-----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, WElqzTnsqkRypviSNEc48lRYExoze7iI2z2V7tDgBFvfqSY+09AnBpmG8bWfvzeQ Hh03tEcbKGCDHzdv4Oo3cA== 0000912057-97-017280.txt : 19970514 0000912057-97-017280.hdr.sgml : 19970514 ACCESSION NUMBER: 0000912057-97-017280 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970502 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970513 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: 97602848 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: 21031 VENTURA BLVD STREET 2: SUITE 1100 CITY: WOODLAND HILLS STATE: CA ZIP: 91364 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 12, 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: May 2, 1997 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: 3 1 TABLE OF CONTENTS ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS . . . . . . . . . . . . . . . . 3 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Schedule of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Products and Services . . . . . . . . . . . . . . . . . . . . . . . . . 4 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . 4 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS YEAR ENDED JUNE 30, 1996 Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 6 Financial Statements: Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Statement of Income and Deficiency . . . . . . . . . . . . . . . . . 8 Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 9 Notes to Financial Statements . . . . . . . . . . . . . . . . . 10-14 SIX MONTHS ENDED DECEMBER 31, 1996 Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . 15 Financial Statements: Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Statement of Income and Deficiency . . . . . . . . . . . . . . . . . 17 Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . 18 Notes to Financial Statements . . . . . . . . . . . . . . . . . 19-23 PRO FORMA FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 24 EXHIBITS Form of Stock Purchase Agreement . . . . . . . . . . . . . . . . . . . . A Form of Promissory Note . . . . . . . . . . . . . . . . . . . . . . . . B Employment Agreement Between California Interactive Computing, Inc. and Jerry C. Buckley . . . . . . . . . . . . . . . . . . . . . . . . C 2 GENERAL On May 2, 1997, Incomnet, Inc. ("Company") acquired 88,370.5 shares representing 100% of the outstanding common stock of California Interactive Computing, Inc. ("CIC"), a private corporation headquartered in Valencia, California. The Company agreed to pay a total of $1,758,302 in cash, payable over a five year period of time. See Item 5. Other Information - Acquisition of California Interactive Computing, Inc. - Schedule of Payments." In addition, the Company has agreed to assume the outstanding balance of $418,527.91 for loans to CIC made by two of CIC's shareholders. The Company has also signed an employment agreement for a period of two years with Jerry C. Buckley, CIC's former president and CEO, pursuant to which it will pay Mr. Buckley $10,000 per month in consideration for Mr. Buckley's services as the Director of Strategic Planning for CIC. The Company has also agreed to provide 10,000 and 20,000 stock options, respectively, in CIC to two former shareholders when a plan is established for CIC's officers, directors, employees and key consultants. CIC is engaged in the development and marketing of software that is used to process insurance-related claims, including workers compensation, disability, general medical and property & casualty. Its software is leased to companies who provide their own insurance and claims administration, to insurance companies, and to third-party administrators who process claims for either self-insured companies or insurance companies. CIC was incorporated in 1977 in California and has provided software for claims processing for 20 years. SCHEDULE OF PAYMENTS At the close of the transaction on May 2, 1997, the Company paid a total of $249,818 to the former shareholders of CIC, $84,818 of which was paid to acquire CIC's stock and $165,000 of which was utilized to pay down loans to two former CIC shareholders. The Company has signed promissory notes in the aggregate principal amount of $1,927,016.91 to four former shareholders of CIC to repay the balance of the loans owed by CIC ($253,527.91 as of May 2, 1997) and to pay the balance of the price to purchase their CIC stock by the Company ($1,674,489 as of May 2, 1997). These notes bear interest at the simple rate of 8% per annum. The stock of CIC purchased by the Company is held in an escrow account until the promissory notes issued by the Company to CIC former shareholders are repaid in full. The outstanding balances owed on these notes can be repaid at any time, which would lower the total amount of scheduled payments, including interest. During the first year after the acquisition, the Company has agreed to pay $27,859 to one shareholder in 12 equal monthly payments of principal and interest. During the 13th - 24th month after the acquisition, the Company has contracted to pay a total of $591,175 of principal and interest, of which $369,136 is scheduled to be paid for the purchase of CIC stock from four former shareholders and of which $222,039 is scheduled to pay down the outstanding loans owed by CIC to two former shareholders. During the 25th - 36th month after the acquisition, the Company has contracted to pay a total of $559,662 of principal and interest, of which $514,662 is scheduled to be paid for the purchase of CIC stock from four former CIC shareholders and of which $45,000 is scheduled to pay off the remaining balance of the loans owed by CIC to two former CIC shareholders. During the 37th - 48th month after the acquisition, the Company is contracted to pay a total of $574,572 of principal and interest for the purchase of CIC stock from four former shareholders. During the 49th - 60th month after the acquisition, the Company is contracted to pay a total of $514,662 of principal and interest for the purchase of CIC stock from four former shareholders. 3 PRODUCTS AND SERVICES CIC develops and markets a trademarked line of software products designed to handle insurance-related claims processing. Insurance-related products include GenCOMP-TM-, GenMED-TM-, GenDIS-TM-, GenPAC-TM-, GenRISK-TM-, GenIRIS-TM- and Top Rate-TM-. In addition, CIC also offers several computer and service-related products, including GenARS-TM-, which is an optical disk-based information storage and retrieval system, and GenSERVE-TM-, which is a maintenance and service program customers. GenCOMP, GenMED, GenDIS and GenPAC automate claims processing for workers' compensation, general medical, disability and property & casualty, respectively. Top Rate is used to rate the strength of a disability claim in the State of California. DIRECTORS AND OFFICERS The former directors of CIC tendered their resignation, effective at the acquisition. The Company has named Melvyn Reznick, its President and CEO, Stephen A. Caswell, its Vice President and Corporate Secretary, and Jerry C. Buckley, CIC's former President and CEO, to serve on CIC's Board of Directors. Mr. Reznick will serve as Chairman, President, CEO and CFO of CIC. Mr. Caswell will serve as Executive Vice President and Secretary of CIC. Mr. Buckley will serve as a director. CIC has engaged Mr. Buckley in an employment contract for a period of two years at a rate of $120,000 per year. During the term of his employment agreement, Mr. Buckley will serve as the Director of Strategic Planning for CIC. CIC has no other employment agreements. The Company has named Eric Hoffberg, Michael Ewing and Nora Kenner as officers of CIC. Mr. Hoffberg will serve as General Manager of CIC. Mr. Ewing will serve as Vice President of Marketing and Ms. Kenner will serve as Vice President of Consulting Services. Prior to joining CIC at the acquisition, Michael Ewing served as the Regional Director of Channel Sales for Business Objects (Newport Beach, CA) from May 1996 through May 1997. Prior to that, he served as Regional Manager of Sales for VMark Software (Irvine, CA) from October 1990 through May 1996. In 1978, he received a B. A. in Public Administration from UCLA. Eric Hoffberg has been employed at CIC since January 1990 and has more than 20 years of experience in the insurance industry. From January 1991 to his promotion to General Manager upon the acquisition of CIC by the Company, he served as CIC's Vice President of System Services. From January 1990 to December 1990, he served as the Director of Systems & Programming for CIC. Prior to joining CIC, he worked as Assistant Vice President & MIS Director for a subsidiary of Continental Insurance from 1988 to 1990. Mr. Hoffberg is married to Nora Kenner. In 1976, he received a B. A. in Business Administration from Long Beach State University in 1976. Nora Kenner has been employed by CIC since 1980 when she joined as an administrative assistant. From January 1991 to her promotion to Vice President of Consulting Services upon the acquisition of CIC by the Company, she served as Assistant Vice President of Consulting Services. Prior to 1991, she served in various capacities for CIC, including Director of Consulting Services from 1988 to 1991. Ms. Kenner is married to Mr. Hoffberg. In 1979, she received a B.A. in Biology from UCLA. 4 Mr. Buckley was one of the founders of CIC in 1977 and has served as CIC's President and CEO since CIC's inception. Prior to founding CIC, he was employed in various positions in software development and engineering by Lockheed. He received a B.A. in Geology from USC in 1960. 5 INDEPENDENT AUDITORS' REPORT Board of Directors California Interactive Computing, Inc. Valencia, California We have audited the accompanying balance sheet of California Interactive Computing, Inc. as of June 30, 1996, and the related statements of income and deficiency and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of California Interactive Computing, Inc. as of June 30, 1996, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ STONEFIELD JOSEPHSON - ------------------------- ACCOUNTANCY CORPORATION Santa Monica, California April 21, 1997 6 CALIFORNIA INTERACTIVE COMPUTING, INC. BALANCE SHEET - JUNE 30, 1996 ASSETS CURRENT ASSETS: Cash $ 40,002 Accounts receivable, net of allowance for doubtful accounts of $12,000 457,962 Prepaid expenses 3,205 ------------- Total current assets $ 501,169 PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization 138,108 DEPOSITS 11,842 ------------- Total assets $ 651,119 ------------- LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 336,142 Deferred revenue 117,203 Current portion of notes payable, officer-stockholders 37,199 Total current liabilities $ 490,544 ------------- NOTES PAYABLE, OFFICER-STOCKHOLDERS 399,554 STOCKHOLDERS' DEFICIENCY: Common stock; 200,000 shares authorized, 88,371 shares issued and 111,630 shares outstanding 5,700 Deficiency (244,679) ------------- Total stockholders' deficiency (238,979) ------------- $ 651,119 ------------- See accompanying independent auditors' report and notes to financial statements. 7 CALIFORNIA INTERACTIVE COMPUTING, INC. STATEMENT OF INCOME AND DEFICIENCY YEAR ENDED JUNE 30, 1996 AMOUNT PERCENT -------------- ------- NET SALES $ 2,602,559 100.0% COST OF SALES 1,565,253 60.1 -------------- ----- GROSS PROFIT 1,037,306 39.9 OPERATING EXPENSES 936,245 36.0 -------------- ----- INCOME FROM OPERATIONS 101,061 3.9% -------------- ----- ----- DEFICIENCY, beginning of year, as previously reported (147,405) PRIOR PERIOD ADJUSTMENT FOR CORRECTION OF ERRORS (198,335) -------------- DEFICIENCY, beginning of year, as restated (345,740) -------------- DEFICIENCY, end of year $ (244,679) -------------- See accompanying independent auditors' report and notes to financial statements. 8 CALIFORNIA INTERACTIVE COMPUTING, INC. STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 1996 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Net income $ 101,061 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES - depreciation and amortization $ 46,320 CHANGES IN ASSETS AND LIABILITIES: (INCREASE) DECREASE IN ASSETS: Accounts receivable (145,042) Prepaid expenses 3,730 Deposits 7,726 INCREASE (DECREASE) IN LIABILITIES: Accounts payable and accrued expenses 184,949 Deferred revenue (93,132) -------------- Total adjustments 4,551 -------------- Net cash provided by operating activities 105,612 CASH FLOWS USED FOR INVESTING ACTIVITIES - payments to acquire property and equipment (44,380) CASH FLOWS USED FOR FINANCING ACTIVITIES - payments on notes payable, officer-stockholders (50,803) -------------- NET INCREASE IN CASH 10,429 CASH, beginning of year 29,573 -------------- CASH, end of year $ 40,002 -------------- -------------- See accompanying independent auditors' report and notes to financial statements. 9 CALIFORNIA INTERACTIVE COMPUTING, INC. NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BUSINESS ACTIVITY: The Company sells computer hardware and software and offers installation, consulting, and repairs and maintenance services to its customers throughout the United States. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUE: Unless otherwise indicated, the fair values of all reported assets and liabilities which represent financial instruments (none of which are held for trading purposes) approximate the carrying values of such amounts. CASH EQUIVALENTS: For purposes of the statement of cash flows, cash equivalents include all highly liquid debt instruments with original maturities of three months or less which are not securing any corporate obligations. PROPERTY AND EQUIPMENT: Property and equipment are valued at cost. Depreciation and amortization are being provided by use of the straight-line and accelerated methods over the estimated useful lives of the assets. DEFERRED REVENUE RELATING TO MAINTENANCE SERVICES: The Company offers maintenance services which, in most instances, cover a period of less than one year. The amount of deferred revenue, as presented in the financial statements, represents amounts collected from maintenance services which have not yet been rendered as of June 30, 1996. (2) INCOME TAXES: Effective July 1, 1995, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes", the effect of which was immaterial to the Company's financial statements. DEFERRED INCOME TAXES Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of the deferred income tax assets and liabilities are as follows: 10 CALIFORNIA INTERACTIVE COMPUTING, INC. NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 1996 Deferred tax assets: Net operating loss carryforwards $ 137,766 Deferred revenue 46,881 ---------- Subtotal 184,647 Deferred tax liability - difference between cash and accrual method of accounting 48,728 ---------- Subtotal 135,919 Valuation allowance (135,919) ---------- Net deferred taxes $ - ---------- ---------- Income tax benefits are recognized only when their realization is assured. Accordingly, potential future income tax benefits resulting from net operating losses incurred to date are not reflected in the financial statements. NET OPERATING LOSS CARRYFORWARDS The Company has available $344,416 in federal net operating loss carryforwards, which can be used to offset future taxable income until expiration in various years through 2004. The potential tax benefit related to these carryforwards will not be recognized in income by the Company until realized, and therefore an allowance of $135,919, equal to the estimated amount of the net deferred tax assets and liability booked by the Company, has been established at June 30, 1996. Upon change in control (see note 10), there will be significant limitations on the utilization of this carryforward. PAYMENTS Income taxes paid amounted to $7,918 during the year ended June 30, 1996. (3) ACCOUNTS RECEIVABLE: Included in accounts receivable at June 30, 1996 is approximately $43,000 due from one customer. Sales to this customer amounted to approximately $369,000 for the year ended June 30, 1996. (4) PROPERTY AND EQUIPMENT: A summary is as follows: Computers $ 536,900 Office furniture and equipment 275,478 --------- 812,378 Less accumulated depreciation and amortization 674,270 --------- $ 138,108 --------- --------- 11 CALIFORNIA INTERACTIVE COMPUTING, INC. NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 1996 (5) ACCOUNTS PAYABLE AND ACCRUED EXPENSES: A summary is as follows: Purchases and