BOARD CHANGE AGREEMENT
AMONG
INCOMNET, INC.,
THE CURRENT DIRECTORS OF INCOMNET, INC.
AND
XXXX X. XXXXX
AUGUST 28, 1998
TABLE OF CONTENTS
Page
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1. RESIGNATION AND APPOINTMENT OF DIRECTORS; BOARD MATTERS . . . . . . . . . . . . .3
1.1. Resignation of Directors.. . . . . . . . . . . . . . . . . . . . . . . . .3
1.2. Appointment of Directors.. . . . . . . . . . . . . . . . . . . . . . . . .3
1.3. Committees of New Board. . . . . . . . . . . . . . . . . . . . . . . . . .3
1.4. Reelection of Xxxxxxxxx. . . . . . . . . . . . . . . . . . . . . . . . . .4
1.5. Number of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
3. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . .6
3.1. Representations of Individuals.. . . . . . . . . . . . . . . . . . . . . .6
3.2. Company Representations to Individuals.. . . . . . . . . . . . . . . . . .7
3.3. Additional Company Representations to Xxxxx. . . . . . . . . . . . . . . .7
3.4. Additional Xxxxx Representations to Company. . . . . . . . . . . . . . . .8
4. COVENANTS OF COMPANY AND CURRENT BOARD PRIOR TO CLOSING . . . . . . . . . . . . .8
4.1. Access; Shareholders' List.. . . . . . . . . . . . . . . . . . . . . . . .8
4.2. Required Approvals; Conditions.. . . . . . . . . . . . . . . . . . . . . .9
4.3. Notification.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
4.4. Stand Still. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. COVENANTS OF XXXXX PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . . . . 10
5.1. Required Approvals; Conditions.. . . . . . . . . . . . . . . . . . . . . 10
5.2. Notification.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6. ADDITIONAL AND CONTINUING COVENANTS . . . . . . . . . . . . . . . . . . . . . . 12
6.1. Additional Financing.. . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.2. Assignment of Xxxxx Option.. . . . . . . . . . . . . . . . . . . . . . . 12
6.3. Increase in Number of Authorized Shares. . . . . . . . . . . . . . . . . 13
6.4. Exercise of Xxxxx Option by Xxxxx; Redemption of Xxxxx
Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.5. Inability to Redeem Xxxxx Option or Xxxxx Preferred Stock;
Conversion of Xxxxx Preferred Stock into Common Stock;
Agreement to Conduct Offering of Common Stock. . . . . . . . . . . . . . 13
6.6. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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7. CONDITIONS PRECEDENT TO CASEY'S OBLIGATION TO CLOSE . . . . . . . . . . . . . . 15
7.1. Approval and Conditional Appointment of Xxxxx Board Designee.. . . . . . 15
7.2. Class Action Lawsuit Settlement. . . . . . . . . . . . . . . . . . . . . 15
7.3. Directors' and Officers' Insurance Coverage. . . . . . . . . . . . . . . 15
7.4. Rescission of Autonomy Agreement.. . . . . . . . . . . . . . . . . . . . 15
7.5. Rescission of Supermajority Bylaw Provision. . . . . . . . . . . . . . . 15
7.6. Xxxxx Group Approval.. . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.7. NTC Secured Creditor Matters; No Liquidation Proceedings.. . . . . . . . 16
7.8. Information Statement. . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.9. Accuracy of Representations. . . . . . . . . . . . . . . . . . . . . . . 16
7.10. Performance of Covenants. . . . . . . . . . . . . . . . . . . . . . . . 16
7.11. Additional Documents. . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.12. No Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . 17
8. CONDITIONS PRECEDENT TO COMPANY'S AND CURRENT BOARD'S OBLIGATION TO CLOSE . . . 17
8.1. Approval and Conditional Appointment of Xxxxx Board Designee.. . . . . . 17
8.2 Xxxxx Group Approval . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.3. Information Statement. . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.4. Accuracy of Representations. . . . . . . . . . . . . . . . . . . . . . . 19
8.5. Performance of Covenants.. . . . . . . . . . . . . . . . . . . . . . . . 19
8.6. Additional Documents.. . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.7. No Legal Proceedings.. . . . . . . . . . . . . . . . . . . . . . . . . . 19
9. SPECIFIC RELEASES; COVENANT NOT TO XXX AND RELATED MATTERS. . . . . . . . . . . 19
9.1. Specific Releases. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.2. Covenant not to Xxx. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.3. Waiver of Statutory Provision. . . . . . . . . . . . . . . . . . . . . . 20
9.4. Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.5. Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
9.6. Maintenance of D&O Insurance.. . . . . . . . . . . . . . . . . . . . . . 22
9.7. Enforcement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.1. Termination Events. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
10.2. Effect of Termination.. . . . . . . . . . . . . . . . . . . . . . . . . 23
11. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.1. Rules of Construction.. . . . . . . . . . . . . . . . . . . . . . . . . 24
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11.2. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.3. Survival of Representations and Covenants.. . . . . . . . . . . . . . . 25
11.4. Notices.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.5. Equitable Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.6. Entire Agreement; Amendment.. . . . . . . . . . . . . . . . . . . . . . 25
11.7. Successors; Assignment. . . . . . . . . . . . . . . . . . . . . . . . . 26
11.8. Governing Law.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.9. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.10. Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.11. Further Assurances.. . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.12. Waiver.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.13. Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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BOARD CHANGE AGREEMENT
This Board Change Agreement (this "Agreement") is made and entered
into as of August 28, 1998, by and among Incomnet, Inc., a California
corporation (the "Company"), Xxxxxxx Xxxxxxxx, an individual ("Xxxxxxxx"),
Xxxx Xxxxx, an individual ("Xxxxx"), Xxxxxx Xxxxxxx, an individual
("Xxxxxxx"), Xxxxxx Xxxxxxxxx, an individual ("Xxxxxxxxx"), Xxxxx Xxxxxxxx,
an individual ("Wilstein"), Xxxxx Xxxxxx, an individual ("Xxxxxx"), and Xxxx
X. Xxxxx, an individual ("Xxxxx").
R E C I T A L S
A. The current members of the Board of Directors of the Company are
Horowitz, Lesem, Reznick, Silverman, Wilstein and Xxxxxx (collectively, the
"Current Board").
X. Xxxxx beneficially owns 6,137,504 shares of the Common Stock
("Common Stock") representing approximately 31% of the Company's outstanding
Common Stock as more fully described in the Schedule 13D filed by Xxxxx
(listing the Company as the issuer) with the Securities and Exchange
Commission (the "SEC") on April 7, 1998 and as subsequently amended (as
amended, the "Xxxxx Schedule 13D").
