SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to ___________
Commission file number 0-26306
IMNET SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 39-1730068
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8601 Dunwoody Place, Suite 420,
Atlanta, Georgia 30350
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (770) 998-2200
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant was approximately $174,396,577 at September 23, 1996 (7,750,959
shares). The number of common shares outstanding at September 23, 1996 was
9,166,741 (exclusive of treasury shares).
366143
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be mailed to
stockholders in connection with the registrant's 1996 Annual Meeting of
Stockholders are incorporated by reference into Part III, Items 10-13.
Note: The discussions in this Form 10-K contain forward looking statements
that involve risks and uncertainties. The actual results of IMNET Systems, Inc.
and subsidiaries (the "Company") could differ significantly from those set forth
herein. Factors that could cause or contribute to such differences include, but
are not limited to, those discussed in "Business," particularly "Business-Risk
Factors," and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" as well as those discussed elsewhere in this Form 10-K.
Statements contained in this Form 10-K that are not historical facts are forward
looking statements that are subject to the safe harbor created by the Private
Securities Litigation Reform Act of 1995. A number of important factors could
cause the Company's actual results for fiscal 1997 and beyond to differ
materially from those expressed in any forward looking statements made by, or on
behalf of, the Company. These factors include, without limitation, those listed
in "Business-Risk Factors".
PART I
ITEM 1. BUSINESS.
INTRODUCTION
IMNET develops, markets, installs and services electronic information and
document management systems to meet the needs of the healthcare industry and
other document-intensive businesses. The Company's hardware and software systems
electronically capture, index, store and retrieve information which is resident
on most storage media, including magnetic disk, optical disk, microfilm, paper
and x-ray film. IMNET's fully integrated information storage system, the IMNET
Electronic Information Warehouse, allows users to re-engineer their information
management processes to access information on a cost-effective basis and to
achieve immediate cost savings through productivity increases. The IMNET
Electronic Information Warehouse is used by healthcare providers and healthcare
information systems ("HCIS") vendors to create an electronic medical record
("EMR") by integrating current and historical patient information with existing
information management systems. By providing access to information that is not
otherwise available electronically, the Company believes that the IMNET
Electronic Information Warehouse is a necessary component to create a complete
healthcare information system solution. Since September 1994, the Company has
entered into agreements to supply its systems through its HCIS Distribution
Partners: Cerner Corporation, CITATION Computer Systems, Inc., HBO & Company
("HBOC"), IDX Systems Corporation and PHAMIS, Inc. (collectively the "HCIS
Distribution Partners").
Businesses and other organizations have made significant investments over
the years in information technology with the goal of creating a "paperless" work
environment in which information is made available electronically through
computers. Despite dramatic advances in computer technology, only a small amount
of current and historical information used by certain businesses today is
accessible by computer. Most of the critical information used by businesses and
other organizations continues to reside on non-electronic storage media such as
paper, creating costly information management problems including: (i) delays in
accessing information; (ii) space and personnel costs to store paper-based
records; (iii) lost and misfiled documents; (iv) single user access to relevant
data; and (v) errors in entering and reading information. While electronic
document imaging systems have been developed by several companies, no single
platform has emerged as a standard for enabling efficient, cost-effective
electronic access to all information stored on most types of storage media.
The need to access information by computer on a real-time basis is
particularly evident in the healthcare industry where the vast majority of
patient records are stored in paper files and other formats. Electronic access
through computers to current and historical patient information contained in the
patient file permits physicians and other care providers to make informed
decisions regarding patient care, while avoiding unnecessary costs and delays
such as performing multiple tests already administered by other groups in the
healthcare organization. Furthermore, market-driven efforts to contain rising
healthcare costs have resulted in an increasing demand for sophisticated
healthcare information systems that capture patient data on a real-time basis in
an EMR. In order to control healthcare costs while improving the quality of care
provided, physicians need immediate electronic access to patient information.
IMNET's Electronic Information Warehouse provides healthcare organizations
and other document-intensive businesses with a complete electronic information
management solution by integrating current and historical data, regardless of
storage media, with currently installed information management systems. IMNET's
systems electronically capture, store and retrieve scanned, microfilmed, or
computer generated paper documents, utilizing third party hardware devices,
while structuring the flow of information to achieve increases in productivity.
IMNET's hierarchical information storage management system provides necessary
patient information on-line while adding the capability to access less essential
information contained in a more cost-effective storage medium, such as
microfilm. The IMNET Electronic Information Warehouse provides a complementary
extension of existing healthcare information systems and clinical databases,
thereby enabling the creation of a complete EMR.
IMNET Systems, Inc. was incorporated in Delaware in May 1992. On October 5,
1992, the Company acquired substantially all of the assets (the "1992
Acquisition") of the electronic imaging business of IMGE, Inc. and certain of
its subsidiaries (collectively, "IMGE").
HEALTHCARE INFORMATION SYSTEMS INDUSTRY BACKGROUND
The importance of healthcare information systems is increasing as a result
of significant economic pressures within the healthcare industry. Healthcare
delivery costs have risen dramatically in recent years compared to the costs of
other goods and services. It is estimated that healthcare expenditures will
exceed $1.3 trillion, or over 14% of the U.S. Gross Domestic Product, in
calendar 1996. The ongoing pressure to contain healthcare costs is accelerating
the shift in economic risks from healthcare payors to providers, as evidenced by
the movement toward managed care reimbursement models, including capitation.
Under capitation, providers assume certain financial risks because they are paid
a pre-determined fee per individual to provide all healthcare services. In
response to this changing reimbursement environment, many healthcare providers
are expanding to create integrated healthcare delivery enterprises that serve
the healthcare needs of regional populations, while achieving economies of
scale.
The availability of complete, timely and cost-effective patient-centered
information is essential to controlling healthcare costs while providing high
quality patient care. The effectiveness of existing healthcare information
systems is limited because a large amount of healthcare information exists on
paper and is not accessible by computer. In many cases, information necessary to
provide effective patient care is located at several different sites and is not
immediately available to the physician. To implement a computerized
patient-centered information system that accesses patient information in a
cost-effective manner, current and historical paper records must be made
available by computer to all points of care.
Healthcare providers and HCIS vendors have increasingly focused their
development efforts on providing a complete EMR at the point of patient care.
HCIS vendors have made significant progress integrating many components
necessary to construct an EMR, including: (i) the combination of disparate
information systems within a provider network; (ii) the automation of certain
points of data entry, such as patient admission and scheduling; and (iii) the
development of tools such as graphical interfaces and database management
capabilities. However, the EMR's full potential cannot be realized unless it
contains needed current and historical patient information and information
generated and stored outside of the local computer network. A complete EMR would
provide enterprise-wide computer access to, and integration of, information
regarding the patient's clinical history including the paper medical record, as
well as the patient's demographic, financial and insurance information, which is
often contained in a paper-based financial folder.
The storage and retrieval of non-computer-based information on a
cost-effective basis is essential to the creation of the computer-based patient
record. The IMNET Electronic Information Warehouse addresses this need by
providing on-line access to current and historical paper-based and other
information, thereby enabling the creation of the complete EMR.
IMNET'S STRATEGY
IMNET's mission is to make the Electronic Information WarehouseTM the
defacto standard for the electronic capture, storage and retrieval of healthcare
information. To achieve this mission, the Company is pursuing the following
strategy:
Enable Creation of the Electronic Medical Record. As healthcare providers
are under increasing economic pressure to reduce the cost and improve the
quality of care provided, the need for on-line access to all relevant current
and historical patient information is critical. IMNET's systems allow healthcare
providers to access such patient information on a cost-effective, real-time
basis, enabling the creation of a functional EMR. The Company's technology
allows healthcare providers to gain access to information resident in most
storage media, such as magnetic disk, optical disk, on-line microfilm, paper and
x-ray film. Therefore, the Company believes IMNET's systems are a necessary
component of a complete EMR.
Expand on Relationships with HCIS Vendors. The Company believes that
integrating its systems with those of HCIS vendors enhances the total system
value to an end-user by providing a complete EMR solution. Since September 1994,
IMNET has entered into distribution agreements with its HCIS Distribution
Partners to sell IMNET's systems as an integrated component of each vendor's
system. Management believes IMNET benefits from these agreements as a result of:
(i) the HCIS Distribution Partner's willingness to "private label" the IMNET
system which provides increased credibility and acceptance for the product; (ii)
the anticipated shortened sales cycle for a sale to the HCIS Distribution
Partner's current customers due to such partner's pre-existing relationship and
its knowledge of the customer's needs; (iii) the HCIS Distribution Partner's
existing sales and marketing capability, reducing the amount of time and
resources IMNET must apply in this area; and (iv) the reduced likelihood that
the HCIS Distribution Partner will develop or otherwise acquire a product
competitive to IMNET's. The Company intends to continue developing additional
distribution partner relationships with leading HCIS vendors.
Maintain Technological Leadership. IMNET's open client-server architecture,
media-independent software and information systems management capabilities
provide an electronic information repository which can be accessed by users on a
local, regional or system-wide basis. The Company believes that it has
established a leadership position by providing complete access to electronic
documents in an on-line, mixed-media environment including optical disk,
magnetic disk and microfilm storage devices. IMNET intends to maintain the
technological advantages of its product offerings while enhancing its system
capabilities and performance through internal development, licensing
arrangements and the acquisition or integration of other third party products,
when appropriate.
Grow Through Acquisitions of Businesses, Products and Technologies. The
Company believes it is well-positioned to capitalize on the significant
consolidation opportunities which exist in the healthcare information systems
industry. In pursuit of such growth opportunities, the Company completed, in
fiscal 1996, the acquisitions of Evergreen Technologies, Inc. ("Evergreen"), a
radiological imaging software company, and Quesix Software Incorporated
("Quesix"), an electronic patient record management software company,
collectively "the Acquisitions". In August 1996, the Company announced that it
had entered into a Letter of Intent to acquire Hunter International, Inc.
("Hunter"). Based in Wilsonville, Oregon, Hunter is a privately held company
which provides electronic report management and distribution solutions to the
healthcare and other industries. If the transaction is consummated as planned,
IMNET will issue Common Stock valued at approximately $8.5 million. The merger
is expected to close before September 30, 1996 and to be accounted for as a
pooling of interests. The transaction is subject to several conditions,
including satisfactory completion of due diligence and the execution of a
definitive merger agreement. The Company will continue to evaluate potential
acquisitions which would enable it to continue to improve its information
systems solutions for its customers by leveraging existing strengths, adding
core technological competencies and expanding its product offerings.
Expand Beyond the Healthcare Industry. Although IMNET is focused on the
healthcare market, the Company believes that its product and distribution
strategy can be applied in other markets in which large-scale information
systems management requirements exist. Outside of healthcare, IMNET has several
end-user customers, which include major insurance companies, such as Central
States Health and Life Co. of Omaha and Teachers Insurance and Annuity
Association, as well as government agencies such as the French Social Security
Agency. IMNET intends to continue offering its products and services in other
industries as opportunities arise.
PRODUCTS
IMNET's products include proprietary and third party software and third
party hardware components which are integrated to create electronic information
and document management systems. The IMNET Electronic Information Warehouse
consists of integrated product modules marketed as components of the IMNET Image
Engine, the IMNET Workflow Engine, the IMNET Electronic Patient Record System
(EPRS), IMNET MedVision and related application programming interfaces together
with the IMNET MegaSAR Microfilm Jukebox and other integrated hardware products
and support services. IMNET's software and hardware components, when integrated
with an enterprise's currently installed information management system, can
enable needed information within the enterprise to be accessible by computer
through a complete information management system. The IMNET Electronic
Information Warehouse manages information resident on magnetic disk, optical
disk, microfilm, paper or x-ray film.
The open systems architecture of the IMNET Electronic Information Warehouse
supports multiple software systems developed by the Company, its customers or
its distribution partners. IMNET's systems provide access to an expanded base of
information beyond that which is managed by its partners' applications and
databases. For the end-user, there may be no change in the appearance of the
interface screens other than the ability to display a wider range of
information, such as document images. While the distribution partners' software
applications store and retrieve discrete data within their own databases or
clinical data repositories, IMNET's software controls the storage and retrieval
of other patient information made available by the IMNET Electronic Information
Warehouse.
IMNET system costs typically range from $200,000 for a small departmental
system to over $2 million for a large enterprise-wide system. In many cases,
customers expand their systems with additional product options which may exceed
the original system purchase price. IMNET's software products are written in C
and C++ programming languages and operate on a variety of platforms, including
Windows, Windows 95, Macintosh, OS/2, Windows NT and MS-DOS. IMNET's application
programming interfaces support systems running on operating environments ranging
from IBM, Siemens and Hitachi mainframes, DEC VAX, UNIX, PCs or other
workstations. The Company's software products use embedded relational database
management systems provided by off-the-shelf Structured Query Language
(SQL)-compatible products.
IMNET Image Engine(R)
The IMNET Image Engine is the core component of the IMNET Electronic
Information Warehouse. The IMNET Image Engine's functions include: (i) document
capture; (ii) prioritized access to information using magnetic disk, optical
disk, microfilm and paper media; (iii) information retrieval, display and output
in print or fax formats; and (iv) interaction with external host applications
through electronic gateways. The IMNET Image Engine, developed internally by the
Company, is sold as a stand-alone software product or as a component of the
IMNET Electronic Information Warehouse. The IMNET Image Engine has an open
architecture design and consists of more than 20 product modules supporting a
wide range of applications, from departmental systems to high-volume,
enterprise-wide or community-wide document management systems. The IMNET Image
Engine allows access to a wide range of information including text, data,
scanned or microfilmed document images and faxes.
The IMNET Image Engine is divided into four subsystems:
The Document Capture Subsystem supports the functions of document capture
from third party scanning or microfilming devices, quality control, indexing and
storage. In addition, computer-generated text or image data can be imported from
other systems using Computer Output to Laser Disk (COLD) facilities. A final
method of document capture is the input of faxes directly from the IMNET Image
Engine Fax Server to the Document Capture Subsystem for indexing and storage.
The Storage and Retrieval Subsystem incorporates a hierarchical information
management process which provides for information storage on the most efficient,
cost-effective medium available including magnetic disk, optical disk, microfilm
or paper. This allows information with high retrieval frequency to be stored on
high-speed, on-line magnetic media while enabling less critical information to
be accessed from other media. On-line retrieval can be performed on information
stored in third party optical disk jukeboxes or in the IMNET MegaSAR Microfilm
Jukebox. Information which is accessed less frequently can be stored on
mountable optical disks or on microfilm cartridges and then loaded to magnetic
storage when requested by the user. In addition, less frequently-used documents
in paper folders can be scanned on demand and delivered on-line to the user.
The Output Services Subsystem controls the target destination of the
requested information. Destinations may include the display monitor of the
user's workstation or the IMNET Image Engine Print Server or Fax Server.
Hardcopy output for complex print or fax requests may be composed of multiple
documents retrieved from a variety of media. Electronic documents can be
transferred to the user's workstation or can be retrieved and transferred to
external systems using the IMNET Image Engine Export Server.
The Host Gateway Server, the fourth subsystem, connects the IMNET Image
Engine to an HCIS vendor's or other third party software. Through a formally
defined request language, the external application issues requests for
information from the IMNET Electronic Information Warehouse. The Host Gateway
Server receives the request and translates it into a series of actions to
identify the information being requested and its location, requests retrieval
from the appropriate storage server and then manages delivery of the output to
the target destination.
IMNET Workflow EngineTM
The IMNET Workflow Engine enables improvements in productivity by
structuring the flow of information within an organization. The IMNET Workflow
Engine allows a business process analyst or medical records administrator to
automate the flow of information, to streamline manual work steps and to manage
the interaction of automated systems. A visual design tool is used to draw the
logical sequence of work steps and to define the rules which are used to route
or distribute information. A workflow model is then created which controls the
process by monitoring, re-routing and managing the distribution of information.
As an item of work progresses electronically, its contents can be changed by
adding or deleting pieces of electronic information, such as word processing
files, spreadsheets, annotations, voice recordings, document folders and images.
Productivity is also improved by the concurrent management and processing of
information.
The IMNET Workflow Engine has been used to manage certain aspects of the
reimbursement process after a patient's discharge from a hospital. After
receiving notification by computer of a patient's discharge, the IMNET Workflow
Engine can assemble the patient chart automatically, analyze it for completion,
route the record to a physician for insertion of certain missing information and
route the electronic chart for concurrent coding and abstracting. By automating
this process, healthcare providers can accelerate the post-discharge billing
cycle.
The IMNET Workflow Engine includes graphical and statistical reporting
tools to monitor workflow, enabling performance measurement and automatic
adjustment of workflow priorities. The IMNET Workflow Engine may be sold as a
stand-alone product independent of the other elements of the IMNET Electronic
Information Warehouse.
IMNET MedVision
IMNET MedVision consists of a set of application software products and
interface modules which allow the capture, storage and retrieval of radiological
images, whether scanned from x-ray film or captured in direct digital form from
scanning devices such as computed tomography (CT), nuclear medicine or magnetic
resonance imaging (MRI) units. Through direct digital capture, IMNET MedVision
is able to preserve all information contained in the original image and to avoid
the image degradation inherent in other methods of radiological data transfer
and storage. IMNET MedVision allows the transfer and storage of image files
using the Digital Imaging Communications for Medicine (DICOM) format and
provides direct access to numerous proprietary file formats developed by medical
imaging modality manufacturers, including General Electric, Siemens, Philips
Electronics N.V., Toshiba and Picker International, Inc. IMNET MedVision
provides a scalable solution that can support diagnostic usage within the
radiology department, as well as access across the enterprise, by clinical and
referring physicians. IMNET MedVision can also be used for distribution of image
files to support teleradiology and consultation by remote radiology groups.
IMNET Electronic Patient Record SystemTM (EPRS)
EPRS is an information and document management application software product
which facilitates access to the EMR. EPRS can be sold by the Company's HCIS
Distribution Partners as an enhancement of their currently available healthcare
application products, or it can be sold as a stand-alone application software
product. EPRS users in both the medical records department and the business
office have on-line access to a wide range of electronic patient information,
including HCIS data, ancillary system reports and images of scanned or
microfilmed paper documents. Information from external HCIS systems can also be
imported into the EPRS database using discrete data transactions, thereby
improving consistency in indexing documents associated with the patient record,
as well as providing access to other reference data, which contributes to
efficient workflow and improves retrieval accuracy. EPRS includes a workflow
module through which user-defined procedures route patient records for action by
physicians and other end-users.
IMNET Application Programming Interfaces
IMNET supplies standard Application Programming Interfaces ("APIs") which
allow its customers and distribution partners to access workflow, information
management and imaging capabilities directly from their own application
software. The APIs, developed internally by IMNET, convert the request for
information into a format which the IMNET Image Engine, IMNET Workflow Engine,
IMNET Electronic Patient Record System and IMNET MedVision can interpret. Other
applications may run on the same workstation or on any external host computer,
ranging from a PC to a mainframe. After a particular application has been
integrated using the API, the development cost is eliminated for subsequent
installations of the same application, creating an advantage for IMNET and
IMNET's distribution partners, who may install the same application at many
customer sites.
IMNET MegaSAR Microfilm Jukebox
The IMNET MegaSAR Microfilm Jukebox is a robotic microfilm storage and
retrieval device that reads requested documents from microfilm and translates
them into an electronic format for on-line delivery. The Company believes that
the MegaSAR is presently the only on-line microfilm storage and retrieval device
commercially available in the United States. The MegaSAR can store up to 420
reels of standard microfilm, with each reel holding images of 6,000 8 1/2" x 11"
pages, creating a minimum image capacity of 2.4 million pages per MegaSAR.
Depending upon microfilm format and document type, a MegaSAR can store nearly 10
million pages. Single image retrieval times are comparable to those of single
drive optical disk jukeboxes.
The MegaSAR's on-line microfilm capability enables IMNET to deliver
complete, cost-effective information management solutions. In an application
such as medical records at a large hospital, which requires access to tens of
millions of existing documents, the cost of converting from paper to microfilm
can be less than the cost of converting to any other electronic document storage
medium, such as magnetic disk or optical disk. Since microfilm documents are
routinely accepted as legally admissible, microfilm conversion allows a hospital
to destroy the original paper documents after conversion. This reduces storage
space and also eliminates costly manual filing systems and related overhead
charges. In addition, according to IMNET's market surveys, over 70% of hospitals
already use microfilm as their primary archival storage medium. Therefore,
conversion to on-line microfilm access may be completed at minimal incremental
cost.
The Company owns several patents related to the MegaSAR. On June 30, 1996,
the Company granted to SoftNet Systems, Inc. ("SoftNet") worldwide exclusive
manufacturing rights and new non-exclusive, non-healthcare distribution rights
for the MegaSAR Microfilm Jukebox and its associated technology. The Company
will continue to sell the MegaSAR manufactured by SoftNet and provide
maintenance and support for its existing customers. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Grant of
Manufacturing Rights for the Company's MegaSAR Microfilm Jukebox".
PROFESSIONAL SERVICES
In order to offer a complete information and document management solution
to its customers and to ensure customer satisfaction, IMNET provides system
design, installation, integration and other post-installation services to
end-users both directly and together with its distribution partners. In
addition, the Company offers installation and integration services to its
distribution partners, particularly in early stages of the partnership, to help
assure the success of the distribution partner's initial customer installations.
Installation and Integration Services. IMNET provides system analysis
recommendations, project management, site preparation, customization, systems
integration, installation and training services for its direct customers and
distribution partners. IMNET also assists end-users and distribution partners in
selecting third party services, such as those for the conversion of paper files
to microfilm or other formats, on an as-needed basis. The Company believes that
the quality of its installation and integration services is crucial to its
success.
Post-installation Services. The Company's post-installation services
include routine software and hardware maintenance, user assistance and a
software product upgrade release program. These services are provided under the
terms of the Company's renewable hardware and software maintenance agreements,
fees for which are generally based upon a percentage of the then-current list
prices of its hardware and software. The Company maintains a user hotline for
customers to obtain technical support and provides additional services,
including system customization, system management consulting, user training and
workflow analysis.
RESEARCH AND DEVELOPMENT
IMNET plans to extend the capabilities of the IMNET Electronic Information
Warehouse to increase its functionality as an electronic information storage and
retrieval system. IMNET's hardware and software research and development efforts
are focused primarily on enhancing existing products. Although most IMNET
products historically have been developed internally, the Company believes that
it can often respond more quickly to market requirements by acquiring
complementary products or by licensing them for distribution.
The Company's research and development efforts are influenced significantly
by customer requirements. New features may be customized initially for delivery
to a single customer and then incorporated into future versions of the products.
In addition, the Company expects to develop certain new IMNET products from the
Company's library of workflow applications for business office or medical
records applications. The Company is continuing to make product enhancements to
provide higher-level APIs to speed integration of new distribution partner
applications, and to extend support beyond Microsoft Windows, Windows 95,
Windows NT, Macintosh and OS/2 to include the UNIX operating environment.
Although IMNET's software products can incorporate information from
laboratory reports, medical images and transcription reports, the Company is
expanding this capability to incorporate direct, real-time collection and
management of information. This effort is in the implementation stage and will
be expanded through the EPRS product. Once the information collection product
has been completed, IMNET intends to incorporate text-processing software within
the IMNET Electronic Information Warehouse in order to process the significant
quantities of raw data to be entered as text. In addition, the Company is
integrating presentation software for information object types such as voice and
video. This software is in the prototype stage.
New research and development includes the integration of the Company's EPRS
and MedVision product line with the Document Capture and Storage and Retrieval
Subsystems of the IMNET Image Engine. In addition, the Company is developing a
system specifically for use in smaller medical group practices and physicians'
offices. Although most of IMNET's installations at healthcare provider sites are
large, integrated, enterprise-wide information delivery systems, the Company
believes that most patient records exist within the smaller medical group
practices and physicians' offices. Successful community-wide information
management will require integration of these patient information bases using a
consistent platform for information capture and delivery. This new product is in
the software development design stage.
SALES AND MARKETING
The Company currently sells its products directly through its own sales
organization and indirectly through twelve distribution partners, of which five
are the HCIS Distribution Partners. The Company is committed to expanding its
presence in the healthcare industry through pursuing additional distribution
partnerships with HCIS vendors and by marketing directly to healthcare
providers.
The Company's distribution partners typically enter into multi-year
distribution agreements providing them the right to acquire the Company's
products at a discount and to offer them to third parties under private labels.
These agreements either do not permit a partner to offer or develop a product
competitive with the Company's products, or else they provide the Company the
right to terminate the arrangement upon notification of the partner's intention
to offer or develop a competitive product.
For both direct and indirect sales, the Company's sales resources are
organized into teams of account executives paired with one or more application
consultants. These teams identify a customer's business problems and propose
cost-justified information management solutions. When working with a
distribution partner, the Company's sales teams work as a complementary
extension of the partner's sales team. IMNET requires a formal product
"roll-out" project plan, which includes sales and technical training, as well as
cooperative development of marketing materials and product packaging, to be
developed jointly with each new distribution partner. To support its
private-label distribution strategy, IMNET has designed its marketing, training
and documentation materials so that they can be quickly integrated into a
partner's sales process.
The Company's HCIS Distribution Partners currently are Cerner Corporation,
CITATION Computer Systems, Inc., HBO & Company, IDX Systems Corporation and
PHAMIS, Inc. The Company's general business distribution partners and
distributors currently include Datacom Imaging Systems, Inc. and Bell and Howell
Ltd. (Canada), MINT (The Netherlands), Advisoft Consulting and SG2 Societe
Generale (France), SoftNet Systems, Inc. (United States) and Software AG
(Germany and several of its worldwide affiliates).
The Company primarily markets its products through its headquarters office
in Atlanta, although some indirect sales support teams are located at the
distribution partners' premises. The Company's marketing efforts are organized
into corporate marketing, target marketing and customer communication programs.
The Company supports these efforts by publishing articles, presenting or
sponsoring talks at professional meetings, assuming leadership positions in
professional organizations, participating in trade shows, advertising in trade
magazines and issuing frequent announcements to the trade press. Prospective
clients are identified through the marketing programs of the Company's
distribution partners, as well as the Company's own direct mail and
telemarketing efforts.
CUSTOMERS AND SIGNED SALES CONTRACTS
The Company's customers include healthcare providers located throughout the
United States as well as non-healthcare organizations located throughout the
United States and worldwide. The Company believes that the installed customer
base of its distribution partners represents a significant opportunity to market
and sell its products and services.
At June 30, 1996, the Company had approximately $24.2 million of signed
sales contracts for systems and services which had not yet been delivered. This
amount includes software license fees, hardware sales and maintenance and
professional services which are expected to result in revenues over periods of
as much as five years. The amounts of the Company's signed sales contracts for
systems and services not yet delivered at June 30, 1995 was approximately $16.6
million. Certain contracts may also include provisions permitting termination
that do not relate to IMNET's performance or which allow the customer to delay
certain aspects of the order. Because the Company adjusts the timing of an
installation to accommodate the customer's needs and because a typical
installation requires two to 12 months to complete after contract execution, the
Company is unable to predict with any degree of accuracy the amount of revenue
it expects to achieve in any particular period. A termination or installation
delay of one or more contracts, or the failure of the Company to procure
additional contracts, could have a material adverse effect on the Company's
business. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
In fiscal 1996, McLaren Regional Healthcare Center ("McLaren") accounted
for 24% and SoftNet Systems, Inc. ("SoftNet") accounted for 11% of the Company's
total revenues. In the fiscal year ended June 30, 1995, the Mayo Clinic
accounted for 18%, McLaren accounted for 15%, TNT Holland accounted for 11%, and
SG2 Societe Generale accounted for 10% of the Company's total revenues. In the
fiscal year ended June 30, 1994, two customers, Teachers Insurance and Annuity
Association and The Emory Clinic, each accounted for 21% of the Company's total
revenues. No other customers accounted for more than 10% of total revenues in
such fiscal years. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company's direct end-user healthcare customers include Baptist Memorial
Healthcare Systems Inc. (Memphis), Eastern Maine Healthcare Center, The Emory
Clinic, Indiana University Medical Center, Kaweah Delta Health Care District,
the Mayo Clinic at Jacksonville, McLaren, New York Hospital, and OrNda Health
Corporation. The Company's general business end-user customers include
Associates Insurance, Central States Health and Life Co. of Omaha, the French
Social Security Agency, Hastings Mutual Insurance Company, Laborers' Pension and
Welfare Fund, Los Angeles County Treasurer and Tax Collector, the Ministry of
Revenue Quebec and Teachers Insurance, Annuity Association College Retirement
Equities Fund, and TNT/USF Holland.
The Company had international sales of $2,301,729, $1,712,996, and
$1,057,053 for the fiscal years ended June 30, 1996, 1995, and 1994,
respectively. See Note (11)(b) to the Company's consolidated financial
statements included herewith.
COMPETITION
The Company competes with other information and document management systems
companies, as well as with HCIS vendors. Such companies and vendors may team
together to place bids for large contracts in competition with the Company and
its HCIS Distribution Partners. A decision on the part of any of these
competitors to focus their resources in the markets addressed by the Company
could have an adverse effect on the Company. In addition, the Company's
distribution partners compete with other applications suppliers who do not offer
the Company's products. To the extent the Company's distribution partners are
unsuccessful compared with their competitors, the Company may be adversely
affected.
The Company's competitors include many companies which are larger and more
established and have substantially more resources than the Company. The Company
believes that the principal competitive factors in its market are company
reputation, product reliability, system features, customer service and support,
price, the effectiveness of marketing and sales efforts and company size. In
addition, the Company believes that the speed with which companies in its market
can anticipate the evolving healthcare industry structure and identify unmet
needs are important competitive factors.
REGULATION
The United States Food and Drug Administration ("the FDA") has issued a
draft guidance document addressing the regulation of certain computer products
as medical devices under the FDC Act. To the extent that computer software is a
medical device under the policy, the manufacturers of such products will be
required, depending on the product, to: (i) register and list their products
with the FDA; (ii) notify the FDA and demonstrate substantial equivalence to
other products on the market before marketing such products; or (iii) obtain FDA
approval by filing a premarket application that establishes the safety and
effectiveness of the product. The Company expects that the FDA is likely to
become increasingly active in regulating computer software that is intended for
use in healthcare settings. The FDA currently regulates the IMNET MedVision
product line. The FDA, in a recent "software policy workshop," indicated its
intention to consider more extensive regulation of additional types of computer
software, including some of the Company's other products. The FDA, if it chooses
to regulate such software, can impose extensive requirements governing pre- and
post-market conditions relating to clinical investigations, approvals, labeling
and manufacturing. In addition, such products would be subject to the FDC Act's
general controls, including those relating to good manufacturing practices and
adverse experience reporting.
PROPRIETARY TECHNOLOGY PROTECTION
The Company regards its software as proprietary and relies primarily on a
combination of copyrights, trademarks and trade secrets of general
applicability, employee confidentiality and invention assignment agreements,
distribution and software license agreements and other intellectual property
protection methods to safeguard its software products. In addition, certain
aspects of the Company's hardware products are patented. The Company believes
its patents provide a significant element of protection to its competitive
position.
EMPLOYEES
As of June 30, 1996, IMNET had 181 full time employees, including 166 in
Atlanta. None of the Company's employees is represented by a labor union or is
subject to a collective bargaining agreement. The Company has never experienced
a work stoppage and believes that its employee relations are excellent.
RISK FACTORS
This Form 10-K contains forward looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results indicated by such forward looking statements. Factors that may cause
such differences include, but are not limited to, those discussed below.
Limited Operating History; Lack of Profitable Operations. The Company
commenced operations in 1992 and has sustained substantial losses. The Company's
net loss for fiscal 1996 was $6.4 million ($0.77 per share) primarily as a
result of $10.4 million ($1.25 per share) of non-recurring charges comprised of:
(1) $5,740,000 ($0.69 per share) related to in-process research and development
expenses associated with the Company's acquisitions of Evergreen Technologies,
Inc. and Quesix Software, Incorporated completed during the second quarter of
fiscal 1996 and (2) a $4,630,000 ($0.56 per share) non-recurring charge related
to the Company's business alliance with HBO & Company recorded in the third
quarter of fiscal 1996. Exclusive of the non-recurring charges, the Company
reported earnings of $4.0 million ($0.48 per share) for fiscal 1996. Previously,
the Company had incurred a net loss of approximately $4.8 million ($0.98 per
share) for fiscal 1995, and a net loss of approximately $5.9 million ($1.72 per
share) for fiscal 1994. As of June 30, 1996, the Company had an accumulated
deficit of approximately $20.6 million. In addition, the Company will require
significant funds to implement its business strategies. Unless its revenues
increase significantly, the Company will continue to experience losses due to
the following factors: (i) the Company's operating expenses are budgeted on
anticipated revenues; (ii) the Company incurs significant expenses in connection
with research and development, and, more recently, the development of its direct
and indirect selling and marketing efforts; and (iii) a high percentage of the
Company's expenses are fixed. As a result, there can be no assurance that the
Company will be profitable in the future, or that funds provided by operations
and present capital will be sufficient to fund the Company's ongoing operations.
The Company believes its current operating funds will be sufficient to finance
its cash requirements for at least the next 12 months. If the Company has
insufficient funds, there can be no assurance that additional financing can be
obtained on acceptable terms, if at all. The absence of such financing would
have a material adverse effect on the Company's business, including a possible
reduction or cessation of operations.
Variability in Quarterly Operating Results; Volatility of Stock Price.
Results of operations have fluctuated and may continue to fluctuate
significantly from quarter to quarter as a result of a number of factors,
including: (i) contract terms and the volume and timing of systems sales and
customer acceptances; (ii) customer purchasing patterns, long sales cycles,
order cancellations and rescheduling of system installations; (iii) the mix of
direct and indirect sales; (iv) the mix of higher-margin software revenues and
lower-margin hardware revenues; and (v) the actions of competitors. In addition,
the Company believes that sales generated to and by its HCIS Distribution
Partners and its general business distribution partners, which are harder to
predict, will increase as a percentage of total revenues. In fiscal 1996, the
Company recognized revenue from large multi-site licenses and from transactions
in which the Company's distribution partners purchased software licenses in
quantity for resale. These transactions, which typically had higher margins, are
difficult to predict, particularly as to when a distribution partner will
acquire additional licenses, and the quantity such partner will purchase.
