U. S. 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 for the fiscal year ended September 30, 1996.
OR
[ ] Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File No.: 1-5270
SOFTNET SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
New York 11-1817252
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
717 Forest Avenue, Lake Forest, Illinois 60045
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 266-8150
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par American Stock Exchange
value $.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
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 for 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. Yes X 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 the 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 the voting stock held by non-affiliates of the
registrant at December 30, 1996 was approximately $26.2 million.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 30, 1996
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Common stock, $.01 per share par value 6,564,455
Documents Incorporated by Reference:
Proxy Statement for Annual Meeting of Shareholders to be held on March
4, 1997 (Part III)
<PAGE>
PART I
Item 1. Business
Overview
SoftNet Systems, Inc. (the "Company") is engaged in the business of developing,
marketing, installing and servicing electronic information and document
management systems that allow customers to electronically request and
electronically receive information. The Company operates through three segments:
document management, telecommunications and Internet services.
The document management segment designs, develops, manufactures and integrates
comprehensive, non-paper based systems and components that enable the Company to
deliver to its customers cost-effective solutions for storage, indexing and/or
distribution of high-volume computer generated or entered information. These
systems, which include both hardware and software products, are based on
industry standard client-server architecture providing flexibility to connect to
a wide variety of information systems. The hardware manufactured by the Company
includes a family of computer output microfilm ("COM") printers. The Company's
software principally captures data and information from a variety of sources,
intelligently indexes the data and outputs the information to a variety of
storage media including optical disk, magnetic disk and tape, CD-ROM, microfilm
and microfiche. The image source and storage media are transparent to the system
user.
The telecommunications segment provides communication solutions through the
design, implementation, maintenance and integration of voice, data and video
communication equipment and service. The telecommunications segment operates
throughout the Midwest with offices in Chicago, Illinois, Kansas City, Missouri
and Milwaukee, Wisconsin. The Company's telecommunications products include
telephone systems and call processing systems (including call centers, voice
messaging, interactive voice response ("IVR") and computer telephone integration
("CTI")). These products are manufactured by third parties. Additionally, the
Company develops software for IVR and CTI applications, sells and installs local
and long distance network services, provides maintenance services for existing
customers and provides cabling and data communications. The telecommunications
segment markets its products and services principally to customers with 25 or
more telephones located in the Midwest.
The Internet services segment, which solely targets business customers, provides
Internet access, web and database development, and Internet training. Internet
services are provided by the Company's wholly owned subsidiary, MediaCity World,
Inc. ("MCW"), a San Francisco Bay area Internet Service Provider which was
acquired in June 1996. The Company's products and services include both dial-up
and dedicated Internet access, web site and database development, and Internet
training for Internet browser users and web site developers. Additionally, MCW
is an agent for sales of local telephone company data services in conjunction
with the sale of Internet access. The Company maintains Points of Presence
("POPs") in nine (9) locations in the San Francisco Bay Area and Reno, Nevada.
The Company's strategy includes the selling of products and services that, when
taken together with a customer's existing computer resources and
telecommunications systems, can consolidate all information within an enterprise
into a common, electronically accessible information warehouse, regardless of
geographic diversity.
The Company was incorporated in New York in December 1956. Its principal
executive office is located at 717 Forest Avenue, Lake Forest, Illinois 60045
and its telephone number is (847) 266-8150. As used herein, the defined term
"Company" shall mean SoftNet Systems, Inc., together with its four wholly-owned
operating subsidiaries, Kansas Communications, Inc. ("KCI"), Communicate Direct,
Inc. ("CDI") (d/b/a SoftNet Business Solutions, Inc. ("SBS"), Micrographic
Technology Corporation ("MTC") and MCW, unless the context otherwise indicates.
KCI and SBS comprise the Company's telecommunications segment, MTC comprises the
document management segment and MCW comprises the Internet segment.
Industry Segments
Financial information relating to industry segments of the Company for the three
years ended September 30, 1996, 1995, and 1994 is set forth in Note 16 to the
Consolidated Financial Statements included herewith.
Market Overview
Document Management Segment
The volume of information being generated and processed by the private and
public sectors is growing rapidly. Currently, the Company estimates that 90% of
information is generated and stored using paper, a format which (a) causes
delays, (b) requires significant space and personnel for document storage, (c)
results in lost, damaged and/or mis-filed documents, (d) requires support for
dual document management systems, one for paper and one for electronic
documents, and (e) generally allows only one concurrent user of a document. As a
result, the focus in the imaging industry has been on developing and expanding
non-paper based storage and retrieval technologies.
Historically and currently, the impediments to a higher utilization rate for
non-paper based storage include:
Lack of widespread personal computing technology and acceptance.
Lack of network capabilities to connect employees within the office and
in remote locations with the storage and retrieval technologies.
Lack of "seamless" retrieval technology allowing the user to retrieve a
stored document from the desktop personal computer rather than trying
to determine on what storage media the document was stored and then
retrieving it through the specific retrieval process associated with
that media.
High cost of electronic storage devices.
There is growing interest in non-paper based storage as a result of increased
computer competency created by the personal computer revolution, proliferation
of personal computers, growth of networks connecting those computers to data
repositories and declining cost of storage. Businesses typically utilize several
different non-paper based storage technologies simultaneously. Demand for a
particular technology is driven by cost, speed of retrieval, ongoing feasibility
of retrieval technology and longevity requirements of the documents. The optimal
mix of these attributes changes according to the frequency of information usage
and the urgency of its retrieval. At the early stage of a document's life when
the document is in high usage, a high-cost, but fast-access technology is
appropriate. In later stages, it is more appropriate for the data to be
transferred for archiving to a low-cost technologically independent media such
as COM.
COM converts digital information directly from a computer or magnetic tape to an
analog format which then can be stored on microfilm or microfiche. COM was
initially developed as an information management system that would reduce the
cost and increase the speed of computer output by "printing" computer generated
data on microfilm or microfiche instead of paper. Compared to paper, COM has a
number of benefits. COM recorders can print reports substantially faster than
high speed printers and multiple copies can be made easily and economically on
high-speed duplicators. The effective speed of MTC's COM printer is up to 600
data pages of output per minute. By contrast, today's high speed page printers
average between 200 and 300 data pages per minute. In addition, a COM recorder
can print a 670 page report on a single 4" X 6" microfiche. In addition,
microfilm is accepted as evidence in a court of law since the image cannot be
altered and microfilm offers the capability of storing a document for over 100
years as compared to the electronic technology alternatives (e.g. CD-ROM
and magnetic tape), which become obsolete at 3-5 year intervals. The fact that
COM can be read by the human eye makes it the safer choice for storage of
documents which must outlive the 3-5 year technological obsolescence cycle
associated with electronic storage products.
Telecommunications Segment
The Company believes that the telecommunications industry is becoming
increasingly complex and that, as a result, businesses are seeking to narrow
their vendor base to those suppliers who offer a broad range of products and
services and can manage the complexity of the new technology. Trends in the
industry include:
Growth of New Communication Products and Markets. A variety of new communication
technologies have emerged over the past several years which enhance the
capabilities of the traditional telephone system. A variety of manufacturers
have introduced new products including call centers, automated attendants,
interactive voice response ("IVR") units, video conferencing systems and voice
messaging products.
Increased Use of "Unified Messaging" Systems. Over the past several years,
multiple forms of messaging, including voice mail, E-mail and facsimile, have
proliferated in the office environment. All of these forms of messaging have
emerged as independent technologies, generally requiring their own dedicated
hardware and their own communication protocols. As a result, office workers
generally are required to manually retrieve a facsimile, pick up a telephone to
listen to voice mail and log on to a computer to retrieve E-mail. To improve the
efficiency of managing information, businesses are seeking ways to unify access
to disparate forms of messaging. This includes providing workers access to their
messages regardless of whether they are on-site or at a remote location.
Computer telephone integration ("CTI") is providing an interface for managing
different message types from either a desktop personal computer or a telephone.
While there are numerous manufacturers of CTI hardware and software equipment,
the manufactured systems need to be "customized" for an individual business.
Increasing Role of Independent Vendors. Through new technologies, the private
branch exchange ("PBX") is being utilized as a multimedia "backbone" for
transporting voice and data over network services. As a result, businesses are
requiring increasingly complex telecommunications systems. The Company believes
that it will be more cost-effective for these companies to contract the
management of their communication systems to third parties. The Company also
believes that the role of independent vendors such as itself will increase over
time. As a result of its independence from any manufacturer, the Company has the
ability to select those products which provide the best technological solution
to its customers. This independence also provides the Company with the
flexibility to take advantage of new technologies and products as they become
available without large investments in research and development and the risk of
inventory obsolescence and technological incompatibility.
Internet Services Segment
The Company believes that the Internet services segment will provide added value
to its existing customer base while better positioning the Company as a
solutions provider. The Internet services segment is focused solely on business
customers which represents the fastest growing and most profitable sector of the
Internet market. Due to the complexity of the Internet and rate at which new
development platforms are being introduced, MCW will continue to position itself
as a full service provider of Internet solutions.
Industry Trends
The Company believes that its core businesses are rapidly merging. To improve
the efficiency of managing information, businesses are seeking ways to unify
access to disparate forms of messaging. For example, unified messaging, call
processing and imaging message platforms from companies such as Octel/VMX,
Applied Voice Technologies and Wang have recently integrated with the E-mail
applications of Microsoft Windows 95, creating a single file management system
for voice, fax, E-mail and imaging messages. Similarly, imaging vendors are
utilizing telecommunications and Internet technology to distribute large volumes
of data from centralized data centers to remote offices and customer sites.
Technological developments such as high speed Integrated Services Digital
Network ("ISDN"), Frame Relay, and Asyncronous Transfer Modes ("ATM")
transmission lines have made the distribution of data utilizing
telecommunications and Internet technology cost effective.
Another trend is the blending of telecommunications and imaging applications
found in customer service call centers. Typically, these applications are very
transaction oriented. Customer Service agents must be able to access various
types of data instantly in order to service inquiries. Data are usually found on
written business forms for invoices and purchase orders, optical servers for
publications and specifications, fax servers for both inbound and outbound
requests, E-mail and the Internet. Additionally, workflow applications, along
with computer telephone integration products, which provide the electronic
routing mechanism to manage all forms of data, must be integrated with the
various types of document retrieval and storage methods to allow the customer
service call center to efficiently access such data.
Currently, middle market customers' applications are addressed by multiple
vendors such as Novell re-sellers for local area network ("LAN") implementation,
telephone vendors for PBX and key systems, and consultants for image enabling,
Internet, or call center applications. The Company believes that with its
current resources and expertise in document management, telecommunications and
Internet services, it is well positioned to address this emerging integration
market as a single source provider.
Products and Services
Document Management Segment
COM Systems. The Company believes it is a leading manufacturer of COM systems,
offering a complete line of COM recorders, processors, duplicators and related
software. The Company manufactures three different sophisticated COM printers
under the System 6800 line of products, all of which have a complete set of
features, including wet or dry processing technology, cut fiche capabilities,
medium to high speed, stand-alone or integrated film processors and duplicators,
all under PC control utilizing electronic forms. The System 6800 series provides
an architectural platform designed to permit easy integration of information and
image management systems, including the capability to add both magnetic and
optical disk file storage subsystems for use in future document and image
processing applications. A key factor differentiating the Company's product is
its PC based client-server architecture which gives the System 6800 line of
products the ability to operate within the traditional direct connect
environment or, alternatively, become part of any client-server facility using
LAN/WAN communications. This last feature allows both central and remote users,
of virtually any application, to output information to microfiche regardless of
their location. COM systems contributed approximately 29% to document management
segment revenue in fiscal year 1996.
Information Distribution System. The Company's Information Distribution System
is a family of product options designed to automate the computer output
production process and expand the total product offering to include electronic
subsystems like optical disk and CD-ROM. This architecture combines the
client-server platform, Microsoft Windows operating environment and Novell LAN
to allow the user to transport any information to the print or storage media of
their choice, enhancing the productivity of their computer output and storage
operation. The following product options comprise the Company's Information
Distribution System:
Information Distribution System Executive. The Information Distribution
System Executive ("IDSEXEC") software product allows for the collection
of data streams generated from a variety of sources including
mainframes, LAN's and image processing platforms. The IDSEXEC has the
capability to intelligently search for incoming information from these
different sources, aggregate that information into a document and then
store that document on the most applicable media based on the intended
length of storage and the retrievability requirements. The IDSEXEC also
can intelligently index source information for convenient and timely
retrieval regardless of the storage media. Historically, if a user
wanted information contained on a computer tape stored on CD-ROM,
microfilm and paper, then the computer tape had to be duplicated two
times (a total of three copies available) and then three separate
application systems were utilized to store the information on the three
different media. With the Company's IDSEXEC, only one computer tape is
necessary, because the software allows the information to be output to
the three desired storage media simultaneously. With the IDSEXEC, it is
also possible to reorder images submitted in one sequence to any other
logical ordering sequence specified by the user. The Company believes
that it is the only company that possesses intelligent indexing
technology.
Page Handler. A software product which stores a "mirror image" of the
document on any of the supported IDSEXEC storage media. The software is
able to understand a wide variety of print languages.
Complete Organization of Every Document ("COED"). A software/hardware
product which records any documents within the IDSEXEC production
process on any supported electronic storage device. The system provides
software user tools which facilitate the retrieval of stored documents
for viewing, printing, faxing or exporting.
Microfilm and Media Supplies: The Company offers a complete line of original and
duplicate microfilm and chemicals for use in its COM printer and duplicator
systems. The sale of microfilm and media supplies provides the Company with a
continuing stream of cash flow and acts as a supplement to its hardware sales,
which provides a less consistent stream of cash flow due to its high dollar
value, long sales cycle and capital equipment nature. Media sales also provide
the opportunity to establish continuity of relationships between the Company and
its installed customer base. Maintaining these relationships is important since
numerous hardware sales of replacement pieces or upgrades of technology are made
to these customers. The Company acquires a significant portion of its microfilm
and media supplies from Eastman Kodak and sells them on a drop-ship basis.
Microfilm and media supplies sales contributed approximately 37% to document
management segment's revenue in fiscal 1996.
Maintenance and Spare Parts: The Company supplies spare parts for maintenance on
its installed COM equipment user base. Maintenance on the Company's user base is
sub-contracted to a third party maintenance organization, for which the Company
receives a monthly royalty. Revenue from maintenance and spare parts contributed
approximately 10% and 8%, respectively, to the document management segment's
revenue in fiscal 1996.
RAPID. The document management segment currently has under-development its RAPID
Archiving Peripheral for Images and Documents ("RAPID TM") product. RAPID TM
will provide high-speed conversion of digitally-stored documents and images to
low-cost, human-readable media. RAPID TM will enable imaging and Computer Output
to Laser Disk ("COLD") systems a low-cost, no-migration archiving alternative to
bulging digital repositories by off-loading Write Once Read Never ("WORN")
information to film. RAPID's software will organize documents and reports into
file folders for meaningful, rapid retrieval. RAPID is scheduled to be completed
in the second quarter of fiscal 1997 and will require an additional investment
by the Company of $500,000 to complete.
Telecommunications Segment
The telecommunications segment generates revenue primarily from the initial sale
of third party products, "moves, adds, changes" and by providing services and
maintenance.
Initial Product Sales
Telephone Systems. The Company provides PBX and key/hybrid telephone systems for
its customers. A PBX, which is generally utilized for customers with 100 phones
or larger with growth up to thousands of phones, is handled by the F9600
manufactured by Fujitsu Business Communications Systems, Inc. ("Fujitsu") and
the Definity manufactured by Lucent Technologies, Inc. The smaller systems
handle customers from 10 phones up to 200 phones. In this area, the Company
markets the Integrated Digital System from Executone and Northern Telecom
Norstar. Prices for telephone systems range from $3,000 for a small key system
to over $1 million for a large, complex PBX system.
Call Processing. Call processing is a general term used for many new
applications to enhance the operation of existing telecommunication systems.
These areas are as follows:
Call Centers. A call center enhances the telephone system's ability to
handle large volumes of inbound or outbound calls and is used by
businesses for customer service, reservations centers and other large
order entry type operations. The Company offers call center products
from Fujitsu and Executone.
Voice Messaging. Voice mail is one of the more common products
encountered by the general public. This technology enables voice
communications to be sent, stored and retrieved from any touch-tone
telephone. The Company offers voice mail systems from Octel, AVT and
Executone.
Interactive Voice Response. This product was one of the first to
integrate the use of the telephone system with a computer system. This
technology allows a caller to access a computer database to retrieve or
input information via a touchtone telephone. IVR units allow callers to
access bank account information, obtain airline reservation information
and many other applications. The Company markets IVR units from
Syntellect and AVT.
Computer Telephone Integration. The combination of the computer and telephone
has led to a new group of products entitled CTI. The Company maintains a staff
of programmers who have developed customized CTI applications for their
customers. In addition, the Company has entered into an agreement with Answer
Soft to market its line of CTI based products, and is evaluating several other
CTI products for distribution.
Revenue from initial product sales contributed approximately 53%, 64% and 38% to
revenue for the telecommunications segment in fiscal 1996, 1995, and 1994,
respectively.
Moves, Adds and Changes
Moves, adds and changes consist of moving telephones to new user locations,
adding telephones or expansion cards in a telephone system and changing system
and user features. Moves, adds and changes contributed approximately 26%, 14%
and 27% of total telecommunications segment revenue in fiscal 1996, 1995, and
1994, respectively.
Service and maintenance
Customer Service. The Company maintains a strong customer service focus which
helps generate recurring revenue from its existing customer relationships. This
revenue takes the form of maintenance contracts, service calls, upgrades to
existing systems and new systems for new locations.
Cabling. Cabling is the process of installing the physical connection that
connects telephones and computers. The Company provides cabling for a variety of
applications, including coax and fiber for voice, data and LAN applications. The
Company provides Building Industry Consulting Service International ("BICSI")
trained engineers to design cable networks for its customers. The Company is an
authorized distributor of AT&T's Systimax Cabling System. In addition to
providing the design and hardware for the cabling system, the Company also
provides installation labor for customers.
Data Communications. The Company is a Novell Gold and Microsoft Advance Server
certified reseller and the Company's primary focus on data network integration
has been to its existing customers. The Company has distribution agreements with
several strategic partners such as Compaq, Novell, Hewlett-Packard and AST
Research.
Sales of services and maintenance contributed approximately 15%, 17% and 24% of
total telecommunication segment revenue in fiscal 1996, 1995, and 1994,
respectively.
Internet Services Segment
The Internet service segment provides Internet access, develops World Wide Web
pages, resells related hardware and software and provides Internet training. The
Company is a value added re-seller for Pacific Bell, an authorized re-seller for
Ascend Communications and a Microsoft Solutions Provider. MCW products and
services are summarized as follows:
Internet Access. Dial-Up Accounts provide Internet access on an as needed basis
and generate $9.95 to $24.95 per customer per month depending on the number of
included hours and mega-bytes of storage used by the subscriber. Dedicated
access enables direct, high-speed continuous connection of an organization's LAN
to the Internet via MCI's Internet backbone at speeds of 56 kbps (frame relay)
to 1.45 mbps (point-to-point). Monthly service charges range from $125 to $1,250
depending on the speed of service offered.
The Company offers other services to its customers including co-location of
Internet servers, corporate e-mail, e-mail robots for mass marketing and FTP
sites used in technical support applications for file transactions.
Web Development. The Company's web services include web development and hosting
for its Internet customers. Targeted at middle market customers, MCW is a full
service provider that allows its customers to develop and maintain dynamic web
sites for both internal Intranet and external Internet applications. Monthly
charges for web hostings range from $50 to $2,500 per month depending on
band-width requirements, number of inquiries (hits) per month and scripting and
database requirements. One-time charges for web site development range from $195
to $25,000 depending on the customer's needs.
Internet Training. The Company provides Internet training to corporate
customers. Courses range from Introductions to the Internet, a variety of HTML
programming and advanced courses in CGI and JAVA scripting.
Revenue per course ranges from $149 to $699.
Sales and Marketing
Document Management Segment
The Company markets its document management products and services worldwide. In
the United States, the Company employs a direct sales force and outside of the
United States the Company uses a network of distributors.
Telecommunications Segment
The Company sells its telecommunications products and services throughout the
Midwest, with principal focus on the Chicago, Illinois metropolitan area,
Kansas, Missouri, and Wisconsin. The Company employs a direct sales force to
sell its telecommunications products and services.
Internet Services Segment
The Internet services segment sells its products and services primarily in the
San Francisco Bay area through a direct sales staff of four individuals and
twelve Internet design consultants/Web advertisers. The Company employs a
variety of selling techniques in order to reach targeted business customers
including telemarketing, direct mail and sales calls.
Customers
During fiscal 1996, one customer, NCR Corp., accounted for 13% of the Company's
consolidated revenue. No single customer of the Company accounted for more than
10% of the Company's consolidated revenue in fiscal 1995 or 1994.
Document Management Segment
The Company markets its products and services to two distinct customer groups:
(a) those customers with high-volume document, storage and retrieval needs, and
(b) those customers who desire to image enable existing business applications,
to facilitate rapid and efficient data storage and retrieval and to provide a
vehicle to electronically process data input (e.g. health claims processing,
lease administration, etc.).
For those customers who have high-volume data output, storage and retrieval
needs, the Company further defines its customers as service bureaus, end users
and authorized distributors. Service bureaus have capitalized on the recent
trend toward outsourcing. Customers of service bureaus generally do not have the
data output volumes that would justify dedicated COM and related systems.
Conversely, certain financial institutions, insurance companies and public
utilities do have the output volumes that would justify direct purchase of the
Company's products. Current end user customers include Fortune 500 companies and
other service providers.
The Company currently markets its image enabling technologies to the healthcare
claims processing industry and governmental agencies. These customers typically
process high volumes of input data and have a variety of storage and retrieval
requirements. The Company's ability to blend current technologies allows the
customization of imaging applications that can meet a customer's storage and
retrieval needs.
During fiscal 1996, foreign sales of the document management segment represented
13% of the Company's consolidated revenue. Foreign sales made principally to
Germany, the United Kingdom, and Canada, represented 39%, 18%, and 15%,
respectively, of total foreign sales of the Company.
Telecommunications Segment
The Company markets its products and services principally to customers with 25
or more telephones and those customers with complex, expanding voice and data
management needs. The Company focuses on those customers who do not have
significant infrastructure to support their telecommunications needs, but
instead, seek to outsource this function. The Company strives to provide
outstanding customer service and support long after the initial sale, and sees
it as critical to being able to expand the product and service offerings to its
customers. The Company maintains a highly trained force of service technicians,
design engineers, communications consultants and project coordinators who
provide on-site and remote service and support. As of September 30, 1996, the
Company had approximately 3,000 customers in its telecommunications segment.
During fiscal years 1996, 1995 and 1994, no single customer in the
telecommunications segment accounted for more than 10% of the consolidated
Company revenue.
The Internet Services Segment
The Internet services segment focuses exclusively on business customers with 10
to 100 employees. As of September 30, 1996 the Internet services segment had
approximately 1,600 users on its network.
Competition
Document Management Segment
The document management industry is highly competitive and rapidly evolving. The
Company competes on the basis of breadth of offering different document
management solutions, cost, flexibility and customer service. The Company
competes with Anacomp, Eastman Kodak, InSci and Mobius, among others. These
competitors have longer operating histories and significantly greater financial,
technical, marketing, and other resources, as well as greater name recognition,
than the Company.
Telecommunications Segment
The telecommunications industry is highly competitive and rapidly evolving. The
Company competes on the basis of customer service, flexibility and breadth of
offering different technological products and solutions. The Company competes
with Lucent Technologies, Inc., Northern Telecom, Siemens, and the Regional Bell
Operating Companies ("RBOCs") in the telecommunicating business. These
competitors have longer operating histories and significantly greater financial,
technical, marketing, and other resources, as well as greater name recognition,
than the Company. In addition, the Regional Bell Operating Companies are
currently subject to a variety of government regulations limiting the
manufacture, marketing and sale of certain products and services in the
telecommunications market which restrictions, if eliminated or lessened, could
adversely impact the Company's business.
Internet Services Segment
The Internet services market is highly competitive and rapidly evolving,
especially with the introduction of flat rate monthly service and offerings by
the major carriers (e.g. MCI, Sprint and AT&T). In addition to the major
carriers, the Internet services segment competes with a number of local,
regional and national Internet service providers (e.g. PSINet, Uunet, Netcom).
The Internet services segment competes on the basis of being a single point of
contact for all Internet related solutions. Additionally, the Internet services
segment provides its customers with quality connections by not oversubscribing
its network with consumer traffic.
Raw Materials
Document Management Segment
Raw materials for COM Systems consist of purchased parts from third party
vendors. The Company believes that it can source purchased parts from a variety
of vendors and that no one single vendor possesses a critical component that
can't be purchased elsewhere.
The document management segment purchases a significant amount of its microfilm
and media supplies from Eastman Kodak. The Company believes it has a strong
partnership with Eastman Kodak; however, alternative supplies are available in
the event of an interruption in the vendor relationship.
The document management segment purchases all of its products pursuant to
purchase orders and has no long-term purchase commitments.
Telecommunications Segment
The telecommunications segment purchases all of the equipment and software that
it markets and installs from third party vendors. The majority of the products
sold by the segment are purchased from Fujitsu Business Communication Systems,
Inc. and Executone Information Systems. Other parts and components necessary for
installation and service are purchased from a variety of sources and, the
Company believes, are readily available from alternative sources. The
telecommunications segment purchases all of its products pursuant to purchase
orders and has no long-term purchase commitments.
Internet Services Segment
The Internet services segment connects customers to the Internet using a high
speed MCI DS3 circuit. Customers connect to the Company's network using fiber
and copper facilities of PacBell, Metropolitan Fiber, and Cable and Wireless.
The availability of circuits is dependent on the capacity of MCI's central
office, the physical locations of copper and fiber optic cable from Pac Bell,
Metropolitan Fiber and other customer demand. Recent changes in the
telecommunications law has allowed more companies to compete in local markets
for connectivity. The Company believes that connectivity will be available from
a variety of sources.
Seasonality
The Company believes that none of its segments are subject to seasonal
fluctuations.
Backlog
Document Management Segment
As of September 30, 1996, the document management segment had signed customer
contracts of $3.4 million, all of which are expected to be delivered in fiscal
1997. The segment had approximately $1.0 million in signed contracts at
September 30, 1995, all of which were delivered during fiscal 1996.
Telecommunications Segment
As of September 30, 1996, the telecommunications segment had signed customer
contracts for $4.8 million, all of which are expected to be delivered in fiscal
1997. The segment had approximately $1.5 million of signed contracts at
September 30, 1995, all of which were delivered during fiscal 1996.
Internet Services Segment
The backlog of the Internet services segment was insignificant as of September
30, 1996.
Research and Development
Document Management Segment
The Company believes that the development of new products and solutions is
critical for the future growth of the document management segment. During fiscal
1996, the Company spent approximately $1.1 million on development efforts.
Equally critical, however, is the collective knowledge and experience of the
Company's management and personnel to develop and market new solutions in the
document management market place.
Telecommunications and Internet Services Segments
The telecommunications and Internet services segments are not engaged in any
substantial research and development.
Employees
As of September 30, 1996, the Company and its subsidiaries had 209 full-time
employees and four part-time employees. The Company also utilizes contracted
labor to assist in its production process.
Item 2. Properties
The Company leases an aggregate of approximately 126,000 square feet of office,
warehouse and manufacturing space. The document management segment leases space
in Mountain View, California and Lincolnshire, Illinois. The Telecommunications
segment leases space in Lenexa, Kansas; Wichita, Kansas; Columbia, Missouri;
Milwaukee, Wisconsin; Chicago, Illinois and Buffalo Grove, Illinois. The
Internet services segment leases space in Mountain View, California. The
corporate office is located in Lake Forest, Illinois. Currently, approximately
44,000 square feet are sub-let to third parties.
Item 3. Legal Proceedings
The Company has no material pending litigation.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Common Stock of the Company is principally traded on the American Stock
Exchange ("AMEX"). The high and low sales prices for the stock reported on AMEX
for each quarterly period during the past two fiscal years were as follows:
Quarter Ending High Low
---------------------------------- ------ -------
1995
December 31, 1994 $ 7-3/4 $ 6-1/8
March 31, 1995 7-1/2 6-1/8
June 30, 1995 7-7/8 5-7/8
September 30, 1995 15-7/8 7-3/4
1996
December 31, 1995 14-3/8 9-1/4
March 31, 1996 10-7/8 8
June 30, 1996 9-3/8 6-13/16
September 30, 1996 8 5-7/16
There were approximately 416 record holders of the Company's Common Stock as of
December 30, 1996. The closing price for the Company's Common Stock on December
30, 1996 was $4-9/16. The Company paid no dividends during the period October 1,
1993 to September 30, 1996. The Company does not intend to pay dividends on its
Common Stock in the foreseeable future.
<PAGE>
Item 6. Selected Financial Data
The following table sets forth for the periods selected consolidated financial
and operating data for the Company. The statement of operations and balance
sheet data have been derived from the Company's consolidated financial
statements. The selected consolidated financial data should be read in
conjuction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and the
notes thereto included elsewhere in this report.
<TABLE>
<CAPTION>
Fiscal years ended September 30,
1992 1993 1994 1995(b) 1996(c)
(In thousands, except per share data)
Statement of Operations Data (a):
<S> <C> <C> <C> <C> <C>
Net sales $ 7,569 $ 9,408 $ 9,629 $ 21,252 $ 41,387
Cost of sales 5,702 6,612 6,532 15,137 27,137
------------ ------------ ------------ ------------ ----------
Gross profit 1,867 2,796 3,097 6,115 14,250
------------ ------------ ------------ ------------ ----------
Operating expenses:
Selling, engineering and
general and administrative 2,213 3,106 3,234 7,136 14,316
Amortization of goodwill and
transaction costs 8 - 152 451 1,280
Write-off of acquired in-process
un-proven technology - - - 5,000 -
Cost associated with change in
products and other - - - - 2,834
Acquisition costs and other - - - 1,318 -
------------ ------------ ------------ ------------ ----------
Total operating expenses 2,221 3,106 3,386 13,905 18,430
------------ ------------ ------------ ------------ ----------
Loss from continuing operations (354) (310) (289) (7,790) (4,180)
Interest expense (40) (56) (615) (650) (1,597)
Gain on sale of available-for-sale
securities - - - - 5,689
Other income (expense) 58 72 (31) (28) 52
------------ ------------ ------------ ------------ ----------
Loss from continuing operations
before income taxes and
extraordinary items (336) (294) (935) (8,468) (36)
Provision (benefit) for income taxes (50) 187 378 124 -
============ ============ ============ ============ ==========
Net loss before discontinued operations
and extraordinary items $ (286) $ (481) $ (1,313) $ (8,592) $ (36)
============ ============ ============ ============ ==========
Primary loss per share from
continuing operations $ (0.08) $ (0.14) $ (0.35) $ (1.97) $
(0.01)
============ ============ ============ ============ ==========
Weighted average shares outstanding 3,537 3,555 3,802 4,353 5,818
============ ============ ============ ============ ==========
</TABLE>
<PAGE>
Item 6. Selected Financial Data, Continued
<TABLE>
Balance Sheet Data (a): September 30
1992 1993 1994 1995 1996
- ---------------------------------------------------- ------------ ------------ ------------- -----------
(In thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Working capital $ 618 $ 1,344 $ (798) $ 3,488 $ 1,713
Total assets 2,758 3,175 5,646 35,396 25,586
Long-term debt, net of current portion 33 197 123 12,434 10,598
Shareholders' equity 1,515 1,384 2,436 11,685 3,793
Cash dividends paid - - - - -
<FN>
(a) Restated to reflect the acquisition of Kansas Communications, Inc.
("KCI") on September 15, 1995, accounted for as a pooling of interests.
(b) Includes the results of operations of Communicate Direct, Inc. ("CDI")
and Micrographic Technology Corporation ("MTC") since their
acquisitions on October 28, 1994 and September 15, 1995, respectively.
(c) Includes the results of operations of the Milwaukee operations of
Executone Information Systems, Inc. and MediaCity World, Inc. since
their acquisitions on December 29, 1995 and June 21, 1996,
respectively.
</FN>
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company took a number of strategic steps during fiscal 1996 that had a
significant impact on the results of operations.
In June 1996, CDI signed an agreement with Inacom Corporation and Lucent
Technologies, Inc. ("Lucent") to become the only distributor of Lucent
Technology's Definity PBX products in the Chicago, IL metropolitan area other
than Inacom and Lucent. In connection with the change in product line, CDI
repositioned its operations to focus on higher-end, technology driven companies.
In connection with this distribution agreement and the repositioning of its
operations, the Company incurred one-time charges of $1.3 million for severance,
asset write-downs and other.
In addition to the change in product line, CDI sold its non-application oriented
interconnect business to Next Call, Inc. ("Next Call") for a $600,000 ten year
note receivable. In connection with the sale, CDI agreed to lend Next Call up to
$1.0 million to fund operating losses, as defined, for the first twelve months
of operations. The loan agreement required CDI to make advances to Next Call on
a monthly basis to cover operating cash short falls. Next Call was required to
repay such advances when it became profitable on a cumulative basis. After the
first twelve months, any amount still outstanding on such advances was to be
forgiven. Subsequent to year-end, Next Call ceased operations. CDI advanced Next
Call $195,000 to fund operating losses which has been included in the loss on
sale of business.
As a result of the sale to Next Call and the uncertainty resulting from Next
Call's subsequent shut down, the Company incurred a $6.1 million extraordinary
charge in fiscal 1996. The components of the extraordinary charge include the
write-off of goodwill which arose from the initial purchase of CDI in October
1994; deferred acquisition costs associated with the purchase of CDI; reserve
for the note receivable from Next Call; severance payments; inventory
write-downs; write-offs of leasehold improvements; warranty reserve and other.
The Company recorded $5.0 million of the one-time charges in the third quarter
of fiscal 1996 and the remaining $1.1 million in the fourth quarter of fiscal
1996. As a result of these write-offs, future amortization expense for goodwill
and deferred acquisition costs was reduced on a pretax basis by approximately
$535,000 annually. The loss resulting from the disposition of certain assets and
the assumption of certain liabilities of CDI, within a two year period following
a pooling of interests has been classified as an extraordinary item as required
by generally accepted accounting principles. This disposition of CDI was not
contemplated at the time of the pooling with KCI.
Subsequent to year-end, CDI sold its operations that support its Fujitsu
maintenance base in the Chicago metropolitan area to a new company formed by
John I. Jellinek, the Company's former president and chief executive officer,
and Phillip Kenny, a former SoftNet director. The buyer acquired certain assets
in exchange for a $209,000 promissory note and the assumption of trade payables
of at least $624,000. In addition, at the closing the buyer paid off $438,000 of
existing Company bank debt and entered into a sub-lease of CDI's facility in
Buffalo Grove, Illinois. At the closing, the buyer merged with Telcom Midwest,
LLC., and Messrs. Jellinek and Kenny and the other two shareholders of the
merged company personally guaranteed obligations arising out of the promissory
note, the sub-lease arrangement and the trade payables. The personal guarantees
of the promissory note are several. The personal guarantees of the sub-lease are
limited to $400,000 and are on a joint and several basis. The personal
guarantees of trade payables are on a joint and several basis but are limited to
Messrs. Jellinek and Kenny. Concurrent with this transaction, Messrs. Jellinek
and Kenny resigned from the Company's board. The transaction was approved by the
disinterested members of the Company's board.
The interconnect businesses sold by CDI in June 1996 and subsequent to year end
sustained significant losses since the acquisition of CDI in October 1994
In June 1996, the Company acquired the exclusive worldwide manufacturing rights
to IMNET Systems, Inc.'s MegaSAR Microfilm Jukebox and completed and amended its
obligations under a previous agreement. In addition to becoming the exclusive
manufacturer of the MegaSAR for IMNET, the Company will further integrate the
device into its current product offering. The Company issued a $2.9 million note
for prepaid license fees, software inventory, the manufacturing rights, and
certain other payables. Approximately $2.5 million was paid on this note during
the fourth quarter of fiscal 1996. The Company has a receivable from IMNET of
$176,000.
The transaction was approved by the disinterested members of the Company's
board. Following the transaction, John J. McDonough and John I. Jellinek
resigned from IMNET's board and James Gordon, a director of IMNET, resigned from
the Company's board.
During the fourth quarter of fiscal 1996, the Company decided to integrate the
IMNET microfilm retrieval software with another software developer's product,
which the Company was already distributing. The integrated product will require
less IMNET software than previously assumed. As a result, the Company recorded a
one-time charge of $1.5 million to write-off software inventory. Since the
acquisition of the manufacturing rights from IMNET, the transfer of all of the
technical and manufacturing know-how has been delayed due to technical
difficulties. The Company is currently negotiating with IMNET to either complete
the transfer or seek an alternative solution.
