10-K405/A 1 d10k405a.txt AMENDMENT TO FORM 10-K405 ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-K/A ----------- [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended September 30, 2001. OR [_] Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934. Commission File No.: 001-05270 SOFTNET SYSTEMS, INC. --------------------- (Exact name of registrant as specified in its charter) Delaware 11-1817252 -------- ---------- (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 650 Townsend Street, Suite 225, San Francisco, California 94103 --------------------------------------------------------- ----- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 354-3900 -------------- Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common stock, par value $0.01 per share NASDAQ National Market
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. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant at November 30, 2001, was approximately $44,553,000. 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 November 30, 2001 ----- -------------------------------- Common stock, $0.01 par value 25,171,275
================================================================================ SoftNet Systems, Inc. and Subsidiaries Table of Contents
Page ---- PURPOSE OF FORM 10K/A ................................................................. 2 PART III- OTHER INFORMATION Item 10 Directors and Executive Officers of the Registrant ........................... 2 Item 11 Executive Compensation ....................................................... 4 Item 12 Security Ownership of Certain Beneficial Owners and Management ............... 7 Item 13 Certain Relationships and Related Transactions ............................... 8 SIGNATURES ............................................................................ 9
-1- PURPOSE OF FORM 10-K/A The sole purpose of this amendment is to add the required Part III information to SoftNet Systems, Inc. and Subsidiaries (the "Company") Annual Report on Form 10-K for the fiscal year ended September 30, 2001, which was originally filed with the Securities and Exchange Commission on December 28, 2001, pursuant to General Instruction G(3) of Form 10-K. PART III Item 10. Directors and Executive Officers of Registrant Directors of the Registrant The directors of the Registrant are listed below:
Name of Nominee Age Position --------------- --- -------- Edward A. Bennett ....................... 55 Acting Non-Executive Chairman and Director Jeffrey A. Bowden ....................... 55 Director Linus W.L. Cheung ....................... 53 Director Robert C. Harris, Jr. ................... 55 Director Ronald I. Simon ......................... 63 Director
Edward A. Bennett has served as a member of the Company's Board of Directors since January 1998, and Acting Chairman of the Board since June 2001. Mr. Bennett is a Director of Vaultus, Inc., a wireless solutions provider; Engage, Inc., a leading provider of content management software for multichannel marketing; RealNames Corporation, a global infrastructure provider of Keywords; and Key3Media Group, Inc., the world's leading producer of information technology tradeshows and conferences. Prior to their respective sales, Mr. Bennett also served as a Director at Spinner.com, Methodfive, Xceed, WiredPlanet.com, YourDay.com and YourStuff.com. Mr. Bennett is a Partner of (212) Ventures, a venture capital firm dedicated to investing in infrastructure and wireless Internet services and technologies. From January 1997 until November 1999, Mr. Bennett served as President and Chief Executive Officer of Bennett Media Collaborative, a new media, Internet and technology consulting company. Mr. Bennett also served as President and Chief Executive Officer of Prodigy Ventures, an Internet/technology investment firm, from June 1996 to June 1997, and as President and Chief Executive Officer of Prodigy Services Corporation, an Internet services company, from April 1995 to June 1996. Prior to that, Mr. Bennett spent 15 years at Viacom Inc. in different operating roles. At Viacom Inc. he served as President and Chief Executive Officer at VH-1 Networks from 1989 to 1994, and as Executive Vice President and Chief Operating Officer at Viacom Cable from 1979 to 1989. Pursuant to a stock purchase agreement between the Company and Pacific Century Cyberworks Limited, Pacific Century Cyberworks Limited has the right to nominate two directors, Mr. Bowden and Mr. Cheung, to the Company's Board of Directors. Jeffrey A. Bowden has served as a member of the Company's Board of Directors since December 2000. He is Executive Vice President, Strategic Integration, of Pacific Century CyberWorks Limited. From 1994 to 1996, he served as Vice President, Corporate Strategy and Assurance and Vice President, Merger Integration, at the NYNEX Corporation, where he led the company's merger integration with Bell Atlantic. Mr. Bowden has served twice as a Vice President and Director of the Boston Consulting Group Inc. ("BCG"), from 1988 to 1994 and from 1998 to 2000. BCG is one of the world's leading business international strategic management consulting companies. Mr. Bowden