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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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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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:
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(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):
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(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.
(1) Amount Previously Paid: ______________________________________
(2) Form, Schedule or Registration Statement No.: _________________
(3) Filing Party: ________________________________________________
(4) Date Filed: __________________________________________________
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<PAGE>
May 3, 1999
BASE TEN SYSTEMS, INC.
One Electronics Drive
P.O. Box 3151
Trenton, New Jersey 08619
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 18, 1999
To the Shareholders:
The Annual Meeting of Base Ten Systems, Inc. (the "Company")
will be held at the Company's offices at One Electronics Drive, Trenton, New
Jersey, 08619, on Tuesday, May 18, 1999 at 4:00 p.m. for the following purposes:
(1) The election of two directors to the Board of Directors
each for a three-year term.
(2) The approval of the amendment to the 1998 Stock Option
and Stock Award Plan.
Shareholders of the Company of record at the close of business
on March 19, 1999 will be entitled to notice of and to vote at the Annual
Meeting or any adjournments or postponements thereof.
By order of the Board of Directors,
WILLIAM F. HACKETT
Secretary
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>
BASE TEN SYSTEMS, INC.
One Electronics Drive
P.O. Box 3151
Trenton, New Jersey 08619
PROXY STATEMENT
Annual Meeting of Shareholders to be held May 18, 1999
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. (the "Company"), to be voted at the Annual Meeting of
Shareholders scheduled to be held on Tuesday, May 18, 1999 and any adjournments
or postponements thereof (the "Annual Meeting"). This Proxy Statement and the
enclosed form of proxy are being first mailed to shareholders on or about May 3,
1999. 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 two 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 March 19, 1999 are
entitled to notice of and to vote at the Annual Meeting. As of March 19, 1999,
there were 21,204,264 shares of the Company's Class A Common Stock, 71,144
shares of the Company's Class B Common Stock, and 15,203.66584473 shares of the
Company's Series B, Convertible Preferred Stock (the "Series B Preferred
Stock"), issued and outstanding.
Each share of Class A Common Stock, Class B Common Stock and
Series B Preferred Stock (at its Class A Equivalence, as defined below) is
entitled to one vote on all matters. The holders of Class A Common Stock, Class
B Common Stock and Series B Preferred Stock vote together as one class. The
holders of Series B 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 B
Preferred Stock had been converted into shares of Class A Common Stock on the
record date for any such vote, subject to limitations applicable to certain
holders. On March 19, 1999, the record date for the Annual Meeting, each share
of Series B Preferred Stock, subject to such limitations, was convertible into
250 shares of Class A Common Stock (the "Class A Equivalence"). 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.
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 instructions are provided, 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,
notifying the Secretary at the Annual Meeting before the vote is taken to revoke
the proxy, 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 Annual Meeting) does not vote on one or
more other matters at the Annual Meeting because it has not received
instructions to so vote from the beneficial owner and does not have
discretionary authority to vote.
The cost of soliciting any proxies will be borne by the
Company. The Company 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.
Recent Developments
In January 1998, the Company elected to change its fiscal year
to an accounting period from January 1 to December 31. The Company's 1998 Annual
Report to Shareholders covering the fiscal year ended December 31, 1998 (the
"1998 Fiscal Year") and the interim period commencing November 1, 1997 and
ended December 31, 1997 (the "Interim Period"), including audited financial
statements, is being mailed to the shareholders with this proxy statement but
does not constitute a part of the proxy statement.
In November 1997, Thomas E. Gardner joined the Company as
president and chief executive officer. At that time the Board appointed Mr.
Gardner and Alexander M. Adelson as co-chairmen of the Board. In December 1997,
C. Richard Bagshaw joined the Company as executive vice president and William F.
Hackett joined the Company as senior vice president, chief financial officer and
secretary. In February 1998, Alan J. Eisenberg separated from the Company as
executive vice president and as a director. In February 1998, the Board
appointed Harvey I. Cohen as senior vice president and as chief technology
officer. Mr. Cohen previously held various software engineering positions in the
Company since 1980. In February 1998, the Board appointed Stephen A. Cloughley
as senior vice president. Mr. Cloughley previously was employed by the Company
in various positions in sales and marketing since 1994. On April 16, 1998, Mr.
Adelson resigned as co-chairman of the Board and the Board appointed Mr. Gardner
as chairman of the Board and Mr. Adelson as vice chairman. In April 1998, Carl
W. Schafer was appointed as a director. In July 1998, Richard J. Farrelly
announced his retirement, effective August 27, 1998.
Mr. Cloughley and C. Richard Bagshaw terminated their
employment with the Company, effective April 23, 1999 and April 30, 1999,
respectively. Mr. Bagshaw served as executive vice president from December 1997
to April 1999. Mr. Cloughley received severance pay, accrued vacation and unpaid
salary of $60,000, half of which was used to repay a loan of $30,000 owed to the
Company. Mr. Cloughley agreed for a period of two years following his
termination not to accept employment either directly or as a consultant with a
direct competitor of the Company. The Company executed a consultant agreement
with Mr. Cloughley on April 26, 1999, pursuant to which Mr. Cloughley will
provide consulting services to the Company at the rate of $1,200 per day. The
Company is required to purchase a minimum of $60,000 in consulting services
under the agreement prior to December 31, 1999 and is also required to pay a
minimum of $7,200 per month for May, June and July of 1999. Mr. Cloughley will
be reimbursed for all out of pocket expenses incurred as a result of performing
services under the agreement. If the agreement is terminated in 1999 for any
reason, the Company is required to pay $60,000 less any payments previously made
under the agreement.
