-----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, FbkYclgIWSzy+4IbIERNlme/6N2acGCz0WVcgKK+L4DsHnCpd0RIY5YVgkz0bY+r GstvMeONqVEINhF91C2Vcw== 0000950150-98-001445.txt : 19980825 0000950150-98-001445.hdr.sgml : 19980825 ACCESSION NUMBER: 0000950150-98-001445 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19980824 SROS: NONE SUBJECT COMPANY: 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: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-34858 FILM NUMBER: 98696397 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 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: CASEY JOHN P CENTRAL INDEX KEY: 0001059260 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 10220 RIVER RD STREET 2: STE 115 CITY: POTOMAC STATE: MD ZIP: 20854 BUSINESS PHONE: 3019835000 SC 13D/A 1 SCHEDULE 13D AMENDMENT 9 1 --------------------------- OMB APPROVAL --------------------------- OMB Number: 3235-0145 Expires: December 31, 1997 Estimated average burden hours per response....14.90 --------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 9)* INCOMNET, INC. - -------------------------------------------------------------------------------- (Name of Issuer) COMMON STOCK - -------------------------------------------------------------------------------- (Title of Class of Securities) 453365207 ---------------------------------------------- (CUSIP Number) John P. Casey, 10220 River Road, Suite 115, Potomac, MD 20854 (301) 983-5000 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) August 21, 1998 - -------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [ ]. NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d- 7(b) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). 2 SCHEDULE 13D - --------------------------- ------------------------- CUSIP NO. 453365207 PAGE 2 OF 5 PAGES - --------------------------- ------------------------- - ------------------------------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON JOHN P. CASEY - SS# ###-##-#### - ------------------------------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ] (b) [X] - ------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY - ------------------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS 00 - ------------------------------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(E) [ ] - ------------------------------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - ------------------------------------------------------------------------------------------------------- 7 SOLE VOTING POWER 6,035,504* -------------------------------------------------------------------------------- NUMBER OF 8 SHARED VOTING POWER SHARES BENEFICIALLY 102,000 (children's trust; 1/3 voting trustee) OWNED BY EACH REPORTING PERSON WITH -------------------------------------------------------------------------------- 9 SOLE DISPOSITIVE POWER 6,035,504* -------------------------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 102,000 (children's trust; 1/3 voting trustee) - ------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 6,137,504* - ------------------------------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [X] * - ------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 30.69% (See Item 5)* - ------------------------------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON IN - -------------------------------------------------------------------------------------------------------
* Does not include shares of common stock issuable on the conversion of 725.473 shares of Series A Convertible Preferred Stock of Incomnet and 872.738 shares of Series B Convertible Preferred Stock of Incomnet (collectively, the "Preferred Shares") which Mr. Casey has an option (the "Option") to purchase, exercisable at any time prior to October 14, 1998. Although the Preferred Shares are convertible at any time, and the current owners of the Preferred Shares attempted to convert them in June 1998, Incomnet does not currently have sufficient authorized but unissued shares of common stock to effect the conversion of the Preferred Shares into common stock. According to Incomnet's Form 10-Q filed August 14, 1998, if the Preferred Shares were converted in June, 1998, they would have converted into 8,459,970 shares of Incomnet common stock. See Items 4 and 5 concerning the Preferred Shares. 