-----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, Nr9/tlQbOtyMuBBv0J1lTMiwREEgiEXwJVsIaTxy6yYJ56CIStKLfL28NcC4bsKy 8jekZS8Jev1E1uol8X8ZLw== 0001047469-98-037240.txt : 19981015 0001047469-98-037240.hdr.sgml : 19981015 ACCESSION NUMBER: 0001047469-98-037240 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980929 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981014 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: SEC FILE NUMBER: 000-12386 FILM NUMBER: 98725489 BUSINESS ADDRESS: STREET 1: 20501 VENTURA BLVD STREET 2: SUITE 265 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 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 8-K CURRENT REPORT Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) September 29, 1998 ------------------------ Incomnet, Inc. ------------------------------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) California 0-12386 95-2871296 ------------------------------------------------------------------------------ (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 2801 Main Street, Irvine, California 92614 ------------------------------------------------------------------------------ (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (949) 251-8000 -------------------------- 20501 Ventura Boulevard, Suite 265, Woodland Hills, California 91364 ------------------------------------------------------------------------ (Former Name or Former Address, if Changed Since Last Report) Item 1. Change in Control of Registrant. CHANGE IN COMPOSITION OF BOARD. Incomnet, Inc. (the "Registrant" or the "Company") previously entered into the Board Change Agreement dated August 28, 1998 (the "Board Change Agreement"), with the then current directors of the Company and John P. Casey, the Company's single largest shareholder. The summary of the terms of the Board Change Agreement set forth below is qualified by, and should be read in conjunction with, the Board Change Agreement in its entirety, a copy of which was included as an exhibit to the Company's Current Report on Form 8-K dated August 28, 1998 filed with the Securities and Exchange Commission ("SEC") and is incorporated by reference into this Current Report. On September 29, 1998, in accordance with the Board Change Agreement, Messrs. Melvyn H. Reznick, Rolf Lesem, Richard M. Horowitz and David Wilstein and Ms. Nancy S. Zivitz resigned as directors of the Company as well as from any other office they may have then held, and Dr. Howard Silverman continued to serve as a member of the Board of Directors. In addition, on September 29, 1998 and in accordance with the Board Change Agreement, Mr. Casey and two of Mr. Casey's designees, John Hill, Jr. and Michael A. Stein, were appointed as directors of the Company (the change in the composition of the Board of Directors in accordance with the Board Change Agreement is sometimes referred to in this Current Report as the "Board Change"). Further, on September 29, 1998, Mr. Casey was appointed Chairman of the Board of Directors. The Company has entered into an employment agreement with Mr. Casey relating to his duties as Chairman. See "Item 5. Other Events -- Casey Services Agreement." On October 2, 1998, the Board of Directors appointed Mr. Denis Richard and Mr. Scott Eisenberg as directors of the Company, filling two of three vacant positions on the seven-member Board of Directors. Mr. Richard was also appointed President and Chief Executive Officer of the Company and its subsidiary, National Telephone & Communications, Inc. ("NTC"). The Company has entered into an employment agreement with Mr. Richard relating to his duties as President and Chief Executive Officer of the Company and NTC. See "Item 5 Other Events -- Richard Employment Agreement." Thus, following the appointment of these two directors on October 2, 1998, the Company's Board of Directors consisted of Messrs. Casey (Chairman), Eisenberg, Hill, Richard and Stein and Dr. Silverman. A description of the business experience of the current directors of the Company is set forth below. JOHN P. CASEY, 49, has been a director and Chairman of the Board of the Company and since September 29, 1998 and a director of NTC since October 1, 1998. Mr. Casey also is the Senior Vice President, Financial Marketing for Meridian Investments, Inc., an NASD registered broker-dealer ("Meridian"), since 1981. Meridian is a privately held company and Mr. Casey believes that it is one of the largest originators of tax credit equity in the United States. Mr. Casey is primarily responsible for the design of financial marketing plans for Meridian. Since 1996, Mr. Casey has served as a director of Val-u-net and since 1997 he has served as a director of 1-800-Database, which are privately held companies involved in electronic commerce and internet technologies. Mr. Casey also currently serves as a director of the Make-a-Wish Foundation for the 2 Mid-Atlantic region. Mr. Casey received a Bachelor of Science degree in Political Science in 1971 from the University of Massachusetts (Boston State College). SCOTT EISENBERG, 39, has been a director of the Company since October 2, 1998. Since June 1996, Mr. Eisenberg has been the Director, Product Management for CyberCash, a leading provider of payment solutions for internet and real-world storefronts. From March 1993 until he joined CyberCash in June 1996, Mr. Eisenberg had key management positions with MCI Telecommunications in its internet services sector and long distance telephony services sector. From 1989 to 1993, Mr. Eisenberg was a partner in an investment banking firm where he advised emerging growth companies in connection with equity and debt financings and mergers and acquisitions. Mr. Eisenberg received a Bachelor of Science Degree in Engineering, summa cum laude, from the University of Pennsylvania in 1981, a Bachelor of Science Degree in Economics, summa cum laude, from the Wharton School of the University of Pennsylvania in 1981, and a Masters in Business Administration (MBA) degree, with distinction, from the Harvard Business School of Harvard University in 1986. JOHN P. HILL, JR., 38, has been a director of the Company since September 29, 1998 and a director of NTC since October 1, 1998. Mr. Hill is the President of Quince Associates, a closely held company with investments in real estate, retail convenience stores, restaurants, technology and various other public and private companies. Since 1989, he has also served as President of Trans Pacific Stores, Ltd., a privately held operator of retail stores. Since 1997, Mr. Hill has served as a director of Covol Technologies, Inc., a publicly traded technology development company based in Utah. Prior to 1989, Mr. Hill was the Chief Financial Officer for various privately held retail and restaurant companies. Mr. Hill received a Bachelor of Science degree in Accounting from the University of Maryland and became a certified public accountant in 1984. DENIS RICHARD, 38, has been the President and Chief Executive Officer of the Company and NTC since September 29, 1998, a director of NTC since October 1, 1998 and a director of the Company since October 2, 1998. From 1995 to September 1998, Mr. Richard held management positions at Teleglobe Inc. and its subsidiary, Teleglobe International Corp. Teleglobe is one of the world's largest intercontinental telecommunications companies. In 1996, Mr. Richard was appointed Vice President, Law & Corporate Affairs for Teleglobe International Corp. Prior to this appointment, he served as Director of Special Projects for Teleglobe Inc. From 1989 until he joined Teleglobe in 1995, Mr. Richard was Senior Counsel with BCE Inc., where he was involved in many of that company's telecommunications investment activities, as well as heading several other divestiture and reorganization projects. Mr. Richard received Bachelor of Law and Bachelor of Communication and Science degrees from the University of Moncton in New Brunswick. 3 DR. HOWARD SILVERMAN, 57, has been a director of the Company since January 1997. He is presently an independent consultant in the investment banking industry. From November 1996 to October 1997, he served as an investment banking consultant with Andrew, Alexander, Wise & Co. From May 1995 to November 1996, Dr. Silverman served as Vice President of Corporate Finance for Rickel & Associates. From 1991 until he joined Rickel, he served as an independent consultant to development stage and middle market companies. From 1985 to 1991, he was the founder and Chairman of the Board of Vision Sciences, a company that developed, manufactured and marketed in-office lens casting systems. In 1968, Dr. Silverman received a Doctor of Optometry from Illinois College of Optometry and in 1965, he received a Chemical Engineering degree from the College of the City of New York. MICHAEL A. STEIN, 49, has been a director of the Company since September 29, 1998. In October 1998, Mr. Stein became the Executive Vice President and Chief Financial Officer of Nordstrom, Inc., a fashion specialty retailer with 97 stores located in 22 states. At Nordstrom, Mr. Stein is responsible for all of Nordstrom's financial operations and strategic planning. From 1993 through September 1998, Mr. Stein was the Executive Vice President and Chief Financial Officer of Marriott International, Inc. At Marriott, Mr. Stein was responsible for Marriott's treasury, corporate and project finance, investor relations, controllership, tax, risk management and internal audit functions. Mr. Stein joined Marriott in 1989 as its Vice President, Finance and Chief Accounting Officer. Prior to joining Marriott, Mr. Stein spent 18 years with Arthur Andersen