SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
SOFTNET SYSTEMS, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Mark A. Phillips, 520 Logue Avenue, Moutain View, California 94043
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)and 0-11.
(1) Title of each class of securities to which transaction applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- -------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- -------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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<PAGE>
SOFTNET SYSTEMS, INC.
520 Logue Avenue
Mountain View, California 94043
January 28, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of Shareholders. The
meeting will be held at the SoftNet Systems, Inc. corporate offices at 520 Logue
Avenue, Mountain View, California 94043, at 10:00 a.m., Pacific Standard Time on
Thursday, February 26, 1998.
The formal Notice and Proxy Statement appear on the following pages and contain
details of the business to be conducted at the meeting. Also enclosed for your
information is the SoftNet Systems, Inc. 1997 Annual Report to Shareholders.
Your vote is very important regardless of the number of shares you own. We hope
you can attend the meeting. However, whether or not you plan to attend, please
sign, date and return the accompanying proxy card as soon as possible. The
enclosed envelope requires no postage if mailed in the United States. If you
attend the meeting, you may revoke your proxy if you wish and vote personally.
Sincerely,
/s/ Ronald I. Simon
---------------------
Ronald I. Simon
Chairman of the Board
<PAGE>
SOFTNET SYSTEMS, INC.
520 Logue Avenue
Mountain View, California 94043
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FEBRUARY 26, 1998
The Annual Meeting of Shareholders of SoftNet Systems, Inc., a New York
corporation (the "Company"), will be held at the SoftNet Systems, Inc. corporate
offices at 520 Logue Avenue, Mountain View, California 94043, at 10:00 a.m.
Pacific Standard Time on Thursday, February 26, 1998, for the following
purposes:
1. To elect six directors to hold office for the ensuing year.
2. To consider and transact such other business as may properly come
before the Annual Meeting or any adjournment thereof.
Only shareholders of record at the close of business on January 21, 1998
are entitled to notice of and to vote at the Annual Meeting. Whether or not you
plan to attend the Meeting, please sign, date and mail the enclosed Proxy in the
envelope provided which requires no postage for mailing in the United States. A
prompt response is helpful, and your cooperation will be appreciated. If you
later find that you can be present and you desire to vote in person, or, for any
other reason, desire to revoke your proxy, you may do so at any time before the
voting by written notice to the Secretary of the Company.
By Order of the Board of Directors
Mark A. Phillips
Secretary
January 28, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND MAIL THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED WHICH REQUIRES NO POSTAGE FOR MAILING IN
THE UNITED STATES. A PROMPT RESPONSE IS HELPFUL, AND YOUR COOPERATION WILL BE
APPRECIATED.
<PAGE>
SOFTNET SYSTEMS, INC.
520 Logue Avenue
Mountain View, California 94043
PROXY STATEMENT
GENERAL
This Proxy Statement is being mailed to shareholders of SoftNet Systems,
Inc., a New York corporation ("SoftNet" or the "Company"), on or about January
28, 1998, and is furnished in connection with the solicitation by the Board of
Directors of the Company of proxies for the Annual Meeting of Shareholders to be
held at the SoftNet Systems, Inc. corporate offices at 520 Logue Avenue,
Mountain View, California 94043, at 10:00 a.m., Pacific Standard Time on
Thursday, February 26, 1998 for the purpose of considering and acting upon the
matters specified in the Notice of Annual Meeting of Shareholders accompanying
this Proxy Statement.
Revocability of Proxies
If the form of proxy which accompanies this Proxy Statement is executed
and returned, it will be voted. Proxies may be revoked by filing with the
Secretary of the Company written notice of revocation bearing a later date than
the proxy, by duly executing a subsequently dated proxy relating to the same
shares of stock and delivering it to the Secretary of the Company or by
attending the Meeting and voting in person. Attendance at the Meeting will not
in and of itself constitute revocation of a proxy. Any subsequently dated proxy
or written notice revoking a proxy should be sent to the Secretary of the
Company at SoftNet Systems, Inc., 520 Logue Avenue, Mountain View, California
94043.
Shares Outstanding and Voting Rights
As of January 21, 1998, the record date for the Meeting, the Company had
outstanding 6,974,546 shares of Common Stock and such shares are the only shares
entitled to vote at the Meeting.
