-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LfphaqFaFfzM32bw+UbEQCJ5M0BgxkH3+0/ZvpW5NAmlRwlnO0jMP+Ttksy5NR/h 3VqDoR+TS6MF9ew73tnrdA== 0000912057-96-012582.txt : 19960619 0000912057-96-012582.hdr.sgml : 19960619 ACCESSION NUMBER: 0000912057-96-012582 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960607 ITEM INFORMATION: Other events FILED AS OF DATE: 19960618 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INCOMNET INC CENTRAL INDEX KEY: 0000353356 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 952871296 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12386 FILM NUMBER: 96582419 BUSINESS ADDRESS: STREET 1: 21031 VENTURA BLVD STREET 2: STE 1100 CITY: WOODLAND HILLS STATE: CA ZIP: 91364 BUSINESS PHONE: 8188873400 MAIL ADDRESS: STREET 1: 2801 NORTH MAIN ST CITY: IRVINE STATE: CA ZIP: 92714-5901 FORMER COMPANY: FORMER CONFORMED NAME: INTELLIGENT COMMUNICATIONS NETWORKS INC DATE OF NAME CHANGE: 19860805 8-K 1 FORM 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 8-K Pursuant to Section 13 OR 15(D) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): June 7, 1996 INCOMNET, INC. -------------- (Exact name of registrant as specified in its charter) CALIFORNIA ---------- (State or other jurisdiction of incorporation) 0-12386 95-2871296 ------- ---------- (Commission File Number) (I.R.S. Employer Identification No.) 21031 Ventura Boulevard, Suite 1100, Woodland Hills, California 91364 - --------------------------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (818) 887-3400 NOT APPLICABLE -------------- (Former name, former address and former fiscal year, if changed since last report) Total number of pages in this document: 20 TABLE OF CONTENTS ITEM 5. OTHER EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 EXHIBITS Settlement Agreement Between Incomnet, Inc. and Joel W Greenberg, dated as of May 9, 1996 . . . . . . . . . . . . . . . . A Settlement Agreement Between Incomnet, Inc. and Sam D. Schwartz, dated June 7, 1996 . . . . . . . . . . . . . . . . . . . B -2- ITEM 5.OTHER EVENTS On June 7, 1996, Incomnet, Inc. (the "Company") entered into an agreement with Joel W. Greenberg pursuant to which Mr. Greenberg resigned from the Boards of Directors of the Company, National Telephone & Communications, Inc. and Rapid Cast, Inc., effective May 9, 1996. Mr. Greenberg also paid short-swing profits of $44,424 to the Company, released it from all claims and agreed not to solicit proxies or attempt to assert control of the Company for a period of eight years. In consideration for Mr. Greenberg's covenants, the Company granted options to Mr. Greenberg to purchase 75,000 shares of its common stock for a price of $5.37 per share, exercisable until May 9, 2001, warrants to purchase 100,000 shares of the Company's common stock at an exercise price of $6.00 per share, exercisable until May 9, 2001, subject to certain conditions and warrants to purchase 50,000 shares of the Company's common stock at an exercise price of $7.00 per share, exercisable until May 9, 2001 subject to certain conditions. The Company also agreed to dismiss its lawsuit to collect short-swing profits from Mr. Greenberg and to indemnify him to the extent permitted under the California Corporations Code for claims which may be made for events occurring while he was a director of the Company. A copy of the complete agreement is attached hereto as Exhibit A. The disclosures regarding this agreement are qualified in their entirety by the actual contents of the agreement. On June 11, 1996, the Company's Board of Directors elected Gerald Katell to replace Mr. Greenberg on the Company's Board of Directors. The Board previously nominated Mr. Katell to stand for election to the Board at the Company's Annual Meeting, which is rescheduled for July 29, 1996. The meeting was previously scheduled for June 14, 1996. On June 7, 1996, the Company entered into a settlement agreement with Sam D. Schwartz, the former President and Chairman of the Board of Directors of the Company, pursuant to which Mr. Schwartz agreed to pay short-swing profits of $2,128,424 plus interest at 8.25% per annum until June 7, 1996, and thereafter at the prime rate of interest quoted from time to time by the Bank of America in Los Angeles, California, in accordance with Section 16(b) of the Securities and Exchange Act of 1934, as amended. The settlement agreement will be effective upon its approval by the plaintiff and by the federal district court in the pending derivative lawsuit known as MORALES VS. INCOMNET, INC. AND SAM D. SCHWARTZ, CV 96-0225, filed in the Southern District of New York. There is no assurance that the plaintiff will agree to the settlement or that the court will approve it, or whether or when the settlement agreement will be effective. The settlement agreement applies only to transactions in the Company's stock engaged in by Mr. Schwartz from December 27, 1993 until September 1, 1995 which have been disclosed by Mr. Schwartz in Form 4 and Form 5 filings. Any short-swing profits earned on transactions not disclosed in such public filings are still subject to collection by the Company outside of the scope of the settlement agreement. After the settlement agreement was executed, the Company was notified by the plaintiff that there was evidence of additional transactions in the Company's common stock by Mr. Schwartz which appear not to have been reported on Form 4 or Form 5 filings. Consequently, the plaintiff is moving for additional discovery from Mr. Schwartz in the derivative lawsuit and for either (a) a freeze of Mr. Schwartz's shares pending resolution of the lawsuit and payment of the short-swing profits, or (b) the voluntary deposit by Mr. Schwartz of 800,000 shares of his stock as security for the obligation until it is paid to the Company. It is uncertain at this time how the court will rule on the motions, how Mr. Schwartz will respond to the requests, and how the proceedings will effect the status of the existing settlement agreement. The Company is not objecting to the plaintiff's motions and requests. -3- The settlement agreement provides that the payment of short-swing profits plus interest will be made according to the following schedule: 20% on the effective date of the settlement agreement, 10% 90 days after the effective date, 10% 180 days after the effective date, 10% 270 days after the effective date, 10% 360 days after the effective date, 10% 450 days after the effective date, 10% 540 days after the effective date, and the balance 630 days after the effective date. The Company