C. As more fully described in the Xxxxx Schedule 13D, Xxxxx has an
option (the "Xxxxx Option") to purchase shares of the Company's Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock
(collectively, the "Preferred Stock"), pursuant to the Option Agreement dated
as of July 15, 1998 (the "Option Agreement"), among Xxxxx, Xxxxxx Xxxxx,
Xxxxxxxx Xxxxx, Xxxxxxx Xxxxx, Xxxxxxx Xxxxx, Xxxx Xxxxx, Xxxxxx Xxxx,
Broadway Partners, Xxxxx Xxxxx, Xxxxxxxxx Xxxxx, Xxxxxx Xxxxx, Xxxxx Xxxxx
and Xxxxxx Xxxxx (collectively, the "Xxxxx Group"). Under the Option
Agreement, Xxxxx has the right to purchase 1,598.211 shares of Preferred
Stock (the "Xxxxx Preferred Stock") for $2.3 million plus certain accrued
dividends and penalties as provided in the Option Agreement (the "Xxxxx
Exercise Price"). The Preferred Stock is convertible into shares of the
Common Stock. As disclosed in the Xxxxx Schedule 13D, Xxxxx believes that,
if he exercised the Xxxxx Option to acquire the Xxxxx Preferred Stock and
elected to convert the Xxxxx Preferred Stock into shares of the Common Stock,
these shares, upon issuance, would represent approximately 27% of the
post-conversion outstanding Common Stock. All of the Company's authorized
Common Stock is currently issued and outstanding and, accordingly, the
Company currently does not have shares of its Common Stock available for
issuance in order to meet its obligations to issue Common Stock upon
conversion of the outstanding shares of
Preferred Stock and certain other outstanding options and warrants to
purchase Common Stock.
D. The Xxxxx Group previously attempted to convert the Xxxxx
Preferred Stock on June 10 and 11, 1998. Since the Company did not have any
authorized shares of Common Stock available for issuance at that time, it was
unable to issue those shares of Common Stock to the Xxxxx Group. Under the
Option Agreement, Xxxxx acquired all rights and claims of the Xxxxx Group
relating to the Xxxxx Preferred Stock.
E. With approximately 31% of the outstanding shares of the Common
Stock that Xxxxx already beneficially owns, after giving effect to the
conversion of the Xxxxx Preferred Stock and issuance of the underlying Common
Stock at the conversion price for the Xxxxx Preferred Stock on June 10 and
11, 1998, Xxxxx would own approximately 47% of the Common Stock that would be
outstanding immediately following the exercise of the Xxxxx Option and
conversion of the Xxxxx Preferred Stock into shares of the Common Stock.
F. The Company's wholly owned subsidiary, National Telephone &
Communications, Inc. ("NTC"), is in default under a secured credit facility
(the "First Bank Credit Facility") provided by First Bank & Trust Company of
Newport Beach ("First Bank"), under which NTC's obligations are secured by,
among other things, NTC's accounts receivable. First Bank has agreed to
forbear any rights it has against NTC under this facility until August 28,
1998.
G. NTC is in default on its obligations to make certain payments to
WorldCom Network Services, Inc. ("WorldCom") under the Amended Carrier
Switched Services Agreement dated May 12, 1997 (the "WorldCom Agreement"),
between NTC and WorldCom. The payments owed to WorldCom by NTC under the
WorldCom Agreement are secured by, among other things, NTC's customer
accounts. WorldCom has agreed to forbear any rights it has against NTC under
the WorldCom Agreement until August 28, 1998.
H. A class action lawsuit is pending against the Company in the
United States District Court for the Central District of California entitled
XXXXXX XXXXXX ET. XX X. XXX X. XXXXXXXX AND INCOMNET, INC. (CASE NO.
CV95-0399 AWT (BQRX) (the "Class Action Lawsuit").
I. It is the intent of the parties that all members of the Current
Board except for Xxxxxxxxx resign and that Xxxxx, Xxxx Xxxx, Jr. ("Hill") and
one person to be designated by Xxxxx (the "Xxxxx Board Designee") be
appointed to the Company's Board of Directors, on the terms and subject to
the conditions set forth herein (such change in Board composition is referred
to herein as the "Board Change"). Thus, upon satisfaction
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of these conditions and the completion of the matters set forth in this
Agreement, the members of the Company's Board of Directors will be Silverman,
Casey, Hill and the Xxxxx Board Designee (collectively, the "New Board").
J. WorldCom and First Bank have conditioned additional forbearance
with respect to the defaults by NTC under the WorldCom Agreement and the
First Bank Credit Facility, respectively, on the execution of this Agreement
providing for the Board Change. The Current Board and/or representatives of
the Company have met with Xxxxx on various occasions to discuss his plans and
current intentions with respect to the recapitalization and revitalization of
the Company and NTC. The Current Board has determined that the Board Change
is in the best interests of the Company and its shareholders.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
1. RESIGNATION AND APPOINTMENT OF DIRECTORS; BOARD MATTERS
1.1. RESIGNATION OF DIRECTORS.
Subject to the terms and conditions of this Agreement, at the
Effective Time (as defined in SECTION 2), the resignations of Xxxxxxxx,
Lesem, Reznick, Wilstein and Xxxxxx from the Company's Board of Directors
(the "Board") shall be effective.
1.2. APPOINTMENT OF DIRECTORS.
Subject to the terms and conditions of this Agreement, immediately
following the Effective Time, the appointment to the Board of Xxxxx, Hill
and, if designated by Xxxxx and approved by the Current Board as provided
herein, the Xxxxx Board Designee shall be effective. Xxxxxxxxx shall remain
as a member of the Board following the Effective Time.
1.3. COMMITTEES OF NEW BOARD.
The New Board shall form and appoint Board members to an audit committee
(the "Audit Committee"), compensation committee (the "Compensation Committee")
and a committee to resolve any issues relating to transactions involving Xxxxx
in his individual
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capacity (the "Disinterested Director Committee"). The Company shall, and
Xxxxx shall use commercially reasonable efforts to cause the New Board to,
offer Xxxxxxxxx the opportunity to be a member of the Audit Committee,
Compensation Committee and Disinterested Director Committee and, if the
Company forms such a committee, the Executive Committee.
1.4. REELECTION OF XXXXXXXXX.
Subject to applicable law, following the Effective Time, the Company
shall, and Xxxxx shall use commercially reasonable efforts to cause the
Company to, nominate Xxxxxxxxx for reelection to the Board at the next annual
meeting of shareholders of the Company, provided that he has not resigned
from the Board prior to the mailing to the Company's shareholders of the
proxy statement for such meeting. If Xxxxxxxxx should cease to be a director
of the Company for any reason (whether through voluntary resignation, removal
for cause, death, disability or any other reason), no party, other than the
then current members of the Board in accordance with the Company's Articles
of Incorporation, as amended (the "Articles"), and Bylaws, as amended (the
"Bylaws" and together with the Articles, the "Organizational Documents"),
shall have the right to designate or appoint a successor to Xxxxxxxxx on the
Board.
1.5. NUMBER OF DIRECTORS.
Following the Closing, the New Board may, but shall be under no
obligation to, appoint additional members of the Board who may be identified
from time to time, all in accordance with the Organizational Documents.
2. CLOSING
At 10:00 a.m. on the first business day after the satisfaction or
waiver of the conditions in SECTION 7 and SECTION 8 or at such later time and
date as Xxxxx and the Current Board may agree (the "Effective Time"), the
conditional resignations of Xxxxxxxx, Lesem, Reznick, Wilstein and Xxxxxx
from the Board shall be in effect and no longer subject to any condition and,
immediately thereafter the appointment of Xxxxx, Hill and the Xxxxx Designee
to the Board shall be in effect and no longer subject to any condition (such
resignation and appointment, the "Closing"). At 10:00 a.m. (Los Angeles
time) on the date of the Closing (the "Closing Date"), the Current Board
shall cause to be delivered to Xxxxx at the offices of Xxxxxx Xxxxxx White &
XxXxxxxxx, counsel to Xxxxx, such documents as may be reasonably requested by
Xxxxx, including documents evidencing satisfaction of the conditions set
forth in this Agreement that are within the possession or control of the
Company or the Current Board. At 10:00 a.m. (Los Angeles time) on the
Closing Date, Xxxxx shall cause to be delivered to the Current Board at the
offices of Xxxxxx Xxxxxx White & XxXxxxxxx, counsel to Xxxxx, such documents
as may
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be reasonably requested by the Company and the Current Board, including
documents evidencing satisfaction of the conditions set forth in this
Agreement that are within the possession or control of Xxxxx.