On December 29, 1995, the Company acquired the Milwaukee operations of Executone
Information Systems, Inc. ("Executone-Milwaukee"), in a business combination
accounted for as a purchase. Executone-Milwaukee sells and services
telecommunications and voice processing systems. The purchase price of
approximately $1.9 million consisted of $100,000 of cash and a note payable for
$1.8 million. The note was paid in February, 1996. The operations of
Executone-Milwaukee have been included in the results of the Company since
December 29, 1995. As a result of the acquisition, the Company recorded costs in
excess of fair value of net assets acquired of $1.8 million, an amount which is
being amortized on a straight-line basis over twenty years.
In June 1996, the Company acquired MCW in a business combination accounted for
as a purchase. MCW is an Internet Service Provider with operations principally
in the San Francisco Bay Area, CA. and Reno, NV. The purchase price consisted of
200,000 shares of the Company's common stock valued at $5.11 per share. The
Company recorded costs in excess of fair value of net assets acquired of $1.2
million, which will be amortized on a straight line basis over three years. The
Company plans to focus in the near term on building and increasing its
subscriber base, which will require it to increase significantly its expenses
for marketing, network infrastructure and POP's, and may adversely impact
short-term operating results.
The Company expects to focus on building and increasing its customer base in
each of its markets, but in particular, to develop a customer profile that is
more closely aligned with the Company's overall product strategy. This effort,
as well as the introduction of the new products, some of which the Company will
develop internally, will require substantial investment in new sales personnel
and retraining of current technical personnel, which the Company believes may
have an adverse effect on short-term operating results.
Although the Company has organized itself into three operating units, comparison
to prior years by industry segments would not be meaningful as a majority of the
document management segment was acquired in late fiscal 1995 and only
contributed fifteen days of operating results to fiscal 1995.
Results of operations for the twelve months ended September 30, 1996 compared to
1995
For the fiscal year ended September 30, 1996 net sales increased by $20.1
million (or 95%) to $41.4 million compared to $21.3 million for the same period
in 1995. The increase in sales was principally a result of the acquisitions of
MTC in September, 1995 and the Milwaukee, WI operations of Executone Information
Systems, Inc. ("Executone-Milwaukee") in December 1995. The Company's
acquisition of MTC and Executone-Milwaukee added approximately $19.4 million in
net sales in the fiscal year ended September 30, 1996. Sales from the Company's
telecommunications segment, exclusive of revenue increases attributed to the
acquisition of Executone-Milwaukee, declined slightly due to the erosion of
operations in the Chicago metropolitan area.
For the fiscal year ended September 30, 1996, gross profit increased $8.2
million (or 133%) to $14.3 million from $6.1 million for the same period in
1995. For the fiscal year, gross profit as a percentage of sales increased from
28.8% in 1995 to 34.4% in 1996. The percentage increase relates primarily to
inclusion of MTC's results for the fiscal year ended September 30, 1996 and the
increased profitability for sales in the document management segment. During the
fiscal year ended September 30, 1996, in order to conform with industry
practices, the Company classified certain expenses as costs of sales which under
prior presentations would have been classified as general and administrative
expenses. Consistent with this presentation, the Company has reclassified
certain general and administrative expenses as cost of sales for the fiscal year
ended September 30, 1995.
Selling, engineering, general and administrative expenses increased $7.2 million
(or 101%) to $14.3 million for the fiscal year ended September 30, 1996 from
$7.1 million for the same period in 1995, largely as a result of the inclusion
of MTC's results for the period ended September 30, 1996 ($4.9 million), the
increase in sales and marketing activities in the telecommunications segment
($960,000) and the increased administrative expenses associated with expanded
operations ($800,000). Amortization of goodwill and transaction costs increased
$829,000 to $1.3 million for the fiscal year ended September 30, 1996, compared
to $451,000 for the fiscal year ended September 30, 1995, primarily as a result
of the acquisition of MTC in September 1995, and the amortization of deferred
acquisition costs resulting from the acquisitions of MTC and CDI.
In the fourth quarter of fiscal 1995, the Company incurred one-time charges for
the write-off of unproven in-process technology acquired in connection with the
acquisition of MTC ($5.0 million), certain transaction costs related to the
merger with KCI ($648,000) and other costs resulting from the write-off of
certain leasehold improvements and other restructuring activities.
During the fiscal year ended September 30, 1996, the Company signed an agreement
with Inacom Corporation and Lucent to distribute Lucent's Definity PBX product
in the Chicago, Illinois Metropolitan area. As a result, CDI repositioned its
Chicago operations and incurred one-time charges of $1.3 million for severance
payments, asset write downs and other costs. Also during the fourth quarter of
fiscal 1996, the Company decided to integrate the IMNET microfilm retrieval
software with another software developer's product, which the Company was
already distributing. The integrated product will require less IMNET software
than previously anticipated. As a result, the Company recorded a one-time charge
of $1.5 million to write off software inventory.
Interest expense increased $948,000 (or 146%) to $1.6 million for the fiscal
year ended September 30, 1996 from $650,000 in the fiscal year ended September
30, 1995. Interest expense increased as a result of increased debt outstanding
during fiscal 1996, compared to fiscal 1995. The increase in outstanding
indebtedness was principally a result of acquisition debt and borrowings to fund
working capital.
During the fiscal year ended September 30, 1996 the Company realized a gain of
$5.7 million from the sale of its investment in IMNET Systems, Inc.
The Company's provision for income taxes relates exclusively to the operations
of KCI, for tax liabilities incurred prior to the merger with the Company. No
provision for income taxes was made for fiscal 1996, as a result of net
operating losses. A provision for income taxes of $124,000 was recorded for
fiscal 1995. At September 30, 1996 the Company had a tax net operating loss
carry forward of approximately $7.9 million, which begins to expire in 1999.
Given the Company's history of operating losses, a valuation allowance of $4.2
million has been provided in the Company's consolidated financial statements
For the fiscal year ended September 30, 1996, net loss before discontinued
operations and extraordinary items decreased $8.6 million to $36,000 and loss
per share of common stock before discontinued operations and extraordinary items
decreased $1.96 to $.01, compared to the same period in 1995. Weighted average
outstanding shares increased by 1.5 million or 33.7% from 4.4 million in fiscal
1995 to 5.8 million in fiscal 1996 mainly due to the issuance of shares for
acquisitions and the conversion of certain convertible subordinated notes.
During fiscal 1996, CDI sold its non-application oriented interconnect business
located in the Chicago, IL metropolitan area. As a result the Company incurred a
$6.1 million extraordinary charge for the write-off of goodwill which arose from
the initial purchase of CDI in October 1994, deferred acquisition costs
associated with the purchase of CDI, inventory write-downs, warranty reserves
and other.
Results of operations for the twelve months ended September 30, 1995 compared to
1994
For the fiscal year ended September 30, 1995, net sales increased by $11.6
million (or 121%) to $21.3 million from $9.6 million for the same period in1994.
The increase in sales was principally a result of the acquisition of CDI on
October 31, 1994 and the acquisition of MTC on September 15, 1995. The Company's
acquisition of CDI and MTC added approximately $10.8 million in net sales in
1995.
For the fiscal year ended September 30, 1995, gross profit increased $3.0
million or 97% to $6.1 million from $3.1 million for the same period in 1994, as
a result of higher net sales. For the year, gross profit as a percentage of
sales decreased from 32.2% in 1994 to 28.8% in 1995. The percentage decrease
relates primarily to inclusion of CDI's results since November 1, 1994, the date
of acquisition. Generally, CDI's sales mix includes more initial sales to new
customers, which are usually at lower gross margins. Conversely, KCI's sales mix
includes more sales of higher margin products and services to existing
customers.
Selling, general and administrative expenses increased $3.9 million or 121% to
$7.1 million in fiscal 1995 from $3.2 million in fiscal 1994, largely as a
result of the inclusion of CDI's results since November 1994 ($2.6 million), the
increase in sales and marketing activities in the document management segment
($285,000) and the increase of the corporate staff to accommodate the
acquisitions of KCI and MTC ($248,000). Amortization of goodwill and deferred
transaction costs increased primarily as a result of the inclusion of CDI's
results since November 1994. Also in the fourth quarter of fiscal 1995, the
Company incurred one-time charges for the write off of unproven in-process
technology acquired in connection with the acquisition of MTC ($5.0 million),
certain transaction costs related to the merger with KCI ($648,000) and other
costs resulting from the write-off of certain leasehold improvements and other
restructuring activities.
Interest expense increased $35,000 or 5.6% to $650,000 in fiscal 1995 from
$615,000 in fiscal 1994. Interest expense in 1994 included non-cash amortization
of senior note discounts of $514,000. Overall cash interest expense increased as
a result of increased borrowing during 1995 and the inclusion of CDI's results
since November 1994.
The Company's provision for income taxes relates exclusively to the operation of
KCI, for tax liabilities incurred prior to the merger with the Company. The
provision for income taxes decreased $253,000 or 67.0% to $124,000 in fiscal
1995 from $377,000 in fiscal 1994 as a result of lower taxable income for KCI
during the twelve months ended September 30, 1995 compared to the same period in
fiscal 1994. At September 30, 1995, the Company had a tax net operating loss
carry forward of $11.0 million, which begins to expire in 1999. Given the
Company's history of operating losses, a valuation allowance of $2.7 million has
been provided in the Company's consolidated financial statements.
For fiscal 1995, the net loss from continuing operations increased $7.3 million.
If the unusual and non-recurring charges are excluded, the loss from continuing
operations increased $961,000. The loss per share of common stock from
continuing operations increased $1.62 from fiscal 1994. If the unusual and
non-recurring charges are excluded, the loss per share from continuing
operations increased $.17 per share, or 49%.
Utilization Management Association, Inc. ("UMA") was disposed of in November
1995. The Company recorded a loss of $644,000 or $.15 per share for the sale of
UMA.
Net sales from discontinued operations for fiscal 1995 were $860,000, an
increase of $165,000, or 23.7%, from net sales from discontinued operations of
$695,000 in fiscal 1994. The loss from the operations of UMA was $419,000 for
fiscal 1995, an increase of $304,000 from fiscal 1994. The increase was
primarily a result of higher operating costs in anticipation of higher sales
growth. The loss per share for the operations of UMA was $.10 for fiscal 1995
compared to $.03 for fiscal 1994.
The net loss per share increased $1.84 from $.38 in fiscal 1994 to $2.22 in
fiscal 1995 as a result of the items discussed previously. Weighted average
outstanding shares increased by 551,000 or 14.5% from 3.8 million in fiscal 1994
to 4.4 million in fiscal 1995 mainly due to the issuance of shares for
acquisitions and the sale of shares of the Company's common stock in a private
placement transaction.
Liquidity and Capital Resources
At September 30, 1996, the Company's current ratio was 1.16 to 1 with working
capital of $1.7 million. This compares with a current ratio of 1.30 to 1 and
working capital of $3.3 million at September 30, 1995.
During fiscal 1996, the Company sold its entire holdings in IMNET for net
proceeds of $7.7 million. Accordingly, the Company recorded a gain on sale of
securities of $5.7 million.
For the fiscal year ended September 30, 1996, cash flows used by operating
activities were $4.4 million, compared to $4.7 for the fiscal year ended
September 30, 1995. Cash flows generated by investing activities increased $6.2
million to $3.1 million for fiscal 1996 compared to a use of $3.1 million in
fiscal 1995 mainly as a result of the sale of marketable securities in fiscal
1996 and decreased acquisition activities. Cash flows provided by financing
activities decreased $6.7 million to $1.2 million in fiscal 1996 from $7.9
million in fiscal 1995 primarily as a result of fewer acquisitions in fiscal
1996.
Beginning in the fourth quarter of fiscal 1996, the Company commenced a number
of cost cutting activities aimed at improving cash flows. The most significant
of these activities of the telecommunications segment included the sale of the
operations that supported the Fujitsu maintenance base in the Chicago
metropolitan area. As a result of the sale, the Company sublet approximately
14,000 square feet of space in Buffalo Grove, Illinois, which will reduce annual
fixed rent expense by approximately $108,000, paid off $438,000 of existing bank
debt, had trade payables of at least $624,000 assumed by the buyer and had the
employment obligations for 19 employees taken over. The Company will continue to
evaluate each of its business operations and determine where excess costs can be
eliminated or contained.
During fiscal 1996, the Company increased its line of credit borrowing capacity
with its lender to $9.5 million. In addition, subsequent to year end the Company
received a temporary increase in its borrowing ability whereby the Company will
be able to borrow $1.0 million in excess of its available assets (as defined).
The temporary increase terminates on January 31, 1997.
The Company expects to be able to finance its working capital requirements and
capital expenditures from its operating income, and existing line-of-credit
facilities for the fiscal year ended September 30, 1997.
Effect of New Accounting Pronouncements
Reference is made to note 2 of the Notes to Consolidated Financial Statements
included elsewhere in this Form 10-K.
<PAGE>
Item 8. Financial Statements and Supplementary Data
SoftNet Systems, Inc. and Subsidiaries
Index to Consolidated Financial Statements
September 30, 1996
Page
Report of Independent Accountants
Consolidated Statements of Operations
for the Years Ended September 30, 1996, 1995 and 1994
Consolidated Balance Sheets as of September 30, 1996 and 1995
Consolidated Statements of Shareholders' Equity
for the Years ended September 30, 1996, 1995 and 1994
Consolidated Statement of Cash Flows
for the Years Ended September 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of SoftNet Systems, Inc.:
We have audited the consolidated financial statements of SoftNet Systems, Inc.
and Subsidiaries as listed in the preceding index to the consolidated financial
statements. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 audits to obtain
reasonable assurance about whether the 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SoftNet Systems,
Inc and Subsidiaries as of September 30, 1996 and 1995 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1996 in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standard No. 115, " Accounting for
Certain Investments in Debt and Equity Securities" in 1995.
COOPERS & LYBRAND L.L.P.
January 14, 1997
Chicago, Illinois
<PAGE>
SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30, 1996, 1995 and 1994
(In thousands, except per share data)
1996 1995 1994
------------- ------------- ------------
Net sales $ 41,387 $ 21,252 $ 9,629
Cost of sales 27,137 15,137 6,532
------------- ------------- ------------
Gross profit 14,250 6,115 3,097
------------- ------------- ------------
Operating expenses:
Selling 5,274 2,662 976
Engineering 1,820 60 -
General and administrative 7,222 4,414 2,258
Amortization of goodwill
and transaction costs 1,280 451 152
Costs associated with change
in product lines and other 2,834 - -
Write off of acquired in process
un-proven technology - 5,000 -
Acquisition costs and other - 1,318 -
------------- ------------- ------------
Total operating expenses 18,430 13,905 3,386
------------- ------------- ------------
Loss from continuing operations (4,180) (7,790) (289)
Interest expense (1,597) (650) (615)
Gain on available-for-sale securities 5,689 - -
Other income (expense) 52 (28) (31)
------------- ------------- ------------
Loss from continuing operations
before income taxes and
extraordinary item (36) (8,468) (935)
Provision for income taxes - 124 378
------------- ------------- ------------
Loss from continuing operations
before extraordinary item (36) (8,592) (1,313)
------------- ------------- ------------
Discontinued operations:
Loss from operations - (420) (115)
Loss on disposal - (644) -
------------- ------------- ------------
Loss before extraordinary item (36) (9,656) (1,428)
------------- ------------- ------------
Extraordinary item -
Loss on sale of business (6,061) - -
------------- ------------- ------------
Net loss $ (6,097) $ (9,656) $ (1,428)
============= ============= ============
Loss per share:
Continuing operations $ (0.01) $ (1.97) $ (0.35)
Discontinued operations - (0.10) (0.03)
Loss on disposal - (0.15) -
Extraordinary item (1.04) - -
------------- ------------- ------------
Net loss $ (1.05) $ (2.22) $ (0.38)
============= ============= ============
Weighted average shares
outstanding 5,819 4,353 3,802
============= ============= ============
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 30, 1996 and 1995
(In thousands, except share data)
1996 1995
---------------- ----------------
ASSETS
Current assets:
Cash $ 426 $ 573
Available-for-sale securities - 2,575
Receivables, net 6,074 6,128
Inventories 5,904 4,862
Prepaid expenses 340 357
---------------- ----------------
Total current assets 12,744 14,495
Property and equipment, net 2,314 2,568
Available-for-sale securities 4 7,157
Costs in excess of fair value
of net assets acquired, net 8,101 9,908
Other assets 2,423 1,268
---------------- ----------------
$25,586 $35,396
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 8,672 $ 7,733
Current portion of long term debt 744 1,598
Current portion of capital leases 187 190
Deferred revenue 1,428 1,032
Net liabilities of business
disposed of in 1996 - 454
---------------- ----------------
Total current liabilities 11,031 11,007
---------------- ----------------
Long term debt, net of current portion 10,598 12,434
---------------- ----------------
Capital Lease obligation,
net of current portion 164 270
---------------- ----------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.10 par value,
4 million shares authorized,
none outstanding - -
Common stock, $.01 par value,
25 million shares authorized,
6,540,065 and 5,547,033 shares
outstanding, respectively 65 55
Capital in excess of par value 33,517 27,584
Accumulated deficit (29,789) (23,692)
Unrealized appreciation
of available-for-sale
securities - 7,738
---------------- ----------------
Total shareholders' equity 3,793 11,685
---------------- ----------------
$25,586 $35,396
================ ================
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended September 30, 1996, 1995 and 1994
(In thousands)
<CAPTION>
UNREALIZED
APPRECIATION
CAPITAL IN OF AVAILABLE-
COMMON STOCK EXCESS OF FOR-SALE ACCUMULATED
SHARES AMOUNT PAR VALUE SECURITIES DEFICIT
---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1993 3,606 $ 36 $ 13,957 - $ (12,608)
Common stock issued for
investment in securities 196 2 733 - -
Common stock issued for
finder's fee relating to
UMA acquisition 3 - 17 - -
Settlement of related party
receivable - - 850 - -
Value assigned to warrants
issued with Senior Notes
payable - - 471 - -
Sale of common stock 88 1 388 - -
Exercise of warrants 10 - 18 - -
Net loss - - - - (1,428)
---------- ----------- ------------ ----------- -----------
Balance, September 30, 1994 3,903 39 16,434 - (14,036)
Sale of common stock,
net of issuance costs 200 2 708 - -
Value assigned to options
and warrants issued
with the extension of
of Senior Notes payable - - 66 - -
Exercise of warrants 100 1 187 - -
connection with acquisitions,
net of issuance costs 1,143 11 7,533 - -
Conversion of long-term
debt 201 2 1,628 - -
Settlement of related party
receivable - - 1,028 - -
Change in unrealized
appreciation of available-
for-sale securities - - - 7,738 -
Net loss - - - - (9,656)
---------- ----------- ------------ ----------- -----------
Balance, September 30, 1995 5,547 55 27,584 7,738 (23,692)
Exercise of warrants 12 - 21 - -
Settlements of related party
receivable - - 815 - -
Conversion of convertible
subordinated notes 781 8 4,077 - -
Common stock issued in connection
with acquisitions, net of
acquisition costs 200 2 1,020 - -
Change in unrealized appreciatio
of available-for-sale securities - - - (7,738) -
Net loss - - - - (6,097)
---------- ----------- ------------ ----------- -----------
Balance, September 30, 1996 6,540 $ 65 $ 33,517 $ - (29,789)
========== =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (6,097) $ (9,655) $ (1,428)
Adjustments to reconcile net loss to net cash used by
operating activities:
Write-off of acquired in-process un-proven technology - 5,000 -
Depreciation and amortization 1,997 822 163
Acquisition costs - 648 -
Net change of liabilities of discontinued operations - 586 -
(Gain) loss on the disposal of property and equipment (3) 393 -
Gain on sale of available-for-sale securities (5,689) - -
Deferred income taxes - (12) (8)
Debt discount and deferred financing amortization 95 87 514
Provision for bad debts 155 67 -
Loss on sale of business 6,061 - -
Changes in operating assets and liabilities, net of
effect of purchase transactions and disposal
of discontinued operations:
Receivables (741) (1,208) (232)
Inventories (1,756) (1,707) (79)
Prepaid expenses 3 160 (319)
Accounts payable and accrued expenses 1,365 (46) 860
Deferred revenue 207 196 (44)
------------- ------------- -------------
Net cash used in operating activities (4,403) (4,669) (573)
------------- ------------- -------------
Cash flows from investing activities:
Net cash paid in connection with acquisitions (2,055) (2,562) (26)
Purchase of prepaid software licenses (1,000) - -
Purchase of property and equipment (973) (1,418) (173)
Additions to capitalized product design (462) - -
Settlement of remaining obligations to owners of
discontinued operations (117) - -
Proceeds from sale of investment securities 7,678 1,027 -
Purchase of investment securities - - (463)
Increase in other assets - (134) -
Proceeds from the sale of property and equipment 28 31 -
------------- ------------- -------------
Net cash provided (used) by investing activities 3,099 (3,056) (662)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of deferred
financing costs - 4,131 920
Repayment of long-term debt (178) (979) (550)
Borrowings under revolving credit note 12,802 6,904 -
Payments under revolving credit note (11,923) (1,684) -
Proceeds from settlement of related party receivable 815 - 850
Repayment of prior revolving credit facility - (1,208) -
Proceeds from the sale of available-for-sale securities - 720 389
Payment for put obligation (200) - -
Proceeds from the exercise of warrants 22 169 18
Capitalized lease obligations paid (181) (202) (102)
------------- ------------- -------------
Net cash provided by financing activities 1,157 7,851 1,525
------------- ------------- -------------
Net increase (decrease) in cash (147) 126 290
Cash, beginning of period, net of cash of discontinued operations 573 447 198
------------- ------------- -------------
Cash, end of period $ 426 $ 573 $ 488
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
SoftNet Systems, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business and Basis for Presentation
SoftNet Systems, Inc. and Subsidiaries (the "Company") is engaged in the
business of developing, marketing, installing and servicing electronic
information and document management systems that allow customers to
electronically request and electronically receive information. The Company
operates through three segments: document management, telecommunications and
Internet services. The document management segment designs, develops,
manufactures and integrates comprehensive, non-paper based systems and
components that enable the Company to deliver to its customers cost-effective
solutions for the storage, indexing and/or distribution of high-volume computer
generated or entered information. The telecommunications segment sells and
services telephone and computer hardware manufactured by others to provide
communications solutions through the design, implementation, maintenance and
integration of voice, data and video communications equipment and services.
Additionally, the telecommunications segment sells and installs local and long
distance network services. The Internet services segment provides Internet
access, World Wide Web and database development and Internet training targeted
solely to business customers.
On September 15, 1995, a wholly-owned subsidiary of the Company merged with
Kansas Communications, Inc. ("KCI"), which was the surviving corporation in the
merger, pursuant to an Agreement and Plan of Reorganization dated March 24,
1995, by and between the Company and KCI (see Note 3). The transaction was
accounted for as a pooling of interests for financial reporting purposes and,
accordingly, the financial statements of the merged companies relating to all
periods presented have been restated and are presented on a combined basis. Upon
effectiveness of the merger, KCI changed its fiscal year end to September 30
from March 31. KCI's financial statements have been restated and are
consolidated for the same periods as the Company's fiscal year.
During 1995, the Company adopted a formal plan to dispose of Utilization
Management Association, Inc., a medical cost containment business. Accordingly,
the results of discontinued operations and the estimated loss on disposal
thereof have been reported separately from the continuing operations of the
Company for fiscal 1995 and 1994 (see Note 5).
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of SoftNet Systems,
Inc. ("SoftNet") and its subsidiaries ("Company"). All significant intercompany
accounts and transactions have been eliminated in preparation of the
consolidated financial statements.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of trade receivables. Credit risk is minimized as
a result of the large number and diverse nature of the Company's customers. As
of September 30, 1996, the Company had no significant concentrations of credit
risk.
Significant Customer
For the fiscal year ended September 30, 1996, one customer, accounted for 13% of
the Company's consolidated revenue. No single customer of the Company accounted
for more than 10% of the Company's consolidated revenue in fiscal 1995 or 1994.
Inventories
Inventories are stated at the lower of cost or market and are comprised of
purchased component parts. Cost is determined using the first-in, first-out
method. The components of inventories as of September 30, 1996 and 1995 are as
follows (in thousands):
1996 1995
---- ----
Raw materials $ 3,154 $ 3,545
Work-in-process 853 410
Finished goods 1,897 907
----- -----
$ 5,904 $ 4,862
======== ========
Receivables
The Company has recorded an allowance for uncollectible accounts of $371,000 and
$67,000 at September 30, 1996 and 1995, respectively. No such allowance was
recorded at September 30, 1994.
Property and Equipment
Property and equipment are carried at cost less allowances for accumulated
depreciation. The cost of property and equipment held under capital leases is
equal to the lower of the net present value of the minimum lease payments or the
fair value of the leased property at the inception of the lease. Repairs and
maintenance are charged to expense as incurred.
Depreciation is computed by the straight-line method over the useful lives of
the related assets. The estimated useful lives range from three to five years
for equipment to seven years for property, principally office furniture.
Amortization of capital leases is included with depreciation expense.
Capitalized Software Costs
Certain costs of acquired software to be sold, leased, or otherwise marketed are
capitalized and amortized over the economic useful life of the related software
product, which is generally five years. Net unamortized capitalized software
costs, which resulted from the acquisition of Micrographic Technology
Corporation ("MTC"), are included in other non-current assets and were $792,000
and $991,000 at September 30, 1996 and 1995, respectively.
Prepaid Software License
During fiscal 1996, the Company acquired an exclusive worldwide manufacturing
right to certain microfilm retrieval technology in exchange for the pre-payment
of fees for 250 software licenses. Accordingly, the Company has recorded a
pre-paid license fee of $1.0 million in other non-current assets in the
accompanying consolidated balance sheets (see Note 14).
Investments in Equity Securities
In 1995, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 115 "Accounting for Certain Investments in Debt and Equity Securities." The
adoption of SFAS No. 115 resulted in an increase to shareholders' equity in the
fourth quarter of 1995 of $7.7 million upon the completion by IMNET Systems,
Inc. ("IMNET") of its initial public offering of common stock. Prior to this
offering, there had been no public market for this common stock. At September
30, 1995, the Company's investment in marketable equity securities has been
classified as available-for-sale and as a result is stated at fair value. During
fiscal 1996 the Company sold its entire holdings of IMNET and realized a gain of
$ 5.7 million.
Fair Value of Financial Instruments
The fair value of the Company's debt, current and long-term, is estimated to
approximate the carrying value of these liabilities based upon borrowing rates
currently available to the Company for borrowings with similar terms.
Costs in Excess of Fair Value of Net Assets Acquired
The excess of costs of acquired companies over the fair value of net assets
acquired (goodwill) is amortized on a straight-line basis over 10 to 20 years.
Amortization expense for fiscal 1996 and 1995 was $1.3 million and $471,000,
respectively. During fiscal 1996 the Company wrote-off $3.6 million of net
goodwill resulting from the sale of the non-application oriented interconnect
business in Chicago, IL (see Note 5). Accumulated amortization at September 30,
1996 and 1995 was $943,000 and $471,000, respectively.
The Company assesses the recoverability of unamortized goodwill by reviewing the
sufficiency of estimated future operating income and undiscounted cash flows of
the related entities to cover the amortization during the remaining amortization
period.
Revenue Recognition
Revenue from sales and installation of telephone systems, computer hardware and
peripheral telephone system products is recognized for contracts over $100,000
on the percentage of completion method and on the completed contract method for
all others, which does not differ materially from the percentage of completion
method. Revenue from maintenance contracts covering parts and labor on existing
systems is recognized on a monthly basis over the term of each contract.
Revenue from the document management segment is generated from four primary
sources, including product sales, installations, royalty and on-going
maintenance. Product sales and installation revenue are recognized upon
shipment, installation, or final customer acceptance, depending on specific
contract terms. Installation revenue is recognized on a percentage-of-completion
basis. Royalty revenue is recognized monthly based upon estimated maintenance
fees and is subject to verification against actual fees on a semi-annual basis.
Revenue from on-going maintenance is recognized as services are completed.
Revenue from the Internet services segment is generated from initial and
recurring monthly Internet access, World Wide Web and database development and
Internet training. Set-up fees for Internet access customers is recognized upon
completion of the service. Monthly access fees are recognized in the month of
service. World Wide Web development and Internet training revenue is recognized
upon completion of the service.
Research and Development
Research and development is principally incurred by the document management
segment. During fiscal 1996, the Company expended $1.1 million for research and
development
Income Taxes
Statement of Financial Accounting Standards No. 109 - Accounting for Income
Taxes, which revised certain financial accounting and reporting standards for
income taxes, was adopted by the Company effective October 1, 1993. The adoption
of Statement No. 109 did not have a material effect on the Company's financial
statements. In accordance with this financial accounting standard, the Company
recognizes the amount of taxes payable or refundable for the current year and
recognizes deferred tax liabilities and assets for the expected future tax
consequences of events and transactions that have been recognized in the
Company's financial statements or tax returns. The Company currently has
substantial net operating loss carryforwards. The Company has recorded a 100%
valuation allowance against net deferred tax assets due to uncertainty of their
ultimate realization.
Loss Per Share
Loss per share is based on the weighted average number of common shares
outstanding during the periods. Common stock equivalents (outstanding options
warrants and convertible securities) are not included in the computations of
loss per share since their effect is anti-dilutive.
Recently Issued Accounting Standards
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 123 - "Accounting for
Stock Based Compensation." Under the provisions of this statement, the fair
value of stock options issued may be determined by using an option-pricing model
that takes into account the stock price at the grant date, the exercise price,
the expected life of the option, the volatility of the underlying stock and the
expected dividends on it, and the risk-free interest rate over the expected life
of the option. The statement also provides for valuation of nonvested stock
(usually referred to as restricted stock) and employee stock purchase plans.
Valuation for stock issued under these various plans using the fair value based
method described above may result in compensation costs to the issuer at the
grant date and is recognized over the service period, which is usually the
vesting period. Reporting compensation for these plans under this statement is
optional. Companies choosing not to value stock options or similar equity
instruments under the fair value based method must provide pro forma disclosure
amounts that reflect the difference between compensation cost included in net
income and the related cost measured by the fair value based method defined in
SFAS No. 123, including tax effects, if any, that would have been recognized in
the income statement if the fair value based method had been used. Adoption of
this statement is required for transactions entered into in years that begin
after December 15, 1995.
The Company is in the process of reviewing the effects of this statement and has
not decided whether or not to adopt the preferable fair value based method of
accounting for stock-based compensation as it relates to the issuance of stock
options.
Reclassifications
Certain reclassifications have been made in the 1995 and 1994 financial
statements to conform with the 1996 presentation.
3. Merger
On September 15, 1995, a wholly-owned subsidiary of the Company merged into
Kansas Communications, Inc. ("KCI") pursuant to an Agreement and Plan of
Reorganization dated March 24, 1995, by and between the Company and KCI. The KCI
shareholders received 1.3 million shares of the Company's common stock in
exchange for all of the outstanding shares of KCI. The business combination was
accounted for as a pooling of interests and, accordingly, the operations of KCI
have been included with the results of the Company for all periods presented.
KCI is a Kansas City-based company which sells and services telephone systems,
third-party computer hardware and application oriented peripheral products such
as voice mail, automated attendant systems, interactive voice response (IVR) and
video conferencing systems.
The following are the net revenue from continuing operations and net income
(loss) of the separate companies for the periods preceding the merger (in
thousands):
SoftNet
Systems, Inc. KCI Combined
---------------- ---------- -------------
Nine months ended
June 30, 1995 (Unaudited):
Net sales $ 8,285 $ 7,564 $ 15,849
Net (loss) income (1,777) 272 (1,505)
Fiscal year ended
September 30, 1994:
Net sales 188 9,441 9,629
Net income (loss) $(1,763) $450 $(1,313)
In connection with the merger, the Company recorded transaction related charges
of $648,000 in fiscal 1995. The merger costs relate to expenses incurred to
consummate the transaction, including investment banking, legal and accounting
fees.
4. Acquisitions
Milwaukee Operations of Executone Management Systems, Inc.
On December 29, 1995, the Company acquired the Milwaukee operations of Executone
Information Systems, Inc. ("Executone-Milwaukee"), in a business combination
accounted for as a purchase. Executone-Milwaukee sells and services proprietary
voice processing systems. The purchase price of approximately $1.9 million
consisted of $100,000 of cash and a note payable for $1.8 million. The note was
paid in February 1996. The operations of Executone-Milwaukee have been included
in the results of the Company since December 29, 1995.
As a result of the acquisition, the Company recorded costs in excess of fair
value of net assets acquired of $1.8 million, an amount which is being amortized
on a straight-line basis over twenty years.
MediaCity World, Inc.
On June 21, 1996, the Company acquired MediaCity World, Inc. ("MCW"), in a
business combination accounted for as a purchase. MCW is an Internet Service
Provider with operations in the San Francisco Bay Area and Reno, Nevada. The
purchase price consisted of 200,000 shares of the Company's common stock valued
at $5.11 per share. The operations of MCW have been included in the results of
the Company since June 21, 1996.
As a result of the acquisition of MCW, the Company recorded costs in excess of
fair value of net assets acquired of $1.2 million, an amount which is being
amortized on a straight line basis over three years.
Communicate Direct, Inc.
On October 31, 1994, the Company acquired Communicate Direct, Inc. ("CDI") in a
business combination accounted for as a purchase. CDI is a Chicago-based company
which sells and services telephone systems, third-party computer hardware and
application oriented peripheral products such as voice mail, automated attendant
systems, interactive voice response ("IVR") and video conferencing systems. The
operations of CDI have been included with the results of the Company since
November 1, 1994.
The Company acquired all of the outstanding stock of CDI for $1.9 million, such
consideration consisting of 290,858 shares of the Company's Series A Convertible
Preferred Stock ("Preferred Shares") valued at $6.00 per share and cash. In
April 1995, the Preferred Shares were converted into common shares on a
one-for-one basis following the approval of the Company's shareholders. The
acquisition price has been adjusted for settlement of an earn-out agreement and
resolution of certain post-closing purchase adjustments. The cost in excess of
fair value of net assets acquired incurred in connection with the acquisition of
CDI of $4.2 million was originally to be amortized on a straight-line basis over
ten years. During fiscal 1996, the Company sold a significant portion of the CDI
business. As a result the Company wrote off the unamortized balance of the
goodwill which arose from the original acquisition (see Note 5).
Micrographic Technology Corporation
On September 15, 1995, the Company acquired Micrographic Technology Corporation
("MTC") pursuant to an Agreement and Plan of Reorganization dated March 24, 1995
in a business combination accounted for as a purchase. MTC is a designer,
developer, manufacturer and integrator of comprehensive, non-paper based systems
and components that enable MTC to deliver to its customers cost-effective
solutions for storage, indexing and/or distribution of high-volume output data
streams. The MTC shareholders' received 778,000 shares of the Company's common
stock valued at $6.95 per share, $1.1 million in cash and $2.8 million principal
amount of the Company's debentures. The operations of MTC have been included
with the results of the Company since September 16, 1995.
The cost in excess of fair value of net assets acquired incurred in connection
with the acquisition of MTC of $6.1 million is being amortized on a
straight-line basis over ten years. Additionally, in connection with the
acquisition of MTC, the Company incurred a one-time fourth quarter charge in
fiscal 1995 of $5.0 million for the write-off of acquired in-process unproven
technology.
The following unaudited pro forma summary presents information as if the
acquisitions accounted for as purchases had occurred at the beginning of each
fiscal year. The pro forma information is provided for informational purposes
only. It is based on historical information and does not necessarily reflect the
actual results that would have occurred nor is it necessarily indicative of
future results of operations of the combined enterprise (in thousands, except
per share data):
Years Ended
September 30
(unaudited)
----------------------------
1996 1995 1994
---- ---- ----
Net sales from continuing operations $42,270 $40,020 $36,280
Net loss from continuing operations (328) (9,175) (10,572)
Net loss per share $(0.05) $(2.02) $(2.03)
5. Divestitures
Utilization Management Associates, Inc.
During September 1995, the Company's Board of Directors approved a plan to
rescind its November 1993 acquisition of Utilization Management Associates, Inc.
("UMA"). The plan provided for the exchange of the Company's interest in UMA for
all common shares of the Company held by the former shareholders of UMA,
including related put options, and the cancellation of SoftNet stock options
held by the former shareholders of UMA.
Effective November 20, 1995, the plan was executed such that the Company paid
the former shareholders of UMA $200,000 in satisfaction of its common stock put
obligation and received in exchange 29,630 shares of SoftNet common stock. In
addition, the Company paid approximately $300,000 in cash and notes for the
termination of non-compete, employment, and earn-out agreements and an
irrevocable and unconditional release of the Company from any outstanding
obligations and liabilities to UMA or the shareholders of UMA.