or Mr. Schwartz have the option to either have sufficient shares redeemed from Mr. Schwartz by the Company to pay the installments of short-swing profits plus interest, based on the average last sale price of the Company's common stock quoted on the NASDAQ market during the five trading days immediately preceding the payment date, or to have Mr. Schwartz sell shares in the open market or otherwise pay the installment in cash. On the effective date of the agreement, Mr. Schwartz has agreed to (i) pay the initial 20% installment and (2) deposit into an escrow account, in which the Company will have a perfected security interest, the number of his shares of the Company's common stock having an aggregate value equal to 120% of the outstanding balance of short-swing profits plus interest due (after the 20% downpayment), based on the average last sale price of the Company's common stock quoted on the NASDAQ market during the five trading days immediately preceding the day before the effective date. The Company will draw payments due pursuant to the settlement agreement from this escrow account. If the aggregate value of the shares in the escrow account is below the outstanding balance due on Mr. Schwartz's short-swing profit obligation to the Company for 15 consecutive trading days, then Mr. Schwartz is obligated to deposit additional shares into the escrow account to eliminate any deficiency. In any event, if for any reason the Company does not receive full payment of the short-swing profits plus interest by a date 630 days after the effective date of the agreement, then Mr. Schwartz is obligated to pay the balance to the Company. Pursuant to the settlement agreement, the Company reversed the redemption of 250,000 stock options tendered by Mr. Schwartz on August 18, 1995 and September 1, 1995. As a result, Mr. Schwartz owns those stock options in their original form. The stock options vest once National Telephone & Communications, Inc. earns an aggregate of $15,000,000 in pre-tax profits in any four consecutive fiscal quarters until December 31, 1997. The exercise price is $11.00 per share and they are exercisable for a period of three years after they vest. The Company has agreed to file a registration statement under the Securities Act of 1933, as amended, covering the shares issued upon the exercise of the stock options within 90 days after all of the options are exercised, if they are exercised. A copy of the complete agreement is attached hereto as Exhibit B. The disclosures regarding this agreement are qualified in their entirety by the actual contents of the agreement. -4- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INCOMNET, INC. (Registrant) Date: June 7, 1996 By: /s/ Melvyn Reznick ---------------------------------- Melvyn Reznick, President and Chief Executive Officer -5- EX-99.A 2 EX99.A SETTLEMENT AGREEMENT THIS SETTLEMENT AGREEMENT (the "Agreement") is entered into as of this 9th day of May 1996 by and between Joel W. Greenberg, an individual ("Greenberg"), and Incomnet, Inc., a California corporation ("Incomnet" or the "Company"), with respect to the following facts. R E C I T A L S A. Greenberg has been the Chairman of the Board of Directors of Incomnet. Incomnet has three other directors. Certain members of the Board of Directors of Incomnet requested that Greenberg voluntarily agree to not stand for reelection to the Board of Directors of Incomnet. B. Greenberg was not nominated to stand for reelection as a member of the Board of Directors of Incomnet when the nominations were made on April 8, 1996. C. Greenberg asserted that he would file his own proxy statement and engage in a proxy contest in order to be elected to the Incomnet Board of Directors at the 1996 Annual Meeting of the Shareholders initially scheduled to be held on June 14, 1996. D. Greenberg owes Incomnet $44,424 in short-swing profits (the "Short- Swing Profits") pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Greenberg has agreed to pay the Short-Swing Profits to Incomnet pursuant to the terms and conditions of this Agreement. On May 6, 1996, Incomnet filed a lawsuit in the United States District Court in the Central District of California, entitled INCOMNET, INC. VS. JOEL W. GREENBERG, Case Number CV 96-3230 SVW (CTx) (the "Lawsuit"), to collect the Short-Swing Profits owed to Incomnet. E. In lieu of engaging in a potentially damaging proxy context and subjecting Incomnet to expensive litigation which could have delayed its annual meeting and diverted management's time, attention and resources away from the business operations of Incomnet and its subsidiaries, and in light of the negative impact such contest could have on the investment community and on the shareholders of Incomnet, Incomnet has decided to settle with Greenberg on the terms and conditions set forth in this Agreement. F. Greenberg has decided to settle with Incomnet on the terms and conditions of this Agreement rather than engage in an expensive and potentially damaging proxy contest with the other Board members of Incomnet. G. The members of the Board of Directors of Incomnet believe in their best business judgment that this Settlement Agreement is preferable to a proxy contest and is in the best interests of the Incomnet shareholders, especially in light of management's responsibilities relating to the financing and operation of Incomnet's and its subsidiaries' businesses. H. Greenberg presently holds vested options to purchase 25,000 shares of the common stock of Incomnet, which vested on April 5, 1996 and which entitle him to purchase those shares at an exercise price of $4.37 per share until April 5, 2001. I. Greenberg holds vested warrants to purchase 35,000 shares of the common stock of Incomnet which entitle him to purchase those shares at a price of $4.87 per share until December 31, 1997. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, the parties hereby agree as follows: 1. RESIGNATION AND AGREEMENT NOT TO ASSERT CONTROL In consideration for the compensation payable to Greenberg by Incomnet pursuant to Section 3 of this Agreement, Incomnet's release in Section 7 of this Agreement, and other valuable consideration, the sufficiency of which is acknowledged, Greenberg agrees not to seek nor to accept any position with Incomnet, whether as an officer, director, affiliate (as "affiliate" is defined in Rule 405 of the Securities Act of 1933, as amended (the "Act"), or otherwise, nor to seek or accept control of Incomnet or to participate in any group seeking or accepting control of Incomnet (as "control" is defined in Rule 405 of the Act), nor to initiate, participate in, encourage, finance or facilitate any proxy contest with the Incomnet Board of Directors, nor to solicit or participate in any way in the solicitation of proxies from the shareholders of Incomnet for any purpose, nor to acquire or to seek to acquire a number of shares of Incomnet's outstanding stock which would result in Greenberg being deemed to be an "affiliate" of Incomnet, for a period of eight years from the commencement date of this Agreement. Upon the execution of this Agreement by Incomnet and Greenberg, Greenberg hereby resigns as a director and Chairman of the Board of Directors of Incomnet, and as a director of National Telephone Communications, Inc. and Rapid Cast, Inc., as well as any other positions he may hold with those companies, effective as of May 9, 1996. 2. PAYMENT OF SHORT-SWING PROFITS Greenberg herewith pays to Incomnet Short-Swing Profits in the amount of $44,424. 3. COMPENSATION TO GREENBERG Incomnet hereby issues to Greenberg the following stock options and warrants to purchase the common stock of Incomnet: A. Incomnet hereby issues to Greenberg as of May 9, 1996 options to purchase 75,000 shares of Incomnet's common stock at an exercise price of $5.37 per share, exercisable at any time from May 9, 1996 until May 9, 2001. B. Incomnet hereby issues to Greenberg, as of May 9, 1996, warrants to purchase 100,000 shares of Incomnet's common stock at an exercise price of $6.00 per share. These warrants will vest and thereby become exercisable only on the date, if occurring on or before May 9, 1999, on which the last sale price of Incomnet's common stock quoted on the NASDAQ Small Capital Market, or the primary exchange or market on which Incomnet common stock is traded, has equaled or exceeded $6.00 per share for 20 trading days during a 40 consecutive trading day period. Once vested, the warrants will be exercisable at any time until May 9, 2001. - 2 - C. Incomnet hereby issues to Greenberg, as of May 9, 1996, warrants to purchase 50,000 shares of Incomnet's common stock at an exercise price of $7.00 per share. These warrants will vest and thereby become exercisable only on the date, if occurring on or before May 9, 1999, on which the last sale price of Incomnet's common stock quoted on the NASDAQ Small Capital Market, or the primary exchange or market on which Incomnet is traded, has equaled or exceeded $7.00 per share for 20 trading days during a 40 consecutive trading day period. Once vested, the warrants will be exercisable at any time until May 9, 2001. If Incomnet's common stock is not traded on a particular day, then the last sale price of Incomnet's stock on the previous trading day on which it did trade will be carried forward and assumed to be the last sale price on such day when it did not trade. The stock options referred to in Section 3(A) and Recital H of this Agreement will be included in Incomnet's 1996 Stock Option Plan to be presented for ratification by the Incomnet shareholders at the 1996 Annual Meeting and, if ratified, will be covered by a Form S-8 registration statement. Incomnet will file a registration statement under the Act registering for sale the shares purchased upon the exercise of, or underlying, the warrants referred to in Sections 3(B) and 3(C) of this Agreement within 90 days after all of the warrants referred to in Section 3(B) of this Agreement are exercised, and will thereafter seek to have the registration statement declared effective as soon as feasible. The registration statement will be amended from time to time as may be necessary to cause the registration statement to remain effective until such time as Greenberg sells all shares that he may purchase or such earlier time that Greenberg may sell these shares pursuant to Rule 144 of the Act. Greenberg shall provide written notice of exercise to Incomnet pursuant to Section 4.5 of this Agreement. Greenberg may pay the exercise price of the warrants referred to in Section 3(B) of this Agreement in cash or pursuant to a noninterest bearing promissory note payable to the Company on the effective date of the registration statement covering the shares and underlying shares issued or to be issued upon the exercise of the warrants referred to in Sections 3(B) and 3(C) of this Agreement; provided, that the shares issuable upon the exercise of any of said warrants will not be issued to Greenberg until the full exercise price for the shares is paid to Incomnet in cash. Notwithstanding anything else herein to the contrary, Greenberg may only sell the shares purchased upon the exercise of the warrants referred to in Sections 3(B) and 3(C) within the volume limitations prescribed by Rule 144(e)(1) of the Act as in effect on the date of this Agreement. The stock options and warrants referred to in Section 3 and Recital H of this Agreement are not assignable except to Greenberg's heirs in the event of his death or incompetency and may only be exercised by Greenberg or his heirs. In the event of a breach of Section 1 of this Agreement by Greenberg, all outstanding stock options and warrants described in Section 3 and Recital H of this Agreement will automatically be canceled; provided, that in the case where Greenberg does not write or cause any writings to be made in opposition to Incomnet's Board of Directors or management, then Greenberg will have a period of ten (10) days after receipt of written notice from Incomnet notifying him that he has breached Section 1 of this Agreement to cure said breach. 4. ADJUSTMENTS TO WARRANTS AND OPTIONS 4.1 SUBDIVISION OR COMBINATION OF INCOMNET COMMON STOCK If Incomnet at any time subdivides (by any stock or unit split, stock or unit dividend, recapitalization or otherwise) one or more classes of its outstanding shares of common stock into a greater number of shares, the exercise price (and the price, if any, at which such shares - 3 - must trade or sell before such warrant becomes exercisable) of the warrant and option in effect immediately prior to such subdivision shall be proportionately reduced and the number of shares of Incomnet common stock obtainable upon exercise of the warrant and option shall be proportionately increased. If Incomnet at any time combines (by reverse stock or unit split or otherwise) one or more classes of its outstanding shares of common stock into a smaller number of shares, the exercise price (and the price, if any, at which such shares must trade or sell before such warrant becomes exercisable) of the warrant and option in effect immediately prior to such combination shall be proportionately increased and the number of shares of Incomnet common stock obtainable upon exercise of the warrant and option shall be proportionately decreased. 