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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 10)*
INCOMNET, INC.
- --------------------------------------------------------------------------------
(Name of Issuer)
COMMON STOCK
- --------------------------------------------------------------------------------
(Title of Class of Securities)
453365207
----------------------------------------------
(CUSIP Number)
John P. Casey, 10220 River Road, Suite 115, Potomac, MD 20854 (301) 983-5000
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
August 28, 1998
- --------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition that is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following
box [ ].
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d- 7(b) for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE> 2
SCHEDULE 13D
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- --------------------------- -------------------------
CUSIP NO. 453365207 PAGE 2 OF 5 PAGES
- --------------------------- -------------------------
- -------------------------------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
JOHN P. CASEY - SS# ###-##-####
- -------------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
00
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(E) [ ]
- -------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
- -------------------------------------------------------------------------------------------------------
7 SOLE VOTING POWER
6,035,504*
--------------------------------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 102,000 (children's trust; 1/3 voting trustee)
OWNED BY EACH
REPORTING
PERSON WITH
--------------------------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
6,035,504*
--------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
102,000 (children's trust; 1/3 voting trustee)
- -------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,137,504*
- -------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [X]
*
- -------------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
30.69% (See Item 5)*
- -------------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON
IN
- -------------------------------------------------------------------------------------------------------
</TABLE>
* Does not include shares of common stock issuable on the conversion of 725.473
shares of Series A Convertible Preferred Stock of Incomnet and 872.738 shares of
Series B Convertible Preferred Stock of Incomnet (collectively, the "Preferred
Shares") which Mr. Casey has an option (the "Option") to purchase, exercisable
at any time prior to October 14, 1998. Although the Preferred Shares are
convertible at any time, and the current owners of the Preferred Shares
attempted to convert them in June 1998, Incomnet does not currently have
sufficient authorized but unissued shares of common stock to effect the
conversion of the Preferred Shares into common stock. According to Incomnet's
Form 10-Q filed August 14, 1998, if the Preferred Shares were converted in June,
1998, they would have converted into 8,459,970 shares of Incomnet common stock.
See Items 4 and 5 of Amendment No. 9 concerning the Preferred Shares.
<PAGE> 3
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Page 3 of 5 Pages
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This Statement is the tenth Amendment to the Statement on Schedule 13D filed
on April 7, 1998 (as previously amended, the "Statement") with the Securities
and Exchange Commission by Mr. John P. Casey in connection with his beneficial
ownership of shares (the "Shares") of common stock of Incomnet, Inc. ("Incomnet"
or the "Issuer"). All capitalized terms used and not defined in this Amendment
No. 10 have the meanings given to them in the Statement.
Item 4. Purpose of Transaction.
Mr. Casey, Incomnet and the current members of Incomnet's Board of
Directors have entered into a Board Change Agreement dated as of August 28, 1998
(the "Board Change Agreement"), which, if completed, will result in a change in
the composition of Incomnet's Board of Directors (the "Board Change"). THE
FOLLOWING DESCRIPTION OF THE BOARD CHANGE IS SUBJECT IN ITS ENTIRETY TO THE
PROVISIONS OF THE BOARD CHANGE AGREEMENT WHICH IS ATTACHED AS EXHIBIT 1 TO THIS
SCHEDULE 13D.
Upon satisfaction of certain conditions, the Board Change Agreement
provides for the resignation of all but one of the current directors of Incomnet
and the appointment of a four-person board consisting of Mr. Casey, two
designees of Mr. Casey and Mr. Howard Silverman, who is a member of the current
Incomnet board.
One of the conditions to completion of the Board Change is resolution
of the recent joint demands presented by WorldCom Network Services, Inc.
("WorldCom"), NTC's primary long distance carrier on its own behalf and on
behalf of First Bank & Trust of Newport Beach ("First Bank"), NTC's secured
creditor, concerning NTC's default in its payment obligations to WorldCom and
First Bank (collectively the "Secured Creditors"). According to documents filed
by Incomnet with the Securities and Exchange Commission ("Incomnet's SEC
Filings"), NTC and WorldCom are parties to a carrier contract which extends
through February, 2003 (the "WorldCom Contract") under which NTC has contracted
to purchase a designated volume of telephone time. As of February, 1996,
WorldCom was given a security interest in NTC's customer base, customer list and
contract rights associated with providing services to the customer base to
secure NTC's payment obligations under the WorldCom Contract. In early 1998, NTC
defaulted on its payment obligations for services provided under the WorldCom
Contract. WorldCom had agreed to extend credit to NTC pending the proposed sale
of NTC which was terminated in July, 1998. Following termination of the proposed
sale of NTC and negotiations regarding pending defaults, WorldCom gave written
notice to NTC of WorldCom's intent to disconnect on August 28, 1998 the
telecommunications services it provides NTC (the "WorldCom Disconnect Notice").
Also, according to Incomnet's SEC Filings, NTC and First Bank are
parties to a business loan agreement under which First Bank was owed
approximately $8.1 million as of June 30, 1998 (the "First Bank Loan"). The
First Bank Loan is secured by NTC's accounts receivable and certain other
assets. NTC is currently in default under the First Bank Loan.
Mr. Casey has been informed that the Secured Creditors have agreed to
forbear from taking any action until September 25, 1998 with respect to defaults
by NTC under their respective agreements with NTC. Under this forbearance,
WorldCom has agreed to refrain from taking any action until September 25, 1998
relating to the WorldCom Disconnect Notice. The forbearance of the Secured
Creditors was conditioned on the execution of the Board Change Agreement (which
occurred on August 28, 1998) and payment by NTC of certain amounts owed to
WorldCom. Incomnet has informed Mr. Casey that it has paid WorldCom the amount
necessary to obtain the forbearance until September 25, 1998 of the Secured
Creditor.
Mr. Casey has been informed that negotiations with the Secured
Creditors regarding NTC's pending defaults are continuing. In addition, Mr.
Casey and representatives of NTC have met with representatives of the Secured
Creditors in an attempt to address the concerns of the Secured Creditors.
Following this meeting, Mr. Casey was informed that WorldCom will not finance
NTC past September 25, 1998 other than to offer secured open account payment
terms should WorldCom decide that the financial projections and future
recapitalization of NTC warrant such terms. In addition, Mr. Casey has been
informed that the Secured Creditors also will require that NTC make payments to
First Bank of approximately $1.9 million and to WorldCom of approximately $5.7
million on September 25, 1998 in order to cure account deficiencies.
Mr. Casey has been informed that Incomnet intends to seek new equity
and/or debt financing in order to recapitalize its and NTC's operations and
satisfy these payment obligations. Under the Board Change Agreement, following
the closing of the Board Change, Mr. Casey is obligated to use commercially
reasonable efforts to obtain new financing for Incomnet from third parties.
Since the Secured Creditors are requiring payment by NTC of the amounts
described above by September 25, 1998, Mr. Casey currently is assisting Incomnet
and NTC in their efforts to obtain financing prior to completion of the Board
Change.
No assurances can be given that Incomnet and NTC will be successful in
their efforts to obtain additional financing. If such financing is not obtained
prior to September 25, 1998 and the Secured Creditors refuse to extend the
forbearance of their rights under agreements with NTC beyond that date, WorldCom
may reinstate the WorldCom Disconnect Notice and may stop providing
telecommunication services to NTC. Further, under such circumstances, a
condition set forth in the Board Change Agreement will not have been satisfied,
and it is anticipated that the Board Change will not be completed.
