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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
-----------------------------------------------
(Amendment No. 1, amending Part III, Items 10-13)
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended October 31, 1997 Commission File No. 0-7100
BASE TEN SYSTEMS, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-1804206
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Electronics Drive
Trenton, New Jersey 08619
-------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 586-7010
-------------
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
---------------------
Class A Common Stock
Class B Common Stock
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 under the Securities Exchange Act of 1934 is not contained
herein, and will not be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated in Part III of this Form
10-K or any amendments to this Form 10-K X
As of January 19, 1998, 7,829,060 shares of Class A Common Stock and 444,879
shares of Class B Common Stock were outstanding, and the aggregate market value
of shares held by unaffiliated stockholders was approximately $77,367,440 and
$4,670,285, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
This Form 10-K/A amends the Form 10-K filed by the Registrant with the
Securities and Exchange Commission on February 11, 1998 ("Registrant's Form
10-K"). Items 10, 11, 12 and 13 of Part III of Registrant's Form 10-K were
incorporated by reference to the Registrant's definitive Proxy Statement for its
1998 Annual Meeting of Shareholders to be filed with the Commission by February
28, 1998. The Registrant has filed preliminary proxy material with the
Commission. The definitive Proxy Statement will not be filed by February 28,
1998. Accordingly, Registrant is filing this amendment to Registrant's Form 10-K
to provide the information required by Items 10, 11, 12 and 13 of Part III of
Form 10-K.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The current directors and executive officers of the Company are as
follows:
Name Age Position
- --------------------------------------------------------------------------------
Thomas E. Gardner 50 Co-Chairman of the Board
President
Chief Executive Officer
Alexander M. Adelson 63 Co-Chairman of the Board
Alan S. Poole 70 Director
David C. Batten 53 Director
William Sword 74 Director
C. Richard Bagshaw 58 Executive Vice President
Richard J. Farrelly 66 Senior Vice President
William F. Hackett 46 Senior Vice President
Chief Financial Officer
Secretary
- --------------------------------------------------------------------------------
A summary of the business experience and background of the Company's
current directors and executive officers is set forth below.
Thomas E. Gardner has been Co-Chairman of the Board and a director
since December 31, 1997 and President and Chief Executive Officer since November
1, 1997. Mr. Gardner was President, Chief Executive Officer, Chief Operating
Officer and a director of Access Health Corporation from 1996 to 1997, and prior
to that was employed by the Dun & Bradstreet Corporation from 1990 to 1995,
serving in various senior executive positions including Corporate Vice
President, and President and Chief Executive Officer of Dun & Bradstreet Health
Care Information, Inc.
Alexander M. Adelson served as Vice Chairman from April 1997 until
December 31, 1997 and has been Co-Chairman of the Board since December 31, 1997.
He has been a director of Base Ten since 1992. Since 1974 he has been Chief
Executive Officer of RTS Research Labs Inc., a consulting company concentrating
in high technology fields. From 1977 to 1989 Mr. Adelson was Chief Technical
Consultant with Symbol Technologies, Inc. Since 1992 Mr. Adelson has also been
providing investment and financial advisory services to the Company.
Alan S. Poole has served as a director of Base Ten since 1994. From
1960 to 1992, Mr. Poole held executive positions with Johnson & Johnson,
including Vice President of Ortho Diagnostics, Inc. from 1975 through 1982 and
International Vice President of Johnson & Johnson Pharmaceutica in Belgium from
1986 to 1992, where he was responsible for the Janssen Companies in various
countries. Mr. Poole, now retired, is a member of the California bar.
David C. Batten has been a director of Base Ten since April 1997. Mr.
Batten is a private investor and is actively involved in various venture capital
investments for early stage companies. From 1992 to 1994 Mr. Batten was a
General Partner of Lazard Freres & Co. in charge of Capital Markets Development,
from 1990 to 1992 was a General Partner in The Blackstone Group, and from 1977
to 1990 was a Managing Director of The First Boston Corporation.