On April 15, 1999, Jesse L. Upchurch, a principal shareholder
of the Company, Drew Sycoff, a principal of the investment banking firm Andrew
Garrett, Inc. which assisted the Company in arranging financing in 1996 and
1998, and Kevin R. Lockhart (collectively, the "Upchurch Group") filed Amendment
No. 2 to Schedule 13D (the "Schedule 13D") with the Securities and Exchange
Commission with respect to the Company's securities. The Schedule 13D stated
that the Upchurch Group intends to (i) vote their shares of the Company's Class
A Common Stock as a group to designate and vote for John C. Rhineberger and
Robert Hurwitz for the election to the Board at the Annual Meeting, and (ii)
work with management to seek to maximize shareholder value for the Company's
shareholders. Based upon this filing and subsequent discussions with
representatives of the Upchurch Group, William Sword and Carl W. Schafer,
directors who were anticipated to stand for reelection at the Annual Meeting,
agreed not to do so. The Board then nominated the Upchurch Group's designees to
serve as members of the Board, subject to shareholder approval at the Annual
Meeting, which the Company expects to obtain.
In deciding to nominate the Upchurch Group's designees to the
Board, the Board considered the fact that as of April 15, 1999 (the date of the
Schedule 13D) the Upchurch Group in the aggregate owned 12,056,205 shares of
Class A Common Stock which represents approximately 48.1% of the voting power of
the Company's outstanding securities. Although the shares held by the Upchurch
Group constitute less than 50% of the voting power of the Company's outstanding
securities, the Upchurch Group's percentage of voting power enables it to
influence the outcome of matters submitted to the shareholders for approval,
including the election of directors.
Prior to November 13, 1998, Mr. Upchurch owned 1,764,853
shares of Class A Common Stock which represented approximately 13.3% of the
voting power. On November 13, 1998, Mr. Upchurch purchased 6,666,666 shares of
Class A Common Stock from the Company using personal funds. In connection with
this purchase the Company issued to Mr. Upchurch warrants to purchase 1,000,000
shares of Class A Common Stock at $3.00 per share. On November 13, 1998, Mr.
Upchurch owned 8,431,519 shares of Class A Common Stock which represented
approximately 42.3% of the voting power. On March 5, 1999, simultaneous with the
exchange of the Company's Series A Preferred Stock for Series B Preferred Stock,
the conversion price of the 9.01% Convertible Subordinated Debenture in the
principal amount of $10,000,000 that was issued to Mr. Upchurch in August 1996
(the "9.01% Debenture") was lowered from $12.50 to $4.00 and the conversion of
the 9.01% Debenture was simultaneously effected. Trust C of the Constance J.
Upchurch Family Trust, the holder of the 9.01% Debenture in March 1999 and of
which Mr. Upchurch is trustee, received 2,500,000 shares of Class A Common Stock
upon conversion of the 9.01% Debenture. Following the conversion of the 9.01%
Debenture and including holdings reported in the Schedule 13D, Mr. Upchurch owns
11,161,519 shares of outstanding Class A Common Stock which represent
approximately 44.5% of the voting power.
For purposes of the change in control agreements in effect
with Messrs. Gardner and Hackett, a change in control is deemed to have occurred
on November 13, 1998 when Mr. Upchurch owned shares representing approximately
42.3% of the voting power of the Company's outstanding securities. However, no
benefits under the agreements are currently owed to these individuals. See
"Employment Contracts, Termination of Employment and Change in Control
Arrangements." For purposes of the Company's employee benefit plans, a change of
control has not been deemed to have occurred.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is information concerning beneficial ownership
of Class A Common Stock as of April 15, 1999 by (i) each of the current
directors and nominees for directors, (ii) each of the Named Executive Officers
listed in the Summary Compensation Table, (iii) all current directors and
executive officers of the Company as a group, and (iv) all persons known by the
Company to be the beneficial owners of 5% or more of Class A Common Stock.
Shares
Name Beneficially Percent
Owned (1) of Class (2)
- ---------------------------------------- ------------- ------------
Thomas E. Gardner (3) (4) 524,649 2.4%
Alexander M. Adelson (3) 475,916 2.2%
David C. Batten (3) 108,900 *
Alan S. Poole (3) 90,000 *
Carl W. Schafer (3) 80,000 *
William Sword (3) 80,000 *
John C. Rhineberger 1,000 *
Robert Hurwitz 10,948 *
C. Richard Bagshaw (3) (5) 77,902 *
William F. Hackett (3) 69,305 *
Harvey I. Cohen (3) 95,400 *
Stephen A. Cloughley (3) (5) 80,900 *
The Upchurch Group (6) 13,401,205 59.4%
Jesse L. Upchurch
Drew Sycoff
Kevin R. Lockhart
Address of the Upchurch Group:
c/o Jesse L. Upchurch
500 Main Street
Fort Worth, Texas 76102
Current Directors and 1,682,972 7.3%
Executive Officers as a group
(10 persons) (3)
______________________
* Less than 1%.