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3. REPRESENTATIONS AND WARRANTIES
3.1. REPRESENTATIONS OF INDIVIDUALS.
Each individual who is a party to this Agreement represents and
warrants to all other parties to this Agreement as follows:
(a) this Agreement constitutes the legal, valid and binding obligation
of such person, enforceable against such person in accordance with its terms,
subject to general principles of equity and laws relating to the enforcement
of creditors' rights generally;
(b) to such individual's knowledge, except for the Contracts (defined
below) identified in SCHEDULE 3.1, neither the execution and delivery of this
Agreement nor the consummation or performance of any of the Board Change
will, directly or indirectly (with or without notice or lapse of time)
contravene, conflict with, or result in a violation or breach of any
provision of, or give any Person (defined below) to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any material Contract to which such
individual is a party; and
(c) the description of such individual and any other matters between
such individual and the Company to be contained in the Information Statement
(as defined in SECTION 7.8) and any other information supplied in writing by
such individual to the Company for inclusion in the Information Statement
will be complete and accurate in all material respects when made and at the
Closing and will not contain any untrue statement of material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
For purposes of this Agreement, (i) the term "Person" means any individual,
corporation (including any non-profit corporation), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, labor union or other similar entity and (ii) the
term "Contract" means any express agreement, contract, obligation, promise,
understanding or undertaking (whether written or oral) that is legally
binding.
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3.2. COMPANY REPRESENTATIONS TO INDIVIDUALS.
The Company represents and warrants to all other parties to this
Agreement as follows:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the State of California, having all corporate
powers to execute, deliver and perform its obligations under this Agreement;
(b) the execution, delivery and performance by the Company of this
Agreement and the consummation of the transactions contemplated hereby are
within the Company's corporate powers and has been duly authorized by all
necessary corporate action;
(c) this Agreement has been duly executed and delivered by the Company
and constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to
general principles of equity and laws relating to the enforcement of
creditors' rights generally; and
(d) neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Board Change will, directly or
indirectly (with or without notice or lapse of time) (i) contravene, conflict
with, or result in a violation of (A) any provision of the Organizational
Documents of the Company or any of its subsidiaries , or (B) any resolution
adopted by the board of directors or the shareholders of the Company or any
of its subsidiaries or (ii) except for the Contracts identified in SCHEDULE
3.2, contravene, conflict with, or result in a violation or breach of any
provision of, or give any Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance of, or to
cancel, terminate, or modify, any Contract to which the Company or its
subsidiaries is a party or by which the Company or any of its subsidiaries is
bound.
3.3. ADDITIONAL COMPANY REPRESENTATIONS TO XXXXX.
The Company represents and warrants to Xxxxx as follows:
(a) at a meeting of the Current Board that was noticed and called in
accordance with the Organizational Documents, resolutions of the Board were
duly adopted approving (i) the acceptance of the resignations of Xxxxxxxx,
Lesem, Reznick, Wilstein and Xxxxxx from the Board and any office of the
Company, such resignations effective on the Effective Time and (ii) the
appointment of Xxxxx and Hill as directors of the Company, such appointments
effective immediately following the Effective Time; and
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(b) the Company and all of its subsidiaries have complied (and until
the Effective Time will comply) in all material respects with the provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), relating to
the payment and withholding of Taxes (defined below), including the
withholding and reporting requirements under Code Sections 1441 through 1464,
3401 through 3406, and 6041 through 6049, as well as similar provisions under
any other federal, state, county or local laws, and have, within the time and
in the manner prescribed by law, withheld from employee wages and paid over
to the proper governmental authorities all material amounts required by
applicable law. For purposes of this Agreement, the term "Taxes" means any
federal, state, county, local or foreign taxes, charges, fees, levies, or
other assessments, including all net income, gross income, sales and use, ad
valorem, transfer, gains, profits, excise, franchise, real and personal
property, gross receipt, capital stock, business and occupation, disability,
employment, payroll, license, estimated, or withholding taxes or charges
imposed by any governmental entity, and includes any interest and penalties
(civil or criminal) on or additions to any such Taxes; and
(c) other than the written information supplied by individuals to the
Company for inclusion in the Information Statement, the Information Statement
will be complete and accurate in all material respects when filed with the
SEC and at the Closing Date and will not contain any untrue statement of
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
3.4. ADDITIONAL XXXXX REPRESENTATIONS TO COMPANY.
Xxxxx represents and warrants to the Company that he has no current
reason to believe that he would not have the financial resources necessary to
exercise the Xxxxx Option in accordance with the terms and conditions set
forth in this Agreement and the Xxxxx Option.
4. COVENANTS OF COMPANY AND CURRENT BOARD PRIOR TO CLOSING
4.1. ACCESS; SHAREHOLDERS' LIST.
From the date of this Agreement until the Effective Time, the Company
will, and will cause each of its subsidiaries and its Representatives
(defined below) to, (a) afford Xxxxx and his Representatives reasonable
access to the books and records, contracts and other documents and data and
personnel and Representatives of the Company and its subsidiaries, (b)
xxxxxxx Xxxxx and his Representatives with copies of all such books and
records, and contracts and other existing documents and data as Xxxxx or his
Representatives may reasonably request, and (c) xxxxxxx Xxxxx and his
Representatives with such additional financial, operating, and other data and
information concerning the
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Company and its subsidiaries as Xxxxx and his Representatives may reasonably
request. In addition, the Company shall cause to be delivered to Xxxxx
within three business days after execution of this Agreement a list of all
shareholders of record as of the date of the Agreement. Notwithstanding
anything else to the contrary in this SECTION 4.1, the Company and its
subsidiaries shall not be required to disclose documents, the disclosure of
which to Xxxxx, based on advice of legal counsel, will likely invalidate a
claim of attorney-client privilege or attorney work product privilege
relating to such documents provided that the Company or its subsidiaries has
a good faith claim of such privilege. For purposes of this Agreement, the
term "Representatives" means any director, officer, employee, agent,
consultant, advisor, or other representative of such Person, including legal
counsel, accountants, insurance brokers and carriers and financial and other
advisors.
4.2. REQUIRED APPROVALS; CONDITIONS.
From the date of this Agreement until the Effective Time, the Company
and the Current Board shall, and shall cause each of the Company's
subsidiaries to cooperate with Xxxxx with respect to all filings that Xxxxx
elects to make or is required by law to make in connection with the Board
Change or any other matter contemplated under this Agreement. From the date
of this Agreement until the Effective Time, the Company and the Current Board
shall use commercially reasonable efforts to cause the conditions set forth
in SECTION 7 and SECTION 8 to be satisfied, including filing with the SEC and
mailing to the Company's shareholders of the Information Statement referenced
in SECTION 7.8 and SECTION 8.2; provided, however, that the Company and the
Current Board shall not file or mail the Information Statement without the
prior written consent of Xxxxx, such consent not to be unreasonably withheld.