William Sword has been a director of Base Ten since January 1997. He
has been Chairman of the Board of Wm. Sword & Co. Incorporated, a diversified
investment banking firm located in Princeton, New Jersey, since 1976 and since
1974 has been Chairman of the Board of Sword Holdings Incorporated, a Princeton,
New Jersey based company with corporate affiliations throughout the United
States. From 1954 to 1976 Mr. Sword was associated with Morgan Stanley & Co.,
serving in various capacities including General Partner, Director and Managing
Director. Mr. Sword is also a director of Roadway Express, Inc., where he is
Chairman of its Executive and Finance Committees. Mr. Sword is also active in
numerous professional and community associations, including The Bond Club of New
York, The Medical Center at Princeton Foundation and the New Jersey Historical
Society.
C. Richard Bagshaw was President and General Manager of Syntex PR of
Humancao, Puerto Rico, a subsidiary of Syntex Pharmaceuticals, Palo Alto,
California subsequently acquired by Roche Holdings in 1995. From 1991 to 1996 he
was responsible for strategy development and implementation for corporate
partnering and talent upgrade. Mr. Bagshaw joined the Company in December 1997
and has served as Executive Vice President since January 1998.
Richard J. Farrelly has been employed by the Company since 1988 and
served as Vice President from 1992 to 1998, responsible for corporate
development. In January 1998, Mr. Farrelly became Senior Vice President of the
Company. Mr. Farrelly was formerly General Manager of the Reentry Systems
Division of General Electric Aerospace Company and is now serving as a Senior
Vice President responsible for human relations and planning. Mr. Farrelly is
also Chief Compliance Officer of the Company.
William F. Hackett was a Senior Manager for the Princeton Data Division
of Bloomberg Financial Markets from 1991 to 1997 responsible for the collection,
analysis, and distribution of information and product development. Mr. Hackett
joined the Company in December 1997 and has served as Senior Vice President,
Chief Financial Officer and Secretary since January 1998.
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Based on a review of reporting forms filed with the Securities
and Exchange Commission (the "SEC") by officers and directors of the Company and
persons beneficially owning more than 10% of any class of capital stock of the
Company, none of such officers, directors or 10% holders failed to file any such
required reports on a timely basis during fiscal 1997.
<PAGE>
Item 11. Executive Compensation
Summary Compensation Table. The Summary Compensation Table set forth below shows
certain compensation information for the Company's chief executive officer
during the last completed fiscal year and the four other most highly compensated
executive officers serving as executive officers at the end of the last
completed fiscal year (together, the "Named Executive Officers") for services
rendered in all capacities during the three fiscal years ended October 31, 1997,
1996 and 1995. This information includes base salaries, bonus awards and
long-term incentive plan payouts, the number of stock options and stock
appreciation rights ("SARs") granted, and certain other compensation, if any,
whether paid or deferred.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
------------ ------------
Awards
------
<S> <C> <C> <C> <C> <C>
Name and Options/ All Other
Principal Position Year Salary Bonus SARs Compensation(1)
- --------------------------------- ---- ------ ---- ----- ---------------
Myles M. Kranzler, 1997 $220,000 $ --- --- $ ---
President and 1996 220,000 --- 50,000 ---
Chief Executive Officer 1995 123,310 --- 25,000 42,308
Edward J. Klinsport, 1997 225,000 --- 60,000 112,075(2)
Executive Vice 1996 195,061 10,000 50,000 29,012
President 1995 105,002 --- 30,000 39,363
Alan J. Eisenberg, 1997 225,000 --- 100,000(3) 105,312
Senior Vice President 1996 185,261 --- 50,000 26,042
1995 103,386 --- 30,000 33,183
Richard J. Farrelly, 1997 155,000 --- 4,900 24,224
Vice President 1996 135,431 --- --- 8,067
1995 79,982 --- 30,000 37,181
Frank W. Newdeck, 1997 135,700 17,240 2,000 26,646
Vice President 1996 135,700 3,080 2,000 9,233
1995 101,993 4,620 15,000 ---
- -----------------------------------------------------------------------------------------
</TABLE>
(1) Includes interest paid on balance of individuals' deferred compensation,
vacation entitlement payout, commissions, and 1996 amortization of employee
loans. For 1997, the amounts indicated represent forgiveness of employee
loans.
