-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OKwTFO7wOHwLl7GbQTTiWzchd8iYwbV9JSrm0oNLa1bTSK6yrn6nfwMxwDsvgOdZ lssVdxyw0BnN50qkA9RdpQ== 0000950131-01-001124.txt : 20010223 0000950131-01-001124.hdr.sgml : 20010223 ACCESSION NUMBER: 0000950131-01-001124 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SONIC FOUNDRY INC CENTRAL INDEX KEY: 0001029744 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 391783372 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-30407 FILM NUMBER: 1544527 BUSINESS ADDRESS: STREET 1: 1617 SHERMAN AVE CITY: MADISON STATE: WI ZIP: 53704 BUSINESS PHONE: 6082563133 MAIL ADDRESS: STREET 1: 1617 SHERMAN AVE CITY: MADISON STATE: WI ZIP: 53704 10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) {x} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended December 31, 2000 ------------------ OR {_} TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-14007 ------- SONIC FOUNDRY, INC. ------------------- (Exact name of registrant as specified in its charter) MARYLAND 39-1783372 --------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1617 Sherman Avenue, Madison, WI 53704 --------------------------------------- (Address of principal executive offices) (608)256-3133 ------------- (Registrant's telephone number including area code) 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 --- ___. State the number of shares outstanding of each of the issuer's common equity as of the last practicable date: Outstanding Class February 12, 2001 ----- ----------------- Common Stock, $0.01 par value 22,115,638 SONIC FOUNDRY, INC. QUARTERLY REPORT ON FORM 10-Q QUARTER ENDED DECEMBER 31, 2000 TABLE OF CONTENTS
PAGE NO. -------- PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Balance Sheets - December 31, 2000 (Unaudited) And September 30, 2000....................................................................... 3 Consolidated Statements of Operations (Unaudited) - Three-months ended December 31, 2000 and 1999................................................ 5 Consolidated Statements of Cash Flows (Unaudited) Three-months ended December 31, 2000 and 1999................................................ 6 Notes to Consolidated Financial Statements (Unaudited).......................................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk............................................................................. 15 PART II OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds....................................................... 16 Item 6. Exhibits and Reports on Form 8-K................................................................ 17
2 Sonic Foundry, Inc. Consolidated Balance Sheets (in thousands except for share data)
December 31, September 30, 2000 2000 --------------------------------- Assets (Unaudited) Current Assets: Cash and cash equivalents $ 12,930 $ 21,948 Accounts receivable, net of allowances of $1,170 and $1,209 at December 31, 2000 and September 30, 2000, respectively 8,133 9,075 Accounts receivable, other 299 355 Revenues in excess of billings for software license fees 202 105 Inventories 2,148 1,906 Prepaid expenses and other current assets 1,161 1,591 Prepaid Advertising 1,000 1,000 ---------------------------- Total current assets 25,873 35,980 Property and equipment: Land - 95 Buildings and improvements 2,092 3,186 Equipment 15,543 15,370 Furniture and fixtures 577 504 Assets held for sale 1,323 - ---------------------------- Total property and equipment 19,535 19,155 Less accumulated depreciation 3,171 3,071 ---------------------------- Net property and equipment 16,364 16,084 Other assets: Goodwill and other intangibles, net 65,244 73,632 Capitalized software development costs, net 395 518 Long-term investment 514 514 Other assets 181 97 ---------------------------- Total other assets 66,334 74,761 ---------------------------- Total assets $ 108,571 $ 126,825 ============================
See accompanying notes. 3 Sonic Foundry, Inc. Consolidated Balance Sheets (in thousands except for share data)
December 31, September 30, 2000 2000 ------------------------------ Liabilities and stockholders' equity Current liabilities: Accounts payable $ 3,648 $ 5,231 Accrued liabilities 3,667 2,819 Accrued restructuring charges 2,557 - Current portion of long-term debt 4,299 4,300 Current portion of capital lease obligations 1,446 1,477 ------------------------------ Total current liabilities 15,617 13,827 Long-term obligations, net of current portion 850 923 Capital lease obligations, net of current portion 1,390 1,703 Other liabilities 29 6 Stockholders' equity: Preferred stock, $.01 par value, authorized 5,000,000 shares, non issued and outstanding - - 5% preferred stock, Series B, voting, cumulative, convertible, $.01 par value (liquidation preference at par), authorized 10,000,000 shares, none issued and outstanding - - Common stock, $.01 par value, authorized 100,000,000 shares; 21,962,788 and 21,904,574 shares issued and 21,932,638 and 21,876,824 outstanding at December 31, 2000 and September 30, 2000 220 219 Common stock to be issued 5,579 5,579 Additional paid-in capital 147,238 148,290 Accumulated deficit (62,061) (42,388) Receivable for common stock issued (26) (72) Cumulative foreign currency translations/adjustments 7 137 Unearned compensation (85) (1,249) Treasury stock, at cost, 30,150 and 27,750 shares at December 31, 2000 and September 30, 2000 (187) (150) ------------------------------ Total stockholders' equity 90,685 110,366 ------------------------------ Total liabilities and stockholders' equity $ 108,571 $ 126,825 ==============================
See accompanying notes. 4 Sonic Foundry, Inc Statements of Operations (Unaudited) (in thousands except for per share data)
Three Months Ended December 31, 2000 1999 ------------------------------------------- Revenue: Software license fees $ 3,988 $ 5,049 Media services 2,530 37 ------------------------------------------- Total revenue 6,518 5,086 Cost of revenue: Cost of license fees 1,404 1,055 Cost of services 2,333 103 ------------------------------------------- Total cost of revenues 3,737 1,158 ------------------------------------------- Gross profit 2,781 3,928 Operating expenses: Selling and marketing expenses 5,228 4,038 General and administrative expenses 3,684 1,452 Product development expenses 2,834 1,191 Amortization of goodwill and other intangibles 7,018 - Restructuring charges 3,782 - ------------------------------------------- Total operating expenses 22,546 6,681 ------------------------------------------- Loss from operations (19,765) (2,753) Other income (expense): Interest expense (187) (166) Interest and other income 279 716 ------------------------------------------- Total other income 92 550 ------------------------------------------- Net loss $ (19,673) $ (2,203) =========================================== Loss per common share: Basic $ (0.90) $ (0.16) =========================================== Diluted $ (0.90) $ (0.16) ===========================================
See accompanying notes. 5 Sonic Foundry, Inc. Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Three months ended December 31, 2000 1999 --------------------------------- Operating activities Net loss $ (19,673) $ (2,203) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of goodwill and other intangibles 7,018 - Depreciation and amortization of property and equipment 860 193 Amortization of capitalized software development 123 124 Noncash charge for common stock warrants and options 12 181 Amortization of debt discount and debt issuance costs - 80 Amortization of unearned compensation - 25 (Gain)/Loss on sale of assets and investments, including estimated loss on assets held for sale 618 (650) Changes in operating assets and liabilities: Accounts receivable and revenues in excess of billings 901 (1,002) Inventories (242) (315) Prepaid expenses and other assets 365 28 Accounts payable and accrued liabilities 2,267 1,147 --------------------------- Total adjustments 11,922 (189) --------------------------- Net cash used in operating activities (7,751) (2,392) Investing activities Fees related to acquisition, accrued in prior year (453) - Purchases of property and equipment (488) (1,058) Sales of property and equipment - 400 --------------------------- Net cash used in investing activities (941) (658) Financing activities Proceeds from sale of common stock, net of issuance costs 93 9 Payments on long-term debt and capital leases (419) (22) --------------------------- Net cash used in financing activities (326) (13) --------------------------- Net decrease in cash (9,018) (3,063) Cash and cash equivalents at beginning of period 21,948 5,889 --------------------------- Cash and cash equivalents at end of period $ 12,930 $ 2,826 =========================== Supplemental cash flow information: Interest paid $ 97 $ 14 Noncash transactions - Capital lease acquisitions - 141 Reclassification of goodwill to fixed assets upon final appraisal of International Image 1,281 - Cancellation of unvested stock options classified as Unearned compensation upon acquisition of STV 1,249 - Issuance of warrants for consulting services 19 696 Conversion of subordinated debt and associated debt issuance costs and accrued interest into common stock - 2,890