The Board Change Agreement also requires that various other conditions
be satisfied in order to complete the Board Change, including (i) the signing
of a definitive settlement agreement relating to a class action lawsuit that is
pending against Incomnet and (ii) the filing with the SEC and mailing to
Incomnet's shareholders of an information statement in compliance with Rule
14f-1 under the Act which, among other things, will provide information about
each of the new board members who are anticipated to take office following
completion of the Board Change.
If the conditions to completing the Board Change are not satisfied (or
waived) by September 30, 1998, the Board Change Agreement may be terminated by
either Mr. Casey or Incomnet. No assurances can be given that: (i) the
conditions set forth in the Board Change Agreement will be satisfied or (ii)
the Board Change and other matters contemplated under the Board Change
Agreement will be completed by September 30, 1998 or at all.
The Board Change Agreement also provides for a modification of Mr.
Casey's previously announced intention to offer securities issuable upon
exercise of his option on preferred shares (the "Optioned Securities"). Under
the Board Change Agreement, Mr. Casey will be obligated to exercise the Option
prior to its scheduled expiration. The Board Change Agreement further provides
that Incomnet, if it is financially and legally able to do so, will be obligated
to purchase the Optioned Securities within one year following the exercise of
the Optioned Securities (the "Redemption Period") at a purchase price
representing no actual profit to Mr. Casey. If Incomnet is unable to purchase
the Optioned Securities during the Redemption Period, Mr. Casey will be
obligated to proceed to offer the common stock underlying the Optioned
Securities on a pro rata basis to shareholders of record as of a date to be
determined in the future. Such common stock will be offered at a per share price
representing no actual profit to Mr. Casey.
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Page 4 of 5 Pages
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If the transactions contemplated under the Board Change Agreement are
completed, Mr. Casey currently anticipates that Incomnet will hold a
shareholders meeting within the next few months to (among other things) elect
directors and approve an increase in the number of authorized common shares of
Incomnet.
Item 5. Interest In Securities of the Issuer.
See Item 5 of Amendment No. 9.
Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer.
See Item 4.
Item 7. Material to be Filed as Exhibits.
Exhibit 1. Board Change Agreement dated August 28, 1998, among Incomnet, the
current members of Incomnet's Board of Directors and Mr. Casey.
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Page 5 of 5 Pages
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After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
/s/ JOHN P. CASEY
Date: August 28, 1998 ------------------------------------------
John P. Casey
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EXHIBIT 1
BOARD CHANGE AGREEMENT
AMONG
INCOMNET, INC.,
THE CURRENT DIRECTORS OF INCOMNET, INC.
AND
JOHN P. CASEY
AUGUST 28, 1998
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TABLE OF CONTENTS
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Page
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1. RESIGNATION AND APPOINTMENT OF DIRECTORS; BOARD MATTERS........................................................3
1.1. Resignation of Directors............................................................................3
1.2. Appointment of Directors............................................................................3
1.3. Committees of New Board.............................................................................3
1.4. Reelection of Silverman.............................................................................4
1.5. Number of Directors.................................................................................4
2. CLOSING........................................................................................................4
3. REPRESENTATIONS AND WARRANTIES.................................................................................5
3.1. Representations of Individuals......................................................................5
3.2. Company Representations to Individuals..............................................................6
3.3. Additional Company Representations to Casey.........................................................6
3.4. Additional Casey Representations to Company.........................................................7
4. COVENANTS OF COMPANY AND CURRENT BOARD PRIOR TO CLOSING........................................................7
4.1. Access; Shareholders' List..........................................................................7
4.2. Required Approvals; Conditions......................................................................8
4.3. Notification........................................................................................8
4.4. Stand Still.........................................................................................9
5. COVENANTS OF CASEY PRIOR TO CLOSING............................................................................9
5.1. Required Approvals; Conditions......................................................................9
5.2. Notification.......................................................................................10
6. ADDITIONAL AND CONTINUING COVENANTS...........................................................................10
6.1. Additional Financing...............................................................................10
6.2. Assignment of Cohen Option.........................................................................10
6.3. Increase in Number of Authorized Shares............................................................11
6.4. Exercise of Cohen Option by Casey; Redemption of Cohen Preferred Stock.............................11
6.5. Inability to Redeem Cohen Option or Cohen Preferred Stock; Conversion of Cohen Preferred Stock
into Common Stock; Agreement to Conduct Offering of Common Stock...............................11
6.6. Confidentiality....................................................................................12
</TABLE>
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7. CONDITIONS PRECEDENT TO CASEY'S OBLIGATION TO CLOSE...........................................................13
7.1. Approval and Conditional Appointment of Casey Board Designee.......................................13
7.2. Class Action Lawsuit Settlement....................................................................13
7.3. Directors' and Officers' Insurance Coverage........................................................13
7.4. Rescission of Autonomy Agreement...................................................................13
7.5. Rescission of Supermajority Bylaw Provision........................................................13
7.6. Cohen Group Approval...............................................................................14
7.7. NTC Secured Creditor Matters; No Liquidation Proceedings...........................................14
7.8. Information Statement..............................................................................14
7.9. Accuracy of Representations........................................................................14
7.10. Performance of Covenants..........................................................................14
7.11. Additional Documents..............................................................................14
7.12. No Legal Proceedings..............................................................................15
8. CONDITIONS PRECEDENT TO COMPANY'S AND CURRENT BOARD'S OBLIGATION TO CLOSE.....................................15
8.1. Approval and Conditional Appointment of Casey Board Designee.......................................15
8.2 Cohen Group Approval...............................................................................15
8.3. Information Statement..............................................................................15
8.4. Accuracy of Representations........................................................................16
8.5. Performance of Covenants...........................................................................16
8.6. Additional Documents...............................................................................16
8.7. No Legal Proceedings...............................................................................16
9. SPECIFIC RELEASES; COVENANT NOT TO SUE AND RELATED MATTERS....................................................16
9.1. Specific Releases..................................................................................16
9.2. Covenant not to Sue................................................................................17
9.3. Waiver of Statutory Provision......................................................................17
9.4. Indemnity..........................................................................................17
9.5. Certain Definitions................................................................................18
9.6. Maintenance of D&O Insurance.......................................................................19
9.7. Enforcement........................................................................................19
10. TERMINATION..................................................................................................20
10.1. Termination Events................................................................................20
10.2. Effect of Termination.............................................................................20
11. MISCELLANEOUS................................................................................................21
11.1. Rules of Construction.............................................................................21
11.2. Expenses..........................................................................................21
11.3. Survival of Representations and Covenants.........................................................22
</TABLE>
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11.4. Notices...........................................................................................22
11.5. Equitable Remedies................................................................................22
11.6. Entire Agreement; Amendment.......................................................................22
11.7. Successors; Assignment............................................................................23
11.8. Governing Law.....................................................................................23
11.9. Counterparts......................................................................................23
11.10. Attorneys' Fees..................................................................................23
11.11. Further Assurances...............................................................................23
11.12. Waiver...........................................................................................24
11.13. Severability.....................................................................................24
</TABLE>
iii
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BOARD CHANGE AGREEMENT
This Board Change Agreement (this "Agreement") is made and entered into
as of August 28, 1998, by and among Incomnet, Inc., a California corporation
(the "Company"), Richard Horowitz, an individual ("Horowitz"), Rolf Lesem, an
individual ("Lesem"), Melvyn Reznick, an individual ("Reznick"), Howard
Silverman, an individual ("Silverman"), David Wilstein, an individual
("Wilstein"), Nancy Zivitz, an individual ("Zivitz"), and John P.
Casey, an individual ("Casey").
R E C I T A L S
A. The current members of the Board of Directors of the Company are
Horowitz, Lesem, Reznick, Silverman, Wilstein and Zivitz (collectively, the
"Current Board").