3 ----------------- Page 3 of 5 Pages ----------------- This Statement is the ninth Amendment to the Statement on Schedule 13D filed on April 7, 1998 (as previously amended, the "Statement") with the Securities and Exchange Commission by Mr. John P. Casey in connection with his beneficial ownership of shares (the "Shares") of common stock of Incomnet, Inc. ("Incomnet" or the "Issuer"). All capitalized terms used and not defined in this Amendment No. 9 have the meanings given to them in the Statement. Item 4. Purpose of Transaction. On August 21, 1998, Mr. Casey was told that the Board of Directors of Incomnet approved a term sheet containing the material terms of a proposed change of board control arrangement with Mr. Casey (the "Proposed Change of Board Control Arrangement"). THE FOLLOWING DESCRIPTION OF THE PROPOSED CHANGE OF BOARD CONTROL ARRANGEMENT IS SUBJECT IN ITS ENTIRETY TO THE PROVISIONS OF THE TERM SHEET WHICH IS ATTACHED AS EXHIBIT 1 TO THIS SCHEDULE 13D. The terms set forth in the Proposed Change of Board Control Arrangement are intended to form the basis of a definitive agreement (the "Definitive Change of Board Control Agreement"). The closing of a Definitive Change of Control Agreement will be subject to a number of conditions. One of the conditions to such a closing will be resolution of the recent joint demands presented by WorldCom Network Services, Inc. ("WorldCom"), NTC's primary long distance carrier on its own behalf and on behalf of First Bank & Trust of Newport Beach ("First Bank"), NTC's secured creditor, concerning NTC's default in its payment obligations to WorldCom and First Bank (collectively the "Secured Creditors"). According to documents filed by Incomnet with the Securities and Exchange Commission ("Incomnet's SEC Filings"), NTC and WorldCom are parties to a carrier contract which extends through February, 2003 (the "WorldCom Contract") under which NTC has contracted to purchase a designated volume of telephone time. As of February, 1996, WorldCom was given a security interest in NTC's customer base, customer list and contract rights associated with providing services to the customer base to secure NTC's payment obligations under the WorldCom Contract. In early 1998, NTC defaulted on its payment obligations for services provided under the WorldCom Contract. WorldCom had agreed to extend credit to NTC pending the proposed sale of NTC which was terminated in July, 1998. Since the termination of the proposed sale of NTC, NTC has been in negotiations with WorldCom concerning the pending defaults. Also according to Incomnet's SEC Filings, NTC and First Bank are parties to a business loan agreement under which First Bank was owed approximately $8.1 million as of June 30, 1998 (the "First Bank Loan"). The First Bank Loan is secured by NTC's accounts receivable and certain other assets. NTC is currently in default under the First Bank Loan. The current demands by the Secured Creditors include, among other things, that (i) substantial payment be immediately made to the Secured Creditors, (ii) Mr. Casey make various personal financial commitments guaranteeing the obligations of NTC to the Secured Creditors, and (iii) new management be installed at NTC that is acceptable to a consultant of the Secured Creditors. Mr. Casey is unwilling to agree to the demands of WorldCom and First Bank as currently presented (and he is not obligated by the Proposed Change of Board Control Arrangements to meet such demands). The recent demands were a follow-on to WorldCom's recent notice to NTC that, unless NTC and WorldCom could reach a satisfactory resolution of NTC's default under the WorldCom Contract, WorldCom would disconnect NTC's telecommunications services as of August 28, 1998. Mr. Casey anticipates that meetings will be scheduled with WorldCom next week at which he will attempt to reach an understanding with WorldCom as to its requirements concerning NTC's payment obligations and related matters. No assurances can be given that: (i) Mr. Casey will be successful in reaching an understanding with the Secured Creditors as to their demands; (ii) the Proposed Change of Board Control Arrangement will ultimately result in a definitive agreement; (iii) any Definitive Change of Board Control Agreement will be reached on the same terms as set forth in the Proposed Change of Board Control Arrangement; or (iv) the transactions contemplated in the Proposed Change of Board Control Arrangement will be consummated. The Proposed Change of Board Control Arrangement contemplates the resignation of all but one of the current directors of Incomnet and the appointment of a four-person board consisting of Mr. Casey, two designees of Mr. Casey and Mr. Howard Silverman, who is a member of the current Incomnet board. The Proposed Change of Board Control Arrangement also contemplates a modification of Mr. Casey's previously announced intention to offer securities issuable upon exercise of his option on preferred shares (the "Optioned Securities"). Under the Proposed Change of Board Control Arrangement, Mr. Casey will be obligated to exercise the Option prior to its scheduled expiration. The Proposed Change of Board Control Arrangement further contemplates that Incomnet, if it is financially and legally able to do so, will be obligated to purchase the Optioned Securities within one year following the exercise of the Optioned Securities (the "Redemption Period") at a