-----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, DwlN0lbfgJzmEL4gWsQtClKM8mUz2yAoz6KYokvYIkckcUuy+Ta10B+cBbfb/jMI jFd8E/GasN5UdvRakifKAw== 0001047469-98-004949.txt : 19980212 0001047469-98-004949.hdr.sgml : 19980212 ACCESSION NUMBER: 0001047469-98-004949 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 24 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19980211 SROS: NASD 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: 10-K SEC ACT: SEC FILE NUMBER: 000-07100 FILM NUMBER: 98532230 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 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------ FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997 COMMISSION FILE NO. 0-7100 BASE TEN SYSTEMS, INC. (Exact name of registrant as specified in its charter) ------------------------------ NEW JERSEY (State or other jurisdiction of incorporation or organization) 22-1804206 (I.R.S. Employer Identification No.) ONE ELECTRONICS DRIVE TRENTON, NEW JERSEY (Address of principal executive offices) 08619 (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 586-7010 Securities registered pursuant to Section 12(g) of the Act: TITLE OF EACH CLASS Class A Common Stock Class B Common Stock ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K under the Securities Exchange Act of 1934 is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated in Part III of this Form 10-K or any amendments to this Form 10-K (X). As of January 19, 1998, 7,829,060 shares of Class A Common Stock and 444,879 shares of Class B Common Stock were outstanding, and the aggregate market value of shares held by unaffiliated stockholders was approximately $77,367,440 and $4,670,285, respectively. ------------------------ DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the Proxy Statement for the 1997 Annual Meeting of Shareholders are incorporated by reference into Part III of this Report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS *FORWARD LOOKING STATEMENT THE FOLLOWING CONTAINS FORWARD LOOKING INFORMATION WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD LOOKING STATEMENTS AND PARAGRAPHS MAY BE IDENTIFIED BY AN "ASTERISK" ("*") OR BY SUCH FORWARD LOOKING TERMINOLOGY AS "MAY", "WILL", "BELIEVE", "ANTICIPATE", OR SIMILAR WORDS OR VARIATIONS THEREOF. SUCH FORWARD LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES INCLUDING THE PARTICULAR FACTORS DESCRIBED BELOW IN THIS BUSINESS DISCUSSION AS WELL AS THROUGHOUT THIS ANNUAL REPORT AND IN EACH CASE ACTUAL RESULTS MAY DIFFER MATERIALLY FROM SUCH FORWARD LOOKING STATEMENTS. SUCCESSFUL MARKETING OF PHARM2 AND ITS FUTURE CONTRIBUTION TO COMPANY REVENUES DEPENDS HEAVILY ON, AMONG OTHER THINGS, SUCCESSFUL EARLY COMPLETION OF CURRENT TEST EFFORTS AND THE NECESSARY CORRECTIONS TO THE SOFTWARE PERMITTING TIMELY DELIVERY TO CUSTOMERS, NONE OF WHICH CAN BE ASSURED. OTHER IMPORTANT FACTORS THAT THE COMPANY BELIEVES MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH FORWARD LOOKING STATEMENTS ARE DISCUSSED IN THE "RISK FACTORS" SECTIONS IN THE COMPANY'S CURRENT AND PREVIOUS FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. IN ASSESSING FORWARD LOOKING STATEMENTS CONTAINED HEREIN, READERS ARE URGED TO READ CAREFULLY THOSE STATEMENTS AND OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. THE COMPANY DOES NOT UNDERTAKE TO PUBLICLY UPDATE OR REVISE ITS FORWARD LOOKING STATEMENTS EVEN IF EXPERIENCE OR FUTURE CHANGES MAKE IT CLEAR THAT ANY PROJECTED RESULTS OR EVENTS (EXPRESSED OR IMPLIED) WILL NOT BE REALIZED. OVERVIEW During the fiscal year ending October 31, 1997, Base Ten Systems, Inc. (the "Company" or "Base Ten") operated a Medical Technology Division, (the "MTD") and a Government Technology Division, the ("GTD"). On December 31, 1997, following approval by the shareholders at a special meeting also held that day, the Company sold the GTD (the "GTD Sale") to Strategic Technology Systems, Inc. ("STS"). On January 29, 1998 the Company elected to change its fiscal year so that the annual accounting period will henceforth be from January 1 through December 31. Due to the fact that the determination to sell the GTD occurred before the fiscal year ending October 31, 1997, the Quarterly Report on Form 10-Q for the transition period from November 1, 1997 to December 31, 1997 and the Annual Report for the fiscal year ending December 31, 1998 will not include, except as indicated therein, the operations of the GTD. MEDICAL TECHNOLOGY DIVISION The MTD currently designs, develops, and markets comprehensive software solutions for the pharmaceutical and medical device manufacturing industries based on its core technology of safety critical software. The MTD also contemplates broadening its development activities to produce information technology to continually improve process productivity for a wider range of government-regulated manufacturing industries. Management believes increasing standardization of quality and safety and increased competition in regulated markets require improved regulatory compliance and time and cost reduction for manufacturing processes and the Company plans to provide products and services for these markets. Despite management's belief that the MTD has or will develop the requisite talents and technology base and that there is a market of sufficient size to warrant further investment, there can be no assurance that the Company will be successful in penetrating these markets or that such efforts will result in profitability.* The products of the MTD are used in safety critical applications requiring consistent, highly reliable outcomes where an out-of-specification event could have a catastrophic result. The Company developed a core competency in safety critical applications from its historical focus on designing electronic systems used primarily in weapons management systems for military aircraft. The MTD has applied this expertise to develop PHARMASYST-Registered Trademark-, a computerized manufacturing execution system ("MES") used to automate, monitor, control and document highly regulated manufacturing processes. The MTD's primary customer in 1995 was Johnson & Johnson Clinical Diagnostic Division accounting for $1.8 million in sales. The 2 MTD's primary customer in 1996 accounted for $883,000 in sales and in 1997 three different customers accounted for $1,221,000 in sales. The Company is restricted from disclosing contract values for each of those particular customers, each of whom is a major multinational pharmaceutical company. PHARMASYST-Registered Trademark- operates on a PC-based system in an open client/server environment and can be readily integrated with industry standard server database engines. PHARMASYST-Registered Trademark- is designed and marketed as a standard application, not a custom solution or tool kit, for implementation into a customer's existing manufacturing facility. PHARMASYST-Registered Trademark- acts as an electronic monitor ensuring that the production process complies with a predefined set of specifications in order to produce a consistent product. The MTD believes that PHARM2, an advanced version of PHARMASYST-Registered Trademark-, is a premier, commercially available, PC-based, standardized MES solution capable of the necessary functionality and supporting documentation suitable for regulated manufacturing in the pharmaceutical and medical device industries. The MTD is engaged in a continuing program to maintain compliance with an industry generated standard for Good Automated Manufacturing Practice ("GAMP") as a means of differentiating itself from present and future competition. PHARMASYST-Registered Trademark- offers four manufacturing applications: dispensing, electronic batch recording, inventory control, and document management, collectively encompassing a production process. The MTD is continuing its development of PHARM2, an advanced MES product integrating all four PHARMASYST-Registered Trademark-applications into a customer's manufacturing environment, with only the purchased applications activated. The MTD has completed the initial version of PHARM2 containing all four applications and believes it has achieved compliance with GAMP. The MTD believes that PHARM2 is applicable to the highly regulated pharmaceutical and medical device manufacturing industries. The production of pharmaceuticals is subject to the FDA's current Good Manufacturing Practices "cGMP", which mandate compliance with technical requirements involving manufacturing production processes. During its inspections, the FDA frequently verifies whether a manufacturer is in compliance with cGMP. PHARM2, through the MTD's program of meeting GAMP requirements, is intended to support the manufacturer's verification of a compliant production process in a manner which the MTD believes is acceptable to the FDA. The MTD has entered into collaborative relationships with certain computer system integrators and others that can integrate PHARM2 with the products and services they provide. The Company has established a relationship with Walsh Automation, a Canadian systems integrator; WTI Systems Ltd, an English Systems Integrator; Toyo Engineering Co., a Japanese developer of turnkey manufacturing facilities; KPMG Peat Marwick LLP, a provider of services and integration to the pharmaceutical industry; the Taisei Corporation, a $15 billion construction and engineering company in Japan; QAD, a provider of MRP systems; Euriware, a European based integrator; Wonderware, a leading supplier of manufacturing software; and most recently, Microsoft, a software provider. Except for a significant contract with Taisei, these relationships have not yet produced revenue and additional product development is necessary to achieve the anticipated benefits. The MTD believes that such relationships are desirable if the MTD is to fulfill its potential market opportunities. Current benefits include increased exposure of PHARM2 through the announcement of these partnerships as well as a series of seminars conducted jointly with Microsoft in demonstration of the use of Windows NT-Registered Trademark- as an operating system for PHARM2. The additional product development is currently underway, but the timing of its completion cannot be predicted.* MANUFACTURING EXECUTION SYSTEMS. Manufacturing execution systems ("MES") are designed to create uniformity in a production sequence by defining the elements of each production step. MES essentially institute a checklist to be followed, defining the raw material inputs, equipment operating instructions, and procedures to be followed in order to maintain consistency in an end product. Historically, manufacturers have implemented MES using paper forms that follow a batch through the production sequence, requiring signatures to verify that procedures were followed according to defined procedures. Paper-based systems are susceptible to human errors, leading to an increased possibility of corrupted batches. The production 3 of certain products effecting health and safety, such as pharmaceuticals and consumer products, require greater production process control to decrease the possibility of a corrupted end product. To obtain greater control and increase efficiency, manufacturers have incorporated custom computer solutions into their MES. These solutions are expensive, time consuming to implement, address only limited procedures and generally do not possess the flexibility for expansion or the addition of new technologies. The MTD believes there is a compelling and immediate need for the pharmaceutical and medical device industries to implement MES that facilitate the demonstration of compliance with FDA cGMP regulations and that these industries are actively seeking suppliers and products to aid in compliance. The products themselves must be developed and proven under rigid controls and procedures in compliance with currently accepted industry standards for validation. In addition, the Company believes pharmaceutical and medical device manufacturers are subject to pressures to improve manufacturing costs in anticipation of the expiration of U.S. patents and the emergence of competing generic drugs and pricing pressures imposed by large retail organizations and health care providers who seek bulk purchases at favorable prices. THE COMPANY'S MES SOLUTION. PHARM2 enables the customer to specify the individual steps of the production process. PHARM2 interfaces with Manufacturing Resource Planning ("MRP") and Supervisory Control and Data Acquisition ("SCADA") systems, information databases and stand-alone production machinery such as scales, blenders and ovens, directing the execution of the production process and continuously monitoring the compliance of each step with the manufacturer's defined specifications. Should PHARM2 recognize an out-of-specification event, it can adapt to the out-of-specification event by selecting a previously defined and approved alternative procedure in order to allow the process to continue in a compliant manner. If a remedial alternative is not available, PHARM2 will not authorize commencement of the next production step and can issue a problem notification to supervisory or quality control personnel. In addition, PHARM2 chronologically tracks and electronically records each input, procedure and output, which provides a significant tool for the customer to demonstrate ongoing cGMP compliance. PHARM2 provides a standard set of MES applications, not custom systems or system design services. The MTD is able to provide customers with a fixed price quotation and estimated delivery schedule based upon an extensive evaluation of user requirements. The MTD believes such specificity provides a significant advantage over custom MES solutions that have been characterized by long development and installation schedules and unpredictable costs. The MTD commenced sales of PHARMASYST-Registered Trademark- (now PHARM2) in fiscal 1995 and has installed applications at facilities operated by Abbott Laboratories Hospital Products Division, Bayer Inc., Instrument Laboratories, Pfizer Inc. International Pharmaceuticals Group, and others. As of October 31, 1997, MTD had received orders or signed license agreements for installations for a total of 33 sites and had orders from a total of nineteen pharmaceutical manufacturing facilities including Pfizer Inc. International Pharmaceuticals Group, Minnesota Mining & Manufacturing, Astra, Taisei, Novo Nordisk, Berlex, SmithKline Beecham, Federa and Pharmacia & Upjohn. PHARM2 normally requires customization for incorporation into existing systems. Based upon orders through October 31, 1997, the MTD estimates that a typical PHARM2 site installation sells for between $150,000 and $400,000 and requires nine to twelve months to install, depending in part on the time necessary for the customer to solidify its requirements.* OTHER PRODUCTS. ULTRASOUND IMAGING PRODUCTS. In 1994, the MTD introduced uPACS, a system for archiving ultrasound images. That system digitizes, records and stores ultrasound images on CD-ROMs as an alternative to existing film and video storage systems. In April 1996, the Company determined that uPACS was not a commercially viable product, despite anticipated 510(k) FDA pre-market clearances that were subsequently granted in June 1996. The MTD is developing a new system for archiving ultrasound images with networking, communication, and off-line measurement capabilities. The MTD is marketing this new system under the uPACS name and had received orders for approximately $150,000 of this new system and expects to have a significant ownership interest in uPACs all as described in further detail in the 4 "Liquidity" section of the Management's Discussion and Analysis portion of this Annual Report. The MTD does not believe that uPACS will reach the same revenues anticipated from the PHARM2 product. MEDICAL SCREENING SOFTWARE. The Company created three software programs to aid in the prenatal detection of risk for certain birth defects. The first two programs were designed to accelerate the computation of risk detection for neural tube defects (PRENVAL I) and Down's syndrome (PRENVAL IA) in pregnant women. A portion of the third program was sold and the remainder licensed to the Johnson & Johnson Clinical Diagnostic Division ("Johnson & Johnson"), located in Amersham, England. Johnson & Johnson offers this software as PRENATA, a trademark of Johnson & Johnson, in connection with the sale of its products used in the detection of fetal abnormalities throughout the world, except for the United States. The Company's agreement with Johnson & Johnson provides for guaranteed minimum royalties for a period of five years beginning October 1994. The aggregate minimum royalties of $1.8 million collectable for 1995 through 1999 were earned in fiscal year 1995. The Company has terminated further self-funded development efforts of these products because the Company believes that the market and further revenue potential of these products does not currently justify the cost of further development. GOVERNMENT TECHNOLOGY DIVISION The GTD was sold to STS, a newly formed corporation managed and partially owned by individuals who were, prior to the GTD Sale, members of the Company's senior management (the "Management Group"). Members of the Management Group were significantly involved in the business and development of the GTD while employed by the Company and left the Company's employ to join STS concurrently with the GTD Sale. STS acquired substantially all of the operating assets of the GTD in exchange for certain consideration and the assumption of certain liabilities, pursuant to the terms and conditions set forth in an Asset Purchase Agreement between the Company and STS dated October 27, 1997 (the "Asset Purchase Agreement"). The Asset Purchase Agreement was filed as an exhibit to the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on November 11, 1997. The GTD Sale was proposed to the Board of Directors in June 1997 in view of certain business conditions discussed below. The Board of Directors authorized the Company to pursue efforts to sell the GTD on terms that reflected fair value and to do so in an expeditious manner so as to minimize disruption to the Company, its employees and customers. The Board appointed a special committee of directors (the "Special Committee") to pursue the sale and in furtherance of that goal the Special Committee engaged Cowen & Co. ("Cowen") as its financial advisor. Bids were obtained from the Management Group and from The Edo Corporation, a third party defense contractor, and after evaluation, and review and approval of the Special Committee, the Board unanimously approved the sale to the Management Group. A prime motivation for the GTD Sale was a concern that the GTD's recent past losses would continue with no foreseeable opportunities for significant growth in the future. In addition, the Board was concerned that the Company's previously declared focus on the MTD, and the lower level of investment in new GTD products, had created low morale among GTD personnel, with a consequent risk of significant loss of senior and key technical and engineering personnel. In the Board's opinion, significant personnel losses would have left the Company unable to meet its contractual commitments and could have resulted in further, significant, losses. At October 31, 1997, the net assets of the GTD represented approximately 25.2% of total Company assets. For the twelve months ended October 31, 1997, revenues from the GTD represented approximately 79% of total Company revenues, compared with 90% of total Company revenues for the year ended October 31, 1996. Prior to the GTD Sale, the GTD engaged in the design, development, manufacture and marketing of complex precision electronic systems for the defense industry. The products of the GTD were used in safety critical applications requiring consistent, highly reliable outcomes where an out of specification event could have a catastrophic result. The Company developed a core competency in safety critical 5 applications from its historical focus on designing electronic systems used primarily in weapons management systems for military aircraft and the GTD relied on this technology to compete in its chosen markets. SALES AND MARKETING During fiscal 1997 and through December 31, 1997, the Company's sales and marketing efforts focused on the MTD and the GTD. As a result of the GTD Sale, the Company's sales and marketing efforts will focus solely on the MTD and the MTD products. The MTD currently markets PHARMASYST-Registered Trademark- and PHARM2 through a direct sales force in North America, consisting of six sales people, one of whom serves as Sales Manager. Outside of North America, the MTD has a sales person in England, one in Denmark, one in Belgium and one in Tokyo. The MTD's marketing efforts for PHARMASYST-Registered Trademark- and PHARM2 consist primarily of negotiating with third parties to develop collaborative efforts with the MTD in the sale and marketing of its PHARM2 products, advertising in industry periodicals, attending trade shows, and participating in industry symposiums sponsored by the International Society for Pharmaceutical Engineering and the Manufacturing Execution Systems Association. In addition, certain of the MTD's customers have agreed to allow their PHARMASYST-Registered Trademark- and PHARM2 installations to be used as reference accounts for potential customers. The Company also has an arrangement with a pharmaceutical company who agreed to share in certain development expenses and to act as a demonstration facility for certain of its products, which arrangement the Company will continue to discuss with such company, in return for a payment which would not exceed 1% of revenues from the sale of certain PHARMASYST-Registered Trademark- products by the Company. The MTD believes the ability to demonstrate existing installations will serve as an important marketing tool. Prior to the GTD Sale, the GTD marketed its defense products through its Vice President of Sales supported by various senior managers of the GTD. In addition, certain officers of the GTD were responsible for maintaining relationships with specific U.S. and foreign defense contractors. RESEARCH AND DEVELOPMENT The MTD's commercial product development efforts are currently directed at the development of PHARM2 and a new image archiving system to be marketed under the uPACS name. The MTD believes that commercial success in the MES and other markets will depend partly on its ability to provide product improvements or version upgrades. Consequently, with the availability of increased capital resources from the GTD Sale as well as the sale of convertible preferred shares recently concluded, the MTD will seek to increase the development of product upgrades.* The GTD's defense-related product development efforts consisted of designing new weapon control systems and upgrades for existing aircraft fleets based upon specifications provided by defense contractors. Generally, such development projects were undertaken pursuant to contractual arrangements with defense contractors, under which the GTD received full or partial funding. During fiscal 1995, 1996 and 1997, the Company capitalized $2.3 million, $3.8 million and $3.5 million of software development costs almost all of which was for development of MTD products, and expensed approximately $.2 million, $.4 million, and $.1 million in research and development expenditures, respectively. The MTD development staff consists of approximately 52 development, project and quality engineers supported by test and administrative staff. The GTD development staff consisted of approximately 31 development, project and quality engineers supported by a test and administrative staff all of whom left the Company's employ to join STS contemporaneously with the GTD Sale. 6 COMPETITION During fiscal 1997 and through December 31, 1997, the Company competed in the MES software market and the defense business. As a result of the GTD Sale, the Company's only competitors will be in the MES software market. The MES software market is intensely competitive and subject to rapid change. The principal competitive factors in this market include delivery capability, product functionality and quality, ease, stability and speed of implementation and use, total cost, process manufacturing expertise, customer service and satisfaction, supported hardware and software platforms, the underlying technology and architecture of the product, vendor reputation and the ability and experience to document the software design life cycle to accepted industry validation standards. The Company believes that, despite current lateness in delivery of some of its products, it can compete effectively with respect to these factors and in particular with its capability to comply with GAMP standards, although it may be at a disadvantage against companies with greater financial, marketing, and technical resources.* The MTD's competitors for MES software include Consilium, Incode, SAP AG, Intellution, Inc. and ProPack GmbH. While the MTD believes that PHARM2 is a premier commercially available, comprehensive, standardized, PC-based, MES solution capable of the necessary functionality and supporting documentation suitable for regulated manufacturing found in the pharmaceutical and medical device manufacturing industries, many of these competitors offer products that provide specific MES applications, or toolkits that can be used for internal system development. In addition, the MTD competes with system integrators and internal corporate MIS departments. The MTD believes that internal MIS departments, which are responsible for developing and operating a manufacturer's management information systems and who are instrumental in the approval process for PHARM2, provide a significant source of competition. Competition among providers of software for manufacturers is likely to increase substantially for many reasons. A number of companies offering products developed for discrete manufacturers have announced plans to introduce products designed more specifically for process manufacturers. Some companies offering host-based systems for process manufacturers have begun to offer or have announced plans to introduce products for client/server computing and to increase the number of hardware platforms on which their software operates. The Company believes that competition will increase as a result of software industry consolidations. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address the needs of the Company's prospective customers. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Despite the Company's belief that it ranks ahead of the known competition in function, economics, and suitability for pharmaceutical manufacture, there can be no assurance that the MTD will compete successfully with new or existing competitors or that competitive pressures faced by the MTD will not materially and adversely affect its business and financial statements.* The defense business was also highly competitive and subject to rapid change. The GTD competed primarily on its expertise in designing safety critical applications. The GTD competed with large defense contractors and specific departments of large electronic companies. The GTD's competitors included Boeing Aerospace, Lockheed Martin, Hamilton Standard Company, a division of United Technologies Corporation, GEC Marconi, Elbit and Smiths Industries. Most of the GTD's competitors were larger and had more resources to devote to, among other things, internally-funded development efforts that could have provided advantages in competitive bidding. 7 MANUFACTURING During fiscal 1997 and through December 31, 1997, the Company's manufacturing activities related solely to the GTD. Management does not anticipate engaging in manufacturing activities relating to the MTD other than the assembly of components for incorporation into the uPACS products. The GTD's defense-related operations involved assembling and testing final products from components and subassemblies purchased from third parties. The GTD also designed software used in the products manufactured pursuant to third-party requirements. All of the GTD's defense-related development and production activities took place in the Company's New Jersey facility. As part of its contract manufacturing services, the GTD offered supporting engineering services to develop a prime contractor's design and solve technical and manufacturing problems. BACKLOG The Company's backlog at October 31, 1997 was $4.8 million related to PHARM2 product orders and signed license agreements. Backlog includes approximately $1.6 million of signed license agreements for which funding is scheduled to be released prior to June 1998 although no assurances can be given that such funding will be made available. PROPRIETARY RIGHTS While the Company has received certain patent protection for its MTD products, there can be no assurances that any additional patents will be issued, that the scope of any patent protection will be adequate, or that any current or future issued patents will be held valid if challenged. The Company believes that its products and technology do not infringe any existing proprietary rights of others. The Company regards its software as proprietary and attempts to protect it with copyrights, trademarks, trade secret law, and contractual arrangements. However, existing copyright laws offer only limited practical protection for software. Furthermore, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. There can be no assurance that the means of protecting its proprietary software will be adequate or that competitors will not independently develop technologies similar to that of the Company. Under certain circumstances, customers of the MTD may be entitled to limited access of the PHARM2 source code. Customer access to source code may increase the products possibility of misappropriation or other misuse of the MTD software. Accordingly, it may be possible for unauthorized third parties to copy certain portions of the MTD's software or to obtain and use information that the Company regards as proprietary. In addition, the Company has filed applications for a patent covering certain aspects of the safety critical technology in PHARMASYST-Registered Trademark- and PHARM2 and for several patents covering elements of its imaging technology. REGULATION The MTD's PHARM2 software products do not require FDA clearance or approval at this time although the Company anticipates that such approval may be required in the future. However, those products are intended to facilitate compliance by pharmaceutical manufacturers with the FDA's cGMP regulations and are designed to be integrated into a manufacturer's production systems. A pharmaceutical manufacturer's systems, including any PHARM2 applications used, must be capable of sufficiently documenting the production of each batch of product to be in compliance with cGMP. Further, the manufacturer must be able to demonstrate to the FDA that its systems have that capability under a variety of circumstances. The MTD is engaged in a continuing program to maintain compliance to GAMP. Other products the MTD has developed are considered, and the archiving software for ultrasound images that the Company intends to develop will be considered, "medical devices" under FDA regulations. 8 Before such products may be marketed in the U.S., they must receive FDA clearance of a pre-market notification application ("510(k) clearance") or FDA clearance of a pre-market approval application ("PMA"). In June 1996 the MTD received 510(k) clearance to market several versions of uPACS. Obtaining such clearance can take substantial time and can require substantial expenditures. Many other countries regulate the manufacture, marketing and use of medical devices in ways similar to the U.S. There can be no assurance that the MTD will be able to obtain required clearances for any products it develops on a timely or cost-effective basis, if at all. Should government policy dictate that the products of the MTD are of a sensitive technological character in which the best interests of the United States will be served by prohibiting their export, the Company could suffer a serious and immediate loss of business. EMPLOYEES The Company currently employs a total work force of 117 persons, including 52 engineers and designers, plus additional contract labor. None of the Company's employees are covered by collective bargaining agreements. The Company has never experienced any labor disruptions or work stoppages and considers its employee relations to be good. PRODUCT LIABILITY INSURANCE The MTD maintains product liability insurance of at least $5 million for its commercial products and the GTD maintained $30 million of product liability insurance for defense related products in the event a claim is made that the Company's products failed to prevent defects in pharmaceutical products which resulted in injury to consumers or that its defense related products resulted in injury to persons or property. There can be no assurances that the Company's existing insurance would be adequate to cover any claims or that the Company will be able to obtain and maintain adequate insurance in the future. The Company and STS have agreed to each obtain insurance protecting the other from liabilities that could occur because of defense products now in the field manufactured by the GTD while part of the Company. FOREIGN OPERATIONS Information on operations in different geographic areas is provided in Note H of the Notes to the Consolidated Financial Statements included elsewhere in this Annual Report. 9 EXECUTIVE OFFICERS OF THE COMPANY The current executive officers of the Company are as follows:
NAME AGE OFFICES HELD WITH BASE TEN PERIOD SERVED - ------------------------------------------- --- ------------------------------------------- ----------------- Thomas E. Gardner.......................... 50 Co-Chairman of the Board, President 1997 to present and Chief Executive Officer Alexander M. Adelson....................... 63 Co-Chairman 1997 to present Vice Chairman 1997 Consultant 1992 to 1997 C. Richard Bagshaw......................... 58 Executive Vice President 1997 to present Richard J. Farrelly........................ 66 Senior Vice President 1997 to present Vice President 1992 to 1997 William F. Hackett......................... 46 Senior Vice President and CFO 1997 to present
A summary of the business experience and background of the Company's officers and directors is set forth below. MR. GARDNER has been Director and Co-Chairman of the Board since December 31, 1997 and President and Chief Executive Officer since November 1, 1997. Prior to his employment with the Company, Mr. Gardner was President, CEO, COO and a Director of Access Health, Inc. Mr. Gardner was employed by the Dun & Bradstreet Corporation and served in various executive positions including Corporate Vice President, and President and CEO of Dun & Bradstreet Health Care Information, Inc. MR. ADELSON has been a consultant to the Company since 1992. Mr. Adelson became a director in 1992, Vice Chairman in 1997 and Co-Chairman as of December 31, 1997. MR. FARRELLY has been employed by the Company since 1988 and became a Vice President in 1992, responsible for corporate development. Mr. Farrelly was formerly General Manager of the Reentry Systems Division of General Electric Aerospace Company and is now serving as a Senior Vice President responsible for human relations and planning. Mr. Farrelly is also Chief Compliance Officer of the Company. MR. BAGSHAW was President and General Manager of Syntex PR of Humancao, Puerto Rico, a subsidiary of Syntex Pharmaceuticals, Palo Alto, California subsequently acquired by Roche Holdings in 1995. From 1991 to 1996 he was responsible for strategy development and implementation for corporate partnering and talent upgrade. MR. HACKETT was a Senior Manager for the Princeton Data Division of Bloomberg Financial Markets from 1991 to 1997 responsible for the collection, analysis, and distribution of information and product development. ITEM 2. PROPERTIES The Company's principal facility in the United States is in New Jersey. Prior to the GTD Sale, the MTD and the GTD occupied 82,000 square feet in Trenton including its corporate headquarters and engineering, manufacturing and support activities. The lease for such space expires in October 2009. The Company leases approximately 3,000 square feet of space in Camberley, England for use as administrative offices and software development facilities. The lease for the office space in the Camberley facility expires in March 2003. The Company also leases small office facilities in California, Copenhagen, Brussels and Tokyo. Strategic Technology Systems, Inc., the purchaser of the GTD, occupies approximately 40,000 square feet of the New Jersey facility pursuant to a five year sublease with the Company. 10 The Company's headquarters and manufacturing facility in New Jersey was subject to a sale and leaseback transaction completed in October 1994. The Company's fifteen year lease on the facility includes a limited repurchase option exercisable at $4.3 million during fiscal 1998, declining to $3.5 million during the last five years of the lease. See Note I to the Company's Financial Statements included elsewhere in this Annual Report. Management believes that the Company's facilities are currently adequate for its operations. ITEM 3. LEGAL PROCEEDINGS The Company is involved from time to time in various claims and proceedings including employee claims in the normal course of business none of which, singly or in the aggregate, in the opinion of management, will have a material adverse effect on the consolidated financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's shareholders during the fourth quarter of fiscal 1997. On December 31, 1997, the GTD Sale, the issuance of additional securities, and the extension of certain option plans were approved by the Company's shareholders at a Special Meeting of Shareholders. 11 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS The Company's Class A Common Stock is listed on the NASDAQ National Market System under the trading symbol BASEA, and the Company's Class B Common Stock is currently traded in the NASDAQ over the counter market and quoted on its Supplemental List under the trading symbol BASEB. The following table sets forth the high and low bid prices of the Company's Class A Common Stock and Class B Common Stock as reported by NASDAQ for the periods indicated:
CLASS A COMMON STOCK CLASS B COMMON STOCK BID PRICE BID PRICE --------------------- --------------------- HIGH LOW HIGH LOW -------- -------- -------- -------- FISCAL 1996: First quarter................. $ 13 1/4 $ 10 1/8 $ 12 5/8 $ 10 1/2 Second quarter................ 11 1/8 8 7/8 11 1/4 9 1/2 Third quarter................. 13 1/2 9 15/16 14 3/4 11 3/8 Fourth quarter................ 13 1/4 10 14 13 1/2 FISCAL 1997: First quarter................. $ 12 1/4 10 14 3/4 12 Second quarter................ 11 1/2 9 3/4 14 3/4 12 3/4 Third quarter................. 10 7/8 9 7/8 14 1/4 11 1/2 Fourth quarter................ 16 9 3/4 16 10 1/2
As of January 19, 1998, there were approximately 660 record holders of Class A Common Stock and 143 record holders of Class B Common Stock. Base Ten has not paid cash dividends on its Common Stock since 1985. The present policy of the Board of Directors is to retain any future earnings to provide for the Company's growth. ITEM 6. SELECTED FINANCIAL DATA The following table presents selected financial data for Base Ten and its consolidated subsidiaries. The financial data for the fiscal years ended October 31, 1995 through October 31, 1997 and as of October 31, 1996 and 1997 have been derived from the Company's audited Consolidated Financial Statements included elsewhere in this Report and should be read in conjunction with those Consolidated Financial Statements and related Notes. 12 ITEM 6. SELECTED FINANCIAL DATA (CONTINUED) BASE TEN SYSTEMS, INC. AND SUBSIDIARIES (IN THOUSANDS EXCEPT PER SHARE DATA)
YEAR ENDED OCTOBER 31, ------------------------------------------------------ 1997 1996 1995 1994 1993 ---------- --------- --------- --------- --------- SUMMARY OF OPERATIONS: Revenues.................................................. $ 2,660 $ 1,562 $ 2,710 $ 584 $ 433 Loss from continuing operations before income tax benefit................................................. $ (15,980) $ (9,097) $ (2,616) $ (125) $ (156) Income taxes (benefit).................................... $ -- $ (684) $ (707) $ 24 $ -- Net loss from continuing operations....................... $ (15,980) $ (8,413) $ (1,909) $ (149) $ (156) Net earnings (loss) from discontinued operations.......... $ (6,027) $ (546) $ 532 $ 184 $ 1,114 Net earnings (loss)....................................... $ (22,007) $ (8,959) $ (1,377) $ 35 $ 958 ---------- --------- --------- --------- --------- Earnings (Loss) per share continuing operations................................... $ (2.03) $ (1.09) $ (.28) $ (.02) $ (.02) discontinued operations................................. $ (.76) $ (.07) $ .08 $ .05 $ .19 ---------- --------- --------- --------- --------- Net earnings (loss) per share............................. $ (2.79) $ (1.16) $ (.20) $ .03 $ .17 ---------- --------- --------- --------- --------- Summary Balance Sheet AS OF OCTOBER 31, ------------------------------------------------------ 1997 1996 1995 1994 1993 ---------- --------- --------- --------- --------- Working capital (1)....................................... $ 2,671 $ 14,115 $ 13,270 $ 5,860 $ 6,365 Total assets.............................................. $ 21,217 $ 30,397 $ 28,005 $ 17,609 $ 17,255 Long term debt, net of current maturities (2)............. $ 18,925 $ 13,478 $ 3,525 $ 3,601 $ 3,212 Shareholders' equity (deficiency)......................... $ (4,982) $ 12,140 $ 20,261 $ 9,431 $ 7,957
- ------------------------ (1) Included in 1997 is the reclassification of the assets and liabilities of GTD as net assets held for sale. (2) Included in 1994 to 1997 financial information is a long-term capital lease. (3) Included in 1996 financial data is a write-off of various capitalized expenses amounting to $2.4 million and $0.6 million of expenses incurred in the preparation of a Registration Prospectus which was withdrawn. (4) Included in 1997 financial data is the inclusion of $2.7 million, the fair market value of options and warrants issued to non-employee consultants (see discussion in Results of Operations--Continuing Operations). ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL During the fiscal year ending October 31, 1997, the Company operated a Medical Technology Division (the "MTD"), and a Government Technology Division (the "GTD"). On December 31, 1997, following approval by shareholders, the Company sold the GTD (the "GTD Sale") to Strategic Technology Systems, Inc. ("STS"). On January 29, 1998, the Company elected to change its fiscal year so that the annual accounting period will henceforth be from January 1 through December 31. The Quarterly Report on Form 10-Q for the transition period from November 1, 1997 to December 31, 1997 and the Annual Report 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) for the fiscal year ending December 31, 1998 will not include, except as indicated therein, the operations of the GTD. STS is a newly formed corporation managed and partially owned by individuals who were, prior to the GTD Sale, members of the Company's senior management (the'Management Group"). Members of the Management Group were significantly involved in the business and development of the GTD while employed by the Company and left the Company's employ to join STS concurrently with the GTD Sale. STS acquired substantially all of the operating assets of the GTD in exchange for certain consideration and the assumption of certain liabilities, pursuant to the terms and conditions set forth in an Asset Purchase Agreement between the Company and STS dated October 27, 1997 (the "Asset Purchase Agreement"). The Asset Purchase Agreement was filed as an exhibit to the Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission on November 11, 1997. DISCONTINUED OPERATIONS The consolidated financial statements of the Company have been restated in order to account for the operations of the GTD as discontinued operations in view of the GTD Sale. In the restatement, all assets and liabilities of the GTD at October 31, 1997 only and all items of income and expense attributable to GTD's operations for all periods presented have been eliminated from consolidation and accounted for on a net basis as assets held for sale and discontinued operations. Accordingly, the following discussion of the Company's financial condition and the results of operations excludes the results of the discontinued operations, except as otherwise indicated. CONTINUING OPERATIONS OVERVIEW The Company has been engaged since 1991 in the development of products for the regulated manufacturing industry and, most recently, computerized Manufacturing Execution Systems ("MES") for the pharmaceutical and medical device industry. Although no assurances can be given, the Company believes the pharmaceutical and medical device market for MES is poised to grow rapidly over the next few years due to the pressure for compliance with regulations promulgated by the FDA and the International Standards Organization (ISO 9000) in addition to the need to continuously reduce costs to remain competitive.* The Company believes it has developed a premier, standardized, PC-based system with the necessary functionality and documented support required by the pharmaceutical and medical device industry to assist it in reducing cost while remaining in compliance with FDA and ISO 9000 requirements and, although no assurances can be given, considers that its continuing investment in this evolving product area could provide it with a leadership position in this market with the potential for substantial growth and the expansion of its product opportunities into other regulated areas such as the food, cosmetic, and chemical industries.* During the sales and marketing activity for the year ended October 31, 1997, the Company recognized a continuing need to provide detailed demonstrations of its products approximating actual customer requirements and believes that additional sales and technical personnel are required to satisfy this need. In addition, the Company believes that its MES is compliant with industry standards such as Good Automated Manufacturing Practices (GAMP), an industry standard, that it is beneficial to continually upgrade its program of compliance with GAMP and has therefore, in pursuit of its continuing program to upgrade its compliance programs added additional quality and project personnel. The expenses for such personnel are in addition to those which management believes should be expended in 1998 in the development of new products based on PHARM2. Such expenses include the salary and overhead costs of software 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) development and quality personnel developing standard features to add to PHARM2. The Company believes these are needed to improve the profitability of the product by reducing the need to provide specific enhancements to individual customers. By reducing the need to provide specific enhancements for individual customers, management believes that, while no assurances can be given, there will be a reduction in the time between order placement and revenue recognition with a reduced cost of sales. The additional staff in sales, customer service, quality assurance and technical personnel create expenses in advance of the revenues which they are intended to develop and act to increase losses until such revenues are generated. The Company believes its objective of being the leading supplier of MES to the pharmaceutical industry requires the incurrance of these costs and their consequences. The Company believes there is a compelling need for pharmaceutical manufacturers to have MES compliant with cGMP as established by the FDA. Because of FDA approval of electronic signatures, the Company believes manufacturers are now less reluctant to employ computerized MES systems such as the MES products offered by the Company. The Company considers the additional costs of compliance to GAMP to be a prudent investment. The Company, however, cannot be assured that pharmaceutical manufacturers may not find other ways to satisfy regulatory requirements.* The installation of a MES is a complex process involving integration with existing hardware platforms and systems. A significant factor in successful field installation is the ability of customer personnel to understand the system and, in addition to participating in the training required, to accommodate the difference between standard paper systems and electronic methodology. In addition, the system must undergo rigorous testing after installation and may require an extended period of modifications to fully comply with customer requirements, some of which may be at the Company's expense. As assurance that the Company intends to support its products, the Company is currently providing, at Company expense, the services of five to eight developers to assist in field installations in view of delivery delays to certain customers. Although no assurances can be given, the Company believes the current need for field support may be reduced during 1998 as additional systems are installed. The Company from time to time agrees to penalty clauses for delivery, some of which may be exercised with the corresponding reduction in revenue and a negative impact on profitability.* For use in a manufacturing environment, the system generally has to undergo validation in accordance with defined procedures determining its fitness for use in a regulated environment. The Company currently has two systems installed and validated at a medical device manufacturing plant and a pharmaceutical manufacturing plant. One additional PHARMASYST-Registered Trademark- product and one additional PHARM2 product are believed to have completed the testing necessary for validation but have not been formally declared validated by the customer and no assurances can be given that such validation will be formalized.* Customers are provided the right to cancel at no cost early in the contract cycle if the parties do not agree on the applicable specifications for the PHARM2 software to be installed. Although the Company has made eight deliveries of PHARMASYST-Registered Trademark- and PHARM2 applications, ten other deliveries of PHARM2 continue to be overdue. Deliveries have been and are being delayed because of the Company's failure to accurately estimate the time required to complete certain software enhancements to PHARM2 required to meet individual customer requirements, including requirements revised by the customer after initial bids were submitted or agreements signed. The Company has recently adopted a policy of requiring, wherever practical, customer participation in a walk through of the standard software before requirements are fixed to avoid misunderstandings and, while no assurances can be given, the Company believes that this practice will reduce the probability of lateness due to changing requirements. In order to maintain customer relations, the Company accepted responsibility for changes without requesting additional funds 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) or extension of delivery dates. Cancellation for late deliveries may occur and two already have occurred, and, while no assurances can be given, the Company does not anticipate the loss of material orders as a result thereof.* Contracts to deliver software which require significant customization or modification for an extended period of time are accounted for under the percentage of completion method. For products or orders which are more standardized in nature, revenue is recognized on delivery. In 1996, the Company determined that its PHARM2 product had become standardized and, generally, PHARM2 license fees are recognized as revenue upon delivery of standard PHARM2; revenue for customization is recognized on a percent completion basis; and revenue from other services is recognized as rendered. The Company did not incur any material expenses in the cancellation of these two orders since both involved the provision of standard software under development as PHARM2, which proceeded without additional cost regardless of the cancellations. If the Company had been able to complete the development of PHARM2 earlier, these two cancellations could have been prevented and the Company could have recognized additional revenue of approximately $150,000. While the Company cannot predict customer willingness to wait for the completion of deliveries and other cancellations may occur, the Company does not believe a material portion of its backlog will be canceled. Software development expenditures are expensed as research and development until a product attains technological feasibility. Thereafter, expenditures are capitalized until products attain commercial viability. The Company established technological feasibility for PHARMASYST-Registered Trademark- in 1993. At the end of 1997 and including development of PHARM2, PHARMASYST-Registered Trademark- had a capitalized value of $4.8 million after allowing for amortization. Development expenditures for PHARMASYST-Registered Trademark- and other commercial products have consisted primarily of salaries of software engineers and quality assurance staff plus applicable allocated overhead. The amortization period for PHARMASYST-Registered Trademark- and PHARM2 is scheduled to be complete by June 1999 and until then will have a significant effect on earnings. In the second quarter of fiscal 1996, the Company reviewed the recoverability of its capitalized software costs and determined that neither PRENVAL nor the product then marketed as uPACS would achieve sufficient revenues in future periods to justify retention of the related capitalized costs. Accordingly, the Company wrote off the $2.4 million balance of such capitalized costs. With respect to PRENVAL, it became apparent to the Company that market acceptance of the product was less than anticipated. The Company also determined that the licensee had no current plans to market the product in the U.S. as was originally anticipated by the Company and that, as a result, sales would not exceed the amount necessary to generate royalties in excess of the minimum provided under the license and the Company determined to suspend further development of PRENVAL. However, the Company will provide technical and marketing support for the remainder of the license term. The Company believes that the use of its marketing and technical staff to support the sale of PRENVAL throughout the balance of the license term is an effective way to develop the potential for an extension of the license term and does not represent a material cost to the Company. With respect to uPACS, the Company had implemented sales efforts in late 1995 and displayed the product at certain trade shows in Europe. In December 1995, sales were anticipated for early 1996. However, by early April 1996 it became clear that the anticipated sales would not materialize. The Company concluded that the product, as it then existed, would not generate sufficient sales to recover the capitalized costs and that only a new product designed for networking with communications and off-line measurement capabilities would be capable of producing acceptable sales volume. 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF DISCONTINUED OPERATIONS During 1997, the GTD was engaged primarily in the development of the Interference Blanking Unit based on a contract awarded to the GTD in May 1996. In addition, the GTD completed the development of the Maintenance Data Recorder development contract awarded in April 1996 and continued the development of the electronics for the SLAM-ER missile project which the GTD was awarded in late 1996. FISCAL 1997 COMPARED TO FISCAL 1996 CONTINUING OPERATIONS REVENUES MTD revenues in 1997 increased to $2.7 million compared with $1.6 million in 1996 due to increases in deliveries of PHARM2. Revenues were below expectations primarily due to the delays in completing certain software tasks. While no assurances can be given, the Company has initiated changes in the method of estimating and measuring software development and anticipates improvements in efficiency and cost as well as shorter delivery times. * COST OF SALES Cost of sales in 1997 was $3.4 million compared with $0.7 million in 1996. Cost of sales increased because labor and overhead component costs of inventory increased primarily due to additional software development and test personnel in both the New Jersey and United Kingdom facilities. Further enhancements to the core software PHARM2 are no longer being capitalized since deliveries of the standard product began at the end of the second quarter of 1997. Although no assurances can be given, the Company believes that a combination of increased prices, increased deliveries, and product development now underway to reduce the need for enhancements will result in a decline in unit cost of sales later in 1998. * AMORTIZATION OF SOFTWARE DEVELOPMENT COSTS Capitalization of the core software for PHARM2 was completed at the end of the 1997 second quarter since deliveries of early standard versions of PHARM2 began at that time. Amortization of software development costs increased from $1.3 million in 1996 to $3.0 million in 1997. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES MTD selling, general and administrative expenses in 1997 were $10.5 million compared with $5.1 million in 1996. Selling costs increased by $0.6 million due primarily to an increase of $0.3 million in consulting fees and modest increases in sales commissions and personnel costs. There were increases in almost all general and administrative expense categories, the largest of which was inclusion of $2.7 million, the fair market value of options and warrants issued to non-employee consultants for service rendered during 1997. The fair market value was determined using the Black-Scholes option pricing model. In addition, a reserve of $1.0 million was recorded to cover potential cost overruns and penalties. Cost overruns are attributed to the failure to accurately estimate the cost of certain software projects and to the aggressive pricing policies the MTD followed to secure the desired market share. While no assurances can be given, the Company believes that current high priority development activities intended to add standard features to PHARM2 are expected to reduce the amount of enhancements required for future customers. * The reduction in enhancement required for individual customers reduces the amount of software development and the consequent potential for cost overruns. Penalty costs are incurred from time to time 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) because of lateness in delivery. While no assurance can be given, the Company believes that by reducing the need for enhancements the ability to meet schedule commitments will be improved. * INTEREST EXPENSE Interest expense in 1997 was $1.6 million compared with $.7 million in 1996 and includes interest on the capitalized lease of $.6 million. The difference in expense is related to interest paid on the $10 million convertible debenture issued in 1996 and the $5.5 million convertible debenture issued in 1997. The $10 million convertible debenture which has an annual interest rate of 9% was outstanding for less than three months in 1996 but was outstanding throughout 1997. The $5.5 million convertible debenture which has an annual interest rate of 8% did not exist in 1996 and was outstanding for five months in 1997. CONTINUING LOSSES The MTD incurred a loss before taxes of $16.0 million in 1997 compared to a loss before taxes of $9.1 million in 1996. The 1996 loss was reduced to $8.4 million by an income tax benefit of $.7 million. A major portion of the loss in 1997 compared to 1996 is attributable to the $1.7 million increased amortization, the additional reserves for cost overruns and penalties of $1.0 million, and $2.7 million, which is the fair market value of options and warrants issued to non-employee consultants for services rendered during 1997. The increase in labor costs of $1.0 million, the increase in interest cost of $0.9 million, the increased selling costs of $0.6 million, and the increased overhead costs of $0.6 million all contributed to the loss. The Company expects additional losses in 1998 including amortization expense estimated to be $3.3 million. The Company's ability to achieve profitable operations is dependent upon, among other things, the completion of current development and testing activities for PHARM2, timely delivery and successful installation and validation of its systems by its customers, and successful competition in the markets in which the Company participates. * The 1996 loss included a write off of various capitalized expenses in the sum of $2.4 million representing development of the Company's prenatal abnormality detection software, PRENVAL, and early development costs of uPACS as well as other operating losses including interest and amortization of $ 2.0 million. The major portion of the operating loss represented the Company's continuing investment in the development of markets and infrastructure for the MES business. Readiness for the Year 2000 The Company has taken actions to understand the nature and extent of the work required to make its systems and infrastructure Year 2000 compliant. The Company has determined that it does not have any material Year 2000 problem with its products and believes, based on available information, that it will be able to manage its total Year 2000 transition without any material adverse effect on business operations or financial prospects. While no assurances can be given, the Company anticipates converting all of its present infrastructure software systems to currently available software products which are already Year 2000 compliant. The Company cannot anticipate the impact of suppliers and vendors non-compliance with the Year 2000.* DISCONTINUED OPERATIONS The GTD incurred a net loss of $6.0 million in 1997 compared to a net loss of $0.5 million in 1996. The GTD loss in 1997 consisted primarily of operating losses incurred because of reduced revenues without the corresponding reduction in operating expenses, and, a loss of $1.2 million on the GTD Sale. 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) GTD revenues in 1997 were $10.0 million compared with $13.3 million in 1996. The decrease in revenues was directly attributable to the difficulty in obtaining new business due to delays in government procurement and stretched out deliveries of existing programs. The GTD cost of sales in 1997 was $9.3 million compared with $10.3 million in 1996. Selling, general and administrative expenses for 1997 were $4.1 million compared with $3.4 million in 1996. FISCAL 1996 COMPARED TO FISCAL 1995 CONTINUING OPERATIONS REVENUES Revenues from the MTD products declined from $2.7 million in 1995 to $1.6 million in 1996. In 1995, $1.8 million in revenue was recognized upon completion of the Company's PRENVAL software sold and licensed to Johnson & Johnson Ortho Clinical Diagnostic Systems, and approximately $0.4 million in revenue was derived from the Company's PHARMASYST products. The Company recognized PHARMASYST revenue only upon delivery of products beginning at the end of the fiscal 1996 second quarter, and consequently these products produced only minimal revenue in the 1996 third and fourth quarters. COST OF SALES Cost of sales in 1996 was $0.7 million compared with $1.0 million in 1995. Labor cost in 1996 was $2.7 million compared with $1.3 million in 1995. Cost of sales in 1996 was 46% of revenues compared with 35% of revenues in 1995, due primarily to the increase of labor. AMORTIZATION OF SOFTWARE DEVELOPMENT COSTS Amortization of software costs increased from $0.6 million in 1995 to $1.3 million in 1996. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses in 1996 were $5.1 million compared with $3.0 million in 1995. Selling costs in 1996 were $2.3 million compared with $1.5 million in 1995. The increased cost in 1996 compared to 1995 is related to an increase in personnel costs from $0.4 million in 1995 to $0.6 million in 1996 together with associated expenses such as travel and commissions, plus an increase in consulting expenses from $0.3 million in 1995 to $0.5 million in 1996. The increase in personnel costs in 1996 represented additional sales personnel engaged to expand selling opportunities. In addition, general and administrative personnel costs increased from $0.3 million in 1995 to $0.8 million in 1996. Professional fees increased from $0.2 million in 1995 to $0.4 million in 1996 representing, in part, expenses incurred in preparing a Registration Statement which was withdrawn. The remaining cost increases in 1996 principally represent the expansion of the infrastructure necessary to support the increased activity in PHARM2 development and sales. INTEREST Interest expense in 1996 consisted of interest paid on the capitalized lease and two and one half months of interest at 9% paid on the $10.0 million convertible debenture issued in August, 1996. Total interest expense amount to $0.7 and $0.6 million in 1996 and 1995, respectively. 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LOSSES The 1996 net loss of $8.4 million included a write-off of capitalized expenses in the sum of $2.4 million representing development of the Company's prenatal abnormality detection software, PRENVAL, and early development costs of uPACS. There were, in addition, other operating losses including interest and amortization of $2.0 million. The major portion of the operating loss, however, related to costs incurred due to the Company's continued investment in the development of markets and infrastructure for the MES business. DISCONTINUED OPERATIONS Revenues for the GTD in 1996 were $13.3 million compared with $15.6 million in 1995. The reduction in revenues was due to reduced government spending on programs in which the GTD participated. Cost of sales for the GTD in 1996 was $10.3 million compared with $10.9 million in 1995. Overhead expenses for the two years were constant at $4.6 million per year. Cost of sales in 1996 consisted of a higher engineering content compared with a larger manufactured content in 1995. Selling, general and administrative expense in 1996 was $3.4 million compared with $3.3 million in 1995. Professional fees in 1996 were $0.4 million compared with $0.1 million in 1995. Personnel costs in 1996 were $1.0 million compared with $0.7 million in 1995. The net loss for 1996 was $0.5 million compared with earnings of $0.5 million in 1995. The 1996 net loss was principally due to reduced volume without a corresponding reduction in expense. LIQUIDITY AND CAPITAL RESOURCES On May 1, 1997, the Company entered into an agreement whereby it became a minority owner of uPACS LLC, a limited liability company (the "LLC"). Under the terms of the agreement, the Company made a capital contribution to the LLC of its rights to its uPACS technology which is a system for archiving ultrasound images with networking, communication and off-line measurement capabilities. In exchange for such capital contribution, the Company received a 9% interest in the LLC. An outside investor made an initial cash capital contribution of $2 million and later made a further cash capital contribution of $1 million in return for a 91% interest in the LLC. The Company believes that the funds available under the LLC will be sufficient to fund operations in connection with uPACS until January 1999. In connection with the formation of the LLC, the Company entered into a services and license agreement whereby the Company agreed to complete the development of the uPACS technology and undertake to market, sell and distribute systems using the uPACS technology. The LLC will pay the Company its expenses in connection with such services and the Company will pay royalties to the LLC in connection with the sale of systems using the uPACS technology. At such time as the LLC has distributed to the outside investor an aggregate amount equal to $4.5 million of its net cash flow, the Company would become a 63% owner of the LLC and the outside investor would own a 37% interest in the LLC. There can be no assurance that uPACS will be successful or that the LLC will operate profitably or that the funds under the LLC will be sufficient for the further development and marketing of uPACS. The Company cannot predict if or when uPACS sales will commence in its updated versions. The Company anticipates difficulty in achieving such sales until further product development is completed and market tested.* On May 30, 1997, the Company sold 55 Units ("Units") at $100,000 per Unit, for an aggregate of $5,500,000, to two accredited purchasers ("Purchasers") in a private offering (the "Offering"). Each Unit consisted of (i) an 8% convertible debenture ("Convertible Debenture") in the principal amount of $100,000 convertible into shares of the Company's Class A Common Stock, and (ii) a warrant ("Warrant") 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) to acquire 1,800 shares of Class A Common Stock. The number of shares of Class A Common Stock issuable upon conversion of the Convertible Debentures is variable. The number of shares will be calculated at the time of conversion and will be the lesser of (i) the product obtained by multiplying (x) the lesser of the average of the closing bid prices for the Class A Common Stock for the (A) five or (B) thirty consecutive trading days ending on the trading day immediately preceding the date of determination by (y) a conversion percentage equal to 95% with respect to any conversions occurring prior to February 24, 1998 and 92% with respect to any conversions occurring on or after February 24, 1998 and (ii) $13.50 with respect to any conversions occurring prior to May 30, 1998 or $14.00 with respect to any conversions occurring on or after May 30, 1998. These prices were subsequently revised to $13.05 and $13.53 pursuant to an agreement between the holders and the Company reached in consideration of the holders' willingness to grant the Company a waiver to sell the GTD. The Convertible Debentures were not convertible prior to December 16, 1997. From December 16, 1997 until February 23, 1998, one-half of the Convertible Debentures may be converted and after February 23, 1998, the Convertible Debentures are fully convertible. The Warrants may be exercised at any time through May 30, 2002 at an exercise price of $12.26 per share. The Company received net proceeds of approximately $4,950,000 from the sale of the Units after deduction of fees and expenses related to the Offering. In December 1997, the Company completed the sale of two installments of the sale of an aggregate of $19 million of convertible preferred stock ("Preferred Stock") and Class A Common Stock Purchase Warrants (the "Warrants"). The Preferred Stock pays a cumulative dividend of 8.0% per annum during any quarter in which the closing bid price for the Class A Common Stock is less than $8.00 for any 10 consecutive trading days. An equivalent payment is payable to any holder of Preferred Stock which is subject during any quarter to a standstill period following a Base Ten underwritten public offering or which is non-convertible because of certain limitations. Such dividends are payable only prior to conversion and are payable in cash or additional Preferred Stock at the Company's election; however, if the Company elects to pay the dividend in additional Preferred Stock, the amount of such payment will be 125% of the cash amount due. The Preferred Stock has a liquidation preference as to its principal amount and any accrued and unpaid dividends. The Preferred Stock is convertible at any time or from time to time into Class A Stock, at a conversion price equal to the lesser of (i) $16.25 per share; or (ii) the Weighted Average Price of the Class A Common Stock prior to the conversion date. Weighted Average Price is defined as the volume weighted average price of Class A Common Stock on NASDAQ over any two trading days in the 20 trading day period ending on the day prior to the date the holder gives notice of conversion (excluding the lowest closing bid price in that period). The holder has the right to select such two days. In no event will more than 3,040,000 shares of Class A Common Stock be issuable upon conversion of all of the Preferred Stock. Any Preferred Stock remaining outstanding because of this limitation may be redeemed at the holder's option for a subordinated 8% promissory note maturing when the Preferred Stock would have matured. The Company has the right, at any time, to redeem all or any part of the outstanding Preferred Common Stock or subordinated notes at 130% of their original purchase price. The holders of the Preferred Common Stock have the same voting rights as the holders of Class A Common Stock, calculated as if all outstanding shares of Preferred Common Stock had been converted into shares of Class A Common Stock on the record date for determination of shareholders entitled to vote on the matter presented plus the rights imposed by law with respect to a change in the terms of the Preferred Stock. Any shares of Preferred Stock or subordinated notes still outstanding three years after issuance must be redeemed in either cash, or at Base Ten's option, in Class A Common Stock. If the Company elects to make the redemption in Class A Common Stock, the amount of such payment will be 125% of the original purchase price. 21 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) For each $1 million of Preferred Common Stock issued, the purchaser received five year warrants to purchase 40,000 shares of Class A Common Stock at $16.25 per share. So long as shares of the Preferred Common Stock remain outstanding, each holder has the right (with certain exceptions) to purchase, on five days notice, up to that portion of any future equity financing by the Company which would be sufficient to enable the holder to maintain its percentage equity interest on a fully diluted basis. The Company is required to file a registration statement (the "Registration Statement") with the Securities and Exchange Commission ("SEC") registering for resale the Class A Common Stock underlying the Preferred Common Stock, including any Preferred Common Stock which may be issued as a dividend, and the Warrants, which must become effective no later than March 2, 1998. In the event the Registration Statement is not declared effective by the SEC by such date, the Company will be required to pay the holders of the Preferred Stock an amount equal to 1 1/2% of the original purchase price for each month until the Registration Statement has been declared effective. The Registration Statement, which cannot be filed prior to the filing of the Company's Annual Report on Form 10K which was due on January 29, 1998, is expected to be filed with the SEC on or before February 13, 1998. There can be no assurances that the SEC will complete its review of the Registration Statement prior to March 2, 1998 or that the SEC will not have comments on the Registration Statement requiring responses from the Company which may extend the time prior to such Registration Statement declared effective. In view of the period of time between the filing of the Registration Statement and March 2, 1998 the Company may be required to pay a penalty as described above.* The Company believes that cash generated by operations and existing capital resources will be sufficient to fund its operations at least through the end of fiscal 1998. The Company is relying on its leading product, PHARM2-TM- to stimulate new orders. Neither the additional development of PHARM2-TM- nor the consequential generation of cash can be assured either in time or amount or that such amounts will be sufficient for the Company's needs. In the absence of such orders or the promise thereof, neither of which can be assured, as well as in connection with its expected capital needs for 1999, the Company may elect to seek additional sources of capital and may also elect to reduce the pace of its development of its products or establish other cost reduction measures, which could adversely impact the Company. In the event the Company elects to seek additional capital there can be no assurance that such funds or capital would be available.* 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
PAGE ----- Independent Auditors' Report............................................................................... 25 Consolidated Balance Sheets--October 31, 1997 and 1996..................................................... 26 Consolidated Statements of Operations--Years ended October 31, 1997, 1996 and 1995......................... 27 Consolidated Statements of Shareholders' Equity (Deficiency)--Years ended October 31, 1997, 1996 and 1995...................................................................................................... 28 Consolidated Statements of Cash Flows--Years ended October 31, 1997, 1996 and 1995......................... 29 Notes to Consolidated Financial Statements................................................................. 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable 23 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning the Company's executive officers is set forth in Part I, Item 1, under the caption Executive Officers," and is incorporated herein by reference. The information called for by Item 10 concerning the Company's directors will be included in the Company Proxy Statement for its 1997 Annual Meeting of Shareholders, under the caption, "Election of Directors", and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information called for by Item 11 concerning Executive Compensation will be included in the Company's Proxy Statement for its 1997 Annual Meeting of Shareholders, under the caption, "Executive Compensation", and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by item 12 concerning beneficial ownership of certain beneficial owners and management will be included in the Company's Proxy Statement for its 1997 Annual Meeting of Shareholders, under the caption," Security Ownership of Certain Beneficial Owners and Management", and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RESTATED TRANSACTIONS The information called for by Item 13 concerning certain relationships and related transactions will be included in the Company's Proxy Statement for its 1997 Annual Meeting of Shareholders and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS AND SCHEDULES: 1. FINANCIAL STATEMENTS: The Financial Statements listed in the Index under Item 8 are included in this Annual Report at the pages indicated. 2. FINANCIAL STATEMENT SCHEDULES: The financial statement schedules for which provision is made in Regulation S-X have been omitted because the required information is either presented in the Financial Statements or the Notes thereto or is not applicable. 3. EXHIBITS: See the Exhibit Index on pages 38 through 40 of this Annual Report. (a) REPORTS ON FORM 8-K: The Company filed a Current Report on Form 8-K on November 11, 1997, for the sale of all the assets, subject to certain liabilities, of the Company's Government Technology Division. The Company filed a Current Report on Form 8-K, on December 18, 1997, for the sale of the first installment of the sale of $19 million of Convertible Preferred Shares. The Company filed a Current Report on Form 8-K on January 9, 1998, for the completion of the sale of the Government Technology Division and for the second and final installment of the sale of $19 million of Convertible Preferred Shares. The Company filed a Current Report on Form 8-K dated January 29, 1998, filed February 2, 1998, reporting the Company's change in fiscal year. 24 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Base Ten Systems, Inc. Trenton, New Jersey 08619 We have audited the consolidated balance sheets of Base Ten Systems, Inc. and subsidiaries as of October 31, 1997 and 1996, and the related consolidated statements of operations, shareholders' equity (deficiency) and cash flows for each of the three years in the period ended October 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Base Ten Systems, Inc. and subsidiaries as of October 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1997 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Parsippany, New Jersey February 6, 1998 25 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
OCTOBER 31, OCTOBER 31, 1997 1996 --------------- --------------- CURRENT ASSETS: Cash......................................................................... $ 1,502,000 $ 7,465,000 Accounts receivable (including unbilled receivables of $1,444,000 in 1997 and $4,162,000 in 1996).......................................................... 1,808,000 7,515,000 Inventories.................................................................. 478,000 2,935,000 Current portion of employee loan receivable.................................. -- 128,000 Net assets held for sale..................................................... 5,338,000 -- Other current assets......................................................... 566,000 585,000 --------------- --------------- TOTAL CURRENT ASSETS....................................................... 9,692,000 18,628,000 PROPERTY, PLANT AND EQUIPMENT.................................................. 4,305,000 5,071,000 EMPLOYEE LOAN RECEIVABLE....................................................... -- 148,000 OTHER ASSETS................................................................... 7,220,000 6,550,000 --------------- --------------- $ 21,217,000 $ 30,397,000 --------------- --------------- --------------- --------------- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES: Accounts payable............................................................. $ 962,000 $ 1,472,000 Accrued expenses............................................................. 6,005,000 2,994,000 Current portion of capital lease obligation.................................. 54,000 47,000 --------------- --------------- TOTAL CURRENT LIABILITIES.................................................. 7,021,000 4,513,000 --------------- --------------- LONG-TERM LIABILITIES: Long-term debt............................................................... 15,500,000 10,000,000 Capital lease obligation..................................................... 3,425,000 3,478,000 Other long-term liabilities.................................................. 253,000 266,000 --------------- --------------- TOTAL LONG-TERM LIABILITIES................................................ 19,178,000 13,744,000 --------------- --------------- COMMITMENTS AND CONTINGENCIES -- (NOTE I) SHAREHOLDERS' EQUITY (DEFICIENCY) Preferred Common Stock, $1.00 par value, authorized and unissued 1,000,000 shares....................................................................... -- -- Class A Common Stock, $1.00 par value, 22,000,000 shares authorized; issued and outstanding 7,768,952 shares in 1997 and 7,358,964 shares in 1996........ 7,769,000 7,359,000 Class B Common Stock, $1.00 par value, 2,000,000 shares authorized; issued and outstanding 445,121 shares in 1997 and 445,387 shares in 1996 (convertible into Class A common stock on a one-for-one basis)............... 445,000 445,000 Additional paid-in capital................................................... 29,458,000 25,086,000 Deficit...................................................................... (42,647,000) (20,640,000) --------------- --------------- (4,975,000) 12,250,000 Equity adjustment from foreign currency translation.......................... (150,000) (159,000) Unrealized gain on securities available for sale............................. 143,000 49,000 --------------- --------------- (4,982,000) 12,140,000 --------------- --------------- $ 21,217,000 $ 30,397,000 --------------- --------------- --------------- ---------------
See Notes to Consolidated Financial Statements. 26 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED OCTOBER 31, -------------------------------------------- 1997 1996 1995 -------------- ------------- ------------- REVENUE Sales............................................................ $ 2,512,000 $ 1,262,000 $ 2,244,000 Other............................................................ 148,000 300,000 466,000 -------------- ------------- ------------- 2,660,000 1,562,000 2,710,000 -------------- ------------- ------------- COSTS AND EXPENSE: Cost of sales.................................................... 3,436,000 716,000 952,000 Amortization of software development costs....................... 2,951,000 1,278,000 630,000 Write-off of software development costs.......................... -- 2,429,000 -- Research and development......................................... 147,000 404,000 212,000 Selling, general and administrative.............................. 10,479,000 5,122,000 2,978,000 Interest......................................................... 1,627,000 710,000 554,000 -------------- ------------- ------------- 18,640,000 10,659,000 5,326,000 -------------- ------------- ------------- LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX BENEFIT.......... (15,980,000) (9,097,000) (2,616,000) INCOME TAX BENEFIT................................................. -- (684,000) (707,000) -------------- ------------- ------------- NET LOSS FROM CONTINUING OPERATIONS................................ (15,980,000) (8,413,000) (1,909,000) -------------- ------------- ------------- DISCONTINUED OPERATIONS: EARNINGS (LOSS) FROM OPERATIONS OF GOVERNMENT TECHNOLOGY DIVISION, NET OF INCOME TAXES (BENEFIT) OF $(363,000) IN 1996 AND $233,000 IN 1995.......................................................... (4,854,000) (546,000) 532,000 LOSS ON SALE....................................................... (1,173,000) -- -- -------------- ------------- ------------- LOSS FROM DISCONTINUED OPERATIONS.................................. (6,027,000) (546,000) 532,000 -------------- ------------- ------------- NET LOSS........................................................... $ (22,007,000) $ (8,959,000) $ (1,377,000) -------------- ------------- ------------- -------------- ------------- ------------- LOSS PER SHARE: Continuing Operations............................................ $ (2.03) $ (1.09) $ (.28) Discontinued Operations.......................................... (.76) (.07) .08 -------------- ------------- ------------- NET LOSS PER SHARE................................................. $ (2.79) $ (1.16) $ (.20) -------------- ------------- ------------- -------------- ------------- ------------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING......................... 7,895,000 7,743,000 6,926,000 -------------- ------------- -------------
See Notes to Consolidated Financial Statements. 27 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
EQUITY ADJUSTMENT FROM CLASS A CLASS B ADDITIONAL FOREIGN TREASURY -------------------- -------------------- PAID-IN CURRENCY COMMON SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TRANSLATION STOCK --------- --------- --------- --------- ---------- ----------- ----------- ----------- BALANCE: October 31, 1994.................. 5,006,562 $5,007,000 476,476 $ 476,000 $14,374,000 $(10,304,000) $(122,000) $ -- Conversions of Class B Common to Class A Common.................. 20,896 21,000 (20,896) (21,000) -- -- -- -- Exercise of Options............... 123,131 123,000 5,000 5,000 400,000 -- -- (14,000) Exercise of Rights................ 828,542 828,000 -- -- 3,444,000 -- -- -- Exercise of Warrants.............. 1,248,701 1,249,000 -- -- 5,690,000 -- -- -- Capital Contribution.............. -- -- -- -- 502,000 -- -- -- Foreign currency translation...... -- -- -- -- -- -- (20,000) -- Retirement of treasury stock...... (11,637) (12,000) (2,106) (2,000) -- -- -- 14,000 Net Loss.......................... -- -- -- -- -- (1,377,000) -- -- --------- --------- --------- --------- ---------- ----------- ----------- ----------- BALANCE: October 31, 1995.................. 7,216,195 $7,216,000 458,474 $ 458,000 $24,410,000 $(11,681,000) $(142,000) -- Conversions of Class B Common to Class A Common.................. 5,418 5,000 (5,418) (5,000) -- -- -- -- Exercise of Options............... 137,351 138,000 -- -- 676,000 -- -- (8,000) Foreign currency translation...... -- -- -- -- -- -- (17,000) -- Retirement of treasury stock...... -- -- (7,669) (8,000) -- -- -- 8,000 Unrealized gain on securities available for sale.............. -- -- -- -- -- -- -- -- Net Loss.......................... -- -- -- -- -- (8,959,000) -- -- --------- --------- --------- --------- ---------- ----------- ----------- ----------- BALANCE: October 31, 1996.................. 7,358,964 $7,359,000 445,387 $ 445,000 $25,086,000 $(20,640,000) $(159,000) -- Conversions of Class B Common to Class A Common.................. 266 -- (266) -- -- -- -- -- Exercise of Options............... 93,230 93,000 -- -- 506,000 -- -- -- Foreign currency translation...... -- -- -- -- -- -- 9,000 -- Exercise of Warrants.............. 305,000 305,000 -- -- 1,017,000 -- -- -- Issuance of Common Stock.......... 11, 492 12,000 -- -- 99,000 -- -- -- Compensation related to stock options and warrants............ -- -- -- -- 2,750,000 -- -- -- Unrealized gain on securities available for sale.............. -- -- -- -- -- -- -- -- Net Loss.......................... -- -- -- -- -- (22,007,000) -- -- --------- --------- --------- --------- ---------- ----------- ----------- ----------- BALANCE: October 31, 1997.................. 7,768,952 $7,769,000 445,121 $ 445,000 $29,458,000 $(42,647,000) $(150,000) -- --------- --------- --------- --------- ---------- ----------- ----------- ----------- --------- --------- --------- --------- ---------- ----------- ----------- ----------- UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE ----------- BALANCE: October 31, 1994.................. $ -- Conversions of Class B Common to Class A Common.................. -- Exercise of Options............... -- Exercise of Rights................ -- Exercise of Warrants.............. -- Capital Contribution.............. -- Foreign currency translation...... -- Retirement of treasury stock...... -- Net Loss.......................... -- ----------- BALANCE: October 31, 1995.................. -- Conversions of Class B Common to Class A Common.................. -- Exercise of Options............... -- Foreign currency translation...... -- Retirement of treasury stock...... -- Unrealized gain on securities available for sale.............. 49,000 Net Loss.......................... -- ----------- BALANCE: October 31, 1996.................. 49,000 Conversions of Class B Common to Class A Common.................. -- Exercise of Options............... -- Foreign currency translation...... -- Exercise of Warrants.............. -- Issuance of Common Stock.......... -- Compensation related to stock options and warrants............ Unrealized gain on securities available for sale.............. 94,000 Net Loss.......................... -- ----------- BALANCE: October 31, 1997.................. $ 143,000 ----------- -----------
See Notes to Consolidated Financial Statements. 28 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED OCTOBER 31, -------------------------------------------- 1997 1996 1995 -------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.......................................................... $ (22,007,000) $ (8,959,000) $ (1,377,000) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES OF CONTINUING OPERATIONS: Depreciation and amortization....................................... 3,703,000 1,743,000 1,106,000 Write off of Software Development Costs............................. -- 2,429,000 -- Contribution to Capital............................................. -- -- 502,000 Compensation-related stock options and warrants..................... 2,750,000 -- -- Deferred gain on sale of building................................... (19,000) (19,000) (17,000) Deferred income taxes............................................... -- (83,000) (149,000) Changes in operating assets and liabilities, excluding effects of discontinued business: Accounts receivable............................................... 2,008,000 (1,481,000) (966,000) Inventories....................................................... 158,000 216,000 (740,000) Other current assets.............................................. 147,000 150,000 (237,000) Accounts payable and accrued expenses............................. 3,792,000 1,766,000 162,000 Other long-term liabilities....................................... (13,000) (71,000) (58,000) Other assets...................................................... (3,360,000) (4,126,000) (3,846,000) Income taxes payable.............................................. -- (1,038,000) (325,000) -------------- ------------- ------------- NET CASH USED IN OPERATIONS......................................... (12,841,000) (9,473,000) (5,945,000) -------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment.......................... (617,000) (1,058,000) (350,000) -------------- ------------- ------------- NET CASH USED IN INVESTING ACTIVITIES............................... (617,000) (1,058,000) (350,000) -------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of amounts borrowed....................................... (46,000) (42,000) (34,000) Issuance of long-term debt.......................................... 5,500,000 10,000,000 -- Proceeds from the issuance of Common Stock.......................... 2,032,000 806,000 11,725,000 -------------- ------------- ------------- NET CASH PROVIDED FROM FINANCING ACTIVITIES......................... 7,486,000 10,764,000 11,691,000 -------------- ------------- ------------- Effect of Exchange Rate Changes on Cash............................. 9,000 11,000 (43,000) -------------- ------------- ------------- NET (DECREASE)/INCREASE IN CASH..................................... (5,963,000) 244,000 5,353,000 CASH, beginning of year............................................. 7,465,000 7,221,000 1,868,000 -------------- ------------- ------------- CASH, end of year................................................... $ 1,502,000 $ 7,465,000 $ 7,221,000 -------------- ------------- ------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for interest.............................. $ 937,000 $ 485,000 $ 527,000 -------------- ------------- ------------- SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Retirement of Treasury Common Stock................................. $ -- $ 8,000 $ 14,000 -------------- ------------- -------------
See Notes to Consolidated Financial Statements 29 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 A. DESCRIPTION OF BUSINESS Base Ten Systems, Inc. and subsidiaries ("Base Ten" or the "Company") currently designs, develops and markets comprehensive software solutions for the pharmaceutical and medical device manufacturing industry. B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. BASIS OF PRESENTATION--The consolidated financial statements include the accounts of Base Ten and its subsidiaries. All significant inter-company accounts, transactions and profits have been eliminated. As discussed more thoroughly in Note N, the results of operations and the net assets of the Government Technology Division have been reported separately as discontinued operations for all periods presented and net assets held for sale at October 31, 1997 in the accompanying financial statements. 2. REVENUE RECOGNITION--The Company evaluates each product and order on an individual basis to determine the proper revenue recognition method. Contracts to deliver software which require significant customization or modification for an extended period of time are accounted for under the percentage of completion method. For products or orders which are more standardized in nature, revenue is recognized on delivery. Changes in estimates are accounted for using the cumulative catch-up method and are immaterial in each period presented. On contracts where the percentage-of-completion method is used, costs and estimated earnings in excess of progress billings are presented as unbilled receivables. Unbilled costs of unit-of-delivery contracts are included in inventory. Payments received in excess of costs incurred on contracts are recorded as customers' advance payments, which are included as a reduction of inventory on the balance sheet. 3. INVENTORIES--Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventoried costs on contracts include direct material, labor and applicable overhead. In accordance with industry practice, inventoried costs include amounts relating to contracts with a long production cycle, some of which are not expected to be realized within one year. 4. PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are carried at cost and depreciated over estimated useful lives, principally on the straight-line method. The estimated useful lives used for the determination of depreciation and amortization are: Leased asset--building........................................ 15 years 3 to 10 Machinery and equipment....................................... years 3 to 20 Furniture and fixtures........................................ years
5. OTHER ASSETS--Included in other non-current assets are software development costs capitalized in accordance with Statement of Accounting Standards No. 86, "Accounting for Costs for Computer Software to be Sold, Leased or Otherwise Marketed", pursuant to which the Company capitalizes certain software development and production costs once technological feasibility has been achieved. The cost of purchased software is capitalized when related to a product which has achieved technological feasibility or that has an alternative future use. Software development costs incurred prior to achieving technological feasibility are charged to research and development expense as incurred. The Company performs quarterly reviews of the recoverability of its capitalized software costs and other long lived assets based on anticipated revenues and cash flows from sales of these products. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the 30 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) asset to the estimated future cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of the impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows at the rate the Company utilizes to evaluate potential investments. The Company estimates fair value based on the best information available making whatever estimates, judgments and projections are considered necessary. Commencing upon initial product release, these costs are amortized based on the straight-line method over the estimated life of four years. In the second quarter of fiscal 1996 the Company conducted its regular quarterly review of the recoverability of its capitalized software costs and determined that neither PRENVAL nor uPACS would achieve sufficient revenues in future periods to justify retention of the related capitalized costs. Accordingly the Company wrote off $2.4 million balance of such capitalized costs. With respect to PRENVAL, it became apparent to the Company in late February 1996, after a discussion with the licensee, that market acceptance of the product was less than anticipated. Thereafter, in May 1996, the Company determined that the licensee had no current plans to market the product in the U.S. as was originally anticipated by the Company and that, as a result, sales would not exceed the amount necessary to generate royalties in excess of the minimum provided under the license. Effective as of the end of the second quarter of fiscal 1996, management resolved to suspend further development of PRENVAL. However, the Company will provide marketing support for the remainder of the license term. With respect to uPACS, the Company has implemented sales efforts in late 1995 and displayed the product at certain trade shows in Europe. In December 1995, sales were anticipated for early 1996. However, by early April 1996 it became clear that the anticipated sales would not materialize. The Company concluded that the product, as it then existed, would not generate sufficient sales to recover the capitalized costs, and that only a new product with networking, communications and off-line measurement capabilities would be capable of producing acceptable sales volume. 6. CASH AND CASH EQUIVALENTS--The Company considers all investments with a maturity of three months or less at date of acquisition to be cash equivalents. 7. RECENTLY ISSUED ACCOUNTING STANDARDS--The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard No. 128, "Earnings Per Share" ("FAS 128"). The Company is required to adopt FAS 128 for both interim and annual periods ending after December 15, 1997. FAS 128 requires the Company to present Basic Earnings Per Share which excludes dilution and Diluted Earnings Per Share which includes potential dilution. The Company believes that the adoption of FAS 128 will not have an effect on the Company's earnings per share calculations. 8. NET LOSS PER SHARE--Earnings per share for fiscal years ended on October 31, 1997, 1996 and 1995 were calculated using the number of weighted average common shares outstanding. Stock options, warrants and rights would have an anti-dilutive effect on earnings per share for the years ended October 31, 1997, 1996 and 1995 and, therefore, were not included in the calculation of weighted average shares. 9. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts 31 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) reported in the financial statements and accompanying notes. Actual results could differ from these estimates. 10. FAIR VALUE OF FINANCIAL INSTRUMENTS--The fair market value of certain financial instruments, including cash, accounts receivable, accounts payable, and other accrued liabilities, approximates the amount recorded in the balance sheet because of the relatively current maturities of these financial instruments. The fair market value of long term debt at October 31, 1997 and October 31, 1996 approximates the amounts recorded in the balance sheet based on information available to the Company with respect to interest rates and terms for similar financial instruments. 11. FOREIGN CURRENCY TRANSLATION--The accounts of the consolidated foreign subsidiaries are translated into United States dollars in accordance with FASB Statement No. 52, "Foreign Currency Translation." Transaction gains and losses are immaterial. 12. INCOME TAXES--Deferred income taxes are determined based on the tax effect of the differences between the financial statement and tax bases of assets and liabilities. Deferred tax assets and liabilities are classified as either current or noncurrent based generally on the classification of the related asset or liability. 13. INVESTMENTS--The Company accounts for its investments using Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("FAS No. 115"). This standard requires that certain debt and equity securities to be adjusted to market value at the end of each accounting period. Unrealized market value gains and losses are charged to earnings if the securities are traded for short- term profit. Otherwise, such unrealized gains and losses are charged or credited to a separate component of shareholders' equity. Management determines the proper classifications of investments in obligations with fixed maturities and marketable equity securities at the time of purchase and reevaluates such designations as of each balance sheet date. At October 31, 1997 and 1996, all securities covered by FAS No. 115 were designated as available for sale. Accordingly, these securities are stated at fair value, with unrealized gains and losses reported in a separate component of shareholders' equity. Securities available for sale at October 31, 1997 and 1996, consisted of common stock with a cost basis of $150,000. Differences between cost and market of $143,000 and $49,000 were included as a separate component of shareholder's equity, "unrealized gain on securities available for sale", as of October 31, 1997 and 1996, respectively. 14. RECLASSIFICATIONS--Certain reclassifications have been made to prior year financial statements to conform to the current year presentation. 32 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 C. INVENTORIES
OCTOBER 31, ------------------------ 1997 1996 ---------- ------------ Raw materials....................................................... $ 32,000 $ 1,232,000 Work in progress.................................................... 252,000 1,383,000 Finished goods...................................................... 201,000 369,000 ---------- ------------ 485,000 2,984,000 Less: Advance payments.............................................. 7,000 49,000 ---------- ------------ $ 478,000 $ 2,935,000 ---------- ------------ ---------- ------------
D. PROPERTY, PLANT AND EQUIPMENT
OCTOBER 31, -------------------------- 1997 1996 ------------ ------------ Leasehold improvement............................................. $ 149,000 $ 85,000 Machinery and equipment........................................... 3,656,000 9,668,000 Furniture and fixtures............................................ 362,000 705,000 Leased asset--land and building................................... 3,600,000 3,600,000 ------------ ------------ 7,767,000 14,058,000 Less: Accumulated depreciation.................................... 3,462,000 8,987,000 ------------ ------------ $ 4,305,000 $ 5,071,000 ------------ ------------ ------------ ------------
Maintenance and repairs charged to costs and expenses amounted to $131,000, $258,000, and $240,000 in fiscal 1997, 1996 and 1995, respectively. E. OTHER ASSETS
OCTOBER 31, -------------------------- 1997 1996 ------------ ------------ Patents........................................................... $ 404,000 $ 362,000 Capitalized software costs........................................ 4,815,000 4,255,000 Unamortized bond issue costs...................................... 493,000 579,000 Deposit-long term capital lease................................... 550,000 550,000 Long-term receivable.............................................. 403,000 770,000 Other............................................................. 555,000 34,000 ------------ ------------ $ 7,220,000 $ 6,550,000 ------------ ------------ ------------ ------------
33 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 F. INCOME TAXES The provision (benefit) for income taxes includes the following:
YEAR ENDED OCTOBER 31, ---------------------------------------- 1997 1996 1995 ------------ ------------- ----------- Current: Federal............................................................... $ -- $ (882,000) $ (325,000) State................................................................. -- (165,000) -- Foreign............................................................... -- -- -- ------------ ------------- ----------- Total Current........................................................... $ -- $ (1,047,000) $ (325,000) ------------ ------------- ----------- Deferred: Federal............................................................... $ 6,373,000 $ -- $ (124,000) State................................................................. 972,000 -- (25,000) Foreign............................................................... -- -- -- ------------ ------------- ----------- Total Deferred.......................................................... 7,345,000 -- (149,000) ------------ ------------- ----------- Valuation Allowance..................................................... (7,345,000) -- -- ------------ ------------- ----------- Net..................................................................... $ -- $ (1,047,000) $ (474,000) ------------ ------------- ----------- ------------ ------------- -----------
The provision (benefit) for income taxes is allocated between continuing and discontinued operations as summarized below:
YEAR ENDED OCTOBER 31, --------------------------------------- 1997 1996 1995 ----------- ------------- ----------- Continuing............................................................... $ -- $ (684,000) $ (707,000) Discontinued............................................................. -- (363,000) 233,000 ----------- ------------- ----------- Total.................................................................... $ -- $ (1,047,000) $ (474,000) ----------- ------------- ----------- ----------- ------------- -----------
A reconciliation of the Company's effective rate to the U.S. statutory rate is as follows:
PERCENTAGE OF PRE-TAX EARNINGS ------------------------------------- YEAR ENDED OCTOBER 31, ------------------------------------- 1997 1996 1995 ----------- ----------- ----------- Federal tax (benefit)/provisions at applicable statutory rates............... (35.0)% (34.0)% (34.0)% Increases (decreases) in income taxes resulting from: State tax benefit, net of Federal tax effect............................... -- (6.0) (4.0) Net changes in current and deferred valuation allowances................... 35.0 31.5 6.9 Other, net................................................................. -- (2.9) (4.0) ----------- ----------- ----------- -- (11.4)% (35.1)% ----------- ----------- ----------- ----------- ----------- -----------
34 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 F. INCOME TAXES (CONTINUED) The components of the deferred tax assets and liabilities are as follows:
OCTOBER 31, OCTOBER 31, 1997 1996 -------------- ------------- CURRENT Vacation.................................................... $ 136,000 $ 98,000 Other....................................................... 16,000 -- -------------- ------------- Total current assets.......................................... 152,000 98,000 -------------- ------------- NONCURRENT Deferred gain on sale leaseback............................. $ 90,000 $ 99,000 Compensation................................................ 1,100,000 -- Depreciation................................................ 86,000 (279,000) Net operating loss carryforward............................. 9,560,000 3,666,000 Research and development and investment tax credit carryforward.............................................. 519,000 578,000 -------------- ------------- Total non-current assets...................................... 11,355,000 4,064,000 -------------- ------------- Valuation allowance......................................... (11,507,000) (4,162,000) -------------- ------------- Net deferred tax assets....................................... $ -- $ -- -------------- ------------- -------------- -------------
The research and development and investment tax credits and the net operating loss carry forward are available to offset future taxable earnings of the Company. Statement of Financial Accounting Standards No. 109 ("Acounting for Income Taxes"). requires that a valuation allowance be created and offset against the deferred tax assets if, based on existing facts and circumstances, it is more likely than not that some portion or all of the deferred asset will not be realized. The valuation allowance will be adjusted when the credits are realized or when, in the opinion of management, sufficient additional positive evidence exists regarding the likelihood of their realization. The reductions, if any, will be reflected as a component of income tax expense. The components of loss before income taxes were as follows:
YEAR ENDED OCTOBER 31, --------------------------------------------- 1997 1996 1995 -------------- -------------- ------------- Domestic.......................................................... $ (20,632,000) $ (9,040,000) $ (1,845,000) Foreign........................................................... (1,375,000) (966,000) (6,000) -------------- -------------- ------------- $ (22,007,000) ($ 10,006,000) $ (1,851,000) -------------- -------------- ------------- -------------- -------------- -------------
35 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 G. ACCRUED EXPENSES
YEAR ENDED OCTOBER 31, -------------------------- 1997 1996 ------------ ------------ Wages & benefits.................................................. $ 2,283,000 $ 1,043,000 Discontinued operations........................................... 1,480,000 -- Contract loss accruals............................................ 1,151,000 656,000 Advance payments.................................................. 352,000 707,000 Other............................................................. 739,000 588,000 ------------ ------------ $ 6,005,000 $ 2,994,000 ------------ ------------ ------------ ------------
H. GEOGRAPHIC INFORMATION The following tabulation details the Company's operations in different geographic areas for the years ended October 31, 1995, 1996 and 1997.