Accordingly, the Company's future operating results are likely to be subject to
significant variability from quarter to quarter and could be adversely affected
in any particular quarter. The Company's total revenues and results of
operations may also be affected by seasonal trends including the possibility of
higher revenues in the Company's second and fourth fiscal quarters and lower
revenues in its first and third fiscal quarters as a result of many customers'
annual purchasing and budgetary practices and the Company's sales commission
practices relying in part on annual quotas. As a result, the Company believes
that period-to-period comparisons of its revenues and results of operations are
not necessarily meaningful and should not be relied upon as indicators of future
performance. Due to the foregoing factors, it is possible that the Company's
operating results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock could be
materially and adversely affected. In addition, the market price for the
Company's Common Stock has been volatile and in the future could be adversely
affected by general trends in the Company's industry, changes in general market
conditions and other factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Customer Concentration. The Company's product sales have been concentrated
in a small number of customers, and the Company has historically derived a
substantial percentage of its total revenues from a relatively small number of
customers. For the year ended June 30, 1996, two customers accounted for
approximately 35% of total revenues. In fiscal 1995, four customers accounted
for 54% of the Company's total revenues. In fiscal 1994, two customers accounted
for 42% of the Company's total revenues. Furthermore, the Company has granted
extended payment terms in several instances. Developments adverse to the
financial condition of any of these customers, their failure to honor payment
obligations, or the inability to replace any such customer with significant new
customers would have a material adverse effect on the Company's financial
position and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Customers and
Signed Sales Contracts."
Product Acceptance and Market Development; Dependence on Distribution
Partners. The market for electronic information and document management systems,
as it relates to integrated mixed-media healthcare information systems, is still
relatively new and may not develop as expected. The Company's success is
dependent upon market acceptance of its products in preference to competing
products and products that may be developed by others. There can be no assurance
that the Company's products will achieve a sufficient level of market acceptance
to result in profitable operations. The Company's success is also dependent on
the success of its recently developed marketing and distribution strategy which
involves, to a significant degree, a reliance upon HCIS vendors to sell the
Company's electronic information and document management systems as a necessary
component of the integrated systems being marketed by such distribution
partners. If the HCIS Distribution Partners or future distribution partners
elect not to include the Company's products as components in their integrated
systems or are unsuccessful in achieving significant sales of those systems, the
Company's business would be materially and adversely affected.
Long Sales and Delivery Cycle; Dependence on Future Systems Sales. The
decision by a healthcare provider to replace or substantially upgrade its
information systems typically involves a major commitment of capital and an
extended review and approval process. Accordingly, the sales and delivery cycle
for the Company's system is typically eight to 24 months from initial contact to
delivery and acceptance of the products. The time required from initial contact
to contract execution is typically six to 12 months. During these periods, the
Company may expend substantial time, effort and funds preparing a contract
proposal and negotiating the contract. Under customary systems sales agreements,
the Company does not record revenues on products until they have been delivered
and accepted by the customer. The length of time between contract execution and
acceptance typically ranges from two to 12 months for an end-user depending on
the size of the order, the products ordered and delivery terms. At June 30,
1996, the Company had approximately $24.2 million of signed sales contracts for
systems and services which had not yet been delivered. This amount includes
contracts for software license fees, hardware sales and services that may
include cancellation provisions that do not pertain to IMNET's performance, and
contracts that are expected to result in revenues over periods of as much as
five years. Over time, the proportion of such signed sales contracts represented
by long-term contracts is expected to increase. Any significant or ongoing
failure to achieve signed contracts and subsequent customer acceptance after
expending time, effort and funds could have a material adverse effect on the
Company's business. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Ability to Manage Growth. As a result of both internal development and
expansion into additional applications and markets, the Company is currently
experiencing a period of rapid growth and expansion. Such growth and expansion
has placed and could continue to place a significant strain on the Company's
services and support operations, sales and administrative personnel and other
resources. The Company's ability to manage such growth effectively will require
the Company to continue to improve its operational, management and financial
systems and controls and to train, motivate and manage its employees. As a
result, IMNET is subject to certain growth-related risks, including the risk
that it will be unable to retain the necessary personnel or acquire other
resources necessary to service such growth adequately.
Risks Associated with Acquisitions. As part of the Company's strategy to
enhance and maintain its competitive position, IMNET has consummated the
Acquisitions and continues to evaluate potential acquisitions of businesses,
products and technologies. In considering an acquisition, the Company may
compete with other potential acquirors, many of which may have greater financial
and operations resources. Further, the evaluation, negotiation, and integration
of such acquisitions may divert significant time and resources of the Company,
particularly of management. There can be no assurance that suitable acquisition
candidates will be identified, that any acquisitions can be consummated or that
any acquired businesses or products can be successfully integrated into the
Company's operations. In addition, there can be no assurance that the
Acquisitions or any future acquisitions will not have a material adverse effect
upon the Company, particularly in the fiscal quarters immediately following the
consummation of such transactions due to operational disruptions, unexpected
expenses and accounting charges which may be associated with the integration of
such acquisitions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Recent Acquisitions."
Risks Associated with New HCIS Distribution Partner. The Company entered
into a definitive agreement with HBOC in the third quarter of fiscal 1996,
whereby the Company will assume responsibility for providing maintenance and
support to certain HBOC customers, and for converting such customers to use of
IMNET's products. There can be no assurance that the Company will recover its
investment in this relationship, or that the maintenance, support and conversion
will be successfully accomplished or profitable. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Business
Alliance with HBOC."
Risks Associated with Outsourcing of IMNET MegaSAR Microfilm Jukebox. In
the fourth quarter of fiscal 1996 the Company granted to SoftNet worldwide,
exclusive manufacturing rights and new non-exclusive distribution rights for the
MegaSAR Microfilm Jukebox and its associated technology. The Company retained
the right to distribute the product to healthcare customers. Failure by SoftNet
to provide this product to IMNET as required under the agreement, or to
otherwise satisfy its obligations, including future payment obligations, could
have an adverse effect on the Company's business.
Technological Changes; Competition. The market for the Company's products
is characterized by continued and rapid technological advances in both hardware
and software development requiring ongoing expenditures for research and
development and the timely introduction of new products. Compatibility with
existing and emerging industry standards is essential to the Company's marketing
strategy and research and development efforts. The establishment of standards is
largely a function of user acceptance, and standards are therefore subject to
change. IMNET's products are dependent upon a number of advanced technologies,
including those relating to computer hardware and software, storage devices,
robotics systems and other peripheral components, all of which are subject to
rapid change. To be competitive, IMNET must respond effectively to technological
changes by continuing to enhance its existing products to incorporate emerging
or evolving standards. There can be no assurance that the Company will be able
to respond effectively to technological changes or new product announcements or
introductions by others. Furthermore, there can be no assurance that the Company
will be able to access the needed new technology at an acceptable price. The
market for healthcare information systems is intensely competitive. Certain of
the Company's competitors have significantly greater financial, technical,
research and development and marketing resources than the Company. Competitors
vary in size and in the scope and breadth of the products and services offered.
The Company's products compete both with other technologies as well as similar
products developed by other companies, and other major information management
companies may enter the market in which the Company competes. Competitive
pressures and other factors, such as new product introductions by the Company or
its competitors, or the entry into new geographic markets, may result in
significant price erosion that could have a material adverse effect on the
Company's business.
Uncertainty in Healthcare Industry; Government Healthcare Reform Proposals.
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
healthcare providers. Many lawmakers have announced that they intend to propose
programs to reform the U.S. healthcare system. These programs may contain
proposals to increase governmental involvement in healthcare, lower
reimbursement rates and otherwise change the operating environment. Healthcare
providers may react to these proposals and the uncertainty surrounding such
proposals by curtailing or deferring investments, including those for the
Company's products and related services. Cost containment measures instituted by
healthcare providers as a result of regulatory reform or otherwise could result
in greater selectivity in the allocation of capital funds. Such selectivity
could have a material adverse effect on the Company's ability to sell its
products and related services.
The FDA has issued a draft guidance document addressing the regulation of
certain computer products as medical devices under the Federal Food, Drug, and
Cosmetic Act (the "FDC Act"). Medical devices are subject to regulation by the
FDA which requires, among other things, premarket notifications or approvals and
compliance with labeling, registration and listing requirements, good
manufacturing practices and records and reporting requirements. The FDA
currently regulates the Company's MedVision product line.
Dependence on Key Personnel. Kenneth D. Rardin and certain other executive
officers have been primarily responsible for the development and expansion of
the Company's business, and the loss of the services of one or more of these
individuals could have a material adverse effect on the Company. In addition,
the Company believes that its future success will be dependent in part on its
continued ability to recruit, motivate and retain qualified personnel. There can
be no assurance the Company will be successful in this regard. The Company
maintains a $2.0 million key man life insurance policy on the life of Mr.
Rardin.
Dependence on Proprietary Rights and Patents. To develop and maintain its
competitive position, IMNET relies primarily upon the technical expertise and
creative skills of its personnel, confidentiality agreements and, to some
degree, patents and copyrights. The Company owns patents and has license rights
to certain patents held by third parties. These patents and patent rights relate
to aspects of the technology used in certain of the Company's products.
Successful litigation against the Company regarding its patents or patent
rights, or infringement by the Company of the patent rights of others, could
have a material adverse effect on the Company's business. There can be no
assurance that patents issued to or licensed by the Company will not be
challenged or circumvented by competitors or be found to be sufficiently broad
to protect the Company's technology or to provide it with any competitive
advantage. In addition, there can be no assurance that confidentiality
agreements will not be breached or that the Company will have adequate remedies
for any such breach.
There has been substantial litigation regarding patent and other
intellectual property rights in the computer industry. Recently counsel to a
competitor contacted the Company, asserting that the Company's Electronic
Information Warehouse infringes a patent owned by it relating to certain systems
which incorporate database management systems and support bulk storage systems,
and that other patents may also be infringed. The Company has referred this
matter to its patent counsel for review. Although to the knowledge of the
Company there are no other such claims pending against or involving the Company,
there can be no assurance that such claims will not be instituted. Adverse
determinations in any such claim could subject the Company to significant
liabilities to third parties and could require the Company to seek licenses from
third parties. There can be no assurance that any such licenses will be
available on commercially reasonable terms. See "Business - Proprietary
Technology Protection" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Product Liability. The Company's products are used to provide information
that relates to healthcare enterprise operations and information that may be
used in other critical applications. Any failure by the Company's systems to
provide accurate and timely information could result in claims against the
Company. The Company maintains insurance to protect against claims associated
with the use of its products, but there can be no assurance that its insurance
coverage would adequately cover any claim asserted against the Company. A
successful claim brought against the Company in excess of its insurance coverage
could have a material adverse effect on the Company. Even unsuccessful claims
could result in the Company's expenditure of funds in litigation and management
time and resources. There can be no assurance that the Company will not be
subject to product liability claims, that such claims will not result in
liability in excess of its insurance coverage or that the Company's insurance
will cover such claims or that appropriate insurance will continue to be
available to the Company in the future at commercially reasonable rates.
Foreign Operations. Approximately 9% of the Company's total revenues for
the fiscal year ended June 30, 1996 were attributable to sales outside the
United States. Sales to customers outside the United States are subject to
incremental risks, including the following: (i) agreements may be more difficult
to enforce and receivables more difficult to collect through foreign legal
systems; (ii) to the extent the Company invoices in foreign currencies in the
future, exchange rate fluctuations could adversely affect the Company's results
of operations; (iii) foreign customers often have longer payment cycles; and
(iv) foreign countries could impose withholding taxes or otherwise tax the
Company's foreign income, impose tariffs, embargoes or exchange controls or
adopt other restrictions on foreign trade. To date, the Company's results of
operations have not been adversely affected by currency exchange rate
fluctuations because the Company has invoiced all of its sales in United States
dollars. The Company anticipates that revenues attributable to sales outside the
United States will decline as a percentage of total revenues.
ITEM 2. PROPERTIES.
IMNET's office space is located at 8601 Dunwoody Place, Atlanta, Georgia
30350. At this location, IMNET leases approximately 54,000 square feet of floor
space under lease agreements, which expire in 1999. Pursuant to the Evergreen
acquisition, the Company acquired leased space of approximately 1,900 square
feet in Castine, Maine. This space is held under a five year lease expiring
December 31, 1998. Due to increases in staffing, the Company has entered into a
lease agreement, effective January 1, 1997, for approximately 96,000 square feet
of office space, which will become the Company's new headquarters. It is
anticipated that the existing Atlanta facility would be sublet. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
ITEM 3. LEGAL PROCEEDINGS.
As of the date hereof, to the Company's knowledge, there are no material
legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
Each of the executive officers of the Registrant was elected by the Board
of Directors to serve until the Board of Directors meeting immediately following
the next annual meeting of stockholders and until election of their successor,
or until his earlier removal by the Board of Directors, death or resignation.
The following table lists the current executive officers of the Company, their
ages and offices with the Company:
NAME AGE POSITION
- - ---- --- --------
Kenneth D. Rardin . 46 Chairman of the Board and Chief Executive Officer
James A. Gilbert .. 48 President and Chief Operating Officer
Thomas D. Underwood 38 Senior Vice President - Technical Operations
Raymond L. Brown .. 39 Senior Vice President and Chief Financial Officer
Gary D. Bowers .... 43 Senior Vice President - Business Development
Paul J. Collins, Jr 40 Senior Vice President - Marketing
Kenneth R. Brown .. 57 Executive Vice President
Daniel P. Howell .. 44 Secretary and Director
Mr. Rardin has been Chairman of the Board and Chief Executive Officer of
the Company since October 1992, when the Company acquired certain assets of
IMGE. He was also President of the Company from October 1992 until the
appointment of Mr. Gilbert as President in September 1996. Mr. Rardin has over
25 years of experience in the computer software field. Beginning in late 1990
until the consummation of the 1992 Acquisition, he was Chief Executive Officer
of IMGE. From 1989 to 1990, Mr. Rardin was a self-employed consultant in the
computer and data communications industries. From 1986 to 1989, Mr. Rardin
served as President and Chief Executive Officer of GMD, Inc., a provider of
systems which integrate design and manufacturing automation with business
systems. From 1983 to 1986, Mr. Rardin was President and Chief Executive Officer
of FutureSoft Synergies, Inc., a venture capital investment and management
company. From 1977 to 1982, Mr. Rardin was Chief Operating Officer of Software
AG of North America. During such time, Software AG of North America grew from a
small private software company to one of the industry's largest publicly-held
international software companies.
Mr. Gilbert was appointed a Director, President and Chief Operating Officer
in September 1996. Prior to joining IMNET, Mr. Gilbert held several positions
over eight years at HBOC. Since 1995, he was Senior Vice President and General
Counsel, where he had operational responsibility for several product groups.
From 1988 to 1995 he served as Vice President.
Mr. Underwood became Senior Vice President - Technical Operations in
January 1996. He was Vice President - Technical Operations from July 1995 until
January 1996. Mr. Underwood has over 15 years of experience in operations
management and hardware and software development. From May 1992 through June
1995, Mr. Underwood was Business Unit Manager for the Document Management
Systems division of Perceptics Corporation ("Perceptics"), a subsidiary of
Westinghouse Electric Corporation. From November 1988 through May 1992, Mr.
Underwood served as the Director - Operations and Engineering for Perceptics.
Mr. Raymond L. Brown, a certified public accountant, has been Senior Vice
President and Chief Financial Officer since December 1995. Prior to joining
IMNET, he was employed by Communications Central, Inc., a pay telephone service
provider, as Vice President, Chief Financial Officer and Treasurer from October
1994 to November 1995. From March 1993 to September 1994, Mr. Brown served as
Vice President, Chief Financial Officer, Treasurer and Secretary of AER Energy
Resources, Inc., a battery manufacturing company, where he had responsibility
for all finance, management information systems and human resource activities.
From September 1989 to February 1993, Mr. Brown served as Vice President,
Finance and Chief Operating Officer of Delta Color, Inc., an ink manufacturing
company, where he was responsible for finance and operations. Prior to September
1989, Mr. Brown served as Director, Accounting and Financial Planning for Gould,
Inc. in its imaging and graphics division.
Mr. Bowers has been Senior Vice President - Business Development of the
Company since June 1996. Mr. Bowers has over 21 years of technical and
management experience in the computer software and services field. Mr. Bowers
joined the Company following the 1992 Acquisition in October 1992 as Vice
President Marketing and Business Development. He was employed by IMGE beginning
in 1991 as Vice President of Technical Operations. From 1986 through 1991, Mr.
Bowers was employed at Software AG as Director of Sales Support for its
newly-formed Federal Systems subsidiary and subsequently as Director of the
Geographic Information Systems Group.
Mr. Collins has been Senior Vice President - Marketing of the Company since
April 1995. Mr. Collins has 15 years of experience in information processing,
including ten years in the healthcare industry. Prior to joining IMNET, he was
employed by Lanier Worldwide ("Lanier") for 14 years, most recently as Marketing
Director. From 1991 through 1993 he served as Director of Product Marketing, and
from 1985 through 1991, he served as a District Manager for Lanier.
Mr. Kenneth R. Brown has been Executive Vice President of the Company since
April 1995. He has more than 32 years of experience in the computer industry.
Mr. Brown is a member of the Board of Advisors and Chairman for the Center for
Healthcare Information Management, an organization representing approximately 85
HCIS vendors and consultants. From April 1991 through April 1995 he was Chairman
of the Board and Chief Executive Officer for CITATION Computer Systems, Inc., an
HCIS company. From 1988 to 1990 he was President of Silverlake Systems - Sun
Data, Inc., a distributor of midrange IBM computer systems.
Mr. Howell has been a director of the Company since the 1992 Acquisition.
He is a principal and the Executive Vice President of Mesirow Private Equity
Investments, Inc., and the Vice President of Mesirow Financial Services, Inc. in
Chicago. Mesirow Private Equity Investments, Inc. manages in excess of $150
million in equity capital. He joined Mesirow in 1986. He has an M.B.A. from the
University of Wisconsin-Madison and a B.A. from Lawrence University. Mr. Howell
serves as a director and a member of the compensation committee of Microware
Systems Corporation.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock of the Company is traded on the Nasdaq National Stock
Market under the symbol "IMNT". The chart below sets forth the high and low
stock prices for each quarter since the completion of the Company's initial
public offering in July 1995 at $12.00 per share.
Quarter Ended High Low
________________ ________ ________
September 30, 1995 (from July 20 through
September 30, 1995) .................... $ 26.25 $ 14.50
December 31, 1995 ...................... $ 29.75 $ 20.50
March 31, 1996 ......................... $ 36.50 $ 21.06
June 30, 1996 .......................... $ 35.25 $ 26.00
The closing sales price for the Company's Common Stock on September 23,
1996 was $22.50 per share. As of September 23, 1996, there were approximately 75
record holders and approximately 1,800 beneficial owners of the Company's Common
Stock. The Company has never declared any cash dividends on its Common Stock.
The Company does not anticipate paying any cash dividends in the foreseeable
future. The Board of Directors of the Company intends to review this policy from
time to time, after taking into account various factors such as the Company's
financial condition, results of operations, current and anticipated cash needs
and plans for expansion.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data should be read in conjunction with
the Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Form 10-K. The selected financial data presented
below under "Consolidated Statement of Operations Data" and "Consolidated
Balance Sheet Data" as of and for the three fiscal years ended June 30, 1996 and
derived from the consolidated financial statements of IMNET Systems, Inc. and
subsidiaries. The consolidated financial statements as of June 30, 1996 and
1995, and for each of the years in the three-year period ended June 30, 1996,
and the independent auditors' report thereon, are included at Item 8 of this
Form 10-K. The Selected Financial Data is qualified by, and should be read in
conjunction with, such consolidated financial statements.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------
1996 1995 1994 1993
---- ---- ---- ----
CONSOLIDATED STATEMENT OF OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Systems sales............................................... $ 22,343 $ 6,510 $ 2,756 $ 1,059
Maintenance and professional services....................... 4,280 1,955 1,374 902
----- ----- ----- ---
Total revenues......................................... 26,623 8,465 4,130 1,961
------ ----- ----- -----
Operating expenses:
Cost of systems sales....................................... 6,053 4,206 2,856 1,343
Cost of maintenance and professional services............... 2,251 1,222 807 575
Sales and marketing......................................... 8,314 3,601 2,880 1,360
Research and development.................................... 2,721 1,747 1,394 525
General and administrative.................................. 5,209 2,605 2,150 1,345
Non-recurring charges....................................... 10,370 -- -- --
------ ------ ------ ------
Total operating expenses............................... 34,918 13,381 10,087 5,148
------ ------ ------ -----
Operating loss......................................... (8,295) (4,916) (5,957) (3,187)
------ ------ ------ ------
Interest income............................................. 1,915 122 31 9
Other expense............................................... (11) (16) (20) --
------ ------ ----- -----
Total other income, net................................ 1,904 106 11 9
------ ------ ----- -----
Loss before income taxes............................... (6,391) (4,810) (5,946) (3,178)
------ ------ ------ ------
Income taxes.................................................. -- -- -- --
------ ------ ------ ------
Net loss............................................... $ (6,391) $ (4,810) $ (5,946) $ (3,178)
========= ========== ========== ==========
Net loss per common share and common share
equivalent.................................................. $ (0.77) $ (0.98) $ (1.72) $ (1.27)
========= ========== ========== ==========
Weighted average outstanding common shares
and common share equivalents................................ 8,350 4,901 3,459 2,502
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
--------
1996 1995 1994 1993
---- ---- ---- ----
CONSOLIDATED BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents..................................... $ 16,085 $ 1,346 $ 2,101 $ 182
Working capital............................................... 50,176 4,241 2,595 285
Total assets.................................................. 68,175 10,248 8,414 6,841
Total stockholders' equity.................................... 60,139 7,351 5,761 3,885
</TABLE>
For information regarding the electronic imaging business of IMGE, Inc.,
the company from which the Company acquired certain assets and technology in
1992, see "Certain IMGE, Inc. Financial Information" set forth below.
CERTAIN IMGE, INC. FINANCIAL INFORMATION
Set forth below are the results of operations of the electronic imaging
operations of IMGE, Inc. for the two fiscal years ended October 31, 1992, as
reported by IMGE, Inc. as a discontinued operation in its Annual Report on Form
10-K for the fiscal year ended October 31, 1992 filed with the Securities and
Exchange Commission (the "Commission"). The Company did not participate in the
preparation of this information and does not assume any liability for it
hereunder. The Commission does not approve or disapprove or pass on the accuracy
or adequacy of Annual Reports on Form 10-K filed with it.
On October 5, 1992, the Company acquired substantially all of the assets of
the electronic imaging operations of IMGE, Inc. and certain of its subsidiaries
in return for: (i) the assumption of certain liabilities; (ii) the issuance of
470,000 shares of the Company's Common Stock (representing 25% of the amount
then outstanding) and 20,000 shares of the Company's Series B Preferred Stock;
and (iii) an undertaking to pay IMGE, Inc. $96,000 per year for up to five years
and to lend to IMGE, Inc. up to an additional $30,000 per year during such
period. The payment obligation expired during fiscal 1996.
FISCAL YEAR ENDED OCTOBER 31,
-----------------------------
1992 1991
---- ----
(in thousands)
Revenue:
Product sales and service ........... $ 1,465 $ 2,410
Maintenance ......................... 576 551
Licenses ............................ 288 500
-------- --------
2,329 3,461
-------- --------
Expenses:
Cost of sales and service ........... 1,748 2,366
Research and development ............ 1,088 1,670
Marketing and selling ............... 1,897 3,552
Writedown of acquired technology .... -- 9,663
Depreciation and amortization ....... 593 1,726
Provision for loss on contract ...... -- 385
Interest ............................ 78 454
General and administrative .......... 462 1,515
-------- --------
5,866 21,331
-------- --------
Loss from operations before income taxes (3,537) (17,870)
Income tax benefit ..................... -- (978)
-------- ---------
Net Loss ............................... $ (3,537) $(16,892)
======== ========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The accompanying discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with "Item 1.
Business" and the Company's Consolidated Financial Statements and Notes thereto
included as a part of this Form 10-K.
IMNET develops, markets, installs and services electronic information and
document management systems to meet the needs of the healthcare industry and
other document-intensive businesses. The Company, which was incorporated on May
15, 1992, acquired the electronic imaging assets of IMGE on October 5, 1992 (the
"1992 Acquisition"). From May 15, 1992 through October 5, 1992, the Company's
activities consisted primarily of efforts to raise funds and to negotiate the
1992 Acquisition. IMNET's products include proprietary and third party software
and hardware components which are integrated to create electronic information
and document management systems. IMNET supports its customers through a broad
range of customization, systems integration, installation, training and
maintenance services.
The Company's revenues are derived primarily from the sale and support of
components of the IMNET Electronic Information Warehouse: the IMNET Image
Engine, the IMNET Workflow Engine, the IMNET EPRS, IMNET MedVision and the IMNET
MegaSAR Microfilm Jukebox. Revenues from systems sales consist of IMNET and
third party hardware and software license fees. Sources of maintenance and
professional services revenues include services for installation, project
management, custom programming and training, as well as maintenance and service
contracts for software and certain hardware support. IMNET systems are sold
directly to end-users as well as through third party distribution partners.
Although the Company's relationships with the HCIS Distribution Partners are
relatively new, the Company expects that sales to and through its HCIS
Distribution Partners and other distribution partners will increase.
Revenues from sales to the healthcare industry increased to 69% of total
revenues in fiscal 1996 from 46% of total revenues in fiscal 1995. The Company
anticipates that sales to the healthcare industry will continue to increase as a
percentage of total annual revenues, although such sales may fluctuate from
quarter to quarter. Revenues from sales outside of the United States declined to
9% of total revenues in fiscal 1996 from 20% in fiscal 1995.
The Company recognizes revenues derived from systems sales to end-user
customers, including 90% of software license fees and 100% of hardware revenues,
upon the factory acceptance by the customer and delivery of the configured
system. The Company defers recognition of 10% of the software license fees until
completion of certain insignificant vendor obligations primarily related to the
site acceptance by the customer. Revenues derived from systems sales to
distribution partners are recognized upon delivery if the contract is between
the Company and the distribution partner, the payment terms are fixed with all
amounts due within twelve months, there are no other significant obligations to
be performed by the Company and provided that the distribution partner meets the
Company's criteria with respect to sell-through and credit risk. Revenues
derived from systems sales to distribution partners in which the contract is
between the Company and the customer (the end-user) of the distribution partner
are recognized in accordance with the Company's revenue recognition policy for
end-user customers described above.
Revenue recognition for systems sales to end-users that have been delivered
and accepted by the customer with contractual payment terms that extend beyond
one year is determined by the Company based upon the Company's historical
experience with the customer, the customer's credit worthiness, and an
assessment of the enforceability of the contract. All revenues recognized
related to contracts with payments due in more than one year are discounted at
the Company's incremental borrowing rate.
Revenues from professional services, which may include preparation of
functional specifications, customization and programming, systems integration,
and training, among others, are recognized as the services are performed.
Revenues derived from maintenance and support contracts are recognized ratably
over the terms of the related contracts.
Deferred revenues represent either billings rendered to or payments
received from customers for systems prior to factory acceptance and delivery to
the customer and maintenance and support services billed in advance.
At June 30, 1996, the Company had approximately $24.2 million of signed
sales contracts for systems and services which had not yet been delivered. The
amount of signed sales contracts for systems and services which have not been
delivered includes contracts for software license fees, hardware sales and
services that may include cancellation provisions that do not pertain to IMNET's
performance, and contracts that are expected to result in revenues over periods
of as much as five years. Any significant or ongoing failure to achieve signed
contracts and subsequent customer acceptance after expending time, effort and
funds could have a material adverse effect on the Company's business. Because
the Company adjusts the timing of an installation to accommodate customers'
needs, and because a typical installation requires two to 12 months to complete,
the Company is unable to predict accurately the number of signed sales contracts
it expects to fill and consequently the amount of revenues it expects to achieve
in any particular period.
The Company capitalizes a portion of its computer software development
costs for internally developed software. These costs relate primarily to the
development of new products and enhancements to existing products to accommodate
new markets or platforms using existing technologies and programming methods.
Amortization of computer software development costs is provided by the Company
on individual products or enhancements and begins when the product or
enhancement is available for use by customers. Amortization is recorded using
the greater of: (1) the amount computed using the ratio of current product
revenue to the total of current and anticipated product revenue or (2) the
amount determined using the straight-line method over the estimated useful life
of the software, not to exceed three years. Amortization of computer software
development costs is included in cost of systems sales in the accompanying
consolidated statements of operations.
1996 ACQUISITIONS
On November 3, 1995, the Company acquired Evergreen by merger for aggregate
consideration consisting of $1.28 million in cash and 82,353 shares of IMNET
Common Stock having a market value as of such date of approximately $2.3
million. In connection with the Evergreen acquisition, the Company allocated and
expensed in the three months ended December 31, 1995, approximately $2.9 million
to in-process research and development and allocated approximately $648,000 to
intangible assets, including goodwill and acquired technology, which will be
amortized on a straight-line basis over the estimated useful lives of such
assets of 7 and 5 years, respectively. Additionally, on December 14, 1995 the
Company acquired Quesix by merger. The aggregate consideration for the
acquisition of Quesix was $4.2 million in cash. In connection with the Quesix
acquisition, the Company allocated and expensed in the three months ended
December 31, 1995, approximately $2.8 million to in-process research and
development, and allocated approximately $1.4 million to goodwill to be
amortized on a straight-line basis over an estimated useful life of 7 years. The
Company had previously marketed a version of Quesix's EPRS product pursuant to a
distribution agreement. The in-process research and development expensed at the
acquisition dates had not reached technological feasibility and had no
alternative use for the Company.
The Company pursued the Acquisitions to enhance the capabilities and
applications of the IMNET Electronic Information Warehouse. The acquisition of
Evergreen and its radiological imaging product line, MedVision, provides the
Company with the technology to expand and improve the radiological information
storage, retrieval and display capabilities of the IMNET Electronic Information
Warehouse. Further, the acquisition of Quesix and the EPRS allows the Company to
control future development and distribution of the EPRS, a patient record
document management application software product.
PROPOSED ACQUISITION
On August 12, 1996, the Company entered into a letter of intent, as
amended, to acquire Hunter, a privately held software company which provides
electronic report management and distribution software solutions, primarily to
the healthcare and financial services industries. The transaction is subject to
a number of conditions, including satisfactory completion of due diligence and
the execution of a definitive merger agreement. The Company expects to issue up
to 472,224 shares of Common Stock in the three months ended September 30, 1996,
valued at approximately $8.5 million, and to account for the transaction as a
pooling of interests.
BUSINESS ALLIANCE WITH HBOC
In March 1996, the Company signed agreements with HBOC to distribute
IMNET's products on a private label basis. Under the terms of the agreements,
HBOC will market the IMNET Electronic Information Warehouse, which is to be
integrated with HBOC's clinical and information solutions, and will not market
competing products. The Company will support HBOC's First Perspective product
line customers. The First Perspective product line competed with the IMNET
Electronic Information Warehouse. The agreement provides that HBOC will offer
its First Perspective product line customers the opportunity to convert to the
IMNET Electronic Information Warehouse and that the cost for such conversion,
estimated by the Company to be approximately $3.0 million, will be assumed by
the Company. As of September 25, 1996, three customers had elected to convert.
Under the terms of the agreement, the Company will pay HBOC an aggregate of $3.0
million over a twelve month period in exchange for the seven-year exclusive
distribution rights. Quarterly payments of $600,000 were made to HBOC in the
Company's third and fourth quarter of fiscal 1996.
In the three months ended March 31, 1996, the Company recorded a
non-recurring charge of $4.6 million to the Company's consolidated statement of
operations and capitalized an additional $1.4 million of intangible assets
related to the Company's valuation of the expected gross margin on maintenance
revenues from the support of the First Perspective customers. The Company has
classified the remaining obligation to HBOC of $1.8 million and $2.8 million of
conversion costs, net of costs incurred, in accrued expenses in the accompanying
June 30, 1996 consolidated balance sheet.
GRANT OF MANUFACTURING RIGHTS FOR THE COMPANY'S MEGASAR MICROFILM JUKEBOX
On June 30, 1996, the Company granted to SoftNet worldwide, exclusive
manufacturing rights and new non-exclusive, non-healthcare distribution rights
for the MegaSAR Microfilm Jukebox and its associated technology. The terms of
the transaction also included $1.0 million of non-refundable software license
fees related to the MegaSAR product. The Company will continue to sell the
MegaSAR manufactured by SoftNet and provide maintenance and support for its
existing MegaSAR customers.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
total revenues for each fiscal period indicated:
FISCAL YEAR ENDED JUNE 30,
--------------------------
1996 1995 1994
---- ---- ----
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Systems sales ............................... 83.9% 76.9% 66.7%
Maintenance and professional services ....... 16.1 23.1 33.3
---- ---- ----
Total revenues ......................... 100.0 100.0 100.0
----- ----- -----
Operating expenses:
Cost of systems sales ....................... 22.7 49.7 69.2
Cost of maintenance and professional services 8.5 14.5 19.5
Sales and marketing ......................... 31.2 42.5 69.7
Research and development .................... 10.2 20.6 33.8
General and administrative .................. 19.6 30.8 52.1
Non-recurring charges ....................... 39.0 -- --
---- ---- ----
Total operating expenses ............... 131.2 158.1 244.3
----- ----- -----
Operating loss ................................. (31.2) (58.1) (144.3)
----- ----- ------
Other income, net .............................. 7.2 1.3 0.3
--- --- ---
Net loss ....................................... (24.0)% (56.8)% (144.0)%
===== ===== ======
Comparison of Fiscal Years Ended June 30, 1996 and June 30, 1995
Revenues. The Company's total revenues were $26.6 million compared to $8.5
million for fiscal 1995, an increase of $18.2 million, or 215%. The Company's
revenues derived from sales to domestic healthcare customers were $18.4 million
for fiscal 1996 compared to $4.0 million for fiscal 1995, an increase of $14.4
million, or 360%. These increases were primarily due to the grant of $5.7
million of enterprise-wide software licenses for the IMNET Image Engine, IMNET
Workflow Engine, IMNET EPRS and IMNET MedVision to McLaren, $2.9 million of
software license revenue from SoftNet, $2.4 million of software license revenue
related to the Company's business alliance with HBOC, and additional systems
sales to other customers. The enterprise-wide software licenses granted to
McLaren for the IMNET Image Engine and IMNET Workflow Engine products provided
for payment terms in the form of quarterly installments of $266,667, which began
in October, 1995 and will end in July, 1998. The Company recorded $2.8 million
in revenues from those software licenses during fiscal 1996, which amount
represented the present value, discounted at the then applicable prime rate, of
the future stream (those payments due in more than 12 months) of quarterly
installment payments under the license agreement. The Company classified the
discounted amounts due in more than 12 months of $1.1 million as a noncurrent
trade account receivable in the accompanying June 30, 1996 consolidated balance
sheet. Total revenues derived from McLaren were $6.5 million during fiscal 1996,
representing approximately 24% of total revenues in fiscal 1996.