A majority of the outstanding shares entitled to vote at the Meeting and
represented in person or by proxy will constitute a quorum. In the election of
directors, shareholders may cumulate their votes and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of shares held by such shareholder, or may distribute such votes among as many
candidates as the shareholder chooses, provided that votes cannot be cast for
more than the total number of directors to be elected at the meeting. There are
no conditions precedent to the exercise of cumulative voting rights. The Board
of Directors of the Company is soliciting discretionary authority to cumulate
votes. Each share has one vote on all other matters to be voted upon at the
Meeting.
If choices are not specified on the proxy, the shares will be voted for
the proposal described herein. Under New York law, abstentions and broker
"non-votes" will be counted towards determining the presence of a quorum. With
respect to all proposals other than election of directors, abstentions and
broker "non-votes" will have the effect of a negative vote. A broker "non-vote"
occurs when a nominee holding shares for a beneficial owner does not vote for a
particular proposal because the nominee does not have discretionary voting power
with respect to that item and has not received instructions from the beneficial
owner. Unvoted shares are termed "non-votes" when a nominee holding shares for
beneficial owners may not have received instructions from the beneficial owner
and may not have exercised discretionary voting power on certain matters, but
with respect to other matters may have voted pursuant to discretionary authority
or instructions from the beneficial owners.
Assuming a quorum is present at the Meeting, approval of the election of
Directors shall require a plurality of the votes cast according to cumulative
voting rules.
Solicitation
The Board of Directors has authorized the solicitation of proxies.
Expenses incurred in the solicitation of proxies will be borne by the Company.
Directors and officers of the Company may make additional solicitations in
person or by telephone without additional compensation.
<PAGE>
PROPOSAL 1 - ELECTION OF DIRECTORS
At the Annual Meeting, six directors are to be elected to hold office
until the next annual meeting of shareholders or until their successors are
elected and qualified. The Board of Directors of the Company currently consists
of six members.
It is intended that the proxies (except proxies marked to the contrary)
will be voted for the nominees listed below, all of whom are members of the
present Board of Directors. It is expected that the nominees will serve, but if
any nominee declines or is unable to serve for any unforeseen cause, the proxies
will be voted to fill any vacancy so arising in accordance with the
discretionary authority of the persons named in the proxies. Under the Bylaws of
the Company, persons must be nominated at least forty-five days prior to the
meeting; accordingly, no additional persons may be nominated at the meeting.
Nominees
The following table sets forth certain information concerning the
nominees, all of whom are members of the present Board of Directors:
Name and Age Principal Occupation and Other Information
Ronald I. Simon (59) Director since 1995. Chairman of the Board
of the Company since August 1997. Vice
President and Chief Financial Officer of
Western Water Company (develops and
markets water supplies) since May 1997.
Director of Westcorp Investments, a
wholly-owned subsidiary of Westcorp Inc.
(holding company for Western Financial
Bank) since 1995. Director of Citadel
Corporation (real estate investment
company) since 1995. Chairman of Sonant
Corporation (interactive voice response
equipment) from 1993 to 1997.
Ian B. Aaron (37) Director since 1994. Vice President and
Assistant Secretary since December 1997.
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.
Edward A. Bennett (51) Director since January 1998. President and
Chief Executive Officer of Bennett Media
Collaborative (new media/
Internet/technology consulting) since June
1997. Director and Vice Chairman of
methodfive LLC (Internet services) since
June 1997. Director of Exceed
Communications (Internet services) since
June 1997. President and Chief Executive
Officer of Prodigy Ventures
(Internet/technology investment) from June
1996 to June 1997. President and Chief
Executive Officer of Prodigy Services
Corporation (Internet services) from 1995
to June 1996. Partner-Consultant for Act
III Communications (television
programming) from 1994 to 1995. President
and Chief Executive Officer of VH-1
Network (television programming) from 1989
to 1994.
<PAGE>
Lawrence B. Brilliant,M.D.,M.P.H.(53) Director since January 1998. President and
Chief Executive Officer of Brilliant Color
Cards (telephone debit/calling cards)
since 1989. Founder and Vice Chairman of
MultiVox Communications and Technology
Company (switched telephone reseller)
since 1985. Founder, director and Chairman
Emeritus of the International Telecard
Association since 1992. Formerly a
professor at the University of Michigan
and a diplomat working for the United
Nations.