LLP where he was a partner. Mr. Stein graduated from the University of Maryland and is a certified public accountant. As more fully described in Mr. Casey's Schedule 13-D filed on April 7, 1998, as amended, Mr. Casey beneficially owns 6,137,504 shares of the Company's Common Stock (approximately 30% of the outstanding shares of Common Stock) and has an option to purchase 1,598.2 shares of the Company's Preferred Stock from certain persons (the "Cohen Group") who filed a Schedule 13-D with the SEC on June 19, 1998 as a group (as amended, the "Cohen 13-D"). Under the Board Change Agreement, Mr. Casey has certain obligations to assign or transfer to the Company the Cohen Option or shares of Preferred Stock underlying the Cohen Option (the "Cohen Preferred Stock"). See "-- Other Terms of Board Change Agreement." Mr. Casey purchased 1,907,404 shares of Common Stock using a credit facility ("Casey Credit Facility") provided by Trans Pacific Stores, Ltd., a Hawaiian corporation. The Casey Credit Facility is secured by a pledge of certain personal assets of Mr. Casey not including any shares of the Company's Common Stock owned by Mr. Casey. The Casey Credit Facility bears a simple interest rate of 18% per annum and has no minimum periodic payments and no prepayment penalties. The Casey Credit Facility is due and payable in full with accrued interest by no later than June 30, 1999, unless extended by mutual agreement. As described above, a director of the Company, John Hill, is President of Trans Pacific Stores, Ltd. 4 Based on the percentage of his stock ownership and since Mr. Casey was appointed a director and Chairman of the Board and designated two other members to the Company's Board of Directors pursuant to the Board Change Agreement, Mr. Casey may be deemed to have acquired control over the Company (as control is defined under the Securities Exchange Act of 1934, as amended) following completion of the Board Change Agreement on September 29, 1998. OTHER TERMS OF BOARD CHANGE AGREEMENT. In addition to the change in the composition of the Board of Directors, the Board Change Agreement obligates the Company, subject to applicable law, to nominate Dr. Silverman for reelection to the Board of Directors at the next annual meeting of the Company's shareholders. Further, the Board Change Agreement obligates the Company to form and appoint members to an Audit Committee, a Compensation Committee and a Disinterested Director Committee and offer Mr. Silverman the opportunity to be a member on those committees. Also, if the Company forms an Executive Committee, the Company must offer Dr. Silverman the opportunity to become a member of that committee. Under the Board Change Agreement, Mr. Casey is obligated to assign the Cohen Option to the Company if (i) the Company is financially able to purchase or redeem the Cohen Preferred Stock at the exercise price set forth in the agreement among Mr. Casey and the Cohen Group (the "Cohen Option Agreement") prior to termination of the Cohen Option, (ii) the Cohen Group consents to the assignment, (iii) the Company agrees to exercise the Cohen Option and redeem the Cohen Preferred Stock prior to termination of the Cohen Option and (iv) the Company agrees to reimburse Mr. Casey for costs and expenses associated with acquiring and assigning the Cohen Option (including the Cohen Option price and Mr. Casey's closing costs and reasonable legal fees relating thereto). The Cohen Option initially was scheduled to terminate on October 14, 1998 but has been extended by agreement between Mr. Casey and the Cohen Group and will terminate on November 5, 1998 (the "Cohen Option Termination Date"). Under the Board Change Agreement, if the Company is not financially able to redeem the Cohen Preferred Stock on or before the Cohen Option Termination Date, then Mr. Casey is obligated under the Board Change Agreement to exercise the option and acquire the underlying Cohen Preferred Stock. For the one-year period after the exercise of the Cohen Option by Mr. Casey, the Company will have the right to redeem the Cohen Preferred Stock at a redemption price equal to Mr. Casey's purchase price plus carrying costs, and Mr. Casey will be obligated to hold the Cohen Preferred Stock (without transferring or converting it) during that one-year period. If the Company is not financially able to redeem the Cohen Preferred Stock from Mr. Casey during such one-year period, then Mr. Casey is obligated under the Board Change Agreement to tender the Cohen Preferred Stock to the Company for conversion at the end of such one-year period and the Company will convert the Cohen Preferred Stock into Common Stock (the "Cohen Common") at a conversion price which approximates 5 the conversion price per share when the Cohen Preferred Stock was tendered for conversion by the Cohen Group on June 10 and 11, 1998 (i.e., approximately $0.19 per share of Common Stock). In such an event, Mr. Casey has agreed to register and offer the Cohen Common to all of the Company's shareholders on a pro rata basis for a purchase price equal to the sum of (i) the conversion price paid by Mr. Casey (i.e., approximately $0.28 per share), (ii) Mr. Casey's carrying costs and reasonable legal fees and costs attributable to the purchase of the Cohen Preferred Stock and the offering of the Cohen Common. To the extent that the Cohen Common is not fully subscribed in the first offering, Mr. Casey has agreed to offer the remaining Cohen Common to the subscribing shareholders on a pro rata basis in a second round, after which any remaining Cohen Common could be retained by Mr. Casey or assigned by him in his sole discretion. Under the Board Change Agreement, the Company has agreed to solicit the approval of the Company's shareholders to the proposed amendment to the Company's Articles of Incorporation, as amended, to increase the number of authorized shares of the Company's Common Stock to 50 million. Mr. Casey has agreed to vote in favor of such amendment at any shareholders' meeting duly called for that purpose. The Company is obligated under the Board Change Agreement to reimburse Mr. Casey for any reasonable costs and expenses (including reasonable attorneys' fees and costs), in addition to the expense reimbursements already described, which are incurred by him in connection with: (i) the settlement of the class action lawsuit known as Saundra Gayles vs. Incomnet, Inc. and Sam D. Schwartz, (ii) filings made with the Securities and Exchange Commission or any other regulatory agency in connection with the Board Change, (iii) preparation of the information statement delivered to the Company's shareholders in connection with the Board Change, (iv) obtaining directors' and officers' insurance coverage, (v) negotiating and preparing the term sheet relating to the Board Change and the Board Change Agreement, (vi) any negotiations with WorldCom or First Bank with respect to NTC, and (vii) any negotiations by Mr. Casey with institutional investors relating to additional equity or debt financing for the Company or NTC. Other than the costs and expenses relating to the Cohen Preferred Stock and those matters described in clauses (i) through (vii) above, (a) upon the approval of a majority of the Disinterested Director Committee (and without requiring the approval of the Company's shareholders), the Company will reimburse Mr. Casey up to $100,000 of costs and expenses incurred by him on or after April 1, 1998 in connection with due diligence concerning the Company and its proposal to sell NTC, the attempt to prevent such sale and any related documentation and his evaluation of his rights and alternatives as a significant shareholder of the Company (collectively, the "Due Diligence and Other Costs"), and (b) upon the approval of the majority of the Disinterested Director Committee and the Company's disinterested shareholders, the Company will reimburse Mr. Casey for Due Diligence and Other Costs in excess of $100,000. 6 Under the Board Change Agreement, the parties released each other and certain of their respective affiliates from Claims (as specifically defined in the Board Change Agreement) which may arise from (i) the Board Change, (ii) the proposed sale or recapitalization of NTC originally contemplated in or about December 1997, including pursuant to the Asset Purchase Agreement dated as of March 31, 1998 between NTC Acquisition, Inc. and NTC, (iii) the proposed NTC debt financing with a financial institution in July 1998, (iv) the sale of up to 2.5 million shares of Rapid Cast, Inc. ("RCI") at $.60 per share, (v) upon the redemption of the Cohen Preferred Stock or the approval by the Company's shareholders of the amendment to the Company's Articles of Incorporation, as amended, increasing the authorized number of shares of the Company's Common Stock to 50 million shares and subsequent conversion of the Cohen Preferred Stock into shares of Common Stock based on the conversion price when tendered for conversion on June 10 and 11, 1998, the failure to have shares of Common Stock available for issuance to the holders of the Cohen Preferred Stock upon their attempted conversion of such stock into shares of Common Stock on June 10 and 11, 1998 or (vi) any action, failure to act, representation, event, transaction, occurrence or other subject matter resulting from, arising out of, relating to, connected in any way with, or alleged, suggested or mentioned in connection with the foregoing matters. The parties have also agreed to indemnify each other generally for any losses they may incur as a result of the assertion of any released Claims against them. Item 5. Other Events. RICHARD EMPLOYMENT