Revenues from sales to domestic general business customers were $5.9
million in fiscal 1996 compared to $2.9 million in fiscal 1995, an increase of
$3.0 million, or 104%. Revenues from sales to international customers were $2.3
million in fiscal 1996 compared to $1.7 million in fiscal 1995, an increase of
$600,000, or 34%. In the future, the Company anticipates that revenues
attributable to sales outside the United States will decline as a percentage of
total revenues. The Company is currently pursuing existing opportunities
internationally, but has made a strategic decision to allocate its principal
efforts to the domestic healthcare market. Revenues from systems sales increased
to $22.3 million in fiscal 1996 from $6.5 million in fiscal 1995, an increase of
$15.8 million, or 243%. Revenues from maintenance and professional services were
$4.3 million in fiscal 1996 compared to $2.0 million in fiscal 1995, an increase
of $2.3 million, or 119%. This growth was primarily attributable to an increase
in professional services to healthcare customers and additional maintenance
contracts, resulting from a larger installed base.
The Company's product sales have been concentrated in a small number of
customers, and the Company has historically derived a substantial percentage of
its total revenues from a relatively small number of customers. Developments
adverse to the financial condition of any of these customers or the inability to
replace any such customer with significant new customers would have a material
adverse effect on the Company's financial position and results of operations.
Cost of Revenues. The cost of systems sales in fiscal 1996 was $6.1 million
compared to $4.2 million in fiscal 1995, an increase of $1.9 million, or 44%. As
a percentage of total revenues, the cost of systems sales declined to 23% in
fiscal 1996 from 50% in fiscal 1995, due to increased revenue derived from
systems sales and a higher software component in the systems sales revenue mix.
As a percentage of systems sales revenues, the cost of systems sales decreased
to 27% in fiscal 1996 from 65% in fiscal 1995. The cost of systems sales also
reflected amortization expenses in each period of $697,000 relating to
technology acquired in the 1992 Acquisition. The cost of maintenance and
professional services was $2.3 million in fiscal 1996 compared to $1.2 million
in fiscal 1995, an increase of $1.0 million, or 84%. As a percentage of total
revenues, this amount represented a reduction to 9% from 15%. The cost of
maintenance and professional services, as a percentage of maintenance and
professional service revenues, declined to 53% in fiscal 1996 from 63% in fiscal
1995. Management does not expect the cost of systems sales as a percentage of
systems revenues to continue to decrease, in part due to the particularly high
margins associated with the enterprise-wide site licenses granted in fiscal 1996
and with the MegaSAR related software license fee revenues derived from SoftNet.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and related benefits and administrative costs allocated to
the Company's sales and marketing personnel. Sales and marketing expenses
increased to $8.3 million in fiscal 1996 from $3.6 million in fiscal 1995, an
increase of $4.7 million, or 131%. The increase was primarily due to higher
sales commissions from increased systems sales and higher sales salary expenses
associated with increases in the number of sales personnel. Expressed as a
percentage of total revenues, sales and marketing expenses were 31% in fiscal
1996 compared to 43% in fiscal 1995.
Research and Development. Research and development expenditures consist
primarily of personnel costs of research and development staff, the facilities,
computing, benefits and other administrative costs allocated to such personnel
and IMNET MegaSAR Microfilm Jukebox hardware prototype expenses. Research and
development expenses increased to $2.7 million in fiscal 1996 from $1.7 million
in fiscal 1995, an increase of $974,000, or 56%. The increase was primarily
attributable to an increase in the number of research and development personnel
and associated costs, partially offset by the capitalization of $1.3 million in
computer software development costs related to new products and enhancements
expected to be released over the next nine months. The $1.3 million of
capitalized computer software development costs represented 32% of the Company's
total research and development expenses in fiscal 1996. Management believes that
the capitalization rate will continue in fiscal 1997 due to the scheduled
release of new software products. As a percentage of total revenues, research
and development expenses decreased to 10% from 21% in fiscal 1996 as compared to
fiscal 1995.
General and Administrative. General and administrative expenses include the
costs of corporate operations, finance and accounting, human resources and other
general operations of the Company. General and administrative expenses increased
to $5.2 million in fiscal 1996 from $2.6 million in fiscal 1995, an increase of
$2.6 million, or 100%. This increase was primarily attributable to an increase
of $950,000 in salaries and associated costs, $458,000 in additional costs
associated with being a public company, an increase of $399,000 in facilities
expenses to support staffing additions, an increase of $230,000 for employment
fees and relocation expenses, and an increase of $385,000 in depreciation
expense associated with equipment to support increased staffing. General and
administrative expenses as a percentage of total revenues decreased to 20% in
fiscal 1996 from 31% in fiscal 1995.
Non-recurring Charges. See "-- 1996 Acquisitions" and "-- Business Alliance
with HBOC" above for information concerning these charges.
Net Loss. The Company's net loss for fiscal 1996 was $6.4 million, or $0.77
per share, compared to a net loss of $4.8 million, or $0.98 per share, in fiscal
1995. Exclusive of the $5.7 million ($0.69 per share) non-recurring charges
related to in-process research and development expenses associated with the
Company's acquisitions of Evergreen and Quesix completed during the second
quarter of fiscal 1996 and a $4.6 million ($0.56 per share) non-recurring charge
related to the Company's business alliance with HBOC incurred in the third
quarter of fiscal 1996, the Company recorded net income of $4.0 million, or
$0.48 per share, for fiscal 1996. The improvement in the Company's results,
exclusive of the non-recurring charges, was due to the significant growth in
revenues, partially offset by increases in operating expenses necessary to
support the Company's continuing growth, and interest income of approximately
$1.9 million earned on the net proceeds of the Company's initial and secondary
public offerings.
Comparison of Fiscal Years Ended June 30, 1995 and June 30, 1994
Revenues. The Company's total revenues were $8.5 million for fiscal 1995
compared to $4.1 million for fiscal 1994, an increase of $4.3 million, or 105%.
The Company's revenues derived from sales to healthcare customers were $3.9
million for fiscal 1995 compared to $1.7 million for fiscal 1994, an increase of
$2.2 million, or 129%. The Company's revenues derived from sales to general
business customers were $4.6 million for fiscal 1995 compared to $2.4 million
for fiscal 1994, an increase of $2.2 million, or 92%. Systems sales increased to
$6.5 million for fiscal 1995 from $2.8 million for fiscal 1994, an increase of
$3.8 million, or 136%. This increase was attributable to higher systems sales in
all sectors. The increase in international systems sales during fiscal 1995 was
primarily attributable to sales in France through the Company's French
distribution partners. Revenues from maintenance and professional services were
$2.0 million for fiscal 1995 compared to $1.4 million for fiscal 1994, an
increase of $581,000, or 42%. This increase was primarily attributable to
increased professional services in the healthcare market in fiscal 1995 and new
customers requesting hardware and software maintenance support.
Cost of Revenues. The cost of systems sales was $4.2 million in fiscal 1995
compared to $2.9 million in fiscal 1994, an increase of $1.4 million, or 47%. As
a percentage of revenues, cost of systems sales declined to 50% in fiscal 1995
from 69% in fiscal 1994, reflecting systems sales having a higher component of
software fees. The percentage can vary significantly depending on the mix of
products sold or licensed. The cost of systems sales for each period included
amortization expenses of $697,000 relating to technology acquired in the 1992
Acquisition. Cost of maintenance and professional services increased to $1.2
million for fiscal 1995 from $807,000 in fiscal 1994, an increase of $415,000,
or 51%. The cost of maintenance and professional services decreased to 15% of
total revenues in fiscal 1995 from 20% in fiscal 1994. This decrease was due to
lower services and maintenance overhead costs as a percentage of revenues.
Sales and Marketing. Sales and marketing expenses increased to $3.6 million
in fiscal 1995 from $2.9 million in fiscal 1994, an increase of $721,000, or
25%. This increase was primarily attributable to increased staffing and
marketing activities. Sales and marketing expenses as a percentage of total
revenues declined to 43% in fiscal 1995 from 70% in fiscal 1994 primarily
because of revenue growth.
Research and Development. Research and development expenses increased to
$1.7 million in fiscal 1995 from $1.4 million in fiscal 1994, an increase of
$352,000, or 25%. This increase was primarily attributable to additional
staffing to support software and hardware development activities. As a
percentage of total revenues, research and development expenses decreased to 21%
from 34%.
General and Administrative. General and administrative expenses increased
to $2.6 million in fiscal 1995 from $2.2 million in fiscal 1994, an increase of
$456,000, or 21%. This increase was primarily attributable to an increase of
$306,000 in facilities expenses to support staffing additions and an increase of
$177,000 in bad debts, reflecting a charge related to an international customer
that went into receivership in the first quarter of fiscal 1995. General and
administrative expenses as a percentage of total revenues decreased to 31% in
fiscal 1995 from 52% in fiscal 1994.
Net Loss. The Company's net loss for fiscal 1995 decreased to $4.8 million,
or $0.98 per share, from $5.9 million, or $1.72 per share, in fiscal 1994, a
decrease of 19%.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain quarterly financial data for the
fiscal years ended June 30, 1996 and June 30, 1995. This quarterly information
is unaudited, has been prepared on the same basis as the annual consolidated
financial statements and, in the opinion of the Company's management, reflects
all normal recurring adjustments necessary for a fair presentation of the
information for the periods presented. Operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995
----------- -----------
FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Systems sales .............. $ 9,060 $ 4,934 $ 5,029 $ 3,320 $ 3,371 $ 427 $ 2,125 $ 587
Maintenance and professional
services ................ 1,846 1,294 609 531 681 530 473 271
----- ----- --- --- --- --- --- ---
Total revenues .......... 10,906 6,228 5,638 3,851 4,052 957 2,598 858
------ ----- ----- ----- ----- --- ----- ---
Operating expenses:
Cost of systems sales ...... 2,739 1,541 1,223 550 1,868 674 1,055 609
Cost of maintenance and
professional services ... 800 649 425 377 313 380 313 216
Sales and marketing ........ 2,389 2,130 1,984 1,811 1,342 845 624 790
Research and development ... 919 788 630 384 486 406 411 444
General and administrative . 1,219 1,287 1,674 1,029 691 634 697 583
Non-recurring charges ...... -- 4,630 5,740 -- -- -- -- --
----- ----- ----- ----- ----- ---- ----- -----
Total operating expenses 8,066 11,025 11,676 4,151 4,700 2,939 3,100 2,642
----- ------ ------ ----- ----- ----- ----- -----
Operating income (loss) ....... 2,840 (4,797) (6,038) (300) (648) (1,982) (502) (1,784)
----- ------ ------ ---- ---- ------ ---- ------
Other income (expense), net ... 549 460 485 410 88 4 (3) 17
--- --- --- --- -- - -- --
Net income (loss) ............. $ 3,389 $ (4,337) $ (5,553) $ 110 $ (560) $ (1,978) $ (505) $ (1,767)
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The Company has experienced significant quarterly fluctuations in operating
results which may continue in future periods. The Company's revenues from
systems sales have varied significantly from quarter to quarter as a result of
the volume and timing of systems sales and customer acceptance and delivery.
Professional services revenues have also fluctuated from quarter to quarter as a
result of the timing of the installation of software and hardware, project
management and customized programming. Revenues from maintenance services have
not fluctuated significantly from quarter to quarter and have been increasing as
the number of the Company's customers increases. Since a significant percentage
of the Company's expenses are fixed, quarterly operating results will vary with
the timing and fluctuation of total revenues.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in 1992, the Company has funded its operations, working
capital needs and capital expenditures primarily from revenues and sales of
equity securities. The Company was initially capitalized primarily by three
investment companies. Subsequently, the Company completed four private
placements in which new investors purchased Company securities. In July 1995,
the Company received approximately $37.5 million net of underwriter's discounts
and offering costs from its initial public offering. In February 1996, the
Company received an additional $18.5 million net of underwriters discounts and
offering costs from a subsequent offering of its Common Stock.
Cash and cash equivalents and marketable securities at June 30, 1996 were
$37.6 million, an increase of $36.3 million from June 30, 1995. The increase was
due to the proceeds from the Company's initial and secondary offerings of Common
Stock. During fiscal 1996, the Company used cash of $10.8 million for operating
activities, as compared to cash used in operating activities of $6.6 million in
fiscal 1995. The increase was primarily due to the funding of additional
accounts receivable of $15.1 million and inventories of $1.2 million associated
with increased sales volume, offset by increased net income, without
consideration of non-recurring charges.
The Company plans to continue to increase its professional staff during
fiscal 1997 and the foreseeable future, to meet anticipated sales volume and to
support research and development efforts. The Company expects that its
requirements for office facilities and office equipment will grow as staffing
requirements dictate. The Company currently leases 54,000 square feet of office
space. To accommodate continuing growth, the Company signed an operating lease,
effective January 1997, to increase its headquarters space. The Company expects
to move to the new facility in January 1997 and will incur increased rental
expense. Management expects to sublease its existing facility at a rate
commensurate with the existing lease commitment and has engaged a real estate
agent to assist in the sublease. The Company has budgeted capital expenditures
of approximately $1.9 million in fiscal 1997 for the purchase of computer
equipment for existing and new employees, furniture and fixtures, and equipment
associated with the new office facility, new training equipment, and new
equipment for customer demonstrations.
The purchase price for the Evergreen acquisition included $1.8 million in
cash and the issuance of 82,353 shares of Common Stock having a market value as
of November 3, 1995 of approximately $2.3 million. The purchase price for the
Quesix acquisition was $4.2 million, paid in cash. These acquisitions were
consummated in the three months ended December 31, 1995.
Recently counsel to a competitor contacted the Company alleging patent
infringement. The Company has referred the matter to its patent counsel for
review. At the present time, the Company is unable to predict the outcome of
this matter. See also "Business-Risk Factors-Dependence on Proprietary Rights
and Patents."
The Company has experienced significant quarterly fluctuations in operating
results which may continue in future periods. The Company's revenues from
systems sales have varied significantly from quarter to quarter as a result of
the volume and timing of systems sales and customer acceptance and delivery.
Professional services revenues have also fluctuated from quarter to quarter as a
result of the timing of installation of software and hardware, project
management and customized programming. Revenues from maintenance services have
not fluctuated significantly from quarter to quarter and have been increasing as
the number of the Company's customers increases. Since a significant percentage
of the Company's expenses are fixed, quarterly operating results will vary with
the timing and fluctuation of total revenues. Furthermore, margins are affected
by the mix of products sold.
The Company's accounts receivable days sales outstanding ("DSO") have
continued to increase in fiscal 1996. Management believes that its willingness
to grant extended terms, on a negotiated, case by case basis, provides the
customer or distributor with additional incentives to commit to large purchases,
because such terms (i) demonstrate that the Company is comfortable with
providing the customer or distributor the leverage inherent in deferred payments
(thereby demonstrating its confidence in its product), and (ii) permit the
customer or distributor (and the Company) to commit to a large order, while the
payment stream is tailored to a longer period of time (thereby providing the
customer or distributor with a means to finance the project over one or more
internal cash budgeting cycles). Therefore, management believes the accounts
receivable DSO trend will continue in fiscal 1997, due to the extended terms
selling strategy. However, the failure by the customer or distributor to pay the
Company account receivable balances outstanding as they become due would have a
material adverse effect on the Company's financial position and results of
operations.
The Company believes that its cash and cash equivalents and marketable
securities, along with revenues from operations, will be sufficient to finance
expected cash requirements for operating activities and anticipated growth for
at least the next 12 months. The Company's ability to meet its cash obligations
on a long-term basis will depend on its achieving profitable operations and on
consistent and timely collection of its accounts receivable. To date, inflation
has not had a material impact on the Company's revenues or expenses.
The Company will require significant funds to implement its business
strategies. Unless its revenues increase significantly, the Company will
continue to experience losses due to the following factors: (i) the Company's
operating expenses are budgeted on anticipated revenues; (ii) the Company incurs
significant expenses in connection with research and development, and more
recently, the development of its direct and indirect selling and marketing
efforts; and (iii) a high percentage of the company's expenses are fixed. As a
result, there can be no assurance that the Company will be profitable in the
future or that available funds, together with any funds provided by operations,
will be sufficient to fund the Company's ongoing operations. If the Company has
insufficient funds, there can be no assurance that additional financing can be
obtained on acceptable terms, if at all. The absence of such financing would
have a material adverse effect on the Company's business, including a possible
reduction or cessation of operations.
In addition to the information in this filing, certain risk factors, among
others, should be considered carefully in evaluating the Company and its
business. These risk factors include the following: (i) limited operating
history; lack of profitable operations; (ii) variability in quarterly operating
results; volatility of stock price; (iii) customer concentration; (iv) product
acceptance and market development; dependence on distribution partners; (v) long
sales and delivery cycle; dependence on future systems sales; (vi) ability to
manage growth; (vii) risks associated with acquisitions; (viii) risks associated
with new distribution partner (HBOC); (ix) technological changes; competition;
(x) uncertainty in healthcare industry; government healthcare reform proposals;
(xi) dependence on key personnel; (xii) dependence on proprietary rights and
patents; (xiii) product liability; (xiv) foreign operations; (xv) control by
officers and directors; (xvi) shares eligible for future sale; and (xvii)
certain anti-takeover considerations. For additional detail, please refer to
"Business Risk Factors" contained in Part I, Item 1 of this form 10-K. Also, see
the note preceding Part I of "Business" for additional information regarding the
Private Securities Litigation Reform Act.
Recent Accounting Pronouncement
On October 23, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (Statement 123). Statement 123 allows companies to retain the
current approach set forth in APB Opinion No. 25 "Accounting for Stock Issued to
Employees" (APB Opinion No. 25) for recognizing stock-based expense in their
financial statements in lieu of the new accounting method prescribed by
Statement 123 based on the estimated fair value of employee stock options.
Companies that do not follow the new fair value based method will be required to
provide expanded footnote disclosures. The provisions of Statement 123 are
effective for fiscal years beginning after December 15, 1995. However,
disclosure of the pro forma net income and earnings per share, as if the fair
value method of accounting for stock-based compensation had been elected, is
required for all awards granted in fiscal years beginning after December 15,
1994.
The Company intends to continue accounting for stock related compensation
using APB Opinion No. 25 and will provide the expanded footnote disclosures
required under Statement 123 beginning with its consolidated financial
statements for the year ending June 30, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
The Board of Directors IMNET Systems, Inc.:
We have audited the accompanying consolidated balance sheets of IMNET
Systems, Inc. and subsidiaries as of June 30, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended June 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
IMNET Systems, Inc. and subsidiaries as of June 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1996, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
August 13, 1996
<TABLE>
<CAPTION>
IMNET SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30,
--------
1996 1995
---- ----
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents.............................................................. $16,084,799 $ 1,346,446
Marketable securities, at amortized cost (estimated market value of $21,629,750)....... 21,541,760 --
Trade accounts receivable, net of allowance for doubtful accounts of $276,290 and
$63,043 at June 30, 1996 and 1995, respectively..................................... 14,952,415 4,041,295
Note receivable from related party..................................................... 2,910,876 --
Inventories............................................................................ 2,015,334 1,173,040
Prepaid expenses and other current assets.............................................. 706,347 136,736
Offering costs......................................................................... -- 439,935
------- -------
Total current assets.............................................................. 58,211,531 7,137,452
Noncurrent trade account receivable...................................................... 1,085,927 --
Notes receivable from officer............................................................. 105,000 105,000
Property and equipment, net............................................................... 3,256,209 1,436,736
Computer software development costs, net of accumulated amortization of $73,531........... 1,212,875 --
Acquired technology, net of accumulated amortization of $2,627,244 and $1,916,673
at June 30, 1996 and 1995, respectively................................................ 959,755 1,568,327
Goodwill and other intangibles, net of accumulated amortization of $211,579............... 3,343,774 --
--------- --------
$ 68,175,071 $ 10,247,515
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
<S> <C> <C>
Current installments of obligations under capital leases............................... $ 404 $ 3,655
Accounts payable....................................................................... 1,125,901 1,474,526
Accrued expenses....................................................................... 6,352,305 922,442
Deferred revenue....................................................................... 557,389 252,749
Dividends payable...................................................................... -- 242,950
--------- -------
Total current liabilities......................................................... 8,035,999 2,896,322
--------- ---------
Obligations under capital leases, excluding current installments.......................... -- 596
--------- --------
Total liabilities................................................................. 8,035,999 2,896,918
--------- ---------
Stockholders' equity:
Preferred stock........................................................................ -- 19,422,722
Common stock, $.01 par value. Authorized 25,000,000 shares; 9,197,779 shares issued
and 9,160,142 shares outstanding at June 30, 1996, and 2,467,327 shares issued and
2,429,690 outstanding at June 30, 1995.............................................. 91,978 24,673
Additional paid-in capital............................................................. 80,790,134 2,228,104
Treasury stock, 37,637 shares, at cost................................................. (148,417) (148,417)
Accumulated deficit.................................................................... (20,594,623) (14,176,485)
----------- ------------
Total stockholders' equity........................................................ 60,139,072 7,350,597
Commitments and contingencies.............................................................
----------- ------------
$ 68,175,071 $ 10,247,515
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
IMNET SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30,
--------------------
1996 1995 1994
---- ---- ----
Revenues:
<S> <C> <C> <C>
Systems sales ...................................................... $ 22,343,533 $ 6,509,772 $ 2,756,000
Maintenance and professional services .............................. 4,279,772 1,954,867 1,374,097
--------- --------- ---------
Total revenues, including revenues from a related party of
$2,850,000 and $485,000 in 1996 and 1995 .................... 26,623,305 8,464,639 4,130,097
---------- --------- ---------
Operating expenses:
Cost of systems sales .............................................. 6,053,525 4,206,459 2,855,654
Cost of maintenance and professional services ...................... 2,251,508 1,221,874 807,329
Sales and marketing ................................................ 8,313,786 3,600,625 2,879,935
Research and development ........................................... 2,720,545 1,746,779 1,394,374
General and administrative ......................................... 5,208,975 2,605,084 2,149,469
Non-recurring charges .............................................. 10,370,000 -- --
---------- --------- ---------
Total operating expenses ...................................... 34,918,339 13,380,821 10,086,761
---------- ---------- ----------
Operating loss ................................................ (8,295,034) (4,916,182) (5,956,664)
---------- ---------- ----------
Interest income ....................................................... 1,915,248 122,156 31,452
Other expense ......................................................... (11,107) (15,497) (20,649)
------- ------- -------
Total other income, net ....................................... 1,904,141 106,659 10,803
--------- ------- ------
Loss before income taxes ...................................... (6,390,893) (4,809,523) (5,945,861)
Income taxes .......................................................... -- -- --
---------- --------- ----------
Net loss ...................................................... $ (6,390,893) $ (4,809,523) $ (5,945,861)
============ ============ ============
Net loss per common share and common share equivalent .................. $ (0.77) $ (0.98) $ (1.72)
============ ============ ============
Weighted average outstanding common shares and common share equivalents 8,350,064 4,901,029 3,458,548
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
IMNET SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996, 1995, AND 1994
PREFERRED STOCK
---------------
SERIES A SERIES B SERIES I SERIES II
-------- -------- -------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 ...... 48,436 $ 4,842,015 40,000 $ 2,111,503 -- $ -- -- $ --
Sale of common stock at $0.053
per share ...................... -- -- -- -- -- -- -- --
Sale of common stock at $0.063 per
share and Series A preferred stock
at $99.81 per share .............. 1,461 145,826 -- -- -- -- -- --
Sale of common stock at $0.08 per
share and Series A preferred
stock at prices ranging from
$147.95 to $148.41 ............. 15,496 2,295,315 -- -- -- -- -- --
Sale of Series I convertible
preferred stock at $140.00 per
share -- -- -- -- 38,209 5,349,320 -- --
Net loss .......................... -- -- -- -- -- -- -- --
------ --------- ------ --------- ------ --------- ---- -------
Balance at June 30, 1994 .........65,393 7,283,156 40,000 2,111,503 38,209 5,349,320 -- --
Purchase of treasury stock and
redemption of preferred
stock, at cost .................. -- -- -- -- (213) (20,235) -- --
Dividends accrued on Series A
preferred stock .................. -- -- -- -- -- -- -- --
Sale of Series II convertible
preferred stock at $140
per share ........................ -- -- -- -- -- -- 51,729 6,810,481
Cancellation of Series B
convertible preferred stock ...... -- -- (40,000) (2,111,503) -- -- -- --
Net loss ......................... -- -- -- -- -- -- -- --
------ --------- ------- ---------- ------ --------- ------ ---------
Balance at June 30, 1995 ........ 65,393 7,283,156 -- -- 37,996 5,329,085 51,729 6,810,481
Dividends accrued on Series A
preferred stock ................. -- -- -- -- -- -- -- --
Conversion of preferred stock and
accrued dividends
to common stock .............(65,393) (7,283,156) -- -- (37,996) (5,329,085) (51,729) (6,810,481)
Sale of common stock ........... -- -- -- -- -- -- -- --
Exercise of stock options and
warrants ....................... -- -- -- -- -- -- -- --
Issuance of common stock in
connection with an acquisition .. -- -- -- -- -- -- -- --
Net loss ........................ -- -- -- -- -- -- -- --
------ -------- ------ ------ ------ ---------- ------ ---------
Balance at June 30, 1996 ........ -- $ -- -- $ -- -- $ -- -- $ --
======= ======= ======= ======= ====== ========== ====== =========
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
---------- -----
COMMON STOCK PAID-IN TREASURY STOCK ACCUMULATED STOCKHOLDERS'
------------ ------- -------------- ----------- -------------
SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT EQUITY
------ ------ ------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 .............. 2,059,446 $ 20,594 88,951 -- $ -- (3,178,151) 3,884,912
Sale of common stock at $0.053 per
share ................................. 9,400 94 406 -- -- -- 500
Sale of common stock at $0.063 per
share and Series A preferred stock at
$99.81 per share ...................... 34,334 343 1,831 -- -- -- 148,000
Sale of common stock at $0.08 per
share and Series A preferred stock at
prices ranging from $147.95 to $148.41 364,147 3,642 25,413 -- -- -- 2,324,370
Sale of Series I convertible
preferred stock at $140.00 per share... -- -- -- -- -- -- 5,349,320
Net loss ............................. -- -- -- -- -- (5,945,861) (5,945,861)
--------- ------ ------- ---- ---- ---------- ----------
Balance at June 30, 1994 .............. 2,467,327 24,673 116,601 -- -- (9,124,012) 5,761,241
Purchase of treasury stock and
redemption of preferred
stock, at cost ........................ -- -- -- 37,637 (148,417) -- (168,652)
Dividends accrued on Series A
preferred stock ....................... -- -- -- -- -- (242,950) (242,950)
Sale of Series II convertible
preferred stock at $140
per share .......................... -- -- -- -- -- -- 6,810,481
Cancellation of Series B
convertible preferred stock ........... -- -- 2,111,503 -- -- -- --
Net loss .............................. -- -- -- -- -- (4,809,523) (4,809,523)
------- ----- --------- ------ -------- ------------ ----------
Balance at June 30, 1995 .............. 2,467,327 24,673 2,228,104 37,637 (148,417) (14,176,485) 7,350,597
Dividends accrued on Series A ......... -- -- -- -- -- (27,245) (27,245)
preferred stock
Conversion of preferred stock and
accrued dividends
to common stock..................... 2,316,257 23,163 19,669,734 -- -- -- 270,175
Sale of common stock .................. 4,248,500 42,485 55,927,969 -- -- -- 55,970,454
Exercise of stock options and
warrants .............................. 83,342 833 659,267 -- -- -- 660,100
Issuance of common stock in
connection with an acquisition......... 82,353 824 2,305,060 -- -- -- 2,305,884
Net loss .............................. -- -- -- -- -- (6,390,893) (6,390,893)
--------- ---------- ---------- ------ -------- ----------- -----------
Balance at June 30, 1996 .............. 9,197,779 $ 91,978 80,790,134 37,637 $(148,417) (20,594,623) 60,139,072
========= =========== ========== ====== ========= =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
IMNET SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30,
--------------------
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss .................................................................. $ (6,390,893) $(4,809,523) $(5,945,861)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment ................. 652,080 278,246 133,502
Amortization of computer software development costs, acquired
995,682 696,972 696,972
technology, and goodwill and other intangibles
Provision for doubtful accounts receivable .............................. 202,846 200,758 24,000
Non-recurring charges ................................................... 10,370,000 -- --
(Increase) decrease in:
Trade accounts receivable ............................................... (15,031,888) (2,642,762) (158,075)
Inventories ............................................................. (1,208,050) 116,913 110,913
Prepaid expenses and other current assets ............................... (569,611) (407,597) (66,813)
Increase (decrease) in:
Accounts payable ........................................................ (382,410) 1,123,543 (317,644)
Accrued expenses ........................................................ 208,863 112,021 400,015
Deferred revenue ........................................................ 304,640 (1,233,842) (178,725)
------- ---------- --------
Net cash used in operating activities ................................ (10,848,741) (6,565,271) (5,301,716)
----------- ---------- ----------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired .......................... (4,813,969) -- --
Issuance of notes receivable from officer ................................. -- -- (30,000)
Additions to property and equipment ....................................... (2,371,189) (827,031) (363,756)
Additions to computer software development costs .......................... (1,286,406) -- --
Purchases of marketable securities ........................................ (62,226,760) -- --
Maturities of marketable securities ....................................... 40,685,000 -- --
Additions to intangible assets ............................................ (155,204) -- --
Payments in connection with business alliance ............................. (1,200,000) -- --
---------- --------- ---------
Net cash used in investing activities ................................ (31,368,528) (827,031) (393,756)
----------- -------- ---------
Cash flows from financing activities:
Principal payments on obligations under capital leases .................... (3,847) (4,429) (7,435)
Proceeds from notes payable to stockholders ............................... -- 500,000 --
Proceeds from sale of common and preferred stock .......................... 56,410,370 6,310,481 7,622,190
Proceeds from exercise of stock options and warrants ...................... 549,099 -- --
Purchases of treasury stock and redemption of preferred stock ............. -- (168,652) --
--------- -------- -------
Net cash provided by financing activities ............................ 56,955,622 6,637,400 7,614,755
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents ................. 14,738,353 (754,902) 1,919,283
Cash and cash equivalents at beginning of year .............................. 1,346,446 2,101,348 182,065
--------- --------- -------
Cash and cash equivalents at end of year .................................... $ 16,084,799 $ 1,346,446 $ 2,101,348
============ =========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest .................................................... $ -- $ 15,497 $ 20,649
============ =========== ===========
Significant noncash transactions:
Noncash transfers from inventories to property and equipment ............ $ 365,756 $ 129,556 $ --
============ =========== ============
Noncash transfers from property and equipment to inventories ............ $ -- $ 43,185 $ --
============ =========== ============
Noncash transfer of trade accounts receivable to note receivable from
related party ......................................................... $ 2,910,876 $ -- $ --
============ =========== ===========
Exchange of notes payable to stockholders for preferred stock............. $ -- $ 500,000 $ 200,000
=========== =========== ===========
Conversion of preferred stock and accrued dividends to common stock ..... $ 19,692,897 $ -- $ --
============ ============ ============
Issuance of common stock in connection with an acquisition .............. $ 2,305,884 $ -- $ --
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
IMNET SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Business and Basis of Presentation
IMNET Systems, Inc. and subsidiaries (the Company) develop, market,
install, and service electronic information and document management systems to
meet the needs of the healthcare industry and other document-intensive
businesses. The Company's hardware and software systems electronically capture,
index, store and retrieve information which is resident on most storage media,
including magnetic disk, optical disk, microfilm, paper and x-ray film. The
Company sells systems to end-users and distributes systems through distribution
partners. Because of the Company's concentration of revenues and accounts
receivable with certain major customers and an increasing concentration of
revenues and accounts receivable in the healthcare industry, a decline in the
economic conditions or financial stability with respect to these major customers
or the healthcare industry could have a material adverse impact on the Company's
financial position and results of operations.
The accompanying consolidated financial statements of IMNET Systems, Inc.
and subsidiaries include the accounts of IMNET Systems, Inc. and its wholly
owned subsidiaries, Evergreen Technologies, Inc. and Quesix Software,
Incorporated. All significant intercompany accounts and transactions have been
eliminated in consolidation. Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
(b) Revenue Recognition and Deferred Revenue
The Company recognizes revenues derived from systems sales to end-user
customers, including 90% of software license fees and 100% of hardware revenues,
upon the factory acceptance by the customer and delivery of the configured
system. The Company defers recognition of 10% of the software license fees until
completion of certain insignificant vendor obligations primarily related to the
site acceptance by the customer.
Revenues derived from systems sales to distribution partners are recognized
upon delivery when the contract is between the Company and the distribution
partner, the payment terms are fixed with all amounts due within twelve months,
there are no other significant obligations to be performed by the Company and
provided that the distribution partner meets the Company's criteria with respect
to sell-through and credit risk. Revenues derived from systems sales to
distribution partners in which the contract is between the Company and the
customer (the end-user) of the distribution partner are recognized in accordance
with the Company's revenue recognition policy for end-user customers described
above.
Revenue recognition for systems sales to end-users that have been delivered
and accepted by the customer with contractual payment terms that extend beyond
one year is determined by the Company based upon the Company's historical
experience with the customer, the customer's credit worthiness, and an
assessment of the enforceability of the contract. All revenues recognized
related to contracts with payments due in more than one year are discounted at
the Company's incremental borrowing rate.
Revenues from professional services, which may include preparation of
functional specifications, customization and programming, systems integration,
and training, among others, are recognized as the services are performed.
Revenues derived from maintenance and support contracts are recognized ratably
over the terms of the related contracts.
Deferred revenues represent either billings rendered to or payments
received from customers for systems prior to factory acceptance and delivery and
maintenance and support services billed in advance.
(c) Cash and Cash Equivalents
The Company classifies all highly liquid investments with an original
maturity of three months or less as cash equivalents.
