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Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the Appropriate Box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
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BASE TEN SYSTEMS, INC.
(Name of Registrant as Specified in its Charter
and
Name of Person Filing Proxy Statement)
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Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction
applies:
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2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
--------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing with which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: ______________________________________
Form, Schedule or Registration Statement No.: _________________
Filing Party: ________________________________________________
Date Filed: __________________________________________________
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<PAGE>
PRELIMINARY COPY
March ___, 1998
BASE TEN SYSTEMS, INC.
One Electronics Drive
P.O. Box 3151
Trenton, New Jersey 08619
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 16, 1998
To the Shareholders:
The Annual Meeting of Base Ten Systems, Inc. ("Base Ten" or the
"Company") will be held at the Four Seasons Hotel, 57 East 57th Street, New York
City, New York, on Thursday, April 16, 1998 at 4:00 p.m. for the following
purposes:
(1) The election by the holders of Class A Common Stock of two
directors to the Board of Directors, one director to be
elected for a one year term and one director to be elected for
a two year term.
(2) The election by the holders of Class B Common Stock of two
directors to the Board of Directors, each for a three year
term.
(3) Approval of a proposed increase in the authorized Class A
Common Stock from 22 million shares to 40 million shares.
(4) Approval of a proposed change in the conversion ratio of Class
B Common Stock and in voting rights and dividend rights of
Class A Common Stock and Class B Common Stock.
(5) Approval of the adoption of the 1998 Stock Option and Stock
Award Plan.
(6) Approval of the adoption of the 1998 Employee Stock Purchase
Plan.
(7) Approval of the adoption of the 1998 Directors Stock Option
Plan.
(8) Ratification of the issuance and grant of certain options and
warrants to officers and directors.
Shareholders of the Company of record at the close of business
on February 26, 1998 will be entitled to notice of and to vote at the 1998
Annual Meeting or any adjournments or postponements thereof.
By order of the Board of Directors,
WILLIAM F. HACKETT
Secretary
<PAGE>
YOUR VOTE IS IMPORTANT,
REGARDLESS OF HOW MANY SHARES YOU OWN.
TO VOTE YOUR SHARES, PLEASE MARK, SIGN AND DATE
THE ACCOMPANYING PROXY CARD AND
MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
<PAGE>
PRELIMINARY COPY
BASE TEN SYSTEMS, INC.
One Electronics Drive
Trenton, New Jersey 08619
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 16, 1998
GENERAL
This Proxy Statement is being furnished in connection with the
solicitation of proxies on behalf of the Board of Directors (the "Board") of
Base Ten Systems, Inc. ("Base Ten" or the "Company"), to be voted at the
Company's Annual Meeting of Shareholders scheduled to be held on April 16, 1998
or any adjournments or postponements thereof (the "Annual Meeting"). This Proxy
Statement and the enclosed form of proxy are first being mailed to shareholders
on or about March ___, 1998. Upon request, additional copies of the proxy
materials will be furnished without cost to brokers and other nominees for
forwarding to beneficial owners of shares held in their names.
There are eight matters to be considered and voted on at the
Annual Meeting as set forth in the accompanying Notice of Annual Meeting.
Shareholders of record as of the close of business on February 26, 1998 are
entitled to notice of and to vote at the meeting.
As of January 19, 1998, there were 7,829,060 shares of the
Company's Class A Common Stock, 444,879 shares of its Class B Common Stock, and
19,000 shares of Series A Preferred Stock issued and outstanding. The holders of
Class A Common Stock and the holders of Series A Preferred Stock, voting
together, are entitled to elect 25% of Base Ten's directors (rounded to the next
highest whole number) and the holders of Class B Common Stock are entitled to
elect the remaining directors. Each share of Class A Common Stock and Series A
Preferred Stock is entitled to one vote in the election of Class A directors
and, except as set forth below, one-tenth of a vote on any other matter properly
presented at the Annual Meeting other than the election of Class B directors.
Each share of Class B Common Stock is entitled to one vote in the election of
Class B directors and one vote on all other matters other than the election of
Class A directors. The holders of Series A Preferred Stock have the same voting
rights on all matters as the holders of Class A Common Stock, calculated as if
all shares of Series A Preferred Stock had been converted into shares of Class A
Common Stock on the record date for any such vote. The holders of Class A Common
Stock and Series A Preferred Stock vote together as one class. With respect to
the proposal to amend the Company's Restated Certificate of Incorporation to
change the conversion ratio of Class B Common Stock and the voting and dividend
rights of Class A Common Stock and Class B Common Stock, approval of such
proposal requires the affirmative vote of two-thirds of the votes cast by each
of (i) the holders of the outstanding Class A Common Stock, voting as a class,
(ii) the holders of the outstanding Class B Common Stock, voting as a class, and
(iii) the holders of the outstanding Class B Common Stock, Class A Common Stock
and Series A Preferred Stock voting together as a group. As to each of the above
class votes, each holder of Class A Common Stock and Class B Common Stock will
be entitled to one vote per share of stock held. As to the vote of all
shareholders entitled to vote together as a group, Class A Common Stock and
Series A Preferred Stock are entitled to one-tenth vote per share and each share
of Class B Common Stock is entitled to one vote.
The Restated Certificate of Incorporation does not provide for
cumulative voting in the election of directors or for any other purpose. A
majority of the outstanding shares of the Company entitled to vote, represented
in person or by proxy, will constitute a quorum at the Annual Meeting. A
majority of the outstanding shares of Class A Common Stock and Series A
Preferred Stock, represented in person or by proxy, will constitute a quorum for
the election of Class A directors, a majority of the outstanding Class A Common
Stock, represented in person or by proxy, will constitute a quorum for the Class
A Common Stock and class vote referred to above, and a majority of the
outstanding Class B Common Stock, represented in person or by proxy, will
constitute a quorum for the election of Class B directors and for the Class B
Common Stock class vote referred to above. To be elected as a director, nominees
for director must receive a plurality of the votes cast, in person or by proxy,
by shareholders entitled to vote on such matter.
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 on December 31, 1997, Edward J.
Klinsport, Executive Vice President, Secretary and a director of the Company,
resigned from the Company in connection with the sale of the Company's
Government Technology Division to Strategic Technology Systems, Inc. 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 Board is divided into three classes, with each class to
have a three year term. Consistent with such classified Board and the right of
the holders of Class A Common Stock and Series A Preferred Stock to elect 25% of
the Board (rounded to the next highest number), the Board has nominated Thomas
E. Gardner and David C. Batten for three year terms as Class B directors, Alan
S. Poole for a two year term as a Class A director, and William Sword for a one
year term as a Class A director. Alexander M. Adelson is currently serving as a
Class B director with a term ending in 2000.
All properly executed proxies received prior to the Annual
Meeting will be voted in accordance with the instructions marked on the proxy
cards. If no such instructions are provided, shares of Class B Common Stock will
be voted "for" the election of the two Class B nominees, shares of Class A
Common Stock and Series A Preferred Stock will be voted "for" the election of
the two Class A nominees. With respect to all other matters presented at the
Annual Meeting, unless other instructions are given, it is the intention of the
persons named in the enclosed proxy to vote "for" each of the proposals
described in the Notice of Annual Meeting, and, with respect to any other matter
as may be properly presented at the Annual Meeting, in accordance with their
best judgment. A shareholder giving a proxy may revoke it at any time by giving
written notice of revocation to the Secretary of the Company before it is voted,
by executing a proxy bearing a later date and delivering it to the Secretary of
the Company prior to the earlier proxy being voted, or by attending the Annual
Meeting and voting in person. Abstentions and broker non-votes are counted for
purposes of determining the number of shares represented at the Annual Meeting
for purposes of determining a quorum, but are not deemed to be votes cast
concerning a proposal. Broker non-votes occur when a broker nominee (which has
voted on one or more matters at the meeting) does not vote on one or more other
matters at the meeting because it has not received instructions to so vote from
the beneficial owner and does not have discretionary authority to so vote.
Due to the change in the Company's fiscal year end from
October 31 to December 31 beginning for the 1998 fiscal year, the Company
anticipates that the next annual meeting will be held approximately 60 days
later than the date of this year's Annual Meeting.
The cost of soliciting any proxies will be borne by the
Company. Base Ten will reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding proxy materials to
beneficial owners. Proxies may be solicited by the Company's directors, officers
and regular employees, without additional compensation, in person or by
telephone or telecopier.
ELECTION OF CLASS A DIRECTORS
The following persons have been nominated to serve as Class A directors:
ALAN S. POOLE, age 70, is proposed as a director for a two year term.
Mr. 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.
WILLIAM SWORD, age 74, is proposed as a Class A director for a one year
term. Since 1976 Mr. Sword has been Chairman of the Board of Wm. Sword & Co.
Incorporated, a diversified investment banking firm located in Princeton, New
Jersey, 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.
If any one of the Class A nominees becomes unavailable for election, which is
not anticipated, proxies may be voted for a substitute nominee selected by the
Board.
THE BOARD RECOMMENDS THAT THE HOLDERS OF CLASS A COMMON STOCK AND THE HOLDERS OF
SERIES A PREFERRED STOCK VOTE FOR THE ELECTION OF MESSRS. POOLE AND SWORD AS
DIRECTORS.
ELECTION OF CLASS B DIRECTORS
The following persons have been nominated to serve as Class B directors:
THOMAS E. GARDNER, age 50, is proposed as a Class B director for a
three year term. Mr. 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.
DAVID C. BATTEN, age 53, is proposed as a Class B director for a three
year term. 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.
If any one of the Class B nominees becomes unavailable for election, which is
not anticipated, proxies may be voted for a substitute nominee selected by the
Board.
THE BOARD RECOMMENDS THAT THE HOLDERS OF CLASS B COMMON STOCK VOTE FOR THE
ELECTION OF MESSRS. GARDNER AND BATTEN AS DIRECTORS.
CONTINUING DIRECTOR
ALEXANDER M. ADELSON, age 63, is a Class B director with a term
expiring in 2000. Mr. 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.
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 beneficial owners of 5% or more of the 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 - --- ---
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 Common Stock 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 Common Stock issuable upon conversion of the
Company's 9.01% Convertible Subordinated Debentures due August 31, 2003.
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.
COMMITTEES OF THE BOARD
The Company has an Audit Committee currently consisting of
Messrs. Adelson, Batten and Poole. The Audit Committee had two meetings in
fiscal 1997. The Committee's purpose is to confer with the Company's independent
auditors and its chief financial officer to evaluate the financial controls and
practices of Base Ten and the plans for and results of the audit engagement.
The Company has a Compensation Committee currently consisting
of all the members of the Board. This Committee had one meeting in fiscal 1997.
The function of the Compensation Committee is to establish the compensation and
benefits of all employees of the Company, including its officers.
During fiscal 1997, the Company's Finance Committee consisted
of Messrs. Kranzler, Adelson and Klinsport. The purpose of the Committee was to
explore various financial alternatives in connection with funding the Company's
operations. The Committee formally met four times during the 1997 fiscal year
and also met informally from time to time.
The Board held nine meetings during the 1997 fiscal year. Each
member of the Board participated in at least 91% of all Board and applicable
Committee meetings held during the period for which he was a director or
Committee member. The Company does not have a nominating committee.
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.
EXECUTIVE COMPENSATION
Summary Compensation Table. The Summary Compensation Table set forth below shows
certain compensation information for the Company's Chief Executive Officer and
the four other most highly compensated executive officers (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
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
Awards
------
Name and Options/ All Other
Principal Position Year Salary Bonus SARs Compensation (1)
- ------------------------------- ---- ------ ----- -------- --------------
<S> <C> <C> <C> <C> <C>
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 --- 60,000 110,446
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(2) 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 contingent option grant for 50,000 shares of Class A Common
Stock, the conditions for which were satisfied on February 10, 1998.
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.
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.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
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.
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 his 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. In connection with his
separation from Base Ten and in consideration of his past services to the
Company, Mr. Kranzler was also entitled to receive $300,000, the receipt of
which was contingent upon consummation by the Company of one or more financings
in which the gross proceeds to the Company exceeded $10 million, which
contingency was satisfied with the Company's $19 million private placement of
Series A Preferred Stock in December 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. See "General" above.
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 a warrant 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.
REPORT OF COMMITTEES ON EXECUTIVE COMPENSATION
The Company's executive compensation program has been designed
to retain and fairly compensate its executives and to motivate them to maximize
Base Ten's financial performance. The compensation program has consisted of
three key elements: a base salary, an annual incentive bonus, and periodic
grants of stock options.
Base Ten's compensation policies for its executive officers,
including its chief executive officer, are administered by two committees of the
Board. The Compensation Committee or, as to the grant of stock options, by the
Board or in certain instances by a specifically designated committee of the
Board.
Base Salary. Base salaries of the executive officers,
including the Chief Executive Officer (the "CEO"), have been established at the
beginning of the fiscal year based on the Compensation Committee's assessment of
(i) the overall performance of the CEO and the recommendations of the CEO on
officers other than himself, (ii) the nature of the position and
responsibilities of the CEO and each of the other individuals, (iii) the
contribution, experience and relative importance of the executive officers to
the Company, (iv) executive salaries at comparable public and private
manufacturing companies (without survey or similar data, and because the
Company's most direct competitors for executive talent are not the companies
included in the industry index used to compare the Company's shareholder
returns, without reference to salaries at those companies), and (v) the
Company's financial performance and success in meeting its strategic plans. In
making its determinations, the Compensation Committee does not assign any
specific weight to any of the foregoing factors and did not affirmatively target
such base salaries at any particular percentile range in relation to any other
group of comparable companies, but rather considers the entire mix of factors in
the aggregate and makes a subjective determination of what it considers to be
appropriate salary levels. In assessing the base salary of each of the CEO and
the other named executive officers, the Committee has also given consideration
over the past several years to the substantial changes which have been made in
the nature of the Company's business and strategic direction, and in particular
the significant change from primarily a defense industry business to a software
and technology company. The base salary for the CEO for fiscal 1997 remained the
same as for fiscal 1996 based on the specific recommendation of the CEO to the
Compensation Committee and cost constraints.
Annual Bonus. An annual incentive bonus portion of the
Company's executive compensation program was in effect since the beginning of
fiscal 1992. Each executive officer, including the CEO, historically has been
eligible for an annual incentive bonus equal to a specified percentage of the
Company's pre-tax profit, if any, subject in certain cases to established
minimum payments, based on the Committee's belief that such an arrangement
aligns the interests of management with the Company's shareholders by linking
this portion of executive compensation directly with performance.
The particular percentage and minimum bonus historically
awarded to each executive officer, including the CEO, would be established by
the Compensation Committee at the beginning of each fiscal year based upon the
Committee's assessment of (i) the factors employed to determine base salaries
and (ii) the Compensation Committee's general view (determined without survey
data) of the competitiveness of the executive officer's total compensation,
including both base salary and stock options. In making its determination, the
Compensation Committee does not assign any specific weight to any of the
foregoing factors, but rather subjectively considers the entire mix of factors
in the aggregate. Accordingly, the annual incentive bonus awarded to an
executive officer may vary from year to year. However, based on cost constraints
as well as the financial performance of the Company no annual incentive bonus
goals were established for fiscal 1997 for any executive officer including the
CEO and no incentive bonuses were awarded to any executive bonuses; Mr. Newdeck
was awarded a merit bonus based on his performance and efforts during the year,
as set forth in the Summary Compensation Table under the heading "Bonus."
Stock Options. Like annual incentive bonuses, awards of stock
options to executive officers, including the CEO, are intended to align an
officer's interests with shareholder returns and the Company's stock market
performance. Options are granted to the CEO and the other named executive
officers from time to time, but not necessarily annually, based on an assessment
of (i) the factors employed to determine annual incentive bonuses but without
regard to cost containment considerations and (ii) the amount and terms of stock
options already held by the executive officer. In making awards, no specific
weight is assigned to any of the foregoing factors, but rather the entire mix of
factors in the aggregate is subjectively considered. In fiscal 1997, the Board
awarded Messrs. Klinsport and Eisenberg options to purchase 60,000 shares of
Class A Common Stock and 50,000 shares of Class A Common Stock, respectively, at
an exercise price of $14 1/2 per share and $10 7/8 per share respectively. Mr.
Eisenberg was also granted a contingent option for 50,000 shares of Class A
Common Stock based on his years of service with the Company and his
participation in the change in the nature and strategic direction of the
Company. Stock Options granted to executive officers during fiscal 1997 are set
forth in the Summary Compensation Table under the heading "Awards - Securities
Underlying Options/SARs" and in the above table captioned "Option/SARs Granted
in fiscal 1997."
IRC Section 162(m). Section 162(m) of the Internal Revenue
Code limits the tax deduction for any compensation in excess of $1 million for
compensation paid to the CEO or any of the other Named Executive Officers
included in the Summary Compensation Table, unless certain requirements are met.
The Company does not currently believe that present compensation would be
subject to such limitations and it is the Compensation Committee's present
intention to comply with the limits and requirements of Section 162(m). The
Compensation Committee will continue to review this matter.