4.3. NOTIFICATION.
From the date of this Agreement until the Effective Time, the Company
and the Current Board will promptly notify Xxxxx in writing if the Company or
the Current Board becomes aware of any fact or condition that causes or
constitutes a breach of any of the representations and warranties of the
Company or the Current Board as of the date of this Agreement, or if the
Company or the Current Board becomes aware of the occurrence after the date
of this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a breach of any such
representation or warranty had such representation or warranty been made as
of the time of occurrence or discovery of such fact or condition. From the
date of this Agreement until the Effective Time, the Company and the Current
Board will promptly notify Xxxxx of the occurrence of any breach of any
covenant of the Company and the Current Board in this SECTION 4 or of the
occurrence of any event that may make the satisfaction of the conditions set
forth in SECTION 7 and SECTION 8 impossible or unlikely. From the date of
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this Agreement until the Effective Time, the Company shall promptly notify
Xxxxx of any development or matter that will likely have a material effect on
the business, financial condition or results of operation of the Company or
any of its subsidiaries.
4.4. STAND STILL.
From the date of the Agreement until the Effective Time (the "Stand
Still Period"), unless Xxxxx otherwise consents in writing, the Company shall
not, and shall cause all of its subsidiaries not to, directly or indirectly,
initiate on its own or solicit or encourage any inquiries or proposals from,
discuss or negotiate with, provide non-public information to, or consider any
unsolicited inquiries from any third party, in connection with any of the
following:
(a) any amendment of the organizational documents of the Company or any
of its subsidiaries;
(b) any extraordinary corporate transaction (merger, sale of assets,
sale of securities or other similar transaction, declaration of dividend or
adoption of shareholder rights plan) or any agreement to incur any material
liability (loans for borrowed money or settlement of litigation, including
the Class Action Lawsuit); or
(c) any increase or agreement to increase compensation payable to
directors, employees or consultants or enter into severance or termination
arrangements affecting directors, consultants or employees or any amendment
to any employee plans or any grant of any options, warrants or rights to
purchase securities of the Company or any of its subsidiaries.
Notwithstanding the foregoing, the Company may (i) enter into the sublease
at 2811 East Main under the terms set forth in the term sheet dated July 17,
1998 and (ii) obtain debt financing on terms substantially similar to those
previously proposed by a financial institution in July 1998. In addition, if
the Company or any subsidiary proposes to enter into short-term financing
arrangements while the provisions in this SECTION 4.4 are in effect, Casey's
consent permitting the Company to do so shall not be unreasonably withheld.
5. COVENANTS OF XXXXX PRIOR TO CLOSING
5.1. REQUIRED APPROVALS; CONDITIONS.
From the date of this Agreement until the Effective Time, Xxxxx shall
cooperate with the Company and its subsidiaries with respect to all filings that
each of them elects to make or is required by law to make in connection with the
Board Change or any other matter contemplated under this Agreement. From the
date of this Agreement until the
10
Effective Time, Xxxxx shall use commercially reasonable efforts to cause the
conditions set forth in SECTION 7 and SECTION 8 to be satisfied.
11
5.2. NOTIFICATION.
From the date of this Agreement until the Effective Time, Xxxxx shall
promptly notify the Company in writing if Xxxxx becomes aware of any fact or
condition that causes or constitutes a breach of any of the representations
and warranties of Xxxxx as of the date of this Agreement, or Xxxxx becomes
aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement)
cause or constitute a breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. From the date of this Agreement until
the Effective Time, Xxxxx shall promptly notify the Company in writing of the
occurrence of any breach of any covenant of Xxxxx in this SECTION 5 or of the
occurrence of any event that may make the satisfaction of the conditions in
SECTION 7 or SECTION 8 impossible or unlikely.
6. ADDITIONAL AND CONTINUING COVENANTS
6.1. ADDITIONAL FINANCING.
Following the Closing, Xxxxx shall use commercially reasonable efforts
to secure additional equity or debt financing for the Company and its
subsidiaries and cause the New Board to consider all options available to the
Company and its subsidiaries to improve their liquidity consistent with their
needs; provided, however, that under no circumstance shall Xxxxx be required
under this Agreement to personally guarantee the obligations of the Company
or any of its subsidiaries or make a loan to, or an equity investment in, the
Company or any of its subsidiaries.
6.2. ASSIGNMENT OF XXXXX OPTION.
Following the Closing, Xxxxx shall assign the Xxxxx Option to the
Company on condition that (a) the Company is financially able to purchase or
redeem the Xxxxx Preferred Stock at the Xxxxx Exercise Price prior to the
termination of the Xxxxx Option, (b) the Xxxxx Group consents to such
assignment, (c) the Company agrees to exercise the Xxxxx Option and redeem
the Xxxxx Preferred Stock at the Xxxxx Exercise Price prior to the
termination of the Xxxxx Option and (d) the Company agrees to reimburse Xxxxx
for all costs and expenses incurred by Xxxxx in connection with acquiring and
assigning the Xxxxx Option (including the amount paid by Xxxxx to secure the
Xxxxx Option, reasonable attorneys' fees and carrying costs relating
thereto), such amount to be approved by Xxxxx and the Company at the time of
such assignment. The term "Xxxxx Exercise Price" means $2.3 million plus
certain accrued dividends and penalties as provided in the Option Agreement.
For purposes of determining whether the Company is financially able to redeem
the Xxxxx Preferred Stock, the Company must have cash on hand necessary to
undertake such a transaction taking into account the other cash
12
requirements of the Company and its subsidiaries and also meet all
requirements under applicable law, including Section 500 ET SEQ. of the
California General Corporation Law and any applicable contractual
restrictions.
6.3. INCREASE IN NUMBER OF AUTHORIZED SHARES.
Following the Closing, subject to applicable law, at the next
shareholders' meeting called for any purpose, the Company shall cause, and
Xxxxx shall use commercially reasonable efforts to cause, a proxy statement
to be prepared and mailed to the Company's shareholders soliciting their
approval to amend the Articles to increase the number of authorized shares of
Common Stock to 50 million shares (the "Amendment to Articles"). Following
the Closing, Xxxxx hereby agrees to vote in favor of the Amendment to
Articles at any shareholders' meeting duly called for that purpose all shares
of Common Stock beneficially owned by him that he is entitled to vote at such
meeting.
6.4. EXERCISE OF XXXXX OPTION BY XXXXX; REDEMPTION OF XXXXX
PREFERRED STOCK.
Following the Closing, if the Company is not financially able to
redeem the Xxxxx Preferred Stock prior to the termination of the Xxxxx Option
(or the Xxxxx Group does not consent to such assignment), Xxxxx shall
exercise the Xxxxx Option prior to its termination. Following the Closing,
for a maximum of the one-year period beginning on the date the Xxxxx Option
is exercised by Xxxxx and ending on the one-year anniversary of that
exercise date (the "Redemption Period"), Xxxxx shall hold the Xxxxx Preferred
Stock. If the Company is financially able to redeem the Xxxxx Preferred
Stock during the Redemption Period, following the Closing, (i) the Company
shall give written notice to Xxxxx of its financial ability to redeem the
Xxxxx Preferred Stock, (ii) Xxxxx shall promptly assign and transfer the
Xxxxx Preferred Stock to the Company and (iii) on such date of transfer, the
Company shall reimburse Xxxxx for all costs and expenses incurred by Xxxxx in
connection with acquiring, exercising and assigning the Xxxxx Option
(including the amount paid by Xxxxx to secure the Xxxxx Option, the Xxxxx
Exercise Price, reasonable attorneys' fees and carrying costs relating
thereto), such amount to be approved by Xxxxx and the Company at the time of
such assignment.