In connection with the disposition, the Company recorded loss on disposal of
discontinued operations of $644,000, along with a loss from discontinued
operations of $419,000 and $115,000 for the years ended September 30, 1995 and
1994, respectively. Such amounts have not been adjusted for any income tax
effect given the Company's net operating loss carryfoward. At September 30,
1995, UMA represented approximately $116,000 and $53,000 of the Company's assets
and liabilities, respectively. For the years ended September 30, 1995 and 1994,
UMA contributed revenue of approximately $860,000 and $695,000, respectively, to
the consolidated revenues of the Company.
Communicate Direct, Inc.
In June 1996, CDI sold its non-application oriented interconnect business
located in the Chicago, IL metropolitan area to Next Call, Inc. ("Next Call")
for a $600,000 ten year note receivable. In connection with the sale, CDI agreed
to lend Next Call up to $1.0 million to fund operating losses, as defined, for
the first twelve months of operations. The loan agreement required CDI to
advance cash to Next Call on a monthly basis to cover operating cash short fall.
Next Call was required to repay such advances when it became profitable on a
cumulative basis. After the first twelve months, any amount still outstanding
from Next Call shall be forgiven. As of September 30, 1996, the Company had made
$189,000 in advances pursuant to this agreement. Subsequent to year-end, Next
Call ceased operations.
As a result of the sale to Next Call and the uncertainty resulting from Next
Call's subsequent shut down, the Company incurred an extraordinary charge of
$6.1 million for the loss on the sale of this business, including the write-off
of unamortized goodwill which resulted from the initial purchase of CDI in
October 1994, deferred acquisition costs associated with the purchase of CDI,
severance payments, inventory, leasehold improvements, the notes receivable from
Next Call and all amounts loaned to the buyer. The loss resulting from the
disposition of certain assets and the assumption of certain liabilities of CDI,
within a two year period following a pooling of interests has been classified as
an extraordinary item as required by generally accepted accounting principles.
This disposition of CDI was not contemplated at the time of the pooling with
KCI.
Subsequent to year-end, CDI sold its operations that support its Fujitsu
maintenance base in the Chicago metropolitan area to a new company formed by
John I. Jellinek, the Company's former president and chief executive officer,
and Phillip Kenny, a former SoftNet director. The buyer acquired certain assets
in exchange for a $209,000 promissory note and the assumption of trade payables
of at least $624,000. In addition, at the closing the buyer paid off $438,000 of
existing Company bank debt and entered into a sub-lease of CDI's facility in
Buffalo Grove, Illinois. At the closing, the buyer merged with Telcom Midwest,
LLC., and Messrs. Jellinek and Kenny and the other two shareholders of the
merged company personally guaranteed obligations arising out of the promissory
note, the sub-lease arrangement and the trade payables. The personal guarantees
of the promissory note are several. The personal guarantees of the sub-lease are
limited to $400,000 and are on a joint and several basis. The personal
guarantees of trade payables are on a joint and several basis but are limited to
Messrs. Jellinek and Kenny. Concurrent with this transaction, Messrs. Jellinek
and Kenny resigned from the Company's board.
6. Change in Products
In June, 1996, the Company signed an agreement to distribute Lucent
Technologies, Inc. products in the Chicago, IL metropolitan area. In connection
with this distribution agreement and the repositioning of its Chicago
operations, the Company incurred one-time charges of $1.3 million for severance
payments, asset write-downs and other.
Included in the fourth quarter 1996 results is a charge of $1.5 million for the
write-down of certain software inventory resulting from the Company's decision
to discontinue the distribution of certain imaging products in favor of others
(see Note 14).
7. Significant Fourth Quarter Events
Operating results in the fourth quarter of fiscal 1996 include the effects of
the following:
A. A $3.8 million gain on the sale of available-for-sale securities
(see notes 2 and 14).
B. A charge of $1.5 million related to the write-off of IMNET software
inventory (see notes 6 and 14).
C. An extraordinary charge of $1.1 million related to the sale of CDI's
non-application oriented interconnect business (see note 5).
8. Property and Equipment
Balances of major classes of fixed assets and allowances for depreciation at
September 30, 1996 and 1995 are as follows(in thousands):
1996 1995
---- ----
Leasehold improvements $227 $845
Furniture and fixtures 1,630 1,300
Vehicles 83 61
Equipment 1,644 1,094
----- -----
Total 3,584 3,300
Less allowance for depreciation (1,270) (732)
and amortization
------- ----
Property and equipment, net $2,314 $2,568
====== ======
<PAGE>
9. Debt
Debt is summarized as follows (in thousands):
1996 1995
-------- ------
Revolving Credit Note with maximum borrowings of
$9.5 million, bearing interest, payable monthly, at
the bank's prime rate plus 1% (the bank's prime
rate being 8.25% at September 30, 1996). The note
matures on October 15, 1997 $6,099 $3,890
9% Convertible Debentures due September 2000,
interest payable quarterly, convertible into the
Company's common shares at $6.75 per share 2,856 2,856
9% Convertible Subordinated Notes due December
1998, interest payable quarterly, subordinated to
all other liabilities of the Company, convertible
into the Company's common shares at $5.00 per
share 75 2,189
6% Convertible Subordinated Debentures, due
February 2002 with semi-annual interest payments,
convertible into the Company's common stock at
$8.10 per share (subject to adjustment for anti-
dilution) 780 1,800
Bank loan dated November 20, 1995, bearing interest
at prime plus 1%, payable monthly, principal due
February 1, 1996 - 1,330
10% Convertible Subordinated Notes due October
1999, bearing interest, payable quarterly, at 10%
for the first two years only and no interest
thereafter, subordinated to all other liabilities
of the Company, convertible into the Company's
common shares at $4.10 per share 300 1,250
Promissory note due July 11, 1997, interest payable
at maturity accruing at prime 409 -
Promissory notes due each November 1996
and 1997 in equal payments, interest payable
in arrears on each principal due date accruing at 8.75% 200 -
Bank loan dated July 10, 1995, bearing interest at
prime plus 1%, principal and interest due in 60
monthly payments with final payment due July 2000 391 493
Bank loan dated April 13, 1995, bearing interest
at prime plus 1%, principal and interest due in 48
monthly installments with final payment due April
1999 85 113
Bank loan dated August 25, 1995, bearing interest
at prime plus 1%, principal and interest due in 36
monthly installments with final payment due August
1998 74 111
Other 73 -
--------- ---------
11,342 14,032
--------- ---------
Less current portion of debt (744) (1,598)
Total long-term debt $ 10,598 $ 12,434
========= =========
<PAGE>
During fiscal 1996, the Company increased the maximum borrowings under its
revolving credit note $3.0 million to $9.5 million. The availability under the
revolving credit note is subject to revisions on a monthly basis based upon
available assets (as defined). Subsequent to year end, the Company received a
temporary increase in its borrowing ability whereby the Company will be able to
borrow $1.0 million in excess of available assets. The temporary increase
expires on January 31, 1997. The revolving credit note and the bank term loans
(issued from the same bank) are collateralized by substantially all of the
assets of the Company.
In connection with the issuance of the 10% Convertible Subordinated Notes, the
Company issued warrants to purchase 298,000 shares of the Company's common stock
exercisable for five years expiring in 1999 at an exercise price of $6.875 per
share.
During fiscal 1996, holders of 6%, 9% and 10% convertible subordinated notes
converted $4.1 million face amount of notes into 781,000 shares of the Company's
common stock. An additional $100,000 of 10% notes were converted into 24,000
shares of the Company's common stock after year end.
In October 1994, in order to extend the maturity of $745,000 of Senior
Subordinated notes, the Company issued warrants to purchase 89,000 shares of the
Company's common stock at prices ranging from $6.125 to $7.875 (market price at
the end of each month during the period the notes were extended). As of April 1,
1995, the $450,000 of notes were repaid and the remaining principal of $295,000
together with accrued interest thereon, was exchanged for the 9% Convertible
Subordinated Notes described above.
In connection with the acquisition of MTC, the Company issued $2.9 million of
its 9% Convertible Subordinated Debentures (the "MTC 9% Debentures") due
September 2000. The MTC 9% Debentures are subordinated to senior indebtedness of
the Company and are convertible after September 15, 1996, into the Company's
common stock at $6.75 per share. The MTC 9% Debentures may be prepaid by the
Company in whole or in part at 102% of face value through September 15, 1997,
and at face value thereafter.
Also in connection with the acquisition of MTC, the Company assumed $1.8 million
of 6% Convertible Subordinated Secured Debentures (the "Debentures") due
February 2002. The Debentures are convertible into the Company's common stock at
$8.10 per share. The Debentures are subject to redemption at the option of the
Company at face value, provided, however, that the Company issues common stock
purchase warrants to purchase the same number of shares as would have been
issuable if the Debentures were converted. During fiscal 1996, certain holders
of the debentures converted $1.0 million face amount Debentures into 126,000
shares of the Company's common stock.
Subsequent to year-end, the Company sold certain assets of its
telecommunications segment for cash, a note receivable and the assumption of
certain liabilities. The Company used the proceeds from the sale to retire
certain bank loans in the principal amount of $438,000 plus accrued interest
(see note 5).
Aggregate maturities of long-term debt for each of the next five fiscal years
are as follows (in thousands):
1997 $ 744
1998 6,380
1999 198
2000 3,240
2001 -
2002 780
10. Sale of Common Stock
On October 26, 1994, the Company sold 200,000 shares of its common stock in a
Regulation S offering at $4.00 per share. In connection with the sale of common
stock, the Company incurred fees of $90,000 and issued warrants to purchase
250,000 shares of its common stock exercisable for five years at an exercise
price of $6.875 per share (fair market value at the date of grant).
11. Capitalized Lease Obligations and Other Lease Commitments
The Company leases computer equipment and certain other office equipment under
leases which are capital in nature. The Company has net assets of $520,000 and
$320,000 under these capital leases as of September 30, 1996 and 1995,
respectively.
The Company has entered into operating leases for office space and manufacturing
facilities. These leases provide for minimum rents. These leases generally
include options to renew for additional periods. The Company's rent expense for
the years ended September 30, 1996, 1995 and 1994 was $755,000, $282,000 and
$100,000, respectively.
The aggregate amount of the lease payments under capital and operating leases
for each of the five fiscal years ending September 30 is as follows (in
thousands):
Capital Operating
leases leases
------------- --------------
1997 $227 $832
1998 111 569
1999 45 289
2000 23 250
2001 10 111
------------- --------------
Total minimum
lease payments 416 $2,051
==============
Amount representing
interest (65)
-------------
Present value of net
minimum payments 351
current portion (187)
-------------
Capital lease obligation $164
=============
Subsequent to year-end, the Company sublet its remaining obligation for leased
space in Buffalo Grove, Illinois. As a result, the Company has decreased its
minimum operating lease commitments by approximately $505,000 from 1997 through
2001.
<PAGE>
12. Income Taxes
The Company's provision for income taxes in fiscal 1995 and 1994 relates
exclusively to the operations of KCI, for tax liabilities incurred by KCI prior
to the merger with the Company.
The components of the provision for income taxes are as follows for the fiscal
years ending September 30 (in thousands):
1996 1995 1994
---- ---- ----
Current
Federal $ - $ 113 $ 321
State - 23 64
----------- ------------- --------------
Total current - 136 385
----------- ------------- --------------
Deferred
Federal - (10) (7)
State - (2) (1)
----------- ------------- --------------
Total deferred - (12) (8)
=========== ============= ==============
$ - $ 124 $ 377
=========== ============= ==============
The types of temporary differences between the tax basis of assets and
liabilities and their financial reporting amounts that give rise to deferred
taxes at September 30 and the approximate tax effects are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
------------------------- ---------------------
TEMPORARY TAX TEMPORARY TAX
DIFFERENCE EFFECT DIFFERENCE EFFECT
<S> <C> <C> <C> <C>
Securities received in settlement of
related party receivable $ - $ - $ 2,400 $ 816
Capital loss carryforward - - 722 245
Reserve for the write-off of
discontinued operations - - 544 185
Inventory and other operating reserves 1,240 422 387 132
Allowance for doubtful accounts 541 184 104 35
Reserve for note receivable 624 212 - -
Unpaid accruals 794 270 77 26
Reserve for lease termination 75 26 250 85
Deferred revenue 1,369 465 14 5
Other (9) (3) 72 24
Net operating loss carryforwards 7,854 2,670 10,990 3,737
------ ------
Total deferred tax asset 4,246 5,290
------
Unrealized appreciation of available-
for-sale securities - (7,738) (2,631)
------
Total deferred tax liabilities - (2,631)
------
Valuation allowance (4,246) (2,659)
------- ------
Net deferred tax asset $ - $ -
========== =========
</TABLE>
A valuation allowance was recorded as a reduction to the deferred tax assets due
to the uncertainty of the ultimate realization of future benefits from such
deferred taxes.
Net operating loss carryforwards of approximately $7.9 million are available as
of September 30, 1996 to be applied against future taxable income. In addition,
net operating loss carryforwards of approximately $750,000 acquired in
connection with the acquisition of MTC are available to reduce recorded goodwill
when utilized. The net operating loss carryforwards expire between 1999 and 2009
and are subject to certain annual limitations as a result of the changes in
equity ownership.
13. Stock Options and Warrants
During fiscal 1995 the Company adopted the 1995 Long Term Incentive Plan (the
"1995 LTIP") whereby the Company, under the direction of the committee appointed
by the Board of Directors, can grant a variety of stock-based compensation
awards. The Company has reserved 600,000 shares for issuance under the plan.
Outstanding options and warrants to purchase shares of common stock at September
30, 1996, 1995 and 1994 were as follows (in thousands, except price per option
data):
Shares Price per option
------------- ----------------
Outstanding at September 30, 1993 383 $ 1.750
Granted 357 1.750-6.125
Canceled - -
Expired - -
Exercised (10) 1.750
-------------
Outstanding at September 30, 1994 730 1.750-6.125
Granted 924 1.750-8.500
Canceled (4) 4.0429
Expired - -
Exercised (100) 1.750
-------------
Outstanding at September 30, 1995 1,550 1.750-8.500
Granted 574 8.125-10.000
Canceled (542) 6.500-8.250
Expired - -
Exercised (13) 1.750
-------------
Outstanding at September 30, 1996 1,569 $ 1.750-$ 12.750
=============
Shares available under the Plan were 303,000 and 600,000 at September 30, 1996
and 1995, respectively. As of September 30, 1996, 1995 and 1994, there were 1.2
million, 1.3 million and 729,000 exercisable options, and warrants,
respectively.
During fiscal 1996, the Board of Directors elected to reduce the exercise price
on 117,000 options from $12.75 to $8.25 per share, the market price on the day
the board took such action. In addition, subsequent to year-end the Board of
Directors elected to reduce the exercise price on 297,000 options from $8.25 to
$4.94 per share, the market price on the day the board took such action.
During fiscal 1995, the Company granted, subject to shareholder approval,
150,000 options to its chairman at $6.50 per share when the market price was
$12.75 per share. Had the shareholders approved the option grant, the Company
would have recorded $1.1 million of compensation expense over the three year
vesting period. At the election of the Company's chairman, the options were
withdrawn from consideration by the shareholders and, therefore, never approved.
Accordingly, no compensation expense was recorded during fiscal 1996 related to
this grant.
Subsequent to year-end, the Board of Directors elected to increase the shared
reserved for the 1995 LTIP to 1.5 million shares. The increase in the shares
reserved is subject to shareholder approval.
14. Related Party Transactions
As of September 30, 1994, the Company was owed $4.2 million plus accrued
interest by Ozite Corporation (Ozite). A director of the Company and the former
Chairman of the Board held substantial interests in Ozite. Due to uncertainties
about collecting these funds, the receivable from Ozite was written off and
charged against earnings in 1991, and, accordingly no amount related to this
receivable is recorded on the Company's consolidated financial statements.
On July 26, 1995, Ozite shareholders approved a merger of Ozite with Pure Tech
with Pure Tech being the surviving corporation. As a condition of the merger,
Ozite was required to secure a general release from the Company and to surrender
certain securities in satisfaction of the amount owed to the Company. As a
result, the Company received 311,000 shares of Pure Tech common stock, 267,000
shares of Artra Group Incorporated (ARTRA) Common Stock and 932 shares of Artra
Preferred Stock. Subsequently, the Company sold all 311,000 shares of Pure Tech
for net proceeds of $1.0 million, which was recorded as a capital contribution
during fiscal 1995. During fiscal 1996, the remaining securities were sold for
net proceeds of $815,000, which was recorded as a capital contribution.
Subsequent to year-end, CDI sold its operations that support its Fujitsu
maintenance base in the Chicago metropolitan area to a new company formed by
John I. Jellinek, the Company's former president and chief executive officer,
and Phillip Kenny, a former SoftNet director. The buyer acquired certain assets
in exchange for a $209,000 promissory note and the assumption of trade payables
of at least $624,000. In addition, at the closing the buyer paid off $438,000 of
existing Company bank debt and entered into a sub-lease of CDI's facility in
Buffalo Grove, Illinois. At the closing, the buyer merged with Telcom Midwest,
LLC., and Messrs. Jellinek and Kenny and the other two shareholders of the
merged company personally guaranteed obligations arising out of the promissory
note, the sub-lease arrangement and the trade payables. The personal guarantees
of the promissory note are several. The personal guarantees of the sub-lease are
limited to $400,000 and are on a joint and several basis. The personal
guarantees of trade payables are on a joint and several basis but are limited to
Messrs. Jellinek and Kenny. Concurrent with this transaction, Messrs. Jellinek
and Kenny resigned from the Company's board. The transaction was approved by the
disinterested members of the Company's board.
In June 1996, the Company acquired the exclusive worldwide manufacturing rights
to IMNET MegaSAR Microfilm Jukebox and completed and amended its obligations
under a previous agreement. In addition to becoming the exclusive manufacturer
of the MegaSAR for IMNET, the Company will further integrate the device into its
current product offering. The Company issued a $2.9 million note for prepaid
license fees, software inventory, the manufacturing rights, and certain other
payables. Approximately $2.5 million was paid on this note during the fourth
quarter of fiscal 1996. The Company has a receivable from IMNET of $176,000.
During the fourth quarter of fiscal 1996, the Company decided to discontinue
distributing the IMNET microfilm retrieval software in favor of another software
developer's product. As a result, the Company recorded a one-time charge of $1.5
million to write off software inventory which is included under the caption
costs associated with change in product lines and other in the accompanying
consolidated statements of operations. Since the acquisition of the
manufacturing rights from IMNET, the Company has been unable to successfully
transfer all of the technical and manufacturing know-how. The Company is
currently negotiating with IMNET to either complete the transfer or seek an
alternative solution.
During fiscal 1996, the Company sold its entire holdings in IMNET for net
proceeds of $7.7 million. Accordingly, the Company recorded a gain on sale of
the securities of $5.7 million.
15. Supplemental Cash Flow Information
1996 1995 1994
--------- --------- ---------
(in thousands)
Cash paid during the year for :
Interest $1,730 $465 $69
Income taxes - 194 161
Non-cash investing and financing activities:
Common stock issued for acquisitions 1,020 7,931 -
Securities received in settlement
of $4,150,000 related party
receivable, at net realized value - 1,027 -
Convertible subordinated debt issued
for acquisitions - 2,856 -
Common stock issued for the conversion
of subordinated notes 4,077 1,630 -
Conversion of Senior Notes and accrued
interest to 9% Convertible Notes - 309 -
Equipment acquired by capital lease 89 332 50
16. Segment Information
The Company operates principally in three industry segments: document
management, telecommunications and Internet services. The Company's acquisition
of MTC in September, 1995, significantly broadened its operations in the
document management industry. Prior to the acquisition, the Company's document
management operations were immaterial, and accordingly, are not presented for
fiscal 1994. Although the Company acquired MCW, an Internet service provider, in
June of 1996, its revenue and results of operations in fiscal 1996 are
immaterial.
(In thousands)
<TABLE>
<CAPTION>
As of and for the Years Ended September 30,
-------------------------------------------------------
1996 1995 1994
------------ ------------- --------------
<S> <C> <C> <C>
Net Sales
Document Management $ 19,417 $ 1,112 $ -
Telecommunications 21,803 20,140 9,441
Other 167 - 188
------------ ------------- --------------
$ 41,387 $ 21,252 $ 9,629
============ ============= ==============
Loss from continuing
operations before income
taxes and extraordinary item
Document Management $ (227) (a) $ (6,325) (b) $ -
Telecommunications (1,812) (c) (1,116) (d) 827
Other 2,003 (e) (1,027) (1,762)
------------ ------------- --------------
$ (36) $ (8,468) $ (935)
============ ============= ==============
Identifiable Assets
Document Management $14,426 $11,262 $-
Telecommunications 8,706 11,911 2,846
Corporate 1,134 12,223 2,801
Other 1302 - -
------------ ------------- --------------
$ 25,586 $ 35,396 $ 5,647
============ ============= ==============
Depreciation and
Amortization Expense
Document Management $958 $139 $-
Telecommunications 623 628 84
Corporate 306 55 79
Other 110 - -
------------ ------------- --------------
$ 1,997 $ 822 $ 163
============ ============= ==============
Capital Expenditures
Document Management $ 614 $ 2 $ -
Telecommunications 242 1,084 98
Corporate 100 332 75
Other 17 - -
------------ ------------- --------------
$ 973 $ 1,418 $ 173
============ ============= ==============
<FN>
(a) Includes $1.5 million charge for costs associated with change in
products
(b) Includes $5.0 million charge for the write-off of acquired in-process
unproven technology
(c) Includes $700,000 charge for costs associated with change in products
(d) Includes $472,000 of costs related to acquisitions
(e)Includes $5.7 million gain on sale of available-for-sale securities
</FN>
</TABLE>
<PAGE>
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant
The information required by this Item is set forth in registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on March 4, 1997
under the caption "Election of Directors" and "Executive Officers of the
Company", which information is hereby incorporated herein by reference.
The information required by this Item is set forth in registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on March 4, 1997
under the caption "Compliance with Section 16(a) of the Exchange Act," which
information is hereby incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item is set forth in registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on March 4, 1997
under the caption "Executive Compensation" and under the caption "Board of
Directors", which information is hereby incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is set forth in registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on March 4, 1997
under the caption "Securities Beneficially Owned by Principal Shareholders and
Management", which information is hereby incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is set forth in registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on March 4, 1997
under the caption "Certain Relationships and Related Transactions", which
information is hereby incorporated herein by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
1. Financial Statements
See Index to Financial Statements and Financial Statement
Schedules on page __ of this report.
2. Financial Statement Schedules
Page
Included in Part IV of this Form 10-K are the following:
Report of Independent Accountants on Financial
Statement Schedule ___
Financial Statement Schedule for the Three Years
Ended September 30, 1996 ___
II - Valuation Accounts and Reserves ___
3. Exhibits
See Index to Exhibits on page __ of this report.
REPORTS ON FORMS 8-K.
No reports on Form 8-K were filed by the Company during the last
quarter of the fiscal year covered by this report.
<PAGE>
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. SOFTNET SYSTEMS, INC.
SOFTNET SYSTEMS, INC.
By: /s/ John J. McDonough
John J. McDonough
Chairman and Chief 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
/s/ John J. McDonough Chairman of the Board of January 13, 1997
John J. McDonough Directors, Chief Executive
Officer and Director
(Principal Executive Officer)
/s/ A.J.R. Oosthuizen President, Chief Operating January 13, 1997
A.J.R. Oosthuizen Officer and Director
/s/ Martin A. Koehler Vice President - Finance January 13, 1997
Martin A. Koehler (Principal Financial Officer
and Principal Accounting Officer)
/s/ Ian B. Aaron Director January 13, 1997
Ian B. Aaron
/s/ John G. Hamm Director January 13, 1997
John G. Hamm
/s/ Ronald I. Simon Director January 13, 1997
Ronald I. Simon
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of SoftNet Systems, Inc.
Our report on the consolidated fiancial statements of SoftNet Systems, Inc. and
Subsidiaries is included on page __ of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed in the index on page __ of this Form 10-K
In our opinion, the finacial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
represent fairly, in all material aspects, the information required to be
included therein.
COOPERS & LYBRAND, L.L.P.
Chicago, Illinois
January 14, 1997
<PAGE>
Schedule II
Valuation and Qualifying Accounts
(in thousands)
Allowance for
Doubtful Accounts
Beginning Ending
Balance Expensed Deductions Balance
--------- -------- ---------- -------
10/01/95 $ 342 $ 347 $ 318 09/30/96 $ 371
10/01/94 64 321 43 09/30/95 342
10/01/93 59 5 - 09/30/94 64
<PAGE>
INDEX TO EXHIBITS
Exhibits included herein:
EXHIBIT 2 Plan of Acquisition, Reorganization, Arrangement, Liquidation
or Succession
2.1 PURCHASE AGREEMENT dated as of December 31, 1995, by
and between EXECUTONE INFORMATION SYSTEMS, INC., a
Virginia corporation and Kansas Communications, Inc.
2.2 ASSET PURCHASE AGREEMENT dated as of the 17th day of
June, 1996, by and between Extreme Communications,
Inc., an Illinois corporation, Communicate Direct,
Inc., an Illinois corporation, and SoftNet Systems,
Inc., a New York corporation.
2.3 AGREEMENT FOR THE PURCHASE AND SALE OF CERTAIN OF
THE ASSETS OF COMMUNICATE DIRECT, INC. made as of
the 9th day of December, 1996, by and between NEWTEL
BUFFALO GROVE, INC., an Illinois corporation and
COMMUNICATE DIRECT, INC., an Illinois corporation
and a wholly-owned subsidiary of SoftNet Systems,
Inc., a New York Corporation
.
EXHIBIT 3 Articles of Incorporation and By-Laws
3.1 Amended and Restated Articles of Incorporation of
the Registrant as filed in the Department of State
of New York on April 4, 1996.
EXHIBIT 10 Material Contracts
10.1 EMPLOYMENT AGREEMENT , dated this 16th day of
October, 1996, by and between SOFTNET SYSTEMS, INC.,
a New York corporation , Kansas Communications,
Inc., a Kansas corporation, and DALE H. SIZEMORE,
JR.
10.2 MANUFACTURING AND DISTRIBUTION LICENSE AGREEMENT,
dated July 12, 1996 by and among IMNET Systems,
Inc., a Delaware corporation, having its principal
place of business in Atlanta, Georgia , SoftNet
Systems, Inc., a New York corporation, having its
principal place of business in Lake Forest, Illinois
and SoftNet's wholly-owned subsidiary, Micrographic
Technology Corporation, a Delaware corporation
having its principal place of business in Mountain
View, California.
10.3 LOAN MODIFICATION AGREEMENT made and entered into
this 14th day of March, 1996, by and between SOFTNET
SYSTEMS, INC., a New York Corporation, COMMUNICATE
DIRECT, INC., an Illinois Corporation , MICROGRAPHIC
TECHNOLOGY CORPORATION, a Delaware Corporation,
KANSAS COMMUNICATIONS, INC., a Kansas Corporation
and WEST SUBURBAN BANK.
10.4 LOAN MODIFICATION AGREEMENT (EXTENSION OF MATURITY
DATE) made and entered into this 15th day of
November, 1996, by and between SOFTNET SYSTEMS,
INC., a New York Corporation, COMMUNICATE DIRECT,
INC., an Illinois Corporation , MICROGRAPHIC
TECHNOLOGY CORPORATION, a Delaware Corporation ,
KANSAS COMMUNICATIONS, INC., a Kansas Corporation
and WEST SUBURBAN BANK.
10.5 LOAN MODIFICATION AGREEMENT (TEMPORARY INCREASE OF
BORROWING BASE LIMITATIONS) made and entered into
this 20th day of November, 1996, by and between
SOFTNET SYSTEMS, INC., a New York Corporation ,
COMMUNICATE DIRECT, INC., an Illinois Corporation ,
MICROGRAPHIC TECHNOLOGY CORPORATION, a Delaware
Corporation , KANSAS COMMUNICATIONS, INC., a Kansas
Corporation and WEST SUBURBAN BANK.
10.6 LOAN MODIFICATION AGREEMENT (MODIFICATION OF
BORROWING BASE DEFINITION) made and entered into
this 27th day of November, 1996, by and between
SOFTNET SYSTEMS, INC., a New York Corporation ,
COMMUNICATE DIRECT, INC., an Illinois Corporation,
MICROGRAPHIC TECHNOLOGY CORPORATION, a Delaware
Corporation, KANSAS COMMUNICATIONS, INC., a Kansas
Corporation and WEST SUBURBAN BANK.
EXHIBIT 21 Subsidiaries
EXHIBIT 27 Financial Data Schedule
<PAGE>
Exhibits incorporated herein by reference:
EXHIBIT 2 Plan of Acquisition, Reorganization, Arrangement, Liquidation
or Succession
2.1 Agreement and Plan of Reorganization, dated October
28, 1994 by and among SoftNet Systems, Inc., CDI
Acquisition Corp., Communicate Direct, Inc., Marc
Zionts and Ian Aaron.(b)
2.2 Agreement and Plan of Reorganization dated March 24,
1995 among SoftNet Systems, Inc., KCI Acquisition
Corp., Kansas Communications, Inc., Sizemore
Enterprises and Gerald Tousey and Cleo Tousey
(attached as Appendix I to the Proxy
Statement/Prospectus included in the Registration
Statement on Form S-4, as amended, Registration
Number 33-95542). The registrant will furnish
supplementally a copy of all omitted Exhibits and
Schedules to Exhibit 2.2 upon the request of the
Commission. Incorporated by reference to Appendix I
to the Company's Registration Statement on Form S-4,
as amended, Registration No. 33-95542.
2.3 Agreement and Plan of Reorganization dated March 24,
1995 among SoftNet Systems, Inc., MTC Acquisition
Corp., and Micrographic Technology Corporation as
amended by Amendment No. 1 dated as of August 8,
1995 (attached as Appendix II to the Proxy
Statement/Prospectus included in the Registration
Statement on Form S-4, as amended, Registration
Number 33-95542). The registrant will furnish
supplementally a copy of all omitted Exhibits and
Schedules to Exhibit 2.3 upon the request of the
Commission. Incorporated by reference to Appendix II
to the Company's Registration Statement on Form S-4,
as amended, Registration No.
33-95542.
EXHIBIT 3 Articles of Incorporation and By-Laws
3.2 By-Laws of the Company included in Exhibit 3(b) to
the Company's Annual Report on Form 10-KSB for the
fiscal year ended September 30, 1993.
EXHIBIT 10 Material Contracts
10.1 Loan and Security Agreement, dated September 15,
1995, by and between West Suburban Bank and SoftNet
Systems, Inc. (a)
10.2 Revolving Credit Note, dated September 15, 1995, in
the original principal amount of $6,500,000 from
SoftNet Systems, in favor of West Suburban Bank (a)
10.3 SoftNet Systems, Inc. 1995 Long Term Incentive Plan.
(a)
10.4 SoftNet Systems, Inc. Stock Option Agreement
(Non-Plan) dated as of September 15, 1995 by and
between SoftNet Systems, Inc. and John J. McDonough.
(a)
10.5 SoftNet Systems, Inc. Stock Option Agreement
(Non-Plan) dated as of June 12, 1995 by and between
SoftNet Systems, Inc. and Martin A. Koehler. (a)
10.6 Registration Rights Agreement dated September 15,
1995 by and among R.C.W. Mauran, A.J.R. Oosthuizen
and SoftNet Systems, Inc. (a)
10.7 Employment Agreement dated September 15, 1995 by and
among A.J.R. Oosthuizen, SoftNet Systems, Inc. and
Micrographic Technology Corporation. (a)
10.8 SoftNet Systems, Inc. Employee Stock Option Plan for
employees of Micrographic Technology Corporation.
(a)
10.9 Form of SoftNet Systems, Inc. 9% Convertible
Subordinated Debentures due 2000. (a)
10.10 $660,000 principal amount of Micrographic Technology
Corporation 6% Convertible Subordinated Secured
Debentures due 2002 issued to R.C.W. Mauran. (a)
10.11 Escrow Agreement dated September 15, 1995 by and
among SoftNet Systems, Inc., R.C.W. Mauran, A.J.R.
Oosthuizen and Mellon Bank, N.A. (a)
10.12 Form of Stock Purchase Agreement executed by SoftNet
Systems, Inc. and U.S. 6-10 Small Company Series of
the DFA Investment Trust Company, U.S. 9-10 Small
Company Portfolio of DFA Investment Dimensions Group
Inc., DFA Group Trust-The 6-10 Subtrust, DFA Group
Trust-Small Company Subtrust. (a)
10.13 Employment Agreement, dated October 28, 1994, by and
between Communicate Direct, Inc. and Ian Aaron. (b)
10.14 Registration Rights Agreement, dated as of October
28, 1994, by and among SoftNet Systems, Inc., Marc
Zionts and Ian Aaron. (b)
10.15 Registration Rights Agreement, dated as of October
28, 1994, by and among SoftNet Systems, Inc.,
Forsythe/McArthur Associates, Inc., BWJ Partnership,
Willard Aaron and D&K Stores, Inc. (b)
10.16 Registration Rights Agreement, dated as of November
1, 1994, by and among SoftNet Systems, Inc., Michael
Cleary, Tim Reiland, Dave Prokupek, Christopher
Barnes and CGRM Limited Partnership I. (b)
10.17 Note and Warrant Purchase Agreement, dated as of
November 1, 1994, by and among SoftNet Systems,
Inc., Michael Cleary, Tim Reiland, Dave Prokupek,
Christopher Barnes and CGRM Limited Partnership I.
(b)
10.18 SoftNet Systems, Inc. 10% Convertible Subordinated
Note, dated November 1, 1999, in the original
principal amount of $150,000 from SoftNet Systems,
Inc. in favor of Michael Cleary, Tim Reiland, Dave
Prokupek, Christopher Barnes and CGRM Limited
Partnership I. (b)
10.19 SoftNet Systems, Inc. Common Stock Purchase Warrant
expiring October 31, 1999 held by Michael Cleary,
Tim Reiland, Dave Prokupek, Christopher Barnes and
CGRM Limited Partnership (b)
10.20 Note and Warrant Purchase Agreement, dated as of
October 28, 1994, by and between SoftNet Systems,
Inc. and D&K Stores, Inc. (b)
10.21 SoftNet Systems, Inc. 10% Convertible Subordinated
Note, dated October 26, 1994, in the original
principal amount of $200,000 from SoftNet Systems,
Inc. in favor of D&K Stores, Inc. (b)
10.22 SoftNet Systems, Inc. Common Stock Purchase Warrant
expiring October 27, 1999 held by D&K Stores, Inc.
(b)
10.23 Note and Warrant Purchase Agreement, dated as of
October 28, 1994, by and between SoftNet Systems,
Inc. and Willard Aaron. (b)
10.24 SoftNet Systems, Inc. 10% Convertible Subordinated
Note, dated October 26, 1994, in the original
principal amount of $100,000 from SoftNet Systems,
Inc. in favor of Willard Aaron. (b)
10.25 SoftNet Systems, Inc. Common Stock Purchase Warrant
expiring October 27, 1999 held by Willard Aaron. (b)
10.26 Note and Warrant Purchase Agreement, dated as of
October 28, 1994, by and between SoftNet Systems,
Inc. and BWJ Partnership. (b)
10.27 SoftNet Systems, Inc. 10% Convertible Subordinated
Note, dated October 26, 1994, in the original
principal amount of $100,000 from SoftNet Systems,
Inc. in favor of BWJ Partnership. (b)
10.28 SoftNet Systems, Inc. Common Stock Purchase Warrant
expiring October 27, 1994 held by BWJ Partnership.
(b)
10.29 Note and Warrant Purchase Agreement, dated as of
October 28, 1994, by and between SoftNet Systems,
Inc. and Forsythe/McArthur Associates, Inc. (b)
10.30 SoftNet Systems, Inc. 10% Convertible Subordinated
Note, dated October 26, 1994, in the original
principal amount of $500,000 from SoftNet Systems,
Inc. in favor of Forsythe/McArthur Associates, Inc.
(b)
10.31 SoftNet Systems, Inc. Common Stock Purchase Warrant
expiring October 27, 1999 held by Forsythe/McArthur
Associates, Inc. (b)
10.32 Note and Warrant Purchase Agreement, dated as of
November 1, 1994, by and between SoftNet Systems,
Inc. and Joseph Rich. (b)
10.33 SoftNet Systems, Inc. 10% Convertible Subordinated
Note, dated November 1, 1994, in the original
principal amount of $200,000 from SoftNet Systems,
Inc. in favor of Joseph Rich. (b)
10.34 SoftNet Systems, Inc. Common Stock Purchase Warrant
expiring October 31, 1999 held by Joseph Rich. (b)
10.35 SoftNet Systems, Inc. Subscription Agreement, dated
October 27, 1994, by and between SoftNet Systems,
Inc. and Compania Di Investimento Antillianna. (b)
10.36 Common Stock Purchase Warrant expiring October 27,
1999 held by Compania Di Investimento Antillianna.