See accompanying notes. 6 Sonic Foundry, Inc. Notes to Consolidated Financial Statements (Unaudited) 1. Basis of Presentation and Significant Accounting Policies Interim Financial Data The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the Company's annual report filed on Form 10-K for the fiscal year ended September 30, 2000. In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation of the results of operations have been included. Operating results for the three-month period ended December 31, 2000 are not necessarily indicative of the results that might be expected for the year ended September 30, 2001. Inventories Inventory consists of the following (in thousands): December 31, September 30, 2000 2000 --------------------------- Raw materials and supplies $ 1,131 $ 1,121 Work-in-process 363 213 Finished goods 654 572 --------------------------- $ 2,148 $ 1,906 =========================== Net Loss Per Share The following table sets forth the computation of basic and diluted loss per share: Three Months Ended December 31, 2000 1999 ---------------------- Denominator Denominator for basic and diluted loss per share - weighted average common shares 21,881,085 13,396,780 ======================= Securities that could potentially dilute basic earnings per share in the future that are not included in the computation of diluted loss per share as their impact is antidilutive (treasury stock method) Options, warrants and exchangeable shares 1,220,462 1,086,906 Convertible debt - 311,000 Convertible Series B Preferred Stock - - 7 Accounting Pronouncements In May 2000, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-14, "Accounting for Certain Sales Incentives." EITF No. 00-14 requires cash rebates to be classified as a reduction of revenue rather than a marketing expense. Historically, the Company has recognized revenue for products with cash rebates on a gross basis at the time of the sale, and cash rebates expected to be claimed were charged to marketing expense. Adoption of EITF No. 00-14 affects the presentation of cash rebates in the statement of operations, but does not affect the loss from operations reported. EITF No. 00-14 is required to be adopted beginning July 1, 2001, however, the Company has elected to make it effective October 1, 2000. Prior periods presented for comparative purposes have been reclassified to comply with the new presentation requirements. For the quarter ended December 31, 2000 and 1999, cash rebates were $218,000 and $18,000, respectively. 2. Restructuring Charge As a result of rapidly changing market conditions, in December 2000 the Board of Directors authorized management to make a 40% workforce reduction in order to improve cash flow. As a result of this reduction, the Company recorded restructuring charges of $3,782 during the first quarter of fiscal 2001. The restructuring charges were determined based on plans submitted by the Company's management and approved by the Board of Directors using information available at the time and are summarized below. It is possible that further restructuring charges will be recognized as more information becomes available. Restructuring charges (in thousands): As of December 31, 2000 ---------------------------------------------------------------- Employee termination costs $ 1,470 Lease terminations 1,555 Expected losses on disposal of property and equipment 594 Other exit costs 163 -------- Total restructuring charge $ 3,782 ======== 3. Rescission of Exercise of Employee Stock Option In December of 2000 the company rescinded a June 2000 employee stock option exercise of 2,400 shares and canceled a recourse note receivable related to that exercise. The company then issued new options under the same terms as the options originally exercised. 4. Subsequent Events In early January 2001, a $4,000 note was due to the former shareholders of International Image. We withheld paying the note pending the resolution of certain disputed representations made during the acquisition. In early February 2001 the noteholders initiated litigation against us in Toronto for payment of the note. We currently cannot estimate either the timing of the payment or any change in the amount to be paid. 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the consolidated financial position and results of operations of the Company should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this form 10-Q and the Company's annual report filed on form 10-K for the fiscal year ended September 30, 2000. In addition to historical information, this discussion contains forward-looking statements such as statements of the Company's expectations, plans, objectives and beliefs. These statements use such words as "may," "will," "expect," "anticipate," "believe," "plan," and other similar terminology. Actual results could differ materially due to changes in the market acceptance of our products, market introduction or product development delays, our ability to effectively integrate acquired businesses, global and local business conditions, legislation and governmental regulations, competition, our ability to effectively maintain and update our product portfolio, shifts in technology, political or economic instability in local markets, and currency and exchange rate fluctuations. Overview In accordance with FAS 131 disclosure on segment reporting, the SEC's guidance has been to present financial information in a format that is used by the Company's management to make decisions. We view the Company as a digital media solutions provider with two primary revenue centers: a software product division, with a full suite of software products utilized by both producers and consumers of digital media; and a media services division, which provides broadcast conversion, tape duplication, audio and video encoding, webcasting, streaming, hosting and consulting services. We analyze these two revenue centers, along with their respective production costs, independently from each other. However, because the majority of our operating expenses support both revenue centers, we analyze all items below gross margin on a combined basis. Results of Operations The following chart has been presented to add clarification only and should be read in conjunction with the consolidated financial statements. Three Months Ended December 31, 2000 1999 ------------------------------- Software license fees $ 3,988 100% $ 5,049 100% Cost of software license fees 1,404 35 1,055 21 ------------------------------- Gross margin-software license fees $ 2,584 65% $ 3,994 79% Media services $ 2,530 100% $ 37 100% Cost of media services 2,333 92 103 278 ------------------------------- Gross margin-media services $ 197 8% $ (66) (178)% 9 Total Net Revenue Three months ended December 31, 2000 ("2000") compared with the three months ended December 31, 1999 ("1999") Total net revenues increased $1,432 or 28% to $6,518 for the three months ended December 31, 2000 from $5,086 in the comparable period of 1999. The net increase in revenue is due to the addition of our recently acquired service businesses, which occurred in the second half of fiscal 2000. The revenue from our traditional software business decreased, primarily because of an industry-wide weakening in the retail market. Net revenues from international customers accounted for 25% and 14% of total net revenues for the three-month periods ended December 31, 2000 and 1999, respectively. For detailed information on revenue recognition principles, see Note 1 to the audited financial statements in the annual report filed as part of Form 10-K for the fiscal year ended September 30, 2000. Revenue from Software License Fees Revenues from software license fees consist of fees charged for the licensing of Windows based software products that are built on the principle of "Create" (ACID, Loop Libraries, Audio Anywhere), "Edit" (Sound Forge, Sound Forge XP, Vegas Audio, Viscosity, Vegas Video, VideoFactory) and "Deliver" (CD Architect, Siren, Stream Anywhere, Soft Encode). These software products are marketed to all levels of both consumers and producers of digital media. We reach both our domestic and international markets through traditional retail distribution channels, our direct sales effort and OEM partnerships. 2000 compared to 1999 Net revenues from software license fees decreased $1,061 from 1999 to 2000. This net change resulted from the following items: . Revenue generated from OEM partners declined $596 from 1999 to 2000. This is due primarily to a recent trend towards OEM's bundling larger volumes of our product with their hardware or software. Typically, these arrangements involve limited capability versions of our product, that we license free of charge in exchange for mass marketing opportunities intended to drive upgrade revenues. . Revenue from our domestic retail channel declined $533 from 1999 to 2000. The decline is due primarily to an overall weakening in the consumer market and the impact of cash rebates in 2000. . Direct revenues increased $100 from 1999 to 2000, which is being driven by our ongoing catalog campaign as well as discounted pricing offered on our web site. . Sales of our Creation line decreased by $662 due to the weakening in both the OEM and the retail markets, however, sales of our Edit line increased due to the September, 2000 introduction of VideoFactory. Our Delivery line increased by $184 because of continued success with Siren and an ongoing consulting project for one customer. 10 Cost of Software License Fees Costs of software license fees include product material costs, contracted and internal assembly labor, freight, royalties on third party technology or intellectual content, and amortization of previously capitalized product development and localization costs. 2000 compared to 1999 Cost of software license fees increased by $349 to $1,404 in 2000 from $1,055 in 1999, and were 35% and 21% of net revenues during the 2000 and 1999 periods, respectively. The increase is primarily due to a greater revenue mix of lower margin consumer products, an increase in products requiring third-party royalties, a decline in OEM revenue and an increase in the inventory obsolescence reserve. Revenue from Media Services In October 1999, we announced the formation of our Media Services division by offering audio and video encoding services from our Madison location. In April 2000, we added hosting, streaming, syndication and webcasting to our list of digital offerings with the acquisition of STV Communications, Inc. ("STV") and in August 2000 we finalized the acquisition of International Image ("II"), which added tape duplication and broadcast conversion services to our Media Services division. The II acquisition accounted for $2,366 of Media Services revenue in the 2000 quarter. Costs of Media Services Costs of media services include compensation and benefits for direct labor, depreciation on production equipment, and other general expenses associated with production personnel. Overall service margins were 8%, led by higher margin video-tape services, but off-set by lower margin encoding services. Our switch to a temporary labor force for data input in our encoding operations is expected to improve encoding margins going forward. 11 Operating Expenses The following chart is provided to add clarification by presenting items as a percentage of total revenues. This should be read in conjunction with the unaudited consolidated financial statements presented in this filing. Three Months Ended December 31, 2000 1999 ---------------------------------- Total revenues 100% 100% Cost of revenues 57 23 ---------------------------------- Gross margin 43 77 Operating expenses Selling and marketing expenses 80 79 General and administrative expenses 57 29 Product development expenses 43 23 Amortization of goodwill and other purchase intangibles 108 0 Restructuring charges 58 0 ---------------------------------- Total operating expenses 346 131 ---------------------------------- (Loss) from operations (303)% (54)% ================================== Selling and Marketing Expenses Selling and marketing expenses include wages and commissions for sales, marketing and technical support personnel, as well as print, radio and TV advertising, our direct mail catalog, trade shows and various promotional expenses for both our products and services. Timing of these costs may vary greatly depending on introduction of new products and services or entrance into new markets. 