(2) Includes accrued interest on individual's deferred compensation.
(3) Includes contingent option grant for 50,000 shares of Class A Common Stock,
the conditions for which were satisfied on February 10, 1998.
<PAGE>
Option/SAR Grants in Last Fiscal Year. The following table shows information
regarding grants of stock options made to the Named Executive Officers during
the fiscal year ended October 31, 1997. The amounts shown as potential
realizable values are based on assumed annualized rates of stock price
appreciation of five percent and ten percent over the term of the options. These
potential realizable values are based solely on arbitrarily assumed rates of
appreciation required by applicable SEC regulations. Actual gains, if any, on
option exercises and common stock holdings are dependent on the future
performance of the Company's Class A Common Stock and overall stock market
conditions.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of
Number of % of Total Stock Price
Securities Options/SARs Appreciation for
Underlying Granted to Option Term
Options/SARs Employees in Exercise or Base Expiration --------------------
Name Granted (1) Fiscal Year Price ($/Sh) Date 5% 10%
- ---- ------------ ----------- ------------ ------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Myles M. Kranzler -- -- -- -- -- --
Edward J. Klinsport 60,000 9.6% 14 1/2 10/31/99 $ 89,175 $182,700
Alan J. Eisenberg 50,000 8.0% 10 7/8 10/12/07 341,961 866,597
50,000(2) 8.0% 7 9/16 02/10/99 38,758 79,406
Richard J. Farrelly 4,900 0.8% 10 3/4 09/22/07 33,127 83,950
Frank W. Newdeck 2,000 0.3% 10 3/4 03/11/07 13,521 34,265
</TABLE>
- -----------------------
(1) Class A Common Stock.
(2) Contingent option grant, the conditions for which were satisfied on February
10, 1998.
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values. The following table summarizes for each of the Named
Executive Officers the number of stock options, if any, exercised during the
fiscal year ended October 31, 1997, the aggregate dollar value realized upon
exercise, the total number of securities underlying unexercised options, if any,
held at October 31, 1997 and the aggregate dollar value of in-the-money,
unexercised options, if any, held at October 31, 1997. Value realized upon
exercise is the difference between the fair market value of the underlying stock
on the exercise date and the exercise or base price of the option. Value of
unexercised, in-the-money options at fiscal year end is the difference between
the exercise or base price and the fair market value of the underlying stock on
October 31, 1997. On that date, the last sale prices of the Class A Common Stock
and Class B Common Stock were $14 1/2 and $15 1/2, respectively. The values in
the column "Value of Unexercised In-The-Money Options/SARs at Fiscal Year End"
have not been, and may never be, realized. The underlying options have not been,
and may not be, exercised, and actual gains, if any, on exercise will depend
upon the value of the underlying stock on the date of exercise.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares FY-End FY-End
Acquired on Value ------ ------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------- --------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Myles M. Kranzler
Class A Common 35,893 $205,487 227,714 8,286 $1,281,067 $ 21,026
Class B Common -- --- -- -- -- --
Edward J. Klinsport
Class A Common -- --- 243,130 6,610 1,261,911 23,961
Class B Common -- --- 4,946 -- 61,825 --
Alan J. Eisenberg
Class A Common -- --- 201,553 31,610(1) 1,310,385 114,586(1)
Class B Common -- --- -- -- -- --
Richard J. Farrelly
Class A Common -- --- 48,910 11,510 251,799 42,336
Class B Common -- --- -- -- -- --
Frank W. Newdeck
Class A Common -- --- 38,480 -- 199,460 --
Class B Common -- --- -- -- -- --
</TABLE>
(1) Does not include contingent option grant of 50,000 shares of Class A Common
Stock, the conditions for which were satisfied on February 10, 1998.
