SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to
Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 12, 1998
SOFTNET SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
NEW YORK
(State or other jurisdiction of incorporation)
1-5270 11-1817252
(Commission File Number) (I.R.S. Employer Identification Number)
520 Logue Ave., Mountain View, CA 94043
(Address of principal executive offices) (Zip Code)
(650) 965-3700
(Registrant's telephone number, including area code)
ITEM 5. OTHER EVENTS
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares,
of which 25,000,000 shares are Common Stock, par value $.01 per share, and
4,000,000 shares are Preferred Stock, par value $.01 per share, of which 5,000
shares have been designated as Series A Convertible Preferred Stock ("Series A
Preferred Stock"). At January 1, 1998, there were 6,970,546 shares of Common
Stock outstanding, and 5,000 shares of Series A Convertible Preferred Stock
outstanding.
The following description of the capital stock of the Company and certain
provisions of the Company's Certificate of Incorporation, as amended (the
"Certificate"), and the Company's By-Laws is a summary and is qualified in its
entirety by the provisions of the Certificate and By-Laws, which have been filed
with the Securities and Exchange Commission.
COMMON STOCK
The issued and outstanding shares of Common Stock are validly issued, fully
paid and nonassessable. Subject to the right of holders of the Series A
Preferred Stock, the holders of outstanding shares of Common Stock are entitled
to receive dividends out of assets legally available therefor at such times and
in such amounts as the Board of Directors may from time to time determine. The
shares of Common Stock are neither redeemable nor convertible, and the holders
thereof have no preemptive or subscription rights to purchase any securities of
the Company. Upon liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive, pro rata, the assets of the
Company which are legally available for distribution, after payment of all debts
and other liabilities and subject to the prior rights of the holders of Series A
Preferred Stock or any holders of Preferred Stock then outstanding. Each
outstanding share of Common Stock is entitled to one vote on all matters
submitted to a vote of stockholders, except that the shareholders are entitled
to cumulative voting with respect to the election of Directors.
PREFERRED STOCK
The Company's Certificate authorizes the Board of Directors to issue the
Preferred Stock in one or more series and to establish the designations,
preferences, qualifications, limitations or restrictions of any class or series
with respect to the rate and nature of dividends, the price and terms and
conditions on which shares may be redeemed, the terms and conditions for
conversion or exchange into any other class or series of the stock, voting
rights and other terms. The Company may issue, without approval of the holders
of Common Stock, Preferred Stock which has voting, dividend or liquidation
rights superior to the Common Stock and which may adversely affect the rights of
holders of Common Stock. The issuance of Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of Common Stock and could have the effect of delaying, deferring or
preventing a change in control of the Company.
SERIES A CONVERTIBLE PREFERRED STOCK
On December 31, 1997, in a private placement, the Company completed the
sale of 5,000 shares of Series A Convertible Preferred Stock, at an issue price
of $1,000 per share (the "Stated Value"). The Series A Preferred Stock bears
dividends which will accrue cumulatively at a rate of 5% per annum and are
payable quarterly, at the Company's option, in cash or in additional shares of
Series A Preferred Stock. Each outstanding share of Series A Preferred Stock
shall have no voting rights except as otherwise required by the Business
Corporation Law of New York.
The Series A Preferred Stock ranks senior to the Company's Common Stock as
to dividends, distributions and distributions of assets upon liquidation,
dissolution or winding up of the Company. In the event of any liquidation,
dissolution or winding up of the Company or the sale of substantially all of the
Company's assets, the Series A Preferred Stockholders shall receive out of the
assets of the Company, an amount per share equal to the sum of (i) the Stated
Value and (ii) the accrued but unpaid dividends on the Series A Preferred Stock
(the "Liquidation Preference"), before distribution is made on the Common Stock.
After full payment of the Liquidation Preference, any remaining assets shall be
distributed ratably to holders of Series A Preferred Stock (on an as-converted
basis) and to holders of the Common Stock.
The Series A Preferred Stock is subject to mandatory redemption upon
certain circumstances, including the Company's (i) failure to convert the Series
A Preferred Stock into Common Stock when required, (ii) bankruptcy or assignment
for the benefit of creditors, and (iii) suspension from trading on the American
Stock Exchange ("AMEX"). In a mandatory redemption, the Company shall purchase
a Series A Preferred Stockholder's shares for an amount per share equal to the
greater of (1) 118% multiplied by the Liquidation Preference, and (2) the
"parity value" of the shares. "Parity value" means the product of (a) the
number of shares of Common Stock issuable upon conversion of Series A Preferred
Stock on the day immediately preceding the mandatory redemption payment date
multiplied by (b) the closing price for the Common Stock on such conversion
date. At the option of any Series A Preferred Stockholder, the sale, merger,
conveyance or disposition of all or substantially all of the assets of the
Company shall either: (i) require the Company to redeem the Series A Preferred
Stock for 118% of the Liquidation Preference or (ii) cause the Series A
Preferred Stock to be automatically converted to the securities of the acquiring
entity.
Series A Preferred Stockholders, subject to certain restrictions, are
entitled to convert their shares of Series A Preferred Stock into Common Stock
for a conversion price that is based upon the market price of the Common Stock
over a certain trading period, but not more than $8.28 per share. With certain
limited exceptions, Series A Preferred Stockholders shall not be entitled to
convert shares that would cause such holder to beneficially own more than 4.99%
of the outstanding shares of Common Stock, unless such holder provides the
Company with sixty-one days notice and the notice period has expired. The
conversion price shall be subject to equitable adjustments under certain
circumstances including stock splits, stock dividends, mergers and
consolidations and other adjustments due to the change of control of the
Company. If the number of shares of Common Stock issued upon conversion of the
Series A Preferred Stock equals 19.99% of the outstanding Common Stock, then the
Series A Preferred Stock shall cease to be convertible into Common Stock unless
the Company receives AMEX or stockholder approval for such issuance. If the
Company does not have a sufficient number of shares of Common Stock to satisfy a
conversion request, then the Series A Preferred Stockholder shall receive
certain conversion default payments payable in cash or Common Stock.
The Company shall have the right to redeem the Series A Preferred Stock on
or after December 31, 1998 at a price per share equal to the greater of (i) 130%
of the Stated Value, or (ii) the "parity value" of the redeemed shares. Parity
value means the product of (a) the number of shares of Common Stock issuable
upon conversion of such shares (except that the trading days used to calculate
the market price shall be the trading days in the trading period that maximize
the number of shares of Common Stock issuable upon redemption), multiplied by
(b) the closing price for the Common Stock on such conversion date.
Subject to certain limited extensions, all outstanding shares of Series A
Preferred Stock shall be automatically converted into shares of Common Stock on
December 31, 2000.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chase Mellon
Shareholder Services, East Hartford, Connecticut.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SOFTNET SYSTEMS, INC.
By: /s/ Mark Phillips
Treasurer
Dated: February 12, 1998