UNITED STATES EUROPE ELIMINATIONS CONSOLIDATED -------------- ------------- ------------- -------------- YEAR ENDED OCTOBER 31, 1995: Revenues from unaffiliated sources................. $ 2,328,000 $ 382,000 $ -- $ 2,710,000 -------------- ------------- ------------- -------------- Operating loss..................................... $ (2,056,000) $ (6,000) $ -- $ (2,062,000) -------------- ------------- ------------- -------------- Identifiable assets at October 31, 1995............ $ 28,063,000 $ 960,000 $ (1,018,000) $ 28,005,000 -------------- ------------- ------------- -------------- -------------- ------------- ------------- -------------- YEAR ENDED OCTOBER 31, 1996: Revenues from unaffiliated sources................. $ 1,511,000 $ 51,000 $ -- $ 1,562,000 -------------- ------------- ------------- -------------- Operating loss..................................... $ (7,421,000) $ (966,000) $ -- $ (8,387,000) -------------- ------------- ------------- -------------- Identifiable assets at October 31, 1996............ $ 32,739,000 $ 1,039,000 $ (3,381,000) $ 30,397,000 -------------- ------------- ------------- -------------- -------------- ------------- ------------- -------------- YEAR ENDED OCTOBER 31, 1997: Revenues from unaffiliated sources................. $ 2,658,000 $ 2,000 $ -- $ 2,660,000 -------------- ------------- ------------- -------------- Operating loss..................................... $ (12,978,000) $ (1,375,000) $ -- $ (14,353,000) -------------- ------------- ------------- -------------- Identifiable assets at October 31, 1997............ $ 24,979,000 $ 1,205,000 $ (4,967,000) $ 21,217,000 -------------- ------------- ------------- -------------- -------------- ------------- ------------- --------------
In 1997, three customers accounted for sales amounting to $1,221,000. In 1996 and 1995, one customer accounted for sales of $883,000 and $1,783,000, respectively. I. COMMITMENTS AND CONTINGENCIES CHANGE IN CONTROL At October 31, 1997, the Company had agreements with two of its executive officers providing severance payments if the executive's employment is terminated within three years after a change in control of the Company (i) by the Company for reasons other than death, disability, or cause or (ii) by the executive for good reason. The amount of the severance payment is 2.99 times total average compensation and cost of employee benefits for each of the five years prior to the change in control, subject to the 36 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 I. COMMITMENTS AND CONTINGENCIES (CONTINUED) amount deductible by the Company under the Internal Revenue Code. One of these agreements was canceled subsequent to October 31, 1997. In addition, subsequent to year end, the Company entered into an agreement with one additional executive providing for similar benefits. EMPLOYMENT AGREEMENTS On October 31, 1997, the Company had employment agreements with five executives. One of these agreements was canceled concurrent with the sale of the Government Technology Division subsequent to October 31, 1997 and one was cancelled pursuant to a subsequent resignation. In addition, the Company entered into similar agreements with three additional executives with aggregate amount of benefits amounting to $560,000. The agreements provide for up to one year of compensation in the aggregate of $555,000 plus normal benefits and any amounts due under incentive compensation plans in the event the employee is terminated without cause. CONSULTING AGREEMENTS The Company has a consulting agreement providing one of its directors cash compensation in the amount of $257,500 plus expenses in fiscal 1998. This agreement expires in 2000. In addition, this director has an agreement providing for success fees on any acquisition or equity offering introduced by him during the term of his agreement subject to prior approval by the Board of Directors. The maximum success fees payable in any one 18 month period are $200,000. In addition, the consultant can receive warrants, subject to prior approval of the Board of Directors and subsequent shareholder approval, on each fundraising activity amounting to one warrant for each $200 raised. Subsequent to the year end, the Company entered into consulting agreements with two former officers and directors which provide for cash compensation totaling $325,000. In addition, these officers and directors also received a total payment amounting to $375,000 as a bonus for services rendered prior to October 31, 1997. LEASES. The Company entered into a sale and leaseback arrangement on October 28, 1994. Under the arrangement, the Company sold its main building in Trenton, New Jersey and agreed to lease it back for a period of 15 years under terms that qualify the arrangement as a capital lease. The buyer/lessor of the building was a partnership. Two of the partners are former officers and directors of the Company. In addition, a non-interest bearing security deposit of $550,000 was paid at closing and is included in other non-current assets on the balance sheet. Interest is calculated under the effective interest method and depreciation is taken using the straight line method over the term of the lease. Subsequent to October 31, 1997, the Company sub-leased a portion of the building in connection with the sale of the Government 37 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 I. COMMITMENTS AND CONTINGENCIES (CONTINUED) Technology Division. The Company's future minimum gross lease payments related to the sale-leaseback arrangement in effect at October 31, 1997 are as follows:
FISCAL - ------------------------------------------------------------------------------- 1998........................................................................... $ 560,000 1999........................................................................... 615,000 2000........................................................................... 615,000 2001........................................................................... 615,000 2002........................................................................... 615,000 2003 and thereafter............................................................ 4,065,000 ------------- 7,085,000 Less interest portion.......................................................... (3,606,000) ------------- Present value of net minimum payments.......................................... $ 3,479,000 ------------- -------------
LEGAL PROCEEDINGS The Company is involved from time to time in various claims and proceedings including employee claims in the normal course of business none of which, singly or in the aggregate, in the opinion of management, will have a material adverse effect on the consolidated financial position of the Company. 38 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 J. LONG TERM DEBT In August 1996 the Company sold in a private offering, $10.0 million 9.0% Convertible Subordinate Debentures due August 31, 2003. Under the terms of the debentures the holder can convert the debentures into the Company's Class A Common Stock at $12.50 per share, 125% of the closing price on August 9, 1996. The Company has the right to call the debentures after February 28, 1998 if the Company's Class A Common Stock price trades at certain levels between 150% -175% of the closing price or $15-$17.50 per share. The Company's financing costs relating to this debenture amounting to approximately $0.6 million are being amortized over the life of the indebtedness. On May 30, 1997, the Company sold 55 Units ("Units") at $100,000 per Unit, for an aggregate of $5,500,000, to two accredited purchasers ("Purchasers") in a private offering (the "Offering"). Each Unit consisted of (i) an 8% convertible debenture ("Convertible Debenture") in the principal amount of $100,000 convertible into shares of the Company's Class A Common Stock and (ii) a warrant ("Warrant") to acquire 1,800 shares of Class A Common Stock. The number of shares of Class A Common Stock issuable upon conversion of the Convertible Debentures is variable. The number of shares will be calculated at the time of conversion and will be the lesser of (i) the product obtained by multiplying (x) the lesser of the average of the closing bid prices for the Class A Common Stock for the (A) five or (B) thirty consecutive trading days ending on the trading day immediately preceding the date of determination by (y) a conversion percentage equal to 95% with respect to any conversions occurring prior to February 24, 1998 and 92% with respect to any conversions occurring on or after February 24, 1998 and (ii) $13.50 with respect to any conversions occurring prior to May 30, 1998 or $14.00 with respect to any conversions occurring on or after May 30, 1998. These prices were subsequently revised to $13.05 and $13.53 pursuant to an agreement between the holders and the Company in consideration of the holders' willingness to grant the Company a waiver to sell the GTD. The Convertible Debentures are not convertible prior to December 16, 1997. From December 16, 1997 until February 23, 1998 one-half of the Convertible Debentures may be converted and after February 23, 1998, the Convertible Debentures are fully convertible. The Warrants may be exercised at any time through May 30, 2002 at an exercise price of $12.26 per share. The Company received net proceeds of approximately $4,950,000 from the sale of the Units after deduction of fees and expenses related to the Offering. The Company obtained waivers from its lenders so as not to be in default with such loan agreements with respect to the sale of the GTD. K. OTHER ARRANGEMENTS On May 1, 1997 the Company entered into an agreement whereby it became a minority owner of uPACS-TM- LLC, a limited liability company (the "LLC"). Under the terms of the agreement the Company made a capital contribution to the LLC of its rights to its uPACS-TM- technology which is a system for archiving ultrasound images with networking, communication and off-line measurement capabilities. In exchange for such capital contribution, the Company received a 9% interest in the LLC. An outside investor made an initial capital contribution of $2 million and later made a further capital contribution of $1 million in return for a 91% interest in the LLC. The Company believes that the funds available under the LLC will be sufficient to fund operations in connection with uPACS-TM- until January 1999. In connection with the formation of the LLC the Company entered into a services and license agreement whereby the Company agreed to complete the development of the uPACS-TM- technology and undertake to market, sell, and distribute systems using the uPACS technology. The LLC will pay the Company its expenses in 39 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 K. OTHER ARRANGEMENTS (CONTINUED) connection with such services and the Company will pay royalties to the LLC in connection with the sale of systems using the uPACS-TM-technology. At such time as the LLC has distributed to the outside investor an aggregate amount equal to $4.5 million of its net cash flow the Company would become a 63% owner of the LLC and the outside investor would own a 37% interest in the LLC. There can be no assurance that uPACS-TM- will be successful or that the LLC will operate profitably or that the funds under the LLC will be sufficient for the further development and marketing of uPACS-TM-. The Company cannot predict if or when uPACS sales will commence in its updated versions. The Company anticipates difficulty in achieving such sales until further product development is completed and market tested. L. STOCK OPTION PLANS, WARRANTS AND RIGHTS The Company's 1990 Incentive Stock Option Plan reserves 484,000 shares of either Class A or Class B Common Stock for purchase upon the exercise of options that may not be granted at less than the fair market value as of the date of grant and that are exercisable over a period not to exceed ten years. There are no further shares available for option under this plan. The Company's 1992 Stock Option Plan reserves 700,000 shares of Class A Common Stock for purchase upon the exercise of options that may not be granted at less than fair market value as of the date of grant and that are exercisable over a period not to exceed ten years. There are no further shares available for option under this plan. The Company's discretionary deferred compensation plan reserves 1,150,000 shares of Class A Common Stock for issuance upon the exercise of options. Approximately 6,000 options remain available for grant under this plan. Options may not be granted at less than fair market value as of the date of grant and are exercisable over a period not to exceed ten years. The Company's 1995 Incentive Stock Option Plan reserves 750,000 shares of Class A Common Stock for issuance upon the exercise of options. Options may not be granted at less than fair market value as of the date of grant and are exercisable over a period not to exceed ten years. There are no options available for grant under this plan. The Company's Base Ten Stock Option plan reserves 80,000 shares of Class A Common Stock for purchase upon the exercise of options that may not be granted at less than fair market value as of the date of grant and that are exercisable over a period not to exceed ten years. There are no options available for grant under this plan. 40 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 L. STOCK OPTION PLANS, WARRANTS AND RIGHTS (CONTINUED) Information with respect to the aforementioned stock option plans is summarized as follows:
CLASS A CLASS B ------------------------- ---------------------------- WEIGHTED-- AVERAGE WEIGHTED-- TOTAL NUMBER OF EXERCISE NUMBER OF AVERAGE NUMBER OF SHARES PRICE SHARES EXERCISE PRICE SHARES ---------- ------------- ----------- --------------- ---------- Outstanding at October 31, 1994........... 868,308 $ 6.56 9,946 $ 3.00 878,254 Granted................................... 528,000 10.32 -- 528,000 Exercised................................. (104,431) 4.51 (5,000) 3.00 (109,431) Canceled.................................. (26,483) 8.92 -- (26,483) ---------- ----------- ---------- Outstanding at October 31, 1995........... 1,265,394 7.82 4,946 3.00 1,270,340 Granted................................... 307,700 10.79 -- 307,700 Exercised................................. (103,351) 7.06 -- (103,351) Canceled.................................. (3,850) 11.15 -- (3,850) ---------- ----------- ---------- Outstanding at October 31, 1996........... 1,465,893 8.85 4,946 3.00 1,470,839 Granted................................... 574,650 11.33 -- 574,650 Exercised................................. (78,130) 6.81 -- (78,130) Canceled.................................. (57,750) 9.73 -- (57,750) ---------- ----------- ---------- Outstanding at October 31, 1997........... 1,904,663 9.66 4,946 3.00 1,909,609 ---------- ------ ----------- ----- ---------- Exercisable at October 31, 1997........... 1,497,089 $ 9.30 4,946 $ 3.00 1,502,035 ---------- ------ ----------- ----- ----------
At October 31, 1997, the Company has outstanding 1,007,600 warrants and 481,000 options to consultants and three non-management directors at prices ranging from $3.00 to $18.00, expiring from 1998 to 2004. None of these warrants or options have expired to date. Included in the above are 125,000 warrants issued to a consultant for services related to the promotion and selling of the Company's Stock at an exercise price which was less than the fair market value of the Common Stock at the date of grant. The remaining options and warrants were issued at fair market value at the date of grant. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("FAS 123") for its stock options plans for employees. Had compensation cost for this plan been determined under FAS 123, the Company's net loss would have been increased to $24,898,000 and $10,972,000 with a net loss per common share of $3.22 and $1.39 in 1997 and 1996 respectively. For the purposes of this calculation, the fair value of each option grant was estimated on the grant date using the Black-Scholes option-pricing model with the following assumptions used; expected volatility of between 43-50 percent; weighted average risk free interest rate of between 6.09-6.35 percent; and weighted average expected lives of 1.5 years. All options granted to date under the stock option plan have an exercise price equal to the market price of the Company's stock on the grant date. In addition, the Company has recorded a charge to earnings amounting to $2,750,000 representing the value of the options and warrants issued to consultants. This charge has been computed using the Black-Scholes option pricing model. 41 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 M. EMPLOYEE BENEFIT PLAN In 1986, the Company adopted a 401(k) plan. In November, 1995, the plan was amended to allow for a 1% base annual salary Company matching contribution for each eligible employee. The Company's contribution was $34,000, $26,000 and $0 in 1997, 1996 and 1995, respectively. The plan allows all eligible employees to defer up to 17% of their pre-tax income through contributions to the plan. N. DISCONTINUED OPERATIONS On October 27, 1997 the Company entered into an agreement to sell its Government Technology Division (GTD) to Strategic Technology Systems, Inc. (STS). Accordingly, the operating results of the Government Technology Division have been segregated from continuing operations and reported as a separate line item on the consolidated statements of operations for all periods presented. Results of operations of the GTD are as follows:
YEAR ENDED OCTOBER 31, ------------------------------------------ 1997 1996 1995 ------------ ------------- ------------- Net revenues..................................... $ 9,981,000 $ 13,329,000 $ 15,597,000 Cost and expenses................................ 14,835,000 14,238,000 14,832,000
The net loss on disposal of $1,173,000 includes a provision for estimated losses of the Government Technology Division of $1,068,000 through the date of sale. The net assets of the GTD have been included in the consolidated balance sheet as of October 31, 1997 under "Net Assets Held For Sale." The composition of such net assets as of that date is as follows:
NET ASSETS OF THE GTD AS OF OCTOBER 31, ------------------------------------ 1997 ------------------------------------ Current assets.......................................... $ 6,105,000 Property and equipment-net.............................. 631,000 Current liabilities..................................... 1,398,000
In consideration for the value of the net assets sold, the Company will receive $3,500,000 in cash, and an unsecured promissory note in a principal amount equal to the difference between the amount of the net assets of GTD as of the closing date plus $400,000, and $3,500,000. The note has a five year term bearing interest at a rate of 7.5% per annum. Principal payments under the note will amortize over a three year period beginning on the second anniversary of the closing which was December 31, 1997. The term of the note also provide for accelerated payments of principal and interest pending the occurrence of certain events. In addition, the Company will receive a $400,000 contingent payment provided STS is in receipt of a certain order from one of its customers. The amount will be payable $100,000 per fiscal quarter beginning three months after STS receives the initial order under such agreement. The Company will also receive a warrant from STS exercisable for that number of shares of the voting common stock as equals 5% of issued and outstanding shares of common stock and common stock equivalents immediately following and giving effect to any initial underwritten public offering by STS, with 42 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 N. DISCONTINUED OPERATIONS (CONTINUED) respect to which there can be no assurance. In the event that STS is sold, merged or liquidated prior to its initial underwritten public offering, the Company will receive 15% of the gross proceeds of such transaction that are in excess of $7 million, and the warrant described above will be canceled. The Company has subleased to STS approximately 30,000 square feet plus allowed the use of 10,000 square feet of common areas for a period of five years at an annual rental of $240,000 for the first three years and $264,000 per year for the last two years of the sublease. O. SUBSEQUENT EVENT On December 31, 1997 at a special meeting of shareholders three proposals were approved. The first proposal was the sale of the Government Technology Division discussed more fully in Note N. The second proposal was the second installment of a sale of $19 million of convertible preferred stock ("Preferred Stock") and Class A Stock purchase warrants (the "Warrants"). A total of $9.375 million of Preferred Stock and Warrants were sold and issued as of December 5, 1997 to several institutional investors. The additional $9.675 million of Preferred Stock and Warrants were sold and issued once approval of the shareholders was obtained. The Preferred Stock has a term of three years and pays a cumulative dividend of 8.0% per annum during any quarter in which the closing bid price for the Class A Stock is less than $8.00 for any ten consecutive trading days. An equivalent payment is payable to any holder of Preferred Stock which is subject during any quarter to a standstill period following a Company underwritten public offering or which is non-convertible because of the limitations described below. Such dividends and payments are payable only prior to conversion and payable in cash or additional Preferred Stock at Base Ten's option; however, if the Company elects to pay the dividend in Preferred Stock, the amount of such payment will be 125% of the cash amount. The Preferred Stock has a liquidation preference as to its principle amount and any accrued and unpaid dividends. The Preferred Stock is convertible at any time or from time to time into Class A Stock, at a conversion price equal to the lesser of (i) $16.25 per share or (ii) the Weighted Average Price (as defined) of the Class A Stock prior to the conversion date. In any event, no more than 3,040,000 shares of Class A Stock shall be issued upon conversion of all of the Preferred Stock. Any Preferred Stock remaining outstanding because of this limitation may be redeemed at the holder's option for a subordinated 8% promissory note maturing when the Preferred would have matured. The Company has the right, at any time, to redeem all or any part of the outstanding Preferred Stock or subordinated notes at 130% of their original purchase price. Any shares of Preferred Stock or subordinated notes still outstanding three years after issuance must be redeemed in either cash, or at the Company's option, in Class A Stock. If the Company elects to make the redemption in Class A Stock, the amount of such payment will be 125% of the original purchase price. The holders of the Preferred Stock have the same voting rights as the holders of Class A Stock, calculated as if all outstanding shares of Preferred Stock had been converted into shares of Class A Stock on the record date for determination of shareholders entitled to vote on the matter presented. 43 BASE TEN SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995 O. SUBSEQUENT EVENT (CONTINUED) For each $1 million of Preferred Stock purchased, purchasers received five-year warrants to purchase 40,000 shares of Class A Stock exercisable at $16.25 per share. If exercised these would represent an additional 760,000 shares or a total of 3,800,000 shares resulting from this sale subject to adjustment in certain circumstances. The Company is required to file a registration statement ("Registration Statement") with the Securities and Exchange Commission ("SEC") registering for resale the Class A Stock underlying the Preferred Stock, including any Preferred Stock which may be issued as a dividend, and the Warrants, which must be effective no later than March 2, 1998. In the event the Registration Statement is not declared effective by the SEC by such date, the Company will be required to pay the holders of the Preferred an amount equal to 11/2% of the original purchase price for each month until the Registration Statement has been declared effective. The holders have agreed, if requested by a managing underwriter, to a maximum 90-day standstill period following any underwritten Company public offering, but not in excess of two such standstills (or more than 90 days) in any 18-month period. In the event a standstill period is effective, the maturity date of the Preferred Stock would be extended by the duration of the standstill period. The third proposal related to amendments to four of the Company's stock option plans to extend the period of time within which certain options may be exercised following termination of employment. Approval and adoption of the amendment resulted in a new measurement date for the options and the Company will, therefore, recognize a charge to earnings in the first accounting period subsequent to year end. On January 29, 1998 the Board of Directors approved a change of its fiscal reporting period to a year end of December 31 from the current year end of October 31. 44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 11th day of February, 1998. BASE TEN SYSTEMS, INC. By: /s/ THOMAS E. GARDNER By: /s/ WILLIAM F. HACKETT By: /s/ WILLIAM F. HACKETT ------------------------- ------------------------- ------------------------- Thomas E. Gardner William F. Hackett William F. Hackett Chief Executive Officer Chief Financial Officer Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the date indicated. TITLE DATE -------------------------- ------------------- Alexander M. Adelson Directors February 11, 1998 David C. Batten Thomas E. Gardner Alan S. Poole William Sword /s/ WILLIAM F. HACKETT ------------------------------------------ By: William F. Hackett, AS ATTORNEY-IN-FACT
45 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT PAGE - ---------------------------------------------------------------------------------------- ---- 2. (a) Asset Purchase Agreement between Registrant and Strategic Technology Systems, *(A) Inc. dated October 27, 1997, (incorporated by reference to Exhibit 2.1 of Registrant's Current Report on Form 8-K (File No. 0-7100) dated November 17, 1997). 3. (a) Restated Certificate of Incorporation, as amended, of Registrant (incorporated * by reference to Exhibit 4(a) to Amendment No. 1 to Registrant's Registration Statement on Form S-8 (File No. 2-84451) filed on July 31, 1990). (b) Certificate of Amendment of the Restated Certificate of Incorporation dated * September 1, 1992 (incorporated by reference to Exhibit 4(b)(2) to Amendment No. 3 to Registrant's Registration Statement on Form S-1 (File No. 33-48404) filed on September 3, 1992). (c) Amended By-Laws of the Registrant (incorporated by reference to Exhibit 4(d)(2) * to Registrant's Registration Statement on Form S-8 (File No. 33-60454) filed on April 1, 1993). (d) Certificate of Amendment of Restated Certificate of Incorporation filed December * 2, 1997, (incorporated by reference to Exhibit 99.3 of Registrant's Current Report on Form 8-K (File No. 0-7100) dated October 27, 1997). (e) Amended By-laws of Registrant dated October 13, 1997. 4. (a) Purchase Agreement filed as of August 8, 1996 between the Registrant and Jessee * L. Upchurch (incorporated by reference to Exhibit 4 (a) to Registrant's Current Report on Form 8-K (File No. 0-7100) dated August 12, 1996). 10. (a) 1980 Deferred Compensation Agreement between the Registrant and certain *(A) executive officers (incorporated by reference to Exhibit 10.3 to Registrant's Registration Statement on Form S-1 File No. 2-70259 filed on December 16, 1980). (b) 1981 Incentive Stock Option Plan of Registrant, as amended and restated on *(A) January 12, 1990 (incorporated by reference to Exhibit 4(c) to Amendment No. 1 to Registrant's Registration Statement on Form S-8 (File No. 2-84451) filed on July 31, 1990). (c) 1992 Stock Option Plan of Registrant (incorporated by reference to Exhibit *(A) 10(ai) to Amendment No. 3 to Registrant's Registration Statement on Form S-1 (File No. 33-48404) filed on September 3, 1992). (d) Change in Control Agreement dated October 23, 1991 between Registrant and Myles *(A) M. Kranzler (incorporated by reference to Exhibit 10(e) to Registrant's Annual Report on Form 10-K (File No. 0-7100) for the fiscal year ended October 31, 1991). (e) Change in Control Agreement dated October 23, 1991 between Registrant and James *(A) A. Eby (incorporated by reference to Exhibit 10(f) to Registrant's Annual Report on Form 10-K (File No. 0-7100) for the fiscal year ended October 31, 1991). (f) Change in Control Agreement dated October 23, 1991 between Registrant and Edward *(A) J. Klinsport (incorporated by reference to Exhibit 10(f) to Registrant's Annual Report on Form 10-K (File No. 0-7100) for the fiscal year ended October 31, 1991). (g) Employment Agreement dated as of March 26, 1992 between the Registrant and Myles *(A) M. Kranzler (incorporated by reference to Exhibit 28(b) to Registrant's Current Report on Form 8-K (File No. 0-7100) filed on April 10, 1992). (h) Employment Agreement dated as of March 26, 1992 between the Registrant and James * A. Eby (incorporated by reference to Exhibit 28(c) to Registrant's Current (A) Report on Form 8-K (File No. 0-7100) filed on April 10, 1992).
EXHIBIT NUMBER EXHIBIT PAGE - ---------------------------------------------------------------------------------------- ---- (i) Employment Agreement dated as of March 26, 1992 between the Registrant and *(A) Edward J. Klinsport (incorporated by reference to Exhibit 28(d) to Registrant's Current Report on Form 8-K (File No. 0-7100) filed on April 10, 1992). (j) Employment Agreement dated as of March 26, 1992 between the Registrant and Alan *(A) J. Eisenberg (incorporated by reference to Exhibit 28(e) to Registrant's Current Report on Form 8-K (File No. 0-7100) filed on April 10, 1992). (k) Amended Agreement dated July 28, 1992 between the Registrant and Alexander *(A) Adelson (incorporated by reference to Exhibit 10(ar) to the Registrant's Registration Statement on Amendment No. 3. to Form S-2 on Form S-1 (Registration No. 33-48404) filed on September 3, 1992). (l) Modification of Amended Agreement dated January 11, 1993 between the Registrant *(A) and Alexander M. Adelson. (m) Amended Modification of Amended Agreement dated January 28, 1994 between the *(A) Registrant and Alexander M. Adelson. (n) Amended Consulting Agreement made as of February 24, 1992 between the Registrant *(A) and Bruce D. Cowen (incorporated by reference to Exhibit 10(as) to the Registrant's Registration Statement on Amendment No. 3. to Form S-2 on Form S-1 (Registration No. 33-48404) filed on September 3, 1992). (o) Modification of Amendment Agreement dated January 11, 1993 between the *(A) Registrant and Bruce D. Cowen. (p) Consulting Agreement dated March 1, 1994 between the Registrant and Bruce D. *(A) Cowen. (q) Option Agreement dated as of November 9, 1992 between the Registrant and Donald * M. Daniels (incorporated by reference to Exhibit 10(as) to the Registrant's Annual Report on Form 10-K (File No. 0-7100) for the fiscal year ended October 31, 1992). (r) Option Agreement dated as of June 5, 1992 between the Registrant and Strategic * Growth International, Inc. (incorporated by reference to Exhibit 10(at) to the Registrant's Annual Report on Form 10-K (File No. 0-7100) for the fiscal year ended October 31, 1992). (s) Acquisition Agreement dated October 28, 1994 between the Registrant and CKR * Partners, L.L.C. (incorporated by reference to Exhibit 2(a) to Registrant's Current Report on Form 8-K (File No. 0-7100) dated November 11, 1994). (t) Lease dated October 28, 1994 between the Registrant and CKR Partners, L.L.C. * (incorporated by reference to Exhibit 10(b) to Registrant's Current Report on Form 8-K (File No. 0-7100) dated November 11, 1994). (u) Operating Agreement between the Registrant and Jesse L. Upchurch dated May 1, * 1997 (incorporated by reference to Exhibit (u) of Registrant's Current Report on Form 8-K (File No. 0-7100) dated May 1, 1997). (v) License and Services Agreement between the Registrant and uPACS, L.L.C. dated * May 1, 1997, (incorporated by reference to Exhibit 10(v) of Registrant's Current Report Form 8-K (File No. 0-7100) dated May 1, 1997). (w) Compensation Agreement among uPACS, L.L.C., Andrew Garret, Inc. and Andrew *(A) Sycoff dated May 1, 1997, (incorporated by reference to Exhibit 10(w) of Registrant's Current Report on Form 8-K (file No. 0-7100) dated May 1, 1997). (x) Securities Purchase Agreement between the Registrant and certain purchasers * dated May 30, 1997, (incorporated by reference to Exhibit 99.1 of Registrant's Current Report on Form 8-K (File No. 0-7100) dated May 30, 1997).
EXHIBIT NUMBER EXHIBIT PAGE - ---------------------------------------------------------------------------------------- ---- (y) Convertible Term Debenture issued by the Registrant to certain purchasers dated * May 30, 1997, (incorporated by reference to Exhibit 99.2 of Registrant's Current Report on Form 8-K (File No. 0-7100) dated May 30, 1997). (z) Stock Purchase Warrant issued by the Registrant to certain purchases dated May * 30, 1997, (incorporated by reference to Exhibit 99.3 of Registrant's Current Report on Form 8-K (File No. 0-7100) dated May 30, 1997). (aa) Registration Rights Agreement between the Registrant and certain purchasers * dated May 30, 1997, (incorporated by reference to Exhibit 99.4 of Registrant's Current Report on Form 8-K (File No. 0-7100) dated May 30, 1997). (bb) Securities Purchase Agreement between the Registrant and certain purchasers * dated December 4, 1997, (incorporated by reference to Exhibit 99.1 of Registrant's Current Report on Form 8-K (File No. 0-7100) filed dated December 9, 1997). (cc) Registration Rights Agreement between the Registrant and certain purchasers * dated December 4, 1997, (incorporated by reference to Exhibit 99.1 of registrant's Current Report on Form 8-K (File No, 0-7100) dated May 30 filed December 9, 1997). (dd) Common Stock Purchase Warrant issued by Registrant and certain purchasers dated * December 4, 1997 (incorporated by reference to Exhibit 99.4 of Registrant's Current Report Form 8-K (File No. 07100) dated December 9, 1997). (ee) Warrant Agreement between Registrant and Strategic Growth International dated (A) April 15, 1997. (ff) Consultant Agreement between Registrant and RTS Research Lab, Inc., dated June (A) 9, 1997. (gg) Warrant Agreement between Registrant and Strategic Growth International, Inc. (A) dated June 20, 1997. (hh) Option Agreement between Registrant and David C. Batten dated October 13, 1997. (A) (ii) Option Agreement between Registrant and Alan S. Poole dated October 13, 1997. (A) (jj) Employment Agreement between Registrant and Thomas E. Gardner dated October 17, (A) 1997. (kk) Change of Control Agreement between Registrant and Thomas E. Gardner dated (A) October 17, 1997. (ll) Performance-Based Stock Option Agreement between Registrant and Thomas E. (A) Gardner dated October 17, 1997. (mm) Service-Based Stock Option Agreement between Registrant and Thomas E. Gardner dated October 17, 1997. (nn) Separation and Consulting Agreement between Registrant and Myles M. Kranzler (A) dated October 20, 1997. (oo) Omnibus Convertible Term Debenture Holder Waiver and Consent Regarding Sale of the Government Technology Division and Amendment No. 1 to Convertible term Debenture between Registrant and RGC International Investors, LDC and the Tail Wind Fund, LTD., dated October 20, 1997. (pp) Employment Agreement between Registrant and C. Richard Bagshaw dated November (A) 26, 1997. (qq) Promissory Note from Strategic Technology Systems, Inc., to Registrant dated December 31, 1997. (rr) Warrant Agreement between Registrant and Strategic Technology Systems, Inc., dated December 31, 1997.
EXHIBIT NUMBER EXHIBIT PAGE - ---------------------------------------------------------------------------------------- ---- (ss) Transition Agreement between Registrant and Strategic Technology Systems, Inc., dated December 31, 1997. (tt) Sublease between Registrant and Strategic Technology Systems, Inc., dated December 31, 1997. (uu) Fifth Amendment to Lease between Registrant and CKR PARTNERS, L.L.C., dated December 31, 1997. (vv) Consulting Agreement between Registrant and Edward J. Klinsport dated December (A)* 31, 1997. 21. Subsidiaries of the Registrant. 23.1 Independent Auditors' Consent. 24.1 Power of Attorney.