Compensation Committee Board of Directors
(current members as to fiscal (current members as to
1997 compensation) award of stock options)
Alexander M. Adelson Alexander M. Adelson
Alan S. Poole Alan S. Poole
David C. Batten (for part of fiscal year 1997) David C. Batten
PERFORMANCE GRAPH
The following graph shows changes over the past five years in
the value of $100 invested on November 1, 1992 in the Company's Class A Common
Stock, the NASDAQ National Market System Index and MG Industry Group 403. MG
Industry Group 403, Electronic Controls and Instruments is published by Media
General Financial Services, P.O. Box 85333, Richmond, Virginia 23293 and is
accessible through publications such as Industriscope and computer data bases
such as Dialog and Dow Jones News Retrieval. MG Industry Group 403 includes both
the Company's Class A Common Stock and Class B Common Stock.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL
RETURN AMONG BASE TEN SYSTEMS, INC. CLASS A
COMMON STOCK, MG GROUP INDEX, NASDAQ MARKET INDEX
<TABLE>
<CAPTION>
PERFORMANCE GRAPH
<S> <C> <C> <C> <C> <C> <C>
11/01/92 10/31/93 10/31/94 10/31/95 10/31/96 10/31/97
------------ ------------ ------------- ------------ ------------- ------------
Base Ten - Class A 100 263 223 326 298 407
- ------------------------------------- ------------ ------------ ------------- ------------ ------------- ------------
MG Industry Group 403 100 126 143 201 167 250
- ------------------------------------- ------------ ------------ ------------- ------------ ------------- ------------
NASDAQ Market Index 100 131 140 166 194 255
- ------------------------------------- ------------ ------------ ------------- ------------ ------------- ------------
</TABLE>
CERTAIN TRANSACTIONS WITH RELATED PARTIES
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 a 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 agreed to
make a further capital contribution of $1 million on or before December 1, 1997
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. After the LLC has distributed
to the LLC Member $4.5 million of its net cash flow pursuant to its
proportionate interest, 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 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.
PROPOSED INCREASE IN THE AUTHORIZED
SHARES OF CLASS A COMMON STOCK
The Company's Restated Certificate of Incorporation currently
authorizes the issuance of a total of 22,000,000 shares of Class A Common Stock,
2,000,000 shares of Class B Common Stock, and 1,000,000 shares of Preferred
Stock, each with a par value of $1.00 per share. Of such currently authorized
capital stock, as of January 19, 1998, 7,829,060 shares of Class A Common Stock
were issued and outstanding, 444,879 shares of Class B Common Stock were issued
and outstanding, and 19,000 shares of Series A Preferred Stock were issued and
outstanding. In addition, as of January 19, 1998, an aggregate of 10,143,088
shares of Class A Common Stock was reserved for issuance as set forth in the
following table:
<TABLE>
<CAPTION>
<S> <C>
Number of
Shares of Class A Common Stock Reserved for Issuance Shares Reserved
Class A Common Stock Warrants 1,935,100
Class A Common Stock Options 2,718,109
Conversion of Class B Common Stock 449,879
Conversion of Convertible Debentures 2,000,000
Conversion of Series A Preferred Stock 3,040,000
</TABLE>
At this Annual Meeting shareholders are also being asked to
approve the 1998 Stock Option and Stock Award Plan under which 1,000,000 shares
of Class A Common Stock would currently be reserved for issuance; the 1998
Employee Stock Purchase Plan under which 1,000,000 shares of Class A Common
Stock would currently be reserved for issuance; and the 1998 Directors Stock
Option Plan under which 300,000 shares of Class A Common Stock would currently
be reserved for issuance, for a total of 2,300,000 shares of Class A Common
Stock which would currently be reserved under all three equity-based plans
assuming such plans are approved by shareholders.
After giving effect to all shares of Class A Common Stock
reserved and to be reserved for issuance, the Company does not believe it has
sufficient uncommitted shares of Class A Common Stock for use in future
transactions involving the issuance of shares of the Company's Class A Common
Stock.
The Board of Directors therefore has adopted a proposed
amendment to the Company's Restated Certificate of Incorporation to increase the
number of authorized shares of Class A Common Stock from 22,000,000 to
40,000,000.
The additional shares, if so authorized, could be issued at
the discretion of the Board without any further action by shareholders (except
as required by applicable law or regulation) in connection with acquisitions,
efforts to raise additional capital, issuances of additional options, stock
awards or warrants, and other corporate purposes. Shares of Class A Common Stock
will be issued only upon a determination by the Board that a proposed issuance
is in the best interests of the Company.
The Company currently has no plans or commitments that would
involve the issuance of additional shares of Class A Common Stock, other than as
referred to above. However, in connection with future capital needs, the Board
may from time to time consider issuing shares of Class A Common Stock in one or
more capital financings or using shares of Class A Common Stock as a component
thereof, including derivative securities such as convertible instruments or
stock purchase warrants.
The Company also believes that acquisition opportunities may
be available to it. The increase in authorized shares would allow the Board to
consider and, if in the best interest of the Company and its shareholders, take
advantage of such acquisition opportunities. In addition, the flexibility vested
in the Board to authorize the issuance and sale of authorized but unissued
shares of Class A Common Stock and/or to issue Preferred Stock in one or more
series could enhance the Board's bargaining capability on behalf of the
Company's shareholders in a takeover situation and could, under some
circumstances, be used to render more difficult or discourage a merger, tender
offer or proxy contest, the assumption of control by a holder of a large block
of the Company's securities, or the removal of an incumbent management, even if
such a transaction were favored by the holders of the requisite number of the
then outstanding shares. Accordingly, shareholders of the Company might be
deprived of an opportunity to consider a takeover proposal which a third party
might consider if the Company did not have a sufficient number of uncommitted
authorized and unissued shares of Class A Common Stock.
The Company has in place certain provisions which have an
anti-takeover effect. The Company's Restated Certificate of Incorporation
currently includes provisions which provide, among other things, (i) for a
classified board of directors, (ii) any merger or consolidation of the Company
or any sale, lease or other disposition of all or substantially all of the
assets of the Company, if not in the usual and regular course of business,
currently requires the affirmative vote of 75% of the votes cast by the holders
entitled to vote thereon and, in addition, the affirmative vote of 75% of the
votes cast by the holders of Class B Common Stock, (iii) for election of only
25% of the number of directors on the Board (rounded to the next highest whole
number) by the holders of Class A Common Stock and the Series A Preferred Stock,
and the election of the balance of the directors by the holders of Class B
Common Stock, and (iv) holders of Class A Common Stock and Series A Preferred
Stock currently have one-tenth of a vote on all matters, other than the election
of Class B directors, submitted to a vote of shareholders and holders of Class B
Common Stock currently have one vote on all such matters other than the election
of Class A directors (but see the proposal being submitted to shareholders at
this Annual Meeting to eliminate such disparate voting between Class A Common
Stock and Class B Common Stock, below).
This proposal is not the result of management's knowledge of
any specific effort to accumulate the Company's securities or to obtain control
of the Company by means of a merger, tender offer, proxy solicitation in
opposition to management or otherwise. The Company is not submitting this
proposal to enable it to frustrate any efforts by another party to acquire a
controlling interest or to seek Board representation.
The submission of this proposal is not a part of any plan by
the Company's management to adopt a series of amendments to the Restated
Certificate of Incorporation or by-laws so as to render a takeover of the
Company more difficult. Except as indicated above, management is not aware of
the existence of any other provisions in the Restated Certificate of
Incorporation or by-laws having an anti-takeover effect.
The Restated Certificate of Incorporation does not provide for
cumulative voting. As a result, in order to be ensured of representation on the
Board, a shareholder must control the votes of a majority of the shares of the
class of stock entitled to elect a particular director, present and voting at a
shareholders' meeting at which a quorum is present. The lack of cumulative
voting requires an entity seeking a takeover to acquire a substantially greater
number of shares to ensure representation on the Board than would be necessary
were cumulative voting available.
The Board of Directors recommends a vote FOR the proposed
increase in the authorized Class A Common Stock. Assuming the presence of a
quorum, the affirmative vote by holders of two-thirds of the votes cast by
holders entitled to vote at the Annual Meeting is required to approve the
amendment with all shareholders voting together as a single class. When voting,
each share of Class A Common Stock and each share of Series A Preferred Stock is
entitled to one-tenth vote and each share of Class B Common Stock is entitled to
one vote.
PROPOSAL TO CHANGE THE CONVERSION RATIO OF
CLASS B COMMON STOCK AND THE VOTING AND
DIVIDEND PROVISIONS FOR CLASS A COMMON
STOCK AND CLASS B COMMON STOCK
General
The Company's Restated Certificate of Incorporation currently
provides for two classes of common stock, Class A Common Stock and Class B
Common Stock, for the convertibility of Class B Common Stock into Class A Common
Stock, and for distinctions between the two classes of common stock with respect
to voting, including the election of directors, and with respect to payment of
dividends.
The Board of Directors has approved and is proposing to the
shareholders certain amendments ("Proposed Amendment") to the Restated
Certificate of Incorporation which, taken together, would accomplish the
following:
(a) Change the conversion ratio of the Class B Common Stock so that,
upon conversion to Class A Common Stock, instead of receiving one share of Class
A Common Stock for each share of Class B Common Stock held, the Class B Common
Stock holders would receive 1.5 shares of Class A Common Stock for each share of
Class B Common Stock held. There were as of January 19, 1998, 444,879 shares of
Class B Common Stock outstanding, plus an additional 4,946 shares of Class B
Common Stock subject to outstanding options. Accordingly, the increase in the
conversion rate would increase the number of shares of Class A Common Stock
issuable upon such conversion by 224,912 shares of Class A Common Stock over the
number of shares of Class A Common Stock which would be issued on such
conversion if the Proposed Amendment is not approved. The current conversion
rate of the Class B Common Stock is subject to certain anti-dilution adjustments
which would also be applicable to the new conversion rate.
(b) Change the voting rights of Class A Common Stock and the Class B
Common Stock with respect to the election of directors. Currently, holders of
Class A Common Stock are entitled to elect approximately 25% of the directors of
the Company (rounded to the next highest whole number), and holders of Class B
Common Stock are entitled to elect the balance of the Board of Directors of the
Company. The change would provide that the directors of the Company would be
elected by holders of Class A Common Stock and Class B Common Stock voting
together as a single class. The classification of the Board into three separate
classes with "staggered" terms would not change, but the distinction between
Class A Common Stock directors and Class B Common Stock directors would cease.
This change would not affect the election of the Board of Directors at this 1998
Annual Meeting. However, immediately after the meeting, as to any vacancies or
removal as to directors, such vacancies and removal would be acted upon without
regard to the existing Class A Common Stock/Class B Common Stock distinction.
(c) Change the voting rights for the shares of Class A Common Stock
from one-tenth vote per share to one vote per share. Currently, the Class B
Common Stock is entitled to one vote per share and Class A Common Stock is
entitled to one-tenth vote per share. This change would make the voting rights
among Class A Common Stock and the Class B Common Stock identical, with one vote
per share. The change will also include the elimination of a separate vote by
class of Class B Common Stock holders on mergers, consolidations, or sales or
other dispositions of assets (currently, such corporate transactions require the
approval by the affirmative vote of 75% of votes cast by all shareholders
entitled to vote thereon and, in addition, the affirmative vote of 75% of votes
cast by Class B Common Stock holders).
(d) Change the dividend restriction for Class B Common Stock.
Currently, if a dividend were to be paid to holders of Class B Common Stock, a
similar dividend would have to be paid to holders of Class A Common Stock.
However, the reverse is not currently true; a dividend could be paid to Class A
Common Stock holders without also paying the dividend to holders of Class B
Common Stock. The proposed change would eliminate this distinction so that
holders of Class A Common Stock and Class B Common Stock would be considered a
single class for purposes of payment of dividends. The Company currently has no
plans to pay any dividends.
(e) Conforming changes. To effect the foregoing changes, there are a
variety of language changes throughout the Restated Certificate of Incorporation
to be made to reflect the foregoing changes.
Prior to 1980, the Company had one class of common stock. In
1980 the shareholders of the Company approved an amendment to Certificate of
Incorporation which created two classes of common stock, Class A Common Stock
and Class B Common Stock, and pursuant to such amendment, each outstanding share
of common stock was reclassified and converted into one share of Class B Common
Stock and two shares of Class A Common Stock. The 1980 amendment was made to
facilitate certain capital raising by the Company, while at the same time
maintaining voting control among certain founding and management shareholders,
and in January 1981 the Company effected a public offering of securities under
which shares of Class A Common Stock were sold by the Company and by certain
selling shareholders. No current directors or executive officers of the Company
own shares of Class B Common Stock.
Description Of Existing Capital Stock
The authorized capital stock of Base Ten currently consists of
22,000,000 shares of Class A Common Stock (but see above proposal to increase
the authorized Class A Common Stock to 40,000,000 shares) of which 7,829,060
shares were outstanding as of January 19, 1998, 2,000,000 shares of Class B
Common Stock of which 444,879 shares were outstanding as of January 19, 1998,
and 1,000,000 shares of Preferred Stock of which 19,000 shares of Series A
Preferred Stock were outstanding as of January 19, 1998.
Class A and Class B Common Stock
Dividends. Both classes of Base Ten's common stock have
identical cash and property dividend rights except that no cash or property
dividend may be paid on Class B Common Stock unless a dividend at least equal in
amount is paid concurrently on Class A Common Stock. Cash or property dividends
can be declared and paid on Class A Common Stock without being declared and paid
on Class B Common Stock.
If a dividend is paid in shares of Class A Common Stock or
Class B Common Stock, shares of Class A Common Stock may be paid to holders of
shares of Class A Common Stock and shares of Class B Common Stock may be paid to
holders of shares of Class B Common Stock. The same number of shares is to be
paid in respect of each outstanding share of Class A Common Stock or Class B
Common Stock. Base Ten may not subdivide or combine shares of either class
without, at the same time, proportionately subdividing or combining shares of
the other class.
Voting Rights. Holders of Class A Common Stock currently are
entitled to elect 25% of the members of the Board of Directors (rounded to the
next highest whole number) so long as the number of outstanding shares of Class
A Common Stock is at least 10% of the number of outstanding shares of both
classes. Currently, the holders of Class A Common Stock are entitled, as a
class, to elect two directors of Base Ten, and the holders of Class B Common
Stock are entitled, as a class, to elect the remaining directors. As a result of
this provision, the holders of a majority of the Class B Common Stock currently
can elect a majority of the directors and thereby control Base Ten, regardless
of the number of shares of Class B Common Stock outstanding from time to time.
Directors may be removed, only for cause, by the holders of the class of common
stock which elected them.
Except for the election or removal of directors as described
above and except for class votes as required by law or Base Ten's Restated
Certificate of Incorporation, holders of both classes of common stock vote or
consent as a single class on all matters, with each share of Class A Common
Stock currently having one-tenth vote per share and each share of Class B Common
Stock having one vote per share.
The outstanding shares of the Class A Common Stock currently
represents approximately 94% of the total number of shares of both classes of
common stock outstanding. If the number of outstanding shares of Class A Common
Stock should become less than 10% of the total number of shares of both classes
of common stock outstanding, the holders of Class A Common Stock would not have
the right to elect 25% of the Board of Directors, but would have one-tenth vote
per share for all directors, and the holders of Class B Common Stock would have
one vote per share for all directors.
Conversion. At the option of the holder of record, each share
of Class B Common Stock currently is convertible at any time into one share of
Class A Common Stock. Conversion of a significant number of shares of Class B
Common Stock into Class A Common Stock could place control of the Board of
Directors into the hands of the holders of a relatively small equity interest in
Base Ten who continue to hold the Class B Common Stock. The Class A Common Stock
is not convertible.
Other Rights. Shareholders of Base Ten common stock have no
preemptive or other rights to subscribe for additional shares. On liquidation,
dissolution or winding up of Base Ten, all shareholders of common stock,
regardless of class, are entitled to share ratably in any assets available for
distribution. No shares of either class are subject to redemption. All
outstanding shares are fully paid and non-assessable.
Preferred Stock
Base Ten's Board of Directors is empowered to fix the
designations, powers, preferences and relative, participating, optional or other
special rights of the Preferred Stock and the qualifications, limitations or
restrictions of those preferences or rights. Greater or different voting rights
relative to the common stock could be granted in connection with the creation of
any series of Preferred Stock; however, no issue of Preferred Stock may change
the current ratio of one-tenth of a vote for each share of Class A Common Stock
to one vote for each share of Class B Common Stock described above.
Series A Preferred Stock. As of January 19, 1998, the Company
had issued 19,000 shares of Series A Preferred Stock. Holders of Series A
Preferred Stock have the following rights, privileges and preferences:
Term; Dividends and Illiquidity Payments. The Series A
Preferred Stock have a term of three years and pay a cumulative dividend of 8.0%
per annum during any quarter in which the closing bid price for the Class A
Common Stock is less than $8.00 for any 10 consecutive trading days. An
equivalent payment is payable to any holder of Series A Preferred Stock which is
subject during any quarter to a standstill period following a Base Ten
underwritten public offering or which is non-convertible because of the
limitations described below. Such dividends and payments are payable only prior
to conversion, and are payable in cash or additional Series A Preferred Stock at
Base Ten's option; however, if Base Ten elects to pay the dividend in Series A
Preferred Stock, the amount of such payment will be 125% of the cash amount due.