(d) Marketable Securities
The Company accounts for marketable securities in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (Statement 115). Under Statement 115, investments
in equity and debt securities are classified as held to maturity, trading, or
available for sale securities. Trading securities are reported at fair value,
with changes in fair value included in the statement of operations, while
available for sale securities are reported at fair value, with net unrealized
gains or losses included as a component of stockholders' equity. Held to
maturity securities are reported at amortized cost. Unrealized losses on all
securities that are other than temporary are reported in the statement of
operations upon determination that the loss is other than temporary.
Marketable securities include U.S. treasury bills and debt securities of
certain other U.S. government agencies and U.S. government sponsored
corporations with original maturities greater than 90 days and equal to or less
than one year.
Marketable securities are carried at amortized cost, held to maturity, and
are classified as current assets in the accompanying consolidated balance sheet.
Marketable securities are summarized as follows:
JUNE 30, 1996
-------------
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ----------- -------------
Marketable
Securities... $ 21,541,760 $ 92,221 $ (4,231) $ 21,629,750
Market values have been determined through information obtained from quoted
market sources.
(e) Inventories
Inventories consist of components and assemblies associated with the
manufacture of the Company's MegaSAR Microfilm Jukebox (the MegaSAR) and
personal computers and other computer equipment held for sale to customers.
Inventories are carried at the lower of cost (average cost method) or market
(net realizable value).
(f) Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization of property and equipment is
providing using the straight-line method over the estimated useful lives of the
assets as follows:
Leasehold improvements .......................... through January 1997
Computer software ............................... 3-5 years
Computer equipment .............................. 3-5 years
Machinery and equipment ......................... 5-7 years
Furniture and fixtures .......................... 7 years
Leasehold improvements are amortized using the straight-line method over
the estimated useful life of the improvement or the lease term, whichever is
shorter. Amortization of assets held under capital lease arrangements is
included in depreciation expense.
(g) Intangible Assets
Intangible assets include computer software development costs, acquired
technology, goodwill, and an intangible asset associated with customers acquired
in connection with the business alliance with HBO & Company (the HBOC Alliance)
(see note 3). The Company's policy with respect to the amortization of computer
software development costs is described in (h) below. The cost of acquired
technology results from the Company's acquisition of other businesses and is
amortized using the straight-line method over estimated useful lives of five
years. Goodwill has been recorded in connection with the Company's acquisition
of other businesses and is being amortized using the straight-line method over
seven years. The intangible asset associated with the HBOC alliance is being
amortized using the straight-line method over the life of the agreement (seven
years). The carrying values of all intangible assets are reviewed by the Company
for impairments which are recognized when the expected undiscounted future cash
flows derived from such intangible assets are less than their carrying values.
If the Company's review indicates a potential impairment, the Company uses fair
value in determining the amount that should be written off.
(h) Research and Development and Computer Software Development Costs
Research and development costs consist principally of compensation and
benefits paid to the Company's employees. All research and development costs are
expensed as incurred.
Computer software development costs consist principally of compensation and
benefits related to the development and modification of the Company's software
products and are capitalized in accordance with the provisions of Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed." Capitalization of such
costs begins upon the establishment of technological feasibility for the product
or enhancement which is defined by the Company as completion of a detailed
program design and ends when the resulting product or enhancement is available
for use by customers.
Amortization of computer software development costs is provided by the
Company on individual products or enhancements and begins when the product or
enhancement is available for use by customers. Amortization is recorded using
the greater of: (1) the amount computed using the ratio of current product
revenue to the total of current and anticipated product revenue or (2) the
amount determined using the straight-line method over the estimated useful life
of the software, not to exceed three years. Amortization of computer software
development costs is included in cost of systems sales in the accompanying
consolidated statements of operations.
(i) Income Taxes
The Company uses the asset and liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (Statement 109). Under the asset and liability
method of Statement 109, deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and net operating loss and tax credit carryforwards.
Deferred income tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred income tax assets and liabilities of a change in tax rates is
recognized in the consolidated statement of operations in the period that
includes the enactment date.
(j) Net Loss Per Common Share and Common Share Equivalent
Net loss per common share and common share equivalent has been computed
based upon the weighted average number of common shares and common share
equivalents outstanding during each period. Common share equivalents recognize
the dilutive effects of the conversion of preferred stock and accrued dividends
to common stock prior to their conversion and of outstanding options and
warrants to acquire common stock. The Company has used the initial public
offering price of $12.00 per common share for all periods prior to the
completion of the offering for purposes of computing the potential dilutive
effects of common share equivalents. Pursuant to the rules of the Securities and
Exchange Commission, common and common equivalent shares issued in the 12 months
prior to the Company's initial public offering have been included in the
computation of common and common equivalent shares as if they were outstanding
for all periods prior to the Company's initial public offering, including loss
years where the impact of the incremental shares is antidilutive. All other
common stock equivalents including the effect of outstanding options after the
Company's initial public offering have been excluded from the computations
because their impact on the Company's net loss per share is antidilutive.
(k) Fair Value of Financial Instruments
The Company uses financial instruments in the normal course of its
business. The carrying values of cash equivalents, accounts and notes
receivable, obligations under capital leases, accounts payable, accrued expenses
and deferred revenues approximate fair values due to the short-term maturities
of these assets and liabilities. The fair value of the Company's investment in
marketable securities is disclosed in (d) above.
(l) Recent Accounting Pronouncement
On October 23, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (Statement 123). Statement 123 allows companies to retain the
current approach set forth in APB Opinion No. 25 "Accounting for Stock Issued to
Employees" (APB Opinion No. 25) for recognizing stock-based expense in their
financial statements in lieu of the new accounting method prescribed by
Statement 123 based on the estimated fair value of employee stock options.
Companies that do not follow the new fair value based method will be required to
provide expanded footnote disclosures. The provisions of Statement 123 are
effective for fiscal years beginning after December 15, 1995. However,
disclosure of the pro forma net income and earnings per share, as if the fair
value method of accounting for stock-based compensation had been elected, is
required for all awards granted in fiscal years beginning after December 15,
1994.
The Company intends to continue accounting for stock related compensation
using APB Opinion No. 25 and will provide the expanded footnote disclosures
required under Statement 123 beginning with its consolidated financial
statements for the year ending June 30, 1997.
(m) Reclassifications
Certain reclassifications have been made to the June 30, 1995 and 1994
financial statements to conform with presentations adopted as of and for the
year ended June 30, 1996.
(2) ACQUISITIONS
On November 3, 1995, the Company acquired all of the common stock of
Evergreen Technologies, Inc. (Evergreen) in a merger with a wholly owned
subsidiary of the Company for $1,282,000 in cash and acquisition costs and the
issuance of 82,353 shares of the Company's common stock with a market value of
$2,306,000. The Company recorded the acquisition using the purchase method of
accounting with $2,940,000 of the purchase price allocated to in-process
research and development and charged to the consolidated statement of operations
in November 1995 and $546,000 and $102,000 allocated to goodwill and acquired
technology, respectively. The results of operations of Evergreen have been
included in the Company's consolidated statement of operations since the
effective date of the acquisition.
On December 14, 1995, the Company acquired all of the common stock of
Quesix Software, Incorporated (Quesix) in a merger with a wholly owned
subsidiary of the Company for $4,188,000 in cash and acquisition costs. The
Company recorded the acquisition using the purchase method of accounting with
$2,800,000 of the purchase price allocated to in-process research and
development and charged to the consolidated statement of operations in December
1995 and $1,388,000 of the purchase price allocated to goodwill. The results of
operations of Quesix have been included in the Company's consolidated statement
of operations since the effective date of the acquisition.
The unaudited pro forma consolidated results of operations of the Company
for the years ended June 30, 1996 and 1995 are summarized below as if the
acquisitions described above had occurred on July 1, 1995 and 1994,
respectively:
FOR THE YEARS ENDED
-------------------
JUNE 30,
--------
1996 1995
---- ----
(amounts in thousands,
except per share data)
Total revenues ............................... $ 27,161 $ 9,730
======== ========
Net loss ..................................... $ (6,651) $ (5,647)
======== ========
Net loss per common share
and common share equivalent ................. $ (0.79) $ (1.13)
======== ========
Weighted average outstanding
common shares and common share
equivalents .............................. 8,378 4,983
===== =====
The unaudited pro forma consolidated results of operations included above
do not necessarily represent results which would have occurred if the
acquisitions had taken place on the dates indicated nor are they necessarily
indicative of the results of future operations.
(3) BUSINESS ALLIANCE WITH HBO & COMPANY
In March 1996, the Company signed agreements with HBO & Company (HBOC),
forming a business alliance whereby HBOC will distribute the Company's products
on a private label basis and HBOC has agreed to certain noncompete provisions
with respect to the Company's products. As part of these agreements, the Company
also assumed certain customer support and conversion obligations with respect to
HBOC customers currently using HBOC's First Perspective product line. The
Company has accrued $3.0 million to reflect its estimate of the cost of
converting the First Perspective customers to the Company's products. The HBOC
alliance provides for a seven year term and five equal payments to HBOC totaling
$3.0 million, beginning upon execution of the agreements through March 1997.
Payments of $600,000 were made to HBOC by the Company in March and June 1996.
The Company recorded a non-recurring charge of $4.6 million to the Company's
consolidated statement of operations and capitalized the remaining $1.4 million
as an intangible asset related to the Company's valuation of the margin on the
maintenance and support revenues expected from the First Perspective customers.
The Company has classified the remaining obligation to HBOC of $1.8 million in
cash and the $2.8 million in estimated conversion costs, net of conversion costs
incurred through June 30, 1996, in accrued expenses in the accompanying June 30,
1996 consolidated balance sheet.
(4) INVENTORIES
Inventories are summarized as follows:
JUNE 30,
--------
1996 1995
---- ----
Finished goods, including computer
equipment and parts held for resale.................. $ 650,015 $ 150,223
Work in progress .................................... 380,315 248,292
Raw materials ....................................... 985,004 774,525
---------- ---------
$ 2,015,334 $1,173,040
=========== ==========
(5) PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
JUNE 30,
--------
1996 1995
---- ----
Leasehold improvements ............................. $ 152,659 $ 146,838
Computer software .................................. 254,915 256,276
Computer equipment ................................. 2,625,603 914,073
Machinery and equipment ............................ 331,129 129,861
Furniture and fixtures ............................. 933,613 452,356
------- -------
4,297,919 1,899,404
Less accumulated depreciation and amortization ..... 1,041,710 462,668
--------- -------
$3,256,209 $1,436,736
========== ==========
(6) ACCRUED EXPENSES
Components of accrued expenses are summarized as follows:
JUNE 30,
--------
1996 1995
---- ----
Employee vacations ............................... $ 238,827 $255,534
Salaries and wages ............................... 1,290,940 468,282
Obligations under the HBOC alliance, net ......... 4,587,983 --
Rent ............................................. 124,097 125,541
Other ............................................ 110,458 73,085
------- ------
$6,352,305 $922,442
========== ========
(7) INCOME TAXES
The Company has not recorded any income tax expense (benefit) during the
years ended June 30, 1996, 1995, and 1994 because of operating losses incurred
since inception. As a result, the effective income tax rate is different from
amounts computed by applying the statutory U.S. Federal income tax rate of 34%
to loss before income taxes because of the Company's provision for a valuation
allowance on substantially all deferred income tax assets.
The tax effects of temporary differences that give rise to the Company's
deferred income tax assets and liabilities are presented below.
<TABLE>
<CAPTION>
JUNE 30,
--------
1996 1995
---- ----
Deferred income tax assets:
<S> <C> <C>
Accounts receivable, due to allowance for doubtful accounts ... $ 107,753 $ 24,587
Net operating loss carryforwards .............................. 3,675,395 5,132,017
Non-recurring charges ......................................... 1,805,700 --
Acquired technology, due to differences in amortization ....... 253,778 101,667
Research and experimentation credit carryforwards ............. 184,799 184,799
Accrued employee vacations .................................... 93,143 99,659
Other ......................................................... 370,356 117,126
------- -------
Total deferred income tax assets ........................... 6,490,924 5,659,855
Less valuation allowance ...................................... 5,849,547 5,576,588
--------- ---------
Net deferred income tax assets ............................. 641,377 83,267
------- ------
Deferred income tax liabilities - property and equipment, due to
differences in depreciation and amortization of
computer software development costs ........................ (641,377) (83,267)
-------- -------
Net deferred income tax assets (liabilities)..................... $ -- $ --
====== ==========
</TABLE>
The net change in the valuation allowance for the years ended June 30,
1996, 1995, and 1994 was an increase of $272,959, $2,267,847, and $2,393,724,
respectively. Under Statement 109, deferred income tax assets and liabilities
are recognized for differences between the financial statement carrying amounts
and the tax bases of assets and liabilities which will result in future
deductible or taxable amounts and for net operating loss and research and
experimentation credit carryforwards. A valuation allowance is then established
to reduce the deferred income tax assets to the level at which it is "more
likely than not" that the tax benefits will be realized. Realization of tax
benefits of deductible temporary differences and operating loss and tax credit
carryforwards depends on having sufficient taxable income within the carryback
and carryforward periods. Sources of taxable income that may allow for the
realization of tax benefits include: (1) taxable income in the current year or
prior years that is available through carryback, (2) future taxable income that
will result from the reversal of existing taxable temporary differences and (3)
taxable income generated by future operations. In order to fully realize its
deferred income tax assets at June 30, 1996, the Company will need to generate
future taxable income of approximately $16.6 million prior to the expiration of
the Company's net operating loss and tax credit carryforwards. Because of the
uncertainties with respect to the Company's ability to generate taxable income
in the future sufficient to realize the benefits of the Company's deferred
income tax assets, the Company has provided a valuation allowance against
substantially all of its deferred income tax assets at June 30, 1996 and 1995.
As of June 30, 1996, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $9.4 million and research and
experimentation credit carryforwards of approximately $185,000 which are
available to offset future Federal taxable income. The carryforwards expire
beginning in 2008 through 2010. The expiration of the Company's net operating
loss and research and experimentation credit carryforwards by year is summarized
as follows:
RESEARCH AND
NET OPERATING EXPERIMENTATION CREDIT FISCAL YEAR
LOSS CARRYFORWARDS CARRYFORWARDS OF EXPIRATION
------------------ ------------- -------------
$ -- $ 26,000 2008
4,800,000 70,000 2009
4,600,000 89,000 2010
--------- ------
$ 9,400,000 $ 185,000
========== =======
The amount of net operating loss and research and experimentation credit
carryforwards that the Company may use to offset taxable income in future years
is limited as a result of an ownership change, as defined, under Internal
Revenue Code Section 382 (section 382), which occurred effective with the
completion of the Company's initial public offering in July 1995. The Company's
annual Section 382 limitation on the amount of taxable income that can be offset
in the future by net operating loss and research and experimentation credit
carryforwards is approximately $3,396,000.
(8) STOCKHOLDERS' EQUITY
(a) Initial Public Offering
In July 1995, the Company completed an initial public offering of its
common stock. The Company sold 3,450,000 shares at $12.00 per share, which
resulted in proceeds to the Company of $37.5 million, net of underwriting
discounts and offering costs.
(b) Conversion of Preferred Stock and Accrued Dividends to Common Stock
In connection with the completion of the offering described in (a) above,
all of the Company's Series A, Series I, and Series II preferred stock,
including accrued dividends on the Series A preferred stock of $270,175, were
converted to shares of the Company's common stock. As a result of this
conversion, the Company issued 606,904, 714,332, and 972,507 shares of common
stock to these preferred shareholders, respectively, and issued 22,514 shares of
common stock in lieu of payment of accrued dividends on the Series A preferred
stock. Also in connection with the same offering, warrants to acquire 39,168
shares of the Company's common stock were exercised resulting in $250,008 in
proceeds to the Company.
(c) Secondary Offering
In February 1996, the Company completed a secondary offering of 798,500
shares of common stock at a price of $25.50, which resulted in proceeds to the
Company of $18.5 million, net of underwriting discounts and offering costs.
(9) EMPLOYEE BENEFIT PLANS
(a) Stock Option Plans
The Company has an Employee Stock Option and Rights Plan and a Non-Employee
Directors Stock Option Plan (the Stock Option Plans) for the benefit of key
employees and advisors. The Stock Option Plans provide for 940,000 and 94,000
shares of common stock, respectively, to be reserved for future issuance.
The Stock Option Plans provide for the grant of incentive stock options,
nonqualified stock options, and stock appreciation rights to key employees and
advisors. The option price and other terms of such grants shall be determined by
a Committee of the Board of Directors (the Committee), subject to the terms of
the Stock Option Plans.
A summary of activity in outstanding stock options under the Stock Option Plans
is as follows:
OUTSTANDING OPTION PRICE
OPTIONS PER SHARE
------- ---------
Options outstanding at June 30, 1993 .... -- --
Options granted ......................... 255,178 $ 6.38
Options canceled ........................ -- --
Options exercised ....................... -- --
-------- --------
Options outstanding at June 30, 1994 .... 255,178 6.38
Options granted ......................... 397,831 7.45
Options canceled ........................ (116,348) 6.38-7.45
Options exercised ....................... -- --
------- ---------
Options outstanding at June 30, 1995 .... 536,661 6.38-7.45
Options granted ......................... 433,104 12.00-21.25
Options canceled ........................ (18,780) 6.38-7.45
Options exercised ....................... (44,174) 6.38-7.45
------- ---------
Options outstanding at June 30, 1996 .... 906,811 $6.38-21.25
======= ===========
Options exercisable at June 30, 1996 ..... 108,967 $6.38-7.45
======= ==========
Options available for grant at
June 30, 1996 under the terms of the
Stock Option Plans .................... 83,015
======
(b) Retirement Plan
The Company maintains a defined contribution savings plan (the IMNET
Systems, Inc. Retirement Savings Plan or the Plan) for the benefit of all
eligible employees. The Plan is intended to qualify under Section 401(k) of the
Internal Revenue Code of 1986 (the Code), as amended. Employees may participate
in the Plan at any time following their date of employment and can elect to
contribute a portion of their annual earnings (subject to an annual limit
specified in the Code) to the Plan on a pretax basis. The Company has not made
any matching or other contributions to the Plan through June 30, 1996.
(10) RELATED PARTY TRANSACTIONS
The Company believes the terms and conditions of the related party
transactions described below are comparable to those which could have been
obtained in transactions with unaffiliated parties.
(a) Notes Receivable from Officer
The Company has advanced funds to its chairman and chief executive officer
in exchange for two promissory notes receivable, as amended, in the amounts of
$75,000 and $30,000 dated October 5, 1992 and January 31, 1994, respectively.
The $75,000 note is without interest for two years from the date of issuance,
bears interest at a rate of 10% per annum thereafter, and is due on September
30, 1997. The $30,000 note bears interest from the date of issuance at a rate of
10% per annum and is due on September 30, 1997. Repayment of the principal and
accrued interest due under the notes shall be from bonuses earned under an
employment agreement.
(b) Notes Payable to Stockholders
During the year ended June 30, 1994, the Company exchanged shares of the
Company's Series A preferred stock for $200,000 in notes payable to certain
stockholders, which originated during the year ended June 30, 1993. During the
year ended June 30, 1995, the Company received advances under notes payable to
certain stockholders in the amount of $500,000 bearing interest at a rate of
8.5% per annum. On January 13, 1995, in connection with the sale of Series II
convertible preferred stock, the stockholders exchanged their notes for the
issuance of Series II convertible preferred stock.
(c) Distribution Agreement with and Grant of Manufacturing and Distribution
Rights to Stockholder
(i) Distribution Agreement
In March 1993, the Company entered into a distribution agreement with
SoftNet Systems, Inc. or its affiliated or predecessor companies (SoftNet).
SoftNet is a related party and founding investor/stockholder of the Company and
two officers and directors of SoftNet are on the Company's Board of Directors.
In June 1995, the distribution agreement was amended to provide for a commitment
by SoftNet to take delivery of hardware and software from the Company totaling
approximately $2.0 million no later than June 30, 1996. During the year ended
June 30, 1995, the Company delivered software to SoftNet under the distribution
agreement and recognized revenue of $485,000, which was included in accounts
receivable at June 30, 1995. This amount was paid in full by SoftNet in February
1996.
On June 30, 1996, the distribution agreement was amended a second time to
change the terms of the original $2.0 million commitment for hardware and
software to a $2.0 million commitment for software. Also in June 1996, the
Company delivered the remaining software associated with this commitment of
$1,515,000 and recognized revenue of the same amount, which was converted into
the note receivable from related party at June 30, 1996 (see (iii) below).
During the year ended June 30, 1996, the Company also provided services to
SoftNet beyond the terms of the distribution agreement described above which
resulted in additional revenues to the Company of approximately $335,000, which
was also converted to the note receivable from related party at June 30, 1996
(see (iii) below).
(ii) Grant of Manufacturing and Distribution Rights
On June 30, 1996, the Company entered into certain agreements with SoftNet
and an affiliated company, which provided for the grant of exclusive worldwide
manufacturing rights and nonexclusive distribution rights with respect to
markets other than healthcare, as defined, for the MegaSAR, the Company's
proprietary microfilm storage device. The terms of the agreements included an
obligation by SoftNet to pay the Company nonrefundable advance license fees of
$1,000,000, representing the license fees for the first 250 manufactured units.
These nonrefundable advance license fees were recognized as revenue by the
Company in the year ended June 30, 1996 and included in the note receivable from
related party at June 30, 1996 (See (iii) below). The terms of the agreements
also provided for SoftNet to pay the Company a fixed license fee per unit for
all units manufactured, and a provision for SoftNet to purchase, at carrying
value, the Company's remaining raw materials inventories on an as needed basis.
(iii) Note Receivable from SoftNet
Simultaneous with the execution of the manufacturing and distribution
rights agreements and the second amendment to the distribution agreement
described above under (i), the Company converted all amounts due from SoftNet
into a secured note receivable from SoftNet bearing interest at the prime rate
plus 2%, due upon the earlier of: (1) the sale of IMNET common stock owned by
SoftNet or (2) June 29, 1997. The note receivable was fully secured at June 30,
1996 by 112,913 shares of IMNET common stock owned by SoftNet and held as
collateral by the Company (see note 13(b)).
(11) MAJOR CUSTOMERS AND INTERNATIONAL SALES
(a) Major Customers
For the year ended June 30, 1996, two customers accounted for approximately
35% of total revenues (SoftNet, as described in note 10 above, was one of these
two major customers). In the year ended June 30, 1995, four customers accounted
for approximately 54% of total revenues. In the year ended June 30, 1994, two
customers accounted for approximately 42% of total revenues.
Total receivables outstanding from these major customers were $6,842,000
and $2,715,000 at June 30, 1996 and 1995, respectively.
(b) International Sales
International sales are summarized as follows:
YEAR ENDED JUNE 30,
- - -------------------
1996.................................. $2,301,729
=========
1995.................................. $1,712,996
=========
1994.................................. $1,057,053
=========
(12) COMMITMENTS AND CONTINGENCIES
(a) Leases
The Company currently leases its main office space through 1999 and
recently committed to lease a new office facility that the Company plans to
occupy beginning in January 1997. These operating lease agreements are
noncancelable and require the Company to make payments through January 2007.
Rental expense from noncancelable operating leases and all other cancelable
operating leases for the years ended June 30, 1996, 1995, and 1994 was
approximately $509,000, $277,000, and $163,000, respectively.
Future minimum lease payments under all noncancelable operating lease
agreements with original terms in excess of one year in the aggregate and for
the next five years are summarized as follows:
YEAR ENDING JUNE 30,
1997.................................................. $ 1,309,000
1998.................................................. 2,096,000
1999.................................................. 1,917,000
2000.................................................. 1,530,000
2001.................................................. 1,530,000
Thereafter............................................ 9,270,000
---------
Total future minimum lease payments............... $ 17,652,000
==========
(b) Contractual Commitments
The Company enters agreements with customers in the ordinary course of
business which contain certain contractual commitments. The Company believes
that all such contractual commitments will be satisfied or renegotiated and no
material adverse financial impact will result from the Company's failure to meet
any of these commitments.
(c) Contingencies
The Company is subject to lawsuits, claims and other complaints arising out
of the ordinary conduct of its business. In the opinion of management, based in
part upon the advice of legal counsel, all matters are adequately covered by
insurance or, if not covered, are without merit or are of such kind or involve
such amounts as would not have a material effect on the financial position or
results of operations of the Company if disposed of unfavorably.
(13) SUBSEQUENT EVENTS
(a) Pending Acquisition
On August 12, 1996, the Company entered into a letter of intent to acquire
Hunter International, Inc. (Hunter), a privately held software company which
provides electronic report management and distribution software solutions,
primarily to the healthcare and financial services industries. The transaction
is subject to a number of conditions, including satisfactory completion of due
diligence and the execution of a definitive merger agreement. The Company
expects to issue up to 472,224 shares of common stock in the period ended
September 30, 1996, valued at approximately $8.5 million, and to account for the
transaction as a pooling of interests.
(b) Payment Received Under Note Receivable from Related Party
On September 24, 1996, the Company received a $2.5 million cash payment on
the $2.9 million note receivable from SoftNet described under note 10(c)(iii)
above and released the collateral that the Company held under the note.
(c) Patent Contingency
On August 15, 1996, the Company received notification from a competitor
alleging patent infringement. The Company has referred the matter to its patent
counsel for review. At the present time, the Company is unable to predict the
outcome of this matter.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The response to Item 10, applicable to the Directors of the Company, is
incorporated herein by reference to the Company's Proxy Statement for the Annual
Meeting of Stockholders. Information concerning executive officers is included
in Part I, Item 4A. of this Form 10-K.
Based solely on its review of copies of forms received by it pursuant to
Section 16(a) of the Securities Exchange Act of 1934, as amended, or written
representations from certain reporting persons, the Company believes that with
respect to fiscal year 1996, all Section 16(a) filing requirements applicable to
its executive officers, directors and greater than 10% beneficial owners were
complied with, except that (i) Mr. Collins filed one report on Form 5 with
respect to two late transactions, one option grant and one other late
transaction; (ii) Mr. Ulatowski filed one report on Form 5 disclosing one
late transaction; and (iii) Mr. Ulatowski filed one report on Form 5
disclosing one late transaction.
ITEM 11. EXECUTIVE COMPENSATION.
The response to Item 11 is incorporated herein by reference to the
Company's Proxy Statement for the 1996 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The response to Item 12 is incorporated herein by reference to the
Company's Proxy Statement for the 1996 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The response to Item 13 is incorporated herein by reference to the
information set forth under the captions "Management -- Compensation Committee
Interlocks and Insider Participation" and "Executive Compensation -- Certain
Transactions" in the Proxy Statement for the 1996 Annual Meeting of
Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
The following are filed as part of this report:
(a) 1. Consolidated Financial Statements
The following consolidated financial statements are filed herewith:
Independent Auditors' Report.
Consolidated Balance Sheets at June 30, 1996 and 1995.
Consolidated Statements of Operations for each of the years in the
three-year period ended June 30, 1996.
Consolidated Statements of Stockholders' Equity for each of the years in
the three-year period ended June 30, 1996.
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended June 30, 1996.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedule
Independent Auditors' Report on Schedule
Schedule II - Valuation and Qualifying Accounts
All other financial statements and schedules not listed above are omitted, as
the required information is not applicable or the information is presented in
the consolidated financial statements or related notes.
3. A. Exhibits
The following exhibits are filed herewith or incorporated herein by reference:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
2.1***** The Agreement and Plan of Merger dated as of
October 27, 1995 among the Registrant,
Evergreen Technologies, Inc., Jeffrey Siegel
and Karen Siegel is incorporated herein by
reference to the Exhibit with the same
number filed with the Registrant's Form 8-K
for November 3, 1995, filed on November 20,
1995.
2.2***** Agreement and Plan of Merger by and among
the Registrant, Quesix Software,
Incorporated, IMNET California Acquisition
Corporation, Leslie H. Wong and Martin
Minjoe, dated as of November 28, 1995.
3.2.2* Amended and Restated Certificate of
Incorporation of Registrant.
3.3.1** Amended and Restated Bylaws dated September
10, 1996.
4* Form of Common Stock certificate.
10.1* Office Lease between Brannen/Goddard
Company, as manager for Metropolitan Life
Insurance Company, d/b/a Northridge Business
Park, and the Registrant, dated July 2,
1992, as amended January 14, 1993, October
11, 1993, June 10, 1994 and August 26, 1994.
10.1.2*** Office Building Lease between U.S. Property
Investment Fund, L.P. and IMNET Systems,
Inc. dated August 8, 1995.
10.3.1***** Amended and Restated Registration Agreement
by an among the Registrant and certain
stockholders of the Registrant, dated as of
May 22, 1992.
10.3.2* First Amendment to Amended and Restated
Registration Agreement by and among the
Registrant and certain stockholders of the
Registrant, dated as of March 31, 1993.
10.3.3* Second Amendment to Amended and Restated
Registration Agreement by and among the
Registrant and certain stockholders of the
Registrant, dated as of October 18, 1993.
10.3.4* Third Amendment to Amended and Restated
Registration Agreement by and among the
Registrant and certain stockholders of the
Registrant, dated as of January 13, 1995.
10.5* Employee Stock Option and Rights Plan.
10.6* 1995 Non-Employee Directors Stock Option
Plan.
10.7.1* Form of Incentive Stock Option Agreement
used by Registrant in 1994 in connection
with the Employee Stock Option Rights Plan.
10.7.2* Form of Incentive Stock Option Agreement
used by Registrant in 1995 in connection
with the Employee Stock Option and Rights
Plan.
10.7.3***** Form of Incentive Stock Option Agreement
used by Registrant in 1996 in connection
with the Employee Stock Option and Rights
Plan.
10.8* Form of Indemnification Agreement.
10.9* Employment Agreement between the Registrant
and Kenneth D. Rardin, dated May 22, 1992,
as amended pursuant to an Addendum dated as
of January 1, 1995.
10.9.1** Second Addendum to Employment Agreement
between the Registrant and Kenneth D.
Rardin, dated as of September 15, 1996.
10.10.1* Incentive Stock Option Agreement between the
Registrant and Kenneth D. Rardin, dated as
of February 14, 1995.
10.10.2* Incentive Stock Option Agreement between the
Registrant and Gary D. Bowers dated February
14, 1995.
10.10.3* Incentive Stock Option Agreement between the
Registrant and Evans C. Pappas dated
February 14, 1995.
10.10.4* Incentive Stock Option Agreement between the
Registrant and Paul Collins dated April 19,
1995.
10.10.5* Incentive Stock Option Agreement between the
Registrant and Kenneth R. Brown dated April
19, 1995.
10.11* Promissory Note from Kenneth D. Rardin in
favor of the Registrant, dated October 5,
1992.
10.12* Promissory Note from Kenneth D. Rardin in
favor of the Registrant, dated January 31,
1994.
10.12.1** Form of Amendment to Promissory Notes from
Kenneth D. Rardin in favor of the
Registrant.
10.13* Substitute Revolving Note from the
Registrant in favor of LaSalle National
Bank, dated May 1, 1995.
10.14* Security Agreement between the Registrant
and LaSalle National Bank, dated February
10, 1994, as amended as of May 1, 1995.
10.18* Distributor Agreement between the Registrant
and JELCO Data Services, Inc., dated March
29, 1993.
10.19* International Distribution Agreement between
the Registrant and SG2, dated September 20,
1993.
10.20* Value-Added Reseller Agreement between the
Registrant and Cerner Corporation, dated
September 30, 1994.
10.21* Distribution Agreement between the
Registrant and IDX Systems Corporation,
dated February 15, 1995.
10.22* Distribution Agreement between the
Registrant and PHAMIS, Inc., dated November
16, 1994.
10.23* International Distributor Agreement between
the Registrant and Software AG Germany,
dated April 10, 1993.
10.25* Distribution Agreement between the
Registrant and Integrated Medical Systems,
Inc., dated April 28, 1995.
10.26* Amendment to Distributor Agreement between
the Registrant and SoftNet Systems, Inc.,
dated June 20, 1995.
10.27***** Distribution Agreement between the
Registrant and AdviSoft Consulting, dated
August 17, 1995.
10.28***** Distribution Agreement between the
Registrant and Datacom Imaging Systems, Inc.
dated as of March 29, 1995.
10.29***** Non-Qualified Stock Option Agreement between
the Registrant and John J. McDonough dated
July 28, 1995.
10.30***** End-user Equipment Purchase and Software
License Terms and Conditions between the
Registrant and McLaren Health Care
Corporation dated February 10, 199, as
amended.
10.31***** Distribution Agreement between the
Registrant and Quesix Software, Incorporated
dated as of June 18, 1995.
10.32***** Employment Agreement between the Registrant
and Raymond L. Brown dated as of November
17, 1995.
10.33***** Incentive Stock Option Agreement between
Registrant and Raymond L. Brown, dated as of
December 1, 1995.
10.34***** Letter of Intent dated January 16, 1996
between the Registrant and HBO & Company,
Inc.
10.35**+ Manufacturing and Distribution License
Agreement between Registrant, SoftNet
Systems, Inc. and Micrographic Technology
Corporation dated as of June 30, 1996.
11** Statement re: Computation of Per Share
Earnings.
21** Subsidiaries of the Registrant.
23** Consent of KPMG Peat Marwick LLP
27** Financial Data Schedule
* Incorporated by reference to the Exhibit
with the same number in the registrant's
Registration Statement on Form S-1 (No. 33-
92130).
** Filed with this Form 10-K.
*** Incorporated by reference to the same
Exhibit number in the Registrant's Annual
Report on Form 10-K for the year ended June
30, 1995.
**** Incorporated by reference to the same
Exhibit number in the Registrant's report on
Form 10-Q for the three months ended
September 30, 1995.
***** Incorporated by reference to the same
Exhibit number in the Registrant's report on
Form S-1 (No. 33-99846).
+ The Company has applied for confidential
treatment of portions of this Agreement.
Accordingly, portions thereof have been
omitted and filed separately.
</TABLE>
3. B. Executive Compensation Plans and Arrangements.
1. Employee Stock Option and Rights Plan (Exhibit 10.5 hereof, and of the
Company's Registration Statement on Form S-1 (No. 33-92130)).
2. Form of Incentive Stock Option Agreement used by Registrant in 1994 in
connection with the Employee Stock Option and Rights Plan (Exhibit
10.7.1 hereof, and of the Company's Registration Statement on Form S-1
(No. 33-92130)).
3. Form of Incentive Stock Option Agreement used by Registrant in 1995 in
connection with the Employee Stock Option and Rights Plan (Exhibit
10.7.2 hereof, and of the Company's Registration Statement on Form S-1
(No. 33-92130)).