was co-head of the firm's North America Technology and Communications Practice, directing the Group's client relationships with North America's leading communications and data services providers. Linus W.L. Cheung has served as a member of the Company's Board of Directors since April 2001. Mr. Cheung is a deputy chairman of Pacific Century CyberWorks Limited and a member of the Executive Committee. Prior to the merger of Pacific Century CyberWorks Limited and Cable & Wireless HKT, Mr. Cheung was an executive director of Cable & Wireless plc and the chief executive of HKT. Before joining HKT in 1994, Mr. Cheung served 23 years with Cathay Pacific Airways. In 1991, he was deputy commercial director of the airline, and the following year joined the Board of Directors as executive director for Hong Kong, finally serving as deputy managing director. Between 1989 and 1990, Mr. Cheung was seconded full time to serve in the Central Policy Unit of the Hong Kong government. He served as an Official Justice of the Peace in 1990, and as a Non-official Justice of the Peace in July 1992. -2- Robert C. Harris, Jr. has served as a member of the Company's Board of Directors since May 1998. Mr. Harris has served as a Senior Managing Director and Head of Investment Banking in the San Francisco office of Bear, Stearns & Co. Inc. since November 1997. Mr. Harris also serves as Director of MDSI Mobile Data Solutions, Inc. From 1989 to 1997, Mr. Harris was a co-founder and a Managing Director of Unterberg Harris, a registered broker-dealer and investment advisory firm. From 1984 to 1989, Mr. Harris was a General Partner, Managing Director, and Director of Alex Brown & Sons. Ronald I. Simon has served as a member of the Company's Board of Directors since September 1995, Chairman of the Board from August 1997 until April 1999, Vice Chairman of the Board from April 1999 to February 2001, and Acting Chairman, Chief Executive Officer and Chief Financial Officer from February 2001 to June 2001. Since August 2001, Mr. Simon has been Chief Financial Officer of Wingcast, LLC, a telematics services provider. From September 1999 to September 2001, Mr. Simon served as a Director of Western Water Company, a developer and marketer of water and water rights, and was its Executive Vice President and Chief Financial Officer from May 1997 through April 2000. He has served as a Director of Collateral Therapeutics Inc., a developer of non-surgical gene therapy procedures for the treatment of cardiovascular diseases, since May 1999. Mr. Simon serves as Director of Westcorp Investments, a wholly-owned subsidiary of Westcorp, Inc., a holding company for Western Financial Bank. In addition, Mr. Simon served as Chairman and Chief Financial Officer of Sonant Corporation, an interactive voice response equipment company, from 1993 to 1997. He has also been active as a financial consultant since 1990. From 1986 to 1990, he was Managing Director and Chief Financial Officer of Henley Group, Inc. Executive Officers of the Registrant The executive officers and certain other key employees of the Company are listed below:
Name Age Positions ---- --- --------- George L. Hernandez ................ 41 Acting Chief Operating Officer, Vice President Finance & Administration, and Secretary Greg Colley ........................ 41 Treasurer
George L. Hernandez joined the Company as a consultant in November 2000. Mr. Hernandez was employed by the Company as Vice President Finance and Administration in January 2001, he was appointed Secretary in April 2001, then appointed acting Chief Operating Officer in May 2001. From November 1999 to November 2000, Mr. Hernandez served as Vice President Finance and Administration and Treasurer for iLux Corp. During 1999 and part of 1998, Mr. Hernandez held various consulting positions at ChipPac, Inc, Lucent Technologies, Inc, ADAC Laboratories, Inc., and Fujitsu. Prior to that Mr. Hernandez served in various finance roles at Envirotest Systems, Inc., Micronics Computers Inc., Spectrum HoloByte, Inc., Sega of America, Inc., Paramount Pictures, Inc. and KPMG Peat Marwick. Mr. Hernandez is a Certified Public Accountant in the State of California. Greg Colley has served as the Company's Treasurer since April 5, 2001. Mr. Colley joined the Company in September 2000 as Assistant Treasurer with responsibility for all treasury and equity administration functions. From September 1998 to September 2000 Mr. Colley served as Equity Division Treasurer of Banc of America Securities LLC. Prior to that, Mr. Colley spent six years in the Office of the Treasurer of The Regents of the University of California managing securities operations and banking activities. -3- Item 11. Executive Compensation The following table sets forth information for the last three years ended September 30, 2001 concerning compensation paid or accrued by the Company to (i) the Chief Operating Officer of the Company as of September 30, 2001 and (ii) the seven other most highly compensated executive officers of the Company whose total annual salary and incentive compensation for the year ended September 30, 2001 exceeded $100,000 (collectively, the "Named Officers").