2000 compared to 1999 Selling and marketing expenses increased by $1,190, or 29%, to $5,228 in 2000 from $4,038 in 1999. 76% of the increase is from the additional sales and marketing expenses associated with the acquisitions of STV and II. Both quarters focused on the development and distribution of Sonic Foundry product catalogs, media advertising, consumer channel sales promotions and a strong tradeshow presence. Looking forward, we anticipate sales and marketing expenses as a percentage of total revenue to decline. We believe this decline will be impacted by the following items; 1) significant staff reductions in the sales and marketing department; 2) a greater attention placed on the media services division, which requires less expensive, more targeted 12 forms of marketing; which coincides with 3) a lesser focus on more costly brand marketing such as tradeshows and media advertising. General and Administrative Expenses General and administrative expenses consist of personnel and related costs associated with the facilities, finance, legal, and information technology departments, as well as other expenses not fully allocated to functional areas. 2000 compared to 1999 General and administrative expenses increased by $2,232 or 154%, to $3,684 in 2000 from $1,452 in 1999. The increase from 1999 to 2000 is primarily attributable to expenses such as legal, accounting, personnel, consulting and travel associated with the continued integration of newly acquired companies and management of multiple locations. We believe general and administrative expenses as a percentage of total revenues will decline. We believe this decline will be impacted primarily by staff reductions, the consolidation of facilities and the elimination of underutilized assets. Product Development Expenses Product development expenses include salaries and wages of the software research and development staff and an allocation of benefits, facility and administrative expenses, net of product development expenses capitalized pursuant to SFAS No. 86, "Accounting for the Cost of Computer Software to be Sold, Leased, or Otherwise Marketed." 2000 compared to 1999 Product development expenses increased by $1,643, or 138%, to $2,834 in 2000 from $1,191 in 1999. The addition of software engineers to accelerate development of the Company's expanding line of software products, as well as efforts expended to establish our media services division and add to a host of internally used filtering algorithms, caused the increase in product development costs between the two periods. Looking forward, we expect to narrow our product offering to the product lines achieving the greatest success and eliminate low volume niche products such as CD Architect, Soft Encode, Audio Anywhere and certain others. As a result, we reduced engineering staff positions in December 2000. In accordance with SFAS Number 86, the Company capitalizes the cost of development of software products that have reached technological feasibility. No development costs for our core product line were capitalized during the current period. Going forward, we believe software development costs qualifying for capitalization will be less significant, and, as such, we expect that we will expense most or all research and development costs as incurred. 13 Restructuring Charges As outlined in footnote 2 to the unaudited consolidated financial statements included in this report, a restructuring charge of $3,782 was incurred in the current period and relates to management's decision to improve cashflow. This restructuring charge primarily consists of 1) an accrual for 60 days of severance and benefits for domestic employees terminated on December 20, 2000; 2) severance and approximate expenses associated with closing our office in the Netherlands; 3) an asset impairment charge related to the sale, disposal or write-down of PCs, office equipment and other assets no longer required; 4) operating and lease termination costs related to the consolidation of facilities; 5) and miscellaneous charges such as forfeited tradeshow deposits. Amortization of Goodwill and Other Purchase Intangibles The 2000 amortization of goodwill and other purchase intangibles consists of expense associated with the purchases of STV and II. STV's total purchase intangibles consist of: 1) assembled workforce of $1 million amortized over a one year period and goodwill of $70 million amortized over a three year period. II's total goodwill consists of: 1) assembled workforce of $2.2 million amortized over a five year period; and 2) goodwill of $12.9 million amortized over a three to seven year period. In the quarter ended December 31, 2000 we received a final appraisal of II's fixed assets and, as a result, reclassified $1.2 million of the purchase price from goodwill to fixed assets. Liquidity and Capital Resources Cash used in operating activities amounted to $7,751 and $2,392 in 2000 and 1999. Increased use of operating cash in 2000 consisted primarily of a $19,673 net loss offset by non-cash expenses, including $7,018 acquisition-related amortization and $860 of depreciation and amortization of property and equipment. Operating losses in 1999 also accounted for the primary use of funds. In both periods, operating losses were driven by large promotional efforts, increase in employees and growth of infrastructure. Cash used in investing activities was $941 in 2000 and $658 in 1999. Investing activities in the current year related to legal, accounting, and other professional fees for the International Image acquisition and to fixed asset purchases. In 1999, fixed asset purchases of $1,059 - primarily for the media services effort - were partially offset by the December 1999 sale of real estate no longer needed in the Company's operations. Cash used in financing activities was $326 in 2000 and $13 in 1999. In 2000, we had $419 of debt and capital lease payments offset by $93 collected from stock option exercises and purchases through the Employee Stock Purchase Plan. The majority of the increase in debt and lease payments from last year relates to financing for Media Services equipment obtained in the STV transaction. As a result of our restructuring, much of this equipment is not currently being utilized. Therefore, the company intends to negotiate with certain lessors to terminate the leases. 14 These terminations may result in losses and therefore an estimate for these costs has been included in the restructuring accrual. In response to the tightening of the market for both software and media services, we have taken steps to significantly reduce our operating expenses. In November and December of 2000, we reduced headcount across all departments, eliminated certain sales and marketing programs and discontinued non-core media services efforts such as syndication. None of these cuts are anticipated to impact future revenue generation or the quality of products and services we provide. Although we believe these efforts will allow us to generate positive cash flow from operations in the near term with available resources, there can be no assurance we will succeed. We may pursue cash in the equity market with key strategic partners or private investors. We are also reviewing other financing activities such as debt, sale-leaseback and subleasing arrangements and the sale of underutilized assets. We have already signed an agreement to sell our former Madison headquarters. We expect to close on the transaction in early March and will net approximately $600 after paying our mortgage. There can be no assurance that we will obtain additional debt or equity on satisfactory terms. In early January 2001, a $4,000 note was due to the former shareholders of International Image. We have withheld paying the note pending the resolution of certain disputed representations made during the acquisition. In early February 2001 the noteholders initiated litigation against us in Toronto for payment of the note. We currently cannot estimate either the timing of the payment or any change in the amount to be paid. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Because our cash equivalents consist of overnight investments in money market funds, we will not experience decreases in principal value associated with a decline in interest rates. Although we license our software to customers overseas in U.S. dollars, we have exposure to foreign currency fluctuations associated with liabilities, bank accounts and other assets maintained by our offices in Canada and the Netherlands. The $4 million note due in January 2001 is denominated in Canadian dollars and exposes us to changes in exchange rates until that note is paid. We currently do not hedge our exposure to foreign currency fluctuations, which have historically been immaterial. 15 PART II OTHER INFORMATION Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS (a) None (b) None (c) Between October 1, 2000 and December 31, 2000, the Company issued unregistered securities as follows: (1) The issuance of 20,000 warrants to consultants in December 2000. This issuance of warrants was made in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act, relating to sales by an issuer not involving a public offering. Based on a discussion with the investor, the Registrant reasonably believes that such investor was an accredited and sophisticated investor. By virtue of their relation to the Registrant, this investor had access to information on the Registrant necessary to make an informed investment decision. No underwriters were engaged in connection with these issuances. Consideration received by the registrant consisted of investment banking services. (2) The issuance of 1,674,650 options granted to employees and directors. These issuances of options were made in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act, relating to sales by an issuer not involving a public offering. Based on a close working relationship with such optionees, along with various discussions with such optionees, the Registrant reasonably believes that such optionees were accredited and/or sophisticated investors. By virtue of their relation to the Registrant, these employees had access to information on the Registrant necessary to make an informed decision. 16 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (see exhibit list) (b) Reports on Form 8-K - None ITEM 6(a) NUMBER DESCRIPTION - ------ ----------------------------------------------------------------------- 3.1 Amended and Restated Articles of Incorporation of the Registrant, filed as Exhibit No. 3.1 to the registration statement on amendment No. 2 to Form SB-2 dated April 3, 1998 (Reg. No. 333-46005) (the "Registration Statement"), and hereby incorporated by reference. 