purchase price representing no actual profit to Mr. Casey. If Incomnet is unable to purchase the Optioned Securities during the Redemption Period, Mr. Casey will be obligated to proceed to offer the common stock underlying the Optioned Securities on a pro rata basis to shareholders of record as of a date to be determined in the future. Such common stock will be offered at a per share price representing no actual profit to Mr. Casey. The Proposed Change of Board Control Arrangement also contemplates that upon closing the Definitive Change of Board Control Agreement, Mr. Casey will be 4 ----------------- Page 4 of 5 Pages ----------------- obligated to use commercially reasonable efforts to obtain new financing from third parties for Incomnet. No assurances can be given that Mr. Casey will be successful in obtaining new financing for Incomnet. Various other conditions to completing transactions contemplated under the Definitive Change of Board Control Agreement include the execution of the Definitive Change of Board Control Agreement, settlement of the securities class action lawsuit against Incomnet, and submission of an information statement to all shareholders under Section 14(f) of the Act which, among other things, will provide information about each of the new board members who will take office following the proposed change of board control. It is anticipated that the parties will need at least two weeks following signing the Definitive Change of Board Control Agreement to satisfy the conditions to be set forth in that agreement. If the transactions contemplated under the Definitive Change of Board Control Agreement are completed, Mr. Casey currently anticipates that Incomnet will hold a shareholders meeting within the next few months to (among other things) elect directors and approve an increase in the number of authorized common shares of Incomnet. Item 5. Interest In Securities of the Issuer. (a) Mr. Casey is the beneficial owner of 6,137,504 shares of common stock and may also be deemed to be the beneficial owner of common stock issuable on conversion of the 1,598.211 Preferred Shares by reason of his right to acquire the Preferred Shares on the exercise of the Option. According to Incomnet's Form 10-Q filed August 14, 1998, if Incomnet had sufficient authorized but unissued common stock in June, 1998, to effect the conversion of the tendered preferred shares, the 1,598.211 Preferred Shares would have been converted into 8,459,970 shares of common stock. If Mr. Casey were to exercise the Option and convert the Preferred Shares (assuming sufficient authorized stock were available) Mr. Casey would own 14,597,474 shares of common stock or approximately 47% of the estimated 31,387,806 shares of common stock that would be outstanding at such time. The future estimate of 31,387,806 shares outstanding assumes that in addition to the 20 million common shares currently outstanding: (i) a conversion of the 1,598.211 Preferred Shares by Mr. Casey; (ii) the issuance of 1,568,571 of the To-Be-Issued Common to holders of Series A and Series B preferred stock who currently have not rescinded their attempted conversions in June, 1998 and (iii) and the conversion into 1,359,265 shares of common stock of 243.59 shares of Preferred Stock that were also tendered for conversion on June 10-11, 1998 (but not converted due to the unavailability of authorized but unissued shares of common stock) and which are currently held by persons who are not a party to the Option. The above estimated percentage and number of shares of common stock that would be owned Mr. Casey also assumes that Mr. Casey would be able to convert the Preferred Shares at the price per share in effect when the holders of the Preferred Shares attempted to convert on June 10-11, 1998. See also, Item 4. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. See Item 4. Item 7. Material to be Filed as Exhibits. Exhibit 1. Proposed Change of Board Control Arrangement dated August 21, 1998. 5 ----------------- Page 5 of 5 Pages ----------------- After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. /s/ JOHN P. CASEY Date: August 21, 1998 ------------------------------------------ John P. Casey EX-99.1 2 PROPOSED CHANGE OF BOARD CONTROL ARRANGEMENT 1 EXHIBIT 1 INCOMNET, INC. TERM SHEET August 21, 1998 Set forth below are certain terms relating to the resignation of certain directors of Incomnet, Inc. (the "Company"), the appointment of their successors and certain other matters concerning corporate governance of the Company. The terms set forth below are intended to reflect the mutual understanding of the Company, its current Board of Directors (the "Current Board") and John P. Casey ("Casey"). This term sheet is not intended to be, and does not constitute, a binding or enforceable agreement, but is merely an outline of intention to facilitate the negotiation