B. Casey beneficially owns 6,137,504 shares of the Common Stock
("Common Stock") representing approximately 31% of the Company's outstanding
Common Stock as more fully described in the Schedule 13D filed by Casey (listing
the Company as the issuer) with the Securities and Exchange Commission (the
"SEC") on April 7, 1998 and as subsequently amended (as amended, the "Casey
Schedule 13D").
C. As more fully described in the Casey Schedule 13D, Casey has an
option (the "Cohen Option") to purchase shares of the Company's Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock
(collectively, the "Preferred Stock"), pursuant to the Option Agreement dated as
of July 15, 1998 (the "Option Agreement"), among Casey, Robert Cohen, Stefanie
Rubin, Allyson Cohen, Jeffrey Cohen, Alan Cohen, Lenore Katz, Broadway Partners,
Meryl Cohen, Gabrielle Cohen, Jaclyn Cohen, Erica Cohen and Nicole Cohen
(collectively, the "Cohen Group"). Under the Option Agreement, Casey has the
right to purchase 1,598.211 shares of Preferred Stock (the "Cohen Preferred
Stock") for $2.3 million plus certain accrued dividends and penalties as
provided in the Option Agreement (the "Cohen Exercise Price"). The Preferred
Stock is convertible into shares of the Common Stock. As disclosed in the Casey
Schedule 13D, Casey believes that, if he exercised the Cohen Option to acquire
the Cohen Preferred Stock and elected to convert the Cohen Preferred Stock into
shares of the Common Stock, these shares, upon issuance, would represent
approximately 27% of the post-conversion outstanding Common Stock. All of the
Company's authorized Common Stock is currently issued and outstanding and,
accordingly, the Company currently does not have shares of its Common Stock
available for issuance in order to meet its obligations to issue Common Stock
upon conversion of the outstanding shares of Preferred Stock and certain other
outstanding options and warrants to purchase Common Stock.
<PAGE> 6
D. The Cohen Group previously attempted to convert the Cohen Preferred
Stock on June 10 and 11, 1998. Since the Company did not have any authorized
shares of Common Stock available for issuance at that time, it was unable to
issue those shares of Common Stock to the Cohen Group. Under the Option
Agreement, Casey acquired all rights and claims of the Cohen Group relating to
the Cohen Preferred Stock.
E. With approximately 31% of the outstanding shares of the Common Stock
that Casey already beneficially owns, after giving effect to the conversion of
the Cohen Preferred Stock and issuance of the underlying Common Stock at the
conversion price for the Cohen Preferred Stock on June 10 and 11, 1998, Casey
would own approximately 47% of the Common Stock that would be outstanding
immediately following the exercise of the Cohen Option and conversion of the
Cohen Preferred Stock into shares of the Common Stock.
F. The Company's wholly owned subsidiary, National Telephone &
Communications, Inc. ("NTC"), is in default under a secured credit facility (the
"First Bank Credit Facility") provided by First Bank & Trust Company of Newport
Beach ("First Bank"), under which NTC's obligations are secured by, among other
things, NTC's accounts receivable. First Bank has agreed to forbear any rights
it has against NTC under this facility until August 28, 1998.
G. NTC is in default on its obligations to make certain payments to
WorldCom Network Services, Inc. ("WorldCom") under the Amended Carrier Switched
Services Agreement dated May 12, 1997 (the "WorldCom Agreement"), between NTC
and WorldCom. The payments owed to WorldCom by NTC under the WorldCom Agreement
are secured by, among other things, NTC's customer accounts. WorldCom has agreed
to forbear any rights it has against NTC under the WorldCom Agreement until
August 28, 1998.
H. A class action lawsuit is pending against the Company in the United
States District Court for the Central District of California entitled Sandra
Gayles et. al v. Sam D. Schwartz and Incomnet, Inc. (Case No.
CV95-0399 AWT (BQRx) (the "Class Action Lawsuit").
I. It is the intent of the parties that all members of the Current
Board except for Silverman resign and that Casey, John Hill, Jr. ("Hill") and
one person to be designated by Casey (the "Casey Board Designee") be appointed
to the Company's Board of Directors, on the terms and subject to the conditions
set forth herein (such change in Board composition is referred to herein as the
"Board Change"). Thus, upon satisfaction of these conditions and the completion
of the matters set forth in this Agreement, the members of the Company's Board
of Directors will be Silverman, Casey, Hill and the Casey Board Designee
(collectively, the "New Board").
2
<PAGE> 7
J. WorldCom and First Bank have conditioned additional forbearance with
respect to the defaults by NTC under the WorldCom Agreement and the First Bank
Credit Facility, respectively, on the execution of this Agreement providing for
the Board Change. The Current Board and/or representatives of the Company have
met with Casey on various occasions to discuss his plans and current intentions
with respect to the recapitalization and revitalization of the Company and NTC.
The Current Board has determined that the Board Change is in the best interests
of the Company and its shareholders.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. RESIGNATION AND APPOINTMENT OF DIRECTORS; BOARD MATTERS
1.1. Resignation of Directors.
Subject to the terms and conditions of this Agreement, at the Effective
Time (as defined in Section 2), the resignations of Horowitz, Lesem, Reznick,
Wilstein and Zivitz from the Company's Board of Directors (the "Board") shall be
effective.
1.2. Appointment of Directors.
Subject to the terms and conditions of this Agreement, immediately
following the Effective Time, the appointment to the Board of Casey, Hill and,
if designated by Casey and approved by the Current Board as provided herein, the
Casey Board Designee shall be effective. Silverman shall remain as a member of
the Board following the Effective Time.
1.3. Committees of New Board.
The New Board shall form and appoint Board members to an audit
committee (the "Audit Committee"), compensation committee (the "Compensation
Committee") and a committee to resolve any issues relating to transactions
involving Casey in his individual capacity (the "Disinterested Director
Committee"). The Company shall, and Casey shall use commercially reasonable
efforts to cause the New Board to, offer Silverman the opportunity to be a
member of the Audit Committee, Compensation Committee and Disinterested Director
Committee and, if the Company forms such a committee, the Executive Committee.
3
<PAGE> 8
1.4. Reelection of Silverman.
Subject to applicable law, following the Effective Time, the Company
shall, and Casey shall use commercially reasonable efforts to cause the Company
to, nominate Silverman for reelection to the Board at the next annual meeting of
shareholders of the Company, provided that he has not resigned from the Board
prior to the mailing to the Company's shareholders of the proxy statement for
such meeting. If Silverman should cease to be a director of the Company for any
reason (whether through voluntary resignation, removal for cause, death,
disability or any other reason), no party, other than the then current members
of the Board in accordance with the Company's Articles of Incorporation, as
amended (the "Articles"), and Bylaws, as amended (the "Bylaws" and together with
the Articles, the "Organizational Documents"), shall have the right to designate
or appoint a successor to Silverman on the Board.
1.5. Number of Directors.
Following the Closing, the New Board may, but shall be under no
obligation to, appoint additional members of the Board who may be identified
from time to time, all in accordance with the Organizational Documents.
2. CLOSING
At 10:00 a.m. on the first business day after the satisfaction or
waiver of the conditions in Section 7 and Section 8 or at such later time and
date as Casey and the Current Board may agree (the "Effective Time"), the
conditional resignations of Horowitz, Lesem, Reznick, Wilstein and Zivitz from
the Board shall be in effect and no longer subject to any condition and,
immediately thereafter the appointment of Casey, Hill and the Casey Designee to
the Board shall be in effect and no longer subject to any condition (such
resignation and appointment, the "Closing"). At 10:00 a.m. (Los Angeles time) on
the date of the Closing (the "Closing Date"), the Current Board shall cause to
be delivered to Casey at the offices of Heller Ehrman White & McAuliffe, counsel
to Casey, such documents as may be reasonably requested by Casey, including
documents evidencing satisfaction of the conditions set forth in this Agreement
that are within the possession or control of the Company or the Current Board.