Long-Term Compensation Annual Compensation Awards ----------------------------------------------- ------ Securities Fiscal Other Annual Underlying All Other ------ --------- Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) Options (#) Compensation ($) --------------------------- ---- ---------- --------- ---------------- ----------- ---------------- George L. Hernandez/(1)/ 2001 $ 131,135 $ - $ - 50,000 $ 191,205 Acting Chief Operating Officer, Vice 2000 - - - - - President Finance & Administration, 1999 - - - - - and Secretary Greg Colley/(2)/ 2001 $ 120,192 $ - $ - 12,000 $ 65,000 Treasurer 2000 - - - - - 1999 - - - - - Ronald I. Simon/(3)/ 2001 $ - $ - $ - 100,000 $ 182,500 Acting Chief Executive Officer and 2000 - - - - - Chief Financial Officer 1999 - - - - - Lawrence B. Brilliant/(4)/ 2001 $ 85,760 $ 202,500 $ 1,800 - $ 962,500 Chairman and Chief Executive Officer 2000 372,115 192,500 7,200 450,000 - 1999 322,523 150,000 6,600 355,000 - Garrett J. Girvan/(5)/ 2000 $ 146,866 $ 135,000 $ - 115,000 $ 215,202 Chief Executive Officer 2000 297,115 121,000 7,200 225,000 - 1999 253,458 75,000 7,200 165,000 - Steven M. Harris/(6)/ 2001 $ 180,961 $ 435,600 $ - 50,000 $ 29,375 General Counsel and Secretary 2000 203,654 77,000 - 75,000 - 1999 175,000 25,000 - 120,000 - Markus Rohrbasser/(7)/ 2001 $ - $ 30,000 $ 48,052 - $ 168,667 Chief Financial Officer 2000 - - 129,057 - - 1999 - - - - - Jonathan B. Marx/(8)/ 2000 $ 161,347 $ 619,000 $ 1,500 - $ 525,000 President, ISP Channel, Inc. 2000 206,279 77,000 5,250 25,000 - 1999 124,327 - 3,750 - -
---------------- /(1)/ Mr. Hernandez received $90,000 pursuant to terms of a special retention program. In addition, $101,205 in professional fees were paid to an employment firm for Mr. Hernandez' services as consultant from November 2000 through January 2001. /(2)/ Mr. Colley received $65,000 pursuant to terms of a special retention program. /(3)/ Mr. Simon was paid $170,000 for serving as acting Chief Executive Officer and Chief Financial Officer from February 5, 2001, to June 1, 2001. /(4)/ Dr. Brilliant resigned as Chief Executive Officer of the Company effective December 4, 2000, and received cash payments for the year ended September 30, 2001, pursuant to a Separation and Release Agreement dated January 5, 2001. /(5)/ Mr. Girvan served as Chief Executive Officer from December 4, 2000 to February 2, 2001, and received cash payments for the year ended September 30, 2001, pursuant to a Separation and Release Agreement dated February 2, 2001. /(6)/ Mr. Harris resigned as General Counsel and Secretary effective April 5, 2001, and received cash payments for the year ended September 30, 2001, pursuant to a Retention Agreement dated January 3, 2001. /(7)/ Mr. Rohrbasser, as a non-employee, served as Chief Financial Officer from April 17, 2000 to January 5, 2001. In addition to Professional Fees, he received cash payments for the year ended September 30, 2001, pursuant to Separation and Release Agreement dated January 5, 2001. /(8)/ Mr. Marx's employment terminated September 28, 2001; he received cash payments for the year ended September 30, 2001, pursuant to a Retention Agreement dated January 5, 2001. -4- Stock Option Information Option Grants for the Year Ended September 30, 2001. The following table sets forth information with respect to stock options granted by the Company to the Named Officers for the year ended September 30, 2001. No stock appreciation rights were granted for the year ended September 30, 2001.