services $ 137,800 Accrued vacation 104,072 Accrued salaries and wages 50,416 401(k) contributions payable 20,827 Customer deposit 10,000 Payroll taxes payable 3,984 Sales tax payable 3,513 Income tax payable 3,500 Accrued commission and other expenses 2,030 --------- $ 336,142 --------- Approximately $87,000 of the accounts payable and accrued expenses balance is owed to two suppliers. Purchases from these suppliers amounted to approximately $230,000 for the year ended June 30, 1996. Also included in accounts payable and accrued expenses is approximately $71,000 payable to related parties who are also officer-stockholders of the Company. (6) 401(K) CONTRIBUTORY PROFIT SHARING PLAN: The Company initiated a contributory 401(k) profit sharing plan effective January 1, 1996, whereby eligible employees can make contributions. The employer may make annual discretionary contributions. Employer contributions for the year ended June 30, 1996 amounted to $8,139. At June 30, 1996, the Company is holding $17,464 in employee deferrals. These amounts are included in accounts payable and accrued expenses. At June 30, 1996, the Plan's net assets available for distribution amounted to approximately $282,000. (7) NOTES PAYABLE, OFFICER-STOCKHOLDERS: A summary is as follows: 12% note payable, officer-stockholder, secured by 58,333 shares of the Company's common stock, payable in monthly installments of $4,000, including interest, through August 1, 2007 $ 294,225 12% note payable, officer-stockholder, secured by 25,000 shares of the Company's common stock, payable in monthly installments of $3,340, including interest, through February 1, 2001 142,528 --------- 436,753 Less current maturities 37,199 --------- $ 399,554 --------- --------- 12 CALIFORNIA INTERACTIVE COMPUTING, INC. NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 1996 The following is a schedule, by years, of principal payments due under the notes: Year ending June 30, 1997 $ 37,199 1998 42,417 1999 47,990 2000 53,858 2001 46,639 Beyond five years 208,650 --------- $ 436,753 --------- --------- Total interest paid amounted to $58,213 for the year ended June 30, 1996, of which $56,946 relates to the above notes payable, officer-stockholders and the balance represents interest paid to other parties. (8) COMMITMENTS: The following is a schedule by years of future minimum rental payments required under operating leases that have noncancellable lease terms in excess of one year as of June 30, 1996: TOTAL OFFICE * EQUIPMENT Year ending June 30, 1997 $ 91,380 $ 71,784 $ 19,596 1998 91,380 71,784 19,596 1999 91,380 71,784 19,596 2000 31,560 11,964 19,596 2001 3,898 - 3,898 --------- --------- -------- $ 309,598 $ 227,316 $ 82,282 --------- --------- -------- --------- --------- -------- * The office lease is personally guaranteed by an officer-stockholder. Rent expense under all leases amounted to $89,955 for the year ended June 30, 1996. (9) PRIOR PERIOD ADJUSTMENT: The beginning of the year deficiency has been restated for correction of errors in the recording of maintenance service fees and accrued vacation. (10)ACQUISITION BY INCOMNET, INC.: On February 26, 1997, Incomnet, Inc. ("Incomnet") entered into a Letter of Intent to acquire a controlling interest in the Company ("CIC") on terms set as follows: - Incomnet will acquire 100% of the holdings in CIC of shareholders Jerry Buckley, Ralph Flygare, Robert Reisbaum, E.V. Schmidt and the remaining minority investors in separate transactions. - Incomnet will purchase the stock CIC owned by Jerry Buckley and Ralph Flygare for total consideration of $608,290 per person, including interest, to be paid in monthly installments 13 CALIFORNIA INTERACTIVE COMPUTING, INC. NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 1996 commencing 12 months after the transaction closes ("Close") as follows: $10,000 per month for the first 12 months and $13,563.58 for the next 36 months. - Upon the Close, Incomnet will assume the loan owed by CIC to Mr. Buckley of $300,000 and the loan owed by CIC to Mr. Flygare of $150,000. Incomnet will immediately pay off one-half of the outstanding loan balances to Mr. Buckley and Mr. Flygare. Mr. Buckley will receive $150,000 and Mr. Flygare will receive $75,000. Commencing 12 months after the Close, Incomnet will pay off the balance of the loan in 12 monthly installments of $13,500 each to Mr. Buckley and $6,750 each to Mr. Flygare, commencing one year after the Close, based upon loan balances of $300,000 owed to Mr. Buckley and $150,000 owed to Mr. Flygare. Payments will be adjusted accordingly should the balances be different. - Incomnet will provide to Mr. Buckley a consulting contract for a period of two (2) years at an annual fee of $120,000, plus the Company's standard medical coverage now being provided to Mr. Buckley. The contract will require Mr. Buckley's services for 40 hours per week. Payment of the contract will be spread over four years at a rate of $5,000 per month. - Incomnet will reorganize CIC's Board of Directors. Jerry Buckley will be appointed as a Board member, along with two members named by Incomnet. - Incomnet will agree to invest into CIC approximately $750,000 over a period of 18 months to expand CIC's sales and marketing and software development capabilities. - Incomnet will agree to create a stock option program for the directors, employees and key consultants to CIC that will allow such personnel to participate in the appreciation of the value of CIC. The above offer is subject to the following contingencies: - The stock purchase transactions are consummated with Robert Reisbaum, E.V. Schmidt and the remaining minority investors. - Eric Hoffberg agrees to serve as the General Manager of CIC. - Mike Ewing agrees to serve as CIC's Vice President of Sales and Marketing, reporting to Mr. Hoffberg. - CIC undergoes financial and software audits by firms named by Incomnet to verify CIC's value as represented by CIC's management, including, but not limited to: that CIC's revenues for 1996 are approximately $2.5 million, that CIC's earnings for 1996 are approximately $100,000, that CIC has no long-term debts other than the loans to Mr. Buckley and Mr. Flygare of approximately $300,000 and $150,000, that CIC has no short-term debts that would be inconsistent with its revenues and earnings, that CIC properly owns all of the software products to which it claims ownership, that CIC has no outstanding litigation or other potential claims against the Company or other liabilities that is disclosed in its financial statements, that CIC has a stable base of customers with a minimum of 80% having no plans to switch to a new software provided, and that CIC's software performs as claimed by CIC. - Incomnet will prepare definitive purchase agreements for the shares owned by Mr. Buckley and Mr. Flygare upon successful completion of the due diligence. - The purchase is subject to final review and approval of Incomnet's Board of Directors, Jerry Buckley, Ralph Flygare and, if required, CIC's Board of Directors. 14 Board of Directors California Interactive Computing, Inc. Valencia, California We have reviewed the accompanying balance sheet of California Interactive Computing, Inc. as of December 31, 1996, and the related statements of operations and deficiency and cash flows for the six months then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the Board of Directors and management of California Interactive Computing, Inc. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. /s/ STONEFIELD JOSEPHSON - ------------------------ ACCOUNTANCY CORPORATION Santa Monica, California April 21, 1997 15 CALIFORNIA INTERACTIVE COMPUTING, INC. BALANCE SHEET - DECEMBER 31, 1996 ASSETS CURRENT ASSETS: Cash $ 6,648 Accounts receivable, net of allowance for doubtful accounts of $12,000 354,116 Prepaid expenses 3,142 -------- Total current assets $363,906 PROPERTY AND EQUIPMENT, net of accumulated depreciation and amortization 130,136 DEPOSITS 11,842 -------- $505,884 -------- -------- LIABILITIES AND STOCKHOLDERS' DEFICIENCY CURRENT LIABILITIES: Accounts payable and accrued expenses $323,117 Deferred revenue 78,001 Note payable, officer-stockholder 22,000 Current portion of long-term notes payable, officer-stockholders 39,958 -------- Total current liabilities $463,076 NOTES PAYABLE, OFFICER-STOCKHOLDERS 382,098 STOCKHOLDERS' DEFICIENCY: Common stock; 200,000 shares authorized, 88,371 shares issued and 111,630 shares outstanding 5,700 Deficiency (344,990) -------- Total stockholders' deficiency (339,290) -------- $505,884 -------- -------- See accompanying accountants' review report and notes to financial statements. 16 CALIFORNIA INTERACTIVE COMPUTING, INC. STATEMENT OF OPERATIONS AND DEFICIENCY SIX MONTHS ENDED DECEMBER 31, 1996 Amount Percent --------- ------- NET SALES $ 986,985 100.0% COST OF SALES 656,866 66.6 --------- ------ GROSS PROFIT 330,119 33.4 OPERATING EXPENSES 430,430 43.6 --------- ------ NET LOSS (100,311) (10.2)% ------ ------ DEFICIENCY, beginning of period (244,679) --------- DEFICIENCY, end of period $(344,990) --------- --------- See accompanying accountants' review report and notes to financial statements. 17 CALIFORNIA INTERACTIVE COMPUTING, INC. STATEMENT OF CASH FLOWS SIX MONTHS ENDED DECEMBER 31, 1996 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Net loss $ (100,311) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES - depreciation and amortization $ 23,160 CHANGES IN ASSETS AND LIABILITIES: DECREASE IN ASSETS: Accounts receivable 103,846 Prepaid expenses 63 DECREASE IN LIABILITIES: Accounts payable and accrued expenses (13,025) Deferred revenue (39,202) -------------- Total adjustments 74,842 -------------- Net cash used for operating activities (25,469) CASH FLOWS USED FOR INVESTING ACTIVITIES - payments to acquire property and equipment (15,188) CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES: Proceeds from note payable, officer-stockholder 22,000 Payments on notes payable, officer-stockholders (14,697) -------------- Net cash provided by financing activities 7,303 -------------- NET DECREASE IN CASH (33,354) CASH, beginning of period 40,002 -------------- CASH, end of period $ 6,648 -------------- -------------- See accompanying accountants' review report and notes to financial statements. 18 CALIFORNIA INTERACTIVE COMPUTING, INC. NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED DECEMBER 31, 1996 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BUSINESS ACTIVITY: The Company sells computer hardware and software and offers installation, consulting, and repairs and maintenance services to its customers throughout the United States. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FAIR VALUE: Unless otherwise indicated, the fair values of all reported assets and liabilities which represent financial instruments (none of which are held for trading purposes) approximate the carrying values of such amounts. CASH EQUIVALENTS: For purposes of the statement of cash flows, cash equivalents include all highly liquid debt instruments with original maturities of three months or less which are not securing any corporate obligations. PROPERTY AND EQUIPMENT: Property and equipment are valued at cost. Depreciation and amortization are being provided by use of the straight-line and accelerated methods over the estimated useful lives of the assets. DEFERRED REVENUE RELATING TO MAINTENANCE SERVICES: The Company offers maintenance services which, in most instances, cover a period of less than one year. The amount of deferred revenue, as presented in the financial statements, represents amounts collected from maintenance services which have not yet been rendered as of December 31, 1996. (2) INCOME TAXES: Effective July 1, 1995, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes", the effect of which was immaterial to the Company's financial statements. DEFERRED INCOME TAXES Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of the deferred income tax assets and liabilities are as follows: 19 CALIFORNIA INTERACTIVE COMPUTING, INC NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED DECEMBER 31, 1996 Deferred tax assets: Net operating loss carryforwards $ 137,766 Deferred revenue 31,200 ------------ Subtotal 168,966 Deferred tax liability - difference between cash and accrual method of accounting 43,584 ------------ Subtotal 125,382 Valuation allowance (125,382) ------------ Net deferred taxes $ -- ------------ Income tax benefits are recognized only when their realization is assured. Accordingly, potential future income tax benefits resulting from net operating losses incurred to date are not reflected in the financial statements. NET OPERATING LOSS CARRYFORWARDS The Company has available $344,416 in federal net operating loss carryforwards as of June 30, 1996, which can be used to offset future taxable income until expiration in various years through 2004. The potential tax benefit related to these carryforwards will not be recognized in income by the Company until realized, and therefore an allowance of $125,382, equal to the estimated amount of the net deferred tax assets and liability booked by the Company, has been established at December 31, 1996. PAYMENTS Income taxes paid amounted to $800 during the six months ended December 31, 1996. (3) ACCOUNTS RECEIVABLE: Included in accounts receivable at December 31, 1996 is approximately $111,000 due from two customers. Sales to these customers amounted to approximately $271,000 for the six months ended December 31, 1996. (4) PROPERTY AND EQUIPMENT: A summary is as follows: Computers $ 552,088 Office furniture and equipment 275,478 ------------ 827,566 Less accumulated depreciation and amortization 697,430 ------------ $ 130,136 ------------ ------------ 20 CALIFORNIA INTERACTIVE COMPUTING, INC. NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED DECEMBER 31, 1996 (5) ACCOUNTS PAYABLE AND ACCRUED EXPENSES: A summary is as follows: Purchases and services $119,070 Accrued vacation 97,679 Payroll taxes payable 49,863 401(k) contributions payable 43,165 Accrued salaries and wages 9,573 Income tax payable 3,500 Sales tax payable 267 -------- $323,117 -------- -------- Approximately $22,000 of the accounts payable and accrued expenses balance is owed to two suppliers. Purchases from these suppliers amounted to approximately $41,000 for the six months ended December 31, 1996. Also included in accounts payable and accrued expenses is approximately $65,000 payable to related parties who are also officer-stockholders of the Company. (6) 401(K) CONTRIBUTORY PROFIT SHARING PLAN: The Company initiated a contributory 401(k) profit sharing plan effective January 1, 1996, whereby eligible employees can make contributions. The employer may make annual discretionary contributions. Employer contributions for the six months ended December 31, 1996 amounted to $8,342. At December 31, 1996, the Company is holding $36,048 in employee deferrals. These amounts are included in accounts payable and accrued expenses. At December 31, 1996, the Plan's net assets available for distribution amounted to approximately $341,000. (7) NOTES PAYABLE, OFFICER-STOCKHOLDERS: A summary is as follows: 12% note payable, officer-stockholder, secured by 58,333 shares of the Company's common stock, payable in monthly installments of $4,000, including interest, through August 1, 2007 $289,295 12% note payable, officer-stockholder, secured by 25,000 shares of the Company's common stock, payable in monthly installments of $3,340, including interest, through February 1, 2001 132,761 -------- 422,056 Less current maturities 39,958 -------- $382,098 -------- -------- 21 CALIFORNIA INTERACTIVE COMPUTING, INC. NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED DECEMBER 31, 1996 The following is a schedule, by years, of principal payments due under the notes: Year ending June 30, 1997 $ 22,502 1998 42,417 1999 47,990 2000 53,858 2001 46,639 Beyond five years 208,650 -------- $422,056 -------- -------- Total interest paid amounted to $26,909 for the six months ended December 31, 1996, of which $25,776 relates to the above notes payable, officer- stockholders and the balance represents interest paid to other parties. (8) COMMITMENTS: The following is a schedule by years of future minimum rental payments required under operating leases that have noncancellable lease terms in excess of one year as of December 31, 1996: Year ending June 30, Total