and preparation of a definitive agreement (the "Agreement") and related documents. Board Representation and Related Matters .......................... Board Members. Messrs. Horowitz, Lesem, Reznick, Wilstein and Ms. Zivitz will agree to resign as directors of the Company upon satisfaction of certain conditions (the "Change of Board Control Conditions"). Mr. Silverman will remain as a director. Mr. Casey, John Hill, Jr. (Chief Financial Officer of Quince Associates) and another person to be designated by Mr. Casey (the "Casey Board Designee") will be appointed as successors to the resigning directors upon satisfaction of the Change of Board Control Conditions. The Casey Board Designee will be disclosed to the Current Board after execution of the Agreement and before filing the Information Statement described below. The Current Board will have the right to approve of the Casey Board Designee, such approval not to be unreasonably withheld. Mr. Silverman, Mr. Casey, Mr. Hill and the Casey Board Designee are referred to herein as the "New Board." The completion of the change in the composition of the Company's Board of Directors is sometimes referred to herein as the "Change of Board Control." -1- 2 Board Committee Matters. The New Board will have an Audit Committee, a Compensation Committee and committee to resolve any issues relating to transactions involving Mr. Casey (the "Disinterested Director Committee"), each of which will have at least three members. Mr. Silverman will be one of the members on each of these committees. Reelection of Mr. Silverman. The Company will nominate Mr. Silverman for reelection to the Board of Directors at the next annual meeting of shareholders of the Company. There will be no obligation of the Company to nominate Mr. Silverman for reelection to the Board of Directors after the next annual meeting of shareholders. There will be no rights granted to any party to designate the successor to Mr. Silverman should he cease being a director of the Company for any reason (whether through voluntary resignation, removal for cause, death or disability). Change of Board Control Conditions ....................... The Agreement will identify the following Change of Board Control Conditions that must be satisfied prior to the Change of Board Control (the date on which the last condition is satisfied or waived is referred to herein as the "Change of Board Control Date"): (i) a settlement agreement must have been entered into among the named parties to the class action lawsuit (the "Class Action Lawsuit") pending against the Company on terms reasonably acceptable to Casey (Casey condition); (ii) the Company must have in place directors and officers insurance coverage on terms acceptable to Casey (Casey condition); (iii) the Autonomy Agreement (described below) must have been rescinded (Casey condition); (iv) the Supermajority Bylaw Provision (described below) must have been rescinded (Casey condition); (v) the consent or agreement of the Cohen Group (defined below) approving of the increase in the authorized number of shares of the Company's Common Stock must have been obtained (Casey and Company Condition); (vi) the Casey Board Designee and any new executive officers identified by the New Board -2- 3 to have positions with the Company or NTC immediately following the Change of Board Control (who must be identified in the Information Statement referred to in item (viii) below) must have been disclosed to, and approved by, the Current Board, such approval not to be unreasonably withheld (Company condition); (vii) WorldCom must have informed NTC in writing of WorldCom's withdrawal of its notice of intent to disconnect services and be on such terms with NTC that are satisfactory to Mr. Casey (Casey condition); (viii) the ten-day waiting period following mailing of an Information Statement (the "Information Statement") pursuant to Rule 14f-1 under the Securities Exchange Act of 1934 must have lapsed (Casey and Company condition). The Agreement will provide for a date that the conditions are anticipated to be satisfied, after which the Company or Mr. Casey may elect to terminate the Agreement. New Incomnet Financing............ Mr. Casey will agree to use commercially reasonable efforts to secure additional equity or debt financing for the Company and cause the New Board to consider all options available to the Company to improve its liquidity consistent with its needs. Rescission of Autonomy Agreement .. The Company will agree to cause the agreement dated January 28, 1997 (the "Autonomy Agreement"), between the Company and NTC to be terminated promptly and no later than three days following the date the Agreement is entered into among the parties. Rescission of Supermajority Bylaw............................. On November 5, 1997, the Company's Board of Directors adopted an amendment to the Company's Bylaws (the "Supermajority Bylaw Provision") requiring that all formal resolutions, acts and decisions of the Board of Directors must be approved by a majority vote plus one director. The Company will rescind the Supermajority Bylaw Provision by adopting an amendment to the Bylaws to eliminate the Supermajority Bylaw Provision, such rescission to -3- 4 be effective on or prior to the Change of Board Control Date. Assignment of Cohen Option by Casey to the Company ................... Mr. Casey owns an option to purchase 1,598.211 shares of Company Preferred Stock (the "Cohen Preferred") from the Cohen Group (the "Cohen Option") for $2.3 million plus accrued dividends and penalties (the "Cohen Exercise Price") on or before October 13, 1998. If the Company is financially able to purchase or redeem the Cohen Preferred at the Cohen Exercise Price prior to the termination of the Cohen Option and the Cohen Group consents to the assignment, Mr. Casey will assign the Cohen Option to the Company on condition that the Company exercise the Cohen Option and redeem the Cohen Preferred at the Cohen Exercise Price. For purposes of determining whether the Company is financially able to redeem the Cohen Preferred, the Company must have cash on hand necessary to undertake such a transaction taking into account its other cash requirements and also meet all requirements under applicable law, including Section 500 et seq. of the California General Corporation Law. Increase in Authorized Number of Common Shares..................... The Company will agree (and Mr. Casey will agree to use commercially reasonable efforts) to cause a Proxy Statement to be prepared and mailed to the Company's shareholders soliciting their approval to amend the Company's Articles of Incorporation to increase the number of authorized shares of Common Stock to 50 million shares (the "Amendment to Articles"). -4- 5 Exercise of Cohen Option by Casey; Redemption or Conversion of Cohen Preferred ........................ If the Company is not financially able to redeem the Cohen Preferred prior to the termination of the Cohen Option (or the Cohen Group does not consent to such assignment), Mr. Casey will be obligated to exercise the Cohen Option prior to its termination. For the one-year period (beginning on the date the Cohen Option is exercised by Mr. Casey and ending on the one-year anniversary of that exercise date, the "Redemption Period"), Mr. Casey will be obligated to hold the Cohen Preferred until the Company is financially able to redeem the Cohen Preferred. At such time as the Company is financially able to redeem the Cohen Preferred, Mr. Casey will assign and transfer the Cohen Preferred to the Company and, upon such transfer, the Company will reimburse Mr. Casey for all of his reasonable costs and expenses (including the Cohen Exercise Price, the carrying costs of financing such Exercise Price and reasonable attorneys' fees) relating to the Cohen Option and the exercise thereof. In the event the Company is not financially able to redeem the Cohen Preferred before expiration of the Redemption Period, as soon as practicable after the later of the approval by shareholders of the Amendment to Articles or the expiration of the Redemption Period, Mr. Casey will tender the Cohen Preferred for conversion and the Company will convert the Cohen Preferred into that number of Company common shares that the holders of Cohen Preferred would have been entitled to receive (based on an average conversion price of approximately $0.19 per share) had the Company been able to convert the Cohen Preferred when tendered for conversion on June 10-11, 1998 (the "Cohen Common"). The Agreement will provide the actual number of common shares that the holders of Cohen Preferred are entitled to receive. -5- 6 Agreement to Conduct Offering ......................... In the event the Cohen Preferred is not redeemed by the Company before expiration of the Redemption Period and the Cohen Preferred is converted into shares of Common Stock, Mr. Casey will agree to offer the Cohen Common on a pro rata basis to the Company's shareholders (including Mr. Casey) as of a certain record date to be announced by the Company ("Record Holders"). The purchase price for the Cohen Common will be the sum of (i) the Exercise Price, (ii) Mr. Casey's actual carrying costs for purchasing and exercising the Cohen Option (approximately 18% interest rate from the date of each payment) and (iii) Mr. Casey's reasonable legal fees and costs attributable to the purchase of the Cohen Preferred and the offering of the Cohen Common. To the extent that the Cohen Common is undersubscribed for during the initial round of the offering, Mr. Casey will agree to make a second round offer on a pro rata basis to the subscribing Record Holders. If the offering is not fully subscribed after the second round, Mr. Casey will be entitled