U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(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
-------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
717 Forest Avenue, Lake Forest, Illinois 60045
------------------------------------------ --------------
(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
--------------------- ---------------------------
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
- -------------------------------------- -----------------------------------
Common stock, $.01 per share par value 6,564,455
Documents Incorporated by Reference:
None
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information concerning the Board of
Directors, and the executive officer not serving on the Board of Directors:
Name and Age Principal Occupation and Other Information
- ----------------------- ----------------------------------------------------
DIRECTORS:
John J. McDonough (60) Director since 1995. Chairman of the Board of the
Company since July 1995. Chief Executive Officer of
the Company since September 1996. Vice Chairman from
July 1993 to October 1995 and Chief Executive
Officer from July 1993 to February 1995 of Dentsply
International Inc. (dental products). Chairman and
Chief Executive Officer of GENDEX Corporation
(dental products) from April 1983 to June 1993.
Director of AMRESCO, Inc., Applied Power, Inc.,
Lunar Corporation, Plexus Corporation,
and Newell Co.
Ian B. Aaron (36) Director since 1994. President of MediaCity World
Inc. since June 1996 and Chief Information Officer
of the Company from January 1996 to June 1996.
Executive Vice President of Systems Development of
Communicate Direct, Inc. from October 1994 to
January 1996 and President of Communicate Direct,
Inc. from 1988 to October 1994.
John G. Hamm (58) Director since 1985. Executive Vice President of
ARTRA Group Incorporated (flexible packaging) since
1988. Director from 1984 to 1994 and Vice
President-Finance from 1990 to 1994 of Ozite
Corporation (textiles, hose and tubing). Director of
Plastic Specialties and Technologies, Inc.
(textiles, hose and tubing) from 1993 to January
1996.
A.J.R. Oosthuizen (61) Director since 1995. President and Chief Operating
Officer of the Company since September 1996.
President and Chief Executive Officer of
Micrographics Technology Corporation since March
1989.
Ronald I. Simon (58) Director since 1995. President of Ronald Simon, Inc.
(financial consulting) since 1974. Chairman of
Sonant Corporation (interactive voice response
equipment) since April 1993. Director of Citadel
Corporation (real estate investment company).
EXECUTIVE OFFICER:
Martin A. Koehler (33) Vice President-Finance and Chief Financial Officer
of the Company since June 1995. Manager from 1991 to
June 1995 and Senior Auditor from 1990 to 1991 at
Arthur Andersen LLP (public accounting firm).
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Under the securities laws of the United States, the Company's directors,
its executive (and certain other) officers, and any person holding more than ten
percent of the Company's Common Stock are required to report their ownership of
Common Stock and any changes in that ownership to the Securities and Exchange
Commission (the "Commission") and any exchange or quotation system on which the
Common Stock is listed or quoted. Specific due dates for these reports have been
established and the Company is required to report in this Form 10-K any failure
to file by these dates. During the fiscal year ended September 30, 1996, to the
knowledge of the Company, all of these filing requirements were satisfied by its
directors and officers, except Mr. McDonough failed to file his Form 5 on a
timely basis. In making these statements, the Company has relied on the written
representations of its directors and officers and copies of the reports that
they have filed with the Commission. The Company does not have any ten
percent shareholders.
Item 11. EXECUTIVE COMPENSATION
The following table presents information with respect to all compensation
awarded or paid to, or earned, during each of the last three fiscal years for
services rendered to the Company and its subsidiaries, by (i) Mr. McDonough, the
Company's Chief Executive Officer, (ii) Mr. Oosthuizen, Mr. Koehler, and Mr.
Aaron, the Company's only executive officers earning in excess of $100,000
during fiscal 1996, and (iii) Mr. Jellinek, the Company's former President and
Chief Executive Officer.
Summary Compensation Table
Long-Term
Compensation
------------
Annual Compensation Securities
Name and Principal Fiscal -------------------- Underlying
Position Year Salary($) Bonus($) Options (#)
- ------------------------- ------ --------- --------- ------------
John J. McDonough (1) 1996 $52,500 - 50,000
Chairman of the Board & 1995 - - -
Chief Executive Officer 1994 - - -
A.J.R. Oosthuizen (2) 1996 200,000 80,000 31,000
President and Chief 1995 7,700 - -
Operating Officer 1994 - - -
Martin A. Koehler (2) 1996 104,800 - -
Vice President - Finance 1995 30,770 - 25,000
& Chief Financial Officer 1994 - - -
Ian B. Aaron (2) 1996 189,000 - 31,000
President of 1995 146,000 - -
MediaCity World, Inc. 1994 - - -
John I. Jellinek (3) 1996 200,000 - 55,000
Former President & 1995 161,807 - -
Chief Executive Officer 1994 145,835 - -
- -----------------
(1) Mr. McDonough was not employed by the Company in fiscal 1995 or 1994. Mr.