Office* Equipment -------- -------- --------- 1997 $ 45,690 $ 35,892 $ 9,798 1998 91,380 71,784 19,596 1999 91,380 71,784 19,596 2000 31,560 11,964 19,596 2001 3,898 - 3,898 -------- -------- ------- $263,908 $191,424 $72,484 -------- -------- ------- -------- -------- ------- * The office lease is personally guaranteed by an officer-stockholder. Rent expense under all leases amounted to $47,755 for the six months ended December 31, 1996. (9) ACQUISITION BY INCOMNET, INC.: On February 26, 1997, Incomnet, Inc. ("Incomnet") entered into a Letter of Intent to acquire a controlling interest in the Company ("CIC") on terms set as follows: - Incomnet will acquire 100% of the holdings in CIC of shareholders Jerry Buckley, Ralph Flygare, Robert Reisbaum, E.V. Schmidt and the remaining minority investors in separate transactions. - Incomnet will purchase the stock CIC owned by Jerry Buckley and Ralph Flygare for total consideration of $608,290 per person, including interest, to be paid in monthly installments 22 CALIFORNIA INTERACTIVE COMPUTING, INC. NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED DECEMBER 31, 1996 commencing 12 months after the transaction closes ("Close") as follows: $10,000 per month for the first 12 months and $13,563.58 for the next 36 months. - Upon the Close, Incomnet will assume the loan owed by CIC to Mr. Buckley of $300,000 and the loan owed by CIC to Mr. Flygare of $150,000. Incomnet will immediately pay off one-half of the outstanding loan balances to Mr. Buckley and Mr. Flygare. Mr. Buckley will receive $150,000 and Mr. Flygare will receive $75,000. Commencing 12 months after the Close, Incomnet will pay off the balance of the loan in 12 monthly installments of $13,500 each to Mr. Buckley and $6,750 each to Mr. Flygare, commencing one year after the Close, based upon loan balances of $300,000 owed to Mr. Buckley and $150,000 owed to Mr. Flygare. Payments will be adjusted accordingly should the balances be different. - Incomnet will provide to Mr. Buckley a consulting contract for a period of two (2) years at an annual fee of $120,000, plus the Company's standard medical coverage now being provided to Mr. Buckley. The contract will require Mr. Buckley's services for 40 hours per week. Payment of the contract will be spread over four years at a rate of $5,000 per month. - Incomnet will reorganize CIC's Board of Directors. Jerry Buckley will be appointed as a Board member, along with two members named by Incomnet. - Incomnet will agree to invest into CIC approximately $750,000 over a period of 18 months to expand CIC's sales and marketing and software development capabilities. - Incomnet will agree to create a stock option program for the directors, employees and key consultants to CIC that will allow such personnel to participate in the appreciation of the value of CIC. The above offer is subject to the following contingencies: - The stock purchase transactions are consummated with Robert Reisbaum, E.V. Schmidt and the remaining minority investors. - Eric Hoffberg agrees to serve as the General Manager of CIC. - Mike Ewing agrees to serve as CIC's Vice President of Sales and Marketing, reporting to Mr. Hoffberg. - CIC undergoes financial and software audits by firms named by Incomnet to verify CIC's value as represented by CIC's management, including, but not limited to: that CIC's revenues for 1996 are approximately $2.5 million, that CIC's earnings for 1996 are approximately $100,000, that CIC has no long-term debts other than the loans to Mr. Buckley and Mr. Flygare of approximately $300,000 and $150,000, that CIC has no short-term debts that would be inconsistent with its revenues and earnings, that CIC properly owns all of the software products to which it claims ownership, that CIC has no outstanding litigation or other potential claims against the Company or other liabilities that is disclosed in its financial statements, that CIC has a stable base of customers with a minimum of 80% having no plans to switch to a new software provided, and that CIC's software performs as claimed by CIC. - Incomnet will prepare definitive purchase agreements for the shares owned by Mr. Buckley and Mr. Flygare upon successful completion of the due diligence. - The purchase is subject to final review and approval of Incomnet's Board of Directors, Jerry Buckley, Ralph Flygare and, if required, CIC's Board of Directors. 23 INCOMNET, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) On May 2, 1997, Incomnet, Inc. (the "Company") acquired 88,370.5 shares representing 100% of the outstanding common stock of California Interactive Computing, Inc. (CIC), a private corporation headquartered in Valencia, California, for a cash purchase price of $1,758,302, which will be paid over a period of five years. In addition, the Company assumed loans totaling $418,528 made to CIC by two of CIC's former shareholders, which will be paid over a period of three years. In connection with the acquisition, CIC entered into an employment agreement for $240,000 for a period of two years with Jerry C. Buckley, CIC's former president and CEO, and has agreed to provide 10,000 and 20,000 stock options, respectively, in CIC to two former shareholders when a plan is established for CIC's officers, directors, employees and key consultants. The acquisition will be accounted for as a purchase, with the assets acquired and liabilities assumed recorded at fair values, and the results of CIC's operations included in the Company's consolidated financial statements from the date of acquisition. The accompanying condensed consolidated financial statements illustrate the effect of the acquisition ("Pro Forma") on the Company's financial position and results of operations. The condensed consolidated balance sheet as of December 31, 1996 is based on the historical balance sheets of the Company and CIC as of that date and assumes the acquisition took place on that date. The condensed consolidated statements of income for the year ended December 31, 1996 are based on the historical statements of income of the Company and CIC for those periods. The pro forma condensed consolidated statements of income assume the acquisition took place on January 1, 1996. The pro forma condensed consolidated financial statements may not be indicative of the actual results of the acquisition. In particular, the pro forma condensed consolidated financial statements are based on management's current estimate of the allocation of the purchase price, the actual allocation of which may differ. The accompanying condensed consolidated pro forma financial statements should be read in connection with the historical financial statements of the Company and CIC. 24 INCOMNET, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) DECEMBER 31, 1996 (in thousands)
Incomnet CIC Adjustments Pro Forma -------- --- ----------- --------- ASSETS Current assets: Cash and cash equivalents $ 2,214 $ 7 $ (250)(1) $ 1,971 Accounts receivable 13,137 339 13,476 Notes receivable-current 323 -- 323 Notes receivable-officers 438 -- 438 Inventories 2,760 -- 2,760 Other current assets 1,332 3 1,335 -------- ----- ------- Total current assets 20,204 349 20,303 Property and equipment, net 14,357 130 14,487 Patent rights, net 1,241 - 1,241 Goodwill, net 4,542 - 1,638 (1) 6,180 Investments, notes receivable and other assets 243 12 255 -------- ----- ------- Total assets $ 40,587 $ 491 $ 42,466 ======== ===== ======= LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 14,746 $ 323 $15,069 Accrued expenses 8,217 - 8,217 Notes payable-current 3,918 62 (62)(1) 3,918 Deferred income 4,040 78 4,118 -------- ----- ------ Total current liabilities 30,921 463 31,322 Other long-term liabilities 1,040 382 1,450 (1) 2,872 Shareholders' equity Common stock 61,320 6 61,326 Preferred stock 2,355 - 2,355 Treasury stock (5,492) - (5,492) Accumulated deficit (49,557) (360) (49,917) -------- ----- ------ Total shareholders' equity 8,626 (354) 8,272 -------- ----- ------ Total liabilities and shareholders' equity $ 40,587 $ 491 $42,466 ======== ===== ======
See notes to pro forma consolidated financial statements (unaudited). 25 INCOMNET, INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) YEAR ENDED DECEMBER 31, 1996 (in thousands, except per share amounts)
Incomnet CIC Adjustments Pro Forma -------- --- ----------- --------- Net Sales $ 106,905 $ 2,288 $ 109,193 Operating costs and expenses 158,422 2,338 $ 205(2) 160,966 ---------- -------- ---------- Operating (loss) (51,517) (50) (51,773) Income taxes (benefit) (7,812) - (7,812) ---------- -------- Loss before minority interest (43,705) (50) (43,961) and extraordinary items Minority interest 6,906 - 6,906 Extraordinary items (877) - (877) ---------- -------- ---------- Net (loss) $ (37,676) $ (50) $ (37,932) ---------- -------- ---------- ---------- -------- ---------- Loss per common share and common share equivalents: Loss before extraordinary items $ (2.75) $ (2.75) Cumulative effect of accounting change (0.07) (0.07) ---------- ---------- Net (loss) per share $ (2.82) $ (2.82) ---------- ---------- ---------- ---------- Weighted average common shares and common share equivalents outstanding 13,370 13,458 ---------- ---------- ---------- ----------
See notes to pro forma consolidated financial statements (unaudited). 26 INCOMNET, INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) The pro forma adjustments to the condensed consolidated balance sheet to reflect the acquisition of CIC and to record the corresponding notes payable are detailed as follows: At the date of the transaction, the Company paid $249,818 to the former shareholders of CIC, with $84,818 paid to acquire CIC's stock and $165,000 paid to reduce the balance of loans owed to the two former CIC shareholders. To pay off the remaining balances to acquire the stock and to pay off the loans, the Company has signed promissory notes with four former shareholders of CIC. These notes are at an interest rate of 8% per annum. The outstanding balances owed on these notes can be repaid at any time, which would lower the total amount of scheduled payments, including interest. Schedule of payments and purchase price at net present value: Cash Net present value Payments (discounted at 8%) -------- ------------------ Cash paid at closing $ 84,818 $ 84,818 Payment first year 27,859 27,859 Months 13-24 369,136 303,179 Months 25-36 514,662 422,699 Months 37-48 574,572 436,948 Months 49-60 514,662 362,396 -------- ---------- $1,637,899 ---------- ---------- (2) The pro forma adjustments to the condensed consolidated statements of income are as follows: Adjustments to operating costs and expenses: To record interest expense on notes payable ($1,553,084 x 8%) $124,246 To record goodwill amortization ($1,637,899 / 20 years) 81,895 -------- $206,141 -------- -------- 27 EX-99.A 2 EXHIBIT 99.A EXHIBIT A - FORM OF STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT ------------------------ THIS STOCK PURCHASE AGREEMENT ("Agreement") is entered into as of April 25, 1997, by and among __________, an individual ("Seller"), California Interactive Computing, Inc., a California corporation (the "Company"), and Incomnet, Inc., a California corporation ("Purchaser"). R E C I T A L S A. The Seller is the record owner of ________ shares or __% of the outstanding shares of the capital stock, par value $0.10 per share, of the Company (the "Stock"). B. The parties hereto wish to provide for the sale of the Stock by the Seller to the Purchaser pursuant to the terms and subject to the conditions of this Agreement. C. The Company believes that the transactions contemplated by this Agreement are in the Company's best interests, and that the Company will derive substantial benefits from them. SECTION 1. SALE AND PURCHASE ----------------- 1.1 SALE AND PURCHASE OF STOCK. Subject to the terms and conditions of this Agreement, the Seller shall sell, transfer, assign and deliver to Purchaser, and Purchaser shall purchase from the Seller, ___________ shares of Stock. 1.2 PURCHASE PRICE. As consideration for the sale by the Seller of its shares of Stock to Purchaser on the Closing Date (as defined in Section 2.1 of this Agreement), Purchaser shall pay a total purchase price of_________, payable as follows: (a) On the Closing Date the Purchaser shall deliver to the Seller a non-negotiable promissory note in the form of Exhibit A hereto (the "Promissory Note") having an initial principal amount equal to ______, plus total interest of _______, as follows: (b) On the Closing Date, Purchaser will assume the loan payable by the Company to the Seller in the outstanding amount of ________, will pay _______ to the Seller on the Closing Date and will issue the Seller a non-negotiable promissory note in the form of Exhibit B hereto (the "Second Promissory Note"). The Purchaser will cause the Company to repay the remaining ________, plus interest of _______, in 24 installments as follows: SECTION 2. CLOSING 1 2.1 ESCROW. Prior to closing, all documents and Consideration related to this transaction shall be deposited in an Escrow Account handled by Mark J. Richardson (the "Escrow Agent"), who will act as an escrow agent pursuant to the terms of an Escrow Agreement with both the Purchaser and Seller. 2.2 TIME AND PLACE. The closing of the transactions contemplated by this Agreement (the "Closing") shall be held at the offices of the Company in Valencia, California, at 1:00 p.m on or before April 25, 1997, or at such other place, time or date (the "Closing Date") as the parties hereto may agree. 2.3 PROCEDURES AT CLOSING. The following shall take place at the Closing: (a) The Seller shall deliver to Purchaser (i) the certificates representing the shares of Stock being sold by the Seller pursuant to this Agreement, with appropriate stock power(s) attached and endorsed in blank, (ii) revised bank signature cards as contemplated by Section 3.13 of this Agreement, and (iii) written resignations by the Seller evidencing his resignation from all prior positions as an officer, director, employee and consultant to the Company, subject to Section 9.2 of this Agreement. (b) Purchaser shall: (i) Pay to the Seller, by wire transfer of funds or by check, the amount required to be paid to the Seller pursuant to Section 1.2(b). (ii) Execute and deliver to the Seller the Promissory Note required to be delivered to the Seller pursuant to Section 1.2(a). (iii) Execute and deliver to the Seller the Second Promissory Note required to be delivered to the Seller pursuant to Section 1.2(b). SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLER The Company and the Seller jointly and severally represent and warrant to Purchaser as follows: 3.1 SUBSIDIARIES. There is no corporation, general partnership, limited partnership, joint venture, association, trust or other entity or organization which the Company directly or indirectly controls or in which the Company directly or indirectly owns any equity or other interest. 3.2 GOOD STANDING. The Company (i) is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, (ii) has all necessary power and authority to own its assets and to conduct its business as it is currently being conducted, and (iii) is duly qualified or licensed to do business and is in good standing in every jurisdiction (both domestic and foreign) where such qualification or licensing is required. 3.3 CHARTER DOCUMENTS AND CORPORATE RECORDS. The Company has delivered to Purchaser complete and correct copies of (i) the articles of incorporation, bylaws and other charter or organizational documents of the Company, including all amendments thereto, (ii) the stock records of the Company, and 2 (iii) the minutes and other records of the meetings and other proceedings of the shareholders and directors of the Company. The Company is not in violation or breach of (i) any of the provisions of its articles of incorporation, bylaws or other charter or organizational documents, or (ii) any resolution adopted by its shareholders or directors. There have been no meetings or other proceedings of the shareholders or directors of the Company that are not fully reflected in the appropriate minute books or other written records of the Company. 