John G. Hamm (59) 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 (62) Director since 1995. Chief Executive
Officer since August 1997. President and
Chief Operating Officer of the Company
since September 1996. President and Chief
Executive Officer of Micrographic
Technology Corporation from March 1989 to
September 1997.
Information Concerning the Board and its Committees
The Board of Directors currently consists of Ronald I. Simon, Ian B.
Aaron, Edward A. Bennett, Lawrence B. Brilliant, John G. Hamm and A.J.R.
Oosthuizen. Messrs. Bennett and Brilliant were appointed to the Board on January
8, 1998 and therefore did not participate in any Board meetings during fiscal
year ended September 30, 1997. John J. McDonough resigned from his position as
Chairman of the Board and Chief Executive Officer of the Company on July 29,
1997.
There were six meetings of the Board of Directors in the fiscal year ended
September 30, 1997. Each director attended at least 75% of the meetings of the
Board of Directors and the Committees on which he served.
The Audit Committee, consisting of Messrs. Hamm and Simon, had one meeting
in fiscal 1997. Messrs. Hamm and Simon both attended this meeting. The duties of
the Audit Committee are to recommend the appointment of
auditors and to oversee the accounting and audit functions of the Company.
During fiscal 1997, the Board of Directors collectively assumed the
administrative responsibilities of the Compensation/Stock Option Committee. The
Compensation/Stock Option Committee met three times during fiscal 1997, which
were attended by all of the directors of the Committee.
At the beginning of fiscal 1997, the Executive Committee consisted of
Messrs. McDonough and Oosthuizen. Following the resignation of Mr. McDonough in
July 1997, the Executive Committee has consisted of Messrs. Simon and
Oosthuizen. The Executive Committee did not meet during fiscal 1997. The
Executive Committee has all the authority of the Board, except with respect to
items requiring shareholder approval or submission, the filling of Board or
Committee vacancies, fixing director compensation, amending or adopting bylaws
or amending or repealing Board resolutions that are not amendable or repealable.
Director Compensation
The Directors who were not officers of the Company or of a subsidiary,
namely Messrs. Simon, Bennett, Brilliant and Hamm, receive a fee of $1,000 per
month for their services as directors of the Company. Furthermore, Mr. Simon
receives an additional $1,500 per month for his services as Chairman of the
Board of the Company. On March 26, 1997, Messrs. Hamm and Simon each received
options to purchase 7,500 shares of the Company's Common Stock. These options
have a three year vesting period. Accordingly, on January 8, 1998, Messrs.
Bennett and Brilliant each received similar options to purchase 7,500 shares of
the Company's Common Stock.
Messrs. Aaron and Oosthuizen each receive compensation for their services
as executive officers of the Company. A description of these compensation
arrangements are set forth under "Executive Compensation--Certain Agreements."
A description of other transactions between directors and the Company is
set forth below in "Certain Relationships and Related Transactions."
The Board of Directors recommends a vote FOR the election of the named
nominees.
<PAGE>
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, 1997, 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 named 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.
- ------------------------------------------------ -------------------- ----------
Name and Address Amount and nature of Percent
of beneficial owner beneficial ownership of class
- ------------------------------------------------ -------------------- ----------
Ronald I. Simon............................... - -
c/o Western Water Company
4660 La Jolla Village Drive, Suite 825
San Diego, CA 92122
Ian B. Aaron.................................. 222,429(1) 3.2%
c/o MediaCity World, Inc.
500 Logue Avenue
Mountain View, CA 94043
Edward A. Bennett............................. - -
632 Broadway, 10th Floor
New York, NY 10012
Lawrence B. Brilliant, M.D.,M.P.H............. - -
c/o MultiVox Technologies
1730 S. El Camino Real, 5th Floor
San Mateo, CA 94402
John G. Hamm.................................. 44,430(2) *
c/o ARTRA Group, Inc.
500 Central Avenue
Northfield, IL 60093
A.J.R. Oosthuizen............................. 560,214(3) 7.8%
520 Logue Avenue
Mountain View, CA 94043
R.C.W. Mauran................................. 637,349(4) 8.8%
47 Eaton Place, Flat A
London SWI, England
Joseph Rich................................... 408,587(5) 5.8%
1386 N. Green Bay Road
Lake Forest, IL 60045
John I. Jellinek.............................. 378,102(6) 5.4%
350 N. Clark Street
Chicago, IL 60610
Martin A. Koehler............................. - -
730 Dawes Avenue
Wheaton, IL 60187
John J. McDonough............................. - -
100 N. Waukegan
Lake Bluff, IL 60044
All directors and executive
officers as a group
(7 persons)................................... 835,073 11.4%
- --------------------------------------------------------------------------------
* Less than 1%.