(b)
10.37 Off Shore Securities Subscription Agreement, dated
October, 1994, by and between SoftNet Systems, Inc.
and Coutts & Co., A.G., acting in its capacity as
agent for non-U.S. persons. (b)
10.38 Employment Agreement dated September 15, 1995
between Dale H. Sizemore, Jr. and SoftNet Systems,
Inc. (a)
10.39 Form of SoftNet Systems, Inc. Common Stock Purchase
Warrant. (a)
10.40 Form of SoftNet Systems, Inc. Promissory Note. (a)
10.41 Form of SoftNet Systems, Inc. Note Extension
Agreement. (a)
10.42 Form of SoftNet Systems, Inc. Warrant to Purchase
Common Stock granted to holders of SoftNet Systems,
Inc. Promissory Notes. (a)
10.43 Form of 9% Convertible Subordinated Note. (c)
10.44 Stockholders Agreement dated March 24, 1995 among
SoftNet Systems, Inc., A.J.R. Oosthuizen and R.C.W.
Mauran. (c)
10.45 First Amendment dated September 15, 1995 to
Stockholders Agreement dated March 24, 1995 among
SoftNet Systems, Inc., A.J.R. Oosthuizen and R.C.W.
Mauran. (a)
10.46 Stock Exchange Agreement dated December 17, 1992
between SoftNet Systems, Inc. and Jelken Corp. (a)
10.47 Option to Purchase Shares of SoftNet Systems, Inc.
dated July 4, 1995, expiring July 31, 1997 granting
John I. Jellinek the right to acquire 200,000 shares
of SoftNet Systems, Inc. common stock. (a)
10.48 Form of Indenture between SoftNet Systems, Inc. and
U.S. Trust Company of California, as Trustee,
including Form of Note, relating to the 9%
Debentures. Incorporated by reference to Exhibit 4.2
to the Company's Registration Statement on Form S-4,
as amended, Registration No. 33-95542.
---------------------------
(a) Incorporated by reference to exhibits of equivalent
number to the Company's Annual Report on Form 10-KSB
for the fiscal year ended September 30, 1995.
(b) Incorporated by reference to exhibits of equivalent
number to the Company's Current Report on Form 8-K
dated October 31, 1994.
(c) Incorporated by reference to exhibits of equivalent
number to the Company's Registration Statement on
Form S-4, as amended, Registration No. 33-95542.
<PAGE>
ISO BASE PURCHASE AGREEMENT
PURCHASE AGREEMENT dated as of December 31, 1995, by and between EXECUTONE
INFORMATION SYSTEMS, INC., a Virginia corporation ("Seller") and Kansas
Communications, Inc. ("ISO").
WHEREAS, Seller desires to transfer its rights in and certain liabilities of the
Base Assets (as that term is defined below) to ISO and ISO desires to acquire
Seller's rights and is willing to assume certain liabilities of the Base Assets
for and in consideration of the payments specified hereinafter, all in
accordance with the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises herein made and the
mutual benefits to be derived from the transactions provided for herein, the
parties hereto represent, warrant, covenant, agree and understand as follows:
ARTICLE I
Definitions
The following terms shall, for the purposes of this Agreement, have the
following meanings:
"Assumed Liabilities" shall have the meaning set forth in Section 2.4.
"Backlog Orders" shall mean orders for the sale and/or installation of new
systems and/or MAC work which includes Base equipment, which orders are
accepted by Seller on or prior to the Transfer Date in the ordinary course
of business on terms no less favorable than Seller's standard terms as of
the date hereof and which are not completed by the Transfer Date.
"Base" shall mean telephone systems or voice processing systems and
healthcare communication systems sold or manufactured by Seller and related
peripheral equipment attached to or interfacing with such equipment, and
installed at the customer sites on the Customer List.
"Base Assets" shall have the meaning set forth in Section 2.1.
"Base Business" shall mean the business conducted by Seller on and from the
Premises (as hereafter defined), including the business of distributing,
selling, reselling, installing and maintaining Base equipment and related
peripheral equipment to customers listed on the Customer List.
"Benefit Plan" shall have the meaning set forth in Section 7.2.
"Closing Date Book Value" shall mean the book value of the Base Assets
minus the book value of the Assumed Liabilities determined as of the
Closing Date in accordance with generally accepted accounting principles,
consistently applied with the balance sheet attached as Schedule 4.7.
"COBRA" shall have the meaning set forth in Section 7.3.
"Contracts" shall mean all contracts or agreements of Seller that are (i)
listed on Schedule 1.1, and (ii) not listed on Schedule 1.1 but that relate
to the Base Business and that are assumed by ISO pursuant to a written
election from ISO to Seller on or after the Transfer Date.
<PAGE>
"Customer List" shall mean the list of customer sites on Schedule 4.5
hereto. The Customer List shall contain, as to each customer, at least the
following information: the customer's name and the address, telephone
number of Its installation location where Base equipment is located, and
the name of the contact person employed by the customer who deals with the
Base equipment.
"Dispute Notice" shall have the meaning set forth in Section 2.3(b).
"employee pension benefit plans" shall have the meaning set forth in
Section 7.2.
"employee welfare benefit plans" shall have the meaning set forth in
Section 7.2. "Financial Statements" shall have the meaning set forth in
Section 4.7.
"Fixed Assets" shall mean the assets listed on Schedule 4.6.
"indemnified party" shall have the meaning set forth in Section 9.3.
"indemnifying party" shall have the meaning set forth in Section 9.3.
"Independent Auditor" shall have the meaning set forth in Section 2.3(b).
"Inventory" shall mean all inventory of Seller located at or in transit to
the Premises, including parts, materials, supplies and finished goods.
"ISO Employees" shall have the meaning set forth in Section 7.1.
"Licenses and Permits" shall have the meaning set forth in Section 4.13.
"MAC" shall mean moves, adds and changes work with respect to the Base
equipment in the ordinary course of business.
"Maintenance Contracts in Force" shall mean all Contracts entered Into In
the ordinary course of business for the maintenance of the Base expiring on
or after the Transfer Date.
"Nontransferred Base Assets" shall have the meaning set forth in Section
2.8(a).
"Office Lease" shall have the meaning set forth in Section 2.4.
"Preliminary Purchase Price" shall have the meaning set forth in Section
2.3.(b)
"Premises" means the premises leased by Seller pursuant to the Office
Lease.
"Purchase Price" shall have the meaning set forth in Section 2.3(a).
"Regulatory Authority" shall mean any court, arbitrator or federal, state,
municipal or other local or foreign government or any department,
commission, board, agency or taxing authority, whether governmental or
quasi-governmental.
"Schedules" shall have the meaning set forth in Section 4.1.
<PAGE>
"Settlement Statement" shall have the meaning set forth in Section 2.3(b).
"T & M" shall mean time and material work (billable service) in the
ordinary course of business related to the Base equipment.
"Territory" shall mean the counties of Wisconsin listed In Schedule 3.4.
"Transfer" shall have the meaning set forth in Section 3.1 hereof.
"Transfer Date" shall mean December 31, 1995, or such other date agreed by
the parties.
ARTICLE II
Transfer of the Base Assets to ISO in Exchange for Cash
and the Assumption by ISO of Certain Liabilities of Seller
2.1 Transfer of Assets.
(a) On the Transfer Date, Seller shall sell, transfer, assign, grant,
convey and deliver, as the case may be, to ISO, free and clear of all
mortgages, security interests, liens, pledges and other encumbrances, all
Seller's right, title and interest in and to all assets, properties and
rights relating primarily to the operation of the Base Business (the Base
Assets.) including the following:
(i) All bids and proposals to customers made with respect to the
Base Business as of the Transfer Date;
(ii) All orders placed by customers with respect to the Base
Business which have not yet been approved or rejected by Seller as of
the Transfer Date;
(iii) All rights under the Contracts in effect on the Transfer
Date, whether or not partially performed; and In each case of (i),
(ii) and (iii), whether for purchase of Base equipment, or for MAC,
for installation or for maintenance of same, and whether on a fixed
fee or T & M basis, or otherwise;
(iv) All customer records and files, the Customer List, product
literature and information, reference manuals, and other books and
records ordinarily located at the Premises;
(v) All Backlog Orders;
(vi) All property, plant and equipment located on the Premises,
including the Fixed Assets;
(vii) All Inventory;
(viii) All accounts receivable relating to the Base Business;
(ix) All prepaid commissions relating to the Base Business;
<PAGE>
(x) All prepaid advertising relating to the Base Business;
(xi) All prepaid rent and security deposits relating to the Base
Business;
(xii) All other prepaid expenses relating to the Base Business;
and
(xiii) All other assets, properties and rights reflected on the
balance sheet attached as Schedule 4.7 (subject to additions or
deletions in the ordinary course of business since the date thereof)
or ordinarily located at the Premises.
2.2 Excluded Assets. Notwithstanding anything herein to the contrary, ISO shall
not purchase or acquire hereunder any right, title or interest in or to the
properties, rights and assets of Seller other than the Base Assets.
2.3 Consideration. Upon the terms and subject to the conditions set forth in
this Agreement and in exchange and in consideration for the Base Assets to be
purchased and acquired by ISO, ISO agrees to pay to Seller the following
Purchase Price.
(a) The Purchase Price shall be an amount equal to S1,924.000, minus
the amount by which the Closing Date Book Value is less than $433,800, or
plus the amount by which the Closing Date Book Value exceeds $530,200, if
any.
(b) Payment of Purchase Price. On the Transfer Date, ISO shall pay and
remit to Seller $100,000 by wire transfer or check and the balance of the
Preliminary Purchase Price by delivery of a note in form of Exhibit A (the
"Note"). The Preliminary Purchase Price shall be $1,924,000. Within thirty
(30) days after the Closing Date, ISO shall cause the employees of ISO to
deliver to ISO and Seller a statement (the "Settlement Statement") setting
forth in detail a determination of the Purchase Price including its
determination of Closing Date Book Value. In connection therewith, from and
after Closing, each party shall provide the other party and its
representatives with full access to all assets, records and work papers
necessary to compute and verify the Purchase Price. This Settlement
Statement as delivered to ISO and Seller shall be final for purposes of
determining the Purchase Price unless, within sixty (60) days after
delivery to ISO and Seller, either ISO or Seller shall deliver to the other
party a Dispute Notice. After delivery of a Dispute Notice, Seller and ISO
shall promptly thereafter negotiate in good faith with respect to the
subject of the Dispute Notice, and if they are unable to reach an agreement
within fifteen (15) business days after receipt of a Dispute Notice, the
dispute shall be submitted to the Independent Auditor. The Independent
Auditor shall be directed to issue a final and binding decision within
thirty (30) days of submission of the Dispute Notice, as to the issues of
disagreement referred to in the Dispute Notice and not resolved by the
parties. Within five (5) days after final determination of the Settlement
Statement, (i) If necessary the Note shall be amended to reflect the amount
of the Purchase Price. The Settlement Statement shall be prepared in
accordance with generally accepted accounting principles as historically
applied by Seller on a basis consistent with the balance sheet attached as
Schedule 4.7. In connection with the Settlement Statement, a "Dispute
Notice" shall mean a written notice from ISO or Seller, as the case may be,
indicating disagreement with the initial statement. The "Independent
Auditor" shall mean one of the "Big Six" public accounting firms with no
material relationship to either of the parties chosen by agreement of the
parties, or if they are unable to agree, shall mean one of the "Big Six"
firms with no such material relationship chosen by lot. The fees and
expenses of the Independent Auditor retained as a result of any dispute
related to any statement shall be equitably allocated by the Independent
Auditor. The decision of the Independent Auditor with respect to the
Settlement Statement shall be final and binding on the parties.
<PAGE>
2.4 Liabilities Assumed by ISO. ISO shall assume only the following (the
"Assumed Liabilities"): (i) performance of the express terms of Contracts that
are part of the Base Assets, which performance is, by contract, to occur on or
after the Transfer Date and which performance does not result from any
misperformance or failure to perform by Seller; (ii) accounts payable that are
not intercompany accounts payable to the extent reflected on the balance sheet
attached as Schedule 4.7; and (iii) performance of Seller's obligations under
its lease of 250 North Sunnyslope Road, Suite 125, Brookfield, Wisconsin (the
"Office Lease"), which performance is according to such lease to occur on or
after the Transfer Date and which performance does not result from any
misperformance or failure to perform by Seller.
2.5 Excluded Liabilities. Any obligations or liabilities (whether accrued,
absolute, contingent or otherwise) of Seller that are not expressly assumed by
ISO as Assumed Liabilities shall continue to be obligations and liabilities of
Seller.
2.6 Allocation of Purchase Price. The Purchase Price shall be allocated as
set forth on Schedule 2.6 for federal, state and local income tax purposes among
the business, properties, rights, assets and liabilities of Seller acquired by
ISO. The parties shall report the agreed allocation to the Internal Revenue
Service pursuant to Section 1060 of the Internal Revenue Code of 1986, as
amended, and in accordance with regulations or notices thereunder, as required.
2.7 Right to Contest. The assumption and agreement by ISO to pay, perform,
and discharge, as the case may be, the Assumed Liabilities specified in Section
2.4 hereof shall not prohibit ISO from contesting, in good faith and at the
expense of ISO in ISO's name, the amount, validity or enforceability of any
thereof; provided, however, that ISO shall indemnify, hold harmless and defend
Seller against any damage, liability, suit, loss, cost or fees (including
attorneys' fees) incurred by Seller resulting from such contest if such debts,
liabilities or obligations do not arise as a result of a breach by Seller of its
obligations in connection with such Assumed Liabilities arising prior to the
Transfer Date.
2.8 Non-Assignable Contracts and Rights.
(a) Anything herein to the contrary notwithstanding, at the written
election of ISO, no Contracts shall be sold, transferred or assigned to ISO
pursuant to this Agreement if the sale, transfer or assignment of the same
to ISO requires the consent or approval of another party or governmental
entity and such consent or approval has not been obtained as of the
Transfer Date. Seller shall, subject to the terms and conditions of this
Agreement, hold any and all such Contracts in trust for the benefit of ISO,
its successors and assigns, and Seller shall at ISO's request continue to
use all reasonable efforts to obtain and secure any and all such consents
or approvals (but without making any payments or incurring any penalties in
connection therewith) or to subcontract rights under executory contracts to
ISO. Contracts meeting all of the above requirements are herein referred to
as the "Nontransferred Base Assets". In accordance with the foregoing,
Seller shall permit ISO to utilize any trucks covered by leases included in
the Nontransferred Base Assets for a period of thirty days after Closing
and ISO shall be responsible for all liabilities it incurs in using such
trucks.
(b) To the extent that ISO obtains the benefit of a Nontransferred
Base Asset pursuant to Section 2.8(a), then ISO shall assume the
obligations and liabilities of such Nontransferred Base Asset to the same
extent that ISO has assumed Contracts under Section 2.1 (a).
2.9 Bulk Sales Act Waiver. ISO hereby waives compliance by Seller with the
bulk sales provisions of the Uniform Commercial Code or similar statutory
scheme, if applicable, provided that Seller shall indemnify ISO against any
loss, damage or expense to ISO resulting from Seller's failure to comply.
<PAGE>
ARTICLE III
Transfer Date
3.1 Transfer. Consummation of the purchase and sale and the other
transactions provided for in this Agreement (the "Transfer") shall take place at
the offices of McDermott, Will & Emery, 227 West Monroe Street, Chicago,
Illinois 60606, commencing at 9:00 AM, local time on December 31, 1996, or on
such other date or at such other time or place as the parties hereto may
mutually agree upon in writing and that shall be simultaneous with or following
the transfer of the Base Assets to Seller (the "Transfer Date"), and all
transactions provided for herein to occur on and as of the Transfer Date shall
be deemed to have occurred simultaneously and to be effective, and the Transfer
shall be deemed to have occurred, as of the Transfer Date. ISO's obligation to
effect the Transfer shall be subject to the following conditions: (i) there
shall have been no material adverse change in the Base Assets or the Base
Business after the date hereof, (ii) Seller's representations and warranties
shall remain true and correct as if made on the Transfer Date, and (iii) Seller
shall have performed its obligations hereunder required to be performed on or
prior to the Transfer Date.
3.2 Deliveries by Seller on the Transfer Date. On the Transfer Date, Seller
shall deliver to ISO:
(a) Instruments of Transfer. A general Bill of Sale and assignment of
Contracts, and such other specific assignments, bills of sale, endorsements
and other good and sufficient instruments of conveyance and transfer,
conveyance and assignment, in form and substance reasonably satisfactory to
ISO and its counsel, as shall be effective to vest in ISO, title to all of
the Base Assets.
(b) Consents. All third party consents necessary to transfer the Base
Assets and assign the Contracts to ISO, as well as the consent of the
landlord to the assignment of the Office Lease.
(c) Other Documents. All other documents and agreements required to be
delivered at or before the Transfer Date by Seller to ISO under the terms
of this Agreement, or as ISO shall reasonably request in order to
consummate this transaction.
3 3 Deliveries by ISO on the Transfer Date. On the Transfer Date, ISO shall
deliver to Seller:
(a) Purchase Price. The Preliminary Purchase Price in accordance with
Section 2.3(b) hereof.
(b) Instruments of Assumption. An assumption agreement and such other
instruments of assumption, in form and substance reasonably satisfactory to
Seller and its counsel, for ISO to assume and agree to pay, perform and
discharge, as the case may be, those liabilities and obligations of Seller
to be assumed by ISO as provided in Section 2.4.
(c) Other Documents. All other documents and agreements required to be
delivered at or before the Transfer Date by ISO to Seller under the terms
of this Agreement, as Seller shall reasonably request in order to
consummate this transaction.
3.4 Distributorship Agreement. On the Transfer Date or as soon as
practicable thereafter, the parties will enter into a Distributorship Agreement
in form agreed by the parties granting ISO exclusive rights to the healthcare
market in the Territory set forth in Schedule 3.4 and non-exclusive rights to
the telephone
<PAGE>
market in the Territory, as well as the right to market products under the
"Executone" name as provided therein (with a $1 million aggregate quota).
ARTICLE IV
Representations and Warranties of Seller
Seller hereby represents and warrants to ISO as follows, which
representations and warranties shall be deemed reaffirmed and republished on the
Transfer Date as if made again on and as of such date:
4.1 Schedules. Seller has delivered to ISO the schedules attached hereto
(the "Schedules") setting forth certain disclosures, exceptions and other
information, data and documents referred to at various places throughout this
Agreement.
4.2 Corporate.
(a) Due Organization and Qualification. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia and in good standing in Wisconsin.
(b) Power and Authority to Enter into Agreement. Seller has the
complete and unrestricted power and authority to (i) own, lease and operate
the Base Assets, (ii) carry on the Base Business, (iii) enter into this
Agreement and (iv) consummate the transactions contemplated hereby and
thereby.
(c) Due Execution and Enforceability. The execution, delivery and
performance of this Agreement and the other agreements and instruments
between and among the parties referred to herein and the consummation of
the transactions contemplated under this Agreement and such other
agreements and instruments have been duly and validly authorized. No other
actions or proceedings on the part of Seller are necessary to authorize the
execution, delivery and performance of this Agreement and the other
Instruments and agreements between the parties provided for herein. None of
such actions have been modified or rescinded and all are in full force or
effect. The execution, delivery and performance of this Agreement, the
agreements and instruments contemplated under this Agreement, and the
consummation of the transactions contemplated under this Agreement, such
other agreements and instruments (a) will not require the consent, approval
or authorization of any person or Regulatory Authority; (b) will not
require any notice or filing under United States or any state statute,
regulations or other provision of law or any order, judgement or other
direction of any court or tribunal of competent jurisdiction; and (c) will
not give rise to any lien, security interest, claim, encumbrance or
restriction on any of the Base Assets. This Agreement, such other
agreements and instruments to be executed by Seller in connection with this
Agreement, constitutes (or will constitute when executed by Seller) a valid
and binding obligation enforceable against Seller in accordance with its
terms. The execution, delivery and performance of this Agreement and the
other agreements and instruments contemplated under this Agreement, and the
consummation of the transactions contemplated under this Agreement and such
other agreements and instruments on the part of Seller will not breach or
violate any statute, law, ordinance, rule or regulation of any governmental
authority, domestic or foreign, or any of the terms, conditions or
provisions of the articles of incorporation or by-laws of Seller or any
judgment, order, injunction, decree, contract, agreement or other
instrument to which Seller is a party or by which Seller or any of its
properties, rights or assets is bound.
<PAGE>
4.3 Base Assets. Seller has title to each of the Base Assets, free and
clear of all liens, security interests, claims or encumbrances of any kind. On
the Transfer Date, Seller shall have and ISO shall receive, free and clear of
all liens, security interests, claims or encumbrances of any kind, good and
marketable title to the Base Assets. All of the Base Assets may be transferred
to ISO without the consent or approval of any person. The Base Assets will
furnish ISO with all of the capacity and rights to operate the Base Business in
the same manner as presently operated by Seller.
4.4 Contracts and Commitments. All of the Contracts are duly and validly
executed by all parties, are in full force and effect and are binding and
enforceable in accordance with their terms. Accurate and complete copies of each
Contract have been delivered to ISO. The consummation of the transactions
contemplated hereby, without notice to or consent or approval of any party
(except for such consents as are obtained at or prior to the Closing), will not
constitute a default under or a breach of any provision of any Contract. With
respect to each Contract which is to be assigned to ISO pursuant to the terms
hereof, ISO will succeed to all the rights and benefits of Seller. No event has
occurred which, with or without notice or the passage of time, or both,
constitutes or would constitute a default by Seller under any Contract, and no
event has occurred which (with or without notice or the passage of time, or
both) constitutes or would constitute a default by any other party. With the
exception of the Contracts assigned to ISO, there are no contracts or agreements
material to the operation of the Base Business. None of the Contracts (i) is
with Seller or any affiliate of Seller, (ii) includes any covenant not to
compete or will otherwise restrict ISO's activities, (iii) contains a
requirement to indemnity any party for any tax, environmental or other
liability, (iv) will require ISO to provide goods, services or benefits on terms
substantially less favorable than fair market terms, or (v) will permit ISO to
obtain goods, services or benefits on terms substantially more favorable than
fair market terms.
4.5 Customer Lists. Set forth on Schedule 4.5 hereto an accurate and
complete copy of the Customer List.
4.6 Fixed Assets. Set forth on Schedule 4.6 is an accurate and complete
list of the property, plant and equipment ordinarily located at the Premises.
The property, plant and equipment are in good operating condition, ordinary wear
and tear excepted.
4.7 Financial Statements and Taxes. The balance sheet and income statement
of the Base Business as of and for the year ended December 31, 1994 and the ten
months ended October 31, 1995 attached hereto as Schedule 4.7 (the "Financial
Statements") are (i) in accordance with the books of account and records of
Seller, (ii) fair presentations of the financial condition and the results of
operations as of the dates and for the periods indicated and (iii) prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods covered thereby (except as specified therein and
except for the lack of footnotes, and in the case of interim Financial
Statements subject to year-end audit adjustments consisting only of normally
recurring accruals which in the aggregate are not material). The Base Business
is not subject to any liability or obligation (whether absolute, accrued,
contingent or otherwise) which is not shown or provided for on the Financial
Statements or on Schedule 4.7 except which has been incurred in the ordinary
course of business since the date of such financial statements or which are not
Assumed Liabilities. All federal, foreign, state, county and other tax returns,
reports and declarations of every nature (including income, employment, excise,
property, sales and use taxes) required to be filed by or on behalf of Seller
(as related to the Base Business) and the Base Business have been filed and such
returns are complete and accurate in all material respects and disclose all
taxes required to be paid for the periods covered thereby. All taxes shown on
such returns as being owed by the Seller (as related to the Base Business) and
the Base Business and any deficiency assessments, penalties and interest have
been paid or set aside for payment. All tax payments related to employees,
including income tax withholding,
<PAGE>
FICA, FUTA, unemployment and worker's compensation, required to be made by
Seller (relating to the Base Business) and the Base Business have been fully and
properly paid, withheld, accrued or recorded.
4.8 Interim Change. Since October 31, 1995, Seller has operated the Base
Business in the ordinary course, consistent with past operations.
4.9 Environmental Matters. Seller has previously and is currently complying
in all respects with its obligations under all laws relating to the environment
in connection with the operation of the Base Business and its occupancy of the
Premises. No hazardous chemicals, materials, substances, wastes, petroleum,
petroleum products, radioactive materials, or other pollutants or contaminants
regulated under any environmental laws have ever been generated, treated,
stored, or disposed of at the Premises. No underground storage tanks are present
at the Premises, and, to Seller's knowledge, no such tanks were previously
abandoned or removed.
4.10 Premises. Seller has all easements and rights, including easements for
all utilities, services, roadways and other means of ingress and egress, to the
extent necessary to conduct the Base Business and operate the Premises as
presently operated and conducted. The zoning of each parcel of the Premises
permits the existing improvements and the continuation of business as presently
conducted thereon. There is no construction work being done at, or construction
materials being supplied to the Premises.
4.11 Customers. Seller has no knowledge of any fact, condition or event
which would cause ISO's relationship with any customer to be materially and
adversely different than the current relationship of such customer with respect
to the Base Business.
4.12 Employees. Schedule 4.12 is an accurate and complete schedule
containing, with respect to the Base Business:
(a) a list of all employees (including name, title and position);
(b) the employee's length of service;
(c) a list of all agreements, arrangements or understandings, written
or oral, regarding services to be rendered, terms and conditions of
employment and confidentiality (with respect to such items listed on
Schedule 4.12, accurate and complete copies have been delivered to ISO);
and
(d) the compensation (including terms of payment, bonuses, commissions
and deferred compensation, as well as any benefits) of each employee.
All employees of the Base Business are employees at will. No collective
bargaining unit represents any employee of Seller.
4.13 Licenses and Permits. There is no license, permit, certificate,
approval or similar item necessary to conduct the Base Business as conducted by
Seller.
4.14 Compliance with Law. The Base Business, the Premises and the Base
Assets conform to all applicable statutes, codes, laws, ordinances, rules and
regulations and Seller has complied and is complying with all statutes, codes,
laws, ordinances, rules and regulations in connection with the conduct of the
Base Business, including those relating to employment matters, environmental
matters and work place safety and health. Neither Seller, nor, to the knowledge
of Seller, any employee or representative
thereof
<PAGE>
has made any unlawful gratuities or other payments (or taken similar actions)
for the purpose of benefiting Seller with respect to the Base Business.
4.15 Inventory. All Inventory included in the Base Assets (i) is of good
and merchantable quality, salable and usable for the purposes intended in the
ordinary course of business, (ii) is not excess or obsolete (except to the
extent reflected in the reserve on the balance sheet attached as Schedule 4.7),
and (iii) is in conformity with applicable warranties express and implied.
4.16 Products. ISO will not incur any liability or obligation for any
product sold by Seller prior to Closing except to the extent of liabilities and
obligations reflected in the deferred warranty, accrued warranty and accrued
factory repair reserves on the balance sheet attached as Schedule 4.7 which
arise pursuant to the terms of the warranties and Maintenance Contracts in Force
included in the Contracts.
4.17 Disclosure. All information furnished by or on behalf of Seller to ISO
in connection with the transactions contemplated by this Agreement is accurate
in all material respects and Seller is not aware of any fact of material
significance to Seller or the assets, properties, business, operations or
financial condition of the Base Business that is not disclosed in this Agreement
or the Schedules or Exhibits hereto.
4.18 Pending Claims. Litigation and Governmental Proceedings. There is no
claim, complaint, suit, action, arbitration or regulatory, administrative, or
governmental proceeding or any other proceeding pending against Seller (i) which
might individually or in the aggregate adversely affect the Base Business or the
Base Assets, or any of the properties, rights or assets included in the Base
Assets, or (ii) which could result in the restraint, prohibition or the
obtaining of substantial damages or other relief in connection with this
Agreement or consummation of the transactions contemplated hereby.
4.19 Broker's or Finder's Fees. No person other than Seller and its
affiliated companies (and their respective directors, officers, employees and
outside accountants and attorneys) has arranged, or participated in arranging,
on behalf of Seller the transactions provided for herein. There are no broker's
or finder's fees to be paid by Seller, and Seller has no knowledge (or the
reasonable basis therefor) of any claim by any person claiming through Seller
for a broker's or finder's fee to be paid by ISO in connection with the
consummation of the transactions provided for herein.
ARTICLE V
Representations and Warranties of ISO
ISO represents and warrants to Seller as follows, which representations and
warranties shall be deemed reaffirmed and republished on the Transfer Date as if
made again on and as of such date:
5.1 Corporate.
(a) Due Organization. ISO is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation.
(b) Power and Authority to Enter into Agreement. ISO has the complete
and unrestricted corporate power and authority to enter into this Agreement
and the Note and to consummate the transactions contemplated hereby and
thereby.
<PAGE>
(c) Due Execution and Enforceability. The execution, delivery and
performance of this Agreement and the Note, and the other instruments and
agreements between the panics referred to herein and the consummation of
the transactions contemplated under this Agreement and the Note, and such
other agreements and instruments have been duly and validly authorized and
approved. No other corporate actions or proceedings on the pare of ISO are
necessary to authorize the execution, delivery and performance of this
Agreement and the Note, and the other agreements between the panics
provided for herein or the consummation of the transactions contemplated
under this Agreement and the Note and such other agreements and
instruments. None of such corporate actions has been modified or rescinded
and all are in full force and effect. Upon execution and delivery hereof,
this Agreement and the Note and the other agreements between the panics
hereto referred to herein shall constitute the valid and legally binding
obligations of ISO.
5.2 No Breach of Statute or Contract. The execution, delivery and
performance of this Agreement and the Note and the other agreements and
instruments contemplated under this Agreement and the Note, and the consummation
of the transactions contemplated under this Agreement and the Note and such
other agreements arid instruments on the pan of ISO will not breach or violate
any statute, law, ordinance, rule or regulation of any governmental authority,
domestic or foreign, or any of the terms, conditions or provisions of the
articles of incorporation or by-laws of ISO or any judgment, order, Injunction,
decree, contract, agreement or other instrument to which ISO is a party or by
which ISO or any of its properties' rights or assets is bound.
5.3 Broker's or Finder's Fees. No person other than ISO (and its directors,
officers, employees and outside accountants and attorneys) has arranged, or
participated in arranging, on behalf of ISO, the transactions provided for
herein. There are no broker's or finder's fees to be paid by ISO and ISO does
not have any knowledge (or the reasonable basis therefor) of any claim by any
person claiming through ISO for a broker's or finder's fee to be paid by Seller
in connection with consummation of the transactions provided for herein.
ARTICLE VI
Covenants
6.1 Cooperation: Further Assurances. ISO and Seller agree to cooperate
fully with the other and their counsel and accountants and other
representatives, will use reasonable efforts to cause consummation of the
transactions contemplated herein as promptly as possible, and will refrain from
a course of action inconsistent with this Agreement. From and after the Transfer
Date, Seller and ISO shall, from time to time, execute and deliver or cause to
be executed and delivered such further instruments of transfer, assignment and
conveyance or assumption, and perform such other acts, as they may reasonably
require to more effectively carry out the sale, transfer, assignment and
conveyance to ISO of the Base Assets and the Base Business and to confirm and
assure ISO the title thereto.
6.2 Non-Disclosure by Seller. Seller covenants and agrees from and after
the date hereof to hold in confidence, and not to use for any purpose unrelated
to this Agreement without the prior written consent of ISO, all proprietary,
confidential or secret information or data of or in respect of the Base Assets
and the Base Business, and to use all reasonable efforts to cause its directors,
officers, employees and representatives to hold same in confidence, including
disclosure only to those employees of Seller having a need to know such
information, until either (i) this Agreement and the transactions provided for
herein shall be terminated or abandoned for whatever reason, or (ii) the same
has been theretofore publicly disclosed by ISO or has otherwise ceased to be
secret or confidential through no breach by Seller of this Section.
<PAGE>
Except as provided herein, nothing shall prevent Seller from using or disclosing
information that it (i) independently developed; (ii) received rightfully
without obligation of confidentiality from third parties; or (iii) already
possesses without obligation of confidentiality.
6.3 Litigation Cooperation. In the event that any party hereto shall
participate in any suit, action, proceeding or investigation concerning the
business or affairs of the Base Business conducted on or prior to the Transfer
Date, the other parry hereto shall, upon the request of such party, cooperate
fully with such party in connection therewith, which cooperation shall include
without limitation making reasonably available the employees engaged in the Base
Business or the relevant employees of Seller, in return for payment of the
internal cost to the provider.
6.4 Exclusivity. From the date hereof through January 31, 1996, Seller
shall not (and shall cause its officers, representatives, agents and advisors
not to) solicit, encourage or negotiate any proposal from or with, or supply
information to, persons other than ISO or its representatives with respect to,
or in connection with, the sale, lease or other transfer of the Base Business or
the Base Assets or any material portion thereof, and Seller shall promptly
advise ISO of any acquisition proposal or inquiry that Seller receives.
6.5 Operation of the Base Business. From the date hereof until the Transfer
Date, Seller shall operate the Base Business in the ordinary course. Without
limiting the foregoing, Seller shall not (i) sell any of the Base Assets except
sales of inventory on terms and in amounts consistent with past practice, (ii)
increase the compensation of any employee, (iii) enter into any contract or
arrangement or make any offer except on terms consistent with past practice, or
(iv) make any intercompany transfers of any cash generated by the Base Business.
ARTICLE VII
Employees
7.1 Continued Association with the Business. ISO shall have the right but
not the obligation to offer employment to all current employees of the Base
Business. Seller will use all reasonable efforts to retain all present employees
through the Transfer Date. Except for Nick Esaylan, Seller has not offered and
will not offer employment to any employees of the Base Business in respect of
any period after the Transfer Date without the prior written consent of ISO.
Seller shall promptly pay all accrued wages and other compensation payable to
the employees of the Base Business as of the Transfer Date. ISO shall not incur
any liability or obligation with respect to any employee that does not accept
employment with ISO. ISO will not incur as a result of the transfer of the Base
Assets, any present, future or contingent liability or obligation to pay any
pension benefits, medical benefits, compensation for loss of employment or other
compensation or benefits to any employee terminated at or prior to the Transfer
Date. The employees of the Base Business hired by ISO are referred to herein as
the "ISO Employees"
7.2 Benefit Plans. ISO shall have no liability under any "employee welfare
benefit plans" (as defined In Section 3(1) of ERISA), Employee pension benefit
plans. (as defined in Section 3(2) of ERISA), bonus, profit sharing, deferred
compensation, incentive or other compensation plans or arrangements, and other
employee fringe benefit plans whether funded or unfunded, qualified or
unqualified (all the foregoing being herein called Benefit Plans.) maintained or
contributed to for the benefit of any of the employees or other persons
performing services at or for the Premises or for the Base Business.
<PAGE>
7.3 COBRA Obligations. Seller shall retain all liabilities, perform all
obligations and maintain all insurance under the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") with respect to its employees and former
employees of the Base Business and their covered dependents, whether or not such
employees accept employment with ISO.
7.4 Workers Compensation. Seller shall be liable for the administration and
payment of all workers' compensation liabilities and benefits with respect to
(i) ISO Employees resulting from claims, events, circumstances, exposures,
conditions or occurrences occurring prior to the Transfer Date, and (ii)
employees and former employees of Seller that do not become ISO Employees. ISO
shall be responsible for the administration and payment of all workers'
compensation liabilities and benefits with respect to ISO employees resulting
from claims reported following the Transfer Date, and resulting from events,
circumstances, exposures, conditions, or occurrences after the Transfer Date.
ARTICLE VIII
Termination and Abandonment
8.1 Termination. This Agreement may be terminated and the purchase and sale
and the other transactions provided for by this Agreement may be abandoned prior
to the Transfer Date, without liability on the part of any party to the other,
except to the extent of any breach of any provision hereof prior to termination:
(a) By mutual written consent of the parties;
(b) By either party, if the purchase and sale provided for by this
Agreement has not been consummated For any reason other than a breach of
any representation, warranty, covenant or agreement contained herein or in
any Schedule or Exhibit hereto or thereto by the party seeking to so
terminate) on or before January 31, 1996; or
(c) By ISO; if Seller shall, or by Seller, if ISO shall: (i) apply for
or consent to the appointment of a receiver, trustee, liquidator or
custodian or the like with respect to itself or any of its property, (ii)
admit in writing its inability to pay its debts generally as they become
due, (iii) make a general assignment for the benefit of creditors, (iv) be
adjudicated a bankrupt or insolvent, or (v) commence, or have commenced
against It, a case under the Federal bankruptcy laws of the United States
of America (or similar law in any other jurisdiction) or file or have filed
against it a petition or answer seeking reorganization, an arrangement with
creditors or an order for relief or seeking to take advantage of any
insolvency law or file an answer admitting the material allegations of a
petition filed against it in any bankruptcy, reorganization or insolvency
proceeding.