Individual Grants -------------------------------------------------------------- Number of Percent of Potential Realizable Value Securities Total Options at Assumed Annual Rates of Underlying Granted to Exercise Stock Price Appreciation for Options Employees in or Base Price Expiration Option Term (4) --------------- Name Granted (#) Fiscal Year (2) ($/Share) Date (3) 5% ($) 10% ($) ---- ----------- --------------- --------- -------- ------ ------- George L. Hernandez /(1)/ ...... 50,000 11.07% $ 1.66 2/2/11 $ 52,079 $131,978 Greg Colley .................... 12,000 2.66% $ 5.25 10/13/10 $ 39,620 $100,406 Ronald I. Simon ................ 80,000 14.39% $ 1.50 2/9/11 $ 61,317 $155,390 20,000 4.43% 1.31 4/5/11 16,508 41,836 Lawrence B. Brilliant .......... - - $ - - $ - $ - Garrett J. Girvan .............. 115,000 25.47% $ 4.53 11/1/10 $ 327,709 $830,480 Steven M. Harris ............... 50,000 11.07% $ 4.53 11/1/10 $ 142,482 $361,078 Markus Rohrbasser .............. - - $ - - $ - $ - Jonathan B. Marx ............... - - $ - - $ - $ -
_________________ /(1)/ Mr. Hernandez' options were issued pursuant to an employment agreement dated February 16, 2001, and became exercisable effective December 31, 2001. /(2)/ The Company granted options to employees to purchase 451,600 shares of Common Stock for the year ended September 30, 2001. No options to purchase shares were granted to non-employee consultants for the year ended September 30, 2001. /(3)/ The term of the options is typically 10 years. /(4)/ Potential realizable value is based on the assumption that the price of the Common Stock underlying the option appreciates at the annual rate shown, compounded annually from the date of grant until the end of the option term. The values are calculated in accordance with rules promulgated by the Securities and Exchange Commission and do not reflect the Company's estimate of future stock appreciation. Aggregated Year-End Option Values. The following table sets forth certain information concerning the number of options exercised by the Named Officers for the year ended September 30, 2001, and the number of shares covered by both exercisable and unexercisable stock options held by the Named Officers as of September 30, 2001. Also reported are values for "in-the-money" options that represent the positive spread between the respective exercise prices of outstanding options and the fair market value of the Company's common stock as of September 30, 2001.