(1) Includes 77,000 shares issuable upon exercise of options.
(2) Consists of 29,430 shares held jointly with his wife and 15,000 shares
issuable pursuant to the requested exercise of a warrant on January 13,
1998.
(3) Includes 179,615 shares issuable upon conversion of 9% Convertible
Subordinated Debentures and 45,667 shares issuable upon exercise of
options.
(4) Includes 179,638 shares issuable upon conversion of 9% Convertible
Subordinated Debentures and 81,481 shares issuable upon conversion of 6%
Convertible Subordinated Secured Debentures issued by Micrographic
Technology Corporation. Shares listed reflect shares held by Eurocredit
Investments, Ltd., a Maltese company that is wholly-owned by Mr. Mauran.
(5) Includes 113,500 shares issuable upon exercise of warrants.
(6) Includes (i) 200,000 shares held by Jelco Ventures, Inc. (ii) 126,602
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.
EXECUTIVE OFFICERS OF THE COMPANY
Executive Officers
The following table lists the executive officers of the Company:
Name Title
A.J.R. Oosthuizen................. Chief Executive Officer, President and Chief
Operating Officer
Mark A. Phillips (1).............. Secretary, Treasurer and Principal Accounting
Officer
Ian B. Aaron...................... President of MediaCity World, Inc.
(1) Secretary, Treasurer and Principal Accounting Officer of the Company since
August 1997. Director of Finance at Company's wholly-owned subsidiary,
Micrographic Technology Corporation from February 1996 through August
1997. Corporate Controller of Petals Inc. (clothing manufacturer) from
September 1994 through February 1996. Accounting Manager at Micrographic
Technology Corporation prior to September 1994. Mr. Phillips is 31.
<PAGE>
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. Oosthuizen,
the Company's Chief Executive Officer, (ii) Mr. Aaron, the Company's only other
executive officer earning in excess of $100,000 during fiscal 1997, and (iii)
Mr. McDonough, the Company's former Chief Executive Officer and Mr. Koehler, the
Company's former Vice President of Finance and Chief Financial Officer
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation _ Compensation
Securities
Fiscal Underlying
Name and Principal Position Year Salary ($) Bonus ($) Options (#)
- --------------------------- ---- ---------- --------- -----------
<S> <C> <C> <C> <C>
A.J.R.Oosthuizen 1997 200,000 - 75,000
Chief Executive Officer, President and 1996 200,000 80,000 31,000
Chief Operating Officer 1995 7,700 - -
Ian B. Aaron 1997 156,000 - 16,000
President of MediaCity World, Inc. 1996 189,000 - 31,000
1995 146,000 - -
John J. McDonough (1) 1997 25,000 -
Former Chairman of the Board and Chief 1996 52,500 - 100,000
Executive Officer 1995 - - 50,000
-
Martin A. Koehler (2) 1997 114,187 10,000 18,000
Former Vice President - Finance and Chief 1996 104,800 - 25,000
Financial Officer 1995 30,770 - -
<FN>
(1) On July 29, 1997, Mr. McDonough resigned from all executive positions with
the Company and, as a result, his options expired.
(2) On August 29, 1997, Mr. Koehler resigned from all executive positions with
the Company and, as a result, his options expired.
</FN>
</TABLE>
<PAGE>
The following tables present the number of stock options granted to the
named executive officers during fiscal 1997, and information regarding stock
option exercises and, exercisable and unexercisable options held by the named
executive officers as of September 30, 1997. No options were exercised in fiscal
1997.
