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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
(Amendment No. 1, amending Part III, Items 10-13)
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1999 Commission File No. 0-7100
BASE TEN SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
New Jersey 22-1804206
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Electronics Drive
Trenton, New Jersey 08619
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 586-7010
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Class A Common Stock
Class B Common Stock
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K under the Securities Exchange Act of 1934 is not contained
herein, and will not be contained, to the best of the Registrant's knowledge, in
definitive proxy or information statements incorporated in Part III of this Form
10-K or any amendments to this Form 10-K X
As of March 17, 2000, 5,106,048 shares of Class A Common Stock and 9,450 shares
of Class B Common Stock were outstanding, and the aggregate market value of
shares held by unaffiliated stockholders was approximately $16,650,000 and
$57,000, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
This Form 10-K/A amends the Form 10-K filed by the Registrant with the
Securities and Exchange Commission on March 30, 2000 ("Registrant's Form 10-K").
Items 10, 11, 12 and 13 of Part III of Registrant's Form 10-K were incorporated
by reference to the Registrant's definitive Proxy Statement for its 2000 Annual
Meeting of Shareholders to be filed with the Commission by May 1, 2000. The
definitive Proxy Statement will not be filed with the Commission by May 1, 2000.
Accordingly, Registrant is filing this amendment to Registrant's Form 10-K to
provide the information required by Items 10, 11, 12 and 13 of Part III of Form
10-K.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The current directors and executive officers of the Company are as
follows:
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Name Age Position
- --------------------------------------------------------------------------------
Robert Hurwitz 56 Chairman of the Board
Stephen A. Cloughley 39 Chief Executive Officer, President
and Director
John C. Rhineberger 56 Director
Clark L. Bullock 51 Director
Alan S. Poole 73 Director
William F. Hackett 49 Senior Vice President
Chief Financial Officer and
Secretary
- --------------------------------------------------------------------------------
A summary of the business experience and background of the Company's
current directors and executive officers is set forth below.
ROBERT HURWITZ is a director with a term expiring in 2002. In November 1999 he
was appointed Chairman of the Board. From 1994 to 1999 Mr. Hurwitz was Chairman
of the Board and co-founder of HomePlace Stores, Inc., a chain of home
furnishings stores, wholly-owned by HomePlace Holdings, Inc., of which Mr.
Hurwitz was Chairman of the Board 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, from which it emerged successfully in
June 1999. Since December 1998, Mr. Hurwitz has been Chairman of Earthmed.com,
Inc., an internet portal company dealing with the alternative medical community.
From 1988 to 1994, Mr. Hurwitz was the chairman and a co-founder of OfficeMax,
Inc., a chain of discount office supply stores. Prior to 1988, Mr. Hurwitz
served as Chairman of the Board 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.
STEPHEN A. CLOUGHLEY was appointed a director of the Company in April 2000. Mr.
Cloughley joined the Company in February 1994 as head of sales for European
operations. In 1996, he relocated to the corporate offices in Trenton where he
served as Senior Vice President responsible for corporate strategy and
marketing. Mr. Cloughley left the Company in April 1999 but rejoined Base Ten as
President and Chief Executive Officer of the Company in October 1999.
<PAGE>
JOHN C. RHINEBERGER is a director with a term expiring in 2002. Mr. Rhineberger
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 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 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.
CLARK L. BULLOCK was appointed a director in June 1999. He is Chairman of the
Board and Secretary of Almedica International Inc., Chief Executive Officer of
Almedica International Inc. and its subsidiaries, Chairman of the General
Partner of Shelter Rock partners, L.P, the majority owner of Almedica. Mr.
Bullock served for four years as a director of Farah, Inc. a New York Stock
Exchange-listed company, and was formerly a director of the Fundamental Family
of Funds (New York, New York) for 16 years. Prior to forming Shelter Rock, Mr.
Bullock was a founder of Whitney, Novak & Bullock, Inc. and Managing Director
and President of Niederhoffer, Cross & Zeckhauser, Inc. (both investment
advisory firms). Mr. Bullock is a graduate of the Krannert Graduate School of
Industrial Administration, Purdue University with a Master of Science Degree in
Mathematical Economics and Statistics and holds an undergraduate degree from the
University of Arizona in International Relations and Economics.