3.4 CAPITALIZATION. The authorized capital stock of the Company consists of two hundred thousand (200,000) shares of common stock, par value $0.10 per share, of which eighty-eight thousand three hundred and sixty (88,360) shares are issued and outstanding, twenty-five thousand, one hundred and ____________________________ of which are owned by the Seller. All of the outstanding shares of the capital stock of the Company are validly issued, fully paid and non-assessable, and have been issued in full compliance with all applicable federal, state, local and foreign securities laws and other laws. There are no (i) outstanding options, warrants or rights to acquire any shares of the capital stock or other securities of the Company, (ii) outstanding securities or obligations which are convertible into or exchangeable for any shares of the capital stock or other securities of the Company, or (iii) contracts or arrangements under which the Company is or may become bound to sell or otherwise issue any shares of its capital stock or any other securities. 3.5 FINANCIAL STATEMENTS. The Company has delivered to Purchaser the following financial statements (the "Existing Financial Statement"): (i) the audited balance sheet of the Company as of June 30, 1996; (ii) the audited statements of income and retained earnings, stockholders' equity and changes in financial position of the Company for the year ended June 30, 1996; and (iii) supporting supplemental schedules. Except as stated therein or in the notes thereto, the Existing Financial Statements: (a) present fairly the financial position of the Company as of the respective dates thereof and the results of operations and changes in financial position of the Company for the respective periods covered thereby; and (b) present fairly in the opinion of management the financial position of the Company as of the respective dates thereof and the results of operations and changes in financial position of the Company for the respective periods covered thereby. The financial statements to be delivered by the Company pursuant to Section 6.7 will present fairly in the opinion of management the financial position of the Company as of the respective dates thereof and the results of operations and changes in financial position of the Company. The Company and the Sellers have no knowledge that the financial statements are not presented in accordance with generally accepted accounting principles. The Purchaser, however, at its expense, has initiated a financial audit of the Company's books and records and is relying upon its auditor to present the Company's financial position in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods covered thereby and the periods covered by the Existing Financial Statements. 3.6 ABSENCE OF CHANGES. Except as otherwise disclosed to the Purchaser in writing in Exhibit C to this Agreement, since December 31, 1996: (a) There has not been any adverse change in the business, condition, assets, operations or prospects of the Company and no event has occurred that might have an adverse effect on the business, condition, assets, operations or prospects of the Company. 3 (b) The Company has not (i) declared, set aside or paid any dividend or made any other contribution in respect of any shares of capital stock, nor (ii) repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities. (c) The Company has not sold or otherwise issued any shares of capital stock or any other securities. (d) The Company has not amended its articles of incorporation, bylaws or other charter or organizational documents, nor has it effected or been a party to any merger, recapitalization, reclassification of shares, stock split, reverse stock split, reorganization or similar transaction. (e) The Company has not formed any subsidiary or contributed any funds or other assets to any subsidiary. (f) The Company has not purchased or otherwise acquired any assets, nor has it leased any assets from any other person, except in the ordinary course of business consistent with past practice. (g) The Company has not made any capital expenditure outside the ordinary course of business or inconsistent with past practice, or in an amount exceeding three thousand dollars ($3,000), and the total amount of the capital expenditures made by the Company has not exceeded ten thousand dollars ($10,000). (h) The Company has not sold or otherwise transferred any assets to any other person, except in the ordinary course of business consistent with past practice and at a price equal to the fair market value of the assets transferred. (i) There has not been any loss, damage or destruction to any of the properties or assets of the Company (whether or not covered by insurance). (j) The Company has not written off as uncollectible any indebtedness or accounts receivable, except for write-offs that were made in the ordinary course of business consistent with past practice and that involved less than one hundred dollars ($100) singly and less than one thousand dollars ($1,000) in the aggregate. (k) The Company has not leased any assets to any other person except in the ordinary course of business consistent with past practice and at a rental rate equal to the fair rental value of the leased assets. (l) The Company has not mortgaged, pledged, hypothecated or otherwise encumbered any assets, except in the ordinary course of business consistent with past practice. (m) The Company has not entered into any contract or incurred any debt, liability or other obligation (whether absolute, accrued, contingent or otherwise), except for (i) contracts that were entered into in the ordinary course of business consistent with past practice and that have terms of less than six months and do not contemplate payments by or to the Company which will exceed, over the term of the 4 contract, three thousand dollars ($3,000) in the aggregate, and (ii) current liabilities incurred in the ordinary course of business consistent with the past practice. (n) The Company has not made any loan or advance to any other person, except for advances that have been made to customers in the ordinary course of business consistent with past practice and that have been properly reflected as "accounts receivables." (o) The Company has not paid any bonus to, or increased the amount of the salary, fringe benefits or other compensation or remuneration payable to, any of the directors, officers or employees of the Company, except as disclosed in Exhibit E. (p) No contract or other instrument to which the Company is or was a party or by which the Company or any of the Company's assets are or were bound has been amended or terminated, except in the ordinary course of business consistent with past practice. (q) The Company has not discharged any lien or discharged or paid any indebtedness, liability or other obligation, except for current liabilities that (i) are reflected in the December 31, 1996 Balance Sheet or have been incurred since December 31, 1996 in the ordinary course of business consistent with past practice, and (ii) have been discharged or paid in the ordinary course of business consistent with past practice. (r) The Company has not forgiven any debt or otherwise released or waived any right or claim, except in the ordinary course of business consistent with past practice. (s) The Company has not changed its methods of accounting or its accounting practices in any respect. (t) The Company has not entered into any transaction outside the ordinary course of business or inconsistent with past practice. (u) The Company has not agreed or committed (orally or in writing) to do any of the things described in clauses (b) through (t) of this Section 3.6. 3.7 ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no debt, liability or other obligation of any nature (whether due or to become due and whether absolute, accrued, contingent or otherwise) that is not reflected or reserved against in the December 31, 1996 Balance Sheet, except for obligations incurred since December 31, 1996 in the ordinary course of business consistent with past practice. 3.8 ACCOUNTS RECEIVABLE. All of the Company's accounts receivable are collectible at their full recorded amounts, net of the accounts reflected on the Company's Balance Sheet as of December 31, 1996 and are true and correct to the best knowledge of Seller. 3.9 REAL PROPERTY LEASES. The Company has delivered to Purchaser complete and correct copies of all of the real property leases to which the Company is a party, including all amendments thereto. All of said leases are valid and in full force and effect and are enforceable against the respective lessors thereunder in accordance with their terms. There is no existing default by any party under any of said 5 leases, and there exists no condition or set of circumstances which, with notice or lapse of time or both, would constitute such a default. The lessee under each of said leases enjoys peaceful possession of the leasehold created thereby. 3.10 TANGIBLE PERSONAL PROPERTY. The tangible personal property of the Company constitutes all of the tangible personal property necessary for the conduct by the Company of its business as currently conducted, and each item thereof is in good operating condition and repair (ordinary wear and tear excepted). Any leases relating to said personal property, if any, are valid and in full force and effect, and are enforceable against the respective lessors thereunder in accordance with their terms. There is no existing default by any person under any of said leases, and there exists no condition or set of circumstances which, with notice or lapse of time or both, would constitute such a default. 3.11 TRADEMARKS AND TRADENAMES. The Company has the unrestricted right to use any trademark, service mark, trade name or copyright which it is presently using, and to the best of the Company's knowledge, the Company has not infringed or is not infringing upon any trademark, service mark, trade name, copyright or patent that is owned or used by any other person. 3.12 INSURANCE. The Company has delivered to Purchaser complete and correct copies of all of the insurance policies to which the Company is a party or which cover the Company, including all renewals thereof and endorsements thereto. All of said policies are valid and in full force and effect. There is no existing default by the Company under any of said policies, and there exists no condition or set of circumstances which, with notice or lapse of time or both, would constitute such a default. There is no pending claim, action or proceeding arising out of or based upon any of the Company's policies, and there exists no basis for any such claim, action or proceeding. 3.13 BANK ACCOUNTS. Upon the Closing, the Seller covenants to cause the signature cards on all of the Company's bank accounts to be modified to reflect the Purchaser's designee (i.e., Melvyn Reznick unless otherwise requested in writing by the Purchaser) as the sole signatory on said accounts with authority to draw on or make withdrawals therefrom, and to remove all other names from said signature cards and bank accounts. 3.14 CONTRACTS. The Company has delivered to Purchaser complete and correct copies of all of the contracts and other instruments including all amendments thereto. All of such contracts and other instruments are valid and in full force and effect, and are enforceable in accordance with their terms. There is no existing default by any person under any of said contracts or other instruments, and there exists no condition or set of circumstances which, with notice or lapse of time or both, would constitute such a default. 3.15 TITLE TO PERSONAL PROPERTY. The Company has good, valid and marketable title to all of its personal property (both tangible and intangible) and interests therein, including without limitation all of the personal property reflected in the December 31, 1996 Balance Sheet. All of such personal property and interests therein are owned free and clear of any liens, pledges, security interests, claims, equities, options, charges, encumbrances or restrictions. The Seller warrants that he has no claims to the tangible personal property of the Company, including any computer hardware, software, accessories and any items of furniture or fixtures or other materials that are created, used or owned by the Company in the conduct of its 6 business. The Seller warrants that (i) he has no claims to use any trademark, service mark, trade name or copyright which is presently being used by the Company, and (ii) he will not use any trademark, service mark, trade name, copyright or patent that is owned, used or claimed by the Company without the express written permission of the Company. 3.16 TAX MATTERS. All federal, state, local and foreign tax returns required to be filed by the Company have been properly prepared and duly filed, and all taxes required to be paid by, or claimed by any federal, state, local or foreign taxing authority to be payable by, the Company have been paid in full. The provisions for taxes reflected in the December 31, 1996 Balance Sheet are adequate for all taxes payable with respect to the period prior to December 31, 1996. There is no (i) pending audit or examination of the Company (or of any of the tax returns thereof) being conducted by any federal, state, local or foreign taxing authority, (ii) pending or threatened claim or dispute relating to the payment of any taxes by the Company, (iii) basis upon which any federal, state, local or foreign taxing authority may make any claim for the payment of additional taxes by the Company, or (iv) outstanding agreement or waiver extending the statutory limitations period applicable to the payment of any taxes by the Company. 3.17 EMPLOYEE AND LABOR MATTERS. To the best of the knowledge of the Company, none of the Company's employees intends to establish or join a business that is or would be competitive with the business conducted by the Company. There is no pending or threatened labor dispute, strike, slowdown or work stoppage that may affect the business of the Company. There is no unfair labor practice complaint pending against the Company before the National Labor Relations Board. The Company is not engaged in any unfair labor practice. There is no grievance or arbitration proceeding pending against, or threatened to be asserted or commenced against, the Company under any collective bargaining agreement, union contract, or general labor or employment law, rule or regulation. 3.18 COMPLIANCE WITH LAWS; LICENSES AND PERMITS. The Company is not in violation of, nor has it failed to conduct its business in full compliance with, any applicable federal, state, local or foreign laws, regulations, rules, treaties, rulings, orders, directives or decrees. The Company has delivered to Purchaser complete and correct copies of all of the licenses, permits, authorizations and franchises to which the Company is subject and all said licenses, permits, authorizations and franchises are valid and in full force and effect. Said licenses, permits, authorizations and franchises constitute all of the licenses, permits, authorizations and franchises necessary to permit the Company to conduct its business in the manner in which it is now being conducted, and the Company is not in violation or breach of any of the terms, requirements or conditions of any of said licenses, permits, authorizations or franchises. 3.19 ENVIRONMENTAL COMPLIANCE MATTERS. To the best of the knowledge of the Company and the Seller, without conducting any study or independent investigation: (a) There is no soil or ground water contamination by any "Hazardous Material" for which the Company may be liable. "Hazardous Material" shall mean any flammables, asbestos, explosives, radioactive materials, hazardous wastes, toxic substances or related materials, including, without limitation, any substances defined as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," or "toxic substances" under any applicable federal, state or local laws, rules, regulations or orders which have been designated as potentially dangerous to public health and/or safety when present in the environment. 