<TABLE>
<CAPTION>
Option Grants in Fiscal 1997
Individual Grants Potential Realizable
- ---------------------------------------------------------------------------------------------------- Value at Assumed
Number of Annual Rates of Stock
Securities Percent of Total Price Appreciation for
Underlying Options Granted Exercise or Option Term
Options to Employees in Base Price Expiration ---------------------------
Name Granted (#) Fiscal Year ($/Sh) (1) Date 5% ($) 10% ($)
- -------------------------- ---------------- ------------------- --------------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
A.J.R. Oosthuizen 44,000 11% $ 4.94 11/14/06 $137,000 $346,000
31,000 8% 5.00 02/09/07 97,000 247,000
Ian B. Aaron 16,000 4% 4.94 11/14/06 50,000 126,000
Donna M. Cangelosi 28,000 7% 4.94 11/14/06 87,000 220,000
Dale H. Sizemore Jr. 35,000 9% 4.94 11/14/06 109,000 276,000
John J. McDonough (2) 25,000 6% 4.94 - - -
75,000 19% 5.00 - - -
Martin A. Koehler (3) 18,000 5% 4.94 - - -
<FN>
(1) The potential realizable value is based upon the term of the option at the
time of its grant. It is calculated by assuming that the stock price on
the date of the grant appreciates at the indicated annual rate, compounded
annually for the entire option term, and that the option is exercised and
sold on the last day of its term for the appreciated stock price.
(2) As a result of his resignation as an employee, Mr. McDonough's options
expired.
(3) As a result of his resignation as an employee, Mr. Koehler's option
expired.
</FN>
</TABLE>
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options at
at Fiscal Year-End (#) Fiscal Year-End ($)
Name Exercisable Unexercisable Exercisable Unexercisable
A.J.R. Oosthuizen 10,333 95,667 18,703 171,297
Ian B. Aaron 10,333 36,667 18,703 66,367
Donna M. Cangelosi 9,385 40,000 16,987 72,400
Dale H. Sizemore, Jr. - 35,000 - 63,350
John J. McDonough (1) - - - -
Martin A. Koehler (2) - - - -
(1) As a result of his resignation as an employee, Mr. McDonough's options
expired.
(2) As a result of his resignation as an employee, Mr. Koehler's option
expired.
<PAGE>
Ten-Year Option Repricings
On November 15, 1996, the Stock Option Committee approved a stock option
repricing program to provide employee option holders additional opportunity and
incentive to achieve business plan goals. All options held by employees on that
date were repriced to $4.94 per share, which was the market price on such date.
All other terms of the options remained the same and, accordingly, there was no
change to the vesting or term of any option.
The table below presents the required disclosure with respect to any
repricing of options held by any executive officer during the last ten completed
years.
<TABLE>
<CAPTION>
Length of
Original Option
Number of Market Price Exercise Term Remaining
Securities of Stock at Price at at Date of
Underlying Time of Time of New Repricing or
Options Repriced Repricing or Repricing or Exercise Amendment
Name Date or Amended Amendment Amendment Price (Years)
- ---- ---- ---------- -------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
A.J.R. Oosthuizen 2/28/96 31,000 $ 8.25 $ 12.75 $ 8.25 9.6
11/15/96 (1) $ 4.94 $ 8.25 $ 4.94 8.9
Ian B. Aaron 2/28/96 31,000 $ 8.25 $ 12.75 $ 8.25 9.6
11/15/96 (1) $ 4.94 $ 8.25 $ 4.94 8.9
Mark A. Phillips 2/28/96 8,000 $ 8.25 $ 8.50 $ 8.25 9.9
11/15/96 (1) $ 4.94 $ 8.25 $ 4.94 9.3
John J. McDonough (2) 11/15/96 50,000 $ 4.94 $ 8.25 $ 4.94 9.3
Martin A. Koehler (2) 2/28/96 25,000 $ 8.25 $ 8.50 $ 8.25 9.4
11/15/96 (1) $ 4.94 $ 8.25 $ 4.94 8.7
John I. Jellinek (2) 2/28/96 55,000 $ 8.25 $ 12.75 $ 8.25 9.6
Dale H. Sizemore (3) 2/28/96 31,000 $ 8.25 $ 12.75 $ 8.25 9.6
<FN>
(1) Options repriced on February 28, 1996 were further repriced on November
15, 1996 (except options held by Messrs. Jellinek and Sizemore which had
previously expired), at the then current market price of $4.94.
(2) As a result of their resignation as employees, options granted to Messrs.
McDonough, Koehler and Jellinek expired.
(3) As a result of his resignation as an executive officer in June 1996, Mr.