4. Form of Indemnification Agreement (Exhibit 10.8 hereof, and of the
Company's Registration Statement on Form S-1 (No. 33-92130)).
5. Employment Agreement between the Registrant and Kenneth D. Rardin,
dated May 22, 1992, as amended pursuant to an Addendum dated as of
January 1, 1995 (Exhibit 10.9 hereof, and of the Company's
Registration Statement on Form S-1 (No. 33-92130)).
6. Incentive Stock Option Agreement between the Registrant and Kenneth D.
Rardin, dated as of February 14, 1995 (Exhibit 10.10.1 hereof, and of
the Company's Registration Statement on Form S-1 (No. 33-92130)).
7. Incentive Stock Option Agreement between the Registrant and Gary D.
Bowers dated February 14, 1995 (Exhibit 10.10.2 hereof, and of the
Company's Registration Statement on Form S-1 (No. 33-92130)).
8. Incentive Stock Option Agreement between the Registrant and Evans C.
Pappas dated February 14, 1995 (Exhibit 10.10.3 hereof, and of the
Company's Registration Statement on Form S-1 (No. 33-92130)).
9. Incentive Stock Option Agreement between the Registrant and Paul
Collins dated April 19, 1995 (Exhibit 10.10.4 hereof, and of the
Company's Registration Statement on Form S-1 (No. 33-92130)).
10. Incentive Stock Option Agreement between the Registrant and Kenneth R.
Brown dated April 19, 1995 (Exhibit 10.10.5 hereof, and of the
Company's Registration Statement on Form S-1 (No. 33-92130)).
(b) Reports on Form 8-K
The Registrant did not file a report on Form 8-K during the fourth quarter of
the recently completed fiscal year.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IMNET SYSTEMS, INC.
Kenneth D. Rardin
September 27, 1996 By:-------------------------------------
Kenneth D. Rardin, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
Kenneth D. Rardin Chairman of the Board and September 27, 1996
- - ------------------- Chief Executive Officer
Kenneth D. Rardin (Principal Executive Officer)
Raymond L. Brown
- - ------------------- Senior Vice President and Chief September 27, 1996
Raymond L. Brown Financial Officer (Principal
Financial & Accounting Officer)
James A. Gilbert
------------------- Director September 27, 1996
James A. Gilbert
Daniel P. Howell
- - ------------------- Director September 27, 1996
Daniel P. Howell
James A. Gordon
- - ------------------- Director September 27, 1996
James A. Gordon
IMNET SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page No.
--------
Independent Auditors' Report on Schedule 63
Schedule II - Valuation and Qualifying Accounts 64
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
2.1***** The Agreement and Plan of Merger dated as of
October 27, 1995 among the Registrant,
Evergreen Technologies, Inc., Jeffrey Siegel
and Karen Siegel is incorporated herein by
reference to the Exhibit with the same
number filed with the Registrant's Form 8-K
for November 3, 1995, filed on November 20,
1995.
2.2***** Agreement and Plan of Merger by and among
the Registrant, Quesix Software,
Incorporated, IMNET California Acquisition
Corporation, Leslie H. Wong and Martin
Minjoe, dated as of November 28, 1995.
3.2.2* Amended and Restated Certificate of
Incorporation of Registrant.
3.3.1** Amended and Restated Bylaws dated September
10, 1996.
4* Form of Common Stock certificate.
10.1* Office Lease between Brannen/Goddard
Company, as manager for Metropolitan Life
Insurance Company, d/b/a Northridge Business
Park, and the Registrant, dated July 2,
1992, as amended January 14, 1993, October
11, 1993, June 10, 1994 and August 26, 1994.
10.1.2*** Office Building Lease between U.S. Property
Investment Fund, L.P. and IMNET Systems,
Inc. dated August 8, 1995.
10.3.1***** Amended and Restated Registration Agreement
by an among the Registrant and certain
stockholders of the Registrant, dated as of
May 22, 1992.
10.3.2* First Amendment to Amended and Restated
Registration Agreement by and among the
Registrant and certain stockholders of the
Registrant, dated as of March 31, 1993.
10.3.3* Second Amendment to Amended and Restated
Registration Agreement by and among the
Registrant and certain stockholders of the
Registrant, dated as of October 18, 1993.
10.3.4* Third Amendment to Amended and Restated
Registration Agreement by and among the
Registrant and certain stockholders of the
Registrant, dated as of January 13, 1995.
10.5* Employee Stock Option and Rights Plan.
10.6* 1995 Non-Employee Directors Stock Option
Plan.
10.7.1* Form of Incentive Stock Option Agreement
used by Registrant in 1994 in connection
with the Employee Stock Option Rights Plan.
10.7.2* Form of Incentive Stock Option Agreement
used by Registrant in 1995 in connection
with the Employee Stock Option and Rights
Plan.
10.7.3***** Form of Incentive Stock Option Agreement
used by Registrant in 1996 in connection
with the Employee Stock Option and Rights
Plan.
10.8* Form of Indemnification Agreement.
10.9* Employment Agreement between the Registrant
and Kenneth D. Rardin, dated May 22, 1992,
as amended pursuant to an Addendum dated as
of January 1, 1995.
10.9.1** Second Addendum to Employment Agreement
between the Registrant and Kenneth D.
Rardin, dated as of September 15, 1996.
10.10.1* Incentive Stock Option Agreement between the
Registrant and Kenneth D. Rardin, dated as
of February 14, 1995.
10.10.2* Incentive Stock Option Agreement between the
Registrant and Gary D. Bowers dated February
14, 1995.
10.10.3* Incentive Stock Option Agreement between the
Registrant and Evans C. Pappas dated
February 14, 1995.
10.10.4* Incentive Stock Option Agreement between the
Registrant and Paul Collins dated April 19,
1995.
10.10.5* Incentive Stock Option Agreement between the
Registrant and Kenneth R. Brown dated April
19, 1995.
10.11* Promissory Note from Kenneth D. Rardin in
favor of the Registrant, dated October 5,
1992.
10.12* Promissory Note from Kenneth D. Rardin in
favor of the Registrant, dated January 31,
1994.
10.12.1** Form of Amendment to Promissory Notes from
Kenneth D. Rardin in favor of the
Registrant.
10.13* Substitute Revolving Note from the
Registrant in favor of LaSalle National
Bank, dated May 1, 1995.
10.14* Security Agreement between the Registrant
and LaSalle National Bank, dated February
10, 1994, as amended as of May 1, 1995.
10.18* Distributor Agreement between the Registrant
and JELCO Data Services, Inc., dated March
29, 1993. 10.19* International Distribution
Agreement between the Registrant and SG2,
dated September 20, 1993.
10.20* Value-Added Reseller Agreement between the
Registrant and Cerner Corporation, dated
September 30, 1994.
10.21* Distribution Agreement between the
Registrant and IDX Systems Corporation,
dated February 15, 1995.
10.22* Distribution Agreement between the
Registrant and PHAMIS, Inc., dated November
16, 1994.
10.23* International Distributor Agreement between
the Registrant and Software AG Germany,
dated April 10, 1993.
10.25* Distribution Agreement between the
Registrant and Integrated Medical Systems,
Inc., dated April 28, 1995.
10.26* Amendment to Distributor Agreement between
the Registrant and SoftNet Systems, Inc.,
dated June 20, 1995.
10.27***** Distribution Agreement between the
Registrant and AdviSoft Consulting, dated
August 17, 1995.
10.28***** Distribution Agreement between the
Registrant and Datacom Imaging Systems, Inc.
dated as of March 29, 1995.
10.29***** Non-Qualified Stock Option Agreement between
the Registrant and John J. McDonough dated
July 28, 1995.
10.30***** End-user Equipment Purchase and Software
License Terms and Conditions between the
Registrant and McLaren Health Care
Corporation dated February 10, 199, as
amended.
10.31***** Distribution Agreement between the
Registrant and Quesix Software, Incorporated
dated as of June 18, 1995.
10.32***** Employment Agreement between the Registrant
and Raymond L. Brown dated as of November
17, 1995.
10.33***** Incentive Stock Option Agreement between
Registrant and Raymond L. Brown, dated as of
December 1, 1995.
10.34***** Letter of Intent dated January 16, 1996
between the Registrant and HBO & Company,
Inc.
10.35**+ Manufacturing and Distribution License
Agreement between Registrant, SoftNet
Systems, Inc. and Micrographic Technology
Corporation dated as of June 30, 1996.
11** Statement re: Computation of Per Share
Earnings.
21** Subsidiaries of the Registrant.
23** Consent of KPMG Peat Marwick LLP
27** Financial Data Schedule
* Incorporated by reference to the Exhibit
with the same number in the registrant's
Registration Statement on Form S-1 (No. 33-
92130).
** Filed with this Form 10-K.
*** Incorporated by reference to the same
Exhibit number in the Registrant's Annual
Report on Form 10-K for the year ended June
30, 1995.
**** Incorporated by reference to the same
Exhibit number in the Registrant's report on
Form 10-Q for the three months ended
September 30, 1995.
***** Incorporated by reference to the same
Exhibit number in the Registrant's report on
Form S-1 (No. 33-99846).
+ The Company has applied for confidential
treatment of portions of this Agreement.
Accordingly, portions thereof have been
omitted and filed separately.
</TABLE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors IMNET Systems, Inc.:
Under date of August 13, 1996, we reported on the consolidated balance
sheets of IMNET Systems, Inc. and subsidiaries as of June 30, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended June 30, 1996,
as contained in the IMNET Systems, Inc. 1996 Annual Report on Form 10-K. These
consolidated financial statements and our report thereon are included in the
IMNET Systems, Inc. Annual Report on Form 10-K for the year ended June 30, 1996.
In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedule listed in Item 14(a)2. The consolidated financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this consolidated financial statement schedule based on our
audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
August 13, 1996
<TABLE>
<CAPTION>
Schedule II
IMNET SYSTEMS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
---------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND OTHER DEDUCTIONS AT END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- --------- -------- -------- -------- ------
Year ended June 30, 1994-allowance
<S> <C> <C> <C> <C> <C>
for doubtful accounts ....................... $ 6,614 24,000 -- 20,296(1) 10,318
Year ended June 30, 1995-allowance
for doubtful accounts ....................... $10,318 200,758 -- 148,033(1) 63,043
Year ended June 30, 1996-allowance
for doubtful accounts ....................... $63,043 202,846 50,000(2) 39,599(1) 276,290
</TABLE>
(1) Accounts deemed to be uncollectible and written off during the period.
(2) Allowance for doubtful accounts of subsidiary at acquisition date.
<PAGE>
EXHIBIT 3.3.1
AMENDED AND RESTATED BY-LAWS
OF
IMNET SYSTEMS, INC.
[formerly known as]
IMNET ACQUISITION CO.
As of September 10, 1996
364345.3
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
IMNET SYSTEMS, INC.
[formerly known as]
IMNET ACQUISITION CO.
ARTICLE 1
OFFICES OF REGISTERED AGENT
Section 1.1 Registered Office and Agent. The Corporation shall have and
maintain a registered office in Delaware and a registered agent having a
business office identical with such registered office.
Section 1.2 Other Offices. The Corporation may also have such other
office or offices in Delaware or elsewhere as the Board of Directors may
determine or as the business of the Corporation may require.
ARTICLE 2
STOCKHOLDERS
Section 2.1 Annual Meeting. An annual meeting of the stockholders shall
be held on the second Tuesday in April in each year beginning with the year
1993, at the hour of 10:00 A.M., or in the event the annual meeting is not held
on such date and at such time, then on the date and at the time designated by
the Board of Directors, for the purpose of electing directors
364345.3
<PAGE>
and for the transaction of such other business as may come before the meeting.
If the day fixed for the annual meeting shall be a legal holiday, such meeting
shall be held on the next succeeding business day. If the directors shall not be
elected at the annual meeting, or at any adjournment thereof, the Board of
Directors shall cause the election to be held as soon thereafter as may be
convenient.
At the annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be properly
brought before an annual meeting, business must be specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, otherwise properly brought before the meeting by or at the direction
of the Board of Directors, or otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation, to the
attention of the Secretary of the Corporation, not less than fifty (50) days nor
more than seventy-five (75) days prior to the meeting; provided, however, that
in the event that less than sixty-five (65) days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought
364345.3
2
<PAGE>
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of the stockholder proposing
such business, (iii) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, and (iv) any material interest of the
stockholder in such business.
The Chairman of the Board of Directors shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
Section 2.2 Special Meetings. Special meetings of the stockholders may
be called at any time by the President, and shall be called by the President or
Secretary at the request of (a) a majority of the Board of Directors or (b) the
holders of not less than one-fifth of all the outstanding shares entitled to
vote on the matter for which the meeting is called. Such request shall state the
purpose or purposes of the proposed meeting.
Section 2.3 Place of Meeting. Meetings of stockholders, whether annual
or special, shall be held at such time and place as may be determined by the
Board of Directors and designated in the call and notice or waiver of notice of
such meeting; provided, that a waiver of notice signed by all stockholders may
designate any time or place as the time and place for the holding of such
meeting. If no designation is made, the place of meeting shall be at the
Corporation's principal place of business.
Section 2.4 Notice of Meeting. Written notice stating the place, date
and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be given not less than ten nor
more than sixty days before the date of the meeting,
364345.3
3
<PAGE>
or, in the case of a merger, consolidation or sale, lease or exchange of all or
substantially all of the Corporation's property and assets, at least twenty days
before the date of the meeting, either personally or by mail, by or at the
direction of the President, the Secretary or the persons calling the meeting, to
each stockholder of record entitled to vote at such meeting. If mailed, notice
is given when deposited in the United States mail, postage prepaid, directed to
the stockholder at his address as it appears on the records of the Corporation.
Section 2.5 Fixing Record Date for Determination of Stockholders. For
the purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders, or stockholders entitled to receive payment of any
dividend, or in order to make a determination of stockholders for any other
proper purpose, the Board of Directors may fix in advance a date as the record
date for any such determination of stockholders, such date to be not more than
sixty days prior to the date of a meeting of stockholders, the date of payment
of a dividend or the date on which other action requiring determination of
stockholders is to be taken, as the case may be. In addition, the record date
for a meeting of stockholders shall not be less than ten days, or in the case of
a merger, consolidation or sale, lease or exchange of all or substantially all
of the Corporation's property and assets, not less than twenty days immediately
receding such meeting. When a determination of stockholders entitled to vote at
any meeting of stockholders has been made as provided in this Section, such
determination shall apply to any adjournment thereof; provided, however, that
the Board of Directors may fix a new record date for the adjourned meeting.
Section 2.6 List of Stockholders Entitled to Vote. The officer who has
charge of the stock ledger of the Corporation shall prepare and make, at least
ten days before every meeting
364345.3
4
<PAGE>
of stockholders, a complete list of stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, for a period of at least ten days prior to the meeting,
either a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if no so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. The stock ledger shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list of the stockholders, the corporate books, or to vote at any meeting of
the stockholders.
Section 2.7. Quorum and Manner of Acting. Unless otherwise provided by
the Certificate of Incorporation or these By-laws, a majority of the outstanding
shares of the Corporation, entitled to vote on a matter, present in person or
represented by proxy, shall constitute a quorum for consideration of such matter
at any meeting of stockholders; provided, that if less than a majority of the
outstanding shares entitled to vote on a matter are present in person or
represented by proxy at said meeting, a majority of the shares so present in
person or represented by proxy may adjourn the meeting from time to time without
further notice other than announcement at the meeting at which the adjournment
is taken of the time and place of the adjourned meeting. At the adjourned
meeting the Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a
364345.3
5
<PAGE>
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. If a quorum is present, the affirmative vote of
the majority of the shares present in person or represented by proxy at the
meeting and entitled to vote shall be the act of the stockholders, unless the
vote of a greater number or voting by classes is required by the General
Corporation Law of the State of Delaware, the Certificate of Incorporation or
these By-laws.
Section 2.8 Voting Shares and Proxies. Each stockholder shall be
entitled to one vote for each share of capital stock held by such stockholder,
except as otherwise provided in the Certificate of Incorporation. Each
stockholder entitled to vote shall be entitled to vote in person, or may
authorize another person or persons to act for him by proxy executed in writing
by such stockholder or by his duly authorized attorney-in-fact, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period.
Section 2.9 Inspectors. At any meeting of stockholders, the chairman of
the meeting may, or upon the request of any stockholder shall, appoint one or
more persons as inspectors for such meeting. Such inspectors shall ascertain and
report the number of shares represented at the meeting, based upon the list of
stockholders produced at the meeting in accordance with Section 2.6 hereof and
upon their determination of the validity and effect of proxies, and they shall
count all votes, report the results and do such other acts as are proper to
conduct the election and voting with impartiality and fairness to all the
stockholders. Each such report shall be in writing and signed by at least a
majority of the inspectors, the report of a majority being the report of the
inspectors, and such reports shall be prima facie evidence of the number of
shares represented at the meeting and the result of a vote of the stockholders.
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Section 2.10 Voting of Shares by Certain Holders. Shares of its own
stock belonging to the Corporation, unless held by it in a fiduciary capacity,
shall not be voted, directly or indirectly, at any meeting, and shall not be
counted in determining the total number of outstanding shares at any given time.
Shares standing in the name of another corporation, domestic or foreign, may be
voted by such officer, agent or proxy as the by-laws of such corporation may
prescribe, or, in the absence of such provision, as the board of directors of
such corporation may determine. Persons holding stock in a fiduciary capacity
shall be entitled to vote the shares so held. Persons whose stock is pledged
shall be entitled to vote, unless in the transfer by the pledgor on the books of
the Corporation he expressly empowered the pledgee to vote thereon, in which
case only the pledgee, or his proxy, may represent such stock and vote thereon.
Section 2.11 Action by Written Consent. Unless otherwise provided in
the Certificate of Incorporation, any action required to be taken at any annual
or special meeting of stockholders of the Corporation, or any action which may
be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be singed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
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Section 2.12 Cumulative Voting. If the Certificate of Incorporation so
provides, at all elections of directors of the Corporation, or at elections held
under specified circumstances, each holder of stock shall be entitled to as many
votes as shall equal the number of votes which he would be entitled to cast for
the election of directors with respect to his shares of stock multiplied by the
number of directors to be elected by him, and he may cast all such votes for a
single director or may distribute them among the number to be voted for, or for
any two or more of them, as he may see fit.
ARTICLE 3 DIRECTORS
Section 3.1 General Powers. The business and affairs of the Corporation
shall be managed by its Board of Directors, except as may be otherwise provided
by statute or the Certificate of Incorporation.
Section 3.2 Number, Tenure and Qualifications. The number of directors
shall be four (4). The number may be increased or decreased from time to time by
amendment of this Section, except as otherwise provided for in the Certificate
of Incorporation. Each director elected shall hold office until his successor is
elected and qualified or until his earlier resignation or removal. Directors
need not be stockholders or residents of Delaware.
Section 3.3 Nominations. Nominations for election to the Board of
Directors of the Corporation at a meeting of stockholders may be made by the
Board of Directors, on behalf of the Board by a nominating committee appointed
by the Board, or by any stockholder of the Corporation entitled to vote for the
election of directors at such meeting. Such nominations, other than those made
by the Board or by a nominating committee on behalf of the Board, shall
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be made by notice in writing delivered or mailed by first class United States
mail, postage prepaid, to the Secretary of the Corporation, and received by him
not less than one hundred twenty days prior to any meeting of stockholders
called for the election of directors; provided, however, that if less than one
hundred days' notice of the meeting is given to stockholders, such nomination
shall have been mailed or delivered to the Secretary of the Corporation not
later than the close of business on the seventh day following the day on which
the notice of meeting was mailed. Such notice shall set forth as to each
proposed nominee who is not an incumbent director (i) the name, age, business
address and, if known, residence address of each nominee proposed in such
notice, (ii) the principal occupation or employment of each such nominee, (iii)
the number of shares of stock of the Corporation which are beneficially owned by
each such nominee and by the nominating stockholder, and (iv) any other
information concerning the nominee that must be disclosed of nominee in proxy
solicitations regulated by Regulation 14A of the Securities Exchange Act of
1934.
The Chairman of the Board of Directors may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he shall
so declare the meeting and the defective nomination shall be disregarded.
Section 3.4 Regular Meetings. A regular meeting of the Board of
Directors shall be held, without other notice than this Section, immediately
after and at the same place as the annual meeting of stockholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without Delaware, for the holding of additional regular meetings without other
notice than such resolution.
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Section 3.5 Special Meetings. Special meetings of the Board of
Directors may be called at any time by the President or any two directors. The
person or persons who call a special meeting of the Board of Directors may
designate any place, either within or without Delaware, as the place for holding
such special meeting. In the absence of such a designation the place of meeting
shall be the Corporation's principal place of business.
Section 3.6 Notice of Special Meetings. Notice stating the place, date
and hour of a special meeting shall be mailed not less than five days before the
date of the meeting, or shall be sent by telegram or be delivered personally or
by telephone not less than two days before the date of the meeting, to each
director, by or at the direction of the person or persons calling the meeting.
Attendance of a director at any meeting shall constitute a waiver of notice of
such meeting except where a director attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at nor the purpose of any meeting of the Board of
Directors need be specified in the notice or waiver of notice of such meeting.
Section 3.7 Quorum and Manner of Acting. A majority of the number of
directors as fixed in Section 3.2 hereof shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors; provided, that
if less than a majority of such number of directors are present at said meeting,
a majority of the directors present may adjourn the meeting from time to time
without further notice. The act of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors,
unless otherwise provided in the General Corporation Law of the State of
Delaware, the Certificate of Incorporation or these By-laws.
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Section 3.8 Informal Action by Directors. Any action which is required
by law or by these By-laws to be taken at a meeting of the Board of Directors,
or any other action which may be taken at a meeting of the Board of Directors or
any committee thereof, may be taken without a meeting if a consent in writing,
setting forth the action to be taken, shall be signed by all of the directors
entitled to vote with respect to the subject matter thereof, or by all the
members of such committee, as the case may be. Such consent shall have the same
force and effect as a unanimous vote of all of the directors or all of the
members of such committee, as the case may be, at a duly called meeting thereof,
and shall be filed with the minutes of proceedings of the Board or committee.
Section 3.9 Telephonic Meetings. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, members of the Board of Directors
or of any committee designated by such Board, may participate in a meeting of
such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section shall constitute presence at such meeting.
Section 3.10 Resignations. Any director may resign at any time by
giving written notice to the Board of Directors, the President, or the
Secretary. Such resignation shall take effect at the time specified therein;
and, unless tendered to take effect upon acceptance thereof, the acceptance of
such resignation shall not be necessary to make it effective.
Section 3.11 Vacancies.
(a) Vacancies and newly-created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a
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single class may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director, and the directors
so chosen shall hold office until their successors are elected and qualified or
until their earlier resignation or removal.
(b) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected, and the directors so chosen shall hold office
until the next election of the class for which such directors shall have been
chosen, and until their successors shall be elected and qualified or until their
earlier resignation or removal.
Section 3.12 Removal. Any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors, provided, however, that:
(a) if the Board is classified and unless otherwise provided in the
Certificate of Incorporation, the stockholders may affect such removal only for
cause; or
(b) if the Corporation has cumulative voting, and less than the entire
Board of Directors is to be removed, no director may be removed without cause if
the votes cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire Board of Directors, or, if there
be classes of directors, at an election of the class of directors of which he is
a part. Whenever the holders of any class or series are entitled to elect one or
more directors by the provisions of the Certificate of Incorporation, the
provisions of this Section shall apply,
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in respect to the removal without cause of a director or directors so elected,
to the vote of the holders of the outstanding shares of that class or series and
not to the vote of the outstanding shares as a whole.
Section 3.13 Interested Directors.
(a) No contract or transaction between the Corporation and one or more
of its directors or officers, or between the Corporation and any other
corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes
of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or
(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the shareholders; or
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(3) The contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or
ratified, by the Board of Directors, a committee thereof, or the
shareholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
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ARTICLE 4
COMMITTEES
Section 4.1 Appointment and Powers. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation which, to the extent provided in said resolution or in these
By-laws, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it; but no such committee shall have the power or authority in
reference to amending the Certificate of Incorporation (except that any such
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors,
fix the designations and any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation thereof, or amending the Bylaws;
and, unless the resolution, By-laws or Certificate of Incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend, to authorize the
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issuance of stock, or to adopt a certificate of ownership and merger pursuant to
Section 253 of the Delaware General Corporation Law. Section 4.2 Absence or
Disqualification of Committee Member. In the absence or disqualification of any
member of such committee, the member or members thereof present at any meeting
and not disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Section 4.3
Record of Proceedings. The committees shall keep regular minutes of their
proceedings and when required by the Board of Directors shall report the same to
the Board of Directors.
ARTICLE 5
OFFICERS
Section 5.1 Number and Titles. The officers of the Corporation shall be
a President, one or more Vice Presidents (the number thereof to be determined by
the Board of Directors), a Treasurer and a Secretary. There shall be such other
officers and assistant officers as the Board of Directors may from time to time
deem necessary. Any two or more offices may be held by the same person.
Section 5.2 Election, Term of Office and Qualifications. The officers
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after the annual meeting of shareholders. If the
election of officers is not held at such meeting, such election shall be held as
soon thereafter as may be convenient. Vacancies may be filled or new
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offices created and filled at any meeting of the Board of Directors. Each
officer shall be elected to hold office until his successor shall have been
elected and qualified, or until his earlier death, resignation or removal.
Election of an officer shall not of itself create contract rights.
Section 5.3 Removal. Any officer may be removed by the Board of
Directors whenever in its judgment the best interests of the Corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
Section 5.4 Resignation. Any officer may resign at any time by giving
written notice to the Board of Directors, the President or the Secretary. Such
resignation shall take effect at the time specified therein; and, unless
tendered to take effect upon acceptance thereof, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5.5 Duties. In addition to and to the extent not inconsistent
with the provisions in these By-laws, the officers shall have such authority, be
subject to such restrictions and perform such duties in the management of the
business, property and affairs of the Corporation as may be determined from time
to time by the Board of Directors.
Section 5.6 President. The President shall be the chief executive
officer of the Corporation. Subject to the control of the Board of Directors, he
shall in general supervise the business and affairs of the Corporation and he
shall see that resolutions and directions of the Board of Directors are carried
into effect except when that responsibility is specifically assigned to some
other person by the Board of Directors. Unless there is a Chairman of the Board
who is present and who has the duty to preside, the President shall preside at
all meetings of the stockholders and, if a director, at all meetings of the
Board of Directors. Except in those instances in which the authority to execute
is expressly delegated to another officer or agent of
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the Corporation or a different mode of execution is expressly prescribed by the
Board of Directors or these By-laws or where otherwise required by law, the
President may execute for the Corporation any contracts, deeds, mortgages, bonds
or other instruments which the Board of Directors has authorized to be executed
or the execution of which is in the ordinary course of the Corporation's
business, and he may accomplish such execution either under or without the seal
of the Corporation and either individually or with the Secretary, any Assistant
Secretary, or any other officer thereunto authorized by the Board of Directors
or these By-laws. In general, he shall perform all duties incident to the office
of President and such other duties as from time to time may be prescribed by the
Board of Directors.
Section 5.7 Vice Presidents. In the absence of the President or in the
event of his inability or refusal to act, the Vice President (or in the event
there is more than one Vice President, the Vice President designated Executive
Vice President by the Board of Directors and thereafter, or in the absence of
such designation, the Vice Presidents in the order otherwise designated by the
Board of Directors, or in the absence of such other designation, in the order of
their election) shall perform the duties of the President, and when so acting,
shall have all authority of and be subject to all the restrictions upon the
President. Except in those instances in which the authority to execute is
expressly delegated to another officer or agent of the Corporation or a
different mode of execution is expressly prescribed by the Board of Directors or
these By-laws or where otherwise required by law, the Vice President (or each of
them if there are more than one) may execute for the Corporation any contracts,
deeds, mortgages, bonds or other instruments which the Board of Directors has
authorized to be executed, and he may accomplish such execution either under or
without the seal of the Corporation and either
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individually or with the Secretary, any Assistant Secretary, or any other
officer thereunto authorized by the Board of Directors or these By-laws. The
Vice Presidents shall perform such other duties as from time to time may be
prescribed by the President or the Board of Directors.
Section 5.8 Treasurer. The Treasurer shall be the principal financial
and accounting officer of the Corporation, and shall (a) have charge and custody
of, and be responsible for, all funds and securities of the Corporation; (b)
keep or cause to be kept correct and complete books and records of account
including a record of all receipts and disbursements; (c) deposit all funds and
securities of the Corporation in such banks, trust companies or other
depositaries as shall be selected in accordance with these By-laws; (d) from
time to time prepare or cause to be prepared and render financial statements of
the Corporation at the request of the President or the Board of Directors; and
(e) in general, perform all duties incident to the office of Treasurer and such
other duties as time to time may be prescribed by the President or the Board of
Directors. If required by the Board of Directors, the Treasurer shall give a
bond for the faithful discharge of his duties in such sum and with such surety
or sureties as the Board of Directors shall determine.
Section 5.9 Secretary. The Secretary shall (a) keep the minutes of the
proceedings of the stockholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-laws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation and see
that the seal of the Corporation is affixed to all stock certificates prior to
the issue thereof and to all documents the execution of which on behalf of the
Corporation under its seal is necessary or appropriate; (d) keep or cause to be
kept a register of the name and address of each
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stockholder, which shall be furnished to the Corporation by each such
stockholder, and the number and class of shares held by each stockholder; (e)
have general charge of the stock transfer books; and (f) in general, perform all
duties incident to the office of Secretary and such other duties as time to time
may be prescribed by the President or the Board of Directors.
Section 5.10 Assistant Treasurers and Assistant Secretaries. In the
absence of the Treasurer or Secretary or in the event of the inability or
refusal of the Treasurer or Secretary to act, the Assistant Treasurer and the
Assistant Secretary (or in the event there is more than one of either, in the
order designated by the Board of Directors or in the absence of such
designation, in the order of their election) shall perform the duties of the
Treasurer and Secretary, respectively, and when so acting, shall have all the
authority of and be subject to all the restrictions upon such office. The
Assistant Treasurers and Assistant Secretaries shall also perform such duties as
may be prescribed by the Treasurer or the Secretary, respectively, or by the
President or the Board of Directors. If required by the Board of Directors, the
Assistant Treasurer shall give a bond for the faithful discharge of his duties
in such sum and with such surety or sureties as the Board of Directors shall
determine.
Section 5.11 Salaries. The salaries and additional compensation, if
any, of the officers shall be determined from time to time by the Board of
Directors; provided, that if such officers are also directors such determination
shall be made by a majority of the directors then in office.
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ARTICLE 6
CERTIFICATES OF STOCK AND THEIR TRANSFER
Section 6.1 Stock Certificates. The issued shares of the Corporation
shall be represented by certificates and no class or series of shares of the
Corporation shall be uncertificated shares. Stock certificates shall be in such
form as determined by the Board of Directors and shall be signed by, or in the
name of the Corporation by the President or a Vice President, and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation. Any of or all the signatures on the certificates may be a
facsimile. All certificates of stock shall bear the seal of the Corporation,
which seal may be a facsimile, engraved or printed.
Section 6.2 Transfer of Shares. The shares of the Corporation shall be
transferable. The Corporation shall have a duty to register any such transfer
(a) provided there is presented to the Corporation or its transfer agents the
stock certificate endorsed by the appropriate person or persons; and reasonable
assurance that such endorsement is genuine and effective; and, (b) provided that
the Corporation has no duty to inquire into adverse claims or has discharged any
such duty; any applicable law relating to the collection of taxes has been
complied with; and the transfer is in fact rightful or is to a bona fide
purchaser. Upon registration of such transfer upon the stock transfer books of
the Corporation the certificates representing the shares transferred shall be
cancelled and the new record holder, upon request, shall be entitled to a new
certificate or certificates. The terms and conditions described in the foregoing
provisions of this Section shall be construed in accordance with the provisions
of the Delaware Uniform Commercial Code, except as otherwise provided by the
Delaware General Corporation Law. No new certificate shall be issued until the
former certificate or certificates for a like number of shares shall have been
surrendered and cancelled, except that in the case of a lost, destroyed,
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wrongfully taken or mutilated certificate a new one may be issued therefor upon
such terms and indemnity to the Corporation as the Board of Directors or the
President may prescribe consistent with applicable law.
ARTICLE 7
DIVIDENDS
Section 7.1 Dividends. Subject to the provisions of the General
Corporation Law of the State of Delaware and the Certificate of Incorporation,
the Board of Directors may declare and pay dividends upon the shares of its
capital stock. Dividends may be paid in cash, in property, or in shares of the
Corporation's capital stock.
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ARTICLE 8
FISCAL YEAR
Section 8.1 Fiscal Year. The fiscal year of the Corporation shall be
fixed by the Board of Directors.
ARTICLE 9
SEAL
Section 9.1 Seal. The corporate seal shall have inscribed thereon the
name of the Corporation and the words "Corporate Seal" and "Delaware." The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
in any manner reproduced.
ARTICLE 10
WAIVER OF NOTICE
Section 10.1 Waiver of Notice. Whenever any notice is required to be
given under these By-laws, the Certificate of Incorporation or the General
Corporation Law of the State of Delaware, a waiver thereof, in writing, signed
by the person or persons entitled to such notice, whether before or after the
time stated therein, shall be deemed equivalent to the giving of such notices.
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ARTICLE 11
MISCELLANEOUS PROVISIONS
Section 11.1 Contracts. The Board of Directors may authorize any
officer or agent to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and the President
may so authorize an officer or agent with respect to contracts or instruments in
the usual and regular course of its business. Such authority may be general or
confined to specific instances.
Section 11.2 Loans. No loan shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors. Such authority may be general or confined
to specific instances.
Section 11.3 Checks, Drafts, Etc. All checks, drafts or other orders
for the payment of money, or notes or other evidences of indebtedness issued in
the name of the Corporation shall be signed by such officer or agent as shall
from time to time be authorized by the Board of Directors.
Section 11.4 Deposits. The Board of Directors may select banks, trust
companies or other depositaries for the funds of the Corporation.
Section 11.5 Stock in Other Corporations. Shares of any other
corporation which may from time to time be held by the Corporation may be
represented and voted by the President, or by any proxy appointed in writing by
the President, or by any other person or persons thereunder authorized by the
Board of Directors, at any meeting of stockholders of such corporation or by
executing written consents with respect to such shares where stockholder action
may be taken by written consent. Shares represented by certificates standing in
the name
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of the Corporation may be endorsed for sale or transfer in the name of the
Corporation by the President or by any other officer thereunder authorized by
the Board of Directors. Shares belonging to the Corporation need not stand in
the name of the Corporation, but may be held for the benefit of the Corporation
in the name of any nominee designated for such purpose by the Board of
Directors.