ALAN S. POOLE has served as a director of Base Ten since 1994. From 1960 to
1992, Mr. Poole held executive positions with Johnson & Johnson, including Vice
President of Ortho Diagnostics, Inc. from 1975 through 1982 and International
Vice President of Johnson & Johnson Pharmaceutica in Belgium from 1986 to 1992,
where he was responsible for the Janssen Companies in various countries. Mr.
Poole, now retired, is a member of the California bar. Mr. Poole has informed
the Company that he will not run for re-election.
WILLIAM F. HACKETT joined the Company in December 1997 and serves as Chief
Financial Officer and Senior Vice President of Human Resources and Corporate
Strategy. From 1991 to 1997, Mr. Hackett served as Senior Manager for the
Princeton Data Division of Bloomberg Financial, responsible for the collection,
analysis, and distribution of information and product development.
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.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table. The Summary Compensation Table set forth
below shows certain compensation information for all individuals serving as the
Company's Chief Executive Officer or acting in a similar capacity during the
1999 fiscal year, the four most highly compensated executive officers, other
than the Chief Executive Officer, serving as executive officers at the end of
the 1999 fiscal year, and two highly compensated individuals not serving as
executive officers at the end of the 1999 fiscal year (collectively, the "Named
Executive Officers") for services rendered in all capacities during the fiscal
years ended December 31, 1999, December 31, 1998, the Interim Period and October
31, 1997. 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.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
ANNUAL COMPENSATION
Awards
Securities
Underlying All Other
Options/ Compensation
Name and Principal Position Period(6) Salary Bonus (1) SARs (2) (3)
- --------------------------------------------------------- -------------------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Stephen A. Cloughley 1999 Fiscal Year $74,923 55,000 $71,524
President, Chief Executive Officer, 10/99 to present 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
Thomas E. Gardner (5) 1999 Fiscal Year $271,154 $401,250
President, Chief Executive Officer, 11/97 to 10/99 1998 Fiscal Year $300,000 $42,500 1,250,000
Co-Chairman, 11/97 to 4/98 Interim Period $40,385
Chairman, 4/98 to 10/99 1997 Fiscal Year
William F. Hackett 1999 Fiscal Year $174,808
Senior Vice President, Chief Financial Officer, 1998 Fiscal Year $166,923 $25,000 195,000
and Secretary, 12/97 to present Interim Period $4,923
1997 Fiscal Year
Robert J. Bronstein (4) 1999 Fiscal Year $107,692 $40,000 60,000 $41,706
President, Clinical Software Solutions, 6/99 to present 1998 Fiscal Year
Interim Period
1997 Fiscal Year
C. Richard Bagshaw (5) 1999 Fiscal Year $69,231 $111,807
Executive Vice President, 12/97 to 4/99 1998 Fiscal Year $180,000 $30,000 235,000
Interim Period $10,385
1997 Fiscal Year
Harvey I. Cohen (5) 1999 Fiscal Year $141,346 $18,462
Senior Vice President, 2/98 to 10/99 1998 Fiscal Year $154,692 $25,000 110,000
Sr. V.P. Software Development, 10/97 to 2/98 Interim Period $22,308
V.P. Software Development, 11/94 to 10/96 1997 Fiscal Year $167,816 4,900 $11,204
</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) Fiscal 1998 include interest paid on balance of individuals' deferred
compensation, vacation entitlement payout, commissions, separation
pay, stock grant in lieu of option award, and forgiveness of employee
loan. For fiscal 1997, the amounts indicated represent forgiveness of
employee loans.
(4) Accrued vacation acquired by Base Ten during purchase of Almedica
which was paid out as part of Base Ten's acquisition of Almedica. Mr.
Bronstein resigned as an officer and employee of the Company April 1,
2000.
(5) The employment of Messrs. Bagshaw, Cohen and Gardner terminated April
30, 1999, October 8, 1999 and October 28, 1999, respectively.