6.5. INABILITY TO REDEEM XXXXX OPTION OR XXXXX PREFERRED STOCK;
CONVERSION OF XXXXX PREFERRED STOCK INTO COMMON STOCK; AGREEMENT TO CONDUCT
OFFERING OF COMMON STOCK.
(a) If, following the Closing, the Company is not financially able to
redeem the Xxxxx Preferred Stock before expiration of the Redemption Period,
then as soon as practicable after the later of the expiration of the
Redemption Period and the approval by shareholders of the Amendment to
Articles, Xxxxx shall tender the Xxxxx
13
Preferred Stock for conversion and the Company shall convert the Xxxxx
Preferred Stock into that number of shares of Common Stock that the holders
of Xxxxx Preferred Stock would have been entitled to receive had the Company
been able to convert the Xxxxx Preferred Stock when tendered for conversion
on June 10 and 11, 1998 (the "Xxxxx Common").
(b) If the Xxxxx Preferred Stock is not redeemed by the Company before
expiration of the Redemption Period and the Xxxxx Preferred Stock is
converted into shares of Common Stock pursuant to SECTION 6.5(a), then as
soon as is reasonably practicable, Xxxxx shall commence an offering of the
Xxxxx Common on a pro rata basis to the Company's shareholders (including
Xxxxx) as of a certain record date to be announced by the Company ("Record
Holders"). The purchase price for the Xxxxx Common in such offering shall be
the sum of (i) all costs and expenses incurred by Xxxxx in connection with
acquiring and exercising the Xxxxx Option (including the amount paid by Xxxxx
to secure the Xxxxx Option, the Xxxxx Exercise Price, reasonable attorneys'
fees and carrying costs relating thereto) and (ii) all costs and expenses
attributable to the offering of the Xxxxx Common (including any SEC
registration fee, state securities law fees, reasonable attorneys' fees,
reasonable accounting fees, all such amounts to be approved by Xxxxx and the
Company at the time of such offering). To the extent that the Xxxxx Common
is undersubscribed for during the initial round of the offering, Xxxxx shall
be obligated in such offering to make a second round offer on a pro rata
basis to the subscribing Record Holders. If the offering is not fully
subscribed after the second round, Xxxxx shall be entitled to offer the
balance of the Xxxxx Common to the parties designated by him (including
Xxxxx) in his sole discretion.
6.6. CONFIDENTIALITY.
From the date of this Agreement and continuing after the Closing,
Xxxxx shall keep confidential from, and shall not disclose to, third parties
other than the Company all documents and other information concerning the
Company and its subsidiaries, and their officers and directors, provided to
him or produced on his behalf by his Representatives prior to the Closing
Date that are covered by the attorney-client privilege or attorney work
product doctrine (the "Privileged Documents"), except with the prior written
consent of Xxxxxxxxx. All of the foregoing obligations and restrictions do
not apply to that part of the Privileged Documents that Xxxxx demonstrates
was or becomes generally available to the public other than as a result of a
disclosure by Xxxxx or Casey's Representatives. If Xxxxx or any of Casey's
Representatives are requested or become legally compelled (by oral questions,
interrogatories, requests for information or documents, subpoena, civil or
criminal investigative demand, or similar process) or are required by a
regulatory body to make any disclosure that is prohibited by this Agreement,
Xxxxx or such Representative, as the case may be, shall provide at least two
members of the Current Board with prompt notice of such request so that the
Current Board may seek an appropriate protective order
14
or other appropriate remedy. Subject to the foregoing, Xxxxx or such
Representative may furnish that portion (and only that portion) of the
Privileged Documents that, upon the written advice of legal counsel, is
legally compelled or is otherwise required to disclose or else stand liable
for contempt or suffer other material penalty.
7. CONDITIONS PRECEDENT TO CASEY'S OBLIGATION TO CLOSE
Casey's obligation to effect the Board Change and take such other
actions required to be taken by Xxxxx at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Xxxxx, in whole or in part):
7.1. APPROVAL AND CONDITIONAL APPOINTMENT OF XXXXX BOARD DESIGNEE.
The Xxxxx Board Designee and any executive officer proposed by the New
Board to have positions with the Company or NTC at or immediately following
the Effective Time and who must be identified in the Information Statement
referred to in SECTION 7.8 must have been disclosed to, and approved by, the
Current Board, such approval not to be unreasonably withheld. The Current
Board shall have approved resolutions at a meeting of the Current Board duly
held in accordance with the Bylaws which provide for the appointment of the
Xxxxx Board Designee as a director of the Board, such appointment to be
effective at the Effective Time.
7.2. CLASS ACTION LAWSUIT SETTLEMENT.
A settlement agreement shall have been entered into among the named
parties to the Class Action Lawsuit pending against the Company on terms
reasonably acceptable to Xxxxx.
7.3. DIRECTORS' AND OFFICERS' INSURANCE COVERAGE.
The Company shall have in effect directors' and officers' insurance
coverage with such policy amounts and on such terms as are acceptable to
Xxxxx.
7.4. RESCISSION OF AUTONOMY AGREEMENT.
The Company and NTC shall have caused the agreement dated January 28,
1997 (the "Autonomy Agreement"), between the Company and NTC to be terminated
promptly and no later than three business days following the date of this
Agreement.
7.5. RESCISSION OF SUPERMAJORITY BYLAW PROVISION.
15
On November 5, 1997, the Board adopted an amendment to the Bylaws (the
"Supermajority Bylaw Provision") requiring that all formal resolutions, acts
and decisions of the Board must be approved by a majority vote plus one
director. The Company shall have rescinded the Supermajority Bylaw Provision
by adopting an amendment to the Bylaws to eliminate the Supermajority Bylaw
Provision, such rescission to be effective on or prior to the Effective Time.
7.6. XXXXX GROUP APPROVAL.
The consent or agreement of the Xxxxx Group approving of (and
authorizing Xxxxx to vote in favor of) the Amendment to Articles at the next
meeting of the Company's shareholders shall have been obtained.
7.7. NTC SECURED CREDITOR MATTERS; NO LIQUIDATION PROCEEDINGS.
WorldCom shall have withdrawn its letter advising NTC of WorldCom's
intention to terminate services under the WorldCom Agreement. First Bank and
WorldCom shall have agreed to forbear their rights to foreclose on the
collateral given to them, and otherwise enforce their rights upon default
under, the First Bank Credit Facility and the WorldCom Agreement,
respectively, on terms acceptable to Xxxxx. Neither the Company nor any of
its subsidiaries shall have commenced any liquidation proceedings, filed a
voluntary or involuntary petition under the federal bankruptcy laws or
approved an assignment for the benefit of creditors.