<PAGE>
DIRECTORS' COMPENSATION
Directors were not paid a fee for service as a director or
Committee member during fiscal 1997. However, during fiscal 1997 Mr. Poole
received, subject to shareholder approval, an option for 10,000 shares of Class
A Common Stock, and Mr. Batten received, subject to shareholder approval,
options for an aggregate of 20,000 shares of Class A Common Stock. The options
are exercisable at the market price of such stock as of the dates of grant.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS
Under employment agreements which were in effect for each of
Messrs. Kranzler, Klinsport and Eisenberg (collectively, the "Executives") such
Executives were entitled to their respective salaries and benefits to the date
of their termination if terminated for "cause" (as defined in the agreement,
including willful or gross misconduct, criminal indictment, or other actions
which significantly damaged the Company) or if voluntarily terminating their
employment prior to the expiration of the twelve month term, which was
automatically extended for one month at the end of each month and terminable
(unless otherwise terminated) by either party on twelve months' notice. If
terminated without "cause," the Executive was entitled to his salary and
benefits to the date of termination and a termination payment equal to the
highest annual combination of his base salary plus any annual bonus paid to the
Executive during the five fiscal years ending before the date of termination. If
the Executives were entitled to payment upon termination pursuant to the change
in control agreement described below, the termination provisions of the change
in control agreement would have prevailed.
The Company also had change in control agreements in effect
with each of Messrs. Kranzler, Klinsport and Eisenberg, and continues to have
change in control agreements with other current executive officers. The
agreements provide that if, within three years after certain "changes of
control" (as defined in the agreement, including an acquisition of 50% or more
of the combined voting power of the outstanding stock of the Company, a
substantial change in the composition of the Board not approved by "continuing
directors," or certain mergers or sales involving the Company), the executive's
employment with the Company is terminated by the Company other than for "cause,"
death or disability, or by the executive for "good reason" (all as defined in
the agreement), the executive would be entitled to receive, subject to certain
limitations, a lump sum cash payment and health insurance benefits for three
years following termination of employment, having an aggregate value equal to
2.99 times the total of average annual compensation and cost of employee
benefits for the executive for the five years prior to the change of control,
subject to a maximum amount equal of the Company's permitted deduction under
Section 280G of the Internal Revenue Code. Each current agreement is subject to
being extended automatically from year to year unless the Company gives at least
fifteen months' prior notice of its election not to extend the term.
On October 31, 1997, following thirty-two years with the Company, Myles
M. Kranzler, founder of the Company, retired as President and Chief Executive
Officer and, effective on December 31, 1997, Mr. Kranzler retired as Chairman of
the Board and a director of the Company. Mr. Kranzler will continue as a
consultant to the Company for a one year term, subject to extension upon mutual
agreement of the parties. Pursuant to his separation and consultant agreement,
Mr. Kranzler is required to be available to the Company for up to sixty-five
working days for which he will receive consulting compensation of $100,000 plus
reimbursement for any reasonable out-of-pocket expenses. For consulting services
in excess of 65 working days per year, Mr. Kranzler would receive consulting
compensation of $1,600 per day. Under the separation and consultant agreement,
Mr. Kranzler and his spouse will continue to receive health and dental insurance
coverage for life. Under the agreement, Mr. Kranzler also agreed during the term
of the agreement not to engage in any business related to the Company's business
and during the term of the agreement and for one year thereafter not to solicit
any of the customers of the Company in connection with any competitive products.
Subsequent to year end, Mr. Kranzler received a total payment of $300,000 as a
bonus for services rendered prior to October 31, 1997.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Company's Compensation Committee consisted in fiscal year
1997 of all of the members of the Board except Mr. Kranzler. Of these members,
Messrs. Adelson, Eisenberg, Klinsport and Cowen were officers of the Company
during all or part of fiscal 1997. On October 31, 1997, Myles Kranzler, founder,
Chairman of the Board, President and Chief Executive Officer of the Company for
thirty-two years, retired as President and Chief Executive Officer, and on
December 31, 1997, retired as Chairman of the Board and a director. Mr. Kranzler
has continued as a consultant and advisor to the Company. Thomas E. Gardner has
been appointed to the Board as Co-Chairman of the Board, President and Chief
Executive Officer, replacing Mr. Kranzler. Also, in connection with the sale of
the Company's Government Technology Division to Strategic Technology Systems,
Inc., Edward J. Klinsport resigned as Executive Vice President and Secretary of
the Company on December 31, 1997 and resigned as a director on January 13, 1998.