3.2 Amended and Restated By-Laws of the Registrant, filed as Exhibit No. 3.2 to the Registration Statement, and hereby incorporated by reference. 10.1 Registrant's 1995 Stock Option Plan, as amended, filed as Exhibit No. 4.1 to the Registration Statement on Form S-8 on September 8, 2000, and hereby incorporated by reference. 10.2 Registrant's Non-Employee Directors' Stock Option Plan, filed as Exhibit No. 10.2 to the Registration Statement, and hereby incorporated by reference. 10.3 Commercial Lease between Registrant and The Williamson Center, LLC regarding 740 and 744 Williamson Street, Madison, Wisconsin dated January 20, 1998, filed as Exhibit No. 10.3 to the Registration Statement, and hereby incorporated by reference. 10.4 Employment Agreement between Registrant and Rimas Buinevicius dated as of January 1, 2001. 10.5 Employment Agreement between Registrant and Monty R. Schmidt dated as of January 1, 2001. 10.6 Employment Agreement between Registrant and Curtis J. Palmer dated as of January 1, 2001. 10.7 Digital Audio System License Agreement between Registrant and Dolby Laboratories Licensing Corporation dated July 28, 1997, filed as Exhibit No. 10.7 to the Registration Statement, and hereby incorporated by reference. 17 10.8 Digital Audio System License Agreement between Registrant and Dolby Laboratories Licensing Corporation dated July 28, 1997, filed as Exhibit No. 10.8 to the Registration Statement, and hereby incorporated by reference. 10.9 Start-up Agreement between Registrant and Ingram Micro Inc. dated October 16, 1997, filed as Exhibit No. 10.9 to the Registration Statement, and hereby incorporated by reference. 10.12 Software License Agreement, effective as of September 29, 1998, between Registrant and Hewlett-Packard Company - CONFIDENTIAL MATERIAL FILED SEPARATELY, and hereby incorporated by reference. 10.13 Commercial Lease between Registrant and Seven J's, Inc. regarding 627 Williamson Street, Madison, Wisconsin dated March 26, 1999, filed as Exhibit No. 10.13 to the Quarterly Report on form 10-QSB for the period ended March 31, 1999, and hereby incorporated by reference. 10.14 Business Note Agreement, dated March 3, 1999 between Registrant and Associated Bank South Central, filed as Exhibit No. 10.15 to the Quarterly Report on form 10-QSB for the period ended March 31, 1999, and hereby incorporated by reference. 10.15 Convertible Debenture Purchase Agreement dated September 13, 1999 between Purchasers and the Registrant filed as Exhibit No. 10.17 to the Current Report on form 8-K filed on September 24, 1999, and hereby incorporated by reference. 10.16 Commercial Lease between Registrant and Tenney Place Development, LLC regarding 1617 Sherman Ave., Madison, Wisconsin dated October 1, 1999, filed as Exhibit No. 10.18 to the Annual Report on form 10-K for the period ended September 30, 1999, and hereby incorporated by reference. 10.17 Registrant's 1999 Non-Qualified Stock Option Plan, filed on Form S-8 on September 8, 2000, and hereby incorporated by reference. 10.18 Commercial Lease between Registrant and Hargol Management Limited regarding 23 Prince Andrew Place, Don Mills, Ontario, Canada dated January 15, 1990, filed as Exhibit No. 10.20 to the Amended Annual Report on Form 10-K/A for the year ended September 30, 2000, and hereby incorporated by reference. 10.19 Commercial Lease between Registrant and the Richlar Partnership regarding 1703 Stewart St., Santa Monica, CA, dated August 10, 1995, filed as Exhibit No. 10.21 to the Amended Annual Report on Form 10-K/A for the year ended September 30, 2000, and hereby incorporated by reference. 18 10.20 Commercial Lease between Registrant and Thomas Seaman regarding 12233 Olympic Blvd., Santa Monica, CA, dated January 23, 2000 filed as Exhibit No. 10.22 to the Amended Annual Report on Form 10-K/A for the year ended September 30, 2000, and hereby incorporated by reference. 10.21 Agreement and Plan of Merger, dated as of March 15, 2000, by and among the Registrant, New Sonic, Inc., and STV Communications, Inc., filed as Exhibit 2.1 to a Current Report on Form 8-K dated April 18, 2000 and hereby incorporated by reference. 10.22 Stock Purchase Agreement, dated January 18, 2000, by and among the Registrant, Jedor, Inc., and certain principals of Jedor, Inc., filed as Exhibit 2.2 to the registration statement filed on Form S-3 on May 12, 2000 and hereby incorporated by reference. 10.23 Share Purchase Agreement dated as of June 1, 2000, by and among the Registrant, Sonic Foundry (Nova Scotia) Inc., Charles Ferkranus, Michael Ferkranus, 1096159 Ontario Limited, 1402083 Ontario Limited, Dan McLellan, Curtis Staples, Bank of Montreal Capital Corp., Roynat Inc. and DGC Entertainment Ventures Corp., filed as Exhibit 2 to the Current Report filed on Form 8-K on September 12, 2000, and hereby incorporated by reference. 10.24 Stock Restriction and Registration Agreement, dated as of March 15, 2000, among the Company, Jan Brzeski, Jeffrey Gerst, David Fife, and Fife Capital, L.L.C., filed as Exhibit 4.2 to the Registration Statement filed on Form S-3 on May 12, 2000, and hereby incorporated by reference. 10.25 Voting and Option Agreement, dated March 15, 2000, among the Company, certain of its stockholders, and Jan Brzeski, David Fife, Jeffrey Gerst, and Fife Waterfield, filed as Exhibit 4.3 to the Registration Statement filed on Form S-3 on May 12, 2000, and hereby incorporated by reference. 10.26 Subscription Agreement dated February 8, 2000 between Subscribers and the Company, filed as Exhibit 10.19 of a Current Report on Form 8-K dated February 14, 2000, and hereby incorporated by reference. 10.27 Registration Rights Agreement, dated February 8, 2000, by and among the Company and certain investors, filed as Exhibit 4.5 to the Registration Statement filed on Form S-3 on May 12, 2000, and hereby incorporated by reference. 10.28 Registration Rights Agreement, dated March 31, 2000, among the Company and Sony Pictures Entertainment Inc., filed as Exhibit 4.6 to the Registration Statement filed on Form S-3 on May 12, 2000, and hereby incorporated by reference. 19 10.29 Share Exchange Agreement, dated August 24, 2000 among the Registrant, Sonic Foundry (Nova Scotia), Inc., Charles Ferkranus, Michael Ferkranus, 1096159 Ontario Limited, and 10402083 Ontario Limited, filed as Exhibit 4.2 to the Registration Statement filed on Form S-3 on November 7, 2000, and hereby incorporated by reference. 10.30 Buyer Non-Voting Exchangeable Share Option Agreement, dated August 24, 2000, among the Registrant, Dan McLellan, Curtis Staples, and Sonic Foundry (Nova Scotia), Inc., filed as Exhibit 4.3 to the Registration Statement filed on Form S-3 on November 7, 2000, and hereby incorporated by reference. 10.31 Support Agreement, dated August 24, 2000, between the Company and Sonic Foundry (Nova Scotia), Inc. filed as Exhibit 4.4 to the Registration Statement filed on Form S-3 on November 7, 2000 and hereby incorporated by reference. 20 SIGNATURES Pursuant to the requirement 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. Sonic Foundry, Inc. ------------------- (Registrant) February 14, 2001 By: /s/ Rimas P. Buinevicius ------------------------ Rimas P. Buinevicius Chairman and Chief Executive Officer February 14, 2001 By: /s/ Kenneth A. Minor -------------------- Kenneth A. Minor Chief Financial Officer February 14, 2001 By: /s/ Frederick Kopko ------------------- Frederick Kopko Secretary 21 EX-10.4 2 0002.txt EMPLOYMENT AGREE. BET RIMAS BUINEVICIUS EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT made effective as of January 1, 2001, by and between SONIC FOUNDRY, INC., a Maryland corporation ("Sonic Foundry") and RIMAS BUINEVICIUS, an adult resident of Wisconsin ("Employee"). WHEREAS, Employee has been serving as Chief Executive Officer of Sonic Foundry for several years, including pursuant to an Employment Agreement that expired January 1, 2001 (the "Previous Agreement"); and WHEREAS, Sonic Foundry desires to continue to employ Employee, and Employee desires to continue to be employed by Sonic Foundry; and WHEREAS, Sonic Foundry and Employee desire to enter into a new employment agreement under substantially the same terms as the Previous Agreement and that will confirm and set forth the terms and conditions of Employee's continued employment with Sonic Foundry. NOW THEREFORE, in consideration of the premises to this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Sonic Foundry and Employee agree as follows: 1. Continued Employment. Sonic Foundry hereby continues to employ -------------------- Employee, and Employee agrees to continue to work for Sonic Foundry under the following terms hereby agreed upon. 2. Title; Role. Employee is hereby engaged to work in the executive ----------- capacity of Chief Executive Officer of Sonic Foundry, or any other capacity so designated by Sonic Foundry, generally consistent with Employee's present duties and responsibilities. 3. Contract Term. Employee shall continue to work hereunder as of the ------------- date hereof and the employment shall continue, unless sooner terminated pursuant to the terms hereof, until January 1, 2005 (the "Initial Contract Term"). This Agreement shall automatically renew for successive 2 year terms, unless at least 60 days before the end of the Initial Contract Term or any renewal term (the Initial Contract Term and any renewal term, the "Contract Term") either party provides the other party written notice to terminate the Agreement. 4. Employee Obligation. Employee agrees that he shall devote sufficient ------------------- skill, labor and attention to said employment during the Contract Term in order to promptly and faithfully do and perform all services pertaining to said position that are or may hereafter be required of him by Sonic Foundry during the Contract Term. 5. Consideration. Sonic Foundry agrees as follows: ------------- a. Base Salary. Sonic Foundry shall pay Employee a base salary at ----------- the rate of $200,000 per year during each year of the Contract Term, payable bi-weekly. The Board of Directors of Sonic Foundry (or a duly constituted and empowered committee thereof) may further increase Employee's salary effective on each anniversary date of this Agreement, at its discretion. In addition, Employee may receive annual bonuses as may be declared by the Board of Directors of Sonic Foundry (or a duly constituted and empowered committee thereof). b. Other Benefits. Employee shall receive such other incidental -------------- benefits of employment, such as insurance, retirement plan, ESOP participation, and vacation, as are provided generally to Sonic Foundry's other salaried employees on the same terms as are applicable to such other employees. For purposes of such incidental benefits of employment which are based upon income, including but not limited to insurance, retirement plans and ESOP participation, income shall be deemed to include all amounts payable pursuant to Paragraph 5(a) hereof. c. Expenses. Employee shall also be reimbursed for all reasonable -------- business expenses incurred in connection with his employment. 