8.2 Notice of Termination. Prompt written notice shall be given of
termination and abandonment pursuant to Section 8.1 hereof, such termination or
abandonment to be effective upon such notice.
ARTICLE IX
Indemnification and Reimbursement
9.1 Indemnification by Seller. In order to induce ISO to enter
Into this Agreement and to consummate the transactions contemplated hereby,
Seller covenants and agrees to and shall defend,
<PAGE>
indemnify and hold harmless ISO and its respective officers, directors,
employees and agents, against and with respect to all liability, loss, damage,
cost or expense (including without limitation all settlements, judgments and
reasonable attorneys' fees and costs relating thereto) suffered or incurred by
each of them, and any and all claims, actions, suits and proceedings resulting
from or arising out of:
(a) Misrepresentation or Breach of Warranty. Any misrepresentation by
Seller or any breach by Seller of any of its representations or warranties
set forth in this Agreement or any Schedule or Exhibit hereto or any claims
of third parties which if true would constitute such a breach or
misrepresentation;
(b) Breach of Covenant or Agreement. Any breach or nonfulfillment by
Seller of any of its covenants, agreements or other obligations set forth
in this Agreement, or any Schedule or Exhibit hereto or thereto;
(c) Bulk Sales Liability. The failure by Seller to comply with the
bulk sales provisions of the Uniform Commercial Code or similar statutory
scheme, if applicable;
(d) Unassumed Liabilities. Any and all debts, liabilities and
obligations of, or claims against, Seller that are not expressly included
in the Assumed Liabilities assumed by ISO pursuant to Section 2.4 hereof;
and
(e) Severance. Any claims for compensation or severance pay or
benefits by employees of Seller whose employment terminates prior to two
weeks following the Transfer Date, except to the extent specifically agreed
by the parties otherwise;
provided, however, that indemnification pursuant to paragraphs 9.1 (a) and 9.1
(b) hereof shall be conditioned upon notice of claims in respect thereof being
submitted, if at all, by ISO to Seller within two (2) years after the Transfer
Date.
9.2 Indemnification by ISO. In order to induce Seller to enter Into this
Agreement and to consummate the transactions contemplated hereby, ISO covenants
and agrees to and shall defend, indemnity and hold harmless Seller and its
respective officers, directors, employees and agents, against and with respect
to all liability, loss, damage, cost or expense (including without limitation
all settlements, judgements and reasonable attorneys' fees and costs relating
thereto) suffered or incurred by each of them, and any and all claims, actions,
suits and proceedings resulting from or arising out of:
(a) Misrepresentation or Breach of Warranty. Any misrepresentation by
ISO or any breach by ISO of any of its representations or warranties set
forth in this Agreement or any Schedule or Exhibit hereto or thereto or any
claims of third parties which if true would constitute such a breach or
misrepresentation;
(b) Breach of Covenant or Agreement. Any breach or nonfulfillment by
ISO of any of its covenants, agreements or other obligations set forth in
this Agreement, or any Schedule or Exhibit hereto or thereto;
(c) Assumed Liabilities. Any and all debts, liabilities and
obligations of Seller that are expressly included in the Assumed
Liabilities assumed by ISO pursuant to Section 2.4 hereof;
(d) Operations After Transfer Date. Liabilities of Seller arising
solely from ISO's failure to perform the Assumed Liabilities after the
Transfer Date; and
<PAGE>
(e) Severance. Any claims for compensation or severance pay or
benefits payable under ISO's compensation, severance or benefits policies
to former employees of Seller who become employed by ISO as of or after the
Transfer Date and continue such employment beyond two weeks following the
Transfer Date;
provided, however, that indemnification pursuant to paragraphs 9.2(a) and 9.2(b)
hereof shall be conditioned upon notice of claims in respect thereof being
submitted, if at all, by Seller to ISO within two (2) years after the Transfer
Date.
9.3 Claims for Reimbursement. In the event that a party shall have suffered
any liability, loss, damage, cost or expense with respect to any claim, action,
suit or proceeding to which it believes the foregoing indemnity relates, that
party (the "indemnified party), shall give the other party, prompt written
notice of the nature and, if known, amount of such liability, loss, damage, cost
or expense and demand for reimbursement made therefor. The party against whom
the claim for indemnification shall be made (the indemnifying party7 shall have
thirty (30) days from the date of said notice to investigate and dispute the
nature, validity or amount of any such claim. During said thirty (30) day
period, the indemnifying party shall have reasonable access, during normal
business hours, to the books and records of the indemnified party for the
purpose of such investigation. In the event that the indemnifying party shall
dispute the nature, validity or amount of said claim, it shall give the
indemnified party written notice of such dispute pursuant to Article X hereof.
In the absence of a dispute, the indemnifying party shall promptly, and in any
event not later than the expiration of said thirty (30) day period, reimburse
the indemnified party in full for any such liability, loss, damage, cost or
expense as set forth in the indemnified party's notice. In the event that the
indemnifying party shall dispute only part of the claim, the indemnifying party
shall, concurrently with the delivery of their notice of dispute, pay to the
indemnified party the undisputed portion of the claim.
9.4 Third-Party Claims. Upon notice of any claim, action, suit or
proceeding by a third party giving rise to a claim for indemnification under
Section 9.1 or 9.2 hereof, the indemnifying party shall proceed, at its own
expense, to resist and dispose of such claim, action, suit or proceeding in such
manner as they deem appropriate, provided, however, that any indemnified party
shall have the right to employ separate legal counsel in any such claim, action,
suit or proceeding and participate in the defense thereof, but the fees and
expenses of such other counsel shall be at the expense of the indemnified party
and not subject to indemnification under this Agreement unless (i) the
employment of such other counsel has been authorized by the indemnifying party;
(ii) the indemnifying party has failed to defend such claim, action, suit or
proceeding diligently; or (iii) the parties to such action (including any
impleaded party) include the indemnified party and the indemnifying party, and
the indemnified party has been advised by legal counsel that there may be legal
defenses available to it which are different from, in addition to or
inconsistent with, the legal defenses available to the indemnifying party, or
that the indemnified party's interest may be adverse in whole or in part to the
interest of the indemnifying party. The indemnifying party shall not, in the
defense of any such claim, action, suit or proceeding, except with the prior
written consent of each indemnified party affected, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term the release by the claimant or plaintiff of such indemnified party from all
further liability in respect to such claim, action, suit or proceeding.
9.5 Limitation on Indemnity. Notwithstanding anything herein to the
contrary, neither Seller nor ISO shall have any obligation to indemnify and hold
harmless the other hereunder in respect of any liability, loss, damage, cost or
expense resulting from or arising out of a misrepresentation or breach of
warranty or covenant as provided in Section 9.1 (a) and (b) hereof or Section
9.2(a) and (b) hereof, as the case may be, until the aggregate amount of claims
hereunder against Seller, or ISO, as the case may be, In respect thereof exceeds
Five Thousand Dollars ($5,000) and at that point the liability to the
indemnified party shall include any amount in excess of the initial Five
Thousand Dollars ($5,000) aggregate claim amount;
<PAGE>
provided, however, that neither Seller nor ISO shall have any further obligation
to indemnify and hold harmless the other after the aggregate amount of claims
paid to ISO or Seller in respect thereof equals an aggregate amount equal to the
total Purchase Price set forth in Section 2.3(a) herein plus the amount of the
Assumed Liabilities.
ARTICLE X
Miscellaneous Provisions
10.1 Confidentiality. The parties hereto covenant and agree that, except as
provided for hereinbelow, each will not from and after the date hereof make,
issue or release any public announcement, press release, statement or
acknowledgment of the existence of, or disclose (except to those of its
employees and agents who have a need to know for the purposes of this Agreement)
the terms, conditions and status of, the transactions provided for herein, or
any prior proposals related to the subject matter hereof without the prior
written consent of the other party, except to the extent such party is required
by law to make, issue or release, any such announcement, statement,
acknowledgment or revelation.
10.2 Costs and Expenses. Each party covenants and agrees that it shall bear
its respective costs and expenses in connection with the negotiation and
execution of this Agreement and consummation of the transaction provided for
herein.
10.3 Amendment and Modification. This Agreement may be amended, modified or
supplemented only in a writing executed by each of the parties.
10.4 Notices. All notices, requests, demands or other communications
hereunder must be in writing, and must be given, and shall be effective (i) when
delivered by hand or by courier, (ii) when five (5) days have elapsed after its
transmittal by registered or certified mail, postage prepaid, return receipt
requested, or (iii) when transmitted by facsimile (with a copy simultaneously
sent by registered or certified mail, return receipt requested). Notices of
change of address shall be effective only upon receipt notwithstanding the
previous sentence. Notices shall be sent to the addresses and person set forth
below, or to such different addresses and persons as to which a party has given
notice, in the manner provided in this Section:
If to Seller: EXECUTONE INFORMATION SYSTEMS, INC.
478 Wheelers Farms Road
Milford, CT 06460
Facsimile: (203) 882-0503
Attn: Anthony R. Guarascio
Vice President and Chief Financial Officer
<PAGE>
If to ISO: Kansas Communications, Inc.
8206 Marshall Drive
Lenexa, KS 66214
Facsimile: (913) 888-6647
Attn: Mr. Herb Sizemore
10.5 Successors: Assignment. This Agreement shall inure to the benefit of,
and be binding upon, the respective panics hereto and thereto and their
successors and may be assigned thereby in whole or in pan to any of their
respective affiliates, but otherwise this Agreement is not assignable by any
party hereto or thereto, either in whole or in pan, without the prior written
consent of the other party hereto or thereto. Any attempt to assign this
Agreement in whole or in part, including the attempted assignment of any
obligation of any party hereunder or thereunder, to any assignee (other than an
affiliate of the assignor) without the consent of each other party hereto or
thereto shall be null and void.
10.6 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
10.7 Headings. Section and paragraph headings in this Agreement are
provided for convenience of reference only and shall not be deemed to constitute
a pan hereof or be referred to in the construction or interpretation of its
terms.
10.8 Schedules and Exhibits. One complete set of the Schedules and Exhibits
hereto has been delivered to each of the panics hereto prior to the execution
and delivery of this Agreement.
10.9 Waiver: Remedies. No waiver of any breach of any provision of this
Agreement shall be held to be a waiver of any other provision or subsequent
breach of the same provision, and the failure of a party to enforce at any time
any provision hereof shall not be deemed a waiver of any right of such party to
subsequently enforce such provision or any other provision hereof. Ail remedies
afforded in this Agreement shall be taken and construed as cumulative; that is,
in addition to every other remedy provided herein or by law.
10.10 Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the State of Illinois applicable to
contracts executed and to be wholly performed In such State.
10.11 Severability. In the event that any provision or any portion of any
provision of this Agreement shall be held invalid, illegal or unenforceable
under applicable law, the remainder of this Agreement shall remain valid and
enforceable, unless such invalidity, illegality or unenforceability
substantially diminishes the rights and obligations, taken as a whole, or any
party hereunder.
10.12 Survival of Representations, Warranties. Covenants and Agreements.
Subject to the limitations of Section 9.1 and 9.2 hereof, all representations,
warranties, covenants and agreements of the panics hereto contained herein, or
in any Schedule or Exhibit hereto or thereto shall survive the execution and
delivery hereof and thereof and consummation of the transactions provided for
herein and therein
<PAGE>
notwithstanding any investigation, audit or review made at any time by any party
and notwithstanding the delivery of any documents.
10.13 Entire Agreement. This Agreement and the Schedules and Exhibits
hereto and thereto set forth the entire agreement and understanding between the
panics hereto with respect to the transactions provided for herein and therein
and supersede and cancel any and all prior discussions, correspondence,
agreements or understandings between the panics hereto with respect to such
matters.
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is dated as of the
17th day of June, 1996, by and between Extreme Communications, Inc. (the
"Purchaser"), an Illinois corporation, Communicate Direct, Inc. (the "Company"),
an Illinois corporation, and SoftNet Systems, Inc. ("SoftNet"), a New York
corporation, (the Company and SoftNet are sometimes referred to herein,
individually, as a "Seller" and, collectively, as the "Sellers").
R E C I T A L S:
A. Among Sellers' numerous lines of business is the sale of
non-applications oriented (low-tech) key systems (the "Business").
B. SoftNet owns all of the issued and outstanding voting stock of the
Company.
C. The Sellers desire to sell, and the Purchaser desires to purchase,
certain of the assets owned or used by the Company in connection with the
operation and conduct of the Business.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Purchaser and
the Sellers agree as follows:
ARTICLE I
Purchase and Sale of the Purchased Assets
1.1 Purchased Assets . Subject to the terms and conditions set forth in
this Agreement, the Company agrees to sell, transfer, assign, convey and deliver
to the Purchaser, and the Purchaser agrees to purchase, accept and acquire from
the Company those assets (the "Purchased Assets") necessary to market, develop
and expand Company's existing Business, including, without limitation, the
Panasonic DBS, Northern Telecom Meridian North Star and AVT voice mail products
(except as attached to Fujitsu products), including the specific accounts
receivable set forth on Schedule 1.1, Company's key systems customer list, all
ongoing revenue and business from existing key systems from moves, adds,
changes, service calls, upgrades and new systems and a perpetual royalty free
license to use the name "Communicate Direct", all free and clear of any security
interest, mortgage, lien, charge, restriction, encumbrance, conditional sale
agreement, claim, pledge or right of any party (collectively, "Liens"). The
Purchased Assets include, without limitation, all unfilled customer orders,
transferable Licenses (as hereinafter defined), sales literature and promotional
materials, customer lists, books, records and files used by Company solely in
connection with the Business. On the Closing Date, the Company shall deliver to
the Purchaser all of the Purchased Assets by bills of sale, assignments,
endorsements and other good and sufficient instruments of transfer necessary or
desirable to vest in the Purchaser good, complete and indefeasible title to the
Purchased Assets, free and clear of all Liens.
1.2 Further Assurances . From time to time after the Closing Date, at
the Purchaser's request and without further consideration therefor, the Sellers
shall perform, execute and deliver or cause to be performed, executed and
delivered, all such further acts, deeds, assignments, transfers, conveyances and
assurances as the Purchaser may reasonably require for the more effective
assigning, transferring, granting, conveying, selling, assuring and confirming
to the Purchaser and its successors and assigns, and for aiding and assisting in
reducing to possession, the Purchased Assets transferred or to be transferred
pursuant to this Agreement and as may be appropriate to carry out the
transactions contemplated hereby.
ARTICLE II
No Assumption of Liabilities
2.1 Non-Assumption of Liabilities . The parties expressly agree and
understand that the Purchaser shall assume no liabilities or obligations of the
Business or either of the Sellers. Sellers shall remain liable for each and
every liability of Sellers, including, without limitation, the following:
(i) any and all Taxes (as hereinafter defined) related or
attributable to any and all periods ending on or prior to the
Closing Date, as well as any and all Taxes incurred in connection
with the transactions contemplated hereby;
(ii) any and all fees, costs, expenses or other obligations
incurred by or on behalf of the Sellers in connection with this
Agreement or the transactions contemplated hereby, including,
without limitation, all fees to attorneys, investment bankers,
accountants or others for services rendered;
(iii) any and all brokers' or finders' fees, commissions or
like payments arising out of or based upon any act or omission of
the Sellers;
(iv) any and all liabilities based on any claim, suit or
proceeding alleging a violation of any federal, state or local
law, regulation, code or ordinance, including, without limitation,
product liability, employee safety, health or other laws, and any
other third party claims, resulting from any act or omission by
any of the Sellers which occurred on or prior to the Closing Date
and which relate to the Sellers, the Business or the Purchased
Assets;
(v) any and all liabilities, whether or not known to any of
the Sellers, based on, arising out of or otherwise in respect of
any act or omission of any of the Sellers or any other party, or
any event or condition on or off the premises of Company,
occurring at any time on or prior to the Closing Date and
regardless of when notice thereof is received, related to matters
of environmental protection, pollution, health, safety, or related
to warranty obligations in connection with products sold or
services rendered on or prior to the Closing Date, or related to
matters of unfunded or underfunded pension liabilities; and
(vi) any other liability, obligation, claim or commitment of
any of the Sellers (whether disclosed or undisclosed, fixed,
absolute, accrued, ordinary, extraordinary, contingent or
otherwise, direct or indirect, primary or secondary, known or
unknown), including, but not limited to, liability to Company's
employees under Company's benefit plans or COBRA.
2.2 Tail Insurance . Sellers agree to obtain and maintain adequate
business discontinuation (tail) insurance or occurrence-based insurance with
respect to the Business.
ARTICLE III
Purchase Price
3.1 Purchase Price . The total purchase price for all of the Purchased
Assets (the "Purchase Price") shall be Six Hundred Eighty-Four Thousand Dollars
($684,000).
3.2 Payment . Subject to the terms and conditions set forth herein,
Purchaser shall pay the Purchase Price by delivery of its nonrecourse
installment promissory note, a copy of which is attached as Exhibit A hereto and
made a part hereof.
3.3 Allocation of Purchase Price . The Purchaser and the Sellers hereby
agree that the Purchase Price shall be allocated among the Purchased Assets for
all purposes, including the filing of all tax returns and Internal Revenue
Service Form 8594, as $612,479.88 to the accounts receivable and the remainder
as Purchaser shall determine, subject to Company's consent which will not be
unreasonably withheld. Each party will promptly notify the other if the Internal
Revenue Service or any other taxing authority proposes to reallocate the
Purchase Price.
ARTICLE IV
Closing
4.1 Closing Date . The transactions contemplated by this Agreement
shall be consummated at a closing (the "Closing") to be held at 10:00 a.m. local
time at the offices of Sellers' counsel, Pedersen & Houpt, 161 North Clark
Street, Suite 3100, Chicago, Illinois 60601-3224, on June ___, 1996, or on such
other date or at such other time or place as the parties may mutually determine
(the "Closing Date").
4.2 Deliveries by the Purchaser . At the Closing, the Purchaser shall
deliver to the Company the following:
(a) The installment promissory note, in substantially the
form attached hereto as Exhibit A;
(b) An opinion of Holleb & Coff, as counsel to the Purchaser,
dated as of the Closing Date, affirmatively opining to the matters
set forth in Sections 5.2(a) and (b);
(c) The Sublease (as defined in Section 6.3 hereof), executed
by Purchaser;
(d) The Administrative Services Agreement (as defined in
Section 6.4 hereof), executed by Purchaser;
(e) The Non-Competition Agreement (as defined in Section 6.5
hereof), executed by Purchaser; and
(f) Such other documents and certificates required to be
executed or delivered at the Closing in accordance with the terms
of this Agreement.
4.3 Deliveries by the Sellers . At the Closing, the Sellers shall
deliver to the Purchaser the following:
(a) Warranty Bill of Sale substantially in the form of
Exhibit B attached hereto and made a part hereof, conveying the
tangible Purchased Assets to the Purchaser;
(b) Assignment substantially in the form of Exhibit C
attached hereto and made a part hereof, conveying the intangible
Purchased Assets to the Purchaser;
(c) An opinion of Pedersen & Houpt, as counsel to the
Sellers, dated as of the Closing Date, affirmatively opining to
the matters set forth in Sections 5.1(a), (b), (c) and (e).
(d) The Sublease, executed by the Company;
(e) The Administrative Services Agreement, executed by the
Company;
(f) The Non-Competition Agreement, respectively executed by
the Company and Sellers; and
(g) Such other documents and certificates required to be
executed or delivered at the Closing by one or more of the Sellers
in accordance with the terms of this Agreement.
ARTICLE V
Representations and Warranties
5.1 Representations and Warranties of the Sellers . Each of the Sellers
hereby represents and warrants to the Purchaser on and as of the date hereof and
on and as of the Closing Date as follows:
(a) Organization and Standing. The Company and SoftNet are
corporations duly organized, validly existing and in good standing
respectively under the laws of the States of Illinois and New
York. The Company is duly qualified to do business and is in good
standing in each jurisdiction in which the character of the
properties owned or held under lease by it or the nature of the
business transacted by it makes such qualification necessary or
where its failure to qualify to do business would adversely affect
the Company, its financial condition, its business or its ability
to perform the transactions contemplated by this Agreement. The
Company has all requisite corporate power and authority and all
requisite and sufficient licenses, franchises, permits and
authorizations (collectively, the "Licenses") to own and lease its
properties and assets, including the Purchased Assets, and to
carry on the Business as and where presently conducted. All
Licenses held by the Company in connection with the Business are
more particularly described on Schedule 5.1(a) attached hereto and
made a part hereof. Such Licenses are all of the Licenses
necessary to the conduct of the Business by the Purchaser and all
are included as part of the Purchased Assets. No governmental
proceeding is pending or threatened to cancel, modify or fail to
renew any such License.
(b) Corporate Action. The Company and SoftNet each have full
corporate power and authority to execute and deliver this
Agreement, to sell, assign, transfer and deliver the Purchased
Assets to the Purchaser, and otherwise to perform all of its
respective obligations hereunder and to consummate the
transactions contemplated hereby. All shareholder, corporate and
other proceedings required to be taken by or on the part of the
Company and SoftNet to execute, deliver and carry out this
Agreement and to authorize the Company to sell, assign, transfer,
convey and deliver the Purchased Assets to the Purchaser have been
duly and properly taken. Assuming the due authorization, execution
and delivery hereof by the Purchaser, this Agreement constitutes
the legal, valid and binding obligation of each of the Sellers,
enforceable in accordance with its terms, and all instruments of
transfer and other documents to be delivered in connection
herewith, when executed and delivered by such Sellers, will
constitute legal, valid and binding obligations of each of the
Sellers, enforceable in accordance with their respective terms.
(c) Negation of Default. The execution and delivery of this
Agreement by each Seller, its compliance with the terms hereof and
its consummation of the transactions contemplated hereby will not
violate, conflict with or result in a breach of any provision of
the Articles of Incorporation or by-laws of the Company or
SoftNet, respectively, or (whether with due notice or lapse of
time or otherwise) constitute a default, require the consent of
any third party which has not been received, give rise to any
right of acceleration or result in the creation of any Lien under,
or otherwise result in a breach or violation of, any contract,
agreement, lease, commitment, indenture, mortgage, trust deed,
note, bond, debenture, License or other instrument or obligation,
or any judgment, order or decree of any court, administrative
agency or other governmental authority, to which any of the
Sellers is a party or otherwise subject or by which any of the
Sellers or any of their respective properties (including the
Purchased Assets) may be bound. No notice is required to be given
to any state, local or other governmental authority to consummate
the transactions contemplated hereby or to transfer the Purchased
Assets free of any state, local or other statutory Lien.
(d) Title to Purchased Assets. The Sellers have and will
convey to the Purchaser good and marketable title to all of the
Purchased Assets, free and clear of any Liens. All of the
Purchased Assets, including claims, contracts, orders, leases,
licenses and other rights, are assignable without the prior
consent of any third party or, if prior consent is required, such
consent has been obtained.
(e) Litigation. There are no claims, actions, suits, legal or
administrative proceedings, governmental investigations or any
labor matters pending or to Sellers' knowledge threatened against
or adversely affecting the Sellers, the Business or any of the
Purchased Assets, nor to Sellers' knowledge any basis for any such
claim, action, suit, legal or administrative proceeding,
governmental investigation or labor matter. There are no
judgments, decrees, settlements, orders, rulings, writs or
injunctions involving the Sellers, the Business or any of the
Purchased Assets which (either by reason of compliance or default)
may adversely affect the Sellers, the Business or any of the
Purchased Assets, or which relate in any way to the transactions
contemplated by this Agreement.
(f) Taxes. All Taxes due or to become due by reason of the
Purchased Assets or the operation of the Business by the Company
or by Sellers' other businesses prior to the Closing Date have
been or will be paid when due. There are no Tax Liens upon any
property or assets of any of the Sellers pertaining to the
Business. There is no examination or proceeding pending by any
authority or agency relating to the assessment or collection of
any Taxes, or any interest or penalties thereon, due from any
Seller, nor does any Seller know of any basis for any such
assessment. For purposes of this Agreement, "Tax" or "Taxes" shall
mean all taxes, including, without limitation, income, capital
stock, gross receipts, net proceeds, ad valorem, value added,
goods and services, turnover, sales, use, real estate transfer,
real property, personal property (tangible and intangible), stamp,
leasing, lease, user, excise, franchise, transfer, fuel, vehicle
sales, excess profits, occupational and interest equalization,
unitary, severance, withholding, employment and other taxes,
duties, assessments, imposts and charges (including, without
limitation, the recapture of any tax items such as investment tax
credits), together with all interest, penalties and additions
imposed with respect to such amounts, which are due or claimed to
be due by federal, state or local taxing authorities or which are
payable with respect to the Business, operations or property of
any Seller.
(g) Accounts Receivable. All accounts receivable of the
Company which are reflected on Schedule 1.1 (a) have no current
right of counter-claim or set-off against them; and (b) are owned
by the Company free of any Liens, choate or inchoate, liquidated
or unliquidated. Sellers make no representation or warranty as to
the collectability of such accounts receivable.
(h) Misstatement or Omission. There are no material facts
relating to the Purchased Assets, liabilities, earnings,
properties or operations of the Business which have not been
disclosed to the Purchaser in writing in this Agreement or the
schedules or exhibits hereto. No representation or warranty by the
Sellers in this Agreement or in any other agreement, document or
instrument executed in connection herewith, including any exhibit,
schedule, written statement, certificate or other document
furnished or to be furnished by the Sellers pursuant hereto or
thereto or in connection with the transactions contemplated hereby
or thereby, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact
required to be stated herein or therein necessary to make the
statements contained herein or therein not misleading. Copies of
all documents heretofore furnished by the Sellers to the Purchaser
are true, correct and complete copies of such documents, including
all amendments or modifications thereto.
5.2 Representations and Warranties of the Purchaser . The Purchaser
hereby represents and warrants to the Sellers on and as of the date hereof and
on and as of the Closing Date as follows:
(a) Organization and Standing. The Purchaser is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Illinois. The Purchaser has all requisite
corporate power and authority and all requisite and sufficient
licenses, franchises, permits and authorizations to own and lease
its properties and assets and to carry on its business as and
where currently conducted.
(b) Corporate Action. The Purchaser has full corporate power
and authority to execute and deliver this Agreement, to purchase
the Purchased Assets from the Sellers, and otherwise to perform
all of its obligations hereunder and to consummate the
transactions contemplated hereby. All corporate and other
proceedings required to be taken by or on the part of the
Purchaser to authorize, execute, deliver and carry out this
Agreement and to purchase the Purchased Assets have been duly and
properly taken. Assuming the due authorization, execution and
delivery hereof by the Sellers, this Agreement constitutes the
legal, valid and binding obligation of the Purchaser, enforceable
in accordance with its terms, and all other documents to be
delivered in connection herewith, when executed and delivered by
the Purchaser, will constitute legal, valid and binding
obligations of the Purchaser, enforceable in accordance with their
respective terms.
ARTICLE VI
Covenants and Agreements
6.1 Satisfaction of Liabilities . From and after the Closing Date, the
Sellers agree to pay, perform and otherwise satisfy in full when due all of
their liabilities and obligations which relate to or which may affect the
Business or the Purchased Assets. It is recognized and agreed that any failure
by the Sellers to comply with the foregoing may adversely affect the Business or
the Purchased Assets, or both, as well as the benefits available to the
Purchaser from the transactions contemplated hereby, and that the Purchaser has
a legitimate interest in assuring such liabilities and obligations are properly
paid, performed and satisfied. In the event that the Purchaser shall pay,
perform or otherwise satisfy any such liabilities or obligations, either
inadvertently or, after not less than ten (10) days' prior notice to the Sellers
thereof, because the Purchaser deems it necessary to do so in order to preserve
the good will of customers, vendors, employees or other third parties, the
Sellers jointly and severally agree to reimburse the Purchaser therefor not
later than ten (10) business days after receipt of notice thereof from the
Purchaser.
6.2 Employment Matters . Schedule 6.2 attached hereto lists those
individuals who are employed by the Company and the portion of their total
compensation attributable to the Business, along with similar estimates of the
cost necessary to hire additional personnel as part of Purchaser's initial sales
force.
6.3 Sublease . On or before the Closing Date, the Purchaser and the
Company shall enter into a sublease agreement substantially in the form of
Exhibit D attached hereto and made a part hereof (the "Sublease").
6.4 Administrative Services Agreement . On or before the Closing Date,
the Purchaser and the Company shall enter into an administrative services
agreement substantially in the form of Exhibit E attached hereto and made a part
hereof (the "Administrative Services Agreement").
6.5 Non-Competition Agreement . On or before the Closing Date, the
Purchaser and the Sellers shall enter into a non-competition agreement
substantially in the form of Exhibit F attached hereto and made a part hereof
(the "Non-Competition Agreement").
6.6 Company's Inventory . Company agrees to maintain its existing
Business key systems inventory in good and saleable condition. To the extent
Purchaser needs to purchase such inventory items, Purchaser shall, from time to
time, purchase portions of such inventory at Company's direct cost on an if and
as needed basis.
6.7 Customer Installation, Servicing and Warranty Repair. Purchaser
shall perform or subcontract out all of its installation, service, warranty and
repair work. At Purchaser's option, Sellers will receive and process telephone
calls, including online help, work order preparation, dispatch and work order
closure, for all service, warranty and repair work. Sellers shall bill Purchaser
for all such calls at a rate of Fifty Dollars ($50) per call. To the extent
Purchaser selects Sellers, or their affiliates, to perform any service, warranty
or repair work, Sellers shall perform such work on a competitive basis and all
profit from such work is to be split fifty-fifty (50/50) between Purchaser and
Sellers.
6.8 Shortfall Reimbursement . To the extent, if any, that Purchaser
accrues a net operating loss for the first twelve (12) consecutive months
following Closing exclusive of depreciation, bad debts, sales and marketing
expenses and expenses in excess of $662,665 in connection with its sales force
(in the aggregate, a "Shortfall"), Sellers shall reimburse Purchaser to the
extent of such Shortfall, to a maximum of One Million Dollars ($1,000,000) in
the aggregate. The Shortfall shall be computed and recomputed as of the end of
each month, and the net Shortfall, if any, shall be paid immediately after
notice of such Shortfall. To the extent that any reimbursable Shortfall is not
paid by Sellers immediately after such notice, Purchaser may offset such
Shortfall against the next payments due under the installment promissory note to
the extent of such amounts. During the first twelve (12) consecutive months
following Closing, Purchaser shall operate the Business in a commercially
reasonable manner.
6.9 Purchaser's Advertising Commitment . During the fifteen (15) month
period subsequent to Closing, Purchaser will invest Five Hundred Thousand
Dollars ($500,000) or more in (a) outdoor, radio and print advertising, and (b)
additional costs and expenses, including, but not limited to, salaries,
commissions, benefits, etc., in connection with expanding Purchaser's initial
sales force.
6.10 Right of First Refusal . If Buyer receives an offer to purchase
all or substantially all of its assets or all or substantially all of its stock
(in a private transaction, not a public offering) during the five (5) year
period subsequent to Closing, such that Dean Becker shall no longer own or
control Purchaser, directly or indirectly, Purchaser will notify SoftNet of such
offer and grant SoftNet thirty (30) days to match such offer in all respects,
including closing such transaction. If SoftNet declines to consummate such
purchase, Purchaser shall be free to thereafter accept such offer and close such
transaction, provided that the ultimate terms of such transaction are not
materially different than as presented to SoftNet.
ARTICLE VII
Indemnification
7.1 Sellers' Indemnification .
(a) Notwithstanding any investigation by the Purchaser, its
attorneys or any of its agents or representatives, the representations,
warranties and covenants of the Sellers set forth herein, or in any
document or instrument delivered in connection herewith or pursuant
hereto, and the liabilities of the Sellers with respect thereto, shall
survive the Closing.
(b) The Sellers, jointly and severally, agree to indemnify,
defend and hold the Purchaser and its shareholders, directors,
officers, employees, agents, representatives, successors and assigns
harmless from and against any and all Losses imposed on, accrued
against, sustained or incurred by such indemnitees or any one of them
resulting from or arising out of or by virtue of: (i) any
misrepresentation or breach of warranty made herein by the Sellers or
non-compliance with, non-performance of or breach by the Sellers of any
of the covenants of this Agreement to be performed by the Sellers; and
(ii) any and all liabilities arising out of or in connection with the
conduct of the Business on or prior to the Closing Date or Sellers'
other operations.
7.2 Purchaser's Indemnification .
(a) The representations, warranties and covenants of the
Purchaser set forth herein, or in any document or instrument delivered
in connection herewith or pursuant hereto, and the liabilities of the
Purchaser with respect thereto, shall survive the Closing.
(b) The Purchaser agrees to indemnify, defend and hold the
Sellers, their shareholders, directors, officers, employees, agents,
representatives, successors and assigns harmless from and against any
and all Losses imposed on, accrued against, sustained or incurred by
such indemnitees or any one of them resulting from or arising out of or
by virtue of: (i) any misrepresentation or breach of warranty made
herein by the Purchaser or non-compliance with or breach by the
Purchaser of any of the covenants of this Agreement to be performed by
the Purchaser; and (ii) any and all liabilities and obligations arising
out of or in connection with the conduct of the Business by the
Purchaser after the Closing Date.
7.3 Losses . For purposes of this Agreement, "Losses" shall mean all
claims, actions, proceedings, judgments, causes of action, liabilities (whether
fixed, absolute, accrued, contingent or otherwise and whether direct or
indirect, primary or secondary, known or unknown), losses, demands, costs,
assessments, damages, interest, penalties or expenses (including, without
limitation, reasonable attorneys' fees and expenses and costs of litigation).
ARTICLE VIII
Miscellaneous
8.1 Notices . Any notice, request, instruction or other communication
to be given hereunder by any party hereto shall be in writing and shall be
deemed to have been duly given on the date of delivery, provided delivery is
actually tendered at the appropriate address, addressed to the persons
identified below (i) in person, or (ii) by courier service, or (iii) by
facsimile copy (with original copy mailed the same day), or (iv) three (3) days
after deposit in the U.S. mails by first class certified mail, postage prepaid,
return receipt requested, all addressed as set forth below:
(i) If to the Sellers, to:
SoftNet Systems, Inc.
717 Forest Avenue
Lake Forest, Illinois 60045
Attn: John I. Jellinek, President
Telephone No.: (847)266-8150
Facsimile No.: (847)266-8251
With a copy to:
Pedersen & Houpt
161 North Clark Street
Suite 3100
Chicago, Illinois 60601-3224
Attn: Michael W. Black
Telephone No.: (312)609-5693
Facsimile No.: (312)641-6895
(ii) If to the Purchaser, to:
Extreme Communications, Inc.
P.O. Box 898
Highland Park, Illinois 60035
Attn: Dean Becker
Telephone No.: (847)266-8800
Facsimile No.: (847)266-9697
With a copy to:
Holleb & Coff
55 East Monroe Street
Suite 4100
Chicago, Illinois 60603
Attn: Mark S. Kipnis
Telephone No.: (312)807-4600
Facsimile No.: (312)807-3900
or to such other person or persons at such address or addresses as may be
designated by written notice to the other party pursuant to this Section 8.1.
8.2 Severability . If any provision of this Agreement is found invalid,
unenforceable or in violation of any law by a court of competent jurisdiction,
such provision shall be modified only to the extent necessary to enable such
provision to be valid and enforceable, without affecting the remaining portions
of this Agreement, which shall remain in full force and effect.
8.3 Mutual Contribution . The parties to this Agreement and their
counsel have mutually contributed to its drafting. Consequently, no provision of
this Agreement shall be construed against any party on the ground that such
party drafted the provision or caused it to be drafted, or the provision
contains a covenant of such party.
8.4 Waivers . No delay on the part of any party in exercising any
right, power or privilege shall operate as a waiver thereof, nor shall any
waiver of any right, power or privilege operate as a waiver of any other right,
power or privilege, nor shall any single or partial exercise of any right, power
or privilege preclude any other or further exercise thereof or of any other
right, power or privilege. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies which the parties
otherwise may have at law or in equity.
8.5 Applicable Law . This Agreement is governed by and shall be
construed and enforced in accordance with the internal laws of the State of
Illinois.