At 10:00 a.m. (Los Angeles time) on the Closing Date, Casey shall cause to be
delivered to the Current Board at the offices of Heller Ehrman White &
McAuliffe, counsel to Casey, such documents as may be reasonably requested by
the Company and the Current Board, including documents evidencing satisfaction
of the conditions set forth in this Agreement that are within the possession or
control of Casey.
4
<PAGE> 9
3. REPRESENTATIONS AND WARRANTIES
3.1. Representations of Individuals.
Each individual who is a party to this Agreement represents and
warrants to all other parties to this Agreement as follows:
(a) this Agreement constitutes the legal, valid and binding
obligation of such person, enforceable against such person in accordance with
its terms, subject to general principles of equity and laws relating to the
enforcement of creditors' rights generally;
(b) to such individual's knowledge, except for the Contracts
(defined below) identified in Schedule 3.1, neither the execution and delivery
of this Agreement nor the consummation or performance of any of the Board Change
will, directly or indirectly (with or without notice or lapse of time)
contravene, conflict with, or result in a violation or breach of any provision
of, or give any Person (defined below) to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any material Contract to which such individual is a party;
and
(c) the description of such individual and any other matters between
such individual and the Company to be contained in the Information Statement (as
defined in Section 7.8) and any other information supplied in writing by such
individual to the Company for inclusion in the Information Statement will be
complete and accurate in all material respects when made and at the Closing and
will not contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
For purposes of this Agreement, (i) the term "Person" means any individual,
corporation (including any non-profit corporation), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, labor union or other similar entity and (ii) the term
"Contract" means any express agreement, contract, obligation, promise,
understanding or undertaking (whether written or oral) that is legally binding.
5
<PAGE> 10
3.2. Company Representations to Individuals.
The Company represents and warrants to all other parties to this
Agreement as follows:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, having all corporate powers
to execute, deliver and perform its obligations under this Agreement;
(b) the execution, delivery and performance by the Company of this
Agreement and the consummation of the transactions contemplated hereby are
within the Company's corporate powers and has been duly authorized by all
necessary corporate action;
(c) this Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to general
principles of equity and laws relating to the enforcement of creditors' rights
generally; and
(d) neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Board Change will, directly or
indirectly (with or without notice or lapse of time) (i) contravene, conflict
with, or result in a violation of (A) any provision of the Organizational
Documents of the Company or any of its subsidiaries , or (B) any resolution
adopted by the board of directors or the shareholders of the Company or any of
its subsidiaries or (ii) except for the Contracts identified in Schedule 3.2,
contravene, conflict with, or result in a violation or breach of any provision
of, or give any Person the right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance of, or to cancel, terminate,
or modify, any Contract to which the Company or its subsidiaries is a party or
by which the Company or any of its subsidiaries is bound.
3.3. Additional Company Representations to Casey.
The Company represents and warrants to Casey as follows:
(a) at a meeting of the Current Board that was noticed and called in
accordance with the Organizational Documents, resolutions of the Board were duly
adopted approving (i) the acceptance of the resignations of Horowitz, Lesem,
Reznick, Wilstein and Zivitz from the Board and any office of the Company, such
resignations effective on the Effective Time and (ii) the appointment of Casey
and Hill as directors of the Company, such appointments effective immediately
following the Effective Time; and
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(b) the Company and all of its subsidiaries have complied (and until
the Effective Time will comply) in all material respects with the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), relating to the
payment and withholding of Taxes (defined below), including the withholding and
reporting requirements under Code Sections 1441 through 1464, 3401 through 3406,
and 6041 through 6049, as well as similar provisions under any other federal,
state, county or local laws, and have, within the time and in the manner
prescribed by law, withheld from employee wages and paid over to the proper
governmental authorities all material amounts required by applicable law. For
purposes of this Agreement, the term "Taxes" means any federal, state, county,
local or foreign taxes, charges, fees, levies, or other assessments, including
all net income, gross income, sales and use, ad valorem, transfer, gains,
profits, excise, franchise, real and personal property, gross receipt, capital
stock, business and occupation, disability, employment, payroll, license,
estimated, or withholding taxes or charges imposed by any governmental entity,
and includes any interest and penalties (civil or criminal) on or additions to
any such Taxes; and
(c) other than the written information supplied by individuals to
the Company for inclusion in the Information Statement, the Information
Statement will be complete and accurate in all material respects when filed with
the SEC and at the Closing Date and will not contain any untrue statement of
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
3.4. Additional Casey Representations to Company.
Casey represents and warrants to the Company that he has no current
reason to believe that he would not have the financial resources necessary to
exercise the Cohen Option in accordance with the terms and conditions set forth
in this Agreement and the Cohen Option.
4. COVENANTS OF COMPANY AND CURRENT BOARD PRIOR TO CLOSING
4.1. Access; Shareholders' List.
From the date of this Agreement until the Effective Time, the Company
will, and will cause each of its subsidiaries and its Representatives (defined
below) to, (a) afford Casey and his Representatives reasonable access to the
books and records, contracts and other documents and data and personnel and
Representatives of the Company and its subsidiaries, (b) furnish Casey and his
Representatives with copies of all such books and records, and contracts and
other existing documents and data as Casey or his Representatives may reasonably
request, and (c) furnish Casey and his Representatives with such additional
financial, operating, and other data and information concerning the Company and
its subsidiaries as Casey and his Representatives may reasonably request. In
addition, the Company shall cause to be delivered to Casey within three business
days
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after execution of this Agreement a list of all shareholders of record as of the
date of the Agreement. Notwithstanding anything else to the contrary in this
Section 4.1, the Company and its subsidiaries shall not be required to disclose
documents, the disclosure of which to Casey, based on advice of legal counsel,
will likely invalidate a claim of attorney-client privilege or attorney work
product privilege relating to such documents provided that the Company or its
subsidiaries has a good faith claim of such privilege. For purposes of this
Agreement, the term "Representatives" means any director, officer, employee,
agent, consultant, advisor, or other representative of such Person, including
legal counsel, accountants, insurance brokers and carriers and financial and
other advisors.
4.2. Required Approvals; Conditions.
From the date of this Agreement until the Effective Time, the Company
and the Current Board shall, and shall cause each of the Company's subsidiaries
to cooperate with Casey with respect to all filings that Casey elects to make or
is required by law to make in connection with the Board Change or any other
matter contemplated under this Agreement. From the date of this Agreement until
the Effective Time, the Company and the Current Board shall use commercially
reasonable efforts to cause the conditions set forth in Section 7 and Section 8
to be satisfied, including filing with the SEC and mailing to the Company's
shareholders of the Information Statement referenced in Section 7.8 and Section
8.2; provided, however, that the Company and the Current Board shall not file or
mail the Information Statement without the prior written consent of Casey, such
consent not to be unreasonably withheld.
4.3. Notification.
From the date of this Agreement until the Effective Time, the Company
and the Current Board will promptly notify Casey in writing if the Company or
the Current Board becomes aware of any fact or condition that causes or
constitutes a breach of any of the representations and warranties of the Company
or the Current Board as of the date of this Agreement, or if the Company or the
Current Board becomes aware of the occurrence after the date of this Agreement
of any fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. From the date of this Agreement until the
Effective Time, the Company and the Current Board will promptly notify Casey of
the occurrence of any breach of any covenant of the Company and the Current
Board in this Section 4 or of the occurrence of any event that may make the
satisfaction of the conditions set forth in Section 7 and Section 8 impossible
or unlikely. From the date of this Agreement until the Effective Time, the
Company shall promptly notify Casey of any development or matter that will
likely have a material effect on the business, financial condition or results of
operation of the Company or any of its subsidiaries.
