UNITED STATES
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
Report for Event: November 27, 1995
INDENET, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-1803468 0158367
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
1640 North Gower Street, Los Angeles, California 90028
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213)
466-6388
Not applicable
(Former name and address)
Item 1. Changes in Control of Registrant.
Not applicable.
Item 2. Acquisition or Disposition of Assets.
On September 11, 1995, IndeNet, Inc. (the "Company") entered
into an Asset Purchase and Contribution Agreement (the
"Acquisition Agreement") with Channelmatic, Inc., a California
corporation (the "seller") pursuant to which the Company agreed
to purchase most of the assets, business and operations of
Channelmatic. A detailed description of the business and assets
acquired by the Company is set forth below under the caption
"Channelmatic, Inc." On November 27, 1995, the Company closed
the transaction.
Pursuant to the Acquisition Agreement, the Company formed a
Delaware subsidiary (the "Channelmatic Subsidiary") that owns all
of the purchased assets of Channelmatic and continues
Channelmatic's operations. The Channelmatic Subsidiary operates
under the "Channelmatic, Inc." name. (The seller has changed its
name to "Killer Barn, Inc.") The Company owns 66.67% of the
outstanding capital stock of the Channelmatic Subsidiary, and the
seller (the Company formerly known as Channelmatic) owns 33.33%
of the subsidiary's capital stock.
The purchase price paid by the Company for its 66.67%
interest in the Channelmatic Subsidiary consists of the
following: (i) a $5,602,500 promissory note; and (ii) 1,530,000
unregistered shares of the Company's Common Stock. The common
stock was valued at $2.82 per share (which price represents 70%
of the average quoted price on the Nasdaq Stock Market of the
Company's common stock). In addition, the Company agreed to
contribute $3,000,000 to the capital of the Channelmatic
Subsidiary, which amount is payable over an 18-month period with
interest at an 8.0% annual rate. On November 27, 1995, the
Company made a $750,000 payment on this note. The Company also
has obtained a five-year option (the "Option") to purchase some
or all of the remaining 33.33% interest in the Channelmatic
Subsidiary for a purchase price of up to $6,000,000 on a pro rata
basis. The option price is required to be paid in cash.
However, at the option of the holder of the 33.33% interest, up
to 50% of the Option exercise price may be paid in shares of the
Company's Common Stock in lieu of cash. If the Option is
exercised during the first three years following the acquisition
of Channelmatic, the number of shares, if any, to be issued by
the Company upon the exercise of the foregoing Option shall be
based on a value equal to the midpoint between the then-current
trading price of the Common Stock and $2.00 per share. If the
Option is exercised during the fourth or fifth year of the
Option, the shares to be issued, if any, will be valued at $2.00
per share. The cost of the option is $110,000 and must be
renewed annually at the same price.
The $5,602,500 loan bears interest at a rate of 8% per
annum. A $2,000,000 principal payment is due on January 5, 1996.
Commencing in July, 1996, the Company will make monthly payments
of principal and interest equal to $70,613. Based on the
foregoing payment schedule, the entire promissory note will be
paid in full within 72 months after the closing date of the
acquisition. The Company's obligations under the promissory note
are secured by a lien on the Company's 66.67% capital stock
interest in the Channelmatic Subsidiary, a blanket lien on
substantially all of the Channelmatic Subsidiary's assets, and by
a guaranty of the Channelmatic Subsidiary.
In connection with the Acquisition Agreement, certain
principal shareholders of the Company are required to vote the
shares of the Company's Common Stock owned by them in favor of
the election of William D. Killion, or any other designee of the
seller, to the Board of Directors of the Company. The foregoing
voting arrangement shall remain in effect until the option to
purchase the 33.33% of the Channelmatic Subsidiary is exercised
or Mr. Killion's employment with the Channelmatic Subsidiary is
terminated, whichever is later. Mr. Killion was the Chairman of
the Board, Chief Executive Officer and sole shareholder of the
Seller. Pursuant to an employment agreement entered into between
Mr. Killion and the Channelmatic Subsidiary, Mr. Killion will
serve as the Channelmatic Subsidiary's Chairman of the Board and
an advisor to the Channelmatic Subsidiary until the Option is
exercised. Mr. Killion's annual salary shall be $90,000 per year
for the first five years of employment and, if he is still
employed thereafter, will increase to $200,000 per year.