8.6 Waiver of Jury Trial . EACH OF THE PARTIES HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS THEY EACH MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT DELIVERED TO
THE OTHER AS OF THE DATE HEREOF, PRIOR THERETO OR THEREAFTER, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
THE PARTIES HERETO. EACH OF THE PARTIES ACKNOWLEDGES AND AGREES THAT IT HAS
RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER
PROVISION OF EACH OTHER DOCUMENT OR INSTRUMENT TO WHICH IT IS NOW OR WILL BE IN
THE FUTURE A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR SUCH
PARTY ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER DOCUMENT OR INSTRUMENT.
8.7 Counterparts . This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed as of the date first written above.
PURCHASER: SELLERS:
EXTREME COMMUNICATIONS, INC. COMMUNICATE DIRECT, INC.
By: By:
________________________ _______________________
Its: Its:
________________________ _______________________
SOFTNET SYSTEMS, INC.
By:
_______________________
Its:
_______________________
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
Schedules
Schedule 1.1 Accounts Receivable
Schedule 5.1(a) Licenses
Schedule 6.2 Employees
Exhibits
Exhibit A Installment Promissory Note
Exhibit B Warranty Bills of Sale
Exhibit C Assignment
Exhibit D Sublease
Exhibit E Administrative Services Agreement
Exhibit F Non-Competition Agreement
AGREEMENT FOR THE PURCHASE AND SALE
OF CERTAIN ASSETS OF COMMUNICATE DIRECT, INC.
<PAGE>
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TABLE OF CONTENTS
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Purchase and Sale of Assets.................................................. 1
1.1 Agreement to Purchase and Sell............................. 1
1.2 Assumed Liabilities........................................ 2
1.3 Update of Schedules........................................ 3
1.4 Sublease................................................... 3
1.5 Closing.................................................... 3
Purchase Price and Payment Terms....................................... ..... 3
2.1 Purchase Price............................................. 3
2.2 Method of Payment.......................................... 3
2.3 Allocation of the Purchase Price........................... 4
Representations and Warranties of Seller..................................... 4
3.1 Seller's Organization and Standing......................... 4
3.2 Seller's Corporate Authority............................... 5
3.3 Events Subsequent to October 31, 1996...................... 5
3.4 Title to Personal Property................................. 5
3.5 Litigation................................................. 5
3.6 Consents................................................... 5
3.7 Compliance with Law........................................ 6
3.8 Taxes...................................................... 6
3.9 Contracts.................................................. 6
3.10 Labor Relations............................................ 6
3.11 Benefit Plans.............................................. 6
3.12 Brokers and Finders........................................ 6
3.13 No Conflict or Violation................................... 6
3.14 Discounts and Credits...................................... 7
3.15 Disclaimer of Warranties................................... 7
Representations and Warranties of Buyer...................................... 7
4.1 Buyer's Organization and Standing.......................... 7
4.2 Buyer's Corporate Authority................................ 7
4.3 Litigation................................................. 7
4.4 Consents................................................... 7
4.5 Brokers and Finders........................................ 7
4.6 No Conflict or Violation................................... 8
4.7 Seller's Representations and Warranties.................... 8
Covenants of Seller.......................................................... 8
5.1 Conduct of Seller's Business Pending Closing............... 8
5.2 Access Pending Closing..................................... 8
5.3 Consents of Third Parties.................................. 8
5.4 Introductions to Customers................................. 8
Buyer's Covenants............................................................ 9
6.1 Books and Records.......................................... 9
6.2 Consents................................................... 9
6.3 Publicity.................................................. 9
Mutual Covenants............................................................. 9
7.1 Fairness Opinion........................................... 9
7.2 Operations Pending Closing................................. 9
7.3 Collection of Accounts Receivable.......................... 10
7.4 Employees.................................................. 10
Conditions to Buyer's Obligations to Close................................... 11
8.1 Representations and Warranties............................. 11
8.2 Performance................................................ 11
8.3 Updated Schedules.......................................... 11
8.4 Fujitsu Contract........................................... 12
8.5 Fairness Opinion........................................... 12
8.6 Assignment Documents....................................... 12
8.7 Tender of Possession....................................... 12
8.8 Sublease....................................................12
Conditions to Seller's Obligations to Close.................................. 12
9.1 Representations and Warranties............................. 12
9.2 Performance................................................ 12
9.3 Board Approval............................................. 12
9.4 Fairness Opinion........................................... 12
9.5 Assumption Documents....................................... 12
9.6 Payment Note............................................... 12
9.7 Release of Bank Loans...................................... 13
9.8 Sublease................................................... 13
Indemnification ............................................................. 13
10.1 Indemnification of Buyer................................... 13
10.2 Seller's Indemnification Limitations....................... 13
1010.3 Indemnification of Seller.................................. 13
10.4 Procedure for Indemnification.............................. 14
10.5 Survival................................................... 15
10.6 Exclusive Remedy........................................... 15
<PAGE>
Miscellaneous................................................................ 15
11.1 Seller's Knowledge.......................... .............. 15
11.2 Written Agreement to Govern................................ 16
11.3 Severability............................................... 16
11.4 Notices.................................................... 16
11.5 Parties in Interest........................................ 17
11.6 Counterparts and Faxed Signatures.......................... 17
11.7 Law to Govern.............................................. 17
11.8 Successors and Assigns..................................... 17
11.9 Further Assurances......................................... 17
11.10 Gender, Number and Headings................................ 17
11.11 Schedules and Exhibits..................................... 18
11.12 Waiver of Provisions....................................... 18
11.13 Expenses................................................... 18
<PAGE>
\42548\010\10AGTCDI.008
AGREEMENT FOR THE PURCHASE AND SALE
OF CERTAIN OF THE ASSETS OF
COMMUNICATE DIRECT, INC.
THIS AGREEMENT is made in Chicago, Illinois, this 9th day of December,
1996, by and between NEWTEL BUFFALO GROVE, INC., an Illinois corporation
("Buyer") and COMMUNICATE DIRECT, INC., an Illinois corporation ("Seller") and a
wholly-owned subsidiary of SoftNet Systems, Inc., a New York Corporation
("SoftNet").
W I T N E S S E T H:
WHEREAS, Seller is engaged in the business of selling, maintaining,
repairing, servicing, moving and expanding telephone and data systems (the
"Business");
WHEREAS, Seller and Buyer have agreed that Seller shall sell and
transfer and Buyer shall purchase and assume, certain assets used by Seller in
the Business and certain of Seller's liabilities on the terms and subject to the
conditions set forth herein;
WHEREAS, Seller and Buyer acknowledge that, following the transactions
contemplated in this Agreement, Seller will continue to engage in the Business
and further acknowledge that nothing in this Agreement will in any way impair
Seller's right and ability to continue to engage in such Business; and
NOW, THEREFORE, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto do hereby agree as follows:
<PAGE>
1. Purchase and Sale of Assets
.1 Agreement to Purchase and Sell. Seller hereby agrees to sell, convey,
transfer, assign and deliver the following assets (the "Purchased Assets") to
Buyer at the Closing (as defined in Section 1.5 below), and Buyer hereby agrees
to purchase the Purchased Assets from Seller at the Closing, free and clear,
except as described on the schedules attached hereto, of all liens, pledges,
options, claims, security interests, successor liabilities and encumbrances of
whatever nature, or other similar right of any person, corporation, governmental
authority, partnership, company, trust or other entity, for the aggregate
Purchase Price (as defined in Section 2.1 below):
.1 The right, subject to the rights
described on Schedule 1.1.1, to the name
Communicate Direct, Inc.;
.2 The specific customer and mailing lists
described on Schedule 1.1.2;
.3 Specific accounts receivable, as
described on Schedule 1.1.3;
.4 Specific inventories and parts supplies,
subject to the rights as described on
Schedule 1.1.4;
.5 Specific computer software and hardware,
including certain computer software
currently owned by SoftNet, and rights under
certain computer hardware leases, all as
described on Schedule 1.1.5;
.6 Specific furniture and fixtures located
at the Seller's facility in Buffalo Grove,
Illinois (the "Facility"), as described on
Schedule 1.1.5;
.7 Tools and equipment and rights under
certain equipment leases, all as described
on Schedule 1.1.5;
.8 Rights under certain vehicle leases, as
described on Schedule 1.1.8;
.9 Deposits, as described on Schedule 1.1.9;
.10 Security alarm system and equipment
located at the Facility, as described on
Schedule 1.1.10; and
.11 Vendor warranties and guaranties, as
described on Schedule 1.1.11.
.2 Assumed Liabilities. Subject to and upon Closing, Buyer hereby agrees
to assume the following liabilities of Seller related to or incurred in
connection with the operation of the Business (the "Assumed Liabilities"):
.1 Accounts payable and accrued expenses, as
described on Schedule 1.2.1;
.2 Accrued sales tax, as described on
Schedule 1.2.2;
.3 Deferred revenue under service contracts,
as described on Schedule 1.2.3;
.4 Warranty obligations for repair and
replacement of defective workmanship or
materials, as described on Schedule 1.2.4;
.5 Obligations with respect to certain
vehicle leases, as described on Schedule
1.2.5;
.6 Obligations with respect to certain
equipment and computer hardware leases, as
described on Schedule 1.2.6;
.7 Liabilities and obligations for accrued
vacation, sick leave and holiday pay to
Buyer Employees (as defined in Section
7.4.1)
.3 Update of Schedules. Each of the Schedules attached hereto as of the
date hereof shall be updated by Seller on the Closing Date.
.4 Sublease. On or prior to the Closing, Buyer and Seller shall enter into
a sublease, substantially in the form of Exhibit A attached hereto (the
"Sublease") for the lease by Buyer of a portion of the Facility. Payments
required under the Sublease shall be jointly and severally guaranteed, pursuant
to a guaranty substantially in the form attached hereto as Exhibit B (the
"Sublease Guaranty"), up to a maximum aggregate amount of $400,000, by the
following: (a) John Jellinek, (b) Phil Kenny, (c) Daniel Lee and (d) Michael
FSublease. On or prior to the Closing, Buyer and Seller shall enter into a
sublease, substantially in the form of Exhibit A attached hereto (the
"Sublease") for the lease by Buyer of a portion of the Facility. Payments
required under the Sublease shall be jointly and severally guaranteed, pursuant
to a guaranty substantially in the form attached hereto as Exhibit B (the
"Sublease Guaranty"), up to a maximum aggregate amount of $400,000, by the
following: (a) John Jellinek, (b) Phil Kenny, (c) Daniel Lee and (d) Michael
Fainman.
.5 Closing. The consummation of the purchase and sale of the Purchased
Assets and assumption of the Assumed Liabilities (the "Closing") shall take
place at the offices of Buyer's counsel, Rudnick & Wolfe, 203 North LaSalle
Street, Chicago, Illinois 60601, on such date and commencing at such time as
Seller and Buyer shall agree, but in no event later than 9:00 a.m. on December
9, 1996. The date of the Closing is referred to herein as the "Closing Date".
Upon Closing, the transactions contemplated hereby shall be deemed to have
occurred effective as of 12:01 a.m. on November 1, 1996 (the "Effective Date").
Seller shall deliver possession of the Purchased Assets and the Sublease to
Buyer, and Buyer shall assume the Assumed Liabilities and deliver to Seller the
Payment Note and the Payment Note Guaranties (as defined in Section 2.2.2
hereof) and the Sublease and the Sublease Guaranty at the Closing, all such
deliveries and assumption to be deemed to have occurred on and as of the
Effective Date.
2. Purchase Price and Payment Terms
.1 Purchase Price. The aggregate purchase price (the "Purchase Price") to
be paid to Seller by Buyer for the Purchased Assets shall be as follows:
.1 The assumption of the Assumed
Liabilities; plus
.2 The sum of the amounts shown in Sections
2.2.2, 2.2.3, and 2.2.4.
.2 Method of Payment. Buyer shall pay the Purchase Price to Seller in the
following manner on the Closing Date:
.1 Buyer shall assume the Assumed
Liabilities;
.2 $209,579 shall be paid by a promissory
note (the "Payment Note"), substantially in
the form attached hereto as Exhibit C.
.3 An amount equal to the outstanding
principal and accrued interest as of the
Closing shall be paid, on Seller's behalf,
to West Suburban Bank as payment in full of
indebtedness incurred by Seller to finance
certain leasehold improvements located at
the Facility.
.4 An amount equal to the outstanding
principal and accrued interest as of the
Closing shall be paid, on SoftNet's behalf,
to West Suburban Bank as payment in full of
indebtedness incurred by SoftNet to finance
certain computer software purchases.
The Payment Note shall be unsecured and Seller shall agree to subordinate
amounts due and owing under the Payment Note to debt incurred by Buyer to a bank
or other institutional lender, and to execute evidence of such subordination as
necessary, on such terms and conditions as Seller shall approve. Repayment of
the Payment Note shall be severally guaranteed, pursuant to individual
guaranties substantially in the form attached hereto as Exhibit D (the "Payment
Note Guaranties"), by each of the following: (a) John Jellinek, (b) Phil Kenny,
(c) Daniel Lee, and (d) Michael Fainman.
.3 Allocation of the Purchase Price. The Purchase Price shall be allocated
by Seller and Buyer among the Purchased Assets in the manner mutually determined
by Buyer and Seller in good faith and as set forth on Schedule 2.3. Buyer and
Seller shall (a) reflect the Purchased Assets in their books and for tax
reporting purposes in accordance with such allocations, (b) file all forms
required under Section 1060 of the Internal Revenue Code and all other tax
returns and reports in accordance with and based upon such allocation, and (c)
unless required to do so in accordance with a "determination", as defined in
Section 1313(a)(1) of the Internal Revenue Code, take no position in any tax
return, tax proceeding, tax audit or otherwise which is inconsistent with such
allocation.
3. Representations and Warranties of Seller
Seller hereby represents and warrants to Buyer, as of the date hereof, as
follows:
.1 Seller's Organization and Standing. Seller is a corporation which is
duly organized, validly existing and in good standing under the laws of the
State of Illinois. Seller is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is necessary under applicable law as a result of the conduct of
its business or the ownership of its properties, except in any jurisdiction
where the failure to do so would not have any material adverse effect on Seller.
Seller has full corporate power and authority to conduct its business as it is
presently being conducted and to own and lease its properties and assets.
<PAGE>
.2 Seller's Corporate Authority. Seller has full corporate power and
authority to execute and deliver this Agreement and the other documents and
agreements referred to herein and to perform all of its obligations hereunder
and thereunder. Seller's execution and delivery of this Agreement and the other
documents and agreements referred to herein and Seller's performance of its
obligations hereunder and thereunder have been duly authorized by all necessary
corporate action. This Agreement and the other documents and agreements referred
to herein are a legal, valid and binding agreements of Seller and each is
enforceable against Seller in accordance with its terms except as may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
or by the unavailability of equitable remedies.
<PAGE>
.3Events Subsequent to October 31, 1996. To the best of Seller's
knowledge, except to the extent set forth in Schedule 3.3 hereto, since October
31, 1996 there has not been:
(a) Any material damage, destruction, loss or
forfeiture (whether or not covered by insurance) affecting any of the
Purchased Assets; or
(b) Any material change in the Assumed Liabilities or
in the manner in which Seller operates the Business which may
reasonably be expected to have a material adverse effect on the
Purchased Assets or Assumed Liabilities; or
(c) Any written notice received by Seller from any
material customer indicating any intention to curtail, suspend or
terminate such customer's business relationship with Seller.
.4 Title to Personal Property. Seller has good and marketable title to the
Purchased Assets, free and clear of any and all liens, claims, security
interests, options, leases, restrictions or encumbrances of whatever nature,
except as described on Schedule 3.4.
.5 Litigation. Except as listed on Schedule 3.5, to Seller's knowledge
there is no suit, arbitration, claim, investigation, action or proceeding
pending or threatened before any court, arbitrator, administrative or regulatory
body, or any governmental agency to which Seller is a party and which will or
could have any material adverse effect upon any of the Purchased Assets or the
Assumed Liabilities or which will or could prevent or interfere with the
consummation of the transaction contemplated hereby. To Seller's knowledge, no
such judgment, order or decree has been entered, nor has any such determination
been made or liability been incurred, which has, or could have, such an effect.
.6 Consents. Except as specifically set forth on Schedule 3.6, Seller is
not required to obtain any consents or other approvals from any governmental
agency or other person (including any lessor, customer, supplier or lender) as a
result of the transactions contemplated hereby.
.7 Compliance with Law. Seller is not in default under or in violation of
any applicable statute, law, ordinance, decree, order, rule, regulation,
franchise, permit or license of any governmental body, which may result in a
material adverse effect upon any of the Purchased Assets or the Assumed
Liabilities.
.8 Taxes. Seller has timely filed all required federal, state and local
tax returns and reports relating to its business, and has paid all taxes due
with respect thereto. Seller does not have any federal, state or local tax
liabilities other than those reflected on such tax returns with respect to the
periods covered by such tax returns.
.9 Contracts. Except as set forth on Schedule 3.9, there is no contract,
agreement, commitment or arrangement, or any outstanding unaccepted offer,
whether written or oral, express or implied, fixed or contingent, to which
Seller is a party or by which it or any of the Purchased Assets is bound, which
has had, or may reasonably be expected to have, a material adverse effect upon
any of the Purchased Assets or the Assumed Liabilities.
.10 Labor Relations.ReSeller is not a party to or bound by any collective
bargaining agreement. To Seller's knowledge, there is no current union
organizational activity with respect to the employees of Seller and there has
not been any such activity in the past twelve months. To Seller's knowledge, no
allegation, charge or complaint of age, disability, sex or race discrimination
or similar charge has been made or threatened against Seller.
.11 Benefit Plans. Except as described on Schedule 3.11, there are no
employee benefit plans currently in effect with respect to any of Seller's
current or former employees.
.12 Brokers and Finders. Seller has not engaged or authorized any broker,
investment banker or other third party to act on its behalf, either directly or
indirectly, as a broker, finder or advisor in connection with the transactions
contemplated hereby.
.13 No Conflict or Violation. Assuming that all consents described on
Schedule 3.6 have been obtained and except as may result from any facts or
circumstances relating solely to Buyer, the execution and delivery of this
Agreement, the consummation of the transactions contemplated by this Agreement,
and the fulfillment of the terms hereof do not and will not result in (a) a
violation of or conflict with any provision of Seller's Articles of
Incorporation, Bylaws, or other organizational documents, (b) a breach of, or a
default under, any term or provision of any contract, agreement, indebtedness,
encumbrance, commitment, license, franchise, permit, authorization or concession
to which Seller is a party and affecting any of the Purchased Assets or Assumed
Liabilities, other than such breaches or defaults which would not have a
material adverse effect on the Purchased Assets or Assumed Liabilities, (c) a
violation by Seller of any statute, rule, regulation, ordinance, code, order,
judgment, writ, injunction, decree or award, other than such violations which
would not have a material adverse effect on the Purchased Assets or Assumed
Liabilities, or (d) an imposition of any encumbrance, restriction or charge on
any of the Purchased Assets.
.14 Discounts and Credits. Except as disclosed on Schedule 3.14, Seller
has not entered into any agreements, does not have any policy, and has not
engaged in any course of dealing relating to the granting of discounts or
credits to customers for any reason.
.15 Disclaimer of Warranties. Except with respect to the warranties and
representations specifically set forth in this Agreement, Seller makes no
warranty, express or implied, whether of merchantability, suitability or fitness
for a particular purpose, or quality as to the Purchased Assets or any part
thereof, or as to the condition or workmanship thereof, or the absence of any
defects therein, whether latent or patent.
4. Representations and Warranties of Buyer
Buyer hereby represents and warrants to Seller as of the date hereof as
follows:
.1 Buyer's Organization and Standing. Buyer is a corporation which is duly
organized, validly existing and in good standing under the laws of the State of
Illinois.
.2 Buyer's Corporate Authority. Buyer has full corporate power and
authority to execute and deliver this Agreement, the Payment Note and the other
documents and agreements referred to herein and to perform all of its
obligations hereunder and thereunder. Buyer's execution and delivery of this
Agreement, the Payment Note and the other documents and agreements referred to
herein and the performance of its obligations hereunder and thereunder have been
duly authorized by all necessary corporate action. This Agreement, the Payment
Note and the other documents and agreements referred to herein are legal, valid
and binding agreements of Buyer and each is enforceable against Buyer in
accordance with its terms except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws or by the unavailability
of equitable remedies.
.3 Litigation. There is no suit, arbitration, claim, investigation, action
or proceeding pending or threatened before any court, arbitrator, administrative
or regulatory body, or any governmental agency to which Buyer is a party and
which will or could prevent or interfere with the consummation of the
transaction contemplated hereby. No such judgment, order or decree has been
entered, nor has any such determination been made or liability been incurred,
which has, or could have, such an effect.
.4 Consents. Buyer is not required to obtain any consents or other
approvals from any governmental agency or other person (including any lessor,
customer, supplier or lender) as a result of the transactions contemplated
hereby.
.5 Brokers and Finders. Buyer has not engaged or authorized any broker,
investment banker or other third party to act on its behalf, either directly or
indirectly, as a broker, finder or advisor in connection with the transactions
contemplated hereby.
.6 No Conflict or Violation. The execution and delivery of this Agreement,
the Payment Note and the other documents and agreements referred to herein, and
the consummation of the transactions contemplated by this Agreement, and the
fulfillment of the terms hereof do not and will not result in (a) a violation of
or conflict with any provision of Buyer's Articles of Incorporation, Bylaws, or
other organizational documents, (b) a breach of, or a default under, any term or
provision of any contract, agreement, indebtedness, encumbrance, commitment,
license, franchise, permit, authorization or concession to which Buyer is a
party, or (c) a violation by Buyer of any statute, rule, regulation, ordinance,
code, order, judgment, writ, injunction, decree or award.
.7 Seller's Representations and Warranties. Buyer does not know of any
breach by Seller of its representations and warranties set forth in this
Agreement or in the other documents and agreements referenced herein.
5. Covenants of Seller
Seller hereby covenants and agrees with Buyer as follows:
.1 Conduct of Seller's Business Pending Closing. From the date hereof to
and including the Closing Date, Seller shall operate the Business only in the
usual and ordinary course, consistent with past practice, and shall not, without
the prior written consent of Buyer, take or omit to take any action, the effect
of which act or omission would render any of Seller's representations or
warranties set forth herein inaccurate as of the Closing Date.
.2 Access Pending Closing. From the date hereof to and including the
Closing Date, Seller shall cause Buyer and its directors, officers, employees,
accountants, and other agents and representatives to have the right of full and
complete access to Seller's facilities, books and records, during normal
business hours and on reasonable notice, for the purpose of making such
investigation of Seller's business, assets, liabilities, condition (financial or
other), operations and prospects as Buyer may reasonably deem necessary.
.3 Consents of Third Parties. Seller shall use its best efforts to obtain,
at its expense, all consents and other approvals of all lessors, lenders,
governmental authorities and other third parties which are required to be
obtained by Seller in connection with the transaction contemplated by this
Agreement.
.4 Introductions to Customers. From the date hereof to and including the
Closing Date, Seller shall provide Buyer with introductions to the appropriate
representatives of such of Seller's customers as Seller shall suggest or as
Buyer may reasonably request.
<PAGE>
6. Buyer's Covenants
Buyer hereby covenants and agrees with Seller as follows:
.1 Books and Records. In connection with (i) any tax audit of Seller,
SoftNet or any of SoftNet's shareholders, or (ii) the preparation of any tax
return of Seller, SoftNet or any of SoftNet's shareholders, Buyer shall make
available to Seller, SoftNet or such shareholder for inspection or copying at
any reasonable time within seven (7) years after the Closing Date, at such
entity's or individual's request and expense, all books and records then in
Buyer's possession or control relating to Seller's Business which existed on the
Closing Date or which relate to any period prior to the Closing Date.
.2 Consents. Prior to the Closing, Buyer shall cooperate with Seller to
procure, upon reasonable terms and conditions, all consents and approvals
required hereunder and shall complete all filings, registrations and
certificates required to be made by Buyer in connection with the transaction
contemplated herein.
.3 Publicity. Except as required by applicable law, without the prior
written consent of Seller, (i) prior to the Closing, Buyer shall not disclose or
publish, or permit the disclosure or publication of, any information concerning
the execution and delivery of this Agreement, or the transactions contemplated
by this Agreement, to any third party and (ii) Buyer shall not disclose the
Purchase Price paid hereunder.
7 Mutual Covenants
The parties hereto hereby covenant and agree with one another as follows:
.1 Fairness Opinion. Buyer and Seller acknowledge that principals of Buyer
are directors and substantial shareholders of SoftNet; accordingly SoftNet and
Seller will obtain a so-called fairness opinion with respect to the subject
transaction in a form and from a firm acceptable to Seller.
.2 Operations Pending Closing. The Closing of the transaction contemplated
hereby shall be effective from and after the Effective Date and the parties
intend that all operations relating to the Purchased Assets shall be for Buyer's
account. Accordingly, (i) all cash receipts relating to the Purchased Assets
from and after the Effective Date shall be retained in Seller and used solely to
satisfy obligations relating to the Purchased Assets and (ii) all liabilities
and obligations relating to the Purchased Assets or the Buyer Employees in the
ordinary course of business from and after the Effective Date shall be the
responsibility of Buyer. No funds or assets relating to the Purchased Assets
shall be diverted to any other purpose, business or operation of Seller or
SoftNet. Seller shall use reasonable efforts to preserve the Business and the
Purchased Assets pending Closing and to retain existing customer, employee and
vendor relationships. If and to the extent the funds from operations of the
Business are inadequate to cover all payroll, employee benefit and related
employee costs or to provide other essential services to employees or customers,
then Seller or SoftNet shall provide the shortfall and funds so advanced by
Seller or SoftNet with respect to operations between the Effective Date and the
Closing shall be repaid by Buyer to Seller in cash at Closing.
.3 Collection of Accounts Receivable
.1 Subject to the terms of this Section 7.3, at the Closing,
Buyer will acquire hereunder, and thereafter Buyer shall have the right
and authority to collect for Buyer's account those accounts receivable
listed on Schedule 1.1.3 (collectively, the "Transferred Receivables")
and Seller shall, within five (5) days after receipt of any payment in
respect of any of the Transferred Receivables, properly endorse and
deliver to Buyer any cash, checks or other forms of payment (or the
appropriate portion thereof) received on account thereof or otherwise
relating thereto.
.2 Included in the Transferred Receivables are certain
accounts receivable which are over ninety (90) day's past due (the
"Aged Receivables"). Buyer hereby agrees to use all reasonable efforts
to collect the amounts outstanding under the Aged Receivables.
Additionally, notwithstanding anything to the contrary contained in
this Agreement or the other agreements and documents referred to
herein, Buyer and Seller hereby agree that Seller shall receive
seventy-five percent (75%) of any and all amounts collected with
respect to the Aged Receivables and Buyer shall receive twenty-five
percent (25%) thereof. Seller shall pay to Buyer the amounts due
pursuant to this Section 7.3.2 within five (5) days of Seller's receipt
thereof.
.3 If and to the extent that all of the Aged Receivables have
not been collected within 120 days of the Closing Date, Buyer shall
promptly assign to Seller such uncollected Aged Receivables and the
right to pursue collection thereof.
.4 Employees.
.1 Buyer shall offer employment to those current employees
(the "Buyer Employees") of the Business listed on Schedule 7.4.1 on
substantially equivalent salary, bonuses, benefits and positions.
Seller will use all reasonable efforts to retain all Buyer Employees
through the Closing. Buyer shall not incur any liability or obligation
with respect to any employee that does not accept employment with
Buyer. Buyer will not incur as a result of the transfer of the
Purchased Assets, any present, future or contingent liability or
obligation to pay any pension benefits, medical benefits, compensation
for loss of employment or other compensation or benefits to any
employee of Seller (including any Buyer Employee) terminated on or
prior to the Effective Date. Except as specifically provided in this
Section 7.4, Buyer shall be responsible for compensation, benefits and
other employee-related matters of the Buyer Employees arising out of
service on or after the Effective Date.
.2 Seller shall retain all liabilities, perform all
obligations and maintain all insurance under the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA") with respect to its
employees and former employees of the Business and their covered
dependents, other than Buyer Employees who accept employment with
Buyer.
.3 Seller shall be liable for any severance, separation or
similar liabilities, that are payable (i) to any person whose right to
severance or separation benefits arises as a result of the transactions
contemplated by this Agreement (other than as a result of a breach by
Buyer of its obligations hereunder), (ii) to any person whose
employment with Seller was terminated prior to the Closing, and (iii)
to any employee of Seller not hired by Buyer. Buyer shall be liable for
any severance, separation or similar liabilities for all Buyer
Employees under Buyer's employment policies and procedures.
.4 Seller shall be liable for the administration and payment
of all workers' compensation liabilities and benefits with respect to
(i) Buyer Employees resulting from claims, events, circumstances,
exposures, conditions or occurrences occurring prior to the Effective
Date, and (ii) employees and former employees of Seller that do not
become Buyer Employees. Buyer shall be responsible for the
administration and payment of all workers' compensation liabilities and
benefits with respect to Buyer Employees resulting from claims reported
following the Effective Date, and resulting from events, circumstances,
exposures, conditions, or occurrences after the Effective Date,
provided Seller shall administer and pay all workers' compensation
liabilities and claims in the ordinary course of business from the
Effective Date through Closing and shall promptly assign to Buyer any
insurance proceeds attributable to the workers' compensation claims
accepted by Buyer.
8 Conditions to Buyer's Obligations to Close
Buyer's obligations to proceed with the Closing are subject to the
satisfaction on or before the Closing Date of each of the following conditions:
.1 Representations and Warranties. Each of the representations and
warranties of Seller contained herein shall be true and correct in all material
respects on and as of the Closing Date.
.2 Performance. Seller shall have duly performed or complied in all
material respects with all of the covenants, acts and obligations to be
performed or complied with by them hereunder at or prior to the Closing.
.3 Updated Schedules. Seller shall have delivered all Schedules hereto, in
accordance with Section 1.3 hereof.
.4 Fujitsu Contract. Buyer shall have received from Fujitsu Business
Communications a contract acceptable to Buyer for continued service and parts
for "imbedded base customers" which are essentially existing and prior customers
of Seller.
.5 Fairness Opinion. Seller shall have received the fairness opinion
described in Section 7.1.
.6 Assignment Documents. Seller shall deliver to Buyer an executed
assignment and bill of sale and such other instruments of transfer and corporate
consents and documents as Buyer may reasonably request to effect the transfer of
the Purchased Assets in accordance herewith.
.7 Tender of Possession. Seller shall tender to Buyer possession of all of
the Purchased Assets.
.8 Sublease. Seller shall deliver to Buyer an executed Sublease. Sublease.
9. Conditions to Seller's Obligations to Close
Seller's obligations to proceed with the Closing are subject to the
satisfaction on or before the Closing Date of each of the following conditions:
.1 Representations and Warranties. Each of the representations and
warranties of Buyer contained herein shall be true and correct in all material
respects on and as of the Closing Date.
.2 Performance. Buyer shall have duly performed or complied in all
material respects with all of the covenants, acts and obligations to be
performed or complied with by it hereunder at or prior to the Closing.
.3 Board Approval. Seller's and SoftNet's Boards of Directors shall have
approved the transactions contemplated hereby.
.4 Fairness Opinion. Seller shall have received the so-called fairness
opinion, as described in Section 7.1.
.5 Assumption Documents. Buyer shall deliver to Seller such instruments of
assumption and corporate consents and documents as Seller may reasonably request
to effect the assumption by Buyer of the Assumed Liabilities in accordance
herewith.
.6 Payment Note. Buyer shall tender to Seller the Payment Note and the
Payment Note Guaranty as described in Section 2.2 hereof.
.7 Release of Bank Loans. Buyer shall have tendered to West Suburban Bank
the amounts described in Sections 2.2.3 and 2.2.4 hereof and Seller and SoftNet
shall have received evidence of their release from the bank loans described
therein.
.8 Sublease. Buyer shall deliver to Seller an executed Sublease and the
Sublease Guaranty as described in Section 1.4 hereof.
10 Indemnification
.1 Indemnification of Buyer. Seller shall indemnify, defend and hold Buyer
and its officers, directors, shareholders, employees and agents, and their
respective heirs, executors, personal representatives, successors and assigns,
harmless from and against any and all costs, expenses, losses, damages, fines,
penalties or liabilities (including, without limitation, interest which may be
imposed by any third party in connection therewith, court costs, litigation
expenses, reasonable attorneys' and accountants' fees and expenses relating to
proof of claims) (collectively "Damages" herein), incurred by any of such
parties with respect to, in connection with, or arising from, or alleged to
result from, arise out of or in connection with:
.1 A breach by Seller of any representation,
warranty, covenant, restriction or agreement contained in this
Agreement or in any other document delivered pursuant hereto or in
connection herewith; and
.2 Any federal, state or local taxes or customs
duties payable by Seller and attributable to Seller's Business prior to
the Closing, other than those specifically included in the Assumed
Liabilities; and
.3 Any environmental condition or occurrence relating
to Seller's Business prior to the Closing; and
.4 Other than with respect to the Assumed
Liabilities, any other matter relating to the operation of Seller's
Business prior to the Closing, including without limitation,
obligations undertaken, accidents, injuries, property damage and
products liability.
.2 Seller's Indemnification Limitations. With respect to any indemnity
claims pursuant to Section 10.1, Seller's liability shall be limited to Damages
incurred by Buyer which when aggregated with other Damages incurred by Buyer,
exceed $25,000 and then, only to the extent of such excess. Seller's
indemnification obligations hereunder shall be limited to $209,579.
.3 Indemnification of Seller. Buyer shall indemnify, defend and hold
Seller and its shareholders, directors, officers, employees, agents, heirs,
executors, personal representatives, successors and assigns harmless from and
against any and all Damages incurred by any of such parties with respect to, in
connection with, arising from, or alleged to result from, arise out of, or in
connection with (i) a breach by Buyer of any representation, warranty, covenant,
restriction or agreement contained in this Agreement or in any other document
delivered pursuant hereto or in connection herewith, (ii) the Assumed
Liabilities or (iii) Buyer's use of the Purchased Assets following the Closing,
including without limitation, obligations undertaken, accidents, injuries,
property damage and products liability.
.4 Procedure for Indemnification.or Indemnification
.1 Any party which is entitled to be indemnified
hereunder (the "Indemnified Party") shall give notice hereunder to the
indemnifying party ("Indemnifying Party") promptly after obtaining
written notice of any claim as to which recovery may be sought against
such Indemnifying Party because of the terms of this Section 10 and, if
such indemnity shall arise from the claim of a third party, shall
permit the Indemnifying Party to assume the defense of any such claim
and any litigation resulting from such claim using such legal counsel
as shall be reasonably acceptable to the Indemnified Party. Any notice
given pursuant to this Paragraph 10.4.1 shall be accompanied by copies
of all materials in possession of the Indemnified Party which
reasonably relate to such claim. Notwithstanding the foregoing, the
right to indemnification hereunder shall not be affected by any failure
of an Indemnified Party to give such notice or related materials or
delay by an Indemnified Party in giving such notice or related
materials unless, except to the extent that the rights and remedies of
the Indemnifying Party shall have been prejudiced as a result of the
failure to give, or delay in giving, such notice or related materials.
Failure by an Indemnifying Party to notify an Indemnified Party of his
or its election to defend any such claim or action by a third party
within twenty-one (21) days after notice thereof shall have been given
to the Indemnifying Party shall be deemed a waiver by such Indemnifying
Party of his or its right to defend such claim or action.
.2 If the Indemnifying Party shall assume the defense
of such claim or litigation resulting therefrom, the obligations of the
Indemnifying Party hereunder as to such claim shall include, in
addition to the indemnification required hereby, the taking all steps
necessary in the defense or settlement of such claim or litigation.
Such Indemnifying Party shall not, in the defense of such claim or any
litigation resulting therefrom, consent to the entry of any judgment
(other than a judgment of dismissal on the merits without costs) except
with the written consent of the Indemnified Party (which consent shall
not be unreasonably withheld) or enter into any settlement (except with
the written consent of the Indemnified Party which consent shall not be
unreasonably withheld) which does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to the Indemnified
Party of a release from all liability in respect of such claim or
litigation. Anything in this Paragraph 10.4.2 to the contrary
notwithstanding, the Indemnified Party may, with separate counsel of
its choice and at its expense, participate in the defense of any such
claim or litigation.
.3 If the Indemnifying Party shall not assume the
defense of any such claim by a third party, or any litigation resulting
therefrom, after receipt of notice from such Indemnified Party, the
Indemnified Party may defend against such claim or litigation in such
manner as it deems appropriate, and unless the Indemnifying Party
shall, at its option, provide a bond to, or deposit with the
Indemnified Party a sum equivalent to the lesser of (x) the total
amount which may be required to be paid in indemnification pursuant to
this Section 10 or (y) the total amount demanded in such claim or
litigation plus the Indemnified Party's estimate of the costs of
defending the same, the Indemnified Party may settle such claim or
litigation on such terms as it may deem appropriate and shall have the
right to receive, subject to the terms of this Agreement, the Damages
incurred by the Indemnified Party in connection with the defense
against or settlement of such claim or litigation. If the Indemnifying
Party shall provide such bond or deposit, the Indemnified Party shall
not settle any such claim or litigation without the written consent of
the Indemnifying Party, which consent shall not be unreasonably
withheld.