AGREEMENT. The Company and NTC entered into an employment agreement with Mr. Richard as of September 29, 1998 (the "Richard Employment Agreement"), pursuant to which Mr. Richard agreed to serve as the President and Chief Executive Officer of the Company and NTC. The following summary of the terms of the Richard Employment Agreement is qualified by, and should be read in conjunction with, the Richard Employment Agreement in its entirety, a copy of which is attached to this Current Report as an exhibit and incorporated herein by reference. The term of the Richard Employment agreement commenced on September 29, 1998 and terminates on December 31, 2001. During the term of the agreement, the Richard Employment Agreement obligates the Company and NTC to nominate Mr. Richard as a director of the Company and NTC (and Chairman of the Board of NTC), if Mr. Richard so requests. Mr. Richard was appointed a director of NTC (and its Chairman) on October 1, 1998 and a director of the Company on October 2, 1998. Mr. Richard will receive an annual base salary of no less than $325,000. In addition, Mr. Richard is entitled to receive a one-time signing bonus of $353,000. If Mr. Richard terminates his employment voluntarily without "Good Reason" (as defined in the 7 Richard Employment Agreement), he must return a prorated portion of his signing bonus. He is also eligible to participate in any executive bonus plan of the Company and may receive up to 100% of his then current base salary as a bonus, as determined by the Company's Board of Directors, provided, however, that Mr. Richard is entitled to a minimum guaranteed bonus for fiscal 1999 and 2000 equal to 50% of his then current base salary. Mr. Richard is also entitled to certain fringe benefits under the Richard Employment Agreement, including a car allowance, a temporary housing allowance, broker and closing costs on sale and purchase of his residence and moving expenses. Under the Richard Employment Agreement, the Company has agreed to issue to Mr. Richard 13 shares of the Company's Series D Preferred Stock (inadvertently referred to as Series C Preferred Stock in the Richard Employment Agreement). The Series D Preferred Stock will be convertible into an aggregate of 1,300,000 shares of the Company's Common Stock at such time as the Company's Articles of Incorporation have been amended to increase the authorized number of shares of the Company's Common Stock to permit such conversion. The issuance to Mr. Richard of the Series D Preferred Stock is subject (i) to the completion of a Certificate of Determination that establishes the rights, preferences, privileges and restrictions of such Series D Preferred Stock and (ii) the filing of the Certificate of Determination with the Office of the California Secretary of State. The 13 shares of Series D Preferred Stock will be entitled to vote with the holders of the Company's Common Stock on all matters submitted to shareholders on an as-converted-to-Common basis (i.e., the right vote as if the shares of Series D Preferred Stock were converted into 1.3 million shares of Common Stock). Mr. Richard has certain rights to require the Company to register the Common Stock under the Securities Act of 1933, as amended, following the first anniversary of the commencement of his employment with the Company. Under the Richard Employment Agreement, the shares of Series D Preferred Stock and the shares of the Company's Common Stock that would be issued upon conversion of the Series D Preferred Stock are subject to (i) a thirty-day right of first refusal in favor of the Company (the "Company Repurchase Right") if Mr. Richard at any time desires to sell, transfer or assign any of such securities; and (ii) a right in favor of the Company to repurchase all, but not less than all, of such securities if Mr. Richard terminates voluntarily without Good Reason or is terminated by the Company for "Cause" (as defined in the Richard Employment Agreement) prior to the first anniversary of the Employment Agreement (the "Company Repurchase Option"). The purchase price for the securities purchased by the Company under the Company Repurchase Right or under the Company Repurchase Option will be the then current per share market price of the Company's Common Stock reduced by $2.1775 (calculated on an as converted to Common Stock basis, if the securities being transferred are Series D Preferred Stock). The grant of the Series D Preferred Stock by the Company to Mr. Richard is deemed to be compensation from the Company to Mr. Richard and no consideration will be paid by Mr. 8 Richard either for the issuance of the Series D Preferred Stock or upon the conversion of the Series D Preferred Stock into shares of Common Stock. Under the Richard Employment Agreement, the Company is obligated to pay Mr. Richard severance if Mr. Richard terminates for Good Reason or is terminated by the Company without Cause, as follows: (i) continued payment of base salary for 18 months or, if longer, until December 31, 2001, and (ii) reimbursement of health insurance premiums for 18 months or, if earlier, until December 31, 2001. The Company is also obligated to indemnify Mr. Richard against certain liabilities relating to his service to the Company and NTC and provide coverage for Mr. Richard under commercially reasonable directors and officers liability insurance during the term of his employment and for three years thereafter. If Mr. Richard is terminated for Cause or the voluntary terminates his employment without Good Reason, Mr. Richard is prohibited under the Richard Employment Agreement from competing (as described in the agreement) against the Company or NTC and from soliciting employees of the Company and NTC, both for a period 18 months following employment termination. CASEY SERVICES AGREEMENT. On September 29, 1998, Mr. Casey and the Company entered into an agreement (the "Casey Services Agreement"), under which Mr. Casey agreed to perform certain duties as the Chairman of the Board of Directors of the Company. The following summary of the terms of the Casey Services Agreement is qualified by, and should be read in conjunction with, the Casey Services Agreement in its entirety, a copy of which is attached to this Current Report as an exhibit and is incorporated herein by reference. The term of the Casey Services Agreement is three years ending on September 29, 2001, provided, however, that the agreement does not obligate Mr. Casey to remain as Chairman of the Board nor does it obligate the Company to retain Mr. Casey as Chairman of the Board. Under the Casey Services Agreement, for so long as Mr. Casey acts as Chairman of the Board, Mr. Casey will be entitled to a quarterly service fee based on the fair market value of the Company's Common Stock at the end of each fiscal quarter during the term of the agreement. Under the Casey Services Agreement, fair market value of the Company's Common Stock is generally equal to the average closing price of the Common Stock for the last five trading days during the applicable fiscal quarter. If the fair market value of the Common Stock is less than $4 per share at the end of each fiscal quarter during the term of the agreement, Mr. Casey will be entitled to a service fee of $1 for that quarter. If the fair market value of the Common Stock is $4 or more at the end of a calendar quarter, Mr. Casey will be entitled to a service fee equal to the product of (A) $25,000 and (B) the number determined by dividing the fair market value of Common Stock by four. Generally, this will result in a $25,000 quarterly service fee to Mr. Casey if the market price of the Common Stock is $4, and an additional $25,000 for each additional $4 increase in the market price of the Common Stock. 9 The maximum fee Mr. Casey would be entitled to in any fiscal quarter is $250,000. If Mr. Casey resigns or is not elected or otherwise retained by the Company as Chairman of the Board during the term of the Casey Services Agreement, he will not be entitled to any quarterly services fee after such resignation or termination of services. Under the Casey Services Agreement, Mr. Casey has waived any right to receive retainer fees, meeting fees or other remuneration given to other directors of the Company. Mr. Casey has certain rights under the Casey Services Agreement to be indemnified from claims against him arising out of his service to the Company as Chairman of the Board. DIRECTOR STOCK OPTION GRANTS. On September 29, 1998, the Board of Directors granted an option to purchase 10 shares of the Company's Preferred Stock to each non-employee director of the Company then in office (i.e., options were granted to Mr. Hill, Dr. Silverman and Mr. Stein). On October 2, 1998, the Board of Directors granted an option to purchase 10 shares of the Company's Preferred Stock to Mr. Eisenberg upon his appointment to the Board of Directors (the options granted to Messrs. Hill, Eisenberg and Stein and Dr. Silverman are referred to in this Current Report as the "Nonemployee Director Options"). No options were granted to either Mr. Casey or Mr. Richard. The Nonemployee Director Options have a term of ten years and vest as follows: (i) four shares of Preferred Stock are immediately exerciseable (upon the filing of a Certificate of Determination with the California Secretary of State establishing the rights, preferences and privileges thereto); (ii) three shares of Preferred Stock vest on the first anniversary of the date of grant; and (iii) three shares of Preferred Stock vest on the second anniversary of the date of grant. Each share of Preferred Stock will be convertible into 10,000 shares of the Company's Common Stock. Since all of the Company's authorized Common Stock is currently issued and outstanding, the right to convert the Preferred Stock into Common Stock is subject to the approval by the Company's shareholders of an amendment to the Company's Articles of Incorporation to increase the number of authorized shares of Common Stock available for issuance. For Mr. Hill, Dr. Silverman and Mr. Stein, the exercise price of each share of Preferred Stock is $20,000 which represents $2.00 per share of the underlying Common Stock into which such Preferred Stock will be convertible. The closing price per share of the Company's Common Stock as reported by the Nasdaq Stock Market on the date these options were granted to Mr. Hill, Dr. Silverman and Mr. Stein (September 29, 1998) was $2.00 (i.e., these options were granted at 100% of the market price of the underlying Common Stock at the date of grant). For Mr. Eisenberg, the exercise price of each share of Preferred Stock is $22,500 which represents $2.25 per share of the underlying Common Stock into which such Preferred Stock will be convertible. The closing price per share of the Company's Common Stock as reported by the Nasdaq Stock Market on the date these options were granted to Mr. Eisenberg (October 2, 1998) was $2.25 (i.e., these 10 options were granted at 100% of the market price of the underlying Common Stock at the date of grant). Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits. Exhibits. 10.1 Board Change Agreement dated as of August 28, 1998, among Incomnet, Inc., Richard Horowitz, Rolf Lesem, Melvyn Reznick, Howard Silverman, David Wilstein, Nancy Zivitz and John P. Casey (previously filed with the SEC as an exhibit to Registrant's Current Report on Form 8-K dated August 28, 1998 and incorporated herein by reference). 10.2 Employment Agreement dated as of September 29, 1998, among Incomnet, Inc., National Telephone & Communications, Inc. and Denis Richard. 10.3 Letter Agreement dated September 29, 1998, between Incomnet, Inc. and John P. Casey relating to Mr. Casey's services as Chairman of the Board of Incomnet, Inc.
11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. October 13, 1998 INCOMNET, INC. By /s/ DENIS RICHARD ---------------------------------- Denis Richard President and Chief Executive Officer 12 EX-10.2 2 EXHIBIT 10.2 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of September 29, 1998, by and among Incomnet, Inc., ("Incomnet"), a California corporation and National Telephone & Communications, Inc., ("NTC"), a Delaware corporation, (together the "Companies") and Denis Richard a resident of Potomac, Maryland ("Executive"). WITNESSETH: WHEREAS, Incomnet desires to employ Executive as the President and Chief Executive Officer of Incomnet and NTC desires to employ Executive as the President and Chief Executive Officer of NTC and Executive is willing to serve in each capacity; and WHEREAS, the Companies and Executive desire to set forth the terms and conditions of such employment. NOW, THEREFORE, in consideration of the promises and mutual covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. TERM OF EMPLOYMENT. Except for earlier termination as provided in Section 7 hereof, Executive's employment under this Agreement shall be for a term (the "Employment Term") commencing on September 29, 1998 (the "Commencement Date") and terminating on December 31, 2001. 2. POSITIONS. (a) During the Employment Term, Executive shall serve as President and Chief Executive Officer of Incomnet, and as President and Chief Executive Officer of NTC. It is the intention of the parties that during the Employment Term, Executive shall have the option to also serve on the Board of Directors of each of the Companies without additional compensation and if requested by the Executive, the Companies shall, during the Employment Term, nominate Executive as a director. If the Executive serves on the Board of Directors of NTC, he shall act as Chairman of the Board. Incomnet and NTC each agree that it shall jointly and severally be responsible for obligations of each of the Companies to the Executive under this Agreement. (b) Executive shall report directly to the Board of Directors of Incomnet (the "Incomnet Board") and the Board of Directors of NTC. (c) During the Employment Term, Executive shall devote substantially all of his business time and efforts to the performance of his duties hereunder and use his best efforts in such endeavors; provided, however that Executive shall be allowed, to the extent that such activities do not materially interfere with the performance of his duties and responsibilities hereunder, to manage his passive personal investments and to serve on corporate, civic, or charitable boards or committees. Notwithstanding the foregoing, Executive shall not serve on any corporate board of directors if such service would be inconsistent with his fiduciary responsibilities to the Companies and in no event shall Executive serve on any such board unless previously approved by the Incomnet Board. (d) Upon request of the Incomnet Board, Executive shall also serve as an officer of affiliates of the Companies with no additional compensation. Any compensation paid to Executive by any such affiliate shall reduce the Companies' compensation obligations hereunder. (e) Both during his employment hereunder, and for a three year period commencing after the Executive ceases to be an employee of the Companies, the Companies shall maintain commercially reasonable directors' and officers' liability insurance policies covering the Executive with respect to his service as an officer and/or director of the Companies or any of its affiliates and to the maximum extent permitted by law and the applicable Articles of Incorporation and By-laws, shall indemnify the Executive from liability, loss or expense (including reasonable attorney's fees) arising out of such service. 3. BASE SALARY. During the Employment Term, Executive shall be paid a base salary at the annual rate of not less than three hundred twenty-five thousand dollars ($325,000). Base salary shall be payable by Incomnet in accordance with its usual payroll practices but not less frequently than once every two weeks. Executive's Base Salary shall be subject to annual review by the Incomnet Board, and may be increased, but not decreased, from time to time. The base salary as determined as aforesaid from time to time shall constitute "Base Salary" for purposes of this Agreement. 4. COMPENSATION AND OTHER BENEFITS. (a) ANNUAL BONUS. For each fiscal year or portion thereof during the Employment Term, Executive shall be eligible to participate in an annual bonus plan of Incomnet in accordance with, and subject to the terms of, such plan as determined by the Incomnet Board, with a maximum award level equal to one hundred percent (100%) of Base Salary, provided that Executive's minimum annual bonus for fiscal year 1999 and 2000 shall be fifty percent (50%) of Base Salary (the "Guaranteed Bonus") and further provided that beginning with Incomnet's 1999 fiscal year, Incomnet shall have the right to condition the payment of an annual bonus (other than the Guaranteed Bonus) on shareholder approval, as and to the extent required by Section 162(m) of the Internal Revenue Code of 1986, as amended, of an annual bonus plan designed to comply with the requirements of such section for performance based compensation. (b) SIGNING BONUS. Incomnet on behalf of both the Companies shall pay Executive a signing bonus equal to three hundred fifty-three thousand dollars ($353,000) (the "Signing Bonus") within thirty (30) days after the Commencement Date. Notwithstanding anything else herein, if Executive voluntarily terminates his employment with the Companies without Good Reason within one (1) year following the date of payment of the signing Bonus, Executive shall repay to Incomnet a percentage of the Signing Bonus equal to the percentage of the year remaining after the date of termination. The repayment shall occur within sixty (60) days of the date of such termination. (c) LONG TERM INCENTIVE PLAN. For each fiscal year or portion thereof during the Employment Term, Executive shall be eligible to participate in any stock option plan made available to senior executives of the Incomnet in accordance with, and subject to the terms of, 2 such plan. Incomnet hereby acknowledges that it intends to adopt a stock option plan for use in connection of the recruitment of other senior executives. (d) STOCK GRANT. It is the intention of the parties hereto that on the Commencement Date the Executive will receive stock rights which, subject to the terms hereinafter set forth, will permit the Executive to acquire five percent (5%) of the common stock of Incomnet outstanding on the Commencement Date determined on a fully diluted basis. In order to accomplish this result, Incomnet shall cause each of the following to occur: (i) Prior to the Commencement Date, the Incomnet Board shall designate thirteen (13) shares of its Preferred Shares as Series C preferred stock and shall designate that each share of Series C preferred stock may be converted into 100,000 shares of its common stock. (ii) On the Commencement Date, Incomnet shall issue to the Executive thirteen (13) shares of its Series C preferred stock (the "C Preferred Shares"). The C Preferred Shares shall be subject to the following restrictions: (A) The Executive shall not be entitled to convert the C Preferred Shares into Incomnet common stock until the Articles of Incorporation of Incomnet have been amended to authorize a sufficient number of additional shares of such common stock to permit exercise of the