Liquidation Preference. The Series A Preferred Stock has a
liquidation preference as to principal amount and any accrued and unpaid
dividends.
Conversion Rights. The Series A Preferred Stock is convertible
at any time or from time to time into Class A Common Stock, at a conversion
price equal to the lesser of (i) $16.25 per share, or (ii) the Weighted Average
Price of the Class A Common Stock prior to the conversion date. Weighted Average
Price is defined as the volume weighted average price of Class A Common Stock on
NASDAQ (as reported by Bloomberg Financial Markets) over any two trading days in
the 20 trading day period ending on the day prior to the date the holder gives
notice of conversion (excluding the lowest closing bid price in the period). The
holder has the right to select such two days. No more than 3,040,000 shares of
Class A Common Stock will be issued upon conversion of all of the Series A
Preferred Stock, except for additional shares of Class A Common Stock issuable
pursuant to anti-dilution provisions and certain adjustments to the conversion
price in certain circumstances. Any Series A Preferred Stock remaining
outstanding because of this limitation may be redeemed at the holder's option
for a subordinated 8% promissory note maturing when the Series A Preferred Stock
would have matured.
Redemption. Base Ten has the right, at any time, to redeem all
or any part of the outstanding Series A Preferred Stock or subordinated notes at
the conversion price established under the terms of the Series A Preferred
Stock. Any Series A Preferred Stock or subordinated notes still outstanding
three years after issuance must be redeemed by the Company, on a mandatory
basis, in either cash or, at Base Ten's option, in Class A Common Stock. If Base
Ten elects to make the redemption in Class A Common Stock, the amount of such
payment will be 125% of the original purchase price.
Voting Rights. The holders of Series A Preferred Stock have
the same voting rights as the holders of Class A Common Stock, calculated as if
all outstanding shares of Series A Preferred Stock had been converted into
shares of Class A Common Stock on the record date for determination of
shareholders entitled to vote on the matter presented. Assuming the approval of
the increased voting rights of the Class A Common Stock contemplated by this
Proposed Amendment, the voting rights of the Series A Preferred Stock would
likewise be increased.
Warrants. For each $1 million of the Series A Preferred Stock
purchased, the purchaser received five-year warrants to purchase 40,000 shares
of Class A Common Stock exercisable at $16.25 per share.
Right of First Refusal. So long as the Series A Preferred
Stock remains outstanding, each holder has the right (with certain exceptions)
to purchase, on five days' notice, up to that portion of any future equity
financing by Base Ten which would be sufficient to enable the holder to maintain
its percentage interest in Base Ten equity on a fully diluted basis.
Five Percent Limitation. The holders of Series A Preferred
Stock are not entitled to receive shares of Class A Common Stock upon a
conversion to the extent that the sum of (i) the number of shares of Class A
Common Stock beneficially owned by the holder and its affiliates (exclusive of
shares of Class A Common Stock issuable upon conversion of the unconverted
portion of the Series A Preferred Stock and shares of Class A Common Stock
issuable upon conversion or exercise of any other securities of the Company) and
(ii) the number of shares of Class A Common Stock issuable upon conversion of
the Series A Preferred Stock then being converted, would result in beneficial
ownership by the holder and its affiliates of more than 4.9% of the outstanding
Class A Common Stock.
Reasons For The Proposed Amendment.
The voting distinctions between the Class A Common Stock and
the Class B Common Stock have been applicable to the Company since 1980. Since
that time, the NASDAQ National Market System ("NASDAQ NMS") rules have changed
so that, with certain exceptions, a corporation with classes of common stock
having similar voting requirements would no longer be eligible for listing on
the NASDAQ NMS. No change has been requested by the National Association of
Securities Dealers, Inc. ("NASD") because the Company's common stock class
distinctions predated such current rules.
In December 1997, the NASD notified the Company that it
proposed to de-list the Class B Common Stock because the number of holders of
Class B Common Stock appears to have fallen below 300 beneficial owners. The
NASD has additionally advised the Company that the Class B Common Stock would
also fail to meet the 500,000 share public float requirement under the revised
NASD listing requirements effective February 1998. The Company objected to the
de-listing of the Class B Common Stock and requested a hearing before the NASD.
It was the Company's view that if the Class B Common Stock were de-listed from
the NASDAQ SmallCap Market, trading in the Class B Common Stock would become
more difficult. If that were to happen, the Company anticipated that there could
potentially be more conversions of shares of Class B Common Stock into Class A
Common Stock, thus concentrating within an ever-decreasing number of holders of
Class B Common Stock substantial voting power for the election of directors of
the Company and for approval of other items requiring a shareholder vote.
Accordingly, the Company presented to NASD an objection to such de-listing. The
NASD nevertheless determined that the Class B Common Stock will be de-listed
from the NASDAQ SmallCap. However, the NASD granted to the Company a temporary
exception, until May 1, 1998, in order to permit the Company to effect, with
shareholder approval, the Proposed Amendment, which would alleviate certain of
the negative impact of such de-listing of the Class B Common Stock.
In approving the Proposed Amendment, the Board of Directors
was also of the opinion that the elimination of the reduced rights in respect of
voting and election of directors of the Class A Common Stock, which currently
represents approximately 94% of the total issued and outstanding combined Class
A Common Stock and Class B Common Stock, would present to the investment
community a stronger and more attractive capital structure and will be in the
best interests of the Company and all of its shareholders.
The Board also considered the potential impact of the Proposed
Amendment and the increased conversion ratio for the Class B Common Stock on the
trading market for the Class A Common Stock. Assuming that all 444,879 shares of
Class B Common Stock outstanding as of January 19, 1998, plus outstanding
options for 4,946 shares of Class B Common Stock, were converted into Class A
Common Stock immediately prior to the Effective Date (as defined below), a total
of 449,825 additional shares of Class A Common Stock would be issued and
outstanding. Assuming the 1:1.5 conversion ratio proposed under the Proposed
Amendment were in effect, an aggregate of 674,737 shares of Class A Common Stock
would be issued and outstanding. Therefore, based on the shares of Class A
Common Stock and Class B Common stock outstanding as of January 19, 1998 and
assuming the conversion of all currently outstanding shares of Class B Common
Stock following the Effective Date (leaving no shares of Class B Common Stock
outstanding), an increase of less than 3% of the currently outstanding Class A
Common Stock would result from the increased conversion ratio afforded to the
Class B Common Stock holders. Assuming the Proposed Amendment is approved by the
shareholders, the Company expects to apply for listing on NASDAQ NMS of all of
the shares of Class A Common Stock which would be issuable under the revised
conversion ratio.
The increase in the conversion ratio to one and one-half
shares of Class A Common Stock for each share of Class B Common Stock converted
was approved by the Board based on its subjective determination, without the
participation or review by any outside financial advisor, that such change was
fair to shareholders as a group and to each class of shareholders and
represented an appropriate enhancement of the conversion ratio when considered
with (i) the proposed increased voting rights of the Class A Common Stock and
other changes included in the Proposed Amendment and (ii) the existing
respective rights of the two classes of common stock.
The Board also considered that, immediately following the
Effective Date and immediately after any conversions made pursuant to the
Proposed Amendment, each shareholder's proportionate equity interest in the
Company would be unchanged, and that the net book value, going concern value and
liquidation value per share of Class A Common Stock and Class B Common Stock
held by any shareholder immediately prior to the Effective Date would be
approximately equal to such values per share of Class A Common Stock and Class B
Common Stock held by such shareholder immediately after the Effective Date.
The Proposed Amendment does not give rise to a shareholder's
right of appraisal under the New Jersey Business Corporation Act.
The proposal is not the result of management's knowledge of
any specific effort to accumulate the Company's securities or to obtain control
of the Company by means of a merger, tender offer, proxy solicitation in
opposition to management or otherwise. The Company is not submitting this
proposal to enable it to frustrate any efforts by another party to acquire a
controlling interest or to seek Board representation.
The submission of this proposal is not a part of any plan by
the Company's management to adopt a series of amendments to the Restated
Certificate of Incorporation or by-laws so as to render the takeover of the
Company more difficult. Except as indicated in the discussion of the proposal
included above in this Proxy Statement to increase the number of authorized
shares of Class A Common Stock, management is not aware of the existence of any
other provisions in the Restated Certificate of Incorporation or by-laws having
an anti-takeover effect.
From the standpoint of the holders of Class B Common Stock,
the Class B Common Stock holders will be receiving an increased conversion rate
for conversion into shares of Class A Common Stock, as well as the potential to
receive dividends which are paid to the Class A Common Stock, which, under the
current Restated Certificate of Incorporation, need not be paid to the holders
of Class B Common Stock (although the Company has no current plans to pay any
dividends); the holders of Class B Common Stock would no longer have the right
to elect approximately 75% of the Board of Directors, the disproportionately
high voting rights of the Class B Common Stock would be eliminated, and the
right to vote separately on any merger, consolidation or similar corporate
transaction would be eliminated.
From the standpoint of the holders of Class A Common Stock,
the Class A Common Stock holders will receive a substantial increase in voting
rights with respect to all matters presented to the shareholders generally and
with respect to the election of directors, but approximately an additional
224,912 shares of Class A Common Stock would be issuable as a result of the
increased conversion rate of the Class B Common Stock.
If the Proposed Amendment is approved by shareholders at this
Annual Meeting, the Company expects a Certificate of Amendment ("Certificate of
Amendment") to the Company's Restated Certificate of Incorporation to be filed
with the Secretary of State of the State of New Jersey as soon as practical
after the Annual Meeting. The Proposed Amendment would become effective as of
the close of business on the date of such filing (the "Effective Date"). As of
the Effective Date, all items included in the Proposed Amendment would become
automatically effective, including the changed conversion ratio for conversion
of shares of Class B Common Stock into shares of Class A Common Stock, the
increased voting right for each outstanding share of Class A Common Sock and the
right of all outstanding shares of Class A Common Stock, Class B Common Stock
and Series A Preferred Stock, voting together and not as a class, to vote in the
election of all nominees to the Board of Directors. Following the Effective
Date, the Company's transfer agent will mail to each holder of Class A Common
Stock, Class B Common Stock a description of the voting, conversion and dividend
rights as to such class of stock.
Assuming the Proposed Amendment is adopted, no exchange of
certificates representing either Class A Common Stock or Class B Common Stock
will be required; holders of Class B Common Stock will not be required to
convert their shares. However, in the event a dividend were paid, a holder of
the Class B Common Stock would receive only the dividend payable for the number
of shares of Class B Common Stock held without regard to the increased
conversion rate; conversion to Class A Common Stock prior to the dividend record
date would permit the holder to receive a dividend with respect to the
additional shares issued as a result of the change in the conversion rate.
Certain Federal Income Tax Consequences
Set forth below is a summary of the anticipated federal income
tax consequences of the Proposed Amendment to the holders of Class B Common
Stock and Class A Common Stock who are citizens or residents of the United
States.
Neither the proposed change in the conversion ratio for the
Class B Common Stock nor the proposed changes in voting and dividend rights of
the holders of Class A Common Stock and Class B Common Stock, will result in
taxable income either to the holders of Class B Common Stock or Class A Common
Stock, and will not result in any gain or loss to the Company. No gain or loss
will be recognized by any holder upon the conversion of shares of Class B Common
Stock into shares of Class A Common Stock. A holder's basis for shares of Class
A Common Stock received upon the conversion of Class B Common Stock into Class A
Common Stock will be equal to the holder's basis in the shares of Class B Common
Stock surrendered therefor, and the holder's holding period for the shares of
Class A Common Stock received upon the conversion of Class B Common Stock into
Class A Common Stock will include the holding period for the shares of Class B
Common Stock surrendered therefor.
The foregoing summary does not purport to be a complete
analysis and each holder of Class A Common Stock and Class B Common Stock is
urged to consult his or her own tax advisor as to the effect of such federal
income tax consequences on his or her own facts and circumstances.
Vote Required To Approve the Proposed Amendment
The Board of Directors has determined that the Proposed
Amendment is in the best interests of the Company and its shareholders and, as
provided by the New Jersey Business Corporation Act, has directed that the
Proposed Amendment be submitted to a vote of the shareholders. The Proposed
Amendment to effect the changes the Class A Common Stock and Class B Common
Stock are presented as a single item for voting by the shareholders. Either all
the items included in the Proposed Amendment will be approved, or none of the
items will be approved. The Proposed Amendment will be adopted only if it
receives the affirmative vote of two thirds of the votes cast by each of (i) the
holders of the outstanding Class A Common Stock, voting as a class, (ii) the
holders of the outstanding Class B Common Stock, voting as a class and (iii) the
holders of the outstanding Class B Common Stock, Class A Common Stock and Series
A Preferred Stock voting together as a group. As to each of the foregoing class
votes, each holder of Class A Common Stock and Class B Common Stock will be
entitled to one vote per share of stock held. As to the vote of all shareholders
entitled to vote together as a group, Class A Common Stock and Series A
Preferred Stock are entitled to one-tenth vote per share and each share of Class
B Common Stock is entitled to one vote.
The Board of Directors is of the view that the Proposed
Amendment is in the best interests of the Company and all of its shareholders
and recommends a vote FOR the approval of the Proposed Amendment.
APPROVAL OF 1998 STOCK OPTION
AND STOCK AWARD PLAN
The Company's 1998 Stock Option and Stock Award Plan (the
"1998 Stock Plan") was approved by the Board of Directors of the Company on
January 13, 1998, subject to approval by the Company's shareholders at this
Annual Meeting.
The material features of the 1998 Stock Plan are summarized
below. This summary is qualified in its entirety by reference to the terms of
the 1998 Stock Plan, a copy of which is attached to this Proxy Statement as
Exhibit A.
Summary of Material Features
Purposes of the 1998 Stock Plan and Eligibility. The 1998
Stock Plan is designed to promote the growth and profitability of the Company
and its subsidiaries by giving key employees the opportunity to acquire a
proprietary interest in the Company through ownership of the Company's Class A
Common Stock. The 1998 Stock Plan authorizes the Board of Directors or a
Committee of the Board consisting of at least two members of the Board
qualifying as "non-employee directors" under SEC Rule 16b-3 (collectively the
"Committee") to grant incentive stock options, non-qualified stock options,
stock appreciation rights, awards of restricted stock, and bonuses payable in
Class A Common Stock, to those employees who the Committee in its discretion
determines have the ability to make a substantial contribution to the growth and
profitability of the Company or its subsidiaries. Key employees, including
officers of the Company, are eligible to receive grants and awards under the
1998 Stock Plan. Non-employee directors and Committee members are not eligible
to participate in the 1998 Stock Plan. Approximately [115] persons currently may
be eligible for participation in the 1998 Stock Plan.
Administration. The Committee is authorized to determine the
term during which an option may be exercised, which may not be longer than ten
years. No option is exercisable before six months from the date it was granted
except in the case of death or certain tender offers, mergers, liquidation,
dissolution, or change in control as described in the 1998 Stock Plan. The
Committee is also authorized in its discretion to specify the number of shares
to be covered by each award as well as the option price, which may not be less
than 100% of the fair market value of a share of Class A Common Stock at the
time the option is granted. The Committee has full power and authority to
administer and interpret the 1998 Stock Plan, and the Committee's
interpretations, as well as its grants and awards, are final and conclusive.
Shares Subject to the Plan. The total number of shares that
may be optioned or awarded under the 1998 Stock Plan is 1,000,000 shares of
Class A Common Stock, plus an additional amount of shares of Class A Common
Stock on May 1 of each year, from May 1, 1999 to May 1, 2007 inclusive, equal to
one percent of the number of shares of Class A Common Stock outstanding on April
30 of such year ("Additional Annual Increment"), of which (i) no more than
150,000 shares plus shares equal to twenty percent (20%) of each Additional
Annual Increment may be awarded as restricted stock and (ii) no more than
500,000 shares may be awarded as incentive stock options under Section 422 of
the Internal Revenue Code ("Code"), all subject to adjustment as provided in the
1998 Stock Plan.
Payment of Exercise Price. The purchase price upon exercise of
an option may be paid either in cash or in shares of Class A Common Stock
already owned by the optionee or a combination of cash and shares. No optionee
shall have any right to dividends or other rights of a shareholder with respect
to shares subject to an option until the optionee has given written notice of
exercise and has paid for such shares and applicable taxes thereon. The
Committee may permit tax withholding obligations to be met by the withholding of
Class A Common Stock otherwise deliverable to the recipient pursuant to
procedures approved by the Committee.
Per Individual Limitation. No plan participant may receive,
over the term of the 1998 Stock Plan, awards in the form of incentive stock
options or options other than incentive stock options, or restricted stock, or
any combination thereof, for more than 500,000 shares of Class A Common Stock,
all subject to adjustment in accordance with the provisions of the 1998 Stock
Plan.