.4 Subject to any limitation expressly established
herein, the Indemnified Party shall have the right to receive from the
Indemnifying Party the amount of all Damages incurred by the
Indemnified Party in connection with the defense against a claim or
litigation by a third party, whether or not resulting from, arising out
of, or incurred with respect to, the act of a third party.
.5 Notwithstanding anything to the contrary contained
herein, any and all amounts to be paid by Seller to Buyer pursuant to
this Section 10 shall be satisfied solely by set-off by Buyer against
payments, if any, to be made by Buyer to Seller pursuant to the Payment
Note, in reverse order of maturity.
.5 Survival. Seller's representations and warranties contained in Sections
3.1, 3.2, 3.4, 3.5 (with respect to pending suits, arbitrations, claims,
investigations, actions or proceedings only), 3.8, 3.12 and 3.15, and Buyer's
representations and warranties contained herein, shall each survive the Closing
for a period of ninety (90) days. No other representations and warranties of
Seller shall survive the Closing. The covenants and agreements of Buyer and
Seller set forth herein shall survive the Closing.
.6 Exclusive Remedy. The indemnification rights provided in this Section
10 shall be the sole and exclusive remedy available to each of the parties to
this Agreement as against the other party for any misrepresentation, breach of
warranty or failure to fulfill any covenant or agreement contained herein or in
connection with any of the transactions contemplated by this Agreement.
11. Miscellaneous
.1 Seller's Knowledge. As used in this Agreement, the term "Seller's
knowledge" and all other references to matters which are known by or to Seller,
shall refer to matters which are actually known by John J. McDonough and Martin
A. Koehler.
.2 Written Agreement to Govern. This Agreement sets forth the entire
understanding and supersedes all prior and contemporaneous oral or written
agreements among Seller, Buyer, SoftNet and Telcom Midwest, L.L.C. relating to
the subject matter contained herein, including the Term Sheet for the
Acquisition of the Assets of CDI which was executed between SoftNet and Buyer,
and merges all prior and contemporaneous discussions among Seller, Buyer and
SoftNet. No party hereto shall be bound by any definition, condition,
representation, warranty, covenant or provision other than as expressly stated
in this Agreement or as hereafter set forth in a written instrument executed by
such party.
.3 Severability. The parties hereto expressly agree that it is not the
intention of any party hereto to violate any public policy, statutory or common
law, rules, regulations, treaties or decisions of any government or agency
thereof. Except as otherwise expressly provided herein, if any provision of this
Agreement is judicially or administratively interpreted or construed as being in
violation of any such provision, such articles, sections, sentences, words,
clauses or combinations thereof shall be inoperative, and the remainder of this
Agreement shall remain binding upon the parties hereto.
.4 Notices. Any and all notices necessary or desirable to be served
hereunder shall be in writing and shall be deemed to have been duly given (a) if
delivered in person and a receipt is given; (b) if communicated by confirmed
facsimile utilizing the fax numbers referenced below; (c) if sent by overnight
delivery with a national overnight courier service, and addressed as set forth
below; or (d) if sent by registered or certified mail, return receipt requested,
prepaid, and addressed as follows:
If to Buyer:
Newtel Buffalo Grove, Inc.
1425 North Busch Parkway
Buffalo Grove, Illinois 60089
Facsimile: (847) 821-2228
Attn: Mr. John Jellinek
with a copy to:
Rudnick & Wolfe
203 North LaSalle Street
Suite 1800
Chicago, Illinois 60601
Facsimile: (312) 236-7516
Attn: Paul D. Rudnick, Esq.
<PAGE>
If to Seller:
Communicate Direct, Inc.
717 Forest Avenue
Lake Forest, Illinois 60045
Facsimile: (847) 266-8250
Attn: John J. McDonough
with a copy to:
McDermott, Will & Emery
227 West Monroe St.
Chicago, Illinois 60606
Facsimile: (312) 984-3669
Attn: H. George Mann, Esq.
or at such other address or addresses any party hereto may designate for itself
or himself from time to time in a written notice served upon each other party
hereto in accordance herewith.
.5 Parties in Interest. Other than those specific rights granted to
SoftNet herein, nothing in this Agreement, or in any other document referred to
herein, whether express or implied, is intended to: (i) confer any rights or
remedies on any persons other than the parties hereto and their respective
successors and assigns; (ii) relieve or discharge the obligations or liability
of any third parties; or (iii) give any third parties any right of subrogation
over or action against the parties to this Agreement or their respective
successors and assigns.
.6 Counterparts and Faxed Signatures. This Agreement may be executed in
any number of counterparts, and each counterpart shall constitute an original
instrument, but all such separate counterparts shall constitute one and the same
agreement. This Agreement may be executed by original signatures or by fax
copies of original signatures.
.7 Law to Govern. The validity, construction and enforceability of this
Agreement shall be governed in all respects by the laws of the State of Illinois
without regard to its conflict of laws rules.
.8 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that Buyer may not assign this Agreement or any of
the rights or obligations arising hereunder, without the prior written consent
of Seller, which consent shall not be unreasonably withheld.
.9 Further Assurances. At any time on or after the Closing, the parties
hereto shall each perform such acts, execute and deliver such instruments,
assignments, endorsements and other documents and do all such other things
consistent with the terms of this Agreement as may be reasonably necessary to
accomplish the transaction contemplated in this Agreement or otherwise carry out
the purposes of this Agreement.
. 10 Gender, Number and Headings. The masculine, feminine or neuter
pronouns used herein shall be interpreted without regard to gender, and the use
of the singular or plural shall be deemed to include the other whenever the
context so requires. The headings in this Agreement are inserted for convenience
of reference only and are not a part of this Agreement.
.11 Schedules and Exhibits. The Schedules and Exhibits referred to herein
and attached hereto are incorporated herein by such references as if fully set
forth in the text hereof.
.12 Waiver of Provisions. The terms, covenants, representations,
warranties and conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. The failure of any party at
any time to require performance of any provisions hereof shall, in no manner,
affect the right at a later date to enforce the same. No waiver by any party of
any condition, or breach of any provision, term, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation or warranty of this Agreement.
.13 Expenses. Each party shall bear its own expenses incident to this
Agreement and the transactions contemplated hereby, including without
limitation, all fees of counsel, accountants and consultants.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
NEWTEL BUFFALO GROVE, INC.
an Illinois limited liability corporation
By: ________________________________
COMMUNICATE DIRECT, INC.,
an Illinois corporation
By: ________________________________
<PAGE>
EXHIBIT A
FORM OF SUBLEASE
SUBLEASE
AGREEMENT OF SUBLEASE made as of November 1, 1996 (hereinafter referred
to as this "Sublease") by and between Communicate Direct, Inc., having an office
at 1425 E. Busch Parkway, Buffalo Grove, Illinois 60089 (hereinafter referred to
as "Sublessor"), and Newtel Buffalo Grove, Inc., an Illinois corporation
(hereinafter referred to as "Sublessee").
WITNESSETH:
WHEREAS, by that certain lease [undated], as amended from time to time
(hereinafter referred to as the "Lease" and attached hereto as Exhibit A),
American National Bank and Trust Company of Chicago, not personally but as
trustee under Trust Agreement No. 56658 dated December 30, 1982 (hereinafter
referred to as the "Lessor") leased to Sublessor the premises comprising
approximately 24,777 square feet (hereinafter referred to as the "Premises") and
known as 1405-1425 E. Busch Parkway, Buffalo Grove, Illinois; and
WHEREAS, Sublessor desires to sublease approximately 14,370 square feet
of the Premises as shown on Exhibit B attached hereto, which shall include the
non-exclusive use of all common areas within the Premises (hereinafter referred
to as the "Demised Premises") to Sublessee and Sublessee desires to sublease the
Demised Premises from Sublessor.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants hereinafter set forth, the parties hereby agree as follow:
<PAGE>
12 Subleasing and Term
.1 Upon the terms and conditions hereinafter
provided, Sublessor hereby leases to Sublessee and Sublessee hereby leases from
Sublessor the Demised Premises for a period which shall commence effective as of
the date hereof (hereinafter referred to as the "Commencement Date") and shall
end on April 30, 2002, unless such shall be terminated sooner or extended as
provided in this Sublease.
.2 Notwithstanding the above, in the event Sublessor
renews the Lease and Sublessee is not in default of this Sublease, Sublessee
shall have the right to renew this Sublease provided that there shall be an
equitable adjustment to rent payable hereunder to reflect any increased rent
payable by Sublessor pursuant to the Lease.
.3 Sublessee may use and occupy the Demised Premises
for general office purposes including sales and installation of
telecommunications systems, and for no other purpose.
13 Fixed Rent
Sublessee covenants and agrees to pay to Sublessor, beginning as of on
November 1, 1996 (the "Rent Commencement Date"), annual fixed rent (hereinafter
referred to as "Fixed Rent") on a monthly basis in an amount equal to 58%
(Sublessee's pro rata share) of monthly rent payable by Sublessor in the
Premises.
Fixed Rent shall be paid in advance, promptly on the first day of each
month, without any set-off, deduction or abatement except as specifically set
forth herein.
If the Sublessee takes full and actual possession of the Demised
Premises on any day other than the Commencement Date or if this Sublease ends on
any day other than the last day of a month, then the Fixed Rent for the first
month Fixed Rent is due hereunder or the last month of this Sublease shall be
prorated accordingly.
14 Additional Rent
.1 In addition to Fixed Rent to be paid pursuant to
Paragraph 2 hereof, during the term of this Sublease, beginning as of November
1, 1996, Sublessee shall pay to Sublessor 58% of all other rentals, charges,
fees and expenses provided in the Lease, including but not limited to all
additional rents, taxes, dues, fees, and charges set forth in the Lease due from
Sublessor, as lessee, to Lessor, in accordance with the terms of the Lease
(collectively "Additional Rent").
.2 Additional Rent shall be paid by Sublessee to
Sublessor at such time or times as such expenses shall become payable by
Sublessor to the Lessor under the Lease. Any such Additional Rent payments
applicable to the year in which this Sublease shall end shall be apportioned so
that the Sublessee shall pay its aforesaid share of only that amount which
corresponds with the portion of said year which is within the term hereby
demised.
.3 Bills for Additional Rent shall be sent to
Sublessee in the same detail as such bills are received by Sublessor from the
Lessor and shall be accompanied by Lessor's Statement in connection with
Additional Rent and a computation showing the amounts due from Sublessee.
.4 Sublessee shall be entitled to 58% of any refund
or credit to which Sublessor is entitled in connection with any overpayment of
Additional Rent by Sublessor to the Lessor with respect to the Demised Premises
during the term hereof. In the event of any such refund or credit from the
Lessor to Sublessor, Sublessor shall promptly notify Sublessee thereof and
shall, based on Lessor's treatment of such overpayment, refund or credit
Sublessee's share of such refund or credit as applicable.
.5 The obligations provided for in this Paragraph 3
shall survive the termination or expiration of this Sublease for a period of two
(2) years, provided, however, that Sublessee's obligations with respect to
unpaid Additional Rent for which Sublessee has received bills shall survive
until paid and Sublessor's obligations with respect to refunds or credits due
Sublessee which Sublessor has received or had a right to receive shall survive
until paid or credited to Sublessee.
15 Payments
.1 All payments of Fixed Rent, Additional Rent, and
other amounts payable by Sublessee to Sublessor pursuant to this Sublease shall
be made at the office of Sublessor as set forth at the head of this Agreement or
to such other place as may be designated by Sublessor in writing.
.2 All costs, charges and expenses which Sublessee
assumes or agrees to pay to Sublessor pursuant to this Sublease shall be deemed
Additional Rent, and, in the event of non-payment thereof, Sublessor shall have
all the rights and remedies herein provided for in case of non-payment of rent
under the Lease.
.3 If Sublessee shall fail to pay any amount due
hereunder within ten (10) calendar days of the date such payment is due,
Sublessee shall pay interest thereon at an Interest Rate which shall be 18% per
annum unless a lesser rate shall then be the maximum rate permissible by law
with respect thereto, in which event such lesser rate shall be charged, from the
date when such installment of payment shall have been due (and not the tenth day
thereafter) to the date of payment thereof.
16 Condition of Demised Premises
Sublessee acknowledges that it has inspected the Demised Premises and
is fully familiar with the physical conditions thereof and agrees to take the
same "as is". Sublessee shall make no alterations, improvements or additions to
the Demised Premises whatsoever without the consent of Sublessor and the Lessor
in accordance with the terms of the Lease and this Sublease.
17 Utility Costs and Janitorial Services
.1 Sublessee shall be responsible for payment of and
shall pay when due, electricity, natural gas, air conditioning, telephone or
other communication service(s) and all other utility services and janitorial
services in connection with the Demised Premises as shall be billed directly to
Sublessee by such utility or communication companies, or, if such services are
not billed directly to Sublessee, Sublessee shall pay to Sublessor 58% of such
costs.
18 Lessor's Services
If the Lessor fails to fulfill its obligations under Lease, Sublessor
agrees that it will cooperate with Sublessee to enable Sublessee to enforce such
obligations, but Sublessee shall pay and indemnify and hold Sublessor harmless
against any liability for all costs and expenses in the prosecution of any
proceedings or actions so taken by Sublessee except to the extent caused by a
default of Sublessor under the Lease or this Sublease.
19 Covenants and Representations of Sublessor
.1 Sublessor covenants and agrees that it will not
enter into any modification of the Lease or any other agreement with respect to
the Lease which would adversely affect the use by Sublessee of the Demised
Premises or increase the obligations of Sublessee or diminish its rights
hereunder.
.2 To Sublessor's knowledge, there are no defaults
existing under the Lease by the Lessor or Sublessor and no circumstances
currently exist which would constitute a default, and there is no existing basis
for Sublessor or Lessor to cancel the Lease or to exercise any other remedies
available to it by virtue of a default by Lessor or Sublessor respectively.
20 Incorporation of Lease
.1 Sublessor certifies that a true and complete copy
of the Lease is attached hereto as Exhibit A. Further, as of the date hereof
there have been no amendments to the Lease.
.2 This Sublease is subject and subordinate to the
terms and conditions of the Lease and any mortgages as provided therein.
Sublessee at its sole cost and expense shall at all times fully comply with all
of the covenants, terms, conditions and agreements of the Lease applicable to
Sublessee as if the Lease is a direct lease between Sublessee as tenant and
Lessor as landlord. Sublessee shall not do or allow to be done any act or
omission, on its part or on the part of any of its officers, directors,
customers, invitees, agents, servants, employees, contractors or third parties,
which would adversely affect Sublessor's rights, privileges, powers and
immunities under the Lease or which would be contrary to the requirements of the
Lease. In the event the obligations and restrictions imposed upon Sublessee in
this Sublease conflict with the obligations and restrictions imposed upon
Sublessor, as lessee under the Lease, then the more burdensome of such
restrictions and obligations shall be binding upon Sublessee.
.3 The time limits provided for in the provisions of
the Lease for the giving of notice, making demands, performance of any act
condition or covenant, or the exercise of any right, remedy or option, are
changed for the purposes of this Sublease as specifically stated elsewhere
herein, or if not so stated, by lengthening for Sublessor or shortening for
Sublessee, as the case may be, such limits by (i) five (5) days with respect to
all such periods of less than twenty (20) days but more than three (3) days, and
(ii) as much notice as reasonable practicable with respect to all periods of
less than three (3) days, so that notices may be given, demands made, or any
act, condition or covenant performed, or any right, remedy or option hereunder
exercised by Sublessor or Sublessee, as the case may be, within the time limit
relating thereto contained in the Lease.
.4 With respect to any such actions that Sublessee
desires to take for which the Lease requires the approval or consent of the
Lessor, Sublessee shall request such approval or consent from the Lessor and
Sublessor. Notwithstanding Sublessor's consent Sublessee shall not be permitted
to take such action for which the approval or consent of Lessor is necessary
without Lessor's express written approval or consent.
.5 No representations or warranties made in the Lease
by Lessor to Sublessor shall be incorporated into this Sublease as having been
made by Sublessor to Sublessee.
.6 In the event that Sublessee shall default in the
full performance of any of the terms, covenants or conditions on its part to be
performed under this Sublease, then Sublessor shall have the same rights and
remedies with respect to such default as are given to the Lessor under the Lease
with respect to defaults by Sublessor under the Lease, all with the same force
and effect as though the provision of the Lease with respect to defaults and the
rights and remedies of the Lessor under the Lease in the event thereof were set
forth at length in this Sublease.
21 Assignment and Subletting
Sublessee shall not assign or sub-sublet any part of the Demised
Premises without the prior written consent of Sublessor, which consent may be
withheld at Sublessor's reasonable discretion.
22 Subordination of Sublease
Except for as otherwise expressly provided herein, this Sublease is
subject and subordinate to the Lease, and the Sublessee shall have no greater
rights in and to the Demised Premises than Sublessor has as Lessee under the
Lease.
23 Broker
Sublessee and Sublessor each represents to the other that it knows of
no claim, or basis for any claim, against Sublessor for broker's commissions,
finder's fees or other compensation due and arising by reason of this
transaction. Sublessee shall indemnify and hold Sublessor harmless against any
claim for a brokerage commission, finder's fee or other compensation arising out
of any negotiations had by Sublessee with any other broker or finder with
respect to the subletting of the Demised Premises. Sub-lessor shall indemnify
and hold Sublessee harmless against any claims for a brokerage commission,
finder's fee or other compensation arising out of any negotiations had by
Sublessor with any other broker or finder with respect to the subletting or
renewal of the Demised Premises.
24 Signage
Sublessee shall be entitled to take over such signage space at the
Premises as is presently used by Sublessor. Sublessee acknowledges that its
signage is subject to Lessor's approval.
25 Parking Spaces
Sublessee shall be entitled to such number of parking spaces presently
reserved to Sublessor under the Lease as shall equal the ratio that the
aggregate rent Sublessee pays to Sublessor bears to the aggregate rent paid by
Sublessor to Lessor pursuant to the Lease.
26 Notices
All notices under the Sublease shall be in writing and shall be made by
certified mail, return-receipt requested, or delivered personally to the
addresses specified below or to such other address as either party may specify
in writing to the other party.
To Sublessor: Communicate Direct, Inc.
717 Forest Avenue
Lake Forest, Illinois 60045
Attn: Martin A. Koehler
with a copy to: McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
Attn: H. George Mann, Esq.
To Sublessee: Newtel Buffalo Grove, Inc.
1425 North Busch Parkway
Buffalo Grove, Illinois 60089
Attn: John Jellinek
With a copy to: Rudnick & Wolfe
203 North LaSalle Street
Suite 1800
Chicago, Illinois 60601
Attn: Paul D. Rudnick, Esq.
27 Entire Agreement
This Sublease contains the entire agreement between the parties with
respect to the matters covered hereby and any executory agreement hereafter made
shall be ineffective to change, modify or discharge this Sublease, in whole or
in part, unless such executory agreement is in writing and signed by the party
against whom enforcement of the change, modification or discharge is sought.
28 Consent of Lessor
This Sublease shall take effect only when the Lessor executes and
deliver that certain Consent to Sublease through which Lessor specifically
consents to the terms and conditions of this Sublease.
29 Execution in Counterpart
This Sublease may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original, but such
counterparts together shall constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sublease to be
executed as of the day first above written.
For the Sublessor:
Communicate Direct, Inc.
By:
Its:
For the Sublessee:
Newtel Buffalo Grove, Inc.
By:
Its:
SoftNet Systems, Inc., a New York corporation ("Guarantor"), the
guarantor of the Lease described herein under that certain "Corporate Guaranty"
by Guarantor dated February 23, 1995 (the "Guaranty"), hereby consents to the
execution and delivery by Sublessor and Sublessee of this Sublease, and Lessor's
consent thereto. Guarantor acknowledges, ratifies and confirms its liabilities
and obligations with respect to the Lease under the Guaranty as of the date
hereof.
SoftNet Systems, Inc.
By:
Its:
The undersigned, as Lessor, hereby consents to this Sublease, provided,
however, that:
1. This consent to the Sublease shall in no way release Sublessor from
any of its covenants, agreements, liabilities and duties under the Lease and any
amendments thereto.
2. This consent to Sublease does not constitute approval by Lessor of
the terms of the Sublease.
3. Nothing herein contained shall be deemed a waiver of any of Lessor's
rights under the Lease.
4. This consent to Sublease shall be deemed limited solely to this
Sublease, and Lessor reserves the right to consent to any further or additional
subleases and to consent to any assignments of the Lease or Sublease.
American National Bank and Trust
Company of Chicago, not personally
but solely as Trustee under Trust
Agreement No. 56658 dated December 30, 1982.
By:
Its:
<PAGE>
EXHIBIT A
THE LEASE
<PAGE>
EXHIBIT B
DEMISED PREMISES
<PAGE>
EXHIBIT B
FORM OF SUBLEASE GUARANTY
SUBLEASE GUARANTY
For value received, and in order to induce Communicate Direct, Inc.
("CDI") to enter into an asset purchase agreement (the "Asset Purchase
Agreement") with Newtel Buffalo Grove, Inc. ("Newtel") and to enter into a
Sublease (the "Sublease") with Newtel dated as of November 1, 1996 which
Sublease was executed in connection with the consummation of the transactions
contemplated by the Asset Purchase Agreement, the undersigned hereby, jointly
and severally, guarantee absolutely and unconditionally the prompt payment when
due, whether at maturity, by declaration, by demand or otherwise, and at any and
all times thereafter, of all indebtedness of Newtel to CDI, its successors and
assigns, pursuant to the Sublease, not withstanding any assignment by Newtel
thereof, up to a maximum guaranteed amount of $400,000, and all expenses
(including without limitation attorneys' fees and legal costs and expenses) paid
or incurred by CDI in endeavoring to collect such indebtedness or any part
thereof and in enforcing this Guaranty (collectively, the "Indebtedness").
This Guaranty is an absolute, unconditional, irrevocable, unlimited
guarantee of payment, irrespective of any circumstances which might otherwise
constitute a legal or equitable discharge or defense of any guarantor. Each
guarantor shall, immediately upon demand of CDI, render full payment of the
Indebtedness then due as guaranteed hereunder.
Each guarantor hereunder waives notice of acceptance of this Guaranty
and consents that, without notice to or further assent by any guarantor, the
Indebtedness hereby guaranteed may be renewed, extended, modified, accelerated,
prematured, released, settled or compromised by CDI as CDI in its sole
discretion may deem advisable. Each guarantor waives presentment for payment,
demand, protest and notice of dishonor.
No guarantor's obligations hereunder shall be released, discharged or
otherwise affected by any claim, set-off or other rights which such guarantor
may have against Newtel or CDI. No payments by any guarantor hereunder shall
entitle such guarantor, by subrogation or otherwise, to the rights of CDI to any
payment by Newtel.
If at any time all or any part of any payment received by CDI with
respect to the Indebtedness guaranteed hereby is rescinded or must be otherwise
restored or returned to Newtel for any reason whatsoever (including the
insolvency, bankruptcy or reorganization of Newtel or any guarantor), then each
guarantor's obligations hereunder shall, to the extent of such payment rescinded
or returned, be deemed to have continued in existence, notwithstanding such
previous receipt by CDI and each guarantor's obligations hereunder with respect
to such payment shall continue to be effective or reinstated, as the case may
be, at such time, all as though such previous payment to CDI had not been made.
CDI shall not be required to proceed against Newtel or to resort first
to any other remedy to enforce payment or collection of the Indebtedness
guaranteed hereby. CDI may pursue any or all of its remedies at one or at
different times. No failure or delay by CDI in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The obligations of each
guarantor and all of the rights and remedies of CDI herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law or
otherwise. No consent or waiver, express or implied, by CDI to any breach or
default by a guarantor in the performance of its obligations hereunder shall be
deemed or construed to be a consent to or a waiver of any other obligations of
such of any other guarantor hereunder.
Suit may be brought against the guarantors, jointly or severally, and
against any one or more of them, without impairing the rights of CDI against any
other guarantor; and CDI may settle with any guarantor for such sum as it may
see fit and release any guarantor from all further liability to CDI for such
Indebtedness without impairing the right of CDI to demand and collect the
balance of such Indebtedness from any other guarantor not so released.
The provisions of this guaranty shall be binding upon each guarantor
and his heirs, successors and assigns, provided that a guarantor may not assign
or otherwise transfer any of its rights or obligations under this Guaranty,
except the written consent of CDI.
This Guaranty shall accrue to the benefit of the transferee or assignee
of the Sublease. This Guaranty shall be governed by and construed in accordance
with the substantive laws of the State of Illinois, and each guarantor hereby
consents to the jurisdiction of Illinois courts of all matters relating to this
Guaranty.
IN WITNESS WHEREOF, the undersigned have caused this Guaranty to be
executed as of the 1st day of November, 1996.
-----------------------------
John Jellinek
-----------------------------
Phil Kenny
-----------------------------
Daniel Lee
-----------------------------
Michael Fainman
<PAGE>
EXHIBIT C
FORM OF PAYMENT NOTE
PROMISSORY NOTE
$209,579 December 9, 1996
FOR VALUE RECEIVED, the undersigned, Newtel Buffalo Grove,
Inc., an Illinois corporation ("Newtel") promises to pay to Communicate Direct,
Inc., an Illinois corporation ("CDI") or any other holder hereof, the principal
sum of Two Hundred Nine Thousand Five Hundred Seventy-Nine Dollars ($209,579).
Interest shall accrue on the unpaid principal at an annual rate of ___%, from
and after November 1, 1996. Payment of accrued interest on the unpaid principal
shall be made quarterly on December 31, 1996 and March 31, 1997, and thereafter,
payments of the principal and accrued interest shall be made in equal quarterly
installments of _____________________ ($________) on the last day of June, and
September, December and March each year, beginning June 30, 1997 and ending
September 30, 2000.
Newtel may prepay all or any portion of the amounts due
pursuant to this Note without penalty or premium. All amounts due and owing to
CDI or any other holder hereof pursuant to this Note shall be deemed fully paid
and satisfied if, on or prior to May 8, 1998, Newtel pays to the holder hereof
an amount equal to (x) ninety-six percent (96%) of the unpaid principal
hereunder on the date of such repayment plus (y) all accrued and unpaid interest
on the full amount of the unpaid principal through such repayment date.
Payments of principal and interest are to be made in lawful
money of the United States of America in same day or immediately available
funds.
The occurrence of any of the following shall constitute a
default by Newtel (each an "Event of Default"): (i) the failure of Newtel to pay
any principal or interest of this Note when due; (ii) the failure of Newtel to
perform or observe any of the covenants contained in the Agreement for Purchase
and Sale of Certain Assets of Communicate Direct, Inc. dated December 9, 1996
between CDI and Newtel (the "Agreement"), (iii) any representation or warranty
made by Newtel in the Agreement shall be incorrect in any material respect when
made or as of the date hereof; (iv) the failure of Newtel to generally pay its
debts as they mature; and (v) the commencement by or against Newtel of any
bankruptcy, insolvency, arrangement, reorganization, receivership or similar
proceedings under any federal or state law, provided that in the event of any
such involuntary proceeding commenced against Newtel such proceeding is not
dismissed or discharged within thirty (30) days after commencement thereof.
Upon the occurrence of any Event of Default, the holder of
this Note may declare the principal balance hereof immediately due and payable.
Newtel agrees to pay all expenses, including reasonable
attorneys' fees and legal expenses, incurred by the holder of this Note in
endeavoring to collect any amounts payable hereunder which are not paid when
due, whether by acceleration or otherwise.
All parties hereto, whether as makers, endorsers, or
otherwise, severally waive presentment for payment, demand, protest and notice
of dishonor.
THIS NOTE HAS BEEN DELIVERED IN CHICAGO, ILLINOIS AND SHALL BE
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF ILLINOIS.
NEWTEL BUFFALO GROVE, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT D
FORM OF PAYMENT NOTE GUARANTY
PROMISSORY NOTE GUARANTY
For value received, and in order to induce Communicate Direct, Inc.
("CDI") to enter into an asset purchase agreement (the "Asset Purchase
Agreement") with Newtel Buffalo Grove, Inc. ("Newtel") and to accept the
Promissory Note (the "Note") of Newtel dated December 9, 1996 which Note was
issued in connection with the consummation of the transactions contemplated by
the Asset Purchase Agreement, the undersigned hereby guarantees absolutely and
unconditionally the prompt payment when due, whether at maturity, by
declaration, by demand or otherwise, and at any and all times thereafter, of (x)
up to a maximum of twenty-five percent (25%) of all indebtedness to CDI, its
successors and assigns, pursuant to the Note, notwithstanding any transfer by
Newtel of the Note, and all expenses (including without limitation attorneys'
fees and legal costs and expenses) paid or incurred by CDI or any other holder
of the Note in endeavoring to collect such indebtedness or any part thereof from
Newtel and (y) all expenses (including without limitation attorneys' fees and
legal costs and expenses) paid or incurred by CDI or any other holder of the
Note in enforcing this Guaranty (collectively, the "Indebtedness").
This Guaranty is an absolute, unconditional, irrevocable, unlimited
guarantee of payment, irrespective of any circumstances which might otherwise
constitute a legal or equitable discharge or defense of any guarantor. The
undersigned shall, immediately upon demand of the holder of the Note, render
payment of the Indebtedness then due as guaranteed hereunder.
The undersigned hereunder waives notice of acceptance of this Guaranty
and consents that, without notice to or further assent by the undersigned, the
Indebtedness hereby guaranteed may be renewed, extended, modified, accelerated,
prematured, released, settled or compromised by CDI or any other holder of the
Note as CDI or such holder in its sole discretion may deem advisable. The
undersigned waives presentment for payment, demand, protest and notice of
dishonor.
The undersigned's obligations hereunder shall not be released,
discharged or otherwise affected by any claim, set-off or other rights which he
may have against Newtel, CDI or any other holder of the Note. No payments by the
undersigned hereunder shall entitle him, by subrogation or otherwise, to the
rights of CDI or any other holder of the Note, to any payment by Newtel.
If at any time all or any part of any payment received by CDI or any
other holder of the Note with respect to the Indebtedness guaranteed hereby is
rescinded or must be otherwise restored or returned to Newtel for any reason
whatsoever (including the insolvency, bankruptcy or reorganization of Newtel or
the undersigned), then the undersigned's obligations hereunder shall, to the
extent of such payment rescinded or returned, be deemed to have continued in
existence, notwithstanding such previous receipt by CDI or such other holder of
the Note, and the undersigned's obligations hereunder with respect to such
payment shall continue to be effective or reinstated, as the case may be, at
such time, all as though such previous payment to CDI or such holder had not
been made.
Neither CDI nor any other holder of the Note shall be required to
proceed against Newtel or to resort first to any other remedy to enforce payment
or collection of the Indebtedness guaranteed hereby. CDI or such holder may
pursue any or all of its remedies at one or at different times. No failure or
delay by CDI or such holder in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The obligations of the undersigned and
all of the rights and remedies of CDI and any other holder of the Note herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law or otherwise. No consent or waiver, express or implied, by CDI
or such other holder to any breach or default by the undersigned in the
performance of his obligations hereunder shall be deemed or construed to be a
consent to or a waiver of any other obligations of such hereunder.
Suit may be brought against the undersigned and/or against any one or
more of the other guarantors of amounts owing pursuant to the Note, without
impairing the rights of CDI or any other holder of the Note, against the
undersigned or any other guarantor; and CDI or such other holder, may settle
with the undersigned or any guarantor for such sum as it may see fit and release
the undersigned or any guarantor from all further liability to CDI or such
holder for such Indebtedness without impairing the right of CDI or such holder
to demand and collect the Indebtedness from the undersigned or the appropriate
guaranteed amounts from any other guarantor not so released.
The provisions of this guaranty shall be binding upon the undersigned
and his heirs, successors and assigns, provided that the undersigned may not
assign or otherwise transfer any of his rights or obligations under this
Guaranty, except upon the written consent of CDI or any other holder of the
Note.
This Guaranty shall accrue to the benefit of the transferee, assignee
or holder of the Note. This Guaranty shall be governed by and construed in
accordance with the substantive laws of the State of Illinois, and the
undersigned hereby consents to the jurisdiction of Illinois courts of all
matters relating to this Guaranty.
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be
executed as of this 9th day of December, 1996.
-----------------------------
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
SOFTNET SYSTEMS, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
****
WE THE UNDERSIGNED, John I. Jellinek and Eleanor Ault, being respectively the
President and the Assistant Secretary of SoftNet Systems, Inc. hereby certify:
Article 1. The name of the corporation is SoftNet Systems, Inc. (the
"Corporation"), originally known as Tensor Electric Development Co., Inc.
Article 2. The certificate of incorporation of the Corporation was filed
by the Department of State on the 12th day of December, 1956.
Article 3.
(a) The certificate of incorporation is amended to
increase the number of authorized shares of common
stock of the Corporation.
(b) To effect the foregoing Article Third (a) relating
to the Corporation's common stock, Article Third of the
Certificate of Incorporation of the Corporation is
hereby amended by changing the first sentence to read
as follows:
THIRD: The aggregate number of shares which the
Corporation shall have the authority to issue is Twenty
Nine Million (29,000,000) shares, of which Twenty Five
Million (25,000,000) shall be common stock, par value
$0.01 per share and Four Million (4,000,000) share
shall be Preferred Stock, par value $0.01 per share.
Article 4. The foregoing amendment was authorized by an vote of the
Board of Directors followed by a vote of in excess of two-thirds of all
outstanding shares entitled to vote on amendments to the Certificate of
Incorporation at a meeting of the shareholders.
IN WITNESS WHEREOF, we have signed this certificate on the 25th day of March,
1996 and we affirm the statements contained therein as true under penalties of
perjury.
_________________________________
John I. Jellinek, President
_________________________________
Eleanor Ault, Assistant Secretary
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated this ___ day of October,
1996, by and between SOFTNET SYSTEMS, INC., a New York corporation (the
"Company"), whose principal place of business is 717 Forest Avenue, Lake Forest,
IL 60045, Kansas Communications, Inc., a Kansas corporation ("KCI"), whose
principal place of business is 8206 Marshall Drive, Lenexa, KS 66214, ant DALE
H. SIZEMORE, JR., residing at 2705 W. 121st Terrace, Leawood, KS 66209 (the
"Employee").
WITNESSETH:
WHEREAS, the Company, through its subsidiary, Kansas Communications, Inc. is
engaged in the business of providing telecommunications services, and
WHEREAS, the Employee is familiar with the administration and management of a
telecommunications business; and
WHEREAS, the parties acknowledge that the Employee's abilities and services are
unique and essential to the prospects of KCI, and
WHEREAS, Employee and Company are currently parties to that certain Consulting
Agreement dated June 30, 1996 (the "Consulting Agreement"), which Consulting
Agreement the parties hereto now desire to terminate; and
WHEREAS, the Employee and the Company are desirous of entering into an
agreement providing for the employment by the Company and KCI of the Employee in
the position and upon the terms provided herein.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Recitals and Release. - The recitals to this Agreement are hereby
incorporated herein as part of this Agreement, and immediately upon execution
hereof, the parties acknowledge and agree that the Consulting Agreement referred
to above shall be deemed terminated, and of no former force or effect except for
amounts which may be due Employee that have accrued as of the termination date.
The parties further mutely agree to forever release and hold each other harmless
from any claim, cause of action or over liabilities, known or unknown, which may
have arisen pursuant to the Consulting Agreement.
2. Employment Duties and Term. - The Company and KCI hereby employ the Employee
and the Employee hereby accepts employment upon the terms and conditions
hereinafter set forth.
<PAGE>
(a) The Company agrees to employ the Employee in the position of President of
Kansas Communications Inc. and Employee agrees to perform such duties (to be
defined by the President of SoftNet) and tasks as the Company may from time to
time reasonably request, during the period from October 15, 1996 through October
14, 1997 (the "Employment Period").
(b) The Employee hereby accepts such employment and agrees to devote his full
time and attention to such duties, except during usual vacation periods and for
personal and sick leave in accordance with the Company's and KCI's policies. The
Company agrees that Employee will perform his duties hereunder primarily in
Lenexa, Kansas, and that Employee will not be required to relocate his residence
during the term of the Employment Agreement. Employee, however, agrees to
periodically travel to the Company's headquarters or such other locations as
reasonably required by the Company to perform his duties hereunder.