McDonough's annual compensation for fiscal 1996 was set at 60,000.
Effective July 1, 1996 Mr. McDonough voluntarily reduced his compensation
to an annual amount of $30,000. In addition, effective September 18,
1996, Mr. McDonough has deferred the cash payment of his salary.
(2) Messrs. Oosthuizen, Koehler, and Aaron were not employed by the Company
in fiscal 1994.
(3) On September 11, 1996, Mr. Jellinek resigned from all of his executive
positions with the Company. On December 6, 1996, Mr. Jellinek resigned
from the Company's Board of Directors
<PAGE>
The following tables present the number of stock options granted to the
Named Executive Officers during fiscal 1996, and information reguarding stock
option exercises and, exercisable and unexercisable options held by the Named
Executive Officers as of September 30, 1996.
Option Grants in Fiscal 1996
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
----------------------------------------------------------------------------- Value at Assumed
Percent of Total Annual Rates of Stock Price
Number of Securities Options granted Exercise or Appreciation for Option Term
Underlying to employees Base Price ----------------------------
Options Granted(#) in fiscal year ($/Share)(1) Expiration Date 5% ($)(1) 10% ($)(1)
- ------------------- -------------------- ---------------- -------------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
John J. McDonough 50,000 18% $ 4.94 2/28/06 $ 155,000 $ 394,000
A.J.R. Oosthuizen 31,000 10% $ 4.94 10/05/05 96,000 244,000
Martin A. Koehler - - - - - -
Ian B. Aaron 31,000 10% $ 4.94 10/05/05 96,000 244,000
John I. Jellinek (2) - - - - - -
Non-Executive Officer
Employee Group 185,000 62% $ 4.94 various 575,000 1,456,000
<FN>
(1) The stock options were granted on various dates during fiscal 1996 at
exercise prices ranging from $12.75 per share to $8.25 per share (the
market price on the date of grant). On February 28, 1996, the exercise
price per share for all the foregoing options was reduced to $8.25 per
share, the market price on such date. On November 15, 1996 the exercise
price for all the foregoing options was further reduced to $4.94 per share,
the market price on such date. The calculations of the potential realizable
value of assumed annual rates of stock price appreciation for option term
is based upon the assumed market price of $4.94 per share.
(2) Mr. Jellinek was granted an option to purchase 55,000 shares at $12.75 per
share. On February 28, 1996 the exercise price per share was reduced to
$8.25 per share, the market price on such date. As a result of his
resignation the option expired.
</FN>
</TABLE>
Aggregated Option Exercises in Fiscal Year 1996 and Year-end Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options at
at Fiscal Year-End (#) Fiscal Year-End ($)
Name Exercisable Unexercisable Exercisable Unexercisable
John J. McDonough - 50,000 - -
A.J.R. Oosthuizen - 31,000 - -
Martin A. Koehler 8,333 16,667 - -
Ian B. Aaron - 31,000 - -
John I. Jellinek (1) - - - -
(1) Mr. Jellinek was granted an option to purchase 55,000 shares at $12.75 per
share. On February 28, 1996 the exercise price per share was reduced to
$8.25 per share, the market price on such date. As a result of his
resignation the option expired.
<PAGE>
DIRECTORS COMPENSATION
The Directors who were not officers of the Company or of a subsidiary,
namely, Mr. Simon and Mr. Hamm, receives a fee of $1,000 per month for their
services as Directors. The fees paid to the Directors have been deferred since
July 1996.
SoftNet Systems, Inc. Incentive Compensation Plan
In 1995, the Company adopted the SoftNet Systems, Inc. Incentive
Compensation Plan for the executive officers and certain other senior employees
of the Company and its subsidiaries (the "Bonus Plan"). Under the Bonus Plan, a
target bonus is established for each participant based upon a percentage ranging
from 0% to 90% of his or her base compensation. Payment of a bonus is dependent
upon the achievement of individual and Company performance goals. The Bonus Plan
is administered by the Compensation Committee of the Board of Directors. Certain
employees of Micrographics Technology Corporation received $155,200 in bonuses
under the Bonus Plan with respect to fiscal 1996.
Certain Agreements
Mr. McDonough, as Chairman of the Board and Chief Executive Officer,
receives an annual salary of $30,000 plus a bonus of up to 90% of his base
salary as determined by the Compensation Committee in accordance with the Bonus
Plan. Payment of Mr. McDonough's salary has been deferred since September 15,
1996. No bonus was paid to Mr. McDonough with respect to fiscal 1996. In
addition, Mr. McDonough was granted an option to purchase 150,000 shares of
Common Stock at $6.50 per share on September 15, 1995, when the market value of
the Common Stock was $13.50. On February 28, 1996, Mr. McDonough withdrew from
consideration of shareholders the grant of 150,000 option shares. On February
28, 1996 Mr. McDonough was granted an option to purchase 50,000 shares of Common
Stock at $8.25 pursuant to the 1995 Long-Term Incentive Plan ("LTIP"). On
November 15, 1996, the option to purchase the 50,000 shares was repriced to
$4.94 per share.