(6) In January 1998, the Company elected to change its fiscal year to an
accounting period from January 1 to December 31. The interim period
commences November 1, 1997 and ends December 31, 1997.
Option/SAR Grants in Last Fiscal Year. The following table shows
information regarding grants of stock options made to the Named Executive
Officers during the fiscal year ended December 31, 1999 and the Interim Period,
a two month period ending December 31, 1998. 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.
<PAGE>
<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
Name Granted (1) Employees Price ($/Sh) Expiration Date 5% 10%
---- ----------- --------- ------------ --------------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Cloughley 55,000 35.40% $1.00 10/27/09 34,589 87,656
Thomas E. Gardner 0 0 0 -- -- --
William F. Hackett 0 0 0 -- -- --
Robert J. Bronstein (2) 60,000 38.62% $4.53 6/21/09 170,934 433,179
C. Richard Bagshaw 0 0 0 -- -- --
Harvey I. Cohen 0 0 0 -- -- --
- ---------------------------
</TABLE>
(1) Securities represent shares of Class A Common Stock underlying options.
(2) Certain options held by Mr. Bronstein will terminate in connection with his
separation from the Company. See "Employment Contracts, Termination of
Employment and Change in Control Arrangements."
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values. The following table summarizes for each of the Named
Executive Officers the number of stock options, if any, exercised during the
fiscal year ended December 31, 1999, the aggregate dollar value realized upon
exercise, the total number of securities underlying unexercised options, if any,
held at December 31, 1999, and the aggregate dollar value of in-the-money,
unexercised options, if any, held at December 31, 1999. 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, 1999. The last sale price of the Class A Common Stock on December
31, 1999 was 2 3/8. 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 the
1999 fiscal year. The following table sets forth information regarding the value
of unexercised options held by the named Executive Officers of the Company.
<PAGE>
<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)
--------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Stephen A. Cloughley 380 55,000 (2) 0 75,625
Thomas E. Gardner 151,000 40,000 0 0
William F. Hackett 23,250 15,750 0 0
Robert Bronstein 30,000 30,000 0 0
C. Richard Bagshaw 0 0 0 0
Harvey I. Cohen 380 0 0 0
</TABLE>
(1) Securities represent shares of Class A Common Stock underlying options.
(2) Subject to the terms and conditions set forth in Exhibit A
(Performance-Based Stock Option Agreement) of Employment Agreement dated October
28, 1999.
<PAGE>
DIRECTORS' COMPENSATION
Directors were not paid a fee for service as a director or committee
member during fiscal 1999. However, during fiscal 1999 Messrs. Rhineberger and
Hurwitz each received options for an aggregate of 20,000 shares of Class A
Common Stock. The options are exercisable at the market price of such stock as
of the dates of grant. As of December 1999, Mr. Hurwitz will receive annual
compensation in the amount of $50,000 for his service as Chairman.
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
The Board of Directors met 20 times at regularly scheduled meetings
during the fiscal year 1999. Standing committees of the Board currently include
a Compensation Committee and an Audit Committee. Each incumbent director has
attended at least 92% of all Board meetings and applicable committee meetings,
except for Messrs. Batten and Schafer, each of whom is no longer a member of the
Board.
During fiscal year 1999, the Compensation Committee, which met four
times during 1999, was comprised of Messrs. Rhineberger and Adelson. The Board
of Directors adopted a written charter of the Compensation Committee in which
the function of the 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. Rhineberger, Bullock and Poole are presently the members of the
Audit Committee. The Audit Committee, which is chaired by Mr. Poole, met three
times during fiscal year 1999. 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. The
Board of Directors adopted a written charter of the Compensation Committee in
which the function of the Committee is to review the financial reporting
process, system of internal control, audit process, and the Company's process
for monitoring compliance with laws and regulations.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
On March 31, 2000, the Company entered into an agreement with Robert J.