(1) Ownership of shares of Class A Common Stock included in the above table
includes shares issuable upon exercise of outstanding options and warrants
to purchase Class A Common Stock which are currently exercisable or
exercisable within 60 days of April 15, 1999. Includes Class A Common
Stock and does not include Class B Common Stock or Series B Preferred
Stock. None of the individuals included in the above table beneficially
own shares of Class B Common Stock or Series B Preferred Stock.
(2) Pursuant to the terms of the Series B Preferred Stock, no holder of Series
B Preferred Stock is entitled to receive shares of Class A Common Stock
upon conversion of the holder's Series B Preferred Stock 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 holder's Series B 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 B 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.
(3) With respect to Class A Common Stock issuable upon the exercise of
outstanding options or warrants which are currently exercisable or
exercisable within 60 days of April 15, 1999, includes as to (a) Mr.
Gardner 505,000 shares, (b) Mr. Adelson 393,500 shares, (c) Mr. Batten
90,000 shares, (d) Mr. Poole 90,000 shares, (e) Mr. Schafer 80,000 shares,
(f) Mr. Sword 80,000 shares, (g) Mr. Bagshaw 77,500 shares, (h) Mr.
Hackett 67,500 shares, (i) Mr. Cohen 95,400 shares, (j) Mr. Cloughley
80,900 shares, and (k) all directors and executive officers as a group
1,559,800 shares.
(4) Includes 2,000 shares of Class A Common Stock owned by Mr. Gardner's adult
children.
(5) Messrs. Bagshaw and Cloughley terminated their employment with the
Company, effective April 30, 1999 and April 23, 1999, respectively. Upon
the termination of Mr. Bagshaw's employment options to purchase 235,000
shares of Class A Common Stock previously granted to him terminated. Upon
the termination of Mr. Cloughley's employment options to purchase 150,000
shares of Class A Common Stock previously granted to him terminated and
options to purchase 30,900 shares of Class A Common Stock will terminate
three months following termination of his employment.
(6) Based in part on filings by such individuals with the Securities and
Exchange Commission pursuant to Section 13(d) and/or Section 16 of the
Securities Exchange Act of 1934. Represents as to (a) Jesse L. Upchurch,
11,161,519 shares of Class A Common Stock and warrants to purchase
1,000,000 shares of Class A Common Stock at $3.00 per share; Mr.
Upchurch's address is c/o Upchurch Corporation, 500 Main Street, Fort
Worth, Texas, 76102, (b) Drew Sycoff, 113,434 shares of Class A Common
Stock and warrants to purchase 345,000 shares of Class A Common Stock at
$3.00 per share; Mr. Sycoff's address is c/o Andrew Garrett, Inc., 52
Vanderbilt Avenue, 20th Floor, New York, New York, 10017, and (c) Kevin R.
Lockhart, 781,252 shares of Class A Common Stock; Mr. Lockhart's address
is c/o Prophet Systems Innovations, 111 West 3rd Street, Ogallala, Nevada,
69153. Although the shares beneficially owned by the Upchurch Group
represent 59.4% of Class A Common Stock outstanding, such shares represent
approximately 48.1% of the combined voting power of the Company's
outstanding securities. See "Recent Developments."
<PAGE>
ELECTION OF DIRECTORS
(Proposal 1)
The Board of Directors is divided into three classes, with
each class to have a three year term. The following persons have been nominated
to serve as directors for a three-year term (See "Recent Developments"):
JOHN C. RHINEBERGER, 55, currently acts as a consultant through Rhineberger
Organization, Inc., providing sales, marketing and product development
consulting in the home center and other industries since August 1997. From 1996
to August 1997, Mr. Rhineberger was a regional vice president of Shaw
Industries, a carpet manufacturer, responsible for retail operations. From 1993
to 1996, Mr. Rhineberger was a merchandising executive for Home Depot. During
the period from 1989 to 1993 Mr. Rhineberger served as the president and chief
executive officer of Post Tool Retail Stores and Sun Flooring Distribution, each
a subsidiary of West Union Company. From 1987 to 1988, Mr. Rhineberger was the
president and general manager of Sherwin William's Floor World, a floor covering
retail business. Prior to 1987, Mr. Rhineberger held various positions at Color
Tile, a retail store chain, including president and chief operating officer.
ROBERT HURWITZ, 55, has been the chairman and co-founder of HomePlace Stores,
Inc., a chain of home furnishings stores, since April 1994. HomePlace Stores,
Inc. is wholly-owned by HomePlace Holdings, Inc., of which Mr. Hurwitz is the
chairman and chief executive officer. In January 1998, HomePlace Holdings, Inc.
filed a voluntary petition in bankruptcy under Chapter 11 of the United States
Bankruptcy Act and is currently in the process of reorganization. From 1988 to
1994, Mr. Hurwitz was the chairman and co-founder of OfficeMax, Inc., a chain of
discount office supply stores. Prior to 1988, Mr. Hurwitz served as the chairman
and chief executive officer of Professional Housewares Distributors Inc., an
international distributor of housewares and electronic appliances, which he also
co-founded in 1977. Mr. Hurwitz has also been a general partner and a director
of Coral Company, Inc., a real estate development company, since 1987.
If any of the nominees becomes unavailable for election, which
is not anticipated, proxies may be voted for a substitute nominee selected by
the Board.
Vote Required for the Election of Directors
Directors are elected by a plurality of the votes cast at the
Annual Meeting.