conversion rights. The number of shares of Incomnet common stock to be issued upon exercise of the conversion rights shall be adjusted to reflect the impact of any common stock splits or stock dividends occurring after the Commencement Date. (B) In the event the Executive or his personal representative, heirs or legatees at any time desire to sell, transfer or assign any of the C Preferred Shares or the shares of common stock obtained on conversion of the C Preferred Shares, such shares shall first be offered for sale to Incomnet. The price at which such shares will be offered to Incomnet will be calculated as follows: (x) For purposes of such calculation, any unconverted C Preferred Shares shall be deemed to have been converted into Incomnet common stock. (y) The shares of Incomnet common stock to be sold, transferred or assigned (the "Transferred Shares"), shall be deemed at the time of the offer to have a fair market value equal to the then current public offering price for the same number of shares of Incomnet common stock which are registered under the Securities Act of 1933. (z) the offer price for the Transfer Shares will equal the fair market value of the Transferred Shares calculated as specified in paragraph (y) above (i) reduced by the fair market value of the Transferred Shares as of the close of business two days after the Commencement Date (the "Valuation Date") (calculated based on the public market price as of the close of business on the Valuation Date as reported in the WALL STREET 3 JOURNAL for the same number of Incomnet common stock registered under the Securities Act of 1933) and (ii) increased by one cent ($.01) for each share of Incomnet common stock included in the Transferred Shares. The per share public market price as of the close of business on the Valuation Date as reported in the WALL STREET JOURNAL shall be reflected on Schedule I hereto. The restrictions on the sale of Incomnet stock set forth in this Section 4(d)(ii)(B) will never lapse. However, if Incomnet does not complete the purchase of the shares of any stock offered for sale by the Executive under the terms of this Section 4(d)(ii)(B), within thirty (30) days from the date of the offer, the Executive shall thereafter be free to sell such shares (the "Unrestricted Shares") free from such restrictions. (C) The stock certificates representing the C Preferred Shares and the common stock into which it is converted shall be legended to reflect Incomnet's purchase rights set forth in paragraph B above. The legend shall be removed from certificates representing the Unrestricted Shares. (iii) As expeditiously as possible after the Commencement Date, Incomnet will use its best efforts to cause its Articles of Incorporation to be amended to authorize a sufficient number of additional shares of common stock to permit the conversion of the C Preferred Shares into common stock. (e) REGISTRATION RIGHTS AND CALL RIGHTS. (i) REGISTRATION RIGHTS. After the first anniversary of the Commencement Date, if at any time the Executive holds any Unrestricted Shares which the Executive is restricted from reselling under the terms of Rule 144 promulgated under the Securities Act of 1933, then the Executive may request that Incomnet effect the registration on Form S-3 (or a successor form) of all of the Unrestricted Shares. Thereupon, Incomnet shall, as expeditiously as possible, use its best efforts to effect such registration to the extent permitted and in accordance with applicable law and at its expense. (ii) CALL RIGHTS. If prior to the first anniversary of the Commencement Date, there occurs either the termination of the Executive's employment by the Companies for Cause pursuant to Section 7(e) hereof or the voluntary termination of employment by Executive without Good Reason (as defined in Section 7(d) hereof), Incomnet shall have an option (the "Repurchase Option") to repurchase all, but not less than all, of the C Preferred Shares, or the shares of common stock obtained on conversion of the C Preferred Shares, which are owned by the Executive at the time of such termination. The Repurchase Option must be exercised by written notice given to the Executive within ten (10) business days from the date of the termination of Executive's employment. The Repurchase Option shall expire if not timely exercised, time being of the essence. Settlement with respect to any timely exercised Repurchase Option shall occur within twenty (20) days from the date of exercise of the Repurchase Option. The purchase price for the stock subject to the Repurchase Option shall be calculated in accordance with the terms of Section 4(d)(ii)(B) in the same 4 manner as if the Executive had offered such stock for sale to Incomnet in accordance with the terms of such Section on the date of termination of the Executive's employment. (f) OTHER COMPENSATION. Incomnet may, upon recommendation of the Compensation Committee of the Incomnet Board, award to Executive such other bonuses and compensation as it deems appropriate and reasonable. 5. EMPLOYEE BENEFITS AND FRINGES. (a) During the Employment Term, Executive shall be entitled to participate in all pension, retirement, savings, welfare and other pension and welfare employee benefit plans and arrangements and shall be eligible to receive all fringe benefits and perquisites generally maintained or provided by either of the Companies from time to time for the benefit of senior executives of the Companies, in accordance with their respective terms as in effect from time to time (other than any special arrangement entered into by contract with an executive). (b) During the Employment Term Incomnet shall make available to Executive for his exclusive use a company leased automobile of the type customarily provided to senior executive officers of Incomnet and its affiliates or, if requested by Executive, will provide a car allowance of one thousand ($1,000) per month. Incomnet shall in addition pay for the cost of insurance, maintenance, garaging and fuel for such automobile. Executive shall be responsible for any income tax consequences arising from the use of the automobile under this arrangement. (c) Incomnet agrees to reimburse Executive for (i) all reasonable expenses incurred by Executive in moving from Montgomery County, Maryland to Orange County, California, and (ii) all reasonable broker and closing costs incurred by Executive in connection with the sale of Executive's current principal residence and the purchase of a new principal residence in Orange County, California. Executive shall be responsible for any income tax consequences arising from the payments made under this Section 5(c). (d) In order to facilitate the ability of the Executive to purchase a new principal residence in Orange County, California, at the request of the Executive, Incomnet will loan to the Executive an amount equal to a percentage of the cost of such new principal residence which is equal to the percentage differential in the median cost of housing in Montgomery County, Maryland and Orange County, California. The loan will accrue interest at the rate of eight percent (8%) per annum and the loan plus accrued interest will be due upon the first to occur of (i) the sale of the new principal residence or (ii) one year after the termination of the Executive's employment hereunder. (e) Incomnet shall provide Executive with a temporary housing allowance for a period not to exceed six months for housing expenses in Orange County, California which allowance shall not exceed two thousand dollars ($2,000) per month, or as the parties may agree, the Company shall make available for Executive other suitable temporary living quarters in Orange County, California. If Executive incurs any income tax liability as a result of the housing benefit pursuant to this Section 5(e), Incomnet shall reimburse Executive for such tax liability on a fully grossed up basis. 5 (f) Incomnet will reimburse the Executive for reasonable legal fees incurred in negotiating this Agreement. (g) During the Employment Term, Executive shall be entitled to vacation each year in accordance with Incomnet's policies in effect from time to time, but in no event less than five (5) weeks paid vacation per calendar year. Executive shall also be entitled to such periods of sick leave as is customarily provided by Incomnet for its senior executive officers. 