4.2 REORGANIZATION, RECLASSIFICATION, RECAPITALIZATION, MERGER OR SALE Any recapitalization, reorganization, reclassification, consolidation, merger, or sale, directly or indirectly, of all or substantially all of Incomnet's assets to another person or entity or other transaction which is effected in such a way that holders of shares of Incomnet common stock are entitled to receive (either directly or upon subsequent liquidation) stock, units, securities or assets with respect to or in exchange for shares of Incomnet common stock is referred to herein as an "Organic Change." Any Organic Change pursuant to which no value is received by Incomnet but holders of shares of Incomnet common stock are entitled to receive (either directly or upon subsequent liquidation) stock, units, securities or assets with respect to or in exchange for Incomnet common stock and the collective ownership thereafter represented by the shares of Incomnet common stock and such additional stock, units, securities or other assets is substantially the same as the ownership represented by the shares of Incomnet common stock prior to such Organic Change, is referred to herein as an "Organic Reorganization." Prior to the consummation of any Organic Change (a) any provision of the warrants referred to in Sections 3(B) and 3(C) of this Agreement requiring that the shares of Incomnet common stock be selling or trading at a specified dollar amount shall no longer be applicable, such warrant being thereafter immediately exercisable, which exercise shall be subject to the consummation of such Organic Change, and (b) in the case of any Organic Change (other than an Organic Reorganization), such warrant must be exercised by the holder, if at all, prior to the consummation of such Organic Change or shall expire unexercised. With respect only to the warrants referred to in Sections 3(B) and 3(C) of this Agreement, prior to the consummation of any Organic Reorganization, Incomnet shall elect either to (i) adjust the exercise price for the warrant to the lesser of (a) the exercise price in effect prior to such Organic Reorganization or (b) the closing price for the Incomnet common stock immediately prior to the record date for such Organic Reorganization (in either case such warrant must be exercised by the holder prior to the consummation of such Organic Reorganization whereupon the warrant shall automatically terminate), or (ii) make fair and adequate provision to insure that the holder of the warrant shall thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Incomnet common stock immediately theretofore acquirable and receivable upon the exercise of such holder's warrants, such shares of stock, units, securities or assets as may be issued or payable with respect to or in exchange for the number of shares of Incomnet common stock immediately therefore acquirable and receivable upon the consummation of such Organic Reorganization if the holder had exercised the warrant immediately prior thereto. Incomnet shall notify the holder of the warrant in writing at least ten (10) days prior to the record date used for determining the holders of Incomnet's common shares who shall receive consideration or any property in the event of any Organic Change. - 4 - 4.3 STOCK OPTIONS SUBJECT TO STOCK OPTION PLAN The stock options referred to in Section 3(A) and Recital H of this Agreement are issued pursuant to and are subject to all of the terms and conditions of Incomnet's 1996 Stock Option Plan as adopted by Incomnet's Board of Directors and which shall be presented to the shareholders for ratification at Incomnet's 1996 Annual Meeting of the Shareholders. Such Stock Option Plan may be amended in the future from time to time pursuant to its terms. Any amendment to the Stock Option Plan will be applicable to the stock options referred to in Section 3(A) and Recital H of this Agreement in the same manner as it would be applicable to all other options issued under the Stock Option Plan. Except as otherwise provided herein, no further action is required by or on behalf of Incomnet in connection with the issuance of the Options or Warrants referred to in Section 3 of this Agreement. 4.4 NO IMPAIRMENT Until the expiration date of the warrants and options referred to in Section 3 of this Agreement, or the exercise of said options and warrants, Incomnet shall not, by amendment of its Articles of Incorporation or Bylaws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of said options and warrants, but shall at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be reasonably necessary or appropriate in order to protect the rights of the holder of said warrants and options against impairment. Without limiting the generality of the foregoing, Incomnet shall take all such action as may be necessary or appropriate in order that Incomnet may validly and legally issue fully paid and non-assessable shares of stock upon the exercise of said warrants and options. 4.5 EXERCISE OF THE WARRANTS AND OPTIONS In the absence of any formal instructions as to the method of exercise of the options or warrants, they may be exercised by notifying Incomnet in writing prior to the expiration of the option or warrant of Greenberg's exercise of the options or warrants. Such notification shall be to Incomnet's current address, unless Incomnet notifies Greenberg in writing of a change of address. At such time as Greenberg notifies Incomnet of his exercise, Incomnet shall make arrangements for the prompt issuance of shares being purchased and Greenberg shall make prompt payment pursuant to the terms contained in Incomnet's 1996 Stock Option Plan or pursuant to the terms contained in Section 3 hereof for the exercise of warrants, subject to the terms of this Agreement. The number of shares subject to the options or warrants shall be reduced automatically by the number of shares purchased pursuant thereto. 