The Board recommends that the holders of Class
A Common Stock, Class B Common Stock and
Series B Preferred Stock vote FOR the
election of Messrs. Rhineberger and
Hurwitz as Directors.
CONTINUING DIRECTORS
THOMAS E. GARDNER, age 51, is a director with a term expiring in 2001. Mr.
Gardner has been president and chief executive officer since November 1, 1997
and a director and co-chairman of the Board from December 1997 until April 1998.
In April 1998 Mr. Gardner was appointed chairman of the Board. Mr. Gardner was
president, chief executive officer and a director of Access Health Corporation
from 1996 to 1997, and from 1990 to 1995 was employed by the Dun & Bradstreet
Corporation 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 a director with a term expiring in 2001. Mr. Batten
is a private investor and is actively involved in various venture capital
investments for early stage companies since 1994. 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.
ALEXANDER M. ADELSON, age 64, is a director with a term expiring in 2000. Mr.
Adelson served as vice chairman of the Board from April 1997 until December 31,
1997, co-chairman from December 31, 1997 to April 16, 1998 and vice chairman
since April 16, 1998. 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. From 1992 to 1998,
Mr. Adelson also provided investment and financial advisory services to the
Company.
ALAN S. POOLE, age 72, is a director with a term expiring in 2000. 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 Pharmaceutical 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.
<PAGE>
APPROVAL OF THE AMENDMENT TO THE
1998 STOCK OPTION AND STOCK AWARD PLAN
(Proposal 2)
The Board of Directors, subject to shareholder approval, has
approved an amendment to the Company's 1998 Stock Option and Stock Award Plan
(the "1998 Stock Plan") to increase the number of shares of Class A Common Stock
subject to the 1998 Stock Plan to 4,000,000 of which no more than 3,500,000 may
be awarded as incentive stock options under the 1998 Stock Plan. This amendment
would increase from 3,212,045 to 4,212,045 the number of shares subject to the
1998 Stock Plan and would increase from 2,000,000 to 3,500,000 the number of
shares that may be awarded as incentive stock options under the 1998 Stock Plan.
As described in the above paragraph, the number of shares
subject to the 1998 Stock Plan includes additional shares pursuant to the
Additional Annual Increment (as defined below) for May 1, 1999 as estimated
based upon the number of shares of Class A Common Stock outstanding on April 27,
1999. If additional shares of Class A Common Stock become outstanding on April
30, 1999 as a result of exercises or conversions of outstanding securities, the
number of shares of Class A Common Stock subject to the 1998 Stock Plan would
increase by an amount equal to 1% of such shares.
The Board of Directors considers the amount of shares
currently authorized under the 1998 Stock Plan and the maximum number of shares
that may be awarded as incentive stock options insufficient to carry out the
purposes of the 1998 Stock Plan. The Board of Directors originally adopted the
1998 Stock Plan in January 1998. The 1998 Stock Plan was approved by the
shareholders of the Company in April 1998 and amended in November 1998. A
general discussion of the principal terms of the 1998 Stock Plan and the
proposed amendment are set forth below. This discussion is qualified in its
entirety by the full text of the 1998 Stock Plan. The full text of the 1998
Stock Plan, as amended, including the proposed amendment, 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 120 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 currently 3,000,000
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").
The May 1, 1999 Additional Annual Increment, as estimated,
increased by 212,045 the number of shares of Class A Common Stock that may be
awarded under the 1998 Stock Plan. If the proposed amendment is approved by the
shareholders and after taking into consideration the May 1, 1999 Additional
Annual Increment, as estimated, the total number of shares of Class A Common
Stock issuable under the 1998 Stock Plan will be increased to 4,212,045, subject
to subsequent Additional Annual Increments. Of that amount, (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
3,500,000 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.
As of April 30, 1999, options and awards were outstanding
under the 1998 Stock Plan to purchase an aggregate of 2,079,700 shares of Class
A Common Stock.
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.
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 value
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 at 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 at 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 that
compensation derived from the exercise of stock options issued 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.
Reasons for the Proposed Amendment
The Board of Directors believes that the 1998 Stock Plan
increases the proprietary and vested interest of the Company's key employees in
the growth and performance of the Company and helps enable the Company to
attract and retain highly qualified employees. The Board of Directors believes
that the proposed amendment to the 1998 Stock Plan will achieve the foregoing
goals by increasing the number of shares subject to the 1998 Stock Plan to
accommodate grants of options to future key employees.
Vote Required to Approve the Proposed Amendment to the 1998 Stock Plan
The proposed amendment to the 1998 Stock Plan will be approved
if more votes are cast in favor of it than are cast against it.