6. BUSINESS EXPENSES. Upon submission of appropriate documentation, Executive shall be reimbursed for the travel, entertainment and other business expenses incurred by Executive in the performance of his duties hereunder, in accordance with the applicable policies as in effect from time to time. 7. TERMINATION. (a) The employment of Executive under this Agreement shall terminate upon the occurrence of any of the following events: (i) the death of Executive; (ii) the termination of Executive's employment by the Companies due to Executive's Disability pursuant to Section 7(b) hereof; (iii) the termination of Executive's employment by the Executive for Good Reason pursuant to Section 7(c) hereof; (iv) the termination of Executive's employment by the Companies without Cause; (v) the voluntary termination of employment by Executive without Good Reason upon thirty (30) days' prior written notice; (vi) the termination of the Employment Term in accordance with Section 1 hereof; (vii) the termination of Executive's employment by the Companies for Cause pursuant to Section 7(e) hereof. (b) DISABILITY. If, by reason of the same or related physical or mental reasons, Executive is unable to carry out his material duties pursuant to this Agreement for more than six (6) months in any twelve (12) month period, the Companies may terminate Executive's employment for Disability upon thirty (30) days prior written notice, at any time thereafter during such twelve (12) month period in which Executive is unable to carry out his duties as a result of the same or related physical or mental illness. Such termination shall not be effective if Executive returns to the full time performance of his material duties within such thirty (30) day notice period. If Executive is eligible for disability payments prior to said termination under any 6 disability plan sponsored by either of the Companies, his Base Salary shall be reduced by the amount of such disability payments. (c) TERMINATION FOR GOOD REASON. A Termination for Good Reason means a termination by Executive by written notice given within ninety (90) days after the occurrence of the Good Reason event. For purposes of this Agreement, "Good Reason" shall mean the occurrence or failure to cause the occurrence, as the case may be, without Executive's express written consent, of any of the following circumstances, unless such circumstances are fully corrected prior to the date of determination specified in the Notice of Termination for Good Reason (as defined in Section 7(d) hereof): (i) any material diminution of Executive's responsibilities hereunder as President and Chief Executive Officer of the Companies (except in each case in connections with the termination of Executive's employment for Cause or Disability or as a result of Executive's death, or temporarily as a result of Executive's illness or other absence); (ii) Executive's removal from or failure to be re-elected to, the Board of Directors of the Companies provided the Executive desires to serve on such Boards, (other than for cause within the meaning of the law of the state in which the Companies are then incorporated); (iii) any material breach by either of the Companies of any provision of this Agreement; or (iv) the occurrence of a Change in Control (as defined in Exhibit A hereto). (d) NOTICE OF TERMINATION FOR GOOD REASON. A Notice of Termination for Good Reason shall mean a notice that shall indicate the specific termination provision in Section 7(c) relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for his termination for Good Reason. The failure by Executive to set forth in the Notice of Termination for Good Reason any facts or circumstances which contribute to the showing of Good Reason shall not waive any right of Executive hereunder or preclude Executive from asserting such fact or circumstance in enforcing his rights hereunder. The Notice of Termination for Good Reason shall provide for a date of termination not less than thirty (30) nor more than sixty (60) days after the date such Notice of Termination for Good Reason is given. (e) CAUSE. Subject to the notification provisions of Section 7(f) below, Executive's employment hereunder may be terminated by the Companies for Cause. For purposes of this Agreement, the term "Cause" shall be limited to (i) willful misconduct by Executive with regard to either of the Companies, their affiliates, their businesses or employees if such misconduct is not cured within seven (7) days after written notice specifying the misconduct or, to the extent it is not feasible to complete the cure within such period, if the Executive shall commence the cure within such period and complete the cure within thirty (30) days; (ii) the refusal of Executive to follow the proper written direction of the Board of Directors of either or both of the Companies, provided that the foregoing refusal shall not be "Cause" if Executive in good faith believes that such direction is illegal, unethical or immoral and promptly so notifies the entity or person giving the direction, as applicable; (iii) continuing willful refusal by Executive to attempt to perform the duties required of him hereunder (other than any such failure resulting from incapacity due to physical or mental illness) after a written demand for performance is delivered to Executive by the Incomnet Board which specifically identifies the manner in which it is believed that Executive has continually refused to attempt to perform his duties hereunder; (iv) Executive being convicted of a felony (other than a felony involving a 7 traffic violation); (v) the breach by Executive of any material fiduciary duty owed by Executive to either or both of the Companies or their affiliates; or (vi) Executive's material misappropriation or fraud with regard to either or both of the Companies or its affiliates (other than good faith expense account disputes). (f) NOTICE OF TERMINATION FOR CAUSE. A Notice of Termination for Cause shall mean a notice that shall indicate the specific termination provision in Section 7(e) relied upon and shall set forth in reasonable detail the facts and circumstances which provide for a basis for Termination for Cause. The date of termination for a termination for Cause shall be the date indicated in the Notice of Termination. Any purported termination for Cause which is held by a court not to have been based on the grounds set forth in this Agreement or not to have followed the procedures set forth in this Agreement shall be deemed a termination by the Company without Cause, and the Executive shall be awarded any reasonable attorney's fees incurred by the Executive with respect to such court proceedings. 8. CONSEQUENCES OF TERMINATION OF EMPLOYMENT. (a) DEATH. If Executive's employment is terminated during the Employment Term by reason of Executive's death, the Employment Term under this Agreement shall terminate without further obligations to Executive's legal representatives under this Agreement or otherwise except for: (i) any compensation earned but not yet paid, including without limitation, any declared but unpaid bonus for the prior fiscal year, any unpaid Signing Bonus, any amount of Base Salary or deferred compensation, if any, accrued or earned but unpaid, any accrued vacation pay payable pursuant to the Companies' policies, any unreimbursed business expenses payable pursuant to Section 6, which amounts shall be promptly paid in a lump sum to Executive's estate and any stock rights arising under Section 4(d); and (ii) any other amounts or benefits owing to Executive under the then applicable employee benefit or equity plans of the Companies, which shall be paid in accordance with such plans. (b) DISABILITY. If Executive's employment is terminated by reason of Executive's Disability, Executive shall be entitled to receive the payments and benefits to which his representatives would be entitled in the event of a termination of employment by reason of his death pursuant to Section 8(a)(i) and any amounts Executive is eligible to receive under any long term disability policy or program maintained by the Companies and the Companies shall have no further obligations to Executive under this Agreement or otherwise. (c) TERMINATION BY EXECUTIVE FOR GOOD REASON OR TERMINATION BY THE COMPANY WITHOUT CAUSE. If (i) Executive terminates his employment hereunder for Good Reason during the Employment Term or (ii) if Executive's employment with the Companies is terminated by the Companies without Cause during the Employment Term, the Company shall have no further obligations to Executive under this Agreement or otherwise, except that, subject to Section 9 and 10 hereof, Executive shall be entitled to receive: (A) any unreimbursed business expenses payable pursuant to Section 6, any stock rights arising under Section 4(d), and any Base Salary, bonus, vacation pay or other compensation accrued or earned, but not yet paid at the date of termination; (B) equal monthly payments, in accordance with Incomnet's normal payroll 8 practices, of an amount equal to the monthly payments of Executive's then Base Salary for a period of eighteen (18) months following the date of his termination or until December 31, 2001 whichever is later; (C) reimbursement for the cost of Executive's continued participation in Incomnet's health insurance plan until the expiration of the maximum period permitted by COBRA or until December 31, 2001 which ever shall occur first and (D) any other amounts or benefits due Executive under the then applicable employee benefit, long term incentive plans or equity plans in which he then participates as shall be determined and paid in accordance with such plans. (d) TERMINATION WITH CAUSE OR VOLUNTARY RESIGNATION WITHOUT GOOD REASON OR DUE TO EXPIRATION OF THE EMPLOYMENT TERM. If Executive's employment hereunder is terminated (i) by the Companies for Cause, or (ii) voluntarily by Executive without Good Reason in accordance with Section 7(a)(v) hereof, or (iii) due to the expiration of the Employment Term in accordance with Section 1 hereof, Executive shall be entitled to receive only his Base Salary through the date of termination, any stock rights arising under Section 4(d), any unreimbursed business expenses payable pursuant to Section 6 and any accrued vacation pay payable pursuant to applicable policies of the Companies. Executive's rights under any benefit plan or any equity plan following such termination of employment shall be determined in accordance with the provisions of the applicable benefit or equity plan. 9. NO MITIGATION: SET-OFF. In the event of any termination of employment under Section 8, Executive shall be under no obligation to seek other employment and, subject to Section 10 below, there shall be no offset against any amounts due Executive under this Agreement on account of any remuneration attributable to any subsequent employment that Executive may obtain. Any amounts due under Section 8 are in the nature of severance payments, or liquidated damages, or both, and are not in the nature of a penalty. Such amounts are inclusive, and in lieu of any amounts payable under any other salary continuation or cash severance arrangement of the Companies and to the extent paid or provided under any other such arrangement shall be offset from the amount due hereunder. The Companies shall have no obligations to Executive upon a termination of employment except as provided in Section 8 or as otherwise specified in this Agreement. If Executive dies while receiving payments under Section 8(c), any remaining payments shall be paid to Executive's estate. 