7 (b) There are no underground storage tanks, asbestos containing materials or PCBs on any property owned, leased, operated or occupied by the Company or relating to the business of the Company. (c) The Company has not exposed its employees or others to Hazardous Materials in violation of applicable laws. (d) No Hazardous Material is present in the surface water or groundwater of any Company facility and no likelihood exists that any Hazardous Material present on or in any other land, groundwater or surface water will come to be present in the surface water or groundwater of any Company facility. The Company has provided to Purchaser all site assessments, if any, of properties relating to the business of the Company available to or conducted by the Company. (e) The Company has not received any notice that an action, proceeding, liability or claim exists or is threatened against the Company with respect to the transfers or releases of Hazardous Materials by the Company. (f) There are no (i) enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against the Company pursuant to any applicable federal, state or local laws, ordinances or regulations relating to any Hazardous Material, (ii) claims made or threatened by any third party against the Company with respect to or because of its property relating to damage, contribution, cost recovery compensation, loss or injury resulting from any Hazardous Material, or (iii) conditions on any of the properties of the Company that could cause such properties or any part thereof to be subject to any restrictions on the ownership, occupancy, transferability or use of any of such properties under any Hazardous Material law. 3.20 EXPORT ADMINISTRATION ACT AND FOREIGN CORRUPT PRACTICES ACT. The Company is and has always been in full compliance with the Export Administration Act of 1976 and the regulations promulgated thereunder ("EAA"), as well as the Foreign Corrupt Practices Act ("FCPA"). The Company has duly and timely submitted all reports required to be submitted under the EAA. The Company is not subject to any pending inquiry, investigation or audit by any agency responsible for enforcing or administering the EAA or the FCPA. Neither the Company nor any of its employees or agents has made any payment of, or any promise to pay, any money or anything of value: (i) to any foreign official for the purpose of influencing any act or decision of such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist the Company in obtaining or retaining business; (ii) to any foreign political party or official thereof or any candidate for foreign political office for the purpose of influencing any act or decision of such party, official or candidate in its or his official capacity, or inducing such party, official or candidate to use its or his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist the Company in obtaining or retaining business; or (iii) to any other person while knowing or having reason to know that all or a portion of such money or thing of value would be used for any of the purposes specified in clauses (i) and (ii) of this Section 3.20. 3.21 CONFLICT OF INTEREST TRANSACTIONS. No past or present shareholder, director, officer or employee of the Company or any of their affiliates (i) is indebted to, or has any financial, business or contractual relationship or arrangement with, the Company, other than as disclosed in Section 1.2(b) of this 8 Agreement, or (ii) has any direct or indirect interest in any property, asset or right which is owned or used by the Company. 3.22 LITIGATION. There is no action, suit, proceeding, dispute, litigation, claim, complaint or investigation by or before any court, tribunal, governmental body, governmental agency or arbitrator pending or, to the best of the Company's or the Seller's knowledge, threatened against or with respect to the Company which (i) if adversely determined would have an adverse effect on the business, condition, assets, operations or prospects of the Company, or (ii) challenges or would challenge any of the actions required to be taken by the Company under this Agreement. There exists no basis for any such action, suit, proceeding, dispute, litigation, claim, complaint or investigation. 3.23 WAIVER OF RIGHT TO PURCHASE SHARES. The Company and the Seller have validly waived any right they would have under the Company's Articles of Incorporation to purchase the shares of Stock being purchased by Purchaser pursuant to this Agreement. 3.24 AUTHORIZATION; BINDING NATURE OF AGREEMENT. The Company and the Seller have all necessary power and authority to enter into and perform their obligations under this Agreement. The execution, delivery and performance of this Agreement by the Company and the Seller have been duly authorized by all necessary action on the part of the Company and its officers, directors and shareholders, and by the Seller. This Agreement is a valid and binding obligation of the Company and the Seller. 3.25 NON-CONTRAVENTION. Neither (a) the execution and delivery of this Agreement or the Second Promissory Note, nor (b) the performance of this Agreement or the payment of the Second Promissory Note will: (i) contravene or result in a violation of any of the provisions of the articles of incorporation, bylaws or other charter or organizational documents of the Company; (ii) contravene or result in a violation of any resolution adopted by the shareholders or directors of the Company; (iii) result in a violation or breach of, or give any person the right to declare (whether with or without notice or lapse of time) a default under or to terminate, any agreement or other instrument to which the Company is a party or by which the Company or any of its assets is bound; (iv) give any person the right to accelerate the maturity of any indebtedness or other obligation of the Company; (v) result in the loss of any license or other contractual right of the Company; (vi) result in the loss of, or in a violation of any of the terms, provisions or conditions of, any governmental license, permit, authorization or franchise of the Company; (vii) result in the creation or imposition of any lien, charge, encumbrance or restriction on any of the assets of the Company; (viii) result in the reassessment or revaluation of any property of the Company or by any taxing authority or other governmental authority; (ix) result in the imposition of, or subject the Company or Purchaser to any liability for, any conveyance or transfer tax or any similar tax; or (x) result in a violation of any law, rule, regulation, treaty, ruling, directive, order, arbitration award, judgment or decree to which the Company or any of its assets is subject. 3.26 APPROVALS. No authorization, consent or approval of, or registration or filing with, any governmental authority or any other person is required to be obtained or made by the Company or the Seller in connection with the execution, delivery or performance of this Agreement (including the sale to Purchaser of the shares of Stock being purchased by Purchaser hereunder). 3.27 BROKERS. The Company has not agreed to pay any brokerage fees, finder's fees or other fees or commissions with respect to the transaction contemplated by this Agreement, and, to the best of the 9 Company's knowledge, no person is entitled, or intends to claim that it is entitled, to receive any such fees or commissions in connection with such transaction. 3.28 FULL DISCLOSURE. Neither this Agreement (including the exhibits hereto) nor any statement, certificate or other document delivered to Purchaser by or on behalf of the Company or the Seller contains any untrue statement of a material fact or omits to state a material fact necessary to make the representations and other statements contained herein and therein not misleading. 3.29 REPRESENTATIONS TRUE ON CLOSING DATE. The representations and warranties of the Company and the Seller set forth in this Agreement are true and correct on the date hereof, and will be true and correct on the Closing Date as though such representations and warranties were made as of the Closing Date. SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SELLER 4.1 OWNERSHIP OF SHARES. The Seller represents and warrants that (a) he owns twenty-five thousand, one hundred and twenty-nine and one-half (25,129.5) shares of Stock and does not own any other securities or other assets of the Company, that (b) he has at the Closing, good and valid title to all of such shares free and clear of any liens, pledges, security interests, adverse claims, equities, options, proxies, charges, encumbrances or restrictions (other than the restrictions set forth in the Company's Articles of Incorporation) and that he shall sign over such shares to the name of the Purchaser at the time of Closing, with said shares to be held by the Escrow Agent until the Purchaser pays the Seller for the purchase of said shares subject to terms of Section 1.2 (a) of the Purchase Agreement. As long as Purchaser remains current in his payments subject to terms of Section 1.2 (a) of the Purchase Agreement, the Seller gives to the Purchaser full voting rights of all stock being purchased. 4.2 POWER AND AUTHORITY; BINDING NATURE OF AGREEMENT. (a) The Seller represents and warrants that he has full power and authority to enter into this Agreement and to perform its obligations hereunder, and that the execution, delivery and performance of this Agreement by him has been duly authorized by all necessary action on its part. (b) The Seller represents and warrants that, assuming that this Agreement is a valid and binding obligation of each of the other parties hereto, this Agreement is a valid and binding obligation of the Seller. 4.3 LITIGATION. The Seller represents and warrants that there is no action, suit, proceeding, dispute, litigation, claim, complaint or investigation by or before any court, tribunal, governmental body, governmental agency or arbitrator pending or, to the best of the knowledge of the Seller, threatened against the Seller which challenges or would challenge any of the actions required to be taken by the Seller under this Agreement. 4.4 NON-CONTRAVENTION. The Seller represents and warrants that neither the execution and delivery of this Agreement nor the performance hereof (including the sale of shares of Stock being sold by 10 or on behalf of the Seller pursuant hereto) (i) will result in any violation or breach of any agreement or other instrument to which the Seller is a party or by which the Seller is a party or by which the Seller or any of the shares of Stock owned (beneficially or of record) by the Seller is bound, or (ii) will result in a violation of any law, rule, regulation, treaty, ruling, directive, order, arbitration award, judgment or decree to which the Seller or any of such shares of Stock is subject. 4.5 APPROVALS. The Seller represents and warrants that no authorization, consent or approval of, or registration or filing with, any governmental authority or any other person is required to be obtained or made by the Seller in connection with the execution and delivery of this Agreement or the performance hereof (including the sale of the shares of Stock being sold by or on behalf of the Seller pursuant hereto). 4.6 BROKERS. The Seller represents and warrants that he has not agreed to pay any brokerage fees, finder's fees or other fees or commissions with respect to the transactions contemplated by this Agreement, and, to the best of the knowledge of the Seller, no person is entitled, or intends to claim that it is entitled, to receive any such fees or commissions in connection with such transactions. 4.7 REPRESENTATIONS TRUE ON CLOSING DATE. The Seller represents and warrants that the representations and warranties of the Seller set forth in this Agreement are true and correct on the date hereof, and will be true and correct on the Closing Date as though such representations and warranties were made as of the Closing Date. 4.8 WAIVE FIRST RIGHT OF REFUSAL TO PURCHASE SHARES OF CIC. The Seller waives the right that he has as a shareholder of CIC to purchase the shares owned by other CIC shareholders that are also being purchased by the Purchaser in other transactions. 4.9 INTANGIBLE PROPERTY. The Seller warrants that he has (i) no financial, business or contractual relationship or arrangement with the Company nor (ii) any direct or indirect interest in any property, asset or right which is owned or used by the Company, except as described in the Employment Agreement Between California Interactive Computing, Inc. and Jerry C. Buckley, attached as Exhibit D. 4.10 OBLIGATIONS. The Seller warrants that Company has no debt, liability or other obligation (whether absolute, accrued, contingent or otherwise), to the Seller, other than the debt that has been assumed by the Purchaser as described in Section 1.2 (b). 4.11 CLAIMS TO TANGIBLE PERSONAL PROPERTY. The Seller warrants that he has no claims to ownership of the tangible personal property of the Company, including any computer hardware, software, accessories and any items of furniture or fixtures or other materials that are created, used or owned by the Company in the conduct of its business. 4.12 CLAIMS TO TRADEMARKS AND TRADENAMES. The Seller warrants that (i) he has no claims to use any trademark, service mark, trade name or copyright which is presently being used by the Company, and (ii) he will not use any trademark, service mark, trade name, copyright or patent that is owned, used or claimed by the Company without the express written permission of the Company. 11 SECTION 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser represents and warrants to the Seller as follows: 5.1 NON-DISTRIBUTIVE INTENT. The shares of Stock being purchased by Purchaser pursuant to this Agreement are not being acquired by Purchaser with a view to the public distribution of them. 5.2 NON-CONTRAVENTION. Neither the execution and delivery of this Agreement or the Promissory Note nor the performance hereof or thereof (i) will result in any violation or breach of any agreement or other instrument to which Purchaser is a party or by which Purchaser is bound, or (ii) will result in a violation of any law, rule, regulation, treaty, ruling, directive, order, arbitration award, judgment or decree to which Purchaser is subject. 5.3 AUTHORIZATION; BINDING NATURE OF AGREEMENT. Purchaser has all necessary power and authority to enter into and perform its obligations under this Agreement and the Promissory Note. The execution, delivery and performance of this Agreement and the Promissory Note on behalf of Purchaser have been duly authorized by all necessary action on the part of Purchaser and its officers, directors and shareholders. Assuming that this Agreement is a valid and binding obligation of each of the other parties hereto, (i) this Agreement is a valid and binding obligation of Purchaser, and (ii) the Promissory Note will be a valid and binding obligation of Purchaser as of the Closing Date. 5.4 APPROVALS. No authorization, consent or approval of, or registration or filing with, any governmental authority or any other person is required to be obtained or made by Purchaser in connection with the execution, delivery or performance of this Agreement or the Promissory Note. 5.5 BROKERS. Purchaser has not agreed to pay any brokerage fees, finder's fees or other fees or commissions with respect to the transactions contemplated by this Agreement, and, to the best of Purchaser's knowledge, no person is entitled, or intends to claim that it is entitled, to receive any such fees or commissions in connection with such transactions. 