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4.4. Stand Still.
From the date of the Agreement until the Effective Time (the "Stand
Still Period"), unless Casey otherwise consents in writing, the Company shall
not, and shall cause all of its subsidiaries not to, directly or indirectly,
initiate on its own or solicit or encourage any inquiries or proposals from,
discuss or negotiate with, provide non-public information to, or consider any
unsolicited inquiries from any third party, in connection with any of the
following:
(a) any amendment of the organizational documents of the Company or
any of its subsidiaries;
(b) any extraordinary corporate transaction (merger, sale of assets,
sale of securities or other similar transaction, declaration of dividend or
adoption of shareholder rights plan) or any agreement to incur any material
liability (loans for borrowed money or settlement of litigation, including the
Class Action Lawsuit); or
(c) any increase or agreement to increase compensation payable to
directors, employees or consultants or enter into severance or termination
arrangements affecting directors, consultants or employees or any amendment to
any employee plans or any grant of any options, warrants or rights to purchase
securities of the Company or any of its subsidiaries.
Notwithstanding the foregoing, the Company may (i) enter into the sublease at
2811 East Main under the terms set forth in the term sheet dated July 17, 1998
and (ii) obtain debt financing on terms substantially similar to those
previously proposed by a financial institution in July 1998. In addition, if the
Company or any subsidiary proposes to enter into short-term financing
arrangements while the provisions in this Section 4.4 are in effect, Casey's
consent permitting the Company to do so shall not be unreasonably withheld.
5. COVENANTS OF CASEY PRIOR TO CLOSING
5.1. Required Approvals; Conditions.
From the date of this Agreement until the Effective Time, Casey shall
cooperate with the Company and its subsidiaries with respect to all filings that
each of them elects to make or is required by law to make in connection with the
Board Change or any other matter contemplated under this Agreement. From the
date of this Agreement until the Effective Time, Casey shall use commercially
reasonable efforts to cause the conditions set forth in Section 7 and Section 8
to be satisfied.
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5.2. Notification.
From the date of this Agreement until the Effective Time, Casey shall
promptly notify the Company in writing if Casey becomes aware of any fact or
condition that causes or constitutes a breach of any of the representations and
warranties of Casey as of the date of this Agreement, or Casey becomes aware of
the occurrence after the date of this Agreement of any fact or condition that
would (except as expressly contemplated by this Agreement) cause or constitute a
breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. From the date of this Agreement until the Effective Time, Casey shall
promptly notify the Company in writing of the occurrence of any breach of any
covenant of Casey in this Section 5 or of the occurrence of any event that may
make the satisfaction of the conditions in Section 7 or Section 8 impossible or
unlikely.
6. ADDITIONAL AND CONTINUING COVENANTS
6.1. Additional Financing.
Following the Closing, Casey shall use commercially reasonable efforts
to secure additional equity or debt financing for the Company and its
subsidiaries and cause the New Board to consider all options available to the
Company and its subsidiaries to improve their liquidity consistent with their
needs; provided, however, that under no circumstance shall Casey be required
under this Agreement to personally guarantee the obligations of the Company or
any of its subsidiaries or make a loan to, or an equity investment in, the
Company or any of its subsidiaries.
6.2. Assignment of Cohen Option.
Following the Closing, Casey shall assign the Cohen Option to the
Company on condition that (a) the Company is financially able to purchase or
redeem the Cohen Preferred Stock at the Cohen Exercise Price prior to the
termination of the Cohen Option, (b) the Cohen Group consents to such
assignment, (c) the Company agrees to exercise the Cohen Option and redeem the
Cohen Preferred Stock at the Cohen Exercise Price prior to the termination of
the Cohen Option and (d) the Company agrees to reimburse Casey for all costs and
expenses incurred by Casey in connection with acquiring and assigning the Cohen
Option (including the amount paid by Casey to secure the Cohen Option,
reasonable attorneys' fees and carrying costs relating thereto), such amount to
be approved by Casey and the Company at the time of such assignment. The term
"Cohen Exercise Price" means $2.3 million plus certain accrued dividends and
penalties as provided in the Option Agreement. For purposes of determining
whether the Company is financially able to redeem the Cohen Preferred Stock, the
Company must have cash on hand necessary to undertake such a transaction taking
into account the other cash requirements of the Company and its subsidiaries and
also meet all requirements under
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applicable law, including Section 500 et seq. of the California General
Corporation Law and any applicable contractual restrictions.
6.3. Increase in Number of Authorized Shares.
Following the Closing, subject to applicable law, at the next
shareholders' meeting called for any purpose, the Company shall cause, and Casey
shall use commercially reasonable efforts to cause, a proxy statement to be
prepared and mailed to the Company's shareholders soliciting their approval to
amend the Articles to increase the number of authorized shares of Common Stock
to 50 million shares (the "Amendment to Articles"). Following the Closing, Casey
hereby agrees to vote in favor of the Amendment to Articles at any shareholders'
meeting duly called for that purpose all shares of Common Stock beneficially
owned by him that he is entitled to vote at such meeting.
6.4. Exercise of Cohen Option by Casey; Redemption of Cohen
Preferred Stock.
Following the Closing, if the Company is not financially able to redeem
the Cohen Preferred Stock prior to the termination of the Cohen Option (or the
Cohen Group does not consent to such assignment), Casey shall exercise the Cohen
Option prior to its termination. Following the Closing, for a maximum of the
one-year period beginning on the date the Cohen Option is exercised by Casey
and ending on the one-year anniversary of that exercise date (the "Redemption
Period"), Casey shall hold the Cohen Preferred Stock. If the Company is
financially able to redeem the Cohen Preferred Stock during the Redemption
Period, following the Closing, (i) the Company shall give written notice to
Casey of its financial ability to redeem the Cohen Preferred Stock, (ii) Casey
shall promptly assign and transfer the Cohen Preferred Stock to the Company and
(iii) on such date of transfer, the Company shall reimburse Casey for all costs
and expenses incurred by Casey in connection with acquiring, exercising and
assigning the Cohen Option (including the amount paid by Casey to secure the
Cohen Option, the Cohen Exercise Price, reasonable attorneys' fees and carrying
costs relating thereto), such amount to be approved by Casey and the Company at
the time of such assignment.
6.5. Inability to Redeem Cohen Option or Cohen Preferred Stock;
Conversion of Cohen Preferred Stock into Common Stock; Agreement to Conduct
Offering of Common Stock.
(a) If, following the Closing, the Company is not financially able
to redeem the Cohen Preferred Stock before expiration of the Redemption Period,
then as soon as practicable after the later of the expiration of the Redemption
Period and the approval by shareholders of the Amendment to Articles, Casey
shall tender the Cohen Preferred Stock for conversion and the Company shall
convert the Cohen Preferred Stock into that number of shares of Common Stock
that the holders of Cohen Preferred Stock would have been entitled to receive
had the Company been able to convert the Cohen
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Preferred Stock when tendered for conversion on June 10 and 11, 1998 (the "Cohen
Common").