Sizemore's option expired. Subsequently, in October 1996, Mr. Sizemore
rejoined the Company as President of Kansas Communications, Inc., a
wholly-owned subsidiary of the Company.
</FN>
</TABLE>
<PAGE>
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 Board of Directors. With respect to fiscal 1997, certain
employees of Micrographic Technology Corporation collectively earned $76,600
under the Bonus Plan and certain employees of Kansas Communications, Inc.
collectively earned $64,500 under the Bonus Plan.
Certain Agreements
On September 15, 1995, Micrographic Technology Corporation, a
wholly-owned subsidiary of the Company ("MTC"), entered into an employment
agreement with Mr. Oosthuizen, a director of the Company, pursuant to which Mr.
Oosthuizen became President of MTC. During fiscal 1997, Mr. Oosthuizen was named
Chief Executive Officer of the Company. Mr. Oosthuizen receives an annual salary
of $200,000 plus a bonus of up to 90% of his base salary as determined by the
Board of Directors in accordance with the Company's Bonus Plan. No bonus was
paid to Mr. Oosthuizen with respect to fiscal 1997. The employment agreement,
which terminates on September 15, 1998, contains confidentiality and
noncompetition provisions.
On October 28, 1994, Communicate Direct, Inc., a wholly-owned
subsidiary of the Company, entered into an employment agreement with Ian B.
Aaron, a director of the Company. The employment agreement, which contained
confidentiality and noncompetition provisions, expired on September 30, 1997.
Mr. Aaron, the President of MediaCity World, Inc., a wholly-owned subsidiary of
the Company, receives an annual salary of $156,000 plus a bonus of up to 60% of
his base salary as determined by the Board of Directors in accordance with the
Company's Bonus Plan. No bonus was paid to Mr. Aaron with respect to fiscal
1997.
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for the Company's executive
compensation policies and for annually determining the compensation to be paid
to the executive officers of the Company. During fiscal 1997, the Board of
Directors assumed all of the responsibilities of the Compensation Committee.
Overview and Philosophy
The executive compensation program of the Company is intended to
provide overall levels of compensation for the executive officers which are
competitive for the industries and the geographic areas within which they
operate, the individual's experience, and contribution to the long-term success
of the Company. The Board believes that its task of determining fair and
competitive compensation is ultimately judgmental.
The program is composed of base salary, annual incentive compensation,
equity based incentives, and other benefits generally available to all
employees. As of September 30, 1997, options on 468,000 shares of the Company's
Common Stock were outstanding and 400,000 options were granted to employees
during the fiscal year ended September 30, 1997.
Base Salary
The base salary for each executive is intended primarily to be
competitive with companies in the industries and geographic areas in which the
Company competes. In making annual adjustments to base salary, the Board also
considers the individual's performance over a period of time as well as any
other information which may be available as to the value of the particular
individual's past and prospective future services to the Company. This
information includes comments and performance evaluations by the Company's Chief
Executive Officer and Chief Operating Officer. The Board considers all such
data; it does not prescribe the relative weight to be given to any particular
component.
Annual Incentive Compensation
Annual incentive compensation is ordinarily determined by a formula
which considers the overall operations and financial performance of the Company
and its subsidiaries.
Long-term Incentives
In general, the Board believes that equity based compensation should
form a part of an executive's total compensation package. Stock options are
granted to executives because they directly relate the executive's earnings to
the stock price appreciation realized by the Company's shareholders over the
option period. Stock options also provide executives the opportunity to acquire
an ownership interest in the Company. The number of shares covered by each
executive's option was determined by factors similar to those considered in
establishing base salary.
Stock Option Repricing Program
On February 28, 1996, the Board of Directors approved a stock option
repricing program to provide employee option holders additional opportunity and
incentive to achieve business plan goals. The exercise prices for all options
held by employees on that date were repriced to $8.25 per share, which was the
market price on that date. All other terms of the options remained the same and,
accordingly, there was no change to the vesting or term of any option. In
addition, on November 15, 1996, the Board of Directors approved an additional
stock option repricing program to further provide employee option holders with
additional opportunity and incentive to achieve business plan goals. All options
held by employees on November 15, 1996 were repriced to $4.94 per share, which
was the market price on that date.
<PAGE>
Other
Other benefits are generally those available to all other employees in
the Company, or a subsidiary, as appropriate. Together with perquisites, these
benefits did not exceed 10% of any executive's combined salary and bonus in
fiscal 1997.