5. INDEMNIFICATION OF GREENBERG Incomnet hereby agrees to indemnify and hold Greenberg harmless from any liability, claims, damages, losses, expenses, judgments or settlements as a former director or agent of Incomnet to the maximum extent permissible by the general corporations law of California, and the Articles of Incorporation and Bylaws of Incomnet. Nothing contained herein shall be deemed or construed to limit the indemnification protections that Greenberg shall have as a former director of Incomnet, nor shall the provisions contained herein be construed or deemed to broaden or otherwise increase the right to indemnification that would otherwise be limited by statutory or case law, or by the Articles of Incorporation and the Bylaws of Incomnet. No - 5 - action shall be taken or initiated by the Board of Directors of Incomnet to limit the protections of the current indemnification provision available to Greenberg, unless required by law. 6. REIMBURSEMENT In the event that it is determined that Greenberg is not entitled to indemnification by Incomnet pursuant to Section 5 of this Agreement, then Greenberg is obligated to reimburse Incomnet for all amounts paid by Incomnet on behalf of Greenberg pursuant to the indemnification provisions of this Agreement. In the event that Greenberg is successful on the merits in the defense of any proceeding referred to in Section 5 of this Agreement, or any related claim, issue or matter, then Incomnet will indemnify and hold Greenberg harmless from all fees, costs and expenses actually incurred by him in connection with the defense of any such proceeding, claim, issue or matter which have not otherwise already been advanced to Greenberg by Incomnet in accordance with this Agreement. 7. RELEASE OF CLAIMS AND DISMISSAL OF LAWSUIT 7.1 RELEASE AND DISMISSAL Effective upon the execution of this Agreement by Incomnet and Greenberg and full payment of the Short-Swing Profits by Greenberg to Incomnet pursuant to the terms of this Agreement, Incomnet (a) fully and forever releases and discharges Greenberg from any and all claims, demands, obligations, losses, damages, or causes of action of any nature, whether based in contract, tort or any other theory of recovery, whether for compensatory or punitive damages, and whether known or unknown, that now exist or may hereafter accrue based on actions occurring prior to the effective date of this release, and relating to (i) any claim for which Greenberg would receive indemnification from Incomnet pursuant to Sections 5 or 6 of this Agreement, and (ii) any obligation by Greenberg to pay the Short-Swing Profits to Incomnet pursuant to Section 16(b) of the Exchange Act, and (b) agrees to dismiss the Lawsuit (referred to in Recital D hereof) with prejudice and execute any documents and take any action necessary or appropriate in order to effect such dismissal. Effective upon the execution of this Agreement by Greenberg and Incomnet, Greenberg hereby releases and forever discharges Incomnet and any of its past, present and future affiliates, employees, officers, directors, shareholders, attorneys, accountants, successors and predecessors, from any and all claims, demands, obligations, losses, damages, or causes of action of any nature, whether based in contract, tort or any other theory of recovery, whether for compensatory or punitive damages, and whether known or unknown, that now exist or may hereafter accrue based on actions occurring prior to the effective date of this release and relating to Incomnet or any of its subsidiaries. Nothing contained herein shall be deemed or construed to release Incomnet from its obligations pursuant to Section 5 or 6 hereunder. 7.2 REPRESENTATIONS AND AGREEMENTS The undersigned agree that these releases shall not be considered admissions by any party of any liability. The undersigned warrant that no promise or inducement has been offered except as herein set forth. The undersigned are of legal age and legally competent to execute this release and accept full responsibility therefor. The undersigned declare that the terms of this full and final release of the claims described in this Agreement have been completely read by the undersigned and are fully understood and voluntarily accepted for the purpose of making a full and final compromise and settlement. Incomnet and Greenberg represent and warrant - 6 - that they have not assigned any of their above referenced released claims to any third party. These releases will not extend to a breach of this Agreement by either party. The parties hereto further agree that all rights under Section 1542 of the Civil Code of California, and any similar law of any state or territory of the United States or other jurisdiction, are hereby expressly waived. Said Section reads as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." 8. AUTHORIZATION FOR AGREEMENT The Board of Directors of Incomnet has authorized Incomnet's officers to negotiate and enter into this Agreement with Greenberg. 9. INJUNCTIVE RELIEF 9.1 DAMAGES INADEQUATE Each party acknowledges that it would be impossible to measure in money the damages to the other party if there is a failure to comply with any covenants and provisions of this Agreement, and agrees that in the event of any breach of any covenant or provision, the other party to this Agreement will not have an adequate remedy at law. 9.2 INJUNCTIVE RELIEF It is therefore agreed that the other party to this Agreement who is entitled to the benefit of the covenants and provisions of this Agreement which have been breached, in addition to any other rights or remedies which they may have, shall be entitled to immediate injunctive relief to enforce such covenants and provisions, and that in the event that any such action or proceeding is brought in equity to enforce them, the defaulting or breaching party will not urge a defense that there is an adequate remedy at law. 10. WAIVERS If any party shall at any time waive any rights hereunder resulting from any breach by the other party of any of the provisions of this Agreement, such waiver is not to be construed as a continuing waiver of other breaches of the same or other provisions of this Agreement. Resort to any remedies referred to herein shall not be construed as a waiver of any other rights and remedies to which such party is entitled under this Agreement or otherwise. 11. SUCCESSORS AND ASSIGNS Each covenant and representation of this Agreement shall inure to the benefit of and be binding upon each of the parties, their personal representatives, assigns and other successors in interest. - 7 - 12. ENTIRE AND SOLE AGREEMENT This Agreement constitutes the entire agreement between the parties and supersedes all other agreements, representations, warranties, statements, promises and undertakings, whether oral or written, with respect to the subject matter of this Agreement. This Agreement may be modified only by a written agreement signed by all parties. 13. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of California, and any action hereunder to enforce, interpret or seek judicial relief under this Agreement may be brought either in the County of Los Angeles, State of California, or in the County of Cook, State of Illinois. 14. COUNTERPARTS This Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument. 15. ATTORNEYS' FEES AND COSTS In the event that either party must resort to legal action in order to enforce the provisions of this Agreement or to defend such action, the prevailing party shall be entitled to receive reimbursement from the nonprevailing party for all reasonable attorneys' fees and all other costs incurred in commencing or defending such action, or in enforcing this Agreement, including but not limited to post judgment costs. IN WITNESS WHEREOF, this Agreement has been entered into as of the date first above written. INCOMNET: INCOMNET, INC. By: -------------------------------------- Melvyn Reznick, President Date: ------------------------------------ GREENBERG: ----------------------------------------- Joel W. Greenberg Date: ------------------------------------ - 8 - EX-99.B 3 EX99.B EXHIBIT B UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK - ------------------------------------ RICHARD MORALES : PLAINTIFF, : : CV 96 0225 - VS - : INCOMNET, INC. AND : STIPULATION OF SETTLEMENT SAM D. SCHWARTZ, : DEFENDANTS. - ------------------------------------ IT IS HEREBY STIPULATED AND AGREED to by and between the Parties hereto and their respective attorneys, as follows: SETTLEMENT AGREEMENT THIS SETTLEMENT AGREEMENT (the "Agreement") is entered into this 5th day of June 1996 by and between Sam D. Schwartz, an individual ("Schwartz"), and Incomnet, Inc., a California corporation ("Incomnet"), with respect to the following facts. R E C I T A L S A. Schwartz and Incomnet have agreed upon the amount of short-swing profits ("Short-Swing Profits") owed by Schwartz to Incomnet pursuant to Section 16(b) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), as the result of disclosed purchases and sales of Incomnet's common stock made by Schwartz from December 27, 1993 until September 1, 1995 while he was the President, Chief Executive Officer and Chairman of the Board of Directors of Incomnet. B. Schwartz and Incomnet have been named as defendants in the pending lawsuit entitled RICHARD MORALES VERSUS INCOMNET, INC. AND SAM D. SCHWARTZ, Case Number CV 96-0225, filed in the United States District Court in the Southern District of New York (the "Court") in January 1996 (the "Lawsuit"). C. The short-swing profits alleged in the Lawsuit by plaintiff (the "Plaintiff") are equal to the Short-Swing Profits agreed upon by Incomnet and Schwartz in this Agreement. D. Schwartz presently owns approximately 1,998,500 shares of Incomnet's Common Stock. Schwartz has no other significant liquid assets from which to pay Short-Swing Profits, and is subject to significant bank debt, other monetary obligations, and contingent liabilities, including but not limited to claims made in a pending class action lawsuit and related lawsuits naming Incomnet and Schwartz as defendants, and in an ongoing investigation by the Securities and Exchange Commission. Incomnet, in its business judgment, believes that the terms and conditions for payment of the Short-Swing Profits set forth in this Agreement are the best and most efficient means of collecting the Short-Swing Profits from Schwartz. E. This Agreement is entered into by Incomnet and Schwartz for the purpose of settling all claims made in the Lawsuit and Incomnet's claims for payment of the Short-Swing Profits by Schwartz. This Agreement is also made in compliance with the Severance Agreement entered into by Schwartz and Incomnet, dated November 30, 1995, and in particular as a resolution of all issues under Section 5 of said Severance Agreement (the "Severance Agreement"). This Agreement and the scope of the term "Short-Swing Profits" covers the transactions disclosed by Schwartz on Form 4 and Form 5 filings with the Securities and Exchange Commission for the period from December 27, 1993 until September 1, 1995 (the "Period"). Any undisclosed transactions would be subject to an entirely separate calculation and, if appropriate, additional obligation by Schwartz pursuant to Section 16(b) of the Exchange Act outside the scope of this Agreement. - 1 - NOW THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged by the parties, the parties hereby agree as follows: 1. AMOUNT OF SHORT-SWING PROFITS AND INTEREST Incomnet and Schwartz agree that the amount of the Short-Swing Profits is $2,128,872. The outstanding Short-Swing Profits accrue interest at the simple rate equal to 8.25% per annum through April 30, 1996 and thereafter equal to the prime rate of interest quoted from time to time by the Bank of America in Los Angeles, California (the "Prime Rate"). The accrued interest on the outstanding Short-Swing Profits as of May 1, 1996 is $174,976. Incomnet hereby agrees to credit Schwartz with $36,000 of interest at 8% per annum which he previously waived on his $900,000 convertible note while it was outstanding, issued to him on February 8, 1995. Therefore, as of May 1, 1996, the total outstanding liability to Incomnet for Short-Swing Profits plus interest is $2,267,848, and this liability will thereafter bear simple interest at the Prime Rate, as adjusted from time to time. Schwartz agrees to pay the amount of Short-Swing Profits plus interest to Incomnet in accordance with the terms of this Agreement. Schwartz represents and warrants that he has disclosed on Form 4 and Form 5 filings with the Securities and Exchange Commission all transactions made by him or for his benefit in Incomnet's stock during the Period. 