The Board of Directors recommends that the holders
of Class A Common Stock, Class B Common Stock and Series
B Preferred Stock vote FOR the proposed amendment to the
1998 Stock Option and Stock Award Plan.
<PAGE>
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 (collectively, the
"Named Executive Officers") for services rendered in all capacities during the
fiscal year ended December 31, 1998, the Interim Period and fiscal years ended
October 31, 1997 and October 31, 1996. This information includes base salaries,
bonus awards and long-term incentive plan payouts, the number of stock options
and stock appreciation rights ("SARs") granted, and certain other compensation,
if any, whether paid or deferred.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
Awards
------
Securities
Underlying
Options/ All Other
Name and Principal Position Period Salary Bonus (1) SARs (2) Compensation (3)
- --------------------------- ------ ------ --------- --------- --------------
<S> <C> <C> <C> <C> <C>
Thomas E. Gardner 1998 Fiscal Year $300,000 $42,500 1,250,000
President, Chief Executive Officer, 11/97 to present Interim Period $40,385
Co-Chairman, 11/97 to 4/98 1997 Fiscal Year
Chairman, 4/98 to present 1996 Fiscal Year
C. Richard Bagshaw (4) 1998 Fiscal Year $180,000 $30,000 235,000
Executive Vice President, 12/97 to 4/99 Interim Period $10,385
1997 Fiscal Year
1996 Fiscal Year
William F. Hackett 1998 Fiscal Year $166,923 $25,000 195,000
Senior Vice President, Chief Financial Officer, Interim Period $4,923
and Secretary, 12/97 to present 1997 Fiscal Year
1996 Fiscal Year
Harvey I. Cohen 1998 Fiscal Year $154,692 $25,000 110,000
Senior Vice President, 2/98 to present Interim Period $22,308
Sr. V.P. Software Development, 10/97 to 2/98 1997 Fiscal Year $167,816 4,900 $11,204
V.P. Software Development, 11/94 to 10/96 1996 Fiscal Year $135,577 2,000 $8,747
Stephen A. Cloughley (4) 1998 Fiscal Year $137,308 $25,000 150,000
Senior Vice President, 2/98 to 4/99 Interim Period $18,462
Vice President, Marketing, 8/97 to 2/98 1997 Fiscal Year $112,115 4,900 $1,001
Director of Marketing, 6/96 to 8/97 1996 Fiscal Year $79,690 (5) 20,000 $18,106
</TABLE>
(1) Bonuses earned in the 1998 fiscal year were paid by the Company in January
1999.
(2) Securities represent shares of Class A Common Stock underlying options.
(3) Includes interest paid on balance of individuals' deferred compensation,
vacation entitlement payout, commissions, and 1996 amortization of employee
loans. For fiscal 1997, the amounts indicated represent forgiveness of
employee loans.
(4) Messrs. Bagshaw and Cloughley terminated their employment with the Company,
effective as of April 30, 1999 and April 23, 1999, respectively.
(5) $60,615 of this amount was paid in Irish Punts.
<PAGE>
Option/SAR Grants in Last Fiscal Year and Interim Period. The following table
shows information regarding grants of stock options made to the Named Executive
Officers during the fiscal year ended December 31, 1998 and the Interim Period.
The amounts shown as potential realizable values are based on assumed annualized
rates of stock price appreciation of five percent and ten percent over the term
of the options. These potential realizable values are based solely on
arbitrarily assumed rates of appreciation required by applicable SEC
regulations. Actual gains, if any, on option exercises and common stock holdings
are dependent on the future performance of the Company's Class A Common Stock
and overall stock market conditions.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR AND INTERIM PERIOD
Potential Realizable
Value at Assumed
Annual Rates of
Number of Stock Price
Securities % of Total Appreciation for
Underlying Options/SARs Option Term
Options/SARs Granted to Exercise or Base Expiration
Name Granted (1) Employees Price ($/Sh) Date 5% 10%
- ---- ------------ --------- ------------ ------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Gardner
1998 Fiscal Year 250,000 10.02% $5.125 4/15/08 805,771 2,041,983
1,000,000 40.16% $2.00 9/13/08 1,257,789 3,187,485
Interim Period -- -- -- -- -- --
C. Richard Bagshaw(2)
1998 Fiscal Year 75,000 3.00% $5.125 4/15/08 241,731 612,595
160,000 6.41% $2.00 9/13/08 201,246 509,998
Interim Period -- -- -- -- -- --
William F. Hackett
1998 Fiscal Year 75,000 3.00% $5.125 4/15/08 241,731 612,595
120,000 4.81% $2.00 9/13/08 150,935 382,498
Interim Period -- -- -- -- -- --
Harvey I. Cohen
1998 Fiscal Year 50,000 2.00% $5.125 4/15/08 161,154 408,937
60,000 2.40% $2.00 9/13/08 75,467 191,249
Interim Period -- -- -- -- -- --
Stephen A. Cloughley(2)
1998 Fiscal Year 50,000 2.00% $5.125 4/15/08 161,154 408,397
100,000 4.01% $2.00 9/13/08 125,779 318,748
Interim Period -- -- -- -- -- --
</TABLE>
(1) Securities represent shares of Class A Common Stock underlying options.
(2) Certain options held by these individuals terminated or will terminate in
connection with their separation from the Company. See "Recent
Developments."
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Interim Period, and
Fiscal Year-End and Interim Period 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 December 31, 1998 and the Interim
Period, the aggregate dollar value realized upon exercise, the total number of
securities underlying unexercised options, if any, held at December 31, 1998 and
the Interim Period, and the aggregate dollar value of in-the-money, unexercised
options, if any, held at December 31, 1998 and the Interim Period. 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 December 31, 1998 and the Interim Period. On those dates,
the last sale prices of the Class A Common Stock were $3 1/4 and $10 5/16,
respectively. The values in the column "Value of Unexercised In-The-Money
Options/SARs at FY-End and Interim Period 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.