7.8. INFORMATION STATEMENT.
The Company shall have filed and mailed an information statement (the
"Information Statement") in accordance with Rule 14f-1 under the Exchange
Act. The ten-day waiting period required under Rule 14f-1 under the Exchange
Act following mailing of the Information Statement shall have lapsed.
7.9. ACCURACY OF REPRESENTATIONS.
All of the representations and warranties of the Company and the
Current Board set forth in this Agreement shall have been accurate in all
material respects as of the date of this Agreement and shall be accurate in
all material respects as of the Effective Time as if made on the Effective
Time.
7.10. PERFORMANCE OF COVENANTS.
Each of the covenants and obligations that the Company and the Current
Board are required to perform or to comply with pursuant to this Agreement at
or prior to Closing shall have been duly performed and complied with in all
material respects.
16
7.11. ADDITIONAL DOCUMENTS.
Xxxxx shall have received all documents reasonably requested by Xxxxx
for the purpose of (a) evidencing the accuracy of any of the representations
and warranties of the Company and the Current Board, (b) evidencing the
performance by the Company and the Current Board of any covenant or
obligation required to be performed or complied with by the Company or the
Current Board, (c) evidencing the satisfaction of any condition referred to
in this SECTION 7 and (d) otherwise facilitating the completion of the Board
Change.
7.12. NO LEGAL PROCEEDINGS.
No decree, injunction, judgment, order, ruling, assessment or writ
(collectively, "Order") shall have been declared, entered, issued, or
enforced by any governmental entity which prohibits or restricts (or if
successful, would prohibit or restrict) the Board Change or other
transactions contemplated in this Agreement.
8. CONDITIONS PRECEDENT TO COMPANY'S AND CURRENT BOARD'S OBLIGATION TO CLOSE
The obligations of the Company and the Current Board to effect the
Board Change and take such other actions required to be taken by the Company
and the Current Board at the Closing is subject to the satisfaction, at or
prior to the Closing, of each of the following conditions (any of which may
be waived by the Company and the Current Board, in whole or in part):
8.1. APPROVAL AND CONDITIONAL APPOINTMENT OF XXXXX BOARD DESIGNEE.
The Xxxxx Board Designee and any executive officer proposed by the New
Board to have positions with the Company or NTC at or immediately following
the Effective Time and who must be identified in the Information Statement
must have been disclosed to, and approved by, the Current Board, such
approval not to be unreasonably withheld.
8.2. XXXXX GROUP APPROVAL.
The consent or agreement of the Xxxxx Group approving of an increase
in the authorized number of shares of the Common Stock at the next meeting of
the Company's shareholders shall have been obtained.
8.3. INFORMATION STATEMENT.
The Company shall have filed and mailed the Information Statement in
accordance with Rule 14f-1 under the Exchange Act. The ten-day waiting period
required under Rule 14f-1 under the Exchange Act following mailing of the
Information Statement shall have lapsed.
17
8.4. ACCURACY OF REPRESENTATIONS.
All of the representations and warranties of Xxxxx set forth in this
Agreement shall have been accurate in all material respects as of the date of
this Agreement and shall be accurate in all material respects as of the
Effective Time as if made on the Effective Time.
8.5. PERFORMANCE OF COVENANTS.
Each of the covenants and obligations that Xxxxx is required to
perform or to comply with pursuant to this Agreement at or prior to Closing
shall have been duly performed and complied with in all material respects.
8.6. ADDITIONAL DOCUMENTS.
The Company and the Current Board shall have received all documents
reasonably requested by them for the purpose of (a) evidencing the accuracy
of any of the representations and warranties of Xxxxx, (b) evidencing the
performance by Xxxxx of any covenant or obligation required to be performed
or complied with by Xxxxx, (c) evidencing the satisfaction of any condition
referred to in this SECTION 8 and (d) otherwise facilitating the completion
of the Board Change.
8.7. NO LEGAL PROCEEDINGS.
No Order shall have been declared, entered, issued, or enforced by any
governmental entity which prohibits or restricts (or if successful, would
prohibit or restrict) the Board Change or other transactions contemplated in
this Agreement.
9. SPECIFIC RELEASES; COVENANT NOT TO XXX AND RELATED MATTERS
9.1. SPECIFIC RELEASES.
At the Effective Time, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, each party hereto,
on behalf of himself and, to the fullest extent permitted by law, each of his
Related Persons (as defined below) (each, a "Releasor"), hereby fully
releases and forever discharges each of the other parties hereto (each, a
"Releasee") and each of their past, present and future officers, directors,
stockholders, agents, attorneys, accountants, financial advisors,
representatives, employees, executors, administrators, heirs, spouses,
successors and assigns (each, a "Releasee Affiliate") from any and all
liability, obligation and responsibility for any and all Claims (as defined
below).
19
9.2. COVENANT NOT TO XXX.
At the Effective Time, each Releasor covenants and agrees not to
participate in, commence or to permit (to the extent within their control)
the assertion or commencement of any demand, allegation, litigation or
similar proceeding or action relating to any Claim, including, without
limitation, by or through the Company, and not to encourage, assist or
cooperate with any person pursuing or asserting any Claim, against any
Releasee or any Releasee Affiliate.
9.3. WAIVER OF STATUTORY PROVISION.
Each Releasor hereby waives the provisions of Section 1542 of the
California Civil Code only to the extent it applies to the releases given by
such Releasor in SECTION 9.1. Section 1542 of the California Civil Code
provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
9.4. INDEMNITY.
(a) At the Effective Time, without in any way limiting any of the
rights and remedies otherwise available to any Releasee, each party hereto
(each, an "Indemnitor"), severally and not jointly, shall indemnify and hold
harmless each Releasee from and against all loss, liability, claim, damage
(including incidental and consequential damages) or expense (including costs
of investigation and defense and reasonable attorneys' fees) whether or not
involving third party claims, arising directly or indirectly from or in
connection with (i) the assertion by or on behalf of such Indemnitor or any
of his Related Persons of any claim or other matter purported to be released
pursuant to the release set forth in SECTION 9.1 and (ii) the assertion by
any third party of any claim or demand against any Releasee which claim or
demand arises directly or indirectly from, or in connection with, any
assertion by or on behalf of such Indemnitor or any of his Related Persons
against such third party of any claims or other matters purported to be
released pursuant to the release set forth in SECTION 9.1.
(b) For the period of any applicable statute of limitations, the
Company shall, and no party hereto shall take any action to impair the
ability or power of the Company to, indemnify and hold harmless each person
who is or who has been a director or officer of the Company in respect of
acts and omissions occurring through the date on which such person shall have
ceased to be a director and officer of the Company, as the case may be, to
the full extent permitted by applicable law. All parties agree that all
20
rights of indemnification or limitations on liability now existing in favor
of any such person entitled to indemnification or any other party hereto as
provided (i) in the Organizational Documents, (ii) in any indemnification
agreement between the Company and any such person or (iii) pursuant to
applicable law, shall survive and continue in full force and effect until
expiration of any applicable statute of limitations period, provided that all
rights to indemnification in respect to any claim or claims asserted or made
within such period shall continue until the final disposition of all such
claims.