3 Compensation. - During the Employment Period the Company shall pay to the
Employee compensation equal to an Annual base salary (the "Base Salary") of
$150,000, payable in semi-monthly installments. The Company shall reimburse the
Employee for all expenses necessarily and reasonably incurred by the Employee in
connection with the business of KCI, against presentation of proper receipts or
other proof of expenditure, and subject to such reasonable guidelines or
limitations provided to the Employee, and which are to be applied prospectively
only as the Board of Directors of the Company may impose. The Employee may
receive such greater compensation, including incentive bonuses and stock
bonuses, as may from time to time be determined by the Board of Directors of the
Company.
4. Benefits. - During the Employment Period, the Employee shall be entitled to
participate in any profit sharing plan, bonus plan, stock option or other
benefit plan, retirement plan, group life insurance plan or other insurance plan
or medical expense plan maintained by the Company for its senior executives
generally.
5. Termination. - The Employee's employment hereunder shall terminate upon the
earlier of (a) the expiration of the Employment Period, (b) the death of the
employee, (c) the expiration of a continuous period of 120 days during which the
Employee is unable to perform his assigned duties due to physical or mental
incapacity, (d) termination by the Company due to a material breach of this
Agreement by the Employee, or for Just Cause (as defined below), or (e)
termination by the Employee due to a material breach of this Agreement by the
Company. The exercise of the right of the Company or the Employee to terminate
this Agreement pursuant to clause (d) or (e) hereof, as the case may be, shall
not abrogate the rights and remedies of the terminating party in respect of the
breach giving rise to such termination. The Company shall only be deemed to have
materially breached this Agreement and the terms of the Employee's employment if
it fails to comply with Sections 1, 2, 3, or 4 in all material respects. The
Employee shall only be deemed to have materially breached the Agreement if he
fails to comply
<PAGE>
with Sections 1, 5 or 6 in all material respects. For purposes of this Agreement
"Just Cause" shall be limited to one of The following grounds:
(i) The Employee's failure or refusal, after notice thereof and a reasonable
opportunity to cure, to perform specific directives of the Board of Directors
which are consistent with the scope and nature of the Employee's duties and
responsibilities as said forth herein; or
(ii) Dishonesty of the Employee directly or indirectly and materially affecting
the Company; or
(iii) Habitual drunkenness or use of drugs (unless medically prescribed) which
interferes with the performance of the Employee's obligations under this
Agreement; or
(iv) The Employee's conviction of a felony or of any crime involving moral
turpitude, fraud, or misrepresentation; or
(v) Any gross or willful misconduct of the Employee resulting in loss to the
Company or KCI, damage to the Company's or KCI's reputation or theft or
defalcation from The Company or KCI;
(vi) Any intentional act having the propose and effect or injuring the
reputation, business or business relationships of the Company or KCI, or
(vii) Gross incompetence on the part of the Employee in the performance of the
duties undertaken by the Employee under the terms of this Agreement.
In the event of any dispute regarding the existence of the Employee's incapacity
hereunder, the matter will be resolved by the determination of a majority of
three physicians qualified to practice medicine in Kansas, one to be selected by
each of the Employee and the Board of Directors and the third to be selected by
the two designated physicians. For this purpose, the Employee will submit to
appropriate medical examinations. In the event that the Company determines to
relieve the Employee of his duties for any reason other than as stated above,
then the Company shall continue to pay the Employee his Base Salary which would
otherwise be payable hereunder and shall reimburse Employee for the costs of
COBRA coverage, for the remaining Employment Period.
<PAGE>
6. Covenant Not to Compete: Confidential Information.
(a) The Employee shall at all times hold in strictest confidence any and all
confidential information that may have come and may come into the Employee's
possession or the Employee's knowledge concerning the products, services,
processes, businesses, suppliers, customers and clients of the Company or KCI.
For purposes of this Section, confidential information shall not include
information known to Employee from sources other than the Company or KCI or
generally available to the public other than as a result of Employee's improper
disclosure thereof. The Employee agrees that neither he nor any person or
enterprise controlled by the Employee will for any reason, directly or
indirectly, for himself or any other person or enterprise, use or disclose any
trade secrets, proprietary information, inventions, manufacturing and industrial
processes and procedures, confidential information, patents, trademarks, trade
names, customer lists, service marks, service names, copyrights, applications
therefor, and license or over rights in respect thereof ("Confidential
Materials"), owned or used by, or licensed to, the Company or KCI or any of
their affiliates or otherwise relating to the Company's or KCI's businesses.
(b) The Employee agrees that from the date hereof and continuing until the
Employee's employment with the Company and KCI has terminated (the "Non-Compete
Period"), neither the Employee nor any person or enterprise controlled by the
Employee will solicit for employment any person employed by the Company or KCI
at any time within one (1) rear prior to the time of the act of solicitation.
(c) The Employee agrees that during the Non-Compete Period neither the Employee
nor any person or enterprise controlled by the Employee will become a
stockholder, director, officer, agent or employee of a corporation or member of
a partnership, engage as a sole proprietor in any business, act as a consultant
to or have any financial stake of any nature in any of the foregoing or
otherwise engage directly or indirectly in any enterprise which competes with
KCI's business operations or in any over business in which KCI is engaged on the
date hereof or in which KCI is engaged as of the termination of the Employment
Period, in any area within 100 miles of any office of KCI; provided, however.
that the foregoing shall not prohibit the ownership of capital stock of the
Company or less than two percent (2%) of the outstanding shares of the stock of
any corporation engaged in any business, which shares are regularly traded on a
national securities exchange or in any over-the-counter market, and shall not
apply to Employee's involvement with VITEC, Inc. so long as VITEC remains
primarily engaged in voice mail and related telephony applications.
(d) The Employee agrees that the restrictive covenants in subsections (a)
through (c) above are reasonable in their scope and duration and may be enforced
by specific performance or otherwise. The Employee shall not raise any issue of
reasonableness as a defense in any proceeding to enforce any of such covenants.
Notwithstanding the foregoing, in the event
<PAGE>
that a covenant included in this Agreement shall be deemed by any court to be
unreasonably broad in any respect it shall be modified in order to make it
reasonable and shall be enforced accordingly; provided, however, that in the
event that a court shall refuse to enforce any of the covenants contained in
subsections (a) through (c) above, then the unenforceable covenant shall be
deemed eliminated from the provisions of this Agreement for the purpose of those
proceedings to the extent necessary to permit the remaining covenants to be
enforced so that the validity, legality or enforceability of the remaining
provisions of this Agent shall not be affected thereby.
7. Inventions. - The Employee hereby assigns to the Company his entire right,
title and interest in all discoveries and improvements, patentable or otherwise,
trade secrets and ideas, writings and copyrightable material, which may be
conceived by the Employee or developed or acquired by him during the term of
this Agreement, which may pertain directly or indirectly to the Company's or
KCI's business. The Employee agrees to promptly and fully disclose in writing
all such developments. The Employee shall, upon the Company's request, execute,
acknowledge and deliver to the Company all instruments and do all other acts
which are necessary or desirable to enable the Company to file and prosecute
applications for, and to acquire, maintain and enforce all letters patents,
trademark registrations, or copyrights in all countries.
8. Remedies. - The Employee acknowledges that any material breach of this
Agreement will cause irreparable harm to the Company and KCI, difficult if not
impossible to ascertain and that the Company or KCI shall be entitled to
equitable relief, including injunction, against any actual or threatened breach
hereof, Without bond and without liability should such relief be denied,
modified or vacant. Neither the right to obtain such relief nor the obtaining of
such relief shall be exclusive of or preclude the Company or KCI from any other
remedy. In addition, the parties agree that in the event either party is found
by a court of law or equity to have breached this Agreement and relief is
granted, the breaching party shall be liable to the prevailing party for all
attorneys' fees, expert witness fees and other costs incurred by such prevailing
party in such proceeding.
9. Insurance. - The Company may, at its election and for its benefit, insure the
Employee against disability, accidental loss or death (in an amount not to
exceed $1,000,000 without Employees written consent) and the Employee shall
submit to such physical examination and supply such information as may be
required in connection therewith.
10. Assignment. - The rights and benefits of the Employee hereunder are not
assignable whether by voluntary or involuntary assignment or transfer. This
Agreement shall be binding upon and inure to the benefit of the successors of
the Company and KCI and shall be assignable by the Company to any entity
acquiring substantially all of the assets of the Company.
<PAGE>
11. Notices - Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing and sent by registered mail, or overnight
courier service to the Employee at his residence set forth above, or to the
Company c/o SoftNet Systems, Inc., 717 Forest Avenue, Lake Forest, Illinois
60045, Attention: President.
12. Waiver of Breach. - A waiver by the Company or KCI or the Employee of a
breach of any provision of this Agreement by the other party shall not operate
or be construed as a waiver of any subsequent breach by the other party.
13. Entire Agreement. - This instrument contains the entire agreement of the
parties. It may be changed only by an agreement in writing signed by a party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
14. Applicable Law. - This Agreement shall be governed by and construed in
accordance with the internal substantive laws of the State of Illinois, and the
parties hereby irrevocably and unconditionally consent and submit to the in
personam jurisdiction of Illinois courts over all matters relating to this
Agreement. Each party agrees that service of process in any action or proceeding
hereunder may be made upon such party by certified mail, return receipt
requested to the address for notice set forth herein, Each party irrevocably
waives any objection it may have to the venue of any action suit or proceeding
brought in such courts or to the convenience of the forum and each party
irrevocably waives the right to proceed in any over jurisdiction. Final judgment
in any such action, suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on the judgment, a certified or true copy of
which shall be conclusive evidence of the fact and the amount of any
indebtedness or liability of any party therein described.
15. Arbitration. - Any dispute between the parties arising under this Agreement
which cannot be amicably resolved between the parties, shall be resolved by
arbitration in Chicago, Illinois in accordance with the following terms and
conditions: either party may deliver a notice to all other parties which shall
set forth in detail all issues which it believes constitutes a dispute or
grievance. Within twenty (20) days of the delivery of such notice, counsel for
the parties shall mutually select as an arbitrator an attorney practicing in
Chicago, Illinois who is experienced in commercial arbitration. If counsel for
the parties are unable to agree upon the selection of this arbitrator, the
arbitrator shall be an attorney selected by the President of the Chicago Bar
Association. The Arbitrator so selected shall schedule a hearing on the disputed
issues within forty-five (45) days after his appointment, and the arbitrator
shall render his decision after the hearing, in writing as expeditiously as is
possible. Except as set forth herein the arbitration shall be conducted in
accordance with the rules of the American Arbitration Association, unless the
parties hereto agree otherwise in writing. A default judgment may be entered
against any party who fails to appear at the arbitration hearing The decision of
the arbitrator shall be final and unappealable and shall be confirmed by a court
in any jurisdiction designated by the prevailing
<PAGE>
party. The arbitrator shall assess the costs of the arbitration to the parties
as he determines to be appropriate. The parties to this Agreement agree that
this paragraph has been included to resolve rapidly and inexpensively any
disputes which may arise, and that submission of a dispute to arbitration in
accordance with this Agreement paragraph shall constitute grounds for dismissal
of any action commenced by any party with respect to a dispute arising out of or
from any provisions of this Agreement, except for actions for equitable
remedies, which shall survive the submission of a dispute for arbitration.
IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement
as of the day and year first above written.
SOFTNET SYSTEMS
By: ____________________________
Its President
KANSAS COMMUNICATIONS, INC.
By: _____________________________
Its President
_________________________________
Dale H. Sizemore, Jr.
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
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5. SALE OF MEGASAR 420 INVENTORY AND MEGASAR EQUIPMENT................. 6
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
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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
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
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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 July 12, 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;
341063.4
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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
341063.4
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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
341063.4
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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
341063.4
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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,
341063.4
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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
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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:
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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
341063.4
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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.
341063.4
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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 Martin A. Koehler, Vice President
MTC:
Micrographic Technology Corporation
By: ___________________________
Name: ___________________________
Title:___________________________
341063.4
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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
341063.4
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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.
341063.4
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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.
341063.4
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EXHIBIT 1.15
PROMISSORY NOTE
$2,909,627 July 12, 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) July 11, 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
341063.4
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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: _____________________________________
Martin A. Koehler, Vice President
[CORPORATE SEAL]
341063.4
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MICROGRAPHIC TECHNOLOGY CORPORATION
By: _____________________________________
Its: _____________________________________
[CORPORATE SEAL]
341063.4
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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 12th day of July, 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 July 12, 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
341063.4
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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
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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
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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: _____________________________
Martin A. Koehler, Vice President
[SEAL]
341063.4
v
<PAGE>
MICROGRAPHIC TECHNOLOGY CORPORATION
By: ______________________________
Its: ______________________________
[SEAL]
SECURED PARTY:
IMNET SYSTEMS, INC.
By: _______________________________
Kenneth D. Rardin, President
341063.4
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.
341063.4
i
<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.
341063.4
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.
341063.4
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: July 12, 1996 Date: July 12, 1996
341063.4
ii
LOAN MODIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this ___ day of ______, 1996, by and
between SOFTNET SYSTEMS, INC., a New York Corporation ("SoftNet"), COMMUNICATE
DIRECT, INC., an Illinois Corporation ("CDI"), MICROGRAPHIC TECHNOLOGY
CORPORATION, a Delaware Corporation ("MTC"), KANSAS COMMUNICATIONS, INC., a
Kansas Corporation ("KCI") (SoftNet, CDI, MTC, and KCI collectively referred to
as "Borrowers") and WEST SUBURBAN BANK ("Bank").
WHEREAS, Borrowers have executed and delivered to Bank a Revolving Credit Note
dated September 15, 1995 (the "Note") in the original principal amount of
$6,500,000.00 in which each of the Borrowers promises to pay to the order of
Bank the principal amount and interest thereon as more specifically provided in
the Note; and
WHEREAS, to secure the repayment of the Borrowers' obligations under the Note,
each of the Borrowers has executed and delivered to Bank a Loan and Security
Agreement dated September 15, 1995 (collectively the "Loan Agreements"); and
WHEREAS, to further secure the repayment of the Borrowers' obligations under the
Note, SoftNet has executed and delivered to Bank a Stock Pledge Agreement dated
September 15, 1995 (the "Pledge Agreement") whereby SoftNet has pledged 377,770
shares of common stock of IMNET Systems, Inc. in favor of Bank; and
WHEREAS, Borrowers have requested that the maximum amount of credit available
under the Note and the Loan Agreements be increased to $9,500,000.00 and that
the Borrowing Base limitations set forth in the Loan Agreements be modified in
accordance with the terms hereof; and
WHEREAS, Bank has agreed to increase the amount of credit available under the
Note and the Loan Agreements to $9,500,000.00 and the modification of the
Borrowing Base limitations, subject to the terms and conditions hereof.
NOW, THEREFORE, in consideration of Ten ($10.00) Dollars in hand paid and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The foregoing recitals are incorporated herein by reference as though fully
set forth. Borrowers represent and warrant that the foregoing recitals are true
and correct.
2. The terms of the Note are hereby amended to provide that the aggregate
maximum amount of credit available under the Note (the "Principal Sum") is NINE
MILLION FIVE HUNDRED THOUSAND AND NO/100 ($9,500,000.00) DOLLARS.
3. Each of the Loan Agreements is hereby amended to provide that the maximum
aggregate principal balance of the Loan shall not at any time exceed NINE
MILLION FIVE HUNDRED THOUSAND AND NO/100 ($9,500,000.00) DOLLARS (the "Credit
Limit").
4. Section 2(c) of each of the Loan Agreements is hereby modified by deleting
the following sentence therefrom:
"Notwithstanding the amount of Eligible Inventory, the amount of principal
advanced with respect to the Eligible Inventory portion of the Borrowing Base
shall not exceed the sum of Two Million and No/100 ($2,000,000.00) Dollars.
5. Section 2(c) of each of the Loan Agreements is further modified by adding the
following sentence:
"Notwithstanding the fair market value of the shares of stock of IMNET Systems,
Inc. owned by SoftNet as determined from time to time by Bank based upon
published price quotations, the amount of principal advanced with respect to the
portion of the Borrowing Base attributable to the shares of stock of IMNET
Systems, Inc. shall not exceed the sum of One Million Five Hundred Thousand and
No/100 ($1,500,000.00) Dollars.
6. The terms of the Loan Documents (as such term is defined in the Loan
Agreements) are hereby amended and modified to comport with the terms of this
instrument to the extent the terms of any of the Loan Documents may be otherwise
inconsistent with the terms hereof. In all other respects, the terms and
provisions of the Loan Documents shall remain in full force and effect.
7. Borrowers hereby reaffirm all of the terms, provisions, warranties, and
representations set forth in each of the Loan Agreements and the other Loan
Documents as modified hereby. Without limiting the generality of the foregoing,
each of the Borrowers warrants and represents that no event of default exists
under any of the Loan Agreements or any of the other Loan Documents and no event
has occurred or condition exists which with the passage of time or the giving of
notice would or could constitute an event of default.
IN WITNESS WHEREOF, the parties have entered into this Loan Modification
Agreement on the date first above written.
SOFTNET SYSTEMS, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
COMMUNICATE DIRECT, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
MICROGRAPHIC TECHNOLOGY CORPORATION
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
KANSAS COMMUNICATIONS, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
WEST SUBURBAN BANK
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
LOAN MODIFICATION AGREEMENT
(EXTENSION OF MATURITY DATE)
THIS AGREEMENT is made and entered into this ___ day of ______, 1996, by and
between SOFTNET SYSTEMS, INC., a New York Corporation ("Softnet"), COMMUNICATE
DIRECT, INC., an Illinois Corporation ("CDI"), MICROGRAPHIC TECHNOLOGY
CORPORATION, a Delaware Corporation ("MTC"), KANSAS COMMUNICATIONS, INC., a
Kansas Corporation ("KCI") (SoftNet, CDI, MTC, and KCI collectively referred to
as "Borrowers") and WEST SUBURBAN BANK ("Bank").
WHEREAS, Borrowers have executed and delivered to Bank a Revolving Credit Note
dated September 15, 1995 (the "Note") in the original principal amount of
S6,500,000.00 in which each of the Borrowers promises to pay to the order of
Bank the principal amount and interest thereon as more specifically provided in
the Note; and
WHEREAS, to secure the repayment of the Borrowers' obligations under the Note,
each of the Borrowers has executed and delivered to Bank a Loan and Security
Agreement dated September 15, 1995 (collectively the "Loan Agreements"); and
WHEREAS, to further secure the repayment of the Borrowers' obligations under the
Note, SoftNet has executed and delivered to Bank a Stock Pledge Agreement dated
September 15, 1995 (the "Pledge Agreement") whereby SoftNet has pledged 377,770
shares (subsequently reduced to 277,770 shares) of common stock of IMNET
Systems, Inc. in favor of Bank; and
WHEREAS, Borrowers and Bank executed a Loan Modification Agreement dated March
15, 1996 wherein the maximum amount of credit under the Note and the Loan
Agreements was increased to $9,500,000.00 and the Borrowing Base limitations
were modified in accordance with the terms thereof; and
WHEREAS, the Note (as modified from time to time) is scheduled to mature by its
terms on January 15 , 1997, and Borrowers have requested that the maturity date
of the Note be extended to April 15 , 1997, and Bank has agreed to so extend the
maturity date of the Note, subject to the terms and conditions hereof.
NOW, THEREFORE, in consideration of Ten ($10.00) Dollars in hand paid and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The foregoing recitals are incorporated herein by reference as though fully
set forth. Borrowers represent and warrant that the foregoing recitals are true
and correct.
2. The terms of the Note are hereby further amended to provide that the Maturity
Date is extended to April 15 , 1997, on which date the entire principal balance,
all accrued unpaid interest, and all other amounts due under the terms of the
Note and the other Loan Documents shall be immediately due and payable without
notice.
3. The terms of the Loan Documents (as such term is defined in the Loan
Agreements) are hereby amended and modified to comport with the terms of this
instrument to the extent the terms of any of the Loan Documents may be otherwise
inconsistent with the terms hereof. In all other respects, the terms and
provisions of the Loan Documents shall remain in full force and effect.
4. Borrowers hereby reaffirm all of the terms, provisions, warranties, and
representations set forth in each of the Loan Agreements and the other Loan
Documents as modified hereby. Without limiting the generality of the foregoing,
each of the Borrowers warrants and represents that no event of default exists
under any of the Loan Agreements or any of the other Loan Documents and no event
has occurred or condition exists which with the passage of time or the giving of
notice would or could constitute an event of default.
IN WITNESS WHEREOF, the parties have entered into this Loan Modification
Agreement on the date first above written.
SOFTNET SYSTEMS, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
COMMUNICATE DIRECT, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
MICROGRAPHIC TECHNOLOGY CORPORATION
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
KANSAS COMMUNICATIONS, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
WEST SUBURBAN BANK
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
<PAGE>
LOAN MODIFICATION AGREEMENT
(EXTENSION OF MATURITY DATE)
THIS AGREEMENT is made and entered into this day of JULY, 1996, by and between
SOFTNET SYSTEMS, INC., a New York Corporation ("SoftNet"), COMMUNICATE DIRECT,
INC., an Illinois Corporation ("CDI"), MICROGRAPHIC TECHNOLOGY CORPORATION, a
Delaware Corporation ("MTC"), KANSAS COMMUNICATIONS, INC., a Kansas Corporation
("KCI") (SoftNet, CDI, MTC, and KCI collectively referred to as "Borrowers") and
WEST SUBURBAN BANK ("Bank").
WHEREAS, Borrowers have executed and delivered to Bank a Revolving Credit Note
dated September 15, 1995 (the "Notes) in the original principal amount of
$6,500,000.00 in which each of the Borrowers promises to pay to the order of
Bank the principal amount and interest thereon as more specifically provided in
the Note; and
WHEREAS, to secure the repayment of the Borrowers' obligations under the Note,
each of the Borrowers has executed and delivered to Bank a Loan and Security
Agreement dated September 15, 1995 (collectively the "Loan Agreements"); and
WHEREAS, to further secure the repayment of the Borrowers' obligations under the
Note, SoftNet has executed and delivered to Bank a Stock Pledge Agreement dated
September 15, 1995 (the "Pledge Agreement") whereby SoftNet has pledged 377,770
shares (subsequently reduced to 277,770 shares) of common stock of SPINET
Systems, Inc. in favor of Bank; and
WHEREAS, Borrowers and Bank executed a Loan Modification Agreement dated March
15, 1996 wherein the maximum amount of credit under the Note and the Loan
Agreements was increased to $9,500,000.00 and the Borrowing Base limitations
were modified in accordance with the terms thereof; and
WHEREAS, the Note (as modified from time to time) is scheduled to mature by its
teens on April 15, 1997, and Borrowers have requested that the maturity date of
the Note be extended to July 15, 1997, and Bank has agreed to so extend the
maturity date of the Note, subject to the terms and conditions hereof.
NOW, THEREFORE, in consideration of Ten ($10.00) Dollars in hand paid and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The foregoing recitals are incorporated herein by reference as though fully
set forth. Borrowers represent and warrant that the foregoing recitals are true
and correct. 2. The terms of the Note are hereby further amended to provide that
the Maturity Date is extended to July 15, 1997, on which date the entire
principal balance, all accrued unpaid interest, and all other amounts due under
the terms of the Note and the other Loan Documents shall be immediately due and
payable without notice.
3. The terms of the Loan Documents (as such term is defined in the Loan
Agreements) are hereby amended and modified to comport with the terms of this
instrument to the extent the terms of any of the Loan Documents may be otherwise
inconsistent with the terms hereof. In all other respects, the terms and
provisions of the Loan Documents shall remain in full force and effect.
4. Borrowers hereby reaffirm all of the terms, provisions, warranties, and
representations set forth in each of the Loan Agreements and the other Loan
Documents as modified hereby. Without limiting the generality of the foregoing,
each of the Borrowers warrants and represents that no event of default exists
under any of the Loan Agreements or any of the other Loan Documents and no event
has occurred or condition exists which with the passage of time or the giving of
notice would or could constitute an event of default.
IN WITNESS WHEREOF, the parties have entered into this Loan Modification
Agreement on the date first above written.
SOFTNET SYSTEMS, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
COMMUNICATE DIRECT, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
MICROGRAPHIC TECHNOLOGY CORPORATION
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
KANSAS COMMUNICATIONS, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
WEST SUBURBAN BANK
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
<PAGE>
LOAN MODIFICATION AGREEMENT
(EXTENSION OF MATURITY DATE)
THIS AGREEMENT is made and entered into this ____ day of November, 1996, by and
between SOFTNET SYSTEMS, INC., a New York Corporation ("SoftNet"), COMMUNICATE
DIRECT, INC., an Illinois Corporation ("CDI"), MICROGRAPHIC TECHNOLOGY
CORPORATION, a Delaware Corporation ("MTC"), KANSAS COMMUNICATIONS, INC., a
Kansas Corporation ("KCI") (SoftNet, CDI, MTC, and KCI collectively referred to
as "Borrowers") and WEST SUBURBAN BANK ("Bank").
WHEREAS, Borrowers have executed and delivered to Bank a Revolving Credit Note
dated September 15, 1995 (the "Note") in the original principal amount of
$6,500,000.00 in which each of the Borrowers promises to pay to the order of
Bank the principal amount and interest thereon as more specifically provided in
the Note; and
WHEREAS, to secure the repayment of the Borrowers' obligations under the Note,
each of the Borrowers has executed and delivered to Bank a Loan and Security
Agreement dated September 15, 1995 (collectively the "Loan Agreements"); and
WHEREAS, to further secure the repayment of the Borrowers' obligations under the
Note, SoftNet has executed and delivered to Bank a Stock Pledge Agreement dated
September 15, 1995 (the "Pledge Agreements) whereby SoftNet has pledged 377,770
shares (subsequently reduced to 277,770 shares) of common stock of IMNET
Systems, Inc. in favor of Bank; and
WHEREAS, Borrowers and Bank executed a Loan Modification Agreement dated March
15, 1996 wherein the maximum amount of credit under the Note and the Loan
Agreements was increased to $9,500,000.00 and the Borrowing Base limitations
were modified in accordance with the terms thereof; and
WHEREAS, the Note (as modified from time to time) is scheduled to mature by its
terms on July 15, 1997, and Borrowers, have requested that the maturity date of
the Note be extended to October 15, 1997, and Bank has agreed to so extend the
maturity date of the Note, subject to the tempts and conditions hereof.
NOW, THEREFORE, in consideration of Ten ($10.00) Dollars in hand paid and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The foregoing recitals are incorporated herein by reference as though fully
set forth. Borrowers represent and warrant that the foregoing recitals are true
and correct. 2. The terms of the Note are hereby further amended to provide that
the Maturity Date is extended to October 15, , 1997, on which date the entire
principal balance, all accrued unpaid interest, and all other amounts due under
the terms of the Note and the other Loan Documents shall be immediately due and
payable without notice.
3. The terms of the Loan Documents (as such term is defined in the Loan
Agreements) are hereby amended and modified to comport with the terms of this
instrument to the extent the terms of any of the Loan Documents may be otherwise
inconsistent with the terms hereof. In all other respects, the terms and
provisions of the Loan Documents shall remain in full force and effect.
4. Borrowers hereby reaffirm all of the terms, provisions, warranties, and
representations set forth in each of the Loan Agreements and the other Loan
Documents as modified hereby. Without limiting the generality of the foregoing,
each of the Borrowers warrants and represents that no event of default exists
under any of the Loan Agreements or any of the other Loan Documents and no event
has occurred or condition exists which with the passage of time or the giving of
notice would or could constitute an event of default.
IN WITNESS WHEREOF, the parties have entered into this Loan Modification
Agreement on the date first above written.
SOFTNET SYSTEMS, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
COMMUNICATE DIRECT, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
MICROGRAPHIC TECHNOLOGY CORPORATION
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
KANSAS COMMUNICATIONS, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
WEST SUBURBAN BANK
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
LOAN MODIFICATION AGREEMENT
(TEMPORARY INCREASE OF BORROWING BASE LIMITATIONS)
THIS AGREEMENT is made and entered into this ____ day of ________, 1996, by and
between SOFTNET SYSTEMS, INC., a New York Corporation ("SoftNet"), COMMUNICATE
DIRECT, INC., an Illinois Corporation ("CDI"), MICROGRAPHIC TECHNOLOGY
CORPORATION, a Delaware Corporation ("MTC"), KANSAS COMMUNICATIONS, INC., a
Kansas Corporation ("KCI") (SoftNet, CDI, MTC, and KCI collectively referred to
as "Borrowers") and WEST SUBURBAN BANK ("Bank").
WHEREAS, Borrowers have executed and delivered to Bank a Revolving Credit Note
dated September 15, 1995 (the "Note") in the original principal amount of
$6,500,000.00 in which each of the Borrowers promises to pay to the order of
Bank the principal amount and interest thereon as more specifically provided in
the Note; and
WHEREAS, to secure the repayment of the Borrowers' obligations under the Note,
each of the Borrowers has executed and delivered to Bank a Loan and Security
Agreement dated September 15, 1995 and various other instruments and documents
executed in connection therewith (collectively the "Loan Agreements"); and
WHEREAS, Borrowers and Bank executed a Loan Modification Agreement dated March
15, 1996 wherein the maximum amount of credit under the Note and the Loan
Agreements was increased to $9,500,000.00 and the Borrowing Base limitations
were modified in accordance with the terms thereof; and
WHEREAS, Borrowers have requested that the amount of credit availability under
the Note and the Loan Agreements be increased to an amount equivalent to One
Million ($1,000,000.00) Dollars in excess of the Borrowing Base limitations
currently in effect; and
WHEREAS, Bank has agreed to so increase the amount of credit availability under
the Note and the Loan Agreements through January 31, 1997.
NOW, THEREFORE, in consideration of Ten ($10.00) Dollars in hand paid and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The foregoing recitals are incorporated herein by reference as though fully
set forth. Borrowers represent and warrant that the foregoing recitals are true
and correct.
2. The terms of the Note and the Loan Agreements are hereby modified to provide
that through and including January 31, 1997, the amount of credit available
under the Note and the Loan Agreements shall be an amount equivalent to One
Million ($1,000,000.00) Dollars in excess of the amount of the Borrowing Base
limitations set forth in the Loan Agreements as modified by the Loan
Modification Agreement dated March 15, 1996 (not to exceed, however,
$9,500,000.00 in the aggregate).
3. On February 1, 1997, the amount of credit available under the Note and the
Loan Agreements shall automatically revert to the Borrowing Base limitations set
forth in the Loan Agreements as modified by the Loan Modification Agreement
dated March 15, 1996, and Borrowers agree to repay such portions of the
outstanding principal balance as may be necessary in order to be in compliance
with such Borrowing Base limitations as of February 1, 1997. Borrower's failure
to make any such required payment shall constitute an Event of Default under the
Note and the Loan Agreements.
4. The terms of the Loan Documents (as such term is defined in the Loan
Agreements) are hereby amended and modified to comport with the terms of this
instrument to the extent the terms of any of the Loan Documents may be otherwise
inconsistent with the terms hereof. In all other respects, the terms and
provisions of the Loan Documents shall remain in full force and effect.
5. Borrowers hereby reaffirm all of the terms, provisions, warranties, and
representations set forth in each of the Loan Agreements and the other Loan
Documents as modified hereby. Without limiting the generality of the foregoing,
each of the Borrowers warrants and represents that no event of default exists
under any of the Loan Agreements or any of the other Loan Documents and no event
has occurred or condition exists which with the passage of time or the giving of
notice would or could constitute an event of default.
6. Borrowers agree to promptly reimburse Bank for all attorney's fees and costs
incurred by Bank in connection with the negotiation, preparation, and execution
of this instrument.
IN WITNESS WHEREOF, the parties have entered into this Loan Modification
Agreement on the date first above written.
SOFTNET SYSTEMS, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
COMMUNICATE DIRECT, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
MICROGRAPHIC TECHNOLOGY CORPORATION
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
KANSAS COMMUNICATIONS, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
WEST SUBURBAN BANK
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
LOAN MODIFICATION AGREEMENT
(MODIFICATION OF BORROWING BASE DEFINITION)
THIS AGREEMENT is made and entered into this ____ day of ____, 1996, by and
between SOFTNET SYSTEMS, INC., a New York Corporation ("SoftNet"), COMMUNICATE
DIRECT, INC., an Illinois Corporation ("CDI"), MICROGRAPHIC TECHNOLOGY
CORPORATION, a Delaware Corporation ("MTC"), KANSAS COMMUNICATIONS, INC., a
Kansas Corporation ("KCI") (SoftNet, CDI, MTC, and KCI collectively referred to
as "Borrowed;") and WEST SUBURBAN BANK ("Bank").
WHEREAS, Borrowers have executed and delivered to Bank a Revolving Credit Note
dated September 15, 1995 (the "Note") in the original principal amount of
$6,500,000.00 in which each of the Borrowers promises to pay to the order of
Bank the principal amount and interest thereon as more specifically provided in
the Note; and
WHEREAS, to secure the repayment of the Borrowers' obligations under He Note,
each of the Borrowers has executed and delivered to Bank a Loan and Security
Agreement dated September 15, 1995 and various other instruments and documents
executed in connection therewith (collectively the "Loan Agreements"); and
WHEREAS, Borrowers and Bank executed a Loan Modification Agreement dated March
15, 1996 wherein the maximum amount of credit under the Note and the Loan
Agreements was increased to $9,500,000.00 and the Borrowing Base limitations
were modified in accordance with the terms thereof; and
WHEREAS, Borrowers and Bank executed a Loan Modification Agreement dated
November ___, 1996 wherein the amount of credit availability under the Note and
the Loan Agreements was temporarily increased to an amount equivalent to
S1,000,000.00 in excess of the Borrowing Base limitations otherwise in effect,
subject to terms and limitations thereof; and
WHEREAS, Borrower has requested that the Borrowing Base limitations and
definitions set forth in the Loan Agreements be further modified in accordance
with the terms hereof; and
WHEREAS, Bank has agreed to such modifications, subject to the terms and
provisions hereof
NOW, THEREFORE, in consideration of Ten ($10.00) Dollars in hand paid and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The foregoing recitals are incorporated herein by reference as though fully
set forth. Borrowers represent and warrant that the foregoing recite's are true
and correct.
2. The term "Borrowing Base" as defined in Section 2(c) of the Loan Agreements
is amended to include fifty (50%) percent of the Adjusted Value of Borrower's
Inventory/Rental Equipment (as hereinafter defined).
3. The term "Eligible Inventory" as defined in Section 2(c) of the Loan
Agreements is amended to exclude Borrower's Inventory/Rental Equipment (as
hereinafter defined).
4. The term "Inventory/Rental Equipment" shall mean MTC's equipment described on
Exhibit A. attached hereto.
5. The "Adjusted Value" of Borrower's Inventory/Rental Equipment shall initially
be the sum of S298,771.21 and shall decrease by the sum of $8,299.20 on December
1, 1996 and on the first day of each month thereafter (constituting the
depreciation of Borrower's Inventory/Rental Equipment over a Month period on the
basis of the straight-line method of depreciation).
6. The terms of the Loan Documents (as such term is defined in the Loan
Agreements) are hereby amended and modified to comport with the terms of this
instrument to the extent the terms of any of the Loan Documents may be otherwise
inconsistent with the terms hereof. In all other respects, the terms and
provisions of the Loan Documents shall remain in full force and effect.
7. Borrowers hereby reaffirm all of the terms, provisions, warranties, and
representations set forth in each of the Loan Agreements and the other Loan
Documents as modified hereby. Without limiting the generality of the foregoing,
each of the Borrowers warrants and represents that no event of default exists
under any of the Loan Agreements or any of the other Loan Documents and no event
has occurred or condition exists which with the passage of time or the giving of
notice would or could constitute an event of default.
8. Borrowers agree to promptly reimburse Bank for all attorney's fees and costs
incurred by Bank in connection with the negotiation, preparation, and execution
of this instrument.
IN WITNESS WHEREOF, the parties have entered into this Loan Modification
Agreement on the date first above written.
SOFTNET SYSTEMS, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
COMMUNICATE DIRECT, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
MICROGRAPHIC TECHNOLOGY CORPORATION
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
KANSAS COMMUNICATIONS, INC.
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
WEST SUBURBAN BANK
By: _________________________________
Its: ________________________________
Attest: _____________________________
Its: ________________________________
Exhibit 21
SOFTNET SYSTEMS, INC.
LIST OF SUBSIDIARIES OF THE REGISTRANT
As of September 30, 1996
Communicate Direct, Inc. (Illinois)
MediaCity World, Inc. (Deleware)
Kansas Communications, Inc. (Kansas)
Micrographic Technology Corporation (Delaware)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FORM 10-K FOR THE YEAR
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10-K.
</LEGEND>
<CIK> 0000097196
<NAME> SOFTNET SYSTEMS INC.
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
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0
0
<COMMON> 33,582
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