No options were exercised by the Named Executive Officers during either the 1998
fiscal year or the Interim Period. The following table sets forth information
regarding the value of unexercised options held by the named Executive Officers
of the Company.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND INTERIM PERIOD
AND FISCAL YEAR-END AND INTERIM PERIOD END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End and Interim Period End (1) FY-End and Interim Period End (1)
------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Name Period Exercisable Unexercisable Period Exercisable Unexercisable
Thomas E. Gardner 1998 Fiscal Year 442,500 1,257,500 1998 Fiscal Year $312,500 $937,500
Interim Period 130,000 320,000 Interim Period 0 0
C. Richard Bagshaw(2) 1998 Fiscal Year 58,750 176,250 1998 Fiscal Year $50,000 $150,000
Interim Period 0 0 Interim Period 0 0
William F. Hackett 1998 Fiscal Year 48,750 146,250 1998 Fiscal Year $37,500 $112,500
Interim Period 0 0 Interim Period 0 0
Harvey I. Cohen 1998 Fiscal Year 82,900 82,500 1998 Fiscal Year $18,750 $56,250
Interim Period 55,400 0 Interim Period $121,934 0
Stephen A. Cloughley(2) 1998 Fiscal Year 68,400 112,500 1998 Fiscal Year $31,250 $93,750
Interim Period 30,900 0 Interim Period $6,965 0
</TABLE>
(1) Securities represent shares of Class A Common Stock underlying options.
(2) Certain options held by these individuals terminated or will terminate in
connection with their separation from the Company. See "Recent
Developments."
<PAGE>
DIRECTORS' COMPENSATION
Directors were not paid a fee for service as a director or
committee member during fiscal 1998. However, during fiscal 1998 Messrs. Poole
and Batten each received options for an aggregate of 70,000 shares of Class A
Common Stock, and Messrs. Schafer and Sword each received options for an
aggregate of 80,000 shares of Class A Common Stock. The options are exercisable
at the market price of such stock as of the dates of grant.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
The Board of Directors met six times at regularly scheduled
meetings during the fiscal year 1998. During that same period, the Board acted
four times by unanimous written consent. Standing committees of the Board
currently include a Compensation Committee and an Audit Committee. Each
incumbent director has attended at least 75% of all Board meetings and
applicable committee meetings, except for Mr. Batten.
Messrs. Batten and Schafer are presently the members of the
Compensation Committee. The Compensation Committee met one time during fiscal
year 1998. The function of the Compensation Committee is to review and set the
compensation of the Company's Chief Executive Officer, review and take action on
the recommendations of the Chief Executive Officer as to the compensation of the
Company's other officers and key personnel, approve the grants of any bonuses to
officers, review other incentive plans, stock options and other forms of
compensation, administer the Company's stock plans and approve stock option
awards.
Messrs. Adelson, Poole, Sword and, since March 1999, Mr.
Schafer are presently the members of the Audit Committee. The Audit Committee,
which is chaired by Mr. Schafer, met one time during fiscal year 1998. The Audit
Committee meets at least annually with the Company's principal financial and
accounting officers and independent public accountants to review the scope of
auditing procedures, the Company's policies relating to internal auditing and
accounting procedures and controls, and to discuss results of the annual audit
of the Company's financial statements.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS
Under an employment agreement which is in effect for Mr.
Gardner, he would be entitled to his salary 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 his 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 would be 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 Executive would be
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. Gardner, Bagshaw and Hackett. The agreements provide that
if, within three years after certain "changes of control" (as defined in the
agreement, including an acquisition of 40% 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. Mr. Bagshaw terminated his employment with the
Company, effective as of April 30, 1999.
On November 13, 1998, Jesse L. Upchurch became the owner of
securities representing over 40% of the combined voting power of the Company's
outstanding securities. For purposes of the change in control agreements, a
change in control is deemed to have occurred at that time. No payments were made
to Messrs. Gardner, Hackett or Bagshaw since that time pursuant to the
agreements because the events that would trigger any such payments have not
occurred.
<PAGE>
CERTAIN TRANSACTIONS WITH RELATED PARTIES
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, Mr. Adelson received a fee of $30,000 from the LLC. Mr.
Adelson 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.
No payments were made to Mr. Adelson under this arrangement in fiscal 1998.
In connection with the formation of the LLC, Jesse L.
Upchurch, a principal shareholder of the Company and a member of the Upchurch
Group (see "Recent Developments"), contributed $3,000,000 to fund required
further development of the uPACS(TM) technology. The Company holds a 9%
interest in the LLC and Mr. Upchurch holds a 91% interest in the LLC. The
Company's percentage interest in the LLC will increase if distributions to Mr.
Upchurch reach a certain level. No payments were made to Mr. Upchurch under this
arrangement in fiscal 1998. For services rendered in connection with the
formation of the LLC, Andrew Garrett, Inc. received a commission in the amount
of $90,000 from the LLC. Mr. Drew Sycoff, a principal of Andrew Garrett, Inc.
and a member of the Upchurch Group, is entitled to receive an amount equal to
37% of certain royalties from the LLC pursuant to a License and Service
Agreement between the Company and the LLC dated as of May 1, 1997. No payments
were made to Mr. Sycoff under this arrangement in fiscal 1998.
During the fourth quarter of 1998, the Company initiated a
search for a potential buyer of the LLC and its technology. The Company engaged
Wm. Sword & Company, Inc. to assist in exploring strategic alternatives
available to the LLC. Wm. Sword & Company, Inc. is a wholly-owned subsidiary of
Sword Holdings, Inc. Mr. William Sword, a director of the Company, is a
shareholder of Sword Holdings, Inc. The Company paid $80,000 to Wm. Sword &
Company, Inc. for services rendered in fiscal 1998.