6. Termination Events. It is agreed that: ------------------ a. General. This Agreement and the employment of Employee ------- hereunder shall terminate on the first to occur of: (i) the expiration of the term specified in Paragraph 3 hereof; (ii) the death or Physical or Mental Disability of Employee as described in Paragraph 8 hereof; (iii) Employee's voluntary departure from employment; or (iv) Employee's termination pursuant to Paragraphs (b) or (c) hereof. b. By Board of Directors. The Board of Directors of Sonic Foundry --------------------- may terminate or shall be deemed to have terminated the employment of Employee at any time: (i) "with cause" upon the conviction of Employee for a malfeasance (i.e. theft, embezzlement, fraud or a dishonest act) against Sonic Foundry; or (ii) "without cause" if they shall determine that it is in the best interests of Sonic Foundry to terminate this Agreement for any reason other than the reason described in subparagraph (i) of this Paragraph 6(b). c. Due to Material Changes. If, whether prior to or subsequent to ----------------------- a "Change in Control", as hereinafter defined in Paragraph 6(g), Employee and Sonic Foundry shall hereafter jointly determine: (i) that Employee's status or responsibilities with Sonic Foundry has or have been reduced, including but not limited to the assignment to Employee of any duties, positions, responsibilities or tasks inconsistent with those immediately prior to said reduction, or (ii) that Sonic Foundry has materially failed to perform its obligations hereunder, or (iii) that the financial prospects of Sonic Foundry have significantly declined to a level where the future operations of Sonic Foundry would be impaired, then Employee shall have the right to terminate his employment with Sonic Foundry by written notice thereof. In the event that Employee and Sonic Foundry are unable to agree upon any determination pursuant to this Paragraph 6(c), an arbitrator, jointly selected by the parties, shall resolve the dispute. In the event the parties are unable to agree upon an arbitrator, the arbitrator shall be selected by two additional arbitrators, one of which shall be an arbitrator selected by Sonic Foundry and the other of which shall be an arbitrator selected by Employee. 2 d. Voluntary (Pre Change in Control) or For Cause Termination Payments. ------------------------------------------------------------------- In the event Employee's termination is for any reason set out in Paragraphs 6(a)(iii) above prior to a Change in Control or Paragraphs 6(a)(i) or 6(b)(i) above at any time, Employee shall not be entitled to any termination payments or benefits other than salary and other accrued benefits earned up to the date of termination. e. Death/Disability Payments (Pre Change in Control) Termination ------------------------------------------------------------- Payments. In the event Employee's termination is for any reason set out in - -------- Paragraph 6(a)(ii) above prior to a Change in Control, Employee shall be entitled to: (i) salary and other accrued benefits earned up to the last day of the month of the date of death or Date of Physical or Mental Disability (as defined in Paragraph 8 hereof); and (ii) a lump sum termination payment equal to the highest yearly salary and bonus paid to Employee pursuant to Paragraph 5(a) in any year during the 3 years immediately subsequent to the year in which the death or disability occurs, and, if termination is due to disability, Employee shall also be entitled to the medical, health and insurance-related benefits as set forth in Paragraph 5(b) hereof prior to and for one year following the date of disability. f. Voluntary or Death/Disability (Post-Change in Control) or No Cause or --------------------------------------------------------------------- Material Change Termination Payments. Upon a termination of Employee's - ------------------------------------ employment for any reason set out in Paragraphs 6(a)(ii) or 6(a)(iii) subsequent to a Change in Control or upon a termination pursuant to the provisions of Paragraph 6(b)(ii) or Paragraph 6(c) above at any time, Employee shall be entitled to: (i) salary and other accrued benefits earned up to the last day of the month in which employment was terminated; and (ii) a lump sum termination payment equal to three (3) times the highest yearly salary and bonus paid to Employee pursuant to Paragraph 5(a) in any year during the last three (3) years immediately prior to termination. Employee shall also be entitled to the medical, health and insurance-related benefits as set forth in Paragraph 5(b) hereof prior to and for three years following the date of termination. g. Change in Control. For purposes of determining whether a "Change in ----------------- Control" has occurred, a "Change in Control" shall be defined as the occurrence at any time during the Contract Term of any of the following events: (i) A change in control of a nature that would have to be reported in Sonic Foundry's proxy statement, if Sonic Foundry were required to have filed proxy statements under the Securities Exchange Act of 1934 (the "Exchange 5 Act"); (ii) Sonic Foundry is merged or consolidated or reorganized into or with another corporation or other legal person and as a result of such merger, consolidation or reorganization less than 75% of the outstanding voting securities or other capital interests of the surviving, resulting or acquiring corporation or other legal person are owned in the aggregate by the stockholders of Sonic Foundry immediately prior to such merger, consolidation or reorganization; (iii) Sonic Foundry sells all or substantially all of its business and/or assets to any other corporation or other legal person, less than 75% of the outstanding voting securities or other capital interests of which are owned in the aggregate by the stockholders of Sonic Foundry, directly or indirectly, immediately prior to or after such sale; 3 (iv) Any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of 25% or more of the issued and outstanding shares of voting securities of Sonic Foundry; or (v) During any period of two consecutive years, individuals who at the beginning of any such period constitute the directors of Sonic Foundry cease for any reason to constitute at least a majority thereof unless the election, or the nomination or election by Sonic Foundry's stockholders, of each new director of Sonic Foundry was approved by a vote of at least two-thirds of such directors of Sonic Foundry then still in office who were directors of Sonic Foundry at the beginning of any such period. 7. Reserved. -------- 8. Disability Definition. As used herein, "Physical or Mental --------------------- Disability" shall mean a serious illness, accident or any other physical or mental incapacity that prevents Employee from substantially performing his duties hereunder for a continuous period of twelve months. The last day of any such twelve (12) month period shall be Employee's "Date of Disability". 9. Termination Payments - Death. All payments to be made in the event ---------------------------- of the death of Employee shall be made to the Employee's surviving spouse, or in the event the Employee dies without leaving a surviving spouse, then to such beneficiary as the Employee may designate in writing to Sonic Foundry for that purpose, or if Employee has not so designated, then to the personal representative of the estate of Employee. This Paragraph 9 shall not be deemed a limitation of Employee's benefits under any death or disability plan currently in effect. 10. Reimbursement of Certain Costs. If litigation is brought to enforce ------------------------------ or interpret any provision contained in this Agreement, and if Employee prevails in such litigation, Sonic Foundry agrees to indemnify Employee for his reasonable attorneys' fees and disbursements incurred in such litigation, and hereby agrees to pay prejudgment interest on any money judgment obtained by Employee calculated at the prime rate of First National Bank of Chicago, in effect from time to time from the date that payment(s) to him should have been made under this Agreement; provided that Employee shall not have been found by the court to have acted in bad faith, which finding must be final with the time to appeal therefrom having expired and no appeal having been taken. 11. Sonic Foundry Successors. Sonic Foundry will require any successor ------------------------ (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Sonic Foundry, by agreement in form and substance satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Sonic Foundry would be required to perform it if no such succession had taken place. As used in this paragraph, Sonic Foundry shall mean Sonic Foundry, Inc. and any successor to its business and/or assets as aforesaid which executed and delivers the agreement provided for this Paragraph 11, or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 12. Non-Competition. Employee acknowledges that if he were to compete --------------- with Sonic Foundry in the audio and/or video software development business, it could cause serious harm to Sonic Foundry. During the Contract Term and if this Agreement is terminated for any reason except pursuant to Paragraph 6(b)(ii) Employee agrees that he will not own, operate, manage or control, be employed by, whether as an employee or consultant, any entity or person engaged in the business of developing marketing and/or distributing audio and/or video editing and/or creating software within the continental United States for a period of one (1) year from the time of Employee's termination of employment. This covenant shall survive the termination of 4 this Agreement and shall apply to any renewal or extension of employment. Employee has carefully considered his obligations as stated herein and agrees that the restrictions contained herein are fair and reasonable and are reasonably required for the protection of Sonic Foundry. 13. Injunctive Relief; Choice of Forum and Jurisdiction. Employee --------------------------------------------------- understands that a breach of this Agreement will result in irreparable or immeasurable damage to Sonic Foundry and that Sonic Foundry is authorized to seek injunctive relief against Employee. Employee also consents to the exclusive jurisdiction of the Dane County Circuit Courts or the Federal District Court for the Western District of Wisconsin, both located in Madison, Wisconsin, as the appropriate forums for resolution of any dispute arising from this Agreement, including issuance of an injunction. Employee understands that this provision regarding the issuance of an injunction does not limit any remedies at law or equity otherwise available to Sonic Foundry. 