In April 1997 Bruce D. Cowen, a Class A director, resigned from the Board for
personal reasons and the Board appointed David C. Batten as a director. In
January 1998 William Sword was appointed as a director. In February 1998 Alan J.
Eisenberg resigned as a director and also separated from the Company as
Executive Vice President. In accordance with the New Jersey Business Corporation
Act, a successor director's term expires as of the immediately following annual
meeting of shareholders.
The Company had a consulting arrangement with Mr. Adelson
providing for Mr. Adelson's transfer to the Company of intellectual property
relating to radio tag technology and for various advisory services, including
consulting on the Company's business, technical, marketing and related
strategies, preparation of business plans and other specialized services that
the Company might request from time to time. In 1995, the agreement was renewed
for three years. In connection with the renewal, the Company granted Mr. Adelson
a five-year nontransferable option to purchase 36,000 shares of Class A Common
Stock at $7 7/8 per share, representing the market price of the stock on the
date of grant, and agreed to pay annual consulting fees of $50,000 plus monthly
consulting fees of $10,000 in August 1995 and $15,000 from September 1995
through May 1997. Mr. Adelson is also entitled to 2 1/2% of the Company's net
proceeds from sales of radio tag devices incorporating technology supplied by
him. The agreement is no longer in effect. The total fee paid to Mr.
Adelson under this consulting agreement in fiscal 1997 was $135,000.
The Company had a consulting agreement with Mr. Cowen for a
one-year term through March 1996, providing for financial consulting and other
specialized services requested by the Company. The agreement was extended in
1996 for an additional one-year term, entitling Mr. Cowen to an option to
purchase 30,000 shares of Class A Common Stock at an exercise price $10 1/4 per
share, the market price of such shares on the date of grant, and to quarterly
fees of $6,250 plus expense reimbursements. This agreement is no longer in
effect. The total fee paid to Mr. Cowen under this consulting agreement in
fiscal 1997 was $32,702.
The Company had a financial advisory agreement with Messrs.
Adelson and Cowen for financial and investment advisory services on strategic
opportunities, providing for success fees on any introduced acquisition or
equity financing completed during the term of the agreement, subject to Board
approval. The agreement provided for a cash fee equal to 2% of the gross
proceeds of an equity financing or, for an acquisition, 3% of pretax profits
earned by the acquired operations over the three years after the transaction
plus 1% of the consideration paid by the Company for the acquired company. For
either an equity financing or an acquisition, the agreement also provided for
the issuance of warrants based on the terms of the particular transaction. On
May 30, 1997, the Company privately placed $5.5 million of convertible
debentures together with warrants for Class A Common Stock. Mr. Adelson received
warrants to purchase 27,500 shares of Class A Common Stock at an exercise price
of $10.125 per share, the market price of Class A Common Stock on the date of
grant, and a fee of $55,000, for advisory services in connection with such
private placement.
In connection with the May 1, 1997 creation of the uPACS, LLC
(the "LLC") whereby the Company became the minority owner of this limited
liability company (see "Certain Transactions with Related Parties" below), Mr.
Adelson received a fee of $30,000 from the LLC and will be entitled to receive,
from the LLC, 1% of revenues generated by the LLC up to the first $45 million in
revenues, in consideration of his services in establishing the LLC and in
obtaining the capital funding therefor.