Bronstein, the President of the Company's Clinical Software Solutions Division,
by which Mr. Bronstein resigned as an officer and an employee of the Company,
effective April 1, 2000 (the "Bronstein Termination Agreement"). Pursuant to the
terms of the Bronstein Termination Agreement, the Employment Agreement, dated as
of June 11, 1999, between the Company and Mr. Bronstein (the "Bronstein
Employment Agreement") and the Change in Control Agreement, dated as of June 11,
1999, between the Company and Mr. Bronstein, were each terminated, provided that
Mr. Bronstein shall continue to be bound by the obligations prohibiting
disclosure of confidential information contained in the Bronstein Employment
Agreement. The Bronstein Termination Agreement provides that Mr. Bronstein,
among other things, shall (i) receive a lump sum termination payment of
$200,000, (ii) serve as a consultant to the Company from the date of termination
until October 1, 2000 (the "Bronstein Consultation Term"), for which the Company
has deposited $60,000 in escrow, out of which Mr. Bronstein shall receive
payment of $10,000 per month as compensation for consultation services provided
by Mr. Bronstein to the Company during the Bronstein Consultation Term, (iii)
receive up to $7,500 for expenses incurred by Mr. Bronstein in connection with
his relocation to Napa, California and for attorneys fees incurred in connection
with the negotiation of the Bronstein Termination Agreement and other related
agreements, and (iv) be deemed, for purposes of his participation in the
Company's 1998 Stock Option and Stock Award Plan, to have had his employment
with the Company terminated as of October 1, 2000.
The Company entered into an employment agreement with Stephen A.
Cloughley as of October 28, 1999, the term of which is through October 27, 2000
(the "Cloughley Employment Agreement"). As compensation for services rendered by
Mr. Cloughley under the Cloughley Employment Agreement, Mr. Cloughley receives
an annual base salary of $180,000 and an award of ten-year non-qualified stock
options ("Performance-Based Stock Option") to purchase a maximum of 55,000
shares of the Company's Class A Common Stock at $1.00 per share. The
Performance-Based Stock Option vests and becomes exercisable upon the Company
achieving certain financial goals that are set forth in the Cloughley Employment
Agreement. Under the terms of the Cloughley Employment Agreement, all agreements
between the Company and Mr. Cloughley entered into prior to October 28, 1999
were voided.
On October 28, 1999, the Company agreed to the terms of a termination
agreement by and between the Company and Thomas E. Gardner, who was the
Company's President, Chief Executive Officer and Chairman of the Board of
Directors at such time (the "Termination Agreement"), pursuant to which (i) Mr.
Gardner resigned as President and Chief Executive Officer of the Company and as
an officer of the Company as of October 28, 1999, (ii) Mr. Gardner resigned as
an employee and as a director of the Company as of November 12, 1999, (iii) the
employment agreement, dated as of October 17, 1997, between the Company and Mr.
Gardner (the "Gardner Employment Agreement") was terminated and (iv) the amended
and restated change in control agreement, dated as of October 17, 1997, between
the Company and Gardner (the "Gardner Change of Control Agreement") was
terminated. As compensation for entering into the Termination Agreement, Mr.
Gardner received, among other things:
(i) $5,769.24, representing the amount equal to Mr.
Gardner's accrued and unpaid base salary through
November 12, 1999;
(ii) a termination payment of $357,500;
(iii) 50,000 shares of the Company's Class A Common
Stock;
(iv) the right to exercise certain performance-based
stock options (to the extent that such option had
vested and was exercisable on October 31, 1999 or
becomes vested and exercisable at any time prior
to October 31, 2000) that were granted to Mr.
Gardner pursuant to the Base Ten Systems, Inc.
Performance-Based Stock Option Agreement, dated
as of October 17, 1997, by and between the
Company and Mr. Gardner (the "Gardner
Performance-Based Stock Option Agreement"), at
any time prior to October 31, 2001;
(v) the right to exercise a certain Service-Based
Stock Option (to the extent that such option had
vested and was exercisable as of October 31,
1999) that were granted to Mr. Gardner pursuant
to the Base Ten Systems, Inc. service-based stock
option agreement, dated as of October 17, 1997
(the "Service Option Agreement"), at any time
prior to October 31, 2001; and
(vi) the right to exercise certain options (to the
extent that such options had vested and were
exercisable as of October 31, 1999) granted to
him by the Company pursuant to the Company's 1998
Stock Option and Stock Award Plan (the "1998
Plan"), at any time prior to October 31, 2001.