Compensation for the Chief Executive Officer
The Board applies the same standard in establishing the compensation of
the Company's Chief Executive Officer as are used for other executives. However,
there are procedural differences. The Chief Executive Officer does not
participate in setting the amount and nature of the compensation. Mr. Oosthuizen
did not receive a bonus for fiscal 1997.
The Board does not expect that Section 162(m) of the Internal Revenue
Code will limit the deductibility of compensation expected to be paid by the
Company in the foreseeable future.
This report is submitted by the Board of Directors of the Company, as
of the fiscal year ended September 30, 1997.
Ronald I. Simon, Chairman
Ian B. Aaron
John G. Hamm
A.J.R. Oosthuizen
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of November 1996, the Board of Directors assumed all of the
responsibilities of the Compensation Committee. Mr. Oosthuizen, a director, is
the Chief Executive Officer of the Company and Mr. Aaron, a director, is the
President of MediaCity World, Inc. In addition, Mr. McDonough, who resigned on
July 29, 1997, was formerly the Company's Chief Executive Officer and Chairman
of the Board.
<PAGE>
PERFORMANCE GRAPH
Set forth below is a comparison of the total shareholder return on the
Company's Common Stock for the period beginning September 30, 1992 and ending
September 30, 1997 with the total shareholder return for the same period for the
AMEX Stock Market Index (a broad equity market index which includes the stock of
companies traded on the AMEX) and the AMEX Computer Programming, Data
Processing, & Other Computer Related Services Industrial Index (an index
including companies with primary SIC 7370-7379). The total shareholder return
reflects the annual change in share price, assuming an investment of $100.00 on
September 30, 1992 plus the reinvestment of dividends, if any. No dividends were
paid on the Company's Common Stock during the period shown. The return shown is
based on the annual percentage change during each fiscal year in the five year
period ended September 30, 1997. The stock price performance shown below is not
necessarily indicative of future stock price performance.
Value of $100.00 invested on September 30, 1992
<TABLE>
<CAPTION>
9/30/92 9/30/93 9/30/94 9/30/95 9/29/96 9/30/97
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SoftNet Systems, Inc. $ 100.00 $ 203.45 $ 358.62 $ 748.77 $ 321.84 $ 354.68
AMEX Stock Market Index $ 100.00 $ 90.50 $ 126.56 $ 155.73 $ 158.72 $ 199.79
AMEX Computer Industrial Index $ 100.00 $ 129.29 $ 133.14 $ 193.06 $ 211.90 $ 301.49
</TABLE>
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1997, 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, a former director, president and chief executive officer of the
Company and currently a 5.4% 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 Telcom Midwest, LLC. and
Messrs. Jellinek and Kenny and two other shareholders of the merged company
personally guaranteed obligations arising out of the promissory note, the
sub-lease arrangement and 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.
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.
Subsequently, in fiscal 1997, the outstanding $410,000 promissory note was
further reduced by $249,000, and a new promissory note in the face amount of
$161,000 was executed. 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.
In July 1997, the Company and IMNET further amended the June 1996
Agreement. In an attempt to facilitate the technology transfer, the Company
accepted an order from IMNET for the first 14 MegaSAR units to be manufactured
by the Company. A portion of the payment for these initial units would be
applied against the outstanding promissory note. The transfer of the technology
and the parts needed for production was to have occurred no later than September
1, 1997.
As of September 30, 1997, the transfer to the Company of the technical
and manufacturing know-how for this product offering has continued to be
delayed. Despite the ongoing negotiation and cooperation between the two
parties, the Company determined there was a potential material risk in
completing the technology transfer and getting the product to market. As a
result, in the fourth quarter of fiscal 1997, the Company recorded a one-time
charge to write-off the remaining $1.0 million in assets associated with this
transaction. 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.
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. No longer
serving as a consultant to the Company, 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. At September 30, 1996, the unpaid compensation was $44,500.
Payments to Mr. Hamm resumed in fiscal 1997, and the Company's entire obligation
to Mr. Hamm, with respect to this unpaid compensation, was satisfied as of
January 1998.