ARTICLE 12
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
Section 12.1 Nature of Indemnity. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee, fiduciary, or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, shall be indemnified and
held harmless by the Corporation as provided in this Article and to the fullest
extent which it is empowered to do so by the General Corporation Law of the
State of Delaware, as the same exists or may hereafter be amended, against all
expense, liability and loss (including attorneys' fees) actually and reasonably
incurred by such person in connection with such proceeding, and such
indemnification shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in Section 12.2
hereof, the Corporation shall indemnify any such person seeking indemnification
in connection with a proceeding initiated by such person only if such proceeding
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was authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article shall be a contract right and, subject
to Sections 12.2 and 12.5 hereof, shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance of
its final disposition. The Corporation may, by action of its Board of Directors,
provide indemnification to employees and agents of the Corporation with the same
scope and effect as the foregoing indemnification of directors and officers.
Notwithstanding any other provision of this Article, to the extent that any
director or officer, or employee or agent at the discretion of the Board of
Directors of the Corporation pursuant to Section 12.6 of this Article XII, is by
reason of such person's position with the Corporation a witness in any
proceeding, such person shall be indemnified against all costs and expenses
actually and reasonably incurred by him on his behalf in connection therewith.
Section 12.2 Procedure for Indemnification of Directors and Officers.
Any indemnification of a director or officer of the Corporation under Section
12.1 of this Article or in advance of expenses under Section 12.5 of this
Article shall be made promptly, and in any event within 30 days, upon the
written request of the director or officer. If a determination by the
Corporation that the director or officer is entitled to indemnification pursuant
to this Article is required, and the Corporation fails to respond within 60 days
to a written request for indemnity, the Corporation shall be deemed to have
approved the request. If the Corporation denies a written request for
indemnification or advancing of expenses, in whole or in part, or if payment in
full pursuant to such request is not made within 30 days, the right to
indemnification or advances as granted by this Article shall be enforceable by
the director or officer in any court of competent jurisdiction. Such person's
costs and expenses incurred in
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connection with successfully establishing his or her right to indemnification,
in whole or in part, in any action shall also be indemnified by the Corporation.
It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any, has been tendered
to the Corporation) that the claimant has not met the standards of conduct which
make it permissible under the General Corporation Law of the State of Delaware
for the Corporation to indemnify the claimant for the amount claimed, but the
burden of such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination by
the Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 12.3 Article Not Exclusive. The rights to indemnification and
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, as may be amended from time to
time, By-law, agreement, vote of stockholders or disinterested directors or
otherwise.
Section 12.4 Insurance. The Corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee, fiduciary,
364345.3
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or agent of another corporation or was serving at the request of the Corporation
as a director, officer, employee or agent of another Corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her in any such capacity, whether or not the
Corporation would have the power to indemnify such person against such liability
under this Article or under the General Corporation Law of the State of
Delaware. The Corporation shall not be liable under this Article to make any
payments of amounts otherwise indemnifiable hereunder if and to the extent that
such indemnified person hereunder has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
Section 12.5 Expenses. Expenses (including attorneys' fees) incurred by
any person described in Section 12.1 of this Article in defending any civil,
criminal, administrative or investigative action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by the Corporation. Such expenses incurred by
other employees and agents may be so paid upon such terms and conditions, if
any, as the Board of Directors deems appropriate.
Section 12.6 Employees and Agents. Persons who are not covered by the
foregoing provisions of this Article and who are or were employees or agents of
the Corporation, or who are or were serving at the request of the Corporation as
employees or agents of another corporation, partnership, joint venture, trust or
other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the Board of Directors.
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Section 12.7 Contract Rights. The provisions of this Article shall be
deemed to be a contract right between the Corporation and each director or
officer who serves in any such capacity at any time while this Article and the
relevant provisions of the General Corporation Law of the State of Delaware or
other applicable law are in effect, and any repeal or modification of any such
law shall not affect any rights or obligations then existing with respect to any
state of facts or proceeding then existing.
Section 12.8 Merger or Consolidation. For purposes of this Article,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article
with respect to the resulting or surviving corporation as he or she would have
with respect to such constituent corporation if its separate existence had
continued.
Section 12.9 Severability. If any provision or provisions of this
Article shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Article (including without limitation, each portion of any
Section of this Article containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (b) to the fullest
extent possible, the provisions of this Article
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(including, without limitation, each portion of any Section of this Article
containing such provision held to be invalid, illegal or unenforceable, that is
not itself invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provisions held invalid, illegal or
unenforceable.
Section 12.10 Certain Persons Not Entitled to Indemnification of
Advancement of Expenses. Notwithstanding any other provision of this Article, no
person shall be entitled to indemnification or advancement of any costs,
expenses or the like under this Article with respect to any proceeding, or any
claim therein, brought or made by such person against the Corporation.
Section 12.11 Notices. Any notice, request or other communication
required or permitted to be given to the Corporation under this Articles shall
be in writing and either delivered in person or sent by telex, telegram or
certified or registered mail, postage prepaid, return receipt requested, to the
Secretary of the Corporation and shall be effective only upon receipt by the
Secretary.
Section 12.12 Miscellaneous. Use of masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate.
ARTICLE 13
AMENDMENT
Section 13.1 Procedure. These By-Laws may be altered, amended or
repealed and new bylaws may be adopted by the Board of Directors; provided,
however, Section 2.2 may not be
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altered, amended or repealed except by the affirmative vote of not less than
two-thirds of all outstanding shares entitled to vote thereon.
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EXHIBIT 10.9.1
Second Addendum to Employment Agreement
---------------------------------------
IMNET Systems, Inc., a Delaware corporation (the "Company") and KENNETH
D. RARDIN, a Georgia resident ("Employee") are party to that certain Employment
Agreement, dated as of May 22, 1992 as amended by the Addendum to Employment
Agreement dated July 1, 1995, and an interpretive letter dated May 2, 1996
(collectively, the "Employment Agreement"), and hereby agree that effective as
of September 15, 1996, Employee's employment with the Company shall continue
under the terms and provisions of the Employment Agreement as supplemented and
amended by the terms hereof, as follows:
1. Employee shall be employed as Chairman of the Board of Directors and
Chief Executive Officer of the Company, for a term ending on December 31, 1999
unless earlier terminated in accordance with the terms hereof and of the
Employment Agreement.
2. In the event that Employee's employment with the Company is
terminated prior to January 1, 1999 by reason of (i) termination by the Company
other than for cause; or (ii) Employee's election within the six-month period
following a Severance Event (as defined in the Employment Agreement), the
Company will provide to Employee the payments and benefits specified in Section
8 of the Employment Agreement through the period ending December 31, 1999. In
the event that Employee's employment with the Company is terminated on or after
January 1, 1999 for any of the aforementioned reasons, the Company will provide
to Employee the payments and benefits specified in Section 8 of the Employment
Agreement for a period of twelve (12) months from the date of termination of
Employee's employment with the Company.
3. Other than as provided for herein, the Employment Agreement is not
superseded hereby but remains in full force and effect.
IN WITNESS WHEREOF, the undersigned have duly executed this Addendum to
Employment Agreement as of September 15, 1996.
The Company:
IMNET Systems, Inc.
By:__________________________________
Its:_________________________________
Employee:
____________________________________
Kenneth D. Rardin
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EXHIBIT 10.12.1
[IMNET SYSTEMS, INC. LETTERHEAD]
September 27, 1996
Mr. Kenneth D. Rardin
4601 Dunwoody Place, Suite 420
Atlanta, Georgia 30350
RE: Promissory Notes ("Notes") Dated October 5, 1992 and January 31,
1994, in the Principal Amounts of $75,000 and $30,000,
respectively, from Kenneth D. Rardin ("Borrower") in favor of
IMNET Systems, Inc. ("IMNET")
Dear Ken:
This letter shall confirm IMNET's agreement to extend the due date for
all payments of principal and interest under the above-referenced Notes to
September 30, 1997. In addition, IMNET hereby waives all Events of Default that
may previously have arisen under the Notes prior to the date hereof. Except as
amended hereby, the Notes remain in full force and effect.
Please sign a copy of this letter where indicated below to acknowledge
your acceptance of and agreement with the terms of this letter.
Very truly yours,
IMNET SYSTEMS, INC.
Acknowledged and Agreed to By:
this 27th day of September, 1996. Title:
- - --------------------------
Kenneth D. Rardin
350624.1
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MANUFACTURING AND DISTRIBUTION LICENSE AGREEMENT
<PAGE>
TABLE OF CONTENTS
Page
PARTIES...................................................................... 1
PREAMBLE..................................................................... 1
1. DEFINITIONS......................................................... 1
1.1 Affiliate.................................................. 1
1.2 CNAV....................................................... 1
1.3 CNAV Order................................................. 2
1.4 Cost Plus.................................................. 2
1.5 Current Customer........................................... 2
1.6 Direct Competitor.......................................... 2
1.7 Distributor Agreement...................................... 2
1.8 HCIS Vendor................................................ 2
1.9 IMNET FILM OSS............................................. 2
1.10 Intellectual Property...................................... 2
1.11 License Fees............................................... 2
1.12 MegaSAR Equipment.......................................... 2
1.13 MegaSAR 420 Inventory...................................... 2
1.14 MegaSAR Product............................................ 3
1.15 Note....................................................... 3
1.16 Prepaid License Fee........................................ 3
1.17 [Deleted.]................................................. 3
1.18 Provider................................................... 3
1.19 Stock Pledge Agreement..................................... 3
1.20 Term....................................................... 3
1.21 Territory.................................................. 3
1.22 Unit....................................................... 3
2. GRANT OF MANUFACTURING LICENSE...................................... 3
2.1 MegaSAR Product Manufacturing License...................... 3
2.2 Transition Support......................................... 4
2.3 Restrictions on Use and Disclosure of Intellectual Property 4
2.4 Restrictions on Use and Disclosure of Software............. 4
3. GRANT OF DISTRIBUTION LICENSE....................................... 5
3.1 MegaSAR Product Distribution License....................... 5
3.2 Payment for Distribution License........................... 5
3.3 Appointment of Distributors................................ 5
4. LICENSE FEES........................................................ 5
4.1 Prepaid License Fee........................................ 5
4.2 Additional License Fees.................................... 5
4.3 Quarterly Payments......................................... 5
4.4 Records.................................................... 5
5. SALE OF MEGASAR 420 INVENTORY AND MEGASAR EQUIPMENT................. 6
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5.1 MegaSAR 420 Inventory; IMNET as Exclusive Supplier......... 6
5.2 Maintenance of MegaSAR 420 Inventory Records............... 6
5.3 Payment for MegaSAR Equipment.............................. 6
6. FUTURE PURCHASES OF MEGASAR PRODUCTS BY IMNET....................... 7
6.1 Appointment as Distributor................................. 7
6.2 Agreement to Manufacture MegaSAR Products.................. 7
6.3 IMNET Quotation, Time and Material Services................ 8
6.4 Price for MegaSAR Products................................. 8
6.5 Maintenance. ............................................. 8
6.6 Spare Parts................................................ 8
6.7 CNAV and the CNAV Order.................................... 8
6.8 Price Changes for MegaSAR Products......................... 9
6.9 Prices are FOB Licensee's Location......................... 9
6.10 Purchase Orders............................................ 9
6.11 Title/Insurance............................................ 9
6.12 Payment Terms.............................................. 9
6.13 Acceptance of MegaSAR Products............................. 9
6.14 Documentation.............................................. 9
6.15 Source Code Escrow......................................... 10
7. AMENDMENT TO THE DISTRIBUTOR AGREEMENT.............................. 11
7.1 Agreement to Amend Distributor Agreement................... 11
7.2 Settlement of Amounts Due IMNET............................ 11
8. CERTAIN RESTRICTIVE COVENANTS....................................... 11
8.1 No Sales or Sales-Based Compensation to Direct Competitors. 11
8.2 No Sales or Sales-Based Compensation to Current Customers.. 11
8.3 No Sales or Sales-Based Compensation to HCIS Vendors....... 12
8.4 No Sales or Sales-Based Compensation to Providers.......... 12
8.5 No Competing Products...................................... 12
9. IMNET'S REPRESENTATIONS AND WARRANTIES.............................. 12
9.1 Binding Obligation......................................... 12
9.2 Ownership Interests........................................ 13
9.3 Good Standing.............................................. 13
9.4 No Infringement............................................ 13
9.5 Substantial Compliance..................................... 13
9.6 No Third Party Payments.................................... 13
9.7 Exception to Warranties and Representations for Generally A
Technology................................................. 13
9.8. IMNET Indemnity as to Infringement......................... 13
10. LICENSEE'S REPRESENTATIONS AND WARRANTIES........................... 14
10.1 Binding Obligation......................................... 14
10.2 Good Standing.............................................. 14
10.3 Licensee Indemnity as to Infringement...................... 15
10.4 [Deleted.]................................................. 15
10.5 Authorization to Bind Licensee............................. 15
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11. EQUIPMENT LIMITED WARRANTY...........................................15
11.1 Limited Warranty............................................15
11.2 Warranty Claim Procedures...................................15
11.3 IMNET Provided Warranty Service.............................16
11.4 Changes in Specifications...................................16
11.5 Warranty May be Void in Certain Circumstances...............16
11.6 Limitations on Warranty.....................................16
11.7 Limitation on Liability.....................................16
12. FURTHER LIMITATIONS OF LIABILITY.................................... 17
13. DATA AND PROPRIETARY RIGHTS......................................... 17
13.1 IMNET to Honor Licensee Rights............................. 17
13.2 Notice of Unauthorized Use or Misappropriation............. 17
14. TRADEMARKS AND TRADE NAMES.......................................... 17
14.1 IMNET Acknowledges Trademarks and Trade Names.............. 17
15. TERMINATION.........................................................18
15.1 Right to Terminate.........................................18
15.2 Termination Does not Affect Pre-Termination Obligations....18
15.3 Termination by IMNET Hereunder -- Effect on Licenses.......18
16. TRAINING............................................................19
17. APPLICABLE LAW......................................................19
17.1 Georgia Law to Apply.......................................19
17.2 Export.....................................................19
18. INDEPENDENT CONTRACTORS.............................................19
19. ASSIGNMENT..........................................................19
20. SOLICITATION OF EMPLOYEES...........................................20
21. NOTICES.............................................................20
22. DISPUTE RESOLUTION..................................................21
22.1 Disputes to be Referred to Chief Executive Officers........21
22.2 Arbitration................................................21
22.3 Final and Binding Determination............................21
23. INTERPRETATION......................................................21
24. LEGAL FEES..........................................................22
25. GENERAL.............................................................22
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EXHIBIT 10.35
CONFIDENTIAL TREATMENT REQUESTED
Confidential Portions of this Agreement which have been redacted are
marked with brackets ("[ ]"). The omitted material has been filed
separately with the Securities and Exchange Commission.
MANUFACTURING AND DISTRIBUTION LICENSE AGREEMENT
This Manufacturing and Distribution License Agreement ("Agreement"),
dated as of June 30, 1996 is by and among IMNET Systems, Inc., a Delaware
corporation, having its principal place of business in Atlanta, Georgia
("IMNET"), SoftNet Systems, Inc., a New York corporation, having its principal
place of business in Lake Forest, Illinois ("SoftNet") and SoftNet's
wholly-owned subsidiary, Micrographic Technology Corporation, a Delaware
corporation ("MTC") having its principal place of business in Mountain View,
California. SoftNet and MTC are hereinafter jointly and severally referred to as
"Licensee".
W I T N E S S E T H:
WHEREAS, IMNET has developed and owns certain proprietary intellectual
property rights in microfilm retrieval devices; and
WHEREAS, SoftNet and MTC, acting together, desire for MTC to acquire
the exclusive worldwide manufacturing right to such devices; and
WHEREAS, SoftNet and MTC, acting together, also desire for MTC to
acquire a nonexclusive right to distribute such devices; and
WHEREAS, IMNET desires to grant such manufacturing and distribution
rights;
NOW, THEREFORE, in consideration of the covenants, promises, payments
and other valuable consideration contained in this Agreement, the parties hereto
hereby agree as follows:
1. DEFINITIONS
1.1 Affiliate. "Affiliate" means any person (or affiliated group of
persons) which under the term of this Agreement controls, is controlled by or is
under common control with either IMNET or SoftNet but only for so long as such
entity controls, is controlled by or is under common control with IMNET or
SoftNet, as appropriate.
1.2 CNAV. "CNAV" is an acronym for a specific department of the French
Social Security Administration.
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1.3 CNAV Order. "CNAV Order" means orders for an aggregate of 11
MegaSAR 420s (an IMNET developed MegaSAR Product) which have been placed with
IMNET through Advisoft Consulting ("Advisoft"), which is a Current Customer.
1.4 Cost Plus. "Cost Plus" means the actual cost incurred by Licensee
of manufacturing a MegaSAR Product, computed on the basis set forth on Exhibit
1.4, plus 15%.
1.5 Current Customer. "Current Customer" means one of the entities
identified on Exhibit 1.5. IMNET hereby represents that all the entities
identified on Exhibit 1.5 are either current IMNET customers, current
distributors of IMNET products, or customers of IMNET distributors.
1.6 Direct Competitor. "Direct Competitor" means the document
management or imaging system vendors who directly compete with IMNET in
providing document imaging and electronic patient record systems for use in
healthcare.
1.7 Distributor Agreement. "Distributor Agreement" means the
Distributor Agreement between IMNET and SoftNet (or successor) dated March 19,
1993, as amended.
1.8 HCIS Vendor. "HCIS Vendor" means a provider of software systems
specifically designed for use by Providers, as opposed to more general purpose
types of software which are also incidentally also used by Providers. Examples
of providers of software designed for general business use are Microsoft and
IBM. However, the term "HCIS Vendor" does include, without limitation, Cerner
Corporation, IDX Systems Corporation, Integrated Medical Systems, Inc., PHAMIS,
Inc., HBO & Company, and Citation Systems, Inc.
1.9 IMNET FILM OSS. "IMNET FILM OSS" means the software identified as
such on Exhibit 1.10.
1.10 Intellectual Property. "Intellectual Property" means the patent,
copyright, trade secret and confidential proprietary information of IMNET which
is utilized in the manufacture, installation, operation and service of MegaSAR
Products and is generally identified on Exhibit 1.10 hereto.
1.11 License Fees. "License Fees" shall mean the Prepaid License Fee
and all amounts payable by Licensee in accordance with Section 4.2 hereof.
1.12 MegaSAR Equipment. "MegaSAR Equipment" means certain tooling,
tools and other equipment used in the manufacture of the MegaSAR listed on the
"IMNET Systems Net Book Value Report" as previously provided to Licensee (the
"NBV Report").
1.13 MegaSAR 420 Inventory. "MegaSAR 420 Inventory" means the IMNET
MegaSAR inventory described on a listing previously provided to Licensee. It
includes the raw materials, work in progress and finished goods (less finished
goods required for current IMNET orders) identified on that list.
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1.14 MegaSAR Product. "MegaSAR Product" means a microfilm (or other
film) retrieval device, including the existing MegaSAR 420 Microfilm Jukebox,
which incorporates all or part of, or is derived from, the Intellectual
Property, or which performs substantially all of the functions such MegaSAR
Microfilm Jukeboxes perform. It does not include IMNET Products prior to the
MegaSAR 420, and Licensee shall have no rights to manufacture or distribute such
prior products
1.15 Note. "Note" means the obligation of the Licensee to pay
$2,909,627 as set forth in accordance with the note attached hereto as Exhibit
1.15, and the Stock Pledge Agreement, and executed concurrently herewith by
Licensee.
1.16 Prepaid License Fee. "Prepaid License Fee" means the amount to be
paid to IMNET pursuant to Section 4.1 hereof.
1.17 [Deleted.]
1.18 Provider. "Provider" means a hospital, medical or dental clinic,
medical laboratory, physician's office, physician practice group, nursing home,
or other licensed provider of medical, dental, hospital or nursing home
services, and those businesses whose primary business is providing management
services to such providers, such as Med Partners, Medaphis, or Renal Care Group,
Inc.
1.19 Stock Pledge Agreement. "Stock Pledge Agreement" means the
agreement for pledge of IMNET Common Stock and proceeds from the sale thereof by
Licensee, a copy of which is attached hereto as Exhibit 1.19.
1.20 Term. "Term" means the period from the date hereof until the first
to occur of (i) termination of this agreement pursuant to Section 19.1 or (ii)
November 21, 2011.
1.21 Territory. "Territory" is worldwide.
1.22 Unit. "Unit" means (i) a MegaSAR Product or a portion thereof; or
(ii) the IMNET FILM OSS or a derivative for retrieving and displaying a
particular image from microfilm (or other film). The combination of a MegaSAR
Product and an IMNET FILM OSS or its derivative shall be considered a single
Unit. For example, a single IMNET FILM OSS (or derivative) sold in combination
with eight MegaSAR Products (or derivatives) would equal eight Units.
2. GRANT OF MANUFACTURING LICENSE
2.1 MegaSAR Product Manufacturing License. IMNET hereby grants to
Licensee a single exclusive, perpetual worldwide license to use the IMNET
Intellectual Property solely to develop, manufacture, distribute, install and
maintain MegaSAR Products subject to the terms and conditions of this Agreement.
Notwithstanding the foregoing, IMNET retains the right to complete the
manufacture of MegaSAR 420s to complete the CNAV Order. IMNET also retains full
manufacturing rights regarding all software which is part of the Intellectual
Property;
365060.1
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provided, however, that Licensee shall retain ownership of any modifications to
the Intellectual Property made by Licensee.
2.2 Transition Support. IMNET has made confidential written
recommendations to Licensee regarding those IMNET manufacturing or engineering
personnel that Licensee may wish to consider employing as MTC employees to aid
in Licensee's activities with the MegaSAR Products. IMNET will assist Licensee
in the transfer of the know-how related to the Intellectual Property, for up to
six months from the date hereof using its then existing employees experienced in
manufacturing and engineering of the MegaSAR 420.
2.3 Restrictions on Use and Disclosure of Intellectual Property. During
the Term in the Territory, Licensee may use the Intellectual Property only for
the purpose of developing, manufacturing, distributing, installing and
maintaining MegaSAR Products in accordance with this Agreement. Furthermore,
Licensee agrees not to use, or to permit other persons to use, such Intellectual
Property except in accordance with the terms of this Agreement. Licensee shall
safeguard the certain "confidential" portions of the Intellectual Property
(identified as such on Exhibit 1.10) against disclosure to third parties by
using at least the same degree of care as it uses for its own proprietary
information of similar nature. Except as necessary to support Licensee's efforts
hereunder, Licensee shall restrict access to such confidential Intellectual
Property to individuals who are employees or agents of Licensee and who are
bound by written agreement to protect the confidentiality of such Intellectual
Property, Licensee's counsel and accountants who reasonably have need to know
such information in connection with the purposes of this Agreement. Parties who
receive knowledge of the confidential portions of the Intellectual Property
shall be bound by written agreement to protect the confidentiality of such
information. Licensee shall not be obligated to maintain confidentiality of such
confidential Intellectual Property (i) which is, or becomes, publicly available
without fault on the part of Licensee; or (ii) which is disclosed to Licensee by
a third party without similar restrictions.
2.4 Restrictions on Use and Disclosure of Software. The right to
exploit certain software provided to Licensee hereunder as part of the
Intellectual Property is a non-exclusive license for use of the software by
Licensee, Licensee's end-user customers or end-user customers of authorized
Licensee subdistributors on a single system utilizing MegaSAR Products. Such
software may be modified or copied in whole or in part by Licensee for purposes
of providing copies for distribution, for backup purposes, for demonstrations,
and for development of MegaSAR Products. The software may only be utilized as an
integral part of MegaSAR Products. The source code to the IMNET FILM OSS and
MegaSAR.exe which is provided to Licensee hereunder shall not be copied for
distribution to third parties or otherwise made available by Licensee to any
third party. Neither title to nor ownership of the software and other
Intellectual Property is hereby transferred to Licensee; provided, however, that
Licensee shall retain ownership of any modifications to the Intellectual
Property made by Licensee. Licensee agrees to take appropriate action by
instruction or agreement with its employees who are permitted access to the
Intellectual Property to fulfill its obligations hereunder. At its risk and
expense, Licensee or Licensee's subdistributor may modify the software delivered
hereunder so as to meet the needs of Licensee or any end-user customer or
subdistributor. All such modifications shall be the property of Licensee or
Licensee's subdistributors as applicable. Licensee may sublicense to any
subdistributor or end-user any software (other than IMNET FILM OSS and
MegaSAR.exe source code) furnished to Licensee under this Agreement and an
365060.1
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[ ] - Confidential Treatment Requested
authorized subdistributor may sublicense such software to any end-user. All such
sublicenses must be in writing, prohibit further transfers or sublicensing by
end-users, and be approved in advance as to form by IMNET for presentation to
end-user customers.
3. GRANT OF DISTRIBUTION LICENSE
3.1 MegaSAR Product Distribution License. IMNET grants to Licensee a
single non-exclusive, non-transferable, perpetual, worldwide license to market,
distribute and sell MegaSAR Products. Licensee acknowledges and agrees that
IMNET retains the right to market, distribute and sell MegaSAR Products.
3.2 Payment for Distribution License. In consideration of the marketing
and distribution rights granted pursuant to this Agreement, Licensee hereby
agrees to make the payments of the License Fees pursuant to Article 4 below, as
well as all other payments due hereunder and under the Note.
3.3 Appointment of Distributors. Licensee may appoint subdistributors
to assist Licensee in exploiting the distribution rights granted to it
hereunder, and shall provide IMNET with notice of the appointment of such
subdistributors upon their appointment. Any such subdistributor shall be
required to abide by the provisions of Articles 2.3, 2.4 and 8 hereof, and
Licensee and such subdistributor must acknowledge in writing that IMNET has the
right to enforce such provisions directly against such subdistributor.
4. LICENSE FEES
4.1 Prepaid License Fee. Licensee will pay IMNET a Prepaid License Fee
in the amount of $1,000,000 which is a non-refundable prepaid license fee
evidenced by the Note. Licensee shall have no further license fee obligations in
connection with the initial sale of the first 250 Units.
4.2 Additional License Fees. In addition to the Prepaid License Fee,
IMNET shall be entitled to receive a License Fee on each Unit sold by Licensee,
during the Term of this Agreement, beginning with the 251st Unit sold. The
License Fee shall be [ ] per Unit.
4.3 Quarterly Payments. Throughout the term of this Agreement, Licensee
shall provide quarterly reports (by the 30th of the month following the end of
the calendar quarter for which the report is prepared) to IMNET, specifying the
number of Units sold and a computation and payment of any License Fees (or
credits against the Prepaid License Fee) then due to IMNET. The obligation to
pay License Fees shall continue after the term of this Agreement so that IMNET
receives payment for all Units sold by Licensee during the Term, even if
delivery of such Units occurs after expiration of the Term.
4.4 Records. Licensee shall keep accurate records relating to License
Fees due IMNET hereunder. Upon request of IMNET, but not more than once per
year, at IMNET's
365060.1
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expense, Licensee shall permit IMNET to have an independent certified public
accountant examine those of Licensee's records which relate to its obligation to
pay License Fees (and its obligations) hereunder. The accounting firm shall
provide a copy of its report to Licensee.
5. SALE OF MEGASAR 420 INVENTORY AND MEGASAR EQUIPMENT
5.1 MegaSAR 420 Inventory; IMNET as Exclusive Supplier. IMNET agrees to
sell to Licensee and Licensee agrees that when and if Licensee requires
inventory parts for the purposes of manufacturing the MegaSAR 420, Licensee will
first order the required parts from IMNET and to the extent such parts are
unavailable, Licensee will then order the required part from a vendor of its
choice. The purchase price for each item of the MegaSAR 420 Inventory will be
the lower of cost or market (LCM) on the date the order is placed by Licensee,
plus shipping. If the parties cannot agree on the market value of the MegaSAR
Inventory at the time the order is placed, both parties agree to submit such
question to the certified public accounting firm of Arthur Andersen, or in the
event of its refusal or inability to act, then to another "Big Six" accounting
firm mutually agreeable to IMNET and Licensee, or failing such agreement, to an
accounting firm selected by Arthur Andersen. The determination of the MegaSAR
Inventory's value in question by the accounting firm so retained shall be final
and binding upon both parties. Payment terms for MegaSAR Inventory ordered by
Licensee shall be net 30 days. Prices are FOB IMNET's headquarters and are
exclusive of taxes, duties, shipping and insurance, all of which shall be paid
by Licensee. Title shall pass to Licensee upon delivery. In the absence of
specific instructions, IMNET will insure MegaSAR 420 Inventory against risk of
loss or damage until received by Licensee at the receiving location designated
by Licensee.
5.2 Maintenance of MegaSAR 420 Inventory Records. IMNET shall maintain
accurate records regarding the MegaSAR 420 Inventory not delivered to or placed
within the control of Licensee hereunder.
5.3 Payment for MegaSAR Equipment. Within 30 days of the execution of
the Agreement, Licensee shall inspect such MegaSAR Equipment and either agree to
accept or reject each item on the NBV Report. For those items accepted by
Licensee, IMNET agrees to sell to Licensee, and Licensee agrees to purchase from
IMNET, the MegaSAR Equipment. The purchase price for the MegaSAR Equipment is
set forth on the NBV Report. The purchase price shall be added to the sums due
under the Note, by an amendment to the Note, and Licensee shall make payment for
the MegaSAR Equipment in accordance with the terms of the Note. IMNET represents
and warrants that it has good, valid and marketable title to the MegaSAR
Equipment purchased by Licensee and that none of the MegaSAR Equipment is
subject to any mortgage, pledge, lien, security interest, conditional sale
agreement or encumbrance of any kind. IMNET also represents and warrants that
the MegaSAR Equipment purchased by Licensee is in adequate operating condition
and repair and conforms to its respective manufacturers' specifications, subject
to normal wear and tear.
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6. FUTURE PURCHASES OF MEGASAR PRODUCTS BY IMNET
6.1 Appointment as Distributor. Licensee hereby grants to IMNET a
single non-exclusive, non-transferable, worldwide license to market, distribute
and sell MegaSAR Products (other than those which constitute part of the
Intellectual Property, as to which IMNET has retained rights) during the Term.
6.2 Agreement to Manufacture MegaSAR Products.
6.2.1 All MegaSAR Products developed and manufactured by
Licensee shall utilize the IMNET FILM OSS, or shall be fully compatible
with the IMNET FILM OSS and MegaSAR.exe in all respects.
6.2.2 For at least the first five years of this Agreement,
Licensee shall manufacture the MegaSAR 420 or its functional equivalent
(the "MegaSAR 420"), and offer it for sale.
6.2.3 In the event that Licensee decides to discontinue the
manufacture of MegaSAR Products after the five (5) year period
described above, Licensee shall:
6.2.3.1 provide IMNET with 120 days prior notice
of Licensee's decision;
6.2.3.2 return all Intellectual Property provided to
Licensee by IMNET by the effective date of Licensee's
discontinuance of the manufacture of MegaSAR products.
Licensee's right to manufacture and distribute MegaSAR
products shall terminate on that date;
6.2.4 In the event that Licensee decides to sell or license
its rights to any derived technology or intellectual property derived
from the Intellectual Property to any third party, IMNET shall be given
the right to match any bona fide offer from such third party to
purchase or otherwise license such rights. Licensee shall provide IMNET
with such information concerning such offer as may be reasonably needed
to assess such offer and IMNET shall have ten (10) business days from
its receipt in which to agree to the terms of the third party offer. In
the event that IMNET either declines such terms, or fails to respond
within the ten day period, Licensee's obligation under this
subparagraph shall expire with respect to such third party's offer. Any
transferee shall be bound by Licensee's obligations pursuant to this
Agreement regarding any such derived technology, including Sections
2.3, 2.4 and Article 8.
6.2.5 During such time as Licensee's right to manufacture
MegaSAR Products is in effect, IMNET will provide Licensee with
information regarding all relevant corrections, updates, "bug fixes",
new releases, and new versions of IMNET FILM OSS and MegaSAR.exe. All
such material shall be subject to the terms and conditions of the
Agreement. Licensee shall promptly update the IMNET FILM OSS and
MegaSAR.exe (or equivalent) used by it in connection with MegaSAR
Products. In no event shall Licensee require more than eight weeks to
implement corrections, updates, "bug fixes"
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and new releases. In the event of a release of a new version, Licensee
shall implement an update within no more than three months.
6.3 IMNET Quotation, Time and Material Services. IMNET will provide
certain specified MegaSAR Product development assistance to Licensee in
accordance with Exhibit 6.3. The purpose of these services will be to assist
Licensee in integrating the IMNET FILM OSS to Licensee's existing document
management solution known as "Coed". A brief description of the scope of the
work to be done by IMNET is also attached hereto as part of Exhibit 6.3. Other
work will be done by IMNET for Licensee, as agreed in the future on a "time and
materials" basis at IMNET's regular rates in accordance with IMNET's standard
agreements for such services.
6.4 Price for MegaSAR Products. Licensee hereby agrees to manufacture
and to make available for sale to IMNET MegaSAR Products. The price to IMNET for
each MegaSAR 420 shall be the lower of (i) the current cost of IMNET ("IMNET's
Cost"), computed as set forth on Exhibit 6.4 per unit (as adjusted annually to
reflect changes in the Producer Price Index); or (ii) Cost Plus. The price for
other MegaSAR Products shall be as may be mutually agreed upon by the parties at
the time of such MegaSAR Product's introduction. IMNET's orders for Units shall
be given at least equal priority to Licensee's other preferred customers, i.e.,
"most favored customer" status, with regard to scheduling, delivery, returns,
pricing, support, service, and all other aspects of manufacturing, delivery,
installing and maintaining such products.
6.5 Maintenance. IMNET, its distributors and end users shall receive
warranty, maintenance and installation service at prices and on other terms no
less favorable to IMNET, its distributors and such customers than those granted
by Licensee to its other preferred end user customers.
6.6 Spare Parts. Licensee will make available all spare parts to IMNET
so as to permit IMNET to continue to support its existing MegaSAR customers.