14. Entire Agreement. No oral arrangements have been made between the ---------------- parties hereto and this Agreement may be amended only in writing signed by both parties. This is the entire Agreement among the parties regarding the subject matter hereof. 15. Successors; Assigns. The rights and obligations of Sonic Foundry ------------------- under this Agreement shall inure to the benefit of and shall be binding upon, the successors and assigns of Sonic Foundry. Employee may not assign his obligations under this Agreement. 15. Severability. If any provision of this Agreement shall be declared ------------ invalid or unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall not be affected thereby and shall continue in full force and effect. 16. Controlling Law. This Agreement shall be construed in accordance with --------------- the internal laws of the State of Wisconsin. IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of the day and year first above written. EMPLOYEE SONIC FOUNDRY, INC. ____________________________ By: _________________________ Rimas Buinevicius Title: ______________________ 5 EX-10.5 3 0003.txt EMPLOYMENT AGREE. BET MONTY SCHMIDT EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT made effective as of January 1, 2001, by and between SONIC FOUNDRY, INC., a Maryland corporation ("Sonic Foundry") and MONTY SCHMIDT, an adult resident of Wisconsin ("Employee"). WHEREAS, Employee has been serving as President of Sonic Foundry for several years, including pursuant to an Employment Agreement that expired January 1, 2001 (the "Previous Agreement"); and WHEREAS, Sonic Foundry desires to continue to employ Employee, and Employee desires to continue to be employed by Sonic Foundry; and WHEREAS, Sonic Foundry and Employee desire to enter into a new employment agreement under substantially the same terms as the Previous Agreement and that will confirm and set forth the terms and conditions of Employee's continued employment with Sonic Foundry. NOW THEREFORE, in consideration of the premises to this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Sonic Foundry and Employee agree as follows: 1. Continued Employment. Sonic Foundry hereby continues to employ -------------------- Employee, and Employee agrees to continue to work for Sonic Foundry under the following terms hereby agreed upon. 2. Title; Role. Employee is hereby engaged to work in the executive ----------- capacity of President of Sonic Foundry, or any other capacity so designated by Sonic Foundry, generally consistent with Employee's present duties and responsibilities. 3. Contract Term. Employee shall continue to work hereunder as of the date ------------- hereof and the employment shall continue, unless sooner terminated pursuant to the terms hereof, until January 1, 2005 (the "Initial Contract Term"). This Agreement shall automatically renew for successive 2 year terms, unless at least 60 days before the end of the Initial Contract Term or any renewal term (the Initial Contract Term and any renewal term, the "Contract Term") either party provides the other party written notice to terminate the Agreement. 4. Employee Obligation. Employee agrees that he shall devote sufficient ------------------- skill, labor and attention to said employment during the Contract Term in order to promptly and faithfully do and perform all services pertaining to said position that are or may hereafter be required of him by Sonic Foundry during the Contract Term. 5. Consideration. Sonic Foundry agrees as follows: ------------- a. Base Salary. Sonic Foundry shall pay Employee a base salary at the ----------- rate of $160,000 per year during each year of the Contract Term, payable bi-weekly. The Board of Directors of Sonic Foundry (or a duly constituted and empowered committee thereof) may further increase Employee's salary effective on each anniversary date of this Agreement, at its discretion. In addition, Employee may receive annual bonuses as may be declared by the Board of Directors of Sonic Foundry (or a duly constituted and empowered committee thereof). b. Other Benefits. Employee shall receive such other incidental -------------- benefits of employment, such as insurance, retirement plan, ESOP participation, and vacation, as are provided generally to Sonic Foundry's other salaried employees on the same terms as are applicable to such other employees. For purposes of such incidental benefits of employment which are based upon income, including but not limited to insurance, retirement plans and ESOP participation, income shall be deemed to include all amounts payable pursuant to Paragraph 5(a) hereof. c. Expenses. Employee shall also be reimbursed for all reasonable -------- business expenses incurred in connection with his employment. 6. Termination Events. It is agreed that: ------------------ a. General. This Agreement and the employment of Employee hereunder ------- shall terminate on the first to occur of: (i) the expiration of the term specified in Paragraph 3 hereof; (ii) the death or Physical or Mental Disability of Employee as described in Paragraph 8 hereof; (iii) Employee's voluntary departure from employment; or (iv) Employee's termination pursuant to Paragraphs (b) or (c) hereof. b. By Board of Directors. The Board of Directors of Sonic Foundry may --------------------- terminate or shall be deemed to have terminated the employment of Employee at any time: (i) "with cause" upon the conviction of Employee for a malfeasance (i.e. theft, embezzlement, fraud or a dishonest act) against Sonic Foundry; or (ii) "without cause" if they shall determine that it is in the best interests of Sonic Foundry to terminate this Agreement for any reason other than the reason described in subparagraph (i) of this Paragraph 6(b). c. Due to Material Changes. If, whether prior to or subsequent to a ----------------------- "Change in Control", as hereinafter defined in Paragraph 6(g), Employee and Sonic Foundry shall hereafter jointly determine: (i) that Employee's status or responsibilities with Sonic Foundry has or have been reduced, including but not limited to the assignment to Employee of any duties, positions, responsibilities or tasks inconsistent with those immediately prior to said reduction, or (ii) that Sonic Foundry has materially failed to perform its obligations hereunder, or (iii) that the financial prospects of Sonic Foundry have significantly declined to a level where the future operations of Sonic Foundry would be impaired, then Employee shall have the right to terminate his employment with Sonic Foundry by written notice thereof. In the event that Employee and Sonic Foundry are unable to agree upon any determination pursuant to this Paragraph 6(c), an arbitrator, jointly selected by the parties, shall resolve the dispute. In the event the parties are unable to agree upon an arbitrator, the arbitrator shall be selected by two additional arbitrators, one of which shall be an arbitrator selected by Sonic Foundry and the other of which shall be an arbitrator selected by Employee. d. Voluntary (Pre Change in Control) or For Cause Termination Payments. ------------------------------------------------------------------- In the event Employee's 2 termination is for any reason set out in Paragraphs 6(a)(iii) above prior to a Change in Control or Paragraphs 6(a)(i) or 6(b)(i) above at any time, Employee shall not be entitled to any termination payments or benefits other than salary and other accrued benefits earned up to the date of termination. e. Death/Disability Payments (Pre Change in Control) Termination ------------------------------------------------------------- Payments. In the event Employee's termination is for any reason set out in - -------- Paragraph 6(a)(ii) above prior to a Change in Control, Employee shall be entitled to: (i) salary and other accrued benefits earned up to the last day of the month of the date of death or Date of Physical or Mental Disability (as defined in Paragraph 8 hereof); and (ii) a lump sum termination payment equal to the highest yearly salary and bonus paid to Employee pursuant to Paragraph 5(a) in any year during the 3 years immediately subsequent to the year in which the death or disability occurs, and, if termination is due to disability, Employee shall also be entitled to the medical, health and insurance-related benefits as set forth in Paragraph 5(b) hereof prior to and for one year following the date of disability. f. Voluntary or Death/Disability (Post-Change in Control) or No Cause ------------------------------------------------------------------ or Material Change Termination Payments. Upon a termination of Employee's - --------------------------------------- employment for any reason set out in Paragraphs 6(a)(ii) or 6(a)(iii) subsequent to a Change in Control or upon a termination pursuant to the provisions of Paragraph 6(b)(ii) or Paragraph 6(c) above at any time, Employee shall be entitled to: (i) salary and other accrued benefits earned up to the last day of the month in which employment was terminated; and (ii) a lump sum termination payment equal to three (3) times the highest yearly salary and bonus paid to Employee pursuant to Paragraph 5(a) in any year during the last three (3) years immediately prior to termination. Employee shall also be entitled to the medical, health and insurance-related benefits as set forth in Paragraph 5(b) hereof prior to and for three years following the date of termination . g. Change in Control. For purposes of determining whether a "Change in ----------------- Control" has occurred, a "Change in Control" shall be defined as the occurrence at any time during the Contract Term of any of the following events: (i) A change in control of a nature that would have to be reported in Sonic Foundry's proxy statement, if Sonic Foundry were required to have filed proxy statements under the Securities Exchange Act of 1934 (the "Exchange 5 Act"); (ii) Sonic Foundry is merged or consolidated or reorganized into or with another corporation or other legal person and as a result of such merger, consolidation or reorganization less than 75% of the outstanding voting securities or other capital interests of the surviving, resulting or acquiring corporation or other legal person are owned in the aggregate by the stockholders of Sonic Foundry immediately prior to such merger, consolidation or reorganization; (iii) Sonic Foundry sells all or substantially all of its business and/or assets to any other corporation or other legal person, less than 75% of the outstanding voting securities or other capital interests of which are owned in the aggregate by the stockholders of Sonic Foundry, directly or indirectly, immediately prior to or after such sale; (iv) Any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange 3 Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of 25% or more of the issued and outstanding shares of voting securities of Sonic Foundry; or (v) During any period of two consecutive years, individuals who at the beginning of any such period constitute the directors of Sonic Foundry cease for any reason to constitute at least a majority thereof unless the election, or the nomination or election by Sonic Foundry's stockholders, of each new director of Sonic Foundry was approved by a vote of at least two-thirds of such directors of Sonic Foundry then still in office who were directors of Sonic Foundry at the beginning of any such period. 