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
proxy statement any failure to file by these dates. During the fiscal year ended
September 30, 1997, to the knowledge of the Company, all of these filing
requirements were satisfied by its directors and officers, except that Mr. Ian
Aaron failed to timely file his Form 5's relating to the fiscal years ended
September 30, 1995 and 1996 and that Mr. Oosthuizen failed to timely file his
Form 5 relating to the fiscal year ended September 30, 1996. In making this
statement, 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.
<PAGE>
SHAREHOLDERS' PROPOSALS
A shareholder proposal to be presented at the 1999 Annual Meeting must
be received at the Company's executive offices, 520 Logue Avenue, Mountain View,
California 94043, by no later than October 1, 1998 for evaluation as to
inclusion in the Proxy Statement in connection with such Meeting.
OTHER MATTERS
Management knows of no matters, other than those referred to in this
proxy statement, which will be presented to the meeting. However, if any other
matters properly come before the meeting or any adjournment, the persons named
in the accompanying proxy will vote it in accordance with their best judgment on
such matters.
It is expected that a representative of Coopers & Lybrand L.L.P., will
be present at the Annual Meeting and will have the opportunity to answer any
questions related to the financial statements in the 1997 annual report
distributed to the shareholders with this proxy and to make a statement if he or
she desires. The Board of Directors will vote on the selection of auditors for
the current fiscal year at an upcoming Board Meeting.
The Company has furnished its financial statements to shareholders in
its 1997 Annual Report which accompanies this Proxy Statement. In addition, the
Company will promptly provide, without charge to any shareholder, on the request
of such shareholder, an additional copy of the 1997 Annual Report and the
Company's most recent Form 10-K, and any amendments thereto. Requests for copies
of such report should be directed to Mark A. Phillips, Secretary, 520 Logue
Avenue, Mountain View, California 94043; telephone number (650)965-3700.
You are urged to sign and return your proxy promptly.
Mark A. Phillips
Secretary
January 28, 1998
<PAGE>
PROXY CARD
SOFTNET SYSTEMS, INC.
FOR THE ANNUAL MEETING TO BE HELD ON FEBRUARY 26, 1998
The undersigned appoints Ian B. Aaron, Donna M. Cangelosi and A.J.R. Oosthuizen,
and each of them, attorneys and proxies of the undersigned, with power of
substitution, to represent the undersigned at the Annual Meeting of Shareholders
of SoftNet Systems, Inc. to be held on February 26, 1998 and at any adjournments
thereof, and to vote all shares of Common Stock of SoftNet Systems, Inc. which
the undersigned is entitled to vote on all matters coming before said meeting.
Dated:_______________________________________, 1998
___________________________________________________
Signature of Shareholder
___________________________________________________
Signature if held jointly
THIS PROXY MUST BE SIGNED EXACTLY AS NAME APPEARS HEREON. EXECUTORS,
ADMINISTRATORS, TRUSTEES, ETC., SHOULD GIVE FULL TITLE AS SUCH. IF THE SIGNER IS
A CORPORATION, PLEASE SIGN FULL CORPORATE NAME BY DULY AUTHORIZED OFFICER.
(CONTINUED ON REVERSE SIDE)
<PAGE>
FOLD AND DETACH HERE
1. To elect Ronald I. Simon, Instruction: Unless otherwise
Ian B. Aaron, Edward A. Bennett, specified in the space provided
Lawrence B. Brilliant, below, this proxy shall authorize the
John G. Hamm and A.J.R. Oosthuizen proxies named herein to cumulate all
as the six directors of the votes which the undersigned is
Company to serve until the next entitled to cast at the annual
Annual Meeting and until their meeting for, and to allocate such
successors shall be elected and votes among, one or more of the
qualify: nominees listed to the left as such
proxies shall determine, in their
sole and absolute discretion, in
FOR WITHHELD order to maximize the number of such
nominees elected to the Company's
/ / / / Board of Directors. To specify a
different method of cumulative
voting, write "Cumulative For" and
the number of Shares and the name(s)
FOR, except vote withheld for the of the nominee(s) in the space
following nominees: provided below.
____________________________________ ____________________________________
2. To consider and
transact such other
business as may
properly come before
the Annual Meeting or
any adjournment thereof.
FOR AGAINST ABSTAIN
/ / / / / /
PLEASE MARK INSIDE BLUE BOXES SO THAT DATA
PROCESSING EQUIPMENT WILL RECORD YOUR VOTES
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE
