-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Iww5Jn0ucm8R667EfJ5Jy3Tl5ZEJQTe2oYC4RdRtk54zrScK0SuwhTaoMLqQiXyu ssFexN2yCbo+NvYYSGZTQA== 0000927796-99-000128.txt : 19990503 0000927796-99-000128.hdr.sgml : 19990503 ACCESSION NUMBER: 0000927796-99-000128 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990518 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BASE TEN SYSTEMS INC CENTRAL INDEX KEY: 0000010242 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 221804206 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-07100 FILM NUMBER: 99607260 BUSINESS ADDRESS: STREET 1: ONE ELECTRONICS DR CITY: TRENTON STATE: NJ ZIP: 08619 BUSINESS PHONE: 6095867010 MAIL ADDRESS: STREET 1: ONE ELECTRONICS DR CITY: TRENTON STATE: NJ ZIP: 08619 DEF 14A 1 DEFINITIVE PROXY STATEMENT ================================================================================ - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- BASE TEN SYSTEMS, INC. (Name of Registrant as Specified in its Charter and Name of Person Filing Proxy Statement) - -------------------------------------------------------------------------------- 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: -------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: -------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): -------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: -------------------------------------------------------------- (5) Total fee paid: -------------------------------------------------------------- [ ] 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: __________________________________________________ - -------------------------------------------------------------------------------- ================================================================================ 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. 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. 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." 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. 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. 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.
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) - --------------------------- ------ ------ --------- --------- -------------- 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
(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) $60,615 of this amount was paid in Irish Punts. Option/SAR Grants in Last Fiscal Year and Interim Period. The following table shows information regarding grants of stock options made to the Named Executive Officers during the fiscal year ended December 31, 1998 and the Interim Period. The amounts shown as potential realizable values are based on assumed annualized rates of stock price appreciation of five percent and ten percent over the term of the options. These potential realizable values are based solely on arbitrarily assumed rates of appreciation required by applicable SEC regulations. Actual gains, if any, on option exercises and common stock holdings are dependent on the future performance of the Company's Class A Common Stock and overall stock market conditions.
OPTION/SAR GRANTS IN LAST FISCAL YEAR AND INTERIM PERIOD Potential Realizable Value at Assumed Annual Rates of Number of Stock Price Securities % of Total Appreciation for Underlying Options/SARs Option Term Options/SARs Granted to Exercise or Base Expiration Name Granted (1) Employees Price ($/Sh) Date 5% 10% - ---- ------------ --------- ------------ ------- -- --- 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 -- -- -- -- -- --
(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." 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.
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 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
(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." 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. 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). 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." 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 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
PERFORMANCE GRAPH 11/1/93 10/31/94 10/31/95 10/31/96 10/31/97 10/31/98 12/31/98 ------------ ------------ ------------ ------------ ------------- ------------ ----------- 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
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 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. EX-99 2 EX. 99(A) - PROXY CARD FOR CLASS A 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) 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. EX-99 3 EX. 99(B) - PROXY CARD FOR CLASS B 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) 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. EX-99 4 EX. 99(C) - PROXY CARD FOR SERIES B PREFERRED 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) 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. -----END PRIVACY-ENHANCED MESSAGE-----