7. Reserved. -------- 8. Disability Definition. As used herein, "Physical or Mental --------------------- Disability" shall mean a serious illness, accident or any other physical or mental incapacity that prevents Employee from substantially performing his duties hereunder for a continuous period of twelve months. The last day of any such twelve (12) month period shall be Employee's "Date of Disability". 9. Termination Payments - Death. All payments to be made in the ---------------------------- event of the death of Employee shall be made to the Employee's surviving spouse, or in the event the Employee dies without leaving a surviving spouse, then to such beneficiary as the Employee may designate in writing to Sonic Foundry for that purpose, or if Employee has not so designated, then to the personal representative of the estate of Employee. This Paragraph 9 shall not be deemed a limitation of Employee's benefits under any death or disability plan currently in effect. 10. Reimbursement of Certain Costs. If litigation is brought to ------------------------------ enforce or interpret any provision contained in this Agreement, and if Employee prevails in such litigation, Sonic Foundry agrees to indemnify Employee for his reasonable attorneys' fees and disbursements incurred in such litigation, and hereby agrees to pay prejudgment interest on any money judgment obtained by Employee calculated at the prime rate of First National Bank of Chicago, in effect from time to time from the date that payment(s) to him should have been made under this Agreement; provided that Employee shall not have been found by the court to have acted in bad faith, which finding must be final with the time to appeal therefrom having expired and no appeal having been taken. 11. Sonic Foundry Successors. Sonic Foundry will require any ------------------------ successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Sonic Foundry, by agreement in form and substance satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Sonic Foundry would be required to perform it if no such succession had taken place. As used in this paragraph, Sonic Foundry shall mean Sonic Foundry, Inc. and any successor to its business and/or assets as aforesaid which executed and delivers the agreement provided for this Paragraph 11, or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 12. Non-Competition. Employee acknowledges that if he were to --------------- compete with Sonic Foundry in the audio and/or video software development business, it could cause serious harm to Sonic Foundry. During the Contract Term and if this Agreement is terminated for any reason except pursuant to Paragraph 6(b)(ii) Employee agrees that he will not own, operate, manage or control, be employed by, whether as an employee or consultant, any entity or person engaged in the business of developing marketing and/or distributing audio and/or video editing and/or creating software within the continental United States for a period of one (1) year from the time of Employee's termination of employment. This covenant shall survive the termination of this Agreement and shall apply to any renewal or extension of employment. Employee has carefully 4 considered his obligations as stated herein and agrees that the restrictions contained herein are fair and reasonable and are reasonably required for the protection of Sonic Foundry. 13. Injunctive Relief; Choice of Forum and Jurisdiction. Employee --------------------------------------------------- understands that a breach of this Agreement will result in irreparable or immeasurable damage to Sonic Foundry and that Sonic Foundry is authorized to seek injunctive relief against Employee. Employee also consents to the exclusive jurisdiction of the Dane County Circuit Courts or the Federal District Court for the Western District of Wisconsin, both located in Madison, Wisconsin, as the appropriate forums for resolution of any dispute arising from this Agreement, including issuance of an injunction. Employee understands that this provision regarding the issuance of an injunction does not limit any remedies at law or equity otherwise available to Sonic Foundry. 14. Entire Agreement. No oral arrangements have been made between ---------------- the parties hereto and this Agreement may be amended only in writing signed by both parties. This is the entire Agreement among the parties regarding the subject matter hereof. 15. Successors; Assigns. The rights and obligations of Sonic Foundry ------------------- under this Agreement shall inure to the benefit of and shall be binding upon, the successors and assigns of Sonic Foundry. Employee may not assign his obligations under this Agreement. 15. Severability. If any provision of this Agreement shall be ------------ declared invalid or unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall not be affected thereby and shall continue in full force and effect. 16. Controlling Law. This Agreement shall be construed in accordance --------------- with the internal laws of the State of Wisconsin. IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of the day and year first above written. EMPLOYEE SONIC FOUNDRY, INC. ____________________________ By: _________________________ Monty Schmidt Title: ______________________ 5 EX-10.6 4 0004.txt EMPLOYMENT AGREE. BET CURTIS PALMER EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT made effective as of January 1, 2001, by and between SONIC FOUNDRY, INC., a Maryland corporation ("Sonic Foundry") and CURTIS J. PALMER, an adult resident of Wisconsin ("Employee"). WHEREAS, Employee has been serving as Chief Technology Officer of Sonic Foundry for several years, including pursuant to an Employment Agreement that expired January 1, 2001 (the "Previous Agreement"); and WHEREAS, Sonic Foundry desires to continue to employ Employee, and Employee desires to continue to be employed by Sonic Foundry; and WHEREAS, Sonic Foundry and Employee desire to enter into a new employment agreement under substantially the same terms as the Previous Agreement and that will confirm and set forth the terms and conditions of Employee's continued employment with Sonic Foundry. NOW THEREFORE, in consideration of the premises to this Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Sonic Foundry and Employee agree as follows: 1. Continued Employment. Sonic Foundry hereby continues to employ -------------------- Employee, and Employee agrees to continue to work for Sonic Foundry under the following terms hereby agreed upon. 2. Title; Role. Employee is hereby engaged to work in the executive ----------- capacity of Chief Technology Officer of Sonic Foundry, or any other capacity so designated by Sonic Foundry, generally consistent with Employee's present duties and responsibilities. 3. Contract Term. Employee shall continue to work hereunder as of the ------------- date hereof and the employment shall continue, unless sooner terminated pursuant to the terms hereof, until January 1, 2005 (the "Initial Contract Term"). This Agreement shall automatically renew for successive 2 year terms, unless at least 60 days before the end of the Initial Contract Term or any renewal term (the Initial Contract Term and any renewal term, the "Contract Term") either party provides the other party written notice to terminate the Agreement. 4. Employee Obligation. Employee agrees that he shall devote sufficient ------------------- skill, labor and attention to said employment during the Contract Term in order to promptly and faithfully do and perform all services pertaining to said position that are or may hereafter be required of him by Sonic Foundry during the Contract Term. 5. Consideration. Sonic Foundry agrees as follows: ------------- a. Base Salary. Sonic Foundry shall pay Employee a base salary at ----------- the rate of $160,000 per year during each year of the Contract Term, payable bi-weekly. The Board of Directors of Sonic Foundry (or a duly constituted and empowered committee thereof) may further increase Employee's salary effective on each anniversary date of this Agreement, at its discretion. In addition, Employee may receive annual bonuses as may be declared by the Board of Directors of Sonic Foundry (or a duly constituted and empowered committee thereof). b. Other Benefits. Employee shall receive such other incidental -------------- benefits of employment, such as insurance, retirement plan, ESOP participation, and vacation, as are provided generally to Sonic Foundry's other salaried employees on the same terms as are applicable to such other employees. For purposes of such incidental benefits of employment which are based upon income, including but not limited to insurance, retirement plans and ESOP participation, income shall be deemed to include all amounts payable pursuant to Paragraph 5(a) hereof. c. Expenses. Employee shall also be reimbursed for all reasonable -------- business expenses incurred in connection with his employment. 