Licensee will make available spare parts to IMNET at Cost Plus, except for any
MegaSAR 420 Inventory which has been delivered to Licensee, but for which
Licensee has not yet paid in accordance with Section 5.1. These latter parts
will be provided to IMNET at no charge other than shipping. Licensee will
maintain an adequate supply of spare and replacement parts and maintain and
replenish such supply as necessary for the performance by Licensee of its
obligations hereunder.
6.7 CNAV and the CNAV Order. IMNET is retaining at least 11
MegaSAR-420s for delivery to Advisoft for redelivery pursuant to the CNAV Order.
To the extent that CNAV orders additional MegaSAR Products through Advisoft, and
IMNET has no others in stock, IMNET will order such MegaSAR Products from
Licensee. IMNET agrees not to sell such MegaSAR Products to Advisoft at a
discount level below the discounts currently being offered to Advisoft without
Licensee's prior approval. All amounts received by IMNET for such
Licensee-supplied MegaSAR Products shall be promptly "passed through" to
Licensee. These "passed through" revenues shall apply solely to MegaSAR Products
ordered by Advisoft for CNAV, and not to other IMNET software such as the IMNET
FILM OSS. Similarly, the right granted to Licensee to participate in lieu of
IMNET in such equipment sales to CNAV shall not
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apply to other departments of the French government that may order products
through Advisoft, other IMNET distributors, or IMNET.
6.8 Price Changes for MegaSAR Products. Licensee will provide 30 days'
advance written notice to IMNET of any changes in prices for MegaSAR Products.
Within 15 days of receipt of such notice, IMNET will furnish Licensee a list of
quotations already submitted to customers or potential clients. Licensee will
honor the previously prevailing prices for any orders against such quotations
which have been submitted to Licensee for delivery within 90 days of the date of
order acceptance by Licensee.
6.9 Prices are FOB Licensee's Location. Prices are FOB Licensee's
manufacturing and development center which is located in Mountain View,
California and are exclusive of all taxes and duties. IMNET shall pay taxes and
duties associated with the sale of the MegaSAR Products by it, exclusive of
taxes based on Licensee's income.
6.10 Purchase Orders. Purchase orders must be on IMNET's approved form
and are subject to written acceptance by Licensee, which will not be
unreasonably withheld or delayed. They must incorporate this Agreement by
reference. Any change to previously accepted purchase orders will be treated as
new purchase orders submitted for acceptance by Licensee. Purchase orders and
confirmations sent via facsimile will be accepted by Licensee and IMNET. IMNET
will provide good faith confidential estimates of the number of each model of
MegaSAR Products it anticipates that it will purchase, but shall not be required
to purchase such quantities until it submits a purchase order, and such order is
accepted by Licensee.
6.11 Title/Insurance. Title in MegaSAR Products and risk of loss shall
pass to IMNET upon Delivery (FOB Licensee's factory). In the absence of specific
instructions Licensee will insure all MegaSAR Products for delivery against all
risk or loss or damage until received by IMNET at the receiving location
designated by IMNET. IMNET shall reimburse Licensee for the actual cost of such
insurance.
6.12 Payment Terms. Payment for MegaSAR Products will be made in
accordance with Exhibit 6.12.
6.13 Acceptance of MegaSAR Products. MegaSAR Products ordered by IMNET
hereunder shall be deemed to have been "Accepted" by IMNET when they pass
Licensee's standard test procedures (including manufacturer's standard setup
diagnostics) at IMNET or IMNET's customer site, thereby demonstrating that they
perform in accordance with specifications.
6.14 Documentation. Licensee will supply IMNET, at no charge, with a
set of technical instructional and operational manuals in the English language
with each MegaSAR Product purchased hereunder. Additional MegaSAR Product
documentation shall be provided by Licensee at then-prevailing Licensee
literature prices as determined from time to time by Licensee. Upon termination
of this Agreement, IMNET agrees to return to Licensee any documentation in
IMNET's possession which was provided by Licensee at no charge to IMNET.
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6.15 Source Code Escrow.
6.15.1 IMNET shall place a copy of the source code for the
IMNET FILM OSS and MegaSAR.exe with an independent escrow agent. The
escrow agent shall be authorized to release the source code to Licensee
if and when Licensee has the right thereto as provided below.
6.15.2 Provided that Licensee is not then in default under the
terms of this Agreement, the escrow agent shall provide to Licensee one
complete copy of the source code for the IMNET FILM OSS and
MegaSAR.exe, brought up to date as of the delivery of such source code
upon occurrence of any one or more of the following events:
6.15.2.1 IMNET ceases, for any reason, to do
business; or
6.15.2.2 The undisputed failure by IMNET, following
not less than 30 days written notice from Licensee clearly
indicating the alleged failure by IMNET to maintain the IMNET
FILM OSS and MegaSAR.exe and such failure substantially
impairs Licensee's or its customers' ability to operate and
use the IMNET FILM OSS or MegaSAR.exe in accordance with
IMNET's specifications. If such failure is disputed, such
notice must be supplemented by an arbitrated decision, as
defined below, or by a court order resolving the dispute; or
6.15.2.3 A case shall be commenced by or against I
MNET under the United States Bankruptcy Act.
6.15.3 Notwithstanding anything herein to the contrary, in the
event that any of the source code documentation contains source code of
software licensed to IMNET and sublicensed to Licensee, Licensee will
be required to demonstrate to the satisfaction of the escrow agent that
it is properly licensed by such licensor or Licensee to obtain access
to such source code. In the event that the escrow supplied by the
escrow agent contains third-party development tools (e.g., compilers),
Licensee shall be responsible for obtaining licenses from such third
parties for the use of such products.
6.15.4 Any request to the escrow agent for the release of
Intellectual Property source code shall include (i) a copy of any
default notice sent to IMNET as set forth above, along with proof of
delivery of such notice to IMNET; (ii) written demand that the source
code be released and delivered to Licensee, along with specific
delivery instructions; (iii) written affirmation by Licensee that the
source code supplied will be used only in accordance with the terms of
this Agreement; (iv) a copy of the Agreement, and proof that all
payments to Licensee under the Agreement are current; and (v) any fees
due the escrow agent for the escrow and/or release of the source code
being provided.
6.15.5 Upon taking possession of the source code hereunder,
Licensee agrees that such source code shall be subject to the
restriction on use, transfer, sales and reproduction placed on the
Intellectual Property by this Agreement.
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6.15.6 This escrow obligation will commence on the date the
Intellectual Property is delivered to Licensee and expire one year
after termination of the License granted herein. IMNET shall utilize
its Escrow Agent, Fort Knox Escrow Services, Inc. of Clarkston, Georgia
as escrow agent under this Agreement.
6.15.7 Licensee shall use the source code and related material
only for the maintenance of Intellectual Property licensed from IMNET.
It is expressly understood that this Section pertains to the right to
use the Intellectual Property and that no rights to ownership of the
source code shall pass from IMNET to Licensee, unless expressly agreed
upon herein in writing. It is also expressly understood that this
source code is the confidential and secret asset of IMNET and the
source code will be secured by Licensee and not reproduced or copied,
or be made available to any other party. It is also expressly
understood that the source code will either be returned to IMNET or
destroyed once the default which gave Licensee access to the source
code is removed.
UNDER NO CIRCUMSTANCES IS THE SOURCE CODE TO BE SOLD, TRANSFERRED, OR
COPIED BY LICENSEE.
7. AMENDMENT TO THE DISTRIBUTOR AGREEMENT
7.1 Agreement to Amend Distributor Agreement. Concurrently with the
execution and delivery of this Agreement, the Note and the Stock Pledge
Agreement, the Distributor Agreement shall be amended by the execution of
Exhibit 7.1.
7.2 Settlement of Amounts Due IMNET. Concurrently herewith, and as a
condition to the amendment to the Distributor Agreement, SoftNet acknowledges it
owes IMNET $377,752.12, representing all amounts previously due to IMNET under
the Distributor Agreement. The details of the amount due IMNET, and the invoices
which are to be satisfied by this payment, are specified on Exhibit 7.2. IMNET
will accept such payment, made under the Note, as full payment of all amounts
due under the referenced invoices. Each of IMNET and Licensee hereby represent
to the other that they are aware of no outstanding invoices or credits to be
obtained against any such invoices except as specified herein and on Exhibit 7.2
arising from the Distributor Agreement.
8. CERTAIN RESTRICTIVE COVENANTS
8.1 No Sales or Sales-Based Compensation to Direct Competitors. During
the Term in the Territory, neither Licensee nor any Affiliate of Licensee will
(i) sell, license or lease MegaSAR Products to Direct Competitors; or (ii)
provide any direct or indirect compensation to such Direct Competitors based on
(or otherwise in connection with) the purchase, license or lease by Direct
Competitors, end-users or distributors of MegaSAR Products. This clause shall
not be read to prohibit sales, licensing or leasing of MegaSAR Product to
end-users of software products licensed for them by Direct Competitors.
8.2 No Sales or Sales-Based Compensation to Current Customers. During
the Term in the Territory, neither Licensee nor any Affiliate of Licensee will
(i) sell, license or lease
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MegaSAR Products to Current Customers (including Current Customers which are
IMNET's authorized distributors); or (ii) provide any direct or indirect
compensation to such Current Customers based on (or otherwise in connection
with) the purchase, license or lease by end-users or distributors of MegaSAR
Products.
8.3 No Sales or Sales-Based Compensation to HCIS Vendors. During the
Term in the Territory, neither Licensee nor any Affiliate of Licensee will (i)
sell, license or lease MegaSAR Products to HCIS Vendors; or (ii) provide any
direct or indirect compensation to such HCIS Vendors based on (or otherwise in
connection with) the purchase, license or lease by end-users or distributors of
MegaSAR Products.
8.4 No Sales or Sales-Based Compensation to Providers. During the Term
in the Territory, neither Licensee nor any Affiliate of Licensee will (i) sell,
license or lease MegaSAR Products to Providers; or (ii) provide any direct or
indirect compensation to any person based on (or otherwise in connection with)
the purchase, license or lease by Providers of MegaSAR Products.
8.5 No Competing Products. During the Term in the Territory, Licensee
acknowledges and agrees that neither Licensee nor any Affiliate of Licensee will
develop, manufacture, or sell, license or lease any product which performs
substantially the same functions as a Unit, unless a License Fee is paid thereon
to IMNET as though such product were a Unit.
8.6 [Deleted.]
9. IMNET'S REPRESENTATIONS AND WARRANTIES
IMNET hereby makes the following representations and warranties to
Licensee and enters into the following covenants:
9.1 Binding Obligation. This Agreement constitutes the valid and
binding obligation of IMNET enforceable against IMNET in accordance with its
terms, except as such enforceability may be limited by insolvency, bankruptcy,
reorganization or other laws affecting creditors' rights and by general
equitable principles. The execution, delivery and performance of this Agreement
by IMNET will not (i) conflict with or result in the breach or termination of,
or constitute a default under, any lease agreement, commitment or other
instrument or any order, judgment or decree to which IMNET is a party or by
which it is bound; (ii) constitute a violation by IMNET of any applicable law or
regulation; or (iii) result in the creation of any lien, charge or encumbrance
upon any of the Intellectual Property, MegaSAR 420 Inventory or MegaSAR
Equipment, licensed and/or sold to Licensee under this Agreement. No consent,
approval or authorization of, or designation, declaration or filing with, any
governmental authority or other third party is required to be obtained on the
part of IMNET in connection with this Agreement, except such consents,
approvals, etc., as have been obtained. IMNET is currently solvent, and the
transactions contemplated in this Agreement will not render it insolvent.
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9.2 Ownership Interests. IMNET owns sufficient right, title and
interest in and to the Intellectual Property, MegaSAR 420 Inventory, and MegaSAR
Equipment to enter into and perform its obligations under this Agreement. IMNET
has full right, title and interest in and to the MegaSAR Equipment and the
MegaSAR 420 Inventory, except "components on order" inventory. IMNET represents
and warrants that the right, title and interest to the Intellectual Property is
free and clear of all liens and encumbrances and further warrants that there are
no existing copyrights, trade secrets or similar property rights of others which
are or will be infringed upon or interfered with by the grants made in this
Agreement.
9.3 Good Standing. IMNET is a corporation duly organized and validly
existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to carry on its business as presently
conducted and has full corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated herein.
9.4 No Infringement. None of the Intellectual Property infringes on any
patents, trademarks or copyrights or any other rights (including Intellectual
Property rights) or any person or violate the terms of any license or sublicense
for such Intellectual Property. IMNET has no reasonable basis to believe there
are any claims of third parties to the use of any such Intellectual Property,
nor does IMNET know of have any reasonable basis to believe that there exists
any basis for any such claim or claims.
9.5 Substantial Compliance. All of the software delivered to Licensee
hereunder will substantially comply with the performance representations
regarding such software as set forth in the user or instruction manuals and
related documentation associated with each such program. Similarly, the
Intellectual Property is sufficient, when taken together with adequate know-how,
to enable a business whose employees and agents are reasonably competent in such
matters to manufacture a MegaSAR 420 as currently designed. A MegaSAR 420, as
currently designed, manufactured to current manufacturing specifications will,
when completed and tested, perform in substantial compliance with its written
specifications.
9.6 No Third Party Payments. Except as set forth herein, IMNET is not
currently required nor will Licensee be required to pay any entity or third
party any fees or License Fees or other compensation in order to utilize the
Intellectual Property to manufacture MegaSAR 420, as currently designed.
9.7 Exception to Warranties and Representations for Generally Available
Technology. The warranties and representations of IMNET herein set forth with
regard to the Intellectual Property do not apply to Intellectual Property, such
as basic software or materials or components, that is readily available on the
open market at published prices and which may be purchased by Licensee on
substantially the same terms and conditions as those on which such products are
available to IMNET.
9.8. IMNET Indemnity as to Infringement. IMNET shall defend and
indemnify Licensee against, at IMNET's expense, any suit against Licensee to the
extent based on a claim or infringement of a U.S. patent or other intellectual
property right by the Intellectual Property provided Licensee: (i) notifies
IMNET promptly in writing of the claim; (ii) gives IMNET sole control of the
defense and settlement of same, subject to Licensee's right to participate in
such
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defense and settlement described below; and (iii) provides to IMNET all
available information, assistance and authority to defend. Licensee shall be
permitted to participate in such defense and settlement, but shall not have
authority as to any settlement which is fully paid by IMNET. Should any MegaSAR
Product or any portion become, or in Licensee's opinion be likely to become, the
subject of a claim of such infringement by Intellectual Property, Licensee shall
permit IMNET at IMNET's option either: (i) to obtain for Licensee the right to
sell or license and use such MegaSAR Product; (ii) replace or modify the
Intellectual Property so that it becomes non-infringing; or (iii) reimburse
Licensee for that portion of the License Fees paid regarding the allegedly
infringing Intellectual Property, less depreciation (an equal amount per year
over the Term) for use, damage and obsolescence, and accept its return. However,
IMNET shall have no responsibility to defend or indemnify against any claim
based upon (i) use of any MegaSAR Product in combination with any device,
software or data (not a part of the Intellectual Property); (ii) use of any
MegaSAR Product in practicing any process; or (iii) the result of IMNET's
compliance with designs or specifications of Licensee. THE FOREGOING STATES THE
ENTIRE LIABILITY OF IMNET WITH REGARD TO INFRINGEMENT BY INTELLECTUAL PROPERTY.
10. LICENSEE'S REPRESENTATIONS AND WARRANTIES
Licensee hereby makes the following representations and warranties to
IMNET and enters into the following covenants:
10.1 Binding Obligation. This Agreement constitutes the valid and
binding obligation of each of SoftNet and MTC enforceable against them in
accordance with its terms, except as such enforceability may be limited by
insolvency, bankruptcy, reorganization or other laws affecting creditors' rights
and by general equitable principles. The execution, delivery and performance of
this Agreement by Licensee will not (i) conflict with or result in the breach or
termination of, or constitute a default under, any lease agreement, commitment
or other instrument or any order, judgment or decree to which Licensee is a
party or by which it is bound; or (ii) constitute a violation by Licensee of any
applicable law or regulation. No consent, approval or authorization of, or
designation, declaration or filing with, any governmental authority or other
third party is required to be obtained on the part of Licensee in connection
with this Agreement, except such consents, approvals, etc., as have been
obtained. Each Licensee is currently solvent, and the transactions contemplated
in this Agreement will not render either insolvent.
10.2 Good Standing. SoftNet is a corporation duly organized and validly
existing and in good standing under the laws of the State of New York, has full
corporate power and authority to carry on its business as presently conducted,
and has full corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated herein. MTC is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Delaware, has full corporate power and authority to carry on its business as
presently conducted, and has full corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated herein.
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10.3 Licensee Indemnity as to Infringement. Licensee shall defend and
indemnify IMNET against, at Licensee's expense, any suit against IMNET to the
extent based on a claim or infringement of a U.S. patent or other intellectual
property right (other than those which are a part of the Intellectual Property)
by any MegaSAR Product, provided IMNET: (i) notifies Licensee promptly in
writing of the claim; (ii) gives Licensee sole control of the defense and
settlement of same, subject to IMNET'S right to participate in such defense and
settlement described below; and (iii) provides to Licensee all available
information, assistance and authority to defend. IMNET shall be permitted to
participate in such defense and settlement, but shall not have authority as to
any settlement which is fully paid by Licensee. Should any MegaSAR Product or
any portion become, or in Licensee's opinion be likely to become, the subject of
a claim of such infringement, IMNET shall permit Licensee at Licensee's option
either: (i) to obtain for IMNET the right to sell or license and use such
MegaSAR Product; (ii) replace or modify the MegaSAR Product so that it becomes
non-infringing; or (iii) grant IMNET credit for such MegaSAR Product less
depreciation (an equal amount per year over the life of the MegaSAR Product as
established by Licensee) for use, damage and obsolescence, and accept its
return. However, Licensee shall have no responsibility to defend or indemnify
against any claim based upon (i) use of any MegaSAR Product in combination with
any non-Licensee device, software or data where such use in combination forms
the basis of the claim of infringement; (ii) use of any MegaSAR Product in
practicing any process; (iii) the result of Licensee's compliance with designs
or specifications of IMNET. THE FOREGOING STATES THE ENTIRE LIABILITY OF
LICENSEE WITH REGARD TO INFRINGEMENT BY MEGASAR PRODUCTS.
10.4 [Deleted.]
10.5 Authorization to Bind Licensee. Written documents executed on
behalf of either of MTC or SoftNet may be relied upon by IMNET as having been
executed by Licensee.
11. EQUIPMENT LIMITED WARRANTY
11.1 Limited Warranty. For a period of 90 days from the date of
Acceptance by IMNET of MegaSAR Products, or for a period of 90 days after
shipment of such MegaSAR Products to any end-user customer of IMNET (or an IMNET
distributor) (provided such shipment is made no more than 30 days after
Licensee's delivery to IMNET), such MegaSAR Product shall be free from defects
in material and workmanship. Any MegaSAR Product which complies with current
specifications (those in effect at the date of delivery) shall not be considered
defective. Licensee's sole liability and IMNET's sole and exclusive remedy for a
breach of warranty is limited to (at Licensee's sole option and expense) repair
or replacement of the MegaSAR Products or part thereof which is returned to
Licensee's plant or designated repair depot, or refund of the price paid by
IMNET or its end-user customer, if delivered to the end-user.
11.2 Warranty Claim Procedures. IMNET or its end-user shall notify
Licensee in writing of the defective MegaSAR Products within the warranty
period. Freight expenses, duties and tariffs for MegaSAR products returned by
IMNET will be prepaid by IMNET. Licensee shall pay for shipment back to IMNET or
the customer of IMNET, including duties and tariffs,
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if any, provided, however, that if Licensee's inspection discloses that the
returned MegaSAR Products or part(s) are not defective within the terms of this
warranty, Licensee's standard maintenance/repair charges shall be paid by IMNET
or the customer in addition to all shipping expenses.
11.3 IMNET Provided Warranty Service. IMNET will perform warranty
service on all MegaSAR Products it has sold to date, and those sold pursuant to
the CNAV Order. IMNET will provide other service only on an agreed-upon basis
and will accept full payment for such service in accordance with the then
current warranty service schedule of Licensee, or as otherwise agreed in
advance.
11.4 Changes in Specifications. Subject to other provisions herein,
including Section 6, Licensee reserves the right, on 30 day notice, to make
changes in Equipment and specifications without any obligation to incorporate
those changes in any MegaSAR Products previously delivered to IMNET.
11.5 Warranty May be Void in Certain Circumstances. THE ABOVE
WARRANTIES DO NOT EXTEND AND SHALL NOT APPLY TO: MegaSAR Products which have
been repaired or modified by third parties without prior written approval or by
IMNET not in compliance with Licensee approved procedures and practices. MegaSAR
Products subjected to accident, neglect or misuse, to unusual physical,
environmental or electrical stress or MegaSAR Products improperly installed
including interconnection to foreign equipment.
11.6 Limitations on Warranty. THE FOREGOING WARRANTIES AND REMEDIES ARE
MADE ONLY TO AND FOR THE BENEFIT OF IMNET, ARE EXCLUSIVE, AND ARE EXPRESSLY IN
LIEU OF ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. LICENSEE NEITHER ASSUMES
NOR AUTHORIZES ANY OTHER PERSON TO ASSUME FOR IT ANY OTHER LIABILITY IN
CONNECTION WITH THE SALES, INSTALLATION OR USE OF ITS PRODUCTS. NO
REPRESENTATION OR OTHER AFFIRMATION OF FACT INCLUDING BUT NOT LIMITED TO
STATEMENTS REGARDING CAPACITY, SUITABILITY FOR USE OR PERFORMANCE OF PRODUCTS,
WHETHER MADE BY IMNET EMPLOYEES OR OTHERWISE, WHICH IS NOT CONTAINED IN THIS
AGREEMENT, SHALL BE DEEMED TO BE A WARRANTY BY LICENSEE FOR ANY PURPOSE OR GIVE
RISE TO ANY LIABILITY OF LICENSEE WHATSOEVER. NEITHER IMNET NOR LICENSEE WARRANT
THAT USE OF MEGASAR PRODUCTS WILL BE UNINTERRUPTED OR ERROR-FREE.
11.7 Limitation on Liability. NEITHER IMNET NOR LICENSEE SHALL HAVE
LIABILITY FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, ARISING FROM
OPERATION OF MEGASAR PRODUCTS, EVEN IF ADVISED OF THE POSSIBILITY THEREOF.
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12. FURTHER LIMITATIONS OF LIABILITY
12.1 EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER IMNET NOR LICENSEE
SHALL BE LIABLE FOR ANY LOSS OR DAMAGE CLAIMED TO HAVE RESULTED FROM USE,
OPERATION, OR PERFORMANCE OF THE MEGASAR PRODUCTS AND REGARDLESS OF THE FORM OF
ACTION, EXCEPT FOR LOSS OR DAMAGE CAUSED BY THE SOLE GROSS NEGLIGENCE OF
LICENSEE.
12.2 IN NO EVENT SHALL LICENSEE OR IMNET BE LIABLE TO THE OTHER OR ITS
END-USER CUSTOMERS FOR (i) ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL
DAMAGES; (ii) ANY DAMAGES RESULTING FROM LOSS OF USE, DATA OR PROFITS; OR (iii)
ANY CLAIM, WHETHER IN CONTRACT OR TORT, THAT AROSE MORE THAN ONE YEAR PRIOR TO
INSTITUTION OF SUIT THEREON, EVEN IF LICENSEE WAS ADVISED, KNEW, OR SHOULD HAVE
KNOWN OF THE POSSIBILITY THEREOF.
12.3 THE FOREGOING LIMITATIONS ON LIABILITY SHALL BE EFFECTIVE, EVEN IF
THE REMEDIES PROVIDED HEREIN ARE JUDICIALLY DEEMED TO FAIL IN THEIR ESSENTIAL
PURPOSE. IMNET'S AND LICENSEE'S LIABILITY RELATING TO PERFORMANCE OF MEGASAR
PRODUCTS SHALL IN NO EVENT EXCEED THE PURCHASE PRICE OF THE MEGASAR PRODUCTS
PURCHASED.
13. DATA AND PROPRIETARY RIGHTS
13.1 IMNET to Honor Licensee Rights. Licensee may supply data relating
to MegaSAR Products, portions of which are proprietary and will be so marked.
IMNET agrees to abide by such markings and agrees it will not reverse engineer,
disassemble or decompile any MegaSAR Products in whole or in part. Licensee
retains for itself exclusively proprietary rights (other than those retained by
IMNET as to Intellectual Property but including manufacturing rights) in and to
all designs, engineering details and other data pertaining to MegaSAR Products
provided to IMNET, and to all discoveries, inventions, patent rights, products
and all other property rights arising out of work done by Licensee. A copyright
notice of any data by itself does not constitute or evidence a publication or
public disclosure.
13.2 Notice of Unauthorized Use or Misappropriation. IMNET will notify
Licensee in writing of any unauthorized use or misappropriation of Licensee
proprietary data and will cooperate in any action taken by Licensee to recover
or protect Licensee proprietary data.
14. TRADEMARKS AND TRADE NAMES
14.1 IMNET Acknowledges Trademarks and Trade Names. IMNET concedes and
recognizes the rights of Licensee to, and shall have no right or license in, the
trademarks or trade names used with or affixed to any MegaSAR Products, other
than "MegaSAR", as to which IMNET retains the interest specified at Exhibit
1.10. IMNET specifically agrees to refrain from using such phrase or other
trademarks or trade names as a part of IMNET's (or
365060.1
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such reseller) name or mark or in any other manner which would cause a
reasonable person to infer that IMNET (or such reseller) has any affiliation
with Licensee Equipment and licensed Software. IMNET further agrees that it and
its resellers will not affix any Licensee trademarks or tradenames to any
product other than MegaSAR Products. IMNET shall be free to market product lines
other than those of Licensee.
15. TERMINATION
15.1 Right to Terminate. Either party shall have the right to terminate
this Agreement upon the occurrence of any of the following events which each
agrees will constitute essential and substantial violation of this Agreement and
just cause for such termination:
15.1.1 The other party neglects or fails to make any payment
due and such payment is not made within 15 days after written notice
thereof has been given to the defaulting party.
15.1.2 The other party defaults in any material obligation,
other than a payment, hereunder, which default has not been cured
within 30 days after written notice thereof has been given to the
defaulting party.
15.1.3 The other party (i) assigns this Agreement or any of
its rights hereunder except as provided in this Agreement; (ii) is
adjudged a bankrupt, makes an assignment for the benefit of creditors,
or a receiver, trustee in bankruptcy or similar officer is appointed to
take charge of all or part of its property; (iii) ceases to conduct its
business as a going concern or in the normal course of business,
including entering into a composition for the benefit of creditors; or
(iv) neglects or fails to perform or observe any of its existing or
future essential obligations hereunder, and such condition(s) is not
remedied within 30 days after written notice thereof has been given to
the defaulting party.
15.2 Termination Does not Affect Pre-Termination Obligations.
Termination of this Agreement shall not affect either party's pre-termination
obligations hereunder. Any such termination shall be without prejudice to the
enforcement of any undischarged obligations existing at the time of termination.
The provisions of Articles 2.3, 2.4, 4.4, 6.15, 9.8, 10.3, 10.5, 11, 12, 13, 15,
17, and 20 through 25 shall survive termination. Article 1 shall survive as
necessary to interpret the other surviving Articles.
15.3 Termination by IMNET Hereunder -- Effect on Licenses. In the event
IMNET terminates this Agreement pursuant to Section 15.1, the licenses granted
pursuant to Articles 2 and 3 hereof shall also terminate concurrently with this
Agreement.
15.4 Liquidated Damages. In the event that IMNET breaches the exclusive
manufacturing rights granted hereunder, or IMNET materially defaults on its
payment obligations for MegaSAR Products, this agreement will be terminated upon
Licensee's notice to IMNET as set forth above, and IMNET will pay to Licensee
(upon such termination), as liquidated damages, a sum equal to $4,000.00
multiplied by 250 less the number of Units sold.
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16. TRAINING
Licensee's customer training courses shall be open to attendance by
IMNET, IMNET's distributors and end-user customers at Licensee's then-prevailing
rates. The time and location for all training courses shall be specified by
Licensee. IMNET, IMNET'S distributor and/or IMNET's customers shall be
responsible for all expenses of training to include, but not be limited to,
travel, lodging, subsistence and miscellaneous expenses.
17. APPLICABLE LAW
17.1 Georgia Law to Apply. IMNET and licensee acknowledge that IMNET
currently has its principal offices in Atlanta, Georgia, U.S.A. Furthermore,
Licensee acknowledges that IMNET has executed this Agreement in Georgia. This
Agreement and the obligation of the parties hereunder shall be interpreted,
construed and enforced in accordance with the laws of the State of Georgia,
U.S.A.
17.2 Export. Each party agrees that it will comply with all United
States laws and regulations regarding re-export licenses or the control or
regulation of re-exportation of technical data including MegaSAR Products.
Licensee and IMNET agree not to transfer or license any technical data or
MegaSAR Products covered by this Agreement to any party if such transfer or
license would constitute a violation of any laws or regulations of the United
States.
18. INDEPENDENT CONTRACTORS
The relationship of IMNET and Licensee established by this Agreement is
that of independent contractors, and nothing contained in this Agreement shall
be construed to (i) give either party the power to direct and control the
day-to-day activities of the other; (ii) constitute the parties as partners,
joint ventures, co-owners or otherwise as participants in a joint or common
undertaking; or (iii) allow the other to create or assume any obligation on
behalf of the other for any purpose whatsoever. Performance by each party of all
sales and other agreements between each party and its customers are that party's
exclusive responsibility and shall have no effect on such party's obligations
under this Agreement. Each party shall be solely responsible for, and shall
indemnify and hold either party free and harmless from, any and all claims,
damages or lawsuits (including attorney's fees) arising out of the acts of that
party, its employees or its agents.
19. ASSIGNMENT
19.1 Neither party may assign this Agreement nor any interest herein,
in whole or in part without the prior written consent of the other party, which
will not be unreasonably withheld or delayed. Each acknowledges and agrees that
the other may assign its rights and obligations to another corporation without
the consent of the other party:
365060.1
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19.1.1 in connection with the sale of substantially
all of the transferring party's assets; or
19.1.2 in connection with a change in ownership of the
transferring company.
19.2 A transfer or assignment shall be deemed agreed to only if the
transferee assumes all of the transferring party's obligations hereunder. In the
latter event, the transferor shall not be relieved of such obligations.
19.3 Any assignment or transfer of this Agreement or any interest
herein to a Current Customer, Direct Competitor, HCIS Vendor, or Provider shall
be valid only with IMNET's prior written consent, which will not be unreasonably
withheld or delayed.
20. SOLICITATION OF EMPLOYEES
Neither IMNET nor Licensee shall solicit the service or hire employees
of the other during the Term or for a period of one year after the expiration of
the Term. Nothing in this Section shall prevent either party from offering
employment to any employee of the other party who responds to a publicly made
advertisement of employment, provided that such advertisement is not an attempt
to solicit, entice, or induce any employee of the other party to seek employment
with the advertising party or otherwise circumvent the advertising party's
obligations hereunder.
21. NOTICES
Notice shall be deemed given (i) when received, if hand delivered and a
receipt is executed; or (ii) when receipt is executed, if given in writing and
actually delivered or deposited in the United States mail in registered or
certified form with return receipt requested postage paid. All notices shall be
given to the notified party at the addresses set forth below. The address for
notice may be changed by notice.
If to IMNET: Mr. Kenneth D. Rardin
IMNET Systems, Inc.
8601 Dunwoody Place
Suite 420
Atlanta, Georgia 30350
with a copy to: T. Clark Fitzgerald III, Esq.
Arnall Golden & Gregory
1201 West Peachtree Street, Suite 2800
Atlanta, Georgia 30309-3450
365060.1
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If to MTC or SoftNet: c/o SoftNet Systems, Inc.
717 Forest Avenue
Lake Forest, Illinois 60045
Attention: Mr. John I. Jellinek
with a copy to: Gary Mostow, Esq.
Pederson & Houpt
161 N. Clark St., Suite 3100
Chicago, Illinois 60601
22. DISPUTE RESOLUTION
22.1 Disputes to be Referred to Chief Executive Officers. If a dispute
arises hereunder, then IMNET and Licensee each agree that, prior to commencing
litigation or termination of this Agreement, such party will cause the dispute
to be brought to the attention of its chief executive officer. The chief
executive officer of IMNET is currently Kenneth D. Rardin. The chief executive
officer of Licensee is currently John I. Jellinek.
22.2 Arbitration. All disputes, controversies, claims, etc. in
connection with this Agreement or any breach thereof shall be finally settled by
arbitration in Atlanta, Georgia, applying Georgia law, conducted in accordance
with the then-current Commercial Arbitration Rules (the "Rules") of the American
Arbitration Association. Either party may give notice, in accordance with this
Agreement, of its intention to submit such dispute, etc. to arbitration, which
shall take place before a single arbitrator experienced in the software industry
and appointed by the American Arbitration Association in accordance with the
Rules (the "Arbitrator"). Each party to the arbitration is to pay an equal part
of all costs, including any deposits, associated with the arbitration, except
that each party shall be responsible for its own attorneys' fees. Licensee and
IMNET agree that all legal action or proceeding with respect to this Agreement
shall be finally settled by arbitration and the enforcement of the arbitration
provisions of this Agreement may be initiated in the courts of the State of
Georgia (including the United States District Court for the Northern District of
Georgia). Licensee and IMNET hereby subject themselves to and accept that with
regard to any such action of law or in equity, the prevailing party shall be
entitled to be reimbursed for reasonable attorney's fees, costs and expenses.
22.3 Final and Binding Determination. The determinations of such
Arbitrator will be final and binding upon the parties to the arbitration, and
judgment upon the award rendered by the Arbitrator may be entered in any court
having jurisdiction, or application may be made to such court for a judicial
acceptance of the award and an order of enforcement, as the case may be. The
Arbitrator shall set forth with specificity the grounds for the decision in the
award.
23. INTERPRETATION
This Agreement will not be construed against either IMNET or Licensee
by reason of the authorship of any provisions hereof.
365060.1
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24. LEGAL FEES
If any action at law or in equity, such as a suit for damages, is
necessary to enforce the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees, costs and expenses in addition to any
other relief to which such prevailing party may be entitled.
25. GENERAL
This Agreement, with Exhibits, and the Distributor Agreement, as
amended, constitute the entire agreement and understanding, and supersedes all
prior proposals, negotiations and communications, oral or written, between the
parties relating to the subject matter hereof. This Agreement may be amended
only expressly and in writing signed by the duly authorized representatives of
the parties. Unless otherwise stated, all prices and dollar amounts in this
Agreement are expressed in U.S. Dollars.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed on their behalf as of the day and year first above written.