9.5. CERTAIN DEFINITIONS.
(a) As used in this Agreement, with respect to a specified Releasor or
Indemnitor who is an individual, the term "Related Person" means (i) each
other member of such individual's Family; (ii) any Person that is directly or
indirectly controlled by such individual or one or more members of such
individual's Family; (iii) any Person in which such individual or members of
such individual's Family hold (individually or in the aggregate) a Material
Interest; and (iv) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director, officer,
partner, executor, or trustee (or in a similar capacity). For purposes of
this Agreement, the term "Family" means (i) the individual, (ii) the
individual's spouse, (iii) any other natural person who is related to the
individual or the individual's spouse within the second degree, and (iv) any
other natural person who resides with such individual. Further, for purposes
of this Agreement, the term "Material Interest" means direct or indirect
beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) of
voting securities or other voting interests representing at least 10% of the
outstanding voting power of any Person or equity securities or other equity
interests representing at least 10% of the outstanding equity securities or
equity interests in any Person.
(b) As used in this Agreement, with respect to a specified Releasor or
Indemnitor which is not an individual, the term "Related Person" means (i)
any Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Releasor or Indemnitor, (ii) any individual or Person that holds a
Material Interest in such specified Releasor or Indemnitor, (iii) each
individual that serves as a director, officer, partner, executor, or trustee
of such specified Releasor or Indemnitor (or in a similar capacity), (iv) any
Person in which such specified Releasor or Indemnitor holds a Material
Interest, (v) any Person with respect to which such specified Indemnitor
serves as a general partner or a trustee (or in a similar capacity) and (vi)
any Related Person of any individual described in clause (ii) or (iii) of
this SECTION 9.5.
(c) As used in this Agreement, the term "Claim" means any actual or
alleged liability, claim, action, suit, cause of action, obligation, debt,
controversy, dispute, promise, contract, lien, judgment, account,
representation, covenant, agreement, demand
21
of any kind or nature, whether known or unknown, foreseen or unforeseen, both
at law and in equity, that any Releasor may or could have had or now or
hereafter may have against the respective Releasees arising out of, relating
to or connected in any way with (i) the Board Change of Control, (ii) the
proposed sale or recapitalization of NTC originally contemplated in or about
December 1997, including pursuant to the Asset Purchase Agreement dated as of
March 31, 1998, between NTC Acquisition, Inc. and NTC, (iii) the proposed NTC
debt financing with a financial institution in July 1998, (iv) the sale of up
to 2.5 million shares of Rapid Cast at $0.60 per share, (v) upon the
redemption of the Xxxxx Preferred Stock or the approval by the Company's
shareholders of the Amendment to Articles and subsequent conversion of the
Xxxxx Preferred Stock into shares of Common Stock based on the conversion
price when tendered for conversion on June 10 and 11, 1998, all as provided
in this Agreement, the failure to have shares of Common Stock available for
issuance to the holders of the Xxxxx Preferred Stock upon their attempted
conversion of such stock into shares of Common Stock on June 10 and 11, 1998
or (vi) any action, failure to act, representation, event, transaction,
occurrence or other subject matter resulting from, arising out of, relating
to, connected in any way with, or alleged, suggested or mentioned in
connection with the matters described in clauses (i) through (v) of this
SECTION 9.5(c).
9.6. MAINTENANCE OF D&O INSURANCE.
The Company shall (and no party hereto shall take any action to impair
the ability or power of the Company) provide officers' and directors'
liability insurance ("D&O Insurance") covering each person who is or who has
been a director or officer of the Company in respect of acts and omissions
occurring through the date on which such person shall have ceased to be a
director and officer of the Company until the third anniversary of the date
of this Agreement, in respect of acts or omissions occurring through the
Closing Date, on terms with respect to coverage and amount no less favorable
than those of such policies in effect on the date of this Agreement;
provided, that the Company shall not be required to pay combined annual
premiums for the D&O Insurance in excess of 125% of the premium paid for the
existing D&O Insurance by the Company for the current policy period (the
"Maximum Premium"); provided further that in the event the payment of the
Maximum Premium for any year is insufficient to maintain such insurance, the
Company shall purchase as much D&O Insurance coverage as may be purchased for
the Maximum Premium; provided, further, that the Company shall not be liable
for breach of its obligations to provide D&O Insurance if such insurance
cannot be obtained at any price for any annual period in which insurance is
so unavailable.
9.7. ENFORCEMENT.
The provisions of SECTION 9.4(b) and SECTION 9.6 hereof shall inure to
the benefit of each Indemnitee and the other parties hereto who are
indemnified herein or who have
22
rights of indemnification or limitations on liability as described in the
second sentence of Section 9.5(b). The Company shall pay all legal fees and
expenses incurred by or on behalf of any such person in enforcing his rights
under SECTION 9.5(b) and SECTION 9.6 and shall advance to any such person
funds to cover such fees and expenses upon receipt of an undertaking from
such person to return any portions of such funds that are not used for such
fees and expenses or to which he was otherwise not entitled to receive under
applicable law.
10. TERMINATION
10.1. TERMINATION EVENTS.
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) by either Xxxxx or the Company if a material breach of any
provision of this Agreement has been committed by another party and such
breach has not been waived;
(b) (i) by Xxxxx if any of the conditions in SECTION 7 is or becomes
impossible to satisfy (other than through the failure of Xxxxx to comply with
his obligations under this Agreement) and Xxxxx has not waived or does not
waive such condition; or (ii) by the Company, if any of the conditions in
SECTION 8 is or becomes impossible to satisfy (other than through the failure
of the Company or members of the Current Board to comply with their
obligations under this Agreement) and the Company or the Current Board have
not waived or do not waive such condition;
(c) by mutual consent of Xxxxx and the Company; or
(d) by either Xxxxx or the Company if the Closing has not occurred
(other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before September 30, 1998, or such later date upon which the parties may
agree.
10.2. EFFECT OF TERMINATION.
Each party's right of termination under SECTION 10.1 is in addition to
any other rights it may have under this Agreement or otherwise, and the
exercise of a right of termination shall not be an election of remedies. If
this Agreement is terminated pursuant to SECTION 10.1, all further
obligations of the parties under this Agreement shall terminate, except that
the obligations to reimburse Xxxxx for costs and expenses described in
clauses (a) through (g) of the first sentence of SECTION 11.2 shall survive
such termination; provided, however, that if this Agreement is terminated by
a party because of the breach of the Agreement by another party or because
one or more of the conditions to the
23
terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies shall
survive such termination unimpaired.
11. MISCELLANEOUS
11.1. RULES OF CONSTRUCTION.
This Agreement shall be construed in accordance with the following
rules of construction:
(a) the terms defined in this Agreement include the plural as well as
the singular;
(b) all references in the Agreement to designated "Sections" and other
subdivisions are to the designated Sections and other subdivisions of the
body of this Agreement, and all such references are for convenience of
reference only, and shall be ignored in the construction and interpretation
of this Agreement;
(c) pronouns of either gender or neuter shall include, as appropriate,
the other pronoun forms;
(d) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Section or other subdivision; and
(e) the words "includes" and "including" are not limiting.