5.6 REPRESENTATIONS TRUE ON CLOSING DATE. The representations and warranties of Purchaser set forth in this Agreement are true and correct on the date hereof, and will be true and correct on the Closing Date as though such representations and warranties were made as of the Closing Date. 5.7 INDEMNIFICATION OF THE COMPANY AND ITS OFFICERS BY OTHER SHAREHOLDERS. The Purchaser warrants that as part of the transaction to acquire stock from each shareholder, the Purchaser is requiring each Seller to indemnify the Company and all former employees, officers, directors and other shareholders against personal liability for any actions prior to the close of the transactions. SECTION 6. PRE-CLOSING COVENANTS OF THE COMPANY Between the date of this Agreement and the Closing Date: 6.1 CONDUCT OF BUSINESS. The Company shall carry on its business in the same manner as such business has been conducted prior to the date of this Agreement. Without limiting the generality of 12 the foregoing, the Company shall not do, and shall ensure that none of its subsidiaries is permitted to do, any of the following without the prior written consent of Purchaser: (a) declare, set aside or pay any dividend or make any other distribution in respect of any shares of capital stock, or repurchase, redeem or otherwise reacquire any shares of capital stock or other securities; (b) sell or otherwise issue any shares of capital stock or any other securities; (c) amend its articles of incorporation, bylaws or other charter or organizational documents, or effect or become a party to any merger, recapitalization, reclassification of shares, stock split, reverse stock split, reorganization or similar transaction; (d) form any new subsidiary or acquire any equity interest or other interest in any other entity; (e) purchase or otherwise acquire any assets, or lease any assets from any other person, except in the ordinary course of business consistent with past practice; (f) make any capital expenditure (i) outside the ordinary course of business, (ii) inconsistent with past practice, (iii) in an amount exceeding three thousand dollars ($3,000), or (iv) in an amount which would cause the total amount of the capital expenditures made by the Company between the date of this Agreement and the Closing Date to exceed ten thousand dollars ($10,000); (g) sell or otherwise transfer any assets to any other person, except in the ordinary course of business consistent with past practice and at a price equal to the fair market value of the assets transferred; (h) lease any assets to any other person, except in the ordinary course of business consistent with past practice and at rental rate equal to the fair value of the assets leased; (i) mortgage, pledge, hypothecate or otherwise encumber any assets, except in the ordinary course of business consistent with past practice; (j) enter into any contract or incur any debt, liability or other obligation (whether absolute, accrued, contingent or otherwise), except for (i) contracts that are entered into in the ordinary course of business consistent with past practice and that have terms of less than six months and do not contemplate payments by or to the Company which will exceed, over the term of the contract, three thousand dollars ($3,000) in the aggregate, and (ii) current liabilities incurred in the ordinary course of business consistent with past practice; (k) make any loan or advance to any other person, except for advances that are made to customers in the ordinary course of business consistent with past practice and that are properly reflected as "accounts receivables"; 13 (l) pay any bonus to, or increase the amount of the salary, fringe benefits or other compensation or remuneration payable to, any of the directors or officers of the Company; (m) amend or terminate any contract or other instrument to which the Company is a party or by which the Company or any of its assets is bound, except in the ordinary course of business consistent with past practice; (n) take any action that would result in a violation or breach of, or a default under, any contract or other instrument to which the Company is a party or by which the Company or any of its assets is bound; (o) discharge any lien or discharge or pay any indebtedness, liability or other obligation, except for current liabilities that (i) are reflected on December 31, 1996 Balance Sheet or have been incurred since December 31, 1996 in the ordinary course of business consistent with past practice, and (ii) are to be discharged or paid in the ordinary course of business consistent with past practice; (p) forgive any debt or otherwise release or waive any right or claim, except in the ordinary course of business consistent with past practice; (q) change its methods of accounting or accounting practices in any respect; (r) enter into any other transaction outside the ordinary course of business or inconsistent with past practice; (s) take any action that would cause any of the Company's representations and warranties set forth in this Agreement to become untrue or incorrect; or (t) agree or commit (orally or in writing) to do any of the things described in clauses (a) through (s) of this Section 6.1. 6.2 EMPLOYEES. The Company shall use its best efforts to keep available to the Company all of its current employees. 6.3 BUSINESS RELATIONSHIPS. The Company shall use its best efforts to preserve the current relationships of the Company with customers, carriers and all other users and suppliers of goods or services and with all other persons having business relationships with the Company. 6.4 INSURANCE. The Company shall keep in full force all of the insurance policies referred in Section 3.12 of this Agreement. 6.5 ACCESS. The Company shall provide Purchaser and Purchaser's employees, attorneys, accountants and other representatives full and complete access to all properties and records of the Company, and shall arrange for its certified public accountants to make available to Purchaser copies of all 14 working papers relating to the Existing Financial Statements and to the financial statements referred to in Section 6.7 of this Agreement. 6.6 OBLIGATION TO UPDATE DISCLOSURE. The Company shall promptly disclose to Purchaser in writing any facts or circumstances arising after the date hereof that would have been required to be disclosed to the Purchaser pursuant to this Agreement if such facts or circumstances had existed as of the date hereof. 6.7 AUDITED FINANCIAL STATEMENTS. On or before April 11, 1997, the Company shall deliver to Purchaser the following financial statements: (i) the unaudited balance sheet of the Company as of March 31, 1997, (ii) the unaudited statements of income and retained earnings, stockholders' equity and changes in financial position of the Company for the six months ended December 31, 1996; (iii) the audited balance sheet of the Company as of June 30, 1996; (iv) the audited statements of income and retained earnings, stockholders' equity and changes in financial position of the Company for the fiscal year ending June 30, 1996; and (v) supporting and supplemental schedules. Said financial statements shall be accompanied by an unqualified opinion of the Company's independent certified public accountants to the effect that said financial statements: (i) present fairly in the opinion of management the financial position of the Company as of June 30, 1996 and December 31, 1996 and the results of operations and changes in financial position of the Company for the fiscal year ended June 30, 1996 and the six months ended December 31, 1996; and (ii) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the period covered thereby. 6.8 COOPERATION. The Company shall cooperate fully with the Seller and Purchaser for the purpose of attempting to ensure the consummation of the transactions contemplated hereby. 6.9 CONDITIONS. In addition to its other obligations hereunder, the Company shall use its best efforts to cause the conditions set forth in Sections 9.1 through 9.8 to be satisfied on a timely basis. The Company shall promptly inform Purchaser if the Company believes or has any reason to believe that any of the conditions set forth in Section 9 might not be satisfied in a timely manner on or before the Closing Date. SECTION 7. PRE-CLOSING COVENANTS OF THE SELLER Between the date hereof and the Closing Date: 7.1 COOPERATION. The Seller shall cooperate fully with the Company and the Purchaser for the purpose of attempting to ensure the consummation of the transactions contemplated hereby. 7.2 CONDITIONS. In addition to its other obligations hereunder, the Seller shall use his best efforts to cause the conditions set forth in Section 9 to be satisfied on a timely basis. The Seller shall promptly inform Purchaser if it believes or has any reason to believe that any of the conditions set forth in Section 9 might not be satisfied on a timely basis on or before the Closing Date. SECTION 8. PRE-CLOSING COVENANT OF PURCHASER 15 Between the date of this Agreement and the Closing Date: (a) Purchaser shall use its best efforts to cause the conditions set forth in Sections 10.1 and 10.3 to be satisfied on a timely basis, and (b) Purchaser shall promptly inform the Seller if Purchaser believes or has any reason to believe that any of the conditions set forth in Section 10 might not be satisfied on a timely basis on or before the Closing Date. SECTION 9. CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE The obligation of Purchaser to consummate the transactions that are to be consummated at the Closing is subject to the satisfaction, on or before the Closing Date, of the following conditions (any of which may be waived by Purchaser in whole or in part): 9.1 ACQUISITION OF OTHER SHARES. The Purchaser shall have acquired or shall acquire on the Closing Date 100% of the issued and outstanding capital stock of the Company, including the shares of Stock subject to this Agreement. 9.2 RESIGNATIONS OF CERTAIN DIRECTORS. Such directors of the Company as Purchaser shall have specified in writing shall have submitted their resignations (to be effective as of the Closing) from the Board of Directors of the Company. The directors of the Company shall have duly appointed (effective as of the Closing) such other persons as Purchaser shall have designated to fill the vacancies on the Company's Board of Directors. The Seller shall be appointed to be a member of the Company's Board of Directors on the Closing Date. 9.3 REPRESENTATIONS AND WARRANTIES. Each of the representations and warranties of the Company set forth in this Agreement, and each of the representations and warranties of the Seller set forth in this Agreement, shall have been true and correct in all material respects on the date of this Agreement, and shall be true and correct in all material respects on the Closing Date as though such representations and warranties were made as of the Closing Date. In addition, the Purchaser shall have verified to its satisfaction that (a) the Company's total revenues for the fiscal year ended June 30, 1996 were at least $2.5 million, (b) the Company has no long term debts other than the loans from the Seller and Ralph Flygare which aggregate approximately $450,000, (c) the Company has no short term debts which are inconsistent with its earnings and revenues, (d) the Company has good, valid and unencumbered title to all of the software which it represents to own, (e) the Company has no pending or threatened litigation or claims against it and no liabilities other than those disclosed in its financial statements, (f) the Company has a stable base of customers with a minimum of 80% having no plans to switch to a new software provider, and (g) that the Company's software performs as it represents, and to the satisfaction of its customers. 9.4 PERFORMANCE. The Seller shall have tendered to Purchaser all of its shares of Stock, and the Company and the Seller shall have duly complied with and performed, in all material respects, all other agreements, covenants and obligations required by this Agreement to be complied with or performed by them on or before the Closing Date. 9.5 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings of the Company and the Seller relating to the transactions contemplated by this Agreement, and all instruments and other documents incident to such transactions, shall be reasonably satisfactory in form and substance to Purchaser, and 16 Purchaser shall have received copies of such instruments and other documents (including certified copies of corporate resolutions and "good standing" certificates) as it may reasonably request. 9.6 RETENTION OF GENERAL MANAGER. Prior to the Closing Date, Eric Hoffberg agrees with the Company and the Purchaser to serve as the General Manager of the Company for at least 12 months after the Closing Date. 9.7 VICE PRESIDENT OF SALES AND MARKETING. Prior to the Closing Date, Michael Ewing agrees to serve as the Company's Vice-President of Sales and Marketing for at least 12 months after the Closing Date, reporting to Mr. Eric Hoffberg. 9.8 FINAL APPROVAL OF BOARD OF DIRECTORS. The Purchaser's Board of Directors adopts a resolution giving final approval to this Agreement and the transactions contemplated by this Agreement. SECTION 10. CONDITIONS TO OBLIGATIONS OF SELLER TO CLOSE The obligations of the Seller to consummate the transactions that are to be consummated at the Closing are subject to the satisfaction, on or before the Closing Date, of the following conditions (any of which may be waived by the Seller in whole or in part): 10.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Purchaser set forth in this Agreement shall have been true and correct in all material respects on the date of this Agreement, and shall be true and correct in all material respects on the Closing Date as though such representations and warranties were made as of the Closing Date. 10.2 PERFORMANCE. Purchaser shall have duly complied with and performed, in all material respects, all agreements and obligations required by this Agreement to be complied with or performed by Purchaser on or before the Closing Date. 10.3 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings of Purchaser relating to the transactions contemplated by this Agreement and all instruments and other documents incident to such transactions, shall be reasonably satisfactory in form and substance to the Seller, and the Seller shall have received copies of such instruments and other documents as it may reasonably request. SECTION 11. TERMINATION OF AGREEMENT This Agreement and the transactions contemplated hereby may be terminated and abandoned at any time before the Closing: (a) by the unanimous consent of the parties hereto; (b) by the Seller, if there has been a material breach by Purchaser of any of the representations, warranties, covenants or obligations of Purchaser set forth herein; 17 (c) by Purchaser, if there has been a material breach by the Company, or the Seller of any of the representations, warranties, covenants or obligations of the Company or the Seller set forth herein; or (d) if the Closing shall not have taken place by 4:00 p.m. on June 1, 1997 (or such later time or date as the parties hereto may agree), (i) by Purchaser for any reason, unless the failure of the Closing to take place by such time is attributable to the failure of Purchaser to perform its obligations hereunder, or (ii) by the Seller for any reason, unless the failure of the Closing to take place by such time is attributable to the failure of the Seller to perform its obligations hereunder. SECTION 12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES The representations and warranties of each party hereto, (including the representations and warranties of such party set forth in this Agreement and the representations and warranties of such party set forth in the instruments and other documents delivered pursuant hereto or in connection herewith prior to or at the Closing, (i) shall survive, and shall not be affected by, the Closing (or the termination of this Agreement pursuant to Section 11), and (ii) shall not be affected by any information furnished to, or any investigation made by, any other party hereto or any of such other party's employees, attorneys, accountants or other representatives. For purposes of this Agreement, each statement or other item of information in any disclosures by the Seller or the Company to the Purchaser shall be deemed to be a representation and warranty of the Company pursuant to this Agreement. SECTION 13. INDEMNIFICATION 13.1 INDEMNIFICATION BY COMPANY. The Company shall hold harmless and indemnify Purchaser and each of Purchaser's past, present and future directors, officers, shareholders, employees, attorneys, agents and other affiliates from and against any damage, cost or loss that is directly or indirectly suffered or incurred at any time by Purchaser or any of such directors, officers, shareholders, employees, attorneys, agents or other affiliates and that arises directly or indirectly out of or by virtue of, or is directly or indirectly connected with, the breach or inaccuracy of any of the representations and warranties of the Company or the failure of the Company to perform any of its covenants or obligations contained in this Agreement (or in any instrument or other document delivered hereunder or in connection herewith). 