Effective June 9, 1997, the Company and RTS Research Lab,
Inc., a corporation of which Mr. Adelson is the sole owner and principal
("RTS"), entered into a consulting agreement with the Company which replaced and
superseded the earlier financial and investment advisory agreement between the
Company and Messrs. Adelson and Cowen described above. Under the consulting
agreement, Mr. Adelson through RTS ("Consultant") would, for a three year term,
provide investor relations and investor advisory services to the Company,
including being a liaison with the investment community on behalf of the
Company, assisting in developing marketing strategies in connection with the
Company's Medical Technology business and the Company's PHARMASYST(R) products,
and assisting in developing and marketing the uPACS(TM) technology, for which
Consultant will receive $257,500 per annum over the term of the agreement
(which, upon mutual agreement of the parties, may alternatively be satisfied by
issuance of options for Class A Common Stock at a rate of an option for one
share of stock for each $200 of compensation) plus an expense reimbursement and,
subject to shareholder approval, a warrant for 45,000 shares of Class A Common
Stock exercisable in three equal installments on each of the three anniversary
dates of the agreement, at an exercise price equal to $10.00, the market price
of the stock on the date of grant In addition, in the event that Consultant,
with prior Board approval, is successful during the three year term of the
agreement in arranging for additional capital financing for the Company or in
successfully assisting in consummating one or more acquisitions, Consultant is
entitled to receive in connection with any such financing, a success fee of 1%
of the net proceeds plus a warrant for Class A Common Stock equal to one warrant
for each $200 of net proceeds, and in connection with any such acquisition, a
success fee equal to 1/2 % of the fair market value of the net consideration
paid by the Company in such acquisition. If approved in advance by the Board of
Directors, the Consultant would receive a success fee of $100,000 on the sale of
the Company or one of its divisions. In no case will Consultant be entitled to
more than $200,000 in success fees in any eighteen-month period over the term of
the agreement.
In connection with the Company's $19 million private placement
of Series A Preferred Stock which was consummated in December 1997, Mr. Adelson
received a financial advisory fee of $190,000 plus warrants to purchase 46,875
shares of Class A Common Stock exercisable at $12.50 per share (the market price
of Class A Common Stock as of the closing of the initial $9.375 million of such
Series A Preferred Stock on December 5, 1997), and a warrant to purchase 48,125
shares of Class A Common Stock exercisable at $10.31 per share (the market price
of Class A Common Stock on the closing of the balance of such private placement
on December 31, 1997).
During the fiscal year ending October 31, 1997, Base Ten
operated a Medical Technology Division and a Government Technology Division. On
December 31, 1997, following approval by the Company's shareholders at a special
shareholders' meeting, the Company sold the Government Technology Division (the
"GTD Sale") to Strategic Technology Systems, Inc. ("STS") for aggregate cash
consideration of $3.5 million, a promissory note in a principal amount estimated
to be approximately $2.1 million, and certain other consideration. STS is a
newly formed corporation managed and partially owned by individuals who were,
prior to the GTD Sale, members of the Company's senior management, including
Edward J. Klinsport, who prior to the GTD Sale was Executive Vice President,
Chief Financial Officer, Secretary and a director of the Company.
In connection with and effective as of the closing of the GTD
Sale, the Company entered into a consulting agreement with Mr. Klinsport for a
two year term following the GTD Sale with respect to events and matters which
occurred during Mr. Klinsport's tenure as Chief Financial Officer of Base Ten,
provided such services do not interfere with Mr. Klinsport's other employment
duties. In consideration of such services, Base Ten paid $225,000 to Mr.
Klinsport, an amount equal to his then current annual salary, and Mr. Klinsport
was also paid $75,000 in connection with his past services for the Company.
The Company and STS also entered into a sublease agreement
under which STS subleased for a five year term approximately 40,000 square feet
of space at the Company's New Jersey headquarters facility at a lease rate of
$7.00 per square foot for office and manufacturing space and $3.00 per square
foot for shared common access space, plus a proportionate amount of utilities
and other building expenses. As part of the GTD Sale, the Company and STS also
entered into a transition agreement pursuant to which STS will continue to
provide the Company with certain accounting, reception, personnel and facilities
services for a three month period, in consideration of approximately $194,000.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Set forth below is information concerning beneficial ownership of Class A Common
Stock and Class B Common Stock as of January 15, 1998 by (i) each of the
nominees and current directors, (ii) each of the Named Executive Officers listed
in the Summary Compensation Table, (iii) all current directors and executive
officers of the Company as a group and (iv) all persons known by the Company to
be the beneficial owners of 5% or more of Class A Common Stock or Class B Common
Stock.
