.
(c) NO WAIVER. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be
considered a waver of such party's rights or deprive such party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement. Any such waiver must be in writing and signed by Executive or
an authorized officer of the Companies, as the case may be.
(d) ASSIGNMENT. This Agreement shall not be assignable by any of
the parties hereto except by operation of law.
(e) SUCCESSORS; BINDING AGREEMENT. This Agreement shall inure to
the benefit of and be binding upon the personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees legatees
and permitted assignees of the parties hereto.
(f) COMMUNICATIONS. For the purpose of this Agreement, notices
and all other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given (i) when faxed or
delivered, or (ii) two business days after being mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on Schedule II to this
Agreement, provided that all notices to the Companies shall be directed to
the attention of the Secretary of Incomnet, or to such other address as any
party may have furnished to the other in writing in accordance herewith.
Notice of change of address shall be effective only upon receipt.
(g) WITHHOLDING TAXES. The Companies may withhold from any and
all amounts payable under this Agreement such federal, state and local taxes
as may be required to be withheld pursuant to any applicable law or
regulation.
(h) SURVIVORSHIP. The respective rights and obligations of the
parties hereunder shall survive any termination of Executive's employment to
the extent necessary to the agreed preservation of such rights and
obligations.
12
<PAGE>
(i) COUNTERPARTS. This Agreement may be signed in counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
(j) HEADINGS. The headings of the sections contained in this
Agreement are for convenience only and shall not be deemed to control or
affect the meaning or construction of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
INCOMNET, INC.
By: /s/ JOHN P. CASEY
----------------------------------------
Name: John P. Casey
Title: Chairman
NATIONAL TELEPHONE & COMMUNICATIONS, INC.
By: /s/ JOHN P. CASEY
----------------------------------------
Name: John P. Casey
Title Chairman
/s/ DENIS RICHARD
----------------------------------------
Denis Richard
13
<PAGE>
EXHIBIT A
1. A "Change in Control" shall be deemed to have occurred (a) upon a
sale of substantially all the assets of either of the Companies (excluding a
sale transaction between the Companies) or (b) if any "person" (as such term
is used in Section 13(d) and 14 (d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), other than a person or group (as such
term is defined in Rule 13d-5(b) of the General Rules and Regulations
promulgated under the Exchange Act) (the "Rules and Regulations") of persons
who are affiliates (as such term is defined in Rule 12b-2 of the Rules and
Regulations) of Incomnet or NTC on the date hereof or John Casey or his issue
and trusts and other entities formed primarily for their benefit, after the
date of the Agreement becomes the beneficial owner, directly of indirectly,
of securities of Incomnet representing forty percent (40%) or more of the
combined voting power of Incomnet's then outstanding securities (including
securities the holder of which has the right to convert into voting
securities of Incomnet).
- --------------------------------------------------------------------------------
Schedule 1
(Per Share Market Price on Valuation Date)
$2.1875
- --------------------------------------------------------------------------------
Schedule II
(Address for Notice)
Address for Notices to Incomnet, NTC and Denis Richard:
2801 Main Street
Irvine, California 92614
14
<PAGE>
INCOMNET, INC.
2801 Main Street
Irvine, California 92614
September 29, 1998
Mr. John P. Casey
c/o Meridian Investments, Inc.
10220 River Road, Suite 115
Potomac, Maryland 20854
Dear Jack:
The purpose of this letter is to acknowledge, and set forth the
terms of, our agreement with regard to your continued service as the Chairman of
the Board of Directors (the "Board") of Incomnet, Inc., a California corporation
(the "Company").
1. Your service as Chairman under this Agreement shall be for a
term (the "Term") commencing on September 29, 1998 and, unless terminated
earlier due to your termination as the Chairman, terminating on September 29,
2001.
2. During the Term, you shall continue to perform the duties
and functions required of, and commensurate with, your status as the Chairman of
the Board as described in the Bylaws of the Company.
3. As consideration for your service as the Chairman, the
Company shall pay you a quarterly service fee, determined in accordance with
this Section 3, not later than ten (10) business days after the end of each
fiscal quarter of the Company (or portion thereof) during the Term (the
"Quarterly Fee"). The amount of Quarterly Fee shall be determined as follows:
(i) If the Fair Market Value of the Company's common stock (the "Common
Stock") is less than four dollars ($4) per share, the Quarterly Fee
shall be equal to One Dollar ($1); or
(ii) If the Fair Market Value of the Common Stock is not less than four
dollars ($4) per share, the Quarterly Fee shall be equal to the
product of: (A) twenty-five thousand dollars ($25,000), and (B)
the number determined by dividing the Fair Market Value of the
Common Stock by four (4) and, if the
<PAGE>
Mr. John P. Casey
September 29, 1998
Page 2
quotient thereof is not a whole number, rounding-down such quotient
to the next lowest whole number.