Mr. Oosthuizen, as President and Chief Operating Officer of the Company,
receives an annual salary of $200,000 plus a bonus of up to 90% of his base
salary as determined by the Compensation Committee in accordance with the Bonus
Plan. Mr. Oosthuizen earned $ 80,000 as a bonus with respect to fiscal 1996,
which has been deferred until cash flow improves. In October 1995, Mr.
Oosthuizen was granted an option to purchase 31,000 shares of Common Stock at
$12.75 per share pursuant to the LTIP. On February 28, 1996 and November 15,
1996, the option to purchase 31,000 shares of Common Stock was repriced to $8.25
and $4.94 per share, respectively.
Mr. Aaron, as President of MediaCity World, Inc., receives an annual
salary of $156,000 plus a bonus of up to 60% of his base salary as determined by
the Compensation Committee in accordance with the Bonus Plan. No bonus was paid
to Mr. Aaron with respect to fiscal 1996. In October 1995, Mr. Aaron was granted
an option to purchase 31,000 shares of Common Stock at $12.75 per share pursuant
to the LTIP. On February 28, 1996 and November 15, 1996, the option to purchase
31,000 shares of Common Stock was repriced to $8.25 and $4.94, respectively.
Compensation Committee Interlocks and Insider Participation
Members of the Company's Compensation Committee during fiscal 1996 were
Ronald I. Simon, Philip Kenny, and James Gordon. Messrs. Gordon and Kenny
resigned from their positions as Directors on August 22, 1996 and December 6,
1996, respectively. No member of the compensation committee was an executive
officer or employee of the Company during fiscal year 1996 or at any time prior
thereto.
<PAGE>
ITEM 12. SECURITIES BENEFICIALLY OWNED BY PRINCIPAL SHAREHOLDERS AND MANAGEMENT
Set forth in the following table are the beneficial holdings (and the
percentages of outstanding shares represented by such beneficial holdings) of
Common Stock as of December 31, 1996, except as otherwise noted, of (i) each
person (including any "group" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), known by the Company to
own beneficially more than 5% of its outstanding Common Stock, (ii) each
director and executive officer and (iii) all directors and executive officers as
a group. Except as otherwise indicated, the Company believes that the beneficial
owners of the Common Stock listed below, based on information provided by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable. In accordance with Rule
13d-3 under the Exchange Act, persons who have the power to vote or dispose of
Common Stock of the Company, either alone or jointly with others, are deemed to
be beneficial owners of such Common Stock.
<TABLE>
<CAPTION>
Name and Address Amount and nature of
of beneficial owner beneficial ownership Percent of class
<S> <C> <C>
John J. McDonough.................................... 156,667(1) 2.4%
717 Forest Avenue
Lake Forest, IL 60045
Ian B. Aaron......................................... 155,762(2) 2.4%
c/o MediaCity World, Inc.
500 Logue Avenue
Mountain View, CA 94043
John G. Hamm......................................... 44,430(3) *
c/o ARTRA Group, Inc.
500 Central Avenue
Northfield, IL 60093
A.J.R. Oosthuizen.................................... 524,340(4) 7.8%
c/o Micrographics Technology Corporation
520 Logue Avenue
Mountain View, CA 94043
Ronald I. Simon...................................... - -
c/o Ronald Simon, Inc.
1020 Prospect Street, Suite 401C
P.O. Box 1986
LaJolla, CA 92038
Martin A. Koehler.................................... 8,333(5) *
717 Forest Avenue
Lake Forest, IL 60045
R.C.W. Mauran........................................ 676,040(6) 9.9%
47 Eaton Place, Flat A
London SWI, England
Joseph Rich.......................................... 408,587(7) 6.1%
1386 N. Green Bay Road
Lake Forest, IL 60045
John I. Jellinek..................................... 356,950(8) 5.2%
1425 Bush Parkway
Buffalo Grove, IL 60089
All directors and executive officers as a group
( 6 persons)......................................... 889,532 13.1%
<FN>
* Less than 1%.
(1) Consists of 140,000 held by McDonough Partners II of which Mr. McDonough
is the general partner, and 16,667 shares issuable upon an exercise of an
option within 60 days of December 31, 1996.
(2) Includes 10,333 shares issuable upon exercise of an option within 60 days
of December 31, 1996.
(3) Consists of 29,430 shares held jointly with his wife and 15,000 shares
issuable upon exercise of a warrant.