Death, Disability and Retirement. If the optionee's employment
is terminated by reason of death, retirement under a retirement plan of the
Company or a subsidiary, or permanent disability, as determined by the
Committee, the optionee's option is exercisable until the expiration of the
stated period of the option. In all other cases, unless the Committee determines
otherwise, options held by optionees terminate when the optionee's employment
with the Company or a subsidiary terminates. No option is transferable except by
will or by operation of the laws of descent and distribution and an option may
be exercised during an optionee's lifetime only by the optionee.
Appreciation Right. In the Committee's discretion, an option
may provide a right to exercise such option without payment of the purchase
price (a stock appreciation right). Upon exercise of such right, an optionee
shall receive the number of whole shares of Class A Common Stock, or, in the
Committee's discretion, cash determined by dividing the fair market value per
share on the date of exercise into the excess of the aggregate fair market over
the aggregate exercise price for the number of option shares covered by the
exercise. The option is reduced by the number of shares with respect to which
such rights are exercised, which shares may not thereafter again be optioned.
Limited Rights. The 1998 Stock Plan provides that the
Committee may in its discretion grant options containing provisions for limited
rights, exercisable upon the occurrence of certain events and expiring thirty
days thereafter, including consummation of a tender offer for at least 20% of
the outstanding Class A Common Stock, a proxy contest resulting in the
replacement of a majority of the Company's Board of Directors, a merger or
reorganization of the Company in which the Company does not survive or in which
the shareholders of the Company receive stock or securities of another
corporation or cash, a liquidation or dissolution of the Company, or similar
events. Limited rights permit optionees to receive in cash either (i) for each
share covered by an option the highest market price per share at which Class A
Common Stock traded on NASDAQ for the 60 days immediately preceding the exercise
event (or, if such exercise event is a tender offer or exchange offer, the value
per share set by the tenderor or offeror), less the option price per share
specified in the option; or (ii) if provided by the Committee in its discretion
at the time of grant, for each share covered by the option the highest market
price per share at which the Class A Common Stock traded on NASDAQ on the date
of exercise, less the option price per share specified in the option. Limited
rights may not extend the exercise period of any option and, to the extent any
such rights are exercised, will reduce the shares of Class A Common Stock
available under the 1998 Stock Plan and the shares of such stock covered by the
options to which the limited rights relate.
Restricted Stock. The 1998 Stock Plan provides that awards of
restricted stock may be granted in addition to or in lieu of option grants.
During a period set by the Committee at the time of each award of restricted
stock, a restricted stock award recipient is prohibited from selling,
transferring, pledging or assigning the shares of restricted stock unless the
recipient dies or his employment terminates by reason of permanent disability,
as established by the Committee, or, if determined by the Committee, by
retirement under a retirement plan of the Company or a subsidiary, in which
case, shares of restricted stock become free of all restrictions. Shares of
restricted stock may be voted and, subject to certain limitations, holders of
restricted stock may receive all dividends paid thereon. Unless the Committee
determines otherwise, shares of restricted stock are forfeited and revert to the
Company upon the recipient's termination of employment during the restriction
period for any reason other than the recipient's death, permanent disability, as
determined by the Committee, or, if established by the Committee, retirement
under a retirement plan of the Company or a subsidiary.
Adjustment. Subject to certain limitations, the 1998 Stock
Plan provides for adjusting the shares of Class A Common Stock subject to
outstanding options or awards, or the class or exercise prices thereof, in the
event of a stock dividend, stock split, reverse split, subdivision,
recapitalization, merger, consolidation, combination or exchange of shares,
separation, reorganization or liquidation.
Change in Control. In the event of a "change in control" as
set forth in Section 12 of the 1998 Stock Plan, the 1998 Stock Plan provides
that (i) all restrictions on restricted stock previously awarded under the 1998
Stock Plan shall lapse and (ii) all stock options and stock appreciation rights
which are outstanding shall become immediately exercisable in full. In addition,
the Committee may determine that outstanding options shall be adjusted and shall
make such adjustments by substituting for Class A Common Stock subject to
options, stock or other securities of any successor to the Company.
Bonuses Payable in Stock. In lieu of paying a cash bonus to
employees eligible to participate in the 1998 Stock Plan, the Committee, in its
sole discretion, may pay bonuses in shares of unrestricted Class A Common Stock
or partly in shares of unrestricted Class A Common Stock and partly in cash. The
number of shares of Class A Common Stock payable in lieu of cash shall be
determined by dividing such bonus amount by the fair market value, as determined
under the 1998 Stock Plan, of one share of Class A Common Stock on the date the
bonus is payable. The Company will withhold from such bonus an amount of cash
sufficient to meet tax withholding obligations.
Amendments. The Board of Directors may amend, alter or
discontinue the 1998 Stock Plan, but no amendment may, without shareholder
approval, increase the maximum number of shares for which options and awards may
be granted, decrease the option price of an option to less than 100% of the fair
market value of a share of Class A Common Stock on the date of the granting of
the option, change the class of persons eligible to receive options and other
awards under the 1998 Stock Plan, or extend the duration of the 1998 Stock Plan.
No award or option may be granted under the 1998 Stock Plan after January 12,
2008, but awards or options theretofore granted may extend beyond that date.
Federal Income Tax Consequences
Under the Code, the grant of options does not result in
taxable income to the optionees or any tax deduction to the Company. However,
the transfer of Class A Common Stock to optionees upon exercise of their options
may or may not give rise to immediate or deferred taxable income to the
optionees and tax deductions to the Company depending upon whether or not the
options are incentive stock options. In general, the exercise of an incentive
stock option is exempt from regular income tax (but not alternative minimum tax)
and does not result in a tax deduction to the Company unless the optionee
disposes of the Class A Common Stock within two years of the grant of the option
or within one year of the transfer of such Class A Common Stock to the
individual. On the other hand, the exercise of an option which is not an
incentive stock option generally results in immediate taxable income to the
optionee equal to the difference between the exercise price and the fair market
value of the underlying shares and a corresponding tax deduction to the Company
equal to the amount of ordinary income recognized by the individual for the
taxable year in which the individual recognizes such income.
Similarly, the transfer of restricted stock to an employee is
generally taxable to the employee and deductible by the Company when the
restrictions lapse, unless the employee elects to be taxed at the time of the
transfer without regard to the restrictions. The payment of bonuses in Class A
Common Stock is immediately taxable to the individual and deductible by the
Company. The exercise of a stock appreciation right for Class A Common Stock is
generally taxable and deductible in the same manner as the exercise of an option
which is not an incentive stock option.
Section 162(m) of the Code generally limits the income tax
deduction for publicly held companies to $1,000,000 in any tax year for
compensation paid to each of the chief executive officer and the other named
executive officers. This limitation applies to all deductible compensation
including the deduction arising from the payment of incentive compensation.
Various forms of compensation are exempt from this deduction limitation,
including payments that are (i) subject to the attainment of pre-established
objective performance goals, (ii) established and administered by outside
directors, and (iii) approved by shareholders. Particular rules apply in
implementing Section 162(m) to equity-based plans. The Company believes
compensation derived under the 1998 Stock Plan, if approved by shareholders,
will qualify for exemption from the operation of Section 162(m) and therefore
will be deductible by the Company.
New Plan Benefits. Options and awards under the 1998 Stock
Plan are not currently determinable since such options and awards are based on
discretionary determinations of the Committee.
The Board of Directors recommends that you vote FOR the
proposal. The 1998 Stock Plan will be approved if more votes are cast in favor
of it than are cast against it.
APPROVAL OF THE 1998
EMPLOYEE STOCK PURCHASE PLAN
The Board is recommending for shareholder approval the 1998
Employee Stock Purchase Plan (the "ESPP"), which was adopted by the Board on
January 13, 1998, subject to shareholder approval.
The purpose of the ESPP is to further the long-term stability
and financial success of the Company by providing a method for employees to
increase their ownership in the Class A Common Stock. The ESPP is intended to
qualify under Section 423 of the Code. The total number of shares of Class A
Common Stock which may be purchased under the ESPP is 1,000,000 shares, plus an
additional amount of shares on May 1 of each year, from May 1, 1999 to May 1,
2007 inclusive, equal to 1% of the number of shares of Class A Common Stock
outstanding on April 30 of such year, all subject to adjustment under the ESPP.
Summary of Material Features. The following is a general
description of the material features of the ESPP, which is qualified in its
entirety by reference to the full text of the ESPP, a copy of which is attached
as Exhibit B to this Proxy Statement.
Eligibility. All present and future employees of the
Corporation or any designated subsidiary who have completed at least sixty days
of service are eligible to participate in the ESPP. Currently, approximately
[115] employees would be eligible under the ESPP.
Administration. The ESPP will be administered by a committee
("Committee"), which will be either the Compensation Committee or such other
committee as may be designated by the Board to administer the ESPP or by the
Board itself. Certain functions will be delegated to a plan administrator.
General Description. A participant in the ESPP may authorize
payroll deductions of a maximum of 10% of compensation per payroll period, with
a minimum of five dollars per payroll period. The amounts so deducted and
contributed are applied to the purchase of full and fractional shares of Class A
Common Stock at [85%] of the fair market value of such Class A Common Stock,
determined as of the first day of an offering period or the purchase date,
whichever is lower. Offering periods are twelve month periods beginning on the
effective date or each anniversary of the effective date, as the case may be,
and ending on the last business day immediately prior to the next following
anniversary of the effective date. Purchase dates are the last business days of
each of the four consecutive three month periods occurring during an offering
period. The fair market value of Class A Common Stock purchased under the ESPP
for a participant in any one calendar year cannot exceed $25,000. In addition,
once a participant owns (or is considered as owning within the meaning of
Section 423(d) of the Code) 5% or more of the voting power of the Company, he or
she will not be able to purchase any more stock under the ESPP.
Shares purchased under the ESPP generally are transferable at
any time after the purchase is consummated, regardless of whether certificates
therefor have been issued. In the event that a dividend is declared and paid
with respect to Class A Common Stock acquired under the ESPP, the Committee will
determine whether the dividend will be paid in cash to the owners of such Class
A Common Stock, or whether it will be used to purchase additional Class A Common
Stock. At the discretion of the Committee, the Class A Common Stock required for
the ESPP may be purchased on the open market or may be treasury stock,
reacquired shares and/or authorized but unissued shares.
Participants may increase or decrease their payroll deductions
as of the first business day following a purchase date, or at such other times
as may be permitted by the plan administrator. Participants may withdraw from
further participation in the ESPP at any time by filing a withdrawal form with
the plan administrator. Upon such withdrawal, all payroll deductions then
credited to the participant's account under the ESPP which have not already been
applied for the purchase of shares will be paid to the participant, and no
further payroll deductions will be made for that participant until he or she
files a new payroll authorization form; upon such withdrawal, a participant may
not file a new payroll authorization form for the remainder of the offering
period in which the withdrawal occurs. If a participant ceases to be an employee
on or before the last working day preceding the 15th day prior to a purchase
date, then that participant will be deemed to have elected to withdraw from
participation in the ESPP, and all payroll deductions then credited to the
participant's account which were not applied for the purchase of shares will be
paid to the participant; if a participant ceases to be an employee after the
above described date, he or she will be deemed to have elected to purchase
shares with the previously accumulated payroll deductions.
Amendments to the ESPP. The Committee may at any time amend
the ESPP in any respect, except that no amendment that (i) may effect an
increase in the number of shares of Class A Common Stock which may be purchased
under the ESPP, if that increase would require shareholder approval under
Section 423 of the Code, or (ii) may effect a change in the designation of the
corporations whose employees may participate in the ESPP, if that change would
require shareholder approval under Section 423 of the Code, will be effective
unless the required shareholder approval is obtained.
Federal Income Tax Consequences
A participant will not incur federal income tax liability as a
result of the purchase of Class A Common Stock pursuant to the ESPP at [85%] of
fair market value. Generally, if the participant holds any shares purchased
under the ESPP for (a) more than two years after the first day of the offering
period relating to such purchase, and (b) more than one year after the purchase
date (the "holding period"), then any gain realized upon the sale or other
disposition of that share will be taxed as long-term capital gain, and any loss
will be long-term capital loss, except that an amount equal to the lesser of (a)
the excess of the fair market value of the share on the first day of the
offering period relating to such purchase over the price at which such option
could have been exercised at that time if it had then been exercisable and (b)
the amount, if any, by which the fair market value of the share at the time of
such disposition exceeds the price actually paid for the share under the option,
will be taxed as ordinary income in the taxable year in which such sale or other
disposition occurs. If a participant disposes of the share, such amount of
ordinary income realized upon the sale or other disposition of the share will
increase the participant's tax basis in the share for determining gain or loss
upon such sale or other disposition of the share. The Company will not be
entitled to a deduction for federal income tax purposes in connection with such
sale or other disposition. If a participant disposes of any share purchased
under the ESPP without satisfying the holding period, the participant should
report as ordinary income for the taxable year in which the disposition occurs
the amount by which the market value of such share on the purchase date exceeded
the amount the participant paid for such share. Any such ordinary income will
increase the participant's tax basis for the purpose of determining gain or loss
on the sale or other disposition of the share. The participant will be
considered to have disposed of a share if such participant sells, exchanges,
makes a gift or transfers (except by pledge, tax free reorganization or by
transfer on death) legal title to the share.
The Company will not be entitled to a business expense
deduction for federal income tax purposes in connection with the sale of the
shares under the ESPP, unless a participant disposes of the shares received
under the ESPP prior to expiration of the required holding period. In that case,
the Company will be entitled to a business expense deduction to the extent
ordinary income is recognized by the participant.
The Board of Directors recommends that you vote FOR the
proposal. The ESPP will be approved if more votes are cast in favor of it than
are cast against it.
APPROVAL OF
1998 DIRECTORS STOCK OPTION PLAN
The Board of Directors of the Company proposes that the
shareholders approve the 1998 Directors Stock Option Plan (the "Directors Plan")
which was adopted by the Board of Directors on January 13, 1998, subject to
shareholder approval.
The principal features of the Directors Plan are summarized
below. This summary is qualified in its entirety by reference to the terms of
the Directors Plan, which is attached to this Proxy Statement as Exhibit C. The
Directors Plan is intended to encourage directors who are not employees of the
Company to acquire a proprietary interest in the future of the Company through
the ownership of Class A Common Stock. It is also expected that the Directors
Plan will encourage qualified persons to serve as directors of the Company.
Summary of Material Features
The Directors Plan will be generally administered and
interpreted by the Compensation Committee ("Committee"), although the Board of
Directors will determine when and to whom options will be granted and the number
of shares to be included in each grant. Directors who are not employees of the
Company are eligible to be granted options under the Directors Plan. The total
number of shares that may be issued pursuant to options granted under the
Directors Plan is 300,000 shares of Class A Common Stock, subject to adjustment
in accordance with the terms of the Directors Plan. The Directors Plan will
continue until the earlier of termination by the Board of Directors (in which
case outstanding options shall remain outstanding for the term of their grant)
or the date when all shares covered by the Directors Plan are purchased.
The option price per share shall be as determined by the
Committee, although it may not be less than 100% of the fair market value (as
defined in the Directors Plan) of a share of Class A Common Stock on the date
the option is granted. The term shall be as determined by the Board of Directors
but may not exceed 10 years. Options are immediately exercisable, through the
payment of cash and/or shares of Class A Common Stock.
Options are not transferable by the optionee other than by
will or the laws of descent and distribution, provided that the Committee may,
in its discretion, permit transfer to the optionee's immediate family or a trust
or similar vehicle established solely for the benefit of such family members.
Subject to certain limitations, the Directors Plan provides
for adjusting the shares of Class A Common Stock subject to outstanding options,
or the number or option prices thereof, in the event of a stock dividend, stock
split, reverse split, subdivision, recapitalization, merger, consolidation,
combination or exchange of shares, separation, reorganization or liquidation.
The Board of Directors may amend, alter or discontinue the
Directors Plan, but no amendment may, without shareholder approval, increase the
number of shares for which options may be granted or decrease the option price
of an option to less than 100% of the fair market value of a share of Class A
Common Stock on the date of the granting of the option.
Federal Income Tax Consequences
Under the Code, the grant of options does not result in
taxable income to the optionees or any tax deduction to the Company. The
exercise of an option generally results in ordinary taxable income to the
optionee equal to the difference between the exercise price and the fair market
value of the underlying shares, and a corresponding tax deduction to the Company
equal to the amount of ordinary income recognized by the individual for the
taxable year in which the individual recognizes such income.
New Plan Benefits. Options under the Directors Plan are not currently
determinable because such options are based on the discretionary determination
of the Board of Directors.
The Board of Directors recommends that you vote FOR the proposal. The
Directors Plan will be approved if more votes are cast in favor of it than are
cast against it.