11.2. EXPENSES.
In addition to the costs and expenses otherwise expressly required to be
paid in accordance with SECTION 6.2, SECTION 6.4 and SECTION 6.5(b) relating to
the Xxxxx Option and the Xxxxx Preferred Stock, the Company shall reimburse
Xxxxx 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 Xxxxx with the SEC or any other
regulatory agency in connection with the Board Change, (c) the preparation of
the Information Statement, (d) obtaining directors' and officers' insurance
coverage, (e) negotiating and preparing the non-binding term sheet dated August
21, 1998 (and all prior iterations thereof) relating to the proposed Board
Change and this Agreement, (f) any negotiations with WorldCom or First Bank with
respect to NTC and (g) any negotiations with institutional investors relating to
additional equity or debt financing for the Company or NTC. Other than the
costs and expenses relating to the Xxxxx Preferred Stock and those matters
described in clauses (a) through
24
(g) above, (i) upon the approval of a majority of the Disinterested Director
Committee (and without requiring approval of the Company's shareholders), the
Company shall reimburse Xxxxx 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 (ii) upon the approval of the majority
of the disinterested members of the New Board and the Company's disinterested
shareholders, the Company shall reimburse Xxxxx for Due Diligence and Other
Costs in excess of $100,000.
11.3. SURVIVAL OF REPRESENTATIONS AND COVENANTS.
All representations, warranties, covenants, and obligations in this
Agreement and any other certificate or document delivered pursuant to this
Agreement will survive the Closing. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, shall constitute a waiver of the
right to indemnification, payment of damages, or other remedy based on such
representations, warranties, covenants and obligations.
11.4. NOTICES.
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when
(a) delivered by hand (with written confirmation of receipt), (b) sent by
telecopier (when an appropriate answer back is received from the recipient's
telecopier), provided that a copy is mailed by U.S. mail, or (c) when
received by the addressee, if sent by a nationally recognized overnight
delivery service, in each case to the appropriate addresses and telecopier
numbers set forth in EXHIBIT A (or to such other addresses and telecopier
numbers as a party may designate by notice to the other parties).
11.5. EQUITABLE REMEDIES.
Each party hereto acknowledges that any other party hereto to whom or
which it owes any obligation hereunder would not have an adequate remedy at
law for money damages, and that irreparable harm would occur, in the event
that any or all of such obligations were not honored strictly in accordance
with their terms, and therefore agrees that such other party or parties shall
be entitled to an injunction (or other appropriate equitable remedy) to
prevent any such breach of those obligations and to obtain specific
enforcement of such obligations in addition to any other remedy to which it
may be entitled at law or in equity.
11.6. ENTIRE AGREEMENT; AMENDMENT.
25
This Agreement supersedes all prior and contemporaneous written and
oral agreements and understandings between the parties with respect to its
subject matter (including the term sheet dated August 21, 1998 delivered by
Xxxxx and approved by the Company) and constitutes (along with the documents
referred to in this Agreement) a complete and exclusive statement of the
terms of the agreement between the parties with respect to its subject
matter. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
11.7. SUCCESSORS; ASSIGNMENT.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, heirs, representatives and
permitted assigns, but no party may assign, delegate or otherwise transfer
any of its rights or obligations under this Agreement without the consent of
the other parties hereto.
11.8. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of California, without regard to the
principles of conflicts of laws.
11.9. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of
which, when taken together, will be deemed to constitute one and the same
agreement.
11.10. ATTORNEYS' FEES.
If any legal proceeding should be instituted to enforce any term
hereof by any party, the prevailing party or parties in such litigation shall
be entitled to recover all of their costs and expenses, including reasonable
attorneys' fees and related costs and expenses.
11.11. FURTHER ASSURANCES.
The parties agree (a) to furnish upon request to each other such
further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party
may reasonably request for the purpose of carrying out the intent of this
Agreement.
26
11.12. WAIVER.
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or
the documents referred to in this Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such
right, power, or privilege will preclude any other or further exercise of
such right, power, or privilege or the exercise of any other right, power, or
privilege. No provision of this Agreement may be waived except in a writing
signed by the party to be charged with the waiver. To the maximum extent
permitted by applicable law, (a) no waiver that may be given by a party will
be applicable except in the specific instance for which it is given and (b)
no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement.
11.13. SEVERABILITY.
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement
shall remain in full force and effect provided that the essential terms and
conditions of this Agreement for all parties remain valid, binding and
enforceable. Any provision of this Agreement held invalid or unenforceable
only in part or degree shall remain in full force and effect to the extent
not held invalid or unenforceable.
27
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or
caused this Agreement to be executed by their duly authorized officers, as of
the date first above written.
INCOMNET, INC.
By
-------------------------------
Xxxxxx Xxxxxxx
Chairman and Chief Executive Officer
----------------------------------- ------------------------------------
XXXXXXX XXXXXXXX XXXXXX XXXXXXXXX
----------------------------------- ------------------------------------
XXXX XXXXX XXXXX XXXXXXXX
----------------------------------- ------------------------------------
XXXXXX XXXXXXX XXXXX XXXXXX
-----------------------------------
XXXX X. XXXXX
S-1
EXHIBIT A
NOTICES
All notices, consents, waivers and other communications under the Agreement
must be in writing and delivered in accordance with SECTION 11.4 to the
addresses or telecopier numbers set forth below (or to such other addresses
and telecopier numbers as a party may designate by notice to the other
parties):
Xxxxx: c/o Meridian
00000 Xxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxxxxx 00000
Facsimile No.: (000) 000-0000
with a copy to: Xxxxxx Xxxxxx White & XxXxxxxxx
000 X. Xxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxx, Esq.
Facsimile No.: (000) 000-0000
Company : Incomnet, Inc.
00000 Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Chairman
Facsimile No.: (000) 000-0000
with a copy to: Irell & Xxxxxxx, LLP
1800 Avenue of the Stars
Xxxxx 000
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx
Facsimile No.: (000) 000-0000
Xxxxxxxx : Xxxxxxx Xxxxxxxx
Management Brokers Insurance Company
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
A-1
Xxxxx : Xxxx Xxxxx
0000 Xxxxxx Xxxxx
Xxxxxxxx Xxxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Xxxxxxx : Xxxxxx Xxxxxxx
c/o Incomnet, Inc.
00000 Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx Xxxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Xxxxxxxxx : Xxxxxx Xxxxxxxxx
0000 Xxxxx Xxxxxxx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
with a copy to: Xxxxxx Xxxxxxxxx
000 Xxxx 00xx Xxxxxx
Xxx. 0000
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: (000) 000-0000
Wilstein : Xxxxx Xxxxxxxx
Realtech Inc.
0000 Xxxxxxx Xxxx Xxxx
Xxxxxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Facsimile No.: (000) 000-0000
Xxxxxx : Xxxxx Xxxxxx
0000 Xxxxxx Xxxx Xxxxx
Xxxxxxxx, Xxxxxxx 00000
Facsimile No.: (000) 000-0000
A-2
SCHEDULE 3.1
CONFLICTS WITH CURRENT
BOARD MEMBERS' CONTRACTS
None.
SCHEDULE 3.2
CONFLICTS WITH COMPANY CONTRACTS
Without any admission that the Board Change has or will result in any
conflict with, breach, default or otherwise give rise to the consequences
referred to in SECTION 3.2 of the Agreement, the following Contracts are
specifically excepted from the representations and warranties set forth in
SECTION 3.2
1. The WorldCom Agreement (as defined in the Agreement);
2. The First Bank Credit Facility (as defined in the Agreement); and
3. The Employment Agreement between Xxxxxx Xxxxxxx and the Company,
as amended.