(b) If the Cohen Preferred Stock is not redeemed by the Company before
expiration of the Redemption Period and the Cohen Preferred Stock is converted
into shares of Common Stock pursuant to Section 6.5(a), then as soon as is
reasonably practicable, Casey shall commence an offering of the Cohen Common on
a pro rata basis to the Company's shareholders (including Casey) as of a certain
record date to be announced by the Company ("Record Holders"). The purchase
price for the Cohen Common in such offering shall be the sum of (i) all costs
and expenses incurred by Casey in connection with acquiring and exercising the
Cohen Option (including the amount paid by Casey to secure the Cohen Option, the
Cohen Exercise Price, reasonable attorneys' fees and carrying costs relating
thereto) and (ii) all costs and expenses attributable to the offering of the
Cohen Common (including any SEC registration fee, state securities law fees,
reasonable attorneys' fees, reasonable accounting fees, all such amounts to be
approved by Casey and the Company at the time of such offering). To the extent
that the Cohen Common is undersubscribed for during the initial round of the
offering, Casey shall be obligated in such offering to make a second round offer
on a pro rata basis to the subscribing Record Holders. If the offering is not
fully subscribed after the second round, Casey shall be entitled to offer the
balance of the Cohen Common to the parties designated by him (including Casey)
in his sole discretion.
6.6. Confidentiality.
From the date of this Agreement and continuing after the Closing, Casey
shall keep confidential from, and shall not disclose to, third parties other
than the Company all documents and other information concerning the Company and
its subsidiaries, and their officers and directors, provided to him or produced
on his behalf by his Representatives prior to the Closing Date that are covered
by the attorney-client privilege or attorney work product doctrine (the
"Privileged Documents"), except with the prior written consent of Silverman. All
of the foregoing obligations and restrictions do not apply to that part of the
Privileged Documents that Casey demonstrates was or becomes generally available
to the public other than as a result of a disclosure by Casey or Casey's
Representatives. If Casey or any of Casey's Representatives are requested or
become legally compelled (by oral questions, interrogatories, requests for
information or documents, subpoena, civil or criminal investigative demand, or
similar process) or are required by a regulatory body to make any disclosure
that is prohibited by this Agreement, Casey or such Representative, as the case
may be, shall provide at least two members of the Current Board with prompt
notice of such request so that the Current Board may seek an appropriate
protective order or other appropriate remedy. Subject to the foregoing, Casey or
such Representative may furnish that portion (and only that portion) of the
Privileged Documents that, upon the written advice of legal counsel, is legally
compelled or is otherwise required to disclose or else stand liable for contempt
or suffer other material penalty.
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7. CONDITIONS PRECEDENT TO CASEY'S OBLIGATION TO CLOSE
Casey's obligation to effect the Board Change and take such other
actions required to be taken by Casey at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Casey, in whole or in part):
7.1. Approval and Conditional Appointment of Casey Board Designee.
The Casey Board Designee and any executive officer proposed by the New
Board to have positions with the Company or NTC at or immediately following the
Effective Time and who must be identified in the Information Statement referred
to in Section 7.8 must have been disclosed to, and approved by, the Current
Board, such approval not to be unreasonably withheld. The Current Board shall
have approved resolutions at a meeting of the Current Board duly held in
accordance with the Bylaws which provide for the appointment of the Casey Board
Designee as a director of the Board, such appointment to be effective at the
Effective Time.
7.2. Class Action Lawsuit Settlement.
A settlement agreement shall have been entered into among the named
parties to the Class Action Lawsuit pending against the Company on terms
reasonably acceptable to Casey.
7.3. Directors' and Officers' Insurance Coverage.
The Company shall have in effect directors' and officers' insurance
coverage with such policy amounts and on such terms as are acceptable to Casey.
7.4. Rescission of Autonomy Agreement.
The Company and NTC shall have caused the agreement dated January 28,
1997 (the "Autonomy Agreement"), between the Company and NTC to be terminated
promptly and no later than three business days following the date of this
Agreement.
7.5. Rescission of Supermajority Bylaw Provision.
On November 5, 1997, the Board adopted an amendment to the Bylaws (the
"Supermajority Bylaw Provision") requiring that all formal resolutions, acts and
decisions of the Board must be approved by a majority vote plus one director.
The Company shall have rescinded the Supermajority Bylaw Provision by adopting
an amendment to the Bylaws to eliminate the Supermajority Bylaw Provision, such
rescission to be effective on or prior to the Effective Time.
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7.6. Cohen Group Approval.
The consent or agreement of the Cohen Group approving of (and
authorizing Casey to vote in favor of) the Amendment to Articles at the next
meeting of the Company's shareholders shall have been obtained.
7.7. NTC Secured Creditor Matters; No Liquidation Proceedings.
WorldCom shall have withdrawn its letter advising NTC of WorldCom's
intention to terminate services under the WorldCom Agreement. First Bank and
WorldCom shall have agreed to forbear their rights to foreclose on the
collateral given to them, and otherwise enforce their rights upon default under,
the First Bank Credit Facility and the WorldCom Agreement, respectively, on
terms acceptable to Casey. Neither the Company nor any of its subsidiaries shall
have commenced any liquidation proceedings, filed a voluntary or involuntary
petition under the federal bankruptcy laws or approved an assignment for the
benefit of creditors.
7.8. Information Statement.
The Company shall have filed and mailed an information statement (the
"Information Statement") in accordance with Rule 14f-1 under the Exchange Act.
The ten-day waiting period required under Rule 14f-1 under the Exchange Act
following mailing of the Information Statement shall have lapsed.
7.9. Accuracy of Representations.
All of the representations and warranties of the Company and the
Current Board set forth in this Agreement shall have been accurate in all
material respects as of the date of this Agreement and shall be accurate in all
material respects as of the Effective Time as if made on the Effective Time.
7.10. Performance of Covenants.
Each of the covenants and obligations that the Company and the Current
Board are required to perform or to comply with pursuant to this Agreement at or
prior to Closing shall have been duly performed and complied with in all
material respects.
7.11. Additional Documents.
Casey shall have received all documents reasonably requested by Casey
for the purpose of (a) evidencing the accuracy of any of the representations and
warranties of the Company and the Current Board, (b) evidencing the performance
by the Company and the Current Board of any covenant or obligation required to
be performed or complied with by the Company or the Current Board, (c)
evidencing the satisfaction of any
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condition referred to in this Section 7 and (d) otherwise facilitating the
completion of the Board Change.
7.12. No Legal Proceedings.
No decree, injunction, judgment, order, ruling, assessment or writ
(collectively, "Order") shall have been declared, entered, issued, or enforced
by any governmental entity which prohibits or restricts (or if successful, would
prohibit or restrict) the Board Change or other transactions contemplated in
this Agreement.
8. CONDITIONS PRECEDENT TO COMPANY'S AND CURRENT BOARD'S OBLIGATION TO
CLOSE
The obligations of the Company and the Current Board to effect the
Board Change and take such other actions required to be taken by the Company and
the Current Board at the Closing is subject to the satisfaction, at or prior to
the Closing, of each of the following conditions (any of which may be waived by
the Company and the Current Board, in whole or in part):
8.1. Approval and Conditional Appointment of Casey Board Designee.
The Casey Board Designee and any executive officer proposed by the New
Board to have positions with the Company or NTC at or immediately following the
Effective Time and who must be identified in the Information Statement must have
been disclosed to, and approved by, the Current Board, such approval not to be
unreasonably withheld.
8.2. Cohen Group Approval.
The consent or agreement of the Cohen Group approving of an increase in
the authorized number of shares of the Common Stock at the next meeting of the
Company's shareholders shall have been obtained.
8.3. Information Statement.
The Company shall have filed and mailed the Information Statement in
accordance with Rule 14f-1 under the Exchange Act. The ten-day waiting period
required under Rule 14f-1 under the Exchange Act following mailing of the
Information Statement shall have lapsed.