RATIFICATION OF OPTIONS
AND WARRANTS TO OFFICERS AND DIRECTORS
NASDAQ rules require an issuer, with certain exceptions, to seek
shareholder approval when a stock option or stock purchase plan is established
or other arrangement is made pursuant to which shares of the issuer's capital
stock may be acquired by officers or directors. As a result, the Company is
seeking shareholder approval of the grant by the Company of certain options and
warrants for Class A Common Stock which have been granted to certain officers
and directors, as described below. The Company is seeking such shareholder
approval pursuant to the designation criteria for continued inclusion of the
Class A Common Stock on the NASDAQ NMS.
Each of the options and warrants set forth below were
individual grants issued in consideration of particular services rendered to the
Company by the recipient of the option or warrant, and were not issued pursuant
to any existing option or equity plan of the Company.
In the event that such options or warrants are not approved by
the shareholders, the Company would be obligated to compensate such individual,
in lieu of such options and warrants, by payment of cash or other consideration
having a substantially equivalent value to such option or warrant.
Number of Shares of Class A
Holder of Options Common Stock Subject to
and Warrants Stock Options and Warrants
- ---------------------- ---------------------------
Alexander M. Adelson 217,500
David C. Batten 20,000
Alan S. Poole 10,000
Bruce D. Cowen 10,000
------
257,500
Mr. Adelson serves as Co-Chairman of the Board of Directors
and a director of the Company, and has served as a director of the Company since
1992. Since 1992, Mr. Adelson has been providing consulting and financial
advisory services to the Company. See "Compensation Committee Interlocks and
Insider Participation" above. The above shares represent (i) a five year warrant
for 46,875 shares issued on December 5, 1997 at an exercise price of $12.50 per
share and a warrant for 48,125 shares issued on December 31, 1997 at an exercise
price of $10.31 per share, each issued for financial and advisory services
rendered by Mr. Adelson with respect to the private placement of $19 million of
Series A Preferred Stock which was consummated in December 1997; (ii) a five
year warrant for 27,500 shares issued on May 30, 1997 at an exercise price of
$10.125 per share, for financial and advisory services rendered in assisting in
arranging the private placement of $5.5 million of convertible debentures which
was consummated on May 30, 1997; (iii) a five year warrant for 50,000 shares
issued on August 8, 1996 at an exercise price of $10.00 per share, for financial
and advisory services rendered in assisting in arranging the private placement
of $10 million of convertible debentures in August 1996; and (iv) a five year
warrant for 45,000 shares at an exercise price of $10.00 per share, pursuant to
the consulting services agreement dated June 9, 1997 between the Company and RTS
as described under "Compensation Committee Interlocks and Insider Participation"
above. The Company believes that the financial and investment advisory services
provided by Mr. Adelson have been critical in obtaining the necessary capital
financing for the operations of the Company, in achieving the investment banking
relationships which the Company has established, and in assisting in
repositioning the Company from what had been a business supplying safety
critical products to the defense industry to a technology company providing
manufacturing execution system software to the pharmaceutical and medical device
industries.
Mr. Batten serves as a director of the Company and has served
in such position since April 1997. The above shares represent (i) a five year
option for 10,000 shares of Class A Common Stock at an exercise price of $10.375
per share, issued to Mr. Batten on April 29, 1997 in connection with his
accepting an appointment as a member of the Board, and (ii) a ten year option
for 10,000 shares of Class A Common Stock at an exercise price of $10.875 per
share, issued to Mr. Batten on October 13, 1997 for services rendered his
capacity as a director.
Mr. Poole has served as a director of the Company since 1994.
The above shares represent an option for 10,000 shares of Class A Common Stock,
at an exercise price of $10.875 per share, issued to Mr. Poole on October 13,
1997 for services rendered in his capacity as a director.
Mr. Cowen served for many years as an investment advisor and
consultant to the Company in connection with capital financing and financial
advisory services, and served as a director and Vice Chairman of the Board from
May 1996 until April 1997. The above shares represent a five year warrant
granted by the Company to Mr. Cowen in September 1996 at an exercise price of
$11.50 per share, which was a grant for services to the Company in assisting in
it achieving its capital financing objectives.
The exercise price of each of the above warrants and options
equals the respective market price of the Class A Common Stock on the date of
original issuance of the particular warrant or option. Each of the above
warrants and options is immediately exerciseable upon receiving shareholder
approval. The number of shares covered by, and the exercise prices of, the
warrants and options are each subject to equitable adjustment in the event of a
stock split, stock combination, reclassification, recapitalization and similar
events. No shares of Class A Common Stock may be voted prior to exercise of the
warrant or option. The Class A Common Stock underlying each such warrant and
option is not entitled to any preemptive rights. The Company has or will
register for resale in the public market and for listing on NASDAQ NMS the
shares underlying such warrants and options. The warrants and options are not
subject to redemption or call by the Company. On February 19, 1998, the closing
price of the Class A Common Stock on NASDAQ NMS was $6.75 per share.
Under the Code, the grant of an option or warrant for services
rendered does not result in taxable income to the recipient or a tax deduction
to the Company. Also under the Code, the exercise of an option or warrant
results in ordinary taxable income to the recipient equal to the difference
between the exercise price and the fair market value of the underlying shares,
and a corresponding tax deduction to the Company equal to the amount of ordinary
income recognized by the individual for the taxable year in which the individual
recognized such income.
The Board of Directors recommends that you vote FOR the
ratification of the grant of the warrants and options included in the above
table. The proposal will be ratified if more votes are cast in favor of it than
cast against.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has designated Deloitte & Touche LLP,
independent certified public accountants, as the Company's auditors for the 1998
fiscal year. This firm will be represented at the shareholders' meeting, may
make a statement if it desires to do so, and is expected to respond to
appropriate questions.
OTHER MATTERS
The Board of Directors does not know of any matters to be
presented for action at the Annual Meeting other than those listed in the Notice
of Meeting and referred to herein. If any other matters properly come before the
Annual Meeting, it is intended that the proxy solicited hereby will be voted in
accordance with the recommendation of the Board of Directors, or if there is no
such recommendation, in the discretion of the proxy committee.
SHAREHOLDERS PROPOSALS
Shareholders, upon written request to the Secretary of Base
Ten Systems, Inc., One Electronics Drive, P.O. Box 3151, Trenton, NJ 08619, may
receive, without charge, a copy of the Company's Annual Report on Form 10-K
including the financial statements and schedules included therein, required to
be filed with the Securities and Exchange Commission for the Company's fiscal
year ended October 31, 1997.
Any shareholder proposals which meet the requirements of the
Securities and Exchange Commission Proxy Rules and intended to be included in
proxy material for consideration at the Company's 1999 Annual Meeting of
Shareholders, must be received by the Secretary of the Company not later than
_____________, 1998.
By order of the Board of Directors,
WILLIAM F. HACKETT
Secretary
March ___, 1998
<PAGE>
EXHIBIT A
BASE TEN SYSTEMS, INC.
1998 STOCK OPTION AND STOCK AWARD PLAN
1. Purpose
The purpose of this Base Ten Systems, Inc. 1998 Stock Option
and Stock Award Plan (the "Plan") is to encourage and enable selected officers
and other key employees of Base Ten Systems Inc. (the "Company") and its
subsidiaries to acquire a proprietary interest in the Company through the
ownership of Class A Common Stock ("Common Stock") of the Company. Such
ownership will provide such employees with a more direct stake in the future
welfare of the Company and encourage them to remain with the Company and its
subsidiaries. It is also expected that the Plan will encourage qualified persons
to seek and accept employment with the Company and its subsidiaries. Pursuant to
the Plan, such employees will be offered the opportunity to acquire such Common
Stock through the grant of options, the award of restricted stock under the
Plan, bonuses payable in stock, or a combination thereof.
As used herein, the term "subsidiary" shall mean any present
or future corporation which is or would be a "subsidiary corporation" of the
Company as the term is defined in Section 424(f) of the Internal Revenue Code of
1986, as amended (the "Code").
2. Administration of the Plan
The Plan shall be administered by the Board of Directors of
the Company or a Compensation Committee as appointed from time to time by the
Board of Directors of the Company ("Board"), which Compensation Committee shall
consist solely of not less than two (2) members of the Board qualifying as
"non-employee directors" under Rule 16b-3 of the Securities Exchange Act of
1934, as it may be amended from time to time (the "Exchange Act"); none of the
members of the Compensation Committee shall be eligible to be granted options or
awarded restricted stock under the Plan or receive bonuses payable in stock. No
member of the Board of Directors shall be appointed to the Compensation
Committee who has been granted an option, awarded restricted stock or received a
bonus payment in stock under the Plan within one year prior to appointment. As
used hereinafter the term "Committee" shall mean (i) the Board of Directors of
the Company at all times that a Compensation Committee is not in existence or
(ii) the Compensation Committee at all times that a Compensation Committee is in
existence.
In administering the Plan, the Committee may adopt rules and
regulations for carrying out the Plan. The interpretation and decision with
regard to any question arising under the Plan made by the Committee shall be
final and conclusive on all employees of the Company and its subsidiaries
participating or eligible to participate in the Plan. The Committee may consult
with counsel, who may be of counsel to the Company, and the Committee shall not
incur any liability for any action taken in good faith in reliance upon the
advice of counsel.
The Committee shall determine the employees to whom, and the
time or times at which, grants or awards shall be made and the number of shares
to be included in the grants or awards.
Each option granted pursuant to the Plan shall be evidenced by
an Option Agreement (the "Agreement"). The Agreement shall not be a precondition
to the granting of options; however, no person shall have any rights under any
option granted under the Plan unless and until the optionee to whom such option
shall have been granted shall have executed and delivered to the Company an
Agreement. The Committee shall prescribe the form of the Agreement. A fully
executed original of the Agreement shall be provided to both the Company and the
optionee.
3. Shares of Stock Subject to the Plan
The total number of shares that may be optioned or awarded
under the Plan is 1,000,000 shares of Common Stock plus an additional amount of
shares on May 1 each year, from May 1, 1999 to May 1, 2007, inclusive, equal to
one percent (1%) of the number of shares of Common Stock outstanding on the
immediately preceding April 30 (the "Additional Annual Increment"), of which (i)
150,000 shares plus shares equal to twenty percent (20%) of each Additional
Annual Increment may be awarded as restricted stock and (ii) no more than
500,000 shares may be awarded as Incentive Stock Options, as defined in Section
422 of the Code, except that, notwithstanding any of the foregoing limitations
set forth in this Paragraph 3, said numbers of shares shall be adjusted as
provided in Paragraph 12. Any shares subject to an option which for any reason
expires or is terminated unexercised and any restricted stock which is forfeited
may again be optioned or awarded under the Plan; provided, however, that
forfeited shares shall not be available for further awards if the employee has
realized any benefits of ownership from such shares. Shares subject to the Plan
may be either authorized and unissued shares or issued shares acquired by the
Company or its subsidiaries.
No employee shall receive, over the term of the Plan, awards
in the form of options (whether incentive stock options or options other than
incentive stock options) or restricted stock, or both, covering more than
500,000 shares of Common Stock.
4. Eligibility
Key employees, including officers, of the Company and its
subsidiaries (but excluding members of the Committee), are eligible to be
granted options and awarded restricted stock under the Plan and to have their
bonuses payable in stock. The employees who shall receive awards or options
under the Plan shall be selected from time to time by the Committee, in its sole
discretion, from among those eligible, and the Committee shall determine, in its
sole discretion, the number of shares to be covered by the award or awards and
by the options or options granted to each such employee selected.
5. Duration of the Plan
The Plan shall terminate upon the earlier of the following
dates or events to occur:
(a) upon the adoption of a resolution of the Board
terminating the Plan; or
(b) ten years from the date of adoption of the Plan by the
Board; or
(c) the date all shares of Common Stock subject to the
Plan shall have been purchased according to the Plan's
provisions.
No such termination of the Plan shall affect the rights of any
participant hereunder and all options previously granted and restricted stock
and stock bonus awarded hereunder shall continue in force and in operation after
the termination of the Plan, except as they may be otherwise terminated in
accordance with the terms of the Plan.
6. Terms and Conditions of Stock Options
All options granted under this Plan shall be either Incentive
Stock Options as defined in Section 422 of the Code or options other than
Incentive Stock Options. Each such option shall be subject to all the applicable
provisions of the Plan, including the following terms and conditions, and to
such other terms and conditions not inconsistent therewith as the Committee
shall determine.
(a) The option price per share shall be determined by the
Committee. However, the option price shall not be less than 100% of the fair
market value at the time the option is granted. The fair market value shall be
the closing price of the Common Stock as reported on NASDAQ for the day on which
the option is granted. In the event that the method for determining the fair
market value of the shares provided for in this Paragraph 6(a) shall not for any
reason be practicable, then the fair market value per share shall be determined
by such other reasonable method as the Committee shall, in its discretion,
select and apply at the time of grant of the option concerned.
(b) Each option shall be exercisable during and over such
period ending not later than ten years from the date it was granted, as may be
determined by the Committee and stated in the option.
(c) No option shall be exercisable prior to the expiration of
the period specified by the Committee at the time of grant (the "vesting
period"), which period shall not be less than six (6) months, except as provided
in Paragraphs 6(j), 9 and 12 of the Plan.
(d) Each option shall state whether it will or will not be
treated as an Incentive Stock Option.
(e) Each option may be exercised by giving written notice to
the Company specifying the number of shares to be purchased, which shall be
accompanied by payment in full including applicable taxes, if any. Payment shall
be (i) in cash, or (ii) in shares of Common Stock of the Company already owned
by the optionee (the value of such stock shall be its fair market value on the
date of exercise as determined under Paragraph 6(a), or (iii) by a combination
of cash and shares of Common Stock of the Company. No option shall be exercised
for less than the lesser of 50 shares or the full number of shares for which the
option is then exercisable. No optionee shall have any rights to dividends or
other rights of a shareholder with respect to shares subject to his option until
he has given written notice of exercise of his option and paid in full for such
shares. Tax withholding obligations may be met by the withholding of Common
Stock otherwise deliverable to the optionee pursuant to procedures approved by
the Committee. In no event shall Common Stock be delivered to any optionee until
he has paid to the Company in cash the amount of tax required to be withheld by
the Company or has elected to have his tax withholding obligations met by the
withholding of Common Stock in accordance with the procedures approved by the
Committee, except that in the case of later tax dates under Section 83 of the
Code, the Company may deliver Common Stock prior to the optionee's satisfaction
of tax withholding obligations if the optionee makes arrangements satisfactory
to the Company that such obligations will be met on the applicable tax date.
(f) Notwithstanding the foregoing Paragraph 6(e) of the Plan,
each option granted hereunder may provide, or be amended to provide, the right
either (i) to exercise such option in whole or in part without any payment of
the option price, or (ii) to request the Committee to permit, in its sole
discretion, such exercise without any payment of the option price. If an option
is exercised without a payment of the option price, the optionee shall be
entitled to receive that number of whole shares as is determined by dividing (a)
an amount equal to the fair market value per share on the date of exercise as
determined under Paragraph 6(a) into (b) an amount equal to the excess of the
total fair market value of the shares on such date as so determined with respect
to which the option is being exercised over the total cash purchase price of
such shares as set forth in the option. Fractional shares will be rounded to the
next lowest number and the optionee will receive cash in lieu thereof. At the
sole discretion of the Committee, or as specified in the option, the settlement
of all or part of an optionee's rights under this Paragraph 6(f) may be made in
cash in an amount equal to the fair market value of the shares otherwise payable
hereunder. The number of shares with respect to which any option is exercised
under this Paragraph 6(f) shall reduce the number of shares thereafter available
for exercise under the option, and such shares thereafter may not again be
optioned under the Plan.
(g) Each option may provide, or be amended to provide, that
the optionee may exercise the option without payment of the option price by
delivery to the Company of an exercise notice and irrevocable instructions to
deliver shares of Common Stock directly to the brokerage firm named therein in
exchange for payment of the option price and withholding taxes by such brokerage
firm to the Company.
(h) If an optionee's employment by the Company or a subsidiary
terminates by reason of his retirement under a retirement plan of the Company or
a subsidiary, his option may thereafter be exercised whenever the vesting period
has elapsed until the expiration of the stated period of the option; provided,
however, that if the optionee dies after such termination of employment, any
unexercised option may thereafter be immediately exercised in full by the legal
representative of his estate or by the legatee of the optionee under his last
will until the expiration of the stated period of the option; provided, further,
that any right granted to such an optionee pursuant to Paragraph 6(f) of the
Plan, shall terminate on the date of such termination of employment.
(i) If an optionee's employment by the Company or a subsidiary
terminates by reason of permanent disability, as determined by the Committee,
his option may thereafter be exercised whenever the vesting period has elapsed
until the expiration of the stated period of the option; provided, however, that
if the optionee dies after such termination of employment, any unexercised
option may thereafter be immediately exercised in full by the legal
representative of his estate or by the legatee of the optionee under his last
will until the expiration of the stated period of the option; provided, further,
that any right granted to such an optionee pursuant to Paragraph 6(f) of the
Plan, shall terminate on the date of such termination of employment.