13.2 INDEMNIFICATION OF PURCHASER BY THE SELLER. The Seller shall hold harmless and indemnify Purchaser and each of Purchaser's past, present and future directors, officers, shareholders, employees, attorneys, agents and other affiliates ("Purchaser's Affiliates") from and against any damage, loss or cost that is directly or indirectly suffered or incurred at any time by Purchaser or any of Purchaser's Affiliates and that arises directly or indirectly out of or by virtue of, or is directly or indirectly connected with, the breach or inaccuracy of any of the representations and warranties of the Seller or the failure of the Seller to perform any of his covenants or obligations contained in this Agreement or in any instrument or other document delivered hereunder or in connection herewith. 13.3 INDEMNIFICATION FROM LITIGATION. Upon the Closing of this transaction, the Seller (i) agrees to indemnify and hold harmless the Company and any of its former and present officers, other shareholders 18 directors and employees for any actions, real or imagined, taken by these individuals prior to the Close of this transaction that may have had, in the opinion of the Seller, any adverse impact in any manner upon the Seller, whether real or perceived, and (ii) willingly and knowingly agrees that the payment from the Purchaser at the Closing of this transaction resolves any claim or potential claim, action, suit, proceeding, dispute, litigation or complaint by the Seller against the Company or any of the present or former directors, officers, other shareholders and employees of the Company and (iii) gives up the right to initiate any action, suit, proceeding, dispute, litigation, claim or complaint before any court, tribunal, governmental body, governmental agency or arbitrator against the Company or any of the present or former directors, officers, other shareholders and employees of the Company for actions taken by the Company or any of the present or former directors, officers and employees of the Company prior to the Closing of this transaction. 13.4 INDEMNIFICATION BY PURCHASER. Purchaser shall hold harmless and indemnify the Seller and each of the past, present and future directors, officers, shareholders, employees, attorneys, agents and other affiliates of the Seller from and against any damage, loss, shareholder or derivative suits or claims as a result of this stock purchase agreement or cost that is directly or indirectly suffered or incurred at any time by the Seller or any of such directors, officers, shareholders, employees, attorneys, agents or other affiliates and that arises directly or indirectly out of or by virtue of, or is directly or indirectly connected with, the breach or inaccuracy of any of the representations and warranties of Purchaser or the failure of Purchaser to perform any of its covenants or obligations contained in this Agreement or in any instrument or other document delivered hereunder or in connection herewith. 13.5 NOTICE AND OPPORTUNITY TO DEFEND. If any legal proceeding is initiated, or any claim or demand is made, against any person with respect to which such person (the "Indemnified Party") may make a claim against any party hereto (the "Indemnifying Party") pursuant to this Section 13, then the Indemnified Party shall give prompt written notice of such legal proceeding, claim or demand to the Indemnifying Party. The Indemnifying Party shall, at its own expense and with its own counsel, defend or settle such legal proceedings, claim or demand; provided, however, that: (i) the Indemnifying Party shall keep the Indemnified Party informed of all material developments and events relating to such legal proceeding, claim or demand; (ii) the Indemnified Party shall have the right to participate, at its own expense, in the defense of such legal proceeding, claim or demand and shall cooperate as reasonably requested by the Indemnifying Party in the defense thereof; and (iii) the Indemnifying Party shall not settle such legal proceeding, claim or demand without the prior written consent of the Indemnified Party, which consent shall not be unreasonably withheld. 13.6 INDEMNIFICATION NOT A WAIVER. A person's right to indemnification pursuant to this Section 13 shall not be deemed to be such person's exclusive remedy in connection with or arising from the breach or inaccuracy of any of the representations and warranties of the Indemnifying Party or the failure of the Indemnifying Party to perform any of its covenants or obligations contained in this Agreement or in any instrument or other document delivered hereunder or in connection herewith. The exercise by any person of his right to demand and receive such indemnification shall not be deemed to prejudice, or to operate as a waiver of, any remedy to which such person may be entitled at law or equity. 13.7 RIGHT OF SETOFF. Should the Seller be deemed by a Court of Law to be responsible for any damage or loss for which the Seller has indemnified the Purchaser, the Purchaser (i) agrees to limit the Seller's liability to a maximum of $100,000, except if the Seller is found to have engaged in an act of fraud that resulted in the damage or loss by the purchaser, and Purchaser (ii) shall have the right to set off the 19 amount of any such damage, loss or cost up to $100,000 against the amount of any obligation of Purchaser or the Company to the Seller or his successors or assigns (including, without limitation, any amounts payable under the Promissory Note and the Second Promissory Note), except if the Seller is found to have engaged in an act of fraud that resulted in the damage or loss by the purchaser, in which case there shall be no limit to the amount that may be set off by the Purchaser. SECTION 14. MISCELLANEOUS 14.1 FURTHER ASSURANCES. Following the Closing, the Seller shall furnish to Purchaser and the Company such instruments and other documents as Purchaser may reasonably request for the purpose of carrying out or evidencing the transactions contemplated hereby. 14.2 FEES AND EXPENSES. Purchaser and Company shall pay all fees, costs and expenses that it incurs in connection with the negotiation and preparation of this Agreement and in carrying out the transactions contemplated hereby (including, without limitation, all fees and expenses of its counsel and accountant). 14.3 DEFAULT. In the event that Purchaser is found to be in default of the Promissory Note described in Sections 1.2 (a), then the Seller has the right to demand that the remaining payments for all stock be made in full within 30 days or that all stock not paid for on a pro-rated basis based on payments actually made be returned to the Seller by the Escrow Agent. 14.4 NOTICES. Each notice or other communication hereunder shall be in writing and shall be deemed to have been duly given on the earlier of (i) the date on which such notice or other communication is actually received by the intended recipient thereof, or (ii) the date five (5) days after the date such notice or other communication is mailed by registered or certified mail (postage prepaid) to the intended recipient at the following address (or at such other address as the intended recipient shall have specified in a written notice given to the other parties hereto); IF TO THE SELLER: ______________________ IF TO THE COMPANY: California Interactive Computing, Inc. 25572 Avenue Stanford Valencia, California 91355 Attention: Jerry C. Buckley, President IF TO PURCHASER: Incomnet, Inc. 20 21031 Ventura Boulevard, Suite 1100 Woodland Hills, California 91364 Attention: Melvyn Reznick, President 14.5 PUBLICITY. No press release, notice to any third party or other publicity concerning the transactions contemplated by this Agreement shall be issued, given or otherwise disseminated without the prior approval of each of the parties hereto; provided, however, that such approval shall not be unreasonably withheld. 14.6 TABLE OF CONTENTS AND HEADINGS. The table of contents of this Agreement and the underlined headings contained herein are for convenience only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the interpretation hereof. 14.7 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall constitute an original and all of which, when taken together, shall constitute one agreement. 14.8 GOVERNING LAW. This Agreement shall be construed in accordance with, and governed in all respects by, the laws of the State of California. The venue for any legal action under this Agreement shall be in the appropriate forum in the County of Los Angeles, State of California. 14.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the parties hereto and their respective heirs, successors and assigns, if any, and shall inure to the benefit of the parties hereto and their respective heirs, successors and assigns, if any. 14.10 SEVERABILITY. In the event that any provision of this Agreement, or the application of such provision to any person or set of circumstances, shall be determined to be invalid, unlawful or unenforceable to any extent at any time after the Closing Date, the remainder of this Agreement, and the application of such provision to persons or circumstances other than those as to which it is determined to be invalid, unlawful or unenforceable, shall not be affected and shall continue to be enforceable to the fullest extent permitted by law. 14.11 WAIVER. No failure or delay on the part of any party hereto in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or privilege. 14.12 ENTIRE AGREEMENT. This Agreement sets forth the entire understanding of the parties hereto and supersedes all prior agreements and understandings among the parties relating to the subject matter hereof. 14.13 PARTIES IN INTEREST. Except for the provisions of Section 14, none of the provisions of this Agreement or of any other document relating hereto is intended to provide any rights or remedies to any person (including, without limitation, any employees or creditors of the Company) other than the parties hereto and their respective heirs, successors and assigns, if any. 21 14.14 VARIATIONS OF PRONOUNS. Whenever required by the context hereof, the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; and the neuter gender shall include the masculine and feminine genders. 14.15 "PERSON". The term "person" as used herein shall include any individual, corporation, general partnership, limited partnership, joint venture, association, trust, organization, business entity, government (or political subdivision thereof) or governmental agency. 14.16 APPLICABILITY OF CERTAIN TERMS TO NON-CORPORATE ENTITIES. When used herein with respect to any non-corporate entity: the terms "shares," "stock" and "capital stock" shall be deemed to refer to equity interests of any nature in such entity; the term "shareholder" shall be deemed to refer to any holder of any equity interest in such entity; and the terms "director" and "officer" shall be deemed to refer to any person who is involved in the management of such entity or who performs functions for such entity that are similar to the functions performed by officers or directors of a corporation. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. SELLER: ___________________________________ COMPANY: CALIFORNIA INTERACTIVE COMPUTING, INC., a California Corporation By:___________________________________ Jerry C. Buckley, President PURCHASER: INCOMNET, INC. By:___________________________________ Melvyn Reznick, President Attested By:___________________________________ Stephen A. Caswell, Secretary 22 EX-99.B 3 EXHIBIT 99.B EXHIBIT B PROMISSORY NOTE ________________ ________, 1997 Woodland Hills, California FOR VALUE RECEIVED, Incomnet, Inc., a California corporation (the "Maker") at 21031 Ventura Blvd. #1100, Woodland Hills, CA 91364 hereby promises to pay to the order of __________, an individual ("Payee") at 25572 Avenue Stanford, Valencia, California 91355, the principal sum ____________________, commencing to accrue on ________, 1998, payable as follows: 1. RIGHT OF PREPAYMENT. Maker has the right to prepay all or any portion of this Note at any time during its term without penalty. Such prepayments shall be applied first to interest and then to principal. 2. DEFAULT. Any of the following shall constitute a default by Maker hereunder: -- The failure of the Maker to make any payment of principal or interest required hereunder within 30 days of the due date for such payment, as it may properly be extended pursuant to the terms of this Note; or -- The failure of Maker to fully perform any other material covenants and agreements under this Note and continuance of such failure for a period of 30 days after written notice of the default by Payee to the Maker. Upon the occurrence of a default hereunder, Payee may, at its option, declare immediately due and payable the entire unpaid principal sum of this Note together with all accrued and unpaid interest owing at the time of such declaration pursuant to this Note. 3. PAYMENT & LATE PAYMENT. This Note shall be payable in lawful money of the United States. Any payment that is more than 10 days late shall be subject to a late fee of 1.5% of the payment amount. 4. PLACE OF PAYMENT. All payments on this Note are to be made or given to Payee at the address provided to Maker or to such other place as Payee may from time to time direct by written notice to Maker. 5. WAIVER. Maker, for itself and its successors, transfers and assigns, waives presentment, dishonor, protest, notice of protest, demand for payment and dishonor in nonpayment of this Note, bringing of suit or diligence of taking any action to collect any sums owing hereunder or in proceeding against any of the rights and properties securing payment hereunder. 6. SEVERABILITY. If any provision of this Note or the application thereof to any persons or entities or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Note shall not be deemed affected thereby and every provision of this Note shall be valid and enforceable to the fullest extent permitted by law. 7. NO PARTNER. Payee shall not become or be deemed to be a partner or joint venturer with Maker by reason of any provision of this Note. Nothing herein shall constitute Maker and Payee as partners or joint venturers or require Payee to participate in or be responsible or liable for any costs, liabilities, expenses or losses of Maker. 8. NO WAIVER. The failure to exercise any rights herein shall not constitute a waiver of the right to exercise the same or any other right at any subsequent time in respect of the same event or any other event. 9. RIGHT OF OFFSET. In the event of any material default by the Payee under the terms of that certain Stock Purchase Agreement, dated April 11, 1997, by and between the Maker, the Payee and California Interactive Computing, Inc., the Maker will have the right to offset any damage, loss or cost suffered or incurred by the Maker as the result of said breach from the next payments due on this Note. 10. GOVERNING LAW. This Note shall be governed by and construed solely in accordance with the laws of the State of California. IN WITNESS WHEREOF, Maker has executed this Note as of the date first hereinabove written. INCOMNET, INC. By: ______________________________________ Melvyn Reznick, President Attested By: _____________________________ Stephen A. Caswell, Secretary EX-99.C 4 EXHIBIT 99.C EXHIBIT C EMPLOYMENT AGREEMENT BETWEEN CALIFORNIA INTERACTIVE COMPUTING, INC. AND JERRY BUCKLEY This EMPLOYMENT AGREEMENT (this "Agreement") is made as of the 25th day of April 1997, by and between California Interactive Computing, Inc., a California corporation (the "Company"), and Jerry Buckley, an individual (the "Employee"), and is made with respect to the following facts: RECITALS A. The Company and the Employee wish to ensure that the Company will receive the benefit of Employee's loyalty and service. B. In order to help ensure that the Company receives the benefit of Employee's loyalty and service, the parties desire to enter into this formal Employment Agreement to provide Employee with appropriate compensation arrangements and to assure Employee of employment stability. C. The parties have entered into this Agreement for the purpose of setting forth the terms of employment of the Employee by the Company. NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, THE PARTIES HERETO AGREE AS FOLLOWS: 1. EMPLOYMENT OF EMPLOYEE AND DUTIES. The Company hereby hires Employee and Employee hereby accepts employment upon the terms and conditions described in this Agreement. The Employee shall serve as the Director of Strategic Planning and shall report to the General Manager of the Company. The Employee's duties shall be determined by the General Manager of the Company in consultation with the Company's Board of Directors. 