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8.4. Accuracy of Representations.
All of the representations and warranties of Casey set forth in this
Agreement shall have been accurate in all material respects as of the date of
this Agreement and shall be accurate in all material respects as of the
Effective Time as if made on the Effective Time.
8.5. Performance of Covenants.
Each of the covenants and obligations that Casey is required to perform
or to comply with pursuant to this Agreement at or prior to Closing shall have
been duly performed and complied with in all material respects.
8.6. Additional Documents.
The Company and the Current Board shall have received all documents
reasonably requested by them for the purpose of (a) evidencing the accuracy of
any of the representations and warranties of Casey, (b) evidencing the
performance by Casey of any covenant or obligation required to be performed or
complied with by Casey, (c) evidencing the satisfaction of any condition
referred to in this Section 8 and (d) otherwise facilitating the completion of
the Board Change.
8.7. No Legal Proceedings.
No Order shall have been declared, entered, issued, or enforced by any
governmental entity which prohibits or restricts (or if successful, would
prohibit or restrict) the Board Change or other transactions contemplated in
this Agreement.
9. SPECIFIC RELEASES; COVENANT NOT TO SUE AND RELATED MATTERS
9.1. Specific Releases.
At the Effective Time, for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, each party hereto, on behalf
of himself and, to the fullest extent permitted by law, each of his Related
Persons (as defined below) (each, a "Releasor"), hereby fully releases and
forever discharges each of the other parties hereto (each, a "Releasee") and
each of their past, present and future officers, directors, stockholders,
agents, attorneys, accountants, financial advisors, representatives, employees,
executors, administrators, heirs, spouses, successors and assigns (each, a
"Releasee Affiliate") from any and all liability, obligation and responsibility
for any and all Claims (as defined below).
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9.2. Covenant not to Sue.
At the Effective Time, each Releasor covenants and agrees not to
participate in, commence or to permit (to the extent within their control) the
assertion or commencement of any demand, allegation, litigation or similar
proceeding or action relating to any Claim, including, without limitation, by or
through the Company, and not to encourage, assist or cooperate with any person
pursuing or asserting any Claim, against any Releasee or any Releasee Affiliate.
9.3. Waiver of Statutory Provision.
Each Releasor hereby waives the provisions of Section 1542 of the
California Civil Code only to the extent it applies to the releases given by
such Releasor in Section 9.1. Section 1542 of the California Civil Code provides
as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
9.4. Indemnity.
(a) At the Effective Time, without in any way limiting any of the
rights and remedies otherwise available to any Releasee, each party hereto
(each, an "Indemnitor"), severally and not jointly, shall indemnify and hold
harmless each Releasee from and against all loss, liability, claim, damage
(including incidental and consequential damages) or expense (including costs of
investigation and defense and reasonable attorneys' fees) whether or not
involving third party claims, arising directly or indirectly from or in
connection with (i) the assertion by or on behalf of such Indemnitor or any of
his Related Persons of any claim or other matter purported to be released
pursuant to the release set forth in Section 9.1 and (ii) the assertion by any
third party of any claim or demand against any Releasee which claim or demand
arises directly or indirectly from, or in connection with, any assertion by or
on behalf of such Indemnitor or any of his Related Persons against such third
party of any claims or other matters purported to be released pursuant to the
release set forth in Section 9.1.
(b) For the period of any applicable statute of limitations, the
Company shall, and no party hereto shall take any action to impair the ability
or power of the Company to, indemnify and hold harmless each person who is or
who has been a director or officer of the Company in respect of acts and
omissions occurring through the date on which such person shall have ceased to
be a director and officer of the Company, as the case may be, to the full extent
permitted by applicable law. All parties agree that all rights of
indemnification or limitations on liability now existing in favor of any such
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person entitled to indemnification or any other party hereto as provided (i) in
the Organizational Documents, (ii) in any indemnification agreement between the
Company and any such person or (iii) pursuant to applicable law, shall survive
and continue in full force and effect until expiration of any applicable statute
of limitations period, provided that all rights to indemnification in respect to
any claim or claims asserted or made within such period shall continue until the
final disposition of all such claims.
9.5. Certain Definitions.
(a) As used in this Agreement, with respect to a specified Releasor
or Indemnitor who is an individual, the term "Related Person" means (i) each
other member of such individual's Family; (ii) any Person that is directly or
indirectly controlled by such individual or one or more members of such
individual's Family; (iii) any Person in which such individual or members of
such individual's Family hold (individually or in the aggregate) a Material
Interest; and (iv) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity). For purposes of this Agreement,
the term "Family" means (i) the individual, (ii) the individual's spouse, (iii)
any other natural person who is related to the individual or the individual's
spouse within the second degree, and (iv) any other natural person who resides
with such individual. Further, for purposes of this Agreement, the term
"Material Interest" means direct or indirect beneficial ownership (as defined in
Rule 13d-3 under the Exchange Act) of voting securities or other voting
interests representing at least 10% of the outstanding voting power of any
Person or equity securities or other equity interests representing at least 10%
of the outstanding equity securities or equity interests in any Person.
(b) As used in this Agreement, with respect to a specified Releasor
or Indemnitor which is not an individual, the term "Related Person" means (i)
any Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Releasor or Indemnitor, (ii) any individual or Person that holds a
Material Interest in such specified Releasor or Indemnitor, (iii) each
individual that serves as a director, officer, partner, executor, or trustee of
such specified Releasor or Indemnitor (or in a similar capacity), (iv) any
Person in which such specified Releasor or Indemnitor holds a Material Interest,
(v) any Person with respect to which such specified Indemnitor serves as a
general partner or a trustee (or in a similar capacity) and (vi) any Related
Person of any individual described in clause (ii) or (iii) of this Section 9.5.
(c) As used in this Agreement, the term "Claim" means any actual or
alleged liability, claim, action, suit, cause of action, obligation, debt,
controversy, dispute, promise, contract, lien, judgment, account,
representation, covenant, agreement, demand of any kind or nature, whether known
or unknown, foreseen or unforeseen, both at law and in equity, that any Releasor
may or could have had or now or hereafter may have
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against the respective Releasees arising out of, relating to or connected in any
way with (i) the Board Change of Control, (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 at $0.60 per share, (v) upon the redemption of the Cohen
Preferred Stock or the approval by the Company's shareholders of the Amendment
to Articles 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, all as provided in this Agreement, 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 matters described in clauses (i)
through (v) of this Section 9.5(c).
9.6. Maintenance of D&O Insurance.
The Company shall (and no party hereto shall take any action to impair
the ability or power of the Company) provide officers' and directors' liability
insurance ("D&O Insurance") covering each person who is or who has been a
director or officer of the Company in respect of acts and omissions occurring
through the date on which such person shall have ceased to be a director and
officer of the Company until the third anniversary of the date of this
Agreement, in respect of acts or omissions occurring through the Closing Date,
on terms with respect to coverage and amount no less favorable than those of
such policies in effect on the date of this Agreement; provided, that the
Company shall not be required to pay combined annual premiums for the D&O
Insurance in excess of 125% of the premium paid for the existing D&O Insurance
by the Company for the current policy period (the "Maximum Premium"); provided
further that in the event the payment of the Maximum Premium for any year is
insufficient to maintain such insurance, the Company shall purchase as much D&O
Insurance coverage as may be purchased for the Maximum Premium; provided,
further, that the Company shall not be liable for breach of its obligations to
provide D&O Insurance if such insurance cannot be obtained at any price for any
annual period in which insurance is so unavailable.