<TABLE>
<CAPTION>
Percent of Voting
Power
Represented
Shares by Class A
Beneficially Percent and Class B
Name Owned (1) of Class Combined (2)
- -------------------------- ---------------------------- -------- ------------
<S> <C> <C> <C> <C>
Myles M. Kranzler (3)(4) Class A - 510,423 6.21% 15.6%
Class B - 160,144 36.00
Thomas E. Gardner (4) Class A - 70,000 .89 0.6
Class B - --- ---
Edward J. Klinsport (3)(4) Class A - 256,886 3.18 2.6
Class B - 7,136 1.59
Alan J. Eisenberg (4) Class A - 258,163 3.19 2.1
Class B - --- ---
Richard J. Farrelly (4) Class A - 61,420 0.78 0.5
Class B - --- ---
Frank W. Newdeck (4) Class A - 38,480 0.49 0.3
Class B - --- ---
Alexander M. Adelson (4) Class A - 532,916 6.43 4.2
Class B - --- ---
David C. Batten(4) Class A - 38,900 0.5 0.3
Class B - --- ---
Alan S. Poole (4) Class A - 20,000 0.26 0.2
Class B - --- ---
William Sword Class A - --- --- ---
Class B - --- ---
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percent of Voting
Power
Represented
Shares by Class A
Beneficially Percent and Class B
Name Owned (1) of Class Combined (2)
- ------------------------------- ----------------------------- --------- ------------------
<S> <C> <C> <C> <C>
Jesse L. Upchurch(5) Class A - 2,050,400 23.61 19.4
Class B - 53,900 12.12
Bruce D. Cowen(4) Class A - 493,370 6.01 9.6
Class B - 78,800 17.71
James A. Eby(4) Class A - 76,096 0.96 3.8
Class B - 43,636 9.81
Herzog, Heine, Geduld, Inc. Class A - 28,895 0.37 2.4
Class B - 28,895 6.50
Directors and executive officers as Class A - 723,236 8.57 5.6
a group (8 persons) (4) Class B - --- ---
</TABLE>
- --------------------
(1) Ownership of shares of Class A Stock Common included in the above table
includes shares issuable upon (a) conversion of Class B Common Stock in
accordance with the terms thereof (one share of Class A Common Stock for
each share of Class B Common Stock), (b) exercise of outstanding options
and warrants to purchase Class A Common Stock which are currently
exercisable or exercisable within 60 days of January 15, 1998, (c)
conversion of Class B Common Stock issuable upon exercise of outstanding
options to purchase Class B Common Stock and (d) conversion of outstanding
convertible debentures. Ownership of Class B Common Stock included in the
above table includes shares issuable upon exercise of outstanding options
to purchase Class B Common Stock which are currently exercisable or
exercisable within 60 days of January 15, 1998.
(2) Based upon one-tenth vote per share of Class A Common Stock and one vote
per share of Class B Common Stock. Assumes exercise of options and warrants
which are currently exercisable or are exercisable within 60 days of
January 15, 1998, but not the conversion of Class B Common Stock to Class A
Common Stock.
(3) Includes (a) as to Mr. Kranzler 45,300 shares of Class A Common Stock and
62,823 shares of Class B Common Stock owned by his wife and (b) as to Mr.
Klinsport 10 shares of Class A Common Stock owned by his wife.
(4) Includes as to (a) Mr. Kranzler 236,000 shares, (b) Mr. Gardner 70,000
shares, (c) Mr. Klinsport 249,740 shares and 4,946 shares, (d) Mr.
Eisenberg 258,163, (e) Mr. Adelson 460,500 shares, (f) Mr. Poole 20,000
shares, (g) Mr. Newdeck 38,480 shares, (h) Mr. Farrelly 60,420 shares, (i)
Mr. Batten 20,000 shares, (j) Mr. Eby 29,460, (k) Mr. Cowen 300,000, and
(l) all directors and executive officers as a group 610,920 shares, of
Class A Common Stock and Class B Common Stock, respectively, issuable upon
the exercise of outstanding options or warrants. which are currently
exercisable or exercisable within 60 days of January 15, 1998.