Number of Securities Underlying Unexercised Value of Unexercised Options at in-the-Money Options at Shares September 30, 2001(#) September 30, 2001($) Acquired on Value --------------------- --------------------- Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable ---- ------------ ------------ ----------- ------------- ----------- ------------- George L. Hernandez ............ - $ - - 50,000 $ - $ - Greg Colley .................... - $ - 3,000 9,000 $ - $ - Ronald I. Simon ................ - $ - 85,083 27,959 $ 3,550 $ - Lawrence B. Brilliant .......... - $ - - - $ - $ - Garrett J. Girvan .............. - $ - - - $ - $ - Steven M. Harris ............... - $ - 103,539 121,461 $ - $ - Markus Rohrbasser .............. - $ - - - $ - $ - Jonathan B. Marx ............... - $ - 53,247 - $ - $ -
Director Compensation On February 9, 2001, the Board of Directors approved an increase in the monthly retainer to be paid to current members of the board who are not employees of the Company or of a subsidiary of the Company. In addition, the board granted 80,000 options to each director at that day's price, to be fully vested at June 30, 2001. Effective December 2000 through June 2001, such directors were paid a monthly retainer of $20,000. In April 2001, the Board appointed a Special Committee, comprised of Messrs. Bennett, Harris and Simon, for the purpose of pursuing -5- and evaluating potential corporate transactions relating to the future strategic direction of the Company. In July 2001, the board approved the payment of a fee of $20,000 per month to each member of the Special Committee until such time as the Committee be discontinued by the Board of Directors; the Special Committee was discontinued as of November 30, 2001. Messrs. Bowden and Cheung have declined all directors' fees and option grants. A description of other transactions between directors and the Company is set forth below in "Certain Relationships and Related Transactions". Employment and Change of Control Agreements The Company employed George L. Hernandez on January 5, 2001, under terms by which Mr. Hernandez became Vice President, Finance and Administration. Mr. Hernandez was subsequently appointed Secretary on April 5, 2001, and acting Chief Operating Officer on May 14, 2001. Under the employment agreement, Mr. Hernandez was granted an annual salary of $180,000 and was granted non qualified stock options of 50,000 shares vesting on the earlier of (a) December 31, 2001, (b) a change in control of the Company, or (c) upon termination of employment by the Company, except for cause, plus certain retention payments. The Board has not entered into any new compensation agreement with Mr. Hernandez for calendar year 2002. Under the Company's 1998 Stock Incentive Plan, in the event that the Company is acquired by merger or sale of substantially all of its assets, each outstanding option or other award will immediately vest, except to the extent the Company's obligations under that option or award assumed by the successor corporation or such successor corporation substitutes an award with substantially the same economic value. Under the Company's Amended 1995 Long-Term Incentive Plan, each outstanding option upon an acquisition of the Company pursuant to a merger or asset sale will at the discretion of the Stock Option Committee, either be assumed by any successor entity, with or without accelerated vesting of the option shares, or terminate upon the acquisition following a thirty (30)-day period during which the option will be exercisable in full on an accelerated basis. All outstanding options under the Amended 1995 Long-Term Incentive Plan were incorporated into the 1998 Stock Incentive Plan. However, the incorporated options continue to be governed by the existing terms of the Amended 1995 Long-Term Incentive Plan. In the event of a change of control, (1) each employee of the Company would be credited with 12 months of service in addition to their actual time of service for purposes of option vesting, (2) in the event an employee or director is terminated without cause or is removed as a director within 12 months of a change of control, all of the options granted to such employee or director, whether granted under the Company's stock option plans or otherwise, will automatically vest, (3) in the event an executive officer (other than the Chief Executive Officer) or certain key employees are terminated without cause within 12 months of a change of control, such executive officer or key employee will be entitled to a lump sum payment equal to 1.5 times the sum of his or her salary prior to such termination and his or her last annual bonus, and (4) in the event the Chief Executive Officer is terminated without cause within 12 months of a change of control, such