(j) If an optionee's employment by the Company or a subsidiary
terminates by reason of his death, his option may thereafter be immediately
exercised in full by the legal representative of his estate or by the legatee of
the optionee under his last will until the expiration of the stated period of
the option; provided, however, that any right granted to such an optionee
pursuant to Paragraph 6(f) of the Plan, shall terminate on the date of his
death.
(k) Unless otherwise determined by the Committee, if an
optionee's employment terminates for any reason other than death, retirement or
permanent disability, his option shall thereupon terminate.
(l) The option by its terms shall be personal and shall not be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution. During the lifetime of an optionee, the option shall be
exercisable only by him.
(m) Notwithstanding any intent to grant Incentive Stock
Options, an option granted will not be considered an Incentive Stock Option to
the extent that it together with any earlier Incentive Stock Options permits the
exercise for the first time in any calendar year of more than $100,000 in value
of Common Stock (determined at the time of grant).
(n) In the event any option is exercised by the executors,
administrators, heirs or distributees of the estate of a deceased optionee, the
Company shall be under no obligation to issue Common Stock thereunder unless and
until the Company is satisfied that the person or persons exercising the option
are the duly appointed legal representative of the deceased optionee's estate or
the proper legatees or distributees thereof.
(o) No Incentive Stock Option shall be granted to an employee
who owns immediately before the grant of such option, directly or indirectly,
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company. This restriction does not apply if, at the time such
Incentive Stock Option is granted, the option price is at least 110% of the fair
market value of one share of Common Stock, as determined in Paragraph 6(a), on
the date of grant and the Incentive Stock Option by its terms is not exercisable
after the expiration of five years from the date of grant.
7. Terms and Conditions of Restricted Stock Awards
All awards of restricted stock under the Plan shall be subject
to all the applicable provisions of the Plan, including the following terms and
conditions, and to such other terms and conditions not inconsistent therewith,
as the Committee shall determine.
(a) Awards of restricted stock may be in addition to or in
lieu of option grants.
(b) During a period set by the Committee at the time of each
award of restricted stock (the "restriction period"), the recipient shall not be
permitted to sell, transfer, pledge, or assign the shares of restricted stock.
(c) Shares of restricted stock shall become free of all
restrictions if the recipient dies or his employment terminates by reason of
permanent disability, as determined by the Committee, during the restriction
period and, to the extent set by the Committee at the time of the award or
later, if the recipient retires under a retirement plan of the Company or a
subsidiary during such period. The Committee may require medical evidence of
permanent disability, including medical examinations by physician(s) selected by
it. If the Committee determines that any such recipient is not permanently
disabled or that a retiree's restricted stock is not to become free of
restrictions, the restricted stock held by either such recipient, as the case
may be, shall be forfeited and revert to the Company.
(d) Shares of restricted stock shall be forfeited and revert
to the Company upon the recipient's termination of employment during the
restriction period for any reason other than death, permanent disability or
retirement under a retirement plan of the Company or a subsidiary except to the
extent the Committee, in its sole discretion, finds that such forfeiture might
not be in the best interest of the Company and, therefore, affirmatively waives
in writing all or part of the application of this provision to the restricted
stock held by such recipient.
(e) Stock certificates for restricted stock shall be
registered in the name of the recipient but shall be appropriately legended and
returned to the Company by the recipient, together with a stock power, endorsed
in blank by the recipient. The recipient shall be entitled to vote shares of
restricted stock and shall be entitled to all dividends paid thereon, except
that dividends paid in Common Stock or other property shall also be subject to
the same restrictions.
(f) Restricted stock shall become free of the foregoing
restrictions upon expiration of the applicable restriction period and the
Company shall deliver Common Stock certificates evidencing such stock.
(g) Recipients of restricted stock shall be required to pay
taxes to the Company upon the expiration of restriction periods or such earlier
dates as elected pursuant to Section 83 of the Code; provided, however, tax
withholding obligations may be met by the withholding of Common Stock otherwise
deliverable to the recipient pursuant to procedures approved by the Committee.
In no event shall Common Stock be delivered to any awardee until he has paid to
the Company in cash the amount of tax required to be withheld by the Company or
has elected to have his withholding obligations met by the withholding of Common
Stock in accordance with the procedures approved by the Committee.
8. Bonuses Payable in Stock
In lieu of cash bonuses otherwise payable under the Company's
compensation practices to employees eligible to participate in the Plan, the
Committee, in its sole discretion, may determine that such bonuses shall be
payable in stock or partly in stock and partly in cash. Such bonuses shall be in
consideration of services previously performed and shall consist of shares of
Common Stock free of any restrictions imposed by the Plan. The number of shares
of Common Stock payable in lieu of an amount of each bonus otherwise payable
shall be determined by dividing such amount by the fair market value of one
share of Common Stock on the date the bonus is payable, with the fair market
value determined in accordance with Paragraph 6(a). The Company shall withhold
from any such bonus an amount of cash sufficient to meet its tax withholding
obligations.
9. Limited Rights
Any option granted under the Plan may, at the discretion of
the Committee, contain provisions for limited rights, as described herein. A
limited right shall be exercisable upon the occurrence of an event specified in
the option as an exercise event, and shall expire thirty (30) days after the
occurrence of such event. Exercise events may include, at the discretion of the
Committee and as specified in the option, consummation of a tender or exchange
offer for at least 20% of the Company's Common Stock outstanding at the
commencement of such offer or a proxy contest the result of which is the
replacement of a majority of the members of the Company's Board of Directors, or
consummation of a merger or reorganization of the Company in which the Company
does not survive or in which the shareholders of the Company receive stock or
securities of another corporation or cash, or a liquidation or dissolution of
the Company or other similar events. Limited rights shall permit optionees to
receive in cash either (i) the highest market price per share for each share
covered by an option, without regard to the date on which the option otherwise
would be exercisable, which the Company's Common Stock traded on NASDAQ for the
sixty days immediately preceding the exercise event or (ii) if provided by the
Committee in its discretion at the time of grant, the highest market price per
share for each share covered by the option which the Company's Common Stock
traded on NASDAQ on the date of exercise, less the option price per share
specified in the option. In the event the exercise event is consummation of a
tender or exchange offer, the value per share set by the tenderor or offeror
shall be substituted for the highest market price per share provided in clause
(i) in the preceding sentence. Limited rights shall not extend the exercise
period of any option and, to the extent exercised, shall reduce the shares of
Common Stock available under the Plan and the shares of Common Stock covered by
the options to which the limited rights relate.
10. Transfer, Leave of Absence, Etc.
For the purpose of the Plan: (a) a transfer of an employee
from the Company to a subsidiary, or vice versa, or from one subsidiary to
another, and (b) a leave of absence, duly authorized in writing by the Company,
shall not be deemed a termination of employment.
11. Rights of Employees
(a) No person shall have any rights or claims under the Plan
except in accordance with the provisions of the Plan.
(b) Nothing contained in the Plan shall be deemed to give any
employee the right to be retained in the service of the Company or its
subsidiaries.
12. Changes in Capital
Upon changes in the Common Stock by a stock dividend,
extraordinary dividend payable in cash or property, stock split, reverse split,
subdivision, recapitalization, merger, consolidation (whether or not the Company
is a surviving corporation), combination or exchange of shares, separation,
reorganization or liquidation, the number and class of shares available under
the Plan as to which stock options and restricted stock may be awarded, the
number and class of shares under each option or award and the option price per
share shall be correspondingly adjusted by the Committee, such adjustments to be
made in the case of outstanding options without change in the total price
applicable to such options; provided, however, no such adjustments shall be made
in the case of stock dividends aggregating in any fiscal year of the Company not
more than 5% of the Common Stock issued and outstanding at the beginning of such
year or in the case of one or more splits, subdivisions or combinations of the
Common Stock during any fiscal year of the Company resulting in an increase or
decrease of not more than 5% of the Common Stock issued and outstanding at the
beginning of such year.
In the event of a "Change of Control of the Company" (as
hereinafter defined) (i) all restrictions on restricted stock previously awarded
to recipients under the Plan shall lapse and (ii) all stock options and stock
appreciation rights which are outstanding shall become immediately exercisable
in full without regard to any limitations of time or amount otherwise contained
in the Plan, the options or the rights. Further, in the event of a Change in
Control of the Company, the Committee may determine that the options shall be
adjusted and make such adjustments by substituting for Common Stock subject to
options, stock or other securities of any successor corporation to the Company
that may be issuable by another corporation that is a party to such Change in
Control of the Company if such stock or other securities are publicly traded or,
if such stock or other securities are not publicly traded, by substituting stock
or other securities of a parent or affiliate of such corporation if the stock or
other securities of such parent or affiliate are publicly traded, in which event
the aggregate option price shall remain the same and the amount of shares or
other securities subject to options shall be the amount of shares or other
securities which could have been purchased on the day of the Change in Control
of the Company with the proceeds which would have been received by the optionee
if the option had been exercised in full prior to such Change in Control of the
Company and the optionee had exchanged all of such shares in the Change in
Control transaction. No optionee shall have any right to prevent the
consummation of any of the foregoing acts affecting the number of shares
available to the optionee.
For purposes of the foregoing, a "Change in Control of the
Company" shall be deemed to have occurred upon the occurrence of one of the
following events:
(a) "any person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than the Company,
any employee benefit plan sponsored by the Company,
any trustee or other fiduciary holding securities
under an employee benefit plan of the Company, or any
corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportion as their ownership of stock of the
Company), is or becomes (other than pursuant to a
transaction which is deemed to be a "Non-Qualifying
Transaction" under Subsection 12(c)) the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the
Company representing 50% or more of the combined
voting power of the Company's then outstanding
securities eligible to vote for the election of the
Board of Directors of the Company (the "Company Voting
Securities"); or
(b) individuals who, on January 31, 1998, constitute the
Board of Directors of the Company (the "Incumbent
Directors") cease for any reason to constitute at
least a majority of the Board of Directors of the
Company, provided that any person becoming a director
subsequent to January 31, 1998, whose election or
nomination for election was approved by a vote of at
least two-thirds of the Incumbent Directors then on
the Board of Directors of the Company (either by a
specific vote or by approval of the proxy statement of
the Company in which such person is named as a nominee
for director, without written objection to such
nomination) shall be an Incumbent Director; provided,
however, that no individual initially elected or
nominated as a director of the Company as a result of
an actual or threatened election contest with respect
to directors (including without limitation in order to
settle any such contest) or any other actual or
threatened solicitation of proxies by or on behalf of
any person other than the Board of Directors of the
Company shall be an Incumbent Director; or
(c) the stockholders of the Company approve a merger,
consolidation, statutory share exchange or similar
form of corporate transaction involving the Company or
any of its subsidiaries that requires such approval,
whether for such transaction or the issuance of
securities in the transaction (a "Business
Combination"), unless immediately following such
Business Combination: (i) more than 50% of the total
voting power of (x) the corporation resulting from
such Business Combination (the "Surviving
Corporation"), or (y) if applicable, the ultimate
parent corporation that directly or indirectly has
beneficial ownership of 100% of the voting securities
eligible to elect directors of the Surviving
Corporation (the "Parent Corporation"), will be
represented by Company Voting Securities that were
outstanding immediately prior to such Business
Combination (or, if applicable, shares into which such
Company Voting Securities were converted pursuant to
such Business Combination), (ii) no person (other than
any employee benefit plan sponsored or maintained by
the Surviving Corporation or the Parent Corporation)
will be or becomes the beneficial owner, directly or
indirectly, of 25 % or more of the total voting power
of the outstanding voting securities eligible to elect
directors of the Parent Corporation (or, if there is
no Parent Corporation, the Surviving Corporation) and
(iii) at least a majority of the members of the board
of directors of the Parent Corporation (or, if there
is no Parent Corporation, the Surviving Corporation)
following the consummation of the Business Combination
were Incumbent Directors at the time of the approval
of the Board of Directors of the Company of the
execution of the initial agreement providing for such
Business Combination (any Business Combination which
satisfies all of the criteria specified in (i), (ii)
and (iii) above shall be deemed to be a
"Non-Qualifying Transaction"); or
(d) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company or
an agreement for the sale or disposition by the
Company of all or substantially all of the Company's
assets.
Anything contained herein to the contrary notwithstanding, a
Change in Control of the Company shall be deemed not to have occurred with
respect to any optionee who participates as an investor in the acquiring entity
(which shall include the Parent Corporation) in any such Change in Control
transaction unless such acquiring entity is a publicly-traded corporation and
the optionee's interest in such acquiring entity immediately prior to the
acquisition constitutes less than one percent (1 %) of both (1) the combined
voting power of such entity's outstanding securities and (2) the aggregate fair
market value of such entity's outstanding equity securities. For this purpose
the optionee's interest in any equity securities shall include any such interest
of which such optionee is a beneficial owner.
13. Use of Proceeds
Proceeds from the sale of shares pursuant to options granted
under this Plan shall constitute general funds of the Company.
14. Amendments
The Board of Directors may amend, alter or discontinue the
Plan, including without limitation any amendment considered to be advisable by
reason of changes to the United States Internal Revenue Code, but no amendment,
alteration or discontinuation shall be made which would impair the rights of any
holder of an award of restricted stock or option or stock bonus theretofore
granted, without his consent, or which, without the approval of the
shareholders, would:
(a) except as is provided in Paragraph 12 of the Plan,
increase the total number of shares reserved for the purpose of the Plan.
(b) except as is provided in Paragraphs 6(f) and 12 of the
Plan, decrease the option price of an option to less than 100% of the fair
market value on the date of the granting of the option.
(c) change the class of persons eligible to receive an award
of restricted stock or options under the Plan; or
(d) extend the duration of the Plan.
The Committee may amend the terms of any award of restricted
stock or option theretofore granted, retroactively or prospectively, but no such
amendment shall impair the rights of any holder without his consent.
15. Miscellaneous Provisions
(a) The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to assure the issuance of shares upon exercise of any
option under the Plan.
(b) It is understood that the Committee may, at any time and
from time to time after the granting of an option or the award of restricted
stock or bonuses payable in Common Stock hereunder, specify such additional
terms, conditions and restrictions with respect to such option or stock as may
be deemed necessary or appropriate to ensure compliance with any and all
applicable laws, including, but not limited to, terms, restrictions and
conditions for compliance with federal and state securities laws and methods of
withholding or providing for the payment of required taxes.
(c) If at any time the Committee shall determine, in its
discretion, that the listing, registration or qualification of shares of Common
Stock upon any national securities exchange or under any state or federal law,
or the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the sale or purchase of
shares of Common Stock hereunder, no option or stock appreciation right may be
exercised or restricted stock or stock bonus may be transferred in whole or in
part unless and until such listing, registration, qualification, consent or
approval shall have been effected or obtained, or otherwise provided for, free
of any conditions not acceptable to the Committee.
(d) The Plan shall be governed by and construed in accordance
with the laws of the State of New Jersey.
16. Limits of Liability
(a) Any liability of the Company or a subsidiary of the
Company to any Participant with respect to an option or stock or other award
shall be based solely upon contractual obligations created by the Plan and the
Agreement.
(b) Neither the Company nor a subsidiary of the Company, nor
any member of the Committee or the Board, nor any other person participating in
any determination of any question under the Plan, or in the interpretation,
administration or application of the Plan, shall have any liability to any party
for any action taken or not taken in connection with the Plan, except as may
expressly be provided by statute.
<PAGE>
EXHIBIT B
BASE TEN SYSTEMS, INC. EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
PURPOSE AND APPROVAL
1.1. Purpose of the Plan. The purpose of the Base Ten Systems, Inc.
Employee Stock Purchase Plan is to provide a method whereby Employees of the
Company may acquire a proprietary interest in the Company through the purchase
of Shares of common stock of Base Ten Systems, Inc. The Plan is intended to
qualify as an "Employee Stock Purchase Plan" as defined in Section 423 of the
Code. The provisions of the Plan shall be construed so as to extend and limit
participation in a manner consistent with the requirements of the Code.
1.2. Approval of the Plan. The Plan was adopted by the Board on January
13, 1998. The approval of the Plan by stockholders of the Company is required to
be obtained within one (1) year following the adoption of the Plan by the Board
for the Plan to be qualified under Section 423 of the Code. The Plan will be
submitted to the stockholders at the [1998 Annual Meeting] for this purpose. If
for any reason the stockholders fail to approve the Plan within the required
period of time, the Plan will not be implemented.
ARTICLE II
DEFINITIONS
2.1. "Account" means the account maintained by the Company for a
Participant pursuant to Section 3.3.
2.2. "Act" means the Securities Exchange Act of 1934, as amended.
2.3. "Board" means the Board of Directors of the Company.
2.4. "Business Day" means a day on which there is trading on The New
York Stock Exchange.
2.5. "Code" means the Internal Revenue Code of 1986, amended.
2.6. "Committee" means the Compensation Committee of the Board, or such
other Committee as the Board may designate to administer the Plan pursuant to
Article VI.
2.7. "Company" means Base Ten Systems, Inc.