2. TIME AND EFFORT. Employee agrees to devote his full working time and attention to the management of the Company's business affairs, the implementation of its strategic plan, as determined by the Board of Directors, and the fulfillment of his duties and responsibilities as defined by the Company. Expenditure of a reasonable amount of time for personal matters and business and charitable activities shall not be deemed to be a breach of this Agreement, provided that those activities do not materially interfere with the services required to be rendered to the Company under this Agreement. 3. THE COMPANY'S AUTHORITY. Employee agrees to comply with the Company's rules and regulations as adopted by the Company's Board of Directors regarding performance of his duties, and to carry out and perform any orders and directions established by the Company's General Manager to whom he directly reports. Employee shall promptly notify the Company's General Manager of any objection he has to the directives and the reasons for such objection. 4. NON-COMPETITION BY EMPLOYEE. During the term of this Agreement and during any period in which Employee is receiving severance benefits, if any, from the Company or any of its affiliates, the Employee shall not, directly or indirectly, either as an employee, employer, agent, independent contractor, consultant, principal, partner, stockholder (in a private company), corporate officer, director, or in any other individual or representative capacity, engage or participate in any business that is in competition with the business of the Company or its affiliates. 1 5. TERM OF AGREEMENT. This Agreement shall commence to be effective on the date first above written and shall continue for two calendar years from the date of commencement, unless terminated as provided in Section 12 hereof. 6. COMPENSATION. During the term of this Agreement, the Company shall pay the Employee an annual salary of $120,000, with payments of $5,000 made bi-monthly on the 15th and last day of every month. All compensation provided in Sections 6 and 8 shall be subject to customary withholding tax and other employment taxes, to the extent required by law. 7. FRINGE BENEFITS. Employee shall be entitled to all fringe benefits which the Company may make available from time-to-time for persons with comparable positions and responsibilities. Without limitation, such benefits shall include participation in any life and disability insurance programs, profit incentive plans, pension or retirement plans, and bonus plans as are maintained or adopted from time-to-time by the Company. The Company shall also provide Employee with medical group insurance coverage or equivalent coverage for Employee and his dependents. The medical insurance coverage shall begin on the commencement of this Agreement and shall continue throughout the term of this Agreement. Should Employee choose not to avail himself of such benefits, the Company is not obligated to provide to the Employee the cash equivalent of these benefits. All compensation provided in Section 7 shall be subject to customary withholding tax and other employment taxes, to the extent required by law. 8. REIMBURSEMENT OF EXPENSES. The Company shall reimburse Employee for all reasonable travel, mobile telephone, promotional and entertainment expenses directly incurred by him in connection with the performance of Employee's duties hereunder. Employee's reimbursable expenses shall be paid promptly by the Company upon presentment by Employee of an itemized list of invoices describing and verifying such expenses. 9. VACATION. The Employee shall be entitled to the vacation time and time off for holidays provided in the Company's established corporate policy for employees with comparable duties and responsibilities. 10. RIGHTS IN AND TO INVENTIONS AND PATENTS. 10.1 DESCRIPTION OF PARTIES' RIGHTS. The Employee agrees that with respect to any inventions made by him or the Company during the term of this Agreement, solely or jointly with others, (i) which are made with the Company's equipment, supplies, facilities, trade secrets or time, or (ii) which relate to the business of the Company or the Company's actual or demonstrably anticipated research or development, or (iii) which result from any work performed by the Employee for the Company, such inventions shall belong to the Company. The Employee also agrees that the Company shall have the right to keep such inventions as trade secretes, if the Company chooses. 10.2 DISCLOSURE REQUIREMENTS. For purposes of this Agreement, an invention is deemed to have been made during the term of this Agreement if, during such period, the invention was 2 conceived or first actually reduced to practice. The Employee agrees that any patent application filed within one year after termination of his employment shall be presumed to relate to an invention made during the term of this Agreement unless he can provide evidence to the contrary. In order to permit the Company to claim rights to which it may be entitled, the Employee agrees to disclose to the Company in confidence all inventions which the Employee makes during the term of this Agreement and all patent applications filed by the Employee within one year after termination of this Agreement. 11. ARBITRATION. Any disputes arising under this Agreement will be resolved in accordance with the rules of the American Arbitration Association as they apply in the County of Los Angeles, State of California. The decision of the arbitrator shall be binding on all parties to this Agreement. 12. TERMINATION. This Agreement may be terminated in the following manner and not otherwise: 12.1 MUTUAL AGREEMENT This Agreement may be terminated by the mutual written agreement of the Company and Employee to terminate. 12.2 TERMINATION BY EMPLOYEE FOR BREACH. Employee may at his option and in his sole discretion terminate this Agreement for the material breach by the Company of the terms of this Agreement. In the event of such termination, Employee shall give the Company 30 days' prior written notice. 12.3 TERMINATION BY THE COMPANY FOR BREACH. The Company may at its option immediately terminate this Agreement in the event Employee commits negligence in the performance of his duties under this Agreement, or breaches his fiduciary duty to the Company, to the Board of Directors or to the Company's shareholders. The Company may at its option terminate this Agreement in the event that the Employee does not perform his duties in accordance with the direction or policies of the Company's Board of Directors or otherwise materially breaches this Agreement; provided, however, that the Company shall give the Employee written notice of specific instances for the basis of such a termination of this Agreement by the Company. Employee shall have a period of 30 days after said notice in which to cease the alleged violations before the Company may terminate this Agreement. If Employee ceases to commit the alleged violations within said 30 day period, the Company may not terminate this Agreement pursuant to this Section. If Employee continues to commit the alleged violations after said 30 day period, the Company may terminate this Agreement immediately upon written notification to Employee. 13. IMPROPER TERMINATION. If this Agreement is terminated by Employee pursuant to Section 12.2 herein (and the Company has committed a material breach of this Agreement) or by the Company in any manner except as specifically provided in Section 12 herein, the Company shall continue to pay to Employee all of Employee's salary and benefits provided in this Agreement including, but not limited to, the salary and benefits provided in Sections 6 and 7 of this Agreement for the remaining term of this Agreement. 3 14. INDEMNIFICATION. Pursuant to the provisions and subject to the limitations of the California Corporations Code, and in particular Sections 204 and 317 therein, the Company shall indemnify and hold Employee harmless as provided in Sections 14.1,14.2 and 14.3 of this Agreement. The Company shall, upon the request of Employee, assume the defense and directly bear all of the expense of any action or proceedings which may arise for which Employee is entitled to indemnification pursuant to this Section. 14.1 INDEMNIFICATION OF EMPLOYEE FOR ACTIONS BY THIRD PARTIES. The Company hereby agrees to indemnify and hold Employee harmless from any liability, claims, fines, damages, losses, expenses, judgments or settlements actually incurred by him, including, but not limited to, reasonable attorneys' fees and costs actually incurred by him as they are incurred, as a result of Employee being made at any time a party to, or being threatened to be made a party to, any proceeding (other than an action by or in the right of the Company, which is addressed in Section 14.2 of this Agreement), relating to actions Employee takes within the scope of his employment as the Director of Strategic Planning of the Company, or any other assigned position, provided that Employee acted in good faith and in a manner he reasonably believed to be in the best interest of the Company and, in the case of a criminal proceeding, had no reasonable cause to believe his conduct was unlawful. 14.2 INDEMNIFICATION OF EMPLOYEE FOR ACTIONS IN THE RIGHT OF THE COMPANY. The Company hereby agrees to indemnify and hold Employee harmless from any liability, claims, damages, losses, expenses, judgments or settlements actually incurred by him, including but not limited to reasonable attorneys' fees and costs actually incurred by him as they are incurred, as a result of Employee being made a party to, or being threatened to be made a party to, any proceeding by or in the right of the Company to procure a judgment in its favor by reason of any action taken by Employee as an officer, director or agent of the Company, provided that Employee acted in good faith in a manner he reasonably believed to be in the best interests of the Company and its shareholders, and provided further, that no indemnification by the Company shall be required pursuant to this Section 14.2 (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that Employee believed to be contrary to the best interests of the Company or its shareholders or that involve the absence of good faith on the part of Employee, (iii) for any transaction from which Employee derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard by Employee of his duties to the Company or its shareholders in circumstances in which Employee was aware, or should have been aware, in the ordinary course of performing his duties, of a risk of serious injury to the Company or its shareholders, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of Employee's duties to the Company or its shareholders, (vi) for any violation by Employee of Section 310 of the California Corporations Code or (vii) for any violation by Employee of Section 316 of the California Corporations Code. Furthermore, the Company has no obligation to indemnify Employee pursuant to this Section 14.2 in any of the following circumstances: A. In respect of any claim, issue, or matter as to which Employee is adjudged to be liable to the Company in the performance of his duties to the Company and its shareholders, 4 unless and only to the extent that the court in which such action was brought determines upon application that, in view of all the circumstances of the case, he is fairly and reasonably entitled to indemnity for the expenses and then only in the amount that the court shall determine. B. For amounts paid in settling or otherwise disposing of a threatened or pending action without court approval. C. For expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval. 14.3 REIMBURSEMENT. In the event that it is determined that Employee is not entitled to indemnification by the Company pursuant to Sections 14.1 or 14.2 of this Agreement, then Employee is obligated to reimburse the Company for all amounts paid by the Company on behalf of Employee pursuant to the indemnification provisions of this Agreement. In the event that Employee is successful on the merits in the defense of any proceeding referred to in Sections 14.1 or 14.2 of this Agreement, or any related claim, issue or matter, then the Company will indemnify and hold Employee harmless from all fees, costs and expenses actually incurred by him in connection with the defense of any such proceeding, claim, issue or matter. 15. ASSIGNABILITY OF BENEFITS. Except to the extent that this provision may be contrary to law, no assignment, pledge, collateralization or attachment of any of the benefits under this Agreement shall be valid or recognized by the Company. Payment provided for by this Agreement shall not be subject to seizure for payment of any debts or judgments against the Employee, nor shall the Employee have any right to transfer, modify, anticipate or encumber any rights or benefits hereunder; provided that any stock issued by the Company to the Employee pursuant to this Agreement shall not be subject to Section 15 of this Agreement. 16. NOTICE. Except as otherwise specifically provided, any notices to be given hereunder shall be deemed given upon personal delivery, air courier or mailing thereof, if mailed by certified mail, return receipt requested, to the following addresses (or to such other address or addresses as shall be specified in any notice given): In case of the Company: California Interactive Computing, Inc. c/o Incomnet, Inc. 21031 Ventura Boulevard, Suite 1100 Woodland Hills, California 91364 Attention: Melvyn Reznick, Chairman of the Board of Directors In case of the Employee: Jerry Buckley c/o California Interactive Computing 5 25572 Avenue Stanford Valencia, CA 91355 17. ATTORNEYS' FEES. In the event that any of the parties must resort to legal action in order to enforce the provisions of this Agreement or to defend such suit, the prevailing party shall be entitled to receive reimbursement from the non-prevailing party for all reasonable attorneys' fees and all other costs incurred in commencing or defending such suit. 18. ENTIRE AGREEMENT This Agreement embodies the entire understanding among the parties and merges all prior discussions or communications among them, and no party shall be bound by any definitions, conditions, warranties, or representations other than as expressly stated in this Agreement or as subsequently set forth in a writing signed by the duly authorized representatives of all of the parties hereto. 19. NO ORAL CHANGE: AMENDMENT. This Agreement may only be changed or modified and any provision hereof may only be waived by a writing signed by the party against whom enforcement of any waiver, change or modification is sought. This Agreement may be amended only in writing by mutual consent of the parties. 20. SEVERABILITY. In the event that any provision of this Agreement shall be void or unenforceable for any reason whatsoever, then such provision shall be stricken and of no force and effect. The remaining provisions of this Agreement shall however, continue in full force and effect, and to the extent required, shall be modified to preserve their validity. 21. APPLICABLE LAW. This Agreement shall be construed as a whole and in accordance with its fair meaning. This Agreement shall be interpreted in accordance with the laws of the State of California, and venue for any action or proceedings brought with respect to this Agreement shall be in the County of Los Angeles in the State of California. 22. SUCCESSORS AND ASSIGNS. Each covenant and condition of this Agreement shall inure to the benefit of and be binding upon the parties hereto, their respective heirs, personal representatives, assigns and successors in interest. Without limiting the generality of the foregoing sentence, this Agreement shall be binding upon any successor to the Company whether by merger, reorganization or otherwise. 6 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written. COMPANY: CALIFORNIA INTERACTIVE COMPUTING, INC., Attest: a California corporation /s/ Stephen A. Caswell ---------------------------- Stephen A. Caswell, Director By: /s/ Melvyn Reznick ---------------------------------- Melvyn Reznick Chairman of the Board of Directors EMPLOYEE: /s/ Jerry Buckley ---------------------------------- Jerry Buckley 7 -----END PRIVACY-ENHANCED MESSAGE-----