Chief Executive Officer will be entitled to a lump sum payment equal to 2 times the sum of his or her salary prior to such termination and his or her last annual bonus. Indemnification of Directors and Limitation of Liability The Company's Bylaws provide that the Company may indemnify its directors, officers and other employees and agents to the fullest extent permitted by law. The Company has also entered into agreements to indemnify its directors and executive officers, in addition to the indemnification provided for in the Company's Bylaws. The Company believes that these provisions and agreements are necessary to attract and retain qualified directors and executive officers. At present, there is no pending litigation or proceeding involving any director, officer, employee or agent of the Company where indemnification will be required or permitted. The Company is not aware of any threatened litigation or proceeding that might result in a claim for such indemnification. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. -6- Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information known to the Company regarding beneficial ownership of the common stock as of December 31, 2001 by (i) each person known by the Company to be the beneficial owner of more than five percent of the outstanding shares of the common stock, (ii) each current director of the Company, (iii) the Chief Executive Officer and each of the Named Officers and (iv) all executive officers and directors of the Company as a group. All shares are subject to the named person's sole voting and investment power except where otherwise indicated. Beneficial ownership is determined in accordance with the rules of the Commission. Shares of common stock, which are issued and outstanding, are deemed to be beneficially owned by any person who has or shares voting or investment power with respect to such shares. Shares of common stock which are issuable upon exercise of options or warrants are deemed to be issued and outstanding and beneficially owned by any person who has or shares voting or investment power over such shares only if the options or warrants in question are exercisable within 60 days of December 31, 2001 and, in any event, solely for purposes of calculating that person's percentage ownership of the Company's common stock (and not for purposes of calculating the percentage ownership of any other person). The number of shares of common stock deemed outstanding and used in the denominator for determining percentage ownership for each person equals (i) 25,171,275 shares of common stock outstanding as of December 31, 2001 plus (ii) such number of shares of common stock as are issuable pursuant to options, warrants or convertible securities held by that person (and excluding options held by other persons) which may be exercised within 60 days of December 31, 2001.
Number of Percentage of Common Stock Outstanding Shares Shares Beneficially Beneficially Name of Beneficial Owner Owned Owned ------------------------ ----- ----- Executive Officers and Directors: Edward A. Bennett/(1)/.................... 220,209 * Jeffrey A. Bowden/(2)/.................... - - Linus W.L. Cheung/(2)/.................... - - Robert C. Harris, Jr. /(3)/............... 182,500 * Ronald I. Simon/(4)/...................... 116,188 * George L. Hernandez/(5)/.................. 50,000 * Greg Colley/(6)/.......................... 7,850 * Lawrence B. Brilliant .................... 182,491 * Garrett J. Girvan ........................ 61,821 * Steven M. Harris/(7)/..................... 167,312 * Markus Rohrbasser ........................ - - Jonathan Marx ............................ - - ------------- --------- As a Group ............................... 988,371 5.3% 5% Owners(8): Pacific Century CyberWorks Limited ....... 5,000,000 19.9% Mediacom LLC ............................. 2,200,000 8.7% White Rock Capital Management, L.P.(9) ... 1,511,800 6.0%
---------- * Less than 1% /(1)/ Includes 205,209 shares issuable pursuant to options exercisable within 60 days of December 31, 2001. /(2)/ Messrs. Cheung and Bowden have declined all option grants. /(3)/ Includes 182,500 shares issuable pursuant to options exercisable within 60 days of December 31, 2001. /(4)/ Includes 91,230 shares issuable pursuant to options exercisable within 60 days of December 31, 2001. /(5)/ Includes 50,000 shares issuable pursuant to options exercisable within 60 days of December 31, 2001. /(6)/ Includes 4,250 shares issuable pursuant to options exercisable within 60 days of December 31, 2001. /(7)/ Includes 138,851 shares issuable pursuant to options exercisable within 60 days of December 31, 2001. /(8)/ Based on filings by such owners with the Securities and Exchange Commission. /(9)/ Includes shares