9.7. Enforcement.
The provisions of Section 9.4(b) and Section 9.6 hereof shall inure to
the benefit of each Indemnitee and the other parties hereto who are indemnified
herein or who have rights of indemnification or limitations on liability as
described in the second sentence of Section 9.5(b). The Company shall pay all
legal fees and expenses incurred by or on behalf of any such person in enforcing
his rights under Section 9.5(b) and Section 9.6 and
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shall advance to any such person funds to cover such fees and expenses upon
receipt of an undertaking from such person to return any portions of such funds
that are not used for such fees and expenses or to which he was otherwise not
entitled to receive under applicable law.
10. TERMINATION
10.1. Termination Events.
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) by either Casey or the Company if a material breach of any
provision of this Agreement has been committed by another party and such breach
has not been waived;
(b) (i) by Casey if any of the conditions in Section 7 is or becomes
impossible to satisfy (other than through the failure of Casey to comply with
his obligations under this Agreement) and Casey has not waived or does not waive
such condition; or (ii) by the Company, if any of the conditions in Section 8 is
or becomes impossible to satisfy (other than through the failure of the Company
or members of the Current Board to comply with their obligations under this
Agreement) and the Company or the Current Board have not waived or do not waive
such condition;
(c) by mutual consent of Casey and the Company; or
(d) by either Casey or the Company if the Closing has not occurred
(other than through the failure of any party seeking to terminate this Agreement
to comply fully with its obligations under this Agreement) on or before
September 30, 1998, or such later date upon which the parties may agree.
10.2. Effect of Termination.
Each party's right of termination under Section 10.1 is in addition to
any other rights it may have under this Agreement or otherwise, and the exercise
of a right of termination shall not be an election of remedies. If this
Agreement is terminated pursuant to Section 10.1, all further obligations of the
parties under this Agreement shall terminate, except that the obligations to
reimburse Casey for costs and expenses described in clauses (a) through (g) of
the first sentence of Section 11.2 shall survive such termination; provided,
however, that if this Agreement is terminated by a party because of the breach
of the Agreement by another party or because one or more of the conditions to
the terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies shall
survive such termination unimpaired.
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11. MISCELLANEOUS
11.1. Rules of Construction.
This Agreement shall be construed in accordance with the following
rules of construction:
(a) the terms defined in this Agreement include the plural as well
as the singular;
(b) all references in the Agreement to designated "Sections" and
other subdivisions are to the designated Sections and other subdivisions of the
body of this Agreement, and all such references are for convenience of reference
only, and shall be ignored in the construction and interpretation of this
Agreement;
(c) pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms;
(d) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Section or other subdivision; and
(e) the words "includes" and "including" are not limiting.
11.2. Expenses.
In addition to the costs and expenses otherwise expressly required to
be paid in accordance with Section 6.2, Section 6.4 and Section 6.5(b) relating
to the Cohen Option and the Cohen Preferred Stock, the Company shall reimburse
Casey for any reasonable costs and expenses (including reasonable attorneys'
fees) incurred by him in connection with (a) the settlement of the Class Action
Lawsuit, (b) any filings made by the Company or Casey with the SEC or any other
regulatory agency in connection with the Board Change, (c) the preparation of
the Information Statement, (d) obtaining directors' and officers' insurance
coverage, (e) negotiating and preparing the non-binding term sheet dated August
21, 1998 (and all prior iterations thereof) relating to the proposed Board
Change and this Agreement, (f) any negotiations with WorldCom or First Bank with
respect to NTC and (g) any negotiations 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 (a) through (g) above, (i) upon the approval of a majority of the
Disinterested Director Committee (and without requiring approval of the
Company's shareholders), the Company shall reimburse 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
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evaluation of his rights and alternatives as a significant shareholder of the
Company (collectively, the "Due Diligence and Other Costs") and (ii) upon the
approval of the majority of the disinterested members of the New Board and the
Company's disinterested shareholders, the Company shall reimburse Casey for Due
Diligence and Other Costs in excess of $100,000.
11.3. Survival of Representations and Covenants.
All representations, warranties, covenants, and obligations in this
Agreement and any other certificate or document delivered pursuant to this
Agreement will survive the Closing. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, shall constitute a waiver of the
right to indemnification, payment of damages, or other remedy based on such
representations, warranties, covenants and obligations.
11.4. Notices.
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(when an appropriate answer back is received from the recipient's telecopier),
provided that a copy is mailed by U.S. mail, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service, in
each case to the appropriate addresses and telecopier numbers set forth in
Exhibit A (or to such other addresses and telecopier numbers as a party may
designate by notice to the other parties).
11.5. Equitable Remedies.
Each party hereto acknowledges that any other party hereto to whom or
which it owes any obligation hereunder would not have an adequate remedy at law
for money damages, and that irreparable harm would occur, in the event that any
or all of such obligations were not honored strictly in accordance with their
terms, and therefore agrees that such other party or parties shall be entitled
to an injunction (or other appropriate equitable remedy) to prevent any such
breach of those obligations and to obtain specific enforcement of such
obligations in addition to any other remedy to which it may be entitled at law
or in equity.
11.6. Entire Agreement; Amendment.
This Agreement supersedes all prior and contemporaneous written and
oral agreements and understandings between the parties with respect to its
subject matter (including the term sheet dated August 21, 1998 delivered by
Casey and approved by the Company) and constitutes (along with the documents
referred to in this Agreement) a complete and exclusive statement of the terms
of the agreement between the parties with
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respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
11.7. Successors; Assignment.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, heirs, representatives and
permitted assigns, but no party may assign, delegate or otherwise transfer any
of its rights or obligations under this Agreement without the consent of the
other parties hereto.
11.8. Governing Law.
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of California, without regard to the principles
of conflicts of laws.
11.9. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
11.10. Attorneys' Fees.
If any legal proceeding should be instituted to enforce any term hereof
by any party, the prevailing party or parties in such litigation shall be
entitled to recover all of their costs and expenses, including reasonable
attorneys' fees and related costs and expenses.
11.11. Further Assurances.
The parties agree (a) to furnish upon request to each other such
further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement.
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11.12. Waiver.
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power, or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power, or
privilege, and no single or partial exercise of any such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege. No provision
of this Agreement may be waived except in a writing signed by the party to be
charged with the waiver. To the maximum extent permitted by applicable law, (a)
no waiver that may be given by a party will be applicable except in the specific
instance for which it is given and (b) no notice to or demand on one party will
be deemed to be a waiver of any obligation of such party or of the right of the
party giving such notice or demand to take further action without notice or
demand as provided in this Agreement.
11.13. Severability.
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement
shall remain in full force and effect provided that the essential terms and
conditions of this Agreement for all parties remain valid, binding and
enforceable. Any provision of this Agreement held invalid or unenforceable only
in part or degree shall remain in full force and effect to the extent not held
invalid or unenforceable.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
caused this Agreement to be executed by their duly authorized officers, as of
the date first above written.
INCOMNET, INC.
By /s/ MELVYN REZNICK
---------------------------------
Melvyn Reznick
Chairman and Chief Executive Officer
/s/ RICHARD HOROWITZ /s/ HOWARD SILVERMAN
- ----------------------------------- -----------------------------------
Richard Horowitz Howard Silverman
/s/ ROLF LESEM /s/ DAVID WILSTEIN
- ----------------------------------- -----------------------------------
Rolf Lesem David Wilstein
/s/ MELVYN REZNICK /s/ NANCY ZIVITZ
- ----------------------------------- -----------------------------------
Melvyn Reznick Nancy Zivitz
/s/ JOHN P. CASEY
- -----------------------------------
John P. Casey
S-1