- ------------------------ * Incorporated by reference. (A) A management contract or compensatory plan or arrangement. EX-3.(E) 2 AMENDED BY-LAWS BASE10 Exhibit 3(e) BY-LAWS As amended: November 20, 1980 March 15, 1994 February 1, 1993 October 13, 1997 ARTICLE I - OFFICERS Section 1. The Corporation shall maintain its principal office at One Electronics Drive, Trenton, New Jersey. The Corporation may also have offices in such other places, in the United States or elsewhere, as the Board of Directors may, from time to time, appoint or as the business of the Corporation may require. ARTICLE II - SEAL Section 1. The seal of the Corporation shall be circular in form and shall have the name of the Corporation on the circumference and the words and numerals "Incorporated New Jersey 1966" in the center. ARTICLE III - MEETING OF STOCKHOLDERS Section 1. Meetings of the stockholders of the Corporation shall be held at the principal office of the Corporation in the State of New Jersey, or at such other place within or without the state of New Jersey as may, from time to time be designated by its Board of Directors.* Section 2. The Annual Meeting of the Stockholders of the Corporation shall take place each year on or before the last day of the fifth month after the close of the fiscal year on such specific date and at such time and place as shall be fixed by resolution of the Board of Directors. The Annual Meeting shall be called to order between the hours of 9 a.m. and 5 p.m. Any business which may properly be brought before the meeting of the Stockholders may be considered and transacted at the Annual Meeting. Section 3. Special meetings of the Stockholders may be called by the Chairman of the Board, the President, or by a majority of the Board of Directors, or by holders of record of not less than one-fourth of the stock having voting power of the Corporation entitled to vote at such special meeting. Section 4. Written notice of all meetings of the Stockholders shall be mailed to or delivered to each stockholder entitled to vote thereat at least ten days prior to the meeting. Such notice shall state in general terms the purposes for which the meeting is to be held. Section 5. Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent without a meeting may authorize another person or persons to act for him by a proxy which shall be executed in writing by the shareholder or his agent. _________________________________ *As amended March 15, 1994. -1- BASE10 Section 6. Subject to the requirements of law, only those persons shall be entitled to vote at any meeting in whose names shares entitled to vote stand on the corporation's stock records on the record date for voting fixed in accordance with Article VII of these By-Laws. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the Certificate of Incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Each stockholder shall at every meeting of the stockholders be entitled to such votes in person or by proxy as he may be empowered to cast by the Certificate of Incorporation. Section 7. A quorum for the transaction of business at any meeting shall be comprised of the presence, in person or by proxy, of the holders of a majority of the voting power. If, however, any business comes before the meeting requiring approval (under applicable law or the Certificate of Incorporation) of the holders of any class of capital stock voting as a separate class, then the presence, in person or by proxy, of the holders of a majority of the outstanding shares of that class is necessary to transact that business. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Section 8. The Chairman presiding at any meeting of stockholders shall have power, in his discretion, to appoint one or more persons to act as inspectors or tellers, to receive, canvass and report the votes cast by the stockholders at such meeting; but no candidate for the office of Director shall be appointed as inspector or teller at any meeting for the election of Directors. Section 9. The Chairman of the Board of Directors of the Corporation, and, in his absence, the President shall preside at all meetings of the stockholders; and, in the absence of the Chairman of the Board of Directors and the President, the vote of a majority of the stock having voting power, present or represented by proxy, shall elect a Chairman. Section 10. The Secretary of the Corporation shall act as Secretary of all meetings of the stockholders; and, in his absence, the Chairman shall appoint a person to act as Secretary of the meeting. -2- BASE10 ARTICLE IV - BOARD OF DIRECTORS Section 1. The property, business and affairs of the Corporation shall be managed and controlled by its Board of Directors. The number of Directors which shall constitute the whole Board shall not be less than three or more than ten*. Within such limits, the number of Directors shall be determined by resolution of the Board of Directors. The Directors shall be elected at the annual shareholders' meetings, except as provided in the second paragraph of this Article. Directors need not be shareholders. The Directors shall be divided into three classes, each consisting of one-third of such Directors as nearly as may be. At the annual shareholders' meeting 1978, one class of such Directors shall be elected for a one-year term, one class for a two-year term, and one class for a three-year term. At each succeeding annual shareholders' meeting beginning in 1979, successors to the class of Directors whose term expires at such annual meeting shall be elected for a three-year term. If the number of such Directors is changed, any increase in such Directors shall be apportioned among the classes so as to maintain the classes as nearly equal in number as possible, and any additional Director of any class shall hold office for a term which shall coincide with the remaining term of such class. A Director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification, or removal from office. Directors may be removed by the shareholders only for cause, in accordance with the law. Section 2. If any vacancy occurs in the Board of Directors caused by death, resignation, retirement, disqualification or removal from office of any Director, or otherwise, or any new directorship is created by an increase in the authorized number of Directors, a majority of the Directors then in office, though less than a quorum, may choose a successor or successors, or fill the newly created directorship. Any Director elected to fill a vacancy shall have the same remaining term as that of his predecessor. Section 3. The Board of Directors may hold meetings and keep the books of the Corporation outside the State of New Jersey. But, unless otherwise specified in the notice of the meeting, all meetings of the Board of Directors shall be held at the principal office of the Corporation in the State of New Jersey. Section 4. A meeting of the newly elected Board of Directors, of which no notice shall be necessary provided a majority of the whole Board shall be present, shall be held immediately following the Annual Meeting of the Stockholders or immediately following any adjournment thereof at which the Board of Directors shall have been elected for the ensuing year for the purpose of the organization of the newly elected Board, and the appointment of officers for the ensuing year, and for the transaction of such other business as may conveniently and properly be brought before such meeting. Section 5. Regular meetings of the Board of Directors shall be held at such times and places as shall, from time to time, be fixed by resolution adopted by the Board and no notice of such regular meetings need be given. - -------------------- * Adopted February 1, 1993. 3 BASE10 Section 6. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President, or by any two Directors. Section 7. Written notice of the time, place and purposes of any special meeting of the Board of Directors shall be given to the Directors by the Secretary at least five days before the meeting, if mailed, or at least two days if delivered personally or by telegram. It shall be the duty of the Secretary, notwithstanding notice thereof be not required, also to give like notice in like manner of the time and place of regular meetings of the Board. Section 8. A majority of the whole Board of Directors shall constitute a quorum at any meeting of the Board. Every act or decision done or made by a majority of the directors present at a meeting of the Board duly held, at which a quorum is present, shall be the act of the Board of Directors. Section 9. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the board shall individually or collectively consent to such action. Such written consent or consents to such action shall be filed with the minutes of the proceedings of the Board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. Section 10. Members of the Board of Directors may participate in a meeting of the Board of Directors by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 11. The Board of Directors shall have power to fix compensation to Directors for attendance upon meetings of the Board of committees thereof. Traveling expenses of members incurred in attendance thereon may be paid by the Corporation with the approval of the Board of Directors. Section 12. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority to: a. make, alter or repeal any by-law of the Corporation; b. elect or appoint any director, or remove any office or director; c. submit to shareholders any action that requires shareholders's approval; or d. amend or repeal any resolution theretofore adopted by the board which by its terms is amended or repealable only by the board. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. (Adopted January 7, 1981.) -4- BASE10 ARTICLE V - OFFICERS Section 1. The officers of the Corporation shall be a Chairman of the Board or Co-Chairmen of the Board, a President, a Vice President, a Secretary, a Treasurer and such other assistant and/or subordinate officers as the Board of Directors may from time to time appoint. Any two or more offices may be held by the same person.* Section 2. The officers shall be chosen by the Board of Directors to hold office for one year and until their successors shall be elected for appointed and shall quality. Any officer chosen by the Board of Directors may be removed from office at any time by the affirmative vote of two-thirds of the whole Board of Directors. Section 3. The Chairman or Co-Chairman of the Board shall preside at all meetings of the Board of Directors, if present, and in general perform all duties incidental to the office of the Chairman of the Board, and shall perform such other duties as may be prescribed, from time to time, by the Board of Directors. In the event that there are then Co-Chairmen of the Board, then the duties incidental to the office of the Chairman of the Board and the other duties prescribed for the Chairman of the Board by these By-Laws or by the Board of Directors, shall be allocated between and performed by such Co-Chairmen as the Board of Directors shall from time to time determine. Subject to the immediately foregoing sentence of this Section 3, whenever in these By-Laws a reference is made to the Chairman of the Board of Directors, such reference shall, if there are then Co-Chairmen of the Board, be deemed a reference to each of such Co-Chairmen.* Section 4. The President shall be the principle executive officer is charge of the administration and operations of the Corporation. He shall exercise such duties as customarily pertain to the office of President and shall have general and active management of the administration and operations, subject to the supervision and control of the Board of Directors, and he shall perform such other duties as may be described, from time to time, by the Board of Directors. Section 5. In the absence of the President of the Corporation or in the event of his death or inability or refusal to act, the Vice President shall perform the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions on the President. When there is more than one Vice President, each of them shall so service in the capacity of the President in the order designated at the time of their election or, in the absence of any designation at the time of their election, in the order of their election. The Vice President or Vice Presidents shall perform such other duties as, from time to time, may be assigned by the President or by the Board of Directors. Section 6. The Treasurer shall be the chief financial and accounting officer and shall have general custody of the corporate funds and securities and general supervision of the collection and disbursement of funds of the Corporation and of the accounts of the Corporation. The Treasurer shall render to the President and the Board of Directors, whenever the same shall be required, an account of all his transactions as Treasurer and of the financial condition of the Corporation. He shall, if required by the Board of Directors, give bond for the faithful performance of his duty in such sum and with such surety as may be approved by the Board of Directors. - ---------------------------- *As amended October 13, 1997 -5- BASE10 Section 7. The Secretary shall attend meetings of the Stockholders and Board of Directors and record the same in the Minute Book of the Corporation. He shall cause notice to be given of meetings of the Stockholders and of the Board of Directors. He shall have custody of the corporate seal and general charge of the records, documents, and papers of the Corporation not pertaining to the performance of the duties vested in other officers, and shall have such other powers and duties as generally pertain to the office of Secretary. He shall be sworn to the faithful discharge of his duties. Section 8. The funds of the Corporation shall be kept in such depositories as shall from time to time be prescribed by the Board of Directors and/or the Executive Committee. All checks or other orders for the payment of money shall be signed by the Chairman of the Board, the President, any Vice President, the Treasurer, or such other person or agent as may from time to time be thereunto authorized by the Board of Directors and/or the Executive Committee, with such countersignature, if any, as may be required by the Board of Directors and/or the Executive Committee. Before checks or other orders for the payment of the funds of the Corporation are issued, vouchers therefore shall duly be certified as correct in accordance with the practice of the Corporation. Section 9. The Chairman of the Board, the President, any Vice President, the Treasurer, or such other officer or officers as may from time to time be authorized by the Board of Directors or the Executive Committee, shall have power to sign and execute on behalf of the Corporation, deeds, conveyances and contracts, and any and all other documents requiring execution by the Corporation. Section 10. The Board of Directors may delegate the powers or duties of any officer, in case of his absence or disability, to another officer or a director for the time being. Section 11. In case any office shall become vacant, the Board of Directors shall have the power to fill such vacancy. Section 12. The Chairman of the Board, the President, any Vice President, the Treasurer, or such other officer or person as shall be authorized by the Board of Directors or the Executive Committee, shall have power of authority on behalf of the Corporation to attend and to vote at any meeting of the stockholders of any corporation in which this Corporation may hold stock, and may exercise on behalf of this Corporation any and all of the rights and powers incident to the ownership of such stock at any such meeting, and shall have power and authority to execute and deliver proxies and consents on behalf of this Corporation in connection with the exercise by this Corporation of the rights and powers incident to the ownership of such stock. ARTICLE VI - STOCK CERTIFICATES; TRANSFER AGENTS Section 1. Certificates for stock of the Corporation shall be in such form as the Board of Directors may, from time to time, prescribe and shall be signed by the President or a Vice President and by the Treasurer, the Secretary, or Assistant Secretary or shall bear the facsimile signatures of such officers. The Board of Directors shall have power to appoint one or more transfer agents and/or registrars for the transfer and/or registration of certificates of stock of any class, and may require that stock certificates shall be countersigned and/or registered by one or more of such transfer agents and/or registrars. -6- BASE10 Section 2. Shares of capital stock of the Corporation shall be transferable on the books of the Corporation by the holder of record thereof in person or by duly authorized attorney, and upon the surrender of such certificate properly endorsed. Section 3. In case any certificate for the capital stock of the Corporation shall be lost, stolen or destroyed, the Corporation may require such proof of the fact and such indemnity to be given as shall be deemed necessary or advisable by it. Section 4. The Corporation shall be entitled to treat the holder of record of any shares of stock as the holder thereof, in fact, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by law. ARTICLE VII - CLOSING TRANSFER BOOKS, ETC. Section 1. The Board of Directors shall have power to close the stock transfer books of the Corporation for a period not exceeding sixty (60) days preceding the date of any meeting of stockholders or the date for payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect; provided that in lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding sixty (60) days preceding the date of any meeting of stockholders, or the date of the payment of any dividend or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, as a record date for the determination of the stockholders entitled to notice of and to vote at any such meeting, or entitled to receive payment of any such dividends, or any such allotment or rights, or to exercise the rights in respect to any such change, conversion or exchange of capital stock, and in such case only stockholders of record on the date so fixed shall be entitled to such notice of and vote at such meeting, or to receive payment of such dividend, or allotment or rights, or exercise such rights as the case may be, and notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. Section 2. If the transfer books have not been closed or no date has been fixed as a record date for the determination of the stockholders entitled to vote, as herein provided, no share of stock shall be voted on at any election of directors, after the first election, which has been transferred on the books of the Corporation within sixty (60) days next preceding such election of Directors. ARTICLE VIII - FISCAL YEAR Section 1. The fiscal year of the Corporation shall commence on the first day of November and end on the 31st day of October in each calendar year. The Board of Directors shall have power to fix, and from time to time, change the fiscal year of the Corporation. -7- BASE10 ARTICLE IX-MISCELLANEOUS Section 1. Any notice required to be given to any stockholder, Director or officer under the provisions of these By-Laws or otherwise shall (subject to the provisions of law and of the Certificate of Incorporation of the Corporation) be deemed to be sufficiently given if such notice be written or printed and be deposited in the post office addressed to such stockholder, director or officer at his address as the same appears on the books of record of the Corporation, or such notice may be sent by telegram, and the mailing of such notice or posting of such telegram or radiogram, as the case may be, shall constitute due notice. Section 2. Any notice required to be given under the provisions of these By-Laws or otherwise may (subject to the provisions of law and the Certificate of Incorporation of this Corporation) be waived by the stockholder, director or officer to whom such notice is required to be given. Section 3. At any meeting of stockholder or directors of the Corporation, if less than a quorum be present, the vote of a majority of the stock having voting power present or represented by proxy, shall nevertheless have power to adjourn such meeting. ARTICLE X-INDEMNIFICATION; INSURANCE Section 1. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Corporation) by reason of the fact that he is or was a director or officer of the Corporation against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement to the maximum extent permitted by law, and shall advance expenses incurred by such person in any such action to the maximum extent permitted by law in accordance with the procedures provided by applicable law. Section 2. To the extent, according to standards and in such manner as the Board of Directors may direct pursuant to and in accordance with applicable law in the particular case, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Corporation) by reason of the fact that he is or was an employee or agent of the Corporation, or is or was serving at the request of the Corporation, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement. Section 3. The indemnification provided by this Article X shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be director, officer, employee or agent and shall insure to the benefit of the heirs, executors and administrators of such a person. 8 BASE10 Section 4. The Corporation, acting by its Board of Directors, shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article X. Nothing in this Section 4 shall obligate the Corporation to indemnify any person to any extent other than as provided in Sections 1, 2, 3 and 4 of this Article X. ARTICLE XI - AMENDMENT OF BY-LAWS Section 1. The Board of Directors shall have power, subject to the reserved power of the stockholders to alter or repeal the same, to make and alter the By-Laws of the Corporation. 9 EX-10.(EE) 3 WARRANT AGT. REGISTRANT AND STRATEGIC GROWTH INT'L Exhibit 10(ee) No. ______________ Warrant to Purchase 150,000 Shares of Class A Common Stock BASE TEN SYSTEMS, INC. Class A Common Stock Purchase Warrant April 15, 1997 NEITHER THIS WARRANT NOR THE SHARES OF CLASS A COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER SUCH ACT OR BASE TEN SYSTEMS, INC. RECEIVES AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO BASE TEN SYSTEMS, INC. AND ITS COUNSEL THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE. THIS CERTIFIES THAT STRATEGIC GROWTH INTERNATIONAL, INC. (hereinafter sometimes called the "Holder") is entitled to purchase from BASE TEN SYSTEMS, INC., a New Jersey corporation (the "Company"), at the price and during the period hereinafter specified, up to 150,000 shares (the "Warrant Shares") of the Company's Class A Common Stock, $1.00 par value (the "Common Stock"). This Warrant is subject to adjustment in accordance with Paragraph 9 hereof. 1. a. Vesting. The rights represented by this Warrant shall vest in four equal portions of 37,500 Warrants each, one portion vesting at the end of each six (6) month period commencing on the date of grant. b. Exerciseability. The rights represented by this Warrant shall be exercisable for a period of five (5) years, commencing on the date such rights first vest as to each 37,500 Warrant portion as set forth in Section 1(a) above and ending five (5) years after such vesting (the "Exercise Period"). After expiration of the Exercise Period applicable to each portion of the Warrant, the Holder shall have no right to purchase any shares of Common Stock underlying that portion of the Warrant and that portion of the Warrant shall terminate. If, at any time prior to the expiration of the Exercise Period as to any portion of the Warrant, there shall be a sale of all or substantially all of the properties and assets of the Company as an entirety to any other corporation or person, the unexercisable portion of the Warrant to the extent not then expired and terminated shall, upon such sale, become immediately exercisable. c. Exercise Price. The rights represented by this Warrant shall be exercisable at a purchase price of $10.125 per share (the "Exercise Price"), subject to adjustment in accordance with Paragraph 9. 2. The rights represented by this Warrant may be exercised at any time within the Exercise Period above specified, in whole or part, by (i) the surrender of this Warrant (with the exercise form at the end hereof properly executed) at the principal executive office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company); and (ii) payment to the Company of the Exercise Price then in effect for the number of shares of Common Stock specified in the above-mentioned exercise form together with applicable stock transfer taxes, if any. This Warrant shall be deemed to have been exercised, in whole or in part to the extent specified, on the close of business on the date this Warrant is surrendered and payment is made in accordance with the foregoing provisions of this Paragraph 2, and the person or persons in whose name or names the certificates for shares of Common Stock shall be issuable upon such exercise shall become the holder or holders of record of such shares of Common Stock so purchased shall be delivered to such person or persons within a reasonable time, not exceeding thirty (30) days, after this Warrant shall have been exercised. 3. Holder understands that, except as set forth in Paragraph 6 hereof, the Warrant Shares will not be registered under the Securities Act and that they must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or the transaction is exempt from registration. The certificate or certificates representing any Warrant Shares shall bear the following restrictive legend: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT; OR (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER THE SECURITIES ACT (OR SIMILAR RULE UNDER THE SECURITIES ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS AVAILABLE." 4. The Company covenants and agrees that all shares of Common Stock which may be issued upon exercise of this Warrant will, upon issuance, be duly and validly issued, fully paid and nonassessable and no personal liability will attach to the Holder thereof. The Company further covenants and agrees that during the Exercise Period, the Company will at all times have authorized and reserved a sufficient number of shares of its Common Stock to provide for the exercise of this Warrant. 5. The Warrant shall not entitle the Holder to any rights, including, without limitation, voting rights, as a stockholder of the Company. 6. a. If, at any time during the Exercise Period, the Company proposes to register any of its securities under the Securities Act (other than in connection with a primary public 2 offering of the Company's securities, a merger or other business combination, or pursuant to Form S-8 or other comparable Form), it will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to Holder of its intention to do so. If Holder notifies the Company within ten (10) days after receipt of any such notice of his desire to include any Warrant Shares owned by him in such proposed registration statement, the Company shall afford the Holder the opportunity to have any of its Warrant Shares registered under such registration statement; provided that (i) such inclusion does not pose any significant legal problem, and (ii) if such registration statement is filed pursuant to an underwritten public offering, the underwriter approves of such inclusion. b. Notwithstanding the provisions of this Paragraph 6, the Company shall have the right at any time after it shall have given written notice pursuant to this Paragraph 6 (irrespective of whether a written request for inclusion of any Warrant Shares shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective data thereof. c. Holder will cooperate with the Company in all respects in connection with the registration and sale of the Warrant Shares, including, timely supplying all information reasonable requested by the Company and executing and returning all documents reasonably requested in connection therewith. In addition, Holder will comply with all applicable provisions of state and federal securities laws, including Regulation M promulgated under the Securities Exchange Act of 1934, as amended, and will not, during the course of a distribution, purchase any of the securities being distributed. d. All expenses incurred in any registration of the Warrant Shares shall be paid by the Company, including, without limitation, printing expenses, fees and disbursements of counsel for the Company, expenses of any audits to which the Company shall agree to have performed or which shall be necessary to comply with governmental requirements in connection with any such registration, all registration and filing fees for the Warrant Shares under federal and state securities laws, and expenses of complying with the securities or blue sky laws of any jurisdictions; provided, however, the Company shall not be liable for (i) any discounts or commissions to any underwriter; (ii) any stock transfer taxes incurred with respect to Warrant Shares sold in such offering or (iii) the fees and expenses of counsel for Holder. 7. This Warrant and all rights hereunder shall not be transferred, sold, assigned or hypothecated at any time without the prior written consent of the Company, except that it may be assigned in whole or in part to any person who is a bona fide officer of the Holder. This Warrant and all the rights hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective successors, approved assigns and approved transferees. 8. If, at any time during the Exercise Period, there shall be any capital reorganization, reclassification of Common Stock (other than a change in par value or from par value to no par value or from no par value to par value as a result of a stock dividend or subdivision, split-up or combination of shares), the consolidation or merger of the Company with or into another corporation or of the sale of all or substantially all the properties and assets of the Company as an entirety to any other corporation or person, the unexercised portion of this Warrant shall, after such reorganization, reclassification, consolidation, merger or sale, be exercisable for the kind and number of shares of stock or other securities or property of the Company, or of the corporation resulting from such consolidation or surviving such merger, to which the Holder would have been entitled if the Holder had held shares of Common Stock issuable upon the exercise hereof immediately prior to such reorganization, 3 reclassification, consolidation, merger or sale. The provisions of this Paragraph 8 shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers and sales. 9. The Exercise Price and Period in effect at any time and the number and kind of securities purchasable upon the Exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events as follows: a. If, at any time during the Exercise Period, the company (i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide of reclassify its outstanding shares of Common Stock into a greater number of shares, of (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the effective date or record date, as the case may be, for such sale, dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be appropriately adjusted by the Company. b. Whenever the Exercise Price payable upon exercise of this Warrant is adjusted pursuant to Paragraph 9(a) above, the number of Warrant Shares shall be appropriately and equally adjusted by the Company at the same time. c. Notwithstanding any adjustment in the Exercise Price or the number or kind of shares of Common Stock purchasable upon the exercise of this Warrant, certificates for Warrants issued prior or subsequent to such adjustment may continue to express the same price and number and kind of shares of Common Stock as are initially issuable pursuant to this Warrant. d. The Company may, but under no circumstances is obligated to, modify the terms of this Warrant to provide for an earlier commencement of the Exercise Period, or to extend the Exercise Period, or to lower the Exercise Price, at any time to the expiration of this Warrant. 10. This Agreement shall be governed by and in accordance with the laws of the State of New Jersey. IN WITNESS WHEREOF, BASE TEN SYSTEMS, INC. has caused this Warrant to be signed by its duly authorized officer as of the date set forth on the first page hereof. By:/s/ Edward J. Klinsport --------------------------- Name: Edward J. Klinsport Title: Executive Vice Present 4 BASE TEN SYSTEMS, INC. PURCHASE FORM The undersigned hereby irrevocably elects to exercise the rights of purchase represented by the within Warrant for, and to purchase thereunder __________ shares of Class A Common Stock (the "Shares") provided for therein, and requests that certificates for the Shares be issued in the name of: - ------------------------------------------------------------------------------ (Please Print Name, Address and Social Security Number) - ------------------------------------------------------------------------------ and, if said number of Shares shall not be all the Shares purchasable hereunder, that a new Warrant certificate for the balance of the Shares purchasable under the within Warrant certificate be registered in the name of the undersigned Holder or his Assignee as below indicated and delivered to the address stated below. Date: , 19 -------------- --- Name of Holder or Permitted Assignee (Please Print): -------------------------- Address: ---------------------------------------------------------------------- Signature: -------------------------------------------------------------------- Signature Guaranteed: Note: The above signature must correspond with the name as written upon the face of this Warrant certificate in every particular, without alteration or enlargement or any change whatever, unless this Warrant has been assigned in accordance with the terms of the Warrant. ASSIGNMENT (To be signed only upon assignment of Warrant) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto - ------------------------------------------------------------------------------ (Please Print Name, Address and Social Security Number) - ------------------------------------------------------------------------------ the within Warrant, hereby irrevocably constituting and appointing ________________ Attorney to transfer said Warrant on the books of the Company, with full power of substitution in the premises. Date: , 19 -------------- --- --------------------------------------- Signature of Registered Holder Signature Guaranteed: Note: The above signature must correspond with the name as written upon the face of this Warrant certificate in every particular, without alteration or enlargement or any change whatever, unless this Warrant has been assigned. EX-10.(FF) 4 CONSULTING AGT. BETWEEN REG. & RTS RESEARCH LAB Exhibit 10(ff) CONSULTANT AGREEMENT THIS CONSULTANT AGREEMENT (this "Agreement") is effective as of the 9th of June, 1997 by and between BASE TEN SYSTEMS, INC., a New Jersey corporation (the "Company") and RTS Research Lab, Inc. (RTS), a New York corporation, having an address at Mountainside Trail, Peekskill, New York 10566 ("Consultant"). WHEREAS, Consultant is in the business of providing investment and investor relations advice and, through its principal, Alexander M. Adelson ("Adelson"), is knowledgeable concerning the Company and its affairs; WHEREAS, the Company desires that Adelson's experience and knowledge should continue to be available to the Company and its subsidiaries; and WHEREAS, Consultant is willing, through Adelson, to provide consulting and investor relations advice and services to the Company, and Adelson is willing to remain available to the Company in accordance with the terms hereinafter set forth; NOW, THEREFORE, in consideration of the premises, mutual covenants and agreements contained herein, the parties hereto, intending to be legally bound, do hereby agree as follows: 1. Duties of the Consultant Effective June 9, 1997 the Company hereby retains Consultant, and Consultant agrees to serve the Company, upon terms and conditions hereinafter set forth. 1.1 The Consultant shall serve as the Company's Investment Relations person providing investors and members of the financial community explanations and clarifications of the Company's plans and performance based on publicly released information by Management. 1.2 The Consultant shall keep Management and the Board of Directors informed as to the response to Company performance and plans based on frequent contacts with the investment community and shareholders. 1.3 The Consultant shall conduct seminars and presentations of previously released public information with members of the financial and investment communities for the purpose of making the widest distribution of such information. 1.4 Acting in its capacity as an advisor to the Board of Directors on methods of raising capital as required by the Board of Directors and making use of its relationships with members of the financial community, the Consultant shall, always under the supervision and control and with the approval of the Chief Executive Officer ("CEO") develop and implement programs to acquire such capital, subject to any and all required approvals of such capital raising programs by the Board of Directors. 1.5 The Consultant shall supervise the activities of the Company's Financial Public Relations agency and assure their compliance with applicable laws of disclosure of information to the investor community. 1 1.6 Although it shall assume no executive authority, the Consultant shall take an active role in the development of marketing strategies for the Company's Medical Technology Division products and advise the CEO as to how best to implement those strategies and any other duties in the Marketing area agreed to between the CEO and RTS. 1.7 The Consultant shall act for the Company in assisting the uPACS LLC in the development and implementation of marketing strategies and practices. 1.8 The Consultant shall take an active role in the search for potential acquisitions and when authorized by the Board of Directors participate in the negotiations leading to a favorable agreement. 1.9 The Consultant shall work together with the Company's market makers to maintain a flow of public information to shareholders and potential shareholders. 1.10 The Consultant shall attend meetings with shareholders and other members of the financial community which are held at the Company's premises and act to provide public information and assist in the demonstration and explanation of the Company's product capabilities. 1.11 In cases where non-public information is to be disclosed to potential investment banking partners the Consultant shall make certain that proper non-disclosure agreements have been consummated. 1.12 In cases where the Company has consummated a private offering the Consultant shall maintain close relationships with the purchaser(s) to provide public information regarding the Company's plans and performance on a timely basis. 2. Compensation 2.1 The Consultant shall be compensated at the rate of $257,500 per annum. If mutually agreed, the Consultant will accept options in lieu of cash at the rate of one option for each $2.00 of compensation. 2.2 The Consultant shall receive a "success fee" in the event it is successful in arranging for additional financing in each case as specifically requested and authorized in advance in writing by the Board of Directors. The "success fee", which is subject to the approval of the Board of Directors in each occasion of fund raising, shall generally be in accordance with the following formula: For capital formation the "success fee" shall be 1% of the net funds to be received by the Company after all expenses and commissions except for the "success fee", plus one Warrant at Market Value on the date of Closing for each $200 in net funds to be received by the Company. In the event that the Consultant is authorized by the Board of Directors to assist the Company in the acquisition of another Company, the Consultant will receive a "success fee" equal to 1/2% of the fair market value of the net consideration paid by the Company in such acquisition in cash upon the successful closing and consummation of the transaction. 2 The Consultant, if approved by the Board of Directors, shall receive a "success fee" of $100,000 if the Company, or one of its divisions, is merged with or acquired by another Company. 2.3 In no case shall the Consultant be entitled to receive more than $200,000 in "success fees" in any given 18 month period, and in the event transaction is consummated in any such 18 months period which would otherwise entitle Consultant to an amount greater than $200,000, the total "success fee" should be $200,000. 2.4 The Consultant shall be reimbursed for all expenses incurred on behalf of the Company in the pursuit of his duties but shall account for all expenses in a manner acceptable to the Company from time to time. The Consultant shall not incur extravagant expenses in any regard and is limited to economy class air travel. 2.5 The Consultant (Adelson) employed by RTS shall receive 15,000 Warrants on each of the three anniversary dates of this Agreement at the closing price of the Company's Class A stock as quoted on NASDAQ NMS. Such Warrants are subject to Shareholder approval. In addition, RTS shall receive an annual reimbursement of $5,000 to cover the excess mileage costs on its leased automobile used for Base Ten business. 2.6 Neither the Consultant nor Adelson shall be entitled to any other compensation or success fees of any kind, whether previously negotiated or not, except for compensation due the Consultant for its part in the consummation of the uPACS LLC agreement of May 1, 1997. 3. Term 3.1 The term of this agreement is three years during which compensation noted above shall not be changed except by mutual agreement of the parties. 3.2 The CEO is empowered at any time to eliminate or reduce the scope of any of the duties described above. 3.3 This agreement can be terminated without cause at any time prior to its stated termination date. If this agreement is terminated without cause at any time prior to its stated termination date, the Consultant will receive $257,500 plus any compensation owed at the time the agreement is terminated. 3.4 This agreement can be terminated with cause at any time. If termination is for cause then only those services owed at the time of termination shall be due and payable to Consultant. "Cause" shall mean: (1) any breach of this Agreement by Consultant, (2) fraud, dishonesty, or unusual conduct, conduct in violation of NASD or SEC rules or practices by Consultant or any of its employees or principals (including Adelson) or any act or omission by Consultant or any of its employees or principals (including Adelson) which the Board reasonably determines to be materially injurious to the Company, or (3) if at any time Adelson dies or is not available to principally perform the services of Consultant hereunder for any reason whatsoever. 3 4. Relationship Between The Parties. 4.1 The relationship of Consultant to the Company and any subsidiary of the Company shall be that of independent contractor. Consequently, Consultant shall have no authority and shall not assume to act for or on behalf of the Company or any subsidiary of the Company without its express written approval. Consultant shall not be considered as having employee status for any purpose, including the purpose of any employee benefit plan applicable to the Company's employees or employees of any subsidiary of the Company. 4.2 Consultant and Adelson are each solely responsible for the payment of all tax liabilities and the filing of all tax returns and reports with respect to the amounts paid to Consultant under Section 4 hereof, and Consultant and Adelson each agrees to indemnify the Company, its officers and directors for any liability imposed on them or each of them arising out of his failure to pay such taxes or his assertion of the failure of the Company to withhold taxes from the payments made pursuant to Section 2 hereof. 5. Confidential Information And Duty Of Nondisclosure. Consultant and Adelson each acknowledges and agrees that its or his prior contact with the Company and its or his retention by the Company pursuant to this Agreement necessarily involves its or his access to certain secrets and confidential information pertaining to the business of the Company and its subsidiaries. Accordingly, each of Consultant and Adelson agrees that at all times during the term of this Agreement and thereafter, neither it nor he will directly or indirectly, without the express authority of the Company unless directed by applicable legal authority having jurisdiction over Adelson, disclose to or use for the benefit of any person, firm, corporation or other business entity, or himself, any files, secrets, proprietary information or other confidential information concerning the Company or any subsidiary of the Company, including, without limitation, any information concerning their past, present or prospective clients, creditors, customers, operations, trade secrets, systems, technology, software or methods. Further, Consultant and Adelson each agrees that neither it nor he will directly or indirectly, remove or retain, any figures, calculations, letters, papers, records, documents, instruments, drawings, designs, programs or any copies thereof, or any information of any type or description, however such information might be obtained or recorded and on whatever medium such information may be contained, arising out of or in any way relating to the business of the Company or any subsidiary of the Company or obtained as a result of or in connection with its or his contact with the Company, or current retention under this Agreement, heretofore, by the Company or any subsidiary of the Company; provided that it or he may use any such proprietary information which has (but solely limited to the extent it has) specifically been disclosed to the public other than by a violation of this Agreement. Consultant and Adelson each acknowledges that all of the foregoing constitutes proprietary information, which is the exclusive property of the Company and its subsidiaries. 6. Covenant Not To Compete. 6.1 During the term of this Agreement, Consultant and Adelson each agrees not to directly or indirectly, whether individually or acting as employee, investor, officer, partner, principal or otherwise of any corporation or other entity, engage, within the United States of America, Canada or any of their territories, possessions or protectorates, or in any country which is in the European Common Market, in any activity involving products or services or both products and services to those products and 4 services of the Company or any of its subsidiaries, as such products and services exist on the date hereof or during the Consultantcy Term. 6.2 During the term of this Agreement, and for one year thereafter, neither Consultant nor Adelson shall directly or indirectly, whether individually or acting as an employee, owner, partner, investor, officer, director, independent contractor, supplier, consultant, principal or otherwise of any corporation or other business entity: solicit or otherwise contact for the purpose of providing by sale or otherwise any product which is similar to or competitive with any product sold or considered for sale by the Company, a corporation or business entity (or any individual who exercises management or administrative or purchasing authority over such facility or entity) which at any time during the term of this Agreement, or which Adelson knows or has reason to believe (at the time of such contact or solicitation) has proposed to purchase, purchased or contracted with the Company or any subsidiary of the Company for the purchase of any service or product provided by the Company or any subsidiary of the Company; or Notwithstanding the foregoing provision of this subparagraph 6.2, Consultant and Adelson may act in any capacity whatsoever (A) if expressly consented to or approved of in writing by the Company, (B) by participation in any investment or mutual fund over which Adelson has no authority to make or influence investment decisions with respect to the securities or other investments made by such investment or mutual fund, (C) as a vendor to the Company, (D) on behalf of a newly formed company which is not a successor to or related to or affiliated with any prior or then current competitor of the Company and which itself is not a competitor to the Company, or (E) arising solely out of Adelson being the owner of 5% or less of the securities of any publicly held corporation. 6.3 The parties hereto agree that in the event that either the length of time or the geographical areas set forth in Sections 6.1 or 6.2 above are held invalid or unforeseeable as being too restrictive by any court, the court may reduce such restrictions to those which it deems reasonable under the circumstances. 6.4 Consultant and Adelson each agrees and acknowledges that the Company and any of its subsidiaries do not have an adequate remedy at law for the breach or the threatened breach by Adelson of the covenants under this Section 6 and agrees that the Company or any subsidiary of the Company shall be entitled to injunctive relief (without the need to post bond or similar surety) to restrain from such breach or threatened breach in addition to all other remedies which might be available to the Company or any subsidiary of the Company at law or in equity. 6.5 The obligations expressed in Section 5 and 6 hereof shall be in addition to any other obligations imposed by law upon Consultant and Adelson with respect to the Company or any subsidiary of the Company. 7. Notices. 5 For the purposes of this Agreement, notices and all other communication provided for in this Agreement shall be effective and shall be deemed to have been duly given if the same is in writing and when delivered or mailed by first class mail, postage prepaid, addressed as follows: If to the Company: Base Ten Systems, Inc. One Electronics Drive Trenton, New Jersey 08619 Attention: M. M. Kranzler, Chairman & CEO If to Adelson: RTS Research Lab, Inc. Mountainside Trail Peekskill, NY 10566 Attention: Alexander M. Adelson, President 8. Assignment/Binding Effect. The duties and obligations of hereunder are not assignable by him without the written consent of the Company. The Company may assign its rights hereunder to any affiliated or successor corporation, including a successor through the purchase of all or substantially all of the Company's assets. This Agreement and the rights hereunder shall be binding upon and inure to the benefit of and be enforceable by (i) the personal or legal representatives, executors, administrators, successors, distributees, devisees and legatees, of Consultant and Adelson, and (ii) the successors and assigns of the Company. 9. Integration. This Agreement represents the entire understanding of the parties with respect to the subject matter hereof. This Agreement supersedes all other agreements, contracts, understandings and other arrangements, written or oral, between the parties, all of which are hereby terminated and shall be of no further force or effect, including without limitation, any employment contracts, agreements or understandings in effect as of the date hereof. 10. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by Adelson and such officer of the Company as may be specifically designated by the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or in compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time. No representations, oral or otherwise; express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New Jersey without regard to conflict of law principles. This Agreement may be executed in counterparts, each of which shall be deemed a duplicate original, all of 6 which shall be deemed to be one in the same instrument. In the event of any dispute arising out of this Agreement, each of the Company, the Consultant and Adelson hereby agree that the Federal and State courts of the State of New Jersey shall have sole and exclusive jurisdiction over such disputes. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the day and year first set forth above. All of the foregoing Agreement is BASE TEN SYSTEMS, INC. consented to and approved: ALEXANDER M. ADELSON By: /s/ M. Kranzler --------------------------- /s/ Alexander M. Adelson Name: M. Kranzler - -----------------------------(L.S.) ------------------------- Title: President ------------------------ RTS RESEARCH LABS, INC. By: /s/ Alexander M. Adelson --------------------------- Alexander M. Adelson President 7 EX-10.(GG) 5 WARRANT AGT. BETWEEN REGISTRANT & STRATEGIC GROWTH Exhibit 10(gg) No. _____________ Warrant to Purchase 50,000 Shares of Class A Common Stock BASE TEN SYSTEMS, INC. Class A Common Stock Purchase Warrant June 20, 1997 NEITHER THIS WARRANT NOR THE SHARES OF CLASS A COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER SUCH ACT OR BASE TEN SYSTEMS, INC. RECEIVES AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO BASE TEN SYSTEMS, INC. AND ITS COUNSEL THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE. THIS CERTIFIES THAT STRATEGIC GROWTH INTERNATIONAL, INC. (hereinafter sometimes called the "Holder") is entitled to purchase from BASE TEN SYSTEMS, INC., a New Jersey corporation (the "Company"), at the price and during the period hereinafter specified, up to 50,000 shares (the "Warrant Shares") of the Company's Class A Common Stock, $1.00 par value (the "Common Stock"). This Warrant is subject to adjustment in accordance with Paragraph 9 hereof. 1. a. Vesting. The rights represented by this Warrant shall vest in four equal portions of 12,500 Warrants each, one portion vesting at the end of each six (6) month period commencing on the date of grant. b. Exerciseability. The rights represented by this Warrant shall be exercisable for a period of five (5) years, commencing on the date such rights first vest as to each 12,500 Warrant portion as set forth in Section 1(a) above and ending five (5) years after such vesting (the "Exercise Period"). After expiration of the Exercise Period applicable to each portion of the Warrant, the Holder shall have no right to purchase any shares of Common Stock underlying that portion of the Warrant and that portion of the Warrant shall terminate. If, at any time prior to the expiration of the Exercise Period as to any portion of the Warrant, there shall be a sale of all or substantially all of the properties and assets of the Company as an entirety to any other corporation or person, the unexercisable portion of the Warrant to the extent not then expired and terminated shall, upon such sale, become immediately exercisable. c. Exercise Price. The rights represented by this Warrant shall be exercisable at a purchase price of $9.875 per share (the "Exercise Price"), subject to adjustment in accordance with Paragraph 9. 2. The rights represented by this Warrant may be exercised at any time within the Exercise Period above specified, in whole or in part, by (i) the surrender of this Warrant (with the exercise form at the end hereof properly executed) at the principal executive office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company); and (ii) payment to the Company of the Exercise Price then in effect for the number of shares of Common Stock specified in the above-mentioned exercise form together with applicable stock transfer taxes, if any. This Warrant shall be deemed to have been exercised, in whole or in part to the extent specified, on the close of business on the date this Warrant is surrendered and payment is made in accordance with the foregoing provisions of this Paragraph 2, and the person or persons in whose name or names the certificates for shares of Common Stock shall be issuable upon such exercise shall become the holder or holders of record of such shares of Common Stock so purchased shall be delivered to such person or persons within a reasonable time, not exceeding thirty (30) days, after this Warrant shall have been exercised. 3. Holder understands that, except as set forth in Paragraph 6 hereof, the Warrant Shares will not be registered under the Securities Act and that they must be held indefinitely unless a subsequent disposition thereof is registered under the Securities Act or the transaction is exempt from registration. The certificate or certificates representing any Warrant Shares bear the following restrictive legend: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT; OR (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER THE SECURITIES ACT (OR SIMILAR RULE UNDER THE SECURITIES ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT IS AVAILABLE." 4. The Company covenants and agrees that all shares of Common Stock which may be issued upon exercise of this Warrant will, upon issuance, be duly and validly issued, fully paid and nonassessable and no personal liability will attach to the Holder thereof. The Company further covenants and agrees that during the Exercise Period, the Company will at all times have authorized and reserved a sufficient number of shares of its Common Stock to provide for the exercise of this Warrant. 5. The Warrant shall not entitle the Holder to any rights, including, without limitation, voting rights, as a stockholder of the Company. 6. a. If, at any time during the Exercise Period, the Company proposes to register any of its securities under the Securities Act (other than in connection with a primary public 2 offering of the Company's securities, a merger or other business combination, or pursuant to Form S-8 or other comparable Form), it will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to Holder of its intention to do so. If Holder notifies the Company within ten (10) days after receipt of any such notice of his desire to include any Warrant Shares owned by him in such proposed registration statement, the Company shall afford the Holder the opportunity to have any of its Warrant Shares registered under such registration statement; provided that (i) such inclusion does not pose any significant legal problem, and (ii) if such registration statement is filed pursuant to an underwritten public offering, the underwriter approves of such inclusion. b. Notwithstanding the provisions of this Paragraph 6, the Company shall have the right at any time after it shall have given written notice pursuant to this Paragraph 6 (irrespective of whether a written request for inclusion of any Warrant Shares shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof. c. Holder will cooperate with the Company in all respects in connection with the registration and sale of the Warrant Shares, including, timely supplying all information reasonably requested by the Company and executing and returning all documents reasonably requested in connection therewith. In addition, Holder will comply with all applicable provisions of state and federal securities laws, including Regulation M promulgated under the Securities Exchange Act of 1934, as amended, and will not, during the course of a distribution, purchase any of the securities being distributed. d. All expenses incurred in any registration of the Warrant Shares shall be paid by the Company, including, without limitation, printing expenses, fees and disbursements of counsel for the Company, expenses of any audits to which the Company shall agree to have performed or which shall be necessary to comply with governmental requirements in connection with any such registration, all registration and filing fees for the Warrant Shares under federal and state securities laws, and expenses of complying with the securities or blue sky laws of any jurisdictions; provided, however, the Company shall not be liable for (i) any discounts or commissions to any underwriter; (ii) any stock transfer taxes incurred with respect to Warrant Shares sold in such offering or (iii) the fees and expenses of counsel for Holder. 7. This Warrant and all rights hereunder shall not be transferred, sold, assigned or hypothecated at any time without the prior written consent of the Company, except that it may be assigned in whole or in part to any person who is a bona fide officer of the Holder. This Warrant and all the rights hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective successors, approved assigns and approved transferees. 8. If, at any time during the Exercise Period, there shall be any capital reorganization, reclassification of Common Stock (other than a change in par value or from par value to no par value or from no par value to par value as a result of a stock dividend or subdivision, split-up or combination of shares), the consolidation or merger of the Company with or into another corporation or of the sale of all or substantially all the properties and assets of the Company as an entirety to any other corporation or person, the unexercised portion of this Warrant shall, after such reorganization, reclassification, consolidation, merger or sale, be exercisable for the kind and number of shares of stock or other securities or property of the Company, or of the corporation resulting from such consolidation or surviving such merger, to which the Holder would have been entitled if the Holder had held shares of Common Stock issuable upon the exercise hereof immediately prior to such reorganization, 3 reclassification, consolidation, merger or sale. The provisions of this Paragraph 8 shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers and sales. 9. The Exercise Price and Exercise Period in effect at any time and the number and kind of securities purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events as follows: a. If, at any time during the Exercise Period, the Company shall (i) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the effective date or record date, as the case may be, for such sale, dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be appropriately adjusted by the Company. b. Whenever the Exercise Price payable upon exercise of this Warrant is adjusted pursuant to Paragraph 9(a) above, the number of Warrant Shares shall be appropriately and equally adjusted by the Company at the same time. c. Notwithstanding any adjustment in the Exercise Price or the number or kind of shares of Common Stock purchasable upon the exercise of this Warrant, certificates for Warrants issued prior or subsequent to such adjustment may continue to express the same price and number and kind of shares of Common Stock as are initially issuable pursuant to this Warrant. d. The Company may, but under no circumstances is obligated to, modify the terms of this Warrant to provide for an earlier commencement of the Exercise Period, or to extend the Exercise Period, or to lower the Exercise Price, at any time prior to the expiration of this Warrant. 10. This Agreement shall be governed by and in accordance with the laws of the State of New Jersey. IN WITNESS WHEREOF, BASE TEN SYSTEMS, INC. has caused this Warrant to be signed by its duly authorized officer as of the date set forth on the first page hereof. By: /s/ Edward J. Klinsport ------------------------------- Name: Edward J. Klinsport Title: Executive Vice President 4 BASE TEN SYSTEMS, INC. PURCHASE FORM The undersigned hereby irrevocably elects to exercise the rights of purchase represented by the within Warrant for, and to purchase thereunder ______ shares of Class A Common Stock (the "Shares") provided for therein, and requests that certificates for the Shares be issued in the name of: ______________________________________________________________________________ (Please Print Name, Address and Social Security Number) ______________________________________________________________________________ and, if said number of Shares shall not be all the Shares purchasable hereunder, that a new Warrant certificate for the balance of the Shares purchasable under the within Warrant certificate be registered in the name of the undersigned Holder or his Assignee as below indicated and delivered to the address stated below. Dated:_________________, 19___ Name of Holder or Permitted Assignee (Please Print):__________________________ Address:______________________________________________________________________ Signature:____________________________________________________________________ Signature Guaranteed: Note: The above signature must correspond with the name as written upon the face of this Warrant certificate in every particular, without alteration or enlargement or any change whatever, unless this Warrant has been assigned in accordance with the terms of the Warrant. ASSIGNMENT (To be signed only upon assignment of Warrant) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto ______________________________________________________________________________ (Please Print Name, Address and Social Security Number) ______________________________________________________________________________ the within Warrant, hereby irrevocably constituting and appointing ___________ Attorney to transfer said Warrant on the books of the Company, with full power of substitution in the premises. Dated:___________________, 19___ ________________________________________ Signature of Registered Holder Signature Guaranteed: Note: The above signature must correspond with the name as written upon the face of this Warrant certificate in every particular, without alteration or enlargement or any change whatever, unless this Warrant has been assigned. EX-10.(HH) 6 OPTION AGT. BETWEEN REGISTRANT AND DAVID BATTEN Exhibit 10(hh) BASE TEN SYSTEMS, INC. SERVICE-BASED STOCK OPTION AGREEMENT This Option Agreement (the "Agreement"), made as of October 13, 1997, is between Base Ten Systems, Inc. (the "Company"), a New Jersey corporation located at One Electronics Drive, P.O. Box 3151, Trenton, New Jersey 08619, and David Batten (the "Optionee"). WHEREAS, in consideration of the Optionee's contributions to the Company, the Company has agreed to grant to Optionee certain options to purchase shares of the Company's Class A Common Stock ("Common Stock"), subject to receipt of shareholder approval of this option to purchase at the Company's next Annual Meeting of Shareholders. NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth below, the parties agree as follows: 1. Options. (a) The Company hereby grants to Optionee ten thousand (10,000) rights (each an "Option") to subscribe for and purchase one share of Common Stock at the price of ten and 7/8 dollars ($10.875) per share ("Purchase Price"), the NASDAQ closing price as of the date of this Agreement. The Options granted pursuant to this Agreement shall become vested and exercisable as of the date of this Agreement, contingent upon the shareholders of the Company approving the issuance of such Options at the Company's next Annual Meeting of Shareholders. (b) The Options shall not be transferable other than by will or the laws of descent and distribution or, after the Optionee's death, to a beneficiary (or beneficiaries) designated by the Optionee in writing in a form satisfactory to the Company, and the Options may be exercised, during the lifetime of the Optionee, only by the Optionee. Without limiting the generality of the foregoing, the Options may not be assigned, transferred (except as provided above), pledged or hypothecated in any way, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of any of the Options contrary to the provisions hereof, or the levy of any execution, attachment or similar process upon any Option, shall be null and void and without effect. 2. Exercise. (a) Subject to the terms and conditions of this Agreement, Optionee shall have the right to exercise at the Purchase Price all vested Options at any time after the date hereof. Notwithstanding anything else herein to the contrary, all Options granted under this Agreement shall expire no later than the tenth (10th) anniversary of the date of this Agreement. (b) Options may be exercised by the Optionee in whole or in part, but not as to a fractional share, by surrender of such Options, properly endorsed at the principal office of the Company, and by delivering to the Company (i) a written exercise notice substantially in the form annexed hereto as Schedule A, and (ii) payment of the aggregate Purchase Price, plus required tax withholding amounts (as determined by the Company) for the number of shares purchased by certified check or bank check (or in such other form as the Company may elect to 1 accept). The shares purchased shall be deemed to be issued to the Optionee as the record owner as of the close of business on the date of which the Options are surrendered and payment is made for the shares. Certificates representing the shares purchased shall be delivered to the Optionee within thirty (30) days after the rights represented by the Options have been properly exercised. 3. Shares. (a) The Company covenants and agrees that all shares of Common Stock shall, on issuance and payment of the consideration therefor hereunder, be fully paid and nonassessable and free from all taxes, liens and charges related to the issuance of such shares. The Company further covenants and agrees that during the period within which the rights represented by the Options may be exercised, the Company shall, at all times, have authorized and reserved for the purpose of issuance or transfer on exercise of the Options a sufficient number of the shares subject to the Options to provide for their exercise. (b) The Company shall use its best reasonable efforts to assure that all shares of Common Stock received by Optionee on any exercise of any Option shall be, and shall remain, (i) fully registered (at the Company's expense) under the Securities Act of 1933, as amended (the "1933 Act"), both for issuance and for resale, (ii) fully registered or qualified (at the Company's expense) under such state securities laws as Optionee may reasonably request, both for issuance and for resale, and (iii) either qualified for trading on NASDAQ or listed on a national securities exchange unless, in each case, Optionee consents to alterative arrangements that adequately protect the salability of such shares, which consent shall not be unreasonably withheld. 4. Adjustments. In the event that there is any change in the Common Stock arising through merger, consolidation, reorganization, recapitalization, stock dividend, stock split or combination, the Board of Directors shall make such adjustments in the aggregate number of Options subject to this Agreement and/or the price per share of such Options in order to prevent dilution or enlargement of Optionee's rights and of the value represented by the Options. In the event of a dissolution or liquidation of the Company or a merger, consolidation, sale of all or substantially all of the Company's assets (which, for this purpose, does not include the sale or disposition of the Company's Government Technology Division), or other corporate reorganization in which the Company is not the surviving corporation, or any merger in which the Company is the surviving corporation but the holders of its Common Stock receive securities of another corporation (each of the foregoing, a "Trigger Event"), outstanding Options shall terminate, provided that the holder of each Option shall, in such event, if no provision has been made for the substitution of a new option for such outstanding option, have the right immediately prior to such Trigger Event, to exercise the holder's Options in whole or in part without regard to the date on which the Options otherwise would be first exercisable. Upon any adjustment in the number or exercise price of shares subject to an Option, a new Option may be granted in place of such Option which has been so adjusted. 5. Absence of Rights. No Option shall entitle the Optionee to any rights as a shareholder of the Company prior to the exercise of such Option. 6. Invalidity; Severability. If any clause or provision of this Agreement shall be adjudged invalid, the same shall not affect the validity of any other clause or provision of this 2 Agreement, or of any other document pertaining to the subject matter thereof, or constitute by reason thereof, any claim or cause of action in favor of Optionee as against the Company. In addition, the provisions of this Agreement shall be read and construed and shall have effect as separate, severable and independent provisions or restrictions, and shall be enforceable accordingly. 7. Entire Agreement; No Waiver; Remedies. This Agreement contains the entire agreement of the parties and incorporates and supersedes any and all prior or contemporaneous oral or written agreements with respect to the matters referred to in it. No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. No failure on the part of any party to exercise, and no delay in exercising any right, remedy, power or privilege hereunder shall operate as a waiver thereof; no waiver whatever shall be valid unless in writing signed by the party or parties to be charged and then only to the extent specifically set forth in such writing. All remedies, rights, powers and privileges, either under this Agreement or by law or otherwise afforded the parties to this Agreement, shall be cumulative and shall not be exclusive of any remedies, rights, power and privileges provided by law. 8. Successors and Assigns. The rights and obligations of the Company under this Agreement or the Options shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. 9. Headings; Counterparts; Governing Law. The headings in this Agreement are for convenience of reference only and are not intended to define or limit the contents of any section or paragraph. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall in all respects be governed by the internal laws (without reference to conflicts of laws principles) of the State of New Jersey applicable to contracts made and performed within the State of New Jersey. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. DAVID BATTEN BASE TEN SYSTEMS, INC. /s/ David Batten (L.S.) By: /s/ M. Kranzler - ----------------------------- --------------------------- Print Name: M. Kranzler ------------------- Title: Chairman ------------------------ 3 Schedule A Exercise Notice Base Ten Systems, Inc. One Electronics Drive PO Box 3151 Trenton, NJ 08619 Gentlemen: The undersigned hereby exercises the option to purchase __________ shares of Class A Common Stock of Base Ten Systems, Inc. pursuant to the Base Ten Systems, Inc. Service-Based Option Agreement (the "Option Agreement") dated as of __________________ between Base Ten Systems, Inc. and the undersigned. Accompanying this Exercise Notice is payment pursuant to the Option Agreement in the amount of $__________. Dated: By: ----------------------- --------------------------- David Batten 4 EX-10.(II) 7 OPTION AGT. BETWEEN REGISTRANT & ALAN POOLE Exhibit 10(ii) BASE TEN SYSTEMS, INC. SERVICE-BASED STOCK OPTION AGREEMENT This Option Agreement (the "Agreement"), made as of October 13, 1997, is between Base Ten Systems, Inc. (the "Company"), a New Jersey corporation located at One Electronics Drive, P.O. Box 3151, Trenton, New Jersey 08619, and Alan Poole (the "Optionee"). WHEREAS, in consideration of the Optionee's contributions to the Company, the Company has agreed to grant to Optionee certain options to purchase shares of the Company's Class A Common Stock ("Common Stock"), subject to receipt of shareholder approval of this option to purchase at the Company's next Annual Meeting of Shareholders. NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth below, the parties agree as follows: 1. Options. (a) The Company hereby grants to Optionee ten thousand (10,000) rights (each an "Option") to subscribe for and purchase one share of Common Stock at the price of ten and 7/8 dollars ($10.875) per share ("Purchase Price"), the NASDAQ closing price as of the date of this Agreement. The Options granted pursuant to this Agreement shall become vested and exercisable as of the date of this Agreement, contingent upon the shareholders of the Company approving the issuance of such Options at the Company's next Annual Meeting of Shareholders. (b) The Options shall not be transferable other than by will or the laws of descent and distribution or, after the Optionee's death, to a beneficiary (or beneficiaries) designated by the Optionee in writing in a form satisfactory to the Company, and the Options may be exercised, during the lifetime of the Optionee, only by the Optionee. Without limiting the generality of the foregoing, the Options may not be assigned, transferred (except as provided above), pledged or hypothecated in any way, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of any of the Options contrary to the provisions hereof, or the levy of any execution, attachment or similar process upon any Option, shall be null and void and without effect. 2. Exercise. (a) Subject to the terms and conditions of this Agreement, Optionee shall have the right to exercise at the Purchase Price all vested Options at any time after the date hereof. Notwithstanding anything else herein to the contrary, all Options granted under this Agreement shall expire no later than the tenth (10th) anniversary of the date of this Agreement. (b) Options may be exercised by the Optionee in whole or in part, but not as to a fractional share, by surrender of such Options, properly endorsed at the principal office of the Company, and by delivering to the Company (i) a written exercise notice substantially in the form annexed hereto as Schedule A, and (ii) payment of the aggregate Purchase Price, plus required tax withholding amounts (as determined by the Company) for the number of shares purchased by certified check or bank check (or in such other form as the Company may elect to 1 accept). The shares purchased shall be deemed to be issued to the Optionee as the record owner as of the close of business on the date of which the Options are surrendered and payment is made for the shares. Certificates representing the shares purchased shall be delivered to the Optionee within thirty (30) days after the rights represented by the Options have been properly exercised. 3. Shares. (a) The Company covenants and agrees that all shares of Common Stock shall, on issuance and payment of the consideration therefor hereunder, be fully paid and nonassessable and free from all taxes, liens and charges related to the issuance of such shares. The Company further covenants and agrees that during the period within which the rights represented by the Options may be exercised, the Company shall, at all times, have authorized and reserved for the purpose of issuance or transfer on exercise of the Options a sufficient number of the shares subject to the Options to provide for their exercise. (b) The Company shall use its best reasonable efforts to assure that all shares of Common Stock received by Optionee on any exercise of any Option shall be, and shall remain, (i) fully registered (at the Company's expense) under the Securities Act of 1933, as amended (the "1933 Act"), both for issuance and for resale, (ii) fully registered or qualified (at the Company's expense) under such state securities laws as Optionee may reasonably request, both for issuance and for resale, and (iii) either qualified for trading on NASDAQ or listed on a national securities exchange unless, in each case, Optionee consents to alternative arrangements that adequately protect the salability of such shares, which consent shall not be unreasonably withheld. 4. Adjustments. In the event that there is any change in the Common Stock arising through merger, consolidation, reorganization, recapitalization, stock dividend, stock split or combination, the Board of Directors shall make such adjustments in the aggregate number of Options subject to this Agreement and/or the price per share of such Options in order to prevent dilution or enlargement of Optionee's rights and of the value represented by the Options. In the event of a dissolution or liquidation of the Company or a merger, consolidation, sale of all or substantially all of the Company's assets (which, for this purpose, does not include the sale or disposition of the Company's Government Technology Division), or other corporate reorganization in which the Company is not the surviving corporation, or any merger in which the Company is the surviving corporation but the holders of its Common Stock receive securities of another corporation (each of the foregoing, a "Trigger Event"), outstanding Options shall terminate, provided that the holder of each Option shall, in such event, if no provision has been made for the substitution of a new option for such outstanding option, have the right immediately prior to such Trigger Event, to exercise the holder's Options in whole or in part without regard to the date on which the Options otherwise would be first exercisable. Upon any adjustment in the number or exercise price of shares subject to an Option, a new Option may be granted in place of such Option which has been so adjusted. 5. Absence of Rights. No Option shall entitle the Optionee to any rights as a shareholder of the Company prior to the exercise of such Option. 6. Invalidity; Severability. If any clause or provision of this Agreement shall be adjudged invalid, the same shall not affect the validity of any other clause or provision of this 2 Agreement, or of any other document pertaining to the subject matter thereof, or constitute by reason thereof, any claim or cause of action in favor of Optionee as against the Company. In addition, the provisions of this Agreement shall be read and construed and shall have effect as separate, severable and independent provisions or restrictions, and shall be enforceable accordingly. 7. Entire Agreement; No Waiver; Remedies. This Agreement contains the entire agreement of the parties and incorporates and supersedes any and all prior or contemporaneous oral or written agreements with respect to the matters referred to in it. No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. No failure on the part of any party to exercise, and no delay in exercising any right, remedy, power or privilege hereunder shall operate as a waiver thereof; no waiver whatever shall be valid unless in writing signed by the party or parties to be charged and then only to the extent specifically set forth in such writing. All remedies, rights, powers and privileges, either under this Agreement or by law or otherwise afforded the parties to this Agreement, shall be cumulative and shall not be exclusive of any remedies, rights, powers and privileges provided by law. 8. Successors and Assigns. The rights and obligations of the Company under this Agreement or the Options shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. 9. Headings; Counterparts; Governing Law. The headings in this Agreement are for convenience of reference only and are not intended to define or limit the contents of any section or paragraph. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall in all respects be governed by the internal laws (without reference to conflicts of laws principles) of the State of New Jersey applicable to contracts made and performed within the State of New Jersey. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. ALAN POOLE BASE TEN SYSTEMS, INC. _____________________________(L.S.) By:______________________________ Print Name:______________________ Title:___________________________ 3 Schedule A Exercise Notice Base Ten Systems, Inc. One Electronics Drive PO Box 3151 Trenton, NJ 08619 Gentlemen: The undersigned hereby exercises the option to purchase _________shares of Class A Common Stock of Base Ten Systems, Inc. pursuant to the Base Ten Systems, Inc. Service-Based Option Agreement (the "Option Agreement") dated as of__________________between Base Ten Systems, Inc. and the undersigned. Accompanying this Exercise Notice is payment pursuant to the Option Agreement in the amount of $___________. Dated: _____________________________ By: ___________________________________ Alan Poole 4 EX-10.(JJ) 8 EMPLOYMENT AGT. REGISTRANT AND THOMAS GARDNER Exhibit 10(jj) EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (together with the three Exhibits hereto, the "Agreement") is entered into as of the 17th day of October, 1997, by and between BASE TEN SYSTEMS, INC., a New Jersey corporation (the "Company") and Thomas E. Gardner, an individual ("Gardner"). WHEREAS, the Company believes that given Gardner's experience and knowledge of the pharmaceutical industry and his business and management skills, it would be to the benefit of the Company for Gardner to serve the Company as Co-Chairman, President, and Chief Executive Officer; and WHEREAS, Gardner is willing to serve the Company in such capacities and enter into the obligations hereunder set forth, NOW, THEREFORE, in consideration of the premises, mutual covenants and agreements contained herein, the parties hereto, intending to be legally bound, do hereby agree as follows: 1. RETENTION OF GARDNER. Effective as of November 1, 1997 the Company for the duration of the Employment Term hereby retains Gardner and Gardner agrees to serve the Company as its President and Chief Executive Officer and, as of the completion of the Special Shareholders meeting intended to be held on or about November 15, 1997 or any adjournments or postponements thereto, the Company hereby retains Gardner and Gardner agrees to serve the Company as Co- Chairman of the Board of Directors, upon and subject to the terms and conditions hereinafter set forth. 2. EMPLOYMENT TERM. The term of Gardner's employment pursuant to this Agreement shall be from November 1, 1997 to and including October 31, 1998 unless sooner terminated as provided in this Agreement (the "Initial Employment Term"). Thereafter, the term shall continue from year to year for additional one year terms (the "Additional Terms"; the Initial Employment Term and any Additional Terms are hereinafter referred to as the "Employment Term") unless sooner terminated as provided herein. 3. DUTIES. During the Employment Term, Gardner shall faithfully perform the duties of President and Chief Executive Officer and, when appointed, as Co-Chairman, to the best of his ability and shall devote substantially all of his working time and efforts to the affairs of the Company; PROVIDED, HOWEVER, that he may also (a) serve on such boards of a reasonable number of other business entities, trade associations and/or charitable organizations as the Board of Directors of the Company ("Board") may reasonably approve, (b) engage in charitable activities and community affairs and (c) manage his personal investments and affairs, provided that such activities do not interfere with the proper performance of his duties and responsibilities under this Agreement. Gardner shall report solely to the Board of Directors of the Company; shall have the authority and responsibilities customarily associated with the positions of Co-Chairman, President and Chief Executive Officer of a publicly held corporation; shall perform such duties relating to the management and operations of the Company, consistent with the foregoing, as may from time to time be assigned to him by the Board; and shall not be assigned duties or responsibilities, following written, detailed notice by Gardner to the Board, that are materially inconsistent with the foregoing duties and responsibilities. 4. COMPENSATION. As compensation for the services to be rendered by Gardner, the Company shall pay to Gardner: (a) During the Employment Term, a salary at a rate of no less than $300,000 annually, payable in accordance with the customary payroll practices applicable to senior executives of the Company. Gardner's salary shall be reviewed no less frequently than annually for increase by the Board, in its discretion, and shall not be decreased at any time, or for any purpose (including for the purpose of determining severance benefits under Section 5), during the Employment Term. (b) On the date hereof, as an inducement to Gardner's agreement and willingness to accept this position, the Company shall award to Gardner a ten-year non-qualified stock option (the "Service-Based Stock Option"), pursuant to the Company's Amended Discretionary Deferred Compensation Plan, to purchase 250,000 shares of the Company's Class A Common Stock at a price per share equal to the closing price of the Company's Class A Common Stock as reported by the NASDAQ National Market System on the date of this Agreement. The Service-Based Stock Option shall be in substantially the form attached as EXHIBIT A and shall vest and become exercisable with respect to 70,000 shares on November 1, 1997 and an additional 60,000 shares on each of the first three anniversaries of that date. The Service-Based Stock Option shall remain exercisable after any termination of Gardner's employment with the Company only to the extent provided in Section 5 and in the Service-Based Option. (c) On the date hereof, as a further inducement to Gardner's agreement and willingness to accept this position, the Company shall award to Gardner a ten-year non-qualified stock option (the "Performance-Based Stock Option") pursuant to the Company's Amended Discretionary Deferred Compensation Plan, to purchase a maximum of 200,000 shares of the Company's Class A Common Stock at a price per share equal to the closing price of the Company's Class A Common Stock as reported by the NASDAQ National Market System on the date of this Agreement. The Performance-Based Stock Option shall be substantially in the form attached hereto as EXHIBIT B and shall vest and become exercisable with respect to one share for each one hundred dollars ($100.00) of consolidated earnings (excluding extraordinary items) before interest, taxes, depreciation and amortization (EBITDA) reported on the Company's audited financial statements for any of the Company's first three fiscal years ending after November 1, 1997, at the time such audited financial statements first become available, provided Gardner is employed hereunder as of the end of such year. The Performance-Based Stock Option shall remain exercisable with respect to any shares for which it has vested and become exercisable until the earlier of (i) the date it is exercised for such shares and (ii) the tenth anniversary of the date of grant. -2- (d) Beginning no later than November 1, 2000, Gardner shall be eligible for additional grants of stock options, in the sole discretion of the Board, under the Company's Amended Discretionary Deferred Compensation Plan or any successor plan. (e) The Company shall use its best reasonable efforts to assure that all shares received by Gardner on any exercise of any stock option awarded to him by the Company shall be, and shall remain, (i) fully registered (at the Company's expense) under the Securities Act of 1933, as amended (the "1933 Act"), both for issuance and for resale, (ii) fully registered or qualified (at the Company's expense) under such state securities laws as Gardner may reasonably request, both for issuance and for resale, and (iii) either qualified for trading on NASDAQ or listed on a national securities exchange UNLESS, in each case, Gardner consents to alternative arrangements that adequately protect the salability of such shares, which consent shall not be unreasonably withheld. (f) In the event there is any change in the Class A Common Stock subject to the above options, through merger consolidation, reorganization, recapitalization, stock dividend, stock split or combination, an appropriate adjustment shall be made to such stock options so as to avoid dilution or enlargement of Gardner's rights and the value represented by the options. (g) During the Employment Term Gardner shall have the right, by furnishing written notice to the Company at least six months prior to any exercise of any stock option, to elect to defer any gains realized upon such exercise. Any such deferral, including the manner of exercise of the stock option in connection with such deferral, shall be made in such manner as may reasonably be required by the Company, including such requirements as may apply in order to defer such gains for Federal income tax purposes or as the independent public accountants for the Company advises are necessary in order that the stock option gains not be a charge against the earnings of the Company. At the time Gardner elects to defer such gains, such gains shall be deferred into any non-qualified deferral plan of the Company that accepts such deferrals on terms that satisfy the requirements of the preceding sentence. If such a plan is not available, Gardner may during the Employment Term make an irrevocable election to defer such gains into Share Units (with a "Share Unit" representing a share of Class A Common Stock of the Company including any dividends that may be declared thereon during the period of the deferral). Amounts deferred under this Section 4(g) shall be paid out as required under the terms of Gardner's election to defer. (h) On the date hereof, the Company shall enter into a "change-in-control" agreement with Gardner, substantially in the form attached as EXHIBIT C. The Company's obligation to provide benefits and compensation under Sections 5(d)(iii), 5(e)(iv) and 5(e)(v) of this Agreement shall be offset by corresponding benefits and compensation (if any) provided under such change-in-control agreement. (i) During the Employment Term, the Company shall pay to Gardner an annual bonus with respect to each fiscal year of the Company equal to one half percent (0.5%) of the first $10 million of the Company's consolidated gross revenues earned during that portion of the fiscal year during which Gardner is employed by the Company hereunder, as set forth in the -3- Company's audited financial statements for the fiscal year (if relating to a full fiscal year, and otherwise as determined by the regular independent accountants of the Company), and one percent of all such revenues, earned during that portion of the fiscal year during which Gardner is employed by the Company hereunder, in excess of $10 million. Any such annual bonus shall be paid to Gardner on the date which is 120 days after the end of the fiscal year or the date which is thirty (30) days after such audited financial statements (or, if applicable, such independent accountants' determination) first become available for the fiscal year in question, whichever is later, but in no event later than 210 days after the end of such fiscal year. (j) During the Employment Term, the Company shall provide Gardner with disability insurance in accordance with the Company's existing plan from time to time applicable to senior executives of the Company, on the same cost basis as for such other senior executives. Any such plan shall be supplemented by the Company, as necessary, so that if Gardner suffers a "permanent disability" (as defined in Section 5(f)) during the Employment Term, he shall receive, for one year after his employment with the Company terminates, monthly disability payments equaling no less than his then current monthly salary. (k) During the Employment Term, Gardner shall be entitled to three weeks paid vacation each calendar year in accordance with the Company's standard vacation policy. Gardner shall also be entitled to all regular Company holidays and personal days. (l) During the Employment Term, Gardner shall be entitled to participate in any medical, dental, hospitalization, disability, life insurance, vision, prescription, accidental death and dismemberment, travel accident, and other employee welfare benefit plan, program or arrangement that is made available generally to senior executives of the Company on terms and conditions that are commensurate with such other senior executives. During the Employment Term, no such benefit, coverage, term or condition shall be changed in a manner that is materially adverse to Gardner without his consent unless such change is part of an across-the-board change applying generally to senior executives of the Company. During the Employment Term, the Company shall maintain in effect for Gardner, at its cost, a life insurance policy, or policies, providing aggregate death benefits equaling no less than $1,000,000 provided Gardner submits to and satisfactorily passes any insurance related medical examination and other applicable medical or health requirements. (m) During the Employment Term, Gardner shall be entitled to such other benefits as are made available generally to senior executives of the Company, including (without limitation) any pension, profit sharing, savings, employee stock purchase, 401(k) or retirement plan, program or arrangement, whether funded or unfunded and whether qualified or unqualified. (n) During the Employment Term, Gardner shall be entitled to participate in all fringe benefits and perquisites that are available generally to senior executives of the Company, at an appropriate level commensurate with such other senior executives. (o) During the Employment Term, Gardner is authorized to incur reasonable expenses in carrying out his duties and responsibilities under this Agreement, and the Company -4- shall promptly reimburse him for all such expenses, subject to reasonable documentation in accordance with the Company's policies. (p) Upon the signing of this Agreement the Company will reimburse Gardner all of his legal expenses he reasonably incurred in connection with entering into this Agreement. (q) In consideration of the need for Gardner to relocate to the area of the Company's principal office, the Company agrees to reimburse Gardner for his reasonable relocation expenses up to a maximum relocation reimbursement of $10,000 upon presentation of appropriate expense vouchers. In addition the Company agrees to provide a temporary living allowance to Gardner for the reimbursement of temporary living expenses incurred by Gardner at the Company's location up to a maximum of $1500 per month for not more than three months, or a maximum sum not to exceed $4500, upon presentation of appropriate expense vouchers. 5. TERMINATION OF EMPLOYMENT (a) The Employment Term (1) shall terminate in the event of Gardner's death or "permanent disability" (as hereinafter defined); (2) may be terminated by the Company for "cause" (as hereinafter defined) or "without cause" (as hereinafter defined); or (3) may be terminated by Gardner for "good reason" (as hereinafter defined) or "voluntarily" (as hereinafter defined). On any termination by the Company "without cause" or any termination by Gardener for "good reason" or "voluntarily", such party will give the other at least three (3) months prior notice of such termination. (b) Gardner's obligation to perform and observe the obligations, terms and conditions of Sections 7 and 8 of this Agreement shall survive any termination of the Employment Term. (c) Upon any termination of the Employment Term, Gardner shall be entitled to (i) salary through the date of termination; (ii) any annual bonus or other incentive compensation award earned but not yet paid; (iii) the continued right to exercise the Performance-Based Stock Option, to the extent that such option is, or becomes, vested and exercisable under the terms of this Agreement, until the tenth anniversary of its date of grant; (iv) the continued right to exercise any other outstanding stock option (including, without limitation, the Service-Based Stock Option), to the extent that such option had vested and was exercisable on the date of termination, until the end of the 90th day following such date; (v) any amounts earned or accrued, but not yet paid, under Sections 4(l) through 4(q); (vi) a lump sum payment in respect of accrued but unused vacation days at his salary rate on the date of termination; (vii) prompt payout when due of all amounts due and payable under the terms of -5- this Agreement as a result of his termination; and (viii) other or additional benefits, if any, in accordance with the terms and conditions of applicable plans, programs and arrangements of the Company. (d) Upon termination of the Employment Term by reason of the death or "permanent disability" of Gardner, Gardner shall be entitled to (i) all rights and benefits provided under Section 5(c); (ii) the right to exercise any outstanding stock option (including, without limitation, the Service-Based Stock Option), to the extent that such option had vested and is exercisable on the date of his termination, at any time through the second anniversary of such date; and (iii) continued coverage and benefits as provided under any welfare benefit plan or arrangement of the Company in which Gardner was participating on the date of termination for two years after such date, with no reduction in coverage or benefits and no increase in cost to Gardner other than any such reduction or increase commensurate with any similar reduction or increase for other senior executives of the Company. (e) Upon termination of the Employment Term at any time during the Employment Term by the Company "without cause" or by Gardner for "good reason," Gardner shall be entitled to (i) all rights and benefits provided under Section 5(c); (ii) the right to exercise the Performance-Based Stock Option, to the extent that such option had vested and is exercisable on the date of termination (or becomes vested and exercisable within one (1) year following that date), at any time between the time it becomes exercisable and the tenth anniversary of its date of grant; (iii) the right to exercise any other outstanding stock option (including, without limitation, the Service-Based Stock Option), to the extent that such option had vested and is exercisable on the date of termination (or, as to the Service Based Option, becomes vested and exercisable within one (1) year following that date), at any time prior to the second anniversary of the date of termination; (iv) continued coverage and benefits as provided under any medical, health or dental plan or arrangement of the Company in which Gardner was participating on the date of termination for two years after such date, with no reduction in coverage or benefits and no increase in cost to Gardner, other than any such reduction or increase commensurate with a similar reduction or increase for other senior executives of the Company, provided that the Company's obligation to provide such coverage and benefits shall be reduced to the extent that Gardner receives coverage and benefits under the plans of a subsequent employer, determined on a coverage-by-coverage and benefit-by-benefit basis; and (v) payment in a lump sum within 60 days of such termination or in installments over time if so specified by Gardner, of an amount equal to the sum of (a) one year's salary (at the then current rate of salary) plus (b) the greater of (i) the annual bonus payable to him under Section 4(i) for the most recently completed fiscal year of the Company and (ii) the annual bonus that would be due to him in connection with the then current fiscal year of the Company based solely on the consolidated gross revenue of the Company through the date of termination. This Section 5(e) shall be the maximum liability and obligation of the Company (including the officers and directors of the Company) in the event of any such termination of Gardner "without cause" or by Gardner for "good reason" at any time. (f) As used herein, "permanent disability" shall mean a disability which renders Gardner mentally or physically unable to perform his usual and regular duties and responsibilities for a continuous period of 120 days or for a non-continuous period of 180 days in -6- any 365 day period, as determined by a medical doctor selected by the Company and reasonably acceptable to Gardner. (g) As used herein, "cause" shall mean (i) the continuing willful failure by Gardner to devote substantially all his business time and effort to performing his duties hereunder as provided in Section 3 (other than any such failure resulting from Gardner's death or incapacity due to physical or mental illness) and the continuance of such failure for a period of thirty (30) days after a written demand for substantial performance is delivered to Gardner by the Board which specifically identifies the manner in which the Board believes that Gardner has not substantially performed such duties; (ii) the engaging by Gardner in willful gross misconduct or willful gross neglect in carrying out his duties under this Agreement, resulting, in either case, in material economic harm to the Company; (iii) Gardner engages in any activity that constitutes a felony involving moral turpitude; or (iv) Gardner engages in any activity that constitutes embezzlement, theft, fraud or similar criminal conduct. No termination of Gardner's employment for "cause" shall be effective unless the provisions set forth in the following three sentences shall have been complied with. The Board shall give Gardner written notice of its intention to terminate him for "cause," such notice (x) to state in detail the particular circumstances that constitute the grounds on which the proposed termination for "cause" is based and (y) to be given no later than 90 days after the Board is first advised of such circumstances. Gardner shall then be entitled to a hearing before the Board to be held within 20 days of his receiving such notice. If, within, seven days following such hearing, the Board gives written notice to Gardner confirming that, in the reasonable, good faith judgment of at least three-quarters of the members of the Board, "cause" for terminating him on the basis set forth in the original notice exists, his employment with the Company shall thereupon be terminated for "cause," subject to DE NOVO review in accordance with Section 14. (h) As used herein, "good reason" shall mean the occurrence, without Gardner's prior written consent, of one or more of the following events UNLESS cured on 60 days written notice from Gardner requesting cure: (i) any reduction in Gardner's then current salary; (ii) any material reduction in any benefit or perquisite available to Gardner under Sections 4(j) through 4(n) unless a substantially equivalent benefit or perquisite is substituted or unless a substantially equivalent reduction is applied generally to other senior executives of the Company; (iii) any material diminution in Gardner's duties or responsibilities, or the assignment to him of duties or responsibilities that are materially inconsistent with his duties and responsibilities as set forth in Section 3, or the failure to grant, or the loss of, any of his titles or positions as set forth in Section 1 (including any failure to employ him as Co-Chairman of the Board by December 31, 1997); (iv) any failure by the Company to make any salary, bonus or other compensation payment or award promptly when due under the terms of this Agreement, or to honor any stock option award, or other long-term compensation or incentive award, in accordance with its terms; (v) any relocation of the Company's principal office, or of Gardner's own office as assigned to him by the Company, to a location more than 35 miles from the Company's current chief executive offices in Trenton, New Jersey; or (vi) any failure by the Company to obtain the assumption in writing of its obligation to perform all aspects of this Agreement by any successor or assign within 15 days after a merger, consolidation, sale of assets or similar transaction. -7- (i) As used herein, "without cause" is any termination by the Company that is not with "cause." (j) As used herein, "voluntary" termination by Gardner shall mean any termination by him that is not by death, by "disability" or for "good reason". A "voluntary" termination by Gardner shall not be deemed a breach of this Agreement or of the change-in-control agreement attached as Exhibit C. (k) Notwithstanding anything to the contrary elsewhere in this Agreement, in no event may any stock option be exercised after the expiration of its maximum stated term. (l) In the event of any termination of his employment with the Company, Gardner shall be under no obligation to seek other employment and there shall be no offset against amounts due him under this Agreement on account of any remuneration or other benefit attributable to any subsequent employment that he may obtain except as specifically provided in Section 4(e)(iv) with respect to medical, health and dental benefits. (m) Gardner and the Company agree that amounts due under this Section 5 are in the nature of severance payments considered to be reasonable by the Company and are not in the nature of a penalty. (n) At no time during the Employment Term or thereafter shall either party make any public statement that intentionally disparages or defames the goodwill or reputation of the other party; PROVIDED THAT it shall not be a violation of this Section 5(n) for either party to make truthful statements when required to do so by law or by a court, governmental agency, administrative body, or legislative body with apparent jurisdiction to require such statements. 6. WITHHOLDING. The Company shall withhold all amounts required by law to be withheld from any payments made pursuant to this Agreement, including any and all amounts required to be withheld by any applicable Federal, state, or foreign country's income tax act, and any applicable city, county, or municipality's earnings or income tax act. 7. CONFIDENTIAL INFORMATION AND DUTY OF NONDISCLOSURE. Gardner acknowledges and agrees that his employment with the Company pursuant to this Agreement necessarily involves his access to secrets and confidential information pertaining to the business of the Company and its subsidiaries. Accordingly, Gardner agrees that at all times during his Employment Term and thereafter, he will not, directly or indirectly, without the express written authority of the Company, except as reasonably appropriate in connection with the performance of his services under this Agreement or unless directed by applicable legal authority having jurisdiction over Gardner, knowingly disclose or use for the benefit of any person, firm, corporation, or other business entity or himself, any trade secrets, confidential information concerning the Company or any subsidiary of the Company, including, without limitation, any information concerning the past, present, or prospective clients, creditors, customers, operations, systems, software or methods (collectively, the "Confidential Information"). Notwithstanding the foregoing, the term Confidential Information shall not -8- include any information which is or becomes in the public domain without breach by Gardner of this Section 7. Further, Gardner agrees that he will return to the Company upon termination of the Employment Term all Confidential Information then in Gardner's possession, except such as relates to him personally. 8. COVENANT NOT TO COMPETE (a) During the Employment Term and for one year thereafter, if the Employment Term is terminated by the Company for "cause" or by Gardner "voluntarily", Gardner shall not, directly or indirectly, acting as employee, investor, officer, partner, principal or otherwise, of any corporation or other entity, engage, within the United States of America, in any activity involving products or services which compete materially with products and services of the Company or any of its subsidiaries, as such products and services exist as of the date hereof and during the Employment Term. (b) The parties hereto agree that in the event that either the length of time or the geographical areas set forth in Section 8(a) above is deemed too restrictive in any court proceeding, the court may reduce such restrictions to those which it deems reasonable under the circumstances. (c) Gardner agrees and acknowledges that the Company and any of its subsidiaries do not have adequate remedy at law for the breach or threatened breach by Gardner of the covenants under this Section 8 and agrees that the Company or any subsidiary of the Company shall be entitled to apply for injunctive relief to restrain Gardner from such breach or threatened breach in addition to any other remedies which might be available to the Company or any subsidiary of the Company at law or equity. For purposes of this Agreement, the term "subsidiary" includes any limited liability company (including uPACS LLC) or other business directly affiliated with the Company. -9- 9. INDEMNIFICATION (a) The Company agrees that (i) if the Executive is made a party, or is threatened to be made a party, to any "proceeding" by reason of the fact that he is or was a director, officer, employee, agent, manager, consultant or representative of the Company or is or was serving at the request of the Company as a director, office, member, employee, agent, manager, consultant or representative of another "person", or (ii) if any "claim" is made, or is threatened to be made, that arises out of or relates to Gardner's service in any of the foregoing capacities, then Gardner shall be indemnified by the Company to the fullest extent permitted or authorized by the Company's certificate of incorporation, bylaws, Board resolutions or, if greater, by the laws of the State of New Jersey against any and all costs, expenses, liabilities and losses (including, without limitation, attorney's fees, judgments, interest, expenses of investigation, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) incurred or suffered by Gardner in connection therewith, and such indemnification shall continue as to Gardner even if he has ceased to be a director, member, employee, agent, manager, consultant or representative of the Company or other "person", and shall inure to the benefit of Gardner's successors and assigns. The Company shall advance to Gardner all costs and expenses incurred by him in connection with any such proceeding or claim within 30 days of receiving written notice requesting such an advance, provided that such notice includes, to the extent and in form and substance required by applicable law, an undertaking by Gardner to repay the amount of such advance if he is ultimately determined not to be entitled to indemnification against such costs or expenses. (b) Neither the failure of the Company (including its Board, independent legal counsel or stockholders) to have made a determination in connection with any request for payment or advancement under Section 9(a) that Gardner has satisfied any applicable standard of conduct, nor a determination by the Company (including its Board, independent legal counsel or stockholders) that Gardner has not met any applicable standard of conduct, shall create a presumption that Gardner has not met an applicable standard of conduct. (c) The Company shall at all times during the Employment Term and for six years thereafter keep in place a directors' and officers' liability insurance policy (or policies) covering Gardner to the extent that the Company provides such coverage for other senior executives. (d) As used in this Agreement "person" shall mean any individual, corporation, partnership, joint venture, trust, estate, board, committee, agency, body, or other person or entity; "proceeding" shall mean any threatened or actual action, suit, or other proceeding, whether civil, criminal, administrative, investigative, appellate, or other; and "claim" shall mean any claim, demand, request, investigation, dispute, controversy, threat, discovery request, or request for testimony or information. 10. REPRESENTATIONS (a) The Company represents and warrants that (i) it is fully authorized by action of its Board (and of any other "person" whose action is required) to enter into this -10- Agreement and to perform its obligations under it; (ii) the grant of the Service-Based Stock Option and Performance-Based Stock Option has been approved in accordance with Rules 16b-3(d)(i) and 16b-3(e) promulgated under the Securities Exchange Act of 1934, as amended; (iii) the execution, delivery and performance of this Agreement by the Company does not violate any law, regulation, order, judgment or decree or any agreement, plan or corporate governance document of the Company; and (iv) upon the execution and delivery of this Agreement by Gardner and the Company, this Agreement shall be a valid and binding obligation of the Company, enforceable in accordance with its terms, except to the extent enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. (b) Gardner represents and warrants that (i) delivery and performance of this Agreement by him does not violate any law, regulation, order, judgment or decree or any agreement to which he is a party or by which he is bound, and (ii) upon the execution and delivery of this Agreement by Gardner and the Company, this Agreement shall be a valid and binding obligation of Gardner, enforceable in accordance with its terms, except to the extent enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. 11. NO EMPLOYMENT GUARANTEE. This Agreement shall not be deemed to entitle Gardner to continued employment with the Company, and the rights of the Company to terminate the employment of Gardner shall continue as fully as if this Agreement were not in effect, subject to the provisions in Section 5 above. 12. NOTICES. Any notice, consent, demand, request, or other communication given by Gardner or the Company in connection with this Agreement shall be in writing and shall be deemed to have been given (a) when delivered personally to the party specified or (b) three days after mailing by certified or registered mail, return receipt requested, or (c) provided that a written acknowledgment of receipt is obtained, upon delivery by a nationally recognized overnight courier, to the address set forth below for the party specified (or to such other address for such party as shall be specified by ten days advance notice given pursuant to this Section 12). If to the Company: Base Ten Systems, Inc. One Electronics Drive Trenton, NJ 08619 Attention: Board of Directors If to Gardner: Thomas E. Gardner 43 Constitution Hill West Princeton, NJ 08540 13. ASSIGNMENT/BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of Gardner, the Company, and their respective successors and assigns. No rights or obligations of the Company under this Agreement may be assigned or transferred by the -11- Company except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee expressly assumes all the liabilities, obligations and duties of the Company, as contained in this Agreement. In connection with any transfer or assignment of its rights, duties, or obligations under this Agreement, the Company shall take whatever action it legally can to cause such assignee or transferee to expressly assume the liabilities, obligations and duties of the Company hereunder. No rights, obligations or duties of Gardner under this Agreement may be assigned or transferred, other than his rights to compensation and benefits, which may be transferred only by will or operation of law, except as otherwise expressly provided. 14. DISPUTE RESOLUTION. Except as otherwise provided in Section 8(c), any dispute or controversy between Gardner and the Company that arises out of or relates to this Agreement (or any amendment thereof) shall, at the election of either party, be resolved by confidential arbitration, to be held in Princeton, New Jersey, in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award may be entered in any court having jurisdiction thereof. 15. INTEGRATION. This Agreement represents the entire understanding of the parties with respect to the subject matter hereof. This Agreement supersedes all other agreements, contracts, understandings and other arrangements, written or oral, between the parties with respect to the subject matter hereof, all of which are hereby terminated and shall be of no further force or effect, including without limitation, any employment contracts, agreements, or understandings in effect as of the date hereof. 16. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by Gardner and such officer of the Company as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of any similar or dissimilar provision or condition at the same or any prior or subsequent time. No representations, oral or otherwise, express or implied, with respect the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remainder of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law so as to achieve the purposes of this Agreement. Except as otherwise expressly set forth in this Agreement, the respective rights and obligations of Gardner and the Company hereunder shall survive any termination of the Executive's employment or the Employment Term. This Agreement itself (as distinguished from Gardner's employment with the Company or the Employment Term) may not be terminated by either party without the written consent of the other party. The headings of the Sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. The validity, -12- interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New Jersey without regard to conflict of law principles. This Agreement may be executed in counterparts, each of which shall be deemed a duplicate original all of which shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first set forth above. BASE TEN SYSTEMS, INC. By: /s/ Myles M. Kranzler -------------------------------- Name: Myles M. Kranzler Title: Chairman & Chief Executive Officer /s/ THOMAS E. GARDNER ----------------------------------- THOMAS E. GARDNER -13- EX-10.(KK) 9 AMEND. & RES. CHG IN CTRL AGMT BTW REG. & T.E.G. Exhibit 10(kk) EXHIBIT C AMENDED AND RESTATED CHANGE IN CONTROL AGREEMENT THIS AMENDED AND RESTATED AGREEMENT dated October 17, 1997, by and between Base Ten Systems, Inc., a New Jersey corporation (together with any successor, the "Company"), and Thomas E. Gardner, residing at 43 Constitution Hill West, Princeton, NJ 08540, (the "Executive"). W I T N E S S E T H: WHEREAS, should the Company receive a proposal from or engage in discussions with a third person concerning a possible business combination with or the acquisition of a substantial portion of voting securities of the Company, the Board of Directors of the Company (the "Board") has deemed it imperative that it and the Company be able to rely on the Executive to continue to serve in his position and that the Board and the Company be able to rely upon his advice as being in the best interests of the Company and its shareholders without concern that the Executive might be distracted by the personal uncertainties and risks that such a proposal or discussions might otherwise create; and WHEREAS, the Company and the Executive have entered into an Employment Agreement dated as of October 17, 1997 (the "Employment Agreement"); and WHEREAS, the Company desires to enhance executive morale and its ability to retain existing management; and WHEREAS, the Company desires to reward the Executive for his service to the Company or one or more of its subsidiary corporations (each together with any successor, a "Subsidiary") should his service be terminated under circumstances hereinafter described; and WHEREAS, the Board therefore considers it in the best interests of the Company and its shareholders for the Company to enter into Change in Control Agreements, in form similar to this Agreement, with certain key executive officers of the Company; and WHEREAS, the Executive is presently a key executive with whom the Company has been authorized by the Board to enter into this Agreement; WHEREAS, as of the date of this Agreement, the specialized knowledge and skills of the Executive will be particularly needed by the Company as the Company continues to expand its medical technology business, and stability at the top management level is and will be critically important to the ultimate success of the Company; and WHEREAS, in order to provide an incentive to members of top management not to seek and consider opportunities outside of the Company, which would substantially impede -1- the continued expansion of the Company's medical technology business, while at the same time continuing to engage in its historic business, the Company's independent directors have determined it to be in the best interests of the Company to revise and amend this Agreement in order to make it consistent with the purposes underlying the original entry of this Agreement; NOW, THEREFORE, to assure the Company of the Executive's continued dedication and the availability of his advice and counsel in the event of any such proposal, to induce the Executive to remain in the employ of the Company or a Subsidiary, and to reward the Executive for his valuable, dedicated service to the Company or a Subsidiary should his service be terminated under circumstances hereinafter described, and for other good and valuable consideration, the receipt and adequacy whereof each party acknowledges, the Company and the Executive agree as follows: 1. OPERATION, EFFECTIVE DATE, AND TERM OF AGREEMENT. (a) This Agreement shall commence on the date hereof and continue in effect through December 31, 1999; provided, however, that commencing on January 1, 1998 and each succeeding January 1 thereafter, the term of this Agreement shall be extended automatically for one additional year (so that at all times the remaining term hereof shall not be less than two (2) years) unless not later than the September 30 preceding such automatic extension date the Company shall have given notice that it does not wish to extend this Agreement. (b) This Agreement is effective and binding on both parties as of the date hereof. Notwithstanding its present effectiveness, the provisions of paragraphs 3 and 4 of this Agreement shall become operative only when, as and if there has been a "Change in Control of the Company." For purposes of this Agreement, a "Change in Control of the Company" shall be deemed to have occurred if (X) 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")), or persons "acting in concert" (which for purposes of this Agreement shall include two or more persons voting together on a consistent basis pursuant to an agreement or understanding between them), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company and other than a person engaging in a transaction of the type described in clause (Z) of this subsection but which does not constitute a change in control under such clause, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing forty percent (40%) or more of the combined voting power of the Company's then outstanding securities; or (Y) individuals who, as of the date of this Amended and Restated Agreement, constitute the Board and any new director ("New Director") whose election by the Board, or nomination for election by the Company shareholders, was approved by a vote of at least seventy-five percent (75%) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved ("Continuing -2- Members"), cease for any reason to constitute a majority thereof (provided that, for purposes of this clause (Y), the term "New Director" shall exclude (i) a director designated by a person who has entered into an agreement with the Company to effect a transaction described in clauses (X) or (Z) of this subsection, and (ii) an individual whose initial assumption of office as a director is in connection with any actual or threatened contest related to the election of any directors to the Board); or (Z) the shareholders of the Company approve or, if no shareholder approval is required or obtained, the Company or a Subsidiary completes a merger, consolidation or similar transaction of the Company or a Subsidiary with or into any other corporation, or a binding share exchange involving the Company's securities, other than any such transaction which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy-five percent (75%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such transaction, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets (excluding, for this purpose, the sale of the Company's Government Technology division). 2. EMPLOYMENT OF EXECUTIVE. Nothing herein shall affect any right which the Executive or the Company or a Subsidiary may otherwise have to terminate the Executive's employment by the Company or a Subsidiary at any time in any lawful manner, subject always to the Company's providing to the Executive the payments and benefits specified in paragraphs 3 and 4 of this Agreement to the extent hereinbelow provided. In the event any person commences a tender or exchange offer, circulates a proxy statement to the Company's shareholders or takes other steps designed to effect a Change in Control of the Company as defined in paragraph 1 of this Agreement, the Executive agrees that, subject to the provisions of Section 5(a)(iii), (c) and (j) of the Employment Agreement, he will not voluntarily leave the employ of the Company or a Subsidiary, and will continue to perform his regular duties and to render the services specified in the recitals of this Agreement, until such person has abandoned or terminated his efforts to effect a Change in Control of the Company or until a Change in Control of the Company has occurred. Should the Executive voluntarily terminate his employment before any such effort to effect a Change in Control of the Company has commenced, or after any such effort has been abandoned or terminated without effecting a Change in Control of the Company and no such effort is then in process, this Agreement shall lapse and be of no further force or effect. -3- 3. TERMINATION FOLLOWING CHANGE IN CONTROL. (a) If any of the events described in paragraph 1 hereof constituting a Change in Control of the Company shall have occurred, the Executive shall be entitled to the benefits provided in paragraph 4 hereof upon the termination of his employment within the applicable period set forth in paragraph 4 hereof unless such termination is (i) due to the Executive's death; or (ii) by the Company or a Subsidiary by reason of the Executive's Disability or for Cause; or (iii) by the Executive other than for Good Reason. (b) If following a Change in Control of the Company the Executive's employment is terminated by reason of his death or Disability, the Executive shall be entitled to death or long-term disability benefits, as the case may be, from the Company no less favorable than the maximum benefits to which he would have been entitled had the death or termination for Disability occurred during the six month period prior to the Change in Control of the Company. If prior to any such termination for Disability, the Executive fails to perform his duties as a result of incapacity due to physical or mental illness, he shall continue to receive his Salary less any benefits as may be available to him under the Company's or Subsidiary's disability plans until his employment is terminated for Disability. (c) If the Executive's employment shall be terminated by the Company or a Subsidiary for Cause or by the Executive other than for Good Reason, the Company shall pay to the Executive his full Salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, and the Company shall have no further obligations to the Executive under this Agreement. (d) For purposes of this Agreement: (i) "Disability" shall mean the Executive's incapacity due to physical or mental illness such that the Executive shall have become qualified to receive benefits under the Company's or Subsidiary's long-term disability plans or any equivalent coverage required to be provided to the Executive pursuant to any other plan or agreement, whichever is applicable. (ii) "Cause" shall mean: (A) the conviction of the Executive for a felony, or the willful commission by the Executive of a criminal or other act that in the judgment of the Board causes or will probably cause substantial economic damage to the Company or a Subsidiary or substantial injury to the business reputation of the Company or a Subsidiary; (B) the commission by the Executive of an act of fraud in the performance of such Executive's duties on behalf of the Company or a Subsidiary that causes or will probably cause economic damage to the Company or a Subsidiary; or -4- (C) the continuing willful failure of the Executive to perform the duties of such Executive to the Company or a Subsidiary (other than any such failure resulting from the Executive's incapacity due to physical or mental illness) after written notice thereof (specifying the particulars thereof in reasonable detail) and a reasonable opportunity to be heard and cure such failure are given to the Executive by the Compensation Committee of the Board with the approval thereof by a majority of the Continuing Directors. For purposes of this subparagraph (d)(ii), no act, or failure to act, on the Executive's part shall be considered "willful" unless done, or omitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interests of the Company or a Subsidiary. (iii) "Good Reason" shall mean: (A) The assignment by the Company or a Subsidiary to the Executive of duties without the Executive's express written consent, which (i) are materially different or require travel significantly more time consuming or extensive than the Executive's duties or business travel obligations measured from the point in time one (1) year prior to the Change in Control of the Company, or (ii) result in either a significant reduction in the Executive's authority and responsibility as a senior corporate executive of the Company or a Subsidiary when compared to the highest level of authority and responsibility assigned to the Executive at any time during the one (1) year period prior to the Change in Control of the Company, or, (iii) without the Executive's express written consent, the removal of the Executive from, or any failure to reappoint or reelect the Executive to, the highest title held since the date one (1) year before the Change in Control of the Company, except in connection with a termination of the Executive's employment by the Company or a Subsidiary for Cause, or by reason of the Executive' death or Disability; (B) A reduction by the Company or a Subsidiary of the Executive's Salary, or the failure to grant increases in the Executive's Salary on a basis at least substantially comparable to those granted to other executives of the Company or a Subsidiary of comparable title, salary and performance ratings made in good faith; (C) The relocation of the Company's principal executive offices (or in the case of an employee of a Subsidiary, the principal executive offices of such Subsidiary) to a location outside the State of New Jersey, or the Company's requiring the Executive to be based anywhere other than the Company's principal executive offices (or in the case of an employee of a Subsidiary, the principal executive officer of such Subsidiary) except for required travel on the Company's or a Subsidiary's business to an extent -5- substantially consistent with the Executive's business travel obligations measured from the point in time one (1) year prior to the Change in Control of the Company, or in the event of any relocation of the Executive with the Executive's express written consent, the failure by the Company or a Subsidiary to pay (or reimburse the Executive for) all reasonable moving expenses by the Executive relating to a change of principal residence in connection with such relocation and to indemnify the Executive against any loss realized in the sale of the Executive's principal residence in connection with any such change of residence, all to the effect that the Executive shall incur no loss upon such sale on an after tax basis; (D) The failure by the Company or a Subsidiary to continue to provide the Executive with substantially the same welfare benefits (which for purposes of this Agreement shall mean benefits under all welfare plans as that term is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended), and perquisites, including participation on a comparable basis in the Company's or a Subsidiary's stock option plan, incentive bonus plan and any other plan in which executives of the Company or a subsidiary of comparable title and salary participate and as were provided to the Executive measured from the point in time one (1) year prior to such Change in Control of the Company, or with a package of welfare benefits and perquisites that is substantially comparable in all material respects to such welfare benefits and perquisites; or (E) The failure of the Company to obtain the express written assumption of and agreement to perform this Agreement by any successor as contemplated in subparagraph 5(d) hereof. (iv) "Dispute" shall mean (i) in the case of termination of employment of the Executive with the Company or a Subsidiary by the Company or a Subsidiary for Disability or Cause, that the Executive challenges the existence of Disability or Cause and (ii) in the case of termination of employment of the Executive with the Company or a Subsidiary by the Executive for Good Reason, that the Company or the Subsidiary challenges the existence of Good Reason. (v) "Salary" shall mean, with respect to any year, the greater of (A) $300,000 and (B) the Executive's compensation as reported on Form W-2. (vi) "Incentive Compensation" in any year shall mean the amount the Executive has elected to defer in such year pursuant to any plan, arrangement or contract providing for the deferral of compensation. (e) Any purported termination of employment by the Company or a Subsidiary by reason of the Executive's Disability or for Cause, or by the Executive for Good Reason, shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice given by the -6- Executive or the Company or a Subsidiary, as the case may be, which shall indicate the specific basis for termination and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for determination of any payments under this Agreement. The Executive shall not be entitled to give a Notice of Termination that the Executive is terminating his employment with the Company or a Subsidiary for Good Reason more than six (6) months following the later to occur of (i) the Change in Control and (ii) the occurrence of the event alleged to constitute Good Reason. The Executive's actual employment by the Company or a Subsidiary shall cease on the Date of Termination specified in the Notice of Termination, even though such Date of Termination for all other purposes of this Agreement may be extended in the manner contemplated in the second sentence of Paragraph 3(f). (f) For purposes of this Agreement, "Date of Termination" shall mean the date specified in the Notice of Termination, which shall be not more than ninety (90) days after such Notice of Termination is given, as such date may be modified pursuant to the next sentence. If within thirty (30) days after any Notice of Termination is given, the party who receives such Notice of Termination notifies the other party that a Dispute (as heretofore defined) exists, the Date of Termination shall be the date on which the Dispute is finally determined, either by mutual written agreement of the parties, or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided that the Date of Termination shall be extended by a notice of Dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such Dispute with reasonable diligence and provided further that pending the resolution of any such Dispute, the Company or a Subsidiary shall continue to pay the Executive the same Salary and to provide the Executive with the same or substantially comparable welfare benefits and perquisites that the Executive was paid and provided as of a date one (1) year prior to the Change in Control of the Company. Should a Dispute ultimately be determined in favor of the Company or a Subsidiary, then all sums paid by the Company or a Subsidiary to the Executive from the date of termination specified in the Notice of Termination until final resolution of the Dispute pursuant to this paragraph shall be repaid promptly by the Executive to the Company or a Subsidiary, with interest at the prime rate generally prevailing from time to time among major New York City banks and all options, rights and stock awards granted to the Executive during such period shall be cancelled or returned to the Company or Subsidiary. The Executive shall not be obligated to pay to the Company or a Subsidiary the cost of providing the Executive with welfare benefits and perquisites for such period unless the final judgment, order or decree of a court or other body resolving the Dispute determines that the Executive acted in bad faith in giving a notice of Dispute. Should a Dispute ultimately be determined in favor of the Executive or be settled by mutual agreement between the Executive and the Company, then the Executive shall be entitled to retain all sums paid to the Executive under this subparagraph (f) for the period pending resolution of the Dispute and shall be entitled to receive, in addition, the payments and other benefits to the extent provided for in paragraph 4 hereof to the extent not previously paid hereunder. 4. PAYMENTS UPON TERMINATION. If within three years after a Change in Control of the Company (or if within nine (9) months prior to a Change in Control if effected in connection with such Change in Control), -7- the Company or a Subsidiary shall terminate the Executive's employment other than by reason of the Executive's death, Disability or for Cause or the Executive shall terminate his employment for Good Reason then, (a) The Company or a Subsidiary will pay on the Date of Termination to the Executive as compensation for services rendered on or before the Executive's Date of Termination, a lump sum cash amount (subject to any applicable payroll or taxes required to be withheld computed at the rate for supplemental payments) equal to (i) 2.99 times the sum of the average for each of the five fiscal years of the Company ending before the day on which the Change in Control of the Company occurs of the Executive's Salary, his Incentive Compensation and the annual cost to the Company of all hospital, medical and dental insurance, life insurance, disability insurance and other welfare or benefit plan provided to the Executive (the sum of such Incentive Compensation and annual loss of welfare benefits to be deemed to be $50,000 for each fiscal year of the Company ending on or before November 1, 1997) minus (ii) the cost to the Company of the insurance required under subparagraph 4(b) hereof; (b) For a period of three years following the Date of Termination, the Company shall provide, at Company expense, the Executive and the Executive's spouse with full hospital, medical and dental insurance with substantially the same coverage and benefits as were provided to the Executive immediately prior to the Change in Control of the Company; and (c) In event that any payment or benefit received or to be received by the Executive pursuant to this Agreement in connection with a Change in Control of the Company or the termination of the Executive's employment (collectively with all payments and benefits hereunder, "Total Payments") would not be deductible in whole or in part by the Company as the result of Section 280G of the Internal Revenue Code of 1986, as amended and the regulations thereunder (the "Code"), the payments and benefits hereunder shall be reduced until no portion of the Total Payments is not deductible by reducing to the extent necessary the payment under subparagraph (a) hereof. For purposes of this limitation (i) no portion of the Total Payments the receipt or enjoyment of which the Executive shall have effectively waived in writing prior to the date of payment shall be taken into account, (ii) no portion of the Total Payments shall be taken into account which in the opinion of tax counsel selected by the Executive and acceptable to the Company's independent auditors the Executive is not likely to constitute a "parachute payment" within the meaning of Section 280G(b)(2) of the Code, and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. -8- 5. GENERAL. (a) The Executive shall retain in confidence any proprietary or other confidential information known to him concerning the Company and its business (including the Company's Subsidiaries and their businesses) so long as such information is not publicly disclosed and disclosure is not required by an order of any governmental body or court. (b) If litigation or other proceedings shall be brought to enforce or interpret any provision contained herein, or in connection with any tax audit to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder, the Company shall indemnify the Executive for his reasonable attorney's fees and disbursements incurred in connection therewith (which indemnification shall be made at regular intervals during the course of such litigation, not less frequently than every three (3) months) and pay prejudgment interest on any money judgment obtained by the Executive calculated at the prime rate of interest generally prevailing from time to time among major New York City banks from the date that payment should have been made under the Agreement; provided that if the Executive initiated the proceedings, the Executive shall not have been found by the court or other fact finder to have acted in bad faith in initiating such litigation or other proceeding, which finding must be final without further rights of appeal. (c) The Company's obligation to pay the Executive the compensation and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, any setoff, counterclaim, recoupment, defense or other right which the Company may have against the Executive or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Except as expressly provided herein, the Company waives all rights which it may now have or may hereafter have conferred upon it, by statute or otherwise, to terminate, cancel or rescind this Agreement in whole or in part. Except as provided in paragraph 3(f) herein, each and every payment made hereunder by the Company shall be final and the Company will not seek to recover for any reason all or any part of such payment from the Executive or any person entitled thereto. The Executive shall not be required to mitigate the amount of any payment or other benefit provided for in this Agreement by seeking other employment or otherwise. (d) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company (excluding, for this purpose, the sale of the Company's Government Technology division), by written agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this paragraph 5 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. -9- (e) This Agreement shall inure to the benefit of, and be enforceable by, the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devises and legatees. If the Executive should die while any amounts would still be payable to the Executive hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee or other designee or, if there be no such designee, to the Executive's estate. The obligations of the Executive hereunder shall not be assignable by the Executive. (f) Nothing in this Agreement shall be deemed to entitle the Executive to continued employment with the Company or a Subsidiary, and the rights of the Company or a Subsidiary to terminate the employment of the Executive shall continue as fully as though this Agreement were not in effect. 6. NOTICE. Notices and all other communications provided for in the Agreement shall be in writing and shall be given as provided in Section 12 of the Employment Agreement. 7. MISCELLANEOUS. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing, signed by the Executive and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No assurances or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement or the Employment Agreement. However, this Agreement is in addition to, and not in lieu of, any other plan providing for payments to or benefits for the Executive or any agreement now existing, or which hereafter may be entered into, between the Company and the Executive. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New Jersey. 8. FINANCING. All amounts due and benefits provided under this Agreement shall constitute general obligations of the Company in accordance with the terms of this Agreement. The Executive shall have only an unsecured right to payment thereof out of the general assets of the Company. Notwithstanding the foregoing, the Company may, by agreement with one or more trustees to be selected by the Company, create a trust on such terms as the Company shall determine to make payments to the Executive in accordance with the terms of this Agreement. -10- 9. VALIDITY. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set forth above. BASE TEN SYSTEMS, INC. By: /s/ MYLES M. KRANZLER --------------------------- Chairman of the Board and Chief Executive Officer /s/ THOMAS E. GARDNER ------------------------------ (EXECUTIVE) -11- EX-10.(LL) 10 PERF. BASED STK OPT AGMT BTW REG. & T.E. GARDNER Exhibit 10(ll) EXHIBIT B BASE TEN SYSTEMS, INC. PERFORMANCE-BASED STOCK OPTION AGREEMENT This Option Agreement (the "Agreement"), made as of October 17, 1997, is between Base Ten Systems, Inc. (the "Company"), a New Jersey corporation located at One Electronics Drive, P.O. Box 3151, Trenton, New Jersey 08619, and Thomas E. Gardner, (the "Optionee"). WHEREAS, in consideration of the Optionee's agreement to serve as President and Chief Executive Officer of the Company and Co-Chairman of the Board of Directors under an Employment Agreement dated as of October 17, 1997 between Optionee and the Company (the "Employment Agreement"), the Company has agreed to grant to Optionee certain options to purchase shares of the Company's Class A Common Stock ("Common Stock" pursuant to the Employment Agreement and the Company'' Amended Discretionary Deferred Compensation Plan on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth below, the parties agree as follows: 1. OPTIONS (a) Subject to the terms and conditions set forth herein and in the Employment Agreement, the Company grants to Optionee two hundred thousand (200,000) rights (each an "Option") to subscribe for and purchase one share of Common Stock at the price of eleven and one- eighth dollars ($11 1/8) per share ("Purchase Price"), the NASDAQ closing price as of the date of this Agreement. The Options granted pursuant to this Agreement shall be considered Performance-Based Stock Options. Performance-Based Stock Options shall vest and become exercisable at a rate of one Option for each one hundred dollars ($100) of consolidated earnings (excluding extraordinary items) before interest, taxes, depreciation and amortization ("EBITDA"), as reported in the Company's audited financial statements for each of the Company's first three fiscal years ending after November 1, 1997, at the time that such audited financial statements first become available, provided that the Optionee is an active employee of the Company as of the end of such fiscal year, except that, in the event that Optionee's employment with the Company is terminated by the Company "without cause" or if Optionee terminates his employment with the Company for "good reason", all as set forth in the Employment Agreement dated October 17, 1997 between Optionee and the Company ("Employment Agreement"), then Optionee will be considered to be an active employee, solely for purposes of vesting, through the date that is twelve (12) months following the termination of his employment. In the event that the Optionee is not an active employee of the Company as of the end of any of such three fiscal years, then no Options will be earned or become vested with respect to any EBITDA of the Company for such fiscal year. At the end of such three fiscal year period, any Options granted hereunder which have not vested in accordance with the foregoing performance standards shall terminate. (b) The Options shall not be transferable other than by will or the laws of descent and distribution or, after the Optionee's death, to a beneficiary (or beneficiaries) designated by Optionee in writing in a form satisfactory to the Company, and the Options may be exercised, during the lifetime of the Optionee, only by the Optionee. Without limiting the generality of the foregoing, the Options may not be assigned, transferred (except as provided above), pledged or hypothecated in any way, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of any of the Options contrary to the provisions hereof, or the levy of any execution, attachment or similar process upon any Option, shall be null and void and without effect. 2. EXERCISE. (a) Subject to the terms and conditions of this Agreement, Optionee shall have the right to exercise at the Purchase Price all vested Options at any time after the date hereof. Notwithstanding anything else herein to the contrary, all Options granted under this Agreement shall expire on the tenth anniversary of the date of this Agreement. (b) Vested Options may be exercised by the Optionee in whole or in part, but not as to a fractional share, by surrender of such Options, properly endorsed at the principal office of the Company, and by delivering to the Company (i) a written exercise notice substantially in the form annexed hereto as Schedule A, and (ii) payment of the aggregate Purchase Price, plus required tax withholding amounts (as determined by the Company) for the number of shares purchased by certified check or bank check(or in such other form as the Company may elect to accept). The shares purchased shall be deemed to be issued to the Optionee as the record owner as of the close of business on the date of which the Options are surrendered and payment is made for the shares. Certificates representing the shares purchased shall be delivered to the Optionee within thirty (30) days after the rights represented by the Options have been properly exercised. 3. SHARES. (a) The Company covenants and agrees that all shares of Common Stock shall, on issuance and payment of the consideration therefor hereunder, be fully paid and nonassessable and free from all taxes, liens and charges related to the issuance of such shares. The Company further covenants and agrees that during the period within which the rights represented by the Options may be exercised, the Company shall, at all times, have authorized and reserved for the purpose of issuance or transfer on exercise of the Options a sufficient number of the shares subject to the Options to provide for their exercise. (b) The Company shall use its best reasonable efforts to assure that all shares of Common Stock received by Optionee on any exercise of any Option shall be, and shall remain, (i) fully registered (at the Company's expense) under the Securities Act of 1933, as amended (the "1933 Act"), both for issuance and for resale, (ii) fully registered or qualified (at the Company's expense) under such state securities laws as Optionee may reasonable request, both for issuance and for resale, and (iii) either qualified for trading on NASDAQ or listed on a national securities exchange unless, in each case, Optionee consents to alternative arrangements that adequately protect the salability of such shares, which consent shall not be unreasonable withheld. 4. ADJUSTMENTS. In the event that there is any change in the Common Stock arising through merger, consolidation, reorganization, recapitalization, stock dividend, stock split or combination, the Board of Directors shall make such adjustments in the aggregate number of Options subject to this Agreement and/or the price per share of such Options in order to prevent dilution or enlargement of the Optionee's rights and value represented by the Options. In the event of a dissolution or liquidation of the Company or a merger, consolidation, sale of all or substantially all of the Company's assets, or other corporate reorganization in which the Company is not the surviving corporation, or any merger in which the Company is the surviving corporation but the holders of its Common Stock receive securities of another corporation (each of the foregoing, a "Trigger Event"), outstanding Options shall terminate, provided that the holder of each Option shall, in such event, if no provision has been made for the substitution of a new option for such outstanding option, have the right immediately prior to such Trigger Event, to exercise the holder's Options in whole or in part without regard to the date on which the Options otherwise would be first exercisable. Upon any adjustment in the number or exercise price of shares subject to an Option, a new Option may be granted in place of such Option which has been so adjusted. 5. ABSENCE OF RIGHTS. No Option shall entitle the Optionee to any rights as a shareholder of the Company prior to the exercise of such Option. 6. INVALIDITY; SEVERABILITY. If any clause or provision of this Agreement shall be adjudged invalid, the same shall not affect the validity of any other clause or provision of this Agreement, or of any other document pertaining to the subject matter thereof, or constitute by reason thereof, any claim or cause of action in favor of Optionee as against the Company. In addition, the provisions of this Agreement shall be read and construed and shall have effect as separate, severable and independent provisions or restrictions, and shall be enforceable accordingly. 7. ENTIRE AGREEMENT; NO WAIVER; REMEDIES. This Agreement and the Employment Agreement contains the entire agreement of the parties and incorporates and supersedes any and all prior or contemporaneous oral or written agreements with respect to the matters referred to in them. No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. No failure on the part of any party to exercise, and no delay in exercising any right, remedy, power or privilege hereunder shall operate as a waiver thereof; no waiver whatever shall be valid unless in writing signed by the party or parties to be charged and then only to the extent specifically set forth in such writing. All remedies, rights, powers and privileges, either under this Agreement or by law or otherwise afforded the parties to this Agreement, shall be cumulative and shall not be exclusive of any remedies, rights, powers and privileges provided by law. 8. NOTICES. Any notice required or permitted to be given under this Agreement shall be give in accordance with Section 12 of the Employment Agreement. 9. SUCCESSORS AND ASSIGNS. The rights and obligations of the Company under this Agreement or the Options shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. 10. HEADINGS; COUNTERPARTS; GOVERNING LAW. The headings in this Agreement are for convenience of reference only and are not intended to define or limit the contents of any section or paragraph. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall in all respects be governed by the internal laws (without reference to conflicts of laws principles) of the State of New Jersey applicable to contracts made and performed within the State of New Jersey. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. THOMAS E. GARDNER BASE TEN SYSTEMS, INC. /s/ THOMAS E. GARDNER By: /s/ MYLES M. KRANZLER -------------------------- -------------------------- Print Name: Myles M. Kranzler Title: Chairman & Chief Executive Officer Schedule A EXERCISE NOTICE Base Ten Systems, Inc. One Electronics Drive P.O. Box 3151 Trenton, NJ 08619 Gentlemen: The undersigned hereby exercises the option to purchase ________ shares of Class A Common Stock of Base Ten Systems, Inc. pursuant to the Base Ten Systems, Inc. Performance-Based Stock Option Agreement (the "Option Agreement") dated as of ___________________________ between Base Ten Systems, Inc. and the undersigned. Accompanying this Exercise Notice is payment pursuant to the Option Agreement in the amount of $ _____________. Dated: _________________________ By: ____________________________ Thomas E. Gardner EX-10.(MM) 11 SVC BASED STK OPT AGMT. BTW REG. & T.E. GARDNER Exhibit 10(mm) EXHIBIT A BASE TEN SYSTEMS, INC. SERVICE-BASED STOCK OPTION AGREEMENT This Option Agreement (the "Agreement"), made as of October 17th, 1997, is between Base Ten Systems, Inc. (the "Company"), a New Jersey corporation located at One Electronics Drive, P.O. Box 3151, Trenton, New Jersey 08619, and Thomas E. Gardner (the "Optionee"). WHEREAS, in consideration of the Optionee's agreement to serve as President and Chief Executive Officer of the Company and Co-Chairman of the Board of Directors under an Employment Agreement dated as of October 17, 1997 between Optionee and the Company (the "Employment Agreement"), the Company has agreed to grant to Optionee certain options to purchase shares of the Company's Class A Common Stock ("Common Stock") pursuant to the Employment Agreement and the Company's Amended Discretionary Deferred Compensation Plan on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth below, the parties agree as follows: 1. Options. (a) Subject to the terms and conditions set forth herein and in the Employment Agreement, the Company grants to Optionee two hundred fifty thousand (250,000) rights (each an "Option") to subscribe for and purchase one share of Common Stock at the price of eleven and one-eighth dollars ($11 1/8) per share ("Purchase Price"), the NASDAQ closing price as of the date of this Agreement. The Options granted pursuant to this Agreement shall be considered Service-Based Stock Options. Service-Based Options shall become vested and exercisable as follows: Number of Options; Vesting Date 70,000 11/1/97 60,000 11/1/98 60,000 11/1/99 60,000 11/1/00 The Optionee must be an employee of the Company on a given Vesting Date in order to become vested in such Service-Based Stock Options, except that, in the event that Optionee's employment with the Company is terminated by the Company "without cause" or if Optionee terminates his employment with the Company for "good reason", all as set forth in the Employment Agreement dated October 17, 1997 between Optionee and the Company ("Employment Agreement"), then Optionee will be considered to be an employee, solely for purposes of vesting, through the date that is twelve (12) months following the termination of his employment. (b) The Options shall not be transferable other than by will or the laws of descent and distribution or, after the Optionee's death, to a beneficiary (or beneficiaries) designated by the Optionee in writing in a form satisfactory to the Company, and the Options may be exercised, during the lifetime of the Optionee, only by the Optionee. Without limiting the generality of the foregoing, the Options may not be assigned, transferred (except as provided above), pledged or hypothecated in any way, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of any of the Options contrary to the provisions hereof, or the levy of any execution, attachment or similar process upon any Option, shall be null and void and without effect. 2. Exercise. (a) Subject to the terms and conditions of this Agreement, Optionee shall have the right to exercise at the Purchase Price all vested Options at any time after the date hereof. Notwithstanding anything else herein to the contrary, all Options granted under this Agreement shall expire no later than the tenth anniversary of the date of this Agreement. Vested Options will expire at the end of the ninetieth (90th) day following the Optionee's termination of employment with the Company, except that (i) in the event that the Optionee's employment terminated as a result of death or "permanent disability", as defined in the Employment Agreement, then the ninety (90) day period described above will increase to two (2) years and (ii) in the event that the Optionee's employment with the Company is terminated by the Company "without cause" or if the Optionee terminates his employment with the Company for "good reason", all as set forth in the Employment Agreement, then the ninety (90) day period described above will increase to two (2) years. (b) Options may be exercised by the Optionee in whole or in part, but not as to a fractional share, by surrender of such Options, properly endorsed at the principal office of the Company, and by delivering to the Company (i) a written exercise notice substantially in the form annexed hereto as Schedule A, and (ii) payment of the aggregate Purchase Price, plus required tax withholding amounts (as determined by the Company) for the number of shares purchased by certified check or bank check (or in such other form as the Company may elect to accept). The shares purchased shall be deemed to be issued to the Optionee as the record owner as of the close of business on the date of which the Options are surrendered and payment is made for the shares. Certificates representing the shares purchased shall be delivered to the Optionee within thirty (30) days after the rights represented by the Options have been properly exercised. 3. Shares. (a) The Company covenants and agrees that all shares of Common Stock shall, on issuance and payment of the consideration therefor hereunder, be fully paid and nonassessable and free from all taxes, liens and charges related to the issuance of such shares. The Company further covenants and agrees that during the period within which the rights represented by the Options may be exercised, the Company shall, at all times, have authorized and reserved for the purpose of issuance or transfer on exercise of the Options a sufficient number of the shares subject to the Options to provide for their exercise. (b) The Company shall use its best reasonable efforts to assure that all shares of Common Stock received by Optionee on any exercise of any Option shall be, and shall remain, (i) fully registered (at the Company's expense) under the Securities Act of 1933, as amended (the -2- "1933 Act"), both for issuance and for resale, (ii) fully registered or qualified (at the Company's expense) under such state securities laws as Optionee may reasonably request, both for issuance and for resale, and (iii) either qualified for trading on NASDAQ or listed on a national securities exchange unless, in each case, Optionee consents to alternative arrangements that adequately protect the salability of such shares, which consent shall not be unreasonably withheld. 4. Adjustments. In the event that there is any change in the Common Stock arising through merger, consolidation, reorganization, recapitalization, stock dividend, stock split or combination, the Board of Directors shall make such adjustments in the aggregate number of Options subject to this Agreement and/or the price per share of such Options in order to prevent dilution or enlargement of Optionee's rights and of the value represented by the Options. In the event of a dissolution or liquidation of the Company or a merger, consolidation, sale of all or substantially all of the Company's assets, or other corporate reorganization in which the Company is not the surviving corporation, or any merger in which the Company is the surviving corporation but the holders of its Common Stock receive securities of another corporation (each of the foregoing, a "Trigger Event"), outstanding Options shall terminate, provided that the holder of each Option shall, in such event, if no provision has been made for the substitution of a new option for such outstanding option, have the right immediately prior to such Trigger Event, to exercise the holder's Options in whole or in part without regard to the date on which the Options otherwise would be first exercisable. Upon any adjustment in the number or exercise price of shares subject to an Option, a new Option may be granted in place of such Option which has been so adjusted. 5. Absence of Rights. No Option shall entitle the Optionee to any rights as a shareholder of the Company prior to the exercise of such Option. 6. Invalidity; Severability. If any clause or provision of this Agreement shall be adjudged invalid, the same shall not affect the validity of any other clause or provision of this Agreement, or of any other document pertaining to the subject matter thereof, or constitute by reason thereof, any claim or cause of action in favor of Optionee as against the Company. In addition, the provisions of this Agreement shall be read and construed and shall have effect as separate, severable and independent provisions or restrictions, and shall be enforceable accordingly. 7. Entire Agreement; No Waiver; Remedies. This Agreement and the Employment Agreement contain the entire agreement of the parties and incorporates and supersedes any and all prior or contemporaneous oral or written agreements with respect to the matters referred to in them. No waiver of any breach or default hereunder shall be considered valid unless in writing and signed by the party giving such waiver, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. No failure on the part of any party to exercise, and no delay in exercising any right, remedy, power or privilege hereunder shall operate as a waiver thereof; no waiver whatever shall be valid unless in writing signed by the party or parties to be charged and then only to the extent specifically set forth in such writing. All remedies, rights, powers and privileges, either under this Agreement or by law or otherwise -3- afforded the parties to this Agreement, shall be cumulative and shall not be exclusive of any remedies, rights, powers and privileges provided by law. 8. Notices. Any notice required or permitted to be given under this Agreement shall be given in accordance with Section 12 of the Employment Agreement. 9. Successors and Assigns. The rights and obligations of the Company under this Agreement or the Options shall inure to the benefit of and shall be binding upon the successors and assigns of the Company. 10. Headings; Counterparts; Governing Law. The headings in this Agreement are for convenience of reference only and are not intended to define or limit the contents of any section or paragraph. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall in all respects be governed by the internal laws (without reference to conflicts of laws principles) of the State of New Jersey applicable to contracts made and performed within the State of New Jersey. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. THOMAS E. GARDNER BASE TEN SYSTEMS, INC. THOMAS E. GARDNER By: /s/ M. KRANZLER - -------------------------- -------------------------- Print Name: M. Kranzler Title: Chairman & CEO -4- Schedule A Exercise Notice Base Ten Systems, Inc. One Electronics Drive PO Box 3151 Trenton, NJ 08619 Gentlemen: The undersigned hereby exercises the option to purchase __________shares of Class A Common Stock of Base Ten Systems, Inc. pursuant to the Base Ten Systems, Inc. Service-Based Option Agreement (the "Option Agreement") dated as of ___________________________between Base Ten Systems, Inc. and the undersigned. Accompanying this Exercise Notice is payment pursuant to the Option Agreement in the amount of $____________. Dated:________________________ By:_________________________________ Thomas E. Gardner -5- EX-10.(NN) 12 SEPARATION AND CONSULTING AGT. REGISTRANT Exhibit 10(nn) SEPARATION AND CONSULTING AGREEMENT THIS SEPARATION AND CONSULTING AGREEMENT (this "Agreement") dated October 20, 1997, by and between BASE TEN SYSTEMS, INC., a New Jersey corporation ("Base Ten") and MYLES M. KRANZLER ("Kranzler"). WHEREAS, Kranzler has determined to retire from his position as director, Chairman of the Board, President and Chief Executive Officer of the Company and its subsidiaries (collectively the "Company"); and WHEREAS, the Company desires that Kranzler's substantial experience and knowledge concerning all aspects of the Company's business, operations, products, customers and personnel shall continue to be available to the Company; and WHEREAS, Kranzler is willing to remain available as a consultant to the Company, for the period and in accordance with the terms set forth in this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth below, the parties agree as follows: 1. RETENTION OF KRANZLER AS CONSULTANT. Effective as of the date on which Kranzler resigns as President and Chief Executive Officer of the Company (the "Effective Date"), the Company shall and hereby does retain Kranzler, and Kranzler hereby agrees to serve the Company, as a consultant upon the terms and conditions hereinafter set forth. Kranzler acknowledges that the Board of Directors of the Company has requested Kranzler to continue as Chairman of the Board, a director and an employee of the Company until the date which is three (3) days following the Special Shareholders' Meeting of the Company to be scheduled to be held prior to the end of calendar year 1997 in connection with the sale of the Government Technology division, or December 31, 1997 whichever is earlier, (the "Transition Period") and that Kranzler has agreed to so serve and, accordingly, Kranzler will resign as Chairman of the Board, a director and an employee of the Company effective as of the expiration of the Transition Period. Kranzler will receive compensation for services as Chairman of the Board and a director of the Company during the Transition Period in accordance with the Company's standard policies in effect, and Kranzler's services in his capacity as Chairman of the Board and a director of the Company during the Transition Period will not relate to services covered by or compensated under this Agreement. 2. CONSULTANT TERM. The term of Kranzler's consultant relationship pursuant to this Agreement will commence on the day following the Effective Date and will terminate one year thereafter, unless sooner terminated hereunder (the "Consulting Term"). 3. CONSULTANT DUTIES. Kranzler shall, at the request of the Company, make himself available to the Company during the Consulting Term to provide consulting and advisory services in connection with the existing and prospective business operations, products, customers, personnel and other business activities of the Company upon the following terms: (a) Kranzler shall provide only those consulting and advisory services as requested in writing by the Chief Executive Officer of Base Ten and Kranzler will report solely and directly to the Chief Executive Officer of Base Ten; -2- (b) Such services shall be performed at the Company's principal office within the State of New Jersey, or at such other locations or offices as may be mutually agreed upon by the parties from time to time. Unless expressly agreed to by Kranzler, Kranzler shall not be required to perform any services hereunder at a location or office beyond a 65 mile radius of the Company's current principal office; (c) In order to perform such services, Kranzler shall be entitled to use and will have access to the Company's computers and will be provided office space at the Company's principal office; (d) Kranzler will be required to provide a minimum of 65 working days of service during the Consulting Term (the "Minimum Working Days"). For purposes of this Agreement, the term "working day" means any period of time, not to exceed eight hours, between the hours of 8:00 a.m. and 8:00 p.m., Monday through Friday. The first twenty (20) working days of the Minimum Working Days will be served during the first 20 business days of the Consulting Term unless interrupted by a holiday, period of illness or other incapacity of Kranzler, or other interruption authorized by the Chief Executive Officer of Base Ten. The remaining forty-five (45) working days of the Minimum Working Days will be scheduled a minimum of seven calendar days in advance, unless otherwise agreed to by Kranzler. Kranzler will be entitled to receive the Base Fee (as defined in Section 4(a) of this Agreement) irrespective of whether the Company requests Kranzler's services for all or any of the Minimum Working Days; -3- (e) The Company and Kranzler may mutually agree during the Consulting Term for Kranzler to provide additional half or full days of service during the Consulting Term if so requested in accordance with Section 3(a) of this Agreement. For purposes of this Agreement, the term "half day" shall mean any period of time, not to exceed four hours, between the hours of 8:00 a.m. and 8:00 p.m., Monday through Friday; (f) Kranzler will not be required to render such services during holidays, periods of illness or other incapacity, or during any period that Kranzler shall have notified the Company is a Vacation Interval. For purposes of this Agreement, the term "Vacation Interval" means a two (2) week period of time during which Kranzler will not be required to provide any services to the Company pursuant to the term of this Agreement. Kranzler shall be entitled to designate three Vacation Intervals during the Consulting Term, provided that Vacation Intervals shall be separated by a minimum of four weeks, unless Kranzler in his discretion elects to provide services to the Company during a Vacation Interval; (g) Kranzler agrees to perform the consulting services under this Agreement by using his best efforts and skill to promote the business and interest of the Company. 