The Company expects to fund its obligations under both the
$5,602,500 and $3,000,000 promissory notes from existing capital
resources and operating cash flow.
Channelmatic, Inc.
Channelmatic was originally formed in 1974. Channelmatic is
a leading manufacturer and integrator of television automation
systems for the application of analog and digital advertising
insertion, custom switching and program playback. Today
Channelmatic has approximately 65 employees.
Channelmatic is headquartered in Alpine, CA where it
occupies three facilities totaling 20,000 square feet of office,
storage, and manufacturing space. One of the facilities is
leased from Mr. Killion.
Products:
Channelmatic manufactures over 100 products and resells many
others as integral parts of their complete system solutions.
These products are divided into three categories: advertisement
insertion systems, custom time/tone-audio/video control and
switching and television system accessories. The advertisement
insertion system line has grown to be the largest of the three
product lines.
Channelmatic recently developed a digital video version of
its analog VCR based advertisement insertion system. This design
allows its installed base to upgrade to a digital platform at a
lower cost than the competition. In addition to this first
generation digital product, Channelmatic is developing an
advanced video-file-server based system. It is intended to meet
the future needs of the market by providing substantially greater
storage capacity for hours of programming and advertisements at
the lowest price. Lower cost and more compact systems enable the
cable operator to economically zone advertising to specific
neighborhoods. Zoning enables the operators to earn revenue from
new sources such as local grocery stores.
Channelmatic has been working closely with Sony Electronics
and Silicon Graphics Inc. (SGI). Sony and Channelmatic have
recently introduced the Videostore, a digital file server.
Channelmatic has integrated its system control software and
switching automation hardware into Sony's file server, creating a
digital video server capable of storing and replaying as many as
3,800 television commercials. SGI is an expert in high speed
computers needed for the storage and playback of digital video
files. Channelmatic has been working with SGI for the past two
years, guiding the development of an economical yet powerful
platform. Also, AT&T is currently selling Channelmatic products
in Taiwan. These relationships are non-exclusive and allow
Channelmatic the freedom to integrate the new technology which
best serves its customers' needs.
Channelmatic's plan is to focus its resources on the
development of additional digital products and on the promotion
of its products toward the rapidly expanding international
markets.
Channelmatic also provides turnkey system solutions which
incorporate proprietary as well as third party products (less
than 30% of revenues). The large variety of switching and
control equipment manufactured by Channelmatic provide unique
solutions not offered by the competition.
Adcart - The Adcart is the most widely sold analog advertisement
insertion system on the market. The Channel Control Unit (CCU)
is the core component of the Adcart system. The CCU is a self-
contained computerized product which provides schedule
processing, verification logging, device control (for the VCR),
audio/video switching and cue signaling. The product is a
complete television automation system in a single package. Each
CCU provides advertisement insertion or program playback on two
cable channels. Over 4,000 of these units are in operation.
Adcart/D - The Adcart/D allows the installed base to upgrade to
digital. Its unique architecture offers the choice of
Peer-to-Peer or Client-Server system design. Peer-to-Peer
provides single-channel integrity - no one component failure can
cause total system shutdown. Adcart/D's modularity allows
economical entry into the market and ease of expansion.
Channelmatic is the only company offering two levels of
digital insertion equipment. The lower cost model offers smaller
file sizes to reduce storage and transmission costs. The higher
priced model meets MPEG 2 standards and offers high quality video
needed for large market systems.
Li'l Moneymaker - "The Li'l Moneymaker" is the most widely used
sequential playback advertisement insertion system. This product
is a self-contained device which controls one VCR and inserts
advertisements on a single channel at a very low price. The
success of the product has been in its simplicity and low cost
operation. No competitor offers a similar product. There are
approximately 3,500 Li'l Moneymakers in use today.
1000 Series - The 1000 Series is a line of audio/video switching
and control products packaged in a one and one-half inch
rack-mount enclosure. These are accessory products used when
building audio/video systems. Functions offered are: audio/video
switching, distribution, quality detection, bypass switching,
real-time clock control, and DTMF tone detection.
3000 Series - The 3000 Series is a line of audio/video switching
and control products packaged in a three and one-half inch frame.
Functions are performed by individual modules which plug into the
frame. The frames and modules are custom wired to provide
functions specific to the customers needs. None of
Channelmatic's advertisement insertion competitors offer products
like the 1000 Series and 3000 Series.