(4) Includes 179,615 shares issuable upon conversion of 9% convertible
Subordinated Debentures and 10,333 shares issuable upon exercise of an
option within 60 days of December 31, 1996.
(5) Consists of 8,333 shares issuable upon the exercise of an option within 60
days of December 31, 1996.
(6) Includes 185,553 shares issuable upon conversion of 9% convertible
Subordinated Debentures and 81,481 shares issuable upon conversion of 6%
Convertible Subordinated Secured Debentures issued by Micrographics
Technology Corporation. Shares listed reflect shares held by Eurocredit
Investments, Ltd., a Maltese company that is wholly-owned by Mr. Mauran.
(7) Includes 113,500 shares issuable upon exercise of warrants.
(8) Includes (i) an option held by Jelco Ventures, Inc. to purchase 200,000
shares within 60 days of December 31, 1996, (ii) 105,000 shares held by
Jelken LLC, and (iii) 51,500 shares issuable upon exercise of warrants
held by Jelken LLC. Mr. Jellinek shares voting power with Philip Kenny, a
former director of the Company, for all shares held by Jelken LLC.
</FN>
</TABLE>
<PAGE>
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Subsequent to year-end, Communicate Direct, Inc., a wholly-owned
subsidiary of the Company ("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
a 5.2% shareholder of the Company, and Philip Kenny, a former director of the
Company. 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 Telecom 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 Systems, Inc.'s,("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. 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.
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.
At September 30, 1994, the Company was owed approximately $4.1 million
plus accrued interest by Ozite Corporation ("Ozite"). John G. Hamm, a Director
of the Company, and Peter R. Harvey, the former Chairman of the Board of
Directors and a shareholder of the Company, held substantial interests in Ozite.
Mr. Hamm was a Director of Ozite from 1984 to 1994, Vice President-Finance of
Ozite from 1990 to 1994 and a director of Plastic Specialties & Technologies,
Inc. ("PST"), a majority-owned subsidiary of Ozite, from 1993 to January 1996.
Mr. Harvey has been a director of Ozite since 1984, a Vice President of Ozite
since 1987 and a director of PST since 1993. Due to uncertainties about
collecting these funds, the receivable from Ozite was written off and charged
against earnings in 1991.
On July 26, 1995, Ozite shareholders approved a merger of Ozite with
Pure Tech International, Inc. ("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 311,025 shares of Pure Tech common stock, 267,203 shares of ARTRA Group
Incorporated ("ARTRA") Common Stock, and 932.05 shares of ARTRA Preferred Stock.
Subsequently, the Company sold all 311,025 shares of Pure Tech for net proceeds
of $1,027,466. During fiscal 1996, the remaining securities consisting of ARTRA
Common Stock and ARTRA Preferred Stock were sold for net proceeds of $815,000,
which were recorded as a capital contribution.
In fiscal 1994, the Board voted to compensate Mr. Hamm, a Director of the
Company, $150,000 for previously uncompensated services as a consultant rendered
to the Company over the prior ten years. During that period, Mr. Hamm
coordinated the preparation of public filings made by the Company, reviewed
acquisition proposals and was involved in investor relations. The Board
authorized Mr. Hamm to receive (i) $100,000 in cash, and (ii) either $50,000 in
shares of Common Stock (10,000 shares) or 10 year warrants to purchase 16,667
shares of Common Stock at $5.00 per share, as Mr. Hamm elects. In May 1996, the
Company paid Mr. Hamm $77,000 and signed a promissory note for $88,000 payable
in equal monthly installments of $15,000 beginning June 1, 1996. The cash
payment and the promissory note fulfilled the Company's entire obligation to Mr.
Hamm. At the Company's request, payments to Mr. Hamm were suspended on September
1, 1996 due to cash flow constraints. Payments of the principal are scheduled to
resume on April 1, 1997. At September 30, 1996, the unpaid compensation was
$44,500. Mr. Hamm no longer serves as a consultant to the Company. The Company
began interest only payments to Mr. Hamm of January 1, 1997.
<PAGE>
SIGNATURE
The undersigned Registrant hereby files this amendment to it Annual
Report on Form 10-K for the fiscal year ended September 30, 1995 to include the
information required by Part III thereto.
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 thereunder duly authorized.
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 28, 1997
John J. McDonough Directors, Chief Executive
Officer and Director
(Principal Executive Officer)
/s/ A.J.R. Oosthuizen President, Chief Operating January 28, 1997
A.J.R. Oosthuizen Officer and Director
/s/ Martin A. Koehler Vice President - Finance January 28, 1997
Martin A. Koehler (Principal Financial Officer
and Principal Accounting Officer)
/s/ Ian B. Aaron Director January 28, 1997
Ian B. Aaron
/s/ John G. Hamm Director January 28, 1997
John G. Hamm
/s/ Ronald I. Simon Director January 28, 1997
Ronald I. Simon