4. COMPENSATION AND OTHER CONSIDERATION. (a) The Company shall compensate Kranzler for his services under this Agreement as follows: (i) The Company will pay Kranzler a base consulting fee of $100,000 (the "Base Fee") for the services described in Sections 3(a) through 3(d) above, which Base Fee -4- shall be payable in equal quarterly installments, without deduction for federal, state and local taxes. (ii) The Company shall compensate Kranzler for additional requested services as described in Section 3(e) above by payment of an additional consulting fee of $800 for each half day and $1,600 for each full working day (the "Additional Fee"). The Additional Fee shall be paid to Kranzler at the same time as the Company makes payment of its regular employee payroll following each half day served, without deduction for federal, state and local taxes. (iii) Kranzler shall be reimbursed for his reasonable out-of- pocket expenses incurred in the performance of his duties hereunder for approved business related travel and other expenses, provided that Kranzler submits to the Company reasonably detailed receipts with respect thereto. (b) In consideration of Kranzler's willingness to enter into this Agreement and to perform the obligations and provide the services referred to in this Agreement, the Board of Directors has authorized by all appropriate corporate action the continuance of the options held by Kranzler listed on Exhibit A attached hereto for the remaining term of such options as indicated on Exhibit A. (c) In consideration of Kranzler's separation from the Company as well as his willingness to enter into this Agreement and to perform the obligations and provide the services referred to in this Agreement, the Company shall provide at the Company's expense health insurance and dental insurance to Kranzler and his spouse for the remainder of each of their lives -5- with substantially similar benefits as the health insurance and dental insurance currently provided to Kranzler and his spouse, provided that, notwithstanding the foregoing, the Company may change the benefits offered to Kranzler and his spouse in the Company's discretion if such change (i) is effected for executive officers of the Company, or (ii) is reasonably required by the Company and does not materially change the benefits offered to Kranzler and his spouse, provided, however, that a material change shall not include a change in the dentists, physicians and providers available under a dental or medical reimbursement plan. 5. INDEMNIFICATION. (a) The Company agrees that Kranzler's existing rights, in his capacity as an officer, director or employee of the Company, to indemnification and advancement of expenses, as such rights currently exist under the Company's certificate of incorporation, by-laws, resolutions, and any other agreement or document binding on the Company, shall not be diminished or reduced in any respect following the date of this Agreement, the intent being that Kranzler be indemnified by the Company with respect to any "proceeding" (as that term is defined in N.J.S.A. 14A:3-5(e)) involving Kranzler in his capacity as an existing or former officer, director and employee of Base Ten or any of its subsidiaries, affiliates or any other firms or entities in which Base Ten has an investment or interest (including, but without limitation, uPACS, L.L.C.), to the fullest extent permitted by law, and in connection with any such "proceeding" to have his expenses in connection therewith advanced to the fullest extent permitted by law. (b) The Company will continue to maintain, for a period of at least six (6) years following the date of this Agreement (and thereafter until the Company's outside legal -6- counsel shall advise Kranzler in writing that no such liability could reasonably be expected or permitted to be claimed or assessed against Kranzler), the Company's directors and officers liability insurance covering Kranzler in his capacity as a former director, officer and employee of the Company, at the highest coverage level then currently maintained for any of its then current officers or directors. (c) The Company agrees to indemnify Kranzler, to the fullest extent permitted by law, with respect to any "proceeding" (as defined in N.J.S.A. 14A:35-(e)) involving Kranzler in his capacity as a consultant or agent of the Company or otherwise in connection with any acts, omissions, circumstances or events of or pertaining to Kranzler pursuant to his services under this Agreement. The provisions of this Section 5 are independent covenants of the Company and are in consideration of Kranzler's separation from the Company as well as his willingness to enter into this Agreement and to perform the obligations and provide the services referred to herein, and the Company's obligations under this Section 5 shall survive and be applicable notwithstanding any other event or circumstance affecting any of the Company's obligations under this Agreement. 6. PAYMENT OF PRIOR OBLIGATIONS. On the Effective Date, the Company shall pay to Kranzler all salary and allowances then owed to Kranzler through such date, including, without limitation all accrued vacation pay. 7. DEATH OR DISABILITY. Upon the death or disability of Kranzler during the term of this Agreement, the obligation of the Company to make the payments specified in -7- Section 4(a) of this Agreement shall not cease and the Company shall remain obligated to make such payments to Kranzler or his legal representatives. 8. RELATIONSHIP BETWEEN THE PARTIES. (a) The relationship of Kranzler to the Company during the term of this Agreement shall be solely that of independent contractor. Consequently, Kranzler shall have no authority and shall not assume to act for or on behalf of the Company without its express written approval. (b) Kranzler is solely responsible for the payment of all taxes and the filing of all tax returns and reports with respect to the amounts paid to Kranzler under Section 4 hereof, and Kranzler agrees to indemnify the Company, its officers and directors for any liability imposed on them or each of them arising out of any failure by him to pay such taxes or to file any such returns at any time. 9. CONFIDENTIAL INFORMATION AND DUTY OF NONDISCLOSURE. Kranzler acknowledges and agrees that his prior employment with the Company and his retention by the Company pursuant to this Agreement necessarily involves his access to certain secrets and confidential information pertaining to the business of the Company. Accordingly, Kranzler agrees that at all times during the term of this Agreement and thereafter, he will not, directly or indirectly, without the express authority of the Company, except as required by the -8- performance of his services under this Agreement or unless directed by applicable legal authority having jurisdiction over Kranzler, disclose to or use for the benefit of any person, firm, corporation or other business entity, or himself, any files, secrets, proprietary information or other confidential information concerning the Company, including, without limitation, any information concerning their past, present or prospective clients, creditors, customers, operations, systems, software or methods. Further, Kranzler agrees that he will not, directly or indirectly, remove or retain, any figures, calculations, letters, papers, records, documents, instruments, drawings, designs, programs or any copies thereof, or any information of any type or description, however such information might be obtained or recorded and on whatever medium such information may be contained, arising out of or in any way relating to the business of the Company or obtained as a result of or in connection with Kranzler's prior employment with the Company, or current retention under this Agreement, heretofore, by the Company; provided that Kranzler may use any such proprietary information (i) which has been disclosed to the public other than by a violation of this Agreement by Kranzler and (ii) for purposes of performing his services under this Agreement. Kranzler acknowledges that all of the foregoing constitutes proprietary information, which is the exclusive property of the Company. Notwithstanding the foregoing, upon leaving the employ of the Company, Kranzler shall be permitted to remove originals or copies, as applicable, of all records, papers and documents kept or made by Kranzler relating to personal matters, which records, papers and documents shall be specifically excluded from the restrictions contained in this Section 9. 10. COVENANT NOT TO COMPETE. -9- (a) During the term of this Agreement set forth in Section 2, Kranzler shall not, directly or indirectly, acting as employee, investor, officer, partner, principal or otherwise of any corporation or other entity, within the United States of America, Canada or any of their territories, possessions or protectorates, or in any country which is in the European Common Market, engage in any activity involving products or services or both products and services similar to those products and services of the Company, as such products and services exist on the date hereof or during the term of this Agreement, other than (i) in performing his services under this Agreement, and (ii) in acting as employee, investor, officer, partner, principal or otherwise of any corporation or other entity, within the United States of America, Canada or any of their territories, possessions or protectorates, or in any country which is in the European Common Market, which corporation or entity (or any successor thereto) acquires all or a portion of the Company's existing business. (b) During the term of this Agreement set forth in Section 2 and for one year thereafter, Kranzler shall not, directly or indirectly, acting as an employee, owner, partner, investor, officer, director, independent contractor, supplier, consultant, principal or otherwise of any corporation or other entity: (i) solicit, other than in connection with a corporation or entity referred in Section 10(a)(ii) above, for the purpose of providing by sale or otherwise any product which is similar to or competitive with any product sold or considered for sale by the Company, any facility of a corporation or business entity (or any individual who exercises management or administrative control over such facility or entity) which on the date hereof or at any time during -10- the 12 months prior to the date hereof, or which Kranzler knows or has reason to believe (at the time of such contact or solicitation) has during the 12 months after the date hereof proposed to purchase, purchased or contracted with the Company for the purchase of any service or product provided by the Company; or (ii) disclose to any person, firm, corporation or other entity, any trade, technical, operational, management or other secrets of the Company except to the extent required or permitted under Section 9 hereof; Notwithstanding the foregoing provision of this Section 10(b), Kranzler may act in any capacity (A) to the extent expressly consented to or approved of in writing by the Company, (B) by participation in any investment or mutual fund over which Kranzler has no authority to make investment decisions with respect to the securities or other investments made by such investment or mutual fund, (C) as a vendor to the Company, (D) on behalf of a newly formed company which is not a successor to any prior competitor of the Company and which is not a competitor to the Company, or (E) arising solely out of Kranzler being the owner of 5% or less of the securities of any publicly held corporation. (c) The parties hereto agree that in the event that either the length of time or the geographical areas set forth in Sections 10(a) or 10(b) above are deemed too restrictive by any court of applicable jurisdiction, the court may reduce such restrictions to those which it deems reasonable under the circumstances. (d) Kranzler agrees and acknowledges that the Company does not have an adequate remedy at law for the breach or threatened breach by Kranzler of the covenants under -11- this Section 10 and agrees that the Company shall be entitled to apply for injunctive relief to restrain Kranzler from such breach or threatened breach in addition to any other remedies which might be available to the Company at law or in equity. (e) The obligations expressed in Sections 9 and 10 hereof shall be in addition to any other obligations imposed by law upon Kranzler with respect to the Company. 11. MUTUAL RELEASES. (a) Except for those rights of Kranzler set forth in this Agreement, Kranzler's rights of indemnification under law, the certificate of incorporation and/or by-laws and/or resolutions or other agreements or documents of or binding on the Company, insurance policies, and stock options remaining unexercised, Kranzler hereby releases and forever discharges the Company, including any of its successors or assigns, and each and every one of its present and former directors, officers, agents, servants, employees, representatives, heirs, executors, administrators and shareholders, agents and employees from all actions, causes of action, suits, debts, dues, amounts, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, executions, rights under any employment agreement or other agreement whatsoever in law or in equity, which against the Company, Kranzler, Kranzler's heirs, executors, administrators and assigns ever had, now have or hereinafter can, shall or may have for, upon or by reason of any matter, cause or thing whatsoever, including but not limited to, any and all claims that Kranzler has or may have concerning his relationship and/or his resignation as an officer, director and employee of the Company and any claims for compensatory or punitive damages, declaratory or injunctive -12- relief, reinstatement and attorney's fees or costs of litigation, provided, however, that notwithstanding the foregoing, this release shall not apply to any rights or obligations between CKR Partners, L.L.C. (or any successor entity or individual) and the Company relating to the ownership of the building which is the principal headquarters of the Company, including without limitation the purchase options contained in the lease for such building. (b) The Company, on behalf of itself and each of its subsidiaries or affiliates or any other firms or entities in which Base Ten has an investment or interest (including, but without limitation, uPACS, L.L.C.), hereby releases and forever discharges Kranzler and his representatives, heirs, executors, and administrators from all actions, causes of action, suits, debts, dues, amounts, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, executions, rights under any employment agreement or other agreement whatsoever in law or in equity, which against Kranzler, the Company or any of its subsidiaries or affiliates or any other firms or entities in which Base Ten has an investment or interest (but, without limitation, uPACS, L.L.C.), and each of their respective officers, partners, agents or employees and assigns ever had, now have or hereinafter can, shall or may have for, upon or by reason of any matter, cause or thing whatsoever, including but not limited to, any and all claims that any such entity or individual may have concerning its or his relationship with Kranzler in his capacity as an officer, director or employee of the Company or any of its subsidiaries or affiliates or any other firms or entities in which Base Ten has an investment or interest (including, but without limitation, uPACS, L.L.C.), including any and all claims for compensatory or punitive damages, declaratory or injunctive relief, reinstatement and attorney's fees or costs of litigation, provided, however, -13- this release shall not apply to any rights or obligations between CKR Partners, L.L.C. (or any successor entity or individual) and the Company relating to the ownership of the building which is the principal headquarters of the Company, including without limitation the purchase options contained in the lease for such building and the rights of the Company with respect to this Agreement. 12. TERMINATION. If at any time during the term of this Agreement set forth in Section 2, Kranzler is in default in complying with the provisions of this Agreement, the Company shall be entitled to terminate this Agreement after 30 days written notice to Kranzler and cease to provide Kranzler any further compensation set forth in Section 4 hereof, provided Kranzler has not cured such default within such 30 day period. Anything to contrary contained in this Agreement notwithstanding, the provisions of Sections 5, 9, 10 and 11 of this Agreement shall survive any expiration or termination of this Agreement for any reason whatsoever. 13. NOTICES. For the purposes of this Agreement, notices and all other communication provided for in this Agreement shall be effective and shall be deemed to have been duly given if the same is in writing and when delivered or mailed by first class mail, postage prepaid, addressed as follows: If to the Company: Base Ten Systems, Inc. One Electronics Drive Trenton, New Jersey 08619 Attention: Chief Executive Officer If to Kranzler: Myles M. Kranzler 173 Rolling Hill Road Skillman, NJ 08557 -14- 14. ASSIGNMENT/BINDING EFFECT. The duties and obligations of Kranzler hereunder are not assignable by him without the prior written consent of the Company. The Company may assign its rights hereunder to any affiliated or successor corporation, including a successor through the purchase of all or substantially all of the Company's assets. This Agreement and the rights hereunder shall be binding upon and inure to the benefit of and be enforceable by (i) Kranzler's personal or legal representatives, executors, administrators, distributees, devisees and legatees, and (ii) the successors and assigns of the Company. 15. INTEGRATION. This Agreement represents the entire understanding of the parties with respect to the subject matter hereof. This Agreement supersedes all other agreements, contracts, understandings and other arrangements, written or oral, between the parties, all of which are hereby terminated and shall be of no further force or effect, including without limitation, any employment contracts, agreements or understandings in effect as of the date hereof. 16. SEVERABILITY. In the event that one or more of the provisions of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 17. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by Kranzler and such officer of the Company as may be specifically designated by the Company. -15- No waiver by either party hereto at any time of any breach by the other party hereto of, or in compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time. No representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New Jersey without regard to conflict of law principles. This Agreement may be executed in counterparts, each of which shall be deemed a duplicate original, all of which shall be deemed to be one in the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first set forth above. BASE TEN SYSTEMS, INC. By: /s/ Edward J. Klinsport ---------------------------------- Name: Edward J. Klinsport Title: Executive Vice President /s/ Myles M. Kranzler ------------------------------------- MYLES M. KRANZLER -16- Exhibit A List of Options ISSUE DATE EXERCISE DATE EXPIRATION DATE EXERCISE PRICE AWARDED OPTIONS 6/1/93 9/23/94 6/1/99 8.0625 140,000 11/24/93 9/23/94 11/23/03 8.625 15,000 6/13/94 12/13/94 6/12/04 8.37 6,000 4/18/96 3/20/97 4/17/06 10.25 50,000 EX-10.(OO) 13 OMNIBUS CONVERTIBLE TERM DEBENTURE HOLDER WAIVER Exhibit 10(oo) BASE TEN SYSTEMS, INC. OMNIBUS CONVERTIBLE TERM DEBENTURE HOLDER WAIVER AND CONSENT REGARDING SALE OF THE GOVERNMENT TECHNOLOGY DIVISION and AMENDMENT NO.1 TO CONVERTIBLE TERM DEBENTURE Base Ten Systems, Inc. One Electronics Drive Trenton, New Jersey 08619 Reference is made to that certain Securities Purchase Agreement (the "Securities Agreement"), and to that certain Convertible Term Debenture (the "Convertible Debenture"), each of which is dated as of May 30, 1997, and each of which is by and between Base Ten Systems, Inc., a New Jersey corporation (the "Company"), and each of The Tail Wind Fund, Ltd. ("Tail Wind") and RGC International Investors, LDC ("RGC") (Tail Wind and RGC each being a "Holder," and collectively, the "Holders"). 1. The Company has informed each Holder that the Company intends to sell all or substantially all of the assets of the Government Technology Division ("GTD") of the Company ("Sale") to a newly-formed company ("Purchaser") that will be managed by certain members of the Company's senior management who have been over time and currently are significantly involved in the business and development of the GTD, on terms and conditions to be set forth in a definitive Asset Purchase Agreement by and between the Company and Purchaser. 2.(a) Pursuant to Section 4(j) of the Securities Agreement, the Company is required to maintain its corporate existence except in the event of a merger, consolidation or sale of all or substantially all of the assets of the Company under certain instances, none of which exceptions is or would be available with respect to the Sale. (b) Each Holder hereby acknowledges that it has been given the information it requires with respect to the Sale in order to knowingly waive its rights with respect thereto. Subject to paragraph 4 hereof, each Holder hereby waives its right to bring any cause of action for a breach of Section 4(j) by the Company in connection with or arising from the Sale or any other matter contemplated by the Asset Purchase Agreement, and hereby agrees that the Sale is not and will not be subject to Section 4(j) of the Securities Agreement. 3.(a) Pursuant to Article VIII of the Convertible Debenture, the consummation of any sale of all or substantially all of the assets of the Company constitutes an Event of Default of the Convertible Debenture upon which each Holder can demand payment of the Default Amount (as such herein is defined in the Convertible Debenture). (b) Subject to paragraph 4 hereof, each Holder hereby waives any right to demand payment of such Default Amount upon the consummation of the Sale, and hereby consents to the Sale by the Company. 4. As a condition precedent to the waiver and consent of each Holder set forth above, the Company and each of the Holders agree that paragraph E of Article III of each Convertible Debenture is hereby amended by inserting the following additional sentences as the second, third and fourth sentences thereof: "Notwithstanding the foregoing, if the sale of all or substantially all of the assets of the Government Technology Division of the Corporation (the "Sale") to a newly-formed company that will be managed by certain members of the Corporation's senior management is consummated, in no event shall the Conversion Price exceed the product obtained by multiplying (x) a fraction (not in excess of 1.00), the numerator of which is the average of the Closing Bid Prices for the Class A Common Stock for the 10 consecutive trading days commencing on the first trading day following the first public announcement by the Corporation of the proposed Sale (the "Post-Announcement Period"), and the denominator of which is the average of the Closing Bid Prices for the Class A Common Stock for the four consecutive trading days, if any, commencing no earlier than October 21, 1997 (unless public announcement by the Corporation of the proposed Sale is required by Nasdaq to be made prior to the close of trading on October 21, 1997, in which event October 20, 1997 shall be included) and ending on the last trading day immediately preceding the first public announcement by the Corporation of the proposed Sale (the "Pre-Announcement Period"), by (y)(i) $13.50 with respect to any Conversion Date occurring prior to May 30, 1998, or (ii) $14.00 with respect to any Conversion Date occurring on or after May 30, 1998. In no event shall the Conversion Price be increased by reason of the foregoing sentence. In the event the Holder engages in short sale transactions in the Class A Common Stock during the Post-Announcement Period, the Holder will use its best efforts to conduct such transactions so as to not complete or effect any such sale on any trading day during such period at a price which is lower than the lowest sale effected on such day by persons other than the Holder, and shall give the Corporation access on a confidential basis to all trading records reasonably necessary to monitor compliance with the foregoing. In the event such a sale is completed or effected at a price lower than the lowest sale effected on such day by persons other than the Holder, the Corporation may elect not to include the Closing Bid Price for such day in the foregoing calculation.'' 5. Except as expressly consented to, amended or waived hereby, each and every term, covenant and condition of the Securities Agreement and of the Convertible Debenture shall continue in full force and effect. Neither the request for, or execution or delivery of this Waiver and Consent and Amendment No. 1 shall be deemed to create or imply any construction, interpretation or application of the Securities Agreement or Convertible Debenture as applied to the Sale or any other future transaction or course of conduct between the Company and the undersigned, other than as expressed in paragraph 4 above. IN WITNESS WHEREOF, the undersigned hereby execute this Waiver and Consent and Amendment No. 1 as of the day and year set forth below. THE TAIL WIND FUND, LTD. By: /s/ Sherrill Pletscher /s/ Anita M. Donaldson ----------------------------------------------- Name: Sherrill Pletscher /s/ Anita M. Donaldson, Title: Authorized Signatory Director RGC INTERNATIONAL INVESTORS, LDC By: Rose Glen Capital Management L.P. By: RGC General Partner Corp. By: /s/ Gary S. Kaminsky Name: Gary S. Kaminsky Title: Managing Director Agreed and Accepted: BASE TEN SYSTEMS, INC. By: /s/ Myles Kranzler ----------------------- Name: Myles Kranzler Title: Chairman and CEO Dated: October 20, 1997 EX-10.(PP) 14 EMPLOYMENT AGT. REGISTRANT AND C. RICHARD BAGSHAW Exhibit 10(pp) [BASE TEN SYSTEMS LETTERHEAD] November 26, 1997 Mr. C. Richard Bagshaw 1470 Sand Hill Road, Apt. 310 Palo Alto, California 94304 Dear Rick: It is a pleasure to extend to you an offer to join Base Ten Systems, Inc. as Executive Vice President effective December 1, 1997. As you know, Base Ten is in the process of completing a strategic shift from weapons control systems for the defense industry to manufacturing execution systems (MES) software for regulated industries, especially pharmaceutical manufacturers. Your recent experience as President of Roche-Syntex Pharmaceuticals in Puerto Rico and your many years of operations, marketing and general management experience lead us to believe that you will be quite successful in your new role and responsibilities. Your initial compensation will be as follows: 1. Base Salary--Your base salary will be at the annual rate of $180,000 earned and paid bi-weekly, in accordance with Base Ten's normal pay policy. You will be eligible for an annual salary review. Salary action will be based on merit and performance. 2. Bonus--You will be eligible for a bonus equaling up to 40% of your base salary. The amount of your bonus will be determined by management based on your meeting agreed upon performance targets and on the overall performance of the Company. This bonus will be paid within 120 days after the end of each fiscal year. 3. Stock Option--We will make best efforts to secure the needed approvals of the shareholders and of the Board of Directors to authorize additional shares of Base Ten Class A Common Stock for option purposes and to grant you an option to purchase 50,000 shares from this proposed authorization. Your purchase price per share under this option grant would be at the NASDAQ closing price on the day that your option is granted. Assuming it is granted, this option will vest 20% on each of the first five anniversaries from the date of the grant. You will be eligible from time to time for future grants at the discretion of the Board of Directors. 4. Change of Control Agreement--You will be provided with a change of control agreement. Should there be a change of control as defined in the Agreement, your stock options will vest 100% on the date of change of control. Should your employment subsequently be terminated for convenience following a change of control as defined in the Agreement you will receive a cash payment in the amount of 2.99 times your base salary. The change of control agreement is controlling in these instances. 5. Severance Protection--In accordance with Base Ten policy you can be separated from the Company at any time for either cause or convenience. Should your employment be terminated by the Company for convenience you will receive salary continuation for a period of twelve months. Should your employment be terminated by the Company for cause there will be no severance pay. 6. Benefits--You will be entitled to the standard package of Base Ten benefits offered to U.S. exempt employees including eight paid holidays and three weeks vacation. 7. Relocation Allowance--You will be entitled to a relocation allowance not to exceed $10,000. This will include up to three months of temporary housing at a rate not to exceed $1,500 per month, and packing and shipment of your household goods to the Trenton area. Actual expenditures will be reimbursed. This offer is contingent upon the fact that there is nothing outstanding, including any restrictive nondisclosure/noncompetition agreements with or any obligations to any parties which would prohibit your ability to function in full as Executive Vice President, and, upon board approval, as an officer of the Company. The terms of this letter of offer are governed by the laws of the State of New Jersey and shall be subject to periodic review. Employment with the Company is as defined and governed by Company policies and procedures. Please confirm your acceptance to this offer by signing both this and the enclosed Agreement with Respect to Inventions, Disclosures and Competition. Originals should be returned to the attention of Jo Ann Fechter, Personnel Manager. You may retain the copies for your files. At Base Ten, Rick, we are exceptionally excited about our growth prospects. We hope that you choose to accept our offer and look forward to your joining us early in December. Sincerely, /s/ Richard J. Farrelly - ------------------------------------------------ Richard J. Farrelly Sr. Vice President, Planning and Human Resources cc: T. E. Gardner Board of Directors EX-10.(QQ) 15 PROMISSORY NOTE STRATEGIC TECHNOLOGY TO REGISTRANT Exhibit 10(qq) PROMISSORY NOTE $2,100,000.00 Trenton, New Jersey December 31, 1997 FOR VALUE RECEIVED, Strategic Technology Systems, Inc., a Nevada corporation ("Debtor") promises to pay to the order of BASE TEN SYSTEMS, INC., a New Jersey corporation ("Payee"), at One Electronics Drive, Trenton, New Jersey 08819, or at such other place as Payee may from time to time designate in writing, the principal sum of $2,100,000.00, as provided herein. This Note is the promissory note referred to in the Asset Purchase Agreement, dated as of the date hereof, between Debtor and Payee (the "Purchase Agreement"). Capitalized terms used but not defined herein shall have the meaning ascribed to them in the Purchase Agreement. 1. Payments 1.1 Interest Payments. Debtor promises to pay interest on the unpaid principal amount hereof until maturity (whether by passage of time, acceleration or otherwise) at a rate equal to 7.5% per annum. Such interest shall be payable in arrears on the last day of each calendar quarter, commencing December 31, 1997 and ending on December 31, 2002 (the "Maturity Date") and such interest payments shall be made in lawful money of the United States. Interest shall be calculated on the basis of a 365-day year and actual days elapsed. Notwithstanding anything to the contrary contained in this Note, Debtor shall not be obligated to pay, and Payee shall not be entitled to charge, collect or receive interest in excess of the maximum rate allowed by applicable law. During any period of time in which the interest rate specified in this Note exceeds such maximum rate, interest shall accrue and be payable at such maximum rate. 1.2 Principal Payments. Debtor shall not be required to make principal payments under this Note from the date hereof until December 31, 1999 (the "Initial Period"). Thereafter, this Note shall amortize in equal installments over a three year period beginning on March 31, 2000 and ending on the Maturity Date (the "Amortization Period"). Such principal payments during the Amortization Period shall be due and payable on the last day of each calendar quarter commencing on March 31, 2000. 1.3 Optional Prepayments. Debtor may, at its option, at any time and from time to time, prepay all or any part of the principal balance of this Note, without penalty or premium, in multiples of $100,000, with any such prepayment being applied first to accrued interest due under the Note, and second to the principal amount due under the Note. 1.4 Day of Payment. Whenever any payment to be made hereunder shall become due and payable on a day which is not a Business Day (as defined below), such payment may be made on the next succeeding Business Day and, in the case of any payment of principal, such extension made on the next succeeding Business Day and, in the case of any payment of principal, such extension of time shall in such case be included in computing interest on such payment. As used herein, "Business Day" shall mean any day which is not a Saturday or Sunday and on which banks in the State of New York are not authorized or required to close. 1.5 Obligation to Pay. Debtor shall make all payments hereunder in full without offset, reduction or deduction of any kind or amount or for any reason, including, without limitation, setoff by any amounts which Debtor may claim or be entitled to claim under the Purchase Agreement. 1.6 Default Rate. In the event that any principal or interest payment due hereunder shall not be paid as provided herein and an Event of Default has occurred, such payment shall bear interest at a rate equal to 18% per annum, from the date when such payment was due until paid. 2. Representations and Warranties. Debtor represents and warrants (which representations and warranties shall survive the execution and delivery of this Note) to Payee that: 2.1 Organization: Corporate Power. Debtor is duly organized, validly existing and in good standing under the laws of the State of Nevada, has full corporate power and authority to own its property and assets and to carry on its business as now conducted, or as expected to be conducted immediately following the closing: As of the Closing, Debtor will be qualified to do business and will be in good standing in each jurisdiction in which such qualification is necessary under applicable laws as a result of the conduct of its business or the ownership of its properties, except where the failure to be so qualified and in good standing would not have a material adverse effect. 2.2 Authorization. Debtor has all necessary power and authority and has taken all corporate action and has obtained all approvals necessary to execute, deliver and perform its obligations under this Note and to consummate the transactions contemplated hereby, and no other proceedings on the part of Debtor are necessary to authorize this Note or the transactions contemplated hereby. This Note has been duly executed and delivered by Debtor and is a valid, binding and enforceable obligation of Debtor, enforceable against it in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, moratorium, reorganization and other similar laws affecting creditors' rights generally and (ii) the general principles of equity, regardless of whether asserted in a proceeding in equity or at law. 2.3 No Conflict or Violation. Neither the execution, delivery and performance of this Note by Debtor nor the consummations of the transactions contemplated hereby and thereby will result in (i) a violation of a conflict with any provision of the certificate of incorporation or by-laws of Debtor, (ii) a breach of, or a default under any term or provision -2- of any contract, agreement, indebtedness, lease, commitment, licence, franchise, Permit, authorization or concession to which Debtor is a party, which breach or default would have a Material Adverse Effect, or (iii) a violation by Debtor of any statute or law or any judgment, decree, regulation or rule of any court or Governmental Body applicable to Debtor, which violation would have a Material Adverse Effect. 2.4 Consents and Approvals. No consent, approval, authorization of, or declaration, filing or registration with, any Governmental Body, or any other Person, is required to be made or obtained by Debtor in connection with the execution, delivery and performance of this Note . 2.5 Litigation: Compliance with Laws; etc. (a) There are not any actions, suits or proceedings at law or in equity or by or before any governmental instrumentality or other agency or regulatory authority now pending or, to the knowledge of Debtor, threatened against or affecting Debtor. (b) Debtor is not in violation of any law, or in default with respect to any judgment, writ, injunction, decree, rule or regulation of any court or governmental agency or instrumentality. 2.6 Title to Properties. Upon Closing, Debtor shall have good and marketable title to all of its properties and assets, free and clear of any lien, pledge, security interest, or other Encumbrance or claim of any kind, except in favor of Payee and except as otherwise provided in the Purchase Agreement. 3. Affirmative Covenants. Debtor covenants and agrees with Payee that, so long as this Note shall remain in effect, or the principal of or interest of this Note or any fee, expense or amount payable hereunder or with respect to this Note shall be unpaid, it will: 3.1 Existence. Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence. 3.2 Taxes. Pay and discharge promptly when due all Taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property before the same shall become delinquent or in default unless the validity or amount thereof is being contested in good faith by appropriate proceedings and Debtor has maintained adequate reserves with respect thereto in accordance with generally accepted accounting principals. 3.3 Litigation and Other Notices. Upon knowledge by Debtor, give Payee prompt written notice of the following: 3 (a) the issuance by any court or Governmental Body of any injunction, order, decision or other restraint prohibiting, or having the effect of invalidating, any provision of this Note, the Security Agreement or the other documents to be delivered by Debtor under the Security Agreement, or the initiation of any litigation or similar proceeding seeking any such injunction, order, decision or other restraint; (b) the filing or commencement of any action, suit or proceeding against Debtor, whether at law or in equity or by or before any court or Governmental Body, which is brought by or on behalf of any Governmental Body, or in which injunctive or other equitable relief is sought and such relief, if obtained, would materially impair the right or ability of Debtor to perform its obligations under this Note; and (c) any Event of Default (as hereinafter defined) or event or condition which, with the giving of notice or lapse of time or both, would constitute an Event of Default, specifying the nature and extent thereof and the action (if any) which is proposed to be taken with respect thereto. 4. Negative Covenants. Debtor covenants and agrees with Payee that, so long as this Note shall remain in effect or the principal of or interest on this Note, any fee, expense or amount payable hereunder or with respect to this Note shall be unpaid, it will not: 4.1 Liens. Incur, create, assume or permit to exist in favor of an affiliate of the Debtor any lien or other Encumbrance of any kind or nature on any of its property or assets, whether owned at the date hereof or hereafter acquired, or assign or convey any rights to or security interests in any future revenues to an affiliate of the Debtor. 4.2 Dividends and Distributions. Declare or pay, directly and indirectly, any cash dividends or make any other distribution, whether in cash, property, securities or a combination thereof, with respect to (whether by reduction of capital or otherwise) any shares of its capital stock or directly or indirectly redeem, purchase, retire or otherwise acquire for value (or permit any subsidiary of Debtor to purchase or acquire) any shares of any class of its capital stock or set aside any amount for any such purpose or make any principal payment or prepayment on account of, or purchase, redeem or defease any indebtedness to an affiliate for borrowed money or make any payment of principal thereon (other than prepayments and payments permitted or required hereunder), or agree to do any of the foregoing, or permit any subsidiary of Debtor to do any of the foregoing or agree to do any of the foregoing. Debtor and Payee acknowledge and agree that no provision herein shall prohibit any shareholder of Debtor from selling its shares of capital stock of Debtor pursuant to a public offering. 4.3 Consolidations, Mergers and Sales of Assets. Consolidate with or merge into any other Person (where Debtor is not the surviving entity), or sell, lease, transfer or assign to any Persons or otherwise dispose of (whether in one transaction or a series of transactions) all or substantially all of its properties or assets other than inventory (whether now owned or -4- hereafter acquired) or permit another Person to merge into it (where Debtor is not the surviving entity). 5. Events of Default; Remedies. 5.1 Defaults. If any one or more of the following events ("Events of Default") shall occur: (a) If Debtor shall default in the payment of any of the principal of or interest on this Note when due and such default shall not have been cured by Debtor within ten (10) days of receipt of written notice of such default by Payee; or (b) If Debtor shall default in the observance or performance of any covenants or agreements contained in this Note; or (c) If any representation or warranty made by Debtor in this Note or in connection with any of the transactions contemplated herein shall prove to have been false or incorrect in any material respect when made; or (d) If Debtor shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due, or shall file a voluntary petition in bankruptcy or shall be adjudicated a bankrupt or insolvent, or shall file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, or shall file any answer admitting or not contesting the material allegations of a petition filed against it in any such proceeding, or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of all or any substantial part of the properties of Debtor; or (e) If, within sixty (60) days after the commencement of an action against Debtor seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such action shall not have been dismissed or stayed or if, within sixty (60) days after the appointment, without the consent or acquiescence of Debtor, of any trustee, receiver, or liquidator of any Debtor or any substantial part of Debtor's properties, such appointment shall not have been vacated; or (f) If any order, judgment, or decree shall be entered in any proceeding against Debtor requiring Debtor to divest itself of a substantial part of its assets, or awarding a money judgment or judgments against Debtor aggregating more than $100,000, and if, within thirty (30) days after entry thereof, such order, judgment or decree shall not have been discharged or execution thereof stayed pending appeal; or if, within thirty (30) days after the expiration of any such stay, such judgment, order or decree shall not have been discharged; or -5- (g) If default shall be made with respect to any indebtedness of Debtor in excess of $100,000 if the effect of any such default shall be to accelerate or permit the acceleration of the maturity of such indebtedness; or any amount of principal or interest in respect of such indebtedness shall not be paid when and as due (after giving effect to any period of grace specified for such payment in the instrument evidencing or governing the same); or (h) If Debtor shall default on the payment of any amount due under the Sublease or in the observance or performance of any covenants contained in the Sublease; or (i) If this Note shall for any reason cease to be, or shall be asserted by Debtor not to be, a legal, valid and binding obligation of Debtor, enforceable in accordance with its terms; then in the case of an Event of Default described in Sections 6.1(d) or 6.1(e) above, the unpaid balance of this Note and all interest accrued hereon shall automatically (without any action on the part of Payee and without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived) forthwith become due and payable, and in the case of any other Event of Default, then and in any such event, and at any time thereafter, if such or any other Event of Default shall then be continuing, Payee may, at its option, declare this Note to be due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived, anything contained herein to the contrary notwithstanding. Payee shall have all of the rights and remedies set forth in this Note and in any instrument or document referred to herein and under any other applicable law relating to this Note. 5.2 Rights and Remedies Cumulative. No right or remedy herein conferred upon Payee is intended to be exclusive of any other right or remedy contained herein or in any instrument or document delivered in connection with or pursuant to this Note and every such right or remedy shall be cumulative and shall be in addition to every other such right or remedy contained herein and therein or now or hereafter existing at law or in equity or by statute, or otherwise. 5.3 Rights and Remedies Not Waived. No course of dealing between Debtor and Payee or any failure or delay on the part of Payee in exercising any rights or remedies of Payee and no single or partial exercise of any rights or remedies hereunder shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder. 6. Miscellaneous. 6 6.1 Collection Costs. In the event Payee shall refer this Note to an attorney for collection upon the occurrence of an Event of Default, Debtor agrees to pay, in addition to unpaid principal and interest, all the costs and expenses incurred in attempting or effecting collection hereunder, including reasonable attorneys' fees and disbursements, whether or not suit is instituted. 6.2 Waivers. Presentment, demand, protest or other notice of any kind, except as may be otherwise specifically provided herein, are all hereby waived with respect to this Note. 6.3 Modification. No modification or waiver of any provision of this Note and no consent by Payee to any departure therefrom by Debtor shall be effective unless such modification or waiver shall be in writing and signed by Payee, and the same shall then be effective only for the period and on the conditions and for the specific instances and purposes specified in such writing. No notice to or demand on Debtor in any case shall entitle Debtor to any other or further notice or demand in similar or other circumstances. 6.4 Expenses. (a) Debtor agrees to pay all reasonable out-of-pocket expenses incurred by Payee in connection with the preparation of any amendments, modifications or waivers of the provisions of this Note requested by Debtor or incurred by Payee in connection with the occurrence of an Event of Default and the enforcement or protection of its rights in connection with this Note or in connection with any pending or threatening action, proceeding, or investigation relating to the foregoing, in each case including but not limited to the reasonable fees and disbursements of counsel for Payee. (b) The provisions of this Section 6.4 shall remain operative and in full force and effect regardless of the expiration of the term of this Note, the consummation of the transactions contemplated hereby, the repayment of this Note, the invalidity or unenforceability of any term or provision of this Note, or any investigation made by or on behalf of Payee. All amounts due under this Section 6.4 shall be payable on written demand therefor. 6.5 Entire Agreement; Waiver of Jury Trial, etc. (a) This Note constitutes the entire contract between the parties relative to the subject matter hereof. Any previous agreement among the parties with respect to the transactions contemplated herein is superseded by this Note . Except as expressly provided herein, nothing in this Note , expressed or implied, is intended to confer upon any party, other than the parties hereto, any rights, remedies, obligations or liabilities under or by reason of this Note. (b) Except as prohibited by law, Debtor hereby waives any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this Note. 7 6.6 Consent of Jurisdiction. Debtor hereby irrevocably consents to the jurisdiction of the Courts of the State of New Jersey and of any Federal Court located in New Jersey in connection with any action or proceeding arising out of or relating to this Note. 6.7 Benefit of Agreement. This Note shall be binding upon the successors and assigns of Debtor and inure to the benefit of the Payee and its successors, endorsees and assigns. 6.8 Notices. required or permitted hereunder shall be sufficient if in writing and delivered by hand or sent by telecopy, or sent postage prepaid, by U.S. Post Office express mail, or by recognized overnight air courier service and shall be deemed given when so delivered by hand, or telecopied, or if mailed or sent by overnight courier service, on the scheduled delivery date, to the parties at the following addresses: (a) if to Debtor, to Strategic Technologies, Inc., One Electronics Drive, Trenton, New Jersey, 08619. (b) if to Payee, to Base Ten Systems, Inc., One Electronics Drive, Trenton, New Jersey, 08619. or to such other address as the addressee may have specified in a notice duly given to sender as provided herein, delivered or three days after being sent by registered or certified mail, postage prepaid, return receipt requested, if by mail, or upon receipt if by any telegraphic or telex communications equipment, in each case addressed to such party as provided in this Section 7.8 or in accordance with the latest unrevoked direction from such party. 6.9 New Jersey Law. This Note shall be construed in accordance with and governed by the laws of the State of New Jersey. STRATEGIC TECHNOLOGY SYSTEMS, INC. By: /s/ Edward J. Klinsport ----------------------------------- Name: Edward J. Klinsport Title: President and Chief Executive Officer EX-10.(RR) 16 WARRANT AGT. REGISTRANT AND STRATEGIC TECH Exhibit 10(rr) - -------------------------------------------------------------------------------- -------------- BASE TEN SYSTEMS, INC. AND STRATEGIC TECHNOLOGY SYSTEMS, INC. -------------- WARRANT AGREEMENT Dated as of December 31, 1997 - -------------------------------------------------------------------------------- WARRANT AGREEMENT, dated as of December 31, 1997 (the "Agreement"), between Strategic Technology Systems, Inc., a Nevada corporation (the "Company") and Base Ten Systems, Inc., a New Jersey corporation (the "Holder"). PRELIMINARY STATEMENT A. Holder and the Company entered into an Asset Purchase Agreement, dated as of October 22, 1997 (the "Purchase Agreement") pursuant to which Holder agreed to sell to the Company certain assets of Holder (the "Purchased Assets"). As consideration for the sale of the Purchased Assets by Holder to the Company, the Company agreed, among other things, to issue to Holder a warrant (the "Warrant") to purchase a certain number of shares of common stock, $______ par value per share, of the Company ("Common Stock"), upon the terms and conditions set forth below. B. Any capitalized terms used but not defined herein shall have the meaning given to such terms in the Purchase Agreement. NOW, THEREFORE, in consideration of these premises, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Term of Warrant; Exercise of Warrant. (a) Subject to the terms and conditions of this Agreement, the Holder shall have the right, at any time during the period commencing upon the closing of the Company's initial underwritten public offering (the "IPO") and ending 5:00 p.m. Eastern Time on the fifth anniversary of such closing (the "Exercise Period") to purchase from the Company a number of shares of Common Stock (the "Subject Shares") equal to 5% of the Company's issued and outstanding shares of Common Stock and Common Stock equivalents (giving effect to all outstanding convertible debt securities, warrants and options issued in financing transactions, but not to any compensatory warrants or options) as of and after giving effect to the IPO. The price per share at which the Subject Shares may be purchase by the Holder upon exercise of the Warrant (the "Exercise Price") shall be equal to (A) two times the sum of (i) the Cash Payment, (ii) the principal amount of the Purchase Note, (iii) any payments made by the Company pursuant to Section 3.2.1 of the Purchase Agreement, and (iv) $_____, which is equal to the amount of additional cash contributed or loaned to the Company prior to or within 30 days of the Closing Date, divided by (B) the number of Subject Shares. (b) The Warrant is exercisable at the Exercise Price payable by cash or by certified or cashier's check, in next day funds, or any combination thereof. Notwithstanding the foregoing, the Holder may surrender the Purchase Note, or any other indebtedness or obligation of the Company to the Holder, to the Company as payment for all or portion of the Exercise Price. Upon surrender of a Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price for the number of Subject Shares purchased, at the Company's principal offices located at One Electronics Drive, Trenton, New Jersey, the Holder shall be entitled to receive a certificate or certificates for the Subject Shares so purchased. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such Subject Shares as of the date of surrender of the Warrant being exercised and payment of the Exercise Price, as aforesaid, notwithstanding that the certificate or certificates representing such 1 securities shall not actually have been delivered or that the stock transfer books of the Company shall then be closed. The Warrant shall be exercisable, at the election of a Holder, either in full or from time to time in part, but in no event for less than 10 shares at any one time, and, in the event that a certificate evidencing the Warrant is exercised in respect of less than all of the Subject Shares at any time prior to the expiration of the Exercise Period, a new certificate evidencing the remaining portion of the Warrant will be issued by the Company. (c) In lieu of exercising this Warrant as provided in Section 1(a) and 1(b) above, the Holder of this Warrant may, upon prior written consent of the Company which shall be given in the Company's sole and absolute discretion, receive shares equal to the value (as determined below) of this Warrant by surrender of the Warrant at the principal office of the Company together with notice of such election in which event the Company shall issue to the Holder a number of Subject Shares computed using the following formula: X = Y(A-B) ------ A where X = the number of Subject Shares to be issued to the holder of the Warrant. Y = the number of Subject Shares for which this Warrant may be exercised. A = the average Market Price of one Subject Share for the 10 trading days prior to date of surrender of the Warrant. B = The Exercise Price. For all purposes of this Agreement, the term Market Price as of any specified date shall mean (i) if the Shares of Common Stock are traded in the over-the-counter market or in the NASDAQ Small Cap System and not in the NASDAQ National Market System nor on any national securities exchange, the average of the per share closing bid prices of the shares of Common Stock on the 10 consecutive trading days immediately preceding the date in question, as reported by NASDAQ or an equivalent generally accepted reporting service, or (ii) if the shares of Common Stock are traded in the NASDAQ National Market System or on a national securities exchange (or if on more than one national securities exchange, then the principal such exchange in the United States), the average for the 10 consecutive trading days immediately preceding the date in question of the daily per share last sale price of the shares of Common Stock in the NASDAQ National System or closing price on the principal United States stock exchange on which it is listed, as the case may be. For purposes of clause (i) above, if trading in the shares of Common Stock is not reported by NASDAQ, the bid price referred to in said clause shall be the bid price as reported in the "pink sheets" published by National Quotation Bureau, Incorporated (or any Successor thereto). The closing price referred to in clause (ii) above shall be the last reported sale price or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case in the NASDAQ National Market System or on the principal United States national securities exchange on which the shares of Common Stock are then listed. 2. Warrant Certificate. The warrant certificate (the "Warrant Certificate") to be delivered pursuant to this Agreement shall be in the form attached hereto, and made a part hereof, with 2 such appropriate insertions, omissions, substitutions, and other variations as required or permitted by this Agreement. 3. Issuance of Certificates. Upon the exercise of the Warrant, the issuance of certificates for shares of Common Stock or other securities, properties or rights underlying the Warrant shall be made forthwith (and in any event within ten (10) business days thereafter) without charge to the Holder including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder, and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Warrant Certificate and the certificates representing the Subject Shares shall be executed on behalf of the Company by the manual or facsimile signature of the then present Chairman or Vice Chairman of the Board of Directors or President or Chief Executive Officer or Vice President of the Company under its corporate seal reproduced thereon, attested to by the manual or facsimile signature of the then present Secretary or Assistant Secretary of the Company. The Warrant Certificate shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. 4. Transfer. The Warrant shall be transferable only on the books of the Company maintained at its principal office in Trenton, New Jersey, or wherever its principal office may then be located, upon delivery thereof duly endorsed by the Holder seeking such transfer or by its duly authorized attorney or representative, accompanied by proper evidence of succession, assignment or authority to transfer. Upon any registration of transfer, the Company shall execute and deliver new Warrant(s) to the person entitled thereto. 5. Covenants of Holder. The Holder of the Warrant Certificate, by its acceptance thereof, covenants and agrees; (i) that the Warrant and the Subject Shares are being acquired as an investment and not with a view to the distribution thereof; (ii) that it understands that neither the Warrant nor the Subject Shares have been registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance on an exemption therefrom for transactions not involving any public offering, and that neither the Warrant nor the Subject Shares have been approved or disapproved by the United States Securities and Exchange Commission (the "Commission") or by any other Federal or state agency; (iii) it understands that neither the Warrant nor the Subject Shares can be sold, transferred or assigned unless registered by the Company pursuant to the Securities Act and any applicable state securities laws, or unless an exemption therefrom is available, and, accordingly, it may not be possible for the undersigned to liquidate its investment in the Warrant and the Subject Shares, and it agrees not to sell, assign or otherwise transfer or dispose of the Warrant or the Subject Shares unless such Warrant or Subject Shares, as applicable, have been so registered or an exemption from registration is available; and 3 (iv) It is an accredited investor, as that term is defined in Regulation D under the Securities Act. 6. Securities Act of 1933: Legends. Upon exercise, in part or in whole, of the Warrant, certificates representing the Subject Shares underlying the Warrant and any of the other securities issuable upon exercise of the Warrant shall bear the following legend only if such securities are not then registered pursuant to an effective registration statement under the Act: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), and may not be offered or sold except pursuant to (i) an effective registration statement under the Act, (ii) to the extent applicable, Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) an opinion of counsel that an exemption from registration under such Act is available. 7. Merger or Consolidation. In case of any consolidation of the Company with, or merger of the Company with, or merger of the Company into, another corporation at any time after the closing of the IPO (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental warrant agreement providing that the Holder of the outstanding Warrant shall have the right thereafter (until the expiration of the outstanding Warrant) to receive, upon exercise of such warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or merger, by the Holder of the number of shares of Common Stock of the Company for which such warrant might have been exercised immediately prior to such consolidation, merger, sale or transfer. The above provision of this Section shall similarly apply to successive consolidations or mergers. 8. Payments Upon Sale, Merger of Consolidation of the Company. In the event that the Company is sold, merged or liquidated prior to the closing of the IPO and at such time as the Warrant is still outstanding, then in accordance with Section 3.2.2 of the Purchase Agreement, Holder shall receive 15% of the gross proceeds in excess of $7,000,000 upon the closing of such transaction. Upon the Holder's receipt of such amount, the Warrant shall terminate. 9. Exchange and Replacement of Warrant Certificates. The Warrant Certificate is exchangeable without expense, upon the surrender thereof by the Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of subject shares in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrant, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 4 10. Elimination of Fractional Interests. The Company shall not be required to issue certificates representing fractions of shares of Common Stock upon the exercise of the Warrant, nor shall it be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of shares of Common Stock or other securities, properties or rights. 11. Reservation and Listing of Securities. The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrant, such number of shares of Common Stock or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrant and payment of the Exercise Price therefor, all shares of Common Stock and other securities issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder. 12. Notices to the Holder. Nothing contained in this Agreement shall be construed as conferring upon the Holder the right to vote or to consent or to receive notice as a stockholder in respect of any meetings of stockholders for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Warrant and exercise of the Warrant but after the closing of the IPO, any of the following events shall occur: (a) The Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; (b) The Company shall offer to all of the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding up of the company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company shall give written notice of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend, or the issuance of any convertible or exchangeable securities, or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 13. Adjustments. The number of Subject Shares purchasable upon the exercise of the Warrant shall be subject to adjustment as follows: 5 (a) In case, after the closing of the IPO, the Company shall (i) pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (iv) issue by reclassification of its shares of Common Stock other securities of the Company, the number of shares of Common Stock purchasable upon exercise of the Warrant immediately prior thereto shall be adjusted so that each Holder shall be entitled to receive the kind and number of shares of Common Stock or other securities of the Company which it would have owned or would have been entitled to receive immediately after the happening of any of the events described above, had the Warrant been exercised immediately prior to the happening of such event or any record date with respect thereto. Any adjustment made pursuant to this subsection 13(b) shall become effective immediately after the effective date of such event retroactive to the record date, if any, for such event. (b) In case, after the closing of the IPO, the Company shall issue rights, options, warrants or convertible securities to all or substantially all holders of its shares of Common Stock without any charge to such holders, entitling them to subscribe for or purchase shares of Common Stock at a price per share which, at the record date mentioned below, is lower than the then effective Exercise Price, the number of shares of Common Stock thereafter purchasable upon the exercise of each Warrant shall be determined by multiplying the number of shares of Common Stock theretofore purchasable upon exercise of the Warrant by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately prior to the issuance of such rights, options, warrants or convertible securities plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of shares of Common Stock outstanding immediately prior to the issuance of such rights, options, warrants or convertible securities plus the number of shares which the aggregate offering price of the total number of shares offered would purchase at such then Exercise Price. Such adjustment shall be made whenever such rights, options, warrants or convertible securities are issued, and shall become effective immediately and retroactive to the record date for the determination of shareholders entitled to receive such rights, options, warrants or convertible securities. (c) No adjustment in the number of shares of Common Stock purchasable pursuant to the Warrant shall be required unless such adjustment would require an increase or decrease of at least one percent in the number of shares of Common Stock then purchasable upon the exercise of the Warrant or, if the Warrant is not then exercisable, the number of shares of Common Stock purchasable upon the exercise of the Warrant on the first date thereafter that the Warrant becomes exercisable; provided, however, that any adjustments which by reason of this subsection 13(c) are not required to be made immediately shall be carried forward and taken into account in any subsequent adjustment. (d) Whenever the number of shares of Common Stock purchasable upon the exercise of the Warrant is adjusted, as herein provided, the Exercise Price payable upon the exercise of the Warrant shall be adjusted by multiplying such Exercise Price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of shares of Common Stock purchasable upon the exercise of the Warrant immediately prior 6 to such adjustment, and of which the denominator shall be the number of shares of Common Stock so purchasable upon the exercise of the Warrant immediately thereafter. (e) Whenever the number of shares of Common Stock purchasable upon the exercise of Warrant is adjusted as herein provided, the Company shall cause to be promptly mailed to the Holders by first class mail, postage prepaid, notice of such adjustment and a certificate of the chief financial officer of the Company setting forth the number of shares of Common Stock purchasable upon the exercise of the Warrant after such adjustment, a brief statement of the facts requiring such adjustment and the computation by which such adjustment was made. (h) Upon the expiration of any rights, options, warrants or conversion privileges, if such shall not have been exercised, the number of shares of Common Stock purchasable upon exercise of the Warrant, to the extent the Warrant has not then been exercised, shall, upon such expiration, be readjusted and shall thereafter be such as it would have been had they been originally adjusted (or had the original adjustment not been required, as the case may be) on the basis of (A) the fact that the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion privileges, and (B) the fact that such shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise plus the consideration, if any, actually received by the Company for the issuance, sale or grant of all such rights, options, warrants or conversion privileges whether or not exercised; provided, however, that no such readjustment shall have the effect of decreasing the number of Shares of Common Stock purchasable upon exercise of the Warrant by an amount in excess of the amount of the adjustment initially made in respect of the issuance, sale or grant of such rights, options, warrants or conversion privileges. Except as provided in this section 13, no adjustment to the Warrant or any provision or condition thereof in respect of any dividends or distributions out of earnings shall be made during the term of the Warrant or upon the exercise of Warrant. 14. Registration Rights. (a) At any time commencing on the completion of a 365-day period after the closing of the IPO and ending one year after the expiration of the Exercise Period, upon the request of Holder if Holder holds Registrable Securities, the Company shall prepare and file with the Commission a registration statement with respect to such Registrable Securities covering the sale of Registrable Securities by Holder, and use all reasonable efforts to cause such registration statement to become and remain effective for a period of not less than two years. (b) The Company shall use its best efforts to register or qualify such Registrable Securities for sale in such states as Holder shall reasonably designate and to keep such registration or qualification in effect for so long as the registration statement filed under the Securities Act remains in effect. 7 (c) The Company shall prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to update and keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the sale of all securities covered by such registration statement. Notwithstanding anything else to the contrary contained herein, neither the Company nor any of its affiliates shall be required to disclose any confidential information concerning pending acquisitions not otherwise required to be disclosed, provided, however, that if the Company intends to delay filing a registration statement, or an amendment or supplement to a registration statement in order to avoid making such disclosure, the Company shall provide Holder with written notice and the Company may not delay making such filing for more than ninety (90) days after Holder's receipt of such notice. The Company shall deliver copies of each prospectus (as amended or supplemented) relating to the registration statement in accordance with the provisions set forth in Rule 153 of the Securities Act. The Company shall cooperate with Holder to facilitate the timely transfer of the stock certificates which evidence Registrable Securities which have been sold pursuant to a registration statement, and, in connection therewith, to issue new stock certificates to the transferees thereof, which certificates shall not bear any restrictive legends and which shall not be subject to any stop transfer order, other than as required under applicable law. (d) The Company shall notify Holder upon discovery that the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, in the light of the circumstances under which they were made, and at the request of Holder shall promptly prepare and furnish to it a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made; provided that, after such notification and until such supplement or amendment has been so delivered, Holder will not deliver or otherwise use the original prospectus. The Company shall promptly notify Holder of the threat of issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose, and shall make every reasonable effort to prevent the entry of any order suspending the effectiveness of the registration statement. In the event of the issuance of any stop order suspending the effectiveness of the registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any Registrable Securities included in such registration statement for sale in any jurisdiction, the Company shall use reasonable efforts to promptly obtain the removal of such order. Upon receipt of any notice from the Company of the happening of any event of the kind described in this Section 14(d), Holder shall discontinue disposition of shares of the Registrable Securities pursuant to a registration hereunder until the receipt of copies of any appropriate supplement or amendment to the prospectus or until the withdrawal of the stop order, as appropriate. 8 (e) The Company shall cause to be furnished to Holder two conformed copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits) and such number of copies of the preliminary and final prospectuses and any other prospectus filed under Rule 424 as Holder may reasonably request in order to facilitate the sale of such Registrable Securities. Holder shall comply with all prospectus delivery requirements under the Securities Act. It shall be a condition to the Company's obligations to effect registration of such Registrable Securities that Holder provides the Company with all material facts including, without limitation, furnishing such certificates, questionnaires, and legal opinions as may be reasonably required by the Company concerning Registrable Securities to be registered which are reasonably required to be stated in the registration statement or in the prospectus or are otherwise required in connection with the offering. All expenses incurred by the Company or its affiliates in complying with this Section 13(e), including, without limitation, all registration and filing fees, printing expenses, and fees and disbursements of counsel for the Company and its affiliates, are herein called "Registration Expenses". All selling commissions applicable to the sales of Registrable Securities and all fees and disbursements of counsel for Holder are herein called "Selling Expenses". The Company will pay all Registration Expenses in connection with registration pursuant to this Section 13(e). All Selling Expenses in connection with such registration shall be borne by Holder. (f) The Company agrees to indemnify and hold harmless (or if indemnification is held by a court of competent jurisdiction to be unavailable, to contribute to the amount paid or payable by) Holder holding Registrable Securities included as part of any registration statement filed pursuant to this Section 14(f) and each Person who participates as or may be deemed to be an underwriter in the offering or sale of such securities against any losses, claims, damages, or liabilities, joint and several (or actions in respect thereof), to which Holder may be subject under the Securities Act or any other statute or common law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement (or alleged untrue statement) of any material fact contained in any registration statement under which such securities were registered under the Securities Act, or any amendment or supplement thereto, or any other document used to sell these securities, or (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make any statement therein, in light of the circumstances under which it was made, not misleading, or (iii) any violation by the Company of the Securities Act or any Blue Sky law, or any rule or regulation promulgated under the Securities Act or any Blue Sky law, or any other law, applicable to the Company in connection with such registration, qualification, or compliance, and shall reimburse Holder for any legal or other expenses reasonably incurred by Holder in connection with defending such loss, claim, damage, liability, or action; provided, however, that the Company shall not be liable to any holder in such case to the extent that any such loss, claim, damage, or liability arises out of or is based upon (a) any untrue statement or omission made in such registration statement, or amendment or supplement thereto, or any document, in reliance upon and in conformity with the written information furnished to the Company by Holder expressly for use in the registration statement; or (b) any untrue statement or alleged untrue statement of a material fact contained in, or any omission or alleged omission of material fact from, a registration statement if (x) such registration statement had been later amended or supplemented in a manner that would correct the untrue statement or alleged untrue statement, omission or alleged omission, which is the basis of the loss, liability, claim, damage or expense for which indemnification is sought, (y) a copy of such amendment or supplement had been provided to Holder and had not been sent to or given to a purchaser at or prior to confirmation of sale to such purchaser and Holder shall have been under an obligation to 9 deliver such amendment or supplement, and (z) there would have been no such liability but for such failure to deliver such prospectus by Holder. In the event that Holder's Registrable Securities are included in a registration statement, Holder agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who have signed such registration statement, and each person, if any, who controls the Company within the meaning of the Securities Act from and against, and will reimburse the Company and each such director, officer, and controlling person with respect to any and all losses, claims, damages or liabilities to which the Company or any such director, officer, or controlling person may become subject under the Securities Act or any other statute or common law, insofar as such losses, claims, damages or liabilities are caused by any untrue statement or alleged untrue statement of any material fact contained in any registration statement, any prospectus contained therein, or necessary to make the statement therein not misleading in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in conformity with written information furnished by Holder for use in the preparation thereof. "Registrable Shares" means (i) the shares of Common Stock issued or issuable to the Holder upon exercise of the Warrant and (ii) any other shares of Common Stock issued in respect of such shares (because of stock splits, stock dividends, reclassifications, recapitalizations, or similar events); provided, however, that shares of Common Stock which are Registrable Shares shall cease to be Registrable Shares (i) when they have been sold, transferred or otherwise disposed of or exchanged pursuant to a registration statement under the Securities Act, (ii) when such shares are eligible for resale pursuant to Rule 144(k) (or its successor) under the Securities Act, or (iii) upon any sale, transfer, or other disposition in any manner to a person or entity which is not entitled to the rights provided by this Agreement. 15. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made and sent when delivered, or mailed by registered or certified mail, return receipt requested or sent by a recognized overnight courier: (a) If to the Holder, to the address of the Holder as shown on the books of the Company; or (b) If to the Company, to the address set forth in Section 1(b) hereof or to such other address as the Company may designate by notice to the Holder. 16. Successors. All the covenants and provisions of this Agreement shall be binding upon and inure to the benefit of the Company, the Holder and their respective successors and assigns hereunder. 17. Termination. This Agreement shall terminate in its entirety at the close of business on the eighth anniversary of the closing of the IPO. 18. Governing Law; Submission to Jurisdiction. (a) This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New Jersey and for all purposes shall be construed in 10 accordance with the laws of said State without giving effect to the rules of said State governing the conflicts of laws. (b) The Company and the Holder hereby agree that any action, proceeding or claim against it arising out of, or relating in any way to, this Agreement shall be brought and enforced in the courts of the State of New Jersey or of the United States of America for the [District Court located in Newark, New Jersey] and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company and the Holder hereby irrevocably waive any objection to such exclusive jurisdiction or inconvenient forum. Any such process or summons to be served upon the Company and the Holder (at the option of the party bringing such action, proceeding or claim) may be served by transmitting a copy thereof, by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 1(b) hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the party so served in any action, proceeding or claim. 19. Entire Agreement; Modification. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought. 20. Severability. If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement. 21. Captions. The caption headings of the Sections of this Agreement are for convenience of reference only and are not intended, nor should they be construed as, a part of this Agreement and shall be given no substantive effect. 22. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company or the Holder any legal or equitable right, remedy or claim under this Agreement. 23. Counterparts. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. Photocopies or facsimiles of executed copies of this Agreement may be treated as originals. 24. Enforcement. The parties agree that Holder shall be entitled to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which Holder is entitled at law or at equity. [signature page follows] 11 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. BASE TEN SYSTEMS, INC. BY: /s/ Thomas E. Gardner -------------------------------------------- Name: Thomas E. Gardner Title: President and Chief Executive Officer STRATEGIC TECHNOLOGY SYSTEMS, INC. BY: /s/ Edward J. Klinsport -------------------------------------------- Name: Edward J. Klinsport Title: President and Chief Executive Officer 12 EX-10.(SS) 17 TRANSITION AGT. REGISTRANT AND STRATEGIC TECH Exhibit 10(ss) TRANSITION AGREEMENT This TRANSACTION AGREEMENT (this "Agreement") is entered into as of December 31, 1997, by and among Base Ten Systems, Inc., a New Jersey corporation ("Seller") and Strategic Technology Systems, Inc., a Nevada corporation ("Buyer"). RECITALS A. Buyer and Seller entered into an Asset Purchase Agreement, dated of the date hereof (the "Purchase Agreement") pursuant to which Seller agreed to sell to Buyer certain assets of Seller (the "Purchased Assets"). B. In connection with the transfer of the Purchased Assets, Buyer and Seller desire that Buyer and certain employees of Buyer perform certain services for Seller during the term of this Agreement. C. Any capitalized terms used but not defined herein shall have the meaning given to such terms in the Purchase Agreement. NOW, THEREFORE, in consideration of the premises, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Administrative and Other Services. For a period of three months from the Closing Date (the "Transition Period"). Buyer shall provide Seller with the following services (collectively, the "Transition Services"): (a) Accounting; (b) Personnel and other human resource services; (c) Security; (d) Shipping and receivables; and (e) Purchasing. Such services shall be provided by the employees listed on Schedule 1 attached hereto in a substantially similar manner as such services are currently being provided by such employees as of the period preceding the execution of this Agreement. In addition to providing Seller with the Transaction Services, Buyer shall afford Seller with the use of and excess to the items listed on Schedule 2 hereto during the Transition Period. 2. Consideration. As consideration for Buyer providing Seller with the Transition Services and the use of and access to the items listed on Schedule 2, Seller shall pay to Buyer the consideration described on Schedule 3 hereto. 3. 401-K Plan. The 401-K account of all Government Division Employees shall be transferred to a 401-K plan of Buyer as promptly as possible pursuant to applicable law and Seller's 401-K plan. 4. Miscellaneous (a) Assignment. The parties to this Agreement may not assign their rights or obligations under this Agreement without the prior written consent of all other parties to this Agreement. (b) Notices. All notices, requests, demands and other communications which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given: (i) upon receipt if personally delivered; (ii) when transmitted with confirmation of transmission if transmitted by telecopy of facsimile; (iii) the day after it is sent, if sent for next day delivery to a domestic address by recognized overnight courier service; and (iv) upon receipt, if sent by certified or registered mail, return receipt requested. In each case notice shall be sent: If to Buyer to: Strategic Technology Systems, Inc. One Electronics Drive Trenton, NJ 08619-0151 Attn: Chief Executive Officer with a copy to: Louis Taubman 39 Broadway, Ste 2704 New York, New York 1006 If to a Seller, to: Base Ten Systems, Inc. One Electronics Drive Trenton, NJ 08619-0151 Attn: Chief Executive Officer 2 with a copy to: Battle Fowler LLP Park Avenue Tower 75 East 55th Street New York, New York 10022 Facsimile: (212) 856-7822 Attention: David Warburg, Esq. or to such other place and with such other copies as either party may designate as to itself by written notice to the others. (c) Choice of Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey applicable to agreements to be performed therein. (d) Entire Agreement; Amendments and Waivers. This Agreement, together with all exhibits and schedules hereto, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. (e) Multiple Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (f) Invalidity. In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein, shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement or any other such instrument. (g) Titles. The titles, captions or headings of the Sections herein are inserted for convenience of reference only and are not intended to be a part of this Agreement. (h) Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of, the parties hereto and their respective successors and assigns. -3- IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by each of the parties hereto as of the date first above written. BASE TEN SYSTEMS, INC. By: /s/ Thomas E. Gardner --------------------------------------- Name: Thomas E. Gardner Title: President and Chief Executive Officer STRATEGIC TECHNOLOGY SYSTEMS, INC. By: /s/ Edward J. Klinsport --------------------------------------- Name: Edward J. Klinsport Title: President and Chief Executive Officer EX-10.(TT) 18 SUBLEASE BETWEEN REGISTRANT & STRATEGIC TECHNOLOGY EXHIBIT 10(tt) SUBLEASE AGREEMENT SUBLEASE AGREEMENT dated as of December 31, 1997, by and between BASE TEN SYSTEMS, INC., a New Jersey corporation having offices at One Electronics Drive, Trenton, New Jersey (hereinafter referred to as "Sublandlord"), and STRATEGIC TECHNOLOGY SYSTEMS, INC., a Nevada corporation, having offices at 1 Electronic Drive Trenton, New Jersey (hereinafter referred to as "Subtenant"): W I T N E S S E T H: WHEREAS, Sublandlord has net leased the entire building located at 1 Electronic Drive, Hamilton, New Jersey (the "Building"), pursuant to that certain Lease dated October 28, 1994 (the "Prime Lease") between CKR Partners, L.L.C. (the "Prime Landlord") and Sublandlord, as same was modified by that certain Amendment to Lease dated December 23, 1994 (the "First Amendment") between Prime Landlord and Sublandlord, as modified by that certain letter agreement dated May 30, 1995 (the "Second Amendment") between Prime Landlord and Sublandlord, as modified by that certain letter agreement dated August 8, 1995 (the "Third Amendment") between Prime Landlord and Sublandlord, and as further modified by that certain letter amendment dated August 25, 1995 (the "Forth Amendment") between Prime Landlord and Sublandlord (the Lease as amended and modified by the Modification Agreement, Letter Agreement, First Amendment and Second Amendment is hereinafter referred to as the "Prime Lease"); and WHEREAS, Sublandlord desires to sublease to Subtenant and Subtenant desires to sublease from Sublandlord, the portion of the Building, as shown on the floor plan attached hereto as Exhibit A (hereinafter called the "Space") and the Space shall, for the purposes of this Sublease, be deemed to include office and manufacturing space of 30,000 rentable square feet and common area space of 10,000 rentable square feet. NOW, THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows: 1. This Sublease shall be expressly subject and subordinate to all of the terms, covenants and conditions contained in the Prime Lease, as defined above, except such terms, conditions, provisions and agreements as are specifically inconsistent with the provisions hereof or are set forth in paragraph 13 below (the "Excluded Provisions"). Subtenant hereby acknowledges that it has received delivery of a copy of the Prime Lease and has reviewed the terms of thereof. 2. Subject to the consent of the Prime Landlord, Sublandlord hereby sublets the Space to Subtenant and Subtenant hereby hires the same from Sublandlord for the term commencing on the "Commencement Date", as that term is hereinafter defined, and ending on midnight of the last day of the sixtieth (60th) month following the Commencement Date, unless sooner terminated pursuant to the provisions hereof (the "Expiration Date"). The 2 Commencement Date shall be closing date of that certain Purchase Agreement between Sublandlord and Subtenant pursuant to which Sublandlord is to sell its division known as the Government Technologies Division to Subtenant. Sublandlord and Subtenant agree to confirm the actual Commencement Date in writing; however, the failure to so confirm shall have no effect on the Commencement Date. Notwithstanding anything to the contrary contained herein, if for any reason the term of the Prime Lease is terminated prior to the Expiration Date of this Sublease, this Sublease shall thereupon be terminated and Sublandlord shall not be liable to Subtenant by reason thereof unless such termination is due to, or involves, a breach by Sublandlord of its obligations under the Prime Lease or this Sublease and Subtenant shall not be liable for rent relating to the period following the date of such termination, provided, that such termination is not due to or involve a breach by Subtenant of its obligations under the Sublease in which event Sublandlord shall be entitled to all its remedies in law, equity and hereunder . 3. This Sublease and Sublandlord's and Subtenant's rights and obligations hereunder are expressly made subject to and conditioned upon Sublandlord obtaining the consent to this Sublease of Prime Landlord and Princeton Bank and Trust Company. Sublandlord shall notify Subtenant of such consents, promptly upon Sublandlord's receipt of same. 4. (a) The Space will be sublet at an annual base rental rate (the "Base Rent") of Two Hundred Forty Thousand and 00/100 Dollars ($240,000.00) for the period 3 beginning on the Commencement Date and ending on December 31, 2000, payable in equal monthly installments of Twenty-Thousand and 00/100 Dollars ($20,000.00), and Two Hundred Sixty Four Thousand and 00/100 Dollars ($264,000.00) for the period beginning on January 1, 2001 and ending on the Expiration Date, payable in equal monthly installments of Twenty-Two Thousand and 00/100 Dollars ($22,000.00). (b) All Base Rent shall be payable in advance on the first day of each month during the term of this Sublease, except that Subtenant shall pay the first month's rent upon execution hereof. All Base Rent, additional rent (as hereinafter defined) and other sums and charges due to Sublandlord under this Sublease shall be paid by Subtenant at the office of Sublandlord set forth above, or at such other place as Sublandlord may designate, without any notice, setoff or deduction whatsoever. Subtenant's obligation to make such payments shall survive the Expiration Date or sooner termination of this Sublease. (c) All other costs and expenses which Subtenant assumes or agrees to pay pursuant to this Sublease shall be deemed "additional rent" and, in the event of non-payment, Sublandlord shall have all the rights and remedies herein provided for in case of non-payment of Base Rent. (d) If Sublandlord shall be charged with respect to the Space for any other sums or charges pursuant to the provisions of the Prime Lease, then Subtenant shall be liable for all such sums and charges as additional rent under this Sublease and such sums shall be due and payable by Subtenant to Sublandlord on demand. 4 5. ADDITIONAL RENT Additional Rent. Subtenant shall pay to Sublandlord, as additional rent, 43.75% of all amounts payable by Sublandlord pursuant to Article 4.2 of the Prime Lease, including without limitation payment for utilities, real estate taxes, sewer and common area maintenance charges. Payment of amounts due hereunder shall be made in the manner and ten (10) days before each such date as Sublandlord shall be required to pay its corresponding share of such additional rent and the furnishing of statements therefor to Subtenant. 6. Subtenant shall use and occupy the Space for the uses specified in Article 5.1 of the Prime Lease only. Subtenant shall take good care of the Space and the fixtures and appurtenances therein, and shall, at its own cost and expense, make all repairs thereto as and when needed, to preserve the Space in good working order and condition; provided, however, that Subtenant shall not be responsible for repairs occasioned by the acts or omissions of Sublandlord, their respective officers, agents, servants, employees, licensees, invitees or representatives. At the expiration of the term hereof, Subtenant shall surrender the Space to Sublandlord in good order and repair, normal wear and tear and damage by fire or other unavoidable casualty excepted, and subject to the provisions set forth in the preceding sentence. 7. (a) Subtenant shall not (i) assign this Sublease (by operation of law or otherwise), (ii) subsublet all or any part of the Space, (iii) mortgage, pledge, hypothecate or otherwise encumber its interest in this Sublease or the Space or any interest therein, or (iv) grant any concession, license or otherwise permit the Space to be used or occupied by anyone 5 other than Subtenant, except with the prior written consent of the Prime Landlord, as provided in the Prime Lease and of Sublandlord, which consents may be unreasonably withheld or delayed. Any and all out-of-pocket costs, including reasonable attorneys' fees, incurred by Sublandlord in connection with Subtenant's proposed assignment or sublease of this Sublease Agreement, shall be paid by Subtenant. Any attempted assignment or subletting which is contrary to the provisions of this paragraph shall be void. (b) Any merger or consolidation of Subtenant with any other business entity shall be deemed an assignment of this Sublease and any sale, transfer, assignment or hypothecation of (i) a total of fifty (50%) percent or more of the issued and outstanding common stock of Subtenant, if Subtenant is a corporation, or (ii) fifty (50%) percent of the beneficial or equitable interest in the economic benefits of the profits and losses of Subtenant, if Subtenant is a joint venture, partnership or other business entity, however accomplished and whether in a single transaction or in a series of related or unrelated transactions, shall be deemed an assignment of this Sublease. (c) If this Sublease is assigned, or if the Space or any part thereof is subsublet or occupied by one other than Subtenant, Sublandlord may, after default by Subtenant, collect rent and other charges from such assignee, subsubtenant or other occupant, and apply the net amount collected to Base Rent and other charges herein reserved, but no such assignment, subsubletting, occupancy or collection shall be deemed to be a waiver of this Paragraph 6 or an acceptance of the assignee, subsubtenant or other occupant as the Subtenant under this Sublease. No assignment or subsubletting shall, in any way, release, relieve or modify the 6 liability of Subtenant under this Sublease and Subtenant shall be and remain liable under all of the terms, covenants, conditions, provisions and agreements hereof. 8. Subtenant hereby acknowledges that it is currently occupying the Space and agrees to accept the Space in its existing condition and state of repair, "whereas" and "as is". Any alterations or remodeling that Subtenant may desire to effect shall be subject to the prior written consent of Sublandlord, and the Prime Landlord where required pursuant to the Prime Lease and shall be at the sole expense of Subtenant. Subject to the prior consent of the Prime Landlord, Sublandlord agrees not to unreasonably withhold its consent to any alterations or remodeling by Subtenant. 9. All alterations, decorations, installations and improvements made in the Space, including all paneling, partitioning and the like, made by either Sublandlord or Subtenant, shall, at the option of Sublandlord, become the property of Sublandlord and shall remain upon and be surrendered with the Space as part thereof at the end of the term hereof. Subtenant's personal property, trade fixtures, furnishings, decorations, movable partitions and similar items, which do not become permanently affixed to the Space ("Subtenant's Property"), shall remain the property of Subtenant and may be removed by Subtenant upon the expiration of the term of this Sublease. Any repairs that may be necessitated by the removal of Subtenant's Property shall be promptly made by and at the sole expense of Subtenant. 7 10. Sublandlord shall not in any way be liable or responsible to Subtenant for any loss or damage or expense which Subtenant may sustain or incur, if either the quantity or character of electric service is changed or is no longer available or suitable for Subtenant's requirements. . 11. This Sublease is expressly made subject and subordinate to the terms and conditions of the Prime Lease and to any and all mortgages and/or ground leases to which the Prime Lease may be or become subject and subordinate. Subtenant hereby covenants and agrees to observe and perform all obligations of Sublandlord, as tenant under the Prime Lease and to comply with and abide by the terms and conditions thereof, insofar as the same relate to the Space and to Subtenant's use and occupancy thereof, except for any Excluded Provisions, and further covenants not to do or suffer or permit anything to be done which would result in a default under or cause the Prime Lease to be terminated. All of the terms, covenants, conditions, provisions and agreements of the Prime Lease, excepting any Excluded Provisions, are hereby incorporated herein with the same force and effect as if herein set forth in full and wherever the term "Tenant" occurs in the Prime Lease, the same shall be deemed to refer to Subtenant. 12. Sublandlord (i) represents and warrants that it is not, and on the Commencement Date will not be, in default under the Prime Lease, and (ii) agrees that Subtenant, upon observing all of the covenants and conditions hereof on its part to be 8 performed, shall have the right to peaceably and quietly enjoy the Space, subject, nevertheless, to the terms and conditions of the Prime Lease. Subtenant shall be entitled to and shall receive, and Sublandlord shall cooperate with Subtenant at its reasonable request in securing for Subtenant, all of the rights, privileges, elections, benefits and services available to Sublandlord under the Prime Lease, insofar as the same relate to the Space and Subtenant's use and occupancy thereof. However, Sublandlord shall not be liable to Subtenant for any failure of the Prime Landlord in providing such rights, privileges, elections, benefits and services. 13. Sublandlord represents that it has delivered to Subtenant a true and complete copy of the Prime Lease attached hereto as Exhibit "C", together with any and all amendments, modifications or supplements thereto. Anything contained in this paragraph 13 to the contrary notwithstanding, the following provisions of the Lease are deemed Excluded Provisions: Article 2; Article 3; Article 11; Schedule B; and the schedule of Basic Lease Details. 14. Unless caused by the negligent acts of Sublandlord (or its officers, agents, servants, employees, licensees, invitees or representatives), Sublandlord shall not be liable for any damage to persons or property sustained by Subtenant and others by reason of Subtenant's use and occupancy of the Space other than the use set forth herein. Subtenant agrees to indemnify and save Sublandlord harmless from and against any and all claims arising therefrom, and will carry liability insurance for bodily injury, death and property damage having limits in the amount of $3,000,000 combined single limit, naming Sublandlord and 9 Prime Landlord as additional insureds. On or before the Commencement Date, Subtenant will furnish Sublandlord with duplicate written confirmation of such insurance coverage for the benefit of Subtenant, Sublandlord and Prime Landlord, as their respective interests may appear. 15. Subtenant shall indemnify and hold harmless Sublandlord, its agents, contractors, servants, licensees, employees or invites from and against any and all claims, losses, liabilities, damages, costs and expenses (including, without limitation, reasonable attorney's fees and disbursements) arising from (1) the use, conduct or maintenance of the Space or any business therein or any work or thing whatsoever done, or any condition created in or about the Space during the term of this Sublease (or any time prior to the Commencement Date that Subtenant may have been given access to the Space), (2) any negligent or otherwise wrongful act or omission of Subtenant or any of its agents, contractors, servants, licensees, employees or invites, (3) any failure of Subtenant to perform or comply with all of the provisions of this Sublease hereof that are applicable to Subtenant, and (4) any obligation Sublandlord may have to indemnify Prime Landlord under the Prime Lease, to the extent related to the Space. In case any action or proceeding be brought against Sublandlord or any agent, contractor, servant, licensee, employee or invitee of Sublandlord by reason of any of the foregoing, Subtenant, upon notice from Sublandlord, shall defend such action or proceeding by counsel chosen by Subtenant, who shall be reasonably satisfactory to Sublandlord. Subtenant or its counsel shall keep Sublandlord fully appraised at all times of the status of such defense and shall not settle same without the written consent of Sublandlord. 10 16. With respect to the Space, Subtenant shall have the same rights and obligations as Sublandlord under the Prime Lease in the case of damage to or destruction of the Space by fire or other causes or in the case of condemnation. 17. Any violation by Subtenant of any of the terms, provisions, covenants or conditions of the Prime Lease or of any rules or regulations promulgated and enforced by the Prime Landlord of which Subtenant has been given notice or any default of Subtenant with respect to the payment of any indebtedness to Sublandlord irrespective of whether such obligation arises from this Sublease or otherwise, shall constitute a violation of this Sublease. In the event of any such violation of this Sublease, Sublandlord, after giving Subtenant ten (10) days' prior written notice of any such default, shall have and may exercise against Subtenant all the rights and remedies available to the Prime Landlord under the Prime Lease, as though the same were expressly reiterated herein as the rights of Sublandlord, unless within the applicable cure period Subtenant has cured the specified default or violation or if the specified default or violation is of such a nature that it cannot be cured within said period, Subtenant has commenced the curing thereof within said period, and diligently prosecutes such curing to completion. No waiver of any such violation by either Sublandlord or Prime Landlord shall be deemed a waiver of the term, provisions, covenant, condition, rule or regulation in question or any other subsequent violation. 18. All payments and notices made or given hereunder shall be either delivered by hand, or sent by certified or registered mail, or Federal Express or similar 11 overnight delivery service, and shall be deemed served, if delivered by hand, or sent by overnight delivery, on the date of delivery or, if mailed, on the third business day after mailing said notice with the postal authorities to the parties respective addresses first noted above. Either party may designate, by notice to the other as provided herein, a new address to which notices shall thereafter be delivered or mailed. 19. The term "Sublandlord" as used in this Sublease means only the person to whom Subtenant is required by law to attorn, so that, for example, in the event of any assignment by Sublandlord of the Prime Lease, Sublandlord shall be and hereby is freed and relieved of all terms, covenants, conditions, provisions and agreement of the Sublandlord thereafter accruing and it shall be deemed and construed, without further agreement between the parties hereto, or their successors and interests, or between the parties hereto and the assignee, that the assignee has assumed and agreed to carry out any and all covenants and obligations of Sublandlord thereafter accruing hereunder. 20. (a) Subtenant covenants, represents and warrants that Subtenant has had no dealings or negotiations with any broker, agent or consultant in connection with this lease. Subtenant covenants and agrees to pay, hold harmless and indemnify Sublandlord from and against any and all cost, expense (including reasonable attorneys' fees), loss and liability for any compensation, commissions or charges arising from the inaccuracy of the foregoing representation. 12 (b) Sublandlord covenants, represents and warrants that Sublandlord has had no dealings or negotiations with any broker, agent or consultant in connection with this lease. Sublandlord covenants and agrees to pay, hold harmless and indemnify Subtenant from and against any and all cost, expense (including reasonable attorneys' fees), loss and liability for any compensation, commissions or charges arising from the inaccuracy of the foregoing representation. 21. Subject to the terms and conditions of the Prime Lease, this Agreement contains the entire agreement of the parties relating to the subject matter hereof and supersedes all prior negotiations, conversations, correspondence and agreements. There are no representations or warranties not set forth herein. No waiver or modification hereof shall be valid or effective unless in writing signed by the party or parties thereby affected. 22. In the event of any termination of the Prime Lease prior to the expiration or other termination of this Sublease for any reason other than the default by Subtenant hereunder, Prime Landlord, at its option, upon written notice to Subtenant given within fifteen (15) days after the termination of the Prime Lease, without any additional or further agreement of any kind on the part of the Prime Landlord or the Subtenant, may elect to require Subtenant to attorn to Prime Landlord and to continue this Sublease with the same force and effect as if the Prime Landlord, as lessor, and Subtenant, as lessee, had entered into a lease as of such effective date, for a term equal to the then unexpired term of this Sublease, and containing the same provisions as those contained in this Sublease. In the event of such election by the Prime 13 Landlord, (i) Subtenant agrees to attorn to Prime Landlord and Prime Landlord and Subtenant shall have the same rights, obligations, and remedies as were had by Sublandlord and Subtenant, respectively, under this Sublease prior to such effective date, and this Sublease shall be deemed to be a direct lease between Prime Landlord and Subtenant. The foregoing provisions of this paragraph shall apply notwithstanding that, as a matter of law, this Sublease may terminate upon the expiration, termination or surrender of the Prime Lease and shall be-self- operative upon any such election by Prime Landlord to require attornment; provided, however, that Subtenant, upon demand by Prime Landlord agrees to execute and deliver such instrument or instruments in form and substance reasonably satisfactory to Subtenant, as Prime Landlord may reasonably request to evidence and confirm the foregoing provisions of this paragraph. 23. The terms and provisions of this Sublease shall be governed by and construed in accordance with the laws of the State of New Jersey. 24. This Sublease shall bind and inure to the benefit of the parties hereto and their successors and assigns. 14 IN WITNESS WHEREOF, the parties hereto have caused this Sublease to be duly executed as of the day and year first above written. SUBLANDLORD: BASE TEN SYSTEMS, INC. By: /s/ Thomas E. Gardner ------------------------------------ Name: Thomas E. Gardner Title: President and Chief Executive Officer SUBTENANT: STRATEGIC TECHNOLOGY SYSTEMS, INC. By: /s/ Edward J. Klinsport ------------------------------------ Name: Edward J. Klinsport Title: President and Chief Executive Officer 15 EX-10.(UU) 19 FIFTH AMEND. REGISTRANT AND CKR PARTNERS Exhibit 10(uu) FIFTH AMENDMENT TO LEASE THIS FIFTH AMENDMENT TO LEASE is dated as of December 31, 1997 by and between CKR PARTNERS, L.L.C. ("Landlord"), having an office at 173 Rolling Hills Road, Skillman, New Jersey 08558, and BASE TEN SYSTEMS, INC. ("Tenant"), having an office at One Electronics Drive, Hamilton, New Jersey 08619. INTRODUCTORY STATEMENTS: A. By Lease dated October 28,1994 (the "Original Lease"), Landlord leased to Tenant and Tenant hired from Landlord certain lands and premises located in the Township of Hamilton, Mercer County, New Jersey, commonly known as One Electronics Drive. B. By Amendments to Lease dated December 23, 1994, May 30,1995, August 8, 1995 and August 25, 1995 (the "Prior Amendments"), the parties amended the Original Lease in certain respects. The Original Lease, as amended by the Prior Amendments, is hereafter called the "Lease". C. The parties desire to amend certain terms and conditions of the Lease. D. All capitalized terms used in this Second Amendment and not defined herein shall have the meanings given to them in the Lease. NOW, THEREFORE, in consideration of the foregoing, the parties agree that the Lease is hereby amended as follows, effective as of the date hereof: 1. Landlord hereby consents to the subleasing of a portion of the Premises by Tenant to STRATEGIC TECHNOLOGY SYSTEMS, INC. in accordance with a Sublease dated ___________________, 1997 (the "Sublease"), a true copy of which has been delivered to Landlord by Tenant. 2. Article XI is amended by the addition of the following Section 11.2: 11.2 Notwithstanding the foregoing provisions of this Article, unless and until Tenant exercises its purchase option under Section 11.1, Landlord shall have the right to sell the Premises free and clear of Tenant's purchase option under Section 11.1, provided that the following conditions are satisfied: (a) Landlord receives from an independent third party a written offer (the "Offer") to purchase the Premises at a price and on terms which are acceptable to Landlord. (b) Landlord delivers to Tenant a copy of the Offer with a demand that Tenant agree to purchase the Premises within seven (7) days after its receipt of such notice (the "Referral Period") at the price and terms described in the Offer. (c) If Tenant fails, within the Referral Period, to agree to purchase the Premises as provided in the foregoing subsection, Landlord shall have the right to sell the Premises to the third party on the terms contained in the Offer free and clear of Tenant's purchase option under Section 11.1, and said Section 11.1 shall be null and void, providing that the closing of title takes place within two (2) months after the expiration of the Referral Period. If the closing does not take place within such two(2) month period or if the terms of the Offer change, Tenant's rights under this Article shall reinstated and Landlord shall be obligated to re-offer the Premises to Tenant in connection with any third party offer to purchase the Premises. (d) If Tenant elects to purchase the Premises within the Referral Period, the closing of title shall take place as described in Section 11.1, except that (i) the purchase price and terms shall be those contained in the Offer, (ii) Tenant shall be obligated to pay to Landlord, within ten (10) days after its agreement to purchase, a deposit equal to ten percent (10%) of the purchase price, and (iii) the closing of title shall take place within (60) days after Tenant's agreement to purchase the Premises. 3. Except and as amended hereby, the Lease remains in full force and effect. 2 IN WITNESS WHEREOF, the parties have caused this Second Amendment to Lease to be executed by their duly authorized representatives as of the first written herein. CKR PARTNERS, L.L.C. By: /s/ Bruce D. Cowen ------------------------- Bruce Cowen ------------------------- Vincent Rocco /s/ Myles Kranzler ------------------------- Myles Kranzler /s/ Mildred Kranzler ------------------------- Mildred Kranzler BASE TEN SYSTEMS, INC. By: /s/ Edward J. Klinsport ------------------------- 3 IN WITNESS WHEREOF, the parties have caused this Second Amendment to Lease to be executed by their duly authorized representatives as of the date first written herein. CKR PARTNERS, L.L.C. By: ------------------------- Bruce Cowen /s/ Vincent Rocco ------------------------- Vincent Rocco /s/ Myles Kranzler ------------------------- Myles Kranzler ------------------------- Mildred Kranzler BASE TEN SYSTEMS, INC. By: /s/ Edward J. Klinsport ------------------------- 4 EX-10.(VV) 20 CONSULTING AGT. REGISTRANT AND KLINSPORT EXHIBIT 10(vv) Strategic Technology Systems, Inc. One Electronics Drive Trenton, New Jersey 08619 December 30, 1997 Base Ten Systems, Inc. One Electronics Drive Trenton, New Jersey 08619 Re: Consulting Services; Payment Gentlemen: As you aware, pursuant to that certain employment agreement dated March 26, 1992, by and between myself and Base Ten Systems, Inc., I am entitled to compensation by the Company at the time of my resignation. Specifically, paragraph 5(c) of said employment agreement states that my compensation shall be "(x) his salary and benefits as due under this Agreement to the date of termination and (y) a termination payment..." This letter shall confirm our agreement that my total compensation upon termination shall be equal to one year of my base salary, which is $225,000. In addition, I will make myself available as a consultant to Base Ten Systems, Inc. for a period of two years following my resignation, with respect to events and matters which occurred during my tenure as chief financial officer of Base Ten Systems, Inc., provided such consulting services do not interfere with my other employment duties. Please indicate your acceptance of the terms of this Letter Agreement by returning an executed copy to the undersigned. Very truly yours, /s/ Edward J. Klinsport Edward J. Klinsport President, Strategic Technology Systems, Inc. ACCEPTED AND AGREED TO: Base Ten Systems, Inc. By: /s/ M. Kranzler -------------------------- Title: Chairman Date: Dec. 31, 1997 EX-21 21 SUBSIDIARIES OF REGISTRANT BASE TEN SYSTEMS, INC. EXHIBIT 21 SUBSIDIARIES OF REGISTRANT The following are wholly-owned subsidiaries of the Registrant: STATE OR JURISDICTION NAME OR ORGANIZATION - -------------------------------------------------------------------- Base Ten Aerospace and Communications, Inc. New Jersey (a) Base Ten Software, Inc. New Jersey (a) Base Ten Systems, Ltd. United Kingdom (a) Base Ten of Canada, Ltd. Canada (b) Base Ten Investment, Co. Delaware (b) Base Ten International Sales, Ltd. Jamaica (a) Base Ten Software, Ltd. Ireland (a) - -------------------------------------------------------------------- (a) Financial statements included in Consolidated Financial Statements of Registrant (b) Dormant EX-23.1 22 INDEPENDENT AUDITORS CONSENT EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors and Shareholders Base Ten Systems, Inc. Trenton, New Jersey 08619 We consent to the incorporation by reference in the Registration Statements No. 33-89712, No. 33-60454, No. 33-55752, No. 333.721; No. 33-21925 and Amendment No. 1 to Registration Statement No. 2-84451 of Base Ten Systems, Inc. and Subsidiaries on Form S-8 and the Registration Statement No. 33-89710, No. 333-719, No. 333-34159, and No. 333-31335 of Base Ten Systems, Inc. and Subsidiaries on Form S-3 of our report dated February 6, 1998, appearing in this annual report on Form 10-K of Base Ten Systems, Inc. and Subsidiaries for the year ended October 31, 1997. DELOITTE & TOUCHE LLP Parsippany, New Jersey February 9, 1998 EX-24.1 23 POWER OF ATTORNEY EXHIBIT 24.1 POWER OF ATTORNEY KNOWN ALL MEN BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Thomas E. Gardner and William F. Hackett, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead in any and all capacities, to sign the Annual Report on Form 10-K of Base Ten Systems, Inc. for the fiscal year ended October 31, 1997 and any amendments thereto, and to file same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done to comply with the provisions of the Securities Act of 1934, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue thereof. ----------------------------------------- Thomas E. Gardner ----------------------------------------- William F. Hackett /s/ Alexander M. Adelson ----------------------------------------- Alexander M. Adelson /s/ Alan S. Poole ----------------------------------------- Alan S. Poole /s/ David C. Batten ----------------------------------------- David C. Batten /s/ William Sword ----------------------------------------- William Sword EX-27 24 FDS
5 0000010242 BASE TEN SYSTEMS, INC. 1,000,000 YEAR OCT-31-1997 NOV-01-1997 OCT-31-1997 1,502,000 0 1,808,000 0 478,000 9,692,000 4,305,000 0 21,217,000 7,021,000 0 0 0 8,214,000 (13,196,000) 21,217,000 2,512,000 2,660,000 3,436,000 18,640,000 0 0 1,627,000 (15,980,000) 0 (15,980,000) (6,027,000) 0 0 (22,007,000) 0 (2.79)
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