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 earlier financial/investment advisory and consulting agreements
between the Company and Mr. Adelson. 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 manufacturing execution systems 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. The total fee paid to Mr. Adelson under this consulting agreement
in fiscal 1998 was $193,500, plus expenses of approximately $15,000. The
agreement was terminated on September 30, 1998. The agreement provided for a
termination payment equal to one year's fee of $257,500, which was accrued in
the fourth quarter of 1998 and paid in full by April 1999.
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 4, 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).
<PAGE>
REPORT OF COMMITTEES ON EXECUTIVE COMPENSATION
The Company's executive compensation program is designed to
retain and fairly compensate its company executives and to motivate them to
maximize Base Ten's financial performance. The compensation program consists 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 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"), were 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 and (v) the Company's financial condition as well as 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 does 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
1998 remained the same as stated in his Employment Agreement effective November
1, 1997.
Annual Bonus. Each executive officer, including the CEO, is
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 awarded to each
executive officer, including the CEO, is 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. See 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 1998, the Board
awarded Mr. Gardner options to purchase 250,000 shares of Class A Common Stock
and 1,000,000 shares of Class A Common Stock, at an exercise price of $5.125 per
share and $2.00 per share, respectively. Stock Options granted to executive
officers during fiscal 1998 are set forth in the Summary Compensation Table
under the heading "Awards - Securities Underlying Options/SARs" and in the above
table captioned "Option/SAR Grants in Last Fiscal Year and Interim Period."
<PAGE>
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
David C. Batten
Carl W. Schafer
<PAGE>
PERFORMANCE GRAPH
The following graph shows changes over the past five years in
the value of $100 invested on November 1, 1993 in the Company's Class A Common
Stock, the NASDAQ National Market System Index, MG Industry Group 821 and MG
Industry Group 403 and assumes that all dividends were reinvested. MG Industry
Group 821, Application Software, Information Technology and Services, and MG
Industry Group 403, Electronic Controls and Instruments, are published by Media
General Financial Services, P.O. Box 85333, Richmond, Virginia 23293 and is
accessible through publications such as Industriscope and computer databases
such as Dialog and Dow Jones News Retrieval. MG Industry Group 821 includes both
the Company's Class A Common Stock and Class B Common Stock.
In prior years the Company selected the MG Industry Group 403
for inclusion in its performance graph as an appropriate comparative index in
the Company's industry. Since the Company sold its Government Technology
Division on December 31, 1997 and changed the focus of its operations from
designing and producing products for defense and space programs to developing,
manufacturing and marketing computer software systems for the pharmaceutical and
medical device industries, MG Industry Group 403 is no longer an appropriate
comparative index in the Company's industry. The Company has selected MG
Industry Group 821 as an appropriate industry-specific index for the Company's
current industry. The following graph includes both MG Industry Group 821 and
Group 403, but hereafter MG Industry Group 403 will not be included in the
Company's performance graph.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG BASE TEN SYSTEMS, INC. CLASS A COMMON STOCK,
MG GROUP INDEX 403, MG GROUP INDEX 821, NASDAQ MARKET INDEX
<TABLE>
<CAPTION>
PERFORMANCE GRAPH
11/1/93 10/31/94 10/31/95 10/31/96 10/31/97 10/31/98 12/31/98
------------ ------------ ------------ ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Base Ten - Class A 100 84.67 124.00 113.33 154.67 31.67 34.67
MG Industry Group 403 100 120.29 167.63 147.87 188.95 152.83 175.11
MG Industry Group 821 100 136.89 203.32 261.11 390.96 505.47 652.05
NASDAQ Market Index 100 106.32 126.11 148.10 194.09 219.46 273.22
</TABLE>
<PAGE>
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
On March 13, 1998, the Company engaged PricewaterhouseCoopers
LLP, independent certified public accountants, as the Company's auditors for the
1998 fiscal year and the Interim Period. During the Company's two most recent
fiscal years and the subsequent interim period preceding March 13, 1998, neither
the Company, nor anyone acting on the Company's behalf, consulted with
PricewaterhouseCoopers regarding the application of accounting principles to a
specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Company's financial statements, and
neither a written report nor oral advice was provided to the Company by
PricewaterhouseCoopers; or matters which would require disclosure pursuant to
Items 304(a)(1)(iv) and 304(a)(1)(v) of Regulation S-K.
PricewaterhouseCoopers will be represented at the Annual
Meeting.
On March 3, 1998, the Company determined that it would no
longer utilize the services of Deloitte & Touche LLP as the principal accountant
to audit the Registrant's financial statements. The reports of Deloitte & Touche
on the Company's financial statements for the past two fiscal years did not
contain an adverse opinion or a disclaimer of opinion, nor were such reports
qualified or modified as to uncertainty, audit scope or accounting principles.
The decision to dismiss Deloitte & Touche was approved by the Company's Board of
Directors.