The Company entered into a consultant agreement with Mr. Cloughley on
April 26, 1999 (the "Cloughley Consultant Agreement"), pursuant to which Mr.
Cloughley provided consulting services to the Company at the rate of $1,200 per
day. The Cloughley Consultant Agreement was terminated on October 28, 1999, in
accordance with, and upon the agreement to, the terms of the Cloughley
Employment Agreement.
Mr. Cloughley initially joined the Company in February 1994. In 1996,
Mr. Cloughley transferred to the corporate offices in Trenton, New Jersey, where
his managerial assignments encompassed marketing and corporate development. In
April 1999, Mr. Cloughley resigned from the Company and 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 not to accept
employment either directly or as a consultant with a direct competitor of the
Company for a period of no less than two years following his termination. Mr.
Cloughley rejoined the Company on October 28, 1999.
In April 1999, C. Richard Bagshaw's employment terminated. Mr. Bagshaw
received current salary continuation for a period of twelve months from the date
of termination in accordance with the terms of his Employment Agreement, dated
November 26, 1997.
The Company has a change in control agreement in effect with Mr.
Hackett. The agreement provides 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. The agreement is subject to
being extended automatically from year to year unless the Company gives at least
fifteen months' prior notice of its election not to extend the term.
On 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 agreement in effect with Mr.
Hackett, a change in control is deemed to have occurred at that time. No
payments were made to Mr. Hackett since that time pursuant to the agreements
because the events that would trigger any such payments have not occurred. For
purposes of the Company's employee benefit plans, a change of control has not
been deemed to have occurred.
<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
compensation for Mr. Cloughley was reviewed by the Compensation Committee prior
to the commencement of Mr. Cloughley's employment as CEO on October 28, 1999.
Annual Bonus. Each executive officer, including the CEO, is eligible
for an annual incentive bonus based on achievement of certain results. Once
results are achieved, a percentage of base salary is awarded.
The particular percentage 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 1999, the Board awarded
Mr. Cloughley options to purchase 55,000 shares of Class A Common Stock at an
exercise price of $1.00 per share. Stock Options granted to executive officers
during fiscal 1999 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."
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
J. C. Rhineberger
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal year 1999, the Company's Compensation Committee consisted of
John Rhineberger, Alexander Adelson, and David Batten. None of Messrs.
Rhineberger, Adelson or Batten were executive officers of the Company during
fiscal 1999.
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 1999.
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
providing services as 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 9,000 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 $50.00,
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 1999 was $193,500, plus
expenses of approximately $2,100. 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 9,375
shares of Class A Common Stock, exercisable at $62.50 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
9,625 shares of Class A Common Stock, exercisable at $51.55 per share, the
market price of Class A Common Stock on the closing of the balance of such
private placement on December 31, 1997.
PERFORMANCE GRAPH
The following graph shows changes over the past five years in the value
of $100 invested on November 1, 1994 in the Company's Class A Common Stock, the
NASDAQ National Market System Index, MG Industry Group 821 and assumes that all
dividends were reinvested. MG Industry Group 821, Application Software,
Information Technology and Services, 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.
[graph omitted]
<PAGE>
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG BASE TEN SYSTEMS, INC. CLASS A COMMON STOCK,
MG GROUP INDEX 821 AND NASDAQ MARKET INDEX
<TABLE>
<CAPTION>
11/1/94 10/31/95 10/31/96 10/31/97 10/31/98 12/31/98 12/31/99
------------ ------------ ------------ ------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Base Ten - Class A 100 146.46 133.86 182.68 37.40 40.94 5.98
- ------------------------------ ------------- ------------ ------------ ------------- -------------- --------------- -------------
- ------------------------------ ------------- ------------ ------------ ------------- -------------- --------------- -------------
MG Industry Group 821 100 148.52 190.74 285.59 369.24 476.32 911.35
- ------------------------------ ------------- ------------ ------------ ------------- -------------- --------------- -------------
- ------------------------------ ------------- ------------ ------------ ------------- -------------- --------------- -------------
NASDAQ Market Index 100 118.62 139.30 182.56 206.42 256.99 453.26
- ------------------------------ ------------- ------------ ------------ ------------- -------------- --------------- -------------
</TABLE>
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is information concerning beneficial ownership of Class
A Common Stock as of March 17, 2000 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.