10. CONFIDENTIAL INFORMATION, NON-COMPETITION AND NON-SOLICITATION OF THE COMPANY. (a) (i) Executive acknowledges that as a result of his employment by the Companies, Executive will obtain secret and confidential information as to the Companies and their affiliates and the Companies and their affiliates will suffer substantial damage, which would be difficult to ascertain, if Executive should use such confidential information and that because of the nature of the information that will be known to Executive it is necessary for the Companies and their affiliates to be protected by the prohibition against Competition as set forth herein, as well as the Confidentiality restrictions set forth herein. (ii) Executive acknowledges that the retention of nonclerical employees employed by either or both of the Companies and their affiliates in which either or both of the Companies and their affiliates have invested training and depend on for the 9 operation of their businesses is important to the businesses of the Companies and their affiliates, that Executive will obtain unique information as to such employees as an executive of the Companies and will develop a unique relationship with such persons as a result of being an executive of the Companies and, therefore, it is necessary for the Companies and their affiliates to be protected from Executive's Solicitation of such employees as set forth below. (iii) Executive acknowledges that the provisions of this Agreement are reasonable and necessary for the protection of the businesses of the Companies and their affiliates and that part of the compensation paid under this Agreement and the agreement to pay severance in certain instances is in consideration for the agreements in this Section 10. (b) Competition shall mean: (i) participating, directly or indirectly, as an individual proprietor, partner, stockholder, officer, employee, director, joint venturer, investor, lender, consultant or in any capacity whatsoever within the United States of America, in a business in competition with any business conducted by the Companies, provided, however, that such participation shall not include (i) the mere ownership of not more than one percent (1%) of the total outstanding stock of a publicly held company; (ii) the performance of services for any enterprise to the extent no portion of such services are performed, directly or indirectly, for the portion of the enterprise in the aforesaid competition; or (iii) any activity engaged in with the prior written approval of the Incomnet Board. (c) Solicitation shall mean: recruiting, soliciting or inducing, of any nonclerical employee or employees of either or both of the Companies or their affiliates to terminate their employment with, or otherwise cease their relationship with, either or both of the Companies or their affiliates or hiring or assisting another person or entity to hire any nonclerical employee of either or both of the Companies or their affiliates or any person who within six (6) months before had been a nonclerical employee of either or both of the Companies or their affiliates, provided, however, that solicitation shall not include any of the foregoing activities engaged in with the prior written approval of the Incomnet Board. (d) If any restriction set forth with regard to Competition or Solicitation is found by any court of competent jurisdiction, or an arbitrator, to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend over the maximum period of time, range of activities or geographic area as to which it may be enforceable. If any provision of this Section 10 shall be declared to be invalid or unenforceable, in whole or in part, as a result of the foregoing, as a result of public policy or for any other reason, such invalidity shall not affect the remaining provisions of this Section which shall remain in full force and effect. (e) During and after the Employment Term, Executive shall hold in a fiduciary capacity for the benefit of the Companies and their affiliates all secret or confidential information, knowledge or data relating to the Companies and their affiliates, and their respective businesses, including any confidential information as to customers of the Companies and their affiliates, (i) obtained by Executive during his employment by the Companies and their affiliates and (ii) not otherwise public knowledge or known within the applicable industry (other than by 10 acts of Executive in violation of this Agreement). Executive shall not, without prior written consent of the Companies, unless compelled pursuant to the order of a court or other governmental or legal body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Companies and those designated by them. In the event Executive is compelled by order of a court or other governmental or legal body to communicate or divulge any such information, knowledge or data to anyone other than the foregoing, he shall promptly notify the Companies of any such order and he shall cooperate fully with the Companies in protecting such information to the extent possible under applicable law. (f) Upon termination of his employment with the Companies and their affiliates, or at any time as the Companies may request, Executive will promptly deliver to the Companies, as requested, all documents (whether prepared by the Companies, an affiliate, Executive or a third party) relating to either or both of the Companies, an affiliate or any of their businesses or property which he may possess or have under his direction or control other than documents provided to Executive in his capacity as a participant in any employee benefit plan, policy or program of the Companies or any agreement by and between Executive and the Companies with regard to Executive's employment or severance. (g) During his employment by the Companies Executive will not enter into Competition with either or both of the Companies or their affiliates. Furthermore, in the event of any termination of Executive's employment for Cause or the voluntary termination of employment by Executive without Good Reason, Executive for eighteen (18) months thereafter will not enter into Competition with the Companies or engage in Solicitation. (h) In the event of a breach or potential breach of this Section 10, Executive acknowledges that the Companies and their affiliates will be caused irreparable injury and that money damages may not be an adequate remedy and agree that the Companies and their affiliates shall be entitled to injunctive relief (in addition to its other remedies at law) to have the provisions of this Section 10 enforced. 11. EXECUTIVE'S REPRESENTATION. Executive represents and warrants to the Companies that as of the date hereof there is no legal impediment to his performing his obligations under this Agreement and neither entering into this Agreement nor performing his contemplated service hereunder will violate any agreement to which he is a party or the date hereof any other legal restriction. 12. COMPANIES' REPRESENTATIONS. The Companies represent and warrant to the Executive that as of the date hereof there are no legal impediments on their performance of their obligations under the Agreement and that neither the entering into of this Agreement nor the performing of their obligations hereunder will violate any agreement in which they are a party as the date hereof or any other legal restriction. 11 13. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California without reference to principles of conflict of laws. (b) ENTIRE AGREEMENT/AMENDMENTS. This Agreement and the instruments contemplated herein, contain the entire understanding of the parties with respect to the employment of Executive by the Companies and supersedes any policy of the Companies with regard to severance payments and any prior agreements between the Companies and Executive with regard to employment or severance. There are no restriction, agreements, promises, warranties, covenants, representations or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein and therein. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto. (c) NO WAIVER. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any such waiver must be in writing and signed by Executive or an authorized officer of the Companies, as the case may be. (d) ASSIGNMENT. This Agreement shall not be assignable by any of the parties hereto except by operation of law. (e) SUCCESSORS; BINDING AGREEMENT. This Agreement shall inure to the benefit of and be binding upon the personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees legatees and permitted assignees of the parties hereto. (f) COMMUNICATIONS. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given (i) when faxed or delivered, or (ii) two business days after being mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on Schedule II to this Agreement, provided that all notices to the Companies shall be directed to the attention of the Secretary of Incomnet, or to such other address as any party may have furnished to the other in writing in accordance herewith. Notice of change of address shall be effective only upon receipt. (g) WITHHOLDING TAXES. The Companies may withhold from any and all amounts payable under this Agreement such federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation. (h) SURVIVORSHIP. The respective rights and obligations of the parties hereunder shall survive any termination of Executive's employment to the extent necessary to the agreed preservation of such rights and obligations. 12 (i) COUNTERPARTS. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. (j) HEADINGS. The headings of the sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. INCOMNET, INC. By: /s/ JOHN P. CASEY ---------------------------------------- Name: John P. Casey Title: Chairman NATIONAL TELEPHONE & COMMUNICATIONS, INC. By: /s/ JOHN P. CASEY ---------------------------------------- Name: John P. Casey Title Chairman /s/ DENIS RICHARD ---------------------------------------- Denis Richard 13 EXHIBIT A 1. A "Change in Control" shall be deemed to have occurred (a) upon a sale of substantially all the assets of either of the Companies (excluding a sale transaction between the Companies) or (b) if any "person" (as such term is used in Section 13(d) and 14 (d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other than a person or group (as such term is defined in Rule 13d-5(b) of the General Rules and Regulations promulgated under the Exchange Act) (the "Rules and Regulations") of persons who are affiliates (as such term is defined in Rule 12b-2 of the Rules and Regulations) of Incomnet or NTC on the date hereof or John Casey or his issue and trusts and other entities formed primarily for their benefit, after the date of the Agreement becomes the beneficial owner, directly of indirectly, of securities of Incomnet representing forty percent (40%) or more of the combined voting power of Incomnet's then outstanding securities (including securities the holder of which has the right to convert into voting securities of Incomnet). - -------------------------------------------------------------------------------- Schedule 1 (Per Share Market Price on Valuation Date) $2.1875 - -------------------------------------------------------------------------------- Schedule II (Address for Notice) Address for Notices to Incomnet, NTC and Denis Richard: 2801 Main Street Irvine, California 92614 14 EX-10.3 3 EXHIBIT 10.3 INCOMNET, INC. 2801 Main Street Irvine, California 92614 September 29, 1998 Mr. John P. Casey c/o Meridian Investments, Inc. 10220 River Road, Suite 115 Potomac, Maryland 20854 Dear Jack: The purpose of this letter is to acknowledge, and set forth the terms of, our agreement with regard to your continued service as the Chairman of the Board of Directors (the "Board") of Incomnet, Inc., a California corporation (the "Company"). 1. Your service as Chairman under this Agreement shall be for a term (the "Term") commencing on September 29, 1998 and, unless terminated earlier due to your termination as the Chairman, terminating on September 29, 2001. 2. During the Term, you shall continue to perform the duties and functions required of, and commensurate with, your status as the Chairman of the Board as described in the Bylaws of the Company. 3. As consideration for your service as the Chairman, the Company shall pay you a quarterly service fee, determined in accordance with this Section 3, not later than ten (10) business days after the end of each fiscal quarter of the Company (or portion thereof) during the Term (the "Quarterly Fee"). The amount of Quarterly Fee shall be determined as follows: (i) If the Fair Market Value of the Company's common stock (the "Common Stock") is less than four dollars ($4) per share, the Quarterly Fee shall be equal to One Dollar ($1); or (ii) If the Fair Market Value of the Common Stock is not less than four dollars ($4) per share, the Quarterly Fee shall be equal to the product of: (A) twenty-five thousand dollars ($25,000), and (B) the number determined by dividing the Fair Market Value of the Common Stock by four (4) and, if the Mr. John P. Casey September 29, 1998 Page 2 quotient thereof is not a whole number, rounding-down such quotient to the next lowest whole number. The Quarterly Fees due hereunder are in lieu of, and not in addition to, any retainer fees, meeting fees or other remuneration to which you would be entitled as the Chairman or as a director of the Company. For purposes of this Section 3, the Fair Market Value of the Common Stock for any fiscal quarter (or portion thereof) of the Company will be deemed to be equal to the average closing price of the Common Stock for the last five (5) trading days during such fiscal quarter as quoted on an automated quotation system sponsored by the National Association of Securities Dealers or, if not so quoted, as reported on the principal national securities exchange on which the Common Stock is then traded. If the Common Stock is not readily tradeable, the Fair Market Value of the Common Stock shall be determined in good faith by the Board. In no event shall the Quarterly Fees exceed with respect to any fiscal quarter $250,000 and payment of the Quarterly Fees shall be subordinate to the payment of any amounts due to Denver Technologies, LLC, under the Class D Preferred Shares and the Subordinated Debt each as described on that certain Term Sheet attached hereto, as the same may be amended by Company with the consent of the Chairman. 4. The Company shall indemnify you and hold you harmless, to the fullest extent permitted by law as, to and from any and all costs, expenses or damages incurred by you as a result of any claim, suit, action or judgment arising out of your service as the Chairman. This right to indemnification shall survive the termination of this Agreement. 5. During the Term and thereafter, you shall hold in a fiduciary capacity for the benefit of the Company and its subsidiaries (the "Control Group") all secret or confidential information, knowledge or data relating to the Control Group or its business (which shall be defined as all such information, knowledge and data coming to your attention by virtue of your service with the Company except that which is otherwise public knowledge or known within the Company's industry). During such period, you shall not, without prior written consent of the Board, unless compelled pursuant to the order of a court or other body having jurisdiction over such matter or unless required by lawful process or subpoena, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. The foregoing shall not limit the disclosure by you of such information in the course of the performance of your duties as the Chairman so long as such disclosure is in good faith. In the event of a breach or threatened breach by you of any provision of this Section 5, the Company shall Mr. John P. Casey September 29, 1998 Page 3 be entitled to injunctive, declaratory and other equitable relief from a court of competent jurisdiction to restrain you from committing such breach. Nothing in this Agreement shall be construed as prohibiting the Company from pursuing any other remedy or remedies including, without limitation, the recovery of damages. 6. Notwithstanding anything herein to the contrary, this Agreement does not impose any obligations on the Company to retain you as its Chairman or as a director nor shall it impose an obligation on you to remain as the Chairman or as a director of the Company. 7. All amounts payable under this Agreement are, to the extent legally required, subject to withholding and deductions. During the Term, you will not be an employee of the Company or its affiliates and you will not be eligible to participate in, or receive benefits under, any benefit plans or arrangements maintained, or contributed to, by the Company or its affiliates. 8. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same agreement. This Agreement sets forth the parties' entire agreement, and supersedes any and all prior agreements or understandings, oral or written, with respect to its subject matter. This Agreement can be amended only by a writing signed by both you and the Company. 9. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs (in your case) and permitted assigns. This Agreement nor any rights hereunder may be assigned by you. No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or pursuant to a sale of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes in writing the liabilities, obligations and duties of the Company, as contained in this Agreement. 10. All notices under this Agreement shall be given in writing and shall be either delivered personally or sent by certified or registered mail, return receipt requested, addressed to the other party at the appropriate address first set forth above, or Mr. John P. Casey September 29, 1998 Page 4 to such other address as such party shall designate by written notice as aforesaid. Notices shall be deemed given when received or two (2) days after mailing, whichever is earlier. 11. This Agreement shall be governed by, and construed under and in accordance with, the laws of the State of California, without reference to rules relating to conflicts of laws. Please execute a copy of this Agreement and return it to me to acknowledge your agreement to the foregoing. INCOMNET, INC. By: /s/ DENIS RICHARD ------------------------------------- Denis Richard President and Chief Executive Officer Agreed & Accepted as of September 29, 1998: /s/ JOHN P. CASEY - ------------------------------------- John P. Casey -----END PRIVACY-ENHANCED MESSAGE-----