6. Termination Events. It is agreed that: ------------------ a. General. This Agreement and the employment of Employee hereunder ------- shall terminate on the first to occur of: (i) the expiration of the term specified in Paragraph 3 hereof; (ii) the death or Physical or Mental Disability of Employee as described in Paragraph 8 hereof; (iii) Employee's voluntary departure from employment; or (iv) Employee's termination pursuant to Paragraphs (b) or (c) hereof. b. By Board of Directors. The Board of Directors of Sonic Foundry --------------------- may terminate or shall be deemed to have terminated the employment of Employee at any time: (i) "with cause" upon the conviction of Employee for a malfeasance (i.e. theft, embezzlement, fraud or a dishonest act) against Sonic Foundry; or (ii) "without cause" if they shall determine that it is in the best interests of Sonic Foundry to terminate this Agreement for any reason other than the reason described in subparagraph (i) of this Paragraph 6(b). c. Due to Material Changes. If, whether prior to or subsequent to a ----------------------- "Change in Control", as hereinafter defined in Paragraph 6(g), Employee and Sonic Foundry shall hereafter jointly determine: (i) that Employee's status or responsibilities with Sonic Foundry has or have been reduced, including but not limited to the assignment to Employee of any duties, positions, responsibilities or tasks inconsistent with those immediately prior to said reduction, or (ii) that Sonic Foundry has materially failed to per form its obligations hereunder, or (iii) that the financial prospects of Sonic Foundry have significantly declined to a level where the future operations of Sonic Foundry would be impaired, then Employee shall have the right to terminate his employment with Sonic Foundry by written notice thereof. In the event that Employee and Sonic Foundry are unable to agree upon any determination pursuant to this Paragraph 6(c), an arbitrator, jointly selected by the parties, shall resolve the dispute. In the event the parties are unable to agree upon an arbitrator, the arbitrator shall be selected by two additional arbitrators, one of which shall be an arbitrator selected by Sonic Foundry and the other of which shall be an arbitrator selected by Employee. 2 d. Voluntary (Pre Change in Control) or For Cause Termination ---------------------------------------------------------- Payments. In the event Employee's termination is for any reason set out in - -------- Paragraphs 6(a)(iii) above prior to a Change in Control or Paragraphs 6(a)(i) or 6(b)(i) above at any time, Employee shall not be entitled to any termination payments or benefits other than salary and other accrued benefits earned up to the date of termination. e. Death/Disability Payments (Pre Change in Control) Termination ------------------------------------------------------------- Payments. In the event Employee's termination is for any reason set out in Paragraph 6(a)(ii) above prior to a Change in Control, Employee shall be entitled to: (i) salary and other accrued benefits earned up to the last day of the month of the date of death or Date of Physical or Mental Disability (as defined in Paragraph 8 hereof); and (ii) a lump sum termination payment equal to the highest yearly salary and bonus paid to Employee pursuant to Paragraph 5(a) in any year during the 3 years immediately subsequent to the year in which the death or disability occurs, and, if termination is due to disability, Employee shall also be entitled to the medical, health and insurance-related benefits as set forth in Paragraph 5(b) hereof prior to and for one year following the date of disability. f. Voluntary or Death/Disability (Post-Change in Control) or No Cause ------------------------------------------------------------------ or Material Change Termination Payments. Upon a termination of Employee's - ---------------------------------------- employment for any reason set out in Paragraphs 6(a)(ii) or 6(a)(iii) subsequent to a Change in Control or upon a termination pursuant to the provisions of Paragraph 6(b)(ii) or Paragraph 6(c) above at any time, Employee shall be entitled to: (i) salary and other accrued benefits earned up to the last day of the month in which employment was terminated; and (ii) a lump sum termination payment equal to three (3) times the highest yearly salary and bonus paid to Employee pursuant to Paragraph 5(a) in any year during the last three (3) years immediately prior to termination. Employee shall also be entitled to the medical, health and insurance-related benefits as set forth in Paragraph 5(b) hereof prior to and for three years following the date of termination. g. Change in Control. For purposes of determining whether a "Change ----------------- in Control" has occurred, a "Change in Control" shall be defined as the occurrence at any time during the Contract Term of any of the following events: (i) A change in control of a nature that would have to be reported in Sonic Foundry's proxy statement, if Sonic Foundry were required to have filed proxy statements under the Securities Exchange Act of 1934 (the "Exchange 5 Act"); (ii) Sonic Foundry is merged or consolidated or reorganized into or with another corporation or other legal person and as a result of such merger, consolidation or reorganization less than 75% of the outstanding voting securities or other capital interests of the surviving, resulting or acquiring corporation or other legal person are owned in the aggregate by the stockholders of Sonic Foundry immediately prior to such merger, consolidation or reorganization; (iii) Sonic Foundry sells all or substantially all of its business and/or assets to any other corporation or other legal person, less than 75% of the outstanding voting securities or other capital interests of which are owned in the aggregate by the stockholders of Sonic Foundry, directly or indirectly, immediately prior to or after such sale; 3 (iv) Any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of 25% or more of the issued and outstanding shares of voting securities of Sonic Foundry; or (v) During any period of two consecutive years, individuals who at the beginning of any such period constitute the directors of Sonic Foundry cease for any reason to constitute at least a majority thereof unless the election, or the nomination or election by Sonic Foundry's stockholders, of each new director of Sonic Foundry was approved by a vote of at least two-thirds of such directors of Sonic Foundry then still in office who were directors of Sonic Foundry at the beginning of any such period. 7. Reserved. -------- 8. Disability Definition. As used herein, "Physical or Mental Disability" --------------------- shall mean a serious illness, accident or any other physical or mental incapacity that prevents Employee from substantially performing his duties hereunder for a continuous period of twelve months. The last day of any such twelve (12) month period shall be Employee's "Date of Disability". 9. Termination Payments - Death. All payments to be made in the event of ---------------------------- the death of Employee shall be made to the Employee's surviving spouse, or in the event the Employee dies without leaving a surviving spouse, then to such beneficiary as the Employee may designate in writing to Sonic Foundry for that purpose, or if Employee has not so designated, then to the personal representative of the estate of Employee. This Paragraph 9 shall not be deemed a limitation of Employee's benefits under any death or disability plan currently in effect. 10. Reimbursement of Certain Costs. If litigation is brought to enforce or ------------------------------ interpret any provision contained in this Agreement, and if Employee prevails in such litigation, Sonic Foundry agrees to indemnify Employee for his reasonable attorneys' fees and disbursements incurred in such litigation, and hereby agrees to pay prejudgment interest on any money judgment obtained by Employee calculated at the prime rate of First National Bank of Chicago, in effect from time to time from the date that payment(s) to him should have been made under this Agreement; provided that Employee shall not have been found by the court to have acted in bad faith, which finding must be final with the time to appeal therefrom having expired and no appeal having been taken. 11. Sonic Foundry Successors. Sonic Foundry will require any successor ------------------------ (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Sonic Foundry, by agreement in form and substance satisfactory to Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that Sonic Foundry would be required to perform it if no such succession had taken place. As used in this paragraph, Sonic Foundry shall mean Sonic Foundry, Inc. and any successor to its business and/or assets as aforesaid which executed and delivers the agreement provided for this Paragraph 11, or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. 12. Non-Competition. Employee acknowledges that if he were to compete --------------- with Sonic Foundry in the audio and/or video software development business, it could cause serious harm to Sonic Foundry. During the Contract Term and if this Agreement is terminated for any reason except pursuant to Paragraph 6(i)(ii) Employee agrees that he will not own, operate, manage or control, be employed by, whether as an employee or consultant, any entity or person engaged in the business of developing marketing and/or distributing audio and/or video editing and/or creating software within the continental United States for a period of one (1) year from the time of Employee's termination of employment. This covenant shall survive the termination of 4 this Agreement and shall apply to any renewal or extension of employment. Employee has carefully considered his obligations as stated herein and agrees that the restrictions contained herein are fair and reasonable and are reasonably required for the protection of Sonic Foundry. 13. Injunctive Relief; Choice of Forum and Jurisdiction. Employee --------------------------------------------------- understands that a breach of this Agreement will result in irreparable or immeasurable damage to Sonic Foundry and that Sonic Foundry is authorized to seek injunctive relief against Employee. Employee also consents to the exclusive jurisdiction of the Dane County Circuit Courts or the Federal District Court for the Western District of Wisconsin, both located in Madison, Wisconsin, as the appropriate forums for resolution of any dispute arising from this Agreement, including issuance of an injunction. Employee understands that this provision regarding the issuance of an injunction does not limit any remedies at law or equity otherwise available to Sonic Foundry. 14. Entire Agreement. No oral arrangements have been made between the ---------------- parties hereto and this Agreement may be amended only in writing signed by both parties. This is the entire Agreement among the parties regarding the subject matter hereof. 15. Successors; Assigns. The rights and obligations of Sonic Foundry under ------------------- this Agreement shall inure to the benefit of and shall be binding upon, the successors and assigns of Sonic Foundry. Employee may not assign his obligations under this Agreement. 15. Severability. If any provision of this ------------ Agreement shall be declared invalid or unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall not be affected thereby and shall continue in full force and effect. 16. Controlling Law. This Agreement shall be construed in accordance with --------------- the internal laws of the State of Wisconsin. IN WITNESS WHEREOF, the parties hereto have set their hands and seals as of the day and year first above written. EMPLOYEE SONIC FOUNDRY, INC. ____________________________ By: ________________________ Curtis J.Palmer Title: ______________________ 5 -----END PRIVACY-ENHANCED MESSAGE-----