2.8. "Compensation" means all base salary, wages, cash bonuses,
commissions and overtime before giving effect to any compensation reductions
made in connection with any plans described in Section 401(k) or Section 125 of
the Code, and any other payments designated by the Committee.
2.9. "Effective Date" means the effective date of the Plan identified
in Section 7.8.
2.10. "Eligible Employee" means an Employee described in Section 3.2.
2.11. "Employee" means any person having an employment relationship
with the Company or a Participating Corporation within the meaning of Code
Section 423, subject to the exclusion of such persons or classes of persons as
the Committee may determine is consistent with Section 423 of the Code and other
applicable law.
2.12. "Exercise Price" means the purchase price for Shares purchased
pursuant to the exercise of an Option identified in Section 4.1.
2.13. "Fair Market Value" means, with respect to Shares on any Business
Day, the average of the high and low prices of the Shares on the NASDAQ on such
date as published in the Wall Street Journal for such day; provided that if
prices of Shares shall not be so published, the Fair Market Value of a Share
shall be determined by the Committee.
2.14. "Offering" means an offering to Employees of Options to purchase
Shares under Section 4.1.
2.15. "Offering Commencement Date" means the first business day of each
Offering Period.
2.16. "Offering Period" means each period of twelve (12) months
commencing on the Effective Date and thereafter on each anniversary of the
Effective Date during which the Plan is in effect.
2.17. "Option" means an option to purchase Shares granted pursuant to
the Plan.
2.18. "Participant" means an Eligible Employee who has elected to
participate in the Plan pursuant to Section 3.3, and who has not become an
ineligible Employee or withdrawn from participation in the Plan pursuant to
Article III.
2.19. "Participating Corporation" means a corporation so designated
pursuant to Section 3.1(B).
2.20. "Parent" means any corporation defined as such in Section 424(e)
of the Code.
2.21. "Plan" means the Base Ten Systems, Inc. Employee Stock Purchase
Plan.
2.22. "Plan Administrator" means the Committee except to the extent
that the Committee may otherwise designate pursuant to Article VI.
2.23. "Purchase Date" means the last business day of each three (3)
month period during an Offering Period with the first three (3) month period
during each Offering Period commencing on the Effective Date or the anniversary
of the Effective Date, as the case may be.
2.24. "Share" means one share of common stock ($.01 par value) of the
Company.
2.25. "Subsidiary" means any corporation defined as such in Section
424(f) of the Code.
2.26. "Transfer Agent" means the officially designated transfer agent
of the Company.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1. Granting of Options to Employees
A. Granting of Options to Company Employees Only. To the
extent permitted by the Plan, Options to purchase Shares hereunder shall only be
granted to Employees of the Company or a Participating Corporation.
B. Designation of Participating Corporations. Designations of
additional corporations whose Employees may be granted Options to purchase
Shares to the extent permitted hereunder will be made from time to time by the
Committee. Such designations shall be of the Subsidiaries and Parents of the
Company.
C. Employee Rights and Privileges. All Employees granted
Options under the Plan shall have the same rights and privileges, except that
the Committee may from time to time provide for differences in the rights and
privileges of Employees granted Options hereunder, so long as such differences
do not jeopardize the qualification of the Plan under Code Section 423 or
violate other applicable law.
3.2. Eligibility of Employees. Employees who qualify as Eligible
Employees pursuant to this Section shall be eligible to elect to participate in
the Plan in accordance with Section 3.3.
A. Eligible Employees Defined. Except as otherwise required by
Section 423 of the Code or other applicable law, an Employee (full or part time)
shall be considered an Eligible Employee for the purposes of participation in
the Plan on the first date following completion of sixty (60) days of service.
B. Rehired Employees. If an Eligible Employee who has ceased
to be an Employee becomes an Employee again on a date thereafter, such Employee
automatically shall become an Eligible Employee effective as of the Offering
Commencement Date following such date.
C. Employees Deemed Ineligible For Participation
(i) Approved Leave Of Absence. An Employees shall be
deemed an ineligible Employees during the period such
Employees is on a Company approved leave of absence. Such a
Participant shall be deemed to have filed a withdrawal form in
accordance with Section 3.4(A) on the date such Employee first
begins such approved leave of absence, and such deemed filing
shall have the same consequences as would the actual filing of
a withdrawal form pursuant to Section 3.4(A). As of the
Offering Commencement Date following the end of the period
during which the approved leave of absence expires and the
Employee returns to active employment with the Company or a
Participating Corporation, such Employee shall no longer be
deemed an ineligible Employee pursuant to this Section.
(ii) 5% Owners. No Option shall be granted hereunder
to any Employee who, immediately after the Option is granted,
owns or would own, within the meaning of Section 424(d) of the
Code, Shares possessing 5% or more of the total combined
voting power or value of all classes of stock of the Company.
For purposes of this Section, Shares that an Employee would be
entitled to purchase during an Offering Period applicable to
an Option that has been granted pursuant to Section 4.1 shall
be treated as owned by the Employee.
(iii) Employees With Exercise Rights In Excess Of
$25,000 Per Year. No Option shall be granted hereunder to any
Employee if, within the calendar year in which such Option
first becomes exercisable, such Option (together with any
other options that first become exercisable in such year that
have been granted to the Employees under the Plan or any other
qualified Employee stock purchase plan maintained by the
Company) would provide the Employee with the right in such
year to purchase Shares having a Fair Market Value (determined
on the Offering Commencement Date applicable to each such
Option) in excess of $25,000.
(iv) Other Employees. The Committee may from time to
time deem ineligible for participation hereunder any class or
group of Employees, so long as the exclusion of such class or
group from participation does not jeopardize the qualification
of the Plan under Code Section 423 or violate other applicable
law.
3.3. Election to Participate.
A. Payroll Deduction Authorization Form. An Eligible Employee
may elect to participate in the Plan by filing a properly completed
authorization form, or such other authorization as the Plan Administrator shall
require, with the party and by the date designated by the Plan Administrator.
Such form shall authorize automatic payroll deductions from a Participant's
Compensation for each pay period commencing on the Offering Commencement Date
next succeeding receipt of the timely filed authorization form by the designated
party (or such other date as may be designated by the Plan Administrator), and
continuing until (i) the Participant changes the amount of such payroll
deductions pursuant to Section 3.3(C), (ii) the Participant becomes an
ineligible Employee or withdraws from participation in the Plan pursuant to
Article III, (iii) the Plan is suspended or terminated pursuant to Section 7.11,
or (iv) the Committee otherwise determines. If a Participant has not withdrawn
or been deemed to have withdrawn from the Plan, such Participant does not need
to re-enroll for subsequent Offering Periods.
B. Amount of Payroll Deductions. The payroll deductions
authorized by the Participant shall be in whole dollars, with a minimum of [Five
Dollars ($5.00)] per pay period up to a maximum of ten percent (10%) of
Compensation, for each pay period, in effect on the date the payroll deductions
to which the authorization form relates are made.
C. Changes in Payroll Deductions. Subject to Section 3.3(B), A
Participant may increase or decrease the amount of payroll deductions previously
authorized by filing a properly completed change form, or such other
authorization as the Plan Administrator shall require, with the party and by the
date designated by the Plan Administrator but in no event more often than once
during each three (3) month period ending on a Purchase Date. Such change shall
be made in whole dollars subject to the limitation contained in Section 3.3(B)
above, and shall be effective beginning as soon as practicable after the receipt
of the timely filed change form by the designated party (or such other date as
may be designated by the Plan Administrator). If a Participant reduces his or
her participation level below the minimum set forth in Section 3.3(B), such
Participant will be deemed to have withdrawn from the Plan. The deemed filing of
a withdrawal form pursuant to this Section shall have the same consequences as
would the actual filing of a withdrawal form pursuant to Section 3.4(A).
D. Participant's Account. The Company shall maintain payroll
deduction Accounts for all Participants. Payroll deductions made from a
Participant's Compensation shall be credited to the Participant's Account, and
shall be applied for the purchase of Shares pursuant to Article IV. A
Participant may not make any separate cash payment into his or her Account. No
interest shall be paid or allowed on any payroll deductions credited to a
Participant's Account.
3.4. Withdrawal From Participation
A. In General. A Participant may at any time withdraw from
participation in the Plan by filing a properly completed withdrawal form, or
such other authorization as the Plan Administrator shall require, with the party
and by the date designated by the Plan Administrator. As soon as practicable
after receipt of the timely filed withdrawal form by the designated party, (i)
all payroll deductions then credited to the Participant's Account which have not
already been applied for the purchase of Shares hereunder shall be paid to the
Participant, (ii) no further payroll deductions shall be made from the
Participant's Compensation and no Options shall be granted to the Participant
during any Offering Period commencing thereafter, unless the Participant elects
again to participate in the Plan pursuant to Section 3.3, and (iii) subject to
the provisions of Section 4.2(C) of this Plan, unless otherwise designated in
writing by the Participant, the Participant's Account shall remain in existence
and all Shares in such Account at the time of withdrawal shall remain in the
Account. Partial withdrawals from participation shall not be permitted. After a
withdrawal or deemed withdrawal from participation, a Participant, if eligible,
shall only be permitted to re-enroll in the Plan effective as of the next
succeeding Offering Commencement Date.
B. Termination of Employment. If a Participant ceases to be an
Employee for any reason on or before the last working day preceding the 15th day
prior to any Purchase Date, the Participant shall be deemed to have filed a
withdrawal form in accordance with Section 3.4(A) on the date such Participant
ceases to be an Employee. If the Participant ceases to be an Employee after such
last working day, the Participant shall be deemed to have (i) exercised any
outstanding Options in accordance with Article IV, and (ii) immediately
thereafter filed a withdrawal form in accordance with Section 3.4(A). The deemed
filing of a withdrawal form pursuant to this Section shall have the same
consequences as would the actual filing of a withdrawal form pursuant to Section
3.4(A).
ARTICLE IV
GRANTING AND EXERCISE OF OPTIONS
4.1. Granting of Options
A. Yearly Offerings. The Plan shall be implemented by
Offerings to Participants of Options to purchase Shares. Offerings shall be made
each Offering Period. Each Offering shall commence on the Offering Commencement
Date and shall terminate on the day immediately prior to the next succeeding
anniversary of the Effective Date. The first Offering Commencement Date shall be
the Effective Date of the Plan as provided in Section 7.8. Offerings shall
continue to be made under the Plan until the later of (i) the date the maximum
number of Shares identified in Article V has been purchased pursuant to Options
granted hereunder, or (ii) the Plan is terminated or suspended pursuant to
Section 7.11. The Committee or the Board may from time to time change the
duration and/or frequency of an Offering Period or the frequency with which
Shares are purchased under the Plan by announcing such change to Participants at
least fifteen (15) days prior to the scheduled beginning of the first Offering
Period to be affected.
B. Granting of Options. On the Offering Commencement Date for
each Offering Period, a Participant automatically shall be granted a separate
Option to purchase for the applicable Exercise Price (as defined in 4.1(C)
below) a maximum number of full and fractional Shares equal to the accumulated
payroll deductions credited to the Participant's Account as of each Purchase
Date for such Period, divided by 85% of the lesser of (i) the Fair Market Value
of the Shares on the Offering Commencement Date, or (ii) the Fair Market Value
of the Shares on such Purchase Date.
C. Exercise Price. The Exercise Price for Options granted
hereunder shall be 85% of the lesser of (i) the Fair Market Value of the Shares
on the Offering Commencement Date, or (ii) the Fair Market Value of the Shares
on the Purchase Date.
4.2. Exercise of Options
A. Automatic Exercise. Except as otherwise provided in the
Plan or determined by the Committee, an Option granted to a Participant
hereunder shall be deemed to have been exercised automatically on the Purchase
Date applicable to such Option. Such exercise shall be for the purchase, on or
as soon as practicable after each Purchase Date, of the number of full and/or
fractional Shares that the accumulated payroll deductions credited to the
Participant's Account as of such Purchase Date will purchase at the applicable
Exercise Price (but not in excess of the number of Shares for which an Option
has been granted to the Participant pursuant to Section 4.1). The Participant's
Account shall be charged for the amount of the purchase, and the Participant's
ownership of the Shares purchased shall be appropriately evidenced on the books
of the Company.
B. Restrictions on Exercise of Options
(i) Exercise of Options. Any Option granted
hereunder shall in no event be exercisable after the
expiration of the Offering Period applicable thereto.
(ii) Exercise by the Participant Only. During the
Participant's lifetime, any option granted to the Participant
shall be exercisable only by such Participant.
(iii) Other Restrictions. Under no circumstances
shall any Option be exercised, nor shall any Shares be issued
hereunder, until such time as the Company shall have complied
with all applicable requirements of (a) the Act, (b) all
applicable listing requirements of any securities exchange on
which the Shares are listed, and (c) all other applicable
requirements of law or regulation.
C. Issuance of Certificates. Until a Participant has satisfied
the Holding Period for any Shares held under the Plan, the Shares must (unless a
disqualifying disposition is made) remain in a Participant's Account. Therefore,
a Participant may not request a certificate for his or her Shares until the
Participant has satisfied the Holding Period with respect to Shares. Subject to
the immediately preceding sentences of this Section 4.2(C), certificates with
respect to Shares purchased hereunder shall be issued to the Participant upon
request by the Participant to the party designated by the Plan Administrator.
The party designated by the Plan Administrator shall cause the issuance and
delivery of such certificates as soon as practicable after receipt of such a
request. The Participant shall pay any fees charged by the Transfer Agent and/or
the party designated by the Plan Administrator for its services. The Company
shall not be required to issue any certificates for fractional shares. If a
Participant requests certificates for Shares, the Company shall pay to the
Participant cash in lieu of any fractional Shares, based on the Fair Market
Value of such fractional Shares as of the date of issuance of such
certificate(s).
D. Registration of Certificates. Certificates shall be
registered only in the name of the Participant.
E. Rights as a Shareholder. The Participant shall have no
rights or privileges of a shareholder of the Company with respect to Options
granted or Shares purchased hereunder, unless and until such Shares shall have
been appropriately evidenced on the books of the Company.
F. Dividends. If the Company pays a cash dividend on Shares
and a Participant is entitled to receive such dividend on Shares that have been
purchased under the Plan, such dividend may be paid in cash or in the form of
additional Shares, upon such terms and conditions as the Committee shall
determine.
ARTICLE V
STOCK
5.1. Maximum Shares. The maximum aggregate number of Shares which may
be purchased under the Plan shall be [insert], subject to adjustment upon
certain corporate changes as provided in Section 5.2. If the total number of
Shares for which Options have been exercised on any Purchase Date exceeds such
maximum number, the Committee shall make a pro rata allocation of the Shares
available for purchase in as nearly a uniform manner as shall be practicable and
as it shall determine to be equitable, and the balance of payroll deductions
credited to the Account of each Participant shall, to the extent not applied for
the purchase of Shares, be refunded to the Participants as soon as practicable
thereafter.
5.2. Adjustment Upon Corporate Changes. In the event of any stock
dividend, stock split, recapitalization (including, without limitation, the
payment of an extraordinary dividend), merger, consolidation, combination,
spin-off, distribution of assets to shareholders (other than ordinary cash
dividends), exchange of Shares, or other similar corporate change with respect
to the Company, the Committee (i) shall determine the kind of Shares that may be
purchased under the Plan after such event, and (ii) may, in its discretion,
adjust the aggregate number of Shares available for purchase under the Plan or
subject to outstanding Options and the respective Exercise Prices applicable to
outstanding Options. Any adjustment made by the Committee pursuant to the
preceding sentence shall be conclusive and binding on the Company and all
Employees. For purposes of this Section, any distribution of Shares to
shareholders in an amount aggregating 20% or more of the outstanding Shares
shall be deemed a stock split, and any distribution of Shares aggregating less
than 20% of the outstanding Shares shall be deemed a stock dividend.
ARTICLE VI
ADMINISTRATION
6.1. Appointment of Committee. Except as otherwise delegated by the
Committee pursuant to this Article VI, (i) the Plan shall be administered by the
Committee, (ii) the Committee shall have full authority to administer and
interpret the Plan in any manner it deems appropriate in its sole discretion,
and (iii) the determination of the Committee shall be binding on and conclusive
as to all parties.
6.2. Delegation of Certain Authority. The Committee may delegate any or
all of its responsibility hereunder to such person or persons as it deems
prudent.
6.3. Compliance with Applicable Law. The Plan shall not be interpreted
or administered in any way that would cause the Plan to be in violation of Code
Section 423 or other applicable law.
6.4. Expenses. The Company shall pay all expenses related to the
administration of the Plan except charges imposed by the Transfer Agent for
issuing certificates for Shares, sales charges and commissions applicable to the
sale of Shares by a Participant, charges for back records and research performed
at the request of the Participant, and such other expenses as may be designated
by the Committee. The Participant shall pay all expenses related to
administration of the Plan that are not paid for by the Company.