to offer the balance of the Cohen Common to the parties designated by him (including Mr. Casey) in his sole discretion. Expenses.......................... In addition to the costs and expenses related to the Cohen Preferred, the Company agrees to reimburse Mr. Casey for any reasonable costs and expenses (including reasonable attorneys' fees) incurred by him in connection with (a) the settlement of the Class Action Lawsuit, (b) any filings made by the Company or Mr. Casey with the Securities and Exchange Commission or any other regulatory agency in connection with the Change of Board Control, (c) the preparation of the Information Statement, (d) obtaining directors' and officers' insurance coverage and (e) negotiating and preparing this term sheet and the Agreement. Other than the costs and expenses relating to the Cohen Preferred and those matters described in clauses (a) through (e) above, (i) upon the approval of a majority of the disinterested members of the New Board (and without requiring -6- 7 approval of the Company's shareholders), the Company may reimburse Mr. Casey up to $100,000 of costs and expenses incurred by him on or after April 1, 1998 in connection with due diligence concerning the Company and its proposal to sell NTC and the attempt to prevent such sale, the Agreement and any related documentation (collectively, the "Due Diligence Costs") and (ii) upon the approval of the majority of the disinterested members of the New Board and the Company's disinterested shareholders, the Company may reimburse Mr. Casey for Due Diligence Costs in excess of $100,000. Stand-Still by Incomnet and NTC Pending Change of Board Control........................... From the date of the Agreement until the Change of Board Control Date (the "Stand Still Period"), unless Mr. Casey otherwise consents, the Company will not prepare or participate in any of the following or permit any subsidiary (including NTC) to do any of the following: Organizational Documents. Amend any organizational documents. Extraordinary Transactions. Propose or agree to enter into any extraordinary corporate transaction (merger, sale of assets, sale of securities or other similar transaction, declaration of dividend or adoption of shareholder rights plan) or incur or agree to incur any material liability (loans for borrowed money or settlement of litigation). Notwithstanding the foregoing, the Company may (i) sell up to $2.5 million shares of Rapid Cast, Inc. ("Rapid Cast") at no less than $0.60 per share provided that the Company retains at least 8.1 million shares of Rapid Cast, (ii) enter into the sublease at 2811 East Main under the terms set forth in the term sheet dated July 17, 1998, and (iii) obtain debt financing on terms substantially similar to those previously proposed by a financial institution in July 1998. In addition, if the Company or any subsidiary proposes to enter into short-term financing arrangements while these standstill provisions are in effect, Mr. Casey has -7- 8 agreed that his consent permitting the Company to do so will not be unreasonably withheld. Compensation. Increase or agree to increase compensation payable to directors, employees or consultants or enter into severance or termination arrangements affecting directors, consultants or employees or amend any employee plans or grant any options, warrants or rights to purchase securities of the Company or NTC. Miscellaneous Covenants............. The Company will agree to use commercially reasonable efforts to (i) provide reasonable access to its insurance brokers and carriers; (ii) provide access to its accountants and legal counsel (including counsel to NTC), (iii) make any necessary filing with, and obtain any necessary approvals of, the FCC; (iv) provide a copy of a list of all shareholders of record as of the date of the Agreement, such list to be provided within three business days after execution of the Agreement; (v) provide copies of all documents relating to the Company and its subsidiaries reasonably requested by Casey or his legal counsel; and (vi) prepare and file the Information Statement, Proxy Statement and any other necessary regulatory filings. Casey will agree to use commercially reasonable efforts to (a) obtain the consent or approval of the Cohen Group to the proposed increase in the number of authorized shares of the Company's Common Stock and (b) assist in the preparation of the Information Statement, Proxy Statement and any other necessary regulatory filings. Mutual Releases; D&O Insurance....................... The parties will enter into mutual releases relating to Change of Board Control matters that are customary for this type of agreement. The Company also will agree to customary provisions regarding the continuation of directors' and officers' insurance coverage, subject to customary limitations. -8- -----END PRIVACY-ENHANCED MESSAGE-----