(5) Based in part on a Statement on Schedule 13D and a Statement of Changes in
Beneficial Ownership on Form 4 filed with SEC, represents (i) 968,200
shares of Class A Common Stock held directly by the Estate of Constance
Upchurch, of which Mr. Upchurch is the executor and beneficiary (the
"Estate"), (ii) 209,900 shares of Class A Common Stock held by a
corporation of which Mr. Upchurch is the sole shareholder, (iii) 18,400
shares of Class A Common Stock held directly by Mr. Upchurch, (iv) 53,900
shares of Class A Common Stock issuable upon conversion of the same number
of shares of Class B Common Stock held directly by the Estate, and (v)
800,000 shares of Class A Stock issuable upon conversion of the Company's
9.01% Convertible Subordinated Debentures due August 31, 2003.
<PAGE>
Item 13. Certain Relationships and Related Transactions
The Company entered into a separation and consulting agreement with
Myles M. Kranzler, which took effect November 1, 1997 (see "Employment
Contracts, Termination of Employment and Change in Control Arrangements" above).
On May 1, 1997 the Company entered into an Operating Agreement
(the "Operating Agreement") with Jesse L. Upchurch ("LLC Member") whereby the
Company became a minority owner of a limited liability company. Under the terms
of the Operating Agreement, the Company made an initial capital contribution to
the LLC of its rights to its uPACS(TM) technology in return for a 9% interest in
the LLC and the LLC Member made a capital contribution of $2 million and later
made a further capital contribution of $1 million in return for a 91% interest
in the LLC. In connection with the formation of the LLC, the Company entered
into a services and license agreement whereby the Company agreed to complete the
development of the uPACS(TM) technology and undertake to market, sell and
distribute systems using the uPACS(TM) technology. The LLC will pay the Company
its expenses in connection with such services and the Company will pay to the
LLC royalties in connection with the sale of systems using the uPACS(TM)
technology. At such time as the LLC has distributed to the LLC Member $4.5
million of its net cash flow, the Company will become a 63% owner of the LLC and
the LLC Member will own a 37% interest in the LLC.
On August 8, 1996, the Company entered into a Purchase
Agreement with Jesse L. Upchurch for the sale of up to $10,000,000 of the
Company's 9.01% Convertible Subordinated Debentures due August 31, 2003 (the
"Debentures"). On August 12, 1996, the Company issued and sold a Debenture in
the original principal amount of $4,500,000 to Mr. Upchurch and on August 22,
1996 the Company issued and sold a Debenture in the original principal amount of
$5,500,000 to Mr. Upchurch. Pursuant to the terms of the Purchase Agreement, Mr.
Upchurch has the right, provided he continues to hold not less than 80% of the
aggregate principal amount of the Debentures, to nominate two directors to the
Board of Directors of the Company by giving written notice to the Company of
such nominations together with the written consents of such nominees to serve as
directors not less than 120 days prior to the date that the Company's proxy
statement in connection with its annual meeting of shareholders is to be mailed
to shareholders. The Company is then required to include the nominees among in
the directors recommended by management in the proxy statement for the next held
annual meeting of shareholders.
In October 1994, the Company completed a sale and leaseback of
its headquarters and related real estate in Trenton, New Jersey with CKR
Partners, L.L.C., an investment concern ("CKR"). The principals of CKR include
Myles M. Kranzler, formerly Chairman, President and CEO of Base Ten, and Bruce
D. Cowen, formerly Vice Chairman of Base Ten. The Company received $3.6 million
for the property, of which $550,000 was retained by CKR as a security deposit
due at the end of the 15-year lease term. The lease provides for annual rent of
$560,000 for the first five years, $615,000 for the second five years and
$690,000 for the last five years, with the Company retaining a repurchase option
which may be exercised at any time at amounts declining to $3.5 million during
the last five years of the lease, although under certain conditions CKR is
provided the right to sell the premises free of such Company repurchase option.
The Company received an opinion from The Talman Realty Group, independent
financial advisors, that the terms of the transaction were fair to the Company
and its shareholders from a financial point of view. Proceeds from the
transaction were applied by Base Ten primarily to prepay its mortgage debt of
approximately $2.8 million on the property.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment to its
Annual Report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 27th day of February, 1998.
BASE TEN SYSTEMS, INC.
THOMAS E. GARDNER
BY:---------------------------
Thomas E. Gardner
Chief Executive Officer