Video File Server - Channelmatic is developing an advanced video
file server based advertisement insertion system. The design
will provide the optimum architecture for large systems. Only
one high speed computer is used in the system. Hard disk
storage is minimized because the system does not stage spots, but
all spots are played from a central storage unit.
New Product Development - Channelmatic has developed a new low
cost version of its Adcart/D product called Digital-Lite. It
will utilize the latest development in low cost MPEG-II digital
video compression. The Digital-Lite product is focused toward
upgrading the Li'l Moneymaker systems to digital.
Channelmatic is also developing a new digital ad insertion
product called the MVP. This product will integrate with the new
Sony Videostore file-server and other popular video file-servers.
Sony is planning to sell the MVP product for Channelmatic, as a
value added reseller. This product will be available in
production quantities in the second quarter of 1996.
Operations:
The primary function of the Operations Department is to
serve as a total support group, supplying products, services and
resources to fulfill marketing and sales requirements at a
profit. The Operations Department consists of six areas:
Engineering, Engineering Services, Manufacturing, Material
Control, Purchasing and Maintenance.
Engineering - Engineering's technical staff includes project
management and control, system design engineers, electrical and
electronic engineers, computer scientists and computer
programmers. Professional specialties of the staff are
advertisement insertion systems and equipment, system design and
integration, analog and digital circuit design, wide-area and
local-area networks, rapid motion audio/image encoding and
decoding.
Engineering Services - Engineering Services is managed by an
industrial manufacturing engineer specifically trained in
computerized manufacturing systems.
Manufacturing - Manufacturing consists of two major groups,
production assembly and production test. The production group is
responsible for printed circuit board assembly, mechanical sub-
assembly, harnessing and cabling, finished product assembly,
custom system assembly, and turnkey system assembly and cabling.
Contract manufacturers are used for all metal fabrication and
approximately 25% of PCB assembly. Production-Test pre-tests
stocked sub-assemblies, final assemblies, custom systems, and
turnkey systems. All products undergo extensive test procedures
and are subjected to a 24 to 48 hour testing period. Assembled
turnkey and custom systems under-go complete diagnostic test and
testing procedures before shipment. Manufacturing personnel
cross train to enhance flexibility in the manufacturing process.
Production processes and controls are continually reviewed for
cost savings and improvements. Production schedules are
maintained through the shop floor control module of
Channelmatic's MRP system. Daily work center priority reports
ensure priorities are known and manufacturing schedules adhered
to. High employee retention rates aid in maintaining a 95% labor
force utilization. Tracking of labor and manufacturing variances
through the shop floor control module allow on-line access to
manufacturing costs.
Material Control - Material control consists of three areas,
master scheduling and production planning, inventory control, and
shipping and receiving. The Material Control Department is
responsible for master scheduling of finished goods production
planning and labor tracking, inventory control, and shipping and
receiving operations. Because the Company primarily ships to the
end-user, a two to three month supply of finished goods is
maintained.
Sales & Marketing:
Sales management is divided into domestic and international
sales. The domestic sales unit is centrally managed by a
Director of Sales located at corporate headquarters. The
director oversees the planning of sales activities of three
geographically located regional sales offices. In addition to
planning and sales management, the Director of Sales maintains
corporate contact with larger customers. The regional offices
develop and maintain the contact at the local level and
participate in calls to customer corporate head quarters in
conjunction with the sales director.
Channelmatic has three regional sales offices located in
California, Wisconsin, and Georgia. In addition to these
offices, Channelmatic has a staff of nine marketing and sales
personnel in Alpine. Domestic sales are either direct to end
user or through a system integrator such as Sony on large scale
projects.
Channelmatic's push into digital advertisement insertion is
proceeding rapidly. Through November 1995, approximately $15
million of digital systems had been shipped worldwide. Digital
customers to date through November include: Telewest (U.K.),
Nynex (U.K.), Time Warner Cable (Milwaukee Interconnect),
T.C.I.'s Telecable (Greenville/Spartanburg), South Korean Cable
Operators, Booth Communications (Birmingham, MI) USSB
(Minnesota), Century Cable (Owensboro, KY), C-TEC Cable
(Summerville, NJ), TV Cable (Guayaquil, Ecuador), Prime Cable
(Las Vegas, NV), Rogers Cable (Toronto, ON), Singapore
Cablevision (Singapore), TPC Cable TV (Puerto Rico), and Sonic
Cable (Logen, UT). These customers represent 565 channels at 48
cable headends.