2. PAYMENT OF SHORT-SWING PROFITS Schwartz agrees to pay the Short-Swing Profits plus accrued but unpaid interest thereon in cash or pursuant to the redemption of his shares of Incomnet Common Stock, based on the average of the last sale price of Incomnet's Common Stock on the NASDAQ on the five trading days immediately preceding the date of his elected redemption, according to the following schedule, subject to Incomnet's rights in Section 4 of this Agreement: At least 30% of the total outstanding principal liability plus total accrued but unpaid interest on the Effective Date of this Agreement, as provided and as hereafter defined in Section 5 of this Agreement, at least 10% of the total outstanding principal liability plus total accrued but unpaid interest 90 days after the Effective Date, at least 10% of the total outstanding principal liability plus total accrued but unpaid interest 180 days after the Effective Date, at least 10% of the total outstanding principal liability plus the accrued but unpaid interest 270 days after the Effective Date, at least 10% of the total outstanding principal liability plus total accrued but unpaid interest 360 days after the Effective Date, at least 10% of the total outstanding principal liability plus total accrued but unpaid interest 450 days after the Effective Date, at least 10% of the total outstanding principal liability plus total accrued but unpaid interest 540 days after the Effective Date, and the balance of the total outstanding principal liability plus total accrued but unpaid interest on or before a date 630 days after the Effective Date. Incomnet may in its sole discretion at any time require that Schwartz sell any shares which would otherwise be tendered to Incomnet for redemption and cancellation pursuant to the terms of this Agreement, and remit the amount owed by Schwartz to Incomnet in cash as payment on Schwartz's obligations to Incomnet hereunder in lieu of redeeming and cancelling said shares. Schwartz covenants to cooperate fully with Incomnet's requests for sales of shares in lieu of redemption and cancellation. Schwartz may prepay the Short-Swing Profits plus interest to Incomnet in whole or in part at any time without penalty or premium. Notwithstanding anything else herein to the contrary, if for any reason by 630 days after the Effective Date Incomnet has not received full payment of the Short-Swing Profits plus interest from Schwartz either in cash or through the redemption of shares and the Note pursuant to the terms of this Agreement, then Incomnet is entitled to have additional shares redeemed and cancelled or sold in accordance with this Agreement, either from the Escrow Account (as defined in Section 4 herein) or, if sufficient shares are not available in the Escrow Account, from additional shares tendered by Schwartz into the Escrow Account for the benefit of Incomnet. - 2 - 3. SECURITY FOR THE PAYMENT OF SHORT-SWING PROFITS As a first priority perfected security interest for Schwartz's obligation to pay Short-Swing Profits to Incomnet under this Agreement, Schwartz agrees to deposit 400,000 shares of the Common Stock of Incomnet, with duly executed stock transfer powers containing certified signatures, into an escrow account jointly administered by legal counsel for Incomnet and legal counsel for Schwartz (the "Escrow Account"), in addition to and at the same time that the first installment on the Short-Swing obligation is paid to Incomnet pursuant to Section 2 of this Agreement. Said legal counsel will follow the written instructions of Schwartz, subject to his minimum obligations to Incomnet in this Agreement, including but not limited to Schwartz's obligation to sell shares and remit cash proceeds in lieu of having the shares redeemed and cancelled as provided in Section 2 of this Agreement. If the last sale price quoted for Incomnet's Common Stock on the NASDAQ (or other public trading market if not then traded on the NASDAQ) is below $4.50 per share for ten consecutive trading days, then Schwartz is obligated to deposit additional shares of Incomnet's Common Stock, duly endorsed and certified, into the Escrow Account on an ongoing basis so that the value of the shares in the Escrow Account equals or exceeds the outstanding balance of Short-Swing Profits plus Interest owed to Incomnet. If Schwartz does not make said deposit within ten days after his obligation to do so, Incomnet may immediately redeem and cancel the balance of the shares held in the Escrow Account, crediting Schwartz with payment equal to the value of said shares based on the average last sale price of the stock on the NASDAQ (or other public trading market if not then traded on the NASDAQ) during the five trading days immediately preceding said redemption, and Schwartz will continue to owe the balance of any remaining unpaid Short-Swing Profits plus interest. In the event that Schwartz voluntarily files, or is subject to an involuntary filing of, a petition for bankruptcy or similar proceeding in any federal or state court, then Incomnet will have the right to immediately redeem and cancel the Note and all shares remaining in the Escrow Account, or at Incomnet's written election, to immediately have said legal counsel sell all said shares for the benefit of Incomnet and remit the net proceeds to Incomnet as soon as they are available. At all times under this Agreement, payments by Schwartz will be credited first to outstanding unpaid interest and then to the outstanding principal balance of Short-Swing Profits. 4. REVERSAL OF REDEMPTION AND CANCELLATION OF STOCK OPTIONS The cancellation and redemption of the 250,000 stock options tendered by Schwartz on August 18, 1995 and September 1, 1995 to the Company as payment on the Short-Swing Profit obligation is hereby revoked and said stock options are deemed outstanding in full as of said date. The terms and conditions of said options are as they were on the respective tender dates (i.e. the options will vest and thereby become exercisable upon National Telephone Communications, Inc. earning an aggregate of $15,000,000 in pre-tax profits in any four consecutive fiscal quarters until December 31, 1997, the exercise price will be $11.00 per share, and the options will be exercisable for a period of three years after they vest). The cancellation of the redemption of the options shall not be deemed to be a transaction under Section 16(b) of the Exchange Act, and is made as consideration for the overall facilitation of the settlements embodied in this Agreement. Incomnet will file a registration statement under the Securities Act of 1933, as amended, covering the shares purchased upon the exercise of the options within 90 days after all of the options have been exercised, and will thereafter seek to have the registration statement declared effective as soon as feasible. Schwartz may pay - 3 - the exercise price of the options in cash or pursuant to a noninterest bearing promissory note payable to the Company on the effective date of the registration statement covering said shares; provided, that the shares issuable upon the exercise of the options will not be issued to Schwartz until the full exercise price is paid in cash in full. 5. CONDITIONS TO EFFECTIVENESS OF AGREEMENT This Agreement will become effective upon its execution by Incomnet and Schwartz and its approval by the Court, provided, that this Agreement shall be effective as between Schwartz and Incomnet even if the Lawsuit is dismissed without Court approval of this Agreement (the "Effective Date"). 6. SATISFACTION OF THE SEVERANCE AGREEMENT The effectiveness of this Agreement will be deemed to satisfy and supersede the provisions of Section 5 of the Severance Agreement. 7. RELEASE OF CLAIMS AND DISMISSAL OF LAWSUIT 7.1 INCOMNET AND SCHWARTZ Effective on the date of full payment of the Short-Swing Profits by Schwartz to Incomnet pursuant to the terms of this Agreement, Incomnet fully and forever releases and discharges Schwartz from any and all claims, demands, obligations, losses, damages, or causes of action of any nature relating to any obligation by Mr. Schwartz to pay the Short-Swing Profits accrued during the Period to Incomnet pursuant to Section 16(b) of the Securities and Exchange Act of 1934, as amended. Effective on the date of the approval of this Agreement by Court order, Schwartz hereby releases and forever discharges Incomnet and any of its past, present and future affiliates, employees, officers, directors, shareholders, attorneys, accountants, successors and predecessors, from any and all claims, demands, obligations, losses, damages, or causes of action of any nature relating to Section 5 of the Severance Agreement and the payment of Short-Swing Profits. 7.2 THE LAWSUIT Effective on the date of the approval of this Agreement by Court order, (a) Plaintiff fully and forever releases and discharges Incomnet and Schwartz from any and all claims, demands, obligations, losses, damages, or causes of action of any nature relating to any obligation by Schwartz to pay the Short-Swing Profits accrued during the period to Incomnet pursuant to Section 16(b) of the Securities and Exchange Act of 1934, as amended, and (b) Plaintiff agrees to dismiss the Lawsuit with prejudice, and to execute any documents and take any action necessary or appropriate in order to effect such dismissals. 7.3 REPRESENTATIONS AND AGREEMENTS The undersigned agree that these releases shall not be considered admissions by any party of any liability or wrongdoing. The undersigned warrant that no promise or inducement has been offered except as herein set forth. The undersigned are of legal age and legally competent to execute this release and accept full responsibility therefor. The undersigned declare that the terms of this full and final release of claims for payment of the Short-Swing Profits have been completely read by the undersigned and are fully understood and voluntarily accepted for the purpose of making a full and final compromise and settlement. Incomnet, - 4 - Schwartz and Plaintiff represent and warrant that they have not assigned any of their above referenced released claims to any third party. 8. INJUNCTIVE RELIEF 8.1 DAMAGES INADEQUATE Each party acknowledges that it would be impossible to measure in money the damages to the other party if there is a failure to comply with any covenants and provisions of this Agreement, and agrees that in the event of any breach of any covenant or provision, the other party to this Agreement will not have an adequate remedy at law. 8.2 INJUNCTIVE RELIEF It is therefore agreed that the other party to this Agreement who is entitled to the benefit of the covenants and provisions of this Agreement which have been breached, in addition to any other rights or remedies which they may have, shall be entitled to immediate injunctive relief to enforce such covenants and provisions, and that in the event that any such action or proceeding is brought in equity to enforce them, the defaulting or breaching party will not urge a defense that there is an adequate remedy at law. 9. WAIVERS If any party shall at any time waive any rights hereunder resulting from any breach by the other party of any of the provisions of this Agreement, such waiver is not to be construed as a continuing waiver of other breaches of the same or other provisions of this Agreement. Resort to any remedies referred to herein shall not be construed as a waiver of any other rights and remedies to which such party is entitled under this Agreement or otherwise. 10. SUCCESSORS AND ASSIGNS Each covenant and representation of this Agreement shall inure to the benefit of and be binding upon each of the parties, their personal representatives, assigns and other successors in interest. 11. ENTIRE AND SOLE AGREEMENT This Agreement constitutes the entire agreement between the parties and supersedes all other agreements, representations, warranties, statements, promises and undertakings, whether oral or written, with respect to the subject matter of this Agreement. This Agreement may be modified only by a written agreement signed by all parties. 12. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of California, and the venue for any action hereunder shall be in the appropriate forum in the County of Los Angeles, State of California. 13. COUNTERPARTS This Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument. - 5 - 14. ATTORNEYS' FEES AND COSTS In the event that either party must resort to legal action in order to enforce the provisions of this Agreement or to defend such action, the prevailing party shall be entitled to receive reimbursement from the nonprevailing party for all reasonable attorneys' fees and all other costs incurred in commencing or defending such action, or in enforcing this Agreement, including but not limited to post judgment costs. IN WITNESS WHEREOF, this Agreement has been entered into as of the date first above written. INCOMNET: INCOMNET, INC. By: --------------------------------- Melvyn Reznick, President Date: ------------------------------- ------------------------------------ Mark J. Richardson, Esq. Attorney for Incomnet, Inc. 1299 Ocean Avenue, Suite 900 Santa Monica, California 90401 (310) 393-9992 SCHWARTZ: ----------------------------------------- Sam D. Schwartz Date: ------------------------------------ SHEPPARD, MULLIN, RICHTER AND HAMPTON LLP Attorneys for Sam D. Schwartz 333 South Hope Street, 48th Floor Los Angeles, California 90071-1448 BY: -------------------------------------- James L. Sanders, Esq. PLAINTIFF: ACKNOWLEDGED AND AGREED: ----------------------------------------- Richard Morales ----------------------------------------- David Lopez, Esq. Attorney for Richard Morales 171 Edge of Woods Road P.O. Box 323 Southampton, New York 11968 SO ORDERED: - --------------------------------- U.S. DISTRICT JUDGE - 6 - -----END PRIVACY-ENHANCED MESSAGE-----