ARTICLE VII
MISCELLANEOUS
7.1. No Employment Rights. The Plan shall not, directly or indirectly,
create in any Employee or class of Employees any right with respect to
continuation of employment with the Company or any of its divisions,
subsidiaries or affiliates. The Plan shall not interfere in any way with the
Company's or any of its divisions', Subsidiaries', Parents' or affiliates' right
to terminate, or otherwise modify, an Employee's employment at any time.
7.2. Rights Not Transferable. Any rights of the Participant under the
Plan shall not be transferred other than (i) by will, and (ii) by the laws of
descent or distribution.
7.3. Withholding. The Committee shall have the right to make such
provisions as it deems appropriate to satisfy any obligation of the Company to
withhold federal, state or local income or other taxes incurred by reason of the
operation of the Plan.
7.4. Delivery of Shares to Estate Upon Death. In the event of the death
of a Participant, any Shares purchased by the Participant hereunder, other than
Shares as to which the Participant previously received certificates, shall be
issued and delivered to the estate of the Participant as soon as practical
thereafter.
7.5. Effect of Plan. The provisions of the Plan shall be binding upon,
and inure to the benefit of, all successors of each Participant, including
without limitation the Participant's estate and the executors, administrators or
trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or
representative of creditors of such Participant.
7.6. Use of Funds. All funds received or held by the Company pursuant
to the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such funds from its general assets.
Participants should be aware that the Plan is an unfunded plan and, therefore,
with respect to such funds, Participants are unsecured creditors of the Company.
7.7. Plan Share Purchases. Shares subject to purchase by Participants
under the Plan shall, in the discretion of the Committee, be made available from
treasury Shares, authorized but unissued Shares, re-acquired Shares, and/or
Shares purchased on the open market.
7.8. Effective Date. The Plan shall be effective on the first business
day occurring on or after the later of [insert date].
7.9. Amendments to the Plan. The Committee may from time to time make
amendments to the Plan that it deems advisable and consistent with the purposes
of the Plan and applicable law. Notwithstanding the foregoing, no amendment that
would (i) effect an increase in the number of Shares which may be purchased
under the Plan, which increase is of a type that would require shareholder
approval under Code Section 423, or (ii) effect a change in the designation of
the corporations whose Employees may be offered Options under the Plan, which
change is of a type that would require shareholder approval under Code Section
423, shall become effective unless the shareholder approval required by Code
Section 423 is obtained.
7.10. Subsidiary Plans Required to Satisfy Local Law. The Committee may
approve or adopt discount Share purchase plans, or other similar or related
plans consistent with the purposes of the Plan, for Employees of subsidiaries of
the Company as required to meet the provisions of the tax or securities laws or
other applicable laws, rules or regulations in the jurisdictions in which any
subsidiary operates. Any Shares purchased under any such subsidiary plans shall
be deemed to have been purchased under the Plan. The Committee, in its sole
discretion and to the extent permitted by applicable law, may delegate its
authority under this Section to (i) any other appropriate committee of the
Company, or (ii) to the Chief Executive Officer of the Company or any other
appropriate officer of the Company.
7.11. Termination or Suspension of the Plan. The Board shall have the
power at any time to terminate or suspend the Plan and all rights of Employees
under the Plan. Unless earlier terminated, the Plan will terminate by virtue of
its terms on January 1, 2008.
7.12. Governing Law. The laws of the State of [Delaware] shall govern
all matters relating to the Plan, except to the extent such laws are superseded
by the laws of the United States.
7.13. Merger Clause. The terms of the Plan are wholly set forth in this
document, including certain standards of certain other plans which are to be
applied to an Employee for purposes of the Plan to the extent provided herein,
regardless of whether such Employee is covered under such plans. This Section
shall in no way limit the authority of the Committee to administer the Plan as
provided herein.
<PAGE>
EXHIBIT C
BASE TEN SYSTEMS, INC.
DIRECTORS' STOCK OPTION PLAN
1. Purpose
The purpose of the Base Ten Systems, Inc. Directors' Stock Option Plan
(the "Plan") is to encourage non-employee directors who are not employees of
Base Ten Systems, Inc. (the "Company") to acquire a proprietary interest in the
future of the Company through the ownership of the Class A Common Stock of the
Company ("Common Stock"). It is also expected that the Plan will encourage
qualified persons to serve as directors of the Company.
2. Administration of the Plan
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"). In
administering the Plan, the Committee may adopt rules and regulations for
carrying out the Plan. The interpretation and decision with regard to any
question arising under the Plan made by the Committee shall be final and
conclusive on all directors participating or eligible to participate in the
Plan.
Notwithstanding the foregoing, the determination of the directors to
whom, and the time or times at which, options shall be granted and the number of
shares of Common Stock to be included in the grants shall be made by the Board.
3. Shares of Stock Subject to the Plan
The total number of shares that may be issued pursuant to options
granted under the Plan is 300,000 shares of Common Stock, subject to adjustment
as provided in Paragraph 7. Any shares subject to an option which for any reason
expires or is terminated unexercised may again be subject to an option under the
Plan.
4. Eligibility
Directors who are not employees of the Company or any of its
subsidiaries (including members of the Committee) are eligible to be granted
options under the Plan. The directors who shall receive options under the Plan
shall be selected from time to time by the Board and the Board shall determine
the number of shares to be covered by the option granted to each such director.
5. Duration of the Plan
The Plan shall become effective as of January 1, 1998, subject to its
approval by the stockholders of the Company. The Plan shall terminate upon the
earliest of the following to occur: (a) the adoption of a resolution by the
Board terminating the Plan, provided, however, that options then outstanding
shall extend beyond such termination date; or (b) the date all shares of Common
Stock subject to options are purchased or all unexercised options have expired.
6. Terms and Conditions of Stock Options
All options granted under this Plan shall be evidenced by an agreement
between the Company and the optionee and shall be subject to all the applicable
provisions of the Plan, including the following terms and conditions, and such
other terms and conditions not inconsistent therewith as the Committee shall
determine.
(a) The option price per share shall be determined by the
Committee, but shall not be less than 100% of the fair market value of a share
of Common Stock on the date the option is granted. The fair market value shall
be the price for the Common Stock as reported for the day on which the option is
granted. In the event that the method for determining the fair market value of
the Common Stock provided for in this Paragraph 6 (a) shall not be practicable,
then the fair market value per share shall be determined by such other
reasonable method as the Committee shall, in its discretion, select and apply at
the time of grant of the option concerned.
(b) Each option shall be exercisable during and over such
period ending not later than ten years from the date it was granted, as may be
determined by the Board and stated in the option grant agreement.
(c) Options shall be immediately exercisable.
(d) Each option may be exercised by giving written notice to
the Company specifying the number of shares to be purchased, which shall be
accompanied by payment in full including applicable taxes, if any. Payment shall
be (i) in cash, or (ii) in shares of Common Stock already owned by the optionee
(the value of such Common Stock shall be its fair market value on the date of
exercise as determined under Paragraph 6 (a)), or (iii) by a combination of cash
and shares of Common Stock. No option shall be exercised for less than the
lesser of 50 shares or the full number of shares for which the option is then
exercisable. No optionee shall have any rights to dividends or other rights of a
shareholder with respect to shares of Common Stock subject to his option until
he has given written notice of exercise of his option and paid in full for such
shares.
(e) Each option may provide, or be amended to provide, that
the optionee may exercise the option without payment of the option price by
delivery to the Company of an exercise notice and irrevocable instructions to
deliver shares of Common Stock directly to the brokerage firm named therein in
exchange for payment of the option price by such brokerage firm to the Company.
(f) Upon an optionee's death, his option may thereafter be
immediately exercised by the legal representative of his estate or by the
legatee of the optionee under his last will until the expiration of the option.
(g) Except as otherwise provided in this paragraph (g) of
Section 6, the option by its terms shall be personal and shall not be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution. During the lifetime of an optionee, the option shall be
exercisable only by him. The Committee may, in is discretion, authorize any
option to be on terms which permit transfer of all or a portion of such option
to members of the optionee's immediate family or a trust or partnership, or
similar vehicle, established solely for the benefit of, or the partners or
members of which are solely, such family members, provided that the option grant
agreement expressly permits such transferability and any transfer of such option
shall be in accordance with any other terms, conditions, rules and limitations
prescribed by the Committee and/or set forth in the applicable option grant
agreement. Following the valid transfer of any such option, the transferred
option shall continue to be subject to the same terms and conditions as were
applicable to such option immediately prior to such transfer, provided that the
transferee of such option shall be treated under the Plan and the applicable
agreement as the optionee.
7. Changes in Capital/Change in Control
Upon changes in the Common Stock by a stock dividend, stock split,
reverse split, subdivision, recapitalization, merger, consolidation (whether or
not the Company is a surviving corporation), combination or exchange of shares,
separation, reorganization or liquidation, the number and class of shares
available under the Plan as to which options may be granted, the number and
class of shares under each option and the option price per share shall be
correspondingly adjusted by the Committee, such adjustments to be made in the
case of outstanding options without change in the total price applicable to such
options; provided, however, no such adjustments shall be made in the case of
stock dividends aggregating in any fiscal year of the Company not more than 5%
of the Common Stock issued and outstanding at the beginning of such year or in
the case of one or more splits, subdivisions or combinations of the Common Stock
during any fiscal year of the Company resulting in an increase or decrease of
not more than 5% of the Common Stock issued and outstanding at the beginning of
such year.
8. Use of Proceeds
Proceeds from the sale of shares pursuant to options granted under this
Plan shall constitute general funds of the Company.
9. Amendments
The Board may amend, alter or discontinue the Plan, including without
limitation any amendment considered to be advisable by reason of changes to the
Internal Revenue Code, but no amendment, alteration or discontinuation shall be
made which would impair the rights of any holder of an option theretofore
granted, without his consent, or which, without the approval of the
shareholders, would:
(a) Except as is provided in Paragraph 7 of the Plan, increase
the total number of shares reserved for the purpose of the Plan.
(b) Decrease the option price to less than 100% of the fair
market value of a share of Common Stock on the date of the granting of the
option.
The Committee may amend the terms of any option heretofore granted,
retroactively or prospectively, but no such amendment shall impair the rights of
any holder without his consent.
10. Governing Law
The Plan shall be governed by and construed in accordance with the laws
of the State of New Jersey.
<PAGE>
APPENDIX A
PRELIMINARY COPY
CLASS A BASE TEN SYSTEMS, INC. CLASS A
Proxy solicited on Behalf of the Board of Directors
of the Company for the Annual Meeting of
Shareholders on April 16, 1998
The undersigned hereby constitutes and appoints Thomas E. Gardner, and
William F. Hackett, and each of them, his or her true and lawful agents and
proxies, with full power of substitution in each, to represent the undersigned
and vote, as directed, all shares of Class A Stock which the undersigned may be
entitled to vote, at the Annual Meeting of Shareholders of Base Ten Systems,
Inc. to be held at the Four Seasons Hotel, 57 East 57th Street, New York, New
York on Thursday, April 16, 1998, and at any adjournments or postponements
thereof, on all matters coming before said meeting.
You are encouraged to specify your choice by marking the appropriate boxes, SEE
REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations. Your shares cannot be voted by the
persons named above as proxies unless you sign and return this card.
(continued, and to be signed on reverse side)
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible
Annual Meeting of Shareholders
BASE TEN SYSTEMS, INC.
Class A Proxy
A |X| Please mark your votes as in this example.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS VOTES "FOR" EACH OF THE
FOLLOWING
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY 1. Election of Directors: nominees - FOR WITHHELD
THE ENCLOSED ENVELOPE. YOU MAY REVOKE THIS PROXY AT ANY - Alan S. Poole, William Sword |_| |_|
TIME BY FORWARDING TO THE COMPANY A SUBSEQUENTLY DATED
PROXY RECEIVED BY THE COMPANY PRIOR TO THE TAKING OF A For, except vote withheld from the
VOTE ON THE MATTERS HEREIN. following nominee:
-----------------------------------
3. Approval of proposed increase in the FOR AGAINST ABSTAIN
authorized Class A Common Stock from
22 million shares to 40 million shares. |_| |_| |_|
4. Approval of proposed change in
conversion ratio of Class B Common FOR AGAINST ABSTAIN
Stock and in voting rights and dividend |_| |_| |_|
rights of Class A Common Stock and
Class B Common Stock.
5. Approval of the adoption of the 1998 FOR AGAINST ABSTAIN
Stock Option and Stock Award Plan. |_| |_| |_|
6. Approval of the adoption of the 1998 FOR AGAINST ABSTAIN
Employee Stock Purchase Plan. |_| |_| |_|
7. Approval of the 1998 Directors Stock FOR AGAINST ABSTAIN
Option Plan. |_| |_| |_|
8. Ratification of the issuance and grant FOR AGAINST ABSTAIN
of certain option and warrants to |_| |_| |_|
officers and directors.
</TABLE>
The shares represented by this Proxy will be voted in the manner directed and,
if no instructions to the contrary are indicated, will be voted FOR the approval
of directors and FOR approval of the proposals set forth in the Notice of
Meeting of Shareholders. The undersigned hereby acknowledges receipt of the
Notice of Special Meeting of Shareholders and the Proxy Statement furnished
herewith and hereby revokes any proxy or proxies heretofore given.
_______________________________________________ DATE: __________________, 1998
SIGNATURE (Title, if any)
________________________________________________ DATE: __________________, 1998
SIGNATURE (if held jointly)
NOTE: Please print and sign your name exactly as it appears hereon. When signing
as attorney, agent, executor, administrator, trustee, guardian or corporate
officer, please give full title as such. Each joint owner should sign the Proxy.
If a corporation, please sign in full corporate name by president or authorized
officer. If a partnership please sign in partnership name by authorized person.
<PAGE>
APPENDIX B
PRELIMINARY COPY
CLASS B BASE TEN SYSTEMS, INC. CLASS B
Proxy solicited on Behalf of the Board of Directors
of the Company for the Annual Meeting of
Shareholders on April 16, 1998
The undersigned hereby constitutes and appoints Thomas E. Gardner, and
William F. Hackett, and each of them, his or her true and lawful agents and
proxies, with full power of substitution in each, to represent the undersigned
and vote, as directed, all shares of Class B Stock which the undersigned may be
entitled to vote, at the Annual Meeting of Shareholders of Base Ten Systems,
Inc. to be held at the Four Seasons Hotel, 57 East 57th Street, New York, New
York, on Thursday, April 16, 1998, and at any adjournments or postponements
thereof, on all matters coming before said meeting.
You are encouraged to specify your choice by marking the appropriate boxes, SEE
REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations. Your shares cannot be voted by the
persons named above as proxies unless you sign and return this card.
(continued, and to be signed on reverse side)
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible
Annual Meeting of Shareholders
BASE TEN SYSTEMS, INC.
Class B Proxy
B |X| Please mark your votes as in this example.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS VOTES "FOR" EACH OF THE
FOLLOWING
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY 2. Election of Directors: nominees - FOR WITHHELD
CARD USING THE ENCLOSED ENVELOPE. YOU MAY REVOKE THIS Thomas E. Gardner, David C. Batten |_| |_|
PROXY AT ANY TIME BY FORWARDING TO THE COMPANY A
SUBSEQUENTLY DATED PROXY RECEIVED BY THE COMPANY PRIOR For, except vote withheld from the
TO THE TAKING OF A VOTE ON THE MATTERS HEREIN. following nominee:
-----------------------------------
3. Approval of proposed increase in the FOR AGAINST ABSTAIN
authorized Class A Common Stock from
22 million shares to 40 million shares. |_| |_| |_|
4. Approval of proposed change in
conversion ratio of Class B Common FOR AGAINST ABSTAIN
Stock and in voting rights and dividend |_| |_| |_|
rights of Class A Common Stock and
Class B Common Stock.
5. Approval of the adoption of the 1998 FOR AGAINST ABSTAIN
Stock Option and Stock Award Plan. |_| |_| |_|
6. Approval of the adoption of the 1998 FOR AGAINST ABSTAIN
Employee Stock Purchase Plan. |_| |_| |_|
7. Approval of the 1998 Directors Stock FOR AGAINST ABSTAIN
Option Plan. |_| |_| |_|
8. Ratification of the issuance and grant FOR AGAINST ABSTAIN
of certain options and warrants to |_| |_| |_|
officers and directors.
</TABLE>
The shares represented by this Proxy will be voted in the manner directed and,
if no instructions to the contrary are indicated, will be voted FOR the approval
of directors and FOR approval of the proposals set forth in the Notice of
Meeting of Shareholders. The undersigned hereby acknowledges receipt of the
Notice of Special Meeting of Shareholders and the Proxy Statement furnished
herewith and hereby revokes any proxy or proxies heretofore given.
_______________________________________________ DATE: __________________, 1998
SIGNATURE (Title, if any)
________________________________________________ DATE: __________________, 1998
SIGNATURE (if held jointly)
NOTE: Please print and sign your name exactly as it appears hereon. When signing
as attorney, agent, executor, administrator, trustee, guardian or corporate
officer, please give full title as such. Each joint owner should sign the Proxy.
If a corporation, please sign in full corporate name by president or authorized
officer. If a partnership please sign in partnership name by authorized person.