Channelmatic began pursuing the international market two
years ago and now has seven international sales representatives
located in the United Kingdom (Trilithic), South Korea (Joong
Won), Taiwan (AT&T), Latin America (AT&T and Power & Telephone),
Spain (KROP), Canada (ISI). In the United Kingdom, Channelmatic
has captured eighty percent market share totaling sales of $1.1
million in 1993-94. In South Korea, Channelmatic has captured
ninety percent market share totaling $2.0 million in sales in
1994 and 1995 to date.
Competition:
Competition in the existing and emerging digital
advertisement insertion markets is coming from three sources: 1)
established providers of analog advertising equipment such as
Texscan; 2) start-up companies focusing on the new digital
opportunity such as StarNet and SeaChange; and 3) major
electronics companies such as Digital Equipment Corporation.
Although each of these companies is developing technology
that could compete with Channelmatic, their entry into the
industry is beneficial to Channelmatic and to the Company. These
competitors are furthering the development of better advertising
receipt and storage devices. That is, they are primarily
developing better mailboxes for receiving and holding digital
advertising at the local cable stations. Channelmatic's
expertise in advertising insertion controller technology would be
complemented by the development of better mailboxes just as it
benefited from better VCR's in the past. Channelmatic will take
these improved storage devices and integrate them into the larger
network in conjunction with its own technology, both at the local
advertising insertion controller level and in communications with
the network. Thus, Channelmatic gains systems integration
business while the Company benefits from better tools for the
network. Ultimately, these storage devices should be large
enough to hold programming as well.
During 1994 there was a considerable amount of positioning,
and repositioning, as the various participants attempted to
establish a market lead in digital technology, which has yet to
be clearly defined; but it is likely that 1995 will see an
acceleration in shipments of digital advertisement insertion
equipment from numerous vendors. A concern of established
participants is the entry of major electronics companies into the
business as well as the partnering of interconnects and phone
companies seeking a position in the industry.
Strategy:
Channelmatic's main focus is to advance the technology
needed to transition to digital advertisement insertion. A
second goal is to develop ancillary products to promote its core
advertisement insertion product line in the domestic and
international markets.
With the acquisition of Channelmatic, the Company's strategy
is to integrate the many disparate elements of the advertising
and program distribution process into one seamless, automated
Digital Broadcast Satellite Network ("The IndeNet"-TM). This
process is already well underway with the pairing of Mediatech's
advertising client relationships with Channelmatic's technology.
The goal of The IndeNet-TM is to become a complete service
provider for advertisers, program syndicators and specialty
program providers. When fully implemented, The IndeNet-TM is
expected to reduce, and ultimately virtually eliminate, the cost
of video tape stock, air freight and video duplication labor and
equipment; a cost equaling approximately 50% of total revenues.
Thus, with The IndeNet-TM, distribution of television
advertisements to target geographic markets, even very small
local markets, would be practical because it would not require
the costly editing, duplication and physical delivery costs
associated with the current analog duplicate and ship process.
By substantially lowering the cost and increasing the speed
with which television advertising and programming can be
distributed, the Company will have a competitive advantage.
Mediatech has already implemented a Master Acquisition Plan
("MAP") system that gives it a twenty-four hour advantage over
much of its competition. Video taped "masters" of finished
edited commercials can be instantaneously transmitted via fiber
optic cable in a digitally compressed format to Mediatech's
headquarters in Chicago from any one of ten metropolitan centers.
Point of purchase, motion picture merchandising tie-ins, and
seasonal or holiday sales campaigns are extremely time sensitive
and will benefit from the one-day advantage.
Item 3. Bankruptcy or Receivership
Not applicable.
Item 4. Changes in Registrant's Certifying Accountant.
Not applicable
Item 5. Other Events.
Not applicable
Item 6. Resignations of Registrant's Directors.
Not applicable
Item 7. Financial Statements and Exhibits.
Pro Forma and Historical Financial Statements for Channelmatic,
Inc. will be filed not later than 60 days after the filing date.