that may be deemed to be beneficially owned by White Rock Capital Partners, L.P.; White Rock Capital Management, L.P.; White Rock Capital, Inc.; Thomas U. Barton; and Joseph U. Burton. -7- Item 13. Certain Relationships and Related Transactions Mediacom, LLC On November 4, 1999, the Company entered into various definitive agreements with Mediacom LLC ("Mediacom"), a more than 5% stockholder of the Company. In exchange for signing an agreement to launch the ISP Channel services, the Company issued a total of 3,500,000 common stock shares to Mediacom, of which 3,150,000 shares were restricted. The restrictions were progressively lifted as Mediacom launched ISP Channel's services in Mediacom's cable television systems. As of September 30, 2000, there were 2,100,000 shares restricted and unvalued. The unrestricted 1,400,000 shares were valued at $26,513,000 as cable affiliate launch incentive. On February 16, 2001, the Company and ISP Channel entered into agreements with Mediacom, to terminate Mediacom's affiliate relationship with ISP Channel. As part of these agreements Mediacom released all obligations under the affiliate agreement with ISP Channel and returned 1,300,000 restricted common stock shares of the Company, and in exchange received certain equipment, a $3,768,000 payment from the Company, and the Company removed restrictions on 800,000 common stock shares valued at $1,500,000 held by Mediacom. Mediacom currently holds a total of 2,200,000 unrestricted common stock shares of the Company. Pursuant to these agreements, neither the Company nor ISP Channel has any further material obligation to Mediacom. Strategic Investments On August 18, 1999, SoftNet Ventures, Inc., a wholly owned subsidiary of the Company, made strategic investments of $250,000 each in YourDay.com, Inc. and YourStuff.com, Inc., which represents less than five percent of the voting power of each company. Edward A. Bennett, a Director of the Company, served on the Board of Directors of both YourDay and YourStuff at the time of the investment. Financial Advisory Services On February 6, 2001, the Company engaged (212) Ventures, Inc. for business and financial advisory services. For the year ended September 30, 2001, the Company paid (212) Ventures, Inc. $100,000 for such services. Edward A. Bennett, a Director of the Company, is a principal of (212) Ventures, Inc. Investment Banking Services On May 24, 2001, the Company announced that it had retained Bear Stearns & Co. ("Bear") as financial advisor to advise the board of directors on strategic options for the Company. Under the terms of an Agreement between the Company and Bear dated May 23, 2001, the Company agreed to pay Bear fees of up to a total $1.5 million. The Company paid a retainer advisory fee of $250,000 upon execution of the Agreement, and may pay additional fees as follows; $500,000 in the event the Company requests Bear to render an opinion for a proposed transaction; $250,000 upon an announcement by the Company of a transaction, and $500,000 upon consummation of a transaction. For the years ended September 30, 2001, 2000 and 1999, the Company paid to Bear, Stearns & Co., Inc. $350,000, $522,000 and $53,000, respectively, for investment banking services. Robert C. Harris, Jr., a Director of the Company, is a senior managing director of Bear, Stearns & Co., Inc. Consulting Services On February 2, 2001, the Company's Board of Directors appointed Ronald I. Simon, a Director of the Company, to acting Chief Executive Officer and Chief Financial Officer at $2,500 per day or $10,000 per week beginning February 5, 2001. Mr. Simon was paid $170,000 for serving as acting Chief Executive Officer and Chief Financial Officer from February 5, 2001, to June 1, 2001. 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 Common Stock are required to report their ownership of Common Stock and any changes in that ownership to 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. For the year ended September 30, 2001, to the knowledge of the Company, all of these filings were satisfied by its directors and officers. In making this statement, the Company has relied on the written representations of its directors and officers and copies of the reports they have filed with the Commission. For the year ended September 30, 2001, the Company had only one holder of 10% or more the Company's Common Stock, Pacific Century Cyberworks Limited (see Item 12, "Security Ownership of Certain Beneficial Owners and Management"). -8- 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. /s/ George L. Hernandez Date: January 29, 2002 --------------------------------------------------- ---------------- George L. Hernandez Acting Chief Operating Officer; Vice President, Finance and Administration; and Secretary -9-