The Quarterly Fees due hereunder are in lieu of, and not in addition to, any
retainer fees, meeting fees or other remuneration to which you would be entitled
as the Chairman or as a director of the Company. For purposes of this Section
3, the Fair Market Value of the Common Stock for any fiscal quarter (or portion
thereof) of the Company will be deemed to be equal to the average closing price
of the Common Stock for the last five (5) trading days during such fiscal
quarter as quoted on an automated quotation system sponsored by the National
Association of Securities Dealers or, if not so quoted, as reported on the
principal national securities exchange on which the Common Stock is then traded.
If the Common Stock is not readily tradeable, the Fair Market Value of the
Common Stock shall be determined in good faith by the Board. In no event shall
the Quarterly Fees exceed with respect to any fiscal quarter $250,000 and
payment of the Quarterly Fees shall be subordinate to the payment of any amounts
due to Denver Technologies, LLC, under the Class D Preferred Shares and the
Subordinated Debt each as described on that certain Term Sheet attached hereto,
as the same may be amended by Company with the consent of the Chairman.
4. The Company shall indemnify you and hold you harmless, to
the fullest extent permitted by law as, to and from any and all costs, expenses
or damages incurred by you as a result of any claim, suit, action or judgment
arising out of your service as the Chairman. This right to indemnification
shall survive the termination of this Agreement.
5. During the Term and thereafter, you shall hold in a
fiduciary capacity for the benefit of the Company and its subsidiaries (the
"Control Group") all secret or confidential information, knowledge or data
relating to the Control Group or its business (which shall be defined as all
such information, knowledge and data coming to your attention by virtue of your
service with the Company except that which is otherwise public knowledge or
known within the Company's industry). During such period, you shall not,
without prior written consent of the Board, unless compelled pursuant to the
order of a court or other body having jurisdiction over such matter or unless
required by lawful process or subpoena, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. The foregoing shall not limit the disclosure by you of such
information in the course of the performance of your duties as the Chairman so
long as such disclosure is in good faith. In the event of a breach or
threatened breach by you of any provision of this Section 5, the Company shall
<PAGE>
Mr. John P. Casey
September 29, 1998
Page 3
be entitled to injunctive, declaratory and other equitable relief from a court
of competent jurisdiction to restrain you from committing such breach. Nothing
in this Agreement shall be construed as prohibiting the Company from pursuing
any other remedy or remedies including, without limitation, the recovery of
damages.
6. Notwithstanding anything herein to the contrary, this
Agreement does not impose any obligations on the Company to retain you as its
Chairman or as a director nor shall it impose an obligation on you to remain as
the Chairman or as a director of the Company.
7. All amounts payable under this Agreement are, to the extent
legally required, subject to withholding and deductions. During the Term, you
will not be an employee of the Company or its affiliates and you will not be
eligible to participate in, or receive benefits under, any benefit plans or
arrangements maintained, or contributed to, by the Company or its affiliates.
8. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same agreement. This Agreement sets forth
the parties' entire agreement, and supersedes any and all prior agreements or
understandings, oral or written, with respect to its subject matter. This
Agreement can be amended only by a writing signed by both you and the Company.
9. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, heirs (in your
case) and permitted assigns. This Agreement nor any rights hereunder may be
assigned by you. No rights or obligations of the Company under this Agreement
may be assigned or transferred by the Company except that such rights or
obligations may be assigned or transferred pursuant to a merger or consolidation
in which the Company is not the continuing entity, or pursuant to a sale of all
or substantially all of the assets of the Company, provided that the assignee or
transferee is the successor to all or substantially all of the assets of the
Company and such assignee or transferee assumes in writing the liabilities,
obligations and duties of the Company, as contained in this Agreement.
10. All notices under this Agreement shall be given in writing
and shall be either delivered personally or sent by certified or registered
mail, return receipt requested, addressed to the other party at the appropriate
address first set forth above, or
<PAGE>
Mr. John P. Casey
September 29, 1998
Page 4
to such other address as such party shall designate by written notice as
aforesaid. Notices shall be deemed given when received or two (2) days after
mailing, whichever is earlier.
11. This Agreement shall be governed by, and construed under and
in accordance with, the laws of the State of California, without reference to
rules relating to conflicts of laws.
Please execute a copy of this Agreement and return it to me to
acknowledge your agreement to the foregoing.
INCOMNET, INC.
By: /s/ DENIS RICHARD
-------------------------------------
Denis Richard
President and Chief Executive Officer
Agreed & Accepted as of September 29, 1998:
/s/ JOHN P. CASEY
- -------------------------------------
John P. Casey