IMNET: LICENSEE (SoftNet and MTC):
SOFTNET:
IMNET Systems, Inc. SoftNet Systems, Inc.
By: ____________________________ By: ___________________________
Kenneth D. Rardin, President John I. Jellinek, President
MTC:
Micrographic Technology Corporation
By: ___________________________
Name: ___________________________
Title: ___________________________
365060.1
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EXHIBITS
Exhibit 1.4 Computation of Cost (excludes amortization of
License Fees)
Exhibit 1.5 Current Customers
Exhibit 1.10 Intellectual Property
Exhibit 1.15 Note
Exhibit 1.19 Stock Pledge and Security Agreement
Exhibit 6.3 Quotation for Development Services
Exhibit 6.4 Computation of IMNET's Cost
Exhibit 6.12 Payment Terms
Exhibit 7.1 Second Amendment to Distributor Agreement
Exhibit 7.2 Settlement Amounts
365060.1
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EXHIBIT 1.4
COMPUTATION OF LICENSEE'S COST
"Cost shall be defined as the sum of the following:
1. Bill of Materials required to assemble one (1) MegaSAR Product
2. Standard Cost of Labor and Overhead
"Labor" shall include overhead applied as a percentage of direct labor. The
Calculation of Cost shall be subject to review and approved by IMNET. If IMNET
and Licensee cannot agree on the Calculation of Cost, both parties agree to
submit such calculation to the certified public accounting firm of Arthur
Andersen, or in the event of its refusal or inability to act, then to another
"Big Six" accounting firm mutually agreeable to IMNET and Licensee, or, failing
such agreement, then to an accounting firm selected by Arthur Andersen. The
determination by the arbitrator of the calculation shall be binding on both
parties.
365060.1
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[ ] - CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 1.5
Current Customers
CONFIDENTIAL
Advisoft Consulting
Attn: Mr. Pierre Awad
3 Boulevard Ney
75018 Paris France
[ ]
Bell & Howell
360 Hanlan Road
Woodbridge, Ontario
L4L8Z65 Canada
[ ]
Cerner Corporation
Attn: Angie
2800 Rockcreek Parkway
Kansas City, Missouri 64117
[ ]
Datacom Imaging Systems
545 Wellington Street
Toronto, Ontario
Canada MSV 1G3
[ ]
Emory Clinic
Attn: Sandra Bryant
Attn: Theron Fulton
1365 Clifton Road, N.E.
Atlanta, Georgia 30322
[ ]
IDX Systems Corporation
Attn: Linda
1400 Shelburne Road
P.O. Box C-1070
Burlington, Vermont 05402-1070
[ ]
Mint
Attn: A.C. Vantilburg
Antwerpseweg 1
2803 PB Gouda
NL Holland
McLaren Health Care Corp.
Attn: Cynthia Kerchmar
401 S. Ballenger Highway
Flint, Michigan 48532-3685
Phamis Incorporated
401 Second Avenue South
Suite 200
Seattle, Washington 98104-2837
[ ]
Software AG of Austria
Attn: Alfred Gerhold
Cobenzglasse 32
1190 Vienna Austria
Software AG of Belgium
Bid Du Souverain 360
Vorstiaan, Bruxelles 1160
Brussel Belgium
Software AG of Far East
Shinjuku L Tower, 7F
1-6-1 Nishi-Shinjuku
Tokyo Japan
Software AG of France
Avenue De Rhodanie
CH-1007 Lausanne
France
[ ]
<PAGE>
EXHIBIT 1.10
INTELLECTUAL PROPERTY
1. Patents
a) Patent No. 5,367,382 "On Line Microfilm Storage and
Retrieval System", dated November 22, 1994
b) Patent No. 4,364,529, "Leader Pin", dated December 2, 1982
c) Patent Application, Serial No. 08/51,800, "An Improved
Microfilm Storage and Retrieval System, filed November 22,
1995
2. Trademarks
a) MegaSAR(R), registration number 1,887,812, registered April
14, 1995
3. Source Code
a) FILM OSS
b) diagnostic routines (both manufacturer and customer level)
c) megasar.exe modules
i) motion control
ii) scanning
iii) video
iv) communication with OSS
v) error recovery
vi) status/error message reporting
vii) initialization
viii) interface module for Galil controller board set
4. Executables
a) all of the above, plus
b) third party compression software
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c) third party motion control software (Galil drivers)
5. Third Party Hardware
a) Sensors
b) Galil motion controller board
c) amplifiers
6. Documentation
a) multiple levels of assembly and sub-assembly [joints?]
(manufacturing has a list of all the IMNET drawings
b) PC board artwork, bills of materials
c) documentation relating the third party "stuffing" of PC
boards
d) assembly procedures
e) documentation relating to "bring it up" and "test and debug"
procedures
f) copies of user and technical documentation for MegaSAR and
for third party hardware and software
MTC shall be responsible for all third party licenses.
365060.1
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EXHIBIT 1.15
PROMISSORY NOTE
$2,909,627 June 30, 1996
FOR VALUE RECEIVED, each of SoftNet Systems, Inc., a New York
corporation ("SoftNet"), and SoftNet's wholly-owned subsidiary, Micrographic
Technology Corporation, a Delaware corporation ("MTC") (collectively, the
"Maker"), jointly and severally promise to pay to the order of IMNET Systems,
Inc., a Delaware corporation, ("Holder"), at 8601 Dunwoody Place, Suite 420,
Atlanta, Georgia 30350, or, at the Holder's option at such other place as may be
designated from time to time by the Holder, the principal sum of Two Million
Nine Hundred Nine Thousand Six Hundred Twenty-Seven and No/100th Dollars
($2,909,627) in lawful money of the United States of America, first to occur of
(i) any sale or sales by SoftNet of shares of IMNET Common Stock (to the extent
of such proceeds) (in which event the proceeds from sales of IMNET Common Stock
shall be applied first against amounts due hereunder); or (ii) June 29, 1997.
Interest shall accrue on the unpaid principal amount of this Note for
each day from and including the earlier of (i) the date on which SoftNet
delivers to Holder an executed representation letter in form satisfactory to
Holder that confirms SoftNet's ability to sell its stock in Holder pursuant to
Rule 144 under the Securities Act of 1933, as amended; or (ii) two (2) business
days after Holder's release of its 1996 fiscal year earnings and audited
financial statements, until paid at a per annum rate (calculated for the actual
number of days elapsed over a year consisting of 365 or 366 days as the case may
be) equal to (i) so long as no Event of Default (defined below) shall have
occurred and be continuing, the Note Rate and (ii) otherwise, the Post Default
Rate. The "Note Rate" means the Prime Rate, as published daily in the "Money
Rates" table of The Wall Street Journal. The "Post Default Rate" means two
percent (2%) over the Note Rate. Each change in the Prime Rate shall become
effective on the business day on which the change in the Prime Rate is published
in The Wall Street Journal. On the due date unpaid principal balance and all
accrued but unpaid interest shall be paid in full. In no event shall the rate of
interest on this Note exceed the rate of interest that, if exceeded could, under
applicable law, result in (i) civil or criminal penalties being imposed on the
Holder or (ii) the Holder being unable to enforce payment of (or if collected,
to retain) all or part of such amount or the interest payable thereon (the
"Highest Lawful Rate").
If any installment of this Note shall fall due on a Saturday, Sunday
or a banking holiday, such installment shall be paid on the next day that is not
a Saturday, Sunday or banking holiday together with interest thereon for the
additional days at the applicable rate.
The Holder of this Note may declare all indebtedness evidenced by this
Note to be immediately due and payable whenever such Holder has the right to do
so under any security agreement or other agreement, now or hereafter in effect,
pursuant to which payment of the indebtedness evidenced by this Note is secured
or, irrespective of the terms or existence of any such security agreement or
other agreement, upon the happening of any of the following events (each an
"Event of Default"): (1) nonpayment when and as the same becomes due, whether by
acceleration or otherwise, of principal of, or interest on, this Note after five
(5) days' written
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notice or; (2) default by the Maker in the payment or performance of any
obligation, term or condition, or there shall occur an event of default or
equivalent event, under any other agreement between the undersigned and the
Holder; (3) the filing by or against the Maker of a request or petition for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as a
bankrupt, relief as a debtor or other relief under the bankruptcy, insolvency or
similar laws of the United States or any state or territory thereof or any
foreign jurisdiction, now or hereafter in effect; (4) the making of any general
assignment by the Maker for the benefit of creditors; or (5) the appointment of
a receiver or trustee for the Maker or for any assets of the Maker, including,
without limitation, the appointment of, or taking possession by, a "custodian",
as defined in the Federal Bankruptcy Code.
No failure by the Holder to exercise, and no delay in exercising, any
right or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise by the Holder of any right or remedy hereunder
preclude any other or further exercise thereof or the exercise of any other
right or remedy. The rights and remedies of the Holder as herein specified are
cumulative and not exclusive of any other rights or remedies which the Holder
may otherwise have.
No modifications, rescission, waiver, forbearance, release or
amendment of any provision of this Note shall be made, except by a written
agreement duly executed by the Maker and the Holder.
THE MAKER HEREBY WAIVES DILIGENCE, PRESENTMENT, PROTEST, DEMAND,
DISHONOR AND NONPAYMENT OF THIS NOTE.
This Note shall be construed under, and governed by, the laws of the
State of Georgia, without regard to principles of conflicts of laws. The Maker
agrees to pay all costs and expenses incurred by the Holder in enforcing this
Note, including, without limitation, reasonable attorney's fees actually
incurred.
Payment of this Note is secured pursuant to that certain Stock Pledge
And Security Agreement, dated of even date herewith, between the Maker and the
Holder (the "Stock Pledge Agreement") and by any other collateral granted in any
security agreement or other documents as may have been or may hereafter be
executed in favor of the Holder by the Maker of this Note or any other party.
MAKERS:
SOFTNET SYSTEMS, INC.
By: _____________________________________
John I. Jellinek, President
[CORPORATE SEAL]
365060.1
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MICROGRAPHIC TECHNOLOGY CORPORATION
By: _____________________________________
Its: _____________________________________
[CORPORATE SEAL]
365060.1
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EXHIBIT 1.19
STOCK PLEDGE AND SECURITY AGREEMENT
THIS STOCK PLEDGE AND SECURITY AGREEMENT, (this "Stock Pledge
Agreement"), made and entered into as of the 30th day of June, 1996, by and
among SOFTNET SYSTEMS, INC., a New York corporation ("SoftNet") and SoftNet's
wholly-owned subsidiary, Micrographic Technology Corporation, a Delaware
corporation ("MTC") (collectively, "Pledgor"), and IMNET SYSTEMS, INC., a
Delaware corporation ("Secured Party").
W I T N E S S E T H:
WHEREAS, SoftNet owns 277,770 shares of the issued and outstanding
Common Stock (the "Stock") of Secured Party; and
WHEREAS, Pledgor is indebted to Secured Party in the amount of Two
Million Nine Hundred Nine Thousand Six Hundred Twenty-Seven Dollars ($2,909,627)
(the "Loan"); and
WHEREAS, Pledgor has simultaneously herewith executed and delivered to
Secured Party a Promissory Note (the "Note") dated as of the date hereof,
evidencing the Loan; and
WHEREAS, Pledgor and the Secured Party have entered into that certain
Manufacturing and Distribution License Agreement, dated as of June 30, 1996, and
the related Second Amendment to Distributor Agreement, and certain other
documents (collectively, the "Agreement"), whereby Pledgor has agreed to
undertake certain actions for the benefit of, and make payments to, Secured
Party from and after the date hereof; and
WHEREAS, in order to induce the Secured Party to accept the Note and to
enter into the Agreement, Pledgor has agreed to secure its obligations under the
Note and the Agreement with 77,200 shares of the Stock and proceeds from the
sale thereof by Pledgor (collectively, the "Collateral").
NOW, THEREFORE, in consideration of the covenants and agreements
contained in this Stock Pledge Agreement, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, it
is hereby agreed as follows:
1. Stock Pledge and Creation of Security Interest. Concurrently
herewith Pledgor has delivered the Collateral to Secured Party, with each
certificate accompanied by fully executed stock powers, with signatures
guaranteed. Pledgor hereby pledges, hypothecates, assigns, transfers and sets
over and continues to pledge, hypothecate, assign, transfer and set over unto
Secured Party, and hereby grants and continues to grant to Secured Party a
security interest in, the Collateral to secure performance and payment of the
obligations and indebtedness of Pledgor to Secured Party evidenced by the Note.
2. Representations, Warranties and Covenants. Pledgor hereby
represents, warrants and covenants in favor of the Secured Party that: Pledgor
owns and has full power and authority to pledge and assign the Collateral and
will have such authority with respect to any substituted or additional
Collateral that may be hereafter delivered to the Secured Party; the Collateral
is not subject to the interest of any third person (other than the security
interest granted hereunder);
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Pledgor will defend the Collateral against the claims and demands of all third
persons (other than the security interest granted hereunder); the Collateral is
and will be genuine, free from forgery, counterfeit, and all adverse liens,
claims, conditions precedent, conditions subsequent, and encumbrances (other
than the security interest granted hereunder); and Pledgor will immediately
deliver any certificates, stock powers or instruments evidencing any of the
Collateral to the Secured Party to be held by the Secured Party hereunder.
3. Further Assurances. Pledgor shall do, make, procure, execute and
deliver all acts, things, writings, and assurances as the Secured Party may at
any time request to protect, perfect, assure or enforce its interests, rights
and remedies created by, provided in or arising from this Agreement, including
without limitation the execution of blank transfer powers and any Uniform
Commercial Code financing statements deemed necessary or appropriate by the
Secured Party and any applications, certificates or other documents the Secured
Party may request in connection with the obtaining of any consent, approval,
qualification or authorization of any governmental authority necessary or
appropriate for the effective exercise of any rights or remedies under this
Agreement.
4. Event of Default. The failure of Pledgor to make any required
payment when due under the Promissory Note or any other indebtedness to the
Secured Party will constitute a default by Pledgor under this Agreement (herein
also referred to as an "Event of Default").
5. Remedies Upon Event of Default. Upon the occurrence of an Event of
Default hereunder, the Secured Party may, in its sole discretion and without
notice to or demand upon Pledgor, declare immediately due and payable the
Promissory Note secured hereby and exercise any one or more of the rights and
remedies granted pursuant to this Agreement or provided by law. In furtherance
of the Secured Party's rights and remedies hereunder and not in limitation
thereof, the Secured Party shall have full power and authority to sell, assign,
transfer and deliver the whole of the Collateral, or any part thereof, in such
order as the Secured Party may elect, at public or private sale in accordance
with the Georgia Uniform Commercial Code, or other applicable law or agreement,
at such price or prices, and upon such terms and conditions as the Secured Party
in its sole discretion may determine, and to apply the proceeds remaining after
deducting all costs of sale, in payment or reduction of the Promissory Note in
such order as the Secured Party, in its sole discretion, may determine. At any
such sale, the Secured Party may, if it be the highest bidder, purchase any or
all of the Collateral so sold, free from any right of redemption in Pledgor, and
may apply any unpaid portion of the Promissory Note on account of or in full
satisfaction of the purchase price. Upon the occurrence of an Event of Default
hereunder, the Secured Party also shall have the right to surrender, redeem or
collect any of the Collateral and apply the proceeds thereof to the Promissory
Note in such order as the Secured Party, in its sole discretion, may determine.
If any notification to Pledgor of an intended disposition by the Secured Party
of any of the Collateral is required by law, such notification, if mailed, shall
be deemed reasonably and properly given if mailed at least ten (10) days before
such disposition. For the purposes aforesaid, the Secured Party is authorized in
Pledgor's name to sign and execute any transfer, conveyance or instrument in
writing which may be necessary or lawful in the premises.
6. Additional Rights of Secured Party upon Event of Default. At any
time after an Event of Default has occurred, the Secured Party in its name or in
the name of its nominee or of Pledgor may, in its discretion and without notice
to or demand upon Pledgor: (l) collect by legal proceedings or otherwise all
dividends, interest, principal payments and other sums now
365060.1
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<PAGE>
or hereafter payable upon or on account of the Collateral; (2) enter into any
renewal, modification, extension, substitution, reorganization, deposit, merger,
or consolidation agreement, or any agreement in any way relating to or affecting
the Collateral, and in connection therewith may deposit or surrender control of
such Collateral thereunder, accept other property in exchange for such
Collateral and do and perform such acts and things as it may deem proper, and
any money or property received in exchange for such Collateral or otherwise
shall be either applied to the Promissory Note or thereafter held by the Secured
Party as Collateral pursuant to the provisions hereof in a non-interest bearing
or cash collateral account unless and until such application will cause
Promissory Note to be paid in full; (3) make any compromise, settlement or
release the Secured Party deems desirable or proper with reference to the
Collateral; (4) insure, process and preserve the Collateral; (5) cause the
Collateral to be transferred to its name or to the name of its nominee with or
without disclosing that such Collateral is subject to the lien and security
interest hereunder; (6) exercise as to such Collateral all the rights, powers
and remedies of an owner; (7) perform any obligation of Pledgor hereunder; and
(8) send any Collateral, whether pledged or transferred to the Secured Party by
Pledgor or some other Person, to the Persons who pledged such Collateral or to
any other Person or agent for collection, sale, redemption or substitution
without liability for loss in transit or for any act or default of the Person to
whom such Collateral may be sent, except Secured Party shall be liable for the
loss or wrongful transfer of the Collateral resulting from the negligent or
intentional misconduct of Secured Party or its agents, all without releasing,
impairing, affecting or lessening the liability of Pledgor, but the Secured
Party shall have no obligation to do any of the foregoing. In furtherance of the
foregoing, Pledgor hereby appoints the Secured Party as their lawful
attorney-in-fact to carry out the foregoing acts including the authority to
redeem or collect and give full receipt for any distributions declared, paid,
payable, or issued in respect of the Collateral and to endorse Pledgor's name on
any of the Collateral and on all proceeds therefrom that may come into the
Secured Party's possession and to deposit or otherwise collect the same.
7. Receipt of Cash Dividends. Unless and until the occurrence of an
Event of Default hereunder, Pledgor shall be entitled to receive any and all
cash dividends or other cash distributions on the Collateral and/or exercise any
and all voting powers pertaining to any of the Shares (and give written consents
in lieu of voting thereon) for all purposes not inconsistent with the terms
hereof. Upon the occurrence of an Event of Default hereunder, the Secured Party
or its nominee may, in its discretion and upon notice to Pledgor, exercise all
voting powers pertaining to any and all of the Shares (and give written consents
in lieu of voting thereon) and may exercise such power in such manner as the
Secured Party, in its sole discretion, shall determine, but such voting power
shall not vest in Secured Party unless and until Secured Party or its nominee
actually gives notice to Pledgor that the Secured Party has elected to exercise
the same. The exercise by the Secured Party of any of its rights and remedies
under this paragraph shall not be deemed a disposition of Collateral under
Article 9 of the Uniform Commercial Code nor an acceptance by the Secured Party
of any of the Collateral in satisfaction of the Promissory Note.
8. Security Interest Absolute. This Agreement and the lien, security
interest and security title conveyed hereunder shall remain in full force and
effect without regard to, and shall not be released, suspended, terminated,
modified or otherwise affected by any circumstance or occurrence whatsoever,
including without limitation any of the following (whether or not Pledgor
consent thereto or have notice thereof): (i) any change in or waiver of the
time, place or manner of payment, or any other term, of the Promissory Note or
either of the Promissory Note, any waiver of or any renewal, extension,
increase, amendment or modification of or
365060.1
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<PAGE>
addition or supplement to or deletion from, or any other action or inaction
under or in respect of, the Promissory Note or either of the Promissory Note or
any other document, instrument or agreement referred to therein or any
assignment or transfer of the Promissory Note or either of the Promissory Note;
(ii) any bankruptcy, insolvency, liquidation or other like proceeding or
occurrence relating to Secured Party; (iii) any failure of the Secured Party to
exercise any right or remedy against any Person other than Pledgor liable for
the Promissory Note; (iv) any other act or failure to act by the Secured Party
which may adversely affect Pledgor; or (v) any other circumstance which might
otherwise constitute a defense against, or a legal or equitable discharge of,
Pledgor's liability under this Agreement or the Secured Party's lien, security
interest or security title hereunder.
9. Release of Shares. So long as no Event of Default shall have
occurred and be continuing, as of the date that a payment of principal is made
under the Promissory Note, a number of the Shares shall be released from the
pledge hereunder and delivered by the Secured Party to Pledgor. The number of
Shares to be so released shall be calculated by multiplying the number of Shares
held by the Secured Party under the pledge (immediately before the release) by a
fraction, the numerator of which shall be the amount of the principal being paid
on that date and the denominator of which is the sum of the numerator and the
principal to be paid in the future.
10. Waivers. Pledgor hereby waives: (i) notice of acceptance of this
Agreement by the Secured Party; (ii) notice of presentment, protest and notice
of dishonor or non-payment as to the Promissory Note or any other instrument
which evidences the Promissory Note, and (iii) notice of any acceleration of the
Promissory Note. Pledgor further waives any right Pledgor may have, by statute
or otherwise (such as by Official Code of Georgia Annotated ss. 10-7-24), to
require that the Secured Party seek recourse first against any other Person, or
to realize upon any collateral for the Promissory Note other than the Collateral
pledged hereunder, as a condition precedent to enforcing the Secured Party's
lien, security interest and security title under this Agreement in the
Collateral. Pledgor further consents and agrees that, without notice to or
consent by Pledgor and without affecting or impairing this Agreement and the
lien, security interest and security title granted hereunder, the Secured Party
may compromise or settle, or may waive, amend or supplement in any manner the
provisions of either of the Promissory Note or any other document, instrument,
guaranty, or agreement relating to or securing the Promissory Note (other than
this Agreement) or may release, surrender, exchange, modify or compromise any
and all collateral securing the Promissory Note (other than the Collateral) or
in which the Secured Party may at any time have a lien, or may refuse to enforce
its rights or may make any compromise or settlement or agreement therefor, in
respect of any or all of such collateral. Pledgor expressly waives any and all
rights of subrogation, reimbursement, indemnity or contribution and any other
claim which Pledgor may now or hereinafter have against any other Person
directly or contingently liable on the Promissory Note arising from the
existence, performance or enforcement of this Agreement by or against Pledgor or
with respect to any of the Collateral.
11. Taxes and Other Costs. Pledgor agrees to pay all taxes, charges,
liens and assessments against the Collateral, and upon the failure of Pledgor to
do so the Secured Party, at its option, may pay any of them and shall be the
sole judge of the legality or validity thereof and the amount necessary to
discharge the same. All advances, charges, costs, taxes, liens, assessments, and
expenses, including reasonable attorney's fees, incurred or paid by the Secured
Party in exercising any right, power or remedy conferred in this Agreement, or
in the
365060.1
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<PAGE>
enforcement thereof, shall become a part of the Promissory Note secured hereby
and shall bear interest from the date incurred or paid by Secured Party at the
lesser of (i) the highest rate of interest Pledgor has contracted to pay to the
Secured Party under the Promissory Note or (ii) the highest rate permissible
under applicable law.
12. Termination. This Agreement and the assignment and security
interest conveyed hereunder shall remain in full force and effect until such
time as the Promissory Note have been paid in full.
13. Rights Cumulative. The rights, powers and remedies given to the
Secured Party by this Agreement shall be in addition to all rights, powers and
remedies given to the Secured Party by virtue of any statute or rule of law and
all such rights, powers and remedies are cumulative and not alternative, and may
be exercised and enforced successively or concurrently. Any forbearance or
failure or delay by the Secured Party in exercising any right, power or remedy
hereunder shall not be deemed to be a waiver of such right, power or remedy, and
any single or partial exercise of any right, power or remedy hereunder shall not
preclude the further exercise thereof; and every right, power and remedy of the
Secured Party hereunder shall continue in full force and effect until such
right, power or remedy is specifically waived by an instrument in writing
executed by the Secured Party.
14. Miscellaneous. Words importing the singular number shall include
the plural number and vice versa, and any pronoun used shall be deemed to cover
all genders. "Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof. The terms "Pledgor"
and "Secured Party" as used in this Agreement shall include, where applicable,
the heirs, legal representatives, successors and assigns of those parties. If
any provision hereof or the application thereof to any Person or circumstance
shall to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application of such provisions to Persons or circumstances
other than those to which it is invalid or unenforceable, shall not be affected
thereby, and each provision of this Agreement shall be valid and shall be
enforced to the fullest extent permitted by law. The internal laws of the State
of Georgia shall govern the construction of and the interests, rights and duties
of the parties to this Agreement shall be construed under, and governed by, the
laws of the State of Georgia, without regard to principles of conflicts of laws.
This Agreement is intended to be an instrument under seal.
WITNESS the hand and seal of Pledgor as of the 30th day of June, 1996.
PLEDGORS:
SOFTNET SYSTEMS, INC.
By: _____________________________
John I. Jellinek, President
[SEAL]
365060.1
v
<PAGE>
MICROGRAPHIC TECHNOLOGY CORPORATION
By: ______________________________
Its: ______________________________
[SEAL]
SECURED PARTY:
IMNET SYSTEMS, INC.
By: _______________________________
Kenneth D. Rardin, President
365060.1
vi
<PAGE>
EXHIBIT 6.4
COMPUTATION OF IMNET'S COST
"IMNET's Cost" shall be defined as IMNET's actual cost to manufacture
the MegaSAR 420, as agreed to by both IMNET and Licensee within thirty (30) days
of the date hereof of this Agreement. If Licensee and IMNET cannot agree on the
calculation of IMNET's Cost, both parties agree to submit such calculation to
the certified public accounting firm of Arthur Andersen, or in the event of its
refusal or inability to act, then to another "Big Six" accounting firm mutually
agreeable to IMNET and Licensee, or, failing such agreement, then to an
accounting firm selected by Arthur Andersen. The determination by the arbitrator
of the calculation shall be binding on both parties.
365060.1
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<PAGE>
EXHIBIT 6.12
IMNET'S PAYMENT TERMS
Payment for MegaSAR Products
40% due on acceptance of an order by Licensee.
30% due on advice from Licensee that the MegaSAR Products ordered by IMNET are
ready for shipment.
30% due on successful completion of acceptance testing as described in Section
6.13.
365060.1
i
<PAGE>
EXHIBIT 7.1
IMNET Systems, Inc.
8601 Dunwoody Place
Suite 420
Atlanta, Georgia 30350
SECOND AMENDMENT TO DISTRIBUTOR AGREEMENT
THIS SECOND AMENDMENT TO DISTRIBUTOR AGREEMENT ("Second
Amendment") is to that certain Distributor Agreement dated March 28, 1993 and
later amended by that certain Amendment to Distributor Agreement dated June 20,
1996 (the "Amendment") and is made effective the later of the two dates below
written by and between IMNET SYSTEMS, INC. ("IMNET"), with its corporate address
and principal place of business at 8601 Dunwoody Place, Suite 420, Atlanta, GA,
30350 and SOFTNET SYSTEMS, INC. ("SoftNet" or "Distributor"), with its corporate
address at 717 Forest Avenue, Lake Forest, IL 60045.
WHEREAS, the above parties have entered into a Manufacturing and
Distribution License Agreement specific to IMNET's MegaSAR; and
WHEREAS, the above parties mutually desire to modify the terms and
conditions of the Distributor Agreement, as previously amended to accommodate
the above agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein made
and undertaken, IMNET and Distributor, intending to be legally bound, do hereby
agree to the following:
1. Distributor will substitute Software licenses in lieu of any commitment
to purchase Equipment made in the Amendment on a dollar for dollar
basis.
2. The following references to "Equipment" are stricken from the
Agreement:
a) Section 1.3 (definition of "Equipment");
b) The second sentence of Section 2.4 is stricken in its
entirety and replaced with the following:
"Distributor's prices for IMNET Software to its customers
shall be no less than the prices listed in the IMNET Price
List.";
c) The final sentence of Section 6.1.2;
d) Section 6.1.6 shall be stricken in its entirety;
e) Section 14 ("Equipment Warranty") shall be stricken in its
entirety.
3. Sections 3.0 and 5.2 of this Amendment shall be stricken in their
entirety.
365060.1
i
<PAGE>
[ ] - Confidential Treatment Requested
4. Section 5.3 is amended to delete the words "and Equipment".
5. SoftNet provided a Purchase Order for Software in an amount equal to
the Balance on June 28, 1996. Payment of the amount of the Purchase
Order shall be in accordance with the Note issued pursuant to the
Manufacturing and Distribution License Agreement executed as of June
30, 1996 (the "Note").
6. IMNET shipped the Software specified on the Purchase Order on or before
June 30, 996.
7. The parties agree to reconcile SoftNet's account under the Distributor
Agreement by making the payments and issuing the credits described on
the attachment to this Second Amendment (which shall be the same as
Exhibit 7.2 to the Manufacturing and Distribution License Agreement).
Payments due IMNET from SoftNet shall be made in accordance with the
terms and conditions of the Note.
8. In general, the party performing services under the Distributor
Agreement should be the party receiving revenue for those services;
however, services performed by IMNET in the support of SoftNet's
prospective customer, R4 Services, Inc., will be provided to SoftNet
for such customer free of charge up to a maximum of [ ], calculated
based on the rates used in IMNET's current quotation to SoftNet. Any
additional services will be billed to SoftNet at rates as are mutually
agreed upon.
9. Unless otherwise herein modified, changed, deleted or added, all other
terms and conditions of the Agreement, as amended, remain as originally
stated.
IN WITNESS WHEREOF, the parties hereto have executed this SECOND
AMENDMENT TO DISTRIBUTOR AGREEMENT as of the later of the dates below.
IMNET SYSTEMS, INC. SOFTNET SYSTEMS, INC.
By: _____________________________ By: _____________________________
Title: _____________________________ Title: _____________________________
Date: As of June 30, 1996 Date: As of June 30, 1996
365060.1
ii
<PAGE>
EXHIBIT 11
IMNET SYSTEMS, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
The following computations set forth the calculations of primary and fully
diluted earnings per share for the twelve months ended June 30, 1996, 1995, and
1994.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1996 1995 1994
---- ---- ----
FULLY FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
EARNINGS EARNINGS EARNINGS EARNINGS EARNINGS EARNINGS
PER SHARE PER SHARE PER SHARE PER SHARE PER SHARE PER SHARE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net loss........................... $ (6,390,893) $ (6,390,893) $ (4,809,523) $ (4,809,523) $ (5,945,861) $ (5,945,861)
============ ============ ============ ============ ============ ============
Weighted average outstanding
common shares...................... 8,350,064 8,350,064 2,452,412 2,452,412 2,342,762 2,342,762
Increase due to assumed issuance
of shares related to outstanding
stock options using the treasury
stock method.................... -- -- 113,156 113,156 121,978 121,978
Increase due to assumed exercise
of stock warrants using the
treasury stock method........... -- -- 18,334 18,334 18,334 18,334
Increase due to assumed
conversion to common stock
of convertible preferred shares
and accrued dividends........... -- -- 2,317,127 2,317,127 975,474 975,474
------- -------- --------- --------- ------- -------
Adjusted weighted average
outstanding common shares
and common share
equivalents..................... 8,350,064 8,350,064 4,901,029 4,901,029 3,458,548 3,458,548
========= ========= ========= ========= ========= =========
Net loss per common share and
common share equivalent......... $ (0.77) $ (0.77) $ (0.98) $ (0.98) $ (1.72) $ (1.72)
========== =========== ============ ============ ============ ============
</TABLE>
Note: Net loss per common share and common share equivalent has been computed
based upon the weighted average number of common shares and common share
equivalents outstanding during each period. Common share equivalents recognize
the dilutive effects of the conversion of preferred stock and accrued dividends
to common stock prior to their conversion and of outstanding options and
warrants to acquire common stock. The Company has used the initial public
offering price of $12.00 per common share for all periods prior to the
completion of the offering for purposes of computing the potential dilutive
effects of common share equivalents. Pursuant to the rules of the Securities and
Exchange Commission, common and common equivalent shares issued in the 12 months
prior to the Company's initial public offering have been included in the
computation of common and common equivalent shares as if they were outstanding
for all periods prior to the Company's initial public offering, including loss
years where the impact of the incremental shares is antidilutive. All other
common stock equivalents including the effect of outstanding options after the
Company's initial public offering have been excluded from the computations
because their impact on the Company's net loss per share is antidilutive.
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
1) IMNET/Evergreen Technologies, Inc., a Delaware corporation (f/k/a IMNET
Maine Acquisition Corporation)
2) IMNET California Acquisition Corporation, a Delaware corporation
3) IMNET Oregon Acquisition Corporation, a Delaware corporation1
Each of these subsidiaries is one hundred percent (100%) owned by the
Registrant.
- - --------
1 The Registrant intends to change the name of this corporation to
"IMNET/LaserArc, Inc."
365132.1
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors IMNET Systems, Inc.:
We consent to the incorporation by reference in the Registration Statements
(No. 333-4014 and No. 333-4016) on Form S-8 of IMNET Systems, Inc. of our
reports dated August 13, 1996, relating to the consolidated balance sheets of
IMNET Systems, Inc. and subsidiaries as of June 30, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended June 30, 1996, and
the related schedule, which reports appear in the IMNET Systems, Inc. 1996
Annual Report on Form 10-K.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
September 30, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30,1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000893329
<NAME> IMNET SYSTEMS, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 16,084,799
<SECURITIES> 21,541,760
<RECEIVABLES> 18,139,581
<ALLOWANCES> 276,290
<INVENTORY> 2,015,334
<CURRENT-ASSETS> 58,211,531
<PP&E> 4,297,919
<DEPRECIATION> 1,041,710
<TOTAL-ASSETS> 68,175,071
<CURRENT-LIABILITIES> 8,035,999
<BONDS> 0
0
0
<COMMON> 91,978
<OTHER-SE> 60,047,094
<TOTAL-LIABILITY-AND-EQUITY> 68,175,071
<SALES> 0
<TOTAL-REVENUES> 26,623,305
<CGS> 0
<TOTAL-COSTS> 34,918,339
<OTHER-EXPENSES> 11,107
<LOSS-PROVISION> 202,846
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,390,893)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,390,893)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,390,893)
<EPS-PRIMARY> (0.77)
<EPS-DILUTED> (0.77)
<PAGE>
</TABLE>