During the two most recent fiscal years and the subsequent
interim period preceding March 3, 1998, there were no disagreements with
Deloitte & Touche on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
Deloitte & Touche's satisfaction, would have caused Deloitte & Touche to make
reference to the subject matter of the disagreement in connection with its
report. During the two most recent fiscal years and the subsequent interim
period preceding March 3, 1998, Deloitte & Touche did not advise the Company of
any matters set forth in Item 304(a)(1)(v) of Regulation S-K. Deloitte & Touche
furnished the Company with a letter addressed to the Securities and Exchange
Commission stating that it agreed with this disclosure, which was filed as an
exhibit to the Company's Current Report on Form 8-K, dated March 3, 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires
the Company's executive officers and directors to file reports regarding
ownership of the Company's common stock with the SEC and to furnish the Company
with copies of all such filings. Based on a review of these filings the Company
believes that all filings were timely made, other than one Form 4 filed for Mr.
Sword to report the grant of nonqualified options.
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 Annual 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, as
amended, 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 December 31, 1998.
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 2000 Annual Meeting of
Shareholders, must be received by the Secretary of the Company not later than
December 31, 1999.
By order of the Board of Directors,
WILLIAM F. HACKETT
Secretary
May 3, 1999
<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 4,000,000 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
3,500,000 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.
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.
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 May 18, 1999
The undersigned hereby constitutes and appoints Thomas E. Gardner and
William F. Hackett, and each of them, 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 Common 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 Company's offices at One Electronics Drive, Trenton, New
Jersey, 08619, on Tuesday, May 18, 1999, at 4:00 p.m., 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.
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 approval of the proposals set forth in the Notice of Annual Meeting of
Shareholders.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED
ENVELOPE. YOU MAY REVOKE THIS PROXY AT ANY TIME BY FORWARDING TO THE COMPANY A
SUBSEQUENTLY DATED PROXY RECEIVED BY THE COMPANY PRIOR TO THE TAKING OF A VOTE
ON THE MATTERS HEREIN.
(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
A |X| Please mark your votes as in this example.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and the Proxy Statement furnished herewith and hereby revokes any
proxy or proxies heretofore given.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS VOTES "FOR" EACH OF THE
FOLLOWING:
For Withheld
1. Election of Directors.
|_| |_|
Nominees: John C. Rhineberger
Robert Hurwitz
For, except vote withheld from the following nominee:
-------------------------------------------
For Against Abstain
2. Approval of the amendment to the
1998 Stock Option and Stock Award Plan. |_| |_| |_|
Signature (Title, if any)_____________________________________
Date _______________________________, 1999
Signature (if held jointly)____________________________________
Date _______________________________, 1999
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.
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 May 18, 1999
The undersigned hereby constitutes and appoints Thomas E. Gardner and
William F. Hackett, and each of them, 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 Common 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 Company's offices at One Electronics Drive, Trenton, New
Jersey, 08619, on Tuesday, May 18, 1999, at 4:00 p.m., 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.
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 approval of the proposals set forth in the Notice of Annual Meeting of
Shareholders.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED
ENVELOPE. YOU MAY REVOKE THIS PROXY AT ANY TIME BY FORWARDING TO THE COMPANY A
SUBSEQUENTLY DATED PROXY RECEIVED BY THE COMPANY PRIOR TO THE TAKING OF A VOTE
ON THE MATTERS HEREIN.
(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
A |X| Please mark your votes as in this example.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and the Proxy Statement furnished herewith and hereby revokes any
proxy or proxies heretofore given.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS VOTES "FOR" EACH OF THE
FOLLOWING:
For Withheld
1. Election of Directors.
|_| |_|
Nominees: John C. Rhineberger
Robert Hurwitz
For, except vote withheld from the following nominee:
-------------------------------------------
For Against Abstain
2. Approval of the amendment to the
1998 Stock Option and Stock Award Plan. |_| |_| |_|
Signature (Title, if any)_____________________________________
Date _______________________________, 1999
Signature (if held jointly)____________________________________
Date _______________________________, 1999
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.
SERIES B PREFERRED BASE TEN SYSTEMS, INC. SERIES B PREFERRED
Proxy solicited on Behalf of the Board of Directors of
the Company for the Annual Meeting of Shareholders
on May 18, 1999
The undersigned hereby constitutes and appoints Thomas E. Gardner and
William F. Hackett, and each of them, true and lawful agents and proxies, with
full power of substitution in each, to represent the undersigned and vote, as
directed, all shares of Series B Preferred 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 Company's offices at One Electronics Drive, Trenton, New
Jersey, 08619, on Tuesday, May 18, 1999, at 4:00 p.m., 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.
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 approval of the proposals set forth in the Notice of Annual Meeting of
Shareholders.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED
ENVELOPE. YOU MAY REVOKE THIS PROXY AT ANY TIME BY FORWARDING TO THE COMPANY A
SUBSEQUENTLY DATED PROXY RECEIVED BY THE COMPANY PRIOR TO THE TAKING OF A VOTE
ON THE MATTERS HEREIN.
(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.
Series B Preferred
A |X| Please mark your votes as in this example.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and the Proxy Statement furnished herewith and hereby revokes any
proxy or proxies heretofore given.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS VOTES "FOR" EACH OF THE
FOLLOWING:
For Withheld
1. Election of Directors.
|_| |_|
Nominees: John C. Rhineberger
Robert Hurwitz
For, except vote withheld from the following nominee:
- -------------------------------------------
For Against Abstain
2. Approval of the amendment to the
1998 Stock Option and Stock Award Plan. |_| |_| |_|
Signature (Title, if any)_____________________________________
Date _______________________________, 1999
Signature (if held jointly)____________________________________
Date _______________________________, 1999
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.