Exhibit No. Description
10.1 Channelmatic Asset Purchase and Contribution
Agreement - Incorporated by Reference to Exhibit 10.1 to From 8-K
filed October 11, 1995
10.2 Amendment No. 1 to Channelmatic Agreement -
___________
Item 8. Change in Fiscal Year.
Not applicable.
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.
INDENET, INC.
Date: December 11, 1995 /s/ Lewis K. Eisaguirre
Lewis K. Eisaguirre
Its: Chief Financial Officer and
Secretary
AMENDMENT NO. 1
TO
ASSET PURCHASE AND CONTRIBUTION AGREEMENT
This Amendment No. 1 to Asset Purchase and Contribution
Agreement, dated as of November 27, 1995 ("Amendment No. 1"), is
made by and between IndeNet, Inc., a Delaware corporation (the
"Buyer"), and Killer Barn, Inc., a California corporation
formerly known as Channelmatic, Inc. (the "Seller").
WITNESSETH:
WHEREAS, the Seller and the Buyer have entered into that
Asset Purchase and Contribution Agreement, dated as of September
11, 1995 (the "Agreement"), pursuant to which the Seller has
agreed to sell a portion of its assets to the Buyer; and
WHEREAS, the Seller and the Buyer desire to amend certain
provisions of the Agreement as hereinafter provided;
AMENDMENT
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements hereinafter contained, the parties hereto do
hereby agree as follows:
1. Amendment to the Agreement. The Agreement is hereby
amended as follows:
(a) Section 2(e) of the Agreement is hereby amended in
its entirety to read as follows:
(e) Deliveries at Closing. At the Closing, the
Seller shall deliver to the Buyer the various certificates,
instruments, and documents referred to in Section 6(a)
below. At the Closing, the Buyer shall deliver to the
Seller: (i) its promissory note (the "Buyer Note") in the
form of Exhibit B attached hereto, in the aggregate
principal amount of Five Million Six Hundred and Two
Thousand Five Hundred U.S. Dollars ($5,602,500); (ii) the
Buyer Shares; and (iii) the various certificates,
instruments, and documents referred to in Section 6(b)
below.
(b) The following sentence is hereby added to the end
of Section 8(b) of the Agreement:
"In the event that, after the Closing Date, Buyer is unable
to refinance, restructure or replace the Credit Facility,
Buyer may, but is not required to, extend one or more loans
to Newco on terms substantially the same as are available at
such time to similar borrowers from third-party,
institutional lenders. In connection with extending such a
loan or loans to Newco, Buyer may require Newco to enter
into loan documents, including security agreements pursuant
to which Buyer obtains a first priority lien on the assets
on Newco, similar to the form of documents that a
third-party, institutional lender would require in
connection with such a loan.
The revised form of the Buyer Note referred to in the
amended paragraph 2(e) above is attached to this Amendment as
Attachment A.
(c) The term "Most Recent Balance Sheet" in the
Agreement shall mean the balance sheet of the Seller for the
period ended October 31, 1995.
(d) The term "Most Recent Financial Statements" in the
Agreement shall mean the financial statements of the Seller for
the period ending October 31, 1995. A copy of the financial
statements for the period ended October 31, 1995 is attached
hereto as Attachment B.
(e) The term "Most Recent Fiscal Month End" shall mean
October 31, 1995.
(f) The Acquired Assets are subject to a UCC-1 filed
in favor of Bank of Calfiornia on or about August 20, 1991, in
connection with a previous line of credit extended to Seller.
Seller represents and warrants that no amounts are owed to Bank
of California which are secured by this UCC-1 and Seller will
cooperate with Buyer in having the UCC-1 cancelled after Closing.
2. Closing. The parties agree that the Closing shall take
place at the offices of the Seller in Alpine, California
commencing at 10:00 a.m. local time on November 27, 1995.
3. Reference to Agreement. Unless the context requires
otherwise, every reference in the Agreement to the term "this
Agreement" shall be deemed to mean the Asset Purchase and
Contribution Agreement, as amended by this Amendment No. 1
thereto.
4. Full Force and Effect. Except as amended hereby, the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their respective officers
thereunto duly authorized as of the date first above written.
The "BUYER"
INDENET, INC.
a Delaware corporation
By: /s/ Robert W. Lautz, Jr.
Title: President
The "SELLER"
KILLER BARN, INC. (formerly
Channelmatic, Inc.)
a California corporation
By: /s/ William D. Killion
Title: President