<TABLE>
<CAPTION>
Shares
Name Beneficially Percent
Owned (1) of Class (2)
- --------------------------- ------------ ------------
<S> <C> <C>
Stephen A. Cloughley (3) 380 *
Robert Hurwitz (3) 12,190 *
Alexander M. Adelson (3) 67,983 1.32%
Clark L. Bullock (3) 800,000 15.61%
John C. Rhineberger (3) 10,200 *
Alan S. Poole (3) 18,000 *
David C. Batten (7) (3) 7,780 *
William Sword (3) 16,000 *
Carl W. Schafer (3) 16,000 *
William F. Hackett (3) 23,611 *
Robert Bronstein (3) 30,000 *
Thomas E. Gardner (3)(4)(8) 203,997 3.87%
C. Richard Bagshaw (5) 0 *
Harvey I. Cohen (3) 380 *
Jesse L. Upchurch (6) 2,432,303 45.76%
Current Directors and 962,364 18.27%
Executive Officers as a group
(8 persons) (3)
- ---------------
</TABLE>
*Less than 1%.
<PAGE>
(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 March 17, 2000. 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 March 17, 2000, includes as to (a) Mr.
Cloughley 380 shares, (b) Mr. Hurwitz 10,000 shares, (c) Mr. Adelson
51,500 shares, (d) Mr. Bullock 10,000 shares, (e) Mr. Rhineberger 10,000
shares, (f) Mr. Poole 18,000 shares, (h) Mr. Batten 4,000 shares, (i) Mr.
Sword 16,000 shares, (j) Mr. Schafer 16,000 shares, (k) Mr. Hackett 23,250
shares, (l) Mr. Bronstein 30,000 shares, (m) Mr. Gardner 151,000 shares,
(n) Mr. Cohen 380 shares and (o) all directors and executive officers as a
group 152,750 shares.
(4) Includes 400 shares of Class A Common Stock owned by Mr. Gardner's adult
children.
(5) The employment of Mr. Bagshaw terminated April 30 1999. Upon the
termination of Mr. Bagshaw's employment, options to purchase 47,000 shares
of Class A Common Stock which were previously granted to Mr. Bagshaw
terminated.
(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 2,232,303 shares of Class A
Common Stock and warrants to purchase 200,000 shares of Class A Common
Stock at $15.00 per share.
(7) Resigned from Board of Directors as of December 27, 1999.
(8) Resigned as an officer of the Company as of October 28, 1999 and as a
director of the Company as of November 12, 1999.
(9) The employment of Mr. Cohen terminated October 8, 1999.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the formation of the LLC, Jesse L. Upchurch, a
principal shareholder of the Company, contributed $3,000,000 to fund required
further development of the uPACSTM 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 1999. 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.,
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 1999.
The Company and Alexander Adelson, a director of the Company and a
member of the Company's Compensation Committee during fiscal year 1999, were
involved in several transactions in which Mr. Adelson had a direct or indirect
material interest. See "Compensation Committee Interlocks and Insider
Participation" on page 11 for a more detailed description of these transactions.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, this 28th day of
April, 2000.
<TABLE>
<CAPTION>
BASE TEN SYSTEMS, INC.
<S> <C> <C>
By: STEPHEN A. CLOUGHLEY By: WILLIAM F. HACKETT By: WILLIAM F. HACKETT
------------------------ ----------------------- -------------------------
Stephen A. Cloughley William F. Hackett William F. Hackett
Chief Executive Officer Chief Financial Officer Principal Accounting Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the date indicated.
Title Date
Directors April 28, 2000
Clark L. Bullock
Stephen A. Cloughley
Robert Hurwitz
Alan S. Poole
John C. Rhineberger
WILLIAM F. HACKETT
By: ---------------------------------------
William F. Hackett, as attorney-in-fact
